Whirlpool 2005 Annual Report Download - page 27

Whirlpool Corporation 23
Interest Expense Interest expense in 2005 increased $2 million as
compared to 2004. The increase was due primarily to higher interest
rates and a shift in global borrowing positions. The primary impact
was in Brazil, which experienced both increased borrowing levels
and higher interest rates on a year-over-year basis. The interest
expense reduction during 2004 of $9 million was attributable
to a lower overall U.S. interest rate environment, a decrease in
borrowings in countries with higher interest rates, primarily Europe,
and maturity of the $200 million 9% Debentures in March 2003,
which was replaced with lower rate debt.
Income Taxes The effective income tax rate was 28.6% in 2005,
33.9% in 2004 and 35.0% in 2003. A primary driver of the effective
tax rate reduction during 2005 was the realization of foreign tax
credits associated with a comprehensive plan that simplified the
Company’s legal structure, thereby permitting the tax-efficient
repatriation of offshore cash via foreign tax credits. Additional
items impacting the effective tax rate during all periods presented
included the settlement of global tax audits and the overall
dispersion of global income.
Equity in Earnings (Loss) of Affiliated Companies and
Minority Interests Changes in equity in earnings (loss) of affiliated
companies and minority interests reflect higher earnings in Latin
America and India in 2005 and lower earnings in Latin America and
India during 2004.
Net Earnings Net earnings were $422 million in 2005 versus
$406 million and $414 million in 2004 and 2003, respectively.
2005 earnings were impacted by cost-based price adjustments,
productivity improvements, administrative cost controls and a
reduction in the effective tax rate. These items were partially offset
by significantly higher material costs (particularly steel and resins),
unfavorable currency fluctuations, increased incentive compensation
expense, higher restructuring spending and increased legal reserves.
2004 earnings were significantly impacted by increases in material
and logistics costs, particularly in the second half of the year.
The higher costs in 2004 were partially offset by productivity
improvements, lower foreign currency losses on balance sheet
positions, an effective tax rate reduction, lower financing costs and
reduced minority interest earnings.
Forward-Looking Perspective During 2005, the Company incurred
approximately $530 million of higher material and oil-related
costs. In response to these increases, the Company introduced new
innovative products, improved productivity, reduced discretionary
costs and implemented global cost-based price adjustments in
key regions around the world. The combination of these actions
contributed to the ability of the Company to deliver a record year
of results.
The Company expects positive earnings momentum to
continue during 2006. New product introductions, productivity
improvements, continued expansion of the Company’s global
operating platform and strong cost controls are expected to more
than offset continued increases in material and oil-related costs.
In 2006, the Company will launch the largest number of new
products to market in its history. The Company’s innovation
product pipeline continues to grow, consumer and trade response
to its new offerings has been positive, and the Company continues
to consistently execute its strategy of delivering consumer-relevant
innovation to markets worldwide.
North America and Europe, the Company’s two largest
segments, expect 2006 industry growth of approximately 2 to 3%
and 1 to 2%, respectively.
Macro-economic conditions in Latin America are expected to
remain positive during 2006, and the Company expects industry
shipments to increase 6 to 8%.
The Company expects industry shipments within Asia to increase
5 to 7% in 2006.
In December 1996, Multibrás and Empresa Brasileira de
Compressores S.A. (“Embraco”), Brazilian subsidiaries, were
granted additional export incentives in connection with Befiex.
These incentives allowed the use of credits as an offset against
current Brazilian federal excise tax on domestic sales. During the
fourth quarter of 2005, the Company recognized $23 million in
export credits. The Company recognized no credits in 2004 and
credits of $5 million in 2003. The credits are treated as a reduction
of current excise taxes payable and, therefore, as an increase in net
sales. At December 31, 2005, the Company’s remaining credits are
approximately $600 million after adjusting for currency fluctuations
and a monetary adjustment. Currently, the Company is unable to
recognize these credits but is exploring possible strategies which
may permit future recognition of these credits.