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EX-32.1 - EXHIBIT 32.1 - WHIRLPOOL CORP /DE/exb321-9302015.htm
EX-31.2 - EXHIBIT 31.2 - WHIRLPOOL CORP /DE/exb312-9302015.htm
EX-31.1 - EXHIBIT 31.1 - WHIRLPOOL CORP /DE/exb311-9302015.htm
EX-10.1 - EXHIBIT 10.1 - WHIRLPOOL CORP /DE/exb101-9302015.htm



UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
 ________________________________________________________
FORM 10-Q
  ________________________________________________________
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-3932
WHIRLPOOL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
38-1490038
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
 
 
 
2000 North M-63,
Benton Harbor, Michigan
 
49022-2692
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (269) 923-5000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                        Yes  x    No   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x    No   o    
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
 
Accelerated filer  o
Non-accelerated filer  o (Do not check if a smaller reporting  company)
 
Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o   No  x
Number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class of common stock
 
Shares outstanding at October 16, 2015
Common stock, par value $1 per share
 
78,194,437




QUARTERLY REPORT ON FORM 10-Q
WHIRLPOOL CORPORATION
Three and Nine Months Ended September 30, 2015
INDEX OF INFORMATION INCLUDED IN REPORT
 



FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. Certain statements contained in this quarterly report, including those within the forward-looking perspective section within the Management's Discussion and Analysis, and other written and oral statements made from time to time by us or on our behalf do not relate strictly to historical or current facts and may contain forward-looking statements that reflect our current views with respect to future events and financial performance. As such, they are considered “forward-looking statements” which provide current expectations or forecasts of future events. Such statements can be identified by the use of terminology such as “may,” “could,” “will,” “should,” “possible,” “plan,” “predict,” “forecast,” “potential,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “believe,” “may impact,” “on track,” and similar words or expressions. Our forward-looking statements generally relate to our growth strategies, financial results, product development, and sales efforts. These forward-looking statements should be considered with the understanding that such statements involve a variety of risks and uncertainties, known and unknown, and may be affected by inaccurate assumptions. Consequently, no forward-looking statement can be guaranteed and actual results may vary materially.
This document contains forward-looking statements about Whirlpool Corporation and its consolidated subsidiaries (“Whirlpool”) that speak only as of this date. Whirlpool disclaims any obligation to update these statements. Forward-looking statements in this document may include, but are not limited to, statements regarding expected earnings per share, cash flow, productivity and raw material prices. Many risks, contingencies and uncertainties could cause actual results to differ materially from Whirlpool's forward-looking statements. Among these factors are: (1) intense competition in the home appliance industry reflecting the impact of both new and established global competitors, including Asian and European manufacturers; (2) acquisition and investment-related risk, including risk associated with our acquisitions of Hefei Sanyo and Indesit, and risk associated with our increased presence in emerging markets; (3) Whirlpool's ability to continue its relationship with significant trade customers and the ability of these trade customers to maintain or increase market share; (4) risks related to our international operations, including changes in foreign regulations, regulatory compliance and disruptions arising from natural disasters or terrorist attacks; (5) fluctuations in the cost of key materials (including steel, plastic, resins, copper and aluminum) and components and the ability of Whirlpool to offset cost increases; (6) the ability of Whirlpool to manage foreign currency fluctuations; (7) litigation, tax, and legal compliance risk and costs, especially costs which may be materially different from the amount we expect to incur or have accrued for; (8) the effects and costs of governmental investigations or related actions by third parties; (9) changes in the legal and regulatory environment including environmental and health and safety regulations; (10) Whirlpool's ability to maintain its reputation and brand image; (11) the ability of Whirlpool to achieve its business plans, productivity improvements, cost control, price increases, leveraging of its global operating platform, and acceleration of the rate of innovation; (12) information technology system failures and data security breaches; (13) product liability and product recall costs; (14) inventory and other asset risk; (15) changes in economic conditions which affect demand for our products, including the strength of the building industry and the level of interest rates; (16) the ability of suppliers of critical parts, components and manufacturing equipment to deliver sufficient quantities to Whirlpool in a timely and cost-effective manner; (17) the uncertain global economy; (18) our ability to attract, develop and retain executives and other qualified employees; (19) the impact of labor relations; (20) Whirlpool's ability to obtain and protect intellectual property rights; and (21) health care cost trends, regulatory changes and variations between results and estimates that could increase future funding obligations for pension and postretirement benefit plans.
We undertake no obligation to update any forward-looking statement, and investors are advised to review disclosures in our filings with the SEC. It is not possible to foresee or identify all factors that could cause actual results to differ from expected or historic results. Therefore, investors should not consider the foregoing factors to be an exhaustive statement of all risks, uncertainties, or factors that could potentially cause actual results to differ from forward-looking statements. Additional information concerning these and other factors can be found in “Risk Factors” in Part II, Item 1A of this report.
Unless otherwise indicated, the terms “Whirlpool,” “the Company,” “we,” “us,” and “our” refer to Whirlpool Corporation and its consolidated subsidiaries.


2


PART I.
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
WHIRLPOOL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE PERIODS ENDED SEPTEMBER 30
(Millions of dollars, except per share data)
 

 
Three Months Ended
 
Nine Months Ended
 
2015
 
2014
 
2015
 
2014
Net sales
$
5,277

 
$
4,824

 
$
15,331

 
$
13,869

Expenses
 
 
 
 
 
 
 
Cost of products sold
4,347

 
3,997

 
12,643

 
11,500

Gross margin
930

 
827

 
2,688

 
2,369

Selling, general and administrative
529

 
448

 
1,583

 
1,344

Intangible amortization
18

 
6

 
55

 
17

Restructuring costs
54

 
38

 
145

 
101

Operating profit
329

 
335

 
905

 
907

Other income (expense)
 
 
 
 

 

Interest and sundry income (expense)
(21
)
 
(39
)
 
(32
)
 
(78
)
Interest expense
(41
)
 
(35
)
 
(124
)
 
(119
)
Earnings before income taxes
267

 
261

 
749

 
710

Income tax expense
17

 
26

 
116

 
126

Net earnings
250

 
235

 
633

 
584

Less: Net earnings available to noncontrolling interests
15

 
5

 
30

 
15

Net earnings available to Whirlpool
$
235

 
$
230

 
$
603

 
$
569

Per share of common stock
 
 
 
 
 
 
 
Basic net earnings available to Whirlpool
$
2.98

 
$
2.92

 
$
7.64

 
$
7.26

Diluted net earnings available to Whirlpool
$
2.95

 
$
2.88

 
$
7.54

 
$
7.16

Dividends declared
$
0.90

 
$
0.75

 
$
2.55

 
$
2.125

Weighted-average shares outstanding (in millions)
 
 
 
 
 
 
 
Basic
78.8

 
78.4

 
78.9

 
78.3

Diluted
79.7

 
79.6

 
79.9

 
79.4

 
 
 
 
 
 
 
 
Comprehensive income
$
45

 
$
39

 
$
254

 
$
429


The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.


3


WHIRLPOOL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Millions of dollars, except share data)
 
 
(Unaudited)
 
 

September 30,
2015

December 31,
2014
Assets



Current assets



Cash and equivalents
$
698


$
1,026

Accounts receivable, net of allowance of $165 and $154, respectively
2,914


2,768

Inventories
2,943


2,740

Deferred income taxes
341


417

Prepaid and other current assets
983


1,147

Total current assets
7,879


8,098

Property, net of accumulated depreciation of $5,964 and $5,959, respectively
3,684


3,981

Goodwill
3,039


2,807

Other intangibles, net of accumulated amortization of $309 and $267, respectively
2,705


2,803

Deferred income taxes
1,917


1,900

Other noncurrent assets
399


413

Total assets
$
19,623


$
20,002

Liabilities and stockholders’ equity



Current liabilities



Accounts payable
$
4,162


$
4,730

Accrued expenses
693


852

Accrued advertising and promotions
614


673

Employee compensation
426


499

Notes payable
803


569

Current maturities of long-term debt
507


234

Other current liabilities
1,006


846

Total current liabilities
8,211


8,403

Noncurrent liabilities



Long-term debt
3,502


3,544

Pension benefits
976


1,123

Postretirement benefits
405


446

Other noncurrent liabilities
740


690

Total noncurrent liabilities
5,623


5,803

Stockholders’ equity



Common stock, $1 par value, 250 million shares authorized, 110 million shares issued, and 78 million shares outstanding
110


110

Additional paid-in capital
2,597


2,555

Retained earnings
6,611


6,209

Accumulated other comprehensive loss
(2,211
)

(1,840
)
Treasury stock, 32 million shares
(2,244
)

(2,149
)
Total Whirlpool stockholders’ equity
4,863


4,885

Noncontrolling interests
926


911

Total stockholders’ equity
5,789


5,796

Total liabilities and stockholders’ equity
$
19,623


$
20,002


The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.


4


WHIRLPOOL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE PERIODS ENDED SEPTEMBER 30
(Millions of dollars)
 

 
Nine Months Ended

 
2015
 
2014
Operating activities
 
 
 
 
Net earnings
 
$
633

 
$
584

Adjustments to reconcile net earnings to cash used in operating activities:
 
 
 
 
Depreciation and amortization
 
496

 
397

Curtailment gain
 
(63
)
 

Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
(405
)
 
(302
)
Inventories
 
(397
)
 
(399
)
Accounts payable
 
(288
)
 
44

Accrued advertising and promotions
 
(34
)
 
(18
)
Accrued expenses and current liabilities
 
(26
)
 
(161
)
Taxes deferred and payable, net
 
(44
)
 
40

Accrued pension and postretirement benefits
 
(109
)
 
(165
)
Employee compensation
 
(31
)
 
(55
)
Other
 
111

 
(93
)
Cash used in operating activities
 
(157
)
 
(128
)
Investing activities
 
 
 
 
Capital expenditures
 
(391
)
 
(422
)
Proceeds from sale of assets and business
 
35

 
18

Change in restricted cash
 
21

 

Acquisition of Indesit Company S.p.A.
 

 
(75
)
Acquisition of Hefei Rongshida Sanyo Electric Co., Ltd.
 

 
(250
)
Investment in related businesses
 
(72
)
 
(16
)
Other
 

 
(3
)
Cash used in investing activities
 
(407
)
 
(748
)
Financing activities
 
 
 
 
Proceeds from borrowings of long-term debt
 
531

 
818

Repayments of long-term debt
 
(278
)
 
(606
)
Dividends paid
 
(200
)
 
(165
)
Net proceeds from short-term borrowings
 
307

 
476

Common stock issued
 
36

 
31

Repurchase of common stock
 
(95
)
 
(25
)
Purchase of noncontrolling interest shares
 

 
(5
)
Other
 
(5
)
 
(13
)
Cash provided by financing activities
 
296

 
511

Effect of exchange rate changes on cash and equivalents
 
(60
)
 
(28
)
Decrease in cash and cash equivalents
 
(328
)
 
(393
)
Cash and equivalents at beginning of period
 
1,026

 
1,380

Cash and equivalents at end of period
 
$
698

 
$
987


The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.


5


NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(1)    BASIS OF PRESENTATION
General Information
The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information or footnotes required by GAAP for complete financial statements. As a result, this Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying Notes in our Form 10-K for the year ended December 31, 2014.
Management believes that the accompanying Consolidated Condensed Financial Statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods.
We have eliminated all material intercompany transactions in our Consolidated Condensed Financial Statements. We do not consolidate the financial statements of any company in which we have an ownership interest of 50% or less unless that company is deemed to be a variable interest entity ("VIE") of which we are the primary beneficiary. Certain VIEs are consolidated when the company is the primary beneficiary of these entities and has the ability to directly impact the activities of these entities.
We are required to make estimates and assumptions that affect the amounts reported in the Consolidated Condensed Financial Statements and accompanying Notes. Actual results could differ materially from those estimates.
Certain prior year amounts in the Consolidated Condensed Financial Statements have been reclassified to conform with current year presentation.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers (Topic 606)", which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The FASB has approved a one year deferral of this standard, and this pronouncement is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period and is to be applied using one of two retrospective application methods, with early application not permitted. We have not yet determined the potential effects from this pronouncement on our Consolidated Financial Statements.
In April 2015, FASB issued ASU No. 2015-03, Interest - "Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs". The guidance requires debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with the presentation for debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. In August 2015, the FASB issued ASU No. 2015-15, Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcements at the June 2015 EITF Meeting. ASU 2015-15 amends Subtopic 835-30 to include that the SEC would not object to the deferral and presentation of debt issuance costs as an asset and subsequent amortization of debt issuance costs over the term of the line-of-credit arrangement, whether or not there are any outstanding borrowings on the line-of-credit arrangement. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015, and must be applied on a retrospective basis with early adoption permitted. The adoption is not expected to have a material impact on our Consolidated Financial Statements.


6



In July 2015, the FASB issued ASU No. 2015-12, "Plan Accounting—Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962) Health and Welfare Benefit Plans (Topic 965)". There are three parts to the ASU that aim to simplify the accounting and presentation of plan accounting. Part I of this ASU requires fully benefit-responsive investment contracts to be measured at contract value instead of the current fair value measurement. Part II of this ASU requires investments (both participant-directed and nonparticipant-directed investments) of employee benefit plans be grouped only by general type, eliminating the need to disaggregate the investments in multiple ways. Part III of this ASU provides a similar measurement date practical expedient for employee benefit plans as available in ASU No. 2015-04, which allows employers to measure defined benefit plan assets on a month-end date that is nearest to the year’s fiscal year-end when the fiscal period does not coincide with a month-end. Parts I and II of the new guidance should be applied on a retrospective basis. Part III of the new guidance should be applied on a prospective basis. This ASU is effective for fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years. The adoption is not expected to have a material impact on our Consolidated Financial Statements.
In July 2015, the FASB issued ASU No. 2015-11, "Simplifying the Measurement of Inventory", which amends ASC 330, Inventory. This ASU simplifies the subsequent measurement of inventory by using only the lower of cost and net realizable value. The ASU does not apply to inventory measured using last-in, first-out method. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2016, and must be applied on a retrospective basis with early adoption permitted. The adoption is not expected to have a material impact on our Consolidated Financial Statements.
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): "Simplifying the Accounting for Measurement-Period Adjustments", which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Under this ASU, acquirers must recognize measurement-period adjustments in the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. This guidance is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company elected to early adopt this ASU in the third quarter of 2015. As a result, we have not retrospectively accounted for the measurement-period adjustments determined in the third quarter of 2015 related to the corrective action described in Note 2 in our Consolidated Financial Statements.
All other issued but not yet effective accounting pronouncements are not expected to have a material impact on our Consolidated Financial Statements.
(2)    ACQUISITIONS
Whirlpool China
On October 24, 2014, Whirlpool's wholly-owned subsidiary, Whirlpool (China) Investment Co., Ltd., completed its acquisition of a 51% equity stake in Hefei Rongshida Sanyo Electric Co., Ltd. ("Hefei Sanyo"), a joint stock company whose shares are listed and traded on the Shanghai Stock Exchange, which we have since renamed Whirlpool (China) Co., Ltd ("Whirlpool China").
The aggregate purchase price for the transaction was RMB 3.4 billion (approximately $551 million at the dates of purchase for each step of the transaction). The Company funded the total consideration for the shares with cash on hand. The cash paid for the private placement step of the transaction is considered restricted cash, which will be used to fund capital and technical resources to enhance Whirlpool China’s research and development and working capital.
Whirlpool China results are included in our Asia operating segment.
Indesit Company S.p.A.
On December 3, 2014, Whirlpool completed the final step in its acquisition of Indesit Company S.p.A. (“Indesit”) and, on the same day, Indesit delisted from the Electronic Stock Market organized and managed by Borsa Italiana S.p.A. Total consideration paid for Indesit was €1.1 billion (approximately $1.4 billion at the dates of purchase of each step in the transaction) in aggregate net of cash acquired.
The Company funded the aggregate purchase price for Indesit through borrowings under its credit facility and commercial paper programs, and repaid a portion of such borrowings through the issuance of an aggregate principal amount of $650 million in senior notes on November 4, 2014 and an aggregate principal amount of €500 million (approximately $525 million as of the date of issuance) in senior notes on March 12, 2015. Additional information about our 2015 financing arrangements can be found in Note 6.
Indesit results are included in our EMEA operating segment.


7


Purchase Price Allocations
The Company has finalized independent appraisals for the purpose of allocating the purchase price to the individual assets acquired and liabilities assumed in the Whirlpool China and Indesit acquisitions. This resulted in adjustments to the carrying values of recorded assets and liabilities, and the determination of residual amounts allocated to goodwill. The final allocation of the purchase prices included in the current period balance sheet is based on the final determination of asset fair values.
The following table presents the final allocation of purchase price related to the Whirlpool China and Indesit acquisitions, as of their respective dates of acquisition. Adjustments made to the opening balance sheet in the nine months ended September 30, 2015 include an $8 million increase to Whirlpool China's goodwill resulting primarily from a reassessment of deferred tax assets, a $296 million increase to Indesit's goodwill primarily reflecting the recognition of a corrective action on certain heritage Indesit products, a revaluation of current and deferred tax liabilities, an increase in trade partner incentives, and an increase in environmental liabilities. Additional information about the corrective action can be found in Note 7 in the Company's Consolidated Condensed Financial Statements. In addition, we have performed certain balance sheet reclassifications between notes payable and other current liabilities and between accounts payable and other current liabilities, in order to conform to Whirlpool's financial statement presentation. The effect of these adjustments would not have a material impact to net earnings for the nine months ended September 30, 2015 if they would have been previously recognized as of the acquisition date.
Millions of dollars
 
Whirlpool China(1)
 
Indesit
Cash
 
$
98

 
$
77

Accounts receivable
 
78

 
886

Inventory
 
135

 
471

Other current assets
 
354

 
288

Property, plant and equipment
 
169

 
854

Goodwill
 
459

 
963

Identified intangible assets
 
372

 
822

Other non-current assets
 
313

 
185

Total assets acquired
 
1,978

 
4,546

 
 
 
 
 
Accounts payable
 
(181
)
 
(866
)
Short-term notes payable
 

 
(557
)
Other current liabilities
 
(307
)
 
(410
)
Non-current liabilities
 
(142
)
 
(1,276
)
Total liabilities assumed
 
(630
)
 
(3,109
)
 
 
 
 
 
Net assets acquired
 
$
1,348

 
$
1,437

(1) We purchased a 51% controlling interest in Whirlpool China's net assets described in the table; the non-controlling interest was valued at $801 million, the market value of the stock price of the shares purchased on the date of acquisition.
Goodwill, which is not deductible for tax purposes, has been allocated to the Asia and EMEA operating segments on the basis that the cost efficiencies identified will primarily benefit these segments of the business based on the preliminary allocation of the purchase price of the respective acquisitions. Any changes to the preliminary estimates of the fair values of the assets and liabilities will be allocated to residual goodwill.


8


The Company's final estimates regarding the fair value of Whirlpool China and Indesit's identifiable intangible assets are presented below. These estimates did not change in the nine months ended September 30, 2015:
 
 
Whirlpool China
 
Indesit
Millions of dollars
 
Estimated
Fair Value
 
Estimated
Useful Life
 
Estimated
Fair Value
 
Estimated
Useful Life
Trademarks-indefinite lived
 
$
42

 
 
 
$
535

 
 
Customer relationships
 
230

 
13-16 years
 
134

 
5-19 years
Patents and other intangibles
 
100

 
3-10 years
 
153

 
6-15 years
 
 
$
372

 
 
 
$
822

 
 
The customer relationship intangibles of Whirlpool China were mainly allocated to its traditional trade distributors, which have an estimated useful life of up to 16 years based on low historical and projected customer attrition rates among its retailers. The majority of the intangible asset valuation for Indesit relates to the Indesit and Hotpoint brands (Whirlpool ownership of the Hotpoint brand in EMEA and Asia Pacific regions is not affiliated with the Hotpoint brand sold in the Americas), which are indefinite lived intangibles. The Company determined that its trademarks have an indefinite life which is based on a number of factors, including competitive environment, market share, brand history and product life cycles. The patents and other intangibles have an estimated useful life that varies based on the estimate of the expected life of the technology and the products associated with the technology. The estimated useful lives of the finite-lived intangible assets will be amortized using a straight-line method of amortization.
Pro Forma Results of Operations
The results of Whirlpool China and Indesit’s operations have been included in the Consolidated Condensed Financial Statements beginning October 24, 2014 and October 14, 2014, respectively. The following table provides pro forma results of operations for the nine months ended September 30, 2014, as if Whirlpool China and Indesit had been acquired as of January 1, 2014. The pro forma results include certain purchase accounting adjustments such as the estimated changes in depreciation and amortization expense on acquired tangible and intangible assets as well as interest expense on borrowings used to finance the acquisitions. Additionally, the pro forma results include adjustments to convert Whirlpool China and Indesit’s historical results from local accounting standards to U.S. GAAP. Pro forma results do not include any anticipated cost savings or other effects of the planned integration of these acquisitions. Accordingly, such amounts are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the dates indicated or that may result in the future.
 
 
Nine Months Ended September 30,
Millions of dollars, except per share data
 
2014
Net sales
 
$
17,046

Net earnings available to Whirlpool
 
$
599

Diluted net earnings per share
 
$
7.53

Certain non-recurring acquisition-related costs and investment expenses of $24 million and $26 million were recorded by Whirlpool in the nine months ended September 30, 2014 related to the acquisitions of Whirlpool China and Indesit, respectively. Of these costs, $29 million of the aggregate amount was recorded in selling, general and administrative, with the remaining costs recorded in interest and sundry income (expense). These costs have been eliminated from the pro forma information presented above.
(3)    FAIR VALUE MEASUREMENTS
Fair value is measured based on an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions market participants would use in pricing an asset or liability. Assets and liabilities measured at fair value are based on a market valuation approach using prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. As a basis for considering such assumptions, a three-tiered fair value hierarchy is established, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets that are observable, either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. We had no Level 3 assets or liabilities at September 30, 2015 and December 31, 2014.


9


Assets and liabilities measured at fair value on a recurring basis at September 30, 2015 and December 31, 2014 are in the following table:
 
 
 
 
 
 
Fair Value
 
 
Total Cost Basis
 
Level 1
 
Level 2
 
Total
Millions of dollars
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Money market funds (1)
 
$
15

 
$
21

 
$
15

 
$
21

 
$

 
$

 
$
15

 
$
21

Net derivative contracts
 

 

 

 

 
(38
)
 
(1
)
 
(38
)
 
(1
)
Available for sale investments
 
14

 
16

 
23

 
26

 

 

 
23

 
26

(1) Money market funds are comprised primarily of government obligations and other first tier obligations.
Other Fair Value Measurements
The fair value of long-term debt (including current maturities) was $4.1 billion and $3.8 billion at September 30, 2015 and December 31, 2014, respectively, and was estimated using discounted cash flow analyses based on incremental borrowing rates for similar types of borrowing arrangements (Level 2 input).
(4)    INVENTORIES
The following table summarizes our inventory for the periods presented:
Millions of dollars
 
September 30,
2015
 
December 31,
2014
Finished products
 
$
2,403

 
$
2,189

Raw materials and work in process
 
687

 
724

 
 
3,090

 
2,913

Less: excess of FIFO cost over LIFO cost
 
(147
)
 
(173
)
Total inventories
 
$
2,943


$
2,740

LIFO inventories represented 37% and 35% of total inventories at September 30, 2015 and December 31, 2014, respectively.
(5)    PROPERTY, PLANT & EQUIPMENT
The following table summarizes our property, plant and equipment as of September 30, 2015 and December 31, 2014:
Millions of dollars
 
September 30,
2015
 
December 31,
2014
Land
 
$
133

 
$
142

Buildings
 
1,592

 
1,616

Machinery and equipment
 
7,923

 
8,182

Accumulated depreciation
 
(5,964
)
 
(5,959
)
Property, plant and equipment, net
 
$
3,684

 
$
3,981

During the nine months ended September 30, 2015, we disposed of $102 million of buildings, machinery and equipment.
(6)    FINANCING ARRANGEMENTS
Debt
In the fourth quarter of 2014, we assumed €300 million principal amount of 4.5% guaranteed notes due on April 26, 2018 from the Indesit acquisition. During the first quarter of 2015, holders of the notes passed a resolution which amended the terms and conditions of the notes so that they are better aligned to the terms and conditions of notes and bonds issued by Whirlpool Corporation. As a result of the passage of the resolution, Whirlpool has agreed to be a guarantor of the notes. These notes contain covenants that limit our ability to incur certain liens or enter into certain sale and lease-back transactions. In addition, if we experience a specific kind of change of control, we are required to make an offer to purchase all of the notes at a purchase price of 101% of the principal amount thereof, plus accrued and unpaid interest.


10



On May 15, 2015, $200 million of 5.00% notes matured and were repaid. On March 12, 2015, we completed a debt offering of €500 million (approximately $525 million as of the date of issuance) principal amount of 0.625% notes due in 2020. The notes contain covenants that limit our ability to incur certain liens or enter into certain sale and lease-back transactions. In addition, if we experience a specific kind of change of control, we are required to make an offer to purchase all of the notes at a purchase price of 101% of the principal amount thereof, plus accrued and unpaid interest. The notes are registered under the Securities Act of 1933, as amended, pursuant to our Registration Statement on Form S-3 (File No. 333-181339) filed with the Securities and Exchange Commission (the “Commission”) on May 11, 2012.
On September 25, 2015, we entered into an Amended and Restated Short-Term Credit Agreement (the “Amended 364-Day Facility”). The Amended 364-Day Facility has a maturity date of September 23, 2016, aggregate borrowing capacity of $500 million and amends and restates in its entirety the Short-Term Credit Agreement entered into on September 26, 2014 (the “Original 364-Day Facility”).
We had no borrowings outstanding under the Amended 364-Day Facility at September 30, 2015 or the Original 364-Day Facility at December 31, 2014, respectively.
The interest and fee rates payable with respect to the Amended 364-Day Facility based on our current debt rating are unchanged from the Original 364-Day Facility and are as follows: (1) the spread over LIBOR is 1.250%; (2) the spread over prime is 0.250%; and (3) the unused commitment fee is 0.125%, as of the date hereof. The Amended 364-Day Facility contains customary covenants and warranties including, among other things, a rolling twelve month maximum leverage ratio limited to 3.25 to 1.0 for each fiscal quarter and a rolling twelve month interest coverage ratio required to be greater than or equal to 3.0 to 1.0 for each fiscal quarter. In addition, the covenants limit our ability to (or to permit any subsidiaries to), subject to various exceptions and limitations: (i) merge with other companies; (ii) create liens on its property; (iii) incur debt or off-balance sheet obligations at the subsidiary level; (iv) enter into transactions with affiliates, except on an arms-length basis; (v) enter into agreements restricting the payment of subsidiary dividends or restricting the making of loans or repayment of debt by subsidiaries; and (vi) enter into agreements restricting the creation of liens on its assets. We are in compliance with financial covenant requirements at September 30, 2015 and December 31, 2014.
Notes Payable
Notes payable, which consist of short-term borrowings payable to banks, debt securitization or commercial paper, are generally used to fund working capital requirements. The fair value of our notes payable approximates the carrying amount due to the short maturity of these obligations. The following table summarizes the carrying value of notes payable at September 30, 2015 and December 31, 2014:
Millions of dollars
 
September 30, 2015
 
December 31, 2014
Commercial paper
 
$
656

 
$
387

Debt securitization
 

 
35

Short-term borrowings to banks
 
147

 
147

Total notes payable
 
$
803

 
$
569

Indesit, acquired by Whirlpool in the fourth quarter of 2014, had maintained a securitization program since 2010. The securitization involved the without-recourse sale of trade receivables by Indesit. The receivables were acquired by VIEs which were financed by the issuance of securities whose repayment was guaranteed by the cash flows generated by the receivables sold. Whirlpool stopped the sale of receivables related to the securitization beginning in December 2014, and this debt securitization was exited as planned through the first quarter of 2015. There are no outstanding balances as of September 30, 2015 related to the securitization program.


11


(7)    COMMITMENTS AND CONTINGENCIES
Embraco Antitrust Matters
Beginning in February 2009, our compressor business headquartered in Brazil ("Embraco") was notified of antitrust investigations of the global compressor industry by government authorities in various jurisdictions. Embraco has resolved government investigations in various jurisdictions as well as all related civil lawsuits in the United States. Embraco also has resolved certain other claims and certain claims remain pending. Additional lawsuits could be filed.
At September 30, 2015, $23 million remains accrued, with installment payments of $15 million, plus interest, due at various times through 2015. We continue to defend these actions and take other steps to minimize our potential exposure. The final outcome and impact of these matters, and any related claims and investigations that may be brought in the future are subject to many variables, and cannot be predicted. We establish accruals only for those matters where we determine that a loss is probable and the amount of loss can be reasonably estimated. While it is currently not possible to reasonably estimate the aggregate amount of costs which we may incur in connection with these matters, such costs could have a material adverse effect on our financial position, liquidity, or results of operations in any particular reporting period.
BEFIEX Credits and Other Brazil Tax Matters
In previous years, our Brazilian operations earned tax credits under the Brazilian government’s export incentive program (BEFIEX). These credits reduced Brazilian federal excise taxes on domestic sales, resulting in an increase in the operations’ recorded net sales, as the credits were monetized. We did not monetize any BEFIEX credits during the nine months ended September 30, 2015. We monetized $14 million of BEFIEX credits during the nine months ended September 30, 2014. We began recognizing BEFIEX credits in accordance with prior favorable court decisions allowing for the credits to be recognized. We recognized export credits as they were monetized.
In December 2013, the Brazilian government reinstituted the monetary adjustment index applicable to BEFIEX credits that existed prior to July 2009, when the Brazilian government required companies to apply a different monetary adjustment index to BEFIEX credits. As of September 30, 2015, no BEFIEX credits deemed to be available prior to this action remained to be monetized. Whether use of the reinstituted index should be given retroactive effect for the July 2009 to December 2013 period has been subject to review by the Brazilian courts. If the reinstituted index is given retroactive effect, we would be entitled to recognize additional credits. We are awaiting the resolution of additional proceedings on the retroactive effect of the reinstituted index.
Our Brazilian operations have received governmental assessments related to claims for income and social contribution taxes associated with BEFIEX credits monetized from 2000 through 2002 and 2007 through 2011. We do not believe BEFIEX export credits are subject to income or social contribution taxes. We are disputing these tax matters in various courts and intend to vigorously defend our positions. We have not provided for income or social contribution taxes on these export credits, and based on the opinions of tax and legal advisors, we have not accrued any amount related to these assessments as of September 30, 2015. The total amount of outstanding tax assessments received for income and social contribution taxes relating to the BEFIEX credits, including interest and penalties, is approximately 1.5 billion Brazilian reais (approximately $380 million as of September 30, 2015).
Relying on existing Brazilian legal precedent, in 2003 and 2004, we recognized tax credits in an aggregate amount of $26 million, adjusted for currency, on the purchase of raw materials used in production (“IPI tax credits”). The Brazilian tax authority subsequently challenged the recording of IPI tax credits. No credits have been recognized since 2004. In 2009, we entered into a Brazilian government program which provided extended payment terms and reduced penalties and interest to encourage tax payers to resolve this and certain other disputed tax credit amounts. As permitted by the program, we elected to settle certain debts through the use of other existing tax credits and recorded charges of approximately $34 million in 2009 associated with these matters. In July 2012, the Brazilian revenue authority notified us that a portion of our proposed settlement was rejected and we received tax assessments of 216 million Brazilian reais (approximately $54 million as of September 30, 2015), reflecting interest and penalties to date. We are disputing these assessments and we intend to vigorously defend our position. Based on the opinion of our tax and legal advisors, we have not recorded an additional reserve related to these matters.


12


In 2001, Brazil adopted a law making the profits of controlled foreign corporations of Brazilian entities subject to income and social contribution tax regardless of whether the profits were repatriated ("CFC Tax"). Our Brazilian subsidiary, along with other corporations, challenged tax assessments on foreign profits on constitutionality and other grounds. In April 2013, the Brazilian Supreme Court ruled on one of our cases, finding that the law is constitutional, but remanding the case to a lower court for consideration of other arguments raised in our appeal, including the existence of tax treaties with jurisdictions in which controlled foreign corporations are domiciled. As of September 30, 2015, our potential exposure for income and social contribution taxes relating to profits of controlled foreign corporations, including interest and penalties and net of expected foreign tax credits, is approximately 180 million Brazilian reais (approximately $45 million as of September 30, 2015). We believe these assessments are without merit and we intend to continue to vigorously dispute them. Based on the opinion of our tax and legal advisors, we have not accrued any amount related to these assessments as of September 30, 2015.
In December 2013, we entered into a Brazilian government program to settle long standing disputes. Participation in the program removed uncertainty related to 16 assessments that were previously under dispute and significantly reduces potential penalties and interest associated with these matters. Our participation will result in total payments including principal, interest, and penalties of 75 million Brazilian reais, to be paid in 30 monthly installments, which began in December 2013. The outstanding balance of principal, interest, and penalties at September 30, 2015 is 38 million Brazilian reais (approximately $10 million as of September 30, 2015).
In addition to the IPI tax credit and CFC Tax matters noted above, we are currently disputing other assessments issued by the Brazilian tax authorities related to non-income and income tax matters, including for the monetization of BEFIEX credits and other BEFIEX matters, which are at various stages of review in numerous administrative and judicial proceedings. In accordance with our accounting policies, we routinely assess these matters and, when necessary, record our best estimate of a loss. We believe these tax assessments are without merit and are vigorously defending our positions.
Litigation is inherently unpredictable and the conclusion of these matters may take many years to ultimately resolve. Sessions of trial of the Brazilian administrative council of tax appeals, or CARF, are currently suspended for all litigants while changes in CARF procedures and staffing are being implemented, which may increase time and associated expense for our pending cases. The amounts related to these assessments will continue to be increased by monetary adjustments at the Selic rate, which is the benchmark rate set by the Brazilian Central Bank. Accordingly, it is possible that an unfavorable outcome in these proceedings could have a material adverse effect on our financial position, liquidity, or results of operations in any particular reporting period.
Other Litigation
We are currently defending against numerous lawsuits pending in federal and state courts in the United States relating to certain of our front load washing machines. Some of these lawsuits have been certified for treatment as class actions. The complaints in these lawsuits generally allege violations of state consumer fraud acts, unjust enrichment, product liability claims and breach of warranty. The complaints generally seek compensatory, consequential and punitive damages. We believe these suits are without merit and are vigorously defending them. Given the preliminary stage of many of these proceedings, the Company cannot reasonably estimate a possible range of loss, if any, at this time. The resolution of one or more of these matters could have a material adverse effect on our financial position, liquidity, or results of operations.
In addition, we are currently defending a number of other lawsuits in federal and state courts in the United States related to the manufacturing and sale of our products which include class action allegations. These lawsuits allege claims which include breach of contract, breach of warranty, product liability claims, fraud, violation of federal and state consumer protection acts and negligence. We do not have insurance coverage for class action lawsuits. We are also involved in various other legal actions in the United States and other jurisdictions around the world arising in the normal course of business, for which insurance coverage may or may not be available depending on the nature of the action. We dispute the merits of these suits and actions, and intend to vigorously defend them. Management believes, based upon its current knowledge, after taking into consideration legal counsel's evaluation of such suits and actions, and after taking into account current litigation accruals, that the outcome of these matters currently pending against Whirlpool should not have a material adverse effect, if any, on our financial position, liquidity, or results of operations.
Other Matters
In 2013, the French Competition Authority commenced an investigation of appliance manufacturers and retailers in France. The investigation includes 11 manufacturers, including the Whirlpool and Indesit operations in France. Although it is currently not possible to assess the impact, if any, this matter may have on our Consolidated Condensed Financial Statements, the resolution of this matter could have a material adverse effect on our financial position, liquidity, or results of operations in any particular reporting period.


13


Product Warranty Reserves
Product warranty reserves are included in other current and other noncurrent liabilities in our Consolidated Condensed Balance Sheets. The following table summarizes the changes in total product warranty reserves for the periods presented:
 
 
Nine Months Ended September 30,
Millions of dollars

2015

2014
Balance at January 1

$
235


$
191

Issuances/accruals during the period

474


194

Settlements made during the period

(203
)

(206
)
Balance at September 30

$
506


$
179

 
 
 
 
 
Current portion

$
326


$
141

Non-current portion

180


38

Total

$
506


$
179

In the normal course of business, we engage in investigations of potential quality and safety issues. As part of our ongoing effort to deliver quality products to customers, we are currently investigating a limited number of potential quality and safety issues. As necessary, we undertake to effect repair or replacement of appliances in the event that an investigation leads to the conclusion that such action is warranted.
In September 2015, we recorded a liability related to a corrective action affecting certain heritage Indesit products. We estimate the most probable cost of the corrective action is €245 million (approximately $274 million as of September 30, 2015). Approximately 90% of the affected units were manufactured by Indesit prior to its acquisition by the Company in October 2014. Accordingly, we increased the warranty liability as a purchase accounting adjustment in the opening balance sheet with a corresponding increase to goodwill of €210 million (approximately $235 million as of September 30, 2015). The remainder of the affected units were manufactured after the acquisition of Indesit and the related expense of €35 million (approximately $39 million as of September 30, 2015) was recorded in the third quarter of 2015.
Guarantees
We have guarantee arrangements in a Brazilian subsidiary. As a standard business practice in Brazil, the subsidiary guarantees customer lines of credit at commercial banks to support purchases following its normal credit policies. If a customer were to default on its line of credit with the bank, our subsidiary would be required to satisfy the obligation with the bank and the receivable would revert back to the subsidiary. At September 30, 2015 and December 31, 2014, the guaranteed amounts totaled $231 million and $492 million, respectively. Our subsidiary insures against credit risk for these guarantees, under normal operating conditions, through policies purchased from high-quality underwriters.
We provide guarantees of indebtedness and lines of credit for various consolidated subsidiaries. The maximum amount of credit facilities available under these lines for consolidated subsidiaries totaled $2.0 billion and $2.6 billion at September 30, 2015 and December 31, 2014, respectively. Our total outstanding bank indebtedness under guarantees was nominal at September 30, 2015 and December 31, 2014.
We have guaranteed a $45 million five-year revolving credit facility between certain financial institutions and a not-for-profit entity in connection with a community and economic development project (“Harbor Shores”). The credit facility, which originated in 2008, was refinanced in December 2012 and we renewed our guarantee through 2017. It was also amended in 2014 by Harbor Shores and reduced to $45 million. The fair value of the guarantee was nominal. The purpose of Harbor Shores is to stimulate employment and growth in the areas of Benton Harbor and St. Joseph, Michigan. In the event of default, we must satisfy the guarantee of the credit facility up to the amount borrowed at the date of default.
(8)    HEDGES AND DERIVATIVE FINANCIAL INSTRUMENTS
Derivative instruments are accounted for at fair value based on market rates. Derivatives where we elect hedge accounting are designated as either cash flow or fair value hedges. Derivatives that are not accounted for based on hedge accounting are marked to market through earnings. The accounting for changes in the fair value of a derivative depends on the intended use and designation of the derivative instrument. Hedging ineffectiveness and a net earnings impact occur when the change in the fair value of the hedge does not offset the change in the fair value of the hedged item. The ineffective portion of the gain or loss is recognized in earnings.


14


Using derivative instruments means assuming counterparty credit risk. Counterparty credit risk relates to the loss we could incur if a counterparty were to default on a derivative contract. We generally deal with investment grade counterparties and monitor the overall credit risk and exposure to individual counterparties. We do not anticipate nonperformance by any counterparties. The amount of counterparty credit exposure is limited to the unrealized gains, if any, on such derivative contracts. We do not require nor do we post collateral or security on such contracts.
Hedging Strategy
In the normal course of business, we manage risks relating to our ongoing business operations including those arising from changes in foreign exchange rates, interest rates and commodity prices. Fluctuations in these rates and prices can affect our operating results and financial condition. We use a variety of strategies, including the use of derivative instruments, to manage these risks. We do not enter into derivative financial instruments for trading or speculative purposes.
Foreign Currency Exchange Rate Risk
We incur expenses associated with the procurement and production of products in a limited number of countries, while we sell in the local currencies of a large number of countries. Our primary foreign currency exchange exposures result from cross-currency sales of products. As a result, we enter into foreign exchange contracts to hedge certain firm commitments and forecasted transactions to acquire products and services that are denominated in foreign currencies.
We enter into certain undesignated non-functional currency asset and liability hedges that relate primarily to short-term payables, receivables and intercompany loans. These forecasted cross-currency cash flows relate primarily to foreign currency denominated expenditures and intercompany financing agreements, royalty agreements and dividends. When we hedge a foreign currency denominated payable or receivable with a derivative, the effect of changes in the foreign exchange rates are reflected currently in interest and sundry income (expense) for both the payable/receivable and the derivative. Therefore, as a result of the economic hedge, we do not elect hedge accounting.
Commodity Price Risk
We enter into commodity derivative contracts on various commodities to manage the price risk associated with forecasted purchases of materials used in our manufacturing process. The objective of these hedges is to reduce the variability of cash flows associated with the forecasted purchase of commodities.
Interest Rate Risk
We may enter into interest rate swap agreements to manage interest rate risk exposure. Our interest rate swap agreements, if any, effectively modify our exposure to interest rate risk, primarily through converting certain of our floating rate debt to a fixed rate basis, and certain fixed rate debt to a floating rate basis. These agreements involve either the receipt or payment of floating rate amounts in exchange for fixed rate interest payments or receipts, respectively, over the life of the agreements without an exchange of the underlying principal amounts. We also may utilize a cross-currency interest rate swap agreement to manage our exposure relating to certain intercompany debt denominated in one foreign currency that will be repaid in another foreign currency. At September 30, 2015 and December 31, 2014, there were no outstanding swap agreements.
We may enter into treasury rate lock agreements to effectively modify our exposure to interest rate risk by locking-in interest rates on probable long-term debt issuances.


15


The following table summarizes our outstanding derivative contracts and their effects on our Consolidated Condensed Balance Sheets at September 30, 2015 and December 31, 2014:
 
 
 
 
Fair Value of
 
Type 
of
Hedge(1)
 
 
 
 
Notional Amount
 
Hedge Assets
 
Hedge Liabilities
 
Maximum Term (Months)
Millions of dollars
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
 
 
2015
 
2014
Derivatives accounted for as hedges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange forwards/options
 
$
943

 
$
874

 
$
35

 
$
27

 
$
13

 
$
8

 
(CF)
 
15
 
17
Commodity swaps/options
 
333

 
375

 

 
4

 
64

 
29

 
(CF)
 
35
 
36
Total derivatives accounted for as hedges
 
 
 
 
 
$
35

 
$
31

 
$
77

 
$
37

 
 
 
 
 
 
Derivatives not accounted for as hedges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange forwards/options
 
$
2,410

 
$
2,358

 
$
26

 
$
34

 
$
22

 
$
29

 
N/A
 
8
 
10
Commodity swaps/options
 
5

 
8

 

 

 

 

 
N/A
 
8
 
4
Total derivatives not accounted for as hedges
 
 
 
 
 
26

 
34

 
22

 
29

 
 
 
 
 
 
Total derivatives
 
 
 
 
 
$
61

 
$
65

 
$
99

 
$
66

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
 
 
 
 
$
61

 
$
64

 
$
82

 
$
59

 
 
 
 
 
 
Noncurrent
 
 
 
 
 

 
1

 
17

 
7

 
 
 
 
 
 
Total derivatives
 
 
 
 
 
$
61

 
$
65

 
$
99

 
$
66

 
 
 
 
 
 
(1) Derivatives accounted for as hedges are considered cash flow (CF) hedges.
The following tables summarize the effects of derivative instruments on our Consolidated Condensed Statements of Comprehensive Income for the three and nine months ended as follows:
 
 
Three Months Ended September 30,
 
 
 
Gain (Loss)
Recognized in OCI
(Effective Portion)
 
Gain Reclassified from
OCI into Earnings
(Effective Portion) (1)
 
Cash Flow Hedges - Millions of dollars
 
2015
 
2014
 
2015
 
2014
 
Foreign exchange
 
$
41

 
$
23

 
$
18

 
$
4

(a)
Commodity swaps/options
 
(49
)
 
(8
)
 
(16
)
 

(a)
 
 
$
(8
)
 
$
15

 
$
2

 
$
4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
 
 
 
 
 
 
Gain Recognized on Derivatives not
Accounted for as Hedges (2)
 
Derivatives not Accounted for as Hedges - Millions of dollars
 
 
 
 
 
2015
 
2014
 
Foreign exchange forwards/options
 
 
 
 
 
$
(13
)
 
$
(33
)
 
 
 
 
 
 
 
 
 
 
 


16


 
 
Nine Months Ended September 30,
 
 
 
Gain (Loss)
Recognized in OCI
(Effective Portion)
 
Gain Reclassified from
OCI into Earnings
(Effective Portion) (1)
 
Cash Flow Hedges - Millions of dollars
 
2015
 
2014
 
2015
 
2014
 
Foreign exchange
 
$
51

 
$
27

 
$
42

 
$
13

(a)
Commodity swaps/options
 
(81
)
 
(2
)
 
(37
)
 
(8
)
(a)
Interest rate derivatives
 

 

 
(1
)
 
(1
)
(b)
 
 
$
(30
)
 
$
25

 
$
4

 
$
4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
September 30,
 
 
 
 
 
 
 
Gain Recognized on Derivatives not
Accounted for as Hedges (2)
 
Derivatives not Accounted for as Hedges - Millions of dollars
 
 
 
 
 
2015
 
2014
 
Foreign exchange forwards/options
 
 
 
 
 
$
19

 
$
2

 
(1) Gains and losses reclassified from accumulated OCI and recognized in income are recorded in (a) cost of products sold or (b) interest expense.
(2) Mark to market gains and losses recognized in income are recorded in interest and sundry income (expense).
For cash flow hedges, the amount of ineffectiveness recognized in interest and sundry income (expense) was nominal for the periods ended September 30, 2015 and 2014. There were no fair value hedges in 2015 and 2014. The net amount of unrealized gain or loss on derivative instruments included in accumulated OCI related to contracts maturing and expected to be realized during the next twelve months is nominal at September 30, 2015.
(9)    STOCKHOLDERS’ EQUITY
Other Comprehensive Income (Loss)
The following table summarizes our other comprehensive income (loss) and related tax effects for the periods presented:
 
 
Three Months Ended September 30,
 
 
2015
 
2014
Millions of dollars
 
Pre-tax
Tax Effect
Net
 
Pre-tax
Tax Effect
Net
Currency translation adjustments
 
$
(197
)
$

$
(197
)
 
$
(198
)
$

$
(198
)
Cash flow hedges
 
(10
)
2

(8
)
 
11

(4
)
7

Pension and other postretirement benefits plans
 
9

(4
)
5

 
3

(2
)
1

Available for sale securities
 
(5
)

(5
)
 
(6
)

(6
)
Other comprehensive loss
 
(203
)
(2
)
(205
)
 
(190
)
(6
)
(196
)
Less: Other comprehensive loss available to noncontrolling interests
 
(6
)

(6
)
 
(3
)

(3
)
Other comprehensive loss available to Whirlpool
 
$
(197
)
$
(2
)
$
(199
)
 
$
(187
)
$
(6
)
$
(193
)
 
 
Nine Months Ended September 30,
 
 
2015
 
2014
Millions of dollars
 
Pre-tax
Tax Effect
Net
 
Pre-tax
Tax Effect
Net
Currency translation adjustments
 
$
(343
)
$

$
(343
)
 
$
(164
)
$

$
(164
)
Cash flow hedges
 
(34
)
8

(26
)
 
21

(8
)
13

Pension and other postretirement benefits plans
 
(17
)
8

(9
)
 
(11
)
6

(5
)
Available for sale securities
 
(1
)

(1
)
 
1


1

Other comprehensive income (loss)
 
(395
)
16

(379
)
 
(153
)
(2
)
(155
)
Less: Other comprehensive loss available to noncontrolling interests
 
(8
)

(8
)
 
(2
)

(2
)
Other comprehensive income (loss) available to Whirlpool
 
$
(387
)
$
16

$
(371
)
 
$
(151
)
$
(2
)
$
(153
)


17


Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
The following table provides the reclassification adjustments out of accumulated other comprehensive loss, by component, that was included in net earnings for the three and nine months ended September 30, 2015:
 
 
Three Months Ended
 
Nine Months Ended
 
 
Millions of dollars
 
Gain Reclassified
 
Gain Reclassified
 
Classification in Earnings
Cash flow hedges, pre-tax
 
$
(2
)
 
$
(4
)
 
Cost of products sold
Pension and postretirement benefits, pre-tax
 
(6
)
 
(27
)
 
Cost of products sold / Selling, general and administrative
The following table summarizes the changes in stockholders’ equity for the period presented:
Millions of dollars
 
Total
 
Whirlpool
Common
Stockholders
 
Noncontrolling
Interests
Stockholders' equity, December 31, 2014
 
$
5,796

 
$
4,885

 
$
911

Net earnings
 
633

 
603

 
30

Other comprehensive loss
 
(379
)
 
(371
)
 
(8
)
Comprehensive income
 
254

 
232

 
22

Treasury stock
 
(95
)
 
(95
)
 

Additional paid-in capital
 
42

 
42

 

Dividends declared on common stock
 
(208
)
 
(201
)
 
(7
)
Stockholders' equity, September 30, 2015
 
$
5,789

 
$
4,863

 
$
926

Net Earnings per Share
Diluted net earnings per share of common stock include the dilutive effect of stock options and other share-based compensation plans. Basic and diluted net earnings per share of common stock for the periods presented were calculated as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Millions of dollars and shares
 
2015

2014
 
2015
 
2014
Numerator for basic and diluted earnings per share - Net earnings available to Whirlpool
 
$
235

 
$
230

 
$
603

 
$
569

Denominator for basic earnings per share – weighted-average shares
 
78.8

 
78.4

 
78.9

 
78.3

Effect of dilutive securities – share-based compensation
 
0.9

 
1.2

 
1.0

 
1.1

Denominator for diluted earnings per share – adjusted weighted-average shares
 
79.7

 
79.6

 
79.9

 
79.4

Anti-dilutive stock options/awards excluded from earnings per share
 
0.3

 
0.2

 
0.2

 
0.3

Repurchase Program
On April 14, 2014, our Board of Directors authorized a share repurchase program of up to $500 million. Share repurchases are made from time to time on the open market as conditions warrant. The program does not obligate us to repurchase any of our shares. During the nine months ended September 30, 2015, we repurchased 520,600 shares at an aggregate purchase price of approximately $95 million under this program. At September 30, 2015, there were approximately $380 million in remaining funds authorized under this program.
(10)    RESTRUCTURING CHARGES
During 2014 and the nine months ended September 30, 2015, we announced the following restructuring plans: (a) the closure of a microwave oven manufacturing facility and other organizational efficiency actions in EMEA and Latin America, (b) organizational integration activities in China and Europe to support the integration of the acquisitions of Whirlpool China and Indesit, and (c) the closure of a research and development facility in Germany in 2016.


18


In the second quarter of 2015, we committed to a restructuring plan to integrate our Italian legacy operations with those of Indesit. The industrial restructuring plan, which was approved by the relevant labor unions in July 2015 and signed by the Italian government in August 2015, provides for the closure or repurposing of certain manufacturing facilities and headcount reductions at other facilities. In addition, the restructuring plan provides for headcount reductions in the salaried employee workforce.
We estimate that we will incur up to €179 million (approximately $200 million as of September 30, 2015) in employee-related costs, €25 million (approximately $28 million as of September 30, 2015) in asset impairment costs, and €37 million (approximately $41 million as of September 30, 2015) in other associated costs in connection with these actions. Completion of these plans is expected by the end of 2018. We estimate €209 million (approximately $233 million as of September 30, 2015) of the estimated €241 million total cost will result in future cash expenditures.
The following table summarizes the change in our combined restructuring liability for the period ended September 30, 2015:


Millions of dollars
December 31,
2014
Charge to Earnings
Cash Paid
Non-cash
and Other
Revision of Estimate
September 30,
2015
Employee termination costs
$
58

$
110

$
(98
)
$

$
3

$
73

Asset impairment costs

14


(14
)


Facility exit costs
4

7

(6
)


5

Other exit costs
16

14

(15
)


15

Total
$
78

$
145

$
(119
)
$
(14
)
$
3

$
93

The following table summarizes the restructuring charges by operating segment as of September 30, 2015:
Millions of dollars
 
September 30,
2015
North America
 
$
8

Latin America
 
22

EMEA
 
108

Corporate / Other
 
7

Total
 
$
145

(11)    INCOME TAXES
Income tax expense was $17 million and $116 million for the three and nine months ended September 30, 2015 compared to income tax expense of $26 million and $126 million in the same periods of 2014. For the three and nine months ended September 30, 2015, changes in the effective tax rate from the prior period include tax planning strategies made available in 2015 resulting in releases of tax valuation allowances. The following table summarizes the difference between income tax expense at the United States statutory rate of 35% and the income tax expense at effective worldwide tax rates for the respective periods:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Millions of dollars
 
2015
 
2014
 
2015
 
2014
Earnings before income taxes
 
$
267

 
$
261

 
$
749

 
$
710

 
 
 
 
 
 
 
 
 
Income tax expense computed at United States statutory tax rate
 
93

 
91

 
262

 
249

Valuation allowance release
 
(68
)
 
(25
)
 
(126
)
 
(38
)
U.S. foreign income items, net of credits
 
(18
)
 
(34
)
 
(32
)
 
(59
)
Foreign government tax incentive (including BEFIEX in 2014)
 

 
(10
)
 
(8
)
 
(20
)
Other
 
10

 
4

 
20

 
(6
)
Income tax expense computed at effective worldwide tax rates
 
$
17

 
$
26

 
$
116

 
$
126

At the end of each interim period, we make our best estimate of the effective tax rate expected to be applicable for the full fiscal year and the impact of discrete items, if any, and adjust the quarterly rate as necessary.


19


(12)    PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The following table summarizes the components of net periodic pension cost and the cost of other postretirement benefits for the periods presented:
 
 
Three Months Ended September 30,
 
 
United States
Pension Benefits
 
Foreign
Pension Benefits
 
Other Postretirement
Benefits
Millions of dollars
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Service cost
 
$
1

 
$
1

 
$
1

 
$
1

 
$
1

 
$
1

Interest cost
 
37

 
42

 
8

 
4

 
4

 
7

Expected return on plan assets
 
(48
)
 
(49
)
 
(8
)
 
(2
)
 

 

Amortization:
 
 
 
 
 
 
 
 
 
 
 
 
Actuarial loss
 
13

 
11

 
1

 
1

 

 

Prior service credit
 

 

 

 

 
(5
)
 
(10
)
Settlement and curtailment (gain) loss
 

 

 
1

 

 
(16
)
 

Net periodic benefit cost (credit)
 
$
3

 
$
5

 
$
3

 
$
4

 
$
(16
)
 
$
(2
)
 
 
Nine Months Ended September 30,
 
 
United States
Pension Benefits
 
Foreign
Pension Benefits
 
Other Postretirement
Benefits
Millions of dollars
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Service cost
 
$
2

 
$
2

 
$
4

 
$
4

 
$
2

 
$
2

Interest cost
 
112

 
126

 
23

 
13

 
14

 
19

Expected return on plan assets
 
(143
)
 
(145
)
 
(25
)
 
(8
)
 

 

Amortization:
 
 
 
 
 
 
 
 
 
 
 
 
Actuarial loss
 
40

 
32

 
4

 
4

 

 

Prior service credit
 
(2
)
 
(2
)
 

 

 
(19
)
 
(29
)
Settlement and curtailment (gain) loss
 

 

 
13

 
2

 
(63
)
 

Net periodic benefit cost (credit)
 
$
9

 
$
13

 
$
19

 
$
15

 
$
(66
)
 
$
(8
)
During the first quarter of 2015, we recognized approximately $47 million from a curtailment gain due to the elimination of amounts credited to notional retiree health accounts for certain employees under age 50. The curtailment gain was recognized in our Consolidated Condensed Statement of Comprehensive Income with $43 million recorded in cost of products sold and the remaining balance in selling, general and administrative, with an offset to accumulated other comprehensive loss, net of tax.
During the third quarter of 2015, we recognized approximately $16 million from a curtailment gain due to the elimination of retiree medical eligibility for certain employees under age 50. The curtailment gain was recognized in our Consolidated Condensed Statement of Comprehensive Income with $11 million recorded in cost of products sold and the remaining balance in selling, general and administrative, with an offset to accumulated other comprehensive loss, net of tax.
(13)    OPERATING SEGMENT INFORMATION
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance.
We identify such segments based upon geographical regions of operations because each operating segment manufactures home appliances and related components, but serves strategically different markets. The chief operating decision maker evaluates performance based upon each segment’s operating income, which is defined as income before interest and sundry income (expense), interest expense, income taxes, noncontrolling interests, intangible asset impairment and restructuring costs. Total assets by segment are those assets directly associated with the respective operating activities. The “Other/Eliminations” column primarily includes corporate expenses, assets and eliminations, as well as restructuring costs and intangible asset impairments, if any. Intersegment sales are eliminated within each region except compressor sales out of Latin America, which are included in Other/Eliminations.


20


The tables below summarize performance by operating segment for the periods presented:
 
 
Three Months Ended September 30,
 
 
OPERATING SEGMENTS

Millions of dollars
 
North
America
 
Latin
America
 
EMEA
 
Asia
 
Other/
Eliminations
 
Total
Whirlpool
Net sales
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
$
2,791

 
$
751

 
$
1,452

 
$
346

 
$
(63
)
 
$
5,277

2014
 
2,792

 
1,131

 
785

 
157

 
(41
)
 
4,824

Intersegment sales
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
51

 
55

 
9

 
77

 
(192
)
 

2014
 
54

 
43

 
19

 
70

 
(186
)
 

Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
64

 
13

 
47

 
15

 
26

 
165

2014
 
73

 
22

 
22

 
5

 
14

 
136

Operating profit (loss)
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
349

 
31

 
32

 
24

 
(107
)
 
329

2014
 
304

 
118

 
9

 
(8
)
 
(88
)
 
335

Total assets
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2015
 
7,945

 
2,304

 
7,479

 
2,743

 
(848
)
 
19,623

December 31, 2014
 
7,736

 
2,917

 
7,597

 
2,734

 
(982
)
 
20,002

Capital expenditures
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
52

 
26

 
36

 
(9
)
 
18

 
123

2014
 
72

 
40

 
22

 
3

 
20

 
157

 
 
Nine Months Ended September 30,
 
 
OPERATING SEGMENTS

Millions of dollars
 
North
America
 
Latin
America
 
EMEA
 
Asia
 
Other/
Eliminations
 
Total
Whirlpool
Net sales
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
$
7,819

 
$
2,504

 
$
4,059

 
$
1,105

 
$
(156
)
 
$
15,331

2014
 
7,798

 
3,410

 
2,251

 
534

 
(124
)
 
13,869

Intersegment sales
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
170

 
157

 
34

 
205

 
(566
)
 

2014
 
169

 
128

 
68

 
201

 
(566
)
 

Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
195

 
50

 
154

 
46

 
51

 
496

2014
 
194

 
66

 
59

 
16

 
62

 
397

Operating profit (loss)
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
912