Consolidated financial statement of JSW S.A. Capital Group for 2012

2.17. Employee benefits

Pursuant to Company Collective Bargaining Agreements (ZUZP) and pertinent provisions of law, the Group companies pay benefits from the following main titles:

1. retirement and disability severance pays,
2. jubilee awards
3. adjustment disability benefits,
4. write-offs for the Company Social Benefit Fund for pensioners and recipients of disability benefits
5. in-kind allowance of coal for pensioners and recipients of disability benefits,
6. death benefits.

In the consolidated statement of financial position, the Group recognizes disbursements of the above benefits at the present value of the liability as at the final day of the reporting period.

The amount of the post-employment benefit liability in the form of defined benefit plans (retirement and disability severance pays, adjustment disability benefits, write-offs for the Company Social Benefit Fund for pensioners and recipients of disability benefits, in-kind allowance of coal for pensioners and recipients of disability benefits) and other long-term employee benefits (jubilee awards) is calculated by an independent actuarial advisory company using the projected unit benefit method.

Liabilities on account of employee benefits are calculated using an individual method, for each employee separately. The liability for an employee is calculated based on the anticipated amount of the respective benefit that the Group undertakes to pay out on the basis of internal regulations and pertinent provisions of law. The amount calculated is subject to actuarial discounting as at the final day of the reporting period and then decreased by actuarially discounted amounts of annual provision charges, as at the same day, which the Group makes to increase the provision of the respective employee. The actuarial discount means the product of the financial discount and probability of survival of the respective employee as a Group employee until the time of receipt of the benefit.

The cost components of the post-employment defined benefits are classified as follows:

• costs of current employment – as operating expenses,
• net interest on the net liability derived from a changing value of provisions due to the passage of time – as financial costs,
• actuarial profit/loss resulting from changes in actuarial assumptions – as other comprehensive income.

On the other hand, with respect to other long-term employee benefits, current employment costs and actuarial profits/losses are recognized as operating expenses, while net interest as financial costs.

The provision for death benefits is calculated on the basis of historical data, using the discount rate recommended by the actuary and the expected inflation rate and statistical number of years remaining to be worked by Group employees, constituting the difference between the average retirement age of the Group’s employees and the average age of the employees as at the final day of the reporting period.