UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________
FORM 10-Q
________________________________________________________
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
For the quarterly period ended September 30, 2022
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
Commission file number 1-3932
WHIRLPOOL CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 38-1490038 | ||||||||||
| (State of Incorporation) | (I.R.S. Employer Identification No.) | ||||||||||
| 2000 North M-63 | |||||||||||
Benton Harbor, | Michigan | 49022-2692 | |||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
Registrant's telephone number, including area code (269) 923-5000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||||||||||||||
| Common stock, par value $1.00 per share | WHR | Chicago Stock Exchange | and | New York Stock Exchange | ||||||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
| Emerging growth company | ☐ | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
| Class of common stock | Shares outstanding at October 14, 2022 | |||||||
| Common stock, par value $1.00 per share | 54,478,354 | |||||||
WHIRLPOOL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
Three and nine months ended September 30, 2022
TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. Certain statements contained in this quarterly report, including those within the forward-looking perspective section within the Management's Discussion and Analysis section, and other written and oral statements made from time to time by us or on our behalf do not relate strictly to historical or current facts and may contain forward-looking statements that reflect our current views with respect to future events and financial performance. As such, they are considered "forward-looking statements" which provide current expectations or forecasts of future events. Such statements can be identified by the use of terminology such as "may," "could," "will," "should," "possible," "plan," "predict," "forecast," "potential," "anticipate," "estimate," "expect," "project," "intend," "believe," "may impact," "on track," "guarantee," "seek," and the negative of these words and words and terms of similar substance. Our forward-looking statements generally relate to our growth strategies, financial results, product development, and sales efforts. These forward-looking statements should be considered with the understanding that such statements involve a variety of risks and uncertainties, known and unknown, and may be affected by inaccurate assumptions. Consequently, no forward-looking statement can be guaranteed and actual results may vary materially.
This document contains forward-looking statements about Whirlpool Corporation and its consolidated subsidiaries ("Whirlpool") that speak only as of this date. Whirlpool disclaims any obligation to update these statements. Forward-looking statements in this document may include, but are not limited to, statements regarding future financial results, long-term value creation goals, restructuring expectations, productivity, raw material prices and the impact of COVID-19 and the Russia/Ukraine conflict on our operations. Many risks, contingencies and uncertainties could cause actual results to differ materially from Whirlpool's forward-looking statements. Among these factors are: (1) the ongoing Russian invasion of Ukraine and related conflict and sanctions; (2) COVID-19 pandemic-related business disruptions and economic uncertainty; (3) intense competition in the home appliance industry reflecting the impact of both new and established global competitors, including Asian and European manufacturers, and the impact of the changing retail environment, including direct-to-consumer sales; (4) Whirlpool's ability to maintain or increase sales to significant trade customers and the ability of these trade customers to maintain or increase market share; (5) Whirlpool's ability to maintain its reputation and brand image; (6) the ability of Whirlpool to achieve its business objectives and leverage its global operating platform, and accelerate the rate of innovation; (7) Whirlpool’s ability to understand consumer preferences and successfully develop new products; (8) Whirlpool's ability to obtain and protect intellectual property rights; (9) acquisition, divestiture, and investment-related risks, including risks associated with our past acquisitions; (10) Whirlpool's ability to navigate risks associated with our presence in emerging markets; (11) risks related to our international operations, including changes in foreign regulations; (12) Whirlpool's ability to respond to unanticipated social, political and/or economic events; (13) information technology system failures, data security breaches, data privacy compliance, network disruptions, and cybersecurity attacks; (14) product liability and product recall costs; (15) the ability of suppliers of critical parts, components and manufacturing equipment to deliver sufficient quantities to Whirlpool in a timely and cost-effective manner; (16) our ability to attract, develop and retain executives and other qualified employees; (17) the impact of labor relations; (18) fluctuations in the cost of key materials (including steel, resins, copper and aluminum) and components and the ability of Whirlpool to offset cost increases; (19) Whirlpool's ability to manage foreign currency fluctuations; (20) impacts from goodwill impairment and related charges; (21) triggering events or circumstances impacting the carrying value of our long-lived assets; (22) inventory and other asset risk; (23) health care cost trends, regulatory changes and variations between results and estimates that could increase future funding obligations for pension and postretirement benefit plans; (24) litigation, tax, and legal compliance risk and costs, especially if materially different from the amount we expect to incur or have accrued for, and any disruptions caused by the same; (25) the effects and costs of governmental investigations or related actions by third parties; (26) changes in the legal and regulatory environment including environmental, health and safety regulations, and taxes and tariffs; (27) Whirlpool's ability to respond to the impact of climate change and climate change regulation; and (28) the uncertain global economy and changes in economic conditions which affect demand for our products.
We undertake no obligation to update any forward-looking statement, and investors are advised to review disclosures in our filings with the SEC. It is not possible to foresee or identify all factors that could cause actual results to differ from expected or historic results. Therefore, investors should not consider the foregoing factors to be an exhaustive statement of all risks, uncertainties, or factors that could potentially cause actual results to differ from forward-looking statements.
2
Additional information concerning these and other factors can be found in the "Risk Factors" section of our Annual Report on Form 10-K, as updated in Part II, Item 1A of our Quarterly Reports on Form 10-Q.
Unless otherwise indicated, the terms "Whirlpool," "the Company," "we," "us," and "our" refer to Whirlpool Corporation and its consolidated subsidiaries.
Website Disclosure
We routinely post important information for investors on our website, whirlpoolcorp.com, in the "Investors" section. We also intend to update the Hot Topics Q&A portion of this webpage as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investors section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our webpage is not incorporated by reference into, and is not a part of, this document.
3
| PART I. FINANCIAL INFORMATION | ||
| ITEM 1. | FINANCIAL STATEMENTS | ||||
TABLE OF CONTENTS
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| FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | |||||
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4
WHIRLPOOL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
FOR THE PERIODS ENDED SEPTEMBER 30
(Millions of dollars, except per share data)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net sales | $ | 4,784 | $ | 5,488 | $ | 14,801 | $ | 16,170 | |||||||||||||||
| Expenses | |||||||||||||||||||||||
| Cost of products sold | 4,104 | 4,380 | 12,373 | 12,823 | |||||||||||||||||||
| Gross margin | 680 | 1,108 | 2,428 | 3,347 | |||||||||||||||||||
| Selling, general and administrative | 446 | 524 | 1,283 | 1,526 | |||||||||||||||||||
| Intangible amortization | 8 | 10 | 24 | 37 | |||||||||||||||||||
| Restructuring costs | 3 | 7 | 13 | 35 | |||||||||||||||||||
| Impairment of goodwill and other intangibles | — | — | 384 | — | |||||||||||||||||||
| (Gain) loss on sale and disposal of businesses | 2 | 15 | 348 | (105) | |||||||||||||||||||
| Operating profit | 221 | 552 | 376 | 1,854 | |||||||||||||||||||
| Other (income) expense | |||||||||||||||||||||||
| Interest and sundry (income) expense | (19) | (78) | (45) | (139) | |||||||||||||||||||
| Interest expense | 40 | 44 | 126 | 134 | |||||||||||||||||||
| Earnings (loss) before income taxes | 200 | 586 | 295 | 1,859 | |||||||||||||||||||
| Income tax expense (benefit) | 53 | 100 | 196 | 353 | |||||||||||||||||||
| Equity method investment income (loss), net of tax | (2) | — | (6) | — | |||||||||||||||||||
| Net earnings (loss) | 145 | 486 | 93 | 1,506 | |||||||||||||||||||
| Less: Net earnings (loss) available to noncontrolling interests | 2 | 15 | 8 | 21 | |||||||||||||||||||
| Net earnings (loss) available to Whirlpool | $ | 143 | $ | 471 | $ | 85 | $ | 1,485 | |||||||||||||||
| Per share of common stock | |||||||||||||||||||||||
| Basic net earnings (loss) available to Whirlpool | $ | 2.61 | $ | 7.56 | $ | 1.52 | $ | 23.67 | |||||||||||||||
| Diluted net earnings (loss) available to Whirlpool | $ | 2.60 | $ | 7.51 | $ | 1.51 | $ | 23.47 | |||||||||||||||
| Dividends declared | $ | 1.75 | $ | 1.40 | $ | 5.25 | $ | 4.05 | |||||||||||||||
| Weighted-average shares outstanding (in millions) | |||||||||||||||||||||||
| Basic | 54.7 | 62.2 | 56.3 | 62.7 | |||||||||||||||||||
| Diluted | 55.0 | 62.7 | 56.7 | 63.2 | |||||||||||||||||||
| Comprehensive income (loss) | $ | 296 | $ | 532 | $ | 511 | $ | 1,905 | |||||||||||||||
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
5
WHIRLPOOL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Millions of dollars, except share data)
| (Unaudited) | |||||||||||
| September 30, 2022 | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 1,794 | $ | 3,044 | |||||||
Accounts receivable, net of allowance of $83 and $98, respectively | 2,410 | 3,100 | |||||||||
| Inventories | 2,884 | 2,717 | |||||||||
| Prepaid and other current assets | 831 | 834 | |||||||||
| Total current assets | 7,919 | 9,695 | |||||||||
Property, net of accumulated depreciation of $6,397 and $6,619, respectively | 2,569 | 2,805 | |||||||||
| Right of use assets | 833 | 946 | |||||||||
| Goodwill | 2,177 | 2,485 | |||||||||
Other intangibles, net of accumulated amortization of $520 and $522, respectively | 1,800 | 1,981 | |||||||||
| Deferred income taxes | 1,741 | 1,920 | |||||||||
| Other noncurrent assets | 472 | 453 | |||||||||
| Total assets | $ | 17,511 | $ | 20,285 | |||||||
| Liabilities and stockholders' equity | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | 4,445 | $ | 5,413 | |||||||
| Accrued expenses | 580 | 609 | |||||||||
| Accrued advertising and promotions | 692 | 854 | |||||||||
| Employee compensation | 240 | 576 | |||||||||
| Notes payable | 8 | 10 | |||||||||
| Current maturities of long-term debt | 248 | 298 | |||||||||
| Other current liabilities | 596 | 750 | |||||||||
| Total current liabilities | 6,809 | 8,510 | |||||||||
| Noncurrent liabilities | |||||||||||
| Long-term debt | 4,722 | 4,929 | |||||||||
| Pension benefits | 273 | 378 | |||||||||
| Postretirement benefits | 132 | 142 | |||||||||
| Lease liabilities | 699 | 794 | |||||||||
| Other noncurrent liabilities | 525 | 519 | |||||||||
| Total noncurrent liabilities | 6,351 | 6,762 | |||||||||
| Stockholders' equity | |||||||||||
Common stock, $1 par value, 250 million shares authorized, 114 million and 114 million shares issued, respectively, and 54 million and 59 million shares outstanding, respectively | 114 | 114 | |||||||||
| Additional paid-in capital | 3,053 | 3,025 | |||||||||
| Retained earnings | 9,960 | 10,170 | |||||||||
| Accumulated other comprehensive loss | (1,939) | (2,357) | |||||||||
Treasury stock, 60 million and 55 million shares, respectively | (7,010) | (6,106) | |||||||||
| Total Whirlpool stockholders' equity | 4,178 | 4,846 | |||||||||
| Noncontrolling interests | 173 | 167 | |||||||||
| Total stockholders' equity | 4,351 | 5,013 | |||||||||
| Total liabilities and stockholders' equity | $ | 17,511 | $ | 20,285 | |||||||
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
6
WHIRLPOOL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE PERIODS ENDED SEPTEMBER 30
(Millions of dollars)
| Nine Months Ended | |||||||||||
| 2022 | 2021 | ||||||||||
| Operating activities | |||||||||||
| Net earnings (loss) | $ | 93 | $ | 1,506 | |||||||
| Adjustments to reconcile net earnings to cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization | 344 | 378 | |||||||||
| Impairment of goodwill and other intangibles | 384 | — | |||||||||
| (Gain) loss on sale and disposal of businesses | 348 | (105) | |||||||||
| (Gain) loss on previously held equity interest | — | (42) | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable | 510 | (289) | |||||||||
| Inventories | (359) | (785) | |||||||||
| Accounts payable | (745) | 617 | |||||||||
| Accrued advertising and promotions | (114) | 20 | |||||||||
| Accrued expenses and current liabilities | 22 | 207 | |||||||||
| Taxes deferred and payable, net | (10) | 50 | |||||||||
| Accrued pension and postretirement benefits | (81) | (89) | |||||||||
| Employee compensation | (297) | 10 | |||||||||
| Other | 215 | (184) | |||||||||
| Cash provided by (used in) operating activities | 310 | 1,294 | |||||||||
| Investing activities | |||||||||||
| Capital expenditures | (334) | (306) | |||||||||
| Proceeds from sale of assets and businesses | 76 | 299 | |||||||||
| Acquisition of businesses, net of cash acquired | — | (46) | |||||||||
| Cash held by divested businesses | (75) | (393) | |||||||||
| Cash provided by (used in) investing activities | (333) | (446) | |||||||||
| Financing activities | |||||||||||
| Net proceeds from borrowings of long-term debt | 300 | 300 | |||||||||
| Net proceeds (repayments) of long-term debt | (300) | (300) | |||||||||
| Net proceeds (repayments) from short-term borrowings | — | 1 | |||||||||
| Dividends paid | (295) | (253) | |||||||||
| Repurchase of common stock | (903) | (641) | |||||||||
| Common stock issued | 3 | 76 | |||||||||
| Other | — | (39) | |||||||||
| Cash provided by (used in) financing activities | (1,195) | (856) | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (32) | (51) | |||||||||
| Increase (decrease) in cash, cash equivalents and restricted cash | (1,250) | (59) | |||||||||
| Cash, cash equivalents and restricted cash at beginning of year | 3,044 | 2,934 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 1,794 | $ | 2,875 | |||||||
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
7
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
General Information
The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information, and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information or footnotes required by U.S. GAAP for complete financial statements. As a result, this Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying Notes in our Form 10-K for the year ended December 31, 2021.
Management believes that the accompanying Consolidated Condensed Financial Statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods.
We are required to make estimates and assumptions that affect the amounts reported in the Consolidated Condensed Financial Statements and accompanying Notes. Actual results could differ materially from those estimates.
Certain prior year amounts in the Consolidated Condensed Financial Statements have been reclassified to conform with current year presentation.
We have eliminated all material intercompany transactions in our Consolidated Condensed Financial Statements. We do not consolidate the financial statements of any company in which we have an ownership interest of 50% or less, unless that company is deemed to be a variable interest entity ("VIE") of which we are the primary beneficiary. VIEs are consolidated when the company is the primary beneficiary of these entities and has the ability to directly impact the activities of these entities.
Risks and Uncertainties
During the first quarter of 2022, Russia commenced a military invasion of Ukraine, and the ensuing conflict has created disruption in the EMEA region and around the world. While we continued experiencing some of this disruption during the quarter, the duration and severity of the effects on our business and the global economy are inherently unpredictable. We continue to closely monitor the ongoing conflict which could materially impact our financial results in the future. We have some sales and distribution operations in Ukraine, however, the revenues and net assets are not material to our EMEA operating segment and consolidated results.
On June 27, 2022, our subsidiary Whirlpool EMEA SpA entered into a share purchase agreement with Arçelik A.Ş. (“Arcelik”) to sell our Russian business to Arcelik for contingent consideration. The sale of the Russian business was completed on August 31, 2022. For additional information, see Note 15 to the Consolidated Condensed Financial Statements.
Furthermore, COVID-19 and subsequent macroeconomic volatility continue to impact countries across the world, and the duration and severity of the effects are currently unknown. The pandemic has impacted the Company and could materially impact our financial results in the future.
The Consolidated Condensed Financial Statements presented herein reflect estimates and assumptions made by management at September 30, 2022. These estimates and assumptions affect, among other things, the Company’s goodwill, long-lived asset and indefinite-lived intangible asset valuation; inventory valuation; assessment of the annual effective tax rate; valuation of deferred income taxes and income tax contingencies; and the allowance for expected credit losses and bad debt. Events and changes in circumstances arising after October 21, 2022, including those resulting from the impacts of COVID-19 as well as the ongoing conflict in Ukraine, will be reflected in management’s estimates for future periods.
8
Goodwill and indefinite-lived intangible assets
We continue to monitor the significant global economic uncertainty to assess the outlook for demand for our products and the impact on our business and our overall financial performance. Our Indesit, Hotpoint* and Maytag trademarks continue to be at risk at September 30, 2022.
The potential impact of demand disruptions, production impacts or supply constraints along with a number of other factors could negatively effect revenues for the Indesit, Hotpoint* and Maytag trademarks, but we remain committed to the strategic actions necessary to realize the long-term forecasted revenues and profitability of these trademarks. A lack of recovery or further deterioration in market conditions, a sustained trend of weaker than expected financial performance for our Indesit, Hotpoint* or Maytag trademarks, among other factors, as a result of the COVID-19 pandemic, other macroeconomic factors or other unforeseen events could result in an impairment charge in future periods which could have a material adverse effect on our financial statements.
As a result of our analysis, and in consideration of the totality of events and circumstances, there were no triggering events of impairment identified during the third quarter of 2022. The goodwill in our reporting units or other indefinite-lived intangible assets are not presently at risk for future impairment.
During the second quarter of 2022, triggering events of impairment were identified for EMEA goodwill and Indesit and Hotpoint* trademarks and impairment charges were recorded. For additional information, see Note 10 and 16 to the Consolidated Condensed Financial Statements.
Income taxes
Under U.S. GAAP, the Company calculates its quarterly tax provision based on an estimated effective tax rate for the year and then adjusts this amount by certain discrete items each quarter. Potential changing and volatile macro-economic conditions could cause fluctuations in forecasted earnings before income taxes. As such, the Company's effective tax rate could be subject to volatility as forecasted earnings before income taxes are impacted by events which cannot be predicted. In addition, potential future economic deterioration brought on by the pandemic, ongoing conflict in Ukraine, and related sanctions or other factors, such as potential sales of businesses and changes in tax rates may negatively impact the realizability and/or valuation of certain deferred tax assets.
Other Accounting Matters
Synthetic lease arrangements
We have a number of synthetic lease arrangements with financial institutions for non-core properties. The leases contain provisions for options to purchase, extend the original term for additional periods or return the property. As of September 30, 2022 and December 31, 2021, these arrangements include residual value guarantees of up to approximately $356 million and $264 million, respectively, that could potentially come due in future periods. We do not believe it is probable that any material amounts will be owed under these guarantees. Therefore, no material amounts related to the residual value guarantees are included in the lease payments used to measure the right-of-use assets and lease liabilities.
The majority of these leases are classified as operating leases. We have assessed the reasonable certainty of these provisions to determine the appropriate lease term. The leases were measured using our incremental borrowing rate and are included in our right of use assets and lease liabilities in the Consolidated Condensed Balance Sheets. Rental payments are calculated at the applicable reference rate plus a margin. The impact to the Consolidated Condensed Balance Sheets and Consolidated Condensed Statements of Comprehensive Income (Loss) is nominal.
*. Whirlpool ownership of the Hotpoint brand in the EMEA and Asia Pacific regions is not affiliated with the Hotpoint brand sold in the Americas.
9
Sale-leaseback transaction
In the first quarter of 2022, the Company sold and leased back a group of non-core properties for net proceeds of approximately $52 million. The initial total annual rent for the properties is approximately $2 million per year over an initial 15 year lease term and is subject to annual rent increases. Under the terms of the lease agreement, the Company is responsible for all taxes, insurance and utilities and is required to adequately maintain the properties for the lease term. The Company has two sequential 5-year renewal options.
The transaction met the requirements for sale-leaseback accounting. Accordingly, the Company recorded the sale of the properties, which resulted in a gain of approximately $44 million ($36 million, net of tax) recorded in selling, general and administrative expense in the Consolidated Condensed Statements of Comprehensive Income (Loss). The related land and buildings were removed from property, plant and equipment, net and the appropriate right-of-use asset and lease liabilities of approximately $32 million were recorded in the Consolidated Condensed Balance Sheets.
Supply Chain Financing Arrangements
The Company has ongoing agreements globally with various third-parties to allow certain suppliers the opportunity to sell receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions.
We have no economic interest in the sale of these receivables and no direct financial relationship with the financial institutions concerning these services. Our obligations to suppliers, including amounts due and scheduled payment terms, are not impacted. All outstanding balances under these programs are recorded in accounts payable on our Consolidated Condensed Balance Sheets. Approximately $1.0 billion have been issued to participating financial institutions as of September 30, 2022 and $1.4 billion as of December 31, 2021, respectively.
A downgrade in our credit rating or changes in the financial markets could limit the financial institutions’ willingness to commit funds to, and participate in, the programs. We do not believe such risk would have a material impact on our working capital or cash flows.
Equity Method Investments
Whirlpool holds an equity interest of 20% in Whirlpool (China) Co., Ltd. (Whirlpool China), an entity which was previously controlled by the Company. The following tables summarize balances and transactions with Whirlpool China and its subsidiaries during the periods presented.
| Millions of dollars | September 30, 2022 | December 31, 2021 | |||||||||||||||
| Other noncurrent assets | Carrying value of equity interest | $ | 201 | $ | 206 | ||||||||||||
| Accounts payable | Outstanding amounts due | $ | 112 | $ | 137 | ||||||||||||
| Millions of dollars | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Purchases from Whirlpool China | $ | 95 | $ | 86 | $ | 316 | $ | 152 | |||||||||||||||
The licensing revenue and outstanding accounts receivable from Whirlpool China and its subsidiaries are not material for the periods presented.
Related Party Transactions
After September 2021, the Company has a controlling equity ownership of 87% in Elica PB India which is consolidated in Whirlpool Corporation's financial statements and is reported within our Asia reportable segment. Goodwill of $100 million, which is not deductible for tax purposes, arose from this transaction and is allocated to the Asia reportable segment.
10
Elica PB India is a VIE for which the Company is the primary beneficiary. The carrying amount of customer relationships, which are included in Other intangible assets, net of accumulated amortization, amounts to $32 million as of September 30, 2022 and $36 million as of December 31, 2021, respectively.
Other assets or liabilities of Elica PB India are not material to the Consolidated Condensed Financial Statements of the Company for the periods presented.
Both Whirlpool India and the non-controlling interest shareholders retain an option for Whirlpool India to purchase the remaining equity interest in Elica PB India for fair value, which could be material to the financial statements of the Company, depending on the performance of the business.
Adoption of New Accounting Standards
We adopted the following standard for the year ending December 31, 2022 which is not expected to have a material impact on our annual Consolidated Financial Statements:
| Standard | Effective Date | |||||||
| 2021-10 | Government Assistance (Topic 832) - Disclosures by Business Entities about Government Assistance | January 1, 2022 | ||||||
All other newly issued and effective accounting standards during 2022 were not relevant or material to the Company.
Accounting Pronouncements Issued But Not Yet Effective
In March 2020, the FASB issued Update 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting". The amendments in Update 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The new guidance provides the following optional expedients: simplify accounting analyses under current U.S. GAAP for contract modifications, simplify the assessment of hedge effectiveness, allow hedging relationships affected by reference rate reform to continue and allow a one-time election to sell or transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform.
In January 2021, the FASB issued Update 2021-01, "Reference Rate Reform (Topic 848): Scope". The update provides additional optional guidance on the transition from LIBOR to include derivative instruments that use an interest rate for margining, discounting or contract price alignment. The standard will ease, if warranted, the requirements for accounting for the future effects of the rate reform. An entity may elect to apply the amendments prospectively through December 31, 2022. The standard is not expected to have a material impact on our Consolidated Financial Statements.
In September 2022, the FASB issued Update 2022-04, "Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations". The update was issued in response to requests from financial statement users for increased transparency surrounding the use of supplier finance programs. The amendments in Update 2022-04 require that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. The amendments in this Update do not affect the recognition, measurement, or financial statement presentation of obligations covered by supplier finance programs. The amendments in this Update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance.
All other issued and not yet effective accounting standards are not relevant or material to the Company.
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(2) REVENUE RECOGNITION
Disaggregation of Revenue
The following table presents our disaggregated revenues by revenue source. We sell products within all product categories in each operating segment. For additional information on the disaggregated revenues by geographic regions, see Note 14 to the Consolidated Condensed Financial Statements.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| Millions of dollars | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Major product categories: | |||||||||||||||||||||||
| Laundry | $ | 1,187 | $ | 1,498 | $ | 3,807 | $ | 4,447 | |||||||||||||||
| Refrigeration | 1,560 | 1,762 | 4,821 | 5,016 | |||||||||||||||||||
| Cooking | 1,234 | 1,348 | 3,762 | 4,097 | |||||||||||||||||||
| Dishwashing | 469 | 479 | 1,384 | 1,403 | |||||||||||||||||||
| Total major product category net sales | $ | 4,450 | $ | 5,087 | $ | 13,774 | $ | 14,963 | |||||||||||||||
| Spare parts and warranties | 225 | 302 | 695 | 860 | |||||||||||||||||||
| Other | 109 | 99 | 332 | 347 | |||||||||||||||||||
| Total net sales | $ | 4,784 | $ | 5,488 | $ | 14,801 | $ | 16,170 | |||||||||||||||
The impact to revenue related to prior period performance obligations is less than 1% of global consolidated revenues for the three and nine months ended September 30, 2022.
Allowance for Expected Credit Losses and Bad Debt Expense
We estimate our expected credit losses primarily by using an aging methodology and establish customer-specific reserves for higher risk trade customers. Our expected credit losses are evaluated and controlled within each geographic region considering the unique credit risk specific to the country, marketplace and economic environment. We take into account past events, current conditions and reasonable and supportable forecasts in developing the reserve.
The following table summarizes our allowance for expected credit losses and bad debt by operating segment for the nine months ended September 30, 2022:
| Millions of dollars | December 31, 2021 | Charged to Earnings | Write-offs | Foreign Currency | Other (1) | September 30, 2022 | ||||||||||||||
| Accounts receivable allowance | ||||||||||||||||||||
| North America | $ | 7 | $ | (1) | $ | — | $ | — | $ | — | $ | 6 | ||||||||
| EMEA | 45 | 5 | (1) | (1) | (15) | 33 | ||||||||||||||
| Latin America | 43 | 1 | (4) | 1 | — | 41 | ||||||||||||||
| Asia | 3 | — | — | — | — | 3 | ||||||||||||||
| Consolidated | $ | 98 | $ | 5 | $ | (5) | $ | — | $ | (15) | $ | 83 | ||||||||
| Financing receivable allowance | ||||||||||||||||||||
| Latin America | $ | 25 | $ | — | $ | — | $ | 1 | $ | — | $ | 26 | ||||||||
| $ | 25 | $ | — | $ | — | $ | 1 | $ | — | $ | 26 | |||||||||
| Consolidated | $ | 123 | $ | 5 | $ | (5) | $ | 1 | $ | (15) | $ | 109 | ||||||||
(1) Accounts receivable allowance of our Russian operations which was previously classified under accounts receivable has been removed as part of the deconsolidation of the Russian operations. For additional information, see Note 15 to the Consolidated Condensed Financial Statements.
We recorded an immaterial amount of bad debt expense for the periods ended September 30, 2022 and December 31, 2021, respectively.
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(3) CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The following table provides a reconciliation of cash, cash equivalents and restricted cash as reported within our Consolidated Condensed Statements of Cash Flows:
| September 30, | |||||||||||
| Millions of dollars | 2022 | 2021 | |||||||||
| Cash and cash equivalents as presented in our Consolidated Condensed Balance Sheets | $ | 1,794 | $ | 2,875 | |||||||
| Cash, cash equivalents and restricted cash as presented in our Consolidated Condensed Statements of Cash Flows | $ | 1,794 | $ | 2,875 | |||||||
| December 31, | |||||||||||
| Millions of dollars | 2021 | 2020 | |||||||||
| Cash and cash equivalents as presented in our Consolidated Balance Sheets | $ | 3,044 | $ | 2,924 | |||||||
| Restricted cash included in prepaid and other current assets | — | 10 | |||||||||
| Cash, cash equivalents and restricted cash as presented in our Consolidated Statements of Cash Flows | $ | 3,044 | $ | 2,934 | |||||||
(4) INVENTORIES
The following table summarizes our inventories at September 30, 2022 and December 31, 2021:
| Millions of dollars | September 30, 2022 | December 31, 2021 | ||||||||||||
| Finished products | $ | 2,204 | $ | 1,958 | ||||||||||
| Raw materials and work in process | 680 | 759 | ||||||||||||
| Total Inventories | $ | 2,884 | $ | 2,717 | ||||||||||
(5) PROPERTY, PLANT AND EQUIPMENT
The following table summarizes our property, plant and equipment at September 30, 2022 and December 31, 2021:
| Millions of dollars | September 30, 2022 | December 31, 2021 | ||||||||||||
| Land | $ | 67 | $ | 84 | ||||||||||
| Buildings | 1,157 | 1,249 | ||||||||||||
| Machinery and equipment | 7,742 | 8,091 | ||||||||||||
| Accumulated depreciation | (6,397) | (6,619) | ||||||||||||
Property, plant and equipment, net (1) | $ | 2,569 | $ | 2,805 | ||||||||||
(1) Property, plant and equipment with a net book value of $141 million associated with our Russian business has been removed as part of the deconsolidation of the Russian operations. For additional information, see Note 15 to the Consolidated Condensed Financial Statements.
During the nine months ended September 30, 2022, we disposed of land, buildings, machinery and equipment with a net book value of $21 million, compared to $10 million in the same period of 2021. The net gain on the disposals is $55 million for the nine months ended September 30, 2022 was primarily driven by a sale-leaseback transaction. The net gain on the disposals was not material for the same period of 2021.
For additional information see Note 1 to the Consolidated Condensed Financial Statements.
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(6) FINANCING ARRANGEMENTS
Term Loan Agreement
On September 23, 2022, Whirlpool Corporation (the “Company”) entered into a Term Loan Agreement by and among the Company, Sumitomo Mitsui Banking Corporation (“SMBC”), as Administrative Agent and Syndication Agent and as lender, and certain other financial institutions as lenders. SMBC, BNP Paribas, ING Bank N.V., Dublin Branch, Mizuho Bank, Ltd., and Societe Generale acted as Joint Lead Arrangers and Syndication Agents; The Bank of Nova Scotia and Bank of China, Chicago Branch acted as Documentation Agents; and SMBC acted as Sole Bookrunner for the Term Loan Agreement. The Term Loan Agreement provides for an aggregate lender commitment of $2.5 billion. The Company expects to utilize proceeds from the term loan facility on a delayed draw basis to fund a majority of the $3.0 billion purchase price consideration for the Company’s acquisition from Emerson Corporation (“Emerson”) of Emerson’s InSinkErator business, as set forth in the Asset and Stock Purchase Agreement between Whirlpool and Emerson dated as of August 7, 2022 (the “Acquisition Agreement”).
The Term Loan Agreement has a commitment termination date of May 7, 2023, which may be extended by the Company for up to two consecutive three-month periods if the acquisition has not closed by that time and if the “End Date” (as defined in the Acquisition Agreement) is extended for such periods. The term loan facility is divided into two tranches: a $1 billion tranche with a maturity date 18 months following the date that funds are borrowed, and a $1.5 billion tranche with a maturity date three years following the date that funds are borrowed.
The interest and fee rates payable with respect to the term loan facility based on the Company's current debt rating are as follows: (1) the spread over SOFR for the 18-month tranche is 0.75%; (2) the spread over SOFR for the three-year tranche is 1.00%; (3) the spread over prime for both tranches is zero; and (4) the ticking fee for both tranches is 0.10%, as of the date hereof.
The Term Loan Agreement contains customary covenants and warranties including, among other things, a rolling twelve month interest coverage ratio required to be greater than or equal to 3.0 to 1.0 for each fiscal quarter. In addition, the covenants limit the Company's ability to (or to permit any subsidiaries to), subject to various exceptions and limitations: (i) merge with other companies; (ii) create liens on its property; and (iii) incur debt at the subsidiary level.
The Company expects to utilize proceeds from the term loan facility on a delayed draw basis and had no borrowings outstanding for this term loan agreement at September 30, 2022
Debt Offering
On May 4, 2022, the Company completed its offering of $300 million in principal amount of 4.700% Senior Notes due 2032 (the “2032 Notes”), in a public offering pursuant to a registration statement on Form S-3 (File No. 333-255372). The 2032 Notes were issued under an indenture (the “Indenture”), dated March 20, 2000, between the Company, as issuer, and U.S. Bank National Association (as successor to Citibank, N.A.), as trustee. The sale of the 2032 Notes was made pursuant to the terms of an Underwriting Agreement, dated May 2, 2022 (the “Underwriting Agreement”), among the Company, as issuer, and BNP Paribas Securities Corp., Citigroup Global Markets Inc., Goldman Sachs & Co. LLC, Mizuho Securities USA LLC and Wells Fargo Securities, LLC, as representatives of the several underwriters in connection with the offering and sales of the 2032 Notes. The 2032 Notes contain covenants that limit the Company's ability to incur certain liens or enter into certain sale and lease-back transactions. In addition, if we experience a specific 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 Company used the net proceeds from the sale of the 2032 Notes to redeem $300 million aggregate principal amount of 4.700% Notes which were paid on June 1, 2022.
On April 29, 2021, the Company completed its inaugural Sustainability Bond offering of $300 million in principal amount of 2.400% Senior Notes due 2031 (the “2031 Notes”), in a public offering pursuant to a registration statement on Form S-3 (File No. 333-255372). The 2031 Notes were issued under the Indenture. The sale of the 2031 Notes was made pursuant to the terms of an Underwriting Agreement, dated April 26, 2021 (the “Underwriting Agreement”), among the Company, as issuer, and BNP Paribas Securities Corp., BofA
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Securities, Inc., J.P. Morgan Securities LLC, and Wells Fargo Securities, LLC, as representatives of the several underwriters in connection with the offering and sales of the 2031 Notes. The 2031 Notes contain covenants that limit the Company's ability to incur certain liens or enter into certain sale and lease-back transactions. In addition, if we experience a specific kind of change of control, we are required to make an offer to purchase all of the notes at a purchase price of 101% of the principal amount thereof, plus accrued and unpaid interest. The Company used the net proceeds from the sale of the 2031 Notes to redeem $300 million aggregate principal amount of 4.850% senior notes which was paid June 15, 2021. Consistent with the Company’s Sustainability Bond Framework, the Company allocated an amount equal to the net proceeds from the sale of the 2031 Notes to fund new and existing environmental and social Eligible Projects, as defined in the Company’s prospectus supplement dated April 26, 2021.
On May 7, 2020, the Company completed its offering of $500 million in principal amount of 4.60% Senior Notes due 2050 (the “2050 Notes”), in a public offering pursuant to a registration statement on Form S-3 (File No. 333-224381). The 2050 Notes were issued under the Indenture. The 2050 Notes contain covenants that limit the Company's ability to incur certain liens or enter into certain sale and lease-back transactions. In addition, if we experience a specific kind of change of control, we are required to make an offer to purchase all of the notes at a purchase price of 101% of the principal amount thereof, plus accrued and unpaid interest. The Company used the net proceeds from the sale of the 2050 Notes to repay a portion of the outstanding borrowings under the Company’s revolving credit facility, as amended and restated, dated as of August 6, 2019, among the Company, certain other borrowers, the lenders referred to therein, JPMorgan Chase Bank, N.A. as administrative agent and Citibank, N.A., as syndication agent.
On February 21, 2020, Whirlpool EMEA Finance S.à r.l., an indirect, wholly-owned finance subsidiary of Whirlpool Corporation, completed a bond offering consisting of €500 million (approximately $540 million at closing) in principal amount of 0.50% Senior Notes due in 2028 (the "2028 Notes") in a public offering pursuant to a registration statement on Form S-3 (File No. 333-224381). The 2028 Notes were issued under an indenture, dated February 21, 2020, among Whirlpool EMEA Finance S.à r.l, as issuer, the Company, as parent guarantor, and U.S. Bank National Association, as trustee. Whirlpool Corporation has fully and unconditionally guaranteed the Notes on a senior unsecured basis. The 2028 Notes contain covenants that limit Whirlpool Corporation's ability to incur certain liens or enter into certain sale and lease-back transactions. In addition, if we experience a specific kind of change of control, we are required to make an offer to purchase all of the 2028 Notes at a purchase price of 101% of the principal amount thereof, plus accrued and unpaid interest.
Credit Facilities
On May 3, 2022, the Company entered into a Fifth Amended and Restated Long-Term Credit Agreement (the “Amended Long-Term Facility”) by and among the Company, certain other borrowers, the lenders referred to therein, JPMorgan Chase Bank, N.A. as Administrative Agent, and Citibank, N.A., as Syndication Agent. BNP Paribas, Mizuho Bank, Ltd. and Wells Fargo Bank, National Association acted as Documentation Agents. JPMorgan Chase Bank, N.A., BNP Paribas Securities Corp., Citibank, N.A., Mizuho Bank, Ltd. and Wells Fargo Securities, LLC acted as Joint Lead Arrangers and Joint Bookrunners for the Amended Long-Term Facility. Consistent with the Company’s prior credit agreement, the Amended Long-Term Facility provides an aggregate borrowing capacity of $3.5 billion.
The interest rate payable with respect to the Amended Long-Term Facility reflect a decrease of 0.125% in the interest rate margin from the Company’s prior credit facility, and will be initially, based on the Company’s current debt rating, Term SOFR (secured overnight financing rate) + 1.00% interest rate margin per annum (with a 0.10% SOFR spread adjustment) or the Alternate Base Rate + 0.00% per annum, at the Company’s election.
The Amended Long-Term Facility contains customary covenants and warranties, such as, among other things, a rolling four quarter interest coverage ratio required to be greater than or equal to 3.0 as of the end of each fiscal quarter. The Amended Long-Term Facility removes the second financial covenant, a debt-to-capitalization ratio, that was in the Company’s prior credit agreement. The Amended Long-Term Facility also includes limitations on the Company’s ability to (or to permit any subsidiaries to), subject to various exceptions and limitations: (i) merge with other companies; (ii) create liens on its property; and (iii) incur debt at the subsidiary level. Many of the lenders have in the past performed, and may in the future from time to time perform, investment banking, financial advisory, lending and/or commercial banking services, or other services for Whirlpool Corporation and its subsidiaries, for which they have received, and may in the future
15
receive, customary compensation and expense reimbursement. We were in compliance with our interest coverage ratio under the revolving credit facility as of September 30, 2022.
In addition to the committed $3.5 billion Amended Long-Term Facility and the $2.5 billion Delayed Draw Term Loan Agreement, we have committed credit facilities in Brazil and India. These committed credit facilities provide borrowings up to approximately $197 million at September 30, 2022 and $193 million at December 31, 2021, based on exchange rates then in effect, respectively. These committed credit facilities have maturities that run through 2023.
We had no borrowings outstanding under the committed credit facilities at September 30, 2022 and December 31, 2021, respectively.
Notes Payable
Notes payable, which consist of short-term borrowings payable to banks or commercial paper, are generally used to fund working capital requirements. The fair value of our notes payable approximates the carrying amount due to the short maturity of these obligations.
The following table summarizes the carrying value of notes payable at September 30, 2022 and December 31, 2021:
| Millions of dollars | September 30, 2022 | December 31, 2021 | ||||||||||||
| Short-term borrowings due to banks | 8 | 10 | ||||||||||||
| Total notes payable | $ | 8 | $ | 10 | ||||||||||
Transfers and Servicing of Financial Assets
In an effort to manage economic and geographic trade customer risk, from time to time, the Company will transfer, primarily without recourse, accounts receivable balances of certain customers to financial institutions resulting in a nominal impact recorded in interest and sundry (income) expense. These transactions are accounted for as sales of the receivables resulting in the receivables being de-recognized from the Consolidated Condensed Balance Sheets. These transfers do not require continuing involvement from the Company.
Certain arrangements include servicing of transferred receivables by Whirlpool. During the nine months ended September 30, 2022 and nine months ended September 30, 2021, no amounts were received from the sales of accounts receivable under these arrangements. Outstanding accounts receivable transferred under arrangements where the Company continues to service the transferred asset were not material as of September 30, 2022 and December 31, 2021, respectively.
(7) COMMITMENTS AND CONTINGENCIES
Embraco Antitrust Matters
Beginning in February 2009, our former Embraco compressor business headquartered in Brazil ("Embraco") was notified of antitrust investigations of the global compressor industry by government authorities in various jurisdictions. Embraco resolved the government investigations and related claims in various jurisdictions and certain other claims remain pending.
Whirlpool agreed to retain potential liabilities related to this matter following closing of the Embraco sale transaction. We continue to defend these actions. While it is currently not possible to reasonably estimate the aggregate amount of costs which we may incur in connection with these matters, such costs could have a material adverse effect on our consolidated financial statements in any particular reporting period.
BEFIEX Credits and Other Brazil Tax Matters
In previous years, our Brazilian operations earned tax credits under the Brazilian government's export incentive program (BEFIEX). These credits reduced Brazilian federal excise taxes on domestic sales.
Our Brazilian operations have received tax assessments for income and social contribution taxes associated with certain monetized BEFIEX credits. We do not believe BEFIEX credits are subject to income or social
16
contribution taxes. We believe these tax assessments are without merit and are vigorously defending our positions. We have not provided for income or social contribution taxes on these BEFIEX credits, and based on the opinions of tax and legal advisors, we have not accrued any amount related to these assessments at September 30, 2022. The total amount of outstanding tax assessments received for income and social contribution taxes relating to the BEFIEX credits, including interest and penalties, is approximately 2.1 billion Brazilian reais (approximately $390 million at September 30, 2022).
Relying on existing Brazilian legal precedent, in 2003 and 2004, we recognized tax credits in an aggregate amount of $26 million, adjusted for currency, on the purchase of raw materials used in production ("IPI tax credits"). The Brazilian tax authority subsequently challenged the recording of IPI tax credits. No such credits have been recognized since 2004. In 2009, we entered into a Brazilian government program ("IPI Amnesty") which provided extended payment terms and reduced penalties and interest to encourage taxpayers to resolve this and certain other disputed tax credit amounts. As permitted by the program, we elected to settle certain debts through the use of other existing tax credits and recorded charges of approximately $34 million in 2009 associated with these matters. In July 2012, the Brazilian revenue authority notified us that a portion of our proposed settlement was rejected and we received tax assessments of 269 million Brazilian reais (approximately $50 million at September 30, 2022), reflecting interest and penalties to date. We believe these tax assessments are without merit and we are vigorously defending our position. The government's assessment in this case relies heavily on its arguments regarding taxability of BEFIEX credits for certain years, which we are disputing in one of the BEFIEX government assessment cases cited in the prior paragraph. Because the IPI Amnesty case is moving faster than the BEFIEX taxability case, we could be required to pay the IPI Amnesty assessment before obtaining a final decision in the BEFIEX taxability case.
We have received tax assessments from the Brazilian federal tax authorities relating to amounts allegedly due regarding unemployment/social security insurance taxes (PIS/COFINS) for tax credits recognized since 2007. These credits were recognized for inputs to certain manufacturing and other business processes. These assessments are being challenged at the administrative and judicial levels in Brazil. The total amount of outstanding tax assessments received for credits recognized for PIS/COFINS inputs is approximately 320 million Brazilian reais (approximately $59 million at September 30, 2022). We believe these tax assessments are without merit and are vigorously defending our positions. Based on the opinion of our tax and legal advisors, we have not accrued any amount related to these assessments.
In addition to the BEFIEX, IPI tax credit and PIS/COFINS inputs matters noted above, other assessments issued by the Brazilian tax authorities related to indirect and income tax matters, and other matters, are at various stages of review in numerous administrative and judicial proceedings. The amounts related to these assessments will continue to be increased by monetary adjustments at the Selic rate, which is the benchmark rate set by the Brazilian Central Bank. In accordance with our accounting policies, we routinely assess these matters and, when necessary, record our best estimate of a loss. We believe these tax assessments are without merit and are vigorously defending our positions.
Litigation is inherently unpredictable and the conclusion of these matters may take many years to ultimately resolve. Amounts at issue in potential future litigation could increase as a result of interest and penalties in future periods. Accordingly, it is possible that an unfavorable outcome in these proceedings could have a material adverse effect on our financial statements in any particular reporting period.
Competition Investigation
In 2013, the French Competition Authority ("FCA") commenced an investigation of appliance manufacturers and retailers in France, including Whirlpool and Indesit. The FCA investigation was split into two parts, and in December 2018, we finalized a settlement with the FCA on the first part of the investigation. The second part of the FCA investigation, which is expected to focus primarily on manufacturer interactions with retailers, is ongoing. The Company is cooperating with this investigation.
Although it is currently not possible to assess the impact, if any, that matters related to the FCA investigation may have on our financial statements, matters related to the FCA investigation could have a material adverse effect on our financial statements in any particular reporting period.
Trade Customer Insolvency
The Company was a former indirect minority shareholder of Alno AG, a longstanding trade customer that filed for insolvency protection in Germany. In 2020, we paid a settlement of €52.75 million (approximately $59
17
million at the time of payment) to resolve any potential claims the insolvency trustee might have against the Company. We are also defending third-party claims related to Alno's insolvency that we believe are without merit, and believe the ultimate resolution of these claims will not have a material adverse effect on our financial statements.
Grenfell Tower
On June 23, 2017, London's Metropolitan Police Service released a statement that it had identified a Hotpoint–branded refrigerator as the initial source of the Grenfell Tower fire in West London. U.K. authorities are conducting investigations, including regarding the cause and spread of the fire. The model in question was manufactured by Indesit Company between 2006 and 2009, prior to Whirlpool's acquisition of Indesit in 2014. We are fully cooperating with the investigating authorities. Whirlpool was named as a defendant in a product liability suit in Pennsylvania federal court related to this matter. The federal court dismissed the case with prejudice in September 2020 and the dismissal was affirmed on appeal in July 2022. In December 2020, lawsuits related to Grenfell Tower were filed in the U.K. against approximately 20 defendants, including Whirlpool Corporation and certain Whirlpool subsidiaries. Given the preliminary stage of the proceedings, we cannot speculate on their eventual outcomes or potential impact on our financial statements; accordingly, we have not recorded any significant charges as of September 30, 2022. Additional claims may be filed related to this incident.
Other Litigation
See Note 13 for information on certain U.S. income tax litigation. In addition, we are currently defending against two lawsuits that have been certified for treatment as class actions in U.S. federal court, relating to two top-load washing machine models. In December 2019, the court in one of these lawsuits entered summary judgment in Whirlpool's favor. That ruling remains subject to appeal, and the other lawsuit is ongoing. We believe the lawsuits are without merit and are vigorously defending them. Given the preliminary stage of the proceedings, we cannot reasonably estimate a range of loss, if any, at this time. The resolution of these matters could have a material adverse effect on our financial statements in any particular reporting period.
We are currently vigorously defending a number of other lawsuits related to the manufacture and sale of our products which include class action allegations, and may become involved in similar actions. These lawsuits allege claims which include negligence, breach of contract, breach of warranty, product liability and safety claims, false advertising, fraud, and violation of federal and state regulations, including consumer protection laws. In general, we do not have insurance coverage for class action lawsuits. We are also involved in various other legal actions arising in the normal course of business, for which insurance coverage may or may not be available depending on the nature of the action. We dispute the merits of these suits and actions, and intend to vigorously defend them. Management believes, based upon its current knowledge, after taking into consideration legal counsel's evaluation of such suits and actions, and after taking into account current litigation accruals, that the outcome of these matters currently pending against Whirlpool should not have a material adverse effect, if any, on our financial statements. We may experience additional delays in resolving these and other pending litigation matters as a result of COVID-19-related temporary court closures and postponements.
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Product Warranty and Legacy Product Corrective Action Reserves
Product warranty reserves are included in other current and other noncurrent liabilities in our Consolidated Condensed Balance Sheets. The following table summarizes the changes in total product warranty liability reserves for the periods presented:
| Product Warranty | ||||||||||||||
| Millions of dollars | 2022 | 2021 | ||||||||||||
| Balance at January 1 | $ | 286 | $ | 273 | ||||||||||
| Issuances/accruals during the period | 171 | 258 | ||||||||||||
| Settlements made during the period/other | (222) | (220) | ||||||||||||
Balance at September 30 | $ | 235 | $ | 311 | ||||||||||
| Current portion | $ | 150 | $ | 211 | ||||||||||
| Non-current portion | 85 | 100 | ||||||||||||
| Total | $ | 235 | $ | 311 | ||||||||||
In the normal course of business, we engage in investigations of potential quality and safety issues. As part of our ongoing effort to deliver quality products to consumers, we are currently investigating certain potential quality and safety issues globally. As necessary, we undertake to effect repair or replacement of appliances in the event that an investigation leads to the conclusion that such action is warranted.
As part of this process, we investigated incident reports associated with a particular component in certain Indesit-designed horizontal axis washers produced in EMEA. In January 2020, we commenced a product recall in the UK and Ireland for these EMEA-produced washers, for which the recall is ongoing. In the third quarter of 2019, we accrued approximately $105 million in estimated product warranty expense related to this matter. During the fourth quarters of 2021 and 2020, the Company released accruals of approximately $9 million and $30 million, respectively, related to this campaign. These adjustments were made based on the latest available data including take rate assumptions and unit population. These estimates are based on several assumptions which are inherently unpredictable and which we may need to materially revise in the future. Settlements related to this product recall are immaterial for the three and nine months ended September 30, 2022. The total settlements since the beginning of this campaign are approximately $62 million.
For the year ended December 31, 2019, we incurred approximately $26 million of additional product warranty expense related to our previously disclosed legacy Indesit dryer corrective action campaign in the UK. No additional material product warranty expense has been incurred subsequent to 2019. We continue to voluntarily cooperate with the UK regulator with respect to the washer and dryer actions.
Guarantees
We have guarantee arrangements in a Brazilian subsidiary. For certain creditworthy customers, the subsidiary guarantees customer lines of credit at commercial banks to support purchases following its normal credit policies. If a customer were to default on its line of credit with the bank, our subsidiary would be required to assume the line of credit and satisfy the obligation with the bank. At September 30, 2022 and December 31, 2021, the guaranteed amounts totaled 0.8 billion Brazilian reais (approximately $149 million at September 30, 2022) and 1.2 billion Brazilian reais (approximately $212 million at December 31, 2021), respectively. The fair value of these guarantees were nominal at September 30, 2022 and December 31, 2021. Our subsidiary insures against a significant portion of this credit risk for these guarantees, under normal operating conditions, through policies purchased from high-quality underwriters.
We provide guarantees of indebtedness and lines of credit for various consolidated subsidiaries. The maximum contractual amount of indebtedness and lines of credit available under these lines for consolidated subsidiaries totaled approximately $2.7 billion at September 30, 2022 and $3.3 billion at December 31, 2021, respectively. Our total short-term outstanding bank indebtedness under guarantees was nominal at both September 30, 2022 and December 31, 2021.
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(8) PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The following table summarizes the components of net periodic pension cost and the cost of other postretirement benefits for the periods presented:
| Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
| United States Pension Benefits | Foreign Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||||||||||||||||
| Millions of dollars | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
| Service cost | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | — | $ | — | ||||||||||||||||||||||||||
| Interest cost | 20 | 20 | 4 | 4 | 1 | 1 | ||||||||||||||||||||||||||||||||
| Expected return on plan assets | (36) | (39) | (8) | (9) | — | — | ||||||||||||||||||||||||||||||||
| Amortization: | ||||||||||||||||||||||||||||||||||||||
| Actuarial loss | 14 | 17 | 2 | 4 | — | — | ||||||||||||||||||||||||||||||||
| Prior service credit | — | — | — | — | (12) | (12) | ||||||||||||||||||||||||||||||||
| Settlement and curtailment (gain) loss | 2 | 2 | — | — | — | — | ||||||||||||||||||||||||||||||||
| Net periodic benefit cost (credit) | $ | 1 | $ | 1 | $ | (1) | $ | — | $ | (11) | $ | (11) | ||||||||||||||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
| United States Pension Benefits | Foreign Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||||||||||||||||
| Millions of dollars | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
| Service cost | $ | 2 | $ | 2 | $ | 3 | $ | 4 | $ | — | $ | — | ||||||||||||||||||||||||||
| Interest cost | 61 | 58 | 12 | 11 | 4 | 4 | ||||||||||||||||||||||||||||||||
| Expected return on plan assets | (109) | (118) | (24) | (26) | — | — | ||||||||||||||||||||||||||||||||
| Amortization: | ||||||||||||||||||||||||||||||||||||||
| Actuarial loss | 43 | 52 | 7 | 14 | — | — | ||||||||||||||||||||||||||||||||
| Prior service credit | — | — | — | — | (35) | (35) | ||||||||||||||||||||||||||||||||
| Settlement and curtailment (gain) loss | 1 | 5 | 1 | — | — | — | ||||||||||||||||||||||||||||||||
| Net periodic benefit cost (credit) | $ | (2) | $ | (1) | $ | (1) | $ | 3 | $ | (31) | $ | (31) | ||||||||||||||||||||||||||
The following table summarizes the net periodic cost recognized in operating profit and interest and sundry (income) expense for the periods presented:
| Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
| United States Pension Benefits | Foreign Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||||||||||||||||
| Millions of dollars | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
| Operating profit (loss) | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | — | $ | — | ||||||||||||||||||||||||||
| Interest and sundry (income) expense | — | — | (2) | (1) | (11) | (11) | ||||||||||||||||||||||||||||||||
| Net periodic benefit cost | $ | 1 | $ | 1 | $ | (1) | $ | — | $ | (11) | $ | (11) | ||||||||||||||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
| United States Pension Benefits | Foreign Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||||||||||||||||
| Millions of dollars | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
| Operating profit (loss) | $ | 2 | $ | 2 | $ | 3 | $ | 4 | $ | — | $ | — | ||||||||||||||||||||||||||
| Interest and sundry (income) expense | (4) | (3) | (4) | (1) | (31) | (31) | ||||||||||||||||||||||||||||||||
| Net periodic benefit cost | $ | (2) | $ | (1) | $ | (1) | $ | 3 | $ | (31) | $ | (31) | ||||||||||||||||||||||||||
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(9) HEDGES AND DERIVATIVE FINANCIAL INSTRUMENTS
Derivative instruments are accounted for at fair value based on market rates. Derivatives where we elect hedge accounting are designated as either cash flow, fair value or net investment hedges. Derivatives that are not accounted for based on hedge accounting are marked to market through earnings. If the designated cash flow hedges are highly effective, the gains and losses are recorded in other comprehensive income (loss) and subsequently reclassified to earnings to offset the impact of the hedged items when they occur. In the event it becomes probable the forecasted transaction to which a cash flow hedge relates will not occur, the derivative would be terminated and the amount in accumulated other comprehensive income (loss) would be recognized in earnings. The fair value of the hedge asset or liability is presented in either other current assets / liabilities or other noncurrent assets / liabilities on the Consolidated Condensed Balance Sheets and in other within cash provided by (used in) operating activities in the Consolidated Condensed Statements of Cash Flows.
Using derivative instruments means assuming counterparty credit risk. Counterparty credit risk relates to the loss we could incur if a counterparty were to default on a derivative contract. We generally deal with investment grade counterparties and monitor the overall credit risk and exposure to individual counterparties. We do not anticipate nonperformance by any counterparties. The amount of counterparty credit exposure is limited to the unrealized gains, if any, on such derivative contracts. We do not require nor do we post collateral on such contracts.
Hedging Strategy
In the normal course of business, we manage risks relating to our ongoing business operations including those arising from changes in commodity prices, foreign exchange rates and interest rates. Fluctuations in these rates and prices can affect our operating results and financial condition. We use a variety of strategies, including the use of derivative instruments, to manage these risks. We do not enter into derivative financial instruments for trading or speculative purposes.
Commodity Price Risk
We enter into commodity derivative contracts on various commodities to manage the price risk associated with forecasted purchases and sales of material used in our manufacturing process. The objective of these hedges is to reduce the variability of cash flows associated with the forecasted purchases and sales of commodities.
Foreign Currency and Interest Rate Risk
We incur expenses associated with the procurement and production of products in a limited number of countries, while we sell in the local currencies of a large number of countries. Our primary foreign currency exchange exposures result from cross-currency sales of products. As a result, we enter into foreign exchange contracts to hedge certain firm commitments and forecasted transactions to acquire products and services that are denominated in foreign currencies. We enter into certain undesignated non-functional currency asset and liability hedges that relate primarily to short-term payables, receivables, intercompany loans and dividends. When we hedge a foreign currency denominated payable or receivable with a derivative, the effect of changes in the foreign exchange rates are reflected currently in interest and sundry (income) expense for both the payable/receivable and the derivative. Therefore, as a result of the economic hedge, we do not elect hedge accounting.
We also enter into hedges to mitigate currency risk primarily related to forecasted foreign currency denominated expenditures, intercompany financing agreements and royalty agreements and designate them as cash flow hedges. Gains and losses on derivatives designated as cash flow hedges, to the extent they are included in the assessment of effectiveness, are recorded in other comprehensive income (loss) and subsequently reclassified to earnings to offset the impact of the hedged items when they occur.
We may enter into cross-currency interest rate swaps to manage our exposure relating to cross-currency debt. The notional amount of outstanding cross-currency interest rate swap agreements were $1.2 billion and $1.3 billion at September 30, 2022 and December 31, 2021, respectively.
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We may enter into interest rate swap agreements to manage interest rate risk exposure. Our interest rate swap agreements, if any, effectively modify our exposure to interest rate risk, primarily through converting certain floating rate debt to a fixed rate basis, or certain fixed rate debt to a floating rate basis. These agreements involve either the receipt or payment of floating rate amounts in exchange for fixed rate interest payments or receipts, respectively, over the life of the agreements without an exchange of the underlying principal amounts. We may enter into swap rate lock agreements to effectively reduce our exposure to interest rate risk by locking in interest rates on probable long-term debt issuances. There were no interest rate swap agreements at September 30, 2022. Outstanding notional amounts of interest rate swap agreements were $300 million at December 31, 2021.
Net Investment Hedging
The following table summarizes our foreign currency denominated debt and foreign exchange forwards/options designated as net investment hedges at September 30, 2022 and December 31, 2021:
| Notional (Local) | Notional (USD) | Current Maturity | ||||||||||||||||||||||||||||||
| Instrument | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||
| Foreign exchange forwards/options | MXN | — | MXN | 7,200 | $ | — | $ | 352 | N/A | |||||||||||||||||||||||
For instruments that are designated and qualify as a net investment hedge, the effective portion of the instruments' gain or loss is reported as a component of other comprehensive income (loss) and recorded in accumulated other comprehensive loss. The gain or loss will be subsequently reclassified into net earnings when the underlying net investment is either sold or substantially liquidated. The remaining change in fair value of the hedge instruments represents the ineffective portion, which is immediately recognized in interest and sundry (income) expense on our Consolidated Condensed Statements of Comprehensive Income (Loss). As of September 30, 2022 and December 31, 2021, there was no ineffectiveness on hedges designated as net investment hedges.
The following table summarizes our outstanding derivative contracts and their effects in our Consolidated Condensed Balance Sheets at September 30, 2022 and December 31, 2021:
| Fair Value of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notional Amount | Hedge Assets | Hedge Liabilities | Maximum Term (Months) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Millions of dollars | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives accounted for as hedges(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commodity swaps/options | $ | 230 | $ | 297 | $ | 14 | $ | 40 | $ | 39 | $ | 13 | (CF) | 26 | 21 | |||||||||||||||||||||||||||||||||||||||||
Foreign exchange forwards/options(2) | 2,045 | 2,872 | 112 | 91 | 16 | 64 | (CF/NI) | 113 | 122 | |||||||||||||||||||||||||||||||||||||||||||||||
| Cross-currency swaps | 1,193 | 1,275 | 13 | 31 | 2 | 7 | (CF) | 77 | 86 | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate derivatives | — | 300 | — | — | — | 14 | (CF) | 0 | 41 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total derivatives accounted for as hedges | $ | 139 | $ | 162 | $ | 57 | $ | 98 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Derivatives not accounted for as hedges | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commodity swaps/options | $ | 1 | $ | 2 | $ | — | $ | — | $ | — | $ | — | N/A | 5 | 14 | |||||||||||||||||||||||||||||||||||||||||
| Foreign exchange forwards/options | 3,362 | 2,240 | 52 | 20 | 28 | 18 | N/A | 11 | 12 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total derivatives not accounted for as hedges | 52 | 20 | 28 | 18 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivatives | $ | 191 | $ | 182 | $ | 85 | $ | 116 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Current | $ | 180 | $ | 170 | $ | 74 | $ | 93 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Noncurrent | 11 | 12 | 11 | 23 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivatives | $ | 191 | $ | 182 | $ | 85 | $ | 116 | ||||||||||||||||||||||||||||||||||||||||||||||||
(1)Derivatives accounted for as hedges are considered either cash flow (CF) or net investment (NI) hedges.
(2)Foreign exchange forwards/options have decreased due to repayment of intercompany loans.
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The following tables summarize the effects of derivative instruments on our Consolidated Condensed Statements of Comprehensive Income (Loss) for the periods presented:
(3)Change in gain (loss) recognized in OCI (effective portion) for the three months ended September 30, 2022 is primarily driven by fluctuations in currency and commodity prices and interest rates compared to prior year. The tax impact of the cash flow hedges was $8 million and $(14) million for the three months ended September 30, 2022 and 2021, respectively. The tax impact of the net investment hedges was $2 million and $(2) million for the three months ended September 30, 2022 and 2021, respectively.
(4)Change in gain (loss) reclassified from OCI into earnings (effective portion) for the three months ended September 30, 2022 was primarily driven by fluctuations in currency and commodity prices and interest rates compared to prior year.
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| Nine Months Ended September 30, | ||||||||||||||||||||||||||
Gain (Loss) Recognized in OCI (Effective Portion)(2) | ||||||||||||||||||||||||||
| Millions of dollars | 2022 | 2021 | ||||||||||||||||||||||||
| Cash flow hedges | ||||||||||||||||||||||||||
| Commodity swaps/options | $ | (18) | $ | 63 | ||||||||||||||||||||||
| Foreign exchange | 189 | 69 | ||||||||||||||||||||||||
| Cross-currency swaps | 37 | 84 | ||||||||||||||||||||||||
| Interest rate derivatives | 56 | 21 | ||||||||||||||||||||||||
| Net investment hedges | ||||||||||||||||||||||||||
| Foreign currency | (26) | 4 | ||||||||||||||||||||||||
| $ | 238 | $ | 241 | |||||||||||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||||
| Location of Gain (Loss) Reclassified from OCI into Earnings (Effective Portion) | Gain (Loss) Reclassified from OCI into Earnings (Effective Portion)(3) | |||||||||||||||||||||||||
| Cash Flow Hedges - Millions of dollars | 2022 | 2021 | ||||||||||||||||||||||||
| Commodity swaps/options | Cost of products sold | $ | 39 | $ | 50 | |||||||||||||||||||||
| Foreign exchange forwards/options | Net sales | — | — | |||||||||||||||||||||||
| Foreign exchange forwards/options | Cost of products sold | (19) | (3) | |||||||||||||||||||||||
| Foreign exchange forwards/options | Interest and sundry (income) expense | 162 | 43 | |||||||||||||||||||||||
| Cross-currency swaps | Interest and sundry (income) expense | 53 | 88 | |||||||||||||||||||||||
| $ | 235 | $ | 178 | |||||||||||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||||
| Location of Gain (Loss) Recognized on Derivatives not Accounted for as Hedges | Gain (Loss) Recognized on Derivatives not Accounted for as Hedges | |||||||||||||||||||||||||
| Derivatives not Accounted for as Hedges - Millions of dollars | 2022 | 2021 | ||||||||||||||||||||||||
| Foreign exchange forwards/options | Interest and sundry (income) expense | $ | 1 | $ | 70 | |||||||||||||||||||||
(5)Change in gain (loss) recognized in OCI (effective portion) for the nine months ended September 30, 2022 is primarily driven by fluctuations in currency and commodity prices and interest rates compared to prior year. The tax impact of the cash flow hedges was $9 million and $(20) million for the nine months ended September 30, 2022 and 2021, respectively. The tax impact of the net investment hedges was $6 million and $(1) million for the nine months ended September 30, 2022 and 2021, respectively.
(6)Change in gain (loss) reclassified from OCI into earnings (effective portion) for the nine months ended September 30, 2022 was primarily driven by fluctuations in currency and commodity prices and interest rates compared to prior year.
For cash flow hedges, the amount of ineffectiveness recognized in interest and sundry (income) expense was nominal for the periods ended September 30, 2022, and 2021. There were no hedges designated as fair value for the periods ended September 30, 2022, and 2021. The net amount of unrealized gain or loss on derivative instruments included in accumulated OCI related to contracts maturing and expected to be realized during the next twelve months is a gain of $34 million at September 30, 2022.
(10) FAIR VALUE MEASUREMENTS
Fair value is measured based on an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions market participants would use in pricing an asset or liability. Assets and liabilities measured at fair value are based on a market valuation approach using prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. As a basis for considering such assumptions, a three-tiered fair value hierarchy is established, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in
24
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.
The following table summarizes the valuation of our assets and liabilities measured at fair value on a recurring basis at September 30, 2022 and December 31, 2021:
| Fair Value | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Millions of dollars | Total Cost Basis | Level 1 | Level 2 | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| Measured at fair value on a recurring basis: | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||
Short-term investments (1) | $ | 1,277 | $ | 1,905 | $ | 1,086 | $ | 1,697 | $ | 191 | $ | 208 | $ | 1,277 | $ | 1,905 | ||||||||||||||||||||||||||||||||||
| Net derivative contracts | — | — | — | — | 107 | 66 | 107 | 66 | ||||||||||||||||||||||||||||||||||||||||||
(1)Short-term investments are primarily comprised of money market funds and highly liquid, low risk investments with initial maturities less than 90 days.
The non-recurring fair values represent only those assets whose carrying values were adjusted to fair value during the second quarter of 2022. There were no goodwill or intangible asset impairment charges recorded in the third quarter of 2022. See Note 16 to the Consolidated Condensed Financial Statements for additional information on the goodwill and other intangibles impairment.
Goodwill
We have four reporting units for which we assess for impairment. We use a discounted cash flow analysis to determine fair value (Level 3 input) and consistent projected financial information in our analysis of goodwill and intangible assets. The discounted cash flow analysis for the quantitative impairment assessment for the EMEA reporting unit utilized a discount rate of 15%. Based on the quantitative assessment performed as of May 31, 2022, the carrying value of the EMEA reporting unit exceeded its fair value resulting in a goodwill impairment loss for the full carrying amount of $278 million during the second quarter of 2022 and for the nine months ended September 30, 2022.
Other Intangible Assets
The relief-from-royalty method for the quantitative impairment assessment for the other intangible assets in the EMEA reporting unit utilized discount rates of 19% and royalty rates ranging from 1.5% - 3.5%. Based on the quantitative assessment performed as of May 31, 2022, the carrying value of the Indesit and Hotpoint* trademarks exceeded their fair value (Level 3 input), resulting in an impairment charge of $106 million during the second quarter of 2022 and for the nine months ended September 30, 2022.
Indefinite-lived intangible assets of Indesit and Hotpoint* with carrying amounts of approximately $201 million and $137 million were written down to fair values (Level 3 input) of $131 million and $101 million, resulting in impairment charges of $70 million and $36 million, respectively.
See Note 16 to the Consolidated Condensed Financial Statements for additional information.
Russia Sale Transaction
During the second quarter of 2022, we entered into an agreement to sell our Russia business. We classified this disposal group as held for sale with a fair value of zero. Fair value, which is less than the carrying amount of the Russia business, was estimated based on purchase price which includes contingent consideration based on future business and other conditions (Level 2 input). We recorded an impairment charge of $333 million for the write-down of the net assets to their fair value.
See Note 15 to the Consolidated Condensed Financial Statements for additional information.
*Whirlpool ownership of the Hotpoint brand in the EMEA and Asia Pacific regions is not affiliated with the Hotpoint brand sold in the Americas.
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Whirlpool China Equity Method Investment
During the second quarter of 2021, the partial tender offer for Whirlpool China was completed and the entity was deconsolidated. Subsequent to the share transfer, which was completed on May 6, 2021, the Company holds an equity interest of 20% in Whirlpool China. The fair value of the retained investment in Whirlpool China at the date of deconsolidation was calculated based on the Whirlpool China stock price (Level 1 input), the portion of interest retained and the shares outstanding, resulting in a fair value of $214 million.
For additional information see Note 15 to the Consolidated Condensed Financial Statements.
Turkey Subsidiary Divestment
During the second quarter of 2021, we entered into a share transfer agreement to sell our Turkish subsidiary and the sale was completed on September 30, 2021. Fair value was calculated based on the cash purchase price, subject to customary adjustments at closing (Level 2 input), and we recorded a loss on sale and disposal of businesses of $40 million for the write-down of the assets to the fair value of $111 million.
For additional information see Note 15 to the Consolidated Condensed Financial Statements.
Other Fair Value Measurements
The fair value of long-term debt (including current maturities) was $4.4 billion and $5.8 billion at September 30, 2022 and December 31, 2021, respectively, and was estimated using discounted cash flow analysis based on incremental borrowing rates for similar types of borrowing arrangements (Level 2 input).
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(11) STOCKHOLDERS' EQUITY
The following table summarizes the changes in stockholders' equity for the periods presented:
| Whirlpool Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||
| Total | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock / Additional Paid-In-Capital | Common Stock | Non-Controlling Interest | |||||||||||||||||||||||||||||||||
| Balances, December 31, 2021 | $ | 5,013 | $ | 10,170 | $ | (2,357) | $ | (3,081) | $ | 114 | $ | 167 | ||||||||||||||||||||||||||
| Comprehensive income (loss) | ||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) | 316 | 313 | — | — | 3 | |||||||||||||||||||||||||||||||||
| Other comprehensive income | 58 | — | 58 | — | — | — | ||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | 374 | 313 | 58 | — | — | 3 | ||||||||||||||||||||||||||||||||
| Stock issued (repurchased) | (539) | — | — | (539) | — | — | ||||||||||||||||||||||||||||||||
| Dividends declared | (103) | (103) | — | — | — | — | ||||||||||||||||||||||||||||||||
| Balances, March 31, 2022 | 4,745 | 10,380 | (2,299) | (3,620) | 114 | 170 | ||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | ||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) | (368) | (371) | — | — | — | 3 | ||||||||||||||||||||||||||||||||
| Other comprehensive income | 209 | — | 209 | — | — | |||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | (159) | (371) | 209 | — | — | 3 | ||||||||||||||||||||||||||||||||
| Stock issued (repurchased) | (280) | — | — | (280) | — | |||||||||||||||||||||||||||||||||
| Dividends declared | (97) | (97) | — | — | — | — | ||||||||||||||||||||||||||||||||
| Balances, June 30, 2022 | $ | 4,209 | $ | 9,912 | $ | (2,090) | $ | (3,900) | $ | 114 | $ | 173 | ||||||||||||||||||||||||||
| Comprehensive income | ||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) | 145 | 143 | — | — | — | 2 | ||||||||||||||||||||||||||||||||
| Other comprehensive income | 151 | — | 151 | — | — | — | ||||||||||||||||||||||||||||||||
| Comprehensive income | 296 | 143 | 151 | — | — | 2 | ||||||||||||||||||||||||||||||||
| Stock issued (repurchased) | (57) | — | — | (57) | — | — | ||||||||||||||||||||||||||||||||
| Dividends declared | (97) | (95) | — | — | — | (2) | ||||||||||||||||||||||||||||||||
| Balances, September 30, 2022 | $ | 4,351 | $ | 9,960 | $ | (1,939) | $ | (3,957) | $ | 114 | $ | 173 | ||||||||||||||||||||||||||
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| Whirlpool Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||
| Total | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock / Additional Paid-In-Capital | Common Stock | Non-Controlling Interest | |||||||||||||||||||||||||||||||||
| Balances, December 31, 2020 | $ | 4,795 | $ | 8,725 | $ | (2,811) | $ | (2,142) | $ | 113 | $ | 910 | ||||||||||||||||||||||||||
| Comprehensive income (loss) | ||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) | 440 | 433 | — | — | — | 7 | ||||||||||||||||||||||||||||||||
| Other comprehensive income | 124 | — | 124 | — | — | — | ||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | 564 | 433 | 124 | — | — | 7 | ||||||||||||||||||||||||||||||||
| Stock issued (repurchased) | (141) | — | — | (141) | — | — | ||||||||||||||||||||||||||||||||
| Dividends declared | (79) | (79) | — | — | — | — | ||||||||||||||||||||||||||||||||
| Balances, March 31, 2021 | $ | 5,139 | $ | 9,079 | $ | (2,687) | $ | (2,283) | $ | 113 | $ | 917 | ||||||||||||||||||||||||||
| Comprehensive income (loss) | ||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) | 580 | 581 | — | — | — | (1) | ||||||||||||||||||||||||||||||||
| Other comprehensive income | 229 | — | 228 | — | — | 1 | ||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | 809 | 581 | 228 | — | — | — | ||||||||||||||||||||||||||||||||
| Stock issued (repurchased) | 8 | — | — | 7 | 1 | — | ||||||||||||||||||||||||||||||||
| Dividends declared | (88) | (88) | — | — | — | — | ||||||||||||||||||||||||||||||||
| Divestitures | (783) | — | — | — | — | (783) | ||||||||||||||||||||||||||||||||
| Balances, June 30, 2021 | $ | 5,085 | $ | 9,572 | $ | (2,459) | $ | (2,276) | $ | 114 | $ | 134 | ||||||||||||||||||||||||||
| Comprehensive income | ||||||||||||||||||||||||||||||||||||||
| Net earnings | 486 | 471 | — | — | — | 15 | ||||||||||||||||||||||||||||||||
| Other comprehensive income | 46 | — | 47 | — | — | (1) | ||||||||||||||||||||||||||||||||
| Comprehensive income | 532 | 471 | 47 | — | — | 14 | ||||||||||||||||||||||||||||||||
| Stock issued (repurchased) | (419) | — | — | (419) | — | — | ||||||||||||||||||||||||||||||||
| Dividends declared | (88) | (86) | — | — | — | (2) | ||||||||||||||||||||||||||||||||
| Acquisitions | $ | 19 | $ | — | $ | — | $ | — | $ | — | $ | 19 | ||||||||||||||||||||||||||
| Balances, September 30, 2021 | $ | 5,129 | $ | 9,957 | $ | (2,412) | $ | (2,695) | $ | 114 | $ | 165 | ||||||||||||||||||||||||||
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Other Comprehensive Income (Loss)
The following table summarizes our other comprehensive income (loss) and related tax effects for the periods presented:
| Three Months Ended September 30, | ||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||
| Millions of dollars | Pre-tax | Tax Effect | Net | Pre-tax | Tax Effect | Net | ||||||||||||||||||||
Currency translation adjustments (1) | $ | 109 | 2 | $ | 111 | $ | 8 | (2) | $ | 6 | ||||||||||||||||
| Cash flow hedges | 28 | 8 | 36 | 50 | (14) | 36 | ||||||||||||||||||||
| Pension and other postretirement benefits plans | 3 | 1 | 4 | 9 | (5) | 4 | ||||||||||||||||||||
| Other comprehensive income (loss) | 140 | 11 | 151 | 67 | (21) | 46 | ||||||||||||||||||||
| Less: Other comprehensive income (loss) available to noncontrolling interests | — | — | — | (1) | — | (1) | ||||||||||||||||||||
| Other comprehensive income (loss) available to Whirlpool | $ | 140 | $ | 11 | $ | 151 | $ | 68 | $ | (21) | $ | 47 | ||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||
| Millions of dollars | Pre-tax | Tax Effect | Net | Pre-tax | Tax Effect | Net | ||||||||||||||||||||
Currency translation adjustments (1) | $ | 368 | $ | 6 | $ | 374 | $ | 334 | $ | (1) | $ | 333 | ||||||||||||||
| Cash flow hedges | 29 | 9 | 38 | 58 | (21) | 37 | ||||||||||||||||||||
| Pension and other postretirement benefits plans | 9 | (3) | 6 | 42 | (13) | 29 | ||||||||||||||||||||
| Other comprehensive income (loss) | 406 | 12 | 418 | 434 | (35) | 399 | ||||||||||||||||||||
| Less: Other comprehensive income (loss) available to noncontrolling interests | — | — | — | — | — | — | ||||||||||||||||||||
| Other comprehensive income (loss) available to Whirlpool | $ | 406 | $ | 12 | $ | 418 | $ | 434 | $ | (35) | $ | 399 | ||||||||||||||
(1) Currency translation adjustments includes net investment hedges.
Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
The following table provides the reclassification adjustments out of accumulated other comprehensive income (loss), by component, which was included in net earnings (loss) for the three and nine months ended September 30, 2022:
| Three Months Ended | Nine Months Ended | |||||||||||||
| Millions of dollars | (Gain) Loss Reclassified | (Gain) Loss Reclassified | Classification in Earnings | |||||||||||
| Pension and postretirement benefits, pre-tax | $ | 5 | $ | 17 | Interest and sundry (income) expense | |||||||||
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Net earnings (loss) per Share
Diluted net earnings (loss) per share of common stock include the dilutive effect of stock options and other share-based compensation plans. Basic and diluted net earnings (loss) per share of common stock for the periods presented were calculated as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| Millions of dollars and shares | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Numerator for basic and diluted earnings per share - Net earnings (loss) available to Whirlpool | $ | 143 | $ | 471 | $ | 85 | $ | 1,485 | ||||||||||||||||||
| Denominator for basic earnings per share - weighted-average shares | 54.7 | 62.2 | 56.3 | 62.7 | ||||||||||||||||||||||
| Effect of dilutive securities - share-based compensation | 0.3 | 0.5 | 0.4 | 0.5 | ||||||||||||||||||||||
| Denominator for diluted earnings per share - adjusted weighted-average shares | 55.0 | 62.7 | 56.7 | 63.2 | ||||||||||||||||||||||
| Anti-dilutive stock options/awards excluded from earnings per share | 0.7 | 0.1 | 0.5 | 0.1 | ||||||||||||||||||||||
Share Repurchase Program
On April 19, 2021, our Board of Directors authorized a share repurchase program of up to $2 billion, which has no expiration date. On February 14, 2022, the Board of Directors authorized an additional $2 billion in share repurchases under the Company's ongoing share repurchase program. During the nine months ended September 30, 2022, we repurchased approximately 4.8 million shares under these share repurchase programs at an aggregate price of approximately $903 million. At September 30, 2022, there were approximately $2.6 billion in remaining funds authorized under this program.
Share repurchases are made from time to time on the open market as conditions warrant. The programs do not obligate us to repurchase any of our shares and have no expiration date.
(12) RESTRUCTURING CHARGES
We periodically take action to improve operating efficiencies, typically in connection with business acquisitions or changes in the economic environment. Our footprint and headcount reductions and organizational integration actions relate to discrete, unique restructuring events, primarily reflected in the following plans.
In 2020, the Company committed to workforce reduction plans in the United States and globally, as part of the Company's continued cost reduction efforts. The workforce reduction plans included a voluntary retirement program, and other voluntary and involuntary severance actions. These actions are substantially complete. The Company has incurred $212 million in employee termination costs related to these actions through September 30, 2022. Cash settlement of $190 million has been paid to date with the remaining cash settlement of $22 million expected to be paid over the duration of 2022 and 2023.
In addition, we ceased production in our Naples, Italy manufacturing plant and exited the facility in 2020. The collective dismissal procedure was completed in 2021. In connection with this action, we have incurred approximately $144 million total costs comprising $43 million in asset impairment costs, $31 million in other associated costs and $70 million in employee-related costs through September 30, 2022. Cash settlement of $97 million has been paid to date with the remaining nominal cash settlement to be paid in 2022.
The following table summarizes the changes to our restructuring liability during the nine months ended September 30, 2022:
| Millions of Dollars | December 31, 2021 | Charge to Earnings | Cash Paid | Non-Cash and Other | September 30, 2022 | ||||||||||||
| Employee Termination | $ | 53 | $ | 2 | $ | (31) | $ | — | $ | 24 | |||||||
| Asset Impairment | 8 | 7 | — | (12) | 3 | ||||||||||||
| Facility exit costs | — | 1 | (1) | — | — | ||||||||||||
| Other exit costs | (4) | 3 | (2) | — | (3) | ||||||||||||
| Total | $ | 57 | $ | 13 | $ | (34) | $ | (12) | $ | 24 | |||||||
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The following table summarizes the restructuring charges by operating segment for the periods presented:
| Millions of dollars | Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| North America | $ | — | $ | — | $ | — | $ | — | |||||||||
| EMEA | 5 | 7 | 15 | 32 | |||||||||||||
| Latin America | (2) | — | (2) | — | |||||||||||||
| Asia | — | — | — | 2 | |||||||||||||
| Corporate/Other | — | — | — | 1 | |||||||||||||
| Total | $ | 3 | $ | 7 | $ | 13 | $ | 35 | |||||||||
(13) INCOME TAXES
Income tax expense was $53 million and $196 million for the three and nine months ended September 30, 2022, compared to income tax expense of $100 million and $353 million in the same period of 2021. For the three and nine months ended September 30, 2022, the changes in the effective tax rate from the prior period include overall lower level of earnings, impact of non deductible goodwill impairments, audits and settlements, prior year divestiture, and legal entity restructuring tax impacts.
The following table summarizes the difference between income tax expense (benefit) at the U.S. statutory rate of 21% and the income tax expense (benefit) at effective worldwide tax rates for the respective periods:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| Millions of dollars | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Earnings (Loss) before income taxes | $ | 200 | $ | 586 | $ | 295 | $ | 1,859 | |||||||||||||||
| Income tax expense (benefit) computed at United States statutory tax rate | 42 | 123 | 62 | 390 | |||||||||||||||||||
| State and local taxes, net of federal tax benefit | (2) | 17 | 14 | 49 | |||||||||||||||||||
| Valuation allowances | 12 | 3 | 19 | 5 | |||||||||||||||||||
| Audit and Settlements | 6 | (32) | (13) | (17) | |||||||||||||||||||
| U.S. foreign income items, net of credits | 2 | (1) | (8) | (1) | |||||||||||||||||||
| Changes in enacted tax rates | — | — | — | (14) | |||||||||||||||||||
| Non deductible impairments | — | — | 150 | — | |||||||||||||||||||
| Divestiture tax impact | — | (1) | — | (22) | |||||||||||||||||||
| Legal entity restructuring tax impact | — | — | — | (46) | |||||||||||||||||||
| Other | (7) | (9) | (28) | 9 | |||||||||||||||||||
| Income tax expense (benefit) computed at effective worldwide tax rates | $ | 53 | $ | 100 | $ | 196 | $ | 353 | |||||||||||||||
At the end of each interim period, we estimate the effective tax rate expected to be applicable for the full fiscal year and the impact of discrete items, if any, and adjust the quarterly rate as necessary.
Other Income Tax Matters
During its examination of Whirlpool’s 2009 U.S. federal income tax return, the IRS asserted that income earned by a Luxembourg subsidiary via its Mexican branch should be recognized as income on its 2009 U.S. federal income tax return. The Company believed the proposed assessment was without merit and contested the matter in United States Tax Court (US Tax Court). Both Whirlpool and the IRS moved for partial summary judgment on this issue. On May 5, 2020, the US Tax Court granted the IRS’s motion for partial summary judgment and denied Whirlpool’s.
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The Company appealed the US Tax Court decision to the United States Court of Appeals for the Sixth Circuit, and, on December 6, 2021, the three-judge panel, in a divided decision, affirmed the U.S. Tax Court decision (the "Ruling"). The Company recorded a reserve of $98 million in the fourth quarter of 2021, which represents the expected increase in the Company’s net income tax expense, plus interest, for 2009 through 2019, which represents all of the Company’s tax years that were affected by the Ruling. On January 20, 2022, the Company filed a petition for rehearing with the Sixth Circuit, which was denied on March 2, 2022. On June 30, 2022, the Company filed a petition for certiorari with the U.S. Supreme Court. The government has provided its response and the Company will have the opportunity to respond in kind.
(14) SEGMENT INFORMATION
Our reportable segments are based upon geographical region and are defined as North America, EMEA, Latin America and Asia. These regions also represent our operating segments. Each segment manufactures home appliances and related components, but serves strategically different marketplaces. The chief operating decision maker, who is the Company's Chairman and Chief Executive Officer, evaluates performance based on each segment's earnings (loss) before interest and taxes (EBIT), which we define as operating profit less interest and sundry (income) expense and excluding restructuring costs, asset impairment charges and certain other items that management believes are not indicative of the region's ongoing performance, if any. Total assets by segment are those assets directly associated with the respective operating activities. The "Other/Eliminations" column primarily includes corporate expenses, assets and eliminations, as well as restructuring costs, asset impairment charges and certain other items that management believes are not indicative of the region's ongoing performance, if any. Intersegment sales are eliminated within each region.
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The tables below summarize performance by operating segment for the periods presented:
The following table summarizes the reconciling items in the Other/Eliminations column for total EBIT for the periods presented:
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A reconciliation of our segment information for total EBIT to the corresponding amounts in the Consolidated Condensed Statements of Comprehensive Income (Loss) is shown in the table below for the periods presented:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
| in millions | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
| Operating profit | $ | 221 | $ | 552 | $ | 376 | $ | 1,854 | ||||||||||||
| Interest and sundry (income) expense | (19) | (78) | (45) | (139) | ||||||||||||||||
| Equity method investment income (loss), net of tax | (2) | — | (6) | — | ||||||||||||||||
| Total EBIT | $ | 238 | $ | 630 | $ | 415 | $ | 1,993 | ||||||||||||
| Interest expense | 40 | 44 | 126 | 134 | ||||||||||||||||
| Income tax expense | 53 | 100 | 196 | 353 | ||||||||||||||||
| Net earnings (loss) | $ | 145 | $ | 486 | $ | 93 | $ | 1,506 | ||||||||||||
| Less: Net earnings available to noncontrolling interests | 2 | 15 | 8 | 21 | ||||||||||||||||
| Net earnings (loss) available to Whirlpool | $ | 143 | $ | 471 | $ | 85 | $ | 1,485 | ||||||||||||
(15) ACQUISITIONS AND DIVESTITURES
InSinkErator Definitive Agreement
On August 7, 2022, the Company entered into an Asset and Stock Purchase Agreement with Emerson Electric Co., a Missouri corporation (“Emerson”) to purchase Emerson’s InSinkErator business, a manufacturer of food waste disposers and instant hot water dispensers for home and commercial use, for a purchase price of $3 billion in cash. The purchase price is subject to customary adjustments.
The closing of the transaction is expected in the fourth quarter of 2022 and is subject to satisfaction or waiver of certain customary closing conditions.
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Russia Sale Transaction
On June 27, 2022, Whirlpool EMEA SpA, a subsidiary of Whirlpool Corporation (the “Company”), entered into a share purchase agreement to sell the Company’s Russian business to Arçelik A.Ş. (“Arcelik”), subject to customary conditions at closing. The sale included the entirety of the Company’s operations in Russia, including the Company’s manufacturing facility in Lipetsk, Russia, and the sales organization in Moscow, Russia, as well as sales operations in Kazakhstan and other select CIS countries.
On August 31, 2022, we completed the sale to Arcelik. The consideration includes contingent consideration based on future business and other conditions of the Russian operations. We will recognize the benefit of the contingent consideration when received due to the uncertainty in the Russian marketplace. Additionally, the contingent consideration is subject to a cap based on the agreed net asset value of the Russian business as of closing. The net asset value is currently estimated at €220 million (approximately $221 million at August 31, 2022) and is subject to finalization of closing accounts.
In connection with the sale, we recorded a loss on disposal of $346 million in the second quarter of 2022. The loss includes a charge of $333 million for the write-down of the net assets of the disposal group to fair value and $13 million of cumulative currency translation adjustments. On the closing date of August 31, 2022, we recorded an immaterial adjustment to the final loss amount, resulting in a total loss of $348 million for the nine months ended September 30, 2022.
The Russia business was reported within our EMEA reportable segment and met the criteria for held for sale accounting during the second quarter of 2022. The operations of Russia did not meet the criteria to be presented as discontinued operations. Earnings before income taxes for Russia were not material for the periods presented.
For additional information see Note 10 to the Consolidated Condensed Financial Statements.
Whirlpool China Divestment
On August 25, 2020, Guangdong Galanz Household Appliances Manufacturing Co., Ltd. (“Galanz”) announced its intention to pursue a tender offer for majority control of Whirlpool China Co. Ltd. (“Whirlpool China”), a majority-owned subsidiary of the Company with shares listed on the Shanghai Stock Exchange. In its announcement, Galanz noted that it expected to offer RMB 5.23 per share (approximately $0.76 per share as of August 25, 2020) to obtain no less than 51% and no more than 61% of Whirlpool China’s outstanding shares. This share price offer was equal to the daily weighted average trading price for Whirlpool China stock over the 30 trading days prior to the announcement.
In the first quarter of 2021, our Board of Directors approved the sale of Whirlpool China, which was reported within our Asia reportable segment and met the criteria for held for sale accounting during the first quarter of 2021. The operations of Whirlpool China did not meet the criteria to be presented as discontinued operations.
On May 6, 2021, the tender offer was completed and the share transfer was executed for a consideration of RMB 1.25 billion (approximately $193 million on the date of completion). Subsequent to the share transfer, the Company holds an equity interest of 20% in Whirlpool China.
In connection with the sale, we recorded a gain, net of transaction and other costs, of $284 million during the second quarter of 2021. The gain on sale is equal to the difference between the total transaction amount and carrying value of Whirlpool China, which includes $74 million of cumulative foreign currency translation adjustments and $80 million of goodwill allocated to the disposal group. The total transaction amount includes $193 million of consideration received from the sale of Whirlpool China shares, $214 million for the fair value of the interest retained and the $783 million carrying value of the equity interest in Whirlpool China. The fair value of the interest retained was based on the ownership amount and the stock price of Whirlpool China as of the closing date of the transaction and we account for the remaining minority interest under the equity method accounting as of June 30, 2021.
Earnings before income taxes prior to the share transfer of Whirlpool China were not material to the Company for the periods presented.
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Turkey Subsidiary Divestment
On May 17, 2021, we entered into a share transfer agreement with Arcelik to sell our Turkish subsidiary for a cash purchase price of €78 million (approximately $93 million as of June, 30 2021), subject to customary adjustments at closing.
On June 30, 2021, we completed the sale of the Turkish subsidiary. In connection with the sale, we recorded a loss on disposal of $164 million as of June 30, 2021. The loss includes a charge of $40 million for the write-down of the assets of the disposal group to fair value and allocated goodwill, and $124 million of cumulative foreign currency translation adjustments included in the carrying amount of the disposal group. During the third quarter of 2021, amounts for working capital and other customary post-closing adjustments were finalized and an additional $13 million loss related to the sale of business was recorded.
The Turkish subsidiary, whose primary asset was a manufacturing plant, was reported within our EMEA reportable segment. The operations of Turkey did not meet the criteria to be presented as discontinued operations. Earnings before income taxes for Turkey were not material for the periods presented.
See Note 10 to the Consolidated Condensed Financial Statements for additional information.
(16) GOODWILL AND OTHER INTANGIBLES
Goodwill
The following table summarizes goodwill attributable to our reporting units for the periods presented:
| Millions of dollars | North America | EMEA | Latin America | Asia | Total Whirlpool | ||||||||||||
| Beginning balance December 31, 2021 | $ | 1,695 | $ | 296 | $ | 33 | $ | 461 | $ | 2,485 | |||||||
| Impairment | — | (278) | — | — | (278) | ||||||||||||
| Currency translation adjustment | (3) | (18) | — | (9) | (30) | ||||||||||||
| Ending net balance September 30, 2022 | $ | 1,692 | $ | — | $ | 33 | $ | 452 | $ | 2,177 | |||||||
For the three months ended September 30, 2022, there no indicators of goodwill impairment for any of our reporting units based on our qualitative assessment.
During the second quarter of 2022, in connection with the preparation of our Consolidated Condensed Financial Statements, we identified indicators of goodwill impairment for our EMEA reporting unit, which required us to complete an interim impairment assessment. The primary indicators of impairment were the adverse impacts from the continuation of the Russia and Ukraine conflict, including the impact on demand, the pending divestiture of our Russian operations and other ongoing adverse macroeconomic impacts such as raw material inflation, supply chain disruption and unfavorable demand. As a result of these factors, the operating results for the three-months ended June 30, 2022 were significantly lower than expected and our expectations of attaining our long term plans for the region have been delayed.
In performing our quantitative assessment of goodwill, we estimated the reporting unit's fair value under an income approach using a discounted cash flow model. The income approach used the reporting unit's projections of estimated operating results and cash flows that were discounted using a market participant discount rate based on the weighted-average cost of capital. The main assumptions supporting the cash flow projections include revenue growth, EBIT margins and the discount rate. The financial projections reflect management's best estimate of economic and market conditions over the projected period including forecasted revenue growth, EBIT margins, tax rate, capital expenditures, depreciation and amortization, changes in working capital requirements and the terminal growth rate.
Based on our interim quantitative impairment assessment as of June 30, 2022, the carrying value of the EMEA reporting unit exceeded its fair value and we recorded a goodwill impairment charge for the full amount of the goodwill's carrying value of $278 million during the second quarter of 2022.
See Note 10 and 15 to the Consolidated Condensed Financial Statements for additional information.
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Other Intangible Assets
The following table summarizes other intangible assets for the periods presented:
| September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Millions of dollars | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||||||||
| Other intangible assets, finite lives | |||||||||||||||||||||||
Customer relationships (1) | $ | 424 | $ | (341) | $ | 83 | $ | 443 | $ | (334) | $ | 109 | |||||||||||
Patents and other (2) | 182 | (179) | 3 | 191 | (188) | 3 | |||||||||||||||||
| Total other intangible assets, finite lives | $ | 606 | $ | (520) | $ | 86 | $ | 634 | $ | (522) | $ | 112 | |||||||||||
Trademarks, indefinite lives (3) | 1,714 | — | 1,714 | 1,869 | — | 1,869 | |||||||||||||||||
| Total other intangible assets | $ | 2,320 | $ | (520) | $ | 1,800 | $ | 2,503 | $ | (522) | $ | 1,981 | |||||||||||
(1) Customer relationships have an estimated useful life of 5 to 19 years.
(2) Patents and other intangibles have an estimated useful life of 3 to 43 years.
(3) Includes Indesit and Hotpoint* impairment loss of $70 million and $36 million, respectively, recorded during the period ended June 30, 2022.
For the three months ended September 30, 2022, there were no indicators of impairment associated with other intangible assets based on our qualitative assessment.
Similarly to the review of EMEA reporting unit, during the second quarter of 2022 and in connection with the preparation of our Consolidated Condensed Financial Statements, we identified indicators of impairment associated with other intangible assets in our EMEA reporting unit, which required us to complete an interim impairment assessment. The primary indicators of impairment were the same as those identified for EMEA reporting unit and resulted in the actual revenues for the three-months ended June 30, 2022 being significantly lower than forecasted for Indesit and Hotpoint* trademarks.
In performing our quantitative assessment of other intangible assets, primarily trademarks, we estimate the fair value using the relief-from-royalty method which requires assumptions related to projected revenues from our long-range plans; assumed royalty rates that could be payable if we did not own the trademark; and a discount rate using a market-based weighted-average cost of capital. Based on our interim quantitative impairment assessment as of June 30, 2022, the carrying value of certain other intangible assets, including Indesit and Hotpoint*, exceeded their fair value, and we recorded an impairment charge of $106 million during the second quarter of 2022. See Note 10 to the Consolidated Condensed Financial Statements for additional information.
The estimates of future cash flows used in determining the fair value of goodwill and intangible assets involve significant management judgment and are based upon assumptions about expected future operating performance, economic conditions, market conditions and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as changes in capital markets. The actual cash flows could differ materially from management's estimates due to changes in business conditions, operating performance and economic conditions.
*Whirlpool ownership of the Hotpoint brand in the EMEA and Asia Pacific regions is not affiliated with the Hotpoint brand sold in the Americas.
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| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | ||||
The following Management Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to promote understanding of the results of operations and financial condition of the Company and generally discusses the results of operations for the current quarter compared to the same prior year period. MD&A is provided as a supplement to, and should be read in connection with, the Consolidated Condensed Financial Statements and Notes to the Consolidated Condensed Financial Statements included in this Form 10-Q.
Certain references to particular information in the Notes to the Consolidated Condensed Financial Statements are made to assist readers.
ABOUT WHIRLPOOL
Whirlpool Corporation ("Whirlpool"), committed to being the best global kitchen and laundry company, in constant pursuit of improving life at home, was incorporated in 1955 under the laws of Delaware and was founded in 1911. Whirlpool manufactures products in nine countries and markets products in nearly every country around the world. We have received worldwide recognition for accomplishments in a variety of business and social efforts, including leadership, diversity, innovative product design, business ethics, social responsibility and community involvement. We conduct our business through four operating segments, which we define based on geography. Whirlpool's operating segments consist of North America, Europe, Middle East and Africa ("EMEA"), Latin America and Asia. Whirlpool had approximately $22 billion in annual net sales and 69,000 employees in 2021.
OVERVIEW
Whirlpool delivered third quarter GAAP net earnings available to Whirlpool of $143 million (net earnings margin of 3.0%), or $2.60 per share, compared to GAAP net earnings available to Whirlpool of $471 million (net earnings margin of 8.6%), or $7.51 per share in the same prior-year period. Whirlpool delivered cash provided by (used in) operating activities of $310 million and $1,294 million for the nine months ended September 30, 2022 and September 30, 2021, respectively, and free cash flow (non-GAAP) of $(24) million and $988 million for the same periods in 2022 and 2021, respectively.
Whirlpool delivered third-quarter ongoing (non-GAAP) earnings per share of $4.49 and ongoing EBIT margin of 5.5%, compared to $6.68 and 11.1% in the same prior-year period. On a GAAP and ongoing basis, quarterly earnings and margin declines were driven by demand slowdowns negatively impacting volumes, elevated cost inflation, inventory reduction actions and the impact of foreign currency, partially offset by positive price/mix led by the successful execution of cost-based price increases across the globe.
We continue to take actions to deliver shareholder value as we navigate through the challenging environment. Additionally, we advanced our portfolio transformation, with the completed divestiture of the Whirlpool Russia business and the announced acquisition of InSinkErator. Additionally, the strategic assessment of our EMEA business is nearing its completion and, among other options we are pursuing, we are currently in advanced negotiations with two potential strategic investors.
For additional information regarding non-GAAP financial measures, see the Non-GAAP Financial Measures section of this Management's Discussion and Analysis.
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RESULTS OF OPERATIONS
The following table summarizes the consolidated results of operations for the periods presented:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
| Consolidated - Millions of dollars, except per share data | 2022 | 2021 | Better/(Worse) % | 2022 | 2021 | Better/(Worse) % | ||||||||||||||
| Net sales | $ | 4,784 | $ | 5,488 | (12.8)% | $ | 14,801 | $ | 16,170 | (8.5)% | ||||||||||
| Gross margin | 680 | 1,108 | (38.6) | 2,428 | 3,347 | (27.5) | ||||||||||||||
| Selling, general and administrative | 446 | 524 | 14.9 | 1,283 | 1,526 | 15.9 | ||||||||||||||
| Restructuring costs | 3 | 7 | 57.1 | 13 | 35 | 62.9 | ||||||||||||||
| Impairment of goodwill and other intangibles | — | — | nm | 384 | — | nm | ||||||||||||||
| (Gain) loss on sale and disposal of businesses | 2 | 15 | 86.7 | 348 | (105) | nm | ||||||||||||||
| Interest and sundry (income) expense | (19) | (78) | (75.6) | (45) | (139) | (67.6) | ||||||||||||||
| Interest expense | 40 | 44 | 9.1 | 126 | 134 | 6.0 | ||||||||||||||
| Income tax expense (benefit) | 53 | 100 | (47.0) | 196 | 353 | 44.5 | ||||||||||||||
| Net earnings (loss) available to Whirlpool | $ | 143 | $ | 471 | (69.6) | $ | 85 | $ | 1,485 | (94.3) | ||||||||||
| Diluted net earnings (loss) available to Whirlpool per share | $ | 2.60 | $ | 7.51 | nm | $ | 1.51 | $ | 23.47 | nm | ||||||||||
Consolidated net sales decreased 12.8% and 8.5% for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021. The decrease for the three and nine months ended September 30, 2022 was primarily driven by lower volume and the impact of foreign currency, partially offset by favorable product price/mix. Excluding the impact of foreign currency, net sales decreased 9.7% and 6.3% for the three and nine months ended September 30, 2022, compared to the same periods in 2021.
The consolidated gross margin percentage for the three and nine months ended September 30, 2022 decreased to 14.2% and 16.4%, respectively, compared to 20.2% and 20.7% in the same prior-year periods. The decrease was primarily driven by cost inflation, lower volume and inventory reduction actions, partially offset by favorable product price/mix.
Our operating segments are based upon geographical region and are defined as North America, EMEA, Latin America and Asia. These regions also represent our reportable segments. The chief operating decision maker evaluates performance based on each segment's earnings (loss) before interest and taxes (EBIT), which we define as operating profit less interest and sundry (income) expense and excluding restructuring costs, asset impairment charges and certain other items that management believes are not indicative of the region's ongoing performance, if any. For additional information, see Note 14 to the Consolidated Condensed Financial Statements.
The following is a discussion of results for each of our operating segments. Each of our operating segments have been impacted by the COVID-19 pandemic in the area of manufacturing operations. Excess capacity costs were not material for the nine months ended September 30, 2022. Additionally, operating segments have been impacted by disruptions in supply chains and distribution channels, among other macroeconomic and COVID-19 related impacts.
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The EMEA operating segment continued to experience sales, distribution, supply chain, and manufacturing disruptions as a result of the Russian invasion of Ukraine and related conflict and sanctions. During the second quarter of 2022, we entered into a share purchase agreement to sell the Company's Russian business to Arcelik. We recorded a charge of $346 million in the Consolidated Condensed Statements of Comprehensive Income (Loss) during the second quarter of 2022 in connection with this transaction. The transaction was completed during the third quarter of 2022 and an immaterial adjustment was recorded to the final sale price resulting in a final loss from disposal of $348 million for the nine months ended September 30, 2022. Additionally, during the second quarter of 2022, we recorded an impairment loss of $384 million for the EMEA goodwill and Indesit and Hotpoint* trademarks. For additional information see Notes 10, 15 and 16 to the Consolidated Condensed Financial Statements. Please see Item 1A. Risk Factors of this quarterly report on Form 10-Q for additional information regarding the risks that we have or may in the future experience as a result of the conflict in Ukraine and related sanctions.
*Whirlpool ownership of the Hotpoint brand in the EMEA and Asia Pacific regions is not affiliated with the Hotpoint brand sold in the Americas.
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NORTH AMERICA
Net Sales
Net sales decreased 7.7% for the three months ended September 30, 2022 compared to the same period in 2021, primarily driven by lower volume. Net sales decreased 6.2% for the nine months ended September 30, 2022, compared to the same period in 2021 primarily driven by lower volume, partially offset by favorable product/price mix.
EBIT
EBIT decreased for the three months ended September 30, 2022 compared to the same period in 2021 primarily due to lower volume, cost inflation and inventory reduction actions. EBIT decreased for the nine months ended September 30, 2022 compared to the same period in 2021 due to cost inflation and lower volume, partially offset by favorable product/price mix. EBIT margin was 9.8% and 13.4% for the three and nine months ended September 30, 2022, respectively, compared to 17.7% and 18.7% for the same periods in 2021.
EMEA
Net Sales
Net sales decreased 28.1% and 18.5% for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021. The decrease is primarily driven by lower volume, the impact of foreign currency and divestiture of the Russian business, partially offset by favorable product price/mix. Excluding the impact from foreign currency, net sales decreased 16.7% and 9.4% for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.
EBIT
EBIT decreased for the three and nine months ended September 30, 2022 compared to the same periods in 2021 primarily due to cost inflation and lower volume, partially offset by favorable product/price mix. EBIT margin was (3.1)% and (1.8)% for the three and nine months ended September 30, 2022, respectively, compared to 2.2% for the same periods in 2021.
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LATIN AMERICA
Net Sales
Net sales decreased 10.8% and 1.7% for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021. The decrease is primarily driven by lower volume, partially offset by favorable product/price mix. Excluding the impact from foreign currency, net sales decreased 10.4% and 3.7% for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.
EBIT
EBIT decreased for the three and nine months ended September 30, 2022 compared to the same periods in 2021. The decrease is primarily driven by lower volume and cost inflation, partially offset by favorable product/price mix. EBIT margin was 5.3% and 6.6% for the three and nine months ended September 30, 2022, compared to 8.7% and 9.0% for the same periods in 2021.
ASIA
Net Sales
Net sales decreased 7.2% and 8.1% for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021. The decrease is primarily driven by lower volumes and the impact of foreign currency, partially offset by favorable product price/mix. Excluding the impact from foreign currency, net sales decreased 1.2% and 4.1% for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.
EBIT
EBIT decreased for the three and nine months ended September 30, 2022 compared to the same periods in 2021. The decrease was primarily due to cost inflation and lower volume, partially offset by favorable product price/mix. EBIT margin was 4.7% and 5.5% for the three and nine months ended September 30, 2022 compared to 8.6% and 5.2% for the same periods in 2021.
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Selling, General and Administrative
The following table summarizes selling, general and administrative expenses as a percentage of net sales by region for the periods presented:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||
| Millions of dollars | 2022 | As a % of Net Sales | 2021 | As a % of Net Sales | 2022 | As a % of Net Sales | 2021 | As a % of Net Sales | ||||||||||||||||||||||||||||||||||||||||||
| North America | $ | 205 | 7.1 | % | $ | 227 | 7.3 | % | $ | 575 | 6.7 | % | $ | 614 | 6.7 | % | ||||||||||||||||||||||||||||||||||
| EMEA | 85 | 9.4 | 117 | 9.4 | 278 | 9.3 | 379 | 10.3 | ||||||||||||||||||||||||||||||||||||||||||
| Latin America | 65 | 8.6 | 70 | 8.3 | 196 | 8.6 | 192 | 8.2 | ||||||||||||||||||||||||||||||||||||||||||
| Asia | 28 | 10.9 | 27 | 9.7 | 93 | 10.5 | 120 | 12.6 | ||||||||||||||||||||||||||||||||||||||||||
| Corporate/other | 63 | — | 83 | — | 141 | — | 221 | — | ||||||||||||||||||||||||||||||||||||||||||
| Consolidated | $ | 446 | 9.3 | % | $ | 524 | 9.5 | % | $ | 1,283 | 8.7 | % | $ | 1,526 | 9.4 | % | ||||||||||||||||||||||||||||||||||
Consolidated selling, general and administrative expenses decreased for the three and nine months ended September 30, 2022 compared to the same periods in 2021. The decrease for the three months ended September 30, 2022 is primarily driven by lower employee compensation, decreased marketing investments and benefits of prior restructuring actions. The decrease for the nine months ended September 30, 2022 is primarily driven by a gain from a sale-leaseback transaction, divestiture of businesses and benefits of prior restructuring actions.
For additional information, see Note 1 to the Consolidated Condensed Financial Statements.
Restructuring
We incurred restructuring charges of $3 million and $13 million for the three and nine months ended September 30, 2022, respectively compared to $7 million and $35 million for the same periods in 2021. For the full year 2022, we expect to incur less than $50 million of restructuring charges.
For additional information, see Note 12 to the Consolidated Condensed Financial Statements.
Impairment of Goodwill and Other Intangibles
Impairment of Goodwill and Other Intangibles
In the second quarter of 2022, we recorded an impairment loss of $384 million related to goodwill ($278 million) and other intangibles ($106 million) related to the EMEA reporting unit, Indesit and Hotpoint* trademarks, respectively.
The primary indicators of impairment were the adverse impacts from the continuation of the Russia and Ukraine conflict resulting in economic uncertainty in the EMEA region, the pending divestiture of our Russia operations and other macroeconomic factors.
For additional information, see Note 10 and 16 of the Consolidated Condensed Financial Statements and the Other Information section below.
*Whirlpool ownership of the Hotpoint brand in the EMEA and Asia Pacific regions is not affiliated with the Hotpoint brand sold in the Americas.
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(Gain) Loss on Disposal of Businesses
We incurred a loss of $2 million for the three months ended September 30, 2022 and $348 million for the nine months ended September 30, 2022 related to the sale of the Russia business.
On June 30, 2021, we completed the sale of our Turkish subsidiary and incurred a loss of $164 million for the three and six months ended June 30, 2021. During the third quarter of 2021, an additional loss of $13 million related to the final purchase price adjustments was recorded, increasing the total loss to $177 million for the nine months ended 2021.
On May 6, 2021, the partial tender offer for Whirlpool China was completed and subsequent to the deconsolidation of the entity we recorded a gain of $284 million for the nine months ended September 30, 2021.
For additional information, see Note 15 to the Consolidated Condensed Financial Statements.
Interest and Sundry (Income) Expense
Interest and sundry income decreased for the three and nine months ended September 30, 2022 compared to the same periods in 2021 primarily due to the gain resulting from the Elica transaction in the prior period.
Interest Expense
Interest expense decreased for the three and nine months ended September 30, 2022 compared to the same periods in 2021. The decrease is primarily driven by lower average fixed interest rates.
Income Taxes
Income tax expense was $53 million and $196 million for the three and nine months ended September 30, 2022 compared to income tax expense of $100 million and $353 million in the same periods of 2021. For the three and nine months ended September 30, 2022, the changes in the effective tax rate from the prior period include overall lower level of earnings, impact of non deductible goodwill impairments, audits and settlements, prior year divestiture, and legal entity restructuring tax impacts.
For additional information, see Note 13 to the Consolidated Condensed Financial Statements.
Other Information
Our Critical Accounting Policies and Estimates for goodwill and other indefinite-lived intangibles are disclosed in Note 1 to the Consolidated Financial Statements and in Management's Discussion and Analysis of our annual report on Form 10-K for the fiscal year ended December 31, 2021.
We continue to monitor the significant global economic uncertainty, including any potential impacts from the ongoing conflict in Ukraine and related sanctions, to assess the outlook for demand for our products and the impact on our business and our overall financial performance. Our Maytag, Indesit and Hotpoint* trademarks continue to be at risk at September 30, 2022. None of our reporting units or other indefinite-lived intangible assets are presently at risk for future impairment.
For additional information, see Note 1 to the Consolidated Condensed Financial Statements.
Goodwill and Indefinite-Lived Intangible Assets
EMEA goodwill was fully impaired during the second quarter of 2022. Goodwill in our other reporting units is not presently at risk for future impairment.
In performing the quantitative assessment of indefinite-lived intangible assets, Indesit and Hotpoint* trademarks during the second quarter of 2022, significant assumptions used in our relief-from-royalty model included revenue growth rates, assumed royalty rates and the discount rate, which are discussed further below.
*Whirlpool ownership of the Hotpoint brand in the EMEA and Asia Pacific regions is not affiliated with the Hotpoint brand sold in the Americas.
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We performed a sensitivity analysis on our remaining estimated fair values noting a 10% reduction of forecasted revenues in the Indesit and Hotpoint* trademarks would have resulted in an impairment charge of approximately $92 million and $50 million, respectively.
We used a royalty rate of 3% and 3.5% for our Indesit and Hotpoint* trademarks, respectively. We performed a sensitivity analysis on our estimated fair values for Indesit and Hotpoint* noting a 100 basis point reduction of the royalty rates from each trademark would have resulted in an impairment charge of approximately $107 million and $73 million, respectively.
We used a discount rate of 19.0% for both Indesit and Hotpoint*, respectively. We performed a sensitivity analysis on our estimated fair values for Indesit and Hotpoint* noting a 100 basis point increase in the discount rate would have resulted in an impairment charge of approximately $72 million and $39 million, respectively.
If actual results are not consistent with management's estimate and assumptions, a material impairment charge of our trademarks could occur, which would have a material adverse effect on our financial statements.
For additional information about goodwill and intangible valuations, see Note 10 and 16 of the Consolidated Condensed Financial Statements.
FINANCIAL CONDITION AND LIQUIDITY
Background
Our objective is to finance our business through operating cash flow and the appropriate mix of long-term and short-term debt. By diversifying the maturity structure, we avoid concentrations of debt, reducing liquidity risk. We have varying needs for short-term working capital financing as a result of the nature of our business. We regularly review our capital structure and liquidity priorities, which include funding innovation and growth through capital expenditures and research and development expenditures as well as opportunistic mergers and acquisitions; and providing returns to shareholders through dividends, share repurchases and maintaining our strong investment grade rating.
The Company believes that free cash flow provides stockholders with a relevant measure of liquidity and a useful basis for assessing Whirlpool's ability to fund its activities and obligations. Whirlpool has historically been able to leverage its strong free cash flow generation to fund our operations, pay for any debt servicing costs and allocate capital for reinvestment in our business, funding share repurchases and dividend payments.
On August 7, 2022, we entered into an Asset and Stock Purchase Agreement with Emerson Electric Co., a Missouri corporation (“Emerson”) to purchase Emerson’s InSinkErator business, a manufacturer of food waste disposers and instant hot water dispensers for home and commercial use, for a purchase price of $3.0 billion in cash. The purchase price is subject to customary adjustments. The sale is expected to close in the fourth quarter of 2022. Additional information about the transaction can be found in Note 6 and Note 15 of the Notes to the Consolidated Condensed Financial Statements.
Our short-term potential uses of liquidity include funding our business operations, ongoing capital spending, debt repayment, and returns to shareholders. We currently have $248 million of long-term debt maturing in the next twelve months, and are currently evaluating our options in connection with this maturing debt, which may include repayment through refinancing, free cash flow generation or cash on hand. In the second quarter of 2022, we completed an offering of $300 million in aggregate principal amount of 4.700% Senior Notes due 2032, the net proceeds of which were used to pay off $300 million in maturing debt on June 1, 2022.
We monitor the credit ratings and market indicators of credit risk of our lending, depository, derivative counterparty banks, and customers regularly, and take certain actions to manage credit risk. We diversify our deposits and investments in short-term cash equivalents to limit the concentration of exposure by counterparty.
*Whirlpool ownership of the Hotpoint brand in the EMEA and Asia Pacific regions is not affiliated with the Hotpoint brand sold in the Americas.
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Cash and cash equivalents
The Company had cash and cash equivalents of approximately $1.8 billion at September 30, 2022, the majority of which was held in the United States. For cash in each of its foreign subsidiaries, the Company makes an assertion regarding the amount of earnings intended for permanent reinvestment, with the balance available to be repatriated to the United States. The cash held by foreign subsidiaries for permanent reinvestment is generally used to finance the subsidiaries' operational activities and expected future foreign investments. Our intent is to permanently reinvest these funds outside of the United States and our current plans do not demonstrate a need to repatriate the cash to fund our U.S. operations. However, if these funds were repatriated, we would be required to accrue and pay applicable United States taxes (if any) and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with the repatriation of cash due to the complexity of its hypothetical calculation.
At September 30, 2022, we had cash or cash equivalents greater than 1% of our consolidated assets in the United States (4.3%), Mexico (1.9%), Brazil (1.3%) and India (1.1%). In addition, we had third-party accounts receivable outside of the United States greater than 1% of our consolidated assets in Italy and Brazil, which represented 1.1% and 1.4%, respectively. We continue to monitor general financial instability and uncertainty globally.
Revolving credit facility and other committed credit facilities
The Company maintains a $3.5 billion revolving credit facility and $2.5 billion delayed draw term loan. There were no amounts borrowed on the facilities during the nine months ended September 30, 2022.
We were in compliance with our interest coverage ratio under the revolving credit facility as of September 30, 2022. We closely monitor our ability to meet this covenant in future periods and expect to continue to be in compliance.
At September 30, 2022, we had aggregate borrowing capacity of approximately $6.2 billion on our committed credit facilities, consisting of $3.5 billion under the revolving credit facility, $2.5 billion under the delayed draw term loan and approximately $197 million under our committed credit facilities in Brazil and India.
Notes payable
Notes payable consists of short-term borrowings payable to banks and commercial paper, which are generally used to fund working capital requirements. At September 30, 2022, we have no notes payable under the revolving credit facility or commercial paper programs. For additional information, see Note 6 to the Consolidated Condensed Financial Statements.
Trade customers
We continue to review customer conditions globally. We had no material effect from customer insolvencies during the three months ended September 30, 2022, nor do we have immediate visibility into material customer insolvency situations occurring in the future. We continue to monitor these situations, considering each geographic region, the unique credit risk specific to the country, marketplace and economic environment, and take appropriate risk mitigation steps.
For additional information on guarantees, see Note 7 to the Consolidated Condensed Financial Statements.
Other matters
As announced on April 25, 2022, we continue conducting a portfolio review focused on accelerating our transformation towards higher margin and higher growth businesses. The strategic assessment of our EMEA business is nearing its completion and, among other options we are pursuing, we are currently in advanced negotiations with two potential strategic investors.
Share Repurchase Program
For additional information about our share repurchase program, see Note 11 to the Consolidated Condensed Financial Statements.
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Sources and Uses of Cash
The following table summarizes the net increase (decrease) in cash, cash equivalents and restricted cash for the periods presented:
| Nine Months Ended September 30, | ||||||||||||||
| Millions of dollars | 2022 | 2021 | ||||||||||||
| Cash provided by (used in): | ||||||||||||||
| Operating activities | $ | 310 | $ | 1,294 | ||||||||||
| Investing activities | (333) | (446) | ||||||||||||
| Financing activities | (1,195) | (856) | ||||||||||||
| Effect of exchange rate changes | (32) | (51) | ||||||||||||
| Net change in cash, cash equivalents and restricted cash | $ | (1,250) | $ | (59) | ||||||||||
Cash Flows from Operating Activities
Less cash was provided by operating activities during the nine months ended September 30, 2022 compared to the same period in 2021. The decrease in cash provided by operating activities was primarily driven by lower cash earnings and unfavorable changes in working capital, partially offset by the favorable cash impact of hedge settlements. The working capital change was primarily driven by higher levels of cash payments due to elevated accounts payable driven by cost inflation and lower production partially offset by a decrease in accounts receivable and inventory as a result of lower sales demand.
The timing of cash flows from operations varies significantly throughout the year primarily due to changes in production levels, sales patterns, promotional programs, funding requirements, credit management, as well as receivable and payment terms. Depending on the timing of cash flows, the location of cash balances, as well as the liquidity requirements of each country, external sources of funding are used to support working capital requirements.
Cash Flows from Investing Activities
Cash used in investing activities during the nine months ended September 30, 2022 decreased compared to the same prior year period primarily due to impacts of cash held by divested businesses, partially offset by proceeds from sale of assets and businesses arising from the sale of majority shareholding in Whirlpool China and sale of Turkey subsidiary in the prior year.
For additional information, see Note 1 and Note 15 to the Consolidated Condensed Financial Statements.
Cash Flows from Financing Activities
Cash used in financing activities during the nine months ended September 30, 2022 increased by $339 million compared to the same period in 2021, which primarily reflects increased share repurchases and an increase in the dividend compared to the same prior year period.
Financing Arrangements
The Company had total committed credit facilities of approximately $6.2 billion at September 30, 2022, including the $2.5 billion delayed draw term loan closed on September 23, 2022. These facilities are geographically reflective of the Company's global operations. The Company is confident that the committed credit facilities are sufficient to support its global operations. We had no borrowings outstanding under the committed credit facilities at September 30, 2022 or December 31, 2021, respectively.
For additional information about our financing arrangements, see Note 6 to the Consolidated Condensed Financial Statements.
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Dividends
In February 2022, our Board of Directors approved a 25.0% increase in our quarterly dividend on our common stock to $1.75 per share from $1.40 per share representing the 10th consecutive year of increased dividends.
Off-Balance Sheet Arrangements
In the ordinary course of business, we enter into agreements with financial institutions to issue bank guarantees, letters of credit, and surety bonds. These agreements are primarily associated with unresolved tax matters in Brazil, as is customary under local regulations, and other governmental obligations and debt agreements. At September 30, 2022, we had approximately $398 million outstanding under these agreements.
For additional information about our off-balance sheet arrangements, see Notes 6 and 7 to the Consolidated Condensed Financial Statements.
NON-GAAP FINANCIAL MEASURES
We supplement the reporting of our financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial measures, some of which we refer to as "ongoing" measures, including:
•Earnings before interest and taxes (EBIT)
•EBIT margin
•Ongoing EBIT
•Ongoing earnings per diluted share
•Ongoing EBIT margin
•Sales excluding foreign currency
•Free cash flow
•Gross debt leverage
Ongoing measures, including ongoing earnings per diluted share and ongoing EBIT, exclude items that may not be indicative of, or are unrelated to, results from our ongoing operations and provide a better baseline for analyzing trends in our underlying businesses. EBIT margin is calculated by dividing EBIT by net sales. Sales excluding foreign currency is calculated by translating the current period net sales, in functional currency, to U.S. dollars using the prior-year period's exchange rate compared to the prior-year period net sales. Management believes that sales excluding foreign currency provides stockholders with a clearer basis to assess our results over time, excluding the impact of exchange rate fluctuations. Management believes that Gross Debt Leverage (Gross Debt/Ongoing EBITDA) provides stockholders with a clearer basis to assess the Company's ability to pay off its incurred debt. We also disclose segment EBIT, which we define as operating profit less interest and sundry (income) expense and excluding restructuring costs, asset impairment charges and certain other items, if any, that management believes are not indicative of the region's ongoing performance, as the financial metric used by the Company's Chief Operating Decision Maker to evaluate performance and allocate resources in accordance with ASC 280, Segment Reporting.
Management believes that free cash flow and adjusted free cash flow provides stockholders with a relevant measure of liquidity and a useful basis for assessing Whirlpool's ability to fund its activities and obligations. The Company provides free cash flow and adjusted free cash flow related metrics, such as free cash flow and adjusted free cash flow as a percentage of net sales, as long-term management goals, not an element of its annual financial guidance, and as such does not provide a reconciliation of free cash flow and adjusted free cash flow to cash provided by (used in) operating activities, the most directly comparable GAAP measure, for these long-term goal metrics. Any such reconciliation would rely on market factors and certain other conditions and assumptions that are outside of the Company's control. Whirlpool does not provide a non-GAAP reconciliation for its other forward-looking long-term value creation and other goals, such as organic net
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sales, EBIT, and gross debt/Ongoing EBITDA, as such reconciliation would rely on market factors and certain other conditions and assumptions that are outside of the company’s control.
We believe that these non-GAAP measures provide meaningful information to assist investors and stockholders in understanding our financial results and assessing our prospects for future performance, and reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP financial measures, provide a more complete understanding of our business. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These non-GAAP financial measures should not be considered in isolation or as a substitute for reported net earnings (loss) available to Whirlpool, net sales, net earnings (loss) as a percentage of net sales (net earnings margin), net earnings (loss) per diluted share and cash provided by (used in) operating activities, the most directly comparable GAAP financial measures. We strongly encourage investors and stockholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.
Please refer to a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures below.
Ongoing Earnings Before Interest & Taxes (EBIT) Reconciliation: in millions | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||
Net earnings (loss) available to Whirlpool (1) | $ | 143 | $ | 471 | $ | 85 | $ | 1,485 | |||||||||
| Net earnings (loss) available to noncontrolling interests | 2 | 15 | 8 | 21 | |||||||||||||
| Income tax expense (benefit) | 53 | 100 | 196 | 353 | |||||||||||||
| Interest expense | 40 | 44 | 126 | 134 | |||||||||||||
| Earnings before interest & taxes | $ | 238 | $ | 630 | $ | 415 | $ | 1,993 | |||||||||
Restructuring expense (a) | — | 7 | — | 35 | |||||||||||||
Impairment of goodwill and other intangibles (c) | — | — | 384 | — | |||||||||||||
(Gain) loss on previously held equity interest (b) | — | (42) | — | (42) | |||||||||||||
Impact of M&A transactions (d) | 27 | 13 | 390 | (107) | |||||||||||||
Ongoing EBIT(2) | $ | 265 | $ | 608 | $ | 1,189 | $ | 1,879 | |||||||||
(1)Net earnings (loss) margin is approximately 3.0% and 0.6% for the three and nine months ended September 30, 2022, respectively, compared to 8.6% and 9.2% in the same prior year period. Net earnings margin is calculated by dividing net earnings (loss) available to Whirlpool by consolidated net sales for the three and nine months ended September 30, 2022 and September 30, 2021, respectively.
(2)Ongoing EBIT margin is approximately 5.5% and 8.0% for the three and nine months ended September 30, 2022, respectively, compared to 11.1% and 11.6% in the same prior year period. Ongoing EBIT margin is calculated by dividing Ongoing EBIT by consolidated net sales for the three and nine months ended September 30, 2022 and September 30, 2021, respectively.
| Earnings Per Diluted Share | Three Months Ended September 30, | |||||||
| 2022 | 2021 | |||||||
| Earnings per diluted share | $ | 2.60 | $ | 7.51 | ||||
Restructuring expense (a) | — | 0.10 | ||||||
(Gain) loss on previously held equity interest (b) | — | (0.50) | ||||||
Impact of M&A transactions (d) | 0.49 | 0.21 | ||||||
| Income tax impact | 0.05 | 0.05 | ||||||
Normalized tax rate adjustment (e) | 1.35 | (0.69) | ||||||
| Ongoing earnings per diluted share | $ | 4.49 | $ | 6.68 | ||||
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Throughout 2021 and comparable periods, the Company defined adjusted free cash flow as cash provided by (used in) operating activities less capital expenditures and including proceeds from the sale of assets/businesses, and changes in restricted cash. Starting in 2022, the Company presents free cash flow which is cash provided by (used in) operating activities less capital expenditures. Adjusted free cash flow of $1,296 million for the nine months ended September 30, 2021 has been restated to $988 million free cash flow measure to conform with current year presentation.
Free Cash Flow (FCF) Reconciliation: in millions | Nine Months Ended September 30, | Nine Months Ended September 30, | ||||||
| 2022 | 2021 | |||||||
| As adjusted | ||||||||
| Cash provided by (used in) operating activities | $ | 310 | $ | 1,294 | ||||
| Capital expenditures | (334) | (306) | ||||||
| Free cash flow | $ | (24) | $ | 988 | ||||
| Cash provided by (used in) investing activities | $ | (333) | $ | (446) | ||||
| Cash provided by (used in) financing activities | $ | (1,195) | $ | (856) | ||||
Adjusted Free Cash Flow (FCF) Reconciliation: in millions | Nine Months Ended September 30, | |||||||
| 2021 | ||||||||
| Cash provided by (used in) operating activities | $ | 1,294 | ||||||
| Capital expenditures | (306) | |||||||
| Proceeds from sale of assets and business | 299 | |||||||
| Change in restricted cash | 9 | |||||||
| Adjusted free cash flow | $ | 1,296 | ||||||
| Cash provided by (used in) investing activities | $ | (446) | ||||||
| Cash provided by (used in) financing activities | $ | (856) | ||||||
Footnotes
(a) Restructuring expense - In 2022, and moving forward, we will only exclude restructuring actions greater than $50 million from our ongoing results. In 2021, these costs were primarily related to actions that right-size and reduce the fixed cost structure of our EMEA business and other centralized functions.
(b) (Gain) loss on previously held equity interest - During the third quarter of 2021, Whirlpool Corporation acquired an additional 38% equity interest in Elica PB India Private Limited (Elica PB India) for $57 million, which resulted in a controlling equity ownership of approximately 87%. The previously held equity interest of 49% in Elica PB India was remeasured at fair value of $74 million on the acquisition date, which resulted in a gain of $42 million. This gain was recorded within Interest & sundry (income) expense during the third quarter.
(c) Impairment of goodwill and other intangibles - The carrying value of the EMEA reporting unit and Indesit and Hotpoint* trademarks exceeded their fair values resulting in an impairment charge of $384 million during the second quarter of 2022. For additional information see Note 16 to the Consolidated Condensed Financial Statements.
*Whirlpool ownership of the Hotpoint brand in the EMEA and Asia Pacific regions is not affiliated with the Hotpoint brand sold in the Americas.
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(d) Impact of M&A transactions - During the second quarter of 2022, we entered into an agreement to sell our Russia business. We classified this disposal group as held for sale and recorded an impairment loss of $346 million for the write-down of the net assets to their fair value. During the third quarter of 2022, the loss from disposal was adjusted by an immaterial amount resulting in a final loss amount of $348 million for the nine months ended September 30, 2022. See Note 15 to the Consolidated Condensed Financial Statements for additional information. Additionally, we incurred unique transaction related costs of $25 million related to portfolio transformation and EMEA strategic assessment expenses for the three months ended September 30, 2022 and $42 million for the nine months ended, respectively. These transaction costs are recorded in Selling, general and administrative expenses on our Consolidated Condensed Statement of Comprehensive Income (Loss). During the third quarter of 2021, we recognized a $13 million loss related to the sale of our Turkish subsidiary. For the nine months ended September 30, 2021, we recognized a loss on sale of $177M in connection with the sale of our Turkish subsidiary, partially offset by a gain of $284 million related to the sale of Whirlpool China.
(e) Normalized tax rate adjustment - During the third quarter of 2022, the Company calculated ongoing earnings per share using an adjusted tax rate of (10.8)% to reconcile to our anticipated full-year ongoing effective tax rate between 14.0% and 16.0%, which excludes the impacts of the non-tax deductible loss on sale of the Russia business of $348 million and impairment of goodwill of $278 million. During the third quarter of 2021, the Company calculated ongoing earnings per share using an adjusted tax rate of 25.0%, to reconcile to our anticipated full-year ongoing 2021 effective tax rate between 24% and 26%, which excludes the gain on sale and disposal of businesses.
FORWARD-LOOKING PERSPECTIVE
Earnings per diluted share presented below are net of tax. We currently estimate at our anticipated 2022 full-year adjusted tax rate between 14.0% and 16.0%. We currently estimate earnings per diluted share for 2022 to be within the following ranges:
| 2022 | |||||
| Current Outlook | |||||
| Estimated GAAP earnings per diluted share, for the year ending December 31, 2022 | ~$5.00 | ||||
| Including: | |||||
| Impairment of goodwill and other intangibles | $6.83 | ||||
| Impact of M&A transactions | $8.33 | ||||
| Income tax impact | $(2.27) | ||||
| Normalized tax rate adjustment | $1.25 | ||||
| Industry Demand | |||||
| North America | (9) - (7)% | ||||
| EMEA | (7) - (5)% | ||||
| Latin America | (5) - (3)% | ||||
| Asia | 5 - 6% | ||||
For the full-year 2022, we expect to generate cash from operating activities of approximately $1.50 billion and free cash flow of approximately $950 million, including restructuring cash outlays of approximately $(50) million and capital expenditures of approximately $(550) million.
The table below reconciles projected 2022 cash provided by operating activities determined in accordance with GAAP to free cash flow, a non-GAAP measure. Management believes that free cash flow provides stockholders with a relevant measure of liquidity and a useful basis for assessing Whirlpool's ability to fund its activities and obligations. There are limitations to using non-GAAP financial measures, including the difficulty associated with comparing companies that use similarly named non-GAAP measures whose calculations may differ from our calculations. For 2022 we define free cash flow as cash provided by operating activities less capital expenditures. For additional information regarding non-GAAP financial measures, see the Non-GAAP Financial Measures section of this Management's Discussion and Analysis.
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| Millions of dollars | 2022 | |||||||
| Current Outlook | ||||||||
Cash provided by (used in) operating activities (1) | $1,500 | |||||||
| Capital expenditures | (550) | |||||||
| Free cash flow | $950 | |||||||
(1)Financial guidance on a GAAP basis for cash provided by (used in) financing activities and cash provided by (used in) investing activities has not been provided because in order to prepare any such estimate or projection, the Company would need to rely on market factors and certain other conditions and assumptions that are outside of its control.
The projections above are based on many estimates and are inherently subject to change based on future decisions made by management and the Board of Directors of Whirlpool, and significant economic, competitive and other uncertainties and contingencies. Additional information concerning these and other factors can be found in the "Risk Factors" section of our Annual Report on Form 10-K, as updated in Part II, Item 1A of our Quarterly Reports on Form 10-Q.
OTHER MATTERS
For additional information regarding certain of our loss contingencies/litigation, see Note 7 to the Consolidated Condensed Financial Statements. Unfavorable outcomes in these proceedings could have a material adverse effect on our financial statements in any particular reporting period.
Antidumping and Safeguard Petitions
As previously reported, Whirlpool filed petitions in 2011 and 2015 alleging that Samsung, LG and Electrolux violated U.S. and international trade laws by dumping large residential washers into the U.S. Those petitions resulted in orders imposing antidumping duties on certain large residential washers imported from South Korea, Mexico, and China, and countervailing duties on certain large residential washers from South Korea. In March 2019, the order covering certain large residential washers from Mexico was extended for an additional five years, while the order covering certain large residential washers from South Korea was revoked. In August 2022, the order covering certain large residential washers from China was extended for an additional five years.
Whirlpool also filed a safeguard petition in May 2017 to address our concerns that Samsung and LG were evading U.S. trade laws by moving production from countries covered by antidumping orders. A safeguard remedy went into effect in February 2018, implementing tariffs on finished large residential washers and certain covered parts for three years. In January 2021, the remedy was extended for two years until February 2023. During the fifth year of the remedy, beginning February 7, 2022, the remedy imposes a 14% tariff on the first 1.2 million large residential washers imported into the United States (under tariff) and a 30% tariff on such imports in excess of 1.2 million, and also imposes a 30% tariff on washer tub, drum, and cabinet imports in excess of 110,000. Consistent with modifications to the order approved in 2020, the 1.2 million under tariff is allocated by quarter (300,000 large residential washers per quarter). We cannot speculate on the modification's impact in future quarters, which will depend on Samsung and LG's U.S. production capabilities and import plans.
These orders are subject to administrative reviews, possible appeals, and other potential modifications.
Raw Materials and Global Economy
The current domestic and international political environment have contributed to uncertainty surrounding the future state of the global economy. We have experienced raw material inflation in certain prior years based on the impact of U.S. tariffs and other global macroeconomic factors. Due to many factors beyond our control, including the conflict in Ukraine and related sanctions, COVID-related shutdowns and government actions in China, we expect to continue to be impacted by the following factors: global shortage of certain components, other supply chain constraints and cost inflation, all of which we expect to continue into next year. This could require us to modify our current business practices, and could have a material adverse effect on our financial statements in any particular reporting period. In addition, we are pursuing a business interruption insurance claim related to the 2021 Texas freeze, amounts related to which could be a material gain in a future period.
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| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | ||||
There have been no material changes to our exposures to market risk since December 31, 2021.
| ITEM 4. | CONTROLS AND PROCEDURES | ||||
(a)Evaluation of disclosure controls and procedures
Prior to filing this report, we completed an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of September 30, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2022.
(b)Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting that occurred during the most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION | ||
| ITEM 1. | LEGAL PROCEEDINGS | ||||
Information with respect to legal proceedings can be found under the heading "Commitments and Contingencies" in Note 7 and “Other Income Tax Matters” in Note 13 to the Consolidated Condensed Financial Statements contained in Part I, Item 1 of this report.
| ITEM 1A. | RISK FACTORS | ||||
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A to our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, other than as set forth below.
OPERATIONAL RISKS
We have been impacted and may in the future be adversely impacted by the ongoing Russian invasion of Ukraine and related conflict and sanctions.
We have sales and distribution operations in Ukraine, and sales, manufacturing and distribution operations in Russia. On June 27, 2022, our subsidiary Whirlpool EMEA SpA entered into a share purchase agreement with Arçelik A.Ş.(“Arcelik”) to sell our Russian business to Arcelik for contingent consideration. See Note 15 for additional information on the transaction, and see Note 10 and Note 16 for information on goodwill and intangible impairment charges that were related in part to the sale of our Russia business, among other factors. On August 31, 2022, we completed the sale of the Russian business. We continue to closely monitor the impact of the ongoing conflict in Ukraine on all aspects of our operations, including most importantly, the safety and security of our employees in the region.
The United States, European Union and others continue to announce export controls and targeted economic sanctions on Russia and Russian persons, to which Russia has proposed, and in some cases implemented, counter-measures. The impact of the conflict in Ukraine and resulting sanctions and export controls, include, but are not limited to, macro financial impacts resulting from the exclusion of Russian financial institutions from the global banking system; operational risks, including potential logistics, sales, distribution, and energy related challenges; and reductions in consumer and trade customer demand.
We may also experience potential additional impacts in the future, including negative impact to our reputation and brand image; trade customer financial restructuring or insolvency; physical damage to or the disruption or complete loss of, one or more of our manufacturing or distribution operations; cybersecurity incidents; and additional future impairment of certain tangible or intangible assets in EMEA operating segment.
We have not determined the extent to which our existing insurance coverage will respond to these impacts, or the extent to which any of the United States, European Union or other government actions may mitigate these impacts, if at all. The impact of the conflict in Ukraine or resulting sanctions may also exacerbate other risks discussed in Item 1A. Risk Factors in our Form 10-K for the fiscal year ended December 31, 2021, any of which could have a material adverse effect on our financial statements. Please see the Management’s Discussion and Analysis section of this quarterly report on Form 10-Q for additional information regarding the impact of the conflict in Ukraine on our operations in EMEA.
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| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | ||||
On April 19, 2021, our Board of Directors authorized a share repurchase program of up to $2 billion, which has no expiration date. On February 14, 2022, the Board of Directors authorized an additional $2 billion in share repurchases under the Company's ongoing share repurchase program. During the nine months ended September 30, 2022, we repurchased approximately 4.8 million shares under these share repurchase programs at an aggregate price of approximately $903 million. At September 30, 2022, there were approximately $2.6 billion in remaining funds authorized under this program.
The following table summarizes repurchases of Whirlpool's common stock in the three months ended September 30, 2022:
| Period (Millions of dollars, except number and price per share) | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans | ||||||||||
| July 1, 2022 through July 31, 2022 | 435,005 | $ | 161.96 | 435,005 | $ | 2,587 | ||||||||
| August 1, 2022 through August 31, 2022 | — | — | — | 2,587 | ||||||||||
| September 1, 2022 through September 30, 2022 | — | — | — | 2,587 | ||||||||||
| Total | 435,005 | $ | 161.96 | 435,005 | ||||||||||
Share repurchases are made from time to time on the open market as conditions warrant. The programs do not obligate us to repurchase any of our shares and have no expiration date.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | ||||
None.
| ITEM 4. | MINE SAFETY DISCLOSURES | ||||
Not applicable.
| ITEM 5. | OTHER INFORMATION | ||||
None.
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| ITEM 6. | EXHIBITS | ||||
| Exhibit 2.1* | Asset and Stock Purchase Agreement between Emerson Electric Co. and Whirlpool Corporation, dated August 7, 2022 [Incorporated by reference from Exhibit 2.1 to the Company's Form 8-K (Commission file number 1-3932) filed August 10, 2022] | ||||
| Exhibit 10.1 | |||||
| Exhibit 10.2 | |||||
| Exhibit 31.1 | |||||
| Exhibit 31.2 | |||||
| Exhibit 32.1 | |||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | ||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | ||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||
| Exhibit 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||
* Schedules and similar attachments have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or similar attachment will be furnished to the Securities and Exchange Commission upon request.
**Management contract or compensatory plan or arrangement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| WHIRLPOOL CORPORATION | |||||||||||
| (Registrant) | |||||||||||
| By: | /s/ JAMES W. PETERS | ||||||||||
| Name: | James W. Peters | ||||||||||
| Title: | Executive Vice President and Chief Financial Officer | ||||||||||
| Date: | October 21, 2022 | ||||||||||
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