TomTom 2012 Annual Report Download - page 67

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65
26. PROVISIONS (CONTINUED)
Warranty provision
The group generally offers warranties for its navigation products. Management estimates the related provision for future warranty claims
based on historical warranty claim information, as well as evaluating recent trends that might suggest that past cost information may differ
from future claims. As recent trends show that the average return rate for our automotive products is declining, we have changed the
assumption used to estimate the warranty provision. This resulted in a release of €5.7 million.
Out of the total warranty provision of €35.8 million, we estimate that an amount of €22.1 million will be utilised within 12 months and the
remaining amount is expected to be utilised within the 24 months thereafter.
Claims and litigation
The group made a provision for potential legal risks, potential tax penalties that may arise from various tax audits and other risks in various
jurisdictions. The legal matters mainly consist of intellectual property infringement issues. In the normal course of business, the group
receives claims relating to allegations that we have infringed intellectual property assets. In such cases the companies making the claims
seek payments that may take the form of licences and/or damages. While these claims will be resisted, some are likely to be settled by
negotiation and others are expected to result in litigation.
The cases and claims against the group often raise diffi cult and complex factual and legal issues which are subject to many uncertainties
and complexities, including but not limited to the facts and circumstances of each particular case and claim, the jurisdiction in which each
suit is brought, and the differences in applicable law. In the normal course of business, management consults with legal counsel and certain
other experts on matters related to such claims and litigation. The group accrues a liability when it is determined that an adverse outcome
is more likely than not, and the amount of the loss can be reasonably estimated. If the likelihood of an adverse outcome is reasonably
possible or an estimate is not determinable, the matter is disclosed, provided it is material. Management is of the opinion that the provision
is adequate to resolve these claims.
The methodology used to determine the amount of the liability requires signifi cant judgments and estimates regarding the costs of settling
asserted claims. Due to the fact that there is limited historical data available, the estimated liability cannot be based upon recent settlement
experience for similar types of claims. Developments in negotiations in some of our pending issues during 2012 resulted in a change in
estimates which led to a €12 million release in our provision.
Based on our best estimate, the portion of the claims & litigation provision expected to be settled in the coming twelve months amounted
to approximately €8.9 million the remainder is expected to be settled between one and fi ve years.
Other provision
Other provisions include an amount of €6.6 million (2011: €4.6 million) related to the defi ned benefi t pension plan in Germany and the
remainder relates mainly to a provision for onerous building leases. The amount of Other provision expected to be settled/utilised within the
coming twelve months amounted to €2.2 million.
This German defi ned benefi t plan was frozen in 2007 and is an unfunded plan. In the extraordinary event that the group is unable to meet
its obligations, the participants will receive (partial) payments from a state-owned pension protection fund.
The movement of the German defi ned benefi t obligation is presented below:
(€ in thousands) 2012 2011
PRESENT VALUE OF OBLIGATION AS AT 1 JANUARY 4,603 4,845
Current service cost 56
Interest cost 251 242
4,859 5,093
Remeasurements:
– Experience (gains)/losses due to change in demographical assumptions – 25 – 118
– (Gain)/loss from change in fi nancial assumptions 1,825 – 356
1,800 – 474
Benefi ts paid – 87 – 16
PRESENT VALUE OF OBLIGATION AS AT 31 DECEMBER 6,572 4,603
The service cost and the interest cost are recognised as pension costs while the actuarial (gains) losses are charged / credited to Other
comprehensive income.