Financial Statements

3. Effects of New Financial Reporting Standards

Financial reporting standards applied for the first time in 2013

The first-time application of the following financial reporting standards was of material importance. The prior-year ­figures have been restated accordingly.

IAS 19 (Employee Benefits) as revised in 2011, referred to in the following as IAS 19R (IAS 19 revised), contains ­amended accounting rules for defined benefit pension plans and severance agreements. Contrary to the previous rule, IAS 19R requires that past service cost be recognized immediately in profit or loss. In addition, the net interest cost calculated on the net pension liability by applying a discount rate for high-quality corporate bonds is now ­recognized in profit or loss. Remeasurement amounts resulting from actuarial gains and losses, the balance of the ­return on plan ­assets and amounts already recognized as net interest income, and the effect of the asset ceiling are recognized outside profit or loss in the statement of comprehensive income. Net interest expense continues to be ­recognized in the financial result.

IAS 19R further specifies that severance payments to be earned in future periods must be recognized in profit or loss over the respective period of service. This revision led to a change in the accounting for top-up payments to employees under pre-retirement part-time working agreements in Germany. In the past, provisions were established at the time the offer of a pre-retirement part-time working agreement was made or the agreement was concluded, even when ­service remained to be provided by the employee in the future.

In view of the clarifying information contained in IAS 19R, “other post-employment benefit obligations” in Germany (particularly from pre- and early retirement obligations) were reclassified from provisions for pensions and other post-employment benefits to other provisions for personnel commitments.

IFRS 11 (Joint Arrangements) prescribes the accounting for joint arrangements and supersedes IAS 31 (Interests in Joint Ventures) and SIC-13 (Jointly Controlled Entities – Non-Monetary Contributions by Venturers). A joint arrangement is deemed to exist if the Bayer Group through a contractual agreement jointly controls activities managed with a third party. Joint control is only deemed to exist if decisions regarding the relevant activities require the unanimous consent of the parties sharing control. Joint arrangements are classified as either joint operations or joint ventures. The Bayer Group recognizes the share of assets, liabilities, revenues and expenses relating to its interest in a joint operation in ­accordance with its rights and obligations. The investment in a joint venture is accounted for using the equity method in accordance with the provisions of the amended IAS 28 (Investments in Associates and Joint Ventures). The application of IFRS 11 (Joint Arrangements) and IAS 28 (Investments in Associates and Joint Ventures) is mandatory in the E.U. for annual periods beginning on or after January 1, 2014. Earlier application is permitted. The Bayer Group has applied these standards retrospectively since January 1, 2013 in compliance with the transitional provisions.

Due to the first-time application of IFRS 11, Lyondell Bayer Manufacturing Maasvlakte VOF, Netherlands – which was previously accounted for using the equity method – is now accounted for as a joint operation and therefore the share of the Bayer Group in the assets, liabilities, revenues and expenses is included in the consolidated financial statements in accordance with the Bayer Group’s rights and obligations. The €15 million difference, arising from the reclassification, between the previous carrying amount according to the equity method and the pro-rated net assets was reflected as a reduction in other reserves.

Pursuant to IFRS 11, the joint ventures Bayer IMSA, S.A. de C.V., Mexico, and Bayer Zydus Pharma Private Limited, ­India, which were previously included by proportionate consolidation, are now accounted for using the equity method.

The interest in Baulé S.A.S., France, was accounted for retrospectively for the first quarter of 2012 using the equity method. Prior to the application of IFRS 11 it was included by proportionate consolidation. The remaining shares of Baulé were acquired effective March 31, 2012, and the company has been fully consolidated since that date.

The effects that the new financial reporting standards applied for the first time in 2013 would have had on the relevant figures for the prior-year period or the respective opening/closing dates are shown in the following tables.

Accounting Changes: Consolidated Income Statement 2012[Table 4.8]
2012
Before accounting changes Accounting changes After accounting changes
IAS 19R (2011) IFRS 11
Transition to accounting for share in assets and liabilities Transition to equity method
€ million € million € million € million € million
Net sales 39,760 (8) (11) 39,741
Cost of goods sold (19,059) (16) 5 (19,070)
Gross profit 20,701 (24) (6) 20,671
Selling expenses (9,987) 6 (9,981)
Other operating income 1,083 5 (1) 1,087
Other operating expenses (2,958) (8) (3) (1) (2,970)
EBIT* 3,960 (3) (27) (2) 3,928
Equity-method loss (46) 29 (1) (18)
Financial income 502 1 503
Financial expenses (1,168) (70) 1 (1,237)
Financial result (712) (70) 29 1 (752)
Income before income taxes 3,248 (73) 2 (1) 3,176
Income taxes (752) 29 (723)
Income after income taxes 2,496 (44) 2 (1) 2,453
of which attributable to Bayer AG stockholders (net income) 2,446 (44) 2 (1) 2,403
Earnings per share (€) 2.96 (0.05) 2.91
* EBIT: earnings before financial result and taxes
Accounting Changes: Consolidated Statement of Comprehensive Income 2012[Table 4.9]
2012
Before accounting changes Accounting changes After accounting changes
IAS 19R(2011) IFRS 11
Transition to accounting for share in assets and liabilities Transition to equity method
€ million € million € million € million € million
Income after income taxes 2,496 (44) 2 (1) 2,453
of which attributable to Bayer AG stockholders 2,446 (44) 2 (1) 2,403
Remeasurements of the net defined benefit liability for post-employment benefit plans (2,849) 70 (2,779)
Income taxes 876 (28) 848
Other comprehensive income from remeasurements of the net defined benefit liability for post-employment benefit plans (1,973) 42 (1,931)
Other comprehensive income that will not be reclassified subsequently to profit or loss (1,973) 42 (1,931)
Changes in exchange differences recognized on translation of operations outside the eurozone (16) (1) (17)
Other comprehensive income from exchange differences (16) (1) (17)
Other comprehensive income that may be reclassified subsequently to profit or loss 135 (1) 134
Total other comprehensive income* (1,833) 42 (1) (1,792)
of which attributable to Bayer AG stockholders (1,829) 42 (1) (1,788)
Total comprehensive income 663 (2) 2 (2) 661
of which attributable to Bayer AG stockholders 617 (2) 2 (2) 615
* total changes recognized outside profit or loss
Accounting Changes: Consolidated Statement of Financial Position as of January 1, 2012[Table 4.10]
Jan. 1, 2012
Before accounting changes Accounting changes After accounting changes
IAS 19R (2011) IFRS 11
Transition to accounting for share in assets and liabilities Transition to equity method
€ million € million € million € million € million
Noncurrent assets
Goodwill 9,160 (12) 9,148
Other intangible assets 10,295 (11) 10,284
Property, plant and equipment 9,823 66 (2) 9,887
Investments accounted for using the equity method 319 (89) 35 265
Other financial assets 1,364 (17) 1 1,348
Deferred taxes 1,311 1 1,312
32,697 1 (40) 11 32,669
Current assets
Inventories 6,368 9 (7) 6,370
Trade accounts receivable 7,061 (1) 7,060
Other receivables 1,628 6 2 1,636
Claims for income tax refunds 373 (1) 372
Cash and cash equivalents 1,770 4 (3) 1,771
20,068 19 (10) 20,077
Total assets 52,765 1 (21) 1 52,746
Equity
Other reserves 10,928 3 (23) 4 10,912
Equity attributable to Bayer AG stockholders 19,212 3 (23) 4 19,196
19,271 3 (23) 4 19,255
Noncurrent liabilities
Provisions for pensions and other post-employment benefits 7,870 (83) 7,787
Other provisions 1,649 78 (1) 1,726
Deferred taxes 2,116 3 (3) 2,116
20,104 (2) (3) (1) 20,098
Current liabilities
Other provisions 4,218 (1) 4,217
Financial liabilities 3,684 (1) 3,683
Trade accounts payable 3,779 7 (1) 3,785
Other liabilities 1,630 (2) 1 1,629
13,390 5 (2) 13,393
Total equity and liabilities 52,765 1 (21) 1 52,746
Accounting Changes: Consolidated Statement of Financial Position as of December 31, 2012[Table 4.11]
Dec. 31, 2012
Before accounting changes Accounting changes After accounting changes
IAS 19R (2011) IFRS 11
Transition to accounting for share in assets and liabilities Transition to equity method
€ million € million € million € million € million
Noncurrent assets
Property, plant and equipment 9,863 37 (2) 9,898
Investments accounted for using the equity method 284 (63) 4 225
Other financial assets 1,324 (17) 1 1,308
Deferred taxes 1,581 (1) (1) 1,579
32,350 (1) (43) 2 32,308
Current assets
Inventories 6,980 14 (3) 6,991
Trade accounts receivable 7,431 2 7,433
Other financial assets 856 1 857
Other receivables 1,648 8 (1) 1,655
Cash and cash equivalents 1,695 5 (2) 1,698
18,986 27 (3) 19,010
Total assets 51,336 (1) (16) (1) 51,318
Equity
Other reserves 10,185 1 (21) 2 10,167
Equity attributable to Bayer AG stockholders 18,469 1 (21) 2 18,451
18,569 1 (21) 2 18,551
Noncurrent liabilities
Provisions for pensions and other post-employment benefits 9,373 (127) 9,246
Other provisions 1,986 125 2,111
Deferred taxes 938 (3) 935
19,668 (2) (3) 19,663
Current liabilities
Financial liabilities 2,570 (2) 2,568
Trade accounts payable 4,295 11 (1) 4,305
Other liabilities 1,318 (3) 1,315
13,099 8 (3) 13,104
Total equity and liabilities 51,336 (1) (16) (1) 51,318
Accounting Changes: Consolidated Statement of Cash Flows 2012[Table 4.12]
2012
Before accounting changes Accounting changes After accounting changes
IAS 19R (2011) IFRS 11
Transition to accounting for share in assets and liabilities Transition to equity method
€ million € million € million € million € million
Income after income taxes 2,496 (44) 2 (1) 2,453
Income taxes 752 (29) 723
Financial result 712 70 (29) (1) 752
Depreciation, amortization and impairments 2,960 28 2,988
Change in pension provisions (542) (39) (581)
Gross cash flow 4,599 (42) 1 (2) 4,556
Decrease (increase) in inventories (674) (5) (1) (680)
Decrease (increase) in trade accounts receivable (452) (3) (455)
(Decrease) increase in trade accounts payable 539 4 7 550
Changes in other working capital, other non-cash items 520 42 (4) 1 559
Net cash provided by (used in) operating activities (net cash flow) 4,532 (4) 2 4,530
Cash outflows for additions to property, plant, equipment and intangible assets (1,929) (1) 1 (1,929)
Cash inflows from sales of property, plant, equipment and other assets 227 3 230
Cash inflows from (outflows for) noncurrent financial assets (261) 3 (258)
Cash inflows from (outflows for) current financial assets 1,329 (1) (1) 1,327
Net cash provided by (used in) investing activities (818) 4 (814)
Issuances of debt 1,309 (1) 1,308
Net cash provided by (used in) financing activities (3,782) (1) (3,783)
Change in cash and cash equivalents due to business activities (68) 1 (67)
Cash and cash equivalents at beginning of year 1,770 4 (3) 1,771
Change in cash and cash equivalents due to exchange rate movements (7) 1 (6)
Cash and cash equivalents at end of year 1,695 5 (2) 1,698

The following new standards had no impact, or no material impact, on the presentation of the Group financial position or results of operations, or on earnings per share:

IFRS 10 (Consolidated Financial Statements) sets forth the requirements for the preparation and presentation of con­solidated financial statements and supersedes IAS 27 (Consolidated and Separate Financial Statements) and SIC-12 (Consolidation – Special Purpose Entities). The standard defines a uniformly applicable control concept for all company forms to serve as the basis for determining which companies are to be fully consolidated. Control is only deemed to ­exist if Bayer AG is exposed, or has rights, to variable returns from its involvement with a company and has the ability to use its power over that company to affect the amount of that company’s returns. IFRS 10 was applied for the first time retrospectively in compliance with the transitional provisions.

IFRS 12 (Disclosure of Interests in Other Entities) prescribes the information to be disclosed in the notes to the financial statements about interests in subsidiaries, associates, joint arrangements and structured entities.

The revised IAS 27 (Separate Financial Statements) is now devoted entirely to accounting for interests in subsidiaries, ­associates and joint ventures in IFRS separate financial statements.

The application of IFRS 10 (Consolidated Financial Statements), IFRS 12 (Disclosure of Interests in Other Entities) and the amendments to IAS 27 (Separate Financial Statements) is mandatory in the E.U. for annual periods beginning on or after January 1, 2014. Earlier application is permitted. The Bayer Group has applied these standards since ­January 1, 2013.

IFRS 13 (Fair Value Measurement) provides a uniform definition of fair value and how it is measured. Fair value is now defined as the price that would be received to sell an asset or paid to transfer a liability. IFRS 13 also requires specific notes to the consolidated financial statements for assets and liabilities measured at fair value. IFRS 13 was applied for the first time prospectively.

The publication of IFRS 13 (Fair Value Measurement) in May 2011 also entailed consequential amendments to the ­disclosure requirements in IAS 36 (Impairment of Assets). It became necessary to disclose the recoverable amount of the cash-generating unit in every reporting period, whether or not an impairment loss was recognized or reversed in the period. In May 2013, the IASB amended IAS 36 by issuing “Recoverable Amount Disclosures for Non-Financial Assets” to modify this unintentionally broad disclosure requirement. The recoverable amount of a cash-generating unit now only has to be disclosed for periods in which an impairment loss has been recognized or reversed. Additional ­disclosures are required when an impairment loss is recognized or ­reversed and the recoverable amount is based on fair value less costs of disposal. The amendments are to be applied for annual periods beginning on or after January 1, 2014. However, earlier application is permitted where IFRS 13 is ­already applied. The Bayer Group made use of the early application provision.

In compliance with the amendment “Presentation of Items of Other Comprehensive Income” to IAS 1 (Presentation of Financial Statements), published in June 2011, the items of other comprehensive income are for the first time reported separately in the statement of comprehensive income according to whether or not they may subsequently become ­reclassifiable to profit or loss.

The amendment “Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities” to IFRS 7, ­issued in December 2011, requires gross and net offsetting amounts reflected in the statement of financial position – along with other existing rights of set-off that do not meet the requirements for set-off in the statement of financial ­position – to be presented in tabular form, unless a different form of presentation is more appropriate.

In May 2012, the IASB published its fourth set of “Annual 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.

In June 2013, the IASB issued “Novation of Derivatives and Continuation of Hedge Accounting,” an amendment to IAS 39 (Financial Instruments: Recognition and Measurement). The amendment introduces new rules for continuing an existing hedge accounting relationship using a novated derivative. A novation occurs when the original parties to a ­derivative agree that one or more clearing counterparties replace their original counterparty to become the new counterparty to each of the parties. The new rules enable a derivative to remain a hedging instrument in a continuing hedge accounting relationship despite its novation if certain criteria are met. The amendment is to be applied for annual ­periods beginning on or after January 1, 2014. Earlier application is permitted. The Bayer Group made use of the early application provision.

Published financial reporting standards that have not yet been applied

The IASB and the IFRS Interpretations Committee have issued the following standards, amendments to standards, and interpretations whose application was not yet mandatory for the 2013 fiscal year and is conditional upon their endorsement by the European Union.

In November 2009, the IASB issued IFRS 9 (Financial Instruments), containing rules for the classification and measurement of financial assets. In October 2010, it issued new requirements for the classification and measurement of financial liabilities, incorporating them into IFRS 9. The new standard defines two instead of four measurement categories for financial assets, with classification to be based partly on the company’s business model and partly on the characteristics of the contractual cash flows from the respective financial asset. In the case of equity investments that are not held for trading, an entity may irrevocably opt at initial recognition to recognize future changes in their fair value outside profit or loss in the statement of comprehensive income. In November 2013, the IASB issued further amendments under the title “Hedge Accounting and Amendments to IFRS 9, IFRS 7 and IAS 39.” The focus of the amendments is on a thorough revision of hedge accounting rules with the aim of more appropriately reflecting risk management activities in the financial statements. This involves additional disclosures in the notes. The mandatory effective date of January 1, 2015, previously contained in IFRS 9 was removed. The current version no longer includes a mandatory effective date. The amendments are not ­expected to be endorsed by the European Union until the IASB has published all parts of the project relating to the accounting treatment of financial instruments.

In December 2011, the IASB issued the amendment “Offsetting Financial Assets and Financial Liabilities” to IAS 32 ­(Financial Instruments: Presentation), clarifying what is meant by “right of set-off in all circumstances” and “simultaneous settlement.” The amendment is to be applied for annual periods beginning on or after January 1, 2014. The ­changes will not have a material impact on the presentation of the Group’s financial position or results of operations.

In October 2012, under the title “Investment Entities,” the IASB issued amendments to IFRS 10, IFRS 12 and IAS 27 for investment entities. Such entities are to be exempted from the requirement to consolidate certain subsidiaries according to IFRS 10. Instead, they must recognize them at fair value through profit or loss. IFRS 12 introduces additional ­disclosure requirements for investment entities. The amendments are to be applied for annual periods beginning on or after January 1, 2014. The changes will not have a material impact on the presentation of the Group’s financial position or results of operations.

In May 2013, the IFRS IC issued the interpretation IFRIC 21 (Levies). The interpretation covers the accounting for government-imposed levies with the exception of income taxes covered by IAS 12 (Income Taxes). It also provides guidance on when to recognize a liability for a levy. The interpretation is to be applied for annual periods beginning on or after January 1, 2014. However, it has not yet been endorsed by the European Union. The changes are not expected to have a material impact on the presentation of the Group’s financial position or results of operations.

In November 2013, the IASB published narrow-scope amendments to IAS 19 (Employee Benefits) under the title ­“Defined Benefit Plans: Employee Contributions.” These amendments address the accounting for contributions from employees or third parties to defined benefit pension plans where the contributions are a fixed percentage of salary throughout the period of employment. Such contributions may be accounted for as a reduction in current ­service cost in the period in which the related service was rendered. The amendments are to be applied for annual periods beginning on or after July 1, 2014. Earlier application is permitted. The amendments have not yet been endorsed by the European Union. The changes are not expected to have a material impact on the presentation of the Group’s ­financial position or results of operations.

In December 2013, the IASB published the fifth and sixth sets of “Annual 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. They are applicable for annual periods ­beginning on or after July 1, 2014. Earlier application is permitted. The amendments have not yet been endorsed by the ­European Union. The Bayer Group is currently evaluating the impact the changes will have on the presentation of its ­financial position and results of operations.

Last updated: February 28, 2014  Copyright © Bayer AG
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