**As filed withthe Securities and Exchange Commission on June 18, 2004**

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

Washington D.C. 20549

**___________**

**FORM 20-F**

REGISTRATIONSTATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIESEXCHANGE ACT OF 1934 

OR

ANNUAL REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 

for the fiscal yearended December 31, 2003

OR

TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

**Commission filenumber 0-12828**

**AKTIEBOLAGETVOLVO (publ)***(Exact name of Registrant as specified in its charter)*

**VOLVOCORPORATION***(Translation of Registrant's name into English)*

**Kingdom ofSweden***(Jurisdiction of incorporation or organization)*

**S-405 08**

**Göteborg,Sweden**

*(Address ofprincipal executive offices)*

Securitiesregistered pursuant to Section 12(b) of the Act: **None**

 

| **Title of class**                                                                                                                                         | **Name of each exchange on        which registered** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------|
| **Class B, common stock        par value SEK 6,        American Depositary Shares        each representing one Share        of class B common stock** | **NASDAQ**                                           |

Securities registered pursuant toSection 12(g) of the Act: **B Shares**

Securities for which there is areporting obligation pursuant to Section 15(d) of the Act: **None**

Indicate the number of outstandingshares of each of the issuer's classes of capital or common stockas of the close of the period covered by the annual report:

**A shares 131,674,699B shares 287,770,143**

Indicate by check mark whether theRegistrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934,as amended, during the preceding 12 months (or for suchshorter period that the Registrant was required to file suchreports), and (2) has been subject to such filingrequirements for the past 90 days:

**Yes ****X ****No **** ****Not Applicable **** **

Indicate by check mark whichfinancial statement item the Registrant has elected to follow:

**Item 17 **** ****Item 18 ****X **

INTRODUCTION AND USE OF CERTAINTERMS *

Certain Forward-Looking Statements*

PART I *

ITEM 1. IDENTITY OFDIRECTORS, SENIOR MANAGEMENT AND ADVISERS *ITEM 2. OFFER STATISTICS AND EXPECTEDTIMETABLE *

ITEM 3. KEY INFORMATION *3.A Selected Financial Data *3.B. Capitalization and Indebtedness *3.C Reasons for the offer and use ofproceeds. *3.D Risk factors *

ITEM 4. INFORMATION ON THE COMPANY*4.A. History and Development of Company *4.B. Business Overview *4.C. Organizational Structure *4.D. Property, Plants and Equipment *

ITEM 5. OPERATING AND FINANCIALREVIEW AND PROSPECTS. *5.A. Operating Results. *5.B. Liquidity and Capital Resources *5.C. Research and Development,Patents and Licenses *5.D. Trend Information *5.E. Off-Balance Sheet Arrangements *5.F. Tabular Disclosure ofContractual Obligations *

ITEM 6. DIRECTORS, SENIORMANAGEMENT AND EMPLOYEES *6.A. Directors and Senior Management *6.B. Compensation *6.C. Board Practices *6.D. Employees *6.E. Share Ownership *

ITEM 7. MAJOR SHAREHOLDERS ANDRELATED PARTY TRANSACTIONS. *7.A. Major Shareholders *7.B. Related Party Transactions *7.C Interests of Experts and Counsel *

ITEM 8. FINANCIAL INFORMATION *8.A. Consolidated Statements andOther Financial Information *8.B. Significant Changes *

ITEM 9. THE OFFER AND LISTINGS. *9.A. Offer and Listing Details *9.B. Plan of Distribution *9.C Markets *9.D Selling Shareholders *9.E Dilution *9.F Expenses of the Issue *

ITEM 10. ADDITIONAL INFORMATION *10.A Share capital *10.B Memorandum and articles ofassociation *10.C Material contracts *10.D Exchange controls *10.E Taxation *10.F Dividends and paying agents *10.G Statement by experts *10.H Documents on display *10.I Subsidiary Information *

ITEM 11. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK *ITEM 12. DESCRIPTION OF SECURITIESOTHER THAN EQUITY SECURITIES *

PART II *ITEM 13. DEFAULTS, DIVIDENDARREARAGES AND DELINQUENCIES *ITEM 14. MATERIAL MODIFICATIONS TOTHE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS *ITEM 15. CONTROLS AND PROCEDURES *ITEM 16A AUDIT COMMITTEE FINANCIALEXPERT *ITEM 16B CODE OF ETHICS *ITEM 16C ACCOUNTANTS’ FEES ANDSERVICES *

PART III *ITEM 17. FINANCIAL STATEMENTS *ITEM 18. FINANCIAL STATEMENTS *ITEM 19. EXHIBITS *SIGNATURES *

**INTRODUCTION AND USE OF CERTAIN TERMS**

Unless otherwise indicated, allamounts herein are expressed in Swedish kronor ("krona","kronor" or "SEK") or in United Statesdollars ("dollars" or "US$"). Merely for theconvenience of the reader, this Annual Report presentstranslations into dollars of certain krona amounts. Unlessotherwise stated, such translations have been made at the noonbuying rate of dollars in terms of kronor in New York City forcable transfers as certified for customs purposes by the FederalReserve Bank of New York (the "Noon Buying Rate") onMay 28, 2004, which was 7.4579 kronor per dollar (0.1341 U.S.dollars per krona). The Noon Buying Rate on May 28 differs fromcertain of the actual rates used in the preparation of theconsolidated financial statements of Volvo, which are expressedin kronor, and therefore, dollar amounts appearing herein maydiffer significantly from actual dollar amounts which weretranslated into kronor in the preparation of those consolidatedfinancial statements in accordance with accounting principlesgenerally accepted in Sweden. See "Item 3. Key Information– 3.A. Selected Financial Data". No representation ismade that krona amounts have been, could have been or could beconverted into dollars at the Noon Buying Rate on May 28 or onany other date as of which a convenience translation based on theNoon Buying Rate was 7.4579 kronor per dollar (0.1341 U.S.dollars per krona).

________________________________________________

As used herein, "Volvo",the "Company" or the "Group" refers toAktiebolaget Volvo and its consolidated subsidiaries and "ABVolvo" refers to Aktiebolaget Volvo, unless the contextindicates otherwise. "Trucks" refers to the combinedtruck operations of the Volvo Group, consisting of the truckbrands Mack, Renault and Volvo, which are individually referredto as "Mack Trucks", "Renault Trucks" and"Volvo Trucks", respectively.

________________________________________________

Volvo owns or otherwise has rights(as described under the section "Patents, Trademarks andLicenses" below) to a substantial number of trademarks thatit uses in conjunction with its business, including, but notlimited to, the following trademarks mentioned in this AnnualReport: "Volvo", "Volvo Penta", "Renault","Mack", "Duoprop" and "Aquamatic"(see "Item 4. Information on the Company — 4.BBusiness Overview — Patents, Trademarks and Licenses").

**CertainForward-Looking Statements**

This Annual Report on Form 20-Fincludes "forward-looking information" within themeaning of Section 27A of the Securities Act of 1933, as amended,and Section 21E of the Securities Exchange Act for 1934, asamended. Certain statements included in this Annual Report,including without limitations, those concerning (i) Volvo’sstrategies, (ii) the economic outlook for the commercialtransport equipment industries, (iii) expectations regardingprices, (iv) the development and commercial introduction of newproducts, (v) the quantitative and qualitative disclosures aboutmarket risk and (vi) Volvo’s liquidity and capital resourcesand expenditures, contain certain forward-looking statementsconcerning the Company’s operations, economic performanceand financial condition. These statements can often be identifiedby the use of forward-looking terminology such as "believes","expects", "may", "are expected to","will", "will continue", "should","seeks", or "anticipates". Although theCompany believes that the expectations reflected in such forward-lookingstatements are reasonable, no assurance can be given that suchexpectations will prove to have been correct. Accordingly,results could differ materially from those set out in the forward-lookingstatements as a result of, among other factors, (i) changes ineconomic, market and competitive conditions, (ii) success ofbusiness and operating initiatives, (iii) changes in theregulatory environment and other government actions, (iv)fluctuations in exchange rates and (v) risks inherent in businessmanagement. 

 

**** 

**PART I**

**ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS**

Not applicable.

**ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE**

Not applicable.

**ITEM 3.KEY INFORMATION**

**3.ASelected Financial Data**

The selected financial data setforth below at December 31, 2001, 2002 and 2003 and for each ofthe years ended December 31, 2001, 2002 and 2003 have beenderived from the consolidated financial statements of Volvo. See"Item 18. Financial Statements". Financial data atDecember 31, 1999 and 2000 and for the years ended December 31,1999 and 2000 have been derived from Volvo’s publishedSwedish financial statements not included herein.

The selected financial data atDecember 31, 2001, 2002 and 2003 and for each of the years endedDecember 31, 2001, 2002 and 2003 should be read in conjunctionwith, and are qualified in their entirety by reference to, theconsolidated financial statements and notes thereto included inItem 18.

 

|                                                                                                           | 1999                                 | 3      | 2000   | 4      | 2001   | 5      | 2002  | 6      | 2003   | 7      | 2003   | 8      |
|----------------------------------------------------------------------------------------------------------------|------------------------------------------------|--------|------------------|--------|------------------|--------|------------|--------|------------------|--------|------------------|--------|
| **AMOUNTS IN ACCORDANCE WITH SWEDISH        ACCOUNTING PRINCIPLES****1, 2**                                    |                                           |   |             |   |             |   |       |   |             |   |             |
|                                                                                                           | (In millions,        except per share amounts) |
|                                                                                                           | SEK                                  |   | SEK         |   | SEK    |   | SEK        |   | SEK              |   | USD              |   |
| Net sales..................................                                   | 125,019                                        |   | 130,070          |   | 189,280          |   | 186,198    |   | 183,291          |   | 24,577           |   |
| Net        sales from discontinued
operations..............................         | -                                              |   | -                |   | -                |   | -          |   | -                |   | -                |   |
| Net        sales from continuing operations                                                                    | 125,019                                        |   | 130,070          |   | 189,280          |   | 186,198    |   | 183,291          |   | 24,577           |   |
|                                                                                                           |                                           |   |             |   |             |   |       |   |             |   |             |   |
| Operating        income (loss)................                                                  | 34,158                                         |   | 6,668            |   | (676)            |   | 2,837      |   | 2,504            |   | 336              |   |
|                                                                                                           |                                           |   |             |   |             |   |       |   |             |   |             |   |
| Net        income (loss).......................                                           | 32,222                                         |   | 4,709            |   | (1,467)          |   | 1,393      |   | 298              |   | 40               |   |
| Income        from discontinued
operations..............................            | 26,726                                         |   | 479              |   | 65               |   | -          |   | -                |   | -                |   |
| Income        (loss) from continuing operations................................. | 5,496                                          |   | 4,230            |   | (1,532)          |   | 1,393      |   | 298              |   | 40               |   |
|                                                                                                           |                                           |   |             |   |             |   |       |   |             |   |             |   |
| Net        income (loss) per share9........                                                              | 73.00                                          |   | 11.20            |   | (3.50)           |   | 3.30       |   | 0.70             |   | 0.09             |   |
| Income        (loss) per share from
discontinued operations 9............                             | 60.50                                          |   | 1.20             |   | 0.10             |   | -          |   | -                |   | -                |   |
| Income        (loss) per share from continuing operations 9...............                      | 12.50                                          |   | 10.00            |   | (3.60)           |   | 3.30       |   | 0.70             |   | 0.09             |   |
|                                                                                                           |                                           |   |             |   |             |   |       |   |             |   |             |   |
| Cash        dividends per share 10............                                                        | 7.00                                           |   | 8.00             |   | 8.00             |   | 8.00       |   | 8.00             |   | 1.07             |   |
|                                                                                                           |                                           |   |             |   |             |   |       |   |             |   |             |   |
| Total        assets..............................                                | 195,612                                        |   | 200,743          |   | 260,925          |   | 239,222    |   | 231,252          |   | 31,008           |   |
| Non-current        liabilities...................                                               | 32,514                                         |   | 40,670           |   | 54,130           |   | 53,123     |   | 51,301           |   | 6,879            |   |
| Shareholders’        equity...................                                          | 97,692                                         |   | 88,338           |   | 85,185           |   | 78,278     |   | 72,420           |   | 9,711            |   |
|                                                                                                           |                                           |   |             |   |             |   |       |   |             |   |             |   |
| Share        capital............................                                    | 2,649                                          |   | 2,649            |   | 2,649            |   | 2,649      |   | 2,649            |   | 355              |   |
| Weighted        average number of shares. (in thousands)11..........................   | 441,521                                        |   | 421,684          |   | 422,429          |   | 419,445    |   | 419,445          |   | 419,445          |   |

|                                                                                                                                | 1999               | 3      | 2000   | 4      | 2001   | 5      | 2002   | 6      | 2003   | 7      | 2003   | 8      |
|-------------------------------------------------------------------------------------------------------------------------------------|--------------------|--------|--------|--------|------------------|--------|------------------|--------|------------------|--------|------------------|--------|
| **AMOUNTS IN ACCORDANCE WITH U.S. GAAP****1**                                                                                       |               |   |   |   |             |   |             |   |             |   |             |   |
| Operating income (loss)................                                                                                 | 33,606   |   | 4,935  |   | (4,014)          |   | (5,171)          |   | 5,275            |   | 707              |   |
|                                                                                                                                |               |   |   |   |             |   |             |   |             |   |             |   |
| Net income (loss)........................                                                                      | 31,690   |   | 3,127  |   | (4,320)          |   | (6,265)          |   | 3,979            |   | 534              |   |
| Income        from discontinued operations................................                            | 26,115   |   | 375    |   | -                |   | -                |   | -                |   | -                |   |
| Income        (loss) from continuing operations................................                       | 5,575    |   | 2,752  |   | (4,320)          |   | (6,265)          |   | 3,979            |   | 534              |   |
|                                                                                                                                |               |   |   |   |             |   |             |   |             |   |             |   |
| Basic        and diluted net income (loss)          per share 12.............................. | 71.80    |   | 7.40   |   | (10.20)          |   | (14.90)          |   | 9.50             |   | 1.27             |   |
| Income        per share from
discontinued        operations 12..........                                                   | 59.20    |   | 0.90   |   | -                |   | -                |   | -                |   | -                |   |
| Income        (loss) per share from continuing operations 12...............                                          | 12.60    |   | 6.50   |   | (10.20)          |   | (14.90)          |   | 9.50             |   | 1.27             |   |
|                                                                                                                                |               |   |   |   |             |   |             |   |             |   |             |   |
| Shareholders’        equity...................                                                               | 99,607   |   | 84,761 |   | 81,291           |   | 71,182           |   | 74,790           |   | 10,028           |   |

 

1 The consolidated financialstatements of Volvo are prepared in accordance with accountingprinciples generally accepted in Sweden (Swedish GAAP), whichdiffer in certain significant respects from generally acceptedaccounting principles in the United States (US GAAP). See Notes 1and 35 to the consolidated financial statements.

2 Effective in 2001, Volvo appliedten new accounting standards issued by the Swedish FinancialAccounting Standards Council. All these accounting standardsconform in all significant respects with the correspondingaccounting standard issued by the International AccountingStandards Board (IASB). In applying the transition rules as aconsequence of the aforementioned accounting standards, therewere no retroactive effects on Volvo’s earlier financialstatements. In applying the new standards during fiscal year 2001,RR 1:00 Consolidated Financial Statements and BusinessCombinations, RR 14 Joint Ventures, RR 15 Intangible Assets andRR 16 Provisions, Contingent Liabilities and Contingent Assets,resulted in a change in Volvo’s accounting principles. Inaccordance with RR 1:00 Consolidated Financial Statements andBusiness combinations, when a subsidiary is acquired through theissue of own shares, the purchase consideration is determined bythe market price of the issued shares at the time of thetransaction. In accordance with Volvo’s previous accountingprinciples, purchase consideration was determined based on theaverage market price of the issued shares during ten days priorto the public disclosure of the transaction. In accordance withRR 14 Joint ventures, a joint venture should either be reportedby use of the proportionate consolidation method or the equitymethod. Effective in 2001, the proportionate consolidation methodis the preferred method under Volvo's accounting principles. Inprevious years, all joint ventures have been reported by use ofthe equity method. In accordance with RR 15 Intangible Assets,the expenditures for development of new products, production andinformation systems are reported as intangible assets if suchexpenditures with a high degree of certainty will result infuture financial benefits for the company. The acquisition valuefor such intangible assets is amortized over the estimated usefullife of the assets. Volvo’s application of the new rulesmeans that high demands are established in order for thesedevelopment expenditures to be reported as assets. For example,it must be possible to prove the technical functionality of a newproduct prior to this development being reported as an asset. Innormal cases, this means that expenditures are capitalized onlyduring the industrialization phase of a product developmentproject. In accordance with Volvo’s previous accountingprinciples, all costs for the development of new products,production and information systems were expensed on a currentbasis. Operating income from continuing operations in accordancewith Swedish GAAP in 2001, 2002 and 2003 included positive impactof SEK 2,038 million, SEK 1,357 and SEK 483 million respectively,relating to, capitalization and amortization of development costsin accordance with RR 15. In accordance with RR 16 Provisions,Contingent Liabilities and Contingent Assets, a provision forcommitted restructuring measures is reported first when adetailed plan for the implementation of the measures is completeand when this plan is communicated to those who are affected. Inaccordance with Volvo’s previous accounting principles, aprovision for restructuring measures was reported in connectionwith the measures being decided by the company’s management.See Notes 1 and 35 to the Consolidated Financial Statements.

Effective in 2003, Volvo hasadopted RR 29 Employee benefits in its financial reporting. RR 29Employee benefits, which was issued by the Swedish FinancialAccounting Standards Council in December 2002, conforms in allsignificant respects with IAS 19 Employee benefits issued earlierby the International Accounting Standards Board (IASB). Byadoption of RR 29, defined benefit plans for pensions and health-carebenefits in all the Group's subsidiaries are accounted for withconsistent principles. In Volvo's financial reporting up to 2002,such plans have been accounted for by applying the local rulesand directives in each country. In accordance with the transitionrules of the new standard, a transitional liability has beenestablished as of January 1, 2003, determined in accordance withRR 29. This transitional liability has been determined to exceedthe liability recognized as of December 31, 2002, in accordancewith earlier principles by SEK 2.3 billion. The excess liabilityhas consequently been recognized as of January 1, 2003, as anincrease of provisions for post- employment benefits and acorresponding decrease of shareholders’ equity. Inaccordance with the transition rules of the new standard, Volvohas not restated figures for earlier years in accordance with thenew accounting standard. Because the Group's subsidiaries up to2002 have been applying local rules in each country, the impactof adopting RR 29 differs for different countries of operations.Compared with earlier accounting principles in Sweden, theadoption of RR 29 has mainly had the effect that plan assetsinvested in Volvo's Swedish pension foundation as from 2003 areaccounted for at a long-term expected return rather than beingrevalued on each closing date to fair value. For Volvo'ssubsidiaries in the United States, differences relate toaccounting for past service costs and the fact that RR 29 doesnot include rules about minimum liability adjustments. See Notes1 and 35 to the Consolidated Financial Statements. 

Effective in 2003, Volvo hasadopted RR 27 Financial instrument: Disclosure and presentation,which conforms to a large extent with IAS 32 issued by theInternational Accounting Standards Board (IASB). The adoption ofRR 27 has affected the balance sheet presentation of certainderivative instruments that are used to manage financial risksrelated to financial assets and liabilities. According to RR 27,derivative instruments with unrealized gains should be presentedas assets and derivative instruments with unrealized lossesshould be presented as liabilities. According to Volvo's earlieraccounting principles, derivative instruments used for managementof financial assets were reported as assets and derivativeinstruments used for management of financial liabilities werereported as liabilities. As a consequence of adoption of thepresentation principles in RR 27, the Volvo Group's assetsincreased by SEK 3.6 billion and the Group's liabilitiesincreased with the corresponding amount.

3 AB Volvo completed the sale ofVolvo Cars to Ford on March 31, 1999. AB Volvo began accountingfor Volvo Cars as a discontinued operation beginning on January 1,1999. Income from discontinued operations in 1999 pertained to acapital gain after tax of SEK 26,726 million on the sale of VolvoCars to Ford. For US GAAP purposes, the gain amounted to SEK 26,115million. The difference was mainly attributable to historicaldifferences between Swedish and US GAAP that resulted in a highervalue of the net assets divested.

4 In 2000, operating income fromcontinuing operations under Swedish GAAP included SEK 610 millionpertaining to realized gains on the remaining securitiesportfolio in Volvia and SEK 683 million in surplus funds from theSPP insurance company. Operating income from discontinuedoperations in 2000 of SEK 520 million included a favorableadjustment of the gain from the sale of Volvo Cars. 

5 Effective January 2, 2001, ABVolvo acquired Renault’s truck operations, Renault V.I. andMack Trucks. Under the terms of the acquisition, AB Volvoacquired all outstanding shares of Renault V.I. and Mack Trucksin exchange for 15% of the shares in AB Volvo. 

In 2001, operating income from continuing operations underSwedish GAAP included restructuring costs amounting to SEK 3,862million of which SEK 3,106 million is for Trucks, SEK 392 millionfor Buses and SEK 364 million for Construction Equipment.Restructuring costs in Trucks included costs for the integrationof Mack Trucks and Renault V.I. in order to secure coordinationgains made possible through the acquisition. The integrationmeasures included reduction of the North American productioncapacity through a decision to close Mack's Winnsboro plant andtransfer of production to Volvo's New River Valley plant.Integration measures further included restructuring of the globaldistribution system and production structure. In addition to theintegration measures, restructuring costs in Trucks includedsignificant personnel reductions due to the prevailing businessconditions, especially in North America. Restructuring costs inBuses were attributable to the shut down of Nova Bus' plant forcity buses in Roswell, United States. In Construction Equipment,restructuring measures pertained to the close down of fabricationin the plant in Asheville, United States, and to an overallredundancy program.

6 Net income (loss) in 2002 inaccordance with US GAAP included value adjustments amounting toSEK 9,683 million pertaining to Volvo’s shareholdings inScania AB, Deutz AB and Henlys Group Plc. If a security’squoted market price has been below the carrying value for anextended period of time, US GAAP includes a presumption that thedecline is other than temporary. Under such circumstances, USGAAP requires that a value adjustment must be recorded in netincome with a corresponding credit to Other comprehensive income.In accordance with Swedish accounting principles, no valueadjustments were made since the fair value of the investments inScania AB, Deutz AB and Henlys Group Plc. were considered to behigher than the quoted market price of these investments.

7 In 2003, operating income fromcontinuing operations under Swedish GAAP included write-down ofshares in Scania AB amounting to SEK 3,601 million and write-downof shares in Henlys Group Plc amounting to SEK 429 million. Inaccordance with US GAAP, no write-down of shares in Scania AB wasrecognized during 2003 and write-down of shares in Henlys GroupPlc amounted to SEK 62 million. See further in Note 35 to theConsolidated Financial Statements.

8 Translated for convenience atUS$ 1 = SEK 7.4579 the Noon Buying Rate on May 28, 2004.

9 Net income (loss) per share iscalculated as net income divided by the weighted average numberof shares outstanding during the year. The weighted averagenumber of shares outstanding during 2003 was 419,444,842.

10 Cash dividends are thosedeclared out of the unrestricted equity of the parent company asrecommended by the Board of Directors and approved by the AnnualGeneral Meeting of Shareholders held in the spring of thefollowing year. In addtion to a cash dividend of SEK 8.00 pershare, the Board of Directors in March, 2004, proposed the AnnualGeneral Meeting to approve a dividend of 2 shares in the whollyowned subsidiary Ainax AB for every 31 shares in AB Volvo. AinaxAB would at the date of the distribution hold 27,320,838 Series Ashares in Scania AB and a working capital of SEK 100 million. Atthe Annual General Meeting of AB Volvo on April 16, 2004, theBoard’s proposal was approved. Based upon the carrying valueof the net assets at April 16, 2004, the dividend of shares inAinax AB represents a value of approximately SEK 15.00 per Volvoshare.

11 During 2000 AB Volvorepurchased 10 percent of its outstanding shares – 13,860,494Class A shares and 30,291,594 Class B shares. The transaction wascarried out through an offer to repurchase shares held by Volvoshareholders and, to a minor extent, through additional purchasesin the open market. Following the repurchase transactions, 397,368,797Volvo shares were outstanding at December 31, 2000, and theweighted average number of shares outstanding in 2000 was 421,683,857.

On January 2, 2001, the 13,860,494Class A shares and 30,291, 594 Class B shares that wererepurchased during 2000 were transferred to Renault S.A. aspartial payment for the shares of Renault V.I. and Mack Trucks.Subsequently during the beginning of 2001, AB Volvo repurchasedan additional 10% of its outstanding shares - 13,860,494 Class Ashares and 30,291,594 Class B shares of which 5% - 6,930,247Class A shares and 15,145,797 Class B shares were transferred toRenault S.A. as final payment for the shares of Renault V.I. andMack Trucks. Following these transactions, 419,444,842 Volvoshares were outstanding at December 31, 2001, and the weightedaverage number of shares outstanding in 2001 was 422,429,364.

The weighted average number ofshares outstanding during 2003 was 419,444,842.

12 US GAAP basic and diluted netincome (loss) per share is calculated as net income (loss)determined in accordance with US GAAP divided by the weightedaverage number of shares outstanding during the year. No dilutingsecurities have been outstanding during the period.

**Dividends**

AB Volvo has paid annual cashdividends on its A and B Shares each year since 1935. UnderSwedish company law, a dividend may be paid from funds availablefor dividends if recommended by the Board of Directors andapproved by the Annual General Meeting of Shareholders. Nointerim dividend may be paid in respect of a financial period asto which audited financial statements have not been adopted bythe Annual General Meeting of Shareholders. Consequently, ABVolvo pays only a yearly dividend, generally in the month ofApril subsequent to the year to which the dividend relates.

The following table sets forth thecash dividends per share in kronor, and the dollar equivalents,paid in respect of each of the five years ended December 31, 2003:

| Year                                                                               | Dividend        Paid per Share |
|------------------------------------------------------------------------------------|--------------------------------|
|                                                                               | (SEK)                          | (US$1) |
| 1999.................................             | 7.00                           | 0.77 |
| 2000....................................... | 8.00                           | 0.78 |
| 2001....................................... | 8.00                           | 0.79 |
| 2002....................................       | 8.00                           | 0.95 |
| 2003..........................                             | 8.002                          | 1.06 |

____________

1 Translated intodollars at the Noon Buying Rate on the dividend payment date.

2 In addition, adividend of 2 shares in Ainax AB for every 31 Volvo shares wasdistributed on June 8, 2004. The Annual General Meeting of ABVolvo resolved to transfer all A shares in Scania AB held byVolvo to Ainax AB and thereafter to distribute 27,060,958 sharesin Ainax AB to Volvo’s shareholders. The value of thedistribution of shares in Ainax AB was set at SEK 6,309,538,645,corresponding to approximately SEK 15.00 per Volvo share.

Dividends received by UnitedStates holders of American Depositary Shares or B Shares aresubject to Swedish withholding taxes. See "Item 10.Additional Information – 10.E Taxation".

The share capital of the parentcompany is divided into two classes: A and B shares. Both classeshave the same rights except that each A share carries one votingright and each B share carries one-tenth of a voting right.

**Exchange Rates**

Fluctuations in the exchange ratebetween the krona and the dollar will affect the dollarequivalent of the krona price of the B Shares traded on theStockholm Stock Exchange and, as a result, should affect theprice of the American Depositary Shares in the United States.Such fluctuations will also affect the dollar amounts received byholders of American Depositary Shares on conversion by thedepositary of cash dividends paid in kronor on the B Sharesrepresented by the American Depositary Shares.

Since a substantial portion of theCompany’s sales are sales outside Sweden (93% in 2001, 93%in 2002 and 92% in 2003), earnings are materially affected bymovements in the exchange rate between the krona and thecurrencies in which such sales are invoiced. See " Item 5.Operating and Financial Review and Prospects – 5.A OperatingResults – General Impact of Currency Fluctuations."

The following table sets forthcertain information with respect to the Noon Buying Rate ofdollars in terms of kronor for the years shown:

| Year                                                                                                         | Average1 | High    | Low    | Period-End |
|--------------------------------------------------------------------------------------------------------------|----------|---------|--------|------------|
| 1999....................................................  | 8.3007   | 8.6500  | 7.7060 | 8.5050     |
| 2000....................................................  | 9.2251   | 10.3600 | 8.3530 | 9.4440     |
| 2001....................................................  | 10.4328  | 11.0270 | 9.4890 | 10.4571    |
| 2002....................................................  | 9.6571   | 10.7290 | 8.6950 | 8.6950     |
| 2003...................................................   | 8.0730   | 8.7920  | 7.1950 | 7.1950     |
| December 2003        .......................................          |     | 7.5420  | 7.1950 |       |
| January 2004        ..........................................     |     | 7.4120  | 7.0850 |       |
| February 2004        ........................................         |     | 7.4330  | 7.1295 |       |
| March 2004        ............................................     |     | 7.6620  | 7.3660 |       |
| April 2004        ............................................. |     | 7.7330  | 7.4650 |       |
| May 2004        .............................................   |     | 7.7725  | 7.4170 |       |

_________

1 The average of theNoon Buying Rates on the last day of each month during the year.

The noon buying rate on May 28,2004 was 7.4579. 

 

**Credit ratings**Moody's Investors Service confirmed the short term rating atP-2 in March 2004, and its unsolicited long term A3-rating, withan upgrade to stable outlook. In February 2004 Standard &Poor's International Ratings confirmed its short term A2 rating.Dominion Bond Rating Services (DBRS) confirmed its short term R-1(low) rating for Volvos short-term borrowings in the Canadianmarket, in February 2004, and its unsolicited long term rating ofA (low) with a lifted outlook to stable. In February 2004, Ratingand Investment Information, Inc. affirmed A as Volvo’s long-termrating, for borrowing in the Japanese market. Volvo Treasury ABis assigned a K-1 rating by Standard & Poor's for short-termborrowing in Sweden. Fitch Ratings Ltd has assigned anunsolicited short term F2 rating, which was confirmed in June2004.

**Inflation**The effects of inflation on the Group’s operations havenot been significant in recent years.

 

**3.B.Capitalization and Indebtedness******Not applicable.

**3.CReasons for the offer and use of proceeds.******Not applicable.

**3.D Riskfactors******

**The commercial vehiclesindustry is cyclical.**The markets in which Volvo competeshave been subject to considerable volatility in demandcorresponding to cycles in the overall business and economicenvironment in general and in the industrial sector, inparticular. The rate of infrastructure spending, construction andmining, and housing starts affects the Group’s operations asits products are an important part of these activities. Economicdevelopment in Europe and North America is particularly importantto Volvo because a significant part of the Group’s revenuesare derived from sales in these markets. In Europe, Volvo’slargest commercial market in terms of sales, a downturn was notedin the market for commercial vehicles in 2002, in 2003 thesituation stabilized somewhat and the market was in line with theprevious year. In North America, Volvo’s second-largestmarket, the market for heavy trucks in 2003 was on the same levelas in 2002, while the market for construction equipment showedsigns of improvement compared with 2002. There can be noassurance as to the future performance of the commercial vehiclesindustry or the timing or severity of changes in economicconditions affecting the commercial vehicles industry. See "Item5. Operating and Financial Review and Prospects 3⁄4 5.A.Operating Results."

**Competition is intense amongmanufacturers of commercial vehicles and engines.** Continuedconsolidation in the industry, including DaimlerChrysler’sacquisition of American truck producer Western Star and Americanengine manufacturer Detroit Diesel; German heavy truckmanufacturer MAN’s acquisition of British truck producer ERFand Polish truck company Star; and Volvo’s acquisition ofMack and Renault V.I., should create fewer but strongercompetitors. Volvo’s products face substantial competitionfrom commercial vehicles and engines provided by these and othermanufacturers, and such competition may have a significant impacton the prices Volvo receives for its products and on the Group’sfuture sales volume. Our major competitors are DaimlerChrysler,Paccar, Navistar, MAN, Scania, Caterpillar and Komatsu. There canbe no assurance that Volvo will be able to compete successfullyin the future. See "Item 4. Information on the Company 3⁄4 4.B.Business Overview."

**Prices for commercial vehiclescan be volatile.**Prices for commercial vehicles in certainmarkets have, at times, experienced sharp changes over shortperiods of time. This volatility is caused by many factors,including short-term fluctuations in demand, shortages of certainsupplies, volatility in underlying economic conditions, changesin import regulations, excess inventory and increased competition.There can be no assurance that such price volatility will notcontinue or that price volatility will not begin in markets whichto date have not experienced such volatility. Overcapacitieswithin the industry will likely increase if there is an economicdownturn in Volvo’s major markets or worldwide, leading,potentially, to further increased price pressure. Pricevolatility in certain markets could adversely affect the Group’sresults of operations.

**Volvo is sometimes subject toproduction capacity constraints.**The cyclicality of demandfor Volvo’s products has at times resulted, and may in thefuture result, in temporary constraints upon Volvo’s abilityto produce the quantities necessary to fulfill orders in a timelymanner. A prolonged delay in Volvo’s ability to fulfillorders on a timely basis at a time when Volvo’s competitorsare not experiencing the same difficulty could adversely affectVolvo’s market share. 

**Volvo relies on suppliers forthe provision of certain raw materials and components.**Volvopurchases raw materials, parts and components from numerousoutside suppliers, but relies upon some suppliers for asubstantial number of components for its commercial products. Amajority of the Group’s requirements for raw materials andsupplies is filled by single-source suppliers. The impact of aninterruption in supply will vary by commodity. Some parts aregeneric to the industry while others are of a proprietary designrequiring unique tooling, which would require time to recreate.The inability of a supplier to deliver could have an adverseeffect on production at certain of Volvo’s manufacturinglocations. 

**The Group’s operations areexposed to currency fluctuations.**In 2001, 2002 and 2003,approximately 90% of Volvo’s sales were in countries otherthan Sweden. Changes in exchange rates have a direct effect onVolvo’s results of operations, balance sheet and cash flowand an indirect effect on Volvo’s competitiveness, whichwill over time affect the Group’s results. Volvo’sincome statement is affected primarily by the translation ofrevenue and expenses in foreign currencies, and its balance sheetis affected primarily by the translation of net assets of foreignsubsidiaries into Swedish kronor at rates different from thoseused to translate earlier figures. In addition, currencymovements may affect Volvo’s pricing of products sold andmaterials purchased in foreign currencies as well as those of itscompetitors, which may be affected differently by such movements.Since Volvo has substantial manufacturing operations in Swedenand generates a substantial portion of its revenues in currenciesother than the Swedish krona, Volvo’s results of operationswould be materially adversely affected by an appreciation of theSwedish krona against other currencies. There can be no assurancethat exchange rate fluctuations will not adversely affect theGroup’s results of operations, cash flow, financialcondition or relative price competitiveness in the future. 

Volvo uses hedging instruments inorder to reduce the effects of currency fluctuations and interestrate risk. As with all hedging instruments, there are risksassociated with the use of foreign currency forward exchangecontracts, as well as interest rate swap agreements. Whileproviding protection from certain fluctuations in currencyexchange and interest rates, by utilizing such hedginginstruments Volvo potentially foregoes benefits that might resultfrom other fluctuations in currency exchange and interest rates.Volvo has entered into, and expects to continue to enter into,such hedging arrangements with counterparties that will beselected and approved primarily on the basis of generalcreditworthiness. However, any default by such counterpartiesmight have an adverse effect on Volvo. See "Item 11.Quantitative and Qualitative Disclosures about Market Risk."

**Volvo’s profitability isdependent upon the successful introduction of new products.**Volvo’slong-term profitability depends upon its ability to introduce andmarket its new products successfully. Product life cyclescontinue to shorten which puts increased focus on the success ofVolvo’s product development. It is crucial to meet andexceed customer demand in order to be able to strengthen theGroup’s position in its established markets and to be ableto expand into additional markets and/or product segments. Asboth Volvo and its competitors either have recently introduced orplan to introduce new products or updated versions of existingproducts, Volvo cannot predict the market shares its new productswill achieve. An inability by Volvo to introduce new innovatingproducts in a timely fashion or to meet customer demand wouldhave an adverse effect on the Group’s results of operations.

**The commercial vehiclesindustry is subject to extensive government regulation.**Regulationsregarding emission levels, noise, safety and levels of pollutantsfrom production plants and products are extensive within theindustry. These regulations are subject to change, often makingthem more restrictive. The costs to comply with these regulationscan be significant to the Group’s operations. 

**Volvo is reliant on theprotection and preservation of its intellectual property.**Volvoproducts are sold primarily under the marks "Volvo","Volvo Penta", "Renault" and "Mack".Volvo owns or otherwise has rights in a number of patents andtrademarks relating to the products it manufactures, which havebeen obtained over a period of years. These patents andtrademarks have been of value in the growth of Volvo’sbusiness and may continue to be of value in the future. Volvodoes not regard any of its businesses as being dependent upon anysingle patent or group of patents. However, an inability toprotect this intellectual property would have an adverse effecton Group operations.

**Volvo’s Financial Servicesbusiness area conducts business under highly competitiveconditions in an industry with inherent risks.** Financing forusers of Volvo’s products is available through a variety ofcompetitive sources, principally commercial banks and finance andleasing companies. Financial Services emphasizes prompt andresponsive service to meet customer requirements and offersvarious financing plans designed to increase the opportunity forsales of its products and to generate financing income for theGroup. The financial services offered involve risks relating toresidual value, credit risk and cost of capital. Competition forcustomers and/or these risks may affect the Group’s resultsof operations in the future. 

**Volvo will be obligated toadopt new accounting standards in 2005 that may have aconsiderable impact on its accounts.** Effective in 2005 Volvowill adopt International Financial Reporting Standards ("IFRS")in its financial reporting, as required for all listed companieswithin the European Union as of 2005. Applying these standards toVolvo’s financial statements may have a considerable impacton a way certain items are valued and presented. Volvo continuesto evaluate the main differences between IFRS and Swedish GAAP.As of the date of this Annual Report not all of the financialstandards applicable to Volvo had been adopted and thereforeVolvo cannot assess the total impact IFRS will have on the Groupuntil all of the new reporting standards are adopted.

**Complaints or litigation fromcustomers and other third parties could adversely affect Volvo.**Volvo is the subject of complaints and litigation from itscustomers, employees or other third parties, alleging health,environmental, safety or operational concerns or failure tocomply with applicable laws and regulations. These claims, evenif successfully disposed of without direct adverse financialeffect, could have a material adverse effect on Volvo’sreputation and divert financial and management resources frommore beneficial uses. 

**ITEM 4.INFORMATION ON THE COMPANY**

**4.A.History and Development of Company**

AB Volvo is an internationaltransport equipment group with a worldwide marketing organizationand production. AB Volvo, which was incorporated in 1915 underthe laws of Sweden, started production of cars in 1927 and oftrucks in 1928. Historically Volvo has operated in two main areas:cars and vehicles for commercial use. The latter includes trucks,buses, construction equipment and marine and industrial engines.Operations also include production and maintenance of aircraftengines and financial services. In March 1999, Volvo sold VolvoCars to Ford Motor Company. As a result of this sale, Volvo istoday focused entirely on the commercial transport productssegment. Through the acquisition of Mack Trucks Inc. and RenaultV.I. in 2001, the Volvo Group strengthened its position as aproducer of heavy trucks. 

Headquartered in Göteborg,Sweden, the Volvo Group had 75,740 employees at December 31, 2003.With 55% of sales in Western Europe, 5% in Eastern Europe, 24% inNorth America, 3% in South America and 9% in Asia, the Groupoperates in an international environment with production andassembly carried out on six continents. Its shares are traded onstock exchanges in Stockholm, London, Frankfurt, Düsseldorf,Hamburg and in the United States its American Depositary Sharesare traded on the Nasdaq National Market ("NASDAQ"). Inthe fourth quarter of 2003, Volvo decided to apply for delistingof its shares from the German stock exchanges in Frankfurt,Hamburg and Düsseldorf. The delisting is planned to becomeeffective in the latter part of 2004.

Volvo’s brand name isstrongly identified with quality, safety and concern for theenvironment. The Group’s position in the fields of vehiclesafety and quality is being consolidated through continuingimprovements and technical innovations. In the environmentalarea, Volvo is intensifying its efforts to reduce the negativeimpact on the environment throughout the entire life cycle of itsproducts.

AB Volvo is domiciled in Göteborg,Sweden. The address and telephone number of AB Volvo is S-405 08,Göteborg, Sweden, +46 31 660000.

**Significant events in 2003**

**Volvo Trucks began productionin Russia.**Volvo Trucks became the first Western truckmanufacturer to start production in its own name in Russia. Thenew assembly facility for heavy trucks was inaugurated on March20 in Zelenograd, just north of Moscow.

**Volvo CE started production inChina.** The first Volvo Excavator, built in Volvo CE’snew plant located in the Pudong area outside Shanghai in China,left the production line at the beginning of April. 

**Volvo CE acquired US dealer L.B.Smith.**On May 2, Volvo Construction Equipment purchased theassets associated with the Volvo distribution business of L.B.Smith, Inc., its largest dealer in the United States. Theintention is to spin off the acquired operations.

**Volvo started assembly oftrucks in China.**On June 9, Volvo Trucks signed a joint-ventureagreement with China National Heavy Truck Corporation forproduction of trucks. Production started during the first quarterof 2004.

**Volvo Trucks introduced newmodels.**Volvo Trucks launched the new Volvo NH in Brazil.This model was developed for the South American market and isbuilt in Brazil. The launch was accompanied by the introductionof the new Volvo FH and Volvo FM in South America. The new medium-heavytruck in the 17-23 ton segment, Volvo VM, was also introducedduring 2003. This marks a renewal of the entire Volvo truck rangein South America.

On June 5, Volvo Trucks presentedthe new Volvo FH16. The Volvo FH16 was developed to meet thetrend for heavier and longer truck combinations. The new Volvo FH16is equipped with an all-new 16-liter engine, with a power outputof up to 610 hp, making it the most powerful truck in theEuropean market.

**Volvo Penta introduced newproducts.**Volvo Penta is launching a new generation of medium-heavydiesel engines for leisure boats. The new electronic dieselengines, the D4 at 210 hp and the D6 at 310 hp, are manufacturedat Volvo Penta’s engine plant in Vara, Sweden.

Volvo Penta is also launching thenew 130- or 160-hp D3 diesel engine and the new D2 75-hp enginefor sailing yachts. 

**Volvo acquired Bilia's truckand construction equipment operations.**The truck andconstruction equipment operations of Bilia was acquired in thethird quarter through the exchange of the predominant part ofVolvo's holding in Bilia for 98% of the shares in the acquiredoperations, Kommersiella Fordon Europa AB (KFAB). KFAB is aleading service supplier and reseller of Volvo trucks andconstruction equipment in Europe. 

**Significant events in 2004**

**Divestment of Scania shares.**Volvo’sholding of Scania B shares was sold to Deutsche Bank on March 4,2004 for an amount of approximately SEK 15 billion. As aconsequence of the divestment, the Scania holding was writtendown as of the fourth quarter of 2003. The transaction wascarried out as part of Volvo’s commitment to the EuropeanCommission to divest the Scania shares not later than April 23,2004. After the sale of the Scania B shares to Deutsche Bank,Volvo owned 27.3 million A shares in Scania AB, corresponding to24.8% of the votes and 13.7% of the capital. At the AnnualGeneral Meeting of AB Volvo on April 16, 2004, the Board’sproposal to transfer all A shares in Scania to Ainax andthereafter to distribute 99% of the shares in Ainax to Volvo’sshareholders was approved. The value of the distribution of Ainaxwas set at SEK 6,309,538,646. The shares in Ainax weredistributed to Volvo’s shareholders on June 8, 2004.

**Volvo Trucks agreed uponcooperation covering engine manufacture in China.** VolvoTrucks signed an Engine Cooperation Frame Agreement with thetruck manufacturers China National Heavy Truck Corporation (CNHTC),and First Automotive Works (FAW) covering the establishment of ajointly owned engine plant in China. The plant will manufacturecomplete engines for Volvo’s business areas in China and forCNHTC’s and FAW’s trucks. The three companies will forma joint company for production of engines for the Chinese marketof which Volvo will own 52% and CNHTC and FAW 24% each. Inaccordance with the agreement, the company will produce thefuture heavy diesel engines based on the Volvo Group’s newengine platform. The plan is for a definitive agreement to beconcluded during 2004. The aim is to start production ofcomponent kits from Europe during 2005 and begin own productionduring 2006. The plant will have an annual production of 50,000engines in 2010.

**Renault Trucks concludesagreement in principle to manufacture trucks in China.**The ABVolvo subsidiary Renault Trucks has signed an agreement inprinciple with the Chinese truck manufacturer Dong Feng Motorsaimed at establishing a joint-venture company for manufacturingtrucks and truck components in China. It is planned that the newcompany will manufacture Renault’s Kerax heavy constructiontrucks for the Chinese market. The agreement is still subject tofinal negotiation. The relevant Chinese authorities must alsoapprove the agreement. Initially, the agreement aims to establishlocal assembly of CKD kits for Renault’s Kerax trucks. Thelong-term aim is to manufacture components, primarily cabs, forRenault’s and Dong Feng’s Chinese product range.

**Industrial relocation withinRenault Trucks.**The Volvo Group is carrying out an industrialrelocation in Europe as a result of which manufacture ofcrankshafts for medium-heavy truck engines is being increased atVillaverde, Spain, while the production of Renault branded trucksis being concentrated to the plant in Bourg-en-Bresse, France.The relocation is a consequence of the transition to a greaterdegree of shared technical architecture for trucks within theVolvo Group.

**Volvo CE initiated LB Smithdivestiture.** As part of its stated intention to divest theassets which Volvo Construction Equipment acquired from itsformer dealer, LB Smith, Volvo CE has sold its Floridaconstruction equipment distribution marketing area, with theexception of Tallahassee, to Flagler Construction Equipment LLC,Orlando, Florida, USA and its Nashville and Memphis, Tennessee,market areas to its Louisiana dealer, Scott ConstructionEquipment Company.

 

**Capital Expenditures**

The following table sets forth theGroup’s aggregate capital expenditures for property, plantand equipment, intangible assets and assets under operatingleases, by principal business areas for each of the three yearsended December 31:

|                                                                                                                                        | 2001                        | 2002       | 2003       |
|---------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------|------------|------------|
|                                                                                                                                        | (In millions        of SEK) |
| **Capital        expenditures**                                                                                                             |                        |       |       |
| Trucks..............................................................            | 5,949                       | 4,797      | 4,384      |
| Buses...............................................................            | 360                         | 256        | 161        |
| Construction        Equipment........................................                                | 569                         | 660        | 525        |
| Volvo        Penta        .............................        ......................... | 199                         | 236        | 362        |
| Volvo        Aero........................................................             | 933                         | 583        | 262        |
| Financial        Services................................................                      | 5,775                       | 5,461      | 5,459      |
| Other        and corporate capital expenditures.....................                                                   | 354                         | 244        | 528        |
| **Group        total        ......................................................**  | **14,139**                  | **12,237** | **11,681** |

Investment projects emphasizedplant and machinery for the production, design and development ofcommercial vehicles and machinery. The following tableillustrates the geographic distribution of the capitalexpenditures:

|                                                                                                                        | 2001                        | 2002       | 2003       |
|-----------------------------------------------------------------------------------------------------------------------------|-----------------------------|------------|------------|
|                                                                                                                        | (In millions        of SEK) |
| Sweden......................................................             | 4,646                       | 3,701      | 2,629      |
| Europe        (excluding Sweden)..............................                                   | 5,942                       | 5,793      | 6,042      |
| North        America.............................................              | 3,169                       | 2,261      | 2,442      |
| Other        countries.............................................               | 382                         | 482        | 568        |
| **Group        total        ................................................** | **14,139**                  | **12,237** | **11,681** |

Capital expenditures for property,plant and equipment in 2003 amounted to SEK 4.9 billion (SEK4.8 billion in 2002, SEK 5.7 billion in 2001). Capitalexpenditures in Trucks, which amounted to SEK 3.2 billion (SEK 3.2billion in 2002, SEK 4.1 billion in 2001), were made intools and equipment for the production of new truck models inNorth America, Brazil and France. Investments were also made inSweden and France for increased capacity in the paint shops. Thelevel of capital expenditures in Buses amounted to SEK 0.1billion (SEK 0.1 billion in 2002, SEK 0.1 billion in 2001), inConstruction Equipment SEK 0.4 billion (SEK 0.4 billion in 2002,SEK 0.4 billion in 2001), in Volvo Aero SEK 0.2 billion (SEK 0.2billion in 2002, SEK 0.2 billion in 2001) and in Volvo Penta toSEK 0.2 billion (SEK 0.2 billion in 2002, SEK 0.1 billion in 2001).

Capital expenditures forintangible assets, mainly product and software development, amountedto SEK 1.2 billion (SEK 2.0 billion in 2002, SEK 2.6 billion in2001). The capital expenditures were distributed among TrucksSEK 0.7 billion (SEK 1.3 billion in 2002, SEK 1.6 billion in 2001),Buses SEK 0.1 billion (SEK 0.1 billion in 2002, SEK 0.2 billionin 2001), Construction Equipment SEK 0.1 billion (SEK 0.2 billionin 2002, SEK 0.2 billion in 2001) and Volvo Penta SEK 0.2billion (SEK 0.1 billion in 2002, SEK 0.1 billion in 2001) andVolvo Aero SEK 0.1 billion (SEK 0.3 billion in 2002, SEK 0.5billion in 2001). 

Capital expenditures for assetsunder operating leases amounted to SEK 5.6 billion (SEK 5.4billion in 2002, SEK 5.9 billion in 2001), including SEK 5.3billion in Financial Services (SEK 5.1 billion in 2002, SEK 5.4billion in 2001). The capital expenditures pertained mainly tovehicles and machines subject to new operating lease contractswith external customers within Financial Services’operations in North America and Western Europe.

Capital expenditures currently inprogress are shown in "Item 5.B – Liquidity and CapitalResources".

**4.B.Business Overview**

**General**

Five years ago, the operations ofthe Volvo Group were concentrated on those products with thestrongest positions and most competitive volumes. This meant thatVolvo exited the car industry and transferred these resourcesover to commercial vehicles, machines and engines through aseries of acquisitions.

In recent years, major changeshave been implemented in the organization to coordinate the newstructure and simultaneously renew large segments of the productrange. The result is a streamlined Group with considerablyreduced costs and strong global market positions.

Three large acquisitions were madeon three different continents: Samsung’s excavatoroperations in Southeast Asia, Renault Trucks in Europe and MackTrucks Inc. in North America. These acquisitions strengthened theGroup’s presence in Asia and made the Volvo Group thelargest heavy truck manufacturer in Europe, with a market shareof 27 percent, and the third-largest in North America, with a 20-percentmarket share by the end of 2003. Following the acquisitions,Volvo believes it is the world’s largest manufacturer ofdiesel engines, in the 9-16 liter segment, for heavy vehicles andmachinery.

All business areas hold strongpositions in their respective markets. Volvo Buses is the world’ssecond-largest bus manufacturer and Volvo Construction Equipment("Volvo CE") is one of the largest manufacturers ofconstruction equipment. Volvo Penta is a global market leader inmarine leisure diesel engines. Components from Volvo Aero areincluded in 80 percent of all new major aircraft in the world.

The new companies have beenintegrated rapidly. The new excavators have been sold under theVolvo brand since 1999 and the plant in South Korea is now Volvo’sglobal center for the development and production of crawlerexcavators, the largest product segment in the constructionequipment industry. 

**Commercial transport equipmentmarket**

In parallel with the changes inrecent years, most of the business areas have implementedextensive measures to adjust capacity to lower demand. Therecession in the United States, which first became noticeable in2000 in the form of falling demand for construction equipment,impacted in full during 2001 with a sharp decline in the NorthAmerican truck market. To adjust capacity in the short term andimprove efficiency in the longer term, a number of actions weretaken, including the merger of Mack’s and Volvo’stractor truck manufacturing operations to the New River Valleyplant at the end of 2002. These actions have resulted insignificantly reduced costs and consequently, improved earnings. 

The Group experienced a generaldownturn in Europe in 2002 and 2003, although the extent variedgreatly between countries and product segments. Truck sales inEurope have been sustained at a relatively high level, and thehigh customer values in the new Volvo product range have resultedin increased market shares. In Europe, Volvo Trucks continued todeliver a solid performance with improved margins. Demand for ournew models resulted in strong exports to Eastern Europe and Asia.

The business area that has faredthe best in the recession is Volvo Penta, which increased itssales and consolidated its position as a global leader withinmarine diesel engines. Compared with most of its competitors,Volvo CE has been best able to handle the downturn. Volvo Busesand Volvo Aero, on the other hand, suffered the effects of theglobal downturn in the travel and aviation industry, and wereconsequently forced to reduce capacity considerably. Volvo Busesexited the unprofitable US market for city buses in 2002 andreduced capacity in Europe in 2003.

The Group as a whole has performedwell during the recession. Excluding the restructuring costsincurred in 2001 in connection with implementing the new truckorganization, the Group has generated profit throughout theperiod, demonstrating that we are better equipped to managecyclical fluctuations than previously. 

**Strategy**

A major challenge over the nextfew years is to consolidate the market organization and increasesales in growth markets. With its strong economic growth, EasternAsia is a priority region. Volvo already has a well-functioningmarket organization in the region and extensive industrialoperations in South Korea.

In 2003, an agreement wasconcluded with China National Heavy Trucks regarding a jointventure to manufacture Volvo branded trucks in China. Volvo isalready the largest imported brand of Western trucks in China andwill now become the first Western truck company withmanufacturing of heavy trucks in the country. The productionvolume will initially be 2,000 trucks per year, but willgradually increase. Renault Trucks has initiated a cooperativeventure with China’s third-largest truck manufacturer, DongFeng Motors, on the transfer of engine technology.

Volvo Construction Equipment alsocommenced production in China during the year and had appointed19 dealers in China by the end of 2003. Volvo Buses and VolvoPenta already have manufacturing operations in China throughjoint-venture agreements.

In Eastern Europe and the MiddleEast, the Group is in a development phase in terms of buildingthe dealer network. Volvo Trucks has for some time held a strongposition as an import make in these regions. In recent years,Renault Trucks has increased its activity in Eastern Europe,resulting in considerably increased sales in the new EU countries.

Like some of the competitors,Volvo has worked hard during the recession to adapt productioncosts to lower demand. Substantial efficiency improvements havebeen made within the industry in general. With the positive trendin the world economy discerned in the latter half of 2003, we arewell positioned for profitable growth in 2004.

**Summary of Group Businesses**

**Volvo Trucks.**Volvo’struck manufacturing operations started in 1928. Today, VolvoTrucks is one of the world’s largest producers of heavytrucks by volume. In 2003, vehicles of more than 16 tonsaccounted for 90% of total production. Volvo Trucks’products are marketed in more than 130 countries, with most salesin Western Europe and North and South America. 

**Renault Trucks.**RenaultTrucks is one of the largest European manufacturers of commercialvehicles, with its origins in the Renault automobile company thatwas founded in 1898, and also in Berliet, another manufacturerfounded in 1895. Renault Trucks has a product program thatincludes a variety of commercial vehicles, ranging from lighttrucks for urban distribution services to special vehicles andheavy trucks for long-haul operations. 

**Mack Trucks.**Mack is one ofthe largest manufacturers of heavy trucks in North America byvolume. Mack was founded in 1900, and focused on commercialvehicles from the start. Today, Mack is one of the most-recognizedheavy-truck brands and a leader in the vocational segment ofthe North American market. The products are sold andserviced in more than 45 countries worldwide.

**Buses.** Volvo Buses is theworld’s second largest bus manufacturer, with a completerange of heavy buses and coaches to meet demanding customerrequirements for passenger transport solutions. The product rangeincludes complete buses and coaches as well as chassis combinedwith a comprehensive range of services. 

**Construction Equipment.**Volvo Construction Equipment develops, manufactures and marketsequipment for the construction and related industries. Productsinclude a comprehensive range of wheel loaders, wheeled andcrawler hydraulic excavators, articulated haulers and motorgraders as well as compact excavators, compact wheel loaders,backhoe loaders and skid steer loaders. Distribution takes placemainly through independent dealers and a rental channel. 

**Volvo Penta**. Volvo Pentaprovides engines and complete power systems for leisure boats andworkboats and for industrial applications such as power-generatingequipment. Volvo Penta operates worldwide and has one of theindustry’s most-recognized brand names and the largestdealer networks with more than 5,000 dealers globally. The engineprogram comprises diesel and gasoline engines with power outputsof between 10 and 2,000 hp.

**Volvo Aero**. Volvo Aerodevelops and manufactures components for aircraft and rocketengines with a high technology content in cooperation with theworld’s leading producers, such as General Electric, Pratt& Whitney and Rolls-Royce. In the aftermarket, Volvo Aerooffers an extensive range of services, including sales of spareparts for aircraft engines and aircraft, sales and leasing ofaircraft engines and aircraft, as well as overhaul and repair ofaircraft engines. 

**Financial Services**. VolvoFinancial Services (VFS) develops and coordinates Volvo'soperations within customer financing and insurance, treasury,real estate and related services. It is focused on providingfinancial services to the Group's internal and external customers.Financial solutions created by VFS are designed to enhance thelong-term competitiveness of the Volvo Group and its distributors.

**Trucks**

**The total market.**The totalmarket for heavy trucks in Western Europe was unchanged during2003, compared with 2002. The markets in Germany and in the UKstrengthened by 6% and 10%, respectively, while the markets inItaly and France weakened. Eastern Europe continues to show apositive trend. 

The total market for heavy trucksin North America (Class 8) was unchanged at 179,000 trucks in2003 compared with 2002. The trend during the fourth quartershowed positive signs in the vocational segment, however theuncertainty remains in other segments. The market for heavytrucks in Brazil rose by 28% compared with a year earlier.

**Business environment.**Theacquisitions of Mack and Renault V.I. in 2001 were part of therestructuring that has been under way in the heavy-truck industryfor a long time. In 1965 there were 40 independent manufacturersof heavy trucks in Western Europe; today, there are fewer thanten. Deregulation and increased globalization have created verytough competition that is driving the trend toward fewer andlarger transport companies with increasingly streamlinedoperations. As a result, demands on truck manufacturers are alsogrowing. Large development resources and rational production arerequired in order to meet customers' needs in a cost-effectiveway.

In 2003, Trucks accounted for 64%of Volvo’s sales.

**Volvo Trucks.** In 2003,Volvo Trucks presented the new Volvo FH16. The Volvo FH16 isequipped with an all-new 16-liter engine, available with a choiceof two power outputs, 610 and 550 hp, making it the most powerfulstandard truck ever in Europe. Also in 2003, Volvo Trucksintroduced an entirely new truck, the Volvo VM, mainly for theSouth American market in the 17- to 23-ton class. In addition, anew generation of the Volvo NH, Volvo FH and Volvo FM waslaunched in South America. With these introductions, the entireVolvo Trucks product range has been renewed since 2000. 

Volvo Trucks' products aremarketed in more than 130 countries. The greater part of thesales takes place in Western Europe and in North and SouthAmerica. 

Volvo Trucks has an extensivenetwork of dealers and service centers in both Europe and NorthAmerica. The distribution network in Europe was strengthened in2003 through the acquisition of Bilia's network of truck dealers.To further improve its customers' ability to conduct competitiveoperations, Volvo Trucks offers a broad range of services. 

During 2003, Volvo Trucksdelivered a total of 75,312 trucks, an increase of 8% comparedwith 2002. Deliveries increased by 15% in North America and by 37%in Asia. The strong development in Asia is largely based on highdeliveries to Iran. 

**Renault Trucks.** In 2003,Renault introduced a light truck, the new generation of theRenault Master. The Renault Master features new exterior andinterior design, new engines and improved performance. TheRenault Master is also accompanied by new service offers toreinforce and improve Renault Trucks’ market share in theless than 3.5-ton segment. An integrated Customer Center wasopened in March within the Saint Priest facilities outside Lyonas part of an enhancement intended to increase service levels andstrengthen the network in Europe. Renault Trucks has a stronginternational presence, with 2,000 dealers and service centersthroughout the world, of which 1,350 are located in Europe.Aftersales services are provided in more than 80 countries.

Renault Trucks’ deliveriesduring 2003 amounted to 61,686 vehicles, a decrease of 4%.Deliveries to Eastern Europe rose by 11%. In Western Europedeliveries of Renault trucks decreased by 8%, while deliveries inother parts of the world rose by 6%.

**Mack Trucks.** Due to thesuccess of the Granite model in the vocational truck market, Mackended the production of its RD model at the end of 2003 –further streamlining its product line-up while addressing abroader range of applications. 

Mack deliveries were down to 18,991trucks in 2003, compared with 23,245 trucks a year earlier. Thedecline was partly related to competition from truck OEMs able tooffer engines that are not compliant with the EPA ’02emission requirements as well as the transition of production ofhighway trucks from Winnsboro to the New River Valley plant inthe first half of 2003.

**Strategic development.** Theaim in 2004 is to continue the development of the distributionnetworks in Europe and North America, including the integrationof the acquired former Bilia distribution network in Europe. In2004, the brand identities and product ranges of the three strongbrand names Volvo, Renault and Mack will be developed further. 

**Products.**The customeroffering is based on an adequate vehicle specification for everycustomer's needs. The truck operations of the Volvo Group have abroad range of truck specifications for all kinds of transportneeds, from city distribution to construction work and long-distancetransports. More than 90 % of the trucks branded Volvo are soldin the heavy truck segment (above 16 tons), where all models arebased on the company's global modular platform. The use of acommon platform ensures product quality, parts availability andservice, all contributing to higher vehicle uptime. 

Customers are also offered anextensive range of support services. For example, financialservices include many different kinds of leasing solutions, oftenin combination with service and insurance agreements. One commontype of leasing contract gives the customer a fixed price perkilometer, apart from fuel and driver costs.

**Production.** The followingtable sets forth, by series, the number of trucks produced byVolvo during each of the years 1999 through 2003 and the numbersof trucks produced by Mack and Renault during the years 2001,2002 and 2003.

| Number of trucks produced                                                                          | 1999   | 2000   | 2001    | 2002    | 2003    |
|----------------------------------------------------------------------------------------------------|--------|--------|---------|---------|---------|
| Volvo FL -series        ...........................                        | 7,040  | 7,890  | 6,690   | 5,640   | 4,820   |
| Volvo        FL7, 10, and 12-series and
FM7, 10, and 12-series.................. | 13,090 | 15,310 | 14,580  | 15,300  | 17,480  |
| Volvo FH-series...........................                              | 25,880 | 32,720 | 28,920  | 31,880  | 33,720  |
| Volvo NL and NH-series................                                              | 3,210  | 2,690  | 2,400   | 1,490   | 1,940   |
| Volvo VN Series and VHD1............                                                      | 35,440 | 23,400 | 12,860  | 14,300  | 17,080  |
| Volvo VM        ..............................                       | -      | -      | -       | -       | 400     |
| Total...........................................         | 84,660 | 82,010 | 65,450  | 68,610  | 75,440  |
| Mack CH......................................                  |   |   | 7,298   | 7,540   | 1,744   |
| Mack CL.......................................                 |   |   | 984     | 288     | 64      |
| Mack Vision..................................                     |   |   | 2,122   | 2,523   | 4,811   |
| Mack Granite.................................                        |   |   | 1,099   | 4,592   | 6,217   |
| Mack DM.....................................                   |   |   | 703     | 528     | 458     |
| Mack DMM..................................                        |   |   | 111     | 47      | -       |
| Mack LE.......................................                 |   |   | 1,393   | 1,084   | 964     |
| Mack MR......................................                  |   |   | 3,015   | 1,668   | 2,034   |
| Mack RB.......................................                 |   |   | 488     | 103     | 130     |
| Mack RD......................................                  |   |   | 4,532   | 2,298   | 921     |
| Mack RD8...............................                              |   |   | 86      | 35      | 54      |
| Other.........................................              |   |   | -       | -       | 1,122   |
| Total............................................        |   |   | 21,831  | 20,706  | 18,519  |
| Renault Kerax................................                        |   |   | 7,967   | 7,677   | 6,674   |
| Renault Midlum..............................                               |   |   | 12,764  | 12,545  | 12,801  |
| Renault Premium............................                             |   |   | 17,918  | 16,150  | 15,567  |
| Renault Magnum............................                              |   |   | 7,027   | 7,848   | 7,516   |
| Total...........................................         |   |   | 45,676  | 44,220  | 42,558  |
| Total Volvo, Mack and Renault.........                                                       |   |   | 132,957 | 133,536 | 136,517 |

1 Includes other truck modelsproduced in the United States

**Production and capacity.**Production of trucks in 2003 amounted to 75,440 Volvo trucks (68,610),42,558 Renault trucks (44,220) and 18,519 Mack trucks (20,706).In addition, Renault Trucks also distributes the Renault Mascottand Renault Master trucks, which are produced by Renault SA andthe SISU trucks.

On June 9, 2003, Volvo Truckssigned a joint venture agreement with China National Heavy TruckCorporation, CNHTC, for production of trucks. Production startedduring the first quarter of 2004 in CNHTC's premises in Jinan, inthe Shandong Province. The initial capacity is 2,000 trucks peryear. Volvo’s product range in China will comprise the VolvoFL, Volvo FM9 and Volvo FM12. The aim is to increase volumes to10,000 trucks per year by 2010 with a high level of localintegration. 

The transfer of production of Mackhighway trucks from Winnsboro to New River Valley was completedon May 1, 2003.

**Markets and Sales.** In 2003,Trucks accounted for 64% of Volvo’s sales. Volvo’struck operations’ sales by principal geographic market areaand operating income for the years 1999 through 2003 are setforth in the following table:

|                                                                           | 1999                        | 2000   | 2001    | 2002    | 2003    |
|--------------------------------------------------------------------------------|-----------------------------|--------|---------|---------|---------|
|                                                                           | (In millions        of SEK) |
| Western        Europe.......................              | 30,006                      | 30,415 | 60,841  | 61,406  | 63,097  |
| Eastern        Europe........................          | 2,265                       | 3,158  | 5,526   | 6,424   | 7,004   |
| North        America........................           | 22,303                      | 17,048 | 33,630  | 33,721  | 28,151  |
| South        America........................           | 2,190                       | 3,111  | 3,993   | 3,277   | 3,464   |
| Asia...................................... | 2,010                       | 3,432  | 4,659   | 5,919   | 9,206   |
| Other        markets.........................          | 1,492                       | 1,911  | 7,919   | 8,005   | 6,047   |
| Total sales..............................        | 60,266                      | 59,075 | 116,568 | 118,752 | 116,969 |
| Operating        income.....................                 | 3,247                       | 1,414  | (2,066) | 1,189   | 3,951   |

Includes Mack Trucks and Renault V.I.since January 2001

Total deliveries for Volvo’struck operations amounted to 155,989 vehicles during 2003, adecrease of 1% compared with 2002.

In Europe, deliveries from Volvoand Renault Trucks amounted to 92,083 trucks in 2003, down 5%. InNorth America, Mack and Volvo delivered a total of 34,765vehicles, a decrease of 5% compared with a year earlier. Totaldeliveries of Mack and Volvo trucks in South America were up 12%to 5,976 vehicles.

On July 11, 2003, all conditionsfor Volvo’s acquisition of Bilia’s truck andconstruction equipment operations, Kommersiella Fordon Europa AB(KFAB), were met. KFAB is a leading service supplier and dealerof Volvo trucks and construction equipment, with operations inthe Nordic countries and in several other countries in Europe.The acquisition of the KFAB dealerships and workshop network hassignificantly strengthen Volvo Trucks' European distributionsystem.

**Buses**

**The total market**. Theglobal market for tourist buses remained very low in 2003,particularly in North America and Europe. The total market inEurope is weak, in particular in Central Europe. Strong pricepressures continue to prevail. In Asia, the markets in Hong Kongand Singapore are still at a low level, while a positive trendwas noted in China. In 2003, the market was stable in Mexicowhile markets in South America continued to be weak, but with atendency towards recovery. 

**General.**As of December 31,2003, Volvo was the second-largest manufacturer, by volume, ofheavy buses, coaches and bus chassis (with a total weight above12 tons) in the world. Volvo Buses' product line comprisescomplete buses, bus chassis and bodies for various applicationssuch as city, intercity buses and coaches as well as relatedservices. Priority is given to transport economy, reliability andenvironmental characteristics in the development of products ofVolvo Buses. Buses’ customers are primarily bus operatorswith vehicle fleets varying from a single bus up to as many as 20,000buses.

In 2003, Buses accounted for 7% ofVolvo’s sales.

**Strategic development.**VolvoBuses’ aim for 2004 is to continue implementing acomprehensive program to achieve profitability. Restructuring ofthe commercial and industrial operations in Europe will continue.The product program will be standardized and globalized to secureeconomies of scale. Focus during 2004 will also be placed oncapital utilization and cash flow, primarily through reducinglead times. 

**Business environment.**Within the OECD countries, deregulation and privatization havealtered the conditions for many operators. New competitors arepenetrating and establishing a foothold in previously restrictedareas, and competition between operators is increasing. There isa move toward fewer and larger operators who impose high demandson good overall economics and better potential for focusing ontheir core operations. Significant bus markets in Europe are in astate of recession, which results in increased competition inother markets. The trend toward consolidation in the bus industryis prevailing.

**Products.** Volvo Buses hasrenewed its entire product range in less than five years. Most ofthe new models are based on a common product platform forintercity buses and tourist coaches. The introduction of the TXplatform has provided Volvo one of the most modern product rangesin the bus industry. The product range provides efficienttransport solutions and includes complete buses and chassis forcity and intercity traffic as well as coaches, which meetcustomers' and environmental demands.

Volvo Buses offers an extendedrange of facilities within servicing and financing to be able tooffer all-encompassing customer-tailored transport solutions withthe best total economy. In 2003, an agreement was made withRenault Trucks covering the sale of Volvo buses. The French busmarket is the second largest in Europe and the cooperation withRenault Trucks gives Volvo Buses access to an extensive dealernetwork for sales, repair, service and spare parts availability. 

**Production**. The followingtable sets forth the number of buses and bus chassis produced byVolvo during each of the years 1999 through 2003:

| Company                                   | Location | 1999   | 2000   | 2001   | 2002  | 2003  |
|-------------------------------------------|----------|--------|--------|--------|-------|-------|
| Volvo        Bus Corporation              | Sweden   | 4,745  | 4,975  | 5,405  | 5,968 | 4,898 |
| Volvo        Truck & Bus              | UK       | 971    | 381    | 0      | 0     | 0     |
| Volvo        do Brasil                    | Brazil   | 782    | 1,169  | 964    | 691   | 561   |
| Prévost        Car Inc.            | Canada   | 996    | 1,018  | 518    | 544   | 404   |
| Nova        Bus Corporation               | Canada   | 1,201  | 1,176  | 807    | 762   | 352   |
| Volvo        Bus de Mexico                | Mexico   | 1,293  | 1,791  | 1,847  | 1,117 | 1,051 |
| Volvo        Poland                       | Poland   | -      | 722    | 756    | 650   | 335   |
| Volvo        Peru                         | Peru     | 66     | 12     | 24     | 0     | 0     |
| Proportional        method
Nova/Prevost 1 |     | -      | -      | (154)  | (657) | (378) |
| Total        buses and bus chassis        |     | 10,054 | 11,244 | 10,167 | 9,063 | 7,223 |

1 From October 2001, Nova/Prévost was consolidatedusing the proportional method, reflecting a reduction in Volvo’sownership in those entities.

**Production and capacity.**During 2003 Volvo produced 7,223 (9,063 in 2002) buses and buschassis, of which 35% were complete buses. The degree ofutilization in the production system in Europe and North Americadecreased as an effect of the downturn in the market. In 2003,Volvo Buses decided to close the bus body plant in Aabenraa,Denmark. Some 200 employees will be affected by the closure. 

**Markets and Sales**. Sales byVolvo Buses by principal geographic market area and operatingincome for the years 1999 through 2003 are set forth in thefollowing table:

|                                                                           | 1999                              | 2000                                                | 2001   | 2002   | 2003   |
|--------------------------------------------------------------------------------|-----------------------------------|-----------------------------------------------------|--------|--------|--------|
|                                                                           | (In millions        of SEK)       |                                                |
| Western        Europe.......................              | 5,735                             | 6,767                                               | 6,263  | 6,695  | 6,153  |
| Eastern        Europe.....................                | 226                               | 182                                                 | 373    | 409    | 381    |
| North        America........................           | 6,871                             | 7,723                                               | 6,847  | 3,838  | 2,984  |
| South        America........................           |  469                         | 732                                                 | 757    | 366    | 329    |
| Asia...................................... | 943                               | 1,269                                               | 1,839  | 2,022  | 1,447  |
| Other        markets.........................          |     469       |    514                               | 596    | 705    | 684    |
| Total        sales.............................     | 14,713                            | 17,187                                              | 16,675 | 14,035 | 11,978 |
| Operating        income (loss) .........                              |      224 |         440 | (916)  | (94)   | (790)  |

The deliveries of buses from Volvoamounted to 7,817 (9,059 in 2002) units during 2003, a 14%decrease from 2002. The decline was attributable mainly tosignificantly lower volumes in North America, which were offsetto some extent by favorable volumes in China and the Nordiccountries.

**Volvo CE**

**The total market.** The worldmarket for heavy and compact construction equipment, within VolvoCE's product range, increased by 11% during 2003. In NorthAmerica the market increased by 15%, Western Europe was down 1%,while other markets were up 19%, primarily driven by strongdevelopment in China, up 60%. Eastern Europe rose 48% and Africawas up 32%. 

The increase in the total marketis mainly driven by heavy construction equipment, which rose 18%during the year. The North American market for heavy equipmentwas up 15% while the market in Europe was flat. Other marketsrose by 30%. 

The world market for compactequipment increased slightly in 2003, up 5% compared with thepreceding year. The market in North America was up 15%, whilemarkets in Europe were down 1%. Other markets rose by 6%. 

**General**. Volvo CE hasproduction facilities in Sweden, Germany, France, Poland, the US,Canada, Brazil, South Korea and China. Volvo CE’s productsare sold and serviced through an extensive network of independentdistributors and dealers worldwide, combined with Volvo CE’sown sales and marketing companies. Operations are focused onstrong growth. The objective is to broaden the range of products,continue to penetrate new markets outside Europe and NorthAmerica and implement programs directed at important customersegments. Services such as financing, handling of used equipmentand information technology support in the sales and distributionprocess are also being intensively developed.

In 2003, Construction Equipmentaccounted for 13% of Volvo’s sales.

**Strategic development.**VolvoCE’s aim for 2004 is to capitalize on the recently launchednew products and the extended product range to increase marketshares. The dealer development program will continue, focusing onintegrating the acquired network of former Bilia dealers inEurope and on developing and divesting the former L.B. Smithdistribution network in the United States. The Rental initiativewill be further developed and additional rental stores will beopened in Europe and North America. In China, the new productionplant for excavators is important, since China is the fastest-growingand one of the largest markets for crawler excavators. 

**Business environment.**Thenumber of acquisitions in the construction equipment industry wasreduced in 2003, compared with 2002. Instead, a high number ofjoint ventures or cooperation agreements took place, such asCaterpillar that set up a supply agreement with BlountInternational to expand their forestry offering. Another exampleis Daewoo Heavy Industries & Machinery, which agreed tosupply heavy equipment for Terex in the United States. Companiessuch as Caterpillar, Komatsu and Mitsubishi are also focusing onChina, which remains a huge market for construction equipment. 

**Products.**Volvo CE'sproducts, spare parts and services are offered worldwide in morethan 200 countries. The products are used in a number ofapplications including general construction, road constructionand maintenance, forestry, demolition, waste handling and mining.

Volvo CE has launched more than 40new products on the market over the past two years. The productrange comprises a comprehensive offering of excavators, wheelloaders, articulated haulers, motor graders and a range ofcompact wheel loaders, compact excavators, backhoe loaders andskid-steer loaders. 

Services such as financing,leasing and sales of used equipment are also offered. In 2002,Volvo CE launched a franchise initiative for the rental market,Volvo CE Rents. At December 31, 2003, Volvo CE Rents had 45stores open, most of them in North America.

**Markets and Sales.**Sales byConstruction Equipment by principal geographic market area andoperating income for the years 1999 through 2003 are set forth inthe following table:

|                                                                           | 1999                        | 2000                                                              | 2001                                                      | 2002   | 2003   |
|--------------------------------------------------------------------------------|-----------------------------|-------------------------------------------------------------------|-----------------------------------------------------------|--------|--------|
|                                                                           | (In millions        of SEK) |
| Western        Europe.......................              | 9,901                       | 10,029                                                            | 10,326                                                    | 10,383 | 11,576 |
| Eastern        Europe........................          | 193                         | 255                                                               | 341                                                       | 454    | 772    |
| North        America........................           | 5,725                       | 5,823                                                             | 6,145                                                     | 5,667  | 5,428  |
| South        America........................           | 498                         | 776                                                               | 847                                                       | 709    | 636    |
| Asia...................................... | 1,903                       | 2,484                                                             | 2,773                                                     | 3,048  | 3,707  |
| Other        markets.........................          |     662 |         626               | 703                                                       | 751    | 1,035  |
| Total        Sales............................      | 18,882                      | 19.993                                                            | 21,135                                                    | 21,012 | 23,154 |
| Operating Income.....................                        |   1,709           |           1,594 |          527 | 406    | 908    |

**Production and capacity.**Overthe past two years Volvo CE has launched more than 40 newproducts. The product portfolio is now in a highly competitiveposition. During the spring of 2003, production of excavatorsbegan in the new facilities located in the Pudong area outsideShanghai in China. The new factory ramped up production to around1,200 machines a year. In addition, the dealer network expandedand in the beginning of 2004, there were 19 dealer partnerssupporting Volvo CE in China. 

**Volvo Penta**

**The total market.**The worldmarket for marine and industrial engines was relatively stableduring 2003, although the situation varied considerably indifferent parts of the world. The demand in Europe has beenrelatively strong, while the total demand in North America hasbeen weaker. An increase of the North American demand was,however, noted in the second half of 2003. Demand for industrialengines in China has continued to rise. 

**General**. By supplyingtechnologically advanced products focused on performance andoperational reliability, and sensitivity to customer demands oneffective service solutions, Volvo Penta has developed a strongposition as a supplier of engines and power systems, and one ofthe industry’s most-recognized brands. With more than 5,000dealers in some 130 countries, Volvo Penta has a global presence.

The plant in Vara in Swedenmanufactures large diesel engines. Gasoline engines and drivesystems are developed and manufactured in the United States.

In 2003, Volvo Penta accounted forapproximately 4% of Volvo’s sales.

**Business environment.**Environmentalissues are gaining increasing importance in the industries inwhich Volvo Penta is active. Environmentally, Volvo Penta is wellpositioned, particularly as a result of the favorableenvironmental characteristics of the diesel engines launched in2003. All new engines already fulfill the comprehensiveenvironmental standards planned for Europe and the US in 2006 and2007. In addition, Volvo Penta’s new engines also featurevery low fuel consumption and noise levels. 

The D12 engine contributed duringthe year to increased sales for Volvo Penta, among other segmentsto car and passenger ferries. These types of vessels are oftenoperated in traffic in urban environments or in the vicinity ofother built-up areas, which means that operators often placehigher demands on exhaust emission standards than legallyrequired. Consequently, the D12’s very low emissions levelhas strengthened Volvo Penta’s competitiveness. 

In China, Volvo Penta was selectedas engine supplier to a number of newly built tourist boats thatwill traffic one of China’s large systems of inlandwaterways. Since the inland system represents an importantreserve of fresh water the local Chinese authorities conducted avery thorough evaluation of the engine’s environmentalimpact and fuel consumption. The choice fell on Volvo Penta’snewly launched 4- and 5-liter diesel engines, the so-calledworkhorse engines. 

**Strategic development.**Theactivity levels for new product introductions will remain highduring 2004. At the same time, Volvo Penta is focusing resourcesin order to secure efficient customer support for the newproducts. The strategy to strengthen the cooperation and theintegration with key customers in all business segments willcontinue. Volvo Penta has no intention to compete with itscustomers through the production of boats or generator sets.

**Products**. Volvo Pentaoffers complete power systems and service for leisure boats,workboats and industrial applications such as power-generatingequipment. Volvo Penta operates within three areas of activity:Marine Leisure, Marine Commercial and Industrial. 

The year 2003 was the mostcomprehensive product introduction period in the history of VolvoPenta and it includes the launch of the completely new generationof medium-heavy marine diesel engines, D4 at 210 hp and D6 at 310hp. These electronic diesel engines, launched with new sterndrives and specially-adapted propellers, feature a number oftechnical solutions that make the boats faster. In addition theengines are more powerful, cleaner and quieter than theirpredecessor. 

The D4-210 and D6-310 aredeveloped for leisure boats as well as commercial vessels in thesizes of about 22 to 45 feet. This is a performance dieselsegment in which Volvo Penta is a market leader. 

The new D3-130 and D3-160 engines,which are the marine versions of Volvo Car Corporation’ssuccessful diesel engine for passenger cars, were also launchedin 2003. D3's advantages in terms of weight, noise level and fuelconsumption will open new segments for Volvo Penta. 

In 2003, Volvo Penta also launchedthe D2-75 diesel engine together with a new four-blade foldingpropeller for sailing yachts. 

**Production and capacity.**Allof Volvo Penta's production facilities; the diesel enginefactories in Vara, Sweden, and in Wuxi, China, and the gasolineengine factory in Lexington, Tennessee, USA; were operated atfull capacity in 2003. The production capacity in all of thesefactories was increased in order to meet the strong demand forVolvo Penta products. During 2003 the production of the newdiesel engines, D4-210 and D6-310, started in Vara. The Varaplant will have parallel production of these new engines togetherwith the 3- and 4-liter engines. 

**Markets and Sales**. Thefollowing table sets forth Volvo Penta’s sales by geographicmarket area and operating income (loss) for the years 1999through 2003:

|                                                                           | 1999                        | 2000      | 2001      | 2002  | 2003  |
|--------------------------------------------------------------------------------|-----------------------------|-----------|-----------|-------|-------|
|                                                                           | (In millions        of SEK) |
| Western        Europe.......................              | 2,986                       | 3,204     | 3,789     | 3,846 | 4,081 |
| Eastern        Europe........................          |  26                    | 30   | 38        | 99    | 108   |
| North        America........................           | 1,770                       | 2,257     | 2,175     | 2,261 | 2,109 |
| South        America........................           | 134                         | 160       | 213       | 127   | 146   |
| Asia...................................... | 692                         |  794 |  988 | 1,141 | 947   |
| Other        markets.........................          | 153                         | 154       | 177       | 195   | 205   |
| Total        sales.............................     | 5,761                       | 6,599     | 7,380     | 7,669 | 7.596 |
| Operating        income (loss) .........                              |  314                   | 484       | 658       | 647   | 695   |

**Volvo Aero**

**The total market.** At theend of 2003, air traffic showed a positive trend in all regionsof the world. Accumulated, however, 2003 declined compared with2002, and it was the third consecutive year of declining airtraffic. 

Substantial challenges remain forthe airline industry. There are positive signs from the low-costsegment, which has shown tremendous growth in the United Statesand Europe. It is also starting to become established in Asia.This segment continues to put pressure on the establishedairlines. 

**General**. In the aerospacefield, Volvo has substantial resources for the development andmanufacturing of engine components and also for the aerospaceaftermarket. 

Operations include development andproduction of commercial and military aircraft engines inassociation with the major engine manufacturers - Pratt &Whitney, General Electric, Snecma, MTU and Rolls-Royce. VolvoAero is also developing and manufacturing engine components forAriane space rockets. In the aftermarket, Volvo Aero offers anextensive range of services, including sales of spare parts foraircraft engines and aircraft, sales and leasing of aircraftengines and aircraft, as well as overhaul and repair of aircraftengines.

In 2003, Volvo Aero accounted forapproximately 4% of Volvo’s sales from continuing operations.

**Strategic Development.**Theaviation industry’s sharp downturn necessitates continuedadaptation to new conditions. Restoring profitability is the mostimportant goal for 2004, while opportunities for increasingmarket shares are also created during a recession. 

Accordingly, Volvo Aero aims tocontinue building its components business and will make strongefforts to become involved in engine programs, either as apartner or long-term supplier.

In the service sector, majorefforts are being made to develop the customer offering and signlong-term contracts with airlines, partners and other customers.

**Business environment.**Aircraftdeliveries decreased in 2003 for the second consecutive year andthe production of large commercial aircraft will most likelyremain on the same level in 2004. Since there is a time lagbetween airline profits and orders and deliveries of newaircraft, a recovery in deliveries is not expected before the endof 2005 or the beginning of 2006. A recovery in the aftermarketis expected during 2004.

**Products**. Volvo Aerodevelops and manufactures high-technology components forcommercial aircraft and rocket engines. Volvo Aero also develops,manufactures and maintains military engines. Volvo Aero offers awide range of services, including sale of parts for aircraftengines and aircraft, sale and leasing of aircraft engines andaircraft, overhaul and repair of aircraft engines, and assetmanagement. In addition, Volvo Aero provides aftermarket servicesfor gas-turbine engines and systems.

The company's operations are basedon close cooperation with partners and on selectivespecialization. In 2003, overhaul contracts were signed with SAS,General Electric, MK Airlines, and Skyways Express. Partnershipagreements for the manufacture of components for the GP7000engine were signed with MTU Aero Engines. In addition, anextension of the marketing and distribution agreement forBoeing's surplus inventory for commercial aircraft, was signedwith Boeing in 2003.

**Production and capacity.** Toalign operations to a lower level, Volvo Aero is reducing itsworkforce in Trollhättan, Sweden. As a consequence, 195 personswill leave the company, mainly during 2004.

In 2003, a contract was signedwith SAS, whereby Volvo Aero became the principal supplier ofengine overhaul services for SAS/Spanair's fleet of MD80aircraft. The contract covers the period up to and including 2006.Also in 2003, Skyways Express and Volvo Aero signed an agreementwhereby Volvo Aero will become Skyways’ exclusive supplierof engine overhaul and equipment maintenance services for the PW125engines. The agreement is based on a price per hour of flyingtime and is valid until 2005. Volvo Aero also signed overhaulcontracts of JT9D engines for General Electric and the UK freightcarrier MK Airlines.

An agreement was also signed withMTU Aero Engines of Germany to manufacture components for the GP7000, an engine intended for Airbus’s forthcoming A380 jumbojet. Volvo Aero will produce the low-pressure turbine case over a15-year period. Volvo Aero is already a partner in the Rolls-RoyceTrent 900 engine program, the second engine alternative for the A380.

Volvo Aero has been a partner withGeneral Electric since the 1980s and in 2003 Volvo Aero and GEagreed to cooperate as partners in the new LMS100 gas turbine.Volvo Aero will deliver a number of key components for the newenvironmentally friendly gas turbine. 

**Markets and Sales.** Thefollowing table sets forth Volvo Aero’s sales by geographicmarket area and operating income for the years 1999 through 2003:

|                                                                            | 1999                        | 2000   | 2001   | 2002  | 2003  |
|---------------------------------------------------------------------------------|-----------------------------|--------|--------|-------|-------|
|                                                                            | (In millions        of SEK) |
| Western        Europe.......................               | 4,560                       | 4,651  | 4,788  | 3,422 | 3,951 |
| Eastern        Europe........................           | 16                          | 42     | 87     | 28    | 49    |
| North        America........................            | 4,557                       | 5,040  | 5,841  | 4,573 | 3,301 |
| South        America........................            | 193                         | 134    | 187    | 177   | 152   |
| Asia....................................... | 491                         | 701    | 708    | 497   | 428   |
| Other        markets..........................          |     136      | 145    | 173    | 140   | 149   |
| Total        sales..............................  | 9,953                       | 10,713 | 11,784 | 8,837 | 8,030 |
| Operating        income..................                     |    584       | 621    | 653    | 5     | (44)  |

 

**Financial Services**

Financial services are asignificant part of Volvo's strategy to become the world'sleading provider of commercial transport solutions. The businessarea Volvo Financial Services (VFS) was established in 2000 tohandle Group customer-financing operations, the insurancebusiness, treasury activities and real estate operations. The aimis to focus on developing various types of financial servicesprimarily related to Volvo's products and services. 

VFS aims to fulfill the market'sgrowing need for increasingly sophisticated financial solutionsseparately or combined with insurance and/or service contracts.This strengthens the competitiveness of Volvo's dealers therebypotentially enhancing the Group's growth and profitability. 

Volvo's customer-financingoperations cover Europe, North America, Australia, parts of SouthAmerica and Asia. Customized finance programs for the Group’sthree truck brands – Mack, Renault and Volvo – as wellas for the other Business Areas in the Group. The range offinancing services includes installment contracts, financialleasing, operational leasing and dealer financing. In mostmarkets, insurance, service and maintenance contracts are alsoprovided for as stand-alone products or in combination withfinancing services. 

Net sales amounted to SEK 9,153million (SEK 9,925 million in 2002) representing 5% of Volvo’ssales from continuing operations. Operating income in 2003amounted to SEK 926 million (SEK 490 million in 2002). Return onequity (net income divided by average shareholders’ equity)was 9.8% (4.8% in 2002). 

Operational excellence initiativeswill be pursued in 2004 to further improve efficiency and abilityto care for customers. The approach will be conservative whenmoving into emerging markets. 

**Suppliers**

Volvo’s decision on whetherto manufacture or to purchase from suppliers any particularcomponent is made competitively on commercial terms. AlthoughVolvo manufactures certain major components, including engines,transmissions and truck cabs, components are, to a large extent,purchased from suppliers outside of the Volvo Group.Increasingly, Volvo contracts with suppliers to manufacture anentire functional unit, such as completely finished seats, withthe supplier assuming full responsibility for production to Volvo’sspecifications. The primary prerequisites for cooperation withsuppliers are near zero-defect quality level, competitive cost,and flexible and reliable delivery performance. Volvo alsoconsiders environmental matters in its selection of suppliers.

**Sources and availability of rawmaterials.**Volvo purchases raw materials, components andparts from a number of suppliers. An interruption of supply willhave an impact on Volvo’s operations. The impact would varydepending on the commodity. Volvo’s exposure to suchinterruptions is no greater than the industry as a whole. Volvokeeps contingent business interruption insurance in order tolimit the losses from an interruption of supply. 

**Research and Development**

In 2003, 2002 and 2001, researchand development expenses were SEK 6,829 million, SEK 5,869million and SEK 5,391 million, respectively. Considerableresearch work is devoted not only to traditional productdevelopment, but also to developing effective software and totalsolutions designed to improve profitability in Volvo’scustomer’s business. 

**New products offering customersimproved operating economy.**Volvo's research and developmentfocuses on its customers' business, environmentally adaptedsolutions and safety awareness. During 2003, Volvo introduced alarge number of new products that offer customers improvedoperating economy through reduced fuel consumption, as well as ahigher degree of reliability and quality. One area of priority inresearch involves the development of transport telematics andother software designed to improve profitability in thecustomer's business, which also has positive effects on theenvironment. In product development, all business areas andbusiness units use a well-structured process with quality gatesand milestones specifying the requirements that have to befulfilled before a project is allowed to continue. Safety andenvironmental requirements are also key parameters in the process.

The focus on product quality inthe development process as well as in the interface with thecustomer has led to improved results in customer satisfactionmeasurements.

**Safety in focus.**Safety isone of Volvo's core values and research in this field has a highpriority. So-called "active" safety involves researchpertaining to the driving and road characteristics of a vehicle,such as electronic stability systems, ABS brakes and disc brakeson heavy trucks, while "passive" safety is beingdeveloped in the form of safety belts, airbags and impact-resistantcabs. 

An important area of safetyresearch deals with the interplay between driver and vehicle ormachine. The driver has to feel comfortable and must be able tosee and reach all-important controls in order to operate thevehicle as safely and efficiently as possible. A dedicated workto integrate the Volvo safety features and concepts into the newproduct lines at Volvo CE demonstrates how a good workplace witheasy entrance and good visibility for the operator adds to highersafety.

**Future fuels and energyefficiency.**Major changes regarding the use of energysources, fuels and vehicle powertrains, are based on extensiveinvestigations involving many different aspects and take a longtime to develop. A few of the most important are possible energysupply, energy efficiency and greenhouse gas emissions, all ofthem in a well-to-wheel perspective. 

The Volvo Group believes that DME(Di-Methyl Ether) has a very strong potential as a long termvehicle fuel, derived both from fossil and renewable sources. TheGroup also believes that the diesel engine will play a vital rolein future drive trains, due to its inherent energy efficiency andultra low emission potential, also together with fuels derivedfrom renewable sources.

The focused environmental agendadefines far-reaching objectives for energy efficiency also in theproduction processes. The organization is now being challenged onhow to achieve substantially decreased CO2 emissions in the mostcost-effective way. 

**Patents, Trademarks andLicenses**

Volvo’s patents, trademarks,trade names and licenses are important to the business of each ofthe business areas within Volvo. Volvo owns or otherwise hasrights to a substantial number of trademarks that it uses inconjunction with its business. Volvo believes that the level ofprotection of trademarks and other intellectual property rightsused in its business is and has historically been adequaterelative to its business. Volvo will use its best efforts tomaintain the protection of such rights to the same extent in thefuture and is continuously evaluating and renewing its trademarkand trade name registrations in all countries in which Volvo doesany material amount of business. After the sale of Volvo Cars toFord, the Volvo trademark is owned by Volvo Trademark Holding AB,which is jointly owned by AB Volvo and Volvo Car Corporation. Theright to use the trademark "Volvo" has thereafter beenregulated through license agreements made between Volvo TrademarkHolding AB and AB Volvo and Volvo Car Corporation, respectively.

Volvo Car Corporation has theright to use the "Volvo" trademark for passenger cars,minivans carrying up to 10 passengers, light trucks with payloadup to 1,500 kilograms, sports utility vehicles and othervehicles, but not buses or other vehicles used solely forcommercial purposes, that have a gross vehicle weight of notgreater than 5,400 kilograms (12,000 lbs. gross weight). AB Volvohas the right to use the trademark for trucks, buses,construction equipment, industrial and marine engines, aerospaceequipment and all other products (apart from those which VolvoCar Corporation has the right to use the trademark for).

Renault VI has the right under alicense agreement with the proprietor of the Renault trademark,Renault SA, to use the trademark "Renault" for trucksand certain other related products and services. The trademark"Mack" is owned by Mack Trucks Inc. 

**Sales by Geographical Areas**

The following table sets forth thegeographic distribution of the Volvo Group’s net sales.Sales are shown based upon the market where the customer islocated.

|           | 2001                        | 2002        | 2003        |
|----------------|-----------------------------|-------------|-------------|
| Market area:   | (in millions        of SEK) |
| Western Europe | 97,758                      | 97,209      | 100,849     |
| Eastern Europe | 6,743                       | 7,860       | 8,819       |
| North America  | 57,724                      | 53,438      | 44,502      |
| South America  | 6,469                       | 5,070       | 5,080       |
| Asia           | 10,887                      | 12,693      | 15,819      |
| Other markets  | 9,699                       | 9,928       | 8,222       |
| **Total**      | **189,280**                 | **186,198** | **183,291** |
|           |                        |        |        |

**RegulatoryMatters**

**Environmentaland Other Regulatory Matters**

Thecorporate values of quality, safety and environmental care arepresent in the daily operations of the Volvo Group. Quality andenvironmental management systems are used in all parts of theorganization as the means for addressing responsibility andobjectives. The Group policies and a common network ofenvironmental auditors monitor compliance with the Groupguidelines and objectives. During 2003 the Group's business areasfinalized introduction of environmental management systems inmost operations. All but two production sites are now certified.Some market organizations still remain and projects are ongoingfor all other operations with certification planned for 2004. 

During 2002,improved energy efficiency and lower emissions were defined asthe focused environmental agenda for the entire Volvo Group, andobjectives for the coming tree-year period were developed. 

Fuelefficiency is the main interest of all our customers, with itsdirect link to the operating costs of the business. Improvedtotal fuel efficiency is also the most rewarding way to decreasecarbon dioxide (CO2) emissions.

At the sametime to improve ambient air quality, increasingly stricteremission regulations put pressure on the engine development todecrease mainly nitrogen oxides (NOx) and particle emissions.Unfortunately, higher fuel efficiency normally means higheremissions of NOx, a physical fact resulting from highercombustion temperatures. This balance is the challenge for allthe Volvo Group business areas. 

The recentproduct launches demonstrate how the stricter emissionrequirements have been met with highly competitive fuelefficiency, like the Volvo CE product lines. Volvo Penta’snew medium-heavy marine diesel engines, D4-210 and D6-310, andthe new D3, a future alternative to outboard engines demonstratedecreased fuel consumption combined with substantially loweremissions as well as advantages in terms of weight and noiselevels. The key to this strategy is a close collaboration betweenengine development and each application, to ensure the rightcombination of engine, transmission, chassis and body. The I-shifttransmission used in the Volvo Trucks is an example of thisintegration.

**4.C.Organizational Structure**

The Volvo Group's operationsduring 2003 were organized in eight business areas: Volvo Trucks,Renault Trucks and Mack Trucks, Buses, Construction Equipment,Volvo Penta, Volvo Aero and Financial Services. In addition tothe eight business areas, there are certain operations,consisting mainly of service companies that are designed tosupport the business areas' operations. In the financialreporting the business areas Volvo Trucks, Renault Trucks andMack Trucks are reported as one segment.

Each business area exceptFinancial Services has total responsibility for its operatingincome and operating capital. The Financial Services businessarea has responsibility for its net income and total balancesheet within certain restrictions and principles that areestablished centrally. 

The supervision and coordinationof treasury and tax matters is organized centrally to obtain thebenefits of a Group wide approach. The legal structure of theVolvo Group is based on optimal handling of treasury, tax andadministrative matters and, accordingly, differs from theoperating structure. 

See Note 2 to Volvo’sconsolidated financial statements for information concerningVolvo’s group structure and significant subsidiaries,including the name, country of incorporation, proportion ofownership interest and, to the extent different, proportion ofvoting power held.

**4.D.Property, Plants and Equipment**

At December 31, 2003, the eightbusiness areas of Volvo had manufacturing facilities worldwide.

Major components for the Group’sproducts are manufactured in Sweden, including engines, powertransmission systems, cabs and sheet metal components.

Trucks are assembled in Volvo-ownedplants in Sweden, France, Belgium, Brazil, Malaysia, Australia,the United States and India. There are local manufacturers ofVolvo trucks in Morocco, Botswana, Colombia, Iran, Tunisia,Egypt, Saudi Arabia and China.

Besides eleven plants in Europe,Volvo’s bus production takes place in Poland, Sweden,Finland, Germany, Brazil, the United States, Canada, Mexico andChina. Facilities for production of construction equipment arelocated in Sweden, Germany, France, Poland, the United States,Canada, Brazil, South Korea and China.

Volvo Penta’s productionfacilities are in Vara, Sweden, as well as in Lexington,Tennessee, United States and Wuxi, China. The principalproduction facilities of Volvo Aero are located in Trollhättan,Sweden and in Kongsberg, Norway.

Spare part operations of Trucks,Buses, Construction Equipment and Marine and Industrial Enginesin Europe is being coordinated through Volvo Parts’warehouses in Belgium and six support warehouses in England,France, Italy, Sweden, Finland and Spain.

The major part of the propertiesowned by the Volvo Group are used in the Group’s ownoperations. A certain number of the properties owned are leasedto Volvo Car Corporation. The greater part of Volvo’sproduction facilities is owned by Volvo.

Volvo believes that the Group’sprincipal manufacturing facilities and other significantproperties are in good condition and are adequate to meet theneeds of the Volvo Group.

**Environmental impact fromproduction.**The Volvo Group has production sites on fivecontinents. Maintaining environmental standards and implementingongoing improvement programs are required at all plants, and havebeen followed up by regular audits since 1989. The environmentalaudits identify environmental risks and possible need for clean-upor other corrective actions, with a follow-up to ensure thatthese are promptly conducted. The Volvo Group has insurancecoverage for possible accidental damage to nearby areas.

At the beginning of 2004, Volvohad a total of 48 plants for the production of trucks, buses,construction equipment, marine and industrial power systems, andaircraft engines, of which 16 are in Sweden. All the plants havethe requisite permits, which in Sweden cover waste, noise andemissions to air, water and soil. Two Swedish permits are to berenewed during 2004 due to a future increase in production volume.

Consumption of energy remained atroughly the same level as in 2002 but a slight decrease can beseen in the emissions of CO2 and NOx during 2003. The total waterconsumption also decreased during 2003. The program to increaseresource efficiency is starting to give effect also in theemission values. Although using low sulphur content fuels whenpossible, an increase in the use of heating oil caused anincrease in sulphur dioxide emissions compared to 2002. A totalincrease in production volumes caused a minor increase in solventemissions and hazardous waste. 

**Freight.**Transport to andfrom Volvo's production facilities and distributors cause moresubstantial emissions of air pollutants than the operations atthe company's production plants. In order to encourageenvironmental improvement measures, Volvo Logistics, the Group'sprocurement company for transport services, continuously assessesthe environmental work of contracted transport companiesaccording to a classification system. Every new supplier contractincludes an environmental clause whereby the transport companyundertakes to operate in accordance with the ISO 9000 and ISO14001 standards. 

**ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS.**

**5.A.Operating Results****.**

The following operating financialreview should be read in conjunction with the Company'sConsolidated Financial Statements included herein. TheConsolidated Financial Statements and the financial informationdiscussed below have been prepared in accordance with generallyaccepted accounting principles in Sweden (Swedish GAAP). For adiscussion of the principal differences between Swedish GAAP andUS GAAP, see "Item 18.  Financial Statements—Note 35."

**General**

The following table sets forth theVolvo Group’s sales and operating income by business areasfor each of the years in the three-year period ended December 31,2003.

|                                   | 2001                        | 2002        | 2003        |
|----------------------------------------|-----------------------------|-------------|-------------|
|                                   | (In millions        of SEK) |
| Net        sales                       |                        |        |        |
| Trucks                                 | 116,568                     | 118,752     | 116,969     |
| Buses                                  | 16,675                      | 14,035      | 11,978      |
| Construction        Equipment          | 21,135                      | 21,012      | 23,154      |
| Volvo        Penta                     | 7,380                       | 7,699       | 7,596       |
| Volvo        Aero                      | 11,784                      | 8,837       | 8,030       |
| Financial        Services              | 9,495                       | 9,925       | 9,153       |
| Other        and eliminations          | 6,243                       | 5,968       | 6,411       |
| Total,        as reported              | **189,280**                 | **186,198** | **183,291** |
|                                   |                        |        |        |
| Operating        income (loss)1        |                        |        |        |
| Trucks                                 | (2,066)                     | 1,189       | 3,951       |
| Buses                                  | (916)                       | (94)        | (790)       |
| Construction        Equipment          | 527                         | 406         | 908         |
| Volvo        Penta                     | 658                         | 647         | 695         |
| Volvo        Aero                      | 653                         | 5           | (44)        |
| Financial        Services              | 325                         | 490         | 926         |
| Other                                  | 53                          | 194         | (3,142)     |
| Subtotal,        continuing operations | **(766)**                   | **2,837**   | **2,504**   |
| Gain        on the sale of Volvo Cars  | 90                          | -           | -           |
| Total,        as reported              | **(676)**                   | **2,837**   | **2,504**   |

____________

1 Operating income in2003 included write-down of shares in Scania AB and Henlys GroupPlc amounting to SEK 4,030 million, of which SEK 429 million wasreported in Buses (Henlys Group Plc) and SEK 3,601 million wasreported in Other (Scania AB).

Operating income in 2001 wascharged with restructuring costs of SEK 3,862 million, of whichSEK 3,106 million was allocated to Trucks (mainly related to theintegration of Renault Trucks and Mack Trucks), SEK 392 millionto Buses and SEK 364 million to Construction Equipment.

**Volvo’s investment inScania AB**

During 1999 and 2000, Volvoacquired 45.5% of the capital and 30.6% of the voting rights inScania AB, one of the world’s leading manufacturers oftrucks and buses. As a condition in connection with the EuropeanCommission’s approval of Volvo’s acquisition of RenaultV.I. and Mack Trucks Inc. in 2001, Volvo undertook to divest itsholding in Scania not later than April 2004. At year-end 2003,the carrying value of Volvo's holding in Scania AB was determinedto be SEK 20.4 billion. The carrying value of the holding of the63.8 million Scania Series B shares was determined based upon theconsideration received when Volvo divested those shares toDeutsche Bank on March 4, 2004. The carrying value of the holdingof 27.3 million Scania Series A shares was determined based uponthe closing share price of SEK 202 on December 31, 2003. A write-downof SEK 3.6 billion was thereby charged to Volvo’s operatingincome under Swedish GAAP for 2003. In April 2004, the AnnualGeneral Meeting approved a dividend to AB Volvo's shareholders of99% of the shares in Ainax AB, a wholly owned subsidiary holdingall of Volvo's Scania Series A shares. The distribution of sharesin Ainax AB to Volvo’s shareholders was made on June 8, 2004and the value of this dividend was set at SEK 6,310 million.

**Volvo’s investment inHenlys Group Plc**

During 1998 and 1999, Volvoacquired 9.9% of the capital and voting rights in Henlys GroupPlc at a total acquisition cost of SEK 524 million. Henlys Groupis a British company involved in manufacturing and distributionof buses and bus bodies in Great Britain and North America. Volvoand Henlys Group jointly own the shares of the North American busoperations Prévost and Nova Bus. In February and March 2004,Henlys announced that its earnings for 2004 were expected to besignificantly lower than previously anticipated. As a consequenceof receiving this information, it was determined at the date whenVolvo issued its 2003 financial statements that Volvo's holdingin Henlys Group Plc was permanently impaired at December 31, 2003,and a write-down of SEK 429 million was charged to operatingincome under Swedish GAAP for 2003. After this write-down, thecarrying value of Volvo's shares in Henlys Group amounted to SEK95 million, corresponding to the market value of these shares atyear-end 2003. 

In October 1999, Volvo issued aconvertible debenture loan to Henlys Group Plc of USD 240 millionin connection with Henlys Group's acquisition of the US schoolbus manufacturer Bluebird. The convertible debenture loan maturesin October 2009. In connection with the preparation of Volvo’s2003 financial statements, Volvo evaluated the financialsituation of Henlys Group and assessed that no impairment losshad then been incurred on the convertible debenture loan.

On March 31, 2004, Henlys Groupfurther announced that its 30% shareholding in TransBus would bewritten down as a consequence of TransBus being placed intoadministration. At the end of May 2004, the market value ofVolvo's shares in Henlys Group amounted to SEK 16 million. 

On June 10, 2004, Henlys Groupannounced that it was holding discussions with its lending banksand other principal creditors regarding a restructuring of theHenlys Group, and that it intended to delist its shares from theLondon Stock Exchange. No assurance can be given that Volvo willnot be required in 2004 to take further write downs in Volvo’sholdings of the Henlys Group’s shares or to record animpairment loss on the convertible debenture loan.

**Volvo and Renault agreement**

In July 2000, AB Volvo reached anagreement with Renault S.A. to acquire Mack Trucks and Renault V.I.,the truck operations of Renault, in exchange for 15% of ABVolvo's shares. 

During 2000, AB Volvo repurchased10% of the Company’s outstanding shares. On January 2, 2001,the acquisition became effective and these shares weretransferred to Renault S.A. as partial payment for the shares ofMack Trucks and Renault V.I.. 

During the beginning of 2001,Volvo made an additional repurchase of 10% of the total number ofoutstanding shares in AB Volvo. On February 9, 2001, 5% of theshares were transferred to Renault S.A. as final payment for theshares of Renault V.I. 

The purchase price for the sharesof Mack Trucks and Renault V.I. was set at SEK 10.7 billion,based on the Volvo shares price at the date of the acquisition.The fair value of the acquired assets and liabilities wasestablished at the end of 2001 and goodwill related to theacquisition was set at SEK 8.4 billion.

During 2001, AB Volvo and RenaultS.A. entered into a dispute regarding the final value of theacquired assets and liabilities in Renault V.I. and Mack Trucks.This process could result in an adjustment in the value of thetransfer. Any such adjustment will affect the amount of acquiredliquid funds and Volvo’s reported goodwill amount. Theoutcome of this dispute cannot yet be determined with certainty.However, Volvo believes that the outcome will not lead to anincrease of the goodwill amount. 

**Economic and market conditions.**2003 demonstrated a significant upswing in global economicmomentum despite the Iraq crisis, which dampened the economicdevelopment in the first half of the year. In addition to theUnited States, Asia in general and China in particular stood outas the most buoyant economies. While the economic expansion inthe United States was underpinned by very stimulative financialpolicies, monetary and fiscal, the European Union faced a muchtighter set-up of financial policies. The latter, in combinationwith a significant appreciation of the Euro, resulted in anotherlost year in terms of economic acceleration. The combination ofgrowing expectations on the global economy and the end of the warin Iraq triggered a marked improvement in the risk appetite amongfinancial investors, which lead to an impressive rebound inequity prices. However, due to a sluggish development in the USlabour market and subdued inflation expectations globally, therewas no spike in long-term interest rates.

The total market for heavy trucksin Western Europe during 2003 was unchanged compared with thepreceding year at approximately 215,000 trucks. The markets inGermany and in the United Kingdom strengthened by 6% and 10%,respectively, while the markets in Italy and France weakened. InNorth America, the total market for heavy trucks (Class 8) wasunchanged compared with the year earlier at a historically lowlevel of 179,000 vehicles. Growth rates in Eastern Europe andAsia remained favorable and the market for heavy trucks in Brazilrose by 28% compared with a year earlier. The total world marketfor heavy and compact construction equipment, within Volvo CE’sproduct range, increased by 11% during 2003. The growth wasmostly attributable to North America, China and Eastern Europe.The market conditions for Volvo Buses and Volvo Aero remainedweak during 2003. However, at the end of 2003 air traffic showeda positive trend in all regions of the world.

**Factors affecting results.**TheVolvo Group’s sales are principally affected by unit salesvolume and vehicle prices as well as by currency fluctuations,product mix and sales of optional equipment. The profitability ofVolvo’s operations depends on a number of factors, includingresearch and development expenses and the ability to achieve costand capital efficiencies in product manufacturing.

**Impact of Currency Fluctuations.**A substantial amount of Volvo’s assets and debt aredenominated in currencies other than Swedish kronor or located incountries other than Sweden. Most of Volvo’s sales takeplace outside Sweden with invoicing in U.S. dollars and othercurrencies. The sales outside Sweden amounted to SEK 175,665million, SEK 173,275 million and SEK 168,490 million, or 93%, 93%and 92% of Group sales in 2001, 2002 and 2003, respectively.

A large part of Volvo’sproduction takes place outside Sweden. In addition, a largepercentage of the Group’s suppliers are located outside theproduction countries from which Volvo imports, among otherthings, parts and various raw materials which may be invoiced incurrencies other than kronor. Volvo’s sales and income,expressed in kronor, may be materially affected by fluctuationsin the exchange rates between the kronor and the currencies inwhich the Group sells to customer or purchases from suppliers.

Changes in exchange rates haveboth dynamic and direct effect on income. The dynamic effectsinclude the pricing of products sold and materials purchased inforeign currency. Changes in exchange rates also affectcompetitors and thus have an indirect impact on Volvo’scompetitiveness. The direct effects arise mainly when income,expense, assets and liabilities in foreign currencies aretranslated to Swedish kronor at rates different than those usedto translate financial items for an earlier period.

The Swedish krona strengthenedduring 2003 against most of Volvo's inflow currencies, with anegative effect on operating income. The US dollar, the Canadiandollar and pound sterling had the greatest impact. Changes inspot-market rates for other currencies had minor effects.

The total effect of changes incurrency exchange rates on operating income in 2003 compared with2002 was negative by approximately SEK 900 million. Thetransactional effect of changed spot-market rates was negative,approximately SEK 2,050 million. The effect on income of forwardand option contracts amounted to a gain of SEK 1,243 million (lossof SEK 195 million in 2002), which resulted in a positive impactof SEK 1,438 million for 2003, compared with 2002. Changes inspot rates in connection with the translation of income inforeign subsidiaries and the revaluation of balance sheet itemsin foreign currencies had a negative impact of SEK 290 million. 

**Adoption of InternationalFinancial Reporting Standards.**Effective in 2005 Volvo willadopt International Financial Reporting Standards ("IFRS")in its financial reporting. The transition from Swedish GAAP toIFRS is being made to implement a regulation applicable to alllisted companies within the European Union as of 2005. Volvoconsiders that the most significant effects will pertain toaccounting for financial instruments and goodwill. Restatement offigures for prior years will be made in accordance with therequirements of the transition rules. During 2003, Volvo hasstarted a number of projects aimed at adapting the internalreporting routines to the new regulation. More detailedinformation about the IFRS transition effects will be presentedin connection with the publication of the 2004 financialstatements.

**Volvo and the Euro.**Volvoestablished the Euro as the functional currency for itsoperations in the countries that are members of the EuropeanMonetary Union (EMU) in 2001. In September 2003, a referendum washeld in Sweden about membership in the EMU. The majority of thevotes was against Swedish membership.

**Restructuring costs in 2001.**Restructuringcosts in 2001 amounted to SEK 3,862 million of which SEK 3,106million was for Trucks, SEK 392 million was for Buses and SEK 364million was for Construction Equipment.

Restructuring costs in Trucksincluded costs for the integration of Mack Trucks and RenaultTrucks in order to secure coordination gains made possiblethrough the acquisition. The integration measures includedreduction of North American production capacity through adecision to close Mack's Winnsboro plant and transfer productionto Volvo's New River Valley plant. Integration measures alsoincluded restructuring of the global distribution system andproduction structure. In addition to these integration measures,restructuring costs in Trucks included significant personnelreductions due to the prevailing business conditions, especiallyin North America. Restructuring costs in Buses were attributableto the shut down of Nova Bus' plant for city buses in Roswell,United States. In Construction Equipment, restructuring measuresincluded terminating fabrication in the Asheville plant, UnitedStates, and to an overall redundancy program.

Of the total restructuring costs,SEK 2,259 million was attributable to contractual pensions andexcess personnel, SEK 573 million was attributable to writedownsof assets and the remainder, SEK 1,030 million was attributableto other restructuring costs. 

**Results from continuingoperations**

**2003 compared with 2002**

**Volvo Group.** Net sales in2003 amounted to SEK 183,291 million (SEK 186,198million in 2002), a decrease of 2% compared with 2002.Adjusted for changes in currency exchange rates, netsales increased by 6%.

Net sales of Volvo’s truck operations amounted to SEK 116,969million, a decrease of 2% compared to 2002. Adjusted for currencyeffects, sales increased by 5% compared with 2002. Net sales werepositively affected by higher deliveries in Asia and EasternEurope. In North America, deliveries of trucks weredown by 5% and in Western Europe the Volvo Group's deliveries oftrucks were 4% lower than in the preceding year.  

In Buses, net sales decreased 15% compared with 2002. The declinewas partly attributable to currency movements. Adjusted for theseeffects, net sales decreased 8%, pertaining mainly to lowerdeliveries in North and South America, partially offset byfavorable volumes in China and the Nordic countries. In an increasing worldmarket, net sales of Construction Equipment rose 10%, adjustedfor currency effects 18%, driven by a wider product range andimproved market shares. In Volvo Penta, a weakening totalmarket and negative currency effects were partially compensatedby increased market shares, and net sales decreased by 1%.Adjusted for changes in currency rates Volvo Penta’s netsales increased by 8%. Volvo Aero's net sales declined by 9%, duemainly to negative effect from changes in currency rates.Adjusted for changes in currency rates, Aero’s net salesincreased by 4% despite the crisis in the airline industry.

The Group’s net sales in Western Europe increased by 4%.Net sales in North America were down 17% due to lower USDexchange rates and lower deliveries of Mack trucks. Sales inEastern Europe and Asia grew by 12% and 25% respectively whilesales in South America were unchanged. 

Operating income for the VolvoGroup in 2003 amounted to SEK 2,504 million, compared withSEK 2,837 million in 2002. Operating income included write-downof shares in Scania AB and Henlys Group Plc amounting to SEK 3,601million and SEK 429 million, respectively. Higher margins onnewly introduced products as well as price realization andcost rationalization affected operating income positively . 

Trucks' operating income in 2003amounted to SEK 3,951million (SEK 1,189 million in 2002).The improvement across the three truck brands, Mack, Renault andVolvo, is largely related to increased margins due to pricerealization and cost rationalization. Earnings improved in NorthAmerica, where profitability developed favorably for both Volvoand Mack despite adverse market conditions. In Europe, VolvoTrucks’ strong performance continued and both RenaultTrucks and Volvo Trucks reported improved earnings. The operating loss during 2003 in Buses amounted to SEK 790million compared with a loss of SEK 94 million in 2002. Theweaker result was related to the write-down of shares HenlysGroup Plc amounting to SEK 429 million, lower volumes, continuedprice pressure and currency effects. Construction Equipmentreported operating income of SEK 908 million comparedwith SEK 406 million in 2002. The improved earnings wereprimarily related to increased volumes due to recentlylaunched products and further improved market shares partlyoffset by strongly negative currency effects.Operating income in 2003 for Volvo Penta amounted to SEK 695million (SEK 647 million in 2002). The strong financialperformance of Volvo Penta mainly related to higher deliveriesand improved gross margins.  In Volvo Aero, operating incomedeclined to a loss of SEK 44 million (income of SEK 5million in 2002). The lower earnings were mainly a result ofprovisions for expected losses on contracts of SEK 170 M inthe fourth quarter.Operating income within Financial Services amounted to SEK 926million (SEK 490 million in 2002). Financial Services' favorabletrend of ten consecutive quarters of progressively increasingearnings primarily pertained to lower credit losses in the UScustomer financing operations and strong results in theoperations in Europe as well as in other parts of the world.Group operating income in 2002 was negatively affectedby provisions of SEK 807 million relating to a deficitwithin the Volvo Group’s Swedish pension foundation. 

Operating margin during 2003 was 1.4%,compared with 1.5% in 2002.

**** 

**Trucks.** Total deliveriesfrom the Group’s truck operations amounted to 155,989 trucksin 2003, a decline of 1% compared with 2002. In Europe, 92,083trucks were delivered, compared with 96,289 trucks in 2002.Deliveries in North America were down 5% compared with the year-earlierperiod and totaled 34,756 trucks. Deliveries in Asia, includingthe Middle East, continued to develop favorably, particularly inIran. Net sales of Volvo’s truck operations amounted to SEK116,969 million in 2003. Adjusted for currency effects, salesincreased by 5% compared with 2002.

Operating income in 2003 amountedto SEK 3,951 million (SEK 1,189 million in 2002).  Theimprovement across the three truck brands, Mack, Renault andVolvo, is largely related to increased margins due to pricerealization and cost rationalization. The strong customer valuesin the new Volvo range, increased market shares and increasedefficiency has contributed to the improved earnings in 2003.These positive effects were partly offset by negative currencyeffects and higher costs for research and development. Earningsimproved in North America, where profitability developedfavorably for both Volvo and Mack despite adverse marketconditions. In Europe, Volvo Trucks’ strong performancecontinued and both Renault Trucks and Volvo Trucks reportedimproved earnings. 

Research and development expenseswithin the truck operations amounted to SEK 4,874 million in 2003,compared with SEK 4,175 million in 2002.

**Buses.** Volvo delivered 7,817(9,059 in 2002), buses and bus chassis during 2003, a decrease of14%. The decline was mainly attributable to significantly lowervolumes in North America, which were offset to some extentby favorable volumes in China and the Nordic countries. 

Net sales in 2003 declined to SEK11,978 million (SEK 14,035 million in 2002). The decreasewas largely explained by lower deliveries, mainly in NorthAmerica, and changes in currency exchange rates.Adjusted for currency effects, net sales were down 8%compared with 2002.

The operating loss rose to SEK790 million, compared with a loss of SEK 94 million in 2002. Theweaker result compared with the year-earlier period wasrelated to the write-down of shares in Henlys Group Plc amountingto SEK 429 million, lower volumes, continued pricepressure and currency effects. In December 2003, thedecision was taken to close the bus body plant in Aabenraa,Denmark. The cost for the closure amounted to SEK 42 million.

Research and development expensesfor Buses in 2003 amounted to SEK 453 million, compared with SEK396 million in 2002.

**Construction Equipment.** Netsales amounted to SEK 23,154 million (SEK 21,012 in 2002),up 18% adjusted for currency effects. The increase was mainly attributableto all-time-high volumes as a result of the expandedproduct range. 

Operating income in 2003 wasSEK 908 million (SEK 406 million in 2002) and the operatingmargin 3.9% (1.9% in 2002). The improved earnings wereprimarily related to increased volumes, which were stronglyoffset by negative currency effects.

Research and development costs forConstruction Equipment in 2003 amounted to SEK 904 millioncompared with SEK 685 million in 2002.

**Volvo Penta**. Net sales in 2003totaled SEK 7,596 million compared with SEK 7,669 million in 2002. 

Operating income amounted to SEK695 million (SEK 647 million in 2002), which is Volvo Penta's bestresult to date. The operating margin for 2003 was 9.1% (8.4%in 2002). Both sales and earnings were negatively affectedby an unfavorable currency development, mainly from theweaker US dollar.

Research and development costs forVolvo Penta amounted to SEK 291 million in 2003, compared withSEK 352 million in 2002.

 

**Volvo Aero**. As a result ofthe negative impact of changes in currency rates, Volvo Aero’snet sales declined 9% to SEK 8,030 million (SEK 8,837 million in2002). 

Earnings deteriorated to anoperating loss of SEK 44 million, compared with operating incomeof SEK 5 million in 2002. The declines in sales and earnings wereprimarily attributable to a combination of lower volumes, mainlywithin engine overhaul in combination with strong price pressureand the falling USD exchange rate. Earnings were also negativelyaffected by provisions for expected losses on contracts amountingto SEK 170 million.

Despite the severe crisis in theaviation industry, Volvo Aero’s manufacture of componentsfor commercial aircraft engines and the military operationsreported positive results for the full year. The operating marginwas a negative 0.5% (positive of 0.1% in 2002). 

Research and development costs inVolvo Aero amounted to SEK 224 million in 2003, compared with SEK173 million in 2002.

**Financial Services**. Year-endoperating income amounted to SEK 926 million (SEK 490 million in2002). Return on equity was 9.8% (4.8% in 2002) with a year-end equityratio of 12.0% (10.8% at end of 2002).

  Write-offsin 2003 totaled SEK 848 million resulting in an annualized write-offratio for the year of 1.37% (1.39% for 2002). Total creditreserves amounted to SEK 1.3 billion at the end of December, andthe credit reserve ratio at year-end was 2.14%.

 

**Other.**Operating income in2003 and 2002 from the Group’s other operations included ABVolvo and certain internal service companies. Operating incomefrom the Group’s other operations in 2003 included write-downof shares in Scania amounting to SEK 3,601 million and a dividendreceived from Scania of SEK 501 million (SEK 319 million in 2002).

**Net interest expense.**Netinterest expense for the year amounted to SEK 791 million (SEK624 million in 2002). The higher net interest expense was mainlyexplained by lower yield on financial assets and higher averagenet financial debt during 2003, in part due to higherprovisions for post-employment benefits and the acquisitionof Bilia's truck and construction equipment operations.

**Income taxes.**During 2003,income tax expenses of SEK 1,334 million was reported,compared with SEK 590 million for 2002. The income taxexpense was mainly related to current tax expenses.

**Minority interests.**Minorityinterests in the Volvo Group were mainly attributable to VolvoAero Norge AS (22%) and Volvo Aero Services LP (5%).

**2002 compared with 2001**

**Volvo Group.** Net sales in2002 amounted to SEK 186,198 million (SEK 189,280 million in 2001),a decrease of 2% compared with the preceding year. Adjusted forchanges in group structure and foreign currency exchange rates,net sales increased by 2%. Net sales of Volvo’s truckoperations amounted to SEK 118,752 million, an increase of 2%.The increase in sales related mainly to higher deliveries inNorth America, Asia and Eastern Europe. In Buses, net salesdecreased 16% compared to 2001 largely explained by proportionateconsolidation of Prévost and Nova Bus as from the fourth quarter2001 reflecting a reduction in Volvo’s ownership in theseentities and changes in currency exchange rates. Net sales ofConstruction Equipment fell 1% while net sales of Volvo Pentarose 4%. In both Construction Equipment and Volvo Penta, aweakening total market and negative impact from changes incurrency exchange rates was compensated by increased marketshares. Volvo Aero's net sales suffered heavily from the crisisin the airline industry and net sales dropped 25%.

Operating income from continuingoperations for the Volvo Group in 2002 amounted to SEK 2,837million, compared with an operating loss of SEK 766 million inthe preceding year. The favorable deviation was mainly explainedby improved gross margins in the truck operations andrestructuring costs that were charged to operating income in 2001.

Trucks' operating income in 2002amounted to SEK 1,189 million (operating loss of SEK 2,066million in 2001). The earnings were favorably affected byimproved gross margins and lower losses on forward exchangecontracts partially offset by lower capitalization of developmentcosts. Furthermore, the operating loss for 2001 includedrestructuring costs amounting to SEK 3,106 million and a gain onsale of shares in Mitsubishi Motors Corporation of SEK 574million. 

The operating loss in Buses of SEK94 million (operating loss of SEK 916 million in 2001) wassubstantially lower than in the year earlier, mainly derived fromturn around activities in North America, improved earnings inEurope and Asia and restructuring costs of SEK 392 millionincluded in the operating loss for 2001. These positive effectswere partially offset by lower volumes in Mexico and SouthAmerica. Construction Equipment reported an operating income ofSEK 406 million compared with SEK 527 million in the year earlier.The lower earnings were primarily explained by deterioratingmarket conditions in North America, changes in the product mixand launch costs for new products. The operating income ofConstruction Equipment in 2001 included restructuring costsamounting to SEK 364 million. Operating income in 2002 for VolvoPenta amounted to SEK 647 million (SEK 658 million in 2001). InVolvo Aero, operating income declined to SEK 5 million (SEK 653million in 2001) as a result of significantly lower sales due tothe general downturn in the aviation industry. Operating incomewithin Financial Services amounted to SEK 490 million (SEK 325million in 2001). The favorable trend was primarily pertaining tolower credit losses in the US customer financing operations. Theoperating income in 2001 included significant losses in the UStruck financing portfolio and a gain on the divestment ofVolvia's insurance operations.

Group operating income in 2002 wasnegatively affected by provisions of SEK 807 million (SEK 292million in 2001) relating to a deficit within the Volvo Group’sSwedish pension foundation for securing commitments in accordancewith the ITP plan (a defined benefit plan for salaried employees).The deficit was a result of the downturn on the stock markets.

Operating margin during 2002 was 1.6%,compared with negative 0.4% in 2001.

**Trucks.** Net sales of Volvo’struck operations amounted to SEK 118,752 million (SEK 116,568million in 2001). The increase in sales related mainly to higherdeliveries in North America, Asia and Eastern Europe. In NorthAmerica, the total market for heavy trucks increased 5% mainly asa result of a peak in demand during the middle of the year beforenew emission regulations (EPA02) became effective during the lastquarter of the year. In Western Europe, the Volvo Group'sdeliveries of trucks were 3% lower than in the preceding year.The reduction related primarily to Volvo Trucks and limitedproduction capacity during the first quarter in connection withthe introduction of the new Volvo FH and FM series. During theremaining part of the year, the demand was high for the newproduct range and the production capacity was increasedsuccessively. The demand in the southern part of Europe continuedto be high and Renault Trucks' deliveries in Western Europeremained unchanged at a high level.

Trucks' operating income in 2002amounted to SEK 1,189 million (operating loss of SEK 2,066million in 2001). The earnings were favorably affected byimproved gross margins as a result of improved price realization,positive effects from the integration of the truck companies andcost rationalizations. Operating income was also positivelyaffected by lower losses on forward exchange contracts offset bylower capitalization of development costs (SEK 945 million in2002 compared withSEK 1,586 million in 2001). The operating lossfor 2001 included restructuring costs of SEK 3,106 million mainlyrelating to the integration of Mack Trucks and Renault Trucks inorder to secure coordination gains made possible through theacquisition. The operating loss during 2001 further included again on sale of shares in Mitsubishi Motors Corporation of SEK574 million. The earnings of Volvo's truck operations during 2002gained from continued strong earnings in Europe but alsocontinued to suffer from low volumes and capacity utilization inNorth America due to the poor market conditions, even if thedemand increased temporarily during the middle of the year inadvance of the new US emission regulations.

Research and development expenseswithin the truck operations amounted to SEK 4,175 million in 2002,compared with SEK 3,614 million in 2001.

**Buses.** Net sales in 2002declined to SEK 14,035 million (SEK 16,675 million in 2001). Thedecrease was largely explained by proportionate consolidation ofPrévost and Nova Bus as from the fourth quarter 2001 as well aschanges in currency exchange rate. Adjusted for these effects,net sales were down 1% pertaining mainly to decreased deliveriesin North and South America partially offset by favorable volumesin China and the Nordic countries. At October 1, 2001, theoperations of Prévost and Nova Bus became jointly controlled byVolvo and the Henlys Group Plc and Volvo’s ownership was atthe same time reduced from 51% to 50%. Consequently, Volvointerest in Prévost and Nova Bus is from the same date reflectedin the Group’s financial statements by application of theproportionate consolidation method which means that 50% of itemsin the income statement and balance sheet of Prévost and NovaBus are reflected in the Volvo Group’s financial statements.Prior to October 1, 2001, Volvo’s interest in Prévost andNova Bus was fully consolidated with a minority interest of 49%.

Buses’ operating loss during2002 was SEK 94 million compared with an operating loss of SEK916 million in 2001. The substantially lower loss compared withthe year-earlier period was to a large extent due to turn-aroundactivities in North America, improved earnings in Europe and Asiaand restructuring costs of SEK 392 million included in theoperating loss for 2001. The restructuring costs during 2001 wereattributable to the shutdown of the Nova Bus plant for city busesin Roswell, US. Operating income during 2002 was negativelyaffected by lower volumes in Mexico and South America.

Research and development expensesfor Buses in 2002 amounted to SEK 396 million, compared with SEK498 million in 2001.

**Construction Equipment.** Netsales in 2002 amounted to SEK 21,012 million (SEK 21,135 millionin 2001). In spite of a decreasing world market, net salesadjusted for changes in currency rates rose 3% driven by a widerproduct range and improved market shares. 

Operating income in 2002, amountedto SEK 406 million (SEK 527 million in 2001). The lower earningswere primarily explained by deteriorating market conditions inNorth America, changes in the product mix and costs for theintroduction of new products. The operating income in 2001further included restructuring costs of SEK 364 millionpertaining to the operations in Asheville, US, and an overallredundancy program. 

Research and development costs forConstruction Equipment in 2002 amounted to SEK 685 millioncompared with SEK 674 million in 2001.

**Volvo Penta**. Net sales in2002 totaled SEK 7,669 million (SEK 7,380 million in 2001), anincrease by 4%. Sales improved in all segments except Industrial.In Europe, market shares strengthened for marine engines as wellas for industrial engines. Volvo Penta also continued to increaseits share of the North American marine engine market, especiallyfor diesel engines. A strong level of demand in 2002 forindustrial engines for irrigation pumps in Saudi Arabia couldalso be noticed.

Operating income amounted to SEK647 million (SEK 658 million in 2001). 

Research and development costs forVolvo Penta amounted to SEK 352 million in 2002, compared withSEK 368 million in 2001.

**Volvo Aero**. As a result ofthe continued downturn in the aviation industry, Volvo Aero’snet sales declined 25% to SEK 8,837 million (SEK 11,784 millionin 2001).

Operating income deteriorated toSEK 5 million (SEK 653 million in 2001). The weak earnings wereattributable primarily to the sharp decline in the aftermarket,in which Volvo Aero was hit by the reduced need for engineoverhauls and new and old spare parts. Concurrently, the Land& Marine Gas Turbines unit was affected by the decline in thegas turbine market. Despite the deep crisis in the aviationindustry, Volvo Aero’s Aerospace Components and MilitaryEngines business units were able to deliver positive earnings forthe full year, which offset the declines in the other businessunits.

Research and development costs inVolvo Aero amounted to SEK 173 million in 2002, compared with SEK211 million in 2001.

**Financial Services**.Operating income amounted to SEK 490 million (SEK 325 million in2001). Operating income in the established customer-financingcompanies was stable. Provisions for expected credit losses inthe U.S customer finance operations affected operating incomeadversely, but were on a lower level than last year. Operationsin South America and Eastern Europe continued to perform well,with operating income higher than in previous years. Mainly dueto higher claims, the insurance operation reported loweroperating income than in 2001. Income from real estate andtreasury was higher than in the preceding year. 

**Other.**Operating income in2002 and 2001 from the Group’s other operations included ABVolvo and certain internal service companies. Furthermore,operating income from the Group’s other operations in 2002included a dividend received from Scania of SEK 319 million (SEK637 million in 2001).

**Net interest expense.**Netinterest expense for the year amounted to SEK 624 million (SEK 1,000million in 2001). The lower expense was mainly explained by lowernet financial debt and lower funding costs in the US as aconsequence of lower interest rates and lower US dollar exchangerates.

**Income taxes.**During 2002,income tax expenses of SEK 590 million was reported compared withtax income of SEK 326 million in the preceding year. The incometax expenses was mainly related to current tax expenses insubsidiaries outside Sweden.

**Minority interests.**Minorityinterests in the Volvo Group were mainly attributable to VolvoAero Norge AS (22%) and Volvo Aero Services LP (5%). The HenlysGroup’s holding (49%) in Prévost Holding BV was reported asminority interest up to the third quarter 2001.

**5.B.Liquidity and Capital Resources**

Cash flows relating to majoracquisitions and divestments of subsidiaries are included in theconsolidated cash flow from the point of acquisition or throughto the point of divestment. The effects of changes in exchangerates on translation of foreign subsidiaries have also beenexcluded since these effects do not influence cash flow. Forfurther information regarding the impact of changes in foreignexchange rates see "– 5.A. Operating Results –General – Impact of Currency Fluctuations".

**Cash flow from operatingactivities.** Cash flow from operating activities increased toSEK 17.1 billion in 2003 from SEK 15.3 billion in 2002, and SEK14.1 billion in 2001. The increase in 2003 versus 2002 was mainlyderived from increased earnings capacity and lower workingcapital tied up, mainly reduced inventories. The increase between2002 and 2001 was due mainly to a favorable earnings capacity. 

**Cash flow from/used ininvesting activities.** Net cash used in investing activitiesin 2003 amounted to SEK 12.8 billion, compared with SEK 14.7billion in 2002 and net cash from investing activities of SEK 1.9billion in 2001.

Investments in fixed assets in2003 amounted to SEK 6.0 billion compared with SEK 6.7 billionand SEK 8.1 billion in 2002 and 2001, respectively. Capitalexpenditures for property, plant and equipment in 2003 amountedto SEK 4.8 billion (SEK 4.8 billion in 2002 and SEK 5.5 billionin 2001). Capital expenditures in Trucks, which amounted to SEK 3.9billion (SEK 4.5 billion in 2002 and SEK 5.5 billion in 2001),were made in tools and equipment for the production of new truckmodels in North America, Brazil and France. Investments were alsomade in Sweden and France for increased capacity in the paintshops. The level of capital expenditures remained at the samelevel as last year in Buses at SEK 0.2 billion and Volvo Aero atSEK 0.3 billion, decreased in Construction Equipment from SEK 0.6billion to SEK 0.5 billion and increased in Volvo Penta from SEK0.3 billion to SEK 0.4 billion. 

Investments in leasing assetsamounted to SEK 5.3 billion in 2003 compared with SEK 5.2 billionand SEK 5.9 billion in 2002 and 2001, respectively. Investmentsin customer-financing receivables (net) during 2003, amounted toSEK 4.3 billion compared with SEK 5.7 billion and SEK 3.7 billionin 2002 and 2001, respectively. The investments pertained mainlyto the operations in North America and Western Europe. 

Cash flow from investment inshares, net was negative SEK 0.1 billion in 2003 as well as in2002. Cash flow from investment in shares in 2001 resulted in apositive cash flow of SEK 3.9 billion and was mainly related tothe sale of Volvo’s holding in Mitsubishi Motors Corporation.

Net acquisitions of subsidiariesand other business units in 2003 had an insignificant effect oncash flow and affected cash flow in 2002 negatively by SEK 0.2billion. Net divestments of subsidiaries and other business unitsin 2001 resulted in a positive cash flow of SEK 13.0 billion,mainly attributable to the final payment of SEK 12.1 billion fromthe sale of Volvo Cars, divestment of the insurance operation inVolvia and acquired liquid funds within Mack and Renault V.I. 

**Cash flow from financingactivities.** Net cash flow used in financing activitiesamounted to SEK 0.5 billion in 2003 and SEK 1.8 billion in 2002.Net cash provided by financing activities amounted to SEK 3.2billion in 2001, excluding the repurchase of own shares. Theincrease in loans during 2003 provided liquid funds of net SEK 1.9billion, of which new borrowing during the year, mainly throughthe issue of bonds and a commercial paper program, contributedSEK 25.4 billion (amortization of debt was SEK 23.5 billion).

Loans to external partiesdecreased in a net amount of SEK 0.9 billion during 2003 comparedto SEK 1.7 billion and SEK 0.2 billion during 2002 and 2001respectively.

Dividends paid to AB Volvoshareholders in 2003 totaled SEK 3.4 billion the same as in 2002and in 2001. 

Repurchase of own shares in 2001amounted to SEK 8.3 billion.

**Change in cash and cashequivalents.**The Group’s liquid funds increased during2003 by SEK 3.1 billion, of which changes in exchange ratesdecreased liquid funds by SEK 0.6 billion. Liquid funds at year-endamounted to SEK 28.7 billion. Liquid funds were SEK 25.6 billionat December 31, 2002 and SEK 27.4 billion at December 31, 2001.

**Net financial position** iscalculated as liquid funds and short-term and long-term interestbearing receivables reduced by short-term and long-term interest-bearingloans (including provisions for pensions and other postretirement benefits). Net financial position does not include netfinancial debt in Volvo Financial Services, since interestexpense in these companies is charged against operating incomeand does not affect consolidated net interest expense/income. Thebalance sheets as of December 31, 2003, 2002 and 2001 for theVolvo Group with Financial Services consolidated in accordancewith the equity method as well as for the Volvo Group as a wholeis shown under " -Financial Services Operations".

Net financial debt at December 31,2003 was calculated as follows:

| (in        millions of SEK)                                                                                                                                       | Volvo Group, excl Financial        Services |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------|
| Liquid        funds 1).................................................                                           | 28,103                                      |
| Short-term        interest-bearing receivables and loans...................................................    | 6,502                                       |
| Long-term        interest-bearing receivables and loans...................................................     | 2,911                                       |
| Financial assets.......................................                                                                       | 37,516                                      |
| Loans...................................................                                                          | 24,679                                      |
| Provisions        for pensions and other post-employment benefits................................................ | 15,263                                      |
| Financial        liabilities..................................                                                                   | 39,942                                      |
|                                                                                                                                                              |                                        |
| Net        financial debt....................................                                                                 | (2,426)                                     |

1) Liquid funds include cash andbank balances and marketable securities. Marketable securitiesare stated at the lower of cost or market value in accordancewith the portfolio method. Marketable securities consist ofinterest-bearing securities, to some extent with maturitiesexceeding three months. However, these securities have highliquidity and can easily be converted to cash. Liquid funds aremainly invested in SEK. 

The Group’s net financialdebt, which amounted to SEK 6.1 billion at the beginning of theyear, totaled a net financial debt of SEK 2.4 billion at December31, 2003. The decrease was due primarily to positive cash flowfrom operating activities and currency effects partly offset bydividends paid to AB Volvo shareholders, change in provision forpost employment benefits and debt in acquired and divestedoperations.

The net financial position as apercentage of shareholders’ equity and minority interestswas negative 3.3% at the end of 2003 compared with 7.7% at theend of 2002.

Volvo generally maintains lines ofcredit throughout the geographical areas where it conductsbusiness. The unused portion of committed credit lines, which maybe used without restrictions, amounted to approximately SEK 15billion at the end of 2003. Of these facilities approximately SEK13 billion consists of stand-by facilities with varyingmaturities up to the end of 2007.

**Credit risks.** Credit risksare related to customer credits, to the deposit of liquid fundsand to engagements in derivative instruments. Credit risk dependson the creditworthiness of counterparts and is reduced throughcareful evaluation of their ability to fulfill their obligations.

Customer credits comprise ofcredit granted to agents and dealers as well as loans made to end-customersby customer-financing companies. In addition, an evaluation ofthe political and economic situation in the purchaser’scountry is made in connection with export transactions. At year-end2003, Volvo’s accounts receivable amounted to SEK 16.9billion. The average age of these receivables was 32 days.

Operations are governed by commonpolicies for credits and by rules for classifying customers. Thecredit portfolio is distributed properly among differentcategories of customers and different industries. Credit risksare managed through active monitoring and follow-up routines and,in appropriate cases, procedures for repossessing products.Allocations are also made to credit-risk reserves. The creditrisk in customer financing is distributed among a large number ofindividual customers and dealers. Collateral is provided in theform of the products being financed. When issuing credit, aneffort is made to balance risk exposure and expected yield. Totalassets in the consolidated customer-financing companies,consisting mainly of current and long-term accounts receivable,amounted to SEK 62.7 billion in 2003 compared to SEK 64.9 billionin 2002.

The liquidity in the Group isinvested mainly in local cash pools or directly with VolvoTreasury. Volvo Treasury invests the liquid funds in the moneyand capital markets. This concentrates the credit risk within theGroup’s in-house bank. All investments must meet criteriafor low credit risk and high liquidity. In accordance with Volvo’scredit policy, counterparts for both investments and transactionsin derivatives must in general have received a rating of "A"or better from one of the well-established credit-ratinginstitutions.

The derivative instruments used byVolvo to reduce its foreign-exchange and interest-rate risk inturn give rise to a counterparty risk, the risk that acounterparty will not fulfill its part of a forward or optioncontract, and that a potential gain will not be realized.Transactions with derivative instruments are mainly conducted viaVolvo Treasury, which means that the counterparty risk isconcentrated within the Group's in-house bank. Where appropriate,the Volvo Group arranges master netting agreements with thecounterparties to reduce exposure. 

**Policies and procedures.**TheVolvo Group Financial Risk Policies form the basis for each Groupcompany’s action program. Monitoring and control isconducted continuously in each company as well as centrally. Mostof the Volvo Group’s financial transactions are carried outthrough Volvo’s in-house bank, Volvo Treasury, whichconducts its operations within established risk mandates andlimits.

**Commercial exposure.**Theobjective of the Volvo Group Currency Policy is to minimize theshort-term impact of adverse exchange rate fluctuations on theVolvo Group’s operating income, by hedging the Group'sforecasted transaction exposure, including firm flows. In orderto meet the objective of the Volvo Group Currency Policy,forecasted currency flows representing firm exposure andforecasted exposure with a pre-fixed price in local currencyshould be hedged. Volvo uses forward exchange contracts andcurrency options to hedge these flows. In accordance with theGroup’s currency policy, between 50% and 80% of the net flowin each currency is hedged for the coming 6 months, 30% to 60%for months 7 through 12 and firm flows beyond 12 months shouldnormally be hedged. 

**Financial exposure.**Loansand deposits in the Group companies are mainly made through VolvoTreasury in local currencies and financial currency exposure inthe individual entities are thereby being minimized. VolvoTreasury uses various derivative instruments in order to providedeposits and lending in different currencies without increasingthe company’s own risk. The Volvo Group’s net financialposition is being affected by changes in currency rates becausefinancial assets and liabilities are allocated between Groupcompanies operating in different currencies. 

**Interest-rate risks.**Interest-raterisks relate to the risk that changes in interest-rate levelsaffect the Group’s profit. By matching fixed-interestperiods of financial assets and liabilities, Volvo reduces theeffects of interest-rate changes. Interest-rate swaps are used tochange the interest-rate periods of the Group’s financialassets and liabilities. Exchange-rate swaps make it possible toborrow in foreign currencies in different markets withoutincurring currency risks. 

Volvo also holds standardizedfutures and forward-rate agreements. The majority of thesecontracts are used to secure interest levels for short-termborrowing or deposits. 

**Liquidity risks.**Volvoensures maintenance of a strong financial position bycontinuously keeping a certain percentage of sales in liquidassets. A proper balance between short- and long-term borrowing,as well as the ability to borrow in the form of creditfacilities, are designed to ensure long-term financing. 

**Non-current liabilities.**VolvoTreasury AB and Volvo Group Finance Europe BV issue most of theGroup’s non-current liabilities. The total outstanding non-currentliabilities, excluding current portion as per year-end amountedto SEK 46.7 billion (SEK 46.4 billion in 2002). The materialcurrencies issued were the Euro, US dollar, Swedish kronor, PoundSterling and Canadian dollar amounting to SEK 26.3 billion, SEK 6.9billion, SEK 6.7 billion, SEK 1.8 billion and SEK 1.5 billion,respectively. 

Most of Volvo’s non-currentliabilities are issued with a fixed interest rate, with currencyand interest rate risk hedged using derivative instruments. 

The maturity structure of theGroup’s non-current liabilities is set considering the long-termfunding needs within the Group. Approximately 53% mature withintwo to three years, 33% within four to five years and 14% withinsix years or later. See Note 24 to Volvo’s consolidatedfinancial statements. 

**Residual value risks.**Residual-valuerisk is attributable primarily to contracts involving buy-back ortrade-back commitments, residual value guarantees or operationallease contracts. It comprises the risk that the product, at theend of the contract period, has another residual value thanforeseen when the contract was entered. This may force Volvo todispose of used products at a loss. Residual-value risks aremanaged within Volvo's business areas through solid knowledge ofthe market, knowledge of product and price trends, and programssupporting the value of second-hand products. It is Volvo’spolicy to provide for this exposure on a continuing basis, sothat the book value of these vehicles are in line with currentand anticipated future price levels on used commercial vehicles. 

**Repurchase of shares of ABVolvo.** At the beginning of 2001, Volvo held 10% of the totalnumber of shares in AB Volvo. Such shares were transferred toRenault SA on January 2, 2001, as partial payment for Renault V.I.and Mack. The transfer of shares to Renault SA was treated as anissue of new shares. During the beginning of 2001, Volvorepurchased an additional 10% of the total number of sharesoutstanding in AB Volvo. As a result, a total of SEK 8.3 billionwas transferred to the shareholders of AB Volvo. On February 9, 5%of the total number of shares outstanding were transferred toRenault SA as final payment for the shares of Renault V.I. Volvothus holds 5% of the total number of registered Volvo A and VolvoB shares. 

The total number of outstandingVolvo shares by year-end 2003 was 419,444,842. The average numberof outstanding shares was 419,444,842 in 2003. On April 16, 2004,the Annual General Meeting resolved that Volvo may transfertreasury stock to fulfill undertakings for the Company’semployee stock options program of 2002. Furthermore, the Meetingdecided to establish a new share-based incentive program duringthe second quarter of 2004 for senior executives in the VolvoGroup and it was resolved that Volvo may transfer own shares tothe participants in the new share-based incentive program. TheAnnual General Meeting of AB Volvo also authorized the Board ofDirectors to decide on the acquisition of own shares for, amongother reasons, to create a more effective capital management forAB Volvo. Accordingly, on June 16, 2004, the Board decided toacquire through purchase on Stockholmsbörsen a maximum of 22,076,045Series A and/or Series B shares, however, not to exceed a totalpurchase amount of SEK 4,300,000,000.

The purchases may be carried outduring the period until the Annual General Meeting in 2005. Thebuyback, which will begin as soon as possible, shall be madewithin the so-called spread and settlements will be reported viaStockholmsbörsen in accordance with applicable rules.

**Capital Expenditures forProperty, Plant and Equipment.**

Capital expenditures that had beenapproved but not yet implemented at year-end 2003 amounted toapproximately SEK 6.4 billion. The distribution of theseinvestments, by principal business areas, is as follows:

|                                                                                                                                                              | (in billions of SEK) |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------|
|                                                                                                                                                              |                 |
| Trucks...................................................................                       | 4.7                  |
| Buses.............................................................................     | 0.2                  |
| Construction        Equipment.......................................................                        | 0.9                  |
| Volvo        Penta......................................................................        | 0.0                  |
| Volvo        Aero......................................................................      | 0.1                  |
| Other        and corporate expenditures............................................                                     | 0.5                  |
| Total.............................................................................. | 6.4                  |

Historically, Volvo’sprincipal method of financing capital expenditures has been withfunds provided by operations, supplemented by outside borrowingsas required. These sources of financing will continue to beutilized. Volvo has sufficient working capital to meet its needsfor the foreseeable future.

**Financial Services operations**

Supplementary income statements and balance sheets

In the supplementary incomestatements and balance sheets below, all Financial Servicesactivities are separated from Volvo’s other operations inorder to show how the activities have developed.

| Condensed        income statements, Financial Services                                                                                     | 2001                        | 2002  | 2003  |
|--------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------|-------|-------|
|                                                                                                                                       | (In millions        of SEK) |
| Net        sales.............................................................. | 9,495                       | 9,925 | 9,153 |
| Income        after financial items        .......................................                     | 325                         | 490   | 926   |
| Income        taxes.........................................................         | 10                          | (134) | (170) |
| Net        income....................        ....................................... | 335                         | 356   | 756   |

The condensed balance sheets beloware presented for the Total Volvo Group as well as separately forFinancial Services and for the Volvo Group excluding FinancialServices. Separate condensed balance sheets are presented forFinancial Services and for Volvo’s industrial and commercialoperations ("Volvo Group excluding Financial Services")since the capital structures of these operations are signficantlydifferent and therefore this additional information is requestedfrom shareholders and creditors in order to be able to betterevaluate the financial position of the Volvo Group. The VolvoGroup’s financial targets as established by its Board ofDirectors further include separate targets for the capitalstructure within Financial Services and Volvo’s industrialand commercial operations.

| (In        billions of SEK, except for %)                                                    | Volvo Group,        excl Financial Services 1 | Financial        Services | Total Volvo        Group |
|----------------------------------------------------------------------------------------------|-----------------------------------------------|---------------------------|--------------------------|
| Condensed        balance sheets                                                              | 2001                                          | 2002                      | 2003                     | 2001 | 2002 | 2003 | 2001 | 2002 | 2003 |
|                                                                                         |                                          |                      |                     |   |   |   |   |   |   |
| Assets                                                                                       |                                          |                      |                     |   |   |   |   |   |   |
| Intangible        assets                                                                     | 17.4                                          | 16.9                      | 16.7                     | 0.2 | 0.1 | 0.1 | 17.5 | 17.0 | 16.8 |
| Property,        plant and equipment                                                         | 30.4                                          | 27.8                      | 27.2                     | 2.9 | 3.1 | 3.4 | 33.2 | 30.8 | 30.6 |
| Assets        under operating leases                                                         | 15.0                                          | 11.1                      | 9.0                      | 14.1 | 13.3 | 13.2 | 27.1 | 23.5 | 21.2 |
| Shares        and participations                                                             | 35.1                                          | 34.7                      | 9.6                      | 0.2 | 0.3 | 0.2 | 27.8 | 27.5 | 1.8 |
| Long-term        customer finance receivables                                                | 0.0                                           | 0.1                       | 0.1                      | 26.3 | 25.4 | 23.9 | 26.1 | 25.2 | 23.4 |
| Long-term        interest bearing receivables                                                | 5.6                                           | 4.2                       | 2.9                      | 0.0 | 0.0 | 0.0 | 5.6 | 4.2 | 2.8 |
| Other        long-term receivables                                                           | 9.0                                           | 8.5                       | 7.9                      | 0.1 | 0.0 | 0.1 | 8.9 | 8.3 | 7.7 |
| Inventories                                                                                  | 30.6                                          | 27.6                      | 25.8                     | 0.5 | 0.7 | 0.6 | 31.1 | 28.3 | 26.5 |
| Short-term        customer finance receivables                                               | 0.1                                           | 0.0                       | 0.1                      | 23.7 | 22.7 | 22.9 | 22.7 | 21.8 | 22.6 |
| Short-term        interest bearing receivables                                               | 6.8                                           | 4.3                       | 6.5                      | 0.1 | 0.0 | 0.0 | 2.5 | 1.3 | 3.9 |
| Other        short-term receivables                                                          | 29.8                                          | 25.8                      | 25.2                     | 2.5 | 2.1 | 1.6 | 31.0 | 25.7 | 24.9 |
| Shares        in Scania                                                                      | -                                             | -                         | 20.4                     | - | - | - | - | - | 20.4 |
| Marketable        securities                                                                 | 13.0                                          | 16.6                      | 19.4                     | 0.5 | 0.1 | 0.1 | 13.5 | 16.7 | 19.5 |
| Cash        and bank accounts                                                                | 11.9                                          | 7.6                       | 8.7                      | 2.4 | 1.6 | 0.7 | 13.9 | 8.9 | 9.2 |
| Total assets                                                                                 | 204.7                                         | 185.2                     | 179.5                    | 73.5 | 69.4 | 66.8 | 260.9 | 239.2 | 231.3 |
|                                                                                         |                                          |                      |                     |   |   |   |   |   |   |
| Shareholders’        equity and liabilities                                             |                                          |                      |                     |   |   |   |   |   |   |
| Shareholders’        equity                                                             | 85.2                                          | 78.3                      | 72.4                     | 7.6 | 7.5 | 8.0 | 85.2 | 78.3 | 72.4 |
| Minority        interests                                                                    | 0.4                                           | 0.2                       | 0.2                      | 0.0 | 0.0 | 0.0 | 0.4 | 0.3 | 0.2 |
| Provisions        for postemployment benefits                                                | 14.6                                          | 16.2                      | 15.3                     | 0.0 | 0.0 | 0.0 | 14.6 | 16.2 | 15.3 |
| Other        provisions                                                                      | 14.1                                          | 13.9                      | 12.8                     | 4.3 | 2.8 | 2.3 | 18.4 | 16.7 | 15.1 |
| Loans                                                                                        | 29.7                                          | 22.5                      | 24.7                     | 58.0 | 54.3 | 52.8 | 81.6 | 72.4 | 74.1 |
| Other        liabilities                                                                     | 60.7                                          | 54.1                      | 54.1                     | 3.6 | 4.8 | 3.7 | 60.7 | 55.3 | 54.2 |
| Total        shareholders’ equity and liabilities                                       | 204.7                                         | 185.2                     | 179.5                    | 73.5 | 69.4 | 66.8 | 260.9 | 239.2 | 231.3 |
| Shareholders’        equity and minority interests as percentage of total        assets | 41.8                                          | 42.4                      | 40.5                     | 10.3 | 10.8 | 12.0 | 32.8 | 32.8 | 31.4 |
|                                                                                         |                                          |                      |                     |   |   |   |   |   |   |

____________

1 Financial Servicesoperations are reported in accordance with the equity method.

**Net sales and income.** Thenet sales value consists mainly of interest income and fees forrental and leasing contracts. Total sales of SEK 9,153 million in2003 were 8% lower than in 2002.

Income after financial itemsamounted to SEK 926 million (SEK 490 million in 2002). Incomefrom all the business segments; customer finance, real estate andtreasury, was higher than in the preceding year .

At year-end 2003 the creditportfolio amounted to SEK 60 billion (SEK 61 billion in 2002).Excluding currency effects, the portfolio growth was 7% (8% in2002). Provision is made for both credit risks and residual-valuerisks to the degree that residual-value risks are attributable tothe customer-financing company. For customers unable to fulfilltheir contractual obligations, specific provisions for creditrisks are made based on an individual assessment of each contract.In addition, in accordance with established policies, provisionsare made for estimated credit and residual value losses for eachcustomer-financing company.

Provisions for estimated creditvalue losses amounted to 2.1% (2.6% in 2002) of the creditportfolio at year-end 2003. Realized credit losses in 2003amounted to SEK 848 million (SEK 893 billion in 2002).

**Financial position.** Totalassets in Financial Services operations decreased during theyear, to SEK 66.8 billion from SEK 69.4 billion in 2002. 33% ofthe credit portfolio is denominated in USD and 39% in Euro. 

Customer and leasing receivablesamounted to SEK 46.8 billion compared to SEK 48.0 billion in 2002.Assets under operating leases decreased from 13.3 billion in 2002to SEK 13.2 billion in 2003.

Volvo’s objective is tomaintain an equity/assets ratio of 10% in its Financial Servicesoperations. The equity/assets ratio, calculated as shareholders’equity and minority interests as percentage of total assets was12.0% in 2003, compared to 10.8% in 2002 and 10.3% in 2001.

**US GAAPinformation**

The Volvo Group’s financialstatements have been prepared in accordance with accountingprinciples generally accepted in Sweden, which vary in certainsignificant respects from US GAAP. Note 35 to Volvo’sconsolidated financial statements for 2003 summarizes the effectthat the application of US GAAP would have on consolidated netincome and shareholders’ equity. Also see Note 35 to Volvo’sconsolidated financial statements for discussion of the impact ofrecently issued US accounting pronouncements.

**Critical Accounting Policiesand Estimates**

Volvo’s significantaccounting principles are set out on pages F-8 to F-11 of theconsolidated financial statements and conform with accountingprinciples generally accepted in Sweden ("Swedish GAAP").The preparation of Volvo’s Consolidated Financial Statementsrequires the use of estimates, judgments and assumptions thataffect the reported amounts of assets, liabilities and provisionsat the date of the financial statements and the reported amountsof sales and expenses during the periods presented. In preparingthese financial statements, Volvo’s management has made itsbest estimates and judgements of certain amounts included in thefinancial statements, giving due consideration to materiality.The application of these accounting principles involves theexercise of judgement and use of assumptions as futureuncertainties and, as a result, actual results could differ fromthese estimates. In accordance with Financial Reporting ReleaseNo. 60 (FR60) issued by the Securities and Exchange Commission ofthe United States, registrants are required to provide additionaldisclosure of accounting principles in which estimates, judgmentsand assumptions are particularly sensitive and which, if actualresults are different, may have a material impact on thefinancial statements. The accounting principles applied by Volvothat are deemed to meet these criteria are discussed below:

**Impairment of goodwill, otherintangible assets and other long-lived assets.**In accordancewith Swedish GAAP, property, plant and equipment, goodwill,intangible assets and certain other long-lived assets areamortized over their useful lives. Useful lives are based onmanagement’s estimates of the period that the assets willgenerate revenue. If, at the date of the financial statements,there is any indication that a tangible or intangible non-currentasset has been impaired, the recoverable amount of the assetshould be estimated. The recoverable amount is the higher of theasset’s net selling price and its value in use, estimatedwith reference to management’s projections of future cashflows. If the recoverable amount of the asset is less than thecarrying amount, an impairment loss is recognized and thecarrying amount of the asset is reduced to the recoverable amount.Determination of the recoverable amount is based upon management’sprojections of future cash flows, which are generally made by useof internal business plans or forecasts. While managementbelieves that estimates of future cash flows are reasonable,different assumptions regarding such cash flows could materiallyaffect our valuations. 

Under U.S. GAAP, prior to 2002,property, plant and equipment, goodwill, intangible assets andcertain other long-lived assets were amortized over their usefullives in a manner similar to that adopted under Swedish GAAP. InJanuary, 2002, Statement of Financial Accounting Standards("SFAS") No. 142, "Goodwill and Other IntangibleAssets," became effective. This standard requires thatgoodwill amortization cease and instead an annual impairmentreview of goodwill is required to be performed. Such animpairment review will require management to determine the fairvalue of Volvo’s reporting units on the basis of projectedcash flows and internal business plans and forecasts. Volvo isrequired to perform an annual impairment test of goodwill. Noimpairment charges were required in 2002 or 2003. 

**Residual value risks.**Inthe course of its operations, Volvo is exposed to residual valuerisks through operating lease agreements and sales combined withrepurchase agreements. The products, primarily trucks, for whichVolvo has a residual value commitment, are generally recognizedin the balance sheet as assets under operating leases.Depreciation expenses for these products are charged on astraight-line basis over the term of the commitment in amountsrequired to reduce the value of the product to its estimated netrealizable value at the end of the commitment. Estimatedimpairment losses are immediately charged to income in accordancewith Swedish GAAP. The estimated net realizable value of theproducts at the end of the residual value commitments ismonitored individually on a continuing basis. In monitoringestimated net realizable value of each product under a residualvalue commitment, management makes consideration of current price-levelof the used product model, value of options, mileage, condition,future price deterioration due to expected change of marketconditions, alternative distribution channels, inventory lead-time,repair and reconditioning costs, handling costs and overheadcosts in the used product divisions.

**Recoverability of investmentsin shares and participations.**Investments in shares andparticipations which are not associated companies or jointventures are valued at cost. Dividends received in respect ofsuch investments are included in income unless received closelyafter cost was determined. If there is a diminution in value andthis diminution is considered to be permanent, the investment iswritten down to this lower value, and the diminution is chargedto income. If a write-down is no longer needed, it is restored toincome. The judgement of whether a permanent diminution of valuehas occurred is made based upon the purpose of the shareholdingand its estimated value in use or estimated net selling price. 

Under US GAAP, if a diminution invalue of an investment is considered to be other than temporary,a write-down is recognized in the income statement of the company.If subsequently the value of the investment recovers, theimpairment amount is not reversed.

At December 31, 2003 investmentsin shares and participations amounted to SEK 22,206 million underSwedish GAAP. At December 31, 2003, the market value of Volvo'sinvestments in listed companies amounted to SEK 18,798 millioncompared with a carrying value for these investments of SEK 21,217million. For further information, see note 13 to the consolidatedfinancial statements included in item 18 of this document.

**Deferred taxes.**UnderSwedish GAAP, deferred taxes are recognized for temporarydifferences, which arise between the taxable value and reportedvalue of assets and liabilities as well as for unutilized tax-losscarryforwards. Volvo records valuation allowances againstdeferred tax assets where management does not expect such assetsto be realized based upon current forecasts. In the event thatactual results differ from these estimates or management adjuststhese estimates in future periods, an additional valuationallowance may need to be established that could materially impactour financial position and the results of operations. At December31, 2003, a valuation allowance of SEK 2,718 million wasestablished for the value of deferred tax assets. Net of thisvaluation allowance, deferred tax assets net of SEK 6,259 millionwere recognized in the Group’s balance sheet.

Under US GAAP, income taxes havebeen provided using the full liability method which is equal tothe treatment under Swedish GAAP.

**Inventory obsolescence.**Inventoriesare reported at the lower of historical cost, in accordance withthe first-in, first-out method (FIFO), or net realizable value.The estimated net realizable value includes managementconsideration of out-dated articles, over-stocking, physicaldamages, inventory-lead-time, handling and other selling costs.If the estimated net realizable value is lower than historicalcost, a valuation allowance is established for inventoryobsolescence. At December 31, 2003, a total valuation allowanceof SEK 2,246 million was established in the Group’s balancesheet for inventory obsolescence.

**Credit loss reserves.**Theestablishment of credit loss reserves on customer financingreceivables is dependent on estimates including assumptionsregarding past dues, repossession rates and the recovery rate onthe underlying collateral. At December 31, 2003, the total creditloss reserves in Volvo Financial Services amounted to 2.14% ofthe total credit portfolio.

**Pensions and other post-employmentbenefits.**Provisions and costs for post-employment benefits,i.e. mainly pensions and health-care benefits, are dependent onassumptions used by actuaries in calculating such amounts. Theappropriate assumptions and actuarial calculations are madeseparately for each population in the respective countries ofVolvo’s operations. The assumptions include discount rates,health care cost trends rates, inflation, salary growth, long-termreturn on plan assets, retirement rates, mortality rates andother factors. Discount rate assumptions are based on long-termbond yields available at year-end. Health care cost trendassumptions are developed based on historical cost data, the near-termoutlook, and an assessment of likely long-term trends. Inflationassumptions are based on an evaluation of external marketindicators. The salary growth assumptions reflect the long-termactual experience, the near-term outlook and assumed inflation.Retirement and mortality rates are based primarily on officiallyavailable mortality statistics. Actual results that differ frommanagement’s assumptions are accumulated and amortized overfuture periods and, therefore, generally affect the recognizedexpense and recorded provisions in such future periods. See Note22 of the Notes to the Consolidated Financial Statements for moreinformation regarding costs and assumptions for post-employmentbenefits. At December 31, 2003 net provisions for post-employmentbenefits amounted to SEK 15,094 million.

**Product warranty costs.**Estimatedcosts for product warranties are charged to cost of sales whenthe products are sold. Warranty costs include contractualwarranty, campaigns and goodwill warranty (warranty cover inexcess of contractual warranty or campaigns which is accepted asa matter of policy or normal practice in order to maintain a goodbusiness relation with the customer). Warranty provisions areestimated with consideration of historical claims statistics, thewarranty period, the average time-lag between faults occurringand claims to the company and anticipated changes in qualityindexes. Differences between actual warranty claims and theestimated claims generally affect the recognized expense andprovisions in future periods. Refunds from suppliers, thatdecrease Volvo’s warranty costs, are recognized to theextent these are considered to be virtually certain. At December31, 2003 warranty cost provisions amounted to SEK 6,175 million.

**Introduction of new accountingpolicies**

*For a description of changes inaccounting principles*seeNote 1 to Volvo’s consolidated financial statements. For adescription of changes in US generally accepted accountingprinciples see Note 35 to Volvo’s consolidated financialstatements.

**5.C.Research and Development, Patents and Licenses**

For a description of the Company’sresearch and development activities for the last three years, see"Item 4. Information on the Company — 4.B BusinessOverview – Research and Development." For a descriptionof the Company's patents and licenses, see "Item 4.Information on the Company — 4.B Business Overview –Patents, Trademarks and Licenses."

Research and development expensesin 2003 amounted to SEK 6,829 million compared with SEK 5,869million and SEK 5,391 million in 2002 and 2001, respectively.Effective in 2001, Volvo has adopted a new Swedish accountingstandard, RR15 Intangible Assets, which in all significantrespects complies with the corresponding accounting standardissued by the International Accounting Standards Board (IASB). Inaccordance with the new accounting standard, expenditures fordevelopment of new products and production systems shall bereported as intangible assets if such expenditures with a highdegree of certainty will result in future financial benefits forthe company. The acquisition value for such intangible assetsshall be amortized over the estimated useful life of the assets.Volvo’s application of the new rules means that high demandsare established in order for these development expenditures to bereported as assets. For example, it must be possible to prove thetechnical functionality of a new product prior to thisdevelopment being reported as an asset. In normal cases, thismeans that expenditures are capitalized only during theindustrialization phase of a product development project. Otherresearch and development expenses are charged to income asincurred. As result of adoption of this new accounting standard,research and development expenses in 2003, 2002 and 2001 werereduced by SEK 352 million, SEK 1,236 million and SEK 1,921million respectively. In accordance with the transition rules ofthe new standard, no retroactive application is permitted. Seefurther in Note 1 to the Consolidated Financial Statements.

**5.D.Trend Information**

For a discussion of trendinformation see "Item 5. Operating and Financial Review andProspects - 5.A. Operating Results."

**5.E. Off-BalanceSheet Arrangements**

The Group’s off-balance sheetarrangements at December 31, 2003 include:

- guaranteed bank loans and        other credits for associated companies in an amount of        SEK 154 million.
- guaranteed bank loans and        other credits for customers and others in an amount of        SEK 3,508 million.
- tax claims in an amount of        SEK 1,098 million for actual or anticipated actions        against the Volvo Group for which provisions are not        considered necessary.
- other contingent liabilities        amounting to SEK 4,851 million.

**5.F.Tabular Disclosure of Contractual Obligations**

Long-term financial obligationsinclude:

| (in        millions of SEK)                                                                    | Payments Due        by Period |
|------------------------------------------------------------------------------------------------|-------------------------------|
|                                                                                           | Total                         | Less than 1 year | 1-3        years | 4-5        years | After 5        years |
| Long-term        debt, including current maturities and financial lease        obligations (a) | 62,803                        | 16,129 | 24,609 | 15,353 | 6,712 |
| Operating        leases                                                                        | 3,650                         | 1,148 | 942 | 711 | 849 |
| Total                                                                                          | 66,453                        | 17,277 | 25,551 | 16,064 | 7,561 |

(a) asrecognized in Volvo’s Consolidated Balance Sheet as ofDecember 31, 2003.

At December31, 2003, Volvo further had commitments to repurchase usedproducts through buy-back contracts and residual value guaranteeswith external customers in an amount of SEK 10.191 million (thesecommitments are reflected in Volvo's consolidated financialstatements either as non-current liabilities, current liabilitiesor contingent liabilities).

**ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES**

**6.A.Directors and Senior Management**

**Managementsystem**

Themanagement of the Volvo Group is carried out through a number ofcorporate bodies. The shareholders exercise their voting rightsat the Annual General Meeting, deciding, among others, thecomposition of the Board of Directors and election of auditors.The Board of Directors appoints the President and CEO and decideson issues relating to the Group's strategic direction and itsoverall organization. 

ThePresident and CEO exercise the daily control of the Group and theGroup's eight business area presidents report to him.

**NominationCommittee**

From ABVolvo’s 1995 Annual General Meeting, the Meeting hasresolved to appoint a nomination committee which is assigned thetask to present a proposal regarding election of the Board ofDirectors and fees to be paid to Board members. In April 2003,the Annual General Meeting resolved to authorize the BoardChairman to appoint a Nomination Committee comprising threemembers from among the representatives of the company’sthree largest owners, in terms of voting rights, plus one memberrepresenting shareholders with smaller holdings in the company. 

TheNomination Committee is responsible for submitting to the AnnualGeneral Meeting the names of candidates to serve as members ofthe Board of Directors and as auditors. The Committee alsoproposes the amount of the fees to be paid to the holders ofthese positions.

TheNomination Committee which was appointed during the third quarterof 2003 and for the period up to the Annual General Meeting atApril 16, 2004, comprised Lars Otterbeck (representing Alecta) ,Shemaya Lévy (representing Renault), Marianne Nilsson, (representingRobur), Bengt Hane (representing shareholders with smallerholdings) and Lars Ramqvist, Chairman of the Board. LarsOtterbeck was appointed Chairman of the Committee. Lars Ramqvistresigned from the Committee on February 2, 2004.

**Boardof Directors**

According to the Swedish CompaniesAct, the board is elected by the general meeting of shareholders.The members’ terms of office shall be specified in thearticles of association. AB Volvo’s articles of associationstipulate that members are to be elected at the Annual GeneralMeeting for a term equal to the period up to the time when thenext Annual General Meeting has been held. Under Swedish law, theemployees of Volvo have a right to be represented on the Board ofDirectors. Thus, the employee organizations have a right toappoint a number of board members. The term of office for eachsuch member is decided by the organization appointing the member.

In 2003, Volvo's Board ofDirectors consisted of eight members up to and including theAnnual General Meeting, and ten members thereafter, all electedby the shareholders. In addition, the Board had three members andtwo deputy members appointed by employee organizations. ThePresident is a member of the Board of Directors. 

During 2003, the Board held sixregular meetings and three extraordinary meetings. 

The Board has adopted workprocedures for its internal activities that contain rulespertaining to the number of Board meetings, matters to be handledat regular meetings of the Board and duties incumbent on theChairman. 

The Board has also issued writteninstructions specifying when and how information that is requiredto enable the Board to evaluate the company's and Group'sfinancial position should be reported to the Board, as well asthe distribution of work between the Board and the President, andin what circumstances the Executive Vice President is tosubstitute for the President. 

The Annual General Meeting decideson the fees paid to the Board members elected by the shareholders.For 2003 the total amount was SEK 5,200,000 of which the Chairmanof the Board, Lars Ramqvist, received a fee of SEK 1,200,000. 

During the year, the Boardreviewed the financial position of the company and Group on aregular basis. The Board also dealt regularly with mattersinvolving divestments, acquisitions, the establishment of newoperations, and matters related to investments in product renewaland product development in the Group's business areas. 

At the Annual General Meeting ofAB Volvo on April 16, 2004, the following AB Volvo Board memberswere reelected: Per-Olof Eriksson, Patrick Faure, Haruko Fukuda,Tom Hedelius, Leif Johansson, Finn Johnsson, Neelie Kroes, LouisSchweitzer and Ken Whipple. At a statutory meeting held followingthe annual General Meeting, the Board elected Finn Johnsson asChairman. 

**Audit Committee**

In December 2002, the Board ofDirectors of AB Volvo established an Audit Committee primarilyfor the purpose of overseeing the accounting and financialreporting processes and the audit of the financial statements.Finn Johnsson was elected Chairman of the Committee and Per-OlofEriksson and Ken Whipple were appointed members. In March 2004,Finn Johnsson resigned from the Committee. Haruko Fukuda wasappointed member and Per-Olof Eriksson Chairman of the Committee.As assigned by the Board, the Committee's duties include reviewsof the financial reporting, the performance, qualifications andindependence of the auditors and the performance of the internalaudit function.

**Remuneration Committee**

In April 2003, the Board ofDirectors of AB Volvo established a Remuneration Committeeprimarily for the purpose of overseeing remuneration issues. LarsRamqvist was elected Chairman of the Remuneration Committee andTom Hedelius and Louis Schweitzer were appointed members. LarsRamqvist resigned from the Committee on February 2, 2004. FinnJohansson was appointed new Chairman of the Committee. 

The duties of the Committeeinclude the review and recommendation for resolution by the Boardregarding terms of employment and remunerations of the Presidentand the Executive Vice President, principles for remuneration forthe Group Executive Committee, principles for variable salarysystems, share based incentive programs and pension schemes. TheCommittee shall approve proposals on remuneration of the GroupExecutive Committee.

The Directors and Deputy Directorsof AB Volvo during 2003, their respective ages, the years inwhich such positions were attained and their material membershipson the Boards of other companies are:

**Name Age Position and OtherDirectorships**

Finn Johnsson 58 Chairman of theBoard (since February 2004). Director (since 1998). Chairman ofthe Remuneration Committee. President of Mölnlycke Health CareAB. Chairman of the Boards of Wilson Logistics Holding AB andUnomedical A/S. Member of the Boards of Skanska AB and ABIndustrivärden. 

Lars Ramqvist 65 Director 1998-February2, 2004, Chairman 1999-2004. Chairman of the RemunerationCommittee and member of the Nomination Committee up to February2004. Resigned as Chairman and as member of the Board on February2, 2004. Dr. of Philosophy. Hon. Dr. of Technology, Hon. Dr. ofPhilosophy. Honorary Chairman: Telefonaktiebolaget LM Ericsson.Member of the Royal Swedish Academy of Sciences and the RoyalSwedish Academy of Engineering Sciences. 

Per-Olof Eriksson 66 Director (since1994). Chairman of the Audit Committee. Master of Engineering,Hon. Dr. of Technology. Board Chairman: Consolis Oy, Callans TräAB and Odlander, Fredriksson & Co. Board member: AB Custos,SSAB Svenskt Stål AB, Assa Abloy, Senea AB and Elkem. Member ofthe Royal Swedish Academy of Engineering Sciences. 

Patrick Faure 57 Director (since2001). Bachelor of Laws. Executive Vice President of Renault S.A.and Chairman and CEO of Renault F1 since 1991. Chairman and CEOof Renault V.I. 1998-2001. With Renault since 1979. Board member:VINCI, ERTICO. 

Haruko Fukuda 57 Director (since2003). Member of the Audit Committee. OBE, MA (Cantab), DSc.Board member: The Foreign & Colonial Investment Trust plc,Investec plc, Aberdeen Asian Smaller Companies Investement Trustplc, Business Advisory Council of the United Nations Office forProject Service (UNOPS). Senior Advisor at Lazard, Advisor atMETRO AG.Honorary Fellow of New Hall Cambridge, Chairman of theAdvisory Board of New Hall Cambridge, Honorary Vice President ofthe Japan Society, Trustee of Mitsubishi Trust Oxford Foundation,Freeman of the City of London. 

Tom Hedelius 64 Director (since1994). Member of the Remuneration Committee. Master of BusinessAdministration, Hon. Dr. of Economics. Board Chairman: ABIndustrivärden, Bergman & Beving AB and Sandrews. HonoraryChairman: Svenska Handelsbanken. Vice Chairman: Addtech AB andLagercrantz Group AB. Board member: Svenska CellulosaAktiebolaget SCA and Lundbergs AB. Vice chairman in Jan Wallanderand Tom Hedelius foundation. 

Leif Johansson 52 Director (since1997). Master of Engineering. President of AB Volvo and ChiefExecutive Officer of the Volvo Group since 1997. With Volvo since1997. Board member: Bristol-Myers Squibb Company, Confederationof Swedish Enterprise and The Association of Swedish EngineeringIndustries. Member of the Royal Swedish Academy of EngineeringSciences. 

Neelie Kroes 62 Director (since2003). Board Chairman: Meyer Monitor.Board member: P&ONedlloyd and Nederlandse Spoorwegen NV, mmO2 Plc, Cório, RoyalNedlloyd, Ballast Nedam, Prologis, New Skies Satellites, andLucent Technologies BV the Netherlands. Cabinet Minister ofTransport and Public Works in the government of the Netherlands1982-1989 and former advisor to the Transport Commissioner withinthe EU Commission. 

Louis Schweitzer 61 Director (since2001). Member of the Remuneration Committee. Bachelor of Laws.Chairman and CEO of Renault since 1992. CFO and Executive VicePresident 1988-1992. President and Chief Operating Officer 1990-1992.With Renault since 1986. Board Chairman: Renault Nissan BV andboard member and proposed as Chairman in AstraZeneca Plc. Boardmember: R.C.I. Banque, Philips, Electricité de France, BNP-Paribas,and VEOLIA. 

Ken Whipple 69 Director (since2001). Member of the Audit Committee. Bachelor of Business andEngineering. Board Chairman and CEO of CMS Energy Corporation,CEO of Glenlore Enterprises. Board member: 14 JP Morgan FlemingMutual Funds and Korn-Ferry International AB. 

Lars-Göran Larsson* 56 Director (1994– May, 2004).

Martin Linder 31 Director (sinceMay, 2004)

Olle Ludvigsson* 55 Director (since1988). Deputy Director 1983 – 1988.

Johnny Rönnkvist* 57 Director (since1999).

Stellan Rosengren* 43 DeputyDirector (since 1999).

Berth Thulin* 52 Deputy Director (since1999).

_____________________________

* Employee representative

**Secretaryto the Board**

EvaPersson 51 Secretary to the Board (since 1997). Senior VicePresident and General Counsel of AB Volvo.

**VolvoGroup Executive Committee**

The members of the Volvo GroupExecutive Committee are appointed by, and report to, the ChiefExecutive Officer.

Stefano Chmielewski was appointedPresident of Renault Trucks and member of the Volvo GroupExecutive Committee effective May 1, 2003. He succeeded PhilippeMellier, who left the Volvo Group for an appointment as Presidentof Alstom Transport. At the beginning of 2003, Tryggve Sthen leftVolvo for a new appointment as President of SKF AutomotiveDivision. Håkan Karlsson assumed the position of President ofVolvo Bus Corporation on June 1 and also became a member of theGroup Executive Committee from that date. He succeeded Jan Engström,who was appointed Senior Advisor of AB Volvo. Michel Gigou wasappointed Senior Vice President of AB Volvo. As of January 1,2004 Paul Vikner, who has served since July 2001 as President ofMack Trucks, Inc., was appointed member of the Group ExecutiveCommittee.

The senior executive officers ofAB Volvo, together with the years in which they were appointed totheir respective offices, are as follows:

**Name Age Position**

Leif Johansson 52 President of ABVolvo and Chief Executive Officer of the Volvo Group (since 1997).President and CEO of Electrolux Group (1994-1997), President ofAB Electrolux (1991-1997), President of Facit AB (1982-1983),President of Husqvarna Motorcyklar AB (1979-1981). Member ofVolvo Board (since 1997).

Lennart Jeansson 62 Executive VicePresident of AB Volvo (since 1990) and Deputy CEO (since 1995).President of Volvo Car Corporation (1990-1993). Member of GroupExecutive Committee (since 1986). Chief Financial Officer ofAB Volvo (1986-1990).

Jorma Halonen 55 President ofVolvo Truck Corporation (since 2001). Various positions at Scania(1990-2001). Member of Group Executive Committee (since 2002). 

Stefano Chmielewski 52 Presidentof Renault Trucks (since May 1, 2003). Senior Vice PresidentSales, Renault Trucks 2001-2003. Various positions with Iveco andVW 1982-2001. Member of Volvo Group Executive Committee (sinceMay 1, 2003). 

Paul Vikner 55 President of MackTrucks, Inc. since 2001. Executive Vice President of Sales andMarketing, Mack Trucks, Inc. 1996-2001. Previously at IvecoTrucks North America and Isuzu Trucks North America 1972-1994.Member of Group Executive Committee since January 1, 2004. 

Michel Gigou 57 Senior VicePresident of AB Volvo, President of Volvo Trucks North Americaand Chairman of the Board of Mack Trucks, Inc. (2000-2003).President of Mack Trucks, Inc. (1996-2000). Previously at RenaultS.A, with various positions in Europe. Member of Group ExecutiveCommittee (since 2002).

Håkan Karlsson 42 President ofVolvo Bus Corporation. President of Volvo Logistics 2000-2003.Member of Group Executive Committee since June 1, 2003. 

Tony Helsham 50 President of VolvoConstruction Equipment (since 2000).  President and CEO ofEuclid Hitachi Heavy Equipment (1995-1998). President ofVolvo Construction Equipment Korea, (1998-2000). Member of GroupExecutive Committee (since 2000). 

Staffan Jufors 52 President of ABVolvo Penta (since 1998). Vice President of Volvo CarCorporation, Olofström (1992-1998). Member of the GroupExecutive Committee (since 1998).

Fred Bodin 57 President of ABVolvo Aero Corporation (since 1997). Senior Vice President of ABVolvo (1993-1997). General Counsel (1988-1997). Member of theGroup Executive Committee (since 1993).

Salvatore L Mauro 43 President ofVolvo Financial Services (since 2001). President of Volvo CarFinance Europe (1999-2001). Vice President and CFO Volvo CarFinance Inc. (1993-1996). Member of the Group Executive Committee(since 2001).

Lars-Göran Moberg 60 President ofVolvo Powertrain (since 2000). Member of the Group ExecutiveCommittee (since 2001).

Stefan Johnsson 44 Senior VicePresident of AB Volvo and CFO of the Volvo Group (since 1998).President of Volvo Group Finance Sweden (1994–1998). Memberof Group Executive Committee (since 1998), responsible foreconomy, finance, strategic matters and business development. 

Eva Persson 51 Senior VicePresident of AB Volvo and General Counsel of the Volvo Group (since1997). Member of Group Executive Committee (since 1997),responsible for legal, tax and security matters. 

Per Löjdquist 55 Senior VicePresident of AB Volvo (since 1997), responsible for corporatecommunications and investor relations. Member of the GroupExecutive Committee (since 1997).

Karl-Erling Trogen 58 Senior VicePresident of AB Volvo. President of Volvo Truck Corporation (1994-2000).President of Volvo Trucks North America (1991–1994). Memberof the Group Executive Committee (since 1994).

**6.B.Compensation**

See note 32 to Volvo’sconsolidated financial statements for additional informationconcerning the compensation of the company’s directors andexecutive officers.

**6.C.Board Practices**

Volvo has service contracts withthe members of the Group Executive Committee and certain othersenior executives that provide for benefits on termination ofemployment that are customary in Sweden, such as severancepayments. The rules governing severance payments provide that,when employment is terminated by the Company, an employee isentitled to severance pay equal to the employee’s monthlysalary for a period of 12 or 24 months, depending on age at dateof severance. In certain contracts, replacing contracts concludedearlier, an employee is entitled to severance payments amountingto the employee’s monthly salary for a period of 30 to 42months. In agreements concluded after the spring of 1993,severance pay is reduced, in the event the employee gainsemployment during the severance period, in an amount equal to 75%of income from new employment. 

Leif Johansson has twelve monthsnotice of termination from AB Volvo and six months on his owninitiative. If Leif Johansson’s employment is terminated byAB Volvo, he is entitled to a severance payment equal to twoyears’ salary, plus variable salary. The severance paymentwill be adjusted for any income after the termination of hiscontract with Volvo.

AB Volvo does not provide itsboard members with any pension or retirement benefits. 

For details regarding the time ofappointments for the members of the board and the members of theGroup Executive Committee, please refer to "– 6.A.– Directors and Senior Management" above. The membersof the board are appointed annually by the ordinary generalmeeting of the shareholders and their respective term of officeis until the next ordinary general meeting of the shareholdershas been held. This does not apply to employee representativeswho are appointed by their respective trade unions for a perioddecided by the trade unions. 

**6.D.Employees**

The number of employees in Volvoas of December 31, 2003, was 75,740.

The following table sets forth theapproximate number of employees, by business area, at December 31,2001, 2002 and 2003:

|                                                                                                              | 2001   | 2002   | 2003   |
|-------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Trucks........................................                             | 44,180 | 43,470 | 46,900 |
| Buses...................................................... | 6,230  | 6,660  | 6,680  |
| Construction        Equipment................................                       | 7,780  | 8,410  | 9,280  |
| Volvo        Penta.............................................      | 1,370  | 1,410  | 1,440  |
| Volvo        Aero        ..................................                      | 4,040  | 3,660  | 3,440  |
| Financial        Services.......................................           | 1,080  | 1,060  | 1,060  |
| Other        operations......................................                 | 6,240  | 6,490  | 6,940  |
| Total, as reported        .......................................          | 70,920 | 71,160 | 75,740 |

**** 

The following table sets forth theapproximate number of employees, by geographic area, at December31, 2001, 2002 and 2003:

|                                                                                                              | 2001   | 2002   | 2003   |
|-------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Europe....................................................     | 52,150 | 52,550 | 55,500 |
| North America...........................................                | 12,670 | 12,440 | 12,270 |
| South America...........................................                | 2,090  | 2,020  | 2,640  |
| Asia....................................................... | 2,550  | 2,590  | 3,710  |
| Other markets...........................................                | 1,460  | 1,560  | 1,620  |
| Total, as reported.......................................                  | 70,920 | 71,160 | 75,740 |

**** 

In accordance with customarySwedish practices, factory workers in Sweden belong to unionswithin the Swedish Trade Union Confederation and office workersbelong to unions within the Federation of Salaried Employees inIndustry and Services. Wages and general working conditions arenegotiated in collective bargaining at the national level betweenthe employers’ association and the labor union associationwithin each branch of industry. Within the limits established bythese agreements, the Company also negotiates directly with theunion representing its employees. In accordance with the SwedishCo-Determination Act regarding employee participation in decision-making,Volvo is required to negotiate with trade unions regardingimportant changes in operations and in working and employmentconditions. Within the Group, special negotiating committees andother participatory arrangements have been established in each ofthe business areas.

Since 1988, three employeerepresentatives have been appointed to the Board of Directors andtwo others as Deputy Members. See "6.A. – Directors andSenior Management."

**6.E.Share Ownership**

**Board Members********Holdings,June 4, 2004***

Finn Johnsson 2,000 Volvo Series BsharesLars Ramqvist NonePer-Olof Eriksson 6,200 Volvo Series A sharesPatrick Faure 2,000 Volvo Series B sharesHaruko Fukuda NoneTom Hedelius 2,000 Volvo Series A sharesLeif Johansson 42,262 Volvo shares, including 35,538 Series Bshares; 13,866 call options and 50,000 employee stock options.Neelie Kroes NoneLouis Schweitzer 2,000 Volvo Series B sharesKen Whipple NoneLars-Göran Larsson 94 Volvo shares, including 50 Series B sharesOlle Ludvigsson 155 Volvo Shares, including 105 Volvo Series BsharesJohnny Rönnkvist 285 Volvo shares, including 50 Series B shares

**Deputy Board Members**Stellan Rosengren 250 Volvo Series B sharesBerth Thulin 100 Volvo Series B shares

**Executive officers********Holdings, June 4, 2004***

Leif Johansson 42,262 Volvoshares, including 35,538 Series B shares; 13,866 call options and50,000 employee stock options.Lennart Jeansson 31,368 Volvo shares, including 30,431 Series Bshares; 5,952 call options and 25,000 employee stock options.Jorma Halonen None; 25,000 employee stock options.Stefano Chmielewski None; 5,000 employee stock optionsMichel Gigou None; 25,000 employee stock options.Paul Vikner None; 25,000 employee stock optionsHåkan Karlsson 267 Volvo A shares; 5,000 employee stock optionsTony Helsham 25,000 employee stock options.Staffan Jufors 1,348 Volvo shares, including 194 Series B shares;2,661 call options and 25,000 employee stock options.Fred Bodin 3,004 Volvo shares including 2,227 Series B shares; 2,683call options and 25,000 employee stock options.Salvatore L. Mauro 1,003 American Depositary Receipts (ADRs) ofAB Volvo; 25,000 employee stock options. Lars-Göran Moberg 5,858 Volvo shares, including 5,652 Series Bshares; 1,381 call options and 25,000 employee stock options.Stefan Johnsson 75 Series A shares; 3,706 call options and 25,000employee stock optionsPer Löjdquist 5,398 Volvo shares, including 2,224 Series Bshares; 2,484 call options and 25,000 employee stock options.Eva Persson 500 Volvo shares, including 248 Series B shares; 2,323call options and 25,000 employee stock options.Karl-Erling Trogen 14,251 Volvo Series B shares; 7,316 calloptions and 25,000 employee stock options.

* The cumulative shareholdings ofthe Board members and executive officers corresponds to less than1% of the votes and shares in the Company. 

**Option Programs.**Volvocurrently has two different types of option programs for seniorexecutives, one call option program and one program for employeestock options. In April 2004, the Annual General Meeting resolvedon a new share-based incentive program for senior executiveswithin the Volvo Group that will replace the present stock optionprogram. Detailed information on the Option Programs and share-basedincentive programs are reported in Note 32 to the consolidatedfinancial statements included in Item 18 of this annual report. 

**Profit sharing and VolvoCompany Pension.** Volvo is a worldwide organization with aglobal profit sharing scheme. The system, Volvo Profit Sharing,comprises approximately 53,000 employees throughout the world.Implementation of the profit sharing system requires that thereturn on the Company's shareholders' equity exceed 10%.

Profit sharing involves a focus onVolvo's success factors: growth, product cycle management andoperational excellence. Because employees will becomeshareholders, their understanding of the role of shareholderswithin the company will increase. Profit sharing also helps tomake Volvo more attractive as an employer to both present andfuture employees. Profit sharing gives employees an additionalincentive to have a favorable impact on earnings and to feel agreater sense of solidarity with Volvo. There were no paymentsfor profit sharing to employees for 2003, 2002 and 2001. 

Since 1995, Volvo has offeredemployees in Sweden an extra pension-savings plan via Volvo's 60-YearFund. Effective in 2000, as a result of the changed conditionsfor pension-savings, this plan was replaced by the Volvo CompanyPension, a defined-contribution pension insurance policy that ispaid for by Volvo. The objective is the same as that of the 60-YearFund: to improve the financial position of employees when theyretire with pension benefits.

**ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.**

**7.A.Major Shareholders**

The shares of AB Volvo are dividedinto two classes, A Shares and B Shares. Each A Share confers onevote per share and each B Share confers one tenth of one vote pershare.

On May 28, 2004, Renault SA wasknown to AB Volvo to be the holder of shares representing 21.0%of the votes and 21.0% of the share capital of AB Volvo, based onthe number of outstanding shares. The holding of Renault SAconsists of 27,720,989 A Shares and 60,583,188 B Shares. Itequals 21.0% of the number of outstanding A Shares and 21.0% ofthe B Shares. The holding of A Shares equals 6.6% of the totalnumber of outstanding shares. The holding of B Shares equals 14.4%of the total number of outstanding shares. 

On May 28, 2004, certain Franklin-Templetonfunds held shares representing 1.6% of the votes and 6.2% of theshare capital of AB Volvo. This holding consists of 26,049,296 BShares equaling 9.1% of the number of outstanding B Shares. Theholding of B Shares equals 6.2% of the total number ofoutstanding shares. 

On May 28, 2004, SHB held sharesrepresenting 6.1% of the votes and 2.5% of the share capital ofAB Volvo. This holding consists of 9,767,708 A shares and 593,887B Shares equaling 7.4% of the number of outstanding A shares and0.2% of the number of outstanding B Shares. The holding of AShares equals 2.3% of the total number of outstanding shares. Theholding of B Shares equals 0.1% of the total number ofoutstanding shares. 

As far as known to AB Volvo, itwas not directly owned or controlled by another corporation or byany foreign government as of May 28, 2004.

As of June 4, 2004, the directorsand members of the executive committee of AB Volvo, as a group,held 120,418 shares of AB Volvo of which 22,095 were A Shares,representing less than one percent of the nominal share capitaland voting rights in AB Volvo.

On May 28, 2004, there wereapproximately 210,900 shareholders of Volvo’s sharesregistered with the Swedish Securities Register Center, VPC AB("VPC").

**7.B.Related Party Transactions**

The Company and Group Companieshave entered into various transactions in the normal course ofbusiness with Renault S.A. and subsidiaries ("Renault").Amounts due from and due to Renault amounted to SEK 501 millionand SEK 537 million, respectively, at December 31, 2003. Sales toand purchases from Renault amounted to SEK 2,893 million and SEK2,756 million, respectively, for 2003. The sales were mainly fromRenault Trucks and consisted of bus components and spare parts.The purchases was mainly made by Renault VI and consisted oflight trucks. The transactions also comprise a trademark licensefrom Renault for the use of the trademark "Renault".For information regarding the acquisition of Renault V.I. andMack trucks see "Item 4. Information on the Company – 4.A.History and Development of Company". 

The Company and Group Companieshave entered into various transactions in the normal course ofbusiness with Deutz AG ("Deutz"). The agreements coverthe development and long-term supply by Deutz of certain smalland medium size diesel engines. Volvo owns 11% of the capital andvoting rights in Deutz. 

The Company and Group Companieshave entered into various transactions in the normal course ofbusiness with Shanghai Sunwin Bus Corporation ("Sunwin Bus"),Xian Silver Bus Corporation ("Silver Bus"), Jinan HuaWo Truck Corporation ("Hua Wo Truck") and PrévostHolding BV ("Prévost"). All these entities areentities over which Volvo has joint control together with one ormore external parties. Volvo currently owns 50% of the capitaland voting rights of all these joint ventures. Transactions withthese entities mainly comprise of sales of components for bus andtruck manufacturing. Volvo also purchases manufactured trucksfrom Hua Wo Truck. 

**7.CInterests of Experts and Counsel**

Not applicable.

**ITEM 8.FINANCIAL INFORMATION**

**8.A.Consolidated Statements and Other Financial Information****8.A.1** See Item 18.**8.A.2** See Item 18.**8.A.3** See Reports of Independent Auditors, pages F-2through F-3.**8.A.4** We have complied with this requirement.**8.A.5** Not applicable.**8.A.6** See Note 35 to the Financial Statements.

**8.A.7****Litigation.** InMarch 1999, an FH 12 Volvo truck was involved in a fire in theMont Blanc tunnel. The tunnel suffered considerable damage fromthe fire, which continued for 50 hours. 39 people lost theirlives in the fire, and 34 vehicles were trapped in the tunnel. Itis still unclear what caused the fire. The Mont Blanc tunnel wasre-opened for traffic in 2002. An expert group was appointed bythe Commercial Court in Nanterre, France, to investigate thecause of the fire and the losses it caused. At present, it is notpossible to anticipate the result of this on-going investigationor the result of other French legal actions in progress regardingthe fire. The investigating magistrate appointed to investigatepotential criminal liability for the fire issued its final orderand all parties previously placed under investigation, includingVolvo Truck Corporation, have been sent to trial forunintentional manslaughter. It is expected that the trial willtake place in 2005.

A claim was filed with theCommercial Court in Nanterre by the insurance company employed bythe French tunnel operating company against certain Volvo Groupcompanies and the trailor manufacturer in which compensation forthe losses claimed to have been incurred by the tunnel operatingcompany was demanded. The claimant requested that the Courtpostpone its decision until the expert group has submitted itsreport. The Court of Nanterre has since then declinedjurisdiction in favour of the civil Court of Bonneville beforewhich several other claims had been filed in connection with thismatter. As a result, the Court of Bonneville is likely ultimatelyto rule on all civil liability claims filed in France againstVolvo Group companies in connection with the Mont-Blanc tunnelfire. Volvo Group companies are also involved in proceedingsregarding this matter before courts in Aosta, Italy and Brussels,Belgium. Although the total sums claimed are substantial, Volvois unable to determine the ultimate outcome of the litigationreferred to above.

AB Volvo and Renault SA have adispute regarding the final value of acquired assets andliabilities in Renault V.I. and Mack. This process could resultin an adjustment in the value of the transfer. Any suchadjustment will affect the amount of acquired liquid funds andVolvo's reported goodwill amount. The outcome of this disputecannot be determined with certainty. However, Volvo believes thatthe outcome will not lead to an increase in goodwill. 

Volvo is involved in a number ofother legal proceedings incidental to the normal conduct of itsbusinesses. Volvo does not believe that any liabilities relatedto such proceedings are likely to be, in the aggregate, materialto the financial condition of the Group. 

**8.A.8****Dividend policy.**For a description of the Company’s dividend policy, see"Item 3. Key Information – 3.A. Selected Financial Data."

**8.B.Significant Changes**

None

**ITEM 9.THE OFFER AND LISTINGS.**

**9.A.Offer and Listing Details****9.A.1.** Not applicable.**9.A.2.** Not applicable.**9.A.3.** Not applicable.

**9.A.4**

The table below sets forth, forthe periods indicated, the high and low closing sales prices inSEK for A shares and B shares traded on the Stockholmsbörsenand in U.S. dollars for the ADSs traded on NASDAQ. Each ADSrepresents one B Share. The data below reflects price and volumeinformation for trades completed by members of the Stockholmsbörsenduring the day as well as for inter-dealer trades completed offthe Stockholmsbörsen and certain inter-dealer trades completedduring trading on the previous business day. 

|                                                              | **A shares**                    | **B shares**                    | **ADSs**        |
|-------------------------------------------------------------------|---------------------------------|---------------------------------|-----------------|
|                                                              | **High**                        | **Low**                         | **High**        | **Low** | **High** | **Low** |
|                                                              | **(SEK per        Share)** | **(SEK per        Share)** | **($ per ADS)** |
| **Annual information                for the past five years**     |                            |                            |            |   |   |   |
| 2003                                                              | 216                             | 130.5                           | 225             | 136 | 30.62 | 16.03 |
| 2002                                                              | 201                             | 117                             | 209.5           | 124 | 20.90 | 13.40 |
| 2001                                                              | 191.5                           | 114.5                           | 198             | 121 | 20.13 | 11.42 |
| 2000                                                              | 234                             | 137                             | 241             | 138 | 27.81 | 13.69 |
| 1999                                                              | 266                             | 184                             | 268.5           | 190 | 32.25 | 24.00 |
|                                                              |                            |                            |            |   |   |   |
| **Quarterly                information for the past two years**   |                            |                            |            |   |   |   |
| **2004**                                                          |                            |                            |            |   |   |   |
| First Quarter                                                     | 248.5                           | 210                             | 258.5           | 220.5 | 34.43 | 30.36 |
| **2003**                                                          |                            |                            |            |   |   |   |
| First Quarter                                                     | 160.5                           | 130.5                           | 167.5           | 136 | 19.40 | 16.03 |
| Second Quarter                                                    | 169                             | 138                             | 177.5           | 145 | 22.88 | 17.39 |
| Third Quarter                                                     | 205                             | 164.5                           | 213.5           | 172 | 25.83 | 21.80 |
| Fourth Quarter                                                    | 216                             | 169.5                           | 225             | 179.5 | 30.62 | 24.03 |
| **2002**                                                          |                            |                            |            |   |   |   |
| First Quarter                                                     | 207.5                           | 152                             | 216             | 159.5 | 20.60 | 14.65 |
| Second Quarter                                                    | 201                             | 164.5                           | 209.5           | 171 | 20.75 | 17.72 |
| Third Quarter                                                     | 187                             | 118.5                           | 194             | 124 | 20.90 | 13.65 |
| Fourth Quarter                                                    | 166                             | 117                             | 173.5           | 124 | 19.18 | 13.40 |
|                                                              |                            |                            |            |   |   |   |
| **Monthly                information for most recent six months** |                            |                            |            |   |   |   |
| May 2004                                                          | 254.5                           | 232                             | 265             | 233 | 34.69 | 32.00 |
| April 2004                                                        | 265                             | 241.5                           | 270.5           | 250 | 34.89 | 33.00 |
| March 2004                                                        | 248.5                           | 216.5                           | 258.5           | 225 | 33.69 | 30.36 |
| February 2004                                                     | 238                             | 214                             | 248.5           | 222 | 34.21 | 31.17 |
| January 2004                                                      | 239                             | 210                             | 252             | 220.5 | 34.43 | 30.81 |
| December 2003                                                     | 215                             | 204                             | 225             | 214.5 | 30.62 | 28.98 |

Fluctuations in the exchange ratebetween the Swedish Kronor and the U.S. dollar will affectthe U.S. dollar equivalent of the Swedish Kronor price ofthe shares on the Stockholmsbörsen.

**Price Information on the LondonStock Exchange.**The table below sets forth for the periodsindicated the high and low sale prices for the B shares, on theLondon Stock Exchange:

|                                                      | High                                  | Low          |
|-----------------------------------------------------------|---------------------------------------|--------------|
|                                                      | (In pounds        sterling per share) |
| **Annual        information for the past five years**     |                                  |         |
| 2003                                                      | £15.50                          | £9.93  |
| 2002                                                      | £14.61                          | £8.61  |
| 2001                                                      | 210.39                                | 124.04       |
| 2000                                                      | 238                                   | 138.5        |
| 1999                                                      | 265.5                                 | 186          |
|                                                      |                                  |         |
| **2004**                                                  |                                  |         |
| First        quarter                                      | £18.13                          | £18.13 |
|                                                      |                                  |         |
| **2003**                                                  |                                  |         |
| First        quarter                                      | £13.30                          | £9.93  |
| Second        quarter                                     | £13.80                          | £13.80 |
| Third        quarter                                      | £15.50                          | £15.16 |
| Fourth        quarter                                     | £15.17                          | £15.17 |
|                                                      |                                  |         |
| **2002**                                                  |                                  |         |
| First        quarter                                      | 199.5                                 | 182.5        |
| Second        quarter                                     | £14.12                          | £10.65 |
| Third        quarter                                      | £13.67                          | £8.71  |
| Fourth        quarter                                     | £12.67                          | £8.61  |
|                                                      |                                  |         |
| **Monthly        information for most recent six months** |                                  |         |
| May        2004                                           | -                                     | -            |
| April        2004                                         | £19.20                          | £19.20 |
| March        2004                                         | £18.13                          | £18.13 |
| February        2004                                      | £17.65                          | £17.57 |
| January        2004                                       | -                                     | -            |
| December        2003                                      | -                                     | -            |

**9.A.5.**Not applicable.

**9.A.6.**Not applicable.

**9.A.7.**Not applicable.

**9.B.Plan of Distribution**

Not applicable.

**9.CMarket****s**

The principal market for bothVolvo’s A and B Shares is the Stockholmsbörsen. Volvo’sA and B Shares are also traded on the London, Frankfurt, Düsseldorfand Hamburg Stock Exchanges. Since December 1984, ADS’srepresenting AB Volvo’s B Shares (prior to January 1, 1993,Non-Restricted B Shares) have been traded in the United Statesthrough Nasdaq. These American Depositary Shares are evidenced byAmerican Depositary Receipts ("ADRs") issued byCitibank, N.A., as depositary, and are traded under the symbol"VOLVY". Each ADS outstanding represents one B Sharedeposited with Citibank. Citibank has advised Volvo that, as ofDecember 31, 2003, there were 8.0 million ADS’s outstandingand 4,008 record holders. On the basis of this information, theADS’s held on such date in the United States representedapproximately 2% of AB Volvo’s outstanding B Shares. InOctober 2003, the Board of Directors of AB Volvo decided to applyfor a delisting of the Volvo share from the stock exchanges inFrankfurt, Düsseldorf and Hamburg. 

AB Volvo believes that there hasalso been very limited over-the-counter market in the UnitedStates for its A and B Shares.

Trading on the Stockholmsbörsencontinues until 5:30 P.M. each business day. In addition toofficial trading on the Exchange, there is also trading off theExchange during official trading hours. The Stockholmsbörsenpublishes a daily Official List, which includes the volume ofrecorded transactions in each listed stock, together with theprices of the highest and lowest recorded trades of the day. TheOfficial List reflects price and volume information for tradescompleted by members on the floor during the day, as well as forinter-dealer trades completed off the floor and certain inter-dealertrades completed on the floor during the previous business day.

The Annual General Meeting ofshareholders authorized the Board of Directors to repurchase andtransfer Company shares as follows. The decision concerns anauthorization of the Board to decide on the acquisition and/ortransfer of Company shares and means that both Series A andSeries B shares may be acquired and/or transferred. The Companymay acquire shares through trading on a stock exchange or anotherregulated market in which the Company’s shares are listed.However, the Company is not allowed to own more than 10% of thetotal number of shares. For the purpose of financing companyacquisitions, transfer of shares held by the Company may occurthrough an offering directed to all shareholders. 

The purpose of allowing the Boardto repurchase the Company’s shares is to be able tocontinuously adapt the capital structure to the Company’sneed for capital and thereby contribute to increased shareholdervalue and to enable the Company to transfer shares in conjunctionwith the fulfillment of its obligations in accordance withalready decided incentive programs or in conjunction withfinancing any company acquisition. 

In November 2003, Volvo obtainedan exemption from Nasdaq from the shareholder approvalrequirements pursuant to Nasdaq Marketplace Rule 4350(i)(1)(A)with respect to certain equity compensation plans.

**9.DSelling Shareholders******Not applicable.

**9.EDilution******Not applicable

**9.FExpenses of the Issue******Not applicable.

**ITEM 10.ADDITIONAL INFORMATION**

**10.AShare capital******Not applicable.

**10.BMemorandum and articles of association**

AB Volvo is registered in theSwedish Companies Register under the number 556012-5790. AB Volvo’scorporate purposes are to concentrate on the following productareas: transportation, food processing, energy and finance (withthe exception, however, of activities that are subject to therelevant law on banking activities and credit market companies),management of real estate, goods and chattels and otheroperations associated with these activities. Set forth below is asummary of certain material provisions of AB Volvo’sArticles of Association and Swedish company legislation. Thisdescription does not purport to be complete. 

According to the Articles ofAssociation, each Class A Share confers one vote per share andeach Class B Share confers one-tenth of one vote per share. Inall other respects, AB Volvo’s Class A and B shares rankequally. Notice of the annual ordinary general meeting ofshareholders or an extraordinary meeting of shareholders at whicha proposal for a change of the Articles of Association will beconsidered must be given not less than four or more than sixweeks prior to the meeting. Notice of any other extraordinarymeetings of the shareholders must be given not less than two normore than six weeks prior to the meeting. In order to be entitledto attend and vote at a general meeting of shareholders, ashareholder must be registered in the register of shareholdersten days prior to the date of the meeting. The Articles ofAssociation provide that the shareholder must give notice to ABVolvo of the intention to attend the meeting not later than thedate specified in the notice convening the meeting (a date notearlier than the fifth weekday preceding the meeting). Ashareholder may attend and vote at the meeting in person or byproxy. A person designated in the register as a nominee (includingthe depositary of the ADRs) is not entitled to vote at a generalmeeting, nor is a beneficial owner whose share is registered inthe name of a nominee (including the depositary of the ADRs)unless the beneficial owner first arranges to have such owner’sown name entered in the register of shareholders. 

According to the Articles ofAssociation the share capital of AB Volvo is comprised of aminimum of SEK 1,900 million and not more than SEK 7,600 million.Each share has a par value of SEK 6.

Apart from specially appointedmembers and deputy members, the Board of AB Volvo is to consistof not less than six and not more than twelve members with notmore than the same number of deputies. Members and deputy membersare to be elected annually at the ordinary General Meeting of theshareholders for the time up to and inclusive of the nextOrdinary Meeting of the Shareholders. 

According to the Swedish CompaniesAct, a member of the board of directors and the managing directormay not take part in matters regarding agreements, litigation orother legal proceedings between the director and the company,between the company and third parties where the director has amaterial interest in the matter which may conflict with theinterests of the company, or agreements between the company and alegal entity which the director may represent, eitherindividually or together with any other person. The directors maynot vote compensation to themselves or any members of the boardof directors. 

The board members are charged withthe organization of the company and the management of the company’soperations and the managing director is charged with the day-to-daymanagement of the company in accordance with any guidelines andinstructions provided by the board of directors. The managingdirector thus has borrowing powers only to the extent suchborrowing is part of the day-to-day management of the company andin accordance with any guidelines and instructions provided bythe board of directors. 

Under the Swedish Companies Act,the annual general meeting of the shareholders shall be heldwithin six months of the end of each financial year. The annualreport and the audit report, and where the company is a parentcompany, the consolidated annual report and the audit report onthe group shall be presented at such meeting. At the meetingresolutions shall be passed with respect to (i) adoption of theincome statement and the balance sheet, (ii) dispositions of thecompany’s profit and loss according to the adopted balancesheet, (iii) discharge from liability for the members of theboard and managing director and (iv) other matters whichaccording to the Swedish Companies Act or the articles ofassociation rest upon the general meeting for resolution. 

Under Swedish law, only an annualgeneral meeting of shareholders may authorize the payment ofdividends, which may not exceed the amount recommended by theBoard of Directors, except that in the event a demand is made byholders of at least 10% of the total number of sharesoutstanding, a dividend of at least 50% of the net profits forthe fiscal year remaining after certain deductions and withcertain limitations must be declared. Under Swedish law, nointerim dividends may be paid in respect of any fiscal period forwhich audited financial statements of the Company have not beenadopted at the annual general meeting of shareholders of theCompany. In a decision to issue new shares shall be specifiedfrom which time the new shares are entitled to receive dividends.The right to receive dividends shall, however, commence no laterthan for the fiscal year during which the shares shall have beenfully paid. Any person entered in the share register or in a listpursuant to Chapter 3, s. 12 of the Swedish Companies Act on thestipulated recording date shall be deemed to be entitled toreceive a dividend, and, in the event of a bonus issue, newshares due to the holder and to exercise the shareholder’spreferential right to take part in the issue. The right toreceive a dividend is time-barred ten years after the decision bythe annual general meeting of the shareholders. When said periodhas lapsed, the Company is entitled to the dividend in question. 

Under the Swedish Companies Act,resolutions at the general meeting of the shareholders arenormally passed by a simple majority of votes cast. Exceptionsinclude, but are not limited to: (i) resolutions to waiveshareholder preferential rights in connection with an issue or toreduce the share capital or to approve a merger, which require aqualified two-thirds majority of the votes cast as well as atleast two-thirds of the shares represented at the generalmeeting; (ii) resolutions which restrict the transferability ofshares, or limit the number of shares in respect of which asingle shareholder may vote, or which deal with certain otherspecial matters, in which case a minimum quorum and a largermajority, or in some cases unanimity, is required; (iii)resolutions which amend the Articles of Association in otherrespects, for which a majority consisting of at least two-thirdsof the shares represented at the meeting and of the votes cast isrequired; (iv) resolutions where under the legal position ofcertain shares would be adversely changed for which, in additionto (iii) above, the approval of all holders of such sharesrepresented at the meeting and representing at least nine-tenthsof all such shares is required; and (v) resolutions where underthe legal position of an entire class of shares would beadversely changed, for which, in addition to (iii) above, theapproval of the holders of at least half of all the shares ofsuch class and of nine-tenths of the shares of such classrepresented at the meeting is required. 

In addition to the quorum rulesabove, the Swedish Companies Act contains certain otherprovisions granting rights to a minority of the shareholders.Such rights, subject to the minority reaching certain minimumnumber, include but are not limited to; (i) the right to have amatter at a general meeting of the shareholders adjourned to aresumed general meeting; (ii) allow the company to institute anaction for damages in favour of the company against a boardmember, the managing director, a shareholder or the auditor; (iii)request that the general meeting declares a dividend in an amountof at least half the sum of the net profit for the financial yearremaining after certain deductions; (iv) request that the boardconvenes an extra ordinary general meeting of the shareholders; (v)request that the County Administrative Board appoints an auditorto take part in the auditing of the company or that the CountyAdministrative Board appoints a special examiner to examine aspecific past period or matter relating to the company. 

A shareholder or proxy for one ormore shareholders may at any general meeting of shareholders,unless the company’s articles of association provideotherwise, cast the full number of votes represented by suchholder’s shares. AB Volvo’s Articles of Association donot prevent the shareholders from casting the full number ofvotes represented by such shareholder’s shares. 

There are no provisions in theArticles of Association limiting foreigners’ right topurchase, own, sell or vote for AB Volvo shares. As a generalrule under Swedish law, AB Volvo shares may be freely sold to andowned by nationals from other countries than Sweden. In somecases of transactions in AB Volvo shares, certain flagging andownership examination rules apply to the transaction,irrespective of the nationality of the parties involved. 

The Swedish Financial InstrumentsTrading Act provides that any person, foreign or Swedish, who hasacquired or transferred shares in a Swedish limited liabilitycompany that has issued shares which are quoted on a securitiesexchange within the European Economic Area or are, without beinglisted, quoted on a securities exchange or an authorized market-placein Sweden, shall within seven days thereafter report in writingthe acquisition or the transfer to the company and the Swedishexchanges and market-places where shares in the company arequoted or, if the shares are not quoted in Sweden, to the SwedishFinancial Supervisory Authority (the FSA), if:

- the acquisition results in        the acquirer’s share of the number of votes for all        shares in the company reaching or exceeding any of the        thresholds 10, 20, 33.33, 50 and 66.67%, or
- the transfer results in the        transferor’s share of the number of votes for all        shares in the company falling below any of the thresholds        described in (1) above. 

In connection with the above,shares owned by persons and companies that are affiliated to orare acting in concert with the acquirer or the transferor shallbe treated as if the shares were the acquirer’s ortransferor’s own. 

It is prevailing market practiceon the Swedish securities market pursuant to self-regulation thatany person, who holds 5% or more of the capital and/or votingrights in a company, that acquires or transfers shares and/orforms of securities that can be converted into or exchanged intoshares in a listed or quoted Swedish limited liability companyshall make an announcement when his holding increases ordecreases above or below 5% of the share capital or the totalnumber of voting rights in the company, as well as above or beloweach subsequent 5% threshold. In addition, any person who holdsless than 30% of the total voting rights in such company and whoacquires shares so that after the acquisition he possesses 30% ormore of the votes in the company, shall make a public offer toacquire all of the outstanding shares in the company. 

**10.CMaterial contracts******None

**10.DExchange controls******There are no Swedish governmental laws, decrees orregulations that restrict the export or import of capital or thataffect the remittance of dividends or other payments to non-residentsof Sweden who hold Volvo shares. In addition, since January 1,1993, there have been no limitations imposed by Swedish law orVolvo’s Articles of Association on the right of non-residentsof Sweden or non-citizens of Sweden to hold or vote Volvo shares.

**10.ETaxation**

**General.**The taxationdiscussion set forth below is intended only as a general summaryand does not purport to be a complete analysis or listing of allpotential tax effects relevant to ownership and disposition of BShares or ADSs represented by ADRs. The statements of UnitedStates and Swedish tax laws set out below are based on the lawsin force as of the date of this Annual Report and may be subjectto changes in United States or Swedish tax law and in the doubletaxation convention or treaty between the United States andSweden, occurring after that date, possibly with retroactiveeffect.

The following summary outlinescertain United States federal income tax consequences and certainSwedish tax consequences to "U.S. Holders". A U.S.Holder is a beneficial owner of ADSs or B Shares who (i) is acitizen or resident of the United States for United Statesfederal income tax purposes, a corporation (or other entitytaxable as a corporation for United States federal income taxpurposes) created or organized in or under the laws of the UnitedStates or of any state thereof (including the District ofColumbia), an estate the income of which is subject to UnitedStates federal income taxation regardless of its source, or atrust if a court within the United States is able to exerciseprimary supervision over its administration and one or more U.S.persons have the authority to control all of the substantialdecisions of the trust; and (ii) holds the ADSs or B Shares ascapital assets. If a partnership (including for this purpose anyentity treated as a partnership for United States federal incometax purposes) holds ADSs or B Shares, the tax treatment of apartner generally will depend upon the status of the partner andthe activities of the partnership. A partner in a partnershipthat holds ADSs or B Shares is urged to consult its tax advisorregarding the specific tax consequences of the ownership of theADSs or B Shares.

Because this summary is notexhaustive of all possible tax considerations (such as situationsinvolving taxpayers who own (directly, indirectly or byattribution) 10% or more of the voting stock or outstanding sharecapital of Volvo, who are securities broker-dealers, financialinstitutions, banks, insurance companies, U.S. expatriates, tax-exemptentities, or whose functional currency is not the U.S. dollar), U.S.Holders are urged to consult their tax advisors as to the overallUnited States federal, state and local tax consequences, as wellas the overall Swedish tax consequences, of their ownership ofADSs or B Shares. In particular, U.S. Holders are urged toconsult their tax advisors concerning whether they are eligiblefor benefits under the Treaty (as defined below). Other holdersof ADSs or B Shares are also urged to consult their own taxadvisors as to the overall tax consequences of their ownership ofsuch ADSs or B Shares.

For the purposes of both theconvention between the United States of America and Sweden forthe avoidance of double taxation and the prevention of fiscalevasion with respect to taxes on income, as amended (the "Treaty"),and the United States Internal Revenue Code of 1986, as amended (the"Code"), U.S. Holders of ADSs will be treated as theowners of the underlying B Shares that are represented by suchADSs. 

**Taxation of Dividends.** ForUnited States federal income tax purposes, the gross amount ofdividends paid (including any Swedish withholding tax thereon) toU.S. Holders of ADSs or B Shares will be taxed as ordinarydividend income to such Holders to the extent paid out of thecurrent or accumulated earnings and profits of Volvo.Distributions in excess of Volvo’s current and accumulatedearnings and profits will be treated first as a tax-free returnof capital to the extent of the U.S. Holder’s tax basis inthe ADSs or B Shares, and to the extent in excess of adjusted taxbasis, will be taxable as capital gain from a sale or exchange ofsuch ADSs or B Shares. Dividends paid by Volvo will not beeligible for the dividends received deduction generally allowedto U.S. corporate shareholders with respect to dividends receivedfrom other U.S. corporations. The amount of any dividend thatwill be included in gross income will be the U.S. dollar value ofthe payment calculated by reference to the spot rate in effect ofthe date of receipt by the U.S. Holder in the case of B Shares (orthe date of receipt by the Depositary in the case of ADSs)regardless of whether the payment is in fact converted into U.S.dollars. A US Holder of B Shares who converts kronor into U.S.dollars on the date of receipt generally should not recognize anyexchange gain or loss. A U.S. Holder who does not convert kronorinto U.S. dollars on the date of receipt generally will have atax basis equal to its U.S. dollar value at the time of receipt.Exchange gain or loss, if any, recognized by a U.S. Holder on asubsequent conversion or disposition of kronor generally will betreated as U.S. source ordinary income or loss.

In general, under Swedish tax law,dividends paid by a Swedish corporation such as Volvo to non-residentsof Sweden are subject to Swedish withholding tax at a rate of 30%.However, pursuant to the Treaty, dividends paid by Volvo to ashareholder who is (i) treated as a resident of the United Statesfor the purpose of application of the Treaty, (ii) who qualifiesfor treaty benefits under the "Limitation on Benefits"article of the Treaty, and (iii) who does not have a "permanentestablishment" or "fixed place of business" inSweden (or in the case of an individual U.S. Holder who does notperform or has not performed independent personal services inSweden) to which the receipt of the dividend is attributable willgenerally be subject to Swedish withholding tax at a reduced rateof 15%. A U.S. Holder of ADSs or B Shares may be required toprovide documentary evidence that such Holder is entitled to thereduced 15% withholding tax rate under the Treaty. The grossamount of such dividends will be treated as foreign source incomefor United States federal income tax purposes. This may berelevant in determining the Holder’s foreign tax creditlimitation. 

Subject to certain conditions andlimitations, the Swedish withholding taxes described above willbe treated as foreign taxes eligible for credit against suchHolder’s United States federal income tax liability. Therules governing the foreign tax credit are complex. Under theCode, the limitation on foreign taxes eligible for credit iscalculated separately with respect to "passive income",or in the case of certain Holders "financial services income".The consequences of the separate limitation calculation willdepend on the nature and sources of each Holder’s income. Inlieu of claiming a credit, a U.S. Holder who itemizes deductionsmay elect to deduct against income all of such Holder’sforeign income taxes in the taxable year. A deduction, however,does not reduce taxes on a dollar-for-dollar basis like a credit,but the deduction for foreign taxes paid is not subject to thesame limitations as those applicable to the foreign tax credit.The United States Treasury has expressed concern that parties towhom ADSs are released may be taking actions that areinconsistent with the claiming of foreign tax credits for U.S.Holders of ADSs. Accordingly, the analysis of the creditabilityof Swedish withholding taxes could be affected by future actionsthat may be taken by the United States Treasury. Each U.S. Holderis urged to consult its own tax advisor concerning whether theHolder is eligible for benefits under the Treaty, and whether,and to what extent, a foreign tax credit will be available. 

**Recent U.S. Tax Law ChangesApplicable to Individuals.**Under 2003 U.S. tax legislation,certain U.S. Holders (including individuals) are eligible forreduced rates of U.S. federal income tax (currently a maximum of15%) in respect of "qualified dividend income" receivedin taxable years beginning after December 31, 2002 and beginningbefore January 1, 2009. For this purpose, qualified dividendincome generally includes dividends paid by non-U.S. corporationsif, among other things, certain minimum holding periods are metand either (i) the shares (or ADSs) with respect to which thedividend has been paid are readily tradable on an establishedsecurities markets in the United States or (ii) the non-U.S.corporation is eligible for the benefits of a comprehensive U.S.income tax treaty (such as the Treaty) which provides for theexchange of information. Volvo currently believes that dividendspaid with respect to its ADSs and B Shares will constitutequalified dividend income for U.S. federal income tax purposes,provided the individual U.S. Holders of its ADSs or B Shares meetcertain requirements. Some of the eligibility requirements fornon-U.S. corporations are not entirely certain, however, andfurther guidance from the United States Internal Revenue Service(the "IRS") is anticipated. In addition, the IRS isexpected to issue certification procedures in 2004 whereby a non-U.S.corporation will be required to certify as to the eligibility ofits dividends for the reduced United States federal income taxrates.

**Tax on Sale or Exchange.**For United States federal income tax purposes, a U.S. Holdergenerally will recognize capital gain or loss on any sale orexchange of ADSs or B Shares in an amount equal to the differencebetween the U.S. dollar value of the amount realized on the saleor exchange and the U.S. Holder’s adjusted tax basis (determinedin U.S. dollars) in the ADSs or B Shares. This capital gain orloss will be U.S. source income or loss and will be treated as along-term capital gain or loss if the U.S. Holder’s holdingperiod in the ADSs or B Shares exceeds one year. Thedeductibility of capital losses is subject to significantlimitations. In the case of a U.S. Holder who is an individual,capital gains generally will be subject to United States federalincome tax at preferential rates if specified minimum holdingperiods are met. 

The deposit and withdrawal of BShares in exchange for ADSs by a U.S. Holder under the depositagreement will not be subject to United States federal income tax.

In general, under the Treaty, ashareholder who is (i) treated as a resident of the United Statesfor the purpose of application of the Treaty, (ii) who qualifiesfor treaty benefits under the "Limitation on Benefits"article of the Treaty, and (iii) who does not have a "permanentestablishment" or "fixed place of business" inSweden (or in the case of an individual U.S. Holder who does notperform or has not performed independent personal services inSweden) to which the holding of the ADSs or B Shares isattributable and (iv) who was not an individual resident ofSweden within ten years preceding the disposition of the ADSs orB Shares will not be subject to Swedish tax on any capital gainderived from the sale or exchange of ADSs or B Shares. Differentrules may apply to a shareholder who is resident in more than onecountry.

**Passive Foreign InvestmentCompany Status.** A non-U.S. corporation will be classified asa Passive Foreign Investment Company (a "PFIC") for anytaxable year if at least 75% of its gross income consists ofpassive income (such as dividends, interest, rents or royalties (otherthan rents or royalties derived in the active conduct of a tradeor business and received from an unrelated person), or gains onthe disposition of certain minority interests), or at least 50%of the average value of its assets consist of assets thatproduce, or are held for the production of, passive income. Volvocurrently believes that it did not qualify as a PFIC for thetaxable year ending December 31, 2003 for United States federalincome tax purposes. If Volvo were to become a PFIC in anytaxable year, the tax on distributions on its ADSs or B Sharesand on any gains realized upon the disposition of ADSs or BShares may be less favorable than as described herein.Furthermore, dividends paid by Volvo would not be "qualifieddividend income" and would be subject to tax at the higherrates applicable to other items of ordinary income. U.S. Holdersshould consult their tax advisors regarding the potentialapplication of the PFIC rules to Volvo.

**Swedish Estate and Gift Taxes.**Under Swedish legislation with regard to estate and gift taxes,the transfer of an ADS or B Share by gift or by reason of thedeath of the owner is subject to Swedish gift or inheritance taxif the donor or decedent is domiciled or resident in Sweden or isa Swedish citizen or is married to a Swedish citizen and has leftSweden less than ten years before the gift transaction or death.If the ADS or B Share was classified among fixed or currentassets of a business activity run in Sweden by the donor ordecedent, the transfer would also be subject to Swedish gift orestate tax as a general rule. Further, transfers by gift would besubject to Swedish gift tax if either the donor or donee is aSwedish legal entity or if the donee is a Swedish citizen. Underthe current convention between Sweden and the United States forthe avoidance of double taxation and the prevention of fiscalevasion with respect to taxes on estates, inheritances and gifts(the "Estate Tax Treaty"), the transfer of an ADS or BShare by a citizen or domiciliary of the United States who is nota Swedish citizen or domiciliary, as defined in the Estate TaxTreaty, by gift or by reason of the death of the owner isgenerally not subject to Swedish gift or inheritance tax, unlesssuch ADS or B Share (1) forms part of the business property of apermanent establishment situated in Sweden or (2) pertains to afixed base situated in Sweden and is used for the performance ofindependent personal services. In cases where the transfer of anADS or B Share by a citizen or domiciliary of the United Stateswho is not a Swedish citizen by gift or by reason of the death ofthe owner is subject to both Swedish and United States estate orgift tax, the Estate Tax Treaty generally provides that theUnited States will allow as a credit (subject to limitations)against United States tax imposed with respect to the transfer anamount equal to the tax paid to Sweden with respect to suchtransfer. In the case where a transfer is subject to estate orgift tax in the United States by reason of the transferor’sdomicile, and subject to Swedish gift or inheritance tax byreason of the transferor’s citizenship, the Estate TaxTreaty requires Sweden to allow a credit for United States taxpaid in respect of such transfer.

**Swedish Taxes on Property.**In general, under the Treaty, a U.S. Holder of ADSs or B Shareswho is a resident, corporation or other entity of the UnitedStates will not be subject to taxes on property (in Sweden,"förmögenhetsskatt") unless such ADSs or B Shares areincluded in a business carried on in Sweden.

**United States InformationReporting Backup Withholding.** Holders of ADSs or B Sharesmay, under certain circumstances, be subject to United Statesinformation reporting requirements and backup withholding at acurrent rate of 28% with respect to dividends paid on or theproceeds from a sale, exchange or redemption of ADSs or B Shares,unless such Holder provides an accurate taxpayer identificationnumber or certificate of foreign status and makes any otherrequired certification, or who is otherwise exempt from backupwithholding. Certain exempt recipients (such as corporations) arenot subject to the information reporting requirements. Any U.S.persons who are required to establish their exempt statusgenerally must provide IRS Form W-9 (Request for TaxpayerIdentification Number and Certification). Non-U.S. holdersgenerally will not be subject to United States informationreporting or backup withholding. However, such holders may berequired to provide certification of non-U.S. status inconnection with payments received in the United States or throughcertain U.S.-related financial intermediaries. Backup withholdingis not an additional tax. Amounts withheld as backup withholdingmay be credited against a Holder’s United States federalincome tax liability. A Holder may obtain a refund of any excessamounts withheld under the backup withholding rules by timelyfiling the approximate claim for refund with the IRS andfurnishing any required information. 

**United States State and LocalTaxes.** In addition to United States federal income tax, U.S.Holders may be subject to United States state and local taxeswith respect to their ADSs or B Shares.

**10.FDividends and paying agents**

Not applicable.

**10.GStatement by experts**

Not applicable.

**10.HDocuments on display**

The documents referred to in thisreport can be read at the U.S. Securities and Exchange Commission’spublic reference facilities at Room 1024, 450 Fifth Street, N.W.,Washington, D.C. 20549 or at the website www.sec.gov.

**10.ISubsidiary Information**

Not applicable. 

**ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Quantitative and qualitativedisclosures about market risk are reported in Note 34 to theconsolidated financial statements included in Item 18 of thedocument.

 

**ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES**

Not applicable.

**PART II******

**ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES**

None. 

**ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USEOF PROCEEDS**

None. 

**ITEM 15.CONTROLS AND PROCEDURES**

(a) *Disclosure Controls andProcedures.*The President and Chief Executive Officer andSenior Vice President and Chief Financial Officer of the VolvoGroup, after evaluating the effectiveness of the Group'sdisclosure controls and procedures (as defined in US Exchange ActRules 13a-15(e)) as of the end of the period covered by this Form20-F, have concluded that, as of such date, the Group'sdisclosure controls and procedures were effective. 

(b) *Internal Control OverFinancial Reporting*. There were no changes in the Group’sinternal control over financial reporting that occurred duringthe year ended December 31, 2003 that have materially affected,or are reasonably likely to materially affect, the Group’sinternal control over financial reporting.

**ITEM 16AAUDIT COMMITTEE FINANCIAL EXPERT**

The Board of Directors hasdetermined that each of Haruko Fukuda, Per-Olof Eriksson and KenWhipple are "audit committee financial expert" asdefined in Item 16A of Form 20-F.

**ITEM 16BCODE OF ETHICS**

The Company has adopted a code ofethics that applies to, inter alia, its Chief Executive and ChiefFinancial Officer. This code of ethics is posted on the Company’swebsite, www.volvo.com, and may be found as follows: From ourmain web page, first click on "our values" and then on"Volvo Code of Conduct".

**ITEM 16CACCOUNTANTS’ FEES AND SERVICES******

PricewaterhouseCoopers AB hasserved as the Company’s independent public auditors for thefinancial years in the two-year period ended December 31, 2003,for which audited financial statements appear in this annualreport on Form 20-F. KPMG served as the Company’sindependent public accountants for the financial year endedDecember 31, 2001, for which audited financial statements appearin this annual report on Form 20-F. The Annual General Meetingelects the auditors for a period of four years. The followingtable presents the aggregate fees for professional services andother services rendered by PricewaterhouseCoopers AB to theCompany in 2002 and 2003.

|                          | 2002                 | 2003    |   |
|-------------------------------|----------------------|---------|--------|
|                          | (In millions of SEK) |
| Audit        Fees (1)         | 63                   | 66      |   |
| Audit-related        Fees (2) | 22                   | 23      |   |
| Tax        Fees (3)           | 43                   | 30      |   |
| All        Other Fees (4)     | 25                   | 11      |   |
| Total        Fees             | **153**              | **130** |   |

 

(1) Audit Fees consist of feesbilled for the annual audit services engagement and other auditservices, which are those services that only the external auditorreasonably can provide, and include the Company’s audit;statutory audits; comfort letters and consents; attest services;and assistance with and review of documents filed with the SEC.

(2) Audit-related Fees consist offees billed for assurance and related services that arereasonably related to the performance of the audit or review ofthe Company’s financial statements or that are traditionallyperformed by the external auditor, and include consultationsconcerning financial accounting and reporting standards; internalcontrol reviews of new systems; review of security controls; duediligence related to acquisitions; accounting assistance andaudits in connection with proposed or completed acquisitions; andemployee benefit plan audits.

(3) Tax Fees include fees billedfor tax compliance services, including the preparation oforiginal and amended tax returns and claims for refund; taxconsultations, such as assistance and representation inconnection with tax audits and appeals, tax advice related tomergers and acquisitions and transfer pricing.

(4) All Other Fees include feesbilled for training; forensic accounting and data system reviews.

 

**PART III**

**ITEM 17.FINANCIAL STATEMENTS**

Not applicable.

**ITEM 18.FINANCIAL STATEMENTS**

The following financial statementsare filed as part of this Annual Report on Form 20-F.

INDEX TO FINANCIAL STATEMENTS

Page

AB VOLVO AND SUBSIDIARIES: Index to Financial Statements F-1Reports of independent auditors: F-2Consolidated Financial Statements: Consolidated Income Statements for the Years Ended December 31, 2001, 2002 and 2003 F-4Consolidated Balance Sheets at December 31, 2001, 2002 and 2003 F-5Consolidated Cash Flow Statements for the Years Ended December 31, 2001, 2002 and 2003 F-6Notes to the Consolidated Financial Statements F-7

**ITEM 19.EXHIBITS**

**1.** Articles of Associationas amended to date (in English translation).****

**2.** Amended and RestatedDeposit Agreement among AB Volvo, Citibank N.A. as depositary andholders of ADSs, dated as of August 12, 1994 (incorporated byreference from an exhibit to Amendment No. 1 to the RegistrationStatement on Form F-6, File No. 33-82222, as filed with theCommission on August 9, 1994) 

**8.** For informationconcerning Volvo’s group structure and significantsubsidiaries, including the name, country of incorporation,proportion of ownership interest and, to the extent different,proportion of voting power held, see "– Note 2 to Volvo’sconsolidated financial statements."

**12.1**Certification of Leif Johansson, President and Chief ExecutiveOfficer of AB Volvo (publ), pursuant to Section 302 of theSarbanes-Oxley Act of 2002. 

**12.2**Certification of Stefan Johnsson, Senior Vice President and ChiefFinancial Officer of AB Volvo (publ), pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002. 

**13.1**Certification pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

**INDEX TO FINANCIALSTATEMENTS**

Page

AB VOLVO AND SUBSIDIARIES: Reports of independent accountants: F-2Consolidated Financial Statements:Consolidated Income Statements for the Years Ended December 31, 2001, 2002 and 2003 F-4Consolidated Balance Sheets at December 31, 2001, 2002 and 2003 F-5Changes in Consolidated Shareholders’ equity for the YearsEndedDecember 31, 2001, 2002 and 2003 F-6Consolidated Cash Flow Statements for the Years Ended December 31, 2001, 2002 and 2003 F-7Notes to the Consolidated Financial Statements F-8

**REPORT OF INDEPENDENT AUDITORS**

To the Board of Directors andShareholders of AB Volvo

We have audited the accompanyingconsolidated balance sheets of AB Volvo and subsidiaries as ofDecember 31, 2003 and 2002, and the related consolidated incomestatements, statements of cash flows and statements of changes instockholders’ equity for each of the two years in the periodended December 31, 2003. These financial statements have beenprepared on the basis of accounting principles generally acceptedin Sweden. The financial statements are the responsibility of theCompany’s management. Our responsibility is to express anopinion on the financial statements based on our audits.

We conducted our audits of thesestatements in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free frommaterial misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing theaccounting principles used and significant estimates made bymanagement, as well as evaluating the overall financialstatements presentation. We believe that our audits provide areasonable basis for our opinion.

In our opinion, the financialstatements referred to above present fairly, in all materialrespects, the consolidated financial position of AB VolvoDecember 31, 2003 and 2002, and the consolidated results of itsoperations for each of the two years in the period ended December31, 2003, in conformity with accounting principles generallyaccepted in Sweden.

As discussed in the AccountingPolicy note to the financial statements, with effect from January1, 2003, the Company adopted RR 22 "Presentation ofFinancial Statements", RR 25 "Segment reporting",RR 27 "Financial instruments: disclosure and presentation"and RR 29 "Employee benefits". The Companyretroactively adopted these standards with the exception of RR 29that was adopted prospectively.

Accounting principles generallyaccepted in Sweden vary in certain significant respects fromaccounting principles generally accepted in the United States ofAmerica. Information relating to the nature and effect of suchdifferences is presented in Note 35 to the financial statements.

 

PricewaterhouseCoopers AB

Göteborg, Sweden

March 14, 2004

**** 

**REPORT OF INDEPENDENT PUBLICACCOUNTING FIRM**

To the Board of Directors andShareholders of AB Volvo

We have audited the accompanyingconsolidated balance sheet of AB Volvo and subsidiaries (theCompany) as of December 31, 2001, and the related consolidatedstatement of income and cash flow for each of the year endedDecember 31, 2001. These consolidated financial statements arethe responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financialstatements based on our audit. 

We conducted our audit inaccordance with standards of the Public Company AccountingOversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.We believe that our audit provides a reasonable basis for ouropinion.

In our opinion, such consolidatedfinancial statements present fairly, in all material respects,the financial position of the Company as of December 31, 2001,and the results of its operations and its cash flows for the yearended December 31, 2001 in conformity with accounting principlesgenerally accepted in Sweden.

Accounting principles generallyaccepted in Sweden vary in certain significant respects fromaccounting principles generally accepted in the United States.Information relating to the nature and effect of such differencesis summarized in Note 35 to the consolidated financial statements.

 

Göteborg, SwedenFebruary 7, 2002 (except as to Note 35 A, which is as of February6, 2003)KPMG

Carl Lindgren*Authorized Public Accountant*

 

Consolidated income statements

| SEK        M               |    | 2001      | 2002      | **2003**      |
|------------------------------------------------|---------|-----------|-----------|---------------|
| **Net        sales**                           | Note 4  | 189,280   | 186,198   | **183,291**   |
| Cost        of sales                           |    | (155,592) | (151,569) | **(146,879)** |
| **Gross        income**                        |    | 33,688    | 34,629    | **36,412**    |
| Research        and development expenses       | (5,391) | (5,869)   | (6,829)   |          |
| Selling        expenses                        |    | (15,766)  | (16,604)  | **(16,866)**  |
| Administrative        expenses                 |    | (6,709)   | (5,658)   | **(5,467)**   |
| Other        operating income and expenses     | Note 5  | (4,096)   | (4,152)   | **(1,367)**   |
| Income        from investments                 |    |      |      |          |
| in        associated companies                 | Note 6  | 50        | 182       | **200**       |
| Income        from other investments           | Note 7  | 1,410     | 309       | **(3,579)**   |
| Restructuring        costs                     | Note 8  | (3,862)   | –    | **–**    |
| **Operating        income (loss)**             | Note 4  | (676)     | 2,837     | **2,504**     |
| Interest        income and similar credits     |    | 1,275     | 1,217     | **1,096**     |
| Interest        expenses and similar charges   |    | (2,274)   | (1,840)   | **(1,888)**   |
| Other        financial income and expenses     | Note 9  | (191)     | (201)     | **(55)**      |
| **Income        (loss) after financial items** |    | (1,866)   | 2,013     | **1,657**     |
| Income        taxes                            | Note 10 | 326       | (590)     | **(1,334)**   |
| Minority        interests in net income (loss) | Note 11 | 73        | (30)      | **(25)**      |
| **Net        income (loss)**                   |    | (1,467)   | 1,393     | **298**       |
| **Net        income (loss) per share, SEK**    |    | (3.50)    | 3.30      | **0.70**      |

 

Consolidated balance sheets

 

| **SEK        M    **                   |           | December 31, 2001 | December 31, 2002 | **December 31, 2003** |
|------------------------------------------------------------|----------------|-------------------|-------------------|-----------------------|
| Assets                                                     |           |              |              |                  |   |   |   |
| Non-current        assets                                  |           |              |              |                  |   |   |   |
| Intangible        assets                                   | Note        12 |              | 17,525            |                  | 17,045 |   | **16,756** |
| Tangible        assets                                     | Note        12 |              |              |                  |   |   |   |
|   Property,        plant and equipment           |           | 33,234            |              | 30,799                |   | **30,640** |   |
|   Assets        under operating leases           |           | 27,101            | 60,335            | 23,525                | 54,324 | **21,201** | **51,841** |
|                                                       |           |              |              |                  |   |   |   |
|                                                       |           |              |              |                  |   |   |   |
|                                                       |           |              |              |                  |   |   |   |
| Financial        assets                                    |           |              |              |                  |   |   |   |
|   Shares        and participations               | Note        13 | 27,798            |              | 27,492                |   | **1,782** |   |
| Long-term        customer-financing receivables            | Note        14 | 26,075            |              | 25,207                |   | **23,448** |   |
|   Other        long-term receivables             | Note        15 | 14,456            | 68,329            | 12,485                | 65,184 | **10,487** | **35,717** |
| Total        non-current assets                            |           |              | 146,189           |                  | 136,553 |   | **104,314** |
| Current        assets                                      |           |              |              |                  |   |   |   |
| Inventories                                                | Note        16 |              | 31,075            |                  | 28,305 |   | **26,459** |
| Short-term        receivables                              |           |              |              |                  |   |   |   |
| Customer-financing        receivables                      | Note        17 | 22,709            |              | 21,791                |   | **22,554** |   |
|   Other        receivables                       | Note        18 | 33,569            | 56,278            | 26,995                | 48,786 | **28,766** | **51,320** |
|                                                       |           |              |              |                  |   |   |   |
|                                                       |           |              |              |                  |   |   |   |
|                                                       |           |              |              |                  |   |   |   |
| Shares        in Scania                                    | Note        13 |              | –            |                  | – |   | **20,424** |
| Marketable        securities                               | Note        19 |              | 13,514            |                  | 16,707 |   | **19,529** |
| Cash        and bank accounts                              | Note        20 |              | 13,869            |                  | 8,871 |   | **9,206** |
| Total        current assets                                |           |              | 114,736           |                  | 102,669 |   | **126,938** |
| **Total        assets**                                    |           |              | 260,925           |                  | 239,222 |   | **231,252** |
| **Shareholders’        equity and liabilities**       |           |              |              |                  |   |   |   |
| Shareholders’        equity                           | Note        21 |              |              |                  |   |   |   |
| Restricted        equity                                   |           |              |              |                  |   |   |   |
|   Share        capital                           |           | 2,649             |              | 2,649                 |   | **2,649** |   |
|   Restricted        reserves                     |           | 12,297            | 14,946            | 14,093                | 16,742 | **12,769** | **15,418** |
|                                                       |           |              |              |                  |   |   |   |
|                                                       |           |              |              |                  |   |   |   |
|                                                       |           |              |              |                  |   |   |   |
| Unrestricted        equity                                 |           |              |              |                  |   |   |   |
|   Unrestricted        reserves                   |           | 71,706            |              | 60,143                |   |   | **56,704** |
|   Net        income (loss)                       |           | (1,467)           | 70,239            | 1,393                 | 61,536 | **298** | **57,002** |
| Total        shareholders’ equity                     |           |              | 85,185            |                  | 78,278 |   | **72,420** |
| Minority        interests                                  | Note        11 |              | 391               |                  | 247 |   | **216** |
| Provisions                                                 |           |              |              |                  |   |   |   |
| Provisions        for post-employment benefits             | Note        22 |              | 14,647            |                  | 16,236 |   | **15,288** |
| Provisions        for deferred taxes                       |           |              | 1,044             |                  | 912 |   | **569** |
|   Other        provisions                        | Note        23 | 17,383            | 33,074            | 15,809                | 32,957 | **14,479** | **30,336** |
|                                                       |           |              |              |                  |   |   |   |
|                                                       |           |              |              |                  |   |   |   |
|                                                       |           |              |              |                  |   |   |   |
| Non-current        liabilities                             | Note        24 |              |              |                  |   |   |   |
|   Bond        loans                              |           | 30,715            |              | 33,870                |   | **33,090** |   |
|   Other        loans                             |           | 14,036            |              | 12,549                |   | **13,584** |   |
|   Other        long-term liabilities             |           | 9,379             | 54,130            | 6,704                 | 53,123 | **4,627** | **51,301** |
|                                                       |           |              |              |                  |   |   |   |
| Current        liabilities                                 | Note        25 |              |              |                  |   |   |   |
|   Loans                                          |           | 36,817            |              | 26,018                |   | **27,418** |   |
|   Trade        payables                          |           | 23,115            |              | 22,214                |   | **24,528** |   |
|   Other        current liabilities               |           | 28,213            | 88,145            | 26,385                | 74,617 | **25,033** | **76,979** |
| **Total        shareholders’ equity and liabilities** |           |              | 260,925           |                  | 239,222 |   | **231,252** |
|                                                       |           |              |              |                  |   |   |   |
| Assets        pledged                                      | Note        26 |              | 3,737             |                  | 3,610 |   | **3,809** |
| Contingent        liabilities                              | Note        27 |              | 10,441            |                  | 9,334 |   | **9,611** |

 

Changes in consolidatedShareholders’ equity

     

|                                             | Share capital | Restricted reserves | Unrestricted reserves | Total share-holders’ equity |
|--------------------------------------------------|---------------|---------------------|-----------------------|----------------------------------|
| **Balance        at December 31, 2000**          | **2,649**     | **13,804**          | **71,885**            | **88,338**                       |
| Cash        dividend                             | —        | —              | (3,356)               | (3,356)                          |
| Net        income                                | —        | —              | (1,467)               | (1,467)                          |
| Effect        of equity method of accounting (1) | —        | 21                  | (21)                  | –                           |
| Transfer        between unrestricted and         |          |                |                  |                             |
| restricted        equity                         | —        | (3,410)             | 3,410                 | –                           |
| Translation        difference                    | —        | 1,850               | (828)                 | 1,022                            |
| Repurchase        of own shares                  | –        | –              | (8,336)               | (8,336)                          |
| New        issue of shares                       | –        | –              | 10,356                | 10,356                           |
| Minimum        liability adjustment for          |          |                |                  |                             |
| post-employment        benefits (2)              | –        | –              | (1,417)               | (1,417)                          |
| Other        changes                             | —        | 32                  | 13                    | 45                               |
| **Balance        at December 31, 2001**          | **2,649**     | **12,297**          | **70,239**            | **85,185**                       |
| Cash        dividend                             | —        | —              | (3,356)               | (3,356)                          |
| Net        income                                | —        | —              | 1,393                 | 1,393                            |
| Effect        of equity method of accounting (1) | —        | 45                  | (45)                  | —                           |
| Transfer        between unrestricted and         |          |                |                  |                             |
| restricted        equity                         | —        | 4,219               | (4,219)               | —                           |
| Translation        difference                    | —        | (2,468)             | 238                   | (2,230)                          |
| Minimum        liability adjustment for          |          |                |                  |                             |
| post-employment        benefits (2)              | —        | —              | (2,542)               | (2,542)                          |
| Other        changes                             | —        | —              | (172)                 | (172)                            |
| **Balance        at December 31, 2002**          | **2,649**     | **14,093**          | **61,536**            | **78,278**                       |
| Cash        dividend                             | —        | —              | (3,356)               | (3,356)                          |
| Net        income                                | —        | —              | 298                   | 298                              |
| Effect        of equity method of accounting (1) | —        | 17                  | (17)                  | —                           |
| Transfer        between unrestricted and         |          |                |                  |                             |
| restricted        equity                         | —        | 1,246               | (1,246)               | —                           |
| Translation        difference                    | —        | (2,587)             | 2,061                 | (526)                            |
| Transition        impact of new accounting       |          |                |                  |                             |
| standards        for                             |          |                |                  |                             |
| post-employment        benefits (3)              | —        | —              | (2,278)               | (2,278)                          |
| Other        changes                             | —        | —              | 4                     | 4                                |
| **Balance        at December 31, 2003**          | **2,649**     | **12,769**          | **57,002**            | **72,420**                       |

1 Mainly associated companies’effect on Group net income, reduced by dividends received.

2 Up to 2002, defined benefitplans for pensions in Volvo’s subsidiaries in the UnitedStates were accounted for in accordance with US GAAP (SFAS 87).In accordance with these rules, a minimum liability adjustmentshould be charged to shareholders‘ equity with an amountthat corresponds to the unfunded part of accrued benefitobligations less unrecognized prior service costs. See further inNote 22.

3 Effective in 2003, Volvo adoptedRR 29 Employee Benefits. See further in Note 1.

 

Consolidated cash-flow statements

 

| **SEK        M    **                                |              |      | 2001    |    | 2002     |        | **2003**     |
|-------------------------------------------------------------------------|-------------------|-----------|---------|---------|----------|-------------|--------------|
| **Operating        activities**                                         |              |      |    |    |     |        |         |
| Operating        income                                                 |              |      | (676)   |    | 2,837    |        | **2,504**    |
| Depreciation        and amortization                                    | Note        12    |      | 9,961   |    | 10,844   |        | **10,169**   |
| Other        items not affecting cash                                   | Note        28    |      | 539     |    | 1,955    |        | **4,929**    |
| Changes        in working capital:                                      |              |      |    |    |     |        |         |
| (Increase)/decrease        in receivables                               |              |      | 2,645   |    | 3,649    |        | **517**      |
| (Increase)/decrease        in inventories                               |              |      | 2,813   |    | 53       |        | **1,433**    |
| Increase/(decrease)        in liabilities and provisions                |              |      | 992     |    | (2,692)  |        | **(1,507)**  |
| Interest        and similar items received                              |              |      | 1,494   |    | 942      |        | **1,437**    |
| Interest        and similar items paid                                  |              |      | (1,862) |    | (1,047)  |        | **(1,160)**  |
| Other        financial items                                            |              |      | (191)   |    | (170)    |        | **(62)**     |
| Income        taxes paid                                                |              |      | (1,572) |    | (1,069)  |        | **(1,165)**  |
| **Cash        flow from operating activities**                          |              |      | 14,143  |    | 15,302   |        | **17,095**   |
|                                                                    |              |      |    |    |     |        |         |
| **Investing        activities**                                         |              |      |    |    |     |        |         |
| Investments        in fixed assets                                      |              | (8,090)   |    | (6,665) |     | **(6,005)** |         |
| Investments        in leasing assets                                    |              | (5,852)   |    | (5,179) |     | **(5,333)** |         |
| Disposals        of fixed assets and leasing assets                     |              | 2,578     |    | 3,162   |     | **2,935**   |         |
| Customer-financing        receivables, net                              | Note        28    | (3,719)   |    | (5,739) |     | **(4,316)** |         |
| Shares        and participations, net                                   | Note        28    | 3,936     | (88)    | (61)    |     |        |         |
|                                                                    |              |      |    |    |     |        |         |
| Acquired        and divested subsidiaries and other business units, net | Note        2, 28 | 13,002    | 1,855   | (159)   | (14,668) | **(39)**    | **(12,819)** |
| Cash        flow after net investments                                  |              |      | 15,998  |    | 634      |        | **4,276**    |
|                                                                    |              |      |    |    |     |        |         |
| **Financing        activities**                                         |              |      |    |    |     |        |         |
| Increase        (decrease) in bond loans and other loans                | Note        28    | 6,164     |    | (111)   |     | **1,868**   |         |
| Loans        to external parties, net                                   | Note        28    | 213       |    | 1,692   |     | **933**     |         |
| Dividend        to AB Volvo shareholders                                |              | (3,356)   |    | (3,356) |     | **(3,356)** |         |
| Repurchase        of own shares                                         |              | (8,336)   | –  | –  |     |        |         |
| Dividends        to minority shareholders                               |              | –    |    | (13)    |     | **(9)**     |         |
| Other                                                                   |              |  132 | (5,183) | 12      | (1,776)  | **63**      | **(501)**    |
| **Change        in liquid funds, excluding translation differences**    |              |      | 10,815  |    | (1,142)  |        | **3,775**    |
| Translation        difference on liquid funds                           |              |      | 600     |    | (663)    |        | **(618)**    |
| **Change        in liquid funds**                                       |              |      | 11,415  |    | (1,805)  |        | **3,157**    |
|                                                                    |              |      |    |    |     |        |         |
| **Liquid        funds, January 1**                                      |              |      | 15,968  |    | 27,383   |        | **25,578**   |
| **Liquid        funds, December 31**                                    |              |      | 27,383  |    | 25,578   |        | **28,735**   |

The effects of major acquisitionsand divestments of subsidiaries in each year have been excludedfrom other changes in the balance sheet in the cash-flowstatement. The effects of currency movements in translation offoreign Group companies have also been excluded since theseeffects do not affect cash flow. Liquid funds include cash andbank balances and marketable securities. 

General information

Amounts in SEK M unless otherwisespecified. The amounts within parentheses refer to the twopreceding years; the first figure is for 2002 and the second for2001.

Note 1 Accounting principles

The consolidated financialstatements for AB Volvo (the Parent Company) and its subsidiarieshave been prepared in accordance with generally acceptedaccounting principles in Sweden (Swedish GAAP). Accountingstandards and interpretations issued by the Swedish FinancialAccounting Standards Council have thereby been applied. SwedishGAAP differs in significant respects from US GAAP, see further inNote 35. 

  In the preparation ofthese financial statements, the company management has madecertain estimates and assumptions that affect the value of assetsand liabilities as well as contingent liabilities at the balancesheet date. Reported amounts for income and expenses in thereporting period are also affected. The actual future outcome ofcertain transactions may differ from the estimated outcome whenthese financial statements were issued. Any such differences willaffect the financial statements for future fiscal periods.

Changes of accounting principlesin 2003 

RR 29 Employee benefits

As of 2003, Volvo has adopted RR29 Employee Benefits in its financial reporting. RR 29 EmployeeBenefits, which was issued by the Swedish Financial AccountingStandards Council in December 2002, conforms in all significantrespects with IAS 19 Employee Benefits issued earlier by theInternational Accounting Standards Committee (IASC). By applyingRR 29, defined-benefit pension plans and health-care benefitplans in all the Group’s subsidiaries are accounted for byuse of consistent principles. In Volvo’s financial reportingup to 2002, such plans have been accounted for by applying thelocal rules and directives in each country. In accordance withthe transition rules of the new standard, a transitionalliability was established as at January 1, 2003, determined inaccordance with RR 29. This transitional liability exceeded theliability recognized as per December 31, 2002, in accordance withearlier principles by approximately SEK 2.3 billion. The excessliability consequently was recognized as at January 1, 2003, asan increase in provisions for pensions and other post-employmentbenefits and a corresponding decrease in shareholders’equity. No additional deferred tax asset was recognized in theGroup’s balance sheet as at January 1, 2003, attributable tothe transition liability. In accordance with the transition rulesof the new standard, Volvo has not restated figures for earlieryears in accordance with the new accounting standard. Because theGroup’s subsidiaries up to 2002 have been applying localrules in each country, the impact of adopting RR 29 as of 2003differs for different countries of operations. Compared withearlier accounting principles in Sweden, the adoption of RR 29has mainly had the effect that plan assets invested in Volvo’sSwedish pension foundation as from 2003 are accounted for at along-term expected return instead of being revalued each closingdate to fair value. For Volvo’s subsidiaries in the US,differences relate to accounting for past service costs and thefact that RR 29 does not include rules about minimum liabilityadjustments.

RR 27 Financial instruments:Disclosure and presentation

Effective in 2003, Volvo hasadopted RR 27 Financial Instruments: Disclosure and Presentation,which conforms to a large extent with IAS 32 issued by the IASC.The adoption of RR 27 has affected the balance sheet presentationof certain derivative instruments that are used to managefinancial risks related to financial assets and liabilities. Inaccordance with RR 27, derivative instruments with unrealizedgains are to be presented as assets and derivative instrumentswith unrealized losses are to be presented as liabilities. Inaccordance with Volvo’s earlier accounting principles,derivative instruments used for management of financial assetswere reported as assets and derivative instruments used formanagement of financial liabilities were reported as liabilities.As a consquence of adoption of the presentation principles in RR27, the Volvo Group’s assets at December 31, 2003, increasedby SEK 3.6 billion and the Group’s liabilities increased bythe corresponding amount. In accordance with the transition rulesof RR 27, no restatement has been made of figures for prior years.

  As of 2003, Volvo hasalso adopted RR 22 Presentation of Financial Statements, RR 24Investment Property, RR 25 Segment Reporting — Sectors andGeographical Areas, RR 26 Events after the Balance Sheet Date andRR 28 Government Grants. Certain changes have been made in thestructure and content of the financial information in this annualreport as a result of these new standards. However, the standardslisted above have not resulted in any changes of the measurementof the Group’s financial performance or position.

Future changes of accountingprinciples

Effective in 2005 Volvo will adoptInternational Financial Reporting Standards (IFRS) in itsfinancial reporting. The transition from Swedish GAAP to IFRS isbeing made to implement a regulation applicable to all listedcompanies within the European Union as of 2005. Because revisedIFRS’s are expected to be issued during 2004, the totaleffect of this change of accounting principles cannot bedetermined with certainty. Volvo considers, however, that themost significant effects will pertain to the accounting forfinancial instruments and goodwill. Restatement of figures forprior years will be made in accordance with the requirements ofthe transition rules. During 2003 Volvo has started a number ofprojects aimed at adapting the internal reporting routines to thenew regulation. More detailed information about the IFRStransition effects will be presented in connection with thepublication of the 2004 financial reports. 

Consolidated financial statements

The consolidated financialstatements comprise the Parent Company, subsidiaries, jointventures and associated companies. Subsidiaries are defined ascompanies in which Volvo holds more than 50% of the voting rightsor in which Volvo otherwise has a controlling influence. However,subsidiaries in which Volvo’s holding is temporary are notconsolidated. Joint ventures are companies over which Volvo hasjoint control together with one or more external parties.Associated companies are companies in which Volvo has asignificant influence, which is normally when Volvo’sholding equals to at least 20% but less than 50% of the votingrights.

  The consolidatedfinancial statement have been prepared in accordance with theprinciples set forth in the Recommendation of the SwedishFinancial Accounting Standards Council, RR 1:00, ConsolidatedFinancial Statements and Business Combinations. 

  All businesscombinations are accounted for in accordance with the purchasemethod. 

  Companies that havebeen divested are included in the consolidated financialstatements up to and including the date of divestment. Companiesacquired during the year are consolidated as of the date ofacquisition. 

  Joint ventures arepreferably reported by use of the proportionate method ofconsolidation. A few joint ventures are reported by use of theequity method due to practical reasons. 

  Holdings in associatedcompanies are reported in accordance with the equity method. TheGroup’s share of reported income after financial items insuch companies, adjusted for minority interests, is included inthe consolidated income statement in Income from investments inassociated companies, reduced in appropriate cases byamortization of goodwill. The Group’s share of reportedtaxes in associated companies, is included in Group income taxexpense. 

  For practical reasons,most of the associated companies are included in the consolidatedaccounts with a certain time lag, normally one quarter. Dividendsfrom associated companies are not included in consolidated income.In the consolidated balance sheet, the book value ofshareholdings in associated companies is affected by Volvo’sshare of the company’s net income, reduced by theamortization of goodwill and by the amount of dividends received.

Accounting for hedges

Loans and other financialinstruments used to hedge an underlying position are reported ashedges. In order to apply hedge accounting, the followingcriteria must be met: the position being hedged is identified andexposed to exchange-rate or interest-rate movements, the purposeof the loan/instrument is to serve as a hedge and the hedgingeffectively protects the underlying position against changes inthe market rates. Financial instruments used for the purpose ofhedging future currency flows are accounted for as hedges if thecurrency flows are considered probable to occur. 

Foreign currencies 

In preparing the consolidatedfinancial statements, all items in the income statements offoreign subsidiaries and joint ventures (except subsidiaries inhighly inflationary economies) are translated to Swedish kronorat the average exchange rates during the year (average rate). Allbalance sheet items except net income are translated at exchangerates at the respective year-ends (year-end rate). Thedifferences in consolidated shareholders’ equity arising asa result of variations between year-end exchange rates arecharged or credited directly to shareholders’ equity andclassified as restricted or unrestricted reserves. The differencearising in the consolidated balance sheet as a result of thetranslation of net income, in the income statements, in foreignsubsidiaries’ to Swedish kronor at average rates, and in thebalance sheets at year-end rate, is charged or credited tounrestricted reserves. Movements in exchange rates change thebook value of foreign associated companies. This differenceaffects restricted reserves directly. 

  When foreignsubsidiaries, joint ventures and associated companies aredivested, the accumulated translation difference is reported as arealized gain/loss and, accordingly, affects the capital gain. 

  Financial statementsof subsidiaries operating in highly inflationary economies aretranslated to Swedish kronor using the monetary method. Monetaryitems in the balance sheet are translated at year-end rates andnonmonetary balance sheet items and corresponding incomestatement items are translated at rates in effect at the time ofacquisition (historical rates). Other income statement items aretranslated at average rates. Translation differences are creditedto, or charged against, income in the year in which they arise. 

  In the individualGroup companies as well as in the consolidated accounts,receivables and liabilities in foreign currency are valued atperiod-end exchange rates.

  Gains and lossespertaining to hedges are reported at the same time as gains andlosses of the items hedged. Received premiums or payments forcurrency options, which hedge currency flows in businesstransactions, are reported as income/expense during the contractperiod. 

  Gains/losses onoutstanding currency futures at year-end, which were entered intoto hedge future commercial currency flows, are reported at thesame time as the commercial flow is realized. For other currencyfutures that do not fullfil the criteria for hedge accounting afull market valuation is made on a portfolio basis and arecredited to, or charged against, income. 

  In valuing financialassets and liabilities whose original currency denomination hasbeen changed as a result of currency swap contracts, the loanamount is accounted for translated to Swedish kronor at theperiod-end exchange rate. Unrealized exchange rate gains relatingto swap contracts are reported among short-term receivables andunrealized exchange rate losses relating to swap contracts arereported among current liabilities. 

  Exchange ratedifferences on loans and other financial instruments in foreigncurrency, which are used to hedge net assets in foreignsubsidiaries and associated companies, are offset againsttranslation differences in the shareholders’ equity of therespective companies. 

  Exchange rate gainsand losses on payments during the year and on the valuation ofassets and liabilities in foreign currencies at year-end arecredited to, or charged against, income in the year they arise.The more important exchange rates employed are shown above.

Other financial instruments 

Interest-rate contracts andforward exchange rate contracts are used to change the underlyingfinancial asset and debt structure and are reported as hedgesagainst such assets and debts. 

  Interest-ratecontracts used as part of the management of the Group’sshort-term investments are valued together with these investmentsin accordance with the portfolio method. Provisions are made forunrealized losses in excess of the unrealized gains within theportfolio. 

  Interest-ratecontracts that do not fullfil the criteria of hedge accountingare valued at the balance sheet date at which time provisions forunrealized losses are made. 

Net sales 

The Group’s reported netsales pertain mainly to revenues from sales of goods and services.Net sales are reduced by the value of discounts granted and byreturns. 

  Income from the saleof goods is recognized when significant risks and rewards ofownership have been transferred to external parties, normallywhen the goods are delivered to the customers. If, however, thesale of goods is combined with a buy-back agreement or a residualvalue guarantee, the sale is accounted for as an operating leasetransaction if significant risks of the goods are retained inVolvo. Income from the sale of workshop services is recognizedwhen the service is provided. Rental revenues and interest incomein conjunction with financial leasing or installment contractsare recognized over the contract period.

Research and development expenses 

Effective in 2001, Volvo adoptedRR 15 Intangible Assets. In accordance with the new accountingstandard, expenditures for development of new products,production systems and software shall be reported as intangibleassets if such expenditures with a high degree of certainty willresult in future financial benefits for the company. Theacquisition value for such intangible assets shall be amortizedover the estimated useful life of the assets. Volvo’sapplication of the new rules means that high demands areestablished in order for these development expenditures to bereported as assets. For example, it must be possible to prove thetechnical functionality of a new product or software prior tothis development being reported as an asset. In normal cases,this means that expenditures are capitalized only during theindustrialization phase of a product development project. Otherresearch and development expenses are charged to income asincurred. Expenditures for development of new products,production systems and software before 2001 was expensed asincurred and in accordance with the transition rules noretroactive application of RR 15 was made. 

Warranty expenses 

Estimated costs for productwarranties are charged to operating expenses when the productsare sold. Estimated costs include both expected contractualwarranty obligations as well as expected goodwill warrantyobligations. Estimated costs are determined based upon historicalstatistics with consideration of known changes in productquality, repair costs or similar. Costs for campaigns inconnection with specific quality problems are charged tooperating expenses when the campaign is decided and announced.

Restructuring costs 

Restructuring costs are reportedas a separate line item in the income statement if they relate toa considerable change of the Group structure. Other restructuringcosts are included in Other operating income and expenses. Aprovision for decided restructuring measures is reported when adetailed plan for the implementation of the measures is completeand when this plan is communicated to those who are affected. 

Depreciation, amortization andimpairments of tangible and intangible non-current assets 

Depreciation is based on thehistorical cost of the assets, adjusted in appropriate cases bywrite-downs, and estimated useful lives. Capitalized type-specifictools are generally depreciated over 2 to 8 years. Thedepreciation period for assets under operating leases is normally3 to 5 years. Machinery is generally depreciated over 5 to 20years, and buildings over 25 to 50 years, while the greater partof land improvements are depreciated over 20 years. In connectionwith its participation in aircraft engine projects with othercompanies, Volvo Aero in certain cases pays an entrance fee.These entrance fees are capitalized and amortized over 5 to 10years. Product and software development is normally amortizedover 3 to 8 years.

  The difference betweendepreciation noted above and depreciation allowable for taxpurposes is reported by the parent company and in the individualGroup companies as accumulated accelerated depreciation, which isincluded in untaxed reserves. Consolidated reporting of theseitems is described below under the heading Deferred taxes,allocations and untaxed reserves. 

  Goodwill is includedin intangible assets and amortized over its estimated useful life.The amortization period is 5 to 20 years. The goodwill amountspertaining to Renault Trucks, Mack Trucks, Volvo ConstructionEquipment, Champion Road Machinery, Volvo Aero Services, Prévost,Nova BUS, Volvo Bus de Mexico, Volvo Construction EquipmentKorea, Volvo Aero Norge and Kommersiella Fordon Europa are beingamortized over 20 years due to the holdings’ long-term andstrategic importance. 

  If, at a balance sheetdate, there is an indication that a tangible or intangible non-currentasset has been impaired, the recoverable amount of the asset isestimated. If the recoverable amount is less than the carryingamount, an impairment loss is recognized and the carrying amountof the asset is reduced to the recoverable amount.

Inventories 

Inventories are stated at thelower of cost, in accordance with the first-in, first-out method(FIFO), or net realizable value. 

Liquid funds

Liquid funds include cash and bankbalances and marketable securities. Marketable securities arestated at the lower of cost or market value in accordance withthe portfolio method. Marketable securities consist of interest-bearingsecurities, to some extent with maturities exceeding three months.However, these securities have high liquidity and can easily beconverted to cash. 

Post-employment benefits 

Effective in 2003, Volvo hasadopted RR 29 Employee benefits in accounting for post-employmentbenefits (see "Changes of accounting principles in 2003").In accordance with RR 29, actuarial calculations under theprojected unit credit method should be made for all definedbenefit plans in order to determine the present value ofobligations for benefits vested by its current and formeremployees. The actuarial calculations are being prepared annuallyand are based upon actuarial assumptions that are determinedclose to the balance sheet date each year. Changes in the presentvalue of obligations due to revised actuarial assumptions aretreated as actuarial gains or losses which are amortized over theemployees’ average remaining service period to the extentthese exceed the corridor value for each plan. Deviations betweenexpected return on plan assets and actual return are treated asactuarial gains or losses. Provisions for post-employmentbenefits in Volvo’s balance sheet correspond to the presentvalue of obligations at year-end, less fair value of plan assets,unrecognized actuarial gains or losses and unrecognized unvestedpast service costs. Up to and including 2002, defined benefitplans were accounted for in accordance with local rules anddirectives in the respective country of Volvo’s subsidiaries.For post-employment benefits that are financed through definedcontribution plans, Volvo’s annual contributions to suchplans are expensed as incurred. The accounting for definedcontribution plans has not been affected by the adoption of RR 29in 2003.

Provisions for residual valuerisks

Residual value risks areattributable to operational lease contracts and salestransactions combined with buy-back agreements or residual valueguarantees. Residual value risks are the risks that Volvo in thefuture would have to dispose used products at a loss if the pricedevelopment of these products is worse than what was expectedwhen the contracts were entered. Provisions for residual valuerisks are made on a continuing basis based upon estimations ofthe used products’ future net realizable values. Theestimations of future net realizable values are made withconsideration of current prices, expected future pricedevelopment, expected inventory turnover period and expectedvariable and fixed selling expenses. If the residual value risksare pertaining to products that are reported as tangible assetsin Volvo’s balance sheet, these risks are reflected bydepreciation or write-down of the carrying value of these assets.If the residual value risks are pertaining to products which arenot reported as assets in Volvo’s balance sheet, these risksare reflected under the line item provisions.

Deferred taxes, allocations anduntaxed reserves 

Tax legislation in Sweden andother countries sometimes contains rules other than thoseidentified with generally accepted accounting principles, andwhich pertain to the timing of taxation and measurement ofcertain commercial transactions. Deferred taxes are provided foron differences which arise between the taxable value and reportedvalue of assets and liabilities (temporary differences) as wellas on tax-loss carryforwards. However, with regards to thevaluation of deferred tax assets, these items are recognizedprovided that it is probable that the amounts can be utilizedagainst future taxable income. 

  Tax laws in Sweden andcertain other countries allow companies to defer payment of taxesthrough allocations to untaxed reserves. These items are treatedas temporary differences in the consolidated balance sheet, thatis, a split is made between deferred tax liability and equitycapital (restricted reserves). In the consolidated incomestatement an allocation to, or withdrawal from, untaxed reservesis divided between deferred taxes and net income for the year

Note 2 Acquisitions anddivestments of shares in subsidiaries><AB Volvo’s holding of shares in subsidiaries as of December31, 2003 is shown on pages F-13–F-15. Significantacquisitions, formations and divestments within the Group arelisted below. 

L.B. Smith (SABA Holding Inc.)

On May 2, Volvo ConstructionEquipment purchased the assets amounting to USD 189 M associatedwith the Volvo distribution business of L.B. Smith Inc. in the US.No goodwill or real estate was included in the deal. Because theintention is to spin off the acquired operations, the L.B. Smithdistribution business has not been consolidated in the VolvoGroup’s financial statements during 2003.

Bilia’s truck andconstruction equipment business ("Kommersiella Fordon EuropaAB")

In the third quarter 2003, theacquisition of the truck and construction equipments operationsof Bilia was completed. Volvo exchanged 41% of the shares inBilia AB for 98% of the shares in Kommersiella Fordon Europa AB.Volvo has required compulsory acquisition of the remaining shares.The acquired operations include dealers and service suppliers fortrucks and construction equipment in the Nordic region and tenother european countries. The acquisition cost of the shares hasbeen determined to SEK 0.9 billion. The goodwill arising fromthis transaction amounted to SEK 0.6 billion.

Volvo Baumaschinen DeutschlandGmbH

In February 2003 VolvoConstruction Equipment sold the German dealer Volvo BaumashinenDeutschland GmbH to the Swedish dealer partner Swecon AnläggningsmaskinerAB.

Volvo Aero Services LP

During 2002 VNA Holding Incacquired an additional 9% of the shares in Volvo Aero Services LP(previously The AGES Group ALP). Thereafter, Volvo owns 95% ofVolvo Aero Services LP.

Prévost Holding BV

On October 1, 2001 Volvo Busesdivested 1% of Prévost Holding BV, a Canadian and North Americanbus manufacturer, to Henlys Group Plc. Thereafter Volvo andHenlys Group Plc own 50% of Prévost Holding BV each. Thus,effective on October 1, 2001, Prévost Holding BV is a jointventure and reported in the Volvo Group accounts in accordancewith the proportionate consolidation method. 

Acrivia AB (former OmniNovaTechnology AB)

In April 2001, Volvo Busesacquired 65% of Acrivia AB, an engineering company that developsproduction processes for buses and produces frames for the new TXplatform, from TWR Sweden AB. Thereafter, Volvo Buses owns 100%of Acrivia AB.

Low Cab-Over-Engine (LCOE) 

On July 27, 2001 Volvo TrucksNorth America agreed to sell its LCOE business to Grand VehicleWorks Holdings, LLC. By divesting its LCOE operations, Volvo metthe condition imposed by U.S. Department of Justice for approvalof its acquisition of Mack and Renault V.I.

Volvia

On February 8, 2001, Volvo’swholly owned subsidiary, Volvia reached an agreement covering thedivestment of its insurance operations. The buyer is the Ifinsurance company. The purchase price for the operations was 562.

Renault V.I. and Mack

On January 2, 2001, AB Volvo’sacquisition of Renault’s truck operations, Mack and RenaultV.I., became effective. Under the terms of acquisition AB Volvoacquired all the shares of Mack and Renault V.I. in exchange for15% of the shares in AB Volvo. The purchase price for the shareswas set at SEK 10.7 billion, based on the Volvo share price onthe acquisition date. Goodwill amounting to SEK 8.4 billion thatarose in connection with the acquisition is being amortized over20 years. In connection with the acquisition, Renault V.I.Finance was acquired for about FRF 154 M.

The effects during 2003, 2002 and2001 on the Volvo Group’s balance sheet and cash flowstatement in connection with the acquisition of subsidiaries andother business units are specified in the following table:

|                                                  | 2001      | 2002      | 2003      |
|-------------------------------------------------------|-----------|-----------|-----------|
| Intangible        assets                              | 8,914     | 135       | 948       |
| Property,        plant and equipment                  | 9,126     | 95        | 1,102     |
| Assets        under operating lease                   | 10,195    | 286       | 95        |
| Shares        and participations                      | 433       | (214)     | (1,303)   |
| Inventories                                           | 9,361     | 234       | 1,477     |
| Current        receivables                            | 8,774     | 382       | 1,562     |
| Liquid        funds                                   | 4,059     | 105       | 31        |
| Other        assets                                   | 7,674     | 3         | 129       |
| Shareholders’        equity                      | (10,356)  | –    | —    |
| Minority        interests                             | –    | 119       | —    |
| Provisions                                            | (14,524)  | (33)      | (225)     |
| Loans                                                 | (2,543)   | (247)     | (2,144)   |
| Liabilities                                           | (30,020)  | (582)     | (1,469)   |
| **Acquired        net assets**                        | **1,093** | **283**   | **203**   |
| Liquid        funds paid                              | (1,093)   | (283)     | (203)     |
| Liquid        funds according to acquisition analysis | 4,059     | 105       | 31        |
| **Effect        on Group liquid funds**               | **2,966** | **(178)** | **(172)** |

The effects during 2003 and 2002includes wholly owned subsidiaries that previously were accountedfor according to the equity method.

The effects during 2003, 2002 and2001 on the Volvo Group’s balance sheet and cash flowstatement in connection with the divestment of subsidiaries andother business units are specified in the following table: 

|                                    | 2001         | 2002     | 2003      |
|-----------------------------------------|--------------|----------|-----------|
| Intangible        assets                | (354)        | –   | (1)       |
| Property,        plant and equipment    | (288)        | (5)      | (23)      |
| Inventories                             | (939)        | (23)     | (170)     |
| Other        receivables                | (12,139)     | (43)     | (112)     |
| Liquid        funds                     | (1,824)      | (13)     | (1)       |
| Minority        interests               | 176          | –   | —    |
| Provisions                              | 2,922        | –   | 24        |
| Loans                                   | 420          | –   | —    |
| Other        liabilities                | 583          | 52       | 170       |
| **Divested        net assets**          | **(11,443)** | **(32)** | **(113)** |
| Liquid        funds received            | 11,860       | 32       | 134       |
| Liquid        funds, divested companies | (1,824)      | (13)     | (1)       |
| **Effect        on Group liquid funds** | **10,036**   | **19**   | **133**   |

 

**AB Volvo’s holding ofshares**

| AB Volvo’s holding of shares and 
participations in Group companies | **Registration**
**number** | Percentage
holding | Dec 31, 2002
Carrying value,

SEK M   | Dec 31, 2003
Carrying value,

SEK M  |
|--------------------------------------------------------------------------|-----------------------------|--------------------|--------------------------------------------|-------------------------------------------|
| **Volvo        Global Trucks AB, Sweden**                                | 556605-6759                 | 100           | 8,420                                      | 8,420                                     |
|   Volvo        Lastvagnar AB, Sweden                           | 556013-9700                 | 100                | –                                | –                               |
|   Volvo        Lastvagnar Sverige AB, Sweden                   | 556411-6878                 | 100                | –                                | –                               |
|   Volvo        Finland AB, Finland                             | –                      | 100                | –                                | –                               |
|   Volvo        Trucks (Deutschland) GmbH, Germany              | –                      | 100                | –                                | –                               |
|   Volvo        Europa Truck NV, Belgium                        | –                      | 100                | –                                | –                               |
|   Volvo        Trucks (Schweiz) AG, Switzerland                | –                      | 100                | –                                | –                               |
|   Volvo        Truck Espana, SA, Spain                         | –                      | 100                | –                                | –                               |
|   Volvo        Truck and Bus Limited, Great Britain 1          | –                      | 100                | –                                | –                               |
|   Volvo        Polska SP.O.O, Poland                           | –                      | 100                | –                                | –                               |
|   Volvo        Truck Latvia Sia, Latvia                        | –                      | 100                | –                                | –                               |
|   Volvo        Truck Czech S R O, Czech Republic               | –                      | 100                | –                                | –                               |
|   Volvo        Truck Slovak, Slovakia                          | –                      | 100                | –                                | –                               |
|   Volvo        Ukraine LLC, Ukraine                            | –                      | 100                | –                                | –                               |
|   Volvo        do o Beograd, Yugoslavia                        | –                      | 100                | –                                | –                               |
|   Volvo        Macedonia, Ltd, Macedonia                       | –                      | 100                | –                                | –                               |
|   Volvo        Romania SRL, Romania                            | –                      | 100                | –                                | –                               |
|   Volvo        Bulgaria EOOD, Bulgaria                         | –                      | 100                | –                                | –                               |
|   Volvo        Otomotiv Turk Ltd STI, Turkey                   | –                      | 100                | –                                | –                               |
|   Volvo        Trucks Canada Inc, Canada                       | –                      | 100                | –                                | –                               |
|   Volvo        Trucks de Mexico, Mexico                        | –                      | 100                | –                                | –                               |
|   Volvo        Peru Sociedad Anonima, Peru                     | –                      | 100                | –                                | –                               |
|   Volvo        East Asia (Pte) Ltd., Singapore                 | –                      | 100                | –                                | –                               |
|   Volvo        Truck Korea Ltd., South Korea                   | –                      | 100                | –                                | –                               |
|   Volvo        Truck Australia Pty Ltd., Australia             | –                      | 100                | –                                | –                               |
|   Volvo        India Ltd., India                               | –                      | 100                | –                                | –                               |
| **Renault        V I, France**                                           | –                      |               | –                                     | –                                    |
|   France        Vehicules Industriels, France                  | –                      | 100                | –                                     | –                                    |
|   Renault        Trucks UK Ltd, Great Britain                  | –                      | 100                | –                                     | –                                    |
|   Renault        Trucks Nederland BV, The Netherlands          | –                      | 100                | –                                     | –                                    |
|   Renault        VI Belgique, Belgium                          | –                      | 100                | –                                     | –                                    |
|   Renault        Trucks Deutschland GmbH, Germany              | –                      | 100                | –                                     | –                                    |
|   Renault        Lastbiler Danmark A/S, Denmark                | –                      | 100                | –                                     | –                                    |
|   Renault        Vehicules Industriels Suisse, Switzerland     | –                      | 100                | –                                     | –                                    |

| AB Volvo’s holding of shares and 
participations in Group companies (cont.) | Registration
number | Percentage
holding | Dec 31, 2002
Carrying value,

SEK M   | Dec 31, 2003
Carrying value,

SEK M  |
|----------------------------------------------------------------------------------|---------------------|--------------------|--------------------------------------------|-------------------------------------------|
|   Renault        V I España SA, Spain                           | –              | 100                | –                                     | –                                    |
|   Renault        Trucks, España, Spain                          | –              | 100                | –                                     | –                                    |
|   Renault        Trucks Italia Spa, Italy                              | –              | 100                | –                                     | –                                    |
|   Renault        Trucks Osterreich GmbH, Austria                       | –              | 100                | –                                     | –                                    |
|   Renault        Trucks Polska SP Z.OO, Poland                         | –              | 100                | –                                     | –                                    |
|   Renault        Trucks Hungaria KFT, Hungaria                         | –              | 100                | –                                     | –                                    |
|   Renault        Trucks CR, SRO, Czech Republic                        | –              | 100                | –                                     | –                                    |
|   Renault        Trucks Argentina, Argentina                           | –              | 100                | –                                     | –                                    |
|   SARL        Renault Trucks Algerie, Algeria                          | –              | 100                | –                                     | –                                    |
| **Mack        Trucks Inc, USA**                                                  | –              | 100                | 3,225                                      | 3,225                                     |
|   Mack        Canada, Canada                                           | –              | 100                | –                                     | –                                    |
|   Mack        Leasing System, Inc., USA                                | –              | 100                | –                                     | –                                    |
|   Mack        de Venezuela, C.A., Venezuela                            | –              | 100                | –                                     | –                                    |
|   Mack        Vehiculos Industriales, C.A., Venezuela                  | –              | 100                | –                                     | –                                    |
| Mack        Vehucolos Industriales de Mexico SA de CV, Mexico                    | –              | 100                | –                                     | –                                    |
|   Mack        Trucks Australia Pty Ltd., Australia                     | –              | 100                | –                                     | –                                    |
| **Volvo        Bussar AB, Sweden**                                               | 556197-3826         | 100                | 2,912                                      | 1,859                                     |
|   Säffle        Karosseri AB, Sweden                              | 556058-3485         | 100                | –                                     | –                                    |
|   Acrivia        AB, Sweden                                            | 556540-1691         | 100                | –                                     | –                                    |
|   Carrus        Oy, Finland                                            | –              | 100                | –                                     | –                                    |
|   Volvo        Busse Deutschland GmbH, Germany                         | –              | 100                | –                                     | –                                    |
|   Prévost        Holding BV, Canada 2)                          | –              | 50                 | –                                     | –                                    |
|   Shanghai        Sunwin Bus Co, China 2)                              | –              | 50                 | –                                     | –                                    |
|   XIAN        Silver Bus Co, China 2)                                  | –              | 50                 | –                                     | –                                    |
| **Volvo        Construction Equipment NV, Beesd, The Netherlands**               | –              | 100                | 2,582                                 | 2,582                                     |
|   Volvo        Wheel Loaders AB, Sweden                                | 556310-1319         | 100                | –                                     | –                                    |
| Volvo        Construction Equipment Components AB, Sweden                        | 556527-6820         | 100                | –                                     | –                                    |
| Volvo        Articulated Haulers AB, Sweden                                      | 556360-1615         | 100                | –                                     | –                                    |
| Volvo        Construction Equipment Customer Support AB, Sweden                  | 556310-1301         | 100                | –                                     | –                                    |
| Volvo        Construction Equipment International AB, Sweden                     | 556310-1293         | 100                | –                                     | –                                    |
| Volvo        Construction Equipment Cabs AB, Sweden                              | 556527-6838         | 100                | –                                     | –                                    |
|   Volvo        Construction Equipment SA, Belgium                      | –              | 100                | –                                     | –                                    |
| Volvo        Construction Equipment Europe Ltd., Great Britain                   | –              | 100                | –                                     | –                                    |
| Volvo        Construction Equipment Europe GmbH, Germany                         | –              | 100                | –                                     | –                                    |
| Volvo        Compact Service Equipment GmbH, Germany                             | –              | 100                | –                                     | –                                    |
|   Volvo        Motor Graders, Ltd., Canada                             | –              | 100                | –                                     | –                                    |
| **AB        Volvo Penta, Sweden**                                                | 556034-1330         | 100                | 421                                   | 421                                  |
|   Volvo        Penta Norden AB, Sweden                                 | 556127-7533         | 100                | –                                     | –                                    |
|   Volvo        Penta Europe AB, Sweden                                 | 556541-0429         | 100                | –                                     | –                                    |
|   Volvo        Penta Central Europe GmbH, Germany                      | –              | 100                | –                                     | –                                    |
|   Wuxi        da Hao Power, Co Ltd, China                              | –              | 70                 | –                                     | –                                    |
| **Volvo        Aero AB, Sweden**                                                 | 556029-0347         | 100                | 2,885                                 | 2,885                                     |
|  Volvo        Aero Engine Services AB, Sweden                               | 556328-9171         | 100                | –                                     | –                                    |
|   Volvo        Aero Support AB, Sweden                                 | 556413-0184         | 100                | –                                     | –                                    |
|   Volvo        Aero Norge AS, Norway                                   | –              | 78                 | –                                     | –                                    |

 

| AB Volvo’s holding of shares and 
participations in Group companies (cont.) | Registration
number | Percentage
holding | Dec 31, 2002
Carrying value,

SEK M   | Dec 31, 2003
Carrying value,

SEK M  |
|----------------------------------------------------------------------------------|---------------------|--------------------|--------------------------------------------|-------------------------------------------|
| **VNA        Holding Inc, USA**                                                  | –              | 100                | 3,510                                      | 3,510                                     |
|   Volvo        Trucks North America, Inc., USA                         | –              | 100                | –                                     | –                                    |
|   Volvo        Construction Equipment North America Inc.,              |                |               |                                       |                                      |
| USA                                                                              | –              | 100                | –                                     | –                                    |
|   Volvo        Penta of The Americas, Inc., USA                        | –              | 100                | –                                     | –                                    |
|   Volvo        Aero North America Inc., USA                            | –              | 100                | –                                     | –                                    |
|   Volvo        Aero Services LP, USA                                   | –              | 95                 | –                                     | –                                    |
|   Volvo        Treasury North America Inc., USA                        | –              | 100                | –                                     | –                                    |
| Volvo        Commercial Finance LLC The Americas, USA                            | –              | 100                | –                                     | –                                    |
| Volvo        Holding Sverige, Sweden                                             | 556539-9853         | 100                | 5,693                                      | 7,634                                     |
| Volvo        Treasury AB, Sweden                                                 | 556135-4449         | 100                | 3,044                                      | 3,044                                     |
| Sotrof        AB, Sweden                                                         | 556519-4494         | 100                | 2,488                                      | 1,988                                     |
| Volvo        Group Finance Europe BV, The Netherlands                            | —              | 100                | 1,003                                      | 1,003                                     |
| Volvo        Construction Equipment Korea Co Ltd, South Korea                    | —         | 100                | —                                     | —                                    |
| Volvo        Financial Services AB, Sweden                                       | 556000-5406         | 100                | 486                                        | 886                                       |
| Kommersiella        Fordon Europa AB, Sweden                                     | 556049-3388         | 98                 | —                                     | 855                                       |
| Volvo        China Investment Co Ltd, China                                      | —              | 100                | 275                                        | 622                                       |
| Volvo        Truck & Bus Ltd, Great Britain (1)                              | —              | 100                | 413                                        | 413                                       |
| Volvo        Holding Mexico, Mexico                                              | —         | 100                | 278                                        | 388                                       |
| Volvo        Technology Transfer AB, Sweden                                      | 556542-4370         | 100                | 286                                        | 361                                       |
| Volvo        Powertrain AB, Sweden                                               | 556000-0753         | 100                | 166                                        | 348                                       |
| Volvo        Parts AB, Sweden                                                    | 556365-9746         | 100                | 200                                        | 200                                       |
| Volvo        Group Insurance Försäkrings AB, Sweden                    | 516401-8037         | 100                | 182                                        | 182                                       |
| Volvo        Business Services, Sweden                                           | 556029-5197    | 100           | 27                                         | 107                                       |
| Volvo        Holding Danmark AS, Denmark                                         | —              | 100                | 104                                        | 104                                       |
| Volvo        Norge AS, Norway                                                    | —         | 100                | 56                                         | 56                                        |
| Volvo        Malaysia Sdn, Malaysia                                              | —         | 100           | 48                                         | 48                                        |
| Celero        Support AB, Sweden                                                 | 556039-1798         | 100                | 25                                         | 25                                        |
| Volvo        Bus de Mexico, Mexico                                               | —         | 100                | 50                                         | —                                    |
| Other        holdings                                                            |                |               | 171                                        | 163                                       |
| **Total        carrying value Group companies** (3)                              |                |               | 38,950                                     | 41,329                                    |

1 Total holding by Volvo GlobalTrucks and AB Volvo is 100%.

2 Joint ventures, reported inaccordance with the proportionate consolidation method in Volvo’sconsolidated accounts. 

3 AB Volvo’s share ofshareholders’ equity in subsidiaries (including equity inuntaxed reserves) was 51,395 (49,657).

Note 3 Joint ventures

Joint ventures are companies overwhich Volvo has joint control together with one or more externalparties. Joint ventures are reported by applying theproportionate consolidation method, in accordance with RR 14Joint ventures. Group holdings of shares in joint ventures arelisted below. 

|                                             | Dec        31, 2003 |
|--------------------------------------------------|---------------------|
| **Shares        in Joint ventures**              | Holding percentage  | Holding no of shares |
| Shanghai        Sunwin Bus Corp., China 1)       | 50                  | — |
| Xian        Silver Bus Corp., China 1)           | 50                  | — |
| Jinan        Hua Wo Truck Corp., China 2)        | 50                  | — |
| Prévost        Holding BV, Netherlands 3) | 50                  | 22,690 |

1 Reported according to the equitymethod up to 2002.

2 Established during 2003.

3 Subsidiary prior to October 1,2001. 

 

| **Volvo’s        share of joint ventures’ income statements** | 2001      | 2002     | 2003   |
|-------------------------------------------------------------------------|-----------|----------|--------|
| Net        sales                                                        | 1,047     | 2,724    | 1,832  |
| Restructuring        costs                                              | (348)     | –   | – |
| Operating        income                                                 | (261)     | 74       | 51     |
| Income        after financial items                                     | (272)     | 10       | 19     |
| **Net        income**                                                   | **(162)** | **(21)** | **3**  |

 

| **Volvo’s        share of joint ventures’ balance sheets** | 2001      | 2002      | 2003      |
|----------------------------------------------------------------------|-----------|-----------|-----------|
| Non-current        assets                                            | 1,026     | 782       | 665       |
| Current        assets                                                | 2,000     | 1,484     | 1,217     |
| Total        assets                                                  | 3,026     | 2,266     | 1,882     |
| Shareholders’        equity                                     | 354       | 570       | 581       |
| Provisions                                                           | 368       | 180       | 124       |
| Long-term        liablities                                          | 833       | 361       | 295       |
| Current        liabilities                                           | 1,471     | 1,155     | 882       |
| **Total        shareholders’ equity and liabilities**           | **3,026** | **2,266** | **1,882** |

At the end of 2003 no guaranteeswere issued for the benefit of joint ventures, neither by Volvoalone nor jointly with other venturers. 

  At the same date Volvo’sshare of contingent liabilities issued by its joint venturesamounted to 96 (109; 79).

|                                   | 2001                | 2002              | 2003                |
|----------------------------------------|---------------------|-------------------|---------------------|
|                                   | Number of
employees | of which
women, % | Number of
employees | of which
women, % | Number of
employees | of which 
women, % |
| **Average        number of employees** |
| Shanghai        Sunwin Bus Corp.       | 621                 | 13                | 622                 | 13 | 617 | 13 |
| Xian        Silver Bus Corp.           | 220                 | 13                | 210                 | 13 | 267 | 13 |
| Jinan        Hua Wo Truck Corp.        | –              | –            | –              | – | 5 | 20 |
| Prévost        Holding BV       | 278                 | 19                | 978                 | 11 | 842 | 15 |
| **Total        number of employees**   | **1,119**           | **14**            | **1,810**           | **12** | **1,731** | **14** |

Note 4 Segment reporting

Reporting by business segment

The Volvo Group’s operationsare organized in eight business areas: Volvo Trucks, RenaultTrucks, Mack Trucks, Buses, Construction Equipment, Volvo Penta,Volvo Aero and Financial Services. In addition to the eightbusiness areas, there are other operations consisting mainly ofbusiness units that are designed to support the business areas’operations. The business units include Powertrain, 3P, Volvo IT,Logistics and Parts. Each business area, except for FinancialServices, has total responsibility for its operating income,operating capital and operating cash flow. The Financial Servicesbusiness area has responsibility for its net income and totalbalance sheet within certain restrictions and principles that areestablished centrally. The supervision and coordination oftreasury and tax matters is organized centrally to obtain thebenefits of a Group-wide approach. The legal structure of theVolvo Group is based on optimal handling of treasury, tax andadministrative matters and, accordingly, differs from theoperating structure. 

  The business units aredesignated to support the business areas and are therefore notreportable business segments. In Volvo’s external financialreporting, the financial results within the business unitsPowertrain and Parts are distributed to the respective businesssegments. As the three truck brands share product development,production and other activities in business units such as 3P andPowertrain and also share certain infrastructure in distributionsuch as dealers, the truck brands are reported as one businesssegment.

 

| **Net        sales**                           | 2001        | 2002        | 2003        |
|------------------------------------------------|-------------|-------------|-------------|
| Trucks                                         | 116,568     | 118,752     | 116,969     |
| Buses                                          | 16,675      | 14,035      | 11,978      |
| Construction        Equipment                  | 21,135      | 21,012      | 23,154      |
| Volvo        Penta                             | 7,380       | 7,669       | 7,596       |
| Volvo        Aero                              | 11,784      | 8,837       | 8,030       |
| Other        and eliminations                  | 7,073       | 6,775       | 7,041       |
| **Volvo        Group excl Financial Services** | **180,615** | **177,080** | **174,768** |
| Financial        Services                      | 9,495       | 9,925       | 9,153       |
| Eliminations                                   | (830)       | (807)       | (630)       |
| **Volvo        Group total**                   | **189,280** | **186,198** | **183,291** |

The above sales figures includeinternal sales with the following amounts: Trucks 719 (400; 279),Buses 166 (0; 151), Construction Equipment 313 (318; 201), VolvoPenta 31 (27;19), Volvo Aero 87 (74; 259) and Financial Services630 (807; 830). Other and eliminations include internal sales of8,014 (7,638; 7,441) and eliminations amounting to 9,330 (8,457;8,350).

Internal sales between businessareas are generally made at standard cost of sales, includingcalculated interest and product improvement expenses. Internalsales from service companies are generally at market prices.

| **Operating        income (loss)** | 2001      | 2002      | 2003          |
|------------------------------------|-----------|-----------|---------------|
| Trucks                             | (2,066)   | 1,189     | 3,951    |
| Buses                              | (916)     | (94)      | (790)    |
| Construction        Equipment      | 527       | 406       | 908      |
| Volvo        Penta                 | 658       | 647       | 695      |
| Volvo        Aero                  | 653       | 5         | (44)     |
| Financial        Services          | 325       | 490       | 926      |
| Other                              | 143       | 194       | (3,142)  |
| **Volvo        Group total**       | **(676)** | **2,837** | **2,504**     |

Operating income in 2003 includedwrite-down of shares in Scania AB and Henlys Group Plc amountingto 4,030, of which 429 was reported in Buses (Henlys Group) and 3,601was reported in Other (Scania AB).

  Operating income in2001 included restructuring costs of 3,862, of which 3,106 inTrucks, (mainly related to the integration of Mack and Renault),392 in Buses and 364 in Construction Equipment.

| **Depreciation        and amortization** | 2001      | 2002       | 2003       |
|------------------------------------------|-----------|------------|------------|
| Trucks                                   | 4,647     | 5,766      | 4,933      |
| Buses                                    | 359       | 328        | 293        |
| Construction        Equipment            | 622       | 647        | 653        |
| Volvo        Penta                       | 65        | 80         | 78         |
| Volvo        Aero                        | 814       | 495        | 545        |
| Other                                    | 540       | 448        | 721        |
| Total        excl Financial Services     | 7,047     | 7,764      | 7,223      |
| Financial        Services                | 2,914     | 3,080      | 2,946      |
| **Volvo        Group total**             | **9,961** | **10,844** | **10,169** |

| **Research        and development expenses** | 2001      | 2002      | 2003      |
|----------------------------------------------|-----------|-----------|-----------|
| Trucks                                       | 3,614     | 4,175     | 4,874     |
| Buses                                        | 498       | 396       | 453       |
| Construction        Equipment                | 674       | 685       | 904       |
| Volvo        Penta                           | 287       | 352       | 291       |
| Volvo        Aero                            | 211       | 173       | 224       |
| Other                                        | 107       | 88        | 83        |
| **Volvo        Group total**                 | **5,391** | **5,869** | **6,829** |

| **Income        from investments in associated companies** | 2001     | 2002    | 2003    |
|------------------------------------------------------------|----------|---------|---------|
| Trucks                                                     | (130)    | 15      | (55)    |
| Buses                                                      | (11)     | 8       | 1       |
| Construction        Equipment                              | —   | —  | —  |
| Volvo        Penta                                         | —   | —  | —  |
| Volvo        Aero                                          | (72)     | (70)    | (77)    |
| Other                                                      | 125      | 173     | 297     |
| **Volvo        Group excl Financial Services**             | **(88)** | **126** | **166** |
| Financial        Services                                  | 138      | 56      | 34      |
| **Volvo        Group total**                               | **50**   | **182** | **200** |

| **Total        assets**                                        | 2001        | 2002        | 2003        |
|----------------------------------------------------------------|-------------|-------------|-------------|
| Operating        assets, excluding Financial Services: 1)      |        |        |        |
| Trucks                                                         | 82,431      | 68,988      | 68,307      |
| Buses                                                          | 9,083       | 8,913       | 6,855       |
| Construction        Equipment                                  | 14,178      | 14,409      | 14,476      |
| Volvo        Penta                                             | 2,538       | 3,340       | 2,604       |
| Volvo        Aero                                              | 13,389      | 11,631      | 8,982       |
| Other        2)                                                | 28,600      | 28,166      | 23,664      |
| **Total        operating assets excluding Financial Services** | **150,219** | **135,447** | **124,888** |
| Interest-bearing        financial assets                       | 37,300      | 32,648      | 37,516      |
| Tax        receivables                                         | 8,548       | 8,113       | 7,220       |
| Total        assets in Financial Services                      | 73,528      | 69,364      | 66,842      |
| Other        and eliminations                                  | (8,670)     | (6,350)     | (5,214)     |
| **Volvo        Group total**                                   | **260,925** | **239,222** | **231,252** |

1 Defined as Total assets lessInterest-bearing financial assets and Tax receivables.

2 Investment in Scania includedwith 20,424 (24,026; 24,051).

| **Total        shareholders’ equity and liabilities**          | 2001        | 2002        | 2003        |
|---------------------------------------------------------------------|-------------|-------------|-------------|
| Operating        liabilities, excluding Financial Services: (1)     |        |        |        |
| Trucks                                                              | 56,106      | 50,481      | 49,261      |
| Buses                                                               | 3,511       | 3,006       | 2,600       |
| Construction        Equipment                                       | 3,928       | 4,079       | 4,822       |
| Volvo        Penta                                                  | 1,434       | 1,450       | 1,460       |
| Volvo        Aero                                                   | 5,291       | 4,629       | 3,265       |
| Other                                                               | 3,093       | 2,330       | 3,291       |
| **Total        operating liabilities excluding Financial Services** | **73,363**  | **65,975**  | **64,699**  |
| Financial        liabilities                                        | 44,342      | 38,714      | 39,940      |
| Tax        liabilities                                              | 376         | 770         | 650         |
| Total        liabilities in Financial Services                      | 65,978      | 61,870      | 58,838      |
| Other        and eliminations                                       | (8,710)     | (6,632)     | (5,511)     |
| **Total        liabilities**                                        | **175,349** | **160,697** | **158,616** |
| Shareholders’        equity                                    | 85,185      | 78,278      | 72,420      |
| Minority        interests                                           | 391         | 247         | 216         |
| **Volvo        Group total**                                        | **260,925** | **239,222** | **231,252** |

1 Defined as Total liabilitiesless financial liabilities and tax liabilities. 

| **Investments        in associated companies** | 2001      | 2002      | 2003    |
|------------------------------------------------|-----------|-----------|---------|
| Trucks                                         | 513       | 213       | 26      |
| Buses                                          | 359       | 296       | 21      |
| Construction        Equipment                  | –    | –    | –  |
| Volvo        Penta                             | –    | –    | –  |
| Volvo        Aero                              | 51        | 44        | 35      |
| Financial        Services                      | 165       | 208       | 165     |
| Other                                          | 879       | 896       | 116     |
| **Volvo        Group total**                   | **1,967** | **1,657** | **363** |

| **Capital        expenditures**                | 2001       | 2002       | 2003       |
|------------------------------------------------|------------|------------|------------|
| Trucks                                         | 5,949      | 4,797      | 4,384      |
| Buses                                          | 360        | 256        | 161        |
| Construction        Equipment                  | 569        | 660        | 525        |
| Volvo        Penta                             | 199        | 236        | 362        |
| Volvo        Aero                              | 933        | 583        | 262        |
| Other                                          | 354        | 244        | 528        |
| **Volvo        Group excl Financial Services** | **8,364**  | **6,776**  | **6,222**  |
| Financial        Services                      | 5,775      | 5,461      | 5,459      |
| **Volvo        Group total**                   | **14,139** | **12,237** | **11,681** |

| **Reporting        by geographical segment** |        |        |        |
|----------------------------------------------|-------------|-------------|-------------|
| Net        sales                             | 2001        | 2002        | 2003        |
| Europe                                       | 104,500     | 105,069     | 109,668     |
| North        America                         | 57,724      | 53,438      | 44,502      |
| South        America                         | 6,469       | 5,070       | 5,080       |
| Asia                                         | 10,887      | 12,693      | 15,819      |
| Other        markets                         | 9,700       | 9,928       | 8,222       |
| **Volvo        Group total***                | **189,280** | **186,198** | **183,291** |
| *of        which:                            |        |        |        |
| Sweden                                       | 13,615      | 12,923      | 14,801      |
| United        States                         | 48,407      | 44,652      | 36,406      |
| France                                       | 26,735      | 26,387      | 25,679      |

| **Total        assets**        | 2001    | 2002    | 2003    |
|--------------------------------|---------|---------|---------|
| Sweden                         | 97,728  | 91,558  | 89,747  |
| Europe        excluding Sweden | 76,288  | 71,078  | 75,612  |
| North        America           | 69,748  | 61,266  | 50,234  |
| South        America           | 7,851   | 4,966   | 4,996   |
| Asia                           | 5,662   | 7,006   | 7,236   |
| Other        markets           | 3,648   | 3,348   | 3,427   |
| Volvo        Group total       | 260,925 | 239,222 | 231,252 |

| **Capital        expenditures** | 2001       | 2002       | 2003       |
|---------------------------------|------------|------------|------------|
| Sweden                          | 4,646      | 3,701      | 2,629      |
| Europe        excluding Sweden  | 5,942      | 5,793      | 6,042      |
| North        America            | 3,169      | 2,261      | 2,442      |
| South        America            | 166        | 147        | 214        |
| Asia                            | 180        | 194        | 299        |
| Other        markets            | 36         | 141        | 55         |
| **Volvo        Group total**    | **14,139** | **12,237** | **11,681** |

|                                                   |   |    |    |
|--------------------------------------------------------|--------|---------|---------|
| Income        from investments in associated companies | 2001   | 2002    | 2003    |
| Trucks                                                 | (130)  | 15      | (55)    |
| Buses                                                  | (11)   | 8       | 1       |
| Construction        Equipment                          | — | —  | —  |
| Volvo        Penta                                     | — | —  | —  |
| Volvo        Aero                                      | (72)   | (70)    | (77)    |
| Other                                                  | 125    | 173     | 297     |
| Volvo        Group excl Financial Services             | (88)   | 126     | 166     |
| Financial        Services                              | 138    | 56      | 34      |
| **Volvo        Group total**                           | **50** | **182** | **200** |

| **Total        assets**                                    | 2001        | 2002        | 2003        |
|------------------------------------------------------------|-------------|-------------|-------------|
| Operating        assets, excluding Financial Services: (1) |        |        |        |
| Trucks                                                     | 82,431      | 68,988      | 68,307      |
| Buses                                                      | 9,083       | 8,913       | 6,855       |
| Construction        Equipment                              | 14,178      | 14,409      | 14,476      |
| Volvo        Penta                                         | 2,538       | 3,340       | 2,604       |
| Volvo        Aero                                          | 13,389      | 11,631      | 8,982       |
| Other        (2)                                           | 28,600      | 28,166      | 23,664      |
| Total        operating assets excluding Financial          |        |        |        |
| Services                                                   | 150,219     | 135,447     | 124,888     |
| Interest-bearing        financial assets                   | 37,300      | 32,648      | 37,516      |
| Tax        receivables                                     | 8,548       | 8,113       | 7,220       |
| Total        assets in Financial Services                  | 73,528      | 69,364      | 66,842      |
| Other        and eliminations                              | (8,670)     | (6,350)     | (5,214)     |
| **Volvo        Group total**                               | **260,925** | **239,222** | **231,252** |

1 Defined as Total assets lessInterest-bearing financial assets and Tax receivables.

2 Investment in Scania includedwith 20,424 (24,026; 24,051).

| **Total        shareholders’ equity and liabilities**      | 2001        | 2002        | 2003        |
|-----------------------------------------------------------------|-------------|-------------|-------------|
| Operating        liabilities, excluding Financial Services: 1)  |        |        |        |
| Trucks                                                          | 56,106      | 50,481      | 49,261      |
| Buses                                                           | 3,511       | 3,006       | 2,600       |
| Construction        Equipment                                   | 3,928       | 4,079       | 4,822       |
| Volvo        Penta                                              | 1,434       | 1,450       | 1,460       |
| Volvo        Aero                                               | 5,291       | 4,629       | 3,265       |
| Other                                                           | 3,093       | 2,330       | 3,291       |
| Total        operating liabilities excluding Financial Services | 73,363      | 65,975      | 64,699      |
| Financial        liabilities                                    | 44,342      | 38,714      | 39,940      |
| Tax        liabilities                                          | 376         | 770         | 650         |
| Total        liabilities in Financial Services                  | 65,978      | 61,870      | 58,838      |
| Other        and eliminations                                   | (8,710)     | (6,632)     | (5,511)     |
| Total        liabilities                                        | 175,349     | 160,697     | 158,616     |
| Shareholders’        equity                                | 85,185      | 78,278      | 72,420      |
| Minority        interests                                       | 391         | 247         | 216         |
| **Volvo        Group total**                                    | **260,925** | **239,222** | **231,252** |

1 Defined as Total liabilitiesless financial liabilities and tax liabilities. 

 

| **Investments        in associated companies** | 2001       | 2002       | 2003       |
|------------------------------------------------|------------|------------|------------|
| Trucks                                         | 513        | 213        | 26         |
| Buses                                          | 359        | 296        | 21         |
| Construction        Equipment                  | –     | –     | –     |
| Volvo        Penta                             | –     | –     | –     |
| Volvo        Aero                              | 51         | 44         | 35         |
| Financial        Services                      | 165        | 208        | 165        |
| Other                                          | 879        | 896        | 116        |
| Volvo        Group total                       | 1,967      | 1,657      | 363        |
|                                           |       |       |       |
| Capital        expenditures                    | 2001       | 2002       | 2003       |
| Trucks                                         | 5,949      | 4,797      | 4,384      |
| Buses                                          | 360        | 256        | 161        |
| Construction        Equipment                  | 569        | 660        | 525        |
| Volvo        Penta                             | 199        | 236        | 362        |
| Volvo        Aero                              | 933        | 583        | 262        |
| Other                                          | 354        | 244        | 528        |
| Volvo        Group excl Financial Services     | 8,364      | 6,776      | 6,222      |
| Financial        Services                      | 5,775      | 5,461      | 5,459      |
| **Volvo        Group total**                   | **14,139** | **12,237** | **11,681** |

| **Reporting        by geographical segment** |    |    |    |
|----------------------------------------------|---------|---------|---------|
| **Net        sales**                         | 2001    | 2002    | 2003    |
| Europe                                       | 104,500 | 105,069 | 109,668 |
| North        America                         | 57,724  | 53,438  | 44,502  |
| South        America                         | 6,469   | 5,070   | 5,080   |
| Asia                                         | 10,887  | 12,693  | 15,819  |
| Other        markets                         | 9,700   | 9,928   | 8,222   |
| Volvo        Group total*                    | 189,280 | 186,198 | 183,291 |
| *of        which:                            |    |    |    |
| Sweden                                       | 13,615  | 12,923  | 14,801  |
| United        States                         | 48,407  | 44,652  | 36,406  |
| France                                       | 26,735  | 26,387  | 25,679  |

| **Total        assets**        | 2001        | 2002        | 2003        |
|--------------------------------|-------------|-------------|-------------|
| Sweden                         | 97,728      | 91,558      | 89,747      |
| Europe        excluding Sweden | 76,288      | 71,078      | 75,612      |
| North        America           | 69,748      | 61,266      | 50,234      |
| South        America           | 7,851       | 4,966       | 4,996       |
| Asia                           | 5,662       | 7,006       | 7,236       |
| Other        markets           | 3,648       | 3,348       | 3,427       |
| **Volvo        Group total**   | **260,925** | **239,222** | **231,252** |

| **Capital        expenditures** | 2001       | 2002       | 2003       |
|---------------------------------|------------|------------|------------|
| Sweden                          | 4,646      | 3,701      | 2,629      |
| Europe        excluding Sweden  | 5,942      | 5,793      | 6,042      |
| North        America            | 3,169      | 2,261      | 2,442      |
| South        America            | 166        | 147        | 214        |
| Asia                            | 180        | 194        | 299        |
| Other        markets            | 36         | 141        | 55         |
| **Volvo        Group total**    | **14,139** | **12,237** | **11,681** |

 

Note 5 Other operating income andexpenses

|                                                                            | 2001        | 2002        | 2003        |
|---------------------------------------------------------------------------------|-------------|-------------|-------------|
| Gains/losses        on forward and options contracts                            | (2,044)     | (195)       | 1,243       |
| Exchange        rate differences on trade receivables and payables              | 411         | (266)       | (199)       |
| Amortization        of goodwill                                                 | (1,058)     | (1,094)     | (873)       |
| Change        in allowances for doubtful receivables, customer        financing | (1,326)     | (1,018)     | (812)       |
| Change        in allowances for doubtful receivables, other                     | (415)       | (362)       | (294)       |
| Surplus        funds from Alecta (previously SPP)                               | 43          | –      | –      |
| Gain        on sale of Volvia's insurance operations                            | 562         | –      | –      |
| Adjustment of        the gain on sale of Volvo Cars                        | 90          | –      | –      |
| Other        income and expenses                                                | (359)       | (1,217)     | (432)       |
| **Total**                                                                       | **(4,096)** | **(4,152)** | **(1,367)** |

 

Note 6 Income from investments inassociated companies 

Income from investments inassociated companies and dividends recived from associatedcompanies are specified below:

|                                                            | Income (loss) | Dividends        received |
|-----------------------------------------------------------------|---------------|---------------------------|
|                                                            | 2001          | 2002                      | 2003 | 2001 | 2002 | 2003 |
| Petro        Stopping Centers Holding LP                        | (73)          | (57)                      | (73) | — | — | — |
| Aviation        Lease Finance                                   | 24            | 51                        | 30 | — | — | — |
| Other        companies                                          | (79)          | 77                        | 15 | 8 | 20 | — |
| Holdings        no longer reported as equity method investments |          |                      |   |   |   |   |
| Bilia        AB 4                                               | 151           | 128                       | 64 | 42 | 44 | 47 |
| Turbec        AB 3                                              | (67)          | (67)                      | (77) | – | – | – |
| Xian        Silver Bus Corp 5)                                  | 27            | 29                        | – | – | – | – |
| Shanghai        Sunwin Bus Corp 5)                              | (31)          | (23)                      | – | – | – | – |
| AB        Volvofinans 1)                                        | 46            | –                    | – | 9 | – | – |
| Other        companies                                          | –        | –                    | – | 15 | – | 4 |
| **Subtotal**                                                    | **(2)**       | **138**                   | **(41)** | **74** | **64** | **51** |

 

 

|                                                             | Income (loss) |
|------------------------------------------------------------------|---------------|
|                                                             | 2001          | 2002 | 2003 |
| Gains        (losses) on sale of shares                          |          |   |   |
| in        associated companies                                   |          |   |   |
| Bilia        AB 4)                                               | –        | – | 188 |
| Effero        AB 3)                                              | –        | – | 59 |
| Eddo        Restauranger AB 2)                                   | –        | 32 | – |
| AB        Volvofinans 1)                                         | 61            | – | – |
| Other        companies                                           | (9)           | 12 | (6) |
| **Subtotal**                                                     | **52**        | **44** | **241** |
| **Total        income from investments in associated companies** | **50**        | **182** | **200** |

1 Divested in 2001.2 Divested in 2002.3 Divested in 2003.4 Main part of holding divested in 2003.5 As from 2003 reported in accordance with the proportionatemethod of consolidation.

 

Note 7 Income from otherinvestments 

|                                            | 2001      | 2002     | 2003        |
|-------------------------------------------------|-----------|----------|-------------|
| **Dividends        received**                   |      |     |        |
| Scania        AB                                | 637       | 319      | 501         |
| Henlys        Group Plc                         | 25        | 7        | 7           |
| Diamond        Finance, Ltd                     | –    | –   | 5           |
| Holdings        of Volvo Technology Transfer 1) | 26        | –   | 4           |
| Other                                           | 6         | 3        | 3           |
| **Subtotal**                                    | **694**   | **329**  | **520**     |
| **Write-downs        of shares**                |      |     |        |
| Scania        AB                                | –    | –   | (3,601)     |
| Henlys        Group Plc                         | –    | –   | (429)       |
| Holdings        of Volvo Technology Transfer 1) | (14)      | (7)      | (39)        |
| Other                                           | (39)      | –   | (4)         |
| **Subtotal**                                    | **(53)**  | **(7)**  | **(4,073)** |
| **Gain        (loss) on divestment of shares**  |      |     |        |
| Mitsubishi        Motors 2                      | 768       | –   | –      |
| Holdings        of Volvo Technology Transfer 1) | (10)      | (16)     | (36)        |
| Other                                           | 11        | 3        | 10          |
| **Subtotal**                                    | **769**   | **(13)** | **(26)**    |
| **Total**                                       | **1,410** | **309**  | **(3,579)** |

1 A Volvo venture-capital company.

2 Excluding costs of 194 forterminating the distribution of Mitsubishi Canter as well ascosts for terminated development projects.

Note 8 Restructuring costs 

Restructuring costs in 2001amounted to 3,862 of which 3,106 for Trucks, 392 for Buses and364 for Construction Equipment.

  Restructuring costs inTrucks included costs for the integration of Mack Trucks andRenault Trucks in order to secure coordination gains madepossible through the acquisition. The integration measuresincluded reduction of the North American production capacitythrough a decision to close Mack’s Winnsboro plant andtransfer of production to Volvo’s New River Valley plant.Integration measures further included restructuring of the globaldistribution system and production structure. In addition to theintegration measures, restructuring costs in Trucks includedsignificant personnel reductions due to the prevailing businessconditions, especially in North America. Restructuring costs inBuses were attributable to the shut down of Nova Bus’ plantfor city buses in Roswell, US. In Construction Equipment,restructuring measures were pertaining to close down offabrication in the Asheville plant, US, and to an overallredundancy program.

  Of the totalrestructuring costs, 2,259 was attributable to contractualpensions and excess personnel, 573 was attributable to writedownsof assets and the remainder, 1,030 to other restructuring costs.

Note 9 Other financial income andexpenses ><Other financial income and expenses includeexchange gains in the net amount of 31 (losses 55; gains 59).

Note 10 Income taxes 

Income taxes were distributed asfollows: 

|                                                           | 2001          | 2002      | 2003        |
|----------------------------------------------------------------|---------------|-----------|-------------|
| Current        taxes relating to the period                    | (555)         | (802)     | (984)       |
| Adjustment        of current taxes for prior periods           | (59)          | 156       | (291)       |
| Deferred        taxes originated or reversed during the period | 1,349         | (121)     | (831)       |
| Recognition        and derecognition of deferred tax assets    | (367)         | 242       | 802         |
| Income        taxes relating to associated companies           | (42)          | (65)      | (30)        |
| **Total        income taxes**                                  | **326 ** | **(590)** | **(1,334)** |

Provisions have been made forestimated tax charges that may arise as a result of prior taxaudits in the Volvo Group. Tax claims for which no provision hasbeen deemed necessary of approximately 1,098 (982; 1,151) werereported as contingent liabilities. 

  Deferred taxes relateto income taxes payable or recoverable in future periods inrespect of taxable temporary differences, deductible temporarydifferences, unused tax loss carryforwards or unused tax creditcarryforwards. Deferred tax assets are recognized to the extentthat it is probable that the amount can be utilized againstfuture taxable income. At December 31, 2003, the valuationallowance attributable to deductible temporary differences,unused tax loss carryforwards and unused tax credit carryforwardsfor which no deferred tax asset was recognized amounted to 2,718(3,063; 2,676). 

  At year-end 2003, theGroup had unused tax loss carryforwards of about 17,300, of whichapproximately 2,300 will expire within 5 years.

  The Swedish corporateincome tax rate is 28%. The table below shows the principalreasons for the difference between this rate and the Group’stax rate, based on income after financial items

|                                                        | 2001, % | 2002, % | 2003, % |
|-------------------------------------------------------------|---------|---------|---------|
| Swedish        corporate income tax rates                   | 28      | 28      | 28      |
| Difference        in tax rate in various countries          | 6       | 8       | 11      |
| Capital        gains                                        | 7       | (2)     | (2)     |
| Other        non-taxable income                             | 28      | (15)    | (23)    |
| Amortization        of goodwill                             | (17)    | 16      | 13      |
| Other        non-deductible expenses                        | (16)    | 14      | 83      |
| Adjustment        of current taxes for prior years          | (3)     | (8)     | 18      |
| Recognition        and derecognition of deferred tax assets | (19)    | (12)    | (48)    |
| Other,        net                                           | 3       | 0       | 1       |
| Income        tax rate for the Group                        | **17**  | **29**  | **81**  |

 

| **Specification        of deferred tax assets and tax liabilities** | 2001        | 2002       | 2003       |
|---------------------------------------------------------------------|-------------|------------|------------|
| Deferred        tax assets:                                         |        |       |       |
|   Unused        tax loss carryforwards                    | 5,464  | 5,725      | 5,370      |
|   Other        unused tax credits                         | 501    | 343        | 329        |
|   Intercompany        profit in inventories               | 359    | 280        | 236        |
|   Valuation        allowance for doubtful receivables     | 596    | 536        | 523        |
|   Provisions        for warranties                        | 1,203  | 997        | 975        |
|   Provisions        for post-employment benefits     | 4,641  | 4,971      | 4,687      |
|   Provisions        for restructuring measures            | 895    | 622        | 370        |
|   Other        deductible temporary differences           | 3,510  | 2,950      | 2,756      |
|                                                                | **17,169**  | **16,424** | **15,246** |
| Valuation        allowance                                          | (2,676)     | (3,063)    | (2,718)    |
| **Deferred        tax assets after deduction for valuation**        |        |       |       |
| allowance                                                           | 14,493      | 13,361     | 12,528     |
| Deferred        tax liabilities:                                    |        |       |       |
|   Accelerated        depreciation on property, plant and  |        |       |       |
| equipment                                                           | 2,081  | 2,059      | 1,979      |
|   Accelerated        depreciation on leasing assets       | 2,542  | 684        | 1,062      |
|   LIFO        valuation of inventories                    | 916    | 1,075      | 350        |
|   Capitalized        product and software development     | 571         | 951        | 1,071      |
|   Untaxed        reserves                                 | 543    | 564        | 688        |
|   Other        taxable temporary differences              | 1,143       | 1,329      | 1,119      |
|                                                                | **7,796**   | **6,662**  | **6,269**  |
| **Deferred        tax assets, net 1**                               | **6,697**   | **6,699**  | **6,259**  |

1 Deferred taxes are partiallyrecognized in the balance sheet on a net basis after taking intoaccount offsetting possibilities.

 

Note 11 Minority interests

Minority interests in net income (loss)and in shareholders’ equity consisted mainly of the minorityinterests in Volvo Aero Norge AS (22%) and in Volvo Aero ServicesLP (5%). The Henlys Group’s holding (49%) in PrévostHolding BV was reported as minority interest up to the thirdquarter 2001. As of October 1, 2001, Henlys’ ownershipinterest was increased to 50% and Prévost Holding BV is fromthis date consolidated by the proportionate method.

 

 

Note 12 Intangible and tangibleassets

 

| **Acquisition costs**                      | Value in
balance

sheet 2001 | Value in
balance

sheet 2002 | Capital
expenditures | Sales/
scrapping | Acquired and
divested 

operations 4) | Translation
differences | Reclassi-
fications

and other | Value in
balance

sheet 2003 |
|--------------------------------------------|------------------------------|------------------------------|----------------------|------------------|---------------------------------------|-------------------------|--------------------------------|------------------------------|
| Goodwill                                   | 15,974                       | 14,787                       | –               | (13)             | 878                                   | (678)                   | 3                              | 14,977                       |
| Entrance        fees, aircraft             |                         |                         |                 |             |                                  |                    |                           |                         |
| engine        programs                     | 2,089                        | 2,116                        | 97                   | –           | –                                | (12)                    | 20                             | 2,221                        |
| Product        and software                |                         |                         |                 |             |                                  |                    |                           |                         |
| development                                | 2,039                        | 3,949                        | 1,021                | –           | 6                                     | (91)                    | 7                              | 4,892                        |
| Other        intangible assets             | 2,263                        | 2,122                        | 58                   | (504)            | 43                                    | (93)                    | (30)                           | 1,596                        |
| **Total        intangible assets**         | **22,365**                   | **22,974**                   | **1,176**            | **(517)**        | **927**                               | **(874)**               | **0**                          | **23,686**                   |
| Buildings                                  | 17,049                       | 16,688                       | 586                  | (196)            | 527                                   | (965)                   | 180                            | 16,820                       |
| Land        and land improvements          | 4,592                        | 4,169                        | 113                  | (55)             | 183                                   | (335)                   | 49                             | 4,124                        |
| Machinery        and equipment 1           | 39,135                       | 38,425                       | 3,804                | (1,321)          | 947                                   | (2,080)                 | 332                            | 40,107                       |
| Construction        in progress            |                         |                         |                 |             |                                  |                    |                           |                         |
| including        advance payments          | 2,752                        | 2,111                        | 436                  | (2)              | 9                                     | (95)                    | (648)                          | 1,811                        |
| Total        property, plant and equipment | 63,528                       | 61,393                       | 4,939                | (1,574)          | 1,666                                 | (3,475)                 | (87)                           | 62,862                       |
| Assets        under operating leases       | 42,077                       | 39,367                       | 5,566                | (5,611)          | 120                                   | (3,021)                 | (2,067)                        | 34,354                       |
| **Total        tangible assets**           | **105,605**                  | **100,760**                  | **10,505**           | **(7,185)**      | **1,786**                             | **(6,496)**             | **(2,154)**                    | **97,216**                   |

 

|                                                   | Value in            | Value in            | Deprecia-                          |             | Acquired                         | Trans-                |                           | Value in            | Net carrying                                |
|--------------------------------------------------------|---------------------|---------------------|------------------------------------|------------------|----------------------------------|-----------------------|--------------------------------|---------------------|---------------------------------------------|
| **Accumulated**
**depreciation and**

**amortization** | balance
sheet

2001 | balance
sheet

2002 | tion and 
amortiza-

tion  2) | Sales/
scrapping | and
divested

operations 4) | lation
differ-

ences | Reclassi-
fications

and other | balance
sheet

2003 | value in bal-
ance sheet

2003 3  |
| Goodwill                                               | 2,961               | 3,490               | 873                                | (10)             | (18)                             | (195)                 | (314)                          | 3,826               | 11,151                                      |
| Entrance        fees,                                  |                |                |                               |             |                             |                  |                           |                |                                        |
| aircraft        engine                                 |                |                |                               |             |                             |                  |                           |                |                                        |
| programs                                               | 1,306               | 1,201               | 81                                 | –           | –                           | (10)                  | 19                             | 1,291               | 930                                         |
| Product        and software                            |                |                |                               |             |                             |                  |                           |                |                                        |
| development                                            | 3                   | 491                 | 538                                | –           | 2                                | (33)                  | (1)                            | 997                 | 3,895                                       |
| Other        intangible                                |                |                |                               |             |                             |                  |                           |                |                                        |
| assets                                                 | 570                 | 747                 | 141                                | (314)            | (4)                              | (26)                  | 272                            | 816                 | 780                                         |
| Total        intangible                                |                |                |                               |             |                             |                  |                           |                |                                        |
| assets                                                 | 4,840               | 5,929               | 1,633                              | (324)            | (20)                             | (264)                 | (24)                           | 6,930               | 16,756                                      |
| Buildings                                              | 6,408               | 6,445               | 629                                | (123)            | 119                              | (382)                 | 75                             | 6,763               | 10,057                                      |
| Land        and land                                   |                |                |                               |             |                             |                  |                           |                |                                        |
| improvements                                           | 484                 | 454                 | 58                                 | (7)              | 9                                | (44)                  | 13                             | 483                 | 3,641                                       |
| Machinery        and                                   |                |                |                               |             |                             |                  |                           |                |                                        |
| equipment        1)                                    | 23,402              | 23,695              | 3,322                              | (1,066)          | 459                              | (1,255)               | (179)                          | 24,976              | 15,131                                      |
| Construction        in progress,                       |                |                |                               |             |                             |                  |                           |                |                                        |
| including        advance                               |                |                |                               |             |                             |                  |                           |                |                                        |
| payments                                               | –              | –              | –                             | –           | –                           | –                | –                         | –              | 1,811                                       |
| Total        property,                                 |                |                |                               |             |                             |                  |                           |                |                                        |
| plant        and                                       |                |                |                               |             |                             |                  |                           |                |                                        |
| equipment                                              | 30,294              | 30,594              | 4,009                              | (1,196)          | 587                              | (1,681)               | (91)                           | 32,222              | 30,640                                      |
| Assets        under                                    |                |                |                               |             |                             |                  |                           |                |                                        |
| operating        leases                                | 14,976              | 15,842              | 4,527                              | (2,997)          | 25                               | (1,166)               | (3,078)                        | 13,153              | 21,201                                      |
| Total        tangible                                  |                |                |                               |             |                             |                  |                           |                |                                        |
| assets                                                 | 45,270              | 46,436              | 8,536                              | (4,193)          | 612                              | (2,847)               | (3,169)                        | 45,375              | 51,841                                      |

1 Machinery and equipment pertainsmainly to production equipment. 

2 Includes write-downs, 140.

3 Acquisition costs lessaccumulated depreciation and amortization.

4 Includes subsidiaries and jointventures that previously were accounted for according to theequity method.

 

|                                                      |       |       |       |
|-----------------------------------------------------------|------------|------------|------------|
| **Depreciation        and amortization by type of asset** | 2001       | 2002       | 2003       |
| Intangible        assets                                  | 1,265      | 1,586      | 1,633      |
| Property,        plant and equipment                      | 4,545      | 4,134      | 4,009      |
| Assets        under operating leases                      | 4,151      | 5,124      | 4,527      |
| **Total**                                                 | **9,961**  | **10,844** | **10,169** |
|                                                      |       |       |       |
|                                                      |       |       |       |
| **Capital        expenditures by type of asset**          | 2001       | 2002       | 2003       |
| Intangible        assets                                  | 2,574      | 2,011      | 1,176      |
| Property,        plant and equipment                      | 5,713      | 4,802      | 4,939      |
| Assets        under operating leases                      | 5,852      | 5,424      | 5,566      |
| **Total**                                                 | **14,139** | **12,237** | **11,681** |

Capital expenditures for property,plant and equipment approved but not yet implemented at December31, 2003, amounted to SEK 6.4 billion (5.5; 6.1).

Investment property

Investment property is propertyowned for the purpose of obtaining rental income and/orappreciation in value. The acquisition cost of investmentproperty was 1,858 at year-end. Capital expenditures during 2003amounted to 59. Accumulated depreciation was 409 at year-end,whereof 62 during 2003. The estimated fair value of investmentproperty was SEK 2.2 billion at year-end, based on discountedcash flow projections. The required return is based on currentproperty market conditions for comparable properties incomparable locations. All investment properties were leasedduring the year. Net income for the year was affected by 337 inrental income from investment properties and 70 in direct costs.

 

 

Note 13 Shares and participations

| **Group holdings of shares and        participations in non-Group companies** | Registration
number | Percentage
holding 1) | Dec 31, 2002
Carrying value

SEK M 2) | Dec 31, 2003
Carrying value

SEK M 2) |
|-------------------------------------------------------------------------------|---------------------|-----------------------|---------------------------------------|---------------------------------------|
| **Shares        in associated companies, equity method**                      |                |                  |                                  |                                  |
| of        accounting                                                          |                |                  |                                  |                                  |
| Aviation        Lease Finance USA                                             | –              | 49                    | 172                                   | 165                                   |
| Blue        Chip Jet HB, Sweden                                               | 969639-1011         | 40                    | 151                                   | 98                                    |
| Arbustum        Invest AB, Sweden                                             | 556543-4247         | 40                    | 32                                    | 33                                    |
| Merakvim        Metal Works Ltd, Israel                                       | –              | 27                    | 22                                    | 21                                    |
| Euromation        AB, Sweden                                                  | 556232-0134         | 53                    | 20                                    | 20                                    |
| Petro        Stopping Centers Holdings, LP, USA                               | –              | 29                    | 80                                    | 0                                     |
| Bilia        AB, Sweden                                                       | 556112-5690         |                  | 710                                   | –                                |
| Shanghai        Sunwin Bus Corp, China 3)                                     | –              | 50                    | 139                                   | –                                |
| Xian        Silver Bus Corp., China 3)                                        | –              | 50                    | 135                                   | –                                |
| Other        holdings                                                         |                |                  | 196                                   | 26                                    |
| **Total        shares and participations in associated companies (4)**        |                |                  | **1,657**                             | **363**                               |

 

| **Shares and participations in other        companies**          | Registration
number | Percentage
holding 1 | Dec 31, 2002
Carrying value

SEK M 2 | Dec 31, 2003
Carrying value

SEK M 2 |
|------------------------------------------------------------------|---------------------|----------------------|--------------------------------------|--------------------------------------|
| Scania        AB, Sweden                                         | 556184-8564         | 46/31                | 24,026                               | 20,424                               |
| Deutz        AG, Germany                                         | –              | 11                   | 670                                  | 670                                  |
| Henlys        Group Plc, Great Britain                           | –              | 10                   | 524                                  | 95                                   |
| Bilia        AB, Sweden                                          | 556112-5690         | 2                    | –                               | 28                                   |
| Other        holdings                                            |                |                 | 615                                  | 626                                  |
| **Total        shares and participations in other companies**    |                |                 | **25,835**                           | **21,843**                           |
| **Carrying        value in accordance with Group balance sheet** |                |                 | **27,492**                           | **22,206**                           |

1 Where two percentage figures areshown, the first refers to share capital and the second to votingrights. 

2 Associated companies arereported in accordance with the equity method. Other companiesare reported at cost. 

3 From 2003 reported according tothe proportionate method of consolidation.

4 Volvo’s share ofshareholders’ equity in associated companies (incl. equityin untaxed reserves) amounted to 363 (1,629; 1,951). Excessvalues amounted to 0 (28; 16).

The market values of Volvo’sholdings of shares and participations in listed companies as ofDecember 31, 2003 are shown in the table below. When the carryingvalue of an investment exceeds its market value, it has beenassessed that the fair value of the investment is higher than thequoted market price of this investment.

|                                          | Carrying value | Market value |
|-----------------------------------------------|----------------|--------------|
| Scania        AB                              | 20,424         | 18,459       |
| Deutz        AG                               | 670            | 190          |
| Henlys        Group Plc                       | 95             | 95           |
| Bilia        AB                               | 28             | 54           |
| **Total        holdings in listed companies** | **21,217**     | **18,798**   |
| Holdings        in non listed companies       | 989            | –       |
| **Total        shares and participations**    | **22,206**     |         |

Scania AB

During 1999 and 2000, Volvoacquired 45.5% of the capital and 30.6% of the voting rights inScania AB, one of the world’s leading manufacturers oftrucks and buses. As a concession in connection with the EuropeanCommission’s approval of Volvo’s acquisition of RenaultV.I. and Mack Trucks Inc. in 2001, Volvo undertook to divest itsholding in Scania not later than April, 2004. At year-end 2003,the carrying value of Volvo’s holding in Scania AB wasdetermined to SEK 20.4 billion, and a write-down of SEK 3.6billion was thereby charged to operating income for the year. Thecarrying value of the holding of the 63.8 million Scania B shareswas determined based upon the consideration received when Volvodivested those shares to Deutsche Bank on March 4, 2004. Thecarrying value of the holding of 27.3 million Scania A shares wasdetermined based upon the closing share price of SEK 202 onDecember 31, 2003. In March, 2004, AB Volvo’s Board ofDirectors proposed that the Annual General Meeting approve adividend to AB Volvo’s shareholders of 99% of the shares inAinax AB, a wholly owned subsidiary, which at the time of thedistribution would hold Volvo’s entire holding of Scania Ashares.

Henlys Group Plc

During 1998 and 1999, Volvoacquired 9.9% of the capital and voting rights in Henlys GroupPlc at a total acquisition cost of 524. Henlys Group is a britishcompany involved in manufacturing and distribution of buses andbus bodies in Great Britain and North America. Volvo and HenlysGroup jointly own the shares of the North American bus operationsPrévost and Nova Bus. In February and March 2004, Henlysannounced that its earnings for 2004 was expected to besignificantly lower than previously anticipated. As a consequenceof receiving this information, it was determined that Volvo’sholding in Henlys Group Plc was permanently impaired at December31, 2003, and a write-down of 429 was charged to income for theyear. After this write-down, the carrying value of Volvo’sshares in Henlys Group amounted to 95, corresponding to themarket value of these shares at year-end 2003. In the beginningof March 2004, the market value of Volvo’s shares amountedto 24.

Bilia ABIn 2003, Volvo exchanged 41% of the shares in Bilia for 98% ofthe shares in Kommersiella Fordon Europa AB. The capital gain was188.

Effero ABIn 2003, Volvo divested its entire holding in Effero with acapital gain of 59.

Shanghai Sunwin Bus CorpAs of 2003, Shanghai Sunwin Bus is reported in the Volvo Groupaccording to the proportionate method of consolidation. 

Xian Silver Bus CorpAs of 2003, Xian Silver Bus is reported in the Volvo Groupaccording to the proportionate method of consolidation.

Eddo Restauranger ABIn 2002, Volvo divested its entire holding in Eddo with a capitalgain of 32.

Mitsubishi Motors Corporation (MMC)In 2001, Volvo divested its holding and all rights andobligations relating to MMC, which resulted in a capital gain of574, net of termination costs of 194.

AB VolvofinansIn 2001, Volvo divested its entire holding in Volvofinans for atotal purchase price of 871 and with a capital gain of 61.

Arrow Truck SalesIn 2001, Volvo increased its holding to 100% and Arrow therebybecame a subsidiary of Volvo. 

SM Motors Pte LtdIn 2001, Volvo divested its entire holding in SM Motors with acapital loss of 13.

 

| **Changes        in the Volvo Group’s holdings of shares and        participations:** | 2001       | 2002             | 2003       |
|--------------------------------------------------------------------------------------------|------------|------------------|------------|
| Balance        sheet, December 31, preceding year                                          | 30,481     | 27,798           | 27,492     |
| Acquisitions        and divestments, net                                                   | (2,844)    | 97               | (720)      |
| New        issue of shares and shareholders’ contributions                            | 94         | 89               | 280        |
| Share        of income in associated companies, before income taxes                        | (2)        | 138              | (41)       |
| Income        taxes related to associated companies                                        | (42)       | (65)             | (30)       |
| Dividends                                                                                  | (74)       | (64)             | (51)       |
| Write-downs                                                                                | (53)       | (7)              | (4,073)    |
| Change        in group structure                                                           | –     | (210)            | (470)      |
| Translation        differences                                                             | 97         | (203)            | (118)      |
| Other                                                                                      | 141        | (81)             | (63)       |
| Balance        sheet, December 31                                                          | **27,798** | **27,492**       | **22,206** |
|                                                                                       |       |             |       |
|                                                                                       |       |             |       |
| Note        14         Long-term customer-financing receivables><                    | 2001       | 2002             | 2003       |
| Installment        credits                                                                 | 13,668     | 14,239           | 13,011     |
| Financial        leasing                                                                   | 11,534     | 10,341           | 9,975      |
| Other        receivables                                                                   | 873        | 627              | 462        |
| **Total**                                                                                  | **26,075** | **25,207**       | **23,448** |
|                                                                                       |       |             |       |
|                                                                                       |       |             |       |
| Note        15 Other long-term receivables><                                         | 2001       | 2002             | 2003       |
| Convertible        debenture loan in Henlys Group Plc 1)                                   | 2,561      | 2,118       | 1,746      |
| Other        loans to external parties                                                     | 2,635      | 1,364            | 871        |
| Prepaid        pensions                                                                    | 358        | 706         | 152        |
| Deferred        tax assets                                                                 | 7,741      | 7,611       | 6,828      |
| Other        receivables                                                                   | 1,161      | 686         | 890        |
| Total                                                                                      | **14,456** | **12,485 ** | **10,487** |

In October 1999, Volvo issued aconvertible debenture loan to Henlys Group Plc of USD 240 M inconnection with Henlys Group’s acquisition of the US schoolbus manufacturer Bluebird. The convertible debenture loan maturesin October 2009. In February and March 2004, Henlys Groupannounced that its earnings for 2004 would be significantly lowerthan previously anticipated. After this announcement, the quotedmarket price of Henlys Group’s shares fell significantly. Inconnection with the preparation of these financial statements,Volvo has evaluated the financial situation of Henlys Group andassessed that no impairment loss has been incurred on theconvertible debenture loan.

Note 16 Inventories

|                              | 2001       | 2002       | 2003       |
|-----------------------------------|------------|------------|------------|
| Finished        products          | 20,303     | 17,987     | 17,425     |
| Production        materials, etc. | 10,772     | 10,318     | 9,034      |
| Total        1)                   | **31,075** | **28,305** | **26,459** |

1 Of which inventories valued tonet realisable value amounting to 12,246.

 

| Increase        (decrease) in allowance for inventory obsolescence |      |      |      |
|--------------------------------------------------------------------|-----------|-----------|-----------|
| Balance        sheet, December 31, preceding year                  | 1,333     | 3,017     | 2,710     |
| Increase        in allowance for inventory obsolescence            |      |      |      |
| charged        to income                                           | 252       | 248       | 203       |
| Scrapping                                                          | (162)     | (348)     | (338)     |
| Acquired        and divested operations                            | 1,421     | (1)       | (15)      |
| Translation        differences                                     | 224       | (262)     | (160)     |
| Reclassifications,        etc.                                     | (51)      | 56        | (154)     |
| Balance        sheet, December 31                                  | **3,017** | **2,710** | **2,246** |

Note 17 Short-term customer-financingreceivables

|                       | 2001       | 2002       | 2003       |
|----------------------------|------------|------------|------------|
| Installment        credits | 8,450      | 8,306      | 8,947      |
| Financial        leasing   | 5,913      | 5,269      | 5,737      |
| Retailer        financing  | 7,296      | 7,356      | 6,555      |
| Other        receivables   | 1,050      | 860        | 1,315      |
| Total                      | **22,709** | **21,791** | **22,554** |

Note 18 Other short-termreceivables

|                                                                                                                  | 2001       | 2002       | 2003       |
|-----------------------------------------------------------------------------------------------------------------------|------------|------------|------------|
| Accounts        receivable                                                                                            | 21,658     | 17,155     | 16,924     |
| Prepaid        expenses and accrued income 1)                                                                         | 2,478      | 2,846      | 3,036      |
| VAT        receivables                                                                                                | 1,684      | 1,333      | 1,181      |
| Loans        to external parties 1)                                                                                   | 2,114      | 1,300      | 3,863      |
| Prepaid        pensions                                                                                               | 412        | 2          | –     |
| Current        income tax receivables                                                                                 | 988        | 634        | 530        |
| Other        receivables                                                                                              | 4,235      | 3,725      | 3,232      |
| **Total,        after deduction of valuation allowances for         doubtful accounts receivable 932 (1,079; 1,393)** | **33,569** | **26,995** | **28,766** |

1 Effective in 2003, Volvo hasadopted RR 27, Financial instrument; Disclosure and presentation.See further in Note 1. As result of this change of accountingprinicples, accrued interest income increased by SEK 0.6 billionand loans increased by SEK 3.0 billion at December 31, 2003.

| **Change        of valuation allowances for doubtful accounts receivable** | 2001      | 2002      | 2003    |
|----------------------------------------------------------------------------|-----------|-----------|---------|
| Balance        sheet, December 31, preceding year                          | 1,101     | 1,393     | 1,079   |
| Change        of valuation allowance charged to income                     | 222       | 224       | 201     |
| Utilization        of valuation allowance related to                       |      |      |    |
| actual        losses                                                       | (241)     | (290)     | (239)   |
| Acquired        and divested operations                                    | 303       | (5)       | 68      |
| Translation        differences                                             | 42        | (266)     | (81)    |
| Reclassifications,        etc.                                             | (34)      | 23        | (96)    |
| Balance        sheet, December 31                                          | **1,393** | **1,079** | **932** |

 

Note 19 Marketablesecurities><Marketable securities consist mainly ofinterest-bearing securities, distributed as shown below:

|                                      | 2001       | 2002       | 2003       |
|-------------------------------------------|------------|------------|------------|
| Government        securities              | 1,399      | 203        | 203        |
| Banks        and financial institutions   | 436        | 484        | 116        |
| Corporate        institutions             | 3,968      | 1,140      | 176        |
| Real        estate financial institutions | 7,626      | 14,841     | 19,023     |
| Other                                     | 85         | 39         | 11         |
| **Total**                                 | **13,514** | **16,707** | **19,529** |
|                                      |       |       |       |
| Note        20 Cash and bank accounts     | 2001       | 2002       | 2003       |
| Cash        in banks                      | 4,941      | 4,157      | 5,782      |
| Time        deposits in banks             | 8,928      | 4,714      | 3,424      |
| Total                                     | **13,869** | **8,871**  | **9,206**  |

Note 21 Shareholders’ equity

The share capital of the ParentCompany is divided into two series of shares: A and B. Bothseries carry the same rights, except that each Series A sharecarries the right to one vote and each Series B share carries theright to one tenth of a vote. 

  The total number ofregistered shares by year end 2003 amounted to 441,520,885. Afterrepurchase of 5% of the registered shares in 2001, the totalnumber of outstanding Volvo shares by year end 2003 amounted to419,444,842 whereof Series A shares 131,674,699 and Series Bshares 287,770,143. Par value per share is SEK 6.00. Total parvalue was 2,649 and is based on 441,520,885 registered shares.The average number of outstanding shares was 419,444,842 in 2003.

  In accordance with theSwedish Companies Act, distribution of dividends is limited tothe lesser of the unrestricted equity shown in the consolidatedor Parent Company balance sheets after proposed appropriations torestricted equity. Unrestricted equity in the Parent Company atDecember 31, 2003 amounted to 50,878. 

  As of December 31,2003, Volvo-related foundations’ holdings in Volvo were 0.17%of the share capital and 0.37% of the voting rights. 

  As shown in theconsolidated balance sheet as of December 31, 2003, unrestrictedequity amounted to 57,002. (61,536; 70,239). It is estimated that0 of this amount will be allocated to restricted reserves.><

 

Note 22 Provisions for post-employmentbenefits><

Post-employment benefits, such aspensions, healthcare and other benefits are mainly settled bymeans of regular payments to independent authorities or bodiesthat assume pension obligations and administer pensions throughdefined contribution plans. The remaining post-employmentbenefits are defined benefit plans; that is, the obligationsremain within the Volvo Group or are secured by own pensionfoundations. Costs and the obligations at the end of period fordefined benefit plans are calculated based on actuarialassumptions and measured on a discounted basis. The Volvo groupdefined benefits plans relate mainly to subsidiaries in the USand comprise both pensions and other benefits, such as healthcare.Other large-scale defined benefit plans apply for salariedemployees in Sweden (mainly through the Swedish ITP pension plan)and employees in France and Great Britain.

  As of 2003 Volvo hasadopted RR 29 Employee Benefits in its financial reporting. Inaccordance with the new standard, defined benefit plans in allthe Group’s subsidiaries are accounted for by use ofconsistent principles. In Volvo’s financial reporting up to2002, such plans have been accounted for by applying the localrules and directives in each country. In accordance with thetransition rules, a transitional liability was established as atJanuary 1, 2003, determined in accordance with RR 29. Thistransitional liability exceeded the liability recognized as atDecember 31, 2002, in accordance with earlier principles by SEK 2.3billion. The excess liability was consequently recognized as atJanuary 1, 2003, as an increase in provisions for post-employmentbenefits and a corresponding decrease in shareholders’equity. Comparable figures for prior years have not been restated.See note 1 for further information about the effects of thischange in accounting principles.

  The following tablesdisclose information about defined benefit plans in the VolvoGroup. The information refers to assumptions applied foractuarial calculations, periodical costs and the value ofobligations and plan assets at year-end. The tables also includereconciliation of obligations and plan assets during the year andthe difference between fair values and carrying amounts reportedon the balance sheet date. 

 

|                                                      | 2003      |
|-----------------------------------------------------------|-----------|
| **Assumptions        applied for actuarial calculations** | January 1 | December 31 |
| **Sweden**                                                |      |   |
| Discount        rate                                      | 5.5       | 5.5 |
| Expected        return on plan assets 1)                  | 6.0       | 6.0 |
| Expected        salary increases                          | 3.0       | 3.0 |
| **United        States**                                  |      |   |
| Discount        rate                                      | 6.75      | 6.25 |
| Expected        return on plan assets 1)                  | 7.65      | 7.65 |
| Expected        salary increases                          | 3.5       | 3.5 |
| **France**                                                |      |   |
| Discount        rate                                      | 5.5       | 5.25 |
| Expected        salary increases                          | 3.0       | 3.0 |
| **Great        Britain**                                  |      |   |
| Discount        rate                                      | 5.5       | 5.5 |
| Expected        return on plan assets 1)                  | 7.0       | 7.0 |
| Expected        salary increases                          | 3.5       | 3.5 |

1 Applicable for the followingaccounting period. These assumptions reflect the expected long-termreturn rate on plan assets, based upon historical yield rates fordifferent categories of investments and weighted in accordancewith the foundation’s investment policy. The expected returnhas been calculated net of administrative expenses and applicabletaxes.

| **Pension        costs**                            | 2001      | 2002      | 2003      |
|-----------------------------------------------------|-----------|-----------|-----------|
| Current        service costs                        |      |      | 646       |
| Interest        costs                               |      |      | 1,377     |
| Expected        return on plan assets               |      |      | (828)     |
| Actuarial        gains and losses 1)                |      |      | –    |
| Past        service costs                           |      |      |      |
| –        Unvested                              |      |      | –    |
| –        Vested                                |      |      | 46        |
| Curtailments        and settlements                 |      |      | 3         |
| Termination        benefits                         |      |      | 169       |
| **Pension        costs for defined benefit plans**  |      |      | **1,413** |
| Pension        costs for defined contribution plans |      |      | 2,461     |
| **Total        pension costs**                      | **3,332** | **4,472** | **3,874** |

1 For each plan, actuarial gainsand losses are reported as income or expenses, when theaccumulated amount exceeds the so called corridor. The income orexpenses are then recognized over the expected average remainingservice period of the employees

| **Costs        for post-employment benefits other than pensions**       | 2003    |
|-------------------------------------------------------------------------|---------|
| Current        service costs                                            | 107     |
| Interest        costs                                                   | 415     |
| Expected        return on plan assets                                   | 0       |
| Actuarial        gains and losses 1)                                    | –  |
| Past        service costs                                               |    |
| –        Unvested                                                  | –  |
| –        Vested                                                    | –  |
| Curtailments        and settlements                                     | (4)     |
| Termination        benefits                                             | 32      |
| **Total        costs for post-employment benefits other than pensions** | **550** |

1 Actuarial gains and losses arefor each plan reported as income or expenses, when theaccumulated amount exceed the so called corridor. The income orexpenses are then recognized over the expected average remainingservice period of the employees.An increase of one percentage point per year in healthcare costswould change the accumulated post-employment benefit obligationas of December 31, 2003 by approximately 171, and the post-employmentbenefit expense by approximately 13. A decrease of 1% woulddecrease the accumulated value of obligations by about 147 andreduce costs by approximately 11. Calculations made as ofDecember 31, 2003 show an annual increase of 11.5% in theweighted average per capita costs of covered healthcare benefits;it is assumed that the percentage will decline gradually to 5%and then remain at that level.

|                                        | Sweden

Pensions | United

States

Pensions | France

Pensions | Great

Britain

Pensions | US

Other

benefits | Other

plans | **Total**   |
|---------------------------------------------|------------------|--------------------------|------------------|--------------------------|---------------------|--------------|-------------|
|                                        |
| Obligations        in defined benefit plans |
| Obligations        at January 1, 2003       | 5,053            | 11,748                   | 2,479            | 3,059                    | 6,917               | 1,551        | **30,807**  |
| Acquisitions        and divestments, net    | 37               | –                   | –           | –                   | –              | –       | **37**      |
| Service        costs                        | 217              | 195                      | 34               | 76                       | 104                 | 127          | **753**     |
| Interest        costs                       | 271              | 742                      | 146              | 158                      | 414                 | 61           | **1,792**   |
| Unvested        past service costs          | –           | 14                       | 66               | –                   | –              | 1            | **81**      |
| Vested        past service costs            | –           | 25                       | –           | –                   | –              | 21           | **46**      |
| Termination        benefits                 | 130              | –                   | 32               | –                   | –              | 39           | **201**     |
| Curtailments                                | 2                | –                   | –           | –                   | –              | (5)          | **(3)**     |
| Employee        contributions               | –           | –                   | –           | 25                       | –              | 4            | **29**      |
| Actuarial        gains (–)             |             |                     |             |                     |                |         |        |
| and        losses (+)                       | (156)            | 925                      | 6                | 31                       | 686                 | 48           | **1,540**   |
| Exchange        rate translation            | –           | (2,175)                  | (26)             | (271)                    | (1,279)             | (51)         | **(3,802)** |
| Benefits        paid                        | (222)            | (767)                    | (404)            | (92)                     | (564)               | (201)        | **(2,250)** |
| **Obligations        at December 31, 2003** | **5,332**        | **10,707**               | **2,333**        | **2,986**                | **6,278**           | **1,595**    | **29,231**  |
| of        which                             |             |                     |             |                     |                |         |        |
| Funded        defined benefit plans         | 4,422            | 10,433                   | –           | 2,977                    | 4,769               | 1,224        | **23,825**  |

 

|                                                                               | United
Sweden

Pensions | States
Pensions | Great
France

Pensions | US
Britain

Pensions | Other
benefits | Other
plans | **Total**    |
|------------------------------------------------------------------------------------|-------------------------|-----------------|------------------------|----------------------|----------------|-------------|--------------|
|                                                                               |
| **Fair        value of plan assets in funded plans**                               |
| Plan        assets at January 1, 2003                                              | 3,255                   | 6,752           | –                 | 2,221                | 71             | 1,004       | **13,303**   |
| Acquisitions        and divestments, net                                           | –                  | –          | –                 | –               | –         | –      | **–**   |
| Actual        return on plan assets                                                | 337                     | 1,201           | –                 | 227                  | 1              | 66          | **1,832**    |
| Employer        contributions                                                      | –                  | 843             | –                 | 72                   | 81             | 106         | **1,102**    |
| Employee        contributions                                                      | –                  | –          | –                 | 25                   | –         | 1           | **26**       |
| Exchange        rate translation                                                   | –                  | (1,314)         | –                 | (199)                | (18)           | (21)        | **(1,552)**  |
| Benefits        paid                                                               | –                  | (755)           | –                 | (92)                 | (24)           | (94)        | **(965)**    |
| **Plan        assets at December 31, 2003**                                        | **3,592**               | **6,727**       | **–**             | **2,254**            | **111**        | **1,062**   | **13,746**   |
|                                                                               |                    |            |                   |                 |           |        |         |
| **Net        provisions post-employment benefits**                                 |                    |            |                   |                 |           |        |         |
| Funded        status at December 31, 2003                                          | (1,740)                 | (3,980)         | (2,333)                | (732)                | (6,167)        | (533)       | **(15,485)** |
| Unrecognized        actuarial                                                      |                    |            |                   |                 |           |        |         |
| (gains)        and losses                                                          | (307)                   | 157             | 4                      | (76)                 | 619            | 3           | **400**      |
| Unrecognized        past service                                                   |                    |            |                   |                 |           |        |         |
| costs                                                                              | –                  | 8               | (3)                    | 2                    | (14)           | (2)         | **(9)**      |
| **Net        provisions for post-employment benefits at December 31,        2003** | (2,047)                 | (3,815)         | (2,332)                | (806)                | (5,562)        | (532)       | **(15,094)** |
| whereof        reported as                                                         |                    |            |                   |                 |           |        |         |
| Prepaid        pensions and other assets                                           | 3                       | 132             | 3                      | –               | 1              | 55          | **194**      |
| Provisions        for post-employment benefits                                     | (2,050)                 | (3,947)         | (2,335)                | (806)                | (5,563)        | (587)       | **(15,288)** |

Volvo’s pension foundation inSweden was formed in 1996 to secure obligations relating toretirement pensions for salaried employees in Sweden inaccordance with the ITP plan (a Swedish individual pension plan).Plan assets amounting to 2,456 was contributed to the foundationat its formation, corresponding to the value of the pensionobligations at that time. Since its formation, net contributionsof 232 have been made to the foundation. The plan assets in Volvo’sSwedish pension foundation are invested in Swedish and foreignshares and mutual funds, and in interest-bearing securities, inaccordance with a distribution that is determined by thefoundation’s Board of Directors. During 2001 and 2002, thefair value of the foundation’s plan assets decreased as aresult of the downturn on the stock market and provisions tocover pensions obligations in excess of the fair value of planassets was made with an amount of 292 in 2001 and 807 in 2002among the Group’s pension costs. According to RR 29,Employee Benefits, which has been applied as from 2003, Grouppension costs are affected by an expected return on the planassets, and discrepancies between the expected return and theactual return are treated as actuarial gains or losses. AtDecember 31, 2003, the fair value of the foundation’s planassets amounted to 3,592, of which 47% was invested in shares ormutual funds. At the same date, retirement pension obligationsattributable to the ITP plan amounted to 4,422. Swedish companiescan secure new pension obligations through balance sheetprovisions or pension fund contributions. Furthermore, a creditinsurance must be taken out for the value of the obligations. Inaddition to benefits relating to retirement pensions, the ITPplan also includes, for example, a collective family pension,which Volvo finances through insurance with the Alecta insurancecompany. According to an interpretation from the SwedishFinancial Accounting Standards Council’s interpretationscommittee, this is a multi-employer defined benefit plan. Forfiscal year 2003, Volvo did not have access to information fromAlecta that would have enabled this plan to be reported as adefined benefit plan. Accordingly, the plan has been reported asa defined contribution plan.

  Volvo’ssubsidiaries in the United States mainly secure their pensionobligations through transfer of funds to pension plans. At theend of 2003, the total value of pension obligations secured bypension plans of this type amounted to 10,433. At the same pointin time, the total value of the plan assets in these plansamounted to 6,727, of which 63% was invested in shares or mutualfunds. The regulations for securing pension obligations stipulatecertain minimum levels concerning the ratio between the value ofthe plan assets and the value of the obligations. During 2003,Volvo contributed 843 to the pension plans in order to complywith these regulations. Up to and including 2002, Volvo’ssubsidiaries in the United States reported defined benefitpension plans in accordance with US GAAP. As required by thesereporting rules, Volvo’s year-end reports for 2001 and 2002included minimum liability adjustments to cover deficits in theGroup’s US pension plans. The effect of these on the VolvoGroup’s balance sheet for the fiscal years in question arespecified in the table below.

|                                                   | 2001    | 2002    |
|--------------------------------------------------------|---------|---------|
| Long-term        receivable for prepaid pensions       | 274     | 71      |
| Deferred        tax assets                             | –  | 122     |
| Total        assets                                    | **274** | **193** |
| Shareholders’        equity                       | (1,417) | (2,542) |
| Provision        for post-employment benefits          | 1,691   | 2,735   |
| Total        shareholders’ equity and liabilities | **274** | **193** |

 

Note 23 Other provisions

|                                       | Value in
balance

sheet 2001 | Value in
balance

sheet 2002 | Provisions
and

reversals | Utilization | Acquired and
divested

companies | Trans-
lation

differences | Reclassi-
fications | Value in 
balance 

sheet 2003 |
|--------------------------------------------|------------------------------|------------------------------|---------------------------|-------------|----------------------------------|----------------------------|---------------------|--------------------------------|
| Warranties                                 | 5,989                        | 5,977                        | 5,687                     | (5,257)     | 50                               | (286)                      | 4                   | 6,175                          |
|                                       |                         |                         |                      |        |                             |                       |                |                           |
| Provisions        in insurance operations  | 265                          | 419                          | (33)                      | –      | –                           | –                     | 0                   | 386                            |
| Restructuring                              |                         |                         |                      |        |                             |                       |                |                           |
| measures                                   | 2,342                        | 1,417                        | 41                        | (516)       | (5)                              | (103)                      | 107                 | 941                            |
| Provisions        for residual value risks | 1,716                        | 1,698                        | (165)                     | (219)       | 21                               | (137)                      | 9                   | 1,207                          |
| Provisions        for service contracts    | 1,705                        | 1,478                        | 369                       | (378)       | 48                               | (91)                       | 55                  | 1,481                          |
| Other        provisions                    | 5,366                        | 4,820                        | 1,645                     | (1,544)     | 59                               | (323)                      | (368)               | 4,289                          |
| **Total**                                  | **17,383**                   | **15,809**                   | **7,544**                 | **(7,914)** | **173**                          | **(940)**                  | **(193)**           | **14,479**                     |

Note 24 Non-current liabilities

The listing below shows the Group’snon-current liabilities in which the largest loans aredistributed by currency. Most are issued by Volvo Treasury AB andVolvo Group Finance Europe BV.

  Information on loanterms is as of December 31, 2003. Volvo hedges foreign-exchangeand interest-rate risks using derivative instruments. See Note 34.

| **Bond        loans**                                     | 2001       | 2002       | 2003       |
|-----------------------------------------------------------|------------|------------|------------|
| GBP        1999/2003, 4.6%                                | 154        | –     | –     |
| DKK        1998/2005, 4.0%                                | 317        | 310        | 58         |
| SEK        1997–2003/2005–2008, 3.08–9.8%  | 2,502      | 5,950      | 6,372      |
| JPY        1995–2003/2005–2011, 0.13–3.33% | 2,130      | 888        | 1,443      |
| HKD        1999/2006, 7.99%                               | 136        | 113        | 94         |
| CZK        2001/2005–2010, 2.6–6.5%             | 466        | 306        | 514        |
| USD        1998–2003/2005–2008, 1.32–1.78% | 2,070      | 2,154      | 1,274      |
| EUR        1995–2003/2005–2011, 0.1–7.62%  | 22,907     | 24,120     | 23,047     |
| Other        bond loans                                   | 33         | 29         | 288        |
| **Total**                                                 | **30,715** | **33,870** | **33,090** |

| **Other        loans**                                     | 2001       | 2002       | 2003       |
|------------------------------------------------------------|------------|------------|------------|
| USD        1966–2003/2005–2015, 1.31–13.0%  | 10,023     | 7,280      | 5,634      |
| EUR        1986–2003/2005–2013, 0.5–9.59%   | 1,453      | 1,841      | 3,245      |
| GBP        1995–2001/2005–2009, 4.43–7.14%  | 915        | 1,028      | 1,786      |
| SEK        1992–2003/2006–2013, 4.15–7.49%  | 650        | 224        | 349        |
| BRL        2000–2003/2005–2011, 9.85–21.64% | 641        | 435        | 626        |
| CAD        2002–2003/2006–2008, 3.53–3.7%   | 80         | 972        | 1,527      |
| AUD        2002/2005–2006, 5.99–6.43%            | –     | 400        | 208        |
| Other        loans                                         | 274        | 369        | 209        |
| Total        other long-term loans                         | **14,036** | **12,549** | **13,584** |
| Deferred        leasing income                             | 1,898      | 1,481      | 1,186      |
| Residual        value liability                            | 7,250      | 5,121      | 3,249      |
| Other        long-term liabilities                         | 231        | 102        | 192        |
| **Total**                                                  | **54,130** | **53,123** | **51,301** |

Of the above long-term loans, 1,777(1,358; 1,703) was secured.

| Long-term        loans mature as follows: |       |
|-------------------------------------------|------------|
| 2005                                      | 15,391     |
| 2006                                      | 9,218      |
| 2007                                      | 9,665      |
| 2008                                      | 5,688      |
| 2009        or later                      | 6,712      |
| Total                                     | **46,674** |

Of other long-term liabilities themajority will mature within five years.

  At year-end 2003,credit facilities granted but not utilized and which can be usedwithout restrictions amounted to approximately SEK 15 billion (18;22). Approximately SEK 13 billion of these facilities consistedof stand-by facilities for loans with varying maturities throughthe year 2007. A fee normally not exceeding 0.25% of the unusedportion is charged for credit facilities.

 

Note 25 Current liabilities

| Balance        sheet amounts for loans were as follows: |       |       |       |
|---------------------------------------------------------|------------|------------|------------|
|                                                    | 2001       | 2002       | 2003       |
| Bank        loans                                       | 7,417      | 5,442      | 3,430      |
| Other        loans 1                                    | 29,400     | 20,576     | 23,988     |
| Total                                                   | **36,817** | **26,018** | **27,418** |

Bank loans include currentmaturities, 1,659 (1,046; 1,484), of long-term loans. Other loansinclude current maturities of long-term loans, 14,470 (11,138; 12,608),and commercial paper, 5,836 (8,762; 15,966). 

  Non-interest-bearingliabilities accounted for 49,561 (48,599; 50,935), or 64% (65; 58)of the Group’s total current liabilities. 

  Balance sheet amountsfor Other current liabilities were as follows:

|                                          | 2001       | 2002       | 2003       |
|-----------------------------------------------|------------|------------|------------|
| Advances        from customers                | 3,112      | 2,589      | 1,821      |
| Current        income tax liabilities         | 707        | 621        | 459        |
| Wages,        salaries and withholding taxes  | 4,368      | 4,335      | 4,630      |
| VAT        liabilities                        | 772        | 1,056      | 988        |
| Accrued        expenses and prepaid income 1) | 7,724      | 7,315      | 8,113      |
| Deferred        leasing income                | 2,033      | 1,652      | 1,230      |
| Residual        value liability               | 4,341      | 3,985      | 3,201      |
| Other        liabilities                      | 5,156      | 4,832      | 4,591      |
| Total                                         | **28,213** | **26,385** | **25,033** |

Secured bank loans at year-end2003 amounted to 96 (588; 472). The corresponding amount forother current liabilities was 1,987 (1,775; 1,732).><

(1) Effective in 2003, Volvo hasadopted RR 27, Financial instrument; Disclosure and presentation.See further in Note 1. As result of this change of accountingprinciples other loans increased by SEK 3.0 billion and accruedinterest expenses increased by SEK 0.6 billion at December 31,2003.

Note 26 Assets pledged

|                               | 2001      | 2002      | 2003      |
|------------------------------------|-----------|-----------|-----------|
| Property,        plant and         |      |      |      |
| equipment        – mortgages  | 264       | 356       | 248       |
| Assets        under operating      |      |      |      |
| leases                             | 1,246     | 964       | 2,031     |
| Chattel        mortgages           | 394       | 495       | 350       |
| Receivables                        | 1,063     | 1,180     | 678       |
| Inventories                        | 199       | 66        | 76        |
| Cash,        marketable securities | 556       | 549       | 426       |
| Other                              | 15        | –    | –    |
| Total                              | **3,737** | **3,610** | **3,809** |

The liabilities for which theabove assets were pledged amounted at year-end to 3,860 (3,721; 3,907).

**** 

Note 27 Contingent liabilities

|                                          | 2001       | 2002      | 2003      |
|-----------------------------------------------|------------|-----------|-----------|
| Credit        guarantees                      |       |      |      |
| –        issued for associated companies | 67         | 219       | 154       |
| –        issued for customers and others | 5,557      | 3,337     | 3,508     |
| Tax        claims                             | 1,151      | 982       | 1,098     |
| Other        contingent liabilities           | 3,666      | 4,796     | 4,851     |
| Total                                         | **10,441** | **9,334** | **9,611** |

The reported amounts forcontingent liabilities reflect the Volvo Group’s riskexposure on a gross basis. The reported amounts have thus notbeen reduced because of counter guarantees received or othercollaterals in cases where a legal offsetting right does notexist. At December 31, 2003, the estimated value of counterguarantees received and other collaterals, for example theestimated net selling price of used products, amounted to 5,149.

Recourse obligations pertain toreceivables that have been transferred, less reduction forrecognized credit risks. Tax claims pertain to charges againstthe Volvo Group for which provisions are not considered necessary.

Legal proceedings 

In March 1999, an FH 12 Volvotruck was involved in a fire in the Mont Blanc tunnel. The tunnelsuffered considerable damage from the fire, which continued for50 hours. 39 people lost their lives in the fire, and 34 vehicleswere trapped in the tunnel. It is still unclear what caused thefire. The Mont Blanc tunnel was re-opened for traffic in 2002. Anexpert group was appointed by the Commercial Court in Nanterre,France, to investigate the cause of the fire and the losses itcaused. At present, it is not possible to anticipate the resultof this on-going investigation or the result of other Frenchlegal actions in progress regarding the fire. The investigatingmagistrate appointed to investigate potential criminal liabilityfor the fire issued its final order and all parties previouslyplaced under investigation, including Volvo Truck Corporation,have been sent to trial for unintentional manslaughter. It isexpected that the trial will take place in 2005.

A claim was filed with theCommercial Court in Nanterre by the insurance company employed bythe French tunnel operating company against certain Volvo Groupcompanies and the trailor manufacturer in which compensation forthe losses claimed to have been incurred by the tunnel operatingcompany was demanded. The claimant requested that the Courtpostpone its decision until the expert group has submitted itsreport. The Court of Nanterre has since then declinedjurisdiction in favour of the civil Court of Bonneville beforewhich several other claims had been filed in connection with thismatter. As a result, the Court of Bonneville is likely ultimatelyto rule on all civil liability claims filed in France againstVolvo Group companies in connection with the Mont-Blanc tunnelfire. Volvo Group companies are also involved in proceedingsregarding this matter before courts in Aosta, Italy and Brussels,Belgium. Volvo is unable to determine the ultimate outcome of thelitigation referred to above.

AB Volvo and Renault SA have adispute regarding the final value of acquired assets andliabilities in Renault V.I. and Mack. This process could resultin an adjustment in the value of the transfer. Any suchadjustment will affect the amount of acquired liquid funds andVolvo’s reported goodwill amount. The outcome of thisdispute cannot be determined with certainty. However, Volvobelieves that the outcome will not lead to an increase ingoodwill. 

Volvo is involved in a number ofother legal proceedings incidental to the normal conduct of itsbusinesses. Volvo does not believe that any liabilities relatedto such proceedings are likely to be, in the aggregate, materialto the financial condition of the Group.

Note 28 Cash flow Other items notaffecting cash pertain to risk provisions and losses related todoubtful receivables and customer-financing receivables 1,079 (1,306;1,541), deficit in the Swedish pension fund – (807; –),capital gains on the sale of subsidiaries and other businessunits 85 (–; 829), write-down of shares in Scania AB andHenlys Group Plc amounting to 4,030 (–; –) and othernegative 95 (negative 158; negative 173).

Net investments in customer-financingreceivables resulted in 2003 in a negative cash flow of SEK 4.3billion (5.7; 3.7). In this respect, liquid funds were reduced bySEK 15.6 billion (14.9; 16.6) pertaining to new investments infinancial leasing contracts and installment contracts.

Investments in shares andparticipations, net in 2003 and in 2002 amounted to SEK 0.1billion. Divestments of shares and participations, net in 2001amounted to SEK 3.9 billion, mainly related to the sale of Volvo’sholding in Mitsubishi Motors Corporation. 

  

Acquired and divested subsidiariesand other business units, net in 2003 amounted to SEK 0.0 billionand in 2002 to a negative SEK 0.1 billion. Acquired and divestedsubsidiaries and other business units, net in 2001 amounted toSEK 13.0 billion mainly pertained to the final payment of SEK 12.1billion from the sale of Volvo Cars, divestment of the insuranceoperation in Volvia and acquired liquid funds within Mack andRenault V.I.

  

During 2003, 2002 and 2001 netinstallments of loans to external parties contributed SEK 0.9billion, SEK 1.7 billion and SEK 0.2 billion, respectively toliquid funds. 

  

The change during the year inbonds and other loans increased liquid funds by SEK 1.9 billion (decrease0.1; increase 6.2). New borrowing during the year, mainly theissue of bond loans and a commercial paper program, provided SEK25.4 billion (33.1; 31.4). Amortization during the year amountedto SEK 23.5 billion (33.2; 25.2).

Note 29 Leasing 

At December 31, 2003, futurerental income from noncancellable financial and operating leases(minimum leasing fees) amounted to 27,586 (28,327; 31,109), ofwhich 25,548 (25,737; 28,183) pertains to customer-financingcompanies. Future rental income is distributed as follows:

|                                                    | Financial leases | Operating leases |
|---------------------------------------------------------|------------------|------------------|
| 2004                                                    | 6,480            | 3,976            |
| 2005–2008                                          | 10,927           | 7,151            |
| 2009        or later                                    | 91               | 747              |
| Total                                                   | **17,498**       | **11,874**       |
|                                                    |             |             |
| Allowance        for uncollectible future rental income | (168)       |             |
| Unearned        rental income                           |  (1,618)    |             |
| Present        value of future rental income            | 15,712           |             |

At December 31, 2003, futurerental payments (minimum leasing fees) related to noncancellableleases amounted to 5,009 (4,335; 5,192). 

  

| Future        rental payments are distributed as follows: |             |             |
|-----------------------------------------------------------|------------------|------------------|
|                                                      | Financial leases | Operating leases |
| 2004                                                      | 355              | 1,148            |
| 2005–2008                                            | 937              | 1,653            |
| 2009 or later                                             | 67               | 849              |
| Total                                                     | **1,359**        | **3,650**        |

Rental expenses amounted to:

|                                        | 2001      | 2002        | 2003        |
|---------------------------------------------|-----------|-------------|-------------|
| Financial        leases:                    |      |        |        |
|   –        Contingent rents  | (4)       | (11)        | (29)        |
| Operating        leases:                    |      |        |        |
|   –        Contingent rents  | (82)      | (46)        | (58)        |
|   –        Rental payments   | (899)     | (1,238)     | (1,187)     |
|   –        Sublease payments | 14        | 16          | 69          |
| Total                                       | **(971)** | **(1,279)** | **(1,205)** |

Book value of assets subject tofinance lease:

|                                | 2002      | 2003      |
|-------------------------------------|-----------|-----------|
| Acquisition        costs:           |      |      |
| Buildings                           | 110       | 143       |
| Land        and land improvements   | 32        | 66        |
| Machinery        and equipment      | 24        | 69        |
| Assets        under operating lease | 1,499     | 1,129     |
| Total                               | **1,665** | **1,407** |
| Accumulated        depreciation:    |      |      |
| Buildings                           | (62)      | (27)      |
| Land        and land improvements   | –    | –    |
| Machinery        and equipment      | (11)      | (3)       |
| Assets        under operating lease | (646)     | (561)     |
| Total                               | **(719)** | **(591)** |
| Book        value:                  |      |      |
| Buildings                           | 48        | 116       |
| Land        and land improvements   | 32        | 66        |
| Machinery        and equipment      | 13        | 66        |
| Assets        under operating lease | 853       | 568       |
| Total                               | **946**   | **816**   |

Note 30 Related parties 

The Volvo Group has transactionswith some of its associated companies. The transactions consistmainly of sales of vehicles to dealers. Commercial terms andmarket prices apply for the supply of goods and services to/fromassociated companies. Bilia AB was reported as an associatedcompany until June 30, 2003. 

|                                      | 2001   | 2002   | 2003   |
|-------------------------------------------|--------|--------|--------|
| Sales        to associated companies      | 2,179  | 2,813  | 1,486  |
| Purchase        from associated companies | 18     | 44     | 24     |
| Receivables        from associated        |   |   |   |
| companies,        Dec 31                  | 65     | 370    | 253    |
| Liabilities        to associated          |   |   |   |
| companies,        Dec 31                  | 38     | 6      | 32     |

Group holdings of shares inassociated companies are shown in Note 13, Shares andparticipations. The Volvo Group also has transactions withRenault S.A. and its subsidiaries. Sales to and purchases fromRenault S.A. amounted to 2,893 (1,523; 1,839) and 2,756 (3,608; 3,265).Amounts due from and due to Renault S.A. amounted to 501 (426;568) and 537 (642;1,128) respectively, at December 31, 2003. Thesales were mainly from Renault Trucks to Renault S.A. andconsisted of components and spare parts. The purchases weremainly made by Renault Trucks from Renault S.A. and consistedmainly of light trucks. 

  

On May 2 2003, Volvo CE NorthAmerica acquired assets associated with the distribution businessof L.B. Smith Inc., which is not consolidated since the holdingis intended to be temporary. The sales from Volvo CE to theseoperations from May 2 to December 31, 2003 amounted to 1,301 andthe receivables at year-end amounted to 15.

Note 31 Government grants 

During 2003, government grantsamounting to 121 have been received, of which 77 has beenaccounted for in the income statement. The grants were mainlyreceived from the European Commission and the Swedish government.

Note 32 Personnel 

In accordance with a resolutionadopted at the Annual General Meeting 2003, the fee paid to theBoard of Directors is a fixed amount of SEK 5,200,000, to bedistributed as decided by the Board. The Chairman of the Board,Lars Ramqvist, received a fee of SEK 1,200,000. Fixed andvariable salaries and other benefits for the Chief ExecutiveOfficer and Executive Vice President are decided by the Board ofDirectors after recommendation by the Remuneration Committee ofthe Board. The Remuneration Committee furthermore reviews andrecommends for resolution by the Board principles forremuneration for the Group Executive Committee as well asprinciples for variable salary systems, share-based incentiveprogrammes, pension schemes and severance pay for seniorexecutives. In addition, the Remuneration Committee approvesremuneration of the members of the Group Executive Committee.Fixed and variable salaries in line with the program describedbelow, and other benefits for other senior executives areprepared and decided by the executive’s superior, inconsultation with his or her superior.

 

| **Remuneration        to senior executives, SEK** | Fixed Salary   | Variable salary | Other benefits | Pension costs  | Financial instruments | Total           |
|---------------------------------------------------|----------------|-----------------|----------------|----------------|-----------------------|-----------------|
| Board        Chairman                             | 1,200,000      | -               | -              | -              | -                     | **1,200,000**   |
| CEO                                               | 10,191,761     | 3,417,935       | 515,636        | 10,825,500     | 1,600,000             | **26,550,832**  |
| Other        executives (GEC 1)                   | 46,234,744     | 14,157,308      | 9,134,452      | 25,008,600     | 10,720,000            | **105,255,104** |
| **Total**                                         | **57,626,505** | **17,575,243**  | **9,650,088**  | **35,834,100** | **12,320,000**        | **133,005,936** |

1 Group Executive Committee. 

 

Terms of employment of the CEO

The President and Chief ExecutiveOfficer, Leif Johansson, is entitled to a fixed annual salary. Inaddition, he may receive a variable salary based on operatingincome and cash flow up to a maximum of 50% of his fixed annualsalary. In 2003, the variable salary corresponded to 33% of thefixed annual salary. Leif Johansson is also participating in theemployee stock options program; in 2003 he was allotted 50,000options based on the fulfillment of financial targets for 2002.Leif Johansson is eligible to take retirement with pension at age55. Pension benefits earned prior to his employment at Volvo arecoordinated with prior employers and consequently Volvo does nottake the full pension cost for Leif Johansson. The definedpension benefits are vested and earned gradually over the yearsup to the employee’s retirement age and are fully earned atage 55. During the period between the ages of 55 and 65, he wouldreceive a pension equal to 70% of his pensionable salary. For theperiod after reaching the age of 65 he will receive a pensionamounting to 50% of his pensionable salary. The pensionablesalary is the sum of 12 times the current monthly salary, Volvo’sinternal value for company car, and a five-year rolling annualaverage of earned variable salary that is limited to a maximum of50% of the annual salary. Leif Johansson has twelve months noticeof termination from AB Volvo and six months on his own initiative.If AB Volvo terminates Leif Johansson’s employment, he isentitled to a severance payment equal to two years’ salary,plus the average of the outcome of the variable salary for theprevious five years. The severance payment will be adjusted forany income after the termination of his contract with Volvo. 

Variable salaries

Leif Johansson, the GroupExecutive Committee, members of the executive committees ofsubsidiaries and a number of key executives receive variablesalaries in addition to fixed salaries. Variable salaries arebased on operating income and cash flow of the Volvo Group and/orof the executive’s company, in accordance with a systemestablished by the Volvo Board in 1993 and reviewed in 2000 and2001. A variable salary may amount to a maximum of 50% of thefixed annual salary. 

Severance payments and earlyretirement

The employment contracts of theGroup Executive Committee and certain other senior executivescontain provisions for severance payments when the Companyterminates employment, as well as rules governing pensionpayments to executives who take early retirement. The rulesgoverning severance payments provide that, when the Companyterminates employment, an employee is entitled to severance payequal to the employee’s monthly salary for a period of 12 or24 months, depending on age at date of severance. In certaincontracts, replacing contracts concluded earlier, an employee isentitled to severance payments amounting to the employee’smonthly salary for a period of 30 to 42 months. In agreementsconcluded after the spring of 1993, severance pay is reduced, inthe event the employee gains employment during the severanceperiod, in an amount equal to 75% of income from new employment. 

  

An early retirement pension may bereceived when the employee reaches the age of 60. A pension isearned gradually over the years up to the employee’sretirement age and is fully earned at age 60. From that dateuntil reaching the normal retirement age, the retiree willreceive a maximum of 70% of the qualifying salary. From the ageof normal retirement, the retiree will receive a maximum of 50%of the qualifying salary. 

Incentive programs

Volvo currently has two differenttypes of option programs for senior executives, one call optionprogram and one program for employee stock options. The employeestock options may only be exercised if the holder is employed byVolvo at the end of the vesting period. However, if the holder’semployment with Volvo is terminated for any reason other thandismissal or the holder’s resignation, the options may beexercised in part in relation to how large part of the vestingperiod the holder has been employed. If the holder retires duringthe vesting period, he or she may exercise the full number ofoptions. 

New stock-based incentive program

The Board of Directors hasproposed to the Annual General Meeting to approve a new stock-basedincentive program for senior executives within the Volvo Groupthat will replace the present stock option program. Under theprogram, a total of maximum 110,000 Volvo shares can be allottedto approximately 165 senior executives. The number of shares tobe allotted is proposed to depend upon the fulfillment of certainfinancial goals during the financial year 2004. Assuming saidgoals are fulfilled in full and that the Volvo share prices isSEK 243 at the time of allotment, Volvos cost for the programincluding social fees will be around SEK 35 M. The Board hasfurthermore proposed to the Annual General Meeting that the stock-basedincentive programme may be hedged through transfer of Volvo’sown shares. 

| Programs from prior years      | This year’s program       |
|--------------------------------|--------------------------------|
|                           | 1999/2004, call options number | 2000/2005,
call options number | 2001/2004
employee stock options umber | 2003/2008 employee stock options |
|                           |                           |   |   | number | value | benefit |
| Financial        instruments   |                           |   |   |   |   |   |
| Board        Chairman          | -                              | - | - | - | - | - |
| CEO                            | 5,045                          | 8,821 | 13,600 | 50,000 | 1,600,000 | 1,600,000 |
| Other        senior executives | 41,052                         | 108,108 | 82,645 | 1,000,000 | 32,000,000 | 32,000,000 |
| **Total**                      | **46,097**                     | **116,929** | **96,245** | **1,050,000** | **33,600,000** | **33,600,000** |

 

|                                  |                  | Total number of         outstanding options |         |           |                            |
|---------------------------------------|-----------------------|---------------------------------------------|--------------|----------------|---------------------------------|
| **Summary        of option programs** | Allotment        date | Dec 31,
2002                                | Dec 31,
2003 | Exercise
price | Term of
The        options      | Value/
option | Vesting, 
years |
| 1998,        call options 1           | May        5, 1999    | 58,659                                      | 46,097       | 290.70         | May 18, 1999–
May 4, 2004  | 68.70 | n/a |
| 1998,        call options 2           | April        28, 2000 | 119,956                                     | 116,929      | 313.50         | Apr 28, 2000–
Apr 27, 2005 | 55.75 | n/a |
| 2000,        employee stock options 3 | Jan        12, 2000   | 595,000                                     | -            | 239.35         | Mar 31, 2002–
Mar 31, 2003 | 35.00 | 2 |
| 2000,        employee stock options 3 | May        4, 2001    | 163,109                                     | 96,245       | 159.00         | May 4, 2003–
May 3, 2004   | 22.00 | 2 |
| 2002,        employee stock options 3 | May        2, 2003    | -                                           | 1,050,000    | 163.00         | May 2, 2006–
May1, 2008    | 32.00 | 3 |

 

1 The call options gives theholder the right to acquire 1.03 Series B Volvo shares for eachoption held from a third party. The price of the options is basedon a market valuation by Trygg-Hansa 

Livförsäkrings AB. The number ofoptions corresponds to a part of the executive’s variablesalary earned. The options were financed 50% by the Company and50% from the option-holder’s variable salary.

2 The options gives the holder theright to acquire one Series B Volvo share for each option heldfrom a third party. The price of the options is based on marketvaluation by UBS Warburg. The number of options corresponds to apart of the executive’s variable salary earned. The optionswere financed 50% by the Company and 50% from the option holder’svariable salary.

3 In January 2000, a decision wasmade to implement a new incentive program for senior executiveswithin the Volvo Group in the form of so-called employee stockoptions. The decision covers allotment of options for 2000, 2001and 2002. The executives have not made any payment for theoptions. The employee stock options gives the holders the rightto exercise their options or alternatively receive the differencebetween the actual price at that time and the exercise pricedetermined at allotment. The theoretical value of the options atallotment was set using the Black & Scholes pricing model foroptions. Volvo has, as regards the options alloted in 2000 and2001, hedged the commitments (including social costs) relating toa future increase in share price, through a Total Return Swap.Should the share price be lower than the exercise price at theclosing date, Volvo will pay the swap-holder the differencebetween the actual share price and the exercise price at thattime for each outstanding option. The Board has proposed to theAnnual General Meeting that options allotted in 2003 may behedged through transfer of Volvos own shares.

Renewal of the personnel stockoptions program for 2003

The Board of AB Volvo decided torenew the personnel stock options program established in 2000,and renewed in 2001 and 2002, and through which senior executivesin the Volvo Group are allotted options on B shares in AB Volvo.The size of the allotment is determined by how well certainfinancial goals for 2003 are achieved. There will be no allotmentunder the program in 2004. 

All obligations related to theemployee stock option plans, including the Total Return Swaps,are marked to market on a continuing basis and any change in theobligation is recorded in the income statement. In 2003, the costfor the employee stock option plans amounted to 65 (cost 36,income 15). At December 31, 2003 the provision related to theseoptions amounted to 74. 

|                                               | Program |
|----------------------------------------------------|---------|
| **Change        in number of options per program** |    |   |   |
| Number        of options                           | 2000    | 2001 | 2003 |
| Dec        31, 2000                                | 595,000 | – | – |
| Alloted                                            | –  | 163,109 | – |
| Cancelled                                          | –  | – | – |
| Exercised                                          | –  | – | – |
| Dec        31, 2001                                | 595,000 | 163,109 | – |
| Alloted                                            | –  | – | – |
| Cancelled                                          | –  | – | – |
| Exercised                                          | –  | – | – |
| Dec        31, 2002                                | 595,000 | 163,109 | – |
| Alloted                                            | –  | – | 1,125,000 |
| Cancelled                                          | 595,000 | 9,792 | 75,000 |
| Exercised                                          | –  | 57,072 | – |
| Dec        31, 2003                                | –  | 96,245 | 1,050,000 |

 

 

|                               | 2001                | 2002              | 2003                |
|------------------------------------|---------------------|-------------------|---------------------|
| Average        number of employees | Number of
employees | of which
women, % | Number of
Employees | of which
women, % | Number of
employees | of which
women, % |
| AB        Volvo                    |                |              |                |   |   |   |
| Sweden                             | 105                 | 53                | 132                 | 54 | 117 | 54 |
| **Subsidiaries**                   |                |              |                |   |   |   |
| Sweden                             | 24,463              | 17                | 24,434              | 18 | 25,553 | 17 |
| Western        Europe              | 26,043              | 13                | 24,996              | 14 | 26,604 | 15 |
| Eastern        Europe              | 1,862               | 13                | 2,087               | 14 | 2,302 | 15 |
| North        America               | 13,450              | 18                | 12,759              | 17 | 11,136 | 19 |
| South        America               | 2,071               | 11                | 2,057               | 11 | 2,216 | 11 |
| Asia                               | 2,599               | 10                | 2,526               | 13 | 3,599 | 13 |
| Other        countries             | 1,438               | 10                | 1,555               | 11 | 1,629 | 13 |
| **Group        total**             | **72,031**          | **15**            | **70,546**          | **16** | **73,156** | **16** |

|                                          | 2003               |
|-----------------------------------------------|--------------------|
| **Board members and chief officers**          | Number at year-end | of which women, % |
| **AB        Volvo**                           |               |   |
| Board        members                          | 13                 | 15 |
| Presidents        and other senior executives | 15                 | 7 |
| **Volvo        Group**                        |               |   |
| Board        members                          | 1,018              | 13 |
| Presidents        and other senior executives | 1,412              | 14 |

 

 

 

| **Wages,        salaries and other**
**remunerations, SEK M** | 2001                    | 2002                       | 2003            |
|---------------------------------------------------------------|-------------------------|----------------------------|-----------------|
| AB Volvo                                                      | Board and
Presidents 1) | of which variable
salaries | Other
employees | Board and
Presidents 1) | of which variable
salaries | Other
employees | Board and
Presidents 1) | of which variable
salaries | Other
employees |
| Sweden                                                        | 24.4                    | 1.9                        | 70.3            | 22.7 | 3.4 | 93.9 | 26.9 | 7.7 | 85.7 |
|                                                          |                    |                       |            |   |   |   |   |   |   |
|                                                          |                    |                       |            |   |   |   |   |   |   |
| **Subsidiaries**                                              |                    |                       |            |   |   |   |   |   |   |
| Sweden                                                        | 64.4                    | 11.3                       | 7,277.4         | 64.6 | 9.0 | 7,553.4 | 77.7 | 10.7 | 8,028.5 |
| Western        Europe                                         | 356.0                   | 14.2                       | 7,661.3         | 381.7 | 15.7 | 7,802.2 | 390.3 | 25.8 | 8,352.1 |
| Eastern        Europe                                         | 11.7                    | 3.8                        | 214.4           | 6.1 | - | 247.0 | 7.3 | - | 281.5 |
| North        America                                          | 174.4                   | 14.3                       | 7,135.9         | 170.1 | 13.2 | 6,200.9 | 184.5 | 12.9 | 5,075.3 |
| South        America                                          | 48.5                    | 2.7                        | 355.3           | 37.5 | 1.8 | 298.2 | 38.3 | - | 276.8 |
| Asia                                                          | 47.7                    | 1.2                        | 660.1           | 43.5 | 1.1 | 700.1 | 42.2 | 0.9 | 670.4 |
| Other        countries                                        | 13.0                    | -                          | 231.1           | 9.2 | - | 295.7 | 8.9 | - | 325.8 |
| **Group        total**                                        | **740.2**               | **49.4**                   | **23,605.8**    | **735.4** | **44.2** | **23,191.4** | **770.0** | **58.0** | **23,096.1** |

 

| **Wages,        salaries and other**
**remunerations, SEK M** | 2001                                     | 2002         | 2003                   |
|---------------------------------------------------------------|------------------------------------------|--------------|------------------------|
|                                                          | Wages, salaries
and other

remunerations | Social costs | Of which pension costs | Wages, salaries
and other

remunerations | Social costs | Of which pension costs | Wages, salaries
and other

remunerations | Social costs | Of which pension costs |
| **AB        Volvo 2)**                                        | 94.7                                     | 111.9        | 92.5                   | 116.6 | 192.8 | 167.9 | 115.3 | 80.0 | 54.0 |
| Subsidiaries                                                  | 24,251.3                                 | 8,995.1      | 3,239.7                | 23,810.2 | 10,016.0 | 4,304.1 | 23,759.8 | 10,565.8 | 3,820.2 |
| **Group        total 3)**                                     | **24,346.0**                             | **9,107.0**  | **3,332.2**            | **23,926.8** | **10,208.8** | **4,472.0** | **23,875.1** | **10,645.8** | **3,874.2** |

 

1 Including current and formerBoard members, Presidents and Executive Vice Presidents.

2 Of the Parent Company’spension costs, 19.3 (47.1; 21.9) pertain to Board members andPresidents. The Company’s outstanding pension obligations tothese individuals amount to 290.8 (334.7; 319.1). 

3 Of the Group’s pensioncosts, 170.7 (135.9; 100.3) pertain to Board members andPresidents. The Group’s outstanding pension obligations tothese individuals amount to 732.7 (670.3; 558.4). 

Note 33 Fees to the auditors 

| Audit        fees                                                 | 2001    | 2002    | 2003    |
|-------------------------------------------------------------------|---------|---------|---------|
| Audit        fees to                                              |    |    |    |
| PricewaterhouseCoopers                                            | 60      | 63      | 66      |
| Audit        fees to                                              |    |    |    |
| other        audit firms                                          | 14      | 4       | 3       |
| **Total**                                                         | **74**  | **67**  | **69**  |
|                                                              |    |    |    |
| **Other        fees to PricewaterhouseCoopers**                   |    |    |    |
| Fees        for audit related services                            | 59      | 22      | 23      |
| Fees        for tax services                                      | 47      | 43      | 30      |
| Fees        for other services                                    | 15      | 25      | 11      |
| **Total**                                                         | **121** | **90**  | **64**  |
| **Fees        and other remuneration to external auditors total** | **195** | **157** | **133** |

Auditing assignments involveexamination of the annual report and financial accounting and theadministration by the Board and the President, other tasksrelated to the duties of a company auditor and consultation orother services that may result from observations noted duringsuch examination or implementation of such other tasks. All othertasks are defined as other assignments. 

Note 34 Financial risks andinstruments 

In its operations, the Volvo Groupis exposed to various types of financial risks. Groupwidepolicies, which are updated and decided upon annually, form thebasis of each Group company’s management of these risks. Theobjectives of the Group’s policies for management offinancial risks are to optimize the Group’s capital costs byutilizing economies of scale, to minimize negative effects onincome as result of changes in currency or interest rates, tooptimize risk exposure and to clarify areas of responsibilitieswithin the Group’s finance and treasury activities.Monitoring and control of that established policies are adheredto is conducted continuously centrally and at each group company.Most of the Volvo Group’s financial transactions are carriedout through Volvo’s inhouse bank, Volvo Treasury, whichconducts its operations within established risk mandates andlimits. Credit risks are mainly managed by the different businessareas.

  The nature of thevarious financial risks and objectives and policies for themanagement of these risks are desribed in the sections below.When applicable, information is also presented about the carryingvalues and fair values of Volvo’s holdings of financialinstruments at the balance sheet date. Volvo’s accountingpolicies for financial instruments are described in Note 1. Incalculating the fair values of financial instruments, Volvo hasprimarily used official rates or prices quoted on the capitalmarkets. In their absence, the valuation has been made bydiscounting future cash flows at the market interest rate foreach maturity. In the case of instruments with maturities shorterthan three months, the carrying value has been assumed to closelyapproximate the fair value. All reported fair values arecalculated values that will not necessarily be realized. 

Currency risks

Currency risks in Volvo’soperations are related to changes in the value of contracted andprojected future flows of payments (commercial currency risks),to changes in the value of loans and financial investments (financialcurrency risks) and to changes in the value of assets andliabilities in foreign subsidiaries (equity currency risks). Theobjective of Volvo’s management of currency risks is tominimize short-term negative impact on Volvo’s income andfinancial position as a consequence of changes in currencyexchange rates.

Commercial currency risks

Volvo uses forward contracts andcurrency options to hedge the value of future payments in foreigncurrencies. According to the Group’s currency policy,between 50% and 80% of the projected net flow in each currency ishedged for the coming 6 months, 30% to 60% for months 7 through12 and firm flows beyond 12 months should normally be fullyhedged. The notional amount of all forward and option contractsoutstanding as of December 31, 2003 was SEK 16.5 billion (20.9;12.1). The fair value of these contracts amounted on the samedate to 1,335. If assuming an instantaneous 10% strengthening ofthe SEK versus all other currencies, the fair value would amountto 2,715. If assuming an instantaneous 10% weakening of the SEKversus all other currencies the fair value would be negative of45. Actual foreign currency rates rarely move instantaneously inthe same direction and the actual impact of exchange rate changesmay thus differ from the above sensitivity analyses. Furtherspecifications of outstanding contracts are included in thetables below. Currencies, average contract rates and maturitiesof outstanding forward contracts and option contracts as ofDecember 31, 2003 for hedging of commercial currency risks. 

|                                                                    |                               | Currencies   | Other currencies | Fair value 2) |
|-------------------------------------------------------------------------|------------------------------------|--------------|------------------|--------------------|
| Million                                                                 |                               | Net flow USD | Net flow GBP     | Net flow EUR       | Net SEK |   |
| Due        date 2004                                                    | Amount                rate 1) | 895
8.21     | 138
13.11        | 490
9.19           | 1,994 |   |
| Due        date 2005                                                    | Amount                rate 1) | 130
9.69     | (4)
14.55        | (3)
9.13           | (296) |   |
| Due        date 2006                                                    | Amount                rate 1) | 92
8.43      | 0
0              | 0
0                | (170) |   |
| Total
of which, option contracts                                        |                               | 1,117
177    | 134
0            | 487
116            | 1,528
(148) |   |
| **Fair        value of forward and         option contracts, SEK M 2)** |                               | **1,430**    | **16**           | **79**             | **(190)** | **1,335** |

 

1 Average forward contract rate. 2 Outstanding forward contracts valued at market rates.

 

**Net flows per currency 2003**

|                            |                              | Currencies | Other currencies | Total        |
|---------------------------------|-----------------------------------|------------|------------------|--------------|
| Million                         |                              | USD        | GBP              | EUR          | Net SEK |   |
| Net        flows 2003           | Amount                rate 3 | 926
8.0778 | 260
13.2023      | 1,298
9.1258 |   |   |
| Net        flows SEK M, 3)      |                              | 7,500      | 3,400            | 11,800       | 6,800 | 29,500 |
| **Hedged        portion, % 4)** |                              | **97**     | **53**           | **38**       |   |   |

3 Average exchange rate during thefinancial year. 

4 Outstanding currency contracts,regarding commercial exposure due in 2004, percentage of netflows 2003.

 

 

Outstanding forward contracts andoption contracts for hedging of commercial currency risks

|                                           | December 31, 2001  | December 31, 2002 | December 31, 2003 |
|------------------------------------------------|--------------------|-------------------|-------------------|
|                                           | Notional amount 1) | Carrying value    | Fair value        | Notional         amount 1) | Carrying value | Fair value | Notional amount 1) | Carrying value | Fair value |
| Foreign        exchange forward contracts |               |              |              |   |   |   |   |   |   |
| –receivable        position               | 9,780              | 16                | 554               | 25,857 | 149 | 1,017 | 19,823 | 53 | 1,449 |
| -payable        position                       | 20,022             | (271)             | (1,753)           | 10,210 | (5) | (202) | 6,104 | - | (208) |
| Options        purchased                       |               |              |              |   |   |   |   |   |   |
| –receivable        position               | 173                | -                 | 0                 | 4,484 | - | 94 | 8,012 | - | 148 |
| -payable        position                       | 75                 | (1)               | (1)               | 117 | - | (1) | 110 | - | - |
| Options        - written                       |               |              |              |   |   |   |   |   |   |
| –receivable        position               | -                  | -                 | -                 | - | - | - | - | - | - |
| -payable        position                       | -                  | -                 | -                 | 3,458 | - | (53) | 7,082 | - | (54) |
| Subtotal                                       |               | (256)             | (1,200)           |   | 144 | 855 |   | 53 | 1,335 |
| Commodity forward        contracts        |               |              |              |   |   |   |   |   |   |
| –receivable        position               | -                  | -                 | -                 | 223 | - | 272 | 148 | - | 19 |
| -payable        position                       | -                  | -                 | -                 | 88 | - | (113) | 119 | - | (14) |
| Total                                          |               | (256)             | (1,200)           |   | 144 | 1,014 |   | 53 | 1,340 |

   

1 The notional amount of thederivative contracts represents the gross contract amountoutstanding. To determine the estimated fair value, the majorpart of the outstanding contracts have been marked to market.Discounted cash flows have been used in some cases. 

Financial currency risks

Loans and deposits in the Groupcompanies are mainly made through Volvo Treasury in localcurrencies and financial currency exposure in the individualentities are thereby being minimized. Volvo Treasury uses variousderivative instruments in order to provide deposits and lendingin different currencies without increasing the company’s ownrisk. The Volvo Group’s net financial position is beingaffected by changes in currency rates because financial assetsand liabilities are allocated between Group companies operatingin different currencies. Carrying amounts, fair values andadditional specifications of derivative instruments used tomanage currency and interest rate risks related to financialassets and liabilities are shown in the table on page F-41.

Equity currency risks

The Group value of assets andliabilities in foreign subsidiaries is affected by currencyexchange rates in connection with the translation to SEK. Equitycurrency risks are being minimized by ongoing optimization of theamount of equity in foreign subsidiaries with consideration ofcommercial and legal prerequisites. Equity hedging could be madeif the equity level of a foreign subsidiary is considered as toohigh. At year-end 2003, net assets in subsidiaries and inassociated companies outside Sweden amounted to SEK 22.6 billion.Of this amount, SEK 0.7 billion was hedged by loans in foreigncurrencies. Hedging of investments in associated companies andother companies will be executed on a case-by-case basis. 

 

Interest rate risks

Interest rate risks include therisks that changes in interest rates affects the Group’sincome and cash-flow (cash-flow risks) or the fair value offinancial assets and liabilities (price risks). By matching fixedinterest periods of financial assets and liabilities the exposurefor interest rate risks is reduced. Interest rate swaps are usedto change the fixed interest rate periods of the Group’sfinancial assets and liabilities. Exchange rate swaps make itpossible to borrow in foreign currencies in different marketswithout incurring currency risks. Volvo also holds standardizedfutures and forward rate agreements. The majority of thesecontracts are used to secure interest levels for short-termborrowing or deposits. Carrying amounts, fair values andadditional specifications of derivative instruments used tomanage currency and interest rate risks related to financialassets and liabilities are shown in the adjoining table. 

Cash-flow risks

The exposure for cash-flow risksrelated to changes in interest rates pertains mainly to the Group’scustomer financing operations and interest net. According to theGroup policy, matching of interest rate terms between lending andfunding should exceed 80% in the customer financing operations.At the end of 2003, this matching was 94%. Volvo’s interest-bearingassets, apart from the customer financing portfolio, consisted atthe end of 2003 mainly of liquid funds that were invested ininterest bearing securities with short-term maturities. By use ofderivative instruments, the target is to achieve a fixed interestperiod of six months for the Group’s liquid funds. AtDecember 31, 2003, the average interest rate on liquid funds was3.3%. Volvo’s interest bearing liabilities, apart from loansdesignated to funding of the customer financing portfolio,consisted on the same date mainly of provisions for post-employmentbenefits and loans. Of such loans outstanding at year-end, USdollar loans amounting to SEK 2.9 billion had an average fixedinterest period of 4.2 years. For the remaining amount of loansoutstanding, the interest rate terms with consideration ofderivative instruments were corresponding to a fixed interestperiod of six months. The average interest rate at year-end was 4.1%.

  If assuming aninstantaneous one percentage (100 basis points) increase ininterest rates of all currencies from their levels at December 31,2003, with all other variables held constant, Volvo’s incomeafter financial items over a 12-month period would increase by 77.If assuming a corresponding one percentage (100 basis points)decrease in interest rates, Volvo’s income after financialitems would decrease by the same amount. It should be noted thatthe assumptions on which this sensitivity analysis is based uponrarely occur in reality. Actual interest rates rarely moveinstantaneously. Also, the sensitivity analysis assumes aparallel shift of the yield curve and that both assets andliabilities react correspondingly to changes in market interestrates. The impact from actual interest rate movements may thusdiffer from the above analysis.

Price risks

The exposure for price risks as aresult of changes in interest rates is attributable to financialassets and liabilities with extended fixed interest rate terms. Acomparison between carrying values and fair values of Volvo’sall financial assets, liabilities and derivative instruments ispresented in the table on page F-42.

Market risks attributable toinvestments in shares or other equity instruments

The Volvo Group is exposed tomarket risks attributable to investments in shares or otherequity instruments because funds that have been transferred toVolvo’s pension plans partially are invested in instrumentsof this nature. Additional information regarding plan assets andobligations of Volvo’s pension plans is presented in Note 22.Apart from Volvo’s pension plans, investments in shares areonly made if motivated by operational purposes. A comparisonbetween carrying values and market values of Volvo's holdings inlisted companies is included in Note 13.

Credit risks

Volvo’s granting of creditsis governed by common policies and rules for classification ofcustomers. The credit portfolio should include a properdistribution among different categories of customers andindustries. Credit risks are managed through active monitoring,follow-up routines and in appropriate cases repossession ofproducts. Furthermore, it is continuously monitored thatappropriate allowances are made for doubtful receivables.

  At December 31, 2003,the credit portfolio within Volvo’s customer financingoperations amounted to approximately SEK 60 billion. The creditrisks within this portfolio are distributed among a large numberof individual customers and dealers. Collaterals exist in theform of the products being financed. When granting credits, aneffort is made to balance risk exposure and expected yield. 

  The Volvo Group’sfinancial assets are primarily managed by Volvo Treasury andinvested in the money and capital markets. All investments mustmeet criteria for low credit risk and high liquidity. Inaccordance with Volvo’s credit policy, counterparties forboth investments and transactions in derivatives must in generalhave a received a rating of "A" or better from one ofthe well established credit-rating agencies. 

  At the use ofderivative instruments a counterparty risk will arise, i.e. therisk that a counterparty will not fulfill its part of a contractand that a potential gain will not be realized. Whereappropriate, master netting agreements are signed with therespective counterparties to reduce exposure. The credit risk infutures contracts is limited through daily or monthly cashsettlements of the net change in value of open contracts. Theestimated gross exposure for counterparty risks related toforward exchange contracts, interest rate swaps and futures,options and commodity forward contracts amounted to 1,687; 4,844;163 and 19 as of December 31, 2003.

Liquidity risks

Volvo maintains a strong financialposition by contiously keeping a certain percentage of sales inliquid assets. A proper balance between short-term and long-termborrowing, as well as the ability to borrow in the form of creditfacilities, are designed to ensure long-term financing.

 

Outstanding derivate instrumentsfor hedging of financial currency risks and interest rate risks

|                                         | December 31, 2001  | December 31, 2002 | December 31, 2003 |
|----------------------------------------------|--------------------|-------------------|-------------------|
|                                         | Notional amount 1) | Carrying value    | Fair value        | Notional amount 1) | Carrying value | Fair value | Notional amount 1) | Carrying value | Fair value |
| Interest-rate        swaps                   |               |              |              |   |   |   |   |   |   |
| –receivable        position             | 62,456             | 3,670             | 4,549             | 78,571 | 2,822 | 4,404 | 90,428 | 3,253 | 4,662 |
| –        payable position               | 86,328             | (3,888)           | (4,633)           | 73,257 | (1,568) | (2,536) | 93,400 | (1,431) | (2,266) |
| Forwards        and futures                  |               |              |              |   |   |   |   |   |   |
| –receivable        position             | 230,323            | 120               | 120               | 260,921 | 216 | 216 | 426,873 | 183 | 182 |
| –        payable position               | 250,390            | (126)             | (126)             | 255,503 | (217) | (220) | 437,570 | (193) | (198) |
| Foreign        exchange derivative contracts |               |              |              |   |   |   |   |   |   |
| –receivable        position             | 6,306              | 96                | 100               | 15,962 | 211 | 202 | 14,639 | 216 | 238 |
| –payable        position                | 21,465             | (428)             | (435)             | 5,443 | (70) | (72) | 1,774 | (67) | (39) |
| Options        purchased, caps and floors    |               |              |              |   |   |   |   |   |   |
| –receivable        position             | -                  | -                 | -                 | - | - | - | 291 | - | 15 |
| –payable        position                | -                  | -                 | -                 | 200 | - | (7) | 200 | - | (5) |
| Options        purchased, caps and floors    |               |              |              |   |   |   |   |   |   |
| –receivable        position             | -                  | -                 | -                 | - | - | - | - | - | - |
| –payable        position                | -                  | -                 | -                 | - | - | - | - | - | - |
| Total                                        |               | (556)             | (425)             |   | 1,394 | 1,987 |   | 1,961 | 2,589 |

 

Fair value of Volvo’sfinancial instruments 1)

|                                                                                                                | December 31, 2001 | December 31, 2002 | December 31, 2003 |
|---------------------------------------------------------------------------------------------------------------------|-------------------|-------------------|-------------------|
|                                                                                                                | Carrying value    | Fair value        | Carrying value    | Fair value | Carrying value | Fair value |
| **Assets**                                                                                                          |              |              |              |   |   |   |
| Investments        in shares and participations                                                                     |              |              |              |   |   |   |
| fair        value determinable 2                                                                                    | 25,245            | 17,661            | 25,220            | 15,537 | 21,217 | 18,798 |
| fair        value not determinable 3                                                                                | 586               | -                 | 615               | - | 626 | - |
| Customer-financing        receivables                                                                               | 48,784            | 49,102            | 46,998            | 47,508 | 46,002 | 46,244 |
| Other        loans to external parties and other interest-bearing        receivables                                | 7,334             | 7,897             | 4,807             | 4,735 | 6,483 | 6,623 |
| Marketable        securities                                                                                        | 13,514            | 13,399            | 16,707            | 16,659 | 19,529 | 19,518 |
| Total                                                                                                               | 95,463            | 88,059            | 94,347            | 84,439 | 93,857 | 91,183 |
| Liabilities                                                                                                         |              |              |              |   |   |   |
| Long-term        bond loans and other loans                                                                         | 44,751            | 46,731            | 46,419            | 48,282 | 46,674 | 48,175 |
| Short-term        bank loans and other loans                                                                        | 36,817            | 36,900            | 26,018            | 26,083 | 27,418 | 27,655 |
| Total                                                                                                               | 81,568            | 83,631            | 72,437            | 74,365 | 74,092 | 75,830 |
| Derivative        instruments                                                                                       |              |              |              |   |   |   |
| Outstanding        derivative contracts for hedging of commercial currency        risks                             | (256)             | (1,200)           | 144               | 855 | 53 | 1,335 |
| Outstanding        commodity contracts                                                                              | -                 | -                 | -                 | 159 | - | 5 |
| Outstanding        derivative contracts for hedging of financial currency        risks and interest rate risks | (556)             | (425)             | 1,394             | 1,987 | 1,961 | 2,589 |

1 This table only include acomparison between carrying values and fair values for interestbearing balance sheet items and derivative instruments. For noninterest bearing financial instruments, such as accountsreceivable and trade payables, the carrying values are consideredto be equal to the fair values.

2 Pertains mainly to Volvo’sinvestments in Scania AB, Deutz AG and Henlys Group Plc. For thepurpose of these disclosures, fair values of listed shares arebased upon quoted market prices at the end of the period.

3 No single investment representsany significant amount.

Note 35 

Net income and shareholders’equity in accordance with US GAAP 

A summary of the Volvo Group’snet income and shareholders’ equity determined in accordancewith US GAAP, is presented in the accompanying tables. 

Application of US GAAP would havethe following effect on consolidated net income and shareholders’equity: 

| **Net        income**                                                  | 2001        | 2002        | 2003         |
|------------------------------------------------------------------------|-------------|-------------|--------------|
|                                                                   |        |        |         |
| Net        income in accordance with Swedish accounting principles     | (1,467)     | 1,393       | 298          |
| Items        increasing (decreasing) reported net income               |        |        |         |
| Derivative        instruments and hedging activities (A)          | (298)       | 1,772       | 882          |
| Business        combinations (B)                                       | ((744)      | 1,094       | 556          |
| Investments        in debt and equity securities (C)                   | (153)       | (9,616)     | 4,007        |
| Restructuring        costs (D)                                         | (579)       | –      | –  |
| Post-employment        benefits (E)                                    | 456         | 669         | (651)        |
| Alecta        surplus funds (F)                                        | 111         | 410         | 2            |
| Software        development (G)                                        | (212)       | (212)       | (211)        |
| Product        development (H)                                         | (1,962)     | (1,236)     | (352)        |
| Entrance        fees, aircraft engine programs (I)                     | (324)       | (219)       | (20)         |
| Other        (J)                                                       | 31          | 37          | 0            |
| Income        taxes on above US GAAP adjustments (K)                   | 821         | (357)       | (532)        |
| Net        increase (decrease) in net income                           | (2,853)     | (7,658)     | 3,681        |
| **Net        income (loss) in accordance with US GAAP**                | **(4,320)** | **(6,265)** | **3,979**    |
| **Net        income (loss) per share, SEK in accordance with US GAAP** | **(10.20)** | **(14.90)** | **9.50**     |
| Weighted        average number of shares outstanding (in thousands)    | 422,429     | 419,445     | 419,445      |

 

| **Shareholders’        equity**                                              | 2001          | 2002       | 2003       |
|-----------------------------------------------------------------------------------|---------------|------------|------------|
| Shareholders’        equity in accordance with Swedish accounting principles | 85,185        | 78,278     | 72,420     |
| Items        increasing (decreasing) reported shareholders’        equity    |          |       |       |
| Derivative        instruments and hedging activities (A)                     | (1,584)       | 188        | 1,054      |
| Business        combinations (B)                                                  | 4,125         | 5,219      | 5,788      |
| Investments        in debt and equity securities (C)                              |  (7,328) | (9,813)    | (2,326)    |
| Restructuring        costs (D)                                                    | –        | –     | –     |
| Post-employment        benefits (E)                                               | 272           | (20)       | 1,658      |
| Alecta        surplus funds (F)                                                   | (412)         | (2)        | –     |
| Software        development (G)                                                   | 542           | 330        | 119        |
| Product        development (H)                                                    | (1,962)       | (3,263)    | (3,568)    |
| Entrance        fees, aircraft engine programs (I)                                | (719)         | (855)      | (874)      |
| Other        (J)                                                                  | 17            | 54         | 52         |
| Income        taxes on above US GAAP adjustments (K)                              | 3,155         | 1,066      | 467        |
| Net        increase (decrease) in shareholders’ equity                       | (3,894)       | (7,096)    | 2,370      |
| **Shareholders’        equity in accordance with US GAAP**                   | **81,291**    | **71,182** | **74,790** |

Significant differences betweenSwedish and US accounting principles

A. Derivative instruments andhedging activities. Volvo uses forward

exchange contracts and currencyoptions to hedge the value of future commercial flows of paymentsin foreign currency and commodity purchases. Under Swedish GAAPoutstanding contracts that are highly certain to be covered byforecasted transactions are not assigned a value in theconsolidated financial statements. 

  Under US GAAP Volvodoes not apply hedge accounting for commercial derivatives.Outstanding forward contracts and options are valued at marketrates, and unrealised gains or losses that thereby arise areincluded when calculating income. Unrealized net gains for 2003pertaining to forwards and options contracts are estimated at 1,287(870; losses 944). 

  Volvo uses derivativeinstruments to hedge the value of the Group’s financialposition. In accordance with US GAAP, all outstanding derivativeinstruments are valued at fair value. The unrealised gains orlosses that thereby arise are included when calculating income.Only part of the Group’s hedges of financial exposurequalifies for hedge accounting under US GAAP and are accountedfor as such. In fair value hedges the derivatives are valued atfair value and the hedged items are valued at fair valueregarding the risk and period being hedged and included whencalculating income. In cash flow hedges only the derivatives arevalued at fair value and unrealised gains or losses are includedin shareholders equity (other comprehensive income), and affectnet income when the hedged transactions occur.

 

|                                                                                   | Net income | Shareholders’        equity |
|----------------------------------------------------------------------------------------|------------|----------------------------------|
| Accounting        for derivative instruments and hedging activities                    | 2001       | 2002                             | 2003 | 2001 | 2002 | 2003 |
| Derivatives        Commercial exposure                                                 | 342        | 1,814                            | 417 | (944) | 870 | 1,287 |
| Derivatives        Financial exposure                                                  | (685)      | 43                               | 92 | (685) | (642) | 315 |
| Derivatives        in fair value hedges                                                | 808        | 426                              | (36) | 808 | 1,234 | 315 |
| Fair        value adjustment hedged items                                              | (765)      | (511)                            | 36 | (763) | (1,274) | (138) |
| Transition        adjustment                                                           | 2          | -                                | - | - | - | - |
| Basis        adjustment on derecognised fair value hedges                              | -          | -                                | 373 | - | - | (725) |
| Derivative        instruments and hedging activities in accordance with US        GAAP | (298)      | 1,772                            | 882 | (1,584) | 188 | 1,054 |

 

B. Business combinations.Acquisitions of certain subsidiaries are reported differently inaccordance with Volvo’s accounting principles and US GAAP.The differences are primarily attributable to reporting andamortization of goodwill. 

  Effective in 2002,Volvo adopted SFAS 141 "Business Combinations" and SFAS142 "Goodwill and Other Intangible Assets" in itsdetermination of Net income and Shareholders’ equity inaccordance with US GAAP. In accordance with the transition rulesof SFAS 142, Volvo has identified its reporting units anddetermined the carrying value and fair value of each reportingunit as of January 1, 2002. No impairment loss has beenrecognized as a result of the transitional goodwill evaluation.In Volvo’s income statement for 2003 prepared in accordancewith Swedish GAAP, amortization of goodwill charged to incomeamounted to 873 (1,094). In accordance with SFAS 142, goodwilland other intangible assets with indefinite useful lives shouldnot be amortized but rather evaluated for impairment annually.Accordingly, the amortization of goodwill reported under SwedishGAAP has been reversed in the determination of Net income andShareholders’ equity under US GAAP. Furthermore, impairmenttests have been performed for existing goodwill as of December 31,2003. No impairment loss has been recognized as a result of thesetests. Excluding amortization of goodwill, Volvo’s net lossduring 2001 in accordance with US GAAP would have amounted to 3,018,corresponding to a basic and diluted net loss per share of SEK 7.10.

  In 2003, VolvoConstruction Equipment acquired assets associated with the L.B.Smith distribution business in the United States. Under SwedishGAAP, this operation is classified as a temporary investment andtherefore not consolidated in the Volvo Group. Under US GAAP, theacquired operations have been consolidated and accruals have beenmade for intercompany profits in the year-end inventory of the L.B.Smith business. Consolidation of the L.B. Smith distributionbusiness under US GAAP affected Volvo’s income afterfinancial items negatively with 138. The Group’s totalassets increased by SEK 1.1 billion.

In 2003, Volvo exchanged the mainpart of its shareholding in Bilia AB versus 98% of the shares inKommersiella Fordon Europa AB (KFAB). In accordance with SwedishGAAP, the acquisition cost of the shares in KFAB was determinedto SEK 0.9 billion and the goodwill attributable to thistransaction amounted to SEK 0.6 billion. In accordance with USGAAP, the acquisition cost of the shares amounted to SEK 0.7billion and the goodwill was determined to SEK 0.5 billion. As aconsequence, Volvo's capital gain on the divestment of Biliashares was 179 lower under US GAAP than under Swedish GAAP.

  In 2001, AB Volvoacquired 100% of the shares in Renault V.I. and Mack Trucks Inc.from Renault SA in exchange for 15% of the shares in AB Volvo.Under Swedish GAAP, the goodwill attributable to this acquisitionwas set at SEK 8.4 billion while under US GAAP the correspondinggoodwill was set at SEK 11.5 billion. The difference was mainlyattributable to determination of the purchase consideration. Inaccordance with Swedish GAAP, when a subsidiary is acquiredthrough the issue of own shares, the purchase consideration isdetermined to be based on the market price of the issued sharesat the time of the transaction is completed. In accordance withUS GAAP, such a purchase consideration is determined to be basedon the market price of the underlying shares for a reasonableperiod before and after the terms of the transaction are agreedand publicly announced. The goodwill may be subject to adjustmentpending resolution of the dispute between AB Volvo and Renault SAregarding the final value of acquired assets and liabilities inRenault V.I. and Mack Trucks. 

  In 1995, AB Volvoacquired the outstanding 50% of the shares in Volvo ConstructionEquipment Corporation (formerly VME) from Clark EquipmentCompany, in the US In conjunction with the acquisition, goodwillof SEK 2.8 billion was reported. The shareholding was writtendown by SEK 1.8 billion, which was estimated to correspond to theportion of the goodwill that was attributable at the time ofacquisition to the Volvo trademark. In accordance with US GAAP,the goodwill of SEK 2.8 billion was amortized over its estimateduseful life (20 years) until 2002 when Volvo adopted SFAS 142 (seeabove).

|                                                           | Amortization        | Carrying value |
|----------------------------------------------------------------|---------------------|----------------|
| **Goodwill**                                                   | 2001                | 2002           | 2003 | 2001 | 2002 | 2003 |
| Goodwill        in accordance with Swedish GAAP                | (1,058)             | (1,094)        | (873) | 13,013 | 11,297 | 11,151 |
| Items        affecting reporting of goodwill:                  |                |           |   |   |   |   |
| Acquisition        of Renault V.I. and Mack Trucks Inc.        | (153)          | 430            | 415 | 2,899  | 3,329 | 3,744 |
| Acquisition        of Volvo Construction Equipment Corporation | (91)                | 51             | 51 | 1,226 | 1,277 | 1,328 |
| Other        acquisitions                                      | –              | 613            | 407 | – | 613 | 841 |
| Net        change in accordance with US GAAP                   | (244) 1)  | 1,094          | 873 | 4,125  | 5,219 | 5,913 |
| **Goodwill        in accordance with US GAAP**                 | **(1,302) **   | **0**          | **0** | **17,138 ** | **16,516** | **17,064** |

1 Income under US GAAP was intotal 744 lower than under Swedish GAAP, including 244 due tohigher goodwill amortization and 500 due to other differences inpurchase accounting.

C. Investments in debt and equitysecurities. In accordance with US GAAP, Volvo applies SFAS 115:"Accounting for Certain Investments in Debt and EquitySecurities." SFAS 115 addresses the accounting and reportingfor investments in equity securities that have readilydeterminable fair market values, and for all debt securities.These investments are to be classified as either "held-to-maturity"securities that are reported at amortized cost, "trading"securities that are reported at quoted market prices withunrealized gains or losses included in earnings, or "available-for-sale"securities, reported at quoted market prices, with unrealizedgains or losses being credited or debited to Other comprehensiveincome and thereby included in shareholders’ equity. 

  As of December 31,2003, unrealized losses after deduction of unrealized gains in"available-for-sale" securities amounted to 2,315 (9,763;7,211). Sale of "available-for-sale" shares in 2003provided SEK – (– ; 3,2 billion) and the capital gain,before income tax, on sales of these shares amounted to SEK– (– ; 0,6 billion). 

  As set out above, all"available-for-sale" securities are valued at quotedmarket price at the end of each fiscal year with the change invalue being credited or debited to Other comprehensive income.However, if a security’s quoted market price has been belowthe carrying value for an extended period of time, US GAAPinclude a presumption that the decline in value is "otherthan temporary". Under such circumstances, US GAAP requirethat the value adjustment must be recorded in Net income with acorresponding credit to Other comprehensive income. Accordingly,value adjustments amounting to 62 (9,683; –), have beencharged to Volvo’s net income under US GAAP. Valueadjustments during 2002 was mainly pertaining to Volvo’sinvestment in Scania AB. After these value adjustments, theremaining value of unrealized gains before tax credited to Othercomprehensive income amounted to 3,399 as of December 31, 2003.

  In accordance withSwedish accounting principles, write-downs have been made to theextent the fair value of the investments is considered to belower than the acquisition cost of the investment. During 2003,Volvos investments in Scania AB and Henlys Group Plc was writtendown by 3,601 and 429 respectively under Swedish GAAP. Seefurther in Note 13.

 

 

| **Summary        of debt and equity securities available for sale and        trading** | Carrying value 1) | Fair value 2) | SFAS 115-
adjustment,gross | Income taxes | SFAS 115-         adjustment, net |
|----------------------------------------------------------------------------------------|-------------------|---------------|----------------------------|--------------|-----------------------------------|
| Trading,        December 31, 2003                                                      | 19,083            | 19,072        | (11)                       | 3            | (8)                               |
| Trading,        January 1, 2003                                                        | 16,130            | 16,080        | (50)                       | 14           | (36)                              |
| Change        2003                                                                     |              |          | 39                         | (11)         | 28                                |
| Available        for sale                                                              |              |          |                       |         |                              |
| Marketable        securities                                                           | 446               | 446           | -                          | -            | -                                 |
| Shares        and convertible debenture loan                                           | 22,963            | 20,648        | (2,315)                    | (29)         | (2,344)                           |
| Available        for sale                                                              |              |          |                       |         |                              |
| December        31, 2003                                                               | 23,409            | 21,094        | (2,315)                    | (29)         | (2,344)                           |
| January        1, 2003                                                                 | 27,760            | 17,997        | (9,763)                    | 22           | (9,741)                           |
| Change        2003 3)                                                                  |              |          | 7,448                      | (51)         | 7,397                             |

 

1 In accordance with Swedish GAAP.

2 For the purpose of thesedisclosures, fair values have been based upon quoted marketprices for listed securities.

3 Of the net SFAS 115 adjustmentduring 2003, 3,969 has been reported as an increase of net incomein accordance with US GAAP and 3,428 has been reported in Othercomprehensive income.

The carrying values and fairvalues for these securities were distributed as follows:

|                                         | January 1,        2003 | December 31,        2003 |
|----------------------------------------------|------------------------|--------------------------|
|                                         | Carrying value 1)      | Fair value 2)            | Carrying value 1) | Fair value 2) |
| Available        for sale                    |                   |                     |   |   |
| Marketable        securities                 | 422                    | 422                      | 446 | 446 |
| Shares        and convertible debenture loan | 27,338                 | 17,575                   | 22,963 | 20,648 |
| Trading                                      | 16,130                 | 16,080                   | 19,083 | 19,072 |

1 In accordance with Swedish GAAP.

2 For the purpose of thesedisclosures, fair values have been based upon quoted marketprices for listed securities.

D. Restructuring costs. Up to andincluding 2000, restructuring costs were in the Volvo Group’syear-end accounts reported in the year that implementation ofthese measures was approved by each company’s Board ofDirectors. In accordance with US GAAP, costs were reported forrestructuring measures only under the condition that asufficiently detailed plan for implementation of the measures isprepared at the end of the accounting period. Effective in 2001,Volvo adopted a new Swedish accounting standard, RR 16Provisions, contingent liabilities and contingent assets, whichwas substantially equivalent to US GAAP at that time. As from2003, when SFAS 146 "Accounting for Costs Associated withExit or Disposal Activities" became effective under US GAAP,there are again differences compared to Swedish GAAP regardingthe timing of when restructuring costs should be recognized inthe income statement. However, no differences has been identifiedin relation to business transactions during 2003.

E. Provisions for post-employmentbenefits. Effective in 2003, 

provisions for post-employmentbenefits in Volvo’s consolidated financial statements areaccounted for in accordance with RR 29 Employee benefits, whichconforms in all significant respects with IAS 19 EmployeeBenefits. See further in Note 1 and 22. In accordance with USGAAP, post-employment benefits should be accounted for inaccordance with SFAS 87, "Employers Accounting for Pensions"and SFAS 106, "Employers’ Accounting for Post-retirementBenefits Other than Pensions". The differences between Volvo’saccounting principles and US GAAP pertain to different transitiondates, recognition of past service costs and minimum liabilityadjustments.Net periodical costs for post-employment benefits.

 

| **Net        periodical costs for post-employment benefits**                                               | 2001         | 2002         | 2003          |
|------------------------------------------------------------------------------------------------------------|--------------|--------------|---------------|
|                                                                                                       |         |         |          |
| Net        periodical costs in accordance with Swedish accounting        principles                        | 3,910        | 5,087        | 4,424         |
| Net        periodical costs in accordance with US GAAP                                                     | 3,454        | 4,418        | 5,075         |
| Adjustment        of this year’s income in accordance with US GAAP,        before income taxes        | **456**      | **669**      | **(651)**     |
|                                                                                                       |         |         |          |
|                                                                                                       |         |         |          |
| **Net        provisions for post-employment benefits**                                                     | Dec 31, 2001 | Dec 31, 2002 | D ec 31, 2003 |
| Net        provisions for post-employment benefits in accordance        with Swedish accounting principles | (13,877)     | (15,528)     | (15,094)      |
| Difference        in actuarial methods                                                                     | (284)        | 170          | –        |
| Unrecognized        actuarial (gains) and losses                                                           | 1,154        | 1,350        | 5,296         |
| Unrecognized        transition (assets) and obligations according to SFAS 87,        net                   | (52)         | (33)         | (29)          |
| Unrecognized        past service costs                                                                     | –       | –       | 659           |
| Minimum        liability adjustments                                                                       | (546)        | (1,507)      | (4,268)       |
|                                                                                                       |         |         |          |
| **Net        provisions for post-employment benefits in accordance        with US GAAP**                   | **(13,605)** | **(15,548)** | **(13,436)**  |

 

 

The projected benefit obligation,accumulated benefit obligation and fair value of plan assets forthe pension plans with an accumulated benefit obligation inexcess of plan assets were 18,867; 18,340 and 13,475 at December31, 2003.

F. Alecta surplus funds. In themid-1990s and later years surpluses

arose in the Alecta insurancecompany (previously SPP) since the return on the management ofITP pension plan assets exceeded the growth in pensionobligations. As a result of decisions in December 1998, Alectadistributed, company by company, the surpluses that had arisen upto and including 1998. In accordance with a statement issued by aspecial committee of the Swedish Financial Accounting StandardsCouncil, surplus funds that were accumulated in Alecta should bereported in companies when their present value can be calculatedin a reliable manner. The rules governing how the refund was tobe made were established in the spring of 2000 and an incomeamounting to 683 was included in the Group’s incomestatement under Swedish GAAP during 2000. In accordance with USGAAP, the surplus funds have been recognized in the incomestatement when settled.

G. Software development. Inaccordance with US GAAP (SOP 98–1

"Accounting for the Costs ofComputer Software Developed or Obtained for Internal Use")expenditures for software development should be capitalized andamortized over the useful lives of the projects. In Volvo’saccounting in accordance with US GAAP, SOP 98–1 is appliedas of January 1999. In Volvo’s accounts prepared underSwedish GAAP up to and including 2000, expenditures for softwaredevelopment were expensed as incurred. Effective in 2001, Volvoadopted a new Swedish accounting standard, RR 15 Intangibleassets. With regard to software development, the new standard issubstantially equivalent to US GAAP and consequently thedifference between Swedish and US GAAP is pertaining only toexpenditures for software development during 1999 and 2000.

H. Product development. Effectivein 2001, Volvo adopted a new

Swedish accounting standard, RR15Intangible assets. In accordance with the new standard, whichconforms in all significant respects to the correspondingstandard issued by the International Accounting StandardsCommittee (IASC), expenditures for development of new andexisting products should be recognized as intangible assets ifsuch expenditures with a high degree of certainty will result infuture financial benefits for the company. The acquisition valueof such intangible assets should be amortized over the usefullives of the assets. In accordance with the new standard, noretroactive application is allowed. Under US GAAP, allexpenditures for development of new and existing products shouldbe expensed as incurred.

I. Entrance fees, aircraft engineprograms. In connection with its 

participation in aircraft engineprograms, Volvo Aero in certain cases pays an entrance fee. InVolvo’s accounting these entrance fees are capitalized andamortized over 5 to 10 years. In accordance with US GAAP, theseentrance fees are expensed as incurred.

  

J. Other. Other include accountingdifferences regarding interest costs,

leasing, stock option plans andguarantees.

  In accordance with USGAAP, interest expense incurred in connection with the financingof the construction of property and other qualifying assets iscapitalized and amortized over the useful life of the relatedassets. In Volvo’s consolidated accounts, interest expensesare reported in the year in which they arise.

  The differencesregarding leasing transactions pertain to sale-leasebacktransactions prior to 1997. 

  In accordance withSwedish GAAP, accruals are made for employee stock optionprograms to the extent that the exercise price of the options islower than the actual market price of the shares at the end ofthe period. In accordance with US GAAP, such accruals should beallocated over the vesting period of the employee stock optionprogram.

  In accordance with FIN45 "Guarantor’s Accounting and Disclosure Requirementfor Guarantees, Including indirect Guarantees of indebtness forOthers", a liability should be recognized at the time acompany issues a guarantee for the fair value of the obligationsassumed under certain guarantee agreements. In accordance withSwedish accounting principles, a liability should be recognizedto the extent a company expects that a loss will be incurred asresult of the guarantee commitment. At December 31, 2003, thegross value of credit guarantees issued for external partiesamounted to 3,879. The fair value of these guarantees recognizedunder US GAAP amounted to 244. Counterguarantees received inrespect of these commitments amounted to 167. 

  

K. Income taxes on US GAAPadjustments. Deferred taxes are 

generally reported for temporarydifferences arising from differences between US GAAP and Swedishaccounting principles. During 2002, a new tax legislation wasenacted in Sweden which removed the possibility to offset capitallosses on investments in shares held for operating purposesagainst income from operations. As a result of the newlegislation, a tax expense of 2,123 was charged to Volvo’snet income under US GAAP to reduce the carrying value of deferredtax assets relating to investments in shares classified as "available-for-sale".

| **Comprehensive        income (loss)**                                | 2001        | 2002        | 2003      |
|-----------------------------------------------------------------------|-------------|-------------|-----------|
| Net        income (loss) in accordance with US GAAP                   | (4,320)     | (6,265)     | 3,979     |
| Other        comprehensive income (loss), net of income taxes         |        |        |      |
| Translation        differences                                        | 1,015       | (2,222)     | (606)     |
| Unrealized        gains and (losses) on securities (SFAS 115):        |        |        |      |
| Unrealized        gains (losses) arising during the year              | (1,532)     | (2,425)     | 3,366     |
| Less:        Reclassification adjustment for (gains)                  |        |        |      |
| and        losses included in net income                              | 733         | 7,558       | 62        |
| Additional        minimum liability for pension obligations (SFAS 87) | (1,622)     | (3,234)     | 186       |
| Fair        value of cash-flow hedges (SFAS 133)                      | –      | –      | (11)      |
| Other                                                                 | 41          | (165)       | (12)      |
| Other        comprehensive income (loss), subtotal                    | (1,365)     | (488)       | 2,985     |
| **Comprehensive        income (loss) in accordance with US GAAP**     | **(5,685)** | **(6,753)** | **6,964** |

Supplementary US GAAP information

Classification. In accordance withSFAS 95, "cash and cash equivalents" comprise onlyfunds with a maturity of three months or less from the date ofpurchase. Some of Volvo’s liquid funds (see Notes 19 and 20)do not meet this requirement. Consequently, in accordance withSFAS 95, changes in this portion of liquid funds should bereported as investing activities. 

  

Income from investments inassociated companies is reported before income taxes inaccordance with Swedish accounting principles, and after incometaxes in accordance with US GAAP. Income taxes attributable toassociated companies amounted 30 (65; 42).

**** 

**Note 35, continued,supplementary US GAAP information**

**Recent US accountingpronouncements issued but not yet adopted**

In May 2003, the FinancialAccounting Standards Board (FASB) issued SFAS No.150, AccountingFor Certain Financial Instruments with Characteristics of bothLiabilities and Equity. The Statement improves the accounting forcertain financial instruments that, under previous guidance,issuers could account for as equity and requires that theseinstruments be classified as liabilities in statements offinancial position. This Statement is effective prospectively forfinancial instruments entered into or modified after May 31, 2003and otherwise is effective at the beginning of the first interimperiod beginning after June 15, 2003. This statement shall beimplemented by reporting the cumulative effect of a change in anaccounting principle for financial instruments created before theissuance date of the Statement and still existing at thebeginning of the interim period of adoption. Volvo do not expectthat the adoption of SFAS 150 will have a significant impact onthe Group’s financial position or results of operations.

In January 2003, the EmergingIssues Task Force (EITF) issued EITF 00-21,‘‘Accountingfor Revenue Arrangements with Multiple Deliverables ’’.EITF 00-21 addresses the issues of (1) how to determine whetheran arrangement involving multiple deliverables contains more thanone unit of accounting; and (2) how arrangement considerationshould be measured and allocated to the separate units ofaccounting in the arrangement. EITF 00-21 does not changeotherwise applicable revenue recognition criteria. EITF 00-21 iseffective for revenue arrangements entered into in fiscal periodsbeginning after June 15, 2003. Volvo do not expect that theadoption of EITF 00-21 will have a significant impact on theGroup’s financial position or results of operations.

On December 23, 2003, the FASBissued Statement of Financial Accounting Standards No. 132 (revised2003), Employers' Disclosures about Pensions and OtherPostretirement Benefits, an amendment of FASB Statements No. 87,88,and 106, and a revision of FASB Statement No. 132 ("FAS 132(revised 2003)"). This Statement revises employers'disclosures about pension plans and other postretirement benefitplans. It does not change the measurement or recognition of thoseplans required by FASB Statements No. 87, Employers' Accountingfor Pensions, No.88, Employers' Accounting for Settlements andCurtailments of Defined Benefit Pension Plans and for TerminationBenefits, and No. 106, Employers' Accounting for PostretirementBenefits Other Than Pensions. The new rules require additionaldisclosures about the assets, obligations, cash flows, and netperiodic benefit cost of defined benefit pension plans and otherpostretirement benefit plans. The required information should beprovided separately for pension plans and for otherpostretirement benefit plans. The new disclosures are generallyeffective for 2003 calendar year-end financial statements ofpublic companies, with a delayed effective date for certaindisclosures, for foreign plans, and for non-public entities. Asdisclosed in Note 22, Volvo has foreign pension plans, mainly inthe United States and Great Britain. Volvo will providedisclosures about foreign pension plans as required by FAS 132 (revised2003) in its 2004 Annual Report on Form 20-F.

In January 2003, the FASB issuedInterpretation 46, Consolidation of Variable Interest Entities.In December 2003, the FASB issued Interpretation 46 Revised,Consolidation of Variable Interest Entities. In general, avariable interest entity is a corporation, partnership, trust, orany other legal structure used for business purposes that either(a) does not have equity investors with voting rights or (b) hasequity investors that do not provide sufficient financialresources for the entity to support its activities.Interpretation 46 requires a variable interest entity to becombined by a company if that company is subject to a majority ofthe risk of loss from the variable interest entity's activitiesor entitled to receive a majority of the entity's residualreturns or both. The consolidation requirements of Interpretation46 apply in the first fiscal year or interim period ending afterDecember 15, 2003 to variable interest entities created afterJanuary 31, 2003. The consolidation requirements apply in thefirst fiscal year or interim period ending after December 15,2003 for "Special Purpose Entities" created beforeJanuary 31, 2003. The consolidation requirements apply in thefirst fiscal year or interim period ending after March 15, 2004for other entities created before January 31, 2003. Volvo iscurrently evaluating the impact of FIN 46 on the group forVariable Interest Entities created prior to January 31, 2003.

 

**Segment reporting**

|                 | 2001        | 2002        | 2003       |
|----------------------|-------------|-------------|------------|
| Long-lived assets: 1 |        |        |       |
| Europe               | 90,300      | 90,073      | 66,141     |
| North America        | 35,772      | 29,542      | 24,056     |
| South America        | 2,543       | 1,488       | 1,633      |
| Asia                 | 3,381       | 2,915       | 2,405      |
| Other markets        | 898         | 736         | 551        |
| **Total**            | **132,894** | **124,754** | **94,717** |
|                 |        |        |       |
| *whereof:*           |        |        |       |
| Sweden               | 49,525      | 48,953      | 24,994     |
| United States        | 31,030      | 25,753      | 20,699     |
| France               | 20,655      | 19,563      | 15,664     |

1) Defined as Non-current assetsless Long-term interest-bearing financial assets and long-termdeferred tax assets. The distribution between geographical areasis based on the domicila countries of the legal entities withinthe Group.

**Allowance for customer-financingreceivables**

The changes in the valuationallowance for customer-financing receivables are presented in thetable below:

 

| **Valuation        allowance for customer finance receivables** | 2001  | 2002  | 2003  |
|-----------------------------------------------------------------|-------|-------|-------|
| Balance        at December 31, preceding year                   | 1,133 | 1,773 | 1.488 |
| Change        of reserve charged to income                      | 1,356 | 1,018 | 765   |
| Utilization        of reserve related to 
actual losses         | (824) | (893) | (848) |
| Acquired        and divested operations                         | (0)   | 0     | 0     |
| Translation        differences                                  | 96    | (400) | (182) |
| Reclassifications,        etc.                                  | 12    | (10)  | 141   |
| Balance        at December 31, current year                     | 1,773 | 1.488 | 1.364 |

**** 

**Joint ventures**

The following represents combinedsummarized financial information as of December 31, 2001, 2002and 2003 and for the years ended December 31, 2001, 2002 and 2003for the joint ventures partly owned by Volvo as of December 31,2003:

|                                                  | 2001      | 2002      | 2003      |
|-------------------------------------------------------|-----------|-----------|-----------|
| **Income Statement Data**                             |      |      |      |
|                                                  |      |      |      |
| Net sales                                             | 5,921     | 5,449     | 3,665     |
| Cost of operations                                    | (6,554)   | (5,298)   | (3,565)   |
| Financial income and expense                          | (189)     | (131)     | (61)      |
| **Income after financial items**                      | **(822)** | **20**    | **39**    |
| Income taxes                                          | 316       | (62)      | (34)      |
| **Net income**                                        | **(506)** | **(42)**  | **5**     |
|                                                  |      |      |      |
| **Balance Sheet Data**                                |      |      |      |
|                                                  |      |      |      |
| Property, Plant and Equipment, net                    | 704       | 525       | 439       |
| Other non-current assets                              | 1,350     | 1,041     | 892       |
| Current assets                                        | 4,001     | 2,968     | 2,433     |
| **Total Assets**                                      | **6,055** | **4,534** | **3,764** |
|                                                  |      |      |      |
|                                                  |      |      |      |
| Shareholders' Equity                                  | 710       | 1,140     | 1,168     |
| Provisions                                            | 736       | 360       | 248       |
| Long-term liabilities                                 | 1,666     | 722       | 591       |
| Current liabilities                                   | 2,943     | 2,312     | 1,757     |
| **Total Shareholders' Equity and        Liabilities** | **6,055** | **4,534** | **3,764** |

From October 1, 2001, theoperations of Prévost and Nova Bus became jointly controlled byVolvo and the Henlys Group Plc. At this time Volvo’sownership reduced from 51% to 50%, as a result of which Volvo'sinterest in Prévost and Nova Bus was accounted for usingproportionate consolidation from this time. The above informationincludes 100% of the results of these operations. Prior toOctober 1, 2001 Volvo consolidated 100% of these amounts anddeducted a minority interest of 49%. From October 1, 2001 Volvohas only consolidated 50% of the results and assets of theseoperations. Up to December 31, 2002 Shanghai Sunwin Bus Corp andXian Silver Bus Corp were reported according to the equity method.As from January 1, 2003, these joint ventures have been reportedin accordance with the proportionate consolidation method. Theabove information includes 100% of the results and financialposition of these operations. 

**** 

**Associated Companies**

The following represents combinedsummarized financial information as of December 31, 2001, 2002and 2003 and for the years ended December 31, 2001, 2002 and 2003for the associated companies partly owned by Volvo as of December31, 2003:

|                                                  | 2001       | 2002       | 2003       |
|-------------------------------------------------------|------------|------------|------------|
| **Income Statement data**                             |       |       |       |
|                                                  |       |       |       |
| Net sales                                             | 15,085     | 14,294     | 13,546     |
| Cost of operations                                    | (14,829)   | (14,032)   | (13,371)   |
| Financial income and expense                          | (386)      | (343)      | (261)      |
| **Income after financial items**                      | **(129)**  | **(81)**   | **(85)**   |
| Income taxes                                          | (8)        | (2)        | (2)        |
| Minority interests in net income                      | 0          | 0          | 0          |
| **Net income**                                        | **(137)**  | **(83)**   | **(87)**   |
|                                                  |       |       |       |
| **Balance Sheet data**                                |       |       |       |
|                                                  |       |       |       |
| Property, plant and equipment, net                    | 3,319      | 2,704      | 2,228      |
| Other non-current assets                              | 2,899      | 2,586      | 1,944      |
| Current assets                                        | 7,800      | 7,325      | 7,355      |
| **Total Assets**                                      | **14,018** | **12,616** | **11,527** |
|                                                  |       |       |       |
|                                                  |       |       |       |
| Shareholders' equity                                  | 483        | 471        | 449        |
| Minority interests                                    | 0          | 0          | 0          |
| Provisions                                            | 453        | 539        | 526        |
| Long-term liabilities                                 | 4,866      | 3,814      | 2,914      |
| Current liabilities                                   | 8,216      | 7,793      | 7,638      |
| **Total Shareholders' Equity and        Liabilities** | **14,018** | **12,616** | **11,527** |

 

Volvo accounts for its interestsin associated companies using the equity method. Consequently,Volvo’s income from investments in associated companiesamounted to 50, 182 and 200 in 2001, 2002 and 2003 respectively.For further information, see note 6. At December 31, 2003 thecarrying value of Volvo’s investments in associatedcompanies was 363.

 

**Undistributed earnings offoreign subsidiaries**

The cumulative amount ofundistributed earnings of foreign subsidiaries, which the Companycurrently intends to indefinitely reinvest outside of Sweden andupon which deferred income taxes have not been provided, isapproximately SEK 11,497 million at December 31, 2003.

**Accruals for restructuringmeasures**

During 1998, Volvo’smanagement decided to implement a number of measures to improveefficiency and reduce costs within the Group. The measuresinvolved shut down, transfer or merging of production sites aswell as restructuring of distribution and marketing organizations.At the end of 2000, the total number of employees reduced by therestructuring activities was about 3,500. 

Also during 1998, in connectionwith Volvo’s acquisition of Samsung’s division forconstruction equipment, a provision was recognized in the openingbalance sheet for implementation of restructuring measures withinthe acquired operations as a consequence of the acquisition.

During 2001 a provision forrestructuring measures of 3,862 was recognized. In Trucks therestructuring provision included costs for the integration ofMack and Renault V.I. in order to secure coordination gains madepossible through the acquisition. The integration measuresincluded reduction of the North American production capacitythrough a decision to close Mack’s Winnsboro plant andtransfer of production to Volvo’s New River Valley plant.The closure of the Winnsboro plant was concluded in the fourthquarter 2002. Integration measures further included restructuringof the global distribution system and production structure. Inaddition to the integration measures, restructuring costs inTrucks included significant personnel reductions due to theprevailing business conditions, especially in North America.Restructuring measures in Buses were attributable to the shutdown of Nova Bus’ plant for city buses in Roswell, UnitedStates. In Construction Equipment, restructuring measures werepertaining to close down of fabrication in the Asheville plant,United States, and to an overall redundancy program. In total,approximately 4,200 employees were affected by reductions as aconsequence of the restructuring measures. Most part of theseemployees had left the Group at December 31, 2003. Remainingprovisions at the end of 2003 include early retirement planswhere former employees receive periodical pensions until theyreach the normal age of retirement. The changes of accruals forrestructuring measures relating to the programs described aboveare shown in the following table:

| **Accruals        for restructuring measures** | 2001   | 2002   | 2003   |
|------------------------------------------------|--------|--------|--------|
| Balance        at December 31, preceding year  | 225    | 2,706  | 1,279  |
| Accrual        charged to income:              |   |   |   |
| Termination        benefits                    | 2,259  | -      | -      |
| Exit        costs                              | 1,603  | -      | -      |
| Utilization        of provisions:              |   |   |   |
| Termination        benefits                    | (720)  | (501)  | (442)  |
| Exit        costs                              | (673)  | (686)  | (123)  |
| Translation        differences                 | 12     | (240)  | (136)  |
| Balance        at December 31, current year    | 2,706  | 1,279  | 578    |

 

**Provisions for post-employmentbenefits**

The tables below discloseinformation prepared in accordance with US GAAP about Volvo’smost significant defined benefit plans. Note 22 disclosescorresponding information prepared in accordance with SwedishGAAP and a specification of differences between Swedish GAAP andUS GAAP pertaining to accounting for post-employment benefits canbe found on page F-45 of this footnote.

| The actuarial calculations for        defined benefit plans have been prepared by use of the        following assumptions: |      |
|----------------------------------------------------------------------------------------------------------------------------|-----------|
|                                                                                                                       |      |   |   |   |   |   |   |
|                                                                                                                       | 2001      | 2002 | 2003 |   |   |   |   |
| **Sweden**                                                                                                                 |      |   |   |   |   |   |   |
| Discount rate 1)                                                                                                           | 5.5       | 5.5 | 5.5 |   |   |   |   |
| Expected return on plan assets 2)                                                                                          | 7.0       | 7.0 | 6.0 |   |   |   |   |
| Expected salary increases 2)                                                                                               | 3.0       | 3.0 | 3.0 |   |   |   |   |
| **United States**                                                                                                          |      |   |   |   |   |   |   |
| Discount rate                                                                                                              | 7.0-7.25  | 6.75 | 6.25 |   |   |   |   |
| Expected return on plan assets                                                                                             | 9.0-9.5   | 9.0-9.5 | 7.65 |   |   |   |   |
| Expected salary increases                                                                                                  | 5.0       | 3.5 | 3.5 |   |   |   |   |
| **France**                                                                                                                 |      |   |   |   |   |   |   |
| Discount rate                                                                                                              | 5.5       | 5.5 | 5.25 |   |   |   |   |
| Expected salary increases                                                                                                  | 3.0       | 3.0 | 3.0 |   |   |   |   |
| **Great Britain**                                                                                                          |      |   |   |   |   |   |   |
| Discount rate                                                                                                              | 5.75      | 5.5 | 5.5 |   |   |   |   |
| Expected return on plan assets                                                                                             | 7.0       | 7.0 | 7.0 |   |   |   |   |
| Expected salary increases                                                                                                  | 3.75      | 3.5 | 3.5 |   |   |   |   |
|                                                                                                                       |      |   |   |   |   |   |   |
| 1) Rates at the end of the year                                                                                            |      |   |   |   |   |   |   |
| 2) Average for the year                                                                                                    |      |   |   |   |   |   |   |
|                                                                                                                       |      |   |   |   |   |   |   |
|                                                                                                                       |      |   |   |   |   |   |   |
| **Pension costs in accordance with        US GAAP attributable to defined benefit plans**                                  |      |   |   |
| **in Sweden, United States, France        and Great Britain**                                                              |      |   |   |   |   |   |
|                                                                                                                       | 2001      | 2002 | 2003 |   |   |   |   |
| Current service costs                                                                                                      | 468       | 480 | 444 |   |   |   |   |
| Interest costs                                                                                                             | 1 273     | 1 263 | 1 170 |   |   |   |   |
| Expected return on plan assets                                                                                             | (1 435)   | (1 214) | (718) |   |   |   |   |
| Actuarial gains and losses                                                                                                 | -         | 105 | 338 |   |   |   |   |
| Past service costs                                                                                                         | 55        | 53 | 54 |   |   |   |   |
| Amortization of transition        obligation                                                                               | (19)      | (21) | (21) |   |   |   |   |
| Curtailments and settlements                                                                                               | -         | - | 0 |   |   |   |   |
| Termination benefits                                                                                                       | -         | 24 | 58 |   |   |   |   |
| **Pension expenses attributable to        defined benefit pension plans**                                                  | **342**   | **690** | **1 325** |   |   |   |   |
| **Pension expenses attributable to        defined contribution plans**                                                     | **2 534** | **3 113** | **3 177** |   |   |   |   |
| **Total pension expenses**                                                                                                 | **2 876** | **3 803** | **4 502** |   |   |   |   |
|                                                                                                                       |      |   |   |   |   |   |   |
| **Costs for post-employment        benefits other than pensions in accordance with US GAAP**                               |      |   |   |
|                                                                                                                       | 2001      | 2002 | 2003 |   |   |   |   |
| Current service costs                                                                                                      | 88        | 70 | 107 |   |   |   |   |
| Interest costs                                                                                                             | 513       | 509 | 415 |   |   |   |   |
| Expected return on plan assets                                                                                             | (27)      | 0 | 0 |   |   |   |   |
| Actuarial gains and losses                                                                                                 | 1         | 4 | (3) |   |   |   |   |
| Past service costs                                                                                                         | 3         | 32 | 26 |   |   |   |   |
| Curtailments and settlements                                                                                               | -         | - | (4) |   |   |   |   |
| Termination benefits                                                                                                       | -         | - | 32 |   |   |   |   |
| **Total expenses for post-employments        benefit other than pensions**                                                 | **578**   | **615** | **573** |   |   |   |   |
|                                                                                                                       |      |   |   |   |   |   |   |
| **Obligations in defined benefit        plans**                                                                            |      | United |   | Great | US |   |   |
|                                                                                                                       | Sweden    | States | France | Britain | Other |   |   |
|                                                                                                                       | Pensions  | Pensions | Pensions | Pensions | benefits |   |   |
| **Obligations at December 31, 2001**                                                                                       | **4 063** | **13 213** | **2 712** | **1 600** | **8 307** |   |   |
| Acquisitions and divestments, net                                                                                          | -         | 1 | - | - | - |   |   |
| Service costs                                                                                                              | 169       | 239 | 24 | 48 | 70 |   |   |
| Interest costs                                                                                                             | 209       | 831 | 134 | 89 | 509 |   |   |
| Unvested past service costs                                                                                                | -         | - | - | - | (105) |   |   |
| Vested past service costs                                                                                                  | -         | - | - | - | - |   |   |
| Termination benefits                                                                                                       | 24        | - | 44 | - | - |   |   |
| Curtailments                                                                                                               | -         | 342 | (8) | - | (6) |   |   |
| Employee contributions                                                                                                     | -         | - | - | 17 | - |   |   |
| Actuarial gains (-) and losses (+)                                                                                         | (366)     | 157 | 133 | 94 | 145 |   |   |
| Exchange rate translation                                                                                                  | -         | (2 346) | (65) | (143) | (1 424) |   |   |
| Benefits paid                                                                                                              | (105)     | (896) | (492) | (42) | (579) |   |   |
| **Obligations at December 31, 2002**                                                                                       | **3 994** | **11 541** | **2 482** | **1 663** | **6 917** |   |   |
|                                                                                                                       |      |   |   |   |   |   |   |
| Acquisitions and divestments, net                                                                                          | -         | - | - | - | - |   |   |
| Service costs                                                                                                              | 160       | 202 | 34 | 48 | 104 |   |   |
| Interest costs                                                                                                             | 226       | 711 | 145 | 88 | 414 |   |   |
| Unvested past service costs                                                                                                | -         | - | - | - | - |   |   |
| Vested past service costs                                                                                                  | -         | - | - | - | - |   |   |
| Termination benefits                                                                                                       | 27        | - | 32 | - | - |   |   |
| Curtailments                                                                                                               | 0         | 32 | - | - | - |   |   |
| Employee contributions                                                                                                     | -         | - | - | 15 | - |   |   |
| Actuarial gains (-) and losses (+)                                                                                         | (176)     | 917 | (6) | - | 686 |   |   |
| Exchange rate translation                                                                                                  | -         | (2 136) | (26) | (148) | (1 279) |   |   |
| Benefits paid                                                                                                              | (113)     | (761) | (404) | (40) | (564) |   |   |
| **Obligations at December 31, 2003**                                                                                       | **4 118** | **10 506** | **2 257** | **1 626** | **6 278** |   |   |
|                                                                                                                       |      |   |   |   |   |   |   |
|                                                                                                                       |      |   |   |   |   |   |   |
| **Fair value of plan assets in        funded plans**                                                                       |      | United |   | Great | US |   |   |
|                                                                                                                       | Sweden    | States | France | Britain | Other |   |   |
|                                                                                                                       | Pensions  | Pensions | Pensions | Pensions | benefits |   |   |
| **Plan assets at December 31, 2001**                                                                                       | **3 513** | **10 754** | **-** | **1 324** | **136** |   |   |
| Acquisitions and divestments, net                                                                                          | -         | - | - | - | - |   |   |
| Actual return on plan assets                                                                                               | (358)     | (1 516) | - | (208) | 1 |   |   |
| Employer contributions                                                                                                     | -         | 60 | - | 56 | 97 |   |   |
| Employee contributions                                                                                                     | -         | - | - | 17 | - |   |   |
| Exchange rate translation                                                                                                  | -         | (1 641) | - | (108) | (19) |   |   |
| Benefits paid                                                                                                              | -         | (887) | - | (42) | (144) |   |   |
| **Plan assets at December 31, 2002**                                                                                       | **3 155** | **6 770** | **0** | **1 039** | **71** |   |   |
|                                                                                                                       |      |   |   |   |   |   |   |
| Acquisitions and divestments, net                                                                                          | -         | - | - | - | - |   |   |
| Actual return on plan assets                                                                                               | 326       | 1 201 | - | 145 | 1 |   |   |
| Employer contributions                                                                                                     | -         | 843 | - | 49 | 81 |   |   |
| Employee contributions                                                                                                     | -         | - | - | 15 | - |   |   |
| Exchange rate translation                                                                                                  | -         | (1 317) | - | (95) | (18) |   |   |
| Benefits paid                                                                                                              | -         | (754) | - | (39) | (24) |   |   |
| **Plan assets at December 31, 2003**                                                                                       | **3 481** | **6 743** | **0** | **1 114** | **111** |   |   |
|                                                                                                                       |      |   |   |   |   |   |   |
|                                                                                                                       |      |   |   |   |   |   |   |
| **Net provisions for        postemployment**                                                                               |      | United |   | Great | US |   |   |
| **benefits**                                                                                                               | Sweden    | States | France | Britain | Other | Other |   |
|                                                                                                                       | Pensions  | Pensions | Pensions | Pensions | benefits | plans | Total |
| **Funded status at December 31,        2002**                                                                              | **(839)** | **(4 771)** | **(2 482)** | **(624)** | **(6 846)** |   |   |
| Unrecognized actuarial (gains) and        losses                                                                           | 1 350     | 3 952 | 133 | 613 | 70 |   |   |
| Unrecognized transition (asset) and        obligations according to SFAS87, net                                            | (33)      | - | - | (18) | 7 |   |   |
| Unrecognized prior service costs                                                                                           | -         | 600 | - | 9 | 225 |   |   |
| Minimum liability adjustment                                                                                               | (1 090)   | (3 817) | - | (417) | - |   |   |
| **Net provisions for        postemployment benefits at December 31, 2002**                                                 | **(612)** | **(4 036)** | **(2 349)** | **(437)** | **(6 544)** | **(1 570)** | **(15 548)** |
|                                                                                                                       |      |   |   |   |   |   |   |
| **Funded status at December 31,        2003**                                                                              | **(637)** | **(3 763)** | **(2 257)** | **(512)** | **(6 167)** |   |   |
| Unrecognized actuarial (gains) and        losses                                                                           | (841)     | 3 203 | 140 | 458 | 679 |   |   |
| Unrecognized transition (asset) and        obligations according to SFAS87, net                                            | 14        | - | - | (14) | 4 |   |   |
| Unrecognized prior service costs                                                                                           | -         | 476 | - | 7 | 162 |   |   |
| Minimum liability adjustment                                                                                               | 926       | (3 057) | - | (264) | - |   |   |
| **Net provisions for        postemployment benefits at December 31, 2003**                                                 | **(538)** | **(3 141)** | **(2 117)** | **(325)** | **(5 322)** | **(1 993)** | **(13 436)** |

 

**Stock based compensation**

Volvo has several stock optionschemes which are described in Note 32. These plans are for USGAAP purposes accounted for in accordance with APB 25. Under SFAS123 these plans would be classified as plans with awards thatcall for settlement in cash and accounted for in a manner similarto that required under APB 25 and as a result there are nodifferences between the US GAAP net income or earnings per sharereported in accordance with APB 25 and net income or earnings pershare that would have been reported in accordance with SFAS 123.

**Note 36 Subsequent events (unaudited)**

At March 31, 2004, Henlys GroupPlc announced that its 30% shareholding in TransBus would bewritten down as a consequence of this company being placed intoadministration. On June 10, 2004, Henlys Group announced that itwas holding discussions with its lending banks and otherprincipal creditors regarding a restructuring of the HenlysGroup, and that it intended to delist its shares from the LondonStock Exchange. At December 31, 2003, Volvo held 9.9% of thevoting rights and capital of Henlys Group Plc. The carrying valueof these shares amounted to SEK 95 million, corresponding to themarket value of the shares at year-end. At May 28, 2004, themarket value of Volvo’s shares in Henlys amounted to SEK 16million. At December 31, 2003, further held a convertibledebenture loan to Henlys Group Plc amounting to USD 240 million.The conertible debenture loan matures in October 2009 and thecarrying value of this loan at December 31, 2003, amounted to SEK1,746 million. 

At the Annual General Meeting ofAB Volvo on April 16, 2004, the Board’s proposal to transferVolvo’s 27.3 million Series A shares in Scania AB to AinaxAB and thereafter to distribute 99% of the shares in Ainax AB toVolvo’s shareholders was approved. The value of the approveddistribution of shares in Ainax AB was set at SEK 6,310 million.The Meeting also approved the Board’s proposal to pay adividend to the shareholders of SEK 8.00 per share, or a total ofSEK 3,356 million. June 1, 2004 was adopted as the record datefor entitlement to receive the cash dividend and the distributionof shares in Ainax. The distribution of shares in Ainax to ABVolvo’s shareholders was made on June 8, 2004, and the cashdividend was paid to AB Volvo’s shareholders on June 15,2004. The Annual General Meeting also resolved to authorize theBoard of Directors of AB Volvo to decide on the purchase andtransfer of the Company’s own shares during the period up tothe next Annual General Meeting. The Company may purchase notmore than 10% of the total number of shares outstanding in theCompany through trading on a stock exchange or another regulatedmarket in which the Company’s shares are traded. For thepurpose of financing company acquisitions, the transfer of suchshares may be effected through an offering directed to allshareholders. Payment for shares tendered shall be made in cash.Accordingly, on June 16, 2004, the Board decided to acquirethrough purchase on Stockholmsbörsen a maximum of 22,076,045Series A and/or Series B shares, however, not to exceed a totalpurchase amount of SEK 4,300,000,000. The purchases may becarried out during the period until the Annual General Meeting in2005. The buyback, which will begin as soon as possible, shall bemade within the so-called spread and settlements will be reportedvia Stockholmsbörsen in accordance with applicable rules.

 

**SIGNATURES**

The registrant hereby certifiesthat it meets all of the requirements for filing on Form 20-Fand that it has duly caused and authorized the undersigned tosign this annual report on its behalf.

AKTIEBOLAGET VOLVO (publ)

By: /s/ Leif JohanssonName: Leif JohanssonTitle: President and Chief Executive Officer

Dated June 18, 2004