Notes to the balance sheet: liabilities

Provisions

6.14 Employee benefit obligations

The total net liabilities for employee benefit obligations, which amounted to € 234.0 million as at 31 December 2009 (€ 260.9 million as at
year-end 2008), are as follows:

Post-employment benefit plans

In accordance with IAS 19 Employee benefits, post-employment benefit plans are classified as either defined-contribution plans or defined-benefit plans.

Defined-contribution plans

For defined-contribution plans, Bekaert pays contributions to publicly or privately administered pension funds or insurance companies. Once the contributions have been paid, the Group has no further payment obligation. These contributions constitute an expense for the year in which they are due. Bekaert participates in a multi-employer defined-benefit plan in the Netherlands funded through the Pensioenfonds Metaal & Techniek. This plan is treated as a defined-contribution plan because no information is available with respect to the plan assets attributable to Bekaert; contributions for this plan amounted to € 0.9 million (2008: € 1.0 million).

Defined-benefit plans

Several Bekaert companies operate retirement benefit and other post-employment benefit plans. These plans generally cover all employees and provide benefits which are related to salary and length of service. Most assets in Belgium are invested in mixed portfolios of shares and bonds, mainly denominated in local currency. Plan assets in the United States are invested in annuity contracts providing a guaranteed rate of return, in fixed-income funds and in equities. The pension funds hold no direct positions in Bekaert shares or bonds, nor do they own any property used by a Bekaert entity. It is general Group policy to fund pension benefits on an actuarial basis with contributions paid to insurance companies, independent pension funds or a combination of both.

Other plans mainly relate to pre-retirement pensions in Belgium (defined-benefit obligation € 51.2 million (€ 50.4 million in 2008)) and other post-employment benefits for medical care in the United States (defined-benefit obligation € 4.8 million (€ 5.6 million in 2008)), which are not externally funded. Of the defined-benefit obligation in Belgium, an amount of € 18.2 million (2008: € 18.7 million) relates to employees in active service who have not yet entered into any pre-retirement agreement.

Reimbursement rights arise from reinsurance contracts covering retirement pensions, death and disability benefits in Germany.

The actuarial gains and losses (-) recognized through equity are as follows:

The amounts recognized in the income statement are as follows:

Estimated contributions and direct benefit payments for 2010 are as follows:

Fair values of plan assets at 31 December were as follows:

Financial market-related parameters are derived from recent market information and determined in agreement with the contracted actuaries. The discount rate is based on the yields for AA corporate bonds with maturities approximating to those of the benefit obligations. The expected rate of return on plan assets is a weighted return based on the target asset allocation by plan. The expected rate of return on equity instruments is based on the aggregate of the risk-free rate and an average risk premium of 4%, weighted by the different types of equity instrument. The risk premium may vary between parts of the world and for different types of equity instrument. The target mix is dependent on the investment strategy of each fund and may vary from 0% to 70% equity instruments. The principal actuarial assumptions on the balance sheet date (weighted averages) were:

Weighted averages for other plans are slightly different from those for pension plans because of regional variations; the actuarial assumptions for each country were, however, identical. Sensitivity analyses of assumptions concerning the evolution of health care costs show the following effects:

The above analyses were done on a mutually exclusive basis, and holding all other assumptions constant.

The following table presents a historical overview of the key indicators of the last 5 years:

Other long-term employee benefits

The other long-term employee benefits relate to service awards.

Cash-settled share-based payment employee benefits

The Group issued stock appreciation rights (SARs) to certain employees, granting them the right to receive the intrinsic value of the SARs at the date of exercise. These SARs are accounted for as cash-settled share-based payments in accordance with IFRS 2. The fair value of the SARs is determined using a binomial pricing model. The inputs to the model are: share price at balance sheet date, exercise price, expected volatility of 41% (2008: 41%), expected dividend yield of 3.2% (2008: 2.5%), vesting period of 3 years, average contractual life of 5.4 years (2008: 5.2 years), employee exit rate of 0% (2008: 0%) and a risk-free interest rate of 2.7% (2008: 3.3%). To allow for the effects of early exercise, it was assumed that the employees would exercise the SARs after vesting date when the share price was 1.44 (2008: 1.45) times the exercise price. Historical volatility was between 25% and 41%.

The Group recorded total expenses of € 1.6 million (2008: € 0.3 million) during the year in respect of SARs. At 31 December 2009, the total fair value of the vested unexercised SARs was € 1.6 million (2008: € 0.3 million).

At 31 December 2009, the Group had recorded liabilities of € 2.1 million (2008: € 0.6 million) for SARs. These liabilities were measured at fair value in accordance with IFRS 2.
In the past, the Group has also issued phantom stocks to certain employees, granting them the right to receive the intrinsic value of the shares at the date of exercise.
At 31 December 2009, the Group had recorded liabilities of € 0.01 million (2008: € 0.01 million) for phantom stocks, measured at intrinsic value. Since the amounts involved are immaterial and the plan is now closed, the effort of determining the fair value of these liabilities by means of a model was deemed unwarranted.

Short-term employee benefit obligations

Short-term employee benefit obligations relate to liabilities for remuneration and social security that are due within twelve months after the end of the period in which the employees render the related service.

Other employee benefit obligations

The remaining other employee benefit obligations relate to termination benefits and taxes on future contributions.

6.15 Provisions

The movements in the provisions for restructuring relate mainly to the reorganizations in Belgium and Slovakia announced in 2008 and the reorganization in the UK initiated in 2009. An important part of the increase in the provisions for claims refers to the warranty provisions of the combustion business in Europe. The movements in the environmental provisions are based on the appraisal of an external expert and relate mainly to soil sanitation in Belgium, of which the timing at this stage is not fixed. The movements in the other provisions relate mainly to the settlement of the provisions set up in 2008 for onerous contracts for wire rod purchases.

Interest-bearing debt

6.16 Interest-bearing debt

In April 2009, Bekaert has restructured its debt in order to improve the average life time by issuing two Eurobonds of € 150 million each. One Eurobond matures on 16 April 2012, and the other one on 16 April 2014. In July 2009, Bekaert Corporation paid back a maturing Eurobond of € 100 million issued in 2001.
Information concerning the contractual maturities of the Group’s interest-bearing loans and borrowings (current and non-current) is given below:

As a general principle, loans are entered into by Group companies in their local currency to avoid currency risk. If funding is in another currency without an offsetting position on the balance sheet, the companies hedge the currency risk through derivatives (cross-currency interest-rate swaps or forward exchange contracts). Consequently, in accordance with IFRS, the financial liabilities in respect of credit institutions and bonds include value adjustments which are offset by the fair value of the derivatives. Bonds, commercial paper and debt towards credit institutions are unsecured.

For further information on financial risk management we refer to note 7.3 ‘Financial risk management and financial derivatives’.

Net debt calculation

The debt calculation of the Group reflects the amount to be repaid as a result of hedging with a derivative, rather than the amount presented as a financial liability in the balance sheet. The financial liabilities are therefore adjusted for either the impact of the spot revaluation, where they relate to a cash flow hedge or trading, or the fair value adjustment, where they relate to fair value hedges. The table below summarizes the calculation of the net debt (the amounts eliminated as described above being included as ‘value adjustments’).

Other liabilities

6.17 Other non-current liabilities

6.18 Other current liabilities

Other taxes relate mainly to VAT payable and payroll taxes withheld. The accrued interest on outstanding interest-bearing debt is the most significant item of the accruals (€ 23.6 million).

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