Electrolux 2001 Annual Report Download - page 68

64 ELECTROLUX ANNUAL REPORT 2001
Note 27 US GAAP information
The consolidated financial statements have
been prepared in accordance with Swedish
accounting standards, which differ in certain
significant respects from US GAAP. Follow-
ing is a description of those differences
which have a significant effect on net in-
come and shareholders’ equity.
The Group also submits an annual
Form 20-F report to the SEC (Securities
and Exchange Commission).
Pensions
According to Swedish accounting standards,
pension obligations are recorded in the
consolidated financial statements on the
basis of actuarial assumptions. US accounting
standards are defined in SFAS No. 87
“Employers’Accounting for Pensions”
which is more prescriptive, particularly in
the use of actuarial assumptions for future
salary increases, discount rates and inflation.
Additionally, SFAS No. 87 requires that a
specific actuarial method (the projected
unit credit method) be used.
Certain pension commitments in Sweden
are administered through a multi-employer
plan for Swedish white-collar employees.
In accordance with Swedish GAAP,
Electrolux recognized income and recorded
an asset for its allocable portion of a surplus,
not utilized in 2000. Under US GAAP, the
entire amount was not allowed to be rec-
ognized until it was received or available
for utilization. In 2001, Electrolux utilized
a significant portion of its remaining allo-
cable surplus, and the amount has been
recognized in current earnings in accord-
ance with US GAAP.
Stock-based compensation
Electrolux has several employee stock
option programs, which are offered to senior
managers. In accordance with Swedish
GAAP, the Company records provisions
for related social fees at the time the options
are allotted. However, under US GAAP,
employer taxes on employee stock-based
compensation should not be recognized
until the date of the event triggering the
measurement and payment of the tax to the
taxing authority, which is generally the date
the option is exercised.
Securities
According to Swedish accounting standards,
debt and equity securities held for trading
purposes should be reported at the lower
of cost or market. Financial assets and other
investments, that are to be held to maturity,
are valued at acquisition cost.
In accordance with US GAAP and SFAS
No. 115 “Accounting for Certain Invest-
ments in Debt and Equity Securities,”
holdings should be classified, according to
management’s intention, as either “held-
to-maturity,”“trading,” or “available for
sale.” Debt securities classified as held-to-
maturity are reported at amortized cost.
Trading securities are recorded at fair
value, with unrealized gains and losses
included in current earnings. Debt and
marketable equity securities that are classi-
fied as available for sale are recorded at fair
value, with unrealized gains and losses
reported as a separate component of share-
holders’ equity.
Income taxes
Electrolux reports deferred taxes in accord-
ance with Swedish standard RR9.With
the implementation of RR9 the accounting
for deferred taxes under Swedish GAAP
has become more closely aligned with US
GAAP.
Financial instruments
Effective January 1, 2001, the company
adopted SFAS No. 133 “Accounting for
Derivative Instruments and Hedging
Activities” and SFAS No. 138 “Accounting
for Certain Derivative Instruments and
Certain Hedging Transactions, an Amend-
ment to FASB Statement No. 133” for US
GAAP reporting purposes.These statements
establish accounting and reporting standards
requiring that derivative instruments be
recorded on the balance sheet at fair value
as either assets or liabilities, and requires
the company to designate, document and
assess the effectiveness of a hedge to qualify
for hedge accounting treatment.
In accordance with US GAAP and SFAS
No. 133, gains and losses from derivative
instruments can only be deferred from
current earnings to the extent that the
instruments are designated and qualify as
effective hedges. For all other derivatives,
gains and losses from derivative instru-
ments are recorded in earnings.
Under Swedish GAAP, unrealized gains
and losses on hedging instruments used to
hedge future cash flows are deferred and
recognized in the same period that the
hedged transaction is recognized.
Prior to the adoption of these statements,
management decided not to designate any
derivative instruments as hedges for US
GAAP reporting purposes except for
certain instruments used to hedge the net
investments in foreign operations. Conse-
quently, derivatives used for the hedging of
future cash flows, fair value hedges, and
trading purposes must be marked to mar-
ket in accordance with US GAAP.This
will increase the volatility of the income
statement under US GAAP as a result of
the deviation in accounting standards
between Sweden and the United States.
In accordance with the transition pro-
visions of SFAS No.133, the Company
recorded a net transition loss of approxi-
mately SEK 24m in accumulated other
comprehensive income and SEK 4m net
loss in earnings to recognize the fair value
of derivative and hedging instruments.
Substantially all of the transition adjust-
ment recognized in accumulated other
comprehensive income has been reclassi-
fied into earnings as of December 31,
2001.The fair value adjustment to net
debt is being amortized over the period of
the debt in accordance with the transition
rules.The year-end adjustment to record
derivative instruments at fair value in
accordance with US GAAP resulted in a
net decrease to other comprehensive
income in the amount of SEK 535m and
a net loss adjustment of SEK 72m recog-
nized in current earnings.The adjustment
to accumulated other comprehensive
income represents the difference between
the amount of net investment hedges that
were recorded in equity in accordance with
Swedish GAAP, and the amount of net
investment hedges that did not qualify for
hedge accounting treatment under US
GAAP.
Restructuring and other provisions
Under US GAAP, the recognition of
restructuring cost is deferred until a com-
mitment date is established.This is usually
the date on which management, having
appropriate level of authority, commits the
company to the restructuring plan, identi-
fies all significant actions, including the
method of disposition and the expected
date of completion, and, in the case of
employee terminations, specifies the sever-
ance arrangements and communicates
them to employees.The guidance under
Swedish GAAP is not as prescriptive and,
in certain circumstances, allows for earlier
recognition.Additionally, US GAAP is more
prescriptive on the types of costs which
are allowed to be classified as restructuring
cost, specifically those which are a direct
result of the restructuring and are not asso-
ciated with the ongoing activities of the
company. Swedish GAAP is not as prescrip-
tive regarding the types of costs which can
be included and thus differences can result.
Notes to the financial statements