Note 18 - Financial instruments

Additional and complementary information is presented in the following notes to the Annual Report: Note 1, Accounting and valuation principles, discloses the accounting and valuation policies adopted. Note 2, Financial risk management, describes the Group’s risk policies in general and regarding the principal financial instruments of Electrolux in more detail. Note 17, Trade receivables, describes the trade receivables and related credit risks.

The information in this note highlights and describes the principal financial instruments of the Group regarding specific major terms and conditions when applicable, and the exposure to risk and the fair values at year-end.

Net borrowings

At year-end 2010, the Group’s net borrowings amounted to SEK –709m (665). The table below presents how the Group calculates net borrowings and what they consist of.

Net borrowings
	December 31,
	2010	2009
Short-term loans	894	582
Short-term part of long-term loans	1,177	912
Trade receivables with recourse	1,068	1,870
Short-term borrowings	3,139	3,364
Derivatives	476	343
Accrued interest expenses and prepaid interest income	68	74
Total short-term borrowings	3,683	3,781
Long-term borrowings	8,413	10,241
Total borrowings	12,096	14,022

Cash and cash equivalents	10,389	9,537
Short-term investments	1,722	3,030
Derivatives	386	377
Prepaid interest expenses and accrued interest income	308	413
Liquid funds	12,805	13,357
Net borrowings	–709	665
Revolving credit facilities (EUR 500m and SEK 3,400m)¹⁾	7,907	5,163

1) The facilities are not included in net borrowings, but can, however, be used for short-term and long-term funding.

Liquid funds

Liquid funds as defined by the Group consist of cash and cash equivalents, short-term investments, derivatives and prepaid interest expenses and accrued interest income. The table below presents the key data of liquid funds. The carrying amount of liquid funds is approximately equal to fair value.

Liquidity profile
	December 31,
	2010	2009
Cash and cash equivalents	10,389	9,537
Short-term investments	1,722	3,030
Derivatives	386	377
Prepaid interest expenses and accrued interest income	308	413
Liquid funds	12,805	13,357
% of annualized net sales1)	18.9	16.2
Net liquidity	9,122	9,576
Fixed-interest term, days	34	100
Effective yield, % (average per annum)	2.8	2.1

1) Liquid funds plus unused revolving credit facilities of EUR 500m and SEK 3,400m divided by annualized net sales.

For 2010, liquid funds, including unused revolving credit facilities of EUR 500m and SEK 3,400m, amounted to 18.9% (16.2) of annualized net sales. The net liquidity is calculated by deducting short-term borrowings from liquid funds.

Interest-bearing liabilities

In 2010, SEK 1,039m of long-term borrowings matured or were amortized. These maturities were not refinanced.

At year-end 2010, the Group’s total interest-bearing liabilities amounted to SEK 10,484m (11,735), of which SEK 9,590m (11,153) referred to long-term borrowings including maturities within 12 months. Long-term borrowings with maturities within 12 months amounted to SEK 1,177m (912). The outstanding long-term borrowings have mainly been made under the Swedish and European Medium-Term Note Program and via bilateral loans. The majority of total long-term borrowings, SEK 8,796m (10,425), is taken up at the parent company level. Since 2005, Electrolux has an unused revolving credit facility of EUR 500m maturing 2012 and since the third quarter of 2010 an additional unused committed credit facility of SEK 3,400m maturing 2017. These two facilities can be used as either long-term or short-term back-up facilities. 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 2010, the average interest-fixing period for long-term borrowings was 0.9 years (1.0). The calculation of the average interest-fixing period includes the effect of interest-rate swaps used to manage the interest-rate risk of the debt portfolio. The average interest rate for the total borrowings was 3.2% (2.6) at year end.

The fair value of the interest-bearing borrowings was SEK 11,716m. The fair value including swap transactions used to manage the interest fixing was approximately SEK 11,676m. The borrowings and the interest-rate swaps are valued marked-to-market in order to calculate the fair value. When valuating the borrowings, the Electrolux credit rating is taken into consideration.

The table below sets out the carrying amount of the Group’s borrowings.

Borrowings
					Carrying amount, December 31,
Issue/maturity date	Description of loan	Interest rate, %	Currency	Nominal value (in currency)	2010	2009
Bond loans1)
2007–2011	SEK MTN Program	5.250	SEK	250	—	264
2007–2012	SEK MTN Program	4.500	SEK	2,000	2,057	2,114
2008–2013	Euro MTN Program	Floating	EUR	85	762	873
2008–2014	Euro MTN Program	Floating	USD	42	286	302
2008–2016	Euro MTN Program	Floating	USD	100	680	719
2009–2011	SEK MTN Program	4.250	SEK	500	—	499
2009–2014	Euro MTN Program	Floating	EUR	100	901	1,033
Total bond loans					4,686	5,804

Other long-term loans¹⁾
1996–2036	Fixed rate loans in Germany	7.870	EUR	42	362	420
2007–2013	Long-term bank loans in Sweden	Floating	SEK	300	300	300
2008–2011	Fixed rate loans in Thailand	6.290	THB	965	—	208
2008–2011	Long-term bank loans in Sweden	Floating	USD	45	—	324
2008–2013	Long-term bank loans in Sweden	Floating	SEK	1,000	1,000	1,000
2008–2015	Long-term bank loans in Sweden	Floating	EUR	120	1,082	1,239
2008–2015	Long-term bank loans in Sweden	Floating	PLN	338	768	847
2010-2021	Fixed rate loans in USA	6.000	USD	22	150	—
Other long-term loans					65	99
Total other long-term loans					3,727	4,437
Long-term borrowings					8,413	10,241

Short-term part of long-term loans²⁾
2005–2010	SEK MTN Program	3.650	SEK	500	—	501
2005–2010	Long-term bank loans in Sweden	Floating	EUR	20	—	211
2007–2010	Long-term bank loans in Sweden	Floating	SEK	200	—	200
2007–2011	SEK MTN Program	5.250	SEK	250	255	—
2008–2011	Fixed rate loans in Thailand	6.290	THB	965	217	—
2008–2011	Long-term bank loans in Sweden	Floating	USD	45	306	—
2009–2011	SEK MTN Program	4.250	SEK	399	399	—
Total short-term part of long-term loans					1,177	912

Other short-term loans
	Commercial paper program	Floating	SEK	—	—	—
	Short-term bank loans in USA	Floating	USD	51	345	—
	Other bank borrowings and commercial papers				549	582
Total other short-term loans					894	582
Trade receivables with recourse					1,068	1,870
Short-term borrowings					3,139	3,364
Fair value of derivative liabilities					476	343
Accrued interest expenses and prepaid interest income					68	74
Total borrowings					12,096	14,022

1) The interest-rate fixing profile of the borrowings has been adjusted 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.

Short-term borrowings pertain mainly to countries with capital restrictions. The average maturity of the Group’s long-term borrowings including long-term borrowings with maturities within 12 months was 3.3 years (3.9), at the end of 2010. The table below presents the repayment schedule of long-term borrowings.

Repayment schedule of long-term borrowings, December 31
	2011	2012	2013	2014	2015	2016–	Total
Debenture and bond loans	—	2,057	762	1,187	—	680	4,686
Bank and other loans	—	36	1,309	15	1,855	512	3,727
Short-term part of long-term loans	1,177	—	—	—	—	—	1,177
Total	1,177	2,093	2,071	1,202	1,855	1,192	9,590

Other interest-bearing investments

Interest-bearing receivables from customer financing amounting to SEK 82m (103) are included in the item Trade receivables in the consolidated 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. 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.

Commercial flows

The table below shows the forecasted transaction flows, imports and exports, for the 12-month period of 2011 and hedges at year-end 2010.

The hedged amounts are dependent on the hedging policy for each flow considering the existing risk exposure. Hedges with maturity above 12 months have a market value of SEK –14m at year-end. The effect of hedging on operating income during 2010 amounted to SEK –489m (–535). At year-end 2010, unrealized exchange-rate losses on forward contracts charged against other comprehensive income amounted to SEK –122m (–13).

Forecasted transaction flows and hedges

GBP

AUD

RUB

DKK

BRL

CHF

CZK

HUF

USD

EUR

Other

Total

Inflow of currency, long position

2,510

2,040

2,230

1,540

1,320

740

3,580

350

10,330

1,370

9,950

35,960

Outflow of currency, short position

–190

–20

–220

—

–40

—

–4,410

–1,340

–15,200

–8,360

–6,180

–35,960

Gross transaction flow

2,320

2,020

2,010

1,540

1,280

740

–830

–990

–4,870

–6,990

3,770

—

Hedges

–580

–930

–1,430

–300

–710

–310

230

420

1,770

2,870

–1,030

—

Net transaction flow

1,740

1,090

580

1,240

570

430

-600

–570

–3,100

–4,120

2,740

—

Fair value estimation

Valuation of financial instruments at fair value 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 price. The foreign-exchange spot rate is then used to convert the value into SEK. 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.

The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. The Group’s financial assets and liabilities are measured at fair value according to the following fair value hierarchy:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices included in Level 1 that are observable for assets or liabilities, either directly, i.e., as prices or indirectly, i.e., derived from prices.

Level 3: Inputs for the assets or liabilities that are not entirely based on observable market date, i.e., unobservable inputs.

During 2010, the investment in Videocon Industries Ltd., which is classified as an available for sale asset, was reclassified from Level 3 to Level 1. Prior to 2010, the valuation model included a reduction in the fair value due to a restriction for Electrolux to sell the shares. The restriction expired in 2010 and hence, the fair value at year-end 2010 is calculated based on quoted prices only.

The table below presents the Group’s financial assets and liabilities that are measured at fair value according to the fair value measurement hierarchy.

Fair value measurement hierarchy
	2010				2009
Financial assets	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Financial assets	577	—	—	577	217	—	217	434
Financial assets at fair value through profit and loss	284	—	—	284	217	—	—	217
Available for sale	293	—	—	293	—	—	217	217
Derivatives	—	386	—	386	—	377	—	377
Derivatives for which hedge accounting is not applied, i.e., held for trading	—	118	—	118	—	92	—	92
Derivatives for which hedge accounting is applied	—	268	—	268	—	285	—	285
Short-term investments and cash equivalents	2,411	—	—	2,411	4,311	—	—	4,311
Financial assets at fair value through profit and loss	2,411	—	—	2,411	4,311	—	—	4,311
Total financial assets	2,988	386	—	3,374	4,528	377	217	5,122

Financial liabilities
Derivatives	—	483	—	483	—	351	—	351
Derivatives for which hedge accounting is not applied, i.e., held for trading	—	57	—	57	—	81	—	81
Derivatives for which hedge accounting is applied	—	426	—	426	—	270	—	270
Total financial liabilities	—	483	—	483	—	351	—	351


Changes in Level 3 instruments
	2010	2009
	Available for sale instruments	Available for sale instruments
Financial assets
Opening balance	217	78
Gains or losses recognized in income for the period	—	1
Gains or losses recognized in other comprehensive income	29	138
Reclassified to Level 1	246	—
Closing balance	—	217
Total gains or losses for the period included in profit or loss	—	1
Total gains or losses for the period included in profit or loss for assets held at the reporting period	—	1

Financial derivative instruments

The table below presents the fair value of the Group’s financial derivative instruments used for managing financial risk and proprietary trading.

Financial derivatives at fair value
	December 31, 2010		December 31, 2009
	Assets	Liabilities	Assets	Liabilities
Interest-rate swaps	88	63	169	53
Cash flow hedges	5	51	1	39
Fair value hedges	75	—	157	—
Held-for-trading	8	12	11	14
Cross currency interest-rate swaps	—	—	—	—
Cash flow hedges	—	—	—	—
Fair value hedges	—	—	—	—
Held-for-trading	—	—	—	—
Forward-rate agreements and futures	22	21	2	3
Cash flow hedges	—	—	—	—
Fair value hedges	—	—	—	—
Held-for-trading	22	21	2	3
Currency derivatives (forwards and options)	274	399	204	295
Cash flow hedges	86	331	104	147
Net investment hedges	102	44	23	84
Held-for-trading	86	24	77	64
Commodity derivatives	2	—	2	—
Cash flow hedges	—	—	—	—
Fair value hedges	—	—	—	—
Held-for-trading	2	—	2	—
Total	386	483	377	351

Maturity profile of financial liabilities and derivatives

The table below presents the undiscounted cash flows of the Group’s contractual liabilities related to financial instruments based on the remaining period at the balance sheet to the contractual maturity date. Floating interest cash flows with future fixing dates are estimated using the forward-forward interest rates at year-end. Any cash flow in foreign currency is converted to local currency using the FX spot rates at year-end.

Maturity profile of financial liabilities and derivatives – undiscounted cash flows
	1 year	1 - 2 years	2 - 5 years	5 years -	Total
Loans	–2,454	–2,283	–5,494	–1,206	–11,437
Net settled derivatives	29	18	–18	—	29
Gross settled derivatives	–151	–26	—	—	–177
Whereof outflow	–29,644	–265	—	—	–29,909
Whereof inflow	29,493	239	—	—	29,732
Accounts payable	–17,283	—	—	—	–17,283
Financial guarantees	–1,062	—	—	—	–1,062
Total	–20,921	–2,291	–5,512	–1,206	–29,930

Net gain/loss, fair value and carrying amount on financial instruments

The tables below present net gain/loss on financial instruments, the effect in the income statement and equity, and the fair value and carrying amount of financial assets and liabilities. Net gain/loss can include both exchange-rate differences and gain/loss due to changes in interest-rate levels.

Specification of gains and losses on fair value hedges
	2010	2009
Fair value hedges, net	—	6
whereof interest-rate derivatives	–69	–6
whereof fair-value adjustment on borrowings	69	12


Net gain/loss, income and expense on financial instruments
	2010				2009
	Gain/loss in profit and loss	Gain/loss in OCI	Interest income	Interest expenses	Gain/loss in profit and loss	Gain/loss in OCI	Interest income	Interest expenses
Recognized in the operating income
Financial assets and liabilities at fair value through profit and loss	–487	—	—	—	–515	—	—	—
Derivatives for which hedge accounting is not applied, i.e., held-for-trading	2	—	—	—	20	—	—	—
Currency derivatives related to commercial exposure where hedge accounting is applied, i.e., cash flow hedges	–489	—	—	—	–535	—	—	—
Loans and receivables	559	—	—	—	327	—	—	—
Trade receivables/payables	559	—	—	—	327	—	—	—
Available-for-sale financial assets	2	77	—	—	1	138	—	—
Other shares and participations	2	77	—	—	1	138	—	—
Total net gain/loss, income and expenses	74	77	—	—	–187	138	—	—

Recognized in the financial items
Financial assets and liabilities at fair value through profit and loss	–675	101	53	–57	–385	–187	86	–55
Derivatives for which hedge accounting is not applied, i.e., held-for-trading	–465	—	—	—	–311	—	—	—
Interest-related derivatives for which fair value hedge accounting is applied, i.e., fair value hedges	–69	—	—	81	–6	—	—	75
Interest-related derivatives for which cash flow hedge accounting is applied, i.e., cash flow hedges	—	–7	—	–29	—	–14	—	–22
Currency derivatives related to commercial exposure where hedge accounting is applied, i.e., cash flow hedges	–10	–110	—	—	13	–98	—	—
Net investment hedges where hedge accounting is applied	—	218	—	–109	—	–75	—	–108
Other financial assets carried at fair value	–131	—	53	—	–81	—	86	—
Loans and receivables	52	—	293	—	33	—	194	—
Other financial liabilities	640	—	—	–430	369	—	—	–519
Financial liabilities for which hedge accounting is not applied	291	—	—	–222	357	—	—	–390
Financial liabilities for which hedge accounting is applied	349	—	—	–208	12	—	—	–129
Total net gain/loss, income and expenses	17	101	346	–487	17	–187	280	–574


Fair value and carrying amount on financial assets and liabilities
	2010¹⁾		2009¹⁾
	Fair value	Carrying amount	Fair value	Carrying amount
Financial assets
Financial assets	577	577	434	434
Financial assets at fair value through profit and loss	284	284	217	217
Available-for-sale	293	293	217	217
Trade receivables	19,346	19,346	20,173	20,173
Loans and receivables	19,346	19,346	20,173	20,173
Derivatives	386	386	377	377
Financial assets at fair value through profit and loss:
Derivatives for which hedge accounting is not applied, i.e., held for trading	118	118	92	92
Interest-related derivatives for which fair value hedge accounting is applied, i.e., fair value hedges	75	75	157	157
Interest-related derivatives for which cash flow hedge accounting is applied, i.e., cash flow hedges	5	5	1	1
Currency derivatives related to commercial exposure where hedge accounting is applied, i.e., cash flow hedges	86	86	104	104
Net investment hedges where hedge accounting is applied	102	102	23	23
Short-term investments	1,722	1,722	3,030	3,030
Financial assets at fair value through profit and loss	1,089	1,089	3,030	3,030
Loans and receivables	633	633	—	—
Cash and cash equivalents	10,389	10,389	9,537	9,537
Financial assets at fair value through profit and loss	1,322	1,322	1,281	1,281
Loans and receivables	5,529	5,529	2,639	2,639
Cash	3,538	3,538	5,617	5,617
Total financial assets	32,420	32,420	33,551	33,551

Financial liabilities
Long-term borrowings	8,455	8,413	10,331	10,241
Financial liabilities measured at amortized cost	6,157	6,101	7,650	7,562
Financial liabilities measured at amortized cost for which fair valuehedge accounting is applied	2,298	2,312	2,681	2,679
Accounts payable	17,283	17,283	16,031	16,031
Financial liabilities at amortized cost	17,283	17,283	16,031	16,031
Short-term borrowings	3,261	3,139	3,381	3,364
Financial liabilities measured at amortized cost	3,261	3,139	3,381	3,364
Derivatives	483	483	351	351
Financial liabilities at fair value through profit and loss:
Derivatives for which hedge accounting is not applied, i.e., held for trading	57	57	81	81
Interest-related derivatives for which fair value hedge accounting is applied,i.e., fair value hedges	—	—	—	—
Interest-related derivatives for which cash flow hedge accounting is applied, i.e., cash flow hedges	51	51	39	39
Currency derivatives related to commercial exposure where hedge accounting is applied, i.e., cash flow hedges	331	331	147	147
Net investment hedges where hedge accounting is applied	44	44	84	84
Total financial liabilities	29,482	29,318	30,094	29,987

	2010¹⁾		2009¹⁾
	Fair value	Carrying amount	Fair value	Carrying amount
Per category
Financial assets at fair value through profit and loss	3,081	3,081	4,905	4,905
Available-for-sale	293	293	217	217
Loans and receivables	25,508	25,508	22,812	22,812
Cash	3,538	3,538	5,617	5,617
Total financial assets	32,420	32,420	33,551	33,551
Financial liabilities at fair value through profit and loss	483	483	351	351
Financial liabilities measured at amortized cost	28,999	28,835	29,743	29,636
Total financial liabilities	29,482	29,318	30,094	29,987

1) There has not been any reclassification between categories.