Whirlpool Corporation 2011 Form 10-K Summary
Business context and reporting period
Whirlpool Corporation is a global manufacturer and marketer of major home appliances, operating in North America, Latin America, Europe, the Middle East and Africa (EMEA), and Asia. The company manufactures in 12 countries under 13 principal brands and had approximately 68,000 employees at December 31, 2011. This filing covers the fiscal year ended December 31, 2011; fourth-quarter data are included in the annual financial statements.
Principal product categories were refrigerators and freezers, laundry appliances, cooking appliances, and other appliances. 2011 sales were geographically diversified, with approximately 49% generated outside North America.
Key financial metrics
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Net sales | $18.666 billion | $18.366 billion | 1.6% increase |
| Gross margin | $2.577 billion; 13.8% | $2.714 billion; 14.8% | Margin down 1.0 point |
| Operating profit | $792 million; 4.2% | $1.008 billion; 5.5% | 21.4% decrease |
| Earnings before taxes | $(28) million | $586 million | Declined to a loss |
| Net earnings available to Whirlpool | $390 million | $619 million | 37.0% decrease |
| Diluted EPS | $4.99 | $7.97 | 37.5% decrease |
| Cash from operating activities | $530 million | $1.078 billion | 49.2% decrease |
| Capital expenditures | $608 million | $593 million | Increase |
| Cash and equivalents | $1.109 billion | $1.368 billion | Decrease of $259 million |
| Total debt | $2.491 billion | $2.509 billion | Slight decrease |
Fourth-quarter 2011 net sales were $4.910 billion versus $5.041 billion in the fourth quarter of 2010. Net earnings available to Whirlpool were $205 million versus $171 million in the comparable quarter, and diluted EPS was $2.62 versus $2.19.
Regional 2011 sales were $9.582 billion in North America, $5.062 billion in Latin America, $3.305 billion in EMEA, and $881 million in Asia, before other/eliminations. Units sold declined 0.6% overall, including a 2.0% decline in North America, while Latin America units increased 1.4%.
Liquidity remained supported by $1.109 billion of cash, no borrowings under the $1.725 billion committed credit facility, no commercial paper outstanding, and compliance with applicable financial covenants. Current assets of $6.422 billion were approximately equal to current liabilities of $6.297 billion.
Material changes versus the prior comparable period
- Sales growth was modest and primarily reflected favorable foreign-currency translation and higher Brazilian BEFIEX export credits; excluding currency, consolidated sales decreased 0.4%.
- Gross margin deteriorated because of higher steel, resin, oil-related and other material costs. Productivity improvements, pricing actions, a $61 million supplier recovery, and lower recall charges partly offset the pressure.
- Interest and sundry expense increased to $607 million from $197 million, primarily because of $528 million of 2011 charges related to the Brazilian collection dispute and Embraco antitrust matters.
- Operating profit declined despite relatively stable selling, general and administrative expense. Research and development spending increased 8.6% to $578 million.
- Operating cash flow fell substantially because of the Brazilian settlement payment, $298 million of U.S. pension funding, lower earnings, and related tax and working-capital effects. Inventory reductions provided a partial offset.
- Whirlpool issued $300 million of 4.85% notes due 2021 and used the proceeds to repay $300 million of maturing debt.
- The company recognized $136 million of restructuring costs in 2011, compared with $74 million in 2010, and announced a plan expected to cost approximately $500 million through 2013.
Guidance, outlook, commentary, risks and unusual items
Management’s 2012 outlook called for diluted EPS of $5.00 to $5.50 and free cash flow of $100 million to $150 million. The outlook included estimated BEFIEX benefits of $60 million to $80 million and restructuring expense of $250 million to $270 million. Projected cash uses included approximately $250 million of pension contributions, $385 million related to the Brazilian collection dispute and Embraco antitrust matters, and $279 million of restructuring cash outlays. Expected industry demand was flat to up 3% in North America, up 2% to 5% in Latin America, down 5% to 2% in EMEA, and up 2% to 4% in Asia.
- The restructuring program includes more than 5,000 position reductions, closure of a U.S. refrigeration facility, cessation of laundry production at a European facility by 2013, and other North American and EMEA capacity and organizational actions.
- The Brazilian Banco Safra settlement totaled 959 million Brazilian reais. A $301 million payment was made in July 2011 and a second payment of approximately $275 million was made in January 2012; approximately $261 million remained accrued at December 31, 2011.
- Embraco antitrust matters generated approximately $315 million of cumulative charges. At year-end, $189 million remained accrued and installment payments of $172 million plus interest were due through 2015. Related private litigation remained unresolved, and potential aggregate costs could be material.
- Approximately $238 million of future Brazilian BEFIEX cash monetization remained, including $60 million of court-awarded fees. Future monetization could be limited by Brazilian governmental actions.
- Defined benefit pension and postretirement obligations exceeded plan assets by approximately $1.990 billion at year-end, including $1.502 billion for pensions and $488 million for postretirement healthcare.
- Material risks include intense competition, weak consumer and housing demand, raw-material inflation, foreign-currency volatility, European economic instability, dependence on major retailers, supply-chain disruption, labor relations, product liability and recalls, litigation, regulatory changes, cybersecurity, and pension funding requirements.
- Whirlpool reported no goodwill or trademark impairment for 2011, but disclosed sensitivity to lower operating margins, higher discount rates, lower forecast revenue, and reduced royalty rates.
- Product warranty and recall reserves declined to $191 million from $217 million. The company had no remaining accrual for the previously disclosed dishwasher recall, but continued investigating a limited number of potential quality and safety issues.
Most important facts for investors to verify
- Whether pricing actions and restructuring savings can offset continuing material-cost inflation and weak demand.
- The timing and final cash cost of the Brazilian settlement, Embraco antitrust matters, and related private litigation.
- Whether the $100 million to $150 million free-cash-flow outlook is achieved after pension, restructuring, legal and capital-spending requirements.
- The sustainability of Brazilian BEFIEX credits and the approximately $238 million of remaining cash monetization.
- Progress on the restructuring plan, including the more than 5,000 planned position reductions and facility closures.
- Changes in pension funding requirements and the effect of discount rates and asset returns on the approximately $1.990 billion unfunded benefit position.
- Exposure to retailer concentration, particularly Lowe’s and Sears, which represented approximately $1.6 billion and $1.4 billion of 2011 sales, respectively.
- Potential future product recall, warranty, environmental, antitrust, consumer-protection and other litigation costs not fully estimable at filing.
Ernst & Young issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2011.