22. Provisions for other liabilities and charges

Transcription

1 22. Provisions for other liabilities and charges The movements during the year in provisions for other liabilities and charges are presented in the following table: Beginning balance at 12/31/ ,119 Exchange differences 6,155 Change in scope of consolidation 320 Increase 15,588 Utilization/Release (14,822) Reclassification (6,003) Other (26) Ending balance at 12/31/ ,331 Beginning balance at 12/31/ ,525 Exchange differences (630) Change in scope of consolidation 2,492 Increase 35,014 Utilization/Release (87,489) Reclassification 6,003 Other (575) Ending balance at 12/31/ ,340 At December 31, 2007, the non-current portion mainly includes Euros 82,174 thousand relating to the accruals for the legal and tax disputes of the subsidiary Pirelli Pneus S.A. with headquarters in Brazil, Euros 27,479 thousand for the risks of a fiscal nature of the parent Pirelli & C. S.p.A. and Euros 14,887 thousand for contractual commitments undertaken for the performance of extraordinary maintenance work on buildings sold. The current portion refers to accruals for contractual guarantees and product claims. The reduction from December 31, 2006 is mainly due to the price adjustment paid in 2007 (Euros 39,855 thousand) regarding the sale of Pirelli s operations in the Energy and Telecom Cables and Systems sectors to Goldman Sachs in July Some claims were also settled which reduced the provision by another Euros 20,270 thousand. 23. Employee benefit obligations Employee benefit obligations include: Pension : - funded 118, ,271 - unfunded 88,050 99,887 Employees' leaving indemnity (Italian companies) 74,559 96,824 Medical care plans 21,839 28,362 Other benefits 46,460 34, , ,

2 EXTRAORDINARY SESSION CONSOLIDATED FINANCIAL STATEMENT SUSTAINABILITY REPORT DIRECTORS' REPORT PRELIMINARY INFORMATION Pension The composition of at December 31, 2007 is as follows: 358 PIRELLI & C. S.p.A. MILAN Germany unfunded 12/31/2007 USA UK Other countries funded Funded Present value of funded obligations , ,691 2,519 1,025,803 Fair value of plan assets - - (103,933) (801,632) (2,004) (907,569) Unfunded Present value of unfunded obligations 88,050 88, Net liability in the balance sheet of which: 88,050 88,050 19,660 98, ,234 - Tyre 87,269 87,269 19,660 65, ,453 - Real Estate Other ,781-32,781 The composition of at December 31, 2006 was as follows: Germany unfunded 12/31/2006 USA UK funded Funded Present value of funded obligations , ,160 1,093,868 Fair value of plan assets - - (113,136) (824,461) (937,597) Unfunded Present value of unfunded obligations 99,887 99, Net liability in the balance sheet of which: 99,887 99,887 33, , ,271 - Tyre 99,887 99,887 33,572 62,071 95,643 - Other ,628 60,628 The principal features of the plans in existence at December 31, 2007 are as follows: Tyres Germany: this is an unfunded defined benefit plan based on the most recent remuneration. It guarantees another besides the government. The plan was closed in October 1982; consequently, the participants in the plan are employees who were hired prior to that date. USA: this is a funded defined benefit plan based on the most recent remuneration. It guarantees another besides the government. The plan is under the administration of a trust. The plan was closed in 2001 and frozen in 2003 for those employees who changed over to a defined contribution scheme. None of the current participants in the plan are in service.

3 UK: these are funded defined benefit plans based on the most recent remuneration. They guarantee another besides the government. The plans are under the administration of a trust. The plans were closed in 2001; consequently, the participants in the plan are employees who were hired prior to that date. The changes during the year in the present value of the liabilities for (funded and unfunded) are as follows: Beginning balance 1,193,755 1,199,282 Exchange differences (99,276) 1,645 Change in scope of consolidation Movements through the income statement 63,598 60,963 Actuarial (gains) losses recognized in equity 7,230 (13,413) Employee contributions 1,620 1,774 Benefits paid (53,760) (56,451) Other (66) (45) Closing balance 1,113,853 1,193,755 The changes during the year in the fair value of the plan assets are as follows: Beginning balance (937,597) (857,857) Exchange differences 85,947 (3,371) Movements through the income statement (67,042) (58,374) Actuarial (gains) losses recognized in equity (3,030) (33,029) Employer contributions (31,288) (32,906) Employee contributions (1,620) (1,774) Benefits paid 47,004 49,679 Other Closing balance (907,569) (937,597) The assumptions made to compute the expected return of the fund assets are based on the expected returns of the underlying assets (shares, bonds and deposits). The expected return originates from the general average of the expected returns by the assets for every class of separately identified investments, with reference to an effective or objective composition of the assets. The expected return of each class of investment originates from the market yields available at the balance sheet date. Specifically, the expected return of equity shares originates from a risk-free return rate with the addition of an adequate premium for the risk. The composition of the funded plan assets is presented in the following table: (in %) UK USA Other countries UK USA Shares 82% 68% 82% 68% Bonds 14% 29% 15% 29% Deposits 1% 3% 1% 3% Other 3% 100% 2% 100% 100% 100% 100% 100% 359

4 EXTRAORDINARY SESSION CONSOLIDATED FINANCIAL STATEMENT SUSTAINABILITY REPORT DIRECTORS' REPORT PRELIMINARY INFORMATION The effective return of plan assets is as follows: 360 PIRELLI & C. S.p.A. MILAN USA UK Other countries Effective return ,931 80,175 91,106 Effective return ,666 60,473 (251) 67,888 The costs recognized in the income statement for are as follows: Current service costs 5,110 4,713 Interest cost 58,488 56,250 Expected return on plan assets (67,042) (58,374) (3,444) 2,589 The amounts recognized in the income statement are included in Personnel costs (Note 31). The contributions expected to be paid for during 2008 amount to Euros 27,737 thousand. Employees leaving indemnity The changes during the year in employees leaving indemnity are as follows: Beginning balance 96, ,099 Change in the scope of consolidation (5,491) 2,497 Movements through the income statement (excluding curtailment) 8,270 14,979 Curtailment (5,186) Actuarial (gains) losses recognized in equity (5,358) (4,122) Payments / advances (14,467) (16,711) Other (33) 82 Closing balance 74,559 96,824 of which: - Tyre 38,912 46,738 - Broadband 1,128 1,204 - Real Estate 21,283 19,452 - Other 13,236 29,430 The Italian Finance Bill 2007 and the relative decrees implementing it introduced changes regarding employees leaving indemnity which include allowing the employee to choose the destination of his/her indemnity accruing from January 1, During the first half of 2007, the employees had to choose whether to direct the future flows of the indemnity to pre-chosen schemes or to keep them with the company (in which case, the company will pay the employees leaving indemnity contributions to a treasury account set up at INPS). The employees leaving indemnity accruing from January 1, 2007 has been considered as a defined contribution plan in the financial statements at December 31, 2007 regardless of

5 whether the option chosen was the supplementary scheme or the treasury fund with INPS. The indemnity accrued up to December 31, 2006 will remain a defined benefit plan and will consequently be subjected to periodical actuarial calculations. IAS 19 states that when the terms of a defined benefit plan are amended such that a material element of the future service by current employees will no longer qualify for benefits, the company must recognize any changes in the present value of the obligations caused by this event (curtailment) when it arises in the income statement. The curtailment can thus be defined as the difference between the liability for employees leaving indemnity calculated before the change in the law, that is, considering the component relating to future accruals, and that resulting after the event, which excludes the component relating to future accruals. The economic effect of the curtailment on the financial statements at December 31, 2007 is a gain of Euros 5,186 thousand and has been calculated through a full evaluation of the provision for employees leaving indemnity. Movements through the income statement are recorded in Personnel costs (Note 31). Medical care plans The composition of medical care plans is as follows: USA Liability in the balance sheet at December 31, ,839 Liability in the balance sheet at December 31, ,362 The medical care plan in existence in the Tyre subsidiary in the United States covers whitecollars and blue-collars, in service and retired. The plan is structured according to pre-medicare and post-medicare, with the latter referring to participants over the age of 65. Contributions are paid in both by the employer and the employee. The changes during the year in the liabilities recognized in the financial statements for medical care plans are the following: Beginning balance 28,362 33,386 Exchange differences (3,081) (3,552) Movements through the income statement 1,373 1,535 Actuarial (gains) losses recognized in equity (1,355) (995) Benefits paid (1,863) (1,906) Other (1,597) (106) Closing balance 21,839 28,

6 EXTRAORDINARY SESSION CONSOLIDATED FINANCIAL STATEMENT SUSTAINABILITY REPORT DIRECTORS' REPORT PRELIMINARY INFORMATION The effect of a one percentage point increase or decrease in the estimated rates for the costs of medical care is as follows: 362 PIRELLI & C. S.p.A. MILAN 1% increase 1% decrease - Effect on current service cost and interest cost (52) (63) - Effect on liabilities recognized in the balance sheet 849 1,126 (805) (1,068) The costs recognized in the income statement relating to medical care plans are as follows: Current service costs 7 8 Interest cost 1,366 1,527 1,373 1,535 The amounts recognized in the income statement are included in Personnel costs (Note 31). Other information Net actuarial gains referring to 2007 recognized directly in equity amount to Euros 2,589 thousand (net gains of Euros 51,081 thousand in 2006). The cumulative amount at December 31, 2007, equal to a net loss of Euros 64,326 thousand (net loss of Euros 65,286 thousand at December 31, 2006), is made up as follows: Italy Germany USA UK Other countries Pension - 5,916 (10,607) (72,315) (515) (77,521) Medical care plans - - (894) - - (894) Employees' leaving indemnity 14, ,089 actuarial gains (losses) recognized in equity 14,089 5,916 (11,501) (72,315) (515) (64,326) The breakdown of the cumulative amount at December 31, 2006 by country is as follows: Italy Germany USA UK Pension - (4,845) (11,749) (56,706) (73,300) Medical care plans - - (1,912) - (1,912) Employees' leaving indemnity 9, ,926 actuarial gains (losses) recognized in equity 9,926 (4,845) (13,661) (56,706) (65,286)

7 The main actuarial assumptions used at December 31, 2007 and also to determine the estimated cost for the year 2008 are as follows: actuarial assumptions Italy Germany Netherlands UK USA Discount rate 5.50% 5.50% 5.50% 5.60% 6.0% Inflation rate 2.0% 2.0% 2.0% 3.15% - Expected return on plan assets % 7.67% Expected remuneration increase rate % 2.0% 3.15% - Medical care cost trend rate - initial % Medical care cost trend rate - final % The main actuarial assumptions used at December 31, 2006 and also to determine the estimated cost for the year 2007 are as follows: actuarial assumptions Italy Germany UK USA Discount rate 4.50% 4.50% 5.10% 5.75% Inflation rate 2.0% 2.0% 2.80% - Expected return on plan assets % 7.5% Expected remuneration increase rate 2% % 2.50% 2.80% - Medical care cost trend rate - initial % Medical care cost trend rate - final % The adjustments based on historical experience made to defined benefit plans are the following: 12/31/2005 Adjustments to plan liabilities - (gains) losses 16,097 (7,527) 46,038 Adjustments to plan assets - (gains) losses (744) (32,733) (75,756) The adjustments to liabilities represent the change in the actuarial liability that is not generated by changes in the actuarial assumptions. These typically include changes in the demographic and remuneration structure. Experience adjustments do not include changes in the plan regulations ( past service cost ). The adjustments to assets represent the difference between the effective return of the assets and the expected return at the start of the year. 363