Volvo 2009 Annual Report Download - page 103

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Note 28 Assets pledged
2008 2009
Property, plant and equipment – mortgages 190 297
Assets under operating leases 155 109
Chattel mortgages 369 25
Receivables 569 451
Cash, marketable securities 97 76
Total 1,380 958
The liabilities for which the above assets were pledged amounted at year-end to 658 (1,102).
Note 29 Contingent liabilities
2008 2009
Credit guarantees issued for
customers and others 2,687 2,173
Tax claims 931 824
Other contingent liabilities 5,809 6,610
Total 9,427 9,607
The reported amounts for contingent liabilities reflect 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, 2009, the estimated value of counter guarantees
received and other collaterals, for example the estimated net selling
price of used products, amounted to 3,832 (4,172).
Tax claims amounted to 824 (931) 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. There-
after Mack Trucks and UAW have entered into a new 40-month Mas-
ter Agreement. The agreement includes the establishment of an inde-
pendent trust that will completely eliminate Mack’s commitments for
providing healthcare to retired employees. This had a negative impact
of 877 on the Volvo Group’s operating income during the second
quarter of 2009 and a negative impact of the same amount on net
debt. The trust must be approved by the U.S. District Court for the
Eastern District of Pennsylvania, which is expected in the second
quarter 2010. The Volvo Group will fund the trust with USD 525 M,
paid over 5 years. As from the fourth quarter of 2009 the funding
obligation is reported as a financial liability and amortizations will be
reported as cash flow from financing activities.
In July 1999 Volvo Truck Corporation and Volvo Construction
Equipment entered into a Consent Decree with the U.S. 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 M,
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 referred to a U.S. court. The amount requested by the
EPA is included in contingent liabilities.
Nissan Diesel Thailand Co. Limited (the “Plaintiff”) on November
30, 2009 filed a claim at the Pathumthani Provincial Court of First
Instance, Thailand, against AB Volvo and three of its employees
(together the “Defendants”), claiming damages in the sum of Baht
10.5 billion (equivalent to approximately SEK 2.2 billion). The Plaintiff
claims that the Defendants’ actions caused UD Trucks Corporation
(“UDT”), a wholly-owned subsidiary of AB Volvo, to unlawfully ter-
minate two agreements dated December 27, 2002 between UDT and
the Plaintiff. The Plaintiff is one of UDT’s private dealers. AB Volvo
considers that the Plaintiff’s claim is of no merit.
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. 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
financial condition of the Volvo Group.
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