Notes to the balance sheet: equity

Group equity

6.11 Ordinary shares, treasury shares, subscription rights and share options

A total of 50 844 subscription rights were exercised under the Company’s SOP1 and SOP2005-2009 stock option plans in 2009, requiring the issue of a total of 50 844 new shares of the Company.

The Company neither purchased nor cancelled any own shares in 2009. Of the 55 000 treasury shares held as of 31 December 2008, an aggregate 25 100 shares were delivered to the individuals who had exercised their options under the Company’s SOP2 stock option plan in 2009. The remaining 29 900 shares are held as treasury shares as of 31 December 2009.

Details of the stock option plans outstanding during the year are as follows:

No subscription rights or options under either plan were exercisable at year-end (2008: none). The weighted average share price at the date of exercise in 2009 was € 97.97 for the SOP1 subscription rights (2008: € 106.92), € 98.31 for the SOP2 options (2008: €106.71) and € 98.42 for the SOP2005-2009 subscription rights (no exercises in 2008). The exercise price of the subscription rights and options is equal to the lower of
(i) the average closing price of the Company’s share during the thirty days preceding the date of the offer, and (ii) the last closing price preceding the date of the offer. When subscription rights are exercised under the SOP1 or SOP2005-2009 plan, equity is increased by the amount of the proceeds received. Under the terms of the SOP1 and SOP2 plans any subscription rights or options granted through 2004 were vested immediately.

Under the terms of the SOP 2005-2009 stock option plan, which was approved by the Board of Directors on 16 September 2005, up to
850 000 subscription rights will be offered to the members of the Bekaert Group Executive, Senior Management and senior executive personnel during the period 2005-2009. The dates of grant of each offering are scheduled in the period 2006-2010. The vesting conditions of the SOP 2005-2009 grants, as well as of the SOP2 grants beginning in 2006, are such that the subscription rights or options will be fully vested on 1 January of the fourth year after the date of the offer. In accordance with the Economic Recovery Act of 27 March 2009, the exercise period of the SOP2 options and SOP2005-2009 subscription rights granted in 2006, 2007 and 2008 was extended by five years in favor of the persons who were plan beneficiaries and subject to Belgian income tax at the time such extension was offered. The incremental fair value granted as a result of this amounts to € 0.3 million.

The options granted under SOP2 and the subscription rights granted under SOP 2005-2009 are recognized at fair value in accordance with
IFRS 2 (cf. note 6.12 ‘Retained earnings and other Group reserves’).

6.12 Retained earnings and other Group reserves

For reasons of transparency and consistency, other Group reserves have been redefined as from 1 January 2009 to include deferred taxes booked in equity, equity-settled share-based payment plans and treasury shares. The share premium, which was presented as part of the other reserves last year, is now presented on a separate line in the balance sheet. Retained earnings are only affected by the result of the period attributable to the Group and by transactions with owners, i.e. distributions to owners, results on treasury share transactions and results on minority interests transactions.

Changes in the fair value of hedging instruments designated as effective cash flow hedges are calculated and recognized directly in equity on a quarterly basis. In accordance with IFRS hedge accounting policies for cash flow hedges, exchange gains or losses arising from translating the underlying debt at the closing rate are offset by recycling the equivalent amounts to the income statement on a quarterly basis.

The revaluation of the investment in Shougang Concord Century Holdings Ltd is based on the closing price of the share on the Hong Kong Stock Exchange. The decrease in market value in 2008 mainly related to the general crisis on the stock markets.

The actuarial gains and losses on defined-benefit plans result from a remeasurement of the defined-benefit obligations and plan assets to fair value at the balance sheet date. The actuarial losses recognized in 2008 mainly related to the general crisis on the stock markets.

The remeasurement of net assets held prior to acquiring control relates to former joint ventures in Latin America and an associate in China, which, until Bekaert acquired control in 2009, were accounted for using the equity method (cf. note 7.2 ‘Effect of new business combinations’). In accordance with IFRS 3, Business Combinations, all of the acquirees’ assets, liabilities and contingent liabilities were remeasured to fair value at the acquisition date and the goodwill was calculated as the excess of the purchase consideration over the Group’s interest in the acquirees’ assets, liabilities and contingent liabilities. Consequently, the fair value adjustments corresponding with the Group’s interest in the acquirees held prior to acquiring control give rise to a revaluation gain. The interests remeasured relate to the step acquisitions of Ideal Alambrec SA (Ecuador), Prodac SA (Peru) and Jiangyin Fasten-Bekaert Optical Cable Steel Products Co Ltd (China) in 2009. The minority interests disposed relate to the shares in Vicson SA (Venezuela) and Proalco SA (Colombia) contributed by Bekaert to Bekaert Ideal SL, a new holding in which a partner holds an interest of 20%.

Deferred taxes relating to other comprehensive income are also recognized directly in equity (cf. note 5.8 ‘Total comprehensive income’).

Options granted under the SOP2 stock option plan and subscription rights granted under the SOP 2005-2009 stock option plan
(cf. note 6.11 ‘Ordinary shares, treasury shares, subscription rights and share options‘) are accounted for as equity-settled share-based payments in accordance with IFRS 2.

During 2009, 21 500 options (2008: 14 500) were granted at a weighted average fair value per unit of € 12.52 (2008: € 18.15) and
96 050 subscription rights (2008: 76 400) were granted at a weighted average fair value per unit of € 12.37 (2008: € 18.15). The Group has recorded an expense against equity of € 1.6 million (2008: € 1.7 million) based on a straight-line amortization over the vesting period of the fair value of options and subscription rights granted over the past three years. The fair value of the options and the subscription rights is determined using a binomial pricing model. The inputs to the model are: share price of € 41.50 at grant date (2008: € 78.53), exercise price of € 49.98
(2008: € 85.00), expected volatility of 42% (2008: 27%), expected dividend yield of 2.5% (2008: 2.5%), vesting period of 3 years, contractual life of 10 years, employee exit rate of 10.0% for options (2008: 9.3%) and 8.8% for subscription rights (2008: 9.3%) and a risk-free interest rate of 4.2% for options (2008: 4.1%) and 4.1% for subscription rights (2008: 4.1%). To allow for the effects of early exercise, it was assumed that the employees would exercise the options and the subscription rights after vesting date when the share price was 1.25 (2008: 1.25) times the exercise price. Historical volatility was between 25% and 42% at grant date.

In 2009, 25 100 shares were sold for an amount of € 1.8 million to beneficiaries of the SOP2 plan who exercised their options (cf. 6.11 ‘Ordinary shares, treasury shares, subscription rights and share options’).

Minority interests

6.13 Minority interests

In 2009, the changes in Group structure relate to the step acquisitions through which Bekaert acquired control of Ideal Alambrec SA (Ecuador), Prodac SA (Peru) and Jiangyin Fasten-Bekaert Optical Cable
Steel Products Co Ltd (China). As a consequence of these deals, minority interests have changed as follows in 2009:

  • Vicson SA: 20% (2008: 0%);
  • Proalco SA: 20% (2008: 12.5%);
  • Prodac SA: 48% (none recognized in 2008 due to equity method accounting);
  • Ideal Alambrec SA: 20% (none recognized in 2008 due to equity method accounting);
  • Bekaert Jiangyin Wire Products Co Ltd: 18% (10% in 2008 before the merger with Jiangyin Fasten-Bekaert Optical Cable Steel Products Co Ltd, none recognized on the latter company in 2008 due to equity method accounting).

In 2008, the changes in group structure related to the purchase of the remaining 50% in Bekaert Izmit Celik Kord Sanayi ve Ticaret AS from the Sabanci group.

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