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WHIRLPOOL CORP /DE/ - Quarter Report: 2012 March (Form 10-Q)




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 March 31, 2012
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 smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12-b-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 April 19, 2012
Common stock, par value $1 per share
 
77,257,324




QUARTERLY REPORT ON FORM 10-Q
WHIRLPOOL CORPORATION
Three Months Ended March 31, 2012
INDEX OF INFORMATION INCLUDED IN REPORT
 
 
 
 
 
 
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 this 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 material and oil-related 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 continue its relationship with significant trade customers and the ability of these trade customers to maintain or increase market share; (3) changes in economic conditions which affect demand for our products, including the strength of the building industry and the level of interest rates; (4) inventory and other asset risk; (5) global, political and/or economic uncertainty and disruptions, especially in Whirlpool's significant geographic regions, including uncertainty and disruptions arising from natural disasters or terrorist attacks; (6) impact of the European debt crisis; (7) 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; (8) fluctuations in the cost of key materials (including steel, oil, plastic, resins, copper and aluminum) and components and the ability of Whirlpool to offset cost increases; (9) litigation and legal compliance risk and costs, especially costs which may be materially different from the amount we expect to incur or have accrued for; (10)  product liability and product recall costs; (11) the effects and costs of governmental investigations or related actions by third parties; (12) Whirlpool's ability to obtain and protect intellectual property rights; (13)  the ability of suppliers of critical parts, components and manufacturing equipment to deliver sufficient quantities to Whirlpool in a timely and cost-effective manner;  (14) health care cost trends, regulatory changes and variations between results and estimates that could increase future funding obligations for pension and post retirement benefit plans;  (15) information technology system failures and data security breaches; (16) the impact of labor relations; (17) our ability to attract, develop and retain executives and other qualified employees; (18) changes in the legal and regulatory environment including environmental and health and safety regulations; and (19) the ability of Whirlpool to manage foreign currency fluctuations.
We undertake no obligation to update any forward-looking statement, and investors are advised to review disclosures in our filings with the Securities and Exchange Commission. 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 Item 1A of this report
Unless otherwise indicated, the terms “Whirlpool,” “we,” “us,” and “our” refer to Whirlpool Corporation and its consolidated subsidiaries.


2


PART I.
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
WHIRLPOOL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE PERIOD ENDED MARCH 31
(Millions of dollars, except per share data)
 

 
2012
 
2011
Net sales
$
4,349

 
$
4,401

Expenses
 
 
 
Cost of products sold
3,698

 
3,778

Gross margin
651

 
623

Selling, general and administrative
405

 
380

Intangible amortization
7

 
7

Restructuring costs
34

 
8

Operating profit
205

 
228

Other income (expense)

 

Interest and sundry income (expense)
(18
)
 
(20
)
Interest expense
(54
)
 
(54
)
Earnings before income taxes
133

 
154

Income tax expense (benefit)
36

 
(24
)
Net earnings
97

 
178

Less: Net earnings available to noncontrolling interests
5

 
9

Net earnings available to Whirlpool
$
92

 
$
169

Per share of common stock

 

Basic net earnings available to Whirlpool
$
1.19

 
$
2.21

Diluted net earnings available to Whirlpool
$
1.17

 
$
2.17

Dividends
$
0.50

 
$
0.43

Weighted-average shares outstanding (in millions)
 
 
 
Basic
77.3

 
76.7

Diluted
78.5

 
77.9

Comprehensive income
$
194

 
$
270


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


3


WHIRLPOOL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Millions of dollars, except share data)
 
 
(Unaudited)
 
 
 
March 31,
2012
 
December 31,
2011
Assets

 

Current assets

 

Cash and equivalents
$
583

 
$
1,109

Accounts receivable, net of allowance of $63 and $61, respectively
2,143

 
2,105

Inventories
2,608

 
2,354

Deferred income taxes
283

 
248

Prepaid and other current assets
660

 
606

Total current assets
6,277

 
6,422

Property, net of accumulated depreciation of $6,274 and $6,146, respectively
3,097

 
3,102

Goodwill
1,728

 
1,727

Other intangibles, net of accumulated amortization of $187 and $177, respectively
1,751

 
1,757

Deferred income taxes
1,877

 
1,893

Other noncurrent assets
285

 
280

Total assets
$
15,015

 
$
15,181

Liabilities and stockholders’ equity

 

Current liabilities

 

Accounts payable
$
3,581

 
$
3,512

Accrued expenses
713

 
951

Accrued advertising and promotions
322

 
429

Employee compensation
414

 
365

Notes payable

 
1

Current maturities of long-term debt
861

 
361

Other current liabilities
618

 
678

Total current liabilities
6,509

 
6,297

Noncurrent liabilities

 

Long-term debt
1,628

 
2,129

Pension benefits
1,434

 
1,487

Postretirement benefits
425

 
430

Other noncurrent liabilities
561

 
558

Total noncurrent liabilities
4,048

 
4,604

Stockholders’ equity

 

Common stock, $1 par value, 250 million shares authorized, 107 million and 106 million shares issued and 77 million and 76 million shares outstanding, respectively
107

 
106

Additional paid-in capital
2,216

 
2,201

Retained earnings
4,975

 
4,922

Accumulated other comprehensive loss
(1,131
)
 
(1,226
)
Treasury stock, 30 million shares
(1,812
)
 
(1,822
)
Total Whirlpool stockholders’ equity
4,355

 
4,181

Noncontrolling interests
103

 
99

Total stockholders’ equity
4,458

 
4,280

Total liabilities and stockholders’ equity
$
15,015

 
$
15,181


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


4


WHIRLPOOL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE PERIOD ENDED MARCH 31
(Millions of dollars)
 
 
2012
 
2011
Operating activities

 

Net earnings
$
97

 
$
178

Adjustments to reconcile net earnings to cash used in operating activities:

 

Depreciation and amortization
151

 
141

Settlement of Brazilian collection dispute
(275
)
 
5

Changes in assets and liabilities:

 

Accounts receivable

 
(21
)
Inventories
(207
)
 
(94
)
Accounts payable
(2
)
 
(163
)
Accrued advertising and promotions
(112
)
 
(166
)
Product recall

 
(11
)
Taxes deferred and payable, net
(3
)
 
(65
)
Accrued pension
(53
)
 
(11
)
Employee compensation
57

 
41

Other
(76
)
 
(58
)
Cash used in operating activities
(423
)

(224
)
Investing activities

 

Capital expenditures
(92
)
 
(115
)
Proceeds from sale of assets

 
3

Investment in related businesses

 
(7
)
Cash used in investing activities
(92
)

(119
)
Financing activities

 

Repayments of long-term debt
(3
)

(3
)
Dividends paid
(39
)

(33
)
Net repayments from short-term borrowings
(1
)

(1
)
Common stock issued
11


8

Other
(2
)


Cash used in financing activities
(34
)

(29
)
Effect of exchange rate changes on cash and equivalents
23


30

Decrease in cash and equivalents
(526
)
 
(342
)
Cash and equivalents at beginning of period
1,109

 
1,368

Cash and equivalents at end of period
$
583

 
$
1,026


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


5


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1)BASIS OF PRESENTATION
General Information
The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, 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 the Financial Supplement of our Form 10-K for the year ended December 31, 2011.
Management believes that the accompanying Consolidated 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 Financial Statements. We do not consolidate the financial statements of any company in which we have an ownership interest of 50% or less unless we control that company. We did not control any company in which we had an ownership interest of 50% or less for any period presented in our Consolidated Financial Statements.
Certain prior year amounts in the Consolidated Financial Statements have been reclassified to conform with current year presentation.
New Accounting Pronouncements
On January 1, 2012, we adopted the provisions of an amendment to Accounting Standards Codification ("ASC") 220, “Comprehensive Income.” This amendment requires companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminated the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. In addition, in December 2011, the FASB issued an amendment to this accounting standard which defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement. The amendments affect only the display of information and do not change existing recognition and measurement requirements in our Consolidated Financial Statements.
On July 1, 2011, we adopted the provisions of an amendment to ASC 310 “Receivables." This amendment provides guidance for determining whether a restructuring of a debt constitutes a troubled debt restructuring ("TDR"). This amendment requires that a restructuring be classified as a TDR when it is both a concession and the debtor is experiencing financial difficulties. Additionally, the amendment clarifies the guidance on a creditor's evaluation of whether it has granted a concession. This amendment did not have a material impact on our Consolidated Financial Statements.
Issued but not yet effective accounting pronouncements are not expected to have a material impact on our Consolidated Financial Statements.
(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 that market participants would use in pricing an asset or liability. 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 March 31, 2012 and December 31, 2011.
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.


6


Assets and liabilities measured at fair value on a recurring basis at March 31, 2012 and December 31, 2011 are as follows:
 
 
 
 
 
 
Fair Value
 
 
Total Cost Basis
 
Level 1
 
Level 2
 
Total
 Millions of dollars
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
Money market funds (1)
 
$
56

 
$
340

 
$
56

 
$
340

 
$

 
$

 
$
56

 
$
340

Net derivative contracts
 

 

 

 

 
(16
)
 
(57
)
 
(16
)
 
(57
)
Available for sale investments
 
21

 
21

 
17

 
15

 

 

 
17

 
15

(1) 
Money market funds are primarily comprised of government obligations.
Other Fair Value Measurements
The fair value of long-term debt (including current maturities) was $2,676 million and $2,670 million at March 31, 2012 and December 31, 2011, respectively, and was estimated using discounted cash flow analysis based on incremental borrowing rates for similar types of borrowing arrangements.
(3)INVENTORIES
The following table summarizes our inventory for the periods presented:
Millions of dollars
 
March 31,
2012
 
December 31,
2011
Finished products
 
$
2,232

 
$
2,016

Raw materials and work in process
 
572

 
541

 
 
2,804

 
2,557

Less: excess of FIFO cost over LIFO cost
 
(196
)
 
(203
)
Total inventories
 
$
2,608


$
2,354

LIFO inventories represented 43% and 41% of total inventories at March 31, 2012 and December 31, 2011, respectively.
(4)COMMITMENTS AND CONTINGENCIES
Embraco Antitrust Matters
Beginning in February 2009, our compressor business headquartered in Brazil ("Embraco") was notified of investigations of the global compressor industry by government authorities in various jurisdictions. In 2011, Embraco sales represented approximately 8% of our global net sales.
Government authorities in Brazil, Europe, the United States, and other jurisdictions have entered into agreements with Embraco and concluded their investigations. In connection with these agreements, Embraco has acknowledged violations of antitrust law with respect to the sale of compressors at various times from 2004 through 2007 and agreed to pay fines or settlement payments.
Since the government investigations commenced in February 2009, Embraco has been named as a defendant in related antitrust lawsuits in various jurisdictions seeking damages in connection with the pricing of compressors from 1996 to 2009. Several other compressor manufacturers who are the subject of the government investigations have also been named as defendants in the litigation. United States federal lawsuits instituted on behalf of purported purchasers and containing class action allegations have been combined in one proceeding in the United States District Court for the Eastern District of Michigan. Lawsuits containing class action allegations are also pending in Canada. Additional lawsuits may be filed by purported purchasers.
In connection with these agreements and other Embraco antitrust matters, we have incurred, in the aggregate, charges of approximately $323 million, including fines, defense costs and other expenses. These charges have been recorded within interest and sundry income (expense). At March 31, 2012, $195 million remains accrued, with installment payments of $171 million, plus interest, remaining to be made to government authorities at various times through 2015.
We continue to work toward resolution of ongoing government investigations in other jurisdictions, to defend the related antitrust lawsuits and to take other actions 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.


7


Brazilian Collection Dispute
We reached an agreement on June 22, 2011 to settle all claims arising from our long-standing dispute in Brazil with Banco Safra S.A. Such settlement was subsequently approved by a Brazilian court on July 8, 2011. Pursuant to the settlement, our subsidiary agreed to pay Banco Safra S.A. 959 million Brazilian reais, in two installments, the first of 469 million reais (equivalent to $301 million) was made during July 2011, and the second of 490 million reais (equivalent to $275 million) was made during January 2012.
Other Litigation
We are currently defending against numerous class action lawsuits in various jurisdictions in the United States and Canada relating to certain of our front load washing machines. The complaints in these lawsuits generally allege violations of state consumer fraud acts, unjust enrichment, and breach of warranty. The complaints generally seek unspecified compensatory, consequential and punitive damages. We believe these suits are without merit and intend to vigorously defend them. At this point, the Company cannot reasonably estimate a possible range of loss, if any.
In addition, we are currently defending a number of other class action suits in federal and state courts related to the manufacturing and sale of our products and alleging claims which include breach of contract, breach of warranty, product defect, fraud, violation of federal and state consumer protection acts and negligence. We are also involved in various other legal actions arising in the normal course of business. 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 discussed, and after taking into account current litigation reserves, that the outcome of these matters currently pending against Whirlpool should not have a material adverse effect, if any, on our Consolidated Financial Statements.
Product Warranty and Recall Reserves
Product warranty and recall reserves are included in other current and other noncurrent liabilities in our Consolidated Balance Sheets. The following table summarizes the changes in total product warranty and recall reserves for the periods presented:
Millions of dollars
 
2012
 
2011
Balance at January 1
 
$
191

 
$
217

Issuances/accruals during the period
 
70

 
84

Settlements made during the period
 
(79
)
 
(91
)
Other changes
 
2

 
(7
)
Balance at March 31
 
$
184

 
$
203

Current portion
 
$
150

 
$
160

Non-current portion
 
34

 
43

Total
 
$
184

 
$
203

We regularly 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.
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 March 31, 2012 and December 31, 2011, the guaranteed amounts totaled $418 million and $467 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 $1.3 billion at March 31, 2012 and $1.2 billion at December 31, 2011. Our total outstanding bank indebtedness under guarantees at March 31, 2012 and December 31, 2011 were nominal.


8


On May 16, 2008, we guaranteed a $50 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 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.
We sell banker's acceptance drafts to financial institutions as a standard business practice in The People's Republic of China (PRC). These drafts have certain recourse provisions afforded to transferees explicitly and under PRC laws. If a transferee were to exercise its available recourse rights, our subsidiaries in the PRC would be required to satisfy the obligation with the transferee and the draft would revert back to the subsidiary. At March 31, 2012 and December 31, 2011 the outstanding drafts transferred and outstanding totaled $36 million and $47 million, respectively. Transferees have not exercised their recourse rights against our subsidiaries during 2012 or 2011.
(5)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. For a derivative instrument designated as a fair value hedge, the gain or loss on the derivative is recognized in earnings in the period of change in fair value together with the offsetting gain or loss on the hedged item. For a derivative instrument designated as a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of Other Comprehensive Income (“OCI”) and is subsequently recognized in earnings when the hedged exposure affects earnings. 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 other 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. 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, inventory 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 forward 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


9


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 March 31, 2012 and December 31, 2011 there were no outstanding swap agreements.
We 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.
The following table summarizes our outstanding derivative contracts and their effects on our Consolidated Balance Sheets at March 31, 2012 and December 31, 2011:
 
 
 
 
Fair Value of
 
Type 
of Hedge (1)
 
 
Millions of dollars
 
Notional Amount
 
Hedge Assets
 
Hedge Liabilities
 
Maximum Term (Months)
 
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
 
 
 
2012
 
2011
Derivatives accounted for as hedges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange forwards/options
 
$
852

 
$
862

 
$
10

 
$
24

 
$
16

 
$
19

 
(CF/FV)
 
21
 
18
Commodity swaps/options
 
301

 
316

 
19

 
9

 
15

 
28

 
(CF/FV)
 
34
 
36
Interest rate derivatives
 
250

 
250

 
1

 

 

 
5

 
(CF)
 
3
 
6
Total derivatives accounted for as hedges
 
 
 
$
30

 
$
33

 
$
31

 
$
52

 
 
 
 
 
 
Derivatives not accounted for as hedges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange forwards/options
 
$
1,616

 
$
1,261

 
$
7

 
$
6

 
$
22

 
$
43

 
 
 
10
 
3
Commodity swaps/options
 
4

 
3

 

 

 

 
1

 
 
 
9
 
11
Total derivatives not accounted for as hedges
 
 
 
7

 
6

 
22

 
44

 
 
 
 
 
 
Total derivatives
 
 
 
 
 
$
37

 
$
39

 
$
53

 
$
96

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
 
 
 
 
$
33

 
$
36

 
$
51

 
$
91

 
 
 
 
 
 
Noncurrent
 
 
 
 
 
4

 
3

 
2

 
5

 
 
 
 
 
 
Total derivatives
 
 
 
 
 
$
37

 
$
39

 
$
53

 
$
96

 
 
 
 
 
 
(1)
Derivatives accounted for as hedges are either considered cash flow (CF) or fair value (FV) hedges.
The following tables summarize the effects of derivative instruments on our Consolidated Statements of Comprehensive Income for the three months ended March 31:
Cash Flow Hedges - Millions of dollars
 
Gain (Loss)
Recognized in OCI
(Effective Portion) (1)
 
Gain (Loss)
Reclassified from
OCI into Earnings
(Effective Portion) (2)
 
 
 
 
2012
 
2011
 
2012
 
2011
 
 
Foreign exchange forwards/options
 
$
(7
)
 
$
(6
)
 
$
(1
)
 
$
(6
)
 
(a)(b)
Commodity swaps/options
 
20

 
16

 
(2
)
 
34

 
(b)
Interest rate derivatives
 
6

 

 

 

 
(a)
 
 
$
19

 
$
10

 
$
(3
)
 
$
28

 
 
Fair Value Hedges - Millions of dollars
 
Hedged Item
 
Gain (Loss)
Recognized
on Derivatives (3)
 
Gain (Loss) Recognized
on Related
Hedged Items (3)
 
 
 
 
 
2012
 
2011
 
2012
 
2011
 
Foreign exchange forwards/options
 
Non-functional
currency assets and liabilities
 
$
(1
)
 
$

 
$
1

 
$

 
Derivatives not Accounted for as Hedges - Millions of dollars
 
Gain (Loss) Recognized on Derivatives not
Accounted for as Hedges (4)
 
 
 
2012
 
2011
 
Foreign exchange forwards/options
 
$
12

 
$
17

 
(1) Gains and losses recognized in OCI are included within total comprehensive income.
(2) Gains and losses reclassified from accumulated OCI and recognized in earnings are recorded in (a) interest and sundry income (expense) or (b) cost of products sold.
(3) Gains and losses recognized in earnings are recorded in interest and sundry income (expense).
(4) Mark to market gains and losses recognized in earnings are recorded in interest and sundry income (expense).


10


For cash flow hedges, the amount of ineffectiveness recognized in interest and sundry income (expense) was nominal during 2012 and 2011. 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 a gain of $5 million at March 31, 2012
(6)STOCKHOLDERS’ EQUITY
Comprehensive Income and Stockholders’ Equity
The following table summarizes our comprehensive income for the periods presented:
 
 
Three Months Ended March 31,
Millions of dollars
 
2012
 
2011
Net earnings as reported
 
$
97

 
$
178

Currency translation adjustments – net
 
80

 
106

Cash flow hedges – net
 
14

 
(12
)
Pension and other postretirement benefits plans – net
 
1

 
(1
)
Available for sale securities
 
2

 
(1
)
Comprehensive income
 
194

 
270

Less: Comprehensive income available to noncontrolling interests
 
7

 
2

Comprehensive income available to Whirlpool
 
$
187

 
$
268

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, 2011
 
$
4,280

 
$
4,181

 
$
99

Net earnings
 
97

 
92

 
5

Other comprehensive income (loss)
 
97

 
95

 
2

Comprehensive income
 
194

 
187

 
7

Common stock
 
1

 
1

 

Treasury stock
 
10

 
10

 

Additional paid-in capital
 
15

 
15

 

Dividends declared on common stock
 
(42
)
 
(39
)
 
(3
)
Stockholders’ equity, March 31, 2012
 
$
4,458

 
$
4,355

 
$
103

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 March 31,
Millions of dollars and shares
 
2012
 
2011
Numerator for basic and diluted earnings per share – net earnings available to Whirlpool
 
$
92

 
$
169

Denominator for basic earnings per share – weighted-average shares
 
77.3

 
76.7

Effect of dilutive securities – stock-based compensation
 
1.2

 
1.2

Denominator for diluted earnings per share – adjusted weighted-average shares
 
78.5

 
77.9

Anti-dilutive stock options/awards excluded from earnings per share
 
2.9

 
2.2




11


(7)RESTRUCTURING CHARGES
During the fourth quarter 2011, the Company committed to restructuring plans (the "2011 Plan") to expand our operating margins and improve our earnings through substantial cost and capacity reductions, primarily within our North America and EMEA operating segments. Including previously announced restructuring initiatives, which were consolidated into the 2011 Plan during the fourth quarter 2011, we expect to incur approximately $500 million of total costs with completion expected by the end of 2013. The 2011 Plan includes the following actions:
Overall workforce reduction of more than 5,000 positions, including approximately 1,200 salaried positions.
Closure of a refrigeration manufacturing facility in the United States in 2012.
Cease laundry production in a European manufacturing facility by 2013.
Ceased dishwasher production in a European manufacturing facility in January 2012.
Additional organizational efficiency actions in North America and EMEA.

The following table summarizes the change in our restructuring liability, cumulative charges recognized and total expected charges for the 2011 plan for the period ended March 31, 2012.
"2011 Plan"

Millions of dollars
12/31/2011
Charge to Earnings
Cash Paid
Non-cash and Other
Revision of Estimate
3/31/2012
 
Cumulative Charges 1
Expected Total Charges
Termination costs
$
62

$
6

$
(21
)
$

$

$
47

 
$
62

$
310

Non-employee exit costs
16

28

(11
)
(20
)

13

 
50

190

Total
$
78

$
34

$
(32
)
$
(20
)
$

$
60

 
$
112

$
500

The following table summarizes restructuring charges for the 2011 Plan, by operating segment, for the period ended March 31, 2012.
Millions of dollars
 
2012 Charges
 
Cumulative Charges 1
Expected Total Charges
North America
 
$
12

 
$
65

$
342

Latin America
 

 
2

10

EMEA
 
18

 
39

135

Asia
 
3

 
4

10

Corporate / Other
 
1

 
2

3

Total
 
$
34

 
$
112

$
500

1 Cumulative charges exclude $22 million of termination costs and $17 million of non-employee exit costs related to previous restructuring plans that were transferred into the 2011 plan during 2011.
(8)INCOME TAXES
The income tax expense for the three months ended March 31, 2012 was $36 million compared to a income tax benefit of $24 million for the three months ended March 31, 2011. The following table summarizes the difference between income tax expense at the United States statutory rate of 35% and the income tax expense (benefit) at effective worldwide tax rates for the periods presented:
 
 
Three Months Ended March 31,
Millions of dollars
 
2012
 
2011
Earnings before income taxes
 
$
133

 
$
154

Income tax expense computed at United States statutory tax rate
 
$
47

 
$
54

U.S. government tax incentive - Energy Tax Credits
 

 
(54
)
Foreign government tax incentive - BEFIEX
 
(4
)
 
(11
)
Other
 
(7
)
 
(13
)
Income tax expense (benefit) computed at effective worldwide tax rates
 
$
36

 
$
(24
)
Over the next twelve months it is reasonably possible that we will settle unrecognized tax benefits totaling approximately $41 million associated with certain tax examinations and other events.
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.


12


(9)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 March 31,
 
 
United States
Pension Benefits
 
Foreign Pension
Benefits
 
Other Postretirement
Benefits
Millions of dollars
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
Service cost
 
$

 
$

 
$
2

 
$
2

 
$
1

 
$
2

Interest cost
 
45

 
48

 
4

 
5

 
6

 
9

Expected return on plan assets
 
(48
)
 
(48
)
 
(2
)
 
(3
)
 

 

Amortization:
 
 
 
 
 
 
 
 
 
 
 
 
Actuarial loss
 
11

 
8

 
1

 
1

 

 

Prior service credit
 
(1
)
 
(1
)
 

 

 
(12
)
 
(7
)
Settlement and curtailment (gain) loss
 
2

 

 

 

 

 

Net periodic benefit cost (credit)
 
$
9

 
$
7

 
$
5

 
$
5

 
$
(5
)
 
$
4

(10)
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 profit (loss). Intersegment sales are eliminated within each region except compressor sales out of Latin America, which are included in Other/Eliminations. The Other/Eliminations column primarily includes corporate expenses, eliminations and restructuring expenses. Total assets by segment are those assets directly associated with the respective operating activities.
The tables below summarize performance by operating segment for the periods presented:
 
 
Three Months Ended March 31,
 
 
OPERATING SEGMENTS

Millions of dollars
 
North
America
 
Latin
America
 
EMEA
 
Asia
 
Other/
Eliminations
 
Total
Whirlpool
Net sales
 
 
 
 
 
 
 
 
 
 
 
 
2012
 
$
2,239

 
$
1,259

 
$
688

 
$
202

 
$
(39
)
 
$
4,349

2011
 
2,258

 
1,227

 
743

 
208

 
(35
)
 
4,401

Intersegment sales
 
 
 
 
 
 
 
 
 
 
 
 
2012
 
60

 
42

 
41

 
52

 
(195
)
 

2011
 
52

 
41

 
50

 
42

 
(185
)
 

Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
 
2012
 
$
67

 
$
25

 
$
24

 
$
5

 
$
30

 
$
151

2011
 
69

 
26

 
25

 
5

 
16

 
141

Operating profit
 
 
 
 
 
 
 
 
 
 
 
 
2012
 
151

 
121

 
5

 
9

 
(81
)
 
205

2011
 
59

 
174

 
25

 
11

 
(41
)
 
228

Total assets
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2012
 
$
7,956

 
$
3,622

 
$
2,777

 
$
794

 
$
(134
)
 
$
15,015

December 31, 2011
 
7,894

 
3,620

 
2,839

 
797

 
31

 
15,181

Capital expenditures
 
 
 
 
 
 
 
 
 
 
 
 
2012
 
48

 
18

 
11

 
7

 
8

 
92

2011
 
67

 
17

 
12

 
4

 
15

 
115



13


ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ABOUT WHIRLPOOL
Whirlpool Corporation (“Whirlpool”) is the world’s leading manufacturer of major home appliances with revenues of approximately $19 billion and net earnings available to Whirlpool of $390 million in 2011. We are a leading producer of major home appliances in North America and Latin America and have a significant presence in markets throughout Europe and in India. We have received worldwide recognition for accomplishments in a variety of business and social efforts, including leadership, diversity, innovative product design, business ethics, social responsibility and community involvement. We conduct our business through four reportable segments, which we define based on geography. Our reportable segments consist of North America, Latin America, EMEA (Europe, Middle East and Africa) and Asia. Our customer base includes large, sophisticated trade customers who have many choices and demand competitive products, services and prices.
We monitor country-specific economic factors such as gross domestic product, unemployment, consumer confidence, retail trends, housing starts and completions, sales of existing homes and mortgage interest rates as key indicators of industry demand. In addition to profitability, we also focus on country, brand, product and channel sales when assessing and forecasting financial results.
Our leading portfolio of consumer brands includes: Whirlpool, Maytag, KitchenAid, Brastemp and Consul, each of which have annual revenues in excess of $1 billion. Our global branded consumer products strategy is to introduce innovative new products, increase brand customer loyalty, expand our presence in foreign markets, enhance our trade management platform, improve total cost and quality by expanding and leveraging our global operating platform and, where appropriate, make strategic acquisitions and investments.
As we grow revenues in our core products, our strategy is to extend our business by offering products and services that are dependent on and related to our core business and expand into adjacent products, such as Gladiator GarageWorks, through stand-alone businesses that leverage our core competencies and business infrastructure.
RESULTS OF OPERATIONS
The following table summarizes the consolidated results of operations for the periods presented:
 
 
Three Months Ended March 31,
Consolidated - Millions of dollars, except per share data
 
2012
 
2011
 
Change        
Net sales
 
$
4,349

 
$
4,401

 
(1.2
)%
Gross margin
 
651

 
623

 
4.5
 %
Selling, general and administrative
 
405

 
380

 
(6.6
)%
Restructuring costs
 
34

 
8

 
nm

Interest and sundry income (expense)
 
(18
)
 
(20
)
 
10.0
 %
Interest expense
 
(54
)
 
(54
)
 
 %
Income tax expense (benefit)
 
36

 
(24
)
 
nm

Net earnings available to Whirlpool
 
92

 
169

 
(45.6
)%
Diluted net earnings available to Whirlpool per share
 
$
1.17

 
$
2.17

 
(46.1
)%
nm: not meaningful


14


Consolidated Net Sales
The following tables summarize units sold and consolidated net sales by region for the periods presented:
 
 
Units Sold (in thousands)
 
 
Three Months Ended
Region
 
2012
 
2011
 
Change        
North America
 
5,716

 
6,155

 
(7.1
)%
Latin America
 
2,969

 
2,901

 
2.3
 %
Europe, Middle East and Africa
 
2,605

 
2,709

 
(3.8
)%
Asia
 
922

 
911

 
1.2
 %
Consolidated
 
12,212

 
12,676

 
(3.7
)%
 
 
Net Sales (in millions)
 
 
Three Months Ended
Region
 
2012
 
2011
 
Change        
North America
 
$
2,239

 
$
2,258

 
(0.8
)%
Latin America
 
1,259

 
1,227

 
2.6
 %
Europe, Middle East and Africa
 
688

 
743

 
(7.5
)%
Asia
 
202

 
208

 
(2.9
)%
Other/eliminations
 
(39
)
 
(35
)
 

Consolidated
 
$
4,349

 
$
4,401

 
(1.2
)%
Consolidated net sales for the three months ended March 31, 2012 reflect strong improvements in product price/mix from previously announced pricing actions compared to the same period in 2011. This favorable impact was more than offset by a 3.7% decrease in units sold, the unfavorable impact of foreign currency and lower BEFIEX credits. Excluding the impact of foreign currency, consolidated net sales increased 1.0% for the three months ended March 31, 2012.

Significant regional trends were as follows:
North America net sales for the three months ended March 31, 2012 reflect strong improvements in product price/mix, which were more than offset by a 7.1% decrease in units sold. Foreign currency did not have a significant impact on North America net sales compared to 2011.
Latin America net sales increased 2.6% compared to 2011, primarily due to the favorable product price/mix and a 2.3% increase in units sold, partially offset by lower BEFIEX credits recognized and the impact of unfavorable foreign currency. The reduction of BEFIEX credits monetized was primarily due to the Impostos sobre Produtos ("IPI") sales tax holiday that was declared by the Brazilian government on certain appliances in December 2011 and has been extended through June 30, 2012. During this holiday, we expect to monetize reduced amounts of BEFIEX credits because the credits are monetized through the offset of IPI taxes due. Excluding the impact of foreign currency, net sales increased 7.0% compared to 2011.
We monetized $7 million and $66 million of BEFIEX credits during the three months ended March 31, 2012 and 2011, respectively. At March 31, 2012, approximately $245 million of future cash monetization remained, including $63 million of related court awarded fees, which will be payable in subsequent years.
Europe, Middle East and Africa net sales decreased 7.5% compared to 2011, primarily due to the unfavorable impact of foreign currency and a 3.8% decrease in units sold, partially offset by favorable product price/mix. Excluding the impact of foreign currency, net sales decreased 3.3% compared to 2011.
Asia net sales decreased 2.9% compared to 2011, primarily due to the unfavorable impact of foreign currency, partially offset by a 1.2% increase in units sold and favorable product price/mix. Excluding the impact of foreign currency, net sales increased 2.4% compared to 2011.



15


Gross Margin
The table below summarizes gross margin percentages by region:
 
 
Three Months Ended March 31,
 
Percentage of net sales
 
2012
 
2011
 
Change    
 
North America
 
14.1
%
 
10.1
%
 
4.0

pts 
Latin America
 
17.2
%
 
21.0
%
 
(3.8
)
pts 
EMEA
 
11.9
%
 
13.0
%
 
(1.1
)
pts 
Asia
 
18.0
%
 
18.4
%
 
(0.4
)
pts 
Consolidated
 
15.0
%
 
14.1
%
 
0.9

pts 
The consolidated gross margin percentage for the three months ended March 31, 2012 increased 0.9 points compared to 2011, primarily due to improved product price/mix, benefits from restructuring initiatives and continued productivity improvements, partially offset by increased material costs.
Significant regional trends were as follows:
North America gross margin increased compared to 2011, primarily due to the favorable impact from previously announced price increases and restructuring initiatives along with continued productivity, partially offset by higher material costs.
Latin America gross margin decreased compared to 2011, primarily due to lower BEFIEX credits recognized due to the IPI sales tax holiday and higher material costs, partially offset by favorable product price/mix and continued productivity and cost reduction initiatives.
EMEA gross margin decreased compared to 2011, primarily due to higher material costs and lower productivity, partially offset by the favorable impact of product price/mix and restructuring initiatives.
Asia gross margin decreased compared to 2011, primarily due to higher material costs, partially offset by the favorable impacts from continued productivity improvements and restructuring initiatives and favorable product price/mix.
Selling, General and Administrative
The following table summarizes selling, general and administrative expenses as a percentage of sales by region
 
 
Three Months Ended March 31,
Millions of dollars
 
2012
 
As a %
of Net Sales    
 
2011
 
As a %
of Net Sales    
North America
 
$
157

 
7.0
%
 
$
162

 
7.2
%
Latin America
 
96

 
7.6
%
 
84

 
6.9
%
EMEA
 
77

 
11.2
%
 
72

 
9.7
%
Asia
 
28

 
13.7
%
 
28

 
13.3
%
Corporate/other
 
47

 

 
34

 

Consolidated
 
$
405

 
9.3
%
 
$
380

 
8.6
%
Consolidated selling, general and administrative expenses, as a percentage of sales, increased compared to 2011, primarily due to higher employee benefits expense and increased investment in consumer advertising.
Restructuring
During the fourth quarter 2011, the Company committed to restructuring plans (the "2011 Plan") that will result in substantial cost and capacity reductions. Including previously announced restructuring initiatives, we expect to incur approximately $500 million of total costs which began in the fourth quarter 2011 with completion expected by the end of 2013.
We incurred total restructuring charges of $34 million and $8 million for the three months ended March 31, 2012 and 2011, respectively. We expect to incur approximately $373 million of future cash expenditures related to the 2011 Plan. Additional information about restructuring activities can be found in Note 7 of the Notes to the Consolidated Financial Statements.


16


Interest and Sundry Income (Expense)
Interest and sundry income (expense) was comparable to the same period in 2011.
Interest Expense
Interest expense was comparable to the same period in 2011.
Income Taxes
The income tax expense for the three months ended March 31, 2012 amounted to $36 million, compared to a benefit of $24 million in 2011. The increase in income tax expense is primarily due to the expiration of the energy tax credit in 2011.
The following table summarizes the difference between income tax expense at the United States statutory rate of 35% and the income tax expense (benefit) at effective worldwide tax rates for the respective periods:


Three Months Ended March 31,
Millions of dollars

2012

2011
Earnings before income taxes

$
133


$
154

Income tax expense computed at United States statutory tax rate
 
$
47


$
54

U.S. government tax incentive - Energy Tax Credits
 


(54
)
Foreign government tax incentive - BEFIEX
 
(4
)

(11
)
Other
 
(7
)

(13
)
Income tax expense (benefit) computed at effective worldwide tax rates

$
36


$
(24
)
FORWARD-LOOKING PERSPECTIVE
We currently estimate earnings per diluted share, free cash flow and industry demand for 2012 to be within the following ranges:
Millions of dollars, except per share data
 
Current Outlook
Estimated earnings per diluted share, net of tax
 
$5.00
$5.50
 
Including:
 
 
 
 
 
 
BEFIEX ($60 to $80 million)
 
0.80
1.00
 
 
Restructuring expense ($250 - $270 million)
 
(2.30)
(2.50)
Free cash flow
 
$100
$150
Industry demand
 
 
 
 
 
North America
 
—%
3%
 
Latin America
 
2%
5%
 
EMEA
 
(2%)
(5%)
 
Asia
 
2%
4%
The company continues to expect to generate free cash flow between $100 million and $150 million. Included in this guidance is the $275 million final installment to settle the Brazilian collection dispute, $110 million for antitrust settlements, pension contributions of up to $250 million and restructuring cash outlays of up to $279 million.
The table below reconciles projected 2012 cash provided by operations determined in accordance with generally accepted accounting principles in the United States (GAAP) to free cash flow, a non-GAAP measure. Management believes that free cash flow provides stockholders with a relevant measure of liquidity and a useful basis for assessing Whirlpool’s ability to fund its activities and obligations. There are limitations to using non-GAAP financial measures, including the difficulty associated with comparing companies that use similarly named non-GAAP measures whose calculations may differ from our calculations. We define free cash flow as cash provided by (used in) continuing operations after capital expenditures and proceeds from the sale of assets/businesses.


17


These projections are based on many estimates and are inherently subject to change based on future decisions made by management and the Board of Directors of Whirlpool, and significant economic, competitive and other uncertainties and contingencies.
Millions of dollars
 
Current Outlook
Cash provided by operating activities
 
$
600

 
 
$
700

Capital expenditures
 
(500
)
 
 
(550
)
Proceeds from sale of assets/businesses
 

 
 

Free cash flow
 
$
100

 
 
$
150

FINANCIAL CONDITION AND LIQUIDITY
Our objective is to finance our business through operating cash flow and the appropriate mix of long-term and short-term debt. By diversifying the maturity structure, we avoid concentrations of debt, reducing liquidity risk. We have varying needs for short-term working capital financing as a result of the nature of our business. We regularly review our capital structure and liquidity priorities, which include funding the business through capital and engineering spending to support innovation and productivity initiatives, funding our pension plan and term debt liabilities, return to shareholders and potential acquisitions in our core business and/or strategic adjacent business opportunities. These priorities are aligned with our goal to return our credit ratings to pre-recession levels.
We have continued to operate under uncertain and volatile global economic conditions, experiencing higher material costs, recessionary demand levels in developed markets and slowing growth in emerging markets. To succeed in this environment, we announced aggressive actions during 2011 to improve our overall operating performance and financial condition, including cost-based price increases across all markets and plans to reduce our cost structure and production capacity, primarily in North America and EMEA. We have started to recognize the benefits from these actions during the first quarter 2012 and expect that operating cash flow, together with access to sufficient sources of liquidity, will be adequate to meet our ongoing requirements to fund our operations.
In 2012, our short term potential uses of liquidity include cash outlays of up to $279 million related to our restructuring initiatives, up to $250 million in pension funding and approximately $110 million related to the Embraco antitrust matters. In addition, approximately $850 million of term debt will be maturing over the next 12 months. At March 31, 2012 we had no borrowings outstanding under credit facilities and we were in compliance with financial covenants for all periods presented.

We monitor the credit ratings and market indicators of credit risk of our lending, depository, and derivative counterparty banks regularly. We diversify our deposits and investments in short term cash equivalents to limit the concentration of exposure by counterparty. The general financial instability in the stressed European countries could have a contagion effect on the region and contribute to the general instability and uncertainty in the European Union. At March 31, 2012, no European country had cash and cash equivalents and third-party receivables exceeding 1% of our consolidated assets.
We continue to review customer financial conditions across the Eurozone. We currently have past-due receivables from various trade customers with a net exposure of approximately $100 million, of which, the majority is concentrated with one European customer.
Sources and Uses of Cash
The following table summarizes the net decrease in cash and equivalents for the periods presented.
 
 
Three Months Ended March 31,
Millions of dollars
 
2012
 
2011
Cash provided by (used in):
 
 
 
 
Operating activities
 
$
(423
)
 
$
(224
)
Investing activities
 
(92
)
 
(119
)
Financing activities
 
(34
)
 
(29
)
Effect of exchange rate changes on cash
 
23

 
30

Net decrease in cash and equivalents
 
$
(526
)
 
$
(342
)


18


Cash Flows from Operating Activities
The increase in cash used by operations for the three months ended March 31, 2012 includes a $275 million payment in January 2012 related to the settlement of the Brazilian collection dispute and $58 million to fund our United States pension plans, compared to $16 million of pension funding in 2011. The timing of cash flows from operations varies significantly within a quarter primarily due to changes in production levels, sales patterns, promotional programs, funding requirements as well as receivable and payment terms. Dependent on timing of cash flows, the location of cash balances, as well as the liquidity requirements of each country, external sources of funding may be used to support working capital requirements. Due to the variables discussed above, cash flow used in operations during the quarter was significantly in excess of our quarter-end balance.
Cash Flows from Investing Activities
Cash used in investing activities during the three months ended March 31, 2012 totaled $92 million, reflecting a decrease of $23 million in capital expenditures compared to 2011. The decrease in capital expenditures is driven by project timing and lower overall capital investment planned for 2012 compared to 2011.
Cash Flows from Financing Activities
Cash used in financing activities during the three months ended March 31, 2012 totaled $34 million and was comparable to cash used in financing activities of $29 million in 2011. At March 31, 2012, we had no commercial paper borrowings outstanding.
Financing Arrangements
In March 2012, we obtained a committed credit facility in Brazil. The credit facility provides borrowings up to 180 million Brazilian reais (approximately $100 million as of March 31, 2012). The credit facility contains no financial covenants and we had no borrowings outstanding under this credit agreement as of March 31, 2012.
401(k) Defined Contribution Plan
During January 2012, we began contributing company stock to fund the company match and automatic company contributions, equal to up to 7% of employees' eligible pay, in our 401(k) defined contribution plan covering all U.S. employees. We expect to contribute up to $50 million of company stock to our 401(k) defined contribution plan during 2012.
Income Taxes
We estimate our income taxes in each of the taxing jurisdictions in which we operate. This involves estimating actual current tax expense together with assessing any temporary differences resulting from the different treatment of certain items, such as the timing for recognizing expenses, for tax and accounting purposes in accordance with GAAP guidance. These differences may result in deferred tax assets or liabilities, which are included in our Consolidated Balance Sheets. We are required to assess the likelihood that deferred tax assets, which include net operating loss carryforwards, tax credits and deductible temporary differences, are expected to be realizable in future years. Realization of our net operating loss and tax credit deferred tax assets is supported by specific tax planning strategies and, where possible, considers projections of future profitability. If recovery is not more likely than not, we provide a valuation allowance based on estimates of future taxable income in the various taxing jurisdictions, and the amount of deferred taxes that are ultimately realizable. If future taxable income is lower than expected or if tax planning strategies are not available as anticipated, we may record additional valuation allowances through income tax expense in the period, in which such determination is made. Likewise, if we determine that we are able to realize our deferred tax assets in the future in excess of net recorded amounts, an adjustment to the deferred tax asset will increase income in the period such determination is made.
OTHER MATTERS
Embraco Antitrust Matters
Beginning in February 2009, our compressor business headquartered in Brazil ("Embraco") was notified of investigations of the global compressor industry by government authorities in various jurisdictions. In 2011, Embraco sales represented approximately 8% of our global net sales.
Government authorities in Brazil, Europe, the United States, and other jurisdictions have entered into agreements with Embraco and concluded their investigations. In connection with these agreements, Embraco has acknowledged violations of antitrust law with respect to the sale of compressors at various times from 2004 through 2007 and agreed to pay fines or settlement payments.


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Since the government investigations commenced in February 2009, Embraco has been named as a defendant in related antitrust lawsuits in various jurisdictions seeking damages in connection with the pricing of compressors from 1996 to 2009. Several other compressor manufacturers who are the subject of the government investigations have also been named as defendants in the litigation. United States federal lawsuits instituted on behalf of purported purchasers and containing class action allegations have been combined in one proceeding in the United States District Court for the Eastern District of Michigan. Lawsuits containing class action allegations are also pending in Canada. Additional lawsuits may be filed by purported purchasers.
In connection with these agreements and other Embraco antitrust matters, we have incurred, in the aggregate, charges of approximately $323 million, including fines, defense costs and other expenses. These charges have been recorded within interest and sundry income (expense). At March 31, 2012, $195 million remains accrued, with installment payments of $171 million, plus interest, remaining to be made to government authorities at various times through 2015.
We continue to work toward resolution of ongoing government investigations in other jurisdictions, to defend the related antitrust lawsuits and to take other actions 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.
Brazilian Collection Dispute
We reached an agreement on June 22, 2011 to settle all claims arising from our long-standing dispute in Brazil with Banco Safra S.A. Such settlement was subsequently approved by a Brazilian court on July 8, 2011. Pursuant to the settlement, our subsidiary agreed to pay Banco Safra S.A. 959 million Brazilian reais, in two installments, the first of 469 million reais (equivalent to $301 million) was made during July 2011, and the second of 490 million reais (equivalent to $275 million) was made during January 2012.
Antidumping Petitions
In March 2011, we filed antidumping and countervailing duty petitions against bottom-mount refrigerators from South Korea and an antidumping petition against the same product from Mexico. The U.S. Department of Commerce (“DOC”) and the U.S. International Trade Commission (“ITC”) initiated investigations in response to our petitions. The Whirlpool products affected by this case are made in Amana, Iowa, where Whirlpool employs approximately 2,200 people. In March 2012, the DOC issued favorable final determinations in which it found that several Korean and Mexican producers had engaged in dumping and that certain Korean producers received countervailable government subsidies. In April 2012, ITC reached an unfavorable final determination that dumped and subsidized imports were not a cause of material injury to domestic producers, and therefore trade remedies will not be imposed on the subject imports. We disagree with the decision. We will conduct a thorough review of the ITC’s opinion and will then determine whether or not to exercise our right to appeal.

In December 2011, we filed petitions requesting that the DOC and the ITC initiate antidumping and countervailing duty investigations against large residential washers from South Korea, and an antidumping investigation against the same products from Mexico. The Whirlpool products affected by this case are made in Clyde, Ohio, where Whirlpool employs approximately 3,500 people. The ITC made a favorable preliminary determination that imports from South Korea and Mexico caused material injury to the domestic industry. Final decisions on these matters, following completion of the investigations, are currently expected in the first half of 2013.



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ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to our exposures to market risk since December 31, 2011.
ITEM 4.
CONTROLS AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures.
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) that are designed to provide reasonable assurance that information required to be disclosed in our filings under the Securities Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Prior to filing this report, we completed an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2012. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2012.

(b)
Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II.
OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
Information with respect to legal proceedings can be found under the heading “Commitments and Contingencies” in Note 4 to the Consolidated Financial Statements contained in Part I, Item 1 of this report.
ITEM 1A.
RISK FACTORS
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A to our Annual Report on Form 10-K for the year ended December 31, 2011. The risk factors disclosed in our Annual Report on Form 10-K, in addition to the other information set forth in this report, could materially affect our business, financial condition or results. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may materially adversely affect our business, financial condition or results.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.
OTHER INFORMATION
None
ITEM 6.
EXHIBITS
 
 
 
Exhibit 10(iii)(a)
 
Whirlpool Corporation 2010 Omnibus Stock and Incentive Plan Strategic Excellence Program Stock Option Grant Document

 
 
 
Exhibit 10(iii)(b)
 
Whirlpool Corporation 2010 Omnibus Stock and Incentive Plan Strategic Excellence Program Performance Restricted Stock Unit / Performance Unit Grant Document

 
 
 
Exhibit 31.1
 
Certification of Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
Exhibit 31.2
 
Certification of Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
Exhibit 32.1
 
Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
101.INS
 
XBRL Instance Document
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
WHIRLPOOL CORPORATION
 
 
 
(Registrant)
 
By
 
/s/ LARRY M. VENTURELLI
 
Name:
 
Larry M. Venturelli
 
Title:
 
Executive Vice President
and Chief Financial Officer
April 26, 2012
 
 
 



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