APC 2007 Annual Report Download - page 132

Note 15 - Pensions and other
post-employment benefit obligations
The Group has set up various plans for employees covering pensions, termination benefits, healthcare, life insurance
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 condi-
tions prevailing in the country concerned, as follows:
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 36.5 million and the total of service cost and
interest expense by 2.4 million. A one-point decrease in
healthcare costs would decrease the post-employment
healthcare obligation by 26.8 million and the total of serv-
ice cost and interest expense by 2.1 million.
In 2007, the rate of healthcare cost increases in the United
States was expected to decline from 9% in 2008 to 5% in
2012. This compares with the previous year’s forecast of
10% in 2007 and 5% in 2012. The rate in France was esti-
mated at 4.5% in 2006 and 2007.
The discount rate is generally determined on the basis of
the interest rate for investment-grade corporate bonds or
government bonds. The expected return on plan assets is
determined on the basis of the weighted average expected
return and the total asset value.
Pension and
termination benefit obligations
Pension and termination benefit obligations primarily con-
cern the Group’s North American and European sub-
sidiaries. These plans feature either a lump-sum payment
on the employee’s retirement or regular pension payments
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 guarantee-
ing supplementary retirement income beyond that provided
by general, mandatory pension schemes.
Benefit obligations under these plans, which represent
90% of the Group’s total commitment or 1,759 million at
December 31, 2007, are partially or fully funded through
payments to external funds. These funds are not invested
in Group assets.
External funds are invested in equities (around 55%),
bonds (around 21%) and real estate (around 8%).
Contributions amounted to 26.1 million in 2007 and are
estimated at 16.8 million for 2008.
At December 31, 2007, provisions for pensions and termi-
nation benefits totaled 597 million, compared with 642
million in 2006. These provisions have been included in
non-current liabilities, as the current portion was not con-
sidered material in relation to the total liability.
Payments made under defined contribution plans are
recorded in the income statement, in the year of payment
and are in full settlement of the Group’s liability. Defined
contribution plan payments totaled 43.3 million in 2007
and 30.7 million in 2006.
Other post-employment benefits,
including healthcare and life insurance,
and other long-term benefits
The North American subsidiaries pay certain healthcare
costs and provide life insurance benefits to retired em-
ployees 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 rep-
resents 86% of this obligation.
The assumptions used to determine post-employment
benefit obligations related to healthcare and life insurance
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 26 million, and long-service awards
due by subsidiaries in France, for 11 million.
At December 31, 2007, provisions for these benefit obli-
gations totaled 399 million, compared with 517 million
in 2006. These provisions have been included in non-cur-
rent liabilities, as the current portion was not considered
material in relation to the total liability.
Weighted average rate Of which US plans
2007 2006 2007 2006
Discount rate 5.6 % 5.0 % 6.0 % 5.8 %
Rate of compensation increases 3.8 % 2.9 % 4.5 % 4.5 %
Expected return on plan assets 7.7 % 7.8 % 9.0 % 9.0 %
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