Volvo 2008 Annual Report Download - page 115

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Financial information 2008
Note 28 Assets pledged
2007 2008
Property, plant and equipment – mortgages 202 190
Assets under operating leases 265 155
Chattel mortgages 364 369
Receivables 600 569
Cash, marketable securities 125 97
Total 1,556 1,380
The liabilities for which the above assets were pledged amounted at year-end to 1,102 (1,395).
Note 29 Contingent liabilities
2007 2008
Credit guarantees issued for
customers and others 1,884 2,687
Tax claims 783 931
Other contingent liabilities 5,486 5,809
Total 8,153 9,427
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, 2008, the estimated value of counter guarantees
received and other collaterals, for example the estimated net selling
price of used products, amounted to 4,172 (3,934).
Tax claims amounted to 931 (783) 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
The former labor agreement between Mack Trucks, Inc. and the United
Auto Workers Union (“UAW”), expired on September 30, 2007. Since
that time, the parties have been operating under a mutually agreed
upon extension of the previous agreement that can be terminted by
either party on short notice. Negotiations on a new labor agreement
are ongoing. Both Mack Trucks, Inc. and the UAW are parties to similar
lawsuits fi led in the U.S federal courts addressing the issue of retiree
health benefi ts. Mack Trucks’ lawsuit, the fi rst of the two lawsuits fi led,
seeks a declaration from the court that it is permitted to unilaterally
amend the terms of the existing retiree health care plan. The lawsuit
fi led by the UAW in response to the Mack lawsuit, seeks a ruling from
the court that the plan of benefi ts must remain unchanged. The cases
have been consolidated to one trial on Mack’s request. At present, it is
not possible to estimate the outcome of the negotiations or the pend-
ing lawsuits, but there is a risk that the outcome may have a signifi cant
negative effect on the consolidated operating income.
In July 1999 Volvo Truck Corporation and Volvo Construction
Equipment entered into a Consent Decree with the US Environmental
Protection Agency (EPA.) The Consent Decree included, among other
provisions, that new stricter emission requirements for certain engines
that would come into force on January 1, 2006, should be applied by
VTC and VCE from January 1, 2005. The Consent Decree was later
transferred from VTC and VCE to Volvo Powertrain Corporation. Dur-
ing 2008, the EPA demanded stipulated penalties from Volvo Power-
train Corporation in the amount, including interest, of USD 72,006,337,
alleging that the stricter standards under the Consent Decree should
have been applied to engines manufactured by Volvo Penta during
2005. Volvo Powertrain disagrees with EPA’s interpretation and is
defending the case vigorously based on, among other grounds, that
the Volvo Penta engines were not subject to the Consent Decree. The
dispute was in January 2009 refered to a US court. The amount
requested by the EPA is included in contingent liabilities.
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.