Volvo 2008 Annual Report Download - page 103

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99
Financial information 2008
Depreciation and
amortization by type of asset 2007 2008
Intangible assets 2,719 3,286
Property, plant and equipment 5,385 5,718
Assets under operating leases 4,370 4,520
Total 12,474 13,524
Capital expenditures by type of asset 2007 2008
Intangible assets 2,202 2,875
Property, plant and equipment 7,936 9,977
Assets under operating leases 4,800 5,440
Total 14,938 18,292
Goodwill
Volvo verifi es annually, or more frequently if necessary, the value of its
operations to secure that they do not fall below the carrying value. If
impairment is detected the carrying value, in the fi rst place goodwill,
has to be written down. Volvo’s evaluation model is based on a dis-
counted cash-fl ow model, with a forecast period of mainly four years.
Evaluation is made on cash-generating units, identifi ed as Volvo’s
business areas.
Goodwill assets are allocated to these cash-generating units on
the basis of anticipated future utility. The evaluation is based on man-
agement’s best estimation of the operations’ development and has
been performed with prudence due to the current fi nancial environ-
ment. The basis for this estimation is long-term forecasts of the mar-
ket’s growth, two to four percent, in relation to the development of
Volvo’s operations. In the model, Volvo is expected to maintain stable
capital effi ciency over time. The evaluation is made on nominal values
and the general rate of infl ation, in line with the European target, is
used. Volvo uses a discounting factor calculated to 12% before tax for
2008.
During 2008, the value of Volvo’s operations has exceeded the
carry ing value of goodwill for all business areas, and accordingly, no
impairment have been recognized. However, the positive margins in
the evaluation tests have decreased for some business areas, which
make them, to a varying degree, sensitive to changes in the assump-
tions described above. Consequently, Volvo follows continuously the
development of the business areas whose overvalue is dependent on
the fulfi lment of Volvo’s assessments. A continued fi nancial turmoil
and volatility in interest and currency rates could lead to indications of
impairment for some business areas in the forthcoming periods, which
would require goodwill valuation tests to be performed as long as indi-
cations remain and could have a negative impact on the operating
income for those areas.
The most important factors for the future operations of Volvo, are
described on the Volvo business areas, as well as in the Risk manag-
ment section.
Goodwill per Business Area 2007 2008
Volvo Trucks 4,307 4,356
Renault Trucks 2,331 2,723
Trucks Asia 3,397 6,243
Mack Trucks 824 985
Construction Equipment 7,592 9,007
Buses 1,148 1,124
Other business areas 370 375
Total goodwill value 19,969 24,813
Investment property
Investment property is property owned for the purpose of obtaining
rental income and/or appreciation in value. The acquisition cost of
investment property was 1,603 (1,755) at year-end. Capital expend-
itures during 2008 amounted to 99 (80). Accumulated depreciation
was 582 (599) at year-end, whereof 50 (57) during 2008. The esti-
mated fair value of investment property was SEK 1.9 billion (2.0) at
year-end, based on the yield. The required return is based on current
property market conditions for comparable properties in comparable
locations. All investment properties were leased out during the year.
Net income for the year was affected by 275 (295) in rental income
from investment properties and 50 (50) in direct costs.