Chrysler 2009 Annual Report Download - page 210

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A description of these follows:
Sales incentives - these provisions relate to sales incentives that are offered on a contractual basis to the Group’s dealer networks, primarily on the basis
of the dealers achieving a specific cumulative level of sales transactions during the calendar year. This provision is estimated based on the information
available regarding the sales made by the dealers during the calendar year. The provision also includes sales incentives such as cash rebates announced
by the Group and provided by dealers to customers, for which the dealers are reimbursed. The Group records these provisions when it is probable that
the incentive will be provided and the Group’s inventory is sold to its dealers. The Group estimates these provisions based on the expected use of these
rebates with respect to the volume of vehicles that has been sold to the dealers.
Legal proceedings and other disputes - this provision represents management’s best estimate of the liability to be recognised by the Group with
regard to:
Legal proceedings arising in the ordinary course of business with dealers, customers, suppliers or regulators (such as contractual or patent disputes).
Legal proceedings involving claims with active and former employees.
Legal proceedings involving different tax authorities.
None of these provisions is individually significant. Each Group company recognises a provision for legal proceedings when it is deemed probable that
the proceedings will result in an outflow of resources. In determining their best estimate of the probable liability, each Group company evaluates their
legal proceedings on a case-by-case basis to estimate the probable losses that typically arise from events of the type giving rise to the liability. Their
estimate takes into account, as applicable, the views of legal counsel and other experts, the experience of the Group and others in similar situations and
the Group’s intentions with regard to further action in each proceeding. Fiat’s consolidated provision aggregates these individual provisions established
by each of the Group’s companies.
Commercial risks - this provision includes the amount of obligations arising in connection with the sale of products and services such as maintenance
contracts. An accrual is recorded when the expected costs to complete the services under these contracts exceed the revenues expected to be
realised.
Environmental risks - based upon currently available information, the reserve represents management’s best estimate of the Group’s possible environmental
obligations. Amounts included in the estimate comprise direct costs to be incurred in connection with environmental obligations associated with current
or formerly owned facilities and sites. This provision also includes costs related to claims on environmental matters.
Indemnities - the reserve for indemnities relates to contractual indemnities provided by the Group in connection with divestitures carried out in 2009 and
prior years. These liabilities primarily arise from indemnities relating to contingent liabilities in existence at the time of the sale, as well as those covering
any breach of the representations and warranties provided in the contract and, in certain instances, environmental or tax matters. These provisions were
determined estimating the amount of the expected outflow of resources, taking into consideration the relevant level of probability of occurrence.