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 2011, the Group’s net borrowings amounted to SEK 6,367m
(–709). The table below presents how the Group calculates net borrowings and what they consist of.
| Net borrowings | ||
| December 31, | ||
| 2011 | 2010 | |
| Short-term loans | 1,301 | 894 |
| Short-term part of long-term loans | 2,030 | 1,177 |
| Trade receivables with recourse | 839 | 1,068 |
| Short-term borrowings | 4,170 | 3,139 |
| Derivatives | 314 | 476 |
| Accrued interest expenses and prepaid interest income | 83 | 68 |
| Total short-term borrowings | 4,567 | 3,683 |
| Long-term borrowings | 9,639 | 8,413 |
| Total borrowings | 14,206 | 12,096 |
| Cash and cash equivalents | 6,966 | 10,389 |
| Short-term investments | 337 | 1,722 |
| Derivatives | 249 | 386 |
| Prepaid interest expenses and accrued interest income | 287 | 308 |
| Liquid funds | 7,839 | 12,805 |
| Net borrowings | 6,367 | –709 |
| Revolving credit facilities (EUR 500m and SEK 3,400m)1) | 7,865 | 7,907 |
| 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, | ||
| 2011 | 2010 | |
| Cash and cash equivalents | 6,966 | 10,389 |
| Short-term investments | 337 | 1,722 |
| Derivatives | 249 | 386 |
| Prepaid interest expenses and accrued interest income | 287 | 308 |
| Liquid funds | 7,839 | 12,805 |
| % of annualized net sales1) | 13.9 | 18.9 |
| Net liquidity | 3,272 | 9,122 |
| Fixed-interest term, days | 18 | 34 |
| Effective yield, % (average per annum) | 3.6 | 2.8 |
| 1) Liquid funds plus unused revolving credit facilities of EUR 500m and SEK 3,400m divided by annualized net sales. | ||
For 2011, liquid funds, including unused revolving credit facilities of EUR 500m and SEK 3,400m, amounted to 13.9% (18.9) of annualized net sales. The net liquidity is calculated by deducting short-term borrowings from liquid funds.
Interest-bearing liabilities
In 2011, SEK 1,161m of long-term borrowings matured or were amortized. These maturities were refinanced with SEK 1,500m and another SEK 2,000m was borrowed. In addition, a bilateral loan of SEK 1,000m maturing in 2013 was extended to 2017.
At year-end 2011, the Group’s total interest-bearing liabilities amounted to SEK 12,970m (10,484), of which SEK 11,669m (9,590) referred to long-term borrowings including maturities within 12 months. Long-term borrowings with maturities within 12 months amounted to SEK 2,030m (1,177). 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 11,250m (8,796), is taken up at the parent company level. Since 2010, Electrolux has an unused committed multicurrency revolving credit facility of SEK 3,400m maturing 2017. In December 2011, an unused committed multicurrency revolving credit facility from 2005, of EUR 500m, with maturity in 2012, was replaced. The new committed multicurrency revolving credit facility of EUR 500m maturing 2016 has an extension option for up to 2 more years. 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 2011, the average interest-fixing period for long-term borrowings was 1.2 years (0.9). 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 3.7% (3.2) at year end.
The fair value of the interest-bearing borrowings was SEK 12,993m. The fair value including swap transactions used to manage the interest fixing was approximately SEK 12,981m. 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) | 2011 | 2010 |
| Bond loans1) | ||||||
| 2007–2012 | SEK MTN Program | 4.500 | SEK | 2,000 | — | 2,057 |
| 2008–2013 | Euro MTN Program | Floating | EUR | 85 | 756 | 762 |
| 2008–2014 | Euro MTN Program | Floating | USD | 42 | 290 | 286 |
| 2008–2016 | Euro MTN Program | Floating | USD | 100 | 690 | 680 |
| 2009–2014 | Euro MTN Program | Floating | EUR | 100 | 893 | 901 |
| 2011–2013 | Euro MTN Program | Floating | SEK | 1,000 | 1,000 | — |
| 2011–2016 | Euro MTN Program | Floating | SEK | 1,000 | 999 | — |
| 2011–2016 | Euro MTN Program | Floating | SEK | 1,500 | 1,540 | — |
| Total bond loans | 6,168 | 4,686 | ||||
| Other long-term loans1) | ||||||
| 1996–2036 | Fixed rate loans in Germany | 7.870 | EUR | 42 | 355 | 362 |
| 2007–2013 | Long-term bank loans in Sweden | Floating | SEK | 300 | 300 | 300 |
| 2008–2017 | 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 | 1,071 | 1,082 |
| 2008–2015 | Long-term bank loans in Sweden | Floating | PLN | 338 | 680 | 768 |
| 2010–2021 | Fixed rate loans in USA | 6.000 | USD | 22 | — | 150 |
| Other long-term loans | 65 | 65 | ||||
| Total other long-term loans | 3,471 | 3,727 | ||||
| Long-term borrowings | 9,639 | 8,413 | ||||
| Short-term part of long-term loans2) | ||||||
| 2007–2011 | SEK MTN Program | 5.250 | SEK | 250 | — | 255 |
| 2007–2012 | SEK MTN Program | 4.500 | SEK | 2,000 | 2,030 | — |
| 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 | 2,030 | 1,177 | ||||
| Other short-term loans | ||||||
| Short-term bank loans in Egypt | Floating | EGP | 634 | 726 | — | |
| Short-term bank loans in USA | Floating | USD | 51 | — | 345 | |
| Other bank borrowings and commercial papers | 575 | 549 | ||||
| Total other short-term loans | 1,301 | 894 | ||||
| Trade receivables with recourse | 839 | 1,068 | ||||
| Short-term borrowings | 4,170 | 3,139 | ||||
| Fair value of derivative liabilities | 314 | 476 | ||||
| Accrued interest expenses and prepaid interest income | 83 | 68 | ||||
| Total borrowings | 14,206 | 12,096 | ||||
| 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 3.0 years (3.3), at the end of 2011. The table below presents the repayment schedule of long-term borrowings.
| Repayment schedule of long-term borrowings, December 31 | |||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017– | Total | |
| Debenture and bond loans | — | 1,756 | 1,183 | — | 3,229 | — | 6,168 |
| Bank and other loans | — | 365 | — | 1,751 | — | 1,355 | 3,471 |
| Short-term part of long-term loans | 2,030 | — | — | — | — | — | 2,030 |
| Total | 2,030 | 2,121 | 1,183 | 1,751 | 3,229 | 1,355 | 11,669 |
Other interest-bearing investments
Interest-bearing receivables from customer financing amounting to SEK 85m (82) 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 2012 and hedges at year-end 2011.
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 0m (–14) at year-end. The effect of hedging on operating income during 2011 amounted to
| Forecasted transaction flows and hedges | ||||||||||||
| BRL | AUD | RUB | GBP | CHF | CAD | THB | HUF | EUR | USD | Other | Total | |
| Inflow of currency, long position | 2,650 | 2,310 | 1,560 | 1,650 | 1,560 | 950 | 530 | 3,500 | 11,460 | 1,510 | 11,550 | 39,230 |
| Outflow of currency, short position | –120 | –240 | — | –40 | –30 | — | –1,190 | –4,300 | –15,470 | –9,290 | –8,550 | –39,230 |
| Gross transaction flow | 2,530 | 2,070 | 1,560 | 1,610 | 1,530 | 950 | –660 | –800 | –4,010 | –7,780 | 3,000 | — |
| Hedges | –180 | –1,230 | –330 | –860 | –810 | –480 | 420 | 410 | 1,240 | 2,430 | –610 | — |
| Net transaction flow | 2,350 | 840 | 1,230 | 750 | 720 | 470 | –240 | –390 | –2,770 | –5,350 | 2,390 | — |
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.
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 | |||||||||
| 2011 | 2010 | ||||||||
| Financial assets | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |
| Financial assets | 517 | — | — | 517 | 577 | — | — | 577 | |
| Financial assets at fair value through profit and loss | 315 | — | — | 315 | 284 | — | — | 284 | |
| Available for sale | 202 | — | — | 202 | 293 | — | — | 293 | |
| Derivatives | — | 252 | — | 252 | — | 386 | — | 386 | |
| Derivatives for which hedge accounting is not applied, i.e., held for trading |
— | 40 | — | 40 | — | 118 | — | 118 | |
| Derivatives for which hedge accounting is applied | — | 212 | — | 212 | — | 268 | — | 268 | |
| Short-term investments and cash equivalents | 514 | — | — | 514 | 2,411 | — | — | 2,411 | |
| Financial assets at fair value through profit and loss | 514 | — | — | 514 | 2,411 | — | — | 2,411 | |
| Total financial assets | 1,031 | 252 | — | 1,283 | 2,988 | 386 | — | 3,374 | |
| Financial liabilities | |||||||||
| Derivatives | — | 324 | — | 324 | — | 483 | — | 483 | |
| Derivatives for which hedge accounting is not applied, i.e., held for trading |
— | 115 | — | 115 | — | 57 | — | 57 | |
| Derivatives for which hedge accounting is applied | — | 209 | — | 209 | — | 426 | — | 426 | |
| Total financial liabilities | — | 324 | — | 324 | — | 483 | — | 483 | |
| Changes in Level 3 instruments | |||
| 2011 | 2010 | ||
| Available for sale instruments | Available for sale instruments | ||
| Financial assets | |||
| Opening balance | — | 217 | |
| Gains or losses recognized in income for the period | — | — | |
| Gains or losses recognized in other comprehensive income | — | 29 | |
| Reclassified to Level 1 | — | –246 | |
| Closing balance | — | — | |
| Total gains or losses for the period included in profit or loss | — | — | |
| Total gains or losses for the period included in profit or loss for assets held at the reporting period | — | — |
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, 2011 | December 31, 2010 | ||||
| Assets | Liabilities | Assets | Liabilities | ||
| Interest-rate swaps | 101 | 94 | 88 | 63 | |
| Cash flow hedges | — | 68 | 5 | 51 | |
| Fair value hedges | 93 | — | 75 | — | |
| Held-for-trading | 8 | 26 | 8 | 12 | |
| Cross currency interest-rate swaps | — | — | — | — | |
| Cash flow hedges | — | — | — | — | |
| Fair value hedges | — | — | — | — | |
| Held-for-trading | — | — | — | — | |
| Forward-rate agreements and futures | — | — | 22 | 21 | |
| Cash flow hedges | — | — | — | — | |
| Fair value hedges | — | — | — | — | |
| Held-for-trading | — | — | 22 | 21 | |
| Currency derivatives (forwards and options) | 151 | 230 | 274 | 399 | |
| Cash flow hedges | 119 | 141 | 86 | 331 | |
| Net investment hedges | — | — | 102 | 44 | |
| Held-for-trading | 32 | 89 | 86 | 24 | |
| Commodity derivatives | — | — | 2 | — | |
| Cash flow hedges | — | — | — | — | |
| Fair value hedges | — | — | — | — | |
| Held-for-trading | — | — | 2 | — | |
| Total | 252 | 324 | 386 | 483 | |
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 | –3,682 | –2,398 | –6,552 | –1,355 | –13,987 |
| Net settled derivatives | 37 | –24 | 1 | — | 14 |
| Gross settled derivatives | –104 | — | — | — | –104 |
| Whereof outflow | –19,171 | –20 | — | — | –19,191 |
| Whereof inflow | 19,067 | 20 | — | — | 19,087 |
| Accounts payable | –18,490 | — | — | — | –18,490 |
| Financial guarantees | –1,276 | — | — | — | –1,276 |
| Total | –23,515 | –2,422 | –6,551 | –1,355 | –33,843 |
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 | ||
| 2011 | 2010 | |
| Fair value hedges, net | — | — |
| whereof interest-rate derivatives | 9 | –69 |
| whereof fair-value adjustment on borrowings | –9 | 69 |
| Net gain/loss, income and expense on financial instruments | |||||||||
| 2011 | 2010 | ||||||||
| 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 | –408 | — | — | — | –487 | — | — | — | |
| Derivatives for which hedge accounting is not applied, i.e., held-for-trading | 4 | — | — | — | 2 | — | — | — | |
| Currency derivatives related to commercial exposure where hedge accounting is applied, i.e., cash flow hedges | –412 | — | — | — | –489 | — | — | — | |
| Loans and receivables | 359 | — | — | — | 559 | — | — | — | |
| Trade receivables/payables | 359 | — | — | — | 559 | — | — | — | |
| Available-for-sale financial assets | 1 | –91 | — | — | 2 | 77 | — | — | |
| Other shares and participations | 1 | –91 | — | — | 2 | 77 | — | — | |
| Total net gain/loss, income and expenses | –48 | –91 | — | — | 74 | 77 | — | — | |
| Recognized in the financial items | |||||||||
| Financial assets and liabilities at fair value through profit and loss | –72 | 395 | 24 | –6 | –675 | 101 | 53 | –57 | |
| Derivatives for which hedge accounting is not applied, i.e., held-for-trading | –77 | — | — | — | –465 | — | — | — | |
| Interest-related derivatives for which fair value hedge accounting is applied, i.e., fair value hedges | 9 | — | — | 46 | –69 | — | — | 81 | |
| Interest-related derivatives for which cash flow hedge accounting is applied, i.e., cash flow hedges | — | –23 | — | –15 | — | –7 | — | –29 | |
| Currency derivatives related to commercial exposure where hedge accounting is applied, i.e., cash flow hedges | 13 | 134 | — | — | –10 | –110 | — | — | |
| Net investment hedges where hedge accounting is applied | — | 284 | — | –37 | — | 218 | — | –109 | |
| Other financial assets carried at fair value | –17 | — | 24 | — | –131 | — | 53 | — | |
| Loans and receivables | –37 | — | 316 | — | 52 | — | 293 | — | |
| Other financial liabilities | 164 | — | — | –626 | 640 | — | — | –430 | |
| Financial liabilities for which hedge accounting is not applied | 163 | — | — | –423 | 291 | — | — | –222 | |
| Financial liabilities for which hedge accounting is applied | 1 | — | — | –203 | 349 | — | — | –208 | |
| Total net gain/loss, income and expenses | 55 | 395 | 340 | –632 | 17 | 101 | 346 | –487 | |
| Fair value and carrying amount on financial assets and liabilities | |||||
| 20111) | 20101) | ||||
| Fair value | Carrying amount | Fair value | Carrying amount | ||
| Financial assets | |||||
| Financial assets | 517 | 517 | 577 | 577 | |
| Financial assets at fair value through profit and loss | 315 | 315 | 284 | 284 | |
| Available-for-sale | 202 | 202 | 293 | 293 | |
| Trade receivables | 19,226 | 19,226 | 19,346 | 19,346 | |
| Loans and receivables | 19,226 | 19,226 | 19,346 | 19,346 | |
| Derivatives | 252 | 252 | 386 | 386 | |
| Financial assets at fair value through profit and loss: | |||||
| Derivatives for which hedge accounting is not applied, i.e., held for trading | 40 | 40 | 118 | 118 | |
| Interest-related derivatives for which fair value hedge accounting is applied, i.e., fair value hedges | 93 | 93 | 75 | 75 | |
| Interest-related derivatives for which cash flow hedge accounting is applied, i.e., cash flow hedges | — | — | 5 | 5 | |
| Currency derivatives related to commercial exposure where hedge accounting is applied, i.e., cash flow hedges | 119 | 119 | 86 | 86 | |
| Net investment hedges where hedge accounting is applied | — | — | 102 | 102 | |
| Short-term investments | 337 | 337 | 1,722 | 1,722 | |
| Financial assets at fair value through profit and loss | 203 | 203 | 1,089 | 1,089 | |
| Loans and receivables | 134 | 134 | 633 | 633 | |
| Cash and cash equivalents | 6,966 | 6,966 | 10,389 | 10,389 | |
| Financial assets at fair value through profit and loss | 311 | 311 | 1,322 | 1,322 | |
| Loans and receivables | 3,409 | 3,409 | 5,529 | 5,529 | |
| Cash | 3,246 | 3,246 | 3,538 | 3,538 | |
| Total financial assets | 27,298 | 27,298 | 32,420 | 32,420 | |
| Financial liabilities | |||||
| Long-term borrowings | 9,656 | 9,639 | 8,455 | 8,413 | |
| Financial liabilities measured at amortized cost | 8,925 | 8,892 | 6,157 | 6,101 | |
| Financial liabilities measured at amortized cost for which fair valuehedge accounting is applied | 731 | 747 | 2,298 | 2,312 | |
| Accounts payable | 18,490 | 18,490 | 17,283 | 17,283 | |
| Financial liabilities at amortized cost | 18,490 | 18,490 | 17,283 | 17,283 | |
| Short-term borrowings | 4,177 | 4,170 | 3,261 | 3,139 | |
| Financial liabilities measured at amortized cost | 2,140 | 2,140 | 3,261 | 3,139 | |
| Financial liabilities measured at amortized cost for which fair value hedge accounting is applied | 2,037 | 2,030 | — | — | |
| Derivatives | 324 | 324 | 483 | 483 | |
| Financial liabilities at fair value through profit and loss: | |||||
| Derivatives for which hedge accounting is not applied, i.e., held for trading | 115 | 115 | 57 | 57 | |
| 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 | 68 | 68 | 51 | 51 | |
| Currency derivatives related to commercial exposure where hedge accounting is applied, i.e., cash flow hedges | 141 | 141 | 331 | 331 | |
| Net investment hedges where hedge accounting is applied | — | — | 44 | 44 | |
| Total financial liabilities | 32,647 | 32,623 | 29,482 | 29,318 | |
| 20111) | 20101) | ||||
| Fair value | Carrying amount | Fair value | Carrying amount | ||
| Per category | |||||
| Financial assets at fair value through profit and loss | 1,081 | 1,081 | 3,081 | 3,081 | |
| Available-for-sale | 202 | 202 | 293 | 293 | |
| Loans and receivables | 22,769 | 22,769 | 25,508 | 25,508 | |
| Cash | 3,246 | 3,246 | 3,538 | 3,538 | |
| Total financial assets | 27,298 | 27,298 | 32,420 | 32,420 | |
| Financial liabilities at fair value through profit and loss | 324 | 324 | 483 | 483 | |
| Financial liabilities measured at amortized cost | 32,323 | 32,299 | 28,999 | 28,835 | |
| Total financial liabilities | 32,647 | 32,623 | 29,482 | 29,318 | |
| 1) There has not been any reclassification between categories. | |||||