Volvo 2015 Annual Report Download - page 147

GROUP PERFORMANCE 2015 NOTES
145
Provision for service contracts
Service contracts offer the customer preventive maintenance according to an
agreed service plan. The provision is intended to cover the risk that the expected
cost of providing services under the contract exceeds the expected revenue.
Provision for finished products
The provisions for finished products include provisions regarding commercial
commitments linked to the sales, for example dealer bonuses and rebates. The
item is reclassified to other liabilities as of December 31, 2015, since it is not
considered to fulfil the definitions for provisions, and renamed to accrued
expenses for dealer bonuses and rebates.
Legal proceedings
Provisions for legal disputes are included within Other provisions in the table
below, except the provision related to the EU antitrust investigation and the
provision related to the engine emission case in the U.S, that are separately
specified.
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
financial 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 significant outstand-
ing 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 financial statements. Among the factors that
the Volvo Group considers in making decisions on provisions 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 financial statements, with an adverse impact upon the Volvo Group’s
operating income, financial position and liquidity.
In the dispute between Volvo Powertrain Corporation and the U.S. Environ-
mental 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, affirming the District
Court’s ruling of 2012, ordering Volvo Powertrain to pay penalties and interest
of approximately USD 72 M. In the second quarter 2015, the Supreme Court
of the United States announced that a review of the EPA case will not be
granted. Volvo Powertrain has paid the penalties and interest of approximately
USD 72 M in the third quarter 2015. The cost has been fully provided for since
the third quarter 2014.
In January 2011, the Volvo Group and a number of other companies in the
truck industry became part of an investigation by the European Commission
regarding a possible violation of EU antitrust rules. On November 20, 2014 the
European Commission issued a Statement of Objections stating 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 State-
ment of Objections, the Volvo Group decided to recognize a provision of EUR
400 M (SEK 3.7 billion as per December 31, 2015) which impacted the Volvo
Group’s operating income in the fourth quarter of 2014 negatively with the same
amount. The proceedings are still on-going and there are a number of uncertain-
ties associated with the final outcome of the European Commission’s investiga-
tion as well as the amount of a potential fine. 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 externally issued credit guarantees for Volvo CE in China
The provision for externally issued credit guarantees decreased during 2015.
Read more in Note 8 Other operating income and expenses and Note 24
Contingent liabilities.
Other provisions
Other provisions mainly includes provisions for income tax disputes, provisions
for indirect taxes, provisions for legal disputes, provisions for externally issued
credit guarantees and other provisions, unless separately specified and com-
mented in the table and text.
Carrying
value as of
Dec 31, 2014 Provisions Reversals Utilizations
Acquired and
divested
companies Translation differences
Other
reclassi-
fications
Carrying
value as of
Dec 31, 2015
Of which
due within
12 months
Of which
due after
12 months
Warranties 10,583 8,373 –933 –6,984 – 183 149 11,372 5,860 5,511
Provisions for extended
coverage 788 768 –139 –629 – –18 277 1,047 441 606
Provisions in insurance
operations 713 110 –62 –79 – 40 –24 697 – 697
Restructuring measures1 1,145 1,343 –166 –985 – –8 –32 1,297 1,206 91
Provisions for residual
value risks 810 558 –142 –269 – 29 19 1,004 287 718
Provisions for service
contracts 482 230 –83 –262 – –19 –23 324 162 162
Provisions for finished
products22,3526,177–412–5,050 –46–3,113 –––
Provision related to EU
antitrust investigation 3,810 – – – – –152 – 3,658 3,658 –
Provision related to engine
emission case in the U.S 560 1 – –611 – 50 – – – –
Provision for externally
issued credit guarantees
for Volvo CE 521 – –128 – – 15 – 408 408 –
Other provisions 3,449 4,256 –626 –2,995 – –163 –16 3,905 2,154 1,751
B/S Total 25,213 21,816 –2,692 –17,865 – 3 –2,763 23,712 14,176 9,536
Long-term provisions as above are expected to be settled within 2 to 3 years.
1 The provision for the efficiency program included in restructuring measures amounted to SEK 1.2 (0.9) billion.
Read more about restructuring costs in Note 8 Other operating income and expenses and in page 23.
Read more about provisions for residual value risks in Note 24 Contingent liabilities.
2 The item was reclassified from provisions finished products to other liabilities as of December 31, 2015.
Read more about accrued expenses for dealer bonuses and rebates in Note 22 Liabilities in the table Other current liabilities.