惠而浦 (WHR) 2002 Q1 法說會逐字稿

Please stand by, we're about to begin.

Good day everyone and welcome to the Whirlpool Corporation first quarter earnings release conference call. Today's call is being recorded.

For opening remarks and introductions, I would like to turn the conference over to the Director of Investor Relations, Mr. Tom Filstrup. Please go ahead sir.

Good morning. I'd like to welcome all of you to our first quarter conference call.

Our opening remarks are going to refer to a slide presentation, which is available on our investor Web site. This call and the slide presentation will also be archived on our Web page for your convenience.

During this call we will be making forward-looking statements to assist in your understanding of our company's future expectations. Our actual results could differ materially from these expectations and statements, due to many factors, which can be found in our latest 10-K.

Now I'd like to turn the call over to our Chairman and Chief Executive Officer, David Whitwam for some opening remarks. David?

Good morning and thank you all of you for joining us today.

With me this morning is Jeff Fettig, our President and Chief Operating Officer, and Mark Brown, our Chief Financial Officer, both who will be making comments shortly.

If you go to slide one in the Internet presentation, I'll begin. As you note in our first quarter earnings report release this morning, our consolidated performance was very solid, with core earnings per share up 20 percent over last year to $1.32 a share.

Reported revenues grew by over two percent and absent currency translations were up nearly five percent.

As we have done in the past, we have included a table in our earnings release this morning, which provides the investor with a simple and transparent reconciliation from core earnings of four one-time charges to GAAP earnings. As indicated in that, this report this morning, net GAAP earnings nearly doubled to a $1.21 per share.

Now if you could go to the second slide on the Internet presentation.

Jeff Fettig will shortly provide you with the details for each of our regional businesses, but as you have seen these strong first quarter earnings were lead by a continued outstanding performance from our North American business, which delivered a 12 percent increase in revenues compared to an industry unit increase of about six percent, a 20 percent improvement in operating profit, and revenue growth for major appliances, which exceeded our own unit growth. Clearly the distribution decisions we've made, combined with the positive effects we are realizing with significant product innovation introductions in the market are working.

In addition, the North American industry is off to a very strong start and accordingly, we are significantly raising our full-year industry forecast for North America, and Jeff will discuss this in some detail in a few moments.

As we look at the rest of our regional businesses, I believe that each turned in a solid performance in continued challenging economic and industry environments.

Without question, our continued focus on productivity, working capital management, cost reductions and restructuring activities are positively impacting each of our businesses today and are positioning us well for the future.

Jeff and Mark will provide more details on these in their own comments.

We're proceeding according to our plan with the acquisition of all the outstanding equity of Vitromatic, our Mexican joint venture, and with Polar, our Central European Appliance manufacturer and expect to close both during the second quarter. On an annual basis, these will add over half-a-billion dollars in revenues and will be accretive to our earnings.

As importantly, they will significantly strengthen our positions in these two high-growth markets.

Previously, we've indicated to the investment community that we expect the full-year core earnings to be up five to 10 percent in 2002 to record levels.

Based upon our recent momentum and performance and the strengthening that we see in the North American market, our present outlook is for our full-year performance to approximate the high-end of that range or up 10 percent over the last year.

As we look at the second quarter, we're comfortable with current Wall Street consensus, core earnings estimates and the $1.44 a share, or up about 10 percent from last year levels.

Let me turn this now over to Jeff Fettig.

Good morning.

Turning to our regional business performances, I'll start with slide four and begin with North America, where we delivered a record performance in both unit and revenue growth, as well as delivering strong operating margin improvements.

Revenues for the quarter grew by almost 12 percent in an industry where the

products grew by 5.8 percent, and

products grew by 9.3 percent.

We not only, outpaced industry, but demand, but we continue to grow our average prices and margins by selling more, higher-value innovative products. Revenue growth was two percent higher than unit growth in our major appliance business during the quarter.

This strong top-line performance, along with the benefits of our operating excellence productivity programs and restructuring actions enabled us to improve our operating profit by 20 percent and to expand margins to 11.9 percent, up .8 of a point versus last year.

This performance was strong across all of our brands and all channels of distribution.

During the quarter, we also continue to introduce many more innovative new products to the marketplace.

Turning to slide five, you can see an example of our new, unique KitchenAid in-sink dishwasher named Briva.

Briva cleans three times faster than standard-sized dishwashers and meet the space constraints of smaller kitchens. Briva also, we're finding with consumers, will serve as a cleaning companion to full-size dishwashers for consumers who enjoy cooking and entertaining in the home.

This new product will be available beginning in the second quarter.

On slide six, is a picture of our new Polara Refrigerated range, sold under the Whirlpool brand.

By combining refrigeration, cooking and control technologies in the standard range, Polara provides a breakthrough in convenience to consumers with busy schedules. For example, you can prepare tonight's dinner, put it in a Polara before going to bed, and the food will be ready for you when you arrive home from work tomorrow.

This product will be available early in the third quarter.

Finally, on slide seven, is our new KitchenAid brand architect series of stainless steel appliances for outdoor cooking and entertaining.

These professional quality products, which include free-standing and built-in gas grills, bars, a refrigerator and an ice-maker create a stylish outdoor environment for serious cooks who value the performance and distinctive styling of our KitchenAid brand. This outdoor cooking, these outdoor cooking products will be available by the end of this year.

We do believe that this continuous flow of innovative new products, strong consumer desired brands and our focus on added value distribution will continue to drive our business growth in North America throughout the year.

As Dave mentioned, we've revised our forecast for industry demand and we now expect this to grow by five percent for the full year.

Turning to slide eight, I'll now speak about Europe where we posted operating margin improvements in what is proving to be a very challenging market environment. In the quarter, revenues were down 7.6 percent, roughly five percent was due to the euro currency evaluation and unit shipments were down two percent in a market that we estimate was down four to five percent.

This weak market demand was particularly challenging in Germany, which we are forecasting was down in the first quarter by eight to 10 percent. The decline in overall demand was, in Europe, was driven by weak consumer confidence, low GDP growth, and we believe the initial consumer reaction to the introduction of the euro.

We expect only modest improvement in the industry demand for the second quarter and we're now forecasting full-year demand to decline by two percent.

In our business for the first quarter, our operating margins improved by 1.1 points to two percent.

Going forward, despite what is a very difficult economic environment, we expect our operating margins to expand on a quarter-by-quarter basis throughout the year. This margin expand will continue to come from productivity, cost savings from our restructuring actions and the introduction of new, innovative products, such as the new horizontal axis washer, similar to the recently introduced Whirlpool Duet washer, which we introduced in the U.S., and the first ever European design side-by-side refrigerator.

Both products will help us grow revenues and expand margins and are being launched in the second quarter.

Turning now to slide nine, our Latin America business had a solid performance in a very volatile economic environment.

Market demand in Brazil declined by eight to 10 percent. Argentine declined by 60 percent, and where the currency was also devalued by 67 percent.

For the quarter, our revenues declined by 19 percent, but margins improved to 7.4 percent, up a half a point from last year. Productivity and continued strong performance from our compressor operations drove our operating margin performance despite this very challenging environment.

Going forward, we do expect these tough economic conditions to continue in the second quarter, and we're forecasting modest recovery in the second half of the year.

Turning now to slide 10 for Asia.

We had a slight revenue decline of two percent, it was actually plus three percent after currency devaluation on a unit increase of eight percent. Industry demand is weak and

estimate has declined by five percent in the markets that we serve during the first quarter.

Operating margins were flat at 4.8 percent.

Our Indian business continues to expand its market leadership position.

During the quarter, we grew our business, unit shipments in India by 11 percent, in a market, which declined by 10 percent. We also expanded our product presence by entering the

business to compliment our already market leading positions in refrigeration and washing.

In the second quarter and for the balance of the year, we except the market demand will improve, and that we'll grow both our revenues and expanding margin to make considerable progress in expanding our presence in Asia.

Turning to slide 11, I would sum up with the following.

We do see weak global market demand around the world so far this year with the exception of the U.S., where consumer spending appears to be leading the overall economic recovery. We expect these patterns globally to continue for the second quarter, and then to see modest recovery in the remaining global markets in the second half of this year.

Whirlpool's global operations are performing well in this environment. Our focus on developing strong brands, bringing continuous and relevant product innovation to the market, and a relentless focus on productivity is enabling us to grow both our market position in all major markets around the world, and at the same time, and to improve our operating margins.

We'll continue to deliver on these three areas going forward throughout this year.

Finally, as we noted previously, we did announce two very important acquisitions during the first quarter.

The first was Vitromatic in Mexico where we intend to acquire the 51 percent share currently owned by our joint venture partner Vitro. This acquisition will strengthen both our North and South America manufacturing footprint and insure long-term manufacturing cost competitiveness that we're confident that we can achieve in Mexico.

Additionally, it will provide attractive growth opportunities in Mexico and in the surrounding markets for our entire portfolio of global products.

The Polar acquisition in Europe, in Poland, has very similar benefits and will strengthen both our European manufacturing competitiveness, as well as enabling us to extend our market-leading position in Central Europe, and expand our position in both Western and Eastern Europe.

We believe both businesses will close by the end of the second quarter, and we'll be fully integrated into our global operational platform by the end of this year.

Now I'm going to turn over to Mark Brown, our CFO.

Thanks Jeff. Jeff has just taken you through the operating performance of the region.

I'd like to now make a couple of comments regarding financial items below the operating profit line as shown on slide 12.

Total interest income, interest expense and thunder expenses amounted to $54 million versus $49 million in the first quarter of last year.

Favorable interest costs were offset by increased hedging costs, mainly associated with managing the Argentina currency risk, which we basically got behind us in the first quarter. Current estimates are that some of these two line items will continue to approximate $50 to $55 million per quarter for the balance of the year.

The effective tax rate for the quarter was 34.5 percent, which is comparable to last year's full-year rate, and is now where we expect our effective tax rate to be for the full-year.

One last comment regarding the P&L.

As we discussed in the fourth quarter of last year, our 2002 results would be affected by two offsetting charges, changes, namely reduction in a pension credits and a required goodwill accounting change. The impact of these two items for the first quarter are shown on slide 13, and as you can see, they are basically offset.

A couple of comments now regarding the balance sheet on slide 14. We continued our improvements in working capital management, as working capital as a percent of sales improved 210 basis points versus the first quarter of 2001.

As a slight increase in inventory was more than offset by improvements in accounts receivable and payables.

Total debt was reduced versus last year at this time by approximately $335 million, which reduced our debt-to-cap from 54.6 to 51.7 percent, increased our interest coverage from 3.7 to 5.2 times, increased our return on equity from 17.7 to 25.1, and increased our total return on total capital from 10.6 percent to 14.5 percent.

We're obviously pleased with this performance.

A quick update on our restructuring as shown on slide 15.

In the first quarter, we took a pre-tax $12 million charge, mainly for cost associated with previously announced initiatives. We also announced that we would be closing a Canadian cooking facility and taking a $16 million charge in the fourth quarter for that closure.

Our projections remain that when completed in the fourth quarter this year, the initiative would have resulted in the charge of between $300 and $350 million, eliminated approximately 6,000 positions, and delivered in excess of $200 million in annualized cost reductions.

As Dave discussed in his opening comments, we also announced two acquisitions in the first quarter, which we expect to close here in the second quarter.

The financial impact of these acquisitions can be seen on slide 16. Our expectations are that these acquisitions will add between $240 and $250 million to the second-half revenues, be slightly accretive, and be very manageable from a balance sheet perspective, as our interest coverage will remain over five times.

Now back to Dave.

OK.

Let's turn this back to all of you for any questions that you may have.

Today's question-and-answer session will be conducted electronically.

If you'd like to ask a question, please do so by pressing star-one on your touch-tone telephone. Once again that is star-one on your touchtone phone.

We'll pause for just a moment to assemble our roster.

We'll take our first question from

with Raymond James.

Good morning gentlemen. Just a couple quick questions.

First I guess in Europe, you mentioned I believe last quarter that you exited December with operating margins approximately four percent and that you thought perhaps that you might see improvement from that level going forward. Was the fact that you weren't at that level simply because of the surprise in the level or degree of revenue decline in Europe?

No actually

, we exited fourth quarter or full quarter was three percent and if you look at European business, it historical always has a seasonality the first quarter, first and second quarters are the lowest sales quarters of the years. We typically progress quarter by quarter throughout the year.

So the comparison year-over-year is the best comparison in our mind, and our European performance did perform in line with our expectations.

So the comment I made, we do expect that's going to continue to grow quarter-by-quarter throughout the year, but not with the fourth quarter starting base.

OK, and that would probably lead into my second question, because I'm looking at this sequentially also. Working capital as a percentage of sales improved year-over-year, but was declined, or was not as much of a success on a sequential basis, revenues up, or receivables up 100 percent, or $100 million, inventory's up $100 million.

Is that also the same sort of seasonal effect that we're talking about?

Absolutely.

As, again, from a cash flow standpoint, first quarter we typically are consumer of cash, starts to work its way down a second, and then second half of the year were very positive generator of cash. So that also has to do with the seasonality of the business.

And one last question, I know there's a bunch of people in the queue. Five percent industry shipments forecast in North America, which is about double that the forecast of at least one of your peers.

Your idea of the progression of that given the easier comps in the first half. Can you give us a little color on that?

Yeah, we think second quarter will be five to six percent up. Third quarter, if you look at year-over-year comparison, third and fourth quarter, you got to think in terms of two to three percent.

Very good and I'll defer to my other colleagues. Thank you.

We'll take our next question from

with Salomon Smith Barney.

Good morning.

Just a few things. First on Vitro, can you give us a little bit of color on kind of what you see as the immediate cost opportunities, and what I'm kind of getting at is obviously, you know, equity income has been kind of nil here, so clearly there is an assumption and a reasonable expectation that when you got your arms around the whole thing you drive some improvements pretty quickly.

But can you give us a little bit of a roadmap on some of the things you'd like to do and what we should expect as you integrate that company?

Yeah

.

Two or three things I would point out. First of all, we think by, as we integrate this into the total company, even though it was a joint venture, it was operating as a separate company.

So if you look at the areas of global procurement leverage, I would say manufacturing processes using our global best practices, as well as in the medium-term period of time, increasing the production volume for our global markets, we do see a significant opportunity here to improve our cost position, and we will over time be producing more and more volume out of these facilities in Mexico.

The second area is I would say expanding the sales base. You know, again, we think with the focus and attention in the Mexico market and surrounding markets, we see a growth opportunity there.

And then third is capital structure. This business as a joint venture was, the way its capital structure was set up, it was paying a lot of interest charges and so on and we will, once we completely integrate that, we think we'll have positive impact in that area as well.

, I'd just add to that, you know, think if Vitromatic today as an independent stand-alone business that has two horns. It's going to become a division of Whirlpool Corporation.

So all the attending costs for a stand-alone corporation are going to go away.

Right, and just maybe a couple things for Mark actually.

On the decline in pension income, Mark, should we just annualize what we saw in the fourth quarter in terms of the decremental rate there?

Right.

Right.

And for expected rate of return on plan assets, what are you using in 2002?

Ten percent I think, and we talked about that in the fourth quarter, which is, we took it down about 50 basis points from last year.

OK, and I also was just actually wondering on your return on capital calculations.

Do restructuring charges stay in your capital base, as kind of a permanent investment or they just kind of wash away equity?

It flows through and reduces your equity as you take that restructuring charge.

Right, OK. That is kind of an investment though in the future right?

Correct. Investments that reduce your cost structure.

OK. I'll pass it on.

Thanks a lot.

We'll take our next question from

with Lehman Brothers.

Yes, thank you. Good morning.

I was wondering first if you could just give us an overview on the trend that you saw on average selling prices over the course of the quarter by geography, you know, focusing on North America and Europe.

North American, our trend, was positive. As I mentioned, we had a, for I think this is the third or fourth consecutive quarter we've had revenue growth exceeding unit growth, which is largely reflected in both improvement and average selling prices as well as improvement in brand product mix.

And again, that really is we think given the strength of our product innovation in the growing strength of our brands, we feel very comfortable with that trend going forward.

In Europe, our average selling prices were flat relative to the year before in a market, which we saw pricing go down by one-and-a-half percent.

So that's basically, in terms of the North America market, we don't, I would say, we don't really have any good industry data yet to confirm what the industry did, but we certainly know what we did.

Thanks, and within North America you talked about improving brand mix.

I wanted to focus in a little bit on that and just get a little more detail from you on the performance of

and the

in the quarter. Particularly, have you seen any cannibalization of

from the, you know, the

?

And also are there any plans to bring the manufacturing production for the

over into the U.S., as the North American markets ramp up?

Well first of all, our whole fabric care category is growing in total.

So obviously the net impact of both

and the Whirlpool Duet or the Kenmore

has been very positive. We believe it's doing two things.

One is consumers who typically would come in and buy a $499 retail Price Point washing machine, when presented with the opportunity and the benefits of these new products, a fair number of them are trading up to that, and you see that on the sales floors every day, and virtually all across our distribution.

Secondly, I would say, particularly in the last six months, we do believe we're creating new demand with this, given as we do track this very closely, who's buying the product, why they're buying the product, and I would tell you this, these products have gotten a lot of attention, not only in the retail environment, but also with the consumer environment.

So we do think we are helping to stimulate demand with these products.

So net-net, though, we are growing our share.

We are growing our business and the profitability business, so I would say it's been a very additive to our business.

The second question of production, today we do produce the Duet washer is produced in Germany.

It was a global product. It will be sold globally, and we're in the process of rolling it out in Europe and other parts of the world right now.

The dryer's produced in the U.S. You know, and over time, you know, we'll continue, we'll continue to make that evaluation.

Our view is that, you know, we have appropriate capacity for the, probably the next one to one-and-a-half years in Europe. We'll continue to produce there.

And as global volumes for this grows, we'll make that decision at that point in time. If we want to, I won't say shift the production, but add new production in other parts of the world.

And if I could ask one last follow-up question before I hand it off, on the acquisitions, Vitromatic and Polar, at this point, are you anticipating there'd be any required restructuring for those businesses after you complete the acquisitions in this, you know, second quarter?

For both of those businesses, there could be some level of job reductions and changes.

I would characterize them as not overly large, but appropriate as we integrate this between now and the balance of the year, we would except to have them done this year.

Great.

Thank you very much.

We'll take our next question from

with

.

Yes I would like a little more granularity on the market share gains if you could give them to us, talk a little bit more about what new products are driving it, basically by category, like laundry versus cooking versus refrigeration.

we don't number specifically by product category.

If you're talking about the North American marketplace ...

Yeah, just North America right.

We ended December 2001 at all-time record market share levels. We had built on that market leadership position.

I would characterize our market share performance as being as well balanced across all our product categories as I've seen in a very long time.

OK, so basically it's not one or two categories that are driving the share gains.

It's across the board.

Absolutely not.

Thanks a lot.

We'll take our next question from

with

.

Hi guys. Couple of things.

This may be a nitpicking detail, but didn't

report the first quarter was about a nine percent increase in the

, is that six percent based on something different?

We gave both numbers.

What

, which is their six plus compactors, we reported it as 9.3 percent.

, which adds microwaves and air conditioners was 5.8 percent.

That's where I think the difference numbers.

And that is the total industry volumes.

Five point eight is the more relevant number that you use to track.

When we look at our revenues

, we say they're up 12 percent, that's across all those product categories.

All right, I got it. And then from your unit sales growth standpoint, what was your unit sales growth in North America?

As we talked about in total, we grew our total units on a

basis, about 10 percent.

OK, so pricing was about a two percent favorable then?

That's a major appliances,

.

I have another question, given the bigger volume increase that you had and compared to last year, first quarter, when your production facilities were probably operating at a much lower level of capacity utilization, I'm actually surprised that you don't see a bigger jump in operating income, I mean, obviously you had a jump in operating income in North America.

But for example, if I look back in 1999 versus 2000, you had an eight percent increase in the first quarter and a 130 basis point increase in operating margin, and it's actually much lower increase, and I'm not quite sure I can fully appreciate all the reasons why.

You,

, you have to get into all the investments and cost structure things we're doing on both the positive and some would say negative side. We continue to invest in the business.

We've made decisions to invest in our brands.

So there's a number of things with any given quarter that, you know, would raise questions like you've just asked.

But again, we continue to invest in the business. We probably could have levered that revenue increase at higher levels if we weren't looking to the future of these brands and the future of the business.

OK, well can I interpret that remark to say that your gross margins in North America expanded much more than what was reflected in the operating margin expansion? Thinking about from a plant, from a production standpoint.

Even your productivity programs are getting five percent cost out every year and this quarter, for the first time, you actually had some favorable pricing mix effect.

Our gross margin expanded slightly less than the operating margin expansion.

See that's the part, I can go over this offline. That's the part that puzzles me, but that's really what I'm just surprised at.

Ok, thanks.

We'll take our next question from

with Credit Suisse First Boston.

Yes, good morning gentlemen. I'll ask you the question first.

Can you tell us what D&A was for the quarter?

And then the three questions I had following that is what's the plan cash cost of the restructuring ...

I'm sorry, we couldn't hear your total question. Could you repeat it a little bit louder please?

Certainly. The first question was what's the D&A for the first quarter?

And then the three following questions I have is one, what is the cash component of the restructuring charges that you have planned for the current year?

Secondly, what are your funding plans for this year?

And finally, if you could give us an update in terms of your current thinking with regard to share repurchases.

Thank you very much.

Let me handle the first one and the last one, and I'll let Mark Brown handle the cash cost of the restructuring and the funding plans for the remainder of the year.

I assume by D&A, you mean our discount and allowances?

No I'm referring to depreciation and amortization.

Oh, OK, $95 million.

95?

Yes.

OK, thank you.

Our share repurchase, we've purchased approximately $50 million worth of shares in the first quarter.

That was really to offset the share match we make with our employee 401K plan and some of the stock exercise, option exercises that took place. And we really don't, as we go through the remainder of this year have any firm plans to repurchase shares in the market place.

In the past we've talked about the priorities for capacity of this company and surely, share repurchase is one of them, but was not in the top of our list. We talked about strategically investing in this business.

We are. Acquisitions will require investments.

We think that's very important for our future. And so again, I, you should not plan to see any significant share repurchases for the remainder of the year.

And I'll let Mark talk about the cash restructuring costs and funding.

And cash restructuring was not very significant in the first quarter, was about $11 million all up.

OK, and what do you envision for the remainder of the year?

I think we're looking at a total of, it's, again, not extensively big, about $23 to $24 million.

OK. Thank you.

And then the, in terms of your funding plans for the remainder of the year, any update there?

Funding plans for the balance of the year.

Yeah.

I'd say no changes from what we've talked about before.

OK, great, thanks so much gentlemen.

We'll take our next question from

with

.

Good quarter guys.

Thank you.

I'm going through the press release and I can't seem to find the diluted share count that you guys used this quarter.

We show that diluted shares, 69.3 million.

OK, great and what should we be using going forward?

About that.

About that, unless, again, what moves that is when the stock goes up, that'll go up slightly.

OK, I didn't actually see it on the release.

Did you guys send out a different release than what hit the news wires?

No we have a key stat sheet that we can forward to you.

OK, great, I'll call in for that. Thank you.

We'll take our next question from

with Goldman Sachs.

Hello.

A quick question regarding your North American revenue improvement. Could you break down the ASP gain for the volume price mix between what is happening to the core pricing of appliances versus your mix gains?

No we do not break that out

. We surely do track that very closely inside the business, but we got to manage both of those elements of average sales value gain and we don't talk about it publicly.

OK, could I ask to, just directionally as to ask whether we're seeing strong, a positive business mix, but negative pricing in the core? Is that seem to be what's happening.

There is not negative pricing in the core.

OK, thanks.

We'll take our next question from

with Bank of America Securities.

Good morning guys.

Just a couple quick follow-ups. I guess first, could you comment on the impact of steel tariffs on your costs?

Yeah. Obviously, we're watching that very closely, you know for 2002, you know, typically we will have longer-term contracts in place, so we don't sell really any impact on our business in 2002.

Depending on how this whole environment plays out, you know, we're watching it 2003 and beyond, and it's too early to tell what that's going to be. But for this year, really we don't see any impact.

How much of your supply base is outside of the U.S.?

Most of our North America business is in the U.S., the large, large majority, probably 90 percent plus.

And I guess just following up on Europe profitability, is it still reasonable to assume that margins should double by year-end '02?

Yes.

And lastly, just on cash flow. I don't know if I missed it, but I didn't see any cash flow numbers in the press release.

Could you comment on that and also the outlook for the full year?

Yeah,

, we're expecting to keep the outlook for the full year about what we talked about before, was about 200 million.

Keep in mind that we had, you know, the product recall refunding to get behind us as well as tax payment on the hedges, which is several hundred million dollars, and we got a lot of that behind us in the first quarter.

Do you have cash flow numbers for the first quarter?

At the operating line it was, as you know we are a cyclical cash flow business. We consume cash in the first half, throw it off in the second half.

At the operating level, we consumed about $200 million worth of cash. And then we paid the bulk of the restructuring or the recalls and the taxes on those hedges.

Which totaled how much?

Another couple hundred million, which is about where we would talk about before.

Cap ex in the quarter was?

About 70 some million, 75.

Great, thank you.

Once again, that is star-one if you'd like to ask a question.

We'll take question now from

with Midwest Research.

Yes, good morning.

Can you talk a little bit about retailer inventories? I know there's been a lot of replenishment that's been taking place through the quarter, and I was just wondering if you had a sense of whether they were back up now to levels that would be in line with their targets, or whether you thought this replenishment trend still had another quarter to go?

, if you look at the market, first let me take

products, you saw that much more than

, if you looked back to the fourth quarter, that was much higher, so microwaves and air conditioners really reflect, I think you have to look at Q4 and first quarter together, because of the pre-season offshore shipments. We may just

level, and if you think about the 9.3 percent at a

level, we've tracked this across all channels of distribution, all major retailers.

We believe there was about a two percent of that was inventory replenishment. So meaning about seven percent, six-and-a-half to seven percent would sell through demand.

And going into the second quarter, we think, in fact, since March, we think retail inventories are in line and what we see ought to be sell through.

Is there any, we're talking about the North American business, just for the record, is there any sort of retail replenishment story in Europe or in Latin America?

You know, in Europe, I think that, you know, with, I think the market was down more than anybody really had forecasted coming in the year, and I know our inventories are in pretty good shape, but it's something that we're going to continue to focus on and playing on the conservative side. I think that's probably true at the, in a few of the markets like Germany and the retail level, so I do think there will be a very tight control and some adjustments in Europe in the second quarter.

And I would say the same thing in Latin America. We expect some inventory adjustments in Latin America in the second quarter.

And then a question for Mark on the restructuring program. You mentioned your, in your literature you have, that you're 224 million charges to date.

What are the savings or the benefits to date on that initiative?

Hold on

.

Let me get that book out. I think it's like 138 I believe.

Let us get you a big, fat number,

.

Why don't we go on to the next question and I'll come back and grab that

, OK?

Well, Mark the next question was for you as well and that had to do with the balance sheet and your plans for debt repayment.

Yeah, it is 138 is the restructuring number.

And give me your second question again?

Sure.

One thirty-eight on an annualized basis.

On an annualized.

One thirty-eight on an annualized basis, OK.

Associated with that, $224 million worth of charges to date.

When those are fully implemented, they'll deliver 138 million.

One thirty-eight million, and with respect to the numbers that you're delivering today, how much of the benefit is in that?

You're saying the 138 is once the 224's fully implemented, but what are we getting today?

We expect to see a year-over-year benefit in 2002 versus 2001 of about $50 million.

Fifty million, OK, and then just on the balance sheet, I had to step out for a minute, I apologize if you've addressed this already, but what are the plans for debt repayment?

Our debt is down about $338 million versus this time a year ago, and of that $200 million worth of free cash flow that we'll throw off this year.

Part of that will be used to fund these acquisitions that we've got on the table. So our debt will probably stay in this comfort zone here.

If, as we look at the full year

and ladies and gentlemen, without these two acquisitions, our year-end debt we've projected to be in the 42 to 43 percent range. The addition of the debt that will be acquired from these two acquisitions will take us at year-end at the 48, 49 percent level, but again, very manageable and we think appropriate given the opportunities with these acquisitions.

OK, just noticed you've got 214 million current portion on the

, you're just going to roll that over?

Yeah.

OK, and final question, if I may, just on the, I know

was trying to drive it to a price weakness or a price competition within the market and you didn't feel as though you were experiencing any of that or seeing any of that right now. But I was just wondering if you could talk a little bit about the competitive environment.

It seems as though everyone's rolling out a lot of new product in the second half of this year. The retailers themselves are, you know, becoming much more competitive amongst themselves, limited amount of floor space out there for new product and limited amount of sort of propensity for risk by these retailers on new products.

How do you sort of find your share? How do you maintain the existing trend of picking up market share in that environment?

First off I don't think there's any propensity for any kind of caution on the part of the retailers to the risk with new product introductions. It's quite the contrary.

These innovations that we specifically brought from the market place have been exceptionally well received. They expand revenues as well as margins for our retailers.

It's just been a very, very positive reception from the trade on the innovation we're bringing to the marketplace. I can't speak to what our competitors are bringing to the market place in the second half.

I do know what we're bringing, and the pace that we have last year will continue. Jeff shared some of those with you this morning.

Those are the things that are driving our revenue growth. Those are the things that are driving our margin expansion.

So I don't think it's a matter of limited floor space to take this innovation on, if it's the right, relevant innovation, retailers will find the floor space. As we've talked before, what we need to make sure that we do with our brands and our innovation is take them to the right retailers who have got the capability to properly present and sell this innovation.

And we think we have that in our distribution structure.

I'd only add to that, first of all, all the new products we've previewed, we've already previewed with the trade and we've gotten full commitment and strong support from them, even to the extent where I would say that we're actually devoting more space to us for the appliance category in total and to us as a company.

As you may have seen with our Whirlpool Fabric Care Centers, which are now increasingly across retail locations as well as the KitchenAid store within the store. So we're actually getting more added value retail space in this scenario.

And just finally, if you could

Home Improvement Channel is picking up market share albeit at a somewhat incremental pace, but are we any closer now to doing business with Home Depot, or are you seeing any sort of progress in terms the management of their model that would get you closer to sufficient comfort to do business with them?

I would say that we're very comfortable with our distribution structure as it is today.

Thanks very much.

We'll take our next question from

with

.

Yes, just a follow-up to

question on steel tariffs. You know I guess a couple of companies have talked about raising chemical prices, GE and Honeywell and I think some of the more pure play chemical companies as well.

And I was wondering, you know, how that impacts your raw material prices as we move into the second half of the year.

Well, again, I would say very similar to the steel question.

We typically, first of all, we have a global procurement organization, and you know, part of their job is always to make sure that we're getting the most competitive prices from wherever the source is around the world.

Secondly, we work very closely to the risk in the short term, these type of opportunities and we typically have for very, very high majority of our, both components and raw materials contracts in place.

So again, there are some concerns in the medium term, but we feel fairly confident in where our costs are going to be for this year.

So if the increase in pricing, is that sticking or are the people who are raising prices having to go back and kind of cut prices again?

You talking about on the material cost side?

Yes.

Again, what Jeff is saying is we have generally speaking, the most important materials and components, we have longer term contracts.

OK.

So we're not really, we're not really seeing that at all out there. We will have an important year-over-year total material cost reduction in our cost structure in the year 2002.

OK, thank you.

Once again, that is star-one if you'd like to ask a question.

Well it appears there's no more questions. I might just close this by saying that we're pleased with the first quarter performance of our business, both in the markets that are very robust, like the North American market, as well as our other markets where we think our people are doing the right things to deal with more challenging, economic and industry environments.

We've got a lot of momentum going and again we're comfortable that we're going to deliver a record year of core operating performance in the year 2002.

We thank you all very much for joining us.

That does conclude today's conference. You may now disconnect at this time and thank you for your participation.