Electrolux 1998 Annual Report Download - page 31

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Electrolux Annual Report 1998
No effect on Group income is gener-
ated by the above, since exchange
differences are offset against the
translation difference, i.e. the change in
equity that arises when net assets in
foreign subsidiaries are translated at
year-end rates.
Information on the number of
Group employees, salaries and remu-
neration is given in Note 23 on page 46.
Information on the Group’s holdings in
shares and participations is given in
Note 24 on page 47.
New pension funds
In 1997 the Board of Electrolux
decided that as of 1998, PRI pensions
in the parent company and Swedish
subsidiaries would be secured by
allocations to own pension funds. In
1998 two Group pension funds were
established, i.e. the Electrolux Group’s
1997 fund, for pensions accumulated
through 1997, and the Electrolux
Group’s 1998 fund, for pensions
accumulated from 1998 onward.
During 1998 a net of SEK 1,083m
was allocated to the 1997 fund. The
pension accumulated in 1998 amounted
to SEK 57m and will be allocated to the
1998 fund in the spring of 1999. The
market value of assets in the 1997 fund
amounted to SEK 1,179m at year-end,
which exceeded the pension obligations
by SEK 39m.
The funds are being managed by
external investment companies. The
portfolio was developed during the
latter part of 1998 and comprises both
shares and interest-bearing securities.
The major part of cash assets in the
1997 fund had been invested by year-
end 1998.
Proposed dividend
The Board of Directors proposes an
increase of the dividend for 1998 to
SEK 3.00 per share, for a total dividend
payment of SEK 1,099m.
Listing in Swedish kronor and euro
In order to facilitate trading and a
greater distribution of shares, the Board
has decided to list the B-shares in both
euro and Swedish kronor on the
Stockholm Stock Exchange.
Stock split and increased voting rights
for B-shares
In April 1998 the Annual General
Meeting authorized a stock split of 5:1
and a change in the Company’s Articles
of Association that enabled increasing
the voting rights of B-shares from
1/1000 to 1/10. The share of the
total voting rights in the Company
represented by B-shares thus increased
from 3.4% to 78.1%, and the share of
A-shares decreased from 96.6% to 21.9%.
The stock split involved changing the
par value of all shares in Electrolux
from SEK 25.00 to SEK 5.00.
The shares were listed at the new
par value and with increased voting rights
for B-shares as of June 2, 1998 on all
European stock exchanges where the
Group is registered, and in the US as of
June 11, 1998. Electrolux B-shares are
listed in the US within NASDAQ in the
form of depositary receipts (ADRs). The
relation between ADRs and B-shares was
adjusted, so that one ADR now corre-
sponds to two B-shares, instead of one.
Options program
In January 1998 the Board decided to
introduce an annual options program
for about 100 senior managers. The
options are allotted on the basis of the
value created after charging the Group’s
operating income with a market
determined cost of capital on the
Group’s net assets. If no value has been
created, no options are issued.
The first options will be issued
during the first half of 1999 on the
basis of the increase in value from 1997
to 1998. The provision for the 1998
options program amounted to SEK 38m
plus employer contributions.
The options cannot be used to
purchase Electrolux shares, but will be
redeemed for cash by the Company.
The value of the options is linked to
the trading price of the Electrolux
B-shares. The strike price is 115% of the
trading price on the date the options are
issued. The maturity period is 5 years.
The Board has also authorized the
options program for 1999, under which
options will be issued in 2000, on
condition that value is created in
comparison with 1998.
Options program 1993
Within the program for synthetic
options in 1993, there remain 22 (24)
persons with a total holding of 534,020
(552,260) options. The number of
options has been adjusted as a result of
the stock split. The options mature on
January 10, 2002 and the strike price is
SEK 81. See also Note 23 on page 47.
Litigation on pension commitments
in the US
A verdict has not yet been announced in
litigation regarding pension liabilities in
Electrolux US subsidiary White Consoli-
dated Industries, Inc. The litigation has
been in progress in a Federal court in
Pittsburgh, Pennsylvania since 1991 and
was completed in April 1997.
The plaintiff is a government
agency, the Pension Benefit Guaranty
Corporation (PBGC), responsible for
the payment of defaulting pension obli-
gations. The PBGC alleges a principal
purpose to evade pension liabilities in a
divestment by White Consolidated in
1985, the year before White Consoli-
dated was acquired by Electrolux. PBGC
is seeking to hold White Consolidated
liable for the underfunding in certain
pension plans which the PBGC
estimated in March, 1997 to be
approximately USD 177 million,
including interest. Electrolux believes
that the PBGC action is devoid of merit,
and has therefore made no provision.
The EMU and the euro
The introduction of the euro has a
considerable effect on Electrolux, as
about 40% of Group sales are in the
11 countries which are members of the
EMU. The significance for the Group’s
assets is even greater, which means that
the euro is the most important currency
for the Group.
The euro is being used as a means
of payment within the Group as of
the start of 1999. It will be gradually
introduced during the next few years
for transactions with customers and
suppliers. The Group will decide
whether to introduce corporate
reporting in the euro after changes have
been made in Swedish legislation.