26. Other provisions

26.1 Taxes

26.2 Environmental protection

26.3 Restructuring

26.4 Trade-related commitments

26.5 Litigations

26.6 Personnel commitments

26.7 Miscellaneous

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 financial position as of December 31, 2009 are as follows:

Expected Utilization of Other Provisions							[Table 4.78]
	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.

26.1 Taxes

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 financial position as income tax liabilities.

26.2 Environmental protection

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

26.3 Restructuring

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 field 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 write-downs 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 efficiency 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 efficiency. In the United States and the United Kingdom 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 efficiency 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, significant improvements in the efficiency 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 workflows 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.

26.4 Trade-related commitments

Provisions for trade-related commitments comprise 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 are described in Note [32].

26.6 Personnel commitments

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 reflected 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 stock-based 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 first 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 financial 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.

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

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

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

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 specific 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 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 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.

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

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.

BayShare 2009

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 fixed amount they wished to invest in shares instead of subscribing for a fixed 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.

Stock-based compensation programs 2000 – 2004

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 financial position at fair value through profit 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

Stock Option Program

The stock option programs offered to members of the Board of Management and other senior executives up to 2004 ran for five-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.

Stock Incentive Program

Participants in this program receive a cash payment equivalent to a defined 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 fiscal year.

Stock Participation Program (until 2004)

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.

26.7 Miscellaneous

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.

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