Electrolux 2005 Annual Report Download - page 47
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Long-term incentive programs
Over the years, Electrolux has implemented several long-term
incentive programs for senior managers. These programs are
intended to attract, retain and motivate managers by providing
long-term incentives through benefits linked to the Electrolux
share price. They have been designed to align management
incentives with shareholder interests.
For a detailed description of all programs and related costs, see Note 22 on page 68
and Note 27 on page 73.
Performance-based share program
In 2004, the Group introduced an annual long-term incentive pro-
gram for approximately 200 senior managers and key employ-
ees. The program is a performance-related share program based
on value-creation targets for the Group that are established by
the Board, and involves an allocation of shares if these targets
have been reached or exceeded after a three-year period. The
program comprises B-shares.
Allocation of shares under the program is determined on the
basis of three levels of value creation, calculated according to the
Group’s previously adopted definition of this concept. The three
levels are “entry”, “target” and “stretch”. “Entry” is the minimum
level that must be reached to enable allocation. “Stretch” is the
maximum level for allocation and may not be exceeded regard-
less of the value created during the period. The shares will be
allocated after the three-year period and will be free of charge.
Shares must be held for two years, but participants are permitted
to sell allocated shares to cover personal income tax.
At the Annual General Meeting in 2005, it was decided on a
performance-related share program for 2005 based on the same
parameters as the 2004 Share Program.
Proposal for performance-based share programs in 2006
The Board of Directors will present a proposal at the Annual Gen-
eral Meeting for two performance-based share programs in
2006, one for the Indoor operation and one for the Outdoor oper-
ation. Corresponding to the Share Program described above.
The estimated total value of the two programs over a three-
year period at “target level” amounts to approximately SEK 120m,
which is at the same level as for the 2005 Share Program. More
details will be included in the information for the Annual General
Meeting 2006.
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 sup-
plied components used in industrial products manufactured by
discontinued operations prior to the early 1970s. Many of the
cases involve multiple plaintiffs who have made identical allega-
tions against many other defendants who are not part of the
Electrolux Group.
As of December 31, 2005, the Group had a total of 1,082 (842)
cases pending, representing approximately 8,400 (approximately
16,200) plaintiffs. During 2005, 802 new cases with approxi-
mately 850 plaintiffs were filed and 562 pending cases with
approximately 8,600 plaintiffs were resolved. Approximately 7,100
of the plaintiffs relate 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 rep-
resent. 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
on results of operations in the future.
De-listing from NASDAQ
On March 31, 2005, the Group’s ADRs, (ELUX) were delisted
from the NASDAQ Stock Market in the US. The ADR program
and trading in these receipts has been transferred to the US
over-the-counter market. The Group will continue to submit an
annual report on Form 20-F and quarterly reports on Form 6-K
to the American Securities and Exchange Commission (SEC).
In addition to the Stockholm Stock Exchange, Electrolux shares
are listed on the London Stock Exchange.
Implementation of the WEEE Directive
In 2002, the European Union adopted the WEEE (Waste Electri-
cal and Electronic Equipment) Directive, which stipulates that as
of August 2005, producers are responsible for the management
and financing of treatment, recycling and disposal of waste elec-
trical and electronic products that are deposited at collection
facilities. The collection of electrical and electronic equipment
from households is the responsibility of local authorities.
Regulations regarding WEEE were already in force in Sweden,
Norway, Belgium, the Netherlands and Switzerland before the
Directive was introduced. By 2004, WEEE-related national legis-
lation was published in Greece and Cyprus. By 2005, with the
exception of Malta and the UK, the remaining EU countries fol-
lowed, though some countries only partially adopted the Direc-
tive. Both Malta and the UK are expected to transpose the Direc-
tive into national legislation in 2006.
Historical and future waste
Costs for producer responsibility refer to products sold before
August 2005, i.e., historical waste, as well as products sold after
August 2005, i.e., future waste.
For historical waste, manufacturers and importers are collec-
tively responsible for treatment, recycling, and disposal in pro-
portion to their present market share. This is known as collective
producer responsibility.
For future waste, the Directive stipulates that manufacturers
and importers must each finance treatment, recycling and dis-
posal of their own products, which is known as individual pro-
ducer responsibility. Financial guarantees must be provided to
ensure that sufficient funds are available even if a producer or
importer should withdraw from the market. In some countries,
membership in a collective organization for financing of recycling
is regarded as a sufficient guarantee. For household appliances
these costs are normally payable 12 to 15 years after actual sale,
according to studies by the European Commission.
Other facts