22. Other Provisions

Accounting policies

Other provisions are recognized when there is a present obligation as a result of a past event and when there is a probable outflow of resources whose amount can be reliably estimated. Provisions are recognized at the probable settlement value.

The probable amount required to settle noncurrent provisions is discounted if the effect of discounting is material. In this case, the provision is recognized at present value. Financing costs related to unwinding the discount of provisions in subsequent periods are shown in other financial result.

Provisions for restoration obligations include expected costs for dismantling existing plants and buildings. If BASF is the only responsible party that can be identified, the provision covers the entire expected obligation. At sites operated together with one or more partners, the provision generally covers only BASF’s share of the expected obligation. The amount of the provision is determined based on the available technical information on the site, the technology used, legal regulations, and official requirements. The calculation accounts for expected significant changes in obligations.

Provisions for environmental protection and remediation costs are recognized for expected costs for rehabilitating contaminated sites, recultivating landfills, removal of environmental contamination at existing production or storage sites, and for similar measures as well as for obligations to surrender emission certificates.

Provisions for employee obligations primarily consist of variable compensation including associated social security contributions, as well as obligations for granting long-service bonuses. The latter are predominantly calculated based on actuarial principles.

Provisions for obligations from sales and purchase contracts largely comprise obligations arising from rebates granted and other price discounts in the Agricultural Solutions segment, warranties and product liabilities, sales commissions and losses from onerous contracts.

Provisions for restructuring measures include severance payments to departing employees or similar personnel expenses as well as expected costs for site closures, including costs for demolition and similar measures. As a rule, provisions are recognized for these expenses when a corresponding plan has been approved and announced by management.

Provisions for litigation, damage claims and similar obligations contain anticipated expenses from lawsuits in which BASF is the defendant party, as well as obligations under damage claims against BASF and fines. In order to determine the amount of the provisions, the company takes into consideration the facts related to each case, the size of the claim, compensation awarded in similar cases and independent expert advice as well as assumptions regarding the probability of a successful claim and the range of possible claims. Actual costs can deviate from these estimates (for more information, see Note 23).

Noncurrent provisions were discounted at a rate between 2.2% and 3.5% (previous year: between 2.2% and 3.5%).

Explanation of other provisions

The decrease in provisions for environmental protections measures and remediation resulted mainly from lower provisions for remediation, primarily due to the devaluation of the U.S. dollar against the euro as well as lower provisions for obligations to surrender emission certificates.

The increase in provisions for employee obligations was mainly due to higher provisions for variable compensation and offsetting reclassifications to disposal groups.

The decrease in provisions for obligations from sales and purchase contracts resulted mainly from lower provisions for rebates, mainly due to the devaluation of the U.S. dollar as well as reclassifications to disposal groups.

The increase in provisions for restructuring measures was mainly attributable to higher provisions for severance payments.

Other includes interest on noncurrent tax provisions.

The following table shows the development of other provisions by category. Other changes include changes in the scope of consolidation, acquisitions, divestitures, currency effects and reclassifications to disposal groups as well as the reclassification of obligations to liabilities when the amount and timing of these obligations become known. The climate risks presented in Note 1.4 did not lead to additional provisions in either year.