Whirlpool, said it has agreed to pay nearly $603 million or 959 million Brazilian reais to settle all claims of old litigation dating back to 1989 with Banco Safra S.A. related to its Brazilian subsidiary.
Whirlpool on Wednesday said the settlement will reduce its full-year 2011 earnings by $290 million or $3.70 per share.
The company now expects to report earnings in a range of $8.30 to $9.30 per share for the full year, down from previous estimate of $12.00 to $13.00 per share.
Analysts polled by Thomson Reuters currently expect earnings of $11.90 per share for the full year. Analysts’ estimates usually exclude one-time gains and losses.
Michigan-based Whirlpool said the litigation was related to the enforceability of an unauthorized loan entered into in 1989 by an employee of Embraco, which subsequently became a subsidiary of Whirlpool. The employee was terminated in that same year.
In 2000, the Brazilian trial court entered a final and non-appealable judgment against Whirlpool’s Brazilian subsidiary. Whirlpool said “After that judgment, numerous calculation factors that could be used to determine the final payment remained in dispute.”
Therefore to settle a case that has a “wide range of potential outcomes and significant uncertainties” the subsidiary agreed to settle with Banco Safra for $603 million.
The settlement amount will be paid in two installments, the first installment of $469 million reais or about $295 million will be paid in the third quarter, while the remaining 490 million reais or $308 million is planned for the first quarter of 2012. Whirlpool intends to fund the settlement from available cash.
The agreement is subject to the approval of the Brazilian court, which is expected to consider and approve the settlement in the next 30 days.
Whirlpool will record an additional charge of about $439 million in the second quarter of 2011 to reflect the full amount of the agreement.
Whirlpool’s Chief Executive Jeff Fettig said, “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 closed Wednesday’s trading on the NYSE at $77.22, down $0.82 or 1.05%. The stock further lost $2.72 or 3.52% in after-hours trade. The trading volume for the day was 1.2 million shares.
