Volvo 1997 Annual Report Download - page 60

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U.S. GAAP pension costs include the following:
1995 1996 1997
Pensions earned during the year 134 177 260
Interest on pension liabilities 439 354 408
Return in pension foundations (264) (186) (376)
Severance payments — 32 —
Annualization 128 67 252
Pension costs for
defined benefit plans 437 444 544
Other plans 2,469 3,097 3,051
Total pension costs in
accordance with U.S. GAAP 2,906 3,541 3,595
Total pension costs in
accordance with Swedish GAAP 3,030 3,446 3,660
Adjustment of net income
in accordance with
USGAAP before tax effect 124 (95) 65
In calculating the provisions for pensions in accordance with U.S.
GAAP, the following assumptions were applied:
Sweden U.S.
1995 1996 1997 1995 1996 1997
Discount rate, % 7.5 7.5 7.0 7.5 7.5 7.0
Payroll increase, % 4.5 4.5 4.0 6.0 6.0 4.0
Expected return
on assets, % — 9.0 9.0 9.0 9.0 9.0
The difference between Swedish GAAP and U.S. GAAP for reporting
of provisions for pensions is mainly the choice of discount rate and
the fact that the calculation of the U.S. benefit obligation in contrast
to the Swedish, are based on the estimated salary at the date of
retirement. In addition, assets in pension foundations are marked
to market in accordance with U.S. GAAP.
Other postretirem ent benefit plans
In addition to its pension plans, the Company and certain of its subsi-
diaries and associated companies sponsor unfunded plans, mainly in
the U.S., to provide health care and other benefits for retired employ-
ees who meet minimum age and service requirements. The plans are
generally contributory, with retiree contributions being adjusted perio-
dically, and contain other cost-sharing features such as deductibles
and coinsurance. The estimated cost for health-care benefits is
recognized on an accrual basis in accordance with the requirements
of SFAS 106, Employers’ Accounting for Postretirement Benefits
Other than Pensions.
The following table summarizes the status of these plans, reconci-
led to amounts shown in Volvo’s consolidated balance sheet as of
December 31, distributed by personnel categories:
1995 1996 1997
Retirees 168 698 829
Active employees eligible to retire 96 131 115
Other active employees 475 304 313
Total accumulated obligations 739 1,133 1,257
Unamortized net gain 61 80 134
Accrued liability recognized
in the balance sheet 800 1,213 1,391
The net postretirement benefit expense includes the following
components:
1995 1996 1997
Benefits earned during the year 38 44 42
Interest expense 47 87 97
Net amortization and deferral (2) (2) (4)
Special recognition due
to restructuring — 25 1
Net postretirement
benefit expense 83 154 136
A change of one percentage point per year in health-care costs
would change the accumulated postretirement benefit obligation as
of December 31, 1996 by approximately 130, and the obligation as
of December 31, 1997 by approximately 189, and the net postretire-
ment benefit expense by approximately 27 and 20, respectively.
Calculations made as of December 31, 1997 show an annual
increase of 10.5% in the weighted average per capita costs of cove-
red healt-care benefits; it is assumed that the percentage will decline
gradually to 6.0% in 2007 and then remain at that level.
The discount rate used in determining the accumulated post-
retirement benefit obligation as of December 31, 1997 was 7.0%
(7.5; 7.5).
Notes to Consolidated Financial Statements