Whirlpool Corporation 2015 Form 10-K Summary
Business context and reporting period
Whirlpool Corporation is a global manufacturer and marketer of major home appliances, operating through North America, EMEA, Latin America and Asia. The filing covers the fiscal year ended December 31, 2015, with quarterly information for the three months ended December 31, 2015. The company had approximately 97,000 employees and manufactured products in 14 countries.
Whirlpool’s principal products include laundry appliances, refrigerators and freezers, cooking appliances, dishwashers, mixers and other small domestic appliances, as well as refrigeration compressors. The 2015 results include the first full year of contributions from the 2014 acquisitions of Indesit and a 51% interest in Hefei Sanyo, subsequently renamed Whirlpool China.
Financial performance and key metrics
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Net sales | $20.891 billion | $19.872 billion | 5.1% increase |
| Gross margin | $3.690 billion | $3.395 billion | 8.7% increase |
| Gross margin percentage | 17.7% | 17.1% | 60 basis-point increase |
| Operating profit | $1.285 billion | $1.188 billion | 8.2% increase |
| Operating profit margin | 6.2% | 6.0% | 20 basis-point increase |
| Net earnings available to Whirlpool | $783 million | $650 million | 20.4% increase |
| Diluted earnings per share | $9.83 | $8.17 | 20.3% increase |
| Cash provided by operating activities | $1.225 billion | $1.479 billion | Decrease of $254 million |
| Capital expenditures | $689 million | $720 million | Decrease of $31 million |
Fourth-quarter 2015 net sales were $5.560 billion versus $6.003 billion in the prior-year quarter. Fourth-quarter net earnings available to Whirlpool were $180 million, or $2.28 diluted earnings per share, compared with $81 million, or $1.02 per share, in fourth-quarter 2014.
- North America sales were $10.732 billion, up 0.9%, with operating profit of $1.252 billion versus $1.072 billion.
- EMEA sales were $5.601 billion, up 43.4%, primarily reflecting the Indesit acquisition; operating profit increased to $188 million from $59 million.
- Latin America sales were $3.349 billion, down 28.5%, driven by lower volumes, foreign currency effects and weak Brazilian demand; operating profit declined to $184 million from $475 million.
- Asia sales were $1.417 billion, up 73.6%, primarily reflecting Whirlpool China; operating profit increased to $80 million from a $21 million loss.
At December 31, 2015, cash and cash equivalents were $772 million, current assets were $7.325 billion and current liabilities were $7.744 billion. Total debt was approximately $3.998 billion, including $508 million of current maturities, and Whirlpool stockholders’ equity was $4.743 billion.
Other notable items included $201 million of restructuring costs, $74 million of intangible amortization, $209 million of income tax expense and a $64 million gain related to a Brazilian business investment. The company paid $269 million of dividends and repurchased 1.5 million shares for approximately $250 million. The quarterly dividend was increased 20% to $0.90 per share in 2015.
Material changes versus the prior comparable period
- Reported sales and earnings increased despite a strengthening U.S. dollar and declining demand in several emerging markets. Excluding foreign currency, sales increased 18.1%.
- Acquisition-related volume drove significant growth in EMEA and Asia. Whirlpool reported substantial progress integrating Indesit and Whirlpool China.
- Consolidated gross margin expanded through productivity initiatives, favorable price and mix, acquisition synergies and capacity optimization, partly offset by currency effects.
- Latin America deteriorated materially, particularly because of weaker Brazilian demand and currency depreciation. No BEFIEX credits were monetized in 2015, compared with $14 million in 2014 and $109 million in 2013.
- Operating cash flow declined primarily because of working-capital changes and a $72 million contribution to U.S. qualified pension plans.
- Debt structure changed following the issuance of approximately $525 million of euro-denominated 0.625% notes due 2020 and repayment of $200 million of notes maturing in 2015. Notes payable declined to $20 million from $569 million.
- Restructuring charges increased to $201 million from $136 million, primarily related to the Italian integration and other European and Latin American actions.
Guidance, outlook, risks and unusual items
Management’s 2016 outlook calls for diluted earnings per share of $11.25 to $12.00, including an estimated $2.40 per share restructuring expense and $0.30 per share of combined acquisition-related transition costs. Expected industry demand was North America up 5%, EMEA flat to up 2%, Latin America down 10% and Asia flat.
Management projected 2016 operating cash flow of $1.400 billion to $1.550 billion and free cash flow of $700 million to $800 million. The free-cash-flow outlook includes capital expenditures of $700 million to $750 million, restructuring cash outlays of up to $200 million and approximately $155 million of EMEA legacy-product warranty costs.
- Whirlpool estimated up to approximately $241 million of total costs for the Italian restructuring plan, with completion expected by the end of 2018. Up to $200 million of restructuring charges were expected in 2016.
- The company recorded a legacy-product corrective-action liability related to certain Indesit- and Hotpoint-branded dryers manufactured before October 2015. The estimated most probable cost was approximately $274 million pre-tax, with expected 2016 cash expenditures of approximately $155 million.
- Material contingencies include Brazilian tax assessments of approximately $395 million related to BEFIEX credits, approximately $56 million related to IPI tax credits and approximately $41 million related to controlled foreign corporation tax. No additional reserves were recorded for these disputed matters.
- Whirlpool had $79 million of receivables and notes associated with Alno AG, including $33 million overdue, creating exposure to customer financing and potential bankruptcy risk.
- The French Competition Authority investigation involving appliance manufacturers, including Whirlpool and Indesit operations, could have a material adverse effect, although the filing states that the impact cannot currently be assessed.
- Other risks include intense competition, raw-material costs, foreign currency volatility, supply-chain disruption, product liability and recalls, cybersecurity, labor relations, pension funding, environmental regulation and acquisition integration.
- The company’s aggregate pension and postretirement obligations exceeded plan assets by approximately $1.5 billion at year-end 2015.
- Whirlpool maintained approximately $2.8 billion of committed credit facilities and was in compliance with applicable financial covenants. It also had $508 million of term debt maturing within the next twelve months.
Important facts for investors to verify
- Whether 2016 earnings and free-cash-flow guidance can be achieved while absorbing restructuring, warranty and acquisition-transition costs.
- The pace and profitability of the Indesit and Whirlpool China integrations, including realization of projected synergies.
- Exposure to the Brazilian downturn, foreign currency movements and unresolved Brazilian tax assessments.
- The ultimate cost and timing of the Indesit dryer corrective-action campaign and the amount recoverable from the seller or suppliers.
- Liquidity available after near-term debt maturities, restructuring payments, pension contributions, capital expenditures, dividends and share repurchases.
- Potential impairment of goodwill and trademarks; the filing reports approximately $3.0 billion of goodwill and $2.7 billion of trademarks, with certain trademarks having limited valuation cushion.
- Progress and resolution of the French competition investigation, product-liability litigation and the preliminary settlement involving front-load washing machines.
- Underlying organic sales and margin performance after separating acquisition effects, currency translation and discontinued BEFIEX credits.