The Group's consolidated financial statements as reconciled and compiled in accordance with the accounting principles generally accepted in the United States ("U.S. GAAP") differs in certain material respects from the Finnish accounting practice ("Finnish GAAP").
The Group's profit in 2000, compiled in accordance with Finnish GAAP, amounted to EUR 1,366 million (1999: EUR 994 million) and in accordance with U.S.GAAP to EUR 1,367 million (EUR 866 million). In accordance with Finnish GAAP, earnings per share in 2000 were EUR 4.77 (1999: EUR 3.77) and in accordance with U.S.GAAP EUR 5.32 (EUR 3.28).
In accordance with Finnish GAAP, the shareholders' equity as per 31 December, 2000 amounted to EUR 6,156 million (1999: EUR 5,536 million) and in accordance with U.S.GAAP to EUR 7,157 million (EUR 6,810 million).
Enclosure: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 2000 1999 Profit in accordance with Finnish GAAP 1,366 994 Business combinations 85 (85) Sale-leaseback transactions (9) 2 Capitalization of interest (14) (13) Associated company share exchange –– 50 Employee benefits (14) (10) Derivative financial instruments 14 (27) Share warrants (21) –– Other –– (8) Deferred taxes (48) (35) Deferred tax effect of U.S. GAAP adjustments 8 (2) Net income in accordance with U.S. GAAP 1,367 866 Earnings per share, EUR Basic earnings per share accordance to Finnish GAAP 4.77 3.77 Diluted earnings per share accordance to Finnish GAAP 4.70 3.70 Basic earnings per share accordance to U.S.GAAP 5.32 3.28 Diluted earnings per share accordance to U.S.GAAP 5.25 3.23 Basic weighted average number of shares (thousands) 256,817 264,018 Diluted weighted average number of shares (thousands) 261,144 265,856 As of December 31, Reconciliation of shareholders' equity, MEUR 2000 1999 Shareholders' equity in accordance with Finnish GAAP 6,156 5,536 Business combinations 1,297 1,135 Revaluations (737) (737) Sale-leaseback transactions (215) (206) Capitalization of interest 120 134 Associated company share exchange 46 46 Other shares and holdings 1,182 1,546 Employee benefits (173) (139) Derivative financial instruments 19 25 Treasury shares (279) (236) Other 5 7 Deferred taxes (200) (108) Deferred tax effect of U.S. GAAP adjustments (64) (193) Shareholders' equity in accordance with U.S. GAAP 7,157 6,810
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 US GAAP adjustment also includes a reversal of a write down recorded under Finnish GAAP to harmonize depreciation methods of an acquired entity to the Group's policy.
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
During 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 U.S. GAAP, the shares received in this exchange are recorded at fair value.
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 in equity securities 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, except for certain interest rate derivatives, all such derivatives are marked to market with the resulting gains and losses recorded currently 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 Group has adopted a change in accounting policy at 31 December 1999 to record deferred taxes on revaluations, and thereby to substantially record deferred taxes on a full liability basis. Prior years have not been restated to reflect this change in accounting policy. However, under this new accounting policy, 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.
UPM-Kymmene CorporationCorporate Communications12 March, 2001