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Income (Loss) (Unaudited)
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31: R17 Segment Information HTML 170K
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33: R19 Goodwill and Other Intangibles HTML 68K
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Schedule of Components of Net Periodic Benefit
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Schedule of Net Periodic Cost Recognized in
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Narrative (Details)
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Schedule of Outstanding Derivative Contracts
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(Exact name of registrant as specified in its charter)
iDelaware
i38-1490038
(State
of Incorporation)
(I.R.S. Employer Identification No.)
i2000 North M-63
iBenton
Harbor,
iMichigan
i49022-2692
(Address of principal executive offices)
(Zip
Code)
Registrant's telephone number, including area code (i269) i923-5000
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading symbol(s)
Name of each exchange on which registered
iiCommon stock, par value $1.00 per share/
iiWHR/
iChicago
Stock Exchange
and
iNew York Stock Exchange
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. iYes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). iYes☒ No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,""accelerated filer,""smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
Number
of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
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 section, 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,""guarantee,""seek," and the negative of these words and words and terms of similar substance. 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 future financial results, long-term value creation goals, restructuring and resegmentation expectations, productivity, raw material prices and related costs, supply chain, transaction-related closing and synergies expectations, asset impairment, litigation, ESG efforts, debt repayment expectations, and the impact of COVID-19 and the Russia/Ukraine conflict on our operations. 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, and the impact of the changing retail environment, including direct-to-consumer sales;
(2) Whirlpool's ability to maintain or increase sales to significant trade customers; (3) Whirlpool's ability to maintain its reputation and brand image; (4) the ability of Whirlpool to achieve its business objectives and leverage its global operating platform, and accelerate the rate of innovation; (5) Whirlpool’s ability to understand consumer preferences and successfully develop new products; (6) Whirlpool's ability to obtain and protect intellectual property rights; (7) acquisition, divestiture, and investment-related risks, including risks associated with our past acquisitions; (8) the ability of suppliers of critical parts, components and manufacturing equipment to deliver sufficient quantities to Whirlpool in a timely and cost-effective manner; (9) COVID-19 pandemic-related business disruptions and economic uncertainty; (10) Whirlpool's ability to navigate risks associated with our presence in emerging markets; (11) risks related to our international operations,
including changes in foreign regulations; (12) Whirlpool's ability to respond to unanticipated social, political and/or economic events; (13) information technology system failures, data security breaches, data privacy compliance, network disruptions, and cybersecurity attacks; (14) product liability and product recall costs; (15) our ability to attract, develop and retain executives and other qualified employees; (16) the impact of labor relations; (17) fluctuations in the cost of key materials (including steel, resins, base metals) and components and the ability of Whirlpool to offset cost increases; (18) Whirlpool's ability to manage foreign currency fluctuations; (19) impacts from goodwill impairment and related charges; (20) triggering events or circumstances impacting the carrying value of our long-lived assets; (21) inventory and other asset risk; (22) health care cost trends, regulatory changes and variations between results and estimates that could increase
future funding obligations for pension and postretirement benefit plans; (23) litigation, tax, and legal compliance risk and costs, especially if materially different from the amount we expect to incur or have accrued for, and any disruptions caused by the same; (24) the effects and costs of governmental investigations or related actions by third parties; (25) changes in the legal and regulatory environment including environmental, health and safety regulations, data privacy, and taxes and tariffs; (26) Whirlpool's ability to respond to the impact of climate change and climate change regulation; and (27) the uncertain global economy and changes in economic conditions which affect demand for our products.
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.
2
Additional information concerning these and other factors can be found in the "Risk Factors" section of our Annual Report on Form 10-K, as updated in Part II, Item 1A of our Quarterly Reports on Form 10-Q.
Unless otherwise indicated, the terms "Whirlpool,""the Company,""we,""us," and "our"
refer to Whirlpool Corporation and its consolidated subsidiaries.
We routinely post important information for investors on our website, whirlpoolcorp.com, in the "Investors" section. We also intend to update the Hot Topics Q&A portion of this webpage as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the "Investors" section of our website,
in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our webpage is not incorporated by reference into, and is not a part of, this document.
Accounts
receivable, net of allowance of $i49 and $i49, respectively
i1,841
i1,555
Inventories
i2,388
i2,089
Prepaid
and other current assets
i620
i653
Assets held for sale
i140
i139
Total
current assets
i6,112
i6,394
Property, net of accumulated
depreciation of $i5,191 and $i4,808,
respectively
i2,150
i2,102
Right
of use assets
i692
i691
Goodwill
i3,329
i3,314
Other
intangibles, net of accumulated amortization of $i430 and $i400, respectively
i3,134
i3,164
Deferred
income taxes
i1,072
i1,063
Other
noncurrent assets
i400
i396
Total assets
$
i16,889
$
i17,124
Liabilities
and stockholders' equity
Current liabilities
Accounts payable
$
i3,433
$
i3,376
Accrued
expenses
i428
i481
Accrued advertising and promotions
i476
i623
Employee
compensation
i224
i159
Notes payable
i23
i4
Current
maturities of long-term debt
i1,300
i248
Other current liabilities
i661
i550
Liabilities
held for sale
i478
i490
Total
current liabilities
i7,023
i5,931
Noncurrent
liabilities
Long-term debt
i6,341
i7,363
Pension
benefits
i142
i184
Postretirement
benefits
i87
i96
Lease
liabilities
i585
i584
Other noncurrent liabilities
i471
i460
Total
noncurrent liabilities
i7,626
i8,687
Stockholders'
equity
Common stock, $ii1/
par value, ii250/ million shares authorized,i114
million and i114 million shares issued, respectively, and i55 million and i54
million shares outstanding, respectively
i114
i114
Additional paid-in capital
i3,074
i3,061
Retained
earnings
i7,961
i8,261
Accumulated
other comprehensive loss
(i2,075)
(i2,090)
Treasury
stock, i60 million and i60 million shares, respectively
(i7,010)
(i7,010)
Total
Whirlpool stockholders' equity
i2,064
i2,336
Noncontrolling
interests
i176
i170
Total stockholders' equity
i2,240
i2,506
Total
liabilities and stockholders' equity
$
i16,889
$
i17,124
The
accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
6
WHIRLPOOL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE PERIODS ENDED SEPTEMBER 30
(Millions of dollars)
Nine
Months Ended
2023
2022
Operating activities
Net earnings (loss)
$
(i4)
$
i93
Adjustments
to reconcile net earnings to cash provided by (used in) operating activities:
Depreciation and amortization
i262
i344
Impairment
of goodwill and other intangibles
i—
i384
(Gain)
loss on sale and disposal of businesses
i286
i348
Changes
in assets and liabilities:
Accounts receivable
(i359)
i510
Inventories
(i282)
(i359)
Accounts
payable
(i274)
(i745)
Accrued advertising
and promotions
(i140)
(i114)
Accrued
expenses and current liabilities
i50
i22
Taxes
deferred and payable, net
i161
(i10)
Accrued
pension and postretirement benefits
(i45)
(i81)
Employee
compensation
i57
(i297)
Other
(i34)
i215
Cash
provided by (used in) operating activities
(i322)
i310
Investing
activities
Capital expenditures
(i338)
(i334)
Proceeds
from sale of assets and businesses
i9
i76
Acquisition
of businesses, net of cash acquired
(i14)
i—
Cash
held by divested businesses
i—
(i75)
Cash
provided by (used in) investing activities
(i343)
(i333)
Financing
activities
Net proceeds from borrowings of long-term debt
i304
i300
Net
proceeds (repayments) of long-term debt
(i250)
(i300)
Net proceeds (repayments) from short-term borrowings
i30
i—
Dividends
paid
(i290)
(i295)
Repurchase of common stock
i—
(i903)
Common
stock issued
i4
i3
Other
(i1)
i—
Cash
provided by (used in) financing activities
(i203)
(i1,195)
Effect
of exchange rate changes on cash, cash equivalents and restricted cash
i28
(i32)
Less:
(decrease) increase in cash classified as held for sale
i5
i—
Increase
(decrease) in cash, cash equivalents and restricted cash
(i835)
(i1,250)
Cash,
cash equivalents and restricted cash at beginning of year
i1,958
i3,044
Cash,
cash equivalents and restricted cash at end of period
$
i1,123
$
i1,794
The
accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
7
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(1) iBASIS
OF PRESENTATION
i
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 U.S. 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, 2022.
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.
iWe 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.
iWe
have eliminated all material intercompany transactions in our Consolidated Condensed Financial Statements. We do not consolidate the financial statements of any company in which we have an ownership interest of 50% or less, unless that company is deemed to be a variable interest entity ("VIE") of which we are the primary beneficiary. VIEs are consolidated when the company is the primary beneficiary of these entities and has the ability to directly impact the activities of these entities.
i
Risks
and Uncertainties
During the first quarter of 2022, Russia commenced a military invasion of Ukraine, and the ensuing conflict has created disruption in the EMEA region and around the world. While we continued experiencing some of this disruption during the quarter, the duration and severity of the effects on our business and the global economy are inherently unpredictable. We continue to closely monitor the ongoing conflict which could materially impact our financial results in the future. We have some sales and distribution operations in Ukraine, however, the revenues and net assets are not material to our EMEA operating segment and consolidated results.
On June 27, 2022, our subsidiary Whirlpool EMEA SpA entered into a share purchase agreement with Arçelik A.Ş. (“Arcelik”) to sell our Russia business to Arcelik for contingent
consideration. The sale of the Russia business was completed on August 31, 2022. Furthermore, macroeconomic volatility continues to impact countries across the world, and the duration and severity of the effects are currently unknown.
The Consolidated Condensed Financial Statements presented herein reflect estimates and assumptions made by management at September 30, 2023. These estimates and assumptions affect, among other things, the Company’s goodwill, long-lived asset and indefinite-lived intangible asset valuation; inventory valuation; assessment of the annual effective tax rate; valuation of deferred income taxes and income tax contingencies; and the allowance for expected credit losses and bad debt. Events and changes in circumstances
arising after October 26, 2023, including those resulting from the impacts of macroeconomic volatility as well as the ongoing conflicts in Ukraine and Israel, will be reflected in management’s estimates for future periods.
Goodwill and Indefinite-lived Intangible Assets
We continue to monitor the significant global economic uncertainty to assess the outlook for demand for our products and the impact on our business and our overall financial performance. Our JennAir and Maytag trademarks continue to be at risk at September 30, 2023. The goodwill in our reporting units or other indefinite-lived intangible assets are not presently at risk for future impairment.
The
potential impact of demand disruptions, production impacts or supply constraints along with a number of other factors could negatively effect revenues for the JennAir and Maytag trademarks, but we remain committed to the strategic actions necessary to realize the long-term forecasted revenues and profitability of these trademarks. A lack of recovery or further deterioration in market conditions, a sustained trend of
8
weaker than expected financial performance for our JennAir or Maytag trademarks, among other factors, as a result of the macroeconomic
factors or other unforeseen events could result in an impairment charge in future periods which could have a material adverse effect on our financial statements.
As a result of our analysis, and in consideration of the totality of events and circumstances, there were no triggering events of impairment identified during the third quarter of 2023.
Income taxes
Under U.S. GAAP, the Company calculates its quarterly tax provision based on an estimated effective tax rate for the year and then adjusts this amount by certain discrete items each quarter. Potential changing and volatile macro-economic conditions could cause fluctuations in forecasted earnings before income taxes. As such, the
Company's effective tax rate could be subject to volatility as forecasted earnings before income taxes are impacted by events which cannot be predicted. In addition, potential future economic deterioration brought on by the pandemic, ongoing conflicts in Ukraine and Israel, and related sanctions or other factors, such as potential sales of businesses and new tax legislation may negatively impact the realizability and/or valuation of certain deferred tax assets.
Other Accounting Matters
i
Synthetic Lease Arrangements
We have a number of synthetic lease arrangements
with financial institutions for non-core properties. The leases contain provisions for options to purchase, extend the original term for additional periods or return the property. As of September 30, 2023 and December 31, 2022, these arrangements include residual value guarantees of up to approximately $i352 million and $i334 million,
respectively, that could potentially come due in future periods. We do not believe it is probable that any material amounts will be owed under these guarantees. Therefore, no material amounts related to the residual value guarantees are included in the lease payments used to measure the right-of-use assets and lease liabilities.
The majority of these leases are classified as operating leases. We have assessed the reasonable certainty of these provisions to determine the appropriate lease term. The leases were measured using our incremental borrowing rate and are included in our right of use assets and lease liabilities in the Consolidated Condensed Balance Sheets. Rental payments are calculated at the applicable reference rate plus a margin. The impact to the Consolidated Condensed Balance Sheets and Consolidated Condensed Statements of Comprehensive Income (Loss) is nominal.
Sale-leaseback
Transaction
In the first quarter of 2022, the Company sold and leased back a group of non-core properties for net proceeds of approximately $i52 million. The initial total annual rent for the properties is approximately $i2 million
per year over an initial i15 year lease term and is subject to annual rent increases. Under the terms of the lease agreement, the Company is responsible for all taxes, insurance and utilities and is required to adequately maintain the properties for the lease term. The Company has itwo
sequential i5-year renewal options.
The transaction met the requirements for sale-leaseback accounting. Accordingly, the Company recorded the sale of the properties, which resulted in a gain of approximately $i44 million
($i36 million, net of tax) recorded in selling, general and administrative expense in the Consolidated Condensed Statements of Comprehensive Income (Loss). The related land and buildings were removed from property, plant and equipment, net and the appropriate right-of-use asset and lease liabilities of approximately $i32 million
were recorded in the Consolidated Condensed Balance Sheets.
/i
Supply Chain Financing Arrangements
The Company has ongoing agreements globally with various third-parties to provide certain suppliers the opportunity to sell receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial
institutions. Under these agreements, the average payment terms range from 120 to 180 days and are based on industry standards and best practices within each of our global regions. Whirlpool has no assets pledged as part of our global programs.
9
We have no economic interest in the sale of these receivables and no direct financial relationship with the financial institutions concerning these services. For certain arrangements, the Company will guarantee receivables due from wholly-owned subsidiaries. Our obligations to suppliers, including amounts due and
scheduled payment terms, are not impacted. All outstanding balances under these programs are recorded in accounts payable on our Consolidated Condensed Balance Sheets. Approximately $i1.1 billion have been issued to participating financial institutions as of September 30, 2023 and $i1.1 billion
as of December 31, 2022, respectively, of which $i343 million and $i368 million, respectively, of the balance issued is related to our European major domestic appliance business which was classified as held for sale in the fourth
quarter of 2022.
A downgrade in our credit rating or changes in the financial markets could limit the financial institutions’ willingness to commit funds to, and participate in, the programs. We do not believe such risk would have a material impact on our working capital or cash flows.
i
Equity Method Investments
Whirlpool holds an equity interest of i20%
in Whirlpool (China) Co., Ltd. (Whirlpool China), an entity which was previously controlled by the Company. iThe following tables summarize balances and transactions with Whirlpool China and its subsidiaries during the periods presented.
The
licensing revenue and outstanding accounts receivable from Whirlpool China and its subsidiaries are not material for the periods presented.
The market value of our i20% investment in Whirlpool China, based on the quoted market price, is $i167 million
as of September 30, 2023. Management has concluded that there are currently no indicators for an other-than-temporary impairment.
/i
Related Party Transactions
The Company has a controlling equity ownership of i87%
in Elica PB India which is consolidated in Whirlpool Corporation's financial statements and is reported within our Asia reportable segment. Elica PB India is a VIE for which the Company is the primary beneficiary. The carrying amount of customer relationships, which are included in Other intangible assets, net of accumulated amortization, amounts to $i29 million as of September 30, 2023 and $i31 million
as of December 31, 2022, respectively. Other assets or liabilities of Elica PB India are not material to the Consolidated Condensed Financial Statements of the Company for the periods presented.
Both Whirlpool India and the non-controlling interest shareholders retain an option for Whirlpool India to purchase the remaining equity interest in Elica PB India for fair value, which could be material to the financial statements of the Company, depending on the performance of the business.
All other issued and not yet effective accounting standards are not relevant or material to the Company.
/
10
(2) iREVENUE
RECOGNITION
Disaggregation of Revenue
i
The following table presents our disaggregated revenues by revenue source. We sell products within all product categories in each operating segment. For additional information on the disaggregated revenues by geographic regions, see Note 12 to the Consolidated Condensed Financial Statements.
Three
Months Ended September 30,
Nine Months Ended September 30,
Millions of dollars
2023
2022
2023
2022
Major product categories:
Laundry
$
i1,360
$
i1,187
$
i3,949
$
i3,807
Refrigeration
i1,484
i1,560
i4,334
i4,821
Cooking
i1,199
i1,234
i3,392
i3,762
Dishwashing
i423
i469
i1,300
i1,384
Total
major product category net sales
$
i4,466
$
i4,450
$
i12,975
$
i13,774
Spare
parts and warranties
i243
i225
i718
i695
Other
i217
i109
i674
i332
Total
net sales
$
i4,926
$
i4,784
$
i14,367
$
i14,801
/
Other
revenue sources include primarily the revenues from the InSinkErator business, subscription arrangements and licenses.
The impact to revenue related to prior period performance obligations is less than 1% of global consolidated revenues for the three and nine months ended September 30, 2023.
Allowance for Expected Credit Losses and Bad Debt Expense
We estimate our expected credit losses primarily by using an aging methodology and establish customer-specific reserves for higher risk trade customers. Our expected credit losses are evaluated and controlled within each geographic region considering the unique credit risk specific to the country, marketplace and economic environment. We take into account past events, current conditions and reasonable and
supportable forecasts in developing the reserve.
i
The following table summarizes our allowance for expected credit losses and bad debt by operating segment for the nine months ended September 30, 2023:
(1)
Starting from the fourth quarter of 2022, accounts receivable allowance of our European major domestic appliance business is transferred to assets held for sale. For additional information, see Note 13 to the Consolidated Condensed Financial Statements.
During
the nine months ended September 30, 2023, we disposed of land, buildings, machinery and equipment with a net book value of $i11 million, compared to $i21 million in the same period of
2022. The net gain on the disposals was inot material for the nine months ended September 30, 2023. The net gain on the disposals of $i55 million for the
same period of 2022 was primarily driven by a sale-leaseback transaction in the first quarter of 2022.
For additional information see Note 1 to the Consolidated Condensed Financial Statements.
(5) iFINANCING ARRANGEMENTS
Debt Offering
On February 22, 2023, the
Company completed its offering of $i300 million aggregate principal amount of i5.5% Senior Notes due 2033 (the “2033 Notes”), in a public offering pursuant to a registration statement on Form S-3 (File No. 333-255372).
The 2033 Notes were issued under an indenture (the “Indenture”), dated March 20, 2000, between the Company, as issuer, and U.S. Bank Trust Company, National Association (as successor to U.S. Bank, National Association and Citibank, N.A.), as trustee. The sale of the 2033 Notes was made pursuant to the terms of an Underwriting Agreement, dated February 14, 2023, with BNP Paribas Securities Corp., ING Financial Markets LLC, Mizuho Securities USA LLC, SMBC Nikko Securities America, Inc. and SG Americas Securities, LLC,
as representatives of the several underwriters in connection with the offering and sales of the 2033 Notes. The 2033 Notes contain covenants that limit the Company's ability to incur certain liens or enter into certain sale and lease-back transactions. In addition, if we experience a specific kind of change of control, we are required to make an offer to purchase all of the notes at a purchase price of i101% of the principal amount thereof, plus accrued and unpaid interest. The
Company used the net proceeds from the sale of the 2033 Notes to repay $i250 million aggregate principal amount of i3.7% Notes which were paid on March 1, 2023, and for general corporate purposes.
On
May 4, 2022, the Company completed its offering of $i300 million in principal amount of i4.7% Senior Notes due 2032 (the “2032
Notes”), in a public offering pursuant to a registration statement on Form S-3 (File No. 333-255372). The 2032 Notes were issued under the Indenture. The sale of the 2032 Notes was made pursuant to the terms of an Underwriting Agreement, dated May 2, 2022, among the Company, as issuer, and BNP Paribas Securities Corp., Citigroup Global Markets Inc., Goldman Sachs & Co. LLC, Mizuho Securities USA LLC and Wells Fargo Securities, LLC, as representatives of the several underwriters in connection with the offering and sales of the 2032 Notes. The 2032 Notes contain
covenants that limit the Company's ability to incur certain liens or enter into certain sale and lease-back transactions. In addition, if we experience a specific
12
kind of change of control, we are required to make an offer to purchase all of the notes at a purchase price of i101% of the principal amount
thereof, plus accrued and unpaid interest. The Company used the net proceeds from the sale of the 2032 Notes to repay $i300 million aggregate principal amount of i4.7% Notes
which were paid on June 1, 2022.
Term Loan Agreement
On September 23, 2022, the Company entered into a Term Loan Agreement by and among the Company, Sumitomo Mitsui Banking Corporation (“SMBC”), as Administrative Agent and Syndication Agent and as lender, and certain other financial institutions as lenders. SMBC, BNP Paribas, ING Bank N.V., Dublin Branch, Mizuho Bank, Ltd., and Societe Generale acted as Joint Lead Arrangers and Syndication Agents; The Bank of Nova Scotia and Bank of China, Chicago Branch acted as Documentation Agents; and SMBC acted as Sole Bookrunner for the Term Loan Agreement. The Term Loan
Agreement provides for an aggregate lender commitment of $i2.5 billion. The Company utilized proceeds from the term loan facility on a delayed draw basis to fund a majority of the $i3.0
billion purchase price consideration for the Company’s acquisition from Emerson Corporation (“Emerson”) of Emerson’s InSinkErator business, as set forth in the Asset and Stock Purchase Agreement between Whirlpool and Emerson dated as of August 7, 2022 (the “Acquisition Agreement”).
The term loan facility is divided into itwo tranches: a $i1
billion tranche with a maturity date of April 30, 2024 and a $i1.5 billion tranche with a maturity date of October 31, 2025.
The interest and fee rates payable with respect to the term loan facility based on the Company's current debt rating are as follows: (1) the spread over secured overnight financing rate ("SOFR") for the i18-month
tranche is i0.75%; (2) the spread over SOFR for the i3-year tranche is i1.00%;
(3) the spread over prime for both tranches is izero; and (4) the ticking fee for both tranches is i0.10%, as of the date hereof.
The Term Loan Agreement contains
customary covenants and warranties including, among other things, a rolling twelve month interest coverage ratio required to be greater than or equal to i3.0 for each fiscal quarter. In addition, the covenants limit the Company's ability to (or to permit any subsidiaries to), subject to various exceptions and limitations: (i) merge with other companies; (ii) create liens on its property; and (iii) incur debt
at the subsidiary level. We were in compliance with our interest coverage ratio under the term loan agreement as of September 30, 2023.
The outstanding amount for this term loan at September 30, 2023 was $i2.5 billion of which approximately $i1 billion
is classified in current liabilities on the Consolidated Condensed Balance Sheet.
Credit Facilities
On May 3, 2022, the Company entered into a Fifth Amended and Restated Long-Term Credit Agreement (the “Amended Long-Term Facility”) by and among the Company, certain other borrowers, the lenders referred to therein, JPMorgan Chase Bank, N.A. as Administrative Agent, and Citibank, N.A., as Syndication Agent. BNP Paribas, Mizuho Bank, Ltd. and Wells Fargo Bank, National Association acted as Documentation Agents. JPMorgan Chase Bank, N.A., BNP Paribas Securities Corp., Citibank, N.A., Mizuho Bank, Ltd. and Wells Fargo Securities, LLC acted as Joint Lead Arrangers
and Joint Bookrunners for the Amended Long-Term Facility. Consistent with the Company’s prior credit agreement, the Amended Long-Term Facility provides an aggregate borrowing capacity of $i3.5 billion. The facility has a maturity date of May 3, 2027, unless earlier terminated.
The interest rate payable with respect to the Amended Long-Term Facility reflects a decrease
of i0.125% in the interest rate margin from the Company’s prior credit facility, and is based on the Company’s current debt rating, Term SOFR (Secured Overnight Financing Rate) + i1.00%
interest rate margin per annum (with a i0.10% SOFR spread adjustment) or the Alternate Base Rate + i0.00% per annum, at the Company’s election.
The
Amended Long-Term Facility contains customary covenants and warranties, such as, among other things, a rolling four quarter interest coverage ratio required to be greater than or equal to i3.0 as of the end of each fiscal quarter. The Amended Long-Term Facility also includes limitations on the Company’s ability to (or to permit any subsidiaries to), subject to various exceptions and limitations: (i) merge
with other companies; (ii) create liens on its property; and (iii) incur debt at the subsidiary level. We were in compliance with our interest coverage ratio under the Amended Long-Term Facility as of September 30, 2023.
13
In addition to the committed $i3.5 billion Amended Long-Term Facility
and the committed $i2.5 billion term loan, we have committed credit facilities in Brazil and India. These committed credit facilities provide borrowings up to approximately $i212 million at September
30, 2023 and $i204 million at December 31, 2022, based on exchange rates then in effect, respectively. These committed credit facilities have maturities that run through 2025.
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.
In an effort to manage economic and geographic trade customer risk, from time to time, the Company will transfer, primarily without recourse, accounts receivable balances of certain customers to financial institutions resulting in a nominal impact recorded in interest and sundry (income) expense. These transactions are accounted for as sales of the receivables resulting in the receivables being de-recognized from the Consolidated Condensed Balance Sheets. These transfers do not require continuing involvement from the Company.
Certain arrangements include servicing of transferred receivables by Whirlpool. The amount of cash proceeds received under these arrangements was $i153
million for the nine months ended September 30, 2023. iNo amounts were received under these arrangements for the nine months ended September 30, 2022. Outstanding accounts receivable transferred under arrangements where the Company continues to service the transferred asset were $i51
million as of September 30, 2023 and $i80 million as of December 31, 2022, respectively.
(6) iCOMMITMENTS
AND CONTINGENCIES
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.
Our Brazilian operations have received tax assessments for income and social contribution taxes associated with certain monetized BEFIEX credits. We do not believe BEFIEX credits are subject to income or social contribution taxes. We have not provided for income or social contribution taxes on these BEFIEX credits, and based on the opinions of tax and legal advisors, we have not accrued any amount related to these assessments at September 30, 2023. 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 i2.2 billion Brazilian reais (approximately $i448 million at September 30, 2023).
Relying
on existing Brazilian legal precedent, in 2003 and 2004, we recognized tax credits in an aggregate amount of $i26 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 such credits have been recognized since 2004. In 2009, we entered into a Brazilian government program ("IPI Amnesty") which provided extended payment terms and reduced penalties and interest to encourage taxpayers 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 $i34 million in 2009 associated with these matters. In July 2012, the Brazilian revenue authority notified us that a portion
14
of our proposed settlement was rejected and we received tax assessments of i282
million Brazilian reais (approximately $i56 million at September 30, 2023), reflecting interest and penalties to date. The government's assessment in this case relies heavily on its arguments regarding taxability of BEFIEX credits for certain years, which we are disputing in one of the BEFIEX government assessment cases cited in the prior paragraph. Because the IPI Amnesty case is moving faster than the BEFIEX taxability case, we could be required to pay the IPI Amnesty assessment before obtaining a final decision in the BEFIEX taxability case.
We
have received tax assessments from the Brazilian federal tax authorities relating to amounts allegedly due regarding insurance taxes (PIS/COFINS) for tax credits recognized since 2007. These credits were recognized for inputs to certain manufacturing and other business processes. These assessments are being challenged at the administrative and judicial levels in Brazil. The total amount of outstanding tax assessments received for credits recognized for PIS/COFINS inputs is approximately $i323 million Brazilian reais (approximately $i64
million at September 30, 2023). Based on the opinion of our tax and legal advisors, we have inot accrued any amount related to these assessments.
In addition to the BEFIEX, IPI tax credit and PIS/COFINS inputs matters noted above, other assessments issued by the Brazilian tax authorities related to indirect and income tax matters, and other matters, are at various stages of review in numerous administrative and judicial proceedings. We are vigorously defending our positions related to BEFIEX credits
and other Brazil Tax Matters. 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.
Litigation is inherently unpredictable and the conclusion of these matters may take many years to ultimately resolve. Amounts at issue in potential future litigation could increase as a result of interest and penalties in future periods. Accordingly, it is possible that an unfavorable outcome in these proceedings could have a material adverse effect on our financial statements in any particular reporting period.
Legacy EMEA Legal Matters
Competition Investigation
In
2013, the French Competition Authority ("FCA") commenced an investigation of appliance manufacturers and retailers in France, including Whirlpool and Indesit. The FCA investigation was split into two parts, and in December 2018, we finalized a settlement with the FCA on the first part of the investigation. The second part of the FCA investigation, which is focused primarily on manufacturer interactions with retailers, is ongoing. The Company has agreed to a preliminary settlement range with the FCA and recorded a charge of approximately $i69 million
in the first half of 2023. The Company expects the settlement amount to be finalized in early 2024, and to make payment to the FCA in 2024. The Company is fully cooperating with this investigation.
Although it is currently not possible to assess the impact, if any, that additional matters related to the FCA investigation may have on our financial statements, matters related to the FCA investigation could have a material adverse effect on our financial statements in any particular reporting period.
Trade Customer Insolvency
The Company was a former indirect minority shareholder of Alno
AG, a longstanding trade customer that filed for insolvency protection in Germany. In 2020, we paid a settlement of €i52.75 million (approximately $i59 million at the time
of payment) to resolve any potential claims the insolvency trustee might have against the Company. We have also resolved certain claims brought by a third party related to Alno's insolvency through a settlement which includes a full release of any and all claims by that third party, and accrued an immaterial incremental amount during the second quarter related to this resolution.
15
Latin America Tax Review
In the first quarter of 2023, we accrued an
immaterial amount in our Consolidated Condensed Financial Statements related to prior-period Value Added Tax (VAT) remittances in our Latin America region. We resolved certain aspects of this matter in the second quarter of 2023 and the overall financial statement impact of such resolution was immaterial. We continue to review tax matters within the region for any potential additional impacts, if any; certain matters could have a material adverse effect on our financial statements in any particular reporting period.
Grenfell Tower
On June 23, 2017, London's Metropolitan Police Service released a statement that it had identified a Hotpoint–branded refrigerator as the initial source of the Grenfell Tower fire in West London. U.K. authorities are conducting investigations, including regarding the cause and spread of the fire. The model
in question was manufactured by Indesit Company between 2006 and 2009, prior to Whirlpool's acquisition of Indesit in 2014. We are fully cooperating with the investigating authorities. Whirlpool was named as a defendant in a product liability suit in Pennsylvania federal court related to this matter. The federal court dismissed the case with prejudice in September 2020 and the dismissal was affirmed on appeal in July 2022. Plaintiffs filed a petition with the U.S. Supreme Court in January 2023 which was subsequently denied. In December 2020, lawsuits related to Grenfell Tower were filed in the U.K. against approximately i20 defendants,
including Whirlpool Corporation and certain Whirlpool subsidiaries. In the fourth quarter of 2022, we accrued an immaterial amount related to these claims in our financial statements. Additional claims may be filed related to this incident.
Other Litigation
See Note 11 for information on certain U.S. income tax litigation. In addition, we are currently defending against itwo lawsuits that have been certified for treatment as class
actions in U.S. federal court, relating to itwo top-load washing machine models. In December 2019, the court in one of these lawsuits entered summary judgment in Whirlpool's favor. That ruling remains subject to appeal, and the other lawsuit is ongoing. We are vigorously defending our positions in these lawsuits. Given the status of the proceedings, we cannot reasonably estimate a range of loss, if any, at this time. The resolution of these matters could have a material adverse effect on our financial statements in any particular reporting period.
We are currently vigorously
defending a number of other lawsuits related to the manufacture and sale of our products which include class action allegations, and may become involved in similar actions. These lawsuits allege claims which include negligence, breach of contract, breach of warranty, product liability and safety claims, false advertising, fraud, and violation of federal and state regulations, including consumer protection laws. In general, we do not have insurance coverage for class action lawsuits. We are also involved in various other legal actions arising in the normal course of business, for which insurance coverage may or may not be available depending on the nature of the action. We dispute the merits of these suits and actions, and intend to vigorously defend them. Management believes, based upon its current knowledge, after taking into consideration legal counsel's evaluation of such suits
and actions, and after taking into account current litigation accruals, that the outcome of these matters currently pending against Whirlpool should not have a material adverse effect, if any, on our financial statements.
16
Product Warranty Reserves
Product warranty reserves are included in other current and other noncurrent liabilities in our Consolidated Condensed Balance
Sheets. iThe following table summarizes the changes in total product warranty liability reserves for the periods presented:
Product Warranty
Millions
of dollars
2023
2022
Balance at January 1 (1)
$
i190
$
i286
Issuances/accruals
during the period
i170
i171
Settlements
made during the period/other
(i160)
(i222)
Balance
at September 30
$
i200
$
i235
Current
portion
$
i133
$
i150
Non-current
portion
i67
i85
Total
$
i200
$
i235
(1)Product warranty reserve of $i59 million of our European major domestic appliance business has been transferred to liabilities held for sale starting from the fourth quarter of 2022.
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 certain 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.
Guarantees
We have guarantee arrangements in a Brazilian subsidiary. For certain creditworthy customers, 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 assume the line of credit and satisfy the obligation with the bank. At September 30, 2023 and December 31, 2022, the guaranteed amounts totaled i1.3
billion Brazilian reais (approximately $i261 million at September 30, 2023) and i1.1 billion Brazilian reais (approximately $i215
million at December 31, 2022), respectively. The fair value of these guarantees were nominal at September 30, 2023 and December 31, 2022. Our subsidiary insures against a significant portion of this credit risk for these guarantees, under normal operating conditions, through policies purchased from high-quality underwriters.
We provide guarantees of indebtedness and lines of credit for various consolidated subsidiaries. The maximum contractual amount of indebtedness and lines of credit available under these lines for consolidated subsidiaries totaled approximately $i2.9
billion at September 30, 2023 and $i2.9 billion at December 31, 2022, respectively. Our total short-term outstanding bank indebtedness under guarantees was nominal at both September 30, 2023 and December 31, 2022.
17
(7) iPENSION
AND OTHER POSTRETIREMENT BENEFIT PLANS
i
The following table summarizes the components of net periodic pension cost and the cost of other postretirement benefits for the periods presented:
Three
Months Ended September 30,
United States Pension Benefits
Foreign Pension Benefits
Other Postretirement Benefits
Millions of dollars
2023
2022
2023
2022
2023
2022
Service
cost
$
i1
$
i1
$
i1
$
i1
$
i—
$
i—
Interest
cost
i29
i20
i7
i4
i2
i1
Expected
return on plan assets
(i35)
(i36)
(i6)
(i8)
i—
i—
Amortization:
Actuarial
loss
i9
i14
i1
i2
i—
i—
Prior
service credit
i—
i—
i—
i—
(i10)
(i12)
Settlement
and curtailment (gain) loss
i—
i2
i—
i—
i—
i—
Net
periodic benefit cost (credit)
$
i4
$
i1
$
i3
$
(i1)
$
(i8)
$
(i11)
Nine
Months Ended September 30,
United States Pension Benefits
Foreign Pension Benefits
Other Postretirement Benefits
Millions of dollars
2023
2022
2023
2022
2023
2022
Service
cost
$
i2
$
i2
$
i2
$
i3
$
i—
$
i—
Interest
cost
i86
i61
i20
i12
i5
i4
Expected
return on plan assets
(i106)
(i109)
(i17)
(i24)
i—
i—
Amortization:
Actuarial
loss
i28
i43
i4
i7
i—
i—
Prior
service credit
i—
i—
i—
i—
(i31)
(i35)
Settlement
and curtailment (gain) loss
i—
i1
i—
i1
i—
i—
Net
periodic benefit cost (credit)
$
i10
$
(i2)
$
i9
$
(i1)
$
(i26)
$
(i31)
/i
The
following table summarizes the net periodic cost recognized in operating profit and interest and sundry (income) expense for the periods presented:
Three
Months Ended September 30,
United States Pension Benefits
Foreign Pension Benefits
Other Postretirement Benefits
Millions of dollars
2023
2022
2023
2022
2023
2022
Operating
profit (loss)
$
i1
$
i1
$
i1
$
i1
$
i—
$
i—
Interest
and sundry (income) expense
i3
i—
i2
(i2)
(i8)
(i11)
Net
periodic benefit cost
$
i4
$
i1
$
i3
$
(i1)
$
(i8)
$
(i11)
Nine
Months Ended September 30,
United States Pension Benefits
Foreign Pension Benefits
Other Postretirement Benefits
Millions of dollars
2023
2022
2023
2022
2023
2022
Operating
profit (loss)
$
i2
$
i2
$
i2
$
i3
$
i—
$
i—
Interest
and sundry (income) expense
i8
(i4)
i7
(i4)
(i26)
(i31)
Net
periodic benefit cost
$
i10
$
(i2)
$
i9
$
(i1)
$
(i26)
$
(i31)
/
18
(8) iHEDGES
AND DERIVATIVE FINANCIAL INSTRUMENTS
Derivative instruments are accounted for at fair value based on market rates. Derivatives where we elect hedge accounting are designated as either cash flow, fair value or net investment hedges. Derivatives that are not accounted for based on hedge accounting are marked to market through earnings. If the designated cash flow hedges are highly effective, the gains and losses are recorded in other comprehensive income (loss) and subsequently reclassified to earnings to offset the impact of the hedged items when they occur. In the event it becomes probable the forecasted transaction to which a cash flow hedge relates will not occur, the derivative would be terminated and the amount in accumulated other comprehensive income (loss) would be recognized in earnings. The fair value of the hedge asset or liability is presented in either other current assets / liabilities or other noncurrent
assets / liabilities on the Consolidated Condensed Balance Sheets and in other within cash provided by (used in) operating activities in the Consolidated Condensed Statements of Cash Flows.
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 on such contracts.
i
Hedging
Strategy
In the normal course of business, we manage risks relating to our ongoing business operations including those arising from changes in commodity prices, foreign exchange rates and interest rates. 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.
Commodity Price Risk
We enter into commodity derivative contracts on various commodities to manage the price risk associated with forecasted purchases and sales of material used in our manufacturing process. The objective of these hedges is to reduce the variability
of cash flows associated with the forecasted purchases and sales of commodities.
Foreign Currency and Interest 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, intercompany loans and dividends. When we hedge a foreign currency
denominated payable or receivable with a derivative, the effect of changes in the foreign exchange rates are reflected currently in interest and sundry (income) expense for both the payable/receivable and the derivative. Therefore, as a result of the economic hedge, we do not elect hedge accounting.
We also enter into hedges to mitigate currency risk primarily related to forecasted foreign currency denominated expenditures, intercompany financing agreements and royalty agreements and designate them as cash flow hedges. Gains and losses on derivatives designated as cash flow hedges, to the extent they are included in the assessment of effectiveness, are recorded in other comprehensive income (loss) and subsequently reclassified to earnings to offset the impact of the hedged items when they occur.
We may enter into cross-currency interest rate swaps to manage our exposure relating to
cross-currency debt. Outstanding notional amounts of cross-currency interest rate swap agreements were $ii618/ million at September
30, 2023 and December 31, 2022, respectively.
/
19
We may enter into interest rate swap agreements to manage interest rate risk exposure. Our interest rate swap agreements, if any, effectively modify our exposure to interest rate risk, primarily through converting certain floating rate debt to a fixed rate basis, or 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 may enter into swap rate lock agreements to effectively reduce our exposure to interest rate risk by locking in interest rates on probable long-term debt issuances. There were iino/
outstanding notional amounts of interest rate swap agreements at September 30, 2023 and December 31, 2022.
We may enter into instruments that are designated and qualify as a net investment hedge to manage our exposure related to foreign currency denominated investments. The effective portion of the instruments' gain or loss is reported as a component of other comprehensive income (loss) and recorded in accumulated other comprehensive loss. The gain or loss will be subsequently reclassified into net earnings when the underlying net investment is either sold or substantially liquidated. The remaining change in fair value of the hedge instruments represents the ineffective portion, which is immediately recognized in interest and sundry (income) expense on our Consolidated Condensed Statements of Comprehensive Income (Loss). There
were iino/ outstanding notional amounts of net investment hedges as of September 30, 2023 and December
31, 2022.
i
The following table summarizes our outstanding derivative contracts and their effects in our Consolidated Condensed Balance Sheets at September 30, 2023 and December 31, 2022. Hedge assets and liabilities of our European major domestic appliance business have been classified as held for sale and are excluded from the table below.
Fair
Value of
Notional Amount
Hedge Assets
Hedge Liabilities
Maximum Term (Months)
Millions of dollars
2023
2022
2023
2022
2023
2022
2023
2022
Derivatives
accounted for as hedges(1)
Commodity swaps/options
$
i194
$
i170
$
i7
$
i7
$
i11
$
i17
(CF)
i21
i24
Foreign
exchange forwards/options
i1,012
i998
i11
i24
i24
i20
(CF/NI)
i101
i15
Cross-currency
swaps
i618
i618
i6
i5
i49
i42
(CF)
i65
i74
Total
derivatives accounted for as hedges
$
i24
$
i36
$
i84
$
i79
Derivatives
not accounted for as hedges
Commodity swaps/options
$
i—
$
i1
$
i—
$
i—
$
i—
$
i—
N/A
i0
i0
Foreign
exchange forwards/options
i399
i439
i1
i5
i4
i6
N/A
i5
i5
Total
derivatives not accounted for as hedges
i1
i5
i4
i6
Total
derivatives
$
i25
$
i41
$
i88
$
i85
Current
$
i22
$
i40
$
i37
$
i41
Noncurrent
i3
i1
i51
i44
Total
derivatives
$
i25
$
i41
$
i88
$
i85
(1)Derivatives
accounted for as hedges are considered cash flow (CF) hedges.
/
20
i
The following tables summarize the effects of derivative instruments
on our Consolidated Condensed Statements of Comprehensive Income (Loss) for the periods presented:
Three
Months Ended September 30,
Gain (Loss) Recognized in OCI (Effective Portion ) (2)
Millions of dollars
2023
2022
Cash flow hedges
Commodity
swaps/options
$
i17
$
(i20)
Foreign
exchange forwards/options
i25
i109
Cross-currency
swaps
i32
(i61)
Interest
rate derivatives
i—
i4
Net
Investment hedges
Foreign currency
i—
(i8)
$
i74
$
i24
Three
Months Ended September 30,
Location of Gain (Loss) Reclassified from OCI into Earnings (Effective Portion)
Gain (Loss) Reclassified from
OCI into Earnings
(Effective Portion)(3)
Cash Flow Hedges - Millions of dollars
2023
2022
Commodity swaps/options
Cost
of products sold
$
(i5)
$
i5
Foreign
exchange forwards/options
Net sales
(i1)
(i1)
Foreign
exchange forwards/options
Cost of products sold
(i15)
(i3)
Foreign
exchange forwards/options
Interest and sundry (income) expense
i2
i66
Cross-currency
swaps
Interest and sundry (income) expense
i41
(i62)
Interest
rate derivatives
Interest expense
i—
i—
$
i22
$
i5
Three
Months Ended September 30,
Location of Gain (Loss) Recognized on Derivatives not Accounted for as Hedges
Gain (Loss) Recognized on Derivatives not Accounted for as Hedges
Derivatives not Accounted for as Hedges - Millions of dollars
2023
2022
Foreign exchange forwards/options
Interest and sundry (income) expense
$
(i11)
$
i6
(2)Change
in gain (loss) recognized in OCI (effective portion) for the three months ended September 30, 2023 is primarily driven by fluctuations in currency and commodity prices and interest rates compared to prior year. The tax impact of the cash flow hedges was $(i12) million and $i8
million for the three months ended September 30, 2023 and 2022, respectively. The tax impact of the net investment hedges was $i0 million and $i2 million
for the three months ended September 30, 2023 and 2022, respectively.
(3)Change in gain (loss) reclassified from OCI into earnings (effective portion) for the three months ended September 30, 2023 was primarily driven by fluctuations in currency and commodity prices and interest rates compared to prior year.
/
21
Nine
Months Ended September 30,
Gain (Loss) Recognized in OCI (Effective Portion ) (4)
Millions of dollars
2023
2022
Cash flow hedges
Commodity
swaps/options
$
(i5)
$
(i18)
Foreign
exchange forwards/options
(i38)
i189
Cross-currency
swaps
i12
i37
Interest
rate derivatives
i—
i56
Net
Investment hedges
Foreign currency
i—
(i26)
$
(i31)
$
i238
Nine
Months Ended September 30,
Location of Gain (Loss) Reclassified from OCI into Earnings (Effective Portion)
Gain (Loss) Reclassified from
OCI into Earnings
(Effective Portion)(5)
Cash Flow Hedges - Millions of dollars
2023
2022
Commodity swaps/options
Cost
of products sold
$
(i10)
$
i39
Foreign
exchange forwards/options
Net sales
(i2)
i—
Foreign
exchange forwards/options
Cost of products sold
(i30)
(i19)
Foreign
exchange forwards/options
Interest and sundry (income) expense
i21
i162
Cross-currency
swaps
Interest and sundry (income) expense
i29
i53
Interest
rate derivatives
Interest expense
i—
i—
$
i8
$
i235
Nine
Months Ended September 30,
Location of Gain (Loss) Recognized on Derivatives not Accounted for as Hedges
Gain (Loss) Recognized on Derivatives not Accounted for as Hedges
Derivatives not Accounted for as Hedges - Millions of dollars
2023
2022
Foreign exchange forwards/options
Interest and sundry (income) expense
$
i15
$
i1
(4)Change
in gain (loss) recognized in OCI (effective portion) for the nine months ended September 30, 2023 is primarily driven by fluctuations in currency and commodity prices and interest rates compared to prior year. The tax impact of the cash flow hedges was $i10 million and $i9
million for the nine months ended September 30, 2023 and 2022, respectively. The tax impact of the net investment hedges was $i0 million and $i6
million for the nine months ended September 30, 2023 and 2022, respectively.
(5)Change in gain (loss) reclassified from OCI into earnings (effective portion) for the nine months ended September 30, 2023 was primarily driven by fluctuations in currency and commodity prices and interest rates compared to prior year.
For cash flow hedges, the amount of ineffectiveness recognized in interest and sundry (income) expense was nominal for the periods ended September 30, 2023 and 2022. There were no hedges designated as fair value for the periods ended September
30, 2023 and 2022. The net amount of unrealized gain or loss on derivative instruments included in accumulated OCI related to contracts maturing and expected to be realized during the next twelve months is a loss of $i46 million at September 30, 2023.
(9) iFAIR
VALUE MEASUREMENTS
iFair 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)
22
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.
i
The
following table summarizes the valuation of our assets and liabilities measured at fair value on a recurring basis at September 30, 2023 and December 31, 2022:
(1)Short-term
investments are primarily comprised of money market funds and highly liquid, low risk investments with initial maturities less than 90 days.
The non-recurring fair values represent only those assets whose carrying values were adjusted to fair value during the reporting period. See Note 14 to the Consolidated Condensed Financial Statements for additional information on the goodwill and other intangibles impairment.
Goodwill
We have ifour
reporting units for which we assess for impairment. We use a discounted cash flow analysis to determine fair value (Level 3 input) and consistent projected financial information in our analysis of goodwill and intangible assets. The discounted cash flow analysis for the quantitative impairment assessment for the EMEA reporting unit utilized a discount rate of i15%. Based on the quantitative assessment performed as of May 31, 2022, the carrying value of the EMEA reporting unit exceeded its fair value resulting in a goodwill impairment loss for the full carrying amount
of $i278 million during the second quarter of 2022.
Other Intangible Assets
The relief-from-royalty method for the quantitative impairment assessment for the other intangible assets in the EMEA reporting unit utilized discount rates of i19%
and royalty rates ranging from i1.5% - i3.5%. Based on the quantitative assessment performed as of May 31, 2022, the carrying value of the Indesit and
Hotpoint* trademarks exceeded their fair value (Level 3 input), resulting in an impairment charge of $i106 million during the second quarter of 2022.
Indefinite-lived intangible assets of Indesit and Hotpoint* with carrying amounts of approximately $i201 million
and $i137 million were written down to fair values (Level 3 input) of $i131 million
and $i101 million, resulting in impairment charges of $i70 million and $i36 million,
respectively.
See Note 14 to the Consolidated Condensed Financial Statements for additional information.
European Major Domestic Appliance Business Held for Sale
On January 16, 2023, the Company entered into a contribution agreement with Arçelik A.Ş (“Arcelik”). Under the terms of the agreement, Whirlpool will contribute its European major domestic appliance business, and Arcelik will contribute its European major domestic appliance, consumer electronics, air conditioning, and small domestic appliance businesses into the newly formed entity of which Whirlpool will own i25%
and Arcelik i75%.
On December 20, 2022, the Company's board authorized the transaction with Arcelik and the European major domestic appliance business was classified as held for sale during the fourth quarter of 2022. The disposal group was measured at fair value less cost to sell. We used a discounted cash flow analysis and multiple market data points in our analysis to determine fair value (Level 3 input)
of the i25% interest retained, resulting in an estimated fair value of $i140 million. The discounted cash flow analysis utilized a discount rate of i16.5%.
*Whirlpool
ownership of the Hotpoint brand in the EMEA and Asia Pacific regions is not affiliated with the Hotpoint brand sold in the Americas.
23
We recorded an adjustment of $i286 million
for the nine months ended September 30, 2023, of which $i46 million was recorded during the third quarter, resulting in a total loss of $i1.8 billion
for the transaction. These adjustments reflect transaction costs and ongoing reassessment of the fair value less costs to sell of the disposal group which will continue to be evaluated each reporting period until completion of the transaction.
See Note 13 to the Consolidated Condensed Financial Statements for additional information.
InSinkErator Acquisition
On October 31, 2022, we completed the acquisition of the InSinkErator business pursuant to the terms of the Acquisition Agreement with Emerson. The acquisition has been accounted for as a business combination under the acquisition method of accounting. This requires allocation of the purchase price to the estimated fair values of the identifiable assets acquired and liabilities assumed, including goodwill and other intangible assets.
The Company is in the process of finalizing third-party valuations for the purchase price allocation which are subject to change.
The estimated value of property, plant and equipment included adjustments totaling $i36 million to increase the net book value to the preliminary fair value estimate of $i174 million.
The fair value of property, plant and equipment was determined using both a cost and market approach. The model used primarily included Level 2 and 3 inputs. This estimate is based on other comparable acquisitions and historical experience, and preliminary expectations as to the duration of time we expect to realize benefits from those assets.
The estimated value of inventory included adjustments totaling $i10 million to step-up inventory
to an estimated fair value of $i93 million. The fair value of inventory was estimated using the comparative sales method. The model used primarily included Level 2 and 3 inputs. To estimate the fair value of inventory, we considered the components of InSinkErator’s inventory, as well as estimates of selling prices and selling and distribution costs that were based on InSinkErator’s historical experience.
The estimated fair values of identifiable
intangible assets acquired were prepared using an income valuation approach, which requires a forecast of expected future revenues, future cash flows and discount rates (Level 3 inputs), either through the use of the relief-from-royalty method, the multi-period excess earnings method or the with and without method.
Purchase accounting adjustments during the period were not material. The Company expects to finalize any further purchase accounting adjustments as soon as practicable, but no later than one year from the acquisition date. See Note 13 to the Consolidated Condensed Financial Statements for additional information.
Russia Sale Transaction
During the second quarter of 2022, we entered into an agreement to sell our Russia business. We classified this
disposal group as held for sale with a fair value of izero. Fair value, which is less than the carrying amount of the Russia business, was estimated based on purchase price which includes contingent consideration based on future business and other conditions (Level 2 input). We recorded an impairment charge of $i333 million
for the write-down of the net assets to their fair value.
See Note 13 to the Consolidated Condensed Financial Statements for additional information.
Other Fair Value Measurements
The fair value of long-term debt (including current maturities) was $i7.1 billion and $i7.0
billion at September 30, 2023 and December 31, 2022, respectively, and was estimated using discounted cash flow analysis based on incremental borrowing rates for similar types of borrowing arrangements (Level 2 input).
24
(10) iSTOCKHOLDERS'
EQUITY
i
The following table summarizes the changes in stockholders' equity for the periods presented:
Less:
Other comprehensive income (loss) available to noncontrolling interests
i—
i—
i—
i—
i—
i—
Other
comprehensive income (loss) available to Whirlpool
$
i6
$
i9
$
i15
$
i406
$
i12
$
i418
/
Reclassifications
Out of Accumulated Other Comprehensive Income (Loss)
There were no material net impacts of the reclassification adjustments out of accumulated other comprehensive income (loss) included in net earnings (loss) for the three and nine months ended September 30, 2023.
Net earnings (loss) per Share
Diluted net earnings (loss) per share of common stock include the dilutive effect of stock options and other share-based compensation plans. iBasic
and diluted net earnings (loss) per share of common stock for the periods presented were calculated as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
Millions
of dollars and shares
2023
2022
2023
2022
Numerator for basic and diluted earnings per share - Net earnings (loss) available to Whirlpool
$
i83
$
i143
$
(i10)
$
i85
Denominator
for basic earnings per share - weighted-average shares
i55.0
i54.7
i54.9
i56.3
Effect
of dilutive securities - share-based compensation
i0.3
i0.3
i—
i0.4
Denominator
for diluted earnings per share - adjusted weighted-average shares
i55.3
i55.0
i54.9
i56.7
Anti-dilutive
stock options/awards excluded from earnings per share
i1.0
i0.7
i1.0
i0.5
27
Share
Repurchase Program
On April 19, 2021, our Board of Directors authorized a share repurchase program of up to $i2 billion, which has no expiration date. On February 14, 2022, the Board of Directors authorized an additional $i2 billion
in share repurchases under the Company's ongoing share repurchase program. During the nine months ended September 30, 2023, we did inot repurchase any shares under these share repurchase programs. At September 30, 2023, there were approximately $i2.6
billion in remaining funds authorized under this program.
Share repurchases are made from time to time on the open market as conditions warrant. The programs do not obligate us to repurchase any of our shares and have no expiration date.
(11) iINCOME TAXES
Income tax expense was $i86
million and $i268 million for the three and nine months ended September 30, 2023, compared to income tax expense of $i53 million and $i196
million for the same periods of 2022. For the three months ended September 30, 2023, the increase is primarily due to audits and settlements. For the nine months ended September 30, 2023, the increase is primarily due to audits and settlements partially offset by the impact of non-deductible impairments, including loss on sale and disposal and non-deductible fines and penalties
i
The following table summarizes the difference between income tax expense (benefit) at the U.S. statutory rate
of 21% and the income tax expense (benefit) at effective worldwide tax rates for the respective periods:
Three Months Ended September 30,
Nine Months Ended September 30,
Millions of dollars
2023
2022
2023
2022
Earnings
(Loss) before income taxes
$
i172
$
i200
$
i267
$
i295
Income
tax expense (benefit) computed at United States statutory tax rate
i36
i42
i56
i62
State
and local taxes, net of federal tax benefit
(i6)
(i2)
(i1)
i14
Valuation
allowances
i8
i12
i29
i19
Audit
and Settlements
i29
i6
i83
(i13)
U.S.
foreign income items, net of credits
(i9)
i2
(i6)
(i8)
Non
deductible impairments
i6
i—
i57
i150
Non
deductible fines and penalties
i—
i—
i20
i—
Other
i22
(i7)
i30
(i28)
Income
tax expense (benefit) computed at effective worldwide tax rates
$
i86
$
i53
$
i268
$
i196
/
At
the end of each interim period, we estimate 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.
Other Income Tax Matters
During its examination of Whirlpool’s 2009 U.S. federal income tax return, the IRS asserted that income earned by a Luxembourg subsidiary via its Mexican branch should be recognized as income on its 2009 U.S. federal income tax return. The Company contested the matter in United States Tax Court (US Tax Court). Both Whirlpool and the IRS moved for partial summary judgment on this issue. On May 5, 2020, the US Tax Court granted the IRS’s motion for partial summary judgment and denied Whirlpool’s.
The
Company appealed the US Tax Court decision to the United States Court of Appeals for the Sixth Circuit, and, on December 6, 2021, the three-judge panel, in a divided decision, affirmed the U.S. Tax Court decision (the "Ruling"). The Company recorded a reserve of $i98 million in the fourth quarter of 2021, which represents the expected increase in the
Company’s net income tax expense, plus interest, for 2009 through 2019, which represents all of the Company’s tax years that were affected by the Ruling. On January 20, 2022, the Company filed a petition for rehearing with the Sixth Circuit, which was denied on March 2, 2022. On June 30, 2022, the
28
Company filed a petition for certiorari with the U.S. Supreme Court, which was denied on November
21, 2022. The Company considers this tax dispute settled and no adjustments to the reserve have been recognized.
(12) iSEGMENT INFORMATION
iOur
reportable segments are based upon geographical region and are defined as North America, EMEA, Latin America and Asia. These regions also represent our operating segments. Each segment manufactures home appliances and related components, but serves strategically different marketplaces. The chief operating decision maker, who is the Company's Chairman and Chief Executive Officer, evaluates performance based on each segment's earnings (loss) before interest and taxes (EBIT), which we define as operating profit less interest and sundry (income) expense and excluding restructuring costs, asset impairment charges and certain other items that management believes are not indicative of the region's ongoing performance, if any. 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, asset impairment charges and certain other items that management believes are not indicative of the region's ongoing performance, if any. Intersegment sales are eliminated within each region.
i
The tables below summarize performance by operating segment for the periods presented:
Assets
of $i3.4 billion and $i3.4 billion associated with our European major domestic appliance business has been classified as assets held for sale and recorded
at fair value less costs to sell at September 30, 2023 and December 31, 2022, respectively. Temporary fluctuations in regional assets are expected throughout the remainder of 2023 due to intercompany activity required by the expected contribution of the European major domestic appliance business. These changes are eliminated at the total entity level. See Note 13 to the Consolidated Condensed Financial Statements for additional information on the transaction.
The following table summarizes the reconciling items in the Other/Eliminations column for total EBIT for the periods presented:
Three
Months Ended September 30,
Nine Months Ended September 30,
in millions
2023
2022
2023
2022
Items not allocated to segments:
Restructuring charges
$
(i5)
$
(i3)
$
(i14)
$
(i13)
Legacy
EMEA legal matters
i—
i—
(i98)
i—
Impairment
of goodwill and other intangibles
i—
i—
i—
(i384)
Gain
(loss) on sale and disposal of businesses
(i46)
(i2)
(i286)
(i348)
Corporate
expenses and other
(i41)
(i63)
(i135)
(i139)
Total
other/eliminations
$
(i92)
$
(i68)
$
(i533)
$
(i884)
A
reconciliation of our segment information for total EBIT to the corresponding amounts in the Consolidated Condensed Statements of Comprehensive Income (Loss) is shown in the table below for the periods presented:
30
Three
Months Ended September 30,
Nine Months Ended September 30,
in millions
2023
2022
2023
2022
Operating profit
$
i257
$
i221
$
i603
$
i376
Interest
and sundry (income) expense
(i10)
(i19)
i77
(i45)
Equity
method investment income (loss), net of tax
(i1)
(i2)
(i3)
(i6)
Total
EBIT
$
i266
$
i238
$
i523
$
i415
Interest
expense
i95
i40
i259
i126
Income
tax expense
i86
i53
i268
i196
Net
earnings (loss)
$
i85
$
i145
$
(i4)
$
i93
Less:
Net earnings available to noncontrolling interests
i2
i2
i6
i8
Net
earnings (loss) available to Whirlpool
$
i83
$
i143
$
(i10)
$
i85
13)
iACQUISITIONS AND DIVESTITURES
European Major Domestic Appliance Business Held for Sale
On January 16, 2023, Whirlpool entered into a contribution agreement with Arçelik B.V. (“Arcelik”) to carve out and contribute our major domestic appliance European business operations into a newly formed European appliance company which constitutes a combination of Arcelik’s and Whirlpool's European businesses. Whirlpool will own approximately i25%
and Arcelik will own approximately i75% of the European appliance company. The sale includes the Company's major domestic appliance business in EMEA, including inine
production sites.
On June 22, 2023, Whirlpool entered into a share purchase agreement with Arcelik for the sale of our Middle East and North Africa ("MENA") business. The sale was previously agreed upon in principle and announced on January 17, 2023, as part of the outcome of Whirlpool’s strategic review of the EMEA business. The financial impact of the MENA transaction has been included in the loss on sale and disposal of businesses related to the European major domestic appliance business transaction as discussed further below.
Our European major domestic appliance business, including the MENA business, is reported within our EMEA reportable segment and met the criteria for held for sale accounting during the fourth quarter of 2022. The operations of the European disposal
group did not meet the criteria to be presented as discontinued operations.
The Europe transaction is subject to certain closing conditions, including regulatory approvals from the European Commission, Germany, Austria and China, which have been received, and the UK which remains. We are working diligently with all parties to close the transactions as soon as possible, and expect the transactions to be completed by April 2024.
Upon closing, the transaction will result in the deconsolidation of the European major appliances business. In connection with the sale, we recorded a loss on disposal of $i1.5 billion
in the fourth quarter of 2022. The loss includes a write-down of the net assets of $i1.2 billion of the disposal group to a fair value of $i139 million
and also includes $i393 million of cumulative currency translation adjustments, $i98 million
release of other comprehensive loss on pension and $i18 million of other transaction related costs. No goodwill is included in the disposal group.
We recorded an adjustment of $i286 million
for the nine months ended September 30, 2023, of which $i46 million was recorded during the third quarter, resulting in a total loss of $i1.8 billion
for the transaction. These adjustments are recorded in the loss on sale and disposal of businesses and reflect transaction costs and ongoing reassessment of the fair value less costs to sell of the disposal group which will continue to be evaluated each reporting period until completion of the transaction.
Both Whirlpool and the post-closing controlling interest shareholder retain an option for Arcelik to purchase the remaining equity interest in a newly formed European appliance company for fair value, which could be material to the financial statements of the Company, depending on the performance of the business.
31
i
The
following table presents the carrying amounts of the major classes of the disposal group's assets and liabilities as of September 30, 2023 and December 31, 2022, respectively.
Accounts
receivable, net of allowance of $i27 and $i32, respectively
i748
i667
Inventories
i600
i650
Prepaid
and other current assets
i105
i145
Total
current assets
i1,542
i1,556
Property,
net of accumulated depreciation of $i1,599 and $i1,648,
respectively
i871
i822
Right
of use assets
i160
i163
Other
intangibles, net of accumulated amortization of $i142 and $i141,
respectively
i275
i279
Deferred
income taxes
i554
i610
Other
noncurrent assets
i15
i17
Total
noncurrent assets
i1,875
i1,891
Total
assets
$
i3,417
$
i3,447
Carrying
amounts of major classes of liabilities
Current liabilities
Accounts payable
$
i1,109
$
i1,394
Accrued
expenses
i232
i152
Accrued
advertising and promotions
i182
i172
Employee
compensation
i84
i107
Notes
payable
i2
i3
Other
current liabilities
i137
i125
Total
current liabilities
i1,746
i1,953
Noncurrent
liabilities
Long-term debt
i1
i2
Pension
benefits
i105
i122
Lease
liabilities
i130
i131
Other
noncurrent liabilities
i32
i88
Total
noncurrent liabilities
i268
i343
Total
liabilities
$
i2,014
$
i2,296
Total
net assets of the disposal group classified as held for sale
$
i1,403
$
i1,151
Assets
held for sale
Fair value of interest retained
$
i140
$
i139
Liabilities
held for sale
Cumulative currency translation adjustment and Other comprehensive income on pension
$
i478
$
i490
/
32
The
following table summarizes European major appliances business' earnings (loss) available to Whirlpool before income taxes for the nine months ended September 30, 2023 and September 30, 2022 respectively:
Nine Months Ended September 30,
in millions
2023
2022
Earnings
(loss) before income taxes
$
i12
$
(i89)
Earnings
(loss) before income taxes excludes intercompany other income and expense which eliminates at Total Whirlpool level. Additionally, the EMEA operating segment includes other businesses which are not classified as held for sale.
InSinkErator Acquisition
On August 7, 2022, the Company entered into an Asset and Stock Purchase Agreement (the “Purchase Agreement”) with Emerson Electric Co. (“Emerson”) to purchase Emerson’s InSinkErator business, a manufacturer of food waste disposers and instant hot water dispensers for home and commercial use, for a purchase price of $i3 billion
in cash, subject to customary adjustments.
On October 31, 2022, we completed the acquisition of the InSinkErator business pursuant to the terms of the Purchase Agreement. We used the net proceeds from a $i2.5 billion borrowing under our delayed draw term loan facility and $i500 million
of cash on hand to fund the acquisition. See Note 5 to the Consolidated Condensed Financial Statements for additional information about the term loan facility.
Purchase Price Allocation
The acquisition has been accounted for as a business combination under the acquisition method of accounting. This requires allocation of the purchase price to the estimated fair values of the identifiable assets acquired and liabilities assumed, including goodwill and other intangible assets. The Company is in the process of finalizing third-party valuations for the preliminary purchase price allocation which are subject to change. Purchase accounting adjustments during the period were not material. The Company expects to finalize
any further purchase accounting adjustments as soon as practicable, but no later than one year from the acquisition date.
i
The following table presents the preliminary allocation of purchase price related to the InSinkErator acquisition as of September 30, 2023. Purchase accounting adjustments recorded during the third quarter of 2023 were not material.
(in
millions)
Amount
Cash and cash equivalents
$
i7
Receivables, net
i74
Inventories
i93
Other current assets
i1
Property,
plant and equipment, net
i173
Goodwill
i1,152
Other
intangible assets
i1,630
Other assets
i11
Accounts
payable
i49
Accrued expenses
i26
Other
current liabilities
i34
Deferred income taxes
i1
Other
long-term liabilities
i10
Total Estimated Purchase Consideration
$
i3,021
/
33
Russia
Sale Transaction
On June 27, 2022, Whirlpool EMEA SpA, a subsidiary of the Company, entered into a share purchase agreement to sell the Company’s Russia business to Arcelik, subject to customary conditions at closing. The sale included the entirety of the Company’s operations in Russia, including the Company’s manufacturing facility in Lipetsk, Russia, and the sales organization in Moscow, Russia, as well as sales operations in Kazakhstan and other select CIS countries.
On August
31, 2022, we completed the sale to Arcelik. The consideration includes contingent consideration based on future business and other conditions of the Russia operations. We will recognize the benefit of the contingent consideration when received due to the uncertainty in the Russia marketplace. Additionally, the contingent consideration is subject to a cap based on the agreed net asset value of the Russia business of €i261 million at closing (approximately $i262 million
at August 31, 2022).
The Russia business was reported within our EMEA reportable segment and met the criteria for held for sale accounting. The operations of Russia did not meet the criteria to be presented as discontinued operations.
In connection with the sale, we recorded a loss on disposal of $i346 million in the second quarter of 2022. The loss includes a charge of $i333 million
for the write-down of the net assets of the disposal group to fair value and $i13 million of cumulative currency translation adjustments. On the closing date of August 31, 2022, we recorded an immaterial adjustment to the final loss amount, resulting in a total loss of $i348 million
for the nine months ended September 30, 2022.
Earnings before income taxes for Russia were immaterial to the Consolidated Condensed Financial Statements for the periods presented.
For additional information see Note 9 to the Consolidated Condensed Financial Statements.
(14) iGOODWILL AND OTHER
INTANGIBLES
Goodwill
i
The following table summarizes goodwill attributable to our reporting units for the periods presented:
(1)Increase
in goodwill is related to the purchase of InSinkErator business. For additional information, see Notes 9and 13 to the Consolidated Condensed Financial Statements.
/
For the nine months ended September 30, 2023, there no indicators of goodwill impairment for any of our reporting units based on our qualitative assessment.
In the second quarter of 2022, we identified indicators of goodwill impairment for our EMEA reporting unit, which required us to complete an interim impairment assessment. The primary indicators of impairment were the adverse impacts from the continuation of the Russia and Ukraine conflict, including the impact on demand, the pending divestiture
of our Russian operations and other ongoing adverse macroeconomic impacts such as raw material inflation, supply chain disruption and unfavorable demand. As a result of these factors, the operating results for the three-months ended June 30, 2022 were significantly lower than expected and our expectations of attaining our long term plans for the region had been delayed.
In performing our quantitative assessment of goodwill, we estimated the reporting unit's fair value under an income approach using a discounted cash flow model. The income approach used the reporting unit's projections of estimated operating results and cash flows that were discounted using a market participant discount rate based on the weighted-average cost of capital. The main assumptions supporting the cash flow
34
projections
include revenue growth, EBIT margins and the discount rate. The financial projections reflected management's best estimate of economic and market conditions over the projected period including forecasted revenue growth, EBIT margins, tax rate, capital expenditures, depreciation and amortization, changes in working capital requirements and the terminal growth rate.
Based on our interim quantitative impairment assessment as of June 30, 2022, the carrying value of the EMEA reporting unit exceeded its fair value and we recorded a goodwill impairment charge for the full amount of the goodwill's carrying value of $i278 million
during the second quarter of 2022.
See Note 9 to the Consolidated Condensed Financial Statements for additional information.
Other Intangible Assets
ii
The
following table summarizes other intangible assets for the periods presented:
(1)
Customer relationships have an estimated useful life of i5 to i19 years.
//
(2)
Patents and other intangibles have an estimated useful life of i3 to i43 years.
For the nine months ended September 30, 2023, there were no indicators of impairment associated with other intangible assets based on our qualitative assessment.
In
the second quarter of 2022, we identified indicators of impairment associated with other intangible assets in our EMEA reporting unit, which required us to complete an interim impairment assessment. The primary indicators of impairment were the same as those identified for EMEA reporting unit and resulted in the actual revenues for the three-months ended June 30, 2022 being significantly lower than forecasted for Indesit and Hotpoint* trademarks.
In performing our quantitative assessment of other intangible assets, primarily trademarks, we estimated the fair value using the relief-from-royalty method which requires assumptions related to projected revenues from our long-range plans; assumed royalty rates that could be payable if we did not own the trademark; and a discount rate using
a market-based weighted-average cost of capital. Based on our interim quantitative impairment assessment as of June 30, 2022, the carrying value of certain other intangible assets, including Indesit and Hotpoint*, exceeded their fair value, and we recorded an impairment charge of $i106 million during the second quarter of 2022. See Note 9 to the Consolidated Condensed Financial Statements for additional information.
The
estimates of future cash flows used in determining the fair value of goodwill and intangible assets involve significant management judgment and are based upon assumptions about expected future operating performance, economic conditions, market conditions and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as changes in capital markets. The actual cash flows could differ materially from management's estimates due to changes in business conditions, operating performance and economic conditions.
*Whirlpool ownership of the Hotpoint brand in the EMEA and Asia Pacific regions is not affiliated with the Hotpoint brand sold in the Americas.
35
ITEM 2.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to promote understanding of the results of operations and financial condition of the Company and generally discusses the results of operations for the current three and nine-months ended periods compared to the same prior-year periods. MD&A is provided as a supplement to, and should be read in connection with, the Consolidated Condensed Financial Statements and Notes to the Consolidated Condensed Financial Statements included in this Form 10-Q.
Certain references to particular
information in the Notes to the Consolidated Condensed Financial Statements are made to assist readers.
ABOUT WHIRLPOOL
Whirlpool Corporation ("Whirlpool"), committed to being the best global kitchen and laundry company, in constant pursuit of improving life at home, was incorporated in 1955 under the laws of Delaware and was founded in 1911. Whirlpool manufactures products in ten countries and markets products in nearly every country around the world. 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 operating segments, which we define based on geography. Whirlpool's operating segments consist of North America, Europe, Middle East and Africa ("EMEA"), Latin
America and Asia. Whirlpool had approximately $20 billion in annual net sales and 61,000 employees in 2022.
OVERVIEW
Whirlpool delivered third-quarter GAAP net earnings available to Whirlpool of $83 million (net earnings margin of 1.7%), or $1.53 per share, compared to GAAP net earnings available to Whirlpool of $143 million (net earnings margin of 3.0%), or $2.60 per share in the same prior-year period. Whirlpool delivered cash provided by (used in) operating activities of $(322) million for the nine months ended September 30, 2023, compared to $310 million in the same prior year period and free cash flow (non-GAAP) of $(660) million, compared to free cash flow of $(24) million in the same prior year period.
Whirlpool delivered third-quarter ongoing (non-GAAP) earnings per share of $5.45
and ongoing EBIT margin of 6.5%, compared to $4.49 and 5.5% in the same prior-year period.
On a GAAP basis, net earnings margins were impacted by a non-cash charge related to the held for sale treatment for EMEA (see Note 13 for further information). On a GAAP and ongoing basis, quarterly results were favorably impacted by industry demand and share gains in both North America and Latin America along with the favorable impacts of cost take out actions and the benefits of the InSinkErator acquisition, offset by unfavorable product price/mix and unfavorable industry demand in EMEA and Asia. Ongoing EPS results were also impacted by a lower adjusted effective tax rate, partially offset by increased interest expense.
We continue to take actions to deliver shareholder value as we navigate through
a challenging macro environment, demonstrated by market share gains in North America and Latin America, and strong cost take out actions. We are also advancing our portfolio transformation with the integration of InSinkErator and we continue to progress towards completing the European major domestic appliance transaction which is progressing through the regulatory process.
For additional information regarding non-GAAP financial measures, see the Non-GAAP Financial Measures section of this Management's Discussion and Analysis.
36
RESULTS
OF OPERATIONS
The following table summarizes the consolidated results of operations for the periods presented:
Three Months Ended September 30,
Nine Months Ended September 30,
Consolidated - Millions of dollars, except per share data
2023
2022
Better/(Worse)
%
2023
2022
Better/(Worse) %
Net sales
$
4,926
$
4,784
3.0%
$
14,367
$
14,801
(2.9)%
Gross margin
799
680
17.5
2,378
2,428
(2.1)
Selling,
general and administrative
473
446
(6.1)
1,436
1,283
(11.9)
Restructuring costs
5
3
(66.7)
%
14
13
(7.7)
Impairment
of goodwill and other intangibles
—
—
nm
—
384
100.0
(Gain) loss on sale and disposal of businesses
46
2
nm
286
348
(17.8)
Interest
and sundry (income) expense
(10)
(19)
47.4
77
(45)
nm
Interest expense
95
40
(137.5)
259
126
(105.6)
Income
tax expense (benefit)
86
53
(62.3)
268
196
(36.7)
Net earnings (loss) available to Whirlpool
$
83
$
143
(42.0)
$
(10)
$
85
nm
Diluted
net earnings (loss) available to Whirlpool per share (2)
$
1.53
$
2.60
(41.2)%
$
(0.18)
$
1.51
nm
(1) Not meaningful ("nm")
(2) As a result of the GAAP earnings loss for the nine months ended September
30, 2023, the impact of antidilutive shares was excluded from the loss per share calculation on a GAAP basis.
Consolidated net sales increased 3.0% and decreased 2.9% for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The increase for the three months ended September 30, 2023 was primarily driven by increased volume, favorable currency and the impact of the InSinkErator acquisition, partially offset by unfavorable product price/mix. Excluding the impact of foreign currency, net sales increased 1.3% and decreased 2.8%, respectively, for the three and nine months ended September 30, 2023, compared to the same periods in 2022.
The consolidated gross margin percentage for the
three and nine months ended September 30, 2023 increased to 16.2% and 16.6%, respectively, compared to 14.2% and 16.4% in the same prior-year periods. The increase was driven by cost take out actions and raw material deflation, partially offset by unfavorable product price/mix.
Our operating segments are based upon geographical region and are defined as North America, EMEA, Latin America and Asia. These regions also represent our reportable segments. The chief operating decision maker evaluates performance based on each segment's earnings (loss) before interest and taxes (EBIT), which we define as operating profit less interest and sundry (income) expense and excluding restructuring costs, asset impairment charges and certain other items that management believes are not indicative of the region's ongoing performance, if any. For additional information, see Note 12 to the Consolidated
Condensed Financial Statements.
The following is a discussion of results for each of our operating segments. Each of our operating segments have been impacted by disruptions in supply chains and distribution channels, which largely stabilized in the first quarter of 2023, among other macroeconomic impacts.
37
NORTH AMERICA
Net
Sales
Net sales increased 3.6% and decreased 1.0% for the three and nine months ended September 30, 2023 compared to the same periods in 2022. The increase for the three months ended was primarily driven by increased volume and the acquisition of the InSinkErator business, partially offset by the unfavorable impact of product/price mix. The decrease for the nine months ended was primarily due to unfavorable impact of product/price mix, partially offset by increased volume and the InSinkErator business. Excluding the impact from foreign currency, net sales increased 3.8% and decreased 0.6% for the three and nine months ended September 30, 2023, compared to the same periods in 2022.
EBIT
EBIT increased for the three months
ended September 30, 2023 and decreased for the nine months ended September 30, 2023 compared to the same periods in 2022. The increase for the three months ended was primarily due to favorable impact of cost take out actions and the InSinkErator acquisition, partially offset by unfavorable impact of product price/mix. The decrease for the nine months ended was primarily due to unfavorable impact of product/price mix, partially offset by favorable impact of InSinkErator acquisition and cost take out actions. EBIT margin was 10.0% and 10.1% for the three and nine months ended September 30, 2023, compared to 9.8% and 13.4% for the same periods in 2022.
EMEA
Net
Sales
Net sales decreased 4.4% and 13.0% for the three and nine months ended September 30, 2023, compared to the same periods in 2022. The decrease for the three months ended is primarily driven by lower volume partially offset by favorable impact of foreign currency. The decrease for the nine months ended is primarily driven by lower volume and the Russia divestiture, partially offset by favorable product price/mix. Excluding the impact from foreign currency, net sales decreased 11.1% and 13.6% for the three and nine months ended September 30, 2023, compared to the same periods in 2022.
38
EBIT
EBIT increased for the three and nine months ended September 30, 2023 compared to the same periods in 2022, the increase for the three months ended is primarily due to the impacts of held-for-sale treatment and cost take out actions, partially offset by reduced volume and unfavorable product/price mix. The increase for the nine months ended is primarily due to the impacts of held-for-sale treatment, cost take out actions and product price/mix, partially offset by reduced volume. EBIT margin was 0.1% and 0.9%for the three and nine months ended September 30, 2023, compared to (3.1)% and (1.8)% for the same periods in 2022.
LATIN AMERICA
Net
Sales
Net sales increased 14.3% and 6.0% for the three and nine months ended September 30, 2023, compared to the same periods in 2022. The increase for the three months ended was primarily due to increased volume and favorable foreign currency. The increase for the nine months ended was due to favorable product/price mix, foreign currency and higher volume. Excluding the impact from foreign currency, net sales increased 9.8% and 4.8% for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022.
EBIT
EBIT increased for the three months ended September 30, 2023 and decreased for the
nine months ended September 30, 2023 compared to the same periods in 2022. The increase for the three months ended was primarily due to cost take out actions and higher volume. The decrease for the nine months ended was primarily due to unfavorable cost inflation. EBIT margin was 6.3% and 6.0% for the three and nine months ended September 30, 2023, compared to 5.3% and 6.6% for the same periods in 2022.
39
ASIA
Net
Sales
Net sales decreased 11.2% and 11.4% for the three and nine months ended September 30, 2023 compared to the same periods in 2022. The decrease is primarily driven by unfavorable impacts of foreign currency, product price/mix and decreased volume. Excluding the impact from foreign currency, net sales decreased 8.4%and 6.6% for the three and nine months ended September 30, 2023 compared to the same periods in 2022.
EBIT
EBIT decreased for the three and nine months ended September 30, 2023 compared to the same periods in 2022. The decrease was primarily due to unfavorable product price/mix, partially offset by favorable
cost take out actions. EBIT margin was 2.2%and 3.2% for the three and nine months ended September 30, 2023 compared to 4.7% and 5.5% for the same periods in 2022.
Selling, General and Administrative
The following table summarizes selling, general and administrative expenses as a percentage of net sales by region for the periods presented:
Three
Months Ended September 30,
Nine Months Ended September 30,
Millions of dollars
2023
As a % of Net Sales
2022
As a % of Net Sales
2023
As a % of Net Sales
2022
As a % of
Net Sales
North America
$
215
7.3
%
$
205
7.1
%
$
680
8.0
%
$
575
6.7
%
EMEA
98
11.3
85
9.4
275
10.5
278
9.3
Latin
America
81
9.4
65
8.6
235
9.7
196
8.6
Asia
28
12.1
28
10.9
87
10.7
93
10.5
Corporate/other
51
—
63
—
159
—
141
—
Consolidated
$
473
9.6
%
$
446
9.3
%
$
1,436
10.0
%
$
1,283
8.7
%
Consolidated
selling, general and administrative expenses increased for the three and nine months ended September 30, 2023 compared to the same periods in 2022. The increase for the three months ended September 30, 2023 is primarily driven by increased employee compensation. The increase for the nine months ended September 30, 2023 is primarily driven by impacts of portfolio transformation, increased employee compensation and marketing investments, in addition to a gain from the sale-leaseback transaction in the first quarter of 2022.
For additional information, see Note 1 to the Consolidated Condensed Financial Statements.
Restructuring
We
incurred restructuring charges of $5 million and $14 million for the three and nine months ended September 30, 2023, respectively compared to $3 million and $13 million for the same periods in 2022. For the full year 2023, we expect to incur less than $50 million of restructuring charges, similar to the past two years.
40
Impairment of Goodwill and Other Intangibles
We recorded an impairment loss of $384 million related to goodwill ($278 million) and other intangibles ($106 million) during the second quarter of 2022 related to the EMEA reporting unit, Indesit and Hotpoint*
trademarks, respectively, which is included in the nine months ended September 30, 2022.
The primary indicators of impairment were the adverse impacts from the continuation of the Russia and Ukraine conflict resulting in economic uncertainty in the EMEA region, the pending divestiture of our Russia operations and other macroeconomic factors.
For additional information, see Notes 9 and 14 of the Consolidated Condensed Financial Statements and the Other Information section below.
(Gain) Loss on Sale and Disposal of Businesses
In the fourth quarter of 2022, we incurred a loss of $1.5 billion related to the planned divestiture of our European major domestic appliance business. During the third quarter of 2023, we recorded an additional $46 million
for the loss on disposal, primarily due to seasonality of net working capital and transaction costs, resulting in an aggregate loss on disposal of $286 million for the nine months ended September 30, 2023 and a total loss of $1.8 billion for the transaction. This adjustment is recorded in the loss on sale and disposal of businesses and reflects transaction costs and ongoing reassessment of the fair value less costs to sell of the disposal group which will continue to be evaluated each reporting period until completion of the transaction.
We incurred a loss of $2 million for the three months ended September 30, 2022 and $348 million for the nine months ended September 30, 2022 related to the sale of the Russia business.
For additional
information, see Note 13 to the Consolidated Condensed Financial Statements.
Interest and Sundry (Income) Expense
Net interest and sundry expense increased for the three and nine months ended September 30, 2023 compared to the same periods in 2022. The increase in expense for the nine months ended September 30, 2023 is primarily due to reserves related to legacy EMEA legal matters. For additional information, see Note 6 to the Consolidated Condensed Financial Statements.
Interest Expense
Interest expense was $95 million and $259 million for the three and nine months ended September 30, 2023 compared to $40 million and $126 million in the same periods
in 2022. The increase is primarily due to an increase in debt and higher interest rates.
Income Taxes
Income tax expense was $86 million and $268 million for the three and nine months ended September 30, 2023 compared to income tax expense of $53 million and $196 million in the same periods of 2022. The increase for the three months ended September 30, 2023 was primarily due to audits and settlements. The increase for the nine months ended September 30, 2023 was audits and settlements, partially offset by the impact of non-deductible impairments, including loss on sale and disposal of businesses and non-deductible fines and penalties.
For additional information, see Note 11 to the Consolidated
Condensed Financial Statements.
Other Information
Our Critical Accounting Policies and Estimates for goodwill and other indefinite-lived intangibles are disclosed in Note 1 to the Consolidated Financial Statements and in Management's Discussion and Analysis of our annual report on Form 10-K for the fiscal year ended December 31, 2022.
We continue to monitor the significant global economic uncertainty to assess the outlook for demand for our products and the impact on our business and our overall financial performance. Our Maytag and JennAir trademarks continue to be at risk at September 30, 2023. None of our reporting units or other indefinite-lived
intangible assets are presently at risk for future impairment.
41
For additional information, see Note 1 to the Consolidated Condensed Financial Statements.
FINANCIAL CONDITION AND LIQUIDITY
Background
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 innovation and growth through capital expenditures and research and development expenditures as well as opportunistic mergers and acquisitions; and providing returns to shareholders through dividends, share repurchases and maintaining our strong investment grade rating.
The Company 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. Whirlpool has historically been able to leverage its strong free cash flow generation to fund our operations, pay for any debt servicing costs and allocate capital for reinvestment in our business, funding share repurchases and dividend payments.
Our
short-term potential uses of liquidity include funding our business operations, ongoing capital spending, debt repayment, and returns to shareholders. We currently have $1.3 billion of debt maturing within the next twelve months, and are currently evaluating our options in connection with this maturing debt, which may include repayment through refinancing, free cash flow generation or cash on hand.
We monitor the credit ratings and market indicators of credit risk of our lending, depository, derivative counterparty banks, and customers regularly, and take certain actions to manage credit risk. We diversify our deposits and investments in short-term cash equivalents to limit the concentration of exposure by counterparty.
Cash and cash equivalents
The Company
had cash and cash equivalents of approximately $1.1 billion at September 30, 2023. For cash in each of its foreign subsidiaries, the Company makes an assertion regarding the amount of earnings intended for permanent reinvestment, with the balance available to be repatriated to the United States. The cash held by foreign subsidiaries for permanent reinvestment is generally used to finance the subsidiaries' operational activities and expected future foreign investments. Our intent is to permanently reinvest these funds outside of the United States and our current plans
do not demonstrate a need to repatriate the cash to fund our U.S. operations. However, if these funds were repatriated, we would be required to accrue and pay applicable United States taxes (if any) and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with the repatriation of cash due to the complexity of its hypothetical calculation.
At September 30, 2023, we had cash or cash equivalents greater than 1% of our consolidated assets in Brazil (2.4%), United States (1.3%) and India (1.3%). In addition, we had third-party accounts receivable outside of the United States greater than 1% of our consolidated assets in Brazil, which represented 1%. We continue to monitor general financial instability and uncertainty globally.
Revolving credit facility and
other committed credit facilities
The Company maintains a $3.5 billion revolving credit facility and a committed $2.5 billion term loan. There was $2.5 billion drawn on the committed credit facilities at September 30, 2023. In addition to these facilities, we have committed credit facilities in Brazil and India that provide borrowings up to approximately $212 million at September 30, 2023.
We were in compliance with our interest coverage ratio under the revolving credit facility and term loan as of September 30, 2023. For additional information, see Note 5 to the Consolidated Condensed Financial Statements.
42
Notes
payable
Notes payable consists of short-term borrowings payable to banks and commercial paper, which are generally used to fund working capital requirements. At September 30, 2023, we have no notes payable under the revolving credit facility or commercial paper programs. For additional information, see Note 5 to the Consolidated Condensed Financial Statements.
Trade customers
We continue to review customer conditions globally. We had no material impacts from customer insolvencies during the three months ended September 30, 2023, nor do we have immediate visibility into material customer insolvency situations occurring in the future. We continue to monitor these situations, considering each geographic region, the unique credit risk specific
to the country, marketplace and economic environment, and take appropriate risk mitigation steps.
For additional information on guarantees, see Note 6 to the Consolidated Condensed Financial Statements.
Share Repurchase Program
For additional information about our share repurchase program, see Note 10 to the Consolidated Condensed Financial Statements.
Sources and Uses of Cash
The following table summarizes the net increase (decrease) in cash, cash equivalents and restricted cash for the periods presented:
Nine
Months Ended September 30,
Millions of dollars
2023
2022
Cash provided by (used in):
Operating activities
$
(322)
$
310
Investing activities
(343)
(333)
Financing
activities
(203)
(1,195)
Effect of exchange rate changes
28
(32)
Less: (decrease) increase in cash classified as held for sale
5
—
Net change
in cash, cash equivalents and restricted cash
$
(835)
$
(1,250)
Cash
Flows from Operating Activities
More cash was used in operating activities during the nine months ended September 30, 2023 compared to the same period in 2022. The increase in cash used in operating activities was primarily driven by lower cash earnings and unfavorable changes in working capital, partially offset by a decrease in employee payments. The prior year operating cash flow results also included the benefits from settlements of cash flow hedges. The working capital change was primarily driven by an increase in accounts receivable as a result of higher shipment volumes and working capital actions, partially offset by a favorable change in accounts payable due to cost deflation and higher production volumes.
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, credit management, as well as receivable and payment terms. Depending on the 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 nine months ended September 30, 2023 was comparable in each period and primarily reflects the impact of capital expenditures.
43
Cash Flows from Financing Activities
Cash
used in financing activities during the nine months ended September 30, 2023 decreased compared to the same period in 2022 primarily due to lower share repurchases.
Financing Arrangements
The Company had total committed credit facilities of approximately $6.2 billion at September 30, 2023. These facilities are geographically reflective of the Company's global operations. The Company is confident that the committed credit facilities are sufficient to support its global operations. We had $2.5 billion drawn on the committed credit
facilities (representing amounts drawn on the term loan) at September 30, 2023 and December 31, 2022, respectively, which were used to fund the InSinkErator acquisition in the fourth quarter of 2022.
For additional information about our financing arrangements, see Note 5 to the Consolidated Condensed Financial Statements.
Dividends
On August 15, 2023, our Board of Directors approved a quarterly dividend on our common stock of $1.75 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 September 30, 2023, we had approximately $446 million outstanding under these agreements.
For additional information about our off-balance sheet arrangements, see Notes 5 and 6 to the Consolidated Condensed Financial Statements.
NON-GAAP FINANCIAL MEASURES
We supplement the reporting of our financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial measures, some of which we refer to as "ongoing" measures,
including:
•Earnings before interest and taxes (EBIT)
•EBIT margin
•Ongoing EBIT
•Ongoing earnings per diluted share
•Ongoing EBIT margin
•Sales excluding foreign currency
•Free cash flow
•Gross debt leverage
Ongoing measures, including ongoing earnings per diluted share and ongoing EBIT, exclude items that may not be indicative of, or are unrelated to, results from our ongoing operations
and provide a better baseline for analyzing trends in our underlying businesses. EBIT margin is calculated by dividing EBIT by net sales. Sales excluding foreign currency is calculated by translating the current period net sales, in functional currency, to U.S. dollars using the prior-year period's exchange rate compared to the prior-year period net sales. Management believes that sales excluding foreign currency provides stockholders with a clearer basis to assess our results over time, excluding the impact of exchange rate fluctuations. Management believes that Gross Debt Leverage (Gross Debt/Ongoing EBITDA) provides stockholders with a clearer basis to assess the
44
Company's ability to pay off its incurred debt. We also disclose
segment EBIT, which we define as operating profit less interest and sundry (income) expense and excluding restructuring costs, asset impairment charges and certain other items, if any, that management believes are not indicative of the region's ongoing performance, as the financial metric used by the Company's Chief Operating Decision Maker to evaluate performance and allocate resources in accordance with ASC 280, Segment Reporting. We continue to work through a process of resegmenting our current operational reporting to reflect the evolving changes in our portfolio transformation, including our strong value-creating small domestic appliance business.
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. The Company provides free cash flow related metrics, such as free cash flow as a percentage of net sales, as long-term management goals, not an element of its annual financial guidance, and as such does not provide a reconciliation of free cash flow to cash provided by (used in) operating activities, the most directly comparable GAAP measure, for these long-term goal metrics. Any such reconciliation would rely on market factors and certain other conditions and assumptions that are outside of the Company's control. Whirlpool does not provide a non-GAAP reconciliation for its other forward-looking long-term value creation and other goals, such as organic net sales, EBIT, and gross debt/Ongoing EBITDA, as such reconciliation would rely on market factors and
certain other conditions and assumptions that are outside of the company’s control.
We believe that these non-GAAP measures provide meaningful information to assist investors and stockholders in understanding our financial results and assessing our prospects for future performance, and reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP financial measures, provide a more complete understanding of our business. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These non-GAAP financial measures should not be considered in isolation or as a substitute for reported net earnings (loss) available to Whirlpool, net sales, net earnings (loss) as a percentage
of net sales (net earnings margin), net earnings (loss) per diluted share and cash provided by (used in) operating activities, the most directly comparable GAAP financial measures. We strongly encourage investors and stockholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.
Please refer to a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures below.
Ongoing Earnings Before Interest & Taxes (EBIT) Reconciliation:
Net
earnings (loss) available to noncontrolling interests
2
2
Income tax expense (benefit)
86
53
Interest expense
95
40
Earnings
before interest & taxes
$
266
$
238
Impact of M&A transactions (a)
56
27
Ongoing
EBIT (2)
$
322
$
265
(1)Net
earnings (loss) margin is approximately 1.7% for the three months ended September 30, 2023 compared to 3.0% in the same prior year period. Net earnings margin is calculated by dividing net earnings (loss) available to Whirlpool by consolidated net sales for the three months ended September 30, 2023 and September 30, 2022, respectively.
(2)Ongoing EBIT margin is approximately 6.5% for the three months ended September 30, 2023 compared to 5.5% in the same prior year period. Ongoing EBIT margin is calculated by dividing Ongoing EBIT by consolidated net sales for the three months ended September
30, 2023 and September 30, 2022, respectively.
(a)IMPACT OF M&A TRANSACTIONS - On January 16, 2023, we signed a contribution agreement to contribute our European major domestic appliance business into a newly formed entity with Arçelik. In connection with the transaction, we recorded a non-cash loss on disposal of $286 million for the nine months ended September 30, 2023, of which $46 million was recorded during the third quarter, resulting in a total loss of $1,807 million for the transaction.
Additionally, we have incurred other unique transaction related costs related to portfolio transformation for a total of $10 million for the three months ended September 30, 2023. These transaction costs are recorded in Selling, General and Administrative expenses on our Consolidated Condensed
Statements of Comprehensive Income (Loss).
During the second quarter of 2022, we entered into an agreement to sell our Russia business. We classified this disposal group as held for sale and recorded an impairment loss of $346 million for the write-down of the net assets to their fair value. During the third quarter of 2022, the loss from disposal was adjusted by an immaterial amount resulting in a final loss amount of $348 million for the nine months ended September 30, 2022. For additional information, see Note 13 to the Consolidated Condensed Financial Statements. Additionally, we incurred unique transaction related costs of $25 million related to portfolio transformation and EMEA strategic assessment expenses for the three months ended September 30, 2022
(b) NORMALIZED
TAX RATE ADJUSTMENT - During the third quarter of 2023, the Company calculated ongoing earnings per share using an adjusted tax rate of (33.0)%, which excludes the non-tax deductible impact of M&A transactions of approximately $25 million recorded in the third quarter of 2023 and which reflects certain expected tax benefits related to legal entity restructuring transactions that are expected to be completed in the fourth quarter of 2023. The Company expects these restructuring steps to cause our full-year adjusted effective tax rate to be between (5.0)% to 0%. During the third quarter of 2022, the Company calculated ongoing earnings per share using an adjusted tax rate of (10.8)% to reconcile
to our anticipated full-year adjusted 2022 effective tax rate between 14.0% and 16.0%.
46
FORWARD-LOOKING PERSPECTIVE
Earnings per diluted share presented below are net of tax. We currently estimate our anticipated 2023 full-year adjusted tax rate between (5.0)% to 0%. We currently estimate earnings
per diluted share for 2023 as follows:
2023
Current Outlook
Estimated GAAP earnings per diluted share, for the year ending December 31, 2023
~$9.00
Including:
Impact of M&A transactions
$4.52
Legacy
EMEA legal matters
$1.78
Income tax impact
$0.19
Normalized tax rate adjustment
$0.51
Industry Demand
North America
1 - 2%
EMEA
(8) - (6)%
Latin America
0
- 2%
Asia
(3) - (2)%
For the full-year 2023, we expect to generate cash from operating activities of approximately $1,100 million and free cash flow of approximately $500 million, including restructuring cash outlays of approximately $25 million and capital expenditures of approximately $600 million.
The table below reconciles projected 2023 cash provided by operating activities determined in accordance with 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 operating activities less capital expenditures. For additional information regarding non-GAAP financial measures, see the Non-GAAP Financial Measures section of this Management's Discussion and Analysis.
Millions of dollars
2023
Current Outlook
Cash provided by (used in) operating activities (1)
~1100
Capital
expenditures
~600
Free cash flow
~500
(1)Financial guidance on a GAAP basis for cash provided by (used in) financing activities and cash provided by (used in) investing activities has not been provided because in order to prepare any such estimate or projection, the Company would need to rely on market factors and certain other conditions and assumptions that are outside of its control.
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. Additional information concerning these and other factors can be found in the "Risk Factors" section of our Annual Report on Form 10-K, as updated in Part II, Item 1A of our Quarterly Reports on Form 10-Q.
OTHER MATTERS
For additional information regarding certain of our loss contingencies/litigation, see Note 6 to the Consolidated Condensed Financial Statements. Unfavorable outcomes in these proceedings could have a material adverse effect on our financial statements in any particular reporting period.
47
Antidumping
Petitions
As previously reported, Whirlpool filed petitions in 2011 and 2015 alleging that Samsung, LG and Electrolux violated U.S. and international trade laws by dumping large residential washers into the U.S. Those petitions resulted in orders imposing antidumping duties on certain large residential washers imported from South Korea, Mexico, and China, and countervailing duties on certain large residential washers from South Korea. In March 2019, the order covering certain large residential washers from Mexico was extended for an additional five years, while the order covering certain large residential washers from South Korea was revoked. In August 2022, the order covering certain large residential washers from China was extended for an additional five years.
Raw Materials and Global Economy
The current domestic and international political
environment have contributed to uncertainty surrounding the future state of the global economy. We have experienced raw material inflation in certain prior years based on the impact of U.S. tariffs and other global macroeconomic factors. Due to many factors beyond our control, including the conflict in Ukraine and related sanctions, COVID-related shutdowns, and government actions in China, we expect to continue to be impacted by the following factors: a global shortage of certain components, such as semiconductors, a strain on raw material and input cost inflation, all of which have begun easing in 2023 but remain volatile. This could require us to modify our current business practices, and could have a material adverse effect on our financial statements in any particular reporting period. In addition, we have reached an agreement relating to insurance coverage proceeds for our business operations impacted by the 2021 Texas freeze event.
ITEM 3.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to our exposures to market risk since December 31, 2022.
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 September 30, 2023. 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 September 30, 2023.
(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.
48
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 and “Other Income Tax Matters” in Note 11 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 fiscal year ended December 31, 2022.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On April 19, 2021, our Board of Directors authorized a share repurchase program of up to $2 billion, which has no expiration
date. On February 14, 2022, the Board of Directors authorized an additional $2 billion in share repurchases under the Company's ongoing share repurchase program. During the nine months ended September 30, 2023, we did not repurchase any shares under these programs. At September 30, 2023, there were approximately $2.6 billion in remaining funds authorized under this program.
The following table summarizes repurchases of Whirlpool's common stock in the three months ended September 30, 2023:
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 Plans
Share
repurchases are made from time to time on the open market as conditions warrant. The programs do not obligate us to repurchase any of our shares and have no expiration date.
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*Management contract
or compensatory plan or arrangement
50
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.