ONE ROOF

Notes to the Consolidated Financial Statements
140 Annual Report 2009
Share-based payment transactions are measured in ac-
cordance with IFRS 2. Stock option plans implemented from
November 7, 2002 are accounted for Group-wide as cashsettled
share-based payment transactions. Provisions for obligations
under the Long-term Incentive Plans, the Top Executive
Retention Plans and the Retention Stock Award plan are
recognized in the amount of the expected expense that is or
was spread over the stipulated waiting period. The fair value of
stock options is measured using generally accepted financial
models, the value of the plans being determined with the
Black/Scholes option pricing model. The specific problem of
valuing the plans in question is solved using binomial tree
methods. The computations are performed by an outside appraiser.
Provisions for pensions and similar obligations are rec-
ognized for current and future benefit payments to active and
former employees and their surviving dependants. The obligations
primarily relate to pension benefits, partly for basic pensions
and partly for optional supplementary pensions. The individual
benefit obligations vary from one country to another
and are determined for the most part by length of service and
pay scales. The Turner Group’s obligations to meet healthcare
costs for retired staff are likewise included in pension provisions
due to their pension-like nature.
Provisions for pensions and similar obligations are computed
by the projected unit credit method. This determines the present
value of future entitlements, taking into account current
and future benefits already known at the reporting date plus
anticipated future increases in salaries and pensions and, for
the Turner Group, in healthcare costs. The computation is
based on actuarial appraisals using biometric accounting principles.
Plan assets as defined in IAS 19 are shown separately
as deductions from pension obligations. Plan assets comprise
assets transferred to pension funds to meet pension obligations,
shares in investment funds purchased under deferred
compensation arrangements, and qualifying insurance policies
in the form of pension liability insurance. If the fair value of
plan assets is greater than the present value of employee benefits,
the difference is reported—subject to the limit in IAS
19—under other non-current assets.
Pursuant to the option in IAS 19, actuarial gains and losses
are recognized directly in equity in the period during which
they arise. The current service cost is reported under personnel
costs. The interest element of the increase in pension obligations,
diminished by anticipated returns on plan assets, is
reported in net investment and interest income.
Past service costs are recognized immediately in income, un-
less the changes to the pension plan are conditional on the
employees remaining in service for a specified period of time
(the vesting period). In this case, the past service costs are
recognized in income by amortization on a straight-line basis
over the vesting period.
Tax provisions comprise current tax obligations. Income tax
provisions are offset against tax refund entitlements if they relate
to the same tax jurisdiction and are congruent in nature
and reporting period.
Other provisions account for all identifiable obligations as of
the reporting date that result from past business transactions
or events but are uncertain in their amount and/or settlement
date. Provisions are stated at the estimated settlement amount,
i.e. after making allowance for price and cost increases, and
are not offset against any rights to reimbursement. For obligations
with a settlement probability exceeding 50 percent, the
amount set aside is calculated on the basis of the most likely
settlement outcome. A provision can only be recognized on
the basis of a legal or constructive obligation toward third parties.
Long-term provisions with a term of more than one year
are stated at the present value of the estimated settlement
amount as of the reporting date and are reported under noncurrent
liabilities.
Liabilities other than provisions and deferred taxes are report-
ed at amortized cost using the effective interest rate method
(accounting for factors such as premiums and discounts). Finance
lease liabilities are initially recognized at fair value at the
inception of the lease or the present value of the minimum
lease payments, whichever is lower.
Derivative financial instruments are measured at fair value
on the settlement date regardless of their purpose and reported
under other receivables and other assets or other liabilities.
All derivative financial instruments are measured on the basis
of current market rates as of the balance sheet date. The recognition
of changes in fair value depends on the purpose for
which a derivative is held. Derivatives are only ever used for
hedging purposes. For example, variable rate loans are hedged
to counter variations in payment amounts due to interest rate
changes. In such cases the items are accounted for as a rule
as cash flow hedges. Unrealized gains and losses are initially
recognized in equity. A cash flow hedge covers exposure to
variability in cash flows from the hedged item. If a hedged
planned transaction subsequently results in recognition of a
financial asset or a financial liability, gains or losses recognized
in equity in the meantime are reclassified to income or expense
in the period when the asset or liability affects income. If a
hedged planned transaction subsequently results in recognition
of a non-financial asset or liability, gains or losses recognized
in equity in the meantime are taken out of equity and
subtracted from or added to the initial cost of the asset or liability.
In the cases described, only the portion of changes in
value that are determined to be effective for hedging purposes
are recognized in equity. The ineffective portion is recognized
directly as income or expense. The portion of the changes in