Change
Select Note

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 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 €419 million at year-end 2010 (2009: €352 million). The provision has been discounted using an average pre-tax discount rate of 4.1 percent (2009: 4.3 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 – together with others – involved in civil proceedings initiated by Cartel Damages Claims HP SA/NV before the Dortmund court in Germany in relation to the Hydrogen Peroxide infringement in the 1990’s. These claims are disputed. 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: Metacrylates and Heat Stabilizers. Both cases have been provided for. The total provision for the various antitrust cases at December 31, 2010, amounted to €158 million (2009: €188 million). It should be understood that, in light of possible future developments, such as (a) potential additional lawsuits by (direct or indirect) purchasers, (b) possible future civil settlements, and (c) rulings or judgments in the appeals with the General Court or in related civil suits, the antitrust cases may 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 claims 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 of 2010, Glidden has been dismissed from all of these lawsuits.

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 has stated that it continues to defend against a number of lead-based lawsuits although it asserts that the claims are without merit. In 2008, the Seller filed suit against Glidden in New York Supreme Court seeking to establish the alleged indemnification obligation. Glidden believes that it has no such obligation to indemnify the Seller and is defending against the claim. In 2009, the Seller filed for bankruptcy as part of the bankruptcy of its parent LyondellBasell. An issue has arisen in the bankruptcy proceeding that could impact the indemnification claim. Under the 1986 agreement, Seller agreed to indemnify Glidden for certain environmental obligations. In the bankruptcy proceeding, Seller tried to reject their environmental indemnification obligations but retain their right to sue under the alleged lead paint indemnification. In 2010, the bankruptcy judge ruled that the indemnification obligations are part of a single agreement and Seller must choose to reject or assume the entire agreement. Seller has appealed the bankruptcy ruling. We are unable to reliably estimate any possible loss.

The US Army Pensions case reported in previous years was settled in 2010.

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 results of operations or cash flows in any one accounting period.

Commitments

Purchase commitments for property, plant and equipment aggregated €47 million at year-end 2010 (2009: €60 million). In addition, we have purchase commitments for raw materials and supplies incident to the ordinary conduct of business, for a total of €1.0 billion (2009: €1.2 billion).

Long-term commitments contracted in respect of leasehold, rental, operational leases, research, etc. aggregated €605 million at year-end 2010 (2009: €572 million), as follows:

In € millions

2009

2010

 

 

 

Payments due within one year

169

168

Payments between one and five years

289

305

Payments due after more than five years

114

132

Total

572

605

Maturity of long-term commitments

Guarantees related to investments in associates and joint ventures totaled €9 million (December 31, 2009: €12 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.

Keyword Search
Copyright © 2011 Akzo Nobel N.V.