Volvo 1998 Annual Report Download - page 80

78
NOTE S
January 1, 1998 December 31, 1998
Carrying amount Market value Carrying amount Market value
Available for sale
Marketable securities 2,508 2,565 2,593 2,654
Shares and participations 2,089 5,779 1,110 851
Trading 8,369 8,584 3,350 3,681
I. Items affecting comparability. In the Volvo Group, costs
for restructuring measures are reported during the year in
which the implementation of these measures was decided
in the Board of the respective company. In accordance
with U.S. GAAP, costs for restructuring measures are
reported only under the condition that a sufficiently de-
tailed plan for implementation of the measures is available
at the close of the reporting period.
J. Provision for pensions and other post-employment
benefits. The greater part of the Volvo Group’s pension
commitments are defined contribution plans; that is, they
are met through regular payments to independent author-
ities or organs that administer pension plans. There is no
difference between US and Swedish accounting prin-
ciples in accounting for these pension plans.
Other pension commitments are defined benefit
plans; that is, the employee is entitled to receive a cer-
tain level of pension, usually related to the employee’s
final salary. In these cases the annual pension cost is
calculated based on the current value of future pension
payments. In Volvo’s consolidated accounts, provisions
for pensions and pension costs for the year in the
individual companies are calculated based on local rules
and directives. In accordance with U.S. GAAP, provisions
for pensions and pension costs for the year should
always be calculated as specified in SFAS 87, “Employers
Accounting for Pensions”. The difference lies primarily in
the choice of discount rates and the circumstance that
US calculations of capital-valuation, in contrast to the
Swedish, are based on salaries calculated at time of
retirement. In addition under US GAAP, the surplus in
pension foundations is accounted for.
Post-retirement expenses in accordance with U.S. GAAP include:
Defined benefit plans in Sweden and US 1996 1997 1998
Service cost 177 260 289
Interest cost 354 408 415
Expected return on plan assets (186) (376) (513)
Severance payments (SFAS 88) 32 — —
Amortization, net 67 252 33
Pension costs for defined benefit plans 444 544 224
Other plans (mainly defined contribution plans) 3,097 3,051 3,030
Total pension costs in accordance with U.S. GAAP 3,541 3,595 3,254
Total pension costs in accordance with
Swedish accounting principles 3,446 3,660 3,567
Adjustment of profit for the year in accordance with
U.S. GAAP before tax effect (95) 65 313
In calculating the provisions for pensions in accordance with U.S. GAAP, the following assumptions were applied:
Sweden U.S.
1996 1997 1998 1996 1997 1998
Discount rate, % 7.5 7.0 6.5 7.5 7.0 7.0
Payroll increase, % 4.5 4.0 3.5 6.0 4.0 4.5
Expected return on assets, % 9.0 9.0 7.0 9.0 9.0 9.0
The table below shows the status in accordance with U.S. GAAP of benefit-based pension plans in Sweden and the US.
Sweden United States
Pension benefits Pension benefits Other benefits
Reconciliation of benefit obligation 1997 1998 1997 1998 1997 1998
Benefit obligation at beginning of year 3,798 4,268 1,660 1,985 1,015 1,154
Lump sums not yet paid at beginning of year — — 132 — — —
Service cost 191 200 77 90 41 47
Interest cost 259 270 138 146 81 78
Amendments — — — 140 (32) —
Actuarial loss (gain) 204 1.028 3 138 (50) (35)
Foreign exchange translation — — 241 49 147 29
Benefits paid (184) (209) (266) (168) (48) (35)
Benefit obligation at end of year 4,268 5,557 1,985 2,380 1,154 1,238