Whirlpool Will Pay $603 Million to Settle 22-Years-Long Lawsuit
Jun 23, 2011
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Whirlpool Corp. agreed to settle a lawsuit with Banco Safra S.A. – a suit that originated in 1989 with a Brazilian subsidiary that Whirlpool did not even own at the time.
The lawsuit was over an unauthorized loan entered into by an employee of Embraco in 1989. The employee was fired in the same year. Embraco only later was to become part of Whirlpool's Brazilian subsidiary.
The Brazilian trial court passed a non-appealable judgment against Whirlpool's Brazilian subsidiary in 2000. The dispute since 2000 has been over the numerous calculation factors that could be used to determine the final payment remained in dispute.
Whirlpool said a final judgment could have gone as high as 1.1 billion, part of the reason it chose to settle for $603 million. Whirlpool will pay two payments. The first payment of $295 million will be paid in the third quarter of 2011. The final payment of approximately $308 million will happen in the first quarter of 2012.
The agreement is subject to the approval of the Brazilian court, which is expected to consider and approve the settlement within 30 days.
Whirlpool Corp. will record an additional charge of approximately $439 million within interest and sundry income (expense) in the second quarter of 2011 to reflect the full amount of the agreement. The aggregate after tax earnings impact of the settlement will be approximately $290 million, or approximately $3.70 per share. Whirlpool intends to fund the settlement from available cash.
Jeff M. Fettig, Chairman and CEO of Whirlpool Corporation, said, "We are bringing final closure to a case that has been before the Brazilian courts for 22 years. Given the recent opportunity to settle the case, and after fully considering all of the circumstances, the uncertainty and potential outcomes, it was a prudent decision and in the best interest of the Company and its stockholders to settle this case now."
Whirlpool has adjusted its earnings and free cash flow outlook for the full year 2011, solely to reflect the result of the settlement. Whirlpool now expects to report diluted earnings per share of $8.30 to $9.30 for the full year, which is consistent with the company's prior full year guidance absent this settlement charge. The company now expects to generate free cash flow between $160 million and $260 million. This outlook includes U.S. cash pension contributions of approximately $300 million.
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