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Provisions are recognized for all legal or constructive obligations to third parties which exist on the balance-sheet date and relate to past events, and with regard to which it is probable that an outflow of resources will be required, and the amount of which can be reliably estimated. Provisions are carried at the individually most likely outcome and are not offset against reimbursement claims. Provisions based on a large number of similar events are stated at the expected amounts of the possible outcomes.
All non-current provisions are recognized at their prospective settlement amount, which is discounted as of the balance-sheet date. In the determination of the settlement amount, any cost increases likely to occur up until the time of settlement are taken into account.
If necessary, the cost of property, plant and equipment may contain the estimated expenses for the decommissioning of plants or site restoration, for which decommissioning, restoration and similar provisions are recognized. If changes in the discount rate or changes in the estimated timing or amount of the payments result in changes in these provisions, the carrying amount of the respective asset is adjusted by the same amount. If the decrease in the provision exceeds the carrying amount of the underlying asset, the excess is recognized immediately through profit or loss. Releases of provisions are credited to the expense account on which the provision was originally recognized.
Provisions for pensions and similar obligations are recognized for defined benefit plans. These are obligations of the company to pay future and ongoing post-employment benefits to entitled current and former employees and their surviving dependents. In particular, the obligations refer to retirement pensions. Individual commitments are generally calculated according to the employees’ length of service and compensation.
Provisions for defined benefit plans are based on the actuarial present value of the respective obligation, measured using the projected unit credit method. This benefit/years-of-service method not only takes into account the pension benefits and benefit entitlements known as of the balance-sheet date, but also anticipated future increases in salaries and pension benefits. The calculation is based on actuarial reports, taking into account appropriate biometric parameters (for Germany, in particular the “Richttafeln 2005G” by Klaus Heubeck). The provision derives from the balance of actuarial present value of the obligations and the fair value of the plan assets. The service cost Glossary is disclosed in staff costs, and the interest cost and expected return on plan assets are reported in the financial result.
Actuarial gains and losses are fully recognized in the fiscal year in which they occur. They are reported as a component of other comprehensive income outside of profit or loss in a consolidated statement of recognized income and expenses and immediately assigned to retained earnings. They remain outside profit or loss in subsequent periods as well.
In the case of defined contribution plans, the enterprise’s obligation is limited to the amount it contributes to the plan. The contributions to the plan are recognized as expenses and disclosed under staff costs.
Waste management provisions in the nuclear energy sector are based on obligations under public law, in particular the German Atomic Energy Act, and on restrictions stipulated in operating licenses. These provisions are measured using estimates, which are based on and defined in contracts, on information from internal and external specialists and expert opinions, as well as on data from the German Federal Office for Radiation Protection (BfS).
Provisions for mining damage are recognized to cover land recultivation obligations and obligations to restore mining damage that has already occurred or been caused. Such risks and obligations are those that exist as of the balance-sheet date or are identifiable when the balance sheet is being prepared. They must be recognized due to obligations under public law, such as the German Federal Mining Act, and formulated, above all, in operating schedules and water law permits. Provisions are generally recognized based on the increase in the obligation, e.g. in line with lignite production. Such provisions are measured at full expected cost or according to estimated compensation payments.
Furthermore, provisions are made owing to obligations under public law to dismantle production facilities and fill wells. The amount of these provisions is determined on the basis of total cost estimates, which reflect past experience and the comparative rates determined by the German Association of Oil and Natural Gas Production Industry. Similar assumptions for foreign subsidiaries are also taken into account.
A provision is recognized to cover the obligation to deliver CO2 emission allowances to the competent authorities; this provision is measured at the book value of the CO2 allowances capitalized for this purpose. If a portion of the obligation is not covered with the available allowances, the provision for this portion is measured using the market price of the allowances on the reporting date.
