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Note 21 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 at 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 17, the provisions for environmental costs accounted for in accordance with the aforesaid policies aggregated €352 million on December 31, 2009 (December 31, 2008: €318 million). The provision has been discounted using an average pre-tax discount rate of 4.3 percent (2008: 5.5 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 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 alleged antitrust violations in the European Union and the US.

In November 2009, Akzo Nobel was fined by the European Commission in the Heat Stabilizers investigation initiated in 2003 and we recognized a provision for this fine. The total provision for the various antitrust cases at December 31, 2009, amounted to €188 million (2008: €289 million).

Two cases are pending in appeal by the company with the EU General Court against decisions by the EU Commission to impose fines on the company for violations of EU competition laws regarding the following products: 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 monochloracetic acid (€84 million) was dismissed by the EU Court of First Instance (EU CFI, now called the General Court) in 2009. We decided not to appeal this judgment. The European Court of Justice dismissed our appeal of the EU CFI’s 2007 judgment in choline chloride (€21 million) and we paid the fine. Finally, we have withdrawn our appeal of the EU Commission’s decision in hydrogen peroxide and also paid the corresponding fine of €25 million.

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

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 pending lawsuits, The City of New York v Lead Industries Association, Inc, et al and Smith v Lead Industries Association, Inc, et al (filed in 1989 and 1999 respectively). Glidden is indemnified by the Seller against the City of New York lawsuit. Glidden believes that it has strong defenses to the two remaining cases and will continue to defend all such actions. We have determined that the risk of cash outflow is approaching zero and we have not recognized a provision for this case.

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 cash flows in any one accounting period.

Commitments

Purchase commitments for property, plant and equipment aggregated €60 million on December 31, 2009 (2008: €92 million). In addition, we have purchase commitments for raw materials and supplies incident to the ordinary conduct of business, for a total of €1.2 billion (2008: €1.5 billion).

Long-term commitments contracted in respect of leasehold, rental, operational leases, research, etc. aggregated €572 million on December 31, 2009 (December 31, 2008: €566 million).

Maturity of long-term commitments

 

 

 

In € millions

 

 

 

2008

2009

 

 

 

Payments due within one year

166

169

Payments between one and five years

312

289

Payments due after more than five years

88

114

 

 

 

Total

566

572

Guarantees related to investments in associates and joint ventures totaled €12 million (December 31, 2008: €16 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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