Panalpina Annual Report 2006

Employee benefits
Consolidated and Annual Financial Statements 2006
Short-term benefits, such as salaries and wages, contributions to compulsory social security schemes, vacation accruals
and bonuses, are accrued periodically and recognized when the employee provides related services. All costs are recognized
to the income statement together with an increase in other payables and accruals in the balance sheet.
In order to provide long-term employee benefits, such as pensions, the Group operates legally separate pension funds,
providing benefits under defined benefit or defined contribution schemes. The plan assets funding the benefits are managed
and invested outside the Group in accordance with legal requirements. Where necessary, provisions for the unfunded portion
of pension benefits, including termination gratuities are recorded in the individual subsidiaries’ balance sheets. The pension
funds are usually financed by contributions from employees and subsidiaries.
A review of subsidiaries’ pension plans in Germany, Taiwan, Japan and Switzerland has shown that they are defined benefit
schemes. They are assessed using the projected unit credit actuarial valuation method. Costs of providing pensions are
recognized in the income statement to spread the regular cost over the service period of employees. The past service
cost is recognized as an expense on a straight line basis over the average period until the benefits becomes vested. If the
benefits are already vested immediately following the introduction of, or changes to, a pension plan, past service costs
are recognized immediately.
The defined benefit obligation for past employee service is measured as the present value of the estimated future cash
outflows using appropriate discount rates. The past post-employment benefits obligation are reviewed annually by
independent actuaries. All actuarial gains and losses are recognized in the periods in which they occur outside the income
statement in the consolidated statement of recognized income and expenses.
Share-based compensation
The Group operates equity-settled, share-based compensation plans. The fair value of the employee services received
in exchange for the grant of the options and the discount on the shares granted are recognized as an expense, together
with a corresponding increase in equity, over the period in which the performance and/or service conditions are
fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting date).
Non-market vesting conditions are included in assumptions about the number of options that are expected to become
exercisable. On each balance sheet date, the Company revises its estimates of the number of options that are expected
to become exercisable. The impact of the revision of original estimates, if any, is recognized in the income statement,
with a corresponding adjustment to equity. Other long-term employee benefits exist in the form of anniversary gifts, long
service benefits and health costs. The provisions necessary to provide the benefits are determined and recorded actuarially
(cf. projected unit credit method) with actuarial gains and losses and past service costs, if any, recognized immediately
in the income statement.
3 Financial risk management
The Group is aware that in conducting the core business, various financial risks may impact the financial performance.
Financial risk management is therefore considered an integral part of managing the business. The Group’s activities expose
it primarily to the following financial risk factors: foreign exchange, interest rates, credit, settlement and liquidity. The Group
attempts to minimize potential adverse effects on the financial performance.
The Executive Board defines financial policies and related risk management objectives. A Risk Committee, under the direct
supervision of the Chief Executive Officer, meets on a regular basis and is responsible for establishing financial strategies
which are executed by Corporate Treasury.
There is a clear segregation of duties between front, middle and back office. The middle office is in charge of independently
monitoring compliance of the strategies with reference to the approved Risk Committee decisions. Operational risk and
independent performance calculation are also under middle office supervision.
Clear treasury management guidelines define approved financial transactions and products, counterparty limits and minimum
creditworthiness and transaction limits.
In line with the above-mentioned policy, the Group only enters into derivatives transactions that are directly linked to
underlying recognized and anticipated exposures arising from operating and / or financial assets or liabilities.
Panalpina Annual Report 2006 85