Volvo 2015 Annual Report Download - page 150

148
GROUP PERFORMANCE 2015 NOTES
Contingent liabilities
A contingent liability is recognized for a possible obligation, for which it is
not yet confirmed that a present obligation exists that could lead to an
outflow of resources. Alternatively a present obligation that does not meet
the definitions of a provision or a liability as it is not probable that an out-
flow of resources will be required to settle the obligation or when a suffi-
ciently reliable estimate of the amount cannot be made.
Contingent liabilities Dec 31,
2015 Dec 31, 2014
Credit guarantees issued for customers and others 3,432 6,580
Tax claims 3,976 1,819
Residual value guarantees 3,195 2,850
Other contingent liabilities 4,977 4,691
Total contingent liabilities 15,580 15,940
Total contingent liabilities at December 31, 2015, amounted to net SEK
15,580 M (15,940) and included contingent assets of SEK 0 M (285).
Credit guarantees amounted to SEK 3,432 M (6,580). While decreasing
a major part is still related to the outstanding credit guarantees to Chi-
nese retail customers within Construction Equipment. The provision
related to the cost for expected future credit losses in China amounted to
SEK 408 M (521) at December 31, 2015.
Read more in Note 21 Other provisions regarding the provision for
expected credit losses in China.
The recognized amount for credit guarantees corresponds to the gross
exposure and has not been reduced by the value of counter guarantees
received or other collaterals such as the right to repossess the products
in cases where a legal offsetting right does not exist. The value of counter
guarantees and other collaterals reducing the exposure is dependent on
the development of used products prices and on the possibility to repos-
sess the products.
Tax claims amounted to SEK 3,976 M (1,819) and pertained to charges
against the Volvo Group for which the criteria for recognizing a provision
were not met. Global companies such as the Volvo Group are occasionally
involved in tax processes of varying scope and at various stages. Volvo
Group regularly assesses these tax processes. When it is probable that
additional taxes must be paid and the outcome can be reasonably esti-
mated, the required provision is made. During 2015 a contingent liability
was recognized amounting to SEK 1.5 billion related to a transfer price
audit in Brazil.
Residual value guarantees amounted to SEK 3,195 M (2,850) and were
attributable to sales transactions combined with buy back agreements or
residual value guarantees for which assets are not recognized in the bal-
ance sheet. The recognized amount corresponds to the gross exposure
and has not been reduced by the estimated net selling price of used prod-
ucts taken as collaterals. To the extent the used products pertaining to
those transactions are expected to be disposed at a loss, a provision for
residual value is recognized.
Read more about provision for residual value guarantees in note 21
Other provisions.
Other contingent liabilities amounted to SEK 4,977 M (4,691) and
included for example bid and performance clauses and legal proceedings.
Legal proceedings
Volvo Group is subject to the below investigations by competition author-
ities. Volvo Group is cooperating fully with the respective authority.
In April 2011, the Volvo Group’s truck business in Korea and a number
of other truck companies became the subject of an investigation by the
Korean Fair Trade Commission. The Korean Fair Trade Commission has
issued a decision, received by Volvo on December 19, 2013, imposing a
fine in the amount of approximately SEK 121 M as of December 31, 2015.
Volvo has appealed the decision and a contingent liability in a correspond-
ing amount has been disclosed.
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. After the Euro-
pean Commission had issued its Statement of Objections on November
20, 2014 the Volvo Group recognized a provision.
Read more in Note 21 Other provisions regarding the estimation of the
provision and the associated uncertainties.
In the dispute between Volvo Powertrain Corporation and the U.S. Envi-
ronmental Protection Agency (EPA), the Supreme Court of the United
States announced in the second quarter 2015 that a review of the EPA
case will not be granted. The cost has been fully provided for since 2014.
Read more in Note 21 Other provisions regarding the estimation of the
provision.
The Volvo Group is also involved in a number of legal proceedings other
than those described above. The Volvo Group’s assessment is that such
other legal proceedings in aggregate are not likely to entail any risk of
having a material effect on the Volvo Group’s financial position.
ACCOUNTING POLICY
NOTE 24 CONTINGENT LIABILITIES