Volvo 2007 Annual Report Download - page 120
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116 Financial information 2007
Notes to consolidated fi nancial statements
Note 28 Assets pledged
2006 2007
Property, plant and equipment – mortgages 310 202
Assets under operating leases 609 265
Chattel mortgages 367 364
Receivables 576 600
Cash, marketable securities 98 125
Total 1,960 1,556
The liabilities for which the above assets were pledged amounted at year-end to 1,395 (2,108).
Note 29 Contingent liabilities
2006 2007
Credit guarantees issued for
customers and others 1,109 1,884
Tax claims 983 783
Other contingent liabilities 5,634 5,486
Total 7,726 8,153
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, 2006, the estimated value of counter guarantees
received and other collaterals, for example the estimated net selling
price of used products, amounted to 3,934 (3,650).
Tax claims amounted to 783 (983) pertain to charges against the
Volvo Group for which provisions are not considered necessary. Other
contingent liabilities pertain mainly to residual value guarantees.
In North America the former agreement between Mack Trucks and
UAW, the American union for vehicle workers, was due 30 September
2007. The agreement has been prolonged on a day-to-day basis.
During January 2008 Volvo Trucks has also initiated negotiations with
the UAW for the North American operations. On 31 January, 2008 the
agreement between Volvo Trucks North America Operations and
UAW was due, without the parties agreing on a prolongation. Since
the parties at that time had not succeeded in reaching an agreement,
the UAW chose to engage in a strike. Negotiations are ongoing. At
present, it is not possible to estimate neither the duration of the strike
nor the outcome of the negotiations, which have not been terminated,
but there is a risk that the outcome may have a signifi cant negative
impact on the consolidated operating income in 2008.
Legal proceedings
In March 1999, a Volvo FH12 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. Following the closure in October 2003
of an investigation for potential criminal liability for the fi re, the trial for
unintentional manslaughter 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 par-
ties tried for unintentional 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. The question concerning civil damages was however not fi nally
settled by the judgement in the criminal proceedings. A number of civil
proceedings related to the fi re have been initiated against Volvo com-
panies and many other parties in France, Italy and Belgium. During
December 2007 a settlement agreement was concluded whereby
Volvo group companies are held harmless and indemnifi ed against all
claims related to the tunnel fi re.
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 arbitra-
tion against VAN, requesting a declaratory award stating that Snecma
was entitled to calculate VAN’s compensation under the agreements
in other ways than the common and undisputed interpretation of the
agreements during nearly twenty years of performance. In July 2007
the arbitration court decided in favour of VAN. Accordingly the contin-
gent liability in this matter has been cancelled.
AB Volvo is cooperating with investigations of transactions by two
of its subsidiaries in connection with the United Nations Oil for Food
Program by the US Securities and Exchange Commission and the US
Department of Justice. Volvo is also aware that Swedish and French
authorities are also separately investigating the Oil for Food Program.
Global actors like Volvo are occasionally involved in tax disputes of
different proportions and in different stages. On a regular basis Volvo
evaluates the exposure related to such disputes and, to the extent it is
possible to reasonably estimate what the outcome will be, makes pro-
visions when it is more likely than not that there will be additional tax
to pay.
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 entail any risk,
in the aggregate, of having a material effect on the fi nancial condition
of the Volvo Group.
Volvo continuously reports VAT receivables in Russia for the cus-
tomer fi nance operations. As an effect of the expanding operations,
the VAT receivables exceed the VAT liabilities. Volvo has won all court
cases related to the entitlement regarding these receivables, but has
not yet received any payment. At year-end 2007 these receivables
amounted to approximately SEK 250 M.