Volvo 2004 Annual Report Download - page 91

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US GAAP, the acquired operations have been consolidated and
accruals were made for intercompany profits in the year-end 2003
inventory of the L.B. Smith business. During 2004 the major part of
L.B. Smith has been divested and there are no GAAP difference
regarding L.B Smith, due to that the remaining part has been consol-
idated under Swedish GAAP in the year end closing of 2004.
Consolidation of the L.B. Smith distribution business under US
GAAP affected Volvo's income after financial items with 142 (nega-
tively 138). The Group's total assets are no longer effected
(SEK 1.1 billion).
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 consider-
ation 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 has been reduced with EUR 108 M
due to the settlement 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 2002 2003 2004 2002 2003 2004
Goodwill in accordance with
Swedish GAAP (1,094) (873) (684) 11,297 11,151 9,655
Items affecting reporting of goodwill:
Acquisition of Renault V.I. and Mack Trucks Inc. 430 415 223 13,329 3,744 3,967
Acquisition of Volvo Construction
Equipment Corporation 51 51 51 1,277 1,328 1,379
Other acquisitions 613 407 410 613 841 1,251
Net change in accordance with US GAAP 1,094 873 684 5,219 5,913 6,597
Goodwill in accordance with US GAAP 0 0 0 16,516 17,064 16,252
1Lower amortization due to adjusted goodwill value resulting from the settlement of dispute between AB Volvo and Renault SA.
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, 2004, unrealized losses after deduction of
unrealized gains in “available-for-sale” securities amounted to 494
(2,315; 9,763). Sale of “available-for-sale” shares in 2004 provided
SEK 21.4 bilion (– ; –) and the capital gain, before income tax, on
sales of these shares amounted to SEK 24 (– ; –).
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, US GAAP include a
presumption 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 0 (62; 9,683), have been charged to Volvo’s net
income under US GAAP. During 2004 Volvo has divested the invest-
ment in Scania AB and a restructuring of Henlys Group plc has been
made. Henlys Group Plc. Earlier recorded value adjustments in the
income statement under US GAAP have been reversed with corre-
sponding adjustment in Other comprehensive income. After these
reversals, the remaining value of unrealized gains before tax credited
to Other comprehensive income amounted to 72 as of December
31, 2004.