BT 1998 Annual Report Download - page 69

N O T E S T O T H E F I N A N C I A L S TAT E M E N T
24. Financial commitments and contingent liabilities (continued)
Shareholder Class Actions, subsequently directed the plaintiffs to submit a proposed order vacating that consolidation order and
to submit a new proposed order of consolidation. The parties have agreed that the defendants are not obligated to respond to the
complaints filed in these fifteen cases until the consolidation issue has been resolved and the plaintiffs serve the defendants with
a consolidated and amended complaint. In the two Delaware Shareholder Class Actions that were not included in the court’s initial
consolidation order, neither the company nor its officers who served as MCI directors have been served, and have therefore not
responded to the complaints.
In addition, after the renegotiation of the terms of the BT/MCI merger, an MCI shareholder filed a derivative action on behalf of
MCI in the Court of Chancery in the State of Delaware. The complaint names the company and certain officers and directors of
MCI, including officers of the company who served as MCI directors, as defendants. Among the claims asserted in the complaint
is the allegation that the company aided and abetted breaches of fiduciary duty in connection with the proposed BT/MCI merger.
The complaint does not take into account the subsequent WorldCom/MCI merger agreement. The parties have agreed that
defendants need not respond to the complaint until the plaintiffs serve an amended complaint. No such complaint has yet
been served.
In addition, individuals purporting to represent a class of persons who purchased MCI shares during the period 11 July 1997 to
21 August 1997 have filed a consolidated amended class action complaint (the “Complaint”) under the caption In Re MCI
Communications Corp Securities Litigation, now pending in the federal district court for the District of the District of Columbia.
The Complaint supersedes certain earlier federal securities class action complaints. The Complaint alleges that MCI, the company
and certain MCI officers and directors, including officers of the company who served as MCI directors, violated the federal
securities laws by failing timely to disclose that MCI was renegotiating the terms of the merger with the company.
The company believes that it will prevail in the foregoing actions.
25. Pension costs
The total pension cost of the group expensed within staff costs was £177m (1997 – £291m, 1996 – £284m), of which £169m
(1997 – £281m, 1996 – £275m) related to the group’s main pension scheme, the BT Pension Scheme (BTPS). The reduction in the
cost in the year ended 31 March 1998 was mainly attributable to the greater than assumed return on the BTPS assets in the three
year period to 31 December 1996, i.e. between the last two actuarial valuations. The increase in the charge in the year ended
31 March 1997 was mainly attributable to the increase in interest on the pension provisions in the balance sheet which had risen
by £311m to £1,291m in the year ended 31 March 1997.
The pension cost for the year ended 31 March 1998 was based on the valuation of the BTPS at 31 December 1996. The pension
cost for the years ended 31 March 1996 and 1997 were based on the valuation of the BTPS at 31 December 1993. The
valuations, carried out by professionally qualified independent actuaries, used the projected unit method. The valuations were
determined using the following long-term assumptions:
Rates (per annum)
`1996 1993
%%
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Return on existing assets, relative to market values 8.0 8.6
Return on future investments 8.4 9.7
Real equity dividend growth 0.75 0.5
Average increase in retail price index 4.0 5.0
Average future increases in wages and salaries 5.8 6.8
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At 31 December 1996, the assets of the BTPS had a market value of £19,879m and were sufficient to cover 100.3% of the
benefits that had accrued to members by that date, after allowing for expected future increases in wages and salaries but not
taking into account the costs of providing incremental pension benefits for employees taking early retirement under release
schemes since that date. This cost, which amounted to £224m in the year ended 31 March 1998, will be taken into account at the
next planned actuarial valuation at 31 December 1999. The incremental pension costs of employees taking early retirement in the
years ended 31 March 1997 and 1996, £258m and £266m, respectively were included in redundancy costs charged to the profit
and loss account in those years.
In the year ended 31 March 1998, the group made regular contributions of £238m (1997 – £232m, 1996 – £234m).