AB Volvo
Mr David R. Humphrey
Branch Chief, Division of Corporate Finance
US Securities and Exchange Commission
450 Fifth Street
Washington, DC 20549, USA
Date Telephone indialling Telefax Our reference
2 March 2007 +46 31 66 13 26 +46 31 54 28 79 MH/mm
Dear Mr Humphrey,
Thank you for your letter of February 12, 2007, containing comments with respect
to the Form 20-F for the fiscal year ended December 31, 2005 (the "2005 Form
20-F") of AB Volvo ("Volvo", "the Company"). Having now had the opportunity to
carefully consider your comments, I have set out below our response. For your
convenience, we have included the Staff's comments in italics, followed by your
response.
SEC - QUESTION
Item 8 Financial Information
Consolidated Balance Sheets, page F-20
It is not clear how you arrive at the consolidated results of the company within
your Swedish GAAP to IFRS GAAP reconciliation. In this regard, the summation of
the Volvo Group (excluding Financial Services) and Financial Services balances
does not equal the consolidated results. As such, please provide us with and
revise future filing to include a revised Swedish GAAP to IFRS GAAP
reconciliation, which reconciles the Volvo Group (excluding Financial Services)
and Financial Services balances to the reported consolidated amounts along with
a detailed discussion of each adjustment.
VOLVO RESPONSE
Volvo discloses the balance sheet for Volvo Group with Financial Services
accounted for according to the equity method (Industrial and Commercial) and
Financial Services, VFS, respectively for the readers convenience on page F-16
[F-20 EDGAR printing]. The respective reconciling items from Swedish GAAP to
IFRS are described in the note 3, Impact of IFRS, and their impact is presented
on the respective line item in the balance sheet. The reconciling item not
summing up to the total IFRS adjustment column would be the "Classification of
leasing contracts in segment reporting of Volvo Financial Services". In
accordance with IAS 14.16 the respective segment should apply the Group's
accounting principle as on a stand alone base. Certain contracts which are
classified as operating lease contracts according to IAS 17.10 -17.12 from the
Volvo Group perspective where the product company has committed themselves to a
residual value guarantee or entered into a buy back agreement, will be
classified as financial lease contracts from the Volvo Financial Services point
of view. Earlier under Swedish GAAP, those contracts were classified as
operating leases in the VFS segment.
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AB Volvo (publ) Telephone Registration No. Registered Office
SE-405 08 Goteborg Switchboard 556012-5790 Goteborg, Sweden
Sweden +46 31 66 00 00
2
This classification will only take place within the VFS segment and is reversed
at the Group level. The line item other provision, is consequently adjusted from
a provision, when contracts are accounted as operating leases, to a valuation
allowance and a reduction on the asset side, when the contracts are accounted
for as a financial lease.
The balance sheet overview of the transition to IAS 39 as per January 1 2005 is
presented for the readers' convenience (F-21 EDGAR printing), disclosing the
effect on Volvo's net financial position, for the Industrial and Commercial,
I&C, part of the operations and presenting the opening balance for the cash flow
calculation. The reason why the reconciling items do not total up to the total
Group for the respective I&C and VFS relate to de-recognition of financial
assets. Certain financial assets removed from the I&C balance sheet according to
Swedish GAAP, focusing on the legal title were not derecognised according to IAS
39 as of 1 January 2005. This amounted to approximately B 3.3 SEK, as the
product company had retained more than an insignificant part of the risk for the
receivables. Of the total B 3.3 SEK, an amount of B 2.350 SEK was included in
the segment VFS, which is why this amount was eliminated.
Deviations in totalling the I&C and VFS Swedish GAAP figures to the Volvo Group
Swedish GAAP figures relate to ordinary intra-group balances between the
segments.
In order to clarify this, we intend to include a footnote to the table in our
coming annual report. The anticipated footnote disclosure is the following;
1) Financial Services reported in accordance with the equity method
2) The Volvo Group total column is presented in accordance with IFRS and
equals the consolidated balance sheet presented on page x. The two
preceding columns do not total the Volvo Group total due to (i)
reclassification of lease contracts and (ii) eliminations of intra
group balances. Certain lease contracts are accounted for as operating
lease contracts in the Volvo Group total balance sheet where as they
are accounted for as finance lease contracts in VFS stand alone.
We acknowledge that in connection with our 20-F filing:
o the Company is responsible for the adequacy and accuracy of the
disclosure in the filing
o staff comments or changes to disclosure in response to staff comments
do not foreclose the Commission from taking any action with respect to
the filing; and
o the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States
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I hope that our response to your comments is satisfactory, and that our proposal
to revise the disclosure in our 2006 Swedish Annual Report and in our 2006 Form
20-F is acceptable to you.
Please, do not hesitate to contact me, at +46 31 66 10 06, or Mikael Hagstrom,
Head of Financial Reporting, at +46 31 66 13 26, should you have any questions
regarding matters outlined above.
Yours sincerely,
Par Ostberg
Senior Vice President & Chief Financial Officer
Copies to:
US Securities and Exchange Commission
Juan Migone
Lyn Shenk
PricewaterhouseCoopers
Goran Tidstrom, Stockholm
Catherine Samsel, New York