Whirlpool 2004 Annual Report Download - page 25

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Selling, General and Administrative
Consolidated selling, general and administrative expenses in
2004, as a percent of consolidated net sales, remained relatively
unchanged versus 2003 and 2002. Higher freight rates in North
and Latin America were partially offset by productivity in other
non-logistic areas. Europe benefited from leverage on higher
sales and lower administrative costs. The increase in Asia's sell-
ing, general and administrative expenses, as a percent of sales,
was due primarily to lower overall sales and higher administra-
tive support costs. In 2003, higher pension and freight costs in
North America were partially offset by cost controls on discre-
tionary 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 in 2003
and 2002, were due to higher operating reserves.
Restructuring and Related Charges
Restructuring initiatives resulted in pre-tax restructuring charges
of $15 million, $3 million and $101 million in 2004, 2003 and
2002, respectively. These amounts have been identified as a sep-
arate component of operating profit. As a result of the
Company's restructuring activity, it also recognized $7 million,
$11 million and $60 million in pre-tax restructuring related
charges during 2004, 2003 and 2002, respectively, which were
recorded primarily within cost of products sold.
During the fourth quarter of 2002, the Company recognized the
vast majority of remaining charges for the global restructuring
plan that was originally announced in December of 2000. The
plan, which had a total restructuring and related pre-tax cost of
$387 million, is expected to result in more than $200 million in
annualized savings. At December 31, 2004, a liability of $13
million remains for actions yet to be completed under the plan.
Actions under the plan include the elimination of over 7,500
positions worldwide, of which approximately 7,100 had been
eliminated as of December 31, 2004.
Other Income and Expense
Interest income and sundry expense decreased approximately
66% compared to 2003. The improvement is primarily attribut-
able to lower losses of $17 million on foreign currency balance
sheet positions, primarily in Europe, and a $9 million gain on
the sale of a partial interest in an equity investment in Latin
America. Interest income and sundry expense in 2003 decreased
approximately 24% compared to 2002. The improvement is
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 reductions during 2004 and 2003 of $9 million
and $6 million, respectively, are attributable to a lower overall
U.S. interest rate environment, a decrease in borrowings in
countries with higher interest rates, primarily Europe, and matu-
rity of the $200 million 9% Debentures in March 2003, which
was replaced with lower rate debt.
Income Taxes
The effective income tax rate was 33.9% in 2004, compared to
35% in 2003 and 39% in 2002. The impact of audit settlements
and tax planning, as well as the dispersion of global income, has
contributed to changes in the Company's effective tax rate over
the periods presented.
Equity in Loss of Affiliated Companies and Minority Interests
Changes in equity in loss of affiliated companies and minority
interests reflect lower earnings in Latin America and India dur-
ing 2004. The 2003 results improved $30 million versus 2002.
The 2002 results were reduced by a $22 million after-tax impair-
ment charge related to the Company's minority investments in
and advances to Wellmann, a German kitchen cabinet manufac-
turer. During 2003, the Company's investment in the equity of
Wellmann was sold to Alno, a prominent German kitchen cabi-
net manufacturer. The sale did not have a material impact to
the Company's financial position or results of operations. The
2002 results were also impacted by a $4 million charge related to
a minority interest in an Asian entity.
Earnings from Continuing Operations
Earnings from continuing operations were $406 million in 2004
versus $414 million and $262 million in 2003 and 2002, respec-
tively. Full-year 2004 earnings were significantly impacted by
increases in material and logistics costs, particularly in the sec-
ond half of 2004. These higher costs were partially offset by pro-
ductivity improvements, lower foreign currency losses on balance
sheet positions, an effective tax rate reduction, lower financing
costs and reduced minority interest earnings. 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.