Notes 31-37

• 31. Contingent liabilities
• 32. Self insurance
• 33. Related party transactions
• 34. Principal operations
• 35. Retirement plans
• 36. Share based payments
• 37. Segmental information

Back to top31. Contingent liabilities

Provision has been made in the ordinary course of business for all known and probable future claims but not for such claims as are considered remote. Contingent liabilities arise in respect of the following categories:

Back to top32. Self insurance

The company monitors its capacity to retain otherwise insurable losses. The directors believe that the group’s risk management programmes are adequate to protect its assets and earnings against losses incurred within the self insurance level of NZ$10 million included in its major property and liability insurance policies, up to an annual aggregate of NZ$20 million for the property policy and NZ$15 million for the liability policy.

Based on past experience, the company does not anticipate that future losses within these levels would have a significant impact on the group’s financial position or performance.

In certain circumstances, where required by law or where management considers it appropriate, insurance may be arranged for exposures within the self insurance levels.

In general terms, subject to the self insurance levels, the group-wide insurance policies are with insurers having a Standard & Poor’s A grade rating (or equivalent) or better.

The group has made provision for reported and estimated unreported losses incurred at balance date.

Back to top33. Related party transactions

1  These unsecured advances represent long-term funding even though they are for no fixed term and bear interest at 10.2 percent.
2  These unsecured advances represent long-term funding even though they are for no fixed term and bear interest at 7.5 percent.
3  These unsecured advances represent long-term funding even though they are for no fixed term and bear interest at 9.75 percent.
4 The unsecured advance represents long-term funding even though it is for no fixed term and is non interest bearing.

Fletcher Building Limited is the holding company of the Fletcher Building group. Fletcher Building Limited has a relationship with each of its subsidiaries, associates and joint ventures. A full list of all the subsidiaries of the group is included in the Regulatory Disclosures section of this annual report.

Fletcher Building Retirement Plan
As at 30 June 2009, Fletcher Building Nominees Limited (the New Zealand retirement plan) held $944,580 of shares and $18,500,000 of capital notes in Fletcher Building Limited (June 2008 $5,462,028 shares; $18,500,000 capital notes) in respect of economic interests that members of the retirement plan have in Fletcher Building shares and capital notes.

Back to top34. Principal operations

Fletcher Building Limited is the holding company of the Fletcher Building group. The principal subsidiaries and associates, as at 30 June 2009, are outlined below:

Back to top35. Retirement plans

Fletcher Building Limited is the principal sponsoring company of a plan that provides retirement and other benefits to employees of the group in New Zealand. Participation in this plan has been closed for a number of years, although defined contribution savings plans have been made available. Various defined benefit and defined contribution plans exist in Australia following the acquisition of the Amatek, Tasman Building Products, and the Laminex groups which companies contribute to on behalf of their employees. All of these plans’ obligations are wholly-funded. Various defined benefit plans and medical plans exist in other countries as a result of the acquisition of the Formica group, which companies contribute to on behalf of their employees. All of these plans have a deficit in their funded status and the companies are making additional contributions, as recommended by the trustees of the plans, to improve the funded status.

The calculation of the defined benefit obligations are based on years of service and the employees’ compensation during their years of employment. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. These obligations are accounted for in accordance with NZ IAS 19 Employee Benefits, which has the effect of smoothing the volatility in the returns earned by the plans through amortising gains and losses over the life of the plans. At 30 June 2009, $88 million of net losses (June 2008 $8 million of net losses) will be amortised in future years.

Fletcher Building Limited has an obligation to ensure that the funding ratio of the New Zealand plan’s assets is at least 115% of the plan’s actuarial liability. This is based upon any two consecutive annual actuarial valuations as calculated by the plan’s actuary. This calculation is done on the plan’s funding basis which differs from the calculation under NZ IAS 19. At 31 March 2009 the value of the assets was 115.1 percent of the actuarial liability and the funded surplus was $33 million (31 March 2008 111.1%, $26 million). In compliance with NZ IAS 19, the group recalculates the pension obligation using the after-tax return on government stock, which at 30 June 2009 was 4.2% (30 June 2008 4.6%). This is different from the pension plan’s own accounts which uses the expected after tax return on the plan’s assets of 5.5%. By using a lower discount rate, this results in a higher obligation; therefore the funded surplus of the New Zealand plan calculated under NZ IAS 19 is only $15 million (30 June 2008 $14 million).

During the year, the company contributed $4 million in respect of its Australian defined benefit plans and $24 million in respect of its Australian defined contribution plans. It contributed $17 million in respect of its Formica defined benefit and medical plans and $3 million to its New Zealand plan on behalf of its employees as part of their salary sacrifice arrangements. It also contributed $47 million in respect of its New Zealand plan to top the fund up to the required ratio of 115%.

Assumptions used
The following table provides the weighted average assumptions used to develop the net periodic pension cost and the actuarial present value of projected benefit obligations for the group’s plans:

Expected returns on plan assets have been determined by the independent actuaries as the weighted average of the expected return after tax and investments fees for each asset class by the target allocation of assets to each class.

The group expects to contribute $22 million to its Australian and other overseas defined benefit plans during the year to 30 June 2010.

Back to top36. Share based payments

Employee share purchase scheme
Since 2002 the group has implemented three employee share purchase schemes, all complying with either section DF7 of the Income Tax Act 1994 or section DC11 of the Income Tax Act 2004, whereby the group lends employees a maximum of $2,340 to purchase shares in the company. Each full-time or part-time employee is eligible to subscribe for a number of shares at an issue price determined at the time of announcement, which represents a discount to the market price. These shares vest in the employees after a three-year restricted period. The employees can participate in more than one scheme at a time, but to a maximum value of $2,340. In 2004 and 2005 the shares were purchased on market and sold to the employees at the discounted price. Offers of shares to employees in Australia are made on similar terms as those for New Zealand-based employees. The consideration for the shares was funded by an interest free loan to each employee, which was repaid over a three-year restricted period.

At 30 June 2009 all shares have either been vested or forfeited. The total receivable owing from the employees is $nil (June 2008 $1 million).

The details of the share schemes are:

Executive share schemes

The group has implemented long-term cash-based incentive schemes targeted at the executives most able to influence the results of the group with an agreed percentage of any cash received to be invested in purchasing the company’s shares. For schemes implemented between 2004 and 2007, payment of any benefit is dependent upon the group’s total shareholder return exceeding the 51st percentile of the total shareholder return of a comparative group of companies over a three-year restricted period. In 2008, a variation was implemented whereby the three-year restricted period may be extended by up to one further year if total shareholder return does not exceed the 51st percentile.

In 2008, a scheme was implemented for a small number of senior executives where payment of half of any benefit is dependent upon total shareholder return, including the one-year extension of the restricted period, and payment of the other half of any benefit is dependent upon the group achieving an earnings per share target over the three-year restricted period. No one-year extension is made for any benefit which is dependent upon the earnings per share performance target.

The group purchased shares on market which were sold to the executives and funded by an interest free loan to each executive. The shares allocated to executives are held by the trustee company with executives entitled to vote on the shares and receive dividends, the proceeds of which are used to repay the interest free loan.

At the end of the restricted period the group will pay a bonus to the executives to the extent the performance targets have been met, sufficient for the executives to repay the balance of the interest free loan on those shares which vest. The shares upon which performance targets have been met will then fully vest to the executives. The loan owing on shares upon which performance targets have not been met (the forfeited shares) will be novated from the executives to the trustee and will be fully repaid by the transfer of the forfeited shares. The receivable from the executives, which is secured only against the shares held in the company, has been accounted for under the treasury stock method and deducted from paid up capital.

The following are details in regards to the share schemes:

Back to top37. Segmental information