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Note 22 Contingent liabilities
and commitments


Environmental matters

We are confronted with substantial costs arising out of environmental laws and regulations, which include obligations to eliminate or limit the effects on the environment of the disposal or release of certain wastes or substances at various sites. Proceedings involving environmental matters, such as the alleged discharge of chemicals or waste materials into the air, water, or soil, are pending against us in various countries. In some cases this concerns sites divested in prior years or derelict sites belonging to companies acquired in the past.

It is our policy to accrue and charge against earnings environmental clean-up costs when it is probable that a liability has materialized and an amount is reasonably estimable. These accruals are reviewed periodically and adjusted, if necessary, as assessments and clean-ups proceed and additional information becomes available. Environmental liabilities can change substantially due to the emergence of additional information on the nature or extent of the contamination, the necessity of employing particular methods of remediation, actions by governmental agencies or private parties, or other factors. Cash expenditures often lag behind the period in which an accrual is recorded by a number of years.

As stated in note 18, the provisions for environmental costs accounted for in accordance with the aforesaid policies aggregated €318 million on December 31, 2008 (December 31, 2007: €228 million). The provision has been discounted using an average pre-tax discount rate of 5.5 percent (2007: 4.9 percent).

While it is not feasible to predict the outcome of all pending environmental exposures, it is reasonably possible that there will be a need for future provisions for environmental costs which, in management’s opinion, based on information currently available, would not have a material effect on the company’s financial position but could be material to the company’s results of operations in any one accounting period.

Antitrust cases

AkzoNobel is involved in investigations by the antitrust authorities in the European Union, the US and Canada into alleged violations of the respective antitrust laws for some products in these jurisdictions. We are fully cooperating with the authorities in these investigations. In addition, we are defending civil damage claims in relation to some of these alleged antitrust violations.

In 2008, based on an estimate of probable fines, civil damage claims and costs to be paid over a number of years to come – taking into account legal advice and the current facts and circumstances – we subtracted €16 million, including interest, from the provision for antitrust cases. The provision of €289 million (2007: €190 million) also includes former ICI provisions for antitrust cases. Fines, civil damage settlements and interest incurred in 2008 in connection with these cases amounted to €40 million (2007: €33 million).

Four cases are pending in appeal by the company with the EU Court of First Instance (EU CFI) against decisions by the EU Commission to impose fines on the company for violations of EU competition laws regarding the following products: monochloroacetic acid (€84 million), hydrogen peroxides (€25 million), soda ash (€10 million) and metacrylates (€91 million). Our appeal against the European Commission’s decision to fine the company for violation of the European competition laws regarding choline chloride (€21 million) was dismissed by the EU CFI in 2007. We appealed this judgment at the ECJ and that case is now pending.

It should be understood that, in light of possible future developments, such as (a) the outcome of investigations by the various antitrust authorities, (b) potential additional lawsuits by (direct or indirect) purchasers, (c) possible future civil settlements, and (d) rulings or judgments in the pending investigations or in related civil suits, the antitrust cases are likely to result in additional liabilities and related costs. At this point in time, we cannot estimate any additional amount of loss or range of loss in excess of the recorded amounts with sufficient certainty to allow such amount or range of amounts to be meaningful. Moreover, if and to the extent that the contingent liabilities materialize, they are typically paid over a number of years and the timing of such payments cannot be predicted with confidence. The company believes that the aggregate amount of any additional fines and civil damages to be paid will not materially affect the company’s financial position. The aggregate amount, however, could be material to our results of operations or cash flows in any one accounting period.

Other investigations and litigation

Akzo Nobel Nederland B.V. has been involved in legal proceedings with certain Dutch labor unions, acting on behalf of retired Dutch AkzoNobel employees, in connection with Akzo Nobel Nederland B.V.’s decision to no longer reimburse part of the health insurance premiums to former employees (after a certain transition period). Pending the appeal of a decision taken by the court in December 2007, the parties negotiated a settlement and reached an agreement at the beginning of 2009. The settlement involves payment of a contribution to the health insurance premiums to certain retired and active employees. In connection with the settlement, Akzo Nobel Nederland B.V. has made a provision in the amount of €28 million.

In 1986, an ICI subsidiary acquired a business that manufactured and sold paint in the US and Canada, and named the company the Glidden Company (“Glidden”). Glidden was renamed as Akzo Nobel Paints LLC and is an indirect subsidiary of the Company. The seller, a predecessor of Millennium Holdings LLC (the “Seller”), now a subsidiary of LyondellBasell Industries, continued to manufacture and sell pigment. An alleged predecessor of Glidden and the Seller manufactured lead pigment until the 1950s and lead pigment-based paint until the 1960s. Beginning in the late 1980s, both Glidden and the Seller were named as defendants along with former producers of lead pigment and lead pigment-based paint in a number of lawsuits in the United States. These lawsuits sought damages for alleged personal injury caused by lead pigment-based paint or the costs of removing lead pigment-based paint. As the suits progressed, the plaintiffs shifted their focus to manufacturers of lead pigment. As a result, Glidden was dismissed from most of the pending cases and is currently a defendant in only two

Under the sale agreement by which Glidden was acquired, the Seller agreed to indemnify Glidden against claims relating to certain pre-completion liabilities, and Glidden also gave certain indemnities to the Seller. While Glidden did not acquire any assets or liabilities relating to the manufacture or sale of pigments, the Seller has asserted that it is entitled to indemnification under the sale agreement for certain liabilities it may have relating to lead pigment and/or lead pigment-based paint litigation. In its public disclosures, the Seller states that it continues to defend against a number of lead-based lawsuits although it asserts that the claims are without merit. On March 28, 2008, the Seller filed suit against Glidden in New York Supreme Court seeking to establish the alleged indemnification obligation. Glidden, which has assumed all of the purchaser’s rights and obligations under the sale agreement, believes that it has no such obligation to indemnify the Seller and is defending against the claim. We are unable to reliably estimate any possible loss.

From the early 1970s until 1999, ICI Americas Inc. (“ICIA”) operated and maintained two manufacturing facilities on behalf of the US Army. Employees at each facility were employed by ICIA and were members of ICIA pension plans. The US Army reimbursed to ICIA the cost of contributions to each pension plan until such time as the plans had a surplus. Upon termination of the contract in 1999, each of the schemes continued to carry a surplus. In September 2004, the US Army Contracting Officer issued a final determination holding that termination of the contract triggered a refund to the US Government of an amount equal to the value of the 1999 pension surplus. ICIA filed an appeal of the final determination to the Armed Services Board of Contract Appeals (“Appeals Board”) on January 26, 2005. April 22, 2005, the US Army re-issued its final determination, amended to include an additional theory of liability. ICIA filed an appeal of the new final determination on July 14, 2005. In a decision dated May 24, 2007, the Appeals Board ruled in favor of the US Army on liability. The Appeals Board has agreed to stay further proceedings while the parties discuss a settlement. The company has taken a provision with respect to this matter.

A number of other claims are pending, all of which are contested. We are also involved in disputes with tax authorities in several jurisdictions. While the outcome of these claims and disputes cannot be predicted with certainty, we believe, based upon legal advice and information received, that the final outcome will not materially affect our consolidated financial position but could be material to our result of operations or cashflows in any one accounting period.

Commitments

Purchase commitments for property, plant and equipment aggregated €92 million on December 31, 2008 (2007: €46 million). In addition, we have purchase commitments for raw materials and supplies incident to the ordinary conduct of business, for a total of €1.5 billion (2007: €1.8 billion).

Long-term liabilities contracted in respect of leasehold, rental, operational leases, research, etc. aggregated €566 million on December 31, 2008 (December 31, 2007: €455 million).

 

 

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In € millions

 

 

 

2008

2007

 

 

 

Payments due within one year

166

124

Payments between one and five years

312

251

Payments due after more than five years

88

80

 

 

 

Total

566

455

Guarantees related to investments in associates and joint ventures totaled €16 million (December 31, 2007: €12 million). In addition, we are liable for obligations incurred by certain joint ventures. On December 31, 2008, the risk ensuing from these liabilities was €10 million (December 31, 2007: €9 million).

In connection with the Organon BioSciences divestment to Schering-Plough, AkzoNobel has limited its maximum exposure to claims to €850 million. The provided guarantees and indemnities have varying maturity periods. We have not recognized a provision in relation to this exposure.

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