Income Taxes

9 Months Ended

Sep. 30, 2019

INCOME TAXES

Income tax expense was $313 million and $311 million for the three and nine months ended September 30, 2019, respectively, compared to income tax expense of $7 million and $52 million in the same periods of 2018. For the three months ended September 30, 2019, the increase in effective tax rate from the prior period is due primarily to the impact of the sale of Embraco, prior period adjustments and impact of changes in enacted tax rates. For the nine months ended September 30, 2019, the increase in effective tax rate from the prior period is due to tax expense on the sale of Embraco, prior period adjustments , non-deductible impairments and government payments, partially offset by valuation allowance releases. Total tax expense related to the sale of Embraco was $150 million and $161 million for the three and nine months ended September 30, 2019, respectively, of which approximately $107 million was calculated based on the US statutory tax rate.

For additional information on prior period adjustments, see Note 1 to the Consolidated Condensed Financial Statements.

The following table summarizes the difference between income tax expense (benefit) at the U.S. statutory rate of 21% and the income tax expense (benefit) at effective worldwide tax rates for the respective periods:



	Three Months Ended September 30,					Nine Months Ended September 30,
Millions of dollars	2019		2018			2019			2018
Earnings (loss) before income taxes	$	677	$	223		$	1,221		$	(277	)

Income tax expense computed at United States statutory tax rate	142		47			256			(58		)
Valuation allowances	1		4			(195		)	43
U.S. transition tax and prior period adjustments	56		78			56			78
Audits and settlements	7		—			(6		)	—
U.S. foreign income items, net of credits	8		(108		)	19			(146		)
Changes in enacted tax rates	41		(54		)	66			(54		)
Non deductible impairments	—		—			—			138
Non deductible government payments	—		—			—			37
Sale of Embraco	43		—			54			—
Other	15		40			61			14
Income tax expense computed at effective worldwide tax rates	$	313	$	7		$	311		$	52

At the end of each interim period, we estimate the effective tax rate expected to be applicable for the full fiscal year and the impact of discrete items, if any, and adjust the quarterly rate as necessary.

Valuation Allowances

We routinely review the future realization of deferred tax assets based on projected future reversal of taxable temporary differences, available tax planning strategies and projected future taxable income. We have reduced the valuation allowance to reflect the estimated amount of certain deferred tax assets associated with net operating losses and other deferred tax assets we believe are now more-likely-than-not to be realized. During the first quarter of 2019, upon completion of our $700 million bond offering, we used the proceeds to refinance and recapitalize various entities in the EMEA region. Based upon our existing transfer pricing policies, these actions are expected to provide sufficient future taxable income to realize the deferred tax assets. In addition, these actions injected additional internal capital into certain EMEA entities to meet local country capitalization requirements and we repaid all outstanding borrowings under the Whirlpool EMEA Finance Term Loan, in advance of the recently completed Embraco divestiture. Accordingly, we reduced the valuation allowance by $235 million during the first quarter of 2019. During the second quarter of 2019, we increased our total valuation allowance by $39 million related to the exit of our Turkey domestic sales operations and sale of our South Africa business and tax planning strategies that were deemed to no longer be prudent.