Volvo 2013 Annual Report Download - page 155

Provision for product warranty
Warranty provisions are estimated with consideration of historical claims
statistics, the warranty period, the average time-lag between faults occur-
ring and claims to the company and anticipated changes in quality indexes.
Estimated costs for product warranties are recognized as cost of sales
when the products are sold. Estimated warranty costs include contractual
warranty and goodwill warranty (warranty cover in excess of contractual
warranty or campaigns which is accepted as a matter of policy or normal
practice in order to maintain a good business relation with the customer).
Differences between actual warranty claims and the estimated claims gen-
erally affect the recognized expense and provisions in future periods. Re-
funds from suppliers, that decrease the Volvo Group’s warranty costs, are
recognized to the extent these are considered to be certain. As of Decem-
ber 31, 2013 warranty cost provisions amount to 9,881 (8,852).
Legal proceedings
The Volvo Group recognizes obligations as provisions or other liabilities
only in cases where Volvo has a present obligation from a past event,
where a fi nancial responsibility is probable and the Volvo Group can make
a reliable estimate of the amount. When these criteria are not met, a
contingent liability may be recognized.
Carrying
value
as of
Dec 31,
2012 Provisions Reversals Utilizations
Acquired
and
divested
companies Translation differences
Other
reclassi-
fi c a t i o n s
Carrying
value
as of
Dec 31,
2013
Of which
due within
12 months
Of which
due after
12 months
Warranties 8,852 7,706 (1,093) (5,346) (14) (145) (79) 9,881 6,375 3,506
Provisions in insurance
operations 377 262 (42) (27) 0 (24) 101 647 19 627
Restructuring measures 1,106 409 (277) (393) 0 (38) (25) 781 523 258
Provisions for residual value
risks 732 231 (196) (68) 0 1 (55) 646 217 429
Provisions for service
contracts 389 186 (100) (121) 3 (2) (12) 343 188 155
Dealer bonus 2,271 2,740 (256) (2,381) 0 9 86 2,470 2,431 39
Other provisions 2,989 2,988 (604) (2,304) (6) (80) (256) 2,726 1,551 1,175
B/S Total 16,716 14,522 (2,567) (10,6 40) (18) (279) (240) 17,494 11,304 6,190
Long-term provisions as above are expected to be settled within 2 to 3 years.
The provision for the effi ciency program included in restructuring measures amounts to SEK 0.5 billion.
Read more about restructuring costs in Note 8.
The Volvo Group regularly reviews the development of signifi cant out-
standing legal disputes in which the Volvo Group companies are parties,
both civil law and tax disputes, in order to assess the need for provisions
and contingent liabilities in the fi nancial statements. Among the factors
that the Volvo Group considers in making decisions on provisions and con-
tingent liabilities are the nature of the dispute, the amount claimed, the pro-
gress of the case, the opinions or views of legal counsels and other ad visers,
experience in similar cases, and any decision of the Volvo Group’s manage-
ment as to how the Volvo Group intends to handle the dispute. The actual
outcome of a legal dispute may deviate from the expected outcome of the
dispute. The difference between actual and expected outcome of a dispute
might materially affect future fi nancial statements, with an adverse impact
upon the Volvo Group’s operating income, fi nancial position and liquidity.
Read more about contingent liabilities in Note 24.
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