Electrolux 2005 Annual Report Download - page 119
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Please find page 119 of the 2005 Electrolux annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Electrolux Annual Report 2005 115
liability insurance with third-party carriers in amounts that it believes
are reasonable. However, there can be no assurances that product
liability claims will not have a material adverse effect on Electrolux
business, results of operations or financial condition.
Electrolux is subject to risks related to its insurance coverage.
Electrolux maintains third-party insurance coverage and self-insures
through wholly owned insurance subsidiaries (captives) for a variety
of exposures and risks, such as property damage, business interrup-
tion and product liability claims. However, while Electrolux believes it
has adequate insurance coverage for all anticipated exposures in line
with industry standards, there can be no assurances that (i) Electrolux
will be able to maintain such insurance on acceptable terms, if at all,
at all times in the future or that claims will not exceed, or fall outside
of, its third-party or captive insurance coverage, or (ii) its provisions
for uninsured or uncovered losses will be sufficient to cover its
ultimate loss or expenditure.
There can be no assurance that Electrolux proposal to spin-off
its Outdoor Products operations will be completed successfully
or that the separation process will not give rise to additional
liabilities.
In February 2005, the Electrolux Board announced its intention to
spin-off the Group’s Outdoor Products operations (“Outdoor Prod-
ucts”) as a separate unit. In order to govern the creation of Outdoor
Products as a separate legal entity, as well as govern the relationship
in certain aspects between Electrolux and Outdoor Products after the
contemplated separation, Electrolux and Husqvarna AB (being the
parent of the Outdoor Products group) and some of their respective
subsidiaries have entered into a Master Separation Agreement and
related agreements (the “Separation Agreements”). The Board of
Electrolux has proposed that the Annual General Meeting to be held
in April of this year resolve that all the shares in Husqvarna AB, be
distributed to the shareholders of Electrolux.
There can be no assurance that Electrolux will be successful in
completing the spin-off of Husqvarna as currently contemplated, nor
that the benefits expected to be realized from the spin-off will be
achieved, either of which could have a material adverse effect on
business, results of operations or financial condition.
Additionally, under the Separation Agreements, Electrolux has
retained certain potential liabilities with respect to the proposed spin-
off and Outdoor Products. These potential liabilities include certain
liabilities of the Outdoor Products business which cannot be trans-
ferred or which are considered too difficult to transfer. Losses pursuant
to these liabilities are reimbursable pursuant to indemnity undertakings
from Husqvarna. In the event that Husqvarna is unable to meet its
indemnity obligations should they arise, Electrolux would not be
reimbursed for the related loss, and this could have a material adverse
effect on Electrolux’s results of operations and financial condition.
Electrolux is also exposed to tax risks in relation to the spin-off.
Electrolux has received a private letter ruling from the U.S. Internal
Revenue Service (IRS) with regard to the contemplated distribution of
the shares in Husqvarna and the U.S. corporate restructurings that
will precede the distribution. The ruling confirms that these transac-
tions will not entail any U.S. tax consequences for Electrolux, its U.S.
subsidiaries or U.S. shareholders of Electrolux. In the event that any
facts and circumstances upon which the IRS private ruling has been
based is found to be incorrect or incomplete in a material respect or
if the facts at the time of separation, or at any relevant point in time,
are materially different from the facts upon which the ruling was
based, Electrolux could not rely on the ruling. Additionally, future
events that may or may not be within the control of Electrolux or
Husqvarna, including purchases by third parties of Husqvarna stock
or Electrolux stock, could cause the distribution of Husqvarna stock
and the U.S. corporate restructurings that will precede the distribu-
tion not to qualify as tax-free to Electrolux and/or U.S. holders of
Electrolux stock. An example of such event is if one or more persons
were to acquire a 50% or greater interest in Husqvarna stock or
Electrolux stock.
Electrolux has – as one of the Separation Agreements – con-
cluded a Tax Sharing and Indemnity Agreement with Husqvarna.
Pursuant to the tax sharing agreement, Husqvarna and two of its U.S.
subsidiaries have undertaken to indemnify Electrolux and its group
companies for U.S. tax cost liabilities in certain circumstances. If the
contemplated distribution of the shares in Husqvarna or the U.S.
corporate restructurings that will precede the distribution would
entail U.S. tax cost liabilities, and Husqvarna would not be obliged to
indemnify such liabilities or would not be able to meet its indemnity
undertakings, this could have a material adverse effect on Electrolux
results of operations and financial condition.
Risk Factors