Volvo 2014 Annual Report Download - page 157

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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.
The Volvo Group regularly reviews the development of signifi cant out-
standing legal disputes in which the Volvo Group companies are parties,
both regarding 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 provi-
sions and contingent liabilities are the nature of the dispute, the amount
claimed, the progress 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 management 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.
In the dispute between Volvo Powertrain Corporation and the U.S. Envi-
ronmental Protection Agency (EPA) regarding a Consent Decree on
emission compliance of diesel engines, the U.S. Court of Appeals for the
District of Colombia Circuit rendered a ruling on July 18, 2014, affi rming
the District Court’s ruling of 2012, ordering Volvo Powertrain to pay pen-
alties and interest of approximately USD 72 M. Volvo Powertrain has
appealed the ruling and is expecting a response from the Supreme Court
of the United States on whether review will be granted. At the end of
2013, the Volvo Group reported a provision of approximately SEK 65 M
and a contingent liability of approximately SEK 401 M. In the third quarter
2014 the Volvo Group recognized the previously reported contingent lia-
bility as a provision due to the Court of appeals’ ruling on July 18, 2014,
having a negative impact on the Group’s operating income of approxi-
mately SEK 422 M. As per 31 December 2014 the provision including
currency effect amounted to SEK 560 M.
Carrying
value
as of
Dec 31,
2013 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,
2014
Of which
due within
12 months
Of which
due after
12 months
Warranties 9,881 6,848 (795) (5,202) 30 958 (1,137) 10,583 5,330 5,253
Provisions for extended
coverage – 183 (83) (499) – 37 1,150 788 286 502
Provisions in insurance
operations 647 151 (66) (99) – 80 – 713 24 689
Restructuring measures17811,597(166)(1,099)–32 –1,145968177
Provisions for residual
value risks 646 292 (48) (151) – 75 (4) 810 265 545
Provisions for service
contracts 343 275 (47) (146) – 27 30 482 298 184
Provisions for fi nished
products22,470 3,745 (309) (3,190) – 351 (715) 2,352 2,282 70
Provision related to EU
antitrust investigation – 3,703 – – – 107 – 3,810 – 3,810
Provision related to engine
emission case in the U.S 65 422 – – – 73 – 560 560 –
Provision for expected
credit losses for Volvo CE – 500 – – – 21 – 521 521 –
Other provisions 2,661 3,743 (403) (2,724) – 189 (18) 3,449 1,940 1,509
B/S Total 17,494 21,459 (1,917) (13,110) 30 1,951 (694) 25,213 12,473 12,740
Long-term provisions as above are expected to be settled within 2 to 3 years.
1 The provision for the effi ciency program included in restructuring measures amounted to SEK 0.9 (0.5) billion.
Read more about restructuring costs in Note 8 Other operating income and expenses and pages 24, 72 and 76.
2 SEK 713 M was reclassifi ed from provisions for fi nished products to other liabilities, accrued revenue from service contracts.
In January 2011, the Volvo Group and a number of other companies in
the truck industry became part of an investigation by the European Com-
mission regarding a possible violation of EU antitrust rules. On November
20, 2014 the European Commission issued a Statement of Objections stat-
ing its preliminary view that the Volvo Group and several other European
Truck companies may have violated the European Competition rules. After
an evaluation of the Statement of Objections, the Volvo Group decided to
recognize a provision of EUR 400 M (SEK 3.8 billion as per December 31,
2014) which impacted the Volvo Group’s operating income in the fourth
quarter of 2014 negatively with the same amount. The proceedings are still
at an early stage and there are a number of uncertainties associated with
the fi nal outcome of the European Commission’s investigation as well as
the amount of a potential fi ne. The Volvo Group will re-assess the size of the
provision regularly following the development of the proceedings.
Read more in Note 24 Contingent liabilities.
Provision for expected credit losses in Volvo CE
Following an extended period of declining demand, low machine utiliza-
tion and lower raw materials prices, profi tability for customers and dealers
primarily in the Chinese mining industry has declined and their fi nancial
position has weakened. The risk for future credit losses has therefore
increased and as a consequence Volvo Construction Equipment made a
provision of SEK 660 M in the fourth quarter 2014. Out of the total provi-
sion, SEK 500 M has been reported as provisions for externally issued
credit guarantees. SEK 83 M was reported as change in allowance for
doubtful trade receivables, SEK 54 M was reported as valuation allow-
ance, inventories and SEK 23 M was reported as change in allowance for
other receivables.
FINANCIAL INFORMATION 2014