This excerpt taken from the ICI 6-K filed Mar 21, 2007.
33 Commitments and contingent liabilities
On a consolidated basis, the Group had no contingent liability in respect of guarantees of borrowings and uncalled capital for the Group at 31 December 2006 (31 December 2005: £nil).
The Group is subject to contingencies pursuant to requirements that it complies with relevant laws, regulations and standards. Failure to comply, in particular with environmental, health and safety laws and regulations (including spills or other releases of hazardous substances to the environment) and permit or approval requirements, could result in: restrictions on the operation of the Groups facilities, damages, fines, increased costs of compliance, reputational damage, requirements to correct effects on the environment of prior disposal or release of chemical substances by the Group or other parties, or other sanctions. These matters are inherently difficult to quantify.
The Glidden Company (Glidden), a wholly owned subsidiary of ICI, is a defendant, along with former producers of lead pigment and former producers of lead pigment-based paint as well as other lead product manufacturers and their trade associations, in a number of lawsuits in the United States. These lawsuits seek damages for alleged personal injury caused by lead pigment-based paint or the costs of removing lead pigment-based paint. An alleged predecessor of Glidden manufactured lead pigments until the 1950s and lead pigment-based consumer paint until the 1960s. Glidden is currently a defendant in three active suits (The City of New York v. Lead Industries Association, Inc., et al. (1989), Smith v. Lead Industries Association, Inc., et al. (1999) and Hurkmans v. Salczenco, et al. (2005)). Glidden continues to believe that it has strong defences to all of the pending cases, has denied all liability and will continue to defend all such actions. With respect to these proceedings, ICI is unable to quantify meaningfully the loss to which the proceedings may give rise.
In 1986, a subsidiary of ICI purchased a newly formed company, now Glidden, from a predecessor of Millennium Holdings LLC (the Seller), now a subsidiary of Lyondell Chemical Company. Under the sale agreement, the Seller agreed to indemnify Glidden against certain claims relating to certain pre-completion liabilities, and Glidden also gave certain indemnities to the Seller. Whilst Glidden did not acquire any assets or liabilities for the manufacture or sale of lead pigments, the Seller, however, has previously 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. Glidden, which has assumed all of the purchasers rights and obligations under the sale agreement, believes that it has no such obligation to indemnify the Seller. The above indemnity claims have not been ruled on by any court. With respect to these claims, ICI is unable to quantify meaningfully the loss to which the claims may give rise.
On 31 May 2006, ICI was informed of the European Commissions decision to fine ICI 91.4m relating to ICIs ownership of ICI Acrylics, which ended in 1999 when that business was sold. As described in note 3, the fine has been charged as a special item in arriving at the Group operating profit (loss) in 2006. ICI filed an appeal before the European Court of First Instance on 17 August 2006 and the parties have since exchanged further pleadings in this matter. The final Commission pleading is expected in March 2007.
During 2006, purported class action lawsuits were filed in various jurisdictions in the USA on behalf of purchasers of methyl methacrylate who claim to have suffered anti-trust injury as a result of alleged cartel activity in the European methacrylates market. All of the lawsuits were transferred to the US District Court for the Eastern District of Pennsylvania and consolidated into two class actions, one on behalf of direct purchasers and the other on behalf of indirect purchasers. Three purported class actions were also filed in Canada. In November 2006, ICI filed motions to dismiss the US lawsuits. Those motions are currently pending before the court. With respect to these proceedings, ICI is unable to quantify meaningfully the loss to which the proceedings may give rise.
From the early 1970s until 1999, ICI Americas Inc. (ICIA), a subsidiary, operated and maintained, on behalf of the US Army, two manufacturing facilities. Employees at each facility were employed by ICIA and were members of ICIA pension schemes. The US Army reimbursed to ICIA the cost of contributions to each pension scheme. Upon termination of the contract in 1999, each of the schemes carried 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 on 26 January 2005. On 22 April 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 14 July 2005. A four-day hearing was held in January 2006. Post-trial briefing has now concluded and a decision on liability is expected during 2007. ICI does not believe that the outcome of this matter will have a material effect on the Groups financial position.
In recent years, the Group has carried out a programme of strategic disposals, in the course of which the Group has given to other parties certain indemnities, warranties and guarantees, including indemnities, warranties and guarantees relating to known and potential latent environmental, health and safety liabilities. There are also a number of contracts relating to businesses which the Group exited as part of its disposal programme which have not been novated to the purchasers of these businesses.
The Groups 50% interest in Teesside Gas Transportation Ltd (TGT) was sold, during 1996, to a subsidiary of its other shareholder, Enron Europe Ltd (Enron) which is currently in administration. TGT contracted with the owners of a distribution network (the CATS parties) to purchase pipeline capacity for North Sea gas and the commitment is guaranteed severally on a 50:50 basis by ICI and Enron. The present value of the commitment guaranteed by ICI at 31 December 2006 is estimated at £29m. On the sale of the Groups interest in TGT to Enron, ICI received the benefit of a counter-guarantee from Enrons parent, Enron Corp. Enron Corp. sought Chapter 11 bankruptcy protection in the USA on 2 December 2001.
The Groups interest in Teesside Power Ltd (TPL) was sold on 31 December 1998 to Enron Teesside Operations Ltd (ETOL). TPL had previously contracted with certain gas sellers for the purchase of gas. Enron Corp. and ICI had guaranteed on a several basis the liability of TPL to the gas sellers in the proportions 70% and 30% respectively. On the sale of the Groups interest in TPL to ETOL,
Notes relating to the Group accounts continued
33 Commitments and contingent liabilities (continued)
ICI received the benefit of a counter-indemnity from ETOL and a guarantee from Enron Corp. in respect of ICIs 30% guarantee commitment to the gas sellers. As mentioned above, Enron Corp. has sought Chapter 11 bankruptcy protection in the USA. ETOL went into administrative receivership in April 2003, and sold its business and assets to Sembcorp Utilities Teesside Ltd (Sembcorp). However, the counter-indemnity to ICI was not transferred to Sembcorp and remained a liability of ETOL which is now in liquidation. The present value of the gas purchase commitment guaranteed by ICI at 31 December 2006 is estimated at £50m.
The only significant take-or-pay contract entered into by a member of the Group is for the purchase of electric power in the UK, which commenced in the second quarter of 1998, for 15 years. The value of this commitment at 31 December 2006 is estimated at £94m.
The numbers quoted in the three preceding paragraphs are ICIs current estimates of its maximum potential liability. Although the outcome of these matters is uncertain, ICI considers it unlikely that a material liability will arise.
The ultimate outcome of the matters described in this note is subject to many uncertainties, including future events and the uncertainties inherent in litigation. As further described in notes 24 and 25, the Group has made provision in its financial statements for liabilities to the extent they are considered probable and can be measured with sufficient reliability. However, these liabilities are inherently difficult to predict and quantify, and the provisions we have established may be inadequate to cover them. These matters may involve substantial sums and an unfavourable outcome of one or more of these matters could have a material effect on the Groups results of operations, cash flow and/or financial position.