Volvo 2007 Annual Report Download - page 118
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114 Financial information 2007
Notes to consolidated fi nancial statements
Volvo’s pension foundation in Sweden was formed in 1996 to secure
obligations relating to retirement pensions for salaried employees in
Sweden in accordance with the ITP plan (a Swedish individual pension
plan). Plan assets amounting to 2,456 was contributed to the founda-
tion at its formation, corresponding to the value of the pension obliga-
tions at that time. Since its formation, net contributions of 1,472,
whereof 52 during 2007, have been made to the foundation. The plan
assets in Volvo’s Swedish pension foundation are invested in Swedish
and foreign stocks and mutual funds, and in interest-bearing secur-
ities, in accordance with a distribution that is determined by the foun-
dation’s Board of Directors. At December 31, 2007, the fair value of
the foundation’s plan assets amounted to 6,648 (6,394), of which
43% (45) was invested in shares or mutual funds. At the same date,
retirement pension obligations attributable to the ITP plan amounted
to 7,847 (6,560). In the valuation of Volvo’s pension liability for the
Swedish companies, the life-expectancy assumptions was changed
during 2007. Men are now assumed to live about two years longer
than previously. The increase for women is about one year. The
changed life-expectancy assumptions increased the pension obliga-
tion by about 14%. However, this increase has not affected the carry-
ing amount of the Volvo Group’s liabilities immediately since Volvo
applies the corridor approach to actuarial gains and losses. Swedish
companies can secure new pension obligations through balance
sheet provisions or pension fund contributions. Furthermore, a credit
insurance must be taken out for the value of the obligations. In add-
ition to benefi ts relating to retirement pensions, the ITP plan also
includes, for example, a collective family pension, which Volvo fi nances
through insurance with the Alecta insurance company. According to
an interpretation from the Swedish Financial Accounting Standards
Council’s interpretations committee, this is a multi-employer defi ned
benefi t plan. For fi scal year 2007, Volvo did not have access to infor-
mation from Alecta that would have enabled this plan to be reported
as a defi ned benefi t plan. Accordingly, the plan has been reported as
a defi ned contribution plan. Alecta’s funding ratio is 152,0% (143.1%).
Alecta’s current funding ratio exceeds the target of 140%. Accord-
ingly, Alecta’s Board of Directors has decided to reduce premiums for
defi ned benefi t plans and family pensions by 40% during 2008.
Volvo’s subsidiaries in the United States mainly secure their pen-
sion obligations through transfer of funds to pension plans. At the end
of 2007, the total value of pension obligations secured by pension
plans of this type amounted to 10,928 (11,830). At the same point in
time, the total value of the plan assets in these plans amounted to
12,195 (12,226), of which 58% (60) was invested in shares or mutual
funds. The regulations for securing pension obligations stipulate cer-
tain minimum levels concerning the ratio between the value of the
plan assets and the value of the obligations. During 2007, Volvo con-
tributed 0 (2,858) to the pension plans.
During 2007 Volvo has made extra contributions to the pension-
plans in Great Britain in the amount of 135 (646).
In 2008, Volvo estimate to transfer an amount of not more than
SEK 1 billion to pension plans.
Note 25 Other provisions
Note 26 Non-current liabilities
Value in Value in
balance Provisions Acquired and Trans- blance Whereof Whereof
sheet and divested lation Reclassi- sheet due within due after
2006 reversal Utilization companies differences fi cations 2007 12 months 12 months
Warranties 8,411 4,495 (3,811) 300 (24) 2 9,373 5,014 4,359
Provisions in insurance operations 362 91 (66) – – – 387 5 382
Restructuring measures 429 101 (322) 5 4 (3) 214 186 28
Provisions for residual value risks 781 8 (56) – (13) (50) 670 433 237
Provisions for service contracts 1,677 626 (400) (13) 23 (2) 1,911 1,128 783
Dealer bonus – 2,681 (2,438) – (8) 1,567 1,802 1,784 18
Other provisions 4,889 2,070 (2,195) 385 (9) (1,540) 3,600 2,106 1,494
Total 16,549 10,072 (9,288) 677 (27) (26) 17,957 10,656 7,301
The listing below shows the Group’s non-current liabilities in which the
largest loans are distributed by currency. Most are issued by Volvo
Treasury AB. Information on loan terms is as of December 31, 2007.
Volvo hedges foreign-exchange and interest-rate risks using deriva-
tive instruments. See Note 36.
Actual interest rate, Effective interest rate,
Bond loans Dec 31, 2007, % Dec 31, 2007, % 2006 2007
SEK 2004–2007/2009–2017 4.00–4.94 4.00–5.02 8,973 13,378
JPY 2001–2006/2009–2011 1.39–2.70 1.39–2.70 231 1,203
CZK 2003–2005/2009–2010 2.69–4.50 – 389 –
USD 2007/2010 5.13 5.22 1,614 647
EUR 1997–2007/2009–2017 4.06–6.13 4.06–6.13 11,623 27,070
NOK 2006/2009 3.59 – 329 –
Other bond loans – – 20 –
Total 23,179 42,298