Electrolux 2003 Annual Report Download - page 43

Electrolux Annual Report 2003 41
De-listing in Paris and Zurich
During 2003, the Electrolux share was de-listed from the stock
exchanges in Paris and Zurich. The de-listing in Paris was finalized as
of August 29, 2003, and the de-listing in Zurich as of April 30, 2003.
Option Programs
Electrolux has implemented several employee stock option pro-
grams offered to senior managers. These programs are intended
to attract, retain and motivate managers by providing long-term
incentives through benefits linked to the company’s share price.
A detailed description of all option programs and related costs can be found in
Note 28 on page 64.
Long-term incentive program 2004
The Board of Directors will present a proposal at the Annual General
Meeting for a new annual long-term incentive program for 2004. The
proposed program is based on goals approved by the Board for the
value creation within the Group over a three-year period. It supports
the Electrolux principles of “pay-for-performance” and is an integral
part of the total compensation plan for Electrolux management.
Depending on the outcome of value creation, the proposed pro-
gram would distribute a variable number of Electrolux B-shares,
estimated at 800,000–1,200,000, to fewer than 200 senior man-
agers in more than 20 countries. The defined levels for value cre-
ation, include a minimum level which must be exceeded in order
to enable distribution of shares, as well as a maximum level. The
shares will be distributed at the end of the three-year performance
period, and managers will be required to hold the shares for a
period of two years.
The Board will propose to the Annual General Meeting that the
Company’s obligations under the proposed program, including
employer contribution, shall be secured by repurchased shares.
The total cost of the program over a three-year period is esti-
mated at SEK 150m, including costs for employer contributions
and the financing cost for the repurchased shares. It is estimated
that the cost will not exceed SEK 240m. The minimum cost, if no
shares are distributed, will amount to SEK 17m, i.e., the financing
cost for the repurchased shares.
The distribution of repurchased shares under this program would
result in an estimated maximum dilution of 0.38%, measured as
the maximum increase in number of outstanding shares.
For more information, see Note 28 on page 65.
Asbestos litigation in the US
Litigation and claims related to asbestos are pending against the
Group in the US. Almost all of the cases refer to externally supplied
components used in industrial products manufactured by discon-
tinued operations prior to the early 1970s. Many of the cases involve
multiple plaintiffs who have made identical allegations against many
other defendants who are not part of the Electrolux Group.
As of December 31, 2003, the Group had a total of 584 (216)
lawsuits pending, representing approximately 21,000 (approximately
14,000) plaintiffs. During 2003, 497 new cases were filed and 129
pending cases were resolved. Approximately 20,000 of the plaintiffs
refer to cases pending in the state of Mississippi.
Electrolux believes its predecessor companies may have had
insurance coverage applicable to some of the cases during some
of the relevant years. Electrolux is currently in discussions with
those insurance carriers.
Additional lawsuits may be filed against Electrolux in the future.
It is not possible to predict either the number of future claims or
the number of plaintiffs that any future claims may represent. In
addition, the outcome of asbestos claims is inherently uncertain
and always difficult to predict and Electrolux cannot provide any
assurances that the resolution of these types of claims will not
have a material adverse effect on its business or results of opera-
tions in the future.
Pending litigation in the US
related to vacuum cleaners
Electrolux has a pending lawsuit in the US related to the design of
the upright, cyclonic vacuum cleaners manufactured and sold by
the Group’s floor-care operation. The plaintiff claims that the Group
has wrongfully used certain trade secrets when designing the
cyclonic products, and is seeking a judgment against the Group
in the amount of approximately USD 60m. A trial is scheduled for
Spring 2004.
The Group believes it has valid defenses to these claims. How-
ever, should the plaintiffs claims prevail, this could have a material
adverse effect on the Group’s income.
Producer responsibility for recycling costs
In December 2002, the European Union (EU) adopted the Waste
Electrical and Electronic Equipment (WEEE) Directive, introducing
producer responsibility for the cost of recycling and waste dispos-
al. This implies that each manufacturer and importer, from August
2005, must finance the recycling of electrical products it places on
the EU market after that date (individual producer responsibility).
For products sold before August 2005, producers shall jointly
share the recycling obligations based on current market share
(collective producer responsibility).
The WEEE Directive encompasses more than 20 million Electrolux
products sold each year in Europe. The compliance with the WEEE
Directive could have a potential material adverse effect on the
Group’s income, financial position and cash flow. Estimates of the
cost remain highly uncertain, as total volumes to be collected are, as
yet, unknown. Furthermore, treatment costs cannot be predicted
until contracts are in place, and transposition of the Directive by
EU Member States may change the requirements finally placed on
producers.
Major changes in the Group
Divestments and acquisitions
During the year, the Group divested its compressor operation and
its 50% shareholding in Vestfrost A/S, a Danish producer of refriger-
ators and freezers. The divestment of the compressor operation
generated a capital loss of SEK 85m, and the divestment of the
shareholding in Vestfrost a capital gain of SEK 7m.
As of December 31, 2003, the Group acquired the outstanding
40% of Electrolux Home Appliances Co. Ltd in China.
Other facts