Whirlpool Corporation 2010 Form 10-K Summary
Business context and reporting period
Whirlpool Corporation is a global manufacturer and marketer of major home appliances, including laundry, refrigeration, cooking, dishwashing and small household appliances. Operations are organized into North America, Latin America, Europe and Asia. The filing covers the fiscal year ended December 31, 2010; it is an annual report, not a quarterly filing, although fourth-quarter results are disclosed.
- Approximately 71,000 employees and manufacturing operations in 12 countries.
- Approximately 47% of 2010 net sales originated outside North America.
- Major product categories were refrigerators and freezers, 31% of sales; laundry appliances, 30%; cooking appliances, 16%; and other products, 23%.
Financial performance, cash flow and liquidity
| Metric | 2010 | 2009 | Change |
|---|---|---|---|
| Net sales | $18,366 million | $17,099 million | 7.4% increase |
| Operating profit | $1,008 million | $688 million | 46.5% increase |
| Operating margin | 5.5% | 4.0% | 1.5 points higher |
| Gross margin | 14.8% | 14.0% | 0.8 points higher |
| Earnings before taxes and other items | $586 million | $294 million | Increase |
| Net earnings available to Whirlpool | $619 million | $328 million | 88.7% increase |
| Diluted earnings per share | $7.97 | $4.34 | Increase |
| Cash provided by operating activities | $1,078 million | $1,550 million | 30.5% decrease |
| Capital expenditures | $593 million | $541 million | Increase |
| Dividends paid | $132 million | $128 million | Increase |
- 2010 net margin was 3.4%, compared with 1.9% in 2009. The effective income tax rate was a benefit of 10.9%, largely reflecting U.S. energy tax credits and Brazilian BEFIEX incentives.
- Cash and equivalents were $1.368 billion at year-end 2010, compared with $1.380 billion in 2009. Current assets were $7.315 billion versus current liabilities of $6.149 billion, producing a current ratio of approximately 1.2.
- Total debt, including current maturities, was approximately $2.507 billion; long-term debt excluding current maturities was $2.195 billion. Whirlpool repaid $379 million of long-term debt and reduced short-term debt by $20 million during 2010.
- The company had no borrowings under its $1.35 billion committed credit facility, which matures in August 2012, and was in compliance with its financial covenants.
- Inventories increased to $2.792 billion from $2.197 billion, contributing to lower operating cash flow. Management cited approximately three additional days of inventory resulting from slower second-half sales growth.
Material changes versus the prior comparable period
- Unit volumes increased in every geographic region: North America 5.9%, Latin America 16.1%, Europe 4.7% and Asia 22.4%.
- Regional sales increased in North America by 2.0%, Latin America by 26.7% and Asia by 30.6%, while Europe declined 3.3% because of currency effects and unfavorable price/mix.
- Latin America benefited from $225 million of BEFIEX credits in 2010 versus $69 million in 2009. Approximately $540 million of credits remained available at year-end, subject to future Brazilian government action.
- U.S. energy tax credits recognized increased to $225 million from $113 million in 2009.
- Productivity and cost reductions improved margins, but unfavorable pricing, competitive pressure and higher metals and oil-related costs partially offset the gains. North America gross margin declined to 11.8% from 12.9%, while consolidated gross margin improved.
- Restructuring charges declined to $74 million from $126 million. The Evansville, Indiana manufacturing facility was closed in June 2010, eliminating approximately 1,100 positions.
- Product recall charges increased to $78 million from $35 million. The principal item was a voluntary recall of 1.8 million dishwashers, for which the company accrued $75 million.
- Antitrust-related charges increased to $93 million from $56 million, and a Brazilian collection-dispute charge of $53 million was recorded in 2010.
Guidance, outlook, risks and unusual items
- For 2011, management projected diluted EPS of $12.00 to $13.00 and free cash flow of $400 million to $500 million. The free cash flow outlook includes approximately $300 million of U.S. pension contributions.
- Management projected 2011 operating cash flow of $1.0 billion to $1.1 billion, capital expenditures of $600 million to $650 million and potential asset-sale proceeds of zero to $50 million.
- Expected 2011 industry demand growth was 2% to 3% in North America, 5% to 10% in Latin America, 2% to 4% in Europe and 6% to 8% in Asia.
- Material-cost inflation was expected to be approximately $250 million to $300 million, driven primarily by component parts, steel and base metals. Management intended to offset this through productivity gains, pricing actions and new products.
- Debt maturities over the next 15 months were approximately $650 million. Contractual obligations totaled approximately $6.894 billion, including debt, leases, purchase obligations, pension funding, postretirement benefits and legal settlements.
- Pension and postretirement obligations exceeded plan assets by approximately $2.205 billion at year-end, including a $1.534 billion pension deficit and a $671 million postretirement healthcare deficit.
- Embraco antitrust matters resulted in approximately $204 million of aggregate charges through year-end, with $142 million remaining accrued. Related private litigation and investigations in other jurisdictions remained unresolved.
- A Brazilian collection dispute had a recorded liability of $156 million. Management stated that an unfavorable appeal outcome and judicial adjustments could result in exposure two to seven times the accrued amount.
- Other principal risks include intense global competition, dependence on large retailers, weak housing and consumer demand, foreign-currency volatility, commodity inflation, supplier disruptions, product liability and recalls, labor relations, environmental regulation, cybersecurity, and impairment of goodwill or trademarks.
- Goodwill and trademark impairment tests performed in 2010 identified no impairment, but management disclosed significant sensitivity to lower projected cash flows, higher discount rates and weaker brand revenue.
Most important facts for investors to verify
- Whether 2011 EPS and free-cash-flow guidance was achieved, particularly after excluding the expected $200 million of BEFIEX credits and $300 million of U.S. energy tax credits.
- Whether pricing actions and productivity improvements offset the projected $250 million to $300 million of material-cost inflation.
- Inventory normalization and conversion of earnings into operating cash flow.
- Debt refinancing and repayment capacity in light of near-term maturities and planned pension contributions.
- Final outcomes of the Brazilian collection dispute, Embraco antitrust litigation and other unresolved legal matters.
- Actual costs and remaining exposure from product recalls and potential quality investigations.
- The sustainability of Brazilian BEFIEX credits and the expiration of U.S. energy tax-credit provisions after 2011.
- Pension funding requirements, postretirement obligations and sensitivity to discount-rate and healthcare-cost assumptions.