WHR

Whirlpool Corporation 10-Q Summary: Quarter Ended March 31, 2003

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2003, for Whirlpool Corporation, a global manufacturer of home appliances. The company operates in four primary geographic segments: North America, Europe, Latin America, and Asia. The filing includes unaudited consolidated financial statements and management's discussion and analysis of results of operations and financial condition.

Key Financial Metrics

Note: Q1 2002 Net Earnings included a one-time non-cash charge of $613 million related to the adoption of SFAS No. 142 (Goodwill and Other Intangible Assets).

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 6% year-over-year, driven by a 4% increase in total units sold. Excluding acquisitions, unit sales decreased 1% and net sales increased 2%.
• Profitability: Operating profit increased slightly to $189 million from $184 million. The significant improvement in Net Earnings (from a loss of $529 million to a profit of $91 million) is primarily due to the absence of the $613 million goodwill impairment charge recorded in the prior year.
• Regional Performance:
  • North America: Sales up 5% (driven by the Whirlpool Mexico acquisition); unit volumes up 5%.
  • Europe: Sales up 19% (driven by the Polar acquisition and currency strength); unit volumes flat.
  • Latin America: Sales down 8% due to Brazilian currency devaluation, though unit shipments increased 6%.
  • Asia: Sales up 7% with 6% unit growth.
• Cash Flow: Cash used in operating activities improved to $229 million from $350 million in the prior year, aided by the absence of product recall spending and tax payments on swap gains seen in 2002.

Guidance, Outlook, and Risks

Outlook: Management expects full-year 2003 appliance industry shipments to be flat in North America, down 3% in Europe, down 3-5% in Latin America, and flat to slightly up in Asia. The company reaffirmed its previously disclosed first-quarter and full-year earnings outlook in March 2003.

Management Commentary: Performance was driven by improved productivity and restructuring benefits, which offset increases in pension, healthcare, energy, and material costs. Gross margin percentage declined slightly due to increased pension expenses and lower excise tax credits in Latin America.

Risks and Contingencies:

• Accounting Standards: The company is evaluating the impact of FASB Interpretation No. 46 regarding the consolidation of a 49.5% owned European entity.
• Regulatory/Tax: The company expects lower recognition of Brazilian export incentive credits (Befiex) in 2003 pending court confirmation, which may impact the effective tax rate.
• Guarantees: The company holds guarantees for affiliate indebtedness and customer lines of credit in Brazil totaling approximately $118 million ($19 million for European affiliate bills of exchange and $59 million for Brazilian customer lines).
• Market Risks: Key risks include competitive pricing pressures, currency exchange rate fluctuations, and economic volatility in developing markets.

Investor Verification Checklist

• Verify the sustainability of the $91 million net earnings given the one-time $613 million goodwill charge in the prior year comparison.
• Monitor the resolution of the Brazilian Befiex credit calculation review and its impact on future tax rates and net sales.
• Assess the impact of the new FASB Interpretation No. 46 on the consolidation of the European wood cabinet affiliate.
• Review the $1.6 billion in credit facility guarantees for consolidated subsidiaries and the $118 million in specific affiliate/customer guarantees.
• Track the effectiveness of restructuring programs in offsetting rising pension and healthcare costs.