Financial Statements
26. Other provisions
Changes in the various provision categories in 2010 were as follows:
| Changes in Other Provisions | [Table 4.77] |
|---|
| | Taxes | Environ-
mental
protec-
tion | Restruc-
turing | Trade-
related
commit-
ments | Litigations | Personnel
commit-
ments | Miscella-
neous | Total |
| | € million | € million | € million | € million | € million | € million | € million | € million |
| December 31, 2009 |
812 |
285 |
203 |
829 |
439 |
1,646 |
391 |
4,605 |
Changes in scope
of consolidation |
(24) |
- |
(5) |
- |
- |
- |
4 |
(25) |
| Additions | 454 | 25 | 60 | 844 | 760 | 1,138 | 165 | 3,446 |
| Utilization | (306) | (32) | (95) | (654) | (282) | (1,064) | (175) | (2,608) |
| Reversal | (61) | (16) | (41) | (52) | (30) | (78) | (37) | (315) |
| Interest cost | - | 2 | - | - | 3 | 37 | - | 42 |
Exchange
differences |
28 |
17 |
7 |
61 |
17 |
50 |
23 |
203 |
| December 31, 2010 |
903 |
281 |
129 |
1,028 |
907 |
1,729 |
371 |
5,348 |
The provisions recognized in the statement of financial position as of December 31, 2010 were expected to be utilized as follows:
| Expected Utilization of Other Provisions | [Table 4.78] |
|---|
| | Taxes | Environ-
mental
protec-
tion | Restruc-
turing | Trade-
related
commit-
ments | Litigations | Personnel
commit-
ments | Miscella-
neous | Total |
| | € million | € million | € million | € million | € million | € million | € million | € million |
| 2011 | 611 | 86 | 76 | 1,024 | 655 | 1,170 | 248 | 3,870 |
| 2012 | 2 | 18 | 21 | 4 | 106 | 106 | 26 | 283 |
| 2013 | 44 | 32 | 11 | - | 18 | 75 | 4 | 184 |
| 2014 | - | 4 | 4 | - | - | 75 | - | 83 |
| 2015 | 92 | 2 | 4 | - | 3 | 98 | 20 | 219 |
| 2016 or later | 154 | 139 | 13 | - | 125 | 205 | 73 | 709 |
| Total | 903 | 281 | 129 | 1,028 | 907 | 1,729 | 371 | 5,348 |
The provisions were partly offset by claims for refunds in the amount of €137 million (2009: €135 million), which are recognized as receivables. They related principally to claims for refunds in connection with product liability and to environmental measures.
26.1 Taxes
Provisions for taxes comprised provisions for income taxes amounting to €772 million (2009: €686 million) and provisions for other types of taxes amounting to €130 million (2009: €126 million).
Further income tax commitments according to IAS 12 existed at year end in the amount of €62 million (2009: €93 million) recognized in the statement of financial position as income tax liabilities.
26.2 Environmental protection
Provisions for environmental protection mainly relate to the rehabilitation of contaminated land, recultivation of landfills, and redevelopment and water protection measures.
26.3 Restructuring
Provisions for restructuring included €109 million (2009: €166 million) for severance payments and €20 million (2009: €37 million) for other expenses, which mainly comprised demolition and other costs related to the closure of production facilities.
A restructuring program was launched in the HealthCare subgroup in November 2010 to improve its efficiency for the long term. The measures, which relate to all functional areas, are intended to produce sustained cost savings and ensure a shift in the subgroup’s activities from the saturated markets toward the growth economies. In addition, the restructuring carried out as part of the integration of Schering AG, Berlin, Germany, led to further disbursements in 2010. Significant individual restructuring measures took place in the United States and Germany in 2010. Provisions for the above and other restructuring measures as of December 31, 2010, amounted to €77 million. Of this amount, severance payments accounted for €68 million and other restructuring expenses for €9 million.
Restructuring measures also proceeded in the CropScience subgroup, particularly in France, where several companies were merged to enable cost structures to be optimized and the efficiency of administrative functions improved. Provisions for restructuring as of December 31, 2010 amounted to €26 million, including €21 million for severance payments and €5 million for other restructuring expenses.
The restructuring measures carried out in the MaterialScience subgroup related mainly to the optimization of the production site in New Martinsville, West Virginia, United States. Provisions for restructuring as of December 31, 2010 amounted to €14 million, including €9 million for severance payments and €5 million for other restructuring expenses.
26.4 Trade-related commitments
Provisions for trade-related commitments comprise provisions for rebates, discounts and other price adjustments, product returns, outstanding invoices, pending losses and onerous contracts.
26.5 Litigations
The legal risks currently considered to be material are described in
Note [32].
26.6 Personnel commitments
Provisions for personnel commitments mainly include those for variable and individual one-time payments, credit balances on long-term accounts, service awards, early retirements, pre-retirement part-time working arrangements and other personnel costs. Also reflected here are the obligations under the stock-based compensation programs.
The Bayer Group offers stock-based compensation programs collectively to different groups of employees. As required by IFRS 2 (Share-based Payment) for compensation systems involving cash settlement, awards to be made under the stock-based programs are covered by provisions in the amount of the fair value of the obligations existing as of the date of the financial statements vis-à-vis the respective employee group. All resulting valuation adjustments are recognized in the income statement.
The following table shows the changes in provisions for the various programs:
| Changes in Provisions for Stock-Based Compensation Programs | [Table 4.79] |
|---|
| | Stock
Incentive
Program | Stock
Partici- pation
Program | Aspire I
Three-Year
Program | Aspire II
Three-Year
Program | Aspire I
Four-Year
Program | Aspire II
Four-Year
Program | Total |
| | € million | € million | € million | € million | € million | € million | € million |
| December 31, 2009 | 4 | 15 | 59 | 60 | - | - | 138 |
| Additions | - | 3 | 14 | 13 | 5 | 7 | 42 |
| Utilization | (1) | (6) | (36) | (40) | - | - | (83) |
| Reversal | (1) | (2) | (9) | (5) | - | - | (17) |
| Exchange differences | - | - | 1 | 2 | - | - | 3 |
| December 31, 2010 | 2 | 10 | 29 | 30 | 5 | 7 | 83 |
Total expense for all stock-based compensation programs in 2010 was €42 million (2009: €124 million).
The fair value of obligations under the standard stock-based compensation programs has been calculated using the Monte Carlo simulation method based on the following key parameters:
| Parameters for Monte Carlo Simulation | [Table 4.80] |
|---|
| | 2009 | 2010 |
| Dividend yield | 2.49% | 2.69% |
| Risk-free interest rate | 1.57% | 1.12% |
| Volatility of Bayer stock | 34.93% | 34.43% |
| Volatility of the EURO STOXX 50 | 29.46% | 31.09% |
| Correlation between Bayer stock price and the EURO STOXX 50 | 0.68 | 0.69 |
Long-term incentive program for members of the Board of Management and other senior executives (Aspire I)
Since 2005, members of the Board of Management and other senior executives have been entitled to participate in Aspire I on the condition that they purchase a certain number of Bayer shares – determined for each individual according to specific guidelines – and retain them for the full term of the program. A percentage of the executive’s annual base salary – based on his/her position – is defined as a target for variable payments “Aspire target opportunity”. Depending on the performance of Bayer stock, both in absolute terms and relative to the Dow Jones EURO STOXX 50 benchmark index during a three-year performance period (or, starting with the regular 2010 tranche, a four-year performance period), participants are granted an award of up to 300% of their individual Aspire target opportunity for four-year tranches, or 200% for three-year tranches, at the end of the program. In 2010 a final tranche with a three-year performance period was issued in addition.
Long-term incentive program for middle management (Aspire II)
Also since 2005, other senior managers and middle managers have been offered Aspire II, a variant of Aspire I that does not require a personal investment in Bayer shares. In this case, the amount of the award is based entirely on the absolute performance of Bayer stock. The maximum award is 250% of each manager’s Aspire target opportunity for four-year tranches, or 150% for three-year tranches.
BayShare 2010
All management levels and non-managerial employees are offered an annual stock participation program known as “BayShare”, under which Bayer subsidizes their personal investments in the company's stock. The discount under this program is set separately each year. In 2010 it was 20% (2009: 20%) of the subscription amount. Employees stated a fixed amount that they wished to invest in shares. The maximum subscription amount was set at €2,500 (2009: €2,500) or €5,000 (2009: €5,000) depending on the employee’s position. The shares thus acquired are held in a special share deposit account and must be retained until December 31 of the year following the year of purchase.
In 2010 employees purchased a total of about 405,000 shares (2009: 395,000 shares) under the BayShare program.
Stock-based compensation programs 2000-2004
The stock-based compensation programs offered to the different employee groups in 2000 through 2004 all had similar basic structures. Changes in the obligations under these programs are reflected in the financial statements at fair value through profit or loss. Entitlements to awards under these programs are conditioned on retention of the Bayer shares for a certain time period. The tranches issued in 2000 expired in 2010 and resulted in payments.
The following table shows the programs issued through 2004 and still ongoing:
| Stock-Based Compensation Programs 2001-2004 | [Table 4.81] |
|---|
| | Stock
Incentive
Program | Stock
Participation
Program |
| Year of issue | 2001 – 2004 | 2001 – 2004 |
| Original term in years | 10 | 10 |
| Retention period/distribution date in years from issue date | 2/6/10 | 2/6/10 |
| Reference price | 0 | 0 |
| Performance criteria | yes | no |
Stock Incentive Program
A Stock Incentive Program was offered to middle management until 2004. Participants receive a cash payment equivalent to a defined number of Bayer shares on certain dates during the ten-year duration of the program. For every ten shares held in a special account (personal investment), they receive the cash equivalent of two shares after two years, and the cash equivalent of a further four shares after six and ten years, respectively. To qualify for these payments, they must still hold the personal investment on the incentive payment dates and the percentage rise in the price of Bayer stock by the payment date must be above the performance of the Dow Jones EURO STOXX 50 since the start of the program. Participants may sell their shares during the term of the program. However, the shares sold do not qualify for incentive payments on subsequent distribution dates. The number of shares that each employee could transfer to the program was equivalent to half of his or her performance-related bonus for the preceding fiscal year.
Stock Participation Program
The structure of this program, which was offered to the other employee groups until 2004, is similar to the Stock Incentive Program. However, the incentive payments are based exclusively on the period for which employees hold their personal investment in Bayer shares. Incentive payments are half those allocated under the Stock Incentive Program. After two years, participants are entitled to receive the cash equivalent of one Bayer share for every ten shares held. After six and again after ten years they are entitled to receive the cash equivalent of two Bayer shares for every ten shares held on the respective dates.
26.7 Miscellaneous
Miscellaneous provisions comprise those for guarantees, product liability, asset retirement obligations (other than those included in provisions for environmental protection), contingent liabilities relating to acquisitions, and provisions for miscellaneous liabilities.