Joseph Lovechio - Senior Director of Investor Relations Jeff M. Fettig - Chairman and Chief Executive Officer Marc R.

Bitzer - President of Whirlpool North America & Whirlpool Europe, Middle East & Africa (EMEA) Michael A. Todman - Director and President of Whirlpool International Resources Larry M.

Venturelli - Chief Financial Officer and Executive Vice President

Tom Mahoney Michael Jason Rehaut - JP Morgan Chase & Co, Research Division David S. MacGregor - Longbow Research LLC Denise Chai - BofA Merrill Lynch, Research Division Kenneth R.

Zener - KeyBanc Capital Markets Inc., Research Division Sam Darkatsh - Raymond James & Associates, Inc., Research Division

Thank you, and good morning. Welcome to the Whirlpool Corporation Third Quarter 2013 Conference Call.

Joining me today are Jeff Fettig, our Chairman and CEO; Presidents Mike Todman and Marc Bitzer; as well as Larry Venturelli, our Chief Financial Officer. Our remarks today track with the presentation available on the Investors section of our website at whirlpoolcorp.com.

Before we begin, let me remind you that as we conduct this call, we will be making forward-looking statements to assist you in understanding Whirlpool Corporation's future expectations. Our actual results could differ materially from these statements due to many factors discussed in our latest 8-K, 10-K and 10-Q, as well as in the appendix of this presentation.

Turning to Slide 3. We want to remind you that today's presentation includes non-GAAP measures.

We believe that these measures are important indicators of our operations, as they exclude items that may not be indicative of or are unrelated to results from our ongoing business operations. We also think that the adjusted measures will provide you with a better baseline for analyzing trends in our ongoing business operations.

Listeners are directed to the appendix section of our presentation, beginning on Slide 33, for the reconciliation of non-GAAP items to the most directly comparable GAAP measures. With that, let me turn the call over to Jeff.

Well, good morning, everyone, and thank you for joining us today. As you saw in our earnings release from earlier this morning, our third quarter results reflect record earnings for our company.

We continue to execute on the plans that we laid out to you at the beginning of the year, and we're managing well all the drivers which drive revenue growth and margin expansion. In addition, our -- we continue to accelerate the pace of our innovative new products in support of our industry-leading brands, and in turn, these are driving increased consumer demand and revenue growth.

As a result, this marks the seventh straight quarter in a row of year-over-year ongoing business operations margin expansions for us. Given the strong underlying trends that we see in our business today, we are raising our full year ongoing business operation EPS outlook to $9.90 to $10.10 per share and increasing our free cash flow forecast to between $690 million and $710 million of cash.

Our third quarter results are summarized on Slide 6. Excluding the impact of foreign currency and BEFIEX, our sales were up over 5% versus last year, led by strong growth in our North America business.

Diluted earnings per share from ongoing business operations improved by $0.92 or 51% and came in at $2.72 compared to $1.80 last year. As we continue to drive higher revenue growth and expand margins, our expectations for cash are firmly on track for the year, and we're effectively deploying that cash in line with our previously communicated priorities.

Turning to Slide 7, you will see our current full year industry assumptions by region as compared to our previous forecast. In North America, we are increasing our industry demand assumption to approximately 9% for the year as we continue to see positive trends in U.S.

housing, the normal replacement cycle of appliances and a return of discretionary purchases to the market. In Europe, we now expect a flat industry for the full year, as the region remains weak but appears to be stabilizing.

And for Latin America, we saw inflation and currency changes impact consumer demand in Q3. But we're now seeing a pickup in demand, and we expect that positive trend to continue during the fourth quarter.

So for the full year, our industry forecast is now expected to be a positive 1%. And finally, we're now forecasting the industry demand in Asia to be down 2% for the full year, primarily driven by industry demand weakness in India, somewhat offset by our strength in China.

In total, given these changes, our overall global industry demand expectations has increased slightly for the year. So at this point in time, I'd like to turn it over to Marc Bitzer.

Thanks, Jeff, and good morning, everyone. Let me begin on Slide 9 by reviewing North America's performance in the third quarter, starting with the top line.

Net sales of $2.6 billion for North America were up 8%, driven by higher volumes, particularly in the U.S. where core appliance revenue was up approximately 10% compared to the prior year.

Strength in the U.S. was partially offset by industry weakness in Mexico and currency impact in Canada.

Ongoing business operating margins were 11% for the quarter with ongoing business operating profit of $289 million, an all-time quarterly record, compared to $227 million in 2012. Higher sales, ongoing cost productivity and cost and capacity reduction benefits continue to be positive drivers in the third quarter, more than offsetting higher material cost.

Overall, ongoing business operating margins expanded by 1.7 points year-over-year. Consistent and disciplined execution of our action resulted in the eighth quarter of year-over-year ongoing business operating margin improvement.

Now let me take a moment to talk about our expectations for the rest of the year, as shown in Slide 10. Given current trends, we expect the strong momentum to continue in the fourth quarter.

And as Jeff indicated earlier, we are increasing our full year industry guidance to approximately 9%. Positive trends in the U.S.

housing continue, including both new constructions and existing home sales. In addition, we see increased demand for replacement purchases, as well as discretionary purchases, driven by improving consumer confidence.

We continue to invest in innovative new products. We are seeing the benefits of our cost and capacity reduction initiatives, as well as our ongoing cost productivity programs.

And we remain focused in growing beyond our core business. Turning to Slide 11, you can see a couple of examples of our leading innovative products in the North America region, with the industry's first induction double-oven freestanding range and KitchenAid brand's new 5-speed Diamond blenders.

I will now talk to the third quarter results for our Europe, Middle East and Africa region, as shown in Slide 13. As discussed in our last earnings call, our first milestone for Europe was to bring the operations back to breakeven, and this is what we achieved during Q3.

Our breakeven results for the quarter reflect a weak but stabilizing market environment in the Eurozone. Sales were $778 million, compared to $702 million in the prior year.

Excluding currency, sales increased 5% year-over-year, driven by higher volumes. Operating profit improved by $36 million, and operating margins improved 520 basis points compared to the prior year period.

Higher sales, ongoing cost productivity and benefits from cost and capacity reduction initiatives more than offset higher material costs. And we will continue to evaluate and take all actions necessary to ensure this positive trend in operating margin growth continues.

Turning to Slide 14, you can see a couple of examples of our leading innovative products in this region with the Bauknecht UltimateCare washer and the Bauknecht dishwasher with PowerClean+. And now I'd like to turn it over to Mike.

Thanks, Marc. If you turn to Slide 16, you'll see our Latin America third quarter results, which highlight our sixth conservative quarter of year-over-year ongoing business operations margin expansion.

Sales for the quarter were $1.1 billion, compared to $1.2 billion in the prior year. Excluding currency translation and BEFIEX, sales were down less than 1% to the previous year, as temporary reduction in global compressor sales was partially offset by growth in core appliances through increased market share.

GAAP operating profit for the quarter totaled $133 million, compared to $118 million in the prior year. On an adjusted basis, excluding Brazilian tax credits, our operating profit for the quarter totaled $104 million, 9.4% of sales, compared to $105 million or 8.8% of sales in the prior year.

Ongoing cost productivity offset higher material costs and foreign currency. Now let me take a couple of minutes to talk about the region in general on Slide 17.

The temporary reduction in global compressor sales stemmed from onetime events, including an unplanned port closure that delayed shipments, as well as some isolated trade customer inventory adjustments. The appliance industry in Brazil was flat for the quarter, given the negative impact from currency changes and inflation on the consumer.

At this point, given other environmental issues, we do not expect the government loan subsidy program in Brazil to have a relevant impact for appliances. However, we are now seeing a pickup in demand and expect that to continue in the fourth quarter.

So for the full year industry growth forecast, we expect a positive 1%. It is also important to note that we had strong appliance growth through increased market share as our innovative new product launches win with consumers.

So we expect our business in this region to outperform the industry, resulting in strong revenue and earnings growth going forward. We continue to be very positive about the long-term trend in Brazil, given the low penetration rate of appliances, the emerging middle class and strong underlying economic fundamentals.

Slide 18 shows how we continue to capitalize on the opportunity for growth with product leadership in Latin America. For this quarter, we've highlighted the Consul Bem Estar refrigerators.

Our third quarter results in the Asia region are shown on Slide 20. Net sales during the quarter were $197 million, compared to $201 million in the prior year.

Excluding the impact of currency, sales increased approximately 2%. Operating profit of $7 million was approximately 4% of sales, flat from the prior year, as growth in China, favorable price and mix, as well as ongoing cost productivity was offset by industry weakness in India, increased raw material cost and foreign currency.

One last note on our Asia region. We were pleased to announce our intent to become majority shareholder of Hefei Sanyo and accelerate our growth in the emerging Chinese market.

The regulatory approval process remains on track, and as we previously stated, we expect the transaction to close by the end of 2014. Slide 21 shows a couple of examples of our product leadership in Asia.

For this quarter, we've highlighted 2 refrigerators: the Whirlpool Neo iChill and the Whirlpool Beijing Opera. Now I'd like to turn it over to Larry.

Thanks, Mike, and good morning, everyone. Overall, the underlying fundamentals of our business continue to remain strong, as evidenced by another quarter of bulk sales growth and margin expansion.

We continue to manage effectively through short-term volatility in demand and unfavorable currencies across the globe. Given our strong operating results for the first 3 quarters, we are again raising our full year guidance today.

Turning to Slide 23, you can see we now expect to deliver annual GAAP EPS in the range of $10.45 to $10.65 per share and ongoing business operations EPS of $9.90 to $10.10 per share. We are also raising our expectations for 2013 free cash flow to be in the range of $690 million to $710 million.

Before I move on, as a general reminder, Slides 33 to 41 in the appendix provide you with a reconciliation of our reported GAAP operating profit and EPS to ongoing business operations for 2013 and 2012 and reported GAAP cash provided by operating activities to free cash flow. On Slide 24, you will note that we continue to execute our margin expansion actions.

In both the third quarter and year-to-date, we drove a 170 basis point improvement in ongoing business operating profit margin. Price mix is on track, and we continue to expect to realize 0.5 points for the full year.

Our cost and capacity reduction initiatives contributed 1 point, consistent with our full year guidance. Net cost productivity was positive year-to-date as our actions more than offset material cost inflation of approximately $120 million to the first 9 months of the year.

For the full year, productivity will more than offset approximately $180 million to $200 million of material cost inflation. We expect net cost productivity to deliver approximately 0.5 points in margin for 2013.

Increases in marketing, technology and product investments are expected to reduce margins by approximately 0.5 points for the full year. As we manage all these margin drivers, we expect to deliver an ongoing business operating margin of greater than 7%, and we remain on track for our 8% margin target in 2014.

Moving to the financial summary on Slide 25. Reported net sales were $4.7 billion, compared to $4.5 billion [ph] last year.

Excluding the impact of both foreign currency and BEFIEX, sales were up over 5% compared to the prior year, primarily driven by strong growth in North America. Third quarter ongoing business operating profit increased 34% to $353 million, up from $262 million in the prior year, driven by higher sales, ongoing cost productivity and the benefit from cost and capacity reductions, more than offsetting higher material cost and unfavorable currency.

The graph on Slide 27 illustrates expenses associated with our cost and capacity reduction program. The program results continue to be strong.

For the full year, we still expect our program expense to be approximately $185 million, and we will deliver $175 million of operating profit benefit. We remain firmly on track to deliver the full $400 million in benefits we announced when the plan was initiated.

On Slide 28, you see that our actions to deploy cash this year are aligned with our previously communicated priorities, which include funding the business for growth, including capital expenditures, refinancing our long-term debt maturities and contributing to our pension. We are also returning to our shareholders through an increased dividend.

And since resuming our share repurchase program earlier this year, we have repurchased $140 million of company stock, leaving $210 million in funds remaining under our existing board authorization. Also, as Mike mentioned, we are on track to acquire a 51% majority stake in China's Hefei Sanyo at the end of 2014.

Finally, in regards to next year's company outlook and consistent with prior years' practice, we will provide guidance for 2014 during our next conference call in late January, early February. However, we do anticipate continued earnings improvement, driven by both revenue growth and margin expansion.

And given our cash flow generating capability and strong balance sheet, we will continue balancing funding for all aspects of our business to ensure the best long-term value creation for our shareholders. Now I'll turn it back over to Jeff.

Thanks, Larry. Let me summarize on Slide 30.

As we've said, both year-to-date and for the quarter, we're pleased with the progress that we're making in our results. And as we indicated, we have raised our guidance for 2013.

Looking ahead, although we're not providing, today, any 2014 guidance, I did want to make clear the trends that we're seeing in the business. Overall, globally, although varied by market, we are seeing demand trends improving.

We're very positive about our robust pipeline of new innovative products, and we expect it to have a positive impact on our customers and drive further revenue growth. We are seeing material costs, although still increasing, seeing the rate of that increase stabilizing.

And we fully expect the current trends that we see in our business and our positive momentum to carry over through the fourth quarter and into next year. We also expect to get through the currency fluctuation impacts that we experienced in the first 3 quarters of the year.

So as a result, we are generating very strong underlying cash and growing our investment capacity to deliver upon our cash priorities. Finally, I would turn to Slide 31 and just say this is a slide we first introduced to investors in the fall of 2010 and say that we remain very confident in our opportunities to grow our business, expand our margins and generate strong free cash flow.

We are executing on our long-term growth strategy to remain focused on delivering our shareholder value creation targets. So with that, I'd like to open the line up for questions.

This is Tom Mahoney on for Eric this morning. A question on the North America guidance for the fourth quarter.

It looks like you're implying industry shipments up in the 10% range, which is pretty similar to what the industry did in the third quarter. What are you seeing in the market that gives you confidence in that forecast relative to the softer September shipment number we saw?

Tom, it's Marc Bitzer. Let me try to answer it and break it up in pieces.

First of all, I mean, the overall industry, again, August, the industry was up 15%. September was "only" up 6%, but the entire Q3 was strong at 10.4%.

And basically, what we're saying, we see the current momentum continuing into Q4. Let me make a couple of comments on some noise, which was out there towards the end of the quarter, beginning of October.

First of all, and we made this point earlier, I would be extremely cautious looking at weekly industry shipment data. Depending on where certain shipments fall into, that can make a big difference.

For example, we know at least one big retailer who took Black Friday shipments in August as compared to September last year, and that makes a big difference. More importantly, to keep in mind that the data you sometimes see is shipment data.

That is not sell-through data. If you would look at the sell-through data, and we have about 70% of our retailers participating, we saw a small decline towards the end of September, October.

By the same token, the early indicators of last week are somewhere between strong and extremely strong. That's why I'm saying be careful about weekly shipment data.

And we saw a small blip, but it's completely normalized, and that gives us a lot of confidence about the Q4 industry shipments.

Great. And then what is the driver if you guys outperformed AHAM 6 on your unit shipments in the third quarter?

What is the driver of that, and what has changed relative to the first half where you underperformed? And specifically, what areas in North America are you gaining share?

Tom, it's again Marc Bitzer. Repeating a comment which we made at other earnings call, you're comparing T6 industry shipments with our overall unit shipments as we publish it.

So there's a lot of things in units outside T6. There's also other products, like kitchen and small domestic appliances, which had a very strong Q3.

So overall unit shipments, which we publish, are a lot of elements, way more than the just pure T6 where we look at the industry data -- or T7. Having said that, if you would just focus on the T7 and T6, I would say our market share is overall slightly stable and slightly down on a year-over-year basis.

So it's not that we're kind of picking up huge market share, but we're pretty stable, which is a reflection of strong product launches, which we had. That's a positive.

At the same time, we continue to stand firm on our promotional policy, which also means during the July promotion period, we lost a little bit of share, and picked it up back in August, September.

My first question, on North America, the improvement that you continue to see there is solid. And with an 11% margin this quarter, you're kind of getting back to the 11% type of margin that you did mid-cycle last cycle.

And so my question is kind of twofold. One, do you remain confident?

During the last quarter, you saw a little bit of blip up in promotional activity, and I think during the past cycle that pricing was a little bit more of an issue. Any update in terms of promotional activities as you've seen them year-to-date relative to your expectations?

And I think, bigger picture, do you see any structural changes in the industry, particularly in the competitive makeup of North America, the competitive marketplace, that would or would not support margins in North America being higher this cycle than previous cycle?

Mike, it's Marc Bitzer. Let me try to answer your question, which obviously has several pieces in there.

Let me first make a comment on your word of mid-cycle. Mid-cycle implies that it's a normal cycle up and down.

And I would like to remind ourselves, last year, same period, we already were trending towards operating margin of 7% or 8% in a bad industry environment. So what I would see right now is, to some extent, driven by industry, but to a much larger extent, driven by the actions which we took out on cost productivity, pricing, capacity reduction, et cetera.

So we're kind of starting, if you want to say, for this industry cycle, on a much, much stronger base than, I would say and would argue compared to previous periods. So that's a big difference, which also means the industry volume is only one part of our strong margins, but not the only one.

To your question about promotional activities, yes, we did see a slightly increased promotional activity by certain competitors who went pretty long on Black -- not Black Friday, on July 4th. We saw normal activities, what I would call, or as-expected activities around Labor Day.

It's difficult to forecast what happens around Black Friday. And as you know, we don't comment on our future promotion plans.

But I would argue, and we made the same comment in the Q2 earnings call, Q3 shows we stand firm behind our promotion policy, which means we will participate, but we will not participate when there is no value creation for either us or the trade partner.

And Michael, this is Larry. One other thing, and just speaking in general for the company, when you talk about last cycle, our fixed cost structure is much different now than it was back then.

So what you've seen in the last couple of quarters is the fact that we've seen revenue improvement volume increase on a much smaller fixed cost structure. So what you're actually seeing is just the power of the leverage.

No, great, I appreciate that. And I guess, just flipping to the top line as my second question.

You referred throughout the presentation, or here and there, and certainly, it's a big part of your longer-term strategy in terms of expanding adjacent revenue streams, growing beyond the core. I was wondering if you could give us a sense of, with the growth that you're seeing this year, the volume growth either globally or even by region would be more helpful, what you estimate that might have contributed to your results this year.

And how do you think of that adjacent -- those adjacent streams -- of the 5% to 7% revenue growth, is that another -- is that a 1% to 2% driver, or how do you think about that? So kind of bigger picture, but also if you could provide any granularity on how it helped in 2013.

Mike, I can give you directionally what we're doing there. There's a lot of different pieces of our extend businesses.

And again, extend businesses are businesses that we're able to create revenues off of because of our strong core. And the expand businesses are, let's say, new or expanded spaces that we can apply our brands and operating execution to.

And so it's a wide variety portfolio, but it's very tied to those 2 things. And I would say, with the exception of global compressors, they're all growing.

And as I had indicated before, we would expect them to grow at about twice the rate of our global core appliance business, if you will. I would say, this year, they're probably -- they're growing much faster than our global core appliance business.

And they have very attractive margins that improve with that growth. So it's meaningful.

In total, it's over 25 -- or over 20% of our total revenues. It's growing at a faster rate.

There's many different examples we could use, but -- and it varies a little bit around the world. But particularly in Latin America and North America, we have a very strong portfolio of these business activities that are working very well right now.

I guess, just to pick up on Michael's question on the North America margins, if you take a look at where you were prior to Maytag, I mean, he was talking about 11% as mid-cycle. I remember quite a few quarters where you were putting up 12% kind of numbers and even, I'd say, 1 or 2 where you were pulling up a 13% handle.

If you take kind of the capacity utilization numbers you've shared with us in the past and you take the contribution margin numbers you've shared with us in the past and you extrapolate that, it's pretty easy to get to kind of mid-teens margins for North America at full capacity. So why are we wrong to think about that as -- and I realize you can't control when you get to full capacity.

That's a cyclical phenomenon. But why are we wrong to think about mid-cycle -- or peak margins as being mid-teens numbers?

David, let me maybe take the macro view of that, and then I'd ask Marc to add his comments. First of all, I'd go back a little bit back to Marc's comment.

I'm not sure that we could compare this to past cycles because the downturn was unlike any cycle we've ever seen. And so -- but on the demand, we're bullish in North America, and let's be clear, particularly in the United States.

And that is because, from peak to trough, we're down 28%. The market is up 8% to 9% so far this year.

So we still have a long way to go in terms of the drivers of demand. The housing market is moving in the right direction, we're very bullish on that.

We think we'll see, over time, an acceleration in the replacement cycle based on the installed base. We expect to see -- and then very positively have seen the return of discretionary purchasers.

So I think we're, as we've said before, at the beginning of a 3- or 5-year up cycle in demand. So your comment about increased production demand on capacity, it should be a positive productivity driver for us.

The other thing, though, that I want to just make sure is clear with everyone on the call is it's a little bit comparing apples to oranges. The Whirlpool North America business today is the North America business 10 years ago.

Post-Maytag, our portfolio mix changed dramatically. Now of course, we didn't -- it was not obvious to people because of the incredible downturn we saw in demand.

But today, our brand -- our sale of products is significantly weighted toward own brands versus, in the past, a very high preponderance of OEM. That's a plus mix factor for us.

We had elements of extend and expand. We now have businesses of extend and expand.

And I don't want to miss out on what I think is the most important, is our rate of innovation, and the kings of innovation, is stronger than it's ever been. It's not even comparable to 10 years ago.

So our portfolio is different today than it was a decade ago. So we're not going to give you a margin number.

I would just say that we're committed to value creation. We're committed to both growth and margin expansion, and I think we have the tools to do that.

David, it's Marc. Just to add a few comments on this one.

First of all, just to echo what Jeff was saying, if you come back to this word of mid-cycle. If you look at the industry demand, I would strongly argue we're way, way earlier than mid-cycle, probably in the early innings of an industry recovery.

And if you would look at typical demand cycles, even at the current growth rates, the industry is still below long-term trends. So we're far away from even remotely being at a mid-cycle in industry demand.

So with this demand side, yes, I would say we're very bullish. Your question about the margin expectation, of course, we can't specify the exact margin forecast.

To your point, it's driven by a number of factors. Capacity utilization or fixed cost leverage, because there's more than just factory capacity, is a big driver.

And from that perspective, we are probably in a better shape than we ever have been, post-Maytag. The other parameters are materials.

We can expect this leverage of commodity to cycle over and up, but right now, we see moderate materials. So that's the good news.

But then you also have pricing, promotional activity versus volume, and as you can imagine, even with healthier margins, we are driving for -- harder for revenue growth. And that is an everyday decision, which we will continue to evaluate as we go into the respective quarters.

But there's a couple of fundamental drivers which are part of this, but we also got to remind ourselves we're living in a competitive environment.

Great. Well, that was a great answer.

Maybe I should've asked why we shouldn't expect high-teens margins. On Brazil, I wonder if you could just dig a little further into that.

You put up a great volume number, despite the fact it sounds like your compressor units were down year-over-year. Can you just maybe break out for us how much of this might have been just acquired listings from sort of lost share by Mabe versus the innovation and the new product development?

And then maybe you could just give us a feel for what non-Brazil versus Brazil look like.

David, it's Mike Todman. First of all, let me just say, at the margin, the impact on price mix was positive for the quarter.

So I think it's important to note -- to differentiate between ASVs and margin on price mix. And at the margin, we had -- actually, it was very strong, and we had good improvement.

With respect to the overall ASVs and sales, I commented in the script on -- specifically on compressor sales, and we think we see those as just onetime temporary issues. We also did gain share in some categories that have lower price points.

And so the fact of the matter is that did depress, if you will, our overall ASV, but those categories have very positive margins. So we actually felt -- we felt really good about the margins there.

Outside of Brazil, we've got some markets that are very strong for us and where we had good growth. But then we've got markets like Argentina and Venezuela, where the demand was depressed.

So overall, I'd say it was about stable. It was even if you take those 2 things in consideration.

Can you remind us what the percentage breakdown is between Brazil, non-Brazil and in Broco?

The percentage of Brazil, non-Brazil, I believe probably around 60% of compressors would be Brazil.

But in appliances?

No, the Brazil appliance business...

Was about $1.5 billion in total.

Okay. Just last question, if I could quickly.

If you could talk about the Chinese acquisition and, I guess, the growth strategy once the deal closes? What's the 24-month to-do list look like?

And how capital-intensive will that be?

David, it's a little bit premature to talk about that. We're going through the regulatory approval process.

Once we get through that process, we'll then provide a lot more color in terms of what we expect. I'll just -- suffice it to say, we're expecting some very positive contributions from the business and at very reasonable investment levels.

Just want to ask some more questions on Latin America. We've been seeing some very positive data points from the big retailers in Brazil.

So could you explain a bit about why you don't expect the subsidy program to have a relevant impact for appliances?

Yes. Denise, it's Mike Todman.

Right now, we have not seen a huge demand increase from that. What we have seen is -- and the overall Brazil market in the quarter was actually flat.

So there's just the -- that's just distribution changes between different retailers. We have picked up a lot of share, so actually, we saw significant share growth in Brazil for the quarter.

And we are now seeing some more positive consumer demand. So we're seeing, in the fourth quarter, pretty strong demand coming through, but we don't think that, that's just the appliance program.

We think it's the overall consumer sentiment, you've seen that currency rates now stabilized, and it's those kind of things in the environment.

Great, okay. And in Latin America, I believe you used to say that your market share was about 40%.

Could you update us on that?

Yes, we gained about 5 points of share, so we were up in the quarter to about 45%.

Wow, okay. And just lastly, so -- I mean, you lowered your Latin America industry volume guidance, but your volumes have been so strong.

So I mean, could you comment a little bit more on the competitive environment and just where your share's been coming from, and also on the pricing environment, please?

Yes. Well, I think you know, the competitive environment, we have one competitor who declared bankruptcy, and that's certainly been an opportunity for us.

We continue to launch new products and new innovations into the marketplace, and so that's had a very positive impact for us. In fact, actually, we've taken price increases in the marketplace because of the currency and high inflation to be able to cover that.

So that's been a positive as well. So overall, we feel pretty good about where this market is and where it's going.

Jeff, Marc, Larry. 11%.

The last time you did that was 1Q '04. Can you talk about, in North America, how the seasonality of the business impacts margins to help give us a reference point for the current level of margins, kind of on a sequential basis?

Ken, it's Marc Bitzer. And first of all, let me add a general comment.

I would say the North America margin seasonality is probably less compared to Latin America or Europe. I mean, you just have much more seasonal blips.

And so I would say in general terms, the seasonality in our North America business is fairly limited. There's a couple of pluses and minuses.

But take, for example, Q4. Yes, you have a fairly long holiday period which -- that you have lower margin.

On the other hand, you have other businesses around kitchen and small domestic, which are more attractive, so it's pretty much a balance act. Typically, our Q3 and Q4 are slightly more profitable than the first 2 quarters, but only to a lesser extent.

So in general terms, I wouldn't look at, right now, Q3 and Q4 season numbers. I would rather call them run rates.

Okay. The 9%, you're pretty much that range for 4Q.

Obviously, you talked about people's perhaps misinterpretation of volatile weekly data vis-à-vis shipments, vis-à-vis POS, so I appreciate that. Could you give us a little more granularity around the contractor versus the replacement splits that you guys are seeing out there in North America?

Ken, again, it's Marc Bitzer. I mean, obviously, we don't break down the forecast in terms of contract versus retail.

But let me just...

Or just the quarter.

Let me -- just for Q3, the business which we call contract, i.e., these are the national, large national builders and also some of the small builders, has been very strong. We're talking about in the ballpark of 40% to 60% up.

So this industry is growing exceptionally strong. I know there's been a lot of press reports about housing slowing down.

We don't see that.

Okay. When we think about your 4Q, can you just give us a sense for where -- how much inventory -- and it varies by some of the channels, obviously, but how much visibility you have into your forward activity?

So if there are 2 weeks, I know retailers might have 2 weeks, some retailers don't have large inventory. Builders, you have larger visibility because you bring your product in at the very end.

But could you give us a sense how much insight you have? Or do you focus more on the inventory levels that are there or more on the POS?

How should we think about that?

Again, Ken, it's Marc Bitzer. I mean, as much as we look about POS, we strongly look at inventory data from our retailers.

And we typically have 70%, 80% of our retailers give us our -- their inventory data, so we have a pretty good visibility on this one. And yes, you're correct, it's a wide range.

Some retailers, they don't hold inventory. Some other ones have 7% or 8% inventory.

I would say the overall inventory level, with some pluses and minuses end of Q3, were balanced, i.e., there has not been significant inventory build. And we have also a little bit of inventory build towards the end of August.

By the end of September, that's pretty much balanced out.

Okay. Now the margin gains that we did see, could you kind of help us think about -- I think, Larry, you kind of talked about a 20% general EBIT operating leverage in the business.

I assume that's tied to volume. Can you tell us if that's correct, a?

And then b, the improvement, how much of that is price mix, and how should we think about that?

Yes, I think -- again, I think the incremental margins in general are right around what you had said, around 20%. What we saw in Q3 was about 0.5 point positive price mix.

The cost and capacity reduction program contributed about 1 point. We were able to offset -- more than offset material cost and delivered about 0.5 points of productivity.

And then marketing technology and product investments was approximately about 0.5 points. So we ended the quarter at about 7% to 8% [ph] profit margin.

And the numbers I gave you is pretty much how we see the full year shaping up.

Okay. And then my last question, do appreciate it, what are you going to do with all this cash you're generating?

I mean, you've highlighted this Hefei [indiscernible] absorbed 500 and change of capital at some point at the end of 2014. Given the generation of cash, more of it abroad than domestic, how do you guys look to deploy that capital?

And what vehicles would you have to bring it back to the U.S., where you could pursue more share repurchase programs?

Yes, I guess, I think we've been pretty consistent about usages of cash, and we're doing everything we spoke about earlier. So we increased the dividend this year.

We did begin repurchasing stock. Mike talked about the Hefei Sanyo acquisition.

And in addition to that, we continue to fund the business. So those are really the levers that we continue to look at over time as the company generates cash, and we look at all of them.

So that would be how we would utilize cash going forward. As far as cash and cash location, we look for tax-efficient ways to bring cash back in to deploy cash.

And certainly, in this case -- and if we have a great opportunity on an international opportunity in China that's going to be very value-creating for the company, and so what you've seen us is deploy cash, and we will deploy cash into China.

Two thrusts of my questions. First off, I noticed that the marketing and technology R&D costs are now less of a headwind by about 0.5 points on the margin for the year.

What's the reasoning behind that? It seems -- I mean, superficially, at least from externally, it looks like you had a little bit more raw material inflation, and you're maybe offsetting it with less R&D and marketing costs.

Am I looking at that wrong?

Sam, this is Larry. I think probably what you're seeing is, as Jeff talked about earlier, industry guidance went up, so our sales forecast is up a bit.

So we're getting a little bit more leverage on the dollars.

Okay. So the absolute level of spending has not changed there.

Is that accurate?

That's correct. We're still spending incremental dollars this year over last year, so yes, that's true.

Okay, good. Next question, and this is even more fine-tuning around Latin America, can you quantify the compressor negative impact -- or what compressors were down in the quarter and -- both on a sales and possibly an EBIT line for us?

Then I've got a couple of quick follow-ups in Latin America, also.

Sam, this is Larry again. Let me do it this way because there are some nuances in Latin America when you look at ASVs.

So within sales, you have a mix -- as you know, you have a mix of appliances and compressors. And our reported units are only appliances.

We do not report units of compressors. So if you were to do an apples-to-apples comparison and added the units to the compressors in sales, along with appliances, our ASVs were actually up.

That's pretty much what I can provide you with.

So your ASVs were up. But can you help us with respect to what compressors were down and whether that's going to be a bleed-over into Q4?

They were down -- again, Mike mentioned temporary reduction. So they were down in the double digits, and we do expect that to recover.

Sam, just to add to that, I would say that what we expect is growth when you look at our total our business in the fourth quarter.

Okay. And then BEFIEX remaining, and I noticed the run rate in Q4 is only $5 million.

What do you expect the run rate for '14? And then also, for your industry growth expectation in Latin America of 1% for the year, can you remind us what that implies for fourth quarter industry shipments?

A couple of questions. Let's handle BEFIEX first.

We expect to end the year with around $90 million of credits, as we've talked before. About $50 million of that is related to legal fees, which we will not collect for several years.

So really, you're talking a very small amount that would be monetized in 2014, around $40 million. That was your question in regards to BEFIEX.

And what was your other question?

Your 1% growth in Latin America for the year -- for the industry growth. What does that mean for Q4 specifically for the industry?

You're probably talking up mid-single digits.

Up mid-single digits?

Yes.

Well, listen, everyone. Again, we're pleased with the progress that we've made.

Appreciate you participating on this call, and we'll look forward to updating you in late January. So thank you very much.