Whirlpool-2014 Annual Report Analysis

Whirlpool Corp. Financial Analysis Report NYSE: WHR May 4, 2015

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Whirlpool Corporation

Financial Analysis ACC 503--Term Project

By: Ali-Reza Khaleeli


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Table of Contents

Introduction…...................................................................................................Page 3

I. Whirlpool Appliances

II. Brand Identification

III. Strategic Plan

IV. Business Environment

Industry Economic and Value Chain Analysis.................................................Page 9

I. Assessment of Competitors

II. Value Chain

III. Market Share

IV. Industry-Wide Technological Developments

V. Economic Analysis

Whirlpool Financial Analysis……………………………………...….….....Page 22

I. Short-Term Liquidity

II. Capital Structure and Long-Term Solvency

III. Asset Utilization Efficiency

IV. Operating Performance

V. Altman Z-Score

Executive Summary-Conclusion…………………………………………....Page 35

I. Valuation of Whirlpool

II. Valuation Reasoning

Appendix………………………………………………………....…….…....Page 38


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Introduction

I. Whirlpool Appliances

In November of 1911, Emory and Louis Upton founded the Upton Machine Company. Thanks

to the financial aid of Lowell Bassford, the Upton brothers began to produce electric, motor-

driven wringer washers. In 1950, after a few mergers and name changes, what was once known

as the Upton Machine Company officially became Whirlpool and in that same year sold its first

top-loading automatic washer under the Whirlpool brand. In 1962 they won NASA's contract for

the development of the feeding and waste systems for Project Gemini and by 1968 Whirlpool

surpassed $1 billion in revenue. A decade later they surpassed $2 billion in revenue. More

recently Whirlpool’s revenue surpassed the $10 billion mark in 2002 and by 2007 that number

was up around $19 billion.

Whirlpool has been at the forefront of innovation, within their industry, since their first year in

existence with the introduction of the first ever electric motor-driven wringer washing machines.

Since then Whirlpool has gone on to revolutionize the industry with the introduction of the first

countertop microwave oven, bottom freezer refrigerator, side-by-side refrigerator, self-ventilated

cooktop, and 24 hour customer service hotline. With the recent introduction of their interactive

kitchen of the future 2.0, it appears that innovation at Whirlpool shows no signs of slowing

down.

In 1986 Whirlpool acquired Kitchen Aid and since then have gone on to acquire, fully or

partially, eight other appliance companies. The largest of which was in 2006 with the acquisition

of Maytag. It was this acquisition that propelled Whirlpool to the top of the household appliance

industry, a position they have yet to relinquish. In 2014 Whirlpool was the number one major


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appliance manufacturer in the world, with approximately $20 billion in annual sales, 100,000

employees and 70 manufacturing and technology research centers throughout the world.

II. Brand Identification

Whirlpool’s appliances are sold in more than 170 countries worldwide under such brand names

as Whirlpool, KitchenAid, Bauknecht, Maytag, HotPoint, Ignis, Roper, Laden, Polar, Estate,

Brastemp, Jenn-Air, Consul, and Eslabon de Lujo. Each brand is distinct from one another by

providing a performance, quality and design, to complement a wide range of consumer wants.

The principal objective within the Whirlpool line of brands is to gain as much market share as

possible by offering a diverse product line and competitive pricing on the myriad of products

they produce. By offering such a diverse line of products, Whirlpool is able to immediately react

to any technological advancements or emerging trends within the industry much faster than most

of their competitors.

Whirlpool’s products include major appliances and related services for products such as electric

and gas ranges, refrigerators, freezers, clothes washers and dryers, cooktops, room air

conditioners, residential water systems for filtration, dishwashers, microwave ovens, and hybrid

water heaters, among others. These products are distributed through two separate channels, retail

and contract. The retail channel sells to both retail outlets and direct to consumers, mainly for

the parts replacement market. While the contract channel sells directly to building contractors

and distributors for new installations. Whirlpool has operations in five regions across the globe,

North America, Latin America, Europe, Africa and Asia. These five regions plus the Middle

East and Oceania, constitute the markets where Whirlpool appliances are sold.


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III. Strategic Plan

Whirlpool’s strategic plan revolves around the direction they have taken their business and the

decisions made when allocating their resources, in pursuit of this plan. The direction they have

taken their business ties directly into their mission statement, while the allocation of their

resources relates to their business strategy.

Whirlpool’s mission is to “create demand and earn trust everyday”. Over the past few years the

appliance division has strategically been implementing policies, procedures, and technology with

the goal of offering the best product possible while empowering the consumer. They have spent

a great amount of time and resources to offer an innovative, high quality, competitive line of

products. This year alone, Whirlpool introduced the first double-oven range that allows cooking

at two temperatures and an induction cooktop to ensure meals get done more efficiently, an

entire WiFi connected kitchen that gives you the freedom to control your meal without actually

being in the kitchen, and HybridCare™ clothes dryer that drastically reduces energy

consumption while not sacrificing performance. They have focused on strong execution around

the manufacturing of their products, as well as emphasizing the merchandizing of these products.

At the same time Whirlpool has made it a point to change the way they view and treat their

consumer, in hopes of earning trust. They have rolled out new trainings for their sales staff, as

well as third party retailers, which focuses on customer service and interactions. With the goal

of treating the consumer as not just a sale but an owner.

Within the past few years Whirlpool’s allocation of resources has shifted drastically to be in line

with their business strategy of “Product Leadership, Brand Leadership, Operating Excellence,

and People Excellence”. The first part of this strategy deals with product and brand leadership.

As shown above, and throughout this paper, Whirlpool is a leader in innovation. They have not


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only been able to marry emerging technologies with their appliances to revolutionize the industry

many times over, they have also revolutionized the research and development stage with their

Discovery Lenses process. This process enables the R&D team to break the mental frameworks

related to their business and ultimately find new breakthrough opportunities. These factors plus

great product offerings and awareness have propelled Whirlpool to become the most widely sold

and recognized brand in their industry. Whirlpool was recently named one of the top 25 most

reputable U.S. companies by Forbes magazine and one of the world’s most admired companies

by Fortune magazine.

The second part of Whirlpool’s strategy deals with operating and people excellence. In recent

years Whirlpool has focused heavily on sustainability. Whirlpool has introduced new

procedures, polices, systems, and tools around sustainability in the hopes of improving key

performance metrics. Recently in North America, Whirlpool has been able to reduce the amount

of water consumed to manufacture just one appliance from 272 gallons in 1975 to just 39 gallons

in 2014. As well as an 18% reduction, since 2009, in the energy consumed during the

manufacturing process per major appliance produced. This drastic reduction in water and energy

consumption will help Whirlpool cut production costs, reduce resources needed, increase

margins, and in turn increase net profit. As for people excellence, Whirlpool believes “that all

people matter, regardless of their nationality or language. Great ideas and innovation come from

combining the best of everyone’s differences. Celebrating diversity and including thousands of

perspectives empower us to create products that blend in to every concept of home”. This

viewpoint has allowed Whirlpool to recruit some of the best talent in the industry, helping to

strengthen their dominance within the industry.


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IV. Business Environment

Whirlpool operates within the household appliance industry. The U.S. home appliance

industry is an enormous market with over 55 million units of major kitchen and laundry

appliances shipped in the U.S. during 2014. In 2014, U.S. household appliance store sales came

to about $16.08 billion. Sales through these stores grew 26% from 2000 to 2013. However this

single statistics does not tell the full story. In 2007 sales peaked and until 2014 they had

declined by 15% overall. This significant drop in sales correlates with the drop in unit sales from

66 million in 2007 to 52 million in 2013, a 21% drop.

This is an obvious fallout from the great recession of 2008 that impacted the majority of U.S.

households. The recession greatly reduced consumer spending per household and devastated

consumer confidence, both of which had a detrimental impact on the appliance industry.

However, 2014 was a turning point for the industry with appliances experiencing a 4% volume

growth in unit sales and a 3% growth in store sales, a trend the industry wishes to continue. This

was the strongest growth the industry has experienced in over a decade. The industry owes this


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growth to restored consumer confidence, a strong economic recovery, and technological

innovations to many of their product offerings. Analysts within the industry predict this trend to

continue as new house construction and remodeling rates continue to rise following the great

recession. Another positive sign is the growing “smart appliance” sub-market that lies within the

industry. Analysts forecast that in 2015 the value of this smart appliance market will be as high

as $5.4 billion, up from $3.2 billion in 2013.

For the full year, GAAP net sales for 2014 were $19.9 billion compared to $18.8 billion in 2013,

a sales increase of over 5%. GAAP operating profit for the year totaled approximately $1.2

billion, which was the same in 2013. Full-year ongoing business operating profit totaled $1.5

billion, or 7.4 percent of sales, compared to $1.4 billion, or 7.3 percent of sales, in 2013.

Whirlpool reported cash provided by operating activities of $1.5 billion and free cash flow of

$854 million in 2014 compared to $1.3 billion and $690 million, respectively, in the prior year.

For full-year 2015, Whirlpool expects to generate free cash flow of $700 million to $800 million.

Included in this guidance are restructuring cash outlays of up to $250 million, capital spending

of $800 million to $850 million and U.S. pension contributions of around $85 million. The


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North American market produced revenues of $10.6 billion, Latin American market at $4.7

billion, European market at $3.9 billion, and Asia at $816 million in 2014.

Industry Economics and Value Chain Analysis

I. Assessment of Competitors

Whirlpool’s main competitors are Electrolux, LG Appliances, and General Electric (GE)

Appliance and Lighting. With the exception of GE, where the North American market

constitutes 87% of their sales, Whirlpool’s other major competitors’ sales are more evenly

distributed around the globe. It is because of this that you must look at Whirlpool, and its

competitors, on a global scale to truly gage how it compares.

Electrolux, which is based in Sweden, saw total net sales of $12.9 billion and a net income of

$346 million in 2014. Electrolux’s sales were distributed throughout various markets. The

European market made up 40% of all sales, North America 30%, Latin America 20%, and

Asia/Africa at

10%. LG

Appliances,

which is a part of

LG Electronics- a

subsidiary of LG

Corporation-, saw

total net sales of

$10.9 billion and

a net income of

$462 million in


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2014.

While their global sales distribution is not available on their website, or in their financials, it is

reported that Asian markets constitutes 37% of their net sales, Americas at 40%, Europe at 12%,

while the other 11% is spread out amongst other smaller markets, such as the Middle East, Africa

and Oceania. GE Appliance and Lighting, which is a part of GE Home & Business Solutions- a

division of General Electric-, saw total net sales of $8.4 billion and a net income of $400 million

in 2014. As stated above, the North American market makes up 87% of their sales, with Latin

America at 6% and the rest spread out amongst the other global markets.

While Whirlpool leads in the industry in net sales, it is not the leader in operating profit margin.

That distinction goes to GE. In 2014 Whirlpool’s operating profit margin was at 3.5%. Whereas

GE

experience

d an

operating

profit

margin of

5.1%,

Electrolux

at 3.7% and

LG at a flat

3%.

Compared to the benchmark of 4.7%, set by the S&P 500 Sectors and Industries Profit Margins

guideline for the household appliances industry, only GE comes in above that mark. These


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subpar margins is something Whirlpool acknowledged in their recent earnings release and will

be focusing on increasing these margins over the years to come.

Even though Whirlpool has various competitors, all with distinguished brand names, Whirlpool

has been able to maintain its dominance in the appliance industry since 2006. A large part of

Whirlpool’s success is thanks to their numerous brands that offer a diverse product line of

varying quality and function that meet the needs of almost any consumer. A constant desire to

innovate, acquire, and set up shop in more countries has also greatly contributed to their

extended stay at the top of the industry.

II. Value Chain

Back in 2000 Whirlpool’s value chain was anything but dependable. Their value chain had an

overall availability rate, which measures how often a product is in the right place at the right

time, of only 83%. Compared to industry standards, this was regarded as a complete failure.

The company’s rapid geographic expansion and recent acquisitions led to this crisis. With a

multitude of different systems and procedures in place, the value chain team found it

extraordinarily difficult to track and control all of Whirlpool’s production and distribution

processes. To fix this Whirlpool’s value chain management team and IT department replaced the

numerous production processes and distribution systems with a streamlined, standardized

solution. Within two years of implementation, Whirlpool’s overall availability rate rose from

83% to 93%, and within five years it reached as high as 97%.

Since Whirlpool has a global reach they rely on individual regions to personalize products to

meet their consumers’ needs. While the below value chain is applicable to all regions Whirlpool

operates in, it is imperative to note that each region goes through the same seven step process.

This parity is the central reason their value chain has become so successful compared to past.


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Step 1-R&D

The first stage of Whirlpool’s value chain starts from the ground and moves it way up. It is

crucial to the continued success of Whirlpool that the research and development (R&D) stage be

taken seriously. A lot of what happens at this stage is speculative but none-the-less critical to the

overall chain. The R&D team uses the innovative Discovery Lenses process and looks at any

new trends and technologies emerging within the appliance industry. Whether it be

interconnected appliances or a revolutionary heat-pump, that cuts energy costs in half, the R&D

team needs to account for any technological advances that impact the industry. Furthermore,

Whirlpool must stay on top of recent trends, like bottom freezers and stainless steel, in order to

stay in demand with their customer base. Whirlpool has a total of 13 technology research

centers spread amongst their global regions.

Step 2-Design

In this stage ideas move from speculative to reality. While the R&D stage allows one to assume

there are no constraints and lets the imagination flow, the design stage looks at the reality of

things. At this stage Whirlpool’s world class engineers become involved in the process. They


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look to see if what the R&D team dreamed up is in fact achievable. The engineers spend

countless hours poring over blueprints and design specs to bring these visionary products to life.

If the product can be built then it is on to the next stage. If not, then back to the drawing board.

Step 3-Marketing

This stage is the make or break point for the appliance. Here Whirlpool’s marketing team looks

to see if the product is worth the cost. The marketing team looks at a multitude of factors to

determine if the product should move onto the next stage. They first look at the production costs

and benchmark that against current production costs for similar items. They then gauge if this

product is in fact affordable for the customer. If the projected production cost would force either

the price point too high or the margin too low, the product will not move onto the next stage.

Additionally, the marketing team looks to see if the product has a market. They try and analyze

if the product in fact would sell. If there is a demand within the market for such a product at its

projected price point. Even if the production costs are on par, with an average price point and

profitable margins, if the product is not marketable and there is little demand, the process stops

here. If the marketing team believes there is a market and demand for the new product then it

moves onto the next stage.

Step 4-Manufacturing

Once the appliance clears the first three major hurdles, it becomes a real product and begins

being produced on a mass scale. During this stage, the engineers involved in the second step

work with the manufacturing plants to ensure the production line builds the product their

specifications. Depending on the region, the majority of parts are sourced out. The only region

that does not source out close to 80% of the parts needed is Asia. This is because most of the

parts needed are made in Asia, at a reduced costs. Whirlpool uses a forecasting method to


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predict the nature of forecasting errors to intelligently set the inventory levels. In total,

Whirlpool has 47 manufacturing plants that employ close to 45,000 people and uses

approximately 7,000 different suppliers in every region of the world.

Step 5&6-Ship & Distribute

In these steps, Whirlpool’s appliances are shipped and stored throughout the region from the

regional manufacturing plants. Whirlpool's distribution network consists of plant warehouses or

factory distribution centers (DCs). These DCs include regional distribution centers and local

distribution centers. Over the past few years, Whirlpool has moved to centralize its freight-

planning efforts, through reliance on a load-control center that covers all of their regions. This

operation allows Whirlpool to plan both inventory stock and customer shipments in the same

department. In total, Whirlpool has over 25 DCs that employ approximately 26,000 people.

Step 7-Sell

The last step in the value chain is split between two “channels”. These channels are retail and

contract. The retail channel involves the sale of products to national retailers (Lowes) or

independent dealers like Ray’s Appliances. The contract channel involves the sale of products to

either single family or multi-family home builders. Around 65% of the company’s sales come

through retailers, with the construction market accounting for the rest of their business. Last

year Whirlpool delivered to about 30,000 retailers worldwide. In the U.S. Whirlpool is not

allowed to dictate pricing for retailers, instead the market does. Whirlpool sells to the retailers at

a certain price but has no say in what the retailers price it for. Whirlpool’s sales associates are

allowed to help set up store displays and in-store marketing but cannot set the pricing.


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III. Market Share

The below graph represents the global market share of appliance manufactures for 2013. No

reliable information could be found for 2014 yet.

To no

surprise,

Whirlpool

leads the

industry with

a total market

share of

13%. Not far

behind is

their biggest

competitor

Electrolux at

10%. While

LG and GE,

their other

main

competitors,

come in at

7% and 6%

respectively.


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Both Bosch-Siemens and Haier control more of the global market than LG and GE but a major

acquisition and interesting trend looks to boost both LG and GE’s market share.

Over the past decade both South Korean based LG and Samsung have invested heavily in their

appliance divisions. This has taken place because both companies believe they can price out any

of their competitors. Both companies benefit from a massive revenue stream that is not based

just on the sale of appliances. Combine that with cheaper labor and production materials costs

and they can price their products far lower than their counterparts. Over the past few years both

LG and Samsung have experienced a huge surge in appliance sales. Nowhere else is this surge

more apparent than in the U.S. While Whirlpool’s U.S. market share still doubles it closest

competitor, GE, both Samsung and LG are rising steadily. In the above graph one can see that,

between 2008 and 2013, LG has increase its market share by almost 6%, while Samsung has

increased it by over 8%. This is a trend that must be alarming to Whirlpool and their investors.

In September 2014 GE sold their appliance division to Electrolux for $3.3 billion. While the

acquisition is still waiting approval from the U.S. Department of Justice, which is said to happen

later this summer, this will greatly erode Whirlpool’s market share both domestically and

internationally. Based on the 2013 numbers, Electrolux will surpass Whirlpool’s global market

share and only be a few percentage points behind them in the U.S.

IV. Industry-Wide Technological Developments

As stated above, Whirlpool has always been at the forefront of innovation. They have

introduced many products that have revolutionized the industry. As technology seemingly

advances exponentially and impacts everyday devices, it was only a matter of time till that

impact was felt in the appliance industry. Never has there been a time in the industry that so


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much innovation and change taken place. All of this driven by the consumer’s desire to be

interconnected and environmentally friendly.

Earlier this year GE launched, under its Profile brand, a suite of connected appliances. GE’s aim

is to allow users to be more in touch with the appliances in their homes thru their mobile devices.

According to Liz VerSchure, general manager of GE’s connected appliances, "the range of

products will give users newfound control to complete tasks like remotely checking if ice is

available or preheating the oven from the grocery store”. At the recent International Consumer

Electronics Show (CES), in Las Vegas, Whirlpool rolled out its interactive kitchen of the future

2.0. This kitchen of the future includes an interactive backsplash which comes with a

personalized touch screen that allow you to live chat with family and friends or stream a cooking

show. This kitchen also includes an oven that you can turn on with your mobile device, as well

as a refrigerator that sends an alert notification when groceries are needed. Other companies

such as Philips, Belkin, and Electrolux are all expected to launch similar interconnected

appliances later this year.

Recent advances in cooling technologies will allow appliance manufacture the ability to offer

consumers and businesses a reasonably priced, reliable, energy-efficient alternative to what is

currently on the market. Thanks to advances in hydrocarbon systems, ones that utilize propane

as a refrigerant specifically, manufacturers can significantly reduce energy consumption

compared to current synthetic fluids systems. Advances have also been made in heating

technologies, highlighted by Whirlpool’s recent HybridCare™ clothes dryer. The dryer comes

with a heat pump technology that is designed to regenerate energy during the drying cycle

compared to current dryers that use great amounts of energy in the form of venting hot air. This

vent-less heat pump dryer reduces energy consumption but does not sacrifice dryer speed or


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performance. With an ever increasing demand and market for environmentally responsible

alternatives, these new technologies will surely be incorporated into the next generation of

refrigerator, freezers and dryers.

Recent advances in technology are not only limited to the products they manufacture but to the

manufacturing process itself. As more devices become interconnected, “The Internet of Things”

is primed to change the landscape of manufacturing. Machine-to-machine communication, the

embodiment of “The Internet of Things”, will forever change the manufacturing process and

impact the organization’s bottom line. These interconnected machines will allow for more

efficient maintenance schedules, optimize inventories by ordering parts and supplies

automatically, lower-cost repairs to industrial equipment, and allow for lower production costs

by realizing higher utilization rates. GE has already opened an interconnected manufacturing

plant that it refers to as a "flexible factory" in Pune, India. This one plant will produce products

and parts for four different GE businesses, realizing many of the benefits already stated. The

versatility of this plant will also have a dramatic impact on the surrounding environment. This

one plants will only use a fraction of the energy needed and produce only a fraction of the

emissions, compared to the four plants previously needed for each business unit.

V. Economic Analysis

According to Whirlpool’s Chairman of the Board and Chief Executive Officer Jeff Fettig “The

global environment in which we operate continues to be volatile with emerging market

challenges in China and Brazil, volatile demand in Russia and Eastern Europe, currency

devaluation in key markets and changing raw materials costs. However, the key to our success in

this type of environment is a proactive management approach to delivering on our commitments


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while managing this volatility”. The above statement was a part of 2014’s annual chairman’s

message and is in relation to the company’s outlook for 2015.

The global household

appliance market’s

outlook for 2015 and

beyond is very

positive. As you can

see both shipments

and revenue are

expected to continue

to increase through

2017. While the

message encompasses the global environment Whirlpool operates in, which is expected to reach

an estimated value of $324.2 billion by 2019, it is essential to examine the U.S. market in order

to better analyze the value of firm and make an informed recommendation on the company’s

stock.

During 2014 the industry was driven by the high volume of small appliance sales and growth.

After a few down years, the industry is growing mainly due to strong economic recovery,

technological innovation and high consumer confidence. The industry’s overall sales volume

grew 4%, with major appliances growing 2%, in 2014 and are projected to continue this growth

as housing starts and remodeling rates continue to rise following a massive downturn during the

great recession in the late 2000s. Overall sales volume is expected to increase by 5% for 2015.

A great benchmark to help visualize this growth is the S&P 500 index, a stock market index


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based on the market capitalizations of 500 large companies having common stock listed on the

New York Stock Exchange.


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As of April 20th

, 2015 the S&P 500 index saw an increase in one year change of 11%. During

the same period the S&P 500 Household Appliance index saw an increase in one year change of

25.82%. It wasn’t

until late October

2014 that the

appliance index

surpassed the S&P

index for the year.

Since then the

appliance index has

continue to outgrow

the stock market

index. As stated

above the major

drivers of the appliances industry are the economic recovery, technological innovation and

higher consumer confidence. Other drivers include an increase in per capita income, housing

activities, and increasing urbanization. As of the third quarter in 2014, required payments on

consumer debt and mortgage had fallen to 9.9% of disposable income, which is close to the

lowest level on record. According to the Wall Street Journal, in 2014 U.S. homeowners spent a

total of $130 billion on remodeling projects, an increase of 3.1% from the previous year and the

largest amount spent since the housing downturn began in 2007. New home sales in the U.S.

increased from 500,000 in January to 539,000 in February of 2015, a 7.8% increase. Home


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sales are expected to increase by 9% in 2015, with new housing starts expected to grow 14% and

home price growth expected to moderate.

There is a renewed interest in home building that is helping to drive consumer demand for new

appliances, instead of just the simple desire to upgrade homes. Include the advances in

technological changes to household appliances, continued reduction in unemployment, and

falling gas prices will help drive growth in this industry. All this is likely to translate to a surge

in appliance demand for 2015 and beyond.

Whirlpool Financial Analysis

I. Short-Term Liquidity

Ratio Dec-14 Dec-13 Dec-12

Current Ratio .96 1.03 1.0

Quick Ratio .64 .68 .69

Working Capital -305 million 228 million 317 million

Inventory Turnover 6.01 6.42 6.48

Current Ratio


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To measure current ratio you divide the current assets by the current liabilities. This ratio is used

to determine if the company can pay its’ short-term obligations with the cash it has access to. In

the last three years, Whirlpool’s current ratio decreased and the most recent current ratio is below

1. This shows that Whirlpool would not be able to take their current assets and turn them

quickly into cash to pay off their liabilities.

Whirlpool has high current liabilities compared to the previous years. This is due in part to an

increase in accounts payable, large increase in notes payable, and increased advertising expense

and from 2013 they had a decrease in net earnings. This increase in liabilities, with no similar

increase in assets can drive the current ratio down, and have a negative impact on Whirlpool’s

short-term liquidity. The average current ratio in the appliance industry is .88, which is lower

than Whirlpool’s. This shows that Whirlpool is doing better than other appliance companies,

although still with a decrease from their previous years.

Quick Ratio

Measuring a company’s quick ratio involves taking the current assets less inventories and diving

that by the current liabilities. This ratio is to determine if the company will be able to meet their

short-term obligations by using the assets they have that are most liquid. Over the years,

Whirlpool’s quick ratio has slightly decreased, but for the most part stayed around the same.

Since it is .64 it shows that the company does not have much short-term liquidity if they want to

meet their current obligations and needs. Notes payable having such a large increase indicated

that Whirlpool had made recent investments.


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Although this seems like a bad ratio for Whirlpool, the appliance industry average is still lower

at .54. Therefore, Whirlpool is doing better than some companies in the same industry and may

be able to survive in the industry longer than others.

Working Capital

Working capital shows how much liquidity is available for the operating activities of the

company. It is found by subtracting current liabilities from current assets. From 2013 to 2015,

the working capital decreased significantly, which can cause a big problem for the company.

However, the main reason for this was the significant increase in notes payable, so Whirlpool

borrowed money for acquisitions. From the financial statements, you can see that they acquired

two new companies, Indesit and Hefei Rongshida Sanyo Electric.

This shows that Whirlpool is trying to expand their operations. Therefore, the negative working

capital may not cause too much of a problem for Whirlpool, if they can make more profits in the

new business ventures that they now acquired.

Inventory Turnover

This ratio shows how many times a company sells and replaces its inventory over a time period.

To calculate it, you take the cost of goods sold and divide it by the average inventory.

Whirlpool’s average inventory turnover is not bad at 6.01. It had slightly decreased from

previous years, and you can see that the most current year had higher inventory levels. This can

be a sign of several things. The turnover ratio may have slightly dropped because of Whirlpool

ordering too much inventory and not being able to sell it because they ordered more than what


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they forecasted to sell. Lastly, Whirlpool could have ordered the same amount of inventory each

of the time periods, but in 2014 people bought less than in the previous years.

Low turnover for a company can be bad because many times inventories that are sitting will start

to deteriorate and then can end up being a loss for the company. In order to keep a high

inventory turnover, Whirlpool needs to better gauge the demand for products, keep fewer

products on hand and make sure they are selling inventory before they order or manufacture

more. A good way to do this would be to implement a just-in-time strategy throughout their

value chain.

Another sign that Whirlpool needs to implement some kind of plan to increase their inventory

turnover is that it is lower than the industry average at 9.96. That shows that their turnover is

about 40% less than the rest of the industry. A new plan needs to be put into place for Whirlpool

to increase their turnover, as to not have a deterioration of sitting inventory.

Short-Term Liquidity Conclusion

Whirlpool’s short-term liquidity is not great, but also not as bad as it could be in their industry.

Their current ratio and quick ratio are lower than any company would want. It is much more

beneficial for the company to have these ratios to be at least a 1, in order to ensure that they are

making enough profits to cover their expenditures. Even though both of these ratios are less than

1 for Whirlpool, they are still above the industry averages.

If looking at the company’s working capital, it would seem as the company is doing very poorly.

However, this is mainly because of their acquisition of two other companies. The acquisition of

these can prove to be beneficial for Whirlpool to expand and possible increase profits and in turn

increase their short-term liquidity. Lastly, their inventory turnover is not terrible, but Whirlpool


26

needs to find a way to improve this number in order to better compete with those of their

industry.

II. Capital Structure and Long-Term Solvency

Ratio 14-Dec 13-Dec 12-Dec

Total Long-Term Debt to Assets 0.20 0.12 0.13

Total Debt Ratio 0.71 0.68 0.72

Financial Leverage Index (FLI) 3.45 3.65 4.67

Financial Leverage Ratio (FLR) 4.09 3.16 3.61

Total Long- Term Debt to Assets

This ratio gives an understanding of the financial position of the company as well as what

percent of their assets are financed through debt. For Whirlpool, their Long-term debt to assets

ratio is low and, for the past three years has been kept under or at 20%. The increase in the ratio

from 2013 to 2014 comes from the need to borrow money to finance part of their acquisition of a

Indesit. Although the ratio increased in 2014 from the year before, it is still a low ratio and can

be said that the company is in good financial position based on this ratio.

Total Debt Ratio

Whirlpool’s Debt ratio has been kept relatively constant for the past three years. Because it is

below 1, the company has more assets than liabilities. This means that the company, although

acquired more debt in 2014, also increased its assets and was able to maintain that ratio at around

.70. The debt ratio allows us to know how risky the company is. Because the company has more

assets than liabilities, the company is not experiencing high levels of risk.


27

Financial Leverage Index (FLI)

Whirlpool’s Financial Leverage Index shows how the company is using their debt in a positive

way. A financial leverage index that is above 1 suggests that the company is using their debt in a

positive way. Whirlpool’s FLI, being 3.45, 3.65 and 4.67 for 2014, 2013 and 2012, respectfully

explains how the company is doing well with how and for what they use their debt. This can be

linked back to Whirlpool’s overall capital structure of using their operating cash to finance their

operations and growth and not needing to acquire large amounts of debt to run and grow the

company.

Financial Leverage Ratio (FLR)

Similar to the financial leverage index, the financial leverage ratio shows how a company is

using their equity to finance its assets. Whirlpool’s fluctuating FLR suggests that their use of

equity to finance its assets varies from year to year, but on average is 3.65. The higher 4.09 in

2014 is due to the increase in long-term debt that the company experienced during this year.

Whirlpool’s relatively high FLR is due to their use of operating cash to finance their operations

and growth.

Capital Structure and Long-Term Solvency Conclusion

Whirlpool’s capital structure suggest that they manage their operating and growth risk by

financing it with their operating cash flow and a good mix of short-term and long-term debt.

This allows for the company to both manage their risk and reduce their liquidity. By financing

the company using this method, they are able to increase returns for shareholders and fund

potential acquisitions.


28

Whirlpool’s capital structure in the years 2014, 2013 and 2012 has allowed them to make several

acquisitions including Hefei Sanyo in China and Indesit in 2014. In addition, they use the cash

from their operating activities to support and promote inventions and productivity, restructure the

company, fund pension plans and pay off or get rid of some of their debt.

The company’s total long-term debt to assets, total debt, financial leverage index, financial

leverage ratio and Altman Z score provides a look into how Whirlpool’s capital structure has

supported and will continue to support, at least for the foreseeable future, the company’s

operations and overall growth.

Whirlpool’s capital structure has allowed them to acquire different companies and finance their

everyday operations while still providing a good return for their shareholders and maintaining

their position as leaders in the industry.

III. Asset Utilization Efficiency


Accounts Receivable Turnover 7.18 9.36 8.90

Total Asset Turnover 1.17 1.10 1.07

Fixed Asset Turnover 2.07 2.90 2.80

Inventory to Revenue 13.8% 12.8% 13.0%

Accounts Receivable Turnover

This ratio is used to estimate how many times a company is collecting their average accounts

receivable in a time period. It will show how efficient of a system the company has in place in

order to collect their sales on credit. To find this ratio you divide net sales by the average

accounts receivable. Between 2012 and 2013 this ratio increase for Whirlpool, but then

decreased about 24% in 2014. The company needs to evaluate their credit sales collection


29

system. This could be partially because more people purchased on credit in 2014. However, a

decrease in accounts receivable turnover is never good.

Whirlpool should analyze their collection system and determine if there is a way to improve it to

get back to higher numbers. The decrease shows that the system became inefficient over that

year. Whether people just did not want to pay or were not able to cannot be determined. When

issuing on credit, they should ensure that the buyer would be able to pay them back, or at least

have an efficient set pay schedule in place.

Total Asset Turnover

To determine the total asset turnover ratio, divide the sales by the company average total assets.

This ratio will show how efficient a company is in using their assets. It evaluates if they are

using assets to generate revenues and the amount of time it takes for goods to be sold. Usually, a

higher ratio is better because it means that the company is earning more revenue for each dollar

of asset it has. Over the last three years, the ratio has slightly increased, which shows that they

had an increase in net sales. However, total assets also had an increase, which would have

decreased the ratio. It is seen that the ratio increased, but not by a very large amount because the

average total assets remained lower.

The total asset turnover ratio would have been higher if Whirlpool had not acquired the two new

companies in 2014. These acquisitions increased their total assets by increasing property and

goodwill. It is good that this ratio is not below one, and it shows that they are still earning one

dollar of revenue for every dollar of assets that they possess.

Fixed Asset Turnover

This ratio is calculated by dividing sales by average fixed assets. It shows if a company is able

to generate sales from their fixed asset investments, usually plant, property and equipment. If


30

this ratio is higher, the company is seen to have used their investments in fixed assets more

effectively to get revenues. However, this is not the case for Whirlpool. They are only

generating two times the sales as compared to its’ fixed assets.

Fixed assets of Whirlpool increased in the areas of goodwill and property, without their sales

increases as much. They bought more property when acquiring the new companies. Buying

these new companies will hopefully increase the future sales, which will increase this ratio over

the next year. Using their new fixed assets of the newly acquired companies, greater earnings

can be seen.

Inventory to Revenue

This ratio measures what percentage of inventory they have on hand to support the amount of

sales that they currently have. To calculate, take the inventories and divide by net sales. From

2012 to 2013, Whirlpool’s ratio decreased slightly and then increased again in 2014.

It was likely that it was lower in 2013 because that is the year sales spiked greatly. Sales slowed

in 2014, which made the ratio increase again. It was highest in 2014, which shows that

Whirlpool either had kept too much inventory on had at one time, therefore manufacturing too

much, or they just had lower sales than forecasted. Having this ratio higher is not good for a

company because it can cause inventories to sit around and deteriorate over time if not sold.

Whirlpool’s ratio is not too high, as too have a large negative effect, but they still want to keep

this number as low as possible and not have it increase again over the next year.


ROA 4.06% 4.93% 2.14%

ROCE 14% 18% 10%


31

ROA

Return on assets measures if a company is profitable, relative to its total assets. It will show if

management of the company is efficient as generating sales and earnings by using its assets. To

calculate the ROA add net income to the interest expense. Then multiply that by the tax rate and

then divide by the average total assets.

In 2012, the ROA was the lowest, partially because there was a much higher tax rate than other

years. The tax expenses were about the same each year, but the percentages fluctuated because

of the great difference in sales. It more than double from 2012 to 2013 because of a great

increase in net income of the company. Then again in 2014, there was a slight decrease in ROA.

Since the ROA of Whirlpool is not high, it shows that the company is more asset-intensive than

they are revenue-intensive. This means that the company needs more money invested in assets

in order to continue to produce decent revenues.

Whirlpool has a large amount of newly acquired assets compared to their new revenue. They

should try to plan a way to try to use these assets to generate higher incomes. This would

prevent the company from needing as much cash as they do from investors.

ROCE

The return on common equity is calculated by dividing net income, less the preferred dividends,

by the average common equity. This ratio will show how well investors’ money is used to make

profits. It is an indicator for common stockholders how the company is reinvesting their money.

If a company has a higher ROCE, it shows that they are good at generating cash internally as

opposed to from investors.


32

In 2013, Whirlpool had the highest ROCE it has had in the past few years. This was due to the

spike in net income in that year. For 2014, the ROCE decreased, but still remained higher than

in the past. Stockholders are going to want a higher ROCE to continue to invest in the company

and get better dividends back for their investments. Whirlpool needs to devise a plan in order to

better use the investment dollars to increase their profits. However, this may be part of their plan

with their acquisition of the two new companies in the past year, with the hope of increased

income resulting in increased dividends.

Asset Utilization Efficiency Conclusion

It is important for a company to wisely use their assets to gain revenues and generate funds

internally, as opposed to from investors. Whirlpool has a large amount of assets, but does not

really use them efficiently. They can keep less inventory on hand, as to not lose any to

deterioration when not sold. They should also adopt ways in which they can use their assets to

generate revenue. This may be part of their goal when acquiring two new companies, and the

fixed assets that came along with that. A more efficient system for collecting money for

merchandise that was paid on credit should be developed, as to increase the accounts receivable

ratio.

Return on assets and return on common equity ratios are definitely looked at by shareholders, to

see if they should invest more money in the company or invest in the company to begin with.

Shareholders want to be sure that their money is being used wisely and in beneficial ways that

would give them larger returns.

Both of these ratios for Whirlpool are not very high. Therefore, new investors may be more

hesitant to invest in the company. This is also seen by the decrease in ROCE. It is showing that


33

the company is not efficiently using the investors’ money to generate profits, and in turn need

more money to keep making money and staying profitable.

IV. Operating Performance


Gross Profit Margin (Before Taxes) 17% 18% 16%

Operating Profit Margin (Before Taxes) 6% 7% 5%

Net Profit Margin 3% 5% 2%

Gross Profit Margin (Before Taxes)

Whirlpool’s gross profit margins are relatively low at 17%, 18% and 16% for 2014, 2013 and

2012, respectively. This margin explains how after the cost of goods sold, Whirlpool makes

around $0.17 of every dollar it sells. Although companies with higher gross profit margins are

considered to be more profitable, Whirlpool’s stable margin and position in the industry suggest

that they are profitable and have a good strategy set in place.

Operating Profit Margin (Before Taxes)

The operating profit margin, compared to the gross profit margin shows how profit a company is

before taxes and interest. Whirlpool’s operating profit margins of 6% (2014), 7% (2013) and 5%

(2012) might seem low for many, but when comparing them to Electrolux’s profit margins of 3%

(2014), 1% (2013) and 4% (2012), Whirlpool’s operating margins seems to be higher than their

main competitors. This suggests that the operating margins for the industry are most likely low

and, therefore, Whirlpool is doing well with higher operating margins than its competitor

Electrolux.

Net Profit Margin


34

Whirlpool’s competitor, Electrolux’s net profit margins which are 2%, 1% and 2% for 2014,

2013 and 2012, respectfully. Whirlpool net profit margins which are 3%, 5% and 2% for 2014,

2013 and 2012, respectfully. Whirlpool’s net profit margins, although considered low for many

industries, are good since they are better and comparable to those of Electrolux. In the past year,

the company’s net profit margins decreased 2%, mainly due to a decrease in overall net earnings

combined with just a small increase in net sales.

Whirlpool’s operating performance can be considered weak for many industries, but when

comparing it to Electrolux they show stronger profit margins. This suggest that the company has

been able to have strong margins for their industry, increase revenues and continuously grow,

especially compared to their competitors.

Operating Performance Conclusion

Whirlpool’s operating performance for 2014 was characterized by having strong margins, record

revenues and an increase in their investments and brand innovations. This led to two

acquisitions, one in China and one in Europe, which increased their international presence and

growth.

Whirlpool’s net sales increased 5.9% from 2013 to 2014 and 3.4% from 2012 to 2013. This

shows how Whirlpool is focused on growth and continued increase in sales and profits. The

company’s decrease in net earnings at the end of 2014 was mainly due to the increase in selling,

general and administrative expenses and a large restructuring costs. The large restructurings

expenses come from the restructuring plan (2011 Plan). In 2014, the restructuring plan cost the

company a total of $136 million. The increase in selling, general and administrative expenses

comes from the acquisitions and investments that the company made during 2014.


35

The company’s restructuring plan, which includes expanding operating margins and to improve

earnings will continue to bring high expenses for 2015. The company is expected to incur $300

million in 2015 for the company’s restructuring.

V. Altman Z-Score


Altman Z-Score 2.26

A company’s Altman Z score shows the likelihood of a company going bankrupt. Whirlpool’s

Altman Z score, 2.26, suggests that the company is in a grey area. A Z score below 1.8 shows

that a company is likely to go bankrupt, while a Z score of more than 3.0 shows that the

company is not likely to go bankrupt. Whirlpool’s 2.26 Z score shows that they are closer to the

1.8, but are still in the “grey” are a which is between likely and not likely.

Whirlpool’s overall capital structure is guided by using their cash flow from operations as well

as a good mix of long-term and short-term debt to continue to finance both the company’s

operations and growth. Whirlpool’s long-term debt to assets ratio, total debt ratio, financial

leverage ratio, and financial leverage index show how the company is in good shape and has a

capital structure strategy that is kept constant and is allowing them to grow. In addition, the

company’s Altman Z score shows that the company is in a grey area, but is not likely to go into

bankruptcy since the score is not below 1.8.

Executive Summary-Conclusion

I. Valuation of Whirlpool


36

Our recommendation is that an investor should BUY shares of Whirlpool. We base this decision

on the financial analysis, as well as the industry economic analysis for Whirlpool that were

presented above.

II. Valuation Reasoning

The following are the main points supporting our BUY recommendation:

Business Environment

There are many positive signs that the household appliance industry is in full recovery following

the great recession. With a growth of 4% in 2014 and a project 5% growth for 2015, the

recovery shows no signs of slowing down and Whirlpool, being the industry leader, should

greatly benefit from this recovery. Additionally the market for smart appliance, where

Whirlpool has already introduced many products, is projected to increase by about $2 billion

over the next year. This is yet another revenue stream for Whirlpool and will only help to

increase their sales.

Economic Analysis

All of the major drivers of the appliances industry have strengthened over the past year and are

projected to continue to strengthen. The economic recovery is in full swing, technological

innovation continues at an exponential rate and consumer confidence is the highest since the

great recession. An increase in employment and a decrease in gas prices should only help to

strengthen consumer confidence over the next year. Home sales and new housing starts are

expected to increase by 9% and 14%, respectively, in 2015, resulting in a higher demand for

appliances than previous years. High material costs and volatility in exchange rates are offset by

the benefits of the acquisitions, higher sales, ongoing cost productivity and cost and capacity-

reduction initiatives. The acquisition of GE by Electrolux should not pose a huge threat to


37

Whirlpool’s revenue stream, since Whirlpool is already dominant in the overall market. In

reality it is just a blow to their pride, no longer holding the largest global market share. The only

disconcerting issue for Whirlpool is the emergence of LG and Samsung. Both of these

companies have the resources to undercut the price points of their major competitors. While this

is troubling for Whirlpool, their brand awareness and customer base is so strong it should not

drastically impact their revenue. Whirlpool has been a leader in their industry for over 100 years

and through a multitude of brand and product offerings, they should be able to maintain a

majority of their customers and continue their sales growth thanks to the beneficially economic

conditions.

Short-Term Liquidity and Asset Utilization Efficiency

Over the past year, stock prices for Whirlpool has increased from $154 to about $197.83 per

share. This is a clear indicator that the company is doing well and is growing. Although they

have a negative working capital, they are still expected to generate higher profits over the next

year. The negative working capital is due to the acquisition of two new companies, so it can be

seen that Whirlpool is expecting to expand and grow their business.

Whirlpool needs to keep a reasonably low inventory, as to try to prevent loss of revenues from

deteriorated and damaged goods. Keeping a low inventory will help them save money, and in

turn have higher profits. These higher profits will result in higher dividends for shareholders, so

long as the two new companies prove to be a good investment for Whirlpool. Now that the new

companies have been purchased, Whirlpool can now more efficiently use these assets and

investors’ money to make profits and increase their return on assets and return on common

equity. If these two ratios increase, it will prove valuable for investors, and therefore they should

be buying stock in Whirlpool now before the stock prices spike.


38

Capital Structure and Long-Term Solvency

Whirlpool’s capital structure of using their operating cash flow as well as a good mix of long-

term and short-term debt is allowing the company to grow and continue to finance their

operations. The capital structure ratios suggest that the company has been able to maintain good

risk levels and use the debt they incur in a positive way by using this capital structure strategy. In

addition to its capital structure and long-term solvency strategy, the company is also focused on

its long-term goals. This means that as Whirlpool continues to grow they will continue to use this

strategy, which is why they will continue to be successful in the future. They will be able to

finance their operations as well as support and increase innovations and productivity.

Operating Performance

Whirlpool’s operating performance ratios might seem low compared to many industries but are

strong compared to their competitor Electrolux. When compared to Electrolux, Whirlpool

surpasses them in all of the key ratios, which shows why they are the leaders within the industry.

Whirlpool’s operating performance shows that they are committed to growing and restructuring

their company in order to maintain a good positions in the industry and to expand their earnings.

Buying stock in this company is a good investment as their commitment to growth and long-term

goals will prove to be, as seen by the operating performance ratios, successful.

Appendix Whirlpool’s 10K Financial Statements


39

(In mill ions, except per share data) 31-Dec-14 % 31-Dec-13 % 31-Dec-12 %

Net Sales 19,872$ 100.00% 18,769$ 100.00% 18,143$ 100.00%

Expenses

Cost of product sold 16,477 82.92% 15,471 82.43% 15,250 84.05%

Gross margin 3,395 17.08% 3,298 17.57% 2,893 15.95%

Selling, general and administrative 2,038 10.26% 1,828 9.74% 1,757 9.68%

Intangible amortization 33 0.17% 25 0.13% 30 0.17%

Restructuring costs 136 0.68% 196 1.04% 237 1.31%

Operating profit 1,188 5.98% 1,249 6.65% 869 4.79%

Other income (expense)

Interest and sundry income (expense) (142) -0.71% (155) -0.83% (112) -0.62%

Interest expense (165) -0.83% (177) -0.94% (199) -1.10%

Earnings before income taxes 881 4.43% 917 4.89% 558 3.08%

Income tax expense 189 0.95% 68 0.36% 133 0.73%

Net earnings 692 3.48% 849 4.52% 425 2.34%

Less: Net earnings available to noncontrolling interests 42 0.21% 22 0.12% 24 0.13%

Net earnings available to Whirlpool 650$ 3.27% 827$ 4.41% 401$ 2.21%

Per share of common stock

Basic net earnings available to Whirlpool 8.30$ 10.42$ 5.14$

Diluted net earnings available to Whirlpool 8.17$ 10.24$ 5.06$

Weighted-average shares outstanding (in millions)

Basic 78.3 79.3 78.1

Diluted 79.6 80.8 79.3

Common - Size Statements of Income



40

(In mill ions, except share data) 31-Dec-14 % 31-Dec-13 % 31-Dec-12 %

Assets

Current assets

Cash and equivalents 1,026$ 5.13% 1,380$ 8.88% 1,168$ 7.59%

Accounts receivable, net of allowance of $154, $73 and $60, respectively 2,768 13.84% 2,005 12.90% 2,038 13.24%

Inventories 2,740 13.70% 2,408 15.49% 2,354 15.29%

Deffered income taxes 417 2.08% 549 3.53% 558 3.62%

Prepaid and other current assets 1,147 5.73% 680 4.37% 709 4.61%

Total current assets 8,098 40.49% 7,022 45.17% 6,827 44.34%

Property, net of accumulated depreciation of $5,959, $6,278 and $6,070, respectively 3,981 19.90% 3,041 19.56% 3,034 19.71%

Goodwill 2,807 14.03% 1,724 11.09% 1,727 11.22%

Other intangibles, net of accumulated amortization of $267,$237 and $211, respectively. 2,803 14.01% 1,702 10.95% 1,722 11.18%

Deffered income taxes 1,900 9.50% 1,764 11.35% 1,832 11.90%

Other noncurrent assets 413 2.06% 291 1.87% 254 1.65%

Total assets 20,002$ 100.00% 15,544$ 100.00% 15,396$ 100.00%

Liabilities and stockholders' equity

Current l iabilities

Accounts payable 4,730$ 23.65% 3,865$ 24.86% 3,698$ 24.02%

Accrued expenses 852 4.26% 710 4.57% 692 4.49%

Accrued advertising and promotions 673 3.36% 441 2.84% 419 2.72%

Employee compensation 499 2.49% 456 2.93% 520 3.38%

Notes payable 569 2.84% 10 0.06% 7 0.05%

Current maturities of long-term debt 234 1.17% 607 3.91% 510 3.31%

Other current l iabilities 846 4.23% 705 4.54% 664 4.31%

Total current l iabilities 8,403$ 42.01% 6,794$ 43.71% 6,510$ 42.28%

Noncurrent l iabilities

Long-term debt 3,544 17.72% 1,846 11.88% 1,944 12.63%

Pension benefits 1,123 5.61% 930 5.98% 1,636 10.63%

Postretirement benefits 446 2.23% 458 2.95% 422 2.74%

Other noncurrent l iabilities 690 3.45% 482 3.10% 517 3.36%

Total noncurrent l iabilities 5,803 29.01% 3,716 23.91% 4,519 29.35%

Stockholders' equity

Common stock, $1 par value, 250 mill ion shares authorized , 110 mill ion,

109 mill ion and 108 mill ion shares issued, and 78 mill ion, 77 mill ion and 79 mill ion

shares outstanding, respectively 110 0.55% 109 0.70% 108 0.70%

Additional paid-in capital 2,555 12.77% 2,453 15.78% 2,313 15.02%

Retained earnings 6,209 31.04% 5,784 37.21% 5,147 33.43%

Accumulated other comprehensive loss (1,840) -9.20% (1,298) -8.35% (1,531) -9.94%

Treasury stock, 32 mill ion shares (2014 ane 2013) and 29 mill ion shares (2012) (2,149) -10.74% (2,124) -13.66% (1,777) -11.54%

Total Whirlpool stockholders' equity 4,885 24.42% 4,924 31.68% 4,260 27.67%

Noncontrolling interests 911 4.55% 110 0.71% 107 0.69%

Total stockholders' equity 5,796 28.98% 5,034 32.39% 4,367 28.36%

Total l iabil ities and stockholders' equity 20,002 100.00% 15,544 100.00% 15,396 100.00%


Common - Size Balance Sheets


41

(In mill ions) 31-Dec-14 % 31-Dec-13 % 31-Dec-12 %

Operating activities

Net earnings 692$ 100.00% 849$ 100.00% 425$ 100.00%

Adjustments to reconcile net earnings to cash provided by operating activities:

Depreciation and amortization 560 80.92% 540 63.60% 551 129.65%

Curtailment gain - 0.00% - 0.00% (52) -12.24%

Increase (decrease) in LIFO inventory reserve 9 1.30% (26) -3.06% (13) -3.06%

Brazil ian collection dispute - 0.00% - 0.00% (275) -64.71%

Changes in assets and liabilities (net of effects of acquisitions)

Accounts receivable (90) -13.01% (65) -7.66% 47 11.06%

Inventories 40 5.78% (86) -10.13% (7) -1.65%

Accounts payable 359 51.88% 275 32.39% 240 56.47%

Accruedd advertising and promotions 121 17.49% 28 3.30% (13) -3.06%

Accrued expenses and current l iabilities (232) -33.53% 82 9.66% - 0.00%

Taxes deffered and payable, net 49 7.08% (105) -12.37% (68) -16.00%

Accrued pension and postretirement benefits (181) -26.16% (184) -21.67% (227) -53.41%

Employee compensation (17) -2.46% (23) -2.71% 249 58.59%

Other 169 24.42% (23) -2.71% (161) -37.88%

Cash provided by operating activities 1,479 213.73% 1,262 148.65% 696 163.76%

Investing activities

Capital expenditures (720) -104.05% (578) -68.08% (476) -112.00%

Proceeds from sale of assets and businesses 21 3.03% 6 0.71% 10 2.35%

Change in restricted cash 74 10.69% - 0.00% - 0.00%

Acquisition of Indesit Company S.p.A (1,356) -195.95% - 0.00% - 0.00%

Acquisition of Hefei Rongshida Sanyo Electric Co., Ltd. (453) -65.46% - 0.00% - 0.00%

Investment in related businesses (16) -2.31% (6) -0.71% (28) -6.59%

Other (6) -0.87% (4) -0.47% - 0.00%

Cash used in investing activities (2,456) -354.91% (582) -68.55% (494) -116.24%

Financing activities

Proceeds from borrowings of long-term debt 1,483 214.31% 518 61.01% 322 75.76%

Repayments of longg-term debt (606) -87.57% (513) -60.42% (361) -84.94%

Net proceeds from short-term borrowings 63 9.10% 5 0.59% 6 1.41%

Dividends paid (224) -32.37% (187) -22.03% (155) -36.47%

Repurchase of common stock (25) -3.61% (350) -41.22% - 0.00%

Purchase of noncontrolling interest shares (5) -0.72% - 0.00% - 0.00%

Common stock issued 38 5.49% 95 11.19% 43 10.12%

Other (19) -2.75% (2) -0.24% (3) -0.71%

Cash provided by (used in) financing activities 705 101.88% (434) -51.12% (148) -34.82%

Effects of exchange rate changes on cash and equivalents (82) -11.85% (34) -4.00% 5 1.18%

Increase (decrease) in cash and equivalents (354) -51.16% 212 24.97% 59 13.88%

Cash and equivalents at beginning of year 1,380 199.42% 1,168 137.57% 1,109 260.94%

Cash and equivalents at end of year 1,026$ 148.27% 1,380$ 162.54% 1,168$ 274.82%

Supplemental disclosure of cash flow information

Cash paid for interest 172$ 24.86% 179$ 21.08% 197$ 46.35%

Cash paid for income taxes 140$ 20.23% 158$ 18.61% 177$ 41.65%


Common-Size Cash Flows


42

(In mill ions, except per share data) 31-Dec-14 31-Dec-13 31-Dec-12

Net Sales 19,872$ 18,769$ 18,143$

Expenses

Cost of product sold 16,477 15,471 15,250

Gross margin 3,395 3,298 2,893

Selling, general and administrative 2,038 1,828 1,757

Intangible amortization 33 25 30

Restructuring costs 136 196 237

Operating profit 1,188 1,249 869

Other income (expense)

Interest and sundry income (expense) (142) (155) (112)

Interest expense (165) (177) (199)

Earnings before income taxes 881 917 558

Income tax expense 189 68 133

Net earnings 692 849 425

Less: Net earnings available to noncontrolling interests 42 22 24

Net earnings available to Whirlpool 650$ 827$ 401$

Per share of common stock

Basic net earnings available to Whirlpool 8.30$ 10.42$ 5.14$

Diluted net earnings available to Whirlpool 8.17$ 10.24$ 5.06$

Weighted-average shares outstanding (in millions)

Basic 78.3 79.3 78.1

Diluted 79.6 80.8 79.3


Consolidated Statements of Income


43

(In mill ions, except share data) 31-Dec-14 31-Dec-13 31-Dec-12

Assets

Current assets

Cash and equivalents 1,026$ 1,380$ 1,168$

Accounts receivable, net of allowance of $154, $73 and $60, respectively 2,768 2,005 2,038

Inventories 2,740 2,408 2,354

Deffered income taxes 417 549 558

Prepaid and other current assets 1,147 680 709

Total current assets 8,098 7,022 6,827

Property, net of accumulated depreciation of $5,959, $6,278 and $6,070, respectively 3,981 3,041 3,034

Goodwill 2,807 1,724 1,727

Other intangibles, net of accumulated amortization of $267,$237 and $211, respectively. 2,803 1,702 1,722

Deffered income taxes 1,900 1,764 1,832

Other noncurrent assets 413 291 254

Total assets 20,002$ 15,544$ 15,396$

Liabilities and stockholders' equity

Current l iabilities

Accounts payable 4,730$ 3,865$ 3,698$

Accrued expenses 852 710 692

Accrued advertising and promotions 673 441 419

Employee compensation 499 456 520

Notes payable 569 10 7

Current maturities of long-term debt 234 607 510

Other current l iabilities 846 705 664

Total current l iabilities 8,403$ 6,794$ 6,510$

Noncurrent l iabilities

Long-term debt 3,544 1,846 1,944

Pension benefits 1,123 930 1,636

Postretirement benefits 446 458 422

Other noncurrent l iabilities 690 482 517

Total noncurrent l iabilities 5,803 3,716 4,519

Stockholders' equity

Common stock, $1 par value, 250 mill ion shares authorized , 110 mill ion,

109 mill ion and 108 mill ion shares issued, and 78 mill ion, 77 mill ion and 79 mill ion

shares outstanding, respectively 110 109 108

Additional paid-in capital 2,555 2,453 2,313

Retained earnings 6,209 5,784 5,147

Accumulated other comprehensive loss (1,840) (1,298) (1,531)

Treasury stock, 32 mill ion shares (2014 ane 2013) and 29 mill ion shares (2012) (2,149) (2,124) (1,777)

Total Whirlpool stockholders' equity 4,885 4,924 4,260

Noncontrolling interests 911 110 107

Total stockholders' equity 5,796 5,034 4,367

Total l iabil ities and stockholders' equity 20,002 15,544 15,396


Consolidated Balance Sheets


44

(In mill ions) 31-Dec-14 31-Dec-13 31-Dec-12

Operating activities

Net earnings 692$ 849$ 425$

Adjustments to reconcile net earnings to cash provided by operating activities:

Depreciation and amortization 560 540 551

Curtailment gain - - (52)

Increase (decrease) in LIFO inventory reserve 9 (26) (13)

Brazil ian collection dispute - - (275)

Changes in assets and liabilities (net of effects of acquisitions)

Accounts receivable (90) (65) 47

Inventories 40 (86) (7)

Accounts payable 359 275 240

Accruedd advertising and promotions 121 28 (13)

Accrued expenses and current l iabilities (232) 82 -

Taxes deffered and payable, net 49 (105) (68)

Accrued pension and postretirement benefits (181) (184) (227)

Employee compensation (17) (23) 249

Other 169 (23) (161)

Cash provided by operating activities 1,479 1,262 696

Investing activities

Capital expenditures (720) (578) (476)

Proceeds from sale of assets and businesses 21 6 10

Change in restricted cash 74 - -

Acquisition of Indesit Company S.p.A (1,356) - -

Acquisition of Hefei Rongshida Sanyo Electric Co., Ltd. (453) - -

Investment in related businesses (16) (6) (28)

Other (6) (4) -

Cash used in investing activities (2,456) (582) (494)

Financing activities

Proceeds from borrowings of long-term debt 1,483 518 322

Repayments of longg-term debt (606) (513) (361)

Net proceeds from short-term borrowings 63 5 6

Dividends paid (224) (187) (155)

Repurchase of common stock (25) (350) -

Purchase of noncontrolling interest shares (5) - -

Common stock issued 38 95 43

Other (19) (2) (3)

Cash provided by (used in) financing activities 705 (434) (148)

Effects of exchange rate changes on cash and equivalents (82) (34) 5

Increase (decrease) in cash and equivalents (354) 212 59

Cash and equivalents at beginning of year 1,380 1,168 1,109

Cash and equivalents at end of year 1,026$ 1,380$ 1,168$

Supplemental disclosure of cash flow information

Cash paid for interest 172$ 179$ 197$

Cash paid for income taxes 140$ 158$ 177$


Consolidated Cash Flows

Whirlpool-2014 Annual Report Analysis

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