Volvo 2003 Annual Report Download - page 70

68
The Volvo Group
Notes to consolidated financial statements
In 2003, Volvo exchanged the main part of its shareholding in Bilia
AB versus 98% of the shares in Kommersiella Fordon Europa AB
(KFAB). In accordance with Swedish GAAP, the acquisition cost of
the shares in KFAB was determined to SEK 0.9 billion and the
goodwill attributable to this transaction amounted to SEK 0.6 billion.
In accordance with US GAAP, the acquisition cost of the shares
amounted to SEK 0.7 billion and the goodwill was determined to
SEK 0.5 billion. As a consequence, Volvo's capital gain on the divest-
ment of Bilia shares was 179 lower under US GAAP than under
Swedish GAAP.
In 2001, AB Volvo acquired 100% of the shares in Renault V.I.
and Mack Trucks Inc. from Renault SA in exchange for 15% of the
shares in AB Volvo. Under Swedish GAAP, the goodwill attributable
to this acquisition was set at SEK 8.4 billion while under US GAAP
the corresponding goodwill was set at SEK 11.5 billion. The differ-
ence was mainly attributable to determination of the purchase con-
sideration. In accordance with Swedish GAAP, when a subsidiary is
acquired through the issue of own shares, the purchase considera-
tion is determined to be based on the market price of the issued
shares at the time of the transaction is completed. In accordance
with US GAAP, such a purchase consideration is determined to be
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 US In conjunction with the acquisi-
tion, goodwill of SEK 2.8 billion was reported. The shareholding was
written down by SEK 1.8 billion, which was estimated to correspond
to the portion of the goodwill that was attributable at the time of
acquisition to the Volvo trademark. In accordance with US GAAP, the
goodwill of SEK 2.8 billion was amortized over its estimated useful
life (20 years) until 2002 when Volvo adopted SFAS 142 (see
above).
Net income Shareholders’ equity
Goodwill 2001 2002 2003 2001 2002 2003
Goodwill in accordance with
Swedish GAAP (1,058) (1,094) (873) 13,013 11,297 11,151
Items affecting reporting of goodwill:
Acquisition of Renault V.I. and Mack Trucks Inc. (153) 430 415 2,899 3,329 3,744
Acquisition of Volvo Construction
Equipment Corporation (91) 51 51 1,226 1,277 1,328
Other acquisitions – 613 407 – 613 841
Net change in accordance with US GAAP (244) 11,094 873 4,125 5,219 5,913
Goodwill in accordance with US GAAP (1,302) 0 0 17,138 16,516 17,064
1 Income under US 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. Investments in debt and equity securities. In accordance with US
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, 2003, unrealized losses after deduction of
unrealized gains in “available-for-sale” securities amounted to 2,315
(9,763; 7,211). Sale of "available-for-sale" shares in 2003 provided
SEK – (– ; 3,2 billion) and the capital gain, before income 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 car-
rying value for an extended period of time, US GAAP include a pre-
sumption that the decline in value is “other than temporary”. Under
such circumstances, US GAAP require that the value adjustment
must be recorded in Net income with a corresponding credit to
Other comprehensive income. Accordingly, value adjustments
amounting to 62 (9,683; –), have been charged to Volvo’s net
income under US GAAP. Value adjustments during 2002 was mainly
pertaining to Volvo’s investment in Scania AB. After these value
adjustments, the remaining value of unrealized gains before tax
credited to Other comprehensive income amounted to 3,399 as of
December 31, 2003.
In accordance with Swedish accounting principles, write-downs
have been made to the extent the fair value of the investments is
considered to be lower than the acquisition cost of the investment.
During 2003, Volvos investments in Scania AB and Henlys Group
Plc was written down by 3,601 and 429 respectively under Swedish
GAAP. See further in Note 13.