The Group's consolidated financial statements as prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") differ in certain material respects from Finnish accounting practice ("Finnish GAAP").
The Group's profit in 2001, in accordance with Finnish GAAP amounted to EUR 955 million (2000: EUR 1,366 million) and in accordance with U.S. GAAP to EUR 880 million (EUR 1,367 million). In accordance with Finnish GAAP, basic earnings per share in 2001 were EUR 3.85 (2000: EUR 4.77) and in accordance with U.S. GAAP EUR 3.55 (EUR 5.32).
In accordance with Finnish GAAP, the shareholders' equity as at December 31, 2001 amounted to EUR 6,810 million (2000: EUR 6,156 million) and in accordance with U.S. GAAP to EUR 7,493 million (EUR 7,157 million).
The Group's profit and shareholders' equity in accordance with Finnish GAAP and U.S. GAAP are reconciled in the following tables
Year ended December 31,Reconciliation of profit, MEUR 2001 2000- Unaudited-
Profit in accordance with Finnish GAAP 955 1,366Business combinations (60) 85Sale-leaseback transactions (2) (9)Capitalization of interest (6) (14)Employee benefits 1 (14)Derivative financial instruments (15) 14Share warrants (5) (21)Restructuring costs 10 -Other 14 -Deferred taxes 6 (48)Deferred tax effect of U.S. GAAP adjustments 1 8
Net income before cumulative adjustment due to change in accounting principles 899 1,367
Cumulative adjustment related to SFAS 133 adoption, net of taxes (19) -
Net income in accordance with U.S. GAAP 880 1,367
Earnings per share, EURBasic earnings per share accordance to Finnish GAAP 3.85 4.77Diluted earnings per share accordance to Finnish GAAP 3.81 4.70
Basic earnings per share accordance to U.S. GAAP 3.55 5.32Diluted earnings per share accordance to U.S. GAAP 3.51 5.25Basic weighted average number of shares (thousands) 247,892 256,817Diluted weighted average number of shares (thousands) 251,992 261,144
As of December 31,Reconciliation of shareholders' equity, MEUR 2001 2000-Unaudited-Shareholders' equity in accordance with Finnish GAAP 6,810 6,156Business combinations 1,301 1,297Revaluations (737) (737)Sale-leaseback transactions (217) (215)Capitalization of interest 114 120Associated company share exchange 46 46Other shares and holdings 432 1,182Employee benefits (189) (173)Derivative financial instruments (23) 19Treasury shares (38) (279)Restructuring costs 10 -Other 8 5Deferred taxes (194) (200)Deferred tax effect of U.S. GAAP adjustments 170 (64)
Shareholders' equity in accordance with U.S. GAAP 7,493 7,157
Certain significant business combinations accounted for by the pooling of interests method under Finnish GAAP are required to be accounted for by the purchase method under U.S. GAAP. The more restrictive conditions for pooling of interests accounting under U.S. GAAP which impacted the accounting treatment for such business combinations included post-combination asset disposals, the independence of the combining companies and pre-combination changes in equity interests.
The adjustment from Finnish GAAP to US GAAP also relates to differences in (i) the valuation of purchase price consideration and (ii) the methods of purchase price allocation.
As permitted under Finnish GAAP, revaluations are possible under certain circumstances. U.S. GAAP generally does not allow such revaluations except in certain respects involving business combinations.
Under Finnish GAAP, certain significant transactions have been accounted for under the sale-leaseback method whereby a sale is recorded, the asset is removed from the balance sheet, the gain or loss is recognized in the profit and loss account, and the leaseback is accounted for as an operating lease. Due to the Group's continuing involvement with such assets, certain of these sale-leaseback transactions are classified as financing arrangements under U.S. GAAP whereby the assets continue to be accounted for in accordance with the Group's normal accounting policies and rental payments are applied to the principal of the related liability and interest expense.
Capitalization of interest
Under Finnish GAAP, the Group generally expenses interest costs incurred in connection with the construction of qualifying assets. U.S. GAAP requires that such interest costs be capitalized and amortized over the life of the assets.
Associated company share exchange
In 1999, an associated company of the Group participated in a share exchange with a third party. Under Finnish GAAP, the Group recorded the shares received in this exchange at book value. Under US GAAP, the shares received in this exchange are recorded at fair value with the resulting gain being recorded in the income statement.
Other shares and holdings
Under Finnish GAAP, marketable investments are recorded at cost and are classified in investments held as non-current assets and stocks. Unrealised gains are generally not recognized until realized. Under U.S. GAAP, such investments with readily determinable market values are classified as available-for-sale securities as a separate balance sheet line item within non-current assets. Such investments are reported at fair value, with unrealised gains and losses excluded from earnings and reported, net of applicable taxes, in a separate component of shareholders' equity.
The Group operates a mixture of pension schemes. Both in Finland and abroad, pensions are arranged in part through pension insurance companies, in part through the Group's own pension funds and partly directly by the Group. For purposes of Finnish GAAP, pension expense is recorded in accordance with local accounting practices in the countries in which employees are provided with such benefits. Under U.S. GAAP, pension expense is recorded on a full accrual basis and reflected in the income statement over the working lives of the employees provided with such benefits.
Derivative financial instruments
Under Finnish GAAP, the Group records currency and commodity derivatives relating to net cash flows in the profit and loss account as such cash flows are received or paid. Currency derivatives related to balance sheet items are marked to market. Payments on interest rate derivatives are recorded in the profit and loss account together with interest payments on related debts according to the accrual method. Under U.S. GAAP all derivatives are recognized on the balance sheet at their fair value. Except for certain interest rate derivatives, the Group has not designated any of its derivative instruments as qualifying hedge instruments under U.S. GAAP. Accordingly, changes in fair values of these instruments have been recorded in the profit and loss account. Under U.S. GAAP the Group has designated certain interest rate swaps as hedges of the fair value of recognized liabilities. Changes in the fair value of these derivatives along with changes in the fair value of the hedged liabilities that are attributable to the hedged risk are recorded in the profit and loss account.
Under Finnish GAAP, the Group does not recognise compensation expense for share warrants granted. Under U.S. GAAP, compensation expense associated with warrants granted to employees, is measured based on the difference between the quoted market price of the Company's shares at the end of each reporting period and the current exercise price of each warrant. Changes in the quoted market price impact the compensation expense recognized until the final exercise price is known.
Under Finnish GAAP, the Group records treasury shares as non-current assets. Under U.S. GAAP, those shares are recorded as a reduction from shareholders' equity.
Under Finnish GAAP, the estimated costs of employee termination are accrued when the restructuring plan is adopted. Under U.S. GAAP, these costs are recorded in the period the benefits are communicated to the employees among other conditions. Accordingly, the related accrual has been reversed for U.S. GAAP purposes.
Under Finnish GAAP, deferred taxes have not been provided on unremitted earnings of associated companies and certain purchase accounting differences. Under U.S. GAAP, deferred tax assets and liabilities are recognized for all differences between the accounting and tax basis of assets and liabilities other than goodwill arising on the purchase of shares.
Cumulative change in accounting principles
Under U.S. GAAP, on January 1, 2001 the Group adopted SFAS 133 Accounting for Derivative Instruments and Hedging Activities as amended by SFAS 137 and SFAS 138. Accordingly, all derivatives have been recorded at fair value in the Group's balance sheet. The difference between certain derivatives' previous carrying amount and their fair values has been reported as a transition adjustment. The Group has also recognized offsetting gains and losses on hedged liabilities by adjusting their carrying amounts at that date. Certain deferred amounts on derivative instruments that were previously reported independently as assets in the Group's balance sheet at the date of initial application have been derecognized and reported as part of the transition in the profit and loss account.
UPM-Kymmene CorporationCorporate Communications11 March, 2002