Annual Report (Form 10-K), fiscal year 1994

Item 1. Business.
Maytag Corporation (the "Company") was organized as a Delaware corporation in 1925. The Company is engaged in two industry segments: home appliances and vending equipment. Financial and other information relating to industry segment and geographic data is included in Part II, Item 7, Pages 10-12; and Item 8, Pages 31 and 32.
HOME APPLIANCES
The home appliances segment comprises approximately 94 percent of 1994 consolidated net sales.
The Company, through its various business units, manufactures and distributes a broad line of home appliances including laundry equipment, gas and electric ranges, refrigerators, freezers, dishwashers, vacuum cleaners and carpet extractors. Maytag Customer Service provides product service and parts distribution in the United States and Canada for all of the Company's appliance brands, except Hoover. Maytag International Inc., the Company's international marketing subsidiary, handles the sales of appliances and licensing of certain home appliance brands in markets outside the United States and Canada. In 1992, the Company sold its microwave oven and dehumidifier manufacturing operations. However, the Company continues to distribute microwave ovens and dehumidifiers, as well as compactors. In the fourth quarter of 1994, the Company sold its laundry, refrigeration and floorcare manufacturing and distribution operations in Australia and New Zealand. Additional information regarding the divestiture is included in Part II, Item 7, Page 11; and Item 8, Page 21. Until December 31, 1994, Maytag Financial Services Corporation provided financing programs primarily to certain customers of the Company in North America. The operations of Maytag Financial Services will cease in 1995; however, certain financing programs will continue through the Company's other business units and subsidiaries.
The Company markets its home appliances to all major United States and many major international markets, including the replacement market, the commercial laundry market, the new home and apartment builder market, the manufactured housing (mobile home) market, the recreational vehicle market, the private label market and the household/commercial floor care market. Products are primarily sold directly to dealers but are also sold through independent distributors, mass merchandisers and large national department stores. Sales of appliances to manufacturers of mobile homes and recreational vehicles are made directly by specialized marketing personnel. Most home appliance sales are made within North America.
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. Geographic information is included in Part II, Item 8, Page 32.
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 meets its future requirements.
The Company holds a number of patents which are important in the manufacture of its products. The licenses it holds on other patents are not considered to be critical to its business. The Company holds a number of trademark registrations of which the most important are ADMIRAL, HOOVER, JENN-AIR, MAGIC CHEF, MAYTAG, NORGE and the associated corporate symbols.
The Company's home appliance business is not seasonal.
The Company is not dependent upon a single home appliance customer or a few customers. Therefore, the loss of any one customer would not have a material adverse effect on its business.
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 appliance market is highly competitive with the principal competitors being larger than the Company. Competitive pressures make price increases difficult to implement. There were no significant increases in the costs of the Company's raw materials or components in 1994. Information regarding the Company's improvement in gross margin over 1993 is included in Part II, Item 7, Page 10. The Company uses product quality, customer service, advertising and sales promotion, warranty and pricing 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 33.
Although the Company has many 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 material effect on capital expenditures, earnings or the Company's competitive position. The government mandated phase-out of chlorofluorocarbon ("CFC") production, an aerosol propellant and refrigerant, by December 31, 1995 affects the entire refrigeration industry. The Company continues to review various alternatives to the use of CFC's. In addition, alternative washing machine designs to meet anticipated government regulations dealing with energy usage are being evaluated by the Company and the industry. Because compliance with these current and anticipated laws and regulations is essentially prospective, it has not had a significant impact on current operations. Although it is anticipated that the industry and the Company will meet all final standards, capital spending is expected to significantly increase over the next several years for these reasons. Additional information regarding future capital spending for compliance with environmental laws and regulations is included in Part I, Item 7, page 13.
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 does not presently anticipate any material adverse effect upon the
Company's earnings or financial condition arising from resolution of these matters.
The number of employees of the Company within the home appliances segment as of December 31, 1994 was 18,343.
VENDING EQUIPMENT
The vending equipment segment comprises approximately 6 percent of 1994 consolidated net sales.
The Company manufactures, through its Dixie-Narco subsidiary, a variety of soft drink vending machines, glass front merchandisers and money changers. The products are sold primarily to companies bottling soft drinks such as Coca-Cola, Dr. Pepper, Pepsi Cola, Royal Crown Cola and Seven-Up. Products are also sold to vending equipment distributors and manufacturers.
A new beverage vending machine (Flex-Pak)designed to increase flexibility and capacity of vending machines and to enhance customer's data collection capabilities is planned for full production in the third quarter of 1995.
The Company uses steel as a basic raw material in its manufacturing processes in addition to purchased motors, compressors and other components made of copper, aluminum, rubber, glass and plastic. 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 holds a DIXIE-NARCO trademark registration and its associated corporate symbol.
Vending equipment sales, though stronger in the first six months of the year, are considered by the Company to be essentially nonseasonal.
The Company's vending equipment segment is dependent upon a few major soft drink suppliers. Therefore, the loss of one or more of these customers could have a material adverse effect on this segment. The Company manufactures and sells its vending machines and glass front merchandisers in competition with a small number of other manufacturers and is the major manufacturer of such equipment. The principal methods of competition utilized by the vending equipment segment are product quality, customer service, delivery, warranty and price. Positive factors pertaining to the Company's competitive position include product design, manufacturing efficiency and superior service, while new product innovations by competitors and severe price competition negatively impact its position.
The dollar amount of backlog orders of the Company is not considered significant for vending equipment 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.
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 material effect on capital expenditures, earnings or the Company's competitive position. The government mandated phase-out of chlorofluorocarbon ("CFC") production, an aerosol propellant and refrigerant, by December 31, 1995 will also affect the production technology in the vending equipment industry. This
has not had a significant impact on current operations, and it is anticipated that the industry and the Company will meet all final standards.
The number of employees of the Company within the vending equipment segment as of December 31, 1994 was 1,261.
Item 2.



Item 2. Properties.
The Company's corporate headquarters is located in Newton, Iowa. Major offices and manufacturing facilities in the United States related to the home appliances segment are located at: Galesburg, Illinois; Jackson, Tennessee; Indianapolis, Indiana; Cleveland, Tennessee; Herrin, Illinois; Newton, Iowa; North Canton, Ohio; and El Paso, Texas. Maytag Customer Service, which is located in Cleveland, Tennessee, operates an automated national parts distribution center in Milan, Tennessee which services all of the Company's appliance brands, except Hoover. In addition to manufacturing facilities in the United States, the Company has three other North American manufacturing facilities located in Canada and Mexico. The Company also has two manufacturing facilities in the United Kingdom and one in Portugal. Two manufacturing facilities in Australia were sold at the end of 1994. Major facilities related to the vending equipment segment are: Dixie-Narco, Inc., with offices and manufacturing facilities located in Williston, South Carolina and Eastlake, Ohio.
The manufacturing facilities are well maintained, suitably equipped and in good operating condition. A dishwasher manufacturing facility in Jackson, Tennessee did not have sufficient capacity to meet sales demand in 1994; however, the situation is expected to improve with a capacity expansion project expected to be completed early in 1996. The other facilities used in the production of home appliances and vending equipment had sufficient capacity to meet production needs in 1994, and the Company expects that such capacity will be adequate for planned production in 1995. The Company's 1994 capital expenditures and the planned 1995 capital expenditures include an ongoing program of product improvements and enhanced manufacturing efficiencies.
The Company also owns or leases sales offices in many large metropolitan areas throughout the United States, Canada, the United Kingdom and Western Europe. Lease commitments are included in Part II, Item 8, Page 29.
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 material adverse effect on its consolidated financial position.
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 1994 through a solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth the names of all executive officers of the Company, the offices held by them, the year they first became an officer of the Company and their ages:
First Became Name Office Held an Officer Age
Leonard A. Hadley Chairman and Chief Executive Officer 1979 60
John P. Cunningham, Jr. Executive Vice President and Chief Financial Officer 1994 57
Joseph F. Fogliano Executive Vice President and President North American Appliance Group 1993 55
Jon O. Nicholas Senior Vice President, Human Resources 1993 55
Carleton F. Zacheis Senior Vice President, Planning and Business 1988 61 Development
Mark A. Garth Vice President - Controller and Chief Accounting Officer 1994 35
Edward H. Graham Vice President, General Counsel and Assistant Secretary 1990 59
David D. Urbani Vice President and Treasurer 1994 50
The executive officers were elected to serve in the indicated office until the organizational meeting of the Board of Directors following the annual meeting of shareholders on April 25, 1995 or until their successors are elected.
Each of the executive officers has served the Company or an acquired company in various executive or administrative positions for at least five years except for:
Name Company/Position Period
John P. Cunningham, Jr. IBM Corporation - Vice President and Assistant General Manager, Main Frame Division 1992-1993 - Vice President, Member Europe Executive Committee, Paris, France 1990-1992 - Vice President, Corporate Controller 1988-1990
Joseph F. Fogliano Thomson Consumer Electronics, Inc. - President and CEO 1988-1993
David D. Urbani Air Products and Chemicals, Inc. - Assistant Treasurer 1984-1994
Part II
Item 5.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
MARKET AND DIVIDEND INFORMATION Dividends Sales Price of Common Shares Per Share 1994 1993 1994 1993 Quarter High Low High Low First $20 $16 $15 7/8 $13 3/8 $.125 $.125 Second 19 3/4 16 1/2 15 7/8 13 .125 .125 Third 20 1/8 14 7/8 17 3/4 14 7/8 .125 .125 Fourth 16 5/8 14 18 5/8 14 7/8 .125 .125
The principal U.S. market in which the Company's common stock is traded is the New York Stock Exchange. As of February 1, 1995, the Company had 32,463 shareowners of record.
Item 6.

Item 6. Selected Financial Data.
SELECTED FINANCIAL DATA Dollars in thousands except per share data
(1) (2) (3) 1994 1993 1992 1991 1990 Net sales $3,372,515 $2,987,054 $3,041,223 $2,970,626 $3,056,833 Cost of sales 2,496,065 2,262,942 2,339,406 2,254,221 2,309,138 Income taxes 90,200 38,600 15,900 44,400 60,500 Income (loss) from continuing operations 151,137 51,270 (8,354) 79,017 98,905 Percent of income (loss)from continuing operations to net sales 4.5% 1.7% (.3)% 2.7% 3.2% Income (loss) from continuing operations per share $ 1.42 $ .48 $ (.08) $ .75 $ .94 Dividends paid per share .50 .50 .50 .50 .95 Average shares outstanding 106,795 106,252 106,077 105,761 105,617 Working capital $ 595,703 $ 406,181 $ 452,626 $ 509,025 $ 612,802 Depreciation of property, plant and equipment 110,044 102,459 94,032 83,352 76,836 Additions to property, plant and equipment 84,136 99,300 129,891 143,372 141,410 Total assets 2,504,327 2,469,498 2,501,490 2,535,068 2,586,541 Long-term debt 663,205 724,695 789,232 809,480 857,836 Total debt to capitalization 50.7% 60.6% 58.7% 45.9% 47.7% Shareowners' equity per share of Common stock $ 6.82 $ 5.50 $ 5.62 $ 9.50 $ 9.60
(1) Includes a $20 million one-time tax benefit associated with the funding of reorganization costs in Europe over the past several years and a $16.4 million after-tax loss from the sale of the Company's home appliance operations in Australia. Excludes the cumulative effect of an accounting change.
Prior to the quarter ended December 31, 1994, the Company's European subsidiaries were consolidated as of a date one month earlier than subsidiaries in the United States. In the fourth quarter of 1994, this one month reporting lag was eliminated and European results for the quarter ended December 31, 1994 include activity for four months. The effect of this change increased net sales by $25.2 million in the fourth quarter and the impact on income from continuing operations was not significant.
(2) Includes $60.4 million in pretax charges ($50 million in a special charge and $10.4 million in selling, general and administrative expenses) for additional costs associated with two Hoover Europe "free flights" promotion programs.
(3) Includes a $95 million pretax charge relating to the reorganization of the North American and European business units. Excludes the cumulative effect of accounting changes.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. - -------------------------------------------------------------------------------- Comparison of 1994 with 1993
The Company operates in two business segments, home appliances and vending equipment. The operations of the home appliance segment represented 94.3 and 94.8 percent of net sales in 1994 and 1993.
NET SALES
The Company's consolidated net sales increased 12.9 percent in 1994 compared to 1993. Sales in the North American Appliance Group increased 14.2 percent from 1993 due to strong industry growth and market share gains in virtually all product categories. These market share gains were achieved through new product introductions and promotion of the premium Maytag and Jenn-Air brands. United States industry growth in the Company's major product categories is expected to continue in 1995, but at a lower rate than in 1994. Consolidated results for 1994 include thirteen months of operations for certain subsidiaries in Europe as a one-month reporting lag was eliminated. Including this additional month in the fourth quarter of 1994, European sales for the year increased 2.1 percent from 1993. On a comparable basis, European sales decreased 4.3 percent from 1993 resulting from industry declines and market share losses. The loss of market share in Europe is partially due to a strategic reduction in certain unprofitable product lines and sales channels. Vending equipment sales increased 22.4 percent in 1994 resulting from increased demand for the Company's core soft drink vending machines from new and existing domestic customers and sales of a new glass front merchandiser.
GROSS PROFIT
Gross profit as a percent of sales increased 1.8 points resulting from improvements in both industry segments. Margins in the North American Appliance Group increased due to the favorable mix of the premium priced brands, higher margins of new products, coordinated materials purchasing efforts and volume related factory efficiencies. The improvement in European margins resulted from the elimination of excess production capacity, reduction of headcount levels and favorable product mix. Vending equipment margins declined primarily due to unfavorable mix of electronic venders. The decline in vending equipment margins was greater in the fourth quarter than in previous quarters of 1994 due to unfavorable mix of glass front merchandisers sold outside the United States. The Company is experiencing cost increases in many commodities, particularly steel, plastics and corrugated materials. A portion of these increases is expected to be offset with internal cost reduction initiatives, many of which are currently in progress. Through these initiatives, the overall commodity cost escalation in 1995 is expected to be contained to the low single-digit percent range. This will cause pressure on operating margins in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (S,G&A) expenses decreased to 16.4 percent of sales in 1994 from 17.2 percent in 1993. The decrease resulted from higher sales volumes and cost control in both the appliances and vending equipment segments. Staffing reductions in Europe also contributed to the improvement from 1993. A reversal of excess reserves relating to the 1992 reorganization of the North American Appliance Group decreased S,G&A by $5 million in the fourth quarter of 1994. Results for Europe in the fourth quarter of 1994 include $4.7 million of restructuring costs, the majority of which is
included in S,G&A. The special charge in 1993 consisted of a $50 million pretax charge to cover additional costs associated with two "free flights" promotional programs in Europe. See further discussion under "Comparison of 1993 with 1992."
OPERATING INCOME
Operating income for 1994 totaled $322.8 million or 9.6 percent of sales compared to $158.9 million or 5.3 percent of sales in 1993. Before the special charge, operating income in 1993 was $208.9 million or 7.0 percent of sales.
OTHER INCOME AND EXPENSE
In the fourth quarter of 1994, the Company sold its home appliance operations in Australia and New Zealand ("Australia") for $82.1 million in cash. The net pretax loss from the sale was $13.1 million and resulted in an after-tax loss of $16.4 million. The pretax loss resulted primarily from recognition of the foreign currency translation loss that the Company had accumulated in Shareowners' Equity since the operations were acquired in 1989. The higher loss after tax resulted from a lower tax basis in the operations, as compared to the book investment, in computing the tax liability. The absence of the Australia business will not have a significant impact on the Company's operating results in the future.
INCOME TAXES
The decrease in the effective tax rate from 1993 was primarily due to a $20 million tax benefit recorded in the third quarter of 1994 associated with the funding of operating losses and reorganization costs in Europe over the past several years. This benefit was partially offset by the tax expense arising from the divestiture of Australia. The notes to the consolidated financial statements include a reconciliation between the statutory tax and the actual tax provided.
ACCOUNTING CHANGE
In the first quarter of 1994, the Company adopted Financial Accounting Standards Board Statement No. 112 (FAS 112), "Employers' Accounting for Postemployment Benefits." The new rules required recognition of a liability for certain disability and severance benefits to former or inactive employees. The cumulative effect of this accounting change in 1994 was $3.2 million or $.03 per share. The ongoing expenses associated with adoption of the new statement are not significant.
NET INCOME
Excluding the $16.4 million after-tax loss on sale of Australia in 1994, the $3.2 million cumulative effect of accounting change in 1994, the $20 million special tax benefit in 1994 and the $30 million after-tax special "free flights" promotion charge in 1993, net income would have been $147.5 million or $1.38 per share in 1994 compared to $81.3 million or $.76 per share in 1993.
- -------------------------------------------------------------------------------- Comparison of 1993 with 1992
The Company operates in two business segments, home appliances and vending equipment. The operations of the home appliance segment represented 94.8 and 94.6 percent of net sales in 1993 and 1992.
NET SALES
Consolidated net sales decreased 1.8 percent in 1993 compared to 1992. Although sales volumes in the United States increased due to improved consumer confidence, the overall decline in sales resulted from a decrease in European sales, less favorable currency conversions of sales outside the United States, and the absence of sales from the microwave oven operation that was sold in June 1992. North American home appliance sales increased 3.1 percent in spite of the absence of sales from the microwave oven operation. European sales decreased 22.1 percent from 1992 due to less favorable currency conversions and lower sales volumes due to some market share declines. Sales in the Company's vending equipment segment declined 5.3 percent from 1992 due to slow economic activity in Europe, cutbacks by domestic bottlers and increased competition.
GROSS PROFIT
Gross profit as a percent of sales increased to 24.2 percent from 23.1 percent in 1992. The increase in margins resulted principally from improvements in the North American Appliance Group. The improvement in the North American Appliance Group was primarily due to production efficiencies, reductions of certain employee related costs and some selective price increases. In addition, 1992 results for the North American Appliance Group included plant start-up costs. Gross margins in Hoover Europe declined primarily due to operating inefficiencies associated with previously announced plans to close a factory in Dijon, France and higher pension costs. Vending equipment margins improved in 1993 due to reductions in material, distribution and warranty costs from 1992.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (S,G&A) expenses decreased to 17.2 percent in 1993 from 17.4 percent in 1992. The decline was principally due to cost efficiencies resulting from the reorganization of the North American Appliance Group. Special charges consisted of a $50 million pretax charge in the first quarter of 1993 to cover additional costs associated with two "free flights" promotional programs in Europe and a $95 million pretax charge in the third quarter of 1992 for a reorganization of U.S. and European operations. Total pretax charges relating to the "free flights" promotion programs in 1993 were $60.4 million ($50 million in a special charge and $10.4 million in S,G&A) and in 1992 were $12.2 million. Offsetting a portion of the 1993 European "free flights" expenses in S,G&A was a $5 million reversal of excess reorganization reserves in Europe.
OPERATING INCOME
Operating income for 1993 totaled $158.9 million compared to $78.6 million in 1992. Before special charges, operating income would have been $208.9 million or 7.0 percent of sales in 1993 compared to $173.6 million or 5.7 percent of sales in 1992.
INCOME TAXES
The decrease in the effective tax rate for 1993 was primarily due to the 1992 tax rate reflecting the impact of non-recoverable losses outside the United States. The notes to the consolidated financial statements include a reconciliation between the statutory tax and the actual tax provided.
NET INCOME
Excluding special charges in 1993 and 1992 and the cumulative effect of accounting changes in 1992, net income would have been $81.3 million or $.76 per share in 1993 compared to net income of $65.4 million or $.62 per share in 1992.
- -------------------------------------------------------------------------------- Liquidity and Capital Resources
During the year, the Company's primary sources of liquidity were cash provided by operating activities, proceeds from a divestiture and external debt. Detailed information on the Company's cash flows is presented in the Statements of Consolidated Cash Flows.
CASH FLOW FROM OPERATING ACTIVITIES
Cash flow generated from operating activities consists of net income adjusted for certain non-cash income and expenses and changes in working capital. Non- cash income and expenses include items such as depreciation, amortization and deferred income taxes. Working capital consists primarily of accounts receivable, inventory and other current liabilities. Cash flow from operating activities in 1994 improved significantly over 1993. This was driven primarily by higher earnings, which included more non-cash expenses, offset by a decrease in the selected working capital items mentioned above. Although cash flow in 1993 benefited from a withdrawal from an overfunded pension plan in Europe, cash outflows related to the 1992 reorganization of the European operations and the 1993 European "free flights" promotional programs were lower in 1994 than in 1993. The funding of these events was substantially completed in 1994.
CASH FLOW FROM INVESTING ACTIVITIES
The company continually invests in its businesses to improve product design and manufacturing processes and to increase capacity when needed. Capital spending in 1994 was lower than 1993 resulting from more projects being in a developmental stage in 1994 compared to projects in an implementation stage in 1993. In 1994 the Company announced several new capital projects that will increase capital spending over the next several years. This includes $50 million for a new high efficiency clothes washer, $160 million for a complete redesign of the Company's refrigerator product and manufacturing processes and $14 million for a dishwasher plant capacity expansion. The new clothes washer will be designed to comply with anticipated government regulations dealing with energy usage and will use water more efficiently. The refrigeration project will incorporate changes expected to be required by 1998 Department of Energy refrigeration standards and the upcoming ban on chlorofluorocarbons ("CFCs"). Planned capital expenditures for 1995 approximate $175 million and relate to these new projects as well as other ongoing production improvements and product enhancements. Proceeds from the sale of the Company's investment in its home appliance operations in Australia provided cash of $82.1 million in 1994.
CASH FLOW FROM FINANCING ACTIVITIES
Dividend payments in both 1994 and 1993 amounted to $53.6 million or $.50 per share. The Company used cash flow generated from operations in 1994 to reduce commercial paper borrowings and long term debt by $154.1 million. The Company's ratio of debt to total capitalization decreased from 60.6 percent at December
31, 1993 to 50.7 percent at December 31, 1994. In February 1995, a portion of the proceeds from the sale of the Australia operations were used to purchase $46 million of the Company's outstanding 8.875 percent notes due in 1997, included in long-term debt at December 31, 1994. The cost of early extinguishment of the notes was not significant. Any funding requirements for future capital expenditures and other cash requirements in excess of cash generated from operations will be supplemented by the issuance of commercial paper, debt securities and bank borrowings. The Company's commercial paper program is supported by a credit agreement with a consortium of banks which provides revolving credit facilities totaling $300 million. This agreement expires July 13, 1998 and includes covenants for interest coverage and leverage. Additional funds available at December 31, 1994 under all credit agreements, applying the terms of the most restrictive covenant, totaled $313 million.
Item 8.


Item 8. Financial Statements and Supplementary Data. Page
Report of Independent Auditors . . . . . . . . . . . . . . . 15
Statements of Consolidated Income--Years Ended December 31, 1994, 1993, and 1992 . . . . . . . . . . . . . 16
Statements of Consolidated Financial Condition-- December 31, 1994 and 1993 . . . . . . . . . . . . . . . . 17
Statements of Consolidated Shareowners' Equity--Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . 19
Statements of Consolidated Cash Flows--Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . 20
Notes to Consolidated Financial Statements . . . . . . . . . 21
Quarterly Results of Operations--Years 1994 and 1993 . . . . 33
Report of Independent Auditors
Shareowners and Board of Directors Maytag Corporation
We have audited the accompanying statements of consolidated financial condition of Maytag Corporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, shareowners' equity and cash flows for each of three years in the period ended December 31, 1994. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and related schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and related schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Maytag Corporation and subsidiaries at December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statement taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in notes to consolidated financial statements, in 1992 the Company changed its method of accounting for postretirement benefits other than pensions and income taxes.
Ernst & Young LLP
Chicago, Illinois January 31, 1995
Statements of Consolidated Income (Loss) In thousands except per share data
Year ended December 31
1994 1993 1992 Net sales $3,372,515 $2,987,054 $3,041,223
Cost of Sales 2,496,065 2,262,942 2,339,406 Gross profit 876,450 724,112 701,817
Selling, general and administrative expenses 553,682 515,234 528,250 Special charges 50,000 95,000
Operating income 322,768 158,878 78,567 Interest expense (74,077) (75,364) (75,004)
Loss on business disposition (13,088) Other--net 5,734 6,356 3,983
Income before income taxes and cumulative effect of accounting changes 241,337 89,870 7,546 Income taxes 90,200 38,600 15,900
Income (loss) before cumulative effect of accounting changes 151,137 51,270 (8,354) Cumulative effect of accounting changes (3,190) (307,000)
Net income (loss) $ 147,947 $ 51,270 $ (315,354)
Income (loss) per average share of Common stock:
Income (loss) before cumulative effect of accounting changes $ 1.42 $ .48 $ (.08)
Cumulative effect of accounting changes $ (.03) $ (2.89)
Net income (loss) per Common share $ 1.39 $ .48 $ (2.97)
See notes to consolidated financial statements.
Statements of Consolidated Financial Condition In thousands except share data
December 31
Assets 1994 1993 Current assets
Cash and cash equivalents $ 110,403 $ 31,730 Accounts receivable, less allowance-- (1994--$20,037; 1993--$15,629) 567,531 532,353 Inventories 387,269 429,154 Deferred income taxes 45,589 46,695 Other current assets 19,345 16,919 Total current assets 1,130,137 1,056,851
Noncurrent assets
Deferred income taxes 72,394 68,559 Pension investments 112,522 163,175 Intangible pension asset 84,653 4,928 Other intangibles, less allowance for amortization-- (1994--$56,250; 1993--$46,936) 310,343 319,657 Other noncurrent assets 44,979 35,266 Total noncurrent assets 624,891 591,585
Property, plant and equipment
Land 32,600 46,149 Buildings and improvements 284,439 288,590 Machinery and equipment 1,109,411 1,068,199 Construction in progress 30,305 44,753 1,456,755 1,447,691 Less allowance for depreciation 707,456 626,629 Total property, plant and equipment 749,299 821,062
Total assets $2,504,327 $2,469,498
December 31
Liabilities and Shareowners' Equity 1994 1993 Current liabilities
Notes payable $ 45,148 $ 157,571 Accounts payable 212,441 195,981 Compensation to employees 61,311 84,405 Accrued liabilities 146,086 178,015 Income taxes payable 26,037 16,193 Current maturities of long-term debt 43,411 18,505
Total current liabilities 534,434 650,670
Noncurrent liabilities
Deferred income taxes 38,375 44,882 Long-term debt 663,205 724,695 Postretirement benefits other than pensions 412,832 391,635 Pension liability 59,363 17,383 Other noncurrent liabilities 64,406 53,452
Total noncurrent liabilities 1,238,181 1,232,047
Shareowners' equity
Common stock: Authorized--200,000,000 shares (par value $1.25) Issued--117,150,593 shares, including shares in treasury 146,438 146,438 Additional paid-in capital 477,153 480,067 Retained earnings 420,174 325,823 Cost of Common stock in treasury (1994--9,813,893 shares; 1993--10,430,833 shares) (218,745) (232,510) Employee stock plans (60,816) (62,342) Foreign currency translation (32,492) (70,695)
Total shareowners' equity 731,712 586,781
Total liabilities and shareowners' equity $2,504,327 $2,469,498
See notes to consolidated financial statements.
Statements of Consolidated Cash Flows In thousands Year ended December 31 1994 1993 1992
Operating activities Net income (loss) $ 147,947 $ 51,270 $(315,354) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Loss on business disposition 13,088 Cumulative effect of accounting changes 3,190 307,000 Depreciation and amortization 119,358 111,781 103,351 Deferred income taxes (10,058) (35,833) (30,210) Reorganization expenses (5,000) (5,000) 95,000 "Free flights" promotion expenses 700 60,379 12,235 Changes in selected working capital items, exclusive of business disposed in 1994: Inventories 24,503 (29,323) 80,731 Receivables (53,074) (59,745) (33,816) Other current assets (2,537) 11,136 27,765 Other current liabilities 43,387 (17,383) (70,422) Reorganization reserve (26,686) (39,671) (15,530) "Free flights" promotion reserve (26,709) (42,981) (1,604) Net change in pension assets and liabilities 14,089 43,513 (12,149) Postretirement benefits 21,197 11,259 21,254 Other--net 5,967 11,913 14,814 Net cash provided by operations 269,362 71,315 183,065
Investing activities Capital expenditures--net (79,024) (95,990) (120,364) Proceeds from business disposition (net of cash in business sold of $2,650) 79,428 Total investing activities 404 (95,990) (120,364)
Financing activities Proceeds from credit agreements and long-term borrowings 5,500 73,712 (Decrease) increase in notes payable (118,134) 138,951 (2,378) Reduction in long-term debt (36,001) (94,449) (70,158) Stock options exercised and other Common stock transactions 12,377 5,903 5,558 Dividends (53,596) (53,569) (53,269) Total financing activities (195,354) 2,336 (46,535)
Effect of exchange rates on cash 4,261 (2,963) (7,886) Increase (decrease) in cash and cash equivalents 78,673 (25,302) 8,280
Cash and cash equivalents at beginning of year 31,730 57,032 48,752 Cash and cash equivalents at end of year $ 110,403 $ 31,730 $ 57,032 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 subsidiaries. Intercompany accounts and transactions are eliminated in consolidation. Prior to the quarter ended December 31, 1994, the Company's European subsidiaries were consolidated as of a date one month earlier than subsidiaries in the United States. In the fourth quarter of 1994, this one month reporting lag was eliminated and European results for the quarter ended December 31, 1994 included activity for four months. The effect of this change increased net sales by $25.2 million in the fourth quarter of 1994, and the impact on net income was not significant. Exchange rate fluctuations from translating the financial statements of subsidiaries located outside the United States into U.S. dollars and exchange gains and losses from designated intercompany foreign currency transactions are recorded in a separate component of shareowners' equity. All other foreign exchange gains and losses are included in income. Certain reclassifications have been made to prior years' financial statements to conform with the 1994 presentation. CASH EQUIVALENTS: Highly liquid investments with a maturity of 90 days or less when purchased are considered by the Company to be cash equivalents. INVENTORIES: Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for approximately 80 percent and 79 percent of the Company's inventories at December 31, 1994 and 1993. The remaining inventories, which are primarily outside the United States, are stated using the first-in, first-out (FIFO) method. INTANGIBLES: Intangibles principally represent goodwill, which is the cost of business acquisitions in excess of the fair value of identifiable net tangible assets of businesses acquired. Goodwill is amortized over 40 years on the straight-line basis and the carrying value is reviewed annually. If this review indicates that goodwill will not be recoverable as determined based on the undiscounted cash flows of the entity acquired over the remaining amortization period, the Company's carrying value of the goodwill will be reduced by the estimated shortfall of cash flows. INCOME TAXES: Certain expenses (principally related to accelerated tax depreciation, employee benefits and various other accruals) are recognized in different periods for financial reporting and income tax purposes. 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 useful lives. SHORT AND LONG-TERM DEBT: The carrying amounts of the Company's borrowings under its short-term revolving credit agreements approximate their fair value. The fair values of the Company's long-term debt are estimated based on quoted market prices of comparable instruments. FORWARD FOREIGN EXCHANGE CONTRACTS: The Company enters into forward foreign exchange contracts to hedge exposures related to foreign currency transactions. Gains and losses are recognized in the same period in which the underlying transaction is recorded.
- -------------------------------------------------------------------------------- Business Disposition In December 1994, the Company sold the stock of its home appliance operations in Australia and New Zealand for $82.1 million in cash. The sale resulted in a pretax loss of $13.1 million and an after-tax loss of $16.4 million. Sales and related operating income(loss) for this business totaled $142 million and $12.6
million in 1994, $127.9 million and $3.4 million in 1993 and $131.8 million and $(.1) million in 1992.
- -------------------------------------------------------------------------------- Inventories December 31 In thousands 1994 1993
Finished products $254,345 $282,841 Work in process, raw materials and supplies 132,924 146,313 $387,269 $429,154
If the FIFO method of inventory accounting, which approximates current cost, had been used for all inventories, they would have been $77.1 million and $76.3 million higher than reported at December 31, 1994 and 1993.
- ------------------------------------------------------------------------------ Pension Benefits The Company and its subsidiaries have noncontributory defined benefit pension plans covering 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 is to contribute amounts to the plans sufficient to meet minimum funding requirements.
A summary of the components of net periodic pension expense (income) for the defined benefit plans is as follows: Year ended December 31
In thousands 1994 1993 1992 Service cost--benefits earned during the period $ 28,550 $ 24,067 $ 21,469 Interest cost on projected benefit obligation 94,148 90,322 87,654
Return on plan assets: Actual return 559 (167,540) (87,263) Expected return higher (lower) than actual (117,553) 54,399 (32,089) Expected return on plan assets (116,994) (113,141) (119,352)
Other net amortization and deferral 9,474 4,917 6,850 Net pension expense (income) $ 15,178 $ 6,165 $ (3,379)
Assumptions used in determining net periodic pension expense (income) for the defined benefit plans in the United States were: 1994 1993 1992
Discount rates 7.5% 8.5% 9.0% Rates of compensation increase 5.0 6.0 6.0 Expected long-term rates of return on assets 9.5 9.5 9.5
For the valuation of pension obligations at the end of 1994 and for determining pension expense in 1995, the discount rate and rate of compensation increase have been increased to 8.5 percent and 6.0 percent respectively. Assumptions for defined benefit plans outside the United States are comparable to the above in all periods.
As of December 31, 1994, approximately 89 percent of the plan assets are invested in listed stocks and bonds. The balance is invested in real estate and short term investments. Certain pension plans in the United States provide that in the event of a change of Company control and plan termination, any excess funding may be used only to provide pension benefits or to fund retirees' health care benefits. The use of all pension assets for anything other than providing employee benefits is either limited by legal restrictions or subject to severe taxation. The following table sets forth the funded status and amounts recognized in the statements of consolidated financial condition for the Company's defined benefit pension plans:
Pension investments above of approximately $112 million and $104 million at December 31, 1994 and 1993, and pension income of $1.6 million, $5.5 million and $10.9 million in 1994, 1993 and 1992 relate to pension plans covering employees in Europe. In 1994 and 1993, the Company recorded $84.7 million and $4.9 million, respectively, to recognize the minimum pension liability required by the provisions of Financial Accounting Standards Board Statement No. 87 (FAS 87), "Employers' Accounting for Pensions." The transaction, which had no effect on income, was offset by recording an intangible asset of an equivalent amount. The intangible asset represents a future economic benefit arising from the granting of retroactive pension benefits over many years and will be amortized to expense over the remaining average working lifetime of the affected employees. The intangible asset is required to be recognized in 1994 in accordance with FAS 87 due to a decline in the market value of the pension assets.
- ------------------------------------------------------------------------------- Postretirement Benefits Other Than Pensions In addition to providing pension benefits, the Company provides postretirement health care and life insurance benefits for its employees 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. In 1992, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires employers to accrue the cost of such retirement benefits during the employee's service with the Company. The transition obligation of $355 million as of January 1, 1992 was recorded as a one-time charge in the first quarter of 1992 and reduced net income by $222 million or $2.09 per share.
A summary of the components of net periodic postretirement benefit cost is as follows: Year ended December 31 In thousands 1994 1993 1992
Service cost $15,440 $10,225 $ 8,258 Interest cost 29,448 26,939 30,421 Net amortization and deferral (5,957) (8,228) 2,106 Net periodic postretirement benefit cost $38,931 $28,936 $40,785
Assumptions used in determining net periodic postretirement benefit cost were:
1994 1993 1992 Health care cost trend rates (1): Current year 13.0% 14.0% 15.0% Decreasing gradually to 6.0% 6.0% 6.0% Until the year 2001 2009 2009 Each year thereafter 6.0% 6.0% 6.0% Discount rates 7.5% 8.5% 9.0%
(1)Weighted-average annual assumed rate of increase in the per capita cost of covered benefits.
For the valuation of the accumulated benefit obligation at December 31, 1994 and for determining postretirement benefit costs in 1995, the health care cost trend rates were decreased. This results in a health care cost trend rate of 9 percent in 1995, decreasing gradually to 6 percent until 2001 and remaining at that level thereafter. In addition, the discount rate was increased to 8.5 percent. The health care cost trend rate assumption has a significant impact on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1994 by $40.2 million and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1994 by $6.2 million. The following table presents the status of the plans reconciled with amounts recognized in the statements of consolidated financial condition for the Company's postretirement benefits.
December 31 1994 1993
In thousands Accumulated postretirement benefit obligation: Retirees $239,593 $284,524 Fully eligible active plan participants 37,569 58,709 Other active plan participants 79,524 56,465 356,686 399,698 Unamortized plan amendment 45,598 54,248 Unrecognized net gain(loss) 10,548 (62,311) Postretirement benefit liability recognized in the statements of consolidated financial condition $412,832 $391,635
- -------------------------------------------------------------------------------- Employee Stock Ownership Plan and Other Employee Benefits The Company has established a trust to administer a leveraged employee stock ownership plan (ESOP) within an existing employee savings plan. The Company has guaranteed the debt of the trust and will service the repayment of the debt, including interest, through the Company's employee savings plan contribution and from the quarterly dividends paid on stock held by the ESOP. Dividends paid by the Company on stock held by the ESOP totaled $1.4 million in 1994, 1993 and 1992. The ESOP notes are collateralized by the Common stock owned by the ESOP trust. The Company makes annual contributions to the ESOP to the extent the dividends earned on the shares held are less than the debt service requirements. The Company made contributions to the plan of $5.9 million, $5.5 million and $5.2 million for loan payments in 1994, 1993 and 1992. As the debt is repaid, shares are released from collateral and allocated to active employees based on the proportion of debt service paid in the year. Accordingly, the loan outstanding is recorded as debt and the cost of shares pledged as collateral are reported as a reduction of Shareowners' Equity (employee stock plans). As the shares are released from collateral, the Company reports compensation expense based on the historical cost of the shares. The Company also expenses any additional contributions required if the shares released from collateral are less than the shares earned by the employees. All shares held by the ESOP are considered outstanding for earnings per share computations and dividends earnedon the shares are recorded as a reduction of retained earnings. Expenses of the ESOP, the majority of which represents interest on the ESOP debt, totaled $7.4 million, $7.5 million and $7.2 million in 1994, 1993 and 1992. The ESOP shares as of December 31 were as follows: 1994 1993 Released and allocated shares 884,373 723,396 Unreleased shares 1,972,770 2,133,747 2,857,143 2,857,143
In the first quarter of 1994, the Company adopted Financial Accounting Standards Board Statement No. 112 (FAS 112), "Employers' Accounting for Postemployment Benefits." The new rules require recognition of a liability for certain disability and severance benefits to former or inactive employees. The cumulative effect of the accounting change was $3.2 million or $.03 per share. The ongoing expenses associated with the adoption of this standard are not significant.
- -------------------------------------------------------------------------------- Accrued Liabilities December 31 In thousands 1994 1993
Warranties $ 42,977 $ 46,281 Advertising/sales promotion 27,315 51,946 Other 75,794 79,788 $146,086 $178,015
- -------------------------------------------------------------------------------- Income Taxes Effective January 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The cumulative effect of adopting Statement 109 was to decrease net income by $85 million or $.80 per share as of January 1, 1992. Deferred income taxes reflect the net tax effects of temporary differences between the amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
December 31 In thousands 1994 1993 Deferred tax assets (liabilities): Tax over book depreciation $(107,662) $(118,973) Postretirement benefit obligation 160,291 151,424 Product warranty accruals 18,887 20,021 Pensions and other employee benefits (37,284) (44,159) Net operating loss carryforwards 67,562 48,817 Reorganization accrual 816 8,856 Foreign tax credit carryforward 6,277 13,300 Other (7,480) 7,043 101,407 86,329 Less valuation allowance for deferred tax assets (21,799) (15,957) Net deferred tax assets $ 79,608 $ 70,372
Recognized in statements of consolidated financial condition: Deferred tax assets--current $ 45,589 $ 46,695 Deferred tax assets--noncurrent 72,394 68,559 Deferred tax liabilities (38,375) (44,882) Net deferred tax assets $ 79,608 $ 70,372
At December 31, 1994, the Company has available for tax purposes approximately $236 million of net operating loss carryforwards outside the United States, of which $59 million expire in various years through 2004 and $177 million is available indefinitely. Of this amount, $32 million relates to pre-acquisition net operating losses which will be used to reduce intangibles when utilized.
Income (loss) before income taxes and cumulative effect of accounting changes consists of the following:
Year ended December 31
In thousands 1994 1993 1992
United States $230,320 $162,554 $ 80,013 Non-United States 11,017 (72,684) (72,467) $241,337 $ 89,870 $ 7,546
Significant components of the provision for income taxes are as follows:
Year ended December 31
In thousands 1994 1993 1992 Current provision: Federal $ 78,200 $ 51,700 $ 37,000 State 16,400 9,100 7,100 Non-United States 12,900 20,000 2,000 107,500 80,800 46,100 Deferred provision: Federal (9,400) 400 (13,800) State (2,500) 700 (3,100) Non-United States (5,400) (43,300) (13,300) (17,300) (42,200) (30,200)
Provision for income taxes $ 90,200 $ 38,600 $ 15,900
Significant items impacting the effective income tax rate follow: Year ended December 31 In thousands 1994 1993 1992
Income before cumulative effect of accounting changes computed at the statutory United States income tax rate $84,500 $31,500 $ 2,600 Increase (reduction) resulting from: Tax benefit associated with European operating losses and reorganization costs (20,000) Non-United States losses with no tax benefit 5,800 10,700 Goodwill amortization 3,200 3,200 3,100 Effect of business disposition 7,800 The effect of statutory rate differences outside the United States 100 2,500 2,600 State income taxes, net of federal tax benefit 9,000 6,400 2,700 Tax credits arising outside the United States (600) (800) (5,400) Effect of tax rate changes on deferred taxes (2,500) Other-net 400 (1,700) (400)
Provision for income taxes $90,200 $38,600 $15,900
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 $23 million at December 31, 1994), taxes which would result from distribution have not been provided on such earnings. If such earnings were distributed, additional taxes payable would be significantly reduced by available tax credits arising from taxes paid outside the United States. Income taxes paid, net of refunds received, during 1994, 1993 and 1992 were $103 million, $68.3 million, and $28.5 million, respectively.
- -------------------------------------------------------------------------------- Notes Payable Notes payable consisted of notes payable to banks, in addition to $16 and $112 million in commercial paper borrowings at December 31, 1994 and 1993. The Company's commercial paper program is supported by a credit agreement totaling $300 million, which became effective on July 14, 1994 and expires on July 13, 1998. Subject to certain exceptions, the credit agreement requires the Company to maintain certain quarterly levels of maximum leverage and minimum interest coverage. At December 31, 1994, the Company was in compliance with all covenants. Additional funds available at December 31, 1994 under all credit agreements, applying the terms of the most restrictive covenant, totaled $313 million. The weighted average interest rate on all notes payable and commercial paper borrowings was 6.5 percent and 4.0 percent at December 31, 1994 and 1993. - -------------------------------------------------------------------------------- Long-Term Debt Long-term debt consisted of the following:
December 31 In thousands 1994 1993 Long-term notes with interest payable semiannually: Due May 15, 2002 at 9.75% $200,000 $200,000 Due July 15, 1999 at 8.875% 175,000 175,000 Due July 1, 1997 at 8.875% 100,000 100,000 Medium-term notes, maturing from 1995 to 2010, from 7.69% to 9.03% with interest payable semiannually 162,750 177,750 Employee stock ownership plan notes payable semiannually through July 2, 2004 at 9.35% 57,504 59,129 Other 11,362 31,321 706,616 743,200 Less current maturities of long-term debt 43,411 18,505
Long-term debt $663,205 $724,695
The 9.75 percent notes, the 8.875 percent notes due in 1999 and the medium-term notes grant the holders the right to require the Company to repurchase all or any portion of their notes at 100 percent of the principal amount thereof, together with accrued interest, following the occurrence of both a change in Company control and a credit rating decline. The fair value of the Company's long-term debt, based on public quotes if available, exceeded the amount recorded in the statements of consolidated financial condition at December 31, 1994 and 1993 by $17.3 million and $83.7 million, respectively. Interest paid during 1994, 1993 and 1992 was $75.2 million, $76.2 million, and $77.4 million. The aggregate maturities of long-term debt in each of the next five years is as follows (in thousands): 1995-$43,411; 1996-$3,495; 1997- $104,018; 1998-$4,733; 1999-$180,503.
- -------------------------------------------------------------------------------- Forward Foreign Exchange Contracts The Company enters into forward foreign exchange contracts to hedge the actual and anticipated exposures that are created by the export and import of products and supplies along with foreign currency intercompany loans. The purpose of the Company's foreign currency hedging activities is to protect the Company from the risk that the eventual cash flows resulting from these transactions could be adversely affected by changes in exchange rates. At December 31, 1994 the Company had forward foreign exchange contracts, all having maturities of less than twelve months, of $24.0 million. The majority of the contracts are between currencies not involving the exchange of U.S. dollars. The table below summarizes by currency, the U.S. dollar equivalent of the contractual amounts of the Company's forward foreign exchange contracts at December 31, 1994.
In thousands Currency: Italian Lira $11,054 British Pound 8,747 Other 4,167 $23,968
The gross unrecognized gains and losses from the contracts at December 31, 1994 and 1993 were not significant.
- -------------------------------------------------------------------------------- Leases The Company leases buildings, machinery, equipment and automobiles under operating leases. Rental expense for operating leases amounted to $24.4 million, $22.8 million, and $26.7 million for 1994, 1993 and 1992. Minimum lease payments under leases expiring subsequent to December 31, 1994 are:
In thousands Year Ended 1995 $15,988 1996 12,277 1997 6,671 1998 4,599 1999 3,765 Thereafter 7,580 Total minimum lease payments $50,880
- -------------------------------------------------------------------------------- Stock Options In 1992, the shareowners approved the 1992 stock option plan for executives and key employees. The plan provides that options could be granted to key employees for not more than 3.6 million shares of the Common stock of the Company. The option price under the plan is the fair market value at the date of the grant. Options may not be exercised until one year after the date granted. Under the Company's 1986 plan which expired in 1991, options to purchase 1.6 million shares of Common stock were granted at the market value at the date of grant. Some options were also granted under this plan 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 option price and the market value of the shares
being surrendered. Under a plan which expired in 1986, options to purchase 800,000 shares of Common stock were granted at the market value at date of grant. Option shares outstanding under all of the plans described above total 2.7 million at December 31, 1994. In April 1990, the Company's shareowners approved the Maytag Corporation 1989 Stock Option Plan for Non-Employee Directors which authorizes the issuance of up to 250,000 shares of Common stock to the Company's non-employee directors. Options under this plan are immediately exercisable upon grant.
The following is a summary of certain information relating to these plans:
Average Option Price Shares SAR Outstanding December 31, 1991 $14.76 1,826,795 692,383 Granted 14.54 411,910 Exercised 9.86 (179,736) (11,192) Exchanged for SAR 11.16 (11,192) Canceled or expired 12.63 (34,640) (93,242) Outstanding December 31, 1992 15.09 2,013,137 587,949 Granted 15.92 599,060 Exercised 12.89 (101,156) (5,360) Exchanged for SAR 12.53 (5,360) Canceled or expired 16.26 (147,080) (85,728) Outstanding December 31, 1993 15.33 2,358,601 496,861 Granted 15.78 650,216 Exercised 13.66 (211,689) (6,610) Exchanged for SAR 12.40 (6,610) Canceled or expired 15.40 (78,765) (77,828) Outstanding December 31, 1994 15.53 2,711,753 412,423
Options for 2,082,747 shares, 1,777,361 shares and 1,623,227 shares were exercisable at December 31, 1994, 1993 and 1992. There were 2,136,214 shares available for future grants at December 31, 1994. In the event of a change in Company control, all stock options granted become immediately exercisable.
- -------------------------------------------------------------------------------- Stock Awards In 1991, the shareowners approved the 1991 Stock Incentive Award Plan For Key Executives. This plan authorizes the issuance of up to 2.5 million shares of Common stock to certain key employees of the Company, of which 1,803,631 shares are available for future grants as of December 31, 1994. Under the terms of the plan, the granted stock vests three years after the award date and is contingent upon pre-established performance objectives. In the event of a change in Company control, all incentive stock awards become fully vested. No incentive stock awards may be granted under this plan on or after May 1, 1996.
Incentive stock awards outstanding at December 31, 1994 and amounts charged to expense for the anticipated payout are:
In thousands except share data Grant Shares Charged to Expense Year of Grant Outstanding 1994 1993 1994 203,658 $2,005 1993 433,006 4,122 $3,651 636,664 $6,127 $3,651
- -------------------------------------------------------------------------------- Shareowners' Equity The Company has 24 million authorized shares of Preferred stock, par value $1 per share, none of which is issued. Pursuant to a Shareholder Rights Plan approved by the Company in 1988, each share of Common stock carries with it one Right. Until exercisable, the Rights will not be transferable apart from the Company's Common stock. When exercisable, each Right will entitle its holder to purchase one one-hundredth of a share of Preferred stock of the Company at a price of $75. The Rights will only become exercisable if a person or group acquires 20 percent or more of the Company's Common stock which may be reduced to not less than 10 percent at the discretion of the Board of Directors. 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, 1998.
- -------------------------------------------------------------------------------- Industry Segment and Geographic Information Principal financial data by industry segment is as follows:
In thousands 1994 1993 1992 Net sales Home appliances $3,180,766 $2,830,457 $2,875,902 Vending equipment 191,749 156,597 165,321 Total $3,372,515 $2,987,054 $3,041,223 Income (loss) before income taxes and cumulative effect of accounting changes Home appliances $ 334,027 $ 163,177 $ 78,448 Vending equipment 21,866 17,944 17,242 Corporate (including interest expense) (114,556) (91,251) (88,144) Total $ 241,337 $ 89,870 $ 7,546 Capital expenditures-net Home appliances $ 74,747 $ 92,194 $ 115,676 Vending equipment 1,902 1,028 771 Corporate 2,105 2,768 3,917 Total $ 78,754 $ 95,990 $ 120,364 Depreciation and amortization Home appliances $ 113,160 $ 105,916 $ 98,116 Vending equipment 4,434 4,377 4,236 Corporate 1,764 1,488 999 Total $ 119,358 $ 111,781 $ 103,351 Identifiable assets Home appliances $2,053,175 $2,147,174 $2,135,961 Vending equipment 98,109 103,765 104,119 Corporate 353,043 218,559 261,410 Total $2,504,327 $2,469,498 $2,501,490
Information about the Company's operations in different geographic locations is as follows:
In thousands 1994 1993 1992 Net sales North America $2,831,583 $2,468,374 $2,407,591 Europe 398,966 390,761 501,857 Other 141,966 127,919 131,775 Total $3,372,515 $2,987,054 $3,041,223 Income (loss) before income taxes and cumulative effect of accounting changes North America $ 342,887 $ 251,328 $ 159,184 Europe 420 (73,581) (63,443) Other 12,586 3,374 (51) Corporate (including interest expense) (114,556) (91,251) (88,144) Total $ 241,337 $ 89,870 $ 7,546 Identifiable assets North America $1,768,629 $1,794,271 $1,677,131 Europe 382,655 359,323 452,995 Other 97,345 109,954 Corporate 353,043 218,559 261,410 Total $2,504,327 $2,469,498 $2,501,490
Sales between affiliates of different geographic regions are not significant. The amount of exchange gain or loss included in operations in any of the years presented was not significant. During 1994, the Company changed the manner in which it allocates certain items of income and expense to its industry segments and in compiling its geographic information. This resulted in the allocation to its business units of certain income and expenses that were previously allocated to "Corporate." Certain industry segment and geographic information referred to above has been restated to reflect this change. The Corporate category in 1994 includes a $13.1 million pretax loss and identifiable assets of $82.1 million in cash from the sale of the Company's home appliance operations in Australia. Prior to the quarter ended December 31, 1994, the Company's European subsidiaries were consolidated as of a date one month earlier than subsidiaries in the United States. In the fourth quarter of 1994, this one month reporting lag was eliminated and European results for the quarter ended December 31, 1994 include activity for four months. The effect of this change increased net sales by $25.2 million in the fourth quarter and the impact on income before income taxes and cumulative effect of accounting changes was not significant. In 1993 the Company incurred $60.4 million in pretax charges for two "free flights" promotion programs in Europe ($50 million in a special charge and $10.4 million in selling, general and administrative expenses). In 1992 the Company incurred $95 million of reorganization expenses for marketing and distribution changes in North America and plant closings and other organizational changes in Europe. Of the $95 million allocated to Home Appliances, $40 million was allocated to North America and $55 million to Europe.
- ------------------------------------------------------------------------------- Supplementary Expense Information Year ended December 31 In thousands 1994 1993 1992
Advertising costs $153,233 $136,452 $119,391 Research and development expenses 45,926 42,717 44,012
- ------------------------------------------------------------------------------- Contingent Liabilities At December 31, 1994, the Company is contingently liable for guarantees of indebtedness owed by a third party ("the borrower") of $24 million relating to the sale of one of its manufacturing facilities in 1992. The borrower is performing under the payment terms of the loan agreement; however, it was out of compliance with certain financial covenants at December 31, 1994 for which it has requested a waiver from the lender involved. The indebtedness is collateralized by the assets of the borrower. Other contingent liabilities arising in the normal course of business, including guarantees, repurchase agreements, pending litigation, environmental issues, taxes and other claims are not considered to be significant in relation to the Company's consolidated financial position.
Quarterly Results of Operations (Unaudited) - -------------------------------------------------------------------------- The following is a summary of unaudited quarterly results of operations for the years ended December 31, 1994 and 1993.
The quarter ended September 30, 1994 includes a $20 million one-time tax benefit associated with the funding of reorganization costs in Europe over the past several years. The quarter ended December 31, 1994 includes a $16.4 million after-tax loss from the sale of the Company's home appliance operations in Australia. Prior to the quarter ended December 31, 1994, the Company's European subsidiaries were consolidated as of a date one month earlier than subsidiaries in the United States. In the fourth quarter of 1994, this one month reporting lag was eliminated and European results for the quarter ended December 31, 1994 include activity for four months. The effect of this change increased net sales by $25.2 million in the fourth quarter and the impact on gross profit and
net income was not significant. The quarter ended March 31, 1993 includes $60.4 million in pretax charges ($50 million in a special charge and $10.4 million in selling, general and administrative expenses) for additional costs associated with two Hoover Europe "free flights" promotion programs.
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 6 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 7 through 14 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 pages 15 and 16 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 4 through 6 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 37.
(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 38 through 41.
(b) A report on Form 8-K was filed during the fourth quarter of 1994 disclosing the Company's plans to spend $160 million over the next several years to upgrade processes in the Company's refrigeration plant in Galesburg, Illinois.
(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 38 through 41.
(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 37.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MAYTAG CORPORATION (Registrant)
Leonard A. Hadley Leonard A. Hadley Chairman and Chief Executive Officer Director
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
John P. Cunningham, Jr. Edward C. Cazier, Jr. John P. Cunningham, Jr. Edward C. Cazier, Jr. Executive Vice President and Director Chief Financial Officer
Mark A. Garth Howard L. Clark, Jr. Mark A. Garth Howard L. Clark, Jr. Vice President-Controller and Director Chief Accounting Officer
Fred G. Steingraber John A. Sivright Fred G. Steingraber John A. Sivright Director Director
Neele E. Stearns, Jr. Wayland R. Hicks Neele E. Stearns, Jr. Wayland R. Hicks Director Director
Date: March 1, 1995
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, 1994
MAYTAG CORPORATION NEWTON, IOWA
FORM 10-K--ITEM 14(a)(1) AND ITEM 14(d)
MAYTAG CORPORATION
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements and supplementary data of Maytag Corporation and subsidiaries are included in Part II, Item 8:
Page
Statements of Consolidated Income--Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . 16
Statements of Consolidated Financial Condition-- December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . 17
Statements of Consolidated Shareowners' Equity--Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . 19
Statements of Consolidated Cash Flows--Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . 20
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 21
Quarterly Results of Operations--Years 1994 and 1993 . . . . . . . . 33
The following consolidated financial statement schedule of Maytag Corporation and subsidiaries is included in Item 14(d):
Schedule II Valuation and Qualifying Accounts . . . . . . . . . . . 43
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.
Incorporated Filed with Exhibit Herein by Electronic Number Description of Document Reference to Submission
3(a) Restated Certificate of Incorporation of 1993 Annual Registrant. Report on Form 10-K
3(b) Certificate of Designations of Series A 1988 Annual Junior Participating Preferred Stock of Report on Registrant. Form 10-K.
3(c) Certificate of Increase of Authorized Number 1988 Annual of Shares of Series A Junior Participating Report on Preferred Stock of Registrant. Form 10-K.
3(d) By-Laws of Registrant, as amended through 1993 Annual February 7, 1991. Report on Form 10-K
4(a) Rights Agreement dated as of May 2, 1988 Current between Registrant and The First National Report on Bank of Boston. Form 8-K dated May 5, 1988, Exhibit 1.
4(b) Amendment, dated as of September 24, 1990 Current to the Rights Agreement, dated as of May 2, Report on 1988 between the Registrant and The First Form 8-K National Bank of Boston. dated October 3, 1990, Exhibit 1.
4(c) Indenture dated as of June 15, 1987 between Quarterly Registrant and The First National Bank of Report on Chicago. Form 10-Q for the quarter ended June 30, 1987.
Incorporated Filed with Exhibit Herein by Electronic Number Description of Document Reference to Submission
4(d) First Supplemental Indenture dated as of Current September 1, 1989 between Registrant and The Report on First National Bank of Chicago. Form 8-K dated September 28, 1989, Exhibit 4.3.
4(e) Second Supplemental Indenture dated as of Current November 15, 1990 between Registrant and Report on The First National Bank of Chicago. Form 8-K dated November 29, 1990.
4(f) U.S. $100,000,000 Credit Agreement Dated as 1993 Annual of June 25, 1993 Among Registrant, the Banks Report on Party Hereto and Bank of Montreal, Chicago Form 10-K Branch as Agent and Royal Bank of Canada. (Superseded by $300,000,000 Agreement of July 14, 1994.)
4(g) U.S. $200,000,000 Credit Agreement Dated as 1993 Annual of June 25, 1993 Among Registrant, the Banks Report on Party Hereto and Bank of Montreal, Chicago Form 10-K Branch as Agent and Royal Bank of Canada. (Superseded by $300,000,000 Agreement of July 14, 1994.)
4(h) First Amendment, Dated as of March 4, 1994 1993 Annual to the U.S. $100,000,000 Credit Agreement, Report on Dated as of June 25, 1993 among Registrant, Form 10-K the Banks party Hereto and Bank of Montreal, Chicago Branch as Agent and Royal Bank of Canada as Co-Agent. (Superseded by $300,000,000 Agreement of July 14, 1994.)
4(i) First Amendment, Dated as of March 4, 1994 1993 Annual to the U.S. $200,000,000 Credit Agreement, Report on dated as of June 25, 1993 among Registrant, Form 10-K the banks Party Hereto and Bank of Montreal, Chicago Branch as Agent and Royal Bank of Canada as Co-Agent. (Superseded by $300,000,000 Agreement of July 14, 1994.)
4(j) U.S. $300,000,000 Credit Agreement Dated as X of July 14, 1994 among Registrant, the banks Party Hereto and Bank of Montreal, Chicago Branch as Agent and Royal Bank of Canada as Co-Agent.
Incorporated Filed with Exhibit Herein by Electronic Number Description of Document Reference to Submission
4(k) Copies of instruments defining the rights of holders of long-term debt not required to be filed herewith or incorporated herein by reference will be furnished to the Commission upon request.
10(a) Annual Management Incentive Plan, as amended 1990 Annual through December 21, 1990 (1). Report on Form 10-K
10(b) Executive Severance Agreements (1). X
10(c) Corporate Severance Agreements (1). 1989 Annual Report on Form 10-K.
10(d) Severance Agreement with Jerry Schiller, 1993 Annual former Chief Financial Officer of Maytag Report on Corporation (1). Form 10-K
10(e) 1989 Non-Employee Directors Stock Option Exhibit A to Plan (1). Registrant's Proxy Statement dated March 18, 1990.
10(f) 1981 Stock Option Plan for Executives and 1992 Annual Key Employees (1). Report on Form 10-K.
10(g) 1986 Stock Option Plan for Executives and Exhibit A to Key Employees (1). Registrant's Proxy Statement dated March 14, 1986.
10(h) 1992 Stock Option Plan for Executives and Exhibit A to Key Employees (1). Registrant's Proxy Statement dated March 16, 1992.
10(i) 1991 Stock Incentive Award Plan for Key Exhibit A to Executives (1). Registrant's Proxy Statement dated March 15, 1991.
Incorporated Filed with Exhibit Herein by Electronic Number Description of Document Reference to Submission
10(j) Directors Deferred Compensation Plan (1). Amendment No. 1 on Form 8 dated April 5, 1990 to 1989 Annual Report on Form 10-K.
10(k) 1988 Capital Accumulation Plan for Key Amendment No. Employees (1). 1 on Form 8 dated April 5, 1990 to 1989 Annual Report on Form 10-K.
10(l) Directors Retirement Plan (1). Amendment No. 1 on Form 8 dated April 5, 1990 to 1989 Annual Report on Form 10-K.
11 Computation of Per Share Earnings. X
12 Ratio of Earnings to Fixed Charges. X
21 List of Subsidiaries of the Registrant. X
23 Consent of Ernst & Young LLP. X
27 Financial Data Schedule X