Volvo 2010 Annual Report Download - page 103

NOTE 28 ASSETS PLEDGED
2009 2010
Property, plant and equipment – mortgages 297 168
Assets under operating leases 109 107
Chattel mortgages 25 –
Receivables 451 2,964
Cash, marketable securities 76 100
Total 958 3,339
NOTE 29 CONTINGENT LIABILITIES
2009 2010
Credit guarantees issued for
customers and others 2,173 3,709
Tax claims 824 490
Other contingent liabilities 6,610 6,804
Total 9,607 11,003
Tax claims amounted to 490 (824) pertain to charges against the
Volvo Group for which provisions are not considered necessary.
Other contingent liabilities includes residual value guarantees and
legal proceedings.
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, 2010, the estimated value of counter guarantees
received and other collaterals, for example the estimated net selling
price of used products, amounted to 3,893 (3,832). They are mainly
pertaining to credit guarantees and 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.
Thereafter Mack Trucks and UAW have entered into a new 40-month
Master Agreement. The agreement includes the establishment of an
independent trust that will completely eliminate Mack's commitments
for providing healthcare to retired employees. The trust must be
approved by the U.S. District Court for the Eastern District of Pennsyl-
vania, which is currently scheduled for the last six months of 2011. The
Volvo Group will fund the trust with USD 525 M, paid out during a five-
year period as from 2010. 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. Environmen-
tal 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 Corpor-
ation. During 2008, the EPA demanded stipulated penalties from
Volvo Powertrain 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 interpreta-
tion and is defending the case vigorously based on, among other
grounds, that the Volvo Penta engines were not subject to the Con-
sent Decree. The dispute was referred to a U.S. court. The amount
requested by the EPA is included in other 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 2.3 billion). The Plaintiff
claims that the Defendants' actions caused UD Trucks Corporation
(“UDT”), a wholly-owned subsidiary of AB Volvo, to unlawfully termi-
nate 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.
Volvo Trucks’ and Renault Trucks’ UK subsidiaries have, together
with a number of other international truck companies, become the
subject of an investigation initiated by the OFT (Office of Fair Trading),
the British competition authority. Volvo Trucks’ and Renault Trucks’
British subsidiaries have received letters from the OFT as part of the
investigation and will cooperate fully with the OFT during the course
of the investigation.
In January 2011 Volvo Group and a number of other companies in
the truck industry have become part of an investigation by the Euro-
pean Commission regarding a possible violation of EU antitrust rules.
Volvo Group will cooperate fully with the Commission during the
course of the investigative work.
Global actors such as Volvo are occasionally involved in tax dis-
putes 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 provisions 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.
The liabilities for which the above assets were pledged amounted at
year-end to 2,946 (658).
In 2010 an asset-backed securitization was completed. Under the
terms of the transaction, USD 616 M of securities were issued tied to
US-based loans with trucking and construction equipment assets as
collaterals.
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