10. Employee Benefit Obligations
Defined benefit plan for pensions
Some Group companies provide defined benefit pension plans for some classes of employees. Provisions for pension obligations are established for benefits payable in the form of retirement, disability and surviving dependant pensions. The benefits offered vary according to the legal, fiscal and economic conditions of each country. Benefits are dependent on years of service and in some cases on the respective employee’s compensation.
The following table reconciles the changes of the benefit obligation for the years ended December 31, 2006 and 2005:
| (in TEUR) | 2006 | 2005 | |
| Defined benefit obligation as at 1 January | 42,411 | 38,782 | |
| Currency translation differences | (46) | 223 | |
| Current service cost | 2,027 | 955 | |
| Interest cost on obligations | 3,352 | 1,445 | |
| Actuarial gains/losses | (4,824) | 2,741 | |
| Benefits paid | (4,637) | (1,514) | |
| Contributions by the plan participants | 1,101 | 0 | |
| Past service cost | 8 | 57 | |
| Effect of any curtailment or settlement | 463 | (739) | |
| Business acquisitions | 101,787 | 461 | |
| Defined benefit obligation as at 31 December | 141,642 | 42,411 | |
| Fair value of plan assets | (82,324) | (12,661) | |
| Funded status as at 31 December | 59,318 | 29,750 | |
| Unrecognized actuarial gains/losses | 0 | (1,258) | |
| Accrued liability as at 31 December | 59,318 | 28,492 |
rep06-en-pension_obligations_development_provision.xls (Download size 23 KB)
Total pension obligations of EUR 141,642 thousand (2005: EUR 42,411 thousand) include EUR 88,302 thousand (2005: EUR 26,463 thousand) that are covered in part or in full by investments in funds (plan assets).
The following table reconciles the fair value of the plan assets:
| (in TEUR) | 2006 | 2005 | |
| Fair value of plan assets as at 1 January | 12,661 | 10,891 | |
| Currency translation differences | (178) | 187 | |
| Expected return on plan assets | 1,654 | 220 | |
| Actuarial gains/losses | (3,017) | 772 | |
| Contributions by the employer | 2,184 | 735 | |
| Contributions by the plan participants | 1,101 | 0 | |
| Benefits paid | (2,285) | (144) | |
| Business acquisitions | 70,204 | 0 | |
| Fair value of plan assets as at 31 December | 82,324 | 12,661 |
rep06-en-pension_obligations_development_plan_assets.xls (Download size 22 KB)
The split of fair values of the plan assets is as follows:
| (in TEUR) | 2006 | 2005 | |
| Equity instruments | 24,592 | 3,454 | |
| Debt instruments | 40,332 | 5,388 | |
| Property | 13,380 | 13 | |
| Other assets | 4,020 | 3,806 | |
| 82,324 | 12,661 |
rep06-en-pension_obligations_fair_values_plan_assets.xls (Download size 21 KB)
Pension expense is comprised of the following:
| (in TEUR) | 2006 | 2005 | |
| Current service cost | 2,027 | 955 | |
| Interest expense on obligations | 3,352 | 1,445 | |
| Expected return on plan assets | (1,654) | (220) | |
| Actuarial gains/losses recognized | (549) | 1,409 | |
| Past service cost | 8 | 57 | |
| Effect of any curtailment or settlement | 463 | (739) | |
| 3,647 | 2,907 | ||
| Payments to defined contribution plans | 14,425 | 11,136 | |
| 18,072 | 14,043 |
rep06-en-pension_obligations_pension_expense.xls (Download size 17 KB)
Principal actuarial assumptions used to determine pension obligations as of 31 December were as follows:
| (in per cent) | 2006 | 2005 | |
| Discount rate | 4.50% | 4.50% | |
| Wage and salary increases | 3.00% | 3.00% | |
| Retirement benefit increases | 2.50% | 2.50% | |
| Expected return on plan assets | 5.25% | 5.25% |
rep06-en-pension_obligations_actuarial_assumptions.xls (Download size 16 KB)
The average expected return was assumed as 5.25% due to the composition of the plan assets and under consideration of past experience. In 2006, the actual return on plan assets was approximately 4.6% (2005: approximately 11.0%).
Positive experience adjustments on obligations amounted to EUR 18 thousand, negative experience adjustments on assets amounted to EUR 165 thousand.
The expected payments to the pension fund for defined benefits are EUR 5,269 thousand for the fiscal year 2007.
Severance payments
The following table provides a reconciliation of the changes in the severance benefit obligations for the years ended December 31, 2006 and 2005:
| (in TEUR) | 2006 | 2005 | |
| Defined benefit obligation as at 1 January | 33,850 | 29,351 | |
| Currency translation differences | 12 | (21) | |
| Current service cost | 2,308 | 1,406 | |
| Interest cost on obligations | 2,314 | 1,404 | |
| Actuarial gains/losses | (29) | 3,329 | |
| Benefits paid | (2,540) | (1,619) | |
| Business acquisitions | 39,128 | 0 | |
| Defined benefit obligation as at 31 December | 75,043 | 33,850 | |
| Fair value of plan assets | 0 | 0 | |
| Funded status as at 31 December | 75,043 | 33,850 | |
| Unrecognized actuarial gains/losses | 0 | 0 | |
| Accrued liability as at 31 December | 75,043 | 33,850 |
rep06-en-severance_obligations_development_provision.xls (Download size 22 KB)
Severance exp
ense is comprised of the following:
| (in TEUR) | 2006 | 2005 | |
| Current service cost | 2,308 | 1,406 | |
| Interest expense on obligations | 2,314 | 1,404 | |
| Actuarial gains/losses recognized | (29) | 3,329 | |
| 4,593 | 6,139 | ||
| Payments to defined contribution plans | 419 | 294 | |
| 5,012 | 6,433 |
rep06-en-severance_obligations_severance_expense.xls (Download size 16 KB)
Principal actuarial assumptions used to determine severance obligations as of 31 December were the same as used for pension obligations.
Management share option plan
The 97th Annual General Meeting of Shareholders held on 30 March 2004 adopted a Share Option Program for Managers and Members of the Managing Board. The number of options granted to the different Managers varies, depending on the area of responsibility, between 1,500, 2,500 and 5,000 shares for Managers, to 10,000 for Board Members and 12,500 for the CEO. The options are to be drawn from the pool of shares bought back under the corporate share buy-back program. One share option entitles to the purchase of one share. In order to exercise a share option, eligible persons must be in active employment with Andritz AG or one of its affiliates from 1 May 2004 until before each date of exercise of an option. Another requirement is that Managers must have invested at least EUR 20,000 in Andritz shares from their own resources, and the Members of the Managing Board at least EUR 40,000.
The exercise price of the option is the unweighted average closing price of Andritz shares in the four calendar weeks following the 97th Annual General Meeting of Shareholders held on 30 March 2004. Options can be exercised between 1 May 2006 and 30 April 2008 (=period of exercise) provided that the average unweighted closing price of the Andritz share over twenty consecutive trading days within the period from 1 May 2006 to 30 April 2007 is at least 15% above the exercise price and the earnings per share in business year 2005 (based on the total number of shares listed) or the earnings per share in business year 2006 (based on the total number of shares listed) are at least 15 % above the earnings per share in business year 2003 (based on the total number of shares listed) or that the average unweighted closing price of the Andritz share over twenty consecutive trading days within the period from 1 May 2007 to 30 April 2008 is at least 20% above the exercise price and the earnings per share in business year 2006 (based on the total number of shares listed) or the earnings per share in business year 2007 (based on the total number of shares listed) are at least 20% above the earnings per share in business year 2003 (based on the total number of shares listed).
If the conditions of exercise are met, 50% of the options can be exercised immediately, 25% after three months and the remaining 25% after a further three months. Share options can only be exercised by way of written notification to the company. The share options are not transferable. The shares purchased under the Share Option Program are not subject to a ban on sales over a certain period.
The total options granted in 2004 amount to 174,500. The exercise requirements regarding the share price increase and the earnings per share were fulfilled in 2006, so the options could be exercised according to the other requirements of the programe. The fair value of the options at the time of granting amounts to EUR 1,220 thousand, thereof EUR 254 thousand have been reported as proportionate expense in 2006. The calculation of the fair value is based on the Black-Scholes Option Pricing Model. The share price at the time of granting the options is the closing price of the Andritz share on 17 May 2004 and amounts to EUR 37.05. The exercise price of EUR 37.53 was calculated in accordance with the rules of the option program. For the lifetime of the options a period of two years was assumed. The expected dividend yield was fixed with 3%, a discount rate of 5% was used. The expected volatility was calculated on the basis of the historical development of the share price of the Andritz share during the 30 months preceding the granting date of the options. Further parameters of granting the options were not used.
The 99th Annual General Meeting of Shareholders held on 29 March 2006 adopted another Share Option Program for Managers and Members of the Managing Board. The number of options granted to the different Managers varies, depending on the area of responsibility, between 1,500, 2,500 and 5,000 shares for Managers, to 10,000 for Board Members and 12,500 for the CEO. The options are to be drawn from the pool of shares bought back under the corporate share buy-back program. One share option entitles to the purchase of one share. In order to exercise a share option, eligible persons must be in active employment with Andritz AG or one of its affiliates from 1 May 2006 until before each date of exercise of an option. Another requirement is that Managers must have invested at least EUR 20,000 in Andritz shares from their own resources, and the Members of the Managing Board at least EUR 40,000.
The exercise price of the option is the unweighted average closing price of Andritz shares in the four calendar weeks following the 99th Annual General Meeting of Shareholders held on 29 March 2006. The options can be exercised between 1 May 2008 and 30 April 2010 (=period of exercise) provided that the average unweighted closing price of the Andritz share over twenty consecutive trading days within the period from 1 May 2008 to 30 April 2009 is at least 15% above the exercise price and the earnings per share in business year 2007 (based on the total number of shares listed) or the earnings per share in business year 2008 (based on the total number of shares listed) are at least 15 % above the earnings per share in business year 2005 (based on the total number of shares listed) or that the average unweighted closing price of the Andritz share over twenty consecutive trading days within the period from 1 May 2009 and 30 April 2010 is at least 20% above the exercise price and the earnings per share in business year 2008 (based on the total number of shares listed) or the earnings per share in business year 2009 (based on the total number of shares listed) are at least 20 % above the earnings per share in business year 2005 (based on the total number of shares listed).
If the conditions of exercise are met, 50% of the options can be exercised immediately, 25% after three months and the remaining 25% after a further three months. Share options can only be exercised by way of written notification to the company. The share options are not transferable. The shares purchased under the Share Option Program are not subject to a ban on sales over a certain period.
The total options granted in 2006 amounts to 236,000. The fair value of the options at the time of granting amounts to EUR 6,492 thousand, thereof EUR 1,894 thousand have been reported as proportionate expense in 2006. The calculation of the fair value is based on the Black-Scholes Option Pricing Model. The share price at the time of granting the options is the closing price of the Andritz share on 1 June 2006 and amounts to EUR 129.75. The exercise price of EUR 126.67 was calculated in accordance with the rules of the option program. For the lifetime of the options a period of two years was assumed. The expected dividend yield was fixed with 2.5%, a discount rate of 4.5% was used. As expected volatility the value released by the Vienna Stock Exchange was applied. Further parameters of granting the options were not used.
Movements in options under the stock option plans for financial years 2006 and 2005 were as follows:
| 2006 | 2005 | |||||
| Average | Average | |||||
| Number of | exercise price | Number of | exercise price | |||
| options | per option (in EUR) | options | per option (in EUR) | |||
| Total at the beginning of the year | 173,875 | 37.53 | 196,750 | 35.66 | ||
| Options granted | 236,000 | 126.67 | 0 | 0.00 | ||
| Options exercised | (154,500) | 37.53 | (22,250) | 21.00 | ||
| Options forfeited | 0 | 0.00 | (625) | 37.53 | ||
| Total at the end of the year | 255,375 | 119.91 | 173,875 | 37.53 | ||
| Exercisable at year-end | 19,375 | 37.53 | 0 | 0.00 | ||
rep06-en-development_options.xls (Download size 14 KB)
