Whirlpool 2005 Annual Report Download - page 26

22 Whirlpool Corporation
Gross Margin The consolidated gross margin percentage in 2005
decreased 40 basis points versus 2004. Consolidated results in 2005
were significantly impacted by higher material and oil-related cost
increases, which were mitigated by the combination of cost-based
price adjustments and productivity improvements. Consolidated
gross margin also benefited from the Brazilian government’s
export incentive program (“Befiex”) tax credits and was negatively
impacted by higher incentive compensation.
The consolidated gross margin percentage in 2004 decreased
90 basis points versus 2003, due primarily to second half material
cost increases and global pricing pressures. These increases were
partly mitigated by higher volume and record levels of controllable
productivity.
Significant regional trends were as follows:
• The 2005 North America gross margin decreased 80 basis points
as compared to 2004, largely due to higher material and oil-
related costs. Results also reflect the impact of cost-based price
adjustments, productivity improvements and higher incentive
compensation. The 2004 gross margin decreased 70 basis points
compared to 2003, due primarily to higher material costs for
steel and resins. In addition, the market continued to experience
increased pricing pressures during 2004. Margin declines were
partially offset by higher volume, productivity improvements and
some cost-based price adjustments.
• The 2005 Europe gross margin decreased 70 basis points as
compared to 2004, largely driven by higher material and oil-
related costs, partially offset by increased productivity, an
improved product mix and, to a lesser extent, a gain on the sale
of assets. In 2004, Europe gross margin improved slightly versus
2003 as productivity improvements and sales volume more than
offset pricing pressure. European operations continue to realize
savings from ongoing restructuring efforts in Europe.
• The 2005 Latin America gross margin increased 250 basis points
as compared to 2004, as the combination of cost-based price
adjustments, increased productivity and Befiex tax credits more
than offset higher material and oil-related costs, unfavorable
currency, and increased incentive compensation. In 2004, Latin
America gross margin declined 260 basis points versus 2003, due
primarily to higher material costs for steel and resins. Higher
costs were partially offset by increased volume and cost-based
price adjustments on both appliances and compressors and
favorable product mix.
•
The 2005 Asia gross margin increased 40 basis points as compared
to 2004, due to improved product mix, productivity improvements
and cost-based price adjustments that were partially offset by
higher material and oil-related costs. Asia gross margin declined
380 basis points versus 2003, due primarily to the trade inventory
reduction strategy in India and regional pricing pressures.
Selling, General and Administrative In 2005, consolidated selling,
general and administrative expenses, as a percent of consolidated
net sales, declined 50 basis points as compared to 2004, as
administrative cost reductions and scale efficiencies offset higher
freight and warehousing costs and incentive compensation in North
America and Latin America. Europe results primarily reflect the
positive impact from administrative productivity improvements and
business scale. The Asia region also benefited from scale efficiencies.
The consolidated selling, general and administrative expenses in
2004, as a percent of consolidated net sales, remained relatively
unchanged versus 2003. Higher freight rates in North and Latin
America in 2004 were partially offset by productivity in other
non-logistic areas. Europe results reflect the positive impact from
administrative productivity improvements and business scale. The
increase in Asia’s selling, general and administrative expenses as a
percent of sales in 2004 was due primarily to lower overall sales
and higher administrative support costs. In 2003, 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 in
2003 were due to higher operating reserves.
Restructuring Restructuring initiatives resulted in charges of
$57 million, $15 million and $3 million in 2005, 2004 and 2003,
respectively. These amounts have been identified as a separate
component of operating profit. The Company expects to expense up
to $100 million for restructuring during 2006.
At December 31, 2005, a liability of $6 million remains for
actions yet to be completed under the global restructuring plan that
was originally announced in December of 2000. The remaining
liability pertains to lease exit costs. The restructuring plan included
the elimination of over 7,100 positions worldwide, of which
substantially all had left the Company through December 31, 2005.
Interest and Sundry Income/Expense Interest and sundry expense
increased by $51 million versus 2004. The primary drivers of this
increase were an increase in legal reserves of approximately $21
million, higher foreign currency losses on balance sheet positions,
the absence of prior year interest received on foreign tax audit
settlements in Latin America and a $9 million gain on the sale of
a partial interest in an equity investment during 2004. Interest and
sundry expense for 2004 decreased $27 million compared to 2003.
The improvement was primarily attributable 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.
Financial Summary