Chrysler 2011 Annual Report Download - page 210

209
Consolidated
Financial Statements
at 31 December 2011
The warranty provision represents the best estimate of commitments given by the Group for contractual, legal, or constructive obligations arising from
product warranties given for a specified period of time beginning at the date of sale to the end customer. This estimate has been calculated considering
the Group’s past experience and specific contractual terms. The provision also includes management’s best estimate of the costs that are expected to be
incurred in connection with product defects that could result in a general recall of vehicles, which is estimated by making an assessment of the historical
occurrence of defects on a case-by-case basis.
The restructuring provision at 31 December 2011 consists of termination benefits of €208 million payable to employees in connection with restructuring
plans, manufacturing rationalisation costs of €26 million and other costs of €106 million. These provisions relate to business restructuring programs in
the following sectors (in € million): Chrysler 116, Fiat Group Automobiles 110, Components 50, Fiat Powertrain 15, Production Systems 8, Metallurgical
Products 4, other sectors 37.
The restructuring provision for Continuing Operations at 31 December 2010 consisted of termination benefits of €162 million payable to employees in
connection with restructuring plans, manufacturing rationalisation costs of €27 million and other costs of €13 million. These provisions related to business
restructuring programs in the following sectors (in € million): Fiat Group Automobiles 88, Components 48, Fiat Powertrain 17, Production Systems 10,
Metallurgical Products 7, other sectors 32.
The provision for other risks represents the amounts provided by the individual companies of the Group in connection mainly with contractual and
commercial risks and disputes. Details of this item are as follows:
(€ million) At 31 December 2011 At 31 December 2010 (*)
Sales incentives 2,288 378
Legal proceedings and other disputes 608 535
Commercial risks 400 277
Environmental risks 41 33
Indemnities 66 60
Other reserves for risk and charges 1,301 739
Total Other risks 4,704 2,022
(*) The amounts relate to Continuing Operations.
A description of these follows:
Sales incentives - this provision relates to sales incentives that are offered on a contractual basis to the Group’s dealer networks, primarily on the basis
of that dealers will achieve 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 this provision when it is probable that the
incentive will be provided and the Group’s inventory is sold to its dealers. The Group estimates this provision 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 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 combines these individual provisions established by
each of the Group’s companies.