20-F 1 l26688ae20vf.htm AKTIEBOLAGET ELECTROLUX 20-F AKTIEBOLAGET ELECTROLUX 20-F
 

As filed with the Securities and Exchange Commission on June 21, 2007
 
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 20-F
     
o   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                      TO                     
OR
     
o   SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this Shell Company report                     
 
(Commission file number 0-15741)
AKTIEBOLAGET ELECTROLUX (PUBL)
(Exact Name of Registrant as Specified in Its Charter)
Not Applicable
(Translation of Registrant’s Name Into English)
Kingdom of Sweden
(Jurisdiction of Incorporation or Organization)
S:t Göransgatan 143, SE-105 45 Stockholm, Sweden
(Address of Principal Executive Offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Class B-Shares (SEK 5 nominal amount, non-restricted)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report:
     
B-Shares (SEK 5.0 nominal value)   299,418,033
A-Shares (SEK 5.0 nominal value)   9,502,275
     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:
Yes þ            No o
     If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:
Yes o            No þ
     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Yes þ            No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ       Accelerated filer o       Non-accelerated filer o
     Indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 þ            Item 18 o
     If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes o            No þ
 
 

 


 

Table of Contents
         
    Page
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    6  
 
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
    7  
 
ITEM 3. KEY INFORMATION
    8  
 
A. Selected Financial Data
    8  
 
B. Capitalization and Indebtedness
    10  
 
C. Reasons for the Offer and Use of Proceeds
    10  
 
D. Risk Factors
    11  
 
ITEM 4. INFORMATION ON THE COMPANY
    17  
 
A. History and Development of the Company
    17  
 
B. Business Overview
    18  
 
C. Organizational Structure
    29  
 
D. Property, Plants and Equipment
    29  
 
ITEM 4A. UNRESOLVED STAFF COMMENTS
    30  
 
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    30  
 
A. Operating Results
    34  
 
B. Liquid Funds and Capital Resources
    43  
 
C. Research and Development, Patents and Licenses, etc
    47  
 
D. Trend Information
    47  
 
E. Off-Balance Sheet Arrangements
    47  
 
F. Aggregate Contractual Obligations
    47  
 
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    50  
 
A. Directors and Senior Management
    50  
 
B. Compensation
    55  
 
C. Board Practices
    57  
 
D. Employees
    60  
 
E. Share Ownership
    60  
 
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    61  
 
A. Major Shareholders
    61  
 
B. Related Party Transactions
    61  

1


 

         
    Page
C. Interests of Experts and Counsel
    62  
 
 
ITEM 8. FINANCIAL INFORMATION
    63  
 
 
A. Consolidated Statements and other Financial Information
    63  
 
 
B. Significant Changes
    63  
 
 
ITEM 9. THE OFFER AND LISTING
    64  
 
 
ITEM 10. ADDITIONAL INFORMATION
    66  
 
 
A. Share Capital
    66  
 
 
B. Memorandum and Articles of Association
    66  
 
 
C. Material Contracts
    70  
 
 
D. Exchange Controls
    71  
 
 
E. Taxation
    71  
 
 
F. Dividend and Paying Agents
    75  
 
 
G. Statement by Experts
    76  
 
 
H. Documents on Display
    76  
 
 
I. Subsidiary Information
    76  
 
 
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    77  
 
 
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    82  
 
 
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    83  
 
 
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    84  
 
 
ITEM 15. CONTROLS AND PROCEDURES
    85  
 
 
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
    86  
 
 
ITEM 16B. CODE OF ETHICS
    86  
 
 
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    86  
 
 
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    87  
 
 
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    87  
 
 
ITEM 17. FINANCIAL STATEMENTS
    F-1  
 
 
ITEM 18. FINANCIAL STATEMENTS
    86  
 
 
ITEM 19. EXHIBITS
    87  

2


 

PRESENTATION OF INFORMATION
     Unless the context indicates otherwise, the “Company”, “Electrolux” or the “Group” refers to AB Electrolux, a company organized under the laws of Sweden, and its consolidated subsidiaries.
     Unless otherwise indicated, all amounts herein are expressed in Swedish Kronor (“krona”, “kronor” or “SEK”). References to “U.S. dollar”, “U.S.$”, “USD”, “dollar” or “$” are to the lawful currency of the United States.
     At times, this report presents financial and other information for a specific year that is immediately followed by an amount within (brackets). The amount within (brackets) represents the corresponding amount for the previous year.
     From January 1, 2005, Electrolux prepares its consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”). Electrolux restated its financial statements from January 1, 2004 to IFRS. In addition, consolidated net income and stockholders’ equity are reported as reconciled to United States generally accepted accounting principles (“U.S. GAAP”). Unless otherwise indicated, all amounts and percentages presented herein are based on IFRS. IFRS as applied by the Company differs in certain significant respects from U.S. GAAP. For a discussion of the significant differences between IFRS and U.S. GAAP affecting Electrolux’s consolidated financials statements and a reconciliation to U.S. GAAP of consolidated stockholders’ equity as of December 31, 2006 and 2005 and consolidated net income for the years ended December 31, 2006, 2005 and 2004, see Note 30 to the consolidated financial statements.
     This report also contains certain financial and performance measures where indicated that are not calculated in accordance with IFRS or U.S. GAAP, but which are disclosed herein in compliance with Item 10 of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These non-GAAP financial and performance measures are used extensively by management to evaluate the financial performance and results of operations of Electrolux. In particular, Electrolux’s management considers “value creation” to be an important non-GAAP performance measure. The non-GAAP financial and performance measures are included herein to assist the reader in understanding Electrolux’s operating results and financial condition from management’s point of view. Non-GAAP financial and performance measures, however, should not be considered alternatives to the amounts reported in accordance with IFRS or U.S. GAAP. Furthermore, the non-GAAP financial and performance measures included herein may not be comparable to similarly titled measures presented by other companies.
     Certain information presented in this Annual Report on Form 20-F relating to the markets in which Electrolux operates, such as the size of the particular market and the market share of Electrolux within such markets, has been obtained by Electrolux from market research reports, analysts’ reports and other publicly available information, as well as from internally developed market data. While Electrolux has no reason to believe that third-party sourced information is not reliable, such information has not been independently verified. Accordingly, the accuracy or completeness of this information cannot be guaranteed.

3


 

FORWARD LOOKING STATEMENTS
     This annual report includes “forward-looking information” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the US Securities Exchange Act of 1934, as amended. This information does not relate strictly to historical or current facts; instead, such information is often based on assumptions about future market conditions, operations and results. The words “believe”, “expect”, “anticipate”, “intend”, “may”, “could”, “plan”, “possible”, “potential” and similar expressions are intended to identify these statements. Forward-looking statements appear in a number of places in this report including, without limitation, “Item 3.D—Risk Factors”, “Item 4—Information on the Company” and “Item 5—Operating and Financial Review and Prospects”, and include, among others, statements regarding:
    financial goals or targets of Electrolux for future periods;
 
    future business and financial plans;
 
    growth in demand for Electrolux’s products;
 
    economic outlook and industry trends;
 
    developments of Electrolux’s markets and competition;
 
    the impact of regulatory initiatives and pending and future litigation;
 
    research and development expenditures;
 
    plans to launch new products and services; and
 
    the expected cost savings from Electrolux’s various cost-reduction measures.
     While Electrolux believes that the expectations reflected in these and other forward-looking statements are reasonable, actual results may differ materially from the expectations reflected in those statements due to a variety of factors, including, among others, the following:
    Electrolux’s success in developing new products and marketing initiatives;
 
    progress in achieving operational and capital efficiency goals, including the success of reducing the number of product platforms;
 
    Electrolux’s success in identifying growth opportunities and acquisition candidates, and the integration of any acquired businesses with existing businesses;
 
    Electrolux’s success in spinning-off its Outdoor Products operations and risks associated with the spin-off;
 
    Electrolux’s success and progress in achieving structural and supply-chain reorganization goals;
 
    ability of Electrolux to relocate and/or outsource production to low-cost countries;
 
    failure of third party suppliers to deliver key components and materials for Electrolux’s products;
 
    seasonality;
 
    competitive pressures to reduce prices;
 
    changes in commodity prices;
 
    significant loss of business from major customers;

4


 

    consumer demand and the success of Electrolux’s global strategy to develop brand differentiation and brand loyalty;
 
    effects of exchange rate fluctuations;
 
    social, economic, regulatory and political volatility in the markets in which Electrolux operates;
 
    effect of local economies on product demand;
 
    Electrolux’s ability to recruit and retain highly qualified management and other employees;
 
    the results of pending and future litigation;
 
    adequacy of Electrolux’s insurance coverage;
 
    general economic conditions in the markets in which Electrolux operates, and its ability to adapt to rapid changes in market conditions; and
 
    political, economic and regulatory developments in the markets in which Electrolux operates.
     Certain of these factors are discussed in more detail elsewhere in this annual report, including under “Item 3.D—Risk Factors”, “Item 4—Information on the Company” and “Item 5—Operating and Financial Review and Prospects”. Electrolux undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law or stock exchange regulation. It is not possible to foresee or identify all factors that could cause future results to differ from expected or historic results. Therefore, investors should not consider the foregoing factors to be an exhaustive statement of all risks, uncertainties or factors that could potentially cause actual results to differ from projections in this report.

5


 

PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
     Not applicable.

6


 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
     Not applicable.

7


 

ITEM 3. KEY INFORMATION
A. Selected Financial Data
     From January 1, 2005, Electrolux prepared its consolidated financial statements in accordance with IFRS as adopted by the European Union. Electrolux restated its financial statements from January 1, 2004 to IFRS. In addition, consolidated net income and stockholders’ equity are reported as reconciled to U.S. GAAP. IFRS as applied by the Company differs in certain significant respects from U.S. GAAP. For a discussion of the significant differences between IFRS and U.S. GAAP affecting Electrolux’s consolidated financial statements and a reconciliation to U.S. GAAP of consolidated stockholders’ equity and consolidated net income as of and for the years ended December 31, 2006, 2005 and 2004, see Note 30 to the consolidated financial statements.
     The Group’s Outdoor Products operations were distributed under the name of Husqvarna to the Electrolux shareholders in June 2006. As of June 2006, Husqvarna is reported as discontinued operations in the income and cash flow statements for 2006, 2005 and 2004. The Husqvarna results are excluded from the sales and expense lines of the income statement and reported as a single net in the item “Income for the period from discontinued operations.” The cash flow is reported separately under the item “Cash flow from discontinued operations.” Discontinued operations in 2006 include the period January–May and in 2005 and 2004 the period January–December. Assets and liabilities for Husqvarna were excluded from the balance sheet as of May 31, 2006. The balance sheet items for the previous year are the historical financial statements in accordance with IFRS.
     The comments below regarding net sales and income refer to continuing operations and are exclusive of Outdoor Products operations, Husqvarna.
     The following table sets out selected financial data prepared in accordance with IFRS as of and for the years ended December 31, 2006, 2005 and 2004; and in accordance with U.S. GAAP as of and for the years ended December 31, 2006, 2005, 2004, 2003 and 2002.
Amounts in accordance with IFRS1
                         
    2006   2005   2004
    (SEK millions, except share and per share amounts, and ratios)
Consolidated Income Statement Data
                       
Net Sales
    103,848       100,701       93,449  
Operating Income
    4,033       1,044       1,824  
Income After Financial Items
    3,825       494       1,574  
Income for the period from Continuing Operations
    2,648       -142       1,284  
Income for the period from Discontinued Operations
    1,199       1,905       1,975  
Income for the period
    3,847       1,763       3,259  
Earnings per share, basic
    13.32       6.05       10.92  
Earnings from Continuing Operations per share, basic
    9.17       -0.49       4.30  
Earnings per share, diluted
    13.27       6.01       10.91  
Earnings from Continuing Operations per share, diluted
    9.14       -0.49       4.30  
 
                       
Consolidated Balance Sheet Data
                       
Current Assets
    44,091       52,827       49,473  
Total Assets
    66,049       82,558       75,096  
Long Term Borrowings
    4,502       5,257       3,940  
Minority Interests
    1       1       10  
Total Equity
    13,194       25,888       23,636  
Share Capital
    1,545       1,545       1,545  
Number of shares (in thousands)
    308,920       308,920       308,920  
Number of shares excluding repurchased shares
    289,520       293,099       291,181  

8


 

                         
    2006   2005   2004
    (SEK millions, except share and per share amounts, and ratios)
Other non-GAAP measures
                       
 
                       
Performance Measure2
                       
Value Creation
    2,202       1,305       1,200  
Amounts calculated in accordance with U.S. GAAP
                                         
    2006     2005     2004     2003     2002  
Net Sales3
    103,848       100,325       92,896       94,346       100,546  
Operating Income3
    3,311       1,684       1,554       4,443       3,832  
Income for the period from Continuing Operations3
    2,130       136       1,066       3,212       3,123  
Income for the period from Discontinued Operations4
    1,134       1,382       1,722       1,669       2,185  
Income for the period
    3,264       1,518       2,788       4,881       5,308  
 
Earnings per share, basic3, 5
    11.30       5.21       9.35       15.58       16.23  
Earnings from Continuing Operations per share, basic3, 5
    7.38       0.47       3.58       10.25       9.55  
Earnings per share, diluted3
    11.27       5.21       9.34       15.58       16.23  
Earnings from Continuing Operations per share, diluted3
    7.35       0.47       3.57       10.25       9.55  
Total Equity
    10,653       25,057       23,567       27,348       27,504  
Total Assets
    64,664       81,888       75,517       78,372       86,095  
Share Capital
    1,545       1,545       1,545       1,621       1,694  
 
                                       
Dividends per ADS
                                       
SEK5, 6
    8.00       15.00       14.00       13.00       12.00  
USD5, 6, 7
    1.17       2.04       1.98       1.70       1.47  
 
1.   The consolidated financial statements have been prepared in accordance with IFRS. Electrolux has transitioned to IFRS per January 1, 2005 and has restated its financial statements from January 1, 2004 to IFRS.
 
2.   Value creation is a performance measure focused on growth and shareholder return in Swedish Kronor terms. Value Creation is extensively used by Electrolux for internal reporting purposes and as a management tool for measuring and evaluating financial performance within the Group. Electrolux uses Value Creation internally to measure and evaluate segments, e.g. business areas and regional performance. The model links operating income and asset efficiency with the cost of the capital employed in operations. The model measures and evaluates profitability, by business area, product line, region or operation.
 
    Value Creation is not a measure determined in accordance with IFRS or U.S. GAAP. Electrolux believes, however, that its definition links operating income and asset efficiency with the cost of the capital employed in operations. Value Creation should not be considered as an alternative measure of performance and may not be comparable to similar measures disclosed by other companies because value creation is not uniformly defined.
 
    Value Creation is measured excluding items affecting comparability and defined as operating income less the weighted average cost of capital (WACC) on average net assets during a specific period.
                         
    2006   2005   2004
Operating Income
    4,033       1,044       1,824  
 
                       
Excluding items affecting comparability
    542       2,980       1,960  
 
                       
 
    4,575       4,024       3,784  
Less asset capital charge
    2,373       2,719       2,584  
 
                       
 
                       
Value Creation
    2,202       1,305       1,200  
 
                       
 
                       
Weighted Average Cost of Capital x
    11 %     12 %     12 %
 
                       
Average net assets =
    21,571       22,658       21,534  
 
                       
Asset capital charge
    2,373       2,719       2,584  
 
                       
 
    The cost of capital varies between different countries and business units due to country-specific factors such as interest rates, risk premiums and tax rates. WACC is calculated annually by Electrolux to apply for the following year on the basis of agreed parameters aimed at determining the Group’s cost of capital. Net assets are total assets exclusive of liquid funds (short-term investments and cash and bank balances), interest-bearing financial receivables, as well as non-interest-bearing liabilities and provisions and excluding items affecting comparability. A higher return on net assets than the WACC implies that the Group creates value.
 
    The method by which Electrolux calculates the “asset capital charge” within the Value Creation measure is potentially disadvantageous in that it has the potential to encourage inappropriate management of the asset base in order to upwardly manage the value created against such asset base. Electrolux mitigates against this potential risk by prohibiting or restricting certain activities, such as factoring, as well as taking account of specific investments in property, plant and equipment through the budgeting process.

9


 

 
    Total value created in 2006 improved over the previous year to SEK 2,202m (1,305). The capital turnover rate was 4.81, as against 4.44 in 2005. The WACC rate for 2006 was computed at 11% (12). Total value created in 2005 amounted to SEK 1,305 (1,200). The capital turnover rate was 4.44, as against 4.34 in 2004. The WACC rate for 2005 was computed at 12% (12).
 
3.   The years 2002-2005 have been reclassified for comparison purposes due to the disclosure of discontinued operations.
 
4.   Under SFAS 144, each of the following divestments are accounted for as discontinued operations: In 2006, the Outdoor Products operations. In 2005, the divestment of all activity in India. In 2003 and 2002, Vestfrost A/S, the compressor operation, Zanussi Metallurgica, the European motor operation, the Mexican compressor plant, the European home comfort operation and the remainder of the leisure appliance product line.
 
5.   Weighted average number of shares outstanding was 288,790,128 for 2006; 291,377,974 shares for 2005; 298,314,025 shares for 2004; 313,270,489 shares for 2003; and 327,093,373 shares for 2002. The decreases in weighted average number of shares outstanding for these periods reflect open market repurchases of shares by Electrolux and the redemption of shares in 2004.
 
6.   Dividends are set forth in the above table under the year to which they relate. In accordance with general practice in Sweden, the dividends are declared and paid in the year following the financial period.
 
7.   Amounts in U.S. dollars are presented for convenience only and are based on the noon buying rate for cable transfers in SEK as certified for customs purposes by the Federal Reserve Bank of New York at each of the respective payment dates, except for the U.S. dollar amount in 2006, which is based on the noon buying rate for SEK at December 29, 2006 of $1 = SEK 6.8342.
     Exchange Rate Information
     The following table presents information with respect to the exchange rate for Swedish kronor per USD 1.00, based on the noon buying rate for cable transfers in SEK as certified for customs purposes by the Federal Reserve Bank of New York. On June 19, 2007 the noon buying rate for SEK was USD 1.00=SEK 7.0116.
                         
Period   Average Rate1   High   Low
 
            (SEK per USD)        
Year ended December 31, 2002
    9.657       10.729       8.695  
Year ended December 31, 2003
    8.035       8.792       7.195  
Year ended December 31, 2004
    7.346       7.782       6.576  
Year ended December 31, 2005
    7.517       8.243       6.802  
Year ended December 31, 2006
    7.310       7.966       6.767  
December 2006
          6.920       6.767  
January 2007
          7.083       6.782  
February 2007
          7.084       6.944  
March 2007
          7.106       6.962  
April 2007
          7.006       6.698  
May 2007
          6.938       6.709  
June 2007 (to June 19)
          7.079       6.887  
 
1.   Based on the applicable exchange rate for the last day of each month during the period indicated. Average rates are not presented for months.
     Fluctuations in the exchange rate between the Swedish Kronor and the dollar may affect the dollar equivalent of the Swedish Kronor price of the Electrolux B-Shares traded on the Stockholm Exchange and, as a result, are likely to affect the price of ADSs in the United States. Such fluctuations will also affect the dollar amounts received by holders of ADSs on conversion by the Depositary of cash dividends paid in kronor on the Electrolux B-Shares represented by ADSs. For a discussion of the effects of currency fluctuations on Electrolux’s business, please see “Item 5—Operating and Financial Review and Prospects” and “Item 11—Quantitative and Qualitative Disclosures About Market Risk”.
B. Capitalization and Indebtedness
     Not applicable.
C. Reasons for the Offer and Use of Proceeds
     Not applicable.

10


 

D. Risk Factors
Electrolux markets are highly competitive and subject to price pressure
     The markets for Electrolux products are highly competitive and there is considerable pressure to reduce prices, especially when faced with an economic downturn and possible reductions in consumer demand. Electrolux faces strong competitors, who may prove to have greater resources in a given business area, and the likely emergence of new competitors, particularly from Asia and Eastern Europe. Some industries in which Electrolux operates are undergoing consolidation, which may result in stronger competitors and a change in Electrolux relative market position. In 2006, price competition was most apparent in the European market, but it was also present in North America. In response to an increasingly competitive environment, Electrolux and other manufacturers may be forced to increase efficiency by further reducing costs along the value chain, including their suppliers. The development of alternative distribution channels, such as the Internet, could also contribute to further price pressure within Electrolux markets. There can be no assurances that Electrolux will be able to adapt to these changes and increase or maintain its market share.
Electrolux business is affected by global economic conditions
     Current conditions in many of the economies in which Electrolux operates and the global economy remain very uncertain. As a result, it is difficult to estimate the global and regional economic development for the foreseeable future. In addition, the business environment and the economic condition of Electrolux markets are influenced by political uncertainties, including the current political situation in the Middle East. A lengthy recession or sustained loss of consumer confidence in the markets in which Electrolux operates could trigger a significant industry-wide decline in sales and could also lead to slower economic growth and a corresponding significant reduction in demand. Electrolux generates a substantial portion of its net sales from North America and Europe. Lately, North America has demonstrated a slow-down in its economy while economic conditions in Europe have experienced an upturn. These global and regional conditions could have an adverse impact on the operations of Electrolux, with a resulting material adverse effect on results of operations and financial condition.
Electrolux is subject to risks relating to the relocation of manufacturing capacity
     As part of its strategy of continued reduction of costs and rationalization of its production activities, Electrolux has in the past, and will in the future, relocate some of its manufacturing capacity to low cost countries. Electrolux has announced restructuring measures of approximately SEK 8 billion for the years 2004-2009, of which slightly more than SEK 5 billion had been charged at year-end 2006. The restructuring measures encompass further relocation of some of its manufacturing capacity. The transfer of production from one facility to another is a costly and complex process, and presents the possibility of additional disruptions and delays during the transition period. In addition, during relocation Electrolux will be dependent on cost-efficient deliveries of components and half-finished goods from suppliers. Electrolux might not be able to successfully transition production to different facilities. Any prolonged disruption in the operations of any of its manufacturing facilities or any unforeseen delay in shifting manufacturing operations to new facilities, whether due to technical or labor difficulties or delays in regulatory approvals, could result in delays in shipments of products to Electrolux customers, increased costs and reduced revenues.
Consolidation of retail chains has resulted in increased dependence on a number of large customers
     Due to the ongoing consolidation of retail chains, major customers account for a large and increasing part of Electrolux sales, and give retailers a stronger negotiating position. This trend towards consolidation has resulted in greater commercial and credit exposures. If Electrolux were to experience a material reduction in orders or become unable to collect fully its accounts receivable from a major customer, its net sales and financial results would suffer.
Electrolux operating results may be affected by seasonality
     Demand for certain of Electrolux products, and consequently Group income, is affected by seasonality. For example, sales of relatively more profitable cookers are higher towards the end of the year. Sales of less profitable products such as refrigerators are usually the highest in the middle of the year. Electrolux expects this seasonality to continue in the future.

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Electrolux future success depends on its ability to develop new and innovative products
     Product innovation and development are critical factors in improving margins and enabling net sales growth in all of Electrolux product lines. To meet Electrolux customers’ needs in these businesses, Electrolux must continuously design new, and update existing, products and services and invest in and develop new technologies. Product development is also driven by criteria for better environmental performance and lower cost of use. Introducing new products requires significant management time and a high level of financial and other commitments to research and development, which may not result in success. During 2006, Electrolux invested SEK 1,832 (1,743) million in research and development in continuing operations, corresponding to 1.8 (1.7) percent of net sales. R&D projects during the year mainly referred to new products and design projects within appliances including development of new platforms. Electrolux sales and net income may suffer if investments are made in technologies that do not function as expected or are not accepted in the marketplace.
Electrolux may experience difficulties relating to business acquisitions and dispositions
     Electrolux has in the past, and may in the future, increase significant market positions in its product areas through organic growth and acquisitions and by improving operational efficiencies. Expansion through acquisitions is inherently risky due to the difficulties of integrating people, operations, technologies and products. Electrolux may incur significant acquisition, administrative and other costs in connection with any such transactions, including costs related to integration of acquired or restructured businesses. There can be no assurances that Electrolux will be able to successfully integrate any businesses it acquires into existing operations or that they will perform according to expectations once integrated. Similarly, dispositions of certain non-core assets may prove more costly than anticipated and may affect its net sales and results of operations.
Electrolux may not be able to successfully implement planned cost-reduction measures and generate the expected cost-savings
     Between 2002 and 2006, as well as in earlier years, Electrolux implemented restructuring programs in an effort to improve operating efficiencies and the Group’s profitability. These restructuring measures included the divestitures of unprofitable non-core operations, layoffs of employees, consolidation of manufacturing operations, relocation of the Group’s production from high-cost countries to those with lower cost levels and other cost-cutting measures. Electrolux has also put substantial effort into driving down costs and complexity throughout the supply chain by improving integration of the supply chain and demand flow management. There can be no assurances that these measures of approximately SEK 8 billion in respect of the years 2004-2009, of which slightly more than SEK 5 billion had been charged at year-end 2006, will generate the level of cost savings that Electrolux has estimated going forward.
Electrolux is dependent on third-party suppliers to deliver key components and materials for its products
     Electrolux manufacturing process depends on the availability and timely supply of components and raw materials, generally from third-party suppliers. While supply problems can affect the performance of most of Electrolux business sectors, Electrolux is particularly sensitive to supply problems related to electronic components, compressors, steel, plastics, aluminium and copper. Electrolux works closely with its suppliers to avoid supply-related problems and is increasing its supply of sourced finished products, but there can be no assurances that it will not experience problems in the future. Such problems could have material adverse effects on the business, results of operations or financial condition of Electrolux. In addition, unanticipated increases in the price of components or raw materials due to market shortages could also adversely affect the financial results of Electrolux businesses.
Electrolux is subject to risks related to changes in commodity prices
     Electrolux is subject to risks related to changes in commodity prices as the ability to recover increased costs through higher pricing may be limited by the competitive environment in which Electrolux operates. In 2006, Electrolux purchased raw materials, both directly and through sourced components, for a value of SEK 23 billion. The recent development in many commodity markets has resulted in higher prices, particularly for steel, plastics, copper and aluminium. For example, in 2006 the costs of raw materials rose by a total of approximately SEK 900 million. Further increases in raw material prices may continue to have a negative effect on the Group’s operating results in 2007. Electrolux commodity risk is mainly hedged through bilateral contracts with suppliers. There can be no assurances that this hedging activity will be effective in reducing costs

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in the Group’s results. For more details regarding commodity price risks, please see “Item 11–Quantitative and Qualitative Disclosure About Market Risk.”
Electrolux is exposed to foreign exchange risks and interest rate risk
     Electrolux operates in approximately 60 countries around the world and as a result is subject to the risks associated with cross-border transactions. In particular, Electrolux is exposed to foreign currency exchange-rate risks and risks relating to delayed payments from customers in certain countries or difficulties in the collection of receivables generally. Electrolux is also subject to risks arising from translation of balance sheets and income statements of foreign subsidiaries to Swedish kronor as well as through export of products and sales outside the country of manufacture, i.e., transaction exposure. Translation exposure is related mainly to EUR and USD. Transaction exposure is greatest in EUR, USD, GBP and HUF. While Electrolux geographically widespread production and its hedging transactions reduce the effects of changes in exchange rates, there can be no assurances that these measures will be sufficient.
     In addition, Electrolux holds assets and liabilities to manage the liquidity and cash needs of its day-to-day operations. These interest-rate sensitive assets and liabilities are subject to interest rate risk. While these interest-rate exposures are minimized to some extent by the use of derivative financial instruments, there can be no assurances that these hedging activities will be effective or sufficient.
     Changes in exchange rates also affect Group equity. The difference between assets and liabilities in foreign countries is subject to these changes and comprises a net foreign investment. At year-end 2006, the largest foreign net assets were in USD, EUR and HUF.
     For more details regarding currency risks and interest rate risks, please see “Item 11–Quantitative and Qualitative Disclosure About Market Risk.”
Electrolux is subject to regulatory risks associated with its international operations
     As a result of its worldwide operations, Electrolux is subject to a wide variety of complex laws, regulations and controls, and various non-binding treaties and guidelines, such as those related to employee safety, employee relations, product safety and exchange controls. Electrolux expects that sales to, as well as manufacturing in, and sourcing from, emerging markets, particularly China, Southeast Asia, Eastern Europe and Mexico, will continue to be an increasing portion of its total operations. Changes in regulatory requirements, economic and political instability, tariffs and other trade barriers and price or exchange controls could limit its operations in these countries and make the repatriation of profits difficult. In addition, the uncertainty of the legal environment in certain of the countries in which it operates could limit Electrolux ability to effectively enforce its rights in those markets. Electrolux products are also affected by environmental legislation in various markets, which principally involves limits for energy consumption (which relate to certain of its white goods products) as well as the obligation to recycle waste of electrical products.
Electrolux is subject to certain environmental risks
     Electrolux operations are subject to numerous European Union, or EU, national and local environmental, health and safety directives, laws and regulations, including those pertaining to the storage, handling, treatment, transportation and disposal of hazardous and toxic materials, the construction and operation of its plants and standards relating to the discharge of pollutants to air, soil and water. Although Electrolux believes its operations are in substantial compliance with presently applicable environmental, health and safety laws and regulations, violations of such laws and regulations have occurred from time to time and may occur in the future. In addition, risks of substantial costs and liabilities, including for the investigation and remediation of past or present contamination, are inherent in Electrolux ongoing operations and its ownership or occupation of industrial properties, and may arise specifically from its planned closure of certain of its manufacturing plants.
     Other developments, such as increased requirements under environmental, health and safety laws and regulations, increasingly strict enforcement of them by governmental authorities, and claims for damage to property or injury to persons resulting from environmental, health or safety impacts of Electrolux operations or past contamination, could prevent or restrict its operations, result in the imposition of fines, penalties or liens, or give rise to civil or criminal liability.

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     Electrolux maintains liability insurance at levels that management believes are appropriate and in accordance with industry practice. In addition, Electrolux maintains provisions on its balance sheet for certain environmental remediation matters. There can be no assurances, however, that (i) Electrolux will not incur environmental losses beyond the limits, or outside the coverage, of any insurance or that any such losses would not have a material adverse effect on the results of its operations or financial condition, or (ii) Electrolux provisions for environmental remediation will be sufficient to cover the ultimate loss or expenditure.
Compliance with EU directives regulating environmental impacts associated with electrical and electronic equipment may be costly
     The EU has adopted directives specifically regulating environmental impacts associated with electrical and electronic equipment, and compliance with these directives is being phased in. The Waste Electrical and Electronic Equipment, or WEEE, directive imposes responsibility on manufacturers and importers of electrical and electronic equipment for the cost of recycling, treatment and disposal of such equipment after its useful life. Based on Electrolux present working assumptions, its estimate of the annual cost to Electrolux when the directive is fully implemented in 2008 are SEK 600 million. These estimates remain highly uncertain as, among other things, the recycling ratio and actual costs are not yet fully known in all relevant jurisdictions. Electrolux has compensated for a large share of the cost by visibly including a surcharge in the price of the products concerned. In most European countries a surcharge is permissible until 2011 for small appliances and until 2013 for large appliances. Surcharges will not be permitted after these dates. Compliance with the WEEE directive could have a material adverse effect on Electrolux income, financial position and cash flow.
     For more details regarding the WEEE Directive, please see “Item 4.B–Business Overview–Environmental and Other Governmental Regulation–Recent Environmental Developments.”
Lawsuits in the United States claiming asbestos-related personal injuries are pending against the Electrolux Group
     Litigation and claims relating to asbestos are pending against the Group in the United States. Almost all of the cases relate to externally supplied components used in industrial products manufactured by discontinued operations of Electrolux prior to the early 1970s. Many of the cases involve multiple plaintiffs who have made identical allegations against many other defendants who are not part of the Electrolux Group.
     As of December 31, 2006, there were 1,688 (1,082) lawsuits pending against Electrolux entities representing approximately 7,700 (approximately 8,400) plaintiffs. During 2006, 986 new cases with approximately 2,000 plaintiffs were resolved. Approximately 5,650 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 represent. 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 results of operations in the future.
Electrolux may incur higher than expected warranty expenses
     Electrolux value chain comprises all the steps in its operations, from research and development, through production, marketing and sales. Operational failures in its value chain processes could result in quality problems or potential product, labor safety, regulatory or environmental risks. Such risks are particularly present in relation to Electrolux production facilities which are located all over the world and have a high degree of organizational and technological complexity. Unforeseen product quality problems in the development and production of new and existing products could result in loss of market share and higher warranty expense, any of which could have a material adverse effect on Electrolux results of operations and financial condition.

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Electrolux may be subject to significant product recalls or product liability actions that could adversely affect its business, results of operations or financial condition
     Under laws in many countries regulating consumer products, Electrolux may be forced to recall or repurchase some of its products under certain circumstances, and more restrictive laws and regulations may be adopted in the future. For example, as a manufacturer and distributor of consumer products in the United States, Electrolux is subject to the U.S. Consumer Products Safety Act, which empowers the U.S. Consumer Products Safety Commission to exclude products from the U.S. market that are found to be unsafe or hazardous. Under certain circumstances, the U.S. Consumer Products Safety Commission could require Electrolux to repurchase or recall one or more of its products. Any repurchase or recall of products could be costly to Electrolux and could damage its reputation. If Electrolux was required to remove, or it voluntarily removed, its products from the market, Electrolux reputation could be tarnished and it might have large quantities of finished products that could not be sold. Accordingly, there can be no assurances that product recalls would not have a material adverse effect on Electrolux business, results of operations and financial condition.
     Electrolux also faces exposure to product liability claims in the event that one of its products is alleged to have resulted in property damage, bodily injury or other adverse effects. Electrolux has become implicated in certain lawsuits in the ordinary course of its business, including suits involving allegations of improper delivery of goods or services, product liability and product defects and quality problems. Electrolux is largely self-insured for product liability matters expected to occur in the normal course of business and funds these risks, for the most part, through wholly owned insurance subsidiaries. Electrolux accrues for such self-insured claims and litigation risks when it is probable that an obligation has been incurred and the amount can be reasonably estimated. In addition, for large catastrophic losses, Electrolux maintains excess product 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 interruption 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 spin-off of its Outdoor Products operations will not give rise to additional liabilities
     In June 2006, Electrolux completed the spin-off the Group’s Outdoor Products operations (“Outdoor Products”) 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 separation, Electrolux and Husqvarna AB (being the parent of the Outdoor Products group) and some of their respective subsidiaries entered into a Master Separation Agreement and related agreements (the “Separation Agreements”). Under the Separation Agreements, Electrolux has retained certain potential liabilities with respect to the spin-off and Outdoor Products. These potential liabilities include certain liabilities of the Outdoor Products business which cannot be transferred or which were 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 results of operations and financial condition.
     For more information on the spin-off of Outdoor Products, please see “Item 5–Operating and Financial Review and Prospects–Significant Actions and Transactions affecting Results and Financial Information” and Notes 24 and 29 to the consolidated financial statements.

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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 distribution of the shares in Husqvarna and the U.S. corporate restructurings that preceded the distribution. The ruling confirms that these transactions 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 preceded the distribution 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 percent or greater interest in Husqvarna stock or Electrolux stock.
     Electrolux has – as one of the Separation Agreements – concluded 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 distribution of the shares in Husqvarna or the U.S. corporate restructurings that preceded 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.
     For more information on the spin-off of Outdoor Products, please see “Item 5–Operating and Financial Review and Prospects–Significant Actions and Transactions affecting Results and Financial Information” and Notes 24 and 29 to the consolidated financial statements.

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ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
     Aktiebolaget Electrolux (publ) is a limited liability company organized under the laws of the Kingdom of Sweden. The address of the Company’s registered office is S:t Göransgatan 143, S 105 45 Stockholm, Sweden, and its telephone number at such address is +46 8 738 60 00. Electrolux’s web site is www.electrolux.com.
Founding
1910   Electrolux was incorporated as Elektromekaniska AB.
 
1919   Elektromekaniska AB merged with Swedish AB Lux, and Aktiebolaget Electrolux was established. Electrolux led the development of the modern canister-type vacuum cleaner and the absorption refrigerator during the early part of the 20th century.
Stock exchange listing
1928   Electrolux was introduced on the London Stock Exchange. The Group had five plants, approximately twenty subsidiaries and 250 offices throughout the world, and a total turnover of SEK 70 million.
 
1930   Electrolux was listed on the Stockholm Stock Exchange. In 1987, trading of American Depositary Receipts, ADRs, representing Electrolux B-shares started on the NASDAQ National Market.
Expansion
1933   Vacuum cleaner production began in Old Greenwich, Connecticut, USA, and the first air-cooled refrigerator was produced.
 
1960’s   Electrolux initiated the restructuring of the fragmented Western European white goods (i.e., major appliance) industry. In 1968, the minority interest (39%) in Electrolux Corp., USA was sold to Consolidated Food for almost SEK 300 million. The cash generated provided Electrolux with the key to future expansion.
 
1984   Italian company Zanussi, including subsidiaries in Spain, was acquired, making Electrolux a leader in the European household appliances market and in the food service equipment market.
 
1986   WhiteConsolidated Inc, the third largest white goods company in the United States with brands such as Frigidaire, Gibson, Kelvinator and White Westinghouse, was acquired.
 
1986-89   The Outdoor Products business area expanded with the 1986 acquisition of the U.S. company Poulan/Weed Eater and the 1989 acquisition of the outdoor power products business of the Roper Corporation.
Strengthening core business
1990’s   The European expansion continued with the 1994 purchase of the white-goods division of German AEG. Restructuring programs and other measures were implemented to improve profitability, for instance a two-year restructuring program in 1997, beginning with the divestment of the industrial products sector, as well as the sewing machines, agricultural implements and interior decoration equipment operations. In 1998 the core business comprised Household Appliances, Professional Appliances and Outdoor Products, and Annual Group Sales had grown to SEK 117 billion.
 
2000   Electrolux re-acquired the trademark and company name “Electrolux” in North America, and thereby gained global control of the company name and the Group’s most important brand.
 
2001-02   The household division of the Australian company Email Ltd. was acquired in 2001. During 2001 and 2002 two restructuring programs were implemented throughout the Group, with divestments of non-core business, productivity improving measures, cost cutting, consolidation of production, rationalization of sales and marketing, write-downs of assets and personnel cutbacks.
 
2003-04   The consolidation of brands, with Electrolux as main brand, accelerated and a consumer insight driven product development process was initiated. The group re-introduced the Electrolux brand in USA with vacuum cleaners in 2003 followed by high-end white goods in 2004. During 2003 and 2004 relocation of manufacturing to low cost countries, such as Eastern Europe, South-East Asia and Mexico accelerated.

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2004-05   In 2005, Electrolux changed its business model in India and divested its Indian appliance operation, including all three production facilities and a license with the right to use the Electrolux brand in India for five years, to Videocon. In February 2005, the Board of Electrolux proposed that Husqvarna, Electrolux’s Outdoor Products operations, should be spun-off as a separate unit and distributed cost-effectively to Electrolux shareholders by mid-2006.
2005-06   In April 2006 the Annual General Meeting approved the Board’s proposal for distributing the Group’s Outdoor Products operations, Husqvarna, to Electrolux shareholders. Against the background of the strong balance sheet following the distribution the Board called an Extraordinary General Meeting (EGM) in December 2006. The EGM approved the Board’s proposal for distributing capital to shareholders through a redemption of shares. The redemption program was implemented in January 2007.
 
Today   Electrolux is one of Sweden’s largest industrial enterprises with approximately 200 subsidiaries in approximately 55 countries as of December 31, 2006 and sales of more than SEK 100 billion.
 
    For more information on the Group’s recent acquisitions and divestitures, please see “Item 5—Operating and Financial Review and Prospects—Significant Actions and Transactions Affecting Results and Financial Condition”. For a discussion of Electrolux principal capital expenditures during the past two years, please see “Item 5.B—Liquid Funds and Capital Resources”.
B. Business Overview
     Electrolux is a global leader in home appliances and appliances for professional use, selling more than 40 million products to customers in 150 countries. In 2006, Electrolux had sales of SEK 103.8 billion and 55,500 employees. Electrolux products include refrigerators, dishwashers, washing machines, vacuum cleaners and cookers sold under well-known brands such as Electrolux, AEG-Electrolux, Zanussi, Eureka and Frigidaire.
     Electrolux conducts operations in approximately 60 countries. The following table provides a breakdown of Electrolux’s net sales by region for each of the last three years:
Net Sales by Region
                                                 
    2006   2005   2004
    SEK million   %(1)   SEK million   %(1)   SEK million   %(1)
Europe
    49,576       47.8       48,996       48.7       47,863       51.2  
North America
    36,427       35.1       35,163       34.9       30,934       33.1  
Latin America
    8,355       8.0       6,481       6.4       4,739       5.1  
Asia/Pacific
    9,490       9.1       10,061       10.0       9,913       10.6  
 
                                               
Consolidated net sales
    103,848       100.0       100,701       100.0       93,449       100.0  
 
(1)   As a percentage of consolidated net sales.
Strategy
     Electrolux is working intensively to improve profitability. Over the past ten years, the market for household appliances has developed from production and sale of simple basic products to a market driven by innovation and design. Electrolux has been transformed from a production-focused industrial company to an innovative, market-driven company that builds on consumer insight.
     To achieve its goal of improving profitability, Electrolux intends to continue to implement the following strategies:
    Continuing focus on cost efficiency. Electrolux aims to maintain low cost levels and efficient production, and is achieving savings in production and purchasing, chiefly by moving production to low-cost countries and increasing purchasing in those countries. After the ongoing restructuring program is completed in 2009, more than half of Electrolux appliances will be produced in low-cost countries in Eastern Europe, Asia and Latin America. This transformation has already been implemented for floor-care products.

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    Developing and launching new products. The Group has global Product Councils, and the product development process is also global. Identifying global consumer trends and segmenting customers as well as consumers enables Electrolux to offer products with more relevant and attractive design, on the basis of fewer product platforms. The goal of Electrolux product development is to create products that are adapted to local needs together with products that can be sold world-wide.
 
    Increasing marketing and brand building focusing on Electrolux as global brand for the Group. Group market communication is focused on creating a uniform image of Electrolux, in every product category and in every geographical market. Concentrating on the Electrolux brand enables resources to be used more efficiently. Electrolux is now established as the Group’s largest brand, and its share of Group sales is increasing in Europe, Latin America and Asia.
 
    Profitable growth through improving product offering and identifying areas of future growth. Electrolux seeks to achieve profitable growth by focusing on improving its product offering through the launch of new products that are responsive to consumer needs, by following market growth in developing countries and selectively expanding operations in specific product categories. In addition to organic growth, Electrolux has opportunities to grow through acquisitions, particularly with respect to technology, products and brands that can help the Group increase its market share in the premium segment.
Group Operations
The Group’s operations are divided into Consumer Durables and Professional Products. Consumer Durables account for 93 percent of Group sales and comprise appliances for kitchens, fabric care and floor-care. Professional Products account for approximately seven percent of Group sales and comprise products for professional users in industrial kitchens, restaurants and laundries. Operations in Consumer Durables comprise four geographical areas, Europe, North America and Latin America and Asia/Pacific.
     The following table provides a breakdown of Electrolux’s net sales by business area for each of the last three years.
Net Sales by Business Area
                                                 
    2006   2005   2004
    SEK           SEK           SEK    
    million   %(1)   million   %(1)   million   %(1)
Consumer Durables – Europe
    44,233       42.6       43,755       43.5       42,703       45.7  
Consumer Durables – North America
    36,171       34.8       35,134       34.9       30,767       32.9  
Consumer Durables – Latin America
    7,766       7.5       5,819       5.8       4,340       4.6  
Consumer Durables – Asia/Pacific
    8,636       8.3       9,276       9.2       9,139       9.8  
Professional Products
    6,941       6.7       6,686       6.6       6,440       6.9  
Other
    101               31               60          
 
                                               
Consolidated net sales
    103,848       100.0       100,701       100.0       93,449       100.0  
 
(1)   As a percentage of consolidated net sales.
Business Areas
    Consumer Durables – Europe. The European market for household appliances is fragmented both among producers and retailers. Strong growth in Eastern Europe and the increasing importance of kitchen specialists in Western Europe are two important trends. Electrolux has strong positions for core appliances throughout Europe. Core appliances are major appliances excluding microwave ovens and room air-conditioners. In terms of sales, the Nordic countries, the UK and Germany are the largest markets. Eastern Europe accounts for about 20% of the Group’s European sales and this share is growing on the basis of rapid market growth as well as the strong positions in production and distribution that Electrolux has achieved in this region.

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    Consumer Durables – North America. The US market for household appliances is the world’s most consolidated. The Group has a leading position in core appliances and vacuum cleaners in both the US and Canada. The Electrolux brand is relatively new in the US within core appliances, having been launched in 2004 on a limited scale in the premium segment through the Electrolux ICON product series.
 
    Consumer Durables – Latin America. Demand for household appliances in Latin America is being driven by strong economic growth and the level of consolidation among producers is high. Brazil and Mexico are the largest markets. The Brazilian market accounts for approximately 70% of the Group’s sales in Latin America. Sales in Brazil have risen rapidly over the past few years on the basis of successful launches of innovative products under the Electrolux brand, and today Electrolux is one of the largest producers. In other major markets, i.e. Mexico and Argentina, Electrolux sales are relatively low.
 
    Consumer Durables – Asia/Pacific. Many markets in Asia show rapid economic growth. Local, low-cost producers have strong positions. Trends in Australia resemble those in Europe, and include increased sales by kitchen specialists. Australia accounts for approximately half of Electrolux sales in the region, and the Group now has a leading position for core appliances in this market. In Southeast Asia, Electrolux is the market leader for front-loaded washing machines and this position is being leveraged to expand the operation for kitchen appliances. In China, Electrolux is one of a group of international brands in the intermediate and premium segments for core appliances and vacuum cleaners, while the low-price segment is dominated by domestic manufacturers.
 
    Professional Products. Electrolux is one of the leaders in the global market for professional food-service equipment and laundry equipment. The Group has a particularly strong position in Europe. The Group has a large potential for growth in both the US and in emerging markets through increased sales to large restaurant chains and institutions. Electrolux has recently established an operation for food-service equipment in the US market.
Products
Kitchen products
     Market
     The rate of growth in demand for kitchen appliances in Western Europe and North America has been relatively stable for many years, independently of the business cycle. An important factor is that these appliances are replaced immediately when they break down. Despite continuous improvements in the quality and thus the life cycle of these products, the rate of replacement is accelerating. One reason is that consumers often prefer the new and more innovative products that are being continuously launched. In growth countries, demand is increasing as more people can afford modern kitchen appliances.
     In recent years, growth has been in the premium and low-price market segments. Increased global competition between both appliance producers and retail chains has generated a growing customer base for low-price products. Demand for premium products has risen as the kitchen has come to play a more important role in the home.
     Most kitchen appliances can be categorized as either free-standing or built-in. The trend for built-in products is increasing, particularly in Europe and Australia. Producers of kitchen furnishings often sell complete kitchens inclusive of appliances. Sales of built-in appliances often involve higher prices and improved profitability for producers of household appliances.
     Brands
     Approximately 50 percent of Group sales of kitchen appliances are sold under the Electrolux brand. In the North American market, most of these appliances are sold under the Frigidaire brand. Electrolux also manufactures products which are sold by retail chains under own brands.

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     Products
     A large share of Electrolux kitchen sales in both North America and Europe comes from refrigerators and freezers. These product categories are subject to severe competition, and profitability is generally lower than for other categories. The products are relatively large and heavy and are not suitable for long-distance transportation, so that they are often produced near the end-market.
     Today, virtually every household in the Western world has a refrigerator, while only about half of them own a freezer. In certain segments, refrigerators and freezers show high sales growth even in mature markets. Innovative products such as frost-free freezers and Side by Side refrigerators have shown strong growth.
     Virtually all households have cookers and ovens today, in mature Western markets as well as growth countries. Electrolux has strong market positions for free-standing cookers and ovens, and for both electric and gas hobs (stovetops). These product categories are among the most profitable of the Group’s kitchen appliances.
     Such products are relatively advanced technologically, which provides greater opportunities for differentiation. Innovations such as induction hobs are driving strong growth in certain market segments. Simpler menu-systems with built-in instructions for cooking are one of the innovations that consumers are demanding for cookers.
     Electrolux produces dishwashers that are designed and adapted for all types of kitchens and households. Consumers value features such as low noise levels, tailored washing programs, automatic sensoring of the required washing cycle, and low energy consumption. There is still a great deal of growth potential in this segment. For example, only one-third of the households in Western Europe own a dishwasher.
Laundry products
     Market
     The pattern of demand for laundry appliances is similar to that for kitchen appliances. Virtually every household in the West now has access to a washing machine, but only 30 percent own a tumbledryer. Dryers are rare in growth countries.
     Washing machines are either top- or front-loaded. Top-loaded machines have traditionally dominated markets in North America and Australia, but are being increasingly displaced by front-loaded machines. Sales of front-loaders in the US are currently growing at an annual rate of about 30 percent. In Europe, front-loaded washers are dominant.
     Brands
     In Europe, the Group’s laundry products are sold mainly under the Electrolux, AEG-Electrolux and Zanussi brands. In Asia and Latin America, they are sold exclusively under the Electrolux brand. In North America, Frigidaire is Electrolux’s leading brand.
     Products
     Electrolux has developed and launched a range of innovative washing machines and tumble dryers that simplify and improve the cleaning process. The Time Manager washing machine that was launched in the European market in 2006 enables setting a timer that starts the washing cycle, in order to make the best use of available time.
     The Electrolux Sensidry tumble dryer meets consumer preferences for drying sensitive garments of, for instance, wool or silk. Sensidry is the first dryer to satisfy criteria for energy class A.
     Electrolux has also launched Iron Aid, a dryer that reduces the need for ironing after the garment is dried. The steam function in Iron Aid can be used to freshen garments such as suits and jackets which otherwise would have to be sent to the cleaner.

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Floor-care products
     Market
     Vacuum cleaners are suitable for long-distance transportation, since the transportation cost per unit is relatively low. The floor care sector has therefore become more globalized than, for instance, appliances for kitchens and laundries.
     Vacuum cleaners are fast-moving consumer items and are sold almost exclusively through retailer chains. Production is based to a great extent on global product platforms. The global market for vacuum cleaners has grown by 2–3 percent annually over the past five years.
     Brands
     In Asia and Latin America, the Group sells vacuum cleaners under the Electrolux brand. In Europe, the Electrolux brand accounts for 70 percent of sales, complemented by the Volta, Tornado and Progress brands. Eureka, the Group’s largest brand, accounts for 90 percent of sales in North America, but sales under the Electrolux brand are growing.
     Products
     Electrolux sells vacuum cleaners and accessories such as filters and dust bags on a world-wide basis. Moreover, Electrolux is market leader within the central vacuum system segment. Consumers are demanding ongoing improvements in filtering, noise levels and ergonomics. The Group focuses on continuous development of innovations that consumers are willing to pay for.
     All production is in low-cost countries. About two-thirds of production is outsourced to companies in China.
Professional products
     Market
     The market for professional food-service and laundry equipment is growing by 2–3 percent annually. Structurally, demand is driven by national or regional trends such as an increasing number of diners in restaurants. Sales of food-service equipment by producers are giving way to sales through dealers and external consultants. In both the foodservice and laundry sectors, customers are demanding products that feature higher productivity and enable maximum utilization of resources. Customers also have stricter criteria for hygiene and energy-efficiency, and they want access to large service networks. At the same time, the customer base is very diversified, which involves many different needs.
     Brands
     Food-service equipment is sold mainly under the Electrolux and Zanussi Professional brands. Molteni is a niche brand for highly specialized cookers. Professional laundry equipment is sold exclusively under the Electrolux brand. The number of brands has been purposely reduced in recent years in accordance with the Group’s strategy for more effective utilization of benefits of scale in production and marketing.
     Products
     Electrolux supplies restaurants and industrial kitchens with total solutions for food preparation that include cookers, ovens, dishwashers, refrigerators, freezers and machines for preparation of food. The product range also includes storage systems, food trolleys and ventilation. Electrolux supplies commercial laundries, hotels and hospitals with a range that includes washing machines, tumble dryers and equipment for ironing and finishing. Electrolux has the widest service network in the sector.
     Production is located close to the end-user market. A plant in Thailand for professional laundry equipment went into operation in 2006.

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     The Group has outsourced much of the production of components and focuses on assembly. The share of own-manufacture products in Group sales has increased.
Sales and Marketing
     In 2006, Electrolux sold approximately 40 million consumer products. Electrolux sells its products to distributors and retailers. Many of the retailers that sell Electrolux’s products are part of retail chains. Many of these retail chains have been consolidating in recent years and an increasing number of Electrolux’s products are being sold through very large retail chains. As a result, an increasing percentage of Electrolux’s sales in 2006 was attributable to its ten largest customers. The trend towards consolidation is particularly apparent in the market for major appliances in the United States, where the four largest retails chains account for almost 66% of the total sales of major appliances for all manufacturers. In Europe, there has not been a clear consolidation of the retail chains; however, consolidation is in progress in specific countries, such as France, the United Kingdom and the Netherlands. The greater share of Electrolux products are sold through retail chains, but sales through kitchen specialists are showing strong growth. Electrolux works closely with its distributors to enhance production planning so as to be better aligned with targeted sales.
     Electrolux currently markets its products under a number of different brands. Electrolux has decided to reduce the number of brands in the Group and focus on “Electrolux” as a global brand across product categories. During 2002, all consumer operations began implementing plans for brand transition. The share of products sold under the Electrolux brand has risen from 16% of sales in 2002 to approximately 45% in 2006. Building Electrolux as a global brand has increased the costs of marketing and advertising.
Sales Channels
     Consumer Durables – Europe
     There has not yet been a clear consolidation of retailers across Europe. However, consolidation is in progress in specific countries, such as France, the UK and the Netherlands. In general, the European market is dominated by a large number of small, local and independent chains focused on electrical and electronic products as well as home furnishings. The greater share of Electrolux products are sold through retail chains, but sales through kitchen specialists are showing strong growth. In Western Europe, the share of sales by kitchen specialists has risen rapidly over the past decade and is now approximately 24 percent. In Germany and Italy, the figure is approximately 42 percent.
     Consumer Durables – North America
     The US market for household appliances is the world’s most consolidated. In the US, almost two thirds of sales are accounted for by the four largest retail chains, i.e., Lowe’s, Sears, Home Depot and Best Buy. Sears also has a strong position in Canada. Vacuum cleaners are sold mostly through supermarkets such as Wal-Mart. On the basis of large volumes and efficient logistics, the cost of delivery to the retail chains is often lower than to traditional dealers. A large share of sales by retailers is driven by campaigns. In the US, there are few kitchen specialists resembling those in Europe. Instead, kitchens are often built by construction companies that also purchase appliances.
     Consumer Durables – Latin America
     Appliances are sold directly in shops. Consolidation of regional and local retailers is increasing rapidly. Casas Bahia, the leading retail chain in Brazil, has increased its share of appliance sales from approximately 13 percent in 2003 to almost 30 percent in 2006.
     Consumer Durables – Asia/Pacific
     There are no region-wide retailers. However, there is a trend towards increased consolidation among retailers in specific countries. The Chinese market is currently dominated by three large domestic specialists in electronics, who have shown rapid growth in the coastal areas during the past few years. The presence of international retail chains in the Chinese market remains low. In Australia, five large chains account for about 70 percent of the market, but their combined share is declining steadily to the advantage of specialists in electronics.

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     Professional Products
     Electrolux directly supplies restaurants and industrial kitchens with its food-service products and directly supplies commercial laundries, hotels and hospitals with its laundry products. The products are also sold through dealers and consultants. Electrolux has the widest service network in the sector.
Competition
     Consumer Durables – Europe
     The fragmented structure of producers in Europe has led to a weak trend for price increases despite rising costs for raw materials. In addition, competition from producers in low-cost countries is growing. The major producers in high-cost countries are moving an increasing share of production to low-cost countries in order to maintain competitiveness.
     Consumer Durables – North America
     The three largest producers of core appliances in the US (Whirlpool, General Electric and Electrolux) account for 94% of the market. Whirlpool has a 50 percent share following the acquisition of Maytag in 2006. Consolidation among producers facilitated increasing prices in 2005 in order to offset higher costs for raw materials. The major producers are increasingly relocating production to low-cost countries such as Mexico.
     Consumer Durables – Latin America
     The Latin American market is relatively consolidated, with the four largest manufacturers (Whirlpool, General Electric, Electrolux and Mabe) accounting for approximately 70% of production. Whirlpool is the overall leader in this region on the basis of strong positions in the three largest markets. The concentration of producers along with rapid growth has facilitated price increases in recent years in order to offset higher costs for raw materials.
     Consumer Durables – Asia/Pacific
     There is no definitive market leader in the Asia/Pacific region. In China, the domestic producer Haier has a market share of approximately 20 percent, followed by a number of local and international producers with relatively small market shares. The South Korean producers LG and Samsung are strong in Australia, where they share third place after Electrolux and Fischer & Paykel each with a share of about 10 percent.
     Professional Products
     The major competitors in food-service equipment are Enodis, ITW-Hobart and the Ali Group. In laundry equipment, the major competitors are Alliance, Miele, Girbau and Primus.
Manufacturing
     Electrolux has manufacturing facilities in 56 locations in 19 countries around the world. Electrolux’s manufacturing operations mainly comprise assembly of components made by suppliers. Other processes include metalworking, moulding of plastics, painting, enamelling and, to some extent, casting of parts.
     The strategy for the purchasing of both components and raw materials is to avoid single sourcing. The risk of dependency on a single supplier is thereby reduced and the negative consequence of a supplier failing to meet agreed requirements can be limited. A significant and increasing part of the purchasing volumes is consolidated on a group level and allocated to global suppliers. These supplier relations are often characterized by close cooperation within areas such as research and development, product design and manufacturing.
     Electrolux is exposed to the price volatility that exists in raw material markets. Price volatility is partly reduced by applying long-term agreements with fixed prices for extended time-periods.

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     For a discussion of Electrolux’s manufacturing facilities, see “Item 4.B—Environmental and Other Government Regulation—Environmental impact and risk during manufacturing” and “Item 4.D—Property, Plants and Equipment.”
Intellectual Property
     Electrolux has adopted a comprehensive approach with respect to its intellectual property and actively manages a range of patents, trademarks, copyrights and design in its intellectual property portfolio.
     Electrolux seeks to develop most of the technologies used in its products through its internal research and product development group. As a result, Electrolux’s intellectual property portfolio includes thousands of patents and patent applications covering a wide range of technologies. Electrolux undertakes its research and development activities in a number of locations around the world and typically applies for initial patent protection in the jurisdiction where a new technology was developed. Additional patent protection is then sought in jurisdictions where Electrolux expects to sell products incorporating the new technology or where Electrolux has active competitors (for example, the United States, Europe and China).
     Electrolux develops itself the technologies used in its products, as well as maintains a portfolio of licensed technologies. Electrolux relies on technologies licensed from third parties only to a limited extent with respect to the products that it manufactures. Similarly, Electrolux does not extensively license its proprietary technology to third parties.
     Electrolux owns the rights to many well-recognized trademarks, including Electrolux, Frigidaire, Eureka and Zanussi. Electrolux has registered these and hundreds of other trademarks around the world. In 2000, the Group acquired the right to the Electrolux brand and corporate name in Canada and the United States from Aerus LLC (formerly Electrolux LLC). Aerus LLC continues to have a limited right by license to use the Electrolux brand in connection with repair and replacement part activities relating to floor-care products sold by Aerus LLC in North America prior to December 1, 2003. In June 2004, the Group acquired the right to the AEG brand and corporate name worldwide. For a discussion regarding certain of Electrolux’s trademarks, see “—Sales and Marketing”.
     Electrolux also protects its new and specific design developments by using the protections available in different jurisdictions around the world.
     Electrolux takes a pro-active approach towards preventing both the infringement of any of its intellectual property and the infringement of third-party rights.
Environmental and other Government Regulation
     The Group is committed to continuous improvement in terms of energy-efficiency, factory emissions, waste generation and handling of hazardous materials in manufacturing and other processes, as well as designing products with high levels of environmental performance.
The Electrolux Environmental Policy
     The Electrolux Environmental Policy outlines the Group’s commitment to improve environmental performance in production, as well as products’ use and disposal. It also addresses the supply chain. The policy prescribes a proactive approach to legislation. For more information, see www.electrolux.com/sustainability.
Environmental Strategy
     The Group’s environmental strategies are based on a life-cycle approach. Three core drivers influence the Group’s commitment to outstanding environmental performance: consumer demand, resource efficiency and legislation.
    Consumers are increasingly aware of the direct relationship between higher efficiency and lower life-cycle costs.

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    The continuous pursuit of cost savings leads to more efficient use of material and energy resources in manufacturing.
 
    The most important trends in legislation and regulation involve energy efficiency, recycling and restrictions on the use of potentially hazardous substances.
Environmental Regulation
     Electrolux is subject to government regulation in all countries in which it conducts its operations. The Group continuously monitors its compliance with applicable regulations and adjusts its operations and applies for necessary permits in accordance with local laws and regulations.
Summary of environmental issues for which regulations affect the Group’s business areas
         
        Affected products
Issue   Regulation   and operations
Energy efficiency
  Mandatory energy consumption criteria for specific products in EU, United States, other markets, voluntary industry commitments on some products in EU   All Products
 
       
Energy labeling
  Mandatory labeling in EU, North America, Mexico, Japan, Australia, China; voluntary labeling in Hong Kong, Brazil   All Products
 
       
Producer responsibility
  WEEE Directive in EU   All electrical products sold in EU
 
       
Eco-design requirements
  Energy-using Products (EuP); eco-design requirements in product development   All Products
 
       
Air and waterborne emissions, solid Climate Change
  EU and United States Kyoto Protocol; national implementation   All plants
 
       
Ozone depletion
  Montreal Protocol; national implementation    
 
       
Hazardous substances
  RoHS Directive in EU; and similar legislation in China; state/provincial legislation in North America and Australia    
     Manufacturing comprises mainly assembly of components made by suppliers. Other processes include metalworking, moulding of plastics, painting, enamelling and to some extent casting of parts.
     Chemicals such as lubricants and cleaning fluids are used as process aids and chemicals used in Group products include insulation materials, paint and enamel. Production processes generate an environmental impact in the form of water and airborne emissions, solid waste and noise.
     Studies of the total environmental effect of the Group’s products during their entire lifetime, i.e., from production and use to disposal, indicate that the greatest environmental impact is generated when the products are used. The stated Electrolux strategy is to develop and actively promote increased sales of products with lower environmental impact.
     Electrolux operates 56 manufacturing facilities in 19 countries. Electrolux operates five plants in Sweden. Permits are required by Swedish authorities for all of these plants, which account for approximately 4% of the total value of the Group’s production. Two of these plants are required to submit notification only. The permits cover, for instance, thresholds or maximum permissible values for air and waterborne emissions and noise. No significant noncompliance with Swedish environmental legislation was reported in 2006.

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     Manufacturing units in other countries adjust their operations, apply for necessary permits and report to the authorities in accordance with local legislation. The Group follows a precautionary policy with reference to both acquisitions of new plants and ongoing operations. Potential non-compliance, disputes or items that pose a material financial risk are reported to the Group in accordance with Group policy. No such significant item was reported in 2006.
     Electrolux products are affected by legislation in various markets, principally involving limits for energy consumption. Electrolux continuously monitors changes in legislation, and both product development and manufacturing are adjusted well in advance to reflect these changes.
     Environmental performance of products
     Electrolux has a long tradition of continuously reducing water and energy consumption, and designing products for more efficient recycling. Improved environmental performance also means lower lifetime operating costs for consumers and thus plays a role in marketing and product development, see graphs “Life-cycle impact” and “Life-cycle cost”. Offering products with outstanding environmental performance therefore provides competitive benefits.
     Today, a typical new washing machine uses 40 percent less energy and 60 percent less water than the 1990 models. A refrigerator uses 60 percent less energy. The German research organization Öko Institut contends that it is environmentally advantageous to replace an old refrigerator with a more efficient alternative.
     One of the Group’s objectives is to accelerate the replacement of old products. Due to long product life-cycles, there is a gap between the energy efficiency of appliances currently used by households and those that are available on the market. Together with a responsible recycling program, the Electrolux approach benefits the environment and also generates value for the Group. The most efficient products account for a higher share of gross profit. This reflects growing consumer awareness that life-cycle savings from lower electricity costs offset higher purchase prices.
     Fleet average energy-efficiency for various categories of appliances sold by Electrolux in Europe also showed continued improvement in 2006, see below. The energy efficiency of Electrolux products is improving at an average annual rate of between three and four percent.
     Materials restricted for use in products
     Substances used in Electrolux products shall not be hazardous to employees in production nor to end-users, and shall not harm the environment. Products must be in line with market expectations and shall not adversely affect “end-of-life” properties.
     The purpose of the Electrolux Restricted Materials List (RML) is to avoid materials that do not comply with the above criteria. The requirements outlined in the RML apply to both suppliers and Group production facilities.
     The RML is designed to accommodate the trend toward increased regulation of chemicals in markets worldwide, such as the EU Directive on the Restriction of the use of certain Hazardous Substances in electrical and electronic equipment (RoHS) and the forthcoming EU REACH Directive.
     Tracking applications of substances considered potentially hazardous enables the Group to respond to new scientific findings or regulations.
     Environment in Operations
     The Group works continuously to reduce consumption of energy and water at production sites, and to achieve high rates of utilization of purchased material and components.
     Group Management has stipulated that an environment management system is to be implemented for each business sector’s entire operation. All manufacturing units with at least 50 employees are mandated to be certified according to ISO 14001. Newly acquired units must complete the certification process within three years after acquisition.

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     Environmental legislation
     Environmental legislation in Europe often sets precedents for other markets, especially regarding the use of hazardous substances and producer responsibility.
     RoHS Directive
     The EU RoHS Directive has been transposed into national legislation in EU member states. As of July 2006 the Directive bans placement on the market of electrical or electronic equipment containing lead, mercury, cadmium, hexavalent chromium or two groups of brominated flame retardants (PBB and PBDE), with a limited number of exceptions. The Directive has been introduced at the national level by EU member states as well as by Norway and Iceland.
     Electrolux has adopted a stringent interpretation of the Directive. A comprehensive Group-wide program has been in place since 2003 to identify cost-effective alternative components and manufacturing methods. A monitoring program also helps ensure supplier compliance.
     Electrolux does not anticipate additional costs for the implementation of RoHS in Europe.
     Producer responsibility (WEEE Directive)
     The EU WEEE Directive (Waste Electrical and Electronic Equipment) defines producer responsibility for collection, treatment and disposal of electrical and electronic products.
     The Directive stipulates that as of 2005 producers and importers have producer responsibility for products put on the market. The target for material recovery is 80 percent for large household appliances and 70 percent for small appliances.
     By year-end 2006, almost all EU member states, with the exception of Malta, had transposed the Directive into national legislation. Nor has it been implemented in Norway. Malta is expected to transpose the Directive in 2007.
     Electrolux is compliant in all countries where laws have been implemented. In most states, management of producer responsibility is organized through national recycling schemes initiated by industry associations.
     In order to meet the need for a cost-efficient recycling system in large volume countries, Electrolux, Braun (Procter & Gamble), Hewlett-Packard and Sony have set up a jointly owned company, European Recycling Platform (ERP), to manage a pan-European recycling scheme. During 2006 the ERP handled waste in seven EU member states, and in 2007 two more countries will be added to the ERP’s list. These nine states will account for 50 percent of the Electrolux obligation for recycling in Europe. Through investment in this scheme, competence built in one market will benefit the others.
     Producer responsibility for Electrolux currently covers products representing a volume of 650,000 tons. The cost for compliance fluctuates, depending on a number of cost drivers including administration, collection and treatment costs; the market price of scrap metal; disposal costs for non-recyclable material and components of equipment; as well as collection costs per unit and collection rates, which may vary between countries.
     The volume of returned products will increase in 2007 as a result of WEEE implementation in Italy and the UK. Implementation in Eastern and Southern European countries is also expected to increase return volumes in the long term.
     The cost of waste for Electrolux in 2006 was almost entirely recovered through visible fees that have been added to the price of products. According to the Directive, the cost for recycling products sold before August 2005 will be divided among producers and calculated according to their respective market share each year. Based on current national laws this also applies for products sold after August 2005 in most countries. Provisions for future recycling of products sold after August 2005 are required in only a few EU member states.

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     The estimated annual cost of handling waste for Electrolux when the WEEE Directive is fully implemented is approximately SEK 600 million. Visible fees will be phased out by 2013.
     Energy directives and product labeling
     Energy efficiency and product labeling are core issues for the Group, and for the appliance industry as a whole. In the Group’s major markets, Europe and North America, regulations require that most products in the Electrolux portfolio bear a label indicating the product’s energy efficiency and consumption levels. By communicating this to the consumer, it becomes a relevant factor in purchasing decisions. Similar labeling regulations exist in Australia, Brazil, China, India, Japan and Mexico.
     The Group’s products are within all regulatory limits and are represented in the highest energy efficiency classes. Electrolux is prepared for upcoming, more stringent Energy Star and energy efficiency standards in the EU and the US.
     Electrolux expects to qualify for recently enacted US energy tax credits for the sale of Energy Star appliances. The credits are available for Energy Star appliances made in the US in 2006 and 2007.
     Electrolux and other leading manufacturers have agreed on unilateral industry commitments to improve energy efficiency for most large household appliances. The European Commission has endorsed these agreements.
C. Organizational Structure
     AB Electrolux is a corporation organized under the laws of the Kingdom of Sweden and the parent company of the various subsidiaries that conduct their business on a worldwide basis.
     See Note 28 to the consolidated financial statements for a listing of Electrolux’s significant subsidiaries.
D. Property, Plants and Equipment
     As of December 31, 2006, Electrolux occupied a total of 46,7 million square feet of property, of which 15 million were leased. Approximately 64% of the property portfolio is located in Europe.
     The manufacturing operations of Electrolux were carried out at 56 locations in 19 countries. The aggregate size of these factories, including warehouses and offices at the factory sites, was 31,5 million square feet. The factories are, with very few exceptions, owned by Electrolux. Most of the manufacturing facilities are located in Europe. Electrolux operates 5 plants in Sweden. In general, all Electrolux manufacturing facilities are well maintained, suitably equipped and in good operating condition. The facilities were adequate for production requirements during 2006 and Electrolux believes they will be adequate for the foreseeable future.
     In addition to manufacturing facilities, Electrolux uses 15,2 million square feet of administrative offices, warehouses, distribution facilities and sales branch offices. The majority of these buildings are leased. About 1,5 million square feet (of which approximately 20% were owned) were dedicated to division and country administrative headquarters.
     In 2003 and 2004 investments were authorized for a new plant in Mexico and six new plants in Eastern Europe and Asia. During 2005 and 2006, new plants were opened in Juarez, Mexico (refrigerators), Siewerz, Poland (tumble-dryers), Zarow, Poland (dishwashers), Rayong, Thailand (professional washing machines), Olana, Poland (washing) and Swidnica, Poland (cooking).
     See “Item 3.D–Risk Factors—Electrolux is subject to risks relating to the relocation of manufacturing capacity” and “Item 5.B—Liquid Funds and Capital Resources – Capital Expenditure.”

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ITEM 4.A. UNRESOLVED STAFF COMMENTS
     Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
General
     The following discussion and analysis by management concerning the financial condition and the results of operations of Electrolux should be read together with the consolidated financial statements included in this Form 20-F. From January 1, 2005, Electrolux’s consolidated financial statements have been prepared in accordance with IFRS.
     Electrolux is a global leader in home appliances and appliances for professional use, selling more than 40 million products to customers in 150 countries. In 2006, Electrolux had sales of SEK 103.8 billion and 55,500 employees. Electrolux products include refrigerators, dishwashers, washing machines, vacuum cleaners and cookers sold under esteemed brands such as Electrolux, AEG-Electrolux, Zanussi, Eureka and Frigidaire.
Significant Actions and Transactions affecting Results and Financial Condition
     The following review of certain actions undertaken and transactions completed during the three-year period from 2004 through 2006 is significant for an understanding of the review of Electrolux’s results of operations and financial condition.
     Acquisitions
     Electrolux has in the past, and may in the future, engage in acquisitions. It has made in excess of 200 acquisitions during the last three decades. These acquisitions have enabled Electrolux to achieve strong market positions in Western Europe, North America and Australia.
     Electrolux made no major acquisitions during 2006, 2005 or 2004.
     Dispositions
     Electrolux disposes of companies and businesses in the ordinary course of business in an effort to focus on core operations and to maximize efficiencies and the overall profitability of the Group.
     Electrolux effected no major dispositions during 2004. The following major dispositions were effected during 2005 and 2006:
                         
                    Approximate
    Business Area       External   No. of
Divestments   (Product Line)   Date   Sales(1)   Employees
            (SEK million)        
Indian operation
  Appliances   July 7, 2005     553       1,100  
Husqvarna
  Outdoor products   June 13, 2006     28,768       11,680  
 
(1)   Represents external sales of the divested operations for the full fiscal year preceding the year of divestiture.
     Spin-off of Outdoor Products
     In June 2006, the Group’s Outdoor Products operation was spun off as a separate company and distributed to Electrolux shareholders in accordance with the decision at the Annual General Meeting of 2006. One A-share in Husqvarna was received for each A-share in Electrolux, and one B-share in Husqvarna for each B-share in Electrolux.
     The new company, Husqvarna, which was listed on the O-list of the Stockholm Stock Exchange in June is one of the world leaders in outdoor products both for the consumer market and for professional users.

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     For additional information regarding the spin off of the Group’s Outdoor Products operations, see Note 29 to the consolidated financial statements.
     Restructuring Programs
     Certain statements in this section, in particular in relation to the cost-savings that Electrolux expects to generate from its restructuring programs and other measures, are forward looking statements and actual results may differ materially from those described below. See “Forward-Looking Statements” and Item 3.D–Risk Factors–“Electrolux may not be able to successfully implement planned cost-reduction measures and generate the expected cost-savings.” The costs of the restructuring programs are included in “–Items Affecting Comparability” as set forth below.
     To stay competitive, meet challenges from competitors and at the same time access new markets, Electrolux is shifting production from countries with a higher cost base to those offering lower costs. The Group started a restructuring program in 2004 aimed at creating a competitive production structure in the long term. The costs of this program are estimated at approximately SEK 8 billion. When it is completed in 2009, more than half of the Group’s products will be originated in low-cost countries, and savings are estimated to amount to approximately SEK 3 billion annually.
     A decision to close factories or downsize production affects individuals and communities. Responsibly managing the consequences of these decisions is an Electrolux priority. When a factory restructuring is under evaluation, a procedure is followed, adapted to local needs and priorities. A wide range of stakeholders are consulted, including labor union representatives, local, national and regional politicians and government authorities.
     During 2006, factory closures were announced for Regency Park and Beverley in Australia and closures and downsizings were under way in Torsvik (Sweden), Florence (Italy), Fuenmayor (Spain) and Nuremberg (Germany). A total of 2,389 employees were affected by restructuring in 2006. The restructuring procedure was applied at all decisions. Employees were offered pre-retirement schemes, training programs and career coaching that were tailored to their situations.
     Setting up operations in emerging economies brings positive changes to local communities. It creates indirect impacts by prioritizing local suppliers, encouraging global suppliers to establish a presence, and by transferring cutting edge technologies to new markets. As an example, the refrigerator plant in Juarez, Mexico, is one of the most environmentally advanced refrigerator plants within Electrolux.
     After the ongoing restructuring program is completed in 2009, more than half of Electrolux products will be produced in low-cost countries in Eastern Europe, Asia and Latin America. This transformation has already been implemented for floor-care products. Electrolux will maintain continuous efforts to increase efficiency, but a program on the scale of the one that is currently being implemented will not be required again in the foreseeable future.
     Global product platforms
     Programs for improving production are paralleled by reductions in the number of production platforms. In 2006 Electrolux introduced several global platforms for side-by-side refrigerators, top freezers, front-loaded washing machines and standalone dishwashers.
     Reducing the number of product platforms generates benefits that include enabling greater standardization of components, fewer product variants and simpler production. It also gives the Group a more powerful negotiating position for large-scale purchasing, and reduces the number of spare parts in inventories. Work on creating global product platforms will therefore continue to receive high priority.
     Large savings in purchasing
     Total savings in terms of purchasing in 2006 amounted to approximately SEK 1.9 billion, exclusive of the effect of increased raw material costs. The cost of raw materials rose by a total of approximately SEK 900 million in 2006. A comprehensive analysis in cooperation with the Group’s major suppliers enabled identification of a potential for substantial savings in 2005-2007.

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     A new global purchasing organization was established in 2005. A global purchasing council that includes representatives from all regions is now responsible for all purchasing decisions above a specific level.
     Rising commodity prices added approximately SEK 6 billion to Group costs from 2004 to 2006. Since 2004, Electrolux has introduced various measures in its purchasing organization to reduce material costs. Initiatives include making global purchasing more efficient and working more closely with selected suppliers. Electrolux has also increased the proportion of goods purchased from low-cost countries from 30 percent to 40 percent in 2006 and is working constantly to reduce the overall supplier base. These measures have enabled Electrolux to offset much of the commodity price increase, and Electrolux will continue to devote time and effort to achieving greater purchasing efficiencies.
Other Factors Affecting Results
     Foreign Exchange Effects
     Changes in exchange rates in comparison with the previous year, including both translation and transaction effects, had a positive effect of SEK 96m on operating income.
     Transaction effects net of hedging contracts amounted to SEK 109m, mainly due to the strengthening of the Euro against several other currencies and the strengthening of the Canadian dollar against the US dollar. Translation of income statements in subsidiaries had an effect of SEK -13m.
     The effect of changes in exchange rates on income after financial items amounted to SEK 67m.
     Seasonality
     Demand for certain of Electrolux’s products is affected by seasonality. Generally, market demand for room air conditioners, refrigerators and freezers is lower during the winter season. As a result, Electrolux’s room air conditioners, refrigerators and freezer product lines experience most of their sales volume and profitability in the first seven months of the year. Conversely, demand for vacuum cleaners and cookers generally increase during the winter season. On a year-to-year basis, market demand for air conditioners is also affected by the weather. Electrolux expects this seasonality to continue in the future.
Items Affecting Comparability (impairment and restructuring charges and capital gains/losses on divestments)
     Operating income for 2006 includes items affecting comparability in the amount of SEK –542m (–2,980). These items include charges for restructuring, mainly involving plant closures and capital gains and losses on divestments. See “—Restructuring Programs” and the table below.

32


 

                         
Items affecting comparability SEKm   2006     2005     2004  
Restructuring provisions and write-downs(1)
                       
Appliance plant in Adelaide, Australia
    -302                  
Appliance plant in Torsvik, Sweden
    -43                  
Appliance plant in Nuremberg, Germany
    -145       -2,098          
Appliances, Europe
            -495          
Refrigerator plant in Greenville, USA
                    -979  
Vacuum-Cleaner plant in Västervik, Sweden
                    -187  
Floor-care products, USA
                    -153  
Appliances, Australia
                    -103  
Cooker factory in Reims, France
                    -289  
Tumble-dryer plant in Tommerup, Denmark
                    -49  
Reversal of unused restructuring provisions
    60       32       39  
Capital gains/losses on divestments(2)
                       
Divestment of 50% stake in Nordwaggon AB, Sweden
    -173                  
Divestment of Electrolux Financial Corp., USA
    61                  
Divestment of Indian operation
            -419          
Settlement in vacuum-cleaner lawsuit in USA
                    -239  
 
                 
Total
    -542       -2,980       -1,960  
 
(1)   Deducted from cost of goods sold.
 
(2)   Deducted from other operating income and expenses.
New definition of gross operating income as of 2007
     Costs for inventories and transport to customers of finished products will be reported as of 2007 under cost of goods sold within gross operating income in the consolidated income statement. These costs were previously reported under selling expenses.
     The reason for the change is that these costs are to a great extent related to sales volume and net sales, and that selling expenses in many cases are interpreted as overhead costs. The estimated effect of a restatement of 2006 is a reduction in gross operating income of SEK 4,339m, and in gross margin by approximately 4%. Selling expenses is estimated to decline by SEK 4,339m. Operating income and margin are unchanged, as shown in the table below.
                         
Effects of new definition of gross operating income SEKm   2006     Adjusted 2006     Change  
Net sales
    103,848       103,848        
Cost of goods sold
    -79,664       -84,003       -4,339  
Gross operating income
    24,184       19,845       -4,339  
Margin, %
    23.3       19.1       -4.2  
Selling expenses
    -15,294       -10,955       4,339  
Administrative expenses
    -4,467       -4,467        
Other operating income
    185       185        
Other operating expenses
    -33       -33        
Items affecting comparability
    -542       -542        
Operating income
    4,033       4,033        
Margin, %
    3.9       3.9        
DISCONTINUED OPERATIONS
     Discontinued operations refers to the former Outdoor Products operations, Husqvarna, which was distributed to shareholders in June 2006. Discontinued operations in 2006 include the period January–May and in 2005 and 2004 the period January–December. Income for the period for discontinued operations amounted to SEK 1,199m (1,905).

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Income for the period and earnings per share including discontinued operations
     Income for the period including discontinued operations amounted to SEK 3,847m (1,763), corresponding to SEK 13.32 (6.05) in earnings per share. Return on equity was 18.7% (7.0).
                                         
Key data excluding items affecting comparability SEKm   2006     Change     2005     Change     2004  
Total, including discontinued operations(1)
                                       
Income for the period
    4,344       -266       4,610       64       4,546  
Earnings per share, SEK(2)
    15.04               15.82               15.24  
Return on equity, %
    21.1               18.3               18.3  
 
(1)   Discontinued operations refer to the former Outdoor Products operations and includes the period January-May 2006 and January-December 2005.
 
(2)   Basic. For information on earnings per share, see Note 20 to the consolidated financial statements.
A. Operating Results
     The Group’s Outdoor Products operations were distributed under the name of Husqvarna to the Electrolux shareholders in June 2006. As of June 2006, Husqvarna is reported as discontinued operations in the income and cash flow statements for 2006 and 2005. The Husqvarna results are excluded from the sales and expense lines of the income statement and reported as a single net in the item “Income for the period from discontinued operations.” The cash flow is reported separately under the item “Cash flow from discontinued operations.” Discontinued operations in 2006 include the period January–May and in 2005 and 2004 include the period January–December. Assets and liabilities for Husqvarna were excluded from the balance sheet as of May 31, 2006. The balance sheet items for the previous year are the historical financial statements in accordance with IFRS.
     The comments below regarding net sales and income refer to continuing operations and are exclusive of Outdoor Products operations, Husqvarna.
Results of Operations for 2006 as Compared to 2005
     Consolidated Results
     Consolidated Net Sales
     Net sales for the Electrolux Group in 2006 amounted to SEK 103,848m, as against SEK 100,701m in the previous year. Sales were affected mainly by an improved volume/price/mix.
     Sales of appliances in Latin America and North America were particularly strong as were floor-care products and professional laundry equipment.
     The following tables sets forth details of changes in Group net sales in 2006:
         
    2006
    %
Changes in Group structure(1)
    -0.4  
Changes in exchange rates
    0.1  
Changes in volume/price/mix
    3.4  
 
       
Total
    3.1  
 
(1)   For further details of changes in the Group structure, see “Significant Actions and Transactions Affecting Results and Financial Condition”.
     Consolidated operating income

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     The Group’s operating income for 2006 improved significantly to SEK 4,033m (1,044), corresponding to 3.9% (1.0) of net sales. Operating income increased across all business areas mainly as a result of higher sales volumes, savings from restructuring and improvements in mix.
     Operating income exclusive of items affecting comparability, improved by 13.7% to SEK 4,575m (4,024). Items affecting comparability amounted to SEK –542m (–2,980) in 2006. These items include charges for restructuring, mainly involving plant closures and capital gains and losses on divestments. See “—Items Affecting Comparability”.
     Income after financial items
     Income after financial items increased to SEK 3,825m (494) corresponding to 3.7% (0.5) of net sales.
     Taxes
     Total taxes in 2006 amounted to SEK –1,177m (–636), corresponding to 30.8% (128.7) of income after financial items.
     Consolidated Results Excluding Items Affecting Comparability (restructuring charges and capital gains/losses on divestments)
     As IFRS requires companies to disclose information in their financial statements as to events and transactions with effects on income that are of significance when income from the period is compared with that of other periods, Electrolux reports these events and transactions on the line-item “Items affecting comparability” which appears separately on the face of the income statement. See Note 7 to the consolidated financial statements. The above income figures for 2006 include items affecting comparability in the amount of SEK -542m (-2,980) in 2006. As set forth in the table below, excluding the items affecting comparability, the Group’s operating income for 2006 rose by 13.7% to SEK 4,575m (4,024), which corresponds to 4.4% (4.0) of net sales. Income after financial items improved by 25.7% to SEK 4,367m (3,474), which corresponds to 4.2% (3.4) of net sales. The tax rate was 28.0% (22.9). Income for the period increased by 17.5% to SEK 3,145m (2,677), corresponding to earnings per share of SEK 10.89 (9.19). Return on net assets was 21.2% (17.8).
                                         
Key data excluding items affecting comparability
(impairment and restructuring changes and capital gains/losses on divestments SEKm
  2006     Change     2005     Change     2004  
Continuing operations
                                       
Net sales
    103,848       3,147       100,701       7,252       93,449  
Operating income
    4,575       551       4,024       240       3,784  
Margin, %
    4.4               4.0               4.0  
Income after financial items
    4,367       893       3,474       -60       3,534  
Income for the period
    3,145       468       2,677       106       2,571  
Earnings per share, SEK(1)
    10.89               9.19               8.62  
Value creation
    2,202       897       1,305       105       1,200  
Return on net assets, %
    21.2               17.8               17.6  
Operating cash flow
    1,110       1,763       -653       1,804       1,151  
Capital expenditure
    3,152       –502       3,654       49       3,605  
                             
 
(1)   Basic.
     Value creation
     Value Creation is a performance measure focused on growth and shareholder return in Swedish Kronor terms. Value Creation is extensively used by Electrolux for internal reporting purposes and as a management tool for measuring and evaluating financial performance within the Group. Electrolux uses Value Creation internally to measure and evaluate segments, e.g. business areas and regional performance. The model links

35


 

operating income and asset efficiency with the cost of the capital employed in operations. The model measures and evaluates profitability, by business area, product line, region or operation.
     As more fully described below, Value Creation for the Group is calculated by assuming a cost of capital on net assets across the Group for a particular year and then measuring the “value created” by comparing the Group’s operating income for the same year against the assumed cost of capital for that year. A higher return (in operating income terms) than the assumed cost of capital on net assets across the Group implies that the Group has created value in Swedish Kronor terms for its shareholders. A lower return would imply inefficiency in utilization of the Group’s asset base.
     Because Value Creation is expressed in Swedish Kronor rather than as a percentage (like, for instance, return on assets), Electrolux believes it focuses on growth in kronor terms as opposed to a measure which could improve simply because the asset base shrinks.
     Value Creation is also used by the Group as a basis for remuneration for managers and employees. The Group has a program of variable salary for management and other key personnel. Variable salary is based on a financial target for Value Creation, as well as non-financial targets. The Group also has performance-based long-term incentive programs for approximately 160 of its most senior managers. These performance share programs are linked to targets for the Group’s Value Creation over a three-year period.
     Value Creation is not a measure determined in accordance with IFRS or U.S. GAAP. Electrolux believes, however, that its definition links operating income and asset efficiency with the cost of the capital employed in operations. Value Creation should not be considered as an alternative measure of performance and may not be comparable to similar measures disclosed by other companies because value creation is not uniformly defined.
     Value Creation is measured excluding items affecting comparability and defined as operating income less the weighted average cost of capital (WACC) on average net assets during a specific period.
                         
    2006   2005   2004
Operating Income
    4,033       1,044       1,824  
 
                       
Excluding items affecting comparability
    542       2,980       1,960  
 
                       
 
    4,575       4,024       3,784  
Less asset capital charge
    2,373       2,719       2,584  
 
                       
 
                       
Value Creation
    2,202       1,305       1,200  
 
                       
 
                       
Weighted Average Cost of Capital x
    11 %     12 %     12 %
 
                       
Average net assets =
    21,571       22,658       21,534  
 
                       
Asset capital charge
    2,373       2,719       2,584  
 
                       
     The cost of capital varies between different countries and business units due to country-specific factors such as interest rates, risk premiums and tax rates. WACC is calculated annually by Electrolux to apply for the following year on the basis of agreed parameters aimed at determining the Group’s cost of capital. Net assets are total assets exclusive of liquid funds (short-term investments and cash and bank balances), interest-bearing financial receivables, as well as non-interest-bearing liabilities and provisions and excluding items affecting comparability. A higher return on net assets than the WACC implies that the Group creates value.
     The method by which Electrolux calculates the “asset capital charge” within the Value Creation measure is potentially disadvantageous in that it has the potential to encourage inappropriate management of the asset base in order to upwardly manage the value created against such asset base. Electrolux mitigates against this potential risk by prohibiting or restricting certain activities, such as factoring, as well as taking account of specific investments in property, plant and equipment through the budgeting process.
     Total value created in 2006 improved over the previous year to SEK 2,202m (1,305). The capital turnover rate was 4.81, as against 4.44 in 2005. The WACC rate for 2006 was computed at 11% (12).
     Results of Operations by Business Area

36


 

     The Group’s continuing operations include products for consumers as well as professional users. Products for consumers comprise major appliances, i.e., refrigerators, freezers, cookers, dryers, washing machines, dishwashers, room air-conditioners and microwave ovens, as well as floor-care products. Professional products comprise food service equipment for hotels, restaurants and institutions, as well as laundry equipment for apartment house laundry rooms, launderettes, hotels and other professional users.
     In 2006, appliances accounted for 85% (86) of sales, professional products for 7% (7) and floor-care products for 8% (7).
     The following discussion includes statements about operating income and operating margin. Both operating income and operating margin are presented excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) because this is a measure which management uses to manage the operations of the Group and are segmental measures which are in accordance under IFRS and US GAAP segment definitions. For more information on items affecting comparability, see “Presentation of Information” and Note 7 to the consolidated financial statements.
                                         
Operations by Business Area(1)   2006   Change (%)   2005   Change (%)   2004
    (SEK million, except percentage amounts and employee numbers)
Consumer Durables – Europe
                                       
Net sales
    44,233       1.1       43,755       2.5       42,703  
Operating income, excluding items affecting comparability (impairment and restructuring changes and capital gains/losses on divestments)
    2,678       2.9       2,602       -16.9       3,130  
Operating margin, excluding items affecting comparability (impairment and restructuring changes and capital gains/losses on divestments)%
    6.1               5.9               7.3  
Net assets
    7,075       16.7       6,062       -1.7       6,165  
Return on net assets %
    41.6               39.0               46.0  
Capital expenditure
    1,698       -9.3       1,872       19.9       1,561  
Average number of employees
    25,029       -0.9       25,250       -3.4       26,146  
 
                                       
Consumer Durables, North America
                                       
Net sales
    36,171       3.0       35,134       14.2       30,767  
Operating income, excluding items affecting comparability (impairment and restructuring changes and capital gains/losses on divestments)
    1,462       1.2       1,444       29.4       1,116  
Operating margin, excluding items affecting comparability (impairment and restructuring changes and capital gains/losses on divestments)%
    4.0               4.1               3.6  
Net assets
    8,187       -17.5       9,929       49.4       6,646  
Return on net assets %
    19.3               16.6               14.4  
Capital expenditure
    922       -16.8       1,108       -23.0       1,439  
Average number of employees
    15,148       -5.7       16,066       -1.6       16,329  
 
                                       
Consumer Durables, Latin America
                                       
Net sales
    7,766       33.5       5,819       34.1       4,340  
Operating income, excluding items affecting comparability (impairment and restructuring changes and capital gains/losses on divestments)
    339       175.6       123       -8.9       135  
Operating margin, excluding items affecting comparability (impairment and restructuring changes and capital gains/losses on divestments)%
    4.4               2.1               3.1  
Net assets
    3,565       54.7       2,305       30.7       1,764  

37


 

                                         
Operations by Business Area(1)   2006   Change (%)   2005   Change (%)   2004
    (SEK million, except percentage amounts and employee numbers)
Return on net assets %
    13.3               6.0               8.2  
Capital expenditure
    170       1.8       167       40.3       119  
Average number of employees
    5,770       14.9       5,023       1.8       4,933  
 
                                       
Consumer Durables, Asia/Pacific and Rest of world
                                       
Net sales
    8,636       -6.9       9,276       1.5       9,139  
Operating income, excluding items affecting comparability (impairment and restructuring changes and capital gains/losses on divestments)
    163       1153.8       13       n/a       -289  
 
Operating margin, excluding items affecting comparability (impairment and restructuring changes and capital gains/losses on divestments)%
    1.9               0.1               -3.2  
Net assets
    2,740       -24.2       3,616       8.6       3,330  
Return on net assets %
    6.0               0.4               -10.0  
Capital expenditure
    184       -43.9       328       2.8       319  
Average number of employees
    5,346       -24.5       7,077       -17.8       8,614  
 
                                       
Professional Products
                                       
Net sales
    6,941       3.8       6,686       3.8       6,440  
Operating income, excluding items affecting comparability (impairment and restructuring changes and capital gains/losses on divestments)
    535       15.6       463       4.0       445  
Operating margin, excluding items affecting comparability (impairment and restructuring changes and capital gains/losses on divestments)%
    7.7               6.9               6.9  
Net assets
    1,394       8.1       1,290       26.2       1,022  
Return on net assets %
    40.2               40.1               41.9  
Capital expenditure
    151       -3.2       156       8.3       144  
Average number of employees
    3,316       -2.5       3,401       -5.4       3,595  
 
(1)   Excluding items affecting comparability.
     Consumer Durables – Europe
     Core Appliances
     Core appliances are major appliances excluding small appliances such as microwave ovens and room air conditioners. Total industry shipments of core appliances in Europe in 2006 increased in volume by 3.6% over 2005. Shipments rose by 2.8% in Western Europe and 6.1% in Eastern Europe. A total of 78.1 (75.4) million units (excluding microwave ovens) were estimated to have been shipped in the European market during 2006, of which 58.7 (57.1) million units in Western Europe.
     Group sales of core appliances in Europe increased slightly over the previous year due to higher sales volumes. Operating income excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) rose on the basis of higher volumes and savings from restructuring, which proceeded according to plan during the year. Production was moved rapidly to the Group’s factories in low-cost countries. Increased costs for raw materials were offset through more efficient purchasing. Brand investments increased following extensive launches of new, innovative products, which will continue in 2007 across all product categories within core appliances. The Group’s market share recovered by year-end after a decline due to the strike in Nuremburg in Germany at the beginning of the year.

38


 

     Demand for floor-care products in Europe in 2006 showed an increase of 5% compared to the previous year. Average market prices rose after a long period of decline. Group sales and operating income excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) for the year improved due to higher sales volumes and an improved product mix. The Group’s market share increased significantly in 2006.
     Consumer Durables – North America
     Major Appliances
     Industry shipments of core appliances in the US declined in volume by approximately –1.0% compared with the previous year. The US market for core appliances (exclusive of microwave ovens and room air-conditioners) consists of industry shipments from domestic producers plus imports, and amounted to 47.8 million units in 2006. Shipments of major appliances, i.e., including room air-conditioners and microwave ovens, rose by approximately 1.2%.
     Group sales of major appliances in North America increased in 2006 due to higher sales volumes and an improved product mix. Operating income excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) improved. Significantly higher costs for materials were offset by the improved product mix and savings from restructuring. Operating margin excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) was in line with the previous year. The Group’s position in the market for washing machines has now stabilized, but competition in this market continues to be intense.
     Industry shipments of core appliances in the US declined in the third and fourth quarter compared to the previous year, after a long period of strong demand. The decline referred to all categories within core appliances.
     Demand for floor-care products in the US was slightly lower than in the previous year. Both sales and operating income excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) for the Group’s US operation increased on the basis of a strong improvement in product mix, higher volumes, lower costs for materials and increased sourcing from low-cost countries.
     Consumer Durables – Latin America
     Unit shipments of major appliances in Brazil showed a strong increase over 2005, rising by 23%. Brazil is the Group’s major market in Latin America.
     Group sales in Latin America improved substantially and market shares increased. Operating income excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) reached the highest level in ten years, driven mainly by higher volumes, a positive product-mix trend and lower costs for materials.
     Consumer Durables – Asia/Pacific and Rest of World
     Australia and New Zealand
     Market demand for major appliances in Australia rose in 2006 compared to the previous year. Group sales in the region declined slightly in local currency. Operating income excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) improved as a result of an improved product mix and savings resulting from previous restructuring.
     China
     Market statistics for shipments of major appliances in China indicate strong growth in 2006. Group sales of major appliances declined significantly for the year, reflecting the strategy that includes exiting from unprofitable retail outlets. This strategy has now been largely implemented. Operating income excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) showed

39


 

a greater loss in comparison with 2005, mainly due to lower volumes and higher outlays for sales promotion in connection with product launches.
     Professional Products
     Demand in Europe for both food service equipment and laundry equipment is estimated to have increased in 2006 compared to the previous year.
     Food-service Equipment
     Group sales of food service equipment increased in 2006. Operating income and margin, each excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments), improved significantly, mainly due to higher volumes of own-manufactured products and lower costs for marketing and administration. Higher prices for raw materials, mainly referring to stainless steel, were offset by higher sales prices.
     Laundry Equipment
     The Group’s sales of laundry equipment increased in 2006 due to high volumes. Operating income excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) was in line with the previous year despite weak shipments into the US market. The inflow of orders remained strong. The transfer of production from Denmark to Thailand was completed in the third quarter.
Results of Continuing Operations For 2005 as Compared to 2004
     Consolidated Results
     Consolidated Net Sales
     Net sales for the Electrolux Group in 2005 amounted to SEK 100,701 million, as compared to SEK 93,449 million in 2004. Sales were positively impacted by volume/price/mix, as well as changes in exchange rates.
     The following tables sets forth details of changes in Group net sales in 2005:
         
    2005
 
    %  
Changes in Group structure(1)
    -0.2  
Changes in exchange rates
    3.1  
Changes in volume/price/mix
    4.9  
 
       
Total
    7.8  
 
(1)   For further details of changes in the Group structure, see “Significant Actions and Transactions Affecting Results and Financial Condition”.
     Consolidated Operating Income
     The Group’s operating income for 2005 declined by SEK -780 million, or -42.8%, to SEK 1,044 million (1,824), corresponding to 1.0% (2.0) of net sales. The decline was due mainly to costs for restructuring in appliances. Total restructuring costs amounted to SEK -2,980 million (-1,960) in 2005. Excluding items affecting comparability, operating income improved by 6.3% to SEK 4,024 million (3,784). The improvement is due mainly to a strong performance by appliances in North America, higher operating income for floor-care products, divestment of the Group’s Indian operation and previous restructuring.
     Income After Financial Items

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     Income after financial items decreased by SEK -1,080 million, or -68.6%, to SEK 494 million (1,574) corresponding to 0.5% (1.7) of net sales. Net financial items increased to SEK -550 million (-250), due to higher interest rates on borrowings in U.S. dollar, higher costs for hedging the Group’s net investments in foreign subsidiaries and increased average net borrowings. Lower interest income as a result of lower Swedish and Euro interest rates also had a negative impact.
     Taxes
     Total taxes in 2005 amounted to SEK -636 million (-290), corresponding to 128.7% (18.4) of income after financial items. The tax rate (excluding items affecting comparability) in 2005 was 22.9% (27.2).
     Consolidated Results Excluding Items Affecting Comparability (impairment and restructuring charges and capital gains/losses on divestments)
     As discussed above, as IFRS requires companies to disclose information in their financial statements as to events and transactions with effects on income that are of significance when income from the period is compared with that of other periods, Electrolux reports these events and transactions on the line-item “Items affecting comparability” which appears separately on the face of the income statement. See Note 7 to the consolidated financial statements. During 2005, items affecting comparability amounted to SEK -2,980 million (-1,960). Excluding items affecting comparability, operating income for 2005 increased by 6.3% to SEK 4,024 million (3,784), which corresponds to 4.0% (4.0) of net sales. Income after financial items decreased by -1.7% to SEK 3,474 million (3,534), which corresponds to 3.4% (3.8) of net sales. Income for the period increased by 4.1% to SEK 2,677 million (2,571), corresponding to an increase of 6.6% in earnings per share to SEK 9.19 (8.62). Excluding items affecting comparability, the tax rate was 22.9% (27.2). The return on equity was 18.3% (18.3) and the return on net assets was 17.8% (17.6).
     Value Creation
     Total Value Created in 2005 amounted to SEK 1,305 million (1,200). The decline reflects mainly the decrease in operating income. The capital turnover rate was 4.44, as against 4.34 in 2004. The WACC rate for 2005 and 2004 was computed at 12%.
     Results of Operations by Business Area
     The following discussion includes statements about operating income and operating margin. Both operating income and operating margin are presented excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) because this is a measure which management uses to manage the operations of the Group and are segmental measures which are in accordance under IFRS and US GAAP segment definitions. For more information on items affecting comparability, see “Presentation of Information” and Note 7 to the consolidated financial statements.
     Operations in Europe
     Major Appliances
     Total industry shipments of core appliances in Europe in 2005 increased in volume by 1.4% over 2004. Shipments in Western Europe were in line with the previous year, while Eastern Europe showed an increase of 5.9%. A total of 75.0 (74.0) million units (excluding microwave ovens) were estimated to have been shipped in the European market during 2005, of which 56.8 (56.4) million units were in Western Europe.
     Group sales of major appliances in Europe in 2005 increased somewhat over the previous year as a result of higher sales volumes in Eastern Europe and an improved product mix. Sales in Western Europe declined due to lower demand and downward pressure on prices in several markets. The private-label market in Germany was weak in 2005. Operating income and margin, each excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments), decreased, partly as a result of higher costs for materials.

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     In the course of the year, operating margin excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) steadily improved due to cost reductions and improved product mix.
     Floor-care
     Demand for floor-care products in Europe rose somewhat over the previous year, with the low-price segments growing and the high-price segments declining. Group sales for the full year declined slightly, reflecting its exposure to the decline in the high-price segments. Operating income and margin, each excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments), for the full year showed a considerable improvement, mainly due to restructuring.
     Sales and operating income excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) during the fourth quarter rose considerably as a result of launches of new products and an improved product mix.
     Operations in North America
     Major Appliances
     Industry shipments of core appliances in the US increased in volume over the previous year by approximately 2.4%. The US market for core appliances (exclusive of microwave ovens and room air-conditioners) consists of industry shipments from domestic producers plus imports and amounted to 48.2 (47.1) million units in 2005. Shipments of major appliances, including room air-conditioners and microwave ovens, rose by approximately 3.3%.
     Group sales of core appliances in North America showed a substantial increase for the year. Operating income excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) for the full year and the fourth quarter improved considerably as a result of higher prices and volumes and an improved product mix due to a number of new products. Income was adversely affected by higher costs for materials as well as costs referring to the ongoing relocation of production to the new plant in Mexico.
     Demand for floor-care products in the US was somewhat higher than in 2004. Sales for the Group’s US operation declined due to lower sales volumes. Operating income excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) for the full year improved considerably as a result of restructuring.
     During the fourth quarter, sales showed a strong increase as a result of launches of new products that improved the product mix. Operating income and margin, each excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments), showed strong improvement.
     Operations in Latin America
     In Latin America, operating income and margin, each excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments), for the full year were somewhat down, mainly because of higher costs for materials.
     Market demand for core appliances in Brazil was higher than in the previous year. Sales for the Group’s Brazilian operation showed growth for the full year as a result of higher sales volumes and price increases. In the fourth quarter, operating income and margin, each excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments), increased as a result of additional price increases and an improved product mix.

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     Operations in Asia/Pacific
     Major Appliances
     Australia. The market for core appliances in Australia showed a downturn for the year. Sales for the Group’s Australian operation declined somewhat for both the full year and the fourth quarter, due to lower volume. Operating income for 2005 excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) improved considerably as a result of price increases and restructuring.
     China and India. The market for core appliances in China declined in 2005. Group sales of core appliances in the Chinese market rose for the full year, but declined in local currency during the fourth quarter in comparison with 2004. Operating income excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) for the full year showed some improvement despite higher costs for materials. In the fourth quarter, income improved substantially but remained negative. In the course of the year, the Group has changed its business model in India and divested its Indian appliance operation, which had a positive impact on operating income excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) for the region.
     Operations in Professional Products
     Food-service equipment
     Demand for food-service equipment in Europe in 2005 is estimated to have increased somewhat in comparison with the previous year. Group sales and operating income excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) improved. In the fourth quarter, sales and income showed a considerable improvement over the corresponding period in 2004, due to some large projects.
     Laundry equipment
     Demand for laundry equipment in 2005 is estimated to have been in line with the previous year. Group sales rose, but operating income excluding items affecting comparability (impairment and restructuring charges and capital gains/losses on divestments) declined for the full year, mainly due to restructuring costs. In the fourth quarter, sales and income rose in comparison with the previous year.
B. Liquid Funds and Capital Resources
     Operating cash flow is the Group’s primary source of liquid funds. Electrolux also utilizes long-term and short-term borrowings as a source of liquid funds. The Group’s liquid funds and capital resources are managed by the Group’s treasury operations in accordance with the Electrolux internal financing policy. For additional discussion regarding liquid funds and capital resources, please see “Item 11 – Quantitative and Qualitative Disclosures About Market Risk – Financing Risk”.
Liquid Funds
     Liquid funds as defined by the Group consist of cash on hand, bank deposits, fair-value derivatives, prepaid interest expense, accrued interest income and other short-term investments, of which the majority has original maturity of three months or less. The carrying amount of liquid funds is approximately equal to fair value. The Group’s goal is to ensure that the level of liquid funds, including an unused revolving credit facility of EUR 500m, corresponds to at least 2.5% of annualized net sales. This means that liquid funds less short-term borrowings shall exceed zero, taking into account fluctuations referring to acquisitions, divestments and seasonal variations. Liquid funds at year-end amounted to SEK 7,799m (5,940). This corresponds to 7.1% (4.4) of annualized net sales for the year. The net liquidity is calculated by deducting short-term loans from liquid funds. Long-term borrowings maturing within 12 months are included in short-term loans.

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     The table below presents the key data of liquid funds.
Liquidity Profile
                         
    2006     2005     2004  
 
Investments with maturities over three months
    1,643       623       265  
Cash and cash equivalents
    5,475       4,420       7,675  
Fair-value derivative assets included in short-term investments
    318       539       762  
Prepaid interest expenses and accrued interest income
    363       358        
 
Liquid funds
    7,799       5,940       8,702  
% of annualized net sales(1)
    11.2       7.9       7.7  
 
Net liquidity
    4,806       2,283       2,799  
Fixed interest term, days
    39       43       61  
Effective yield, % (average per annum)
    3.7       2.4       2.4  
 
(1)   Liquid funds plus a revolving credit facility of EUR 500 million divided by annualized net sales. Annualized net sales means that, in computing key ratios where capital is related to net sales, the net sales are annualized and converted at year-end exchange rates and adjusted for acquired and divested operations.
For 2006, liquid funds, including an unused revolving credit facility of EUR 500 million, amounted to 11.2% (7.9) of annualized net sales. The net liquidity is calculated by deducting short-term borrowings from liquid funds. As from 2005, liquid funds also include prepaid interest expenses and accrued interest and total short-term borrowings include accrued interest expenses and prepaid interest when calculating net borrowings and net liquidity.
Cash Flow from Operations and Investments
     Cash flow from operations and investments increased significantly in 2006 over the previous year. The increase reflects improvements related to accounts payable and trade receivables. The increase in accounts payable during 2006 is a result of higher production, due to strong market demand and product launches.
     The improvement in cash flow also reflects decreased capital expenditures in property, plant and equipment as well as the proceeds of the divestment of the operations of Electrolux Financial Corporation in the US in the second quarter.
Interest-Bearing Liabilities
     At year-end 2006, the Group’s total interest-bearing liabilities amounted to SEK 6,118m (8,332), of which SEK 4,502m (5,257) referred to long-term borrowings with average maturities of 1.7 years (2.8). As of December 31, 2006, there were no long-term borrowings with maturities within 12 months (SEK 1,291m). A significant portion of the outstanding long-term borrowings has been made under the Electrolux global medium term note program. This program allows for borrowings of up to EUR 2,000m. As of December 31, 2006, Electrolux utilized approximately EUR 300m (300) of the capacity of the program.
     The majority of total long-term borrowings, SEK 4,008m, are taken up at the parent company level. As from 2005, Electrolux has a committed credit facility of EUR 500m, which can be used either as a long-term or short-term back-up facility. However, Electrolux expects to meet any future requirements for short-term borrowings through bilateral bank facilities and capital-market programs such as commercial paper programs.
     At year-end 2006, the average interest-fixing period for long-term borrowings was 0.5 years (1.4). The calculation of the average interest-fixing period includes the effect of interest-rate derivatives used to manage the interest-rate risk of the debt portfolio. At year-end, the average interest rate for the Group’s total interest-bearing borrowings was 6.0% (5.1).
     The fair value of the interest-bearing loans was SEK 6,288m. The fair value including swap transactions used to manage the interest-fixing was approximately SEK 6,210m. The borrowings and the interest rate swaps are valued marked-to-market in order to calculate the fair value. When valuing the loans, Electrolux’s credit rating is taken into consideration.

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     The table below sets out the carrying amount of the Group’s interest-bearing liabilities that are exposed to fixed and floating interest rate risk.
                                     
Borrowings                    
 
Issue/maturity date   Description of loan   Interest-   Currency   Nominal value   Total book value, Dec 31
        rate, %       (in currency)        
                        2006   2005
 
                (in millions)   (in millions)
Bond loans fixed rate(1)
                                   
2005-2010
  SEK MTN Program   3.650    SEK     500       493       499  
2005-2009
  SEK MTN Program   3.400    SEK     500       495       499  
2001-2008
  Global MTN Program   6.000    EUR     268       2,460       2,617  
2001-2008
  Global MTN Program   6.000    EUR     32       290       301  
1998-2008
  SEK MTN Program   4.600    SEK     85       85       85  
 
                                   
Bond loans floating rate
                                   
1997-2027
  Industrial Development Revenue
Bonds
  Floating   USD     10             79  
 
Total bond loans
                        3,823       4,080  
 
                                   
Other long-term borrowings
                                   
 
  Fixed rate loans in Germany   7.800    EUR     46       395       417  
1998-2013
  Long-term bank loans in Sweden   Floating   SEK     163             163  
2005-2010
  Long-term bank loans in Sweden   Floating   EUR     20       185       192  
 
  Other fixed rate loans                           117  
 
  Other floating rate loans                     99       288  
 
Total other long-term borrowings
                        679       1,177  
 
                                   
Total long-term borrowings
                    4,502       5,257  
 
                                   
Short-term part of long-term borrowings(2)
                                   
2005-2006
  SEK MTN Program   1.742    SEK     350             350  
2005-2006
  SEK MTN Program   1.742    SEK     150             150  
2005-2006
  SEK MTN Program   1.908    SEK     400             400  
2001-2006
  Long-term bank loan in Sweden   Floating   USD     46             365  
 
  Other long-term loans                           26  
 
                                   
Other short-term loans
                                   
 
  Short-term bank loans in Brazil   Floating   BRL     24       77       415  
 
  Short-term bank loans in Brazil   Fixed/Float   USD     33       230       458  
 
  Short-term bank loan in China   Fixed/Float   CNY     556       490       344  
 
  Short-term bank loan in Thailand   Fixed/Float   THB     1,867       356          
 
  Bank borrowings and commercial papers                     463       567  
 
Short-term borrowings
                        1,616       3,075  
 
Total interest bearing liabilities
                        6,118       8,332  
Fair value of derivative liabilities
                        247       384  
Accrued interest and prepaid income
                        164       198  
Trade receivables with recourse
                        966      
 
Total borrowings
                        7,495       8,914  
 
1)   The interest-rate fixing profile of the borrowings has been adjusted from fixed to floating with interest-rate swaps.
 
2)   Long-term borrowings with maturities within 12 months are classified as short-term borrowings in the Group’s balance sheet.
     The average maturity of the Group’s long-term borrowings including long-term loans with maturities within 12 months was 1.7 years (2.8), at the end of 2006. A net total of SEK 1,469m in borrowings, originating essentially from long-term borrowings, matured, or were amortized. Short-term borrowings pertain primarily to countries with capital restrictions. The table below presents the repayment schedule of long-term borrowings.
Repayment schedule of long-term borrowings, as at December 31, 2006
                                                         
    2007     2008     2009     2010     2011     2012-     Total  
 
Debenture and bond loans
          2,835       495       493                   3,823  
Bank and other loans
                19       234             426       679  
Short-term part of long-term loans
                                         
 
Total
          2,835       514       727             426       4,502  
     Electrolux has investment-grade ratings from Standard & Poor’s which has remained unchanged during the year. The rating agreement with Moody’s was terminated in 2006.
                                 
                            Short-term  
Rating   Long-term debt     Outlook     Short-term debt     debt, Sweden  
 
Standard & Poor’s
  BBB+   Stable     A-2       K-1  

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Working Capital
     Working capital at year-end amounted to SEK –2,613m (–3,799), corresponding to –2.4% (–3.3) of annualized net sales. Inventories amounted to SEK 12,041m (12,342) at year-end, and trade receivables to SEK 20,905m (20,944), corresponding to 11.0% (10.8) and 19.1% (18.3) of annualized net sales, respectively. Accounts payable amounted to SEK 15,320m (14,576), corresponding to 14.0% (12.7) of annualized net sales.
Working capital
                                 
            Dec. 31, 2005              
    Dec. 31,     excl.     Dec. 31,     Dec. 31,  
SEKm   2006     Husqvarna     2005     2004  
 
Inventories
    12,041       12,342       18,606       15,742  
Trade receivables
    20,905       20,944       24,269       20,627  
Accounts payable
    -15,320       -14,576       -18,798       -16,550  
Provisions
    -12,476       -14,945       -15,609       -12,760  
Prepaid and accrued income and expenses
    -6,020       -6,971       -7,762       -6,874  
Taxes and other assets and liabilities
    -1743       -593       -737       -568  
Working capital
    -2,613       -3,799       -31       -383  
% of annualized net sales
    -2.4       -3.3       0.0       -0.3  
 
                       
Capital Expenditure
     Capital expenditure in property, plant and equipment in 2006 decreased to SEK 3,152m (3,654), of which SEK 129m (108) referred to Sweden. Capital expenditure corresponded to 3.0% (3.6) of net sales. The decrease from the previous year referred mainly to lower investments in new plants within appliances in Europe and North America.
     Approximately 30% of total capital expenditure referred to expansion of capacity and new plants, mainly in connection with relocation. Most of this referred to investments in new plants in Eastern Europe, where three Polish plants were inaugurated in 2006, and in Mexico, where the Juarez plant started production of refrigerators at the beginning of the year.
     A large part of total capital expenditure in 2006 referred to new products. Major projects included development of new products within the washing and cooking products in North America and a full range of built-in products in Europe.
Capital expenditure, by business area
                         
 
SEKm   2006     2005     2004  
 
Consumer Durables
                       
Europe
    1,698       1,872       1,561  
% of net sales
    3.8       4.3       3.7  
North America
    922       1,108       1,439  
% of net sales
    2.5       3.2       4.7  
Latin America
    170       167       119  
% of net sales
    2.2       2.9       2.7  
Asia/Pacific and Rest of world
    184       328       319  
% of net sales
    2.1       3.5       3.5  
Professional Products
    151       156       144  
% of net sales
    2.2       2.3       2.2  
Other
    27       23       23  
 
Total
    3,152       3,654       3,605  
% of net sales
    3.0       3.6       3.9  
 
     Electrolux is currently investing in new, efficient plants in low-cost countries and in new products. Therefore, Group capital expenditure is expected to increase moderately from the current level of approximately SEK 3,200 million. Electrolux has funded, and expects to continue funding, such capital investment from cash generated from our business operations.

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C. Research and Development, Patents and Licenses, etc
     Costs for R&D in 2006, including capitalization of SEK 439m (350), amounted to SEK 1,832m (1,743), corresponding to 1.8% (1.7) of net sales. R&D projects during the year referred mainly to new products and design projects within appliances, including development of new platforms. Major projects included new cookers and washing machines in North America and a harmonizing of design for built-in products in Europe.
D. Trend Information
     Market demand for appliances in 2007 is expected to show continued growth in Europe, while the North American market is expected to decline as compared to 2006. Raw material costs are expected to have an adverse effect on the Group’s operating income. Operating income in 2007 is expected to be somewhat higher than in 2006, excluding items affecting comparability.
E. Off-Balance Sheet Arrangements
     Electrolux is party to only a limited amount of off-balance sheet arrangements. As of December 31, 2006, the aggregate amount of Electrolux off-balance sheet arrangements was approximately SEK 1,022 million. These arrangements are guarantees issued on behalf of third parties.
     These off-balance sheet arrangements do not, and are not reasonably likely to, have a current or future effect on Electrolux’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to Electrolux shareholders.
F. Aggregate Contractual Obligations
     Future obligations and commitments to make future payments under contracts are as follows:
                                         
    Total   2007   2008-2009   2010-2011   2012-
Future payment obligations1   (SEK million)
Short-Term Debt
    2,993     2,993            
Long-Term Debt
    4,502         3,349     727     426
Capital Lease Obligations
    13     8     3     2    
Operating Leases
    2,281     654     745     456     426
 
                   
Total
    9,789     3,655     4,097     1,185     852
 
                   
 
(1)   As Electrolux’s interest-bearing liabilities on its long-term debt have been swapped from fixed to floating rates pursuant to certain interest-rate swap agreements, it is not possible to present required interest payment obligations. See Note 17 to the consolidated financial statements.
     Other commercial commitments as at December 31, 2006 include guarantees and other commitments, as disclosed in Note 24 of the consolidated financial statements, in the amount of SEK 1,022 million. Guarantees for fulfillment of contractual undertakings are provided in the ordinary course of business. Commitments for the purchase of goods and services do not exceed the projected requirements of use in the normal course of business.
Critical Accounting Policies and Estimates
     Use of estimates
     Management of the Group has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates.
     The discussion and analysis of our results of operations and financial condition are based on our consolidated financial statements, which have been prepared in accordance with IFRS, as adopted by the EU. The preparation of these financial statements requires management to apply certain accounting methods and policies that may be based on difficult, complex or subjective judgments by management or on estimates based on experience and assumptions determined to be reasonable and realistic based on the related circumstances.

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The application of these estimates and assumptions affects the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of net sales and expenses during the reporting period. Actual results may differ from these estimates under different assumptions or conditions. Electrolux has summarized below the accounting policies that require more subjective judgment of the management in making assumptions or estimates regarding the effects of matters that are inherently uncertain.
     Asset impairment
     All non-current assets, including goodwill, are evaluated for impairment yearly or whenever events or changes in circumstances indicate that, the carrying amount of an asset may not be recoverable. An impaired asset is written down to its recoverable amount based on the best information available. Different methods have been used for this evaluation, depending on the availability of information. When available, market value has been used and impairment charges have been recorded when this information indicated that the carrying amount of an asset was not recoverable. In the majority of cases, however, market value has not been available, and the fair value has been estimated by using the discounted cash flow method based on expected future results. Differences in the estimation of expected future results and the discount rates used could have resulted in different asset valuations.
     Non-current assets excluding goodwill and intangible assets with indefinite lives are depreciated on a straight-line basis over their estimated useful lives. Useful lives for property, plant and equipment are estimated between 10-40 years for buildings and land improvements, 3-15 years for machinery and technical installations and 3-10 years for other equipment. The carrying amount for property, plant and equipment at year-end 2006 amounted to SEK 14,209 million. The carrying amount for goodwill at year-end 2006 amounted to SEK 1,981 million. Management regularly reassesses the useful life of all significant assets. Management believes that any reasonably possible change in the key assumptions on which the asset’s recoverable amounts are based would not cause their carrying amounts to exceed their recoverable amounts.
     Deferred taxes
     In the preparation of the financial statements, Electrolux estimates the income taxes in each of the taxing jurisdictions in which the Group operates as well as any deferred taxes based on temporary differences. Deferred tax assets relating mainly to tax loss carry-forwards and temporary differences are recognized in those cases when future taxable income is expected to permit the recovery of those tax assets. Changes in assumptions in the projection of future taxable income as well as changes in tax rates could result in significant differences in the valuation of deferred taxes. As of December 31, 2006, Electrolux had a net amount of SEK 1,011 million recognized as deferred tax assets in excess of deferred tax liabilities. As of December 31, 2006, the Group had tax loss carry-forwards and other deductible temporary differences of SEK 4,718 million, which have not been included in computation of deferred tax assets.
     Trade receivables
     Receivables are reported net of allowances for doubtful receivables. The net value reflects the amounts that are expected to be collected, based on circumstances known at the balance sheet date. Changes in circumstances such as higher than expected defaults or changes in the financial situation of a significant customer could lead to significantly different valuations. At year-end 2006, trade receivables, net of provisions for doubtful accounts, amounted to SEK 20,905 million. The total provision for doubtful accounts at year-end 2006 was SEK 584 million.
     Post-employment benefits
     Electrolux sponsors defined benefit pension plans for some of its employees in certain countries. The pension calculations are based on assumptions about expected return on assets, discount rates and future salary increases. Changes in assumptions affect directly the service cost, interest cost and expected return on assets components of the expense. Gains and losses which result when actual returns on assets differ from expected returns, and when actuarial liabilities are adjusted due to experienced changes in assumptions, are subject to amortization over the expected average remaining working life of the employees using the corridor approach. Expected return on assets used in 2006 was 6.3% based on historical results. A reduction by one percentage point would have increased the net pension cost in 2006 by approximately SEK 140 million. The discount rate

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used to estimate liabilities at the end of 2005 and the calculation of expenses during 2006 was 4.9%. A decrease of such rate by one-half of a percentage point would have increased the service cost component of expense by approximately SEK 50 million.
     Restructuring
     Restructuring charges include required write-downs of assets and other non-cash items, as well as estimated costs for personnel reductions. The charges are calculated based on detailed plans for activities that are expected to improve the Group’s cost structure and productivity. In general, the outcome of similar historical events in previous plans are used as a guideline to minimize these uncertainties. The restructuring programs announced during 2006 had a total charge against operating income of SEK 490 million.
     Warranties
     As it is customary in the industry in which Electrolux operates, many of the products sold are covered by an original warranty, which is included in the price and which extends for a predetermined period of time. Reserves for this original warranty are estimated based on historical data regarding service rates, cost of repairs, etc. Additional reserves are created to cover goodwill warranty and extended warranty. While changes in these assumptions would result in different valuations, such changes are unlikely to have a material impact on the Group’s results or financial situation. As of December 31, 2006, Electrolux had a provision for warranty commitments amounting to SEK 1,585 million. Revenues from extended warranty is recognized on a linear basis over the contract period unless there is evidence that some other method better represents the stage of completion.
     Accrued expenses – Long Term Incentive Programs
     Electrolux records a provision for the expected employer contributions, social security charges, arising when the employees exercise their options under the 2000-2003 Employee Option Programs or receive shares under the 2004-2006 Performance Share Programs. Employer contributions are paid based on the benefit obtained by the employee when exercising the options or receiving shares. The establishment of the provision requires the estimation of the expected future benefit to the employees. Electrolux bases these calculations on a valuation made using the Black & Scholes model, which requires a number of estimates that are inherently uncertain. The uncertainty is due to the unknown share price at the time when options are exercised and when shares in the performance share programs are distributed and because the liability is marked-to-market it is remeasured every balance sheet day.
     Disputes
     Electrolux is involved in disputes in the ordinary course of business. The disputes concern, among other things, product liability, alleged defects in delivery of goods and services, patent rights and other rights and other issues on rights and obligations in connection with Electrolux’s operations. Such disputes may prove costly and time consuming and may disrupt normal operations. In addition, the outcome of complicated disputes is difficult to foresee. It cannot be ruled out that a disadvantageous outcome of a dispute may prove to have a material adverse effect on the Group’s earnings and financial position.
     Changes in Financial Reporting and Accounting Policies
     As of January 1, 2005, Electrolux has complied with International Financial Reporting Standards (IFRS), also known as IAS, in accordance with the European Union regulation. From January 1, 2005, Electrolux’s consolidated financial statements have been prepared in accordance with IFRS. Electrolux restated its financial statements from January 1, 2004 to IFRS. In addition, consolidated net income and stockholders’ equity are reported as reconciled to U.S. GAAP. IFRS as applied by the Company differs in certain significant respects from U.S. GAAP. For a discussion of the significant differences between IFRS and U.S. GAAP affecting Electrolux’s consolidated financials statements and a reconciliation to U.S. GAAP of consolidated stockholders’ equity and consolidated net income as of and for the years ended December 31, 2006, 2005 and 2004, see Note 30 to the consolidated financial statements. As a result of Electrolux’s transition to IFRS reporting, certain amendments have been made to the adjustments recorded in its reconciliation of net income and equity under U.S. GAAP for the financial year 2004, principally relating to share based compensation, goodwill and intangible assets.

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
     The Articles of Association of Electrolux stipulate that the Board of Directors shall consist of not less than five and no more than fifteen Directors, with not more than ten Deputy Directors (serving as alternates to the Directors), elected each year by the shareholders at the Annual General Meeting of the Company. Additionally, under Swedish law, employees have the right to appoint three additional Directors (and their Deputies).
     After the Annual General Meeting on April 16, 2007, there were twelve Directors and three Deputy Directors on the Board of Directors. The Directors and the Deputy Directors, and their respective shareholdings as of May 31, 2007, were as follows:
     
Names   Position and Background
Marcus Wallenberg
  Chairman. Born 1956, B. Sc. Elected 2005. Member of the Electrolux Remuneration Committee. Board Chairman of SEB, Skandinaviska Enskilda Banken AB, Saab AB, and ICC (International Chamber of Commerce). Deputy Chairman of Telefonaktiebolaget LM Ericsson. Board Member of AstraZeneca Plc, Stora Enso Oyj, Thisbe AB and The Knut and Alice Wallenberg Foundation. Previous positions:
 
  President and CEO of Investor AB, 1999-2005. Executive Vice President of Investor AB, 1993-1999.
Holdings in AB Electrolux: 15,000 B-shares. Related party: 1,500 B-shares.
 
   
Gerd Almlöf
  Union representative (deputy). Born 1959. Representative of the Federation of Salaried Employees in Industry and Services. Elected in May, 2007.
Holdings in AB Electrolux: 0 shares.
 
   
Torben Ballegaard Sørensen
  Born 1951. M.B.A., Aarhus School of Business Administration. Executive Program, Stanford University. Elected 2007. Board Member of Egmont Gruppen, LEGO A/S and SimCorp A/S. President and CEO of Bang & Olufsen a/s since 2001. EVP, LEGO System, 1999-2001. Divisional Director, LEGO System, 1996-1999. Managing Director, CCI Europe, 1988-1996. Managing Director, AA S Grafik, 1983-1988. Director Financials, Århus Stiftsbogtrykkeri, 1983. EVP, Computer Composition, 1982-1983. Controller, Århus Stiftsbogtrykkeri, 1980-1982. Business Controller, Radiometer, 1976-1978.
Holdings in AB Electrolux: 0 shares.
 
   
Ola Bertilsson
  Union representative. Born 1955. Representative of the Swedish Confederation of Trade Unions. Elected 2006.
Holdings in AB Electrolux: 0 shares.
 
   
Gunilla Brandt
  Union representative. Born 1953. Representative of the Federation of Salaried Employees in Industry and Services. Elected 2006.
Holdings in AB Electrolux: 0 shares.
 
   
Peggy Bruzelius
  Deputy Chairman. Born 1949, M. Econ. Hon. Doc. in Econ. Elected 1996. Chairman of the Electrolux Audit Committee. Board Chairman of Lancelot Asset Management AB. Board Member of Axfood AB, Industry and Commerce Stock Exchange Committee, Axel Johnson AB, Ratos AB, Scania AB, Husqvarna AB, Syngenta AG and The Association of the Stockholm School of Economics. Previous positions: Executive Vice President of SEB, Skandinaviska Enskilda

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Names   Position and Background
 
  Banken AB, 1997-1998. President and CEO of ABB Financial Services AB, 1991-1997.
Holdings in AB Electrolux: 6,500 B–shares.
 
   
Ulf Carlsson
  Union representative. Born 1958. Representative of the Swedish Confederation of Trade Unions. Elected 2001.
Holdings in AB Electrolux: 0 shares.
 
   
Louis R. Hughes
  Born 1949, B.S. Mech. Eng., Harvard M.B.A. Elected 2005. Member of the Electrolux Remuneration Committee. Board Chairman and CEO of GBS Laboratories, Virginia, USA. Non-executive Chairman of Maxager Technology, California, USA. Board Member of ABB Ltd, AkzoNobel nv, and Sulzer AG. Member of the Supervisory Board of MTU Aero Engines Holding AG. Board Member of AB Electrolux 1996 until 2004, when he was appointed Chief of Staff for a group of senior US government advisors to the Afghanistan government. Member of British Telecom US Advisory Council. Previous positions: Executive Vice President of General Motors Corporation, Michigan, USA, 1992-2000.
Holdings in AB Electrolux: 1,260 ADRs.
 
   
Peter Karlsson
  Union representative (deputy). Born 1965. Representative of the Swedish Confederation of Trade Unions. Elected 2006.
Holdings in AB Electrolux: 0 shares.
 
   
Bengt Liwång
  Union representative (deputy). Born 1945. Representative of the Federation of Salaried Employees in Industry and Services. Elected 2005.
Holdings in AB Electrolux: 0 shares.
 
   
John Lupo
  Born 1946. Bachelor of Science in Business Administration, Miami University of Ohio. Elected 2007. Board Member of Spectrum Brands, Inc. and City Trends Inc. Principal of management consulting firm Renaissance Partners since 2000. EVP, Sales & Marketing, Basset Furniture, 1998-2000. SVP and COO, Wal-Mart, 1996-1998. SVP, Wal-Mart Merchandising, 1990-1996. President, Highbee Company, 1988-1990.
Holdings in AB Electrolux: 0 shares.
 
   
Johan Molin
  Born 1959. Bachelor of Science in Financial Economics. Elected 2007. Board Member of ASSA ABLOY AB and Nilfisk-Advance. President and CEO of ASSA ABLOY AB since 2005. CEO, Nilfisk-Advance, 2001-2005. President, Industrial Air Division, Atlas Copco Airpower, 1998-2001. General Manager, Atlas Copco Compressors, Benelux, 1996-1998. Marketing Manager, Industrial Air Division, Atlas Copco Airpower, 1993-1996. General Manager, Maugiere S.A., 1990-1993. Financial and Administrative Manager, Atlas Copco Compressor Nordic, 1987-1990.
Holdings in AB Electrolux: 0 shares.
 
   
Hans Stråberg
  President and CEO. Born 1957, M. Eng. Elected 2002. President and CEO of Electrolux since 2002. Board Member of The Association of Swedish Engineering Industries and AB Ph. Nederman & Co. Previous positions: Joined Electrolux in 1983. Held various management positions in the Group until appointed President and CEO in 2002.
Holdings in AB Electrolux: 39,590 B-shares, 90,000 options.

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Names   Position and Background
Caroline Sundewall
  Born 1958. M.B.A. Elected 2005. Member of the Electrolux Audit Committee. Independent Business consultant since 2001. Board Member of Swedbank AB, TeliaSonera AB, Haldex AB, Lifco AB, Pågengruppen AB and The Association of Exchange-listed Companies. Previous positions: Business commentator at Finanstidningen, 1999-2001, Managing editor of the business desk section at Sydsvenska Dagbladet, 1992-1999, and Business controller at Ratos AB, 1989-1992.
Holdings in AB Electrolux through company: 1,500 B-shares.
 
   
Barbara Milian Thoralfsson
  Born 1959, M.B.A., B.A. Elected 2003. Member of the Electrolux Audit Committee. Director of Fleming Invest AS, Norway, since 2005. Board Member of SCA AB, Storebrand ASA, Tandberg ASA, Rieber & Son ASA, Fleming Invest AS, Stokke AS, and Norfolier AS. Previous positions:
 
  President of TeliaSonera Norway, 2001-2005. President of Midelfart & Co, Norway, 1995-2001, and on various positions within marketing and sales, 1988-1995.
Holdings in AB Electrolux through company: 3,000 B-shares.
Changes in the Board in 2006
     At the AGM on April 24, 2006, seven of the present Board members were re-elected and three members of the 2005 Board declined renomination. Tom Johnstone left after having served the Board for one year, Aina Nilsson Ström left after two years and Karel Vuursteen left after seven years. No new Board members were elected. Michael Treschow was re-elected as Chairman of the Board.
     The meeting for formal constitution of the Board re-elected Peggy Bruzelius as Deputy Chairman.
Changes in the Board in 2007
     Prior to the election of new Board members at the Annual General Meeting on April 16, 2007, Michael Treschow declined renomination after having served on the Board since 1997. Three Board members were elected at this AGM and one member of the 2006 Board, Michael Treschow, declined renomination. Marcus Wallenberg was elected as Chairman of the Board.
     The meeting for formal constitution of the Board re-elected Peggy Bruzelius as Deputy Chairman.
     
Secretary of the Board of Directors
 
   
Cecilia Vieweg
  Born 1955, B. of Law. General Counsel of AB Electrolux. Secretary of the Board since 1999. Holdings in AB Electrolux: 7,823 shares, 15,294 options.
 
   
Auditors
 
   
Peter Clemedtson
  PricewaterhouseCoopers AB. Born 1956. Authorized Public Accountant. Partner in Charge. Other audit assignments include Ericsson, KMT, Medivir, OMX and SEB. Holdings in AB Electrolux: 0 shares.
 
   
Dennis Svensson
  PricewaterhouseCoopers AB. Born 1956. Authorized Public Accountant. Certified Public Accountant in the US, US CPA. Other audit assignment has been Volvo Cars, 1999-2005. Holdings in AB Electrolux: 0 shares.

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Senior Management
     Group Management and Company Structure
     In terms of external reporting structure, Group operations are divided into five business areas. Operations in Consumer Durables comprise four geographical areas, i.e., Europe, North America and Latin America and Asia/Pacific. Professional Products is the fifth business area.
     The operations and management of the Electrolux Group are set forth in the following diagram:
(FLOW CHART)
 
*   Peter Birch is CEO for Major Appliances Asia/Pacific and reports to Hans Stråberg. Peter Birch is not a member of Group Management
     In addition to the President and CEO, Group Management includes the five sector heads and the four Group staff heads. The President and CEO is responsible for ongoing management of the Group in accordance with the Board’s guidelines and instructions. Group Management holds monthly meetings to review the previous month’s results, update forecasts and plans, and discuss strategic issues.
     The sector heads have responsibility for results and balance sheets in their respective sectors. The overall management of the sectors is the responsibility of sector boards, which meet quarterly. The President and CEO is the chairman of all sector boards. The sector board meetings are attended by the President and CEO, the management of the respective sectors and the Chief Financial Officer (CFO). The sector boards are responsible for monitoring on-going operations, establishing strategies, determining sector budgets and making decisions on major investments. The product line managers are responsible for the profitability and long-term development of their respective product lines.
     The senior management of Electrolux as of December 31, 2006, the year they were appointed and their respective shareholdings as of May 31, 2007 are as follows:
     
Names   Position and Background
Hans Stråberg
  President and CEO. Born 1957, M. Eng. In Group Management since 1998. Joined Electrolux in 1983. Head of product area Dishwashers and Washing Machines, 1987. Head of product division Floor-care Products, 1992. Executive Vice President of Frigidaire Home Products, USA, 1995. Head of Floor-care Products and Small Appliances and Executive Vice President of AB Electrolux, 1998. Chief Operating Officer of AB Electrolux, 2001. President and CEO of AB Electrolux, 2002. Board Member of The Association of Swedish Engineering Industries and AB Ph. Nederman & Co.
Holdings in AB Electrolux: 39,590 B-shares, 90,000 options.

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Names   Position and Background
Keith R. McLoughlin
  Head of Major Appliances North and Latin America. Born 1956, B.S. Eng. In Group Management since 2003. Held a number of senior management positions with DuPont, 1981–2003. Vice President and General Manager of DuPont Nonwovens, 2000–2003, and of DuPont Corian, 1997–2000. Joined Electrolux in 2003 as Head of Major Appliances North America and Executive Vice-President of AB Electrolux. Also Head of Major Appliances Latin America as of 2004. Board Member of Briggs & Stratton Corp., Wisconsin, USA.
Holdings in AB Electrolux: 11,427 shares, 0 options.
 
   
Detlef Münchow
  Head of Professional Products. Born 1952, M.B.A., PhD Econ. In Group Management since 1999. Member of senior management in consulting firms Knight Wendling/ Wegenstein AG, 1980–1989, and GMO AG, 1989–1992. FAG Bearings AG, 1993–1998, as Chief Operating Officer in FAG Bearings Corporation, USA. Joined Electrolux in 1999 as Head of Professional Indoor Products and Executive Vice President of AB Electrolux.
Holdings in AB Electrolux: 18,627 shares, 0 options.
 
   
Magnus Yngen
  Head of Major Appliances Europe. Born 1958, M. Eng. Lic.Tech. In Group Management since 2002. Held several international sales and marketing positions, 1988–1995. Joined Electrolux in 1995 as Technical Director within the direct sales operation LUX. Head of Floor-Care International operations, 1999. Head of Floor- Care Europe, 2001. Head of Floor-Care and Small Appliances and Executive Vice President of AB Electrolux, 2002. Head of Major Appliances Europe as of October 2006.
Holdings in AB Electrolux: 7,823 shares, 20,783 options.
 
   
Morten Falkenberg
  Head of Floor-Care and Small Appliances. Born 1958, B.Econ. In Group Management since 2006. Held different sales/marketing positions in Carlsberg Group, 1980–1987, a number of senior management positions with Coca-Cola Company, 1987–2000, and Senior Vice President of Alliances/Partnerships for TDC Mobile, 2001–2003. Joined Electrolux in 2003 as Head of Floor-Care and Small Appliances Europe.
Holdings in AB Electrolux: 5,868 shares, 0 options.
 
   
Lars Göran Johansson
  Head of Group Staff Communications and Branding. Born 1954, M. Econ. In Group Management since 1997. Account Executive of KREAB Communications Consultancy, 1978–1984, President, 1985–1991. Headed the Swedish “Yes to EU Foundation campaign” for the referendum that determined Sweden’s membership in the EU, 1992–1994. Joined Electrolux as Senior Vice-President of Communications and Public Affairs, 1995.
Holdings in AB Electrolux: 8,323 B-shares, 29,119 options.
 
   
Fredrik Rystedt
  Chief Financial Officer. Born 1963, M. Econ. In Group Management since 2001. Joined Electrolux Treasury Department, 1989. Subsequently held several positions within the Group’s financial operations. Head of Mergers and Acquisitions, 1996. Joined Sapa AB in 1998 as Head of Business Development, Chief Financial Officer, 2000. Rejoined Electrolux in 2001 as Chief Administrative Officer, responsible for Controlling, Accounting, Taxes and Auditing. In 2004, appointed Chief Financial Officer and responsible also for Group Treasury, and in 2005 for IT.
Holdings in AB Electrolux: 13,156 B-shares, 28,960 options.

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Names   Position and Background
Cecilia Vieweg
  Head of Group Staff Legal Affairs. Born 1955, B. of Law. In Group Management since 1999. Attorney with Berglund & Co Advokatbyrå, 1987–1990. Corporate Legal Counsel of AB Volvo, 1990–1992. General Counsel of Volvo Car Corporation, 1992–1997. Attorney and partner in Wahlin Advokatbyrå, 1998. Joined Electrolux in 1999 as General Counsel. Board Member of Haldex AB.
Holdings in AB Electrolux: 7,823 shares, 15,294 options.
 
   
Harry de Vos
  Head of Group Staff Human Resources and Organizational Development. Born 1956, Process Eng, post-doc Training Management. In Group Management since 2005. Held various positions within General Electric, 1978–2001. Human Resource Director for GE Plastics Europe, 1999–2001. Joined Electrolux in 2002 as Head of Human Resources and Organization within Major Appliances Europe. Head of Group Staff Human Resources and Organizational Development, 2005. Member of the Supervisory Board of ASML N.V.
Holdings in AB Electrolux: 6,706 shares, 0 options.
Changes to Group Management in 2006
     Bengt Andersson left the Group and Group Management in June 2006. He was appointed President and CEO of Husqvarna AB when the Outdoor Products operations of Electrolux were distributed to the shareholders and listed on the Stockholm Stock Exchange as a separate company.
     Johan Bygge resigned as sector head for Major Appliances in Europe in October 2006. Magnus Yngen, previously head of Floor-Care and Small Appliances, succeeded Johan Bygge as sector head for Major Appliances in Europe in October 2006. Morten Falkenberg was appointed sector head of Floor-Care and Small Appliances in December 2006.
Changes to Group Management in 2007
     Carina Malmgren Heander has been appointed new Senior Vice President of Group Staff Human Resources and Organizational Development. Carina Malmgren Heander, 47, is currently Senior Vice President Human Resources for Sandvik AB, a global industrial group. Malmgren Heander will assume her position during the third quarter of 2007. Her predecessor, Harry de Vos, will leave the Group.
B. Compensation
Remuneration to Board members
     Remuneration to Board members is authorized by the AGM and distributed to the Board members who are not employed by the Group. Information on remuneration to Board members is given in the table below. Remuneration to the President and CEO is proposed by the Remuneration Committee and authorized by the Board of Directors. Board members who are not employed by Electrolux do not participate in the Group’s long-term incentive programs, nor in any outstanding share or share-price incentive schemes.
     The Board of Directors adopted after the AGM in 2006, upon the recommendation of the Nomination Committee, a policy according to which the members of the Board of Directors each year shall use 25% of the fee, net of taxes, for purchase of shares in Electrolux. The intention is that shares that are acquired for part of the director’s fee shall be kept for as long as the Board member remains a member of the Board.

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     The table below sets forth authorized remuneration to Board Members in 2006. For distribution of actual compensation by Board member, please see Note 26 to the consolidated financial statements.
                                                     
                        Remuneration,   Remuneration,        
The Board                       Audit   Remuneration   Ordinary   Total
of               Director   Committee,   Committee   Remuneration,   Remuneration,
Directors(1)   Born   Nationality   Since   SEK   SEK   SEK   SEK
 
Michael Treschow(2)
    1943     SWE     1997               100,000 (2)     1,500,000       1,600,000  
 
                                                   
Peggy Bruzelius Deputy Chairman
    1949     SWE     1996       175,000 (3)             500,000       675,000  
 
                                                   
Louis R. Hughes
    1949     US     2005               50,000       437,500       487,500  
 
                                                   
Hans Stråberg President and CEO
    1957     SWE     2002                              
 
                                                   
Barbara Milian Thoralfsson
    1959     US     2003       75,000               437,500       512,500  
 
                                                   
Caroline Sundewall
    1958     SWE     2005       75,000               437,500       512,500  
 
                                                   
Marcus Wallenberg
    1956     SWE     2005               50,000       437,500       487,500  
 
                                                   
Ulf Carlsson Employee representative
    1958     SWE     2001                              
 
                                                   
Gunilla Brandt Employee representative
    1953     SWE     2006                              
 
                                                   
Ola Bertilsson Employee representative
    1955     SWE     2006                              
 
 
                                                   
Total
                  325,000       200,000       3,750,000       4,275,000  
 
(1)   For the period from the AGM 2006 to the AGM 2007.
 
(2)   Former Chairman.
 
(3)   Chairman.
Remuneration to Group Management
Remuneration to the President and CEO and Group Management is proposed by the Remuneration Committee and decided upon by the Board of Directors. Remuneration comprises fixed salary, variable salary in the form of short-term incentives based on annual performance targets, long-term incentive programs, and benefits such as pensions and insurance. The general principles for remuneration within Electrolux are based on the position held, individual and team performance, and comparable salaries in the relevant market.
Variable salary is paid according to performance. Variable salary for the President and CEO is determined by achievement of financial targets during the year. Variable salary for sector heads is determined by the achievement of both financial and non-financial targets. Value created is the most important financial indicator. For 2006, the non-financial targets focused, i.e., on value market share and succession planning. Group staff heads receive variable salary based on the value created for the Group as well as achievement of performance targets within their respective functions. For more information on value creation, see below.
Electrolux long-term incentive programs include a performance-based share program and employee stock-option programs, which are designed to align management incentives with shareholder interests. In 2006, the AGM approved a performance-based long term share program, the Electrolux Share Program 2006, which has the same parameters as the share programs for 2005 and 2004. The program is based on value created over a three-year period and includes up to 160 senior officers and key employees of the Electrolux Group.

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Remuneration to Group Management in 2006
                         
            Other members of    
‘000 SEK   President and CEO   Group Management1)   Total
 
Fixed salary
    8,718       28,723       37,441  
 
Variable salary
    5,303       14,932       20,235  
     
 
                       
Total
    14,021       43,655       57,676  
 
1)   Other members of Group Management include eight persons.
For additional information on remuneration, remuneration guidelines, long-term incentive programs and pension benefits, see Note 26 to the consolidated financial statements.
C. Board Practices
The Board’s work in 2006
     During the year, the Board held seven scheduled and two extraordinary meetings. In addition, five per capsulam meetings were held to decide on urgent matters. Six of the scheduled meetings were held in Stockholm and one in the US. In connection with the latter, the Board visited the Electrolux plants in Juarez, Mexico, as well as the Group’s regional office and retailers in the US.
     Each scheduled Board meeting includes a review of the Group’s results and financial position as well as the outlook for the following quarters, which is presented by the President and CEO. The meetings also deal with investments and the establishment of new operations, as well as acquisitions and divestments. The Board decides on all investments that exceed SEK 50m, and receives reports on all investments between SEK 10m and SEK 50m. Normally, the head of a sector also reviews a current strategic issue at the meeting.
     Important issues dealt with by the Board in 2006 included the spin-off of Husqvarna, the Group’s Outdoor Products operations, the distribution of capital to shareholders through redemption of shares, restructuring, primarily in terms of relocation of production, development of the Group’s strategy and organization and product development and brand strategy.
     The Group’s auditors participated in the Board meeting in February 2006, where the Annual Report for 2005 was approved.
     All Board meetings during the year followed an approved agenda, which together with documentation for each item was sent to all Board members. Cecilia Vieweg, Head of Group Staff Legal Affairs, was the secretary at all Board meetings.
     Committees
     The Board has established a Remuneration Committee and an Audit Committee. The main tasks of the committees are preparatory and advisory. In addition, the Board may delegate decision making powers on specific issues.
     The Board has also decided that issues may be referred to ad hoc committees that deal with specific matters.
     Remuneration Committee
     The main task of the Remuneration Committee is to propose principles for remuneration to members of Group Management. The Remuneration Committee makes proposals to the Board of Directors regarding:
  Targets for variable compensation
  The relationship between fixed and variable salary
  Changes in fixed or variable salary

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  Criteria for assessment of variable salary, long-term incentives, pension terms and other benefits
     The Committee comprises three Board members, with Barbara Milian Thoralfsson as Chairman, and Louis R. Hughes and Marcus Wallenberg as members. At least two meetings are convened annually. Additional meetings are held as needed.
     Prior to the AGM in 2006 the Nomination Committee determined that Marcus Wallenberg was not independent of the company and company management as required by the code. Marcus Wallenberg’s positions include Chairman of SEB, Skandinaviska Enskilda Banken, a bank with which Electrolux has comprehensive business relations. However, the Electrolux Board has decided that these relations do not affect Marcus Wallenberg’s tasks in the Remuneration Committee, and that the company benefits from his expertise in terms of his work on this committee.
     The Remuneration Committee held six ordinary meetings and two per capsulam meetings in 2006. In addition to remuneration to the President and Group Management, major issues considered during the year included remuneration in connection with the spin-off of the Group’s Outdoor Products operations. Harry de Vos, Head of Group Staff Human Resources and Organizational Development, participated in the meetings and was responsible for preparations.
     Audit Committee
     The primary task of the Audit Committee is to assist the Board in overseeing the accounting and financial reporting processes, including the effectiveness of disclosure controls and procedures as well as the adequacy and effectiveness of internal controls of financial reporting.
     The Audit Committee also assists the Board of Directors in:
  Overseeing the audit of the financial statements including related disclosures
  Pre-approving audit and non-audit services to be provided by the external auditors
  Reviewing the objectivity and independence of the external auditors
  Overseeing the work of the external auditors, evaluating the external auditors’ performance and, if necessary, recommending their replacement
     In addition, the Audit Committee is tasked with supporting the Nomination Committee in preparing proposals to them regarding external auditors and fees. The Audit Committee also reviews the Group’s Internal Audit function, Management Assurance & Special Assignments, in terms of organization, staffing, budget, plans, results, and reports prepared by this function.
     The Audit Committee comprises three Board members, with Peggy Bruzelius as Chairman, and Caroline Sundewall and Torben Ballegaard Sørensen as members.
     The external auditors report to the Audit Committee at each ordinary meeting. At least three meetings are held annually. Additional meetings are held as needed.
     In 2006, the Audit Committee held four scheduled meetings and one extra meeting. Electrolux managers have also had regular contacts with the Committee Chairman between meetings regarding specific issues. Fredrik Rystedt, CFO, and Anna Ohlsson-Leijon, Head of the Internal Audit function, participated in most of the Audit Committee’s meetings. Other Electrolux managers also participated in relation to specific issues, as did the Group’s external auditors. Cecilia Vieweg, Head of Group Staff Legal Affairs, was the secretary at all meetings.
     Disclosure Committee
     Electrolux has a Disclosure Committee. This Committee contributes to considering the materiality of information relating to Electrolux and ensuring that such information is properly communicated to the market on a timely basis.

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The Disclosure Committee comprises the Head of Group Staff Legal Affairs, the Chief Financial Officer, the Head of Group Staff Communications and Branding, and the Head of Investor Relations and Financial Information.
     Nomination Procedure for election of Board members and auditors
     The nomination process for members of the Board of Directors involves appointing a Nomination Committee consisting of the Chairman of the Board, one additional Board member and representatives of the four largest shareholders in terms of voting rights. The names of these representatives and the shareholders they represent are announced publicly at least six months before the Annual General Meeting (AGM).
     Selection of the shareholders is based on known holdings of voting rights immediately prior to the announcement. If the identity of major shareholders changes in the course of the nomination process, the composition of the Nomination Committee may be changed accordingly.
     The Nomination Committee’s tasks include preparing a proposal for the next AGM regarding the following issues: Chairman of the AGM, Board members, Chairman of the Board and remuneration for Board members, as well as remuneration for committee work and Nomination Committee for the next accounting year. Shareholders may submit proposals for nominees to the Nomination Committee.
     The Nomination Committee is also entrusted with the task to make proposals for the election of auditors and auditors’ fees, when these matters are to be decided by the following AGM. In preparing these proposals, the Nomination Committee is assisted by the Electrolux Audit Committee, which among other things informs the Nomination Committee of the results of the evaluation of the audit work, which is performed as a part of this process.
     The committee’s proposal shall be announced publicly in connection with or prior to the notice of the AGM.
     Nomination Committee for the AGM 2007
     The Nomination Committee for the AGM in 2007 was composed on the basis of the register of shareholders at VPC AB as of September 30, 2006, and was announced in a press release on October 16, 2006. On November 9, changes in the Committee were announced, as The Second Swedish National Pension Fund had reduced its holding. Carl Rosén, who had represented the Fund, resigned from the Committee and was replaced by Marianne Nilsson, representing Swedbank Robur Funds.
     The Committee Chairman was Börje Ekholm, President and CEO of Investor. The other members were Ramsay J. Brufer, Alecta Pension Insurance, Annika Andersson, Fourth Swedish National Pension Fund, Marianne Nilsson, Swedbank Robur Funds and Michael Treschow, former Board Chairman of Electrolux.
     The Nomination Committee’s proposals were made public in a press release on March 9, 2007.

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D. Employees
     The Group worldwide generally enjoys good relations with its employees and with labor unions. The following tables set forth certain employee data for the past three fiscal years.
                         
Employee Data   2006   2005   2004
Average number of employees worldwide
    55,471       69,523       72,382  
Average number of employees in Sweden
    3,080       5,907       6,549  
Number of employees worldwide at year end
    59,491       71,557       74,098  
Salaries and remuneration (SEK million)
    12,849       17,033       17,014  
Of which in Sweden (SEK million)
    1,146       1,882       2,028  
                 
Change in Average Number of Employees   2006     2005  
Average number of employees in 2005
    69,523       72,382  
Number of employees in discontinued operations
    -11,681       -786  
Restructuring programs
    -1,537       -2,480  
Other changes
    -834       407  
Average number of employees in 2006
    55,471       69,523  
     The decline in Electrolux’s work force is due mainly to the spin-off of Husqvarna in June 2006.
E. Share Ownership
     As of May 31, 2007, the members of the Board and Management as a group owned the equivalent of 0 A-shares, 147,863 B-Shares and 184,156 options to acquire B-Shares.
     Their individual shareholdings are disclosed under “Item 6.A – Directors and Senior Management” above.
Long-term Incentive Programs
     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 Company’s share price. They have been designed to align management incentives with shareholder interest.
     A detailed description of all programs and related costs can be found in Note 26 to the consolidated financial statements.

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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
     The following table sets forth, as of May 31, 2007, information with respect to shareholders known by Electrolux to be the beneficial owners of more than five percent of Electrolux’s A-Shares and B-Shares. Electrolux is not aware of any significant changes in percentage ownership held by a major shareholder during the past three years.
                                         
Identity of                    
Person or   Number of   Percentage of Total   Number of   Percentage of   Percentage of
Company   A-Shares Owned   A-Shares1   B-Shares Owned   Total B-Shares1   Total Voting1
Investor AB
    8,270,771       87.0 %     26,094,300       8.7 %     27.6 %
 
                                       
Alecta Pension Insurance
    500,000       5.3 %     18,870,000       6.3 %     6.1 %
Directors and executive officers as a group
    0       0 %     147,863 (3)     0.06 %     0.05 %
 
1.   Adjusted for 27,463,539 repurchased shares held by Electrolux as of May 31, 2007.
 
2.   See “Item 6.A—Directors and Senior Management” for information regarding their individual shareholdings.
 
3.   Including ADRs.
     A-Shares are entitled to one vote per share whereas B-Shares are entitled to one-tenth of a vote per share. No shareholder in Electrolux has different voting rights than any other shareholder except as a consequence of holding A-Shares rather than B-Shares.
     As of May 31, 2007, the share capital comprised 9,502,275 A-shares and 299,418,033 B-shares. As of May 31, 2007, 99.3% of the A-Shares and 54.3% of the B-Shares were held by shareholders in Sweden. The total number of shareholders in Sweden as of this date was approximately 52,100. See “Item 9 – The Offer and Listing” for details of shareholdings in the United States.
Investor AB
     Investor AB is a major Swedish industrial holding company that has wide ranging affiliations in the financial community in Sweden. As of May 31, 2007, the major shareholder in Investor AB, the Knut & Alice Wallenberg Foundation, owned 18.6% of the nominal capital, representing 40.0% of the votes in Investor AB. Electrolux recognizes that both Investor AB and the Knut & Alice Wallenberg Foundation may be deemed to be controlling persons of Electrolux within the meaning of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. Electrolux, however, does not believe that either Investor AB or the Knut & Alice Wallenberg Foundation should be deemed to be controlling persons of Electrolux, despite Investor AB’s direct, and the Knut & Alice Wallenberg Foundation’s indirect, voting rights in Electrolux. Electrolux has had no indication that either Investor AB or the Knut & Alice Wallenberg Foundation has obtained its ownership interest in Electrolux for other than investment purposes. Both Investor AB and the Knut & Alice Wallenberg Foundation are known to have made substantial investments in a number of diverse Swedish companies without seeking to exercise day-to-day control over each particular company.
B. Related Party Transactions
     Other than as set forth below, to the best of our knowledge, there were no material transactions during the last three fiscal years nor are there any presently proposed material transactions to which Electrolux was or is to be a party, in which any director, officer, controlling shareholder, or relative or spouse of any of the foregoing persons had or is to have a direct or indirect material interest and no director, officer or associate of Electrolux has been indebted to Electrolux during the last three fiscal years.
     Investor AB may be deemed to control Skandinaviska Enskilda Banken AB (SEB). Electrolux, in the ordinary course of its business, has a number of banking, securities trading and trade finance relationships with SEB, all on an arms-length basis.

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C.   Interests of Experts and Counsel
 
    Not applicable.

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ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and other Financial Information
     See “Item 17 — Financial Statements.”
     Legal Proceedings
     Electrolux is subject to a variety of legal proceedings in the ordinary course of business. Among others, the claims include allegations of breach of contract, improper delivery of goods and services, product liability and infringement of intellectual property rights.
     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 supplied 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 allegations against many other defendants who are not part of the Electrolux Group.
     As of December 31, 2006, the Group had a total of 1,688 (1,082) cases pending, representing approximately 7,700 (approximately 8,400) plaintiffs. During 2006, 986 new cases with approximately 1,300 plaintiffs were filed and 380 pending cases with approximately 2,000 plaintiffs were resolved. Approximately 5,650 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 represent. 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.
     Dividend Policy
     The Board of Directors proposes a dividend for 2006 amounting to SEK 4.00 (7.50) per share, for a total dividend payment of SEK 1,120m (2,222). The proposed cash dividend corresponds to 36% of income for the period for continuing operations, excluding items affecting comparability. The level of the dividend reflects the fact that Husqvarna AB is no longer part of the Group and that SEK 5,579m has been distributed to shareholders through a redemption procedure.
     The Group’s goal is for the dividend to correspond to at least 30% of income for the period, excluding items affecting comparability.
B. Significant Changes
     None.

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ITEM 9. THE OFFER AND LISTING
     Trading of Class A-Shares occurs primarily on the Stockholm Stock Exchange (which is part of the OMX Nordic Exchange), but due to the very low number of shares not held by Investor AB, trading is rare on the Stockholm Stock Exchange and virtually non-existent elsewhere.
     The principal trading markets for the Class B-Shares are the Stockholm, Nordic and London Stock Exchanges. Trading of Electrolux shares also takes place in the over the counter market in Frankfurt A.M. and Munich in Germany.
     There is trading in the United States for sponsored American Depositary Shares representing B-Shares. These American Depositary Shares (“ADSs”) are evidenced by American Depositary Receipts (“ADRs”) issued by The Bank of New York and, until recently, were traded on the NASDAQ National Market.
     The Board of Directors decided in February 2005 to delist the Group’s ADRs (ELUX) from the NASDAQ Stock Market in the United States. The ADR program has been maintained, and trading in these receipts was transferred to the U.S. over-the-counter market as of March 31, 2006. The de-listing was completed by the end of March 2005. The majority of the trading in Electrolux shares is on the Stockholm Stock Exchange. Trading volume in ADSs is low and the Board of Directors decided that it did not justify a listing. In addition, capital markets are becoming increasingly global which reduces the need for listings on multiple exchanges. The majority of the Electrolux shareholders in the United States owns shares, not ADSs. Electrolux shares were listed on NASDAQ since 1987. One ADR corresponds to two B-shares.
     The high and low sales price, in Swedish krona, for Class A and B-Shares on the Stockholm Stock Exchange and the high and low sales prices in United States dollars for the ADRs in the NASDAQ System for the periods indicated are set out in the following table:
                                                 
    A-Shares   B-Shares   ADSs
    High   Low   High   Low   High   Low
    (SEK)   (SEK)   (USD)
2006-2007
                                               
June 2007(to June 19th)
    184.50       169.00       177.00       163.50       51.00       47.15  
May 2007
    185.00       171.00       179.00       163.50       53.00       49.53  
April 2007
    202.00       180.00       190.00       170.50       55.75       50.05  
March 2007
    200.00       156.00       178.00       150.50       50.95       43.55  
February 2007
    180.00       140.00       174.50       129.25       48.00       37.09  
January 2007
    153.50       114.00       138.50       109.50       40.19       31.85  
December 2006
    149.75       130.25       141.25       127.50       40.95       37.85  
 
                                               
2007
                                               
First Quarter
    200.00       114.00       178.00       109.50       48.00       31.85  
 
                                               
2006
                                               
Fourth Quarter
    149.75       122.50       141.25       116.75       40.95       32.07  
Third Quarter
    132.50       99.25       124.50       90.00       33.75       26.05  
Second Quarter
    240.00       105.00       234.00       91.50       62.40       25.15  
First Quarter
    233.00       200.50       229.00       191.50       57.60       50.70  
 
                                               
2005
                                               
Fourth Quarter
    220.00       176.50       210.00       170.00       52.55       43.25  
Third Quarter
    185.00       166.00       183.00       160.00       47.25       41.65  
Second Quarter
    170.00       145.00       168.00       141.00       47.15       40.05  
First Quarter
    179.00       145.00       173.00       142.00       49.99       41.24  
 
                                               
2005
    220.00       145.00       210.00       141.00       52.55       40.05  
2004
    177.00       131.00       176.00       126.00       49.00       40.00  
2003
    185.00       128.00       194.50       123.00       47.50       29.26  
2002
    186.00       130.00       197.00       119.50       40.69       25.98  

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     Each ADS represents two B-Shares (or the right to receive two such shares). As of May 31, 2007, there were 1,364,969 ADSs outstanding, representing 2,729,938 B-Shares, and approximately 59 record holders. The number of record holders of ADSs is not necessarily representative of the number of actual individuals for whose benefit the ADSs were held.
     According to the share register at the VPC (Swedish Central Securities Depository & Clearing Organization), as of May 31, 2007, the Group had a total of approximately 55,100 shareholders. The shares held by the ten largest owners corresponded to approximately 28.9% of the total share capital and approximately 46.1% of the voting rights.
     As of May 31, 2007, approximately 49.9% of the share capital was owned by Swedish institutions and mutual funds, 42.0% by foreign investors, and 8.3% by private Swedish investors. The total number of shareholders in Sweden as of May 31, 2007 was 52,089.

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ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
     Not applicable.
B. Memorandum and Articles of Association
     Aktiebolaget Electrolux (publ) is entered under no. 556009-4178 in the Company Register kept by the Swedish Companies Registration Office. The objects and purposes of the Company are described in Article 3 of the Articles of Association which are attached hereto as Exhibit 1. Set forth below is a summary of certain provisions in the Articles of Association and certain requirements of the Swedish Companies Act of 2005, applicable as of January 1, 2006 (the “Swedish Companies Act”). Such summary does not purport to be complete. For the full text of the Articles of Association please refer to Exhibit 1 of this annual report.
     Certain Powers of Directors and the President
     Under the Swedish Companies Act, the board of directors is ultimately responsible for the organization of the company and the management of the company’s affairs. The president is charged with the day-to-day management of the company in accordance with guidelines and instructions provided by the board of directors. The president has borrowing powers only to the extent such borrowing is part of the day-to-day management of the company and in accordance with any guidelines and instructions provided by the board of directors.
     The General Meeting of Shareholders decides on compensation for the directors and all other remunerations for board work and the allocations to the chair and to each of the other members of the board and remuneration for committee work, if any.
     According to the Swedish Companies Act, a member of the board of directors may not take part in matters regarding agreements between the director and the company, or between the company and third parties where the director has a material interest in the matter which may conflict with the interests of the company, or in agreements between the company and a legal entity which the director may represent, either individually or together with any other person. According to the Swedish Companies Act, similar disqualification rules apply to the president.
     The Articles of Association do not provide any rules relating to the foregoing matters.
     Changes in Share Capital and Preferential Rights of Shareholders
     The Articles of Association of Electrolux provide that the share capital of the Company may not be less than SEK 750 million nor more than SEK 3,000 million, and that the number of shares in the Company shall amount to no less than 300 million and no more than 1,200 million shares. The registered share capital is 1,544,601,540 and the Company has issued 308,920,308 shares to date.
     The shares of Electrolux may be issued in three series, A and B and C. Shares of series A (“A-Shares”) and series B (“B-Shares”) may each be issued up to a maximum number of 1,200 million shares. Shares of series C (“C-Shares”) may only be issued up to a total number of 27,457,000. Should Electrolux decide to issue new A-Shares, B-Shares and C-Shares by way of a cash issue or an issue against payment through set-off of claims, the holders of A-Shares, B-Shares and C-Shares shall have the priority right to subscribe for new shares of the same series in proportion to their existing shareholding (primary right of priority). Shares not subscribed for by primary right of priority must be offered to all shareholders (subsidiary right of priority). If the number of shares available for subscription is insufficient for the actual subscription made under subsidiary right of priority, the available shares shall be distributed among those wishing to subscribe in proportion to their existing shareholdings and, insofar as this cannot be done, by drawing of lots.
     Should Electrolux decide to issue new shares of only A-Shares or B-Shares or C-Shares by way of a cash issue or an issue against payment through set-off of claims, all shareholders shall have right of priority to subscribe for new shares in proportion to their existing shareholdings irrespective of whether they hold A-Shares or B-Shares or C-Shares.

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     If Electrolux should decide to issue warrants or convertibles through a cash issue or an issue against payment through set-off of claims, the shareholders have preemptive rights to subscribe to warrants as if the issue were of the shares that may be subscribed to pursuant to the warrant and, respectively, preemptive rights to subscribe to convertibles as if the issue were of the shares that the convertibles may be converted to.
     The above does not constitute any restriction in Electrolux’s right to decide either on a cash issue, an issue against payment through set-off of claims, an issue of warrants or an issue of convertibles without taking the priority rights of shareholders into account.
     If the share capital is increased by way of a bonus issue, new shares of each series shall be issued in proportion to the existing number of shares of each series. Existing shares of a given series shall thereby entitle the holder to receive new shares of the same series. This does not constitute any restriction in Electrolux’s right to issue new shares of a new series by way of a bonus issue, following appropriate amendment to the Articles of Association.
     At present, the share capital of AB Electrolux consists of A-Shares and B-Shares. An A Share entitles the holder to one vote and a B Share to one-tenth of a vote. A-Shares and B-Shares entitle the holder to the same proportion of assets and earnings.
     Dividends
     A-Shares and B-Shares carry equal rights to dividends. C-Shares do not carry rights to dividends.
     Under Swedish law, a General Meeting of Shareholders may decide on the payment of dividends, which may not exceed the amount proposed by the Board of Directors (except to a limited extent in the event of a demand by holders of at least 10 percent of the total number of shares outstanding and then to be paid only from funds available for dividends). Under Swedish law, no interim dividends may be paid in respect of a financial period as to which audited financial statements have not been adopted by the Annual General Meeting of Shareholders. The normal practice in Sweden is for dividends to be paid only annually.
     It is the present practice of the Board of Directors of Electrolux to decide upon their recommendation in respect of dividends for the preceding fiscal year and issue a proposal in February of each year. The proposal of the Board of Directors is considered at the Annual General Meeting which is usually held in April or May of the year following that to which the dividend relates. The record date (determined by the Annual General Meeting) by which shareholders in Electrolux must be registered in the share register in order to participate in any dividend is normally the third business day following the date of the shareholders meeting deciding the payment of the dividend. The dividend is normally paid on the third business day after the record date, provided that at the Annual General Meeting the record date for the dividend is determined in accordance with the normal procedure. The shares are quoted on the Stockholm Stock Exchange ex-dividend on the business day after the date of the Annual General Meeting.
     Annual General Meeting
     The decision-making rights of shareholders in AB Electrolux are exercised at the Annual General Meeting, or at an Extraordinary General Meeting.
     Participation in decision-making requires the shareholder’s presence at the meeting, whether personally or through a proxy. In addition, the shareholder must be registered in the share register as of a prescribed date prior to the meeting and must provide notice of participation in due course.
     Additional requirements for participation apply for shareholders with holdings in the form of US ADRs or similar certificates. Holders of such certificates are advised to contact the ADR depositary bank, fund manager or the issuer of the certificate well in advance of the meeting in order to obtain more information.
     The Annual General Meeting must be held within six months of the end of the accounting year. The meeting resolves on dividends, adoption of the annual report, election of Board members and, when applicable, auditors, remuneration to Board members and auditors, principles for remuneration and other terms of employment for senior management, all share and share price incentive schemes for senior management, and other important matters. All Board members serve a term expiring at the end of the first Annual General

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Meeting the year after such Board members were elected. The Annual General Meeting in 2007 was attended by shareholders representing 36.9 percent of the share capital and 52.0 percent of the voting rights in the Company.
     An Extraordinary General Meeting can be held at the discretion of the Board of Directors, or if requested by the auditors or by shareholders owning at least 10 percent of the shares. In December 2006, the Board called an EGM for approval of a proposal for distributing capital to the shareholders through redemption of shares. This meeting was attended by shareholders representing 36.9 percent of the share capital and 49.9 percent of the votes.
     Voting at the General Meeting of Shareholders
     For the purposes of voting at a General Meeting, each A Share carries one vote and each B Share and C Share carry one-tenth of a vote.
     Electrolux is required to publish notices to attend the Annual General Meeting and Extraordinary General Meetings regarding changes in the Articles of Association no earlier than six weeks and no later than four weeks prior to the general meeting. Notices to attend other types of Extraordinary General Meetings must be published no earlier than six weeks and no later than two weeks prior to the general meeting.
     In order to be entitled to attend and vote at a general meeting of the shareholders, a shareholder must be registered in the register of shareholders at least five business days (Saturdays normally included) prior to the date of the meeting, and the Articles of Association provide that the shareholder must have given notice to the Company of his intention to attend not later than 4 p.m. on the date specified in the notice convening the meeting, being a date not earlier than the fifth business day preceding the meeting.
     A person registered in the register of shareholders as a nominee (including the depositary of the ADSs) is not entitled to vote at a general meeting nor is the beneficial owner whose shares are registered in the name of the nominee, unless the beneficial owner arranges to have his own name entered in the register. A shareholder may attend and vote at the meeting in person or by proxy. Proxies are not valid for longer than a year from the date of issuance.
     Under the Swedish Companies Act, resolutions are normally passed by a simple majority of votes cast. Exceptions which require special quorums or majorities include:
     1. resolutions amending the Articles of Association (except as described below), which resolutions generally require an affirmative vote of at least two-thirds of the votes cast as well as two-thirds of the shares represented at the meeting;
     2. resolutions amending the Articles of Association and which reduce any shareholder’s rights to profits or assets, or restrict the transferability of shares, or alter the legal relationship between shares, which resolutions require an affirmative vote of all shares present at the meeting and a quorum of nine-tenths of the shares outstanding;
     3. resolutions amending the Articles of Association and which limit the number of shares which a single shareholder may vote for, or allocating part of the net profit for the fiscal year to a restricted fund or amending shareholders’ rights in liquidation or dissolution, which resolutions require the approval of two-thirds of the votes cast as well as nine-tenths of the shares represented at the meeting;
     4. resolutions under 2 or 3 may be approved by a lower supermajority of at least two-thirds of the votes cast as well as two-thirds of the shares represented at the meeting, if
     a. the change would adversely affect only certain shares, and the resolution is approved by all holders of such shares represented at the meeting with a quorum of at least nine-tenths of the shares adversely affected, or
     b. the change would adversely affect only one class of shares, and the resolution is approved by holders of at least one-half of the shares of such class outstanding as well as at least nine-tenths of the shares of such class represented at the meeting.

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     5. resolutions allowing the company to deviate from the shareholders’ preferential rights in connection with an issue (except for an issue in kind) of new shares, warrants or convertibles, or to reduce the share capital, or to acquire or dispose of own shares, or to approve a merger, which resolutions require approval of at least two-thirds of the votes cast as well as two-thirds of the shares represented at the meeting.
     Members of the Board of Directors are elected by shareholders at the Annual General Meeting. Additionally, under Swedish law, employees have the right to appoint three additional directors (and their deputies). The nomination process for members of the Board of Directors involves appointing the Nomination Committee which consists of the Chairman of the Board and representatives of the four largest shareholders in terms of voting rights. The names of these representatives and the shareholders they represent are announced publicly at least six months before the Annual General Meeting. Selection of the four shareholders is based on the known holdings of voting rights immediately prior to the announcement.
     Under Swedish law, a general meeting of shareholders may not adopt any resolution which is likely to give an undue advantage to a shareholder to the detriment of other shareholders.
     Cancellation and Purchase of Own Shares
     Since 2000, a Swedish limited liability company whose shares are trading on a securities exchange, an authorized market or another regulated marketplace is entitled under Swedish law to repurchase its own shares under certain conditions. Such repurchase requires the approval by the general meeting of shareholders with a majority of two-thirds of the votes cast at the meeting as well as two-thirds of the shares represented at the meeting. A company may not hold more than 10 percent of its own shares at any given time. Electrolux repurchased 19.4 million B-Shares in 2006, as compared to nil B-Shares in 2005, 750,000 B-Shares in 2004, 11,331,828 B-Shares in 2003 and 11,246,052 B-Shares in 2002. A total of 497,725 A-Shares and 14,681,967 B-Shares, representing approximately 4.7 percent of the total number of shares, were redeemed in 2004 for a total consideration of approximately SEK 3 billion. As of May 31, 2007, Electrolux owned 27,463,539 B-Shares, equal to approximately 8.9 percent of the total number of shares. The repurchase mandate of the Annual General Meeting in 2006 authorizes the Board of Directors under the period up to the next Annual General Meeting to acquire up to 10 percent of the total number of shares. Repurchased shares may be transferred to cover long-term incentive obligations or in connection with corporate acquisitions.
     On the basis of the strong balance sheet after the spin-off of Husqvarna AB and the strong cash-flow, an extraordinary general meeting in December 2006 resolved upon a mandatory redemption of shares at SEK 20 per share in accordance with a proposal by the Board of Directors. This corresponded to a capital distribution of SEK 5,579m to Electrolux shareholders. The redemption amount was paid to the shareholders at the end of January 2007.
     Transfer of Shares
     Under the Articles of Association of the Company, there are no restrictions on the transfer of shares and there are no provisions which restrict persons, associations or foundations of non-Swedish nationality from acquiring shares in the Company.
     Pursuant to recommendations concerning the disclosure of acquisition and transfer of shares issued by Näringslivets Börskommitté (the Swedish Industry and Commerce Stock Exchange Committee), any seller or purchaser of securities including shares of stock, convertible debt instruments, warrants, non-standardized options and futures of a Swedish company listed on Stockholm Stock Exchange, must report to the exchange and to the Company transactions in which the purchaser or seller acquires or disposes of 5 percent of any subsequent percentage that is a multiple of five, up to and including 90 percent of either the voting rights of all shares or the total number of shares in the Company. These changes in ownership should also be reported to an established news agency and to a nationally published newspaper in Sweden no later than 9 a.m. on the next day on which trading is conducted on Stockholm Stock Exchange. In addition, according to the Swedish Financial Instruments Trading Act, if a natural person or legal person who acquires or disposes of shareholdings in a Swedish company that has its shares listed on a stock exchange situated or operating within one or more countries in the European Economic Area and, as a result of such acquisition or disposition, holds voting rights equal to, in excess of or less than one of the thresholds of 10 percent, 20 percent, 331/3 percent, 50 percent or 662/3 percent, the person is required to notify the company in writing at the same time it notifies the stock exchange or, if the shares are not listed in Sweden, to notify Finansinspektionen (the Swedish Financial

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Supervisory Authority) within seven calendar days of the acquisition or disposition. In addition, the Act on Reporting Obligations Regarding Certain Holdings of Financial Instruments requires, among other things, that certain individuals who own shares representing 10 percent or more of the share capital or the voting rights in a publicly traded company report such ownership to Finansinspektionen, which keeps a public register based on the information contained in such reports, and also report any changes in such ownership within five 5 business days (Saturdays normally included).
     If shares of a Swedish limited liability company are held in the name of a nominee, the nominee must issue a public report to the VPC (the central securities depository and clearinghouse for Stockholm Stock Exchange) every six months, listing all beneficial holders of more than 500 of the shares.
C. Material Contracts
     Other than as described below, the Company does not have any material contracts other than contracts entered into in the ordinary course of business.
     Prior to the distribution of all shares in Husqvarna AB to the shareholders of Electrolux in June 2006, the Outdoor Business of Electrolux was conducted as an operationally independent but legally integrated part of the Electrolux Group. In order to govern the creation of the Outdoor Business as a separate legal entity, as well as govern the relationship in certain aspects between the Indoor and Outdoor businesses after the separation, Electrolux and Husqvarna and certain of their respective subsidiaries have entered into a master agreement, as well as a tax sharing and indemnity agreement.
     The Master Agreement
     The Master Agreement between Electrolux and Husqvarna generally provides for (i) the transfers between the Indoor Business and the Outdoor Business of certain legal entities, (ii) the transfers or divisions of assets and liabilities, mainly referable to the Outdoor and the Indoor Businesses respectively, (iii) the transfer of certain employees, (iv) the division of or joint access during a transition period to, certain essential joint assets, (v) the lease and sublease of certain real property, and (vi) the termination of agreements between the Electrolux and the Husqvarna groups, not part of the ordinary course of business or related to the separation.
     The Master Agreement provides that Electrolux shall, in general, indemnify Husqvarna and its subsidiaries for liabilities related to the Indoor Business. Likewise, Husqvarna shall, in general, indemnify Electrolux and its subsidiaries for liabilities related to the Outdoor Business. Electrolux shall further indemnify Husqvarna and its subsidiaries for liabilities relating to violations of such securities market and stock market provisions that refer to the Electrolux Group and to circumstances prior to the day of separation. Husqvarna shall also indemnify Electrolux and its subsidiaries for liabilities relating to violations of such securities market and stock market provisions that relate to the Husqvarna group and circumstances after the day of separation, and for liabilities that relate to Husqvarna and its business up to Electrolux’s acquisitions of Husqvarna in 1978. The Master Agreement is governed by Swedish law.
     Tax Sharing and Indemnity Agreement
     As an ancillary agreement to the Master Agreement, the parties have entered into a Tax Sharing and Indemnity Agreement. Under this agreement the parties (i) allocate liability for certain taxes; (ii) undertake to hold the other party harmless and to indemnify such other party from any adverse tax effects after the spin-off date caused by the acts or omissions of the indemnifying party; and (iii) undertake to cooperate with each other in resolving issues relating to taxable years ending before or including the date or dates of the restructuring closings. The main principle in the agreement for sharing of tax costs or tax credits between the Indoor Group and the Outdoor Group is that each party is responsible for its own part of taxes paid or received (for the time before, during and after the spin-off).
     The final “Lex Asea” distribution of Husqvarna shares to Electrolux shareholders has been preceded by a global reorganization of the group. With respect to the restructuring transactions undertaken in the U.S. (mainly group internal asset transfers and share distributions), Electrolux has applied for and received a private letter ruling from the IRS, and has also received an opinion of counsel to the combined effect that, for U.S. federal income tax purposes, the distribution of Husqvarna stock will generally be tax-free to Electrolux and its stockholders.

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     The Tax Sharing and Indemnity Agreement includes a section under which Husqvarna and two of its U.S. subsidiaries covenant, represent and warrant to Electrolux and each member of the Indoor Group not to undertake certain actions or transactions that may jeopardize the tax-free treatment of the spin-off and the individual transactions that comprise it. In the event that any member of the Electrolux Group recognizes gain or other income as a result of the spin-off being taxable (under certain circumstances), Husqvarna and two of its U.S. subsidiaries agree to jointly and severally indemnify Electrolux (and each member of the Electrolux Group) against and hold them harmless from any and all taxes that result from the spin-off becoming wholly or partly taxable. The indemnity also applies if Husqvarna’s shareholders take certain actions that are inconsistent with the tax-free treatment of the spin-off and the various transactions that precede the spin-off.
     If the distribution of Husqvarna stock were taxable, then:
  1)   The consolidated group of which Electrolux U.S. will be the common parent would recognize a gain equal to the excess of the fair market value of the stock of Husqvarna Outdoor Products, Inc. and Husqvarna Professional Outdoor Products, Inc. on the date of the separation over the U.S. tax bases therein of the Electrolux U.S. group. Electrolux has not made an appraisal of these companies but it has reviewed the financials of other outdoor companies to determine an estimated valuation. Based upon such valuation, Electrolux estimates that the resulting tax would be approximately 500 MUSD. Husqvarna’s undertaking in the Tax Sharing and Indemnity Agreement covers these taxes if the tax liability arises due to any breach of representations or warranties agreed by Husqvarna in the Tax Sharing and Indemnity Agreement or if a change in ownership occurs on the Husqvarna side that triggers the tax liability.
 
  2)   Each U.S. holder of Electrolux stock who receives shares of Husqvarna in the distribution would be treated as if the stock holder received a taxable distribution equal to the fair market value of the shares of Husqvarna received, taxed as a dividend to the extent of the stockholder’s pro rata share of Electrolux’s current and accumulated earnings and profits (including earnings and profits arising from the gain to Electrolux described in the preceding section) and then treated as a non-taxable return of capital to the extent of the holder’s basis on the Electrolux stock and thereafter as capital gain from the sale or exchange of Electrolux stock. The Tax Sharing and Indemnity Agreement does not give the U.S. shareholders a right to claim indemnification for such taxes from Electrolux, Husqvarna or its subsidiaries.
D. Exchange Controls
     There are no Swedish governmental laws, decrees or regulations that restrict the export or import of capital or that affect the remittance of dividends or other payments to non-residents of Sweden who hold Electrolux shares.
     There are no limitations on the right of non-resident or foreign owners of B-Shares to hold or vote such securities that are imposed by the Articles of Association of the Company. However, under Swedish law the holder of an American Depositary Receipt must, before being entitled to vote at a general meeting of shareholders, register the shares represented by such American Depositary Receipts in his or her own name.
E. Taxation
     General
     The taxation discussion set forth below does not purport to be a complete analysis or listing of all potential tax effects relevant to the ownership and disposition of ADSs or shares. The statements of United States and Swedish tax laws set forth below are based on the laws in force as of the date of this annual report and may be subject to any changes in United States or Swedish law, and in any double taxation convention or treaty between the United States and Sweden, occurring after that date, which changes may have retroactive effect. Specific tax provisions may apply for certain categories of taxpayers. Your tax treatment if you are a holder of ADSs or shares depends in part on your particular situation. If you are a holder of ADSs or shares you should consult a tax advisor as to the specific Swedish and United States federal, state and local tax consequences relating to your particular circumstances resulting from the ownership of ADSs or shares.

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     Certain Swedish Tax Considerations
     This section describes the material Swedish income and net wealth tax consequences for a holder of ADSs or shares who is not considered to be a resident of Sweden for Swedish tax purposes. This section applies to you only if you are a holder of portfolio investments representing less than ten percent of the voting rights in the company and is not applicable if the ADSs or shares pertain to a permanent establishment or fixed base of business in Sweden.
     Taxation on Capital Gains
     Generally, a holder who is not a tax resident in Sweden is not liable for Swedish capital gains taxation with respect to a disposal of ADSs or shares. However, under Swedish tax law, capital gains from a disposal of Swedish shares and certain other securities by private individuals may be taxed in Sweden at a rate of 30 percent if the individual has been resident or lived permanently in Sweden at any time during the year of the sale or the ten calendar years preceding the year of the sale.
     This provision is applicable to ADSs and shares. The provision may, however, be limited by tax treaties that Sweden has concluded with other countries. Under the income tax treaty between Sweden and the United States currently in force (the “U.S.-Sweden Tax Treaty”), Sweden has the right to tax gains from a disposal of ADSs or shares made within ten years from the date the individual ceased to be a resident of Sweden.
     Taxation on Dividends
     A Swedish withholding tax at a rate of 30 percent is imposed on dividends paid by a Swedish corporation, such as Electrolux, to holders who are not residents in Sweden for Swedish tax purposes. The same withholding tax applies to certain other payments made by a Swedish corporation, including payments as a result of redemption of shares or a repurchase of shares through an offer directed to its shareholders. Exemption from the withholding tax or a lower tax rate may apply by virtue of a tax treaty. Under the U.S.-Sweden Tax Treaty, the withholding tax on dividends paid on portfolio investments to eligible U.S. holders is reduced to 15 percent. With regard to dividends paid from shares in corporations registered with the VPC (such as Electrolux shares), a reduced rate of dividend withholding tax under a tax treaty is generally applied at the source by the VPC or, if the shares are registered with a nominee, by the nominee, as long as the person entitled to the dividend is a non resident of Sweden and sufficient information regarding the tax residency of the beneficial owner (such as a certificate of tax residence) is available to the VPC or the nominee.
     In those cases where Swedish withholding tax is withheld at the rate of 30 percent and the person who received the dividend is entitled to a reduced rate of withholding tax under a tax treaty, a refund may be claimed from the Swedish tax authorities before the end of the fifth calendar year following the distribution.
     Net Wealth Taxation
     The ADSs and shares are not subject to Swedish net wealth taxation if owned by a holder that is not resident in Sweden for tax purposes. You should consult your own tax advisors regarding the Swedish and other tax consequences of your ownership of ADSs and shares.
     United States Federal Income Tax Consequences
     The following discussion is a summary of the material United States federal income tax consequences relevant to the ownership and disposition of ADSs or shares. This discussion is based on the tax laws of the United States (including the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing, temporary and proposed Treasury regulations promulgated thereunder, published rulings, administrative pronouncements and court decisions) and the U.S.-Sweden Tax Treaty, all as in effect as of the date of this annual report, all of which are subject to change or changes in interpretation, possibly with retroactive effect. The discussion is not a full discussion of all tax considerations that may be relevant to the ownership and disposition of ADSs or shares.
     The discussion applies only if you hold the ADSs or the shares as capital assets and you use the U.S. dollar as your functional currency. It does not deal with the tax treatment of investors subject to special rules,

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such as grantor trusts, real estate investment trusts, regulated investment companies, banks, brokers or dealers in securities, traders in securities or currencies that elect to use a mark-to-market method of accounting, financial institutions, insurance companies, tax-exempt entities, investors liable for the alternative minimum tax, U.S. expatriates, persons holding ADSs or shares as part of a hedging, straddle, conversion or constructive sale transaction, persons who acquired ADSs or shares pursuant to the exercise of employee stock options or otherwise as compensation and persons who are resident or ordinarily resident in Sweden. You should consult your own tax advisor about the United States federal, state, local and foreign tax consequences to you of the ownership and disposition of the ADSs or shares. You also are urged to consult with your tax advisor concerning whether you are eligible for benefits under the U.S.-Sweden Tax Treaty. If a partnership (including for this purpose any entity treated as a partnership for United States federal income tax purposes) holds ADSs or shares, the tax treatment of a partner will depend upon the status of the partner and the activities of the partnership. If you are a partner in a partnership that holds ADSs or shares, you should consult your own tax advisor regarding the specific tax consequences of the ownership and disposition of ADSs or shares.
     The discussion below applies to you only if you are a U.S. holder and you are beneficial owner of ADSs or shares and are not resident in Sweden for purposes of the U.S.-Sweden Tax Treaty and (a) you are (1) a citizen or individual resident of the United States for United States federal income tax purposes, (2) a corporation (or any other entity taxable as a corporation for United States federal income tax purposes) that is organized in or under the laws of the United States or any State thereof (including the District of Columbia), (3) a trust if a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all of the substantial decisions of the trust, or (4) an estate the income of which is subject to United States federal income taxation regardless of its source; (b) you are not (and have not been at any time during the prior ten years) a resident of Sweden for purposes of the U.S.-Sweden Tax Treaty and you are entitled to Treaty benefits under the limitation on benefits article contained therein; (c) you do not maintain a permanent establishment or fixed base situated in Sweden to which the ADSs or shares are attributable and through which you carry on or have carried on a trade or business (or, if you are an individual, you perform or have performed independent personal services in Sweden); (d) you hold the ADSs or shares as a capital asset; and (e) you own (directly, indirectly or by attribution) less than ten percent of the voting stock of Electrolux.
     The discussion below assumes that the representations contained in the deposit agreement are true and that the obligations provided for in or otherwise contemplated by the deposit agreement and any related agreement will be complied with in accordance with the terms. If you hold ADSs, you will be treated as the holder of the underlying shares represented by those ADSs for United States federal income tax purposes.
     Dividends
     For United States federal income tax purposes, the gross amount of dividends (without reduction for any Swedish withholding taxes) paid with respect to the ADSs or shares generally will be included in your gross income as foreign source dividend income. The dividends paid by Electrolux will not be eligible for the “dividends received deduction” available to US corporations in respect of dividends received from other U.S. corporations. The amount of any dividend paid in SEK will be the U.S. dollar value of the dividend payment based on the exchange rate in effect on the date of actual or constructive receipt by you, in the case of shares or by the depositary, in the case of ADSs, whether or not the payment is converted into U.S. dollar at that time. If you hold shares and you convert the SEK into U.S. dollars on the date of receipt you generally should not recognize any exchange gain or loss. If you do not convert the SEK into U.S. dollars on the date of receipt you generally will have a tax basis in the SEK received equal to the U.S. dollar amount on such date. Gain or loss, if any, recognized on a subsequent conversion or other disposition of the SEK generally will be treated as U.S. source ordinary income or loss. Special rules govern and specific elections are available to accrual method taxpayers to determine the U.S. dollar amount includible in income in the case of taxes withheld in a foreign currency. Accrual basis taxpayers are urged to consult their own tax advisors regarding the requirements and elections applicable in this regard.
     As discussed under “Certain Swedish Tax Considerations Taxation on Dividends,” above, dividends paid by Electrolux generally will be subject to Swedish withholding tax at a statutory rate of 30 percent. However, pursuant to the U.S.-Sweden Tax Treaty, if you are eligible for Treaty benefits you will be subject to Swedish withholding tax at a maximum rate of 15 percent on the dividend payment.

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     Subject to certain limitations, you generally will be entitled to receive a foreign tax credit against your United States federal income tax liability (or a deduction against your United States federal taxable income) with respect to any Swedish tax withheld in accordance with the U.S.-Sweden Tax Treaty and paid over to Sweden. If a refund of the tax withheld is available to you under the laws of Sweden or under the U.S.-Sweden Tax Treaty, the amount of tax withheld that is refundable will not be eligible for such credit against your United States federal income tax liability (and will not be eligible for the deduction against your United States federal taxable income). For foreign tax credit limitation purposes, the dividend will be income from sources outside the United States, and generally will be treated as “passive income” or, for certain U.S. holders, “financial services income.” For taxable years beginning January 1, 2007, dividend income generally will constitute “passive category income” or, in the case of certain U.S. Holders, “general category income.”
     Certain U.S. holders (including individuals) are eligible for reduced rates of United States federal income tax (at a maximum rate of 15 percent) in respect of “qualified dividend income” received in taxable years beginning before January 1, 2011, provided that certain holding period and other requirements are met. Dividends that Electrolux pays with respect to its ADSs and shares generally will be qualified dividend income if, among other things, (a) Electrolux was not, in the year prior to the year in which the dividends were paid, and is not, in the year in which the dividends are paid, a passive foreign investment company, and (b) if Electrolux is entitled to benefits under the U.S.-Sweden Tax Treaty. Electrolux currently believes that dividends paid with respect to its ADSs and shares should constitute qualified dividend income for U.S. federal income tax purposes; however, this is a factual matter and is subject to change. Electrolux anticipates that its dividends will be reported as qualified dividends on Forms 1099-DIV delivered to U.S. holders. You are urged to consult your own tax advisor regarding the availability to you of the reduced dividend tax rate in light of your own particular situation and the computations of your foreign tax credit limitation with respect to any qualified dividends paid to you, as applicable.
     The United States Treasury has expressed concern that parties to whom ADSs are released may be taking actions that are inconsistent with the claiming of foreign tax credits or reduced tax rates in respect of qualified dividend income by U.S. holders of ADSs. Accordingly, the discussion above of the creditability of Swedish withholding taxes and the availability of qualified dividend treatment could be affected by future actions that may be taken by the United States Treasury with respect to ADSs.
     Sale or Exchange of ADSs or Shares
     You generally will recognize capital gain or loss on the sale or other disposition of the ADSs or shares for United States federal income tax purposes in an amount equal to the difference between the U.S. dollar value of the amount realized and your adjusted tax basis (determined in U.S. dollars) in the ADSs or shares. Such gain or loss will be U.S. source capital gain or loss and generally will be treated as long-term capital gain or loss if the holding period in the ADSs or shares exceeds one year at the time of disposition. If you are an individual, any long-term capital gain generally will be subject to United States federal income tax at preferential rates. The deductibility of capital losses is subject to significant limitations.
     You will have a tax basis in any foreign currency received equal to the U.S. dollar amount realized. Any exchange gain or loss you realize on a subsequent conversion or other disposition of such foreign currency will be treated as U.S. source ordinary income or loss.
     The deposit or withdrawal of shares in exchange for ADSs by you under the deposit agreement generally will not be subject to United States federal income tax or Swedish income tax.
     Husqvarna Spin-off
     On June 13, 2006, Electrolux made a distribution of the shares of its subsidiary Husqvarna to shareholders of record as of June 12, 2006. Electrolux received a private letter ruling from the Internal Revenue Service (the “IRS”) as well as an opinion from independent counsel Squire, Sanders, and Dempsey, LLP, to the combined effect that, for United States federal income tax purposes, the distribution of Husqvarna shares would qualify as a tax-free distribution under Sections 355 and 368 of the Code and the distribution of Husqvarna shares would be tax-free to Electrolux and its shareholders.
     The private letter ruling and the opinion received from Squire Sanders and Dempsey, LLP, state that, for United States federal income tax purposes:

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        No gain or loss will be recognized by, and no amount will be includible in the income of, a holder of Electrolux shares solely as a result of the receipt of Husqvarna shares in the distribution;
        The holding period for the Husqvarna shares received in the spin-off will include the period during which the Electrolux shares with respect to which such shares were received was held; and
        The aggregate basis of the Electrolux and Husqvarna shares in the hands of each Electrolux shareholder after the distribution will, in each instance, be the same as the aggregate basis in the Electrolux share held by the shareholder immediately before the distribution, allocated in proportion to the fair market value of each.
     Holders are urged to consult their own tax advisors as to the specific United States federal, state, local, and foreign tax consequences to them of the distribution. Further information on the transaction, as well as a more detailed explanation of the tax consequences thereof, is available in the information brochure describing the Husqvarna distribution, available at www.electrolux.com/prospectus.
     Share redemption
     On December 12, 2006, Electrolux announced its intention to split each A share and B share into two shares, one of each of which was designated as a redemption share. The record date for the share split and the right to receive the redemption share was January 5, 2007 and payment in respect of the redemption share occurred January 29, 2007. Because these transactions occurred in 2007, the US federal income tax consequences thereof are not discussed herein.
     Passive Foreign Investment Company Status
     A non-U.S. corporation will be classified as a passive foreign investment company (a “PFIC”) for any taxable year if at least 75 percent of its gross income consists of passive income (such as dividends, interest, rents or royalties (other than rents or royalties derived in the active conduct of a trade or business and received from an unrelated person), or at least 50 percent of the quarterly average value of its assets is attributable to assets that produce or are held to produce passive income. Based on the market value of Electrolux’s shares, the composition of its assets, income and its operations, Electrolux currently believes it did not qualify as a PFIC for the taxable year ending December 31, 2006. If Electrolux were to become a PFIC for any taxable year (which conclusion is a factual determination that must be made as of the close of the taxable year) in which you held ADSs or shares, you would be subject to adverse tax consequences with respect to certain distributions on, and gain realized upon a disposition of the ADSs or shares. Furthermore, dividends paid by Electrolux would not be “qualified dividend income” and would be subject to tax at the higher rates applicable to other items of ordinary income. Application of the PFIC rules is complex. You should consult your own tax advisor regarding the possible application of the PFIC rules to Electrolux.
     United States Information Reporting and Backup Withholding
     In general, dividend payments made to holders and proceeds paid from the sale or other disposition of ADSs or shares may be subject to information reporting to the Internal Revenue Service (the “IRS”) and possible federal backup withholding at a current rate of 28 percent. Backup withholding will not apply to a holder who furnishes an accurate taxpayer identification number or certificate of foreign status and makes any other required certification or who is otherwise exempt from backup withholding. U.S. persons who are required to establish their exempt status generally must provide such certification on IRS Form W-9 (Request for Taxpayer Identification Number and Certification). Non-U.S. holders generally are not subject to U.S. information reporting or backup withholding. However, such holders may be required to provide certification of non-U.S. status (generally on IRS Form W-8BEN) in connection with payments received in the United States or through U.S.-related financial intermediaries. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your United States federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS in a timely manner and furnishing any required information.
F. Dividend and Paying Agents
     Not applicable.

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G. Statement by Experts
     Not applicable.
H. Documents on Display
     Electrolux is subject to the informational requirements of the U.S. Securities Exchange Act of 1934, as amended. In accordance with these requirements, Electrolux files reports and other information with the U.S. Securities and Exchange Commission. These materials, including this annual report and the exhibits thereto, may be inspected and copied at the Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and at the Commission’s regional office at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the materials may be obtained from the Public Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The public may obtain information on the operation of the Commission’s Public Reference Room by calling the Commission in the United States at 1-800-SEC-0330. Copies may also be obtained from the Commission’s website at http://www.sec.gov. Information about Electrolux is also available at http://www.electrolux.com. Information on Electrolux’s website does not form part of this document.
I. Subsidiary Information
     Not applicable.

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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial risk management
     The Group is exposed to a number of risks related to, for example, liquid funds, trade receivables, customer financing receivables, payables, borrowings, commodities and derivative instruments. The risks are, primarily:
    Interest-rate risks on liquid funds and borrowings
 
    Financing risks in relation to the Group’s capital requirements
 
    Foreign-exchange risks on earnings and net investments in foreign subsidiaries
 
    Commodity-price risks affecting the expenditure on raw materials and components for goods produced
 
    Credit risk relating to financial and commercial activities
     The Board of Directors of Electrolux has approved a financial policy and a credit policy for the Group in order to manage and control these risks. Each business sector has specific financial and credit policies approved by the sector board. The above-mentioned risks are, amongst others, managed by the use of derivative financial instruments according to the limitations stated in the Financial Policy. The Financial Policy also describes management of risks related to pension-fund assets.
     Management of financial risks has largely been centralized to Group Treasury in Stockholm, Sweden. Measurement of risk in Group Treasury is performed by a separate risk controlling function on a daily basis. Furthermore, the Group’s policies and procedures include guidelines for managing operating risks related to financial instruments through, e.g., segregation of duties and power of attorney.
     Proprietary trading in currencies, commodities and interest-bearing instruments is permitted within the framework of the Financial Policy. This trading is aimed primarily at maintaining a high quality of information flow and market knowledge in order to contribute to proactive management of the Group’s financial risks.
     The Group’s Credit Policy ensures that the management process for customer credits includes customer ratings, credit limits, decision levels and management of bad debts.
Interest-rate risk on liquid funds and borrowings
     Interest-rate risk refers to the adverse effects of changes in interest rates on the Group’s income. The main factors determining this risk include the interest-fixing period.
     Liquid funds
     Liquid funds as defined by the Group consist of cash on hand, bank deposits, fair-value derivatives, prepaid interest expense, accrued interest income and other short-term investments. Electrolux goal is that the level of liquid funds including unutilized committed short-term credit facilities shall correspond to at least 2.5% of annualized net sales. In addition, net liquid funds, defined as liquid funds less short-term borrowings, shall exceed zero, taking into account fluctuations arising from acquisitions, divestments, and seasonal variations. Investment of liquid funds is mainly made in interest-bearing instruments with high liquidity and with issuers with a long-term rating of at least A- as defined by Standard & Poor’s or similar.
     Interest-rate risk in liquid funds
     Group Treasury manages the interest-rate risk of the investments in relation to a benchmark position defined as a one-day holding period. Any deviation from the benchmark is limited by a risk mandate. Derivative financial instruments like Futures and Forward-Rate Agreements are used to manage the interest-rate risk. The holding periods of investments are mainly short-term. The major portion of the investments is made

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with maturities between 0 and 3 months. A downward shift in the yield curves of one-percentage point would reduce the Group’s interest income by approximately SEK 60 million (40).
     Borrowings
     The debt financing of the Group is managed by Group Treasury in order to ensure efficiency and risk control. Debt is primarily taken up at the parent company level and transferred to subsidiaries as internal loans or capital injections. In this process, various swap instruments are used to convert the funds to the required currency. Short-term financing is also undertaken locally in subsidiaries where there are capital restrictions. The Group’s borrowings contain no terms (financial triggers) for premature cancellation based on rating.
     Interest-rate risk in long-term borrowings
     The Financial Policy states for the year 2005 that the benchmark for the long-term loan portfolio is an average interest-fixing period of one year. The benchmark was, however, changed at the end of year 2005 and as from January 1, 2006, the benchmark for the long-term loan portfolio is an average interest-fixing period of six months. Group Treasury can choose to deviate from this benchmark on the basis of a risk mandate established by the Board of Directors. However, the maximum fixed-rate period is three years. Derivatives, such as interest-rate swap agreements, are used to manage the interest-rate risk by changing the interest from fixed to floating or vice versa. On the basis of 2006 volumes and interest fixing, a one-percentage point shift in interest rates paid would impact the Group’s interest expenses by approximately SEK +/-40 million (30) in 2006. This calculation is based on a parallel shift of all yield curves simultaneously by one-percentage point. Electrolux acknowledges that the calculation is an approximation and does not take into consideration the fact that the interest rates on different maturities and different currencies might change differently.
     Credit ratings
     Electrolux has investment-grade ratings from Standard & Poor’s which has remained unchanged during the year. The rating agreement with Moody’s was terminated in 2006.
                                 
                            Short-term
Rating   Long-term debt   Outlook   Short-term debt   debt, Sweden
 
Standard & Poor’s
  BBB+   Stable     A-2       K-1  
     Interest-bearing Liabilities
     See “Item 5B-Operating and Financial Review and Prospects–Liquid Funds and Capital Resources” for information on interest-bearing liabilities.
Financing risk
     Financing risk refers to the risk that financing of the Group’s capital requirements and refinancing of existing loans could become more difficult or more costly. This risk can be decreased by ensuring that maturity dates are evenly distributed over time, and that total short-term borrowings do not exceed liquidity levels. The net borrowings, i.e., total borrowing less liquid funds, excluding seasonal variances, shall be long-term according to the Financial Policy. The Group’s goals for long-term borrowings include an average time to maturity of at least two years and evenly spread maturities. A maximum of 25% of the borrowings are normally allowed to mature in a 12-month period. Exceptions are made when the net borrowing position of the Group is small.
Foreign-exchange risk
     Foreign-exchange risk refers to the adverse effects of changes in foreign-exchange rates on the Group’s income and equity. In order to manage such effects, the Group covers these risks within the framework of the Financial Policy. The Group’s overall currency exposure is managed centrally.

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     The major currencies that Electrolux is exposed to are the US dollar, the euro, the Canadian dollar, and the British pound. Other significant exposures are the Danish krona, the Australian dollar, and various Eastern European currencies.
     Transaction exposure from commercial flows
     The Group’s financial policy stipulates the hedging of forecasted sales in foreign currencies, taking into consideration the price fixing periods and the competitive environment. The business sectors within Electrolux have varying policies for hedging depending on their commercial circumstances. The sectors define a hedging horizon between 6 and up to 12 months of forecasted flows. Hedging horizons outside this period are subject to approval from Group Treasury. The Financial Policy permits the operating units to hedge invoiced and forecasted flows from 75% to 100%. The maximum hedging horizon is up to 18 months. Group subsidiaries cover their risks in commercial currency flows mainly through the Group’s four regional treasury centers. Group Treasury thus assumes the currency risks and covers such risks externally by the use of currency derivatives.
     The Group’s geographically widespread production reduces the effects of changes in exchange rates. The remaining transaction exposure is mainly related to internal sales from producing entities to sales companies. To a lesser extent there are also external exposures from purchasing of components and input material for production paid in foreign currency. These external imports are often priced in USD. The global presence of the Group, however, leads to a significant netting of the transaction exposures. The table below shows the distribution of the Group’s sales and operating expenses in major currencies. As the table indicates, there was a good currency balance during the year in the US dollar and the euro.
Net sales and expenses, by currency
                         
    Share of     Average exchange rate     Average exchange rate  
    expenses, %     2006     2005  
 
SEK
    4              
USD
    34       7.38       7.46  
EUR
    32       9.26       9.28  
CAD
    5       6.52       6.17  
GBP
    5       13.58       13.54  
Other
    20              
 
Total
    100                  
     Commercial flows
     The table below shows the forecasted transaction flows, imports and exports, for the 12-month period of 2007 and hedges at year-end 2006. The hedged amounts during 2007 are dependent on the hedging policy for each flow considering the existing risk exposure.
                                                                                                 
    GBP     CAD     AUD     DKK     CZK     CHF     BRL     HUF     USD     EUR     Other     Total  
 
Inflow of currency (long position)
    3,510       2,000       1,370       1,030       900       830       460       1,140       1,440       6,160       6,660       25,500  
Outflow of currency (short position)
    -50       -520       -350       -70             -20             -3,390       -5,060       -11,140       -4,900       -25,500  
Gross transaction flow
    3,460       1,480       1,020       960       900       810       460       -2,250       -3,620       -4,980       1,760        
Hedge
    -2,620       -530       -690       -370       -360       -310       -10       1,250       1,280       2,630       -270        
 
Net transaction flow
    840       950       -330       590       540       500       450       -1,000       -2,340       -2,350       1,490        
     The effect of hedging on operating income during 2006 amounted to SEK 100m, (-304). At year-end 2006, unrealized exchange-rate gains on forward contracts amounted to SEK 23m (22), all of which will mature in 2007.

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     Translation exposure from consolidation of entities outside Sweden
     Changes in exchange rates also affect the Group’s income in connection with translation of income statements of foreign subsidiaries into Swedish krona. Electrolux does not hedge such exposure. The translation exposures arising from income statements of foreign subsidiaries are included in the sensitivity analysis mentioned below.
     Foreign-exchange sensitivity from transaction and translation exposure
     The major currencies that Electrolux is exposed to are the US dollar, the euro, the Canadian dollar and the British pound. Other significant exposures are, for example, the Danish krona, the Australian dollar, the Hungarian forint and the Czech koruna. These currencies represent the majority of the exposures of the Group but are, however, largely offsetting each other as different currencies represent net inflows and outflows. Taking into account all currencies of the Group, a change up or down by 10% in the value of each currency against the SEK would affect the Group’s operating income for one year by approximately SEK +/- 375m, as a static calculation. The model assumes the distribution of earnings and costs effective at the year-end 2006 and does not include any dynamic effects, such as changes in competitiveness or consumer behaviour arising from such changes in exchange rates.
     Exposure from net investments (balance sheet exposure)
     The net of assets and liabilities in foreign subsidiaries constitutes a net investment in foreign currency, which generates a translation difference in connection with consolidation. This exposure can have an impact on the Group’s equity, and thus capital structure, and is hedged according to the financial policy. The Financial Policy stipulates the extent to which the net investments can be hedged and also sets the benchmark for risk measurement. The benchmark was changed at the end of 2006 and only net investments with an equity capitalization exceeding 60% are hedged unless the exposure is considered too high by the Group. The result of this change is that only a limited number of currencies are hedged on a continuous basis. Group Treasury is allowed to deviate from the benchmark under a given risk mandate. Hedging of the Group’s net investments is implemented within the Parent Company in Sweden.
Commodity-price risks
     Commodity-price risk is the risk that the cost of direct and indirect materials could increase as underlying commodity prices rise in global markets. The Group is exposed to fluctuations in commodity prices through agreements with suppliers, whereby the price is linked to the raw material price on the world market. This exposure can be divided into direct commodity exposure, which refers to pure commodity exposures, and indirect commodity exposures, which is defined as exposure arising from only part of a component. Commodity-price risk is mainly managed through contracts with the suppliers.
Credit risk
     Credit risk in financial activities
     Exposure to credit risks arises from the investment of liquid funds, and as counterpart risks related to derivatives. In order to limit exposure to credit risk, a counterpart list has been established which specifies the maximum permissible exposure in relation to each counterpart. The Group strives for arranging master netting agreements (ISDA) with the counterparts for derivative transactions and has established such agreements with the majority of the counterparts; i.e., if the counterparty defaults, assets and liabilities will be netted.
     Credit risk in trade receivables
     Electrolux sells to a substantial number of customers in the form of large retailers, buying groups, independent stores, and professional users. Sales are made on the basis of normal delivery and payment terms, if they are not included in Customer Financing operations in the Group. Customer Financing solutions are also arranged outside the Group. The Credit Policy of the Group ensures that the management process for customer credits includes customer rating, credit limits, decision levels and management of bad debts. The Board of Directors decides on customer credit limits that exceed SEK 300m. There is a concentration of credit exposures on a number of customers in, primarily, USA and Europe.

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Other interest-bearing investments
     Interest-bearing receivables from customer financing amounting to SEK 180m (625) are included in the item Other receivables in the Group’s balance sheet. The Group’s customer financing activities are performed in order to provide sales support and are directed mainly to independent retailers in Scandinavia after the divestment of the Group’s customer financing operations in the US in June 2006. The majority of the financing is shorter than 12 months. There is no major concentration of credit risk related to customer financing. Collaterals and the right to repossess the inventory also reduce the credit risk in the financing operations. The income from customer financing is subject to interest-rate risk. This risk is immaterial to the Group.
Derivative financial instruments
     The tables below present the fair value and nominal amounts of the Group’s derivative financial instruments for managing of financial risks and proprietary trading.
     Valuation of derivative financial instruments at market value, presented in the tables, is done at the most accurate market prices available. This means that instruments, which are quoted on the market, such as, for instance, the major bond and interest-rate future markets, are all marked-to-market with the current spot price. The foreign-exchange spot rate is then used to convert the market value into Swedish kronor. For instruments where no reliable price is available on the market, cash flows are discounted using the deposit/swap curve of the cash-flow currency. In the event that no proper cash-flow schedule is available, for instance, as in the case with forward-rate agreements, the underlying schedule is used for valuation purposes. To the extent option instruments are used, the valuation is based on the Black & Scholes formula.
Derivatives at market value
                                 
    2006   2005
    Assets   Liabilities   Assets   Liabilities
 
Interest-rate swaps
    73       3       118       17  
Fair-value hedges
    59             111        
Held for trading
    14       3       7       17  
Cross currency
                               
Interest-rate swaps
    7       4             11  
Held for trading
    7       4             11  
Forward-rate agreements and futures
    4             1       2  
Held for trading
    4             1       2  
Forward foreign-exchange contracts
    234       239       361       297  
Cash-flow hedges
    154       131       168       144  
Net-investment hedges
    24       63       171       11  
Held for trading
    56       45       22       142  
Commodity derivatives
          1       59       57  
Held for trading
            1       59       57  
 
Total
    318       247       539       384  
Nominal amounts
                 
    2006     2005  
 
Interest-rate swaps
               
Maturity shorter than 1 year
    532       2,459  
Maturity 2-5 years
    3,113       2,329  
Maturity 6-10 years
            94  
 
Total interest-rate swaps
    3,645       4,882  
Cross currency interest-rate swaps
    78       90  
Forward-rate agreements
    6,064       19,432  
Foreign-exchange derivatives (Forward and Options)
    12,472       17,890  
Commodity derivatives
    23          
 
Total
    22,282       42,294  

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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
     Not applicable.

82


 

PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
     Not applicable.

83


 

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
     Not applicable.

84


 

ITEM 15. CONTROLS AND PROCEDURES
     Disclosure Controls and Procedures
     The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
     As of the end of the period covered by this Form 20-F, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in United States Securities Exchange Act of 1934, as amended, Rule 13a-15(e)). Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.
     Management’s Report on Internal Control over Financial Reporting
     The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, Electrolux assessed the effectiveness of its internal control over financial reporting as of December 31, 2006, using the criteria set forth in the Framework Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded that our internal control over financial reporting is effective as of December 31, 2006. PricewaterhouseCoopers AB, our independent registered public accounting firm, has issued an audit report on management’s assessment of our internal control over financial reporting which is included herein.
     Changes in Internal Control over Financial Reporting
     There have been no changes in the Company’s internal control over financial reporting that occurred during the period covered by this Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
     Attestation Report of PricewaterhouseCoopers AB
     For the attestation report of PricewaterhouseCoopers AB, please see “Item 17–Financial Statements–Report of Independent Registered Public Accounting Firm.”

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ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
     The Board of Directors has determined that there is no “audit committee financial expert” as defined in Item 16A of Form 20-F serving on the Audit Committee. No single member of the Audit Committee meets all of the five attributes required to meet the definition of audit committee financial expert. Nonetheless, the Board considers that the Audit Committee members as a group possess adequate skills and expertise to fulfill the tasks entrusted to the Audit Committee.
ITEM 16B. CODE OF ETHICS
     In February 2004, the Board of Directors adopted the Electrolux Group Code of Ethics. It outlines both prescriptive and proscriptive ethical standards that require strict adherence from all employees and Board members of the Electrolux Group, in all markets and at all times. The Code formalizes the principles by which the Group conducts its relations with employees, shareholders, business partners and others. Electrolux encourages suppliers, sales agents, consultants and other business partners to adopt these principles.
     The Electrolux Group Code of Ethics is available at www.electrolux.com/corpgov.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
     At the Annual General Meeting in 2006, PricewaterhouseCoopers AB (PwC) was re-appointed external auditors for a four-year period until the Annual General Meeting in 2010.
     PwC provides an audit opinion on AB Electrolux, the financial statements of its subsidiaries, the consolidated financial statements for the Electrolux Group, and the administration of AB Electrolux.
     The following table presents the aggregate fees for professional services and other services rendered by PricewaterhouseCoopers AB to Electrolux in 2006, 2005 and 2004.
                         
    2006   2005   2004
    SEK million   SEK million   SEK million
Audit Fees(1)
    86       49       46  
Audit-related Fees (2)
    4       3       3  
Tax Fees (3)
    6       9       10  
All other Fees(4)
    0       2        
Total
    96       63       59  
 
(1)   Audit Fees consist of fees billed for the annual audit services engagement and other audit services, which are those services that only the external auditor reasonably can provide, and include the Company audit; statutory audits; comfort letters and consents; attest services; and assistance with and review of documents filed with the SEC.
 
(2)   Audited-related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements or that are traditionally performed by the external auditor; and include consultations concerning financial accounting and reporting standards; internal control reviews and employee benefit plan audits.
 
(3)   Tax Fees include fees billed for tax compliance services, including the preparation of original and amended tax returns and claims for refund; tax consultations, tax advice related to mergers and acquisitions, transfer pricing, and requests for rulings or technical advice from taxing authorities; tax planning services; and expatriate tax planning and services.
 
(4)   All other Fees include fees for due diligence exercises carried out in connection with acquisition target assessments.
     Audit Committee Pre-approval Policies and Procedures
     The purpose of the Audit Committee Pre-approval Policies and Procedures is to ensure that AB Electrolux and its subsidiaries are in full compliance with the Sarbanes-Oxley Act of 2002 (“SOA”) and the SEC Rules regarding Auditor Independence.
     The Audit Committee (“AC”) will in the pre-approval process consider three basic principles before approving any non-audit services: (1) an auditor cannot function in the role of management, (2) an auditor cannot audit his own work and (3) an auditor cannot serve in an advocacy role for his client.

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     AB Electrolux management shall each year submit to the AC an Audit and Permissible Non-Audit Services Matrix (the “Matrix”) listing the types of audit and non-audit services that are permitted under SOA and the SEC Rules and categorizing the types of audit and non-audit services.
     Based on the categories in the Matrix, AB Electrolux management shall each year list each known and/or anticipated audit service for the upcoming calendar year as well as each known and/or anticipated non-audit service together with suggested maximum fee limits for each category of recurring non-audit services.
     At the annual February AC meeting, the AC will either approve or reject the categories of services in the Matrix, either approve or reject each of the listed known and/or anticipated audit services and the associated budgeted fee and either approve or reject each known and/or anticipated non-audit service as well as the suggested maximum fee limit for each category of recurring non-audit services.
     The AC will, at its annual February AC meeting, delegate to the Chairman of the AC the authority to pre-approve interim requests for additional audit and non-audit services.
     Prior to engaging PricewaterhouseCoopers AB for additional non-recurring audit and non-audit services, AB Electrolux management shall submit to the Audit Committee, or if a pre-approval is urgently required, to the Chairman of the AC, an Interim pre-approval request.
     At each subsequent AC meeting after February, the Chairman of the AC shall report to the AC any interim audit or non-audit service pre-approvals since the last AC meeting and AB Electrolux management will provide the AC with a summary description of ongoing and completed audit and non-audit services and a year to date of the actual spending against the pre-approved level for non-audit services and an updated estimate for the full year.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
     Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
                                 
                    Total Number of   Maximum Number of
                    Shares Purchased as   Shares that may yet
    Total Number of   Average Price Paid   Part of Publicly   be Purchased under
Period   Shares Purchased   per share   Announced Programs   the Programs
2006-01-01 to 2006-01-31
                246,190       15,316,982  
2006-02-01 to 2006-02-29
                930,465       16,247,447  
2006-03-01 to 2006-03-31
                1,830,070       18,077,517  
2006-04-01 to 2006-04-30
                153,359       18,230,876  
2006-05-01 to 2006-05-31
                      18,230,876  
2006-06-01 to 2006-06-30
    6,000,000       105.13             12,230,876  
2006-07-01 to 2006-07-31
    2,275,000       105.43       36,981       9,992,857  
2006-08-01 to 2006-08-31
    6,125,000       108.57       320,804       4,188,661  
2006-09-01 to 2006-09-30
    900,000       120.15       504,609       3,793,270  
2006-10-01 to 2006-10-31
    1,780,000       131.30       956,426       2,969,696  
2006-11-01 to 2006-11-30
    2,320,000       135.94       204,579       854,275  
2006-12-01 to 2006-12-31
                51,000       905,275  
 
(1)   Share repurchase programs require the approval of the General Meeting of Shareholders under Swedish law.
 
(2)   In the period covered by the table, the company repurchased 19,400,000 shares. The company sold 5,234,483 shares to options holders under the terms of the employee stock option programs during the same period. The company sold no shares in order to cover the costs of employer contributions for the stock option programs.
Repurchase of Shares
     During the year, Electrolux utilized the mandate for repurchase of shares that was authorized by the Annual General Meeting in the spring of 2006. A total of 19.4 million shares were repurchased on the market at an average price of SEK 113 per share. After adjustment for purchases by senior management, the repurchase

87


 

of shares represents a transfer of SEK 1.5 billion to the shareholders. Over the past five years, Electrolux has repurchased shares in the amount of SEK 5.7 billion, corresponding to an average price of SEK 133 per share.
     During 2006, senior managers in Electrolux purchased 5,234,483 B-shares under the terms of the employee stock option programs. The incentive programs corresponded at year-end 2006 to a maximum dilution of 1.6 percent of the number of shares, or 4,948,346 million B-shares.
     As of December 31, 2006, the company owned a total of 29,986,756 B-shares, corresponding to 9.7 percent of the total number of outstanding shares. On May 31, 2007, Electrolux holdings of own B-shares amounted to 27,463,539 corresponding to 8.9% of the total number of shares, after additional sales of shares to senior managers under the stock option programs.
Repurchase of shares
                                         
 
    2006     2005     2004     2003     2002  
 
Number of shares as of January 1
    308,920,308       308,920,308       324,100,000       338,712,580       366,169,580  
Redemption/cancellation of shares
                -15,179,692 (1)     -14,612,580       -27,457,000  
Number of shares as of December 31
    308,920,308       308,920,308       308,920,308       324,100,000       338,712,580  
 
Number of shares bought back
    19,400,000             750,000       11,331,828       11,246,052  
Total amount paid, SEKm
    2,193             114       1,688       1,703  
Price per share, SEK
    113             152       149       151  
Number of shares sold under terms of the employee stock option programs
    5,234,483       1,918,161       10,600       113,300        
Number of shares held by Electrolux, at year-end
    29,986,756       15,821,239       17,739,400       17,000,000 (2)     20,394,052 (2)
% of outstanding shares
    9.7       5.1       5.7       5.2       6.0  
 
     
(1)   Redemption of shares.
 
(2)   After cancellation of shares.

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PART III
ITEM 17. FINANCIAL STATEMENTS
INDEX
         
    Page
Index to Consolidated Financial Statements
    F-1  
 
       
Report of Independent Registered Public Accounting Firm
    F-2  
 
       
Consolidated Income Statements for the Years Ended December 31, 2004, 2005 and 2006
    F-3  
 
       
Consolidated Balance Sheets, December 31, 2005 and 2006
    F-4  
 
       
Consolidated Statements of Cash Flow for the Years Ended December 31, 2004, 2005 and 2006
    F-6  
 
       
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2004, 2005 and 2006
    F-7  
 
       
Notes to Consolidated Financial Statements
    F-8  
 
       
Schedule II Valuation and Qualifying Accounts and Reserves for the Years Ended December 31, 2004, 2005 and 2006
    F-74  

F-1


 

(PRICE WATERHOUSE ECOOPERS LOGO)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AB Electrolux:
We have completed an integrated audit of AB Electrolux’s 2006 consolidated financial statements and of its internal control over financial reporting as of December 31, 2006 and audits of its 2005 and 2004 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
Consolidated financial statements and financial statement schedules
In our opinion, the accompanying consolidated balance sheets and the related consolidated income statements, statements of changes in stockholders’ equity and cash flow statements present fairly, in all material respects, the financial position of AB Electrolux and its subsidiaries at December 31, 2006 and December 31, 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with International Financial Reporting Standards as adopted by the EU. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 17, present fairly, in all material respects the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
International Financial Reporting Standards vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 30 to the consolidated financial statements.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in “Management’s Report on Internal Control Over Financial Reporting”, appearing under Item 15, that the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

F-2


 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers AB
/s/ PricewaterhouseCoopers AB
Stockholm, Sweden
June 21, 2007

F-3


 

AB ELECTROLUX AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
YEARS ENDED DECEMBER 31
                         
(SEKm)   2006     2005     2004  
Net sales (Note 3, 4)
    103,848       100,701       93,449  
Cost of goods sold
    -79,664       -77,270       -71,135  
     
Gross operating income
    24,184       23,431       22,314  
     
 
                       
Selling expenses
    -15,294       -14,635       -14,127  
Administrative expenses
    -4,467       -4,945       -4,470  
Other operating income (Note 5)
    185       230       115  
Other operating expenses (Note 6)
    -33       -57       -48  
Items affecting comparability (Note 7)
    -542       -2,980       -1,960  
     
Operating income (Notes 3, 4, 8)
    4,033       1,044       1,824  
 
                       
Financial income (Note 9)
    538       225       574  
Financial expenses (Note 9)
    -746       -775       -824  
Financial items, net
    -208       -550       -250  
     
Income after financial items
    3,825       494       1,574  
 
                       
Taxes (Note 10)
    -1,177       -636       -290  
Income for the period from continuing operations
    2,648       -142       1,284  
     
Income for the period from discontinued operations
    1,199       1,905       1,975  
     
Income for the period
    3,847       1,763       3,259  
     
Attributable to:
                       
Equity holders of the Parent Company
    3,847       1,763       3,258  
Minority interests in income for the period
    0       0       1  
     
 
    3,847       1,763       3,259  
     
Earnings per share for continuing operations, SEK (Note 20)
                       
Basic
    9.17       -0.49       4.30  
Diluted
    9.14       -0.49       4.30  
 
                       
Average number of shares, millions (Note 20)
                       
Basic
    288.8       291.4       298.3  
Diluted
    289.8       293.2       298.6  
The accompanying notes form an integral part of these consolidated financial statements.

F-4


 

AB ELECTROLUX AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
YEARS ENDED DECEMBER 31
                 
ASSETS (SEKm)   2006     2005  
Non-current assets
               
Property, plant and equipment (Note 12)
    14,209       18,622  
Goodwill (Note 11)
    1,981       3,872  
Other intangible assets (Note 11)
    1,780       2,228  
Investments in associates (Note 28)
    80       124  
Deferred tax assets (Note 10)
    2,216       2,950  
Derivatives (Note 17)
          118  
Financial assets (Note 13)
    1,692       1,817  
     
Total non-current assets
    21,958       29,731  
     
Current assets
               
Inventories (Note 14)
    12,041       18,606  
Trade receivables (Note 16)
    20,905       24,269  
Tax assets
    461       637  
Derivatives (Note 17)
    318       421  
Other current assets (Note 15)
    3,248       3,851  
Short-term investments (Note 17)
    1,643       623  
Cash and cash equivalents (Note 17)
    5,475       4,420  
     
Total current assets
    44,091       52,827  
     
Total assets
    66,049       82,558  
 
               
     
Assets pledged (Note 19)
    93       118  
     
The accompanying notes form an integral part of these consolidated financial statements.

F-5


 

AB ELECTROLUX AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
YEARS ENDED DECEMBER 31
                 
EQUITY AND LIABILITIES (SEKm)   2006     2005  
Equity attributable to equity holders of the Parent Company
               
Share capital (Note 20)
    1,545       1,545  
Other paid-in capital
    2,905       2,905  
Other reserves (Note 18)
    -11       1,653  
Retained earnings
    8,754       19,784  
     
 
    13,193       25,887  
     
 
               
Minority interests
    1       1  
     
Total equity
    13,194       25,888  
     
 
               
Non-current liabilities
               
Long-term borrowings (Note 17)
    4,502       5,257  
Derivatives (Note 17)
          6  
Deferred tax liabilities (Note 10)
    1,205       1,417  
Provisions for post-employment benefits (Note 21)
    6,586       8,226  
Other provisions (Note 22)
    4,258       4,377  
     
Total non-current liabilities
    16,551       19,283  
     
 
               
Current liabilities
               
Accounts payable
    15,320       18,798  
Tax liabilities
    1,651       1,123  
Share redemption
    5,579        
Other liabilities (Note 23)
    9,293       11,006  
Short-term borrowings (Note 17)
    2,582       3,076  
Derivatives (Note 17)
    247       378  
Other provisions (Note 22)
    1,632       3,006  
     
Total current liabilities
    36,304       37,387  
     
Total liabilities
    52,855       56,670  
     
Total equity and liabilities
    66,049       82,558  
     
Contingent liabilities (Note 24)
    1,022       1,302  
     
The accompanying notes form an integral part of these consolidated financial statements.

F-6


 

AB ELECTROLUX AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31
                         
CASH FLOW STATEMENTS (SEK m)   2006     2005     2004  
Operations
                       
Income after financial items
    3,825       494       1,574  
Depreciation and amortization
    2,758       2,583       2,320  
Capital gain/loss included in operating income
    112       419       0  
Restructuring provisions
    -737       2,164       1,224  
Share-based compensation
    86       88       47  
Change in accrued and prepaid interest
    -38       58       52  
Taxes paid
    -743       -540       -1,080  
     
 
                       
Cash flow from operations, excluding change in operating assets and liabilities
    5,263       5,266       4,137  
     
 
                       
Change in operating assets and liabilities
                       
Change in inventories
    -748       -935       -664  
Change in trade receivables
    -856       -1,749       6  
Change in other current assets
    -354       253       324  
Change in accounts payable
    1,779       190       1,387  
Change in operating liabilities and provisions
    -524       437       277  
     
Cash flow from change in operating assets and liabilities
    -703       -1,804       1,330  
     
Cash flow from operations
    4,560       3,462       5,467  
 
                       
Investments
                       
Divestment of operations (Note 25)
    1,064       -370       0  
Capital expenditure in property, plant and equipment (Note 12)
    -3,152       -3,654       -3,605  
Capitalization of product development and software (Note 11)
    -515       -405       -539  
Other
    217       -56       -172  
     
Cash flow from investments
    -2,386       -4,485       -4,316  
 
                       
Cash flow from operations and investments
    2,174       -1,023       1,151  
 
                       
Financing
                       
Change in short-term investments
    -805       -122       3,368  
Change in short-term borrowings
    -356       -943       562  
New long-term borrowings
    583       2,344       0  
Amortization of long-term borrowings
    -1,635       -2,334       -377  
Dividend
    -2,222       -2,038       -1,993  
Repurchase and sale of shares
    -1,463       355       -3,154  
     
Cash flow from financing
    -5,898       -2,738       -1,594  
Cash Flow from continuing operations
    -3,724       -3,761       -443  
 
                       
Cash flow from discontinued operations
                       
Cash flow from operations
    -2,446       3,078       3,115  
Cash flow from investments
    -727       -1,342       -1,042  
Cash flow from financing
    8,504       -1,597       -2,059  
Cash flow from discontinued operations
    5,331       139       14  
 
                       
Total cash flow
    1,607       -3,622       -429  
Cash and cash equivalents beginning of year
    4,420       7,675       8,207  
Exchange-rate differences referring to cash and cash equivalents
    -552       367       -103  
Cash and cash equivalents at year-end
    5,475       4,420       7,675  
     
 
                       
Change in net borrowings
                       
Total cash flow, excluding change in loans and other short-term investments
    3,820       -970       -1,923  
Net borrowings at beginning of year
    -2,974       -1,141       101  
Exchange-rate differences referring to net borrowings
    -542       -863       681  
Net borrowings at year-end
    304       -2,974       -1,141  
     
The accompanying notes form an integral part of these consolidated financial statements.

F-7


 

AB ELECTROLUX AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31
(SEKm, except per share amounts)
                                                         
    Attributable to equity holders of the company        
            Other                        
    Share-   paid-in   Other   Retained           Minority   Total
    capital1)   capital   reserves2)   earnings   Total   interest   equity
Opening balance, January 1, 2004
    1,621       2,829             21,494       25,944       27       25,971  
     
Exchange differences on translation of foreign operations
                                                       
Net investment hedge
                41             41             41  
Translation difference
                -530             -530             -530  
Share-based payment
                                                       
Share-based payment
                      42       42             42  
     
Income for the period recognized directly in equity
                -489       42       -447             -447  
     
Income for the period
                      3,260       3,260       -1       3,259  
     
Total recognized income and expenses for the period
                -489       3,302       2,813       -1       2,812  
     
Repurchase and sale of shares
                      -112       -112             -112  
Redemption of shares
                      -3,042       -3,042             -3,042  
Cancellation of shares
    -76       76                                
Dividend SEK 6.50 per share
                      -1,993       -1,993             -1,993  
Acquisition of minority
                      16       16       -16        
     
Total transactions with equity holders
    -76       76             -5,131       -5,131       -16       -5,147  
     
Closing balance, December 31, 2004
    1,545       2,905       -489       19,665       23,626       10       23,636  
Effects of changes in accounting principles
                7       -9       -2             -2  
     
Opening balance January 1, 2005, after changes in accounting principles
    1,545       2,905       -482       19,656       23,624       10       23,634  
     
Available for sale instruments
                                                       
Gain/loss taken to equity
                24             24             24  
Transferred to income statement on sale
                                         
Cash-flow hedges
                                                       
Gain/loss taken to equity
                16             16             16  
Transferred to income statement on sale
                -7             -7             -7  
Exchange differences on translation of foreign operations
                                                       
Net-investment hedge
                -615             -615             -615  
Translation difference
                2,717             2,717             2,717  
Share-based payment
                                                       
Share-based payment
                      72       72             72  
     
Income for the period recognized directly in equity
                2,135       72       2,207             2,207  
     
Income for the period
                      1,763       1,763             1,763  
     
Total recognized income and expenses for the period
                2,135       1,835       3,970             3,970  
     
Divestment of minority
                                  -9       -9  
Repurchase and sale of shares
                      331       331             331  
Dividend SEK 7.00 per share
                      -2,038       -2,038             -2,038  
     
Total transactions with equity holders
                      -1,707       -1,707       -9       -1,716  
     
Closing balance, Dec. 31, 2005
    1,545       2,905       1,653       19,784       25,887       1       25,888  
     
Available for sale instruments
                                                       
Gain/loss taken to equity
                30             30             30  
Transferred to income statement on sale
                                         
Cash-flow hedges
                                                       
Gain/loss taken to equity
                -34             -34             -34  
Transferred to income statement on sale
                                         
Exchange differences on translation of foreign operations
                                                       
Equity hedge
                421             421             421  
Translation difference
                -2,081             -2,081             -2,081  
Share-based payment
                                                       
Share-based payment
                      86       86             86  
     

F-8


 

                                                         
    Attributable to equity holders of the company        
            Other                        
    Share-   paid-in   Other   Retained           Minority   Total
    capital1)   capital   reserves2)   earnings   Total   interest   equity
Income for the period recognized directly in equity
                -1,664       86       -1,578             -1,578  
     
Income for the period
                      3,847       3,847             3,847  
     
Total recognized income and expenses for the period
                -1,664       3,933       2,269             2,269  
     
Repurchase and sale of shares
                      -1,463       -1,463             -1,463  
Dividend SEK 7.00 per share
                      -2,222       -2,222             -2,222  
Distribution of Husqvarna shares
                      -5,696       -5,696             -5,696  
Redemption of shares
                      -5,582       -5,582             -5,582  
     
Total transactions with equity holders
                      -14,963       -14,963             -14,963  
     
Closing balance, Dec. 31, 2006
    1,545       2,905       -11       8,754       13,193       1       13,194  
     
 
1)   For more information, see Note 20.
 
2)   For more information, see Note 18.
The accompanying notes form an integral part of these consolidated financial statements.

F-9


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in SEK million, unless otherwise stated
Note 1 Accounting and valuation principles
Basis of preparation
     The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Some additional information is disclosed based on the standard RR 30:05 from the Swedish Financial Accounting Standards Council. As required by IAS 1, Electrolux companies apply uniform accounting rules, irrespective of national legislation, as defined in the Electrolux Accounting Manual, which is fully compliant with IFRS. The policies set out below have been consistently applied to all years presented.
Principles applied for consolidation
     The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group, whereby the assets and liabilities in a subsidiary on the date of acquisition are recognized and measured to determine the acquisition value to the Group.
     If the cost of the business combination exceeds the fair value of the identifiable assets, liabilities and contingent liabilities, the difference is recognized as goodwill. If the fair value of the acquired net assets exceeds the cost of the business combination, the acquirer must reassess the identification and measurement of the acquired assets. Any excess remaining after that reassessment must be recognized immediately in profit or loss. The consolidated income for the Group includes the income statements for the Parent Company and the direct and indirect owned subsidiaries after:
  elimination of intra-group transactions, balances and unrealized intra-group profits.
  depreciation and amortization of acquired surplus values.
Definition of Group companies
     The consolidated financial statements include AB Electrolux and all companies in which the Parent Company has the power to govern the financial and operating policies, generally accompanying a shareholding of more than 50% of the voting rights referring to all shares and participations.
The following applies to acquisitions and divestments during the year:
  Companies acquired during the year have been included in the consolidated income statement as of the date when Electrolux gains control.
  Companies divested during the year have been included in the consolidated income statement up to and including the date when Electrolux loses control.
At year-end 2006, the Group comprised 257 (355) operating units, and 209 (281) companies.
Associated companies
     Associates are all companies over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associated companies have been reported according to the equity method. This means that the Group’s share of income after taxes in an associated company is reported as part of the Group’s income. Investments in such a company are reported initially at cost, increased, or decreased to recognize the Group’s share of the profit or loss of the associated company after the date of acquisition. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate. Gains or losses on transactions with associated companies, if any, have been recognized to the extent of unrelated investors’ interests in the associate.

F-10


 

Related party transactions
     All transactions with related parties are carried out on an arms-length basis.
Foreign currency translations
     Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.
     The consolidated financial statements are presented in SEK, which is the Group’s functional and presentation currency.
     The balance sheets of foreign subsidiaries have been translated into SEK 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 and whose functional currency is other than the local currency have been remeasured into their functional currency and the exchange-rate differences arising from that remeasurement have been charged to income. When the functional currency is the local currency, the financial statements have been restated in accordance with IAS 29.
     The Group 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, to the extent to which there are corresponding translation differences.
     When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognized in the income statement as part of the gain or loss on sales.
     Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
Segment reporting
     The Group’s primary segments, business areas, follow the internal management of the Group, which are the basis for identifying the predominant source and nature of risks and differing rates of return facing the entity, and are based on the different business models for end-customers and indoor users. The secondary segments are based on the Group’s consolidated sales per geographical market, geographical areas.
     The segments are responsible for the operating result and the net assets used in their businesses, whereas finance net and taxes as well as net borrowings and equity is not reported per segment. The operating results and net assets of the segments are consolidated using the same principles as for the total Group. The segments consist of separate legal units as well as divisions in multi-segment legal units where some allocations of costs and net assets are made. Operating costs not included in the segments are shown under Group common costs, which refer to common Group services including corporate functions.
     Sales between segments are made on market conditions with arms-length principles.
Revenue recognition
     Sales are recorded net of value-added tax, specific sales taxes, returns, and trade discounts. Revenues arise from sales of finished products and services. 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, such as installation or repair of products, has been performed.

F-11


 

Items-affecting comparability
     This item includes events and transactions with significant effects, which are relevant for understanding the financial performance when 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, which is sometimes known as the balance sheet liability method. Deferred taxes are calculated using enacted or substantially enacted tax rates by the balance sheet date. 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 to the extent it is probable that they will be utilized in future periods. Deferred tax assets and deferred tax liabilities are shown net when they refer to the same taxation authority and when a company or a group of companies, through tax consolidation schemes, etc., have a legally enforceable right to set off tax assets against tax liabilities.
Monetary assets and liabilities in foreign currency
     Monetary assets and liabilities denominated in foreign currency are valued at year-end exchange rates and the exchange-rate differences are included in the income statement, except when deferred in equity for the effective part of qualifying net-investment hedges.
Intangible fixed assets
Goodwill
     Goodwill is reported as an indefinite life intangible asset at cost less accumulated impairment losses. The value of goodwill is continuously monitored, and is tested for yearly impairment or more often if there is indication that the asset might be impaired. Goodwill is allocated to the cash generating units that are expected to benefit from the combination.
Trademarks
     Trademarks are shown at historical cost. The Electrolux trademark in North America, acquired in May 2000, is regarded as an indefinite life intangible asset and is not amortized but tested for impairment annually and whenever there is an indication that the intangible asset may be impaired. One of the Group’s key strategies is to develop Electrolux into the leading global brand within the Group’s product categories. This acquisition has given Electrolux the right to use the Electrolux brand worldwide, whereas it previously could be used only outside of North America. All other trademarks are amortized over their useful lives, estimated to 10 years, using the straight-line method.
Product development expenses
     Electrolux capitalizes certain development expenses for new products if the level of certainty of their future economic benefits and useful life is high. The intangible asset is only recognized if the product is sellable on existing markets and that resources exist to complete the development. Only expenditures, which are directly attributable to the new product’s development, are recognized. Capitalized development costs are amortized

F-12


 

over their useful lives, between 3 and 5 years, using the straight-line method. The assets are tested for impairment annually and whenever there is an indication that the intangible asset may be impaired.
Computer software
     Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized over useful lives, between 3 and 5 years, using the straight-line method. Computer software is tested for impairment annually and whenever there is an indication that the intangible asset may be impaired.
Property, plant and equipment
     Property, plant, and equipment are stated at historical cost less straight-line accumulated depreciation, adjusted for any impairment charges. Historical cost includes expenditures that are directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and are of material value. All other repairs and maintenance are charged to the income statement during the period in which they are incurred. Land is not depreciated as it is considered to have an endless useful period, but otherwise depreciation is calculated using the straight-line method and is based on the following estimated useful lives:
     
Buildings and land improvements
  10-40 years
Machinery and technical installations
  3-15 years
Other equipment
  3-10 years
Impairment of non-current assets
     At each balance sheet date, the Group assesses whether there is any indication that any of the company’s non-current assets are impaired. If any such indication exists, the company estimates the recoverable amount of the asset. The recoverable amount is the higher of an asset’s fair value less cost to sell and value in use. An impairment loss is recognized by the amount of which the carrying amount of an asset exceeds its recoverable amount. The discount rates used reflect the cost of capital and other financial parameters in the country or region where the asset is in use. For the purposes of assessing impairment, assets are grouped in cash-generating units, which are the smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
Classification of financial assets
     The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss; loans and receivables; held-to-maturity investments; and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition.
Financial assets at fair value through profit or loss
     This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorized as held for trading, presented under derivatives in the balance sheet, unless they are designated as hedges. Assets in this category are classified as current assets if they either are held for trading or are expected to be realized within 12 months of the balance sheet date.
Loans and receivables
     Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are included in trade and other receivables in the balance sheet.

F-13


 

Held-to-maturity investments
     Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that management has the positive intention and ability to hold to maturity. During the year and last year, the Group did not hold any investments in this category.
Available-for-sale financial assets
     Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets as financial assets unless management intends to dispose of the investment within 12 months of the balance sheet date.
Recognition and measurement of financial assets
     Regular purchases and sales of investments, financial assets, are recognized on trade-date, the date on which the Group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Investments are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans, receivables, and held-to-maturity investments are carried at amortized cost using the effective interest method. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are included in the income statement in the period in which they arise and reported as operating result. Unrealized gains and losses arising from changes in the fair value of financial assets classified as available-for-sale are recognized in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities and reported as operating result.
     The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active, the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash-flow analysis, and option-pricing models refined to reflect the issuer’s specific circumstances.
     The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss is removed from equity and recognized in the income statement. Impairment losses recognized in the income statement are not reversed through the income statement.
Assets held for sale and discontinued operations
     The Group classifies a non-current asset or disposal group as held for sale if its carrying amount will be recovered principally through a sale. For classification as held for sale the asset or disposal group must be available for immediate sale in its present condition and its sale must be highly probable.
     A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale.
     Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. A disposal group that is to be abandoned may also qualify.
     Immediately before classification as held for sale, the measurement of the assets and all assets and liabilities in a disposal group is brought up-to-date in accordance with applicable IFRSs. Then, on initial classification as held for sale, non-current assets and disposal groups are recognized at the lower of carrying amount and fair value less costs to sell.
Leasing
     A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred. An operating lease is a lease other than a finance lease.

F-14


 

Assets under financial leases in which the Group is a lessee are recognized in the balance sheet and the future leasing payments are recognized as a loan. Expenses for the period correspond to depreciation of the leased asset and interest cost for the loan. The Group’s activities as a lessor are not significant.
     The Group generally owns its production facilities. The Group rents some warehouse and office premises under leasing agreements and has also leasing contracts for certain office equipment. Most leasing agreements in the Group are operational leases and the costs recognized directly in the income statement in the corresponding period. Financial leases are capitalized at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments.
     The leased assets are depreciated over its useful lifetime. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the assets are fully depreciated over the shorter of the lease term and its useful life.
Inventories
     Inventories and work in progress are valued at the lower of acquisition cost and net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale at market value. The cost of inventories is assigned by using the weighted average cost formula. Appropriate provisions have been made for obsolescence.
Trade receivables
     Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The change in amount of the provision is recognized in the income statement.
Cash and cash equivalents
     Cash and cash equivalents consist of cash on hand, bank deposits and other short-term highly liquid investments with a maturity of three months or less.
Provisions
     Provisions are recognized when the Group has a present obligation as a result of a past event, and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized, as a provision is the best estimate of the expenditure required to settle the present obligation at the balance sheet date. Where the effect of time value of money is material, the amount recognized is the present value of the estimated expenditures.
     Provisions for warranty are recognized at the date of sale of the products covered by the warranty and are calculated based on historical data for similar products.
     Restructuring provisions are recognized when the Group has both adopted a detailed formal plan for the restructuring and has, either started the plan implementation, or communicated its main features to those affected by the restructuring.
Post-employment benefits
     Post-employment benefit plans are classified as either defined contribution or defined benefit plans.
     Under a defined contribution plan, the company pays fixed contributions into a separate entity and will have no legal obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits. Contributions are expensed when they are due.

F-15


 

     All other post-employment benefit plans are defined benefit plans. The Projected Unit Credit Method is used to measure the present value of the obligations and costs. The calculations are made annually using actuarial assumptions determined at the balance sheet date. Changes in the present value of the obligations due to revised actuarial assumptions are treated as actuarial gains or losses and are amortized over the employees’ expected average remaining working lifetime in accordance with the corridor approach. Differences between expected and actual return on plan assets are treated as actuarial gains or losses.
     Net provisions for post-employment benefits in the balance sheet represent the present value of the Group’s obligations at year-end less market value of plan assets, unrecognized actuarial gains and losses and unrecognized past-service costs.
Borrowings
     Borrowings are initially recognized at fair value net of transaction costs incurred. After initial recognition, borrowings are valued at amortized cost using the effective interest method.
Derivative financial instruments and hedging activities
     Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: hedges of the fair value of recognized assets or liabilities or a firm commitment (fair-value hedges); hedges of highly probable forecast transactions (cash-flow hedges); or hedges of net investments in foreign operations.
     The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
     The fair values of various derivative instruments used for hedging purposes are disclosed in Note 17. Movements on the hedging reserve in shareholder’s equity are shown in the consolidated statement of changes in equity.
Fair-value hedge
     Changes in the fair value of derivatives that are designated and qualify as fair-value hedges are recorded as financial items in the income statement, together with any changes in the fair-value of the hedged asset or liability that are attributable to the hedged risk. The Group applies fair-value hedge accounting only for hedging fixed interest risk on borrowings. The gain or loss relating to changes in the fair value of interest-rate swaps hedging fixed rate borrowings is recognized in the income statement as financial expense. Changes in the fair-value of the hedged fixed rate borrowings attributable to interest rate risk are recognized in the income statement as financial expense.
     If the hedge no longer meets the criteria for hedge accounting or are de-designated, the adjustment to the carrying amount of a hedged item for which the effective interest method is used, is amortized in the profit and loss statement as financial expense over the period of maturity.
Cash-flow hedge
     The effective portion of change in the fair-value of derivatives that are designated and qualify as cash-flow hedges are recognized in equity. The gain or loss relating to the ineffective portion is recognized immediately in the income statement as financial items.
     Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item will affect profit or loss for instance when the forecast sale that is hedged takes place.

F-16


 

     Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised; when the hedge no longer meets the criteria for hedge accounting; when the forecast transaction is no longer expected to occur; or when the entity revokes the designation. When any of these occur, the cumulative gains or losses that had been recognized directly in equity are recognized in profit or loss within financial items.
Net-investment hedge
     Hedges of net investments in foreign operations are accounted for similarly to cash-flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in equity; the gain or loss relating to the ineffective portion is recognized immediately in the income statement as financial items.
     Gains and losses accumulated in equity are included in the income statement when the foreign operation is disposed of, or when a partial disposal occurs.
Derivatives that do not qualify for hedge accounting
     Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognized immediately in the income statement as financial items.
Share-based compensation
     IFRS 2 is applied for share-based compensation programs granted after November 7, 2002, and that had not vested on January 1, 2005. The instruments granted are either share options or shares, depending on the program. An estimated cost for the granted instruments, based on the instruments’ fair value at grant date, and the number of instruments expected to vest is charged to the income statement over the vesting period. The fair value of share options is calculated using a valuation technique, which is consistent with generally accepted valuation methodologies for pricing financial instruments and takes into consideration factors that knowledgeable, willing market participants would consider in setting the price. The fair-value of shares is the market value at grant date, adjusted for the discounted value of future dividends which employees will not receive. For Electrolux, the share-based compensation programs are classified as equity-settled transactions, which mean that the cost of the granted instrument’s fair- value at grant date is recognized over the vesting period 3 years.
     In addition, the Group provides for employer contributions expected to be paid in connection with the share-based compensation programs. The costs are charged to the income statement over the vesting period. The provision is periodically revalued based on the fair-value of the instruments at each closing date. For details of the share-based compensation programs, please refer to Note 21.
Government grants
     Government grants relate to financial grants from governments, public authorities, and similar local, national, or international bodies. These are recognized when there is a reasonable assurance that the Group will comply with the conditions attaching to them, and that the grants will be received. Government grants related to assets are included in the balance sheet as deferred income and recognized as income over the useful life of the assets. In 2006, Government grants recognized in the balance sheet amounted to SEK 11m (40). Government grants that relate to expenses are recognized in the income statement as a deduction of the related expense. In 2006, these grants amounted to SEK 116m (16).
New accounting principles applicable for Electrolux as from 2006
     The IASB has issued a number of new standards and interpretations as well as amendments to standards and interpretations that have affected the Group in different degrees.
     Amendment to IAS 19 Option to recognize actuarial gains and losses in full, outside profit or loss, in a statement of changes in equity and added disclosures. Electrolux has chosen not to use the allowed option and continues to amortize actuarial gains and losses according to the corridor method.

F-17


 

     Amendment to IAS 21 Net Investment in a Foreign Operation, which specifies the treatment of certain exchange differences.
     This amendment has not had any effect on the consolidated figures.
     Amendment to IAS 39 Hedges of forecast intragroup transactions which state that the foreign currency risk of a highly probable forecast intragroup transaction may qualify as a hedged item in consolidated financial statements provided that the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and the foreign currency risk will affect consolidated profit or loss. This amendment has been applied as from 2005.
     Amendment to IAS 39 The Fair Value Option which permits, under certain conditions, an entity to designate certain instruments upon initial recognition as at fair value through profit or loss. The implementation of this option has not had any effect on the consolidated figures.
     Amendment to IAS 39 Financial guarantee contracts. This amendment defines financial guarantee contracts and states that financial guarantee contracts issued are under the scope of IAS 39 and shall be initially recognized at fair-value and subsequently measured at the higher of (a) the amount determined in accordance with IAS 37 and (b) the amount initially recognized less, when appropriate, cumulative amortization recognized in accordance with IAS 18. This amendment has been applied as from January 1, 2006.
     IFRIC 4 Determining whether an Arrangement contains a Lease. It requires an assessment of whether (a) fulfillment of the arrangement is dependent on the use of a specific asset or assets, and (b) the arrangement conveys a right to use the asset. IFRIC 4 is effective from January 1, 2006. IFRIC 4 has not had any effect on the consolidated figures.
     IFRIC 6 Liabilities arising from Participating in a Specific Market-Waste Electrical and Electronic Equipment. IFRIC 6 has been applied as from 2005.
New Accounting principles applicable for Electrolux as from 2007
     The IASB has issued a number of new standards and interpretations as well as amendments to standards and interpretations that are applicable for Electrolux as from January 1, 2007. While the Group has not yet evaluated the complete effect of the implementation of the new and amended standards and interpretations, it does not expect them to have any material impact on the Group’s financial position.
     IFRS 7 Financial Instruments: Disclosures. This standard supersedes IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions, and states principles for presenting financial assets and liabilities that complement those included in IAS 32, Financial Instruments: Presentation and IAS 39, Financial Instruments: Recognition and Measurement. IFRS 7 is effective for annual periods beginning on or after January 1, 2007.
     Amendment to IAS 1 Capital Disclosures requires that an entity shall disclose information that enables users of its financial statement to evaluate the entity’s objectives, policies, and processes for managing capital. This amendment is effective for annual periods beginning on or after January 1, 2007.
     IFRIC 7 Applying the Restatement Approach under IAS 29, Financial Reporting in Hyperinflationary Economies, which provides guidance on how to apply the requirements of IAS 29 in a reporting period in which an entity identifies the existence of hyperinflation in the economy of its functional currency, when that economy was not hyperinflationary in the prior period. This Interpretation is effective for annual periods beginning on or after March 1, 2006.
     IFRIC 8 Scope of IFRS 2 which states that the entity shall measure unidentifiable goods or services received as consideration for equity instruments of the entity as the difference between the fair value of the share-based payment and the fair value of any identifiable goods or services received. This interpretation is effective for annual periods beginning on or after May 1, 2006.
     IFRIC 9 Reassessment of Embedded Derivatives which states that an entity shall asses whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when

F-18


 

the entity first becomes a party to the contract and that subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly moves the cash flows that otherwise would be required under the contract, in which case reassessment is required. This interpretation is effective for annual periods beginning on or after June 1, 2006.
     IFRIC 10 Interim financial reporting and Impairment. This Interpretation states that an entity shall not reverse an impairment loss recognized in a previous interim period in respect of goodwill or an investment in either an equity instrument or a financial asset carried at cost. This interpretation is effective for annual periods beginning on or after November 1, 2006.
Critical accounting policies and key sources of estimation uncertainty
Use of estimates
     Management of the Group has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates.
     The discussion and analysis of our results of operations and financial condition are based on our consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU. The preparation of these financial statements requires management to apply certain accounting methods and policies that may be based on difficult, complex or subjective judgments by management or on estimates based on experience and assumptions determined to be reasonable and realistic based on the related circumstances. The application of these estimates and assumptions affects the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of net sales and expenses during the reporting period. Actual results may differ from these estimates under different assumptions or conditions. Electrolux has summarized below the accounting policies that require more subjective judgment of the management in making assumptions or estimates regarding the effects of matters that are inherently uncertain.
Asset impairment
     All non-current assets, including goodwill, are evaluated for impairment yearly or whenever events or changes in circumstances indicate that, the carrying amount of an asset may not be recoverable. An impaired asset is written down to its recoverable amount based on the best information available. Different methods have been used for this evaluation, depending on the availability of information. When available, market value has been used and impairment charges have been recorded when this information indicated that the carrying amount of an asset was not recoverable. In the majority of cases, however, market value has not been available, and the fair value has been estimated by using the discounted cash-flow method based on expected future results. Differences in the estimation of expected future results and the discount rates used could have resulted in different asset valuations.
     Non-current assets excluding goodwill and intangible assets with indefinite lives are depreciated on a straight-line basis over their estimated useful lives. Useful lives for property, plant, and equipment are estimated between 10 and 40 years for buildings and land improvements, 3 and 15 years for machinery and technical installations and 3 and 10 years for other equipment. The carrying amount for property, plant, and equipment at year-end 2006 amounted to SEK 14,209m. The carrying amount for goodwill at year-end 2006 amounted to SEK 1,981m. Management regularly reassesses the useful life of all significant assets. Management believes that any reasonably possible change in the key assumptions on which the asset’s recoverable amounts are based would not cause their carrying amounts to exceed their recoverable amounts.
Deferred taxes
     In the preparation of the financial statements, Electrolux estimates the income taxes in each of the taxing jurisdictions in which the Group operates as well as any deferred taxes based on temporary differences. Deferred tax assets relating mainly to tax loss carry-forwards and temporary differences are recognized in those cases when future taxable income is expected to permit the recovery of those tax assets. Changes in assumptions in the projection of future taxable income as well as changes in tax rates could result in significant differences in the valuation of deferred taxes. As of December 31, 2006, Electrolux had a net amount of SEK 1,011m

F-19


 

recognized as deferred tax assets in excess of deferred tax liabilities. As of December 31, 2006, the Group had tax loss carry-forwards and other deductible temporary differences of SEK 4,718m, which have not been included in computation of deferred tax assets.
Trade receivables
     Receivables are reported net of allowances for doubtful receivables. The net value reflects the amounts that are expected to be collected, based on circumstances known at the balance sheet date. Changes in circumstances such as higher than expected defaults or changes in the financial situation of a significant customer could lead to significantly different valuations. At year-end 2006, trade receivables, net of provisions for doubtful accounts, amounted to SEK 20,905m. The total provision for doubtful accounts at year-end 2006 was SEK 584m.
Post-employment benefits
     Electrolux sponsors defined benefit pension plans for some of its employees in certain countries. The pension calculations are based on assumptions about expected return on assets, discount rates and future salary increases. Changes in assumptions affect directly the service cost, interest cost and expected return on assets components of the expense. Gains and losses which result when actual returns on assets differ from expected returns, and when actuarial liabilities are adjusted due to experienced changes in assumptions, are subject to amortization over the expected average remaining working life of the employees using the corridor approach. Expected return on assets used in 2006 was 6.3% based on historical results. A reduction by one percentage point would have increased the net pension cost in 2006 by approximately SEK 140m. The discount rate used to estimate liabilities at the end of 2005 and the calculation of expenses during 2006 was 4.9%. A decrease of such rate by 0.5 percentage point would have increased the service-cost component of expense by approximately SEK 50m.
Restructuring
     Restructuring charges include required write-downs of assets and other non-cash items, as well as estimated costs for personnel reductions. The charges are calculated based on detailed plans for activities that are expected to improve the Group’s cost structure and productivity. In general, the outcome of similar historical events in previous plans are used as a guideline to minimize these uncertainties. The restructuring programs announced during 2006 had a total charge against operating income of SEK 490m.
Warranties
     As it is customary in the industry in which Electrolux operates, many of the products sold are covered by an original warranty, which is included in the price and which extends for a predetermined period of time. Reserves for this original warranty are estimated based on historical data regarding service rates, cost of repairs, etc. Additional reserves are created to cover goodwill warranty and extended warranty. While changes in these assumptions would result in different valuations, such changes are unlikely to have a material impact on the Group’s results or financial situation. As of December 31, 2006, Electrolux had a provision for warranty commitments amounting to SEK 1,585 m. Revenues from extended warranty is recognized on a linear basis over the contract period unless there is evidence that some other method better represents the stage of completion.
Accrued expenses — Long-term incentive programs
     Electrolux records a provision for the expected employer contributions, social security charges, arising when the employees exercise their options under the 2000-2003 Employee Option Programs or receive shares under the 2004-2006 Performance Share Programs. Employer contributions are paid based on the benefit obtained by the employee when exercising the options or receiving shares. The establishment of the provision requires the estimation of the expected future benefit to the employees. Electrolux bases these calculations on a valuation made using the Black & Scholes model, which requires a number of estimates that are inherently uncertain. The uncertainty is due to the unknown share price at the time when options are exercised and when shares in the performance share programs are distributed and because the liability is marked-to-market it is remeasured every balance sheet day.

F-20


 

Disputes
     Electrolux is involved in disputes in the ordinary course of business. The disputes concern, among other things, product liability, alleged defects in delivery of goods and services, patent rights and other rights and other issues on rights and obligations in connection with Elextrolux’ operations. Such disputes may prove costly and time consuming and may disrupt normal operations. In addition, the outcome of complicated disputes is difficult to foresee. It cannot be ruled out that a disadvantageous outcome of a dispute may prove to have a material adverse effect on the Group’s earnings and financial position.

F-21


 

Note 2 Financial risk management
Financial risk management
     The Group is exposed to a number of risks relating to, for example, liquid funds, trade receivables, customer financing receivables, payables, borrowings, commodities and derivative instruments. The risks are primarily:
  Interest-rate risk on liquid funds and borrowings
 
  Financing risks in relation to the Group’s capital requirements
 
  Foreign-exchange risk on earnings and net investments in foreign subsidiaries
 
  Commodity-price risk affecting the expenditure on raw materials and components for goods produced
 
  Credit risk relating to financial and commercial activities
     The Board of Directors of Electrolux has approved a financial policy as well as a credit policy for the Group to manage and control these risks. Each business sector has specific financial and credit policies approved by each sector-board (hereinafter all policies are referred to as the Financial Policy). These risks are to be managed by, amongst others, the use of derivative financial instruments according to the limitations stated in the Financial Policy. The Financial Policy also describes the management of risks relating to pension fund assets.
     The management of financial risks has largely been centralized to Group Treasury in Stockholm. Local financial issues are managed by four regional treasury centers located in Europe, North America, Asia/Pacific and Latin America. Measurement of risk in Group Treasury is performed by a separate risk controlling function on a daily basis. Furthermore, there are guidelines in the Group’s policies and procedures for managing operating risk relating to financial instruments by, e.g., segregation of duties and power of attorney.
     Proprietary trading in currency, commodities, and interest-bearing instruments is permitted within the framework of the Financial Policy. This trading is primarily aimed at maintaining a high quality of information flow and market knowledge to contribute to the proactive management of the Group’s financial risks.
Interest-rate risk on liquid funds and borrowings
     Interest-rate risk refers to the adverse effects of changes in interest rates on the Group’s income. The main factors determining this risk include the interest-fixing period.
Liquid funds
     Liquid funds as defined by the Group consist of cash on hand, bank deposits, prepaid interest expenses and accrued interest income and other short-term investments. Electrolux goal is that the level of liquid funds including unutilized committed short-term credit facilities shall correspond to at least 2.5% of annualized net sales. In addition, net liquid funds defined as liquid funds less short-term borrowings shall exceed zero, taking into account fluctuations arising from acquisitions, divestments, and seasonal variations. Investment of liquid funds is mainly made in interest-bearing instruments with high liquidity and with issuers with a long-term rating of at least A- as defined by Standard & Poor’s or similar.
Interest-rate risk in liquid funds
     Group Treasury manages the interest-rate risk of the investments in relation to a benchmark position defined as a one-day holding period. Any deviation from the benchmark is limited by a risk mandate. Derivative financial instruments like Futures and Forward-Rate Agreements are used to manage the interest-rate risk. The holding periods of investments are mainly short-term. The major portion of the investments is made with maturities between 0 and 3 months. A downward shift in the yield curves of one-percentage point would reduce the Group’s interest income by approximately SEK 60m (40). For more information, see Note 17.
Borrowings
     The debt financing of the Group is managed by Group Treasury in order to ensure efficiency and risk control. Debt is primarily taken up at the parent company level and transferred to subsidiaries as internal loans

F-22


 

or capital injections. In this process, various swap instruments are used to convert the funds to the required currency. Short-term financing is also undertaken locally in subsidiaries where there are capital restrictions. The Group’s borrowings contain no terms, financial triggers, for premature cancellation based on rating. For more information, see Note 17.
Interest-rate risk in long-term borrowings
     The Financial Policy states for the year 2005 that the benchmark for the long-term loan portfolio is an average interest-fixing period of one year. The benchmark was, however, changed by the end of 2005 and as from January 1, 2006, the benchmark for the long-term loan portfolio is an average interest-fixing period of six months. Group Treasury can choose to deviate from this benchmark on the basis of a risk mandate established by the Board of Directors. However, the maximum fixed-rate period is three years. Derivatives, such as interest-rate swap agreements, are used to manage the interest-rate risk by changing the interest from fixed to floating or vice versa. On the basis of 2006 volumes and interest fixing, a one-percentage point shift in interest rates paid would impact the Group’s interest expenses by approximately SEK +/-40m (30) in 2006. This calculation is based on a parallel shift of all yield curves simultaneously by one-percentage point. Electrolux acknowledges that the calculation is an approximation and does not take into consideration the fact that the interest rates on different maturities and different currencies might change differently.
Credit rating
     Electrolux has Investment Grade rating from Standard & Poor’s which has remained unchanged during the year. The rating agreement with Moody’s was terminated in 2006.
Rating
                 
    Long           Short term
    term debt   Outlook   Short term debt   debt, Sweden
     
Standard & Poor’s
  BBB+   Stable   A-2   K-1
Financing risk
     Financing risk refers to the risk that financing of the Group’s capital requirements and refinancing of existing loans could become more difficult or more costly. This risk can be decreased by ensuring that maturity dates are evenly distributed over time, and that total short-term borrowings do not exceed liquidity levels. The net borrowings, i.e., total borrowing less liquid funds, excluding seasonal variances, shall be long-term according to the Financial Policy. The Group’s goals for long-term borrowings include an average time to maturity of at least two years, and an evenly spread of maturities. A maximum of 25% of the borrowings are normally allowed to mature in a 12-month period. Exceptions are made when the net borrowing position of the Group is small. For more information, see Note 17.
Foreign-exchange risk
     Foreign-exchange risk refers to the adverse effects of changes in foreign-exchange rates on the Group’s income and equity. In order to manage such effects, the Group covers these risks within the framework of the Financial Policy. The Group’s overall currency exposure is managed centrally.
Transaction exposure from commercial flows
     The Group’s Financial Policy stipulates the hedging of forecasted sales in foreign currencies, taking into consideration the price fixing periods and the competitive environment. The business sectors within Electrolux have varying policies for hedging depending on their commercial circumstances. The sectors define a hedging horizon between 6 up to 12 months of forecasted flows. Hedging horizons outside this period are subject to approval from Group Treasury. The Financial Policy permits the operating units to hedge invoiced and forecasted flows from 75% to 100%. The maximum hedging horizon is up to 18 months. Group subsidiaries cover their risks in commercial currency flows mainly through the Group’s four regional treasury centers. Group Treasury thus assumes the currency risks and covers such risks externally by the use of currency derivatives.

F-23


 

     The Group’s geographically widespread production reduces the effects of changes in exchange rates. The remaining transaction exposure is mainly related to internal sales from producing entities to sales companies. To a lesser extent there are also external exposures from purchasing of components and input material for the production paid in foreign currency. These external imports are often priced in USD. The global presence of the Group, however, leads to a significant netting of the transaction exposures. For more information on exposures and hedging, see Note 17.
Translation exposure from consolidation of entities outside Sweden
     Changes in exchange rates also affect the Group’s income in connection with translation of income statements of foreign subsidiaries into Swedish krona. Electrolux does not hedge such exposure. The translation exposures arising from income statements of foreign subsidiaries are included in the sensitivity analysis mentioned below.
Foreign-exchange sensitivity from transaction and translation exposure
     The major currencies that Electrolux is exposed to are the US dollar, the euro, the Canadian dollar, and the British pound. Other significant exposures are, for example, the Danish krona, the Australian dollar, the Hungarian forint and the Czech koruna. These currencies represent the majority of the exposures of the Group but are, however, largely offsetting each other as different currencies represent net inflows and outflows. Taking into account all currencies of the Group, a change up or down by 10% in the value of each currency against the SEK would affect the Group’s operating income for one year by approximately SEK +/-375m, as a static calculation. The model assumes the distribution of earnings and costs effective at year-end 2006 and does not include any dynamic effects, such as changes in competitiveness or consumer behavior arising from such changes in exchange rates.
Exposure from net investments (balance sheet exposure)
     The net of assets and liabilities in foreign subsidiaries constitute a net investment in foreign currency, which generates a translation difference in connection with consolidation. This exposure can have an impact on the Group’s equity, and on the capital structure, and is hedged according to the Financial Policy. The Financial Policy stipulates the extent to which the net investments can be hedged and also sets the benchmark for risk measurement. The benchmark was changed at the end of 2006 and only net investments with an equity capitalization exceeding 60% are hedged unless the exposure is considered too high by the Group. The result of this change is that only a limited number of currencies are hedged on a continuous basis. Group Treasury is allowed to deviate from the benchmark under a given risk mandate. Hedging of the Group’s net investments is implemented within the Parent Company in Sweden.
Commodity-price risks
     Commodity-price risk is the risk that the cost of direct and indirect materials could increase as underlying commodity prices rise in global markets. The Group is exposed to fluctuations in commodity prices through agreements with suppliers, whereby the price is linked to the raw material price on the world market. This exposure can be divided into direct commodity exposure, which refers to pure commodity exposures, and indirect commodity exposures, which is defined as exposure arising from only part of a component. Commodity-price risk is managed through contracts with the suppliers.
Credit risk
Credit risk in financial activities
     Exposure to credit risks arises from the investment of liquid funds, and as counterpart risks related to derivatives. In order to limit exposure to credit risk, a counterpart list has been established which specifies the maximum permissible exposure in relation to each counterpart. The Group strives for arranging master netting agreements (ISDA) with the counterparts for derivative transactions and has established such agreements with the majority of the counterparts, i.e., if counterparty will default assets and liabilities will be netted.

F-24


 

Credit risk in trade receivables
     Electrolux sells to a substantial number of customers in the form of large retailers, buying groups, independent stores, and professional users. Sales are made on the basis of normal delivery and payment terms, if they are not included in Customer Financing operations in the Group. Customer Financing solutions are also arranged outside the Group. The Credit Policy of the Group ensures that the management process for customer credits includes customer rating, credit limits, decision levels and management of bad debts. The Board of Directors decides on customer credit limits that exceed SEK 300m. There is a concentration of credit exposures on a number of customers in, primarily, USA and Europe. For more information, see Note 16.

F-25


 

Note 3 Segment information
     The segment reporting is divided into primary and secondary segments, where the five business areas serve as primary segments and geographical areas as secondary segments.
Primary reporting format — Business areas
     The Group has operations in appliances, floor-care products and professional operations in food-service equipment and laundry equipment. The operations are classified in five business segments. Products for the consumer durables market, i.e., appliances and floor-care products are reported in four geographical segments: Europe; North America; Latin America and Asia/Pacific, while professional products are reported separately. Operations within appliances comprise mainly major appliances, i.e., refrigerators, freezers, cookers, dryers, washing machines, dishwashers, room air-conditioners and microwave ovens.
     The Outdoor Products operations of the Group including the business areas Consumer products and Professional products were distributed to the Electrolux shareholders in June 2006, under the name of Husqvarna AB, as explained in Note 29.
     Financial information related to the above business areas is reported below.
                                                 
    Net sales     Operating income  
    2006     2005     2004     2006     2005     2004  
     
Consumer Durables -
                                               
Europe
    44,233       43,755       42,703       2,678       2,602       3,130  
North America
    36,171       35,134       30,767       1,462       1,444       1,116  
Latin America
    7,766       5,819       4,340       339       123       135  
Asia/Pacific
    8,636       9,276       9,139       163       13       -289  
Professional Products
    6,941       6,686       6,440       535       463       445  
     
Total
    103,747       100,670       93,389       5,177       4,645       4,537  
     
Other
          31       60                    
Group common costs
    101                   -602       -621       -753  
Items affecting comparability
                      -542       -2,980       -1,960  
     
Total
    103,848       100,701       93,449       4,033       1,044       1,824  
     
In the internal management reporting, items affecting comparability is not included in the segments. The table specifies the segments to which they correspond.
Items affecting comparability
                                                                         
    Impairment/              
    restructuring     Other     Total  
    2006     2005     2004     2006     2005     2004     2006     2005     2004  
     
Consumer Durables -
                                                                       
Europe
    -143       -2,523       -437       -173                   -316       -2,523       -437  
North America
    10       -38       -1,132       61             -239       71       -38       -1,371  
Latin America
                                                     
Asia/Pacific
    -297             -103             -419             -297       -419       -103  
Professional Products
                -49                                     -49  
     
Total
    -430       -2,561       -1,721       -112       -419       -239       -542       -2,980       -1,960  
Inter-segment sales exist only within consumer durables with the following split:
                         
    2006     2005     2004  
     
Europe
    1,161       967       1,012  
North America
    985       825       559  
Latin America
    38       25       8  
Asia/Pacific
    71       33       37  
Eliminations
    -2,255       -1,850       -1,616  
The segments are responsible for the management of the operational assets and their performance is measured at the same level, while the financing is managed by Group Treasury at group or country level. Consequently,

F-26


 

liquid funds, interest-bearing receivables, interest-bearing liabilities, liability for share redemption and equity are not allocated to the business segments.
                                                 
    Assets     Equity and liabilities     Net assets  
    December 31,     December 31,     December 31,  
    2006     2005     2006     2005     2006     2005  
     
Indoor Products
                                               
Consumer Durables-
                                               
Europe
    26,353       24,989       19,278       18,927       7,075       6,062  
North America
    14,171       16,336       5,984       6,407       8,187       9,929  
Latin America
    5,562       4,158       1,997       1,853       3,565       2,305  
Asia/Pacific
    4,667       5,581       1,927       1,965       2,740       3,616  
Professional Products
    3,672       3,597       2,278       2,307       1,394       1,290  
     
Total Indoor Products
    54,425       54,661       31,464       31,459       22,961       23,202  
     
Outdoor Products
                                               
Consumer Products
          9,626             3,907             5,719  
Professional Products
          6,642             2,016             4,626  
     
Total Outdoor Products
          16,268             5,923             10,345  
     
Other1)
    1,956       2,964       3,390       3,497       -1,434       -533  
Items affecting Comparability
    1,540       2,028       4,927       6,877       -3,387       -4,849  
     
 
    57,921       75,921       39,781       47,756       18,140       28,165  
     
 
Liquid funds
    7,799       5,940                          
Interest-bearing receivables
    329       697                          
Interest-bearing Liabilities
                7,495       8,914              
Share redemption
                5,579                    
Equity
                13,194       25,888              
     
Total
    66,049       82,558       66,049       82,558              
     
 
1)   Includes common Group services.
                                                 
    Capital expenditure     Cash flow1)  
    2006     2005     2004     2006     2005     2004  
     
Consumer Durables -
                                               
Europe
    1,698       1,872       1,561       1,951       2,058       2,531  
North America
    922       1,108       1,439       1,850       -453       886  
Latin America
    170       167       119       -160       179       -391  
Asia/Pacific
    184       328       319       603       32       -464  
Professional Products
    151       156       144       347       237       400  
     
Total
    3,125       3,631       3,582       4,591       2,053       2,962  
     
Other2)
    27       23       23       -1,437       -1,237       203  
Items affecting comparability
                      9       -807       -736  
Financial items
                      -246       -492       -198  
Taxes paid
                      -743       -540       -1,080  
     
Total
    3,152       3,654       3,605       2,174       -1,023       1,151  
     
 
1)   Cash flow from operations and investments.
 
2)   Includes common Group services.

F-27


 

Secondary reporting format — Geographical areas
     The Group’s business segments operate in four geographical areas of the world: Europe; North America; Latin America; and Asia/Pacific. Net sales by market are presented below and show the Group’s consolidated sales by geographical area, regardless of where the goods were produced.
Net sales, by geographical area
                         
    2006     2005     2004  
     
Europe
    49,576       48,996       47,863  
North America
    36,427       35,163       30,934  
Latin America
    8,355       6,481       4,739  
Asia/Pacific
    9,490       10,061       9,913  
     
Total
    103,848       100,701       93,449  
     
Assets, by geographical area
                 
    December 31,  
    2006     2005  
     
Europe
    36,040       40,787  
North America
    15,779       28,692  
Latin America
    8,738       6,556  
Asia/Pacific
    5,492       6,523  
     
Total
    66,049       82,558  
     
Capital expenditure, by geographical area
                         
    2006     2005     2004  
     
Europe
    1,809       1,979       1,707  
North America
    626       578       919  
Latin America
    478       709       658  
Asia/Pacific
    239       388       321  
     
Total
    3,152       3,654       3,605  
     

F-28


 

Note 4 Net sales and operating income
     The Group’s net sales in Sweden amounted to SEK 3,769m (3,529). Exports from Sweden during the year amounted to SEK 4,700m (3,500), of which SEK 4,121m (3,013) was to Group subsidiaries. The vast majority of the Group’s revenues consist of product sales. Revenue from service activities amounted to SEK 1,461m (1,293) for the Group.
     The Group’s operating income includes net exchange-rate differences in the amount of SEK 76m (11). The Group’s Swedish factories accounted for 4.1% (4.1) of the total value of production. Costs for research and development for the Group amounted to SEK 1,393m (1,392) and are included in Cost of goods sold.
     The Group’s depreciation and amortization charge for the year amounted to SEK 2,758m (2,583). Salaries, remunerations and employer contributions amounted to SEK 16,924m (18,387) and expenses for post-employment benefits amounted to SEK 820m (1,054) for the Group.
Note 5 Other operating income
                         
    2006     2005     2004  
     
Gain on sale of:
                       
Tangible fixed assets
    167       182       90  
Operations and shares
    12       46        
Other
    6       2       25  
     
Total
    185       230       115  
     
Note 6 Other operating expenses
                         
    2006     2005     2004  
     
Loss on sales of:
                       
Tangible fixed assets
    -29       -32       -6  
Operations and shares
    -4       -25       -42  
     
Total
    -33       -57       -48  
     
Note 7 Items affecting comparability
                         
    2006     2005     2004  
     
Restructuring and impairment
    -490       -2,594       -1,760  
Divestment of Electrolux Financial Corp., USA
    61              
Divestment of 50% stake in Nordwaggon AB, Sweden
    -173              
Divestment of Indian operation
          -419        
Vacuum-cleaner lawsuit in the US
                -239  
Unused restructuring provisions reversed
    60       33       39  
     
Total
    -542       -2,980       -1,960