Electrolux 2003 Annual Report Download - page 48

46 Electrolux Annual Report 2003
Notes to the financial statements
• Computation of net debt/equity, equity/assets and net assets includes
minority interests in adjusted shareholders’ equity. Definitions of these
ratios are provided on page 77.
Principles applied for consolidation
The consolidated financial statements have been prepared in accordance
with Standard RR 1:00 of the Swedish Financial Accounting Standards
Council applying the purchase method, whereby the assets and liabilities
in a subsidiary on the date of acquisition are evaluated to determine the
acquisition value to the Group. Any differences between the acquisition
price and the market value of the acquired net assets are reported as
goodwill or negative goodwill. The consolidated income for the Group
includes the income statements for the Parent Company and its direct
and indirect owned subsidiaries after
• elimination of intra-group transactions and unrealized profits in stock, and
• depreciation and amortization of group goodwill and other acquired
surplus values.
Definition of Group companies
The consolidated financial statements include AB Electrolux and all com-
panies in which the Parent Company at year-end directly or indirectly owns
more than 50% of the voting rights referring to all shares and participations,
or otherwise exercises decisive control.
The following applies to acquisitions and divestments during the year:
• Companies acquired during the year have been included in the consol-
idated income statement as of the date of acquisition
• Companies divested during the year have been included in the consoli-
dated income statement up to and including the date of divestment.
At year-end 2003, the Group comprised 353 (409) operating units, and
284 (299) companies.
Associated companies
Investments in associated companies, i.e., those in which the Parent
Company directly or indirectly owned 20–50% of the voting rights at year-
end, or otherwise exercised significant influence, have been reported
according to the equity method. This means that the Group’s share of
income before taxes in an associated company is reported as part of the
Group’s operating income and the Group’s share of taxes is reported as
part of the Group’s taxes. Investments in such a company are reported
at a value corresponding to the Group’s share of the company’s equity,
adjusted for possible over- and undervalue. Joint ventures are reported
according to the equity method.
Translation of financial statements in foreign subsidiaries
According to RR 8, “Effects of changes in exchange rates”, foreign sub-
sidiaries can be classified as either foreign operations that are integral to
the operations of the reporting entity, or as independent foreign entities.
The method used to translate the financial statements of a foreign subsidiary
depends on how it is classified. An independent entity accumulates cash
and other monetary items, incurs expenses and generates income, all sub-
stantially in its local currency. Electrolux subsidiaries are classified as inde-
pendent foreign entities. Based on this classification, the balance sheets of
foreign subsidiaries have been translated into Swedish kronor at year-end
rates. Income statements have been translated at the average rates for the
year. Translation differences thus arising have been taken directly to equity.
Prior to consolidation, the financial statements of subsidiaries in countries
with highly inflationary economies have been remeasured into their functional
currency and the exchange-rate differences arising from that remeasurement
have been charged to income. The remeasured financial statements have
Basis of preparation
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in Sweden, thereby applying the
standards of the Swedish Financial Accounting Standards Council. These
accounting principles differ in certain significant respects from those in the
US. Certain non-US GAAP measures are used in this annual report, e.g.,
value creation. For a description of significant differences, see Note 30 on
page 67. In the interest of achieving comparable financial information within
the Group, Electrolux companies apply uniform accounting rules as defined
in the Electrolux Accounting Manual, irrespective of national legislation.
The following should be noted:
• A number of new standards from the Swedish Financial Accounting
Standards Council, RR 2:02, 22, 24, 25, 26 and 28 came into effect
as of January 1, 2003. The implementation of the new standards has
had no material effect on the consolidated financial statements.
• As of January 1, 2003, Electrolux implemented also RR 27, “Financial
instruments: Disclosure and classification”. RR 27 stipulates how
financial instruments shall be classified in the balance sheet and
prescribes the disclosures to be presented in order to make it easier
for the reader of financial statements to understand how financial
instruments affect the results, financial situation and cash flows of an
entity. RR 27 applies to all financial instruments, whether they are
reported on the balance sheet or not, with the exception of shares in
subsidiaries and associated companies, post-employment benefits and
share based compensation to employees. The implementation of RR 27
increased total assets and liabilities by approximately SEK 300m.
• As of January 1, 2004, Electrolux applies the new standard RR 29,
“Employee Benefits”. RR 29 stipulates how the company shall account
for and report employee benefits. The main differences between RR 29
and the present accounting standards refer to defined benefit post-
employment plans. RR 29 requires that liabilities for these plans are
calculated according to the Projected Unit Credit Method and reduced
by the market value of the plan assets. RR 29 also requires that the
cost of the benefits be expensed in the period in which the benefits are
earned. The implementation of RR 29 has had a one-time effect of
SEK 1,600m, net of taxes, that has been charged to opening balance
of retained earnings as a change in accounting principles.
• As of January 1, 2005, Electrolux will apply International Financial
Reporting Standards (IFRS, previously IAS). Swedish accounting
principles have in recent years been successively adapted to IFRS.
However, there are still certain areas where differences exist. Further,
certain IFRS standards, mandatory from 2005, are not in final form yet.
The Group believes that the finalization of these standards might create
certain additional differences, besides the areas identified below. Based
on the present knowledge, the Group has identified the following
standards as being those that most significantly differ from the
accounting standards presently applied under Swedish GAAP:
– IAS 19 “Employee Benefits” (the difference will disappear when RR 29
is implemented in 2004)
– IAS 38 “Intangible Assets”
– IAS 39 “Financial Instruments: Recognition and Measurement”.
The effects have not yet been quantified, except for IAS 19 as
described above. At transition, the effect of the changes will be
reported as an adjustment to opening balance of retained earnings.
The Group has already implemented certain changes in its report-
ing systems and expects to finalize this task before the end of the
first quarter of 2004, in order to be able to collect the comparative
information that will be necessary when the new standards are
implemented in 2005.
Note 1 Accounting and valuation principles
Amounts in SEKm, unless otherwise stated