| Significant regional trends were as follows:
North America net sales decreased in 2008 by 8.1% compared to 2007 primarily due to a 10.4% decrease in units sold. The decline in units sold is primarily due to decreased industry demand resulting from a continued weak U.S. economy in 2008. Partially offsetting the decrease in units sold is a 2.5% increase in the average unit selling price primarily due to better product price/mix, new product introductions and product innovation, and higher market share in 2008 compared to 2007. North America net sales increased in 2007 compared to 2006 by 0.8% due to a 7.6% increase in the average unit selling price offset by a 6.4% decrease in units sold. The decrease in volume reflects reduced industry volume, lower OEM shipments and lower market share. The reduction in volume in the U.S. was partially offset by higher demand in Canada and Mexico and a higher average unit selling price due to product innovation and better product price/mix. Excluding the impact of the Maytag acquisition, North America sales decreased 5%.
| • | | Europe net sales increased in 2008 by 4.4% compared to 2007 primarily due to a 6.5% higher average unit selling price10.4% decrease in units sold. The decline in units sold is primarily due to decreased industry demand resulting from favorable foreign currency anda weak U.S. economy in 2008. Partially offsetting the decrease in units sold was better product price/mix partially offset by a decreaseand higher market share in unit volume due2008 compared to lower market demand in the second half of the year.2007. Excluding the impact of foreign currency, EuropeNorth America net sales decreased 3.1%8.2% in 2008. Net sales increased 12.1% in 2007 as compared to 2006 primarily due to favorable foreign currency, a higher average unit selling price and higher volume. The increase in sales due to price was a result of an 8.3% higher average unit selling price as compared to 2006. The increase in volume was driven by strongWhirlpool brand performance and the positive impact of new product offerings. Excluding the impact of foreign currency, Europe net sales increased 2.9% in 2007.
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Europe net sales decreased in 2009 by 16.9% compared to 2008, primarily due to an 11.7% decrease in units sold due to lower appliance industry demand and the unfavorable impact of foreign currency. Excluding the impact of foreign currency, Europe net sales decreased 11.2% in 2009. Net sales increased in 2008 by 4.4% compared to 2007, primarily due to favorable foreign currency and better product price/mix, partially offset by a decrease in unit volume due to lower market demand in the second half of the year. Excluding the impact of foreign currency, Europe net sales decreased 3.1% in 2008. Latin America net sales were consistent in 2009 compared to 2008 as the unfavorable impact of foreign currency and lower BEFIEX credits recognized were fully offset by a 14.5% increase in units sold. The increase in units sold was a result of favorable economic conditions and the Impostos sobre Produtos (“IPI”) sales tax holiday in Brazil. The IPI sales tax holiday was the primary driver of the reduction of BEFIEX credits monetized. This sales tax holiday was declared by the Brazilian government on certain appliances in our Latin America region beginning in the second quarter and extended through the remainder of 2009. During this holiday, we monetized reduced amounts of BEFIEX credits because our BEFIEX credits are monetized through the offset of IPI taxes due. The IPI sales tax holiday expired January 31, 2010. Excluding the impact of foreign currency, Latin America net sales increased 7.1% in 2009. Net sales increased 7.8% in 2008 as compared to 2007, primarily due to an increase in volume of 5.7% and an increase in the average unit selling price due to the favorable impact of foreign currency. The increase in volume iswas due to continued growth in the appliance industry, increased market share and favorable economic conditions throughout the region. Excluding the impact of foreign currency, Latin America net sales increased 1.7% in 2008. Net sales increased 27.7% in 2007 as compared to 2006 primarily due to higher volume and a favorable impact from changes in foreign currency. As compared to 2006, the total number of units sold increased 18.8%. The increase in volume growth is a result of strong growth in the appliance industry, increased market share, strong economic conditions throughout the region and cost based pricing. Excluding the impact of foreign currency, Latin America net sales increased 15.9% in 2007. Contributing to higher sales in 2008 compared to 2007 and 2006 are increases in BEFIEX credits monetized. During the years ended December 31, 2009, 2008 2007 and 2006,2007, we monetized $69 million, $168 million $131 million and $52$131 million of BEFIEX credits, respectively. We expect to continue recognizing credits as they are monetized. As of December 31, 2008, $5422009, $693 million of BEFIEXthese export credits remain. Future actions by the Brazilian government could limit our ability to monetize these export credits.
Asia net sales increased 10.3% in 2009 compared to 2008 primarily due to a 20.8% increase in units sold offset partially by the impact of unfavorable foreign currency. Excluding the impact of foreign currency, Asia net sales increased 18.4% in 2009. Net sales increased 6.5% in 2008 as compared to 2007 primarily due to a 5.7% increase in units sold. The increase in volume iswas due to continued growth in the appliance industry, primarily in India. Excluding the impact of foreign currency, Asia net sales increased 9.7% in 2008. Net sales increased 21.9% in 2007 as compared to 2006 due to a higher average unit selling price, increased volume and a favorable impact from changes in the value of foreign currency. The increase in sales due to price is a result of an 11.8% higher average unit selling price as compared to 2006. These increases are driven by the impact of successful new product introductions, improved product price/mix and continued growth within India, the segment’s largest market. Excluding the impact of foreign currency, Asia net sales increased 12.9% in 2007. F-4
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS—(CONTINUED)
Gross Margin The consolidated gross margin percentage in 2008 decreasedincreased compared to 20072008 due primarily to higher materialcost reduction initiatives and oil-related costs and lower productivity. This decrease wasproductivity improvements, partially offset by improved product price/mix.foreign currency and lower regional tax incentives associated with BEFIEX. The table below summarizes gross margin percentages by region: | | | 2008 | | Change | | 2007 | | Change | | 2006 | | | 2009 | | Change | | 2008 | | Change | | 2007 | | North America | | 10.0 | % | | (2.5 | )pts | | 12.5 | % | | (0.7 | )pts | | 13.2 | % | | 12.9 | % | | 2.9 | pts | | 10.0 | % | | (2.5 | )pts | | 12.5 | % | Europe | | 14.0 | | | (2.6 | ) | | 16.6 | | | 0.4 | | | 16.2 | | | 11.5 | | | (2.5 | ) | | 14.0 | | | (2.6 | ) | | 16.6 | | Latin America | | 21.2 | | | 0.4 | | | 20.8 | | | 1.6 | | | 19.2 | | | 17.2 | | | (4.0 | ) | | 21.2 | | | 0.4 | | | 20.8 | | Asia | | 18.2 | | | 3.0 | | | 15.2 | | | (0.1 | ) | | 15.3 | | | 19.3 | | | 1.1 | | | 18.2 | | | 3.0 | | | 15.2 | | Consolidated | | 13.3 | | | (1.6 | ) | | 14.9 | | | 0.2 | | | 14.7 | | | 14.0 | | | 0.7 | | | 13.3 | | | (1.6 | ) | | 14.9 | |
F-4
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(CONTINUED) Significant regional trends were as follows: North America gross margin increased in 2009 compared to 2008 primarily due to continued cost reductions and improved productivity, product price/mix and a postretirement curtailment gain associated with the suspension of annual credits to retiree health savings accounts totaling $80 million. Additionally, gross margin was positively impacted by a $41 million reduction in LIFO reserves resulting from cost deflation. These gross margin improvements were partially offset by the unfavorable impacts of lower volumes, foreign currency and $35 million in charges associated with a product recall. Gross margin decreased in 2008 compared to 2007 primarily due to higher material and oil-related costs, lower industry demand and lower productivity. Additionally, gross margin was positively impacted by certain asset sale gains totaling $31 million and postretirement curtailments totaling $15 million, which were more than offset by $42 million in higher reserves for LIFO resulting from cost inflation and a $32 million charge related to product liability. For additional information about product liability, see Note 7 of the Notes to the Consolidated Financial Statements.recall. These decreases were partially offset by improved product price/mix. We expect gross marginSee Notes 4, 6 and 12 of the Notes to continuethe Consolidated Financial Statements for additional information related to be challenged by a continued slowing U.S. economyLIFO, product recalls and a difficult cost environment in the foreseeable future. North America gross margin decreased in 2007 compared to 2006 primarily due to higher material- and oil-related costs and lower industry demand. This decrease was partially offset by favorable efficiencies as a result of synergies realized from the acquisition of Maytag, productivity improvements, product innovation and an improved product mix as compared to 2006.postretirement curtailment gains, respectively. Europe gross margin decreased in 2009 compared to 2008 due primarily to lower volumes, unfavorable foreign currency fluctuations, asset sale gains and insurance proceeds totaling $14 million recognized in 2008. These decreases were partially offset by cost reductions and productivity initiatives and lower material and oil-related costs. Gross margin decreased in 2008 compared to 2007 due primarily to lower productivity and industry demand, which were partially offset by improved product price/mix. Also contributing to lower gross margin were gains from asset sales of $9 million compared with $47 million recognized in 2007. Lower gains in 2008 associated with asset sales were partially offset by gains of $5 million from insurance proceeds. Gross margin improved in 2007 compared to 2006 as higher volumes, continued productivity improvements and innovative product offerings more than offset higher material and oil-related costs. The sale of certain assets also contributed to higher gross margin. Latin America gross margin decreased in 2009 compared to 2008 due primarily to a reduction in regional tax incentives associated with BEFIEX, higher material and oil-related costs, lower price/mix and an operating tax settlement, offset by improved productivity and certain credits in the amount of $11 million related to refundable energy surcharges. See Note 6 of the Notes to the Consolidated Financial Statements for additional information related to the foreign operating tax settlement. Gross margin increased in 2008 compared to 2007 due primarily to improvements in product price/mix, productivity and regional tax incentives associated primarily with BEFIEX, which combined to more than offset higher material and oil-related costs. Gross margin increased in 2007 versus 2006, due primarily to continued higher volumes, productivity improvements, cost based price increases and regional tax incentives which combined to more than offset higher material and oil-related costs and the unfavorable impact of foreign currency. Asia gross margin increased in 2009 compared to 2008 primarily due to continued cost reductions and improved productivity and a $3 million asset sale gain, which were partially offset by lower product price/mix. Gross margin increased in 2008 as compared to 2007 due to improvements in product price/mix, productivity, inventory transition costs and volume, which more than offset higher material and oil-related costs. Gross margin decreased slightly in 2007 as compared to 2006, due to higher material and oil-related costs and inventory transition costs which were mitigated by productivity improvements, improved product price/mix and higher volumes. F-5
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS—(CONTINUED)
Selling, General and Administrative The table below summarizes selling, general and administrative expenses as a percentage of sales by region: | Millions of dollars | | 2008 | | As a % of Sales | | 2007 | | As a % of Sales | | 2006 | | As a % of Sales | | | 2009 | | As a % of Sales | | 2008 | | As a % of Sales | | 2007 | | As a % of Sales | | North America | | $ | 851 | | 7.9 | % | | $ | 791 | | 6.7 | % | | $ | 837 | | 7.2 | % | | $ | 653 | | 6.8 | % | | $ | 851 | | 7.9 | % | | $ | 791 | | 6.7 | % | Europe | | | 414 | | 10.3 | | | | 391 | | 10.2 | | | | 363 | | 10.6 | | | | 362 | | 10.8 | | | | 414 | | 10.3 | | | | 391 | | 10.2 | | Latin America | | | 306 | | 8.3 | | | | 277 | | 8.1 | | | | 279 | | 10.4 | | | | 275 | | 7.4 | | | | 306 | | 8.3 | | | | 277 | | 8.1 | | Asia | | | 98 | | 16.5 | | | | 91 | | 16.3 | | | | 81 | | 17.7 | | | | 97 | | 14.8 | | | | 98 | | 16.5 | | | | 91 | | 16.3 | | Corporate/Other | | | 129 | | — | | | | 186 | | — | | | | 192 | | — | | | | 157 | | — | | | | 129 | | — | | | | 186 | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated | | $ | 1,798 | | 9.5 | | | $ | 1,736 | | 8.9 | | | $ | 1,752 | | 9.7 | | | $ | 1,544 | | 9.0 | % | | $ | 1,798 | | 9.5 | % | | $ | 1,736 | | 8.9 | % | | | | | | | | | | | | | | | | | | | | | | | | | |
F-5
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(CONTINUED) In 2009, consolidated selling, general and administrative expenses, as a percent of consolidated net sales, decreased compared to the prior year, primarily as a result of infrastructure cost reductions and lower brand investments. In 2008, consolidated selling, general and administrative expenses, as a percent of consolidated net sales, increased as compared to 2007, primarily due to lower sales volume and higher brand investment, partially offset by lower infrastructure costs and $20 million in gains associated with asset sales. Additionally, this increase was impacted by a $12 million operating tax credit recorded by our Latin America region during the third quarter of 2007. In 2007, consolidated selling, general and administrative expenses, as a percent of consolidated net sales, decreased as compared to 2006, primarily due to higher sales volume, acquisition efficiencies and administrative cost reductions. Restructuring Restructuring initiatives resulted in charges of $126 million, $149 million and $61 million in 2009, 2008, and $55 million in 2008, 2007, and 2006, respectively, reflecting ongoing efforts to optimize our global operating platform. These charges are included in restructuring in our Consolidated Statements of Income and primarily consist of charges to restructure the cooking platform in Latin America, shift refrigeration and dishwasher capacity to lower cost regions inwithin Europe and North America, shift cooking capacity within North America, restructure the laundry platformplatforms in North America, Europe and EuropeAsia and reorganize the salaried workforce throughout EuropeNorth America and North America.Europe. On October 27, 2008, management committed to a workforce reduction plan whereby we willto reduce our employee base worldwide between the fourth quarter of 2008 and the beginning of 2010. On August 28, 2009, we announced changes to our North American manufacturing operations which will result in the closure of our manufacturing facility in Evansville, Indiana in mid-2010. We currently expect that approximately 1,100 full-time positions will be eliminated as a result of the closure. For additional information about restructuring and the impact by operating segment, see Note 1110 and Note 13 of the Notes to the Consolidated Financial Statements. Interest and Sundry Income (Expense) Interest and sundry expense for 2009 increased by $75 million from $100 million in 2008 to $175 million in 2009. The increase in expense in 2009 was primarily due to charges incurred for legal contingencies and legal defense, partially offset by the favorable impacts of foreign currency. Interest and sundry expense for 2008 increased by $37 million from expense of $63 million in 2007 to expense of $100 million in 2008. Higher expense in 2008 was primarily due to the impact of foreign currency and an impairment charge of $9 million in our Europe segment associated with an available for sale investment, partially offset by higher interest income. Interest and sundry expense for 2007 increased by $61 million from expenseFor additional information about litigation matters, see Note 6 of $2 millionthe Notes to expense of $63 million compared to 2006. The results in 2006 include a $31 million gain on the sale of an investment while 2007 expense includes a $17 million increase in legal reserves as well as higher non-income based taxes.Consolidated Financial Statements. Interest Expense Interest expense increased for 2009 compared to 2008 primarily due to the combination of higher interest rates and higher average debt levels, offset partially by a reduction in accrued interest of $18 million as a result of entering into a special program in Brazil to settle tax liabilities. Interest expense in 2008 was consistent as compared towith 2007 as higher debt levels were offset by lower interest rates. Interest Income Taxes The effective income tax rate was a benefit of 20.6% in 2009 and 81.7% in 2008 and an expense of 14.5% in 2007. The reduction in tax benefit from 2008 to 2009 is primarily due to an increase in profitability, changes in dispersion of global income and the unfavorable impact of audits and settlements. The reduction in tax expense in 2007 increased $1 millionto a benefit in 2008 is primarily due to a decline in profitability, energy tax credits generated in the U.S. in 2008 from the production of certain eligible energy efficient appliances, as compared to 2006. For nine months in 2006, we incurred higher debt levels associated with debt assumed and issued for the Maytag acquisition which was offset by lower debt levels at lower interest rates during 2007.well as a combination of certain F-6
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(CONTINUED) Gain on Sale of Investment
During 2007, we sold approximately 9 million shares, or 7%, of Whirlpool of India Limited and recorded a gain of approximately $7 million. This sale was executed to satisfy a change in the Stock Exchange Board of India listing standards and regulations. Following the sale of stock, our ownership interest in Whirlpool of India Limited is 75%.
Income Taxes
The effective income tax rate was a benefit of 81.7% in 2008, and tax expense of 14.5% and 20.4% in 2007 and 2006, respectively. The rates and changes in rates are primarily due to a decline in profitability and energy tax credits generated in the U.S. in 2008 as well as a combination of certain discrete items recognized during the year, dispersion of global income, tax credit availability, and tax planning activities. At the end of each interim period, we make our best estimate of the effective tax rate expected to be applicable for the full fiscal year and the impact of discrete items, if any, and adjust the quarterly rate, as necessary. The decrease in the effective tax rate for the year ended December 31, 2008 resulted in an increase in earnings per diluted share of $3.11 as compared to the prior year. For additional information about our consolidated tax provision, see Note 1211 of the Notes to the Consolidated Financial Statements.
Earnings from Continuing Operations Earnings from continuing operations were $418$354 million in 2009 compared to $447 million and $669 million in 2008 versus $647 million and $486 million in 2007, and 2006, respectively, due to the factors described above. | | | | | | | | | | Millions of dollars, except per share data | | 2008 | | 2007 | | 2006 | Earnings from continuing operations | | $ | 418 | | $ | 647 | | $ | 486 | Diluted earnings from continuing operations per share | | | 5.50 | | | 8.10 | | | 6.35 |
Discontinued Operations
We classified the Hoover floor-care, Dixie-Narco vending systems, and Jade commercial and residential businesses as discontinued operations during 2006. The decision to divest these businesses allowed us to focus on our core appliance business. For additional information about discontinued operations, see Note 2 of the Notes to the Consolidated Financial Statements.
| | | | | | | | | | Millions of dollars, except per share data | | 2009 | | 2008 | | 2007 | Earnings from continuing operations | | $ | 354 | | $ | 447 | | $ | 669 | Diluted net earnings from continuing operations per share | | | 4.68 | | | 5.88 | | | 8.37 |
Net Earnings Available to Whirlpool Common Stockholders Net Earningsearnings available to Whirlpool common stockholders were $328 million in 2009 compared to $418 million and $640 million in 2008 versus $640 million and $433 million in 2007, and 2006, respectively, due to the factors described above. Earnings were impacted by $7 million and $53 million in losses from discontinued operations for 2007 and 2006, respectively.2007. | | | | | | | | | | Millions of dollars, except per share data | | 2008 | | 2007 | | 2006 | Net Earnings | | $ | 418 | | $ | 640 | | $ | 433 | Diluted net earnings per share | | | 5.50 | | | 8.01 | | | 5.67 |
| | | | | | | | | | Millions of dollars, except per share data | | 2009 | | 2008 | | 2007 | Net earnings available to Whirlpool common stockholders | | $ | 328 | | $ | 418 | | $ | 640 | Diluted net earnings per share available to Whirlpool common stockholders | | | 4.34 | | | 5.50 | | | 8.01 |
FORWARD-LOOKING PERSPECTIVE We have continued to experience intensified macroeconomic challenges in North America and are now experiencing similar macroeconomic challenges in the European market. These conditions are primarily related to higher than expected material and oil-related costs and decreased consumer demand for our products.
F-7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS—(CONTINUED)
For the year ended December 31, 2009,2010, we currently estimate earnings per diluted share from continuing operations to be in the range of $3.00$6.50 to $4.00,$7.00, and free cash flow for the year to be from $300in the range of $400 to $400$500 million. Within North America we expect demand to increase 2-4% and within Europe we expect industry demand to decline 10% and 8% in 2009, respectively, whileremain flat. Within Latin America and Asia are currently expectedwe expect demand to be flat to down 5% for the year.increase 5-10% and 3-5%, respectively. Material cost inflation is expected to beincrease by approximately $200 to $300 million, in 2009, largely driven by increases in component parts, steel and base metals, such as copper, aluminum, zinc and nickel. We expect to offset these higher costs with productivity improvements, new product introductions, previously implemented cost-based price adjustments, improved product price/mix and administrative and infrastructure cost reductions. Our innovation product pipeline continues to grow and drive higher average sales values,values. In addition, consumer and trade response to our new product offerings has been positive, and we continue to accelerate our global branded consumer products strategy of delivering relevant innovation to markets worldwide. The table below reconciles projected 20092010 cash provided by continuing operations determined in accordance with generally accepted accounting principles (GAAP) in the United States to free cash flow, a non-GAAP measure. Management believes that free cash flow provides shareholders with a relevant measure of liquidity and a useful basis for assessing Whirlpool’s ability to fund its activities and obligations. There are limitations to using non-GAAP financial measures, including the difficulty associated with comparing companies that use similarly named non-GAAP measures whose calculations may differ from our calculations. We define free cash flow as cash provided by continuing operations after capital expenditures and proceeds from the sale of assets/businesses. F-7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(CONTINUED) The projections shown here are based upon many estimates and are inherently subject to change based on future decisions made by management and the board of directors of Whirlpool, and significant economic, competitive and other uncertainties and contingencies. | Millions of dollars | | 2009 Outlook | | | 2010 Outlook | | Cash provided by continuing operating activities | | $ | 700 | | | – | | $ | 800 | | | Cash provided by operating activities | | | $ | 925 | | | – | | $ | 1,025 | | Capital expenditures | | | (450 | ) | | – | | | (500 | ) | | | (525 | ) | | – | | | (575 | ) | Proceeds from sale of assets/businesses | | | 50 | | | – | | | 100 | | | | — | | | – | | | 50 | | | | | | | | | | | | | | | | | | | Free cash flow | | $ | 300 | | | – | | $ | 400 | | | $ | 400 | | | – | | $ | 500 | | | | | | | | | | | | | | | | | | |
Agreements with trade customers We enter into agreements with our trade customers from time to time in the ordinary course of business. Most of our products are not sold through long-term agreements. Most trade customers have the ability to change volume among suppliers. We regularly negotiate with major trade customers and manufacturers regarding supply arrangements for future periods beyond the current year. Sears is a major trade customer for both our OEM and Whirlpool branded products, which accounted for approximately 11%10%, 12%11% and 14%12% of our consolidated net sales for 2009, 2008 2007 and 2006,2007, respectively. The products and volumes we supply and the revenues we obtain may be significantly different in the future than those which currently exist and there is the potential for such sales to be less than 10% of our consolidated net sales for the full year 2009.exist. Based on current supply arrangements, we anticipate maintaining a significant, but reduced, level of OEM volume beginning in 2010. In the past, when faced with a potential volume reduction from any one particular segment of our trade distribution network, we generally have been able to offset suchthe decline through increased sales throughout our broad distribution network. We expect to continue to grow our own brand sales, supported by significant innovation, through our full distribution trade network and execution of our brand-focused value creation strategy. F-8
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS—(CONTINUED)
FINANCIAL CONDITION AND LIQUIDITY Our objective is to finance our business through operating cash flow and the appropriate mix of long-term and short-term debt. By diversifying the maturity structure, we avoid concentrations of debt, reducing liquidity risk. We have varying needs for short-term working capital financing as a result of the nature of our business. The volume and timing of refrigeration and air conditioning production impacts our cash flows and consists of increased production in the first half of the year to meet increased demand in the summer months. The funding markets have been volatile in recent quartersduring the majority of 2008 and 2009 and we have experienced negative global economic trends. To succeed in this environment we arehave aggressively takingtaken steps to further reduce all areas of cost, production capacity and working capital and capital expenditures.capital. As a result of the global volatility and challenging economic trends, we decided to exit the commercial paper market during the December 2008 quarter and initiated borrowing under our $2.2 billion committed bank line of credit (“Credit Agreement”), provided by a syndicate of highly-rated banks. This facility matures in December 2010. Outside the U.S., short-term funding is provided by bank borrowings on uncommitted lines of credit. We expect borrowings under our $2.2 billion revolving credit facility will increaseOn February 27, 2009, we entered into an Amendment (the “First Amendment”) to an amount up to $1.2 billion over the course of this year based upon our current business plans and normal seasonal working capital requirements. Borrowings on our revolving credit facility are being utilized for general corporate purposes, are used to ensure daily liquidity and may be borrowed and repaid from time to time. Amounts borrowed on our revolving credit facility up to $1.1 billion bear interest at LIBOR + 0.475%, and if amounts borrowed exceed $1.1 billion, total borrowings bear interest at LIBOR + 0.60%.
Given the generally negative and highly volatile global economic climate and the challenges and uncertainties in the global credit markets, we are proactively taking stepsCredit Agreement to assure flexibility in future credit availability. The First Amendment increased the spread over LIBOR to 3%, the spread over prime to 2% and the utilization fee to be paid, if amounts borrowed exceed $1.1 billion, to 1% and replaced the facility fee with an unused commitment fee of 0.50%.
F-8
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(CONTINUED) On August 13, 2009, we entered into a second Amendment to our Credit Agreement (the “Second Amendment”) to further assure flexibility in future credit availability. The Second Amendment divides and reduces the existing $2.2 billion credit facility into a $1.35 billion tranche maturing on August 13, 2012 (the “Extending Tranche”) and a $522 million tranche maturing December 1, 2010 (the “Non-Extending Tranche”). For the Extending Tranche, the Second Amendment provides a utilization fee to be paid, if amounts borrowed exceed 50% of the facility, of 0.50%, and for the Non-Extending Tranche, the utilization fee to be paid, if amounts borrowed exceed 50% of the facility, is 1%. The interest margin over LIBOR charged will be based on Whirlpool’s credit rating. As of December 31, 2009, there was no balance outstanding under our credit facility. On May 4, 2009, we completed a debt offering comprised of (1) $350 million aggregate principal amount of 8.000% Notes due 2012 and (2) $500 million aggregate principal amount of 8.600% Notes due 2014. The proceeds from the notes were used for general corporate purposes. For additional information about our financing arrangements, see Note 5 of the Notes to the Consolidated Financial Statements. We believe that our operating cash flow, together with access to sufficient sources of liquidity, will be adequate to meet our ongoing funding requirements. We are in compliance with the financial covenants of debt agreements with lendersin our credit facility for all periods presented. For Pension and Postretirement Benefit Plans Defined Benefit Plans On August 28, 2009, we announced the closure of our manufacturing facility in Evansville, Indiana in mid-2010. The announcement triggered a descriptioncurtailment in our pension plan for Evansville hourly employees, resulting in a one-time curtailment loss of financing arrangements that had$6.6 million included in net periodic cost with an effect onoffset to other comprehensive income, net of tax. During 2009, we recorded the entire loss in our liquidity, see Note 6Consolidated Statement of Income as a component of cost of products sold. The closure of the NotesEvansville facility also triggered a curtailment in our U.S. retiree healthcare plan, resulting in a curtailment gain. The curtailment gain will be recognized in our Consolidated Statement of Income as a component of cost of products sold as the employees terminate, which is expected to occur in 2010. On June 16, 2009, the Consolidated Financial Statements.Board of Directors authorized the option for the company to use up to $100 million of company stock to fund the U.S. pension plans. If we elect to partially fund the U.S. pension plans in company stock, contributions may be made on a periodic basis from treasury stock, or, with the prior approval of the Finance Committee of the Board of Directors, from authorized, but unissued shares. As of December 31, 2009, we have not used company stock to fund our U.S. pension plans. Defined Benefit PlansOn February 9, 2009, we announced the indefinite suspension of the annual credit to retirement health savings accounts for the majority of active participants. The result of the suspension was a curtailment gain of $89 million.
On August 1, 2008, we amended certain retiree medical benefits associated with our Newton, Iowa manufacturing facility to be consistent with those benefits provided by the Whirlpool Corporation Group Benefit Plan. This amendment resulted in a reduction in the postretirement benefit obligation of $229 million with a corresponding increase to other comprehensive income, net of tax, within equity of our Consolidated Balance Sheet at December 31, 2008. 2009. F-9
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(CONTINUED) 401(k) Defined Contribution Plan During the March 2009 quarter we announced an indefinite suspension of company matching contributions to our 401(k) defined contribution plan covering substantially all U.S. employees. We also announced that our automatic company contributions equal to 3% of employees’ eligible pay will be contributed in company stock. During the December 2009 quarter we announced the reinstatement of company matching contributions to our 401(k) defined contribution plan, covering substantially all U.S. employees, effective March 2010. For additional information on our definedabout pension and postretirement benefit plans see Note 1312 of the Notes to the Consolidated Financial Statements. Share Repurchase Program In June 2004, our Board of Directors authorized a share repurchase program of up to $500 million. During 2007, we repurchased 3.8 million shares at an aggregate purchase price of $368 million and during the three months ended March 31, 2008, we repurchased 1.1 million shares at an aggregate purchase price of $97 million under this program. At March 31, 2008, there were no remaining funds authorized under this program. On April 23, 2008, our Board of Directors authorized a new share repurchase program of up to $500 million. Share repurchases are made from time to time on the open market as conditions warrant. During 2008, we repurchased 1.9 million shares at an aggregate purchase price of $150 million under this program. There were no repurchases during 2009. At December 31, 2008,2009, there were $350 million of remaining funds authorized under this program. F-9
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS—(CONTINUED)
Sources and Uses of Cash We expect to meet our cash needs for 20092010 from cash flows from continuing operations, cash and equivalents and financing arrangements. Our cash and equivalents were $1.4 billion at December 31, 2009 compared to $146 million at December 31, 2008 as compared to $201 million at December 31, 2007.2008. Cash Flows from Operating Activities of Continuing Operations Cash provided by continuing operating activities in 2009 was $1,550 million, an increase of $1,223 million compared to 2008. Cash provided by continuing operations reflects lower payments for inventory, lower cash payments for accounts payable and other operating accruals and lower employee compensation payments, partially offset by lower collections of accounts receivable. Cash provided by continuing operating activities in 2008 was $327 million, a decrease of $600 million compared to the year ended December 31, 2007. Cash provided by continuing operations for 2008 reflects lower cash earnings primarily from our North America and Europe segments as compared to 2007. Cash provided by continuing operations also reflects lower accounts payable due to adjusting volume based on demand and higher pension contributions. The above decreases in cash flows were partially offset by a decrease in accounts receivable and lower restructuring spending. Cash provided by continuing operating activities in 2007 was $927 million, an increase of $47 million compared to the year ended December 31, 2006. Cash provided by continuing operations for 2007 reflected higher earnings primarily from our Latin America and Europe segments as compared to 2006. Cash provided by continuing operations also reflected cash consumed from increased inventories as a result of lower than anticipated demand in North America during the fourth quarter of 2007 as well as support for higher sales volumes in Latin America and product transitions in the U.S. The increased inventory balances in 2007 were more than offset by improved trade receivable collections, improved accounts payable terms as well as lower global taxes. Cash provided by continuing operations was negatively impacted by increased spending associated with a Maytag dishwasher recall. Cash Flows from Investing Activities of Continuing Operations Cash used in investing activities from continuing operations was an outflow of $433$499 million in 20082009 compared to an outflow of $331$433 million last year. The increase in cash used in investing activities was primarily due to lower proceeds from the prior yearsale of assets in 2009 and higher investments primarily associated with business acquisition activity in our international locations. Cash used in investing activities from continuing operations in 2008 was an outflow of $433 million compared to an outflow of $331 million during 2007. The increase in cash F-10
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(CONTINUED) used in investing activities was primarily due to 2007 receipt of proceeds from the sale of certain Maytag discontinued businesses of $100 million, lower proceeds from the sale of assets in 2008, and higher capital spending. Cash used in investing activities from continuing operations in 2007 was an outflow of $331 million compared to an outflow of $1.2 billion during 2006. The decrease was primarily due to cash disbursed to acquire Maytag, net of cash acquired of $797 million and the purchase of minority interest shares of a Brazil subsidiary in the amount of $53 million during 2006. Offsetting cash used in investing activities from continuing operations were proceeds received from the sale of certain Maytag discontinued businesses of $100 million. The goal of our global operating platform is to enhance our competitive position in the global home appliance industry by reducing costs, driving productivity and quality improvements, and accelerating our rate of innovation. We plan to continue our comprehensive worldwide effort to optimize our regional manufacturing facilities, supply base, product platforms and technology resources to better support our global products, brands and customers. We intend to make additional investments to improve our competitiveness in fiscal 2009.2010. Capital spending is expected to be between $450$525 and $500$575 million in 20092010 in support of our investment in innovative product technologies and our global operating platform initiatives. Cash Flows from Financing Activities of Continuing Operations Cash provided by financing activities from continuing operations for 2009 compared to 2008 was an inflow of $144 million in the year ended December 31, 2009 compared to an inflow of $141 million for the year ended December 31, 2008. The current year reflects proceeds received related to two debt offerings totaling $850 million while the prior year reflects proceeds received related to the issuance of $500 million of 5.5% notes due March 1, 2013. For additional information about our $850 million debt offerings, see Note 5 of the Notes to the Consolidated Financial Statements. The current year also reflects net repayments of short-term borrowings and long-term debt repayments totaling $572 million compared to net repayments of $30 million in 2008. During 2009, we paid dividends to common stockholders totaling $128 million, paid debt financing fees of $38 million and received proceeds from the issuance of common stock related to option exercises of $21 million. During 2008, we repurchased stock totaling $247 million, paid dividends to common stockholders totaling $128 million and received proceeds from the issuance of common stock related to option exercises of $21 million. Cash provided by financing activities from continuing operations for 2008 compared to 2007 was an inflow of $141 million in the year ended December 31, 2008 compared to an outflow of $696 million for the year ended December 31, 2007. The current year ended December 31, 2008 reflects proceeds received related to the issuance of $500 million of 5.5% notes due March 1, 2013 and the repayment of $125 million of 9.1% debentures. Net proceeds of short-term borrowings were $101 million F-10
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS—(CONTINUED)
for the year ended December 31, 2008 compared to net repayments of $243 million in the prior year.2007. During 2008, we repurchased stock totaling $247 million, paid dividends to common stockholders totaling $128 million and received proceeds from the issuance of common stock related to option exercises of $21 million. Cash used in financing activities from continuing operations was an outflow of $696 million in the year ended December 31,During 2007, compared to an inflow of $29 million for the year ended December 31, 2006. Net repayments of short-term borrowings were $243 million for the year ended December 31, 2007 compared to borrowings of $381 million in 2006. Cash flows from financing activities in 2006 also reflected short-term debt issued to pay our maturing $300 million Eurobond principal and proceeds of long-term debt which replaced commercial paper borrowings initially issued to finance the acquisition of Maytag. Repayments of long-term debt reflect the maturity of Whirlpool and Maytag debt. During the year ended December 31, 2007 we also repurchased stock totaling $368 million, paid dividends to common stockholders totaling $134 million and received proceeds from the issuance of common stock related to option exercises of $68 million. OFF-BALANCE SHEET ARRANGEMENTS Whirlpool has guarantee arrangements in place in a Brazilian subsidiary. As a standard business practice in Brazil, the subsidiary guarantees customer lines of credit at commercial banks, supporting purchases from Whirlpool, following its normal credit policies. If a customer were to default on its line of credit with the bank, the subsidiary would be required to satisfy the obligation with the bank, and the receivable would revert back to the subsidiary. As of December 31, 20082009 and 2007,2008, these amounts totaled $203$300 million and $331$203 million, respectively. Our only recourse related to these agreements is legal or administrative collection efforts directed against the customer. F-11
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(CONTINUED) CONTRACTUAL OBLIGATIONS AND FORWARD-LOOKING CASH REQUIREMENTS The following table summarizes our expected cash outflows resulting from financial contracts and commitments: | | | Payments due by period | | Payments due by period | | | Total | | 2009 | | 2010 & 2011 | | 2012 & 2013 | | Thereafter | | Total | | 2010 | | 2011 & 2012 | | 2013 & 2014 | | Thereafter | Millions of dollars | | | Long-term debt obligations(1) | | $ | 2,782 | | $ | 336 | | $ | 891 | | $ | 653 | | $ | 902 | | $ | 3,583 | | $ | 563 | | $ | 969 | | $ | 1,287 | | $ | 764 | Operating lease obligations | | | 582 | | | 150 | | | 205 | | | 126 | | | 101 | | | 897 | | | 186 | | | 285 | | | 178 | | | 248 | Purchase obligations(2) | | | 1,082 | | | 288 | | | 592 | | | 194 | | | 8 | | | 1,004 | | | 278 | | | 480 | | | 131 | | | 115 | Other long-term liabilities(3) | | | 93 | | | 93 | | | — | | | — | | | — | | | 41 | | | 41 | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | Total(4)(5) | | $ | 4,539 | | $ | 867 | | $ | 1,688 | | $ | 973 | | $ | 1,011 | | $ | 5,525 | | $ | 1,068 | | $ | 1,734 | | $ | 1,596 | | $ | 1,127 | | | | | | | | | | | | | | | | | | | | | |
(1) | | Interest payments related to long-term debt are included in the table above. For additional information about our debt,financing arrangements, see Note 65 of the Notes to the Consolidated Financial Statements. |
(2) | | Purchase obligations include our “take-or-pay” contracts with materials vendors and minimum payment obligations to other suppliers. |
(3) | | Other long-term liabilities include our expected 20092010 U.S. pension and foreign pension fund contributions in the amount of $93$41 million. Required contributions for future years depend on certain factors that cannot be determined at this time. |
(4) | | The table does not include short-term credit facility borrowings of $393 million.borrowings. For additional information about short-temshort-term borrowings, see Note 65 of the Notes to the Consolidated Financial Statements. |
(5) | | Not included in the above table are tax payments associated with uncertain tax positions as we are unable to estimate the period of payment. |
F-11
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS—(CONTINUED)
CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles in the U.S. (“GAAP”) requires management to make certain estimates and assumptions. We periodically evaluate these estimates and assumptions, which are based on historical experience, changes in the business environment and other factors that management believes to be reasonable under the circumstances. Actual results may differ materially from these estimates. F-12
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(CONTINUED) Pension and Other Postretirement Benefits Accounting for pensions and other postretirement benefits involves estimating the costs of future benefits and attributing the cost over the employee’s expected period of employment. The determination of our obligation and expense for these costs requires the use of certain assumptions. Those assumptions include, among other assumptions, the discount rate, expected long-term rate of return on plan assets and health care cost trend rates. These assumptions are subject to change based on interest rates on high quality bonds, stock and bond markets and medical cost inflation, respectively. As permitted by GAAP, actual results that differ from our assumptions are accumulated and amortized over future periods and therefore, generally affect our recognized expense and accrued liability in such future periods. While we believe that our assumptions are appropriate given current economic conditions and actual experience, significant differences in results or significant changes in our assumptions may materially affect our pension and other postretirement obligations and related future expense. As required by Statements of Financial Accounting Standards (“SFAS”) No. 87, SFAS No. 106 and SFAS No. 132 (R) as amended by SFAS No. 158, ourOur pension and other postretirement benefit obligations as of December 31, 20082009 and preliminary retirement benefit costs for the 2009 fiscal year2010 were prepared using the assumptions that were determined as of December 31, 2008.2009. The following table summarizes the sensitivity of our December 31, 20082009 retirement obligations and 20092010 retirement benefit costs of our U.S. plans to changes in the key assumptions used to determine those results: | Millions of dollars Change in assumption | | Estimated increase (decrease) in 2009 pension cost | | Estimated increase (decrease) in Projected Benefit Obligation for the year ended December 31, 2008 | | Estimated increase (decrease) in 2009 Other Postretirement Benefits cost | | Estimated increase (decrease) in Other Postretirement Benefit Obligation for the year ended December 31, 2008 | | | Estimated increase (decrease) in 2010 pension cost | | Estimated increase (decrease) in Projected Benefit Obligation for the year ended December 31, 2009 | | Estimated increase (decrease) in 2010 Other Postretirement Benefits cost | | Estimated increase (decrease) in Other Postretirement Benefit Obligation for the year ended December 31, 2009 | | 0.25% increase in discount rate | | $ | (3.4 | ) | | $ | (91.9 | ) | | $ | 0.5 | | | $ | (17.3 | ) | | $ | (1.6 | ) | | $ | (102.1 | ) | | $ | 0.7 | | | $ | (14.1 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | 0.25% decrease in discount rate | | | 3.8 | | | | 98.6 | | | | (0.2 | ) | | | 18.6 | | | | 1.4 | | | | 105.2 | | | | (0.7 | ) | | | 15.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | 0.25% increase in long-term return on assets | | | (6.3 | ) | | | — | | | | — | | | | — | | | | (6.1 | ) | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | 0.25% decrease in long-term return on assets | | | 6.3 | | | | — | | | | — | | | | — | | | | 6.1 | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | 0.50% increase in discount rate | | | (6.6 | ) | | | (183.8 | ) | | | 0.9 | | | | (34.5 | ) | | | (3.4 | ) | | | (201.1 | ) | | | 1.3 | | | | (28.1 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | 0.50% decrease in discount rate | | | 7.5 | | | | 200.0 | | | | 1.0 | | | | 37.2 | | | | 2.5 | | | | 213.5 | | | | (1.5 | ) | | | 30.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | 0.50% increase in long-term return on assets | | | (12.7 | ) | | | — | | | | — | | | | — | | | | (12.2 | ) | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | 0.50% decrease in long-term return on assets | | | 12.7 | | | | — | | | | — | | | | — | | | | 12.2 | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | 1.00% increase in medical trend rates | | | — | | | | — | | | | 7.0 | | | | 51.7 | | | | — | | | | — | | | | 1.8 | | | | 31.7 | | | | | | | | | | | | | | | | | | | | | | | | | | | 1.00% decrease in medical trend rates | | | — | | | | — | | | | (3.6 | ) | | | (47.9 | ) | | | — | | | | — | | | | (1.7 | ) | | | (28.4 | ) | | | | | | | | | | | | | | | | | | | | | | | | | |
These sensitivities may not be appropriate to use for other years’ financial results. Furthermore, the impact of assumption changes outside of the ranges shown above may not be approximated by using the above results. For additional information about our pension and other postretirement benefit obligations, see Note 1312 of the Notes to the Consolidated Financial Statements. F-12
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS—(CONTINUED)
Income Taxes We estimate our income taxes in each of the taxing jurisdictions in which we operate. This involves estimating actual current tax expense together with assessing any temporary differences resulting from the different treatment of certain items, such as the timing for recognizing expenses, for tax and accounting purposes in accordance with SFAS No. 109, “Accounting for Income Taxes.”GAAP guidance. These differences may result in deferred tax assets andor liabilities, which are included in our Consolidated Balance Sheets. We are required to assess the likelihood that deferred tax assets, which include net operating loss carryforwards and deductible temporary differences, are expected to be realizable in future years. Realization of our net operating loss and tax credit deferred tax assets is supported by specific tax planning strategies and considers projections of future profitability. If recovery is notWe provide a valuation F-13
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(CONTINUED) allowance to reduce our deferred tax assets to an amount that will more likely than not we provide a valuation allowancebe realized based on estimates of future taxable income in the various taxing jurisdictions, and the amount of deferred taxes that are ultimately realizable. If future taxable income is lower than expected or if tax planning strategies are not available as anticipated, we may record additional valuation allowances through income tax expense in the period such determination is made. Likewise, if we determine that we are able to realize our deferred tax assets in the future in excess of net recorded amounts, an adjustment to the deferred tax asset will increase income in the period such determination is made. As of December 31, 20082009 and 2007,2008, we had total deferred tax assets of $2,212$2,275 million and $1,658$2,212 million, respectively, net of valuation allowances of $147$180 million and $72$147 million, respectively. Our effective tax rate has ranged from (81.7)% to 33.9% over the past five years and has been influenced by tax credits, audit settlements and adjustments, tax planning strategies, enacted legislation, and dispersion of global income. A 1.0% increase in our effective tax rate would have decreased 20082009 earnings by approximately $2.5$3 million. Future changes in the effective tax rate will be subject to several factors, including enacted laws, tax planning strategies, business profitability and business profitability.the expiration of energy tax credit legislation at the end of 2010. In addition, we operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. For additional information about income taxes, see Notes 1 and 1211 of the Notes to the Consolidated Financial Statements. BEFIEX Credits Our Brazilian operations earned tax credits under the Brazilian government’s export incentive program. These credits reduce Brazilian federal excise taxes on domestic sales, resulting in an increase in the operations’ recorded net sales. Based on a recalculation of available credits and a favorable court decision in the fourthDecember 2005 quarter, of 2005, we were able to recognize approximately $69 million, $168 million $131 million and $52$131 million of export credits during 2009, 2008 2007 and 2006,2007, respectively. As of December 31, 2008,2009, approximately $542$693 million of export credits remain. We recognize credits as they are monetized.monetized; however, future actions by the Brazilian government could limit our ability to monetize these export credits. BEFIEX credits are not subject to income taxes. Product Recalls The establishment of a liability for product recalls is periodically required and is impacted by several factors such as customer response rate, consumer options, field repair costs, inventory repair costs, extended warranty costs, communication structure and other miscellaneous costs such as legal, logistics and consulting. The customer response rate, which represents an estimate of the total number of units to be serviced as a percentage of the total number of units affected by the recall, is the most significant factor in estimating the total cost of each recall. ThisTo determine a response rate, reflects several factors, includingwe consider the population of the affected appliances based on evaluating the design issue or defective part in the appliance and the respective years in which it was included in manufacturing the appliance to determine the affected population. We also consider the type of product, the year manufactured,and age of the product soldaffected appliance to determine the affected population and apply historical response rates based on current and past experience factors.factors to derive an estimated liability which is revised, as necessary, depending on our actual response rate. Differences between our assumptions and actual experience could have a material impact on our product recall reserves. For additional information about product recalls, see Note 76 of the Notes to the Consolidated Financial Statements. F-13
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS—(CONTINUED)
Warranty Obligations The estimation of warranty obligations is determined in the same period that revenue from the sale of the related products is recognized. The warranty obligation is based on historical experience and reflects our best estimate of expected costs at the time products are sold. Warranty accruals are adjusted for known or anticipated F-14
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(CONTINUED) warranty claims as new information becomes available. Future events and circumstances could materially change our estimates and require adjustments to the warranty obligations. New product launches require a greater use of judgment in developing estimates until historical experience becomes available. For additional information about warranty obligations, see Note 76 of the Notes to the Consolidated Financial Statements. Goodwill and Intangible Valuations We sell products under a number of trademarks, many of which we developed. Trademark development costs are expensed as incurred. We also purchase trademark assets and goodwill in acquisitions. Upon acquisition, the purchase price is first allocated to identifiable assets and liabilities, including trademark assets, based on estimated fair value, with any remaining purchase price recorded as goodwill. Trademarks and goodwill are considered indefinite lived intangible assets and as such are not amortized. We have two reporting units where goodwill is recorded which include North America and Embraco in our Latin America region. There have been no changes to our reporting units or allocations of goodwill by reporting units. We have trademark assets in our North America and Europe regions. Forecasted financial statements utilized in the valuation of our reporting units and forecasted revenue amounts utilized in determining the fair values of our trademarks are based upon Whirlpool’s current long range plans which are consistent with commercially available industry expectations. We test indefinite lived intangibles for impairment as of November 30 each year. Intangible Valuations
In assessing the fair valueyear and more frequently if indicators of trademarks, we utilize a relief from royalty method. If the carrying amount of a trademark exceeds its fair value, an impairment loss is recognized in an amount equal to the excess. Considerable judgment is necessary to estimate revenue growth rates by trademark which are based on the best available market information and are consistent with our internal forecasts and operating plans. Estimated royalty rate assumptions are based on the capacity of the trademarks to generate economic returns, and royalty rates contained in publicly available third party licensing agreements. For additional information about indefinite lived intangible assets, see Note 3 of the Notes to the Consolidated Financial Statements.exist.
Goodwill Valuations Goodwill is evaluated using a two-step impairment test at the reporting unit level. The first step of the goodwill impairment test compares the book value of a reporting unit, including goodwill, with its fair value, as determined by its discounted cash flows. If the book value of a reporting unit exceeds its fair value, we perform the second step of the impairment test to determine the amount of goodwill impairment loss to be recorded. In the second step, we determine an implied fair value of the reporting unit’s goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities other than goodwill (including any unrecognized intangible assets). The difference between the total fair value of the reporting unit and the fair value of all the assets and liabilities other than goodwill is the implied fair value of that goodwill. The amount of impairment loss is equal to the excess of the book value of the goodwill over the implied fair value of that goodwill. We determine fair value based primarily on a discounted cash flow model which is an accepted valuation technique. Considerable management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate future cash flows.flows from our reporting units. Significant Assumptions in evaluating Goodwill In assessing goodwill for impairment for the North America reporting unit, significant assumptions used in our impairment evaluations, suchdiscounted cash flow model as forecastedof November 30, 2009 included revenue growth rates, a long term growth rate and the discount rate. Revenue growth rates used in the discounted cash flows model were based upon our long range plan for the next three years and range from -12% to 6%. Subsequent to this three year period, we applied expected growth rates to revenues which were consistent with commercially available industry market value and volume forecasts. The long term growth rate used was 2% based upon the compound average growth rate for the U.S. T-7 appliance industry (T-7 refers to the following appliance categories: washers, dryers, refrigerators, freezers, dishwashers, ranges and compactors) over a 25 year period, and was also consistent with commercially available industry market value and volume forecasts. F-15
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(CONTINUED) The discount rate of 11% used in our discounted cash flow model, as of the November 30, 2009 assessment, was developed using the capital asset pricing model through which a weighted average cost of capital arewas derived. The discount rate was estimated using the risk free rate, market risk premium, and cost of debt prevalent as of the valuation date. The Beta and capital structure were estimated based on an analysis of comparable guideline companies. In addition, a risk premium was included to account for the best availablerisks inherent in the cash flows and to reconcile the fair value indicated by the discounted cash flow model to Whirlpool’s public market information and are consistent with our internal forecasts and operating plans. equity value at November 30, 2009. Other Considerations in evaluating Goodwill Additionally, in assessing goodwill impairment for the North America reporting unit, we considered the implied control premium and concluded the implied control premium was reasonable based on other recent market transactions. Changes in these estimates or a continued decline in general economic conditions could change our conclusion regarding an impairment of goodwill and potentially result in a non-cash impairment loss in a future period. F-14
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS—(CONTINUED)
The discount rate and revenue long-term growth assumptions are two significant assumptions utilized in our calculation of the present value of cash flows used to estimateestimated fair value of theour North America reporting units. The estimated fair values of the reporting units haveunit has historically exceeded the carrying value of such reporting units by a substantial amount. As of our November 30, 2009 valuation, the estimated fair value of our North America reporting unit exceeded the carrying value by approximately 25%. Our methodology for evaluating goodwill for impairment has not changed since our impairment test performed as of November 30, 2008. We performed a sensitivity analysishave updated our revenue projections discussed above based on the discount ratesour current long range plan, and revenue long-term growth assumptions. In estimating sensitivity, either the discount rate could increase by 50 basis points or the revenue long-termcurrent industry and economic conditions. The long term growth rate could decline to zero andfor the North America reporting unit has not changed from the rate that was used in our reporting units would continue to have a fair value in excess of carrying value. last annual impairment test. These assumptions could be adversely impacted by certain of the risks discussed in “Risk Factors” in Item 1A of this report. Intangible Valuations In assessing the fair value of trademarks, we utilize a relief from royalty method. If the carrying amount of a trademark exceeds its fair value, an impairment loss is recognized in an amount equal to the excess. Considerable judgment is necessary to estimate key assumptions involved in valuing our trademarks, including projected revenues, royalty rates and applicable discount rates. In developing discount rates for the valuation of our trademarks, we used the industry average weighted average cost of capital as the base adjusted for the higher relative level of risks associated with doing business in other countries, as applicable, as well as the higher relative levels of risks associated with intangible assets. The premium added considered that we have reduced the projected revenue from the forecasts used in previous years due in part to lower industry demand driven by the current economic conditions in our respective markets. Based on this analysis, we determined discount rates ranging from 11.0% to 11.5% (11.0% to 11.5% in 2008). In determining royalty rates for the valuation of our trademarks, we considered factors that affect the intrinsic royalty rates that would hypothetically be paid for the use of the trademarks. The most significant factors in determining the intrinsic royalty rates include the overall role and importance of the trademarks in the particular industry, the profitability of the products utilizing the trademark and trade name intangibles, and the position of the trademarked products in a given market segment. Based on this analysis, we determined royalty rates ranging from 2.0% to 5.0% (0.5% to 5.0% in 2008). Based on the compound annual growth rate of the U.S. T-7 appliance industry over the past 25 years of 2%, and the strength of our trademarks in the marketplace, any reasonably likely change in the projected revenues or discount rate utilized in the valuation of our trademarks would not result in a material impairment charge. F-16
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(CONTINUED) For additional information about goodwill and intangible valuations, see Note 32 of the Notes to the Consolidated Financial Statements. NEW ACCOUNTING PRONOUNCEMENTS In March 2008,June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 105, “Generally Accepted Accounting Principles” (formerly Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”). ASC 105 establishes the FASB ASC as the single source of authoritative nongovernmental U.S. GAAP. The standard is effective for interim and annual periods ending after September 15, 2009. We adopted the provisions of the standard on September 30, 2009, which did not have a material impact on our financial statements. In June 2009, the FASB issued accounting guidance contained within ASC 810, “Consolidation”, regarding the consolidation of variable interest entities (formerly SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”). ASC 810 is intended to improve financial reporting by providing additional guidance to companies involved with variable interest entities and by requiring additional disclosures about a company’s involvement in variable interest entities. This standard is effective for interim and annual periods ending after November 15, 2009. We adopted the provisions of the standard on January 1, 2010, which did not have a material impact on our financial statements. In June 2009, the FASB issued ASC 860, “Transfers and Servicing” (formerly SFAS No. 166, “Accounting for Transfers of Financial Assets”). ASC 860 requires more information about transfers of financial assets and where companies have continuing exposure to the risk related to transferred financial assets. It eliminates the concept of a qualifying special purpose entity, changes the requirements for derecognizing financial assets, and requires additional disclosure. This standard is effective for interim and annual periods ending after November 15, 2009. We adopted the provisions of the standard on January 1, 2010, which did not have a material impact on our financial statements. In April 2009, the FASB issued ASC 825, “Financial Instruments” (formerly FASB Staff Position 107-1, “Interim Disclosures about Fair Value of Financial Instruments”). ASC 825 requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies, as well as in annual financial statements. This standard also requires those disclosures in summarized financial information at interim reporting periods ending after June 15, 2009. We adopted the provisions of ASC 825 on June 30, 2009. See Notes 3 and 5 of the Notes to the Consolidated Financial Statements for information related to the fair value of our financial instruments. In March 2008, the FASB issued the disclosure requirements within ASC 815, “Derivatives and Hedging” (formerly SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB No. 133,” (“SFAS 161”133”). SFAS 161ASC 815 is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance, and cash flows. SFAS 161 appliesThe disclosure requirements apply to all derivative instruments within the scope of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS 133”). SFAS 161ASC 815. The standard also applies to non-derivative hedging instruments and all hedged items designated and qualifying under SFAS 133. SFAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS 161 encourages, but does not require, comparative disclosures for periods prior to its initial adoption.ASC 815. We will adopt SFAS 161adopted the disclosure requirements of ASC 815 on January 1, 2009 and are currently evaluating the potential impact on our financial statements when implemented. In February 2008, the FASB issued FASB Staff Position (“FSP”) 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”). FSP 157-2 delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until the beginning of the first quarter of fiscal 2009. We adopted SFAS No. 157 for financial assets and liabilities on January 1, 2008. For additional information regarding SFAS 157,derivative instruments and hedging activities, see Note 47 of the Notes to the Consolidated Financial Statements.
In December 2007, the FASB issued accounting guidance contained within ASC 805, “Business Combinations” (formerly SFAS No. 141(R), “Business Combinations,” (“SFAS 141(R)”Combinations”). SFAS 141(R)ASC 805 requires us to continue to follow the guidance in SFAS 141 for certain aspects of business combinations, with additional guidance provided F-17
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(CONTINUED) defining the acquirer, the accounting for transaction costs and contingent consideration, recognizing and measuring the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, assets and liabilities arising from contingencies, defining a bargain purchase and recognizing and measuring goodwill or a gain from a bargain purchase. In addition, under SFAS 141(R), adjustments associated with changes in tax contingencies that occur after the measurement period, not to exceed one year, are recorded as adjustments to income. This statement iswas effective for all business combinations for which the acquisition date is on or after the beginning of an entity’s first fiscal year that begins after December 15, 2008; however, the guidance in this standard regarding the treatment of income tax contingencies is retrospective to business combinations completed prior to January 1, 2009. We will adopt SFAS 141(R) for any business combinations occurring at or subsequent toadopted ASC 805 on January 1, 2009. In December 2007, the FASB issued accounting guidance contained within ASC 810, “Consolidation”, regarding noncontrolling interests (formerly SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” an Amendment of ARB No. 51, “Consolidated Financial Statements,” (“SFAS 160”Statements”). SFAS 160ASC 810-10-65 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest F-15
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS—(CONTINUED)
in the consolidated entity that should be reported as equity in the consolidated financial statements. This statement is effective as of the beginning of an entity’s first fiscal year that begins after December 15, 2008 with retrospective application. We will adopt SFAS 160 beginning January 1, 2009 and are currently evaluating the potential impact on our financial statements when implemented. In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. The expanded disclosures in this statement about the use of fair value to measure assets and liabilities should provide users of financial statements with better information about the extent to which fair value is used to measure recognized assets and liabilities, the inputs used to develop the measurements, and the effect of certain of the measurements on earnings (or changes in net assets) for the period. We adopted SFAS 157 for financial assets and liabilitiesASC 810-10-65 on January 1, 2008. For additional information regarding SFAS 157,2009. As a result, we have reclassified financial statement line items within our Consolidated Balance Sheets and Statements of Income for the prior period to conform with this standard. Additionally, see Note 48 of the Notes to the Consolidated Financial Statements.Statements for disclosure reflecting the impact of ASC 810-10-65 on our reconciliation of comprehensive income and stockholders’ equity.
MARKET RISK We have in place an Enterprise Risk Managemententerprise risk management process that involves systematic risk identification and mitigation covering the categories of Enterprise, Strategic, Financial, Operationenterprise, strategic, financial, operation and Compliancecompliance and Reportingreporting risk. The Enterprise Risk Managemententerprise risk management process receives Board of Directors and Management oversight, drives risk mitigation decision-making and is fully integrated into our internal audit planning and execution cycle. We are exposed to market risk from changes in foreign currency exchange rates, domestic and foreign interest rates, and commodity prices, which can affect our operating results and overall financial condition. We manage exposure to these risks through our operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Derivative financial instruments are viewed as risk management tools and are not used for speculation or for trading purposes. Derivative financial instruments are contracted with a diversified group of investment grade counterparties to reduce exposure to nonperformance on such instruments. We use foreign currency forward contracts, currency options and currency swaps to hedge the price risk associated with firmly committed and forecasted cross-border payments and receipts related to ongoing business and operational financing activities. Foreign currency contracts are sensitive to changes in foreign currency exchange rates. At December 31, 2008,2009, a 10% unfavorable exchange rate movement in each currency in our portfolio of foreign currency contracts would have resulted in an incremental unrealized loss of approximately $25$168 million, while a 10% favorable shift would have resulted in an incremental unrealized gain of approximately $29$168 million. Consistent with the use of these contracts to neutralize the effect of exchange rate fluctuations, such unrealized losses or gains would be offset by corresponding gains or losses, respectively, in the re-measurement of the underlying exposures. We enter into commodity swap contracts to hedge the price risk associated with firmly committed and forecasted commodities purchases that are not fixed directly through supply contracts. As of December 31, 2008,2009, a 10% favorable or unfavorable shift in commodity prices would have resulted in an incremental $15$50 million gain or a $24$50 million loss related to these contracts. We utilize interest rate swaps to hedge our interest rate risk. As of December 31, 2008, a 10% shift in interest rates would have resulted in an incremental $1 million gain or loss related to these contracts.
F-18
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(CONTINUED) In January 2009, Standard & Poor’s and Fitch Ratings lowered our senior unsecured debt rating from “BBB” to “BBB-” and our short-term corporate credit and commercial paper ratings from “A-2” to “A-3” and F-16
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS—(CONTINUED)
“F-2 “F-2” to F-3”“F-3”, respectively, based on weakened operating performance and the pullback in discretionary consumer spending. Also in January 2009, Moody’s Investor Services lowered our senior unsecured rating from “Baa2” to “Baa3” and our commercial paper ratings from “Prime-2” to “Prime-3” based on weakening appliance industry demand. These rating adjustments may result in higher interest costs if we were to seek additional financing in the capital markets. See Note 65 of the Notes to the Consolidated Financial Statements for additional information on financing arrangements.
OTHER MATTERS Government authorities in various jurisdictions are conducting antitrust investigations of the global compressor industry, including our compressor business headquartered in Brazil (“Embraco”). In 2009, Embraco sales represented approximately 7% of our global net sales. In February 2009, competition authorities in Brazil, the U.S. and Europe began to seek documents from us in connection with their investigations. A grand jury subpoena from the U.S. Department of Justice requested documents for the time period from 2003 to 2009. Competition authorities in other jurisdictions have sought similar information. In September 2009, the Brazilian competition commission (CADE) agreed to terminate the administrative investigation of our compressor business. Under the terms of the settlement agreement, Whirlpool affiliates and certain executives located in Brazil acknowledged a violation of Brazilian antitrust law in the Brazilian compressor market by some Embraco employees. The settlement agreement provides for the affiliates to make contributions totaling 100 million Brazilian reais to a Brazilian government fund. The contributions translate to approximately $56 million, all of which was recorded as an expense in 2009. In December 2009, a Brazilian court agreed to the public prosecutor’s request to suspend a related criminal proceeding as to certain employees, including Paulo Periquito, former President, Whirlpool International. The proceeding will be dismissed after three years provided that the individuals comply with certain conditions imposed by the court, such as payment to a government fund, a charitable donation and periodic reporting to authorities. Suspension and dismissal of the proceeding does not involve any admission or finding of wrongdoing. We are cooperating with the ongoing government investigations in other jurisdictions and have taken actions, and will continue to take actions, to minimize our potential exposure. Since the government investigations became public in February 2009, we have been named as a defendant in numerous related antitrust lawsuits in various jurisdictions seeking damages in connection with the pricing of compressors from 1996 to 2009. Several other compressor manufacturers who are the subject of the government investigations have also been named as defendants in the litigation. United States federal lawsuits instituted on behalf of purported purchasers and containing class action allegations have been combined in one proceeding in the United States District Court for the Eastern District of Michigan. We intend to defend the lawsuits vigorously. The final outcome and impact of these matters, and related claims and investigations that may be brought in the future are subject to many variables, and cannot be predicted with certainty. An accrual has been established only where we have determined that a loss is probable and the amount of loss can be reasonably estimated. As of December 31, 2009, we have accrued charges of approximately $82 million related to these matters. While it is currently not possible to reasonably estimate the aggregate amount of costs which we may incur in connection with these matters, such costs could have a material adverse effect on the financial position, liquidity, or results of operations of Whirlpool. F-19
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(CONTINUED) The Brazilian Constitution provides a general basis for recognizing tax credits on the purchase of raw materials used in production (“IPI tax credit”). Certain raw materials that are exempt or have a zero tax basis in the production process qualify for these IPI tax credits. Based on legal precedent, in 2003 and 2004, we recognized tax credits in an aggregate amount of $25$26 million adjusted for currency. The Brazilian tax authority subsequently challenged the recording of IPI tax credits. No credits were recognized in 2005 through 2008. The2009. In 2009, we entered into an agreement under a special Brazilian tax authority has challenged the recording of IPI tax credits. The Brazilian Supreme Court, which rules on a case by case basis, ruled adversely against another taxpayer in an IPI tax credit case. That ruling is not yet final. Our case is being defended at an administrative level. Our potential exposure ranges from zero to $60 million comprised of $25 million in taxes, $18 million in interest and $17 million in penalties. It is not possible to determine the outcome of these legal proceedings with certainty and as such, we have not accrued a liability for this exposure at December 31, 2008. In December 2008, the Brazilian government announced a special program providing for extended payment terms and reductions in penalties and interest to encourage taxpayers to resolve disputed IPI tax credit amounts. We have not made a decision about participation. UnderCharges recorded related to this program for the program, as announced, we have until Marchyear ended December 31, 2009 include $27 million in tax that was recorded in cost of products sold, $16 million in interest expense and $4 million in penalties recorded in interest and sundry income (expense) in our Consolidated Statements of Income. During the December 2009 quarter, based on newly issued regulations, we settled with the Brazilian tax authority to decide.resolve these and other disputed tax amounts. As a result of this settlement agreement, we recorded an increase in value added taxes owed of approximately $4 million in cost of goods sold, a reduction in interest expense totaling $18 million related to interest abatement, a reduction in interest and sundry income (expense) of $4 million related to penalty abatement and related income tax expense of $5 million under this special program.
In 1989, a Brazilian affiliate (now a subsidiary) brought an action against a financial institution in Brazil seeking a “Declaration of Non-Enforceability of Obligations” relating to loan documentation entered into without authority by a senior officer of the affiliate. In September 2000, an adverse decision in the declaratory action became final. In 2001, the financial institution began a collection action and we responded with a counterclaim. The lower court dismissed the counterclaim in 2002 and the Superior Court confirmed the lower court decision in December 2005. The Superior Court dismissed our counterclaim in 2007. In late 2008, the lower court issued a decision in the collection action in favor of the financial institution in the amount of 283 million Brazilian Realreais (approximately $121 million U.S., based on recent exchange rates)$162 million), plus judicial adjustments, which could be significant. We have appealed this decision. Based on our outside counsel’s assessment of the case, we increased the amount previously accrued for our estimated exposure for this litigation remains unchanged.by 80 million Brazilian reais (approximately $46 million) in the December 2009 quarter. However, the amount of the final award, if any, may be materially different than the amount we have accrued. We currently expect to undertake a corrective action to address a supplier-related quality and potential product safety problem that may affect 1 million appliances manufactured between 2001 and 2003. We have accrued $31.5 million for this matter based on our estimate of the costs of the action. Actual costs will depend upon several factors, including the number of consumers who respond to a particular recall, repair and administrative costs, whether the cost of any such corrective action is borne initially by Whirlpool or the supplier, and, if initially borne by Whirlpool, whether we will be successful in recovering our costs from the supplier. We continue to work with the Consumer Product Safety Commission to determine whether other appliances may be affected, and there can be no assurance that the number of units and related costs will not increase. In addition, we could incur other costs arising out of this problem that cannot currently be estimated but could be material.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS—(CONTINUED)
FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. Certain statements contained in this annual report, including those within the forward-looking perspective section within this Management’s Discussion and Analysis, and other written and oral statements made from time to time by us or on our behalf do not relate strictly to historical or current facts and may contain forward-looking statements that reflect our current views with respect to future events and financial performance. As such, they are considered “forward-looking statements” which provide current expectations or forecasts of future events. Such statements can be identified by the use of terminology such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “could,” “possible,” “plan,” “project,” “will,” “forecast,” and similar words or expressions. Our forward-looking statements generally relate to our growth strategies, financial results, product development, and sales efforts. These forward-looking statements should be considered with the understanding that such statements involve a variety of risks and uncertainties, known and unknown, and may be affected by inaccurate assumptions. Consequently, no forward-looking statement can be guaranteed and actual results may vary materially. This document contains forward-looking statements about Whirlpool Corporation and its consolidated subsidiaries (“Whirlpool”) that speak only as of this date. Whirlpool disclaims any obligation to update these statements. Forward-looking statements in this document may include, but are not limited to, statements regarding expected earnings per share, cash flow, productivity and material and oil-related prices. Many risks, contingencies and uncertainties could cause actual results to differ materially from Whirlpool Corporation’sWhirlpool’s forward-looking F-20
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(CONTINUED) statements. Among these factors are: (1) changes in economic conditions which affect demand for our products, including the strength of the building industry and the level of interest rates; (2) the effects of the global economic crisis on our customers, suppliers and the availability of credit; (3) Whirlpool’s ability to continue its relationship with significant trade customers including Sears Holding Corporation in North America (accounting for approximately 11% of Whirlpool’s 2008 consolidated net sales of $18.9 billion) and the ability of these trade customers to maintain or increase market share; (4) intense competition in the home appliance industry reflecting the impact of both new and established global competitors, including Asian and European manufacturers; (5) the ability of Whirlpool to manage foreign currency fluctuations; (6) litigation including product liability and product defect claims;recall costs; (7) litigation and legal compliance risk; (8) the ability of Whirlpool to achieve its business plans, productivity improvements, cost control, leveraging of its global operating platform, and acceleration of the rate of innovation; (8)(9) inventory and other asset risk; (10) fluctuations in the cost of key materials (including steel, oil, plastic, resins, copper and aluminum) and components and the ability of Whirlpool to offset cost increases; (9)(11) the ability of suppliers of critical parts, components and manufacturing equipment to deliver sufficient quantities to Whirlpool in a timely and cost-effective manner; (10)(12) health care cost trends, and regulatory changes and variations between results and estimates that could increase future funding obligations for pension and post retirement benefit plans; (11)(13) Whirlpool’s ability to obtain and protect intellectual property rights; (12)(14) information technology system failures and data security breaches; (15) global, political and/or economic uncertainty and disruptions, especially in Whirlpool’s significant geographic regions, including uncertainty and disruptions arising from natural disasters or terrorist attacks; (13)(16) the effects of governmental investigations or related actions by third parties; (14)(17) the impact of labor relations; (15)(18) our ability to attract, develop and retain executives and other qualified employees; (16)(19) changes in the cost of compliance withlegal and regulatory environment including environmental and health and safety regulations. We undertake no obligation to update any forward-looking statement, and investors are advised to review disclosures in our filings with the Securities and Exchange Commission. It is not possible to foresee or identify all factors that could cause actual results to differ from expected or historic results. Therefore, investors should not consider the foregoing factors to be an exhaustive statement of all risks, uncertainties, or factors that could potentially cause actual results to differ from forward-looking statements. Additional information concerning these and other factors can be found in “Risk Factors” in Item 1A of this report. F-18F-21
WHIRLPOOL CORPORATION CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31 (Millions of dollars, except per share data) | | | | | | | | | | | | | | | 2008 | | | 2007 | | | 2006 | | Net sales | | $ | 18,907 | | | $ | 19,408 | | | $ | 18,080 | | | | | | Expenses | | | | | | | | | | | | | Cost of products sold | | | 16,383 | | | | 16,517 | | | | 15,420 | | Selling, general and administrative (exclusive of intangible amortization) | | | 1,798 | | | | 1,736 | | | | 1,752 | | Intangible amortization | | | 28 | | | | 31 | | | | 30 | | Restructuring costs | | | 149 | | | | 61 | | | | 55 | | | | | | | | | | | | | | | Operating profit | | | 549 | | | | 1,063 | | | | 823 | | | | | | Other income (expense) | | | | | | | | | | | | | Interest and sundry income (expense) | | | (100 | ) | | | (63 | ) | | | (2 | ) | Interest expense | | | (203 | ) | | | (203 | ) | | | (202 | ) | Gain on sale of investment | | | — | | | | 7 | | | | — | | | | | | | | | | | | | | | Earnings from continuing operations before income taxes and other items | | | 246 | | | | 804 | | | | 619 | | | | | | Income taxes | | | (201 | ) | | | 117 | | | | 126 | | | | | | | | | | | | | | | Earnings from continuing operations before equity earnings and minority interests | | | 447 | | | | 687 | | | | 493 | | Equity in income (loss) of affiliated companies | | | — | | | | (18 | ) | | | 1 | | Minority interests | | | (29 | ) | | | (22 | ) | | | (8 | ) | | | | | | | | | | | | | | Earnings from continuing operations | | | 418 | | | | 647 | | | | 486 | | Loss from discontinued operations, net of tax of $0, $3 and $26 for the years ended December 31, 2008, 2007 and 2006, respectively | | | — | | | | (7 | ) | | | (53 | ) | | | | | | | | | | | | | | Net earnings available to common stockholders | | $ | 418 | | | $ | 640 | | | $ | 433 | | | | | | | | | | | | | | | Per share of common stock | | | | | | | | | | | | | Basic earnings from continuing operations | | $ | 5.57 | | | $ | 8.24 | | | $ | 6.47 | | Discontinued operations, net of tax | | | — | | | | (0.09 | ) | | | (0.71 | ) | | | | | | | | | | | | | | Basic net earnings | | $ | 5.57 | | | $ | 8.15 | | | $ | 5.76 | | | | | | | | | | | | | | | Diluted earnings from continuing operations | | $ | 5.50 | | | $ | 8.10 | | | $ | 6.35 | | Discontinued operations, net of tax | | | — | | | | (0.09 | ) | | | (0.68 | ) | | | | | | | | | | | | | | Diluted net earnings | | $ | 5.50 | | | $ | 8.01 | | | $ | 5.67 | | | | | | | | | | | | | | | Dividends | | $ | 1.72 | | | $ | 1.72 | | | $ | 1.72 | | | | | | | | | | | | | | | Weighted-average shares outstanding (in millions) | | | | | | | | | | | | | Basic | | | 75.1 | | | | 78.5 | | | | 75.1 | | Diluted | | | 76.0 | | | | 79.9 | | | | 76.5 | |
The accompanying notes are an integral part of these Consolidated Financial Statements
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WHIRLPOOL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Millions of dollars, except per share data)
| | | | | | | | | | | December 31, 2008 | | | December 31, 2007 | | Assets | | | | | | | | | Current assets | | | | | | | | | Cash and equivalents | | $ | 146 | | | $ | 201 | | Accounts receivable, net of allowance for uncollectible accounts of $66 and $83 at December 31, 2008 and December 31, 2007, respectively | | | 2,103 | | | | 2,604 | | Inventories | | | 2,591 | | | | 2,665 | | Prepaid Expenses | | | 110 | | | | 89 | | Deferred income taxes | | | 580 | | | | 324 | | Other current assets | | | 514 | | | | 672 | | | | | | | | | | | Total current assets | | | 6,044 | | | | 6,555 | | | | | | | | | | | Other assets | | | | | | | | | Goodwill, net | | | 1,728 | | | | 1,760 | | Other intangibles, net of accumulated amortization of $96 and $68 at December 31, 2008 and December 31, 2007, respectively | | | 1,821 | | | | 1,854 | | Other assets | | | 954 | | | | 628 | | | | | | | | | | | Total other assets | | | 4,503 | | | | 4,242 | | | | | | | | | | | Property, plant and equipment | | | | | | | | | Land | | | 74 | | | | 84 | | Buildings | | | 1,186 | | | | 1,226 | | Machinery and equipment | | | 7,549 | | | | 7,861 | | Accumulated depreciation | | | (5,824 | ) | | | (5,959 | ) | | | | | | | | | | Total property, plant and equipment | | | 2,985 | | | | 3,212 | | | | | | | | | | | Total assets | | $ | 13,532 | | | $ | 14,009 | | | | | | | | | | | Liabilities and stockholders’ equity | | | | | | | | | Current liabilities | | | | | | | | | Accounts payable | | $ | 2,805 | | | $ | 3,260 | | Accrued expenses | | | 530 | | | | 633 | | Accrued advertising and promotions | | | 440 | | | | 497 | | Employee compensation | | | 306 | | | | 444 | | Notes payable | | | 393 | | | | 298 | | Current maturities of long-term debt | | | 202 | | | | 127 | | Other current liabilities | | | 887 | | | | 634 | | | | | | | | | | | Total current liabilities | | | 5,563 | | | | 5,893 | | | | | | | | | | | Noncurrent liabilities | | | | | | | | | Long-term debt | | | 2,002 | | | | 1,668 | | Postretirement benefits | | | 822 | | | | 1,061 | | Pension benefits | | | 1,505 | | | | 725 | | Other liabilities | | | 567 | | | | 682 | | | | | | | | | | | Total noncurrent liabilities | | | 4,896 | | | | 4,136 | | | | | | | | | | | Commitments and contingencies (see Note 7) | | | | | | | | | | | | Minority interests | | | 67 | | | | 69 | | | | | | | | | | | Stockholders’ equity | | | | | | | | | Common stock, $1 par value, 250 million shares authorized, 104 million and 103 million shares issued at December 31, 2008 and December 31, 2007, respectively, 73 million and 76 million shares outstanding at December 31, 2008 and December 31, 2007, respectively | | | 104 | | | | 103 | | Additional paid-in capital | | | 2,033 | | | | 1,993 | | Retained earnings | | | 3,993 | | | | 3,703 | | Accumulated other comprehensive income (loss) | | | (1,259 | ) | | | (270 | ) | Treasury stock, 31 million shares and 27 million shares at December 31, 2008 and December 31, 2007, respectively | | | (1,865 | ) | | | (1,618 | ) | | | | | | | | | | Total stockholders’ equity | | | 3,006 | | | | 3,911 | | | | | | | | | | | Total liabilities and stockholders’ equity | | $ | 13,532 | | | $ | 14,009 | | | | | | | | | | |
The accompanying notes are an integral part of these Consolidated Financial Statements
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WHIRLPOOL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31
(Millions of dollars)
| | | | | | | | | | | | | | | 2008 | | | 2007 | | | 2006 | | Operating activities of continuing operations | | | | | | | | | | | | | Net earnings | | $ | 418 | | | $ | 640 | | | $ | 433 | | Loss from discontinued operations | | | — | | | | 7 | | | | 53 | | | | | | | | | | | | | | | Earnings from continuing operations | | | 418 | | | | 647 | | | | 486 | | Adjustments to reconcile earnings from continuing operations to cash provided by operating activities from continuing operations: | | | | | | | | | | | | | Depreciation and amortization | | | 597 | | | | 593 | | | | 550 | | Gain on disposition of assets | | | (60 | ) | | | (65 | ) | | | (4 | ) | Gain on sale of investment | | | — | | | | (7 | ) | | | — | | Gain on disposition of businesses | | | — | | | | — | | | | (32 | ) | Increase in LIFO inventory reserve | | | 42 | | | | 9 | | | | 10 | | Equity in losses of affiliated companies, less dividends received | | | — | | | | 18 | | | | 5 | | Changes in assets and liabilities, net of business acquisitions: | | | | | | | | | | | | | Accounts receivable | | | 300 | | | | 181 | | | | 50 | | Inventories | | | (174 | ) | | | (194 | ) | | | (118 | ) | Accounts payable | | | (250 | ) | | | 105 | | | | 44 | | Restructuring charges, net of cash paid | | | 33 | | | | (82 | ) | | | (80 | ) | Taxes deferred and payable, net | | | (256 | ) | | | 10 | | | | (154 | ) | Accrued pension | | | (123 | ) | | | (70 | ) | | | 53 | | Employee compensation | | | (84 | ) | | | (24 | ) | | | 25 | | Other | | | (116 | ) | | | (194 | ) | | | 45 | | | | | | | | | | | | | | | Cash provided by continuing operating activities | | | 327 | | | | 927 | | | | 880 | | | | | | | | | | | | | | | Investing activities of continuing operations | | | | | | | | | | | | | Capital expenditures | | | (547 | ) | | | (536 | ) | | | (576 | ) | Proceeds from sale of assets | | | 119 | | | | 130 | | | | 86 | | Proceeds from sale of businesses | | | — | | | | — | | | | 36 | | Proceeds from sale of Maytag adjacent businesses | | | — | | | | 100 | | | | 110 | | Purchase of minority interest shares | | | — | | | | — | | | | (53 | ) | Acquisitions of businesses, net of cash paid | | | — | | | | — | | | | (797 | ) | Other | | | (5 | ) | | | (25 | ) | | | — | | | | | | | | | | | | | | | Cash used in investing activities of continuing operations | | | (433 | ) | | | (331 | ) | | | (1,194 | ) | | | | | | | | | | | | | | Financing activities of continuing operations | | | | | | | | | | | | | Proceeds from borrowings of long-term debt | | | 545 | | | | 3 | | | | 757 | | Purchase of treasury stock | | | (247 | ) | | | (368 | ) | | | — | | Repayments of long-term debt | | | (131 | ) | | | (17 | ) | | | (1,046 | ) | Dividends paid | | | (128 | ) | | | (134 | ) | | | (130 | ) | Net proceeds (repayments) from short-term borrowings | | | 101 | | | | (243 | ) | | | 381 | | Common stock issued | | | 21 | | | | 68 | | | | 54 | | Other | | | (20 | ) | | | (5 | ) | | | 13 | | | | | | | | | | | | | | | Cash provided by (used in) financing activities of continuing operations | | | 141 | | | | (696 | ) | | | 29 | | | | | | | | | | | | | | �� | Cash provided by (used in) discontinued operations | | | | | | | | | | | | | Operating activities | | | — | | | | 6 | | | | 8 | | Investing activities | | | — | | | | — | | | | (3 | ) | | | | | | | | | | | | | | Cash provided by discontinued operations | | | — | | | | 6 | | | | 5 | | | | | | | | | | | | | | | Effect of exchange rate changes on cash and equivalents | | | (90 | ) | | | 33 | | | | 18 | | | | | | | | | | | | | | | Decrease in cash and equivalents | | | (55 | ) | | | (61 | ) | | | (262 | ) | Cash and equivalents at beginning of year | | | 201 | | | | 262 | | | | 524 | | | | | | | | | | | | | | | Cash and equivalents at end of year | | $ | 146 | | | $ | 201 | | | $ | 262 | | | | | | | | | | | | | | | Supplemental disclosure of cash flow information | | | | | | | | | | | | | Cash paid for interest | | $ | 200 | | | $ | 204 | | | $ | 225 | | Cash paid for taxes | | | 76 | | | | 39 | | | | 173 | |
The accompanying notes are an integral part of these Consolidated Financial Statements
F-21
WHIRLPOOL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Year ended December 31
(Millions of dollars)
| | | | | | | | | | | | | | | | | | | | | | Total | | | Retained Earnings | | | Accumulated Other Comprehensive Income (Loss) | | | Treasury Stock/ Additional Paid- in-Capital | | | Common Stock | Balances, December 31, 2005 | | $ | 1,745 | | | $ | 2,902 | | | $ | (862 | ) | | $ | (387 | ) | | $ | 92 | Comprehensive income | | | | | | | | | | | | | | | | | | | | Net earnings | | | 433 | | | | 433 | | | | — | | | | — | | | | — | Other comprehensive income (See Note 9) | | | 333 | | | | — | | | | 333 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | Comprehensive income | | | 766 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | SFAS No. 158 transition adjustment | | | (114 | ) | | | — | | | | (114 | ) | | | — | | | | — | Common stock issued | | | 1,016 | | | | — | | | | — | | | | 1,006 | | | | 10 | Dividends declared on common stock | | | (130 | ) | | | (130 | ) | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | Balances, December 31, 2006 | | | 3,283 | | | | 3,205 | | | | (643 | ) | | | 619 | | | | 102 | Comprehensive income | | | | | | | | | | | | | | | | | | | | Net earnings | | | 640 | | | | 640 | | | | — | | | | — | | | | — | Other comprehensive income (See Note 9) | | | 373 | | | | — | | | | 373 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | Comprehensive income | | | 1,013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adoption of FIN48 | | | (8 | ) | | | (8 | ) | | | — | | | | — | | | | — | Common stock repurchased | | | (368 | ) | | | — | | | | — | | | | (368 | ) | | | — | Common stock issued | | | 125 | | | | — | | | | — | | | | 124 | | | | 1 | Dividends declared on common stock | | | (134 | ) | | | (134 | ) | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | Balances, December 31, 2007 | | | 3,911 | | | | 3,703 | | | | (270 | ) | | | 375 | | | | 103 | Comprehensive income | | | | | | | | | | | | | | | | | | | | Net earnings | | | 418 | | | | 418 | | | | — | | | | — | | | | — | Other comprehensive loss (See Note 9) | | | (989 | ) | | | — | | | | (989 | ) | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | Comprehensive loss | | | (571 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common stock repurchased | | | (247 | ) | | | — | | | | — | | | | (247 | ) | | | — | Common stock issued | | | 41 | | | | — | | | | — | | | | 40 | | | | 1 | Dividends declared on common stock | | | (128 | ) | | | (128 | ) | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | Balances, December 31, 2008 | | $ | 3,006 | | | $ | 3,993 | | | $ | (1,259 | ) | | $ | 168 | | | $ | 104 | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 2009 | | | 2008 | | | 2007 | | Net sales | | $ | 17,099 | | | $ | 18,907 | | | $ | 19,408 | | | | | | Expenses | | | | | | | | | | | | | Cost of products sold | | | 14,713 | | | | 16,383 | | | | 16,517 | | Selling, general and administrative (exclusive of intangible amortization) | | | 1,544 | | | | 1,798 | | | | 1,736 | | Intangible amortization | | | 28 | | | | 28 | | | | 31 | | Restructuring costs | | | 126 | | | | 149 | | | | 61 | | | | | | | | | | | | | | | Operating profit | | | 688 | | | | 549 | | | | 1,063 | | | | | | Other income (expense) | | | | | | | | | | | | | Interest and sundry income (expense) | | | (175 | ) | | | (100 | ) | | | (63 | ) | Interest expense | | | (219 | ) | | | (203 | ) | | | (203 | ) | Gain on sale of investment | | | — | | | | — | | | | 7 | | | | | | | | | | | | | | | Earnings from continuing operations before income taxes and other items | | | 294 | | | | 246 | | | | 804 | | | | | | Income tax (benefit) expense | | | (61 | ) | | | (201 | ) | | | 117 | | | | | | | | | | | | | | | Earnings from continuing operations before equity earnings | | | 355 | | | | 447 | | | | 687 | | Equity in loss of affiliated companies | | | (1 | ) | | | — | | | | (18 | ) | | | | | | | | | | | | | | Earnings from continuing operations | | | 354 | | | | 447 | | | | 669 | | Loss from discontinued operations net of tax of $3 for the year ended December 31, 2007 | | | — | | | | — | | | | (7 | ) | | | | | | | | | | | | | | Net earnings | | | 354 | | | | 447 | | | | 662 | | Less: Net earnings available to noncontrolling interests | | | (26 | ) | | | (29 | ) | | | (22 | ) | | | | | | | | | | | | | | Net earnings available to Whirlpool common stockholders | | $ | 328 | | | $ | 418 | | | $ | 640 | | | | | | | | | | | | | | | | | | | Per share of common stock | | | | | | | | | | | | | Basic earnings from continuing operations available to Whirlpool common stockholders | | $ | 4.39 | | | $ | 5.57 | | | $ | 8.24 | | Discontinued operations available to Whirlpool common stockholders, net of tax | | | — | | | | — | | | | (0.09 | ) | | | | | | | | | | | | | | Basic net earnings available to Whirlpool common stockholders | | $ | 4.39 | | | $ | 5.57 | | | $ | 8.15 | | | | | | | | | | | | | | | Diluted net earnings from continuing operations available to Whirlpool common stockholders | | $ | 4.34 | | | $ | 5.50 | | | $ | 8.10 | | Discontinued operations available to Whirlpool common stockholders, net of tax | | | — | | | | — | | | | (0.09 | ) | | | | | | | | | | | | | | Diluted net earnings available to Whirlpool common stockholders | | $ | 4.34 | | | $ | 5.50 | | | $ | 8.01 | | | | | | | | | | | | | | | Dividends | | $ | 1.72 | | | $ | 1.72 | | | $ | 1.72 | | | | | | | | | | | | | | | | | | | Weighted-average shares outstanding (in millions) | | | | | | | | | | | | | Basic | | | 74.6 | | | | 75.1 | | | | 78.5 | | Diluted | | | 75.6 | | | | 76.0 | | | | 79.9 | |
The accompanying notes are an integral part of these Consolidated Financial Statements F-22
WHIRLPOOL CORPORATION CONSOLIDATED BALANCE SHEETS (Millions of dollars, except per share data) | | | | | | | | | | | December 31, 2009 | | | December 31, 2008 | | Assets | | | | | | | | | Current assets | | | | | | | | | Cash and equivalents | | $ | 1,380 | | | $ | 146 | | Accounts receivable, net of allowance for uncollectible accounts of $76 and $66 at December 31, 2009 and December 31, 2008, respectively | | | 2,500 | | | | 2,103 | | Inventories | | | 2,197 | | | | 2,591 | | Prepaid expenses | | | 99 | | | | 110 | | Deferred income taxes | | | 295 | | | | 580 | | Other current assets | | | 554 | | | | 514 | | | | | | | | | | | Total current assets | | | 7,025 | | | | 6,044 | | | | | | | | | | | Other assets | | | | | | | | | Goodwill, net | | | 1,729 | | | | 1,728 | | Other intangibles, net of accumulated amortization of $132 and $96 at December 31, 2009 and December 31, 2008, respectively | | | 1,796 | | | | 1,821 | | Other assets | | | 1,427 | | | | 954 | | | | | | | | | | | Total other assets | | | 4,952 | | | | 4,503 | | | | | | | | | | | Property, plant and equipment | | | | | | | | | Land | | | 77 | | | | 74 | | Buildings | | | 1,207 | | | | 1,186 | | Machinery and equipment | | | 8,193 | | | | 7,549 | | Accumulated depreciation | | | (6,360 | ) | | | (5,824 | ) | | | | | | | | | | Total property, plant and equipment | | | 3,117 | | | | 2,985 | | | | | | | | | | | Total assets | | $ | 15,094 | | | $ | 13,532 | | | | | | | | | | | Liabilities and stockholders’ equity | | | | | | | | | Current liabilities | | | | | | | | | Accounts payable | | $ | 3,308 | | | $ | 2,805 | | Accrued expenses | | | 632 | | | | 530 | | Accrued advertising and promotions | | | 475 | | | | 440 | | Employee compensation | | | 501 | | | | 306 | | Notes payable | | | 23 | | | | 393 | | Current maturities of long-term debt | | | 378 | | | | 202 | | Other current liabilities | | | 624 | | | | 887 | | | | | | | | | | | Total current liabilities | | | 5,941 | | | | 5,563 | | | | | | | | | | | Noncurrent liabilities | | | | | | | | | Long-term debt | | | 2,502 | | | | 2,002 | | Pension benefits | | | 1,557 | | | | 1,505 | | Postretirement benefits | | | 693 | | | | 822 | | Other liabilities | | | 641 | | | | 567 | | | | | | | | | | | Total noncurrent liabilities | | | 5,393 | | | | 4,896 | | | | | | | | | | | Commitments and contingencies | | | | | | | | | Stockholders’ equity | | | | | | | | | Common stock, $1 par value, 250 million shares authorized, 105 million and 104 million shares issued at December 31, 2009 and December 31, 2008, respectively, 75 million and 73 million shares outstanding at December 31, 2009 and December 31, 2008, respectively | | | 105 | | | | 104 | | Additional paid-in capital | | | 2,067 | | | | 2,033 | | Retained earnings | | | 4,193 | | | | 3,993 | | Accumulated other comprehensive income (loss) | | | (868 | ) | | | (1,259 | ) | Treasury stock, 30 million shares and 31 million shares at December 31, 2009 and December 31, 2008, respectively | | | (1,833 | ) | | | (1,865 | ) | | | | | | | | | | Total Whirlpool stockholders’ equity | | | 3,664 | | | | 3,006 | | | | | | | | | | | Noncontrolling interests | | | 96 | | | | 67 | | | | | | | | | | | Total stockholder’s equity | | | 3,760 | | | | 3,073 | | | | | | | | | | | Total liabilities and stockholders’ equity | | $ | 15,094 | | | $ | 13,532 | | | | | | | | | | |
The accompanying notes are an integral part of these Consolidated Financial Statements F-23
WHIRLPOOL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31 (Millions of dollars) | | | | | | | | | | | | | | | 2009 | | | 2008 | | | 2007 | | Operating activities of continuing operations | | | | | | | | | | | | | Net earnings | | $ | 354 | | | $ | 447 | | | $ | 662 | | Loss from discontinued operations | | | — | | | | — | | | | 7 | | | | | | | | | | | | | | | Earnings from continuing operations | | | 354 | | | | 447 | | | | 669 | | Adjustments to reconcile net earnings from continuing operations to cash provided by operating activities from continuing operations: | | | | | | | | | | | | | Depreciation and amortization | | | 525 | | | | 597 | | | | 593 | | Curtailment gain | | | (92 | ) | | | — | | | | — | | Gain on disposition of assets | | | (4 | ) | | | (60 | ) | | | (65 | ) | Gain on sale of investment | | | — | | | | — | | | | (7 | ) | (Decrease) increase in LIFO inventory reserve | | | (41 | ) | | | 42 | | | | 9 | | Equity in losses of affiliated companies, less dividends received | | | 1 | | | | — | | | | 18 | | Changes in assets and liabilities: | | | | | | | | | | | | | Accounts receivable | | | (286 | ) | | | 300 | | | | 181 | | Inventories | | | 578 | | | | (174 | ) | | | (194 | ) | Accounts payable | | | 326 | | | | (250 | ) | | | 105 | | Restructuring charges, net of cash paid | | | (14 | ) | | | 33 | | | | (82 | ) | Taxes deferred and payable, net | | | (112 | ) | | | (256 | ) | | | 10 | | Accrued pension | | | (84 | ) | | | (123 | ) | | | (70 | ) | Employee compensation | | | 213 | | | | (84 | ) | | | (24 | ) | Other | | | 186 | | | | (145 | ) | | | (216 | ) | | | | | | | | | | | | | | Cash provided by continuing operating activities | | | 1,550 | | | | 327 | | | | 927 | | | | | | | | | | | | | | | Investing activities of continuing operations | | | | | | | | | | | | | Capital expenditures | | | (541 | ) | | | (547 | ) | | | (536 | ) | Proceeds from sale of assets | | | 77 | | | | 119 | | | | 130 | | Proceeds from sale of Maytag adjacent businesses | | | — | | | | — | | | | 100 | | Investment in related businesses | | | (35 | ) | | | (5 | ) | | | (25 | ) | | | | | | | | | | | | | | Cash used in investing activities of continuing operations | | | (499 | ) | | | (433 | ) | | | (331 | ) | | | | | | | | | | | | | | Financing activities of continuing operations | | | | | | | | | | | | | Proceeds from borrowings of long-term debt | | | 872 | | | | 545 | | | | 3 | | Net (repayments) proceeds from short-term borrowings | | | (362 | ) | | | 101 | | | | (243 | ) | Repayments of long-term debt | | | (210 | ) | | | (131 | ) | | | (17 | ) | Dividends paid | | | (128 | ) | | | (128 | ) | | | (134 | ) | Common stock issued | | | 21 | | | | 21 | | | | 68 | | Purchase of treasury stock | | | — | | | | (247 | ) | | | (368 | ) | Other | | | (49 | ) | | | (20 | ) | | | (5 | ) | | | | | | | | | | | | | | Cash provided by (used in) financing activities of continuing operations | | | 144 | | | | 141 | | | | (696 | ) | | | | | | | | | | | | | | Cash provided by operating activities from discontinued operations | | | — | | | | — | | | | 6 | | | | | | | | | | | | | | | Effect of exchange rate changes on cash and equivalents | | | 39 | | | | (90 | ) | | | 33 | | | | | | | | | | | | | | | Increase (decrease) in cash and equivalents | | | 1,234 | | | | (55 | ) | | | (61 | ) | Cash and equivalents at beginning of year | | | 146 | | | | 201 | | | | 262 | | | | | | | | | | | | | | | Cash and equivalents at end of year | | $ | 1,380 | | | $ | 146 | | | $ | 201 | | | | | | | | | | | | | | | Supplemental disclosure of cash flow information | | | | | | | | | | | | | Cash paid for interest | | $ | 209 | | | $ | 200 | | | $ | 204 | | Cash paid for taxes | | | 51 | | | | 76 | | | | 39 | |
The accompanying notes are an integral part of these Consolidated Financial Statements F-24
WHIRLPOOL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Year ended December 31 (Millions of dollars) | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | Whirlpool Common Stockholders | | Non- Controlling Interests | | | | Retained Earnings | | | Accumulated Other Comprehensive Income (Loss) | | | Treasury Stock/ Additional Paid- in-Capital | | | Common Stock | | Balances, December 31, 2006 | | $ | 3,331 | | | $ | 3,205 | | | $ | (643 | ) | | $ | 619 | | | $ | 102 | | $ | 48 | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | Net earnings | | | 662 | | | | 640 | | | | — | | | | — | | | | — | | | 22 | | Other comprehensive income (See Note 8) | | | 385 | | | | — | | | | 373 | | | | — | | | | — | | | 12 | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income | | | 1,047 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Adoption of ASC 740 (formerly FIN 48) | | | (8 | ) | | | (8 | ) | | | — | | | | — | | | | — | | | — | | Stock repurchased | | | (368 | ) | | | — | | | | — | | | | (368 | ) | | | — | | | — | | Stock issued | | | 130 | | | | — | | | | — | | | | 124 | | | | 1 | | | 5 | | Dividends declared | | | (152 | ) | | | (134 | ) | | | — | | | | — | | | | — | | | (18 | ) | | | | | | | | | | | | | | | | | | | | | | | | | Balances, December 31, 2007 | | | 3,980 | | | | 3,703 | | | | (270 | ) | | | 375 | | | | 103 | | | 69 | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | Net earnings | | | 447 | | | | 418 | | | | — | | | | — | | | | — | | | 29 | | Other comprehensive income (See Note 8) | | | (1,003 | ) | | | — | | | | (989 | ) | | | — | | | | — | | | (14 | ) | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income | | | (556 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock repurchased | | | (247 | ) | | | — | | | | — | | | | (247 | ) | | | — | | | — | | Stock issued | | | 41 | | | | — | | | | — | | | | 40 | | | | 1 | | | — | | Dividends declared | | | (145 | ) | | | (128 | ) | | | — | | | | — | | | | — | | | (17 | ) | | | | | | | | | | | | | | | | | | | | | | | | | Balances, December 31, 2008 | | | 3,073 | | | | 3,993 | | | | (1,259 | ) | | | 168 | | | | 104 | | | 67 | | Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | Net earnings | | | 354 | | | | 328 | | | | — | | | | — | | | | — | | | 26 | | Other comprehensive income (See Note 8) | | | 409 | | | | — | | | | 391 | | | | — | | | | — | | | 18 | | | | | | | | | | | | | | | | | | | | | | | | | | Comprehensive income | | | 763 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock issued | | | 67 | | | | — | | | | — | | | | 66 | | | | 1 | | | — | | Dividends declared | | | (143 | ) | | | (128 | ) | | | — | | | | — | | | | — | | | (15 | ) | | | | | | | | | | | | | | | | | | | | | | | | | Balances, December 31, 2009 | | $ | 3,760 | | | $ | 4,193 | | | $ | (868 | ) | | $ | 234 | | | $ | 105 | | $ | 96 | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these Consolidated Financial Statements F-25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF PRINCIPAL ACCOUNTING POLICIES General Information Whirlpool Corporation, a Delaware corporation, is the world’s leading manufacturer and marketer of major home appliances. We manufacture appliances in 12 countries under 13 principal brand names in 4four geographic operating segments and market products in nearly every country around the world. Our Consolidated Financial Statements include all majority-owned subsidiaries. All intercompany transactions have been eliminated upon consolidation. We have evaluated subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission, which was February 17, 2010. Use of Estimates We are required to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates. Revenue Recognition Sales are recorded when title passes to the customer. The point at which title passes iscustomer as determined by the shipping terms. For the majority of our sales, title is transferred to the customer as soon as products are shipped. For a portion of our sales, title is transferred to the customer upon receipt of products at the customer’s location. Allowances for estimated returns are made on sales of certain products based on historical return rates for the products involved. Accounts Receivable and Allowance for Doubtful Accounts We carry accounts receivable at sales value less an allowance for doubtful accounts. On a periodic basis, weWe periodically evaluate accounts receivable and establish an allowance for doubtful accounts based on a combination of specific customer circumstances, credit conditions and the history of write-offs and collections. We evaluate items on an individual basis when determining accounts receivable write-offs. Our policy is to not to charge interest on trade receivables after the invoice becomes past due. A receivable is considered past due if payments havepayment has not been received within agreed upon invoice terms. Freight and Warehousing Costs We classify freight and warehousing costs within cost of products sold within our Consolidated Statements of Income. Cash and Equivalents All highly liquid debt instruments purchased with an initial maturity of three months or less are considered cash equivalents. Inventories Inventories are stated at first-in, first-out (“FIFO”) cost, except U.S. production inventories, which are stated at last-in, first-out (“LIFO”) cost, and BrazilianBrazil and Asia inventories, which are stated at average cost. Costs do not exceed realizable values. See Note 54 for additional information about inventories. Goodwill and Other Intangibles
Goodwill and other intangible assets are accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” which requires that we evaluate goodwill and other indefinite lived intangible assets for impairment on an annual basis (or whenever
F-23F-26
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) Goodwill and Other Intangibles Goodwill and indefinite lived intangible assets are required to be evaluated for impairment on an annual basis (or whenever events occur which may indicate possible impairment). Goodwill is evaluated using a two-step impairment is determined by comparingtest at the fairreporting unit level. The first step of the goodwill impairment test compares the book value of a reporting unit, including goodwill, with its fair value, as determined by its discounted cash flows. If the book value of a reporting unit exceeds its fair value, we perform the second step of the impairment test to its carrying amount. Ifdetermine the amount of goodwill impairment loss to be recorded. In the second step, we determine an implied fair value of the reporting unit’s goodwill by allocating the fair value of the reporting unit exceeds its carrying amount,to all of the assets and liabilities other than goodwill (including any unrecognized intangible assets). The difference between the total fair value of the reporting unit and the fair value of all the assets and liabilities other than goodwill is not considered impaired.the implied fair value of that goodwill. The amount of impairment loss is equal to the excess of the book value of the goodwill over the implied fair value of that goodwill. In assessing the fair value of trademarks, we utilize a relief from royalty method. If the carrying amount of a trademark exceeds its fair value, an impairment loss is recognized in an amount equal to the excess. Considerable judgment is necessary to estimate key assumptions involved in valuing our trademarks, including projected revenues, royalty rates and applicable discount rates. Definite lived intangible assets are amortized over thetheir estimated useful life ranging from 6 to 18 years. See Note 32 for additional information about goodwill and intangible assets. Accounts Payable Outsourcing We offer our suppliers access to a payables presentment and settlement service (PPS) provided by a third party processor. This service allows our suppliers to view scheduled Whirlpool payments online, enabling them to better manage their cash flow and reduce payment processing costs. Independent of Whirlpool, the PPS provider also allows suppliers to sell their receivables to financial institutions at the sole discretion of both the supplier and the financial institution. We have no economic interest in the sale of these receivables and no direct relationship with financial institutions concerning this service. All of our obligations, including amounts due, remain to our suppliers as stated in our supplier agreements. As of December 31, 2009 and 2008, and 2007, approximately $119$246 million and $13$119 million, respectively, of our total accounts payable is available for this purpose and approximately $72$145 million and $6$72 million, respectively, has been sold by suppliers to participating financial institutions. Research and Development Costs Research and development costs are charged to expense as incurred. Such costs wereincurred and totaled $455 million, $436 million and $421 million in 2009, 2008 and $375 million in 2008, 2007, and 2006, respectively. Advertising Costs Advertising costs are charged to expense when the advertisement is first communicated. Such costs werecommunicated and totaled $211 million, $336 million and $321 million in 2009, 2008 and $316 million in 2008, 2007, and 2006, respectively. Discontinued Operations We present the results of operations, financial position and cash flows of operations that have either been sold or that meet the “held for sale accounting” and certain other criteria as discontinued operations. See Note 2 for additional information about discontinued operations. F-27
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) Foreign Currency Translation The functional currency for our international subsidiaries and affiliates is typically the local currency. Certain international subsidiaries primarily utilize the U.S. dollar and Euro as the functional currency. Long-Lived Assets Property, plant and equipment are stated at cost. DepreciationDuring the March 2009 quarter, we changed our method of property, plantdepreciation prospectively for substantially all long-lived production machinery and equipment to a modified units of production depreciation method. Under this method, we record depreciation based on units produced, unless units produced drop below a minimum threshold at which point depreciation is computedrecorded using the straight-line method. Prior to 2009, all machinery and equipment was depreciated using the straight-line method. We believe depreciating machinery and equipment based on units of production is a preferable method as it best matches the usage of assets with the revenues derived from those assets. For nonproduction long-lived assets, we depreciate costs based on the estimated useful lives of the assets.straight-line method. Depreciation expense for property, plant and equipment was $497 million, $569 million and $562 million in 2009, 2008 and $520 million in 2008, 2007, and 2006, respectively. The estimated useful lives for major asset classifications are as follows: | | | Asset Classification | | Estimated Useful Life | Buildings | | 25 to 50 years | Machinery and equipment | | 34 to 1023 years | Computer/Software | | 1 to 8 years |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
As a result of this change in method, and lower overall production levels in 2009, depreciation expense decreased by $83 million from what would have been recorded using the straight-line method. Net of amounts capitalized into ending inventories and income taxes, net earnings increased $48 million for 2009, or $.64 per diluted share. We classify gains and losses associated with asset dispositions in the same line item as the underlying depreciation of the disposed asset in the Consolidated Statements of Income. Net gains and losses recognized in cost of products sold include a loss of $3 million for 2009 and gains of $16 million $51 million and $1$51 million for 2008, 2007, and 2006,2007, respectively. Net gains recognized in selling, general and administrative expenseexpenses include $1 million, $19 million and $14 million for 2009, 2008 and $3 million for 2008, 2007, and 2006, respectively. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), weWe record impairment losses on long-lived assets when events and circumstances indicate the assets may be impaired and the estimated future cash flows generated by those assets are less than their carrying amounts.
Derivative Financial Instruments We use derivative instruments designated as cash flow and fair value hedges to manage our exposure to the volatility in material costs, foreign currency and interest rates on certain debt instruments. Derivative instruments are accounted for in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, which requires us toWe fair value ourthese derivative instruments periodically. Changes in the fair value of derivative assets or liabilities (i.e., gains or losses) are recognized depending upon the type of hedging relationship and whether a hedge has been designated. For those derivative instruments that qualify for hedge accounting, we designate the hedging instrument, based upon the exposure being hedged, as a cash flow hedge, fair value hedge, or a hedge of a net investment in a foreign operation. Changes in fair value of derivative instruments that do not qualify for hedge accounting are recognized immediately in current earnings. See Note 87 for additional information about hedges and derivative financial instruments. F-28
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) Income Taxes We accountIn accounting for income taxes, in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). Under SFAS No. 109, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of the respective assets and liabilities, using enacted tax rates in effect for the year in whichthat the differences are expected to reverse. Judgment is required in determining and evaluating our income tax provisions. We establish provisions for income taxes when,recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the uncertain tax position, it is not more likely than not to be substantiated on a review by tax authorities.position. We evaluate and adjust these accruals in light of changing facts and circumstances. For additional information about income taxes, see Note 12.11.
Stock Based Compensation Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123(R), “Share-Based Payments”, using the modified-prospective-transition method. Under that transition method,We recognize stock based compensation cost includes: (1) compensation cost for all share-based payments granted prior to, but not yet vested as of, January 1, 2006,expense based on the grant date fair value estimated in accordance withof the original provisions of SFAS No. 123, and (2) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R). The resulting costs are recognized straight-lineaward over the period during which an employee is required to provide service in exchange for the awards (usuallyaward (generally the vesting periodperiod). The fair value of stock options is determined using the awards).Black-Scholes option-pricing model, which incorporates assumptions regarding the risk-free interest rate, expected volatility, expected option life and dividend yield. Stock options are granted with an exercise price equal to the stock price on the date of grant. The fair value of restricted stock units and performance stock units is based on the closing market price of Whirlpool common stock on the grant date. See Note 109 for additional information about stock based compensation.
BEFIEX Credits Our Brazilian operations earned tax credits under the Brazilian government’s export incentive program. These credits reduce Brazilian federal excise taxes on domestic sales, resulting in an increase in the operations’ recorded net sales. Based on a recalculation of available credits and a favorable court decision in the fourth F-25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
quarter of 2005, we were able to recognize approximately $69 million, $168 million $131 million and $52$131 million of export credits during 2009, 2008 2007 and 2006,2007, respectively. As of December 31, 2008,2009, approximately $542$693 million of export credits remain. We recognize credits as they are monetized.monetized; however, future actions by the Brazilian government could limit our ability to monetize these export credits. See Note 1211 for additional information about how these credits impact our effective tax rate which are included in “Foreign government tax incentive” in the rate reconciliation of our effective tax rate. Reclassifications We reclassified certain other prior period amounts in our Consolidated Financial Statements to be consistent with current period presentation. The effect of these reclassifications is not material. New Accounting Standards In March 2008,June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 105, “Generally Accepted Accounting Principles” (formerly Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”). ASC 105 establishes the FASB ASC as the single source of authoritative nongovernmental U.S. GAAP. The standard is effective for interim and annual periods ending after September 15, 2009. We adopted the provisions of the standard on September 30, 2009, which did not have a material impact on our financial statements. In June 2009, the FASB issued accounting guidance contained within ASC 810, “Consolidation”, regarding the consolidation of variable interest entities (formerly SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”). ASC 810 is intended to improve financial reporting by providing additional guidance to companies F-29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) involved with variable interest entities and by requiring additional disclosures about a company’s involvement in variable interest entities. This standard is effective for interim and annual periods ending after November 15, 2009. We adopted the provisions of the standard on January 1, 2010, which did not have a material impact on our financial statements. In June 2009, the FASB issued ASC 860, “Transfers and Servicing” (formerly SFAS No. 166, “Accounting for Transfers of Financial Assets”). ASC 860 requires more information about transfers of financial assets and where companies have continuing exposure to the risk related to transferred financial assets. It eliminates the concept of a qualifying special purpose entity, changes the requirements for derecognizing financial assets, and requires additional disclosure. This standard is effective for interim and annual periods ending after November 15, 2009. We adopted the provisions of the standard on January 1, 2010, which did not have a material impact on our financial statements. In April 2009, the FASB issued ASC 825, “Financial Instruments” (formerly FASB Staff Position 107-1, “Interim Disclosures about Fair Value of Financial Instruments”). ASC 825 requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies, as well as in annual financial statements. This standard also requires those disclosures in summarized financial information at interim reporting periods ending after June 15, 2009. We adopted the provisions of ASC 825 on June 30, 2009. See Notes 3 and 5 for information related to the fair value of our financial instruments. In March 2008, the FASB issued the disclosure requirements within ASC 815, “Derivatives and Hedging” (formerly SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB No. 133,” (“SFAS 161”133”). SFAS 161ASC 815 is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance, and cash flows. SFAS 161 appliesThe disclosure requirements apply to all derivative instruments within the scope of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS 133”). SFAS 161ASC 815. The standard also applies to non-derivative hedging instruments and all hedged items designated and qualifying under SFAS 133. SFAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS 161 encourages, but does not require, comparative disclosures for periods prior to its initial adoption.ASC 815. We will adopt SFAS 161adopted the disclosure requirements of ASC 815 on January 1, 2009 and are currently evaluating the potential impact on our financial statements. In February 2008, the FASB issued FASB Staff Position (“FSP”) 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”). FSP 157-2 delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until the beginning of the first quarter of fiscal 2009. We adopted SFAS 157 for financial assets and liabilities on January 1, 2008. For additional information regarding SFAS 157,derivative instruments and hedging activities, see Note 4.7.
In December 2007, the FASB issued accounting guidance contained within ASC 805, “Business Combinations” (formerly SFAS No. 141(R), “Business Combinations,” (“SFAS 141(R)”Combinations”). SFAS 141(R)ASC 805 requires us to continue to follow the guidance in SFAS 141 for certain aspects of business combinations, with additional guidance provided defining the acquirer, the accounting for transaction costs and contingent consideration, recognizing and measuring the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, assets and liabilities arising from contingencies, defining a bargain purchase and recognizing and measuring goodwill or a gain from a bargain purchase. In addition, under SFAS 141(R), adjustments associated with changes in tax contingencies that occur after the measurement period, not to exceed one year, are recorded as adjustments to income. This statement iswas effective for all business combinations for which the acquisition date is on or after the beginning of an entity’s first fiscal year that begins after December 15, 2008; however, the guidance in this standard regarding the treatment of income tax contingencies is retrospective to business combinations completed prior to January 1, 2009. We will adopt SFAS 141(R) for any business combinations occurring at or subsequent toadopted ASC 805 on January 1, 2009. In December 2007, the FASB issued accounting guidance contained within ASC 810, “Consolidation”, regarding noncontrolling interests (formerly SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” an Amendment of ARB No. 51, “Consolidated Financial Statements,” (“SFAS 160”Statements”). SFAS 160ASC 810-10-65 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. ThisWe adopted ASC 810-10-65 on January 1, 2009. As a result, we have reclassified financial statement line items within our Consolidated Balance Sheets and Statements of Income for the prior period to conform with this standard. Additionally, see Note 8 for disclosure reflecting the impact of ASC 810-10-65 on our reconciliation of comprehensive income and stockholders’ equity. F-26F-30
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) statement is effective as of the beginning of an entity’s first fiscal year that begins after December 15, 2008 with retrospective application. We will adopt SFAS 160 on January 1, 2009 and are currently evaluating the potential impact on our financial statements when implemented
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. The expanded disclosures in this statement about the use of fair value to measure assets and liabilities should provide users of financial statements with better information about the extent to which fair value is used to measure recognized assets and liabilities, the inputs used to develop the measurements, and the effect of certain of the measurements on earnings (or changes in net assets) for the period. We adopted SFAS 157 for financial assets and liabilities on January 1, 2008. For additional information regarding SFAS 157, see Note 4.
(2) DISCONTINUED OPERATIONS AND BUSINESS DISPOSITION Discontinued Operations
On March 31, 2006, we completed the acquisition of Maytag. The results of Maytag’s operations have been included in our Consolidated Financial Statements beginning April 1, 2006. The following businesses acquired as part of the acquisition of Maytag were divested. Divesting these businesses allows us to focus on the core appliance business.
Amana commercial
On September 6, 2006, we sold the Amana commercial microwave business to Aga Foodservice Inc. for approximately $49 million. Revenues and costs for this business were classified as a component of discontinued operations during the second quarter of 2006. Due to our continuing involvement with the Amana commercial microwave business as an OEM supplier, we reclassified the operating results related to Amana commercial microwave business into continuing operations during the third quarter of 2006.
Dixie-Narco
On October 23, 2006, we completed the sale of the Dixie-Narco vending systems business to Crane Co. for approximately $46 million. The difference between the proceeds received and the net book value of the assets recorded was an adjustment to goodwill.
Hoover
On January 31, 2007, we completed the sale of the Hoover floor-care business to Techtronic Industries, Co., Ltd. for approximately $107 million. The difference between the proceeds received and the net book value of the assets recorded was an adjustment to goodwill.
Jade
On April 2, 2007, we completed the sale of the Jade commercial and residential products businesses to Middleby Corporation. The difference between the proceeds received and the net book value of the assets recorded was an adjustment to goodwill.
As part of the sale of each of the above operations, we retained certain liabilities associated with pension benefits and, in the case of Hoover, postretirement medical benefits for currently retired Hoover employees. In addition, with respect to the sale of the Dixie-Narco vending systems business, we retained certain environmental liabilities. For additional information about pension and postretirement benefits see Note 13.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The associated results of operations and cash flows related to the discontinued operations have been separately reported as of and for the years ended December 31, 2007 and December 31, 2006.
The following table includes certain income statement information related to the results of the Dixie-Narco, Hoover and Jade businesses:
| | | | | | | | | | | Year Ended December 31, | | Millions of dollars | | 2007 | | | 2006 | | Net sales | | $ | 43 | | | $ | 443 | | | | | Loss before income taxes | | | (10 | ) | | | (79 | ) | Income tax benefit | | | 3 | | | | 26 | | | | | | | | | | | Loss from discontinued operations, net of tax | | $ | (7 | ) | | $ | (53 | ) | | | | | | | | | |
Business Disposition
On August 10, 2006, our Latin America region sold the remaining 30% interest in an equity investment. Proceeds from the sale were approximately $31 million. A pre-tax gain of $30 million was recognized and classified as interest and sundry income (expense) in the Consolidated Statements of Income.
(3) GOODWILL AND OTHER INTANGIBLES
Goodwill Goodwill and indefinite lived intangibles are subject to an annual impairment analysis performed during the fourth quarter of each year, by reporting unit. We determine the fair value of each reporting unit using discounted cash flows. Our reporting units include: North America, Europe, Multibras and Embraco (which combined is our Latin America reportable operating segment), and Asia. We performed the annual impairment tests and determined there is no impairment for any period presented. The following table summarizes the net carrying amount of goodwill: | | | | | | | | | December 31, | Reporting unit—Millions of dollars | | 2008 | | 2007 | North America | | $ | 1,724 | | $ | 1,755 | Embraco | | | 4 | | | 5 | | | | | | | | Total | | $ | 1,728 | | $ | 1,760 | | | | | | | |
The changes in the carrying amounts for goodwill since December 31, 2007 are due primarily to adjustments of certain Maytag exit, relocation and employee termination excess reserves and pre-acquisition uncertain tax positions.
| | | | | | | Reporting unit—Millions of dollars | | December 31, | | 2009 | | 2008 | North America | | $ | 1,724 | | $ | 1,724 | Embraco | | | 5 | | | 4 | | | | | | | | Total | | $ | 1,729 | | $ | 1,728 | | | | | | | |
Other Intangible Assets The following table summarizes theour net carrying amountvalue of other intangible assets:assets by operating segment (North America (“NAR”), Latin America (“LAR”) and Europe (“WER”)), as follows: | | | | | | | | | | | December 31, | | Estimated Useful Life | Millions of dollars | | 2008 | | 2007 | | Trademarks | | $ | 1,511 | | $ | 1,516 | | Indefinite life | Customer relationships | | | 242 | | | 258 | | 18 years | Patents and other agreements | | | 68 | | | 80 | | 6 to 10 years | | | | | | | | | | Total other intangibles assets, net | | $ | 1,821 | | $ | 1,854 | | | | | | | | | | | |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | December 31—Millions of dollars | | NAR | | LAR | | WER | | Total | | Estimated Useful Life | | 2009 | | 2008 | | 2009 | | 2008 | | 2009 | | 2008 | | 2009 | | 2008 | | Trademarks | | $ | 1,478 | | $ | 1,478 | | $ | — | | $ | — | | $ | 34 | | $ | 34 | | $ | 1,512 | | $ | 1,512 | | Indefinite life | Customer relationships | | | 226 | | | 242 | | | — | | | — | | | — | | | — | | | 226 | | | 242 | | 18 years | Patents and non-compete agreements | | | 42 | | | 53 | | | 6 | | | 5 | | | 10 | | | 9 | | | 58 | | | 67 | | 6 to 10 years | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total other intangibles assets, net | | $ | 1,746 | | $ | 1,773 | | $ | 6 | | $ | 5 | | $ | 44 | | $ | 43 | | $ | 1,796 | | $ | 1,821 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization expense is estimated to be $28 million for each of the years 2009-2012 is estimated to be $302010-2012, $20 million and for 2013 is estimated to be $22 million.and $16 million for 2014. (4)(3) FAIR VALUE MEASUREMENTS
As described in Note 1, we adopted SFAS 157 on January 1, 2008. SFAS 157, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. SFAS 157 clarifies that fairFair value is measured based on an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, SFAS 157 establishes a three-tier fair value hierarchy is established, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Assets and liabilities measured at fair value are based on one or more of three valuation techniques noted in SFAS 157.techniques. The three valuation techniques are identified in the table below and are as follows: | (a) | | Market approach—prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) | (b) | | Cost approach—amount that would be required to replace the service capacity of an asset (replacement cost) |
| (c) | | Income approach—techniques to convert future amounts to a single present amount based on market expectations (including present value techniques, option-pricing and excess earnings models) |
Assets and liabilities measured at fair value on a recurring basis are as follows: | Millions of dollars | | December 31, 2008 | | Quoted Prices In Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unbservable Inputs (Level 3) | | Valuation Technique | | | December 31—Millions of dollars | | | Total | | Quoted Prices In Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Valuation Technique | | 2009 | | | | | | | | | | | | Money market funds(1) | | | $ | 355 | | | $ | 355 | | $ | — | | | $ | — | | (a | ) | Net derivative contracts | | | | 97 | | | | — | | | 97 | | | | — | | (a | ) | Available for sale investments | | $ | 17 | | | $ | 17 | | $ | — | | | $ | — | | (a | ) | | | 25 | | | | 25 | | | — | | | | — | | (a | ) | 2008 | | | | | | | | | | | | Net derivative contracts | | | (234 | ) | | | — | | | (234 | ) | | | — | | (a | ) | | $ | (234 | ) | | $ | — | | $ | (234 | ) | | $ | — | | (a | ) | Available for sale investments | | | | 17 | | | | 17 | | | — | | | | — | | (a | ) |
(1) | | Money market funds are primarily comprised of U.S. government obligations. |
During the December 2008, quarter, we recorded an impairment charge of $9 million in our Europe segment associated with an available for sale investment. The impairment charge was recorded in interest and sundry income (expense) in our Consolidated Statements of Income for the year ended December 31, 2008. There were no changes in our valuation techniques used to measure fair values on a recurring and nonrecurring basis as a result of adopting SFAS 157.
(5)(4) INVENTORIES
| December 31—Millions of dollars | | 2008 | | 2007 | | | 2009 | | 2008 | | Finished products | | $ | 2,213 | | | $ | 2,232 | | | $ | 1,853 | | | $ | 2,213 | | Work in process | | | 49 | | | | 52 | | | | 50 | | | | 49 | | Raw materials | | | 515 | | | | 525 | | | | 439 | | | | 515 | | | | | | | | | | | | | | | | | | 2,777 | | | | 2,809 | | | | 2,342 | | | | 2,777 | | Less excess of FIFO cost over LIFO cost | | | (186 | ) | | | (144 | ) | | | (145 | ) | | | (186 | ) | | | | | | | | | | | | | | Total inventories | | $ | 2,591 | | | $ | 2,665 | | | $ | 2,197 | | | $ | 2,591 | | | | | | | | | | | | | | |
The decrease in inventories in 2009 compared to 2008 is driven primarily by increased demand in our Latin America region due to favorable economic conditions in Brazil, the Impostos sobre Produtos sales tax holiday declared by the Brazilian government for the second half of 2009 and decreases in production levels in our North America and Europe regions. LIFO inventories represent approximately 40% and 43% of total inventories at December 31, 2009 and 2008, respectively. Throughout 2009, we decreased our excess of FIFO cost over LIFO cost reserve due to the impact of lower materials costs during 2009 and decrements in LIFO layers totaling approximately $2 million. F-29F-32
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) The decrease in inventories, when compared to December 31, 2007, is driven primarily by the impact of changes in foreign currency and an increased excess of FIFO cost over LIFO cost.
LIFO inventories represent approximately 43% and 42% of total inventories at December 31, 2008 and 2007, respectively. During the December 2008 quarter, we increased our excess of FIFO cost over LIFO cost adjustment due to the impact of higher materials costs and lower productivity during 2008.
(6)(5) FINANCING ARRANGEMENTS
Debt The following table summarizes our debt at December 31, 20082009 and 2007:2008: | Millions of dollars | | 2008 | | 2007 | | 2009 | | 2008 | Debentures—9.1%, maturing 2008 | | $ | — | | $ | 125 | | Variable rate notes, maturing through 2009 | | | 200 | | | 200 | | $ | — | | $ | 200 | Senior note—8.6%, maturing 2010 | | | 325 | | | 325 | | | 325 | | | 325 | Senior note—6.125%, maturing 2011 | | | 300 | | | 299 | | | 300 | | | 300 | Senior note—8.0%, maturing 2012 | | | | 350 | | | — | Medium-term note—5.5%, maturing 2013 | | | 499 | | | — | | | 499 | | | 499 | Maytag medium-term note—6.5%, maturing 2014 | | | 102 | | | 103 | | | 102 | | | 102 | Senior note—8.6%, maturing 2014 | | | | 500 | | | — | Maytag medium-term note—5.0%, maturing 2015 | | | 190 | | | 189 | | | 192 | | | 190 | Senior note—6.5%, maturing 2016 | | | 249 | | | 249 | | | 249 | | | 249 | Debentures—7.75%, maturing 2016 | | | 243 | | | 243 | | | 244 | | | 243 | Other (various maturing through 2016) | | | 96 | | | 62 | | | 119 | | | 96 | | | | | | | | | | | | | 2,204 | | | 1,795 | | | 2,880 | | | 2,204 | Less current maturities | | | 202 | | | 127 | | | 378 | | | 202 | | | | | | | | | | Total long-term debt, net of current maturities | | $ | 2,002 | | $ | 1,668 | | $ | 2,502 | | $ | 2,002 | | | | | | | | | |
The following table summarizes the contractual maturities of our debt, including current maturities, at December 31, 2008:2009: | Millions of dollars | | | | | 2009 | | $ | 202 | | 2010 | | | 382 | | $ | 378 | 2011 | | | 308 | | | 312 | 2012 | | | 9 | | | 361 | 2013 | | | 507 | | | 511 | 2014 | | | | 611 | Thereafter | | | 796 | | | 707 | | | | | | Total debt | | $ | 2,204 | | $ | 2,880 | | | | | |
On May 4, 2009, we completed a debt offering comprised of (1) $350 million aggregate principal amount of 8.000% notes due May 1, 2012 and (2) $500 million aggregate principal amount of 8.600% notes due May 1, 2014. The proceeds from the notes were used for general corporate purposes. If we experience a downgrade in our credit ratings, the notes are subject to an increase in the interest rate, resulting in higher interest payments. The notes contain customary covenants that limit our ability to incur certain liens or enter into certain sale and lease-back transactions. In addition, if we experience a specific kind of change of control, we are required to make an offer to purchase all of the notes at a purchase price of 101% of the principal amount thereof, plus accrued and unpaid interest. The notes are registered under the Securities Act of 1933, as amended, pursuant to our Registration Statement on Form S-3 (File No. 333-157392) filed with the Securities and Exchange Commission on February 1, 2008 our 9.1% debentures became due and we repaid the remaining balance of $125 million.19, 2009. On February 28, 2008 we completed the issuance of $500 million 5.50% Notesnotes due March 1, 2013 (“Notes”).2013. The Notesnotes were issued under an existing shelf registration statement filed with the Securities and Exchange Commission. We pay interest semiannually on March 1 and September 1. The Notesnotes contain a provision which requires Whirlpool to make an offer to purchase the Notesnotes at a purchase price equal to 101% of the principal amount plus any accrued and unpaid interest if certain change of control events occur. The Notesnotes are also subject to customary non-financial covenants. F-30F-33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) During 2009, we have incurred and paid a total of $5.3 million in debt financing related fees. These amounts have been capitalized and are being amortized over the term of the respective agreements. We are in compliance with financialdebt covenant requirements at December 31, 2008 and 2007.2009. The fair value of long-term debt (including current maturities) at December 31, 2009 and 2008 was $3,060 million and $2,037 million, and $1,879 million as of December 31, 2008 and 2007, respectively, and was estimated using discounted cash flow analysis based on incremental borrowing rates for similar types of borrowing arrangements. Notes Payable Notes payable consist of the following: | | | | | | | December 31—Millions of dollars | | 2008 | | 2007 | Payable to banks | | $ | 393 | | $ | 164 | Commercial paper | | | — | | | 134 | | | | | | | | Total notes payable | | $ | 393 | | $ | 298 | | | | | | | |
Notes payable consist of short termshort-term borrowings payable to banks and commercial paper used to fund working capital requirements.banks. The fair value of our notes payable approximates the carrying amount due to the short maturity of these obligations. The weighted-average interest rate on notes payable was 3.8%4.3% and 5.6%3.8% for the years ended December 31, 20082009 and 2007,2008, respectively.
We have Credit Facilitiescredit facilities which provide a $2.2$1.35 billion 5-year credit facility maturing on August 13, 2012 and $522 million maturing December 1, 2010, and include a $100$200 million letter of credit subfacility. Borrowings under the Credit Facilitiescredit facilities are available to us and designated subsidiaries for general corporate purposes, including commercial paper support. Subsidiary borrowings under these facilities, if any, are guaranteed by us. Interest under the Credit Facilitiescredit facilities accrues at a variable annual rate based on the LIBOR plus a margin or the prime rate plus a margin. The margin is dependent on our credit rating at that time. The Credit Facilitiescredit facilities require us to meet certain leverage and interest coverage requirements. At December 31, 20082009 and 2007,2008, borrowings of $0 and $247 million, and $0, respectively, were outstanding under these credit agreements and are included within notes payable in the table above.our Consolidated Balance Sheets. We are in compliance with financial covenant requirements at December 31, 20082009 and 2007.2008. Whirlpool Financial Corporation
Whirlpool Financial Corporation (“WFC”On February 27, 2009, we entered into an amendment (the “First Amendment”) is a legal entity with assets consisting primarily of leveraged leases. WFC and Whirlpool are parties to a support agreement. Pursuant to the agreement, if atAmended and Restated Long-Term Five-Year Credit Agreement (the “Credit Agreement”), dated as of December 1, 2005, by and among Whirlpool Corporation, certain other borrowers, the closelenders referred to therein, Citibank N.A., as administrative agent and fronting agent, JPMorgan Chase Bank, N.A., as syndication agent, and ABN Amro Bank N.V., Royal Bank of anyScotland and Bank of America, as documentation agents.
The First Amendment amends our $2.2 billion Credit Agreement to (1) increase our maximum Leverage Ratio (as defined in the Credit Agreement) to 3.5 to 1.0 for each fiscal quarter WFC’s net earnings availableended on or prior to December 31, 2009, reverting to 3.0 to 1.0 for fixedeach fiscal quarter ended thereafter; (2) reduce our minimum Interest Coverage Ratio (as defined in the Credit Agreement) to 1.5 to 1.0 for each fiscal quarter ended on or prior to December 31, 2009, reverting to 2.0 to 1.0 for each fiscal quarter ended thereafter; (3) limit the value of the assets subject to non-permitted liens to an amount equal to $200 million and permit liens on assets located outside of the United States arising by operation of law; (4) exclude an amount of non-recurring cash restructuring charges (as defined)of up to $100 million on a rolling 12 month basis for the precedingpurposes of calculating “Consolidated EBIT” and “Consolidated EBITDA” under the Credit Agreement; (5) for purposes of calculating the “Leverage Ratio,” provide for a $200 million exclusion from the definition of “Indebtedness” for net assets or liabilities with respect to hedging contracts; (6) increase the spread over LIBOR to 3%, the spread over prime to 2%, and the utilization fee to be paid, if amounts borrowed exceed $1.1 billion, to 1% as of the date of the First Amendment; and (7) replace the facility fee with an unused commitment fee of 0.50%, as of the date of the First Amendment. On August 13, 2009, we entered into a second amendment (the “Second Amendment”) to the Credit Agreement pursuant to which Whirlpool Corporation amended and restated such facility to be an Amended and Restated Long-Term Credit Agreement (the “Amended Credit Agreement”), by and among Whirlpool Corporation, certain other borrowers, the lenders referred to therein, JPMorgan Chase Bank, N.A., as Administrative Agent and Fronting Agent, Citibank, N.A., as Syndication Agent, The Royal Bank of Scotland plc, Fortis Capital Corp. and Bank of America, N.A., as Documentation Agents. F-34
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) The Second Amendment divides and reduces the existing credit facility into a $1.35 billion tranche maturing on August 13, 2012 (the “Extending Tranche”) and a $522 million tranche maturing December 1, 2010 (the “Non-Extending Tranche”). The Second Amendment also increases the letter of credit sublimit from $100 million to $200 million. The interest rate margin over LIBOR and the prime rate will be charged based on Whirlpool’s credit rating. For the Extending Tranche, the Second Amendment provides that the utilization fee to be paid, if amounts borrowed exceed 50% of the facility, is 0.50%. For the Non-Extending Tranche, the Second Amendment provides that the utilization fee to be paid, if amounts borrowed exceed 50% of the facility, is 1%. We will incur a commitment fee for any unused portion of the credit facility which is based on Whirlpool’s credit rating. The Second Amendment requires us to meet certain financial tests. Whirlpool’s maximum rolling twelve monthsmonth Leverage Ratio (as defined in the Amended Credit Agreement) is less than a stipulated amount, we arelimited to 3.5 to 1.0 for each fiscal quarter ended on or prior to December 31, 2010, and 3.25 to 1.0 for each fiscal quarter ended thereafter. The rolling twelve month Interest Coverage Ratio (as redefined in the Amended Credit Agreement as EBITDA to Interest Expense) is required to make a cash payment to WFCbe greater than or equal to 2.5 to 1.0 for each fiscal quarter ended on or prior to December 31, 2010 and 3.0 to 1.0 for each fiscal quarter ended thereafter. During 2009, we have incurred and paid a total of $32.8 million in notes payable financing related fees. These amounts have been capitalized and are being amortized over the insufficiency within 60 daysterm of the end of the quarter. We were not required to make any payments under this agreement during 2008, 2007, or 2006. The support agreement may be terminated by either WFC or us upon 30 days notice provided that certain conditions are met. We have also agreed to maintain ownership of at least 70% of WFC’s voting stock.respective agreements. (7)(6) COMMITMENTS AND CONTINGENCIES
Guarantees We have guarantee arrangements in a Brazilian subsidiary. As a standard business practice in Brazil, the subsidiary guarantees customer lines of credit at commercial banks to support purchases following its normal credit policies. If a customer were to default on its line of credit with the bank, our subsidiary would be required to satisfy the obligation with the bank, and the receivable would revert back to the subsidiary. At December 31, 20082009 and December 31, 2007,2008, the guaranteed amounts totaled $203$309 million and $331$203 million, respectively. Our only recourse with respect to these arrangements would be legal or administrative collection efforts directed against the customer. F-31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
We provide guarantees of indebtedness and lines of credit for various consolidated subsidiaries. The maximum amount of credit facilities available under these lines for consolidated subsidiaries totaled $1.3$1.4 billion and $1.5$1.3 billion at December 31, 2009 and 2008, and December 31, 2007.respectively. Our total outstanding bank indebtedness fromunder guarantees totaled $364$18 million and $115$364 million at December 31, 20082009 and December 31, 2007,2008, respectively. As of May 16, 2008, we guaranteed a $50 million five year revolving credit facility between certain financial institutions and a not-for-profit entity in connection with a community and economic development project (“Harbor Shores”). The fair value of the guarantee is nominal. The purpose of Harbor Shores is to stimulate employment and growth in the areas of Benton Harbor and St. Joseph, Michigan. In the event of default, we must satisfy the guarantee of the credit facility up to the amount borrowed at the date of default. For additional information about Harbor Shores see our 2008 Proxy Statement for the annual meeting of shareholders filed with the Securities and Exchange Commission on March 3, 2008. Warranty Reserves Product warranty reserves are established in the same period that revenue from the sale of the related products is recognized. The amounts of those reserves are based on established terms and our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. During 2007, we re-evaluated the cost of a voluntary recall of certainMaytag andJenn-Airbrand dishwashers that were associated with inventory from the acquisition of Maytag. As such, we increased the warranty liability as a purchase accounting adjustment in the opening balance sheet at March 31, 2006 with a corresponding increase to recorded goodwill. This amount is included in “Acquisition” in the table below. F-35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) The following represents a reconciliation of the changes in product warranty reserves for the periods presented: | Millions of dollars | | 2008 | | 2007 | | | 2009 | | 2008 | | Balance at January 1 | | $ | 226 | | | $ | 284 | | | $ | 215 | | | $ | 226 | | Acquistion | | | — | | | | 53 | | | Warranties issued during the period | | | 417 | | | | 423 | | | | 396 | | | | 417 | | Settlements made during the period | | | (411 | ) | | | (546 | ) | | | (433 | ) | | | (411 | ) | Other changes | | | (17 | ) | | | 12 | | | | 11 | | | | (17 | ) | | | | | | | | | | | | | | Balance at December 31 | | $ | 215 | | | $ | 226 | | | $ | 189 | | | $ | 215 | | | | | | | | | | | | | | | Current portion | | $ | 174 | | | $ | 172 | | | $ | 159 | | | $ | 174 | | Non-current portion | | | 41 | | | | 54 | | | | 30 | | | | 41 | | | | | | | | | | | | | | | Total | | $ | 215 | | | $ | 226 | | | $ | 189 | | | $ | 215 | | | | | | | | | | | | | | |
Product warranty reserves are included within other current liabilities and other noncurrent liabilities in our Consolidated Balance Sheets at December 31, 20082009 and 2007. F-32
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
2008. Operating Lease Commitments At December 31, 2008,2009, we had noncancelable operating lease commitments totaling $582$897 million. The annual future minimum lease payments are summarized by year in the table below: | Millions of dollars | | | | | 2009 | | $ | 150 | | 2010 | | | 114 | | $ | 186 | 2011 | | | 91 | | | 159 | 2012 | | | 68 | | | 126 | 2013 | | | 58 | | | 99 | 2014 | | | | 79 | Thereafter | | | 101 | | | 248 | | | | | | Total noncancelable operating lease commitments | | $ | 582 | | $ | 897 | | | | | |
Our rent expense was $208 million, $201 million $183 million and $154$183 million for the years 2009, 2008 2007 and 2006,2007, respectively. Purchase Obligations Our expected cash outflows resulting from purchase obligations are summarized by year in the table below: | Millions of dollars | | | | | 2009 | | $ | 288 | | 2010 | | | 320 | | $ | 278 | 2011 | | | 272 | | | 296 | 2012 | | | 123 | | | 184 | 2013 | | | 71 | | | 85 | 2014 | | | | 46 | Thereafter | | | 8 | | | 115 | | | | | | Total purchase obligations | | $ | 1,082 | | $ | 1,004 | | | | | |
F-36
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) Legal Contingencies Government authorities in various jurisdictions are conducting antitrust investigations of the global compressor industry, including our compressor business headquartered in Brazil (“Embraco”). In 2009, Embraco sales represented approximately 7% of our global net sales. In February 2009, competition authorities in Brazil, the U.S. and Europe began to seek documents from us in connection with their investigations. A grand jury subpoena from the U.S. Department of Justice requested documents for the time period from 2003 to 2009. Competition authorities in other jurisdictions have sought similar information. In September 2009, the Brazilian competition commission (CADE) agreed to terminate the administrative investigation of our compressor business. Under the terms of the settlement agreement, Whirlpool affiliates and certain executives located in Brazil acknowledged a violation of Brazilian antitrust law in the Brazilian compressor market by some Embraco employees. The settlement agreement provides for the affiliates to make contributions totaling 100 million Brazilian reais to a Brazilian government fund. The contributions translate to approximately $56 million, all of which was recorded as an expense in 2009. In December 2009, a Brazilian court agreed to the public prosecutor’s request to suspend a related criminal proceeding as to certain employees, including Paulo Periquito, former President, Whirlpool International. The proceeding will be dismissed after three years provided that the individuals comply with certain conditions imposed by the court, such as payment to a government fund, a charitable donation and periodic reporting to authorities. Suspension and dismissal of the proceeding does not involve any admission or finding of wrongdoing. We are cooperating with the ongoing government investigations in other jurisdictions and have taken actions, and will continue to take actions, to minimize our potential exposure. Since the government investigations became public in February 2009, we have been named as a defendant in numerous related antitrust lawsuits in various jurisdictions seeking damages in connection with the pricing of compressors from 1996 to 2009. Several other compressor manufacturers who are the subject of the government investigations have also been named as defendants in the litigation. United States federal lawsuits instituted on behalf of purported purchasers and containing class action allegations have been combined in one proceeding in the United States District Court for the Eastern District of Michigan. We intend to defend the lawsuits vigorously. The final outcome and impact of these matters, and related claims and investigations that may be brought in the future are subject to many variables, and cannot be predicted with certainty. An accrual has been established only where we have determined that a loss is probable and the amount of loss can be reasonably estimated. As of December 31, 2009, we have accrued charges of approximately $82 million related to these matters. While it is currently not possible to reasonably estimate the aggregate amount of costs which we may incur in connection with these matters, such costs could have a material adverse effect on the financial position, liquidity, or results of operations of Whirlpool. The Brazilian Constitution provides a general basis for recognizing tax credits on the purchase of raw materials used in production (“IPI tax credit”). Certain raw materials that are exempt or have a zero tax basis in the production process qualify for these IPI tax credits. Based on legal precedent, in 2003 and 2004, we recognized tax credits in an aggregate amount of $25$26 million adjusted for currency. The Brazilian tax authority subsequently challenged the recording of IPI tax credits. No credits were recognized in 2005 through 2008. The2009. In 2009, we entered into an agreement under a special Brazilian government program providing for extended payment terms and reductions in penalties and interest to encourage taxpayers to resolve disputed IPI tax credit amounts. Charges recorded related to this program for the year ended December 31, 2009 include $27 million in tax that was recorded in cost of products sold, $16 million in interest expense and $4 million in penalties F-37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) recorded in interest and sundry income (expense) in our Consolidated Statements of Income. During the December 2009 quarter, based on newly issued regulations, we settled with the Brazilian tax authority has challenged the recordingto resolve these and other disputed tax amounts. As a result of IPI tax credits. The Brazilian Supreme Court, which rules on a case by case basis, ruled adversely against another taxpayerthis settlement agreement, we recorded an increase in an IPI tax credit case. That ruling is not yet final. Our case is being defended at an administrative level. Our potential exposure ranges from zero to $60 million comprisedvalue added taxes owed of $25approximately $4 million in taxes,cost of goods sold, a reduction in interest expense totaling $18 million related to interest abatement, a reduction in interest and $17sundry income (expense) of $4 million in penalties. It is not possiblerelated to determine the outcomepenalty abatement and related income tax expense of these legal proceedings with certainty and as such, we have not accrued a liability for$5 million under this exposure at December 31, 2008.special program. In 1989, a Brazilian affiliate (now a subsidiary) brought an action against a financial institution in Brazil seeking a “Declaration of Non-Enforceability of Obligations” relating to loan documentation entered into without authority by a senior officer of the affiliate. In September 2000, an adverse decision in the declaratory action became final. In 2001, the financial institution began a collection action and we responded with a counterclaim. The lower court dismissed the counterclaim in 2002 and the Superior Court confirmed the lower court decision in December 2005. The Superior Court dismissed our counterclaim in 2007. In late 2008, the lower court issued a F-33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
decision in the collection action in favor of the financial institution in the amount of 283 million Brazilian Realreais (approximately $121 million U.S., based on recent exchange rates)$162 million), plus judicial adjustments, which could be significant. We have appealed this decision. Based on our outside counsel’s assessment of the case, we increased the amount previously accrued for our estimated exposure for this litigation remains unchanged.by 80 million Brazilian reais (approximately $46 million) in the December 2009 quarter. However, the amount of the final award, if any, may be materially different than the amount we have accrued. On February 17, 2009, we received a grand jury subpoena from the U.S. Department of Justice requesting documents relating to an antitrust investigation of the global compressor industry. Whirlpool subsidiaries in Brazil and Italy were visited on the same day by competition authorities seeking similar information. We intend to cooperate with these investigations. It is not possible at this time to predict the likely outcome or impact of these investigations.
We are currently defending a number of class action suits in federal and state courts alleging breach of warranty, fraud and violation of state consumer protection acts. There are no allegations of any personal injury or property damage. However, unspecified compensatory damages are being sought. We believe these suits are without merit. We intend to vigorously defend these actions. We are involved in various other legal actions arising in the normal course of business. Management, after taking into consideration legal counsel’s evaluation of such actions, is of the opinion that the outcome of these matters will not have a material adverse effect, if any, on our Consolidated Financial Statements. Product Recalls We regularly engage in investigations of potential quality and safety issues as part of our ongoing effort to deliver quality products to customers. We are currently investigating a limited number of potential quality and safety issues. As necessary, we undertake to effect repair or replacement of appliances in the event that an investigation leads to the conclusion that such action is warranted. We currently expect to undertakeOn March 10, 2009, we announced, in a corrective action to addressjoint press release issued with the U.S. Product Safety Commission, a supplier-related qualityvoluntary recall of 1.8 million refrigerators sold in the U.S. and potential product safety problem that may affect 1 million appliances manufacturedCanada between 2001 and 2003. We have accrued $31.5 million for this matter based on our current2004. The recall is due to a defect in an electrical relay component purchased from a supplier. The estimate of the costsaffected population is higher by 0.8 million refrigerators than as disclosed in our 2008 Form 10-K due to a determination that the defective part which caused the product recall also resulted in similar failures in another type of refrigerator. There have been no other significant changes in assumptions other than increasing the action.
On March 21, 2007,affected population. As a result, we announced a voluntary recall related to approximately 250,000Maytagbrand front-load washing machines. Thehave accrued $67 million as the estimated cost of this recall. We have recorded $35 million and $32 million, respectively, as a charge to cost of products sold related to this accrual during the years ended December 31, 2009 and 2008. Our actual costs related to this action will depend on several factors, including the number of consumers who respond to the recall, the costs of repair and administration, and whether costs will be paid byrecovered from the OEM supplier. Of this accrual, we have approximately $2 million remaining at December 31, 2009.
On February 1, 2007, Maytag Corporation announced a voluntary recall of approximately 2.3 millionMaytag andJenn-Air brand dishwashers. We originally estimated the cost of the recall to be $82 million, which we recorded as an assumed liability in our purchase price allocation related to the acquisition of Maytag, with a F-38
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) corresponding increase to recorded goodwill. As of September 30, 2008, we had revised this estimate to $102 million due to an anticipated increase in the response rate. The incremental increase of $20 million was charged to cost of products sold in our Consolidated StatementsStatement of Income during 2008. Of this $102 million accrual, we havehad approximately $7 million remaining at December 31, 2008.2008, all of which was paid during 2009. (8)(7) HEDGES AND DERIVATIVE FINANCIAL INSTRUMENTS
Derivative instruments are accounted for at fair value. The accounting for changes in the fair value of a derivative depends on the intended use and designation of the derivative instrument. For a derivative instrument designated as a fair value hedge, the gain or loss on the derivative is recognized in earnings in the period of change in fair value together with the offsetting gain or loss on the hedged item. For a derivative instrument designated as a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of Other Comprehensive Income (“OCI”) and is subsequently recognized in earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss is recognized in earnings. Gains and losses from changes in fair values of derivatives that are not designated as hedges for accounting purposes are recognized in earnings. Using derivative instruments means assuming counterparty credit risk. Counterparty credit risk relates to the loss we could incur if a counterparty were to default on a derivative contract. We 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 the unrealized gains, if any, on such derivative contracts. We do not require, nor do we post, collateral or security on such contracts. Hedging Strategy We are exposed to market risk from changescertain risks relating to our ongoing business operations. As a result, we enter into derivative transactions to manage certain of these exposures that arise in the normal course of business. The primary risks managed by using derivative instruments are foreign currency exchange rates,rate, commodity price and domestic and foreign interest rates, and commodity prices.rate risks. Fluctuations in these rates and prices can affect our operating results and financial condition. We manage the exposure to these market risks through operating and financing activities and through the use of derivative financial instruments. We do not enter into derivative financial instruments for speculativetrading or tradingspeculative purposes. F-34
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)Foreign currency exchange rate risk
We incur expenses associated with the procurement and production of products in a limited number of countries, while we sell in the local currencies of a large number of countries. Our primary foreign currency exchange exposures result from cross-currency sales of products. As a result, we enter into foreign exchange contracts to hedge certain firm commitments and forecasted transactions to acquire products and services that are denominated in foreign currencies. Using derivative markets means assuming counterparty credit risk. Counterparty credit risk relatesWe enter into certain undesignated non-functional currency asset and liability hedges that relate primarily to the loss we could incur if a counterparty defaulted on a derivative contract. We primarily deal with investment-grade counterpartiesshort-term payables, receivables, inventory 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 the unrealized gains on such derivative contracts. We do not require, nor do we post, collateral or security on such contracts.
The following table summarizes our outstanding derivative contracts at December 31, 2008 and 2007:
| | | | | | | | | | | | | | | | | Notional Amount in Millions of dollars | | | | | Exposure | | Derivative | | 2008 | | 2007 | | Hedge Type | | Term | Forecasted cross currency cash flows | | Foreign exchange forwards/options | | $ | 1,831 | | $ | 2,023 | | Cash flow or fair value hedge | | Various, up to 18 months | | | | | | | Non-functional currency asset/liability | | Foreign exchange forwards/options | | $ | 1,130 | | $ | 1,154 | | Undesignated | | Various, up to 11 months | | | | | | | Raw material purchases | | Commodity swaps | | $ | 217 | | $ | 294 | | Cash flow or fair value hedge | | Various, up to 35 months | | | | | | | Raw material purchases | | Commodity swaps | | $ | 45 | | $ | 23 | | Undesignated | | Various, up to 11 months | | | | | | | Floating rate debt | | Interest rate swap | | $ | 50 | | $ | 50 | | Cash flow hedge | | 2009 | | | | | | | Fixed rate debt | | Interest rate swaps | | $ | — | | $ | 100 | | Fair value hedge | | 2008 | | | | | | | Floating rate debt | | Interest rate swaps | | $ | — | | $ | 150 | | Cash flow hedge | | 2008 |
Forecasted cross currencyintercompany loans. These forecasted cross-currency cash flows relate primarily to foreign currency denominated expenditures and intercompany financing agreements, royalty agreements and dividends. Non-functional currency asset and liability hedges are undesignated but relate primarily
Commodity price risk We enter into forward contracts on various commodities to short term payables and receivables and intercompany loans. Commodity swaps relate to raw materialmanage the price risk associated with forecasted purchases (for example, copper and aluminum)of materials used in theour manufacturing process. Unrealized gainsThe objective of the hedges is to reduce the variability of cash flows associated with the forecasted purchase of those commodities. F-39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) Interest rate risk We enter into interest rate swap agreements to manage interest rate risk exposure. Our interest rate swap agreements effectively modify our exposure to interest rate risk, primarily through converting certain of our floating rate debt to a fixed rate basis, and losses relatingcertain fixed rate debt to these foreigna floating rate basis, thus reducing the impact of interest rate changes on future interest expense. These agreements involve either the receipt or payment of floating rate amounts in exchange forwards/optionsfor fixed rate interest payments or receipts, respectively, over the life of the agreements without an exchange of the underlying principal amounts. The following table summarizes our outstanding derivative contracts and commodity swaps were a loss of $233 million and a loss of $3 milliontheir effects on our Consolidated Balance Sheet at December 31, 2008 and 2007, respectively.2009: An interest rate swap with a notional amount
| | | | | | | | | | | | | | | | | | Fair Value of(1) | | | | | | | | | | | | Millions of dollars | | Notional Amount | | Hedge Assets | | Hedge Liabilities | | Type of Hedge(2) | | Term | Designated derivatives | | | | | | | | | | | | | | Foreign exchange forwards/options | | $ | 1,090 | | $ | 40 | | $ | 54 | | (CF)/(FV) | | Various, up to 15 months | Commodity swaps/options | | | 486 | | | 109 | | | 2 | | (CF)/(FV) | | Various, up to 29 months | | | | | | | | | | | | | | | Total designated derivatives | | | | | $ | 149 | | $ | 56 | | | | | | | | | | | | | | | | | | | Undesignated derivatives | | | | | | | | | | | | | | Foreign exchange forwards/options | | $ | 801 | | $ | 6 | | $ | 4 | | | | Various, up to 5 months | Commodity swaps/options | | | 24 | | | 4 | | | 2 | | | | Various, up to 24 months | | | | | | | | | | | | | | | Total undesignated derivatives | | | | | | 10 | | | 6 | | | | | | | | | | | | | | | | | | | Total derivatives | | | | | $ | 159 | | $ | 62 | | | | | | | | | | | | | | | | | | |
(1) | | Periodic adjustments from fair valuing hedge assets and liabilities are recorded in other current assets and other assets or other current liabilities and other liabilities. As of December 31, 2009, hedge assets of $119 million and $40 million were recorded in other current assets and other assets, respectively, and hedge liabilities of $61 million and $1 million were recorded in other current liabilities and other liabilities, respectively. |
(2) | | Designated derivatives are either considered cash flow (CF) or fair value hedges (FV). |
The effects of $50 million maturing in 2009 is designated and accounted for as a cash flow hedgederivative instruments on future cash payments. The fair valueour Consolidated Statement of this contract was a loss of $1 million and $0.5 million as of December 31, 2008 and 2007, respectively. During 2008, certain interest rate swaps matured associated with fixed and floating rate debt with notional amounts of $100 million and $150 million, respectively. Gains and losses related to the ineffective portion of our hedging instruments were immaterialIncome for the yearsyear ended December 31, 2008, 2007 and 2006.2009 are as follows:
| | | | | | | | | | | | Cash Flow Hedges—Millions of dollars | | Gain (Loss) Recognized in OCI (Effective Portion) | | | Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)(1) | | | Gain (Loss) Recognized in Income (Ineffective Portion)(2) | Foreign exchange forwards/options | | $ | (23 | ) | | $ | 8 | (a)(b) | | $ | 1 | Commodity swaps/options | | | 196 | | | | (101 | )(b) | | | 2 | Interest rate swaps | | | 1 | | | | 1 | (c) | | | — | | | | | | | | | | | | | | | $ | 174 | | | $ | (92 | ) | | $ | 3 | | | | | | | | | | | | |
(1) | | Gains and losses reclassified from accumulated OCI into income are recorded in (a) interest and sundry income (expense), (b) cost of products sold or (c) interest expense. |
(2) | | Gains and losses recognized in income related to the ineffective portion of hedges are recorded in interest and sundry income (expense). |
F-40
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) | | | | | | | | | | Fair Value Hedges—Millions of dollars | | Gain (Loss) Recognized on Derivative(3) | | | Gain (Loss) Recognized on Related Hedged Items(3) | | Hedged Item | Foreign exchange forwards/options | | $ | (7 | ) | | $ | 7 | | Non-functional currency assets and liabilities |
(3) | | Gains and losses recognized in income are recorded in interest and sundry income (expense). |
| | | | | Undesignated Hedges—Millions of dollars | | Gain (Loss) Recognized on Undesignated Hedges(4) | | Foreign exchange forwards/options | | $ | 70 | | Commodity swaps | | | (6 | ) | | | | | | | | $ | 64 | | | | | | |
(4) | | Mark to market gains and losses are recorded in interest and sundry income (expense). |
The net amount of unrealized gain or loss on derivative instruments included in accumulated other comprehensive income related to contracts maturing, and expected to be realized during 2009the next twelve months is $141a gain of $57 million at December 31, 2008.2009. Early Hedge Settlement During November and December 2008, we cash settled certain foreign currency derivative contracts prior to their scheduled settlement dates. As a result of these transactions, we received $82 million in cash, which represented the fair value of these contracts at the date of settlement. In accordance with SFAS 133, effectiveEffective gains of $82 million were initially recorded in accumulated other comprehensive incomeOCI until the hedged forecasted transactions affect earnings. Theseaffected earnings, then the gains will then bewere recorded as a reduction in cost of products sold on our F-35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Consolidated Statements of Income. Approximately $10 million inof these gains were recorded intoin earnings during 2008 and the December 2008 quarter.remainder was recorded in earnings in 2009. There was no ineffectiveness related to these settled foreign currency derivative contracts. (9)(8) STOCKHOLDERS’ EQUITY
Comprehensive Income Comprehensive income primarily includes (1) our reported net earnings, (2) foreign currency translation, (3) changes in the effective portion of our open derivative contracts designated as cash flow hedges, (4) changes in our unrecognized pension and other postretirement benefits and (5) changes in fair value of our available for sale securities. F-41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) The following table shows the components of accumulated other comprehensive income (loss) available to Whirlpool common stockholders at December 31, 2007, 2008 and 2009, and the activity for the years then ended: | | | | | | | | | | | | | | | | | | | | | Millions of dollars | | Foreign Currency | | | Derivative Instruments | | | Unrecognized Pension and Postretirement Liability | | | Marketable Securities | | | Total | | December 31, 2006 | | $ | (376 | ) | | $ | 48 | | | $ | (315 | ) | | $ | — | | | $ | (643 | ) | | | | | | | | | | | | | | | | | | | | | | Unrealized gain (loss) | | | 320 | | | | (68 | ) | | | — | | | | 17 | | | | 269 | | Unrealized gain and prior service credit | | | — | | | | — | | | | 225 | | | | — | | | | 225 | | Tax effect | | | (34 | ) | | | 4 | | | | (79 | ) | | | — | | | | (109 | ) | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income (loss), net of tax | | | 286 | | | | (64 | ) | | | 146 | | | | 17 | | | | 385 | | Less: Other comprehensive income available to noncontrolling interests | | | 11 | | | | 1 | | | | — | | | | — | | | | 12 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income (loss) available to Whirlpool common stockholders | | | 275 | | | | (65 | ) | | | 146 | | | | 17 | | | | 373 | | | | | | | | | | | | | | | | | | | | | | | December 31, 2007 | | | (101 | ) | | | (17 | ) | | | (169 | ) | | | 17 | | | | (270 | ) | | | | | | | | | | | | | | | | | | | | | | Unrealized loss | | | (461 | ) | | | (161 | ) | | | — | | | | (10 | ) | | | (632 | ) | Unrealized loss and prior service credit | | | — | | | | — | | | | (726 | ) | | | — | | | | (726 | ) | Tax effect | | | 34 | | | | 47 | | | | 274 | | | | — | | | | 355 | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive loss, net of tax | | | (427 | ) | | | (114 | ) | | | (452 | ) | | | (10 | ) | | | (1,003 | ) | Less: Other comprehensive loss available to noncontrolling interests | | | (3 | ) | | | (11 | ) | | | — | | | | — | | | | (14 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive loss available to Whirlpool common stockholders | | | (424 | ) | | | (103 | ) | | | (452 | ) | | | (10 | ) | | | (989 | ) | | | | | | | | | | | | | | | | | | | | | | December 31, 2008 | | | (525 | ) | | | (120 | ) | | | (621 | ) | | | 7 | | | | (1,259 | ) | | | | | | | | | | | | | | | | | | | | | | Unrealized gain | | | 333 | | | | 266 | | | | — | | | | 1 | | | | 600 | | Unrealized loss and prior service cost | | | — | | | | — | | | | (109 | ) | | | — | | | | (109 | ) | Tax effect | | | (23 | ) | | | (86 | ) | | | 27 | | | | — | | | | (82 | ) | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income (loss), net of tax | | | 310 | | | | 180 | | | | (82 | ) | | | 1 | | | | 409 | | Less: Other comprehensive income available to noncontrolling interests | | | 11 | | | | 7 | | | | — | | | | — | | | | 18 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income (loss) available to Whirlpool common stockholders | | | 299 | | | | 173 | | | | (82 | ) | | | 1 | | | | 391 | | | | | | | | | | | | | | | | | | | | | | | December 31, 2009 | | $ | (226 | ) | | $ | 53 | | | $ | (703 | ) | | $ | 8 | | | $ | (868 | ) | | | | | | | | | | | | | | | | | | | | | |
Net Earnings per Share Diluted net earnings per share of common stock include the dilutive effect of stock options and other share-based compensation plans. For the years ended December 31, 2009, 2008 and 2007, a total of approximately 3,090,508 options, 2,728,410 options and 1,709,000 options, respectively, were excluded from the calculation of diluted earnings per share because their exercise prices would render them anti-dilutive. F-42
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) Basic and diluted earnings per share from continuing operations were calculated as follows: | | | | | | | | | | December 31—Millions of dollars | | 2009 | | 2008 | | 2007 | Numerator for basic and diluted earnings per share—net earnings available to Whirlpool common stockholders | | $ | 328 | | $ | 418 | | $ | 640 | | | | | | | | | | | Denominator for basic earnings per share—weighted-average shares | | | 74.6 | | | 75.1 | | | 78.5 | Effect of dilutive securities—stock-based compensation | | | 1.0 | | | 0.9 | | | 1.4 | | | | | | | | | | | Denominator for diluted earnings per share—adjusted weighted-average shares | | | 75.6 | | | 76.0 | | | 79.9 | | | | | | | | | | |
Noncontrolling Interests During the December 2009 quarter, our Latin America region entered into a definitive agreement to purchase 1.8% of the outstanding noncontrolling interest in Brasmotor S.A. for $12 million. This transaction closed on January 15, 2010 and raised our ownership interest in Brasmotor S.A. to 95.6%. Repurchase Program In June 2004, our Board of Directors authorized a share repurchase program of up to $500 million. During 2007, we repurchased 3.8 million shares at an aggregate purchase price of $368 million and during the three months ended March 31, 2008 quarter, we repurchased 1.1 million shares at an aggregate purchase price of $97 million under this program. At March 31, 2008, there were no remaining funds authorized under this program. On April 23, 2008, our Board of Directors authorized a new share repurchase program of up to $500 million. Share repurchases are made from time to time on the open market as conditions warrant. During 2008, we repurchased 1.9 million shares at an aggregate purchase price of $150 million under this program. We made no share repurchases during 2009. At December 31, 2008,2009, there were $350 million remaining funds authorized under this program. Comprehensive Income
Comprehensive income primarily includes (1) our reported net earnings, (2) foreign currency translation, (3) changes in the effective portion of our open derivative contracts designated as cash flow hedges, (4) changes in our unrecognized pension and other postretirement benefit obligations (post adoption of SFAS 158) and (5) changes in fair value of our available for sale securities.
The following table shows the components of accumulated other comprehensive income at December 31, 2008, 2007 and 2006, and the activity for the years then ended:
| | | | | | | | | | | | | | | | | | | | | | | | | Millions of dollars | | Foreign Currency | | | Derivative Instruments | | | Additional Minimum Pension Liability | | | Unrecognized Pension and Postretirement Liability | | | Marketable Securities | | | Total | | Balance at December 31, 2005 | | $ | (545 | ) | | $ | — | | | $ | (317 | ) | | $ | — | | | $ | — | | | $ | (862 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Additional minimum pension liability adjustments | | | — | | | | — | | | | 194 | | | | — | | | | — | | | | 194 | | Unrealized gain | | | 173 | | | | 52 | | | | — | | | | — | | | | — | | | | 225 | | Tax effect | | | (4 | ) | | | (4 | ) | | | (78 | ) | | | — | | | | — | | | | (86 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Net of tax | | | 169 | | | | 48 | | | | 116 | | | | — | | | | — | | | | 333 | | Adoption of SFAS 158, net | | | — | | | | — | | | | 201 | | | | (315 | ) | | | — | | | | (114 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2006 | | | (376 | ) | | | 48 | | | | — | | | | (315 | ) | | | — | | | | (643 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized gain (loss) | | | 309 | | | | (69 | ) | | | — | | | | — | | | | 17 | | | | 257 | | SFAS 158 | | | — | | | | — | | | | — | | | | 225 | | | | — | | | | 225 | | Tax effect | | | (34 | ) | | | 4 | | | | — | | | | (79 | ) | | | — | | | | (109 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Net of tax | | | 275 | | | | (65 | ) | | | — | | | | 146 | | | | 17 | | | | 373 | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2007 | | | (101 | ) | | | (17 | ) | | | — | | | | (169 | ) | | | 17 | | | | (270 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized loss | | | (458 | ) | | | (150 | ) | | | — | | | | — | | | | (10 | ) | | | (618 | ) | SFAS 158 | | | — | | | | — | | | | — | | | | (726 | ) | | | — | | | | (726 | ) | Tax effect | | | 34 | | | | 47 | | | | — | | | | 274 | | | | — | | | | 355 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net of tax | | | (424 | ) | | | (103 | ) | | | — | | | | (452 | ) | | | (10 | ) | | | (989 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2008 | | $ | (525 | ) | | $ | (120 | ) | | $ | — | | | $ | (621 | ) | | $ | 7 | | | $ | (1,259 | ) | | | | | | | | | | | | | | | | | | | | | | | | | |
F-36
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Net Earnings per Share
Diluted net earnings per share of common stock include the dilutive effect of stock options and other share-based compensation plans. For the years ended December 31, 2008, 2007 and 2006, a total of approximately 2,728,410 options, 1,709,000 options and 2,021,000 options, respectively, were excluded from the calculation of diluted earnings per share because their exercise prices would render them anti-dilutive.
Basic and diluted earnings per share from continuing operations were calculated as follows:
| | | | | | | | | | Millions of dollars and shares | | 2008 | | 2007 | | 2006 | Numerator for basic and diluted earnings per share—earnings from continuing operations | | $ | 418 | | $ | 647 | | $ | 486 | | | | | | | | | | | Denominator for basic earnings per share—weighted-average shares | | | 75.1 | | | 78.5 | | | 75.1 | Effect of dilutive securities—stock-based compensation | | | 0.9 | | | 1.4 | | | 1.4 | | | | | | | | | | | Denominator for diluted earnings per share—adjusted weighted-average shares | | | 76.0 | | | 79.9 | | | 76.5 | | | | | | | | | | |
Preferred Stock Purchase Rights Rights to repurchase preferred stock under the Rights Agreement dated April 12, 1998 expired on May 22, 2008 pursuant to the terms of the Rights Agreement. (10)(9) STOCK OPTION AND INCENTIVE PLANS
We sponsor several share-based employee incentive plans. Share-based compensation expense for grants awarded under these plans was $27 million, $30 million and $40 million in 2009, 2008, and $37 million in 2008, 2007, and 2006, respectively. Related income tax benefits recognized in earnings were $10 million, $11 million and $15 million in 2009, 2008, and $14 million in 2008, 2007, and 2006, respectively. UnrecognizedAt December 31, 2009, unrecognized compensation cost related to non-vested stock option and RSUstock unit awards as of December 31, 2008 and December 31, 2007 totaled $38 million and $54 million, respectively.$33 million. The cost of these non-vested awards is expected to be recognized over the estimated requisite service period. Thea weighted-average remaining vesting period of the non-vested awards is approximately 2234 months.
Share-Based Employee Incentive Plans On April 17, 2007, our shareholders approved the 2007 Omnibus Stock and Incentive Plan (“2007 OSIP”). This plan was previously adopted by our Board of Directors on February 20, 2007 and provides for the issuance F-43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) of stock options, performance stock units, performance shares, restricted stock and restricted stock equivalentsunits with terms of no more than 10 years. We have reserved 3,000,000At December 31, 2009, approximately 630 thousand shares of common stock for issuance, as authorized under this plan, of which 2,208,245 remain available for issuance at December 31, 2008. The 2007 OSIP replaced the 1998, 2000 and 2002 OSIPs (“Old Plans”). The Old Plans will remain in existence solely for the purpose of addressing the rights of holders of already granted existing awards. Prior to the approval ofunder the 2007 OSIP, we granted 453,620 options, with an exercise price of $94.47 and a 10-year term and 256,527 restricted stock units in 2007. No additional awards will be granted under the Old Plans. Any shares subject to outstanding awards granted under the old plans that subsequently lapse, expire, are forfeited or are cancelled are available for grant under the 2007 OSIP.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
our only active plan. Stock Options Eligible employees receive stock options as a portion of their total compensation. Such options generally become exercisable over a three-year period, expire 10 years from the date of grant and are subject to forfeiture upon termination of employment. We use the Black-Scholes option-pricing model to measure the fair value of stock options granted to employees. Granted options have exercise prices equal to the market price of Whirlpool common stock on the grant date. The principal assumptions utilized in valuing options include: (1) risk-free interest rate—an estimate based on the yield of U.S. zero coupon securities with a maturity equal to the expected life of the option; (2) expected volatility—an estimate based on the historical volatility of Whirlpool common stock for a period equal to the expected life of the option; and (3) expected option life—an estimate based on historical experience. Based on the results of the model, the weighted-average fair values of stock options granted during the years ended December 31, 2009, 2008, and 2007 were $6.42, $21.03 and 2006 were $21.03, $22.54, $22.07, respectively, using the following assumptions: | Weighted Average Black-Scholes Assumptions | | 2008 | | 2007 | | 2006 | | 2009 | | 2008 | | 2007 | | Risk-free interest rate | | 3.0% | | 4.7% | | 4.6% | | 1.9 | % | | 3.0 | % | | 4.7 | % | Expected volatility | | 28.1% | | 22.6% | | 25.6% | | 37.5 | % | | 28.1 | % | | 22.6 | % | Expected dividend yield | | 2.0% | | 1.9% | | 2.1% | | 5.5 | % | | 2.0 | % | | 1.9 | % | Expected option life | | 5 years | | 5 years | | 5 years | | 5 years | | | 5 years | | | 5 years | |
Stock Option Activity The following table summarizes stock option activity during the years ended December 31, 2008, 2007, and 2006: | | | | | | | | | | | | | | | | | | | | | 2008 | | 2007 | | 2006 | Thousands of shares, except per share data | | Number of Options | | | Weighted- Average Exercise Price | | Number of Options | | | Weighted- Average Exercise Price | | Number of Options | | | Weighted- Average Exercise Price | Outstanding at January 1 | | 4,304 | | | $ | 90.71 | | 5,013 | | | $ | 84.97 | | 3,733 | | | $ | 60.37 | Granted | | 698 | | | | 85.32 | | 457 | | | | 94.48 | | 2,249 | | | | 117.56 | Exercised | | (399 | ) | | | 60.38 | | (1,052 | ) | | | 63.19 | | (871 | ) | | | 63.11 | Canceled or expired | | (466 | ) | | | 131.72 | | (114 | ) | | | 106.10 | | (98 | ) | | | 90.20 | | | | | | | | | | | | | | | | | | | | Outstanding at December 31 | | 4,137 | | | $ | 87.81 | | 4,304 | | | $ | 90.71 | | 5,013 | | | $ | 84.97 | | | | | | | | | | | | | | | | | | | | Exercisable at December 31 | | 3,214 | | | $ | 87.39 | | 3,564 | | | $ | 90.70 | | 4,488 | | | $ | 79.47 | | | | | | | | | | | | | | | | | | | |
During the year ended December 31, 2006, we granted 2,249,000 stock options of which 1,778,000 relate to Maytag options that were converted to Whirlpool options on the date of the Maytag acquisition at a weighted average grant price of $125.10.2009:
| | | | | | | Thousands of shares, except per share data | | Number of Options | | | Weighted- Average Exercise Price | Outstanding at January 1 | | 4,137 | | | $ | 87.81 | Granted | | 1,451 | | | | 32.09 | Exercised | | (404 | ) | | | 51.91 | Canceled or expired | | (487 | ) | | | 108.93 | | | | | | | | Outstanding at December 31 | | 4,697 | | | $ | 71.32 | | | | | | | | Exercisable at December 31 | | 2,874 | | | $ | 87.34 | | | | | | | |
The total intrinsic value of stock options exercised was $9 million, $10 million $39 million and $20$39 million for the years ended December 31, 2009, 2008 2007 and 2006,2007, respectively. The related tax benefits were $3 million, $3 million and $15 million in 2009, 2008 and $8 million in 2008, 2007, and 2006, respectively. Cash received from the exercise of stock options was $21 million, $68$21 million, and $54$68 million for the years ended December 31, 2009, 2008 and 2007, and 2006, respectively. F-38
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The fair value of stock options vested was $7 million, $5 million and $32 million for the years ended December 31, 2008, 2007, and 2006, respectively. Of the $32 million that vested in 2006, $27 million related to the acquisition of Maytag.
The table below summarizes additional information related to stock options outstanding at December 31, 2008:2009: | Options in thousands | | Outstanding Net of Expected Forfeitures | | Options Exercisable | | Options in thousands / dollars in millions, except per share data | | | Outstanding Net of Expected Forfeitures | | Options Exercisable | Number of options | | | 3,975 | | | 3,214 | | | 4,545 | | | 2,874 | Weighted-average exercise price | | $ | 87.72 | | $ | 87.39 | | $ | 72.47 | | $ | 87.34 | Aggregate intrinsic value | | | $ | 82 | | $ | 21 | Weighted-average remaining contractual term, in years | | | 5.0 | | | 4.2 | | | 5.9 | | | 4.3 |
The aggregate intrinsic value of options outstanding (net of expected forfeitures) and options exercisable was nominal at December 31, 2008.
F-44
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) Restricted Stock Units
Eligible employees may receive Restricted Stock Units (“RSU”)restricted stock units or performance stock units as a portion of their total compensation. RSU awards Restricted stock units are typically granted to selected management employees on an annual basis and vest over various time periods depending upon the program, butthree years. Periodically, restricted stock units may be granted to selected executives based on special recognition or retention circumstances and generally vest from three years to seven years. Some of these awards accrue dividend equivalents on outstanding units (in the form of additional stock units) based on dividends declared on Whirlpool common stock. These awards convert to unrestricted common stock at the conclusion of the vesting period. Performance stock units are granted to executives on an annual basis. The final award may equal 0 – 200% of a target based on pre-established Whirlpool financial performance measures related to the current year. The awards vest two years following the end of the performance period and convert to unrestricted common stock at the conclusion of the vesting period. All or a portion of an award may be canceled if employment is terminated before the end of the relevant vesting period. Certain awards accrue dividend equivalents on outstanding RSUs (in the form of additional RSUs) based on dividends declared on Whirlpool common stock. We measure compensation cost for stock units based on the closing market price of Whirlpool common stock at the grant date. The weighted average grant date fair values of awards granted during the years ended December 31, 2009, 2008 and 2007 were $26.51, $55.83 and $96.81, respectively. The following table summarizes RSUstock unit activity during the year ended December 31, 2008:2009: | RSUs in thousands | | Number of RSUs | | Weighted- Average Grant Date Fair Value | | Non-vested, December 31, 2007 | | 1,499 | | | $ | 87.55 | | Stock units in thousands, except per share data | | | Number of Stock Units | | Weighted- Average Grant Date Fair Value | Non-vested, December 31, 2008 | | | 1,108 | | | $ | 77.66 | Granted | | 310 | | | | 55.83 | | 660 | | | | 26.51 | Canceled | | (524 | ) | | | 77.61 | | (198 | ) | | | 41.83 | Vested and transferred to unrestricted | | (177 | ) | | | 71.86 | | (354 | ) | | | 85.67 | | | | | | | | | | | | Non-vested, December 31, 2008 | | 1,108 | | | $ | 77.66 | | Non-vested, December 31, 2009 | | | 1,216 | | | $ | 52.87 | | | | | | | | | | | |
Nonemployee Director Equity Plan Our Nonemployee Director Equity Plan provides for (1) a one time grant of 1,000 shares of common stock made at the time a director first joins the Board; (2) an annual grant of stock options, with the number of options to be determined by dividing $36,000 by the product of the fair market value of a single share of our common stock on the final trading day before the annual meeting of stockholders multiplied by 0.35; and (3) an annual grant of stock, with the number of shares to be issued to the director determined by dividing $54,000 by the average fair market value of a single share of our common stock for the final three trading days before the grant. The exercise price under each option granted is the fair market value of the common stock on the last trading day before the annual meeting of stockholders. F-39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(11)(10) RESTRUCTURING CHARGES
Under our ongoing global operating platform initiatives, we implemented certain restructuring initiatives to strengthen our leadership position in the global appliance industry. We plan to continue a comprehensive worldwide effort to optimize our regional manufacturing facilities, supply base, product platforms and technology resources to support our global brands and customers. We incurred total restructuring charges of $126 million, $149 million, $61 million, $55 million during the years ended December 31, 2009, 2008, 2007 2006 respectively. These charges are included in restructuring costs in our Consolidated Statements of Income and other long-term liabilities on our Consolidated Balance Sheets and primarily consist of F-45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) charges to restructure the cooking platform in Latin America, shift refrigeration and dishwasher capacity to lower cost regions inwithin Europe and North America, shift cooking capacity within North America, restructure the laundry platformplatforms in North America, Europe and EuropeAsia and reorganize the salaried workforce throughout EuropeNorth America and North America.Europe. On October 27, 2008, management committed to a workforce reduction plan whereby we willto reduce our employee base worldwide beginning during the fourth quarter of 2008 and through the beginning of 2010. We expect to incur approximately $110$100 million in employee termination costs, $19$14 million in asset impairment costs and $1$3 million in other associated costs for a total of $130$117 million that will be incurred as a result of this workforce reduction. During the December 2008 quarter weWe incurred charges of $39 million in 2009 and $64 million in 2008 associated with this workforce reduction, which are included in the $126 million and $149 million, respectively, in total restructuring charges discussed above. As of December 31, 2008,2009, approximately $66$15 million of these workforce reduction costs remain, all of which $51 million will result in future cash expenditures. Our 2008 restructuring initiatives are reducing our overall workforce by approximately 5,000 employees and contractors worldwide through the beginning of 2010. We expect to incur additional costs of $39$14 million in our Europe region $7 million in our Latin America region, $18and $1 million in our North American region and $2 million in corporate expenses through the beginning of 2010 related to these initiatives. For additional information about restructuring charges by business segment, see Note 14.13. Maytag integration restructuring accruals resulted fromOn August 28, 2009, we announced changes to our North America manufacturing operations which will result in the closingclosure of our manufacturing facility in Evansville, Indiana in mid-2010. We currently expect that approximately 1,100 full-time positions will be eliminated as a result of the Newton, Iowa, Herrin, Illinoisclosure. We estimate that we will incur approximately $50 million in total costs in connection with the exit of this facility comprised of $20 million in employee termination costs, $13 million in equipment relocation costs, $5 million in asset impairment costs, and Searcy, Arkansas laundry manufacturing plants as well as the former headquarters and other administrative offices during 2006. The costs accrued are recorded$12 million in other long-term liabilities on our Consolidated Balance Sheetsassociated costs. During 2009 we incurred $20 million associated with a corresponding initial amount recordedthis announcement, $14 million of which is included in the $126 million in total restructuring charges discussed above. We expect to goodwill.recognize approximately $27 million of these costs in the 2010 fiscal year, $2 million of these costs in the 2011 fiscal year and estimate that approximately $31 million of the estimated $50 million in total cost will result in future cash expenditures. As of MarchDecember 31, 2008, we revised our estimate and reduced certain Maytag exit, relocation and employee termination accruals2009, approximately $30 million of these closure costs remain, all of which resultedwill result in a corresponding decrease to goodwill. No additional revisions were made during the remainder of 2008.
F-40
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
future cash expenditures. A summary of our restructuring liability balance and full year restructuring activity for 2009, 2008 and 2007 2006 is as follows: | Millions of dollars | | January 1, Balance | | Maytag Acquistion | | Charge to Earnings | | Cash Paid | | Non-Cash | | Revision of Estimate | | Translation | | December 31, Balance | | January 1, 2009 Balance | | Charge to Earnings | | Cash Paid | | Non-Cash | | Revision of Estimate | | Translation | | December 31, 2009 Balance | 2009 | | | | | | | | | | | | | | | | Termination costs | | | $ | 82 | | $ | 86 | | $ | (93 | ) | | $ | (3 | ) | | $ | (2 | ) | | $ | (2 | ) | | $ | 68 | Non-employee exit costs | | | | 22 | | | 40 | | | (15 | ) | | | (29 | ) | | | (4 | ) | | | 1 | | | | 15 | | | | | | | | | | | | | | | | | | | | | Total | | | $ | 104 | | $ | 126 | | $ | (108 | ) | | $ | (32 | ) | | $ | (6 | ) | | $ | (1 | ) | | $ | 83 | | | | | | | | | | | | | | | | | | | | | 2008 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Termination costs | | $ | 56 | | $ | — | | $ | 134 | | $ | (86 | ) | | $ | — | | | $ | (21 | ) | | $ | (1 | ) | | $ | 82 | | $ | 56 | | $ | 134 | | $ | (86 | ) | | $ | — | | | $ | (21 | ) | | $ | (1 | ) | | $ | 82 | Non-employee exit costs | | | 44 | | | — | | | 15 | | | (12 | ) | | | (18 | ) | | | (7 | ) | | | — | | | | 22 | | | 44 | | | 15 | | | (12 | ) | | | (18 | ) | | | (7 | ) | | | — | | | | 22 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 100 | | $ | — | | $ | 149 | | $ | (98 | ) | | $ | (18 | ) | | $ | (28 | ) | | $ | (1 | ) | | $ | 104 | | $ | 100 | | $ | 149 | | $ | (98 | ) | | $ | (18 | ) | | $ | (28 | ) | | $ | (1 | ) | | $ | 104 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2007 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Termination costs | | $ | 128 | | $ | — | | $ | 34 | | $ | (95 | ) | | $ | — | | | $ | (13 | ) | | $ | 2 | | | $ | 56 | | $ | 128 | | $ | 34 | | $ | (95 | ) | | $ | — | | | $ | (13 | ) | | $ | 2 | | | $ | 56 | Non-employee exit costs | | | 49 | | | — | | | 27 | | | (30 | ) | | | (18 | ) | | | 16 | | | | — | | | | 44 | | | 49 | | | 27 | | | (30 | ) | | | (18 | ) | | | 16 | | | | — | | | | 44 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 177 | | $ | — | | $ | 61 | | $ | (125 | ) | | $ | (18 | ) | | $ | 3 | | | $ | 2 | | | $ | 100 | | $ | 177 | | $ | 61 | | $ | (125 | ) | | $ | (18 | ) | | $ | 3 | | | $ | 2 | | | $ | 100 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2006 | | | | | | | | | | | | | | | | | | Termination costs | | $ | 15 | | $ | 134 | | $ | 26 | | $ | (100 | ) | | $ | — | | | $ | 51 | | | $ | 2 | | | $ | 128 | | Non-employee exit costs | | | 4 | | | 35 | | | 29 | | | (15 | ) | | | (20 | ) | | | 16 | | | | — | | | | 49 | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 19 | | $ | 169 | | $ | 55 | | $ | (115 | ) | | $ | (20 | ) | | $ | 67 | | | $ | 2 | | | $ | 177 | | | | | | | | | | | | | | | | | | | | | | | |
F-46
(12)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
For the years ended December 31, 2009, 2008 and 2007, the revisions of estimates related to the Maytag operations exit, relocation and employee termination accruals were approximately $6 million, $25 million and $3 million, respectively, which were recorded with a corresponding offset to goodwill. (11) INCOME TAXES Income tax (benefit) expense is as follows: | Year ended December 31—Millions of dollars | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | | Current: | | | | | | | | | | | | | Federal | | $ | 9 | | | $ | (28 | ) | | $ | 125 | | | $ | 10 | | | $ | 9 | | | $ | (28 | ) | State and local | | | 14 | | | | 8 | | | | (7 | ) | | | (3 | ) | | | 14 | | | | 8 | | Foreign | | | 66 | | | | 128 | | | | 68 | | | | 115 | | | | 66 | | | | 128 | | | | | | | | | | | | | | | | | | | | | | | | 89 | | | | 108 | | | | 186 | | | | 122 | | | | 89 | | | | 108 | | Deferred: | | | | | | | | | | | | | Federal | | | (309 | ) | | | 28 | | | | (112 | ) | | | (182 | ) | | | (309 | ) | | | 28 | | State and local | | | (31 | ) | | | 3 | | | | 1 | | | | 3 | | | | (31 | ) | | | 3 | | Foreign | | | 50 | | | | (22 | ) | | | 51 | | | | (4 | ) | | | 50 | | | | (22 | ) | | | | | | | | | | | | | | | | | | | | | | | (290 | ) | | | 9 | | | | (60 | ) | | | (183 | ) | | | (290 | ) | | | 9 | | | | | | | | | | | | | | | | | | | | | Total income tax (benefit) expense | | $ | (201 | ) | | $ | 117 | | | $ | 126 | | | $ | (61 | ) | | $ | (201 | ) | | $ | 117 | | | | | | | | | | | | | | | | | | | | |
Domestic and foreign earnings (loss) before income taxes and other items are as follows: | | | | | | | | | | | Year ended December 31—Millions of dollars | | 2008 | | | 2007 | | 2006 | Domestic | | $ | (433 | ) | | $ | 103 | | $ | 231 | Foreign | | | 679 | | | | 701 | | | 388 | | | | | | | | | | | | Total earnings (loss) from continuing operations before income tax and other items | | $ | 246 | | | $ | 804 | | $ | 619 | | | | | | | | | | | |
F-41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
| | | | | | | | | | | | Year ended December 31—Millions of dollars | | 2009 | | | 2008 | | | 2007 | Domestic | | $ | (110 | ) | | $ | (433 | ) | | $ | 103 | Foreign | | | 404 | | | | 679 | | | | 701 | | | | | | | | | | | | | Earnings from continuing operations before income taxes and other items | | $ | 294 | | | $ | 246 | | | $ | 804 | | | | | | | | | | | | |
Reconciliations between tax expense at the U.S. federal statutory income tax rate of 35% and the consolidated effective income tax rate for earnings from continuing operations before income taxes and other items are as follows: | Year ended December 31 | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | | Income tax rate computed at U.S. federal statutory rate | | 35.0 | % | | 35.0 | % | | 35.0 | % | | 35.0 | % | | 35.0 | % | | 35.0 | % | | U.S. foreign tax credits | | (73.9 | ) | | (2.2 | ) | | (5.3 | ) | | U.S. tax on foreign dividends and subpart F income | | 66.6 | | | 0.7 | | | 2.9 | | | U.S. government tax incentives | | (42.6 | ) | | (3.7 | ) | | (10.2 | ) | | (42.5 | ) | | (42.6 | ) | | (3.7 | ) | Foreign government tax incentive | | (34.5 | ) | | (7.6 | ) | | (2.7 | ) | | Deductible interest on capital | | (13.4 | ) | | (2.7 | ) | | (3.1 | ) | | Foreign government tax incentives | | | (15.1 | ) | | (34.5 | ) | | (7.6 | ) | Foreign tax rate differential | | (9.4 | ) | | (1.4 | ) | | 1.6 | | | (10.6 | ) | | (9.4 | ) | | (1.4 | ) | Settlement of global tax audits | | (8.6 | ) | | 2.7 | | | 2.6 | | | 7.6 | | | (8.6 | ) | | 2.7 | | U.S. foreign tax credits | | | (6.3 | ) | | (73.9 | ) | | (2.2 | ) | Foreign withholding taxes | | | 5.1 | | | 4.7 | | | 1.9 | | Deductible interest on capital | | | (5.1 | ) | | (13.4 | ) | | (2.7 | ) | Medicare Part D subsidy | | | 4.0 | | | — | | | (0.6 | ) | U.S. tax on foreign dividends and subpart F income | | | 3.6 | | | 66.6 | | | 0.7 | | Valuation allowances | | | 3.3 | | | 2.1 | | | (7.1 | ) | Impact of tax rate changes | | | (1.3 | ) | | 0.7 | | | 1.9 | | State and local taxes, net of federal tax benefit | | (6.7 | ) | | 1.0 | | | 0.3 | | | 0.3 | | | (6.7 | ) | | 1.0 | | Real estate donations | | — | | | (1.1 | ) | | — | | | — | | | — | | | (1.1 | ) | Medicare Part D subsidy | | — | | | (0.6 | ) | | (1.1 | ) | | Impact of tax rate changes | | 0.7 | | | 1.9 | | | — | | | Valuation allowances | | 2.1 | | | (7.1 | ) | | 0.3 | | | Foreign withholding taxes | | 4.7 | | | 1.9 | | | 2.3 | | | Other items, net | | (1.7 | ) | | (2.3 | ) | | (2.2 | ) | | 1.4 | | | (1.7 | ) | | (2.3 | ) | | | | | | | | | | | | | | | | | | | | Effective tax rate | | (81.7 | )% | | 14.5 | % | | 20.4 | % | | (20.6 | )% | | (81.7 | )% | | 14.5 | % | | | | | | | | | | | | | | | | | | | |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. F-42F-47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) Significant components of our deferred tax liabilities and assets from continuing operations are as follows: | December 31—Millions of dollars | | 2008 | | 2007 | | | 2009 | | 2008 | | Deferred tax liabilities | | | | | | | | | Intangibles | | | $ | 622 | | | $ | 633 | | Property, plant and equipment | | $ | 229 | | | $ | 262 | | | | 185 | | | | 229 | | Financial services leveraged leases | | | 22 | | | | 25 | | | LIFO inventory | | | | 55 | | | | 86 | | Hedging & Swaps | | | | 43 | | | | — | | Inventories | | | | 26 | | | | — | | Pensions | | | 17 | | | | 17 | | | | 17 | | | | 17 | | Software costs | | | 12 | | | | 17 | | | | 13 | | | | 12 | | LIFO inventory | | | 86 | | | | 81 | | | Intangibles | | | 633 | | | | 633 | | | Financial services leveraged leases | | | | 11 | | | | 22 | | Other | | | 164 | | | | 163 | | | | 123 | | | | 164 | | | | | | | | | | | | | | | Total deferred tax liabilities | | | 1,163 | | | | 1,198 | | | | 1,095 | | | | 1,163 | | | | | | | | | | | | | | | Deferred tax assets | | | | | | | | | Loss carryforwards | | | | 595 | | | | 306 | | Pensions | | | | 514 | | | | 439 | | U.S. general business credit carryforwards | | | | 317 | | | | 175 | | Postretirement obligations | | | 470 | | | | 492 | | | | 302 | | | | 470 | | Employee payroll and benefits | | | | 150 | | | | 87 | | Inventory prepayments | | | 323 | | | | — | | | | 68 | | | | 323 | | Pensions | | | 439 | | | | 189 | | | Accrued expenses | | | | 66 | | | | 68 | | Receivable and inventory allowances | | | | 57 | | | | 57 | | Product warranty accrual | | | | 56 | | | | 75 | | Foreign tax credit carryforwards | | | | 47 | | | | 4 | | Restructuring costs | | | 28 | | | | 30 | | | | 27 | | | | 28 | | Product warranty accrual | | | 75 | | | | 85 | | | Receivable and inventory allowances | | | 57 | | | | 46 | | | Capital loss carryforwards | | | — | | | | 19 | | | | 8 | | | | — | | Loss carryforwards | | | 306 | | | | 286 | | | Employee payroll and benefits | | | 87 | | | | 128 | | | Foreign tax credit carryforwards | | | 4 | | | | 102 | | | U.S. general business credit carryforwards | | | 175 | | | | 88 | | | Hedging | | | 109 | | | | 2 | | | | 10 | | | | 109 | | Accrued expenses | | | 68 | | | | 128 | | | Other | | | 218 | | | | 135 | | | | 238 | | | | 218 | | | | | | | | | | | | | | | Total deferred tax assets | | | 2,359 | | | | 1,730 | | | | 2,455 | | | | 2,359 | | | | | | | | | | | | | | | Valuation allowances for deferred tax assets | | | (147 | ) | | | (72 | ) | | | (180 | ) | | | (147 | ) | | | | | | | | | | | | | | Deferred tax assets, net of valuation allowances | | | 2,212 | | | | 1,658 | | | | 2,275 | | | | 2,212 | | | | | | | | | | | | | | | Net deferred tax assets | | $ | 1,049 | | | $ | 460 | | | $ | 1,180 | | | $ | 1,049 | | | | | | | | | | | | | | |
At December 31, 2008,2009, we have net operating loss carryforwards of $1,380$2,689 million, $789$1,063 million of which are U.S. state net operating loss carryforwards. Of the total net operating loss carryforwards, $751 million do not expire, with substantially all of the remaining carryforwards expiring in various years through 2013.2029. As of December 31, 2008,2009, we had $4$47 million of foreign tax credit carryforwards and $175$317 million of U.S. general business credit carryforwards available to offset future payments of federal income taxes, expiring between 2016 and 2028.2029. We routinely review the future realization of deferred tax assets based on projected future reversal of taxable temporary differences, available tax planning strategies and projected future taxable income. We have recorded a valuation allowance to reflect the net estimated amount of certain deferred tax assets associated with net operating loss and other deferred tax assets we believe will be realized. Our recorded valuation allowance of $147$180 million at December 31, 20082009 consists of $86$149 million of net operating loss carryforwardscarryforward deferred tax assets and $61$31 million of other deferred tax assets. We believe that it is more likely than not that we will realize the benefit of existing deferred tax assets, net of valuation allowances mentioned above. F-48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) We have historically reinvested all unremitted earnings of our foreign subsidiaries and affiliates. We plan to distribute approximately $147$139 million of foreign earnings over the next several years. This distribution is forecasted to result in tax benefits which have not been recorded because of their contingent nature. There has F-43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
been no deferred tax liability provided on the remaining amount of unremitted earnings of $1.8$2.4 billion at December 31, 2008.2009. Should we make a distribution out of the $1.8$2.4 billion of unremitted earnings, we would be subject to additional U.S. taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. It is not practicable to estimate the amount of the deferred tax liability associated with these unremitted earnings. On October 3, 2008, The Emergency Economic Stabilization Act of 2008 (the “Act”) was signed into law. The Act includes a wide-range of provisions that are intended to ensure that conservation and efficiency are a central component to the United States energy strategy. Among the many provisions of this legislation are manufacturers’ tax credits for the accelerated U.S. production of super-efficient clothes washers, refrigerators and dishwashers that meet or exceed certain Energy Star thresholds for energy and water conservation levels as set by the U.S. Department of Energy (“Energy Credit”). The tax credits apply to eligible production during the 2008 to 2010 calendar years provided the production of qualifying product in any individual year exceeds a rolling two year baseline of production. We have historically, and will continue to, invest over 2% of our annual sales in research and development to provide innovative and energy efficient products that meet these standards for our customers. As a result, during the December 2008 quarterand 2009 and in future periods through 2010 we expect to record a tax credit benefit under the provisions of the Act related to the production of qualifying appliances. Including the Energy Credit, total general business tax credits recorded during 20082009 reduced our effective tax rate by 43%42.5%. We are in various stages of audits by certain governmental tax authorities. We establish liabilities for the difference between tax return provisions and the benefits recognized in our financial statements. Such amounts represent a reasonable provision for taxes ultimately expected to be paid, and may need to be adjusted over time as more information becomes known. We adopted ASC 740, “Income Taxes” (formerly FIN 48 “Accounting for Uncertainty in Income Taxes—an interpretation of FASB 109” (“FIN 48”)) on January 1, 2007, at which time the total amount of gross unrecognized tax benefit on the Consolidated Balance Sheet was $166 million. Upon adoption of FIN 48, we recognized a $2 million increase in the liability for unrecognized tax benefits and a $2 million decrease in federal benefit related to state uncertain tax positions. The increase has beenwas accounted for as a reduction to retained earnings in the amount of $8 million and a reduction to goodwill in the amount of $4 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: | Millions of dollars | | 2008 | | 2007 | | | 2009 | | 2008 | | Balance, January 1 | | $ | 189 | | | $ | 166 | | | $ | 119 | | | $ | 189 | | Additions for tax positions of the current year | | | 4 | | | | 36 | | | | 47 | | | | 4 | | Additions for tax positions of the prior year | | | 2 | | | | 20 | | | Additions for tax positions of prior years | | | | 15 | | | | 2 | | Reductions for tax positions of prior years for: | | | | | | | | | Changes in judgment | | | (39 | ) | | | (28 | ) | | | (6 | ) | | | (39 | ) | Settlements during the period | | | (37 | ) | | | (4 | ) | | | (2 | ) | | | (37 | ) | Lapses of applicable statute of limitation | | | — | | | | (1 | ) | | | (10 | ) | | | — | | | | | | | | | | | | | | | Balance, December 31 | | $ | 119 | | | $ | 189 | | | $ | 163 | | | $ | 119 | | | | | | | | | | | | | | |
Included in the liability for unrecognized tax benefits at December 31, 2009 and 2008 are $163 and 2007 are $119 and $141 million, respectively, of unrecognized tax benefits that if recognized would impact the effective tax rate, net of $16$15 million and $16 million, respectively, of federal benefits related to state uncertain tax positions. F-49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) We recognize charges related to interest and penalties for unrecognized tax benefits as a component of income tax expense. As of December 31, 20082009 and 2007,2008, we have accrued interest and penalties of $25$26 and $40$25 million, respectively. Interest and penalties are not included in the tabular rollforward of unrecognized tax benefits above. F-44
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Included in additions for tax positions of the current year are $13 million of unrecognized tax benefits related to our September 30, 2009 settlement with the Brazilian competition commission. For additional information see Note 6. We file income tax returns in the U.S. federal, various state, local and foreign jurisdictions. We are no longer subject to any significant U.S. federal, state, local or foreign income tax examinations by tax authorities for years before 2006. The Internal Revenue Service commenced an examination of our U.S. income tax returns for 2006 and 2007 in the fourth quarter of 2008 that is anticipated to be completed during early 2010.2011. It is reasonably possible that certain unrecognized tax benefits of $1$12 million could be settled with the related jurisdictions during the next 12 months. (13)(12) PENSION AND POSTRETIREMENT MEDICAL BENEFITS PLANS
We have funded and unfunded noncontributory defined benefit pension plans that cover substantially all of our North American employees and certain European, Asian and Brazilian employees. The formula for U.S. salaried employees covered under the qualified defined benefit plan sponsored by Whirlpool was based on years of service and final average salary, while the formula for U.S. hourly employees covered under the defined benefit plans sponsored by Whirlpool was based on specific dollar amounts for each year of service. There were multiple formulas for employees covered under the qualified and nonqualified defined benefit planplans sponsored by Maytag, including a cash balance formula. The U.S. plans are frozen for the majority of participants. An enhancedA defined contribution plan is being provided to affectedall U.S. employees subsequent to the pension plan freezes and is not classified within the net periodic benefit cost. In addition, we sponsor an unfunded Supplemental Executive Retirement Plan. This plan is nonqualified and provides certain key employees defined pension benefits that supplement those provided by the company’s other retirement plans. The U.S. qualified defined benefit pension plans provide that in the event of a plan termination within five years (36 months for the defined benefit plan sponsored by Maytag) following a change in control of Whirlpool, any assets held by the plans in excess of the amounts needed to fund accrued benefits would be used to provide additional benefits to plan participants. A change in control generally means either a change in the majority of the incumbent Board of Directors or an acquisition of 25% (30% for purposes of the Whirlpool Production Employees Retirement Plans and 20% for purposes of the defined benefit plan sponsored by Maytag) or more of the voting power of Whirlpool’s outstanding stock. We provide postretirement health care benefits for eligible retired U.S. employees. Eligible retirees include those who were full-time employees with 10 years of service who attained age 55 while in service with us and those union retirees who met the eligibility requirements of their collective bargaining agreements. In general, the postretirement health care plans are contributory with participants’ contributions adjusted annually and generally include cost-sharing provisions that limit our exposure for recent and future retirees. The plans are unfunded. We reserve the right to modify the benefits.benefits in the future. We provide no significant postretirement medical benefits to non-U.S. employees. Amended Plans During 2009, we modified retiree medical benefits for certain retirees as part of our effort to provide consistent benefits to all U.S. employees. These modifications resulted in a decrease in our postretirement benefit obligation of $113 million with a corresponding offset to other comprehensive income, net of tax. F-50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) On August 28, 2009, we announced the closure of our manufacturing facility in Evansville, Indiana in mid-2010. The announcement triggered a curtailment within our pension plan for Evansville hourly employees, resulting in a one-time curtailment loss of $6.6 million included in net periodic cost with an offset to other comprehensive income, net of tax. During the September 2009 quarter, we recorded the entire loss in our Consolidated Statement of Income as a component of cost of products sold. On June 16, 2009, the Board of Directors authorized the option for the company to use up to $100 million of company stock to fund the U.S. pension plans. If we elect to partially fund the U.S. pension plans in company stock, contributions may be made on a periodic basis from treasury stock, or, with the prior approval of the Finance Committee of the Board of Directors, from authorized, but unissued shares. As of December 31, 2009, we have not used company stock to fund our U.S. pension plans. On February 9, 2009, we announced the suspension of the annual credit to retiree health savings accounts for the majority of active participants. The result of the indefinite suspension was a one-time curtailment gain of $89 million included in net periodic cost with an offset to other comprehensive income, net of tax. During the March 2009 quarter, we recorded $80 million of this gain in our Consolidated Statement of Income as a component of cost of products sold and $9 million was recorded as a component of selling, general and administrative expenses. On August 1, 2008, certain retiree medical benefits for the retirees and remaining active participants associated with our Newton, Iowa manufacturing facility were amended (Newton Amendment), effective January 1, 2009, to be consistent with those benefits provided by the Whirlpool Corporation Group Benefit Plan. The result of this amendment was a reduction in the postretirement benefit obligation of $229 million with a corresponding increase to other comprehensive income, net of tax. In conjunction with the Newton Amendment, we initiated legal proceedings with certain retirees and the United Automobile, Aerospace, and Agricultural Implement Workers of America to seek a declaratory judgment that Whirlpool has the right to change retiree medical benefits after July 31, 2008, the expiration date of the collective bargaining agreement. In response, a similar group of retirees has initiated legal proceedings against Whirlpool asserting the above benefits are vested. We believe the outcome of the legal proceedings against Whirlpool will not have a material adverse effect on our Consolidated Financial Statements. In December of 2007, The Maytag Corporation Employees Retirement Plan was amended to cease all benefit accruals effective December 31, 2007 for the production plant in Amana, Iowa. An enhanced defined
F-45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
contribution benefit was provided to eligible affected employees subsequent to the effective date of the plan amendment. Also, effective for retirements on and after January 1, 2008, a retirement supplement of $300 per month will be provided for 24 months following the retirement of eligible Amana hourly employees retiring during the term of the current union agreement. The effect of this amendment was to increase the PBO at December 31, 2007 by approximately $2 million.
In July of 2007, we announced certain changes to the Whirlpool Retiree Healthcare Plan that took effect on January 1, 2008 and January 1, 2009. These changes include an adjustment to the Retiree Health Savings Account (RHSA) credit received by certain groups of heritage Maytag and heritage Whirlpool employees, the substitution of post-65 drug coverage with a credit or adjusted notional account that may be used to offset the cost of Medicare Part D premiums or other employer-sponsored medical coverage for certain groups of heritage Maytag and heritage Whirlpool retirees; and the replacement of certain heritage Maytag retiree medical plans with PPO coverage offered under the Whirlpool Retiree Healthcare Plan. As a result of these changes, we recognized a reduction in our long-term post-employment obligation of $82 million. An additional $46 million reduction in the long-term post-employment benefit obligation was realized as a result of a change in discount rate consistent with the July 1, 2007 remeasurement date. The offsetting credit was recorded, net of the related deferred tax asset, as an increase in accumulated other comprehensive income.
The U.S. heritage Whirlpool and Maytag pension plans were amended to cease benefit accruals for the majority of salaried and non-union participants effective December 31, 2006. For heritage Whirlpool salaried employees who are eligible to retire before January 1, 2010, the plan freeze will bewas effective December 31, 2009. The Whirlpool Production Employees Retirement Plans (“WPERP”) at Fort Smith and LaVergne, which cover union employees, were amended to cease all benefit accruals effective June 30, 2007 and January 31, 2007, respectively. An enhanced defined contribution plan is being provided to affected employees subsequent to the plan freezes. The Pension Protection Act of 2006 required changes in the basis for calculating lump sum payments effective January 1, 2008. The effect of these changes reduced the projected benefit obligation (“PBO”) at December 31, 2007 by approximately $39 million.freeze.
401(k) Defined Contribution Plan We maintain aDuring the March 2009 quarter we announced the suspension of company matching contributions for our 401(k) defined contribution plan covering substantially all U.S. employees. Our matching contributions for most employees are based on the level of individual participants’ contributions and, for certain domestic union hourly and certain salaried Whirlpool employees who are eligible to retire on or before December 31, 2009, are based on annual operating results and the level of individual participants’ contributions. We also makeannounced that our automatic company contributions for eligible employees in an amount equal to 3% of the employee’semployees’ eligible pay.pay will be contributed in company stock. Our contributions amounted to the following amounts:
| Millions of dollars | | 2008 | | 2007 | | 2006 | | 2009 | | 2008 | | 2007 | 401 (k) Company contributions | | $ | 70 | | $ | 68 | | $ | 29 | | $ | 40 | | $ | 70 | | $ | 68 |
AdoptionDuring the December 2009 quarter we announced the reinstatement of SFAS No. 158
On December 31, 2006, we adopted the recognition and disclosure provisions of SFAS No. 158 “Employers Accountingcompany matching contributions for Defined Benefit Pension and Other Postretirement Plans, an amendment of SFAS Nos. 87, 88, 106 and 132R” (“SFAS 158”). SFAS 158 requires that we recognize the funded status of our 401(k) defined benefit pension plans and other postretirement plans on our Consolidated Balance Sheet as of December 31, 2006, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The adjustment to accumulated other comprehensive income at adoption represents the net unrecognized actuarial losses andcontribution plan covering substantially all U.S. employees, effective March 2010.
F-46F-51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) unrecognized prior service costs and credits, which were previously netted against the plans’ funded status in our Consolidated Balance Sheets pursuant to the provisions of SFAS 87, “Employers’ Accounting for Pensions” and SFAS 106. These amounts will be subsequently recognized as net periodic (benefit) cost pursuant to our accounting policy for amortizing such amounts. Actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic (benefit) cost in the same periods will be recognized as a component of other comprehensive income. These gains and losses will be subsequently recognized as a component of net periodic (benefit) cost on the same basis as the amounts recognized in accumulated other comprehensive loss at adoption of SFAS 158.
The incremental effects of adopting SFAS 158 on our Consolidated Balance Sheet at December 31, 2006 are presented in the following table:
| | | | | | | | | | | | | Millions of dollars | | Before Adopting SFAS 158 | | | Adjustments to Adopt SFAS 158 | | | After Adopting SFAS 158 | | Assets | | | | | | | | | | | | | Noncurrent benefit asset | | $ | 12 | | | $ | (12 | ) | | $ | — | | Intangible asset | | | 38 | | | | (38 | ) | | | — | | Deferred tax asset | | | 115 | | | | 63 | | | | 178 | | | | | | Liabilities | | | | | | | | | | | | | Current benefit liability | | | — | | | | 113 | | | | 113 | | Noncurrent benefit liability | | | 2,031 | | | | 14 | | | | 2,045 | | | | | | Stockholders’ Equity | | | | | | | | | | | | | Accumulated other comprehensive loss | | | (201 | ) | | | (114 | ) | | | (315 | ) |
We use a December 31 measurement date for our pension and postretirement benefit plans.
Obligations and Funded Status at End of Year | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Pension Benefits | | | Foreign Pension Benefits | | | Other Postretirement Benefits | | Millions of dollars | | 2008 | | | 2007 | | | 2008 | | | 2007 | | | 2008 | | | 2007 | | Funded Status | | | | | | | | | | | | | | | | | | | | | | | | | Fair value of plan assets | | $ | 2,212 | | | $ | 3,062 | | | $ | 156 | | | $ | 180 | | | $ | — | | | $ | — | | Benefit obligations | | | 3,547 | | | | 3,580 | | | | 342 | | | | 393 | | | | 904 | | | | 1,151 | | | | | | | | | | | | | | | | | | | | | | | | | | | Funded status | | $ | (1,335 | ) | | $ | (518 | ) | | $ | (186 | ) | | $ | (213 | ) | | $ | (904 | ) | | $ | (1,151 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Amounts recognized in the statement of financial position | | | | | | | | | | | | | | | | | | | | | | | | | Noncurrent asset | | $ | — | | | $ | — | | | $ | 3 | | | $ | 13 | | | $ | — | | | $ | — | | Current liability | | | (12 | ) | | | (8 | ) | | | (7 | ) | | | (10 | ) | | | (82 | ) | | | (90 | ) | Noncurrent liability | | | (1,323 | ) | | | (510 | ) | | | (182 | ) | | | (216 | ) | | | (822 | ) | | | (1,061 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Amount recognized | | $ | (1,335 | ) | | $ | (518 | ) | | $ | (186 | ) | | $ | (213 | ) | | $ | (904 | ) | | $ | (1,151 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Amounts recognized in accumulated other comprehensive income (pre-tax) | | | | | | | | | | | | | | | | | | | | | | | | | Net actuarial loss | | $ | 1,187 | | | $ | 275 | | | $ | 41 | | | $ | 31 | | | $ | 75 | | | $ | 131 | | Prior service (credit)/cost | | | (23 | ) | | | (23 | ) | | | 4 | | | | 4 | | | | (290 | ) | | | (150 | ) | Transition (asset)/obligation | | | — | | | | — | | | | (1 | ) | | | (1 | ) | | | 1 | | | | 1 | | | | | | | | | | | | | | | | | | | | | | | | | | | Amount recognized | | $ | 1,164 | | | $ | 252 | | | $ | 44 | | | $ | 34 | | | $ | (214 | ) | | $ | (18 | ) | | | | | | | | | | | | | | | | | | | | | | | | | |
F-47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
The PBO and fair value of plan assets for pension plans with a PBO in excess of plan assets at December 31, 2008 and 2007 were as follows:
| | | | | | | | | | | | | | | U.S. Pension Benefits | | Foreign Pension Benefits | Millions of dollars | | 2008 | | 2007 | | 2008 | | 2007 | PBO | | $ | 3,547 | | $ | 3,580 | | $ | 275 | | $ | 280 | Fair value of plan assets | | | 2,212 | �� | | 3,062 | | | 85 | | | 55 |
The PBO, ABO and fair value of plan assets for pension plans with an ABO in excess of plan assets at December 31, 2008 and 2007 were as follows:
| | | U.S. Pension Benefits | | Foreign Pension Benefits | | | | | | | | | | | | | Millions of dollars | | 2008 | | 2007 | | 2008 | | 2007 | | U.S. Pension Benefits | | Foreign Pension Benefits | | Other Postretirement Benefits | | PBO | | $ | 3,547 | | $ | 3,580 | | $ | 213 | | $ | 274 | | ABO | | | 3,537 | | | 3,559 | | | 204 | | | 259 | | Millions of dollars | | | 2009 | | 2008 | | 2009 | | 2008 | | 2009 | | 2008 | | | | | | | | | | | | | | | Fair value of plan assets | | | 2,212 | | | 3,062 | | | 27 | | | 50 | | $ | 2,273 | | | $ | 2,212 | | | $ | 179 | | | $ | 156 | | | $ | — | | | $ | — | | Benefit obligations | | | | 3,637 | | | | 3,547 | | | | 383 | | | | 342 | | | | 761 | | | | 904 | | | | | | | | | | | | | | | | | | | | | | Funded status | | | $ | (1,364 | ) | | $ | (1,335 | ) | | $ | (204 | ) | | $ | (186 | ) | | $ | (761 | ) | | $ | (904 | ) | | | | | | | | | | | | | | | | | | | | | Amounts recognized in the statement of financial position | | | | | | | | | | | | | | Noncurrent asset | | | $ | — | | | $ | — | | | $ | 7 | | | $ | 3 | | | $ | — | | | $ | — | | Current liability | | | | (6 | ) | | | (12 | ) | | | (12 | ) | | | (7 | ) | | | (68 | ) | | | (82 | ) | Noncurrent liability | | | | (1,358 | ) | | | (1,323 | ) | | | (199 | ) | | | (182 | ) | | | (693 | ) | | | (822 | ) | | | | | | | | | | | | | | | | | | | | | Amount recognized | | | $ | (1,364 | ) | | $ | (1,335 | ) | | $ | (204 | ) | | $ | (186 | ) | | $ | (761 | ) | | $ | (904 | ) | | | | | | | | | | | | | | | | | | | | | Amounts recognized in accumulated other comprehensive income (pre-tax) | | | | | | | | | | | | | | Net actuarial loss | | | $ | 1,305 | | | $ | 1,187 | | | $ | 54 | | | $ | 41 | | | $ | 45 | | | $ | 75 | | Prior service (credit)/cost | | | | (29 | ) | | | (23 | ) | | | 4 | | | | 4 | | | | (276 | ) | | | (290 | ) | Transition (asset)/obligation | | | | — | | | | — | | | | (1 | ) | | | (1 | ) | | | 1 | | | | 1 | | | | | | | | | | | | | | | | | | | | | | Amount recognized | | | $ | 1,276 | | | $ | 1,164 | | | $ | 57 | | | $ | 44 | | | $ | (230 | ) | | $ | (214 | ) | | | | | | | | | | | | | | | | | | | | |
Change in Benefit Obligation | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Pension Benefits | | | Foreign Pension Benefits | | | Other Postretirement Benefits | | Millions of dollars | | 2008 | | | 2007 | | | 2008 | | | 2007 | | | 2008 | | | 2007 | | Benefit obligation, beginning of year | | $ | 3,580 | | | $ | 3,777 | | | $ | 393 | | | $ | 360 | | | $ | 1,151 | | | $ | 1,304 | | Service cost | | | 14 | | | | 25 | | | | 7 | | | | 7 | | | | 21 | | | | 22 | | Interest cost | | | 211 | | | | 215 | | | | 22 | | | | 19 | | | | 66 | | | | 73 | | Plan participants’ contributions | | | — | | | | — | | | | 2 | | | | 2 | | | | 18 | | | | 16 | | Actuarial (gain)/loss | | | 52 | | | | (19 | ) | | | (3 | ) | | | (23 | ) | | | (56 | ) | | | (80 | ) | Gross benefits paid | | | (305 | ) | | | (381 | ) | | | (30 | ) | | | (26 | ) | | | (113 | ) | | | (112 | ) | less: federal subsidy on benefits paid | | | — | | | | — | | | | — | | | | — | | | | 5 | | | | 5 | | Plan amendments | | | 1 | | | | (37 | ) | | | — | | | | — | | | | (182 | ) | | | (82 | ) | Acquisitions/divestitures | | | — | | | | — | | | | — | | | | (1 | ) | | | — | | | | — | | New plans | | | — | | | | — | | | | 9 | | | | 23 | | | | — | | | | 1 | | Curtailments | | | — | | | | — | | | | (17 | ) | | | — | | | | — | | | | — | | Settlements | | | (6 | ) | | | — | | | | (1 | ) | | | (1 | ) | | | — | | | | — | | Foreign currency exchange rates | | | — | | | | — | | | | (40 | ) | | | 33 | | | | (6 | ) | | | 4 | | | | | | | | | | | | | | | | | | | | | | | | | | | Benefit obligation, end of year | | $ | 3,547 | | | $ | 3,580 | | | $ | 342 | | | $ | 393 | | | $ | 904 | | | $ | 1,151 | | | | | | | | | | | | | | | | | | | | | | | | | | | ABO, end of year | | $ | 3,537 | | | $ | 3,559 | | | $ | 326 | | | $ | 374 | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted-Average Assumptions Used to Determine Benefit Obligation at End of Year
| | | | | | | | | | | | | | | U.S. Pension Benefits | | Foreign Pension Benefits | | Other Postretirement Benefits | | | 2008 | | 2007 | | 2008 | | 2007 | | 2008 | | 2007 | Discount rate | | 6.05% | | 6.15% | | 1.5-13.2% | | 3.5-11.3% | | 5.95% | | 6.05% | Rate of compensation increase | | 4.5% | | 4.5/3.0% | | 2.0-7.1% | | 2.0-7.1% | | — | | — | Health care cost trend rate | | | | | | | | | | | | | Initial rate | | — | | — | | — | | — | | 8.00% | | 8.50% | Ultimate rate | | — | | — | | — | | — | | 5.00% | | 5.00% | Years to ultimate | | — | | — | | — | | — | | 6 | | 7 |
| | | | | | | | | | | | | | | | | | | | | | | | | Millions of dollars | | U.S. Pension Benefits | | | Foreign Pension Benefits | | | Other Postretirement Benefits | | | 2009 | | | 2008 | | | 2009 | | | 2008 | | | 2009 | | | 2008 | | Benefit obligation, beginning of year | | $ | 3,547 | | | $ | 3,580 | | | $ | 342 | | | $ | 393 | | | $ | 904 | | | $ | 1,151 | | Service cost | | | 11 | | | | 14 | | | | 6 | | | | 7 | | | | 11 | | | | 21 | | Interest cost | | | 206 | | | | 211 | | | | 20 | | | | 22 | | | | 48 | | | | 66 | | Plan participants’ contributions | | | — | | | | — | | | | 2 | | | | 2 | | | | 18 | | | | 18 | | Actuarial loss/(gain) | | | 190 | | | | 52 | | | | 20 | | | | (3 | ) | | | (2 | ) | | | (56 | ) | Gross benefits paid | | | (307 | ) | | | (305 | ) | | | (30 | ) | | | (30 | ) | | | (88 | ) | | | (113 | ) | less: federal subsidy on benefits paid | | | — | | | | — | | | | — | | | | — | | | | 2 | | | | 5 | | Plan amendments | | | — | | | | 1 | | | | 1 | | | | — | | | | (113 | ) | | | (182 | ) | New plans | | | 2 | | | | — | | | | — | | | | 9 | | | | — | | | | — | | Special termination benefits | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | — | | Curtailments | | | — | | | | — | | | | 2 | | | | (17 | ) | | | (25 | ) | | | — | | Settlements | | | (13 | ) | | | (6 | ) | | | (4 | ) | | | (1 | ) | | | — | | | | — | | Foreign currency exchange rates | | | — | | | | — | | | | 24 | | | | (40 | ) | | | 6 | | | | (6 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Benefit obligation, end of year | | $ | 3,637 | | | $ | 3,547 | | | $ | 383 | | | $ | 342 | | | $ | 761 | | | $ | 904 | | | | | | | | | | | | | | | | | | | | | | | | | | | ABO, end of year | | $ | 3,633 | | | $ | 3,537 | | | $ | 367 | | | $ | 326 | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | |
F-48F-52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) Change in Plan Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Pension Benefits | | | Foreign Pension Benefits | | | Other Postretirement Benefits | | Millions of dollars | | 2008 | | | 2007 | | | 2008 | | | 2007 | | | 2008 | | | 2007 | | Fair value of plan assets, beginning of year | | $ | 3,062 | | | $ | 3,146 | | | $ | 180 | | | $ | 137 | | | $ | — | | | $ | — | | Actual return on plan assets | | | (633 | ) | | | 222 | | | | (15 | ) | | | (3 | ) | | | — | | | | — | | Employer contribution | | | 94 | | | | 75 | | | | 32 | | | | 25 | | | | 95 | | | | 96 | | Plan participants’ contributions | | | — | | | | — | | | | 2 | | | | 2 | | | | 18 | | | | 16 | | Gross benefits paid | | | (305 | ) | | | (381 | ) | | | (30 | ) | | | (26 | ) | | | (113 | ) | | | (112 | ) | Acquisitions/divestitures | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | New plans | | | — | | | | — | | | | 9 | | | | 31 | | | | — | | | | — | | Settlements | | | (6 | ) | | | | | | | (1 | ) | | | — | | | | — | | | | — | | Foreign currency exchange rates | | | — | | | | — | | | | (21 | ) | | | 14 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair value of plan assets, end of year | | $ | 2,212 | | | $ | 3,062 | | | $ | 156 | | | $ | 180 | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Pension Plan Asset Allocation
| | | | | | | | | | Millions of dollars | | Target Allocation | | | Percentage of Plan Assets | | | 2009 | | | 2008 | | | 2007 | | Asset Category | | | | | | | | | | Equity securities | | 60 | % | | 53 | % | | 64 | % | Debt securities | | 40 | | | 47 | | | 36 | | | | | | | | | | | | Total | | 100 | % | | 100 | % | | 100 | % | | | | | | | | | | |
In the U.S., the expected rate of return on plan assets was determined by using the historical asset returns for publicly traded equity and fixed income securities tracked from 1927 through 2008 and the historical returns for private equity. The historical equity returns were adjusted downward to reflect future expectations. This adjustment was based on published academic research. The expected returns are weighted by the targeted asset allocations. The resulting weighted-average return was rounded to the nearest quarter of one percent.
Foreign Pension Plan Asset Allocation
| | | | | | | | | | Millions of dollars | | Target Allocation | | | Percentage of Plan Assets | | | 2009 | | | 2008 | | | 2007 | | Asset Category | | | | | | | | | | Equity securities | | 33 | % | | 33 | % | | 41 | % | Debt securities | | 50 | | | 52 | | | 50 | | Other | | 17 | | | 15 | | | 9 | | | | | | | | | | | | Total | | 100 | % | | 100 | % | | 100 | % | | | | | | | | | | |
For foreign pension plans, the expected rate of return on plan assets was determined by observing historical returns in the local fixed income and equity markets and computing the weighted average returns with the weights being the asset allocation of each plan.
F-49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
| | | | | | | | | | | | | | | | | | | | | | | | | Millions of dollars | | U.S. Pension Benefits | | | Foreign Pension Benefits | | | Other Postretirement Benefits | | | 2009 | | | 2008 | | | 2009 | | | 2008 | | | 2009 | | | 2008 | | Fair value of plan assets, beginning of year | | $ | 2,212 | | | $ | 3,062 | | | $ | 156 | | | $ | 180 | | | $ | — | | | $ | — | | Actual return on plan assets | | | 229 | | | | (633 | ) | | | 17 | | | | (15 | ) | | | — | | | | — | | Employer contribution | | | 152 | | | | 94 | | | | 24 | | | | 32 | | | | 70 | | | | 95 | | Plan participants’ contributions | | | — | | | | — | | | | 2 | | | | 2 | | | | 18 | | | | 18 | | Gross benefits paid | | | (307 | ) | | | (305 | ) | | | (30 | ) | | | (30 | ) | | | (88 | ) | | | (113 | ) | New plans | | | — | | | | — | | | | — | | | | 9 | | | | — | | | | — | | Settlements | | | (13 | ) | | | (6 | ) | | | (4 | ) | | | (1 | ) | | | — | | | | | | Foreign currency exchange rates | | | — | | | | — | | | | 14 | | | | (21 | ) | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair value of plan assets, end of year | | $ | 2,273 | | | $ | 2,212 | | | $ | 179 | | | $ | 156 | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | |
Components of Net Periodic Benefit Cost | Millions of dollars | | U.S. Pension Benefits | | Foreign Pension Benefits | | Other Postretirement Benefits | | | U.S. Pension Benefits | | Foreign Pension Benefits | | Other Postretirement Benefits | | | 2008 | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 | | 2008 | | | 2007 | | | 2006 | | | 2009 | | 2008 | | 2007 | | 2009 | | 2008 | | 2007 | | 2009 | | 2008 | | 2007 | | Service cost | | $ | 14 | | | $ | 25 | | | $ | 82 | | | $ | 7 | | | $ | 7 | | | $ | 12 | | | $ | 21 | | | $ | 22 | | | $ | 21 | | | $ | 11 | | | $ | 14 | | | $ | 25 | | | $ | 6 | | | $ | 7 | | | $ | 7 | | | $ | 11 | | | $ | 21 | | | $ | 22 | | Interest cost | | | 211 | | | | 215 | | | | 197 | | | | 22 | | | | 19 | | | | 18 | | | | 66 | | | | 73 | | | | 66 | | | | 206 | | | | 211 | | | | 215 | | | | 20 | | | | 22 | | | | 19 | | | | 48 | | | | 66 | | | | 73 | | Expected return on plan assets | | | (240 | ) | | | (251 | ) | | | (224 | ) | | | (11 | ) | | | (10 | ) | | | (8 | ) | | | — | | | | — | | | | — | | | | (198 | ) | | | (240 | ) | | | (251 | ) | | | (11 | ) | | | (11 | ) | | | (10 | ) | | | — | | | | — | | | | — | | Amortization: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Actuarial loss/(gain) | | | 12 | | | | 16 | | | | 26 | | | | 1 | | | | 1 | | | | 1 | | | | 1 | | | | 4 | | | | 13 | | | Actuarial loss | | | | 35 | | | | 12 | | | | 16 | | | | 3 | | | | 1 | | | | 1 | | | | 1 | | | | 1 | | | | 4 | | Prior service cost/(credit) | | | — | | | | 5 | | | | 9 | | | | 1 | | | | 1 | | | | 1 | | | | (25 | ) | | | (13 | ) | | | (8 | ) | | | — | | | | — | | | | 5 | | | | 1 | | | | 1 | | | | 1 | | | | (32 | ) | | | (25 | ) | | | (13 | ) | Transition obligation | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1 | | | | — | | | | — | | | | — | | | Special termination benefit | | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Curtailment loss/(gain) | | | 1 | | | | 14 | | | | 6 | | | | (7 | ) | | | — | | | | (5 | ) | | | (17 | ) | | | — | | | | — | | | | 7 | | | | 1 | | | | 14 | | | | — | | | | (7 | ) | | | — | | | | (95 | ) | | | (17 | ) | | | — | | Settlement loss | | | 2 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | Settlement loss/(gain) | | | | 4 | | | | 2 | | | | — | | | | (1 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | One-time benefit (credit)/charge for new plan | | | — | | | | — | | | | — | | | | — | | | | (8 | ) | | | — | | | | — | | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (8 | ) | | | — | | | | — | | | | 1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net periodic benefit cost | | $ | — | | | $ | 24 | | | $ | 96 | | | $ | 13 | | | $ | 10 | | | $ | 20 | | | $ | 46 | | | $ | 87 | | | $ | 92 | | | $ | 66 | | | $ | — | | | $ | 24 | | | $ | 18 | | | $ | 13 | | | $ | 10 | | | $ | (67 | ) | | $ | 46 | | | $ | 87 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
During 2009, we recognized a curtailment loss of $6.6 million in one of our U.S. pension plans related to the announced closure of our manufacturing facility in Evansville, Indiana in mid-2010. Additionally, we recognized a curtailment gain of $89 million in our U.S. postretirement health care plan as a result of the suspension of the annual credit to retiree health savings accounts for the majority of active participants. During 2008, we recognized a curtailment gain of $7 million related to the conversion of our Mexico defined benefit plan to a defined contribution plan. Additionally, we recognized a curtailment gain of $17 million in our U.S. postretirement health care plan as a result of the reduction in force announced on October 27, 2008. See Note 1110 for additional information regarding our restructuring initiatives. During 2007, and 2006 we recognized curtailment losses of $14 million and $6 million, respectively, related to amendments to cease all benefit accruals in our WPERPspension plan for Fort Smith and LaVergne. Additionally, as a result of a change in law in Italy, we recognized a curtailment gain of $5 million in 2006.Smith. We acquired Maytag on March 31, 2006, and the pension and postretirement net periodic cost has been reflected from that date forward.
F-53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Pre-Tax) in 20082009 | | | | | | | | | | | | | Millions of dollars | | U.S. Pension Benefits | | | Foreign Pension Benefits | | | Other Postretirement Benefits | | Curtailment effects | | $ | (1 | ) | | $ | (9 | ) | | $ | 17 | | Settlements | | | (2 | ) | | | — | | | | — | | Current year actuarial loss/(gain) | | | 926 | | | | 21 | | | | (55 | ) | Amortization of actuarial loss | | | (12 | ) | | | (1 | ) | | | (1 | ) | Current year prior service cost/(credit) | | | 1 | | | | — | | | | (182 | ) | Amortization of prior service (cost)/credit | | | — | | | | (1 | ) | | | 25 | | Amortization of transition obligation/(asset) | | | — | | | | — | | | | — | | | | | | | | | | | | | | | Total recognized in other comprehensive income (pre-tax) | | $ | 912 | | | $ | 10 | | | $ | (196 | ) | | | | | | | | | | | | | | Total recognized in net periodic benefit costs and other comprehensive income (pre-tax) | | $ | 912 | | | $ | 23 | | | $ | (150 | ) | | | | | | | | | | | | | |
F-50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Weighted-Average Assumptions Used to Determine Net Periodic Cost
| | | | | | | | | | | | | | | | | | | | | U.S. Pension Benefits | | Foreign Pension Benefits | | Other Postretirement Benefits | | | 2008 | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 | Discount rate | | 6.15% | | 5.85% | | 5.60/6.05% | | 3.50-11.30% | | 3.00-11.30% | | 4.00-11.30% | | 6.05/6.55% | | 5.75/6.15% | | 5.50/6.05% | Expected long- term rate of return on plan assets | | 8.25% | | 8.50% | | 8.50% | | 4.50-11.30% | | 4.50-11.30% | | 4.50-11.30% | | — | | — | | — | Rate of compensation increase | | 4.50/3.00% | | 4.50/3.00% | | 4.50% | | 2.00-7.10% | | 2.00-7.10% | | 2.50-7.10% | | — | | — | | — | Health care cost trend rate | | | | | | | | | | | | | | | | | | | Initial rate | | — | | — | | — | | — | | — | | — | | 8.50% | | 9.00% | | 9.00% | Ultimate rate | | — | | — | | — | | — | | — | | — | | 5.00% | | 5.00% | | 5.00% | Years to ultimate | | — | | — | | — | | — | | — | | — | | 7 | | 4 | | 4 |
Additional Information
| | | | | | | | | | | | | Millions of dollars | | U.S. Pension Benefits | | | Foreign Pension Benefits | | | Other Postretirement Benefits | | Current year actuarial loss/(gain) | | $ | 157 | | | $ | 15 | | | $ | (29 | ) | Actuarial (loss)/gain recognized during the year | | | (39 | ) | | | (1 | ) | | | (1 | ) | Current year prior service cost/(credit) | | | — | | | | 1 | | | | (113 | ) | Prior service (cost)/credit recognized during the year | | | (7 | ) | | | (1 | ) | | | 127 | | | | | | | | | | | | | | | Total recognized in other comprehensive income (pre-tax) | | $ | 111 | | | $ | 14 | | | $ | (16 | ) | | | | | | | | | | | | | | Total recognized in net periodic benefit costs and other comprehensive income (pre-tax) | | $ | 177 | | | $ | 32 | | | $ | (83 | ) | | | | | | | | | | | | | |
Estimated Pre-Tax Amounts that will be amortized from Accumulated Other Comprehensive Income into Net PeriodPeriodic Pension Cost in 20092010 | Millions of dollars | | U.S. Pension Benefits | | Foreign Pension Benefits | | Other Postretirement Benefits | | | U.S. Pension Benefits | | Foreign Pension Benefits | | Other Postretirement Benefits | | Actuarial (gain)/loss | | $ | 32 | | $ | 3 | | $ | — | | | Actuarial loss | | | $ | 30 | | | $ | 2 | | $ | — | | Prior service (credit)/cost | | | — | | | — | | | (33 | ) | | | (3 | ) | | | 1 | | | (38 | ) | | | | | | | | | | | | | | | | | Total | | $ | 32 | | $ | 3 | | $ | (33 | ) | | $ | 27 | | | $ | 3 | | $ | (38 | ) | | | | | | | | | | | | | | | | |
Assumptions Weighted-average assumptions used to determine benefit obligation at end of year | | | | | | | | | | | | | | | | | | | | | U.S. Pension Benefits | | | Foreign Pension Benefits | | | Other Postretirement Benefits | | | 2009 | | | 2008 | | | 2009 | | | 2008 | | | 2009 | | | 2008 | | Discount rate | | 5.75 | % | | 6.05 | % | | 2.5-11.9 | % | | 1.5-13.2 | % | | 5.30 | % | | 5.95 | % | Rate of compensation increase | | 4.50 | % | | 4.50 | % | | 2.0-7.1 | % | | 2.0-7.1 | % | | — | | | — | | Health care cost trend rate | | | | | | | | | | | | | | | | | | | Initial rate | | — | | | — | | | — | | | — | | | 8.00 | % | | 8.00 | % | Ultimate rate | | — | | | — | | | — | | | — | | | 5.00 | % | | 5.00 | % | Years to ultimate | | — | | | — | | | — | | | — | | | 5 | | | 6 | |
Weighted-average assumptions used to determine net periodic cost | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Pension Benefits | | | Foreign Pension Benefits | | | Other Postretirement Benefits | | | 2009 | | | 2008 | | | 2007 | | | 2009 | | | 2008 | | | 2007 | | | 2009 | | | 2008 | | | 2007 | | Discount rate | | 6.05 | % | | 6.15 | % | | 5.85 | % | | 1.5-13.2 | % | | 3.5-11.3 | % | | 3.0-11.3 | % | | 5.10/5.95/6.20 | % | | 6.05/6.55 | % | | 5.75/6.15 | % | Expected long-term rate of return on plan assets | | 7.75 | % | | 8.25 | % | | 8.50 | % | | 4.0-11.3 | % | | 4.5-11.3 | % | | 4.5-11.3 | % | | — | | | — | | | — | | Rate of compensation increase | | 4.50 | % | | 4.50/3.00 | % | | 4.50/3.00 | % | | 2.0-7.1 | % | | 2.0-7.1 | % | | 2.0-7.1 | % | | — | | | — | | | — | | Health care cost trend rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | Initial rate | | — | | | — | | | — | | | — | | | — | | | — | | | 8.00 | % | | 8.50 | % | | 9.00 | % | Ultimate rate | | — | | | — | | | — | | | — | | | — | | | — | | | 5.00 | % | | 5.00 | % | | 5.00 | % | Years to ultimate | | — | | | — | | | — | | | — | | | — | | | — | | | 6 | | | 7 | | | 4 | |
F-54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) Expected return on plan assets In the U.S., the expected rate of return on plan assets was determined by using the historical asset returns for publicly traded equity and fixed income securities tracked from 1927 through 2009 and the historical returns for private equity. The historical equity returns were adjusted downward to reflect future expectations. This adjustment was based on published academic research. The expected returns are weighted by the targeted asset allocations. The resulting weighted-average return was rounded to the nearest quarter of one percent. For foreign pension plans, the expected rate of return on plan assets was determined by observing historical returns in the local fixed income and equity markets and computing the weighted average returns with the weights being the asset allocation of each plan. Estimated impact of one percentage-point change in assumed health care cost trend rate Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one percentage point change in assumed health care cost trend rates would have the following effects: | Millions of dollars | | One Percentage Point Increase | | One Percentage Point Decrease | | | One Percentage Point Increase | | One Percentage Point Decrease | | Effect on total of service and interest cost | | $ | 5 | | $ | (5 | ) | | $ | 3 | | $ | (3 | ) | Effect on postretirement benefit obligations | | | 54 | | | (50 | ) | | | 35 | | | (31 | ) |
Cash Flows Funding Policy Our funding policy is to contribute to our U.S. pension plans amounts sufficient to meet the minimum funding requirement as defined by employee benefit and tax laws, plus additional amounts which we may determine to be appropriate. In certain countries other than the U.S., the funding of pension plans is not common practice. We have several unfunded non-U.S. pension plans. We pay for retiree medical benefits as they are incurred. Expected Employer Contributions to Funded Plans | Millions of dollars | | U.S. Pension Benefits | | Foreign Pension Benefits | | U.S. Pension Benefits(1) | | Foreign Pension Benefits(2) | 2009 | | $ | 80 | | $ | 13 | | 2010 | | | $ | 35 | | $ | 6 |
(1) | | Represents discretionary contributions to our funded U.S. pension plans. |
(2) | | Represents required contributions to our funded foreign pension plans. |
Contributions to both our U.S. and foreign pension plans can be made in cash or company stock. Expected Benefit Payments | | | | | | | | | | | | | | Millions of dollars | | U.S. Pension Benefits | | Foreign Pension Benefits | | Other Postretirement Benefits | | | | | Gross | | Expected Federal Subsidy | | 2010 | | $ | 307 | | $ | 25 | | $ | 70 | | $ | (2 | ) | 2011 | | | 262 | | | 19 | | | 75 | | | (1 | ) | 2012 | | | 260 | | | 23 | | | 75 | | | (2 | ) | 2013 | | | 260 | | | 21 | | | 75 | | | (2 | ) | 2014 | | | 256 | | | 25 | | | 72 | | | (2 | ) | 2015-2019 | | | 1,285 | | | 137 | | | 315 | | | (11 | ) |
F-51F-55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) Plan Assets Our overall investment strategy is to achieve an appropriate mix of investments for long-term growth and for near-term benefit payments with a wide diversification of asset types, fund strategies, and investment fund managers. The $80 million expectedtarget allocation for plan assets is generally 60% equity and 40% fixed income, with exceptions for certain foreign pension plans. Of the target allocation for equity securities, approximately 50% is allocated to be contributedU.S. large-cap, 30% to theinternational equity, 13% to U.S. mid and small-cap companies and 7% in venture capital). The target allocation for fixed income is allocated evenly with 50% to corporate bonds and 50% to U.S. treasury and other government securities. The fixed income securities duration is intended to match that of our U.S. pension plans during 2009 represents required contributions to our funded U.S. pension plans.liabilities. The $13 million expected to be contributed to the foreignfair values of our pension plans duringplan assets at December 31, 2009, represents contributions to our funded foreign pension plans.by asset category are as follows: | | | | | | | | | | | | | Asset Category—Millions of dollars | | December 31, 2009 | | Quoted prices (Level 1) | | Other significant observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Total | Cash and cash equivalents | | $ | 105 | | $ | — | | $ | — | | $ | 105 | Equity securities: | | | | | | | | | | | | | U.S. companies | | | 187 | | | — | | | — | | | 187 | International companies | | | 45 | | | 216 | | | — | | | 261 | Mutual funds(a) | | | 104 | | | — | | | — | | | 104 | Common and collective funds(b) | | | — | | | 712 | | | — | | | 712 | U.S. government and government agency securities | | | — | | | 333 | | | — | | | 333 | U.S. corporate bonds and notes | | | — | | | 404 | | | — | | | 404 | International government and government agency securities | | | — | | | 51 | | | — | | | 51 | International corporate bonds and notes | | | — | | | 110 | | | — | | | 110 | Limited partnerships(c) | | | — | | | — | | | 153 | | | 153 | Real estate | | | — | | | 7 | | | — | | | 7 | All other investments | | | — | | | 25 | | | — | | | 25 | | | | | | | | | | | | | | | | $ | 441 | | $ | 1,858 | | $ | 153 | | $ | 2,452 | | | | | | | | | | | | | |
(a) | | The fund primarily invests in a diversified portfolio of equity securities issued by non-U.S. companies. |
(b) | | Eighty percent of the common and collective funds are invested in an equity index fund which tracks the S&P 500. Twenty percent of the Plan’s common and collective fund investments are invested in international equity securities. |
(c) | | Primarily invested in diversified fund of funds and generally focused on buyouts, venture capital and private equity investments. |
Expected Benefit PaymentsFair Value Measurements Using Significant Unobservable Inputs (Level 3)
| | | | | | | | | | | | | | | | | | | | Other Postretirement Benefits | | Millions of dollars | | U.S. Pension Benefits | | Foreign Pension Benefits | | Gross | | Expected Federal Subsidy | | 2009 | | $ | 318 | | $ | 18 | | $ | 85 | | $ | (3 | ) | 2010 | | | 264 | | | 18 | | | 88 | | | (3 | ) | 2011 | | | 260 | | | 20 | | | 90 | | | (3 | ) | 2012 | | | 258 | | | 22 | | | 88 | | | (4 | ) | 2013 | | | 257 | | | 23 | | | 85 | | | (4 | ) | 2014-2018 | | | 1,290 | | | 127 | | | 385 | | | (23 | ) |
| | | | | Millions of dollars | | Limited Partnerships | | Balance, December 31, 2008 | | $ | 159 | | Realized losses | | | (1 | ) | Unrealized losses | | | (16 | ) | Purchases, sales, issuances and settlements (net) | | | 11 | | | | | | | Balance, December 31, 2009 | | $ | 153 | | | | | | |
F-56
(14) BUSINESSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Additional Information The PBO and fair value of plan assets for pension plans with a PBO in excess of plan assets at December 31, 2009 and 2008 were as follows: | | | | | | | | | | | | | Millions of dollars | | U.S. Pension Benefits | | Foreign Pension Benefits | | 2009 | | 2008 | | 2009 | | 2008 | PBO | | $ | 3,637 | | $ | 3,547 | | $ | 307 | | $ | 275 | Fair value of plan assets | | | 2,273 | | | 2,212 | | | 96 | | | 85 |
The PBO, ABO and fair value of plan assets for pension plans with an ABO in excess of plan assets at December 31, 2009 and 2008 were as follows: | | | | | | | | | | | | | Millions of dollars | | U.S. Pension Benefits | | Foreign Pension Benefits | | 2009 | | 2008 | | 2009 | | 2008 | PBO | | $ | 3,637 | | $ | 3,547 | | $ | 299 | | $ | 213 | ABO | | | 3,633 | | | 3,537 | | | 288 | | | 204 | Fair value of plan assets | | | 2,273 | | | 2,212 | | | 89 | | | 27 |
(13) OPERATING SEGMENT INFORMATION Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance. We identify such segments based upon geographical regions of operations because each operating segment manufactures home appliances and related components, but serves strategically different markets. The chief operating decision maker evaluates performance based upon each segment’s operating income, which is defined as income before interest and sundry income (expense), interest expense, income taxes, minority interests and restructuring costs. Total assets by segment are those assets directly associated with the respective operating activities. The “Other/Eliminations” column primarily includes corporate expenses, assets and eliminations, as well as all other restructuring and discontinued operations. Intersegment sales are eliminated within each region with the exception of compressor sales out of Latin America, which are included in Other/Eliminations. Sales activity with Sears, a North American major home appliance retailer, represented 11%10%, 12%11% and 14%12% of consolidated net sales in 2009, 2008, 2007, and 2006,2007, respectively. Related receivables were 13%11% and 16%13% of consolidated trade receivables as of December 31, 20082009 and 2007,2008, respectively. We conduct business in two countries that individually comprised over 10% of consolidated net sales and/or total assets within the last three years. The United States represented 48%, 53%48%, 63%53% of net sales for 2009, 2008, 2007, and 2006,2007, respectively, while Brazil totaled 16%15%, 13%, 12%, 9% for 2009, 2008, 2007, and 2006,2007, respectively. As a percentage of total assets, the United States accounted for 51%53%, and 51% at the end of 20082009 and 2007,2008, respectively. Brazil accounted for 10%12% and 15%10% of total assets at the end of 20082009 and 2007,2008, respectively. As described above, our chief operating decision maker reviews each operating segment’s performance based upon operating income which excludes restructuring costs. These restructuring costs are included in operating profit on a consolidated basis and included in the Other/Eliminations column in the tables below. For 2008,2009, the operating segments recorded total restructuring costs (See Note 11)10) as follows: North America—$35 million, Europe—$74 million, Latin America—$5 million, Asia—$10 million and Corporate—$2 million, for a total of $126 million. For 2008, the operating segments recorded total restructuring costs as follows: North F-57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) America—$56 million, Europe—$78 million, Latin America—$7 million, Asia—$2 million and Corporate—$6 million for a total of $149 million. For 2007, the operating segments recorded total restructuring costs (See Note 11) as follows: North America—$13 million, Europe—$28 million, and Latin America—$20 million, for a total of $61 million. As disclosed in Note 1, during the March 2009 quarter, we changed our method of depreciation prospectively for substantially all long-lived production machinery and equipment to a modified units of production depreciation method. Under this method, we record depreciation based on units produced, unless units produced drop below a minimum threshold at which point depreciation is then recorded using the straight-line method. Prior to 2009, all machinery and equipment was depreciated using the straight-line method. We believe depreciating machinery and equipment based on units of production is a preferable method as it best matches the usage of assets with the revenues derived from those assets. As a result, our depreciation expense by operating segment decreased for 2009 as follows: North America—$46 million, Europe—$25 million Latin America—$11 million and Asia—$1 million, for a total of $83 million. Net of amounts capitalized into ending inventories, operating profit increased for 2009 as follows: North America—$41 million, Europe—$19 million, Latin America—$11 million and Asia—$1, for a total of $72 million. | | | | | | | | | | | | | | | | | | | | | Millions of dollars | | OPERATING SEGMENTS | | North America | | Europe | | Latin America | | Asia | | | Other/ Eliminations | | | Total Whirlpool | Net sales | | | | | | | | | | | | | | | | | | | | | 2009 | | $ | 9,592 | | $ | 3,338 | | $ | 3,705 | | $ | 654 | | | $ | (190 | ) | | $ | 17,099 | 2008 | | | 10,781 | | | 4,016 | | | 3,704 | | | 593 | | | | (187 | ) | | | 18,907 | 2007 | | | 11,735 | | | 3,848 | | | 3,437 | | | 557 | | | | (169 | ) | | | 19,408 | Intersegment sales | | | | | | | | | | | | | | | | | | | | | 2009 | | $ | 142 | | $ | 339 | | $ | 237 | | $ | 169 | | | $ | (887 | ) | | $ | — | 2008 | | | 148 | | | 336 | | | 219 | | | 161 | | | | (864 | ) | | | — | 2007 | | | 171 | | | 504 | | | 169 | | | 220 | | | | (1,064 | ) | | | — | Depreciation and amortization | | | | | | | | | | | | | | | | | | | | | 2009 | | $ | 280 | | $ | 107 | | $ | 77 | | $ | 18 | | | $ | 43 | | | $ | 525 | 2008 | | | 329 | | | 131 | | | 96 | | | 22 | | | | 19 | | | | 597 | 2007 | | | 352 | | | 115 | | | 84 | | | 22 | | | | 20 | | | | 593 | Operating profit (loss) | | | | | | | | | | | | | | | | | | | | | 2009 | | $ | 560 | | $ | 21 | | $ | 363 | | $ | 30 | | | $ | (286 | ) | | $ | 688 | 2008 | | | 199 | | | 149 | | | 478 | | | 10 | | | | (287 | ) | | | 549 | 2007 | | | 646 | | | 246 | | | 438 | | | (6 | ) | | | (261 | ) | | | 1,063 | Total assets | | | | | | | | | | | | | | | | | | | | | 2009 | | $ | 8,123 | | $ | 3,216 | | $ | 2,887 | | $ | 690 | | | $ | 178 | | | $ | 15,094 | 2008 | | | 8,038 | | | 3,592 | | | 2,094 | | | 639 | | | | (831 | ) | | | 13,532 | 2007 | | | 8,107 | | | 3,394 | | | 2,615 | | | 689 | | | | (796 | ) | | | 14,009 | Capital expenditures | | | | | | | | | | | | | | | | | | | | | 2009 | | $ | 276 | | $ | 116 | | $ | 78 | | $ | 13 | | | $ | 58 | | | $ | 541 | 2008 | | | 253 | | | 156 | | | 100 | | | 21 | | | | 17 | | | | 547 | 2007 | | | 251 | | | 144 | | | 110 | | | 20 | | | | 11 | | | | 536 |
F-52
F-58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) million. For 2006, the operating segments recorded total restructuring costs as follows: North America—$18 million, Europe—$23 million, Latin America—$7 million and Asia—$7 million, for a total of $55 million.
| | | | | | | | | | | | | | | | | | | | | | | GEOGRAPHIC SEGMENTS | Millions of dollars | | North America | | Europe | | Latin America | | Asia | | | Other/ Eliminations | | | Total Whirlpool | Net sales | | | | | | | | | | | | | | | | | | | | | 2008 | | $ | 10,781 | | $ | 4,016 | | $ | 3,704 | | $ | 593 | | | $ | (187 | ) | | $ | 18,907 | 2007 | | | 11,735 | | | 3,848 | | | 3,437 | | | 557 | | | | (169 | ) | | | 19,408 | 2006 | | | 11,642 | | | 3,432 | | | 2,692 | | | 457 | | | | (143 | ) | | | 18,080 | Intersegment sales | | | | | | | | | | | | | | | | | | | | | 2008 | | $ | 148 | | $ | 336 | | $ | 219 | | $ | 161 | | | $ | (864 | ) | | $ | — | 2007 | | | 171 | | | 504 | | | 169 | | | 220 | | | | (1,064 | ) | | | — | 2006 | | | 64 | | | 494 | | | 141 | | | 231 | | | | (930 | ) | | | — | Depreciation and amortization | | | | | | | | | | | | | | | | | | | | | 2008 | | $ | 329 | | $ | 131 | | $ | 96 | | $ | 22 | | | $ | 19 | | | $ | 597 | 2007 | | | 352 | | | 115 | | | 84 | | | 22 | | | | 20 | | | | 593 | 2006 | | | 332 | | | 105 | | | 72 | | | 21 | | | | 20 | | | | 550 | Operating profit (loss) | | | | | | | | | | | | | | | | | | | | | 2008 | | $ | 199 | | $ | 149 | | $ | 478 | | $ | 10 | | | $ | (287 | ) | | $ | 549 | 2007 | | | 646 | | | 246 | | | 438 | | | (6 | ) | | | (261 | ) | | | 1,063 | 2006 | | | 667 | | | 192 | | | 237 | | | (11 | ) | | | (262 | ) | | | 823 | Total assets | | | | | | | | | | | | | | | | | | | | | 2008 | | $ | 8,038 | | $ | 3,592 | | $ | 2,094 | | $ | 639 | | | $ | (831 | ) | | $ | 13,532 | 2007 | | | 8,107 | | | 3,394 | | | 2,615 | | | 689 | | | | (796 | ) | | | 14,009 | 2006 | | | 8,449 | | | 3,001 | | | 2,037 | | | 603 | | | | (331 | ) | | | 13,759 | Capital expenditures | | | | | | | | | | | | | | | | | | | | | 2008 | | $ | 253 | | $ | 156 | | $ | 100 | | $ | 21 | | | $ | 17 | | | $ | 547 | 2007 | | | 251 | | | 144 | | | 110 | | | 20 | | | | 11 | | | | 536 | 2006 | | | 320 | | | 129 | | | 92 | | | 23 | | | | 12 | | | | 576 |
(15)(14) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
| | | Three months ended | | | | | | | | | Millions of dollars, except per share data | | Dec. 31 | | Sept. 30 | | Jun. 30 | | Mar. 31 | | Three months ended | 2008: | | | | | | | | | | Millions of dollars, except per share data | | | Dec. 31 | | Sept. 30 | | Jun. 30 | | Mar. 31 | | | | | | | | | | Net sales | | $ | 4,315 | | $ | 4,902 | | $ | 5,076 | | $ | 4,614 | | $ | 4,864 | | $ | 4,497 | | $ | 4,169 | | $ | 3,569 | Cost of products sold | | | 3,842 | | | 4,217 | | | 4,324 | | | 4,000 | | | 4,176 | | | 3,877 | | | 3,615 | | | 3,045 | Net earnings available to common stockholders | | | 44 | | | 163 | | | 117 | | | 94 | | Net earnings available to Whirlpool common stockholders | | | | 95 | | | 87 | | | 78 | | | 68 | | Per share of common stock: | | | | | | | | | | | | | | | | | Basic net earnings | | | 0.60 | | | 2.18 | | | 1.55 | | | 1.23 | | | 1.26 | | | 1.17 | | | 1.05 | | | 0.92 | Diluted net earnings | | | 0.60 | | | 2.15 | | | 1.53 | | | 1.22 | | | 1.24 | | | 1.15 | | | 1.04 | | | 0.91 | Dividends | | | 0.43 | | | 0.43 | | | 0.43 | | | 0.43 | | | 0.43 | | | 0.43 | | | 0.43 | | | 0.43 | | Millions of dollars, except per share data | | | Three months ended | | | Dec. 31 | | Sept. 30 | | Jun. 30 | | Mar. 31 | 2008: | | | | | | | | | | Net sales | | | $ | 4,315 | | $ | 4,902 | | $ | 5,076 | | $ | 4,614 | Cost of products sold | | | | 3,842 | | | 4,217 | | | 4,324 | | | 4,000 | Net earnings available to Whirlpool common stockholders | | | | 44 | | | 163 | | | 117 | | | 94 | | Per share of common stock: | | | | | | | | | | Basic net earnings | | | | 0.60 | | | 2.18 | | | 1.55 | | | 1.23 | Diluted net earnings | | | | 0.60 | | | 2.15 | | | 1.53 | | | 1.22 | Dividends | | | | 0.43 | | | 0.43 | | | 0.43 | | | 0.43 |
As described in Note 1, during the March 2009 quarter, we changed our method of depreciation prospectively for substantially all long-lived production machinery and equipment to a modified units of production depreciation method. As a result of this change in method, net of amounts capitalized into ending inventories, gross margin increased by $8, $24, $21, and $19 for the March, June, September and December 2009 quarters, respectively. F-53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
| | | | | | | | | | | | | | | Three months ended | Millions of dollars, except per share data | | Dec. 31 | | Sept. 30 | | Jun. 30 | | Mar. 31 | 2007: | | | | | | | | | | | | | Net sales | | $ | 5,325 | | $ | 4,840 | | $ | 4,854 | | $ | 4,389 | Cost of products sold | | | 4,487 | | | 4,148 | | | 4,121 | | | 3,761 | Net earnings available to common stockholders | | | 187 | | | 175 | | | 161 | | | 117 | | | | | | Per share of common stock: | | | | | | | | | | | | | Basic net earnings | | | 2.42 | | | 2.24 | | | 2.04 | | | 1.48 | Diluted net earnings | | | 2.38 | | | 2.20 | | | 2.00 | | | 1.46 | Dividends | | | 0.43 | | | 0.43 | | | 0.43 | | | 0.43 |
The quarterly earnings per share amounts will not necessarily add to the earnings per share computed for the year due to the method used in calculating per share data. F-54F-59
FIVE-YEAR SELECTED FINANCIAL DATA | (Millions of dollars, except share and employee data) | | 2008 | | 2007 | | 2006 | | 2005 | | 2004 | | | 2009 | | 2008 | | 2007 | | 2006 | | 2005 | | CONSOLIDATED OPERATIONS | | | | | | | | | | | | | | | | | | | | | Net sales | | $ | 18,907 | | | $ | 19,408 | | | $ | 18,080 | | | $ | 14,317 | | | $ | 13,220 | | | $ | 17,099 | | | $ | 18,907 | | | $ | 19,408 | | | $ | 18,080 | | | $ | 14,317 | | Operating profit(1) | | | 549 | | | | 1,063 | | | | 823 | | | | 792 | | | | 758 | | | | 688 | | | | 549 | | | | 1,063 | | | | 823 | | | | 792 | | Earnings from continuing operations before income taxes and other items | | | 246 | | | | 804 | | | | 619 | | | | 597 | | | | 616 | | | | 294 | | | | 246 | | | | 804 | | | | 619 | | | | 597 | | Earnings from continuing operations | | | 418 | | | | 647 | | | | 486 | | | | 422 | | | | 406 | | | | 354 | | | | 418 | | | | 647 | | | | 486 | | | | 422 | | Loss from discontinued operations(2) | | | — | | | | (7 | ) | | | (53 | ) | | | — | | | | — | | | | — | | | | — | | | | (7 | ) | | | (53 | ) | | | — | | Net earnings available to common stockholders | | | 418 | | | | 640 | | | | 433 | | | | 422 | | | | 406 | | | Net earnings available to Whirlpool common stockholders | | | | 328 | | | | 418 | | | | 640 | | | | 433 | | | | 422 | | Net capital expenditures | | | 547 | | | | 536 | | | | 576 | | | | 494 | | | | 511 | | | | 541 | | | | 547 | | | | 536 | | | | 576 | | | | 494 | | Depreciation(3) | | | 569 | | | | 562 | | | | 520 | | | | 440 | | | | 443 | | | | 497 | | | | 569 | | | | 562 | | | | 520 | | | | 440 | | Dividends | | | 128 | | | | 134 | | | | 130 | | | | 116 | | | | 116 | | | | 128 | | | | 128 | | | | 134 | | | | 130 | | | | 116 | | | CONSOLIDATED FINANCIAL POSITION | | | | | | | | | | | | | | | | | | | | | Current assets | | $ | 6,044 | | | $ | 6,555 | | | $ | 6,517 | | | $ | 4,763 | | | $ | 4,514 | | | $ | 7,025 | | | $ | 6,044 | | | $ | 6,555 | | | $ | 6,517 | | | $ | 4,763 | | Current liabilities | | | 5,563 | | | | 5,893 | | | | 6,043 | | | | 4,354 | | | | 3,985 | | | | 5,941 | | | | 5,563 | | | | 5,893 | | | | 6,043 | | | | 4,354 | | Working capital | | | 481 | | | | 662 | | | | 474 | | | | 409 | | | | 529 | | | | 1,084 | | | | 481 | | | | 662 | | | | 474 | | | | 409 | | Property, plant and equipment-net | | | 2,985 | | | | 3,212 | | | | 3,157 | | | | 2,511 | | | | 2,583 | | | | 3,117 | | | | 2,985 | | | | 3,212 | | | | 3,157 | | | | 2,511 | | Total assets | | | 13,532 | | | | 14,009 | | | | 13,759 | | | | 8,301 | | | | 8,181 | | | | 15,094 | | | | 13,532 | | | | 14,009 | | | | 13,759 | | | | 8,301 | | Long-term debt | | | 2,002 | | | | 1,668 | | | | 1,798 | | | | 745 | | | | 1,160 | | | | 2,502 | | | | 2,002 | | | | 1,668 | | | | 1,798 | | | | 745 | | Stockholders’ equity | | | 3,006 | | | | 3,911 | | | | 3,283 | | | | 1,745 | | | | 1,606 | | | Whirlpool stockholders’ equity | | | | 3,664 | | | | 3,006 | | | | 3,911 | | | | 3,283 | | | | 1,745 | | | PER SHARE DATA | | | | | | | | | | | | | | | | | | | | | Basic earnings from continuing operations before accounting change | | $ | 5.57 | | | $ | 8.24 | | | $ | 6.47 | | | $ | 6.30 | | | $ | 6.02 | | | $ | 4.39 | | | $ | 5.57 | | | $ | 8.24 | | | $ | 6.47 | | | $ | 6.30 | | Diluted earnings from continuing operations before accounting change | | | 5.50 | | | | 8.10 | | | | 6.35 | | | | 6.19 | | | | 5.90 | | | | 4.34 | | | | 5.50 | | | | 8.10 | | | | 6.35 | | | | 6.19 | | Diluted net earnings | | | 5.50 | | | | 8.01 | | | | 5.67 | | | | 6.19 | | | | 5.90 | | | | 4.34 | | | | 5.50 | | | | 8.01 | | | | 5.67 | | | | 6.19 | | Dividends | | | 1.72 | | | | 1.72 | | | | 1.72 | | | | 1.72 | | | | 1.72 | | | | 1.72 | | | | 1.72 | | | | 1.72 | | | | 1.72 | | | | 1.72 | | Book value | | | 39.54 | | | | 48.96 | | | | 42.93 | | | | 25.54 | | | | 23.31 | | | | 48.48 | | | | 39.54 | | | | 48.96 | | | | 42.93 | | | | 25.54 | | Closing Stock Price—NYSE | | | 41.35 | | | | 81.63 | | | | 83.02 | | | | 83.76 | | | | 69.21 | | | | 80.66 | | | | 41.35 | | | | 81.63 | | | | 83.02 | | | | 83.76 | | | KEY RATIOS | | | | | | | | | | | | | | | | | | | | | Operating profit margin | | | 2.9 | % | | | 5.5 | % | | | 4.6 | % | | | 5.5 | % | | | 5.7 | % | | | 4.0 | % | | | 2.9 | % | | | 5.5 | % | | | 4.6 | % | | | 5.5 | % | Pre-tax margin(3)(4) | | | 1.3 | % | | | 4.1 | % | | | 3.4 | % | | | 4.2 | % | | | 4.7 | % | | | 1.7 | % | | | 1.3 | % | | | 4.1 | % | | | 3.4 | % | | | 4.2 | % | Net margin(4)(5) | | | 2.2 | % | | | 3.3 | % | | | 2.7 | % | | | 2.9 | % | | | 3.1 | % | | | 1.9 | % | | | 2.2 | % | | | 3.3 | % | | | 2.7 | % | | | 2.9 | % | Return on average stockholders’ equity(5) | | | 10.7 | % | | | 18.1 | % | | | 15.7 | % | | | 24.6 | % | | | 30.3 | % | | Return on average Whirlpool stockholders’ equity(6) | | | | 9.8 | % | | | 10.7 | % | | | 18.1 | % | | | 15.7 | % | | | 24.6 | % | Return on average total assets(6)(7) | | | 3.0 | % | | | 4.6 | % | | | 3.9 | % | | | 5.1 | % | | | 5.2 | % | | | 2.3 | % | | | 3.0 | % | | | 4.6 | % | | | 3.9 | % | | | 5.1 | % | Current assets to current liabilities | | | 1.1 | | | | 1.1 | | | | 1.1 | | | | 1.1 | | | | 1.1 | | | | 1.2 | | | | 1.1 | | | | 1.1 | | | | 1.1 | | | | 1.1 | | Total debt-appliance business as a percent of invested capital(7)(8) | | | 46.0 | % | | | 34.5 | % | | | 41.2 | % | | | 40.4 | % | | | 45.7 | % | | | 43.6 | % | | | 46.0 | % | | | 34.5 | % | | | 41.2 | % | | | 40.4 | % | Price earnings ratio | | | 7.5 | | | | 10.2 | | | | 14.6 | | | | 13.5 | | | | 11.7 | | | | 18.6 | | | | 7.5 | | | | 10.2 | | | | 14.6 | | | | 13.5 | | | OTHER DATA | | | | | | | | | | | | | | | | | | | | | Number of common shares outstanding (in thousands): | | | | | | | | | | | | | | | | | | | | | Average—on a diluted basis | | | 76,019 | | | | 79,880 | | | | 76,471 | | | | 68,272 | | | | 68,902 | | | | 75,584 | | | | 76,019 | | | | 79,880 | | | | 76,471 | | | | 68,272 | | Year-end | | | 73,536 | | | | 75,835 | | | | 78,484 | | | | 67,880 | | | | 66,604 | | | | 74,704 | | | | 73,536 | | | | 75,835 | | | | 78,484 | | | | 67,880 | | Number of stockholders (year-end) | | | 14,515 | | | | 15,011 | | | | 15,311 | | | | 7,442 | | | | 7,826 | | | | 14,930 | | | | 14,515 | | | | 15,011 | | | | 15,311 | | | | 7,442 | | Number of employees (year-end) | | | 69,612 | | | | 73,682 | | | | 73,416 | | | | 65,682 | | | | 68,125 | | | | 66,884 | | | | 69,612 | | | | 73,682 | | | | 73,416 | | | | 65,682 | | Total return to shareholders (five year annualized)(8)(9) | | | (8.5 | )% | | | 11.8 | % | | | 4.9 | % | | | 14.5 | % | | | 3.7 | % | | | 5.8 | % | | | (8.5 | )% | | | 11.8 | % | | | 4.9 | % | | | 14.5 | % |
(1) | | Restructuring charges were $126 million in 2009, $149 million in 2008, $61 million in 2007, $55 million in 2006 and $57 million in 2005 and $15 million in 2004.2005. |
(2) | | Our earnings from continuing operations exclude certain dispositions adjacent to the Maytag acquisition. |
(3) | | Depreciation method changed prospectively from a straight-line method to a modified units of production method in 2009. See Note 1 of the Notes to the Consolidated Financial Statements for additional information related to our depreciation method change. |
(4) | | Earnings from continuing operations before income taxes and other items, as a percent of sales. |
(4)(5) | | Earnings from continuing operations,Net earnings available to Whirlpool common stockholders, as a percent of sales. |
(5)(6) | | Net earnings (loss), divided by average stockholders’ equity. |
(6)(7) | | Net earnings (loss), divided by average total assets. |
(7)(8) | | Debt divided by debt, Whirlpool stockholders’ equity and minority interests. |
(8)(9) | | Stock appreciation plus reinvested dividends.dividends, divided by share price at the beginning of the period. |
F-55F-60
Report by Management on the Consolidated Financial Statements The management of Whirlpool Corporation has prepared the accompanying financial statements. The financial statements have been audited by Ernst & Young LLP, an independent registered public accounting firm, whose report, based upon their audits, expresses the opinion that these financial statements present fairly the consolidated financial position, statements of income and cash flows of Whirlpool and its subsidiaries in accordance with accounting principles generally accepted in the United States. Their audits are conducted in conformity with the auditing standards of the Public Company Accounting Oversight Board (United States). The financial statements were prepared from the Company’s accounting records, books and accounts which, in reasonable detail, accurately and fairly reflect all material transactions. The Company maintains a system of internal controls designed to provide reasonable assurance that the Company’s books and records, and the Company’s assets are maintained and accounted for, in accordance with management’s authorizations. The Company’s accounting records, policies and internal controls are regularly reviewed by an internal audit staff. The audit committee of the Board of Directors of the Company is composed of fivefour independent directors who, in the opinion of the board, meet the relevant financial experience, literacy, and expertise requirements. The audit committee provides independent and objective oversight of the Company’s accounting functions and internal controls and monitors (1) the objectivity of the Company’s financial statements, (2) the Company’s compliance with legal and regulatory requirements, (3) the independent registered public accounting firm’s qualifications and independence, and (4) the performance of the Company’s internal audit function and independent registered public accounting firm. In performing these functions, the committee has the responsibility to review and discuss the annual audited financial statements and quarterly financial statements and related reports with management and the independent registered public accounting firm, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” to monitor the adequacy of financial disclosure. The committee also has the responsibility to retain and terminate the Company’s independent registered public accounting firm and exercise the committee’s sole authority to review and approve all audit engagement fees and terms and pre-approve the nature, extent, and cost of all non-audit services provided by the independent registered public accounting firm. | /s/ ROY W. TEMPLIN | Roy W. Templin | Executive Vice President and Chief Financial Officer | February 19, 200917, 2010 |
F-56F-61
Management’s Report on Internal Control Over Financial Reporting The management of Whirlpool Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a – 15(f) and 15d – 15(f) under the Securities Exchange Act of 1934. Whirlpool’s internal control system is designed to provide reasonable assurance to Whirlpool’s management and board of directors regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The management of Whirlpool assessed the effectiveness of Whirlpool’s internal control over financial reporting as of December 31, 2008.2009. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework.Based on our assessment and those criteria, management believes that Whirlpool maintained effective internal control over financial reporting as of December 31, 2008.2009. Whirlpool’s independent registered public accounting firm has issued an audit report on its assessment of Whirlpool’s internal control over financial reporting. This report appears on page F-59.F-64. | | | | | /s/ JEFF M. FETTIG | | | | /s/ ROY W. TEMPLIN | Jeff M. Fettig | | | | Roy W. Templin | Chairman of the Board and Chief Executive Officer | | | | Executive Vice President and Chief Financial Officer | | | | February 19, 200917, 2010 | | | | February 19, 200917, 2010 |
F-57F-62
Report of Independent Registered Public Accounting Firm The Stockholders and Board of Directors Whirlpool Corporation Benton Harbor, Michigan We have audited the accompanying consolidated balance sheets of Whirlpool Corporation as of December 31, 20082009 and 2007,2008, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2008.2009. Our audits also included the financial statement schedule listed in the index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Whirlpool Corporation at December 31, 20082009 and 2007,2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008,2009, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As described in Note 121 of the notes to the consolidated financial statements, effective January 1, 2009, the Company adopted new rules regarding the accounting for noncontrolling interests. As described in Note 1 of the notes to the consolidated financial statements, effective January 1, 2009, the Company changed its method of depreciation for machinery and equipment from straight-line to modified units of production. As described in Note 11 of the notes to the consolidated financial statements, effective January 1, 2007, the Company adopted FASB Interpretation No. 48, Accountingnew rules regarding the accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes. As described in Note 13 to the consolidated financial statements, effective December 31, 2006, the Company adopted FASB Statement No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment to FASB Statements No. 87, 88, 106, and 132(R).income tax uncertainties. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Whirlpool Corporation’s internal control over financial reporting as of December 31, 2008,2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 19, 200917, 2010 expressed an unqualified opinion thereon. /s/ ERNST & YOUNG LLP Chicago, Illinois February 19, 200917, 2010 F-58F-63
Report of Independent Registered Public Accounting Firm The Stockholders and Board of Directors Whirlpool Corporation Benton Harbor, Michigan We have audited Whirlpool Corporation’s internal control over financial reporting as of December 31, 2008,2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Whirlpool Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, Whirlpool Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008,2009, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Whirlpool Corporation as of December 31, 20082009 and 2007,2008, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008 of Whirlpool Corporation2009, and our report dated February 19, 200917, 2010 expressed an unqualified opinion thereon. /s/ ERNST & YOUNG LLP Chicago, Illinois February 19, 200917, 2010 F-59F-64
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS WHIRLPOOL CORPORATION AND SUBSIDIARIES Years Ended December 31, 2009, 2008 2007 and 20062007 (millions of dollars) | COL. A | | COL. B | | COL. C | | COL. D | | COL. E | | COL. B | | COL. C | | COL. D | | COL. E | | | | | ADDITIONS | | | | | | Description | | Balance at Beginning of Period | | (1) Charged to Costs and Expenses | | (2) Charged to Other Accounts / Other | | Deductions —Describe | | Balance at End of Period | | Balance at Beginning of Period | | ADDITIONS | | Deductions —Describe | | | Balance at End of Period | Description | | | | (1) Charged to Costs and Expenses | | (2) Charged to Other Accounts / Other | | | | | | | | | | | | | Allowance for doubtful accounts—accounts receivables | | | $ | 66 | | $ | 28 | | $ | — | | $ | (18 | )—A | | $ | 76 | Year Ended December 31, 2008: | | | | | | | | | | | | | | | | | | | | | Allowance for doubtful accounts—accounts receivables | | $ | 83 | | $ | 29 | | $ | — | | $ | (46 | )—A | | $ | 66 | | | 83 | | | 29 | | | — | | | (46 | )—A | | | 66 | Year Ended December 31, 2007: | | | | | | | | | | | | | | | | | | | | | Allowance for doubtful accounts—accounts receivables | | | 84 | | | 19 | | | — | | | (20 | ) —A | | | 83 | | | 84 | | | 19 | | | — | | | (20 | ) —A | | | 83 | Year Ended December 31, 2006: | | | | | | | | | | | | Allowance for doubtful accounts—accounts receivables | | | 76 | | | 19 | | | 14 —B | | | (25 | ) —A | | | 84 | |
Note A—The amounts represent accounts charged off, less recoveries of $0 in 2008, $0 in2009 through 2007, and $0 in 2006, translation adjustments and transfers. Note B—The amount represents allowances for doubtful accounts recorded as part of the Maytag acquisition.
F-60F-65
ANNUAL REPORT ON FORM 10-K ITEMS 15(a)(3) and 15(c) EXHIBIT INDEX YEAR ENDED DECEMBER 31, 20082009 The following exhibits are submitted herewith or incorporated herein by reference in response to Items 15(a)(3) and 15(c). Each exhibit that is considered a management contract or compensatory plan or arrangement required to be filed pursuant to Item 15(a)(3) of Form 10-K is identified by a “(Z).” | | | Number and Description of Exhibit | 2 | | Agreement and Plan of Merger dated as of August 22, 2005 among Whirlpool Corporation, Whirlpool Acquisition Co. and Maytag Corporation. [Incorporated by reference from Exhibit 2.1 to the Company’s Form 8-K filed on August 22, 2005] | | | 3(i) | | Restated Certificate of Incorporation of Whirlpool Corporation.Corporation (amended and restated as of April 22, 2009). [Incorporated by reference from Exhibit 3(i)3.1 to the Company’s Annual ReportForm 8-K filed on Form 10-K for the fiscal year ended December 31, 1993]April 23, 2009] | | | 3(ii) | | By-Laws of Whirlpool Corporation (as amended(amended and restated effective June 19, 2007)as of April 21, 2009). [Incorporated by reference from Exhibit 3.2 to the Company’s Form 8-K filed on June 22, 2007]April 23, 2009] | | | 4(i) | | The registrant hereby agrees to furnish to the Securities and Exchange Commission, upon request, a copy of instruments defining the rights of holders of each issue of long-term debt of the registrant and its subsidiaries. | | | 4(ii) | | Indenture dated as of March 20, 2000 between Whirlpool Corporation and U.S. Bank, National Association (as successor to Citibank, N.A.) [Incorporated by reference from Exhibit 4(a) to the Company’s Registration Statement on Form S-3 filed on March 21, 2000] | | | 4(iii) | | Indenture dated as of June 15, 1987 between Maytag Corporation and The First National Bank of Chicago. [Incorporated by reference from Maytag Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1987] | | | 4(iv) | | First Supplemental Indenture dated as of September 1, 1989 between Maytag Corporation and The First National Bank of Chicago. [Incorporated by reference from Exhibit 4.3 to Maytag Corporation’s Form 8-K dated September 28, 1989] | | | 4(v) | | Ninth Supplemental Indenture dated as of October 30, 2001 between Maytag Corporation and Bank One, National Association. [Incorporated by reference from Exhibit 4.1 to Maytag Corporation’s Form 8-K filed on October 31, 2001] | | | 10(iii)4(vi) | | Form of 8% Notes due 2012 and Form of 8.6% Notes due 2014, issued under the Indenture described in Exhibit 4(ii) above. [Incorporated by reference from Annex A and Annex B, respectively, to the Certificate of Designated Officers, Exhibit 4.1 to the Company’s Form 8-K filed on May 5, 2009] | | | 10(i)(a) | | Amended and Restated Long-Term Five-Year Credit Agreement dated as of December 1, 2005 among Whirlpool Corporation, Whirlpool Europe B.V., Whirlpool Finance B.V., Certain Financial Institutions and Citibank, N.A., as Administrative Agent and Fronting Agent and JPMorgan Chase Bank, N.A., as Syndication Agent, ABN AMRO Bank N.V., The Royal Bank of Scotland PLC and Bank of America, N.A., as Documentation Agents, Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., Lead Arrangers and Joint Bookrunners. [Incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K filed on December 6, 2005] | | | 10(i)(b) | | Amendment No. 1 to the Amended and Restated Long-Term Five-Year Credit Agreement dated as of December 1, 2005 among Whirlpool Corporation and the other parties thereto [Incorporated by reference from Exhibit 10 to the Company’s Quarterly Report on Form 10-Q filed on April 27, 2009] |
E-1
| | | Number and Description of Exhibit | 10(i)(c) | | Amendment No. 2 to the Amended and Restated Long-Term Five-Year Credit Agreement dated as of December 1, 2005 among Whirlpool Corporation and the other parties thereto [Incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K filed on August 14, 2009] | | | 10(i)(d) | | Selling Agency Agreement dated February 25, 2008 among Whirlpool, Banc of America Securities LLC and Greenwich Capital Markets, Inc., as representatives of the several underwriters named therein. [Incorporated by reference from Exhibit 1.1 to the Company’s Form 8-K filed on February 28, 2008] | | | 10(iii)(b)(a) | | Whirlpool Corporation Nonemployee Director Stock Ownership Plan (amended as of February 16, 1999, effective April 20, 1999). (Z) [Incorporated by reference from Exhibit A to the Company’s Proxy Statement for the 1999 annual meeting of stockholders] | | | 10(iii)(c)(b) | | Whirlpool Corporation Charitable Award Contribution and Additional Life Insurance Plan for Directors (effective April 20, 1993). (Z) [Incorporated by reference from Exhibit 10(iii)(p) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1994] | | | 10(iii)(d)(c) | | Whirlpool Corporation Deferred Compensation Plan for Directors (as amended effective January 1, 1992 and April 20, 1993). (Z) [Incorporated by reference from Exhibit 10(iii)(f) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993] |
E-1
| | | Number and Description of Exhibit
| 10(iii)(e)(d) | | Whirlpool Corporation Deferred Compensation Plan II for Non-Employee Directors (as amended and restated, effective January 1, 2009). (Z) [Incorporated by reference from Exhibit 10(iii)(e) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008] | | | 10(iii)(f)(e) | | Whirlpool Corporation Nonemployee Director Equity Plan (effective January 1, 2005). (Z) [Incorporated by reference from Exhibit 99.1 to the Company’s Form 8-K filed on April 21, 2005] | | | 10(iii)(g)(f) | | Amendment of the Whirlpool Corporation Nonemployee Director Equity Plan (effective January 1, 2008). (Z) [Incorporated by reference to Exhibit 10(iii)(a) to the Company’s Quarterly Report on Form 10-Q filed on April 24, 2008] | | | 10(iii)(h)(g) | | Nonemployee Director Stock Option Form of Agreement. (Z) [Incorporated by reference from Exhibit 10(iii)(b) to the Company’s Quarterly Report on Form 10-Q filed on April 24, 2008] | | | 10(iii)(i)(h) | | Whirlpool Corporation 1996 Omnibus Stock and Incentive Plan (as amended, effective February 16, 1999). (Z) [Incorporated by reference from Exhibit 10(iii)(r) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999] | | | 10(iii)(j)(i) | | Whirlpool Corporation 1998 Omnibus Stock and Incentive Plan (as amended, effective February 16, 1999). (Z) [Incorporated by reference from Exhibit 10(iii)(s) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999] | | | 10(iii)(k)(j) | | Whirlpool Corporation 2000 Omnibus Stock and Incentive Plan (effective January 1, 2000). (Z) [Incorporated by reference from Exhibit A to the Company’s Proxy Statement for the 2000 annual meeting of stockholders] | | | 10(iii)(l)(k) | | Whirlpool Corporation 2002 Omnibus Stock and Incentive Plan (effective January 1, 2002). (Z) [Incorporated by reference from Exhibit A to the Company’s Proxy Statement for the 2002 annual meeting of stockholders] | | | 10(iii)(m)(l) | | Whirlpool Corporation 2007 Omnibus Stock and Incentive Plan (effective January 1, 2007). (Z) [Incorporated by reference from Annex A to the Company’s Proxy Statement for the 2007 annual meeting of stockholders] | | | 10(iii)(n)(m) | | Omnibus Equity Plans 409A Amendment (effective December 19, 2008). (Z) [Incorporated by reference from Exhibit 10(iii)(n) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008] |
E-2
| | | Number and Description of Exhibit | 10(iii)(o)(n) | | Form of Agreement for the Whirlpool Corporation Career Stock Grant Program (pursuant to one or more of Whirlpool’s Omnibus Stock and Incentive Plans). (Z) [Incorporated by reference from Exhibit 10(iii)(q) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995] | | | 10(iii)(p)(o) | | Form of Amendment to Whirlpool Corporation Career Stock Grant Agreement. (Z) [Incorporated by reference from Exhibit 10(iii)(p) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008] | | | 10(iii)(q)(p) | | Form of Stock Option Grant Document for the Whirlpool Corporation Stock Option Program (pursuant to one or more of Whirlpool’s Omnibus Stock and Incentive Plans)(Rev. 02/17/04). (Z) [Incorporated by reference from Exhibit 10(i) to the Company’s Form 8-K filed on January 25, 2005] | | | 10(iii)(r)(q) | | Administrative Guidelines for the Whirlpool Corporation Special Retention Program (pursuant to one or more of Whirlpool’s Omnibus Stock and Incentive Plans). (Z) [Incorporated by reference from Exhibit 10(iii)(w) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001] | | | 10(iii)(s)(r) | | Addendum to Whirlpool Corporation Special Retention Program Features (effective January 1, 2005). (Z) [Incorporated by reference from Exhibit 10(iii)(s) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008] | | | 10(iii)(t)(s) | | Form of Whirlpool Corporation Strategic Excellence Program Grant Document (pursuant to one or more of Whirlpool’s Omnibus Stock and Incentive Plans)(Rev. 02/17/04). (Z) [Incorporated by reference from Exhibit 10(ii) to the Company’s Form 8-K filed on January 25, 2005] | | | 10(iii)(u)(t) | | Form of Compensation and Benefits Assurance Agreements (as amended and restated, effective December 31, 2008). (Z) [Incorporated by reference from Exhibit 10(iii)(u) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008] |
E-2
| | | Number and Description of Exhibit
| 10(iii)(v)(u) | | Whirlpool Corporation Performance Excellence Plan. (Z) [Incorporated by reference from Exhibit A10.1 to the Company’s Proxy Statement for the 2004 annual meeting of stockholders]Form 8-K filed on April 23, 2009] | | | 10(iii)(w) | | Amendment to Whirlpool Corporation Performance Excellence Plan (as amended effective January 1, 2005). (Z)
| | | 10(iii)(x)(v) | | Whirlpool Corporation Executive Deferred Savings Plan (as amended effective January 1, 1992). (Z) [Incorporated by reference from Exhibit 10(iii)(n) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993] | | | 10(iii)(y)(w) | | Whirlpool Corporation Executive Deferred Savings Plan II (as amended and restated, effective January 1, 2009), including Supplement A, Whirlpool Executive Restoration Plan (as amended and restated, effective January 1, 2009). (Z) [Incorporated by reference from Exhibit 10(iii)(y) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008] | | | 10(iii)(z)(x) | | Amendment to the Whirlpool Corporation Executive Deferred Savings Plan II (dated December 21, 2009). (Z) | | | 10(iii)(y) | | Whirlpool Corporation Executive Officer Bonus Plan (effective January 1, 1994). (Z) [Incorporated by reference from Exhibit 10(iii)(o) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1994] | | | 10(iii)(aa)(z) | | Amendment to Whirlpool Corporation Executive Officer Bonus Plan (effective January 1, 2009). (Z) | | | 10(iii)(bb) | | Whirlpool Corporation Key Employee Treasury Stock Ownership Plan (effective October 16, 2001). (Z) [Incorporated by reference from Exhibit 10(iii)(u)(aa) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001]2008]
| | | 10(iii)(cc)(aa) | | Employment Agreement with Paulo F.M.O. Periquito, dated January 1, 1998. (Z) [Incorporated by reference from Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 1998] | | | 10(iii)(dd)(bb) | | Whirlpool Retirement Benefits Restoration Plan (as amended and restated effective January 1, 2009). (Z) [Incorporated by reference from Exhibit 10(iii)(dd) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008] |
E-3
| | | Number and Description of Exhibit | 10(iii)(ee)(cc) | | Whirlpool Supplemental Executive Retirement Plan (as amended and restated, effective January 1, 2009). (Z) [Incorporated by reference from Exhibit 10(iii)(ee) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008] | | | 10(iii)(ff)(dd) | | Whirlpool Corporation Form of Indemnity Agreement. (Z) [Incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K filed on February 23, 2006] | | | 10(iii)(gg) | | Selling Agency Agreement dated February 25, 2008 among Whirlpool, Banc of America Securities LLC and Greenwich Capital Markets, Inc., as representatives of the several underwriters named therein. [Incorporated by reference from Exhibit 1.1 to the Company’s Form 8-K filed on February 28, 2008]
| | | 12 | | Ratio of Earnings to Fixed Charges | | | 21 | | List of Subsidiaries | | | 23 | | Consent of Independent Registered Public Accounting Firm | | | 24 | | Power of Attorney | | | 31(a) | | Certification of Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | 31(b) | | Certification of Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | 32 | | Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
E-3E-4
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