Volvo 2002 Annual Report Download - page 62

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The Volvo Group
Notes to consolidated financial statements
based on the market price of the underlying shares for a reasonable
period before and after the terms of the transaction are agreed and
publicly announced. The goodwill may be subject to adjustment
pending resolution of the dispute between AB Volvo and Renault SA
regarding the final value of acquired assets and liabilities in Renault
V.I. and Mack Trucks.
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 acqui-
sition, goodwill of SEK 2.8 billion was reported. The shareholding
was written down by SEK 1.8 billion, which was estimated to corres-
pond to the portion of the goodwill that was attributable at the time
of acquisition to the Volvo trademark. In accordance with U.S. GAAP,
the goodwill of SEK 2.8 billion was amortized over its estimated use-
ful life (20 years) until 2002 when Volvo adopted FAS 142 (see
above).
Net income Shareholders’ equity
Goodwill 2000 2001 2002 2000 2001 2002
Goodwill in accordance with
Swedish GAAP, December 31 (491) (1,058) (1,094) 4,969 13,013 11,297
Items affecting reporting of goodwill:
Acquisition of Renault V.I. and Mack Trucks Inc. – (153) 430 – 2,899 3,329
Acquisition of Volvo Construction
Equipment Corporation (91) (91) 51 1,317 1,226 1,277
Other acquisitions – – 613 – – 613
Net change in accordance with U.S. GAAP (91) (244) 11,094 1,317 4,125 5,219
Goodwill in accordance with U.S. GAAP, December 31 (582) (1,302) 0 6,286 17,138 16,516
1 Income under U.S. GAAP was in total 744 lower than under Swedish GAAP, including 244 due to higher goodwill amortization and 500 due
to other differences in purchase accounting.
C. Shares and participations. In calculating Volvo’s share of earnings
and shareholders’ equity in associated companies in accordance with
U.S. GAAP, differences between the accounting for these companies
in accordance 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 assoc-
iated companies amounted to 65 (42; 244).
D. Interest costs. In accordance with U.S. GAAP, interest expense
incurred in connection with the financing of the construction of prop-
erty and other qualifying assets is capitalized and amortized over the
useful life of the related assets. In Volvo’s consolidated accounts,
interest expenses are reported in the year in which they arise.
E. Leasing. Certain leasing transactions are reported differently in
accordance with Volvo’s accounting principles compared with U.S.
GAAP. The differences pertain to sale-leaseback transactions prior to
1997.
F. Investments in debt and equity securities. In accordance with U.S.
GAAP, Volvo applies SFAS 115: “Accounting for Certain Investments
in Debt and Equity Securities.” SFAS 115 addresses the accounting
and reporting for investments in equity securities that have readily
determinable fair market values, and for all debt securities. These
investments are to be classified as either “held-to-maturity” securities
that are reported at amortized cost, “trading” securities that are
reported at quoted market prices with unrealized gains or losses
included in earnings, or “available-for-sale” securities, reported at
quoted market prices, with unrealized gains or losses being credited
or debited to Other comprehensive income and thereby included in
shareholders’ equity.
As of December 31, 2002, unrealized losses after deducting for
unrealized gains in “available-for-sale” securities amounted to 9,763
(7,211; 6,101). Sale of “available-for-sale” shares in 2002 provided
SEK – (3,2 billion; –) and the capital gain, before tax, on sales of
these shares amounted to SEK – (0,6 billion; –).
As set out above, all “available-for-sale” securities are valued at
quoted market price at the end of each fiscal year with the change in
value being credited or debited to Other comprehensive income.
However, if a security’s quoted market price has been below the
carrying value for an extended period of time, U.S. GAAP include
a presumption that the decline in value is “other than temporary”.
Under such circumstances, U.S. GAAP require that the value adjust-
ment must be recorded in Net income with a corresponding credit to
Other comprehensive income. Accordingly, value adjustments
amounting to 9,683, mainly pertaining to Volvo’s holding in Scania
were charged to U.S. GAAP Net income during 2002. After these
adjustments, the remaining value of unrealized losses before tax
debited to Other comprehensive income amounted to 80 as of
December 31, 2002.
In accordance with Swedish accounting principles, no write-downs
have been made since the fair value of Volvo’s investments is con-
sidered to be higher than the quoted market price of these invest-
ments. See further in Note 13.