Electrolux 2005 Annual Report Download - page 83

Electrolux Annual Report 2005 79
Note 30 continued
Revaluation of assets
Electrolux historically revalued certain land and buildings to values
under Swedish GAAP in excess of the acquisition cost. These reval-
ued amounts have been carried forward upon transition to IFRS and
are viewed as deemed cost according to IFRS. Such revaluation is
not permitted in accordance with US GAAP.
Share-based compensation
Electrolux has several compensatory employee stock option pro-
grams and performance share programs, which are offered to senior
managers. Under IFRS, Electrolux recognizes compensation expense
for all share-based programs that were not fully vested as of Novem-
ber 7, 2002. An estimated cost for the granted instruments, based on
the instruments´ fair value at grant date, and the number of instru-
ments expected to vest is charged to the income statement over the
vesting period on a straight line basis. The share-based compensa-
tion programs are classified as equity-settled transactions. The fair
value of share options is the market value at grant date calculated
according to an option valuation method. The fair value of shares is
the market value at grant date adjusted for the discounted value of
expected future dividends. For US GAAP purposes, ABP 25 applies
for share-based programs with employees, including those plans
prior to November 7, 2002 and the plans are classified as fixed or
variable plans. Under APB 25, compensation expense is determined
as the difference between the market price and exercise price of the
share-based award. For fixed plans compensation expense is deter-
mined on the date of grant. For variable plans compensation expense
is remeasured at each balance sheet date until the award becomes
vested. Under IFRS, employers are required to record provisions for
related social fees and the costs are charged to the income state-
ment over the vesting period. US GAAP requires that the employer
payroll taxes upon exercise of stock must be recognized as an
expense at the exercise date of the option.
Recently issued accounting standards
FAS 151 In November 2004, the FASB issued Statement No. 151,
Inventory Costs, an amendment of ARB No. 43. The new standard
requires that idle facility expense, freight, handling costs, and wasted
material (spoilage) are recognized as current-period charges. In addi-
tion, this statement requires allocation of fixed production overhead
to the costs of conversion based on the normal capacity of a produc-
tion facility. The provisions of this statement are effective for inventory
costs that incur during fiscal years beginning after June 15, 2005.
The adoption of the provisions of FAS 151 is not expected to have an
impact on the Group’s consolidated financial statements.
FIN 47 In March 2005, the FASB issued Interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations – an inter-
pretation of FASB Statement No. 143. FIN 47 clarifies that SFAS No.
143, Accounting for Asset Retirement Obligations, requires that an
entity recognizes a liability for the fair value of a conditional asset
retirement obligation when incurred if the liability’s fair value can be
reasonably estimated. FIN 47 is effective no later than the end of fis-
cal years ending after December 15, 2005. Electrolux does not
expect the adoption of FIN 47 to have a material impact on its results
of operations or financial position.
FAS 153 In December 2004, the FASB issued SFAS 153,
Exchanges of Nonmonetary Assets, an amendment of APB Opinion
No. 29. The guidance in APB Opinion No. 29, Accounting for Non-
monetary Transactions, is based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of
the assets exchanged. The guidance in that opinion, however,
included certain exceptions to that principle. This statement amends
Opinion No. 29 to eliminate the exception for nonmonetary
exchanges of similar productive assets and replaces it with a general
exception for exchanges of nonmonetary assets that do not have
commercial substance. This statement is effective for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15,
2005. Electrolux does not believe that the adoption of this statement
will materially affect the Group’s consolidated financial statement.
SFAS 123 (R) In December 2004, the FASB issued SFAS 123 (R)
Share-Based Payment, which is a revision of SFAS No. 123, Account-
ing for Stock-Based Compensation and supersedes APB Opinion No.
25, Accounting for Stock Issued to Employees. Generally the valua-
tion methods contained in SFAS No. 123 (R) are similar to those in
SFAS No. 123, but SFAS No. 123 (R) requires all share-based pay-
ments to employees, including grants of employee share options, to
be charged to the statement of income. This pronouncement requires
companies to expense the fair value of employee stock options and
other forms of stock-based compensation. The Group plans to adopt
this pronouncement effective January 1, 2006. Electrolux is in the
process of assessing the impact of SFAS No. 123 (R) and does not
expect the adoption to have a material impact on its results of opera-
tions or financial position.
FASB 143-1 In June 2005, the FASB issued FASB Staff Position
(FSP) 143-1, Accounting for Electronic Equipment Waste Obligations.
The FSP addresses accounting by commercial users and producers
of electrical and electronic equipment, in connection with Directive
2002/96/EC on Waste Electrical and Electronic Equipment (WEEE)
issued by the European Union (EU) on February 13, 2003. This Direc-
tive requires EU-member countries to adopt legislation to regulate the
collection, treatment, recovery, and environmentally sound disposal
of electrical and electronic waste equipment, and sets forth certain
obligations relating to covering the cost of disposal of such equip-
ment by commercial users. Producers will also be required to cover
the cost of disposal of such equipment under the WEEE legislation if
they are participating in the market as of August 13, 2005. Electrolux
records the cost of disposal for the member states that have enacted
the Directive in accordance to each member state’s legislation. As of
December 2005, several major EU-member states have not enacted
the Directive and Electrolux continues to evaluate the impact of the
WEEE legislation as member states implement guidance.
SFAS 154 In May 2005, the FASB issued SFAS No. 154, Account-
ing Changes and Error Corrections. SFAS 154 requires retrospective
application to prior period´s financial statements of changes in
accounting principle, unless it is impracticable to determine either the
period specific effects or the cumulative effect of the change. It also
requires that the new accounting principle be applied to the balance
of assets and liabilities as of the beginning of the earliest period for
which retrospective application is practicable and that a correspond-
ing adjustment be made to the opening balance of retained earning
for that period rather than being reported in an income statement.
The statement will be effective for accounting changes and correc-
tions of errors made in fiscal years beginning after December 15,
2005. The adoption of SFAS 154 is not expected to have a material
effect on the results or net assets of the Group.