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, 2016
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-3932
WHIRLPOOL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
38-1490038
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
 
 
 
2000 North M-63,
Benton Harbor, Michigan
 
49022-2692
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (269) 923-5000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                        Yes  x    No   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x    No   o    
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
 
Accelerated filer  o
Non-accelerated filer  o (Do not check if a smaller reporting  company)
 
Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o   No  x
Number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class of common stock
 
Shares outstanding at April 22, 2016
Common stock, par value $1 per share
 
75,966,856




WHIRLPOOL CORPORATION

QUARTERLY REPORT ON FORM 10-Q
Three Months Ended March 31, 2016
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.
 
 
 
SIGNATURES



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, industry unit shipments, productivity and raw material prices. Many risks, contingencies and uncertainties could cause actual results to differ materially from Whirlpool's forward-looking statements. Among these factors are: (1) intense competition in the home appliance industry reflecting the impact of both new and established global competitors, including Asian and European manufacturers; (2) acquisition and investment-related risk, including risk associated with our acquisitions of Hefei Sanyo and Indesit, and risk associated with our increased presence in emerging markets; (3) Whirlpool's ability to continue its relationship with significant trade customers and the ability of these trade customers to maintain or increase market share; (4) risks related to our international operations, including changes in foreign regulations, regulatory compliance and disruptions arising from natural disasters or terrorist attacks; (5) fluctuations in the cost of key materials (including steel, plastic, resins, copper and aluminum) and components and the ability of Whirlpool to offset cost increases; (6) the ability of Whirlpool to manage foreign currency fluctuations; (7) litigation, tax, and legal compliance risk and costs, especially costs which may be materially different from the amount we expect to incur or have accrued for; (8) the effects and costs of governmental investigations or related actions by third parties; (9) changes in the legal and regulatory environment including environmental and health and safety regulations; (10) Whirlpool's ability to maintain its reputation and brand image; (11) the ability of Whirlpool to achieve its business plans, productivity improvements, cost control, price increases, leveraging of its global operating platform, and acceleration of the rate of innovation; (12) information technology system failures and data security breaches; (13) product liability and product recall costs; (14) inventory and other asset risk; (15) the uncertain global economy and changes in economic conditions which affect demand for our products; (16) the ability of suppliers of critical parts, components and manufacturing equipment to deliver sufficient quantities to Whirlpool in a timely and cost-effective manner; (17) our ability to attract, develop and retain executives and other qualified employees; (18) the impact of labor relations; (19) Whirlpool's ability to obtain and protect intellectual property rights; and (20) health care cost trends, regulatory changes and variations between results and estimates that could increase future funding obligations for pension and postretirement benefit plans.
We undertake no obligation to update any forward-looking statement, and investors are advised to review disclosures in our filings with the SEC. It is not possible to foresee or identify all factors that could cause actual results to differ from expected or historic results. Therefore, investors should not consider the foregoing factors to be an exhaustive statement of all risks, uncertainties, or factors that could potentially cause actual results to differ from forward-looking statements.
Additional information concerning these and other factors can be found in “Risk Factors” in Part II, Item 1A of this report.    
Unless otherwise indicated, the terms “Whirlpool,” “the Company,” “we,” “us,” and “our” refer to Whirlpool Corporation and its consolidated subsidiaries.



2


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

 
Three Months Ended
 
2016
 
2015
Net sales
$
4,616

 
$
4,846

Expenses
 
 
 
Cost of products sold
3,795

 
3,993

Gross margin
821

 
853

Selling, general and administrative
473

 
498

Intangible amortization
18

 
19

Restructuring costs
47

 
33

Operating profit
283

 
303

Other income (expense)
 
 
 
Interest and sundry income (expense)
(30
)
 
(53
)
Interest expense
(38
)
 
(43
)
Earnings before income taxes
215

 
207

Income tax expense
59

 
9

Net earnings
156

 
198

Less: Net earnings available to noncontrolling interests
6

 
7

Net earnings available to Whirlpool
$
150

 
$
191

Per share of common stock
 
 
 
Basic net earnings available to Whirlpool
$
1.94

 
$
2.42

Diluted net earnings available to Whirlpool
$
1.92

 
$
2.38

Dividends declared
$
0.90

 
$
0.75

Weighted-average shares outstanding (in millions)
 
 
 
Basic
77.3

 
78.8

Diluted
78.1

 
80.0

 
 
 
 
Comprehensive income (loss)
$
312

 
$
(13
)

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)
 
 

March 31,
2016

December 31,
2015
Assets



Current assets



Cash and cash equivalents
$
699


$
772

Accounts receivable, net of allowance of $171 and $160, respectively
2,695


2,530

Inventories
3,096


2,619

Deferred income taxes
452


451

Prepaid and other current assets
952


953

Total current assets
7,894


7,325

Property, net of accumulated depreciation of $6,182 and $5,953, respectively
3,800


3,774

Goodwill
3,054


3,006

Other intangibles, net of accumulated amortization of $342 and $327, respectively
2,697


2,678

Deferred income taxes
1,847


1,850

Other noncurrent assets
380


377

Total assets
$
19,672


$
19,010

Liabilities and stockholders’ equity



Current liabilities



Accounts payable
$
4,286


$
4,403

Accrued expenses
701


675

Accrued advertising and promotions
518


706

Employee compensation
474


452

Notes payable
998


20

Current maturities of long-term debt
760


508

Other current liabilities
950


980

Total current liabilities
8,687


7,744

Noncurrent liabilities



Long-term debt
3,251


3,470

Pension benefits
1,010


1,025

Postretirement benefits
347


390

Other noncurrent liabilities
681


707

Total noncurrent liabilities
5,289


5,592

Stockholders’ equity



Common stock, $1 par value, 250 million shares authorized, 111 million shares issued, and 76 million and 77 million shares outstanding, respectively
111


111

Additional paid-in capital
2,645


2,641

Retained earnings
6,803


6,722

Accumulated other comprehensive loss
(2,177
)

(2,332
)
Treasury stock, 35 million and 33 million shares, respectively
(2,624
)

(2,399
)
Total Whirlpool stockholders’ equity
4,758


4,743

Noncontrolling interests
938


931

Total stockholders’ equity
5,696


5,674

Total liabilities and stockholders’ equity
$
19,672


$
19,010


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 MARCH 31
(Millions of dollars)
 

Three Months Ended

2016
 
2015
Operating activities
 
 
 
Net earnings
$
156

 
$
198

Adjustments to reconcile net earnings to cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
168

 
161

Curtailment gain

 
(47
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
(107
)
 
58

Inventories
(398
)
 
(394
)
Accounts payable
(228
)
 
(285
)
Accrued advertising and promotions
(200
)
 
(227
)
Accrued expenses and current liabilities
(30
)
 
37

Taxes deferred and payable, net
(21
)
 
(48
)
Accrued pension and postretirement benefits
(19
)
 
(17
)
Employee compensation
13

 
(45
)
Other
5

 
40

Cash used in operating activities
(661
)
 
(569
)
Investing activities
 
 
 
Capital expenditures
(85
)
 
(126
)
Proceeds from sale of assets and business
4

 
33

Change in restricted cash
3

 
11

Investment in related businesses

 
(15
)
Other
(15
)
 

Cash used in investing activities
(93
)
 
(97
)
Financing activities
 
 
 
Proceeds from borrowings of long-term debt

 
523

Repayments of long-term debt
(5
)
 
(69
)
Net proceeds (repayments) from short-term borrowings
966

 
(41
)
Dividends paid
(69
)
 
(60
)
Repurchase of common stock
(225
)
 

Common stock issued
3

 
34

Cash provided by financing activities
670

 
387

Effect of exchange rate changes on cash and cash equivalents
11

 
(43
)
Decrease in cash and cash equivalents
(73
)
 
(322
)
Cash and cash equivalents at beginning of period
772

 
1,026

Cash and cash equivalents at end of period
$
699

 
$
704


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


5


NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(1)    BASIS OF PRESENTATION
General Information
The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information or footnotes required by GAAP for complete financial statements. As a result, this Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying Notes in our Form 10-K for the year ended December 31, 2015.
Management believes that the accompanying Consolidated Condensed Financial Statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods.
We have eliminated all material intercompany transactions in our Consolidated Condensed Financial Statements. We do not consolidate the financial statements of any company in which we have an ownership interest of 50% or less, unless that company is deemed to be a variable interest entity ("VIE") of which we are the primary beneficiary. Certain VIEs are consolidated when the company is the primary beneficiary of these entities and has the ability to directly impact the activities of these entities.
We are required to make estimates and assumptions that affect the amounts reported in the Consolidated Condensed Financial Statements and accompanying Notes. Actual results could differ materially from those estimates.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers (Topic 606)", which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. 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. While we have not completed our impact analysis, we do not expect the adoption to have a material impact on our Consolidated Financial Statements. We do not anticipate early adoption of the standard.
In April 2015, FASB issued ASU No. 2015-03, Interest-"Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs". The pronouncement requires debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with the presentation for debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. In August 2015, the FASB issued ASU No. 2015-15, Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcements at the June 2015 EITF Meeting. ASU 2015-15 amends Subtopic 835-30 to include that the SEC would not object to the deferral and presentation of debt issuance costs as an asset and subsequent amortization of debt issuance costs over the term of the line-of-credit arrangement, whether or not there are any outstanding borrowings on the line-of-credit arrangement. This pronouncement is effective for fiscal years and interim periods within those years beginning after December 15, 2015 and must be applied on a retrospective basis. Whirlpool adopted this standard in the first quarter of 2016 which did not have a material impact on our Consolidated Financial Statements.
In July 2015, the FASB issued ASU No. 2015-11, "Simplifying the Measurement of Inventory", which amends ASC 330, Inventory. This ASU simplifies the subsequent measurement of inventory by using only the lower of cost and net realizable value. The ASU does not apply to inventory measured using last-in, first-out method. This pronouncement is effective for fiscal years and interim periods within those years beginning after December 15, 2016, and must be applied on a retrospective basis with early adoption permitted. The adoption is not expected to have a material impact on our Consolidated Financial Statements.
In July 2015, the FASB issued ASU No. 2015-12, "Plan Accounting-Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962) Health and Welfare Benefit Plans (Topic 965)". There are three parts to the ASU that aim to simplify the accounting and presentation of plan accounting. Part I of this ASU requires fully benefit-responsive investment contracts to be measured at contract value instead of the current fair value measurement. Part II of this ASU requires investments (both participant-directed and nonparticipant-directed investments) of employee benefit plans be grouped only by general type,


6



eliminating the need to disaggregate the investments in multiple ways. Part III of this ASU provides a similar measurement date practical expedient for employee benefit plans as available in ASU No. 2015-04, which allows employers to measure defined benefit plan assets on a month-end date that is nearest to the year’s fiscal year-end when the fiscal period does not coincide with a month-end. Parts I and II of the new pronouncement should be applied on a retrospective basis. Part III of the new pronouncement should be applied on a prospective basis. This pronouncement is effective for fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years. The adoption does not have a material impact on our Consolidated Financial Statements.
In November 2015, the FASB issued ASU No. 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes", which supersedes the guidance in Topic 740, Income Taxes, that requires an entity to separate deferred tax liabilities and assets into a current amount and noncurrent amount in a classified statement of financial position. The amendment requires entities that present a classified balance sheet to classify all deferred tax liabilities and assets as a noncurrent amount. This pronouncement is effective for fiscal years and interim periods within those years beginning after December 15, 2016, and may be early adopted on a prospective basis or on a retrospective basis to all periods presented. We have not yet determined the potential effects from this pronouncement on our Consolidated Financial Statements.
In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities". ASU 2016-01 provides guidance for the recognition, measurement, presentation, and disclosure of financial instruments. The new pronouncement revises an entity’s accounting related to equity investments and the presentation of certain fair value changes for financial liabilities measured at fair value. Among other things, it amends the presentation and disclosure requirements of equity securities that do not result in consolidation and are not accounted for under the equity method. Changes in the fair value of these equity securities will be recognized directly in net income. This pronouncement is effective for fiscal years and interim periods within those years beginning after December 15, 2017. The Company is currently evaluating the effect this standard will have on our Consolidated Financial Statements.
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 all 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. The Company is currently evaluating the effect this standard will have on our Consolidated Financial Statements.
In March 2016, the FASB Issued ASU No. 2016-09, "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting". The updated ASU changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This pronouncement is effective for fiscal years and interim periods beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the effect this standard will have on our Consolidated Financial Statements.
All other issued but not yet effective accounting pronouncements are not expected to have a material impact on our Consolidated Financial Statements.
(2)    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 March 31, 2016.


7


Assets and liabilities measured at fair value on a recurring basis at March 31, 2016 and December 31, 2015 are in the following table:
 
 
 
 
 
 
Fair Value
 
 
Total Cost Basis
 
Level 1
 
Level 2
 
Total
Millions of dollars
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Money market funds(1)
 
$
7

 
$
13

 
$
7

 
$
13

 
$

 
$

 
$
7

 
$
13

Net derivative contracts
 

 

 

 

 
(66
)
 
(42
)
 
(66
)
 
(42
)
Available for sale investments
 
12

 
11

 
26

 
25

 

 

 
26

 
25

(1)Money market funds are comprised primarily of government obligations and other first tier obligations.
Other Fair Value Measurements
The fair value of long-term debt (including current maturities) was $4.1 billion and $4.0 billion at March 31, 2016 and December 31, 2015, respectively, and was estimated using discounted cash flow analyses based on incremental borrowing rates for similar types of borrowing arrangements (Level 2 input).
(3)    INVENTORIES
The following table summarizes our inventory for the periods presented:
Millions of dollars
 
March 31,
2016
 
December 31,
2015
Finished products
 
$
2,557

 
$
2,093

Raw materials and work in process
 
663

 
655

 
 
3,220

 
2,748

Less: excess of FIFO cost over LIFO cost
 
(124
)
 
(129
)
Total inventories
 
$
3,096


$
2,619

LIFO inventories represented 37% of total inventories at March 31, 2016 and December 31, 2015, respectively.
(4)    PROPERTY, PLANT & EQUIPMENT
The following table summarizes our property, plant and equipment as of March 31, 2016 and December 31, 2015:
Millions of dollars
 
March 31,
2016
 
December 31,
2015
Land
 
$
135

 
$
131

Buildings
 
1,660

 
1,614

Machinery and equipment
 
8,187

 
7,982

Accumulated depreciation
 
(6,182
)
 
(5,953
)
Property, plant and equipment, net
 
$
3,800

 
$
3,774

During the three months ended March 31, 2016, we disposed of $56 million of machinery and equipment.
(5)    FINANCING ARRANGEMENTS
Debt
We have committed credit facilities in Brazil, which provide borrowings up to 1.0 billion Brazilian reais (approximately $281 million at March 31, 2016 and $256 million at December 31, 2015) maturing all in 2017. The credit facilities contain no financial covenants and we had no borrowings outstanding under these credit facilities at March 31, 2016 and December 31, 2015.
We have a €250 million European credit facility, a $500 million short-term credit facility and a $2.0 billion long-term credit facility which provide total committed credit facilities of approximately $2.8 billion (the “Facilities”).
We had no borrowings outstanding under the Facilities at March 31, 2016 or December 31, 2015, respectively.


8



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 March 31, 2016 and December 31, 2015:
Millions of dollars
 
March 31, 2016
 
December 31, 2015
Commercial paper
 
$
868

 
$

Short-term borrowings to banks
 
130

 
20

Total notes payable
 
$
998

 
$
20


(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 has made its final installment payments negotiated in connection with such resolutions. Embraco also has resolved certain other claims and certain claims remain pending. Additional lawsuits could be filed.
At March 31, 2016, 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 position, liquidity, or results of operations in any particular reporting period.
BEFIEX Credits and Other Brazil Tax Matters
In previous years, our Brazilian operations earned tax credits under the Brazilian government’s export incentive program (BEFIEX). These credits reduced Brazilian federal excise taxes on domestic sales, resulting in an increase in the operations' recorded net sales, as the credits were monetized. We did not monetize any BEFIEX credits during the three months ended March 31, 2016 or 2015. We began recognizing BEFIEX credits in accordance with prior favorable court decisions allowing for the credits to be recognized. We recognized export credits as they were monetized.
In December 2013, the Brazilian government reinstituted the monetary adjustment index applicable to BEFIEX credits that existed prior to July 2009, when the Brazilian government required companies to apply a different monetary adjustment index to BEFIEX credits. As of March 31, 2016, no BEFIEX credits deemed to be available prior to this action remained to be monetized. Whether use of the reinstituted index should be given retroactive effect for the July 2009 to December 2013 period has been subject to review by the Brazilian courts. If the reinstituted index is given retroactive effect, we would be entitled to recognize additional credits. We are awaiting the resolution of additional proceedings on the retroactive effect of the reinstituted index.
Our Brazilian operations have received governmental assessments related to claims for income and social contribution taxes associated with BEFIEX credits monetized from 2000 through 2002 and 2007 through 2011. We do not believe BEFIEX export credits are subject to income or social contribution taxes. We are disputing these tax matters in various courts and intend to vigorously defend our positions. We have not provided for income or social contribution taxes on these export credits, and based on the opinions of tax and legal advisors, we have not accrued any amount related to these assessments as of March 31, 2016. 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 1.6 billion Brazilian reais (approximately $443 million as of March 31, 2016).


9


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 222 million Brazilian reais (approximately $62 million as of March 31, 2016), 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 March 31, 2016, 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 164 million Brazilian reais (approximately $46 million as of March 31, 2016). 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 March 31, 2016.
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.
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 position, liquidity, or results of operations in any particular reporting period.
Other Litigation
We have vigorously defended against numerous lawsuits pending in the United States relating to certain of our front load washing machines.  We have reached preliminary agreement on a settlement that will resolve all such class action lawsuits. The settlement requires court approval in order to be finalized, and we are proceeding through the court process to request such approval.
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 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, fraud, and violation of federal and state regulations, including consumer protection acts. We do not have insurance coverage for class action lawsuits. We are also involved in various other legal actions in the United States and other jurisdictions around the world arising in the normal course of business, for which insurance coverage may or may not be available depending on the nature of the action. We dispute the merits of these suits and actions, and intend to vigorously defend them. Management believes, based upon its current knowledge, after taking into consideration legal counsel's evaluation of such suits and actions, and after taking into account current litigation accruals, that the outcome of these matters currently pending against Whirlpool should not have a material adverse effect, if any, on our financial position, liquidity, or results of operations.
Other Matters
In 2013, the French Competition Authority commenced an investigation of appliance manufacturers and retailers in France. The investigation includes 11 manufacturers, including the Whirlpool and Indesit operations in France. Although it is currently not possible to assess the impact, if any, this matter may have on our Consolidated Condensed Financial Statements, the resolution of this matter could have a material adverse effect on our financial position, liquidity, or results of operations in any particular reporting period.


10


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 three months ended March 31, 2016 and 2015:
 
 
Product Warranty
 
Legacy Product Warranty
 
Total
Millions of dollars

2016

2015
 
2016
 
2015
 
2016
 
2015
Balance at January 1

$
239


$
235

 
$
254

 
$

 
$
493

 
$
235

Issuances/accruals during the period

76


62

 

 

 
76

 
62

Settlements made during the period/other

(67
)

(75
)
 
(37
)
 

 
(104
)
 
(75
)
Balance at March 31

$
248


$
222

 
$
217

 
$

 
$
465

 
$
222

 
 
 
 
 
 
 
 
 
 
 
 
 
Current portion

$
191


$
172

 
$
167

 
$

 
$
358

 
$
172

Non-current portion

57


50

 
50

 

 
107

 
50

Total

$
248


$
222

 
$
217

 
$

 
$
465

 
$
222

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. Whirlpool has implemented modifications at the point of manufacture to ensure that dryers produced after October 2015 are not affected by this issue. An outreach and service campaign is underway to modify dryers that have already been sold. Such dryers were manufactured between April 2004 and October 2015 and sold in the UK and other countries in the EMEA region under the Hotpoint (Whirlpool ownership of the Hotpoint brand in EMEA and Asia Pacific regions is not affiliated with the Hotpoint brand sold in the Americas) and Indesit brand names, as well as various other brands owned by other manufacturers, distributors and retailers whose products Indesit produced. As a result, in September 2015, we recorded a liability related to this corrective action cost of €245 million (approximately $274 million as of September 30, 2015). Approximately 90% of the affected units were manufactured by Indesit prior to its acquisition by the Company in October 2014. Accordingly, in September 2015, we increased the warranty liability as a final purchase accounting adjustment in the opening balance sheet with a corresponding increase to goodwill related to this legacy product warranty and liability corrective action on heritage Indesit product in Europe.
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, 2016 and December 31, 2015, the guaranteed amounts totaled $211 million and $260 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 $1.9 billion at March 31, 2016 and $2.0 billion at December 31, 2015. Our total outstanding bank indebtedness under guarantees was nominal at March 31, 2016 and December 31, 2015.
We have guaranteed a $43 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 2015 by Harbor Shores and reduced to $43 million. The fair value of the guarantee was nominal. The purpose of Harbor Shores is to stimulate employment and growth in the areas of Benton Harbor and St. Joseph, Michigan. In the event of default, we must satisfy the guarantee of the credit facility up to the amount borrowed at the date of default.


11


(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 or fair value hedges. Derivatives that are not accounted for based on hedge accounting are marked to market through earnings. The accounting for changes in the fair value of a derivative depends on the intended use and designation of the derivative instrument. Hedging ineffectiveness and a net earnings impact occur when the change in the fair value of the hedge does not offset the change in the fair value of the hedged item. The ineffective portion of the gain or loss is recognized in earnings.
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 is reflected currently in interest and sundry income (expense) for both the payable/receivable and the derivative. Therefore, as a result of the economic hedge, we do not elect hedge accounting.
Commodity Price Risk
We enter into commodity derivative contracts on various commodities to manage the price risk associated with forecasted purchases of materials used in our manufacturing process. The objective of these hedges is to reduce the variability of cash flows associated with the forecasted purchase of commodities.
Interest Rate Risk
We may enter into interest rate swap agreements to manage interest rate risk exposure. Our interest rate swap agreements, if any, effectively modify our exposure to interest rate risk, primarily through converting certain of our floating rate debt to a fixed rate basis, and certain fixed rate debt to a floating rate basis. These agreements involve either the receipt or payment of floating rate amounts in exchange for fixed rate interest payments or receipts, respectively, over the life of the agreements without an exchange of the underlying principal amounts. We also may utilize a cross-currency interest rate swap agreement to manage our exposure relating to certain intercompany debt denominated in one foreign currency that will be repaid in another foreign currency. At March 31, 2016 and December 31, 2015, there were no outstanding swap agreements.
We may enter into treasury rate lock agreements to effectively modify our exposure to interest rate risk by locking in interest rates on probable long-term debt issuances.


12


The following table summarizes our outstanding derivative contracts and their effects on our Consolidated Condensed Balance Sheets at March 31, 2016 and December 31, 2015:
 
 
 
 
Fair Value of
 
Type 
of
Hedge(1)
 
 
 
 
Notional Amount
 
Hedge Assets
 
Hedge Liabilities
 
Maximum Term (Months)
Millions of dollars
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
 
 
2016
 
2015
Derivatives accounted for as hedges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange forwards/options
 
$
937

 
$
886

 
$
17

 
$
31

 
$
20

 
$
8

 
(CF)
 
12
 
12
Commodity swaps/options
 
306

 
322

 
6

 
1

 
45

 
66

 
(CF)
 
31
 
33
Total derivatives accounted for as hedges
 
 
 
 
 
$
23

 
$
32

 
$
65

 
$
74

 
 
 
 
 
 
Derivatives not accounted for as hedges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange forwards/options
 
$
2,065

 
$
2,886

 
$
15

 
$
22

 
$
39

 
$
21

 
N/A
 
10
 
11
Commodity swaps/options
 
4

 
7

 

 

 

 
1

 
N/A
 
3
 
6
Total derivatives not accounted for as hedges
 
 
 
 
 
15

 
22

 
39

 
22

 
 
 
 
 
 
Total derivatives
 
 
 
 
 
$
38

 
$
54

 
$
104

 
$
96

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
 
 
 
 
$
36

 
$
54

 
$
96

 
$
79

 
 
 
 
 
 
Noncurrent
 
 
 
 
 
2

 

 
8

 
17

 
 
 
 
 
 
Total derivatives
 
 
 
 
 
$
38

 
$
54

 
$
104

 
$
96

 
 
 
 
 
 
(1) Derivatives accounted for as hedges are considered cash flow (CF) hedges.
The following tables summarize the effects of derivative instruments on our Consolidated Condensed Statements of Comprehensive Income for the three months ended as follows:
 
 
Three Months Ended March 31,
 
 
 
Gain (Loss)
Recognized in OCI
(Effective Portion)
 
Gain (Loss) Reclassified from
OCI into Earnings
(Effective Portion) (1)
 
Cash Flow Hedges - Millions of dollars
 
2016
 
2015
 
2016
 
2015
 
Foreign exchange
 
$
(16
)
 
$
30

 
$
9

 
$
11

(a)
Commodity swaps/options
 
12

 
(15
)
 
(16
)
 
(11
)
(a)
Interest rate derivatives
 

 

 

 
(1
)
(b)
 
 
$
(4
)
 
$
15

 
$
(7
)
 
$
(1
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
March 31,
 
 
 
 
 
 
 
Gain Recognized on Derivatives not
Accounted for as Hedges (2)
 
Derivatives not Accounted for as Hedges - Millions of dollars
 
 
 
 
 
2016
 
2015
 
Foreign exchange forwards/options
 
 
 
 
 
$
(43
)
 
$
14

 
(1) Gains and losses reclassified from accumulated other comprehensive income (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 March 31, 2016 and 2015. There were no hedges designated as fair value for the periods ended March 31, 2016 and 2015. 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 $33 million at March 31, 2016.


13


(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 March 31,
 
 
2016
 
2015
Millions of dollars
 
Pre-tax
Tax Effect
Net
 
Pre-tax
Tax Effect
Net
Currency translation adjustments
 
$
124

$

$
124

 
$
(209
)
$

$
(209
)
Cash flow hedges
 
3

1

4

 
14

(4
)
10

Pension and other postretirement benefits plans
 
46

(18
)
28

 
(35
)
13

(22
)
Available for sale securities
 



 
10


10

Other comprehensive income (loss)
 
173

(17
)
156

 
(220
)
9

(211
)
Less: Other comprehensive loss available to noncontrolling interests
 
1


1

 
(3
)

(3
)
Other comprehensive income (loss) available to Whirlpool
 
$
172

$
(17
)
$
155

 
$
(217
)
$
9

$
(208
)
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 months ended March 31, 2016:
Millions of dollars
 
Loss Reclassified
 
Classification in Earnings
Cash flow hedges, pre-tax
 
$
3

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

 
Cost of products sold / Selling, general and administrative
The following table summarizes the changes in stockholders’ equity for the period presented:
Millions of dollars
 
Total
 
Whirlpool
Common
Stockholders
 
Noncontrolling
Interests
Stockholders' equity, December 31, 2015
 
$
5,674

 
$
4,743

 
$
931

Net earnings
 
156

 
150

 
6

Other comprehensive income
 
156

 
155

 
1

Comprehensive income
 
312

 
305

 
7

Treasury stock
 
(225
)
 
(225
)
 

Additional paid-in capital
 
4

 
4

 

Dividends declared on common stock
 
(69
)
 
(69
)
 

Stockholders' equity, March 31, 2016
 
$
5,696

 
$
4,758

 
$
938



14


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
 
2016

2015
Numerator for basic and diluted earnings per share - Net earnings available to Whirlpool
 
$
150

 
$
191

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

 
78.8

Effect of dilutive securities – share-based compensation
 
0.8

 
1.2

Denominator for diluted earnings per share – adjusted weighted-average shares
 
78.1

 
80.0

Anti-dilutive stock options/awards excluded from earnings per share
 
0.4

 
0.1

Repurchase Program
On April 14, 2014, our Board of Directors authorized a share repurchase program of up to $500 million. During the three months ended March 31, 2016, we repurchased 1,507,100 shares at an aggregate purchase price of approximately $225 million under this program. At March 31, 2016, there were no remaining funds authorized under this program.
On April 18, 2016, our Board of Directors authorized a new share repurchase program of up to $1 billion.
Share repurchases are made from time to time on the open market as conditions warrant. The program does not obligate us to repurchase any of our shares.
(9)    RESTRUCTURING CHARGES

During 2014 and 2015, we announced the following restructuring plans: (a) the closure of a microwave oven manufacturing facility and other organizational efficiency actions in EMEA and Latin America, (b) organizational integration activities in China and Europe to support the integration of Whirlpool China and Indesit, and (c) the closure of a research and development facility in Germany in 2016. All of these actions will be substantially complete in 2016.
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 $204 million) in employee-related costs, €25 million (approximately $28 million) in asset impairment costs, and €37 million (approximately $42 million) in other associated costs in connection with these actions. Completion of these plans is expected by the end of 2018. We estimate €209 million (approximately $238 million) of the estimated €241 million total cost will result in future cash expenditures.
The following table summarizes the change in our combined restructuring liability for the period ended March 31, 2016:


Millions of dollars
December 31,
2015
Charge to Earnings
Cash Paid
Non-cash
and Other
March 31,
2016
Employee termination costs
$
30

$
34

$
(37
)
$
3

$
30

Asset impairment costs

10


(10
)

Facility exit costs
3

2

(2
)

3

Other exit costs
18

1

(2
)

17

Total
$
51

$
47

$
(41
)
$
(7
)
$
50



15


The following table summarizes the restructuring charges by operating segment as of March 31, 2016:
Millions of dollars
 
March 31,
2016
North America
 
$
11

EMEA
 
34

Latin America
 
2

Total
 
$
47

(10)    INCOME TAXES
Income tax expense was $59 million for the three months ended March 31, 2016, compared to income tax expense of $9 million in the same period of 2015. For the three months ended March 31, 2016, changes in the effective tax rate from the prior period include tax planning strategies made available in the first quarter of 2015 resulting in releases of tax valuation allowances in 2015. The following table summarizes the difference between income tax expense at the United States statutory rate of 35% and the income tax expense at effective worldwide tax rates for the respective periods:
 
 
Three Months Ended March 31,
Millions of dollars
 
2016
 
2015
Earnings before income taxes
 
$
215

 
$
207

 
 
 
 
 
Income tax expense computed at United States statutory tax rate
 
75

 
72

Valuation allowance releases
 

 
(58
)
U.S. foreign income items, net of credits
 
(5
)
 
(2
)
Foreign government tax incentive
 
(2
)
 
(4
)
Other
 
(9
)
 
1

Income tax expense computed at effective worldwide tax rates
 
$
59

 
$
9

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 March 31,
 
 
United States
Pension Benefits
 
Foreign
Pension Benefits
 
Other Postretirement
Benefits
Millions of dollars
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
 
$
1

 
$
1

 
$
1

 
$
1

 
$
2

 
$
1

Interest cost
 
37

 
38

 
7

 
8

 
4

 
5

Expected return on plan assets
 
(47
)
 
(48
)
 
(8
)
 
(8
)
 

 

Amortization:
 
 
 
 
 
 
 
 
 
 
 
 
Actuarial loss
 
12

 
13

 
1

 
1

 

 

Prior service credit
 
(1
)
 
(1
)
 

 

 
(4
)
 
(9
)
Settlement and curtailment (gain) loss
 

 

 
1

 
8

 

 
(47
)
Net periodic benefit cost (credit)
 
$
2

 
$
3

 
$
2

 
$
10

 
$
2

 
$
(50
)
During the first quarter of 2015, we recognized approximately $47 million from a curtailment gain due to the elimination of amounts credited to notional retiree health accounts for certain employees under age 50. The curtailment gain was recognized in our Consolidated Condensed Statement of Comprehensive Income with $43 million recorded in cost of products sold and the remaining balance in selling, general and administrative, with an offset to accumulated other comprehensive loss, net of tax.


16


(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 evaluates performance based upon each segment’s operating income, which is defined as income before interest and sundry income (expense), interest expense, income taxes, noncontrolling interests, intangible asset impairment and restructuring costs. Total assets by segment are those assets directly associated with the respective operating activities. The “Other/Eliminations” column primarily includes corporate expenses, assets and eliminations, as well as restructuring costs and intangible asset impairments, if any. Intersegment sales are eliminated within each region except compressor sales out of Latin America, which are included in Other/Eliminations.
The tables below summarize performance by operating segment for the periods presented:
 
 
Three Months Ended March 31,
 
 
OPERATING SEGMENTS

Millions of dollars
 
North
America
 
EMEA
 
Latin
America
 
Asia
 
Other/
Eliminations
 
Total
Whirlpool
Net sales
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
$
2,410

 
$
1,173

 
$
705

 
$
371

 
$
(43
)
 
$
4,616

2015
 
2,341

 
1,273

 
899

 
378

 
(45
)
 
4,846

Intersegment sales
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
49

 
15

 
50

 
62

 
(176
)
 

2015
 
60

 
11

 
47

 
60

 
(178
)
 

Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
65

 
47

 
16

 
16

 
24

 
168

2015
 
65

 
47

 
18

 
16

 
15

 
161

Operating profit (loss)
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
250

 
55

 
42

 
25

 
(89
)
 
283

2015
 
276

 
17

 
59

 
24

 
(73
)
 
303

Total assets
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2016
 
7,807

 
7,508

 
2,370

 
2,788

 
(801
)
 
19,672

December 31, 2015
 
7,683

 
7,351

 
2,260

 
2,738

 
(1,022
)
 
19,010

Capital expenditures
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
30

 
18

 
19

 
6

 
12

 
85

2015
 
56

 
34

 
20

 
10

 
6

 
126




17


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ABOUT WHIRLPOOL
Whirlpool Corporation ("Whirlpool") is the number one major appliance manufacturer in the world with net sales of approximately $21 billion and net earnings available to Whirlpool of $783 million in 2015. We are a leading producer of major home appliances in North America, Europe and Latin America, and have a significant presence throughout China and 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, EMEA (Europe, Middle East and Africa), Latin America, and Asia. Our customer base includes large, sophisticated trade customers who have many choices and demand competitive products, services and prices. The major home appliance industry operates in an intensely competitive environment, reflecting the impact of both new and established global competitors, including Asian and European manufacturers.
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 brands includes Whirlpool, Maytag, KitchenAid, Embraco, Brastemp, Consul and Indesit, each of which generates 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 outside the United States, 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 Affresh cleaners and Gladiator GarageWorks, through 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
 
2016
 
2015
 
Change
Net sales
 
$
4,616

 
$
4,846

 
(4.8
)%
Gross margin
 
821

 
853

 
(3.7
)%
Selling, general and administrative
 
473

 
498

 
(5.0
)%
Restructuring costs
 
47

 
33

 
44.1
 %
Interest and sundry income (expense)
 
(30
)
 
(53
)
 
(44.4
)%
Interest expense
 
(38
)
 
(43
)
 
(10.5
)%
Income tax expense
 
59

 
9

 
nm
Net earnings available to Whirlpool
 
150

 
191

 
(21.2
)%
Diluted net earnings available to Whirlpool per share
 
$
1.92

 
$
2.38

 
(19.2
)%
 
 
 
 
 
 
 


18


Consolidated Net Sales
The following tables summarize units sold and consolidated net sales by region for the periods ended March 31:
 
 
Units Sold (in thousands)
 
 
Three Months Ended
Region
 
2016
 
2015
 
Change        
North America
 
6,115

 
5,817

 
5.1
 %
EMEA
 
5,465

 
5,716

 
(4.4
)%
Latin America
 
2,073

 
2,652

 
(21.8
)%
Asia
 
2,149

 
2,065

 
4.1
 %
Consolidated
 
15,802

 
16,250

 
(2.8
)%
 
 
Net Sales (in millions)
 
 
Three Months Ended
Region
 
2016
 
2015
 
Change        
North America
 
$
2,410

 
$
2,341

 
3.0
 %
EMEA
 
1,173

 
1,273

 
(7.8
)%
Latin America
 
705

 
899

 
(21.6
)%
Asia
 
371

 
378

 
(2.0
)%
Other/eliminations
 
(43
)
 
(45
)
 
nm

Consolidated
 
$
4,616

 
$
4,846

 
(4.8
)%
nm: not meaningful
Consolidated net sales decreased 4.8% for the three months ended March 31, 2016 compared to the same period in 2015. The decrease for the three months ended was primarily driven by decreased volume and unfavorable impact from foreign currency. Excluding the impact of foreign currency, consolidated net sales for the three months ended March 31, 2016 increased 1.1% compared to the same period in 2015.
Significant regional trends were as follows:
North America net sales increased 3.0% for the three months ended March 31, 2016 compared to the same period in 2015. The increase for the three months ended March 31, 2016 was primarily driven by increased unit volume, partially offset by the unfavorable impacts from foreign currency. Excluding the impact from foreign currency, net sales increased 4.8% for the three months ended March 31, 2016 compared to the same period in 2015.
EMEA net sales decreased 7.8% for the three months ended March 31, 2016 compared to the same period in 2015. The decrease for the three months ended March 31, 2016 was primarily driven by an unfavorable impact from foreign currency and lower unit volume. Excluding the impact from foreign currency, net sales decreased 2.6% for the three months ended March 31, 2016 compared to the same period in 2015.
Latin America net sales decreased 21.6% for the three months ended March 31, 2016 compared to the same period in 2015. The decrease for the three months ended March 31, 2016 was primarily driven by decreased industry demand and an unfavorable impact from foreign currency, partially offset by a favorable impact from product/price mix. Excluding the impact from foreign currency, net sales decreased 4.4% for the three months ended March 31, 2016 compared to the same period in 2015.
Asia net sales decreased 2.0% for the three months ended March 31, 2016 compared to the same period in 2015. The decrease for the three months ended March 31, 2016 was primarily driven by an unfavorable impact from foreign currency. Excluding the impact from foreign currency, net sales increased 3.4% for the three months ended March 31, 2016 compared to the same period in 2015.


19


Gross Margin
The table below summarizes gross margin percentages by region:
 
 
Three Months Ended March 31,
 
Percentage of net sales
 
2016
 
2015
 
Change    
 
North America
 
17.6
%
 
19.2
%
 
(1.6
)
pts 
EMEA
 
16.3
%
 
13.9
%
 
2.4

pts 
Latin America
 
15.9
%
 
15.0
%
 
0.9

pts 
Asia
 
24.5
%
 
23.3
%
 
1.2

pts 
Consolidated
 
17.8
%
 
17.6
%
 
0.2

pts 
The consolidated gross margin percentage increased for the three months ended March 31, 2016 compared to the same period in 2015. The increase for the three months ended was primarily due to benefits from cost and capacity initiatives, ongoing cost productivity and acquisition synergies, partially offset by the recognition of a postretirement-benefit curtailment gain in North America in the first quarter of 2015, the unfavorable impacts from foreign currency, and weak emerging market demand.
Significant regional trends were as follows:
North America gross margin decreased for the three months ended March 31, 2016 compared to the same period in 2015, primarily due to the recognition of a postretirement-benefit curtailment gain in the first quarter of 2015 and unfavorable impact from foreign currency, partially offset by revenue growth and the benefits from ongoing cost productivity.
EMEA gross margin increased for the three months ended March 31, 2016 compared to the same period in 2015, primarily due to favorable impacts from acquisition synergies and ongoing cost productivity, partially offset by unfavorable impacts from foreign currency and lower unit volumes.
Latin America gross margin increased for the three months ended March 31, 2016 compared to the same period in 2015, primarily due to favorable product/price mix and the benefits of cost and capacity-reduction initiatives partially offset unfavorable currency and a weaker demand environment in Brazil.
Asia gross margin increased for the three months ended March 31, 2016 compared to the same period in 2015, primarily due to benefits from ongoing cost productivity and unit volume growth.
Selling, General and Administrative
The following table summarizes selling, general and administrative expenses as a percentage of net sales by region:
 
 
Three Months Ended March 31,
Millions of dollars
 
2016
 
As a %
of Net Sales
 
2015
 
As a %
of Net Sales
North America
 
$
171

 
7.1
%
 
$
169

 
7.2
%
EMEA
 
129

 
11.0
%
 
153

 
12.0
%
Latin America
 
70

 
10.0
%
 
76

 
8.4
%
Asia
 
60

 
16.1
%
 
58

 
15.2
%
Corporate/other
 
43

 

 
42

 

Consolidated
 
$
473

 
10.3
%
 
$
498

 
10.3
%
Consolidated selling, general and administrative expenses is comparable as a percent of net sales to the same period in 2015.
Restructuring
We incurred restructuring charges of $47 million for the three months ended March 31, 2016, compared to $33 million for the same period in 2015.
During 2014 and 2015, we announced the following restructuring plans: (a) the closure of a microwave oven manufacturing facility and other organizational efficiency actions in EMEA and Latin America, (b) organizational integration activities in China


20


and Europe to support the integration of Whirlpool China and Indesit, and (c) the closure of a research and development facility in Germany in 2016. All of these actions will be substantially complete in 2016.
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 $204 million) in employee-related costs, €25 million (approximately $28 million) in asset impairment costs, and €37 million (approximately $42 million) in other associated costs in connection with these actions. Completion of these plans is expected by the end of 2018. We estimate €209 million (approximately $238 million) of the estimated €241 million total cost will result in future cash expenditures.
We anticipate restructuring charges of approximately $250 million for fiscal year 2016. The actions outlined above are expected to fall within these anticipated charges.
Additional information about restructuring activities can be found in Note 9 of the Notes to the Consolidated Condensed Financial Statements.
Interest and Sundry Income (Expense)
Interest and sundry income (expense) for the three months ended March 31, 2016 improved compared to the same period in 2015. The decrease in expense for the three months ended March 31, 2016 was primarily due to a favorable impact from foreign currency and lower antitrust settlement expense in the first quarter of 2016.
Interest Expense
Interest expense for the three months ended March 31, 2016 decreased compared to the same period in 2015 due to lower average interest rates on long-term debt partially offset by higher outstanding debt.
Income Taxes
Income tax expense for the three months ended March 31, 2016 was $59 million compared to income tax expense of $9 million for the same period in 2015. The following table summarizes the difference between income tax expense at the United States statutory rate of 35% and the income tax expense at effective worldwide tax rates for the respective periods:
 
 
Three Months Ended March 31,
Millions of dollars
 
2016
 
2015
Earnings before income taxes
 
$
215

 
$
207

 
 
 
 
 
Income tax expense computed at United States statutory tax rate
 
75

 
72

Valuation allowance releases
 

 
(58
)
U.S. foreign income items, net of credits
 
(5
)
 
(2
)
Foreign government tax incentive
 
(2
)
 
(4
)
Other
 
(9
)
 
1

Income tax expense computed at effective worldwide tax rates
 
$
59

 
$
9




21


FORWARD-LOOKING PERSPECTIVE
We currently estimate earnings per diluted share, free cash flow and industry demand for 2016 to be within the following ranges:
 
2016
 
Current Outlook
Estimated earnings per diluted share, for the year ending December 31, 2016
$11.25
$12.00
Including:
 
 
 
Restructuring Expense
$(2.50)
Acquisition Related Transition Costs
$(0.32)
Legacy Product Warranty and Liability Expense
$(0.04)
 
 
 
 
Industry demand
 
 
 
North America
+5%
+6%
EMEA
0%
+2%
Latin America(1)
(10%)
Asia
Flat
(1) Reflects industry demand in Brazil.
For the full-year 2016, we expect to generate free cash flow of approximately $700 million to $800 million, including acquisition related restructuring cash outlays of up to $200 million and legacy product warranty and liability costs of $155 million, and capital expenditures of approximately $700 million to $750 million.
The table below reconciles projected 2016 cash provided by operating activities determined in accordance with 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 continuing operations less capital expenditures, proceeds from the sale of assets/businesses, and changes in restricted cash. The change in restricted cash relates to the private placement funds paid by Whirlpool to acquire majority control of Hefei Sanyo in 2014 and which are used to fund capital and technical resources to enhance Whirlpool China’s research and development and working capital.
 
2016
Millions of dollars
Current Outlook
Cash provided by operating activities
$1,400
-
$1,550
Capital expenditures, proceeds from sale of assets/businesses and changes in restricted cash
(700)
-
(750)
Free cash flow
$700 - $800
The projections above 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.
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, providing return to shareholders and potential acquisitions.
Our short term potential uses of liquidity include funding our ongoing capital spending, restructuring activities, funding pension plans and returns to shareholders.
We have $760 million of long term debt maturing in the next twelve months, and are currently evaluating our options in connection with the debt maturing in 2016, which may include repayment through refinancing.


22


We monitor the credit ratings and market indicators of credit risk of our lending, depository, and derivative counterparty banks regularly. In addition, we diversify our deposits and investments in short term cash equivalents to limit the concentration of exposure by counterparty.

We continue to monitor general financial instability and uncertainty globally. At March 31, 2016, the only country where we had cash or cash equivalents greater than 1% of our consolidated assets was China, which represented 1.7%. In addition, we did not have any third-party accounts receivable greater than 1% of our consolidated assets in any single country outside of North America, with the exceptions of Italy, Brazil, and China, which represented 1.4%, 1.1%, and 1.1% respectively.
We continue to monitor customer financial conditions globally. At March 31, 2016, we had €92 million (approximately $105 million) in outstanding trade receivables and short-term and long-term notes due to us associated with Alno AG, a long-standing European customer. Approximately €38 million (approximately $43 million at March 31, 2016) of the outstanding receivables were overdue as of March 31, 2016.  Our exposure includes not only the outstanding receivables but also the potential risks of an Alno bankruptcy and impacts to our distribution process. Alno is proceeding to secure additional financing to improve its financial position.
Sources and Uses of Cash
The following table summarizes the net increase (decrease) in cash and cash equivalents for the periods presented:
 
 
Three Months Ended March 31,
Millions of dollars
 
2016
 
2015
Cash provided by (used in):
 
 
 
 
Operating activities
 
$
(661
)
 
$
(569
)
Investing activities
 
(93
)
 
(97
)
Financing activities
 
670

 
387

Effect of exchange rate changes on cash
 
11

 
(43
)
Net change in cash and cash equivalents
 
$
(73
)
 
$
(322
)
Cash Flows from Operating Activities
Cash used in operating activities for the three months ended March 31, 2016 increased compared to the same period in 2015, which primarily reflects funding for seasonal working capital investment.

The timing of cash flows from operations varies significantly throughout the year primarily due to changes in production levels, sales patterns, promotional programs, funding requirements as well as receivable and payment terms. Depending on timing of cash flows, the location of cash balances, as well as the liquidity requirements of each country, external sources of funding are used to support working capital requirements.

Cash Flows from Investing Activities
Cash used in investing activities during the three months ended March 31, 2016 decreased compared to the same period in 2015, which primarily reflects a reduction in capital expenditures, partially offset by proceeds from the sale of business assets in 2015.
Cash Flows from Financing Activities
Cash provided by financing activities during the three months ended March 31, 2016 includes an increase in notes payable which was used to fund seasonal working capital needs, partially offset by share repurchases and dividend paid.
Financing Arrangements
We have committed credit facilities in Brazil, which provide borrowings up to 1.0 billion Brazilian reais (approximately $281 million at March 31, 2016 and $256 million at December 31, 2015) maturing at various times in 2017. The credit facilities contain no financial covenants and we had no borrowings outstanding under these credit facilities at March 31, 2016 and December 31, 2015.


23


We have a €250 million European credit facility, a $500 million short-term credit facility and a $2.0 billion long-term credit facility which provide total committed credit facilities of approximately $2.8 billion (the “Facilities”).
We had no borrowings outstanding under the Facilities at March 31, 2016 or December 31, 2015, respectively. Additionally, at March 31, 2016, we had $868 million of commercial paper outstanding to fund working capital requirements.
Dividends
In April 2016, our Board of Directors approved an 11% increase in our quarterly dividend on our common stock to $1 per share from 90 cents per share.
Off-Balance Sheet Arrangements
In the ordinary course of business, we enter into agreements with financial institutions to issue bank guarantees, letters of credit, and surety bonds. These agreements are primarily associated with unresolved tax matters in Brazil, as is customary under local regulations, and other governmental obligations and debt agreements. At March 31, 2016, we had approximately $303 million outstanding under these agreements.
Repurchase Program
On April 14, 2014, our Board of Directors authorized a share repurchase program of up to $500 million. During the three months ended March 31, 2016, we repurchased 1,507,100 shares at an aggregate purchase price of approximately $225 million under this program. At March 31, 2016, there were no remaining funds authorized under this program.
On April 18, 2016, our Board of Directors authorized a new share repurchase program of up to $1 billion.
Share repurchases are made from time to time on the open market as conditions warrant. The program does not obligate us to repurchase any of our shares.
OTHER MATTERS
Legacy Product Corrective Action
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. Whirlpool has implemented modifications at the point of manufacture to ensure that dryers produced after October 2015 are not affected by this issue. An outreach and service campaign is underway to modify dryers that have already been sold. Such dryers were manufactured between April 2004 and October 2015 and sold in the UK and other countries in the EMEA region under the Hotpoint (Whirlpool ownership of the Hotpoint brand in EMEA and Asia Pacific regions is not affiliated with the Hotpoint brand sold in the Americas) and Indesit brand names, as well as various other brands owned by other manufacturers, distributors and retailers whose products Indesit produced.
As a result, in September 2015, we recorded a liability related to this corrective action with pre-tax and after tax cost of the corrective action to be €245 million and €196 million respectively (approximately $279 million and $223 million respectively, as of March 31, 2016), based on certain tax deductibility assumptions.


24


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 has made its final installment payments negotiated in connection with such resolutions. Embraco also has resolved certain other claims and certain claims remain pending. Additional lawsuits could be filed.
At March 31, 2016, 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 position, liquidity, or results of operations in any particular reporting period.
BEFIEX Credits and Other Brazil Tax Matters
In previous years, our Brazilian operations earned tax credits under the Brazilian government’s export incentive program (BEFIEX). These credits reduced Brazilian federal excise taxes on domestic sales, resulting in an increase in the operations' recorded net sales, as the credits were monetized. We did not monetize any BEFIEX credits during the three months ended March 31, 2016 or 2015. We began recognizing BEFIEX credits in accordance with prior favorable court decisions allowing for the credits to be recognized. We recognized export credits as they were monetized.
In December 2013, the Brazilian government reinstituted the monetary adjustment index applicable to BEFIEX credits that existed prior to July 2009, when the Brazilian government required companies to apply a different monetary adjustment index to BEFIEX credits. As of March 31, 2016, no BEFIEX credits deemed to be available prior to this action remained to be monetized. Whether use of the reinstituted index should be given retroactive effect for the July 2009 to December 2013 period has been subject to review by the Brazilian courts. If the reinstituted index is given retroactive effect, we would be entitled to recognize additional credits. We are awaiting the resolution of additional proceedings on the retroactive effect of the reinstituted index.
Our Brazilian operations have received governmental assessments related to claims for income and social contribution taxes associated with BEFIEX credits monetized from 2000 through 2002 and 2007 through 2011. We do not believe BEFIEX export credits are subject to income or social contribution taxes. We are disputing these tax matters in various courts and intend to vigorously defend our positions. We have not provided for income or social contribution taxes on these export credits, and based on the opinions of tax and legal advisors, we have not accrued any amount related to these assessments as of March 31, 2016. 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 1.6 billion Brazilian reais (approximately $443 million as of March 31, 2016).
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 222 million Brazilian reais (approximately $62 million as of March 31, 2016), 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.


25


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 March 31, 2016, 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 164 million Brazilian reais (approximately $46 million as of March 31, 2016). 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 March 31, 2016.
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.
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 position, liquidity, or results of operations in any particular reporting period.
Other Litigation
We have vigorously defended against numerous lawsuits pending in the United States relating to certain of our front load washing machines.  We have reached preliminary agreement on a settlement that will resolve all such class action lawsuits. The settlement requires court approval in order to be finalized, and we are proceeding through the court process to request such approval.
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 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, fraud, and violation of federal and state regulations, including consumer protection acts. We do not have insurance coverage for class action lawsuits. We are also involved in various other legal actions in the United States and other jurisdictions around the world arising in the normal course of business, for which insurance coverage may or may not be available depending on the nature of the action. We dispute the merits of these suits and actions, and intend to vigorously defend them. Management believes, based upon its current knowledge, after taking into consideration legal counsel's evaluation of such suits and actions, and after taking into account current litigation accruals, that the outcome of these matters currently pending against Whirlpool should not have a material adverse effect, if any, on our financial position, liquidity, or results of operations.
Other Matters
In 2013, the French Competition Authority commenced an investigation of appliance manufacturers and retailers in France. The investigation includes 11 manufacturers, including the Whirlpool and Indesit operations in France. Although it is currently not possible to assess the impact, if any, this matter may have on our Consolidated Condensed Financial Statements, the resolution of this matter could have a material adverse effect on our financial position, liquidity, or results of operations in any particular reporting period.
Antidumping Petition
On December 16, 2015, we submitted a petition requesting that the U.S. Department of Commerce and the United States International Trade Commission initiate antidumping investigations regarding large residential washers from China sold by Samsung and LG into the United States. The purpose of this petition, similar to the petitions we filed in December 2011 regarding large residential washers from South Korea and Mexico, is to establish conditions of fair competition in the United States that will support significant investment and innovation in the production of large residential washers in the United States and the U.S. jobs created by that production. This petition is the result of our continual monitoring of the large residential washer landscape, which highlighted that Samsung and LG have continued to dump washers into the United States following the conclusion of our earlier case in 2013. The Whirlpool washers affected by the imports subject in this case are made in Clyde, Ohio.
There are several steps in the process of the antidumping investigation.  We expect a preliminary determination of the amount of dumping in July 2016.  The preliminary determination will be followed by several other steps leading to a final decision from the U.S. Department of Commerce and the U.S. International Trade Commission, which we expect in January 2017.


26


Post-Retirement Benefit Litigation
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 $104 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 intend to continue vigorously defending our position, including through any necessary appeal process. However, an unfavorable ruling in any particular reporting period 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.




27


ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to our exposures to market risk since December 31, 2015.
ITEM 4.
CONTROLS AND PROCEDURES
(a)Evaluation of disclosure controls and procedures
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 defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of March 31, 2016. 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, 2016.
(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.


28


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 6 to the Consolidated Condensed 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, 2015.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On April 14, 2014, our Board of Directors authorized a share repurchase program of up to $500 million. During the three months ended March 31, 2016, we repurchased 1,507,100 shares at an aggregate purchase price of approximately $225 million under this program. At March 31, 2016, there were no remaining funds authorized under this program.
The following table summarizes repurchases of Whirlpool's common stock in the three months ended March 31, 2016:
Period (Millions of dollars, except number and price per share)
Total Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan
January 1, 2016 through January 31, 2016

$


$
225

February 1, 2016 through February 29, 2016
1,000,000

147.23

1,000,000

78

March 1, 2016 through March 31, 2016
507,100

153.42

507,100


       Total
1,507,100

$
149.31

1,507,100

 
On April 18, 2016, our Board of Directors authorized a new share repurchase program of up to $1 billion.
Share repurchases are made from time to time on the open market as conditions warrant. The program does not obligate us to repurchase any of our shares.

ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.
OTHER INFORMATION
None.


29


ITEM 6.
EXHIBITS
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


30


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
 
Date:
 
April 26, 2016



31