Volvo 2005 Annual Report Download - page 119

Volvo Group 2005 115
Note 29 Contingent liabilities
2004 2005
Credit guarantees
– issued for associated companies 110 13
– issued for customers and others 2,471 1,267
Tax claims 1,433 695
Other contingent liabilities 5,175 5,875
Total 9,189 7,850
The reported amounts for contingent liabilities refl ect the Volvo
Group’s risk exposure on a gross basis. The reported amounts have
thus not been reduced because of counter guarantees received or
other collaterals in cases where a legal offsetting right does not
exist. At December 31, 2005, the estimated value of counter guaran-
tees received and other collaterals, for example the estimated net
selling price of used products, amounted to 4,479 (5,135). Tax claims
pertain to charges against the Volvo Group for which provisions are
not considered necessary. Other contingent liabilities pertain mainly
to residual value guarantees.
Legal proceedings
In March 1999, an FH 12 Volvo truck was involved in a fi re in the
Mont Blanc tunnel. The tunnel suffered considerable damage from
the fi re, which continued for 50 hours. 39 people lost their lives in
the fi re, and 34 vehicles were trapped in the tunnel. The Mont Blanc
tunnel was re-opened for traffi c in 2002. An expert group was
appointed by the Commercial Court in Nanterre, France, to investi-
gate the cause of the fi re and the losses it caused. At present, it is
not possible to anticipate the result of this on-going investigation or
the result of other French legal actions in progress regarding the
fi re. Following the closure in October 2003 of an investigation for
potential criminal liability for the fi re, the trial for unintentional man-
slaughter started in Bonneville (France) on 31st January, 2005 and
lasted until late April 2005. The judgment was given on 27th July,
2005. Volvo Truck Corporation was one of 16 parties tried for unin-
tentional manslaughter. Volvo Truck Corporation was acquitted and
not required to pay any civil damages to the plaintiffs. Volvo Truck
Corporation’s acquittal with regards to criminal charges is fi nal.
Some of the plaintiffs have appealed the award of civil damages and
those proceedings, hence, are ongoing. A claim was fi led with the
Commercial Court in Nanterre by the insurance company employed
by the French tunnel operating company against certain Volvo Group
companies and the trailer manufacturer in which compensation for
the losses claimed to have been incurred by the tunnel operating
company was demanded. The claimant requested that the Court
postpone its decision until the expert group has submitted its report.
The Court of Nanterre has since then declined jurisdiction in favor of
the civil Court of Bonneville before which several other claims had
been fi led in connection with this matter. As a result, the Court of
Bonneville is likely ultimately to rule on all civil liability claims fi led in
France against Volvo Group companies in connection with the Mont-
Blanc tunnel fi re. Volvo Group companies are also involved in pro-
ceedings regarding this matter before courts in Aosta and Turin
(Italy) and Brussels (Belgium). Although the aggregate amount
claimed is substantial, Volvo is unable presently to determine the
ultimate outcome of the legal proceedings mentioned above, the
only exception being the criminal charges mentioned above from
which Volvo Truck Corporation has now been acquitted.
Between 1985 and 1995, Volvo Aero Norway A/S (“VAN”) and
Snecma entered into several agreements relating to the supply by
VAN of components for the Snecma CFM56 engine. These aircraft
engine programs are long term agreements, with an expected term
of not less than thirty years. In 2005, Snecma fi led a request for
arbitration against VAN, requesting a declaratory award stating that
Snecma is entitled to calculate VAN’s compensation under the
agreements in other ways than the common and undisputed inter-
pretation of the agreements during nearly twenty years of perform-
ance. An award in Snecma’s favour would mean that the compensa-
tion would be signifi cantly reduced. It is diffi cult to assess the
magnitude of such a reduction of the concession levels since,
instead of fi xed levels of payment, the levels of payment to VAN
would be affected by the actual payments received by Snecma from
its customers. VAN has no access to the commercial information
needed to calculate the payment levels in such case. VAN has
rejected Snecma’s claims. Arbitral hearings are expected to be fi nal-
ized at the beginning of the autumn 2006.
Volvo is involved in a number of other legal proceedings incidental
to the normal conduct of its businesses. Volvo does not believe that
any liabilities related to such proceedings are likely to be, in the
aggregate, material to the fi nancial condition of the Volvo Group.
Note 30 Cash fl ow
Other items not affecting cash pertain to risk provisions and losses
related to doubtful receivables and customer-fi nancing receivables,
602 (551), capital gains on the sale of subsidiaries and other busi-
ness units 717 (95), write-down of shares in Peach County Holdings
Inc in 2005 and in 2004 revaluation of shares in Scania AB and
Henlys Group Plc amounting to 550 (negative 820), provision for
industrial relocation and contractual pension – (530), IFRS transition
effect – (negative 177) and other negative 20 (negative 19).
Net investments in customer-fi nancing receivables resulted in
2005 in a negative cash fl ow of SEK 7.8 billion (7.4). In this respect,
liquid funds were reduced by SEK 23.4 billion (19.4) pertaining to new
investments in fi nancial leasing contracts and installment contracts.
Divestments of shares and participations, net in 2005 amounted
to SEK 0.3 billion and in 2004 to SEK 15.1 billion, mainly related to
the divestment of the Scania B-shares.
Acquired and divested subsidiaries and other business units, net in
2005 amounted to SEK 0.6 billion and negative SEK 0.1 billion in 2004.
During 2005 and 2004 interest-bearing receivables including
marketable securities, net reduced liquid funds by SEK 1.3 billion
and SEK 6.4 billion, respectively.
The change during the year in bonds and other loans increased
liquid funds by SEK 3.6 billion (decrease 8.8). New borrowing during
the year, mainly the issue of bond loans, provided SEK 41.6 billion
(19.1). Amortization during the year amounted to SEK 33.4 billion
(28.9).