Annual Report • Feb 26, 2010
Annual Report
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| » Key Data. 2 | |
|---|---|
| » Credo. 3 | |
| » Chairman's Letter 4 | |
| » Board of Management. 8 | |
| » Report of the Supervisory Board 10 | |
| investor information | |
| » Bayer Stock and Bonds. 14 | |
| BAYER MA GAZINE |
|
| » Healthy Circulation 20 | |
| » Plants of the Future 26 | |
| » Visions with Films. 32 | |
| » Highlights 2009. 38 | |
| » combined management report | |
| of the bayer group and bayer ag 44 | |
| » Consolidated Financial Statements | |
| of the Bayer Group 137 | |
| Further Information | |
| » Governance Bodies 256 | |
| » Organization Chart. 259 | |
| » Organization Chart. 259 | |
|---|---|
| » List of Tables and Graphics 260 | |
| » Glossary 263 | |
| » Index 268 | |
| » Global Commitment to Sustainability 270 | |
| » The Bayer Group 271 | |
| » At Home Throughout The World 272 | |
| » Five-Year Financial Summary 273 | |
| » Financial Calendar, Masthead, Disclaimer. 274 |
As an inventor company Bayer aims for innovation, supported by its 12,400-strong global research and development team. One member of that team is Dr. Xin Ma, Head of the Global Drug Discovery Innovation Center China in Beijing. The photo shows the scientist preparing an experiment during drug development.
| 2008 | 2009 | Change | ||||
|---|---|---|---|---|---|---|
| € million | € million | % | ||||
| Bayer Group | ||||||
| Sales | 32,918 | 31,168 | –5.3 | |||
| EBITDA1 | 6,266 | 5,815 | –7.2 | |||
| EBITDA before special items | 6,931 | 6,472 | –6.6 | |||
| EBITDA margin before special items | 21.1% | 20.8% | ||||
| EBIT2 | 3,544 | 3,006 | –15.2 | |||
| EBIT before special items | 4,342 | 3,772 | –13.1 | |||
| Income before income taxes | 2,356 | 1,870 | –20.6 | |||
| Net income | 1,719 | 1,359 | –20.9 | |||
| Earnings per share (€) 3 | 2.22 | 1.70 | –23.4 | |||
| Core earnings per share (€) 4 | 4.17 | 3.64 | –12.7 | |||
| Gross cash flow5 | 5,295 | 4,658 | –12.0 | |||
| Net cash flow6 | 3,608 | 5,375 | +49.0 | |||
| Net financial debt | 14,152 | 9,691 | –31.5 | |||
| Capital expenditures as per segment table | 1,982 | 1,669 | –15.8 | |||
| Research and development expenses | 2,653 | 2,746 | +3.5 | |||
| Dividend per Bayer AG share (€) | 1.40 | 1.40 | 0.0 | |||
| Bayer HealthCare | ||||||
| External sales | 15,407 | 15,988 | +3.8 | |||
| EBITDA1 | 3,692 | 4,148 | +12.4 | |||
| EBITDA before special items | 4,157 | 4,468 | +7.5 | |||
| EBITDA margin before special items | 27.0% | 27.9% | ||||
| EBIT2 | 2,181 | 2,640 | +21.0 | |||
| EBIT before special items | 2,764 | 3,012 | +9.0 | |||
| Gross cash flow5 | 3,045 | 3,153 | +3.5 | |||
| Net cash flow6 | 2,259 | 3,431 | +51.9 | |||
| Bayer CropScience | ||||||
| External sales | 6,382 | 6,510 | +2.0 | |||
| EBITDA1 | 1,450 | 1,311 | –9.6 | |||
| EBITDA before special items | 1,603 | 1,508 | –5.9 | |||
| EBITDA margin before special items | 25.1% | 23.2% | ||||
| EBIT2 | 918 | 798 | –13.1 | |||
| EBIT before special items | 1,084 | 1,017 | –6.2 | |||
| Gross cash flow5 | 1,192 | 1,043 | –12.5 | |||
| Net cash flow6 | 736 | 745 | +1.2 | |||
| Bayer MaterialScience | ||||||
| External sales | 9,738 | 7,520 | –22.8 | |||
| EBITDA1 | 1,041 | 341 | –67.2 | |||
| EBITDA before special items | 1,088 | 446 | –59.0 | |||
| EBITDA margin before special items | 11.2% | 5.9% | ||||
| EBIT2 | 537 | (266) | • | |||
| EBIT before special items | 586 | (126) | • | |||
| Gross cash flow5 | 850 | 319 | –62.5 | |||
| Net cash flow6 | 782 | 849 | +8.6 | |||
1 EBITDA: EBIT plus amortization of intangible assets and depreciation of property, plant and equipment. EBITDA, EBITDA before special items and EBITDA margin are not defined in the International Financial Reporting Standards and should therefore be regarded only as supplementary information. The company considers underlying EBITDA to be a more suitable indicator of operating performance since it is not affected by depreciation, amortization, write-downs/writebacks or special items. The company also believes that this indicator gives readers a clearer picture of the results of operations and ensures greater comparability of data over time. The underlying EBITDA margin is calculated by dividing underlying EBITDA by sales. See also Chapter 4.2 "Calculation of EBIT(DA) Before Special Items," page 74.
2 EBIT as shown in the income statement
6 Net cash flow = cash flow from operating activities according to IAS 7
3 Earnings per share as defined in IAS 33 = net income divided by the average number of shares. For details see Note [16] to the consolidated financial statements, page 193f.
4 Core earnings per share is not defined in the International Financial Reporting Standards. The company believes that this indicator gives readers a clearer picture of the results of operations and ensures greater comparability of data over time. The calculation of core earnings per share is explained in Chapter 4.3 on page 75. 5 Gross cash flow = income from continuing operations after taxes, plus income taxes, plus non-operating result, minus income taxes paid or accrued, plus depre-
ciation, amortization and write-downs, minus write-backs, plus /minus changes in pension provisions, minus gains /plus losses on retirements of noncurrent assets, plus non-cash effects of the remeasurement of acquired assets. The change in pension provisions includes the elimination of non-cash components of the operating result. It also contains benefit payments during the year. See also Chapter 4.5 "Liquidity and Capital Expenditures of the Bayer Group," page 78ff.
Bayer is a global enterprise with core competencies in the fields of health care, nutrition and high-tech materials.
As an inventor company, we set trends in research-intensive areas. Our products and services are designed to benefit people and improve their quality of life. At the same time we aim to create value through innovation, growth and high earning power.
We are committed to the principles of sustainable development and to our social and ethical responsibilities as a corporate citizen.
2009 was an especially challenging year. Despite our best efforts, we too were unable to prevent a decline in sales and earnings. Yet thanks to our strategic alignment, we navigated the economic downturn with comparative success. Sales fell by 5.3 percent to €31.2 billion, and we limited the drop in earnings to 6.6 percent. ebitda before special items came in at €6.5 billion, making 2009 operationally one of the three best years in Bayer's history. We also improved net cash fl ow by 49 percent to €5.4 billion. This enabled us to reduce net fi nancial debt by €4.5 billion – a bigger drop than expected – to €9.7 billion.
These achievements were the result of an outstanding level of commitment by our employees, to whom I extend my sincere thanks on behalf of the entire Board of Management.
Our business performance varied from one subgroup to another. HealthCare again registered growth in both sales and earnings that was driven by all divisions. This subgroup's activities account for about half of our sales and some 70 percent of underlying ebitda. We strategically strengthened our HealthCare subgroup with further acquisitions and a number of license agreements in key areas. These transactions included research, development and distribution partnerships, particularly in oncology, the purchase of exclusive rights to an insulin product for the Chinese market, and the acquisition of two dermatology products in the United States.
CropScience further increased sales and market share, with our young products again showing above-market growth. Thus in 2009 we already achieved an important target: €2 billion in sales of products based on active ingredients launched since 2000. In terms of earnings, CropScience was unable to match the record level of 2008 due to higher raw material costs and negative currency effects. Strategically, however, there were a number of highlights, ranging from extensive license agreements in the fi eld of plant traits to the acquisition of u.s.-based biotech company Athenix, which was Bayer's largest transaction in 2009.
For MaterialScience, it was a very diffi cult year as expected. Yet business recovered tangibly as the year went on. The subgroup initiated a rapid, broad response to the sharp drop in demand with measures such as temporary plant shutdowns, production cutbacks, and short-term reductions in working hours and compensation. These actions paid off. We also accelerated the implementation of our restructuring programs and applied strict cost management.
It goes without saying that you, our stockholders, should benefi t from the relatively stable performance of our business. The Board of Management and the Super visory Board are therefore proposing to pay a dividend for 2009 of €1.40 per share, the same as in the previous year. This payout refl ects the Bayer Group's operational earning power and future perspectives.
We brought 2009 to a successful close and are optimistic for 2010. This year we are targeting currency- and portfolio-adjusted sales growth of more than 5 percent and aim to increase ebitda before special items toward €7 billion. Core earnings per share are expected to improve by about 10 percent.
Having largely achieved our current target margins, our main focus for the future is on creating value through profi table growth. To do this we plan to continue investing primarily in our research and development pipeline, in BioScience and in the emerging markets. We expect to achieve steady currency- and portfolio-adjusted sales growth of approximately 5 percent annually through 2012 and plan to raise ebitda before special items to around €8 billion within this period. We are targeting an average 10 percent annual improvement in core earnings per share, which would mean an increase to around €5 per share.
Today we are benefi ting from the work we have done in recent years to align the enterprise toward innovation and growth and give it a competitive structure.
That work began with the biggest reorganization in Bayer's history. We separated the Group's strategic management from the day-to-day running of the business, created clear lines of responsibility and focused our activities more closely on their respective markets. This new organizational structure proved to be a solid foundation for our subsequent activities.
We focused our portfolio on the core areas of health care, nutrition and high-tech materials. The acquisition of Schering AG, Berlin, Germany, crucially strengthened our pharmaceutical operations. Since 2002 we have acquired or divested businesses worth a total of over €43 billion in order to restructure the Bayer Group.
Since the reorganization – in other words, between 2002 and 2009 – we implemented effi ciency improvement and cost containment measures with a total volume of some €4 billion, completing the last of the restructuring programs last year. There can be no doubt that we would not have mastered the crisis so well if we had not transformed our portfolio and increased our effi ciency.
This is also refl ected in our stock market performance, which was very positive last year at nearly 40 percent. Bayer shares thus trended signifi cantly better than the dax or the euro stoxx 50. Since 2005 our stock has appreciated by an average of 22 percent a year, taking dividends into account.
As you can see, long-term alignment and sustainable business management have been the top priority at Bayer for many years. And this strategy also proves effective in a diffi cult environment.
An important milestone is our new sustainability strategy, which we presented last year. We are contributing Bayer products and the expertise of our employees to eight international lighthouse projects in the areas of health care, nutrition and climate protection to help drive sustainable development forward throughout the world. These activities once again underline our strategic objective of balancing ecological, economic and social needs.
A special focus has been set with our foundation activities. Greater investment in education is needed to safeguard the future. In this context, the Bayer Science & Education Foundation is providing fi nancial assistance for projects designed to improve science teaching in schools. Since the launch of our school support program at the end of 2007, we have already facilitated more than 100 projects with total funding of over €1.25 million.
Our direction is clear: as an inventor company, Bayer stands for research and development. That's why the cover of this Annual Report is dedicated to research. The picture shows the director of our new HealthCare research center in China.
Innovation is vital for a company's future. With this in mind, we are maintaining our commitment to research and development even in these challenging times. In 2009 we invested €2.75 billion in research and development – the largest amount in Bayer's 146-year history. These expenditures are intended to lead to pioneering innovations that will benefi t future generations too.
This fall, after 44 years with Bayer and more than eight years as Chairman of the Board of Management, I will relinquish my responsibility for steering the company. I would like to thank Bayer for the opportunity to have such an interesting, challenging and varied career. My thanks are also due to all the colleagues who have shown such dedication and commitment to Bayer over the years. of Bayer Table of Contents
In addition, I would like to thank you, our stockholders, for the trust you have placed in me and the entire Board of Management in recent years. I ask that you give the same support to my successor, Dr. Marijn E. Dekkers, and the management team in continuing Bayer's successful course.
Sincerely,
WERNER WENNING Chairman of the Board of Management of Bayer AG
Werner Wenning has been Chairman of the Bayer AG Board of Management since April 2002. Born in Leverkusen in 1946, Wenning joined the company in 1966 as a commercial trainee. He held a number of positions with Bayer in Germany and abroad, serving as managing director of Bayer subsidiaries in Peru and Spain and later as Head of the Corporate Planning and Controlling Division. Wenning was fi rst appointed to the Bayer AG Board of Management as Chief Financial Offi cer in February 1997. Werner Wenning is married with two daughters.
DR. MARIJN DEKKERS
Born in 1957 in the Dutch city of Tilburg, Dekkers studied chemistry and chemical engineering in Nijmegen and Eindhoven. After gaining a Ph.D., he began a career in research with General Electric in the United States. In 1995 he moved to Honeywell. In 2000 Dekkers was appointed Chief Operating Offi cer of Thermo Electron Corporation, becoming President and ceo two years later. This company later acquired Fisher Scientifi c and was renamed Thermo Fisher Scientifi c Inc. He succeeds Werner Wenning effective October 1, 2010. Marijn Dekkers is married with three daughters.
Born in Krefeld in 1962, Werner Baumann studied economics in Aachen and Cologne. He joined Bayer AG in 1988, where his fi rst duties were in the Corporate Finance Department. Baumann subsequently held positions in Spain and the u.s. before returning to Germany in 2002 to become a member of the Executive Committee of the newly formed Bayer HealthCare subgroup and a year later a member of its Board of Management, also serving as Labor Director. He succeeds Klaus Kühn effective May 1, 2010. Werner Baumann is married with four children.
Born in Berlin in 1952, Klaus Kühn studied mathematics and physics at the Technical University of Berlin, gaining a mathematics degree in 1978. He also studied in the United States, where he obtained a Master of Business Administration. Kühn joined Bayer AG in 1998 as Head of the Finance Section, and shortly afterwards was made Head of the Group Finance Division. He was appointed to the Bayer AG Board of Management in May 2002. Klaus Kühn is married with two daughters.
Born in Stuttgart in 1951, Wolfgang Plischke studied biology at the University of Hohenheim. Having gained his Ph.D., Plischke began his career with Bayer at the subsidiary Miles in 1980. He held a number of positions in Germany and abroad, becoming Head of the Pharmaceuticals Business Group in North America in 2000. Two years later he took charge of the Pharmaceuticals Business Group of Bayer AG. Plischke was appointed to the Bayer AG Board of Management in March 2006. He has been Chairman of the German Association of Research-Based Pharmaceutical Companies since December 2007. Wolfgang Plischke is married with two sons.
Strategy · Human Resources · Labor Director · Americas, Africa and Middle East regions
Born in Leverkusen in 1953, Richard Pott studied physics at the University of Cologne, where he obtained his Ph.D. In 1984 Pott joined the company's Central Research Division. After holding various positions in the Corporate Staff Division, he became Head of Corporate Planning and Controlling in 1997 and Head of the former Specialty Products Business Group in 1999. He was appointed to the Bayer AG Board of Management in May 2002. Richard Pott is married with three children.
From left: Dr. Wolfgang Plischke, Dr. Marijn Dekkers, Dr. Richard Pott, Werner Wenning, Werner Baumann, Klaus Kühn
During 2009 the Supervisory Board monitored the conduct of the company's business on a regular basis with the aid of detailed written and oral reports received from the Board of Management, and also acted in an advisory capacity. In addition, the Chairman of the Supervisory Board and the Chairman of the Board of Management maintained a constant exchange of information. In this way the Supervisory Board was kept continuously informed about the company's intended business strategy, corporate planning (including fi nancial, investment and human resources planning), earnings performance, the state of the business and the situation in the company and the Group as a whole.
The documents relating to Board of Management decisions or actions which – by law or under the articles of incorporation or the rules of procedure – required the approval of the Supervisory Board were inspected by the Supervisory Board at its plenary meetings, sometimes after preparatory work by the committees. In certain cases the Supervisory Board gave its approval on the basis of documents circulated to its members. The Supervisory Board was involved in decisions of material importance to the company. We discussed at length the business trends described in the reports from the Board of Management and the prospects for the development of the Bayer Group as a whole, the individual organizational units and the principal affi liated companies in Germany and abroad.
Four plenary meetings of the Supervisory Board took place during 2009. In addition, two resolutions were passed outside of the meetings. One of these concerned the submission of a binding offer to acquire Athenix Corp., and the other related to an agreement with Genzyme Corp. to alter certain aspects of the existing collaboration and transfer the hematological oncology portfolio to Genzyme. No member of the Supervisory Board attended fewer than half of its meetings. All members of the Board of Management regularly attended the meetings of the Supervisory Board.
The deliberations of the Supervisory Board focused on questions relating to the strategies and business activities of the Group as a whole and of the subgroups, as well as on personnel decisions in connection with the appointment of successors to Werner Wenning and Klaus Kühn. Other topics were discussed at each of the meetings. At the meeting held in February, the Supervisory Board dealt at length with the Bayer Group's risk management system. At its September meeting the Supervisory Board appointed Dr. Marijn E. Dekkers a member of the Board of Management effective January 1, 2010, and Chairman of the Board of Management effective October 1, 2010. It also appointed Werner Baumann to the Board of Management effective January 1, 2010 and resolved on the service contracts
of both the new Board of Management members. At the meeting in December 2009, the Supervisory Board adapted the compensation system for the members of the Board of Management to the new statutory requirements and resolved on necessary amendments to their service contracts. At the meeting in December 2009, the Board of Management presented its planning for the business operations, the fi nances and the asset and liability structure of the Bayer Group in the years 2010 through 2012. This meeting also discussed the new version of the German Corporate Governance Code, approved the issuance of a new declaration of compliance and resolved on amendments to the Supervisory Board's rules of procedure.
The Supervisory Board has a Presidial Committee, an Audit Committee, a Human Resources Committee and a Nominations Committee*.
* The description of the responsibilities and membership of the committees, which forms part of the Report of the Supervisory Board, can be found in the Corporate Governance Report on page 88 of this Annual Report and therefore is not reproduced here.
In 2009 the Presidial Committee of the Supervisory Board resolved on two amendments to the wording of the articles of incorporation necessitated by the issuance of shares to service conversion rights under a convertible bond. The Presidial Committee was not required to convene in 2009 in its capacity as the Mediation Committee under Section 27 Paragraph 3 of the German Codetermination Act.
The Audit Committee met four times during the year, addressing in particular the company's and the Group's fi nancial reporting, the Group's risk management system, the internal control system and corporate compliance issues. The Audit Committee also set the budget for the services of the external auditor and discussed with the auditor the main areas of the audit for the 2009 fi scal year. The auditor was present at all the meetings of the Audit Committee, reporting in detail on the audit work and the audit reviews of the interim fi nancial statements.
The meetings of the Audit Committee also dealt with a number of other topics. At the February meeting, it discussed the risk report, the risk management system, legal risks and corporate compliance. At this meeting it also submitted a recommendation to the full Supervisory Board concerning the resolution to be put before the Annual Stockholders' Meeting on the appointment of the auditor of the fi nancial statements. A focus of the April meeting was on the report of the Compliance Offi cer. At its October meeting, the Audit Committee deliberated on the most recent changes to the International Financial Reporting Standards (ifrs) and their consequences for the Bayer Group.
The Human Resources Committee convened on three occasions and also passed one resolution after the relevant documents had been circulated to its members. The subjects of the meetings and of this resolution passed outside of the meetings were predominantly matters concerning the compensation of the Board of Management. At its meeting in September, the Human Resources Committee also discussed the departure of Werner Wenning and Klaus Kühn, which will become effective during 2010, and the planned appointment of two new members, Dr. Marijn E. Dekkers and Werner Baumann. Recommendations concerning the related resolutions were submitted to the full Supervisory Board. At its December meeting, the Human Resources Committee addressed in detail the consequences of the newly enacted German Law on the Appropriateness of Management Board Compensation. It recommended that the Supervisory Board adapt the compensation system for the members of the Board of Management and make the necessary amendments to their service contracts.
On one occasion in 2009, in accordance with its responsibilities, the Nominations Committee discussed possible candidates for future election to the Bayer AG Supervisory Board as representatives of the stockholders.
The meetings and decisions of the committees were prepared on the basis of reports and other information provided by the Board of Management. Members of the Board of Management regularly attended the committee meetings. Reports on the committee meetings were presented at the plenary meetings of the Supervisory Board.
The Supervisory Board dealt with the ongoing development of corporate governance at Bayer, taking into account the amendments made to the German Corporate Governance Code in June 2009. At its meeting in December, the Supervisory Board amended its own rules of procedure in line with the new recommendations of the Code and the new statutory requirements. In December 2009 the Board of Management and the Supervisory Board issued a new declaration of compliance, which is also reproduced in the Corporate Governance Report on page 88 of this Annual Report.
The fi nancial statements of Bayer AG were prepared according to the requirements of the German Commercial Code and Stock Corporations Act. The consolidated fi nancial statements of the Bayer Group were prepared according to the German Commercial Code and the International Financial Reporting Standards (ifrs). The combined management report was prepared according to the German Commercial Code. The auditor, PricewaterhouseCoopers Aktiengesellschaft, Wirtschaftsprüfungsgesellschaft, Essen, has audited the fi nancial statements of Bayer AG, the consolidated fi nancial statements of the Bayer Group and the combined management report. The conduct of the audit is explained in the auditor's reports. The auditor fi nds that Bayer has complied, as appropriate, with the German Commercial Code, the German Stock Corporations Act and / or the International Financial Reporting Standards endorsed by the European Union, and issues an unqualifi ed opinion on the fi nancial statements of Bayer AG and the consolidated fi nancial statements of the Bayer Group. The fi nancial statements of Bayer AG, the consolidated fi nancial statements of the Bayer Group, the combined management report and the audit reports were submitted to all members of the Supervisory Board. They were discussed in detail by the Audit Committee and at a plenary meeting of the Supervisory Board. The auditor submitted a report on both occasions and was present during the discussions.
We examined the fi nancial statements of Bayer AG, the proposal for distribution of the profi t, the consolidated fi nancial statements of the Bayer Group and the combined management report. We found no objections, thus we concur with the result of the audit. We have approved the fi nancial statements of Bayer AG and the consolidated fi nancial statements of the Bayer Group prepared by the Board of Management. The fi nancial statements of Bayer AG are thus confi rmed. We are in agreement with the combined management report and, in particular, with the assessment of the future development of the enterprise. We also concur with the dividend policy and the decisions concerning earnings retention by the company. We assent to the proposal for distribution of the profi t, which provides for payment of a dividend of €1.40 per share.
The Supervisory Board would like to thank the Board of Management and all employees for their dedication and hard work in 2009.
Leverkusen, February 2010 For the Supervisory Board
DR. MANFRED SCHNEIDER Chairman
Bayer stock showed a strong performance in 2009, appreciating by nearly 40 percent, while the dax ended the year up 24 percent. The Board of Management and the Supervisory Board propose the distribution of a dividend of €1.40 per share, the same as for the previous year.
Substantial price movements characterized the international stock markets in 2009. In the wake of the economic and fi nancial crisis, the dax had slipped roughly 24 percent by early March to its year low of 3,666 points. This was also its lowest level for fi ve years. However, the market rallied considerably in the months that followed, and the dax closed the year at 5,957 points, up some 24 percent from the end of 2008. On a longer-term view, 2009 was an above-average year on the German stock market. In only three of the past ten years did the dax achieve a better performance: 1999 (approx. 39 percent), 2003 (approx. 37 percent) and 2005 (approx. 27 percent).
Prices trended similarly in other European countries, Asia and North America, with the dj euro stoxx 50 up some 26 percent on the year, the s&p 500 in the u.s. gaining around 23 percent and Japan's Nikkei 225 rising 19 percent.
The positive trend in equities, especially in the second half of the year, was driven primarily by central bank and fi scal policy and investor optimism about an economic recovery.
In 2009, Bayer stock outperformed the dax and euro stoxx 50 indices for the third consecutive year, gaining 34.7 percent on the year. Including the dividend of €1.40 per share for 2008 paid in May 2009, its performance amounted to 39.8 percent. The shares ended 2009 at €55.96, very close to their high for the year.
Bayer's market capitalization showed an even stronger improvement. The conversion of the mandatory convertible bond in June 2009 boosted the number of shares to 826,947,808. In sum, our market capitalization rose last year by nearly 46 percent to over €46 billion.
The trading volume in our shares receded by about 30 percent from the previous year to an average of 4.3 million per day. However, Bayer stock still trended better than the average for the Deutsche Börse cash market, which was down more than 50 percent compared with 2008.
In the fi rst half of 2009, the ability to raise capital in order to refi nance debt and create an additional liquidity reserve for risk management was almost entirely confi ned to companies with investment-grade ratings. Although risk premiums were far higher than before the collapse of the u.s. investment bank Lehman Brothers, they were more favorable than in the fourth quarter of 2008 and below those on equivalent bank loans.
The decline in risk premiums during the year can be seen from the trend in credit default swaps (cds), depicted in graphic 2.2. The market price of these tradable insurance contracts, which are used to hedge against default of a borrower, depends on the underlying credit risk and thus helps to determine the credit margin when raising debt.
Bayer's good credit rating and sound reputation on the capital market enabled us even in the fi rst half of 2009 to raise capital for purposes of refi nancing and creating a safety cushion. In the fi rst quarter of 2009 we issued promissory notes (Schuldscheine) with a total face value of €620 million and a €1.3 billion Eurobond.
A list of the bonds issued by Bayer can be found in Note [27] to the consolidated fi nancial statements on page 227.
For more information about Bayer on the capital market, go to www.investor.bayer.com
| Bayer Stock Data | [Table 2.1] | ||
|---|---|---|---|
| 2008 | 2009 | ||
| Earnings per share | € | 2.22 | 1.70 |
| Core earnings per share 1 | € | 4.17 | 3.64 |
| Cash fl ow per share | € | 6.93 | 5.63 |
| Equity per share | € | 21.38 | 22.92 |
| Dividend per share | € | 1.40 | 1.40 |
| Year-end price 2 | € | 41.55 | 55.96 |
| High for the year 2 | € | 65.68 | 56.45 |
| Low for the year 2 | € | 36.83 | 32.69 |
| Total dividend payment | € million | 1,070 | 1,158 |
| Shares entitled to the dividend (Dec. 31) | million | 764.34 | 826.95 |
| Market capitalization (Dec. 31) | € billion | 31.8 | 46.3 |
| Average daily trading volume | million | 6.0 | 4.3 |
| Price / EPS 2 | 18.7 | 32.9 | |
| Price / core EPS 1, 2 | 10.0 | 15.4 | |
| Price / cash fl ow 2 | 6.0 | 9.9 | |
| Dividend yield | % | 3.4 | 2.5 |
For details on the calculation of core earnings per share, see the combined management report, Chapter 4.3, page 75.
2 XETRA closing prices (source: Bloomberg)
1 source: Bloomberg
2 iTraxx Europe is a CDS index comprising the CDS of 125 companies (including fi nancial institutions) with investment-grade ratings.
A long-term investor who purchased Bayer shares for €10,000 fi ve years ago and reinvested all dividends would have seen the value of the position grow to €27,247 as of December 31, 2009, giving an average annual return of 22.2 percent.
| Long-Term Returns on Bayer Stock in % p.a. (Dividends Reinvested) [Table 2.2] |
||||||||
|---|---|---|---|---|---|---|---|---|
| Annual returns | 1 year 2009 | 3 years 2007 – 09 | 5 years 2005 – 09 | |||||
| % | % | % | ||||||
| Bayer | + 39.8 | + 14.3 | + 22.2 | |||||
| DAX | + 23.8 | – 3.3 | + 7.0 | |||||
| DJ EURO STOXX 50 | + 25.6 | – 7.4 | + 3.1 |
Bayer stock is included in many important sustainability indices and funds that single out companies with sustainable and responsible corporate strategies. These include the Dow Jones Sustainability Index World, the ftse4Good index series, the Storebrand sri Funds and the aspi (Advanced Sustainable Performance Indices) Eurozone. Our sustainability reporting is based on the guidelines issued by the Global Reporting Initiative.
In 2009 Bayer was honored by the Carbon Disclosure Project (cdp) for its climate reporting, and included in the Carbon Disclosure Leadership Index (cdli) as the world's best company on this criterion. The cdli ranks companies on the range and depth of carbon disclosure.
Bayer also explained its commitment to sustainability at one-on-one meetings and conferences with investors.
The Board of Management and the Supervisory Board will propose to the Annual Stockholders' Meeting that a dividend of €1.40 per share be paid for 2009, the same as for the previous year. This results in a payout ratio of approximately 38 percent calculated on core earnings per share (see page 75), which is within the target corridor of 30 to 40 percent.
The dividend yield calculated on the share price of €55.96 at year end 2009 amounts to 2.5 percent and the total dividend payment to €1,158 million.
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| 0 | ||||||||||
| 1,022 | 657 | 657 | 365 | 402 | 694 | 764 | 1,032 | 1,070 | 1,158 |
In September 2009 Bayer AG switched its entire capital stock of 826,947,808 bearer shares to registered shares at a conversion ratio of 1:1. Listing our stockholders in the share register is intended to facilitate contact with them and increase transparency.
As of December 31, 2009, approximately 320,000 stockholders worldwide were listed in our share register.
The following graphic shows the geographical distribution of our stockholders, based on the results of an international survey conducted in November 2009:
The share register offers us additional opportunities to identify our stockholders and more accurately target our communications. The switch to registered shares has thus increased the effi ciency of our investor relations activities.
Last year, we held some 400 one-on-one meetings with investors at 26 fi nancial centers, providing them with information on topics of current interest relating to the Bayer Group. Along with our quarterly reporting, the pharmaceuticals research pipeline remains the prime focus of investors' attention. As in the past, we held conference calls, which were also streamed on the Internet, to keep stockholders informed of progress with drug products or candidates such as Xarelto® or riociguat.
Our Bayer MaterialScience subgroup also received increased attention at the start of the year in light of the economic situation. The consequences of the fi nancial and economic crisis and our actions to counter its effects were discussed at length.
Investors also followed topics relating to the CropScience subgroup, such as new license agreements and collaborations and the acquisition of Athenix Corp.
Our ir activities once again garnered several awards from investors and analysts in 2009. For example, our investor relations team was named the best in the chemicals sector following a survey conducted by the u.s. capital market journal Institutional Investor and was similarly honored in the uk & Continental Europe Awards presented by IR Magazine. We are also proud to have secured third place among euro stoxx 50 companies in the 2009 Investor Relations Awards bestowed by the German business magazine Capital.
Switch to registered shares facilitates contact and increases transparency
Bayer HealthCare
The risk of cardiovascular disease increases with age, but the drug products currently available offer only limited prospects for successful treatment. Scientists at Bayer are addressing this challenge by focusing on novel substances to treat serious heart and lung diseases. Their efforts have met with success, and the fi rst promising compounds for the treatment of pulmonary hypertension and heart failure are at an advanced stage of clinical development.
In the pulmonary circulation, blood low in oxygen fl ows from the heart into the alveolar blood vessels, where carbon dioxide (co2) is released and the blood takes up oxygen (o2) from the
Bayer researcher Dr. Johannes-Peter Stasch (left) and Professor Hossein Ardeschir Ghofrani from Giessen University Hospital work with a model of a lung.
Continuous high performance, 24 hours a day, often for more than 80 years. The human heart performs like no machine can. This hollow muscle contracts some 70 times every minute. A healthy heart pumps six liters of blood through the circulation during this time, transporting oxygen and nutrients to every cell in the body. If the heart and circulation remain healthy, people can continue to lead active lives and cope with everyday tasks up to an advanced age.
In December 2009 a Bayer research team received the German Future Prize from German President Horst Köhler for the development of the new anticoagulant Xarelto®. A video about the award can be found in the Podcast Center at www.podcast.bayer.com. For more information see "Highlights" on page 38.
Yet a strong heart and intact blood vessels cannot be taken for granted. Diseases such as myocardial infarction, stroke and acute heart failure are still among the most common causes of death. According to estimates by the World Health Organization, 17.5 million people around the world died from cardiovascular diseases in 2005 alone. By 2015, the annual fi gure is expected to rise to 20 million. "These statistics underline the great medical need for innovative, effective and well tolerated products to treat or prevent serious diseases," says Dr. Frank Misselwitz, head of Global Clinical Development for the Cardiovascular and Coagulation
Therapeutic Area at Bayer Schering Pharma. "With our comprehensive portfolio of in-market and pipeline products for the prevention and treatment of acute and chronic cardiovascular diseases, Bayer Schering Pharma is helping to meet this need and close therapeutic gaps."
The company's researchers are concentrating on novel substances in order to overcome the limitations of the medications currently used. Two of the most recent examples from a series of promising drug candidates are Xarelto® – the novel oral Factor Xa inhibitor developed for a number of indications – and riociguat for the treatment of pulmonary hypertension. "We are taking this approach in preparation for the challenges of the future," explains Misselwitz. One of these challenges is an aging society. In addition, the lifestyles of many people around the world are changing. They exercise too little and eat too many fatty and sweet foods. Over the years, a lack of exercise, obesity and other risk factors can cause changes to the blood vessels. Arteriosclerosis
Julin Tong tests new formulations of the active ingredient acetylsalicylic acid at Bayer HealthCare's u.s. facility in Morristown, New Jersey.
" We are taking this approach in preparation for the challenges of the future."
DR. FRANK MISSELWITZ Head of Global Clinical Development, Cardiovascular and Coagulation, Bayer Schering Pharma
and high blood pressure reduce the heart's performance and can be serious warning signs of potentially life-threatening events such as myocardial infarction.
Doctors can now rely on a number of wellestablished drug products to treat many risk factors such as high blood pressure and diabetes, not least thanks to the pioneering work of Bayer scientists. Adalat®, for example, an antihypertensive still widely prescribed today, was the fi rst product of its kind to be launched on the market. The same applies to the active substance acetylsalicylic acid, which Bayer synthesized more than 100 years ago. In the form of Aspirin Cardio®, this proven product is regarded as a drug of choice for secondary prevention of myocardial infarction. Xarelto®, the most recent addition to the range of products marketed by Bayer Schering Pharma, promises to continue this tradition. Its active ingredient rivaroxaban, an innovative anticoagulant, has the potential to treat a number of cardiovascular disorders caused by blood clots, such as myocardial infarction, pulmonary embolism and stroke. Since 2008, Xarelto® has been approved in more than 80 countries worldwide for the prevention of venous thromboembolism following elective hip or knee replacement surgery.
Unlike the previous standard treatment, rivaroxaban can be administered in tablet form. In addition, the registration study showed that
20 million
2015 2005
The World Health Organization (who) estimates that 20 million people will die from cardiovascular diseases in 2015.
Source: who
rivaroxaban protects against clot formation after elective hip or knee joint replacement surgery more reliably than the comparator product enoxaparin. Further studies are currently ongoing. More than 65,000 patients are ultimately expected to be involved in the rivaroxaban development program, which aims to demonstrate that rivaroxaban is at least as effective as the current standard therapy in preventing and treating various forms of venous and arterial thrombosis. An example is the prevention of stroke in patients with atrial fi brillation, a specifi c form of cardiac arrhythmia that can lead to stroke triggered by a blood clot.
"At present, some 70 percent of at-risk patients receive inadequate treatment or no treatment at all," says Misselwitz. This is because the anticoagulants currently available interact with some foods and with other medications, making them diffi cult to dose correctly. The risk of bleeding is high, and regular blood tests are required. These limitations could be overcome with rivaroxaban.
This is not the only gap in the therapy of serious cardiovascular diseases that Bayer's scientists aim to close with innovative products. Another example is pulmonary hypertension, a term doctors use to describe several conditions with different causes. Some 2.5 million people worldwide suffer from pulmonary hypertension, a condition characterized by elevated blood pressure in the pulmonary circulation and changes to the blood vessels in the lungs. The conse-
Pulmonary hypertension is defi ned as a mean pulmonary arterial pressure of 25 mmHg at rest and 35 mmHg during exercise. 1 mmHg is the static pressure exerted by a mercury column one millimeter high.
Dr. Peter Kolkhof, pharmacologist in Cardiology Research, inspects a microscope slide at Bayer Schering Pharma's laboratory
quences are severe: the heart progressively weakens and the supply of oxygen to the body is reduced. Patients become short of breath and their physical stamina is rapidly impaired. Initially, only climbing stairs is diffi cult, but then patients fi nd themselves out of breath after walking for just a few minutes. Later on, just walking from one room to the next is too much. There is no cure, and patients diagnosed with pulmonary hypertension have an average life expectancy of only fi ve to six years.
There are currently only a very small number of drugs that can relieve the symptoms. But that isn't the only problem. "At present some 90 percent of patients receive only very limited treatment, and the few drugs currently available are only approved for a small subgroup of pulmonary hypertension patients," says Dr. Gerrit Weimann, the physician at Bayer Schering Pharma responsible for the global development of riociguat. This substance is the fi rst promising drug candidate from a new class of compounds discovered by Bayer scientists. "According to convincing initial evidence from clinical trials, riociguat may be able to overcome the major disadvantages of existing ther apeutic options. For example, in a Phase ii trial that ended in 2008, patients who received riociguat tablets were able to cope with physical exertion much better than before," says Weimann.
Phase ii and iii trials are currently under way to document the safety and effi cacy of the compound in various forms of pulmonary hypertension. "If this can be confi rmed, it will be an important breakthrough for patients with this disorder," says Professor Hossein Ardeschir Ghofrani, head of the Pulmonary Hypertension Department at Giessen University Hospital, Germany. "There is good reason to hope that riociguat may be the fi rst effective drug to be well tolerated by certain patient groups and that it may therefore provide these people with an adequate treatment option for the fi rst time."
But there are more benefi ts. "Preclinical data suggest that riociguat not only improves the symptoms of pulmonary hypertension, but could also counteract the progression of the disease," says Dr. Johannes-Peter Stasch, a chemist and pharmacist who works in Cardiology Research at Bayer Schering Pharma. The discoverer of the new class of active ingredients is also working on a number of approaches that go well beyond the treatment of pulmonary hypertension. "Riociguat could be just the beginning of a new generation of cardiovascular drugs," he adds.
Bayer scientists are also focusing on heart failure, a serious disease that particularly affects
people of advanced age. Many elderly heart failure patients have previously suffered a myocardial infarction, but other underlying diseases can also gradually restrict the heart's performance. At fi rst, affected individuals become exhausted more quickly than before during physical activity such as walking or climbing stairs. Later on, daily chores such as shopping, housework and gardening become a challenge. Fluid begins to accumulate in the legs. In the fi nal stage, patients are barely able to leave their beds, and every movement takes their breath away. Chronic heart failure is one of the most prevalent diseases in the Western industrialized world and is the third most common cause of death.
"There is a major need for new, effective and well-tolerated drugs to treat this condition," says Dr. Martin Bechem, head of Cardiology and Hematology Research at Bayer Schering Pharma. Scientists at Bayer are therefore investigating other promising substances to make life easier for patients with chronic heart failure. "We are pursuing a broadly based approach with the aim of relieving the burden on the diseased ventricle and protecting the heart and kidneys. Some molecules have already reached early phases of development."
One of the other initiated projects relates to the causal treatment of pulmonary hypertension and atrial fi brillation. "Our well-stocked cardiology pipeline gives us a potentially world-leading position in the growing market for innovative therapies for severe cardiovascular and lung diseases," says Dr. Jean-Philippe Milon, global head of the General Medicine business unit. "The scientists' efforts focus on the patient," says Milon. "Our work is aimed at helping to improve the quality of life of seriously ill people and extend their life expectancy."
Video and audio podcasts about the anticoagulant Xarelto® and the new substance riociguat for patients with pulmonary hypertension can be found on the Internet in the Podcast Cen ter at www.podcast.bayer.com.
Bayer CropScience
Scientists at Bayer CropScience are working on ways to improve the agronomic performance and quality of cotton. Another goal is to develop plants that give higher yields while using less water.
Vivian Oliver (left) and Gary Henniger from Bayer CropScience examine cotton plants at the new u.s. research center in Lubbock, Texas.
Feeding the world's growing population is one of the greatest challenges of our time, requiring a substantial increase in global crop yields. That's where scientifi c developments such as plant biotechnology and modern breeding methods can help. Bayer CropScience has set the course for the future by greatly expanding research activities in its seeds and traits business.
Kellie Milam prepares corn rootworm eggs for use in bioassays at an Athenix laboratory in Research Triangle Park, North Carolina, United States.
The plan is ambitious. Bayer Crop-Science intends to invest some €3.5 billion to expand its modern plant breeding activities through 2018. This will enable the BioScience business unit, comprising the company's activities in seeds and plant traits, not only to expand more rapidly than any other unit of the subgroup but also to grow roughly twice as fast as the market.
According to forecasts by the United Nations, the world's population will exceed nine billion by 2050.
BioScience has already begun to widen its global network – strengthening in-house research, forging new alliances and making selective acquisitions. In 2009 alone, Bayer established three new research and development centers in the United States and Canada. "At the same time we have concluded twelve major research agreements as well as some smaller ones with leading biotechnology institutes and companies in Europe, China, Israel, Australia, Canada and the United States," reports Dr. Joachim Schneider, head of the BioScience business unit at Bayer CropScience.
An important strategic move was the acquisition of Athenix Corp., one of the leading u.s. research companies in the fi eld of plant biotechnology, based in Research Triangle Park, North Carolina, United States. Athenix has an extensive library of genes and a modern development platform that enables crops to be selectively enhanced with important new traits such as herbicide tolerance or resistance to insects and nematodes.
"In the coming years we will need to speed up progress in plant breeding by using state-ofthe-art technologies and develop new plant traits in order to satisfy the demand for food," Schneider explains. United Nations (un) estimates put the world's population at seven billion by 2012 – almost three times the 1950 fi gure – and it is likely to exceed nine billion by 2050.
At the same time, the amount of land available to grow food is diminishing in relation to the population. un experts predict that there will be only one third as much arable land available per capita in 2050 as there was in 1950. The impact of climate change is exacerbating the situation. Every year, heat, cold and extreme weather conditions lead to agricultural losses running into the billions. Corn, rice and wheat, for example, can no longer cope with these more extreme environmental factors. Even if their fi elds are well managed, farmers in some parts of the world often lose between 30 and 70 percent of their harvests.
This is why agricultural output is only increasing by between one and two percent annually. Experts at the Food and Agriculture Organization (fao) of the United Nations estimate that production will need to double by 2050 if everyone is to have enough to eat. There is only one way to overcome this enormous challenge without clearing huge areas of forest to create new arable land and thereby harming the environment: a "Second Green Revolution."
It is not the fi rst time that the world's population has increased so sharply that farmers cannot keep pace with the demand. In 1943 four million people starved to death in India alone. The country had to import millions of tons of cereals for years afterwards. It was not until the mid-1960s that the "First Green Revolution" brought about a dramatic change. New breeding methods enabled scientists to develop high-performance varieties of rice and wheat that gave substantially higher yields and required less fertilizer. As a result, India's wheat output nearly tripled within ten years. China achieved similar success with improved rice varieties.
"Today, we again need to use all the technologies at our disposal to safeguard harvests worldwide," comments Dr. Michael Metzlaff, a molecular biologist at Bayer CropScience's Innovation Center for Plant Biotechnology in Ghent, Belgium. Almost 1,000 scientists and breeders in BioScience are already working on more than 50 research projects with plants that are crucially important for human nutrition or clothing, and the number of projects is scheduled to increase considerably.
One major focus of this work is canola. In August 2009, Bayer CropScience opened one 30% – 70% In some parts of the world, farmers often lose between 30 and 70 percent of their harvest due to extreme climate conditions despite sound
crop management.
of the world's most modern canola research and breeding stations in the western Canadian City of Saskatoon. Canola is a cultivar of rapeseed grown primarily in North America. In the future researchers want to fi nd out which of the plant's genes confer the ability to withstand infl uences such as major temperature fl uctuations or drought.
A sound basis for this work has been established. In October 2009, Bayer researchers succeeded in sequencing the full genome of canola in collaboration with public research institutes – the Beijing Genomics Institute in Shenzhen, China, and the University of Queensland, Australia – and the biotech company Keygene in Wageningen, Netherlands.
Another example is rice. The company's business in hybrid rice seed is its fastest-growing segment at the moment, expanding at an average annual rate of 38 percent. The main driver of this growth is the hybrid rice Arize®, developed by Bayer CropScience, which has a 20 to 30 percent higher yield than traditional varieties. Arize® Dhani, launched in India in 2008 and recently also in Bangladesh, offers farmers
" We aim to improve the quality of cotton plants, increase their yields, and make them less susceptible to extreme growing conditions."
an additional variety that is resistant to bacterial leaf blight, a dreaded disease of rice plants that can destroy entire harvests. In the future, researchers are aiming to add further traits to both hybrid rice varieties with the goal of making them more tolerant to fl ooding and saline conditions, for example.
One of the pillars of this work is the collaboration agreement concluded with Evogene Ltd., Rehovot, Israel, in April 2009. This biotech company develops enhanced plant traits.
ready the largest supplier of cotton seed in
Researchers at Bayer CropScience in Lubbock isolate the genetic material from
terms of planted area, both globally and in the United States, which ranks third in cotton production after China and India. Bayer's leading role was further reinforced in 2007 by the acquisition of u.s. cotton seed company Stone ville. More products from Bayer's own research pipeline are now reaching the market, including new herbicide-tolerant cotton varieties scheduled for introduction in the United States.
"We aim to improve the quality of cotton plants, increase their yields, and make them less susceptible to extreme growing conditions," explains Linda Trolinder, Cotton Research and Development Manager at Bayer CropScience. The goal is to develop plants that need less water while giving higher yields. Trolinder's team is also developing cotton with fi bers that can be dyed more easily and lastingly. "Tomorrow's clothes will be better protected against fading," the expert says.
Bayer recently opened a new research and development laboratory in Lubbock, Texas, United States, thereby expanding its activities aimed at accelerating the development of better cotton plants. These activities include collaboration between Bayer researchers and scientists from Texas Tech University.
Nunhems, Bayer CropScience's vegetable seed business, opened new laboratories in Davis, California, United States, in early 2009 to be geographically closer to the academic experts. The University of California in Davis is widely considered to be one of the best research institutions in the fi eld of plant biotechnology. "This will give us even greater insight into current developments and long-term trends in agricultural research," explains Johan Peleman, head of Research at Nunhems.
Nunhems recently succeeded in breeding tomatoes with resistance to harmful viruses. In this kind of work, researchers look for molecular markers, typical sections of genetic material that are known to be associated with certain traits. The use of modern breeding methods enables the breeders to fi nd plants with the target traits much faster and more precisely. This cuts out years of development work and allows researchers to respond more specifi cally to the needs of farmers and consumers. "There is a global demand for fruit and vegetables that have a more intense fl avor and are easier to process than existing varieties," Peleman says.
"We will continue to need good breeding methods in order to make use of the results of molecular biological studies," explains Bayer researcher Metzlaff. Breeders are not focused solely on individual genes or traits. They see the bigger picture – and that is what ultimately decides whether a plant will survive in the fi eld. "We intend to pursue an
even more integrated approach in the future," explains Schneider . "This includes offering farmers complete packages so that they can protect their crops from seed to harvest."
BioScience will also be expanding its research activities to include other crops such as soybeans and wheat. The fi rst major step was taken in July 2009, when the company announced a long-term cooperation agreement with the Commonwealth Scientifi c and Industrial Research Organisation (csiro) in Canberra, Australia, one of the world's leading institutions for wheat research.
The emphasis of this cooperation agreement is on developing high-yielding varieties of cereals, particularly wheat. Practically no other crop has been feeding so many people for decades. But wheat production is under pressure. The decline in the area under cultivation in relation to the growing world population, combined with higher demand, has recently led to repeated sharp increases in the price of wheat. The aim is for intensifi ed research, modern breeding and biotechnology to help safeguard food supplies for large numbers of people. Bayer CropScience is contributing signifi cantly to this endeavor with the expansion of its BioScience portfolio.
Breeders at BioScience punch small pieces of leaf out of fresh seedlings to analyze their genes. Molecular breeding methods enable them to identify plants with the required traits more easily and precisely.
Tony Salcido (left) and Nkonko Mutamba from Bayer CropScience in the United States ex amine cotton plants near Phoenix, Arizona.
Third-generation solar cells are only 0.2 micrometers thick and therefore fl exible. They are produced by printing on a fi lm. For comparison, the average human hair is 70 micrometers thick.
0.2µm
Cally Lim (left) inspects wafer-thin solar cells while Wilfredo Aguilar and Dr. Stefan Bahnmüller (right) examine luminescent functional fi lms at Bayer's Singapore facility.
Whether it's foldable electronic newspapers, cell phones as thin as business cards or luminescent wallpaper, a glimpse into the future of specialty fi lms reveals a world of undreamed-of technological possibilities. The new Functional Films unit at Bayer MaterialScience is looking to use innovative ideas based on proven materials to bring visions to life and transform them into products that meet tomorrow's needs.
Can a telephone light up in different colors? Red when a friend calls, for example? Or yellow, if it's your partner? Very soon, cell phones are expected to be able to change color like a chameleon to aid communication. While nature is responsible for the unique way the animal changes color, in the cell phone this will be achieved with special fi lms. By glowing blue or red, for example, they will indicate to the owner who is calling – thanks to functional fi lms that convert electrical energy into light.
Flexible coatings from Bayer make surfaces light up with out light bulbs or leds. The glarefree light provides uni form bright ness over the entire surface, creating a unique atmosphere. Watch a video about the unprecedented potential of this new technology at www.podcast.bayer.com.
Yet this is only one of the possibilities offered by these fi lms, which are less than a millimeter thick. They can also act like muscles, with the material contracting or expanding as required. Depending on the application, the fi lms can conduct electricity or store energy. They can be transparent or fl exible, and they can also be made to feel either hot or cold to the touch. This gives them a broad range of potential applications, ranging from the automotive industry, electrical engineering and electronics to information technology and even climate protection.
The Functional Films unit at Bayer Material-Science is currently working on fi lms that can be molded into three-dimensional shapes. "They can light up or conduct electricity – that's a great source of creativity for designers," says Bernd Steinhilber, head of Functional Films.
Potential applications for these functional fi lms are determined by social trends and people's needs. "We are carrying out research so that we can offer solutions for the markets of the future. Our new developments open up unprecedented options for users, and new business opportunities for Bayer MaterialScience," says Steinhilber.
Relevant social trends and human needs include the following:
Functional fi lms offer a cost-effective alternative to electronic components that comprise a large number of individual elements and are labor-intensive to produce. "Our fi lms are ideal for the mass production of low-cost electronic parts and products for everyday use," explains
The testing chamber at Functional Films in Leverkusen, Germany: Alexander Pogorzalek examines the effect of elevated temperatures and humidity on the aging of luminescent fi lms.
" We are carrying out research so that we can offer solutions for the markets of the future."
BERND STEINHILBER Head of the Functional Films unit at Bayer MaterialScience
250 billion
Dr. Karsten Dierksen, head of the Polymer Electronics department in the Functional Films unit. In 2005, this market was worth us\$650 million. Renowned British market research company IDTechEx predicts the fi gure will reach nearly us\$100 billion by 2020 and us\$250 billion only fi ve years later.
Future areas of application include identifi cation labels based on radio frequency identifi cation (rfi d) technology. These are already used in ski passes, travel tickets, containers and electronic vehicle immobilizer systems. The fi lms for these applications are inexpensive to produce, as the components can be printed like electronic inks onto fl exible fi lms made from polycarbonate, for example. Materials that are conductive, semi-conductive or nonconductive – depending on user requirements – can be printed one on top of the other in wafer-thin layers. "That will be as easy as printing a newspaper," explains Dierksen.
But that's not all. High-tech materials from Bayer MaterialScience also provide the basis for products such as fl exible screens. Within two to three years the fi lms could even be used in televisions. They will require much less energy and also offer greatly improved picture quality. The ideas being developed by experts from Functional Films have ceased to be utopian.
Tried-and-tested materials have long formed the basis for many developments at Functional Films. For a quarter of a century, polycarbonate has been successfully used in automotive interiors for cockpits and control elements, for example. The way is now open for numerous new applications for polycarbonate-based fi lms that offer automotive design gurus undreamed-of freedom. For instance, instrument panels can be made to appear three-dimensional. This saves space and reduces weight. The special feel of these fi lms promotes harmony of design and a sense of comfort inside the car. Functional fi lms have also become indispensable in the fl atscreens now so prevalent in the home environment.
A completely new application area is the security sector, which is gaining in importance due to the growing world population and increasing urbanization. Holograms are used to protect credit cards, banknotes and event tickets against forgery. They used to be extremely diffi cult to produce. "This was because materials and processes were not sophisticated enough for producing large quantities of three-dimensional color holograms cost-effectively," says Dr. Thomas Fäcke, an expert in holography in the Functional Films unit. A special fi lm has now been developed for this application. Fäcke is convinced of its benefi ts, saying that "even trademark protection will benefi t from this." Holograms of this kind on packaging for sports goods or pharmaceutical products can protect against counterfeiting.
A further security measure is currently being developed specifi cally for credit cards. This involves tiny metal platelets embedded in plastic fi lms made of Makrofol® id Protexxion. As the platelets are distributed at random within the material, even the smallest section has an unmistakable, unique surface – making each card as unique as a fi ngerprint.
Polycarbonate is a key material for enhancing security. This is where Functional Films can harness the expertise of Bayer as the inventor of polycarbonate chemistry. The best example is the production of innovative passports, driver's licenses or id cards in credit card format. Sensitive electronic components such as memory chips can be securely encased in the fi lm
Estimated market volume for functional fi lms in us\$
layers. An added bonus is that a variety of security features can be integrated within the cards, which last much longer thanks to the fi lm's extreme durability.
Experts in the coatings fi eld have made a key contribution to the success of these new products. Their knowledge essentially forms the basis for the production of functional fi lms. This is because – irrespective of the purposes these materials serve – functional fi lms use
In the production of organic light-emitting diodes, Nicolas Degiorgio makes use of a nitrogen chamber free of oxygen and moisture.
know-how that Bayer MaterialScience has accumulated over the years in the coatings and surfaces fi eld. "At Functional Films, we have systematically integrated the expertise we have acquired in special fi lms and in printing and coating technology," says Steinhilber.
In developing and marketing new products, Functional Films places great emphasis on synergies within the company and on collaboration with external partners. "We are continually adding experts from science and industry to our network. This dialogue enables us to use our innovative ideas to fast-track products for future markets," says Steinhilber.
The focus here is on the electronics industry in particular, and therefore on Asia. Bayer MaterialScience has been creating the necessary research resources and networks for development projects with customers in Taiwan, South Korea and Japan since 2008. These are
augmented by a dedicated research center for material and product development in Singapore, which is scheduled to open in 2010. Film manufacturing at the Map Ta Phut site on Thailand's east coast is another major element in this forward-looking strategy thanks to the facility's expertise in process and production technology – also of major importance for functional fi lms.
Specifi c projects have already been launched at the development centers in South Korea and Taiwan. "These focus on applications in liquid crystal display technology, radio tags, cell phones and computers," says Dr. Christian Haessler, who is responsible for research and development in Asia. Bayer MaterialScience is working with selected customers, organizations and government agencies in these fi elds. Steinhilber describes the next steps to be taken: "We aim to gain further expertise through collaborations with other research organizations and address complex issues right along the value chain."
One very special cooperative venture to help protect the climate involves a future-focused project in the Atlantic Ocean. Bayer Material-Science and sbm Offshore have entered into a cooperation agreement to jointly develop a fl exible wave energy converter. This technology will permit the production of clean energy in the future, harnessing the untapped resources of our seas.
The World Energy Council estimates global wave energy resources to be roughly double the amount of electrical power currently generated throughout the world. It is therefore expected
The layers of a functional fi lm are applied individually by screen printing.
Polyurethane Polyurethane
Elastic electrodes
The graphic illustrates how wave power can be used as an eco-friendly energy source. Elastic, rolled-up polyurethane fi lms with elastic electrodes on both sides of the fi lm are attached to the seabed on one side and to buoys on the other. The movement of the waves causes the buoys to rise and fall. When a buoy is fl oating under the crest of a wave, the fi lm attached to it is stretched and therefore becomes thinner. At this moment an electric fi eld is applied to the fi lm.
Wave crest Wave trough
Elastic electrodes
When the buoy fl oats down into a trough between waves, the mechanical tension in the fi lm is relaxed, the distance between the electrodes increases and the electric fi eld between them becomes stronger. As a result, there is now more electrical energy in the fi lm than when the buoy was on the wave crest. Bayer MaterialScience supplies the conductive, elastic fi lms that enable wave energy to be harnessed in this way and converted into electricity, which is then fed into the grid via an undersea cable.
that this new technology will be of particular interest to utility companies worldwide that seek to extend their renewables portfolios.
To demonstrate the wave energy converter, a development program has been set up with the aim of establishing an offshore, grid-connected power plant by 2015. sbm Offshore is designing the system using Bayer MaterialScience's polyurethane fi lms, which were tailor-made specifi cally for this application. The converter will transfer the energy of the sea waves directly into electrical power.
The benefi ts of this ecologically friendly energy generation include high effi ciency and low wear levels. "By using this technology, we can convert much more energy into electricity than is possible with a conventional generator," says
Dirk Schapeler, an expert in electro-active polymers in the Polymer Electronics department at Bayer MaterialScience. "We and our partner sbm Offshore believe that this combination of converter design and electro-active polymers is a promising approach to leverage the wide spectrum of wave conditions. More importantly, it avoids fatigue and maintenance issues, which represent a major cost factor."
The opportunities offered by functional fi lms are far from exhausted. Steinhilber is in no doubt: "The market is calling out for electroactive fi lms and fi lms with other specifi c technological properties," he says. These fi lms are therefore expected to contribute greatly to future growth at Bayer MaterialScience, opening up new areas of application for polymer materials such as polyurethane and polycarbonate.
Bayer team wins President's "German Future Prize"
Watch a video podcast of the award ceremony at www.podcast.bayer.com
The "German Future Prize 2009," awarded by the Federal President, went to an r & d team from Bayer: Dr. Frank Misselwitz, Dr. Elisabeth Perzborn and Dr. Dagmar Kubitza received the prize for achievements in technology and innovation from President Horst Köhler at a ceremony in Berlin.
The Bayer scientists from Wuppertal were honored with this prestigious award for developing the new anticoagulant drug rivaroxaban (Xarelto®). "The development of this drug was very expensive, and projects like this require a great deal of patience and stamina. That's why I'm particularly pleased that major corporations such as Bayer have long-term innovation strategies," the President explained.
"I am delighted at this outstanding recognition for our research team. It again shows how important research and innovation are at Bayer," said Werner Wenning, Chairman of the Board of Management of Bayer AG. "The 'German Future Prize,' the highest innovation award in Germany, puts the spotlight on science, ensuring that the potential of the natural sciences, technology and medicine
become more fi rmly anchored in the public consciousness," Wenning added.
Dr. Wolfgang Plischke, the Bayer Management Board member responsible for research, was in Berlin to congratulate the award-winners: "Winning this award is a truly historic moment and a milestone for Bayer as an inventor company." North Rhine-Westphalia Innovation Minister Professor Andreas Pinkwart also sent his congratulations: "There could be no more impressive evidence that investment in research and development is worthwhile. This is a crowning moment in Bayer's successful history as an inventor company."
The award-winners themselves were also delighted. "We really didn't expect this," said Misselwitz. He said the award was the result of excellent teamwork. Together with their teams and numerous scientists from a wide range of disciplines, the three Bayer researchers developed the new active ingredient for the prevention of thromboembolism after elective hip or knee joint replacement surgery.
Read more about this new medicine in the Magazine section starting on page 22.
Bayer Schering Pharma, Berlin, Germany is progressing with the development of fl orbetaben to support the diagnosis of Alzheimer's disease. At the 95th Scientifi c Assembly and Annual Meeting of the Radiological Society of North America, the company announced the launch of an international Phase iii trial to evaluate the effi cacy and safety of fl orbetaben pet (positron emission tomography) imaging in the detection of beta-amyloid deposits in the brain.
The trial will include subjects with and without manifest dementia such as Alzheimer's disease. In the preceding Phase ii trial, fl orbetaben successfully demonstrated its potential to detect beta-amyloid deposits in the brain as a pathological hallmark of disease in Alzheimer's patients.
"Currently, there is no diagnostic tool on the market to facilitate the in vivo diagnosis of the various dementia types, including Alzheimer's disease," said Dr. Thomas Balzer,
Dr. Ludger Dinkelborg (left) and Dr. Thomas Dyrks compare a healthy brain (left screen) with that of an Alzheimer's patient.
Head of Global Clinical Development, Diagnostic Imaging, at Bayer Schering Pharma, Berlin. "This Phase iii study showed that fl orbetaben can be used as a new tool to clearly detect betaamyloid deposits in the brain while the patient is still alive. This could lead to better and earlier diagnosis of this devastating disease and eventually to more specifi c treatment."
Bayer MaterialScience can now market its multi-wall carbon nanotubes multi-
known as Baytubes® in the United States as well, following the granting of regulatory approval for the product by the u.s. Environmental Protection Agency (epa) at the beginning of 2009. This reinforces Bayer U u
MaterialScience's role as the supplier with currently the world's largest production capacity for carbon nanotubes. nanotube
Schematic drawing of a carbon
Baytubes® can be added to polymer matrices or metal systems as a modifi er or fi ller to improve their mechanical strength and / or antistatic properties. The product's applications include rotor blades for wind
turbines along with sports equipment such as skis, hockey sticks, baseball bats and surfboards. Another application for nanotubes is the modifi cation of light metals such as aluminum or magnesium. give weeds a chance Materia
The global market for carbon nanotubes is currently predicted to grow by 25 percent a year. Experts estimate that annual sales of these products will reach us\$2 billion within about ten years. Bayer MaterialScience is one of the few companies capable of producing carbon nanotubes of consistently high quality on an industrial scale.
The world's largest pilot plant for carbon nanotubes was inaugurated in the Leverkusen Chempark in 2009. Bayer MaterialScience invested some €22 million in the facility, which has a capacity of 200 tons per year.
2012, is currently at an advanced stage of
Trial in an Athenix greenhouse in the United States: Jayme Williams harvests soybeans.
Bayer CropScience has completed the purchase of Athenix Corp., a biotechnology company headquartered in Research Triangle Park, North Carolina, United States. The company, which was privately held, was acquired for us\$365 million. Further cash payments totaling up to us\$35 million will be made, depending on the achievement of certain development milestones.
The acquisition of Athenix and its innovative technology platform signifi cantly boosts Bayer CropScience's ability to provide growers worldwide with novel technology and complete
agricultural solutions – from seed to harvest. Athenix has an extensive development platform for herbicide tolerance and insect control traits. The company also possesses the industry's largest collection of genes that are crucial for insect resistance in plants.
"We are investing heavily in our BioScience business to strengthen our position in the global seeds and traits market," said Professor Friedrich Berschauer, Chairman of the Board of Management of Bayer CropScience. Read more in the Magazine section starting on page 28.
Bayer Schering Pharma has entered into a global agreement with Algeta asa, Oslo, Norway, for the development and commercialization of the cancer drug Alpharadin™, a novel alpha-emitting radiopharmaceutical based on radium-223. The substance is currently being evaluated in a global Phase iii trial for the treatment of bone metastases in prostate cancer patients who no longer respond to hormone treatment.
"We recognize the tremendous potential of Algeta's Alpharadin as a possible treatment for bone metastases – a serious, life-threatening condition. The data we have seen suggest that Alpharadin may represent a highly targeted treatment option that could potentially extend overall survival with good tolerability, and offers convenient handling," said Kemal Malik, a member of the Board of Management of Bayer Schering Pharma. "Our goal is to further expand our global oncology portfolio."
After a 20-month renovation phase, the BayArena soccer stadium in Leverkusen reopened its gates in mid-August. Featuring three new upper tiers, the completely modernized stadium now provides seating for more than 30,000 spectators.
At the same time, the media, team and physio areas along with the restaurant and boxes were signifi cantly enlarged. All functional areas now meet the highest international standards. The stadium's most spectacular showpiece is its new roof. The 28,000 square-meter covering of Makrolon® sheet is supported by a discus-shaped steel cable construction.
The BayArena thus boasts the largest stadium roof yet to be made of this high-tech plastic from Bayer MaterialScience, and the anticorrosion coating for the steel support structure is based on the company's polyurethane raw materials.
At the inauguration, Bayer AG Management Board Chairman Werner Wenning emphasized the fact that the renovation was carried out without public funding. "Our soccer team is an important image vehicle for the Bayer Group both in Germany and abroad," he explained. In 2011, the BayArena will host some of the Women's World Cup matches.
The Makrolon® roof of the new BayArena is a particularly impressive sight after dark.
Extensive new program includes global lighthouse projects
Bayer is increasing its commitment to sustainability. To this end the company is launching an extensive program including eight lighthouse projects focusing on the fi elds of health care, nutrition and climate protection. The aim is to integrate the company's products and its employees' expertise into international projects to promote sustainable development across the globe.
Bayer ceo Werner Wenning and Board of Management member Dr. Wolfgang Plischke presented the Bayer Sustainability Program at a
press conference in Leverkusen, which was attended by approximately 120 journalists from 35 countries. "We are helping in specifi c ways to balance commercial success with the protection of the environment and the needs of society," said Wenning.
More than 15 million people worldwide will benefi t directly from the lighthouse projects forming the centerpiece of the Sustainability Program. Apart from this, Bayer plans to achieve a 10 percent increase in energy effi ciency at its production facilities by 2013 compared with 2008, Bayer ceo Werner Wenning (at the lectern) and Board of Management member Dr. Wolfgang Plischke (on the platform at left) explained the Sustainability Program to journalists.
corresponding to total annual reductions of 350,000 metric tons in greenhouse gas emissions. In addition, a new technology for chlorine production will enable these emissions to be reduced by a further 250,000 metric tons a year by 2020.
Bayer's business activities are focused on sustainability. "Sustainable development forms an integral part of Bayer's corporate policy, which is geared toward high-quality solutions and long-term success," Wenning said, adding: "We are aiming for sustainability in everything we do."
Bayer has emerged as a leader in climate protection, now featuring in the Carbon Disclosure Leadership Index as the world's best company. This was announced by the investor group of the Carbon Disclosure Project (cdp) in New York in September. Awarded 95 out of a possible 100 points, Bayer came in fi rst out of 50 companies represented in the Leadership Index, which were chosen from among the world's top 500 stock-exchange-listed companies.
Rating takes place according to the thoroughness and transparency of companies' reporting on their climate strategies and greenhouse gas emissions.
Bayer is the only European company in the chemical and pharmaceutical industry to be included in the climate index for the fi fth time in a row. cdp members' investment decisions are increasingly based on how companies strategically address the challenges posed by climate change.
The Bayer Science & Education Foundation chose energy effi ciency expert Professor Eberhard Jochem of the Fraunhofer Institute for Systems and Innovation Research (isi) in Karlsruhe, Germany, as the inaugural winner of the "Bayer Climate Award." "More than almost any other researcher, Professor Jochem has demonstrated that improving energy effi ciency is the most important lever for reducing greenhouse gas emissions in the various areas of our industrialized society," Bayer ceo Werner Wenning said at the award ceremony in Berlin.
Bayer Schering Pharma, Berlin, Germany, has started the European roll-out of Qlaira®. The new oral contraceptive has been available in several European countries, including Germany, since May 2009.
Qlaira® is the fi rst in a new class of oral contraceptives with estradiol valerate as the estrogen component. Estradiol valerate is transformed into estradiol in the female body. The second component of Qlaira®
is the progestogen dienogest. Until now, only one substance – ethinylestradiol – has been used as the estrogen component of oral contraceptives worldwide. For a long time, efforts to use estradiol had failed to achieve a satisfactory level of bleeding control.
Clinical studies with Qlaira® have shown that the combination of estradiol with the progestogen dienogest achieves good cycle control. It also
offers a dynamic dosing regimen designed to deliver hormones at the right levels and at the right time during the cycle, providing reliable contraception and good cycle control.
The New Drug Application in the United States was submitted in July 2009. The company has sought approval for Qlaira® for the contraception indication and for the treatment of heavy and / or prolonged menstrual bleeding.
The children's daycare center of Bayer CropScience in Monheim, Germany, is housed in a zero-emissions building.
Bayer aims to support the construction industry in the use of sustainable, ecofriendly building techniques as part of its worldwide climate program. The Eco-Commercial Building program of Bayer MaterialScience demonstrates the use of its materials to increase the energy effi ciency of buildings, thereby helping to reduce carbon dioxide emissions. The special feature of this concept is that it can be adapted for use in different climate zones around the world.
The program is designed to act as an interface between decision makers and the construction industry and generate new business in the fi eld of sustainable, energy-effi cient construction. It includes an integral planning process that combines the materials expertise of Bayer MaterialScience with the construction skills of customers and service partners. Bayer's Belgian headquarters in Diegem and a children's daycare center in Monheim, Germany, were the fi rst EcoCommercial buildings in Europe.
Bayer Schering Pharma, Berlin, Germany, is working with biopharmaceutical company Micromet, Inc. to develop a new specifi c BiTE antibody for the treatment of solid tumors. In January 2009, the two companies entered into an option, license and collaboration agreement. By exercising the option in November 2009, Bayer Schering Pharma triggered a joint collaboration on the development of the BiTE antibody against an undisclosed solid tumor target through the completion of Phase i clinical trials, at which point Bayer will assume full control of the further development and commercialization of the antibody.
BiTE antibodies are designed to direct the body's cell-destroying T-cells against tumor cells, and represent a new therapeutic approach to cancer therapy. According to the agreement, Micromet will be eligible for milestone payments totaling up to €285 million and up to double-digit royalties based on tiered net sales of the product. In addition it is planned to reimburse Micromet for its r & d expenses.
"BiTE antibodies represent a promising approach to cancer therapy," said Dr. Karl Ziegelbauer, Head of Therapeutic Research Oncology at Bayer Schering Pharma. "We are looking forward to developing a new treatment for patients with solid tumors and to further advancing novel therapeutic options in our oncology portfolio."
Bayer employees Daniela Fischer (left) and Katja Zachmann prepare samples for automated RNAi testing.
Bayer CropScience signs agreement with U.K. research institute
Defense against malaria mosquitoes: nets made of fi bers impregnated with the active ingredient deltamethrin from Bayer CropScience provide effective protection.
Bayer CropScience and the Innovative Vector Control Consortium (ivcc), Liverpool, United Kingdom, plan to
jointly develop new active ingredients to control mosquitoes that transmit diseases such as malaria and are
resistant to conventional insecticides. Resistance is currently one of the greatest problems in the battle against malaria vectors. The aim is to discover new active ingredients for public health products (phps) that help protect people against diseases by controlling the insects that transmit them. According to fi gures from the World Health Organization, some 3.3 billion people – half the world's population – live in malaria-endemic areas.
The two partners signed a research agreement in May 2009 that will initially run for three years. Bayer CropScience is contributing its spectrum of substances and screening capabilities, along with its experience in chemical synthesis and insecticides research and development.
Initially established as a research consortium in 2005, the ivcc has evolved into a product development partnership (pdp).
Bayer HealthCare and Tsinghua University in Beijing, China, have signed an agreement to enter into a comprehensive strategic partnership. Under the agreement, the partners have established a joint research center at Tsinghua University, the Bayer-Tsinghua (Institute of Biomedicine) Research Center of Innovative Drug Discovery.
The center is part of an initiative of Bayer HealthCare's newly inaugurated r & d Center in Beijing. Under the terms of the agreement, scientists from the university will collaborate with scientists from Bayer Schering Pharma, Berlin, Germany, along the drug discovery and development value chain, particularly in the areas of oncology, women's healthcare, diagnostic imaging and cardiology.
Another accolade for Bayer's corporate image fi lm: "Elements of Fascination" was chosen as the Grand Winner of the Galaxy Award 2009. This honor is bestowed on only one of the fi lms awarded the Gold Prize, which means Bayer's corporate image fi lm was named best fi lm of the year.
"The fi lm presents Bayer as a modern and innovative inventor company. It is a special honor for us that it has now been selected best fi lm of the year from among so many excellent communication activities," said Michael Schade, Head of Communications at Bayer.
The award tops off the already strong showing by Bayer Communications at the Galaxy Awards, where Bayer won seven prizes in 2009. The Bayer corporate image fi lm "Elements of Fascination" and the online ver-
A scene from "Elements of Fascination"
sion of the Annual Report each took home gold. The text and layout of the Annual Report and the company magazine report each won bronze. The scientifi c magazine research and the corporate image fi lm received an "Honors" ranking in the "Stakeholder Dialogue" category.
| 1. | Overview of Sales, Earnings and | |
|---|---|---|
| Financial Position 45 | ||
| 2. | Business and Operating Environment 50 | |
| 2.1 | Corporate Structure 50 | |
| 2.2 | Operating Environment 52 | |
| 2.3 | Procurement and Production 53 | |
| 2.4 | Products, Distribution and Markets 55 | |
| 3. | Performance by Subgroup, Segment | |
| and Region 58 | ||
| 3.1 | HealthCare 58 | |
| 3.2 | CropScience 64 | |
| 3.3 | MaterialScience69 | |
| 3.4 | Performance by Region 72 | |
| 4. | Earnings; Asset and Financial Position | |
| of the Bayer Group 72 | ||
| 4.1 | Earnings Performance of the Bayer Group 72 | |
| 4.2 | Calculation of ebit(da) Before Special Items) 74 | |
| 4.3 | Core Earnings Per Share. 75 | |
| 4.4 | Value Management 76 | |
| 4.5 | Liquidity and Capital Expenditures | |
| of the Bayer Group 78 | ||
| 4.6 | Asset and Capital Structure of the | |
| Bayer Group81 | ||
| 5. | Earnings; Asset and Financial Position | |
|---|---|---|
| of Bayer AG 83 | ||
| 5.1 | Earnings Performance of Bayer AG 83 | |
| 5.2 | Asset and Financial Position of Bayer AG 84 | |
| 6. | Takeover-Relevant Information. 85 | |
| 7. | Corporate Governance Report 88 | |
| 7.1 | Declaration on Corporate Governance 88 | |
| 7.2 | Compensation Report 93 | |
| 8. | Research and Development100 | |
| 9. | Sustainability109 | |
| 9.1 | Employees 110 | |
| 9.2 | Environment, Climate Protection and Safety. 113 | |
| 9.3 | Social Responsibility 115 | |
| 10. | Events After the Reporting Period 117 | |
| 11. | Future Perspectives 118 | |
| 11.1 Opportunity and Risk Report 118 | ||
| 11.2 Strategy 128 | ||
| 11.3 Economic Outlook 133 | ||
| 11.4 Sales and Earnings Forecast134 |
For direct access to a chapter, simply click on its name.
In 2009 Bayer was successful in a diffi cult environment. We achieved ebitda before special items of €6.5 billion, the third-highest level in our history, and nearly reached our ambitious target of limiting the decline in earnings against the record year 2008 to about 5%. Moreover, we improved net cash fl ow by 49% to a record €5.4 billion. This enabled us to reduce net fi nancial debt by €4.5 billion – a greater amount than planned – to €9.7 billion.
HealthCare again saw pleasing growth in both sales and earnings. CropScience achieved a slight improvement in sales despite a weakening market environment, though earnings came in somewhat below the previous year's record level. MaterialScience was hard hit by the slump in the world economy. Despite a recovery in business during the year, sales and earnings in 2009 came in well below the prior-year level.
| Change in Sales | [Table 3.1] | |
|---|---|---|
| 2008 | 2009 | |
| % | % | |
| Volume | + 2.8 | – 2.9 |
| Price | + 1.6 | – 2.8 |
| Currency | – 3.4 | + 0.6 |
| Portfolio | + 0.6 | – 0.2 |
Group sales fell by 5.3% to €31,168 million (2008: €32,918 million). Adjusted for currency and portfolio effects (Fx & portfolio adj.), sales receded by 5.7%. Sales of HealthCare grew by 3.8% (Fx & portfolio adj. +3.8%). In the CropScience subgroup, business expanded by 2.0% (Fx & portfolio adj. +2.5%). Sales of MaterialScience fell by a substantial 22.8% (Fx & portfolio adj. 24.7%) due to the economic situation.
| Bayer Group Quarterly Sales | [Graphic 3.1] | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| € million | Total | ||||||||||
| Q1 | 2008 2009 |
1,325 1,153 |
7,211 6,742 |
8,536 7,895 |
|||||||
| Q2 | 2008 2009 |
1,202 994 |
7,309 7,015 |
8,511 8,009 |
|||||||
| Q3 | 2008 2009 |
1,227 1,042 |
6,721 6,350 |
7,948 7,392 |
|||||||
| Q4 | 2008 2009 |
1,043 958 |
6,880 6,914 |
7,923 7,872 |
|||||||
| Total | 2008 2009 |
4,797 4,147 |
28,121 27,021 |
32,918 31,168 |
|||||||
| 0 | 1,000 | 2,000 | 3,000 | 4,000 | 5,000 | 6,000 | 7,000 | 8,000 |
Domestic Foreign
ebitda before special items of the Bayer Group, at €6,472 million, was down 6.6% from the prior-year fi gure of €6,931 million. Shifts in currency parities, particularly in the emerging markets, diminished earnings by some €140 million. The ebitda margin before special items declined slightly to 20.8% (2008: 21.1%).
ebitda before special items of HealthCare improved by 7.5% to a record €4,468 million (2008: €4,157 million), yielding an ebitda margin before special items of 27.9% (2008: 27.0%). Contributing to this increase were the gratifying business performance and the synergies from the integration of the former business of Schering, Berlin, Germany. ebitda before special items of CropScience, at €1,508 million, was 5.9% below the very good result for the preceding year (€1,603 million). The ebitda margin before special items came in at 23.2% (2008: 25.1%). The drop in earnings was due primarily to higher raw material costs and negative currency effects, which were only partly offset by earnings contributions from the additional sales. In the diffi cult year 2009, ebitda before special items of MaterialScience amounted to €446 million (2008: €1,088 million). This substantially lower earnings level was due to negative price and volume effects on account of the much weaker demand caused by the economic slump. However, earnings of MaterialScience improved as the year went on, approaching the 2008 level by the third quarter. The ebitda margin before special items dropped to 5.9% (2008: 11.2%).
ebit before special items of the Bayer Group, at €3,772 million, was down 13.1% from the previous year's level of €4,342 million. ebit in 2009 was diminished by net special charges of €766 million (2008: €798 million). Of the 2009 fi gure, HealthCare accounted for €372 million, CropScience for €219 million and MaterialScience for €140 million. The net special charges related mainly to restructuring (2009: €354 million; 2008: €215 million) and the integration and acquisition of Schering, Berlin, Germany (2009: €87 million; 2008: €365 million). These expenses completed the current restructuring programs. Special charges of €225 million (2008: €106 million) were litigation-related, €68 million comprised additional funding for the German corporate pension assurance association necessitated by record bankruptcy losses, and €32 million consisted of impairment charges (2008: €98 million). ebit of the Bayer Group fell by 15.2% to €3,006 million (2008: €3,544 million).
After a non-operating result of minus €1,136 million (2008: minus €1,188 million), income before income taxes in 2009 came in at €1,870 million (2008: €2,356 million). The main components of the non-operating result were €548 million (2008: €702 million) in net interest expense, €436 million (2008: €300 million) in interest cost for pension and other provisions, and a €92 million (2008: €79 million) exchange loss. The lower net interest expense was partly due to the reduction in fi nancial debt and the decline in interest rates. Tax expense in 2009 came to €511 million (2008: €636 million).
After tax we recorded income from continuing operations of €1,359 million (2008: €1,720 million).
The Bayer Group posted net income of €1,359 million in 2009 (2008: €1,719 million). Earnings per share were €1.70 (2008: €2.22). Core earnings per share moved back to €3.64 (2008: €4.17). The calculation of core earnings per share is explained in Chapter 4.3 "Core Earnings Per Share," page 75.
Gross cash fl ow of the Bayer Group receded by 12.0% year on year to €4,658 million (2008: €5,295 million) due to the weak business performance at MaterialScience. By contrast, net cash fl ow advanced by 49.0% to €5,375 million (2008: €3,608 million), due particularly to improved working capital management and lower income tax payments.
We signifi cantly reduced net fi nancial debt during the year to €9.7 billion on December 31, 2009, compared with €14.2 billion at the end of 2008. The reduction included the conversion of the €2.3 billion mandatory convertible bond. The net pension liability – the aggregate of pension obligations and plan assets – rose by €0.4 billion compared with December 31, 2008, to €6.4 billion, mainly because of lower long-term interest rates on the capital market.
Sales of the Bayer Group dipped by 0.6 percent in the fourth quarter of 2009, to €7,872 million (q4 2008: €7,923 million). After adjustment for currency and portfolio effects (Fx & portfolio adj.), sales rose by 3.4%. HealthCare sales increased by 0.6% (Fx & portfolio adj. +5.9%). Business in our CropScience subgroup grew by 3.4% (Fx & portfolio adj. +6.2%). Sales of MaterialScience declined by 1.9%, but expanded by 1.0% on a currency-adjusted basis.
| Key Data by Subgroup and Segment, 4th Quarter | [Table 3.2] | |||||||
|---|---|---|---|---|---|---|---|---|
| Sales | before special items* | EBIT | before special items* | EBITDA | before special items* | EBITDA margin | ||
| 4th Quarter 2008 |
4th Quarter 2009 |
4th Quarter 2008 |
4th Quarter 2009 |
4th Quarter 2008 |
4th Quarter 2009 |
4th Quarter 2008 |
4th Quarter 2009 |
|
| € million | € million | € million | € million | € million | € million | % | % | |
| HealthCare | 4,140 | 4,164 | 759 | 775 | 1,095 | 1,154 | 26.4 | 27.7 |
| Pharmaceuticals | 2,673 | 2,698 | 481 | 497 | 753 | 789 | 28.2 | 29.2 |
| Consumer Health | 1,467 | 1,466 | 278 | 278 | 342 | 365 | 23.3 | 24.9 |
| CropScience | 1,352 | 1,398 | 53 | 42 | 182 | 166 | 13.5 | 11.9 |
| Crop Protection | 1,124 | 1,177 | 52 | 42 | 158 | 149 | 14.1 | 12.7 |
| Environmental Science, BioScience |
228 | 221 | 1 | 0 | 24 | 17 | 10.5 | 7.7 |
| MaterialScience | 2,055 | 2,016 | (86) | 59 | 54 | 203 | 2.6 | 10.1 |
| Reconciliation | 376 | 294 | (20) | (59) | 26 | (10) | 6.9 | (3.4) |
| Continuing Operations |
7,923 | 7,872 | 706 | 817 | 1,357 | 1,513 | 17.1 | 19.2 |
2008 fi gures restated
* for defi nition see chapter 4.2 "Calculation of EBIT(DA) Before Special Items," page 74
ebitda before special items in the fourth quarter advanced by 11.5% to €1,513 million (q4 2008: €1,357 million), despite a negative currency effect of about €80 million. HealthCare posted underlying ebitda of €1,154 million (q4 2008: €1,095 million), up 5.4% year on year. ebitda before special items of CropScience fell by 8.8% to €166 million (q4 2008: €182 million). ebitda before special items at MaterialScience nearly quadrupled to €203 million from €54 million in the prior-year quarter, when earnings were already hampered by the economic crisis. ebit before special items in the fourth quarter advanced by 15.7% to €817 million (q4 2008: €706 million). Net special charges of €451 million (q4 2008: €294 million) were incurred, with HealthCare accounting for €312 million (q4 2008: €197 million), CropScience for €98 million (q4 2008: €62 million) and MaterialScience for €45 million (q4 2008: €35 million). Fourth-quarter ebit thus came in at €366 million (q4 2008: €412 million).
After a non-operating result of minus €248 million (q4 2008: minus €375 million), income before income taxes was €118 million (q4 2008: €37 million). The non-operating result contained net interest expense of €94 million (q4 2008: €167 million). Including tax income of €38 million (q4 2008: €65 million), income from continuing operations was €156 million (q4 2008: €102 million).
After non-controlling interest, Group net income in the fourth quarter came to €153 million (q4 2008: €106 million). Earnings per share came in at €0.18 (q4 2008: €0.16). Core earnings per share were €0.90 (q4 2008: €0.71).
Gross cash fl ow declined by 10.6% year on year in the fourth quarter of 2009, to €1,029 million (q4 2008: €1,151 million). Net cash fl ow climbed by 84.5% to €1,766 million (q4 2008: €957 million), mainly because of a signifi cant decrease in cash tied up in working capital.
Bayer AG, headquartered in Leverkusen, Germany, is the strategic management holding company for the Bayer Group. Business operations are conducted by the HealthCare, CropScience and MaterialScience subgroups.
The globally operating HealthCare subgroup is divided into the Pharmaceuticals and Consumer Health segments. The Pharmaceuticals segment concentrates on prescription products in the fi elds of General Medicine, Specialty Medicine, Women's Healthcare and Diagnostic Imaging. Our Consumer Health segment comprises the Consumer Care, Medical Care and Animal Health divisions. The Consumer Care Division has businesses in non-prescription medicines and dietary supplements. Medical Care comprises the businesses with blood glucose meters, contrast-enhanced diagnostic imaging equipment, and mechanical systems for treating constricted or blocked blood vessels. The products of the Animal Health Division are destined for use in livestock and companion animals.
CropScience is active in the fi elds of chemical crop protection, non-agricultural pest and weed control, seed breeding and the improvement of plant traits. Organizationally, our CropScience business is divided into the Crop Protection segment and the Environmental Science, BioScience segment. Refl ecting its product offering, Crop Protection is comprised of the Herbicides, Fungicides, Insecticides and Seed Treatment business units. Within the Environmental Science, BioScience segment, the Environmental Science business unit markets non-agricultural pest and weed control products while the BioScience business unit focuses on seeds and plant traits.
MaterialScience develops, manufactures and markets high-performance products in the areas of polyurethanes, polycarbonates, and coating and adhesive raw materials. This subgroup also manufactures and markets selected inorganic basic chemicals. MaterialScience is divided into the Polyurethanes, Polycarbonates, and Coatings, Adhesives, Specialties business units, and the Industrial Operations area.
Our subgroups are supported by the Business Services, Technology Services and Currenta service companies, which are reported in the reconciliation under "All Other Segments." The reconciliation also includes the Corporate Center and consolidation effects.
The commentaries in this report relate exclusively to continuing operations, except where specifi c reference is made to discontinued operations or to a total value. We had no discontinued operations to report in 2009.
| Key Data by Subgroup and Segment | [Table 3.3] |
|---|---|
| ---------------------------------- | ------------- |
| Sales | EBIT before special items* |
before special items* | EBITDA | EBITDA margin before special items* |
||||
|---|---|---|---|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | |
| € million | € million | € million | € million | € million | € million | % | % | |
| HealthCare | 15,407 | 15,988 | 2,764 | 3,012 | 4,157 | 4,468 | 27.0 | 27.9 |
| Pharmaceuticals | 10,030 | 10,467 | 1,760 | 2,018 | 2,920 | 3,193 | 29.1 | 30.5 |
| Consumer Health | 5,377 | 5,521 | 1,004 | 994 | 1,237 | 1,275 | 23.0 | 23.1 |
| CropScience | 6,382 | 6,510 | 1,084 | 1,017 | 1,603 | 1,508 | 25.1 | 23.2 |
| Crop Protection | 5,339 | 5,424 | 962 | 875 | 1,397 | 1,301 | 26.2 | 24.0 |
| Environmental | ||||||||
| Science, BioScience | 1,043 | 1,086 | 122 | 142 | 206 | 207 | 19.8 | 19.1 |
| MaterialScience | 9,738 | 7,520 | 586 | (126) | 1,088 | 446 | 11.2 | 5.9 |
| Reconciliation | 1,391 | 1,150 | (92) | (131) | 83 | 50 | 6.0 | 4.3 |
| Continuing Operations |
32,918 | 31,168 | 4,342 | 3,772 | 6,931 | 6,472 | 21.1 | 20.8 |
2008 fi gures restated
* for defi nition see chapter 4.2 "Calculation of EBIT(DA) Before Special Items," page 74
We implemented a number of organizational changes effective January 1, 2009 that affected our segment reporting and thus the presentation within the subgroups as described below. The prioryear fi gures have been restated accordingly. In the HealthCare subgroup, the dermatology business (Intendis) was integrated into the Consumer Care Division within the Consumer Health segment and thus is no longer part of the Pharmaceuticals segment. The Diabetes Care Division was combined with our medical equipment business Medrad – which previously formed part of the Diagnostic Imaging business unit in the Pharmaceuticals segment – to create the Medical Care Division. In the Pharmaceuticals segment we now conduct our business in the General Medicine (formerly Primary Care and Cardiology), Specialty Medicine (formerly Specialized Therapeutics, Oncology and Hematology), Women's Healthcare and Diagnostic Imaging business units. MaterialScience is reported as a single segment. The Thermoplastic Polyurethanes (tpu) business unit was dissolved. The tpu granules business was integrated into the Polyurethanes business unit, while the tpu fi lms activities now form part of the Coatings, Adhesives, Specialties business unit (Functional Films). In light of organizational changes, the non-core businesses previously reported as "Other Systems" are now reported under Industrial Operations.
In 2009 the global economy was dominated by the fi nancial and economic crisis, which led to a worldwide economic slump in the fall of 2008. The industrialized countries were particularly hard hit, with some of the emerging markets also experiencing major downturns or at least tangibly lower rates of growth.
The pace of the downswing slowed during the second quarter of 2009, in some countries more signifi cantly than expected. This was substantially the result of extensive governmental stimulus programs. The fi nancial markets also stabilized increasingly during the year following massive intervention by the central banks. The bottom of the cycle was reached in the summer months, and the world economy slowly recovered in the second half of the year. With business and consumer confi dence continuing to improve, production in the industrialized countries expanded once more. The emerging economies again posted higher growth rates, albeit well below those of 2008. However, the worldwide recovery at year end was not nearly suffi cient to offset the slump at the start of the year, with the result that global economic output in 2009 was well down on the previous year.
In 2009 the market for prescription medicines posted growth in the mid-single digits. Expansion slowed in the United States and the major European countries, partly as a result of more restrictive health care policies, which are leading to stricter cost controls and limiting access to certain types of treatment. Growth continued in the emerging countries, where health services are becoming available to more and more people and the need for treatment options for chronic diseases is increasing.
While growth in the global consumer health market ebbed slightly in 2009, it proved relatively stable overall thanks to some price increases. Inventory adjustments by traders had a negative effect in the fi rst half. Market expansion in the emerging economies did not fully offset the low growth rates in the industrialized countries.
Following the positive trend in 2008, conditions in the global seed and crop protection market deteriorated markedly during 2009. Declining prices for the major agricultural crops, lower insect and disease infestation pressure and adverse weather patterns led to a tangible drop in demand for crop protection products, particularly in the second half.
The economic situation of farmers in Latin America worsened overall in the wake of extreme drought conditions in the fi rst half of 2009. The region's farm economy was also hampered by an unfavorable exchange rate for the u.s. dollar and by the fi nancial crisis. In North America, the use of crop protection products declined mainly due to above-average rainfall in the fi rst half and a sharp drop in producer prices. In many European countries, comparatively low infestation by insect pests and fungal diseases in crops such as cereal, potatoes or grapes reduced the demand for crop protection products. Many farms in eastern Europe cut back spending on inputs due to a lack of liquidity caused by the fi nancial crisis. In Asia / Pacifi c, too, business conditions in 2009 were predominantly unfavorable, especially in the region's growth markets. Infestation pressure in China was low, particularly in rice. The erratic monsoon in the second half of the year held back growth, especially in India. By contrast, Australian agriculture saw a modest recovery from the prolonged drought of recent years.
The customer industries of importance to MaterialScience experienced a slump in business in 2009 that varied in intensity from one region to another. In the fi rst quarter, particularly, demand plummeted. The diffi cult economic conditions gradually improved as the year went on, mainly as a result of the extensive stimulus programs introduced throughout the world.
The automotive markets of many countries stabilized initially thanks to the governmental stimulus programs. Although production declined substantially in 2009 as a whole, these programs prevented an even worse situation. Currently, only China appears on course for sustained growth.
The electrical / electronics sector, which as a supplier industry is closely interlinked with all other industry sectors, saw a mid-single-digit decline in production worldwide in 2009. The picture varied widely from one region to another. Production in the industrialized countries fell sharply, while the emerging countries continued to show robust growth.
The global construction industry shrank in 2009 for the fi rst time since the early 1990s. While there were clear signs of stabilization in the United States as the year progressed, some markets in western Europe slumped dramatically. Other major markets such as China and India were less affected by the crisis and continued growing at slightly slower rates.
The furniture industry suffered from a sharp drop in business, especially in the first half of 2009, with the market gradually bottoming out in the second half. In the United States and several European countries in particular, weaker consumer confi dence had an adverse effect on demand. In the Asian markets, which were stabilized by extensive stimulus programs, part of the decline in exports was offset by an increase in domestic consumption.
Uniform Group directives on procurement are in place. Our production-specifi c procurement activities, like production itself, are organized on a decentralized basis in light of the diverse nature of our business activities. The procurement of indirect goods and services that are not relevant to production – such as consultancy services, business travel and fl eet management, computer hardware and software, laboratory and workshop equipment, safety devices and offi ce supplies – is centrally organized within our service companies.
An organizational unit of HealthCare steers the subgroup's entire supply chain, from raw material procurement to manufacturing to product shipment, utilizing a global production network consisting of its own sites and those of subcontractors. In this way we aim to steadily reduce costs, increase our fl exibility and delivery reliability, and maintain high standards of quality, safety and environmental protection on a global basis. The manufacture of pharmaceuticals is subject to exceptionally stringent quality requirements defi ned by the term "Good Manufacturing Practices" (gmp). Compliance with these requirements is regularly audited by internal experts, regulatory authorities and external consultants.
Production network creates advantages
The Pharmaceuticals segment generally procures the starting materials for the active ingredients of its prescription pharmaceuticals from external suppliers. To prevent supply bottlenecks and to mitigate major price fl uctuations, these starting materials and the intermediates we do not produce ourselves are generally purchased under global contracts and / or from a number of suppliers we have audited and approved.
Our active ingredients for prescription medicines are manufactured primarily at the sites in Wuppertal and Bergkamen, Germany, as well as Berkeley and Emeryville, California, United States. These substances are processed into fi nished products and packaged worldwide using sophisticated technologies. Our medicines come in a wide range of delivery forms, including solids (coated or uncoated tablets, powders), semi-solids (ointments, creams) and liquid pharmaceuticals used in injections or infusions, for example. Our hormonal contraceptives are supplied as sugaror fi lm-coated tablets or used in intrauterine systems (coils), for example. These manufacturing and packaging activities take place in Berlin, Leverkusen and Weimar, Germany; Garbagnate, Italy; Beijing, China; São Paulo, Brazil; Turku, Finland; and various other sites in Europe, Asia and Latin America. The hemophilia drug Kogenate® is manufactured by a biotechnological process at Berkeley, California, United States. Betaferon® / Betaseron® for the treatment of multiple sclerosis is produced in Emeryville, California, United States.
In the Consumer Health segment, the Consumer Care Division procures certain active substances, such as acetylsalicylic acid and clotrimazole, from within the Bayer Group. The principal raw materials we purchase from third parties are naproxen, citric acid, ascorbic acid and other vitamins, and paracetamol. To minimize business risks, we diversify our raw material procurement sources worldwide and conclude long-term supply agreements. Among the division's largest production sites are the facilities in Myerstown, Pennsylvania, United States; Cimanggis, Indonesia; Gaillard, France; Bitterfeld-Wolfen and Grenzach-Wyhlen, Germany; and Madrid, Spain.
Some four fi fths of the Diabetes Care products (such as blood glucose meters) of our Medical Care Division are procured from original equipment manufacturers (oems). Material prices and availability are covered in most cases by long-term contracts and therefore are not subject to major fl uctuations. We hold strategic reserves of certain direct materials or fi nished products in order to be able to supply our customers consistently and reliably. Our largest production site for Diabetes Care products is located in Mishawaka, Indiana, United States. Most of the materials needed for our medical equipment business, too, are procured from external suppliers, their availability, quality and price stability being ensured by way of long-term agreements, careful choice of suppliers and active supplier management. The majority of our medical devices are manufactured at the u.s. sites near Pittsburgh, Pennsylvania, and at Coon Rapids, Minnesota.
The Animal Health Division procures the pharmaceutical active ingredients for its veterinary medicines both from within the Bayer Group and from external suppliers throughout the world. Our animal health products are manufactured mainly at the sites in Kiel, Germany, and Shawnee, Kansas, United States, and marketed worldwide.
CropScience procures most of its raw materials for the manufacture of crop protection products externally. These raw materials are mainly basic chemicals such as chlorine, sodium hydroxide solution and sulfuric acid, or synthesis components. The cost of some raw materials depends on oil and energy prices and freight charges. Key products are usually procured on the basis of longterm supply agreements. We reduce the risk of supply failure by diversifying our raw material sources and holding strategic reserves of important raw materials. Another major factor in ensuring supplies is that we buy primarily from certifi ed suppliers with defi ned quality standards for their production and for the raw materials to be procured.
Global production network for agrochemical and seed products at CropScience CropScience has 36 production sites and formulating facilities of its own around the world where its Crop Protection and Environmental Science products are manufactured. Among the largest are the facilities in Dormagen and Frankfurt am Main, Germany; Kansas City, Missouri and Institute, West Virginia, United States; and Vapi, India. In addition to a number of central locations for the manufacture of our active ingredients, a network of decentralized formulation and fi lling sites enables us to respond rapidly to local market needs. At these facilities the active ingredients are processed into herbicides, fungicides, insecticides, seed treatments and Environmental Science products according to local requirements and application areas. We continued to invest in our global production network in 2009, selectively expanding our capacities for important products such as the herbicide Basta® / Liberty® / Ignite® and the fungicide Proline® / Input® / Prosaro®.
In the BioScience business unit, we produce our seeds close to the customer in Europe, Asia, and North and South America. Our canola, cotton, rice and vegetable seed is bred in our own centers or grown under contract on an area of more than 90,000 hectares.
The basic raw materials for our MaterialScience products are petrochemical feedstocks such as benzene, toluene and phenol. We generally purchase these materials on the procurement markets under long-term contracts. The operation of our production facilities also requires large amounts of energy, mostly in the form of electricity or steam, making energy costs a signifi cant factor for the MaterialScience business. To minimize the price fl uctuation risk, we aim for a balanced diversifi cation of fuels for steam production and a mix of external procurement and captive production for power generation. We also employ commodity swaps and commodity options in the case of long-term, fi xed-price supply contracts, for example.
The largest production facilities of MaterialScience for the European market are located in Dormagen, Krefeld and Brunsbüttel, Germany; Antwerp, Belgium; and Tarragona, Spain. The major production site for the North American market is at Baytown, Texas, United States, while customers in the Asia / Pacifi c region are supplied chiefl y from Map Ta Phut, Thailand, and Shanghai, China. In the fi eld of commodities we endeavor to reduce costs by operating world-scale production facilities that enable us to supply markets across national borders. We also have a large number of production facilities close to local markets in 17 countries to serve our diverse businesses. Of these facilities, our systems houses formulate and supply customized polyurethane systems under the trade name BaySystems®, while others carry out compounding of polycarbonate granules (brand name: MakroColor®) close to the customer or manufacture our semi-fi nished products (polycarbonate sheet). We also operate regional production facilities for functional fi lms made of polycarbonate or thermoplastic polyurethane.
Marketing activities within the Bayer Group are decentralized due to the diversifi ed business portfolio.
HealthCare supplies more than 20,000 articles to meet the needs of patients and consumers in the various markets. The high number is due to the size of the product range and the various delivery forms, dosages, pack sizes, and language versions of individual products and their packaging.
In the Pharmaceuticals segment we supply prescription products in the areas of General Medicine, Specialty Medicine, Women's Healthcare and Diagnostic Imaging. In the fi eld of General Medicine we supply products such as Adalat® to treat high blood pressure and coronary heart disease, and Avalox®/Avelox® to fi ght infectious diseases. Our offering in the area of Specialty Medicine includes the multiple sclerosis treatment Betaferon® / Betaseron®, the hemophilia a treatment Kogenate® and the cancer drug Nexavar®. Women's Healthcare markets contraceptive products, such as yaz® / Yasmin® / Yasminelle® and Mirena®, and hormone replacement therapies such as Angeliq®. Our contrast agents, which are used in diagnostic imaging, include Ultravist® and Magnevist®. In the pharmaceuticals market we are among the world's top 15 companies in terms of sales.
More than 20,000 articles worldwide
Partnerships optimize distribution
Our pharmaceutical products are primarily distributed through wholesalers, pharmacies and hospitals. Co-promotion and co-marketing agreements serve to optimize our distribution network. For example, the agreement with Johnson & Johnson subsidiary Ortho-McNeil concerning the joint further development and marketing of the anticoagulant Xarelto® ensures optimum progress in this area, conferring regional marketing rights that enable both partners to share in the product's expected success. Another example is the strategic alliance with Schering-Plough (now Merck & Co., Inc., United States) under which that company markets selected primary care products in the United States. We also co-market Zetia®, a product of Merck & Co., Inc., in Japan.
The Consumer Health segment offers chiefl y non-prescription (over-the-counter = otc) medicines. The Consumer Care Division has brands in most otc categories, such as Aspirin® and Aleve® (analgesics) or Canesten® (dermatologicals). The product range also includes nutritionals such as Supradyn® and One-A-Day®, antacids, skin care products such as Bepanthen® / Bepanthol®, and cough-and-cold products. Consumer Care is a leading player in the otc market. The division also includes prescription dermatology products. While the division's sales and distribution channels outside Europe are typically supermarket chains, drugstores and other large retailers, pharmacies are the usual distribution channel in Europe.
In the Medical Care Division we offer user-friendly blood glucose monitoring devices such as the single-strip Contour® system or the multi-strip Breeze® system. We generally market these products to consumers outside Europe through pharmacies, drugstores, mass merchants, hospitals and wholesalers. In Europe, they are sold mainly through pharmacies. We are among the top three companies in the market for blood glucose meters. Additionally we offer medical equipment such as contrast injection systems for diagnostic and therapeutic medical procedures in computed tomography, magnetic resonance imaging and molecular imaging, along with mechanical systems for the treatment of constricted or blocked blood vessels. These products are marketed to cardiologists, radiologists and vascular surgeons in hospitals and out-patient clinical sites through a global direct sales organization that is supplemented in certain regions by local distributors. We are the global market leader in contrast agent injection systems.
The Animal Health Division focuses on the health of companion animals and livestock, for which we offer pharmaceuticals and grooming products. The largest product line is Advantage® to treat fl ea infestation in dogs and cats, followed by Baytril® for the control of infectious diseases, the wormers Drontal® and Drontal Plus®, and Baycox® for the treatment of coccidiosis in pigs. We occupy leading positions in individual countries and product segments, and are the world's fourthlargest animal health company in terms of sales. Depending on local regulatory frameworks, animal health products may be available to end users with a prescription issued by a veterinarian or over the counter from retail stores, drugstores and pharmacies.
The CropScience business is subject to the growing seasons for the relevant crops and the respective distribution cycles.
Our Crop Protection business is based on a broad, balanced portfolio of highly effective herbicides, fungicides, insecticides and seed treatment products. Thanks to our innovative capability and many years of experience with pest control products, we are the global market leader in the insecticides market. Fungicides prevent or cure diseases caused by fungal infestation that can signifi cantly impair harvest yields and quality. CropScience is the world's second-leading supplier in the fungicides market and occupies a strong number three position in the global market for weed control products (herbicides), including plant growth regulators. Our Seed Treatment business unit focuses on the use of crop protection active ingredients specially developed for the protection of seeds and seedlings. Its broad, balanced range of insecticides, fungicides and combination products makes CropScience the leading company in the seed treatment market in terms of sales. Our Crop Protection products are marketed either via wholesalers or directly through retailers by means of a two- or three-step distribution system, depending on local market conditions.
Integrated, sustainable product portfolio offers solutions from seed to harvest
The products of our Environmental Science business unit are based on our crop protection active ingredients and are specially designed for non-agricultural uses. In terms of sales, Bayer is among the world's leading suppliers of non-agricultural pest control products. The business unit is divided into Consumer Products, which markets plant care products and lawn, home and garden brands specifi cally to consumers, and Professional Products, which offers solutions for professionals in the green, pest control and vector control industries. The Environmental Science products are marketed through various distribution channels. Our home and garden products are sold to consumers via both wholesalers and specialist retailers. Products for professional users are sold either directly to customers or via wholesalers. In the vector control fi eld, particularly, much of our business takes place in response to tendering by government agencies and non-governmental organizations.
In the BioScience business unit, our activities are focused on seed production in the four core crops of cotton, canola, rice and vegetables, where we offer high-quality seed based on our own research and breeding expertise. We have achieved strong market positions in these four crops and are globally represented. We market our canola seed primarily in North America, our cotton seed in North and Latin America, India and southern Europe, and our hybrid rice seed in Asia and, since 2009, in the United States. Our vegetable seed varieties are sold in more than 100 countries throughout the world. Our seed is distributed to farmers, breeders, specialist retailers and the processing industry. Traits developed using modern breeding methods and plant biotechnology are either incorporated into our own seed varieties or licensed to other seed companies for use in their products. In some cases, traits are also provided to other companies for research purposes.
MaterialScience is among the world's leading manufacturers and suppliers of polyurethanes and polycarbonates and of raw materials for coatings and adhesives. The subgroup holds leading competitive positions in these product groups in all regional markets. We also produce and market selected inorganic basic chemicals such as chlorine, sodium hydroxide solution, hydrogen, hydrochloric acid, nitric acid and carbon monoxide, which serve either as raw materials (such as chlorine) for our primary products or are generated as by-products (such as sodium hydroxide solution) and sold to external customers.
Our primary products are used mainly in the automotive, construction, electronics, data communications, furniture, timber, chemical, sports equipment, leisure goods, textile, medical technology and manufacturing industries. Our polyurethane raw materials, such as diphenylmethane diisocyanate (mdi), toluene diisocyanate (tdi) and polyether, and the polyurethane systems based on them that are offered in the market are used, for example, in the production of mattresses, refrigerator insulations, automotive bumpers and shoe soles. Examples of applications for our polycarbonates, which we market under the Makrolon®, Bayblend®, Makroblend® and other trademarks, include housings for electrical appliances, cds / dvds, car headlamps, stadium roofs and water bottles for water dispensers. The Coatings, Adhesives, Specialties business unit manufactures raw materials for coatings and adhesives used in the automobile and commercial vehicle industries, and for adhesives used in footwear.
We market our products mostly through regional and local distribution channels, making increasing use of e-commerce platforms for order processing. We also work with trading houses and local distributors who are responsible for business with small customers. Major customers with global operations are serviced directly by our key account managers.
| Key Data – HealthCare | [Table 3.4] | ||
|---|---|---|---|
| 2008 | 2009 | Change | |
| € million | € million | % | |
| Sales | 15,407 | 15,988 | + 3.8 |
| Pharmaceuticals | 10,030 | 10,467 | + 4.4 |
| Consumer Health | 5,377 | 5,521 | + 2.7 |
| Sales by Region | |||
| Europe | 6,379 | 6,344 | – 0.5 |
| North America | 4,512 | 4,634 | + 2.7 |
| Asia / Pacifi c | 2,278 | 2,677 | + 17.5 |
| Latin America /Africa / Middle East | 2,238 | 2,333 | + 4.2 |
| EBITDA* | 3,692 | 4,148 | +12.4 |
| Special items | (465) | (320) | |
| EBITDA before special items * | 4,157 | 4,468 | + 7.5 |
| EBITDA margin before special items * | 27.0% | 27.9% | |
| EBIT * | 2,181 | 2,640 | + 21.0 |
| Special items | (583) | (372) | |
| EBIT before special items * | 2,764 | 3,012 | + 9.0 |
| Gross cash fl ow ** | 3,045 | 3,153 | + 3.5 |
| Net cash fl ow ** | 2,259 | 3,431 | + 51.9 |
2008 fi gures restated
* for defi nition see chapter 4.2 "Calculation of EBIT(DA) Before Special Items," page 74
** for defi nition see chapter 4.5 "Liquidity and Capital Expenditures of the Bayer Group," page 78
Above: illustration of blood cells
Sales of the HealthCare subgroup rose by 3.8% in 2009 to €15,988 million (2008: €15,407 million). On a currency- and portfolio-adjusted basis, sales also grew by 3.8%, due particularly to the positive business performance in the emerging markets. Favorable price and volume effects each contributed 1.9 percentage points to this growth.
ebitda before special items of HealthCare rose by 7.5% in 2009 to €4,468 million (2008: €4,157 million). The ebitda margin before special items came in at 27.9%, meeting the target set for the year despite signifi cant negative currency effects. The growth in earnings was largely attributable to the positive business trend and to lower selling and administration expenses. These savings were made possible by synergies realized from the integration of Schering, Berlin, Germany, and by further cost-containment measures. On the other hand, earnings were diminished by increased manufacturing costs and by higher research and development expenses. ebit before special items grew by 9.0% to €3,012 million (2008: €2,764 million). The net special charges of €372 million (2008: €583 million) related particularly to litigations and the integration of Schering, Berlin, Germany, as well as to restructuring measures, a valuation write-down and additional funding for the German corporate pension assurance association. ebit rose by a substantial 21.0% to €2,640 million (2008: €2,181 million).
| Key Data – Pharmaceuticals | [Table 3.5] | ||
|---|---|---|---|
| 2008 | 2009 | Change | |
| € million | € million | % | |
| Sales | 10,030 | 10,467 | + 4.4 |
| General Medicine | 3,208 | 3,463 | + 7.9 |
| Specialty Medicine | 3,050 | 3,159 | + 3.6 |
| Women's Healthcare | 2,873 | 2,946 | + 2.5 |
| Diagnostic Imaging | 899 | 899 | 0.0 |
| Sales by Region | |||
| Europe | 4,181 | 4,107 | – 1.8 |
| North America | 2,646 | 2,712 | + 2.5 |
| Asia / Pacifi c | 1,805 | 2,136 | + 18.3 |
| Latin America /Africa / Middle East | 1,398 | 1,512 | + 8.2 |
| EBITDA* | 2,500 | 2,912 | + 16.5 |
| Special items | (420) | (281) | |
| EBITDA before special items * | 2,920 | 3,193 | + 9.3 |
| EBITDA margin before special items * | 29.1% | 30.5% | |
| EBIT * | 1,222 | 1,696 | + 38.8 |
| Special items | (538) | (322) | |
| EBIT before special items * | 1,760 | 2,018 | + 14.7 |
| Gross cash fl ow ** | 2,092 | 2,186 | + 4.5 |
| Net cash fl ow ** | 1,547 | 2,280 | + 47.4 |
2008 fi gures restated
* for defi nition see chapter 4.2 "Calculation of EBIT(DA) Before Special Items," page 74
** for defi nition see chapter 4.5 "Liquidity and Capital Expenditures of the Bayer Group," page 78
Sales of our Pharmaceuticals segment increased by 4.4% in 2009 to €10,467 million (2008: €10,030 million). Adjusted for currency and portfolio effects, sales advanced by 4.8%. Business expanded encouragingly in the Asia / Pacifi c (Fx adj. +9.1%) and Latin America / Africa / Middle East (Fx adj. +12.7%) regions, more than offsetting the slight decline in North America (Fx adj. -1.9%).
| Best-Selling Pharmaceutical Products | [Table 3.6] | |||
|---|---|---|---|---|
| 2008 | 2009 | Change | Currency adjusted change |
|
| € million | € million | % | % | |
| YAZ® / Yasmin® / Yasminelle® (Women's Healthcare) | 1,222 | 1,278 | + 4.6 | + 4.7 |
| Betaferon® / Betaseron® (Specialty Medicine) | 1,144 | 1,214 | + 6.1 | + 5.7 |
| Kogenate® (Specialty Medicine) | 848 | 888 | + 4.7 | + 3.2 |
| Adalat® (General Medicine) | 626 | 633 | + 1.1 | – 3.6 |
| Nexavar® (Specialty Medicine) | 462 | 604 | + 30.7 | + 27.9 |
| Mirena® (Women's Healthcare) | 462 | 490 | + 6.1 | + 4.9 |
| Avalox® / Avelox® (General Medicine) | 462 | 460 | – 0.4 | – 1.7 |
| Levitra® (General Medicine) | 341 | 360 | + 5.6 | + 4.5 |
| Cipro® / Ciprobay® (General Medicine) | 338 | 331 | – 2.1 | – 3.6 |
| Glucobay® (General Medicine) | 304 | 315 | + 3.6 | – 0.9 |
| Aspirin® Cardio (General Medicine) | 270 | 315 | + 16.7 | + 14.9 |
| Ultravist® (Diagnostic Imaging) | 261 | 262 | + 0.4 | + 2.4 |
| Magnevist® (Diagnostic Imaging) | 241 | 219 | – 9.1 | – 13.4 |
| Iopamiron® (Diagnostic Imaging) | 199 | 199 | 0.0 | – 11.7 |
| Kinzal® / Pritor® (General Medicine) | 144 | 164 | + 13.9 | + 14.5 |
| Total | 7,324 | 7,732 | + 5.6 | + 3.9 |
| Proportion of Pharmaceuticals sales | 73% | 74% |
Sales of the General Medicine business unit expanded by 7.9% to €3,463 million (2008: €3,208 million). The currency-adjusted (Fx adj.) increase was 5.7%. The gratifying expansion of business in the Asia / Pacifi c region played a particularly important role here. Sales of Aspirin® Cardio advanced by 14.9% (Fx adj.), especially as a result of strong gains in China. In Japan we achieved sales of €87 million with the cholesterol-lowering drug Zetia®. Other new products contributed to our growth as well. Sales of our erectile dysfunction drug Levitra® (Fx adj. +4.5%) and our antihypertensive drug Kinzal® / Pritor® (Fx adj. +14.5%) also developed positively, the latter benefi ting from an expansion of indications to include prevention of cardiovascular disease. By contrast, sales of Adalat® to treat high blood pressure and coronary heart disease fell by 3.6% (Fx adj.). Despite the positive effects from the u.s. government contract concluded in 2008, sales of the anti-infective Cipro® / Ciprobay® were down 3.6% (Fx adj.) year on year, due partly to generic competition in Europe. Business with our oral antidiabetic Glucobay® (Fx adj. -0.9%) also shrank.
Sales in the Specialty Medicine business unit moved forward by 3.6% to €3,159 million (2008: €3,050 million). Adjusted for currency and portfolio effects, business was up by 6.7%. Sales of our cancer drug Nexavar® rose signifi cantly (Fx adj. +27.9%), chiefl y as a result of further market launches and the expansion of its registration in Japan to include the indication liver cancer. We also saw a gratifying expansion in business with our multiple sclerosis drug Betaferon® / Betaseron® (Fx adj. +5.7%), sales of which increased particularly in the United States. Business with our blood-clotting drug Kogenate® expanded by 3.2% (Fx adj.), thanks largely to a considerable increase in Latin America.
Sales of the Women's Healthcare business unit moved ahead by 2.5% to €2,946 million (2008: €2,873 million). On a currency-adjusted basis, sales grew by 3.6%. The positive sales performance of our yaz® / Yasmin® / Yasminelle® line of oral contraceptives continued (Fx adj. +4.7%), due particularly to the growth of yaz® in the United States and Europe. This increase more than offset the weakening of Yasmin® sales in the United States due to generic erosion. Sales of the hormone-releasing intrauterine device Mirena® continued to grow from the strong prior-year level (Fx adj. +4.9%).
In the Diagnostic Imaging business unit, sales were level year on year at €899 million (+0.0%), but dipped by 1.5% on a currency- and portfolio-adjusted basis. Business with Magnevist® contracted by 13.4% (Fx adj.); this was attributable partly to the transition to Gadovist®, sales of which grew strongly (Fx adj. +31.5%), particularly in Europe. Our Ultravist® business expanded further (Fx adj. +2.4%), while sales of Iopamiron® fell by 11.7% (Fx adj.), chiefl y as a result of generic competition in Japan.
ebitda before special items of the Pharmaceuticals segment advanced by 9.3% in 2009 to €3,193 million (2008: €2,920 million). These gains were attributable especially to the positive business trend and to lower selling and administration expenses. The savings were made possible by synergies realized from the integration of Schering, Berlin, Germany, and by cost-containment measures. Earnings were diminished by higher manufacturing costs. We also increased our expenditures for research and development by 5.9% in 2009. ebit before special items grew by 14.7% to €2,018 million (2008: €1,760 million). Net special charges of €322 million resulted from expenditures related to litigation, the integration of Schering, additional funding for the German corporate pension assurance association and the valuation write-down related to our in-licensed development project Recothrom. ebit climbed by a substantial €474 million to €1,696 million (2008: €1,222 million).
| Key Data – Consumer Health | [Table 3.7] | ||
|---|---|---|---|
| 2008 | 2009 | Change | |
| € million | € million | % | |
| Sales | 5,377 | 5,521 | + 2.7 |
| Consumer Care | 3,020 | 3,080 | + 2.0 |
| Medical Care | 1,394 | 1,464 | + 5.0 |
| Animal Health | 963 | 977 | + 1.5 |
| Sales by Region | |||
| Europe | 2,198 | 2,237 | + 1.8 |
| North America | 1,866 | 1,922 | + 3.0 |
| Asia / Pacifi c | 473 | 541 | + 14.4 |
| Latin America /Africa / Middle East | 840 | 821 | – 2.3 |
| EBITDA* | 1,192 | 1,236 | + 3.7 |
| Special items | (45) | (39) | |
| EBITDA before special items * | 1,237 | 1,275 | + 3.1 |
| EBITDA margin before special items * | 23.0% | 23.1% | |
| EBIT * | 959 | 944 | – 1.6 |
| Special items | (45) | (50) | |
| EBIT before special items * | 1,004 | 994 | – 1.0 |
| Gross cash fl ow ** | 953 | 967 | + 1.5 |
| Net cash fl ow ** | 712 | 1,151 | + 61.7 |
2008 fi gures restated
* for defi nition see chapter 4.2 "Calculation of EBIT(DA) Before Special Items," page 74
** for defi nition see chapter 4.5 "Liquidity and Capital Expenditures of the Bayer Group," page 78
Our Consumer Health segment improved sales by 2.7% to €5,521 million (2008: €5,377 million). Adjusted for currency and portfolio effects, business was up by 2.1%, with all divisions contributing to this increase. This performance was due chiefl y to strong sales gains in Russia and China that offset weaker business in the United States.
| Best-Selling Consumer Health Products | |||||
|---|---|---|---|---|---|
| 2008 | 2009 | Change | Currency adjusted change |
||
| € million | € million | % | % | ||
| Contour® (Medical Care) | 554 | 601 | + 8.5 | + 7.3 | |
| Aspirin®* (Consumer Care) | 449 | 400 | – 10.9 | – 9.3 | |
| Advantage® product line (Animal Health) | 329 | 336 | + 2.1 | + 0.2 | |
| Aleve® / naproxen (Consumer Care) | 220 | 217 | – 1.4 | – 4.0 | |
| Canesten® (Consumer Care) | 200 | 188 | – 6.0 | – 3.0 | |
| Bepanthen® / Bepanthol® (Consumer Care) | 173 | 186 | + 7.5 | + 10.3 | |
| One-A-Day® (Consumer Care) | 138 | 153 | + 10.9 | + 5.6 | |
| Baytril® (Animal Health) | 152 | 149 | – 2.0 | – 4.7 | |
| Breeze® (Medical Care) | 145 | 138 | – 4.8 | – 7.4 | |
| Supradyn® (Consumer Care) | 140 | 136 | – 2.9 | + 1.0 | |
| Total | 2,500 | 2,504 | + 0.2 | – 0.2 | |
| Proportion of Consumer Health sales | 46% | 45% |
* total Aspirin® sales = €715 million (2008 = €719 million), including Aspirin® Cardio, which is refl ected in sales of the Pharmaceuticals segment
In the Consumer Care Division, sales advanced by 2.0% to €3,080 million (2008: €3,020 million). The currency- and portfolio-adjusted increase was 2.5%. The effects of the economic weakness in established markets were more than offset by solid growth in the emerging markets. We achieved sales gains particularly for the food supplement lines Redoxon® (Fx adj. +19.1%) and Berocca® (Fx adj. +13.6%). Furthermore, our Bepanthen® / Bepanthol® skincare products (Fx adj. +10.3%) performed well, particularly in Europe. By contrast, sales were down for our analgesic Aspirin® (Fx adj. -9.3%) due to inventory adjustments in the market and intensifi ed competition.
Sales of the Medical Care Division expanded by 5.0% to €1,464 million (2008: €1,394 million). The currency- and portfolio-adjusted increase was 2.1%. This growth was based primarily on higher sales of our blood glucose meters. Our Contour® product line (Fx adj. +7.3%) performed particularly well in Europe. This expansion was due in part to the substitution of our older Elite® system (Fx adj. -30.5%), which generated sales of €83 million in 2009. The decline in business with our Breeze® multi-test system (Fx adj. -7.4%) was attributable to an economy-related drop in demand in the United States.
In the Animal Health Division, sales advanced by 1.5% to €977 million (2008: €963 million). Adjusted for currency effects, the increase came to 1.0%. Business with our antiparasitic agent Baycox® grew by 15.6% (Fx adj.) to €48 million, mostly as a result of its market launch in Japan. Sales of our Advantage® line of fl ea, tick and worm control products remained level year on year, with the positive trend in the United Kingdom and Australia offsetting declines in the United States. Generic competition in Europe diminished sales of our Baytril® broad-spectrum antibiotic (Fx adj. -4.7%).
ebitda before special items of the Consumer Health segment grew by 3.1% to €1,275 million (2008: €1,237 million). This earnings increase was attributable to the expansion of business and to lower selling expenses. Earnings were diminished by a currency-related increase in the cost of goods sold. ebit before special items fell by 1.0% to €994 million (2008: €1,004 million). After special charges of €50 million relating mainly to the closure of a production facility in Brazil, ebit fell by 1.6% to €944 million (2008: €959 million).
| Key Data – CropScience | [Table 3.9] | ||
|---|---|---|---|
| 2008 | 2009 | Change | |
| € million | € million | % | |
| Sales | 6,382 | 6,510 | + 2.0 |
| Crop Protection | 5,339 | 5,424 | + 1.6 |
| Environmental Science, BioScience | 1,043 | 1,086 | + 4.1 |
| Sales by Region | |||
| Europe | 2,625 | 2,540 | – 3.2 |
| North America | 1,396 | 1,529 | + 9.5 |
| Asia / Pacifi c | 964 | 1,028 | + 6.6 |
| Latin America /Africa / Middle East | 1,397 | 1,413 | + 1.1 |
| EBITDA* | 1,450 | 1,311 | – 9.6 |
| Special items | (153) | (197) | |
| EBITDA before special items * | 1,603 | 1,508 | – 5.9 |
| EBITDA margin before special items * | 25.1% | 23.2% | |
| EBIT * | 918 | 798 | – 13.1 |
| Special items | (166) | (219) | |
| EBIT before special items * | 1,084 | 1,017 | – 6.2 |
| Gross cash fl ow ** | 1,192 | 1,043 | – 12.5 |
| Net cash fl ow ** | 736 | 745 | + 1.2 |
* for defi nition see chapter 4.2 "Calculation of EBIT(DA) Before Special Items," page 74
** for defi nition see chapter 4.5 "Liquidity and Capital Expenditures of the Bayer Group," page 78
CropScience improved sales by 2.0% in 2009 to €6,510 million (2008: €6,382 million). After adjusting for currency and portfolio effects, sales rose by 2.5%. Higher selling prices contributed 1.3 percentage points and higher volumes 1.2 percentage points to this increase.
ebitda before special items was down by 5.9% to €1,508 million (2008: €1,603 million). The ebitda margin before special items fell to 23.2%. This drop in earnings was due primarily to higher raw material costs and negative currency effects, which were only partly offset by positive earnings contributions from the expansion of business. ebit before special items fell by 6.2% to €1,017 million. There were special charges for our current cost-structure program, the restructuring of our production site in Institute, West Virginia, United States, and additional funding for the German corporate pension assurance association. Further special charges related to defense costs associated with litigation pending in the United States in connection with genetically modifi ed rice. After special charges of €219 million, ebit was €798 million (2008: €918 million).
| Best-Selling CropScience Products * | [Table 3.10] | |||
|---|---|---|---|---|
| 2008 | 2009 | Change | Currency adjusted change |
|
| € million | € million | % | % | |
| Confi dor® / Gaucho® / Admire® / Merit® (Insecticides / Seed Treatment / Environmental Science) |
599 | 606 | + 1.2 | – 0.3 |
| Flint® / Stratego® / Sphere® / Nativo® (Fungicides) | 365 | 400 | + 9.6 | + 8.0 |
| Basta® / Liberty® / Rely® / Ignite® (Herbicides) | 235 | 323 | + 37.4 | + 34.3 |
| Proline® / Input® / Prosaro® (Fungicides) | 246 | 267 | + 8.5 | + 12.3 |
| Atlantis® (Herbicides) | 244 | 231 | – 5.3 | – 3.0 |
| Folicur® / Raxil® (Fungicides / Seed Treatment) | 242 | 210 | – 13.2 | – 12.0 |
| Poncho® (Seed Treatment) | 223 | 183 | – 17.9 | – 17.4 |
| Decis® / K-Othrine® (Insecticides / Environmental Science) | 175 | 170 | – 2.9 | – 0.9 |
| Puma® (Herbicides) | 203 | 167 | – 17.7 | – 14.5 |
| Fandango® (Fungicides) | 132 | 146 | + 10.6 | + 13.7 |
| Total | 2,664 | 2,703 | + 1.5 | + 1.9 |
| Proportion of CropScience sales | 42% | 42% |
* Figures are based on active ingredient class. For the sake of clarity, only the principal brands and business units are listed.
| Key Data – Crop Protection | [Table 3.11] | ||
|---|---|---|---|
| 2008 | 2009 | Change | |
| € million | € million | % | |
| Sales | 5,339 | 5,424 | + 1.6 |
| Herbicides | 1,856 | 1,986 | + 7.0 |
| Fungicides | 1,565 | 1,564 | – 0.1 |
| Insecticides | 1,275 | 1,234 | – 3.2 |
| Seed Treatment | 643 | 640 | – 0.5 |
| Sales by Region | |||
| Europe | 2,277 | 2,206 | – 3.1 |
| North America | 979 | 1,081 | + 10.4 |
| Asia / Pacifi c | 818 | 862 | + 5.4 |
| Latin America /Africa / Middle East | 1,265 | 1,275 | + 0.8 |
| EBITDA* | 1,252 | 1,161 | – 7.3 |
| Special items | (145) | (140) | |
| EBITDA before special items * | 1,397 | 1,301 | – 6.9 |
| EBITDA margin before special items * | 26.2% | 24.0% | |
| EBIT * | 804 | 713 | – 11.3 |
| Special items | (158) | (162) | |
| EBIT before special items * | 962 | 875 | – 9.0 |
| Gross cash fl ow ** | 1,026 | 924 | – 9.9 |
| Net cash fl ow ** | 653 | 591 | – 9.5 |
* for defi nition see chapter 4.2 "Calculation of EBIT(DA) Before Special Items," page 74
** for defi nition see chapter 4.5 "Liquidity and Capital Expenditures of the Bayer Group" page 78
Sales in the Crop Protection segment rose by 1.6% in 2009 to €5,424 million (2008: €5,339 million). After adjusting for shifts in exchange rates, business expanded by 2.3%. Despite a shrinking market overall, with lower producer prices and unfavorable weather conditions in major agricultural markets, we signifi cantly expanded our herbicides business in particular, with our young products once again achieving above-average growth. In 2009 we reached our goal of €2 billion in sales of products based on active substances introduced to the market since 2000.
In the Europe region, sales fell by 3.1% to €2,206 million (2008: €2,277 million). Sales rose moderately on a currency-adjusted basis, however, by 0.9%. Business with our herbicides and insecticides improved modestly, while the fungicides business moved back slightly, above all due to unfavorable weather conditions and low fungal infestation. We saw an especially gratifying trend for our young products, such as the insecticides Biscaya® / Proteus® , the corn herbicide Laudis®, the fungicide Fandango® and the seed treatment product Poncho®.
Sales of our crop protection business in North America advanced by a substantial 10.4% to €1,081 million (2008: €979 million). The currency-adjusted increase was 6.8%. This improvement was largely due to the outstanding performance of our herbicides portfolio including the young products Corvus® / Velocity™, Laudis®, Infi nity® / Wolverine® and Balance® fl exx, as well as the herbicide Ignite® for use in genetically modifi ed crops. In contrast, sales of our seed treatment business receded in the face of strong competition in the United States that affected particularly our corn seed treatment Poncho®.
Sales in the Asia / Pacifi c region climbed from €818 million in 2008 to €862 million, an increase of 5.4%. Adjusted for currency changes, business improved by 3.5%. In Southeast Asia and on the Indian subcontinent in particular, business expanded markedly due to the very good performance of our fungicides and herbicides. In addition, a very gratifying trend for our herbicides in Japan and Australia more than offset declines for our insecticides in China and Japan that resulted from low pest infestation.
Sales in the Latin America / Africa / Middle East region advanced by €10 million to €1,275 million (+0.8%). Adjusted for currency effects, sales increased by 0.4%. Business in Latin America was level year on year. Lower sales of our insecticides and fungicides as a result of very dry weather in Argentina and southern Brazil at the beginning of the year were offset by gratifying gains for seed treatment products, herbicides and fungicides in the second half. Especially positive performances were registered by the seed treatment product CropStar®, the young corn herbicide Soberan® and the fungicides Nativo® and Sphere® Max. Sales in Africa were up mainly because of expanded business with insecticides, while we posted slight declines in the Middle East.
ebitda before special items in the Crop Protection segment fell 6.9% to €1,301 million (2008: €1,397 million). This was due above all to a rise in raw material costs and more unfavorable currency parities; these factors were only partially offset by higher selling prices in Europe and increased volumes in North and Latin America. ebit before special items declined by 9.0% to €875 million. Special charges of €162 million in 2009 related to the cost structure program initiated in 2006, the restructuring of our production site in Institute, West Virginia, United States, and additional funding for the German corporate pension assurance association. ebit was €713 million, down 11.3% from the prior-year fi gure of €804 million.
| Key Data – Environmental Science, BioScience | [Table 3.12] | ||
|---|---|---|---|
| 2008 | 2009 | Change | |
| € million | € million | % | |
| Sales | 1,043 | 1,086 | + 4.1 |
| Environmental Science | 591 | 583 | – 1.4 |
| BioScience | 452 | 503 | +11.3 |
| Sales by Region | |||
| Europe | 348 | 334 | – 4.0 |
| North America | 417 | 448 | + 7.4 |
| Asia / Pacifi c | 146 | 166 | + 13.7 |
| Latin America /Africa / Middle East | 132 | 138 | + 4.5 |
| EBITDA* | 198 | 150 | – 24.2 |
| Special items | (8) | (57) | |
| EBITDA before special items * | 206 | 207 | + 0.5 |
| EBITDA margin before special items * | 19.8% | 19.1% | |
| EBIT * | 114 | 85 | – 25.4 |
| Special items | (8) | (57) | |
| EBIT before special items * | 122 | 142 | + 16.4 |
| Gross cash fl ow ** | 166 | 119 | – 28.3 |
| Net cash fl ow ** | 83 | 154 | + 85.5 |
* for defi nition see chapter 4.2 "Calculation of EBIT(DA) Before Special Items," page 74
** for defi nition see chapter 4.5 "Liquidity and Capital Expenditures of the Bayer Group" page 78
Sales in the Environmental Science, BioScience segment grew by 4.1% in 2009, to €1,086 million (2008: €1,043 million). Adjusted for currency and portfolio effects, business was up by 4.0%.
Sales of the Environmental Science business unit fell by 1.4% to €583 million. Adjusted for currency effects, the decrease was 2.4%. This was largely attributable to declining sales of green industry products for professional users in the United States. On the other hand, we saw a gratifying expansion in business with our "Bayer Advanced" products for private consumers in North America that offset lower sales of our "Bayer Garden" portfolio in Europe. We also registered increased sales of specialty active ingredients for the processing industry.
BioScience increased sales by a substantial 11.3% to €503 million (2008: €452 million). After adjustment for currency and portfolio effects, business expanded by 12.3%. A key growth driver was our canola seed business in North America marketed under the InVigor® brand. Sales of our Arize® hybrid rice seed advanced further, while our cotton seed business remained level year on year despite a much smaller total cultivation area worldwide. Our vegetable seeds business posted very encouraging gains in Europe, Asia and the Middle East.
ebitda before special items in the Environmental Science, BioScience segment remained level year on year at €207 million (2008: €206 million). The decline in business at Environmental Science and higher research and development expenditures at BioScience resulted in lower earnings contributions. These effects were offset by higher selling prices in both business units, increased volumes at BioScience and cost containment at Environmental Science. ebit before special items advanced by €20 million to €142 million (+16.4%). Special charges of €57 million related, among other items, to defense costs associated with litigation pending in the United States in connection with genetically modifi ed rice, as well as to restructuring measures. ebit contracted by 25.4% to €85 million (2008: €114 million).
| Key Data – MaterialScience | [Table 3.13] | ||
|---|---|---|---|
| 2008 | 2009 | Change | |
| € million | € million | % | |
| Sales | 9,738 | 7,520 | – 22.8 |
| Polyurethanes | 5,069 | 3,783 | – 25.4 |
| Polycarbonates | 2,372 | 1,873 | – 21.0 |
| Coatings, Adhesives, Specialties | 1,648 | 1,364 | – 17.2 |
| Industrial Operations | 649 | 500 | – 23.0 |
| Sales by Region | |||
| Europe | 4,267 | 3,054 | – 28.4 |
| North America | 2,108 | 1,536 | – 27.1 |
| Asia / Pacifi c | 2,098 | 1,951 | – 7.0 |
| Latin America /Africa / Middle East | 1,265 | 979 | – 22.6 |
| EBITDA* | 1,041 | 341 | – 67.2 |
| Special items | (47) | (105) | |
| EBITDA before special items * | 1,088 | 446 | – 59.0 |
| EBITDA margin before special items * | 11.2% | 5.9% | |
| EBIT * | 537 | (266) | |
| Special items | (49) | (140) | |
| EBIT before special items * | 586 | (126) | |
| Gross cash fl ow ** | 850 | 319 | – 62.5 |
| Net cash fl ow ** | 782 | 849 | + 8.6 |
2008 fi gures restated
* for defi nition see chapter 4.2 "Calculation of EBIT(DA) Before Special Items," page 74
** for defi nition see chapter 4.5 "Liquidity and Capital Expenditures of the Bayer Group," page 78
Above: thermoplastic polyurethane fi lm
The business performance of MaterialScience in 2009 was impacted by the effects of the global fi nancial and economic crisis. The subgroup saw a dramatic decline in sales worldwide at the beginning of the year, but business recovered markedly over the course of 2009. Sales of our Material Science business fell by 22.8% in 2009 to €7,520 million (2008: €9,738 million). The currency- and portfolio-adjusted decrease was 24.7%. Lower selling prices accounted for 12.3 percentage points of this decrease and lower volumes for 12.4 percentage points.
Sales of our Polyurethanes business unit fell by 25.4% to €3,783 million (2008: €5,069 million). Adjusted for currency and portfolio effects, sales dropped by 27.4%. This decline affected all polyurethane product groups (diphenylmethane diisocyanate (mdi), toluene diisocyanate (tdi) and polyether) and was attributable to both lower selling prices and lower volumes. By contrast, we achieved a gratifying expansion in volumes in the Asia / Pacifi c region.
Our Polycarbonates business unit saw sales fall by 21.0% year on year (Fx adj. -22.8%) to €1,873 million (2008 : €2,372 million). Volumes receded overall, but were up slightly in the Asia / Pacifi c region. Sales of our granules business fell due to both lower selling prices and lower volumes. Selling prices held steady in our semi-fi nished products (polycarbonate sheet) business, while volumes were down.
Sales of the Coatings, Adhesives, Specialties business unit dropped by 17.2% to €1,364 million (2008: €1,648 million). The currency- and portfolio-adjusted decline was 19.5%. This was primarily due to receding volumes in all product groups and regions, as well as to a slight decrease in selling prices.
Industrial Operations had sales of €500 million, down 23.0% (Fx adj. -23.6%) against the prioryear level of €649 million. In Europe, selling prices rose slightly but volumes declined signifi cantly. In the United States we did not match the very high sales level of the previous year, mainly because of lower selling prices.
Earnings of MaterialScience dropped sharply in 2009. After a very weak fi rst quarter, however, there was a successive, signifi cant improvement in the earnings situation over the course of the year. ebitda before special items in 2009 dropped to €446 million (2008: €1,088 million). The ebitda margin before special items fell to 5.9%. This was due to lower selling prices and volumes. By contrast, earnings were increased by lower raw material and energy costs, as well as by savings from our restructuring program. In addition, we reacted to the weak business environment with further cost-containment measures.
ebit before special items was minus €126 million (2008: plus €586 million). Also contributing to this decline was higher depreciation due to the commissioning of facilities at the Shanghai site in the fourth quarter of the previous year. Special charges in 2009 of €140 million (2008: €49 million) mainly related to the restructuring program initiated in 2007. Earnings were also diminished by additional funding for the German corporate pension assurance association. ebit came in at minus €266 million (2008: plus €537 million).
| Europe | North America | |||||||
|---|---|---|---|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | |||||
| € million | € million | % yoy | Fx adj. % yoy |
€ million | € million | % yoy | Fx adj. % yoy |
|
| HealthCare | 6,379 | 6,344 | – 0.5 | + 2.5 | 4,512 | 4,634 | + 2.7 | – 1.8 |
| Pharmaceuticals | 4,181 | 4,107 | – 1.8 | + 1.0 | 2,646 | 2,712 | + 2.5 | – 1.9 |
| Consumer Health | 2,198 | 2,237 | + 1.8 | + 5.4 | 1,866 | 1,922 | + 3.0 | – 1.7 |
| CropScience | 2,625 | 2,540 | – 3.2 | + 0.5 | 1,396 | 1,529 | + 9.5 | + 5.9 |
| Crop Protection | 2,277 | 2,206 | – 3.1 | + 0.9 | 979 | 1,081 | + 10.4 | + 6.8 |
| Environmental Science, BioScience |
348 | 334 | – 4.0 | – 2.0 | 417 | 448 | + 7.4 | + 3.9 |
| MaterialScience | 4,267 | 3,054 | – 28.4 | – 28.4 | 2,108 | 1,536 | – 27.1 | – 30.7 |
| Continuing operations (incl. reconciliation) |
14,549 | 12,968 | – 10.9 | – 8.8 | 8,026 | 7,705 | -4.0 | – 8.1 |
2008 fi gures restated
yoy = year on year; Fx adj. = currency-adjusted
| Bayer Group Summary Income Statements | [Table 3.15] | ||
|---|---|---|---|
| 2008 | 2009 | Change | |
| € million | € million | % | |
| Sales | 32,918 | 31,168 | – 5.3 |
| Cost of goods sold | 16,456 | 15,135 | – 8.0 |
| Selling expenses | 8,105 | 7,923 | – 2.2 |
| Research and development expenses | 2,653 | 2,746 | + 3.5 |
| General administration expenses | 1,649 | 1,623 | – 1.6 |
| Other operating income and expenses – net | (511) | (735) | – 43.8 |
| EBIT (operating result) | 3,544 | 3,006 | – 15.2 |
| Non-operating result | (1,188) | (1,136) | + 4.4 |
| Income before income taxes | 2,356 | 1,870 | – 20.6 |
| Income taxes | (636) | (511) | – 19.7 |
| Income after taxes from discontinued operations | 4 | 0 | • |
| Income after taxes | 1,724 | 1,359 | – 21.2 |
| of which attributable to non-controlling interest | 5 | 0 | • |
| of which attributable to Bayer AG stockholders (net income) | 1,719 | 1,359 | – 20.9 |
Sales of the Bayer Group in 2009 fell by 5.3% or €1,750 million year on year to €31,168 million. The decline was mainly due to the drop in business at MaterialScience in the fi rst three quarters. Adjusted for currency and portfolio effects, sales fell by 5.7%.
| Asia / Pacifi c | Latin America /Africa / Middle East | Continuing Operations | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | ||||||
| Fx adj. | Fx adj. | Fx adj. | |||||||||
| € million | € million | % yoy | % yoy | € million | € million | % yoy | % yoy | € million | € million | % yoy | % yoy |
| 2,278 | 2,677 | + 17.5 | + 9.5 | 2,238 | 2,333 | + 4.2 | + 9.3 | 15,407 | 15,988 | + 3.8 | + 3.2 |
| 1,805 | 2,136 | + 18.3 | + 9.1 | 1,398 | 1,512 | + 8.2 | + 12.7 | 10,030 | 10,467 | + 4.4 | + 3.3 |
| 473 | 541 | + 14.4 | + 11.3 | 840 | 821 | – 2.3 | + 3.6 | 5,377 | 5,521 | + 2.7 | + 3.2 |
| 964 | 1,028 | + 6.6 | + 5.1 | 1,397 | 1,413 | + 1.1 | + 1.2 | 6,382 | 6,510 | + 2.0 | + 2.6 |
| 818 | 862 | + 5.4 | + 3.5 | 1,265 | 1,275 | + 0.8 | + 0.4 | 5,339 | 5,424 | + 1.6 | + 2.3 |
| 146 | 166 | + 13.7 | + 13.8 | 132 | 138 | + 4.5 | + 9.6 | 1,043 | 1,086 | + 4.1 | + 4.1 |
| 2,098 | 1,951 | – 7.0 | – 12.4 | 1,265 | 979 | – 22.6 | – 20.2 | 9,738 | 7,520 | – 22.8 | – 24.4 |
| 5,385 | 5,712 | + 6.1 | + 0.3 | 4,958 | 4,783 | – 3.5 | – 0.6 | 32,918 | 31,168 | – 5.3 | – 5.9 |
[Table 3.14]
The cost of goods sold decreased by 8.0% to €15,135 million. This was mainly attributable to a considerably lower cost of goods sold at MaterialScience, which resulted mainly from the drop in volumes and lower average raw material and energy prices for the year. The ratio of the cost of goods sold to total sales was 48.6% (2008: 50.0%). Selling expenses declined by 2.2% to €7,923 million, and were thus equivalent to 25.4% (2008: 24.6%) of sales. We increased our expenditures for research and development again in 2009 by 3.5% to €2,746 million. The ratio of r&d expenses to sales was 8.8% (2008: 8.1%). However, we reduced general administration expenses by 1.6% to €1,623 million (2008: €1,649 million). This was partly due to synergies from the integration of Schering, Berlin, Germany, and measures related to our restructuring program at MaterialScience. The negative balance of other operating income and expenses, at €735 million, resulted mainly from costs related to the integration of Schering, restructuring, litigations, additional funding for the German corporate pension assurance association, and valuation writedowns.
ebit for 2009 came in at €3,006 million (2008: €3,544 million). Before net special charges of €766 million (2008: €798 million), ebit decreased by 13.1% to €3,772 million (2008: €4,342 million).
The non-operating result improved by €52 million to minus €1,136 million. It included substantially lower net interest expense of €548 million (2008: €702 million), €436 million (2008: €300 million) in interest cost for pension and other provisions, a €59 million (2008: €70 million) net loss from investments in affi liated companies and a €92 million (2008: €79 million) net exchange loss. The change in net interest expense was partly due to the reduction of fi nancial debt and to lower interest rates. The increase in interest expense for pension and other provisions resulted mainly from a decline in the return on pension plan assets, which is offset against the interest on pension provisions.
Tax expense in 2009 amounted to €511 million (2008: €636 million). Income after taxes, which in 2009 was equivalent to net income, came in at €1,359 million. Net income in 2008 was €1,719 million, including €4 million in income from discontinued operations and after deduction of €5 million in income attributable to non-controlling interest.
Key performance indicators for the Bayer Group are ebit before special items, ebitda before special items and the ebitda margin before special items. These indicators are reported in order to allow a more accurate assessment of business operations. The special items – comprising effects that are non-recurring or do not regularly recur or attain similar magnitudes – are detailed in the following table. "ebitda," "ebitda before special items" and "ebit before special items" are not defi ned in the International Financial Reporting Standards and should therefore be regarded only as supplementary information. The company considers ebitda before special items to be a more suitable indicator of operating performance since it is not affected by depreciation, amortization, write-downs / write-backs or special items. The company also believes that this indicator gives readers a clearer picture of the results of operations and ensures greater comparability of data over time. The ebitda margin before special items, which is the ratio of ebitda before special items to sales, serves as a relative indicator for the internal and external comparison of operational earning power.
Depreciation and amortization in 2009 increased by 3.2% to €2,809 million (2008: €2,722 million), comprising €1,537 million (2008: €1,550 million) in amortization and write-downs of intangible assets and €1,272 million (2008: €1,172 million) in depreciation and write-downs of property, plant and equipment. Total asset write-downs were €149 million. Of this amount, €109 million constituted special items.
| EBIT * | EBIT * | EBITDA** | EBITDA** | |
|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | |
| € million | € million | € million | € million | |
| After special items | 3,544 | 3,006 | 6,266 | 5,815 |
| HealthCare | 583 | 372 | 465 | 320 |
| Schering PPA effects *** | 208 | 0 | 208 | 0 |
| Schering integration costs | 157 | 87 | 111 | 79 |
| of which gain from divestitures | (69) | (114) | (69) | (114) |
| Write-downs | 98 | 32 | 26 | 0 |
| Restructuring | 0 | 47 | 0 | 35 |
| Litigations | 106 | 180 | 106 | 180 |
| Additional funding for the pension assurance | ||||
| association | 0 | 26 | 0 | 26 |
| Other | 14 | 0 | 14 | 0 |
| CropScience | 166 | 219 | 153 | 197 |
| Restructuring | 166 | 177 | 153 | 155 |
| Litigations | 0 | 35 | 0 | 35 |
| Additional funding for the pension assurance | ||||
| association | 0 | 7 | 0 | 7 |
| MaterialScience | 49 | 140 | 47 | 105 |
| Restructuring | 49 | 130 | 47 | 95 |
| Additional funding for the pension assurance | ||||
| association | 0 | 10 | 0 | 10 |
| Reconciliation | 0 | 35 | 0 | 35 |
| Litigations | 0 | 10 | 0 | 10 |
| Additional funding for the pension assurance association |
0 | 25 | 0 | 25 |
| Total special items | 798 | 766 | 665 | 657 |
| Before special items | 4,342 | 3,772 | 6,931 | 6,472 |
Special Items Reconciliation [Table 3.16]
* EBIT = operating result as per income statements
** EBITDA = EBIT plus amortization of intangible assets and depreciation of property, plant and equipment
*** The purchase price paid for Schering AG, Berlin, Germany, was allocated among the acquired assets and assumed liabilities in accordance with the International Financial Reporting Standards (IFRS). To ensure comparability with future earnings data, the expected long-term effects of the step-up are refl ected in EBIT and EBITDA before special items, whereas temporary, non-cash effects of the purchase price allocation are eliminated and deducted when calculating EBIT before special items.
Earnings per share according to ifrs are affected by the purchase price allocation for acquisitions and other special factors. To enhance comparability, we also determine core net income from continuing operations after elimination of the amortization of intangible assets, asset write-downs (including any impairment losses), and special items in ebitda including the related tax effects.
From this core net income we calculate core earnings per share in the same way as earnings per share. Core earnings per share form the basis for our dividend policy, which is that the dividend should be between 30% and 40% of core earnings per share.
Core earnings per share in 2009 amounted to €3.64 (2008: €4.17). The proposed dividend of €1.40 is thus equivalent to 38.5% of core earnings per share (2008: 33.6%).
| Calculation of Core EBIT and Core Earnings Per Share | [Table 3.17] | |
|---|---|---|
| 2008 | 2009 | |
| € million | € million | |
| EBIT as per income statements | 3,544 | 3,006 |
| Amortization and write-downs of intangible assets | 1,550 | 1,537 |
| Write-downs of property, plant and equipment | 88 | 88 |
| Special items (other than write-downs) | 665 | 657 |
| Core EBIT | 5,847 | 5,288 |
| Non-operating result (as per income statements) | (1,188) | (1,136) |
| Income taxes (as per income statements) | (636) | (511) |
| Tax adjustment | (691) | (685) |
| Income after taxes attributable to non-controlling interest | ||
| (as per income statements) | (5) | 0 |
| Core net income from continuing operations | 3,327 | 2,956 |
| Financing expenses for the mandatory convertible bond, net of tax effects | 112 | 47 |
| Adjusted core net income from continuing operations | 3,439 | 3,003 |
| Shares | Shares | |
| Weighted average number of issued ordinary shares | 764,342,029 | 801,050,237 |
| (Potential) shares (to be) issued upon conversion | ||
| of the mandatory convertible bond | 59,893,122 | 24,955,936 |
| Adjusted weighted average total number of issued and potential ordinary shares | 824,235,151 | 826,006,173 |
| Core earnings per share from continuing operations (€) | 4.17 | 3.64 |
The calculation of earnings per share in accordance with ifrs is explained in Note [16] to the consolidated fi nancial statements on page 193. The (adjusted) core net income from continuing operations, core earnings per share and core ebit are not defi ned in the ifrs.
One of the prime objectives of the Bayer Group is to sustainably increase enterprise value. In 1994 we became one of the fi rst German companies to embark on the development of a value management system, which we introduced throughout the Group in 1997. The system is used for the planning, controlling and monitoring of our businesses. Our primary value-based indicator is the cash value added (cva), which shows the degree to which the cash fl ows needed to cover the costs of equity and debt and of reproducing depletable assets have been generated. If the cva is positive, the company or business entity concerned has created value. If it is negative, the anticipated capital and asset reproduction costs have not been earned. Gross cash fl ow and cva are profi tability indicators for a single reporting period. For a year-on-year comparison we therefore use the delta cva, which is the difference between the cvas of two consecutive periods. A positive delta cva shows that value creation has improved from one period to the next.
Bayer calculates the cost of capital according to the debt / equity ratio by the weighted average cost of capital (wacc) formula. The cost of equity capital is the return expected by stockholders, computed from capital market information. The cost of debt used in calculating wacc is based on the terms for a ten-year corporate bond issue.
Weighted average cost of capital for the Bayer Group
7.8%
To take into account the different risk and return profi les of our principal businesses, we calculate individual capital cost factors after income taxes for each of our subgroups. In 2009 this was 8.0% (2008: 8.0%) for HealthCare, 7.5% (2008: 7.5%) for CropScience and 7.0% (2008: 7.0%) for MaterialScience. The minimum return required for the Group in 2009 was 7.8% (2008: 7.5%).
The gross cash fl ow as published in our statement of cash fl ows is the measure of our internal fi nancing capability. Bayer has chosen this parameter because it is relatively free of accounting infl uences and thus a more meaningful performance indicator.
The profi tability of the Group and of its individual business entities is measured by the cash fl ow return on investment (cfroi). This is the ratio of the gross cash fl ow to the capital invested, which is derived from the statement of fi nancial position and basically comprises the property, plant and equipment and intangible assets required for operations – stated at cost of acquisition or construction – plus working capital, less interest-free liabilities (such as current provisions). To allow for fl uctuations in the capital invested, the cfroi is computed on the basis of the average fi gure for the respective year.
Taking into account the costs of capital and of reproducing depletable assets, we determine the gross cash fl ow hurdle. If the gross cash fl ow hurdle is equaled or exceeded, the required return on equity and debt plus the cost of asset reproduction has been earned. The cfroi hurdle for 2009 was 10.4% (2008: 10.1%), while the corresponding gross cash fl ow hurdle was €4,431 million (2008: €4,049 million).
Actual gross cash fl ow came in at €4,658 million, exceeding the hurdle by 5.1%. Thus in 2009 we earned our entire capital and asset reproduction costs, and the positive cva of €227 million shows that Bayer created value. Given the previous year's cva of €1,246 million, the Bayer Group therefore recorded a negative delta cva of €1,019 million, showing that value creation was markedly lower than in the previous year. The cfroi for 2009 amounted to 10.9% (2008: 13.0%).
HealthCare and CropScience exceeded their target returns including asset reproduction, while MaterialScience – unlike in previous years – was unable to reach the gross cash fl ow hurdle in the crisis year 2009. The cfroi for HealthCare was 13.6% (2008: 13.6%). CropScience was below the previous year with a cfroi of 11.6% (2008: 14.1%). MaterialScience recorded a cfroi of only 3.7% (2008: 10.1%).
| Value Management Indicators by Subgroup | [Table 3.18] | |||||||
|---|---|---|---|---|---|---|---|---|
| HealthCare | CropScience | MaterialScience | Bayer Group | |||||
| 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | |
| € million | € million | € million | € million | € million | € million | € million | € million | |
| Gross cash fl ow hurdle (GCF hurdle) |
2,387 | 2,589 | 906 | 902 | 696 | 775 | 4,049 | 4,431 |
| Gross cash fl ow * (GCF) | 3,045 | 3,153 | 1,192 | 1,043 | 850 | 319 | 5,295 | 4,658 |
| Cash value added (CVA) |
658 | 564 | 286 | 141 | 154 | (456) | 1,246 | 227 |
| Delta cash value added |
663 | (94) | 264 | (145) | (450) | (610) | 497 | (1,019) |
| CFROI hurdle | 10.9% | 11.1% | 10.8% | 10.6% | 8.7% | 8.7% | 10.1% | 10.4% |
| Cash fl ow return on investment (CFROI) |
13.6% | 13.6% | 14.1% | 11.6% | 10.1% | 3.7% | 13.0% | 10.9% |
| Average capital invested |
22,380 | 23,261 | 8,471 | 8,967 | 8,442 | 8,686 | 40,862 | 42,811 |
* for defi nition see Chapter 4.5 "Liquidity and Capital Expenditures of the Bayer Group," page 78
Positive CVA = value created
| 2008 | 2009 | |
|---|---|---|
| € million | € million | |
| Gross cash fl ow * | 5,295 | 4,658 |
| Changes in working capital / other non-cash items | (1,687) | 717 |
| Net cash provided by (used in) operating activities (net cash fl ow) | 3,608 | 5,375 |
| Net cash provided by (used in) investing activities | (3,089) | (1,126) |
| Net cash provided by (used in) fi nancing activities | (873) | (3,621) |
| Change in cash and cash equivalents due to business activities | (354) | 628 |
| Cash and cash equivalents at beginning of period | 2,531 | 2,094 |
| Change due to exchange rate movements and to changes in scope of consolidation | (83) | 3 |
| Cash and cash equivalents at end of period | 2,094 | 2,725 |
* Gross cash fl ow = income from continuing operations after taxes, plus income taxes, plus non-operating result, minus income taxes paid or accrued, plus depreciation, amortization and write-downs, minus write-backs, plus / minus changes in pension provisions, minus gains / plus losses on retirements of noncurrent assets, plus non-cash effects of the remeasurement of acquired assets. The change in pension provisions includes the elimination of non-cash components of the operating result. It also contains benefi t payments during the year.
Gross cash fl ow in 2009 was down by 12.0% from the previous year to €4,658 million (2008: €5,295 million), largely because of the decline in the operating result. HealthCare showed a slight improvement in gross cash fl ow due to the steady growth in business. At CropScience and MaterialScience, lower operating results caused gross cash fl ow to recede. Net cash fl ow of the Group, however, rose by 49.0% to €5,375 million (2008: €3,608 million). This was mainly the result of improved working capital management. Considerably lower income tax payments (2009: €500 million; 2008: €1,073 million) also contributed to the improvement.
Net cash outfl ow for investing activities in 2009 totaled €1,126 million (2008: €3,089 million). Cash outfl ows for property, plant and equipment and intangible assets were 10.5% lower at €1,575 million (2008: €1,759 million). Of this amount, HealthCare accounted for €528 million (2008: €567 million), CropScience for €341 million (2008: €299 million) and MaterialScience for €504 million (2008: €672 million). Included here are disbursements related to the expansion of our polymers production facilities in Shanghai, China, and for marketing rights in the pharmaceuticals fi eld. The €354 million in cash outfl ows for acquisitions related primarily to the purchase in November 2009 of Athenix Corp., United States, for which total payments of €247 million were made. In 2009 we also acquired two product lines from SkinMedica, Inc., United States, and the remaining 10% interest in Bayer Polymers Shanghai. The prior-year fi gure of €1,617 million related mostly to payments in connection with the acquisition of the remaining interest in Bayer Schering Pharma AG, Berlin, Germany, the acquisition of Possis Medical, Inc., United States, the purchase of the eastern European otc business of Sagmel, Inc., the acquisition of the otc business of the Chinese Topsun group and the purchase of Direvo Biotech AG, Germany. For further information see Note [6.2] to the consolidated fi nancial statements, page 182ff. The main cash infl ow item in 2009 was €477 million (2008: €553 million) in interest and dividends received.
The principal strategically relevant capital expenditures for property, plant and equipment in the operating segments of the Bayer Group in 2009 and 2008 are listed in the following table:
| Segment | Description |
|---|---|
| Capital expenditures 2009 | |
| Pharmaceuticals | Expansion of the production facility for contrast agents in Bergkamen, Germany Expansion and modernization of the Kogenate® facility in Berkeley, California, U.S.A. Expansion of production capacity for the YAZ® product family in Berlin, Germany Expansion of production capacity in Jakarta, Indonesia |
| Consumer Health | Expansion of the production facility for vitamins in Myerstown, Pennsylvania, U.S.A. Construction of a new distribution center in Lerma, Mexico, to consolidate storage capacities existing in different parts of Mexico |
| Crop Protection | Capacity expansions for herbicidal active ingredients in Frankfurt am Main and Knapsack, Germany, and Muskegon, Michigan, U.S.A. |
| Expansion of production capacity for fungicides in Dormagen, Germany and Kansas City, Missouri, U.S.A. |
|
| Expansion of production capacity for high-activity herbicides in Kansas City, Missouri, U.S.A. |
|
| Expansion of formulating capacity for non-herbicides in Belford Roxo, Brazil | |
| Expansion of production capacity for fungicides in Muttenz, Switzerland | |
| BioScience | Capacity expansion for the production of vegetable seeds in Parma, Idaho, U.S.A. Extension to a BioScience research laboratory in Ghent, Belgium |
| MaterialScience | Construction of a world-scale TDI production complex in Shanghai, China |
| Production facility for polyisocyanates in Ankleshwar, India | |
| Roll-to-roll coating line in Leverkusen, Germany | |
| Construction of a systems house in Guangzhou, China | |
| Nitrous oxide reduction unit at the nitric acid production facility in Dormagen, Germany |
|
| Construction of a pilot plant for carbon nanotubes in Leverkusen, Germany | |
| EcoCommercial Building in Noida, India | |
| Capital expenditures 2008 | |
| Pharmaceuticals | Optimization of steroid production in Bergkamen, Germany |
| New packaging lines in Weimar and Berlin, Germany, and Gaillard, France | |
| Expansion of the production site in Beijing, China | |
| Capacity expansion in Jakarta, Indonesia | |
| Crop Protection | Capacity expansions for herbicidal active ingredients in Frankfurt am Main and Knapsack, Germany |
| Consolidation of formulating activities in Kansas City, Missouri, U.S.A | |
| Expansion of formulating capacity for non-herbicides in Belford Roxo, Brazil New insecticide formulation plant in Hangzhou, China |
|
| Modifi cation of a herbicide production facility in Ankleshwar, India | |
| BioScience | Construction of canola greenhouse, phytotron and laboratory complex in Saskatoon, Canada |
| MaterialScience | Construction of a world-scale integrated production facility for MDI in Shanghai, China |
| Polyether capacity increases in Dormagen, Germany, and Santa Clara, Mexico | |
| Construction of a pilot plant for carbon nanotubes in Leverkusen, Germany | |
| Construction of a polyurethane systems house in Noida, India | |
| Construction of the MacroColor Center in Noida, India | |
| Modifi cation of a facility for the manufacture of high-purity polycarbonate | |
| in Antwerp, Belgium |
Net cash outfl ow for fi nancing activities in 2009 amounted to €3,621 million (2008: €873 million). It included €1,442 million in net loan repayments, the main item here being the €1,600 million disbursement to redeem the fl oating-rate emtn note in the second quarter of 2009. Interest payments were 5.2% lower at €1,206 million (2008: €1,272 million). There was a €973 million outfl ow for "dividend payments and withholding tax on dividends" (2008: €1,126 million), including Bayer AG's €1,070 million dividend payment made in May 2009 and €101 million in refunds of withholding tax on intra-Group dividend payments.
| Net Financial Debt | [Table 3.21] | |
|---|---|---|
| Dec. 31, 2008 |
Dec. 31, 2009 |
|
| € million | € million | |
| Bonds and notes | 10,729 | 8,301 |
| of which hybrid bond | 1,245 | 1,267 |
| of which mandatory convertible bond | 2,296 | 0 |
| Liabilities to banks | 4,438 | 3,251 |
| Liabilities under fi nance leases | 535 | 550 |
| Liabilities from derivatives | 612 | 578 |
| Other fi nancial liabilities | 333 | 178 |
| Positive fair values of hedges of recorded transactions | (454) | (426) |
| Financial debt | 16,193 | 12,432 |
| Cash and cash equivalents * | (2,037) | (2,725) |
| Current fi nancial assets | (4) | (16) |
| Net fi nancial debt | 14,152 | 9,691 |
* after deducting €0 million (December 31, 2008: €57 million) of the liquidity in escrow accounts
Net fi nancial debt of the Bayer Group declined by €4.5 billion and amounted to €9.7 billion on December 31, 2009. Of this amount, €2.3 billion resulted from the conversion of the mandatory convertible bond, issued in 2006, into new shares. As of December 31, 2009 the Group had cash and cash equivalents of €2.7 billion. Financial debt on the closing date amounted to €12.4 billion, including the €1.3 billion subordinated hybrid bond issued in July 2005. Net fi nancial debt should be viewed against the fact that Moody's and Standard & Poor's treat 75% and 50%, respectively, of the hybrid bond as equity. Unlike conventional borrowings, the hybrid bond thus only has a limited effect on the Group's rating-specifi c indicators. Our noncurrent fi nancial liabilities as of December 31, 2009 amounted to €11.5 billion.
| Bayer Group Summary Statements of Financial Position | [Table 3.22] | ||
|---|---|---|---|
| Dec. 31, 2008 |
Dec. 31, 2009 |
Change | |
| € million | € million | % | |
| Noncurrent assets | 35,351 | 34,049 | – 3.7 |
| Current assets | 17,152 | 16,993 | – 0.9 |
| Assets held for sale and discontinued operations | 8 | 0 | • |
| Total current assets | 17,160 | 16,993 | – 1.0 |
| Total assets | 52,511 | 51,042 | – 2.8 |
| Equity | 16,340 | 18,951 | + 16.0 |
| Noncurrent liabilities | 22,336 | 23,118 | + 3.5 |
| Current liabilities | 13,822 | 8,973 | – 35.1 |
| Liabilities directly related to assets held for sale | |||
| and discontinued operations | 13 | 0 | • |
| Total current liabilities | 13,835 | 8,973 | – 35.1 |
| Liabilities | 36,171 | 32,091 | – 11.3 |
| Total equity and liabilities | 52,511 | 51,042 | – 2.8 |
Total assets decreased by €1.5 billion compared with December 31, 2008, to €51.0 billion. Noncurrent assets declined by €1.3 billion to €34.0 billion, mainly due to the amortization of intangible assets. Noncurrent assets included goodwill of €8.7 billion (2008: €8.6 billion) resulting primarily from the acquisition of Schering, Berlin, Germany. Current assets declined by €0.2 billion compared with the previous year, to €17.0 billion.
Equity rose by €2.6 billion to €19.0 billion. The main positive effects came from a €2.3 billion increase in the capital stock through conversion of the mandatory convertible bond, the net income of €1.4 billion and positive currency effects of €0.3 billion. Equity was diminished by the dividend payment of €1.1 billion made in 2009 and a €0.3 billion after-tax increase in pension obligations recognized outside profi t or loss. Our equity ratio (equity coverage of total assets) was 37.1% as of December 31, 2009 (2008: 31.1%).
Liabilities decreased by €4.1 billion compared with December 31, 2008, to €32.1 billion, largely because of a decline in fi nancial liabilities. Current and noncurrent fi nancial liabilities declined by a substantial €4.0 billion – including €2.3 billion from the conversion of the mandatory convertible bond – to €12.9 billion.
| Net Pension Liability | [Table 3.23] | |
|---|---|---|
| Dec. 31, 2008 |
Dec. 31, 2009 |
|
| € million | € million | |
| Provisions for pensions and other post-employment benefi ts | 6,347 | 6,517 |
| Prepaid benefi t assets | (351) | (100) |
| Net pension liability | 5,996 | 6,417 |
The net pension liability increased from €6.0 billion to €6.4 billion in 2009, due especially to lower long-term capital market interest rates. Provisions for pensions and other post-employment benefi ts rose from €6.3 billion to €6.5 billion. Benefi t plan assets in excess of obligations, refl ected in the statement of fi nancial position as other receivables, came to €0.1 billion (2008: €0.4 billion).
| Ratios | [Table 3.24] | ||
|---|---|---|---|
| 2008 | 2009 | ||
| Cost of goods sold | |||
| Cost of sales ratio (%) | Sales | 50.0 | 48.6 |
| Research and development expenses | |||
| R&D expense ratio (%) | Sales | 8.1 | 8.8 |
| Cost of goods sold | |||
| Inventory turnover | Inventories | 2.5 | 2.5 |
| Sales | |||
| Receivables turnover | Trade accounts receivable | 5.5 | 5.1 |
| EBIT before special items | |||
| EBIT margin before special items (%) | Sales | 13.2 | 12.1 |
| EBITDA before special items | |||
| EBITDA margin before special items (%) | Sales | 21.1 | 20.8 |
| Asset intensity (%) | Property, plant and equipment + intangible assets |
60.6 | |
| Total assets (continuing operations)1 | 61.1 | ||
| Depreciation and amortization2 | |||
| D&A / capex ratio (%) | Capital expenditures2 | 129.7 | 159.4 |
| Current liabilities | |||
| Liability structure3 (%) |
Liabilities | 38.2 | 28.0 |
| Net debt + pension provisions | |||
| Gearing | Equity | 1.3 | 0.9 |
| Free operating cash fl ow (€ million) | Net operating cash fl ow less capital expenditures |
1,849 | 3,800 |
| Equity | |||
| Equity ratio3 (%) |
Total assets | 31.1 | 37.1 |
| Income after taxes | 7.7 | ||
| Return on equity3 (%) |
Average equity | 10.4 | |
| Income before taxes and interest expense | |||
| Return on assets (%) | Average total assets for the year based on segment table |
7.0 | 6.1 |
total assets (continuing operations) = noncurrent and current assets minus the item "Assets held for sale and discontinued operations" in the statement of fi nancial position
property, plant and equipment + intangible assets
3 Ratio refers to the total of continuing and discontinued operations.
Bayer AG is the parent corporation of the Bayer Group and functions as a management holding company. The principal management functions for the entire Group are performed by the Board of Management of Bayer AG. These include strategic planning, resource allocation, executive management and fi nancial management. The performance of Bayer AG is largely determined by the economic success of the Bayer Group.
The fi nancial statements of Bayer AG were prepared in accordance with the German Commercial Code (hgb) and Stock Corporation Act (AktG). The provisions of the German Accounting Law Modernization Act (BiIMoG), which came into force in 2009, were applied for the fi rst time.
| Bayer AG Income Statements according to the German Commercial Code | [Table 3.25] | |
|---|---|---|
| 2008 | 2009 | |
| € million | € million | |
| Income from investments in affi liated companies – net | 2,711 | 2,984 |
| Interest expense – net | (1,092) | (683) |
| Other non-operating income (expense) – net | (84) | 276 |
| Other operating income | 209 | 169 |
| General administration expenses | 194 | 177 |
| Other operating expenses | 266 | 142 |
| Income before income taxes | 1,284 | 2,427 |
| Income taxes | (123) | (201) |
| Net income | 1,161 | 2,226 |
| Allocation to retained earnings | (91) | (1,068) |
| Distributable profi t | 1,070 | 1,158 |
2008 fi gures restated
The earnings performance of Bayer AG essentially depends on the earnings of its subsidiaries and on the income and expenses relating to corporate fi nancing activities.
In fi scal 2009, income from investments in affi liated companies was €2,984 million (2008: €2,711 million). Of this amount, Bayer Schering Pharma AG accounted for €2,349 million (2008: €564 million), Bayer CropScience AG for €604 million (2008: €725 million) and Bayer Material Science AG for minus €234 million (2008: minus €80 million). It should be noted that the previous year's results were diminished by expenses resulting from the remeasurement of pension obligations. The jump in earnings at Bayer Schering Pharma AG was partly due to a €608 million gain in connection with the agreement with Genzyme Corp., United States. In 2008 income from investments in affi liated companies included one-time income of €1,348 million in connection with a capital decrease at Bayer MaterialScience AG.
Net interest expense amounted to €683 million, which was €409 million less than in the previous year. While the reduction in fi nancial debt played a part in this improvement, the main factor was the signifi cant drop in interest rates. Of the decrease in net interest expense, €117 million was attributable to transactions with third parties and €292 million to intra-Group transactions.
Other non-operating income and expenses yielded a positive balance of €276 million in 2009, compared with a negative balance of €84 million in 2008. The improvement of €360 million was principally attributable to a better result from the translation of foreign currency receivables and payables and from currency derivatives.
The balance of miscellaneous operating income and expenses related to the performance of Bayer AG's functions as a holding company was plus €27 million (2008: minus €57 million) while general administration expenses amounted to €177 million (2008: €194 million). The year-on-year improvement of €101 million in the balance of these income and expense items resulted mainly from the fact that in 2008 expenses of €108 million were recognized in connection with the remeasurement of pension obligations for employees of the holding company.
Pre-tax income grew by €1,143 million to €2,427 million. Tax expense amounted to €201 million (2008: €123 million). After deduction of taxes, net income came in at €2,226 million. Of this amount, €1,068 million was allocated to other retained earnings and €1,158 million was recognized as the distributable profi t.
Proposed dividend €1.40
The Board of Management and Supervisory Board will propose to the Annual Stockholders' Meeting on April 30, 2010 that the distributable profi t be used to pay an unchanged dividend of €1.40 per share (826,947,808 shares) on the capital stock of €2,117 million entitled to the dividend for 2009.
| Bayer AG Summary Statements of Financial Position according to the German Commercial Code | [Table 3.26] | |
|---|---|---|
| Dec. 31, | Dec. 31, | |
| 2008 | 2009 | |
| € million | € million | |
| ASSETS | ||
| Noncurrent assets | ||
| Intangible assets, property, plant and equipment | 381 | 395 |
| Financial assets | 34,532 | 34,594 |
| 34,913 | 34,989 | |
| Current assets | ||
| Receivables from subsidiaries | 1,697 | 1,928 |
| Remaining receivables, other assets | 624 | 400 |
| Cash and cash equivalents, marketable securities | 1,306 | 1,862 |
| 3,627 | 4,190 | |
| Total assets | 38,540 | 39,179 |
| EQUITY AND LIABILITIES | ||
| Equity | 10,782 | 14,391 |
| Provisions | 3,547 | 3,258 |
| Other liabilities | ||
| Bonds and notes, liabilities to banks | 8,378 | 7,029 |
| Payables to subsidiaries | 15,110 | 13,965 |
| Remaining liabilities | 723 | 536 |
| 24,211 | 21,530 | |
| Total equity and liabilities | 38,540 | 39,179 |
The asset and liability structure of Bayer AG is dominated by its role as a holding company in managing the subsidiaries and fi nancing corporate activities. This is primarily refl ected in the high level of investments in affi liated companies and of receivables from, and payables to, Group companies.
Total assets of Bayer AG grew in 2009 by €0.7 billion to €39.2 billion, the increase being almost entirely due to a €0.6 billion increase in cash and cash equivalents.
Financial assets included investments in subsidiaries amounting to €34.1 billion (2008: €34.1 billion), or 87.1% (2008: €88.4%) of total assets. Receivables from subsidiaries amounted to €1.9 billion (2008: €1.7 billion) while payables to subsidiaries totaled €14.0 billion (2008: €15.1 billion). These amounts accounted for 4.9% of total assets and 35.6% of total equity and liabilities, respectively.
Of the €39.2 billion in total assets as of December 31, 2009 (2008: €38.5 billion), €14.4 billion (2008: €10.8 billion) was equity-fi nanced. The equity ratio therefore rose from 28.0% to 36.7%. The conversion of the €2.3 billion mandatory convertible bond issued by Bayer Capital Corporation b.v., Netherlands, in 2006 contributed to the €3.6 billion increase in equity, while €2.2 billion came from net income. Equity was diminished by the €1.1 billion dividend payment for 2008. A further €0.2 billion resulted from reversals of provisions allocated directly to retained earnings upon fi rst-time application of the German Accounting Law Modernization Act (BilMoG).
Provisions declined by €0.3 billion to €3.3 billion in 2009. This decline relates to provisions for pensions and other post-employment benefi ts, with €0.2 billion being due to the fi rst-time application of the new German accounting legislation mentioned above.
Liabilities decreased by €2.7 billion to €21.5 billion as of December 31, 2009. External fi nancial debt, in particular, was reduced by €1.5 billion, comprising €1,600 million in bond redemptions, €369 million in repayments of liabilities to banks, and €110 million in repayments relating to a commercial paper program that was no longer required. Promissory notes were issued in the amount of €620 million.
The capital stock of Bayer AG amounted as of December 31, 2009 to €2,117 million (2008: €1,957 million), divided into 826,947,808 (2008: 764,343,225) no-par registered shares. Each share confers one voting right.
A small number of shares may be subject to temporary trading restrictions, such as retention periods, in connection with employee stock participation programs.
We received three notifi cations from Capital Research and Management Company, United States, in 2009 of direct or indirect holdings of shares in Bayer AG that exceed 10% of the capital stock. This company initially notifi ed us that the proportion of voting rights it held via shares in our company fell below the 10% threshold on September 25, 2009, and that on that date it held 9.9% of the voting rights. In a further notifi cation, the company informed us that its proportion of voting rights exceeded the 10% threshold on September 30, 2009, and that on that date it held 10.04% of the voting rights. In a subsequent notifi cation, the company informed us that its proportion of voting rights fell below the 10% threshold again on November 26, 2009, and that on that date it held 9.97% of the voting rights.
We publish statements on voting rights at www.investor.bayer.com / stock/ownership-structure / voting-rights
Pursuant to Section 84, Paragraph 1 of the German Stock Corporation Act (AktG), the members of the Board of Management are appointed and dismissed by the Supervisory Board. Since Bayer AG falls within the scope of the German Codetermination Act, the appointment or dismissal of members of the Board of Management requires a majority of two thirds of the votes of the members of the Supervisory Board on the fi rst ballot. If no such majority is achieved, the appointment may be approved pursuant to Section 31, Paragraph 3 of the Codetermination Act on a second ballot by a simple majority of the votes of the members of the Supervisory Board. If the required majority still is not achieved, a third ballot is held. Here again, a simple majority of the votes suffi ces, but in this ballot the Chairman of the Supervisory Board has two votes pursuant to Section 31, Paragraph 4 of the Codetermination Act. Under Section 6, Paragraph 1 of the Articles of Incorporation of Bayer AG, the Board of Management must comprise at least two members. The Supervisory Board may appoint one member to be Chairman of the Board of Management pursuant to Section 84, Paragraph 2 of the German Stock Corporation Act or Section 6, Paragraph 1 of the Articles of Incorporation.
Under Section 179, Paragraph 1 of the German Stock Corporation Act, amendments to the Articles of Incorporation require a resolution of the Stockholders' Meeting. Pursuant to Section 179, Paragraph 2 of the German Stock Corporation Act, this resolution must be passed by a majority of three quarters of the voting capital represented at the meeting, unless the Articles of Incorporation provide for a different majority. However, where an amendment relates to a change in the object of the company, the Articles of Incorporation may only specify a larger majority. Section 17, Paragraph 2 of the Articles of Incorporation of Bayer AG utilizes the scope for deviation pursuant to Section 179, Paragraph 2 of the German Stock Corporation Act and provides that resolutions may be passed by a simple majority of the votes or, where a capital majority is required, by a simple majority of the capital.
Provisions of the Articles of Incorporation concerning Authorized Capital i and Authorized Capital ii are entered in the commercial register of Bayer AG. With the approval of the Supervisory Board and until April 27, 2011, the Board of Management may use the Authorized Capital i to increase the capital stock by up to a total of €465 million. The issue of new shares may take place in exchange for cash and / or contributions in kind, but capital increases in exchange for contributions in kind may not exceed a total of €370 million. If the Authorized Capital i is used to issue shares in return for cash contributions, stockholders must be granted subscription rights. With the approval of the Supervisory Board and until April 26, 2012, the Board of Management is also authorized to increase the capital by up to €195 million in one or more installments by issuing shares out of the Authorized Capital ii in exchange for cash contributions. The stockholders must be granted subscription rights. However, the Board of Management is authorized, with the approval of the Supervisory Board, to exclude subscription rights for stockholders provided the capital increase out of the Authorized Capital ii does not exceed 10% of the capital stock existing at the time this authorization becomes effective or the time this authorization is exercised and the issue price of the new shares is not signifi cantly below the market price of the already listed shares.
The 2008 Annual Stockholders' Meeting adopted two resolutions creating conditional capital of €195,584,000 each in connection with two authorizations for the issuance of bonds with warrants or convertible bonds, profi t-sharing rights or profi t participation bonds (collectively referred to as "bonds") with a total face value of €6 billion. The Board of Management may, with the consent of the Supervisory Board, exclude the subscription rights that in principle are granted to stockholders for such bonds provided, among other things, that the proportionate amount of the shares covered by such subscription rights does not exceed 10% of the capital stock. Any other shares issued without granting subscription rights to the stockholders in direct or analogous application of Section 186, Paragraph 3, Sentence 4 of the Stock Corporation Act shall be credited against this 10% limit. Further, the Annual Stockholders' Meeting on May 12, 2009 authorized the Board of Management to purchase and sell company shares representing up to 10% of the capital stock. This authorization expires on November 11, 2010.
A material agreement entered into by Bayer AG that is subject to the condition precedent of a change of control pertains to the €7 billion syndicated loan granted to Bayer AG on March 23, 2006. This agreement contains provisions entitling the banks participating in the syndication to terminate the agreement in the event of a change of control and demand repayment of any outstanding sums. The loan was valued at €1.25 billion as of December 31, 2009, unchanged from the previous year. However, a subsidiary of Bayer AG purchased receivables of €365 million in 2009 using the syndicated credit facility. There is also an undrawn €3.5 billion syndicated credit facility, arranged by Bayer AG and its u.s. subsidiary Bayer Corporation on March 31, 2005, that is available until 2012. The participating banks are entitled to terminate the credit facility in the event of a change in control at Bayer and demand repayment of any loans that may have been granted under this facility up to that time.
Finally, the terms of the €4.0 billion (as of December 31, 2009) in notes issued by Bayer in the years 2006 to 2009 under its multi-currency Euro Medium Term Notes program also contain a change-of-control clause. Holders of these notes have the right to demand the redemption of their notes by Bayer AG in the event of a change of control if Bayer AG's credit rating is downgraded within 120 days after such change of control becomes effective.
In the event of a takeover offer for Bayer AG, the following agreements exist for members of the Board of Management whose service contracts were concluded prior to the entry into force of the amendments to the German Corporate Governance Code in June 2008:
The severance indemnity clause for these members described in the Compensation Report is supplemented by a change-of-control clause which, like the severance indemnity clause, only takes effect if a change of control results in the termination of a Group Management Board member's service contract and his leaving the Bayer Group prior to his 60th birthday. The potential benefi ts are the same as under the severance indemnity clause.
However, this clause is now obsolescent and of only limited signifi cance. The Supervisory Board has decided to follow the recommendation of the German Corporate Governance Code, as amended in June 2008, and limit severance payments under new service contracts. Under only two existing members' contracts could the clause still be invoked. In the case of the remaining contracts, either the clause is no longer applicable because the member has reached the age of 60 or a cap on severance payments in the event of a change of control has been agreed. Under these contracts such payment claims, including ancillary benefi ts, are limited to the value of three years' compensation and may not compensate more than the remaining term of the contract. The annual compensation defi ned for this purpose is based on the sum of the fi xed salary and the target value of the short-term incentive for the previous year and, if appropriate, also the current year.
This Corporate Governance Report also constitutes the report pursuant to Section 3.10 of the German Corporate Governance Code.
* not part of the audited management report
DECLARATION BY THE BOARD OF MANAGEMENT AND SUPERVISORY BOARD OF BAYER AG
concerning the German Corporate Governance Code (June 18, 2009 version) pursuant to Section 161 of the German Stock Corporation Act**
Under Section 161 of the German Stock Corporation Act, the Board of Management and the Supervisory Board of Bayer AG are required to issue an annual declaration that the company has been, and is, in compliance with the recommendations of the "Government Commission on the German Corporate Governance Code" as published by the Federal Ministry of Justice in the offi cial section of the electronic Federal Gazette (Bundesanzeiger), or to advise of any recommendations that have not been, or are not being, applied. The declaration pursuant to Section 161 of the Stock Corporation Act shall be available to shareholders at all times. An annual declaration was last issued in December 2008. DR Table of Contents
With respect to the past, the following declaration refers to the June 6, 2008 version of the Code. With respect to present and future corporate governance practices at Bayer AG, the following declaration refers to the recommendations in the June 18, 2009 version of the Code.
The Board of Management and the Supervisory Board of Bayer AG hereby declare that the company has been in compliance with the recommendations of the "Government Commission on the German Corporate Governance Code" as published by the Federal Ministry of Justice in the offi cial section of the electronic Federal Gazette since issuance of the last compliance declaration in December 2008 and is in compliance with the following exception:
d&o insurance with an appropriate deductible exists for the Members of the Supervisory Board, but the amount of the deductible is not in compliance with the recommendation given in Section 3.8 Paragraph 2 of the Code.
The d&o insurance is a group policy for numerous persons for whom a deductible in the recommended amount has not currently been agreed. For the Board of Management, it is planned to agree a deductible in line with the provisions of the German Law on the Appropriateness of Management Board Compensation when the policy next comes up for renewal on April 1, 2010. In this connection it is also planned to agree a corresponding deductible for the Supervisory Board. The company will therefore be in compliance with the recommendations of the Code from that date.
Leverkusen, December 2009
For the Board of Management: For the Supervisory Board:
WENNING KÜHN DR. SCHNEIDER
** This is an English translation of a German document. The German document is the offi cial and controlling version, and this English translation in no event modifi es, interprets or limits the offi cial German version.
Bayer has always placed great importance on responsible corporate governance and will continue to do so. In 2009 the company was again able to renew its declaration that it has been fully compliant with the recommendations of the German Corporate Governance Code in the past and intends to be fully compliant again in the future with one temporary exception.
The Board of Management and Supervisory Board last year again addressed the question of compliance with the Corporate Governance Code, particularly in light of the new recommendations included in the amended version of the Code published on June 18, 2009. The resulting declaration of compliance, reproduced above, was issued in December 2009 and posted on Bayer's website along with previous declarations.
Bayer AG is a strategic management holding company, run by its Board of Management on the Board's own responsibility with the goal of sustainably increasing the company's enterprise value and achieving defi ned corporate objectives. The Board of Management performs its tasks according to the law, the articles of incorporation and the Board's rules of procedure, and works with the company's other governance bodies in a spirit of trust.
The Board of Management defi nes the long-term goals and the strategies for the Group, its subgroups and its service companies, and sets forth the principles and directives for the resulting corporate policies. It coordinates and monitors the most important activities, defi nes the portfolio, develops and deploys managerial staff, allocates resources and decides on the Group's fi nancial steering and reporting.
The members of the Board of Management bear joint responsibility for running the business as a whole. However, the individual members manage the areas assigned to them on their own responsibility within the framework of the decisions made by the entire Board. The allocation of duties among the members of the Board of Management is defi ned in a written schedule.
The entire Board of Management makes decisions on all matters of fundamental importance and in cases where a decision of the entire Board is prescribed by law or otherwise mandatory. The rules of procedure of the Board of Management contain a list of topics that must be dealt with and resolved by the entire Board.
Meetings of the Board of Management are held regularly. They are convened by the Chairman of the Board of Management. Any member of the Board of Management may also demand that a meeting be held. The Board of Management makes decisions by a simple majority of the votes cast, except where unanimity is required by law. In the event of a tie, the Chairman has the casting vote.
According to the Board of Management's rules of procedure and schedule of duties, the Chairman bears particular responsibility for leading and coordinating the Board's work. He represents the company and the Group in dealings with third parties and the workforce on matters relating to more than one part of the company or the Group. He also bears special responsibility for certain departments of the Corporate Center and their fi elds of activity.
The schedule of duties also assigns particular areas of specialist responsibility to the other three members who served on the Board of Management in 2009, being respectively responsible for Strategy and Human Resources; Finance; and Innovation, Technology and Environment. Each of these members also represents certain geographical regions.
No committees of the Board of Management have been set up in view of the small number of members and the role of Bayer AG as a strategic management holding company.
Board of Management directs the Group's operations
Oversight of company management by the Supervisory Board
The role of the 20-member Supervisory Board is to oversee and advise the Board of Management. Under the German Codetermination Act, half the members of the Supervisory Board are elected by the stockholders, and half by the company's employees. The Supervisory Board is directly involved in decisions on matters of fundamental importance to the company, regularly conferring with the Board of Management on the company's strategic alignment and the implementation status of the business strategy.
The Chairman of the Supervisory Board coordinates its work and presides over the meetings. Through regular discussions with the Board of Management, the Supervisory Board is kept constantly informed of business policy, corporate planning and strategy. The Supervisory Board approves the annual budget and fi nancial framework. It also approves the fi nancial statements of Bayer AG and the consolidated fi nancial statements of the Bayer Group, along with the combined management report, taking into account the reports by the auditor.
The Supervisory Board currently has the following committees:
Presidial Committee: This comprises two stockholder representatives and two employee representatives. The Presidial Committee serves primarily as the mediation committee pursuant to the German Codetermination Act. It has the task of submitting proposals to the Supervisory Board on the appointment of members of the Board of Management if the necessary two-thirds majority is not achieved in the fi rst vote at a plenary meeting. Certain decision-making powers in connection with capital measures, including the power to amend the Articles of Incorporation accordingly, have also been delegated to this committee.
Audit Committee: The Audit Committee comprises three stockholder representatives and three employee representatives. The Chairman of the Audit Committee in 2009, Dr. Klaus Sturany, satisfi es the statutory requirements concerning the independence and expertise in the fi eld of accounting or auditing that a member of the Supervisory Board and the Audit Committee is required to possess. The Audit Committee meets regularly four times a year. Its tasks include examining the company's fi nancial reporting along with the fi nancial statements of Bayer AG, the consolidated fi nancial statements of the Bayer Group, the combined management report, the proposal for the use of the distributable profi t of Bayer AG, and the interim fi nancial statements and management reports of the Bayer Group, all of which are prepared by the Board of Management. On the basis of the auditor's report on the audit of the fi nancial statements of Bayer AG, the consolidated fi nancial statements of the Bayer Group and the combined management report, the Audit Committee develops proposals concerning the approval of the statements by the full Supervisory Board. The Audit Committee is also responsible for the company's relationship with the external auditor. The Audit Committee submits a proposal to the full Supervisory Board concerning the auditor's appointment, prepares the awarding of the audit contract to the audit fi rm appointed by the Annual Stockholders' Meeting, suggests areas of focus for the audit and determines the auditor's remuneration. It also monitors the independence, qualifi cations, rotation and effi ciency of the auditor.
In addition, the Audit Committee oversees the company's internal control system – along with the procedures used to identify, track and manage risk – and the internal audit system. It also deals with corporate compliance issues and discusses developments in this area at each of its meetings.
Human Resources Committee: On this committee, too, there is parity of representation between stockholders and employees. It consists of the Chairman of the Supervisory Board and three other members. The Human Resources Committee prepares the personnel decisions of the full Supervisory Board, which resolves on appointments or dismissals of members of the Board of Management. The Human Resources Committee resolves on behalf of the Supervisory Board on the service contracts of the members of the Board of Management. However, it is the task of the full Supervisory Board to resolve on the total compensation of the individual members of the Board of Management and the respective compensation components, as well as to regularly review the
compensation system on the basis of recommendations submitted by the Human Resources Committee. The Human Resources Committee also discusses the long-term succession planning for the Board of Management.
Nominations Committee: This committee carries out preparatory work when an election of stockholder representatives to the Supervisory Board is to be held. It suggests suitable candidates for the Supervisory Board to propose to the Annual Stockholders' Meeting for election. The Nominations Committee comprises the Chairman of the Supervisory Board and another stockholder representative on the Presidial Committee.
Detailed information on the work of the Supervisory Board and its committees is provided in the Report of the Supervisory Board on page 10ff. of this Annual Report.
In 2009 the company met the recommendation in the German Corporate Governance Code regarding deductibles for any Directors' & Offi cers' (d&o) liability insurance by obtaining personal declarations from each member of the Board of Management and Supervisory Board. According to these declarations, the members of the Board of Management undertake, should they cause damage to the company or third parties through gross negligence (as defi ned by German law) in the performance of their duties, to pay for such damage up to the equivalent of half their total annual compensation for the year in which such damage occurs; the members of the Supervisory Board undertake to pay for such damage, if caused by them, up to the equivalent of the variable portion of their respective annual compensation as Supervisory Board members for the relevant year. There is no insurance coverage for intentional breach of duty.
The company plans to agree the statutory deductible for the members of the Board of Management when the d&o insurance is renewed on April 1, 2010. It is also planned to agree a deductible for the members of the Supervisory Board in the amount recommended by the German Corporate Governance Code with effect from April 1, 2010. The personal declarations mentioned above will thus become obsolete as of April 1, 2010. They remain in effect until that date.
To comply with Section 15a of the German Securities Trading Act, members of the Board of Management and Supervisory Board and their close relatives are required to disclose all transactions involving the purchase or sale of Bayer stock where such transactions total €5,000 or more in a calendar year. Bayer publishes details of such transactions immediately on its website and also notifi es the German Financial Supervisory Authority accordingly. This information is provided to the company register for archiving.
No such transactions were reported to Bayer AG in 2009.
Information fi led with the company by members of the Board of Management and Supervisory Board shows that, on the closing date for the fi nancial statements, their total holdings of Bayer AG stock or related fi nancial instruments were equivalent to less than 1% of the issued stock.
Bayer has a control system in place enabling it to identify any business or fi nancial risks at an early stage and take appropriate action to manage them. This control system is designed to ensure timely and accurate accounting for all business processes and the constant availability of reliable data on the company's fi nancial position.
When acquisitions are made, we aim to bring the acquired units' internal control systems into line with those of the Bayer Group as quickly as possible.
However, the control and risk management system cannot provide absolute protection against losses arising from business risks or fraudulent actions.
Our corporate activity is governed by national and local laws and statutes that place a range of obligations on the Bayer Group and its employees throughout the world. Bayer manages its business responsibly in compliance with the statutory and regulatory requirements of the countries in which it operates.
Bayer expects legally and ethically impeccable conduct from all of its employees in daily business operations, as the way they carry out their duties affects the company's reputation. By ensuring regular dialogue between employees and their supervisors and providing training courses involving the responsible Compliance Offi cers, the company endeavors to acquaint its employees with the numerous statutory and regulatory requirements of the countries where they work that are of relevance to them. This lays the foundation for managing the business responsibly and in compliance with the respective applicable laws.
The Group Management Board has summarized in its Corporate Compliance Policy the areas in which violations of applicable law can have particularly serious adverse consequences, both for the entire enterprise and for the individual employee. The principles set forth in the Corporate Compliance Policy are designed to guide employees in their business-related actions and protect them from potential misconduct. Its core messages concern the need to
Employees may contact either their respective supervisors or the local Compliance Offi cers for support and advice on ensuring legally compliant conduct in specifi c business situations.
Each Group company with business operations has at least one local Compliance Offi cer. Some foreign companies have several local Compliance Offi cers with clearly defi ned responsibilities for the different business units. The main responsibilities of each local Compliance Offi cer include:
The Chief Subgroup Compliance Offi cers in turn report to the Group Compliance Offi cer, who is appointed by the Group Management Board. At least once a year, the Group Compliance Offi cer and the Head of Corporate Auditing report to the Audit Committee of the Supervisory Board on any compliance violations that have been identifi ed.
The issue of corporate compliance has now been made a permanent part of the performance targets agreed with the members of the Group Leadership Circle (glc). By virtue of their positions, these executives have a special obligation to set an example to their employees, spread the compliance message increasingly within their companies and take organizational measures to implement it. Starting in 2010, a glc member may be required to repay the short-term incentive awards granted for up to fi ve of the preceding years if a systematic violation of applicable law that caused fi nancial loss to Bayer was committed in one or more years by a direct report and appropriate action by the glc member could have prevented the violation.
To supplement the Corporate Compliance Policy, Bayer has drawn up a Group mission statement setting out the principles underlying the corporate strategy. It outlines the framework for Bayer's entrepreneurial activity to stockholders, customers, employees and the general public. Common values and leadership principles are considered essential for all employees in their daily work. The values include a will to succeed; a passion for our stakeholders; integrity, openness and honesty; respect for people and nature; and the sustainability of our actions. The assessment of managers' performance on the basis of defi ned leadership principles helps to ensure adherence to these values throughout the enterprise.
To maximize transparency, we provide regular and timely information on the Group's position and signifi cant changes in business activities to stockholders, fi nancial analysts, stockholders' associations, the media and the general public. Bayer complies with the recommendations of the Corporate Governance Code by publishing reports on business trends, fi nancial position, results of operations and related risks four times a year.
In line with statutory requirements, the members of the Group Management Board provide an assurance that, to the best of their knowledge, the fi nancial statements of Bayer AG, the consolidated fi nancial statements of the Bayer Group and the combined management report provide a true and fair view.
The fi nancial statements of Bayer AG, the consolidated fi nancial statements of the Bayer Group and the combined management report are published within 90 days following the end of each fi scal year. During the fi scal year, stockholders and other interested parties are kept informed of developments by means of the half-year fi nancial report and additional interim reports as of the end of the fi rst and third quarters. The half-year fi nancial report is voluntarily subjected to an audit review by the auditor, whose appointment by the Annual Stockholders' Meeting also relates specifi cally to this audit review.
Bayer also provides information at news conferences and analysts' meetings. In addition, the company uses the Internet as a platform for timely disclosure of information, including details of the dates of major publications and events, such as the annual and interim reports or the Annual Stockholders' Meeting.
In line with the principle of fair disclosure, we provide the same information to all stockholders and other principal target groups. All signifi cant new facts are disclosed immediately to the general public. Stockholders also have immediate access to the information that Bayer publishes locally in compliance with the stock market regulations of various countries.
In addition to our regular reporting, we issue ad-hoc statements on developments that otherwise might not become publicly known but have the potential to materially affect the price of Bayer stock.
Until December 31, 2009, the compensation of the Board of Management basically comprised four components: a fi xed annual salary, a short-term incentive award on a yearly basis in relation to a target amount, a long-term incentive award for a three-year period in relation to a target amount, and a company pension plan conferring pension entitlements that increase with years of service. Compensation in kind and other benefi ts are also provided, such as the use of a company car for private purposes or reimbursement of the cost of health screening examinations.
For further details of the Group mission statement see www.bayer.com/en/ mission-statement.aspx
For comprehensive information on Bayer, go to www.bayer.com The fi xed salary consists of two parts: a base salary and a fi xed supplement.
The short-term incentive award for 2009 is calculated according to the Group's ebitda margin before special items and the weighted average target attainment of the HealthCare, CropScience and MaterialScience subgroups. The Supervisory Board can adjust this award according to individual performance. The target attainment of the subgroups is measured chiefl y in terms of their ebitda before special items. A qualitative appraisal in relation to the market and competitors is also taken into account.
The directly effected compensation (non-performance-related compensation and short-term incentive) of the members of the Board of Management in 2009 amounted to €8,830 thou sand (2008: €8,813 thousand), comprising €2,156 thousand (2008: €2,105 thousand) in base salaries, €1,067 thousand (2008: €1,042 thousand) in fi xed supplements and €5,442 thousand (2008: €5,498 thousand) in short-term incentive awards to be paid out in 2010 as well as €165 thousand (2008: €168 thousand) in compensation in kind and other benefi ts, the latter item consisting mainly of amounts assigned to compensation in kind and other benefi ts in accordance with German taxation guidelines.
The members of the Board of Management participate in the long-term stock-based compensation program Aspire i (annual tranches 2007 through 2009). Under this program, awards are paid out provided that the performance of Bayer stock (both in absolute terms and relative to the euro stoxx 50 benchmark index) meets defi ned criteria over a three-year period. Further details of this program are provided in Note [26.6] to the consolidated fi nancial statements. The fair value of the stock-based compensation newly granted in 2009 as of its grant date is included in the calculation of total compensation (see table below), although the award entitlement was only partially earned as of the closing date.
The following table shows the compensation components of the individual members of the Board of Management in 2009.
| Werner Wenning |
Klaus Kühn |
Wolfgang Plischke |
Richard Pott |
Total | ||
|---|---|---|---|---|---|---|
| € thousand | € thousand | € thousand | € thousand | € thousand | ||
| Base salary | 2009 | 812 | 448 | 448 | 448 | 2,156 |
| 2008 | 794 | 437 | 437 | 437 | 2,105 | |
| Fixed supplement | 2009 | 353 | 344 | 185 | 185 | 1,067 |
| 2008 | 344 | 336 | 181 | 181 | 1,042 | |
| Fixed salary | 2009 | 1,165 | 792 | 633 | 633 | 3,223 |
| 2008 | 1,138 | 773 | 618 | 618 | 3,147 | |
| Compensation in kind and other benefi ts | 2009 | 36 | 41 | 49 | 39 | 165 |
| 2008 | 61 | 36 | 38 | 33 | 168 | |
| Total non-performance-related compensation | 2009 | 1,201 | 833 | 682 | 672 | 3,388 |
| 2008 | 1,199 | 809 | 656 | 651 | 3,315 | |
| Short-term incentive | 2009 | 2,158 | 1,264 | 1,010 | 1,010 | 5,442 |
| 2008 | 2,105 | 1,305 | 1,044 | 1,044 | 5,498 | |
| Total directly effected compensation | 2009 | 3,359 | 2,097 | 1,692 | 1,682 | 8,830 |
| 2008 | 3,304 | 2,114 | 1,700 | 1,695 | 8,813 | |
| Fair value of newly granted stock-based compensation | 2009 | 208 | 84 | 151 | 151 | 594 |
| as of grant date | 2008 | 352 | 240 | 191 | 191 | 974 |
| Aggregate compensation | 2009 | 3,567 | 2,181 | 1,843 | 1,833 | 9,424 |
| (according to the German Commercial Code) | 2008 | 3,656 | 2,354 | 1,891 | 1,886 | 9,787 |
The award entitlements earned in 2009 – both from the 2009 tranche and from previous years' tranches on which the entitlements were only partially earned – are shown separately in the following table along with the changes in the value of entitlements from previous years' tranches based on the performance of Bayer stock in 2009. The fair value of the award entitlement already earned in 2009 from the 2009 tranche is included under "Stock-based compensation entitlements earned in the respective year." Since certain components of the award entitlements are included in both tables, the fi gures in the following and the preceding table should not be added together.
Werner Wenning Klaus Kühn Wolfgang Plischke Richard Pott Total € thousand € thousand € thousand € thousand € thousand Long-term incentive (stock-based compensation entitlements earned in the respective year) 2009 587 398 319 319 1,623 2008 569 364 267 309 1,509 Change in value of existing entitlements 2009 390 265 212 212 1,079 2008 (195) (135) (97) (106) (533)
The current members of the Board of Management are generally entitled to receive a pension upon leaving the Bayer Group, though not before the age of 60, in an annual amount equal to at least 30% of the last yearly fi xed salary. This percentage increases depending on years of service as a Board of Management member and is capped at 80% for members appointed prior to 2006 and 60% for those appointed since 2006. The respective surviving dependents' benefi t is set at 60% of this pension level.
The current service cost for the pension entitlements of the members of the Board of Management is shown in the following table. Under the provisions of the German Accounting Law Modernization Act (BilMoG), which is being applied as of 2009, the current service cost for pension entitlements according to the German Commercial Code (hgb) also includes any past service cost resulting from new entitlements or variations in existing entitlements. The previous year's fi gures have been restated accordingly. Since hgb and ifrs prescribe different methods for calculating pension provisions, the table contains both the amounts disclosed in the fi nancial statements of Bayer AG prepared according to hgb and those published in the consolidated fi nancial statements of the Bayer Group prepared according to ifrs. The fi gures in each case represent divergent disclosures of one and the same pension entitlement.
| Pension Entitlements [Table 3.29] |
|||||
|---|---|---|---|---|---|
| Werner Wenning |
Klaus Kühn |
Wolfgang Plischke |
Richard Pott |
Total | |
| € thousand | € thousand | € thousand | € thousand | € thousand | |
| 2009 | - | 985 | 181 | 198 | 1,364 |
| 2008 | - | 505 | 182 | 197 | 884 |
| 2009 | 14,675 | 6,335 | 5,577 | 5,478 | 32,065 |
| 2008 | 14,271 | 4,902 | 4,743 | 4,770 | 28,686 |
| 2009 | 4 | 1,090 | 200 | 223 | 1,517 |
| 2008 | 2 | 575 | 626 | 223 | 1,426 |
| 2009 | 15,128 | 6,597 | 5,794 | 5,728 | 33,247 |
| 2008 | 16,608 | 6,069 | 5,770 | 5,999 | 34,446 |
* after deducting plan assets
** 2008 fi gures restated pursuant to the German Accounting Law Modernization Act
The aggregate compensation of the Board of Management according to ifrs does not include the fair value of newly granted stock-based compensation, but rather the stock-based compensation entitlements earned in the respective year plus the change in the value of stock-based compensation entitlements from previous years that have not yet been paid out. The current service cost for pension entitlements must also be added.
The components of the Board of Management's compensation are summarized in the following table:
| Board of Management Compensation According to IFRS | [Table 3.30] | |
|---|---|---|
| 2008 | 2009 | |
| € thousand | € thousand | |
| Directly effected compensation | 8,813 | 8,830 |
| Long-term incentive | ||
| (stock-based compensation entitlements earned in the respective year) | 1,509 | 1,623 |
| Change in value of existing entitlements | (533) | 1,079 |
| Current service cost for pension entitlements earned in the respective year | 884 | 1,364 |
| Aggregate compensation (IFRS) | 10,673 | 12,896 |
For active Board of Management members whose service contracts were concluded prior to the entry into force of the amendments to the German Corporate Governance Code in June 2008, a general severance indemnity clause applies if the service contract is terminated at the company's instigation prior to a member's 60th birthday. The basic principles according to this clause are as follows:
If a member of the Board of Management is not offered a new service contract upon expiration of his existing service contract because he is not reappointed to the Board of Management, or if the member is removed from the Board of Management prematurely during the term of his contract in the absence of grounds for termination without notice, he will receive a monthly bridging allowance amounting to 80% of his last monthly fi xed salary for a maximum period of 60 months from the date of expiration of his service contract less the period for which he was released from his duties on full pay or otherwise compensated. (If he were removed during the term of his contract, he would also receive the payment due for the rest of the term, though this would be reduced to the amount of his annual fi xed salary plus the target amount for the short-term incentive payment for at least twelve months.) His earnings from any new employment elsewhere would be offset against the bridging allowance. In the case of premature termination at the instigation of the company, further years of service might be credited under certain circumstances for the purpose of computing his Board of Management pension entitlement, though not beyond his 60th birthday.
This clause is now obsolescent and of only limited signifi cance. The Supervisory Board has decided to follow the recommendation of the German Corporate Governance Code, as amended in June 2008, and limit severance payments under new service contracts.
Under only one existing member's contract could the clause still be invoked. In the case of the remaining contracts, either the clause is no longer applicable because the member is leaving the company or has reached the age of 60, or it has been agreed that payment claims can only arise in the event of premature contract termination by the company without cause. Such claims, including ancillary benefi ts, are then limited to the value of two years' compensation and may not compensate more than the remaining term of the contract. The severance payment cap is to be calculated on the basis of the total compensation (fi xed salary plus the target value of the shortterm incentive) for the previous year and, if appropriate, also the expected total compensation for the current year.
Post-contractual non-compete agreements have been concluded with the members of the Board of Management, providing for compensation payments to be made by the company during the two-year duration of the post-contractual non-compete clause. For members who held offi ce in 2009, the amount of this compensation is 50% of the average contractually agreed salary for the preceding three years. For the members newly appointed to the Board of Management effective January 1, 2010, the compensation under the non-compete agreement is 50% of fi xed salary. It is offset against any benefi ts payable by the company under the pension plan.
Members of the Board of Management who joined the company before January 1, 1979 – like all salaried employees hired prior to that date – are entitled to six months' pre-retirement leave. A cash payment may be made in lieu of this leave under certain conditions. The only current member to whom this applies is Werner Wenning.
Special supplementary arrangements apply in the event of a change of control, see "Takeover-Relevant Information," page 85ff.
There were no loans to members of the Board of Management outstanding as of December 31, 2009, nor any repayments of such loans during the year.
We currently pay former and retired members of the Board of Management a monthly pension equal to 80% of the last monthly base salary received while in service. The pensions paid to former members of the Board of Management or their surviving dependents are reassessed annually as of January 1, 2009 and adjusted taking into account the development of consumer prices. These benefi ts are in addition to any amounts they receive under previous employee pension arrangements. Pension payments to retired members of the Board of Management and their surviving dependents in 2009 amounted to €11,273 thousand (2008: €11,697 thousand). Pension provisions for former members of the Board of Management and their surviving dependents at the closing date amounted to €107,223 thousand (2008: €107,863 thousand) according to ifrs and €110,069 thousand (2008: €121,557 thousand) according to hgb.
The compensation system for the Board of Management already complied in the past with the recommendations of the German Corporate Governance Code and with many of the requirements of the new German Act on the Appropriateness of Management Board Compensation (VorstAG), which came into force in August 2009.
In December 2009, the Supervisory Board resolved on adjustments to ensure that the compensation of the Bayer AG Board of Management continues to comply fully with the requirements of the above Act and the recommendations of the German Corporate Governance Code. These adjustments are outlined below:
• To further enhance the sustainability aspect and long-term focus of the compensation structure, the previous short-term incentive (sti) for the Board of Management is being split into two parts. 50% will continue to be paid out in the respective following year in the same way as the sti awards for all eligible employees in the Bayer Group. The remaining 50% takes the form of a new stock-based long-term incentive (lti) component involving a grant of virtual Bayer shares, which are subject to a three-year retention period. The value of these shares then depends on the trend in the price of Bayer stock during the retention period. This strengthening of the long-term incentive means that the fi xed salary and short-term incentive account for about 30% each and the long-term incentive for roughly 40% of total compensation.
• The performance period (retention period) under the current Aspire programs (Aspire i and ii) is being extended from three to four years. At the same time, the performance hurdles are being raised. The proven elements already mentioned, such as payment caps, outperformance and average share price, are being retained.
In addition, the Board of Management has voluntarily undertaken to comply with the new share ownership guidelines, under which the Chairman in future will hold shares to the value of 150% and the other members 100% (formerly 40% in both cases) of annual fi xed salary.
The adjustments described apply effective January 1, 2010 to all the members of the Board of Management except those leaving during 2010.
It is intended to seek the stockholders' approval for the compensation system for the members of the Board of Management by way of a consultative resolution at the 2010 Annual Stockholders' Meeting.
The Supervisory Board is compensated according to the relevant provisions of the Articles of Incorporation, which provisions have not been altered since the resolution of the Annual Stockholders' Meeting on April 29, 2005. This provides that, in addition to reimbursement of their expenses, each member of the Supervisory Board receives fi xed annual compensation of €60,000 and a variable annual compensation component. The variable compensation component is based on corporate performance in terms of the gross cash fl ow reported in the consolidated fi nancial statements of the Bayer Group for the respective fi scal year. The members of the Supervisory Board receive €2,000 for every €50 million or part thereof by which the gross cash fl ow exceeds €3.1 billion, but the variable component for each member may not exceed €30,000.
In accordance with the provisions of the German Corporate Governance Code, additional compensation is paid to the Chairman and Vice Chairman of the Supervisory Board and for chairing and membership of committees. The Chairman of the Supervisory Board receives three times the basic compensation, while the Vice Chairman receives one-and-a-half times the basic compensation. Members of the Supervisory Board who are also members of a committee receive an additional one quarter of the amount, with those chairing a committee receiving a further quarter. However, no member of the Supervisory Board may receive total compensation exceeding three times the basic compensation. It has been agreed that no additional compensation shall be paid for membership of the Nominations Committee. If changes are made to the Supervisory Board and its committees during the fi scal year, members receive compensation on a pro-rated basis. No member of the Supervisory Board received compensation or any other benefi ts for personally performed services such as consultancy or agency services. The company has purchased insurance for the members of the Supervisory Board to cover their personal liability arising from their service on the Supervisory Board.
In addition to their compensation as members of the Supervisory Board, those employee representatives who are employees of Bayer Group companies receive compensation unrelated to their service on the Supervisory Board. The total amount of such compensation was €605 thousand (2008: €591 thousand).
There were no loans to members of the Supervisory Board outstanding as of December 31, 2009, nor any repayments of such loans during the year.
| Compensation of the Members of the Supervisory Board of Bayer AG in 2009 |
|---|
| -------------------------------------------------------------------------- |
| Fixed Compensation |
Variable Compensation |
Total | |
|---|---|---|---|
| € thousand | € thousand | € thousand | |
| Dr. Paul Achleitner | 75 | 38 | 113 |
| André Aich | 60 | 30 | 90 |
| Willy Beumann | 60 | 30 | 90 |
| Dr. Clemens Börsig | 60 | 30 | 90 |
| Karl-Josef Ellrich | 75 | 38 | 113 |
| Dr.-Ing. Thomas Fischer | 75 | 38 | 113 |
| Peter Hausmann | 75 | 38 | 113 |
| Prof. Dr.-Ing. e.h. Hans-Olaf Henkel | 75 | 38 | 113 |
| Reiner Hoffmann | 60 | 30 | 90 |
| Dr. rer. pol. Klaus Kleinfeld | 60 | 30 | 90 |
| Petra Kronen | 75 | 38 | 113 |
| Dr. rer. nat. Helmut Panke | 60 | 30 | 90 |
| Hubertus Schmoldt | 75 | 38 | 113 |
| Dr. Manfred Schneider (Chairman) | 180 | 90 | 270 |
| Dr.-Ing. Ekkehard D. Schulz | 60 | 30 | 90 |
| Dr. Klaus Sturany | 90 | 45 | 135 |
| Dipl.-Ing. Dr.-Ing. e.h. Jürgen Weber | 75 | 38 | 113 |
| Thomas de Win | 120 | 60 | 180 |
| Prof. Dr. Dr. h.c. Ernst-Ludwig Winnacker | 60 | 30 | 90 |
| Oliver Zühlke | 60 | 30 | 90 |
for research and development Our mission statement "Bayer: Science For A Better Life" underscores Bayer's belief that innovation has a major role to play in addressing global challenges and therefore will remain a key driver of the company's growth in the future. We have the resources at our disposal to generate further growth opportunities through research and development. In 2009 a total of €2,746 million – equivalent to 8.8% of sales – was invested in research and development, compared with €2,653 million in the previous year. Of particular importance is the focused development of new products to strengthen our core businesses. To expedite the growth we strive for, we are working to steadily renew and expand our product portfolio and optimize our production processes. Being closely aligned to market needs, our research and development activities are subject to a continuous process of adjustment. They are supplemented by an international network of collaborations with leading universities, public-sector research institutes and partner companies. By pooling expertise in this way, we aim to rapidly translate new ideas into successful products. Our activities are also supported by the systematic advancement of the people who work in our research and development units.
for research and development at HealthCare
In 2009 we invested €1,847 million (2008: €1,742 million) in research and development in the Pharmaceuticals and Consumer Health segments to lay the foundations for the launch of new and innovative health care products. This represented 67.3% of the Bayer Group's entire research and development expenditures and was equivalent to 11.6% of HealthCare sales.
Drug discovery in the Pharmaceuticals segment focuses on the areas of cardiology, oncology, women's healthcare and diagnostic imaging. The respective research activities and capacities are concentrated at three sites in Berlin and Wuppertal, Germany, and Berkeley, California, United States. Work in Berlin and Wuppertal centers largely on identifying molecular targets in order to develop and optimize lead substances. Research is also carried out at these sites in the fi elds of drug metabolism, pharmacokinetics, toxicology and clinical pharmacology. Berkeley is a major research and development center in which protein-based drug discovery and the biotechnological production of Kogenate® take place.
To drive the development of new substances for treating diseases with a high unmet medical need, we conducted clinical studies with several drug candidates from our research and development pipeline during 2009. On completion of all the necessary studies, we submitted applications to one or more regulatory authorities for registration, or expansion of the existing registration, for some of these candidates. The most important drug candidates currently in registration are:
| Indication | |
|---|---|
| Rivaroxaban / Xarelto® | U.S.A., prevention of venous thromboembolism following elective hip and knee replacement surgery |
| Qlaira® (E2V / DNG) | U.S.A., fertility control (oral) and treatment of heavy and / or prolonged menstrual bleeding |
| Levitra® | Erectile dysfunction, orodispersible tablets |
| YAZ® Plus, Yasmin® Plus | Fertility control (oral) with added folate |
| Valette® Plus | E.U., fertility control (oral) with added folate |
The following table shows the principal drug candidates currently in Phase iii or ii of clinical testing:
| Research and Development Projects (Phases III and II) * | ||
|---|---|---|
| Indication | Status | |
| Alemtuzumab | Multiple sclerosis | Phase III |
| Alpharadin™ | Treatment of bone metastases in | |
| hormone-refractory prostate cancer | Phase III | |
| Angeliq® low-low | Hormone replacement therapy | Phase III |
| Bonefos® | Prevention of bone metastasis in breast cancer | Phase III |
| FC Patch low | Fertility control | Phase III |
| Florbetaben | PET imaging in diagnosis of Alzheimer's disease | Phase III |
| Gadovist® | Magnetic resonance imaging | Phase III |
| LCS (ULD LNG Contraceptive System) | Fertility control | Phase III |
| Nexavar® | Thyroid cancer | Phase III |
| Nexavar® | Non-small-cell lung cancer | Phase III |
| Riociguat (sGC stimulator) | Pulmonary hypertension (CTEPH) | Phase III |
| Riociguat (sGC stimulator) | Pulmonary hypertension (PAH) | Phase III |
| Rivaroxaban / Xarelto® | Prevention of venous thromboembolism | |
| in medically ill, immobilized patients | Phase III | |
| Rivaroxaban / Xarelto® | Treatment of venous thromboembolism | Phase III |
| Rivaroxaban / Xarelto® | Stroke prevention in atrial fi brillation | Phase III |
| Rivaroxaban / Xarelto® | Secondary prevention of acute coronary | |
| syndrome / myocardial infarction | Phase III | |
| VEGF Trap-Eye | Wet age-related macular degeneration | Phase III |
| VEGF Trap-Eye | Central retinal vein occlusion | Phase III |
| YAZ® Flex | Fertility control (oral) | Phase III |
[Table 3.33 (continued)]
| Indication | Status | |
|---|---|---|
| Alpharadin™ | Treatment of bone metastases in breast cancer | Phase II |
| Amikacin Inhale | Pulmonary infection | Phase II |
| Cinaciguat (sGC activator) | Acute heart failure | Phase II |
| Ciprofl oxacin Inhale | Pulmonary infection | Phase II |
| E2 + DRSP | Fertility control (oral) | Phase II |
| L19-SIP | Lung cancer, brain metastases | Phase II |
| Nexavar® | Breast cancer | Phase II |
| Nexavar® | Colon cancer | Phase II |
| Nexavar® | Ovarian cancer | Phase II |
| Nexavar® | Additional indications | Phase II |
| Regorafenib (DAST inhibitor) | Cancer | Phase II |
| Riociguat (sGC stimulator) | Pulmonary hypertension (COPD) | Phase II |
| Riociguat (sGC stimulator) | Pulmonary hypertension (ILD) | Phase II |
| Sagopilone (ZK-EPO) | Lung / ovarian / prostate cancer | Phase II |
| VEGF Trap-Eye | Diabetic macular edema | Phase II |
| ZK 245186 | Atopic dermatitis | Phase II |
*as of February 15, 2010
PAH = pulmonary arterial hypertension; CTEPH = chronic thromboembolic pulmonary hypertension
COPD = chronic obstructive pulmonary disease; ILD = interstitial lung disease; PET = positron emission tomography
The nature of drug discovery and development is such that not all compounds can be expected to meet the pre-defi ned project goals. It is possible that any or all of the projects listed above may have to be discontinued due to scientifi c and/or commercial reasons and will not result in marketed products. It is also possible that the requisite FDA, European Medicines Agency (EMEA) or other regulatory approval will not be granted for these compounds.
We regularly evaluate our research and development pipeline in order to prioritize the most promising pharmaceutical projects. Among our principal development candidates is the innovative cancer drug Nexavar®, which has been developed jointly with Onyx Pharmaceuticals, Inc., United States. Nexavar® targets both the tumor cells and the vascular supply to the tumor. Preclinical trials have shown that the action of Nexavar® intervenes in two classes of kinase that are known to be involved both in cell proliferation (growth) and angiogenesis (the formation of new blood vessels) – two important processes that enable tumor growth. We continue to conduct research with this promising active substance, which is currently being marketed worldwide for the treatment of advanced renal cell carcinoma and hepatocellular carcinoma. Nexavar® is currently in various stages of clinical testing for the treatment of other tumor types (see Table 3.33).
Our novel anticoagulant Xarelto®, a direct Factor xa inhibitor in tablet form, was launched in September 2008 for prophylaxis of venous thromboembolism (vte) in adult patients following elective hip or knee-joint replacement surgery. Bayer has received marketing authorization for the product in more than 80 countries, including the European Union member states, Australia, China, Canada and Mexico. Xarelto® is now on the market in over 60 countries. The extensive clinical trial program supporting Xarelto® makes it the most studied oral, direct Factor xa inhibitor in the world today. More than 65,000 patients are expected to be enrolled into the Xarelto® clinical development program, which will evaluate the product in the prevention and treatment of a broad range of acute and chronic blood-clotting disorders (see Table 3.33).
In the fi eld of women's healthcare, we are working to expand the range of contraceptive options. In April 2009, Phase iii clinical trials began with a transparent contraceptive patch, intended to become the smallest, lowest-dosed product of its kind on the market. Our oral contraceptives yaz® Plus and Yasmin® Plus were submitted for approval in Europe and the United States. These products combine the contraceptives of the yaz® family with a folate in a single tablet. Our novel oral contraceptive Qlaira® is already on the market in Europe. In May 2009 we submitted this product for approval in the United States, not only for contraception but also for treating heavy and / or prolonged menstrual bleeding. Qlaira® contains estradiol valerate, which is rapidly metabolized to estradiol in the body. This product is the fi rst in a new class of oral contraceptives to deliver estradiol, the estrogen identical to the one produced by the female body.
Based on positive Phase ii trial outcomes with riociguat, the fi rst member of a new class of vasodilating agents known as soluble guanylate cyclase (sGC) stimulators, we moved into Phase iii trials with this substance in December 2008. Administered in tablet form, riociguat is currently being investigated as a new approach to treating various forms of pulmonary hypertension.
Our activities in the area of diagnostic imaging are focused on the development of positron emission tomography (pet) tracers that may assist in earlier and more accurate disease diagnosis. We are concentrating on three indications: central nervous system disorders, oncology and cardiovascular diseases.
Our aim in the development of the new pet tracer fl orbetaben is to contribute to earlier and more defi nitive diagnosis of Alzheimer's disease. The Phase ii data for this substance, presented in July 2009, underline its potential as an important imaging adjunct to clinical methods currently used to diagnose dementia. Additional Phase ii studies are ongoing. The global Phase iii program for fl orbetaben was launched in November 2009.
The portfolio of products emerging from our own research and development is supplemented by products in-licensed on a global, regional or national level. In collaboration with Genzyme Corp., United States, we are developing the humanized monoclonal antibody alemtuzumab, which is currently being tested in two global Phase iii studies for the treatment of multiple sclerosis (ms). Under the terms of the new strategic agreement entered into by Bayer and Genzyme in 2009, the co-development partnership for alemtuzumab will continue. Bayer has returned the worldwide distribution rights for alemtuzumab to Genzyme Corp., United States, but will receive royalties and co-promotion rights.
In the vegf Trap-Eye project that we are pursuing in collaboration with Regeneron Pharmaceuticals, Inc., United States, two Phase iii studies in age-related macular degeneration and a Phase ii study in patients with diabetic macular edema are under way. In 2009 two Phase iii studies were launched to investigate the use of the substance in central retinal vein occlusion (crvo). vegf (vascular endothelial growth factor) is a natural growth factor that stimulates the formation of new blood vessels (angiogenesis). vegf Trap-Eye blocks this growth factor specifi cally and very effectively, preventing the abnormal formation of new blood vessels and the leakage of fl uid. The medication is administered topically into the eye. Once the product has been granted regulatory approval, Bayer will market it outside the United States. Regeneron Pharmaceuticals Inc., United States, retains exclusive commercialization rights to vegf Trap-Eye in that country.
We amended the agreement with ZymoGenetics, Inc., United States, for recombinant thrombin and will now market this product only in Canada. We received marketing authorization in Canada in December 2009 and expect to introduce the product in that market in February 2010.
In April 2009 Bayer entered into a licensing agreement with Ardea Biosciences, Inc., United States, concerning the development and marketing of small-molecule mitogen-activated erk kinase (mek) inhibitors for the treatment of solid tumors. These kinases are believed to play an important role in cancer cell proliferation, apoptosis (programmed cell death) and metastasis.
In September 2009 Bayer in-licensed Alpharadin™, an alpha-emitting radiopharmaceutical, from Algeta asa, Norway, for joint development and marketing. The substance is currently being evaluated in a global Phase iii trial for the treatment of bone metastases in prostate cancer patients who no longer respond to hormone therapy.
We also invest in continuous life-cycle management to identify possible additional indications and improved delivery forms for products already on the market.
In our Consumer Health segment, research and development activities of the Consumer Care Division at our product development centers in Morristown, New Jersey, United States, and Gaillard, France, focus on identifying, developing and commercializing non-prescription (over-thecounter = otc) products. These efforts center on supporting both existing and new brands by implementing product-specifi c, clinical and regulatory development strategies that enable the successful exploitation of new technologies, the expansion of indications for existing products or the reclassifi cation of current prescription medicines as otc products. We introduced a variety of new product line extensions in several markets in 2009.
The research and development activities of our Medical Care Division focus on blood glucose monitoring and the continuing development of medical equipment used in the diagnosis or treatment of various diseases. At the research and development center for our diabetes care business in Tarrytown, New York, United States, we are working to strengthen core product lines and continue our expansion into attractive segments of the diabetes market. In 2009 we launched several innovative products, including Contour® usb, Didget® and A1cNow® SelfCheck to meet specifi c needs of individuals with diabetes. The research and development activities for our medical equipment business center on continually improving our market-leading contrast injection systems for computed tomography and magnetic resonance imaging as well as our vascular intervention systems. We are also entering additional attractive segments such as medical data management systems. The respective research and development center is located near Pittsburgh, Pennsylvania, United States.
The Animal Health Division focuses its research and development activities in Monheim, Germany, on anti-infectives and parasiticides along with active ingredients for the treatment of non-infectious disorders in animals. As well as developing new products to combat parasites in companion animals and livestock, the division concentrates on building its portfolio of organ disease products for dogs and cats, particularly in the areas of chronic kidney and cardiovascular diseases and cancer. In 2009 we launched Profender® (emodepside and praziquantel) – a novel substance to combat worm infestation in dogs – in the European market.
In 2009, €653 million (2008: €649 million) in research and development expenditures, or 23.8% of the Bayer Group total, were made in the CropScience subgroup. This was equivalent to 10.0% of subgroup sales.
CropScience maintains a global network of research and development facilities employing nearly 4,000 people. Our largest r&d sites for crop protection products are located in Monheim and Frankfurt am Main, Germany, and Lyon, France. The major research centers of the BioScience unit, which focuses on seed technology and breeding, are located in Ghent, Belgium, and Haelen, Netherlands.
While research is carried out centrally at a small number of sites, our development and seed breeding activities take place both at these sites and at fi eld testing stations across the globe so that future products can be tested under regional climatic conditions.
As part of our integrated research approach, scientists in the fi elds of agricultural chemistry and seed technology are increasingly collaborating to pool the knowledge acquired through chemical, biological and genetic research and fi eld development, aligning this expertise to our long-term research objectives and business strategies for the various crops.
€653 million
for research and development at CropScience
In the Crop Protection unit we identify and develop innovative, safe and sustainable products for use in agriculture as herbicides, fungicides or insecticides, and carry out research projects across all indications in new areas of future importance, such as plant health or stress tolerance. In addition to conventional chemistry, biology and biochemistry, modern technologies such as genomics, high-throughput screening and bioinformatics play an important role in identifying new lead structures. Collaborations with external partners complement our own activities.
We are broadening the range of uses for our products by developing seed treatment solutions, new mixtures or innovative formulations of products already on the market so that they can be applied in additional crops or be made easier to handle.
The active ingredient pipeline of Crop Protection currently contains 20 development projects, of which 10 are at an advanced stage and 10 at an early stage of development. An additional 45 projects are undergoing early-stage research.
In 2009 we began marketing our active ingredient thiencarbazone-methyl in combination with our new safener cyprosulfamide. Thiencarbazone-methyl (major brands: Adengo®, Corvus®) is a new active ingredient to control weeds in corn and cereal crops. This substance, a member of the sulfonyl amino carbonyl triazolinone (sact) class of herbicides, ideally complements our active ingredient isoxafl utole, which is already on the market. The combined modes of action of these two ingredients, in conjunction with the safener cyprosulfamide, ensure particularly good plant tolerance. Safeners are special substances added to herbicides to protect crops from potentially damaging effects of the active ingredient.
We plan to launch six promising new active ingredients between 2010 and 2012, subject to their successful registration:
| Planned Product Launches | [Table 3.34] | |
|---|---|---|
| New active ingredient | Use | Planned launch |
| Isotianil | Fungicide | 2010 |
| Fluopyram | Fungicide | 2010 / 2011 |
| Bixafen | Fungicide | 2010 / 2011 |
| Bacillus fi rmus | Seed treatment biopesticide | 2010 / 2011 |
| Indazifl am | Herbicide | 2011 |
| Penfl ufen | Seed treatment fungicide | 2011 / 2012 |
CropScience anticipates a total peak sales potential of €1.25 billion for the four new active ingredients it has launched since 2008 and the six other substances mentioned above that are expected to be commercialized by 2012.
We plan to strengthen our portfolio in Asia with the introduction of the new rice fungicide isotianil (major brand: Routine®), a member of the isothiazole class. This active ingredient from our research pipeline has undergone further development in collaboration with Sumitomo Chemical Co., Ltd. of Japan. Isotianil protects rice against Pyricularia, the fungus that causes rice blast, by stimulating the plants' natural defense mechanisms.
Fluopyram (major brand: Luna®) has been developed to combat problematic plant diseases caused by fungal pathogens. It is planned to market this active ingredient – a member of the new pyridinylethyl-benzamide class – worldwide for foliar application and seed treatment in more than 70 crops. Key benefi ts are better storability and longer shelf life of harvested produce.
Bixafen (major brand: Aviator® Xpro™) is a new cereal fungicide that boosts yields thanks to its positive impact on plant physiology. This active ingredient, a member of the pyrazole class, was developed specifi cally for foliar application to combat speckled leaf blotch (Septoria tritici) and brown rust. Representing a new group of active ingredients, bixafen is well suited as a component of resistance management.
Bacillus fi rmus (major brand: Votivo®), a biological pest control agent for use as a seed treatment, is a new addition to our portfolio of conventional products to combat nematodes – threadworms that live in the soil.
Indazifl am is a new alkylazine herbicide with a long duration of action that is effective against a broad spectrum of diffi cult-to-control broad-leaf weeds and grasses. It is intended for use in agricultural specialty crops such as fruit and grapes and in numerous non-agricultural markets such as lawn care on golf courses and sports fi elds.
Penfl ufen is a novel pyrazole fungicide for seed treatment in various crops, such as potatoes, oilseed rape / canola, soybeans, corn and cotton. This substance is effective against a number of seed-borne pathogens and features particularly broad action and effi cacy against Rhizoctonia spp. Penfl ufen contributes to particularly strong seedling development due to its good seed tolerance.
The compounds developed by Crop Protection are also tested and evaluated by our Environmental Science unit for possible non-agricultural uses. In addition, we carry out tests with active ingredients from other companies and may purchase such ingredients if results are positive. Current development projects include gels and baits to combat insect pests, new herbicides and fungicide mixtures, as well as biological solutions. In the area of vector control, we are stepping up research into insecticidal products for treating materials. Uses include impregnated nets to protect people from malaria transmitted by mosquitoes. We are also working closely with the Innovative Vector Control Consortium (ivcc) in Liverpool, United Kingdom, to assemble a new insecticides research platform and discover new resistance-breaking insecticides for the control of malaria vectors.
In 2009, Environmental Science introduced numerous new products featuring easy, user-friendly handling. In the United States, for example, we launched Triton® sg, a new triticonazole-based fungicide formulation. Products added to our Bayer Advanced portfolio for u.s. consumers included several new fungicides and insecticides. In Europe we expanded our Bayer Garden range, mainly by launching new herbicides and a new snail-control product. Several more product introductions are planned for 2010. These include herbicides for the green industry and innovative fungicides featuring our StressGard technology that not only combat fungal diseases but also improve plant health. We also plan to introduce new biologically based product lines for consumer markets this year.
Steady expansion of R&D activities in BioScience
Research in our BioScience unit is dedicated to optimizing plant traits. We are developing new seed varieties of our core crops – cotton, canola, rice and vegetables. In 2009 we expanded our research activities to include cereals and soybeans as additional core crops. Our research and development work focuses on the agronomic traits of these crops. For example, our scientists are working to develop crop plants that are highly resistant to stress factors such as extreme temperatures and drought. We also aim to increase the plants' yield potential and quality. Examples here include improving the profi le of canola oil or enhancing the properties of cotton fi bers. Further areas of focus include developing new herbicide tolerances based on alternative mechanisms of action, and improving insect and disease resistance. To do this we employ both modern breeding techniques and methods based on plant biotechnology. Our BioScience
research and development pipeline presently contains more than 50 promising lead projects and is complemented by over 80 current research agreements with public- and private-sector partners.
Business growth in BioScience in 2009 was supported by new product introductions. In conjunction with leading seed producers, we commercialized our LibertyLink® herbicide tolerance technology in soybean seeds in the United States. In 2011 we plan to introduce several innovative seed varieties, including cotton with our proprietary glyphosate herbicide tolerance trait and a cotton seed with tolerance against glyphosate and glufosinate-ammonium.
To further strengthen the innovative capability of CropScience, we intend to consistently increase research and development activities, particularly in the area of seeds and plant traits. The acquisition of Athenix Corp., United States, in November 2009 broadens our technology portfolio to include an additional extensive development platform for herbicide tolerance and insect resistance traits. We are also continuing to expand our network of research and development locations. For example, we aim to strengthen our presence in the important North American market by inaugurating a new biotechnological research center in Morrisville, North Carolina, United States, in the spring of 2010.
In 2009, MaterialScience spent €207 million (2008: €221 million) on research and development (not including joint development activities with customers) to further expand its leading position in the market and in process technology as a global supplier of high-quality customized materials and system solutions. MaterialScience thus accounted for 7.5% of the Bayer Group's total research and development expenses. The subgroup's expenses in this fi eld amounted to 2.8% of sales.
The business units of MaterialScience employ the latest technologies and production processes to develop new products and applications in close cooperation with our customers and other external partners.
Product development work in the Polyurethanes business unit is focused on expanding applications for materials and optimizing the properties of our polyurethane systems. In the construction industry, for example, our polyurethanes form the basis for highly effi cient insulating materials and in this way contribute actively to climate protection. Roughly 70 times as much energy can be saved during the product life cycle of rigid polyurethane foam as is required for its manufacture. As part of the Bayer Sustainability Program, regional centers of excellence are being established to launch the Eco-Commercial Building concept Bayer has developed. This utilizes Bayer's own expertise in the fi eld of high-tech construction materials and involves a partnership network consisting of suppliers, construction fi rms, architects and property developers. The aim is to offer modern, customized concepts for energy-optimized commercial and public buildings.
The use of renewable raw materials also plays an important part in our research and development activities. For example, we have developed polyols containing up to 70% by weight of renewable raw materials for use in mattresses, car seats and refrigerator insulation. Another groundbreaking application for polyurethanes is in the solar cell market, which continues to grow rapidly. The use of frames made from polyurethane considerably shortens production cycles for complete solar panel systems. Such frames also offer much greater design freedom and can be built fl at into existing house roofs, for example.
Process development is currently focused on ways to manufacture new or improved raw materials and formulations and optimize the production of polyether polyols and aromatic isocyanates. Our 250,000 tons-per-year tdi facility in Shanghai, China, due to be completed in 2010 and start production in the second half of 2011, will employ the gas-phase phosgenation process, which uses up to 60% less energy than would a world-scale facility of the same size based on conventional technology. This innovative process will also lead to a reduction of up to 60,000 tons per year in carbon dioxide emissions.
for research and development at MaterialScience
EcoCommercial Building Program: developing customized solutions for the construction of energyoptimized buildings
Opening up new applications by developing customized products The aim of our Polycarbonates business unit is to develop customized products that satisfy new customer needs and thereby open up new applications. In addition, we are working continuously to improve manufacturing processes. A key business driver is the identifi cation of innovative solutions that align with global trends and societal needs. Such applications are made possible by the development of new polymer alloys (polycarbonate blends and compounds), modifi ed base materials for polycarbonate sheets and various coating technologies for modifying polycarbonate surfaces. We are also continuing to develop architectural and other applications for polycarbonate sheets. Examples include roofi ng with maximum design freedom, highly effective and esthetic sound insulation walls and large-area window panes.
The principal development areas include led light management, lightweight materials for the transport sector (such as polycarbonate glazing for cars), low-cost system solutions for automotive interiors, and design-based applications. Together with our customers we are developing solutions that address increasing global challenges in the areas of mobility, quality of life, the environment, and cost optimization in manufacturing.
The Coatings, Adhesives, Specialties business unit focuses its research and development activities on polyurethane raw materials for high performance coatings, adhesives and sealants, such as aliphatic and aromatic polyisocyanates and resin components. Important areas of research are raw materials for waterborne and uv-curing systems that meet today's market requirements and help to conserve resources by obviating the need for organic solvents and reducing drying times for coatings. In the new strategic business entity Functional Films and Specialties, we carry out research and development in the fi eld of innovative surfaces and substrate materials. Here we focus on applications such as electroluminescent fi lms, formable coated fi lms for electronic and automotive applications, Makrofol® fi lms to enhance the security of id cards, and holograms as a security feature on bank cards and identifi cation documents, for example. We are also working to open up more new applications in the areas of cosmetics and medical technology materials. In addition, we are established as one of the world's leading industrial-scale suppliers of carbon nanotubes (Baytubes®). In 2009 we completed the construction of the world's largest pilot plant for these materials with a capacity of 200 tons per year.
The New Business section of MaterialScience constantly tracks and evaluates new technological and market trends, channeling the most promising ideas into research and development projects in order to create profi table business opportunities for the future or expand existing technology platforms.
All Bayer subgroups work closely with Bayer Technology Services worldwide on technology solutions, particularly in the fi elds of process technology, plant engineering, automation and product development. For example, this service company cooperates with MaterialScience in the development of new production processes that make effi cient use of energy and raw materials, thereby helping the subgroup to safeguard its technological and cost leadership. Centralized development work on technologies relevant to more than one subgroup, such as nanotechnology and biotechnology, along with expertise in mathematical simulation and statistical data analysis, helps HealthCare and CropScience to shorten development times for new products. Another key strategic factor here is international knowledge sourcing in areas ranging from country-specifi c expertise in the handling of capital expenditure projects to the global exploitation of innovations.
Developing functional films for high-tech applications
Bayer Technology Services supports all Bayer subgroups with technology platforms
Bayer Innovation investigates and evaluates innovative areas adjacent to the subgroups' current core activities and develops them into viable new businesses for the Bayer Group. An example is the manufacture of plant-made pharmaceuticals. In 2009 the u.s. Food and Drug Administration accepted Bayer's application for a clinical trial involving a personalized cancer vaccine for the therapy of non-Hodgkin's lymphoma. In the fi eld of medical technology, an innovative dressing made from bioresorbable silica gel fi bers for the treatment of chronic wounds is undergoing clinical testing. In the agriculture sector, novel hybrid concepts based on polymer technologies and crop protection products are under development. The full potential of these technologies is being evaluated in close cooperation with the subgroups and external partners.
The innovation campaign entitled "Inspiration, Ideas, Innovation" is motivating Bayer employees worldwide to submit ideas for new products and thereby add to the company's innovative capability. Some of these products have already been successfully commercialized.
Sustainability is a key component of our Values and Leadership Principles. True to our mission statement "Bayer: Science For A Better Life," we aim for sustainable commercial success based on sound business models and in harmony with the needs of our employees, society and the environment. To underline this mission we have committed to international sustainability initiatives such as the u.n. Global Compact and the Responsible Care Global Charter.
Our objective is to develop innovative solutions that will help address global challenges such as providing sustainable health care, feeding a steadily growing world population, combating climate change and overcoming the scarcity of natural resources. We therefore plan to align our core businesses to sustainability criteria even more rigorously than before. In 2009 we launched the Bayer Sustainability Program, initially comprising eight lighthouse projects. Major areas of focus are our alliances for sustainable health care, innovative partnerships to improve the supply of high-quality food, and new solutions for protecting the climate and managing natural resources.
Oversight of the Group-wide sustainability strategy has been assigned to Group committees headed by the member of the Board of Management responsible for Innovation, Technology and Environment. As part of our "sustainability in procurement" strategy, we have compiled a code of conduct for suppliers covering ethics, employee relations, occupational health, safety, environmental protection, quality and management systems. Our suppliers are selected and evaluated on the basis of this code starting at the end of 2009.
To steer our sustainability performance, we have defi ned specifi c targets and indicators through 2010, both for the Group as a whole and for our subgroups and service companies, in fi ve fi elds of activity: innovation, product stewardship, management excellence, social commitment and environmental responsibility. These are supplemented by additional goals reaching beyond 2010 in areas where we believe the need for action is greatest – such as climate protection.
Each year we publish a Sustainable Development Report based on Application Level a+ of the Global Reporting Initiative (gri) guidelines.
Bayer Innovation develops new businesses adjacent to core activities
For more information on the new Bayer Sustainability Program, go to www.sustainabilityprogram. bayer.com
The Sustainable Development Report can be found at: www.bayer.com/en/ Sustainable-Development-Report.aspx
| Employee Data | [Table 3.35] | |
|---|---|---|
| Dec. 31, 2008 |
Dec. 31, 2009 |
|
| FTE | FTE | |
| Employees by region | ||
| Europe | 55,500 | 54,500 |
| North America | 17,000 | 16,300 |
| Asia / Pacifi c | 20,800 | 21,600 |
| Latin America / Middle East /Africa | 15,300 | 16,000 |
| Employees by corporate function | ||
| Production | 49,100 | 47,800 |
| Marketing and distribution | 38,000 | 38,900 |
| Research and development | 12,300 | 12,400 |
| General administration | 9,200 | 9,300 |
| Total | 108,600 | 108,400 |
| of which trainees | 2,900 | 2,700 |
| % | % | |
| Percentage of women in Bayer Group senior management | 4.7 | 5.5 |
| Number of nationalities in Bayer Group senior management | 23 | 22 |
| Proportion of full-time employees with contractually agreed working time | ||
| not exceeding 48 hours per week | 100 | 100 |
| Proportion of employees with health insurance | 97 | 95 |
| Proportion of employees eligible for a company pension plan or company-fi nanced retirement benefi ts |
76 | 74 |
| Proportion of employees covered by collective agreements, particularly on pay and conditions |
57 | 56 |
The total number of employees with permanent or temporary contracts is reported in full-time equivalents, with part-time employees included in proportion to their contractual working hours.
On December 31, 2009, the Bayer Group had 108,400 employees worldwide, compared with 108,600 at the end of 2008. Thus headcount remained virtually steady even in the crisis year 2009. In Germany we had 36,700 employees (2008: 37,400), who made up 33.9% of the Group workforce.
HealthCare employed 53,400 (2008: 53,100) people, CropScience 18,700 (2008: 18,300) and MaterialScience 14,300 (2008: 15,100). The remaining 22,000 (2008: 22,100) employees worked mainly for the service companies. This fi gure also includes the 600 (2008: 600) employees of Bayer AG.
Personnel expenses rose in 2009 by 3.8% to €7,776 million (2008: €7,491 million), mainly due to exchange-rate effects and the higher contributions to the German pension assurance association.
Bayer pursues a sustainable human resources policy focusing on diversity, equality of opportunity, support for our employees' personal and career development, and social security. Our social responsibility is refl ected in the fact that 74% of our workforce has access to a corporate pension plan of some kind. Nearly all of our employees throughout the world either have statutory health insurance or access to health insurance through the company. High social standards, performance- and market-oriented compensation with numerous additional benefi ts, and a wide range of career development options make Bayer an attractive employer. The fl uctuation rate for the Group as a whole in 2009 was 7%.
Another feature of our corporate policy is dialogue with the employee representatives in a spirit of partnership. The working conditions for more than 55% of our global workforce are set forth in collective or company agreements. A fl exibility clause in the collective bargaining agreement for the chemical industry enabled MaterialScience to cushion the effects of the global economic crisis on employees in Germany. Invoking this clause, working hours and pay were temporarily reduced for the period from February through October 2009, making offi cial short-time working unnecessary. Moreover, in December 2009, the existing agreement under which Bayer Group companies in Germany refrain from dismissing employees for operational reasons was extended to run for a further three years.
The members of the Bayer Group's top management level are drawn from 22 countries. In 2009, women made up 35% percent of the global workforce.
| Bayer Group Workforce Structure | [Table 3.36] |
|---|---|
| 2009 | |
| % | |
| Senior managers | 1 |
| Other managers | 27 |
| Skilled employees | 69 |
| Trainees | 3 |
Bayer provides an attractive working environment for its employees by accommodating their different needs in a number of ways. Flexible worktime models allow many employees to organize their work on a largely individual basis. In November 2009 we added to our range of employee childcare services with the inauguration of a new children's daycare center at the site in Monheim, Germany.
A largely standardized system of compensation for all employee groups and their regular participation in the company's fi nancial success have long been fi rm features of Bayer's human resources policy. More than €460 million is earmarked for bonus awards to employees for the year 2009 under the Group-wide short-term incentive (sti) program. The individual bonuses to be paid out in the spring of 2010 will be determined for the fi rst time according to a new system that places greater emphasis on rewarding the personal performance of the approximately 25,000 participants.
Complementing our extensive range of benefi ts in many countries are a variety of stock participation programs that enable employees to purchase Bayer stock at a discount, giving them a further opportunity to share in the company's economic success. Since 2005 we have offered senior and middle managers throughout the Group uniform stock-based compensation programs known as "Aspire" that are based on ambitious earnings targets and – in the case of Group Leadership Circle members – require an appropriate personal investment in Bayer stock.
Vocational training and advancing the talents of prospective young employees are crucial to the company's future viability in view of demographic change and an anticipated shortage of skilled employees in many areas. Bayer therefore upholds its traditionally strong commitment in the area of vocational training. At our German sites alone, more than 900 young people again entered the vocational training programs offered in 2009 to prepare for careers in more than 20 occupations. They included 156 youngsters who were fi rst given preparatory courses to improve basic skills. We also offer systematic vocational training in numerous other countries. For example, 16 young people entered our dual training programs in Mexico, 30 in Argentina and 35 in China.
Bayer aims to gain the interest of talented students through the diverse career opportunities it offers, and attract them to the company at an early stage. In 2009 Bayer Group companies once again awarded more than 1,230 challenging occupational internships to students of various disciplines worldwide. Our company's student support activities helped us to recruit some 5,000 academics to Bayer companies as technical or managerial employees in 2009. China accounted for the largest number of newly hired employees with an academic background, at about 1,500, followed by the United States with 965 and India with 525.
The average age of our employees worldwide in 2009 was 41. Central to our strategy for addressing demographic change is continuing education for employees in all age groups. In 2009 we spent more than €60 million in Germany alone to advance our employees' occupational skills and help them meet changing requirements. Supported by our activities in occupational health management, the continuing education we provide is instrumental in retaining experienced employees for as long as possible and keeping their skills at a high level.
In 2009 Bayer continued the global realignment of its human resources (hr) function by way of the "Transforming Human Resources" project. The aim of this reorganization is to increase the value the hr function contributes to the business and enhance the quality and effi ciency of hr processes throughout the Group. With the transformation in Germany successfully completed at the beginning of 2009, the country organizations in Spain, Belgium, Mexico and Brazil implemented the new operating model during the year.
| Key Performance Indicators | [Table 3.37] | ||
|---|---|---|---|
| Category | Key Performance Indicators Health, safety and environment |
2008 | 2009 |
| Health and Safety |
Industrial injuries to Bayer employees resulting in at least one day's absence (number of injuries per million hours worked) |
2.2 | 2.0 |
| Reportable industrial injuries to Bayer employees (number of injuries per million hours worked) |
3.6 | 3.1 | |
| Major environmental incidents | 9 | 13 | |
| Transportation incidents | 10 | 10 | |
| Emissions | Direct greenhouse gas emissions (CO2 equivalents in million metric tons)* | 5.09 | 4.57 |
| Indirect greenhouse gas emissions (CO2 equivalents in million metric tons)* | 3.57 | 3.53 | |
| Volatile organic compounds (VOC) (thousand metric tons / year) | 3.16 | 2.59 | |
| Total phosphorus in waste water (thousand metric tons / year) | 0.78 | 0.74 | |
| Total nitrogen in waste water (thousand metric tons / year) | 0.67 | 0.63 | |
| Total organic carbon (TOC) (thousand metric tons / year) | 1.59 | 1.34 | |
| Waste | Hazardous waste generated (million metric tons / year) | 0.37 | 0.38 |
| Hazardous waste landfi lled (million metric tons / year) | 0.08 | 0.09 | |
| Use of | Water use (million m3 / day) | 1.20 | 1.11 |
| resources | Energy use (petajoules [1015 joules] / year) | 82.79 | 77.33 |
2008 fi gures restated
* as per Greenhouse Gas Protocol
Bayer has long placed great importance on protecting the environment and conserving natural resources. We are constantly on the lookout for solutions that promote growth cost-effectively without further depleting natural resources or producing more emissions or waste. We are committed to leveraging our expertise in technology, process optimization and product innovation to protect nature, the environment and the climate. For example, Bayer is developing a method that holistically analyzes, and determines ways to minimize, the consumption of resources such as energy, water and raw materials. This resource effi ciency check – based on the "Bayer Climate Check" – is currently being tested in pilot projects.
To ensure uniformly high health, safety, environmental protection and quality standards, Bayer has established hseq management systems in all subgroups and service companies that are aligned to recognized international standards. In 2009, 87% of Bayer sites had an audited hse
management system in place. The audits were performed according to an internal Bayer standard. Almost 40% of our production sites have been externally audited in line with international standards such as iso 14001, emas or ohsas 18001. The respective quality management systems are adapted to industry-specifi c quality standards.
We improved nearly all of our key performance indicators in 2009. The industrial injury rate again declined, almost reaching our target of <2.0. Emissions of volatile organic compounds (voc), phosphorus, nitrogen and total organic carbon (toc) also declined. Resource input decreased in 2009 due to lower production volume. Optimization of our data collection systems for energy input led to a reduction compared with the fi gure published in the Annual Report 2008 from 88.5 to 82.8 petajoules per year.
Group regulations on occupational health and safety
REACH: compliance on schedule
In 2009 there was an increase in the number of environmental incidents, including minor emissions reported in line with a voluntary internal commitment. Unfortunately, even our extensive safety precautions and training procedures cannot entirely prevent environmental incidents or traffi c accidents. Any such events are carefully analyzed and evaluated so that steps can be taken to prevent a recurrence. As part of the ongoing development of our commitment in the fi eld of occupational health and safety, we implemented a new Group regulation on transportation safety in 2009 and updated the Group regulations on occupational safety, occupational health, and process and plant safety.
For Bayer, sustainability also means systematically avoiding potential risks in the manufacture, application or disposal of our products. Product safety and compatibility therefore have top priority across all our fi elds of activity in all the countries where we operate. We examine all Bayer products and monitor them with regard to any potential health, safety, environment or quality (hseq) risks arising from their use in applications known to us, right along the value chain.
We are committed to product stewardship and also support the objectives of the e.u. chemicals policy (reach), which are to ensure the safety of everyone who comes into contact with chemical products throughout their life cycles and to further improve consumer safety and environmental protection. Bayer had already pre-registered 817 substances with the European Chemicals Agency (echa) by the end of 2009 as required under the e.u. regulation. By the end of November 2010 we will now compile the necessary registration dossiers for substances that we use in particularly large quantities. For many of these substances, Bayer has formed registration consortia with competitors in order to share data and avert the need for additional animal studies.
The Bayer Climate Program, announced in 2007, addresses one of the great global challenges: climate change. It forms a cornerstone of the new Bayer Sustainability Program. The aim of the Bayer Climate Program is to fi nd ways to protect the climate and address the consequences of climate change. In 2009 Bayer was named the world's best company in the Carbon Disclosure Leadership Index, honoring our transparent reporting on climate strategy and greenhouse gas emissions.
Improving energy effi ciency is a major factor in reducing our own greenhouse gas emissions. We use the Bayer Climate Check as an analysis tool to identify co2 emission reduction potential at our production facilities. By mid-2010 we plan to assess more than 140 facilities and buildings that currently account for over 85% of production-related co2 emissions. The analysis results so far point to an energy reduction potential of 10% by 2013 relative to 2008 in the production facilities of our subgroups and service companies. The identifi ed reduction potential is being realized through a systematic energy effi ciency program that is intended to reduce our greenhouse gas emissions by 350,000 tons per year. Process innovations are another focus of our efforts to reduce greenhouse gas emissions, one example being an innovative, climate-friendly chlorine production process developed jointly by Bayer and its partners that uses some 30% less energy. In the future we aim to market this technology outside of Bayer as well as using it in our own facilities.
Bayer also provides solutions for climate protection. With energy consumption in buildings accounting for nearly 20% of greenhouse gas emissions worldwide, the purpose of the "EcoCommercial Building" lighthouse project for zero- and low-emissions structures, launched two years ago, is to help reduce these emissions. This project has been developed into a comprehensive program to bring together all the partners along the value chain, so that integrated and sustainable design concepts can be developed for commercial and public building projects.
The Bayer Climate Program also adopts other approaches, including measures such as the "eco Fleet" program to reduce emissions caused by company cars, the use of new telecommunications technology to reduce business travel, and the improvement of energy effi ciency in the it environment.
Bayer bases its reporting of greenhouse gas emissions on the international standard of the Greenhouse Gas (ghg) Protocol. The company aims to hold total emissions to 2007 levels through 2020 despite growth in production. In 2009, direct greenhouse gas emissions fell by 10.2%, mainly as a result of process improvements and the general economic situation. Energy-related indirect greenhouse gas emissions fell by only 1.1%, mainly because of much less favorable conversion factors for the German electricity mix. The total of direct and indirect greenhouse gas emissions was down by 6.5% because of lower overall production volume, especially at MaterialScience.
The 2008 fi gure for direct greenhouse gas emissions published in the Annual Report 2008 rose from 4.0 to 5.1 million tons co2 equivalent, partly because we acquired a nitric acid facility in the United States in 2009 that had to be included retrospectively in line with the ghg Protocol.
Each Bayer subgroup has set its own ambitious climate goals for the period from 2005 through 2020. To track our target achievement more transparently, we publish detailed information on emission levels in our Sustainable Development Report.
Corporate social responsibility (csr) forms an integral part of Bayer's philosophy and strategy as a business enterprise. The company regards itself as part of society and therefore considers it its duty to behave as a responsible corporate citizen. Bayer's csr commitment is exemplifi ed by numerous projects in many parts of the world, some of which the company has been organizing or supporting for years. In 2009 the Bayer Group provided funding of some €44 million for these activities, focusing on the fi elds of education and research, environment and nature, health and social needs, and sports and culture. Bayer's diverse activities in the area of sports and culture accounted for about half of csr spending, followed by expenditures to promote health, education and environmental protection. We continuously develop the scope of our projects and / or extend them to additional countries.
We fi rmly believe that a sustainable csr commitment in these areas can make an important contribution to the viability of society while at the same time improving the conditions for our business activity and promoting our economic success in the long term.
INTERNET
Detailed information can be found at www.climate.bayer.com and www.sustainability2008. bayer.com
Bayer traditionally places great importance on support for education and research. As an inventor company, we are particularly dependent on recruiting people with excellent scientifi c skills.
In 2009 the Bayer Science & Education Foundation provided fi nancial support for outstanding scientists, high-achieving university students and dedicated school students. It also sponsored innovative teaching programs in schools. The €50,000 Hansen Family Award in 2009 went to Professor Patrick Cramer for his research into the molecular mechanisms of gene transcription, which may help in discovering new disease therapies and improving biotechnological processes. In 2009 the Foundation also presented the newly established "Bayer Early Excellence in Science Award" to three young scientists, who received €10,000 each. The recipients were Dr. Jürgen Groll of rwth Aachen University, Germany, for the "Materials" fi eld, Dr. Noriyuki Nishimura from the University of California, San Diego, United States, in the "Biology" category, and Dr. Tobias Ritter of Harvard University in Cambridge, Massachusetts, United States, for "Chemicals."
The Bayer Science & Education Foundation granted scholarships totaling €151,000 in 2009 to 34 gifted and ambitious students to assist them with specifi c study projects in the fi elds of natural sciences and medicine. The Foundation also provided a total of some €491,000 in funding for 51 new programs at schools and other educational institutions in communities near our sites to help make science education more innovative and attractive. Under the Bayer Climate Program, it also awarded seven scholarships in 2009 to school students participating in an international sustainability seminar in Pittsburgh, Pennsylvania, United States. In 2009 Brazil joined the list of countries participating in Bayer's educational program "Making Science Make Sense," which means schoolchildren in 12 countries are now benefi ting from the commitment of Bayer employees who volunteer their time in schools and elsewhere to demonstrate experiments that illustrate the fascination and the benefi ts of science.
Protecting the environment and nature has long been of major importance to Bayer. As a company with international production operations, we consider the judicious use of natural resources to be an important part of our social responsibility, along with environmental protection and nature conservation. In 2009 Bayer ceremonially presented Professor Eberhard Jochem of the Fraunhofer Institute for Systems and Innovation Research in Karlsruhe, Germany, with the inaugural Bayer Climate Award for his achievements in the fi eld of energy effi ciency. This accolade – the fi rst international award for fundamental research in the climate sciences – will now be presented every two years by the Bayer Science & Education Foundation under the Bayer Climate Program.
In 2009 Bayer and the United Nations Environment Programme (unep) again organized about a dozen environmental projects for children and young people as part of their global partnership for environmental education. These activities centered on the International Children's and Youth Conference on the Environment in Daejeon, South Korea, which was attended by 600 participants from some 100 countries. Thanks to particularly strong interest from China, the annual children's painting competition run jointly by Bayer and unep received a record 2.4 million entries from 89 countries. Also within the scope of this partnership, Bayer organized the interdisciplinary scientific forum "Eco-Minds" in Auckland, New Zealand, in which students from nine countries in the Asia / Pacifi c region participated.
Bayer's "Young Environmental Envoys" program was expanded to include Chile, now the 19th participating country. In 2009 Bayer provided total funding of €1.2 million for projects implemented under the unep partnership.
Bayer launched a special environmental protection program in China entitled "Seeding for Green." Through this program, the company supports young people who are committed to environmental protection with the aim of boosting environmental awareness among the population. The program includes an environmental media award and a children's book about global warming.
Involving young people in environmental protection
Support for talented young researchers and leading scientists
Bayer displays an active commitment to improving social conditions and health care in many regions of the world with the dual aim of promoting social stability in the communities near its sites and helping to solve global health challenges.
In 2009 the company agreed to provide the World Health Organization (who) with 400,000 tablets of its active ingredient nifurtimox annually free of charge, the objective being to develop a new therapy to tackle African sleeping sickness.
In addition we launched a unique project in Uganda in cooperation with the German Foundation for World Population (dsw) as part of our family planning program. A special "Youth Truck" is employed to reach out directly to teenagers to provide them with information on basic matters of sexual and health education and contraception. The program also involves parents and teachers. In addition, we are collaborating with organizations such as the United States Agency for International Development (usaid) and the United Nations Population Fund (unfpa) to make contraceptives available free of charge to women who require them.
The Bayer Cares Foundation supported 42 charitable projects in the vicinities of the company's sites in Germany – and for the fi rst time also in Latin America – with total funding of about €104,000. In this way the foundation rewarded employee and citizen volunteerism as a central feature of an active community.
In 2009 the Foundation initiated the Aspirin Social Prize to promote innovative support and consultation projects in the health care fi eld in Germany. With this prize the Bayer Cares Foundation aims to honor specifi c efforts, bring social work in the health care sector to the attention of a wider public and strengthen social innovation in this area. The prize is worth €30,000 and will be awarded annually starting in 2010.
Bayer has sponsored sports for over 100 years. This commitment is based on support for a wide variety of clubs in the areas of recreational, youth and disabled sports.
Bayer has also served as a patron of the arts for more than a century. The extensive program of events organized by Bayer Arts & Culture and our support for a range of clubs and societies make a signifi cant contribution to cultural life and enhance the attractiveness of our corporate locations.
Since January 1, 2010, no events of special signifi cance have occurred that we expect to have a material impact on the fi nancial position or results of operations of the Bayer Group.
Business operations necessarily involve opportunities and risks. Effective management of opportunities and risks is therefore a key factor in sustainably safeguarding a company's value.
Managing opportunities and risks is an integral part of the corporate governance system in place throughout the Bayer Group, not the task of one particular organizational unit. Key elements of the opportunity and risk management system are the planning and controlling process, Group regulations and the reporting system.
At regular conferences held to discuss business performance, the opportunities and risks that are evaluated both qualitatively and quantitatively in determining the strategies of the strategic business entities and the regions are updated, and targets and necessary actions are agreed upon.
Opportunity management in the Bayer Group is based on the detailed observation and analysis of individual markets and the early recognition and evaluation of trends from which opportunities can be identifi ed. Macroeconomic, industry-specifi c, regional and local trends are taken into account. It is the task of the subgroups and strategic business entities to make use of strategic opportunities arising in their respective markets. The strategic framework necessary for them to do this is set, and the necessary fi nancing and liquidity ensured, at the Group level. Opportunitybased projects involving more than one subgroup are centrally coordinated and accounted for.
The principles of the Bayer Group's risk management system are set forth in a directive. The subgroups, service companies and the units of the holding company have nominated persons responsible for risk management at the upper managerial level as well as risk management coordinators, to ensure that an effective system for the early identifi cation of risks is implemented and maintained.
Corporate Auditing is responsible for coordinating the identifi cation and documentation of risk areas throughout the Group, enhancing the risk management system and monitoring its effectiveness at regular intervals.
In addition, the external auditor assesses the risk management system within the scope of the annual fi nancial statements audit and informs the Group Management Board and the Supervisory Board of the fi ndings. These fi ndings are taken into account as part of the continuous enhancement of our risk management system.
Bayer has an internal control and risk management system in place under which appropriate structures and processes for (Group) accounting and fi nancial reporting are defi ned and implemented throughout the organization. This system is designed to guarantee timely, uniform and accurate accounting for all business processes and transactions. It ensures compliance with statutory regulations, accounting and fi nancial reporting standards and the internal accounting directive, which is binding upon all the companies included in the consolidated fi nancial statements. The relevance and consequences for the consolidated fi nancial statements of any amendments to laws, accounting or fi nancial reporting standards or other pronouncements are continually analyzed, and the Group directives and systems are updated accordingly.
Management of opportunities and risks is essential for steering the company
Apart from defi ned control mechanisms such as system-based and manual reconciliation processes, the fundamental principles of the internal control system include the separation of functions and compliance with directives and operating procedures. The accounting and fi nancial reporting process for the Bayer Group is managed by the Group Accounting and Controlling department of Bayer AG.
The Group companies prepare their fi nancial statements either locally or using the Group's shared service centers and transmit them with the aid of a data model that is standardized throughout the Group and based on the Group accounting directive. The Group companies are responsible for their compliance with the directives and procedures applicable throughout the Group and for the proper and timely operation of their accounting-related processes and systems. The employees involved in the accounting and fi nancial reporting process receive regular training, and the Group companies are supported by headquarters personnel throughout the process. As part of the process, measures are implemented that are designed to ensure the regulatory compliance of the consolidated fi nancial statements. These measures serve to identify and evaluate risks, and to limit and monitor any risks that may be identifi ed. For example, material new contractual relationships are systematically tracked and analyzed.
The consolidated fi nancial statements are prepared centrally on the basis of the data supplied by the included subsidiaries. The consolidation, certain reconciliation operations and monitoring of the related time schedules and procedures are performed by a dedicated consolidation unit. System-based controls are monitored by personnel and supplemented by manual inspection. At least one additional check by a second person is carried out at every level. Defi ned approval procedures must be observed at all stages in the accounting process. There is also a dedicated unit, separate from the fi nancial statements preparation process, for clarifi cation of specifi c accounting-related questions or particularly complex issues.
Bayer's internal control system for fi nancial reporting is based on the framework issued by coso (Committee of the Sponsoring Organizations of the Treadway Commission). For it processes, the cobit (Control Objectives for Information and Related Technology) framework is used accordingly. The standards for the mandatory Group-wide internal control system (ics) were derived from these frameworks, defi ned centrally and implemented by the Group companies. The management of each company is responsible for the implementation and oversight of the local ics. All ics-relevant business processes, together with the related risks and controls, are documented in a uniform and audit-proof manner in a Group-wide system and clearly mapped in a central it system at the Group level.
The role of Corporate Auditing includes verifying the accuracy of the accounting at German and foreign companies, especially with regard to the following aspects:
Bayer AG has a standardized, Group-wide procedure to monitor the effi cacy of the accountingrelating internal control system. This procedure is systematically aligned to the potential risks of misreporting in the consolidated fi nancial statements and is based on the strict requirements of the u.s. capital market set forth in Section 404 of the Sarbanes-Oxley Act.
The appraisal of the effectiveness of the accounting-related ics is based on a cascaded selfassessment system that starts with the persons directly involved in the process, then involves the principal responsible managers and ends with the Group Management Board. Corporate Auditing performs an independent review of random samples of these self-assessments.
The Group Management Board has examined the effectiveness of the internal control system for accounting and fi nancial reporting on the basis of the coso framework and its criteria. The examination confi rmed the functionality of this internal control system for fi scal 2009. The effectiveness of the internal control system is monitored by the Audit Committee of the Bayer AG Supervisory Board in compliance with the German Accounting Law Modernization Act, which came into effect in May 2009. However, it should be noted that an internal control system, irrespective of its design, cannot provide absolute assurance that material misstatements in the accounting will be avoided or identifi ed.
As an international enterprise, Bayer is exposed to a wide variety of developments in the various national and international markets in which it operates in its three areas of business. Different potential risks and opportunities arise within the existing operational framework according to the business performance described in this report and the company's overall situation.
We aim to take maximum advantage of the opportunities that present themselves in our various fi elds of activity. We continuously evaluate potential additional opportunities in all areas as an integral part of our strategy, which is described in detail in Chapter 11.2 "Strategy," page 128ff.
Research and development present major opportunities, and we are working continuously to fi nd new products and improve existing ones. These activities are presented in detail in Chapter 8 "Research and Development," page 100ff.
Various risks described in the following – particularly fi nancial risks – are counterbalanced by the opportunities that could result from positive trends.
As a global company with a diverse business portfolio, the Bayer Group is exposed to numerous risks. We have purchased insurance coverage – where it is available on economically acceptable terms – in order to minimize related fi nancial impacts. The level of this coverage is continuously re-examined.
Signifi cant risks for the Bayer Group are outlined in the following sections. The order in which the risks are listed is not intended to imply any assessment as to the likelihood of their materialization or the extent of any resulting damages.
We are exposed to numerous legal risks from legal disputes or proceedings to which we are currently a party or which could arise in the future, particularly in the areas of product liability, competition and antitrust law, patent disputes, tax assessments and environmental matters. The outcome of any current or future proceedings cannot be predicted. It is therefore possible that legal or regulatory judgments could give rise to expenses that are not covered, or not fully covered, by insurers' compensation payments and could signifi cantly affect our revenues and earnings.
Legal proceedings currently considered to involve material risks are described in Note [32] to the consolidated fi nancial statements, page 241ff.
Pharmaceutical product prices are subject to regulatory controls in many markets. Some governments intervene directly in setting prices. In addition, in some markets major purchasers of pharmaceutical products have the economic power to exert substantial pressure on prices. Price controls, as well as price pressure from generic manufacturers as a result of government reimbursement systems favoring less expensive generic pharmaceuticals over brand-name products, diminish earnings from our pharmaceutical products and could potentially render the market introduction of a new product unprofi table. We expect the current extent of regulatory controls and market pressures on pricing to persist or increase.
Regulatory changes are continuously monitored, especially in our key markets. If necessary, we adjust our business plans according to the signifi cance of governmental intervention.
Sales of the Bayer Group are subject to seasonal fl uctuations. This applies particularly in the CropScience business, which is also affected by factors such as weather conditions. The performance of our MaterialScience subgroup is affected by cyclicality in customer industries. A downturn in the business cycle, characterized by weak demand and overcapacities, may lead to price pressure and more intense competition.
The early identifi cation of trends in the economic or regulatory environment and active portfolio management are important elements of our business management. Our analyses of the global economy and forecasts of medium-term economic development are documented in detail on a quarterly basis and used to support operational business planning. However, even our detailed analyses may not ensure that a massive economic downturn of the kind that occurred in the past two years can be predicted.
For a summary forecast, see Chapter 11.3 "Economic Outlook," page 133f.
Where it appears strategically advantageous, we may acquire a company or part of a company and combine it with our existing business. The amount of goodwill and other intangible assets refl ected in the Bayer Group's consolidated statement of fi nancial position has increased signifi cantly in recent years. Failure to successfully integrate a newly acquired business or unexpectedly high integration costs could jeopardize the achievement of quantitative or qualitative targets, such as synergies, and adversely impact earnings.
The integration processes associated with our acquisitions are steered by integration teams. Appropriate resources are provided to support the integration processes.
The Bayer Group's competitive position, sales and earnings depend signifi cantly on the development of commercially viable new products and production technologies. We therefore devote substantial resources to research and development. Because of the lengthy development processes, technological challenges, regulatory requirements and intense competition, we cannot assure that all of the products we will develop in the future or are currently developing will actually reach the market and achieve commercial success as scheduled or at all.
Furthermore, adverse effects of our products that may be discovered after regulatory approval or registration despite thorough prior testing may lead to a partial or complete withdrawal from the market, due either to regulatory actions or our voluntary decision to stop marketing a product. Also litigations and associated claims for damages due to negative effects of our products may materially diminish our net income.
To ensure an effective and effi cient use of resources in research and development, the Bayer Group has implemented an organizational structure and process organization comprising functional departments, working groups and reporting systems that monitor internal research and development projects.
Holistic portfolio management
Our life science businesses, in particular, are subject to strict regulatory regimes relating to the testing, manufacturing and marketing of many of our products. In some countries regulatory controls have become increasingly demanding. We expect this trend to continue, particularly in the United States and the European Union. Increasing regulatory requirements, such as those governing clinical or (eco-)toxicological studies, may increase product development costs and / or delay product registration or re-registration.
To counter risks arising from legal or other requirements, we make our decisions and engineer our business processes on the basis of comprehensive legal advice provided both by our own experts and by acknowledged external specialists. Projects have been initiated to coordinate the implementation of new regulatory controls and mitigate any negative implications for the business.
Increased competitive pressure following patent expiration
A large proportion of our products, mainly in our life sciences businesses, is protected by patents. We are currently involved in lawsuits to enforce patent rights in our products. Generic manufacturers and others attempt to contest patents prior to their expiration. Sometimes a generic version of a product may even be launched "at risk" prior to the issuance of a fi nal patent decision.
When a patent defense is unsuccessful, or if one of our patents expires, our prices are likely to come under pressure because of increased competition from generic products entering the market. Details of related litigation are provided as part of the description of legal risks in Note [32] to the consolidated fi nancial statements.
In some areas of activity we may also be required to defend ourselves against charges that products infringe patent or proprietary rights of third parties. This could impede or even halt the development or manufacturing of certain products or require us to pay monetary damages or royalties to third parties.
Our life science businesses, in particular, have a comprehensive product life cycle management in place. In addition, our legal department, in conjunction with the relevant functional departments, regularly reviews the patent situation. Potential infringements of our patents by other companies are carefully monitored so that legal action can be taken if necessary.
Production capacities at some of our manufacturing facilities could be adversely affected by, for instance, technical failures, natural disasters, regulatory rulings or disruptions to supplies of key raw materials or intermediates, as in the case of dependence on a single source for critical materials. This applies particularly to our biotech products because of the highly complex manufacturing processes. If in such cases we are unable to meet demand by shifting suffi cient production to other plants or drawing on our inventories, we may suffer declines in sales revenues.
Hedging against raw material price risks through long-term supply contracts
The supply of strategically important raw materials is ensured wherever possible through longterm contracts and / or by purchasing from multiple suppliers. Furthermore, all stages of our production processes and our material inputs are continuously monitored by the respective expert function within the company.
Moreover, the manufacturing of chemical products is subject to risks associated with the production, fi lling, storage and transportation of raw materials, products and wastes. These risks may result in personal injury, property damage, environmental contamination or business interruptions and liability for compensation payments.
Furthermore, the possibility of accidental cross-contamination among our crop protection products or the presence of unintended trace amounts of genetically modifi ed organisms in agricultural products and / or foodstuffs cannot be completely excluded.
We address product and environmental risks by way of suitable quality assurance measures. An integrated quality, health, environmental and safety management system ensures process stability. In addition, we are committed to the international Responsible Care initiative of the chemical industry, are driving forward our sustainable development and climate program and report regularly on our sustainability management, which also covers the areas of environmental protection and safety.
Business and production processes and the internal and external communications of the Bayer Group are increasingly dependent on information technology systems. Major disruptions or failure of global or regional business systems may result in loss of data and / or impairment of business and production processes.
The foundations for a continuous and sustainable it risk management system have been laid by establishing a comprehensive organization, enacting rules and regulations that defi ne the relevant roles and responsibilities, and implementing a periodic reporting system. Technical precautions such as data recovery and continuity plans have been established together with our internal it service provider to address this risk.
The Bayer Group has obligations to current and former employees related to pensions and other post-employment benefi ts. Changes in relevant valuation parameters such as interest rates, mortality and rates of increases in compensation may raise the present value of our pension obligations. This may lead to increased pension costs or diminish equity due to actuarial losses being recognized directly in equity. A large proportion of our pension and other post-employment benefi t obligations is covered by plan assets including fi xed-income securities, shares, real estate and other investments. Declining or even negative returns on these investments may adversely affect the future fair value of plan assets. This in turn may diminish equity, and/or it may necessitate additional contributions by the company. Further details are given in Note [25] to the consolidated fi nancial statements.
We address the risk of market-related fl uctuations in the fair value of our plan assets through prudent strategic investment, and we constantly monitor investment risks in regard to our global pension obligations.
As a global enterprise, Bayer is exposed in the normal course of business to credit risks, liquidity risks and various market price risks that could materially affect its net assets, fi nancial position and results of operations.
It is company policy to use derivatives to minimize or eliminate the market price risks associated with operating activities and the resulting fi nancing requirements. Derivatives are used almost exclusively to hedge realized or forecasted transactions. The use of derivatives is subject to strict internal controls based on centrally defi ned mechanisms and uniform guidelines. The derivatives used are mainly over-the-counter instruments, particularly forward exchange contracts, foreign currency options, interest rate swaps, cross-currency interest rate swaps, commodity swaps and commodity option contracts concluded with banks. We set counterparty limits for such banks depending on their creditworthiness.
The various risks associated with fi nancial instruments are outlined below together with the relevant risk management systems.
Credit risks arise from the possibility of the value of receivables or other fi nancial assets being impaired because counterparties cannot meet their payment or other performance obligations. Since the Bayer Group does not conclude master netting arrangements with its customers, the total fi nancial assets plus the risk of non-repayment of the loan capital drawn upon by Bayer-Pensionskasse for its effective initial fund represent the maximum credit risk exposure. Thanks to extensive receivables management, the Bayer Group so far has registered only a slight increase in the default risk for receivables despite the current situation on the fi nancial markets.
To effectively manage the credit risks from trade receivables, Bayer has put in place a standardized risk management system, which is the subject of a Group directive. Customers' creditworthiness is regularly analyzed; these receivables are partly secured. Credit limits are set for all customers. All credit limits for debtors where total exposure is €10 million or more are evaluated by our operational credit management and submitted to the Group's Central Financial Risk Committee.
To minimize credit risks, fi nancial transactions are only conducted with banks and other partners of fi rst-class credit standing in line with predefi ned exposure limits. All risk limits are based on methodical models and are continuously monitored.
Country risks relating to trade receivables and intra-Group loans are continuously monitored, systematically evaluated and centrally managed.
Liquidity risks – those arising from the possibility of not being able to meet current or future payment obligations because insuffi cient cash is available – are centrally managed in the Bayer Group. Suffi cient liquid assets are held to meet all of the Group's payment obligations when they fall due, thereby ensuring solvency at all times. Payment obligations result both from operating cash fl ows and from changes in current fi nancial liabilities. In addition, a reserve is maintained for unbudgeted shortfalls in cash receipts or unexpected disbursements. For this purpose, budget deviation analyses are performed on the basis of historical time series, adjusted for variations in business structure. The liquidity reserve is then determined which, with a defi ned probability, will cover a negative deviation from budgeted cash fl ows. The size of this reserve is regularly reviewed and adjusted as necessary to current conditions. Liquid assets are kept mainly in the form of overnight and term deposits. Credit facilities also exist with banks. These include, in particular, a €3.5 billion syndicated credit facility, which is undrawn.
We intend to service the bonds maturing in 2010 out of liquidity and free operating cash fl ow.
Market risks relate to the possibility that the fair value or future cash fl ows of fi nancial instruments may fl uctuate due to variations in market prices. Market risks include currency, interest rate and other price risks, especially commodity price risks.
Sensitivity analysis is a widely used risk measurement tool that allows our management to make judgments regarding the potential loss in future earnings, fair values or cash fl ows of market-risksensitive instruments resulting from one or more selected hypothetical changes in interest rates, foreign currency exchange rates, commodity prices or other relevant market rates or prices over a selected period of time. We use sensitivity analysis because it provides reasonable risk estimates using straightforward assumptions (for example, an increase in interest rates). The risk estimates we provide below assume:
We use market information and additional analytics to manage our risk exposure and mitigate the limitations of our sensitivity analysis. We have found sensitivity analysis to be a useful tool in achieving some of our specifi c risk management objectives. Sensitivity analysis offers an easy-tounderstand risk exposure estimate that allows an approximation of the effect that changing market conditions could have on our business. It also allows our management to take the necessary steps to address such risks.
We continually refi ne our risk measurement and reporting procedures. This includes periodically re-examining the underlying assumptions and parameters utilized.
The sensitivity analyses included in the following sections of this Risk Report present the hypothetical loss in cash fl ows of fi nancial instruments and derivatives that we held as of December 31, 2009 and December 31, 2008. The range of sensitivities that we chose for these analyses refl ects our view of the changes in foreign exchange rates, commodity prices and interest rates that are reasonably possible over a one-year period.
Since the Bayer Group conducts a signifi cant portion of its operations outside the euro currency zone, fl uctuations in currency exchange rates can materially affect earnings. Currency risks from fi nancial instruments exist with respect to receivables, payables, cash and cash equivalents that are not denominated in a company's functional currency. In the Bayer Group these risks are particularly signifi cant for the u.s. dollar, the Japanese yen, the Canadian dollar and the Chinese renminbi.
Currency risks are identifi ed, analyzed and managed centrally and systematically. The scope of hedging is evaluated regularly and defi ned in a corporate directive. Recorded foreign currency operating items, receivables and payables are normally fully hedged.
The anticipated foreign currency exposure from forecasted transactions in the next twelve months is hedged on a basis agreed between the Group Management Board, the central fi nance department and the operating units. A signifi cant proportion of contractual and foreseeable currency risks is hedged, mainly through forward exchange contracts and currency options.
The Group Management Board has provided clear guidance on how to limit and monitor cash fl ow risks that result from this approach.
We applied a hypothetical adverse scenario in which the euro simultaneously depreciates by 10% against all other currencies compared with the year-end exchange rates. Under this scenario the estimated hypothetical loss of cash fl ows from derivatives and non-derivatives as of December 31, 2009 would be €188 million (2008: €293 million). Of this €188 million, €88 million is related to the u.s. dollar, €21 million to the Japanese yen, €25 million to the Canadian dollar and €54 million to other currencies. Of the €188 million estimated hypothetical loss of cash fl ow, €190 million results from derivatives used to hedge anticipated exposure from planned sales denominated in foreign currencies. Such transactions qualify for hedge accounting, and the respective changes in value are recognized in equity under other comprehensive income. The offsetting position of €2 million is primarily attributable to unhedged currency derivatives embedded in supply contracts. The impact of exchange-rate fl uctuations on our anticipated sales in foreign currencies is not included in this calculation.
The Bayer Group's interest rate risks arise primarily from fi nancial assets and liabilities with maturities exceeding one year. In the case of fi xed-rate fi nancial instruments, such as fi xed-rate bonds, the risk of fl uctuations in capital market interest rates results in a fair value risk because the fair values fl uctuate as a function of interest rates. In the case of fl oating-rate instruments, a cash fl ow risk exists because interest payments could increase in the future.
Interest rate risks in the Bayer Group are analyzed centrally and managed by the central fi nance department. This is done in line with the duration set by the Board of Management, which implicitly also includes the ratio of fi xed-rate to fl oating-rate debt. The duration is subject to regular review. Derivatives – mainly interest rate swaps, cross-currency interest rate swaps and interest options – are employed to preserve the target structure of the portfolio.
Financial debt including derivatives amounted to €12,858 million as of December 31, 2009 (December 31, 2008: €16,647 million). The sensitivity analysis was performed on the basis of our fl oating-rate debt position at year end 2009, taking into account the interest rates relevant to our liabilities in all principal currencies. A hypothetical increase of 100 basis points, or 1 percentage point per annum, in these interest rates (assuming constant currency exchange rates) as of January 1, 2009 would have raised our interest expense for the year ended December 31, 2009 by €58 million (2008 based on liabilities at year end 2008: €75 million).
The Bayer Group requires signifi cant quantities of petrochemical feedstocks and energy for its various production processes. The prices of these inputs may fl uctuate considerably depending on market conditions. As in the past, there may be times when it is not possible for us to pass on increased raw material costs to customers through price adjustments. This applies particularly to our MaterialScience business.
We have addressed this risk by concluding long-term contracts with multiple suppliers. In addition, derivatives (primarily commodity swaps and commodity options) are employed to a limited extent to hedge against commodity price risks by smoothing variations in income statement items caused by changes in utility (particularly gas) prices over the long term. The procurement departments of the subgroups are responsible for managing these price risks on the basis of internal directives and centrally determined limits, which are subject to constant review.
We applied a hypothetical adverse scenario in which all commodity and energy prices simultaneously decrease by 20%. Under this scenario the estimated hypothetical loss of cash fl ows from derivatives as of December 31, 2009 would be €31 million (2008: €30 million). Of this €31 million, €4 million would be directly disclosed in the income statement and €27 million would be recognized as a value adjustment in equity under other comprehensive income according to hedge accounting rules. In considering sensitivities for commodity futures and commodity option contracts, we have made a small allowance for the fact that forward rates are less volatile than spot rates. The stated long-term contract volumes are therefore based on somewhat smaller price changes. The derivatives used by the Bayer Group to mitigate the risk of changes in exchange rates, interest rates and commodity prices are described in Note [30.3] to the consolidated fi nancial statements.
Compared with the previous year, the overall risk situation did not change signifi cantly in the reporting period. The overall risk assessment is based on a consolidated view of all signifi cant individual risks. At present, no potential risks have been identifi ed that either individually or in combination could endanger the continued existence of the Bayer Group.
No risks that could endanger the company's existence
The Bayer Group focuses on the rapidly growing, innovation-driven health care, nutrition and high-tech materials businesses in line with its mission statement: "Bayer: Science For A Better Life." Our strategic alignment toward these attractive markets and our concentration on core competencies enable us to invest in growth areas and innovative technologies. We aim to achieve leadership roles and expand our already strong market positions. We will also continue our efforts to contain costs and improve effi ciencies in order to further increase the company's value. We are pursuing a long-term growth strategy, mindful of the need to manage the business sustainably.
HealthCare continues to target above-market growth in all of its businesses. We aim to further strengthen this subgroup and grow it into a world-leading diversifi ed health care company. For example, we plan to continue strengthening our Consumer Health segment for the long term, sharpen our focus in the Pharmaceuticals segment on specialty pharmaceuticals, further increase the overall productivity of research and development and place even greater importance on the emerging markets.
Within our strongest HealthCare segment in terms of sales – Pharmaceuticals – the activities of the General Medicine business unit focus on drug products that are usually prescribed by general practitioners. The Specialty Medicine, Women´s Healthcare and Diagnostic Imaging business units concentrate on products that are mostly prescribed by medical specialists.
We will maintain our focus on diseases where there is a high unmet medical need and major potential exists for improving diagnosis and therapy. Research and development is thus an important growth engine for our pharmaceuticals business, and this segment consequently accounts for the largest share of the HealthCare subgroup's r&d budget. Here we also aim to strengthen our portfolio and supplement our own research and development activities with in-licensing, alliances and collaborations. Examples in 2009 included the agreements relating to the mek inhibitor rdea-119 of Ardea Biosciences, Inc., United States, and the radiopharmaceutical Alpharadin™ of Algeta asa, Norway, both of which are being developed to treat tumor diseases.
The Pharmaceuticals segment already occupies a leading position in many emerging markets, particularly China and Russia. A key element of our pharmaceuticals strategy is the selective expansion of business in the emerging markets, the in-licensing of an insulin product from Bioton s.a., Poland, for the Chinese market being a signifi cant example.
Our Consumer Health segment includes non-prescription medicines, dermatology products, blood glucose meters, medical devices and the animal health business.
Course of expansion in fast-growing regions
The goal of our Consumer Care Division is to build on our position in the global over-the-counter (otc) medicines market. The division's strategy is aimed at fully leveraging the growth potential of proven brands such as Aspirin®, Aleve®, Canesten®, Bepanthen®, One-A-Day®, Supradyn®, Rennie® and Alka-Seltzer®. We are pursuing a clear course of expansion in fast-growing regions such as central and eastern Europe and Asia / Pacifi c and aim to further develop our business in new growth segments. We will continue to take advantage of external growth opportunities in the form of strategically relevant acquisitions or in-licensing. One such growth opportunity is provided by the exclusive licensing agreement with AstraZeneca plc for the marketing of omeprazole (10 and 20 mg) as an otc medication under the trademark Antra® that came into effect in Germany in August 2009. In the fall of 2009, we strengthened our prescription dermatologicals business with the acquisition of the u.s. product lines Desonate® and NeoBenz® Micro from SkinMedica, Inc., Carlsbad, California, United States.
The goal of the Medical Care Division is to build on its competitive positions in the fi elds of blood glucose monitoring, diabetes management and injection systems for contrast agents, along with vascular intervention systems, such as thrombectomy systems for treating constricted or blocked blood vessels. We also plan to add to our portfolio by investing in more business areas and geographic regions and entering into strategic partnerships. We intend to continuously improve our products, reduce costs and deploy resources more effi ciently. We want to expand our product range by developing new blood glucose measurement systems and innovative solutions that help people with diabetes to better manage the disease. In our medical equipment business, we are continuing to develop our core business in radiology as well as new it-based services to optimize both contrast media dosage and the clinical workfl ows involved in processing diagnostic data and images.
In the Animal Health Division, we aim to build on our strong position in the companion animals market, serving as a preferred supplier and partner. Our strategy is directed toward achieving organic growth by focusing on countries and markets with long-term sales potential and successfully managing the life cycles of existing core brands. In addition, we are pursuing external growth opportunities through acquisitions and in-licensing. We plan to focus more on developing new products ourselves in order to safeguard our long-term success. For this reason, the Animal Health Division has restructured its innovation process to more closely align its research and development activities to the market in the future and ensure earlier and more effi cient prioritization of our development projects.
CropScience, one of the leading innovation-driven companies in its industry, aligns its corporate planning to long-term trends in agricultural markets. It aims to offer products and integrated solutions to meet the growing demand for affordable, high-quality food, feed, fi ber and energy crops. Against the background of limited arable land, advancing climate change and a steadily increasing global population, it is essential to safeguard and further increase crop yields. We manage our business responsibly in keeping with our commitment to sustainable development and our goal of achieving long-term growth and attractive returns.
To offer our customers comprehensive, single-source solutions, we evolve coordinated and sustainable concepts – from seed to harvest – for specifi c crops in different regions. Our integrated approach comprises seed, optimized plant traits and crop protection products as well as related services and partnerships along the food value chain.
Innovation forms the basis for value creation at CropScience. The development of new active ingredients and formulations and high-quality seed enables us to replace older products and technologies with products offering superior performance properties, environmental compatibility and user safety along with greater customer value. Our new products are crucial to increasing sales and achieving attractive margins, to which our strict cost management also contributes.
In Crop Protection, the larger of its business segments, CropScience aims to safeguard and further expand the market-leading positions in the Herbicides, Fungicides, Insecticides and Seed Treatment businesses by maintaining a broad regional presence and offering innovative, highly effective products. To achieve this strategic goal, we are steadily enhancing our product mix by launching new active ingredients and products from our research and development pipeline as well as successfully managing product life cycles. In addition, we engage in complementary research activities in breeding, plant traits and new growth areas. For example, we are currently working on new integrated methods and solutions in the areas of plant health and quality, stress tolerance, nutrient uptake, diagnostics and biological pest control.
The Environmental Science business unit makes use of the development and production capacities of Crop Protection and its innovative active ingredients. Our strategy is to expand our leading market position by developing and marketing innovative and sustainable products tailored to the specifi c needs of consumers and professional users. Such products are designed to be easy to use and safe to handle while satisfying society's increasing requirements in the growing and greening, and health and hygiene areas.
Innovation forms the basis for value creation Our BioScience business unit comprises the research, development and commercialization of seeds and solutions based on modern breeding methods and plant biotechnology. We will continue to expand our activities in seeds and plant traits with the aim of raising BioScience sales to about €1.4 billion by 2018. Our seed business has traditionally focused on four core-crop growth areas: canola, rice, cotton and vegetables. We aim to build on the strong market positions we have achieved in these crops by introducing new varieties and expanding into new regional markets. In 2009 we embarked on research into improved cereal varieties and defi ned soybeans as an additional research focus. As in other crops, our goals here include increasing yields and making plants more resistant to adverse weather conditions. Furthermore, we not only market our technologies in our own seed products, but also increasingly offer them for other crops through out-licensing.
CropScience markets its products in more than 120 countries worldwide. In the coming years we intend to further expand our business particularly in fast-growing markets such as eastern Europe, Russia, India, China and Brazil. In these countries there is major potential for the agriculture industry to cover the increasing demand for high-quality food and feed by deploying innovative, leading-edge technologies. In this environment we aim to steadily expand our business and help farmers raise productivity by providing them with comprehensive solutions from seed to harvest.
The strategy of MaterialScience is based on safeguarding its existing competitive position in its traditional markets, supplementing the portfolio with innovative new businesses and achieving profi table growth in the emerging markets. The fi nancial and economic crisis has presented a major challenge to our customer industries, particularly in North America and Europe, to which we have responded appropriately. However, we believe that the long-term market trends remain unaffected by the crisis and continue to be relevant to our business strategy.
Our aim is to maintain our position in the isocyanates market and continue improving profi tability. To achieve this, we endeavor to steadily boost the effi ciency of our production and administration processes. We continuously evaluate potential investments in additional production capacities against the background of a constantly changing market situation. We are also working to strengthen our downstream business activities such as BaySystems® in the Polyurethanes business unit and compounding in the Polycarbonates business unit in order to increase the share of sales contributed by our differentiated business. At the same time, we are grasping new business opportunities based on the competencies of MaterialScience. This means driving forward our newly formed Functional Films, Carbon Nanotubes and Medical Coatings & Adhesives businesses, in which we are positioning ourselves as a focused technology leader.
Our goal in the Polyurethanes business unit is to expand our global market leadership in isocyanates, at the same time ensuring cost leadership in all areas. In 2010 we will complete the construction of our 250,000 tons-per-year tdi plant in Shanghai, China, which is due on stream in the second half of 2011. This facility is designed to support our long-term growth in Asia. We also intend to consolidate the production of isocyanates in Europe, stepping up our output in line with market trends. Our polyether polyols will primarily support growth in the isocyanates business in order to bolster our portfolio of customer solutions. In the BaySystems® business we aim to generate profi table growth and further expand our global market share. We will therefore proceed with our successful systems house strategy.
The polycarbonate industry currently faces signifi cant overcapacities on the world market. We are addressing this trend with a two-pronged strategy. On the one hand, we aim to achieve cost leadership by operating world-scale facilities in all regions. At the same time, as a leading development and technology partner, we are offering our customers differentiated solutions in all polycarbonate applications.
In the fi eld of semi-fi nished products, substantial market potential lies in the use of polycarbonate diffuser sheets in liquid-crystal displays for large-format fl at-screen televisions. We also plan to sustainably improve the performance of the Polycarbonates business unit by increasing distribution effi ciency in standard segments, sharpening the focus of our research and continuing to improve cost structures.
The Coatings, Adhesives, Specialties business unit seeks to defend and selectively expand its market position in the strategic business entity "Basic and Modifi ed Isocyanates." With this goal in mind, we plan to meet rising demand in the growth regions by increasing production capacities and expanding our technical centers. We aim to further improve profi tability in the strategic business entity "Resins" by narrowing the focus of our portfolio toward modern waterborne and uv-curing coating and adhesive systems. The cost structures for our conventional systems are being improved, mainly by consolidating production capacities.
We have combined our activities in innovative surfaces and substrate materials into a new strategic business entity "Functional Films and Specialties." This includes applications in cosmetics, medical technology, carbon nanotubes for improving the properties of plastics and metals, and the area of functional fi lms. The focuses of this business, which is still at an early stage of development, include formable coated fi lms for electronic and automotive applications and forgeryproof Makrofol® fi lms for identifi cation and bank cards.
The fi nancial management of the Bayer Group is conducted by the strategic management holding company Bayer AG. Capital is a global resource, generally procured centrally and distributed within the Group. The foremost objectives of our fi nancial management are to help bring about a sustained increase in corporate value and to ensure the Group's liquidity and creditworthiness. This involves optimizing the capital structure and effectively managing risks. The management of currency, interest rate, raw material price and default risks helps to reduce the volatility of our earnings.
The contracted rating agencies assess Bayer as follows:
| Rating | [Table 3.38] | ||
|---|---|---|---|
| Long-term rating | Outlook | Short-term rating | |
| Standard & Poor's | A- | negative | A-2 |
| Moody's | A3 | stable | P-2 |
These credit ratings refl ect the company's high solvency and ensure access to a broad investor base for fi nancing purposes. It remains our goal to achieve and maintain fi nancial ratios that support an "A" rating in order to maintain our fi nancial fl exibility. Accordingly, we plan to use part of our operating cash fl ows to reduce net fi nancial debt.
We pursue a prudent debt management strategy to ensure fl exibility, drawing on a balanced fi nancing portfolio. Chief among these resources are a multi-currency Euro Medium Term Notes program, syndicated credit facilities, bilateral loan agreements and a global commercial paper program.
We use fi nancial derivatives to hedge against risks arising from business operations or fi nancial transactions, but do not employ contracts in the absence of an underlying transaction. It is our policy to diminish default risks by selecting trading partners with a high credit standing. We closely monitor the execution of all transactions, which are conducted in accordance with Group directives.
Further details of our risk management objectives and the ways in which we account for all the major types of hedged transactions – along with price, credit and liquidity risks as they relate to the use of fi nancial instruments – are given in Chapter 11.1 "Opportunity and Risk Report," page 118ff.
The worldwide economic recovery is expected to continue in 2010. However, the impact of the global business downturn in 2009 will continue to be felt for some time to come, making it unlikely that the global economy will return to its pre-crisis condition in 2010.
The economic perspectives for 2010 are marked by considerable uncertainty. The risks jeopardizing the prospects for a sustained upswing remain in place for the time being, with investor and consumer reticence likely to continue initially in 2010 in view of global overcapacities and continuing problems on the international fi nancial markets. In addition, the effects of fi scal stimulus measures will come to an end in most industry sectors. As a result, economic growth in both Europe and the United States will probably be only modest at fi rst. By contrast, a stronger recovery is likely in the emerging markets, particularly those of Asia and Latin America. For 2010 as a whole we expect to see a moderate expansion of the world economy.
We expect growth in the pharmaceutical market in 2010 to be in the mid-single digits. This expansion is likely to be driven increasingly by countries such as China, Brazil, Mexico, South Korea, India and Russia. However, we foresee low-single-digit growth rates in the traditional markets such as the United States and the major European countries due to patent expirations for major products of various pharmaceutical companies, a decline in new product launches and increasing cost pressure being exerted by health organizations. The overall economic environment is unlikely to provide signifi cant growth stimuli for the pharmaceutical market.
We expect the global consumer health market to continue growing moderately in 2010, bolstered by a slight improvement in economic conditions in western Europe and North America compared with 2009.
We believe the seed and crop protection market as a whole will recover in 2010. Although prices for agricultural crop commodities and energy are still expected to fl uctuate and uncertainty in the fi nancial markets will persist, agricultural activity is likely to intensify. This is mainly because of long-term factors shaping world agriculture markets, such as steadily rising demand for food and feed products and a shortage of arable land.
Assuming normal weather conditions, we expect currency-adjusted world market growth of approximately 3% for agrochemicals and over 5% for high-quality seeds and plant traits in 2010. We believe this growth will result from both rising prices and positive volume effects. Compared to the very strong fi rst quarter of 2009, we anticipate market shrinkage initially, followed by a recovery over the course of the year. In regional terms, we expect the largest growth stimulus to come from Latin America, where soybean cultivation in particular should increase considerably compared with 2009. Crop production is also expected to increase in the Asia / Pacifi c region. This applies particularly to rice and cereals, and also to specialty crops such as fruit and vegetables. As far as the industrialized countries are concerned, however, we predict stagnation in western European crop protection markets in 2010, with slight declines possible in North America.
Growth expectations for 2010 in the main customer industries of MaterialScience are moderately optimistic. The extent of the economic recovery will depend mainly on a sustained increase in demand in North America and Europe and continued growth in Asia.
The automotive industry will probably experience strong regional variations in 2010. Western Europe could be hardest hit by the slump in volumes, as unit sales in 2009 were propped up in all major vehicle-producing countries by massive stimulus programs and demand for automobiles may therefore be partially saturated. In North America, a recovery is expected in 2010 following an extremely weak year. However, we do not expect production to return to pre-crisis levels in the foreseeable future. Asia – led by China – will probably remain the growth engine for the automotive industry. There the government stimulus programs are continuing and are targeted very much toward boosting Chinese output.
The electrical and electronics industry should emerge quickly from the crisis thanks to the variety of segments it includes. Factors making robust growth likely in the coming years include the continuing high demand for modern infrastructure, particularly in the emerging markets, the highly competitive innovation climate in the industry, the challenges presented by climate change and the expansion of regenerative energies.
We expect a slight recovery in the global construction industry in 2010, partly because of the massive government stimulus programs. Continuing robust development in China and India and an improvement in eastern Europe should support a return to positive growth rates. By contrast, we predict a hesitant recovery in building investment in western Europe, North America and Japan.
We believe that the furniture industry will stabilize increasingly during 2010 following a phase of market shrinkage in 2009. However, many of the countries heavily impacted by the economic crisis will probably see only low rates of growth. The industry is likely to benefi t from a sustained market rebound in subsequent years. The emerging economies of Asia, eastern Europe and Latin America should harbor development potential.
The following forecasts are based on the business performance described in this report, taking into account the potential risks and opportunities.
The Bayer Group is confi dent for 2010. We are targeting currency- and portfolio-adjusted sales growth of more than 5% and aim to increase ebitda before special items toward €7 billion. Core earnings per share (calculated as explained in Chapter 4.3, page 75) are expected to improve by about 10%. Our estimates are based on an exchange rate of us\$1.40 (2009 average: us\$1.39) to the euro.
We do not expect to incur special charges for restructuring programs in 2010.
Our capital expenditure budget is €1.4 billion. Depreciation and amortization are expected to total about €2.6 billion, including €1.3 billion in amortization of intangible assets. We plan to spend some €2.9 billion on research and development.
Having largely achieved our current target margins, our main focus for the future is on creating value through profi table growth. To do this we plan to continue investing primarily in our research and development pipeline, in BioScience and in the emerging markets. We expect to achieve steady currency- and portfolio-adjusted sales growth of approximately 5% annually through 2012 and plan to raise ebitda before special items to around €8 billion within this period. We are targeting an average 10% annual improvement in core earnings per share, which would mean an increase to around €5 per share.
HealthCare plans to grow at least with the market in 2010. This corresponds to a currency- and portfolio-adjusted expansion of about 5%. We also intend to increase ebitda before special items.
We aim to continue growing at least with the market through 2012 and to steadily improve ebitda before special items.
For CropScience we anticipate slightly above-market growth in 2010, equivalent to a currencyand portfolio-adjusted increase of approximately 4%. We are targeting a small increase in ebitda before special items. However, the business environment is currently more diffi cult than expected.
We aim to grow at least with the market through 2012 and to further improve ebitda before special items.
We anticipate a continuing recovery in the markets relevant to our MaterialScience business. In light of this we aim to increase sales by more than 10% on a currency- and portfolio-adjusted basis in 2010. We are targeting a substantial increase in ebitda before special items.
We expect to report somewhat higher sales in the fi rst quarter of 2010 than in the fourth quarter of 2009. In light of further increases in raw material costs, we expect fi rst-quarter ebitda before special items to be roughly level with the preceding quarter.
Provided the economic recovery continues, we expect MaterialScience to return to its pre-crisis sales level of more than €10 billion by 2012. We plan to considerably increase ebitda before special items.
As the holding company for the Bayer Group, Bayer AG derives most of its income from its subsidiaries. Under profi t and loss transfer agreements with the major operating subsidiaries in Germany, their earnings are transferred directly to Bayer AG. The positive expectations for the Group's business development outlined above are also likely to be refl ected in the earnings of Bayer AG. In addition, the net interest position should continue to improve in light of the reduction in fi nancial debt. We therefore expect to maintain a level of after-tax income that allows the payment of an appropriate dividend.
| Bayer Group Consolidated Income Statements 138 |
|
|---|---|
| Bayer Group Consolidated Statements of Comprehensive Income 139 |
|
| Bayer Group Consolidated Statements of Financial Position 140 |
|
| Bayer Group Consolidated Statements of Cash Flows 141 |
|
| Bayer Group Consolidated Statements of Changes in Equity 142 |
| 1. | Key data by segment and region 144 | |
|---|---|---|
| 2. | General information 146 | |
| 3. | Effects of new accounting pronouncements 147 | |
| 4. | Basic principles, methods and critical accounting policies 151 |
|
| 5. | Segment reporting 165 | |
| 6. | Scope of consolidation; subsidiaries and affiliates . 169 | |
| 6.1 | Changes in the scope of consolidation 170 | |
| 6.2 | Business combinations and other acquisitions182 | |
| 6.3 | Divestitures and discontinued operations185 |
| 7. | Net sales 186 | |
|---|---|---|
| 8. | Selling expenses 187 | |
| 9. | Research and development expenses. 187 | |
| 10. | Other operating income. 187 | |
| 11. | Other operating expenses 187 | |
| 12. | Personnel expenses /employees 188 | |
| 13. | Non-operating result 189 13.1 Income (loss) from investments |
|
| in affiliated companies.189 | ||
| 13.2 Net interest expense189 | ||
| 13.3 Other non-operating income and expense 190 | ||
| 14. | Income taxes 190 | |
| 15. | Income/losses attributable to | |
| non-controlling interest 193 | ||
| 16. | Earnings per share from continuing and discontinued operations 193 |
|
| 17. | Goodwill and other intangible assets 195 | |
|---|---|---|
| 18. | Property, plant and equipment 202 | |
| 19. | Investments in associates 205 | |
| 20. | Other financial assets 206 | |
| 21. | Inventories 207 | |
| 22. | Trade accounts receivable 208 | |
| 23. | Other receivables 209 | |
| 24. | Equity 210 | |
| 25. | Provisions for pensions and | |
| other post-employment benefits 213 | ||
| 26. | Other provisions 222 | |
| 26.1 Taxes 222 | ||
| 26.2 Environmental protection 223 | ||
| 26.3 Restructuring 223 | ||
| 26.4 Trade-related commitments 224 | ||
| 26.5 Litigations 224 | ||
| 26.6 Personnel commitments 224 | ||
| 26.7 Miscellaneous 227 | ||
| 27. | Financial liabilities 227 | |
| 28. | Trade accounts payable 230 | |
| 29. | Other liabilities 231 | |
| 30. | Financial instruments 231 | |
| 30.1 Information on financial instruments | ||
| by category 231 | ||
| 30.2 Maturity analysis 235 | ||
| 30.3 Information on derivatives 238 | ||
| 31. | Contingencies and other financial commitments 240 | |
| 32. | Legal risks 241 | |
| 33. | Net cash provided by (used in) operating activities 248 |
|
|---|---|---|
| 34. | Net cash provided by (used in) investing activities 249 |
|
| 35. | Net cash provided by (used in) financing activities 249 |
|
| 36. | Cash and cash equivalents 249 | |
| Other Information | ||
| 37. | Audit fees 250 | |
| 38. | Related parties 250 | |
| 39. | Total compensation of the Board of Management | |
| and the Supervisory Board and loans 251 | ||
| Management's Statement of Responsibility | ||
| for Financial Reporting 252 | ||
| Responsibility Statement 253 | ||
| Auditor's Report 254 |
| [Table 4.1] | |||
|---|---|---|---|
| Note | 2008 | 2009 | |
| € million | € million | ||
| Net sales | [7] | 32,918 | 31,168 |
| Cost of goods sold | (16,456) | (15,135) | |
| Gross profi t | 16,462 | 16,033 | |
| Selling expenses | [8] | (8,105) | (7,923) |
| Research and development expenses | [9] | (2,653) | (2,746) |
| General administration expenses | (1,649) | (1,623) | |
| Other operating income | [10] | 907 | 922 |
| Other operating expenses | [11] | (1,418) | (1,657) |
| Operating result [EBIT] | 3,544 | 3,006 | |
| Equity-method loss | [13.1] | (62) | (48) |
| Non-operating income | 589 | 789 | |
| Non-operating expenses | (1,715) | (1,877) | |
| Non-operating result | [13] | (1,188) | (1,136) |
| Income before income taxes | 2,356 | 1,870 | |
| Income taxes | [14] | (636) | (511) |
| Income from continuing operations after taxes | 1,720 | 1,359 | |
| Income from discontinued operations after taxes | [6.3] | 4 | - |
| Income after taxes | 1,724 | 1,359 | |
| of which attributable to non-controlling interest | [15] | 5 | - |
| of which attributable to Bayer AG stockholders (net income) | 1,719 | 1,359 | |
| Earnings per share (€) | |||
| From continuing operations | [16] | ||
| Basic* | 2.22 | 1.70 | |
| Diluted* | 2.22 | 1.70 | |
| From discontinued operations | [16] | ||
| Basic* | - | - | |
| Diluted* | - | - | |
| From continuing and discontinued operations | [16] | ||
| Basic* | 2.22 | 1.70 | |
| Diluted* | 2.22 | 1.70 |
* The ordinary shares that resulted from conversion of the mandatory convertible bond were treated as already issued shares following the issuance of the bond.
| [Table 4.2] | |||
|---|---|---|---|
| Note | 2008 | 2009 | |
| € million | € million | ||
| Income after taxes | 1,724 | 1,359 | |
| of which attributable to non-controlling interest | [15] | 5 | - |
| of which attributable to Bayer AG stockholders | 1,719 | 1,359 | |
| Changes in fair values of derivatives designated as cash fl ow hedges | [30.3] | (110) | 89 |
| Recognized in profi t or loss | (47) | 10 | |
| Income taxes | [14] | 55 | (38) |
| Changes recognized outside profi t or loss (cash fl ow hedges) | (102) | 61 | |
| Changes in fair values of available-for-sale fi nancial assets | [20] | (32) | 11 |
| Recognized in profi t or loss | 1 | - | |
| Income taxes | [14] | 9 | (2) |
| Changes recognized outside profi t or loss (available-for-sale fi nancial assets) |
(22) | 9 | |
| Change in actuarial gains/losses on defi ned benefi t obligations for pensions and other post-employment benefi ts and effects of the |
|||
| limitation on pension plan assets | [25] | (1,067) | (437) |
| Income taxes | [14] | 455 | 117 |
| Change recognized outside profi t or loss (actuarial gains/losses on defi ned benefi t obligations for pensions and other post-employ ment benefi ts and effects of the limitation on pension plan assets) |
(612) | (320) | |
| Exchange differences on translation of operations outside the euro zone |
(413) | 284 | |
| Recognized in profi t or loss | - | - | |
| Changes recognized outside profi t or loss (exchange differences) | (413) | 284 | |
| Changes in revaluation surplus (IFRS 3) | [24] | 8 | - |
| Effects of changes in liabilities from non-controlling interest | |||
| in partnerships on other comprehensive income | [29] | (15) | 15 |
| Effects of changes in scope of consolidation | 1 | (1) | |
| Total changes recognized outside profi t or loss | (1,155) | 48 | |
| of which attributable to non-controlling interest | 3 | 2 | |
| of which attributable to Bayer AG stockholders | (1,158) | 46 | |
| Total comprehensive income | 569 | 1,407 | |
| of which attributable to non-controlling interest | 8 | 2 | |
| of which attributable to Bayer AG stockholders | 561 | 1,405 |
| [Table 4.3] | |||||
|---|---|---|---|---|---|
| Note | Dec. 31, 2008 |
Dec. 31, 2009 |
|||
| € million | € million | ||||
| Noncurrent assets | |||||
| Goodwill | [17] | 8,647 | 8,704 | ||
| Other intangible assets | [17] | 13,951 | 12,842 | ||
| Property, plant and equipment | [18] | 9,492 | 9,409 | ||
| Investments in associates | [19] | 450 | 395 | ||
| Other fi nancial assets | [20] | 1,197 | 1,200 | ||
| Other receivables | [23] | 458 | 549 | ||
| Deferred taxes | [14] | 1,156 | 950 | ||
| 35,351 | 34,049 | ||||
| Current assets | |||||
| Inventories | [21] | 6,681 | 6,091 | ||
| Trade accounts receivable | [22] | 5,953 | 6,106 | ||
| Other fi nancial assets | [20] | 634 | 367 | ||
| Other receivables | [23] | 1,284 | 1,357 | ||
| Claims for income tax refunds | 506 | 347 | |||
| Cash and cash equivalents | [36] | 2,094 | 2,725 | ||
| Assets held for sale and discontinued operations | [6.3] | 8 | - | ||
| 17,160 | 16,993 | ||||
| Total assets | 52,511 | 51,042 | |||
| Equity | [24] | ||||
| Capital stock of Bayer AG | 1,957 | 2,117 | |||
| Capital reserves of Bayer AG | 4,028 | 6,167 | |||
| Other reserves | 10,278 | 10,613 | |||
| 16,263 | 18,897 | ||||
| Equity attributable to non-controlling interest | 77 | 54 | |||
| 16,340 | 18,951 | ||||
| Noncurrent liabilities | |||||
| Provisions for pensions and other post-employment benefi ts | [25] | 6,347 | 6,517 | ||
| Other provisions | [26] | 1,351 | 1,516 | ||
| Financial liabilities | [27] | 10,614 | 11,460 | ||
| Other liabilities | [29] | 432 | 415 | ||
| Deferred taxes | [14] | 3,592 | 3,210 | ||
| 22,336 | 23,118 | ||||
| Current liabilities | |||||
| Other provisions | [26] | 3,163 | 3,089 | ||
| Financial liabilities | [27] | 6,256 | 1,489 | ||
| Trade accounts payable | [28] | 2,464 | 2,735 | ||
| Income tax liabilities | [26.1] | 65 | 93 | ||
| Other liabilities | [29] | 1,874 | 1,567 | ||
| Liabilities directly related to assets held for sale | |||||
| and discontinued operations | [6.3] | 13 | - | ||
| 13,835 | 8,973 | ||||
| Total equity and liabilities | 52,511 | 51,042 | |||
2008 fi gures restated
| [Table 4.4] | |||
|---|---|---|---|
| Note | 2008 | 2009 | |
| € million | € million | ||
| Income from continuing operations after taxes | 1,720 | 1,359 | |
| Income taxes | 636 | 511 | |
| Non-operating result | 1,188 | 1,136 | |
| Income taxes paid or accrued | (812) | (636) | |
| Depreciation and amortization | 2,722 | 2,809 | |
| Change in pension provisions | (292) | (366) | |
| (Gains) losses on retirements of noncurrent assets | (75) | (155) | |
| Non-cash effects of the remeasurement of acquired assets | |||
| (inventory work-down) | 208 | - | |
| Gross cash fl ow | 5,295 | 4,658 | |
| Decrease (increase) in inventories | (692) | 604 | |
| Decrease (increase) in trade accounts receivable | (134) | (28) | |
| (Decrease) increase in trade accounts payable | 16 | 235 | |
| Changes in other working capital, other non-cash items | (877) | (94) | |
| Net cash provided by (used in) operating activities (net cash fl ow) | [33] | 3,608 | 5,375 |
| Cash outfl ows for additions to property, plant, equipment | |||
| and intangible assets | (1,759) | (1,575) | |
| Cash infl ows from sales of property, plant, equipment and other assets | 167 | 98 | |
| Cash infl ows from (outfl ows for) divestitures | (41) | 70 | |
| Cash infl ows from (outfl ows for) noncurrent fi nancial assets | (390) | 169 | |
| Cash outfl ows for acquisitions less acquired cash | (1,617) | (354) | |
| Interest and dividends received | 553 | 477 | |
| Cash infl ows from (outfl ows for) current fi nancial assets | (2) | (11) | |
| Net cash provided by (used in) investing activities | [34] | (3,089) | (1,126) |
| Capital contributions | - | - | |
| Dividend payments and withholding tax on dividends | (1,126) | (973) | |
| Issuances of debt | 2,277 | 2,798 | |
| Retirements of debt | (752) | (4,240) | |
| Interest paid | (1,272) | (1,206) | |
| Net cash provided by (used in) fi nancing activities | [35] | (873) | (3,621) |
| Change in cash and cash equivalents due to business activities | (354) | 628 | |
| Cash and cash equivalents at beginning of year | 2,531 | 2,094 | |
| Change in cash and cash equivalents due to changes | |||
| in scope of consolidation | 3 | 3 | |
| Change in cash and cash equivalents due to exchange rate movements | (86) | - | |
| Cash and cash equivalents at end of year | [36] | 2,094 | 2,725 |
| 2008 fi gures restated |
| Capital stock of Bayer AG |
Capital reserves of Bayer AG |
Retained earnings incl. net income |
Exchange differences |
||
|---|---|---|---|---|---|
| € million | € million | € million | € million | ||
| Dec. 31, 2007 | 1,957 | 4,028 | 12,949 | (2,317) | |
| Equity transactions with owners | |||||
| Capital increase / decrease | |||||
| Dividend payments | (1,032) | ||||
| Other changes | 4 | ||||
| Changes recognized outside profi t or loss ** |
(626) | (416) | |||
| Net income 2008 | 1,719 | ||||
| Dec. 31, 2008 | 1,957 | 4,028 | 13,014 | (2,733) | |
| Equity transactions with owners | |||||
| Capital increase / decrease | 160 | 2,139 | |||
| Dividend payments | (1,070) | ||||
| Other changes | 6 | ||||
| Changes recognized outside profi t or loss ** |
(306) | 282 | |||
| Net income 2009 | 1,359 | ||||
| Dec. 31, 2009 | 2,117 | 6,167 | 13,003 | (2,451) | |
| * OCI = other comprehensive income |
** net of tax
[Table 4.5]
| Accumulated other comprehensive income | |||||
|---|---|---|---|---|---|
| Fair-value measurement of securities |
Cash fl ow hedges |
Revaluation surplus |
Equity attributable to Bayer AG stockholders |
Equity attributable to non-controlling interest incl. OCI* |
Equity |
| € million | € million | € million | € million | € million | € million |
| 32 | 31 | 54 | 16,734 | 87 | 16,821 |
| (1,032) | (9) | (1,041) | |||
| (4) | - | (9) | (9) | ||
| (22) | (102) | 8 | (1,158) | 3 | (1,155) |
| 1,719 | 5 | 1,724 | |||
| 10 | (71) | 58 | 16,263 | 77 | 16,340 |
| 2,299 | 2,299 | ||||
| (1,070) | (4) | (1,074) | |||
| (6) | - | (21) | (21) | ||
| 9 | 61 | 46 | 2 | 48 | |
| 1,359 | 1,359 | ||||
| 19 | (10) | 52 | 18,897 | 54 | 18,951 |
| HealthCare | ||||
|---|---|---|---|---|
| Consumer Health | ||||
| 2008 | 2009 | 2008 | 2009 | |
| € million | € million | € million | € million | |
| 10,030 | 10,467 | 5,377 | 5,521 | |
| + 4.0% | + 4.4% | + 4.2% | + 2.7% | |
| + 7.1% | + 3.3% | + 9.0% | + 3.2% | |
| 97 | 149 | 6 | 17 | |
| 10,127 | 10,616 | 5,383 | 5,538 | |
| 217 | 400 | 41 | 41 | |
| 1,222 | 1,696 | 959 | 944 | |
| 1,760 | 2,018 | 1,004 | 994 | |
| 2,920 | 3,193 | 1,237 | 1,275 | |
| 2,092 | 2,186 | 953 | 967 | |
| 17,451 | 17,379 | 5,822 | 5,870 | |
| 12.3% | 12.6% | 17.6% | 16.5% | |
| 1,547 | 2,280 | 712 | 1,151 | |
| - | - | - | - | |
| - | - | - | - | |
| 21,953 | 20,844 | 6,562 | 6,432 | |
| 424 | 428 | 186 | 137 | |
| 259 | 5 | 642 | 55 | |
| 1,278 | 1,216 | 233 | 292 | |
| 121 | 48 | - | 36 | |
| 3,809 | 3,839 | 1,508 | 1,554 | |
| 1,485 | 1,572 | 257 | 275 | |
| 36,000 | 36,300 | 17,100 | 17,100 | |
| Pharmaceuticals |
2008 fi gures restated
| Europe | North America | |||
|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | |
| € million | € million | € million | € million | |
| Net sales (external) – by market | 14,549 | 12,968 | 8,026 | 7,705 |
| Change | + 1.4% | – 10.9% | – 1.7% | – 4.0% |
| Currency-adjusted change | + 2.1% | – 8.8% | + 5.3% | – 8.1% |
| Net sales (external) – by point of origin | 15,845 | 14,189 | 7,985 | 7,638 |
| Change | + 1.7% | – 10.5% | – 2.6% | – 4.3% |
| Currency-adjusted change | + 2.4% | – 8.6% | + 4.4% | – 8.6% |
| Interregional sales | 5,761 | 5,756 | 2,419 | 2,372 |
| Other operating income | 554 | 545 | 116 | 193 |
| Operating result [EBIT] | 2,230 | 1,981 | 914 | 583 |
| Assets | 33,180 | 32,450 | 9,637 | 8,934 |
| Capital expenditures | 945 | 894 | 385 | 295 |
| Depreciation, amortization and write-downs | 1,995 | 1,943 | 403 | 460 |
| Liabilities | 22,640 | 19,906 | 4,945 | 4,449 |
| Research and development expenses | 2,014 | 2,080 | 459 | 507 |
| Number of employees (as of Dec. 31) | 55,500 | 54,500 | 17,000 | 16,300 |
[Table 4.6]
| CropScience | MaterialScience | Reconciliation | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Crop Protection | Environmental Science, BioScience |
MaterialScience | All Other Segments | Corporate Center and Consolidation |
Continuing Operations |
||||||
| 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 |
| € million | € million | € million | € million | € million | € million | € million | € million | € million | € million | € million | € million |
| 5,339 | 5,424 | 1,043 | 1,086 | 9,738 | 7,520 | 1,380 | 1,139 | 11 | 11 | 32,918 | 31,168 |
| + 11.7% | + 1.6% | – 0.2% | + 4.1% | – 6.7% | – 22.8% | + 5.7% | – 17.5% | - | - | + 1.6% | – 5.3% |
| + 16.4% | + 2.3% | + 4.2% | + 4.1% | – 4.1% | – 24.4% | + 6.5% | – 17.4% | - | - | + 5.0% | – 5.9% |
| 47 | 40 | 8 | 12 | 41 | 55 | 1,616 | 1,647 | (1,815) | (1,920) | - | - |
| 5,386 | 5,464 | 1,051 | 1,098 | 9,779 | 7,575 | 2,996 | 2,786 | (1,804) | (1,909) | 32,918 | 31,168 |
| 228 | 187 | 28 | 19 | 265 | 88 | 64 | 37 | 64 | 150 | 907 | 922 |
| 804 | 713 | 114 | 85 | 537 | (266) | 78 | 32 | (170) | (198) | 3,544 | 3,006 |
| 962 | 875 | 122 | 142 | 586 | (126) | 78 | 63 | (170) | (194) | 4,342 | 3,772 |
| 1,397 | 1,301 | 206 | 207 | 1,088 | 446 | 194 | 189 | (111) | (139) | 6,931 | 6,472 |
| 1,026 | 924 | 166 | 119 | 850 | 319 | 273 | 241 | (65) | (98) | 5,295 | 4,658 |
| 7,016 | 7,633 | 1,531 | 1,754 | 8,919 | 8,453 | 912 | 587 | 1,025 | 1,269 | 42,676 | 42,945 |
| 14.8% | 12.6% | 10.8% | 7.2% | 10.1% | 3.7% | - | - | - | - | 13.0% | 10.9% |
| 653 | 591 | 83 | 154 | 782 | 849 | 230 | 261 | (399) | 89 | 3,608 | 5,375 |
| - | - | - | - | (62) | (48) | - | - | - | - | (62) | (48) |
| - | - | - | - | 450 | 395 | - | - | - | - | 450 | 395 |
| 7,241 | 7,383 | 1,648 | 1,978 | 7,586 | 6,896 | 1,218 | 1,170 | 6,295 | 6,339 | 52,503 | 51,042 |
| 273 | 282 | 41 | 64 | 831 | 512 | 201 | 206 | 26 | 40 | 1,982 | 1,669 |
| - | 12 | - | 351 | 81 | 28 | 4 | 4 | - | - | 986 | 455 |
| 448 | 448 | 84 | 65 | 504 | 607 | 117 | 126 | 58 | 55 | 2,722 | 2,809 |
| 16 | 21 | 1 | 1 | 5 | 41 | 3 | 2 | 6 | - | 152 | 149 |
| 2,568 | 2,388 | 447 | 598 | 1,952 | 1,947 | 1,571 | 1,969 | 24,303 | 19,796 | 36,158 | 32,091 |
| 492 | 482 | 157 | 171 | 221 | 207 | 34 | 34 | 7 | 5 | 2,653 | 2,746 |
| 15,000 | 15,200 | 3,300 | 3,500 | 15,100 | 14,300 | 21,500 | 21,400 | 600 | 600 | 108,600 | 108,400 |
| Latin America / Asia / Pacifi c Africa / Middle East |
Reconciliation | Continuing Operations |
||||||
|---|---|---|---|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | |
| € million | € million | € million | € million | € million | € million | € million | € million | |
| 5,385 | 5,712 | 4,958 | 4,783 | - | - | 32,918 | 31,168 | |
| + 3.3% | + 6.1% | + 6.4% | – 3.5% | - | - | + 1.6% | – 5.3% | |
| + 6.2% | + 0.3% | + 12.2% | – 0.6% | - | - | + 5.0% | – 5.9% | |
| 5,184 | 5,486 | 3,904 | 3,855 | - | - | 32,918 | 31,168 | |
| + 3.8% | + 5.8% | + 7.9% | – 1.3% | - | - | + 1.6% | – 5.3% | |
| + 6.8% | – 0.1% | + 15.1% | + 2.6% | - | - | + 5.0% | – 5.9% | |
| 341 | 334 | 297 | 360 | (8,818) | (8,822) | - | - | |
| 40 | 53 | 197 | 131 | - | - | 907 | 922 | |
| 143 | 367 | 427 | 273 | (170) | (198) | 3,544 | 3,006 | |
| 5,500 | 5,255 | 2,855 | 3,246 | 1,331 | 1,157 | 52,503 | 51,042 | |
| 525 | 357 | 127 | 123 | - | - | 1,982 | 1,669 | |
| 196 | 268 | 70 | 83 | 58 | 55 | 2,722 | 2,809 | |
| 3,724 | 3,288 | 1,192 | 1,239 | 3,657 | 3,209 | 36,158 | 32,091 | |
| 144 | 131 | 36 | 28 | - | - | 2,653 | 2,746 | |
| 20,800 | 21,600 | 15,300 | 16,000 | - | - | 108,600 | 108,400 |
| [Table 4.7] | |||||
|---|---|---|---|---|---|
The consolidated fi nancial statements of the Bayer Group as of December 31, 2009, have been prepared – pursuant to Section 315a of the German Commercial Code – according to the International Financial Reporting Standards (ifrs) of the International Accounting Standards Board (iasb), London, and the Interpretations of the International Financial Reporting Interpretations Committee (ifric) endorsed by the European Union and in effect at the closing date.
Bayer Aktiengesellschaft (Bayer AG) is a global enterprise based in Germany. Its registered offi ce is at Kaiser-Wilhelm-Allee 1, 51368 Leverkusen. Its material business activities in the fi elds of health care, nutrition and high-tech materials take place in the HealthCare, CropScience and MaterialScience subgroups, respectively. The activities of the various segments are outlined in Note [5].
A declaration of compliance with the German Corporate Governance Code has been issued pursuant to Section 161 of the German Stock Corporation Act and made available to stockholders.
The Board of Management of Bayer AG prepared the consolidated fi nancial statements of the Bayer Group on February 15, 2010. The Audit Committee of the Supervisory Board of Bayer AG discussed the consolidated fi nancial statements of the Bayer Group at its meeting on February 23, 2010 and the Supervisory Board approved them at its meeting on February 24, 2010.
The consolidated fi nancial statements of the Bayer Group are drawn up in euros. Amounts are stated in millions of euros (€ million) except where otherwise indicated. The fi nancial statements of the individual consolidated companies are prepared as of the closing date of the Group fi nancial statements.
In the income statement and statement of comprehensive income, statement of fi nancial position, statement of cash fl ows and statement of changes in equity, certain items are combined for the sake of clarity. These are explained in the notes. The income statement is prepared using the cost-of-sales method. Assets and liabilities are classifi ed by maturity. They are regarded as current if they mature within one year or within the normal business cycle of the company or the Group, or are held for sale. The normal business cycle is defi ned for this purpose as beginning with the procurement of the resources necessary for the production process and ending with the receipt of cash or cash equivalents as consideration for the sale of the goods or services produced in that process. Trade accounts receivable and payable, claims for tax refunds, tax liabilities and inventories are always presented as current items, deferred tax assets and liabilities and pension provisions as noncurrent items.
In compliance with ifrs 5 (Non-current Assets Held for Sale and Discontinued Operations), a distinction is made between continuing operations and discontinued operations or assets held for sale. The discontinued operations are recognized as separate line items in the income statement, statement of fi nancial position and statement of cash fl ows. Depreciation of noncurrent assets allocable to discontinued operations and of assets held for sale ceased when the respective divestiture was announced. All data in these notes refer to continuing operations, except where otherwise indicated. Discontinued operations are described in Note [6.3].
Changes in recognition and valuation principles are explained in the notes. The retrospective application of new or revised standards requires – except as otherwise provided in the respective standard – that earnings for the preceding year and the opening statement of financial position for the reporting year be restated as if the new recognition and valuation principles had been applied in the past.
In 2009, the following accounting standards and interpretations were applied for the fi rst time. None of the new standards had a material impact on the presentation of the Group's fi nancial position or results of operations, or on earnings per share.
In November 2006, the iasb published ifrs 8 (Operating Segments), which replaces ias 14 (Segment Reporting), the existing standard in this fi eld. ifrs 8 follows the "management approach," which means that segment reporting must be based on the information used internally by management to identify operating segments and to evaluate their performance.
In March 2007, the iasb issued amendments to ias 23 (Borrowing Costs) requiring the capitalization of interest on borrowings made to acquire, construct or produce a qualifying asset. Interest on borrowed capital that is directly attributable to qualifying assets was already capitalized in the past, utilizing the option that existed under the previous version of the standard.
In September 2007, the iasb issued amendments to ias 1 (Presentation of Financial Statements). Apart from proposing the renaming of certain sections of the fi nancial statements, these amendments mandate that in certain circumstances an opening statement of fi nancial position for the previous fi nancial year be published along with a separate presentation of changes in equity arising from transactions with owners and with non-owners, and that the income tax effects of each component directly recognized in equity be disclosed separately in the statement of comprehensive income or in the notes.
In January 2008 the iasb published amendments to ifrs 2 (Share-based Payment) to clarify the defi nitions of vesting conditions (exercisability) and cancellation of share-based payment. The revised standard basically states that vesting conditions are defi ned as normal service and performance conditions only. It also mandates that all plan cancellations, whether by the company or the employee, receive the same accounting treatment.
In February 2008, the iasb issued amendments to ias 32 (Financial Instruments: Presentation) and ias 1 (Presentation of Financial Statements). The changes relate mainly to the distinction between equity and debt in accounting for company capital to which cancellation rights are attached (puttable fi nancial instruments). Such cancellable instruments may now be classifi ed as equity in certain circumstances.
In May 2008 the iasb published amendments – mainly of a terminological or editorial nature – to a number of International Financial Reporting Standards as part of its "Annual Improvements" project.
The amendments to ifrs 7 (Financial Instruments: Disclosures) issued in March 2009 mandate additional disclosures about fi nancial instruments that are measured at fair value. Further information also has to be provided on liquidity risks. Notably, the revised version of ifrs 7 requires a three-level disclosure hierarchy according to the basis on which the fair values have been measured. The top level comprises fair values based on quoted market prices, while the bottom level contains instrument fair values not based on observable market data. Additional disclosures are required for the latter category, mainly regarding the effects of the fair value measurement of these instruments on the income statement. A company's maturity analysis must include fi nancial guarantees and credit facilities.
In June 2007 the ifric issued Interpretation ifric 13 (Customer Loyalty Programmes), which addresses both revenue and expense recognition relating to "award credits" that are granted to customers as purchase incentives and can be exchanged for free or discounted goods or services in the future. An amount refl ecting the value of the award credits granted in connection with a transaction must be accounted for as a separate transaction component. Part of the fair value of the goods or services delivered is allocated to the award credits and recognized as a liability. Revenue recognition then occurs in the period in which the credits are redeemed or expire.
ifric 15 (Agreements for the Construction of Real Estate), issued in July 2008, addresses revenue recognition for real estate sold before completion. The interpretation defi nes the criteria for applying either ias 11 or ias 18.
ifric 16 (Hedges of a Net Investment in a Foreign Operation), also issued in July 2008, defi nes the type of currency risk to which hedge accounting may be applied when hedging a net investment in a foreign operation and which entity or entities within a group may hold the respective hedging instrument.
ifric 18 (Transfer of Assets from Customers) was issued in January 2009. The interpretation defi nes the accounting treatment of assets and liabilities in the context of agreements under which a company receives from a customer an item of property, plant or equipment that the company must then use either to connect the customer to a network or to provide the customer with longterm access to a supply of goods or services. It also sets forth the conditions for revenue recognition.
Amendments were issued in March 2009 to ifric 9 (Reassessment of Embedded Derivatives) and ias 39 (Financial Instruments: Recognition and Measurement). These amendments clarify the a ccounting treatment of embedded derivatives for companies that make use of the reclassifi cation amendment to ias 39 issued by the iasb in October 2008. The reclassifi cation amendment allows companies to reclassify certain fi nancial instruments out of the "at fair value through profi t or loss" category in specifi c circumstances. The amendments of March 2009 clarify that, when a fi nancial asset is reclassifi ed out of the "at fair value through profi t or loss" category, all embedded derivatives must be remeasured and, if necessary, accounted for separately in the fi nancial statements.
The iasb and the ifric have issued the following standards, amendments to standards, and interpretations whose application was not yet mandatory for the 2009 fi scal year and is conditional upon their endorsement by the European Union.
In January 2008, the iasb published the revised standards ifrs 3 (Business Combinations) and ias 27 (Consolidated and Separate Financial Statements). Signifi cant changes required by ifrs 3 (revised 2008) include:
The principal changes required by ias 27 (revised 2008) are:
ifrs 3 (revised 2008) and ias 27 (revised 2008) are applicable prospectively for annual periods beginning on or after July 1, 2009. Their impact on the presentation of the Group's fi nancial position and results of operations will depend on the scale of future business combinations or divestments.
The amendments to ias 39 (Financial Instruments: Recognition and Measurement) issued in July 2008 deal with one-sided risk hedging using options and with infl ation hedging. They clarify the circumstances in which a hedged risk or portion of cash fl ows is eligible for hedge accounting. The amendments are to be applied for the fi rst time for annual periods beginning on or after July 1, 2009. They will not have a material impact on the presentation of the Group's fi nancial position or results of operations.
In April 2009 the iasb issued a second collection of amendments as part of its annual project "Improvements to ifrss." The amendments address details of the recognition, measurement and disclosure of business transactions and serve to standardize terminology. They consist mainly of editorial changes to existing standards. Except as otherwise specifi ed, the amendments, which have not yet been endorsed by the European Union, are to be applied for annual periods beginning on or after January 1, 2010. They will not have a material impact on the presentation of the Group's fi nancial position or results of operations.
In June 2009 amendments were issued to ifrs 2 (Share-based Payment) that clarify the accounting for group cash-settled share-based payment transactions. The amendments specify how an individual subsidiary in a group should account for certain share-based payment arrangements in its own fi nancial statements, and also incorporate the rules previously included in ifric 8 (Scope of ifrs 2) and ifric 11 (ifrs 2 – Group and Treasury Share Transactions). The revised standard, which has not yet been endorsed by the European Union, is to be applied retrospectively for annual periods beginning on or after January 1, 2010. The amendments will have no impact on the presentation of the Group's fi nancial position, results of operations or earnings per share.
An amendment to ias 32 (Financial Instruments: Presentation) was issued in October 2009. The amendment clarifi es that rights issues, options and warrants denominated in a currency other than the issuer's functional currency and offered on a pro-rata basis to all owners of the same class of equity must be classifi ed as equity. Such rights issues have so far been accounted for as liabilities. The change relates only to issues of a fi xed number of shares at a fi xed foreign-currency exercise price. The amendment is to be applied for annual periods beginning on or after February 1, 2010. Earlier application is permitted. It will not have a material impact on the presentation of the Group's fi nancial position, results of operations or earnings per share.
In November 2009 the iasb issued the revised standard ias 24 (Related Party Disclosures), which simplifi es the reporting requirements of companies in which a government owns an interest. Under the revised standard, certain kinds of related-party transactions resulting from government ownership of private companies are exempt from some of the disclosure requirements. In addition, the defi nition of related parties was amended in several respects. The revised standard applies for annual periods beginning on or after January 1, 2011. Earlier application is permitted. It has not yet been endorsed by the European Union. The Bayer Group is currently evaluating the impact that the application of the revised standard may have on the presentation of its fi nancial position and results of operations.
In November 2009 the iasb issued ifrs 9 (Financial Instruments), which addresses the classifi cation and measurement of fi nancial assets. Publication of ifrs 9 marks the completion of the fi rst part of a three-part project to completely revise the accounting treatment of fi nancial instruments. The new standard defi nes two instead of four measurement categories for fi nancial assets, with classifi cation to be based partly on the company's business model and partly on the characteristics of the contractual cash fl ows from the respective fi nancial asset. An embedded derivative in a structured product will no longer have to be assessed for possible separate accounting treatment unless the host is a non-fi nancial contract. A hybrid contract that includes a fi nancial host must be classifi ed and measured in its entirety. Application of ifrs 9 is mandatory for annual periods beginning on or after January 1, 2013. It has not yet been endorsed by the European Union. The Bayer Group is currently evaluating the impact that the application of the new standard may have on the presentation of its fi nancial position and results of operations.
ifric 17 (Distributions of Non-cash Assets to Owners) was issued in November 2008. The interpretation addresses the recognition and measurement of liabilities related to non-cash dividends. It clarifi es when an obligation to distribute a non-cash dividend is to be recognized, that it must be measured at fair value, and that the difference between the dividend paid and the carrying amount of the net assets distributed must be recognized in profi t or loss at the distribution date. This interpretation is to be applied prospectively for annual periods beginning on or after July 1, 2009. It will not have a material impact on the presentation of the Group's fi nancial position or results of operations.
ifric 19 (Extinguishing Financial Liabilities with Equity Instruments) was issued in November 2009. The interpretation addresses the accounting treatment in cases where a company settles all or part of a fi nancial liability by issuing equity instruments to the creditor. It is to be applied for annual periods beginning on or after July 1, 2010. Earlier application is permitted. The interpretation has not yet been endorsed by the European Union. Its impact on the presentation of the Group's fi nancial position and results of operations will depend on the extent to which fi nancial liabilities are settled with equity instruments in the future.
In November 2009 amendments were issued to ifric 14 (ias 19 – The Limit on a Defi ned Benefi t Asset, Minimum Funding Requirements and their Interaction), an interpretation of ias 19 (Employee Benefi ts). The amendments apply when a company is subject to minimum pension plan funding requirements. They enable prepayments of the respective contributions to be recognized as an asset. The amendments are to be applied for annual periods beginning on or after January 1, 2011. Earlier application is permitted. They have not yet been endorsed by the European Union. These amendments will not have a material impact on the presentation of the Group's fi nancial position or results of operations.
The fi nancial statements of the consolidated companies are prepared according to uniform accounting and valuation principles.
The consolidated fi nancial statements of the Group are based on the principle of the historical cost of acquisition, construction or production, with the exception of the items refl ected at fair value, such as available-for-sale fi nancial assets and derivatives.
The preparation of the fi nancial statements for the Bayer Group requires the use of estimates and assumptions that affect the classifi cation and measurement of assets, liabilities, income, expenses and contingent liabilities. Estimates and assumptions mainly relate to the useful life of noncurrent assets, the discounted cash fl ows used for impairment testing or purchase price allocations, and the recognition of provisions, including those for litigation-related expenses, pensions and other benefi ts, taxes, environmental compliance and remediation costs, sales allowances, product liability and guarantees. Essential estimates and assumptions that may affect reporting in the various item categories of the fi nancial statements are described in the following sections of this note. Estimates are based on historical experience and other assumptions that are considered reasonable under given circumstances. They are continually reviewed but may vary from the actual values.
Profi ts and losses, sales revenues, and income and expenses arising from transactions among the consolidated companies, along with receivables and payables existing between them, are eliminated. Deferred income tax effects are refl ected in consolidation.
Joint ventures are included by proportionate consolidation according to the same principles.
Capital consolidation is performed according to ias 27 (Consolidated and Separate Financial Statements) by offsetting the net carrying amounts of subsidiaries in the statement of fi nancial position against their underlying equity. Equity of subsidiaries is valued at the respective acquisition dates, recognizing identifi able assets and liabilities (including contingent liabilities) at their fair values along with attributable deferred tax assets and liabilities. Any remaining difference to the purchase price is recognized as goodwill.
The cost of acquisition of a company included at equity in the consolidated fi nancial statements is adjusted annually by a percentage of any change in its equity corresponding to Bayer's percentage interest in the company. Differences arising upon fi rst-time inclusion at equity are accounted for according to full-consolidation principles. Bayer's share of changes in these companies' equities that are recognized in their income statements – including write-downs of goodwill – are refl ected in the non-operating result. Intercompany profi ts and losses for these companies were not material in either 2009 or 2008.
In the fi nancial statements of the individual consolidated companies, all receivables and payables in currencies other than the respective functional currency are translated at closing rates, irrespective of whether they are exchange-hedged. Exchange rate differences from valuation of balances in foreign currencies are recognized in income. Derivatives are stated at fair value. The majority of consolidated companies autonomously carry out their activities fi nancially, economically and organizationally and their functional currencies are therefore the respective local currencies.
The assets and liabilities of foreign companies at the start and end of the year are translated into euros at closing rates. All changes occurring during the year and all income and expense items and cash fl ows are translated into euros at average rates for the year. Equity components are translated at the historical exchange rates prevailing at the respective dates of their fi rst-time recognition in Group equity.
The exchange differences arising between the resulting amounts and those obtained by translating at closing rates are recognized in equity and stated separately in the tables in the notes. When a company is deconsolidated, such exchange differences are removed from equity and recognized in the income statement.
The exchange rates for major currencies against the euro varied as follows:
| Exchange Rates for Major Currencies | [Table 4.8] | |||||
|---|---|---|---|---|---|---|
| Closing rate | Average rate | |||||
| 2008 | 2009 | 2008 | 2009 | |||
| ARS | Argentina | 4.80 | 5.47 | 4.64 | 5.20 | |
| BRL | Brazil | 3.25 | 2.51 | 2.67 | 2.77 | |
| CAD | Canada | 1.70 | 1.51 | 1.56 | 1.59 | |
| CHF | Switzerland | 1.49 | 1.48 | 1.59 | 1.51 | |
| CNY | China | 9.50 | 9.84 | 10.23 | 9.52 | |
| GBP | United Kingdom | 0.95 | 0.89 | 0.80 | 0.89 | |
| JPY | Japan | 126.14 | 133.16 | 152.37 | 130.31 | |
| MXN | Mexico | 19.23 | 18.92 | 16.31 | 18.79 | |
| USD | United States | 1.39 | 1.44 | 1.47 | 1.39 | |
Revenues from the sale of products and the rendering of services are recognized when the signifi cant risks and rewards of ownership of the goods have been transferred to the customer, the company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, the amount of income and costs incurred or to be incurred can be measured reliably, and it is suffi ciently probable that the economic benefi ts associated with the transaction will fl ow to the company.
Sales are stated net of sales taxes, other taxes and sales deductions at the fair value of the consideration received or to be received. Sales deductions are estimated amounts for rebates, cash discounts and product returns. They are deducted at the time the sales are recognized, and appropriate provisions are recorded. Sales deductions are estimated primarily on the basis of historical experience, specifi c contractual terms and future expectations of sales development. It is unlikely that factors other than these could materially affect sales deductions in the Bayer Group. Adjustments to provisions made in prior periods for rebates, cash discounts or product returns were of secondary importance for income before income taxes in the years under report.
Provisions for rebates in 2009 amounted to 1.8% of total net sales (2008: 1.4%). In addition to rebates, Group companies offer cash discounts for prompt payment in some countries. Provisions for cash discounts as of December 31, 2009 and December 31, 2008 were less than 0.1% of total net sales for the respective year.
Sales are reduced by the amount of the provisions for expected returns of defective goods or of saleable products that may be returned under contractual arrangements. The net sales are reduced on the date of sale or on the date when the amount of future returns can be reasonably estimated. Provisions for product returns amounted to 0.2% of total net sales for 2009, as in the previous year. If future product returns cannot be reasonably estimated and are signifi cant to a sales transaction, the revenues and the related cost of sales are deferred until a reasonable estimate can be made or the right to return the goods has expired.
Some of the Bayer Group's revenues are generated on the basis of licensing agreements under which third parties are granted rights to products and technologies. Payments received that relate to the sale or outlicensing of technologies or technological expertise are recognized in income as of the effective date of the respective agreement if all rights relating to the technologies and all obligations resulting from them have been relinquished under the contract terms. However, if rights to the technologies continue to exist or obligations resulting from them have yet to be fulfi lled, the payments received are deferred accordingly. Upfront payments and similar non-refundable payments received under these agreements are recorded as other liabilities and recognized in income over the estimated performance period stipulated in the agreement.
License or research and development collaboration agreements may consist of multiple elements and provide for varying consideration terms, such as upfront payments and milestone or similar payments. They therefore have to be assessed to determine whether sales revenues should be recognized for individually delivered elements of such arrangements, i.e. for more than one unit of account. The delivered elements are separated if they have value to the customer on a standalone basis, there is objective and reliable evidence of the fair value of the undelivered element(s) and the arrangement includes a general right of return relative to the delivered element(s) and delivery or performance of the as yet undelivered element(s) is probable and substantially within the control of the company. If all three criteria are fulfi lled, the appropriate revenue recognition rule is then applied to each separate unit of account.
A substantial proportion of the Bayer Group's fi nancial resources is invested in research and development. In addition to in-house research and development activities, especially in the health care business, various research and development collaborations and alliances are maintained with third parties involving the provision of funding and / or payments for the achievement of performance milestones.
For accounting purposes, research expenses are defi ned as costs incurred for current or planned investigations undertaken with the prospect of gaining new scientifi c or technical knowledge and understanding. Development expenses are defi ned as costs incurred for the application of research fi ndings or specialist knowledge to production, production methods, services or goods prior to the commencement of commercial production or use.
According to ias 38 (Intangible Assets), research costs cannot be capitalized; development costs must be capitalized if, and only if, specifi c, narrowly defi ned conditions are fulfi lled. Development costs must be capitalized if it is suffi ciently certain that the future economic benefi ts to the company will also cover the respective development costs. Since our own development projects are often subject to regulatory approval procedures and other uncertainties, the conditions for the capitalization of costs incurred before receipt of approvals are not normally satisfi ed.
The following costs in particular, by their very nature, constitute research and development expenses: the appropriate allocations of direct personnel and material costs and related overheads for application technology, engineering and other departments; costs for experimental and pilot facilities; costs for services purchased in connection with research and development activities; costs for clinical research; costs for the utilization of third parties' patents for research and development purposes; and other taxes related to research facilities.
Under ias 38 (Intangible Assets), milestone payments must initially be capitalized to the extent that they are related to the acquisition of the related technology rights, even if uncertainties exist as to whether the research and development will ultimately succeed in producing a saleable product. Where research and development collaborations are embedded in contracts for a strategic alliance, it is necessary to assess whether milestone or advance payments constitute funding of research and development work or consideration for the acquisition of assets. Factors considered in reaching this determination are the reason for the payment (for example, whether it is related to a regulatory approval, the attainment of a sales target or outsourced research and development activities), and the ratio of the fair value of the planned research and development activities to the total amount of the payment.
Intangible assets are recognized at the cost of acquisition or generation. Those with a determinable useful life are amortized accordingly on a straight-line basis over a period of up to 30 years, except where their actual depletion demands a different amortization pattern. Determination of the expected useful lives of such assets and the amortization patterns is based on estimates of the period for which they will generate cash fl ows and the distribution of those cash fl ows over time.
Write-downs are made for impairment losses. Corresponding write-backs are made where the reasons for previous write-downs of intangible assets other than goodwill no longer apply, provided that the write-backs do not cause the carrying amount to exceed the amortized cost of acquisition.
Goodwill and other assets with an indefi nite life are subject to annual impairment tests, which are explained under "Procedure used in global impairment testing and its impact."
Property, plant and equipment is carried at the cost of acquisition or construction depreciated over its estimated useful life. A write-down (impairment loss) is recognized in addition if an asset's value falls below the depreciated cost of acquisition or construction.
The cost of acquisition comprises the acquisition price plus ancillary and subsequent acquisition costs, less any reduction received on the acquisition price. The cost of self-constructed property, plant and equipment comprises the direct cost of materials, direct manufacturing expenses, appropriate allocations of material and manufacturing overheads. Where an obligation exists to dismantle or remove an asset or restore a site to its former condition at the end of its useful life, the present value of the related future payments is capitalized along with the cost of acquisition or construction upon completion and a corresponding liability is recognized.
If the construction phase of property, plant or equipment extends over a long period, the interest incurred on borrowed capital up to the date of completion is capitalized as part of the cost of acquisition or construction in accordance with ias 23 (Borrowing Costs).
Expenses for the repair of property, plant and equipment, such as ongoing maintenance costs, are normally recognized in income. The cost of acquisition or construction is capitalized if a repair (such as a complete overhaul of technical equipment) will result in future economic benefi ts.
Property, plant and equipment is depreciated by the straight-line method, except where depreciation based on actual depletion is more appropriate.
The following depreciation periods, based on the estimated useful lives of the respective assets, are applied throughout the Group:
| Useful Life of Property, Plant and Equipment | [Table 4.9] |
|---|---|
| Buildings | 20 to 50 years |
| Outdoor infrastructure | 10 to 20 years |
|---|---|
| Storage tanks and pipelines | 10 to 20 years |
| Plant installations | 6 to 20 years |
| Machinery and equipment | 6 to 12 years |
| Furniture and fi xtures | 4 to 10 years |
| Vehicles | 4 to 8 years |
| Computer equipment | 3 to 5 years |
| Laboratory and research facilities | 3 to 5 years |
Declines in value that go beyond regular depreciation and are expected to be permanent are accounted for by write-downs. Corresponding write-backs are made where the reasons for previous write-downs no longer apply, provided that the write-backs do not cause the carrying amount to exceed the cost of acquisition less accumulated depreciation.
When assets are sold, closed down or scrapped, the difference between the net proceeds and the carrying amount of the assets is recognized as a gain or loss in other operating income or expenses, respectively.
A lease is an agreement whereby the lessor assigns to the lessee the right to use an asset for an agreed period of time in return for a payment or series of payments. Leases are classifi ed as either fi nance or operating leases. Leasing transactions that transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee are classifi ed as fi nance leases. All other leasing agreements are classifi ed as operating leases.
Where the Bayer Group is the lessee in a fi nance lease, the leased asset is capitalized at the lower of the fair value or present value of the minimum lease payments at the beginning of the lease term and simultaneously recognized under fi nancial liabilities. The minimum lease payments essentially comprise fi nancing costs and the principal portion of the remaining obligation. The leased asset is depreciated by the straight-line method. If subsequent transfer of title to the leased asset is uncertain, it is depreciated over the shorter of its estimated useful life or the lease term. The lease payments to be made are divided into the principal portion and the interest expense using the effectiveinterest method.
Where the Bayer Group is the lessor in a fi nance lease, the net investment in the lease is refl ected in sales and a leasing receivable is recognized. The lease payments received are divided into the principal portion and the interest income using the effective-interest method.
Where the Bayer Group is the lessee in an operating lease, the lease payments are expensed. Where it is the lessor, the lease payments received are recognized in income. The leased asset continues to be recognized under property, plant and equipment in the lessor's statement of fi nancial position.
Financial assets comprise loans and receivables, acquired equity and debt instruments, cash and cash equivalents, and derivatives with positive fair values.
They are recognized and measured in accordance with ias 39 (Financial Instruments: Recognition and Measurement). Accordingly, fi nancial assets are recognized in the consolidated fi nancial statements if the Bayer Group has a contractual right to receive cash or other fi nancial assets from another entity. Regular way purchases and sales of fi nancial assets are generally posted on the settlement date. Financial assets are initially recognized at fair value plus transaction costs. The transaction costs incurred for the purchase of fi nancial assets held at fair value through profi t or loss are expensed immediately. Interest-free or low-interest receivables are initially refl ected at the present value of the expected future cash fl ows. For purposes of subsequent measurement, fi nancial assets are allocated to the following categories according to ias 39, with different measurement rules applying to each category:
Financial assets held at fair value through profi t or loss comprise those fi nancial assets that are held for trading. This category also comprises receivables from forward commodity contracts and receivables from other derivatives, which are included in other fi nancial assets, except where hedge accounting is used. Changes in the fair value of fi nancial assets in this category are recognized in the income statement when the increase or decrease in value occurs.
Loans and receivables are non-derivative fi nancial assets that are not quoted in an active market. They are accounted for at amortized cost using the effective-interest method. This category comprises trade accounts receivable, the fi nancial receivables and loans included in other fi nancial assets, the additional fi nancial receivables and loans refl ected in other receivables, and cash and cash equivalents. Interest income from items assigned to this category is determined using the effective-interest method, insofar as such items are not classifi ed as current receivables and the effect of discounting interest is not material.
Held-to-maturity fi nancial assets are non-derivative fi nancial assets, with fi xed or determinable payments, that are to be held to maturity. They are accounted for at amortized cost using the effective-interest method. Held-to-maturity fi nancial investments are recognized in other fi nancial assets.
Available-for-sale fi nancial assets are those non-derivative fi nancial assets that are not assigned to any of the above categories. They mainly include equity instruments, such as shares, and debt instruments not to be held to maturity, which are included in other fi nancial assets. Changes in the fair value of available-for-sale fi nancial assets are recognized in equity and not amortized to income until the assets are sold. If the fair value is substantially below the amortized cost and / or remains below the amortized cost for a prolonged period, an impairment is recorded and amortized to income. Where possible, a fair value for equity and debt securities is derived from market data. Financial assets for which no market price is available and whose fair value cannot be reasonably estimated are carried at cost less impairment charges.
If there are substantial, objective indications that loans and receivables, held-to-maturity fi nancial assets or available-for-sale fi nancial assets are impaired, their carrying amount is compared to the present value of the expected future cash fl ows, discounted by the current market rate of return on a comparable fi nancial asset. If impairment is confi rmed, they are written down by the difference between the two amounts. Indications of impairment include the fact that a company has been making an operating loss for several years, a reduction in market value, a signifi cant deterioration in credit standing, a material breach of contract, a high probability of insolvency or other fi nancial restructuring of the debtor, or the disappearance of an active market for the asset.
Corresponding write-backs are made where the reasons for previous write-downs no longer apply, provided that the write-backs do not cause the carrying amount to exceed the amortized cost. No write-backs are made for available-for-sale equity instruments.
Financial assets are derecognized when contractual rights to receive cash fl ows from the fi nancial assets expire or the fi nancial assets are transferred together with all material risks and benefi ts.
The Bayer Group uses derivatives to mitigate the risk of changes in exchange rates, interest rates and commodity prices. Many transactions constitute economic hedges but do not qualify for hedge accounting under ias 39 (Financial Instruments: Recognition and Measurement).
Contracts concluded in order to receive or deliver non-fi nancial goods for the company's own purposes are not accounted for as derivatives but treated as pending transactions. Where embedded derivatives are identifi ed that are required to be separated from the pending transactions, they are accounted for separately. To take advantage of market opportunities or cover possible peak demand, a non-material volume of transactions may be entered into for which the possibility of immediate resale cannot be excluded. Such transactions are allocated to separate portfolios upon acquisition and accounted for as derivatives according to ias 39. Changes in the fair values of these derivatives are recognized directly in the income statement.
Changes in the values of forward exchange contracts and currency options are refl ected in exchange gains and losses, while changes in the values of interest-rate swaps and interest-rate options are recognized in interest income and expense. Changes in the fair values of commodity futures and commodity options and those arising from the hedging of forecasted transactions in foreign currencies are recognized in other operating income and expenses.
The fair values of derivatives are measured by the usual methods in light of the market data available at the measurement date. Currency and commodity contracts are measured individually at their forward rates or forward prices on the closing date. These depend on spot rates or prices including time spreads. The fair values of interest-rate hedging instruments are determined by discounting future cash fl ows over the remaining terms of the instruments at market rates of interest. The present value of each interest-rate, currency or cross-currency interest-rate swap transaction is measured individually as of the closing date. Interest income is recognized in the income statement at the date of payment or, in case of accrual, at the closing date. Certain longterm commodity contracts to which fair values cannot be assigned are measured with the aid of valuation models based on internal fundamental data.
Changes in the fair values of derivatives designated as fair value hedges and the adjustments in the carrying amounts of the underlying transactions are recognized in the income statement. Changes in the fair values of the effective portion of derivatives designated as cash fl ow hedges are initially recognized not in the income statement, but in equity (under accumulated other comprehensive income). They are released to the income statement when the underlying transaction is realized. If such a derivative is sold or ceases to qualify for hedge accounting, the change in its value continues to be recognized in accumulated other comprehensive income until the forecasted transaction is realized. If the forecasted transaction is no longer probable, the amount previously recognized in accumulated other comprehensive income is released to the income statement.
The income and expense refl ected in the non-operating result pertaining to the derivatives and the underlying transactions are shown separately. Income and expense are not offset.
In accordance with ias 2 (Inventories), inventories encompass assets held for sale in the ordinary course of business (fi nished goods and goods purchased for resale), in the process of production for such sale (work in process) or in the form of materials or supplies to be consumed in the production process or in the rendering of services (raw materials and supplies). Inventories are recognized at the lower of acquisition or production cost – calculated by the weighted-average method – and net realizable value, which is the realizable sale proceeds under normal business conditions less estimated cost to complete and selling expenses.
Income taxes comprise the taxes levied on taxable income in the individual countries and the changes in deferred tax assets and liabilities. The income taxes recognized are refl ected at the amounts likely to be payable under the statutory regulations in force, or already enacted in relation to future periods, as of the closing date.
The remaining taxes, such as property, electricity and other energy taxes, are included in the functional cost items.
In compliance with ias 12 (Income Taxes), deferred taxes are recognized for temporary differences between the carrying amounts of assets and liabilities in the statement of fi nancial position prepared according to ifrs and those in the statement of fi nancial position drawn up for tax purposes. Deferred taxes are also recognized for consolidation measures and for tax loss carryforwards likely to be realizable.
Deferred tax assets relating to deductible temporary differences, tax credits and tax loss carryforwards are recognized where it is suffi ciently probable that taxable income will be available in the future to enable the tax loss carryforwards to be utilized. Deferred tax liabilities are recognized on temporary differences taxable in the future. Deferred taxes are calculated at the rates which – on the basis of the statutory regulations in force, or already enacted in relation to future periods, as of the closing date – are expected to apply in the individual countries at the time of realization. Deferred tax assets and deferred tax liabilities are offset if they relate to income taxes levied by the same taxation authority. The effects of changes in tax rates or tax law on deferred tax assets and liabilities are generally accounted for in the period in which the changes are substantively enacted. Such effects are normally recognized in the income statement. Effects on deferred taxes previously recognized in other comprehensive income are refl ected in equity.
Where gains or losses are recognized directly in equity, this also applies to the related deferred tax assets or liabilities.
The probability that deferred tax assets resulting from temporary differences or loss carryforwards can be utilized in the future is the subject of forecasts by the individual consolidated companies regarding their future earnings situation and other parameters.
The deferred tax liabilities recognized on planned dividend payments by subsidiaries depend on assumptions regarding the future earnings situation of the subsidiaries concerned, their future fi nancing structure and other factors. These assumptions are subject to regular review. Changes in the assumptions or in circumstances may necessitate adjustments that result in allocations to deferred taxes or reversals thereof.
Group companies provide retirement benefi ts for most of their employees, either directly or by contributing to privately or publicly administered funds. The way these benefi ts are provided varies according to the legal, fi scal and economic conditions of each country, the benefi ts generally being based on the employees' remuneration and years of service. The obligations relate both to existing retirees' pensions and to pension entitlements of future retirees.
Group companies provide retirement benefi ts under defi ned contribution and / or defi ned benefi t plans. In the case of defi ned contribution plans, the company pays contributions to publicly or privately administered pension schemes on a mandatory, contractual or voluntary basis. Once the contributions have been paid, the company has no further payment obligations. The regular contributions constitute expenses for the year in which they are due and as such are included in the functional cost items, and thus in the operating result (ebit). All other retirement benefi t systems are defi ned benefi t plans, which may be either unfunded, i.e. fi nanced by provisions, or funded, i.e. fi nanced through pension funds. All income and expenses relating to defi ned benefi t plans other than from interest cost and the expected return on plan assets are recognized in the operating result (ebit). Interest cost and the expected return on plan assets are refl ected in the non-operating result under other non-operating income and expense. Actuarial gains and losses from defi ned benefi t plans and deductions in connection with asset limitation are reported net of taxes in the statement of comprehensive income without affecting the income statement and refl ected in the statement of changes in equity, as well as being recognized in full in the respective provision. Early-retirement and certain other benefi ts to retirees are also included in the provisions for pensions, since these obligations are similar in character to pension obligations.
The present value of provisions for defi ned benefi t plans is calculated in accordance with ias 19 (Employee Benefi ts) by the projected unit credit method. The future benefi t obligations are valued by actuarial methods. This involves assumptions regarding life expectancy, staff fl uctuation, and other parameters that depend partly on the economic situation in the respective country. The other main factors on which these calculations are based are assumptions regarding discount rate, expected return on plan assets, the rate of future compensation increases and variations in health care costs. Statistical information such as attrition and mortality rates is also used in estimating the expenses and liabilities under the plans. The effects of changes in important parameters are explained in Note [25].
The expenses for the benefi ts expected to be payable after retirement are spread over each employee's entire period of employment, also allowing for future changes in compensation. The fair value of plan assets is deducted from the present value of the defi ned benefi t obligation for pensions and other post-employment benefi ts. The obligations and plan assets are valued at regular intervals of not more than three years. Comprehensive actuarial valuations for all major plans are performed annually as of December 31. The difference between the defi ned benefi t obligation – after deducting the fair value of plan assets – and the net liability recognized in the statement of fi nancial position is attributable to unrecognized past service cost. Plan assets in excess of the benefi t obligation are refl ected in other receivables, subject to the asset limitation specifi ed in ias 19 (Employee Benefi ts).
The expected future cash outfl ows are discounted in order to recognize obligations for pensions and other post-employment benefi ts at their present value as of the closing date. The discount rates used are calculated from the yields of high-quality corporate bond portfolios in specifi c currencies with cash fl ows approximately equivalent to the expected disbursements from the pension plans. The uniform discount rate that is used to discount pension and post-employment benefi t obligations as part of the actuarial valuation is thus based on the yields, at the closing date, of a portfolio of aa-rated corporate bonds whose weighted residual maturities approximately correspond to the duration necessary to cover the entire benefi t obligation. If there are no aa-rated corporate bonds of equal duration, the obligations are discounted at the interest rate for government bonds or interest-rate swaps in effect at the closing date. This is adjusted in line with the credit spread for corporate bonds, as these generally provide higher yields by virtue of their risk structure.
The expected long-term return on plan assets, determined on the basis of published and internal capital market reports and forecasts for each asset class, is applied to the fair value of plan assets at each year end.
Because of changing market and economic conditions, the expenses and the obligations actually arising under the plans in the future may differ materially from the estimates made on the basis of these actuarial assumptions. The plan assets are mainly comprised of equity and fi xed-income instruments. Therefore, declining returns on equity markets and markets for fi xed-income instruments could necessitate additional contributions to the plans in order to cover current and future pension obligations. Higher or lower rates of employee fl uctuation or longer or shorter life of participants may also affect the amount of pension income or expense recorded in the future.
Other provisions are recognized for present legal and constructive obligations arising from past events that will probably give rise to a future outfl ow of resources, provided that a reliable estimate can be made of the amount of the obligations.
Other provisions are measured in accordance with ias 37 (Provisions, Contingent Liabilities and Contingent Assets) or, where applicable, ias 19 (Employee Benefi ts). Where the cash outfl ow to settle an obligation is expected to occur after one year, the provision is recognized at the present value of the expected cash outfl ow. Claims for reimbursements from third parties are capitalized separately if their realization is virtually certain.
If the projected obligation declines as a result of a change in the estimate, the provision is reversed by the corresponding amount and the resulting income recognized in the operating expense item(s) in which the original charge was recognized.
To enhance the information content of the estimates, certain provisions that could have a material effect on the fi nancial position or results of operations of the Group are selected and tested for their sensitivity to changes in the underlying parameters. To refl ect uncertainty about the likelihood of the assumed events actually occurring, the impact of a 5% change in the probability of occurrence is examined in each case. This analysis has not shown other provisions to be materially sensitive.
Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate adjustments to tax income and expense in future periods. The Group establishes provisions for taxes, based on reasonable estimates, for liabilities to the tax authorities of the respective countries that are uncertain as to their amount and the probability of their occurrence. The amount of such provisions is based on various factors, such as experience with previous tax audits and differing legal interpretations by the taxable entity and the responsible tax authority.
Provisions for environmental protection are recorded if future cash outflows are likely to be necessary to ensure compliance with environmental regulations or to carry out remediation work, such costs can be reliably estimated and no future benefi ts are expected from such measures.
Estimating the future costs of environmental protection and remediation involves many uncertainties, particularly with regard to the status of laws, regulations and the information available about conditions in the various countries and at the individual sites. Signifi cant factors in estimating the costs include previous experiences in similar cases, the conclusions in expert opinions obtained regarding the Group's environmental programs, current costs and new developments affecting costs, management's interpretation of current environmental laws and regulations, the number and fi nancial position of third parties that may become obligated to participate in any remediation costs on the basis of joint liability, and the remediation methods likely to be deployed. Changes in these assumptions could impact future reported results.
Taking into consideration experience gained to date regarding environmental matters of a similar nature, provisions are believed to be adequate based upon currently available information. There were no signifi cant changes in assumptions or estimates that would have impacted the income statement in prior years. However, given the inherent diffi culties in estimating liabilities in the businesses in which the Group operates, especially those for which the risk of environmental damage is relatively greater (CropScience and MaterialScience), it remains possible that material additional costs will be incurred beyond the amounts accrued. It may transpire during remediation work that additional expenditures are necessary over an extended period of time that exceed existing provisions and cannot be reasonably estimated. Management nevertheless believes that such additional amounts, if any, would not have a material adverse effect on the Group's fi nancial position or results of operations.
Provisions for restructuring only cover expenses that arise directly from restructuring measures, are necessary for restructuring and are not related to future business operations, such as costs for real estate no longer utilized or severance payments to employees.
Restructuring measures may include the sale or termination of business units, site closures, relocation of business activities, changes in management structure or a fundamental reorganization of business units.
The respective provisions are established when a detailed restructuring plan has been drawn up, resolved upon by the responsible decision-making level of management and communicated to the employees or their representatives. Provisions for restructuring are established at the present value of future disbursements.
Trade-related provisions are recorded mainly for the granting of rebates or discounts, product returns, or obligations in respect of services already received but not yet invoiced.
As a global company with a diverse business portfolio, the Bayer Group is exposed to numerous legal risks, particularly in the areas of product liability, competition and antitrust law, patent disputes, tax assessments and environmental matters. Provisions for litigations are recorded in the statement of fi nancial position in respect of pending or future litigation, subject to a case-by-case examination. Such legal proceedings are evaluated on the basis of the available information, including that from legal counsel acting for the Group, to assess potential outcomes. Where it is more likely than not that a present obligation arising out of legal proceedings will result in an outfl ow of resources, a provision is recorded in the amount of the present value of the expected cash outfl ows if these are considered to be reliably measurable. These provisions cover the estimated payments to plaintiffs, court fees, attorney costs and the cost of potential settlements. The evaluation is based on the current status of litigation as of each closing date and includes an assessment of whether the criteria for recording a provision are met and, if so, the amount of the provision to be recorded.
Litigation and other judicial proceedings generally raise complex issues and are subject to many uncertainties and complexities including, but not limited to, the facts and circumstances of each particular case, issues regarding the jurisdiction in which each suit is brought and differences in applicable law. The outcome of currently pending and future proceedings therefore cannot be predicted. Upon resolution of any pending legal matter, the Bayer Group may be forced to incur charges in excess of presently established provisions and related insurance coverage. If courts fi nd against Bayer in patent suits and this results in other manufacturers being permitted to market products developed or acquired by the Bayer Group, this could adversely impact the Group's fi nancial position or results of operations.
Personnel-related provisions are mainly those recorded for annual bonus payments, variable one-time payments, individual performance awards, long-service awards, surpluses on long-term accounts and other personnel costs. Obligations under stock-based compensation programs that provide for awards payable in cash are also included here.
Financial liabilities comprise primary fi nancial liabilities and negative fair values of derivatives.
Primary fi nancial liabilities are recognized in the statement of fi nancial position if the Bayer Group has a contractual obligation to transfer cash or other fi nancial assets to another party. Such liabilities are initially recognized at the fair value of the consideration received or the value of payments received less any transaction costs. In subsequent periods, primary fi nancial liabilities are measured at amortized cost using the effective-interest method.
Financial liabilities are derecognized when the contractual obligation is discharged or cancelled, or has expired.
Under ias 32 (Financial Instruments: Presentation), puttable fi nancial instruments may only be classifi ed as equity under certain conditions. Where other stockholders of subsidiaries are contractually entitled to terminate their participation and at the same time claim repayment of their capital contribution, such capital is recognized as a liability even if it is classifi ed as equity in the respective jurisdiction. The redeemable capital of a non-controlling stockholder is recognized at the amount of such stockholder's pro-rated share of the subsidiary's net assets.
Accrued items, advance payments and other non-fi nancial assets and liabilities are carried at amortized cost. They are amortized to income by the straight-line method or according to performance of the underlying transaction.
In accordance with ias 20 (Accounting for Government Grants and Disclosure of Government Assistance), grants and subsidies from third parties that serve to promote investment are refl ected in the statement of fi nancial position under other liabilities and amortized to income over the useful lives of the respective assets.
Assets held for sale comprise noncurrent assets and disposal groups (net of any related liabilities), the carrying amounts of which will be realized primarily by way of a highly probable divestment transaction within the next twelve months or a divestment transaction currently being executed, and not through continued use. Such assets are recognized at the lower of the carrying amount and the fair value less costs to sell.
Acquired businesses are accounted for using the purchase method, which requires that the assets acquired and liabilities assumed be recorded at their respective fair values on the date Bayer gains control.
The application of the purchase method requires certain estimates and assumptions especially concerning the determination of the fair values of the acquired intangible assets and property, plant and equipment as well as the liabilities assumed at the date of the acquisition. Moreover, the useful lives of the acquired intangible assets, property, plant and equipment have to be determined.
Measurement is based to a large extent on anticipated cash fl ows. If actual cash fl ows vary from those used in calculating fair values, this may materially affect the Group's future results of operations. In particular, the estimation of discounted cash fl ows from intangible assets under development and developed technologies is based on assumptions concerning, for example:
For signifi cant acquisitions, the purchase price allocation is carried out with assistance from independent third-party valuation specialists. The valuations are based on information available at the acquisition date.
The effect of the revaluation of assets relating to acquisitions made in stages is recognized in equity in compliance with ifrs 3 (Business Combinations). If a company is acquired in several stages, all of its assets and liabilities have to be completely revalued on the date on which the acquiring company gains control and recognized at fair value. If the new fair value of the assets already held by the acquiring company exceeds their carrying amount, the carrying amount must be increased accordingly. This adjustment is recognized in a separate equity item (revaluation surplus) and thus has no effect on net income.
Goodwill, other indefi nite-lived intangible assets and research and development projects are tested regularly for impairment in accordance with ifrs 3 (Business Combinations) in conjunction with the related revised versions of ias 36 (Impairment of Assets) and ias 38 (Intangible Assets).
Where goodwill or other indefi nite-lived intangible assets are allocated to a cash-generating unit, they are tested for impairment annually, or more frequently if events or changes in circumstances indicate a possible impairment. This involves comparing the carrying amount of each cash-generating unit to the recoverable amount, which is the higher of the cash-generating unit's fair value less costs to sell or its value in use. The cash-generating units defi ned for the Bayer Group are generally the strategic business entities, which are the second fi nancial reporting level below the segments.
Where the carrying amount of a cash-generating unit exceeds the recoverable amount, an impairment loss is recognized for the difference. First, the goodwill of the relevant strategic business entity is written down accordingly. Any remaining impairment loss is allocated among the other assets of the strategic business entity in proportion to their carrying amounts. This value adjustment is recognized in the income statement under other operating expenses.
For the purpose of calculating the recoverable amount, both the fair value less costs to sell and the value in use are determined from the present value of the future net cash fl ows. These are forecast on the basis of the Bayer Group's current planning, the planning horizon normally being three to fi ve years. Forecasting involves making assumptions, especially regarding future selling prices, sales volumes and costs. Where the recoverable amount is the fair value less costs to sell, the cash-generating unit is measured from the viewpoint of an independent market participant. Where the recoverable amount is the value in use, the cash-generating unit is measured as currently used. In either case, net cash fl ows beyond the planning period are determined on the basis of long-term business expectations using individual growth rates derived from the respective market information. The assumed growth rates, depending on the strategic business entity being measured, are 0% to 1.8% (2008: 0% to 2.0%) for HealthCare, 1.4% to 4.0% (2008: 1.7% to 6.4%) for CropScience and 0.5% (2008: 0% to 1.0%) for MaterialScience.
Bayer calculates the cost of capital on the basis of weighted average cost of equity and debt capital. The underlying capital structure of each subgroup is determined by benchmarking against comparable companies in the same industry sector. The cost of equity corresponds to the return expected by stockholders, while the cost of debt is based on the conditions on which comparable companies can obtain long-term fi nancing. Both components are derived from capital market information.
To allow for the different risk and return profi les of the Bayer Group's principal businesses, the after-tax cost of capital is calculated separately for each subgroup. The discount rates used are 6.9% (2008: 7.6%) for HealthCare, 6.7% (2008: 7.0%) for MaterialScience and 7.0% (2008: 7.9%) for CropScience. As in the previous year, a risk premium of 3.5 percentage points was added to the discount rate for the strategic business entity Crop Improvement, which is part of the Environmental Science, BioScience reporting segment. The after-tax discount rates quoted above are equivalent to pre-tax rates of 8.5% to 9.9% (2008: 9.2% to 10.7%) for HealthCare, 8.5% to 12.0% (2008: 8.6% to 12.9%) for CropScience and 8.4% to 9.7% (2008: 8.5% to 10.7%) for MaterialScience. These rates are based on assumptions and estimates relating to business-specifi c costs of capital, which in turn depend on country risks, credit risks, and additional risks resulting from the volatility of certain businesses. The risk adjustment for each subgroup is determined by benchmarking against comparable companies in the same industry sector.
Sensitivity analysis is based on a 10% decline in future cash fl ows and a 10% increase in the weighted average cost of capital because changes up to this magnitude are reasonably possible, especially in the long term. Although greater changes than this have been observed due to the global economic and fi nancial crisis, we do not believe these will be sustained, and such changes therefore remain likely only in the short term. We therefore concluded that there is no indication of potential goodwill impairment in any of the cash-generating units. In 2009, as in 2008, no impairment losses were recorded on the basis of the global annual impairment testing of the cash-generating units.
Although the estimates of the useful lives of certain assets, assumptions concerning the macroeconomic environment and developments in the industries in which the Bayer Group operates and estimates of the discounted future cash fl ows are believed to be appropriate, changes in assumptions or circumstances could require changes in the analysis. This could lead to additional impairment charges in the future or – except in the case of goodwill – to valuation write-backs should the expected trends reverse.
The accounting standard ifrs 8 (Operating Segments) was applied for the fi rst time as of the beginning of 2009. In addition, the following changes were implemented compared with the Consolidated Financial Statements for 2008:
• The integration of the thermoplastic polyurethanes businesses into the Polyurethanes and the Coatings, Adhesives, Specialties business units completed an important phase in the reorganization of the MaterialScience portfolio. It led to an adjustment in the segment presentation for that subgroup. The previously separate Materials and Systems segments were combined to form a single MaterialScience segment in light of their similar long-term economic performance and the comparability of their products, production processes, customer industries, distribution channels and regulatory environment.
At Bayer the Board of Management, as the chief operating decision maker, allocates resources to the operating segments and assesses their performance. The reportable segments and regions are identifi ed, and the disclosures selected, in line with the internal fi nancial reporting system (management approach).
As of December 31, 2009 the Bayer Group comprised three subgroups, with operations subdivided into strategic business entities known as divisions (HealthCare) or business units (CropScience and MaterialScience). Their activities are aggregated into the fi ve reportable segments listed below according to economic characteristics, products, production processes, customer relationships and methods of distribution.
The segments' activities are as follows:
| Activities of the Segments | [Table 4.10] |
|---|---|
| Subgroup / Segment | Activities |
| HealthCare | |
| Pharmaceuticals | Development, production and marketing of prescription pharmaceuticals, such as for the treatment of hypertension, cardiovascular diseases, infectious diseases, cancer, multiple sclerosis, and for contraception; contrast media for use in diagnostic imaging. |
| Consumer Health | Development, production and marketing of over-the-counter medications, dietary supplements for humans and animals, veterinary medicines and grooming products for animals; diagnostic systems such as blood glucose meters, medical equipment such as injection systems for diagnostic procedures. |
| CropScience | |
| Crop Protection | Development, production and marketing of a comprehensive portfolio of fungicides, herbicides, insecticides and seed treatment products to meet a wide range of regional requirements. |
| Environmental Science, BioScience | Development, production and marketing of a wide range of products for the green industry, garden care, non-agricultural pest and weed control as well as seeds and plant traits. |
| MaterialScience | |
| MaterialScience | Development, production and marketing of high-quality plastics granules, sheet and fi lm; development, production and marketing of polyurethanes for a wide variety of applications and of coating and adhesive raw materials; production and marketing of inorganic basic chemicals. |
The segment table presents continuing operations only. Details of the discontinued operations are given in Note [6.3].
The reconciliation in the region table eliminates interregional sales and refl ects income, expenses, assets and liabilities not allocable to geographical areas, particularly those relating to the Corporate Center.
The segment data are calculated as follows:
The reconciliations of the operating result (ebit), assets and liabilities of the reporting segments to the pre-tax income, the assets and the liabilities of the Group are given in the following table:
| Reconciliation of Segment Result | [Table 4.11] | |
|---|---|---|
| 2008 | 2009 | |
| € million | € million | |
| Operating result of reporting segments | 3,714 | 3,204 |
| Operating result of Corporate Center | (170) | (198) |
| Operating result [EBIT] | 3,544 | 3,006 |
| Non-operating result | (1,188) | (1,136) |
| Income before income taxes (total) | 2,356 | 1,870 |
| Reconciliation of Segment Assets to Group Assets | [Table 4.12] | |
|---|---|---|
| 2008 | 2009 | |
| € million | € million | |
| Assets of reporting segments | 46,208 | 44,703 |
| Corporate Center assets | 1,270 | 1,222 |
| Non-allocated assets | 5,025 | 5,117 |
| Assets held for sale and discontinued operations | 8 | - |
| Total assets | 52,511 | 51,042 |
| Reconciliation of Segment Liabilities to Group Liabilities | [Table 4.13] | |
|---|---|---|
| 2008 | 2009 | |
| € million | € million | |
| Liabilities of reporting segments | 11,855 | 12,295 |
| Corporate Center liabilities | 3,584 | 3,204 |
| Non-allocated liabilities | 20,719 | 16,592 |
| Liabilities directly related to assets held for sale and discontinued operations | 13 | - |
| Total liabilities | 36,171 | 32,091 |
The reconciliation of segment sales to Group sales is apparent from the table of key data by segment in Note [1].
The following table provides a regional breakdown of external sales by market and of intangible assets, property, plant and equipment:
| Information on Geographical Areas [Table 4.14] |
||||
|---|---|---|---|---|
| Net sales (external) – by market |
Intangible assets and property, plant and equipment |
|||
| 2008 | 2009 | 2008 | 2009 | |
| € million | € million | € million | € million | |
| Germany | 4,797 | 4,147 | 16,896 | 15,944 |
| United States | 7,053 | 6,753 | 5,466 | 5,333 |
| Other | 21,068 | 20,268 | 9,728 | 9,678 |
| Total | 32,918 | 31,168 | 32,090 | 30,955 |
Revenues from transactions with a single customer in no case exceeded 10% of Bayer Group sales in 2009 or 2008.
The consolidated fi nancial statements include all subsidiaries, joint ventures and associates. Subsidiaries are those companies in which Bayer AG directly or indirectly has a majority of the voting rights or from which it is able to derive the greater part of the economic benefi t and bears the greater part of the risk by virtue of its power to govern corporate fi nancial and operating policies, generally through an ownership interest of more than 50%. Special-purpose entities (spes) are consolidated even when Bayer AG holds 50% or less of the voting rights or shares if the substance of the economic relationship indicates that the spe is controlled by Bayer AG. Inclusion of a company's accounts in the consolidated fi nancial statements begins when Bayer AG starts to exercise control over the company and ceases when it is no longer able to do so.
Joint ventures are companies over which the Bayer Group exercises joint control with a third party. A company is generally deemed a joint venture if voting rights are divided equally between two stockholders or the company is established on the basis of a joint venture agreement.
Associates over which Bayer AG exerts signifi cant infl uence, generally through an ownership interest between 20% and 50%, are accounted for by the equity method.
Subsidiaries that do not have a material impact on the Group's fi nancial position or results of operations, either individually or in aggregate, are recognized in the consolidated fi nancial statements at amortized cost.
| Change in Number of Consolidated Companies | [Table 4.15] | ||
|---|---|---|---|
| Germany | Other Countries |
Total | |
| Bayer AG and consolidated companies | |||
| December 31, 2008 | 63 | 253 | 316 |
| Changes in scope of consolidation | (1) | - | (1) |
| Additions | 1 | 1 | 2 |
| Retirements | (4) | (11) | (15) |
| December 31, 2009 | 59 | 243 | 302 |
The decrease in the number of fully consolidated companies in 2009 is primarily due to mergers between Group companies.
The above table refl ects four joint ventures that were included by proportionate consolidation in 2009 and 2008 in compliance with ias 31 (Interests in Joint Ventures). These joint ventures affected the Group statement of fi nancial position and income statement as follows:
| Assets, Liabilities and Results of Operations of Joint Ventures | [Table 4.16] | ||
|---|---|---|---|
| 2009 | 2009 | ||
| € million | € million | ||
| Current assets | 30 | Income | 48 |
| Noncurrent assets | 78 | Expenses | (45) |
| Current liabilities | (20) | ||
| Noncurrent liabilities | (13) | ||
| Net assets | 75 | Income after taxes | 3 |
Also included in the consolidated fi nancial statements are fi ve associates – the same number as in 2008 – which are accounted for by the equity method. Details of their impact on the income statement and the statement of fi nancial position are shown in Note [19].
A total of 79 subsidiaries and 23 associates or joint ventures that in aggregate are immaterial to the Bayer Group's fi nancial position and results of operations are not consolidated but recognized at amortized cost. The immaterial subsidiaries account for less than 0.3% of Group sales, less than 0.3% of equity and less than 0.3% of total assets.
The companies fully consolidated in the fi nancial statements of the Bayer Group are listed in the following table:
| Fully Consolidated Subsidiaries [Table 4.17] |
||
|---|---|---|
| Company Name | Place of Business | Bayer's interest |
| % | ||
| Europe | ||
| Alcafl eu Management GmbH & Co. KG | Schönefeld, Germany | 99.9 |
| Bayer (Schweiz) AG | Zurich, Switzerland | 100 |
| Bayer 04 Immobilien GmbH | Leverkusen, Germany | 100 |
| Bayer 04 Leverkusen Fußball GmbH | Leverkusen, Germany | 100 |
| Bayer A / S | Lyngby, Denmark | 100 |
| Bayer AB | Stockholm, Sweden | 100 |
| Bayer AEH Ltd. | Cambridge, U.K. | 100 |
| Bayer AGCO Ltd. | Cambridge, U.K. | 100 |
| Bayer Agriculture Ltd. | Cambridge, U.K. | 100 |
| Bayer Animal Health GmbH | Leverkusen, Germany | 100 |
| Bayer Antwerpen N.V. | Antwerp, Belgium | 100 |
| Bayer AS | Oslo, Norway | 100 |
| Bayer Austria Gesellschaft m.b.H. | Vienna, Austria | 100 |
| Bayer B.V. | Mijdrecht, Netherlands | 100 |
| Bayer Beteiligungsverwaltung Goslar GmbH | Leverkusen, Germany | 100 |
| Bayer Beteiligungsverwaltungsgesellschaft mbH | Leverkusen, Germany | 100 |
| Bayer BioScience GmbH | Potsdam, Germany | 100 |
| Bayer BioScience N.V. | Ghent, Belgium | 100 |
| Bayer Bitterfeld GmbH | Bitterfeld-Wolfen, Germany | 100 |
| Bayer Bulgaria EOOD | Sofi a, Bulgaria | 100 |
| Bayer Business Services GmbH | Leverkusen, Germany | 100 |
| Bayer Capital Corporation B.V. | Mijdrecht, Netherlands | 100 |
| Bayer Chemicals AG | Leverkusen, Germany | 100 |
| Bayer Consumer Care AG | Basel, Switzerland | 100 |
| Bayer CropScience (Portugal)-Produtos | ||
| para a Agricultura Lda. | Carnaxide, Portugal | 100 |
| Bayer CropScience AG | Monheim, Germany | 100 |
| Bayer CropScience B.V. | Mijdrecht, Netherlands | 100 |
| Bayer CropScience Beteiligungsgesellschaft mbH | Frankfurt am Main, Germany | 100 |
| Bayer CropScience Deutschland GmbH | Langenfeld, Germany | 100 |
| Bayer CropScience France S.A.S. | Lyon, France | 100 |
| Bayer CropScience Holding S.A. | Lyon, France | 100 |
| Bayer CropScience Holdings Ltd. | Cambridge, U.K. | 100 |
| Bayer CropScience Ltd. | Cambridge, U.K. | 100 |
| Bayer CropScience Norwich Ltd. | Cambridge, U.K. | 100 |
| Bayer CropScience Nufarm S.A. | Lyon, France | 100 |
| Bayer CropScience S.A. | Lyon, France | 100 |
| Bayer CropScience S.A.-N.V. | Diegem, Belgium | 100 |
| Bayer CropScience S.L. | Valencia, Spain | 100 |
| Bayer CropScience S.r.l. | Milan, Italy | 100 |
| Bayer CropScience Vermögensverwaltungsgesellschaft | ||
| mbH | Leverkusen, Germany | 100 |
| Bayer d.o.o. | Belgrade, Serbia | 100 |
| Bayer d.o.o. | Ljubljana, Slovenia | 100 |
| Bayer d.o.o. | Zagreb, Croatia | 100 |
| Bayer Diagnostics Manufacturing Ltd. | Bridgend, U.K. | 100 |
| Bayer Direct Services GmbH | Leverkusen, Germany | 100 |
| Bayer Environmental Science S.A.S. | Lyon, France | 100 |
| Bayer Gastronomie GmbH | Leverkusen, Germany | 100 |
| Company Name | Place of Business | Bayer's interest |
|---|---|---|
| % | ||
| Bayer Gesellschaft für Beteiligungen mbH | Leverkusen, Germany | 100 |
| Bayer HealthCare AG | Leverkusen, Germany | 100 |
| Bayer HealthCare Manufacturing S.r.l. | Milan, Italy | 100 |
| Bayer Hellas AG | Athens, Greece | 100 |
| Bayer Hispania S.L. | Sant Joan Despi, Spain | 100 |
| Bayer Hungaria Kft. | Budapest, Hungary | 100 |
| Bayer Innovation GmbH | Düsseldorf, Germany | 100 |
| Bayer International S.A. | Fribourg, Switzerland | 100 |
| Bayer Ltd. | Dublin, Ireland | 100 |
| Bayer Ltd. | Kiev, Ukraine | 100 |
| Bayer MaterialScience AG | Leverkusen, Germany | 100 |
| Bayer MaterialScience Customer Services GmbH | Leverkusen, Germany | 100 |
| Bayer MaterialScience S.L. | Sant Joan Despi, Spain | 100 |
| Bayer MaterialScience S.r.l. | Milan, Italy | 100 |
| Bayer Oy | Espoo, Finland | 100 |
| Bayer Polyols S.N.C. | Puteaux, France | 100 |
| Bayer Polyurethanes B.V. | Mijdrecht, Netherlands | 100 |
| Bayer Portugal S.A. | Lisbon, Portugal | 100 |
| Bayer Public Limited Company | Newbury, U.K. | 100 |
| Bayer Real Estate GmbH | Leverkusen, Germany | 100 |
| Bayer S.A.-N.V. | Diegem, Belgium | 100 |
| Bayer S.A.S. | Puteaux, France | 100 |
| Bayer S.p.A. | Milan, Italy | 100 |
| Bayer s.r.o. | Prague, Czech Republic | 100 |
| Bayer Santé Familiale S.A.S. | Gaillard, France | 100 |
| Bayer Santé S.A.S. | Puteaux, France | 100 |
| Bayer Schering Pharma AG | Berlin, Germany | 100 |
| Bayer Schering Pharma Oy | Turku, Finland | 100 |
| Bayer Sheet Europe GmbH | Darmstadt, Germany | 100 |
| Bayer Sheet Europe N.V. | Tielt, Belgium | 100 |
| Bayer Sheet Europe S.p.A. | Milan, Italy | 90 |
| Bayer Sp.Z.o.o. | Warsaw, Poland | 100 |
| Bayer spol. s.r.o. | Bratislava, Slovakia | 100 |
| Bayer Technology Services GmbH | Leverkusen, Germany | 100 |
| Bayer Verwaltungsgesellschaft für Anlagevermögen mbH |
Leverkusen, Germany | 100 |
| Bayer Vital GmbH | Leverkusen, Germany | 100 |
| Bayer-Handelsgesellschaft mbH | Leverkusen, Germany | 100 |
| Bayfi n GmbH | Leverkusen, Germany | 100 |
| BaySystems B.V. | Foxhol, Netherlands | 100 |
| BaySystems GmbH & Co. KG | Oldenburg, Germany | 100 |
| BaySystems Italia S.p.A. | Mussolente, Italy | 100 |
| Berlimed S.A. | Madrid, Spain | 100 |
| Berlis AG | Zurich, Switzerland | 100 |
| Biogenetic Technologies B.V. | Rotterdam, Netherlands | 100 |
| Chemie-Beteiligungsaktiengesellschaft | Glarus, Switzerland | 100 |
| Chemion Logistik GmbH | Leverkusen, Germany | 100 |
| Currenta GmbH & Co. OHG | Leverkusen, Germany | 60 |
| Drugofa GmbH | Cologne, Germany | 100 |
| Dynevo GmbH | Leverkusen, Germany | 100 |
| Epurex Films GmbH & Co. KG | Bomlitz, Germany | 100 |
| Erste K-W-A Beteiligungsgesellschaft mbH | Leverkusen, Germany | 100 |
| Euroservices Bayer GmbH | Leverkusen, Germany | 100 |
| Euroservices Bayer S.L. | Sant Joan Despi, Spain | 100 |
| Company Name | Place of Business | Bayer's interest |
|---|---|---|
| % | ||
| Generics Holding GmbH | Leverkusen, Germany | 100 |
| GP Grenzach Produktions GmbH | Grenzach-Wyhlen, Germany | 100 |
| Hild Samen GmbH | Marbach am Neckar, Germany | 100 |
| Icon Genetics GmbH | Munich, Germany | 100 |
| Intendis Austria Handels GesmbH | Vienna, Austria | 100 |
| Intendis GmbH | Berlin, Germany | 100 |
| Intendis Manufacturing S.p.A. | Milan, Italy | 100 |
| Intendis Polska Sp.Zo.o. | Warsaw, Poland | 100 |
| Intendis Portugal Sociedade Unipessoal Lda. | Mem Martins, Portugal | 100 |
| Intendis S.p.A. | Milan, Italy | 100 |
| Jenapharm GmbH & Co. KG | Jena, Germany | 100 |
| Kosinus Grundstücks-Verwaltungsgesellschaft mbH & Co. Gamma OHG |
Berlin, Germany | 100 |
| KVP Pharma+Veterinär Produkte GmbH | Kiel, Germany | 100 |
| Marotrast GmbH | Jena, Germany | 100 |
| Mediwest Norway AS | Oslo, Norway | 100 |
| Medrad Belgium BVBA | Antwerp, Belgium | 100 |
| Medrad Denmark ApS | Glostrup, Denmark | 100 |
| Medrad Europe B.V. | Maastricht, Netherlands | 100 |
| Medrad France S.A.R.L. | Rungis Cedex, France | 100 |
| Medrad Italia S.r.l. | Cava Manara, Italy | 100 |
| Medrad Medizinische Systeme GmbH | Volkach, Germany | 100 |
| Medrad Sweden AB | Västra Frölunda, Sweden | 100 |
| Medrad UK Ltd. | Ely, U.K. | 100 |
| Menadier Heilmittel GmbH | Berlin, Germany | 100 |
| Nunhems B.V. | Nunhem, Netherlands | 100 |
| Nunhems France S.A.R.L. | Soucelles, France | 100 |
| Nunhems Hungary Kft. | Szolnok, Hungary | 100 |
| Nunhems Italy S.r.l. | St. Agata Bolognes, Italy | 100 |
| Nunhems Netherlands B.V. | Nunhem, Netherlands | 100 |
| Nunhems Poland Sp.Zo.o. | Poznan, Poland | 100 |
| Nunhems Spain S.A. | Valencia, Spain | 100 |
| Pallas Versicherung AG | Leverkusen, Germany | 100 |
| pbi Home & Garden Ltd. | Cambridge, U.K. | 100 |
| PGS International N.V. | The Hague, Netherlands | 100 |
| Pharma Verlagsbuchhandlung GmbH | Berlin, Germany | 100 |
| Quimica Farmacéutica Bayer S.L. | Sant Joan Despi, Spain | 100 |
| SC Bayer S.r.l. | Bucharest, Romania | 100 |
| Schering AG | Berlin, Germany | 100 |
| Schering Agrochemicals Holdings | Burgess Hill, U.K. | 100 |
| Schering Espana S.A. | Madrid, Spain | 99.9 |
| Schering GmbH und Co. Produktions KG | Weimar, Germany | 100 |
| Schering Health Care Ltd. | Burgess Hill, U.K. | 100 |
| Schering Holdings Ltd. | Burgess Hill, U.K. | 100 |
| Schering Industrial Products | Burgess Hill, U.K. | 100 |
| Schering International Holding GmbH | Berlin, Germany | 100 |
| Schering Kahlbaum GmbH | Berlin, Germany | 100 |
| Tectrion GmbH | Leverkusen, Germany | 100 |
| Too Bayer KAZ | Astana, Kazakhstan | 100 |
| TravelBoard GmbH | Leverkusen, Germany | 100 |
| UAB Bayer | Vilnius, Lithuania | 100 |
| Viverso GmbH | Bitterfeld-Wolfen, Germany | 100 |
| ZAO Bayer Zweite K-W-A Beteiligungsgesellschaft mbH |
Moscow, Russia Leverkusen, Germany |
100 100 |
| Company Name | Place of Business | Bayer's interest |
|---|---|---|
| % | ||
| North America | ||
| Athenix Corp. | Research Triangle Park, U.S.A. | 100 |
| Bayer Business and Technology Services LLC | Pittsburgh, U.S.A. | 100 |
| Bayer Canadian Holdings Inc. | Toronto, Canada | 100 |
| Bayer Corporation | Pittsburgh, U.S.A. | 100 |
| Bayer Cotton Seed International Inc. | Research Triangle Park, U.S.A. | 51 |
| Bayer CropScience Holding Inc. | Research Triangle Park, U.S.A. | 100 |
| Bayer CropScience Holdings Inc. | Calgary, Canada | 100 |
| Bayer CropScience Inc. | Calgary, Canada | 100 |
| Bayer CropScience Inc. | Research Triangle Park, U.S.A. | 100 |
| Bayer CropScience LLC | Research Triangle Park, U.S.A. | 100 |
| Bayer CropScience LP | Research Triangle Park, U.S.A. | 100 |
| Bayer HealthCare LLC | Tarrytown, U.S.A. | 100 |
| Bayer HealthCare Pharmaceuticals Inc. | Pine Brook, U.S.A. | 100 |
| Bayer HealthCare Pharmaceuticals LLC | Seattle, U.S.A. | 100 |
| Bayer Inc. | Toronto, Canada | 100 |
| Bayer MaterialScience LLC | Pittsburgh, U.S.A. | 100 |
| Bayer Pharma Chemicals Inc. | Pine Brook, U.S.A. | 100 |
| Bayer Puerto Rico Inc. | San Juan, Puerto Rico | 100 |
| Baypo I LLC | New Martinsville, U.S.A. | 100 |
| Baypo II LLC | New Martinsville, U.S.A. | 100 |
| Baypo LP | New Martinsville, U.S.A. | 100 |
| Bippo Corporation | New Martinsville, U.S.A. | 100 |
| Collateral Therapeutics Inc. | San Diego, U.S.A. | 100 |
| Cooper Land Company of New Jersey Inc. | Tarrytown, U.S.A. | 100 |
| Deerfi eld Urethane Inc. | South Deerfi eld, U.S.A. | 100 |
| Guidance Interactive Healthcare Inc. | Tarrytown, U.S.A. | 100 |
| Intendis Inc. | Pine Brook, U.S.A. | 100 |
| iSense Corporation | Wilsonville, U.S.A. | 100 |
| iSense Development Corporation | Wilsonville, U.S.A. | 100 |
| Medrad Inc. | Indianola, U.S.A. | 100 |
| Medrad Saxonburg Inc. | Saxonburg, U.S.A. | 100 |
| MTFP Inc. | Wilmington, U.S.A. | 100 |
| NippoNex Inc. | Springfi eld, U.S.A. | 100 |
| NOR-AM Agro LLC | Pine Brook, U.S.A. | 100 |
| NOR-AM Land Company | Pine Brook, U.S.A. | 100 |
| Nunhems USA Inc. | Morgan Hill, U.S.A. | 100 |
| Pallas North America Insurance Company Inc. | Burlington, U.S.A. | 100 |
| SB Capital Corporation | Pine Brook, U.S.A. | 100 |
| Schering Berlin Inc. | Pine Brook, U.S.A. | 100 |
| Schering Berlin Venture Corporation | Pine Brook, U.S.A. | 100 |
| Stoneville Pedigreed Seed Company | St. Louis, U.S.A. | 100 |
| STWB Inc. | Pittsburgh, U.S.A. | 100 |
| Texas Brine Company LLC | Houston, U.S.A. | 0* |
| Asia / Pacific | ||
| Bayer (Beijing) Sheet Co. Ltd. | Beijing, China | 100 |
| Bayer (China) Ltd. | Beijing, China | 100 |
| Bayer (Malaysia) Sdn. Bhd. | Petaling Jaya, Malaysia | 100 |
| Bayer (Sichuan) Animal Health Co. Ltd. | Chengdu, China | 70 |
| Bayer (South East Asia) Pte. Ltd. | Singapore | 100 |
| Bayer Australia Ltd. | Pymble, Australia | 100 |
* fully consolidated special-purpose entity according to IAS 27 in conjunction with SIC 12
| Company Name | Place of Business | Bayer's interest |
|---|---|---|
| % | ||
| Bayer BioScience Pvt. Ltd. | Hyderabad, India | 100 |
| Bayer Co. (Malaysia) Sdn. Bhd. | Petaling Jaya, Malaysia | 100 |
| Bayer Coatings Systems Shanghai Co. Ltd. | Shanghai, China | 100 |
| Bayer CropScience (China) Co. Ltd. | Hangzhou, China | 100 |
| Bayer CropScience (Pvt) Ltd. | Karachi, Pakistan | 100 |
| Bayer CropScience Co. Ltd. | Taipeh, Taiwan | 100 |
| Bayer CropScience Holdings Pty Ltd. | East Hawthorn, Australia | 100 |
| Bayer CropScience Inc. | Laguna, Philippines | 100 |
| Bayer CropScience K.K. | Tokyo, Japan | 100 |
| Bayer CropScience Ltd. | Mumbai, India | 71.1 |
| Bayer CropScience Ltd. | Seoul, South Korea | 100 |
| Bayer CropScience Pty Ltd. | East Hawthorn, Australia | 100 |
| Bayer Far East Service Co. Ltd. | Hong Kong, China | 100 |
| Bayer Healthcare Co. Ltd. | Beijing, China | 100 |
| Bayer HealthCare Ltd. | Hong Kong, China | 100 |
| Bayer Holding Ltd. | Tokyo, Japan | 100 |
| Bayer Jinling Polyurethane Co. Ltd. | Nanjing, China | 55 |
| Bayer Korea Ltd. | Seoul, South Korea | 100 |
| Bayer MaterialScience Ltd. | Hong Kong, China | 100 |
| Bayer MaterialScience Ltd. | Tokyo, Japan | 100 |
| Bayer MaterialScience Pty Ltd. | Pymble, Australia | 100 |
| Bayer MaterialScience Pvt. Ltd. | Mumbai, India | 100 |
| Bayer MaterialScience Trading (Shanghai) Co. Ltd. | Shanghai, China | 100 |
| Bayer New Zealand Ltd. | Auckland, New Zealand | 100 |
| Bayer Pakistan (Pvt) Ltd. | Karachi, Pakistan | 100 |
| Bayer Pharmaceuticals Pvt. Ltd. | Mumbai, India | 100 |
| Bayer Philippines Inc. | Makati City, Philippines | 100 |
| Bayer Polymers (Shanghai) Co. Ltd. | Shanghai, China | 100 |
| Bayer Polyurethanes (Shanghai) Co. Ltd. | Shanghai, China | 100 |
| Bayer Polyurethanes Taiwan Ltd. | Taipeh, Taiwan | 94.9 |
| Bayer Sheet Korea Ltd. | Kimhae City, South Korea | 100 |
| Bayer Taiwan Company Ltd. | Taipeh, Taiwan | 100 |
| Bayer Technology and Engineering (Shanghai) Co. Ltd. | Shanghai, China | 100 |
| Bayer Thai Company Ltd. | Bangkok, Thailand | 100 |
| Bayer TPU (Shenzhen) Co. Ltd. | Shenzhen, China | 100 |
| Bayer Uretech Ltd. | Yu Pu Village, Taiwan | 100 |
| Bayer Vietnam Ltd. | Bien Hoa City (Amata), Vietnam | 100 |
| Bayer Yakuhin Ltd. | Osaka, Japan | 100 |
| Bilag Industries Pvt. Ltd. | Vapi, India | 100 |
| Guangzhou Bayer MaterialScience Co. Ltd. | Guangzhou, China | 100 |
| Imaxeon Pty. Ltd. | Rydalmere, Australia | 100 |
| Intendis K.K. | Osaka, Japan | 100 |
| Medipharm (Pvt) Ltd. | Lahore, Pakistan | 100 |
| Medrad Asia Pte. Ltd. | Singapore | 100 |
| Nihon Medrad K.K. | Osaka, Japan | 100 |
| Nunhems Beijing Seeds Co. Ltd. | Beijing, China | 95 |
| Nunhems India Pvt. Ltd. | Haryana, India | 100 |
| PT. Bayer Indonesia | Jakarta, Indonesia | 99.8 |
| PT. Bayer MaterialScience Indonesia | Jakarta, Indonesia | 99.9 |
| Sumika Bayer Urethane Co. Ltd. | Osaka, Japan | 60 |
| U I M Agrochemicals (Aust) Pty Ltd. | East Hawthorn, Australia | 100 |
| % Latin America /Africa / Middle East AgrEvo South Africa (Pty) Ltd. Isando, South Africa 100 Alimtec S.A. Santiago, Chile 40* Bayer (Pty) Ltd. Isando, South Africa 100 Bayer Boliviana Ltda. Santa Cruz De La Sierra, Bolivia 100 Bayer Central America S.A. San Jose, Costa Rica 100 Bayer Cropscience S.A. Bogota, Colombia 100 Bayer de Mexico S.A. de C.V. Mexico City, Mexico 100 Bayer East Africa Ltd. Nairobi, Kenya 55 Bayer Israel Ltd. Hod Hasharon, Israel 100 Bayer Middle East FZE Dubai, United Arab Emirates 100 Bayer S.A. Asuncion, Paraguay 100 Bayer S.A. Bogota, Colombia 100 Bayer S.A. Buenos Aires, Argentina 100 Bayer S.A. Caracas, Venezuela 100 Bayer S.A. Casablanca, Morocco 100 Bayer S.A. Colón, Panama 100 Bayer S.A. Guatemala City, Guatemala 100 Bayer S.A. Lima, Peru 89.3 Bayer S.A. Managua, Nicaragua 100 Bayer S.A. Montevideo, Uruguay 100 Bayer S.A. Quito, Ecuador 100 Bayer S.A. San Jose, Costa Rica 100 Bayer S.A. San Salvador, El Salvador 100 Bayer S.A. Santiago, Chile 100 Bayer S.A. Santo Domingo, Dom. Republic 100 Bayer S.A. Sao Paulo, Brazil 100 Bayer S.A. de C.V. Tegucigalpa, Honduras 100 Bayer Türk Kimya Sanayi Limited Sirketi Istanbul, Turkey 100 BaySystems Pearl FZCO Dubai, United Arab Emirates 51 Corporación Bonima S.A. de C.V. Ilopango, El Salvador 99.8 Cropsa S.A.C. Lima, Peru 100 Intendis do Brasil Farmaceutica Ltda. Itapevi, Brazil 100 Intendis Ilac Ticaret Limited Sirketi Istanbul, Turkey 100 Intendis Mexicana S.A. de C.V. Mexico City, Mexico 100 Mediterranean Seeds Ltd. Einat, Israel 100 Medrad do Brasil Ltda. Sao Paulo, Brazil 100 Medrad Mexicana S. de R.L. de CV Mexico City, Mexico 100 Nunhems Chile S.A. Santiago, Chile 100 Nunhems do Brasil Comercio de Sementes Ltda. Campinas, Brazil 100 Nunhems Mexico S.A. de C.V. Queretaro, Mexico 99 Nunhems Tohumculuk Limited Sirketi Antalya, Turkey 100 Proquina Productos Quimicos Naturales S.A. de C.V. Orizaba, Mexico 100 Schering (Pty) Ltd. Midrand, South Africa 100 Schering do Brasil Quimica e Farmaceutica Ltda. Sao Paulo, Brazil 100 |
Company Name | Place of Business | Bayer's interest |
|---|---|---|---|
* fully consolidated special-purpose entity according to IAS 27 in conjunction with SIC 12
The following four joint ventures are included in the fi nancial statements of the Bayer Group by proportionate consolidation:
| Joint Ventures [Table 4.18] |
||
|---|---|---|
| Company Name | Place of Business | Bayer's interest |
| % | ||
| Baulé S.A.S. | Romans-sur-Isère, France | 50 |
| Bayer IMSA S.A. de C.V. | Leon, Mexico | 50 |
| BayOne Urethane Systems LLC | St. Louis, U.S.A. | 50 |
| Indurisk Rückversicherung AG | Luxembourg, Luxembourg | 50 |
The following associates are accounted for in the consolidated fi nancial statements by the equity method:
| Associated Companies | [Table 4.19] | |
|---|---|---|
| Company Name | Place of Business | Bayer's interest |
| % | ||
| DIC Bayer Polymer Ltd. | Tokyo, Japan | 50 |
| Lyondell Bayer Manufacturing Maasvlakte VOF | Rotterdam, Netherlands | 50 |
| Palthough Industries (1998) Ltd. | Kibbutz Ramat Yochanan, Israel | 25 |
| PO JV LP | Wilmington, U.S.A. | 41.3 |
| Polygal Plastics Industries Ltd. | Kibbutz Ramat Hashofer, Israel | 25.8 |
The following subsidiaries are refl ected in the consolidated fi nancial statements at amortized cost due to their immateriality:
| Immaterial Subsidiaries | [Table 4.20] | |
|---|---|---|
| Company Name | Place of Business | Bayer's interest |
| % | ||
| Europe | ||
| 1. BCrSV GmbH | Leverkusen, Germany | 100 |
| 2. BHCV GmbH | Leverkusen, Germany | 100 |
| Agreva GmbH | Frankfurt am Main, Germany | 100 |
| AgrEvo Verwaltungsgesellschaft mbH | Frankfurt am Main, Germany | 100 |
| Ausbildungsinitiative Rheinland GmbH | Leverkusen, Germany | 100 |
| Bayer 04 Leverkusen Sportförderung gGmbH | Leverkusen, Germany | 100 |
| Bayer 04 Marketing GmbH | Leverkusen, Germany | 100 |
| Bayer 04 Mobilien GmbH | Leverkusen, Germany | 100 |
| Bayer d.o.o. Sarajevo | Sarajevo, Bosnia & Herzegovina | 100 |
| Bayer Healthcare S.r.l. | Milan, Italy | 100 |
| Bayer Immobilier S.A.S. | Puteaux, France | 100 |
| Bayer Innovation Ventures GmbH | Düsseldorf, Germany | 100 |
| Bayer International Service GmbH | Leverkusen, Germany | 100 |
| Bayer OÜ | Tallinn, Estonia | 100 |
| Bayer UK Ltd. | Newbury, U.K. | 100 |
| Bayer-Unterstützungskasse GmbH | Leverkusen, Germany | 100 |
| Bayhealth Comercializacao de Produtos Farmaceuticos | ||
| Unipessoal Lda. | Lisbon, Portugal | 100 |
| Bayhealth S.L. | Sant Joan Despi, Spain | 100 |
Immaterial Subsidiaries [Table 4.20]
| Company Name | Place of Business | Bayer's interest |
|---|---|---|
| % | ||
| BayInvest GmbH | Leverkusen, Germany | 100 |
| BaySystems a.s. | Prague, Czech Republic | 100 |
| BaySystems Northern Europe A/S | Otterup, Denmark | 100 |
| BaySystems Verwaltungs-GmbH | Oldenburg, Germany | 100 |
| BCS Romania S.r.l. | Bucharest, Romania | 100 |
| Berlex Especialidades Farmaceuticas Lda. | Carnaxide, Portugal | 100* |
| Berlifarma Lda. | Carnaxide, Portugal | 100* |
| Berlimed-Especialidades Farmaceuticas Lda. | Carnaxide, Portugal | 100* |
| Berlipharm B.V. | Weesp, Netherlands | 100 |
| Centrofarma-Industria e Comercio de Prod. | ||
| Farmaceuticos Lda. | Coimbra, Portugal | 100 |
| CIS (U.K.) Ltd. | Burgess Hill, U.K. | 100 |
| Currenta Geschäftsführungs-GmbH | Leverkusen, Germany | 100 |
| Ehrfeld Mikrotechnik BTS GmbH | Wendelsheim, Germany | 100 |
| Epurex Films Geschäftsführungs-GmbH | Bomlitz, Germany | 100 |
| Fünfte Bayer VV GmbH | Leverkusen, Germany | 100 |
| Genus Grundstücks-Vermietungsgesellschaft mbH | ||
| & Co. KG | Düsseldorf, Germany | 100 |
| HTV Gesellschaft für Hochtemperaturverbrennung mbH | Bergkamen, Germany | 100 |
| Intendis Derma S.L. | Sant Joan Despi, Spain | 100 |
| Job@ctive GmbH | Leverkusen, Germany | 100 |
| Kosinus Grundstücks-Verwaltungsgesellschaft mbH | Berlin, Germany | 100 |
| Lilienthalstraße Nr. 4 GmbH | Schönefeld, Germany | 100 |
| Lusal Producao Quimico Farmaceutica Luso-Alema Lda. | Carnaxide, Portugal | 100 |
| Lusalfarma-Especialidades Farmaceuticas Lda. | Carnaxide, Portugal | 100* |
| Schering Industrial Products Holdings | Burgess Hill, U.K. | 100 |
| Schering Romania S.r.l. | Bucharest, Romania | 100 |
| Schering Verwaltungsgesellschaft mbH | Weimar, Germany | 100 |
| Sechste Bayer VV GmbH | Leverkusen, Germany | 100 |
| SIA Bayer | Riga, Latvia | 100 |
| Sportrechte Vermarktungs- und Verwertungs-GmbH | ||
| & Co. oHG | Leverkusen, Germany | 100 |
| ZAO Rhone-Poulenc AO | Moscow, Russia | 100 |
| North America | ||
| BayOne Canada Inc. | Niagara Falls, Canada | 100 |
| Berlex Canada Inc. | Pointe-Claire, Canada | 100 |
| BHCP Holdings LLC | Wilmington, U.S.A. | 100 |
| Delinting and Seed Treating Company | Maricopa, U.S.A. | 100 |
| Icon Genetics Inc. | Montmouth Junction, U.S.A. | 100 |
| The SDI Divestiture Corporation | Cincinnati, U.S.A. | 100 |
| Viterion TeleHealthcare LLC | Tarrytown, U.S.A. | 100 |
| Asia / Pacific | ||
| Bayer CropScience (OHQ) (Malaysia) Sdn Bhd | Kuala Lumpur, Malaysia | 100 |
| Bayer CropScience (Thailand) Company Ltd. | Bangkok, Thailand | 100 |
| Bayer CropScience Ltd. | Dhaka, Bangladesh | 60 |
| BCS (Pvt) Ltd. | Karachi, Pakistan | 100 |
| Chemdyes Pakistan (Pvt) Ltd. | Karachi, Pakistan | 100 |
| Medrad Medical Equipment Trading Company | Beijing, China | 100 |
| Myanmar Aventis CropScience Ltd. | Yangon, Myanmar | 100 |
| Schering (Malaysia) Sdn Bhd | Kuala Lumpur, Malaysia | 100 |
| Schering Pty. Ltd. | Alexandria, Australia | 100 |
* including a 10% interest held by a non-consolidated subsidiary
| Immaterial Subsidiaries [Table 4.20 (continued)] [Table 4.20] |
||
|---|---|---|
| Company Name | Place of Business | Bayer's interest |
| % | ||
| Latin America / Africa / Middle East | ||
| AgrEvo Middle East (Cyprus) Ltd. | Limassol, Cyprus | 100 |
| Aventis CropScience Malawi Ltd. | Blantyre, Malawi | 100 |
| Bayer Algerie S.P.A. | Algiers, Algeria | 100 |
| Bayer Distribuidora de Produtos Quimicos e | ||
| Farmaceuticos Ltda. | Sao Paulo, Brazil | 100 |
| Bayer Parsian AG | Teheran, Iran | 100 |
| Bayer Schering Pharma Mocambique Lda. | Maputo, Mozambique | 100* |
| Bayer Zimbabwe (Pvt) Ltd. | Harare, Zimbabwe | 100 |
| Centro Estrategico Canada Latinoamerica S.A. de C.V. | Mexico City, Mexico | 100 |
| Comercial Interamericana S.A. | Guatemala City, Guatemala | 100 |
| Farmaco Ltda. | Sao Paulo, Brazil | 100 |
| Junta Comercializadora de Productos de Latinoamerica | ||
| S.A. de C.V. | Mexico City, Mexico | 100 |
| Laboratorio Berlimed S.A. | Santiago, Chile | 100 |
| Miles S.A. Guatemala Branch | Guatemala City, Guatemala | 100 |
| Quimicas Unidas S.A. | Havana, Cuba | 100 |
| Schering Peruana S.A. | Lima, Peru | 100 |
* including a 10% interest held by a non-consolidated subsidiary
The following associates and joint ventures are accounted for at amortized cost due to their immateriality:
| Immaterial Associates and Joint Ventures | [Table 4.21] | |
|---|---|---|
| Company Name | Place of Business | Bayer's interest |
| % | ||
| Europe | ||
| Axxam S.p.A. | Milan, Italy | 24.5 |
| BaySecur GmbH | Leverkusen, Germany | 49 |
| BaySports-Travel GmbH | Leverkusen, Germany | 50 |
| BBB Management GmbH Campus Berlin-Buch | Berlin, Germany | 20 |
| Disalfarm S.A. | Barcelona, Spain | 33.3 |
| EMP-Estrusione Materiali Plastici S.A. | Stabio, Switzerland | 42.1 |
| Faserwerke Hüls GmbH | Marl, Germany | 50 |
| Pyco S.A. | Mont de Marsan, France | 47 |
| Sauerstoff- und Stickstoffrohrleitungsgesellschaft mbH | Krefeld, Germany | 50 |
| Société Immobilière de Gaillard d'Economie Mixte (SIGEM) |
Gaillard, France | 48 |
| Solavista GmbH & Co. KG | Potsdam, Germany | 50 |
| Solavista Verwaltungs GmbH | Potsdam, Germany | 50 |
| North America | ||
| Schein Pharmaceutical Canada Inc. | Toronto, Canada | 50 |
| Technology JV LP | Wilmington, U.S.A. | 33.3 |
| Immaterial Associates and Joint Ventures | [Table 4.21] | |
|---|---|---|
| Company Name | Place of Business | Bayer's interest |
| % | ||
| Asia / Pacific | ||
| Bayer DAS (Pvt) Ltd. | Karachi, Pakistan | 50 |
| Cotton Growers Services Pty. Ltd. | Wee Waa, Australia | 50 |
| Teijin-Bayer Polytec Ltd. | Tokyo, Japan | 50 |
| Latin America /Africa / Middle East | ||
| Bayer Middle East LLC | Dubai, United Arab Emirates | 49 |
| BaySystems Pearl LLC | Dubai, United Arab Emirates | 49 |
| Coopers Environmental Health Pty Ltd. | Pomona Gardens, South Africa | 26 |
| Polygal (Management) 1998 Ltd. | Megiddo, Israel | 25.7 |
| Polygal (Marketing) Ltd. LP | Megiddo, Israel | 25 |
| Wenkem SA (Pty) Ltd. | Midrand, South Africa | 24.9 |
The Bayer Group holds between 5% and 20% of the voting rights of the following "large limited liability companies" as defi ned in Section 267, paragraphs 2 and 3 of the German Commercial Code:
| Other Interests in Large Limited Liability Companies | [Table 4.22] | |
|---|---|---|
| Company Name | Place of Business | Bayer's interest |
| % | ||
| Hokkai Sankyo Co. Ltd. | Tokyo, Japan | 19.8 |
| Salzgewinnungsgesellschaft Westfalen mbH & Co. KG | Ahaus, Germany | 10 |
The following domestic subsidiaries availed themselves in 2009 of certain exemptions granted under Section 264, paragraph 3 and Section 264b of the German Commercial Code regarding the preparation, auditing and publication of fi nancial statements:
| German Exempt Subsidiaries | [Table 4.23] | |
|---|---|---|
| Company Name | Place of Business | Bayer's interest |
| % | ||
| Bayer 04 Immobilien GmbH | Leverkusen, Germany | 100 |
| Bayer 04 Leverkusen Fußball GmbH | Leverkusen, Germany | 100 |
| Bayer Animal Health GmbH | Leverkusen, Germany | 100 |
| Bayer Beteiligungsverwaltungsgesellschaft mbH | Leverkusen, Germany | 100 |
| Bayer BioScience GmbH | Potsdam, Germany | 100 |
| Bayer Bitterfeld GmbH | Bitterfeld-Wolfen, Germany | 100 |
| Bayer Business Services GmbH | Leverkusen, Germany | 100 |
| Bayer Chemicals AG | Leverkusen, Germany | 100 |
| Bayer CropScience AG | Monheim, Germany | 100 |
| Bayer Direct Services GmbH | Leverkusen, Germany | 100 |
| Bayer Gastronomie GmbH | Leverkusen, Germany | 100 |
| Bayer Gesellschaft für Beteiligungen mbH | Leverkusen, Germany | 100 |
| Bayer HealthCare AG | Leverkusen, Germany | 100 |
| Bayer Innovation GmbH | Düsseldorf, Germany | 100 |
| Bayer MaterialScience AG | Leverkusen, Germany | 100 |
| Bayer MaterialScience Customer Services GmbH | Leverkusen, Germany | 100 |
| Bayer Real Estate GmbH | Leverkusen, Germany | 100 |
| Bayer Schering Pharma AG | Berlin, Germany | 100 |
| [Table 4.23 (continued)] | ||
|---|---|---|
| Company Name | Place of Business | Bayer's interest |
|---|---|---|
| % | ||
| Bayer Technology Services GmbH | Leverkusen, Germany | 100 |
| Bayer Verwaltungsgesellschaft für Anlagevermögen mbH |
Leverkusen, Germany | 100 |
| Bayer Vital GmbH | Leverkusen, Germany | 100 |
| Bayer-Handelsgesellschaft mbH | Leverkusen, Germany | 100 |
| Bayfi n GmbH | Leverkusen, Germany | 100 |
| BaySystems GmbH & Co. KG | Oldenburg, Germany | 100 |
| Chemion Logistik GmbH | Leverkusen, Germany | 100 |
| Currenta GmbH & Co. OHG | Leverkusen, Germany | 60 |
| Drugofa GmbH | Cologne, Germany | 100 |
| Dynevo GmbH | Leverkusen, Germany | 100 |
| Epurex Films GmbH & Co. KG | Bomlitz, Germany | 100 |
| Erste K-W-A Beteiligungsgesellschaft mbH | Leverkusen, Germany | 100 |
| Euroservices Bayer GmbH | Leverkusen, Germany | 100 |
| Generics Holding GmbH | Leverkusen, Germany | 100 |
| GP Grenzach Produktions GmbH | Grenzach-Wyhlen, Germany | 100 |
| Icon Genetics GmbH | Munich, Germany | 100 |
| Intendis GmbH | Berlin, Germany | 100 |
| Jenapharm GmbH & Co. KG | Jena, Germany | 100 |
| Kosinus Grundstücks-Verwaltungsgesellschaft mbH & Co. Gamma OHG |
Berlin, Germany | 100 |
| KVP Pharma+Veterinär Produkte GmbH | Kiel, Germany | 100 |
| Marotrast GmbH | Jena, Germany | 100 |
| Menadier Heilmittel GmbH | Berlin, Germany | 100 |
| Pharma Verlagsbuchhandlung GmbH | Berlin, Germany | 100 |
| Schering AG | Berlin, Germany | 100 |
| Schering GmbH und Co. Produktions KG | Weimar, Germany | 100 |
| Schering International Holding GmbH | Berlin, Germany | 100 |
| Schering Kahlbaum GmbH | Berlin, Germany | 100 |
| Tectrion GmbH | Leverkusen, Germany | 100 |
| TravelBoard GmbH | Leverkusen, Germany | 100 |
| Viverso GmbH | Bitterfeld-Wolfen, Germany | 100 |
| Zweite K-W-A Beteiligungsgesellschaft mbH | Leverkusen, Germany | 100 |
Acquisitions were accounted for by the purchase method in accordance with ifrs 3 (Business Combinations), the results of the acquired businesses therefore being included in the consolidated fi nancial statements as from the respective dates of acquisition. The purchase prices of acquisitions of companies domiciled outside the euro zone were translated at the exchange rates in effect at the respective dates of acquisition.
Acquisition costs in 2009 amounted to €404 million (2008: €932 million). The purchase prices of the acquired companies or businesses were settled mainly in cash. Goodwill arising on these acquisitions totaled €177 million (2008: €380 million) and related principally to the following transactions:
On June 25, 2009, we acquired the remaining 10% of the shares of Bayer Polymers (Shanghai) Co. Ltd., China, for €24 million. The difference between the carrying amount of this 10% interest and the purchase price was recognized as goodwill.
On October 1, 2009, we acquired two dermatology product lines from SkinMedica, Inc., Carlsbad, California, United States, for €43 million. These prescription medications, Desonate® and NeoBenz® Micro, are marketed in the United States. The main components of the difference between the carrying amount of the acquired net assets and the purchase price are €37 million pertaining to production rights and trademarks for the two product lines and €5 million of goodwill.
On November 2, 2009, we acquired Athenix Corporation, a privately held biotechnology company headquartered in Research Triangle Park, North Carolina, United States, for €286 million. The purchase price includes future milestone payments of approximately €24 million that will fall due upon the achievement of certain development goals. Athenix has an extensive herbicide tolerance and insect control trait development platform, particularly for corn and soybeans. The main components of the difference between the carrying amount of the acquired net assets and the purchase price are an amount of €217 million pertaining to development technologies which is refl ected in other rights, €69 million in deferred taxes and €132 million of goodwill. The goodwill relates mainly to the anticipated synergies from an increase in our ability to provide farmers worldwide with new technologies and complete agricultural solutions from sowing through to harvesting. Since the purchase price allocation has not yet been completed, changes may yet be made in the allocation of the purchase price to the individual assets.
The acquired businesses named above contributed €3 million to Bayer Group sales in 2009. These portfolio changes had an effect of -€6 million on the operating result (ebit) for 2009. A total after-tax result of -€6 million was recorded for the acquired businesses since the respective dates of their fi rst-time consolidation. This includes the fi nancing costs incurred since the dates of acquisition.
If these acquisitions had already been made as of January 1, 2009, the Bayer Group would have had total sales of €31,182 million in 2009. Income after taxes would have amounted to €1,340 million, taking into account the effects of the revaluation of acquired net assets and hypothetical fi nancing costs for the full year. Earnings per share from continuing and discontinued operations would not have been materially affected.
The effects of these and other, smaller acquisitions on the Group's assets and liabilities as of the respective acquisition dates are shown in the table. Net of acquired cash and cash equivalents, they resulted in the following cash outfl ow:
| Pre acquisition carrying amount |
Fair-value adjustment |
Fair value at the acquisition date |
|
|---|---|---|---|
| € million | € million | € million | |
| Goodwill | - | 177 | 177 |
| Patents | - | 1 | 1 |
| Trademarks | - | 3 | 3 |
| R&D projects | - | 4 | 4 |
| Marketing rights | - | 2 | 2 |
| Production rights | - | 34 | 34 |
| Other rights | 3 | 226 | 229 |
| Property, plant and equipment | 5 | - | 5 |
| Inventories | - | 1 | 1 |
| Cash and cash equivalents | 12 | - | 12 |
| Financial liabilities | (1) | - | (1) |
| Other liabilities | (7) | - | (7) |
| Deferred taxes | - | (71) | (71) |
| Net assets | 12 | 377 | 389 |
| Non-controlling interest | - | - | 15 |
| Purchase prices | 404 | ||
| of which ancillary acquisition costs | 2 | ||
| Acquired cash and cash equivalents | 12 |
Acquired Assets and Assumed Liabilities [Table 4.24]
The fair-value adjustment refl ects the differences between the carrying amounts of the assets and liabilities in the acquiree's statement of fi nancial position prior to their acquisition and the fair values in the acquirer's statement of fi nancial position at the acquisition date.
Liabilities for future payments 38 Net cash outfl ow for acquisitions 354
In 2008 the following acquisitions were accounted for in accordance with ifrs 3:
Bayer subsidiary Medrad Inc. acquired the remaining shares of Possis Medical Inc. through its subsidiary Phoenix Acquisition Corp. in March 2008 for €227 million. By virtue of the merger of Phoenix Acquisition Corp. with Possis Medical Inc., the latter became a wholly owned subsidiary of Medrad, Inc. The main components of the difference between the carrying amount of the acquired net assets and the purchase price were €99 million pertaining to patented technologies, trademarks and research and development projects, €40 million in deferred taxes and €125 million of goodwill.
At the beginning of June 2008, we successfully completed the acquisition of the over-the-counter (otc) business of u.s.-based Sagmel, Inc. for €265 million. The otc business of Sagmel was integrated into the operations of Bayer HealthCare in Russia, Ukraine, Kazakhstan, the Baltic states and several countries of the Caucasus and Central Asia regions. The main components of the difference between the carrying amount of the acquired net assets and the purchase price were €161 million pertaining to trademarks and €70 million of goodwill.
In July 2008 the over-the-counter (otc) cough and cold medicines business of the Chinese company Topsun Science and Technology Qidong Gaitianli Pharmaceutical Co. Ltd. was acquired for €109 million. The main components of the difference between the carrying amount of the acquired net assets and the purchase price were €50 million pertaining to trademarks and €48 million of goodwill. A subsequent purchase price payment of €12 million made in 2009 was recorded as goodwill.
The protein engineering specialist Direvo Biotech AG, Cologne, Germany, was acquired at the end of September 2008 for €185 million. The main components of the difference between the carrying amount of the acquired net assets and the purchase price were €150 million pertaining to patented research and development technologies, €45 million in deferred taxes and €106 million of goodwill.
With the entry of the squeeze-out of the remaining minority stockholders of Bayer Schering Pharma AG in the commercial register on September 25, 2008, all the shares of the minority stockholders of Bayer Schering Pharma AG were transferred by operation of law to Bayer Schering GmbH, a wholly owned subsidiary of Bayer AG. The remaining minority stockholders received cash compensation of €98.98 per share pursuant to the resolution of the stockholders' meeting of Bayer Schering Pharma AG held on January 17, 2007. The sum of €695 million held in escrow accounts for this purpose was disbursed to the stockholders in October 2008.
The effects of these and other, smaller acquisitions made in 2008 on the Group's assets and liabilities in that year as of the respective acquisition dates are shown in the table. Net of acquired cash and cash equivalents, they resulted in the following cash outfl ow:
Acquired Assets and Assumed Liabilities (Previous Year) [Table 4.25]
| Pre acquisition carrying amount |
Fair value adjustment |
Fair value at the acquisition date |
||
|---|---|---|---|---|
| € million | € million | € million | ||
| Goodwill | - | 380 | 380 | |
| Patents | - | 222 | 222 | |
| Trademarks | - | 232 | 232 | |
| R&D projects | - | 67 | 67 | |
| Other intangible assets | - | 60 | 60 | |
| Property, plant and equipment | 25 | - | 25 | |
| Other noncurrent assets | 23 | - | 23 | |
| Inventories | 31 | 7 | 38 | |
| Other current assets | 56 | (2) | 54 | |
| Cash and cash equivalents | 10 | - | 10 | |
| Provisions for pensions and other post-employment benefi ts | (1) | - | (1) | |
| Other provisions | (10) | - | (10) | |
| Financial liabilities | (12) | - | (12) | |
| Other liabilities | (57) | 1 | (56) | |
| Deferred taxes | 15 | (115) | (100) | |
| Net assets | 80 | 852 | 932 | |
| Non-controlling interest | - | - | - | |
| Purchase prices | 932 | |||
| of which ancillary acquisition costs | 6 | |||
| Acquired cash and cash equivalents | 10 | |||
| Compensation of non-controlling interest | 695 | |||
| Net cash outfl ow for acquisitions | 1,617 |
Proceeds from divestitures, including those detailed below, in 2009 totaled €454 million.
The strategic alliance with Genzyme Corporation, United States, announced on March 31, 2009, was implemented at the end of May 2009. In accordance with the agreement terms, we transferred the hematological oncology portfolio – Campath® / MabCampath®, Fludara® and Leukine® – to Genzyme. The divested assets were recognized as assets held for sale starting in the fi rst quarter of 2009. They comprised €92 million in goodwill, €150 million in patents, €25 million in other intangible assets and €30 million in inventories. We are continuing our established co-development partnership with Genzyme for the active substance alemtuzumab for an indication in multiple sclerosis. A related payment of €55 million was received in 2009. The present value of anticipated future revenue-based payments is €363 million.
In May 2009 we acquired the remaining 49% interest in Berlimed, s.a., Spain, from Juste s.a. Quimica Farmacéutica (Juste), and in return sold our 51% share of Justesa Imagen, s.a., Spain, to Juste for €16 million. A payment of €3 million was received in 2009 and a receivable for the remaining amount was therefore recognized in the statement of fi nancial position.
In addition, we sold the Thermoplastics Testing Center, Krefeld, Germany, to Underwriters Laboratories Inc., United States, for €18 million in May 2009.
The impact of these and additional minor divestments on the assets, liabilities and earnings of the Group as of the respective divestment dates was as follows:
| Divested Assets and Liabilities | [Table 4.26] |
|---|---|
| 2009 | |
| € million | |
| Property, plant and equipment | (6) |
| Other fi nancial assets | (3) |
| Inventories | (9) |
| Other current assets | (12) |
| Assets held for sale | (297) |
| Provisions for pensions and other post-employment benefi ts | 1 |
| Other provisions | 5 |
| Other liabilities | 14 |
| Divested assets and liabilities | (307) |
| Non-controlling interest | 6 |
| Net assets | (301) |
| Net cash infl ow from divestitures | 70 |
| of which cash outfl ow for divestiture costs | (8) |
| Future cash payments receivable | 376 |
| Net gain from divestitures | 145 |
| Deferred net gain | (8) |
| Net gain from divestitures (before taxes) | 137 |
The pre-tax gain from the divestments is refl ected in other operating income.
In 2009 the remaining assets and liabilities pertaining to discontinued operations are not reported separately due to their immateriality.
In 2008 an operating result of €6 million, after-tax income of €4 million, assets of €3 million and liabilities of €13 million were recognized under discontinued operations in connection with the divestment of the diagnostics activities.
Discontinued operations affected the Group statement of cash fl ows for 2008 as follows:
| Discontinued Operations: Impact on Statements of Cash Flows | [Table 4.27] | ||
|---|---|---|---|
| Diagnostics | Wolff Walsrode | Total | |
| 2008 | 2008 | 2008 | |
| € million | € million | € million | |
| Net cash provided by (used in) investing activities | (52) | 8 | (44) |
| Net cash provided by (used in) fi nancing activities | 52 | (8) | 44 |
| Change in cash and cash equivalents | - | - | - |
Net sales are derived primarily from product deliveries. Total reported net sales declined by €1,750 million or 5.3% from 2008 to €31,168 million in 2009. While the decrease in volumes diminished sales by €948 million, or 2.9%, favorable shifts in exchange rates had a positive effect of €201 million, or 0.6%. Changes in selling prices reduced the net sales by €943 million, or 2.8%. Portfolio changes further diminished sales by €60 million, or 0.2%.
Portfolio changes led to the following changes in sales compared with the previous year:
| Portfolio-Related Changes in Sales | [Table 4.28] |
|---|---|
| 2009 | |
| € million | |
| Acquisitions | |
| Sagmel, Inc. (OTC business) | 28 |
| Possis Medical, Inc. | 14 |
| BaySystems B.V. | 19 |
| Others | 27 |
| 88 | |
| Divestitures | |
| Oncology portfolio | (106) |
| Justesa Imagen, S. A. | (16) |
| Others | (26) |
| (148) | |
| Net effect of portfolio changes | (60) |
Breakdowns of net sales by segment and by region are given in the table in Note [1].
Selling expenses comprise all expenses incurred in the reporting period through the sale, storage and transportation of saleable products, advertising, the provision of advice to customers and market research activities. They include €952 million (2008: €1,024 million) for the physical distribution and warehousing of fi nished products, €2,392 million (2008: €2,720 million) in marketing expenses and €4,579 million (2008: €4,361 million) in other selling expenses.
Research and development expenses and their accounting treatment are defi ned in Note [4]. Breakdowns of research and development expenses by segment and region are given in Note [1].
| Other Operating Income | [Table 4.29] | |
|---|---|---|
| 2008 | 2009 | |
| € million | € million | |
| Gains from sales of noncurrent assets and from divestitures | 98 | 181 |
| Write-backs of receivables | 88 | 61 |
| Reversals of unutilized provisions | 38 | 65 |
| Recognition of hedges | 263 | 174 |
| Miscellaneous operating income | 420 | 441 |
| Total | 907 | 922 |
| of which special items | 92 | 138 |
The special items of €138 million (2008: €92 million) include €117 million (2008: €71 million) in gains from the sale of noncurrent assets and from divestments.
Miscellaneous operating income is composed of a large number of individually immaterial items at the subsidiaries.
| Other Operating Expenses | [Table 4.30] | |
|---|---|---|
| 2008 | 2009 | |
| € million | € million | |
| Losses from sales of noncurrent assets and from divestitures | (23) | (26) |
| Write-downs of receivables | (113) | (106) |
| Expenses related to signifi cant legal risks | (106) | (225) |
| Recognition of hedges | (193) | (212) |
| Miscellaneous operating expenses | (983) | (1,088) |
| Total | (1,418) | (1,657) |
| of which special items | (682) | (904) |
Details of special items, which almost entirely relate to signifi cant legal risks or are included in miscellaneous operating expenses, are given in the management report in Table 3.16, on a net basis.
Information on the restructuring expenses reported there is provided in Note [26.3].
The following table provides a breakdown of the special items included in other operating expenses by the function to which they relate:
| Breakdown of Special Items by Function | [Table 4.31] | |
|---|---|---|
| 2008 | 2009 | |
| € million | € million | |
| Production-related | (220) | (305) |
| Marketing- and distribution-related | (44) | (148) |
| Research- and development-related | (135) | (37) |
| General-administration-related | (132) | (125) |
| Other | (151) | (289) |
| Total | (682) | (904) |
Personnel expenses rose in 2009 by €285 million to €7,776 million (2008: €7,491 million). Shifts in exchange rates increased personnel expenses by €77 million.
| Personnel Expenses | [Table 4.32] | |
|---|---|---|
| 2008 | 2009 | |
| € million | € million | |
| Wages and salaries | 5,978 | 6,286 |
| Social expenses and expenses for pensions and other benefi ts | 1,513 | 1,490 |
| of which for defi ned contribution pension plans | 431 | 495 |
| of which for defi ned benefi t pension plans | 195 | 164 |
| Total | 7,491 | 7,776 |
The personnel expenses shown here do not contain the interest portion of the allocation to personnel-related provisions, which is included in the non-operating result as other non-operating expense (Note [13.3]). These personnel-related provisions are mainly for employee pensions.
The average number of employees classifi ed by corporate functions is shown in the table below.
| Employees | [Table 4.33] | |
|---|---|---|
| 2008 | 2009 | |
| Production | 48,384 | 48,426 |
| Marketing and distribution | 38,006 | 38,598 |
| Research and development | 11,914 | 12,185 |
| General administration | 8,995 | 9,386 |
| Total | 107,299 | 108,595 |
| of which trainees | 2,623 | 2,665 |
The employees of joint ventures are included in the above fi gures in proportion to Bayer's interests in the respective companies. The total number of people employed by joint ventures in 2009 was 55 (2008: 60).
The average number of employees is stated in full-time equivalents, with part-time employees included on a pro-rata basis in line with their contractual working hours.
The non-operating result for 2009 was minus €1,136 million (2008: minus €1,188 million), comprising an equity-method loss of €48 million (2008: €62 million), non-operating expenses of €1,877 million (2008: €1,715 million) and non-operating income of €789 million (2008: €589 million). Details of the components of the non-operating result are provided below.
This comprised the following:
| Income (Loss) from Investments in Affi liated Companies | [Table 4.34] | ||
|---|---|---|---|
| 2008 | 2009 | ||
| € million | € million | ||
| Net loss from investments in associates (equity-method loss) | (62) | (48) | |
| Expenses | |||
| Write-downs of investments in affi liated companies | (13) | (15) | |
| Losses from the sale of investments in affi liated companies | (7) | (11) | |
| Income | |||
| Dividends from affi liated companies and income from profi t and loss transfer agreements (net) |
- | 5 | |
| Gains from the sale of investments in affi liated companies | 12 | 10 | |
| Total | (70) | (59) |
The income from investments in affi liated companies mainly comprised an equity-method loss of €49 million (2008: €64 million) from two production joint ventures with Lyondell.
Further details of the companies included at equity in the consolidated fi nancial statements are given in Note [19].
This comprised the following:
| Net Interest Expense | [Table 4.35] | |
|---|---|---|
| 2008 | 2009 | |
| € million | € million | |
| Expenses | ||
| Interest and similar expenses | (948) | (815) |
| Interest expenses for derivatives (held for trading) | (295) | (490) |
| Income | ||
| Other interest and similar income | 171 | 267 |
| Interest income from derivatives (held for trading) | 370 | 490 |
| Total | (702) | (548) |
This item includes interest expense of €20 million (2008: €31 million) relating to non-fi nancial liabilities and interest income of €77 million (2008: €13 million) from non-fi nancial assets.
The portion of net income or loss attributable to non-controlling interest to which the company has a repayment obligation out of total assets is refl ected in net interest expense. Pro-rated income of €14 million (2008: €18 million) was recognized as interest expense in this context.
Other non-operating income and expense comprised the following:
| Other Non-Operating Income and Expense | [Table 4.36] | |
|---|---|---|
| 2008 | 2009 | |
| € million | € million | |
| Expenses | ||
| Interest portion of interest-bearing provisions | (300) | (436) |
| Exchange loss | (79) | (92) |
| Miscellaneous non-operating expenses | (73) | (16) |
| Income | ||
| Miscellaneous non-operating income | 36 | 15 |
| Total | (416) | (529) |
The interest portion of noncurrent interest-bearing provisions mainly relates to pension provisions.
The breakdown of income taxes by origin is as follows:
| Income Tax Expense by Origin | [Table 4.37] | |
|---|---|---|
| 2008 | 2009 | |
| € million | € million | |
| Income taxes paid or accrued | ||
| Germany | (161) | (186) |
| other countries | (651) | (476) |
| (812) | (662) | |
| Deferred taxes | ||
| from temporary differences | 323 | 430 |
| from interest carryforwards | 11 | (11) |
| from tax loss carryforwards | (168) | (291) |
| from tax credits | 10 | 23 |
| 176 | 151 | |
| Total | (636) | (511) |
The deferred tax assets and liabilities are allocable to the following items in the statement of fi nancial position:
| Deferred Tax Assets and Liabilities | [Table 4.38] | |||||
|---|---|---|---|---|---|---|
| Dec.31, 2008 | Dec.31, 2009 | |||||
| Deferred Deferred tax tax assets liabilities |
Deferred tax assets |
Deferred tax liabilities |
||||
| € million | € million | € million | € million | |||
| Intangible assets | 470 | 3,766 | 459 | 3,645 | ||
| Property, plant and equipment | 67 | 632 | 59 | 793 | ||
| Financial assets | 78 | 228 | 48 | 226 | ||
| Inventories | 324 | 85 | 357 | 51 | ||
| Receivables | 64 | 511 | 42 | 301 | ||
| Other assets | 150 | 74 | 101 | 36 | ||
| Provisions for pensions and other post-employment benefi ts | 1,170 | 462 | 1,229 | 570 | ||
| Other provisions | 301 | 318 | 464 | 36 | ||
| Liabilities | 524 | 44 | 408 | 37 | ||
| Interest carryforwards | 11 | - | - | - | ||
| Tax loss carryforwards | 429 | - | 156 | - | ||
| Tax credits | 96 | - | 112 | - | ||
| 3,684 | 6,120 | 3,435 | 5,695 | |||
| of which noncurrent | 2,644 | 5,354 | 2,573 | 5,218 | ||
| Set-off | (2,528) | (2,528) | (2,485) | (2,485) | ||
| Total | 1,156 | 3,592 | 950 | 3,210 |
Deferred tax assets from actuarial gains and losses, recognized outside profi t or loss, on defi ned benefi t obligations for pensions and other post-employment benefi ts increased equity by €117 million (2008: €455 million), whereas changes in fair values of available-for-sale fi nancial assets and derivatives designated as hedges resulted in deferred tax liabilities that diminished equity by €36 million (2008: deferred tax assets that increased equity by €50 million). These effects on equity are refl ected in the statement of comprehensive income.
The utilization of tax loss carryforwards from previous years reduced the income taxes paid or accrued in 2009 by €260 million (2008: €287 million). Utilization of tax credits reduced income taxes paid or accrued by €6 million (2008: €0 million).
Of the total tax loss carryforwards of €1,047 million in 2009 (2008: €1,856 million), an amount of €579 million (2008: €1,455 million) can probably be utilized within a reasonable period. Deferred tax assets of €156 million (2008: €429 million) were recognized for these tax loss carryforwards, including €13 million (2008: €15 million) outside profi t or loss.
The utilization of €468 million (2008: €401 million) of loss carryforwards is subject to legal or economic restrictions. Consequently, no deferred tax assets were recognized for this amount. If it had been probable that these loss carryforwards could be utilized, deferred tax assets of €137 million (2008: €113 million) would have had to be recognized.
Tax credits of €112 million (2008: €96 million) were recognized as deferred tax assets, including €1 million (2008: €3 million) outside profi t or loss. The utilization of €32 million (2008: €0 million) of tax credits is subject to legal or economic restrictions. Consequently, no deferred tax assets were recognized for this amount.
Unusable tax credits and tax loss carryforwards expire as follows:
| Expiration of Unusable Tax Credits and Tax Loss Carryforwards [Table 4.39] |
|||||
|---|---|---|---|---|---|
| Tax credits | Tax loss carryforwards | ||||
| Dec. 31, 2008 |
Dec. 31, 2009 |
Dec. 31, 2008 |
Dec. 31, 2009 |
||
| € million | € million | € million | € million | ||
| One year | - | - | 2 | - | |
| Two years | - | - | 9 | 23 | |
| Three years | - | - | 58 | 28 | |
| Four years | - | - | 51 | 39 | |
| Five years | - | - | 111 | 123 | |
| Thereafter | - | 32 | 170 | 255 | |
| Total | - | 32 | 401 | 468 |
In 2009, subsidiaries that reported losses for 2009 or 2008 recognized net deferred tax assets totaling €40 million (2008: €60 million) on temporary differences and tax loss carry forwards. These assets are considered to be unimpaired because the companies concerned are expected to generate taxable income in the future.
Deferred tax liabilities of €14 million were recognized in 2009 (2008: €19 million) for planned dividend payments by subsidiaries. Deferred tax liabilities were not recognized for temporary differences on €8,054 million (2008: €6,651 million) of retained earnings of subsidiaries and associates because the Bayer Group is able to control the timing of the difference reversal and the temporary differences will not reverse in the foreseeable future.
The reported tax expense of €511 million for 2009 (2008: €636 million) differs by €36 million (2008: €62 million) from the expected tax expense of €547 million (2008: €698 million) that would result from applying an expected weighted average tax rate to the pre-tax income of the Group. This average rate is derived from the expected tax rates of individual Group companies and was 29.3% in 2009 (2008: 29.7%). The effective tax rate was 27.3% (2008: 27.0%).
The reconciliation of expected to reported income tax expense and of the expected to the effective tax rate for the Group is as follows:
| Reconciliation of Expected to Actual Income Tax Expense | [Table 4.40] | |||
|---|---|---|---|---|
| 2008 | 2009 | |||
| € million | % | € million | % | |
| Expected income tax expense and expected tax rate | 698 | 29.7 | 547 | 29.3 |
| Reduction in taxes due to tax-free income | ||||
| Income from affi liated companies and divestiture proceeds | (10) | (0.4) | (9) | (0.5) |
| Other | (51) | (2.2) | (41) | (2.2) |
| First-time recognition of previously unrecognized deferred tax assets | ||||
| on tax loss carryforwards | (50) | (2.1) | (2) | (0.1) |
| Use of tax loss carryforwards on which deferred tax assets were not previously recognized |
(11) | (0.5) | (1) | (0.1) |
| Increase in taxes due to non-tax-deductible expenses | ||||
| Write-downs of investments | 29 | 1.2 | 5 | 0.3 |
| Expenses related to litigations | 18 | 0.8 | 1 | 0.1 |
| Other | 107 | 4.5 | 103 | 5.5 |
| New tax loss carryforwards unlikely to be usable | - | - | 10 | 0.5 |
| Existing tax loss carryforwards on which deferred tax assets | ||||
| were previously recognized but which are unlikely to be usable | 1 | - | 23 | 1.2 |
| Tax income and expenses relating to other periods | (42) | (1.8) | (129) | (6.9) |
| Tax effects of changes in tax rates | 7 | 0.3 | (18) | (1.0) |
| Other tax effects | (60) | (2.5) | 22 | 1.2 |
| Actual income tax expense and effective tax rate | 636 | 27.0 | 511 | 27.3 |
Income attributable to non-controlling interest amounted to €11 million (2008: €12 million), while losses attributable to non-controlling interest amounted to €11 million (2008: €7 million).
Earnings per share are determined according to ias 33 (Earnings Per Share) by dividing net income by the weighted average number of shares.
Until June 1, 2009, the conversion date of the mandatory convertible bond issued in April 2006, the number of ordinary shares taken into account for this purpose included the potential shares that would be issued upon conversion of the bond. Basic and diluted earnings per share were therefore identical. The fi nancing expenses for the mandatory convertible bond were added back to net income.
Following the conversion of the mandatory convertible bond, the number of ordinary shares in issue was 826,947,808.
Further details of the convertible bond can be found in Note [27].
| Earnings Per Share | [Table 4.41] | |
|---|---|---|
| 2008 | 2009 | |
| € million | € million | |
| Income after taxes | 1,724 | 1,359 |
| of which attributable to non-controlling interest | 5 | - |
| of which attributable to Bayer AG stockholders (net income) | 1,719 | 1,359 |
| Income from discontinued operations after taxes | 4 | - |
| Financing expenses for the mandatory convertible bond, net of tax effects | 112 | 47 |
| Adjusted net income from continuing operations | 1,827 | 1,406 |
| Adjusted net income from continuing and discontinued operations | 1,831 | 1,406 |
| Weighted average number of issued ordinary shares | 764,342,029 | 801,050,237 |
| (Potential) shares (to be) issued upon conversion of the mandatory convertible bond |
59,893,122 | 24,955,936 |
| Adjusted weighted average total number of issued and potential ordinary shares | 824,235,151 | 826,006,173 |
| Basic earnings per share | € | € |
| from continuing operations | 2.22 | 1.70 |
| from discontinued operations | - | - |
| from continuing and discontinued operations | 2.22 | 1.70 |
| Diluted earnings per share | € | € |
| from continuing operations | 2.22 | 1.70 |
| from discontinued operations | - | - |
| from continuing and discontinued operations | 2.22 | 1.70 |
In compliance with ifrs 5 (Non-current Assets Held for Sale and Discontinued Operations), the information in the Notes to the Statements of Financial Position refers to continuing operations.
Changes in intangible assets in 2009 were as follows:
| Changes in Intangible Assets | [Table 4.42] | |||||||
|---|---|---|---|---|---|---|---|---|
| Acquired goodwill |
Patents | Trade marks |
Marketing and distribution rights |
Production rights |
R&D projects |
Other rights and advance payments |
Total | |
| € million | € million | € million | € million | € million | € million | € million | € million | |
| Cost of acquisition or generation, December 31, 2008 |
8,647 | 10,265 | 3,985 | 1,004 | 2,142 | 1,359 | 1,925 | 29,327 |
| Changes in scope of consolidation |
- | - | - | - | - | - | 1 | 1 |
| Acquisitions | 177 | 1 | 3 | 2 | 34 | 4 | 229 | 450 |
| Capital expenditures | - | 14 | - | 13 | 6 | 162 | 132 | 327 |
| Retirements | - | (5) | - | (2) | - | (172) | (41) | (220) |
| Transfers | - | 201 | 2 | (53) | 7 | (201) | 44 | - |
| Transfers (IFRS 5) | (92) | (225) | - | - | (20) | (5) | (2) | (344) |
| Changes from revaluation (IFRS 3) |
- | - | - | - | - | - | - | - |
| Exchange differences | (28) | (11) | (24) | 2 | - | (9) | 8 | (62) |
| December 31, 2009 | 8,704 | 10,240 | 3,966 | 966 | 2,169 | 1,138 | 2,296 | 29,479 |
| Accumulated amortization and write-downs, December 31, 2008 |
- | 2,766 | 833 | 386 | 1,166 | 173 | 1,405 | 6,729 |
| Changes in scope of consolidation |
- | - | - | - | - | - | - | - |
| Retirements | - | (5) | - | - | - | (172) | (39) | (216) |
| Amortization and write-downs in 2009 |
- | 938 | 171 | 121 | 151 | - | 156 | 1,537 |
| Amortization | - | 938 | 167 | 88 | 151 | - | 132 | 1,476 |
| Write-downs | - | - | 4 | 33 | - | - | 24 | 61 |
| Write-backs | - | - | - | - | - | - | - | - |
| Transfers | - | (5) | 4 | (53) | - | - | 54 | - |
| Transfers (IFRS 5) | (75) | - | - | (2) | - | - | (77) | |
| Exchange differences | - | (4) | (4) | 1 | - | - | (33) | (40) |
| December 31, 2009 | - | 3,615 | 1,004 | 455 | 1,315 | 1 | 1,543 | 7,933 |
| Carrying amounts, December 31, 2009 |
8,704 | 6,625 | 2,962 | 511 | 854 | 1,137 | 753 | 21,546 |
| Carrying amounts, December 31, 2008 |
8,647 | 7,499 | 3,152 | 618 | 976 | 1,186 | 520 | 22,598 |
Other rights and advance payments include internally generated software. Costs of €56 million for internally generated software incurred during the application development phase were capitalized in 2009 (2008: €20 million). The carrying amount of internally generated software was €79 million (2008: €31 million).
The research and development projects include €94 million relating to the active ingredient alemtuzumab for the treatment of multiple sclerosis (ms). Bayer has returned the worldwide distribution and development rights for alemtuzumab to Genzyme. Bayer is continuing to co-develop this drug. If it is approved in the ms indication, Bayer will have global co-promotion rights and will be entitled to royalties and revenue-based milestone payments.
Write-downs of intangible assets totaled €61 million. These were mainly attributable to the following two events. In light of the current development status and a market appraisal, the blood glucose monitoring device combometer is not expected to be launched before 2015. A writedown of €20 million was made accordingly in the Consumer Health segment. Also, the worldwide marketing rights for the recombinant human thrombin Recothrom® as an aid to hemostasis in surgery were returned to the cooperation partner except in Canada. The respective intangible asset of the Pharmaceuticals segment was written down by €32 million.
Details of acquisitions and divestitures are contained in Notes [6.2] and [6.3]. Details of the impairment testing procedure for goodwill are given in Note [4].
Changes in intangible assets in 2008 were as follows:
| Acquired goodwill |
Patents | Trade marks |
Marketing and distribution rights |
Production rights |
R&D projects |
Other rights and advance payments |
Total | |
|---|---|---|---|---|---|---|---|---|
| € million | € million | € million | € million | € million | € million | € million | € million | |
| Cost of acquisition or generation, December 31, 2007 |
8,215 | 10,008 | 3,726 | 819 | 2,012 | 1,345 | 1,888 | 28,013 |
| Changes in scope of consolidation |
1 | - | - | - | 3 | - | - | 4 |
| Acquisitions | 380 | 222 | 232 | 33 | 9 | 67 | 18 | 961 |
| Capital expenditures | 4 | 28 | - | 94 | - | 52 | 118 | 296 |
| Retirements | - | (7) | - | - | - | - | (93) | (100) |
| Transfers | - | - | (7) | 47 | 123 | (120) | (40) | 3 |
| Transfers (IFRS 5) | - | - | - | - | - | - | - | - |
| Changes from revaluation (IFRS 3) |
- | - | - | 5 | 2 | - | - | 7 |
| Exchange differences | 47 | 14 | 34 | 6 | (7) | 15 | 34 | 143 |
| December 31, 2008 | 8,647 | 10,265 | 3,985 | 1,004 | 2,142 | 1,359 | 1,925 | 29,327 |
| Accumulated amortization and write-downs, December 31, 2007 |
1,811 | 662 | 295 | 987 | 155 | 1,333 | 5,243 | |
| Changes in scope of consolidation |
- | - | - | - | - | - | - | |
| Retirements | - | (6) | - | - | - | - | (86) | (92) |
| Amortization and write-downs in 2008 |
- | 962 | 173 | 87 | 174 | 20 | 134 | 1,550 |
| Amortization | - | 930 | 161 | 87 | 174 | - | 134 | 1,486 |
| Write-downs | - | 32 | 12 | - | - | 20 | - | 64 |
| Write-backs | - | - | - | - | - | - | - | |
| Transfers | - | (2) | 3 | 10 | (2) | (9) | - | |
| Transfers IFRS 5 | - | - | - | - | - | - | - | |
| Exchange differences | (1) | - | 1 | (5) | - | 33 | 28 | |
| December 31, 2008 | - | 2,766 | 833 | 386 | 1,166 | 173 | 1,405 | 6,729 |
| Carrying amounts, December 31, 2008 |
8,647 | 7,499 | 3,152 | 618 | 976 | 1,186 | 520 | 22,598 |
| Carrying amounts, December 31, 2007 |
8,215 | 8,197 | 3,064 | 524 | 1,025 | 1,190 | 555 | 22,770 |
Over the next fi ve years, amortization of the intangible assets recognized in 2009 is expected to be as follows:
| Expected Amortization of Intangible Assets | [Table 4.44] |
|---|---|
| € million | |
| 2010 | 1,316 |
| 2011 | 1,231 |
| 2012 | 1,146 |
| 2013 | 1,031 |
| 2014 | 976 |
Possible future acquisitions and / or divestments of intangible assets are not taken into account in these amounts and may therefore cause them to vary.
Changes in the carrying amounts of goodwill for the operating segments in 2009 and 2008 were as follows:
| Pharma ceuticals |
Consumer Health |
HealthCare | Crop Protection |
Environ mental Science, BioScience |
Crop Science |
|
|---|---|---|---|---|---|---|
| € million | € million | € million | € million | € million | € million | |
| Carrying amounts, January 1, 2008 |
5,413 | 1,051 | 6,464 | 1,114 | 486 | 1,600 |
| Change in scope of consolidation |
1 | - | 1 | - | - | - |
| Acquisitions | 107 | 253 | 360 | - | - | - |
| Capital expenditures | 1 | - | 1 | - | - | - |
| Retirements | - | - | - | - | - | - |
| Amortization and write-downs in 2008 |
- | - | - | - | - | - |
| Transfers | - | - | - | 3 | (3) | - |
| Transfers (IFRS 5) | - | - | - | - | - | - |
| Exchange differences | 31 | 19 | 50 | (29) | 23 | (6) |
| Carrying amounts, December 31, 2008 |
5,553 | 1,323 | 6,876 | 1,088 | 506 | 1,594 |
| Change in scope of consolidation |
- | - | - | - | - | - |
| Acquisitions | 4 | 17 | 21 | - | 132 | 132 |
| Capital expenditures | - | - | - | - | - | - |
| Retirements | - | - | - | - | - | - |
| Amortization and write-downs in 2009 |
- | - | - | - | - | - |
| Transfers | - | - | - | - | - | - |
| Transfers (IFRS 5) | (92) | - | (92) | - | - | - |
| Exchange differences | (5) | (12) | (17) | 9 | (13) | (4) |
| Carrying amounts, December 31, 2009 |
5,460 | 1,328 | 6,788 | 1,097 | 625 | 1,722 |
| Goodwill by Reporting Segment [Table 4.45] |
||||
|---|---|---|---|---|
| Material Science |
Reconcilia tion |
Bayer Group |
||
| € million | € million | € million | ||
| Carrying amounts, January 1, 2008 | 151 | - | 8,215 | |
| Change in scope of consolidation | - | - | 1 | |
| Acquisitions | 20 | - | 380 | |
| Capital expenditures | 3 | - | 4 | |
| Retirements | - | - | - | |
| Amortization and write-downs in 2008 | - | - | - | |
| Transfers | - | - | - | |
| Transfers (IFRS 5) | - | - | - | |
| Exchange differences | 3 | - | 47 | |
| Carrying amounts, December 31, 2008 | 177 | - | 8,647 | |
| Change in scope of consolidation | - | - | - | |
| Acquisitions | 24 | - | 177 | |
| Capital expenditures | - | - | - | |
| Retirements | - | - | - | |
| Amortization and write-downs in 2009 | - | - | - | |
| Transfers | - | - | - | |
| Transfers (IFRS 5) | - | - | (92) | |
| Exchange differences | (7) | - | (28) | |
| Carrying amounts, December 31, 2009 | 194 | - | 8,704 |
HealthCare has reorganized to meet the rapidly changing demands in the pharmaceutical industry. This has led to changes in the reporting structure at the level of the strategic business entities. The prior-year fi gures for the goodwill of the reporting segments have been restated accordingly.
Goodwill and other intangible assets with an indefi nite useful life that are of material signifi cance for the Bayer Group are allocated to the following strategic business entities or cash-generating units:
| Intangible Assets with Indefi nite Useful Life [Table 4.46] |
||||
|---|---|---|---|---|
| Reporting segment | Cash-generating unit | Goodwill | Intangible assets with indefi nite useful life |
|
| € million | € million | |||
| Pharmaceuticals | Women's Healthcare | 2,833 | 438 | |
| Pharmaceuticals | Specialized Therapeutics |
1,200 | 228 | |
| Consumer Health | OTC | 931 | 22 | |
| Pharmaceuticals | Diagnostic Imaging | 915 | 129 | |
| Pharmaceuticals | Oncology | 369 | 295 | |
| Consumer Health | Medrad business | 268 | 510 |
Since it is uncertain whether acquired or in-licensed research and development projects will eventually result in the production of saleable products, the period over which the corresponding capitalized asset is expected to generate an economic benefi t for the company cannot be determined. Development projects in the amount of €1,137 million were capitalized as of the end of 2009 (2008: €1,186 million).
The Bayer Cross, which was reacquired for the North America region in 1994, having been awarded to the United States and Canada under the reparations agreements at the end of the First World War, is recognized as an intangible asset with an indefi nite useful life. The company names "Schering" and "Medrad," which passed to Bayer with the acquisition of Schering AG, Berlin, Germany, in 2006, also have an indefi nite useful life. The period for which the Bayer Group will derive an economic benefi t from these names cannot be determined as it intends to make continued use of them. The Bayer Cross is capitalized at €107 million, while the "Schering" and "Medrad" names are carried at €405 million and €283 million respectively.
The Bayer Group endeavors to obtain patent protection for its products and technologies in the major markets. Depending on the jurisdiction, patent protection may be available for:
The protection that a patent provides varies from country to country, depending on the type of claim granted, the scope of the claim's coverage and the legal remedies available for enforcement.
The Bayer Group currently owns some 78,000 patents or patent applications. Although in our Pharmaceuticals segment the patents on Avalox® / Avelox®, Betaferon® / Betaseron®, Kogenate®, Levitra®, Magnevist®, Mirena®, Nexavar®, Ultravist®, Xarelto®, yaz®, Yasmin® and Yasminelle® are particularly important to our business, we believe that no single patent (or group of related patents) is crucial to our business as a whole.
Patents are valid for varying periods, depending on the laws of the jurisdiction granting the patent. In some jurisdictions, patent protection begins from the date a patent application was fi led; in others, it begins on the date the patent is granted.
The European Union member countries as well as the United States, Japan and certain other countries extend patent terms or issue supplementary protection certifi cates to compensate for patent term loss due to regulatory review and for the substantial investments in product research and development. We endeavor to obtain such patent term extensions or supplementary certifi cates wherever possible. Apart from substance and product patents, we continue to seek
The following table sets forth the expiration dates in our major markets of the most important patents covering Avalox® / Avelox®, Betaferon® / Betaseron®, Kogenate®, Levitra®, Magnevist®, Mirena®, Nexavar®, Ultravist®, Xarelto®, yaz®, Yasmin® and Yasminelle®.
| Market | ||||||||
|---|---|---|---|---|---|---|---|---|
| Germany | France | U.K. | Italy | Spain | Japan | U.S.A. | Canada | |
| Products | ||||||||
| Avalox® / Avelox® | ||||||||
| Active ingredient | 2014 | 2014 | 2014 | 2014 | 2014 | 2014 | 2014 | 2015 |
| Active ingredient | ||||||||
| monohydrate | 2016 | 2016 | 2016 | 2016 | 2016 | 2016 | 2016 | 2016 |
| Tablets | 2019 | 2019 | 2019 | 2019 | 2019 | 2019 | 2019 | 2019 |
| Betaferon® / Betaseron® | ||||||||
| Active ingredient | - | - | - | - | - | - | - | 2016 |
| Kogenate® | ||||||||
| Active ingredient | 2009 | - | 2009 | - | - | - | 2014 | 2019 |
| Formulation | 2017 | 2017 | 2017 | 2017 | 2017 | 2017 | 2017 | 2017 |
| Levitra® | ||||||||
| Active ingredient | 2018 | 2018 | 2018 | 2018 | 2018 | 2020 | 2018 | 2018 |
| Magnevist® | ||||||||
| Active ingredient | - | - | - | - | - | - | 2011 | - |
| Formulation | - | - | - | - | - | - | 2009 | 2010 |
| Process | - | - | - | - | - | - | 2013 | - |
| Mirena® | ||||||||
| Applicator | 2015 | 2015 | 2015 | 2015 | 2015 | - | 2015 | 2015 |
| Process | 2013 | 2013 | 2013 | 2013 | 2013 | 2013 | 2013 | 2013 |
| Nexavar® | ||||||||
| Active ingredient | 2020a | 2021 | 2021 | 2021 | 2021 | 2020a | 2020d | 2020 |
| Ultravist® | ||||||||
| Active ingredient | - | - | - | 2009 | - | - | - | - |
| Xarelto® | ||||||||
| Active ingredient | 2020e | 2023d | 2020e | 2023d | 2020e | 2020 | 2021 | 2020 |
| YAZ® | ||||||||
| Formulation | 2020e | 2020e | 2020e | 2022d | 2020e | 2020 | 2020c | 2020 |
| Dosage regimen | 2014 | 2014 | 2014 | 2014 | 2014 | 2014b | 2014 | 2014 |
| Production process | 2025 | 2025 | 2025 | 2025 | 2025 | 2026b | 2025 | 2026b |
| Yasmin® | ||||||||
| Formulation | 2020 | 2020 | 2020 | 2020 | 2020 | 2020 | 2020c | 2020 |
| Production process | 2025 | 2025 | 2025 | 2025 | 2025 | 2026b | 2025 | 2026b |
| Yasminelle® | ||||||||
| Formulation | 2020 | 2020 | 2020 | 2020 | 2020 | 2020 | 2020c | 2020 |
| Production process | 2025 | 2025 | 2025 | 2025 | 2025 | 2026b | 2025 | 2026b |
a Current patent expiration. An application has been submitted to extend patent protection through 2021.
b Patent pending
c The patent was invalidated in March 2008. In August 2009, the U.S. Court of Appeals for the Federal Circuit affi rmed this decision. Bayer has fi led a petition for review in the U.S. Supreme Court. See Note [32].
d Patent term extended
e Current patent expiration. An application has been submitted to extend patent protection.
Information on specifi c patent disputes is given in Note [32].
We seek to obtain extensive trademark protection for our products in all jurisdictions in which they are marketed or are to be marketed in the near future. As well as product names, we also register particularly distinctive slogans, logos, graphic elements and designs as global trademarks.
Wherever possible, trademarks are registered through supranational trademark protection systems, for example as European Community Trademarks or international trademarks, and additionally with the national trademark registration offi ces. The protection actually provided by a trademark may vary considerably from one country to another depending on the distinctiveness of the trademark.
HealthCare: Adalat®, Advantage®, Aleve® / Flanax® / Apronax®, Alka-Seltzer®, Aspirin®, Avalox® / Avelox®, Baytril®, Bepanthen® / Bepanthol®, Berocca®, Betaferon® / Betaseron®, Canesten®, Ciprobay® / Ciproxin® / Baycip® / Cipro®, Contour®, Kogenate®, Levitra®, Magnevist®, Mirena®, Nexavar®, One-A-Day®, Redoxon®, Rennie®, Supradyn®, Ultravist®, Xarelto®, yaz®, Yasmin® and Yasminelle®.
CropScience: Basta® / Liberty® / Ignite®, Confi dor® / Gaucho® / Admire® / Merit®, Flint® / Stratego® / Sphere® / Nativo®, Invigor® and Proline® / Input® / Prosaro®.
MaterialScience: Bayblend®, BaySystems®, Desmodur®, Desmopan®, Desmophen®, Makrolon® and Vulkollan®.
We currently have more than 60,000 national registered or pending trademarks along with over 650 Community Trade Marks, which are valid throughout the European Union, and some 2,000 international trademarks, which provide protection in various countries. Trademarks are particularly important for those products that are not protected by patents and are exposed to strong competitive pressure from generic products. However, with the exception of the company name "Bayer" and the "Bayer Cross" logo, we do not believe that any single trademark is crucial to our business as a whole.
Changes in property, plant and equipment in 2009 were as follows:
Changes in Property, Plant and Equipment [Table 4.48]
| Plant installations |
Furniture, fi xtures |
Construction in progress |
|||
|---|---|---|---|---|---|
| Land and | and | and other | and advance | ||
| buildings | machinery | equipment | payments | Total | |
| € million | € million | € million | € million | € million | |
| Cost of acquisition | |||||
| or construction, December 31, 2008 |
7,471 | 13,612 | 1,534 | 1,310 | 23,927 |
| Changes in scope | |||||
| of consolidation | 1 | (2) | (4) | 1 | (4) |
| Acquisitions | 1 | 1 | 3 | - | 5 |
| Capital expenditures | 203 | 357 | 147 | 635 | 1,342 |
| Retirements | (144) | (324) | (153) | (10) | (631) |
| Transfers | 233 | 607 | 47 | (887) | - |
| Transfers (IFRS 5) | 8 | - | - | - | 8 |
| Changes from revaluation (IFRS 3) |
- | - | - | - | - |
| Exchange differences | (26) | (88) | 9 | (7) | (112) |
| December 31, 2009 | 7,747 | 14,163 | 1,583 | 1,042 | 24,535 |
| Accumulated depreciation | |||||
| and write-downs, | |||||
| December 31, 2008 | 3,809 | 9,538 | 1,069 | 19 | 14,435 |
| Changes in scope | |||||
| of consolidation | 2 | (1) | (4) | - | (3) |
| Retirements | (98) | (305) | (141) | (2) | (546) |
| Depreciation and write-downs | |||||
| in 2009 | 253 | 812 | 184 | 23 | 1,272 |
| Depreciation | 238 | 764 | 182 | - | 1,184 |
| Write-downs | 15 | 48 | 2 | 23 | 88 |
| Write-backs | - | - | - | - | - |
| Transfers | 3 | 9 | - | (12) | - |
| Transfers (IFRS 5) | 4 | - | - | - | 4 |
| Exchange differences | (4) | (38) | 6 | - | (36) |
| December 31, 2009 | 3,969 | 10,015 | 1,114 | 28 | 15,126 |
| Carrying amounts, | |||||
| December 31, 2009 | 3,778 | 4,148 | 469 | 1,014 | 9,409 |
| Carrying amounts, December 31, 2008 |
3,662 | 4,074 | 465 | 1,291 | 9,492 |
Write-downs of property, plant and equipment totaled €88 million, including €69 million related to the subgroups' restructuring programs and €8 million related to plant closures in connection with the integration of Schering, Berlin, Germany.
Further capital expenditures were made for the expansion of production capacities in China. The total capital expenditures of €1,342 million included approximately €235 million for this major region.
In 2009, borrowing costs of €14 million (2008: €29 million) were capitalized as components of the cost of acquisition and construction of qualifying assets, applying an average fi nancing cost factor of 4.9% (2008: 6.2%).
Capitalized property, plant and equipment included assets with a total net value of €469 million (2008: €454 million) held under fi nance leases. The cost of acquisition and construction of these assets as of the closing date totaled €1,038 million (2008: €989 million). They comprised plant
installations and machinery with a carrying amount of €240 million (2008: €266 million), buildings with a carrying amount of €143 million (2008: €103 million) and other assets with a carrying amount of €86 million (2008: €85 million). For information on the liabilities arising from fi nance leases see Note [27].
Also included are assets with a carrying amount of €21 million (2008: €15 million) leased to other parties under operating leases as defi ned in ias 17 (Leases). The cost of acquisition of assets classifi ed as operating leases was €41 million (2008: €33 million); their depreciation in 2009 amounted to €4 million (2008: €4 million).
In 2009, rental payments of €203 million (2008: €291 million) were made for assets leased under operating leases as defi ned in ias 17 (Leases).
Bayer sold a registered usufructuary right to real estate with a carrying amount of €130 million to a leasing company and leased it back immediately under an agreement that includes a right of repurchase upon expiration of the lease. This transaction, which is accounted for as a secured loan, does not restrict the operational use of the real estate.
Changes in property, plant and equipment in 2008 were as follows:
| Changes in Property, Plant and Equipment (Previous Year) | |||||
|---|---|---|---|---|---|
| Land and buildings |
Plant installations and machinery |
Furniture, fi xtures and other equipment |
Construction in progress and advance payments |
Total | |
| € million | € million | € million | € million | € million | |
| Cost of acquisition or construction, December 31, 2007 |
6,999 | 12,448 | 1,599 | 1,362 | 22,408 |
| Changes in scope of consolidation |
|||||
| Acquisitions | 45 12 |
3 8 |
(2) 3 |
1 2 |
47 25 |
| Capital expenditures | 231 | 554 | 136 | 765 | 1,686 |
| Retirements | (169) | (267) | (137) | (33) | (606) |
| Transfers | 252 | 637 | (59) | (841) | (11) |
| Transfers (IFRS 5) | - | - | - | - | - |
| Changes from revaluation (IFRS 3) |
- | - | 1 | - | 1 |
| Exchange differences | 101 | 229 | (7) | 54 | 377 |
| December 31, 2008 | 7,471 | 13,612 | 1,534 | 1,310 | 23,927 |
| Accumulated depreciation and write-downs, December 31, 2007 |
3,577 | 8,914 | 1,069 | 29 | 13,589 |
| Changes in scope | |||||
| of consolidation | 30 | - | 1 | 1 | 32 |
| Retirements | (120) | (249) | (122) | (17) | (508) |
| Depreciation and | |||||
| write-downs in 2008 | 278 | 732 | 157 | 5 | 1,172 |
| Depreciation | 226 | 705 | 153 | - | 1,084 |
| Write-downs | 52 | 27 | 4 | 5 | 88 |
| Write-backs | - | - | - | - | - |
| Transfers | 4 | 23 | (31) | - | (4) |
| Transfers (IFRS 5) | - | - | - | - | - |
| Exchange differences | 40 | 118 | (5) | 1 | 154 |
| December 31, 2008 | 3,809 | 9,538 | 1,069 | 19 | 14,435 |
| Carrying amounts, December 31, 2008 |
3,662 | 4,074 | 465 | 1,291 | 9,492 |
| Carrying amounts, December 31, 2007 |
3,422 | 3,534 | 530 | 1,333 | 8,819 |
| Principal Subgroup Sites | [Table 4.50] |
|---|---|
| Location | Main activities |
| HealthCare | |
| Leverkusen, Germany | Bayer HealthCare headquarters, administration, formulation and packaging of pharmaceutical products |
| Bergkamen, Germany | Active ingredient production |
| Berlin, Germany | Production and packaging of contrast media, packaging of solids, research and development, administration |
| Bitterfeld-Wolfen, Germany | Formulation and packaging of Consumer Care products |
| Wuppertal, Germany | Production of active ingredients for pharmaceutical products, research and development |
| Turku, Finland | Production of gynecological and andrological products, solids (oncology), research and development |
| Berkeley, U.S.A. | Production, formulation and packaging of recombinant Factor VIII |
| Emeryville, U.S.A. | Production and formulation of Betaferon® / Betaseron® |
| Mishawaka, U.S.A. | Production of instruments and test strips (Medical Care Division) |
| Myerstown, U.S.A. | Formulation and packaging of Consumer Care products |
| CropScience | |
| Monheim, Germany | Bayer CropScience headquarters, administration, research and development for fungicides and insecticides |
| Dormagen, Germany | Development of new production processes and manufacture of products for Crop Protection and Environmental Science |
| Frankfurt am Main, Germany | Research and development for herbicides, manufacture of products for Crop Protection and Environmental Science |
| Ghent, Belgium | Research and development for seeds and agricultural crop traits |
| Haelen, Netherlands | Research, development and production of vegetable seeds |
| Institute, U.S.A. | Manufacture of products for Crop Protection and Environmental Science |
| Kansas City, U.S.A. | Manufacture of products for Crop Protection and Environmental Science |
| Vapi, India | Development of new production processes and manufacture of products for Crop Protection and Environmental Science |
| MaterialScience | |
| Leverkusen, Germany | Bayer MaterialScience headquarters, administration, production of basic chemicals, functional fi lms and modifi ed isocyanates |
| Brunsbüttel, Germany | Production of diphenylmethane diisocyanate, toluene diisocyanate, chlorine, hydrochloric acid and hydrogen |
| Dormagen, Germany | Production of modifi ed isocyanates, coating resins, polycarbonate fi lms, toluene diisocyanate, polyether, thermoplastic polyurethanes, chlorine, sodium hydroxide solution, hydrochloric acid and hydrogen |
| Krefeld, Germany | Production of polycarbonates, diphenylmethane diisocyanate, chlorine, sodium hydroxide solution, hydrochloric acid and hydrogen |
| Antwerp, Belgium | Production of polycarbonates, aniline, nitrobenzene and polyether |
| Tarragona, Spain | Production of diphenylmethane disocyanate, polyether formulations |
| Baytown, U.S.A. | Production of base and modifi ed isocyanates, polycarbonates, diphenylmethane diisocyanate, toluene diisocyanate, chlorine, sodium hydroxide solution,hydrochloric acid and hydrogen |
| Map Ta Phut, Thailand | Production of polycarbonates and polycarbonate fi lms |
| Shanghai, China | Production of base and modifi ed isocyanates, polycarbonates, diphenylmethane diisocyanate, toluene diisocyanate (under construction) |
Changes in the carrying amounts of the Group's interests in associates included at equity were as follows:
| Changes in Carrying Amounts of Investments in Associates | ||
|---|---|---|
| 2008 | 2009 | |
| € million | € million | |
| Carrying amounts, January 1 | 484 | 450 |
| Acquisitions | - | - |
| Other additions | 14 | 1 |
| Divestitures | - | - |
| Miscellaneous retirements | (15) | - |
| Equity-method loss after taxes | (47) | (48) |
| Exchange differences | 14 | (8) |
| Carrying amounts, December 31 | 450 | 395 |
These interests relate exclusively to the MaterialScience subgroup, which holds them for strategic reasons.
In 2000, Bayer acquired the polyols business and parts of the propylene oxide (po) production operations of Lyondell Chemicals with the objective of ensuring access to patented technologies and safeguarding the long-term supply of po, a starting product for polyurethane, at reasonable prices. As part of this strategy, two joint ventures have been established to produce po (po jv Delaware United States, Bayer's interest 41%, and Lyondell Bayer Manufacturing Maasvlakte vof, Netherlands, Bayer's interest 50%). The production facilities of both companies are operated by Lyondell. Bayer benefi ts from fi xed long-term supply quotas / volumes of po based on fi xed price components.
The following tables present a summary of the aggregated items of the income statements and statements of fi nancial position of the associates included at equity in the consolidated fi nancial statements of the Bayer Group.
| Aggregated Income Statement Data of Associates Included at Equity | [Table 4.52] | |
|---|---|---|
| 2008 | 2009 | |
| € million | € million | |
| Sales | 919 | 648 |
| Gross profi t | (25) | (27) |
| Net loss | (95) | (95) |
| Share of pre-tax loss | (47) | (48) |
| Pre-tax loss from interests in associates included at equity | (47) | (48) |
| Pre-tax loss upon derecognition of other interests | (15) | - |
| Pre-tax loss from interests in associates included at equity | ||
| (equity-method loss) | (62) | (48) |
| Aggregated Data from the Statements of Financial Position of Associates Included at Equity | ||
|---|---|---|
| Dec. 31, 2008 |
Dec. 31, 2009 |
|
| € million | € million | |
| Noncurrent assets | 944 | 863 |
| Current assets | 238 | 193 |
| Noncurrent liabilities | 13 | 10 |
| Current liabilities | 178 | 171 |
| Equity | 991 | 875 |
| Share of equity | 430 | 377 |
| Other | 20 | 18 |
| Carrying amount of associates included at equity | 450 | 395 |
The item "other" mainly comprises differences arising from adjustments of data to Bayer's uniform accounting policies, purchase price allocations and their amortization in income, and impairment losses.
Other fi nancial assets were as follows:
| Other Financial Assets | [Table 4.54] | |||
|---|---|---|---|---|
| Dec. 31, 2008 | Dec. 31, 2009 | |||
| Total | Of which current |
Total | Of which current |
|
| € million | € million | € million | € million | |
| Loans and receivables | 633 | 142 | 603 | 95 |
| Available-for-sale fi nancial assets | 288 | 4 | 212 | 14 |
| of which debt instruments | 62 | 3 | 63 | 13 |
| of which equity instruments | 226 | 1 | 149 | 1 |
| Held-to-maturity fi nancial investments | 167 | 57 | 107 | 13 |
| Receivables from forward commodity contracts | 81 | 57 | 36 | 34 |
| Receivables from other derivatives | 635 | 373 | 584 | 210 |
| Receivables under lease agreements | 27 | 1 | 25 | 1 |
| Total | 1,831 | 634 | 1,567 | 367 |
Loans mainly comprised capital of €310 million (2008: €310 million) provided to Bayer-Pensionskasse VVaG (Bayer-Pensionskasse) for its effective initial fund and jouissance right capital of €150 million (2008: €150 million).
In 2009, impairment losses of €1 million (2008: €1 million) were recognized on loans and receivables and an impairment charge of €15 million (2008: €14 million) was recognized on availablefor-sale fi nancial assets. Unimpaired other fi nancial assets of €13 million (2008: €0 million) were overdue on the closing date.
Table of Contents Consolidated Financial Statements
Available-for-sale fi nancial assets included equity instruments in the amount of €58 million (2008: €84 million) whose fair value could not be determined from a stock exchange or other market price or by discounting reliably determinable future cash fl ows. These equity instruments are recognized at amortized cost.
Further information on the accounting for receivables from derivatives is given in Note [30].
Receivables under lease agreements relate to fi nance leases where Bayer is the lessor and the lessee is the economic owner of the leased assets. These receivables comprised expected lease payments of €30 million (2008: €32 million), including €5 million (2008: €5 million) in interest. Of the expected lease payments, €2 million (2008: €2 million) was due within one year, €28 million (2008: €28 million) within the following four years and €0 million (2008: €2 million) after fi ve years.
Inventories comprised:
| Inventories | ||||
|---|---|---|---|---|
| Dec. 31, 2008 |
Dec. 31, 2009 |
|||
| € million | € million | |||
| Raw materials and supplies | 1,253 | 1,130 | ||
| Work in process, fi nished goods and goods purchased for resale | 5,409 | 4,953 | ||
| Advance payments | 19 | 8 | ||
| Total | 6,681 | 6,091 |
The changes in the inventory reserve, which are refl ected in the cost of goods sold and partly as a special item in other operating expenses, were as follows:
| Write-Downs of Inventories | [Table 4.56] | |
|---|---|---|
| 2008 | 2009 | |
| € million | € million | |
| Accumulated write-downs, January 1 | (318) | (368) |
| Changes in scope of consolidation | - | - |
| Additions expensed in the reporting period | (236) | (150) |
| Deductions due to reversal or utilization | 186 | 193 |
| Exchange differences | - | (6) |
| Accumulated write-downs, December 31 | (368) | (331) |
Trade accounts receivable less write-downs amounted to €6,106 million on the closing date (2008: €5,953 million), including €6,098 million (2008: €5,936 million) maturing within one year and €8 million (2008: €17 million) maturing after one year.
Changes in write-downs of trade accounts receivable were as follows:
| Write-Downs of Trade Accounts Receivable | [Table 4.57] | |
|---|---|---|
| 2008 | 2009 | |
| € million | € million | |
| Accumulated write-downs, January 1 | (295) | (256) |
| Changes in scope of consolidation | - | - |
| Additions expensed in the reporting period | (184) | (85) |
| Deductions due to reversal or utilization | 198 | 96 |
| Exchange differences | 25 | (26) |
| Accumulated write-downs, December 31 | (256) | (271) |
Unimpaired trade accounts receivable of €1,057 million (2008: €1,137 million) were overdue or due immediately on the closing date.
| Overdue Trade Accounts Receivable [Table 4.58] |
|||||||
|---|---|---|---|---|---|---|---|
| Of which neither impaired nor overdue at the closing date |
Of which not impaired but overdue at the closing date | ||||||
| Carrying amount |
up to 3 months* |
3 – 6 months | 6 – 12 months | more than 12 months |
|||
| € million | € million | € million | € million | € million | € million | ||
| December 31, 2009 |
6,106 | 4,881 | 617 | 136 | 137 | 167 | |
| December 31, 2008 |
5,953 | 4,699 | 739 | 156 | 142 | 100 |
* The fi gures in the column "up to three months" include receivables due immediately.
The unimpaired receivables are deemed to be collectible on the basis of established credit management processes and individual assessments of customer risks. The write-downs include an appropriate allowance for default risk. In addition, a small amount of receivables is collateralized by liens on land or buildings.
Other receivables, after write-downs of €11 million (2008: €9 million), are comprised as follows:
| Other Receivables | [Table 4.59] | |||
|---|---|---|---|---|
| Dec. 31, 2008 | Dec. 31, 2009 | |||
| Total | Of which current |
Total | Of which current |
|
| € million | € million | € million | € million | |
| Benefi t plan assets in excess of obligation | 351 | - | 100 | - |
| Receivables from employees | 41 | 41 | 42 | 41 |
| Other tax receivables | 403 | 399 | 354 | 352 |
| Interest receivables | 5 | 4 | 8 | 8 |
| Miscellaneous receivables | 942 | 840 | 1,402 | 956 |
| Total | 1,742 | 1,284 | 1,906 | 1,357 |
Interest receivables consist mainly of interest earned or accrued that is not due to be received until after the closing date.
Miscellaneous receivables include €200 million (2008: €174 million) in accrued income, of which €171 million (2008: €156 million) represents current receivables. Miscellaneous receivables of €363 million exist from the sale of the hematological oncology portfolio – Campath® / MabCampath®, Fludara® and Leukine® – to Genzyme Corporation, United States.
Of the €970 million (2008: €676 million) in fi nancial receivables included in other receivables, €130 million (2008: €187 million) was overdue or due immediately on the closing date.
| Overdue Other Financial Receivables [Table 4.60] |
||||||||
|---|---|---|---|---|---|---|---|---|
| Of which neither impaired nor overdue at the closing date |
Of which not impaired but overdue at the closing date | |||||||
| Carrying amount |
up to 3 months* |
3 – 6 months | 6 – 12 months | more than 12 months |
||||
| € million | € million | € million | € million | € million | € million | |||
| December 31, 2009 |
970 | 828 | 88 | 10 | 12 | 20 | ||
| December 31, 2008 |
676 | 469 | 126 | 13 | 13 | 35 |
* The fi gures in the column "up to three months" include receivables due immediately.
The foremost objectives of our fi nancial management are to help bring about a sustained increase in the value of the Bayer Group for the benefi t of all stakeholders, and to ensure the Group's creditworthiness and liquidity. The pursuit of these goals means reducing our cost of capital, optimizing our capital structure, improving our fi nancing cash fl ow and effectively managing risk.
The rating agencies commissioned by Bayer assess the fi nancial risks of the Bayer Group as follows:
| Rating [Table 4.61] |
|||
|---|---|---|---|
| Long-term rating | Outlook | Short-term rating | |
| Standard & Poor's | A- | negative | A-2 |
| Moody's | A3 | stable | P-2 |
These investment-grade ratings refl ect the company's good creditworthiness and ensure access to a broad investor base for fi nancing purposes. Bayer's capital management strategy is based on the debt ratios published by the rating agencies, which – by somewhat differing methods – look at the cash fl ow for a given period in relation to debt. The fi nancial strategy of the Bayer Group focuses on an "a" rating and on preserving our fi nancial fl exibility. Apart from utilizing cash infl ows from our operating business to reduce net fi nancial debt, we are implementing our fi nancial strategy by way of vehicles such as the subordinated hybrid bond issued in July 2005, the authorized (conditional) capital created by resolutions of the Annual Stockholders' Meeting, and our share buyback program. Bayer's Articles of Incorporation do not stipulate capital ratios.
The changes in the various components of equity during 2008 and 2009 are shown in the statements of changes in equity.
The capital stock of Bayer AG on December 31, 2009 amounted to €2,117 million (2008: €1,957 million), divided into 826,947,808 (2008: 764,343,225) no-par registered shares, and was fully paid in. Each share confers one voting right. In 2009 the conversion of the €2.3 billion mandatory convertible bond issued by Bayer Capital Corporation b.v., Netherlands, in 2006 resulted in an increase of €160 million in the capital stock and the issuance of 62,604,583 new shares. An amount of €2,139 million was allocated to capital reserves. A fractional amount was disbursed to bondholders in cash.
Authorized capital of €465 million was approved by the Annual Stockholders' Meeting on April 28, 2006. It expires on April 27, 2011. It can be used to increase the capital stock by issuing new no-par registered shares against cash contributions and / or contributions in kind, but capital increases against contributions in kind may not exceed a total of €370 million (Authorized Capital i). Stockholders must normally be granted subscription rights. However, subject to the approval of the Supervisory Board, the Board of Management is authorized to exclude subscription rights for the stockholders with respect to any excess shares remaining after rights have been allocated (fractional amounts) and also to the extent necessary to grant subscription rights for new shares to holders of convertible bonds or bonds with attached warrants or mandatory convertible bonds issued by Bayer AG or its Group companies, who would be entitled to subscription rights upon exercise of the conversion rights or warrants. In addition, the Board of Management is authorized to exclude stockholders' subscription rights, subject to the approval of the Supervisory Board, in cases where an increase in capital against contributions in kind is carried out for the purpose of acquiring companies, parts of companies, participating interests in companies or other assets.
Further authorized capital was approved by the Annual Stockholders' Meeting on April 27, 2007. The Board of Management is authorized until April 26, 2012 to increase the capital stock, subject to the approval of the Supervisory Board, by up to a total of €195 million in one or more installments by issuing new no-par registered shares against cash contributions (Authorized Capital ii). Under the resolution adopted by the Annual Stockholders' Meeting, stockholders must normally be granted subscription rights. However, the Board of Management is authorized to exclude subscription rights for stockholders with respect to one or more capital increases out of the Authorized Capital ii, subject to the approval of the Supervisory Board, provided that such capital increase does not exceed 10% of the capital stock existing at the time this authorization becomes effective or the time this authorization is exercised, for purposes of issuing new shares against cash contributions at a price that is not signifi cantly below the market price of shares in the company that are already listed on the stock exchange at the time the issue price is fi nally determined. Shares acquired on the basis of an authorization of the Stockholders' Meeting and sold pursuant to Section 71, Paragraph 1, No. 8, Sentence 5 of the German Stock Corporation Act in conjunction with Section 186, Paragraph 3, Sentence 4 of that Act during the term of this authorization shall count toward the above 10% limit. Shares issued or to be issued to service bonds with conversion rights, attached warrants or mandatory conversion rights shall also count toward this limit where such bonds were issued during the term of this authorization and stockholders' subscription rights were excluded by application of Section 186, Paragraph 3, Sentence 4 of the German Stock Corporation Act.
Neither of these authorized capital amounts has been utilized so far.
Of the €187 million conditional capital created by resolution of the Annual Stockholders' Meeting on April 30, 2004, corresponding to 72,998,695 shares as of December 31, 2008, an amount of €160 million, corresponding to 62,604,583 shares, was used in 2009 to service conversion rights under a mandatory convertible bond issued by Bayer Capital Corporation b.v., Netherlands, on April 6, 2006. The remaining amount of €27 million expired with the deletion of the respective provision of the Articles of Incorporation, which deletion was entered in the Commercial Register on January 22, 2010.
The Annual Stockholders' Meeting on April 25, 2008 approved the creation of Conditional Capital 2008 I and Conditional Capital 2008 ii and authorized a conditional increase in the capital stock in each case of €196 million through the issue of 76,400,000 shares. This conditional capital increase may be used to grant shares to the holders of bonds with warrants or convertible bonds, profi t-sharing rights or profi t participation bonds (or combinations of these instruments) with option or conversion rights or obligations, issued on or before April 24, 2013 by Bayer AG or a Group company in which Bayer AG holds a direct or indirect interest of at least 90%. The authorization to issue such instruments is limited to a total nominal value of €6 billion. In principle, stockholders have a statutory right to be granted subscription rights to such instruments. However, the Board of Management is authorized to exclude subscription rights, subject to the approval of the Supervisory Board, if the instruments are issued at a price that is not signifi cantly below the market price. The limit of 10% of the capital stock set analogously with Section 186 Paragraph 3 Sentence 4 of the German Stock Corporation Act for the exclusion of stockholders' subscription rights may not be exceeded. Both shares and other such instruments shall count toward this limit if they were issued under exclusion of subscription rights in direct or analogous application of Section 186, Paragraph 3, Sentence 4 of the German Stock Corporation Act.
The retained earnings comprise prior years' undistributed income of consolidated companies and all actuarial gains and losses related to defi ned benefi t pension plans that are not recognized in income.
Accumulated other comprehensive income comprises exchange differences, the changes in fair values of cash fl ow hedges and available-for-sale fi nancial assets, and the revaluation surplus. The latter results from the acquisition in 2005 of the remaining 50% interest in an otc joint venture with Roche in the United States that was established in 1996 and the acquisition of the remaining 50% interest in BaySystems, Oldenburg, Germany, in 2008. An amount of €6 million (2008: €4 million) that constitutes scheduled amortization / depreciation of the respective assets and is recognized in income was transferred in 2009 from the revaluation surplus to retained earnings.
Under the German Stock Corporation Act (AktG), the dividend payment is determined by the distributable profi t reported in the annual fi nancial statements of Bayer AG, which are prepared according to the German Commercial Code. Retained earnings were diminished by payment of the dividend of €1.40 per share for 2008 (2007: €1.35 per share). The proposed dividend for the 2009 fi scal year is €1.40 per share, which would result in a total dividend payment of €1,158 million. The proposed dividend is subject to approval by the company's stockholders at the Annual Stockholders' Meeting and has not been recognized as a liability in the consolidated fi nancial statements of the Bayer Group.
The changes in the non-controlling interest in Group equity during 2009 and 2008 are shown in the following table:
| Components of Non-Controlling Interest in Equity | [Table 4.62] | |
|---|---|---|
| 2008 | 2009 | |
| € million | € million | |
| January 1 | 87 | 77 |
| Changes in equity not recognized in net income | ||
| Changes in fair value of securities and cash fl ow hedges | - | - |
| Changes in actuarial gains / losses on defi ned benefi t obligations for pensions and other post-employment benefi ts |
- | - |
| Exchange differences on translation of operations outside the euro zone | 3 | 2 |
| Deferred taxes on valuation adjustments recognized directly in equity | - | - |
| Other changes in equity | (9) | (21) |
| Dividend payments | (9) | (4) |
| Changes in equity recognized in net income | 5 | - |
| December 31 | 77 | 54 |
Non-controlling interests mainly comprise the equity of Bayer CropScience Ltd., India; Sumika Bayer Urethane Co. Ltd., Japan; BaySystems Pearl fzco, United Arab Emirates; Bayer East Africa Ltd., Kenya; Bayer Jinling Polyurethane Company Ltd., China; and Bayer s.a., Peru.
The provisions for pensions and other post-employment benefi ts in Germany and other countries as of the closing date are as shown in the following table:
| Provisions for Pensions and Other Post-Employment Benefi ts [Table 4.63] |
|||||||
|---|---|---|---|---|---|---|---|
| Pensions | Other post-employment | benefi ts | Total | ||||
| Dec 31, 2008 |
Dec 31, 2009 |
Dec 31, 2008 |
Dec 31, 2009 |
Dec 31, 2008 |
Dec 31, 2009 |
||
| € million | € million | € million | € million | € million | € million | ||
| Germany | 4,557 | 4,866 | 109 | 71 | 4,666 | 4,937 | |
| Other countries | 1,197 | 1,130 | 484 | 450 | 1,681 | 1,580 | |
| Total | 5,754 | 5,996 | 593 | 521 | 6,347 | 6,517 |
The expenses for defi ned benefi t pension plans and other post-employment benefi t obligations are comprised as follows:
| Germany | Other countries | Total | ||||
|---|---|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | |
| € million | € million | € million | € million | € million | € million | |
| Current service cost | 134 | 108 | 48 | 47 | 182 | 155 |
| Past service cost | (9) | (14) | (2) | (2) | (11) | (16) |
| Interest cost | 567 | 611 | 232 | 240 | 799 | 851 |
| Expected return on plan assets | (307) | (300) | (267) | (200) | (574) | (500) |
| Plan curtailments | - | - | (3) | 2 | (3) | 2 |
| Plan settlements | - | - | 1 | (1) | 1 | (1) |
| Total | 385 | 405 | 9 | 86 | 394 | 491 |
Germany Other countries Total 2008 2009 2008 2009 2008 2009 € million € million € million € million € million € million Current service cost 9 6 17 18 26 24 Past service cost - - - 1 - 1 Interest cost 6 3 47 47 53 50 Expected return on plan assets - - (28) (21) (28) (21) Plan curtailments - - - (1) - (1) Plan settlements - - - - - - Total 15 9 36 44 51 53
Status of Unfunded and Funded Defi ned Benefi t Obligations
| Germany | ||||||
|---|---|---|---|---|---|---|
| Pension obligations | Other post-employment benefi t obligations |
|||||
| 2008 | 2009 | 2008 | 2009 | |||
| € million | € million | € million | € million | |||
| Defi ned benefi t obligation as of January 1 | 10,458 | 10,319 | 141 | 109 | ||
| Acquisitions | - | - | - | - | ||
| Divestitures / changes in scope of consolidation | (22) | 25 | - | - | ||
| Current service cost | 134 | 108 | 9 | 6 | ||
| Interest cost | 567 | 611 | 6 | 3 | ||
| Employee contributions | 25 | 25 | - | - | ||
| Past service cost | (9) | (14) | - | - | ||
| Plan settlements | - | - | - | - | ||
| Net actuarial (gain) loss | (287) | 432 | - | - | ||
| Benefi ts paid | (547) | (569) | (47) | (47) | ||
| Plan curtailments | - | - | - | - | ||
| Other reclassifi cations | - | - | - | - | ||
| Exchange differences | - | - | - | - | ||
| Defi ned benefi t obligation as of December 31 | 10,319 | 10,937 | 109 | 71 | ||
| Fair value of plan assets as of January 1 | 6,165 | 6,032 | - | - | ||
| Acquisitions | - | - | - | - | ||
| Divestitures / changes in scope of consolidation | (16) | 15 | - | - | ||
| Expected return on plan assets | 307 | 300 | - | - | ||
| Net actuarial gain (loss) | (213) | (14) | - | - | ||
| Plan settlements | - | - | - | - | ||
| Employer contributions | 311 | 303 | 47 | 47 | ||
| Employee contributions | 25 | 25 | - | - | ||
| Benefi ts paid | (547) | (569) | (47) | (47) | ||
| Exchange differences | - | - | - | - | ||
| Fair value of plan assets as of December 31 | 6,032 | 6,092 | - | - | ||
| Funded status as of December 31 | (4,287) | (4,845) | (109) | (71) | ||
| Unrecognized past service cost | - | - | - | - | ||
| Asset limitation due to uncertainty of obtaining future benefi ts | - | - | - | - | ||
| Net recognized liability as of December 31 | (4,287) | (4,845) | (109) | (71) | ||
| Amounts recognized in the balance sheet | ||||||
| Benefi t plan assets in excess of obligation | 270 | 21 | - | - | ||
| Provisions for pensions and other post-employment benefi ts | (4,557) | (4,866) | (109) | (71) | ||
| Net recognized liability as of December 31 | (4,287) | (4,845) | (109) | (71) |
| Other Other post-employment post-employment Pension obligations benefi t obligations Pension obligations benefi t obligations 2008 2009 2008 2009 2008 2009 2008 2009 € million € million € million € million € million € million € million € million 3,705 3,752 718 730 14,163 14,071 859 839 5 - - - 5 - - - 1 - - - (21) 25 - - 48 47 17 18 182 155 26 24 232 240 47 47 799 851 53 50 3 4 - - 28 29 - - (2) (2) - 1 (11) (16) - 1 22 (1) - - 22 (1) - - 138 309 (26) 4 (149) 741 (26) 4 (216) (209) (34) (42) (763) (778) (81) (89) (3) 2 - (1) (3) 2 - (1) 11 - (11) - 11 - (11) - (192) 31 19 (7) (192) 31 19 (7) 3,752 4,173 730 750 14,071 15,110 839 821 3,568 2,651 339 251 9,733 8,683 339 251 5 - - - 5 - - - - - - - (16) 15 - - 267 200 28 21 574 500 28 21 (893) 280 (137) 38 (1,106) 266 (137) 38 21 (2) - - 21 (2) - - 100 141 35 45 411 444 82 92 3 4 - - 28 29 - - (216) (209) (34) (42) (763) (778) (81) (89) (204) 72 20 (9) (204) 72 20 (9) 2,651 3,137 251 304 8,683 9,229 251 304 (1,101) (1,036) (479) (446) (5,388) (5,881) (588) (517) 3 (1) (5) (4) 3 (1) (5) (4) (18) (14) - - (18) (14) - - (1,116) (1,051) (484) (450) (5,403) (5,896) (593) (521) 81 79 - - 351 100 - - (1,197) (1,130) (484) (450) (5,754) (5,996) (593) (521) |
Other Countries | Total | |||
|---|---|---|---|---|---|
| (1,116) (1,051) (484) (450) (5,403) (5,896) (593) (521) |
Of the defi ned benefi t obligation for pensions, €5,006 million (2008: €4,799 million) relates to unfunded benefi t obligations while €10,104 million (2008: €9,272 million) relates to funded benefi t obligations. Of the defi ned benefi t obligation for other post-employment benefi ts, €176 million (2008: €185 million) relates to unfunded benefi t obligations while €645 million (2008: €654 million) relates to funded benefi t obligations.
Of the funded pension plans, total overfunding of individual plans amounts to €111 million (2008: €366 million) while underfunding amounts to €986 million (2008: €955 million). Similarly, other funded post-employment benefi t obligations of individual funds are underfunded by €341 million (2008: €404 million). Other unfunded post-employment benefi t obligations relate mainly to early retirement benefi ts in Germany.
The Bayer Group has set up funded pension plans for its employees in many countries. Since the legal and tax requirements and economic conditions may vary considerably between countries, assets are managed according to country-specifi c principles.
Bayer-Pensionskasse VVaG (Bayer-Pensionskasse) in Germany is by far the most signifi cant of the pension funds. This legally independent fund is a private insurance company and is therefore subject to the German Law on the Supervision of Private Insurance Companies. Under the German law on secondary liability, Bayer guarantees the pension entitlements of employees who are members of benefi t plans in Germany. Bayer-Pensionskasse is classifi ed as a defi ned benefi t plan for ifrs purposes.
The investment policy of Bayer-Pensionskasse is geared to compliance with regulatory provisions and to the risk structure resulting from its obligations. In light of capital market movements, Bayer-Pensionskasse has therefore developed a strategic target investment portfolio aligned to its risk structure. Its investment strategy is focused primarily on stringently managing risks rather than on maximizing absolute returns. It is anticipated that with this investment policy, Bayer-Pensionskasse can generate a return that enables it to meet its long-term commitments.
A large proportion of the benefi t obligations of Bayer Schering Pharma AG, Berlin, Germany, which was acquired in 2006, is covered by Schering Altersversorgung Treuhand Verein. Here too, the investment strategy is geared to the structure of the corresponding obligations. It permits the use of derivatives; nearly all currency risks are fully hedged. With the aid of a risk management system, stress scenarios are simulated and other risk analyses are undertaken (e.g. value at risk).
For plan assets in other countries as well, the key investment strategy criteria are the structure of the benefi t obligations and the risk profi le. Other determinants are risk diversifi cation, portfolio effi ciency and a country-specifi c and global balance of opportunity and risk designed primarily to ensure the payment of all future benefi ts.
The weighted parameters used to value the plan assets to cover pensions and other post-employment benefi t obligations were allocated as follows at year end:
| Plan Assets to Cover Pension Obligations as of December 31 [Table 4.67] |
|||||
|---|---|---|---|---|---|
| Germany | Other countries | ||||
| 2008 | 2009 | 2008 | 2009 | ||
| % | % | % | % | ||
| Equity securities | 17.68 | 19.54 | 37.94 | 42.60 | |
| Debt securities | 60.73 | 59.97 | 50.17 | 46.61 | |
| Real estate and special real estate funds | 8.83 | 9.08 | 1.80 | 1.43 | |
| Other | 12.76 | 11.41 | 10.09 | 9.36 | |
| Total | 100.00 | 100.00 | 100.00 | 100.00 |
| Plan Assets to Cover Other Post-Employment Benefi t Obligations as of December 31 | [Table 4.68] | ||||
|---|---|---|---|---|---|
| Germany | Other countries | ||||
| 2008 | 2009 | 2008 | 2009 | ||
| % | % | % | % | ||
| Equity securities | - | - | 39.38 | 45.20 | |
| Debt securities | - | - | 44.53 | 35.18 | |
| Real estate and special real estate funds | - | - | - | - | |
| Other | - | - | 16.09 | 19.62 | |
| Total | - | - | 100.00 | 100.00 |
The fair value of the plan assets includes real estate leased by Bayer, recognized at a fair value of €78 million (2008: €74 million), and Bayer shares held through investment funds, recognized at their market value of €30 million (2008: €14 million). The other plan assets principally comprise mortgage loans granted, other receivables, fi xed-term deposits and cash and cash equivalents.
The following weighted parameters were used to value the pension obligations as of December 31 and the expense for pensions and other post-employment benefi ts in the respective year:
| Parameters for Benefi t Obligations [Table 4.69] |
|||||||
|---|---|---|---|---|---|---|---|
| Germany | Other countries | Total | |||||
| 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | ||
| % | % | % | % | % | % | ||
| Pension obligations | |||||||
| Discount rate | 6.00 | 5.50 | 6.30 | 5.90 | 6.10 | 5.60 | |
| Projected future remuneration increases | 3.00 | 2.50 | 4.00 | 4.15 | 3.25 | 2.95 | |
| Projected future benefi t increases | 2.00 | 1.75 | 2.95 | 3.50 | 2.25 | 2.25 | |
| Other post-employment benefi t obligations |
|||||||
| Discount rate | 6.40 | 3.10 | 6.45 | 6.20 | 6.45 | 5.95 |
| Germany | Other countries | Total | ||||
|---|---|---|---|---|---|---|
| 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | |
| % | % | % | % | % | % | |
| Pension obligations | ||||||
| Discount rate | 5.50 | 6.00 | 6.45 | 6.30 | 5.75 | 6.10 |
| Projected future remuneration increases | 2.85 | 3.00 | 4.65 | 4.00 | 3.10 | 3.25 |
| Projected future benefi t increases | 1.75 | 2.00 | 3.25 | 2.95 | 1.95 | 2.25 |
| Expected return on plan assets | 4.75 | 5.00 | 7.45 | 7.50 | 5.55 | 5.85 |
| Other post-employment benefi t obligations |
||||||
| Discount rate | 5.10 | 6.40 | 6.85 | 6.45 | 6.55 | 6.45 |
| Expected return on plan assets | - | - | 8.25 | 8.25 | 8.25 | 8.25 |
The discount rate for pension obligations in other countries is infl uenced mainly by the rates of 5.8% (2008: 6.2%) and 5.7% (2008: 6.4%) applicable for the United States and the United Kingdom, respectively.
Altering individual parameters by 0.5 percentage points while leaving the other parameters unchanged would impact pension and other post-employment benefi t obligations as of year end 2009 as follows:
| Sensitivity of Benefi t Obligations | [Table 4.71] | |||||
|---|---|---|---|---|---|---|
| Germany | Other countries | Total | ||||
| 0.5 per centage point increase |
0.5 per centage point decrease |
0.5 per centage point increase |
0.5 per centage point decrease |
0.5 per centage point increase |
0.5 per centage point decrease |
|
| € million | € million | € million | € million | € million | € million | |
| Pension obligations | ||||||
| Change in discount rate | (683) | 765 | (255) | 281 | (938) | 1,046 |
| Change in projected future remuneration increases |
69 | (62) | 30 | (31) | 99 | (93) |
| Change in projected future benefi t increases |
498 | (460) | 41 | (80) | 539 | (540) |
| Other post-employment benefi t obligations |
||||||
| Change in discount rate | (1) | 1 | (40) | 44 | (41) | 45 |
Altering individual parameters by 0.5 percentage points while leaving the other parameters unchanged would impact benefi t expense in 2010 as follows:
| Germany | Other countries | Total | ||||
|---|---|---|---|---|---|---|
| 0.5 per centage point increase |
0.5 per centage point decrease |
0.5 per centage point increase |
0.5 per centage point decrease |
0.5 per centage point increase |
0.5 per centage point decrease |
|
| € million | € million | € million | € million | € million | € million | |
| Pension obligations | ||||||
| Change in discount rate | (4) | 4 | (9) | 9 | (13) | 13 |
| Change in projected future remuneration increases |
8 | (7) | 3 | (3) | 11 | (10) |
| Change in projected future benefi t increases |
34 | (31) | 2 | (2) | 36 | (33) |
| Change in expected return on plan assets |
(30) | 30 | (16) | 16 | (46) | 46 |
| Other post-employment benefi t obligations |
||||||
| Change in discount rate | - | - | (1) | 1 | (1) | 1 |
| Change in expected return on plan assets |
- | - | (2) | 2 | (2) | 2 |
Sensitivity of Benefi t Expense [Table 4.72]
Provisions are also set up for the obligations, mainly of u.s. subsidiaries, to provide post-employment benefi ts in the form of health care cost payments to retirees. The valuation of health care costs is based on the assumption that they will increase at a rate of 10% (assumption in 2008: 11%), which should gradually decline to 5% by 2017 (assumption in 2008: 5% by 2016). The following table shows the impact on other post-employment benefi t obligations and total benefi t expense of a one-percentage-point change in the assumed cost increase rates:
| Sensitivity to Health Care Cost Increases | [Table 4.73] | |
|---|---|---|
| Increase of one percentage point |
Decrease of one percentage point |
|
| € million | € million | |
| Impact on other post-employment benefi t obligations | 83 | (70) |
| Impact on benefi t expense | 8 | (7) |
The following payments were made in 2009 and 2008, and are expected to be made in 2010, for employer contributions to funded and unfunded pension plans that provide pensions and other post-employment benefi ts:
| Employer Contributions Paid or Expected [Table 4.74] |
||||||||
|---|---|---|---|---|---|---|---|---|
| Germany | Other countries | |||||||
| 2008 | 2009 | 2010 expected |
2008 | 2009 | 2010 expected |
|||
| € million | € million | € million | € million | € million | € million | |||
| Pension obligations | 311 | 303 | 451 | 100 | 141 | 292 | ||
| Other post-employment benefi t obligations |
47 | 47 | 41 | 35 | 45 | 44 | ||
| Total | 358 | 350 | 492 | 135 | 186 | 336 |
Pensions and other post-employment benefi ts payable in the future are estimated as follows:
| Future Benefi t Obligations | [Table 4.75] | |||||
|---|---|---|---|---|---|---|
| Germany | Other countries | Total | ||||
| Pension obligations |
Other post employment benefi t obligations |
Pension obligations |
Other post employment benefi t obligations |
Pension obligations |
Other post employment benefi t obligations |
|
| € million | € million | € million | € million | € million | € million | |
| 2010 | 582 | 41 | 213 | 43 | 795 | 84 |
| 2011 | 597 | 14 | 211 | 44 | 808 | 58 |
| 2012 | 618 | 3 | 217 | 47 | 835 | 50 |
| 2013 | 639 | 2 | 200 | 49 | 839 | 51 |
| 2014 | 664 | 2 | 207 | 52 | 871 | 54 |
| 2015 – 2019 | 3,718 | 9 | 1,195 | 289 | 4,913 | 298 |
The actuarial gains and losses related to defi ned benefi t obligations and plan assets, refl ected in the statement of changes in equity and recognized in the statement of comprehensive income, are as follows:
| Pension obligations | Germany | Pension obligations Other countries |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2006 | 2007 | 2008 | 2009 | 2005 | 2006 | 2007 | 2008 | 2009 | |
| € million | € million | € million | € million | € million | € million | € million | € million | € million | € million | |
| Defi ned benefi t obligation | 10,256 | 11,357 | 10,458 | 10,319 | 10,937 | 4,269 | 4,348 | 3,705 | 3,752 | 4,173 |
| Fair value of plan assets | 4,599 | 6,053 | 6,165 | 6,032 | 6,092 | 3,485 | 3,804 | 3,568 | 2,651 | 3,137 |
| Funded status | (5,657) | (5,304) | (4,293) | (4,287) | (4,845) | (784) | (544) | (137) | (1,101) | (1,036) |
| Accumulated actuarial gains (losses) relating to benefi t obligation as of |
||||||||||
| January 1 | (1,682) | (2,842) | (2,293) | (1,197) | (910) | (421) | (692) | (657) | (403) | (513) |
| Changes due to divestitures and changes in scope of consolidation |
- | 1 | 1 | - | - | - | - | - | - | - |
| Newly arisen during the year due to changes in actuarial parameters |
(1,122) | 441 | 1,097 | 450 | (396) | (265) | 46 | 299 | 40 | (368) |
| Newly arisen during the year due to experience adjustments |
(38) | 46 | (2) | (163) | (36) | 3 | (45) | (29) | (178) | 59 |
| Allocations to discontinued operations | - | 61 | - | - | - | - | 34 | - | - | - |
| Exchange differences | - | - | - | - | - | (9) | - | (16) | 28 | - |
| December 31 | (2,842) | (2,293) | (1,197) | (910) | (1,342) | (692) | (657) | (403) | (513) | (822) |
| Accumulated actuarial gains (losses) relating to plan assets as of |
||||||||||
| January 1 | (786) | (693) | (846) | (920) | (1,133) | (204) | (125) | 15 | 7 | (886) |
| Changes due to divestitures and changes in scope of consolidation |
- | - | 4 | - | - | - | - | - | - | - |
| Newly arisen during the year | 93 | (154) | (78) | (213) | (14) | 84 | 159 | (9) | (893) | 280 |
| Allocations to discontinued operations | - | 1 | - | - | - | - | (19) | - | - | - |
| Exchange differences | - | - | - | - | - | (5) | - | 1 | - | - |
| December 31 | (693) | (846) | (920) | (1,133) | (1,147) | (125) | 15 | 7 | (886) | (606) |
In Germany, no unrealized gains / losses exist in relation to other post-employment benefi t obligations.
| Other post-employment benefi t obligations | Other countries | Pension obligations Other post-employment benefi t obligations Total |
Total | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2006 | 2007 | 2008 | 2009 | 2005 | 2006 | 2007 | 2008 | 2009 | 2005 | 2006 | 2007 | 2008 | 2009 |
| € million | € million | € million | € million | € million | € million | € million | € million | € million | € million | € million | € million | € million | € million | € million |
| 878 | 864 | 718 | 730 | 750 | 14,525 | 15,705 | 14,163 | 14,071 | 15,110 | 1,036 | 1,003 | 859 | 839 | 821 |
| 359 | 357 | 339 | 251 | 304 | 8,084 | 9,857 | 9,733 | 8,683 | 9,229 | 359 | 357 | 339 | 251 | 304 |
| (519) | (507) | (379) | (479) | (446) | (6,441) | (5,848) | (4,430) | (5,388) | (5,881) | (677) | (646) | (520) | (588) | (517) |
| (259) | (259) | (311) | (221) | (195) | (2,103) | (3,534) | (2,950) | (1,600) | (1,423) | (259) | (259) | (311) | (221) | (195) |
| - | - | - | - | - | - | 1 | 1 | - | - | - | - | - | - | - |
| (31) | (71) | 33 | (10) | (8) | (1,387) | 487 | 1,396 | 490 | (764) | (31) | (71) | 33 | (10) | (8) |
| 31 | 17 | 64 | 36 | 4 | (35) | 1 | (31) | (341) | 23 | 31 | 17 | 64 | 36 | 4 |
| - | - | - | - | - | - | 95 | - | - | - | - | - | - | - | - |
| - | 2 | (7) | - | - | (9) | - | (16) | 28 | - | - | 2 | (7) | - | - |
| (259) | (311) | (221) | (195) | (199) | (3,534) | (2,950) | (1,600) | (1,423) | (2,164) | (259) | (311) | (221) | (195) | (199) |
| (36) | (41) | (24) | (25) | (162) | (990) | (818) | (831) | (913) | (2,019) | (36) | (41) | (24) | (25) | (162) |
| - | - | - | - | - | - | - | 4 | - | - | - | - | - | - | - |
| (5) | 17 | (1) | (137) | 38 | 177 | 5 | (87) | (1,106) | 266 | (5) | 17 | (1) | (137) | 38 |
| - | - | - | - | - | - | (18) | - | - | - | - | - | - | - | - |
| - | - | - | - | - | (5) | - | 1 | - | - | - | - | - | - | - |
| (41) | (24) | (25) | (162) | (124) | (818) | (831) | (913) | (2,019) | (1,753) | (41) | (24) | (25) | (162) | (124) |
The various categories of provisions changed as follows in 2009:
| Changes in Other Provisions | [Table 4.77] | |||||||
|---|---|---|---|---|---|---|---|---|
| Taxes | Environ mental protec tion |
Restruc turing |
Trade related commit ments |
Litiga tions |
Personnel commit ments |
Miscella neous |
Total | |
| € million | € million | € million | € million | € million | € million | € million | € million | |
| December 31, 2008 |
736 | 298 | 175 | 806 | 341 | 1,689 | 469 | 4,514 |
| Changes in scope of consolidation |
(4) | - | - | - | - | (1) | 25 | 20 |
| Additions | 833 | 37 | 130 | 530 | 346 | 1,176 | 328 | 3,380 |
| Utilization | (653) | (45) | (89) | (462) | (260) | (1,187) | (315) | (3,011) |
| Reversal | (137) | (16) | (16) | (47) | (19) | (78) | (120) | (433) |
| Interest cost | 3 | 4 | 1 | - | 2 | 47 | 1 | 58 |
| Exchange differences |
34 | 7 | 2 | 2 | 29 | - | 3 | 77 |
| December 31, 2009 |
812 | 285 | 203 | 829 | 439 | 1,646 | 391 | 4,605 |
The expected utilization of the provisions recognized in the statement of fi nancial position as of December 31, 2009 are as follows:
| Taxes | Environ mental protec tion |
Restruc turing |
Trade related commit ments |
Litiga tions |
Personnel commit ments |
Miscella neous |
Total | |
|---|---|---|---|---|---|---|---|---|
| € million | € million | € million | € million | € million | € million | € million | € million | |
| 2010 | 554 | 46 | 113 | 829 | 194 | 1,089 | 266 | 3,091 |
| 2011 | 116 | 28 | 55 | - | 114 | 112 | 34 | 459 |
| 2012 | 9 | 35 | 18 | - | 9 | 68 | 3 | 142 |
| 2013 | 13 | 11 | 4 | - | - | 44 | 1 | 73 |
| 2014 | 2 | 4 | 3 | - | 1 | 48 | 19 | 77 |
| 2015 or later | 118 | 161 | 10 | - | 121 | 285 | 68 | 763 |
| Total | 812 | 285 | 203 | 829 | 439 | 1,646 | 391 | 4,605 |
The provisions are partly offset by claims for refunds in the amount of €135 million (2008: €69 million), which are recognized as receivables. They relate principally to claims for refunds in connection with product liability and to environmental measures.
Provisions for taxes comprise provisions for income taxes amounting to €686 million (2008: €676 million) and provisions for other types of taxes amounting to €126 million (2008: €60 million).
Further income tax commitments according to ias 12 existed at year end in the amount of €93 million (2008: €65 million) recognized in the statement of fi nancial position as income tax liabilities.
Provisions for environmental protection mainly relate to the rehabilitation of contaminated land, recultivation of landfi lls, and redevelopment and water protection measures.
Provisions for restructuring included €166 million (2008: €139 million) for severance payments and €37 million (2008: €36 million) for other expenses, which mainly comprised demolition and other costs related to the closure of production facilities.
The principal restructuring charges in 2009 related to four major projects.
In 2009 the Pharmaceuticals segment of the HealthCare subgroup continued the restructuring program introduced following the acquisition of Schering AG, Berlin, Germany, in 2006 with the aim of consolidating the Bayer Group's pharmaceuticals activities and enhancing the competitiveness of the business as a whole. To this end the commercial and administrative structures as well as the research and development processes were reviewed and adjusted worldwide. The division continued to consolidate the activities of its fi eld forces in the various countries, optimized the operating model of the marketing organization and further sharpened the focus of its research and development activities. The products of the hematological oncology portfolio were transferred to Genzyme Corporation, United States. These structural changes led to net expenses of €87 million in 2009. The total expenses comprising €85 million in severance payments, €8 million in writedowns and €108 million in other restructuring expenses were partially offset by a €114 million gain from the sale of the hematological oncology portfolio. Provisions for the above and other restructuring measures as of December 31, 2009, amounted to €67 million.
In the Animal Health Division of the HealthCare subgroup, the decision to close a production facility in Brazil resulted in restructuring costs of €47 million. Of this amount, write-downs accounted for €12 million and other restructuring costs for €35 million. The provisions established in this connection amounted to €16 million as of December 31, 2009.
The implementation of the "new" restructuring program, instigated in August 2006 to ensure a sustained improvement in the effi ciency of the Bayer CropScience subgroup, continued as planned in 2009 and was completed on schedule. Important measures under the program took place in France, the United States and the United Kingdom. In France, progress was made in merging the CropScience companies, creating the basis for optimizing cost structures and increasing administrative effi ciency. In the u.s. and the u.k. the consolidation of production facilities was completed as planned. Total expenses for the restructuring amounted to €124 million in 2009. Of this amount, severance payments accounted for €18 million, write-downs for €5 million and other restructuring costs for €101 million. Provisions for the restructuring amounted to €65 million as of December 31, 2009.
The "river" restructuring project initiated by the MaterialScience subgroup in the fall of 2007 to optimize cost structures and achieve a lasting improvement in effi ciency continued to be implemented as planned in 2009. A major focus of the individual measures was on North America and Europe. In North America, apart from a large number of individual measures, signifi cant improvements in the effi ciency of administrative activities were achieved at the site in Pittsburgh, Pennsylvania, United States. Other measures related to the closures of a resins plant in New Martinsville, West Virginia, and an electrolysis plant in Baytown, Texas. In Germany, the main sites affected were those in Leverkusen and Krefeld, where steps were taken to optimize administrative workfl ows and a new site concept was introduced. Total restructuring expenses for the "river" project amounted to €130 million in 2009, comprising €53 million in severance payments, €35 million in write-downs and €42 million in other restructuring expenses. The provisions for this restructuring amounted to €41 million as of December 31, 2009.
Provisions for trade-related commitments comprise provisions for rebates, discounts and other price adjustments, product returns, outstanding invoices, pending losses and onerous contracts.
The legal risks currently considered to be material are described in Note [32].
Provisions for personnel commitments mainly include those for variable and individual one-time payments, credit balances on long-term accounts, service awards and other personnel costs. Also refl ected here are the obligations under the stock-based compensation programs.
Stock-based compensation in the Bayer Group is granted primarily under standard programs and also on an individual agreement basis. Individual agreements enable the company to link remuneration components to the stock price or future stock price movements. Awards under such agreements may be contingent upon the attainment of agreed targets, or may be based solely on the length of service. Standard programs exist for different groups of employees. The program offered to members of the Board of Management and other senior executives from 2001 through 2004 was essentially a stock option program with variable stock-based awards. This program provides for cash payments. Middle management was offered a stock incentive program, while other groups of employees were offered a stock participation program. A stockbased compensation program for top and middle management known as "Aspire" was introduced in 2005. It comprises two variants, which are described on the following pages. For other managers and non-managerial employees, an annual stock participation program has been offered since 2005 under which Bayer subsidizes employee purchases of shares in the company. In 2009 this program, now named "BayShare," was also offered for the fi rst time to the top and middle managers who are already eligible to participate in "Aspire."
As required by ifrs 2 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 fi nancial statements vis-à-vis the respective employee group. Adjustments to provisions relating to all existing stock-based compensation programs are recognized in the income statement.
| Changes in Provisions for Stock-Based Compensation Programs [Table 4.79] |
|||||||||
|---|---|---|---|---|---|---|---|---|---|
| Stock Option Program |
Stock Incentive Program |
Stock Participation Program |
Aspire I | Aspire II | Total | ||||
| € million | € million | € million | € million | € million | € million | ||||
| December 31, 2008 | 2 | 2 | 9 | 41 | 33 | 87 | |||
| Additions | - | 2 | 8 | 46 | 56 | 112 | |||
| Utilization | (2) | - | (2) | (25) | (21) | (50) | |||
| Reversal | - | - | - | (2) | (7) | (9) | |||
| Exchange differences | - | - | - | (1) | (1) | (2) | |||
| December 31, 2009 | 0 | 4 | 15 | 59 | 60 | 138 | |||
Provisions of €12 million existed at the end of 2009 (2008: €10 million) for obligations entered into under individual stock-based compensation agreements. Total expense for all stock-based compensation programs in 2009 was €124 million (2008: €28 million).
The fair value of obligations under the standard stock-based compensation programs and individual agreements has been calculated using the Monte Carlo simulation method based on the following key parameters:
| Parameters for Monte Carlo Simulation | {Table 4.80] | |
|---|---|---|
| 2008 | 2009 | |
| Dividend yield | 3.80% | 2.49% |
| Risk-free interest rate | 1.93% | 1.57% |
| Volatility of Bayer stock | 31.56% | 34.93% |
| Volatility of the EURO STOXX 50 | 25.72% | 29.46% |
| Correlation between Bayer stock price and the EURO STOXX 50 | 0.68 | 0.68 |
To participate in Aspire i, members of the Board of Management and other senior executives are required to purchase a certain number of Bayer shares that is predetermined according to specifi c guidelines and to retain them for the full term of the program. A percentage of the executive's annual base salary – based on his / her position – is defi ned 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, participants are granted an award of up to 200% of their individual Aspire target opportunity at the end of the program.
Other senior managers and middle managers are 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 150% of each manager's Aspire target opportunity.
Under the BayShare 2009 program (2008: Stock Participation Program 2008), Bayer subsidized eligible employees' personal investments in Bayer stock. The discount under this program is set separately each year. In 2009 it was 20% (2008: 15%) of the subscription amount. The conditions differed from the Stock Participation Program 2008 in that employees stated a fi xed amount they wished to invest in shares instead of subscribing for a fi xed number of shares. The maximum subscription amount was set at €2,500 (2008: €5,000) or €5,000 (2008: €10,000) depending on the employee's position. The shares thus acquired are held in a special deposit account and must be retained until December 31 of the year following the year of purchase.
In 2009 employees purchased a total of 395,000 shares under the BayShare program.
The stock-based compensation programs offered to the different employee groups in 2000 through 2004 were all similar in their respective structures. Provisions for the obligations under these programs are recorded in the statement of fi nancial position at fair value through profi t or loss. Entitlement to awards under these programs is conditioned on retention of the Bayer stock designated under the program for a certain time period.
The following table shows the programs applicable through December 31, 2004:
| Stock-Based Compensation Programs 2000 – 2004 | [Table 4.81] | ||
|---|---|---|---|
| Stock Option Program |
Stock Incentive Program |
Stock Participation Program |
|
| Year of issue | 2004 | 2000 – 2004 | 2000 – 2004 |
| Original term in years | 5 | 10 | 10 |
| Retention period / distribution date in years from issue date | 3 | 2 / 6 / 10 | 2 / 6 / 10 |
| Reference price | 0 | 0 | 0 |
| Performance criteria | yes | yes | no |
The stock option programs offered to members of the Board of Management and other senior executives up to 2004 ran for fi ve-year periods, and were also subject to a three-year retention condition, followed by a two-year exercise period. The last options under the 2004 program were exercised at the end of the exercise period in August 2009, and the Stock Option Program was thus terminated. The right to exercise the options and the cash payment to which each participant was entitled depended on the absolute performance of Bayer stock and its performance relative to the Dow Jones euro stoxx 50.
The maximum personal investment in Bayer stock eligible for the program was set individually for each participant at the start of each tranche, according to his / her position. This determined the number of options allocated. For the tranche issued in 2004, participants had received up to three options for each share held as a personal investment. For each option, a cash payment – equivalent to the market price of one Bayer share – and an outperformance premium were awarded at the exercise date, subject to the attainment of certain performance and outperformance targets.
Participants in this program receive a cash payment equivalent to a defi ned 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. The Stock Incentive Program differs from the Stock Option Program in that 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 their performance-related bonus for the preceding fi scal year.
The structure of this program, which was offered 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 on each occasion.
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.
Financial liabilities comprise the following:
| Financial Liabilities | [Table 4.82] | |||
|---|---|---|---|---|
| Dec. 31, 2008 | Dec. 31, 2009 | |||
| Total | Of which current |
Total | Of which current |
|
| € million | € million | € million | € million | |
| Bonds and notes / promissory notes | 10,729 | 4,355 | 8,301 | 375 |
| Liabilities to banks | 4,438 | 1,409 | 3,251 | 807 |
| Liabilities under fi nance leases | 535 | 44 | 550 | 44 |
| Liabilities from forward commodity contracts | 223 | 77 | 91 | 46 |
| Liabilities from other derivatives | 612 | 104 | 578 | 113 |
| Other fi nancial liabilities | 333 | 267 | 178 | 104 |
| Total | 16,870 | 6,256 | 12,949 | 1,489 |
| Maturities of Financial Liabilities | [Table 4.83] | ||
|---|---|---|---|
| Maturity | Dec. 31, 2008 |
Maturity | Dec. 31, 2009 |
| € million | € million | ||
| 2009 | 6,256 | 2010 | 1,489 |
| 2010 | 771 | 2011 | 1,867 |
| 2011 | 1,967 | 2012 | 2,793 |
| 2012 | 2,740 | 2013 | 1,430 |
| 2013 | 1,465 | 2014 | 1,785 |
| 2014 or later | 3,671 | 2015 or later | 3,585 |
| Total | 16,870 | Total | 12,949 |
The Bayer Group's fi nancial liabilities are mostly unsecured and – with the exception of the subordinated €1,300 million hybrid bond – are of equal priority.
In addition to promissory notes in the amount of €620 million (2008: €0 million), the Bayer Group has issued the following bonds and notes:
| Bonds and Notes | [Table 4.84] | ||||
|---|---|---|---|---|---|
| Effective interest rate |
Stated rate |
Nominal volume | Dec. 31, 2008 |
Dec. 31, 2009 |
|
| € million | € million | ||||
| Bayer AG | |||||
| 6.075% | 6.000% EMTN bond 2002 / 2012 | EUR 2,000 million | 2,025 | 2,044 | |
| 5.155% | 5.000% Hybrid bond 2005 / 2105 (2015) | EUR 1,300 million | 1,245 | 1,267 | |
| Floating | Floating EMTN bond 2006 / 2009 | EUR 1,600 million | 1,599 | - | |
| 4.621% | 4.500% EMTN bond 2006 / 2013 | EUR 1,000 million | 995 | 996 | |
| 5.774% | 5.625% EMTN bond 2006 / 2018 | GBP 250 million | 259 | 277 | |
| 5.541% | 5.625% EMTN bond 2006 / 2018 (increase) | GBP 100 million | 106 | 113 | |
| Floating | Floating EMTN bond 2007 / 2010 | EUR 300 million | 300 | 300 | |
| 4.464% | 4.375% EMTN bond 2007 / 2011 | EUR 200 million | 200 | 200 | |
| 4.038% | 4.000% EMTN bond 2008 / 2011 | EUR 200 million | 200 | 200 | |
| Bayer Capital Corp. B.V. | |||||
| 7.117% | 6.625% Mandatory convertible bonds 2006 / 2009 | EUR 2,300 million | 2,296 | - | |
| 4.750% | 4.625% EMTN bond 2009 / 2014 | EUR 1,300 million | - | 1,291 | |
| Bayer Corporation | |||||
| 7.180% | 7.125% Notes 1995 / 2015 | US\$ 200 million | 162 | 153 | |
| 6.670% | 6.650% Notes 1998 / 2028 | US\$ 350 million | 249 | 241 | |
| 4.043% | 3.750% EMTN bond 2004 / 2009 | EUR 460 million | 460 | - | |
| Bayer Holding Ltd. | |||||
| 1.654% | 1.585% EMTN bond 2007 / 2010 | JPY 10 billion | 79 | 75 | |
| 2.006% | 1.955% EMTN bond 2007 / 2012 | JPY 15 billion | 119 | 112 | |
| Floating | Floating EMTN bond 2007 / 2012 | JPY 30 billion | 237 | 225 | |
| Floating | Floating EMTN bond 2008 / 2013 | JPY 10 billion | 79 | 75 | |
| 3.654% | 3.575% EMTN bond 2008 / 2018 | JPY 15 billion | 119 | 112 | |
| Total | 10,729 | 7,681 |
In March 2009, Bayer Capital Corporation b.v. issued a corporate bond under the multi-currency Euro Medium Term Notes (emtn) program with a nominal volume of €1,300 million and a maturity of fi ve and a half years. The bond bears a coupon of 4.625%.
In December 2008 Bayer AG issued a bond with a nominal volume of €200 million under the emtn program. It has a coupon of 4% and matures on January 27, 2011.
In June 2008 Bayer Holding Ltd. issued a fl oating-rate bond with a nominal volume of jpy 10 billion under the emtn program. The bond has a maturity of fi ve years and a variable coupon comprising the three-month jpy libor plus 56 basis points. In December 2008, Bayer Holding Ltd. also issued a bond with a nominal volume of jpy 15 billion under this program. This bond has a coupon of 3.575% and matures on December 19, 2018.
In June 2007 Bayer Holding Ltd. launched bond issues under the emtn program. These comprised a three-year bond with a nominal volume of jpy 10 billion and a coupon of 1.585%, a fi veyear bond with a nominal volume of jpy 15 billion and a coupon of 1.955%, and a fl oating-rate note with a nominal volume of jpy 30 billion. The latter has a maturity of fi ve years and a coupon comprising the three-month jpy libor plus 26 basis points.
In April 2007, Bayer AG issued a fl oating rate bond with a maturity of three years and a nominal volume of €300 million under the emtn program. The coupon is the three-month euribor rate plus 10 basis points. At the same time, a four-year bond with a nominal volume of €200 million and a coupon of 4.375% was issued.
In May 2006 Bayer AG launched three further bond issues under its multi-currency emtn program as part of the fi nancing of the Schering acquisition. The fi rst of these was a three-year fl oating rate note with a nominal volume of €1,600 million, bearing interest at 22.5 basis points above the 3-month euribor rate. This was redeemed at maturity in May 2009. The second issue, with a nominal volume of €1,000 million, has a maturity of seven years and a coupon of 4.5%. A third bond, denominated in sterling (gbp), was issued in the nominal volume of gbp 250 million. A second tranche of gbp 100 million was issued in the same year. This bond has a coupon of 5.625% and matures in 2018. The entire issue has been swapped into euros.
In April 2006, Bayer Capital Corp. b.v. issued a subordinated mandatory convertible bond guaranteed by Bayer AG with a coupon of 6.625% and a nominal volume of €2,300 million as part of the fi nancing of the acquisition of Schering AG, Berlin, Germany. The outstanding units of this bond were converted into 62,604,583 new shares in 2009.
In July 2005, Bayer AG issued a 100-year subordinated hybrid bond with a volume of €1,300 million. This issue matures in 2105 and has a fi xed coupon of 5% in the fi rst ten years. Thereafter, interest is calculated quarterly at a fl oating rate (three-month euribor plus 280 basis points). After the fi rst ten years, Bayer AG has a quarterly option to redeem the bonds at par. The coupon is payable in arrears. This bond is treated as 75% equity by Moody's and as 50% equity by Standard & Poor's and therefore improves the Bayer Group's rating-specifi c debt indicators.
In January 2004 Bayer Corporation issued a fi ve-year bond with a nominal volume of €460 million and a coupon of 3.75% under the emtn program. This bond was redeemed at maturity in January 2009.
In April 2002, Bayer AG issued a ten-year bond with a nominal volume of €2,000 million and a fi xed coupon of 6% under the emtn program. Interest is paid annually in arrears.
In February 1998, Bayer Corporation issued notes with a nominal volume of us\$350 million to eligible institutional investors. The notes have a maturity of 30 years and a coupon of 6.65%. Interest is paid semi-annually. In October 1995, Bayer Corporation issued notes with a nominal volume of us\$200 million and a 7.125% coupon. These 20-year notes mature in October 2015. Interest is paid semi-annually in April and October.
Bayer AG guarantees all the bonds issued by its subsidiaries.
The long-term liabilities to banks principally comprise a syndicated loan raised in 2006 of now €0.9 billion, in connection with the acquisition of Schering AG, Berlin, Germany. This credit facility is provided by a syndicate of eleven fi nancial institutions and bears a variable rate of interest (euribor plus a margin, which has been fi xed at 20 basis points since July 2007). This credit facility has a fi xed term until March 2011 but can be repaid in full or in part at any time on Bayer's request.
As of December 31, 2009 the Group had credit facilities at its disposal totaling €7.2 billion (2008: €9.9 billion), of which €3.3 billion (2008: €4.4 billion) was used and €3.9 billion (2008: €5.5 billion) was unused and thus available for borrowing on an unsecured basis.
Lease payments totaling €704 million (2008: €707 million), including €154 million (2008: €172 million) in interest, are to be made under fi nance leases to the respective lessors in future years.
The liabilities under fi nance leases mature as follows:
| Leasing Liabilities | [Table 4.85] | ||||||
|---|---|---|---|---|---|---|---|
| Dec. 31, 2008 | Dec. 31, 2009 | ||||||
| Maturity | Lease pay ments |
Interest compo nent |
Liabilities under fi nance leases |
Maturity | Lease pay ments |
Interest compo nent |
Liabilities under fi nance leases |
| € million | € million | € million | € million | € million | € million | ||
| 2009 | 70 | 26 | 44 | 2010 | 71 | 27 | 44 |
| 2010 | 60 | 25 | 35 | 2011 | 67 | 25 | 42 |
| 2011 | 59 | 23 | 36 | 2012 | 58 | 23 | 35 |
| 2012 | 51 | 22 | 29 | 2013 | 217 | 18 | 199 |
| 2013 | 207 | 18 | 189 | 2014 | 36 | 11 | 25 |
| 2014 or later | 260 | 58 | 202 | 2015 or later | 255 | 50 | 205 |
| Total | 707 | 172 | 535 | Total | 704 | 154 | 550 |
Further information on the accounting for liabilities from derivatives is given in Note [30].
Trade accounts are payable mainly to third parties. As of December 31, 2009, they included €2,720 million (2008: €2,463 million) due within one year and €15 million (2008: €1 million) due after one year.
Advance payments received amounted to €164 million (2008: €87 million). In 2009 these were included for the fi rst time in trade accounts payable rather than in other liabilities. The prior-year fi gures have been restated accordingly.
Other liabilities comprised:
| Other Liabilities | [Table 4.86] | |||
|---|---|---|---|---|
| Dec. 31, 2008 | Dec. 31, 2009 | |||
| Total | Of which current |
Total | Of which current |
|
| € million | € million | € million | € million | |
| Accrued interest on liabilities | 321 | 304 | 255 | 242 |
| Liabilities to employees | 171 | 138 | 160 | 132 |
| Liabilities for social expenses | 143 | 133 | 214 | 191 |
| Other tax liabilities | 276 | 275 | 271 | 271 |
| Liabilities to non-controlling interest | 101 | - | 78 | - |
| Miscellaneous liabilities | 1,294 | 1,024 | 1,004 | 731 |
| Total | 2,306 | 1,874 | 1,982 | 1,567 |
Liabilities for social expenses include, in particular, social insurance contributions that had not been paid by the closing date.
The €78 million (2008: €101 million) in liabilities to non-controlling interest includes the thirdparty share of the equity of Currenta GmbH & Co. ohg.
Miscellaneous liabilities include €345 million (2008: €376 million) in accrued expenses, of which €172 million (2008: €200 million) is to be regarded as current. The accrued expenses include €63 million (2008: €49 million) in grants and subsidies received from governments, of which €12 million (2008: €13 million) was reversed and recognized in income. The miscellaneous liabilities also include a large number of individually immaterial amounts pertaining to subsidiaries.
The system used by the Bayer Group to manage credit risk, liquidity risk and the various types of market risks (interest-rate risk, currency risk and other price risks), together with its objectives, methods and procedures, is outlined in the Risk Report, which forms part of the Management Report.
The following table shows the carrying amounts and fair values of fi nancial assets and liabilities by category of fi nancial instrument and a reconciliation to the corresponding line item in the statements of fi nancial position. Since the line items "Other receivables", "Trade accounts payable" and "Other liabilities" contain both fi nancial instruments and non-fi nancial assets or liabilities (such as other tax receivables or advance payments for services to be received in the future), the reconciliation is shown in the column headed "Non-fi nancial assets / liabilities."
| Dec. 31, 2008 | ||||||
|---|---|---|---|---|---|---|
| Carried at amortized cost |
Carried at fair value |
Non-financial assets/liabilities |
||||
| Carrying | Carrying amount in | |||||
| amount Dec. 31, 2008 |
Fair value (for information) |
Carrying amount |
Carrying amount |
the statement of financial position |
||
| € million | € million | € million | € million | € million | ||
| Trade accounts receivable | 5,953 | 5,953 | ||||
| Loans and receivables | 5,953 | 5,953 | 5,953 | |||
| Other financial assets | 911 | 920 | 1,831 | |||
| Loans and receivables | 660 | 682 | 660 | |||
| Available-for-sale financial assets Held-to-maturity financial assets |
84 167 |
168 | 204 | 288 167 |
||
| Derivatives that qualify for hedge accounting | 248 | 248 | ||||
| Derivatives that do not qualify for hedge accounting | 468 | 468 | ||||
| Other receivables | 676 | 1,066 | 1,742 | |||
| Loans and receivables | 676 | 671 | 676 | |||
| Non-financial assets | 1,066 | 1,066 | ||||
| Cash and cash equivalents | 2,094 | 2,094 | ||||
| Loans and receivables | 2,094 | 2,094 | 2,094 | |||
| Total financial assets | 9,634 | 920 | 10,554 | |||
| of which loans and receivables | 9,383 | 9,383 | ||||
| Financial liabilities | 16,035 | 835 | 16,870 | |||
| Carried at amortized cost | 16,035 | 16,706 | 16,035 | |||
| Derivatives that qualify for hedge accounting | 308 | 308 | ||||
| Derivatives that do not qualify for hedge accounting | 527 | 527 | ||||
| Trade accounts payable | 2,377 | 87 | 2,464 | |||
| Carried at amortized cost | 2,377 | 2,377 | 2,377 | |||
| Non-financial liabilities | 87 | 87 | ||||
| Other liabilities | 1,357 | 100 | 849 | 2,306 | ||
| Carried at amortized cost | 1,357 | 1,356 | 1,357 | |||
| Derivatives that qualify for hedge accounting | 87 | 87 | ||||
| Derivatives that do not qualify for hedge accounting | 13 | 13 | ||||
| Non-financial liabilities | 849 | 849 | ||||
| Total financial liabilities | 19,769 | 935 | 20,704 | |||
| of which carried at amortized cost | 19,769 | 19,769 | ||||
| of which derivatives that qualify | ||||||
| for hedge accounting | 395 | 395 | ||||
| of which derivatives that do not qualify | ||||||
| for hedge accounting | 540 | 540 | ||||
2008 figures restated
| Dec.31, 2009 | ||||||
|---|---|---|---|---|---|---|
| Non-financial assets/liabilities |
Carried at fair value |
Carried at amortized cost |
||||
| Based on individual measurement parameters |
Based on market-derived data |
Based on published market prices |
||||
| Carrying amount in the statement of financial position |
Carrying amount |
Carrying amount |
Carrying amount |
Carrying amount |
Fair value (for information) |
Carrying amount Dec. 31, 2009 |
| € million | € million | € million | € million | € million | € million | € million |
| 6,106 6,106 |
6,106 | 6,106 6,106 |
||||
| 1,567 | 42 | 605 | 127 | 793 | ||
| 628 | 700 | 628 | ||||
| 212 | 27 | 127 | 58 | |||
| 107 | 111 | 107 | ||||
| 218 | 218 | |||||
| 402 | 15 | 387 | ||||
| 1,906 | 936 | 970 | ||||
| 970 | 971 | 970 | ||||
| 936 | 936 | |||||
| 2,725 2,725 |
2,725 | 2,725 2,725 |
||||
| 11,368 | 42 | 605 | 127 | 10,594 | ||
| 10,429 | 10,429 | |||||
| 12,949 | 669 | 12,280 | ||||
| 12,280 | 13,072 | 12,280 | ||||
| 235 | 235 | |||||
| 434 | 434 | |||||
| 2,735 2,571 |
164 | 2,571 | 2,571 2,571 |
|||
| 164 | 164 | |||||
| 1,982 | 900 | 4 | 45 | 1,033 | ||
| 1,033 | 1,033 | 1,033 | ||||
| 37 12 |
4 | 37 8 |
||||
| 900 | 900 | |||||
| 16,602 | 4 | 714 | 15,884 | |||
| 15,884 | 15,884 | |||||
| 272 | 272 | |||||
| 446 | 4 | 442 | ||||
Loans and receivables and liabilities carried at amortized cost also included receivables and liabilities under fi nance leases where Bayer is the lessor or lessee and which therefore have to be measured in accordance with ias 17.
The fair value stated for receivables, loans, held-to-maturity fi nancial investments and primary liabilities is the present value of the respective future cash fl ows. This is determined by discounting the cash fl ows at a closing-date interest rate that takes into account the term of the assets or liabilities and the creditworthiness of the counterparty. If a market price is available, however, this is deemed to be the fair value.
Because of the short maturities of most trade accounts receivable and payable, other receivables and liabilities, and cash and cash equivalents, their carrying amounts at the closing date do not differ signifi cantly from the fair values.
Income, expense, gains and losses on fi nancial instruments can be assigned to the following categories:
| 2009 | ||||||
|---|---|---|---|---|---|---|
| Loans and receivables |
Held-to maturity fi nancial investments |
Available for-sale fi nancial assets |
Held for trading (derivatives only) |
Liabilities carried at amortized cost |
Total | |
| € million | € million | € million | € million | € million | € million | |
| Interest income | 58 | 3 | 1 | 490 | 128 | 680 |
| Interest expense | - | - | - | (490) | (795) | (1,285) |
| Income from affi liated companies |
- | - | 5 | - | - | 5 |
| Changes in fair value | - | - | - | (62) | - | (62) |
| Impairment charges | (107) | - | (15) | - | - | (122) |
| Income from write-backs | 63 | - | - | - | - | 63 |
| Gains / losses from retirements | - | - | (1) | - | - | (1) |
| Other non-operating income and expense |
2 | - | (2) | - | (5) | (5) |
| Net result | 16 | 3 | (12) | (62) | (672) | (727) |
Income, Expense, Gains and Losses on Financial Instruments [Table 4.88]
| 2008 | ||||||
|---|---|---|---|---|---|---|
| Loans and receivables |
Held-to maturity fi nancial investments |
Available for-sale fi nancial assets |
Held for trading (derivatives only) |
Liabilities carried at amortized cost |
Total | |
| € million | € million | € million | € million | € million | € million | |
| Interest income | 123 | 10 | 1 | 370 | 24 | 528 |
| Interest expense | - | - | - | (295) | (917) | (1,212) |
| Income from affi liated companies |
- | - | - | - | - | - |
| Changes in fair value | - | - | - | 12 | - | 12 |
| Impairment charges | (114) | (27) | (14) | - | - | (155) |
| Income from write-backs | 92 | - | - | - | - | 92 |
| Gains / losses from retirements | - | - | (7) | - | - | (7) |
| Other non-operating income and expense |
17 | - | - | - | (22) | (5) |
| Net result | 118 | (17) | (20) | 87 | (915) | (747) |
The column headed "Held for trading" consisted almost entirely of interest income and expenses relating to interest rate and cross-currency interest rate hedges that did not qualify for hedge accounting.
The aggregate amount of fi nancial assets and liabilities recognized at fair value based on individual measurement parameters was €56 million at the beginning of 2009. The carrying amount in the statement of fi nancial position at the end of 2009 was €38 million, following €1 million in fair value changes recognized in the income statement, €18 million in retirements and minus €1 million in value changes recognized outside profi t or loss. Of the value changes recognized in income, €10 million related to assets or liabilities still recognized in the statement of fi nancial position at the end of the year and minus € 9 million to retired assets and liabilities. There were also divestment gains of €4 million.
As of the closing date, the liquidity risk to which the Bayer Group was exposed from its fi nancial instruments comprised obligations relating to future interest and repayment installments for fi nancial liabilities and the liquidity risk arising from derivatives, as shown in the table in Note [30.3].
As of the closing date, there was an unpaid portion of the effective initial fund of Bayer-Pensionskasse amounting to €490 million, which may result in further payments by Bayer AG in subsequent years.
| Dec. 31, 2009 |
Cash fl ows January – March 2010 |
Cash fl ows April – December 2010 |
||||
|---|---|---|---|---|---|---|
| Carrying amount |
Interest | Repayment | Interest | Repayment | ||
| € million | € million | € million | € million | € million | ||
| Financial liabilities | ||||||
| Bonds and notes / promissory notes | 8,301 | 36 | - | 356 | 375 | |
| Liabilities to banks | 3,251 | 26 | 367 | 76 | 439 | |
| Remaining liabilities | 728 | 9 | 107 | 18 | 41 | |
| Trade accounts payable | 2,571 | - | 2,435 | - | 122 | |
| Other liabilities | ||||||
| Accrued interest on liabilities | 255 | 222 | - | 21 | - | |
| Remaining liabilities | 778 | 2 | 540 | 2 | 73 | |
| Liabilities from derivatives | ||||||
| Derivatives that qualify for hedge accounting | 272 | 37 | 23 | 1 | 12 | |
| Derivatives that do not qualify for hedge accounting |
446 | 14 | 50 | 29 | 50 | |
| Receivables from derivatives | ||||||
| Derivatives that qualify for hedge accounting | 218 | (9) | 38 | 93 | 68 | |
| Derivatives that do not qualify for hedge accounting |
402 | (9) | 22 | 23 | 27 | |
| Loan commitments | - | - | - | - | 490 | |
| Financial guarantees | - | - | 12 | - | - |
| Dec. 31, 2008 |
Cash fl ows January – March 2009 |
Cash fl ows April – December 2009 |
||||
|---|---|---|---|---|---|---|
| Carrying amount |
Interest | Repayment | Interest | Repayment | ||
| € million | € million | € million | € million | € million | ||
| Financial liabilities | ||||||
| Bonds and notes / promissory notes | 10,729 | 48 | 460 | 462 | 1,600 | |
| Liabilities to banks | 4,438 | 34 | 610 | 82 | 799 | |
| Remaining liabilities | 868 | 4 | 185 | 22 | 126 | |
| Trade accounts payable | 2,377 | - | 2,280 | - | 97 | |
| Other liabilities | ||||||
| Accrued interest on liabilities | 321 | 202 | - | 102 | - | |
| Remaining liabilities | 1,036 | 2 | 633 | 10 | 197 | |
| Liabilities from derivatives | ||||||
| Derivatives that qualify for hedge accounting | 395 | 5 | 2 | 13 | 31 | |
| Derivatives that do not qualify for hedge accounting |
540 | (51) | 64 | 92 | 181 | |
| Receivables from derivatives | ||||||
| Derivatives that qualify for hedge accounting | 248 | - | 148 | 1 | - | |
| Derivatives that do not qualify for hedge accounting |
468 | (56) | 171 | 81 | 92 |
[Table 4.90]
| Cash fl ows 2011 |
Cash fl ows 2012 |
Cash fl ows 2013 |
Cash fl ows 2014 |
Cash fl ows 2015 – 2019 |
Cash fl ows after 2019 |
||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Interest | Repayment | Interest | Repayment | Interest | Repayment | Interest | Repayment | Interest | Repayment | Interest | Repayment |
| € million | € million | € million | € million | € million | € million | € million | € million | € million | € million | € million | € million |
| 392 | 650 | 364 | 2,338 | 243 | 1,075 | 195 | 1,550 | 282 | 2,066 | 137 | 243 |
| 42 | 1,113 | 52 | 160 | 48 | 152 | 43 | 181 | 42 | 837 | - | - |
| 26 | 77 | 23 | 37 | 18 | 201 | 11 | 56 | 39 | 145 | 15 | 69 |
| - | 4 | - | 10 | - | - | - | 1 | - | - | - | - |
| - | - | 12 | - | - | - | - | - | - | - | - | - |
| 2 | 18 | 1 | 47 | - | 4 | - | 2 | - | 2 | - | 93 |
| 20 | 28 | 15 | 29 | 4 | 4 | 13 | - | 14 | 123 | - | - |
| 166 | 28 | 86 | 3 | 12 | - | 7 | - | 16 | 1 | - | - |
| 29 | - | 30 | - | 2 | - | (13) | - | (7) | - | - | - |
| 162 | 62 | 85 | 2 | 11 | 2 | 4 | 1 | 11 | 6 | - | 3 |
| - | - | - | - | - | - | - | - | - | - | - | - |
| - | - | - | - | - | - | - | - | - | - | - | - |
| Cash fl ows 2010 |
Cash fl ows 2011 |
Cash fl ows 2012 |
Cash fl ows 2013 |
Cash fl ows 2014 – 2018 |
Cash fl ows after 2018 |
||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Interest | Repayment | Interest | Repayment | Interest | Repayment | Interest | Repayment | Interest | Repayment | Interest | Repayment |
| € million | € million | € million | € million | € million | € million | € million | € million | € million | € million | € million | € million |
| 309 | 379 | 305 | 400 | 286 | 2,356 | 163 | 1,079 | 359 | 1,929 | 159 | 251 |
| 106 | 274 | 55 | 1,433 | 43 | 121 | 31 | 131 | 52 | 1,067 | - | 3 |
| 25 | 35 | 24 | 75 | 23 | 31 | 19 | 219 | 45 | 182 | 15 | 22 |
| - | - | - | - | - | - | - | - | - | - | - | - |
| - | - | 17 | - | - | - | - | - | - | - | - | - |
| 10 | 42 | 2 | 20 | 1 | 19 | - | 1 | - | 4 | - | 120 |
| 3 | 24 | 4 | 27 | 76 | 24 | 5 | - | 39 | 150 | - | - |
| 55 | 47 | 27 | 59 | - | 41 | 11 | 47 | 9 | 27 | - | - |
| 1 | 3 | - | - | 87 | - | - | - | 11 | - | - | - |
| 77 | 75 | 27 | - | - | - | 7 | - | 3 | - | - | - |
Fair value hedges are used to eliminate the risk of fl uctuations in market value, especially on fi xedinterest borrowings, by obtaining a variable interest rate. These fair value hedges relate mainly to the €2 billion bond issued in 2002 and the €1.3 billion bond issued in 2005.
Gains of €45 million (2008: €70 million) were recorded on fair value hedging instruments in 2009. Losses of €44 million (2008: €75 million) were recorded on the underlying hedged items.
Fluctuations in future cash fl ows resulting from forecasted foreign currency transactions are avoided partly through derivative contracts, most of which are designated as cash fl ow hedges. Hedging contracts, some of which are designated as cash fl ow hedges, are also used to partly reduce exposure to fl uctuations in future cash fl ows resulting from price changes on procurement markets. The notional volumes in these two categories are €3,523 million and €323 million (2008: €2,948 million and €140 million), respectively.
Accumulated other comprehensive income increased by €55 million after taxes in 2009 due to positive changes in the fair values of derivatives designated as cash fl ow hedges (2008: decreased by €64 million due to negative changes). In 2009, an amount of €10 million, representing fair value changes of derivatives designated as cash fl ow hedges, which originally had been recognized in accumulated other comprehensive income, was expensed to the income statement. In 2008, a corresponding amount of €47 million was recognized in income. Similarly, pro-rated deferred taxes of €4 million previously refl ected in accumulated other comprehensive income were recognized as deferred tax income (2008: €14 million as deferred tax expense). No material ineffective portions of hedges had to be recognized in the income statement in 2009 or 2008.
| Fair Values of Derivatives | [Table 4.91] | |||||
|---|---|---|---|---|---|---|
| Dec. 31, 2008 | Dec. 31, 2009 | |||||
| Fair value | Fair value | |||||
| Notional amount |
Positive fair value |
Negative fair value |
Notional amount |
Positive fair value |
Negative fair value |
|
| € million | € million | € million | € million | € million | € million | |
| Currency hedging of recorded transactions |
7,498 | 240 | (421) | 7,652 | 58 | (294) |
| Forward exchange contracts | 5,342 | 193 | (169) | 5,868 | 43 | (88) |
| of which FV hedges | - | - | - | - | - | - |
| of which CF hedges | 340 | - | (52) | 384 | - | (5) |
| Cross-currency interest-rate swaps | 2,156 | 47 | (252) | 1,784 | 15 | (206) |
| of which FV hedges | - | - | - | - | - | - |
| of which CF hedges | 1,535 | 41 | (161) | 1,512 | 15 | (175) |
| Currency hedging of forecasted transactions |
2,948 | 152 | (87) | 3,523 | 136 | (45) |
| Forward exchange contracts | 2,948 | 152 | (87) | 3,245 | 129 | (44) |
| of which FV hedges | - | - | - | - | - | - |
| of which CF hedges | 2,928 | 147 | (87) | 2,451 | 104 | (37) |
| Currency options | - | - | - | 278 | 7 | (1) |
| of which FV hedges | - | - | - | - | - | - |
| of which CF hedges | - | - | - | 239 | 7 | - |
| Interest-rate hedging | ||||||
| of recorded transactions | 10,937 | 214 | (191) | 12,612 | 368 | (284) |
| Interest rate swaps | 8,937 | 211 | (188) | 10,612 | 368 | (284) |
| of which FV hedges | 1,510 | 59 | - | 2,467 | 92 | - |
| of which CF hedges | - | - | - | - | - | - |
| Interest rate options | 2,000 | 3 | (3) | 2,000 | - | - |
| of which FV hedges | - | - | - | - | - | - |
| of which CF hedges | - | - | - | - | - | - |
| Commodity price hedging | 140 | 81 | (223) | 323 | 36 | (91) |
| Forward commodity contracts | 94 | 37 | (180) | 167 | 13 | (68) |
| of which FV hedges | - | - | - | - | - | - |
| of which CF hedges | 31 | 1 | (95) | 85 | - | (55) |
| Commodity option contracts | 46 | 44 | (43) | 156 | 23 | (23) |
| of which FV hedges | - | - | - | - | - | - |
| of which CF hedges | - | - | - | - | - | - |
| Total | 21,523 | 687 | (922) | 24,110 | 598 | (714) |
| of which short-term derivatives | 8,962 | 410 | (268) | 10,922 | 239 | (204) |
| for currency hedging | 8,853 | 306 | (190) | 8,259 | 179 | (126) |
| for interest rate hedging | 27 | 47 | (1) | 2,400 | 26 | (32) |
| for commodity hedging | 82 | 57 | (77) | 263 | 34 | (46) |
Contingent liabilities relate to potential future events which, although regarded as improbable on the reporting date, cannot be ruled out and would create an obligation if they occurred.
Contingent liabilities resulted entirely from commitments given to third parties and comprised:
| Contingent Liabilities | [Table 4.92] | |
|---|---|---|
| Dec. 31, 2008 |
Dec. 31, 2009 |
|
| € million | € million | |
| Warranties | 114 | 74 |
| Miscellaneous | 591 | 601 |
| Total | 705 | 675 |
The miscellaneous contingent liabilities included an unpaid portion of the effective initial fund of Bayer-Pensionskasse amounting to €490 million, which may result in further payments by Bayer AG in subsequent years.
In addition to provisions, other liabilities and contingent liabilities, there were also other fi nancial commitments. These mainly related to leasing agreements and long-term rentals.
The non-discounted minimum future payments relating to operating leases totaled €606 million (2008: €685 million). The maturities of the respective payment obligations were as follows:
| Operating Leases | ||||
|---|---|---|---|---|
| Maturing in | Dec. 31, 2008 |
Maturing in | Dec. 31, 2009 |
|
| € million | € million | |||
| 2009 | 205 | 2010 | 166 | |
| 2010 | 145 | 2011 | 132 | |
| 2011 | 113 | 2012 | 99 | |
| 2012 | 81 | 2013 | 72 | |
| 2013 | 65 | 2014 | 59 | |
| 2014 or later | 76 | 2015 or later | 78 | |
| Total | 685 | Total | 606 |
Financial commitments resulting from orders already placed under purchase agreements related to planned or ongoing capital expenditure projects totaled €441 million (2008: €300 million).
In addition, the Group has entered into research agreements with a number of third parties under which Bayer has agreed to fund various research projects or has assumed other payment obligations based on the achievement of certain milestones or other specifi c conditions. The total amount of such funding and other commitments was €661 million (2008: €915 million). As of December 31, 2009, the remaining payments expected to be made to these parties, assuming the milestones are reached or the other agreed conditions are met in the respective years, were as follows:
| Maturing in | Dec. 31, 2008 |
Maturing in | Dec. 31, 2009 |
|---|---|---|---|
| € million | € million | ||
| 2009 | 127 | 2010 | 154 |
| 2010 | 93 | 2011 | 114 |
| 2011 | 110 | 2012 | 83 |
| 2012 | 133 | 2013 | 39 |
| 2013 | 71 | 2014 | 43 |
| 2014 or later | 381 | 2015 or later | 228 |
| Total | 915 | Total | 661 |
As a global company with a diverse business portfolio, the Bayer Group is exposed to numerous legal risks, particularly in the areas of product liability, competition and antitrust law, patent disputes, tax assessments and environmental matters. The outcome of any current or future proceedings cannot be predicted. It is therefore possible that legal or regulatory judgments could give rise to expenses that are not covered, or not fully covered, by insurers' compensation payments and could signifi cantly affect our revenues and earnings.
Legal proceedings currently considered to involve material risks are outlined below. The legal proceedings referred to do not represent an exhaustive list.
Lipobay / Baycol: As of February 1, 2010, approximately 200 Lipobay / Baycol cases, approximately 175 of them in the United States, remain pending against Bayer worldwide, claiming economic loss and personal injury. We are currently aware of fewer than fi ve pending cases in the United States that in our opinion meet our criteria for potential settlement. Bayer believes the legal risks remaining in the Lipobay / Baycol litigation are no longer material.
Magnevist®: As of February 1, 2010, there were approximately 310 lawsuits pending and served upon Bayer in the United States involving the gadolinium-based contrast agent Magnevist®. Three other manufacturers of gadolinium-based contrast agents in the United States also have been named party to the same or similar lawsuits. Additional cases are anticipated.
In the lawsuits, plaintiffs allege that patients developed nephrogenic systemic fi brosis (nsf) as a result of the use of Magnevist® during medical imaging procedures. nsf is a rare, severe condition that can be debilitating and in some cases fatal. Plaintiffs seek compensatory and punitive damages under various theories, including strict liability and negligence and / or breach of warranty, claiming, among other things, that the product is defective and unreasonably dangerous and that Bayer knew, or should have known, of the risks associated with Magnevist® and failed to disclose them or adequately warn its users.
All cases pending in federal courts have been consolidated in a multidistrict litigation (mdl) proceeding for common pre-trial management. Without admission of liability, Bayer has reached agreements with approximately 140 plaintiffs in the United States to settle their claims. Bayer will continue to consider the option of settling individual lawsuits on a case-by-case basis. Irrespective of these settlements, Bayer continues to believe that it has meritorious defenses and intends to defend itself vigorously in the cases remaining. Bayer has taken accounting measures.
Trasylol® (aprotinin) is a drug approved for use in managing bleeding in patients undergoing coronary artery bypass graft surgery. As of February 1, 2010, there were approximately 1,600 lawsuits pending in the United States and served upon Bayer on behalf of persons alleging, in particular, personal injuries, including renal failure and death, and economic loss from the use of Trasylol®. Bayer also has been served with three class actions in Canada. Plaintiffs in both the United States and the Canadian cases seek compensatory and punitive damages, claiming, among other things, that Bayer knew or should have known of these risks and is liable for having failed to disclose them or adequately warn users of Trasylol®. All cases pending in u.s. federal courts have been consolidated in a multidistrict litigation (mdl) proceeding for common pre-trial management. Additional cases are anticipated.
In 2006 and 2007 observational studies reported on a possible correlation between the administration of Trasylol® and severe renal dysfunction, myocardial infarction, stroke and an increase in mortality. In 2007, Bayer temporarily suspended worldwide marketing of Trasylol® after preliminary results from an independent clinical study in Canada raised concerns about a possible increased risk of mortality in patients who had received Trasylol®. The marketing suspension will remain in effect until the fi nal results from the Canadian study have been analyzed and the benefi t-risk assessment for Trasylol® can be re-evaluated together with the health authorities. In some countries, including the United States, Trasylol® continues to be available to certain surgical patients with an established medical need. We are closely cooperating with health authorities to resolve the questions that have arisen.
Bayer believes it has meritorious defenses and intends to defend itself vigorously. Based on the information currently available, Bayer has taken accounting measures for anticipated defense costs.
hiv / hcv: Numerous actions are pending against Bayer in the United States and other countries seeking damages for plaintiffs resident outside of the United States who claim to have become infected with hiv or hcv (hepatitis c virus) through use of blood plasma products sold by Bayer. Additional actions are pending by u.s. residents who claim to have been infected with hcv. Bayer and its three co-defendants have entered into an agreement with two u.s. law fi rms representing the vast majority of plaintiffs in the u.s. federal multidistrict factor concentrates litigation. The agreement is subject to conditions that must be satisfi ed before the settlement can be completed, including broad acceptance of, and overall participation in, the settlement by the groups of plaintiffs represented by these fi rms. Bayer will continue to vigorously defend any claims that are not included in the resolution process.
Yasmin® / yaz®: As of February 15, 2010, there were about 1,100 lawsuits pending in the United States served upon Bayer on behalf of persons alleged to have suffered personal injuries, some of them fatal, from the use of Bayer's oral contraceptive products Yasmin®, yaz® and / or Ocella, a generic version of Yasmin® distributed by Barr Laboratories, Inc. in the u.s. market. Plaintiffs seek compensatory and punitive damages, claiming, in particular, that Bayer knew or should have known the alleged risks and should be held liable for having failed to disclose them or adequately warn users of Yasmin® and yaz®. Bayer has also been served with three putative consumer class actions claiming economic loss, one of them also claiming personal injuries. All cases pending in u.s. federal courts have been consolidated in a multidistrict litigation (mdl) proceeding for common pre-trial management. In addition, two Canadian class actions have been served upon Bayer. Additional lawsuits are anticipated. Bayer believes that it has meritorious defenses and intends to defend itself vigorously. Bayer is also taking over Barr´s defense in certain cases according to the parties´ supply and licensing agreement. Based on the information currently available, Bayer has taken accounting measures for anticipated defense costs.
In connection with the above matters concerning Lipobay / Baycol, Magnevist®, Trasylol®, hiv/hcv and Yasmin® / yaz®, Bayer is insured against product liability risks to the extent customary in the industry.
Cipro®: Approximately 40 putative class action lawsuits and one individual lawsuit against Bayer involving Cipro®, a medication used in the treatment of infectious diseases, have been pending in the United States since 2000. The plaintiffs are suing Bayer and other companies also named as defendants, alleging that a settlement to end patent litigation reached in 1997 between Bayer and Barr Laboratories, Inc. violated antitrust regulations. The plaintiffs claim the alleged violation prevented the marketing of generic ciprofl oxacin as of 1997. In particular, they are seeking triple damages under u.s. law. After the settlement with Barr, the patent was the subject of a successful re-examination by the u.s. Patent and Trademark Offi ce and of successful defenses in u.s. federal courts. It has since expired.
All the actions pending in federal courts were consolidated in federal district court in New York in a multidistrict litigation (mdl) proceeding. The Court of Appeals for the Federal Circuit in Washington d.c. affi rmed the 2005 ruling of the federal district court in New York dismissing all lawsuits fi led in federal court. Meanwhile, there are no further avenues of appeal in these federal indirect purchasers' cases. Another appeal remains pending in the United States Court of Appeals for the Second Circuit (New York) concerning the claims brought by direct purchasers of Cipro®. Further cases are pending before various state courts. Bayer believes that it has meritorious defenses and intends to defend itself vigorously.
Yasmin®: In 2005, Bayer fi led suit against Barr Pharmaceuticals, Inc. and Barr Laboratories, Inc. in u.s. federal court alleging patent infringement by Barr for the intended generic version of Bayer's Yasmin® oral contraceptive product in the United States. In 2008, the u.s. federal court invalidated Bayer's '531 patent for Yasmin®. In August 2009, the u.s. Court of Appeals for the Federal Circuit in a two-to-one opinion affi rmed this decision. Bayer has fi led a petition for review in the u.s. Supreme Court.
In 2008, Bayer and Barr Laboratories, Inc. signed a supply and licensing agreement for Yasmin® covering the United States. Bayer supplies Barr with a generic version of Yasmin® which Barr markets solely in the United States. Barr pays Bayer a fi xed percentage of the revenues from the product sold by Barr. Bayer continues to pursue its appeal of the court decision that invalidated Bayer's u.s. patent '531 for Yasmin®. If Bayer should ultimately prevail, Bayer would receive a larger share of Barr's revenues from sales of its generic version of Yasmin® in the United States.
In 2008 Bayer received two notices of an Abbreviated New Drug Application with a Paragraph iv certifi cation (an "anda iv") pursuant to which Watson Laboratories Inc. and Sandoz Inc. each seek approval to market a generic version of Bayer's oral contraceptive Yasmin® in the United States. Bayer has fi led suit against Watson and Sandoz in u.s. federal court alleging patent infringement by Watson and Sandoz for the intended generic version of Yasmin®. In reply, Watson and Sandoz have fi led counterclaims alleging, among other things, the invalidity of various Bayer patents. Sandoz has further alleged that Bayer and Barr have made arrangements that are anticompetitive and violate antitrust and unfair competition laws.
yaz®: In 2007 and 2008, Bayer received notices from Barr Laboratories, Inc., Watson Laboratories Inc. and Sandoz Inc. that each company has fi led an anda iv seeking approval of a generic version of Bayer's yaz® oral contraceptive in the United States. All three applications claim that Bayer's patents are invalid and / or that the respective generic product does not infringe them. Bayer has fi led patent infringement suits against Watson and Sandoz in u.s. federal court claiming that certain of Bayer's patents have been infringed. In its defense statement, Sandoz has alleged, among other things, that Bayer and Barr have made arrangements that are anticompetitive and violate antitrust and unfair competition laws. If Bayer should ultimately prevail in its litigation with Barr regarding Yasmin®, Bayer would evaluate its options to use the '531 patent against Watson and Sandoz.
In 2008, Bayer and Barr agreed that Bayer will grant Barr a license to market a generic version of yaz® in the United States starting July 2011. Bayer will supply Barr with the product for this purpose. Should Bayer lose patent lawsuits in the United States against other companies concerning yaz®, Bayer would begin supplying the product to Barr at that time and Barr would begin marketing generic yaz® in the United States. Barr will pay Bayer a fi xed percentage of the revenues from the product sold by Barr.
Blood glucose monitoring devices: In 2005, Abbott Laboratories commenced a lawsuit in the United States against Bayer and another party alleging infringement of two of Abbott's patents relating to blood glucose monitoring devices. The devices concerned are sold by Bayer as part of its Ascensia® Contour® system and its dex® and Autodisc® system. The Ascensia® Contour® system is supplied to Bayer by a Japanese manufacturer, who originally designed the product and is contractually obligated to indemnify Bayer. In 2006, Abbott added a separate claim of infringement against the devices sold by Bayer as part of its dex® and Autodisc® system. Bayer is not entitled to indemnifi cation on this separate claim. In 2008 the court granted summary judgment in favor of Bayer with regard to one of the two patents and held the patent claims at issue invalid. After a trial on the issue of invalidity, the court also held the second patent invalid. In January 2010, the u.s. Court of Appeals for the Federal Circuit affi rmed both decisions. It is not clear whether Abbott will pursue further legal remedies.
In 2007, Roche Diagnostics Operations and Corange International commenced a lawsuit in the United States against Bayer and several other parties alleging infringement of two of Roche's patents relating to blood glucose monitoring devices. Two of the accused devices are sold by Bayer as part of its Breeze® 2 and Contour® systems. Bayer believes that these patents are covered by an existing license agreement between the parties, and the litigation has been dismissed in favor of an arbitration under this earlier license agreement. The arbitration proceeding is currently pending. Roche has added to the arbitration four additional patents which Roche alleges the Bayer Contour® systems infringe.
Bayer believes it has meritorious defenses in the above patent disputes and intends to defend itself vigorously.
Kogenate®: In 2008, Novartis Vaccines and Diagnostics Inc. and Novo Nordisc a/s commenced a patent infringement suit in the United States alleging that Bayer's manufacturing and marketing of the recombinant Factor viii product Kogenate® infringe a patent granted in 2006. The suit primarily seeks damages. Bayer does not believe that it has infringed any valid patent. Proceedings were stayed in December 2009 because the parties had reached a settlement in principle. The parties are working to fi nalize the settlement agreement.
Levitra®: In July 2009, Bayer fi led a patent infringement suit in u.s. federal court against Teva Pharmaceuticals usa, Inc. and Teva Pharmaceutical Industries, Ltd. In May 2009, Bayer had received notice of an Abbreviated New Drug Application with a Paragraph iv certifi cation (an "anda iv") pursuant to which Teva seeks approval to market a generic version of Levitra®, Bayer's therapy for the treatment of erectile dysfunction, prior to patent expiration in the United States. Bayer intends to pursue its rights vigorously.
Wholesale prices in the u.s.: Bayer and a number of pharmaceutical companies in the United States are defendants in pending lawsuits in which plaintiffs, including states, are alleging manipulation in the reporting of wholesale prices and / or best prices for their prescription pharmaceutical products. The plaintiffs seek damages, including disgorgement of profi ts and punitive damages. Bayer believes it has meritorious defenses and intends to defend itself vigorously.
Bayer Schering Pharma AG former shareholder litigation: In 2008, the squeeze-out of the former minority shareholders of Bayer Schering Pharma AG became effective. As usual in such cases, several shareholders have initiated special court proceedings to review the adequacy of the compensation payments made by Bayer for the transfer of the shares in the squeeze-out. The adequacy of the compensation and the guaranteed dividend paid by Bayer in connection with the Bayer Schering Pharma AG profi t and loss transfer agreement made in 2006 is also being reviewed by the courts. (Please note that Bayer Schering Pharma AG and the former Schering-Plough Corporation, New Jersey, are unaffi liated companies that have been independent of each other for many years. The names " Bayer Schering Pharma" or "Schering" as used in this Annual Report always refer to Bayer Schering Pharma AG, Berlin, Germany, or its predecessor, Schering AG, Berlin, Germany, respectively).
Regorafenib: In May 2009, Onyx Pharmaceuticals, Inc. fi led a complaint in the u.s. District Court for Northern California alleging that the compound regorafenib, which is under development by Bayer in cancer indications, is a compound to which Onyx has rights under a collaboration agreement which was originally concluded in 1994. Under this agreement, the parties jointly developed Nexavar®, a drug product to treat kidney and liver cancer. Bayer believes it has meritorious defenses and intends to defend itself vigorously.
Compliance investigation: Bayer is conducting an internal investigation into compliance by a former operating unit of one of its u.s. subsidiaries with the United States Foreign Corrupt Practices Act. That statute prohibits, among other things, corrupt payments by u.s. persons to governmental offi cials outside the United States. The unit, which conducted Bayer´s plasmaderived products business, was sold in 2005. The initial focus of the internal investigation has been on sales by that unit to certain Eastern European and Middle Eastern countries. In order to evaluate Bayer´s compliance efforts, Bayer is also reviewing sales practices in other units and countries. Bayer has voluntarily advised the United States government of the internal investigation. The United States government has not indicated what action it may take, if any, against Bayer or any individual, or whether it may conduct its own investigation. Because the internal investigation is ongoing, no statements on its outcome, or on any disadvantages for Bayer that may result therefrom, can be made at this point in time.
Proceedings involving genetically modifi ed rice: As of February 1, 2010, Bayer was aware of a total of approximately 500 lawsuits, involving about 6,400 rice farmers and resellers, pending in u.s. federal and state courts against several Bayer Group companies in connection with genetically modifi ed rice in the United States. Plaintiffs allege that they have suffered economic losses after traces of genetically modifi ed rice were identifi ed in samples of conventional long-grain rice grown in the u.s. This is alleged to have led to various commercial damages, including a decline in the commodity price for long-grain rice, costs associated with restrictions on imports and exports, and costs to secure alternative supplies. All the actions pending in federal court were consolidated in 2006 in federal district court in St. Louis, Missouri, in a multidistrict litigation (mdl) proceeding. In 2008, this court denied plaintiffs' request to certify a class action. Plaintiffs' subsequent request for interim appeal was denied by the appellate court.
In development of the genetically modifi ed rice, fi eld testing was conducted in cooperation with third parties, including a breeding research institute in the United States. The genetically modifi ed rice was never commercialized.
The usda and the fda have stated that the genetically modifi ed rice does not present a health risk and is safe for use in food and feed and for the environment. Additionally, in 2007, the usda released its report concerning its investigation into how the genetically modifi ed rice entered the commercial rice supply. The usda was unable to determine a cause and indicated it would not pursue any enforcement actions against Bayer or any other party.
In two trials in December 2009 and February 2010, two juries at the u.s. District Court in St. Louis, Missouri, ruled that Bayer must pay a total of approximately us\$3.5 million in compensatory damages for losses sustained by fi ve plaintiff farmers. The juries rejected the farmers´ claims for punitive damages. Bayer disagrees with the fi ndings of liability and the awards of compensatory damages. Bayer is considering its options for legal remedies and, as to the fi rst trial, has already fi led a motion for a new trial.
Additional trials have been scheduled for 2010. The facts and amount of damages claimed differ signifi cantly from case to case. Management believes that the outcomes of the St. Louis cases do not allow any direct conclusions on the outcomes of the other cases.
Bayer believes it has meritorious defenses in these actions and intends to continue to defend itself vigorously. Bayer has taken accounting measures for anticipated defense costs based on the information currently available.
Asbestos: A further risk may arise from asbestos litigation in the United States. In many cases, the plaintiffs allege that Bayer and co-defendants employed third parties on their sites in past decades without providing them with suffi cient warnings or protection against the known dangers of asbestos. Additionally, a Bayer affi liate in the United States is the legal successor to companies that sold asbestos products until 1976. Union Carbide has agreed to indemnify Bayer for this liability. Bayer believes it has meritorious defenses and intends to defend itself vigorously.
Premise®: Bayer, among others, had been named as a defendant in a putative nationwide class action fi led in federal court in North Carolina, United States, which alleges violations of antitrust laws in the marketing of a certain pest control product (Premise®). In 2007, the court granted summary judgment in favor of the defendants and plaintiffs have appealed. Bayer prevailed on all appeals and unless plaintiffs petition the United States Supreme Court again in the near future, the case will be concluded.
Companies of the Bayer Group are subject to civil damage claims in Europe, the United States and Australia based on alleged violations of applicable competition laws concerning rubber products that were subject to investigations by regulatory authorities. All of these investigations have now been closed.
In 2008, a group of plaintiffs who are primarily producers of tires brought an action for damages before the High Court of Justice in London against Bayer and other producers of butadiene rubber and emulsion styrene butadiene rubber. The plaintiffs allege damages resulting from alleged violations of e.u. competition law in the markets for butadiene rubber and emulsion styrene butadiene rubber. Parallel proceedings are pending before a court in Milan, to which Bayer joined as intervenient. It is still unclear whether the Milan court has jurisdiction.
In the United States, The Goodyear Tire & Rubber Company fi led a claim in a federal court in 2008, alleging that Bayer violated antitrust law in the area of butadiene rubber and styrene butadiene rubber. The complaint seeks, among other things, treble damages.
In Australia, a class action alleging antitrust violations in connection with rubber chemicals products was fi led in 2008. While the claim was struck out at fi rst instance, the plaintiffs have fi led an application for leave of appeal.
Bayer is defending itself in the European, u.s. and Australian litigation. The fi nancial risk from these proceedings cannot currently be quantifi ed. Therefore, Bayer is unable to take any accounting measures in this regard.
It remains possible that further civil damage claims may be fi led in connection with public antitrust investigations reported on previously and now closed.
mdi: In the United States, Bayer, together with other manufacturers, resellers and applicators, is a defendant in multiple cases that seek damages for personal injuries allegedly resulting from exposure to diphenylmethane diisocyanate (mdi) based products used in coal mines. In one case the plaintiffs allege that they were also exposed to tdi and hdi based products. Bayer believes it has meritorious defenses and intends to defend itself vigorously.
The liability situation following the spin-off of the Lanxess subgroup is governed by both statutory and contractual provisions. Under the German Transformation Act, all entities that are parties to a spin-off are jointly and severally liable for a period of fi ve years for obligations of the transferor entity that are established prior to the spin-off date. This fi ve-year period ends in March 2010. Bayer believes the liability risks remaining in connection with the Lanxess spin-off are not material.
The statement of cash fl ows shows how cash infl ows and outfl ows during the year affected the cash and cash equivalents (liquidity) of the Bayer Group as of the closing date. The effects of changes in the scope of consolidation are stated separately. Cash fl ows are classifi ed by operating, investing and fi nancing activities in accordance with ias 7 (Statement of Cash Flows). The cash and cash equivalents shown in the statement of cash fl ows comprise cash, checks and balances with banks. Also included are fi nancial instruments with original maturities of up to three months.
The amounts reported by consolidated companies outside the euro zone are translated at average exchange rates for the year, with the exception of cash and cash equivalents, which are translated at closing rates as in the statement of fi nancial position. The effect of changes in exchange rates on cash and cash equivalents is shown separately.
Cash and cash equivalents contain both the proceeds from divestitures of discontinued operations and the cash infl ows from these operations prior to the divestitures. In principle, therefore, the statement of cash fl ows must account for all cash infl ows and outfl ows for both continuing and discontinued operations. However, ifrs 5 (Non-current Assets Held for Sale and Discontinued Operations) specifi es that cash fl ows from operating, investing and fi nancing activities be classifi ed by continuing and discontinued operations. The discontinued operations' shares of the cash fl ows from operating, investing and fi nancing activities are stated separately in Note [6.3].
The amounts corresponding to the components of the net operating cash fl ow are shown both in the statement of fi nancial position and in the income statement. This applies, for example, to the amounts of inventories, receivables and payables recognized in the statement of fi nancial position that determine the changes in working capital shown in the statement of cash fl ows. The income after taxes forms the starting point for the statement of cash fl ows.
The gross cash fl ow for 2009 of €4,658 million (2008: €5,295 million) is the cash surplus from operating activities before any changes in working capital. The cash fl ows by segment are shown in the table in Note [1].
The net operating cash fl ow of €5,375 million (2008: €3,608 million) takes into account the changes in working capital and other non-cash transactions.
The line "Non-cash effects of the remeasurement of acquired assets (inventory work-down)" has been inserted in the statement of cash fl ows in order to eliminate the effects of the Schering purchase price allocation from gross cash fl ow. In this way the non-cash effect of the work-down of the step-up from the remeasurement of Schering inventories to fair value as of June 23, 2006, the date of acquisition, is already neutralized in the gross cash fl ow. In 2008, a fi nal amount of €208 million was transferred to this line from "Decrease (increase) in inventories."
The net operating cash fl ow for 2009 included an income-tax-related net cash fl ow of €500 million (2008: €1,073 million). The changes in income tax liabilities, income tax provisions and claims for reimbursement of income taxes are shown in the line "Changes in other working capital, other non-cash items."
Net cash outfl ow for investing activities in 2009 amounted to €1,126 million (2008: €3,089 million).
Additions to property, plant and equipment and intangible assets in 2009 resulted in a cash outfl ow of €1,575 million (2008: €1,759 million). Disbursements for property, plant and equipment and intangible assets included those for the expansion of the production site for polymer products in Shanghai, China, and for marketing rights in the Pharmaceuticals segment. Cash infl ows from sales of property, plant and equipment and other assets amounted to €98 million (2008: €167 million).
In addition, acquisitions resulted in cash outfl ows of €354 million (2008: €1,617 million), the principal item being the acquisition of Athenix Corp., United States. Disbursements for this purchase, including the acquired cash, amounted to €247 million. Included in the previous year's fi gure was the payment of €695 million related to the acquisition of the remaining shares of Bayer Schering Pharma AG. Following registration of the squeeze-out, the remaining minority stockholders received a cash compensation payment of €98.98 per share. Further details of acquisitions and divestitures are given in Notes [6.2] and [6.3], respectively.
In fi scal 2009 there was a net cash outfl ow of €3,621 million (2008: €873 million) for fi nancing activities. Net loan repayments amounted to €1,442 million (2008: net borrowings of €1,525 million).
Net cash outfl ows for dividend payments amounted to €973 million (2008: €1,126 million), including €101 million in refunds (2008: €84 million in payments) of withholding tax on intra-Group dividends. Interest expense decreased to €1,206 million (2008: €1,272 million).
Cash and cash equivalents comprise cash, checks and balances with banks. In accordance with ias 7 (Statement of Cash Flows) this item also includes securities with original maturities of up to three months, refl ecting their high liquidity. Cash and cash equivalents as of December 31, 2009 amounted to €2,725 million (2008: €2,094 million).
The following fees for the services of PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Essen, Germany, were recognized as expenses:
| Audit Fees | [Table 4.95] | |
|---|---|---|
| 2008 | 2009 | |
| € million | € million | |
| Financial statements auditing | 6 | 5 |
| Audit-related services and other audit work | 2 | 2 |
| Tax consultancy | - | - |
| Other services rendered to Bayer AG or subsidiaries | - | - |
| Total | 8 | 7 |
The fees for the auditing of fi nancial statements mainly comprise those for the audits of the consolidated fi nancial statements of the Bayer Group and the fi nancial statements of Bayer AG and its German subsidiaries. Fees for audit-related services and other audit work primarily relate to audit work in connection with acquisitions and divestitures, audits of the internal control system including project audits in connection with the implementation of new it systems, and reviews of interim fi nancial statements.
Related parties as defi ned in ias 24 (Related Party Disclosures) are those legal entities and natural persons that are able to exert infl uence on Bayer AG and its subsidiaries or over which Bayer AG or its subsidiaries exercise control or have a signifi cant infl uence. They include, in particular, non-consolidated subsidiaries, joint ventures, associates and post-employment benefi t plans, as well as the corporate offi cers of Bayer AG whose compensation is reported in Note [39] and in the compensation report, which forms part of the management report.
Transactions with non-consolidated subsidiaries, joint ventures, associates and post-employment benefi t plans are carried out on an arm's-length basis.
The following table shows the volume of transactions with related parties that are included in the consolidated fi nancial statements of the Bayer Group at amortized cost, by proportionate consolidation or at equity, and with post-employment benefi t plans:
| Related Parties [Table 4.96] |
||||||
|---|---|---|---|---|---|---|
| 2008 | 2009 | |||||
| Income | Receivables | Liabilities | Income | Receivables | Liabilities | |
| € million | € million | € million | € million | € million | € million | |
| Non-consolidated subsidiaries | 14 | 10 | (67) | 19 | 13 | (33) |
| Joint ventures | 37 | 3 | - | 32 | 3 | (1) |
| Associates | 22 | 15 | (18) | 24 | 10 | (25) |
| Post-employment benefi t plans | - | 460 | (46) | - | 460 | (89) |
Bayer AG has undertaken to provide jouissance right capital in the form of an interest-bearing loan totaling €150 million for the Bayer-Pensionskasse. The entire amount remained drawn as of December 31, 2009. The loan capital of €310 million provided to Bayer-Pensionskasse in 2008 for its effective initial fund continued to exist as of December 31, 2009.
No write-downs were made in 2009 or 2008 on receivables from related parties.
The following table shows the compensation of the Board of Management according to ifrs. This does not include the fair value of newly granted stock-based compensation, but rather the stockbased compensation entitlements earned in the respective year plus the change in the value of stock-based compensation entitlements from previous years that have not yet been paid out. It also contains the current service cost for pension entitlements.
| Board of Management Compensation According to IFRS | ||
|---|---|---|
| 2008 | 2009 | |
| € thousand | € thousand | |
| Directly effected compensation | 8,813 | 8,830 |
| Long-term incentive | ||
| (stock-based compensation entitlements earned in the respective year) | 1,509 | 1,623 |
| Change in value of existing entitlements | (533) | 1,079 |
| Current service cost for pension entitlements earned in the respective year | 884 | 1,364 |
| Aggregate compensation (according to IFRS) | 10,673 | 12,896 |
Further details are provided in the Compensation Report, which forms part of the Management Report.
Pension payments to retired members of the Board of Management and their surviving dependents in 2009 amounted to €11,273 thousand (2008: €11,697 thousand). Pension provisions for former members of the Board of Management and their surviving dependents at the closing date amounted to €107,223 thousand (2008: €107,863 thousand).
The compensation of the Supervisory Board amounted to €2,295 thousand (2008: €2,295 thousand), including €765 thousand (2008: €765 thousand) in variable components.
There were no loans to members of the Board of Management or the Supervisory Board outstanding as of December 31, 2009, nor any repayments of such loans during the year.
Leverkusen, February 15, 2010 Bayer Aktiengesellschaft
The Board of Management
Statements
The consolidated fi nancial statements of the Bayer Group have been prepared by the management, which is responsible for the substance and objectivity of the information contained therein. The same applies to the Group management report, which is consistent with the consolidated fi nancial statements and is combined with the management report of Bayer AG.
Our fi nancial reporting takes place according to the rules issued by the International Accounting Standards Board, London, as endorsed by the European Union.
Effective internal monitoring procedures instituted by Group management at the consolidated companies along with appropriate staff training ensure the propriety of our reporting and its compliance with legal provisions. Integrity and social responsibility form the basis of our corporate principles and of their application in areas such as environmental protection, quality, product safety, plant safety and adherence to local laws and regulations. The worldwide implementation of these principles and the reliability and effectiveness of the monitoring procedures are continuously verifi ed by our Corporate Auditing Department.
The Board of Management conducts the business of the Group in the interests of the stockholders and in awareness of its responsibilities toward employees, communities and the environment in all the countries in which we operate. Our declared aim is to deploy the resources entrusted to us in order to increase the value of the Bayer Group as a whole.
In accordance with the resolution of the Annual Stockholders' Meeting, the Supervisory Board appointed PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft as the independent auditor of the consolidated fi nancial statements and of the statements' compliance with the International Financial Reporting Standards. The scope of the auditor's report also includes Bayer's risk management system, audited in light of the German Law on Corporate Supervision and Transparency. The consolidated fi nancial statements, the combined management report and the auditor's report were discussed in detail, in the presence of the auditor, by the Audit Committee of the Supervisory Board and at a plenary meeting of the Supervisory Board. The Supervisory Board reports on this separately in the Report of the Supervisory Board in the Bayer Annual Report 2009.
The Board of Management
To the best of our knowledge, and in accordance with the applicable reporting principles for fi nancial reporting, the consolidated fi nancial statements give a true and fair view of the assets, liabilities, fi nancial position and profi t or loss of the Bayer Group, and the combined management report includes a fair review of the development and performance of the business and the position of the Bayer Group and Bayer AG, together with a description of the principal opportunities and risks associated with the expected development of the Bayer Group and Bayer AG.
Leverkusen, February 15, 2010 Bayer Aktiengesellschaft
Werner Wenning Werner Baumann Dr. Marijn Dekkers
Klaus Kühn Dr. Wolfgang Plischke Dr. Richard Pott
We have audited the consolidated fi nancial statements prepared by Bayer Aktiengesellschaft, Leverkusen, comprising the income statement and statement of comprehensive income, statement of fi nancial position, statement of cash fl ows, statement of changes in equity and the notes to the consolidated fi nancial statements, together with the group management report for the business year from January 1, 2009 to December 31, 2009, which is combined with the management report of the company. The preparation of the consolidated fi nancial statements and the combined management report in accordance with the ifrs, as adopted by the e.u., and the additional requirements of German commercial law pursuant to § (Article) 315a Abs. (paragraph) 1 hgb ("Handelsgesetzbuch": German Commercial Code) are the responsibility of the parent Company's Board of Management. Our responsibility is to express an opinion on the consolidated fi nancial statements and on the combined management report based on our audit.
We conducted our audit of the consolidated fi nancial statements in accordance with § 317 hgb and German generally accepted standards for the audit of fi nancial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (idw) and additionally observed the International Standards on Auditing (isa). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, fi nancial position and results of operations in the consolidated fi nancial statements in accordance with the applicable fi nancial reporting framework and in the combined management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated fi nancial statements and the combined management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual fi nancial statements of those entities included in consolidation, the determination of the entities to be included in consolidation, the accounting and consolidation principles used and signifi cant estimates made by the Company's Board of Management, as well as evaluating the overall presentation of the consolidated fi nancial statements and the combined management report. We believe that our audit provides a reasonable basis for our opinion.
Our audit has not led to any reservations.
In our opinion based on the fi ndings of our audit the consolidated fi nancial statements comply with the ifrs as adopted by the e.u., the additional requirements of German commercial law pursuant to § 315a Abs. 1 hgb and give a true and fair view of the net assets, fi nancial position and results of operations of the Group in accordance with these requirements. The combined management report is consistent with the consolidated fi nancial statements and as a whole provides a suitable view of the Group's position and suitably presents the opportunities and risks of future development.
Essen, February 24, 2010
PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft
Armin Slotta Anne Böcker
Wirtschaftsprüfer Wirtschaftsprüferin
| Governance Bodies | 256 |
|---|---|
| Organization Chart | 259 |
| List of Tables and Graphics | 260 |
| Glossary | 263 |
| Index | 268 |
| Global Commitment to Sustainability | 270 |
Honorary Chairman of the Supervisory Board of Bayer AG, Leverkusen
Members of the Supervisory Board held offi ces as members of the supervisory board or a comparable supervising body of the corporation listed (as at December 31, 2009 or the date on which they ceased to be members of the Supervisory Board of Bayer AG):
(born December 21, 1938) Chairman of the Supervisory Board effective April 2002
(born November 21, 1958)
Vice Chairman of the Supervisory Board, Member of the Supervisory Board effective April 2002
Chairman of the Bayer Central Works Council
Chairman of the Works Council of the Leverkusen site of Bayer
• Bayer MaterialScience AG
(born September 28, 1956) Member of the Supervisory Board effective April 2002 Member of the Board of Management of Allianz SE
(born February 17, 1969) Member of the Supervisory Board effective April 2007 Member of the Works Council of Bayer Schering Pharma AG
(born April 12, 1956) Member of the Supervisory Board effective February 2007 Chairman of the Works Council of the Wuppertal site of Bayer
• Bayer Schering Pharma AG (effective August 26, 2009)
(born July 27, 1948) Member of the Supervisory Board effective April 2007 Chairman of the Supervisory Board of Deutsche Bank AG
(born October 5, 1949) Member of the Supervisory Board effective April 2000 Chairman of the Bayer Group Works Council Chairman of the Works Council of the Dormagen site of Bayer
• Bayer CropScience AG (Vice Chairman)
(born August 27, 1955) Member of the Supervisory Board effective October 2005 Chairman of the Group Managerial Employees' Committee of Bayer
• Bayer MaterialScience AG
(born February 13, 1954) Member of the Supervisory Board effective April 2006
North Rhine District Secretary of the German Mining, Chemical and Energy Industrial Union (until November 6, 2009) Member of the Executive Committee of the German Mining, Chemical and Energy Industrial Union (effective October 13, 2009)
• Evonik Services GmbH
Member of the Supervisory Board effective April 2002 Honorary Professor at the University of
(born May 30, 1955) Member of the Supervisory Board effective October 2006
Deputy General Secretary of the European Trade Union Confederation (ETUC)
North Rhine District Secretary of the German Mining, Chemical and Energy Industrial Union (effective November 6, 2009)
• SASOL Germany GmbH
DR. RER. POL. KLAUS KLEINFELD
(born November 6, 1957) Member of the Supervisory Board effective April 2005
Chief Executive Offi cer of ALCOA Inc.
(born August 22, 1964) Member of the Supervisory Board effective July 2000 Chairwoman of the Works Council of the Uerdingen site of Bayer
• Bayer MaterialScience AG (Vice Chair woman, effective December 7, 2009)
(born August 31, 1946) Member of the Supervisory Board effective April 2007
Member of various supervisory boards
(born January 14, 1945) Member of the Supervisory Board
effective January 1995 Chairman of the German Mining, Chemical and Energy Industrial Union (until October 13, 2009)
Member of various supervisory boards
Member of the Supervisory Board effective April 2005
Chairman of the Executive Board of ThyssenKrupp AG
(born October 23, 1946) Member of the Supervisory Board effective April 2007 Member of various supervisory boards
(born October 17, 1941) Member of the Supervisory Board effective April 2003
* independent expert member pursuant to Section 100 Paragraph 5 of the German Stock Corporation Act (AktG) PROF. DR. DR. H.C. ERNST-LUDWIG WINNACKER (born July 26, 1941) Member of the Supervisory Board
effective April 1997
Secretary General of the Human Frontier Science Program (effective July 1, 2009)
(born December 11, 1968) Member of the Supervisory Board effective April 2007 Vice Chairman of the Works Council of the Leverkusen site of Bayer
Standing committees of the Supervisory Board of Bayer AG (as at Dec. 31, 2009)
MEDIATION COMMITTEE Schneider (Chairman), Achleitner, Schmoldt, de Win
Sturany (Chairman), Fischer, Hausmann, Henkel, Schneider, de Win
Schneider (Chairman), Ellrich, Kronen, Weber
Schneider (Chairman), Achleitner
Members of the Board of Management held offi ces as members of the supervisory board or a comparable supervising body of the corporations listed (as at December 31, 2009):
(born October 21, 1946)
Chairman of the Board of Management, appointed until September 30, 2010
• Henkel AG & Co. KGaA, Shareholders' Committee
• Talanx AG (effective October 1, 2009)
(born October 6, 1962) Member of the Board of Management effective January 1, 2010, appointed until December 31, 2012
(born September 22, 1957)
Member of the Board of Management effective January 1, 2010, appointed until December 31, 2014
President und Chief Executive Offi cer of Thermo Fisher Scientifi c, Inc. (until October 15, 2009)
• Biogen Idec, Inc. (until December 31, 2009)
(born February 11, 1952) Member of the Board of Management, appointed until April 30, 2010
(born September 15, 1951) Member of the Board of Management, appointed until February 28, 2014
(born May 11, 1953)
Member of the Board of Management, appointed until April 30, 2012
as of February 1, 2010
Chairman J. Waldi *
| as of February 1, 2010 | [Graphic 5.1] | ||||||
|---|---|---|---|---|---|---|---|
| BAYER AG (HOLDING COMPANY) | |||||||
| Group Management Board | |||||||
| Werner Wenning Chairman (until September 30, 2010) |
Werner Baumann Finance (effective May 1, 2010) |
Marijn Dekkers Chairman (effective October 1, 2010) |
Klaus Kühn Finance (until April 30, 2010) |
& Environment | Wolfgang Plischke Innovation, Technology |
Richard Pott * Strategy & Human Resources |
|
| Corporate Center | |||||||
| Corporate Offi ce J. Krell Communications M. Schade Investor Relations A. Rosar Corporate Auditing R. Meyer |
Corporate Human Resources & Organization J. Peters Finance J. Dietsch Corporate Development M. Mangold |
R. Hartwig W. Grosse Entrup U. Hauck I. Paterson |
Law & Patents, Insurance Environment & Sustainability Group Accounting & Controlling Regional Coordination |
||||
| BUSINESS AREAS | SERVICE AREAS | ||||||
| Bayer HealthCare | Bayer CropScience | Bayer MaterialScience | Bayer Business Services | ||||
| A. J. Higgins (photo) Chairman L. van der Broek Animal Health G. Balkema Consumer Care S. E. Peterson Medical Care A. Fibig |
Chairman R. Scheitza * A. Klausener Research F. J. Placke Development W. Welter |
F. Berschauer (photo) Portfolio Management |
P. Thomas (photo) Chairman A. Steiger-Bagel Administration T. Van Osselaer * Industrial Operations G. Hilken Polycarbonates P. Vanacker |
Executive Board D. Hartert (photo) Chairman N. Fieseler * Bayer Technology Services |
|||
| Bayer Schering Pharma (bsp) U. Köstlin bsp Regions A. Busch * bsp Global Drug Discovery K. Malik |
& qhse D. Suwelack B. Naaf |
Industrial Operations Business Planning & Administration Crop Protection |
Polyurethanes J. Wolff Coatings, Adhesives, Specialties |
A. Noack (photo) Managing Director |
|||
| bsp Global Development M. Vehreschild Central Administration & Organization H. Klusik Product Supply |
Asia/Pacifi c J. du Puy W. Buckner North America M. Reichardt Latin America G. Riemann J. Schneider |
Crop Protection Europe & tamecis Crop Protection Crop Protection Environmental Science |
Currenta Executive Board K. Schäfer (photo) |
BioScience
| Table 1.1 | Key Data | U3 |
|---|---|---|
| Table 1.2 | Five-Year Financial Summary | U6 |
| Bayer Stock Data | 17 |
|---|---|
| Long-Term Returns on Bayer Stock in % p.a. | |
| (Dividends Reinvested) | 17 |
| Performance of Bayer Stock in 2009 | 14 |
| in 2009 | 17 |
| Dividends Per Share | 18 |
| Total Dividend Payment | 18 |
| Ownership Structure by Country | 19 |
| Rates for Five-Year Credit Default Swaps (CDS) |
| Table 3.1 | Change in Sales | 46 |
|---|---|---|
| Table 3.2 | Key Data by Subgroup and Segment, | |
| 4th Quarter | 49 | |
| Table 3.3 | Key Data by Subgroup and Segment | 51 |
| Table 3.4 | Key Data – HealthCare | 58 |
| Table 3.5 | Key Data – Pharmaceuticals | 60 |
| Table 3.6 | Best-Selling Pharmaceutical Products | 60 |
| Table 3.7 | Key Data – Consumer Health | 62 |
| Table 3.8 | Best-Selling Consumer Health Products | 62 |
| Table 3.9 | Key Data – CropScience | 64 |
| Table 3.10 | Best-Selling CropScience Products | 66 |
| Table 3.11 | Key Data – Crop Protection | 66 |
| Table 3.12 | Key Data – Environmental Science, BioScience 68 | |
| Table 3.13 | Key Data – MaterialScience | 69 |
| Table 3.14 | Sales by Region and Segment (by Market) 72 - 73 | |
| Table 3.15 | Bayer Group Summary Income Statements | 72 |
| Table 3.16 | Special Items Reconciliation | 74 |
| Table 3.17 | Calculation of Core EBIT and | |
| Core Earnings per Share | 75 | |
| Table 3.18 | Value Management Indicators by Subgroup | 77 |
| Table 3.19 | Bayer Group Summary Statements | |
| of Cash Flows | 78 | |
| Table 3.20 | Capital Expenditures for Property, Plant | |
| and Equipment | 79 |
| Table 3.21 | Net Financial Debt | 80 |
|---|---|---|
| Table 3.22 | Bayer Group Summary Statements | |
| of Financial Position | 81 | |
| Table 3.23 | Net Pension Liability | 82 |
| Table 3.24 | Ratios | 82 |
| Table 3.25 | Bayer AG Income Statements according | |
| to the German Commercial Code | 83 | |
| Table 3.26 | Bayer AG Summary Statements of | |
| Financial Position according to the | ||
| German Commercial Code | 84 | |
| Table 3.27 | Board of Management Compensation – | |
| Aggregate Compensation | 94 | |
| Table 3.28 | Board of Management Compensation – | |
| Stock-Based Compensation | 95 | |
| Table 3.29 | Pension Entitlements | 95 |
| Table 3.30 | Board of Management Compensation | |
| According to IFRS | 96 | |
| Table 3.31 | Compensation of the Members of the | |
| Supervisory Board of Bayer AG in 2009 | 99 | |
| Table 3.32 | Products in Registration | 101 |
| Table 3.33 | Research and Development Projects | |
| (Phases III and II) | 101 - 102 | |
| Table 3.34 | Planned Product Launches | 105 |
| Table 3.35 | Employee Data | 110 |
| Table 3.36 | Bayer Group Workforce Structure | 111 |
| Table 3.37 | Key Performance Indicators | 113 |
| Table 3.38 | Rating | 132 |
| Graphic 3.1 | Bayer Group Quarterly Sales | 46 |
| Graphic 3.2 | Bayer Group Quarterly EBITDA | |
| Before Special Items | 47 | |
| Graphic 3.3 | Gross Cash Flow by Quarter | 48 |
| Graphic 3.4 | Net Cash Flow by Quarter | 48 |
| Graphic 3.5 | Bayer Group Structure | 50 |
| Graphic 3.6 | Sales by Segment 2009 | 51 |
| Graphic 3.7 | HealthCare Quarterly Sales | 59 |
| Graphic 3.8 | HealthCare Quarterly EBITDA | |
| Before Special Items | 59 | |
| Graphic 3.9 | CropScience Quarterly Sales | 65 |
| Graphic 3.10 | CropScience Quarterly EBITDA | |
| Before Special Items | 65 | |
| Graphic 3.11 | MaterialScience Quarterly Sales | 70 |
| Graphic 3.12 | MaterialScience Quarterly EBITDA | |
| Before Special Items | 71 | |
| Graphic 3.13 | Research and Development Expenses | |
| by Subgroup | 100 | |
| Graphic 3.14 | Employees by Region | 111 |
| Graphic 3.15 | Employees by Age Group in % | 112 |
| Table 4.1 | Bayer Group Consolidated Income Statements 138 | |
|---|---|---|
| Table 4.2 | Bayer Group Consolidated Statements | |
| of Comprehensive Income | 139 | |
| Table 4.3 | Bayer Group Consolidated Statements | |
| of Financial Position | 140 | |
| Table 4.4 | Bayer Group Consolidated Statements | |
| of Cash Flows | 141 | |
| Table 4.5 | Bayer Group Consolidated Statements | |
| of Changes in Equity 142 - 143 |
||
| Table 4.6 | Key Data by Segment 144 - 145 |
|
| Table 4.7 | Key Data by Region 144 - 145 |
|
| Table 4.8 | Exchange Rates for Major Currencies | 152 |
| Table 4.9 | Useful Life of Property, Plant and Equipment 155 | |
| Table 4.10 | Activities of the Segments | 166 |
| Table 4.11 | Reconciliation of Segment Result | 167 |
| Table 4.12 | Reconciliation of Segment Assets | |
| to Group Assets | 168 | |
| Table 4.13 | Reconciliation of Segment Liabilities | |
| to Group Liabilities | 168 | |
| Table 4.14 | Information on Geographical Areas | 168 |
| Table 4.15 | Change in Number of Consolidated | |
| Companies | 170 | |
| Table 4.16 | Assets, Liabilities and Results of | |
| Operations of Joint Ventures | 170 | |
| Table 4.17 | Fully Consolidated Subsidiaries 171 - 176 |
|
| Table 4.18 | Joint Ventures | 177 |
| Table 4.19 | Associated Companies | 177 |
| Table 4.20 | Immaterial Subsidiaries 177 - 179 |
|
| Table 4.21 | Immaterial Associates and Joint Ventures 179 - 180 | |
| Table 4.22 | Other Interests in Large Limited | |
| Liability Companies | 180 | |
| Table 4.23 | German Exempt Subsidiaries | 180 - 181 |
| Table 4.24 | Acquired Assets and Assumed Liabilities | 183 |
| Table 4.25 | Acquired Assets and Assumed Liabilities | |
| (Previous Year) | 184 | |
| Table 4.26 | Divested Assets and Liabilities | 185 |
| Table 4.27 | Discontinued Operations: | |
| Table 4.28 | Impact on Statements of Cash Flows Portfolio-Related Changes in Sales |
186 186 |
| Table 4.29 | Other Operating Income | 187 |
| Table 4.30 | Other Operating Expenses | 187 |
| Table 4.31 | Breakdown of Special Items by Function | 188 |
| Table 4.32 | Personnel Expenses | 188 |
| Table 4.33 | Employees | 188 |
| Table 4.34 | Income (Loss) from Investments | |
| in Affi liated Companies | 189 | |
| Table 4.35 | Net Interest Expense | 189 |
| Table 4.36 | Other Non-Operating Income and Expense | 190 |
| Table 4.37 | Income Tax Expense by Origin | 190 |
|---|---|---|
| Table 4.38 | Deferred Tax Assets and Liabilities | 191 |
| Table 4.39 | Expiration of Unusable Tax Credits and | |
| Tax Loss Carryforwards | 192 | |
| Table 4.40 | Reconciliation of Expected to | |
| Actual Income Tax Expense | 193 | |
| Table 4.41 | Earnings Per Share | 194 |
| Table 4.42 | Changes in Intangible Assets | 195 |
| Table 4.43 | Changes in Intangible Assets (Previous Year) 196 | |
| Table 4.44 | Expected Amortization of Intangible Assets | 197 |
| Table 4.45 | Goodwill by Reporting Segment 197 - 198 |
|
| Table 4.46 | Intangible Assets with Indefi nite Useful Life | 198 |
| Table 4.47 | Expiration Dates of Most Important Patents | 200 |
| Table 4.48 | Changes in Property, Plant and Equipment | 202 |
| Table 4.49 | Changes in Property, Plant and Equipment | |
| (Previous Year) | 203 | |
| Table 4.50 | Principal Subgroup Sites | 204 |
| Table 4.51 | Changes in Carrying Amounts of Investments | |
| in Associates | 205 | |
| Table 4.52 | Aggregated Income Statement Data | |
| of Associates Included at Equity | 205 | |
| Table 4.53 | Aggregated Data from the Statements | |
| of Financial Position of Associates Included | ||
| at Equity | 206 | |
| Table 4.54 | Other Financial Assets | 206 |
| Table 4.55 | Inventories | 207 |
| Table 4.56 | Write-Downs of Inventories | 207 |
| Table 4.57 | Write-Downs of Trade Accounts Receivable | 208 |
| Table 4.58 | Overdue Trade Accounts Receivable | 208 |
| Table 4.59 | Other Receivables | 209 |
| Table 4.60 | Overdue Other Financial Receivables | 209 |
| Table 4.61 | Rating | 210 |
| Table 4.62 | Components of Non-Controlling Interest | |
| in Equity | 212 | |
| Table 4.63 | Provisions for Pensions and | |
| Other Post-Employment Benefi ts | 213 | |
| Table 4.64 | Expenses for Defi ned Benefi t Pension Plans | 213 |
| Table 4.65 | Expenses for Other Post-Employment | |
| Benefi t Obligations | 213 | |
| Table 4.66 | Status of Unfunded and | |
| Funded Defi ned Benefi t Obligations | 214 - 215 | |
| Table 4.67 | Plan Assets to Cover Pension Obligations | |
| as of December 31 | 216 | |
| Table 4.68 | Plan Assets to Cover Other Post-Employment | |
| Benefi t Obligations as of December 31 | 217 | |
| Table 4.69 | Parameters for Benefi t Obligations | 217 |
| Table 4.70 | Parameters for Benefi t Expense | 217 |
| Table 4.71 | Sensitivity of Benefi t Obligations | 218 |
| Table 4.72 | Sensitivity of Benefi t Expense | 218 |
| Table 4.73 | Sensitivity to Health Care Cost Increases | 219 |
| Table 4.74 | Employer Contributions Paid or Expected | 219 |
| Table of Contents | |||||
|---|---|---|---|---|---|
| -- | -- | -- | -- | ------------------- | -- |
| Table 4.76 | Changes in Accumulated Actuarial Gains | ||
|---|---|---|---|
| and Losses Related to Defi ned Benefi t | |||
| Obligations and Plan Assets | 220 - 221 | ||
| Table 4.77 | Changes in Other Provisions | 222 | |
| Table 4.78 | Expected Utilization of Other Provisions | 222 | |
| Table 4.79 | Changes in Provisions for | ||
| Stock-Based Compensation Programs | 225 | ||
| Table 4.80 | Parameters for Monte Carlo Simulation | 225 | |
| Table 4.81 | Stock-Based Compensation Programs | ||
| 2000 – 2004 | 226 | ||
| Table 4.82 | Financial Liabilities | 227 | |
| Table 4.83 | Maturities of Financial Liabilities | 228 | |
| Table 4.84 | Bonds and Notes | 228 | |
| Table 4.85 | Leasing Liabilities | 230 | |
| Table 4.86 | Other Liabilities | 231 | |
| Table 4.87 | Carrying Amounts and Fair Values | ||
| of Financial Instruments | 232 - 233 | ||
| Table 4.88 | Income, Expense, Gains and Losses | ||
| on Financial Instruments | 234 | ||
| Table 4.89 | Income, Expense, Gains and Losses | ||
| on Financial Instruments (Previous Year) | 235 | ||
| Table 4.90 | Maturity Analysis of Financial | ||
| Instruments | 236 - 237 | ||
| Table 4.91 | Fair Values of Derivatives | 239 | |
| Table 4.92 | Contingent Liabilities | 240 | |
| Table 4.93 | Operating Leases | 240 | |
| Table 4.94 | Other Commitments | 241 | |
| Table 4.95 | Audit Fees | 250 | |
| Table 4.96 | Related Parties | 250 | |
| Table 4.97 | Board of Management Compensation | ||
| According to IFRS | 251 |
Table 4.75 Future Benefi t Obligations 219
| Graphic 5.1 | Organization Chart | 259 |
|---|---|---|
A1CNow® User-friendly device for measuring the long-term blood glucose level HbA1c at doctor's offi ces and diabetes outreach clinics
Adalat® Drug product for the treatment of hypertension; active ingredient: nifedipine
Adengo® Herbicide; active ingredients: thiencarbazonemethyl, isoxafl utole, cyprosulfamide; main application: corn
Admire® Insecticide; active ingredient: imidacloprid; main applications: vegetables, rice, fruit, potatoes
Advantage® Flea control product for dogs and cats; active ingredient: imidacloprid
Alemtuzumab Humanized monoclonal antibody, currently being tested in multiple sclerosis (ms)
Aleve® Analgesic; active ingredient: naproxen
Alka-Seltzer® Drug product that binds excess gastric acid and reduces pain and fever
AlpharadinTM Novel alphaemitting radiopharmaceutical currently undergoing clinical development for the treatment of bone metastases; active ingredient: radium-223 chloride
Angeliq® Drug product for the treatment of menopause symptoms; active ingredients: drospirenone and estradiol
Antra® Drug product that binds excess gastric acid; active ingredient: omeprazol
Apronax® / Flanax® Analgesic; active ingredient: naproxen
Arize® Hybrid rice seed
Aspirin® World-famous analgesic; active ingredient: acetylsalicylic acid
Aspirin® Cardio Drug product for protection against heart attack; active ingredient: acetylsalicylic acid
Asset-backed securities (abs) abs are (debt) securities collateralized by a pool of receivables
Atlantis® Herbicide; active ingredients: mesosulfuronmethyl, iodosulfuron-methylsodium, mefenpyr; main applications: wheat, triticale, rye
Avalox® / Avelox® Drug product for the treatment of respiratory tract infections; active ingredient: moxifl oxacin
Aviator® XproTM Fungicide; active ingredient: bixafen; main application: cereals
Balance® fl exx Herbicide; active ingredient: isoxafl utole; main application: corn
Basta® Herbicide; active ingredient: glufosinate-ammonium; main applications: plantation crops, potatoes and vegetables
Bayblend® Brand name for polymer blends based on polycarbonate and acrylonitrilebutadiene-styrene
Baycox® Drug product to control coccidiosis, a parasitary infectious disease in young livestock; active ingredient: toltrazuril
BaySystems® Global umbrella brand for the polyurethane systems business
Baytril® Drug for the treatment of severe veterinary infectious diseases; active ingredient: enrofl oxacin
Baytubes® Brand name for multi-wall carbon nanotubes
Bepanthen® Range of skin care and wound-healing products; active ingredient: dexpanthenol
Bepanthol® Range of care products to treat dry, irritated skin; active ingredient: panthenol
Berocca® Dietary supplement containing b-group vitamins, vitamin c, calcium, magnesium and zinc
Betaferon® / Betaseron® Drug product for the treatment of multiple sclerosis; active ingredient: interferon beta-1b
Biscaya® Insecticide; active ingredient: thiacloprid; main applications: canola, cereals, cotton, fruit, potatoes, rice and vegetables
Breeze® Blood glucose measurement device for people with diabetes for simple, safe and rapid use at home or while traveling
Canesten® Antifungal drug for infections of the skin; active ingredient: clotrimazole or bifonazole
Capital invested (ci) Capital invested comprises the assets on which the company must obtain a return by generating an appropriate cash infl ow; in some cases the cost of ultimately reproducing the assets must be earned in addition.
Cash fl ow return on investment (cfroi) The cash fl ow return on investment is the ratio of the gross cash fl ow earned in a period to the capital invested. It is thus a measure of profi tability in that period.
Cash value added (cva) This is the difference between the gross cash fl ow and gross cash fl ow hurdle. It is therefore the portion of the gross cash fl ow that exceeds the return and reproduction requirements. If cva is positive, the company has created value.
Cipro® / Ciprobay® / Ciproxin® / Baycip® Drug product for the treatment of infectious diseases; active ingredient: ciprofl oxacin
Confi dor® Insecticide; active ingredient: imidacloprid; main applications: vegetables, rice, fruit, potatoes
Contour® usb Blood glucose measurement device for people with diabetes, featuring usb capability and integrated software
Core earnings per share (core eps) Core earnings per share comprises adjusted core net income from continuing operations divided by the weighted average number of issued ordinary shares (taking into account the potential shares resulting
Didget® Blood glucose measurement device developed specifi cally for children with
Drontal® product line Dewormers for dogs and cats; active ingredients: combinations of praziquantel, pyrantel
Earnings before interest and taxes (ebit) ebit comprises the operating profi t of a company before deduction of the nonoperating result and taxes. In Bayer's Annual Report ebit is the operating result shown in the income statement.
Earnings before interest, taxes, depreciation and amortization (ebitda) ebit plus amortization of intangible assets and depreciation of property, plant and equipment. ebitda, underlying ebitda and the underlying ebitda margin are not defi ned in the International Financial Reporting Standards. The company considers ebitda before special items to be a more suitable indicator of operating performance since it is not affected by depreciation, amortization, write-downs / write-backs or special items. The company also believes that this indicator gives readers a clearer picture of the results of operations and ensures greater comparability of
diabetes
and febantel
E
from the conversion of the mandatory convertible bond). The adjusted core net income is computed from ebit plus amortization of intangible assets and write-downs of property, plant and equipment, plus / minus special items, plus non-operating result, plus / minus income taxes, plus / minus tax adjustments, minus income after taxes attributable to non-controlling interests, plus fi nancing costs relating to the mandatory bond after tax effects. Core earnings per share is not an indicator defi ned in the International Financial Reporting Standards. The company believes that this indicator gives readers a clearer picture of the results of operations and ensures greater comparability of data over time.
Corporate compliance Corporate compliance comprises the observance of statutory and company regulations on lawful and responsible conduct by the company, its employees, and its management and supervisory bodies.
Corporate governance Corporate governance comprises the long-term management and oversight of the company in accordance with the principles of responsibility and transparency. The German Corporate Governance Code sets out basic principles for the management and oversight of listed companies.
Corvus® Herbicide; active ingredients: thiencarbazonemethyl, isoxafl utole, cyprosulfamide; main application: corn
cial instruments that permit the trading of credit risks. They are essentially tradable insurance contracts used to hedge against the default of a borrower or similar credit instruments.
CropStar® Insecticide; active ingredients: imidacloprid and thiodicarb; main application: seed treatment in corn
Decis® Insecticide; active ingredient: deltamethrin; main applications: cotton, vegetables, cereals and fruit
Delta cash value added Delta cva is an indicator of the change in the cash value added between two periods. A positive delta cva shows that a unit has created more value or destroyed less value compared with the reference period.
Desmodur® Brand name for various isocyanates
Desmopan® Brand name for thermoplastic polyurethanes
Desmophen® Brand name for various polyesters and polyols used in the manufacture of polyurethanes
Desonate® Topical glucocorticoid for the treatment of atopic dermatitis; active ingredient: desonide
data over time. Earnings per share (eps) eps is calculated by dividing Group net income by the weighted average number of shares as defi ned in ias 33.
The (underlying) ebitda margin is calculated by dividing ebitda (before special items) by sales.
EcoCommercial Building Innovative, globally aligned business model for a range of integrated energy and material solutions culminating in the zero emissions building. The model has been included in the Sustainable Buildings & Climate Initiative (sbci) of unep.
emtn program The Euro Medium Term Note (emtn) program is a documentation platform that enables Bayer to raise capital by quickly issuing debt on the European capital market. Securities issued under this program may be listed in Luxembourg or unlisted. Their maturities, currencies and conditions may vary considerably.
Fandango® Fungicide; active ingredients: fl uoxastrobin and prothioconazole; main application: cereals
Flint® Fungicide; active ingredient: trifl oxystrobin; main applications: cereals, soybeans and fruit
Florbetaben Novel f18-labeled tracer currently undergoing clinical development for the detection of beta-amyloid plaques in the brain using positron emission tomography (pet); active ingredient: fl orbetaben
Folicur® Fungicide; active ingredient: tebuconazole; main applications: cereals, soybeans, canola and peanuts
G
Gadovist® Contrast agent for magnetic resonance imaging of the central nervous system that enables the number and location of lesions to be displayed in patients with brain metastases or multiple sclerosis (ms); active ingredient: gadobutrol
Gaucho® Insecticide; active ingredient: imidacloprid; main applications: seed treatment for sugar beet, corn, cereals, cotton and canola
program Commercial paper is a short-term unsecured debt instrument normally issued at a discount and redeemed at nominal value. It is a fl exible way of obtaining short-term funding on the capital markets. Bayer's commercial paper program allows the company to issue commercial paper on both the u.s. and European markets.
Glucobay® Drug product for the treatment of diabetes; active ingredient: acarbose
Gross cash fl ow The gross cash fl ow comprises income from continuing operations after taxes, plus income taxes, plus non-operating result, minus income taxes paid or accrued, plus depreciation, amortization and write-downs, minus write-backs, plus / minus changes in pension provisions,
minus gains / plus losses on retirements of noncurrent assets, plus non-cash effects of the remeasurement of acquired assets. The change in pension provisions includes the elimination of non-cash components of the operating result (ebit). It also contains benefi t payments during the year.
Gross cash fl ow hurdle The gcf hurdle is the gross cash fl ow that must be generated in light of the respective asset situation in order to satisfy investors' return and reproduction requirements.
hdi Hexamethylene diisocyanate, a raw material for polyurethane coatings
H
I
Hybrid bond A hybrid bond is an equity mezzanine corporate bond, usually with either no or very long maturity. Due to its subordination, issuer bankruptcy can lead to a complete fi nancial loss.
Ignite® Herbicide; active ingredient: glufosinate ammonium; main applications: genetically modifi ed crops (cotton, canola, soybeans)
Infi nity® Herbicide; active ingredient: pyrasulfotole; main application: cereals
Input® Fungicide; active ingredients: prothioconazole, spiroxamine; main application: cereals
InVigor® Seed for summer canola
Iopamiron® Non-ionic intravascular contrast agent for all common x-ray analyses
Key performance indicators (kpi) Central indicators used to evaluate the attainment of targets in the company.
Kinzal® Drug product for the treatment of hypertension; active ingredient: telmisartan
K-Othrine® Insecticide; active ingredient: deltamethrin; main applications: insects that transmit malaria, sleeping sickness and Chagas' disease
Kogenate® Drug product for the treatment of hemophilia; active ingredient: recombinant Factor viii
Laudis® Herbicide; active ingredient: tembotrione; main application: corn
Levitra® Drug product for the treatment of erectile dysfunction; active ingredient: vardenafi l
Liberty® Herbicide; active ingredient: glufosinate-ammonium; main applications: genetically modifi ed crops (cotton, canola, soybeans, corn)
LibertyLink® Plant trait: herbicide tolerance; main applications: cotton, canola, soybeans
Life sciences Field of activities comprising particularly health care and nutrition; at Bayer this refers to the activities of the HealthCare and CropScience subgroups.
Luna® Fungicide; active ingredient: fl uopyram; main applications: wine and table grapes, pome and stone fruit, vegetables, arable crops
Magnevist® Contrast agent for diagnosis in the central nervous system and body; active ingredient: dimeglumine gadopentetate
Makroblend® Brand name for polymer blends made from polycarbonate and polybutylene terephthalate or polyethylene terephthalate
Makrofol® Brand name for fi lms made from Makrolon®
Makrolon® Brand name for polycarbonate
mdi Diphenylmethane diisocyanate, an important raw material for polyurethane rigid foam used in thermal insulation
Merit® Insecticide; active ingredient: imidacloprid; main application: broad-spectrum insecticide for non-agricultural grass lawns
Mirena® Intrauterine contraceptive; active ingredient: levonorgestrel
Nativo® Fungicide; active ingredients: tebuconazole and trifl oxystrobin; main applications: soybeans, corn, rice, cereals
NeoBenz® Micro Drug product for the treatment of acne: active ingredient: benzoyl peroxide
Net cash fl ow The net cash fl ow is the cash fl ow from operating activities as defi ned in ias 7.
Nexavar® Drug product to treat kidney and liver cancer; active ingredient: sorafenib
One-A-Day® Multivitamin product
Over the counter (otc)
The trading of securities outside of an organized exchange. otc transactions are still subject to the statutory provisions on securities trading. In the HealthCare business, otc refers to non-prescription medication.
P
Poncho® Insecticide; active ingredient: clothianidin; main applications: seed treatment for corn, canola, sugar beet, cereals
ppa Purchase price allocation
Premise® Insecticide; active ingredient: imidacloprid; main application: termite control
Price / cash fl ow ratio The price/cash fl ow ratio is the ratio of the share price to gross cash fl ow per share. It shows how long it would take for the company's cash fl ow to cover the share price.
Price / eps This is the ratio of the current share price to earnings per share. A high price / eps ratio indicates that the market assigns a high value to the stock in the expectation of future earnings growth.
Pritor® Drug product for the treatment of hypertension; active ingredient: telmisartan
Profender® Dewormer for dogs and cats; active ingredients: emodepsid, praziquantel
Proline® Fungicide; active ingredient: prothioconazole; main applications: cereals, canola
Prosaro® Fungicide; active ingredients: prothioconazole, tebuconazole; main applications: cereals, canola
Proteus® Insecticide: active ingredients: deltamethrin, thiacloprid; main applications; cereals, potatoes, canola
Puma® Herbicide; active ingredient: fenoxaprop-p-ethyl; main applications: cereals, rice, soybeans
Q
Qlaira® Oral contraceptive based on estradiol, the estrogen identical to that produced by the female body; active ingredients: estradiol valerate, dienogest
Raxil® Fungicide; active ingredient: tebuconazole; main applications: seed treatment for wheat and barley
Redoxon® Vitamin product containing vitamin c and zinc
Rely® Herbicide; active ingredient: glufosinate-ammonium; main applications: canola, soybeans, corn, cotton, fruit, nuts
Rennie® Medicine to treat heartburn and acid-related stomach disorders; active ingredients: calcium carbonate and magnesium carbonate
Riociguat Drug product from a new class of vasodilative substances; stimulates the enzyme soluble guanylate cyclase and is currently being tested in a Phase iii program to determine its effi cacy and safety in the treatment of chronic thromboembolic pulmonary hypertension and pulmonary arterial hypertension; active ingredient: soluble guanylate cyclase stimulator
Routine® Fungicide; active ingredient: isotianil; main application: rice
Soberan® Herbicide; active ingredients: tembotrione and isoxadifen; main application: corn
Sphere® Fungicide; active ingredients: trifl oxystrobin and cyproconazole; main applications: soybeans, cereals, sugar beet, coffee
Squeeze-out Transfer of the shares held by minority stockholders in a stock corporation to the majority stockholder in return for a compensation payment. In Germany, a majority stockholder with an interest of 95 percent can request a squeeze-out.
Stratego® Fungicide; active ingredients: trifl oxystrobin, propiconazole; main applications: soybeans, cereals, rice, corn
Supradyn® Vitamin and mineral supplement with trace elements
Credit line agreed with a group of banks. Generally used for extensive fi nancing requirements, such as when making an acquisition, to increase the available liquidity reserves or as security for the issuance of debt instruments. The credit facility can be utilized and repaid fl exibly, either in full or in portions, during its term.
tdi Toluene diisocyanate, an important raw material for polyurethane fl exible foam used in upholstery, mattresses and car seats
Triton® SG Fungicide; active ingredient: triticonazole; main application: golf courses
Ultravist® Contrast agent for x-ray examinations including computed tomography; active ingredient: iopromide
Valette® Plus Oral contraceptive including folate (vitamin b); active ingredients: dienogest, ethinyl estradiol, levomefolate calcium
vegf Trap-Eye vegf (vascular endothelial growth factor) is a natural growth factor that is also involved in the pathological formation of new blood vessels in the eyes, which leads to wet age-related macular degeneration (amd). vegf Trap-Eye specifi cally inhibits this process and other growth factors and is currently undergoing Phase iii clinical testing.
VelocityTM Herbicide; active ingredient: thiencarbazonemethyl; main application: cereals
Votivo® Seed treatment product for biological pest control based on Bacillus fi rmus; main applications: corn, soybeans, cotton
Vulkollan® Brand name for a high-performance polyurethane elastomer
Weighted average cost of capital (wacc) The weighted average cost of capital (wacc) represents the return required by investors on the capital invested in the company. It is computed as a weighted average of the cost of equity and debt. The cost of equity correlates with the return expectations of stockholders while the cost of debt comprises the conditions obtained by the company for its long-term fi nancing.
Wolverine® Herbicide; active ingredient: pyrasulfotole; main application: cereals
World-scale production facility Extremely large production plant whose capacity allows the realization of substantial economies of scale.
X
Xarelto® Direct Factor Xa inhibitor in tablet form. The active ingredient rivaroxaban is used to prevent and treat thrombosis in a wide range of indications and is registered in the European Union and other regions as Xarelto® for the prophylaxis of venous thromboembolism (vte) in adults following elective hip and knee joint replacement surgery.
yaz® / Yasmin® / Yasminelle® Oral contraceptives; active ingredients: ethinyl estradiol and drospirenone
Zetia® Cholesterol-lowering drug from Merck & Co., co-marketed by Bayer in Japan; active ingredient: ezetimib
For explanations of further specialist terminology, go to: www.investor.bayer.com > stock > glossary
Accounting standards 146ff. Acquisition accounting 163 Acquisitions 182 Annual Stockholders' Meeting Back fl ap Asset and fi nancial position 72, 83 Asset structure 81 Associates 205 Audit Committee 11, 90 Audit fees 250 Auditor 13, 250 Auditor's report 254
Bayer Business Services Inside front fl ap, 51
Bayer CropScience Inside front fl ap, 50, 52, 54, 56, 64, 77, 104, 129, 135, 246
Bayer HealthCare Inside front fl ap, 50, 52, 53, 55, 58, 77, 100, 128, 135, 241
Bayer Innovation GmbH 109
Bayer MaterialScience Inside front fl ap, 50, 53, 55, 57, 69, 77, 107, 130, 135, 247
Bayer stock 14ff.
Bayer stock data 14, 17
Bayer stock programs 94ff., 112, 224ff.
Bayer Technology Services Inside front fl ap, 51, 108
Board of Management 8, 88, 251, 258 Bonds 228 Business strategy 128
Capital expenditures 78, 195 Capital structure
81 Cash fl ow 48, 76, 141, 144, 248
Changes in equity 81, 142, 212 Commodity price risks 125, 127 Companies consolidated 169ff. Compensation of the Board of Management 93ff., 251 Compensation of the Supervisory Board 98f., 251 Compliance Offi cers 92
Consolidated fi nancial statements 13, 136 Consolidated statements of cash fl ows 141, 248 Consolidated statements of comprehensive income 139 Consolidation
151
Contact Inside back fl ap Contingencies 240 Core earnings per share
75 Corporate citizen 115 Corporate compliance
92
Corporate governance 88 Corporate Governance Code 11, 88 Corporate social responsibility 115 Corporate structure Inside front fl ap, 50 Critical accounting policies 151 Currency risk 126 Currenta Inside front fl ap, 50, 51, 231
D
Derivatives 157, 238 Distribution 55, 187 Divestitures 185
Dividend 18, 212
E Earnings performance 46, 72, 83 Earnings per share 17, 193 Economic outlook 133 Employees
110, 188 Environmental protection 113, 116 Equity 210 Events after the reporting period
117 Exchange rate risk 126 Exchange rates 151
Fair value 239 Financial calendar Back fl ap Financial instruments 231ff. Financial liabilities 162, 227 Financial position 72, 83 Financial risks 124 Financial strategy 132
Five-year fi nancial summary Inside back fl ap
Future perspectives 118
Glossary 263
Goodwill 154, 195
Governance bodies 256
Gross cash fl ow 48, 76, 141, 144, 248
Group structure Inside front fl ap, 50
Hedge accounting 124, 126, 127, 151, 231 Highlights
38
Human Resources Committee 11, 90
Impairment 75, 164 Impairment testing 164 Income attributable to non-controlling interest 193 Income from investments in affi liated companies 189 Income statements (Bayer AG) 83 Income statements (Bayer Group) 138, 186 Income taxes 72, 190 Indices 18, 270 Innovation and growth Front fl ap Intangible assets 154, 195, 198 Interest expense 189 Interest rate risk 126 Inventories
158, 207 Investor relations 19
Key data by segment and region 59ff., 144, 145 Key data by subgroup
Inside front fl ap, 51, 58
Key performance indicators 113
Lanxess 247 Leasing 155, 206, 230 Legal risks 120, 241 List of tables and graphics 260
Management report 44 Management's statement of responsibility for fi nancial reporting 252 Mission statement 100, 109
Net cash fl ow 48, 141, 248 Net debt 48, 80 Net income Inside front fl ap, 48, 49, 138 Nominations Committee 11, 90 Non-operating result 73, 189 Notes to the consolidated fi nancial statements 144
O Operating environment 52 Opportunities 118, 120 Organization chart 259 Other fi nancial assets 206 Other fi nancial commitments 240 Other non-operating income and expense 190 Other operating expenses 187 Other operating income 152, 187 Other receivables 163, 209
P Performance by subgroup, segment and region 59 Personnel expenses 110, 188 Presidial Committee 11, 90 Procurement 53 Procurement market risk 122 Production 53 Property, plant and equipment 154, 202 Proposal for distribution of the profi t 84 Provisions 160ff., 222 Provisions for pensions and
other post-employment benefi ts 159f., 213
R&D expenses 100, 153 Recognition and valuation principles 146, 151 Regions 72 Research and development 100 Responsibility statement 253 Responsible Care 270 Restructuring charges 161, 223 Risk management 118 Risk report 118
Salaries (see Compensation) Sales 46, 152, 186 Scope of consolidation 169 Segment reporting 51, 72, 165 Segments 144, 145, 166 Statement of fi nancial position 46, 72, 84 Strategy 128 Supervisory Board 10, 90, 251, 256 Sustainability 109 Sustainable development 270 Sustainable investment 18
Taxes 158, 190, 222 Trade accounts payable 230 Trade accounts receivable 208
U UNEP 270
V Value management 77
Sustainability at Bayer is an integral part of a corporate policy geared to long-term success and high-quality solutions. This commitment is also evidenced by the company's participation in numerous initiatives and projects around the world. Logos relating to a selection of these activities appear in the left margin in the order in which the respective activities are described below.
Bayer has long practiced the concept of Responsible Care. Since 1994 the company has actively supported the voluntary Responsible Care initiative of the chemical and pharmaceutical industry, including the Global Charter revised in 2006, striving for continuous improvement in the areas of health, safety and environment.
A member of the World Business Council for Sustainable Development since 1997, Bayer was a co-founder of German industry's sustainable development forum "econsense" in 2000.
Bayer is a founding member of the Global Compact initiative of the United Nations, actively promoting its principles through its support for the "Caring for Climate" and "ceo Water Mandate" initiatives and numerous projects. In Brazil, for example, Bayer supports the Abrinq Foundation in its efforts to combat child labor, and in India the company participates in the "Learning for Life" initiative for the protection and advancement of children during their education.
Bayer's partnership with the United Nations Environment Programme (unep) has set new standards in public-private partnerships. Among the long-standing joint activities is the "Bayer Young Environmental Envoy" program, in which young people from 19 countries on four continents take part.
The company places maximum importance on climate protection, and in 2009 joined the unep Climate Neutral Network, which promotes low-co2-emission industrial and social structures. Bayer was also included again in 2009 in the Carbon Disclosure Leadership Index published by the Carbon Disclosure Project, run on behalf of institutional investors and other organizations. To help reduce greenhouse gas emissions from relevant buildings worldwide, Bayer is also supporting the Sustainable Buildings and Climate Initiative of the u.n. Environment Programme (unep sbci) as part of its EcoCommercial Building program.
For more than 50 years, Bayer has supported family programs in over 130 countries, focusing on cooperation with private and public relief organizations such as the United Nations Population Fund (unfpa). In the fight against tuberculosis, Bayer is cooperating with the Global Alliance for tb Drug Development, a u.s. non-profit organization, with the aim of developing a new drug that reduces treatment times.
Bayer set up the Global Exploration Fund together with National Geographic, the world's largest non-profit scientific organization.
Bayer is represented in major sustainability indices and investment funds that focus on companies pursuing responsible and sustainable corporate strategies. For example, Bayer is listed in the Dow Jones Sustainability Index World, the ftse4Good index series and the Advanced Sustainable Performance Indices (aspi) Eurozone. It also qualified for inclusion in the Storebrand sri Funds as a "Best in Class" company.
Our sustainability reporting is based on the guidelines of the Global Reporting Initiative, which Bayer supports as an organizational stakeholder.
Bayer AG defines common values, goals and strategies for the entire Group. The subgroups and service companies operate independently, led by the management holding company. The Corporate Center supports the Group Management Board in its task of strategic leadership.
Bayer HealthCare is among the world's foremost innovators in the field of pharmaceutical and medical products. This subgroup's mission is to research, develop, manufacture and market innovative products that improve the health of people and animals throughout the world. Read more on page 58.
Bayer CropScience, with its highly effective products, pioneering innovations and keen customer focus, holds global leadership positions in crop protection and non-agricultural pest control. The company also has major activities in seeds and plant traits. Read more on page 64.
Bayer MaterialScience is a renowned supplier of high-tech polymers and develops innovative solutions for a broad range of applications relevant to everyday life. Products holding leading positions on the world market account for a large proportion of its sales. Read more on page 69.
Bayer Business Services is the Bayer Group's international competence center for it-based services. The focus of this company's offering is on integrated services in the core areas of it infrastructure and applications, procurement and logistics, human resources and management services, and finance and accounting.
Bayer Technology Services, the global technological backbone and a major innovation driver of the Bayer Group, is engaged in process development and in process and plant engineering, construction and optimization.
Currenta offers services for the chemical industry including utility supply, waste management, infrastructure, safety, security, analytics and vocational training.
In North America (United States and Canada), Bayer is represented in all strategic business areas. In 2009 Bayer's 16,300 employees in this region generated sales of €7.7 billion, which was 24.7% of the Group total.
In 2009 Bayer achieved sales of €13.0 billion on the European market, which accounted for 41.6% of the Group total. Numerous major production facilities and 54,500 employees (of whom 36,700 are based in Germany) give the company a strong presence in this region.
Bayer has been present in Latin America for more than 110 years. In 2009 the company's 16,000 employees in the Latin America/Africa/Middle East region generated €4.8 billion in sales – 15.4% of the Group total.
With its tremendous growth potential, this economic region is one of the most important markets of the future. In 2009 Bayer generated €5.7 billion in sales here – 18.3% of the Group total – with 21,600 employees.
| [Table 1.2] | |||||
|---|---|---|---|---|---|
| Bayer Group | 2005 | 2006 | 2007 | 2008 | 2009 |
| € million | € million | € million | € million | € million | |
| Sales | 24,701 | 28,956 | 32,385 | 32,918 | 31,168 |
| Sales outside Germany | 84.4% | 84.4% | 85.1% | 85.4% | 86.7% |
| EBIT* | 2,514 | 2,762 | 3,154 | 3,544 | 3,006 |
| EBIT before special items * | 3,047 | 3,479 | 4,287 | 4,342 | 3,772 |
| EBITDA* | 4,122 | 4,675 | 5,866 | 6,266 | 5,815 |
| EBITDA before special items * | 4,602 | 5,584 | 6,777 | 6,931 | 6,472 |
| Income before income taxes | 1,912 | 1,980 | 2,234 | 2,356 | 1,870 |
| Income after taxes | 1,595 | 1,695 | 4,716 | 1,724 | 1,359 |
| Noncurrent assets | 20,130 | 35,897 | 34,712 | 35,351 | 34,049 |
| of which goodwill and other intangible assets |
7,688 | 24,034 | 22,770 | 22,598 | 21,546 |
| of which property, plant and equipment | 8,321 | 8,867 | 8,819 | 9,492 | 9,409 |
| Current assets | 16,592 | 17,069 | 16,582 | 17,152 | 16,993 |
| Inventories | 5,504 | 6,153 | 6,217 | 6,681 | 6,091 |
| Receivables and other current assets | 7,798 | 8,001 | 7,834 | 8,377 | 8,177 |
| Cash and cash equivalents | 3,290 | 2,915 | 2,531 | 2,094 | 2,725 |
| Financial liablities | 8,952 | 19,801 | 14,417 | 16,870 | 12,949 |
| Noncurrent | 7,185 | 14,723 | 13,081 | 10,614 | 11,460 |
| Current | 1,767 | 5,078 | 1,336 | 6,256 | 1,489 |
| Interest expense – net | (338) | (728) | (701) | (702) | (548) |
| Return on equity | 14.4% | 14.1% | 31.8% | 10.4% | 7.7% |
| Gross cash flow** | 3,114 | 3,913 | 4,784 | 5,295 | 4,658 |
| Capital expenditures (total) | 1,400 | 1,939 | 1,905 | 1,982 | 1,669 |
| Depreciation and amortization | 1,758 | 2,086 | 2,478 | 2,570 | 2,660 |
| Personnel expenses | |||||
| (including pension expenses) | 5,318 | 6,630 | 7,571 | 7,491 | 7,776 |
| Number of employees *** (Dec. 31) | 82,600 | 106,000 | 106,200 | 108,600 | 108,400 |
| Research and development expenses | 1,729 | 2,297 | 2,578 | 2,653 | 2,746 |
| Equity including | |||||
| non-controlling interest (total) | 11,157 | 12,851 | 16,821 | 16,340 | 18,951 |
| Capital stock | 1,870 | 1,957 | 1,957 | 1,957 | 2,117 |
| Reserves | 9,287 | 10,894 | 14,864 | 14,383 | 16,834 |
| Net income | 1,597 | 1,683 | 4,711 | 1,719 | 1,359 |
| Non-controlling interest | 80 | 84 | 87 | 77 | 54 |
| Liabilities (total) | 25,565 | 43,040 | 34,557 | 36,171 | 32,091 |
| Total assets | 36,722 | 55,891 | 51,378 | 52,511 | 51,042 |
| Equity ratio | 30.4% | 23.0% | 32.7% | 31.1% | 37.1% |
| Bayer AG | |||||
| Net income | 613 | 1,250 | 1,928 | 1,161 | 2,226 |
| Allocation to (from) retained earnings | (81) | 486 | 896 | 91 | 1,068 |
| Total dividend payment | 694 | 764 | 1,032 | 1,070 | 1,158 |
| Dividend per share (€) | 0.95 | 1.00 | 1.35 | 1.40 | 1.40 |
figures for 2005-2008 as reported
* for definition see chapter 4.2 "Calculation of EBIT(DA) Before Special Items," page 74
** for definition see chapter 4.5 "Liquidity and Capital Expenditures of the Bayer Group," page 78ff.
*** full-time equivalents
| 2009 Annual Report | february 26, 2010 |
|---|---|
| q1 2010 Interim Report | april 29, 2010 |
| Annual Stockholders' Meeting 2010 | april 30, 2010 |
| Payment of Dividend | may 3, 2010 |
| q2 2010 Interim Report | july 29, 2010 |
| q3 2010 Interim Report | october 28, 2010 |
| Annual Stockholders' Meeting 2011 | april 29, 2011 |
| Payment of Dividend | may 2, 2011 |
Bayer AG, 51368 Leverkusen, Germany
Jörg Schäfer, phone +49 214 30 39136 email: [email protected]
Currenta GmbH & Co. OHG Language Service
Peter Dahlhoff, Tel. +49 214 30 33022 email: [email protected]
Date of publication Friday, February 26, 2010
Bayer on the Internet www.bayer.com
issn 0343/1975
This Annual Report contains forward-looking statements based on current assumptions and forecasts made by Bayer Group or subgroup management. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual financial position, development or performance of the company and the estimates given here. These factors include those discussed in Bayer's public reports, which are available on the Bayer website at www.bayer.com. The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.
Important Information:
The names "Bayer Schering Pharma" or "Schering" as used in this publication always refer to Bayer Schering Pharma AG, Berlin, Germany, or its predecessor, Schering AG, Berlin, Germany, respectively.
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