Volvo 1999 Annual Report Download - page 82

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The Volvo Group
80
Significant differences between Swedish and U.S.
accounting principles
A. Foreign currency translation. Volvo uses forward
exchange contracts and currency options to hedge the
value of future flows of payments in foreign currency.
Outstanding contracts that are highly certain to be
covered by currency transactions are not assigned a
value in the consolidated accounts.
In accordance with U.S. GAAP, outstanding futures
contracts and currency options are valued at market
through so-called fictive closing. The profits and losses
that thereby arise are included when calculating income.
Unrealized net losses for 1999 pertaining to forwards
and options contracts are estimated at 632 (628; 1,163).
B. Income taxes. Effective in 1999, Volvo adopted the
Swedish Financial Accounting Standards Council’s
recommendation, RR9, Income Taxes, which in all mater-
ial respects corresponds with SFAS 109, Accounting for
Income Taxes, and IAS 12, Income Taxes (revised 1996).
Previously, Volvo reported deferred tax receivables re-
lated to temporary differences and tax loss carryforwards
to the extent that these could be offset against deferred
tax liabilities within the same tax jurisdiction. In 1999,
deferred tax assets are reported under the condition that
it is probable that the amount can be applied against
future taxable income. Comparative figures for 1997 and
1998 have been resteted to reflect the new accounting
principle. At the beginning of 1997, 1998 and 1999, this
resulted in an increase of the Volvo Group’s sharehold-
ers’ equity by SEK 1.4, 1.5 and 1.3 billion, respectively.
C. Business combinations. Acquisitions of certain sub-
sidiaries is reported differently in accordance with Volvo’s
accounting principles and U.S. GAAP. The difference is
attributable primarily to reporting and amortization of
goodwill.
In 1995, AB Volvo acquired the outstanding 50% of
the shares in Volvo Construction Equipment Corporation
(formerly VME) from Clark Equipment Company, in the
U.S. In conjunction with the acquisition, goodwill of SEK
2.8 billion was reported. The shareholding was written
down by SEK 1.8 billion which was estimated corres-
ponded to that portion of the goodwill that was attributable
at the time of acquisition to the Volvo trademark. In accord-
ance with U.S. GAAP, the goodwill of SEK 2.8 billion
should be amortized over its estimated useful life (20
years).
Volvo’s earnings in 1993 included a provision for an
excess value related to Volvo Trucks which resulted from
the exchange of shares with Renault. In accordance with
U.S. GAAP, the corresponding excess value should have
been reported as goodwill which was being amortized
over a period of five years.
Net income Shareholders’ equity
Goodwill 1997 1998 1999 1997 1998 1999
Goodwill in accordance with
Swedish GAAP, December 31 (196) (512)1(398) 3,075 5,607 5,093
Items affecting reporting of goodwill:
Volvo Trucks with regard to
exchange of shares with Renault (438) (439) – 439 – –
Acquisition of Volvo Construction
Equipment Corporation (91) (91) (91) 1,590 1,499 1,408
Net change in accordance with U.S. GAAP (529) (530) (91) 2,029 1,499 1,408
Approximate goodwill in accordance with
U.S. GAAP, December 31 (725) (1,042) (489) 5,104 7,106 6,501
1 Including write-downs.
1 Adjustment of shareholders’ equity in accordance with U.S. GAAP before tax effects.
2 Adjustment of income in accordance with U.S. GAAP before tax.
FAS 115- Tax and FAS 115-
Summary of debt and equity securities Market adjustment, minority adjustment,
available for sale and trading Book value value gross interests net
Trading, December 31, 1999 12,674 13,258 584 1(164) 420
Trading, January 1, 1999 3,350 3,681 331 (92) 239
Change 1999 253 2(72) 181
Available for sale
Marketable securities 7,826 7,828 2 (1) 1
Shares and convertible debenture loan 5,583 4,741 (842) 236 (606)
Available for sale
December 31, 1999 13,409 12,569 (840) 1235 (605)
January 1, 1999 3,703 3,505 (198) 55 (143)
Change 1999 (642) 180 (462)
D. Shares and participations. In calculating Volvo’s share
of earnings and shareholders’ equity in associated com-
panies in accordance with U.S. GAAP, differences
between the accounting for these companies in accord-
ance with Volvo’s principles – and U.S. GAAP have been
reflected.
Income from investments in associated companies
is reported before taxes in accordance with Swedish
accounting principles, and after tax in accordance with
U.S. GAAP. Taxes attributable to associated companies
amounted to 321 (60; 103).