Volvo 2015 Annual Report Download - page 156

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GROUP PERFORMANCE 2015 NOTES
Purchases and sales of financial assets and liabilities are recognized on
the transaction date. Transaction expenses are included in the asset’s fair
value, except in cases in which the change in value is recognized in the
income statement. The transaction costs that arise in conjunction with the
admission of financial liabilities are amortized over the term of the loan as
a financial cost.
A financial asset is derecognized in the balance sheet when all signifi-
cant risks and benefits linked to the asset have been transferred to a third
party.
The fair value of assets is determined based on valid market prices,
when available. If market prices are unavailable, the fair value is deter-
mined for each asset using various measurement techniques.
Financial instruments are classified based on the degree that market
values have been utilized when measuring fair value. All financial instru-
ments measured at fair value held by Volvo Group are classified as level 2
with the exception of shares and participations, which are classified as
level 1 for listed instruments and level 3 for not listed instruments and
level 3 for call options based on the Black & Scholes option pricing for-
mula. The valuation of level 2 instruments is based on market conditions
using quoted market data existing at each balance sheet date. The basis
for the interest is the zero-coupon-curve in each currency which is used
to calculate the present value of all the estimated future cash flows. The
fair value of forward exchange contracts is discounted to balance sheet
date based on the forward rates for each currency as per balance sheet
date.
Read more in Note 5 about valuation policy for other shares and
participations.
Financial assets at fair value through the income statement
All of the Volvo Group’s financial assets that are recognized at fair value
through the income statement are classified as held for trading. As pre-
sented in the table on next page, these instruments are derivatives, used
for hedging interest, currency and raw material prices, and marketable
securities (further presented in note 18).
Derivatives used for hedging interest rate exposure in the Customer
Finance portfolio as well as for the financing of activities in Industrial
Operations are included in this category. Unrealized gains and losses
from fluctuations in the fair values of the financial instruments are recog-
nized in Other financial income and expense. The Volvo Group intends to
hold these derivatives to maturity, which is why, over time, the market val-
uation will be offset as a consequence of the interest-rate fixing on bor-
rowing and lending for the Customer Finance Operations, and thus not
affect operating income or cash flow.
Financial instruments used for hedging currency risks arising from
future firm commercial cash flows are also recognized under this cate-
gory. Unrealized and realized gains and losses are recognized in Other
financial income and expenses to be able to net all internal flows before
entering into external derivatives, except for gains and losses from deriv-
atives hedging currency risks of future cash flows for specific orders.
where the classification in the income statement is decided on case by
case, according to the Volvo Group currency policy. In 2015 gains and
losses from derivatives hedging currency risks for specific orders have
been recognized in Other financial income and expenses.
Read more in Note 9 about the effect in the income statement from
revaluation of the derivatives.
The Volvo Group only applies hedge accounting on a few specific hedging
relationships. Refer to section on Hedge accounting in this note for the
Volvo Group’s policy choice on hedge accounting.
Loan receivables and other receivables
Included in this category are accounts receivable, customer-finance receiv-
ables and other interest bearing receivables.
Read more in Note 15 for accounting policy on customer-finance receivables.
Read more in Note 16 for accounting policy on accounts receivable and other
interest-bearing receivables.
Assets available for sale
This category includes assets available for sale and assets that have not
been classified in any of the other category. For the Volvo Group this cat-
egory contains holding of shares in listed and non-listed companies.
Read more in Note 5 about other shares and participations.
ACCOUNTING POLICY
NOTE 30 FINANCIAL INSTRUMENTS
Changes in loans, net 2015 2014
New borrowings 127,059 180,066
Amortizations –132,437 –169,436
Syndications –6,965 –4,661
Changes in group composition 84 –280
Other –988 997
Changes in loans, net –13,247 6,686
During 2015 bond loans and other loans in the Volvo Group decreased by
SEK 15.4 billion whereof currency effects from revaluation of foreign sub-
sidiaries decreased the total debt by SEK 2.7 billion. Syndications were
performed in the Customer Finance Operations to an amount of SEK 7.0
billion (8.3). All syndications impacted cash flow this year. In 2014 syndi-
cations of SEK 3.7 billion were made that had no cash flow impact. Both
currency effects and syndications with no impact on the cash flow have
been adjusted on changes in loans, net in the cash flow.
Realized gains and losses on derivatives used to hedge future commer-
cial cash flows amounted to negative SEK 0.6 billion ( positive 1.0) and is
included on line Other in the table Changes in loans, net, whereof SEK 0.1
billion (1.2) was related to derivatives used to hedge the acquisition of
Donfeng Commercial Vehicles.
In 2015, the Volvo Group reduced its borrowings as a consequence of a
strong cash flow.
Read more in Group performance regarding the Cash flow for the Volvo
Group on page 86.
Read more in Note 22 Liabilities regarding the Volvo Group’s Bond loans and
other loans.