(22) Provisions and Accrued Liabilities

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Restructuring

Employees

Customer allowances

Asset retirement obligation

Legal

Other

Total

*

Reclassification to current liabilities and short-term portion of employee benefit obligations.

At 31 December 2013

802,036

89,173

42,063

186,362

17,689

45,401

1,182,724

Additions

68,756

82,373

23,107

2,938

3,843

22,440

203,456

Changes in estimate

61,698

0

0

−4,167

0

0

57,531

Used

−93,498

−44,273

−28,196

−767

−787

−15,535

−183,056

Released

−65,515

−7,614

−8,440

−774

−481

−2,446

−85,269

Accretion expense

19,081

0

0

6,209

0

0

25,291

Reclassifications*

−1,928

7,770

0

0

0

0

5,842

Translation adjustment

0

−97

0

−1,303

−6

−91

−1,498

Changes in reporting entities

0

−89

0

−111

0

−6

−206

At 31 December 2014

790,631

127,241

28,533

188,388

20,258

49,763

1,204,815

 

 

 

 

 

 

 

 

Thereof long-term

 

 

 

 

 

 

 

31 December 2014

679,130

0

0

188,388

0

0

867,518

31 December 2013

694,993

0

0

186,362

0

0

881,355

In establishing provisions, Management assesses different scenarios of reasonably estimated outcomes to determine the amount that Telekom Austria Group is expected to pay upon the resolution of a contingency. Telekom Austria Group records provisions based on the best estimate of the expenditure required to settle the present obligation.

Telekom Austria Group expects that approximately 55% of the provisions and accrued liabilities, with the exception of the asset retirement obligation and the provision for restructuring, will be utilised during the following financial year. Even if Telekom Austria Group does not expect an outflow of funds in the following financial year, provisions and accrued liabilities are reported as short-term if the timing of such outflows cannot be controlled by Telekom Austria Group.

Restructuring

In 2008, a comprehensive restructuring programme was initiated in the segment Austria. The provision for restructuring includes future compensation of employees, who will no longer provide services for Telekom Austria Group but who cannot be laid off due to their status as civil servants. These employment contracts are onerous contracts under IAS 37, as the unavoidable cost related to the contractual obligation exceeds the future economic benefit. The restructuring programme also includes social plans for employees whose employments will be terminated in a socially responsible way. In 2009, 2011, 2012, 2013 and 2014, new social plans were initiated which provide for early retirement, special severance packages and golden handshake options. Due to their nature as termination benefits, these social plans are accounted for according to IAS 19. At 31 December 2014 and 2013, the corresponding liability amounts to TEUR 761,862 and TEUR 775,474 and includes 1,810 and 1,725 employees, respectively.

The expense recognised related to the increase in the provision is reported in the line item restructuring expenses, while the accretion expense is reported in the financial result. A part of the provision was released since a number of employees returned to regular operations, were transferred to the government or opted for schemes such as golden handshakes, special severance packages and early retirement to an extent not foreseeable at the time of the measurement of the provision in 2013. The changes in estimate are due to adjustments of the discount rate and the rate of compensation as well as an adjustment of the employee turnover rate from 27% in 2013 to 23% in 2014. The employee turnover rate takes into consideration employees leaving in the future as well as temporary re-employment within Telekom Austria Group and is only applicable to the provision for employees permanently leaving the service process and not to provisions for social plans.

Furthermore, restructuring includes agreements from 2010 to 2012 concluded with the Austrian government relating to the voluntary transfer of civil servants with tenure, whose positions are eliminated due to technological progress, to employment with the government. Civil servants of the segment Austria can voluntarily transfer to administrative employment with the government. After a period of six to twelve months of public service and subject to a positive performance evaluation, the civil servants have the option to apply for a permanent transfer, in which case the right to return to Telekom Austria Group is forfeited. Telekom Austria Group bears the salary expense for these civil servants up to 30 June 2016 at the latest. The civil servants are compensated for any shortfall in salary or pension payments.

In 2013, a new general agreement for the transfer of personnel, replacing previous agreements, was concluded with the Austrian government. Employees transferring voluntarily to the government can apply for a permanent transfer after a probation period of six months. During this probation period, Telekom Austria Group bears the salary expense. In case of a permanent transfer, Telekom Austria Group has to compensate the government for any excess expense arising due to differing professional classifications of work places. Furthermore, compensation payments have to be effected to civil servants up to the age of 62.

As of 31 December 2014 and 2013, the provision for the transfer of civil servants to the government amounts to TEUR 28,769 and TEUR 26,562 and comprises 242 and 330 employees, respectively. In addition, Telekom Austria Group recognised a liability for employees transferred to the government amounting to TEUR 3,833 and TEUR 7,933 (see Note (23)).

In 2014 and 2013, the estimated rate of compensation equals the rate used for the calculation of employee benefit obligations (see Note (27)). The following table sets forth the interest rates applied.

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2014

2013

Employees permanently leaving the service process

2.0%

3.5%

Social plans

1.3%

2.0%

Civil servants transferred to the government

1.3%

2.0%

EBITDA was adjusted for restructuring expenses which comprise expenses of the restructuring programme in 2014 and 2013 amounting to TEUR 70,713 and TEUR 39,560 respectively, and for TEUR 18,852 and TEUR 5,625 resulting from the transfer of civil servants to the government.

Sensitivity analysis

A change of one percentage point in the discount rate respectively in the rate of compensation would lead to the following changes in provisions (negative values indicate a reduction in provisions):

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in TEUR, at 31 December 2014

1 percentage point increase

1 percentage point decrease

Change in discount rate

−44,148

48,771

Change in rate of compensation

42,008

−38,899

 

 

 

in TEUR, at 31 December 2013

 

 

Change in discount rate

−39,229

43,187

Change in rate of compensation

37,433

−34,753

Employees

The provisions for employees contain unused vacation days, bonuses and the short-term portion of employee benefit obligations for severance, service awards and pensions (see also Note (27)).

In its judgement of 11 November 2014, the European Court of Justice (ECJ) decided that the Austrian law determining the reference date for salary increments for Austrian civil servants (this date determines the length of service and thus the date for being advanced into the next salary level) is not in conformity with European Union law. Thus Telekom Austria Group recognised a provision for employees in its financial statements 2014 relating to the anticipated supplementary payment of salaries for its civil servants. TEUR 30,137 (2013: TEUR 5,129) were recorded in employee expenses and TEUR 14,996 in restructuring expense.

Customer rebates

The provision for customer rebates contains rebates earned by customers but not paid as of the reporting date.

Asset retirement obligation

Telekom Austria Group records asset retirement obligations for the retirement and decommissioning of wooden masts impregnated with tar or salt, base stations, land and buildings including rented premises.

The asset retirement obligation for masts impregnated with tar or salt is based on estimated settlement dates and expected cash flows.

Telekom Austria Group operates base stations on land, rooftops and on other premises under various types of rental contracts. In estimating the fair value of the retirement obligation for its base stations, Telekom Austria Group has made a range of assumptions such as retirement dates, timing and percentage of early cancellations, development of technology and the cost of removing network equipment and remediating the sites.

Additionally, Telekom Austria Group records asset retirement obligations for buildings concerning obligations for the disposal of hazardous substances and warfare material as well as the decontamination of land when decommissioning a building. Telekom Austria Group records asset retirement obligations for buildings and rented premises under operating leases in accordance with the obligation to refurbish the sites at the expiration of the lease contracts.

Based on a new external expert opinion, the obligation related to the contamination of property upon retirement of a building was adjusted in 2014.

In addition, in 2014, the discount rate applied to the calculation of asset retirement obligations was reduced from 3.0% to 2.0%. The discount rate used for the calculation is based on the risk-free interest rate of Austrian government bonds with a maturity of 25 years. The inflation rate was reduced from 2.5% to 2.0% to reflect current market conditions in the individual countries. The change of these parameters resulted in a decrease of the asset retirement obligation and a corresponding decrease in related tangible assets amounting to TEUR 1,198. TEUR 2,969 were recognised in other operating income, as the facilities concerned are already fully depreciated. In the segment Belarus, the inflation rate of 15% and the discount rate of 21% remain unchanged compared to the previous year. In the segment Belarus, higher cost due to inflation led to an increase of the asset retirement obligation and a corresponding increase of assets.

Sensitivity analysis

A change of one percentage point in the discount rate or in the inflation rate would lead to the following changes in provisions at 31 December (negative values indicate a reduction in provisions):

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2014

1 percentage point increase

1 percentage point decrease

Change in discount rate

−16,045

25,408

Change in inflation rate

25,773

−17,269

 

 

 

2013

 

 

Change in discount rate

−18,771

21,929

Change in inflation rate

22,620

−19,578

Legal

Provisions mainly relate to expenses incurred in respect of legal advice and litigation.

Other provisions

Other provisions mainly relate to audit and consulting fees, commissions, taxes (excluding income taxes), pension contributions, energy and penalties.

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