(14) Other non-current and current provisions
On the closing date, the LANXESS Group had other current provisions of €355 million (2012: €440 million) and other non-current provisions of €258 million (2012: €304 million). The maturity structure of other provisions is shown in the following table:
|€ million||Dec. 31, 2012||Dec. 31, 2013|
The total of other provisions declined in 2013 from €744 million to €613 million. The changes in other provisions were as follows:
|Changes in Other Provisions in 2013|
|€ million||Jan. 1, 2013||Allocations||Interest effect||Utilization||Reversals||Exchange differences||Dec. 31, 2013|
Personnel-related provisions are mainly established for annual performance-related compensation and multi-year compensation programs.
Multi-year compensation programs
LANXESS AG offers a stock-based compensation program to members of the Management Board and certain other managers. The program provides for cash settlement. Following the granting of rights under two consecutive three-year Long Term Incentive Plans (LTIP 2005 – 2007 and LTIP 2008 – 2010) launched in 2005 and 2008, respectively, a new Long Term Stock Performance Plan (LTSP) was introduced in 2010 under which rights were granted in the years 2010 – 2013 (LTSP 2010 – 2013). The date of issue of the rights granted and still outstanding and the rights from the outstanding tranches is February 1 each year. Participation in the programs is conditional upon each manager making a personal investment in LANXESS stock, depending on his/her base salary. Awards are based on the performance of LANXESS stock relative to the Dow Jones STOXX 600 ChemicalsSM Index.
LTIP 2008 – 2010
If LANXESS stock outperforms this index, a payment of at least €0.75 per right is made. For each percentage point up to 5% by which the stock outperforms the index, €0.05 is paid in addition. For each percentage point above 5%, €0.06667 is paid in addition. The maximum possible payment per right, however, is €2.00.
LTIP 2010 – 2013
If LANXESS stock outperforms the index, a payment of at least €0.75 per right is made. For each percentage point by which the stock outperforms the index, €0.125 is paid in addition. The maximum possible payment per right, however, is €2.00.
Obligations arising from the stock-based compensation are valued on the basis of the following principal parameters:
|Principal Parameters as of December 31|
|Expected share price volatility||41.0||37.0|
|Expected dividend payment||2.0||2.0|
|Expected index volatility||23.0||20.0|
|Correlation between LANXESS stock and the index||82.0||77.0|
|Risk-free interest rate||0.0||0.6|
The relevant risk-free interest rate in 2013 was 0.63% (2012: 0.02%).
The expected volatilities are based on the historical volatility of LANXESS stock and the Dow Jones STOXX 600 ChemicalsSM Index in the past four years (2012: three years).
At the start of 2013, there were no longer any rights outstanding from the tranches issued in the years 2005 through 2008. The following table provides information on the tranches outstanding as of December 31, 2013:
|LTIP and LTSP|
|LTIP 2008 – 2010||LTSP 2010 – 2013|
|Tranche 2009||Tranche 2010||Tranche 2010||Tranche 2011||Tranche 2012||Tranche 2013|
|Duration||6 years||6 years||7 years||7 years||7 years||7 years|
|Vesting period||3 years||3 years||4 years||4 years||4 years||4 years|
|Holding period for personal investment shares||Feb. 1, 2013||Feb. 1, 2013||Jan. 31, 2017||Jan. 31, 2017||Jan. 31, 2017||Jan. 31, 2017|
|Initial LANXESS share price||€12.86||€27.28||€27.28||€55.60||€44.54||€63.25|
|Initial Dow Jones STOXX 600 ChemicalsSM index price||317.39 points||432.44 points||432.44 points||564.17 points||533.45 points||665.98 points|
|Fair value per right as of December 31, 2012||€2.00||€2.00||€1.81||€0.55||€0.71||–|
|Fair value per right as of December 31, 2013||–||€0.90||€0.92||€0.15||€0.26||€0.25|
|Change in number of outstanding rights|
|Outstanding rights as of January 1, 2013||126,794||11,852,462||10,232,882||11,213,452||12,276,066||–|
|Outstanding rights as of
December 31, 2013
LANXESS shares were trading at €48.48 at year-end 2013, and the reference index stood at 755.72 points.
The fair values of the LTSP entitlements that already existed at the start of 2013 declined significantly, resulting in a €3 million net gain from the stock-based compensation in 2013 (2012: net expense of €27 million). The rights from the 2009 and 2010 tranches were exercised at maximum value. A provision of €12 million existed as of December 31, 2013 (2012: €41 million). Of this amount, the intrinsic value of rights exercisable as of the closing date accounted for €0 million (2012: €0 million).
LANXESS stock plan
This is an employee stock plan under which LANXESS staff may purchase shares in the company at a 50% discount. Employees acquired a total of 225,419 LANXESS shares under this program in 2013 (2012: 165,446 shares). These shares must be retained for at least three years. Since there are no further conditions attached to this stock plan, the discount was expensed immediately. Expenses of €5 million were recognized for the stock plan in 2013 (2012: €5 million). Participation in this program does not confer any right to similar benefits in the future.
The Group’s activities are subject to extensive legal requirements in the jurisdictions in which it does business. Compliance with environmental laws may require LANXESS to remove or mitigate the effects of the release or disposal of chemical substances at various sites. Under some of these laws, a current or previous site owner or plant operator may be held liable for the costs of removing hazardous substances from the soil or groundwater on its property or neighboring areas, or rendering them harmless, without regard to whether the owner or operator knew of, or caused the presence of the contaminants, and often regardless of whether the practices that resulted in the contamination were legal at the time they occurred. As many of LANXESS’s production sites have a long history of industrial use, it is not always possible to accurately predict the effects such situations may have on the LANXESS Group in the future.
Since LANXESS is a chemical company, the possibility cannot be excluded that soil or groundwater contamination may have occurred at its locations in the past. Claims in this regard could be brought by government agencies, private organizations or individuals. Such claims would then relate to the remediation of sites or areas of land owned by the LANXESS Group where products were manufactured by third parties under contract manufacturing agreements or where waste from production facilities operated by the LANXESS Group was treated, stored or disposed of.
Potential liabilities exist with respect to various sites under legislation such as the U.S. environment law commonly known as “Superfund.” At locations in the United States, numerous companies, including LANXESS, have been notified that the U.S. authorities or private individuals consider such companies to be potentially responsible parties under Superfund or related laws. At some sites, LANXESS may be the sole responsible party. Remediation measures have already been initiated at most of the sites concerned.
The existing provisions for environmental remediation costs relate primarily to the rehabilitation of contaminated sites, recultivation of landfills, and redevelopment and water protection measures. The provisions for environmental remediation costs are stated at the present value of the expected commitments where environmental assessments or clean-ups are probable, the costs can be reasonably estimated and no future economic benefit is expected to arise from these measures. Costs are estimated based on significant factors such as previous experience in similar cases, environmental assessments, current cost levels and new circumstances affecting costs, our understanding of current environmental laws and regulations, the number of other potentially responsible parties at each site and the identity and financial position of such parties in light of the joint and several nature of the liability, and the remediation methods likely to be employed.
It is difficult to estimate the future costs of environmental protection and remediation because of many uncertainties concerning the legal requirements and the information available about conditions in the various countries and at specific sites. Subject to these factors, but taking into consideration experience gained to date with matters of a similar nature, we believe our provisions to be adequate based upon currently available information. However, the possibility that additional costs could be incurred beyond the amounts accrued cannot be excluded. LANXESS nevertheless estimates that such additional costs, should they occur, would not materially impact the Group’s financial position or results of operations.
Provisions for trade-related commitments mainly comprise those for rebates, customer discounts, product returns, outstanding invoices, impending losses and onerous contracts.
Provisions for restructuring
Provisions for restructuring totaled €58 million on December 31, 2013 (2012: €45 million). Of this amount, €38 million (2012: €27 million) comprised provisions for severance payments and other personnel expenses, and €20 million (2012: €18 million) comprised provisions for demolition and other expenses.
The sundry provisions contain provisions for guarantees and product liability, and provisions for other liabilities. Provisions for waste management that are not included in environmental provisions and provisions for legal risks that are not included in a different category within other provisions are also included in sundry provisions.