Other Provisions

Changes in the various provision categories in 2016 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, 2015

 

65

 

272

 

306

 

2,113

 

663

 

3,099

 

267

 

6,785

Additions

 

18

 

67

 

113

 

4,679

 

240

 

3,109

 

382

 

8,608

Utilization

 

(32)

 

(23)

 

(121)

 

(4,019)

 

(280)

 

(2,503)

 

(230)

 

(7,208)

Reversal

 

(12)

 

(5)

 

(29)

 

(477)

 

(123)

 

(457)

 

(48)

 

(1,151)

Reclassification to current liabilities

 

 

 

 

(12)

 

 

(1)

 

 

(13)

Interest cost

 

 

4

 

 

 

 

18

 

 

22

Exchange differences

 

2

 

6

 

7

 

91

 

12

 

25

 

15

 

158

December 31, 2016

 

41

 

321

 

276

 

2,375

 

512

 

3,290

 

386

 

7,201

The provisions recognized in the statement of financial position as of December 31, 2016, 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

2017

 

17

 

69

 

93

 

2,241

 

280

 

2,451

 

270

 

5,421

2018

 

 

31

 

79

 

66

 

152

 

147

 

6

 

481

2019

 

 

21

 

71

 

28

 

3

 

90

 

1

 

214

2020

 

 

11

 

11

 

5

 

1

 

186

 

1

 

215

2021

 

1

 

4

 

6

 

6

 

4

 

57

 

24

 

102

2022 or later

 

23

 

185

 

16

 

29

 

72

 

359

 

84

 

768

Total

 

41

 

321

 

276

 

2,375

 

512

 

3,290

 

386

 

7,201

The provisions were partly offset by claims for refunds in the amount of €110 million (2015: €97 million), which were recognized as receivables. These claims mainly related to product liability.

Restructuring

Provisions for restructuring included €179 million (2015: €180 million) for severance payments and €97 million (2015: €126 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. Provisions were established for this restructuring primarily in Japan, France and the United States. Provisions for the above and other restructuring measures in Pharmaceuticals as of December 31, 2016, totaled €66 million. Of this amount, severance payments accounted for €62 million and other restructuring expenses for €4 million.

In the Consumer Health segment, the restructuring initiated in prior years to integrate the acquired businesses continued. Provisions for restructuring in this segment totaled €8 million as of December 31, 2016. Of this amount, severance payments accounted for €7 million and other restructuring expenses for €1 million.

In the Crop Science segment, restructuring took place mainly in connection with the “Advancing our leadership strategy” program, which aims to increase customer focus, promote innovation and improve efficiency. The restructuring initiated in the United States in prior years, involving the closure of several carbamate production facilities and a formulation plant, continued in addition. Provisions for the above and other restructuring measures in Crop Science as of December 31, 2016, totaled €104 million. Of this amount, severance payments accounted for €53 million and other restructuring expenses for €51 million.

Provisions for restructuring in the Animal Health segment as of December 31, 2016, totaled €8 million. Of this amount, severance payments accounted for €5 million and other restructuring expenses for €3 million.

Provisions for restructuring at Covestro mainly existed for the closure of an MDI production facility at the site in Tarragona, Spain. The restructuring provisions at Covestro as of December 31, 2016, totaled €66 million. Of this amount, severance payments accounted for €31 million and other restructuring expenses for €35 million.

Restructuring continued in the central functions, particularly in France, to enhance their efficiency. Also included here are provisions for the residual costs for the closure of a Covestro production facility at the Belford Roxo site in Brazil. The restructuring provisions in the central functions as of December 31, 2016, totaled €24 million. Of this amount, severance payments accounted for €21 million and other restructuring expenses for €3 million.

Litigations

The legal risks currently considered to be material, and their development, are described in the 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, 2015

 

125

 

339

 

 

22

 

59

 

 

545

Additions

 

61

 

204

 

90

 

5

 

13

 

15

 

388

Utilization

 

(54)

 

(149)

 

 

(8)

 

(23)

 

 

(234)

Reversal

 

(71)

 

(194)

 

(7)

 

(2)

 

(2)

 

 

(276)

Exchange differences

 

 

3

 

2

 

 

1

 

 

6

December 31, 2016

 

61

 

203

 

85

 

17

 

48

 

15

 

429

The value of the Aspire tranches that were fully earned at the end of 2016, resulting in payments at the beginning of 2017, was €241 million (2015: €230 million).

The net expense for all stock-based compensation programs in 2016 was €118 million (2015: €248 million), including €5 million (2015: €6 million) for the BayShare program, €2 million (2015: €0 million) for Covestro’s stock participation program and €1 million income from (2015: €8 million expense 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

 

 

2015

 

2016

Dividend yield

 

1.96%

 

2.90%

Risk-free interest rate

 

(0.159) %

 

(0.670) %

Volatility of Bayer stock

 

25.61%

 

22.78%

Volatility of EURO STOXX 50

 

19.08%

 

11.66%

Correlation between Bayer stock price and the EURO STOXX 50

 

0.83

 

0.67

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. The tranche issued in 2012 expired at the end of 2015, and the maximum payment of 300% was made at the beginning of 2016. The tranche issued in 2013 expired at the end of 2016, and a payment of 270% was made at the beginning of 2017.

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

From 2005 through 2015, other senior managers were offered Aspire II, which is 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. The tranche issued in 2012 expired at the end of 2015, and the maximum payment of 250% was made at the beginning of 2016. The tranche issued in 2013 expired at the end of 2016, and a payment of 220% was made at the beginning of 2017.

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. Aspire 2.0 is also based on a target value, which is 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 a variable income component for all managerial staff. (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.

Special arrangement for Covestro employees concerning the Aspire programs

The compensation programs described above were modified for Covestro employees in December 2015 in light of the legal carve-out of the Covestro companies and the subsequent stock exchange listing of Covestro AG.

The arrangement for the 2012 tranches of both Aspire programs was the same as for Bayer employees. Based on the development of Bayer’s share price, the maximum payment amounts were reached for both programs (Aspire I and Aspire II). Payments of 300% and 250%, respectively, were therefore made at the beginning of 2016.

Valuation for the other three Aspire tranches issued in 2013, 2014 and 2015, respectively, was based on the average price of Bayer shares on the last 30 trading days of 2015 (€119.17). This price was fixed in advance as the end price. Thus the amounts of the payments from the three remaining tranches – where these were fully vested – were already finally determined at the end of 2015. A payment of at least 100% is guaranteed. The tranches issued in 2013 expired at the end of 2016, and payments of 300% (Aspire I) and 250% (Aspire II) were made at the beginning of 2017.

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

Effective January 1, 2016, Covestro established a new long-term compensation program named Prisma for the 2016-2019 performance period. Senior executives and other managers are eligible to participate. A percentage of the executive’s annual base salary – according to his or her position – is defined as a target for variable payments (Prisma target opportunity). Depending on the performance of Covestro stock including dividends paid (total shareholder return) – both in absolute terms and relative to the STOXX Europe 600 Chemicals index – over a four-year performance period, participants are granted a payment of up to 200% of their individual Prisma target opportunity at the end of the period. Payment for the performance period ending December 31, 2019, will be made in January 2020 according to the performance of Covestro stock over the period. This will be determined by comparing the average stock price on the last 30 trading days of 2019 to the price at the start of the performance period. The fair value of the obligations was calculated using the Monte Carlo simulation method based on parameters applicable at the closing date.

BayShare 2016

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 2016 was 20% (2015: 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 (2015: €2,500) or €5,000 (2015: €5,000), depending on the employee’s position. The shares thus acquired must be retained until December 31, 2017.

In 2016, employees purchased a total of about 259,000 shares (2015: 208,000 shares) under the BayShare program.

Stock participation program at Covestro in 2016

The stock participation program at Covestro named Covestment allowed employees of Covestro AG and participating Group companies in Germany to invest a fixed amount of their compensation – plus a subsidy from the company – in Covestro shares. The subsidy, which will be reassessed annually, was 30% in 2016. The total amount for which shares could be purchased was capped at €1,200 or €3,600, depending on the employee’s position. The shares were purchased at the volume-weighted average price of Covestro shares on four trading days in November 2016. Employees purchased a total of about 126,000 shares under the Covestment program. These shares must be retained until December 31, 2017.