Whirlpool Corporation (WHR) Q3 2009 Earnings Call Transcript

Greg Fritz - Director Investor Relations Jeff M. Fettig – Chairman, Chief Executive Officer Michael A. Todman – President of Whirlpool North America Roy Templin – Chief Financial Officer

Sam Darkatsh - Raymond James Michael Rehaut - JPMorgan Analyst for Laura Champine – Cowen and Company Eric Bosshard – Cleveland Research Company

Good morning and welcome to Whirlpool Corporation’s third quarter 2009 earnings call. Today’s call is being recorded. For opening remarks and introductions, I would like to turn the call over to the Director of Investor Relations, Greg Fritz.

Thank you Chris and good morning. Welcome to the Whirlpool Corporation’s third quarter conference call. Joining me today are Jeff Fettig, our Chairman and CEO, Mike Todman, President of Whirlpool North America, and Roy Templin, our Chief Financial Officer. Before we begin, let me remind you that as we conduct this call we will be making forward-looking statements to assist you in understanding Whirlpool Corporation’s future expectations. Our actual results could differ materially from these statements due to many factors discussed in our latest 10-K and 10-Q. During the call we will be making comments on free cash flow, a non-GAAP measure. Listeners are directed to Slide 28 for additional disclosures regarding this item. Our remarks today track with the presentation available on the Investor section of our website at whirlpoolcorp.com. With that, let me turn the call over to Jeff. Jeff M. Fettig: Good morning everyone and thank you for joining us today. As you saw earlier this morning, we released our financial results for the third quarter and I direct you now to Slide 2 on our presentation. For the quarter, net sales were $4.5 billion, which were down 8% from the prior year. This decline was driven by an unfavorable foreign currency translation and lower unit volumes in both our European and North American regions. Partially offsetting these declines were increases in our Latin America and Asian regions. If you exclude the impact of the foreign exchange, our revenues were down about 3%. Earnings per share came in at $1.15 per share which was compared to $2.15 last year. As we previously announced, our third quarter results were adversely affected by a $43 million expense or $0.50 a share related to an affiliate settlement agreement with the Brazilian Competition Commission. Overall for the quarter though, our operating profit improved by 8%, largely as a result of our successful cost reduction and productivity initiatives. We did see significant year-over-year operating profit improvement in our North America and Asia regions which we’ll discuss in detail in a few more moments. Year-to-date we delivered free cash flow of $373 million. Overall our improved operating performance in the quarter was largely driven by our significant cost reduction efforts and higher overall productivity throughout the business. These cost reduction efforts and investments in our consumer relevant innovation and a continued focus on marketplace execution remain our key priorities as we navigate through this challenging and volatile economic environment. If you turn to Slide 3 I’ll provide you with an update on the main factors which impacted our business. As you know, we began the year by outlining the key positive factors that we needed to execute against in order to successfully offset the substantial negative macroeconomic factors that we were facing. During the quarter our results were favorably impacted by these drivers. We have been able to eliminate substantial costs across the enterprise and these improvements have helped us to mitigate the revenue decline that was had in the quarter. We’ve continued to aggressively manage inventory, we’ve reduced our capital spending, and this continued throughout the quarter. While lower demand in foreign currency remained unfavorable items, our operating results improved versus last year. Despite the uncertain economic environment, our innovation pipeline remains very strong. We continue to invest in our brands, particularly in the new product innovations which we’re seeing are representing a strong value to our trade customers and consumers in the marketplace today. I’ll now turn to Slide 4 and spend a moment on our regional unit demand outlook. First, on the US we expect industry volume to decline now approximately 10% for the year which is at the higher end of our previous expectation. We continue to see demand levels in the United States stabilizing albeit at lower levels. In Europe we continue to expect 2009 industry volumes to decline by approximately 13%. During the quarter we saw continued weakness throughout the entire region; however the central and eastern European countries saw the largest overall decline in demand and with some western European countries we saw decline somewhat moderating. I’ll turn now to Latin America where we currently expect the Brazilian appliance unit volume growth for the year of at least 15%. During the quarter we experienced the positive effects on demand as a result of Brazilian government sales tax reduction program on appliance purchases, but also as well based on an improving set of economic fundamentals that we see in the country. Across the entire Latin American region we continue to see negative demand in the markets outside of Brazil. While this was at a lesser rate than the previous quarters, the declines affected the overall Latin America unit volumes. In Asia we expect full year industry growth of 10%. Industry demand in India is particularly strong and is the main driver of our increased expectations. Moving on to Slide 5, while we continue to face a very challenging and volatile economic environment, the actions that we’ve taken to restructure our business have better aligned our capacity and resources to these lower demand levels. Our results reflect the benefit from these actions and we now expect to deliver higher 2009 earnings and free cash flow compared to our previous expectations. As you saw in the release, we’ve increased our whole year EPS guidance. We now expect earnings to approximate $4.25 per share for the full year versus our previous guidance of $3.50 to $4.00 per share. Our free cash flow guidance for the year is between $500 million and $600 million compared to our previous guidance of $300 million to $400 million. Roy Templin, our CFO, will go into more detail on our outlook later in the call. At this point I’m going to turn it over to Mike Todman to give you an update on our North America performance. Michael A. Todman: Thanks Jeff and good morning everyone. Let me begin by reviewing North America’s performance in the quarter. As shown on Slide 7, our net sales declined 9% during the quarter to $2.5 billion with US industry demand for T-7 appliances declining 6%. Excluding the effect of foreign currency exchange, our sales decreased approximately 7%. This decline was predominantly related to a unit shipment decline of 6% in the quarter. It is important to note that on a comparable US T-7 basis, our unit volumes while still slightly negative declined much less than the 6% industry decline. Operating profit in the quarter totaled $140 million compared to the $74 million reported in the prior year. The improvement in profit was primarily the result of our ongoing cost reduction and productivity initiatives, lower unit production volume, unfavorable foreign currency fluctuation, and lower product price and mix partially offset our favorable cost and productivity trends. Despite our overall sales decline, we were able to expand our margins on a year-over-year basis. Our operating margin for the quarter expanded to 5.6% compared with the 2.7% in the prior year. Turning to Slide 8 you will see the continued progress we are making on our cost reduction efforts and specifically on year-to-date SG&A reductions in North America. In this quarter alone we achieved a 23% SG&A cost reduction. Despite our strict cost control measures, we continue to invest in our brands and in new product innovations. These innovations attract consumers to our portfolio of diverse brands and generate higher margins. In today’s environment, consumers are looking for great values at every price point, and our innovation pipeline remains robust and we continue to launch new consumer-driven products in every major product category. Some of the recent US product launches are shown on Slides 9 and 10 and include the Jenn-Air brand wall oven featuring the industry's only 7 inch touch anywhere LCD screen. An interactive menu-driven culinary center helps consumers achieve desired cooking while color images illustrate desired doneness options. The wall oven is part of a new Jenn-Air KitchenAid suite that raises the standards of performance in the premium appliance segment. The Maytag brand Bravos high efficiency top load laundry pair featuring the largest available capacity in the industry, faster spin speeds, and the Maytag commercial technology. The high efficiency top load laundry pair now has a capacity of 5.0 cubic feet that can wash up to 18 pounds of laundry per load. A new Maytag gas range with the industry’s largest oven capacity available, powerful 17,000 BTU burners which boil water faster than a standard burner. The KitchenAid Suberba series E-2 dishwasher that delivers the best cleaning results, best energy efficiency, and the lowest sound levels in the industry. The Whirlpool Duet Steam washing machine, equipped with a quiet fan to draw out moisture through a vent to help keep clothes smelling fresh. Additionally, the fan [inaudible] intermittently tumbles clothes in the wash drum for up to 10 hours after the cycle ends. The washing machine features advanced water and energy savings while the companion dryer is the first front load category to offer an eco-cycle that uses 40% less energy than a conventional dryer’s normal cycle when paired with a Duet washer. The Whirlpool Cabrio high efficiency washing machine and dryer designed to meet CEE Tier 3 energy specifications that the most energy efficient level for a top load washing machine. Turning to Slide 11, I want to take a moment to discuss how the North American region is progressing on each dimension of the Whirlpool strategy. At the foundation of our strategy is achieving the best cost and quality position for the products we produce and the markets we serve. Our cost reduction and productivity initiatives have been significant in 2009. We have substantially reduced our manufacturing capacity, greatly improved the cost efficiency of our distribution network, and have significantly reduced our SG&A cost. We have made substantial progress towards strengthening our foundation for the future. We continue to make progress providing our trade customers with great brands of products that consumers want to buy, which will ensure that our brands are productive on retail floors. Our strong product portfolio has allowed us to expand our distribution to reach more consumers. Finally, we continue to support our brands with a strong and robust innovation pipeline. By the end of this year we will have launched a new line of dishwashers, an all-new Jenn-Air suite, we will have completely revamped our Maytag branded products and launched a new line of Whirlpool refrigerators. So although we continue to take aggressive cost actions, innovation and product development have been areas we have continued to invest in over the past 12 months. This innovation will continue and will strengthen our consumer and trade positions. With that, I will now turn the call back over to Jeff. Jeff M. Fettig: Thanks Mike. I’ll begin by reviewing our European performance in the third quarter which is shown on Slide 13. Our revenue in Europe during the quarter decreased by 17% and local currency sales declined by about 11% from last year. Overall industry unit shipments declined about 10% year-over-year. For the quarter the region reported an operating profit of $14 million compared with $52 million earned last year. Our results were unfavorably impacted by substantially lower volumes and the non-recurrence of about $14 million in special items that were included last year. Our ongoing cost reduction efforts partially offset these challenges. For Latin America, the third quarter results are shown on Slide 14. For the quarter the region reported sales of $992 million which was basically equal to last year. Excluding the impact of currency, our sales increased by about 12%. The sales increase was driven by a strong demand for appliances in the Brazilian market. During the quarter our appliance revenue in Brazil increased 40% in local currency, further strengthening our leadership position in this important market. Operating profit totaled $93 million compared to $116 million reported last year. Unfavorable foreign currency and significantly lower monetization of tax credits contributed to this lower profitability. Partially offsetting these results were significant cost reductions and the overall increase in unit shipments. As we’ve discussed previously, our ability to monetize tax credits was impacted by the Brazilian program aimed at stimulating appliance demand. This program is currently scheduled to end on October 31. We recognize the success of the Brazilian government’s program and the positive impact it’s had on demand. The program however has had an unfavorable impact on our ability to monetize tax credits as we experienced a significant year-over-year reduction in credits monetized during the third quarter. Moving to Asia, which is shown on Slide 15, net sales increased 18% during the quarter to $162 million in revenues. Excluding the impact of currency, sales increased 26% compared to last year. The sales increase here was driven by very strong results across the region with India and China both reporting substantial year-over-year gains. With our new industrial joint venture in China and our very strong position in India, we are well positioned to benefit from the growth trends that we’re seeing in these markets. Operating profit in Asia during the quarter was $8 million profit compared to a break even last year. This operational improvement was primarily related to these higher unit volumes and our cost reduction initiatives. Turning to Slide 16, which really summarizes overall our international operations. Again, overall European results show a return to profitable levels despite lower sales volumes due in large part to our continued focus on cost reduction. While these results are now positive, our results in Europe are not what we would consider to be acceptable and we continue to pursue aggressive actions to improve the results of the region as we go forward. In Latin America the economic fundamentals continue to be very strong in Brazil. We feel very good about our position in Brazil with the best products and the best brands in the industry. While we do expect growth rates to moderate from the significant increases we’ve now seen in the second and third quarter, we do believe that the economic fundamentals in Brazil point to very healthy underlying demand for appliances. Finally, in Asia, our strong performance in the quarter highlights our successful growth strategy throughout the region. We continue to see growth opportunities in this region, particularly in China and India, as these economies have resumed their growth. At this point in time I’ll turn it over to Roy Templin for the financial review.

Thanks Jeff and good morning everyone. Beginning on Slide 18 I’ll walk you through a summary of our third quarter performance. From a net sales standpoint we continue to see similar trends to the second quarter results. North America and Europe experienced volume declines, although at a lesser rate than the second quarter, and our appliance unit volumes actually increased substantially in Brazil and Asia during the third quarter. As has been the case all year long, we also experienced an unfavorable impact from foreign currency translation in the quarter as FX accounted for 5 percentage points of our year to year revenue decline. From a margin perspective, the key positive factors in our margin performance were related to the cost reduction and productivity actions we have instituted. The most significant negative variances related to unfavorable foreign exchange rates, lower BEFIEX monetization due to the consumer tax incentives legislated in Brazil, and lower global unit volumes. As we mentioned to you on the last call, we expected lower BEFIEX in the quarter due to the consumer tax incentives in Brazil. As such, we recognized $8 million of BEFIEX credits in Q3, well below the prior year level of $43 million. Finally, we had one [inaudible] item of significance and a few smaller items I would like to discuss. As we announced on September 30, we reported an expense of $43 million related to our affiliate’s settlement agreement with the Brazilian competition commission. This resulted in an unfavorable Q3 EPS impact of $0.50 per share. The third quarter impact was a non-cash impact as we anticipate making 12 semi-annual payments over a 5.5 year period. During the quarter we recorded an asset sale gain of $3 million in our Asia business related to a property sale. In the prior year we recorded $14 million from an asset gain and an insurance settlement. Finally, we recorded a $7 million non-cash pension curtailment loss in our North American segment during the third quarter that resulted from a facility closure announcement. Turning to the income statement on Slide 19, during the quarter we reported revenues of $4.5 billion down 8% from the previous year. The unfavorable impact from foreign currency translation accounted for 5 points of the decline and was predominantly related to the appreciation of the dollar against the Brazilian Reais and the Euro. Our gross margin declined 0.2 of a point to 13.8% for the quarter. Our gross margin was negatively impacted by foreign exchange transaction which accounted for 1.1 points of margin decline. Lower BEFIEX accounted for another 0.8 of a point margin reduction. Price mix was 0.7 of a point unfavorable impact on margin in the quarter. On the positive side, we realized significant margin improvement from our cost reduction and productivity initiatives as well as a slight benefit from lower overall material costs. SG&A continued to be a strong contributor to our higher operating margins. From a total dollar standpoint, we were able to reduce our SG&A costs by $77 million from the prior year. Approximately 20% of the dollar decline was due to the effects of foreign currency translation while the balance or 80% of the decline was related to cost reduction initiatives. Notably, our SG&A improved as a percentage of sales to 8.9% from 9.7% in the previous year despite the decline in revenues which continues to highlight our progress in cost reductions. During the quarter we recognized $24 million of restructuring charges which was equal to the prior year. Actions in Europe accounted for $16 million of the restructuring actions in the third quarter. Operating profit totaled $189 million compared with $177 million in the previous year. Unfavorable foreign currency exchange rates resulted in an unfavorable impact of $75 million on our operating income during the quarter. Considering this impact, along with a $35 million year-over-year reduction in BEFIEX credits monetized, we are pleased with our operating improvement in what remains a negative demand environment. Turning to Slide 20, we reported $58 million of interest expense compared with $52 million in the prior year. The increase in interest cost predominantly reflects higher average borrowing cost, largely the result of our notes offering earlier this year and the repayment of our lower cost short term debt. Turning to interest and sundry expense, we experienced a $48 million unfavorable year-over-year variance. While there are many smaller puts and takes in this line item, the variance is mainly attributable to the Brazilian Competition Authority settlement and the associated legal cost. Moving to our tax rate, we reported an income tax benefit of $13 million during the quarter compared to an income tax benefit of $46 million in the prior year. From an effective rate standpoint, the third quarter expense corresponded to a benefit of 16% which was less of a benefit than our previous expectations. For the full year, we now expect our effective tax rate to be a credit of 20% to 30%. This slight change in our outlook is primarily related to additional tax contingencies we recorded in the third quarter. Slide 21 summarizes our key working capital balances for the quarter. Our working capital balance improved to 12.8% of annualized sales compared to 13.9% in the second quarter. Our continued progress in inventory reduction was the most significant driver of the quarter to quarter decline. Now I would like to take a moment to discuss our free cash flow performance on Slide 222. Through the first nine months we generated free cash flow of $373 million compared to a use of $349 million in the prior year. The year to year increase in free cash flow is attributable to two main areas. One, lower working capital levels and two, lower cash payments in the areas of advertising and promotion and compensation. For the full year, we now expect our capital spending to be in the range of $475 million to $525 million. Turning to Slide 23, I want to update you on our liquidity position. Overall our net liquidity continued to improve during the third quarter. This improvement is largely the result of the increase in our cash balance to $725 million compared to $247 million in the prior quarter. Given our successful amendment and extension of our revolving credit facility, we have now substantially completed the actions necessary to improve our financial flexibility. On Slide 24 we show the progression of our net debt balance over the past two years. As you can see, we have substantially improved this metric and feel we are well positioned to continue to improve our overall credit ratios. We feel very good about our ability to continue to fund our restructuring and product innovation initiatives. After funding these initiatives, a key priority for us going forward is improving our credit metrics with the goal of returning our credit ratings to pre-recession levels. Finally, I would like to turn to our outlook summary on Slide 25. As Jeff mentioned, based on current economic conditions and business plans, we expect to earn approximately $4.25 per share during 2009. From a full year perspective there are some positives and negatives but on balance we are coming out slightly ahead of our previous expectations. On the positive side, we continue to see strong gains in our cost reduction and productivity activities. In some markets we have seen an overall improvement in our volume expectations and we anticipate foreign currency movements are currently tracking towards an improvement in the fourth quarter. These favorable items have been partially offset by lower price mix and a lower than expected effective tax credit. In addition, we expect to record approximately $65 million in restructuring charges in the fourth quarter. From a cash flow standpoint, we have increased our free cash flow outlook to $500 million to $600 million. The change in our outlook is largely related to improved cash earnings in our third quarter and expected fourth quarter results. With that, all turn the call back over to Jeff. Jeff M. Fettig: Thanks Roy. Let me now sum up our comments today and direct you to Slide 27 which I think illustrates how we are positioning the company for the future. As you all know, we have been through a period of significant volume decline and demand destruction in many of our markets throughout the world. As a result of this, we have and continue to undertake significant cost reduction actions across all facets of our business to mitigate this. With these actions we are structurally repositioning the company to achieve improved results as we leverage this lower breakeven level and will benefit greatly when demand stabilized and returns. We do believe that demand for our products will return to trend demand levels at some point in the future. These actions that we are taking now will allow us to generate significant earning power when this materializes. One other area beyond our cost reduction which I think is very significant and I think will be very impactful is our continued investment in innovating new products. We are very excited about the health of our innovation pipeline. We think it’s very strong and one of the most impactful pipeline of innovation that we’ve ever had. You’ve seen some of these products that we bring into the marketplace now and much more will be coming in the near future. To date they’ve been very well received by our customers. Overall, as Roy said, we’re pleased with the progress in improving our business results. We’re seeing most aspects of our business improving. Our priorities are unchanged and we will continue to execute well across all parts of the business. At this point in time I’ll end my comments and open this up for questions.

(Operator Instructions) Your first question comes from Sam Darkatsh - Raymond James. Sam Darkatsh - Raymond James: First off, Roy, receivables rose year-over-year with sales down. Was there a change or an extension of credit to certain customers or what was the driver there? Jeff M. Fettig: You’re looking at the cash flow. If you look at the balance sheet, you’ll see our receivables. Compared to Q3 a year ago are 2.7 versus I think 2.6 a year ago but when you look at the cash flow statement which I think is what you're looking at, the key item driving that difference on cash flow is we had very sharp declines in our volumes in November and December so what we traditionally have somewhere in that $2.5 million range of receivables as sort of a normal run rate of Whirlpool. If you’ll recall, that number was down to about 2.1 at the end of last year and so what you’re really seeing is the delta from the drop off in volumes at the end of the year which lowered receivables and we had the inverse of that at the end of the third quarter. We saw the strongest part of the pickup in both August and September which drove our receivables higher and so you sort of get the worst case scenario in terms of the comparability for the cash flow purposes. We are not seeing significant change in terms of the second part of your question and from an overall credit balance perspective, our current receivables are actually slightly better than what they were at the end of last year. Sam Darkatsh - Raymond James: It looks like price mix slipped sequentially. Is it mostly price, mostly mix, how should we look at that on a go forward basis? Michael A. Todman: The fact of the matter is we did see a slight decline in some of our pricing for models that we have in the marketplace. Our promotional as I actually talked about on the last call, we were going to balance market share with a promotional activity and that’s what the primary driver. Mix actually continues to be very strong. Sam Darkatsh - Raymond James: Roy, what should we look at for tax rate in 2010 and beyond?

I’m really not prepared to talk about the tax rate in 2010 and beyond. I will remind you that as you know the key item that’s driving our rate to a credit versus what is traditionally a debit are the energy tax credits and we do anticipate continuing to earn energy tax credits in 2010. Sam Darkatsh - Raymond James: So you suspect that you’ll overall have tax credits again as opposed to an income tax payable item in your income statement going forward ?

Let me answer it this way. We do anticipate continuing to earn energy tax credits and if you look at sort of the underlying base tax rate in our business, it’s roughly 30% to 32% of expense and as we look into next year, to answer your question, we would anticipate that base being roughly the same as well.

Your next question comes from Michael Rehaut - JPMorgan. Michael Rehaut – JPMorgan: First question, I was wondering if you could kind of walk through the share trends in the third quarter, how the branded and OEM businesses are doing, and also if you could have any updated comments with regards to the Kenmore business in terms of the changes that you expect in 2010 into that channel. Michael A. Todman: Let me start with the share trend. Year-over-year actually we did see some positive share frankly across the board in our business. On a sequential basis, our branded share trends were actually very positive but we did see some declines in the OEM business. So we feel good about where our brands are being positioned if you will in the marketplace. In terms of any updates, anything different than I said in the second quarter call, the answer is no. Basically we still feel good about our position there but we also feel very good about the new innovations we’re bringing to the products that are supporting our brands and we’re seeing continued progression if you will in share for our brands because of that. Michael Rehaut – JPMorgan: On a net basis you don’t expect there to be a material drop in the US business because of the changes into that channel? Michael A. Todman: Yes, that’s correct. Michael Rehaut – JPMorgan: Just on Brazil, great results there, and obviously in part driven by the tax credit incentive but also in part just with the overall market strength. Any view in terms of how we’re to think of more of a normalized environment and to the extent that the tax credit perhaps pulled forward some demand in 4Q, how you’re thinking about more of a normalized rate? Jeff M. Fettig: There’s really three parts as you know to our Latin America business and our Brazil appliances. The rest are Latin America appliances and there are [inaudible] compressor business. Let me just briefly speak. Brazil appliance is where we had the great demand as we said. Revenues were up 40%, multiple currencies during the quarter. There’s two things going on there. One is which we talked about is the stimulus that’s going on that’s scheduled to conclude October 31. When we talked about this in the second quarter, our comment was that we expect the growth to moderate and that there would be a wear out effect a little bit on that. That didn’t happen. It actually improved and I think that really speaks to my second point which is we’re seeing a very strong Brazil economy, in particular a very strong consumer economy. Although the stimulus had a positive impact, I think the underlying factors are pretty good. We are expecting as I said again a moderation after the program ends. I can’t really project in terms of growth rates but I do think there could be a change for a couple months although we’re entering the high season for appliance demand in Brazil. So we’re not expecting to continue this tremendous growth that we’ve seen but I would say we feel pretty bullish on the Brazil market in general. Outside of Brazil, international, the other 32 markets outside of Brazil, very weak the first half of the year. They’re showing recovery so we’re reversing some negative momentum there and actually getting better. Same with [Embraco], very tough first half of the year because they supply to finish goods around the world which reflected the weak demand and inventory correction and even that demand is improving. So on balance, we feel good about our Latin America business.

Your next question comes from Laura Champine – Cowen and Company. Analyst for Laura Champine – Cowen and Company: This is John Curtis standing in for Laura. She’s in Europe and must have dropped the call. Can you talk about what is in the other line in cash flow from operations?

This is Roy. Let me take that question. Here are the key items. Let me first of all say a reminder of what is other because it’s sort of like the last line in this section and it really does two things. It captures cash payments for items outside of working capital and pension and comp which we separately identified in restructuring on the cash flow. So it captures the cash payment. The other thing this line item does is it basically adjusts for non-cash items that are in our earnings. For example, the Brazilian settlement that I referenced in my script. That obviously is a negative in net earnings but we will not pay the cash for roughly 5 years in 12 equal installments. The other line, there’s a positive adjustment in that line to offset the negative and net earnings which gets you back to net zero cash from operations for that transaction. Here are the key drivers to that year-over-year delta that you’re seeing. The first one is lower promotional and advertising payments. That’s probably $100 million to $110 million lower. We are in a VAT payable position which his higher than a year ago in terms of the year-over-year comparable. The key items driving that VAT payable, and by the way, that’s about $90 million, is just the activity and the volume levels that we saw at the end of the third quarter and the pickup, particularly in Latin America. The other thing that happened in Latin America is there was a change in law in the way that was remitted and the timing of those remittances which added about $35 million to that $90 million favorability. The compressor settlement is plus 60. The IPI accrual that we made earlier in the year which again is a non-cash accrual is 35. Then we have accrued interest and some FX losses, each about $25 million which again, we’re negative accruals in the P&L but no cash flow, so those are positively adjusted on that line. Analyst for Laura Champine – Cowen and Company: As we start cycling some of the commodities of inflation, lapping it to next year, what’s your outlook for commodities, how that’s going to be a benefit or hit next year? Michael A. Todman: Again we’re not really giving any kind of 2010 forecast. I would just say if you look at the current trends, we’ve had quite a swing over the last year. Right now a number of these things like oil are moving up. Our factors are CL oil, base metals and components and we have not yet finalized our forecast for that but again there’s clearly some things are edging up and you know what those things are. But I can’t really give you a forecast. Analyst for Laura Champine – Cowen and Company: I just want to make sure I heard this right. The 30% normalized tax rate should be offset by the energy efficient credit netting to zero taxes.

The 30% normalized tax rate, Sam’s question was can I begin to project the 2010 tax rate and we’re really not in a position to do that. What I said was… let’s think about the key components within our tax rate. First of all, the sort of normalized run rate for Whirlpool Corporation this year is about a 32% expense. If you looked at the results in the US and international operations blended together. Now the key offsets to those are the energy tax credits, the BEFIEX credits and then of course R&D credits that we earn in the US and around the world. So what I said to Sam was we do not see a significant change in that base tax rate. But we'll still have some of the other credits.

We'll go next to Eric Bosshard - Cleveland Research Company Eric Bosshard - Cleveland Research Company: First of all, on the demand side we saw progress in shipments in North America in 3Q versus 2Q which doesn't seem like you're assuming that continues in 4Q. Can you just give us your perspective on what happened with overall shipment activity in 3Q and sort of what your sense is how that plays out as we move into 4Q and towards 2010? Michael A. Todman: Eric, let me just talk a little bit about the third quarter and kind of the progression of our shipments because what I said was that we actually saw our shipments better in the third quarter than we had a year ago, if you will. So we saw a pickup. The fact of the matter is from a demand perspective what we also saw was a positive progression of demand in the quarter. So, for instance, July was lower than August and September was significantly better than any of those months. As we now cycle through the fourth quarter, I mean, we've given our 10% for the year and essentially says we expect to see a somewhat continued or improved unit environment, market environment. Jeff M. Fettig: And in the rest of the world, again, these different regional businesses decline at a slightly different rate. Europe really didn't begin to decline last year until November. So we're seeing the same trend through the quarter there. We don't expect the year-over-year comparisons to start getting much better until we start comping against the bad numbers last year, which in Europe's case is later. And of course the emerging markets have already recovered and they're actually experiencing very strong growth. Eric Bosshard - Cleveland Research Company: Can you make an expense of the impact of promotions a year ago or in the first half? I don't think we saw 25% off deals like we've seen here a bit recently. How much of the improvement do you think is a function of promotions and how much of it is a function of consumers just at a point where they can't put purchases off any further? Michael A. Todman: To be honest with you, I believe that although promotional activity may be slightly higher, I think that when you look at the overall demand it's based on kind of what consumers need. I don't think it's being driven by promotions in and of itself. So promotions are a little bit high right now but not significant enough to, I think, make a huge difference in our demand. Eric Bosshard - Cleveland Research Company: Secondly, a comment was made that there would be a restructuring expense in the fourth quarter, $65 million and I think you had a pretty decent expense in the fourth quarter a year ago. But can you talk about what that is related to and what the benefit of that expense would be? Jeff M. Fettig: Eric, I will - a year ago we announced that we had some very specific things that we were doing. And I think what Roy indicated was that we would have a larger than what has been our run rate for three quarters in the neighborhood of around $65 million potentially in the fourth quarter. No, I would say either I've got to go back to our continued and very aggressive focus on cost reductions. And we're accelerating those efforts. We have a number of things around the world, projects that we're looking at, evaluating in its various stages of decision making. As you know with accounting rules you don't take the charge until you actually make the decision, you form the people and so on and so forth. And so I can't give you the specifics other than it's our expectation that given the large number of things we're looking at around the world that we will continue to aggressively move forward with this cost reduction via restructuring. It really won't have any benefit in 2009 but we certainly would expect benefits in 2010 and '11. Michael A. Todman: Yes, and, Eric, to the second part of your question where you ask about the actions that we took last year and the benefits from those, we're still estimating in 2010 that we'll get an annualized benefit from the activities we took a year ago of about $270 million and we think we'll get about $175 million of benefit in the current year, $120 of which we've taken year-to-date from the activities in Q4 a year ago. Eric Bosshard - Cleveland Research Company: And then lastly on cash flow, can you just clarify? I know you increased the guidance by $200 million. Are there some timing benefits that are aiding cash flow this year? You talked about the inflection and the VAT and the promotional accrual. Is there anything within timing that is benefiting cash flow this year? Or is the cash flow improvement sustainable from this year into next year? Jeff M. Fettig: Well, let me talk about - the first part of your question is do we see anything that flips or turns that's sort of embedded in the third quarter year-to-date cash flow? And the answer to that, Eric, would be yes. If you ask me to estimate I think there could be $75 million plus of flip that will naturally occur out of Q3 into Q4. Why do I say that? Well, I know there are some promotional accruals in various parts of the world which will get paid out in the fourth quarter. I know there's some accrued interest that will get paid out. There are some foreign currency unrealized losses that I anticipate will become realized in the fourth quarter. And so that natural flip, which by the way, at any point in time we always have some amount of flip embedded in our cash flow. But that flip is certainly in the year-to-date Q3. Now as you look at the fact that we took up our guidance, Eric, a couple of things there. One, the primary driver of that is just the increased cash earnings and that's why I sort of emphasize the word cash in my script because as you know we've got some key cash items that happened here in Q3 with the settlement in Brazil. And of course, the Q4 restructuring charges which will be non-cash this year and the cash won't flow until next year. The other thing, Eric, that is embedded in there is our continued focus on working capital. You've known our company for a long time and so if you look at sort of what's implicit in our guidance versus what we traditionally do in the fourth quarter, our number this year is obviously lower than historical trend rates. And a big part of that is working capital because we're going to get about 70% of what we traditionally get in the fourth quarter, this year in the fourth quarter. And, Eric, it's simply because we just came out of the third quarter in a much better position than where we traditionally are as an organization. Eric Bosshard - Cleveland Research Company: And then just to clarify one last point, the restructure in 4Q sounds like it's above what you had originally expected by $30 million, $40 million. Is that fair? Jeff M. Fettig: You're exactly right.

David MacGregor - Longbow Research. David MacGregor - Longbow Research: I guess I don't have too many questions on the quarter. I really wanted to just, Jeff, we don't get a chance to chat with you that much. I wanted to talk about a couple strategic things. I guess number one, on competition, it seems like the face of competition's changing here a little bit from sort of the GEs and the Electroluxes to sort of a new crowd from Korea, LG and Samsung. And I’m just wondering how that changes the game for you in terms of product development and the retail channels and if you can talk about that. And then, secondly, it seems like there's been kind of this makeshift in front load laundry which was really kind of a disproportionately large contributor of your profitability in the past away from sort of the four-digit price points down into upper three-digit price points. And I'm just wondering if as we get into the recovery phase of the cycle is there any chance that those price points can be taken back up and the margins can go with it? Or has this been kind of a one-time shift and you're just going to be challenged with having to come up with new product to make up for that in the future? Jeff M. Fettig: Yes, David, let me first talk about global competition. I mean, your first statement's absolutely true as it relates to the United States. The reality is globally you know who they are. There's five or six global competitors that we compete with everywhere in the world. And certainly the biggest change in the US market over the last five years has been aggressive entry by a number of Asian competitors and they've gotten a certain portion of the marketplace. So the names are different but the level of competition is certainly as intense as it's ever been. And I think we expect that really in every market that we can compete. Has it changed in the way we compete? I mean, our view is the basics is that strong brands, great products, great quality and very competitive cost is the essence of winning consumers in the marketplace. And so from that standpoint it has not changed. I think there are some - where some new competitors have come in there's a lot more, I would say some of the product development cycles are faster. I would say there is a lot of imitation going on in the marketplace right now and the importance of strong brands and intellectual property and things like that are more important than ever which we're investing very heavily on. But, look, competition's good for the consumer. And we're well prepared to compete in a market like this. But I don't expect that to change. In fact, if anything, it will increase. And some will benefit and grow in this environment. And if you aren't competitive you will not grow. The second question about the makeshift front end laundry, high price points and so on and so forth, yes, there's a lot of dynamics going on there. First of all, the first big change was there was a big shift from top-load to front-load. That has stabilized, actually has reversed course during the course of this year and we've been a big part of that. We basically are achieving our vision in fabric care to give the consumer the choice to have great energy efficiency, great water efficiency, great clothes care in whatever configuration that they want. And with the introduction of our new both Maytag and Whirlpool high efficiency top-loads we now are in the position where we can do that. And the consumers are voting. And right now there's a shift back to top-load. But having said all that and with more competition it has driven price points down below $1,000 in a lot of cases. Our view is that any time you don't innovate prices will go down. And our job and I think you're seeing some of it now and the fact that our mix hasn't deteriorated this year I think as you go into 2010 if you see the kind of innovation we're bringing to the marketplace. Value is based on what you get not just price. And I think you'll see new value propositions which consumers like very much that they will be willing to pay four-digit price points for. David MacGregor - Longbow Research: And just back to the first point on the Korean competition, I mean, it has been a very promotional environment here in the fourth quarter. But they also are well regarded for being innovative. And so I'm wondering to the extent they become more pervasive in your business should we expect a lot more promotional activity and more price discounting or should we just expect a lot more innovation? Jeff M. Fettig: Well, I think a lot more innovation is good for the industry. And that will bring more consumers into the marketplace that may, as we saw before in the recession, accelerate replacement cycle. So from that standpoint I hope we do see more industry innovation. The price competitiveness and all that, I mean, there's a manufacture level, there is a retail level. Part of it has to do with what happens to material costs and all those kinds of things. At the end of the day there has got to be economics for both manufacturers and retailers. And I don't know that we'll have any more or any less. We always have a lot of promotional activity. And I don't think we're in a new era of promotional activity.

And our last question today comes from Michael Rehaut - JPMorgan. Michael Rehaut - JPMorgan: Just a couple quick ones - I was just wondering if you could just refresh our memory in terms of the restructuring charges what roughly was in the numbers in '07, '08 and now '09. Michael A. Todman: Well, Michael, the '08 was just under $150 million total restructuring. This year's estimate now with the incremental guidance we provided this morning would be in the $130 million to $140 million range for the full year total restructuring. '07 was roughly $60 million if I recall. Michael Rehaut - JPMorgan: And just I guess as you take a look at, I mean, this is kind of a bigger picture question and I know you have been talking about an 8%, I think, margin in aggregate for the company. Recognizing that a lot of that is dependent on a return on volume to some degree, any kind of updated views in terms of time to get there and do you think that with a more normalized return to volumes over the next three, four years that you could see it concurrent with that pace or given the improvements in cost structure that you're looking to get there even faster than that? Michael A. Todman: Yes, Michael, what's going to - I can't give a future forecast at this time but I would just say there's no doubt in our minds we have a global business and operating platform now to generate at least 8% of the operating profit. I think what I showed in that last slide, what we are doing, we are substantially reducing our breakeven level. This is not one time. It's structural. We're doing the things that we need to do with innovation which is going to drive the revenue line. We're winning in most major markets around the world today in the marketplace. A flat demand environment we'd probably do pretty well in. And when we see the growth we ought to benefit greatly from it and that ought to accelerate our pace to get there. But I’m not going to give you a timeframe. Listen, everybody. Thanks again for joining us today and we look forward to talking to you next time.

This concludes today's conference call. You may now disconnect. Have a great day.