Accounting policy

  2011 2010
Credit guarantees issued for customers and others 8,970 3,709
Tax claims 521 490
Residual value guarantees 2,969 2,993
Other contingent liabilities 4,694 3,811
Total 17,154 11,003

Tax claims amounting to 521 (490) pertain to charges against the Volvo Group for which provisions are not considered necessary.

Other contingent liabilities include for example bid and performance clauses and legal proceedings.

The recognized amounts for contingent liabilities reflect the Volvo Group's risk exposure on a gross basis. The recognized 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, 2011, the estimated value of counter guarantees received and other collaterals, for example the estimated net selling price of used products, amounted to 3,726 (3,893) and mainly pertains to credit guarantees and residual value guarantees.

For more information regarding residual value guarantees, see note 21.

Legal proceedings
The former labor agreement between Mack Trucks, Inc. and the United Auto Workers Union (UAW) expired on September 30, 2007. Mack Trucks and UAW subsequently 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 was approved by the U.S. District Court for the Eastern District of Pennsylvania in September 2011. The Volvo Group will fund the trust with USD 525 M, whereof a significant part has been paid during the fourth quarter 2011. The remaining funding obligation is recognized as a financial liability and the remaining amortizations will be recognized as cash flow from financing activities.

In July 1999, Volvo Truck Corporation (VTC) and Volvo Construction Equipment (VCE) entered into a Consent Decree with the U.S. Environmental Protection Agency (EPA). The Consent Decree stipulated, among other provisions, that new stricter emission requirements for certain engines that would come into effect 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 Corporation. 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 interpretation and is defending the case vigorously based on, among other grounds, the fact that the Volvo Penta engines were not subject to the Consent 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 “NDT”) on November 30, 2009 filed a claim at the Pathumthani Provincial Court of First Instance, Thailand, against AB Volvo and three of its employees, claiming damages in the sum of Baht 10.5 billion (equivalent to approximately SEK 2.3 billion). NDT was one of UD Trucks Corporation's (UDT), a wholly-owned subsidiary of AB Volvo, private dealers. NDT claims that AB Volvo's actions caused UDT to unlawfully terminate two agreements dated December 27, 2002 between UDT and NDT. In September 2011, a settlement was reached´, finally settling the submitted claims. The settlement had an insignificant impact on the consolidated operating income and financial position of the Volvo Group.  

Volvo is subject to a number of investigations initiated by competition authorities. The Volvo Group is cooperating fully with the respective authority.

In September 2010, 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 Commission. Volvo Trucks’ and Renault Trucks’ British subsidiaries have received letters from the OFT as part of the investigation.

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.

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.

In May 2011, Volvo Penta became part of an investigation by the European Commission regarding a possible violation of EU antitrust rules.

In August 2011, Volvo Penta became part of an investigation by the Swedish competition authority regarding a possible violation of antitrust rules. In December 2011, the Swedish Competition Authority closed the investigation, without further actions.

Given the nature of the ongoing investigations initiated by competition authorities, the Volvo Group cannot exclude that they may affect the Group’s result and cash flow with an amount that may be material. However, as regards the investigations initiated in Europe, it is too early to assess whether and when such effect may occur and hence if and when it could be accounted for. The Volvo Group has therefore not reported any contingent liability or any provision for any of the investigations initiated in Europe. Concerning the investigation initiated in Korea a contingent liability has however been registered.   

Global companies such as Volvo are occasionally involved in tax processes of varying scope and in various stages. Volvo regularly assesses these tax processes. When it is probable that additional taxes must be paid and the outcome can be reasonably estimated, the required provision is made.

Volvo is also 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 position of the Volvo Group.