26. Other Provisions

Changes in the various provision categories in 2015 were as follows:

Changes in Other Provisions

 

 

Other Taxes

 

Environ­mental protection

 

Restruc­turing

 

Trade-related commit­ments

 

Litigations

 

Personnel commit­ments

 

Miscella­neous

 

Total

 

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

2014 figures restated

December 31, 2014

 

65

 

283

 

173

 

1,851

 

770

 

2,751

 

230

 

6,123

Acquisitions / divestments

 

 

 

 

48

 

26

 

 

2

 

76

Additions

 

37

 

51

 

290

 

4,297

 

97

 

2,836

 

292

 

7,900

Utilization

 

(21)

 

(64)

 

(131)

 

(3,569)

 

(269)

 

(2,283)

 

(175)

 

(6,512)

Reversal

 

(5)

 

(4)

 

(20)

 

(509)

 

(19)

 

(281)

 

(71)

 

(909)

Reclassification to current liabilities

 

 

 

 

(76)

 

 

 

(5)

 

(81)

Interest cost

 

 

(1)

 

 

 

 

11

 

1

 

11

Exchange differences

 

(11)

 

7

 

(6)

 

71

 

58

 

65

 

(7)

 

177

December 31, 2015

 

65

 

272

 

306

 

2,113

 

663

 

3,099

 

267

 

6,785

The provisions recognized in the statement of financial position as of December 31, 2015 were expected to be utilized as follows:

Expected Utilization of Other Provisions

 

 

Other Taxes

 

Environ­mental protection

 

Restruc­turing

 

Trade-related commit­ments

 

Litigations

 

Personnel commit­ments

 

Miscella­neous

 

Total

 

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

2016

 

28

 

31

 

102

 

2,006

 

539

 

2,123

 

216

 

5,045

2017

 

1

 

29

 

73

 

46

 

50

 

230

 

5

 

434

2018

 

 

27

 

78

 

33

 

5

 

152

 

1

 

296

2019

 

 

16

 

6

 

7

 

1

 

146

 

1

 

177

2020

 

1

 

4

 

5

 

6

 

3

 

55

 

1

 

75

2021 or later

 

35

 

165

 

42

 

15

 

65

 

393

 

43

 

758

Total

 

65

 

272

 

306

 

2,113

 

663

 

3,099

 

267

 

6,785

The provisions were partly offset by claims for refunds in the amount of €97 million (2014: €124 million), which were recognized as receivables. These claims mainly related to product liability.

26.1 Other taxes

Provisions for other taxes mainly related to sales tax back-payments and to local taxes in Brazil.

26.2 Environmental protection

Provisions for environmental protection mainly related to the rehabilitation of contaminated land, recultivation of landfills, and redevelopment and water protection measures.

26.3 Restructuring

Provisions for restructuring included €180 million (2014: €126 million) for severance payments and €126 million (2014: €47 million) for other restructuring expenses, which mainly comprised other costs related to the closure of production facilities.

At HealthCare – as part of the Continuous Efficiency Program – restructuring was carried out mainly in the areas of marketing and supply network optimization. A further focus was on the continuing integration of the businesses acquired the previous year in the Consumer Health segment. Provisions for the above and other restructuring measures at HealthCare as of December 31, 2015, amounted to €94 million. Of this amount, severance payments accounted for €83 million and other restructuring expenses for €11 million.

In CropScience, the restructuring initiated in the United States in prior years, involving the closure of several carbamate production facilities and a formulation plant, continued in 2015. At the same time, the provisions were increased in view of expected future requirements. Provisions for the above and other restructuring measures at CropScience as of December 31, 2015, amounted to €99 million, comprising €34 million for severance payments and €65 million for other restructuring expenses.

Restructuring measures at Covestro mainly comprised the closure of the production facilities at Belford Roxo, Brazil, and an MDI facility at the site in Tarragona, Spain. Both of these plant closures mainly related to the Polyurethanes business unit. Provisions for restructuring at Covestro as of December 31, 2015, amounted to €105 million, consisting of €55 million for severance payments and €50 million for other restructuring expenses.

Restructuring was carried out in the central functions to increase efficiency. The restructuring provisions associated with these measures as of December 31, 2015, amounted to €8 million and pertained entirely to severance payments.

26.4 Trade-related commitments

Provisions for trade-related commitments comprised provisions for rebates, discounts and other price adjustments, product returns, outstanding invoices, pending losses and onerous contracts.

26.5 Litigations

The legal risks currently considered to be material, and their development, are described in Note [32].

26.6 Personnel commitments

Provisions for personnel commitments mainly include those for variable one-time payments under Short Term Incentive program (STI program) is a variable income component for all managerial staff. and for stock-based compensation. Also reflected here are commitments for service awards, early retirements and pre-retirement part-time working arrangements. Provisions for severance payments resulting from restructuring are reflected in provisions for restructuring.

Stock-based compensation programs

Bayer offers stock-based compensation programs collectively to different groups of employees. As required by IFRS 2 (Share-based Payment) for compensation systems involving cash settlement, awards to be made under the stock-based programs are covered by provisions in the amount of the fair value of the obligations existing as of the date of the financial statements vis-à-vis the respective employee group. All resulting valuation adjustments are recognized in profit or loss.

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

Changes in Provisions for Stock-Based Compensation Programs

 

 

Aspire I Four-Year Program

 

Aspire II Four-Year Program

 

Aspire I Four-Year Program Covestro

 

Aspire II Four-Year Program Covestro

 

Total

 

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

December 31, 2014

 

142

 

311

 

0

 

0

 

453

Additions

 

81

 

229

 

2

 

5

 

317

Utilization

 

(57)

 

(106)

 

 

 

(163)

Reversal

 

(24)

 

(59)

 

 

 

(83)

Reallocation

 

(20)

 

(54)

 

20

 

54

 

Exchange differences

 

3

 

18

 

 

 

21

December 31, 2015

 

125

 

339

 

22

 

59

 

545

The value of the Aspire tranches that were fully earned at the end of 2015, resulting in payments at the beginning of 2016, was €230 million (2014: €151 million).

The net expense for all stock-based compensation programs in 2015 was €248 million (2014: €212 million), including €6 million (2014: €5 million) for the BayShare stock participation program and €8 million (2014: €10 million) for grants of virtual Bayer shares.

The fair value of obligations under the standard stock-based compensation programs was calculated using the Monte Carlo simulation method based on the following key parameters:

Parameters for Monte Carlo Simulation

 

 

2014

 

2015

Dividend yield

 

1.89%

 

1.96%

Risk-free interest rate for the four-year program

 

(0.079)%

 

(0.159)%

Volatility of Bayer stock

 

23.39%

 

25.61%

Volatility of the EURO STOXX 50

 

18.11%

 

19.08%

Correlation between Bayer stock price and the EURO STOXX 50

 

0.76

 

0.83

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

Since 2005, members of the Board of Management and other senior executives have been entitled to participate in Aspire I on the condition that they purchase a certain number of Bayer shares – determined for each individual according to specific guidelines – and retain them for the full term of the program. A percentage of the executive’s annual base salary – according to his / her position – is defined as a target for variable payments (Aspire target opportunity). Depending on the performance of Bayer stock, both in absolute terms and relative to the EURO STOXX 50 benchmark index during a four-year performance period, participants are granted an award of up to 300% of their individual Aspire target opportunity. The start and end prices used to determine the amount of the award are the averages of the official closing prices of Bayer shares over the last 30 stock-exchange trading days of the respective year. The four-year tranche issued in 2011 expired at the end of 2014, and payment of the maximum resulting amount (300%) was made at the beginning of 2015.

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

Also since 2005, other senior managers and middle managers have been offered Aspire II, which is similar to Aspire I but does not require a personal investment in Bayer shares. This program was extended to further managerial employees in 2012. The amount of the award is based entirely on the absolute performance of Bayer stock over a four-year period. The maximum award is 250% of each manager’s Aspire target opportunity. The start and end prices used to determine the amount of the award are the averages of the official closing prices of Bayer shares over the last 30 stock-exchange trading days of the respective year. The four-year tranche issued in 2011 expired at the end of 2014, and payment of the maximum resulting amount (250%) was made at the beginning of 2015.

Bayshare 2015

All management levels and nonmanagerial employees are offered an annual stock participation program known as BayShare, under which Bayer subsidizes their personal investments in the company’s stock. The discount under this program is set separately each year. In 2015 it was 20% (2014: 20%) of the subscription amount. Employees stated a fixed amount that they wished to invest in shares. The maximum subscription amount in Germany was set at €2,500 (2014: €2,500) or €5,000 (2014: €5,000), depending on the employee’s position. The shares thus acquired must be retained until December 31 of the year following the year of purchase, irrespective of continued employment with the Bayer Group.

In 2015, employees purchased a total of about 208,000 shares (2014: 225,000 shares) under the BayShare program.

Special arrangement for Covestro employees concerning the Aspire programs

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

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

Valuation for the other three current Aspire tranches issued in 2013, 2014 and 2015, respectively, was based on the average price of Bayer shares on the last 30 trading days of 2015 (€119.17). This price was fixed in advance as the end price. Thus the amounts of the payments from the three remaining tranches – where these were fully vested – were already finally determined at the end of 2015. A payment of at least 100% is guaranteed. This plan amendment gave rise to additional expenses of €7 million in 2015.

26.7 Miscellaneous provisions

Miscellaneous provisions included those for other liabilities, contingent liabilities from business combinations, and asset retirement obligations (other than those included in provisions for environmental protection).