Whirlpool 2003 Annual Report Download - page 26

24
Selling, General and Administrative
Consolidated selling, general and administrative expenses in 2003, as a percent of consolidated net sales, remained relatively
unchanged versus 2002. Higher pension and freight costs in North America were partially offset by cost controls on
discretionary spending. The European increase in 2003 was a result of expense reclassification into selling, general and
administrative expenses, while Latin America’s improvement was primarily driven by lower bad debt expense in 2003. Asia’s
higher selling, general and administrative expenses, as a percent of sales, were due to increased operating reserves.
Product Recalls
During 2003, the Company recognized pre-tax charges of $16 million primarily for final expenses related to the 2001 recall
of microwave-hood combinations. Beyond this, the Company expects that no further liability will be incurred related to the
product recall.
Restructuring and Related Charges
The Company recognized pre-tax restructuring charges of $3 million in 2003 related to restructuring initiatives originally
announced in December of 2000. These amounts have been identified as a separate component of operating profit. In
connection with the Company’s restructuring activity, it also recognized $11 million of pre-tax restructuring-related charges
during 2003 that were recorded primarily within cost of products sold.
At December 31, 2003, a liability of $45 million remains for actions yet to be completed under the plan, which included
the elimination of over 7,500 positions worldwide. As of December 31, 2003, approximately 6,900 positions had been
eliminated.
Other Income and Expense
Interest income and sundry expense improved approximately 24% when compared to 2002. The improvement was largely
attributable to lower foreign currency losses, as well as lower losses in asset dispositions and the absence of a 2002 fire loss
within a Mexican facility.
Interest expense decreased $6 million versus 2002. The decrease was attributable to a lower overall interest rate environ-
ment, a decrease in overall borrowings and the maturity of the $200 million 9% Debentures in March 2003, partially offset
by new borrowing in 2003.
Earnings from Continuing Operations
Earnings from continuing operations were $414 million in 2003 versus $262 million in 2002. The significant increase in
2003 relates primarily to approximately $147 million of higher restructuring and related charges in 2002, the full-year
impact of acquisitions, strong volume growth, productivity improvements and absence of an equity investment write-off,
partially offset by an increase in expense due to the decline of the U.S. dollar.
Discontinued Operations
The Company wrote off its investment in leveraged aircraft leases during the fourth quarter of 2002 as a result of the
United Airlines bankruptcy filing in December 2002. The write-off resulted in a non-cash charge to discontinued operations
of approximately $68 million, or $43 million after tax. These leveraged lease assets were part of the Company’s previously
discontinued finance company, Whirlpool Financial Corporation. Although most of its assets have been divested, Whirlpool
Financial Corporation remains a legal entity with assets consisting primarily of a leveraged lease portfolio. The portfolio
includes an investment in an aircraft leveraged lease and is affected by the economic conditions of the aviation industry. As
of December 31, 2003 and 2002, the portfolio totaled $42 million and $43 million, respectively, net of related reserves. The
Company continues to monitor its arrangements with the lessees and the value of the underlying assets.
Cumulative Effect of Changes in Accounting Principle
The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets," on January 1, 2002. As a result of this adoption, the Company recorded a non-cash after-tax charge of $613
million in 2002.
Forward-Looking Perspective
Whirlpool enters 2004 with positive industry and economic momentum in North America and Europe, the Company’s two
largest segments. The Company expects gradually improving economic conditions in these regions throughout the year, and