Volvo 2003 Annual Report Download - page 72

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The Volvo Group
Notes to consolidated financial statements
F. Alecta surplus funds. In the mid-1990s and later years surpluses
arose in the Alecta insurance company (previously SPP) since the
return on the management of ITP pension plan assets exceeded the
growth in pension obligations. As a result of decisions in December
1998, Alecta distributed, company by company, the surpluses that
had arisen up to and including 1998. In accordance with a statement
issued by a special committee of the Swedish Financial Accounting
Standards Council, surplus funds that were accumulated in Alecta
should be reported in companies when their present value can be
calculated in a reliable manner. The rules governing how the refund
was to be made were established in the spring of 2000 and an
income amounting to 683 was included in the Group’s income state-
ment under Swedish GAAP during 2000. In accordance with US
GAAP, the surplus funds have been recognized in the income state-
ment when settled.
G. Software development. In accordance with US GAAP (SOP 98–1
“Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use”) expenditures for software development
should be capitalized and amortized over the useful lives of the proj-
ects. In Volvo’s accounting in accordance with US GAAP, SOP 98–1
is applied as of January 1999. In Volvo’s accounts prepared under
Swedish GAAP up to and including 2000, expenditures for software
development were expensed as incurred. Effective in 2001, Volvo
adopted a new Swedish accounting standard, RR 15 Intangible
assets. With regard to software development, the new standard is
substantially equivalent to US GAAP and consequently the differ-
ence between Swedish and US GAAP is pertaining only to expendi-
tures for software development during 1999 and 2000.
H. Product development. Effective in 2001, Volvo adopted a new
Swedish accounting standard, RR15 Intangible assets. In accordance
with the new standard, which conforms in all significant respects to
the corresponding standard issued by the International Accounting
Standards Committee (IASC), expenditures for development of new
and existing products should be recognized as intangible assets if
such expenditures with a high degree of certainty will result in future
financial benefits for the company. The acquisition value of such
intangible assets should be amortized over the useful lives of the
assets. In accordance with the new standard, no retroactive applica-
tion is allowed. Under US GAAP, all expenditures for development of
new and existing products should be expensed as incurred.
I. Entrance fees, aircraft engine programs. In connection with its
participation in aircraft engine programs, Volvo Aero in certain cases
pays an entrance fee. In Volvo’s accounting these entrance fees are
capitalized and amortized over 5 to 10 years. In accordance with US
GAAP, these entrance fees are expensed as incurred.
J. Other. Other include accounting differences regarding interest costs,
leasing, stock option plans and guarantees.
In accordance with US GAAP, interest expense incurred in con-
nection with the financing of the construction of property and other
qualifying assets is capitalized and amortized over the useful life of
the related assets. In Volvo’s consolidated accounts, interest expens-
es are reported in the year in which they arise.
The differences regarding leasing transactions pertain to sale-
leaseback transactions prior to 1997.
In accordance with Swedish GAAP, accruals are made for employ-
ee stock option programs to the extent that the exercise price of the
options is lower than the actual market price of the shares at the
end of the period. In accordance with US GAAP, such accruals
should be allocated over the vesting period of the employee stock
option program.
In accordance with FIN 45 “Guarantor’s Accounting and Disclosure
Requirement for Guarantees, Including indirect Guarantees of indebt-
ness for Others”, a liability should be recognized at the time a com-
pany issues a guarantee for the fair value of the obligations assumed
under certain guarantee agreements. In accordance with Swedish
accounting principles, a liability should be recognized to the extent a
company expects that a loss will be incurred as result of the guaran-
tee commitment. At December 31, 2003, the gross value of credit
guarantees issued for external parties amounted to 3,879. The fair
value of these guarantees recognized under US GAAP amounted to
244. Counterguarantees received in respect of these commitments
amounted to 167.
K. Income taxes on US GAAP adjustments. Deferred taxes are
generally reported for temporary differences arising from differences
between US GAAP and Swedish accounting principles. During 2002,
a new tax legislation was enacted in Sweden which removed the
possibility to offset capital losses on investments in shares held for
operating purposes against income from operations. As a result of
the new legislation, a tax expense of 2,123 was charged to Volvo’s
net income under US GAAP to reduce the carrying value of deferred
tax assets relating to investments in shares classified as “available-
for-sale”.
Comprehensive income (loss) 2001 2002 2003
Net income (loss) in accordance with US GAAP (4,320) (6,265) 3,979
Other comprehensive income (loss), net of income taxes
Translation differences 1,015 (2,222) (606)
Unrealized gains and (losses) on securities (SFAS 115):
Unrealized gains (losses) arising during the year (1,532) (2,425) 3,366
Less: Reclassification adjustment for (gains) and losses included in net income 733 7,558 62
Additional minimum liability for pension obligations (SFAS 87) (1,622) (3,234) 186
Fair value of cash-flow hedges (SFAS 133) – – (11)
Other 41 (165) (12)
Other comprehensive income (loss), subtotal (1,365) (488) 2,985
Comprehensive income (loss) in accordance with US GAAP (5,685) (6,753) 6,964
Supplementary US GAAP information
Classification. In accordance with SFAS 95, “cash and cash equiva-
lents” 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 accord-
ance with SFAS 95, changes in this portion of liquid funds should be
reported as investing activities.
Income from investments in associated companies is reported
before income taxes in accordance with Swedish accounting prin-
ciples, and after income taxes in accordance with US GAAP. Income
taxes attributable to associated companies amounted 30 (65; 42).