16 Contingent Liabilities, Contingent Assets, Other Financial Obligations and Other Risks

The values assigned to contingent liabilities correspond to the extent of the liability as of the reporting date. At WACKER, contingent liabilities primarily concern incurred guarantees totaling €0.3 million, versus €0.5 million in the prior year. It is unlikely that the guarantees will be utilized.

Under rental agreements and operating leases, the Group leases property, plant and equipment, motor vehicles and IT equipment. These leases generally have terms of between three and five years. Tenancy agreements for office space, property, plant and equipment, etc. have considerably longer terms.

Due to the implementation of IFRS 16 in 2019, obligations from current and minor leases will not be recognized as right-of-use assets. WACKER estimates that the related liabilities totaled €12.7 million on December 31, 2018.

Obligations from orders for planned investment projects (commitments) amounted to €209.6 million, after €192.5 million in the prior year, and concern the operating segments.

The Group ensures capacity utilization at its joint venture with DowDupont via long-term purchasing commitments of some €100 million annually, versus €95 million in the prior year.

As regards its current raw-material supplies, WACKER has entered into long-term agreements to purchase strategic raw materials, electricity and gas. Accordingly, in net terms, the company had other financial obligations in the amount of €1.07 billion arising from significant minimum-purchasing arrangements in the reporting period, after €1.16 billion the year before. The agreements have terms of between one and fifteen years.

The insurance compensation for the business interruption due to a hydrogen explosion at the production site in Charleston, Tennessee (USA) represents a contingent asset for WACKER. As the loss amount has yet to be determined, the insurance compensation does not qualify as a recognizable asset. WACKER received a prepayment of US$100 million in January 2018, which was netted against the property damage claims.

The Group receives grants and allowances for investing activities. These incentives are granted on condition that a certain number of jobs are created or maintained at certain sites. If these contractual commitments are not fulfilled, all or part of any funding received must be paid back. The period for which the Group has to fulfill its contractual commitments is limited.

WACKER is occasionally involved in legal or arbitration proceedings as well as official investigations and actions. Pending proceedings can have a negative impact on WACKER’s earnings, net assets and financial position. At the present time, WACKER does not expect any significant negative effects from pending proceedings.