APC 2006 Annual Report Download - page 124

Consolidated financial statements at December 31, 2006
Note 15 - Pension and other post-employment benefit obligations
The Group has set up various plans for employees covering pensions, termination benefits, healthcare, life insur-
ance and other post-employment benefits, as well as long-term benefit plans for active employees, primarily in
France and Australia.
Actuarial valuations are generally performed each year. The assumptions used vary according to the economic
conditions prevailing in the country concerned, as follows:
Weighted average rate Of which US plans
2006 2005 2004 2006 2005 2004
Discount rate 5.0% 4.9% 5.4% 5.8% 5.8% 6.2%
Rate of compensation increases 2.9% 3.3% 3.4% 4.5% 4.1% 4.1%
Expected yield on plan assets 7.8% 8.2% 8.4% 9.0% 9.0% 9.0%
Rate of healthcare cost increases 9.5% 9.4% 9.2% 10.0% 10.0% 10.0%
The post-employment healthcare obligation mainly con-
cerns the United States. A one-point increase in health-
care costs would increase the post-employment
healthcare obligation by 38.9 million and the total of
service cost and interest expense by 2.8 million. A
one-point decrease in healthcare costs would
decrease the post-employment healthcare obligation
by 33.5 million and the total of service cost and inter-
est expense by 2.4 million.
The discount rate is generally determined on the basis
of the interest rate on investment-grade corporate
bonds or government bonds.
Pension and termination
benefit obligations
Pension and termination benefit obligations primarily
concern the Group’s North American and European
subsidiaries. For the most part, these are defined ben-
efit plans. They feature either a lump-sum payment on
the employee’s retirement or regular pension pay-
ments after retirement. The amount is based on years
of service, grade and end-of-career salary. They also
include top-hat payments granted to certain senior
executives guaranteeing supplementary retirement
income beyond that provided by general, mandatory
pension schemes.
Benefit obligations under these plans, which represent
89% of the Group’s total commitment or 1,802 million
at December 31, 2006, are partially or fully funded
through payments to external funds.
External funds are invested in equities (around 61%),
bonds (around 23%) and real estate (around 9%).
Contributions amounted to 19.6 million in 2006 and
are estimated at 14.3 million for 2007.
At December 31, 2006, provisions for pensions and
termination benefits totaled 642 million, compared
with 607 million in 2005 and 521 million in 2004.
These provisions have been included in non-current
liabilities, as the current portion was not considered
material in relation to the total liability.
Payments made under defined contribution plans are
recorded in the income statement, in the year of pay-
ment and are in full settlement of the Group’s liability.
Defined contribution plan payments totaled 30.7 mil-
lion in 2006 and 32.3 million in 2005.
Other post-employment benefits,
including healthcare and life insurance,
and other long-term benefits
The North American subsidiaries pay certain health-
care costs and provide life insurance benefits to retired
employees who fulfill certain criteria in terms of age
and years of service. These post-employment benefit
obligations are unfunded.
Healthcare coverage for North American employees
represents 86% of this obligation. In September 2005,
one of these plans was amended by changing the con-
tributions and terms of eligibility. The effect of this plan
amendment, which reduced the obligation by around
$20 million (17 million), is reflected in the income
statement over the vesting period, with 6 million rec-
ognized in 2005 for vested rights and 3.6 million rec-
ognized in 2006.
The assumptions used to determine post-employment
benefit obligations related to healthcare and life insur-
ance are the same as those used to estimate pension
benefit obligations in the country concerned.
Other benefit obligations include healthcare coverage
plans in Europe, for 42 million, and long-service
awards due by subsidiaries in France, for 11 million.
At December 31, 2006, provisions for these benefit
obligations totaled 517 million, compared with 593
million in 2005 and 505 million in 2004. These provi-
sions have been included in non-current liabilities, as
the current portion was not considered material in rela-
tion to the total liability.
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