Electrolux 2003 Annual Report Download - page 49

Electrolux Annual Report 2003 47
Notes
then been translated into Swedish kronor following the same method as for
other independent foreign entities. Consequently, changes in equity due to
high inflation are reported in the consolidated income statement.
Hedging of net investment
The Parent Company uses foreign exchange derivative contracts and
loans in foreign currencies in hedging certain net foreign investments.
Exchange-rate differences related to these contracts and loans have been
charged to Group equity after deduction of taxes, to the extent to which
there are corresponding translation differences.
General accounting and valuation principles
Revenue recognition
Sales are recorded net of VAT (Value-Added Tax), specific sales taxes,
returns and trade discounts. Revenues arise almost exclusively from sales
of finished products. Sales are recognized when the significant risks and
rewards connected with ownership of the goods have been transferred
to the buyer and the Group retains neither a continuing right to dispose
of the goods nor effective control of those goods and when the amount
of revenue can be measured reliably. This means that sales are recorded
when goods have been put at the disposal of the customers in accordance
with agreed terms of delivery. Revenues from services are recorded when
the service has been performed.
Government grants
Government grants are recognized when there is reasonable assurance
that the Group will comply with the conditions attaching to them, and that
the grants will be received. Grants related to assets are included in the
balance sheet as “deferred income” and recognized as income over the
useful life of the asset. In the income statement, grants are deducted in
reporting the related expense. In 2003, grants recognized in the income
statement amounted to SEK 55m.
Other operating income and expenses
These items include profits and losses arising from the sale of fixed assets
and the divestment of operations, as well as the share of income in associ-
ated companies. Other operating expenses also include amortization of
goodwill. See Notes 5 and 6 on page 52.
Items affecting comparability
This item includes events and transactions with significant effects in
comparing income for the current period with previous periods including:
• Capital gains and losses from divestments of product groups or major
units
• Close-down or significant down-sizing of major units or activities
• Restructuring initiatives with a set of activities aimed at reshaping a
major structure or process
• Significant impairment
• Other major non-recurring costs or income
Borrowing costs
Borrowing costs are recognized as an expense in the period in which they
are incurred.
Taxes
Taxes include current and deferred taxes applying the liability method.
Deferred taxes are calculated using enacted tax rates. Taxes incurred by
the Electrolux Group are affected by appropriations and other taxable (or
tax-related) transactions in the individual Group companies. They are also
affected by utilization of tax losses carried forward referring to previous years
or to acquired companies. This applies to both Swedish and foreign Group
companies. Deferred tax assets on tax losses and temporary differences are
recognized only if it is probable that they will be utilized in the near future.
A comparison of the Group’s theoretical and actual tax rates and other
disclosures are provided in Note 10 on page 53.
Financial assets and liabilities in foreign currency
In the individual subsidiaries’ accounts, assets and liabilities denominated in
foreign currency are valued at year-end exchange rates. Exchange-rate
differences arising from commercial receivables and liabilities in foreign
currency are included in operating income. Exchange-rate differences
arising from financial assets and liabilities are included in financial items in
the profit and loss statement. Foreign currency derivatives used for hedging
financial assets and liabilities are valued at year-end exchange rates and the
interest in the contracts is accrued and included in the income statement.
Intangible fixed assets
Acquisition goodwill
Acquisition goodwill is reported as an intangible asset and amortized over
the estimated useful life, which is usually 10–20 years.
Over the last few decades, Electrolux has made a large number of
acquisitions. For four of them Electrolux applies an amortization period of
40 years, i.e., for the goodwill arising from the major strategic acquisitions
of Zanussi, White Consolidated Industries, American Yard Products and
Email. These acquisitions have given Electrolux major market shares in
Europe, North America and Australia as well as a leading global position.
The industry in which the Group operates is relatively stable, and large
market shares are a key success factor as they enable economies of scale
and create barriers to entry by new competitors. Zanussi, White Consoli-
dated Industries and American Yard Products were acquired in the late
1980s, when useful lives of 40 years were in accordance with current inter-
national practice. Experience of these acquisitions clearly indicates useful
lives of well over 40 years, which supported the decision to assign a useful
life of 40 years for the acquisition of Email in 2001. The value of goodwill
is continuously monitored, and impairment tests indicate that the assigned
useful lives are clearly sustainable for these acquisitions. Amortization of
goodwill for these four acquisitions in 2003 amounted to SEK 105m.
A useful life of 20 years has been assigned for the goodwill arising from
the strategic acquisition of Diamant Boart in 2002.
Trademarks
The right to use the Electrolux brand in North America, acquired in May
2000, is amortized over 40 years in the consolidated accounts. To build
fewer but stronger brands is one of the Group’s key strategies and this
acquisition provides Electrolux with the possibility to use the Electrolux
brand worldwide. Although the useful life is regarded as indefinite, it was
established at 40 years in 2000 to be consistent with the useful lives of
the strategic acquisitions made in North America.
Capitalized development expenses
Electrolux capitalizes certain development expenses for new products and
expenses for developed and/or acquired software provided that the level of
certainty of their future economic benefits and useful life is high. Capitaliza-
tion has been limited to development projects initiated after January 1, 2002.
Tangible fixed assets
Tangible fixed assets are stated at historical cost less straight-line
Note 1 continued