Annual Report 2008 in PDF - GKN

Financial Statements
Notes to the Financial Statements
21 Provisions continued
Restructuring
Restructuring provisions outstanding at 31 December 2008 relate primarily to the estimated future cash outflows in respect of redundancies
and onerous contracts (predominantly leases) arising from Group strategic restructuring programmes, details of the charges in respect of which
are included in note 3. Amounts are only set aside when irrevocable commitments exist at the balance sheet date and these invariably reflect
actual or constructive contractual arrangements which indicate the amount and most likely timing of flows. Cash outflows that are expected to
arise beyond 12 months in part relate to lease contracts where the average remaining maturity is 5 years from 31 December as well as phased
retirement scheme payments in European Driveline and OffHighway businesses which have between 3 and 5 years to run.
Warranty
Provisions set aside for warranty exposures either relate to amounts provided systematically based on historical experience under contractual
warranty obligations attaching to the supply of goods or specific provisions created in respect of individual customer issues undergoing
commercial resolution and negotiation. In the event of a claim, settlement will be negotiated with the customer based on supply of replacement
products and compensation for the customer’s associated costs. Amounts set aside represent management’s best estimate of the likely
settlement and the timing of any resolution with the relevant customer.
Legal and environmental
Legal provisions amounting to £9 million (2007 – £5 million) relate to management estimates of amounts required to settle or remove litigation
actions that have arisen in the normal course of business. Further details are not provided to avoid the potential of seriously prejudicing the
Group’s stance in law. Amounts unused and reversed only arise when the matter is formally settled or when a material change in the litigation
action occurs where legal advice confirms lower amounts need to be retained to cover the exposure.
As a consequence of primarily legacy activities a small number of sites in the Group are subject to environmental remediation actions, which
in all cases are either agreed formally with relevant local and national authorities and agencies or represent management’s view of the likely
outcome having taken appropriate expert advice and following consultation with appropriate authorities and agencies. Amounts charged and
carried reflect the current best estimates of the likely cost of remediation and inherent timings.
Other
Other provisions include claims provisions held within the Group’s captive insurance company £10 million (2007 – £8 million), provisions
held in respect of onerous loss making contracts £6 million (2007 – £11 million), and long service non-pension and other employee related
obligations arising primarily in the Group’s continental European subsidiaries £12 million (2007 – £15 million). Claims provisions and charges
are established in accordance with external insurance and actuarial advice. The onerous loss making contract provisions relate to specific noncancellable
contractual commitments where it is anticipated that unavoidable net operating losses will arise.
Vacant leasehold property provisions included in Restructuring and Other provisions above amount to £5 million (2007 – £1 million).
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