惠而浦 (WHR) 2002 Q3 法說會逐字稿

This is premier conferencing currently on hold for today's Whirlpool Corporation's third quarter earnings release conference call.

At this time we're still vending additional participants and we should be under way momentarily.

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This is premier conferencing.

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Good day everyone and welcome to the Whirlpool Corporation third quarter earnings release conference call.

Today's call is being recorded.

For opening remarks and introductions I would like to turn the call over to the Director of Investor Relations Mr. Tom

.

Please go ahead sir.

Good morning I'd like to welcome all of you ...

Mr.

please depress your mute function.

Good morning.

I'd like to welcome all of you to our third quarter conference call.

Our opening remarks will refer to a slide presentation, which is available on our industrial web page.

This call and the slide presentation will also be archived on our web page for your convenience.

During this call we'll be making forward-looking statements to assist you in your understanding of our companies future expectations.

Our actual results could differ materially from these statements to the many factors that can be found in our latest 10Q.

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

David.

Thank you Tom and thank all of you for joining us today.

With me today is Jeff Fettig our President and Chief Operating Officer and Steve Barrett our new CFO at Whirlpool.

Steves been on board for about four weeks and is a great addition to our executive team.

Both Jeff and Steve will provide detailed comments in a few moments.

This morning we issued our third quarter earnings report and given the challenging economic and market environments that we find ourselves in around the world I'm pleased with the performances of our businesses.

On the first chart which would be your slide two, you will note the net earnings per share was $1.46 cents versus a net loss of $1.40 last year.

However to give a view of the underlying performance trends of our businesses, we have also included a core earnings column which removes the effects of restructuring and one time charges from both periods.

On this basis third quarter core earnings per share totaled $1.62 cents versus $1.46 cents a share last year, which approximates an 11 percent year over year improvement.

Revenues for the quarter were 2.8 billion an increase of about six percent over 2001's third quarter.

Now on slide three or chart three, as noted in our press release and on our next chart, our North American business achieved record revenues as well as record operating profit in the quarter, significantly out performing the competitors in the market place from an earnings standpoint.

Europe continued to deliver solid quarter over quarter operating margin expansion in a tough industry and economic environment.

That margin expansion will continue in the fourth quarter of 2002.

During our second quarter call with you we outlined steps that we were taking in Brazil to deal with industry, economics and dynamics, and those actions lead to a five point decline in operating margins in the second quarter.

We indicated to you that these actions would allow us to return to more normal margin levels in the third quarter

.

Our Latin American business executed those actions that we outlined well in a very tough economic and

environment and improve operating margins 3.9 points over the quarter and it gives us an outstanding performance in that Latin America environment.

These operating performances resulted from our continuing and aggressive focus on pro-activity savings and savings generated from our on going restructuring activities and the impact of a continuing stream of introductions of new and

products.

As well as what I believe is solid overall execution buyer businesses in a challenging market environments that we're facing.

As we look to the fourth quarter, we believe in total and on average we'll see industry and economic environments largely on change from third quarter conditions.

Jeff Fettig will shortly give you more specifics region by region.

We recognize that these conditions will remain somewhat difficult to forecast market by market.

It's given the cost and execution focus that we have everywhere, we remain comfortable with your consensus full year forecast of $6 and five cents per share core earnings which compares to $5 and 45 cents a share last year.

I'm sure each of ye know that the informational piece we included in our release on the status of our pension fund.

As you are aware that you're dramatically

in equity values over the last several months have created conditions for most companies where additional funding may be required and I emphasize maybe required.

The actual calculation will take place on our fund status as of 12.30 1 or 2.

Today our pension fund is 90 percent funded verses 121 percent funded as of June 30th 2002 and a 133 percent funded on December 31st 2001.

Our comments in the press release the mentioning impacts of valuations remaining on change from September 30th 2002 levels and we know that things will change between now and the end of the year.

Pension fund accounting is complex and there are a number of options that we will have if the market remains distressed and we continue to be under funded.

Under any of the available scenarios we have appropriate capacity to handle those situations, whether from a balance sheet or cash flow stand point or from and within our ability to continue to grow our earnings on the PNL side in the year 2003.

If we find it we have to take expansion excuse me expense pension costs next year.

What I would like to do now is turn this over to Jeff Fettig for more regional detail on our operating performance.

Jeff.

Good morning I begin with slide four and give you some comments about our North American business where we delivered a solid keep free results for year volumes, revenues and operating profits.

Overall for the quarter revenues grew by six percent and operating profits were up 4.5 percent.

Ye note that included in these results are the integrated results for Whirlpool Mexico, which was fully absorbed into our North America operations during the third quarter.

Our North America results without Mexico has revenues increasing by one percent and operating margins at 11.5 percent.

As expected during the quarter growth in the U.S. demands slowed considerably in shipment increased by about one percent on a T7, total seven major product basis.

This number included some fairly significant retail trade inventory reductions.

We estimate that sales by retailers to consumers for the same period grows by about two and a half percent and at trade inventories are very conservative levels heading into the fourth quarter.

Our business continues to benefit from strong consumer and trade demand for our Whirlpool and kitchening new product

.

The Whirlpool Duet Washer and Dryer and personal valet shift a system which is shown on slide five as well as our Kitchen a

have Dishwashers contained to drive demands for truly

products which did help drive our revenues and margins in the third quarter.

Looking ahead to the fourth quarter we expect industry demand to grow by about two percent over last years record levels and this growth continues to fueled by new home construction, remodeling, high levels of mortgage refinancing and low interest rates.

The rest of this

continues to declining consumer confidence.

During the fourth quarter we will continue to launch consumer relevant innovative products to the market place.

Last week we began shipping our new Whirlpool branded

refrigerator range product, which is shown on slide six.

This is a

product which is both a refrigerator and a cooking appliance.

Consumers can now prepare meals before they go to work - keep these meals properly refrigerated during the day and arrive home at the time that they choose to a perfectly cooked meal.

We're also very excited about launching our new brand and range of garage products under the

brand.

This break though in organized garage storage, workstation and appliances which is shown on slide seven - is going on sale on November at selected

Home Improvement Centers and will be rolled out nationally to our distribution in 2003.

To date consumer and trade response has been outstanding and we believe that this garage organizational space will create a significant new revenue category for us in the years to come.

For the fourth - for North America in the fourth quarter we expect to continue to grow and out perform the market given the demand for our brands and new product innovations our operating margins in the fourth quarter should continue at about the same level as we saw in the third quarter.

On side A I'll turn to Europe where revenues grew by 17 percent and we improved operating margins by one and a half points to 4.4 percent.

Absent positive Euro currency translations revenues grew by nine percent which greatly outpaced industry demand, which we estimated, was flat to slightly up.

Our performance for the quarter was driven by strong demand for our recently introduced new products.

On slide nine you'll see the European version of our duet washer and our European side by side refrigerator and these products have been strongly received

the market and then help to grow revenues and to boost our margins.

Looking to the balance of the year we expect that these improvements will continue and we're forecasting market demand in Europe for the fourth quarter to be flat but we do have positive sales momentum going into the fourth quarter and expect to continue to out perform in their industry from a revenue growth stand point.

At the same time we continue to drive productivity and gain the benefits of our restructuring activities given these things in total we expect our Q4 operating margins to be in the 5.5 to six percent range in the fourth quarter in Europe.

Turning to slide ten in Latin America overall revenues declined by 11 percent they were up one percent absent the currency devaluation in the region as

mentioned operating margins improved greatly to 8.3 percent - this really was a very strong improvement versus our second quarter results.

You may recall that in the second quarter we did talk about last time reducing our production by 30 percent we shortened trade receivable terms and we raised prices to address a very negative industry situation.

This quarter we were able to normalize our production and gain the benefits of these price increases this combined with one- percent growth in market demand

us to improve our operating margins by 3.9 points during the third quarter.

For the balance of the year we continue to see economic

steaming from the upcoming Brazilian elections and ongoing pressure from currency devaluations.

Despite this we expect a flat to modestly positive growth in industry demand similar to what we saw in the third quarter and we expect to continue to gain from the benefits of a price increases.

For the quarter we expect our Latin American business in the fourth quarter given these conditions to achieve double vision operating margins.

Now turning to slide 11 for Asia we had a good quarter where revenues grew about five percent and operating margins came in at four point one percent.

The third quarter in Asia is the wool season for our business in Asia.

Despite this we had 33 percent revenue growth in China and intend to expand our market leading position in India.

For the fourth quarter we expect over all points to grow modestly at about two to three percent and in this environment though we do expect to report strong double digit growth due to a large number of new product

that will bring in to the market during the quarter and by

extending our trade distribution through out the region.

The sales growth along with on going

gains will enable us to extend our operating margin to the six- percent range during the quarter.

Now turning to slide 12 you'll see that in total from operations our actual queue through operating margins declined during the quarter year over year from eight point three percent to seven point eight percent.

This decline was driven by lower year over year pension credits in the quarter.

The

of Mexico and polar acquisitions although positive in an absolute dollar term in terms of been

they did reduce our operating ratios and finally Latin American currency devaluation's this was partially off set by

of good will.

We are expecting our margins in the fourth quarter to be around eight percent.

Finally to sum up on slide 13 our global operations we believe contain and proffer very well our focus look continues to be on developing strong brands brining continuos

products

to the markets in all parts of the world and a continuing relentless focus on driving productivity.

This focus will enable us to contribute top line growth in the fourth quarter and saw it operating margins for the entire year.

With that I am going to turn it over to Steve Barrett.

Thank you Jeff.

Slide 14 reflects the accounting line items from operating profit to net earnings.

As you can see interesting

expense were favorable by $15 million versus 2001.

This favorable swing was primarily a result of foreign currency gains in our Latin American export business.

Interest expense was down slightly versus 2001.

The impact of strong cash flow results during the fourth quarter of last year and lower interest rates during the current year more than off set the

debt increase associated with the acquisitions of the traumatic and polar.

The affective tax rate is at 34.5 percent same as last quarter and in line with our expectations for the full year.

Slide 15 shows several key financial measures.

As you can see working capital of one point five billion is 14.1 percent of sales favorable by 60 basis points versus last year.

Debt levels are up $147 million.

However if you exclude the impact of the

traumatic and polar acquisitions debt levels would have been $194 million lower.

Our interest cover ratio was increased from four point three x to five point five x reflecting our strong operating performance and slightly lower interest expense.

On debt to capital return on

and return on total capital we have shown these ratios including and excluding the impact of the

142 asset right off.

with last quarter we have also included cash flow statements along with our income statements and balance sheets and our press release.

Here today free cash flow which is line with our expectations is a negative 40 million.

Free cash flow for the current year has been affected by 151 million after tax for cause associated with previously announced product recalls as well as an $86 million tax payment associated with a hedge that we monitored last year.

The product recall activity was essentially complete as of September 30th.

Slide 16 gives you an update on our restructuring initiates.

In the third quarter we took a $16 million charge mainly for costs associated with previously announced initiates.

This brings our total charge to date to $266 million with 57 hundred positions eliminated.

Charges against this initiative will be completed by the fourth quarter of this year.

Finally I would like to comment on two additional items.

First as you know the company's Latin American operation has benefited historically from the Brazilian government export incentive program.

During 2002 the company is recognizing $40 million in credits under this incentive program.

The company does not expect to utilize additional export credits beyond the first quarter of 2003 until the Brazilian courts have approved the

required to calculate and recognize the remaining credit.

Secondly as Dave mentioned earlier the recent dramatic decline in the US equity market has reduced the companies pension plan assets.

As a result the company's pension plan which has had a historically over funded position currently is under funded by approximately $200 million.

In the fourth quarter in assuming no further change in valuations and interest rates from September 30th.

The company would make voluntary cash contributions recorded non-cash charge to shareholders equity or some combination of these two.

The company would also likely recognize an increase pension expense in 2003.

Final decisions about the pension plan funding will be affected by the performance of US equity markets in the companies pension fund investments.

Regardless of the outcome the company's liquidity position will remain strong.

In addition the company remains confident that its pension plan has the appropriate long-term investment strategy.

Now back to Dave.

OK.

What we would like to do now is open this up for any questions and comments you all have.

Thank you.

The question and answer session will be conducted electronically.

If you would like to ask a question you may do so by pressing the star key followed by the digit one on your touch tone telephone.

If you are using a speakerphone please make sure your mute function is turned off to allow your signal to reach our equipment.

Once again to ask a question please press star one at this time.

We will first go to

with Raymond James.

: Good morning gentlemen.

If I understood - I just have a few questions - I just understood the Brazilian export incentive situation correctly.

Those credits are expected at least as we sit now to go away after the first quarter of '03 yet your operating margins should not move materially because of other initiatives that you've under taken.

Am I understanding that correctly?

Yes and we've talked with all of you about the initiatives we're taking in Brazil to expand margins and they have all to do with the pricing side of the business as well as the cost side of a the business.

So the steps we are taking are meant to allow us to continue to expand margins in the year 2003 based on what we know currently about the economic environment and industry environment.

To expand those margins absent the

.

: Got you.

Inventories from sequentially from the second quarter were actually down slightly despite the revenues being up a bit.

Are we - what's the status and inventories going forward?

That's obviously not a bad thing but what do we look at going forward with respect to on a balance sheet.

I see we did improve our working capital rather significantly as a percent to sales in the third quarter.

That was by design.

If you look at our seasonal pattern you should expect that to continue in the fourth quarter and therefore we would be driving inventories down further.

: And your expected free cash flow for next year you've voiced in the past that four to five percent of sales is a

for you.

Is that still reasonable to expect for the investing community?

It is absolutely reasonable to expect.

: Final question I'll defer to others.

The other expense what should we be model ...

I know I understand that that's a number that's hedging in currency deltas but what would a fair way to model that be going forward for the next few quarters.

this is

.

The other expense comparison year on year is completely attributable to a foreign exchange gain on our dollar receivables of our export operation in Latin America Brazil.

The

... it really affects the fact that from June 30 through September 30 the

devalued by approximately 25 - 30 percent and so it's really not an easily

item on a revaluation it would go the other way.

But it's a unique event force in this quarter.

: So if the

were to continue to depreciate that other expense would depreciate inclined.

Yes however we're not forecasting that.

And in fact you know what we're trying to do is plan for as little volatility as possible.

: That's very good.

I'll defer others thank you.

And moving on we will go to

with Salomon Smith Barney.

All right good morning.

I'm pulling a conference call hopscotch here so I've missed a lot of it but I'm wondering if you could give a little more color and I'm sure you gave some remarks about the margins in Europe and you know the efforts to get the margins higher there and if there are any further restructuring or

positioning activities there they'll have to move the margins the right way.

Yes Jeff what we've been doing in Europe all year is really has been three pooled to one as to drive

and costings throughout the business too is to stabilize and actually improve our average selling prices and free to grow

and I would say in the third quarter we hit on all front.

Probably the biggest surprise relative to our original assumptions on Europe is the market demand is although we were basically forecasting a flat year.

It's been negative to date.

The pricing pressures in the market place have been higher.

Having said that we've been able to hold or slightly improve our pricing in a combination of certain things have driven margins and will continue to drive margins as we go forward.

You know one of the things that Jeff talked about was comments from

you may not have been on then.

He talked about in the fourth quarter driving European margins to the five and a half to six percent level.

We have previously told you all that we expected to exit the year for the four year fourth quarter operating margin of seven percent.

And what Jeff has indicated to you right now our best look is at five and a half to six percent.

Having said that our business in Europe is actively looking for additional cost management, cost take out items to get them all through that seven percent margin level or the

who are not reaching it is primarily the market we've missed, we had forecasted a stronger market in the fourth quarter.

OK great thank you.

And next we will go to

with Midwest Research.

: Good morning.

Two things, first of all could you clarify a little bit further the pension situation.

I know the equity markets are a bit uncertain.

But in terms of at this point in time if the year ended today or ended as of 9.31, would you have to write a check for 200 million.

Can you just give us a little bit more of an understanding as what determines if you have to write a check to fund this and what magnitude that might be relative to obviously the charge to equity.

Yeah you know that 200 million was a point in time calculation.

We all have a wonderful experience in the last three or four days with an upturn in the equity market of about 13 percent, you know, so what we are doing is looking at, the thing we know for certain is there will be change.

It's either going to be up or down, it won't be where it is and we're just looking at a range of alternatives that we could be required to address.

We think right now it's not in anyone's best interests to say here's what it would be because again the operative time is 12\31 of this year.

We will communicate to all of you as quickly as we have that.

You know the minimum required cash contributions under available regulations is a lot less that 200 million.

So there's a whole array of options available to us and I think

we just need to wait till we've got actual numbers that we can sit down and calculate against.

: Great and then the second question in terms of Latin America the progress that you're making there is impressive but could you give us a little bit further color on the key drivers to incremental profitability next year, especially when considering the tax benefit that will not be around.

I mean what are the key buckets of benefit that you'll have in '03 to help to maintain profitability or improved profitability.

The buckets are the things that have been driving our business down there for a long time.

First it is the very strong brand that we have in the market place.

You know it is a business that you all I think have come to appreciate really does have control the cost side.

When the economy went into a down spin in the late 1990s we ... to break even down there by 40 percent.

It's a business that has great capability to focus on the productivity in cost side.

During the course of '02 you know during the second quarter, we gave up market share by design.

We took a lot of production out and in so doing we took lots of also inventory out of the field and we have up market share.

So in '03 we didn't view we lost market share we just kind of rented it out as we so to speak and we will deem market share back to an appropriate level which is net 38 to 40 percent market share range, that will impact our performance there.

We have continually raised prices this year.

In the third quarter we raised prices, we will raise them we are raising them in the fourth quarter and again these are meant to position us going into the beginning of the year in the appliance part of this business at a different margin level than we had for the first half of the year and for the third quarter.

In addition you all know that we have the

business which has been a natural hedge for us.

We have the number one compressor manufacturer in the world from a cross-called and volume standpoint.

A good part of what we build in Brazil is exported out and it's dollar-transacted revenue.

So with the combination of all of those we have as we understand the market today and I think all of you understand it as well as we do that the volatility that has been a part of that market this year especially with the elections, but as we understand the market today this year especially with the elections but as we understand the market today, the forecast we have for the market we believe we can continue to drive this business back to it's more normal operating profit levels which is double digit operating profit.

And lastly in terms of Steel as we head towards 2003 can you comment on all I know you had contracts that ran ins through to 2002 end to '03.

Can you talk about have you secured '03 contracts for the entire year in terms of Steel and can you comment on how those negotiations have concluded?

A large portion of our commitments are all ready made for next year and so you know we're comfortable with knowing where we're going be.

I guess the other side of it is we may need Steel along with all of our other productivity activities so the net effect of this we expect to achieve real total cost productivity even with some Steel increases next year.

Sorry just to make it really clear what you're after saying.

Transaction price contractually with Steel combined with our productivity efforts, you should not expect to see cross pressure on Whirlpool in North America on the Steel side.

: Great thank you.

Moving on we will go to Martin

with Goldman Sachs.

Yeah.

Hello everybody this is Martin

from Goldman Sachs.

I would like to go back to the pension issue while I recognize that you haven't made any final decisions yet.

But could you walk through some of the sensitivities for us for example: Should you elect to

tunnel and assets assumption in your discount rate.

To what would be the effects of that and also to you're recognizing or have been recognizing the certain amount of pension income?

How much of a natural fall of is there to the amortization of it going away verses what would happen if you lowered return on assets assumption?

Martin in discussing this before we started this call.

To properly do that with all of you we'd have to give you lots of different alternatives.

What if the market goes down 10 percent?

What if the market goes up ten percent?

I'm talking about the equity market valuation of our funds.

: Yes sir.

In you know there's such an array of alternatives that we have to see to.

I think the appropriate thing you know is a couple of things. 1: Today it's $200 million under funds we have $1.2 billion of pension funds today.

We will revisit both discount rate as well as return rate at the end of the year and we will look at the valuations that exists at that point and then we will communicate with some degree of certainly rather then what I would call at this point speculation.

You know if we had a 25 percent improvement in the equity market over the next two and a half months we don't have a problem.

So all those things are moving around so much I just think the speculation on what ifs right now are really properly not productive.

: OK.

But could you remind us what is your current return on assets assumption on your pension plan?

Right now it's ten- percent return on assumptions and 7.5 percent discount rate.

: OK.

OK.

Thank you.

And now we'll go to Laura

with Morgan Keegan.

Good morning.

Can you hear me there?

Yes we can.

: OK.

I noticed that there's still a major chunk of cost savings expected to be identified in the restructuring and still I think 50 million left in expenses to be recognized related to the restructuring.

Could you give us some details about what you expect to do in the fourth quarter in terms of completing the restructuring and will it be complete at the end of this year?

to it in a little bit more detail.

Clearly we can't until we announce these restructuring in each of these pieces of business we can't talk about the specifics of it.

I think we have more than $50 million left to get to our the outside number of about 350 million that we talked about.

So we are right now finalizing the actions that we will take charges on in the fourth quarter which will allow us to more specifically determine the savings and again as I said here today I think we're going to be pretty close for $350 million number.

Jeff have you got anything you'd like to add to that.

No.

Just that we are in the final pro's in several parts of the world of negotiations on finishing up some of these plans, which we expect to complete in the fourth quarter.

Again what

is that we will have these charges behind us at the end of the fourth quarter of this year.

And in going forward you should not expect to see special

from Whirlpool that we are going to build in to our normal operating plans on a year by year basis sufficient space to handle restructuring on an on going basis.

And secondly cap ex in the third quarter was a little bit below what I had in my model.

Are there any revisions to your year in budget and where do you think you in the year in terms of cap ex.

Typically our cap ex is much heavier in the quarter so in total we expect to be in line with our cap ex targets for the year.

: Thank you.

And now we will go to

.

Good morning.

I've got a detailed question for Jeff and a strategic question for Dave.

Jeff unless I missed it you didn't talk about why there was a $15 million jump in the other expense above the operating line in the corporate segment.

I'm just wondering what was going on there if you can explain that at all.

We lost you in the middle of that question

.

Could you ask again?

: Sure.

Other expense above the operating line so within the four segments then there's another expense line that jumped from 30 million last year to 44 million this year.

Yeah.

It's really two things.

One is that you know on a year over year basis a lot of our strategic initiatives for example around innovation and other activities we fund at a corporate level that benefit all the different regions.

That's one driver of it.

And the other is just some year over year comparison in

benefit plans this year versus last.

: So Jeff how should we think of it for the fourth quarter?

Hold on.

Let me see if we can pull that out.

: It's just such a substantial job let me ask a strategic question for Dave.

We're going to look this up and we'll give you some guidance.

Go ahead

.

: Dave on Europe in particular you know this has been a region that you've long tried to convince investors has been a great place for Whirlpool to invest and that eventually the restructuring would work and returns.

Margins and us returns on capital would get to an acceptable level.

And you know not to make a big deal out of one quarter but

here and we just keep pushing it out you know we're supposed to end the year at seven percent margins I think you need to get the seven you know in total just to get to a break even return basis how long do you let it go on - I mean in other words - you know when do you decide that in the end Europe just doesn't justify owning it from Whirlpool's perspective?

You know I share your frustration.

We share your frustration because we've been saying for some time that we could get this business at an earlier date then we have to a point that it is creating positive economic value.

You're right at seven percent that is the break over point where it creates positive EBA.

What we've been working on this year is what we call stabilizing the platform for us is getting it to that seven percent.

It is having the operational capabilities, the execution in place, the cost structure correctly put in place.

So that on an ongoing basis we're at that seven percent.

business - we had our business and leadership focused on that in Europe from there improving the performance is the same formula we're using all over the world and that is focusing on the brand strategies that we've outlined to you focusing on customer loyalty in a very different way from our competitors bringing significant levels of innovation to the market place to consumers which we have been doing in our North American business.

When you go from fixing a business like we have in Europe you focus the organization on the fundamentals and again what we are now doing is we plan 203 and 204 and 205 is now

up to the strategic execution that we got every where else in the world.

You know

remind you that those things are working on - You know North America I think you all understand our operating margins are 30 to 40 percent above our competitors - that's been driven I think to a large degree by the kinds of innovation we've been bringing to the market place, the focus we've had on this whole customer loyalty side of the business and

the juries out and I understand that with all of you and whether we can make that be as productive for us in our operating performance in Europe as we have in North America - we believe we can.

The question on the corporate center expenses Q4

will be very similar to Q3 in our forecast.

: So around 44 million.

Thank you very much.

And moving on we will go to

with

.

Yeah morning

from

in London.

Two questions please.

Firstly for North America your guidance of a flat margin in Q4 from Q3 strikes me as slightly conservative given that it's usually - seasonally a good quarter for you and also to highlight you've got new products coming into helping the mix.

Is this a reflection of higher launch costs rather than still costs or is they're anything else at play here too?

No I think very simply is you know we're looking for a relatively small increase in the external demand around two percent as I mentioned and you know year over year comparison we will be taking production down rather than ranking it up as we did a year ago.

: Right.

And there's a fairly large

in production quarter over quarter and that's one of the biggest drivers.

In the production that we're taking out is to make sure that our working capital numbers at the end of this year support the cash flow that we expect in January.

Yeah and we want to go into next year not terribly

on inventories but

think appropriately

given some of the concerns around the world

will be next year.

: Right secondly for Europe a very strong top line as you said nine percent

.

Can you split that out between price mix and volumes and if you are gaining market share in here which markets do you think this press supplies to.

The gains are above base there is no one or two particular markets there really across all the markets we serve some what

in I would say that price net unit in revenue growth was almost within a few 10's of a point about the same.

: Right thanks.

And now we'll go to

with Long In-group management.

Good morning gentlemen just two questions

could you talk about your allowance for bad debts what kind of assumptions went behind that I noticed that the third quarter I believe on a year over year basis your taking about a four point six percent allowance for '02 versus five point two for '01 and obviously a big general the general environment for credit qualities flat down your taking a lower allowance so just talk about that first of all and second of all can you please provide us with some kind of guidance for fourth quarter debt levels.

First of all there has been really no primarily change in our allowances.

We look at this market by market account by account last year we did have I think some situations with some different parts of the world where we took larger allowances for reserves and right now I would say there is really been no significant change in that in terms of our exposure position.

If anything we have I think some of the credit pool are doubtful accounts that we had the last year was actually forward provided for now.

And again when you look at the global accounts reserves that we set up.

I think in terms of the ship that is taking place in our retail mix I mean you all know in North America we got a nearly $2.5 billion business with

we got a very large business with loans we got a very large business with

et cetera and the credit risks change when your at the mix of your if you reap the quality in mix of your retail structure changes and when you've got a big piece of your business in North America it will some what naturally drive them a percent of sales reserves.

: Understood your saying that the main reason why your percentage allowance declined was that you are fully reserved for your foreign credit risk.

Absolutely.

: OK and you talked about the expectations our you're guidance for end of the year total debt levels.

You know I don't have this in front of me why don't we try to tell you the

assurances

some guidance on that.

Again were going to generate a couple 100 million dollars in cash by the end of the year.

We told you all that before and after the restructuring charges and the product recall so we'll get that maybe we can go over to the next question and we'll answer it when we get the book out here.

: Sure thank you.

And now we will go to

with Interest Capital.

Good morning a quick question next years free cash flow four out of five hundred million can you just ball part what you guys are planning to do with it either year marks shows it for debt pay down is there a certain percentage for acquisitions and just up date your current thoughts on the share repurchase program.

We will continue to pay down debts you know we got absently the phase of good will right off is it about 53 percent as I recall the number and we will continue to pay that down during the course of next year.

The

for the shares are going to be dependant on the valuation of the market.

I mean

today we believe our shares are significant coming out of the value.

We've got about $350 million left and the board authorization that we purchased those shares.

Right now we are focusing on taking that down but as we go into next year and generate that cash we surely will revisit the remaining the remaining portion of our authorization.

From an acquisition stand point you know we said to all of you in the past that there are we think opportunistic opportunities that can strengthen our platforms in various parts of the world and we will continue to look for those kinds of acquisitions.

Vitro will remain you know the 51 percent we didn't own was absolutely it was not only opportunistic we thought it was very strategic.

was absolutely a very opportunistic acquisition for us and we'll continue to evaluate those but you shouldn't expect to see any big acquisition needs for the company going forward.

To the question on

at the end of the year we should be in the 1.6 to 1.7 billion dollar total

range.

And what you what you targeted or comfort range that you're trying to get to before you would look at that

purchase.

You know today debt total capital is a lot less relevant number because of many of the fast changes and how its affected equity.

In rid of it the operative number that is most important today is interest coverage and well within the sweet spot of interest coverage at five plus with the rating agency.

And so you know it doesn't take a whole lot of room for us to have the capabilities to look at share repurchase.

You know we've had targets in the past there's been a one third debt total capital.

You know those targets are somewhat irrelevant today given the changes in the

equity

.

All right thanks very much.

All right.

And now we will go to

with A G Edwards.

Good morning.

David I'm not sure if you already went over this but could you elaborate a little bit on your North American sales trends versus the retail trends.

Where are we seeing the inventory rationalization.

Is it still going on and how long do you precede it to go on.

And is there anything else you think that is going on here.

Any market share movement between the major retailers.

Yes let me first address the trade inventory situation.

We did see in Q3 about what we estimated about one and a half percent difference between shipments and actual self-route key retailers.

And I think that's just really retailers as our business has been very aggress even very conservative and watching their inventory levels given some of the uncertainty.

You know having said that and we speak with our

retailer's everyday but everyone is going into the fourth quarter with what they would consider to be conservative inventory levels.

I would say their expectations are in line with ours of a very small increase in market demand in the fourth quarter.

And literally dealing weakly we make adjustments to our inventory schedules according to that.

It's not in any once particular area I think it's very board based.

In terms of market share changes you know I think things that we've seen through the first half continue somewhat in the third quarter.

There is some shifting of retail market share around but it's very consistent to what we've seen during the last two or three-quarters.

Ok do you think the inventory rationalization is finished then.

Assuming that industry demand holds in this two percent.

Yeah, yes I do.

OK, and then one last question.

If you look at 2002s EPS contributions from pension and Brazilian tax credit, well how much would that be for the full year 2002.

We're calculating.

OK.

I think now we'll go to Mary

with ...

About $70 million.

And now we'll go to Mary

with Parker Hunter.

Yes you release total shipments for the company ended up 4.6 percent in the half, 7/9 in the quarter, could you give us some color as to which regi ... what the numbers were in the regions.

Yeah, we sure can.

Nine- percent unit increase in North America. 7.5 percent unit increase in Europe.

Latin America a little over one percent and a 14 percent unit increase in Asia.

And just a little bit - in North America numbers of course includes Mexico consolidated and it also includes our KitchenAid portable business.

So in my comments basically I talked about you know absent - looking at the major appliance business - the North American revenue was up one percent, if you take Mexico out and portables.

OK and units if you took out Mexico and the small appliances would they have been up about one percent or flat.

About the same.

About the same.

OK thank you very much.

And now we'll go to

with

Capital Management.

Good morning I am frustrated by the constant questions that the Wall Street Analyst ask respecting share buy backs particularly in the case of Whirlpool where your book equity has been greatly reduced.

I would wonder - I favor the debt reduction - Mr. Whitwam when are we going to hear some positive comments about the dividend and less about excellerating or continuing a very aggressive stock buy back program.

when we sit and make decisions on use of the assets of the company we don't exclude dividends from the conversation at all.

: Well I haven't heard anything about dividends in the several years that we've been shareholders and our customers have been shareholders of whirlpool.

OK well again we review on a quarterly basis with our board dividends as well as all the other decisions that we make on the use of the resources of the company and that is a deliberative process - we don't

with a position, we're not going to increase dividends and so again all I can say to you is we with the board look at those alternatives and make what we believe is the best decision for the shareholders.

: Now I hardly see how buying back shares is putting money in the pockets of shareholders.

I can certainly see how paying dividends is putting money in the pockets of shareholders.

We'll continue to absolutely do the right kind of analysis at the end of each quarter as we look at the dividends, take your comments under consideration.

: And I just hope that the Wall Street crowd that is listening would cease to pester management's about when are you going to increase the share buy backs.

OK.

: Thank you.

Thank you.

And now we have follow up from Steven

with A.G. Edwards.

: I just want to make sure we sort of got talked over by the moderator on the pension and Brazilian tax credit.

Did I hear you say 70 million?

Yes.

: And is that pre-tax or after tax?

Is that a net income impact I guess?

While the earnings purse yes.

It would be about 80 cents on an earnings per share basis because the Brazilian tax exports, the Brazilian exports do not have any tax impact on them.

: OK.

All right, thank you.

And it appears we have no further questions at this time I'll turn the conference back over to you.

OK.

Well let me thank all of you for taking the time to be with us this morning.

I'd like to

this from an operating standpoint with our businesses.

I and Jeff and Steve are pleased with the performance of these businesses.

These are difficult times to forecast well to get.

We have a great deal of confidence that we're going to deliver on our commitments for the full year and again we continue to be comfortable with the consensus forecast that you all have.

Thank you again for joining us.

And that concludes today's conference.

Thank you all for your participation.