Volvo 1999 Annual Report Download - page 85

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The costs for other benefits include the following components
1997 1998 1999
Benefits earned during the year 42 46 35
Interest expense 97 77 60
Reported insurance profits and losses (4) 12 (5)
Costs attributable to restructuring 1 – –
Net post retirement benefit expenses 136 135 90
Comprehensive income 1997 1998 1999
Net income in accordance with U.S. GAAP 6,556 9,432 31,690
Other comprehensive income, net of tax
Translation differences (367) 1,173 (1,389)
Unrealized gains on securities (SFAS 115):
Unrealized gains (losses) arising during the year 207 (186) (419)
Less: Reclassification adjustment for gains included in net income 1,295 (2,655) (43)
Adjustment for pensions and similar commitments
(minimum liability) 118 452 (54)
Other 212 (141) (8)
Other comprehensive income, subtotal 1,465 (1,357) (1,913)
Comprehensive income
in accordance with U.S. GAAP 8,021 8,075 29,777
An increase of one percentage point per year in health-
care costs would change the accumulated post retire-
ment benefit obligation as of December 31, 1998 by
approximately 189, and the net post-retirement benefit
expense by approximately 19. A decrease of 1% would
decrease the accumulated value of obligations by about
156 and reduce costs by approximately 18. In 1999, an
increase of 1% would increase the accumulated value of
obligations by about 65 and increase costs by about 6; a
decrease of 1% would reduce the accumulated value of
obligations by about 57 and cut costs by about 5.
Calculations made as of December 31, 1999 show an
annual increase of 8% in the weighted average per cap-
ita costs of covered health-care benefits; it is assumed
that the percentage will decline gradually to 5% in 2010
and then remain at that level.
The discount rate used in determining the accumulat-
ed post-retirement benefit obligation as of December 31,
1997, 1998 and 1999 was 7.0%, 6.75% and 7.5%
respectively.
J. Software development. Software development, used in
the Group’s operations, is conducted in Volvo IT. In Volvo’s
accounts, these expenditures are expensed as incurred.
In accordance with Statement of Position (SOP) 98–1
“Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use” such expenditu-
res should be capitalized and amortized over the useful
lives of the projects. In Volvo’s accounting in accordance
with U.S. GAAP, SOP 98-1 is applied as of January 1999.
The new accounting principle should not be applied retro-
actively.
Supplementary U.S. GAAP information
Classification. In accordance with SFAS 95, “cash and
cash equivalents” comprise only funds with a maturity of
three months or less from the date of purchase. Some
of Volvo’s liquid funds (see Notes 19 and 20) do not
meet this requirement. Consequently, in accordance with
SFAS 95, changes in this portion of liquid funds should
be reported as investing activities.
Recent U.S. accounting pronouncement issued
but not yet adopted. In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133,
“Accounting for Derivative Instruments and Hedging
Activities”, which establishes accounting and reporting
standards for derivative instruments, including certain
derivative instruments embedded in other contracts and
for hedging activities. This statement, as amended, is
effective for fiscal years beginning after June 15, 2000.
Volvo has not determined the impact SFAS No. 133 will
have on its consolidated financial statements.