Whirlpool Corporation 2012 Form 10-K Summary
Business context and reporting period
Whirlpool Corporation is a global manufacturer and marketer of major home appliances, including laundry appliances, refrigerators, cooking appliances, dishwashers and related products. Operations are organized into North America, Latin America, EMEA and Asia. The filing covers the fiscal year ended December 31, 2012; quarterly data are provided for the three months ended December 31, 2012.
Whirlpool manufactured products in 11 countries, marketed products globally and employed approximately 68,000 people. Approximately 48% of 2012 net sales came from outside North America.
Financial performance and key metrics
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Net sales | $18.143 billion | $18.666 billion | Down 2.8% |
| Gross margin | $2.893 billion; 15.9% | $2.577 billion; 13.8% | Up 2.1 percentage points |
| Operating profit | $869 million; 4.8% | $792 million; 4.2% | Up $77 million |
| Earnings before taxes | $558 million; 3.1% | Loss of $28 million | Improved materially |
| Net earnings available to Whirlpool | $401 million | $390 million | Up 3.0% |
| Diluted EPS | $5.06 | $4.99 | Up 1.5% |
| Cash provided by operating activities | $696 million | $530 million | Up $166 million |
| Capital expenditures | $476 million | $608 million | Down $132 million |
| Dividends paid | $155 million | $148 million | Up $7 million |
Fourth-quarter 2012 net sales were $4.791 billion, operating profit was $258 million, net earnings available to Whirlpool were $122 million and diluted EPS was $1.52. Fourth-quarter 2011 net sales were $4.910 billion, operating profit was $205 million, net earnings available to Whirlpool were $205 million and diluted EPS was $2.62; the prior-year quarter benefited from substantially lower interest and sundry charges.
Year-end cash and equivalents were $1.168 billion, compared with $1.109 billion in 2011. Current assets were $6.827 billion and current liabilities were $6.510 billion. Total debt was approximately $2.461 billion, including $510 million of current maturities and $1.944 billion of long-term debt. Whirlpool had no borrowings under its $1.725 billion committed credit facility and was in compliance with financial covenants.
Regional and operational trends
- North America: Sales increased 0.5% to $9.631 billion despite a 5.0% decline in units. Operating profit increased to $846 million from $398 million, supported by price increases, cost reductions and capacity actions.
- Latin America: Sales declined 2.2% to $4.950 billion because of foreign currency and lower BEFIEX credits, despite a 6.8% increase in units. Operating profit declined to $476 million from $642 million.
- EMEA: Sales declined 13.1% to $2.874 billion, with units down 6.4% amid weak European demand. The segment reported a $51 million operating loss versus $1 million of operating profit in 2011.
- Asia: Sales declined 3.8% to $847 million, although units increased 0.4% and sales excluding currency effects increased 3.8%. Operating profit increased to $37 million from $30 million.
Management attributed the consolidated sales decline primarily to foreign currency, lower BEFIEX credits and lower unit shipments, partly offset by favorable pricing and product mix. Excluding foreign currency and BEFIEX, sales increased 2.9%.
Material changes versus the prior comparable period
- Gross margin improved substantially as price increases, productivity and restructuring benefits more than offset higher material costs and lower BEFIEX credits.
- Restructuring charges increased to $237 million from $136 million. The 2011 restructuring plan targets up to $500 million of total costs, with substantial completion expected by the end of 2013; approximately $250 million of future cash expenditures were expected at year-end.
- Interest and sundry expense fell to $112 million from $607 million, primarily because 2011 included significant charges related to the Brazilian collection dispute and Embraco antitrust matters.
- Operating cash flow improved despite approximately $400 million of legal settlement payments and $167 million of U.S. qualified pension contributions.
- Whirlpool issued $300 million of 4.70% notes due 2022 and used the proceeds partly to repay $350 million of debt that matured in May 2012.
- Whirlpool increased its ownership of Alno AG from 18.25% to 30.58% for $18 million and began applying the equity method. A cumulative $18 million reduction to retained earnings was recorded.
- A $4 million impairment charge was recorded for a European trademark. No goodwill impairment was recorded.
Guidance, outlook, risks and contingencies
For 2013, management forecast diluted EPS of $9.80 to $10.30, including an expected $0.81 BEFIEX benefit, a $1.75 restructuring expense and a $1.50 U.S. Energy Tax Credit benefit. Expected industry demand growth was 2% to 3% in North America, 3% to 5% in Latin America, flat in EMEA and 3% to 5% in Asia.
Management forecast 2013 operating cash flow of $1.2 billion to $1.3 billion and free cash flow of $600 million to $650 million, after $600 million to $650 million of capital spending, restructuring cash outlays of up to $245 million and U.S. pension contributions of up to $140 million. These projections are subject to economic, competitive and other uncertainties.
- Brazilian BEFIEX credits remaining for future monetization were approximately $184 million, including $56 million of court-awarded fees. The timing and ability to monetize the credits may be affected by government action.
- Brazilian tax assessments related to BEFIEX credits totaled approximately 1.2 billion Brazilian reais, or approximately $590 million, including interest and penalties. Whirlpool had not accrued these assessments.
- Embraco antitrust matters generated aggregate charges of approximately $357 million; $111 million remained accrued at year-end, with $73 million plus interest payable to government authorities through 2015. Related private litigation remained pending, and a proposed $30 million settlement with direct purchasers was subject to court approval after year-end.
- Whirlpool faced product-related class actions, including claims involving front-load washing machines. Potential losses could not be reasonably estimated for certain matters.
- Pension and postretirement benefit obligations exceeded plan assets by approximately $2.1 billion at year-end, consisting of approximately $1.6 billion for pensions and $0.5 billion for postretirement healthcare benefits.
- Other key risks include intense competition, weak consumer and housing demand, raw-material inflation, foreign currency volatility, dependence on major trade customers, supply-chain disruptions, labor relations, product recalls, regulatory changes, cybersecurity and impairment of goodwill or trademarks.
- Off-balance-sheet and contractual exposures included $6.306 billion of summarized contractual obligations, $449 million of Brazilian customer-credit guarantees, approximately $600 million of bank guarantees, letters of credit and surety bonds, and $831 million of operating lease commitments.
Ernst & Young issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2012.
Most important facts for investors to verify
- Whether 2013 margin gains from pricing, productivity and restructuring offset continuing material-cost inflation and weak EMEA demand.
- The timing and cash impact of the remaining restructuring program and the planned facility closures and workforce reductions.
- The collectability and legal status of BEFIEX credits and the potential exposure from Brazilian tax assessments.
- The ultimate cost of Embraco antitrust litigation and other product-related class actions or recalls.
- Liquidity after the $510 million of 2013 debt maturities, pension contributions, restructuring payments and planned capital expenditures.
- The sensitivity of pension obligations, deferred tax assets and trademark valuations to interest rates, market returns, operating performance and other assumptions.