Document



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, 2017
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-3932
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11850359&doc=13
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, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth 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
 
 
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 20, 2017
Common stock, par value $1 per share
 
71,862,787




WHIRLPOOL CORPORATION

QUARTERLY REPORT ON FORM 10-Q
Three and Nine Months Ended September 30, 2017
TABLE OF CONTENTS
 
 
 
 
 
 
Page
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 
 



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) Whirlpool's ability to maintain or increase sales to significant trade customers and the ability of these trade customers to maintain or increase market share; (3) Whirlpool's ability to maintain its reputation and brand image; (4) the ability of Whirlpool to achieve its business plans, productivity improvements, and cost control objectives, and to leverage its global operating platform, and accelerate the rate of innovation; (5) Whirlpool's ability to obtain and protect intellectual property rights; (6) acquisition and investment-related risks, including risks associated with our past acquisitions, and risks associated with our increased presence in emerging markets; (7) risks related to our international operations, including changes in foreign regulations, regulatory compliance and disruptions arising from political, legal and economic instability; (8) information technology system failures, data security breaches, network disruptions, and cybersecurity attacks; (9) product liability and product recall costs; (10) the ability of suppliers of critical parts, components and manufacturing equipment to deliver sufficient quantities to Whirlpool in a timely and cost-effective manner; (11) our ability to attract, develop and retain executives and other qualified employees; (12) the impact of labor relations; (13) fluctuations in the cost of key materials (including steel, resins, copper and aluminum) and components and the ability of Whirlpool to offset cost increases; (14) Whirlpool’s ability to manage foreign currency fluctuations; (15)  inventory and other asset risk; (16)  the uncertain global economy and changes in economic conditions which affect demand for our products; (17)  health care cost trends, regulatory changes and variations between results and estimates that could increase future funding obligations for pension and postretirement benefit plans; (18) litigation, tax, and legal compliance risk and costs, especially if materially different from the amount we expect to incur or have accrued for, and any disruptions caused by the same; (19) the effects and costs of governmental investigations or related actions by third parties; and (20) changes in the legal and regulatory environment including environmental, health and safety regulations.
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
 
2017
 
2016
 
2017
 
2016
Net sales
$
5,418

 
$
5,248

 
$
15,551

 
$
15,062

Expenses
 
 
 
 
 
 
 
Cost of products sold
4,503

 
4,308

 
12,934

 
12,330

Gross margin
915

 
940

 
2,617

 
2,732

Selling, general and administrative
521

 
519

 
1,546

 
1,535

Intangible amortization
18

 
18

 
52

 
54

Restructuring costs
45

 
29

 
150

 
116

Operating profit
331

 
374

 
869

 
1,027

Other (income) expense
 
 
 
 

 

Interest and sundry (income) expense
21

 
30

 
69

 
103

Interest expense
42

 
39

 
122

 
118

Earnings before income taxes
268

 
305

 
678

 
806

Income tax (benefit) expense
(4
)
 
61

 
69

 
64

Net earnings
272

 
244

 
609

 
742

Less: Net earnings (loss) available to noncontrolling interests
(4
)
 
6

 
(9
)
 
34

Net earnings available to Whirlpool
$
276

 
$
238

 
$
618

 
$
708

Per share of common stock
 
 
 
 
 
 
 
Basic net earnings available to Whirlpool
$
3.78

 
$
3.14

 
$
8.36

 
$
9.26

Diluted net earnings available to Whirlpool
$
3.72

 
$
3.10

 
$
8.23

 
$
9.16

Dividends declared
$
1.10

 
$
1.00

 
$
3.20

 
$
2.90

Weighted-average shares outstanding (in millions)
 
 
 
 
 
 
 
Basic
72.9

 
75.7

 
73.9

 
76.4

Diluted
74.0

 
76.9

 
75.1

 
77.5

 
 
 
 
 
 
 
 
Comprehensive income
$
286

 
$
289

 
$
694

 
$
900


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,
2017

December 31,
2016
Assets



Current assets



Cash and cash equivalents
$
1,087


$
1,085

Accounts receivable, net of allowance of $171 and $185, respectively
3,102


2,711

Inventories
3,345


2,623

Prepaid and other current assets
1,115


920

Total current assets
8,649


7,339

Property, net of accumulated depreciation of $6,741 and $6,055, respectively
3,865


3,810

Goodwill
3,093


2,956

Other intangibles, net of accumulated amortization of $455 and $387, respectively
2,604


2,552

Deferred income taxes
2,322


2,154

Other noncurrent assets
305


342

Total assets
$
20,838


$
19,153

Liabilities and stockholders’ equity



Current liabilities



Accounts payable
$
4,728


$
4,416

Accrued expenses
677


649

Accrued advertising and promotions
792


742

Employee compensation
428


390

Notes payable
1,442


34

Current maturities of long-term debt
671


560

Other current liabilities
898


871

Total current liabilities
9,636


7,662

Noncurrent liabilities



Long-term debt
3,669


3,876

Pension benefits
1,015


1,074

Postretirement benefits
346


334

Other noncurrent liabilities
485


479

Total noncurrent liabilities
5,515


5,763

Stockholders’ equity



Common stock, $1 par value, 250 million shares authorized, 112 million and 111 million shares issued, and 72 million and 74 million shares outstanding, respectively
112


111

Additional paid-in capital
2,733


2,672

Retained earnings
7,697


7,314

Accumulated other comprehensive loss
(2,316
)

(2,400
)
Treasury stock, 40 million and 37 million shares, respectively
(3,474
)

(2,924
)
Total Whirlpool stockholders’ equity
4,752


4,773

Noncontrolling interests
935


955

Total stockholders’ equity
5,687


5,728

Total liabilities and stockholders’ equity
$
20,838


$
19,153


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

2017

2016
Operating activities



Net earnings
$
609


$
742

Adjustments to reconcile net earnings to cash provided by (used in) operating activities:



Depreciation and amortization
487


496

Changes in assets and liabilities:



Accounts receivable
(259
)

(438
)
Inventories
(589
)

(518
)
Accounts payable
107


(187
)
Accrued advertising and promotions
18


(38
)
Accrued expenses and current liabilities
(154
)

72

Taxes deferred and payable, net
(144
)

(149
)
Accrued pension and postretirement benefits
(85
)

(53
)
Employee compensation
49


(30
)
Other
(72
)

(72
)
Cash used in operating activities
(33
)

(175
)
Investing activities



Capital expenditures
(371
)

(360
)
Proceeds from sale of assets and business
5


55

Change in restricted cash
51


14

Investment in related businesses
(35
)

(10
)
Other
1


(2
)
Cash used in investing activities
(349
)

(303
)
Financing activities



Proceeds from borrowings of long-term debt


491

Repayments of long-term debt
(261
)

(507
)
Net proceeds from short-term borrowings
1,365


1,369

Dividends paid
(235
)

(221
)
Repurchase of common stock
(550
)

(425
)
Common stock issued
33


24

Other
(17
)

(2
)
Cash provided by financing activities
335


729

Effect of exchange rate changes on cash and cash equivalents
49


2

Increase in cash and cash equivalents
2


253

Cash and cash equivalents at beginning of period
1,085


772

Cash and cash equivalents at end of period
$
1,087


$
1,025


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


5


NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note
 
Page
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.



6



(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, 2016.
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. 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.
Out of Period Adjustment
During the third quarter of 2017, we finalized our prior period recorded adjustments in our Asia operating segment primarily related to trade promotion and increased accruals by $3 million. The 2017 net impact of these out of period adjustments was a decrease to net sales of approximately $35 million and an increase to other operating expenses of approximately $8 million, before tax. These adjustments resulted in a decrease to net earnings available to Whirlpool of approximately $16 million and a decrease of $0.22 in diluted earnings per share. We determined that the impact was immaterial to prior periods and this reporting period.
Adoption of New Accounting Standards
In 2017, the FASB issued ASU No. 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost". The guidance in ASU 2017-07 requires that the service cost component of net periodic benefit cost for pension and postretirement benefits is recorded in the same income statement line items as other employee compensation costs arising from services rendered during the period. Service cost is included in cost of products sold and selling, general and administrative expense. The other components of net periodic pension cost and postretirement benefits cost are recorded in interest and sundry (income) expense in 2017. We retrospectively adopted the new accounting standard in the first quarter of 2017. For the full year ended December 31, 2016, the reclassification of other components of net periodic cost, from cost of products sold and selling, general and administrative expense resulted in an increase in operating profit of approximately $14 million with an offset to interest and sundry (income) expense. For the full year ended December 31, 2015, the reclassification of other components of net periodic cost from cost of products sold and selling, general and administrative expense resulted in a decrease in operating profit of approximately $43 million with an offset to interest and sundry (income) expense. The reclassifications were calculated based on previously disclosed amounts. The Consolidated Statements of Comprehensive Income have been recast to reflect the retrospective adoption of this standard.
In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting". The guidance simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of excess tax benefits in the Consolidated Statements of Cash Flows. The new standard is effective for annual reporting periods beginning after December 15, 2016, with early adoption permitted. The Company elected to early-adopt ASU 2016-09 in the fourth quarter of 2016 retrospectively to January 1, 2016. For the period ended September 30, 2016, there was no material impact to diluted weighted average common shares outstanding or earnings per share ("EPS"). The Consolidated Statements of Comprehensive Income have been recast to reflect the retrospective adoption of this standard.

All other new issued and effective accounting standards during 2017 were not relevant or material to the Company.


7



Accounting Pronouncements Issued But Not Yet Effective
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities". The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance. All transition requirements and elections should be applied to hedging relationships existing (that is, hedging relationships in which the hedging instrument has not expired, been sold, terminated, or exercised or the entity has not removed the designation of the hedging relationship) on the date of adoption. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of adopting this guidance.
In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". The guidance in ASU 2017-04 eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments in the new ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The new standard is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for annual or interim goodwill impairment testing performed after January 1, 2017. The Company is currently evaluating the impact of adopting this guidance.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)". The guidance in ASU 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases (FAS 13). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption of the amendments in the update is permitted. In 2016, we established a global project management team to analyze the impact of this standard by reviewing our current accounting policies and practices in each operating segment to identify potential impacts that would result from the application of this standard. We determined changes are required to our business processes, systems and controls to effectively report leases and disclosure under the new standard. Based on our evaluation, we expect to adopt the requirements of the new standard in the first quarter of 2019.
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. This pronouncement is effective for fiscal years 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 permitted for fiscal reporting periods beginning after December 15, 2016.
Based on our evaluation, we will adopt the requirements of the new standard on January 1, 2018 and anticipate using the modified retrospective transition method. Under the modified retrospective method, we will recognize the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information will not be restated and will continue to be reported under the accounting standards in effect for those periods.
Presented below is the status of the process we have utilized for the adoption of the new standard and the significant implementation matters addressed:
We established a global cross-functional project management implementation team to assess all potential impacts of this standard.
We are reviewing our current accounting policies and practices in each reporting segment to identify potential differences that would result from the application of this standard.
We are determining key factors from the five step process to recognize revenue as prescribed by the new standard that may be applicable to each of our business units that roll up into our four segments.
Customers and contracts from each business unit were identified.


8



Evaluation of the contract provisions and the comparison of historical accounting policies and practices to the requirements of the new standard (including the related qualitative disclosures regarding the potential impact of the effects of the accounting policies we expect to apply and a comparison to our current revenue recognition policies), is in process. We expect to complete this process prior to the filing of, and make disclosures in, the 2017 Form 10-K.
Based on our evaluation, we determined no significant changes are required to our business processes, systems and controls to effectively report revenue recognition under the new standard. Adoption of the new standard is not expected to materially change the timing or amount of revenue recognized in our Consolidated Financial Statements.
FASB has issued the following standards, which are not expected to have a material impact on our Consolidated Financial Statements:
Standard
 
Effective Date (a)
2016-01

Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
January 1, 2018
2016-15
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments

January 1, 2018
2016-16
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory

January 1, 2018
2016-18
Statement of Cash Flows (Topic 230): Restricted Cash

January 1, 2018
(a) Represents date standard becomes effective as indicated in the respective ASU. 

All other issued and not yet effective accounting standards are not relevant or material to the Company.
(2)    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, 2017.
Assets and liabilities measured at fair value on a recurring basis at September 30, 2017 and December 31, 2016 are as follows:






Fair Value


Total Cost Basis

Level 1

Level 2

Total
Millions of dollars

2017

2016

2017

2016

2017

2016

2017

2016
Money market funds(1)

$
32


$
29


$
32


$
29


$


$


$
32


$
29

Net derivative contracts









(84
)

41


(84
)

41

Available for sale investments

6


4


23


16






23


16

(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 $4.5 billion at September 30, 2017 and December 31, 2016, and was estimated using discounted cash flow analysis based on incremental borrowing rates for similar types of borrowing arrangements (Level 2 input).


9



(3)    INVENTORIES
The following table summarizes our inventory for the periods presented:
Millions of dollars

September 30,
2017

December 31,
2016
Finished products

$
2,729


$
2,070

Raw materials and work in process

715


651



3,444


2,721

Less: excess of FIFO cost over LIFO cost

(99
)

(98
)
Total inventories

$
3,345


$
2,623

LIFO inventories represented 37% of total inventories at September 30, 2017 and December 31, 2016.
(4)    PROPERTY, PLANT & EQUIPMENT
The following table summarizes our property, plant and equipment as of September 30, 2017 and December 31, 2016:
Millions of dollars

September 30,
2017

December 31,
2016
Land

$
126


$
128

Buildings

1,683


1,652

Machinery and equipment

8,797


8,085

Accumulated depreciation

(6,741
)

(6,055
)
Property, plant and equipment, net

$
3,865


$
3,810

During the nine months ended September 30, 2017, we disposed of buildings, machinery and equipment no longer in use with a net book value of $34 million.
(5)    FINANCING ARRANGEMENTS
Debt
On September 27, 2017, Whirlpool Corporation exercised its commitment increase and term extension rights under the Third Amended and Restated Long-Term Credit Agreement (the “Amended Long-Term Facility”) by and among the Company, certain other borrowers, the lenders referred to therein, JPMorgan Chase Bank, N.A. as Administrative Agent, and Citibank, N.A., as Syndication Agent. In connection with this exercise, the Company entered into a Consent to Commitment Increase agreement with the Administrative Agent , which increases aggregate borrowing capacity under the Amended Long-Term Facility from $2.5 billion to $3.0 billion, and the Administrative Agent received extension request consents from a majority of lenders, which extends the termination date of the Amended Long-Term Facility by one year, to May 17, 2022. All other terms of the Amended Long-Term Facility remain unchanged.
The interest and fee rates payable with respect to the Amended Long-Term Facility based on our current debt rating are as follows: (1) the spread over LIBOR is 1.125%; (2) the spread over prime is 0.125%; and (3) the unused commitment fee is 0.125%. The Long-Term Facility contains customary covenants and warranties including, among other things, a debt to capitalization ratio of less than or equal to 0.60 to 1.00 as of the last day of 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 our 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 to the Company or other subsidiaries; and (vi) enter into agreements restricting the creation of liens on our assets.
On March 1, 2017, $250 million of 1.35% senior notes matured and were repaid. On July 15, 2016, $244 million of 7.75% notes matured and were repaid. On June 15, 2016, $250 million of 6.50% senior notes matured and were repaid.
On May 23, 2016, we completed a debt offering of $500 million principal amount of 4.50% notes due in 2046. The notes contain covenants that limit our ability to incur certain liens or enter into certain sale and lease-back transactions. In addition, if


10



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. 333-203704) filed with the Securities and Exchange Commission on April 29, 2015.
On November 2, 2016, Whirlpool Finance Luxembourg S.à. r.l., an indirect, wholly-owned finance subsidiary of Whirlpool Corporation, completed a debt offering of €500 million (approximately $555 million as of the date of issuance) principal amount of 1.250% notes due in 2026. The Company has fully and unconditionally guaranteed these notes. The notes contain covenants that limit Whirlpool Corporation's 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. 333-203704-1) filed with the Securities and Exchange Commission on October 25, 2016. Additionally, in the fourth quarter of 2014, we assumed €300 million (approximately $363 million as of the date of acquisition) principal amount of guaranteed notes due on April 26, 2018 from the Indesit acquisition. Whirlpool has agreed to be a guarantor of these notes.   
In addition to the committed $3.0 billion Amended Long-Term Facility, we have a committed European facility and committed credit facilities in Brazil. The European facility provides borrowings up to €250 million (approximately $295 million at September 30, 2017 and $263 million at December 31, 2016), maturing in 2019. The committed credit facilities in Brazil provide borrowings up to 1.0 billion Brazilian reais (approximately $316 million at September 30, 2017 and $307 million at December 31, 2016), maturing through 2018.
We had no borrowings outstanding under the committed credit facilities at September 30, 2017 or December 31, 2016.
Notes Payable
Notes payable, which consist of short-term borrowings payable to banks 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, 2017 and December 31, 2016, respectively.
Millions of dollars
 
September 30, 2017
 
December 31, 2016
Commercial paper
 
$
1,138

 
$

Short-term borrowings to banks
 
304

 
34

Total notes payable
 
$
1,442

 
$
34

(6)    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 and no payments are owed in connection with such resolutions. Embraco also has resolved certain other claims and certain claims remain pending. Additional lawsuits could be filed.
At September 30, 2017, a nominal amount remains accrued. 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 statements in any particular reporting period.


11


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 reduce Brazilian federal excise taxes on domestic sales, resulting in an increase in the operations' recorded net sales, as the credits are 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. 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. In the third quarter of 2017, the Brazilian Supreme Court ruled that the reinstituted index should be given retroactive effect for the July 2009 to December 2013 period, which decision may be appealed by the Brazilian government. Based on this ruling, we are entitled to recognize $72 million in additional credits. We monetized $14 million of BEFIEX credits during the three months ended September 30, 2017 and sold the right to certain court awarded attorney fees to a third party.  As of September 30, 2017, $58 million BEFIEX credits remain to be monetized.
Our Brazilian operations have received governmental assessments related to claims for income and social contribution taxes associated with certain monetized BEFIEX credits. 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, 2017. 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 1.9 billion Brazilian reais (approximately $584 million as of September 30, 2017).
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 239 million Brazilian reais (approximately $76 million as of September 30, 2017), 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.
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, 2017, 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 220 million Brazilian reais (approximately $69 million as of September 30, 2017). 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, 2017.
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 matters, which are at various stages of review in numerous administrative and judicial proceedings. 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. 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. We also filed a legal action to recover certain social integration and social contribution taxes paid over gross sales including ICMS receipts, which is a form of Value Added Tax in Brazil.  While the Company’s recovery with respect to this litigation may be material, there is substantial uncertainty about both the amount and timing of any recovery.
Litigation is inherently unpredictable and the conclusion of these matters may take many years to ultimately resolve. Accordingly, it is possible that an unfavorable outcome in these proceedings could have a material adverse effect on our financial statements in any particular reporting period.


12


Other Litigation
We have vigorously defended against numerous lawsuits pending in the United States relating to certain of our front load washing machines.  In 2016, we reached final agreement on a settlement that will resolve all such class action lawsuits and received court approval. We are proceeding through the administrative consumer claims process to implement the terms of the settlement, which will be complete in 2017.
In addition, we are currently vigorously 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, and have and may become involved in similar actions in other jurisdictions. These lawsuits allege claims which include negligence, breach of contract, breach of warranty, product liability and safety claims, false advertising, fraud, and violation of federal and state regulations, including consumer protection laws. In general, 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 statements.
Competition Investigation
In 2013, the French Competition Authority commenced an investigation of appliance manufacturers and retailers in France. The investigation includes (among others) 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 statements in any particular reporting period.
Product Warranty and Legacy Product Corrective Action 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 and legacy product warranty liability reserves for the periods presented:


Product Warranty

Legacy Product Warranty

Total
Millions of dollars

2017

2016

2017

2016

2017

2016
Balance at January 1

$
251


$
239


$
69


$
254


$
320


$
493

Issuances/accruals during the period

251


228


1




252


228

Settlements made during the period/other

(226
)

(218
)

(70
)

(145
)

(296
)

(363
)
Balance at September 30

$
276


$
249


$


$
109


$
276


$
358




















Current portion

$
203


$
188


$


$
109


$
203


$
297

Non-current portion

73


61






73


61

Total

$
276


$
249


$


$
109


$
276


$
358

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 consumers, we are currently investigating a limited number of potential quality and safety issues globally. 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. As part of that process, in 2015, Whirlpool engaged in thorough investigations of incident reports associated with two of its dryer production platforms developed by Indesit, prior to Whirlpool's acquisition of Indesit in October 2014. This led to Indesit reporting the issue to regulatory authorities for consideration. These discussions determined that corrective action of the affected dryers was required. In September 2015, we recorded a liability related to this corrective action cost of €245 million (approximately $274 million as of September 30, 2015). The establishment of this liability is based on several assumptions such as customer response rate, consumer options, field repair costs, inventory repair costs, and timing of tax deductibility. Our experience with respect to these factors may cause our actual costs to differ significantly from our estimated costs. Cash settlements related to this corrective action are recognized in other operating activities in the Consolidated Condensed Statements of Cash Flows. In the nine months ended September 30, 2017, Whirlpool had $61 million of cash settlements made related to the corrective action, which is substantially complete and any remaining charges related to legacy product warranty will be recorded under product warranty.


13


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, 2017 and December 31, 2016, the guaranteed amounts totaled $268 million and $258 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 contractual amount of indebtedness and credit facilities available under these lines for consolidated subsidiaries totaled $2.7 billion and $2.4 billion as of September 30, 2017 and December 31, 2016, respectively. Our total outstanding bank indebtedness under guarantees was $102 million at September 30, 2017 and $32 million December 31, 2016, respectively.
We have guaranteed a $37 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 2016 and 2017 by Harbor Shores and reduced to $40 million and $37 million, respectively. The fair value of the guarantee was nominal at September 30, 2017 and December 31, 2016, respectively. 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.
(7)    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, fair value hedges or net investment. 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.
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 this economic hedge, we do not elect hedge accounting.
Commodity Price Risk


14


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 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, 2017 and December 31, 2016, there were no outstanding interest rate 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.
Net Investment Hedging
The following table summarizes our foreign currency denominated debt and foreign exchange forwards/options designated as net investment hedges at September 30, 2017 and December 31, 2016:
 
 
Notional (Local)
 
Notional (USD)
 
Maturity
 
 
2017
 
2016
 
2017
 
2016
 
 
Instrument
 
 
 
 
 
 
 
 
 
 
Senior note - 0.625%
 
500

 
500

 
$
591

 
$
527

 
March 2020
Commercial Paper
 
300

 

 
$
354

 
$

 
October 2017
Foreign exchange forwards/options
 
MXN 7,200
 
MXN 0
 
$
396

 
$

 
August 2022
For instruments that are designated and qualify as a net investment hedge, the effective portion of the instruments' gain or loss is reported as a component of other comprehensive income (OCI) and recorded in accumulated other comprehensive loss. The gain or loss will be subsequently reclassified into net earnings when the hedged net investment is either sold or substantially liquidated. The remaining change in fair value of the hedge instruments represents the ineffective portion, which is immediately recognized in interest and sundry (income) expense on our consolidated statements of income. As of September 30, 2017 and December 31, 2016, there was no ineffectiveness on hedges designated as net investment hedges.


15


The following table summarizes our outstanding derivative contracts and their effects on our Consolidated Condensed Balance Sheets at September 30, 2017 and December 31, 2016:
 

 

Fair Value of

Type 
of
Hedge
(1)

 


Notional Amount

Hedge Assets

Hedge Liabilities

Maximum Term (Months)
Millions of dollars

2017

2016

2017

2016

2017

2016

 

2017

2016
Derivatives accounted for as hedges


















Foreign exchange forwards/options

$
3,257


$
1,813


$
9


$
32


$
108


$
10


(CF/NI)

59

58
Commodity swaps/options

280


299


28


7


1


11


(CF)

39

36
Total derivatives accounted for as hedges





$
37


$
39


$
109


$
21







Derivatives not accounted for as hedges


















Foreign exchange forwards/options

$
3,190


$
3,262


$
24


$
39


$
36


$
16


N/A

36

35
Commodity swaps/options

1


2










N/A

8

2
Total derivatives not accounted for as hedges





24


39


36


16







Total derivatives





$
61


$
78


$
145


$
37






























Current





$
52


$
54


$
82


$
35







Noncurrent





9


24


63


2







Total derivatives





$
61


$
78


$
145


$
37







(1) Derivatives accounted for as hedges are considered either cash flow (CF) or net investment (NI) hedges in 2017. During 2016, foreign exchange derivatives accounted for as hedges were classified as cash flow (CF) hedges.



16


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 (Loss) Reclassified from
OCI into Earnings
(Effective Portion) (1)
 
Cash Flow Hedges - Millions of dollars
 
2017
 
2016
 
2017
 
2016
 
Foreign exchange forwards/options
 
$
(49
)
 
$
9

 
$
(34
)
 
$
(1
)
(a)
Commodity swaps/options
 
18

 
(2
)
 
11

 
(6
)
(a)
Interest rate derivatives
 

 

 
(1
)
 

(b)
 
 
 
 
 
 
 
 
 
 
Net Investment Hedges
 
 
 
 
 
 
 
 
 
Foreign currency
 
(23
)
 

 

 

 
 
 
$
(54
)

$
7

 
$
(24
)
 
$
(7
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
 
 
 
 
 
 
Gain (Loss) Recognized on Derivatives not
Accounted for as Hedges (2)
 
Derivatives not Accounted for as Hedges - Millions of dollars
 
 
 
 
 
2017
 
2016
 
Foreign exchange forwards/options
 
 
 
 
 
$
(21
)
 
$
(9
)
 
 
 
Nine Months Ended September 30,
 
 
 
Gain (Loss)
Recognized in OCI
(Effective Portion)
 
Gain (Loss) Reclassified from
OCI into Earnings
(Effective Portion) (1)
 
Cash Flow Hedges - Millions of dollars
 
2017
 
2016
 
2017
 
2016
 
Foreign exchange
 
$
(109
)
 
$
3

 
$
(76
)
 
$
11

(a)
Commodity swaps/options
 
35

 
19

 
29

 
(30
)
(a)
Interest rate derivatives
 

 

 
(1
)
 

(b)
 
 
 
 
 
 
 
 
 
 
Net Investment Hedges
 
 
 
 
 
 
 
 
 
Foreign currency
 
(63
)
 

 

 

 
 
 
$
(137
)
 
$
22

 
$
(48
)
 
$
(19
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
 
 
 
 
 
 
Gain (Loss) Recognized on Derivatives not
Accounted for as Hedges (2)
 
Derivatives not Accounted for as Hedges - Millions of dollars
 
 
 
 
 
2017
 
2016
 
Foreign exchange forwards/options
 
 
 
 
 
$
(100
)
 
$
(43
)
 
(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, 2017 and 2016. There were no hedges designated as fair value for the periods ended September 30, 2017 and 2016. 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, 2017.


17


(8)    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,
 
 
2017
 
2016
Millions of dollars
 
Pre-tax
Tax Effect
Net
 
Pre-tax
Tax Effect
Net
Currency translation adjustments
 
$
20

$

$
20

 
$
25

$

$
25

Cash flow and net investment hedges
 
(22
)
10

(12
)
 
23

(9
)
14

Pension and other postretirement benefits plans
 
(15
)
14

(1
)
 
10

(3
)
7

Available for sale securities
 
7


7

 
(1
)

(1
)
Other comprehensive income (loss)
 
(10
)
24

14

 
57

(12
)
45

Less: Other comprehensive income (loss) available to noncontrolling interests
 
2


2

 



Other comprehensive income (loss) available to Whirlpool
 
$
(12
)
$
24

$
12

 
$
57

$
(12
)
$
45

 
 
Nine Months Ended September 30,
 
 
2017

2016
Millions of dollars
 
Pre-tax
Tax Effect
Net
 
Pre-tax
Tax Effect
Net
Currency translation adjustments
 
$
96

$

$
96

 
$
81

$

$
81

Cash flow and net investment hedges
 
(47
)
17

(30
)
 
61

(20
)
41

Pension and other postretirement benefits plans
 
5

7

12

 
62

(22
)
40

Available for sale securities
 
7


7

 
(4
)

(4
)
Other comprehensive income (loss)
 
61

24

85

 
200

(42
)
158

Less: Other comprehensive income (loss) available to noncontrolling interests
 
1


1

 
2


2

Other comprehensive income (loss) available to Whirlpool
 
$
60

$
24

$
84

 
$
198

$
(42
)
$
156

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
The following table provides the reclassification adjustments out of accumulated other comprehensive income (loss), by component, which was included in net earnings for the three and nine months ended September 30, 2017:
 
 
Three Months Ended
 
Nine Months Ended
 
 
Millions of dollars
 
(Gain) Loss Reclassified
 
(Gain) Loss Reclassified
 
Classification in Earnings
Cash flow hedges, pre-tax
 
$
24

 
$
48

 
Cost of products sold
Pension and postretirement benefits, pre-tax
 
9

 
30

 
Interest and sundry (income) expense


18


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, 2016
 
$
5,728

 
$
4,773

 
$
955

Net earnings (loss)
 
609

 
618

 
(9
)
Other comprehensive income
 
85

 
84

 
1

Comprehensive income (loss)
 
694

 
702

 
(8
)
Common stock
 
1

 
1

 

Treasury stock
 
(550
)
 
(550
)
 

Additional paid-in capital
 
61

 
61

 

Dividends declared on common stock
 
(247
)
 
(235
)
 
(12
)
Stockholders' equity, September 30, 2017
 
$
5,687

 
$
4,752

 
$
935

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
 
2017

2016
 
2017
 
2016
Numerator for basic and diluted earnings per share - Net earnings available to Whirlpool
 
$
276

 
$
238

 
$
618

 
$
708

Denominator for basic earnings per share - weighted-average shares
 
72.9

 
75.7

 
73.9

 
76.4

Effect of dilutive securities – share-based compensation
 
1.1

 
1.2

 
1.2

 
1.1

Denominator for diluted earnings per share – adjusted weighted-average shares
 
74.0

 
76.9

 
75.1

 
77.5

Anti-dilutive stock options/awards excluded from earnings per share
 
0.5

 
0.3

 
0.6

 
0.3

Share Repurchase Program
On April 18, 2016, our Board of Directors authorized a share repurchase program of up to $1 billion. During the nine months ended September 30, 2017, we repurchased 3,087,801 shares under this share repurchase program at an aggregate purchase price of approximately $550 million. As of September 30, 2017, there were approximately $150 million in remaining funds authorized under this program, which has no expiration date.
On July 25, 2017, our Board of Directors authorized an additional share repurchase program of up to $2 billion, which has no expiration date.
Share repurchases are made from time to time on the open market as conditions warrant. These programs do not obligate us to repurchase any of our shares.
(9)    RESTRUCTURING CHARGES
We periodically take action to improve operating efficiencies, typically in connection with business acquisitions or changes in the economic environment. Our footprint and headcount reductions and organizational integration actions relate to discrete, unique restructuring events, primarily reflected in the following plans:
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 $211 million as of September 30, 2017) in employee-related costs, €25 million (approximately $30 million as of September 30, 2017) in asset impairment costs, and €37 million (approximately $44 million as of September 30, 2017) in other associated costs in connection with these actions. We expect these actions will be


19


complete in 2019. We estimate €209 million (approximately $247 million as of September 30, 2017) of the estimated €241 million (approximately $285 million as of September 30, 2017) total cost will result in cash expenditures.
On January 24, 2017 the Company and certain of its subsidiary companies began consultations with certain works councils and other regulatory agencies in connection with the Company’s proposal to restructure its EMEA dryer manufacturing operations. Company management authorized the initiation of such consultations on December 30, 2016.  These actions are expected to result in changing the operations at the Company's Yate, U.K. facility to focus on manufacturing for U.K. consumer needs only; ending production in 2018 in Amiens, France; and concentrating the production of dryers for non-U.K. consumer needs in Lodz, Poland. The Company anticipates that approximately 500 positions would be impacted by these actions. The Company expects these actions to be substantially complete in 2018. The Company estimates that it will incur approximately €59 million (approximately $70 million as of September 30, 2017) in employee-related costs, approximately €11 million (approximately $13 million as of September 30, 2017) in asset impairment costs, and approximately €10 million (approximately $12 million as of September 30, 2017) in other associated costs in connection with these actions.  The Company estimates that approximately €69 million (approximately $82 million as of September 30, 2017) of the estimated €79 million (approximately $93 million as of September 30, 2017) total cost will result in future cash expenditures. 
The following table summarizes the change to our restructuring liability for the period ended September 30, 2017:


Millions of dollars
December 31,
2016
Charge to Earnings
Cash Paid
Non-cash
and Other
September 30,
2017
Employee termination costs
$
71

$
96

$
(85
)
$

$
82

Asset impairment costs

23


(23
)

Facility exit costs
2

18

(17
)

3

Other exit costs
14

13

(11
)
10

26

Total
$
87

$
150

$
(113
)
$
(13
)
$
111

The following table summarizes the restructuring charges by operating segment as of September 30, 2017:
Millions of dollars
 
September 30,
2017
North America
 
$
10

EMEA
 
122

Latin America
 
7

Asia
 
3

Corporate / Other
 
8

Total
 
$
150



20


(10)    INCOME TAXES
Income tax benefit was $4 million and income tax expense was $69 million for the three and nine months ended September 30, 2017, respectively, compared to income tax expense of $61 million and $64 million in the same periods of 2016. For the three and nine months ended September 30, 2017, changes in the effective tax rate from the prior period include tax planning and related valuation allowance releases.
The Company plans to distribute certain foreign earnings during 2017 and over the next several years. The 2017 distribution is forecasted to result in tax benefits that have been included in the Company's estimated annual and third quarter effective tax rate. The tax benefit on distributions that may be made in 2018 and beyond has not been recorded largely due to the distribution's contingent nature. The tax benefit for the three and nine months ended September 30, 2017 has been disclosed in the Company's effective tax rate reconciliation.
The following table summarizes the difference between income tax (benefit) expense at the United States statutory rate of 35% and the income tax (benefit) expense at effective worldwide tax rates for the respective periods:


Three Months Ended September 30,

Nine Months Ended September 30,
Millions of dollars

2017

2016

2017

2016
Earnings before income taxes

$
268


$
305


$
678


$
806










Income tax (benefit) expense computed at United States statutory tax rate

94


107


237


282

Valuation allowances (releases)

(84
)

(59
)

(77
)

(164
)
Audits and settlements

7


(3
)

1


(35
)
U.S. foreign income items, net of credits

(17
)

4


(70
)

(6
)
Foreign government tax incentive

(4
)

(2
)

(7
)

(5
)
Other



14


(15
)

(8
)
Income tax (benefit) expense computed at effective worldwide tax rates

$
(4
)

$
61


$
69


$
64

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.
(11)    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

2017

2016

2017

2016

2017

2016
Service cost

$
1


$
1


$
1


$
1


$
1


$
1

Interest cost

34


37


6


7


4


5

Expected return on plan assets

(43
)

(47
)

(8
)

(7
)




Amortization:












Actuarial loss

12


12


2


1





Prior service credit

(1
)







(4
)

(3
)
Settlement and curtailment loss







1





Net periodic cost

$
3


$
3


$
1


$
3


$
1


$
3



21


 
 
Nine Months Ended September 30,
 
 
United States
Pension Benefits
 
Foreign
Pension Benefits
 
Other Postretirement
Benefits
Millions of dollars
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Service cost
 
$
2

 
$
2

 
$
4

 
$
4

 
$
5

 
$
5

Interest cost
 
101

 
111

 
17

 
21

 
12

 
13

Expected return on plan assets
 
(131
)
 
(140
)
 
(23
)
 
(23
)
 

 

Amortization:
 
 
 
 
 
 
 
 
 
 
 
 
Actuarial loss
 
37

 
35

 
5

 
3

 

 

Prior service credit
 
(2
)
 
(2
)
 

 

 
(11
)
 
(11
)
Settlement and curtailment loss
 

 

 
1

 
1

 

 

Net periodic cost
 
$
7

 
$
6

 
$
4

 
$
6

 
$
6

 
$
7

The following table summarizes the net periodic cost recognized in operating profit and interest and sundry (income) expense for the periods presented:
 
 
Three Months Ended September 30,
 
 
United States
Pension Benefits
 
Foreign
Pension Benefits
 
Other Postretirement
Benefits
Millions of dollars
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Operating profit (loss)
 
$
1

 
$
1

 
$
1

 
$
1

 
$
1

 
$
1

Interest and sundry (income) expense
 
2

 
2

 

 
2

 

 
2

Net periodic benefit cost (credit)
 
$
3

 
$
3

 
$
1

 
$
3

 
$
1

 
$
3

 
 
Nine Months Ended September 30,
 
 
United States
Pension Benefits
 
Foreign
Pension Benefits
 
Other Postretirement
Benefits
Millions of dollars
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Operating profit (loss)
 
$
2

 
$
2

 
$
4

 
$
4

 
$
5

 
$
5

Interest and sundry (income) expense
 
5

 
4

 

 
2

 
1

 
2

Net periodic benefit cost (credit)
 
$
7

 
$
6

 
$
4

 
$
6

 
$
6

 
$
7

During the second quarter 2011, we modified retiree medical benefits for certain retirees to be consistent with those benefits provided by the Whirlpool Corporation Group Benefit Plan. We accounted for these changes as a plan amendment in 2011, resulting in a reduction in the postretirement benefit obligation of $138 million, of which approximately $103 million of benefit has been recognized in net earnings since 2011, with an offset to accumulated other comprehensive loss, net of tax. In response, a group of retirees initiated legal proceedings against Whirlpool asserting the above benefits are vested and changes to the plan are not permitted. We disagree with plaintiffs' assertion and are continuing to vigorously defend our position, including through any necessary appeal process. However, an unfavorable final result could require us to immediately reverse the benefit we have recognized to that point, and remeasure the associated postretirement benefit obligation, the impact of which will depend on timing and the actuarial assumptions then in effect.
(12)    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 or decision making group evaluates performance based upon each segment’s operating income, which is defined as income before interest and sundry (income) expense, interest expense, income taxes, and noncontrolling interests. 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 corporate 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.


22


The tables below summarize performance by operating segment for the periods presented:


Three Months Ended September 30,
 

OPERATING SEGMENTS

Millions of dollars

North
America

EMEA

Latin
America

Asia

Other/
Eliminations

Total
Whirlpool
Net sales












2017

$
2,989


$
1,268


$
849


$
357


$
(45
)

$
5,418

2016

2,850


1,319


800


338


(59
)

5,248

Intersegment sales












2017

45


36


45


82


(208
)


2016

41


16


50


82


(189
)


Depreciation and amortization


















2017

64


47


21


22


14


168

2016

65


66


19


15


(1
)

164

Operating profit (loss)












2017

350


11


53


2


(85
)

331

2016

346


40


46


15


(73
)

374

Total assets


















September 30, 2017

8,777


8,367


2,909


2,883


(2,098
)
(a)
20,838

December 31, 2016

8,009


7,497


2,601


2,788


(1,742
)
(a)
19,153

Capital expenditures












2017

46


46


28


28


13


161

2016

43


37


28


26


20


154



Nine Months Ended September 30,
 

OPERATING SEGMENTS

Millions of dollars

North
America