Whirlpool 2006 Annual Report Download - page 32

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MAYTAG ACQUISITION
On March 31, 2006, Whirlpool completed its acquisition of
Maytag Corporation. Maytag reported consolidated net sales
for the year ended December 31, 2005 of approximately
$4.9 billion. With the acquisition, we added an array of
home appliance brands including Maytag, Jenn-Air and
Amana. The aggregate purchase price for Maytag was
approximately $1.9 billion, including approximately $848
million of cash and approximately 9.7 million shares of
Whirlpool common stock. The purchase price also included
the exchange of fully-vested Whirlpool options for fully-
vested Maytag options to become exercisable, in aggregate,
for an additional 1.8 million shares of Whirlpool common
stock and the settlement of Maytag restricted stock and
performance units for cash. The combined value of the
above share-based consideration was approximately $920
million. The value of the approximately 9.7 million shares of
Whirlpool common stock was determined using the average
market price of Whirlpool’s common shares for the two
days prior to, through the two days after, March 29, 2006,
the date the reference period for the exchange ratio was
established.
In addition, Whirlpool assumed Maytag’s existing debt
of approximately $973 million. Whirlpool incurred
approximately $102 million in acquisition-related expenses,
which are included in the purchase price above. Initially,
Whirlpool borrowed amounts required to fund the cash
portion of the purchase price through issuances in the U.S.
commercial paper market and in June 2006, refinanced a
portion of this commercial paper through the issuance of
long-term bonds.
Cost efficiencies are being realized from all areas of
the value chain, including product manufacturing,
procurement, logistics, infrastructure and support areas.
Whirlpool expects to achieve efficiencies of $350 to $400
million during 2007, compared to $107 million in 2006,
and anticipates annualized savings in excess of $400
million to be fully realized in 2008. Whirlpool expects to
incur approximately $410 million in additional pre-tax,
one-time cash costs between 2006 and 2008 to realize the
annualized savings estimates. Approximately $150 million
of these costs are expected to impact earnings between
2006 through 2008, with the remainder included as part of
purchase accounting.
OTHER MATTERS
Whirlpool regularly engages in investigations of potential
quality and safety issues as part of its ongoing effort
to deliver quality products to its customers. Whirlpool
is currently investigating a limited number of potential
quality and potential safety issues. As necessary, Whirlpool
undertakes to affect repair or replacement of appliances in
the event that an investigation leads to the conclusion that
such action is warranted. Whirlpool currently believes that
no such repair or replacement actions of a material nature
are required, other than the voluntary recall described in
Note 19 to the Consolidated Financial Statements, but will
continue to evaluate potential quality and safety issues as
new information develops.
Pension Plans Whirlpool made $51 million of voluntary
contributions to its U.S. pension plans during 2006, and
paid $5 million under the U.S. unfunded plans. We also
contributed $22 million to our foreign pension plans during
2006. At December 31, 2006, Whirlpool’s defined benefit
pension plans were under-funded.
The Whirlpool Employees Pension Plan (the “WEPP”) has
been amended to cease benefit accruals for the majority
of participants effective December 31, 2006. For certain
salaried Whirlpool participants who are eligible to retire on or
before December 31, 2009, the plan has been amended to
continue previous plan benefit accruals through the earlier
of the date of retirement or December 31, 2009. The Maytag
Corporation Employees Retirement Plan has been amended
to cease benefit accruals for non-union participants effective
December 31, 2006. In addition, the Whirlpool Production
Employees Retirement Plan at Whirlpool’s LaVergne,
Tennessee, manufacturing facility, which covers union
employees, has been amended effective January 31, 2007.
A defined contribution benefit to cease benefit accruals is
being provided to eligible affected employees subsequent
to the effective date of the plan amendments. As a result
of these changes, Whirlpool recognized a net curtailment
charge of approximately $6 million during 2006.
Whirlpool previously amended the WEPP in January 2005
and we re-measured the net periodic cost and funded
status of the plan. The amendment reduced the projected
benefit obligation (PBO) by approximately $80 million. The
accumulated benefit obligation (ABO) was not affected by
the amendment since the accrued benefits as of December
31, 2005 were not affected by this change.
Whirlpool recognized consolidated pre-tax pension costs of
$116 million, $94 million and $91 million in 2006, 2005
and 2004, respectively.