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Whirlpool Corporation Reports Third-Quarter 2017 Results

BENTON HARBOR, Mich., Oct. 23, 2017 /PRNewswire/ -- Whirlpool Corporation (NYSE: WHR) announced today third-quarter GAAP net earnings of $276 million, or $3.72 per diluted share, compared to $238 million, or $3.10 per diluted share, reported for the same prior-year period. GAAP net earnings were positively impacted by lower income tax expense of approximately $65 million, compared to the same prior-year period, driven by the timing of tax planning activities in the current-year period. Third-quarter ongoing earnings per diluted share(1) totaled $3.83 compared to $3.66 in the same prior-year period.

"We are pleased with our revenue growth and free cash flow improvement but are not satisfied with our operating margins, which were impacted by raw material inflation, unfavorable price/mix and slow progress on our European integration," said Marc Bitzer, chief executive officer of Whirlpool Corporation. "Thus, we are implementing strong actions to deliver our long-term goals, including recently-announced global cost-based price increases and a fixed cost reduction initiative."

Third-quarter net sales were $5.4 billion, compared to $5.2 billion in the same prior-year period, an increase of more than 3 percent. Excluding the impact of currency, sales increased 2 percent.

Third-quarter GAAP operating profit totaled $331 million, or 6.1 percent of sales, compared to $374 million, or 7.1 percent of sales, in the same prior-year period. Third-quarter ongoing operating profit(2) totaled $376 million, or 6.9 percent of sales, compared to $417 million, or 7.9 percent of sales, in the same prior-year period. On a GAAP and ongoing basis, cost productivity and unit volume growth were more than offset by the unfavorable impacts of raw material inflation and product price/mix.

For the nine months ended September 30, 2017, Whirlpool Corporation reported cash used in operating activities of $(33) million compared to $(175) million in the same prior-year period. The Company reported free cash flow(3) of $(348) million for the first nine months of 2017 compared to $(466) million in the same prior-year period, driven by the Company's focus on working capital optimization.

THIRD-QUARTER REGIONAL REVIEW

Whirlpool North America

Whirlpool North America reported third-quarter net sales of $3.0 billion, compared to $2.9 billion in the same prior-year period. Excluding the impact of currency, sales increased 4 percent.

The region reported third-quarter operating profit of $350 million, or 11.7 percent of sales, compared to $346 million, or 12.1 percent of sales, in the same prior-year period. The operating profit increase was driven by strong unit volume growth and cost productivity, which offset raw material inflation and foreign currency impacts; the operating margin decrease was primarily driven by raw material inflation.

The Company continues to expect full-year 2017 industry unit shipments in the U.S. to increase by 4 to 6 percent.

Whirlpool Europe, Middle East and Africa

Whirlpool Europe, Middle East and Africa reported third-quarter net sales of $1.3 billion, compared to $1.3 billion in the same prior-year period. Excluding the impact of currency, sales decreased 8 percent.

The region reported third-quarter GAAP operating profit of $11 million, or 0.8 percent of sales, compared to GAAP operating profit of $40 million, or 3.0 percent of sales, in the same prior-year period. Ongoing segment operating profit(4) totaled $11 million, or 0.8 percent of sales, compared to $48 million, or 3.7 percent of sales, in the same prior-year period. During the quarter, unfavorable product price/mix, raw material inflation and unit volume declines more than offset favorable cost productivity and restructuring benefits.

The Company continues to expect full-year 2017 industry unit shipments to be flat to up 2 percent.

Whirlpool Latin America

Whirlpool Latin America reported third-quarter net sales of $849 million, compared to $800 million in the same prior-year period. Excluding the impact of currency, sales increased 5 percent.

The region reported third-quarter operating profit of $53 million, or 6.3 percent of sales, compared to $46 million, or 5.8 percent of sales, in the same prior-year period, driven by cost productivity and unit volume growth, which more than offset raw material inflation and unfavorable product price/mix.

The Company continues to expect full-year 2017 industry unit shipments in Brazil to be flat.

Whirlpool Asia

Whirlpool Asia reported third-quarter net sales of $357 million, compared to $338 million in the same prior-year period. Excluding the impact of currency, sales increased 4 percent.

The region reported third-quarter GAAP operating profit of $2 million, or 0.6 percent of sales, compared to GAAP operating profit of $15 million, or 4.4 percent of sales, in the same prior-year period. Ongoing segment operating profit(4) totaled $2 million, or 0.6 percent of sales, compared to $17 million, or 4.9 percent of sales, in the same prior-year period. On a GAAP and ongoing basis, favorable impacts from cost productivity were more than offset by raw material inflation and unfavorable product price/mix in China.

The Company continues to expect full-year 2017 industry unit shipments to be flat to up 2 percent.

Global Cost-Based Pricing and Fixed Cost Reduction Actions

In 2017, the Company experienced significantly elevated raw material prices which are now expected to further increase through 2018.

As a result, in October the Company announced to its trade customers global cost-based price increases expected to cover a majority of its business, to be implemented during the fourth quarter of 2017 and the first quarter of 2018.

Additionally, the Company announced an initiative to reduce fixed overhead costs by $150 million, which will be implemented in early 2018. This initiative is in addition to the Company's ongoing cost productivity efforts.

The impact of these actions on 2018 guidance will be discussed during the year-end earnings call.

OUTLOOK

For the full-year 2017, the Company now expects to generate cash from operating activities of $1.55 to $1.6 billion and free cash flow(3) of approximately $900 million. Included in this guidance are primarily acquisition-related restructuring cash outlays of up to $175 million, legacy product warranty and liability costs of $70 million, pension contributions of $45 million and, with respect to free cash flow(3), capital spending of $650 to $700 million.

For the full-year 2017, Whirlpool Corporation now expects GAAP earnings per diluted share of $11.10 to $11.40 and ongoing earnings per diluted share(1) of $13.60 to $13.90.

"We reaffirm our 2020 goals and are confident that our existing and newly-announced actions will put us firmly back on track to deliver our commitments," said Jim Peters, executive vice president and chief financial officer of Whirlpool Corporation. "As we continue to execute our plans for value creation, we will continue returning strong levels of cash to our shareholders."

(1) A reconciliation of ongoing earnings per diluted share, a non-GAAP financial measure, to reported net earnings per diluted share available to Whirlpool and other important information, appears below.

(2) A reconciliation of ongoing operating profit, a non-GAAP financial measure, to reported operating profit and other important information, appears below.

(3) A reconciliation of free cash flow, a non-GAAP financial measure, to cash provided by (used in) operating activities and other important information, appears below.

(4) A reconciliation of ongoing segment operating profit (loss), a non-GAAP financial measure, to reported segment operating profit (loss) and other important information, appears below.

About Whirlpool Corporation

Whirlpool Corporation (NYSE: WHR) is the number one major appliance manufacturer in the world, with approximately $21 billion in annual sales, 93,000 employees and 70 manufacturing and technology research centers throughout the world in 2016. The company markets Whirlpool, KitchenAid, Maytag, Consul, Brastemp, Amana, Bauknecht, Jenn-Air, Indesit and other major brand names in nearly every country around the world. Additional information about the company can be found at whirlpoolcorp.com, or find us on Twitter at @WhirlpoolCorp.

Whirlpool Additional Information:

This document contains forward-looking statements about Whirlpool Corporation and its consolidated subsidiaries ("Whirlpool") that speak only as of this date. Whirlpool disclaims any obligation to update these statements. Forward-looking statements in this document may include, but are not limited to, statements regarding expected earnings per share, cash flow, productivity and raw material prices. Many risks, contingencies and uncertainties could cause actual results to differ materially from Whirlpool's forward-looking statements. Among these factors are: (1) intense competition in the home appliance industry reflecting the impact of both new and established global competitors, including Asian and European manufacturers; (2) 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; (3) Whirlpool's ability to maintain its reputation and brand image; (4) the ability of Whirlpool to achieve its business plans, productivity improvements, and cost control objectives, and to leverage its global operating platform, and accelerate the rate of innovation; (5) Whirlpool's ability to obtain and protect intellectual property rights; (6) acquisition and investment-related risks, including risks associated with our past acquisitions, and risks associated with our increased presence in emerging markets; (7) risks related to our international operations, including changes in foreign regulations, regulatory compliance and disruptions arising from political, legal and economic instability; (8) information technology system failures, data security breaches, network disruptions, and cybersecurity attacks; (9) product liability and product recall costs; (10) the ability of suppliers of critical parts, components and manufacturing equipment to deliver sufficient quantities to Whirlpool in a timely and cost-effective manner; (11) our ability to attract, develop and retain executives and other qualified employees; (12) the impact of labor relations; (13) fluctuations in the cost of key materials (including steel, resins, copper and aluminum) and components and the ability of Whirlpool to offset cost increases; (14) Whirlpool's ability to manage foreign currency fluctuations; (15) inventory and other asset risk; (16) the uncertain global economy and changes in economic conditions which affect demand for our products; (17) health care cost trends, regulatory changes and variations between results and estimates that could increase future funding obligations for pension and postretirement benefit plans; (18) 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; (19) the effects and costs of governmental investigations or related actions by third parties; and (20) changes in the legal and regulatory environment including environmental, health and safety regulations.

Additional information concerning these and other factors can be found in Whirlpool's filings with the Securities and Exchange Commission, including the most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K.

WHIRLPOOL CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

FOR THE PERIODS ENDED SEPTEMBER 30

(Millions of dollars, except share data)



Three Months Ended


Nine Months Ended


2017


2016


2017


2016

Net sales

$

5,418



$

5,248



$

15,551



$

15,062


Expenses








Cost of products sold

4,503



4,308



12,934



12,330


Gross margin

915



940



2,617



2,732


Selling, general and administrative

521



519



1,546



1,535


Intangible amortization

18



18



52



54


Restructuring costs

45



29



150



116


Operating profit

331



374



869



1,027


Other (income) expense








Interest and sundry (income) expense

21



30



69



103


Interest expense

42



39



122



118


Earnings before income taxes

268



305



678



806


Income tax (benefit) expense

(4)



61



69



64


Net earnings

272



244



609



742


Less: Net earnings (loss) available to noncontrolling interests

(4)



6



(9)



34


Net earnings available to Whirlpool

$

276



$

238



$

618



$

708


Per share of common stock








Basic net earnings available to Whirlpool

$

3.78



$

3.14



$

8.36



$

9.26


Diluted net earnings available to Whirlpool

$

3.72



$

3.10



$

8.23



$

9.16


Dividends declared

$

1.10



$

1.00



$

3.20



$

2.90


Weighted-average shares outstanding (in millions)








Basic

72.9



75.7



73.9



76.4


Diluted

74.0



76.9



75.1



77.5










Comprehensive income

$

286



$

289



$

694



$

900


WHIRLPOOL CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(Millions of dollars, except share data)






September 30,
2017


December 31,
2016


(Unaudited)



Assets




Current assets




Cash and cash equivalents

$

1,087



$

1,085


Accounts receivable, net of allowance of $171 and $185, respectively

3,102



2,711


Inventories

3,345



2,623


Prepaid and other current assets

1,115



920


Total current assets

8,649



7,339


Property, net of accumulated depreciation of $6,741 and $6,055, respectively

3,865



3,810


Goodwill

3,093



2,956


Other intangibles, net of accumulated amortization of $455 and $387, respectively

2,604



2,552


Deferred income taxes

2,322



2,154


Other noncurrent assets

305



342


Total assets

$

20,838



$

19,153


Liabilities and stockholders' equity




Current liabilities




Accounts payable

$

4,728



$

4,416


Accrued expenses

677



649


Accrued advertising and promotions

792



742


Employee compensation

428



390


Notes payable

1,442



34


Current maturities of long-term debt

671



560


Other current liabilities

898



871


Total current liabilities

9,636



7,662


Noncurrent liabilities




Long-term debt

3,669



3,876


Pension benefits

1,015



1,074


Postretirement benefits

346



334


Other noncurrent liabilities

485



479


Total noncurrent liabilities

5,515



5,763


Stockholders' equity




Common stock, $1 par value, 250 million shares authorized, 112 million and 111 million shares issued, and 72 million and 74 million shares outstanding, respectively

112



111


Additional paid-in capital

2,733



2,672


Retained earnings

7,697



7,314


Accumulated other comprehensive loss

(2,316)



(2,400)


Treasury stock, 40 million and 37 million shares, respectively

(3,474)



(2,924)


Total Whirlpool stockholders' equity

4,752



4,773


Noncontrolling interests

935



955


Total stockholders' equity

5,687



5,728


Total liabilities and stockholders' equity

$

20,838



$

19,153


WHIRLPOOL CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE PERIODS ENDED SEPTEMBER 30

(Millions of dollars)




Nine Months Ended


2017


2016

Operating activities




Net earnings

$

609



$

742


Adjustments to reconcile net earnings to cash provided by (used in) operating activities:




Depreciation and amortization

487



496


Changes in assets and liabilities:




Accounts receivable

(259)



(438)


Inventories

(589)



(518)


Accounts payable

107



(187)


Accrued advertising and promotions

18



(38)


Accrued expenses and current liabilities

(154)



72


Taxes deferred and payable, net

(144)



(149)


Accrued pension and postretirement benefits

(85)



(53)


Employee compensation

49



(30)


Other

(72)



(72)


Cash used in operating activities

(33)



(175)


Investing activities




Capital expenditures

(371)



(360)


Proceeds from sale of assets and business

5



55


Change in restricted cash

51



14


Investment in related businesses

(35)



(10)


Other

1



(2)


Cash used in investing activities

(349)



(303)


Financing activities




Proceeds from borrowings of long-term debt



491


Repayments of long-term debt

(261)



(507)


Net proceeds from short-term borrowings

1,365



1,369


Dividends paid

(235)



(221)


Repurchase of common stock

(550)



(425)


Common stock issued

33



24


Other

(17)



(2)


Cash provided by financing activities

335



729


Effect of exchange rate changes on cash and cash equivalents

49



2


Increase in cash and cash equivalents

2



253


Cash and cash equivalents at beginning of period

1,085



772


Cash and cash equivalents at end of period

$

1,087



$

1,025



SUPPLEMENTAL INFORMATION - CONSOLIDATED FINANCIAL STATEMENTS
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Millions of dollars except per share data)
(Unaudited)

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 ongoing operating profit (loss), ongoing operating margin, earnings before interest and taxes (EBIT), EBIT margin, ongoing EBIT, ongoing EBIT margin, ongoing earnings, ongoing earnings per diluted share, ongoing segment operating profit (loss), ongoing segment operating margin, sales excluding currency, ongoing net sales and free cash flow. Ongoing measures 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. 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 free cash flow provides investors and stockholders with a relevant measure of liquidity and a useful basis for assessing the company's ability to fund its activities and obligations.The Company provides free cash flow related metrics, such as free cash flow as a percentage of net sales, as long-term management goals, not an element of its annual financial guidance, and as such does not provide a reconciliation of free cash flow to cash provided by (used in) operating activities, the most directly comparable GAAP measure, for these long-term goal metrics. Any such reconciliation would rely on market factors and certain other conditions and assumptions that are outside of the company's control. 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 ongoing financial measures should not be considered in isolation or as a substitute for reported operating profit (loss), net earnings available to Whirlpool per diluted share, net earnings, net earnings available to Whirlpool, net sales, reported operating profit (loss) by segment, and cash provided by (used in) operating activities, the most directly comparable GAAP financial measures. GAAP net earnings available to Whirlpool per diluted share and ongoing earnings per diluted share are presented net of tax, while individual adjustments in each reconciliation are presented on a pre-tax basis; the income tax impact line item aggregates the tax impact for these adjustments. The tax impact of individual line item adjustments may not foot precisely to the aggregate income tax impact amount, as each line item adjustment may include non-taxable components. Prior-period comparisons have been recast to reflect the tax impact of adjustments as a single adjustment. Historical quarterly earnings per share amounts are presented based on a normalized tax rate adjustment to reconcile quarterly tax rates to full-year tax rate expectations. 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.

Third-Quarter 2017 Ongoing Operating Profit, Ongoing Earnings Before Interest and Taxes and Ongoing Earnings per Diluted Share

The reconciliation provided below reconciles the non-GAAP financial measures ongoing operating profit, ongoing earnings before interest and taxes and ongoing earnings per diluted share, with the most directly comparable GAAP financial measures, operating profit, net earnings available to Whirlpool and net earnings per diluted share available to Whirlpool, for the three months ended September 30, 2017. Ongoing operating margin is calculated by dividing ongoing operating profit (loss) by net sales. Ongoing EBIT margin is calculated by dividing ongoing EBIT by net sales. The earnings per diluted share GAAP measure and ongoing measure are presented net of tax, while each adjustment is presented on a pre-tax basis. The aggregate income tax impact of the taxable components of each adjustment is presented in the income tax impact line item at our third-quarter adjusted effective tax rate of 9.7%.


Three Months Ended


September 30, 2017


Operating
profit


Earnings before
interest & taxes(5)


Earnings
per diluted
share

Reported GAAP measure

$

331



$

310



$

3.72


Restructuring expense(a)

45



45



0.61


Income tax impact





(0.06)


Normalized tax rate adjustment(b)





(0.44)


Ongoing measure

$

376



$

355



$

3.83


Earnings Before Interest & Taxes Reconciliation:

Net earnings available to Whirlpool

$

276


Net earnings (loss) available to noncontrolling interests

(4)


Income tax expense (benefit)

(4)


Interest expense

42


Earnings before interest & taxes(5)

$

310



Note: Numbers may not reconcile due to rounding

Third-Quarter 2016 Ongoing Operating Profit, Ongoing Earnings Before Interest and Taxes and Ongoing Earnings per Diluted Share

The reconciliation provided below reconciles the non-GAAP financial measures ongoing operating profit, ongoing earnings before interest and taxes and ongoing earnings per diluted share, with the most directly comparable GAAP financial measures, operating profit, net earnings available to Whirlpool and net earnings per diluted share available to Whirlpool, for the three months ended September 30, 2016. Ongoing operating margin is calculated by dividing ongoing operating profit by net sales. Ongoing EBIT margin is calculated by dividing ongoing EBIT by net sales. The earnings per diluted share GAAP measure and ongoing measure are presented net of tax, while each adjustment is presented on a pre-tax basis. The aggregate income tax impact of the taxable components of each adjustment is presented in the income tax impact line item at our third-quarter adjusted effective tax rate of 16.0%.


Three Months Ended


September 30, 2016


Operating
profit


Earnings before
interest & taxes(5)


Earnings
per diluted
share

Reported GAAP measure(c)

$374


$344


$3.10

Restructuring expense(a)

29


29


0.37

Acquisition related transition costs

14


14


0.19

Legacy product warranty and liability expense


1


0.01

Income tax impact



(0.09)

Normalized tax rate adjustment(b)



0.08

Ongoing measure

$417


$388


$3.66

Earnings Before Interest & Taxes Reconciliation:

Net earnings available to Whirlpool

$

238


Net earnings available to noncontrolling interests

6


Income tax expense (benefit)

61


Interest expense

39


Earnings before interest & taxes(5)

$

344






Note: Numbers may not reconcile due to rounding

Ongoing Segment Operating Profit (Loss)

The reconciliation provided below reconciles the non-GAAP financial measure ongoing segment operating profit (loss) with the most directly comparable GAAP financial measure, reported segment operating profit (loss), for the three months ended September 30, 2017. Ongoing segment operating margin is calculated by dividing ongoing segment operating profit (loss) by segment net sales.


Three Months Ended


September 30, 2017


Segment
operating
profit (loss)


Restructuring
expense(a)


Ongoing segment
operating profit (loss)

North America

$

350



$



$

350


EMEA

11





11


Latin America

53





53


Asia

2





2


Other/Eliminations

(85)



45



(40)


Total Whirlpool Corporation

$

331



$

45



$

376


The reconciliation provided below reconciles the non-GAAP financial measure ongoing segment operating profit (loss) with the most directly comparable GAAP financial measure, reported segment operating profit (loss), for the three months ended September 30, 2016. Ongoing segment operating margin is calculated by dividing ongoing segment operating profit (loss) by segment net sales.


Three Months Ended


September 30, 2016


Segment
operating
profit (loss)(c)


Restructuring
expense(a)


Acquisition
related transition
costs


Ongoing segment
operating profit
(loss)

North America

$

346



$



$



$

346


EMEA

40





8



48


Latin America(c)

46







46


Asia

15





2



17


Other/Eliminations(c)

(73)



29



4



(40)


Total Whirlpool Corporation

$

374



$

29



$

14



$

417



Note: Numbers may not reconcile due to rounding

Full-Year 2017 Ongoing Operating Profit, Ongoing Earnings Before Interest and Taxes and Ongoing Earnings per Diluted Share

The reconciliation provided below reconciles the non-GAAP financial measures ongoing operating profit, ongoing earnings before interest and taxes and ongoing earnings per diluted share, with the most directly comparable GAAP financial measures, operating profit, net earnings available to Whirlpool and net earnings per diluted share available to Whirlpool, for the twelve months ending December 31, 2017. Ongoing operating margin is calculated by dividing ongoing operating profit (loss) by ongoing net sales. Ongoing EBIT margin is calculated by dividing ongoing EBIT by ongoing net sales. Ongoing net sales excludes $(32) million primarily related to an adjustment for trade promotion accruals in prior periods. The earnings per diluted share GAAP measure and ongoing measure are presented net of tax, while each adjustment is presented on a pre-tax basis. The aggregate income tax impact of the taxable components of each adjustment is presented in the income tax impact line item at our anticipated full-year tax rate of approximately 16%.


Twelve Months Ending


December 31, 2017


Operating profit


Earnings before
interest & taxes(5)


Earnings per
diluted share

Reported GAAP measure

$1,255 - 1,285


$1,145 - 1,175


$11.10 - 11.40

Restructuring expense(a)

200


200


2.66

Out-of-period adjustment(d)

40


40


0.27

Income tax impact



(0.45)

Ongoing measure

$1,495 - 1,525


$1,385 - 1,415


13.60 - 13.90

(5) Earnings Before Interest & Taxes (EBIT) is a non-GAAP measure. Whirlpool does not provide a forward-looking quantitative reconciliation of EBIT to the most directly comparable GAAP financial measure, net earnings available to Whirlpool, because the net earnings available to noncontrolling interests item of such reconciliation -- which has historically represented a relatively insignificant amount of Whirlpool's overall net earnings -- implicates Whirlpool's projections regarding the earnings of Whirlpool's non wholly-owned subsidiaries and joint ventures that cannot be quantified precisely or without unreasonable efforts.

Note: Numbers may not reconcile due to rounding

Full-Year 2016 Ongoing Operating Profit, Ongoing Earnings Before Interest and Taxes and Ongoing Earnings per Diluted Share

The reconciliation provided below reconciles the non-GAAP financial measures ongoing operating profit, ongoing earnings before interest and taxes and ongoing earnings per diluted share, with the most directly comparable GAAP financial measures, operating profit, net earnings available to Whirlpool and net earnings per diluted share available to Whirlpool, for the twelve months ended December 31, 2016. Ongoing operating margin is calculated by dividing ongoing operating profit by net sales. Ongoing EBIT margin is calculated by dividing ongoing EBIT by net sales. The earnings per diluted share GAAP measure and ongoing measure are presented net of tax, while each adjustment is presented on a pre-tax basis. The aggregate income tax impact of the taxable components of each adjustment is presented in the income tax impact line item at our full-year tax rate of 16.6%.


Twelve Months Ended


December 31, 2016


Operating
profit


Earnings before
interest & taxes(5)


Earnings per
diluted share

Reported GAAP measure(c)

$1,368


$1,275


$11.50

Restructuring expense(a)

173


173


2.24

Acquisition related transition costs

82


86


1.11

Legacy product warranty and liability expense

3


(23)


(0.30)

Income tax impact



(0.49)

Ongoing measure

$1,626


$1,511


14.06

Earnings Before Interest & Taxes Reconciliation:

Net earnings available to Whirlpool

$

888


Net earnings (loss) available to noncontrolling interests

40


Income tax expense (benefit)

186


Interest expense

161


Earnings before interest & taxes(5)

$

1,275


Footnotes:

a. RESTRUCTURING EXPENSE - During the fourth quarter of 2014, we completed the acquisition of Indesit S.p.A., which, due to its size, materially changed our European footprint. These costs are primarily related to Indesit restructuring and creating a more streamlined and efficient European operation, and also relate to certain other unique restructuring events.

b. NORMALIZED TAX RATE ADJUSTMENT - During the third quarter of 2017, we calculated ongoing diluted EPS using an adjusted tax rate of 9.7%. We anticipate a 2017 full-year effective tax rate of approximately 16%. During the third quarter of 2016, we made an adjustment to ongoing diluted EPS to reconcile specific items reported to our anticipated full-year effective tax rate of 19%.

c. ADOPTION OF NEW ACCOUNTING STANDARDS - In 2017, the FASB issued ASU No. 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost". The guidance in ASU 2017-07 requires that the service cost component of net periodic benefit cost for pension and postretirement benefits is recorded in the same income statement line items as other employee compensation costs arising from services rendered during the period. Service cost is included in cost of products sold and selling, general and administrative expense. The other components of net periodic pension cost and postretirement benefits cost (other components of net periodic cost) are recorded in interest and sundry (income) expense in 2017. We retrospectively adopted the new accounting standard. As of September 30, 2017 the reclassification of other components of net periodic cost, from cost of products sold and selling, general and administrative expense to interest and sundry (income) expense was immaterial. For the full year ended December 31, 2016, the reclassification of other components of net periodic cost, from cost of products sold and selling, general and administrative expense to interest and sundry (income) expense was approximately $14 million. For the three months ended September 30, 2016, the reclassification of other components of net periodic cost, from cost of products sold and selling, general and administrative expense to interest and sundry (income) expense was approximately $4 million.

d. OUT-OF-PERIOD ADJUSTMENT - During the third quarter of 2017, we finalized our prior period recorded adjustments in our Asia operating segment primarily related to trade promotions, and increased accruals by $3 million. We determined this impact to be immaterial and have made no further adjustments to ongoing earnings. The 2017 total impact of these out-of-period adjustments was a decrease to net sales of approximately $35 million and an increase to other operating expenses of approximately $8 million, before tax. These adjustments resulted in a decrease to net earnings available to Whirlpool of approximately $16 million and a decrease of $0.22 in diluted earnings per share.

Free Cash Flow

As defined by the Company, free cash flow is cash provided by (used in) operating activities after capital expenditures, proceeds from the sale of assets and businesses and changes in restricted cash. The reconciliation provided below reconciles nine months ended September 30, 2017 and 2016 and projected 2017 full-year free cash flow with cash provided by (used in) operating activities, the most directly comparable GAAP financial measure.









Nine Months Ended
September 30,





(millions of dollars)

2017

2016


2017 Outlook

Cash provided by (used in) operating activities

$(33)

$(175)


$1,550 - $1,600

Capital expenditures, proceeds from sale of assets/businesses and change in restricted cash*

(315)

(291)


(650) - (700)

Free cash flow

$(348)

$(466)


~$900






Cash used in investing activities**

$(349)

$(303)



Cash provided by financing activities**

$335

$729








*The change in restricted cash relates to the private placement funds paid by Whirlpool to acquire majority control of Whirlpool China (formerly Hefei Sanyo) and which are used to fund capital and technical resources to enhance Whirlpool China's research and development and working capital, as required by the terms of the Hefei Sanyo acquisition completed in October 2014.






**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.

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SOURCE Whirlpool Corporation