20 Provisions and contingent liabilities
A provision is recognized when a legal or constructive obligation arising from past events exists, if it is probable that a cash outflow will be required to settle the obligation, and a reliable estimate of this amount can be made. Provisions are determined on the basis of assumptions and estimates and are therefore subject to a degree of uncertainty. They are reassessed at every reporting date.
Non-current provisions are discounted at a risk-adjusted interest rate whenever the impact of discounting is material. The increase in the present value is subsequently recognized as financial expenses.
|In CHF million
|Onerous customer contracts
|Product liabilities and warranties
|Statement of changes
|January 1, 2021
|Increase in present value
|December 31, 2021
Provisions for onerous contracts are recognized to cover losses contained in loss-making customer contracts. These provisions are calculated on the basis of pre-calculations and experience. Customer contracts are usually satisfied within 9 to 24 months. The provisions are reversed as each contract progresses.
Restructuring provisions are recognized and measured on the basis of the restructuring plans that have been announced. Provisions are used when the related costs are incurred.
Provisions for product liability cover claims made with respect to general and product liability risks. The measurement of provisions for product liability is based on actuarial reports by independent experts. Such reports take account of all units under maintenance and include assumptions about the probabilityof occurrence of future damages based on experience. Product liability provisions are used as the paymentsare made, which may be over a period of up to ten years following the occurrence of damages. Warranty provisions cover the risk of expenses that are expected to occur before the warranty period expires, so-called assurance-type warranties. The provisions are calculated based on experience.
Provisions for self-insurance mainly cover employee-related risks that are not, or not sufficiently, covered by local or state insurance in individual countries. The measurement of self-insurance provisions is based on actuarial reports by independent experts. The reports take account of all local employees and include assumptions about the probability of occurrence of risks based on experience. The provisions are used as the payments are made, which may be over a period of up to ten years following the occurrence of the event.
Other provisions covering further risks, such as litigation, are generally used within five years.
20.2 Contingent liabilities
Guarantees provided in favor of third parties are reported off-balance sheet as contingent liabilities and are only recognized as a provision if it is probable that an outflow of resources will occur. As of December 31, 2021, guarantees amount to CHF 17 million (previous year: CHF 26 million).
Furthermore, the Group is exposed to a variety of legal risks, such as risks associated with employment law,product liability, patent law, and competition law. Several Group companies are involved in ongoing legal proceedings, the results of which cannot be accurately forecast. Consequently, decisions by courts or other authorities can give rise to expenses that are not covered either partly or fully by insurance policies. This may have a significant impact on the business and future results.
The decision by the European Commission on February 21, 2007, regarding fines under competition law, as well as the decision by the Higher Regional Court in Vienna on December 14, 2007, to impose fines, resulted in civil damage claims against Group companies and other elevator companies being lodged with courts in Belgium, the Netherlands, and Austria. The total capital amount claimed jointly and severally from all the defendants involved in the proceedings – in which Group companies are involved as defendants – was EUR 142 million as of December 31, 2021. The Group companies in question consider the claims to be without merit.