Other Provisions

Changes in the various provision categories in 2017 were as follows:

Changes in Other Provisions

 

 

Other Taxes

 

Environmental protection

 

Restructuring

 

Trade-related commitments

 

Litigations

 

Personnel commitments

 

Miscellaneous

 

Total

 

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

December 31, 2016

 

41

 

321

 

276

 

2,375

 

512

 

3,290

 

386

 

7,201

Divestments / changes in the scope of consolidation

 

(6)

 

(44)

 

(56)

 

(88)

 

(7)

 

(552)

 

(25)

 

(778)

Additions

 

19

 

34

 

103

 

5,440

 

172

 

2,706

 

332

 

8,806

Utilization

 

(18)

 

(32)

 

(101)

 

(4,423)

 

(199)

 

(2,720)

 

(255)

 

(7,748)

Reversal

 

(5)

 

(14)

 

(37)

 

(567)

 

(47)

 

(589)

 

(61)

 

(1,320)

Reclassification to current liabilities

 

 

 

 

(11)

 

 

(2)

 

 

(13)

Interest cost

 

 

(2)

 

 

 

 

7

 

 

5

Exchange differences

 

(2)

 

(20)

 

(14)

 

(245)

 

(38)

 

(102)

 

(22)

 

(443)

December 31, 2017

 

29

 

243

 

171

 

2,481

 

393

 

2,038

 

355

 

5,710

The provisions recognized in the statement of financial position as of December 31, 2017, were expected to be utilized as follows:

Expected Utilization of Other Provisions

 

 

Other Taxes

 

Environmental protection

 

Restructuring

 

Trade-related commitments

 

Litigations

 

Personnel commitments

 

Miscellaneous

 

Total

 

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

2018

 

12

 

69

 

109

 

2,313

 

258

 

1,334

 

249

 

4,344

2019

 

 

13

 

29

 

147

 

65

 

59

 

3

 

316

2020

 

 

8

 

11

 

9

 

2

 

187

 

2

 

219

2021

 

 

7

 

6

 

2

 

3

 

159

 

1

 

178

2022

 

 

2

 

4

 

2

 

6

 

40

 

5

 

59

2023 or later

 

17

 

144

 

12

 

8

 

59

 

259

 

95

 

594

Total

 

29

 

243

 

171

 

2,481

 

393

 

2,038

 

355

 

5,710

The provisions were partly offset by claims for refunds in the amount of €74 million (2016: €110 million), which were recognized as receivables. These claims predominantly related to product liability.

Restructuring

Provisions for restructuring included €116 million (2016: €179 million) for severance payments and €55 million (2016: €97 million) for other restructuring expenses, which mainly comprised other costs related to the closure of production facilities.

In the Pharmaceuticals segment, restructuring took place mainly in the areas of marketing and supply network optimization as part of the Continuous Efficiency Program. In 2017, further use was made of the restructuring provisions established for this program in previous years, primarily in Japan, France and the United States. Provisions for the above and other restructuring measures in Pharmaceuticals as of December 31, 2017, totaled €45 million. Of this amount, severance payments accounted for €44 million and other restructuring expenses for €1 million.

In the Consumer Health segment, restructuring took place mainly in France, Germany and Italy. The restructuring measures in France and in Italy related to distribution, and in Germany to the discontinuation of contract manufacturing of medical products for third parties. Provisions for restructuring in this segment totaled €33 million as of December 31, 2017, with severance payments accounting for the entire amount.

In the Crop Science segment, provisions were established for the planned restructuring of the site in Institute, West Virginia, United States, to prepare for the termination of thiodicarb production. The restructuring measures initiated in connection with the “Advancing our Leadership Strategy” program to improve customer centricity, innovation and efficiency continued to be implemented. Restructuring provisions for the above and other measures at Crop Science as of December 31, 2017, totaled €73 million. Of this amount, severance payments accounted for €21 million and other restructuring expenses for €52 million.

Provisions for restructuring in the Animal Health segment as of December 31, 2017, totaled €6 million. Of this amount, severance payments accounted for €5 million and other restructuring expenses for €1 million.

In “All Other Segments,” provisions were established for the relocation of a shared service center in China from Shanghai to Dalian. In addition, the provisions established in past years were utilized to implement planned restructuring measures to enhance efficiency. The restructuring provisions totaled €14 million as of December 31, 2017. Of this amount, severance payments accounted for €13 million and other restructuring expenses for €1 million.

Litigations

The legal risks currently considered to be material, and their development, are described in Note “Legal Risks”.

Personnel commitments

Stock-based compensation programs

Bayer 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 profit or loss.

The following table shows the changes in provisions for the various programs:

Changes in Provisions for Stock-Based Compensation Programs

 

 

Aspire I

 

Aspire II

 

Aspire 2.0

 

Aspire I Covestro

 

Aspire II Covestro

 

Covestro Prisma

 

Total

 

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

December 31, 2016

 

61

 

203

 

85

 

17

 

48

 

15

 

429

Acquisitions / divestments

 

 

 

 

(7)

 

(22)

 

(27)

 

(56)

Additions

 

54

 

163

 

292

 

2

 

5

 

15

 

531

Utilization

 

(51)

 

(157)

 

 

(8)

 

(27)

 

 

(243)

Reversal

 

(56)

 

(167)

 

(98)

 

(3)

 

(3)

 

(1)

 

(328)

Exchange differences

 

(2)

 

(7)

 

(16)

 

(1)

 

(1)

 

(2)

 

(29)

December 31, 2017

 

6

 

35

 

263

 

 

 

 

304

The value of the Aspire tranches that were fully earned at the end of 2017, resulting in payments at the beginning of 2018, was €34 million (2016: €241 million).

The net expense for all stock-based compensation programs (excluding Covestro) was €194 million (2016: €87 million), including €5 million (2016: €5 million) for the BayShare stock participation program and expense of €1 million (2016: €1 million income) for grants of virtual Bayer shares.

The fair value of the obligations under the Aspire I, Aspire II and Aspire 2.0 programs (excluding Aspire programs for Covestro) was calculated using the Monte Carlo simulation method based on the following key parameters:

Parameters for Monte Carlo Simulation

 

 

2016

 

2017

Dividend yield

 

2.90%

 

2.46%

Risk-free interest rate

 

(0.67)%

 

(0.35)%

Volatility of Bayer stock

 

22.78%

 

15.49%

Volatility of EURO STOXX 50

 

11.66%

 

9.27%

Correlation between Bayer stock price and the EURO STOXX 50

 

0.67

 

0.71

Long-term incentive program for members of the Board of Management and other senior executives (Aspire I)

From 2005 through 2015, members of the Board of Management and other senior executives were entitled to participate in Aspire I on the condition that they purchased a certain number of Bayer shares – determined for each individual according to specific guidelines – and retained them for the full term of the program. A percentage of the executive’s annual base salary – according to his or her position – was 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 EURO STOXX 50 index over a four-year performance period, participants receive a payment of up to 300% of their individual Aspire target opportunity at the end of the period. The prices used to determine the amount of the payment are the averages of the official closing prices of Bayer shares over the last 30 stock-exchange trading days of the respective year. At the start of 2017, a payment of 270% was made for the tranche issued in 2013. A payment of 20% was made at the start of 2018 for the tranche issued in 2014.

Long-term incentive program for middle management (Aspire II)

From 2005 through 2015, other senior managers were offered Aspire II, which was similar to Aspire I but did not require a personal investment in Bayer shares. The amount of the payment is based entirely on the absolute performance of Bayer stock over a four-year period. The maximum payment is 250% of each manager’s Aspire target opportunity. The prices used to determine the amount of the payment are the averages of the official closing prices of Bayer shares over the last 30 stock-exchange trading days of the respective year. At the start of 2017, a payment of 220% was made for the tranche issued in 2013. A payment of 40% was made at the start of 2018 for the tranche issued in 2014.

Long-term incentive program Aspire 2.0

Since 2016, Aspire has been offered to all eligible employees in a new, standardized format named Aspire 2.0. For the Board of Management, there is an additional hurdle in the form of a comparison between the performance of Bayer stock and that of the EURO STOXX 50. Each tranche runs for four years. Aspire 2.0 is also based on a percentage of each employee’s annual base salary, the percentage varying according to his or her position. This target value is multiplied by the employee’s STI payment factor for the previous year to give the Aspire grant value. The STI payment factor reflects the employee’s individual performance and the business performance under the global Short Term Incentive program (STI program) is the variable income component for all managerial staff. Employees taking part in the program share in the company’s success of the past year in line with a uniform model that applies across the Group. (STI). The Aspire grant value is converted into virtual Bayer shares by dividing it by the share price at the start of the program. The program’s performance is based on these virtual shares. The fair value of the obligations is determined from the price of Bayer stock at year end and the dividends paid up to that time. The payment made at the end of each tranche is determined by multiplying the number of virtual shares by the Bayer share price at that time and adding an amount equivalent to the dividends paid during the period of the tranche. The maximum payment for Aspire 2.0 is 250% of the Aspire grant value.

BayShare 2017

All management levels and nonmanagerial 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 in 2017 was 20% (2016: 20%) of the subscription amount. Employees stated a fixed amount that they wished to invest in shares. The maximum subscription amount in Germany was set at €2,500 (2016: €2,500) or €5,000 (2016: €5,000), depending on the employee’s position. These shares must be retained until December 31, 2018.

In 2017, employees purchased a total of about 229,000 shares (2016: 259,000 shares) under the BayShare program.

Compare to Last Year