Whirlpool Corporation 2013 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, Latin America, EMEA and Asia. The filing covers the fiscal year ended December 31, 2013. Whirlpool manufactured products in 11 countries, marketed them globally and employed approximately 69,000 people. The filing also provides unaudited fourth-quarter results.
Financial performance and liquidity
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Net sales | $18.769 billion | $18.143 billion | +3.4% |
| Gross margin | $3.298 billion; 17.6% | $2.893 billion; 15.9% | +$405 million; +1.7 pts |
| Operating profit | $1.249 billion; 6.7% | $869 million; 4.8% | +$380 million |
| Earnings before income taxes | $917 million | $558 million | +$359 million |
| Net earnings available to Whirlpool | $827 million | $401 million | +106.0% |
| Diluted earnings per share | $10.24 | $5.06 | +102.3% |
| Cash provided by operating activities | $1.262 billion | $696 million | +$566 million |
| Capital expenditures | $578 million | $476 million | +$102 million |
Net sales benefited from higher unit shipments and $109 million of BEFIEX credits, partly offset by foreign-currency effects and product mix. Excluding foreign currency and BEFIEX credits, sales increased 4.4%. Consolidated units sold rose 5.0% to 55.141 million.
- North America: sales increased 5.7% to $10.178 billion, with units up 6.6%; operating profit increased to $1.070 billion from $846 million.
- Latin America: sales declined 0.5% to $4.928 billion because of currency effects, although units increased 6.2%; operating profit increased to $557 million from $476 million.
- EMEA: sales increased 5.2% to $3.024 billion and units increased 3.1%, but operating profit remained slightly negative at $(4) million, improving from $(51) million.
- Asia: sales declined 4.8% to $807 million and units declined 2.7%; operating profit was $34 million versus $37 million.
Cash and equivalents were $1.380 billion at year-end, including approximately $1.3 billion held outside the United States. Current assets were $7.022 billion versus current liabilities of $6.794 billion. Total debt was approximately $2.463 billion, including $607 million of current maturities and $1.846 billion of long-term debt. Whirlpool had no borrowings under its $1.725 billion committed credit facility and was in compliance with its covenants.
Financing cash usage increased to $434 million, principally because of $350 million of share repurchases and higher dividends. Whirlpool repurchased 2.5 million shares for $350 million during 2013; the authorization was exhausted at year-end. Dividends paid were $187 million, or $2.38 per share.
Material changes versus the prior comparable period
- Gross margin expanded substantially because of productivity gains, restructuring benefits, price and mix, and higher BEFIEX credits, partly offset by higher material costs.
- Operating profit improved across North America, Latin America and EMEA, while Asia remained profitable but weakened modestly.
- Restructuring costs declined to $196 million from $237 million, although cumulative costs under the 2011 plan reached $511 million through year-end.
- Interest and sundry expense increased to $155 million from $112 million, primarily because of Embraco antitrust matters, a Brazilian government settlement and expenses related to the pending Hefei Sanyo acquisition.
- Income tax expense declined to $68 million from $133 million. The 2013 result included $126 million of U.S. energy tax credits related to 2012 and 2013 production.
- Operating cash flow increased sharply, reflecting higher earnings and working-capital improvements, partly offset by a $116 million contribution to U.S. qualified pension plans.
- Year-end pension and postretirement obligations exceeded plan assets by approximately $1.5 billion, consisting of approximately $0.9 billion of pension underfunding and $0.6 billion of postretirement healthcare obligations.
Guidance, outlook, risks and unusual items
Management projected 2014 diluted EPS of $11.05 to $11.55, including an estimated $0.21 benefit from BEFIEX credits, $(0.95) of restructuring expense and $(0.21) of investment expense. Expected 2014 industry demand was 5% to 7% in North America, flat in Latin America, 0% to 2% in EMEA and 0% to 3% in Asia.
Management expected approximately $700 million of 2014 free cash flow, based on operating cash flow of $1.325 billion to $1.375 billion, capital spending of $625 million to $675 million, restructuring cash outlays of up to $150 million and U.S. pension contributions of approximately $160 million. The filing states that this non-GAAP outlook is subject to significant economic, competitive and execution uncertainties.
- Whirlpool agreed to acquire a 51% stake in Hefei Rongshida Sanyo Electric for approximately $555 million. The transaction remained subject to outstanding Chinese regulatory approvals, was expected to close between the end of the second quarter and the end of 2014, and involved a potential $20 million breakup fee.
- Approximately $50 million of 2011-plan restructuring costs remained, with most related cash payments expected in 2014. A planned EMEA microwave-facility closure and other efficiency actions were expected to generate an additional approximately $50 million of 2014 charges.
- BEFIEX credits remaining for future cash monetization were approximately $66 million, including $52 million of court-awarded fees. Brazilian tax assessments related to BEFIEX credits totaled approximately $530 million, excluding any favorable resolution; no reserve was recorded for these assessments.
- Embraco antitrust matters resulted in cumulative charges of approximately $409 million since 2009, with $117 million accrued at year-end and $46 million plus interest remaining payable to government authorities through 2015. Related private claims remained pending.
- Whirlpool faces Brazilian tax disputes, including approximately $84 million of IPI-related assessments and approximately $46 million of potential CFC tax exposure, for which no additional reserve was recorded based on management’s legal and tax advice.
- Product-quality investigations and lawsuits involving front-load washing machines and other products could result in repair, replacement, litigation or recall costs. The filing states that product-recall insurance is not maintained.
- Principal business risks include intense competition, dependence on major trade customers, economic and housing conditions, raw-material inflation, foreign-currency volatility, supply-chain disruption, labor relations, cybersecurity, environmental regulation, pension funding and legal or tax outcomes.
Most important facts for investors to verify
- Whether 2014 EPS and free-cash-flow guidance was achieved, particularly after restructuring, pension and acquisition-related cash requirements.
- The closing, funding and subsequent performance of the Hefei Sanyo acquisition.
- The resolution and cash impact of Brazilian BEFIEX, IPI and CFC tax disputes.
- The ultimate cost of Embraco antitrust proceedings and product-related litigation or recalls.
- The sustainability of 2013 margin expansion amid higher steel, resin and component costs and foreign-currency volatility.
- The timing and amount of the $607 million of debt maturities due in 2014 and Whirlpool’s ongoing access to committed liquidity.
- The effect of pension, postretirement healthcare and other contractual obligations on future cash flow and leverage.