Other Provisions

Changes in the various provision categories in 2018 were as follows:

Changes in Other Provisions

 

 

Other Taxes

 

Environ- mental protection

 

Restruc- turing

 

Trade- related commit- ments

 

Litigations

 

Personnel commit- ments

 

Miscella-neous

 

Total

 

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

December 31, 2017

 

29

 

243

 

171

 

2,481

 

393

 

2,038

 

355

 

5,710

Reclassification to refund liabilities

 

 

 

 

(2,427)

 

 

 

 

(2,427)

Reclassification to inventories

 

 

 

 

76

 

 

 

 

76

Acquisitions

 

 

480

 

33

 

275

 

596

 

258

 

339

 

1,981

Additions

 

21

 

57

 

720

 

732

 

661

 

2,553

 

626

 

5,370

Utilization

 

(7)

 

(41)

 

(122)

 

(524)

 

(228)

 

(1,803)

 

(168)

 

(2,893)

Reversal

 

(6)

 

(6)

 

(30)

 

(108)

 

(25)

 

(551)

 

(108)

 

(834)

Reclassification to current liabilities

 

 

 

(1)

 

 

 

(14)

 

 

(15)

Interest cost

 

 

6

 

 

 

4

 

3

 

3

 

16

Exchange differences

 

(2)

 

15

 

2

 

6

 

13

 

13

 

2

 

49

December 31, 2018

 

35

 

754

 

773

 

511

 

1,414

 

2,497

 

1,049

 

7,033

of which current

 

15

 

88

 

230

 

499

 

445

 

1,765

 

644

 

3,686

The provisions were partly offset by claims for refunds in the amount of €74 million (2017: €74 million), which were recognized as receivables. These claims predominantly related to product liability.

Restructuring

Provisions for restructuring included €691 million (2017: €116 million) for severance payments and €82 million (2017: €55 million) for other restructuring expenses, which mainly comprised other costs related to the closure of research or production facilities. The breakdown of provisions by segment was as follows: €351 million at Pharmaceuticals (2017: €45 million), €57 million at Consumer Health (2017: €33 million), €240 million at Crop Science (2017: €73 million), €6 million at Animal Health (2017: €6 million) and €119 million at Corporate Functions / All Other Segments (2017: €14 million).

In connection with an extensive restructuring program, provisions were established in almost all segments in 2018. The aim of this program is to strengthen Bayer’s core businesses, adjust structures and enhance productivity and profitability by implementing a series of measures through 2022. Provisions were established in 2018 for programs that have been communicated in sufficient detail. Further provisions are anticipated for 2019.

In the Pharmaceuticals segment, provisions were primarily established in view of the planned reorganization of R&D. By integrating research and development into a joint organization, Bayer is looking to enhance value and productivity within the Pharmaceuticals portfolio.

Provisions were also established for the hemophilia business. Due to a significant increase in competition, the factor VIII facility in Wuppertal will not be utilized and the production of all recombinant factor VIII products will in the future be focused in Berkeley, California, United States, where work has already begun on the corresponding restructuring measures for our biotechnology products to enhance production process efficiency.

At Consumer Health, a comprehensive restructuring program called “Fit to Win” was launched to make this segment a market leader by driving the transformation in the health care industry and creating a more agile and faster organization with fewer decision-making levels.

In the Crop Science segment, provisions were established in connection with the restructuring of the distribution organization and the crop protection business in France. In Germany, the focus was on organizational adjustments due to the integration of Monsanto. The restructuring measures implemented in previous years at the Institute site in West Virginia, United States, in connection with the termination of thiodicarb production have for the most part been completed.

Appropriate accounting measures were also taken in the Corporate Functions segment in connection with planned restructuring as part of the integration of Monsanto.

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

 

Total

 

 

€ million

 

€ million

 

€ million

 

€ million

December 31, 2017

 

6

 

35

 

263

 

304

Acquisitions / divestments

 

 

 

 

Additions

 

20

 

42

 

279

 

341

Utilization

 

(5)

 

(29)

 

(8)

 

(42)

Reversal

 

(22)

 

(48)

 

(254)

 

(324)

Exchange differences

 

1

 

 

9

 

10

December 31, 2018

 

 

 

289

 

289

The value of the Aspire tranches that were fully earned at the end of 2018 amounted to €0 million (2017: €34 million). As such, no payment was made in January 2019.

The net expense for all stock-based compensation programs was €21 million (2017: €194 million), including €5 million (2017: €5 million) for the BayShare stock participation program and income of €1 million (2017: expense of €1 million) pertaining to grants of virtual Bayer shares. See Note “Information on derivatives” for information on the hedging of obligations under stock-based employee compensation programs.

The fair value of the obligations under the Aspire I and Aspire II programs was calculated using the Monte Carlo simulation method based on the following key parameters:

Parameters for Monte Carlo Simulation

 

 

2017

 

2018

Dividend yield

 

2.46%

 

3.60%

Risk-free interest rate

 

(0.35)%

 

(0.46)%

Volatility of Bayer stock

 

15.49%

 

33.26%

Volatility of EURO STOXX 50

 

9.27%

 

16.94%

Correlation between Bayer stock price and the EURO STOXX 50

 

0.71

 

0.76

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

Between 2005 and 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 their 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. At the start of 2018, a payment of 20% was made for the tranche issued in 2014. No payment was made for the final tranche issued in 2015.

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. At the start of 2018, a payment of 40% was made for the tranche issued in 2014. No payment was made for the final tranche issued in 2015.

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 their 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). 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 2018

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 2018 was 20% (2017: 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 (2017: €2,500) or €5,000 (2017: €5,000), depending on the employee’s position. These shares must be retained until December 31, 2019.

In 2018, employees purchased a total of about 369,000 shares (2017: 229,000 shares) under the BayShare program.

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