Notes to the Financial Statements
For the year ended 30 September
Orica Limited 97
34. Financial and capital management
Capital management
Orica’s objectives when managing capital (net debt and total equity) are to safeguard the consolidated entity’s ability to continue
as a going concern and to ensure that the capital structure enhances, protects and balances financial flexibility against minimising
the cost of capital.
In order to maintain the appropriate capital structure, the consolidated entity may adjust the amount of dividends paid to
shareholders, utilise a dividend reinvestment plan, return capital to shareholders or issue new equity, in addition to incurring an
appropriate mix of long and short term borrowings. Consistent with the consolidated entity’s policy, a Rights Issue was
undertaken during 2008. Currently, Orica’s dividend policy is to pay a progressive dividend and accordingly to increase its
declared dividend per share each year.
Orica monitors capital on the basis of the accounting gearing ratio (which is calculated as net debt divided by net debt plus
shareholders equity) and an adjusted gearing ratio (which is calculated by notionally reclassifying $250 million of the $500 million
Orica Step-Up Preference Securities (SPS) from equity to debt). In addition, Orica monitors various other credit metrics,
principally an interest cover ratio (EBIT excluding individual material items, divided by net financing costs) and funds from
operations (FFO) divided by total debt measure.
The current target level for adjusted gearing is 35% to 45% and for interest cover is 5 times or greater. These, together with an
appropriate FFO/total debt measure, are targeted to maintain a strong investment grade credit profile, which should facilitate
access to borrowings from a diverse range of sources. Ratios may move outside of these target ranges for relatively short periods
of time after major acquisitions or other significant transactions, such as the Rights Issue during 2008.
The gearing level and interest cover are also monitored to ensure an adequate buffer against covenant levels under various
facilities.
The consolidated entity self-insures for certain insurance risks under the Australian General Insurance Reform Act 2001 and the
Singapore Insurance Act. Under these Acts, authorised general insurers, including Curasalus Insurance Pty Ltd and Anbao
Insurance Pte Ltd (the Orica self-insurance companies), are required to maintain a minimum amount of capital. For the financial
year ended 30 September 2009, Curasalus Insurance Pty Ltd and Anbao Insurance Pte Ltd maintained capital in excess of the
minimum requirements prescribed under these Acts, respectively.
Financial risk factors
The consolidated entity and the Company’s principal financial risks are associated with foreign exchange, interest rate, liquidity
and credit risk.
Consolidated Company
The net debt to gearing ratios are calculated as follows:
2009 2008 2009 2008
$m $m $m $m
Interest bearing borrowings 1,403.0 1,341.8 100.7 72.6
Less cash and cash equivalents (308.5) (321.3) - -
Net debt 1,094.5 1,020.5 100.7 72.6
Notional adjustment for SPS 250.0 250.0 250.0 250.0
Adjusted net debt 1,344.5 1,270.5 350.7 322.6
Total equity 3,973.8 4,318.4 2,834.8 2,907.3
Notional adjustment for SPS (250.0) (250.0) (250.0) (250.0)
Adjusted equity 3,723.8 4,068.4 2,584.8 2,657.3
Adjusted net debt and adjusted equity 5,068.3 5,338.9 2,935.5 2,979.8
Gearing ratio (%) 21.6% 19.1% 3.4% 2.4%
Adjusted gearing ratio (%) 26.5% 23.8% 11.9% 10.8%
The interest cover ratio is calculated as follows:
2009 2008
$m $m
EBIT (1) 1,082.5 970.1
Net financing costs 133.5 157.7
Capitalised borrowing costs 5.0 2.0
138.5 159.7
Interest cover ratio (times) 7.8 6.1
(1) Before individually material items
Notes to the Financial Statements
For the year ended 30 September
98 Orica Limited
34. Financial and capital management (continued)
The consolidated entity and the Company’s overall risk management program seeks to mitigate these risks and reduce volatility of
Orica’s financial performance. Financial risk management is carried out centrally by the Treasury department under policies
approved by the Board of Directors. The Board provides written principles for overall risk management and policies covering
specific areas, such as foreign exchange, interest rate and credit risk as well as the use of derivative and non-derivative financial
instruments and the investment of excess liquidity. Orica enters into derivative instruments for risk management purposes only.
Derivative transactions are entered into to hedge the risks relating to underlying physical positions arising from business activities.
Derivative transactions to hedge risks such as interest rate and foreign currency movements principally include interest rate
swaps, cross currency interest rate swaps, forward exchange contracts and vanilla European option contracts.
Classification of financial assets and financial liabilities
The consolidated entity and the Company’s principal financial instruments comprise cash and cash equivalents, receivables,
payables, interest bearing liabilities and derivatives.
For measurement purposes the Company and the consolidated entity classify financial assets and financial liabilities into the
following categories: (a) financial assets and liabilities at fair value through profit and loss, (b) loans and other receivables and (c)
financial liabilities at amortised cost. Neither the Company nor the consolidated entity has financial assets categorised as held-tomaturity
or as available-for-sale.
Financial assets and liabilities at fair value through profit and loss
This category combines financial assets and liabilities that are held for trading and those designated at fair value through profit
and loss at inception. A financial asset or liability is classified in this category if it is acquired principally for the purpose of selling
in the short term or if it is so designated by management. The consolidated entity holds a number of derivative instruments for
economic hedging purposes under Board approved risk management policies, which do not meet the criteria for hedge
accounting under Australian Accounting Standards. These derivatives are required to be categorised as held for trading. Assets
and liabilities in this category are classified as current if they are either held for trading or are expected to be realised within 12
months of the balance sheet date (refer notes 12 and 16). The fair value of those derivatives that meet the accounting criteria as
cash flow hedges and are designated as such are transferred from the Income Statement to the cash flow hedge reserve in
equity.
Loans and other receivables
Loans and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They are included in current assets, except where maturities are greater than 12 months after the balance sheet
date when they are classified as non-current. Loans and receivables are classified as ‘receivables’ in the balance sheet (refer
note 8).
Amortised cost
Financial liabilities measured in this category are initially recognised at their fair value and are then subsequently re-measured at
amortised cost using the effective interest rate method. This includes the Company and the consolidated entity’s short-term nonderivative
financial instruments (refer note 16) and its interest bearing liabilities (refer note 17).
Risks and mitigation
The risks associated with the financial instruments and the policies for minimising these risks are detailed below:
Interest rate risk management
Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate
due to changes in market interest rates.
The consolidated entity is primarily exposed to interest rate risk on outstanding interest bearing liabilities. Non-derivative interest
bearing assets are predominately short-term liquid assets. Interest bearing liabilities issued at fixed rates expose the consolidated
entity to fair value interest risk while borrowings issued at a variable rate give rise to cash flow interest rate risk.
Interest rate risk on long-term interest bearing liabilities is managed by adjusting the ratio of fixed interest debt to variable interest
debt. This is managed within policies determined by the Orica Board of Directors via the use of interest rate swaps and cross
currency interest rate swaps. Under the policy, a maximum of between 50% and 90% of debt with a maturity of less than five
years can be fixed and a maximum 50% of debt with a maturity of between five and ten years can be fixed. Debt issuance with
fixed interest payments can exceed ten years but requires Board approval. The consolidated entity operated within this range
during both the current year and the prior year. The effective interest rate on average gross debt for the year ended 30
September 2009 was 6.5% (2008 7.3%).
Notes to the Financial Statements
For the year ended 30 September
Orica Limited 99
34. Financial and capital management (continued)
The Company's exposure to interest rate risk and the weighted average effective interest rate on financial
asset and liabilities at balance date are:
Company 2009 2009 2008 2008
Note $m % p.a. $m % p.a.
Trade and other receivables (8) 1,058.4 5.0 1,071.6 6.8
Total financial assets 1,058.4 1,071.6
Short term borrowings (17) 100.7 2.1 72.6 8.2
Total financial liabilities 100.7 72.6
Net financial assets 957.7 999.0
Interest Rate Sensitivity
The table below shows the effect on profit and equity after tax if interest rates at that date had been 10% higher or lower based
on the relevant interest rate yield curve applicable to the underlying currency the borrowings are denominated in (including
Australian dollars, Euros, Canadian dollars, New Zealand dollars and United States dollars) with all other variables held constant,
taking into account all underlying exposures and related hedges and does not include the impact of any management action
that might take place if these events occurred. A sensitivity of 10% has been selected as this is considered reasonable given the
current level of both short-term and long-term interest rates. Directors cannot nor do not seek to predict movements in interest rates.
2009 2008 2009 2008
$m $m $m $m
Effect on profit increase/(decrease)
If interest rates were 10% higher, with all other variables held constant (1.1) (2.0) 4.2 (2.0)
If interest rates were 10% lower, with all other variables held constant 1.1 1.4 (4.2) 2.0
Effect on profit after tax increase/(decrease)
If interest rates were 10% higher, with all other variables held constant (0.8) (1.4) 2.9 (1.4)
If interest rates were 10% lower, with all other variables held constant 0.7 1.0 (2.9) 1.4
Effect on shareholders' equity increase/(decrease)
If interest rates were 10% higher, with all other variables held constant 8.6 9.4 2.9 (1.4)
If interest rates were 10% lower, with all other variables held constant (8.9) (10.3) (2.9) 1.4
Consolidated Company
The consolidated entity's exposure to interest rate risk and the weighted average effective interest rates on
financial assets and liabilities at balance date are:
Consolidated Entity 2009 2009 2008 2008
Note $m % p.a. $m % p.a.
Cash (7) 308.5 0.3 321.3 3.5
Trade and other receivables (8) 1,068.0 - 1,255.5 -
Other financial assets (12) 46.2 - 97.3 -
Total financial assets 1,422.7 1,674.1
Trade and other payables (16) 1,193.7 - 1,543.2 -
Bank overdrafts (17) 11.9 3.8 9.0 9.9
Short term borrowings (17) 143.6 4.2 252.1 8.2
Lease liabilities (17) 21.1 8.4 17.8 8.6
Long term borrowings (17) 1,159.5 5.2 1,000.9 7.9
Interest rate swaps - 2.0 - (2.6)
Cross currency interest rate swaps (17) 66.9 (2.0) 62.0 3.0
Total financial liabilities 2,596.7 2,885.0
Net financial liabilities (1,174.0) (1,210.9)
Notes to the Financial Statements
For the year ended 30 September
100 Orica Limited
34. Financial and capital management (continued)
Foreign exchange risk management
Foreign exchange risk - transactional
Foreign exchange risk refers to the risk that the value of a financial commitment, recognised asset or liability or cash flow will
fluctuate due to changes in foreign currency rates.
The consolidated entity is exposed to foreign exchange risk primarily due to significant sales and/or purchases denominated,
either directly or indirectly, in currencies other than the functional currencies of the consolidated entity’s subsidiaries.
In regard to foreign currency risk relating to sales and purchases, the consolidated entity hedges up to 100% of committed
exposures. Anticipated exposures are hedged by applying a declining percentage of cover the further the time to the transaction
date. Only exposures that can be forecast with highly probable forecast accuracy are hedged. Transactions can be hedged for
up to five years on a rolling monthly basis. The derivative instruments used for hedging purchase and sale exposures are bought
vanilla option contracts and forward exchange contracts. Forward exchange contracts may be used only under Board policy for
committed exposures and anticipated exposures expected to occur within 12 months. Bought vanilla option contracts may be
used for all exposures. These contracts are designated as cash flow hedges and are recognised at their fair value. The
currencies giving rise to this risk are primarily U.S. Dollar (USD), Euro (EUR), Canadian Dollar (CAD), New Zealand Dollar (NZD),
Norwegian Kroner (NOK), Swedish Kronor (SEK) and Great Britain Pound (GBP).
Exchange rate sensitivity
The table below shows the effect on profit and equity of the consolidated entity if exchange rates as at 30 September had been
10% higher or lower with all other variables held constant, taking into account all underlying exposures and related hedges and
does not include the impact of any management actions that might take place if these events occurred. A sensitivity of 10% has
been selected, as this is considered reasonably possible given the current level of exchange rates and the volatility of exchange
rates based on an historical analysis. Directors cannot nor do not seek to predict movements in exchange rates. However, it
should be noted that it is extremely unlikely that all currencies would move in the same direction and by the same percentage.
Major exposures are against the USD, CAD, NZD, NOK, SEK, EUR and GBP.
The Group's exposure to foreign currency risk including both external balances and internal balances
(eliminated on consolidation) at the reporting date was as follows (Australian dollar equivalents):
USD CAD NZD NOK SEK EUR GBP
$m $m $m $m $m $m $m
Cash 1,951.4 4.9 0.1 526.7 142.6 453.9 203.0
Trade and other receivables 196.6 - 0.9 0.2 0.4 44.4 2.1
Trade and other payables (307.5) (1.9) (0.6) (1.9) (11.5) (33.0) (0.9)
Interest bearing liabilities (1,985.4) - (691.6) (0.2) (58.4) (111.9) (32.6)
Net derivatives 245.6 0.4 (43.1) 0.2 (0.1) (78.1) 0.1
Net exposure 100.7 3.4 (734.3) 525.0 73.0 275.3 171.7
USD CAD NZD NOK SEK EUR GBP
$m $m $m $m $m $m $m
Cash 1,946.4 42.2 - 701.6 134.8 477.4 241.5
Trade and other receivables 310.5 - 1.2 49.8 - 32.2 2.2
Trade and other payables (382.8) (3.1) (10.4) (2.5) (15.8) (34.8) (0.7)
Interest bearing liabilities (2,054.5) (0.6) (475.0) (3.9) (51.4) (108.3) (411.8)
Net derivatives 266.9 (0.1) (44.2) 0.2 (0.1) (77.8) (2.5)
Net exposure 86.5 38.4 (528.4) 745.2 67.5 288.7 (171.3)
2009
2008
Notes to the Financial Statements
For the year ended 30 September
Orica Limited 101
34. Financial and capital management (continued)
A 10% sensitivity would move year end rates as follows (against the Australian Dollar):
10% As 10% 10% As 10%
lower reported higher lower reported higher
U.S. Dollar 0.7924 0.8804 0.9684 0.7211 0.8012 0.8813
Canadian Dollar 0.8565 0.9517 1.0469 0.7579 0.8421 0.9263
New Zealand Dollar 1.1012 1.2235 1.3459 1.0778 1.1976 1.3174
Norwegian Kroner 4.6105 5.1228 5.6351 4.1805 4.6450 5.1095
Swedish Kronor 5.5317 6.1463 6.7609 4.8992 5.4436 5.9880
Euro 0.5420 0.6022 0.6624 0.5019 0.5577 0.6135
Great Britain Pound 0.4945 0.5494 0.6043 0.3945 0.4383 0.4821
2009 2008
The effect on profit from operations, net profit after tax and shareholders' equity of a movement in individual
exchange rates with all other variables held constant is as follows (there is no impact on the Company):
-10% 10% -10% 10%
$m $m $m $m
Effect on profit/(loss) from operations from a movement in:
U.S. Dollar (6.6) 5.4 (27.4) 16.4
Canadian Dollar (0.4) 0.3 (4.8) 3.3
New Zealand Dollar (0.9) 0.7 (2.9) 2.7
Norwegian Kroner (0.3) 0.3 5.3 (4.3)
Swedish Kronor (1.3) 1.1 (1.7) 1.4
Euro 1.1 (1.0) 0.5 (0.4)
Great Britain Pound (0.1) 0.1 (8.9) 8.9
Effect on net profit after tax from a movement in:
U.S. Dollar (4.6) 3.8 (19.2) 11.5
Canadian Dollar (0.3) 0.2 (3.3) 2.3
New Zealand Dollar (0.7) 0.5 (2.0) 1.9
Norwegian Kroner (0.2) 0.2 3.7 (3.0)
Swedish Kronor (0.9) 0.8 (1.2) 1.0
Euro 0.8 (0.7) 0.3 (0.3)
Great Britain Pound (0.1) 0.1 (6.2) 6.3
Increase/(decrease) on shareholders' equity from a movement in:
U.S. Dollar 34.8 (37.0) 36.5 (43.7)
Canadian Dollar (0.9) 0.7 (3.6) 3.2
New Zealand Dollar (59.3) 49.3 (52.9) 48.0
Norwegian Kroner 40.6 (33.2) 58.0 (47.4)
Swedish Kronor 6.0 (4.9) 5.3 (4.3)
Euro 25.1 (20.4) 26.7 (21.8)
Great Britain Pound 13.4 (11.0) (15.4) 12.6
2009 2008
Notes to the Financial Statements
For the year ended 30 September
102 Orica Limited
34. Financial and capital management (continued)
Foreign currency risk - translational
Foreign currency earnings translation risk arises primarily as a result of earnings in USD, NZD, NOK, SEK, Chilean Peso (CLP),
Mexican Peso (MXN) and CAD being translated into AUD and from the location of a number of other individually minor foreign
currency earnings. Derivative contracts to hedge earnings exposures do not qualify for hedge accounting under Australian
Accounting Standards. However, Board approved policy allows hedging of this exposure in order to reduce the volatility of full
year earnings resulting from changes in exchange rates. At 30 September 2009, the fair value of these derivatives was a $0.9
million gain (2008 $0.2 million loss).
Foreign currency net investment translation risk is managed within policies determined by the Board of Directors. Hedging of
exposures is undertaken centrally by the consolidated entity’s Treasury department primarily through originating debt in the
currency of the asset or by raising debt in a different currency and effectively swapping the debt to the currency of the asset (see
below cross currency interest rate swaps under interest rate risk management). The remaining translation exposure is managed,
where considered appropriate, through forward foreign exchange derivative instruments. Gains and losses resulting from these
hedging activities are recorded in the foreign currency translation reserve within the equity section of the balance sheet and offset
against the foreign exchange impact resulting from the translation of the net assets of foreign operations. Eight percent of the
consolidated entity’s investment in foreign operations was hedged in this manner as at 30 September 2009 (2008 10%). A foreign
exchange gain of $4.7 million (2008 $2.7 million loss) was recognised in the foreign currency translation reserve during the period.
Credit risk management
Credit risk represents the loss that would be recognised if counterparties failed to meet their obligations under a contract or
arrangement. The Company and the consolidated entity have exposure to credit risk on all financial assets included within the
balance sheets. For discussion on how this risk in relation to receivables is managed refer to note 8. In regards to credit risk
arising from derivatives and cash, this is the credit exposure to financial institutions that are counterparties to derivative contracts
and cash deposits, with a positive fair value from Orica’s perspective (refer note 7). As at 30 September 2009, the sum of all
contracts with a positive fair value was $45.3 million (2008 $27.2 million).
To manage this risk, the consolidated entity restricts dealings to highly rated counterparties approved within its credit limit policy.
The higher the credit rating of the counterparty, the higher the consolidated entity’s allowable exposure is to that counterparty
under the policy. The consolidated entity does not hold any credit derivatives to offset its credit exposures.
As at reporting date, the following derivative instruments hedging net investment exposures had a fair value of:
2009 2008
$m $m
Forward foreign exchange contracts - (4.0)
Cross currency interest rate swaps (107.5) (113.6)
Notes to the Financial Statements
For the year ended 30 September
Orica Limited 103
34. Financial and capital management (continued)
Liquidity risk management
Liquidity risk arises from the possibility that there will be insufficient funds available to make payment as and when required.
The consolidated entity manages this risk via:
- maintaining an adequate level of undrawn committed facilities in various currencies that can be drawn upon at short notice;
- generally uses instruments that are readily tradeable in the financial markets;
- monitors duration of long term debt;
- spreads, to the extent practicable, the maturity dates of long-term debt facilities; and
- a comprehensive analysis of all inflows and outflows that relate to financial assets and liabilities.
Facilities available and the amounts drawn and undrawn are as follows:
2009 2008 2009 2008
$m $m $m $m
Unsecured bank overdraft facilities
Unsecured bank overdraft facilities available 117.9 104.7 - -
Amount of facilities undrawn 106.0 95.7 - -
Committed standby and loan facilities
Committed standby and loan facilities available 3,089.4 3,377.9 - -
Amount of facilities unused 1,867.6 2,325.0 - -
The bank overdrafts are payable on demand and are subject to an annual review. The repayment dates of the committed
standby and loan facilities range from 3 September 2010 to 24 October 2018 (2008 1 October 2009 to 24 October 2018).
The contractual maturity of the consolidated entities' fixed and floating rate financial instruments and derivatives are shown in the
table below. The amounts shown represent the future undiscounted principal and interest cash flows:
Consolidated
Less than
1 year
1 to 2
years
2 to 5
years
Over 5
years
Less than
1 year
1 to 2
years
2 to 5
years
Over 5
years
$m $m $m $m $m $m $m $m
Non-derivative financial assets
Cash 308.5 - - - 321.3 - - -
Trade and other receivables (1) 964.9 103.1 - - 1,147.4 108.1 - -
Derivative financial assets 2,018.7 62.3 70.2 337.7 850.9 1,709.2 137.2 386.5
Financial assets 3,292.1 165.4 70.2 337.7 2,319.6 1,817.3 137.2 386.5
Non-derivative financial liabilities
Trade and other payables (1) 1,057.9 37.0 - - 1,372.7 31.8 - -
Bank overdrafts 11.9 - - - 9.0 - - -
Bank loans 11.5 81.5 132.4 - - - - -
Commercial paper 115.0 - - - 140.0 - - -
Other short term borrowings 16.8 - - - 25.4 - - -
Trade bills and trade cards 12.7 - - - 13.4 - - -
Private placement 51.5 234.9 193.1 882.9 81.8 78.8 445.7 980.6
Other long term borrowings 0.3 3.8 0.1 0.3 0.8 5.2 5.8 -
Fixed term notes - - - - 79.6 - - -
Lease liabilities 5.8 6.5 7.3 6.6 6.4 5.4 9.7 -
Derivative financial liabilities 2,013.8 77.3 77.1 397.0 841.7 1,707.3 162.7 443.4
Financial liabilities 3,297.2 441.0 410.0 1,286.8 2,570.8 1,828.5 623.9 1,424.0
Net outflow (5.1) (275.6) (339.8) (949.1) (251.2) (11.2) (486.7) (1,037.5)
(1) Excludes derivative financial instruments but includes the $100 million ATO receivable (refer note 8).
Consolidated Company
As at 30 September 2009 As at 30 September 2008
Notes to the Financial Statements
For the year ended 30 September
104 Orica Limited
34. Financial and capital management (continued)
Cash flow hedges
Cash flow hedges are used to hedge exposures relating to borrowings and ongoing business activities, where there is a highly
probable sale, purchase or settlement commitment in foreign currencies.
Foreign exchange transactions
The hedging of foreign exchange transactions is described under foreign currency risk above.
The fair value of forward exchange contracts used as hedges of foreign exchange transactions at 30 September 2009 was a net
$5.2 million loss (2008 $7.9 million gain), comprising assets of $33.9 million (2008 $13.8 million) and liabilities of $39.1 million
(2008 $5.9 million). The fair value of currency options used as hedges of foreign exchange transactions at 30 September 2009
was $2.2 million gain (2008 $2.9 million loss), comprising assets of $3.7 million (2008 $1.6 million) and liabilities of $1.5 million
(2008 $4.5 million).
The following table shows the maturities of the receipts/payments of derivative instruments designated as cash flow hedges:
Foreign Exchange Contracts Weighted average rate million million
2009 2008 2009 2008
Buy US dollars/sell Australian dollars
Not later than one year 0.8728 0.8361 USD 56.3 USD 133.8
Buy US dollars/sell New Zealand dollars
Not later than one year 0.6685 0.6696 USD 14.3 USD 27.5
Buy Australian dollars/sell New Zealand dollars
Not later than one year 1.2292 1.2240 NZD 2.3 NZD 3.7
Buy Australian dollars/sell Canadian dollars
Not later than one year 0.9451 0.8567 CAD 13.1 CAD 37.7
Buy Swedish Kronor/sell Norwegian Kroner
Not later than one year 1.1761 1.1731 NOK 20.2 NOK 88.5
Buy Euro/sell Australian dollars
Not later than one year 0.5593 0.5621 EUR 29.3 EUR 18.1
Later than one year but not later than two years - 0.5698 - EUR 11.7
Buy Colombian Pesos/sell US dollars
Not later than one year - 1,948.8 - USD 7.0
Buy Great Britain Pounds/sell Australian dollars
Not later than one year 0.6046 0.4784 GBP 0.9 GBP 7.6
Buy Canadian dollars/sell US dollars
Not later than one year 1.0851 - CAD 14.0 -
Company
Less than
1 year
1 to 2
years(1)
2 to 5
years
Over 5
years
Less than
1 year
1 to 2
years(1)
2 to 5
years
Over 5
years
$m $m $m $m $m $m $m $m
Non-derivative financial assets
Trade and other receivables 958.4 100.0 - - 971.6 100.0 - -
Other financial assets - - - 1,914.0 - - - 1,915.1
Financial assets 958.4 100.0 - 1,914.0 971.6 100.0 - 1,915.1
Non-derivative financial liabilities
Other loans - controlled entities 100.7 - - - 72.6 - - -
Financial liabilities 100.7 - - - 72.6 - - -
Net inflow/(outflow) 857.7 100.0 - 1,914.0 899.0 100.0 - 1,915.1
(1) Includes $100 million receivable from the ATO (refer note 8).
As at 30 September 2009 As at 30 September 2008
Notes to the Financial Statements
For the year ended 30 September
Orica Limited 105
34. Financial and capital management (continued)
Vanilla European Option Contracts Weighted average rate million million
2009 2008 2009 2008
Buy US dollars/sell Australian dollars
Not later than one year - 0.7962 - USD 4.1
Later than one year but not later than two years - 0.7877 - USD 0.3
Buy Australian dollars/sell US dollars
Not later than one year 0.8127 - USD 60.3 -
Later than one year but not later than two years 0.7776 - USD 2.5 -
Buy US dollars/sell New Zealand dollars
Not later than one year 0.7114 0.7374 USD 1.1 USD 6.2
Later than one year but not later than two years - 0.7333 - USD 0.5
Buy US dollars/sell Canadian dollars
Not later than one year - 0.9850 - CAD 6.0
Later than one year but not later than two years 0.9885 0.9850 CAD 3.0 CAD 5.0
Later than two years but not later than three years 0.9885 0.9850 CAD 1.4 CAD 3.0
Later than three years but not later than five years 0.9885 0.9850 CAD 0.2 CAD 1.6
Buy Canadian dollars/sell US dollars
Not later than one year 1.1007 - USD 17.4 -
Buy Australian dollars/sell Canadian dollars
Not later than one year 0.8463 0.8643 CAD 0.7 CAD 8.6
Later than one year but not later than two years - 0.8463 - CAD 1.0
Buy Mexican Pesos/sell US dollars
Not later than one year 13.1280 10.5545 USD 9.8 USD 34.2
Later than one year but not later than two years - 10.5545 - USD 2.9
Buy Chilean Pesos/sell US dollars
Not later than one year 513.198 509.367 USD 17.6 USD 64.6
Later than one year but not later than two years - 512.000 - USD 4.8
Gains and losses recognised in the cash flow hedge reserve on all foreign currency hedges of anticipated purchases, sales and
interest and the timing of their anticipated recognition as part of sales or purchases are:
Net deferred (gains)/losses
2009 2008
Term $m $m
Not later than one year (1.2) (0.6)
Later than one year but not later than two years (0.5) (0.5)
Later than two year but no later than five years (0.1) 0.3
Total (1.8) (0.8)
The terms of the forward exchange contracts have been negotiated to match the terms of the commitments.
The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in
equity. When the asset or liability affects the Income Statement, the consolidated entity transfers the related amount deferred in
equity into the Income Statement.
Due to the acquisition of Excel in October 2007 the consolidated entity entered into a forward foreign exchange contract to hedge
the translational exposure arising from movements in the USD. In accordance with the revised policy, during August 2008 this
contract was closed out resulting in a gain of $24.2 million within the Income Statement (financial income) reflecting the non
designated portion (forward points) of the net investment hedge.
Interest rate swap contracts
Interest rate or cross currency interest rate swaps are classified as cash flow hedges if they are used to transfer floating rate debt
into fixed rate debt and are stated at fair value. All gains and losses attributable to the hedged risk are taken directly to equity and
reclassified into the Income Statement when the interest expense is recognised. All swaps are matched directly against the
appropriate loans and interest expense and as such are considered highly effective. There was a derivative liability of $3.0 million
as at 30 September 2009 (2008 $6.2 million asset).
Notes to the Financial Statements
For the year ended 30 September
106 Orica Limited
34. Financial and capital management (continued)
The notional amounts of interest rate swaps as summarised below represent the contract or face values of these derivatives. The
notional amounts do not represent amounts exchanged by the parties. The amounts to be exchanged are net settled and will be
calculated with reference to the notional amounts and the pay and receive interest rates determined under the terms of the
derivative contracts. Each contract involves quarterly or semi-annual payment or receipt of the net amount of interest:
2009
$m
2008
$m
Floating to fixed swaps
One to five years 389.7 391.8
More than five years 100.0 100.0
Fixed interest rate range p.a. 5.2% to 8.3% 5.2% to 8.3%
Fair value hedges
Cross currency interest rate and interest rate swap contracts
During the period the consolidated entity held cross currency interest rate and interest rate swaps to mitigate the consolidated
entity’s exposure to changes in the fair value of foreign denominated debt from fluctuations in foreign currency and interest rates.
The hedged items designated were a portion of the consolidated entity’s foreign currency denominated borrowings. The changes
in the fair values of the hedged items resulting from movements in exchange rates and interest rates are offset against the
changes in the value of the cross currency interest rate and interest rate swaps. The objective of this hedging is to convert foreign
currency borrowings to floating rate Australian dollar borrowings.
For the consolidated entity, re-measurement of the hedged items resulted in a gain before tax of $1.7 million (2008 $42.8 million
loss) and the changes in the fair value of the hedging instruments resulted in a loss before tax of $0.8 million (2008 $45.3 million
gain) resulting in a net gain before tax of $0.9 million (2008 $2.5 million gain) recorded in finance costs.
The fair value of these swaps at 30 September 2009 was $75.3 million (2008 $75.5 million), comprising assets of $100.5 million
(2008 $106.6 million) and liabilities of $25.2 million (2008 $31.1 million).
From the cross currency interest rate swaps as at 30 September 2009 there was a derivative asset of $62.4 million (2008 $68.6
million).
Derivatives not designated in a hedging relationship
Certain derivative instruments do not qualify for hedge accounting, despite being commercially valid economic hedges of the
relevant risks. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised
immediately in the Income Statement (for example, changes in the fair value of any economic hedge not qualifying for hedge
accounting or in the value of vanilla bought European options used to hedge translation of foreign earnings).
Interest rate swaps
The change in fair value of swaps executed as economic hedges for which hedge accounting was not applied was a $1.4 million
loss for the financial year ending 30 September 2009 (2008 $0.1 million gain). This relates to two interest rate swaps with a
notional principal amount of $29.7 million (2008 $31.8 million).
Fair values of derivatives
The carrying value of derivatives disclosed in notes 12 and 16 equal their fair values. Valuation techniques include where
applicable, reference to prices quoted in active markets, discounted cash flow analysis, fair value of recent arm’s length
transactions involving the same instruments or other instruments that are substantially the same, and option pricing models.
The fair value of forward exchange contracts are calculated by reference to forward exchange market rates for contracts within
similar maturity profiles at the time of valuation.
The fair values of cross currency interest rate swaps and interest rate swaps and other financial liabilities measured at fair value
are determined using valuation techniques which utilise data from observable markets. Assumptions are based on market
conditions existing at each balance date. The fair value is calculated as the present value of the estimated future cash flows
using an appropriate market based yield curve, which is independently derived and representative of Orica’s cost of borrowings.
Notes to the Financial Statements
For the year ended 30 September
Orica Limited 107
35. Events subsequent to balance date
On 9 November 2009, the directors declared a final dividend of 57 cents per ordinary share payable on 4 December 2009. The
financial effect of this dividend is not included in the financial statements for the year ended 30 September 2009 and will be
recognised in the 2010 financial statements.
The directors have not become aware of any other significant matter or circumstance that has arisen since 30 September 2009,
that has affected or may affect the operations of the consolidated entity, the results of those operations, or the state of affairs of
the consolidated entity in subsequent years, which has not been covered in this report.
36. Employee share plans
Employees’ options entitlement
The names of persons who currently hold options in the share option plans are entered in the registers of options kept by the
Company pursuant to Section 170 of the Corporations Act 2001. The registers may be inspected free of charge. Options granted
to and exercised by executives under SOP to the date of this report are shown below. The exercise price of options issued under
SOP was set at the market value of an Orica share at the time of issue of the option. Market value is defined as the average of
the closing price at which Orica shares were traded on the ASX during the three calendar months preceding the date of issue.
The ability to exercise these options is conditional on the Company achieving prescribed performance hurdles. All options refer to
ordinary shares of Orica Limited and the options are provided at no cost to the recipient until their exercisable date. No person
entitled to exercise an option in the Company has, by virtue of the option, a right to participate in a share issue of any other
consolidated entity of the Group. No ordinary shares were issued during the financial year as a consequence of the exercise of
options issued in prior years. As at balance date, there are 51,600 unissued ordinary shares under option.
(a) Executive Share Option Plan
The Executive Share Option Plan (ESOP) was introduced as part of new executive compensation arrangements introduced
during 2002 and operated between 2002 and 2004. It was the Board’s intention that the plan would be used only once to reflect
the particular circumstances of the Company at the time to support the introduction of its new compensation policy. ESOP is
administered by the Plan Manager, Link Market Services Limited.
Eligible executives, as determined by the Board, who agreed to participate in the new compensation arrangements were invited to
apply for options in three tranches to acquire shares in Orica at a specified exercise price subject to the achievement of a
performance hurdle based on Orica’s share price. Options that vest upon achievement of the performance hurdles may be
exercised from one day after the release of the annual results to 31 October of the following year subject to the Company’s
guidelines for dealing in securities. The second price hurdle was reached during 2005 and the third price hurdle was reached
during 2006. Pursuant to the terms on which they were granted, the exercise price of outstanding ESOP options were adjusted in
accordance with ASX listing rule 6.22.2 to reflect the impact of the rights issue in December 2005.
There are no options over ordinary shares of the Company under the ESOP as at 30 September 2008 and 30 September 2009.
(b) Share Option Plan
The Share Option Plan (SOP) operated between 1999 and 2002. SOP is administered by the Plan Manager, Link Market
Services Limited. Eligible executives, as determined by the Board, who achieved an agreed performance rating were invited to
apply for options to acquire shares in Orica at a specified exercise price subject to the achievement of a performance hurdle
based on Orica’s Total Shareholder Return (TSR) relative to the TSR of the other companies in the ASX 100 index after three,
four and five years. The proportion of options that vest and become exercisable is determined by comparing Orica’s TSR with the
other companies. No options vest where Orica’s TSR score is below 50% of the other companies. Where the score is equal to or
greater than 75% of other companies, all options granted will vest. Options that vest may be exercised for a period up to 10 years
from the grant date. Pursuant to the terms on which they were granted, the exercise price of outstanding SOP options were
adjusted in accordance with ASX listing rule 6.22.2 to reflect the impact of the rights issue in December 2005.
All options have vested as at 30 September 2009 and 30 September 2008. Details are shown in the table below:
Notes to the Financial Statements
For the year ended 30 September
108 Orica Limited
36. Employee share plans (continued)
The options were granted in three tranches, with an exercise price and exercise period as follows:
Grant
date
Options
issued
over plan
life
Number of
participants
at 30
September
Options
held at 30
September
Exercise
price
$
TSR
period end
date
1
TSR
period end
date
2
TSR
period
end date
3
Value of
options at
grant date (1)
$
As at 30 September 2009
1 Jan 00 1,505,000 2 11,000 7.73 Expired Expired Expired 2,979,900
1 Jan 01 1,969,800 2 13,600 5.14 Expired Expired Expired 2,147,082
1 Jan 02 1,202,000 3 27,000 5.09 Expired Expired Expired 2,367,940
4,676,800 51,600 7,494,922
As at 30 September 2008
1 Jan 00 1,505,000 2 11,000 7.73 Expired Expired Expired 2,979,900
1 Jan 01 1,969,800 2 13,600 5.14 Expired Expired Expired 2,147,082
1 Jan 02 1,202,000 3 27,000 5.09 Expired Expired Expired 2,367,940
4,676,800 51,600 7,494,922
(1) The assumptions underlying the options valuations are:
Grant
date
Price of Orica
Shares
at grant date
Expected
volatility
in share price
Dividends
expected
on shares
Risk free
interest
rate
Value per
option
$
1 Jan 00 8.20 30% 5.0% 6.88% 1.98
1 Jan 01 5.76 30% 6.6% 5.42% 1.09
1 Jan 02 7.19 30% 5.4% 5.68% 1.97
The option valuation prepared by PWC uses methodologies consistent with assumptions that apply under an adjusted form of the binomial option
pricing model and reflects the value (as at grant date) of options held at 30 September 2009 and 30 September 2008. The assumptions underlying
the options valuations are: (a) the exercise price of the option, (b) the life of the option, (c) the current price of the underlying securities, (d) the
expected volatility of the share price, (e) the dividends expected on the shares, and (f) the risk-free interest rate for the life of the option.
(c) Employee Share Plan
The Employee Share Plan (ESP) operated between 1987 and 2002. The ESP is administered by Link Market Services Limited.
Eligible employees, as determined by the Board, were invited to purchase shares in Orica funded by the provision of an interest
free loan repayable over ten years. The balance of loans receivable from employees participating in the ESP at 30 September
2009 was $0.1 million (2008 $0.1 million).
Grant date
Date shares
become
unrestricted
Number of
participants
2009
Number of
participants
2008
Average issue
price
$
Shares held at
30 September
2009
Shares held at
30 September
2008
Pre 1 Oct 2001 - 48 83 - 17,400 29,800
31 Dec 01 31 Dec 11 1 1 7.32 400 400
05 Jul 02 05 Jul 12 43 45 9.48 18,400 18,900
36,200 49,100
(d) (i) General Employee Exempt Share Plan - Australia
The General Employee Exempt Share Plan (GEESP) has operated since 1998. It is administered by the Plan Manager, Link
Market Services Limited. Invitations are made to eligible employees as determined by the Board on the following basis:
 shares acquired are either newly issued shares or existing shares acquired on market;
 employees are each entitled to acquire shares with a market value of approximately $1,000 per year;
 employees salary sacrifice the value of the shares by equal deductions between the date of acquisition and 30 June the
following year;
 employees who leave the consolidated entity must salary sacrifice any remaining amount prior to departure; and
 employees cannot dispose of the shares for a period of three years from date of acquisition or until they leave their
employment with the consolidated entity, whichever occurs first.
Grant date
Date shares
become
unrestricted
Number of
participants at
30 September
2009
Number of
participants at
30 September
2008
Shares held at
30 September
2009
Shares held at
30 September
2008
3 Jul 06 30 Jun 09 - 1,325 - 56,975
2 Jul 07 2 Jul 10 1,467 1,588 48,411 52,404
1 Jul 08 1 Jul 11 1,749 1,888 59,466 64,192
107,877 173,571
No invitations were made to employees in 2009.
Notes to the Financial Statements
For the year ended 30 September
Orica Limited 109
36. Employee share plans (continued)
(d) (ii) General Employee Exempt Share Plan - New Zealand
A separate GEESP has operated for New Zealand employees since 1999. It is administered internally. Invitations are made to
eligible employees as determined by the Board on the following basis:
 shares acquired are either newly issued shares or existing shares acquired on market;
 employees are each entitled to acquire shares with a market value of approximately NZ$780 per year;
 employees salary sacrifice the value of the shares by equal deductions between the date of acquisition and 30 September
the following year;
 employees who leave the consolidated entity because of redundancy, retirement or sickness, have the option to salary
sacrifice any remaining amounts prior to departure, if they wish to retain their shares;
 employees who leave the consolidated entity because of resignation, will be paid the market value of the shares in proportion
to their contributions to date; and
 employees cannot dispose of the shares for a period of three years from date of acquisition or until they leave their
employment with the consolidated entity and they are entitled to retain their shares, whichever occurs first.
Grant date
Date shares
become
unrestricted
Number of
participants at
30 September
2009
Number of
participants at
30 September
2008
Shares held at
30 September
2009
Shares held at
30 September
2008
1 Oct 03 30 Sept 06 14 20 784 1,120
1 Oct 04 30 Sept 07 27 40 1,107 1,640
1 Oct 05 30 Sept 08 52 87 1,820 3,045
1 Oct 06 30 Sept 09 80 99 2,480 3,069
1 Oct 07 30 Sept 10 99 119 2,277 2,737
1 Oct 08 30 Sept 11 143 - 4,004 -
12,472 11,611
37. Related party disclosures
(a) Key Management Personnel compensation summary
As deemed under AASB 124 Related Parties Disclosures, Key Management Personnel (KMP) include non-executive directors
and members of the Group Executive Team (executive directors and the most highly remunerated executives) who have authority
and responsibility for planning, directing and controlling the activities of Orica. In this report, “Executive KMP” refers to Executive
Key Management Personnel. Non–executive directors have had no day to day involvement in the management of the business.
A summary of the Key Management Personnel compensation is set out in the following table:
Consolidated Company
2009
$000
2008
$000
2009
$000
2008
$000
Short term employee benefits 16,289.6 18,799.4 - -
Other long term benefits 1,852.1 4,465.7 - -
Post employment benefits 269.9 289.3 - -
Share-based payments 3,432.8 2,284.5 - -
Termination benefits 1,421.8 1,194.2 - -
23,266.2 27,033.1 - -
Information regarding individual directors and executives compensation and some equity instruments disclosure as permitted by
Corporation Regulation 2M.3.03 is provided in the remuneration report section of the directors’ report.
Notes to the Financial Statements
For the year ended 30 September
110 Orica Limited
37. Related party disclosures (continued)
(b) Key Management Personnel’s transactions in shares and options
The relevant interests of Key Management Personnel in the share capital of the Company are:
As at 30 September 2009
Balance
1 October 2008 Acquired (1)
Net
change
other (2)
Fully paid ordinary
shares held at
30 September 2009 (3)
Non-Executive Directors
D P Mercer 26,154 - - 26,154
M E Beckett 68,755 3,935 - 72,690
R R Caplan 2,325 87 - 2,412
P J Duncan 15,936 - - 15,936
G A Hounsell 14,936 829 (225) 15,540
P M Kirby 27,259 - - 27,259
N L Scheinkestel 12,657 2,969 - 15,626
M Tilley 6,329 - - 6,329
C M Walter * 13,035 437 - 13,472
187,386 8,257 (225) 195,418
* Closing balance is at cessation of directorship.
As at 30 September 2009
Balance
1 October 2008 Acquired (1)
Net
change
other (2)
Fully paid ordinary
shares held at
30 September 2009 (3)
Options for fully paid
ordinary shares held at
30 September 2009 (4)
Executive KMP
G R Liebelt ** 615,058 - - 615,058 784,621
N A Meehan 49,483 - - 49,483 169,536
J Beevers - 2,250 - 2,250 144,828
G J Witcombe 143,535 - - 143,535 141,376
A J P Larke ** 32,331 - - 32,331 159,906
C B Elkington - - - - 116,001
P W Houlihan 5,098 - - 5,098 87,243
M Reich ** - - - - 84,649
P McEwan - - - - 40,580
P G Etienne - - - - 179,563
845,505 2,250 - 847,755 1,908,303
** In addition, as at 30 September 2009 the following Executive KMP hold Orica Step-Up Preference securities: M Reich 6,400, A J P Larke 3,000,
G R Liebelt 427.
As at 30 September
2008 Balance
1 October 2007 Acquired (1)
Net
change
other (2)
Fully paid ordinary
shares held at
30 September 2008 (3)
Non-Executive Directors
D P Mercer 22,500 3,654 - 26,154
M E Beckett 57,188 11,567 - 68,755
R R Caplan - 2,325 2,325
P J Duncan 14,165 1,771 - 15,936
G A Hounsell 12,888 2,048 - 14,936
P M Kirby 24,230 3,029 - 27,259
N L Scheinkestel 9,538 3,119 - 12,657
M Tilley 5,625 704 - 6,329
C M Walter 11,250 1,785 - 13,035
157,384 30,002 - 187,386
Notes to the Financial Statements
For the year ended 30 September
Orica Limited 111
37. Related party disclosures (continued)
As at 30 September
2008 Balance
1 October 2007 Acquired (1)
Net
change
other (2)
Fully paid ordinary
shares held at
30 September 2008 (3)
Options for fully paid
ordinary shares held at
30 September 2008 (4)
Executive KMP
G R Liebelt 413,900 201,158 - 615,058 471,943
N A Meehan 37,136 12,347 - 49,483 134,115
P G Etienne - 13,874 (13,874) - 143,512
M Reich - - - - 31,271
A J P Larke *** - 32,331 - 32,331 108,558
G J Witcombe 94,462 78,523 (29,450) 143,535 121,154
J Beevers - 12,292 (12,292) - 91,552
C B Elkington - 12,487 (12,487) - 83,062
P W Houlihan 2,122 5,098 (2,122) 5,098 40,777
547,620 368,110 (70,225) 845,505 1,225,944
*** In addition, A J P Larke held 2,000 Orica Step-Up Preference securities as at 30 September 2008.
(1) Includes shares acquired through the Dividend Reinvestment Plan (DRP) and purchases and exercise of options during the year by Non-
Executive directors and Executive KMP.
(2) Net change other includes changes resulting from sales during the year by Non-Executive directors and Executive KMP.
(3) Includes trust shares for Executive KMP.
(4) These interests include shares acquired under a loan agreement. A general description of these agreements (LTEIP) is provided in the
Remuneration Report. Under AASB 2 Share-based Payment, LTEIP plans are deemed to be option plans for compensation purposes and the
amounts receivable from employees in relation to these loans and share capital issued under these schemes are not recognised. The LTEIP
before November 2006 is deemed to vest at grant date whilst the LTEIP from November 2006 onwards vests after three years.
(c) Parent entity
The ultimate parent entity within the Group is Orica Limited, which is domiciled and incorporated in Australia.
(d) Controlled entities
Interests in subsidiaries are set out in note 39.
(e) Transactions with controlled entities
Transactions between Orica and entities in the Group during the year included:
 Rental revenue received by Orica for the use of land and buildings;
 Management fees received and paid by Orica for accounting and administrative assistance;
 Interest revenue received and paid by Orica for money deposited with or borrowed from Orica Finance Limited;
 Dividend revenue received by Orica;
 Indemnity fees paid to Orica; and
 Purchases and sales of products and services.
All the above transactions with controlled entities are made on normal commercial terms and conditions and in the ordinary
course of business. Transactions with the parent entity are disclosed in the Orica Limited parent entity financial statements.
(f) Transactions with other related parties
All transactions with other related parties are made on normal commercial terms and conditions and in the ordinary course of
business. Transactions during the year with associates were:
Consolidated Company
2009 2008 2009 2008
$m $m $m $m
Sales of goods to associates 247.9 260.2 - -
Purchases of goods from associates 71.0 71.3 - -
Dividend income received from associates 66.6 20.3 - -
Interest income received from associates - 0.6 - -
Notes to the Financial Statements
For the year ended 30 September
112 Orica Limited
37. Related party disclosures (continued)
Additional related party disclosures
Additional relevant related party disclosures are shown throughout the notes to the financial statements as follows:
 Dividend income note 3
 Financial income and expenses note 4
 Trade and other receivables note 8
 Investments note 11, 39
 Trade and other payables note 16
 Interest bearing liabilities note 17
 Options note 21
38. Superannuation commitments
(a) Superannuation plans
The consolidated entity contributes to a number of superannuation plans that exist to provide benefits for employees and their
dependants on retirement, disability or death. The superannuation plans cover company sponsored plans, other qualifying plans
and multi-employer industry/union plans.
Company sponsored plans
 The principal benefits are pensions or lump sum payments for members on resignation, retirement, disability or death. The
benefits are provided on either a defined benefit basis or a defined contribution basis.
 Employee contribution rates are either fixed by the rules of the plans or selected by members from time to time from a
specified range of rates. The employer entities contribute the balance of the cost required to fund the defined benefits or, in
the case of defined contribution plans, the amounts required by the rules of the plan.
 The contributions made by the employer entities to defined contribution plans are in accordance with the requirements of the
governing rules of such plans or are required under law.
Government plans
 Some controlled entities participate in government plans on behalf of certain employees, which provide pension benefits.
There exists a legally enforceable obligation on employer entities to contribute as required by legislation.
Industry plans
 Some controlled entities participate in industry plans on behalf of certain employees.
 These plans operate on an accumulation basis and provide lump sum benefits for members on resignation, retirement,
disability or death.
 The employer entities have a legally enforceable obligation to contribute a regular amount for each employee member of
these plans.
 The employer entities have no other legal liability to contribute to the plans.
(b) Defined contribution pension plans
The consolidated entity contributes to several defined contribution pension plans on behalf of its employees. The amount
recognised as an expense for the financial year ended 30 September 2009 was $31.8 million (2008 $28.8 million).
(c) Defined benefit pension plans
The consolidated entity participates in several local and overseas defined benefit post-employment plans that provide benefits to
employees upon retirement. Plan funding is carried out in accordance with the requirements of trust deeds and the advice of
actuaries. During the year, the consolidated entity made employer contributions of $38.5 million (2008 $31.0 million) to defined
benefit plans. The Group’s external actuaries have forecast total employer contributions to defined benefit plans of $35.0 million
for 2010.
The Company has no employees and therefore does not support any defined benefit post-employment plans. Accordingly, the
disclosures detailed below relate to the consolidated entity.
Notes to the Financial Statements
For the year ended 30 September
Orica Limited 113
38. Superannuation commitments (continued)
(c) (i) Balance sheet amounts
The amounts recognised in the balance sheet are determined as follows:
2009 2008
$m $m
Present value of the funded defined benefit obligations 638.9 701.3
Fair value of defined benefit plan assets (545.8) (613.4)
Deficit in plan 93.1 87.9
Present value of unfunded defined benefit obligations 76.8 86.9
Deficit 169.9 174.8
Restriction on assets recognised 2.9 3.7
Net liability in the balance sheet 172.8 178.5
Amounts in balance sheet:
Liabilities 173.1 181.4
Assets (0.3) (2.9)
Net liability recognised in balance sheet at end of year 172.8 178.5
(c) (ii) Categories of plan assets
The major categories of plan assets are as follows:
2009 2008
$m $m
Cash and net current assets 66.7 56.1
Equity instruments 241.9 299.5
Fixed interest securities 142.9 158.8
Property 58.8 60.4
Other assets 35.5 38.6
545.8 613.4
(c) (iii) Reconciliations
2009 2008
$m $m
Reconciliation of present value of the defined benefit obligations:
Balance at the beginning of the year 788.2 772.6
Current service cost 21.2 20.9
Interest cost 42.3 44.1
Actuarial (gains)/losses (32.8) (25.8)
Contributions by plan participants 6.2 7.3
Benefits paid (64.3) (41.3)
Distributions (5.3) (4.0)
Settlements/curtailments (0.6) (1.1)
Exchange differences on foreign funds (39.2) 15.5
Balance at the end of the year 715.7 788.2
Reconciliation of the fair value of the plan assets:
Balance at the beginning of the year 613.4 635.3
Expected return on plan assets 42.1 45.0
Actuarial (losses)/gains (61.4) (67.4)
Contributions by plan participants 6.2 7.3
Contributions by employer 38.5 31.0
Benefits paid (64.3) (41.3)
Distributions (5.3) (4.0)
Settlements/curtailments - (1.1)
Exchange differences on foreign funds (23.4) 8.6
Balance at the end of the year 545.8 613.4
The fair value of plan assets does not include any amounts relating to the consolidated entity’s own financial instruments, property
occupied by, or other assets used by, the consolidated entity.
Notes to the Financial Statements
For the year ended 30 September
114 Orica Limited
38. Superannuation commitments (continued)
(c) (iv) Amounts recognised in the income statement
The amounts recognised in the income statement are as follows:
2009 2008
$m $m
Current service cost 21.2 20.9
Interest cost 42.3 44.1
Expected return on plan assets (42.1) (45.0)
Curtailment or settlement gains (0.6) -
Total included in employee benefits expense 20.8 20.0
(c) (v) Principal actuarial assumptions
The principal actuarial assumptions used were as follows:
2009 2008
Discount rate 4.20% - 10.77% 4.10% - 11.29%
Expected return on plan assets 0.00% - 11.60% 0.00% - 11.60%
Future salary increases 2.50% - 8.00% 2.75% - 8.68%
Future inflation 2.00% - 4.50% 2.00% - 4.50%
Future pension increases 1.70% - 4.50% 2.00% - 5.00%
Healthcare cost trend rates (ultimate) 4.80% - 5.00% 4.80% - 5.00%
Pension increases in deferment 1.70% - 4.50% 2.00% - 5.00%
A one percentage point change in assumed healthcare cost trend rates would have the following effects:
One
percentage
point
increase
$m
One
percentage
point
decrease
$m
Effect on the aggregate of the service cost and interest cost 0.3 (0.2)
Effect on the defined benefit obligation 2.1 (1.7)
(c) (vi) Historic summary
Amounts for the current and previous periods are as follows:
2009 2008 2007 2006 2005
$m $m $m $m $m
Defined benefit plan obligation 715.7 788.2 772.6 746.1 692.3
Plan assets (545.8) (613.4) (635.3) (589.7) (584.0)
Restriction on assets recognised 2.9 3.7 - - -
Deficit 172.8 178.5 137.3 156.4 108.3
Experience adjustments arising on plan liabilities (7.5) (16.6) 26.7 (0.3) (8.1)
Experience adjustments arising on plan assets (61.4) (67.4) 32.5 14.2 42.2
Actual return on plan assets (19.2) (22.4) 73.1 53.2 78.3
(c) (vii) Amounts included in the statement of recognised income and expense
2009 2008
$m $m
Net actuarial losses (28.6) (41.6)
Change in the effect of asset ceiling 0.7 (3.7)
Total losses recognised via the Statement of Recognised Income and Expense (27.9) (45.3)
Tax credit on total losses recognised via the Statement of Recognised Income and
Expense 8.9 14.4
Total losses after tax recognised via the Statement of Recognised Income and Expense (19.0) (30.9)
The consolidated entity has elected under AASB 119 Employee Benefits, to recognise all actuarial gains/losses in the Statement
of Recognised Income and Expense. The cumulative amount of net actuarial losses/gains (before tax) included in the Statement
of Recognised Income and Expense as at 30 September 2009 is $34.2 million - loss (2008 $5.6 million - loss).
Notes to the Financial Statements
For the year ended 30 September
Orica Limited 115
38. Superannuation commitments (continued)
(c) (viii) Expected rate of return on assets assumption
The overall expected rate of return on assets assumption is determined by weighting the expected long-term rate of return for
each asset class by the target allocation of plan assets to each class. The rates of return used for each class are net of
investment tax and investment fees.
(c) (ix) Surplus/(deficit) for major defined benefit plans
30 September 2009
Plan
Accrued
Benefits
Fund
Assets
Accrued
(deficit)/
surplus
Current
contribution
recommendation
Discount
rate
Expected
return on
plan assets
Future
salary
increases
$m $m $m % % %
The Flexible Benefits Super Fund (2a) 388.5 351.3 (37.2) 13.0% of salaries 4.90 7.25 3.25
Pension Plan for Employees of Orica

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