Volvo 2001 Annual Report Download - page 84

THE VOLVO GROUP · NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
80
Significant differences between Swedish and U.S.
accounting principles
A. Derivative instruments and hedging activities.
Volvo uses forward exchange contracts and currency
options to hedge the value of future commercial 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.
Under U.S. GAAP hedge accounting is not applied for
commercial derivatives, why outstanding forward con-
tracts and currency options are valued at market rates.
The profits and losses that thereby arise are included
when calculating income. Unrealized net losses for 2001
pertaining to forwards and options contracts are estimat-
ed at 944 (1,286; 632).
Volvo uses derivative instruments to hedge the value
of the Groups’ financial position. In accordance with U.S.
GAAP, all outstanding derivative instruments are valued
at fair value. The profits and losses that thereby arise are
included when calculating income. Only part of the
Groups’ hedges of financial exposure qualify for hedge
accounting under U.S. GAAP and are accounted for as
such. In those cases the hedged item are valued at fair
value regarding the risk and period beeing hedged and
included when calculating income.
As of January 1, 2001 Volvo has made a transition
adjustment in accordance with FAS 133. Book values of
derivatives, assets and liabilities qualifying for hedge
accounting prior to FAS 133 have been adjusted in
accordance with FAS 133. The transition adjustment will
be accrued over the average maturity of the assets and
liabilities that qualified for hedge accounting prior to FAS
133.
B. Business combinations. Acquisitions of certain sub-
sidiaries are reported differently in accordance with
Volvo’s accounting principles and U.S. GAAP. The differ-
ence 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).
Accounting for derivative instruments and hedging activities
Net income 1999 2000 2001
Derivatives Commercial exposure 576 (654) 342
Derivatives Financial exposure – – (222)
Fair value adjustment hedged items – – 50
Transition adjustment – – 2
Total increasing (decreasing) reported net income 576 (654) 172
Fair value hedges included above
Net income 2001
Derivative contracts, financial exposure 338
Fair value adjustment hedged items (293)
Ineffectiveness in net income 45
Shareholders’ equity 1999 2000 2001
Shareholders’ equity in accordance with
Swedish accounting principles 97,692 88,338 85,185
Items increasing (decreasing) reported shareholders’ equity
Derivative instruments and hedging activities (A) (632) (1,286) (1,114)
Business combinations (B) 1,408 1,317 4,125
Shares and participations (C) 12 36 36
Interest costs (D) 115 112 130
Leasing (E) (189) (163) (149)
Investments in debt and equity securities (F) (256) (6,066) (7,328)
Restructuring costs and income from divestment of Volvo Cars (G) 860 579 –
Pensions and other postemployment benefits (H) 443 109 272
Alecta surplus funds (I) – (523) (412)
Software development (J) 370 754 542
Product development (K) – – (1,962)
Entrance fees, aircraft engine programs (L) (51) (387) (719)
Tax effect of above U.S. GAAP adjustments (165) 1,941 3,024
Net increase (decrease) in shareholders’ equity 1,915 (3,577) (3,555)
Shareholders’ equity in accordance with U.S. GAAP 99,607 84,761 81,630