Electrolux 1999 Annual Report Download - page 25

Electrolux Annual Report 1999 23
Electrolux appealed the decision on
August 18, 1999.
In accordance with applicable
accounting standards, the Group made a
non-cash pretax provision of USD
225 million (SEK 1,841m) in the third
quarter.The amount of the provision is
based on PBGC’s estimate of the liability.
The after-tax effect of this provision is
USD 140 million (SEK 1,141m).
Electrolux is pursuing all available
courses of action, including the appeal
mentioned above, in order to mitigate the
effect of this issue on the Group’s finan-
cial results.
Exchange loss due to unauthorized
currency trading
In the fourth quarter, the Group took an
exchange loss of SEK 240m as a result of
unauthorized currency trading by an
employee at the Group’s internal bank in
Germany.This bank is an administrative
unit that manages liquidity, short-term
loans and currency exchange related to
commercial currency flows for the
Group’s German companies, and thus has
no authority to engage in trading, apart
from transactions that are related to the
currency needs of the German opera-
tions.The employee used advanced meth-
ods for manipulating bank accounts in
order to conceal the loss that had accu-
mulated during the year. As a result of
this occurrence, the Group’s currency
trading has been largely centralized to the
head office, and all routines for control of
currency trading are under review.
The Y2K issue
Electrolux business sectors, with support
from Group staff functions, started to
work on the Y2K issue in 1996. Products,
manufacturing processes, office and build-
ing systems, and third parties were scruti-
nized for possible Y2K problems.When
potential problems had been identified,
the risks they posed were assessed and
quantified, and corrections or replace-
ments were made. Contingency plans
covering the different areas were also pre-
pared.Audits were performed to ensure
that remediation efforts were completed.
Net effect and costs
The Group did not experience any major
problems in connection with the milleni-
um shift, or afterwards.
The total cost for Y2K compliance in
the Group amounted to approximately
SEK 310m, of which SEK 170m in 1999.
Future action
A number of Y2K problems may not
arise until weeks or even months after
year-end.The business sectors are moni-
toring the situation closely and are ready
to implement appropriate contingency
plans if necessary.
Major changes in the Group
Divestments
As of September 30, the Group’s opera-
tion in food and beverage vending
machines was divested.The operation was
part of the food-service equipment prod-
uct line and in 1998 reported sales of
approximately SEK 1,000m, with about
600 employees.The divestment generated
a capital gain of SEK1,625m.
As of November 1, the major part of
the Group’s operation in direct sales was
divested. Divestment of remaining units
in Latin America is scheduled for com-
pletion during the spring 2000. In 1999
this operation had sales of 1,370m and
about 6,600 employees.
In November an agreement was
reached for the divestment of the opera-
tion in professional refrigeration.The
major part of this product line was di-
vested as of January 31, 2000. Divestment
of the remaining operations in Brazil,
China and Eastern Europe is scheduled
for completion during the spring 2000.
In 1999 this product line had sales of
SEK 2,279m and about 2,000 employees.
Acquisitions
In March, the Group acquired the Euro-
pean operation in the American company
McCulloch, which produces light-duty
chainsaws, trimmers, hedge trimmers and
leaf blowers. In 1998 this operation
reported sales of USD 81 million
(approximately SEK 650m), and had
250 employees.
In October the Group acquired
Yazoo-Kees, a North American manufac-
turer and distributor of landscape mainte-
nance equipment with annual sales of
approximately USD 20 million (SEK
160m) and about 100 employees.The
company has been integrated into the
Husqvarna outdoor operation.
J/V with Ericsson
In October a 50–50 joint venture with
Ericsson was started, devoted to develop-
ment and sale of products and services for
the networked home.The company will
actively drive standardization of future
intelligent home products. Both Electro-
lux and Ericsson have already invested in
this area and will jointly make an initial
investment of SEK 70m in the new com-
pany.The new company became opera-
tional in December 1999 after approval
by EU authorities.
Alliance with Toshiba
At the end of May Electrolux and
Toshiba of Japan signed an agreement for
cooperation in household appliances.
Cooperation between the two companies
will cover transfer of technology and
products, as well as components, environ-
mental issues and purchasing, in addition
to distribution, service and logistics in the
Japanese market.
Toshiba is a global leader in informa-
tion and communication systems, elec-
tronic components and energy systems,
as well as in consumer products such as
PCs,TVs, videos, room air-conditioners,
vacuum cleaners and white goods.
Toshiba is one of the leading white-
goods companies in Japan. For the fiscal
year ending March 1999, the company
reported sales of JPY 5,300 billion
(approximately SEK 370 billion).