AB Volvo has decided to reverse a valuation reserve for deferred tax receivables in the Mack Trucks subsidiary. The decision is based on the fact that Volvo assesses that the company has a long-term higher profitability.
Reporting of the deferred tax receivables reduces tax expenses in the income statement in the third quarter by SEK 2.0 billion. In accordance with prevailing accounting rules, Volvo is adjusting goodwill by SEK 1.7 billion, which will affect operating income adversely. The combined earnings effect for the third quarter will be a positive SEK 300 M.
Most of the valuation reserve for deferred tax receivables reported in the annual accounts for 2005 was attributable to Mack Trucks in the US. As a result of a structurally higher profitability, more stable cash flow and reduced risk, Volvo has now decided to reverse the valuation reserve that exists in Mack Trucks and report the deferred tax receivables, totaling SEK 2.0 billion.
Reporting of the deferred tax receivables reduces tax expenses in the income statement for the third quarter by SEK 2.0 billion. Most of the valuation reserve reported in Mack Trucks is attributable to the time of the acquisition of Renault Trucks and Mack Trucks. In accordance with IFRS, a reversal of valuation reserves attributable to acquisitions is adjusted against the earlier reported goodwill. This means that Volvo will report a cost for the third quarter for adjustment of goodwill of about SEK 1.7 billion in other operating income and expenses. The adjustment of goodwill will be accounted for in the segment Trucks.
The Volvo Group’s earnings for the period will be affected positively by slightly more than SEK 300 M.
October 13, 2006
For further information, please contact Mårten Wikforss, +46 31 66 11 27 or +46 705 59 11 49