The preparation of the consolidated financial statements in compliance with IFRS necessitates assumptions and estimates affecting the amounts and the reporting of the recognized assets and debts, income and expenses, and contingencies. These assumptions and estimates comply with the conditions and appraisals prevailing on the balance sheet date. In this regard, they also impact the amount of income and expenses reported on for the fiscal years in question. The assumptions on which the estimates are based relate primarily to the uniform determination of useful lives throughout the Group, the ascertainment of fair values of financial instruments, the recognition and measurement of provisions, the realizability of future tax benefits, and the assumptions in connection with impairment tests and purchase price allocations.
In individual cases, the actual values may differ from the assumptions and estimates that were made. Changes in value are recognized as soon as they become apparent and affect the net results for the period when the change occurred and, if applicable, in future reporting periods.
Intangible assets and property, plant and equipment/investments in associates accounted for using the equity method
The expected useful life of intangible assets and of property, plant and equipment, together with their amortization/depreciation schedules, are based on past experience, plans and estimates. This includes estimates of the period and allocation of future cash inflows derived from the investments made and from future technical advancements. The carrying amount of the intangible assets and property, plant and equipment was €3.95 billion (2011: €3.53 billion). Investments in associates accounted for using the equity method is listed at €41.0 million (2011: €124.5 million) in the statement of financial position.
Impairment tests are performed for assets if specific indicators point toward a possible impairment loss or reversal of an impairment loss. In the case of a possible impairment, an estimate must be made of the recoverable amount of the affected asset that corresponds to the higher value of the fair value less costs to sell or the value in use. To ascertain the value in use, the discounted future cash flows of the affected asset must be determined. The estimate of the discounted future cash flows contains significant assumptions such as, in particular, those regarding future selling prices and sales volumes, costs, and discount rates. Although WACKER is assuming that the estimates of the relevant expected useful lives and of discounted future cash flows, as well as the assumptions regarding the general economic conditions and the development of the economic sectors are reasonable, a change in the assumptions or circumstances might necessitate a change in the analysis. This could result in additional impairments or reversals of impairment losses in the future. See Note 4
Provisions
Significant risks inherent in the environmental protection provisions and in provisions stemming from claims for damages and onerous contracts are possible changes in future cost/benefit estimates, changes in the likelihood of their utilization, and enhanced statutory provisions concerning the elimination and prevention of environmental damage. The carrying amount of provisions for environmental protection was €52.4 million (2011: €52.4 million) and the carrying amount of sales/purchasing provisions amounted to €44.7 million (2011: €106.7 million). See Note 14
The accounting of pensions and similar obligations is in accordance with actuarial valuations. These valuations are based on statistical and other factors in order to anticipate future events. The factors include the discount rate, the expected return on plan assets, expected salary and pension increases, the mortality rate and rate increases for preventive healthcare. These assumptions could, due to changed market and economic conditions, vary considerably from actual developments, consequently leading to essential changes to pension and similar obligations, as well as the associated future expenses. The carrying amount of the provision for pensions amounted to €569.3 million (2011: €527.1 million). See Note 13
Deferred Taxes
At the end of each reporting period, the Group assesses whether the probability of future tax benefits being realized is sufficient to recognize deferred taxes. Among other things, this requires that management evaluate the tax benefits resulting from currently available tax strategies and future taxable income, as well as taking additional positive and negative factors into account. The carrying amount of deferred tax assets recognized in the statement of financial position amounted to €13.3 million (2011: €11.6 million).
Changes in Estimates and Assumptions Used in Preparing the Consolidated Financial Statements
WACKER calculates the pension-obligation amount (actuarial present value of the earned pension entitlements or “defined benefit obligations,” DBO) according to actuarial methods. The pension obligation is valued by discounting the WACKER-specific, expected future cash flows. The discount rate at the balance sheet date is derived from the yield curve of high-grade, fixed-interest, euro-denominated corporate bonds with maturities corresponding to the pension obligations. Effective December 31, 2012, WACKER changed its assumptions for the discount rate. Previously, it had taken – as high-grade corporate bonds – a portfolio of bonds in the “iBoxx EUR Corporate AA Index.” Due to rating downgrades, however, the number of bonds in this index diminished so much during 2012 that the index no longer provides an adequate basis for calculating a stable, actuarial interest rate. Now, WACKER takes Bloomberg data as the basis for selecting bonds with at least an AA– rating (as required by IFRS) from one of the three big rating agencies. The process for determining the discount rate – based on the expanded bond portfolio – is applied consistently with the previous year. Consequently, this change does not constitute an IAS 8-compliant change in accounting policy.
On December 31, 2012, the actuarial interest rate – prior to adjusting the underlying data – would have been 3.0 percent. Based on the expanded corporate-bond portfolio, the discount rate is 3.5 percent.
If the discount rate had been 3.0 percent in the eurozone, the amount for pensions and similar obligations (DBO) would have risen by €248.1 million at year-end. Since WACKER still uses the corridor method of IAS 19 (old) for December 31, 2012, there have not been any changes to net income for the year or to pension provisions in the statement of financial position. If the discount rate had been 3.0 percent, there would have been actuarial losses of €925.9 million.
At the beginning of fiscal 2012, WACKER shortened the useful lives of polysilicon-plant infrastructure and technical facilities due to the altered polysilicon-market situation. Future technological developments will necessitate a new set-up for existing structures. In accounting terms, this concerns a change in estimates that do not necessitate modification of preceding years. In 2012, shorter useful lives led to an increase in depreciation of around €28 million.