DBRS Confirms Whirlpool at BBB (high) and R-1 (low)

Dominion Bond Rating Service (DBRS) confirms that the ratings for Whirlpool Corporation (Whirlpool, or the Company) and Whirlpool Canada LP remain on track at BBB (high) for the Senior Unsecured Debt and R-1 (low) for the Commercial Paper. The trends are Stable. Whirlpool has generated improved operating results following the closing of its acquisition of Maytag Corporation (Maytag), and the integration is progressing in line with expectations.

DBRS notes that Whirlpool’s ratings are likely to remain unchanged over the near term, as the business and financial risks facing the Company are not expected to materially abate. DBRS expects Whirlpool to generate growth in earnings and cash flow through 2008, largely from efficiency gains. However, the Company continues to face the risk of integration issues, given the large scale of the Maytag acquisition. Integration issues would delay or reduce its expected merger-related annual cost-savings target of $400 million, which is expected by 2008. In addition, raw material costs (e.g., steel, resin) are showing few signs of easing, and the U.S. economy is expected to moderate in 2007. In the event of a sharper-than-expected slowing in the U.S. economy, Whirlpool appliance shipments and earnings would be negatively impacted, as close to 70% of operating profit is generated in North America. Furthermore, the Company’s unfunded pension and post-retirement position (including Maytag) is large and will require future cash contributions. Lastly, although the Company’s competitive position has improved following the merger, increasingly aggressive new-entrant competitors from Asia (e.g., LG) would reduce Whirlpool’s ability to increase prices to offset external cost pressures.

DBRS also notes that despite the risks highlighted, Whirlpool’s financial profile is expected to gradually improve. Increased efficiency and productivity, mainly from facility closures, manufacturing consolidation and economies of scale are likely to be key drivers of earnings and cash flow growth. Free cash flow and asset sales (mostly former Maytag businesses, which are less profitable than core Whirlpool businesses) are expected to be used toward debt repayment to gradually strengthen the Company’s balance sheet. Whirlpool’s ability to consistently generate free cash flow and a strong liquidity position provide support for the commercial paper rating.

Notes:
All figures are in U.S. dollars unless otherwise noted.