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Provisions are comprised of the following:
|
(in €m) |
31st December 2007 |
31st December 2006 |
|
|
|
|
|
Provision for retirement plans (see Note 22 b) |
4,517 |
5,747 |
|
Provision for deferred compensation (see Note 22 a) |
151 |
136 |
|
Retirement plans and similar obligations |
4,668 |
5,883 |
|
Other provisions (see Note 22 c) |
7,765 |
6,580 |
|
Total |
12,433 |
12,463 |
|
Thereof non-current portion |
8,055 |
8,911 |
|
Thereof current portion |
4,378 |
3,552 |
Regarding the retrospective change in presentation of “Other provisions” (€(152) million in non-current portion and €(79) million in current portion) with the related reclassification of “Financial Instruments” to “Other liabilities” please refer to Note 2 “Summary of significant accounting policies”.
As of 31st December 2007 and 2006, respectively, €4,382 million and €5,602 million of retirement plans and similar obligations and €3,673 million and €3,309 million of other provisions mature after more than one year.
a) Provisions for deferred compensation
This amount represents obligations that arise if employees elect to convert part of their remuneration or bonus into an equivalent commitment for deferred compensation.
b) Provisions for retirement plans
When Group employees retire, they receive indemnities as stipulated in retirement agreements, in accordance with regulations and practices of the countries in which the Group operates.
French law stipulates that employees are paid retirement indemnities on the basis of the length of service.
In Germany, EADS has a pension plan (P3) for executive and non-executive employees in place. Under this plan, the employer makes contributions during the service period, which are dependent on salary in the years of contribution and years of service. These contributions are converted into components which become part of the accrued pension liability at the end of the year. Total benefits are calculated as a career average over the entire period of service.
Certain employees that are not covered by the new plan receive retirement indemnities based on salary earned in the last year or on an average of the last three years of employment. For some executive employees, benefits are depending on final salary at the date of retirement and the time period as executive. In Q4 2007, EADS implemented a Contractual Trust Arrangement (CTA) for EADS’ pension obligation. The CTA structure is that of a bilateral trust arrangement. Assets that are transferred to the CTA qualify as plan assets under IAS 19.
In the U.K., EADS participates in several funded trustee-administered pension plans for both executive and non-executive employees with BAE Systems being the principal employer. These plans qualify as multi-employer defined benefit plans under IAS 19 “Employee Benefits”. EADS’ most significant investments in terms of employees participating in these BAE Systems U.K. pension plans are Airbus U.K. and MBDA U.K.. For Airbus, this remains the case even subsequent to the acquisition of BAE Systems’ 20% minority interests on 13rd October 2006. Participating Airbus U.K. employees have continued to remain members in the BAE Systems U.K. pension plans due to the U.K. pension agreement between EADS and BAE Systems and a change in U.K. pensions legislation enacted in April 2006.
Generally, based on the funding situation of the respective pension schemes, the pension plan trustees determine the contribution rates to be paid by the participating employers to adequately fund the schemes. The different U.K. pension plans in which EADS investments participate are currently underfunded. BAE Systems has agreed with the trustees various measures designed to make good the underfunding. These includes i) regular contribution payments for active employees well above such which would prevail for funded plans and ii) extra employers’ contributions.
Due to the contractual arrangements between EADS and BAE Systems, EADS’ contributions in respect of its investments for the most significant pension scheme (Main Scheme) are capped for a defined period of time (until July 2011 for Airbus U.K. and until December 2007 for MBDA U.K.). Contributions exceeding the respective capped amounts are paid by BAE Systems. EADS is therefore neither exposed to increased regular contribution payments resulting from the pension plans’ underfunding nor to a participation in extra contribution payments during the period of the contribution caps. Even after the expiry of the contribution caps the unique funding arrangements between BAE Systems and EADS create a situation for EADS different from common U.K. multi-employer plans with special regulations limiting regular contributions that have to be paid by Airbus U.K. and MBDA U.K. to rates applicable to all participating employers.
Based on detailed information about the different multi-employer pension schemes which BAE Systems has started to share since 31st December 2006, EADS is able to appropriately and reliably estimate the share of its participation in the schemes, i.e. its share in plan assets, defined benefit obligations (DBO) and pension costs. The information enables EADS to derive keys per plan to allocate for accounting purposes an appropriate proportion in plan assets, defined benefit obligations and pension costs to its U.K. investments as of 31st December 2007 and 2006, taking into account the impact of the capped contributions as well as future extra contributions agreed by BAE Systems with the Trustees. Therefore, EADS accounts for its participation in BAE Systems’ U.K. defined benefit schemes under the defined benefit accounting approach in accordance with IAS 19.
Compared to 2006, the share of Airbus in BAE Systems’ main schemes has decreased in 2007 due to a relative decrease in the number of active members. The impact of this change is reflected in actuarial gains and losses of the period.
Actuarial assessments are regularly made to determine the amount of the Group’s commitments with regard to retirement indemnities. These assessments include an assumption concerning changes in salaries, retirement ages and long-term interest rates. It comprises all the expenses the Group will be required to pay to meet these commitments.
The weighted-average assumptions used in calculating the actuarial values of the retirement plans are as follows:
|
|
Euro-countries |
EADS U.K. |
BAE Systems U.K. | |||||
|
|
31st December |
31st December |
31st December | |||||
|
Assumptions in % |
2007 |
2006 |
2005 |
2007 |
2006 |
2005 |
2007 |
2006 |
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
5.25 - 5.35 |
4.5 |
4.0 |
5.8 |
5.1 |
4.7 |
5.8 |
5.2 |
|
Rate of compensation increase |
3.0 |
3.0 |
3.0 |
4.2 |
3.8 |
3.7 |
4.3 |
4.0 |
|
Inflation rate |
1.9 - 2.0 |
1.9 - 2.0 |
1.75 - 2.0 |
3.1 |
2.8 |
2.7 |
3.3 |
3.0 |
|
Expected return on plan assets |
7.0 |
6.5 |
6.5 |
5.8 |
5.8 |
5.8 |
7.0 |
7.0 |
The amount recorded as provision on the balance sheet can be derived as follows:
| |||||
|
Change in defined benefit obligations |
|||||
|
(in €m) |
2007 |
2006 |
2005 | ||
|
|
|
|
| ||
|
Defined benefit obligations at beginning of year |
9,584 |
5,927 |
5,198 | ||
|
Service cost |
213 |
162 |
153 | ||
|
Interest cost |
429 |
230 |
252 | ||
|
Plan amendments |
22 |
2 |
8 | ||
|
Actuarial (gains) and losses |
(729) |
(185) |
517 | ||
|
Acquisitions, curtailments and other |
(42) |
(15) |
2 | ||
|
Benefits paid |
(383) |
(228) |
(208) | ||
|
Foreign currency translation adjustment |
(298) |
(5) |
5 | ||
|
Change in consolidation(1) |
(223) |
3,696 |
0 | ||
|
Defined benefit obligations at end of year |
8,573 |
9,584 |
5,927 | ||
Due to the BAE Systems U.K. pension plans, service cost increased by €61 million and interest cost by €168 million. Actuarial gains which are related to the BAE Systems U.K. pension plans amount to
| |||||
|
Change in plan assets |
|||||
|
(in €m) |
2007 |
2006 |
2005 | ||
|
|
|
|
| ||
|
Fair value of plan assets at beginning of year |
3,833 |
799 |
658 | ||
|
Actual return on plan assets |
119 |
84 |
82 | ||
|
Contributions |
683 |
212 |
111 | ||
|
Acquisitions and other |
18 |
6 |
5 | ||
|
Benefits paid |
(223) |
(72) |
(60) | ||
|
Foreign currency translation adjustments |
(242) |
5 |
3 | ||
|
Change in consolidation(1) |
(157) |
2,799 |
0 | ||
|
Fair value of plan assets at end of year |
4,031 |
3,833 |
799 | ||
In 2007, the actual return on plan assets of €119 million includes among others, also €42 million relating to the BAE Systems’ U.K. pension plans. This actual return also includes actuarial losses on plan assets due to the decrease of EADS’ share in BAE Systems’ U.K. pension plans. Furthermore,
In 2007, EADS implemented a Contractual Trust Arrangement (CTA) for allocating and generating plan assets in accordance with IAS 19. On 28th October 2007, some EADS companies contributed in total €500 million in cash and securities as an initial funding of the CTA.
Based on past experience, EADS expects a rate of return for plan assets of 7.0%.
In 2007, about 51% of plan assets are invested in equity securities. The remaining plan assets are invested mainly in debt instruments.
| |||||||
|
Recognised Provision |
|
||||||
|
(in €m) |
2007 |
2006 |
2005 |
2004 |
2003 | ||
|
|
|
|
|
|
| ||
|
Funded status(1) |
4,542 |
5,751 |
5,128 |
4,540 |
4,116 | ||
|
Unrecognised past service cost |
(25) |
(4) |
(4) |
(5) |
(14) | ||
|
Provision recognised in Balance Sheet |
4,517 |
5,747 |
5,124 |
4,535 |
4,102 | ||
The defined benefit obligation at the end of the year is the present value, without deducting any plan assets, of expected future payments required to settle the obligation resulting from employee service in the current and prior periods. The provision contains the funded status less any unrecognised past service cost.
The components of the net periodic pension cost, included in “Profit (loss) before finance costs and income taxes”, are as follows:
|
(in €m) |
2007 |
2006 |
2005 |
|
|
|
|
|
|
Service cost |
213 |
162 |
153 |
|
Interest cost |
429 |
230 |
252 |
|
Expected return on plan assets |
(260) |
(58) |
(42) |
|
Net actuarial loss |
0 |
0 |
14 |
|
Prior service cost |
3 |
0 |
0 |
|
Net periodic pension cost |
385 |
334 |
377 |
Due to BAE Systems’ U.K. pension plans service cost increases by €61 million and interest cost rise by €168 million. The expected return on plan assets for BAE Systems’ U.K. pension plans amounts to
Actuarial gains and losses, net of deferred taxes recognised in total equity amount to €(974) million and are developed as follows:
| |||||
|
Actuarial gains and losses recognised directly in total equity |
|||||
|
(in €m) |
2007 |
2006 |
2005 | ||
|
|
|
|
| ||
|
Cumulative amount at 1st January |
(1,808) |
(1,118) |
(659) | ||
|
Recognised during the period(1) |
608 |
(690) |
(459) | ||
|
Cumulative value at 31st December |
(1,200) |
(1,808) |
(1,118) | ||
|
Deferred Tax Asset at 31st December |
226 |
399 |
423 | ||
|
Actuarial gains and losses recognised directly in equity, net |
(974) |
(1,409) |
(695) | ||
The contribution to be paid in 2008 as funding for the CTA is expected to be about €155 million. The contribution expected to be paid in 2008 for the BAE Systems U.K. pension plans are expected to be in the same range as in 2007 (€74 million). For the remaining pension plans no estimate is reasonably possible.
Contribution to state pension plans mainly in Germany and France are to be considered as defined contribution plans. Contributions in 2007 amount to €518 million.
c) Other Provisions
Movements in provisions during the year were as follows:
|
(in €m) |
Balance at 1st January 2007 |
Exchange differences |
Increase from passage of time |
Additions |
Reclassi- |
Used |
Released |
Balance |
|
|
|
|
|
|
|
|
|
|
|
Outstanding costs |
1,104 |
(1) |
5 |
499 |
89 |
(292) |
(59) |
1,345 |
|
Aircraft financing risks |
1,064 |
(94) |
0 |
55 |
0 |
(49) |
(164) |
812 |
|
Contract losses |
421 |
(2) |
65 |
2,608 |
(16) |
(467) |
(63) |
2,546 |
|
Personnel charges |
410 |
(2) |
3 |
153 |
1 |
(129) |
(26) |
410 |
|
Restructuring measures/pre-retirement part-time work |
326 |
(5) |
44 |
679 |
(19) |
(96) |
(26) |
903 |
|
Litigations and claims |
238 |
(18) |
0 |
12 |
(33) |
(18) |
(4) |
177 |
|
Obligation from services and maintenance agreements |
211 |
(1) |
8 |
116 |
0 |
(72) |
0 |
262 |
|
Warranties |
187 |
0 |
0 |
80 |
(7) |
(46) |
(21) |
193 |
|
Asset retirement |
80 |
0 |
0 |
8 |
0 |
0 |
0 |
88 |
|
Other risks and charges |
2,539 |
(60) |
87 |
233 |
(990) |
(661) |
(119) |
1,029 |
|
Total |
6,580 |
(183) |
212 |
4,443 |
(975) |
(1,830) |
(482) |
7,765 |
The addition to outstanding costs mainly relates to Defence & Security and Eurocopter.
The provision for aircraft financing risks fully covers, in line with the Group’s policy for sales financing risk, the net exposure to aircraft financing of €311 million (€432 million at 31st December 2006) and asset value risks of €501 million (€633 million at 31st December 2006) related to Airbus and ATR (see Note 29 “Commitments and contingencies”).
The provision for contract losses mainly relates to the division Airbus in conjunction with the A400M and A350 programmes. The measurement of the onerous contract provision for the A350 reflects the programme’s expected cost in accordance with the latest business case revision as well as the impact of the USD exchange rate development. The A400M loss making contract provision is based upon the reassessed cost at completion taking into account financial impacts of the delayed delivery schedule as revised in Q3 2007.
The provisions for restructuring measures mainly relate to Airbus’ 
Power8 programme for the reduction of overhead costs. The plan was announced to the employees in 2007. The restructuring is expected to be completed in 2010.
From the provisions for other risks and charges, parts of the provisions for settlement charges in conjunction with the A380 and A350 programmes were reclassified to liabilities.
