Financial Statements

Explanatory Notes

Accounting Policies

Pursuant to Section 37x Paragraph 3 of the German Securities Trading Act, the consolidated interim ­financial statements as of September 30, 2013 have been prepared in condensed form according to the International Financial Reporting Standards (IFRS) – including IAS 34 – of the International Accounting Standards Board (IASB), London, and the Interpretations of the IFRS Interpretations Committee, both as endorsed by the European Union and in effect at the closing date.

Reference should be made as appropriate to the Notes to the Consolidated Financial Statements for the 2012 fiscal year, particularly with regard to the main recognition and measurement principles, except where financial reporting standards have been applied for the first time in 2013 or accounting policies have changed.

Financial reporting standards applied for the first time in 2013 and changes in accounting policies

The following new financial reporting 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. The Bayer Group is deemed to control another company when it is exposed, or has rights, to variable returns from its involvement with that company and has the ability to affect those returns through its power over the company. IFRS 10 was applied for the first time retrospectively in compliance with the transitional provisions.

IFRS 12 (Disclosure of Interests in Other Entities) revises the requirements for the information to be disclosed in the notes to the financial statements about interests in subsidiaries, associates, joint arrangements and non-consolidated structured entities. None of these provisions are applicable in interim financial statements unless material circumstances result in a disclosure obligation. Explanatory notes in this regard have not been included in the condensed consolidated interim financial statements.

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.

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. IAS 34 requires for the first time that certain explanatory notes pertaining to the fair values of financial instruments carried at amortized cost or measured at fair value also be included in interim financial statements. IFRS 13 was applied for the first time prospectively.

IFRS 7 (Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7)) 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. The amendments are to be applied retrospectively. This provision is not ­applicable in interim financial statements unless material circumstances result in a disclosure obligation. Explanatory notes in this regard have not been included in the condensed consolidated interim ­financial statements.

Pursuant to the amendments to IAS 1 (Presentation of Financial Statements) published in June 2011, items of other comprehensive income are for the first time reported separately according to whether or not they may subsequently become reclassifiable to profit or loss.

In addition, the first-time application of the following financial reporting standards was of material ­importance and the prior-year figures were therefore restated as of January 1, 2013.

IAS 19 Employee Benefits (Revised 2011), referred to in the following as IAS 19R, contains revised ­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 and loss. In addition, 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. Measurement effects resulting from actuarial gains and losses and the effect of the asset ceiling are recognized outside profit or loss in the statement of comprehensive income. Net interest cost 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.

The Bayer Group is applying IAS 19R retrospectively. The data in the statements of financial position as of January 1, 2012, and September 30, 2012, and in the income statements and statements of comprehensive income for the third quarter and first nine months of 2012 were restated due to changes in accounting policies for past service cost and severance-payment expenses and in light of the first-time application of the net interest method to net pension obligations. 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.

Deferred taxes were recognized upon the retrospective application of IAS 19R.

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 as defined by IFRS 11 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). IFRS 11 was applied retrospectively 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, expenses and revenues 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.

First-time application of IFRS 10 (Consolidated Financial Statements), IFRS 11 (Joint Arrangements), IFRS 12 (Disclosure of Interests in Other Entities) and the amendments to IAS 27 (Separate Financial Statements) and IAS 28 (Investments in Associates and Joint Ventures) is generally mandatory for annual periods beginning on or after January 1, 2013. Bayer is not making use of the option that exists in the European Union to apply these standards and amendments for the first time for annual periods beginning on or after January 1, 2014.

Change in the reporting of long-term stock-based compensation

The following change in accounting policies with effect from January 1, 2013, impacted segment reporting.

In 2013 Bayer adjusted the allocation of the stock-based compensation (long-term incentive – LTI) among the segments to increase the transparency and information value of its segment reporting and improve planning and steering processes. A normalized expense based on 100% target attainment is now allocated to the respective operating segments. Higher or lower expenses arising from fluctuations in the performance of Bayer stock are no longer allocated to the operating segments but instead reflected in the reconciliation under Corporate Center and Consolidation. The prior-year figures are restated accordingly.

Accounting Changes LTI (Previous Year)[Table 29]
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 2012
€ million € million € million € million € million
EBIT/EBITDA
Pharmaceuticals (1) 1 21 12 33
Consumer Health 14 9 23
CropScience 3 1 8 4 16
MaterialScience 1 5 4 10
All Other Segments 1 1 4 3 9
Corporate Center and Consolidation (4) (3) (52) (32) (91)
Group

The effects that the new financial reporting standards and other changes in accounting policies, 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 tables 30 – 36.

Effects of accounting changes: Bayer Group Consolidated Income Statements for the third quarter and first nine months of 2012

Accounting changes: Bayer Group Consolidated Income Statements(Previous Year)
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Effects of accounting changes: Bayer Group Consolidated Statements of Comprehensive Income for the third quarter and first nine months of 2012

Accounting changes: Bayer Group Consolidated Statements of Comprehensive Income (Previous Year)
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Effects of accounting changes: Bayer Group Consolidated Statement of Financial Position as of January 1, 2012

Accounting Changes: Consolidated Statement of Financial Position as of January 1, 2012[Table 32]
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

Effects of accounting changes: Bayer Group Consolidated Statement of Financial Position as of September 30, 2012

Accounting Changes: Consolidated Statement of Financial Position as of September 30, 2012[Table 33]
Sep. 30, 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 9,696 44 (2) 9,738
Investments accounted for using the equity method 292 (66) 3 229
Other financial assets 1,354 (17) 1,337
Deferred taxes 1,485 1 (1) 1,485
  32,408 1 (39) 32,370
Current assets          
Inventories 6,933 10 (3) 6,940
Trade accounts receivable 7,923 9 7,932
Other financial assets 1,566 3 1,569
Other receivables 1,939 8 (2) 1,945
Cash and cash equivalents 1,426 2 (2) 1,426
  20,440 29 (4) 20,465
           
Total assets 52,848 1 (10) (4) 52,835
           
Equity          
Other reserves 10,356 (1) (21) 2 10,336
Equity attributable to Bayer AG stockholders 18,640 (1) (21) 2 18,620
  18,706 (1) (21) 2 18,686
           
Noncurrent liabilities          
Provisions for pensions and other post-employment benefits 9,805 (90) 9,715
Other provisions 1,872 91 1,963
Deferred taxes 1,225 1 (3) 1,223
  20,404 2 (3) 20,403
Current liabilities          
Other provisions 5,485 (1) 5,484
Financial liabilities 2,630 4 (1) 2,633
Trade accounts payable 3,788 11 (3) 3,796
Other liabilities 1,515 (1) (1) 1,513
  13,738 14 (6) 13,746
           
Total equity and liabilities 52,848 1 (10) (4) 52,835

Effects of accounting changes: Bayer Group Consolidated Statement of Financial Position as of December 31, 2012

Accounting Changes: Consolidated Statement of Financial Position as of December 31, 2012[Table 34]
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

Effects of accounting changes: Bayer Group Consolidated Statements of Cash Flows for the third quarter and first nine months of 2012

Accounting changes: Bayer Group Consolidated Statements of Cash Flows (Previous Year)
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Effects of accounting changes: Key Data by Segment for the third quarter and first nine months of 2012

Accounting changes: Key Data by Segment (Previous Year)
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Changes in underlying parameters

Changes in the underlying parameters relate primarily to currency exchange rates and the interest rates used to calculate pension obligations.

The exchange rates for major currencies against the euro varied as follows:

Exchange Rates for Major Currencies[Table 37]
Closing Rate Average Rate
€1 Dec. 31,
2012
Sep. 30,
2012
Sep. 30,
2013
First Nine
Months 2012
First Nine
Months 2013
ARS Argentina 6.48 6.06 7.85 5.71 6.92
BRL Brazil 2.69 2.62 3.06 2.45 2.77
CAD Canada 1.31 1.27 1.39 1.28 1.35
CHF Switzerland 1.21 1.21 1.22 1.20 1.23
CNY China 8.22 8.13 8.26 8.10 8.12
GBP United Kingdom 0.82 0.80 0.84 0.81 0.85
JPY Japan 113.61 100.37 131.78 101.52 126.95
MXN Mexico 17.18 16.61 17.85 16.94 16.67
USD United States 1.32 1.29 1.35 1.28 1.32

The most important interest rates used to calculate the present value of pension obligations are given below:

Discount Rate for Pension Obligations[Table 38]
Dec. 31, 2012 June 30, 2013 Sep. 30, 2013
% % %
Germany 3.20 3.50 3.60
United Kingdom 4.40 4.75 4.50
United States 3.60 4.40 4.50

Segment reporting

The following table contains the reconciliation of EBIT of the segments to income before income taxes of the Group.

Reconciliation of Segments’ EBITDA Before Special Items to Group Income Before Income Taxes[Table 39]
3rd Quarter
2012
3rd Quarter
2013
First Nine
Months 2012
First Nine
Months 2013
€ million € million € million € million
EBITDA before special items of segments 1,953 2,063 6,694 6,939
EBITDA before special items of Corporate Center (111) (79) (240) (307)
EBITDA before special items 1,842 1,984 6,454 6,632
Depreciation, amortization and impairments
before special items of segments

(657)

(663)

(1,964)

(1,950)
Depreciation, amortization and impairments
before special items of Corporate Center

(1)

(1)

(4)

(3)
Depreciation, amortization and impairments
before special items

(658)

(664)

(1,968)

(1,953)
EBIT before special items of segments 1,296 1,400 4,730 4,989
EBIT before special items of Corporate Center (112) (80) (244) (310)
EBIT before special items 1,184 1,320 4,486 4,679
Special items of segments (361) (99) (1,294) (400)
Special items of Corporate Center 5 7
Special items (356) (99) (1,287) (400)
EBIT of segments 935 1,301 3,436 4,589
EBIT of Corporate Center (107) (80) (237) (310)
EBIT 828 1,221 3,199 4,279
Non-operating result (183) (228) (583) (643)
Income before income taxes 645 993 2,616 3,636
2012 figures restated

Companies Consolidated

Changes in the scope of consolidation

The consolidated financial statements as of September 30, 2013, included 285 companies (December 31, 2012: 291 companies). Of these, two companies (December 31, 2012: two companies) were accounted for as joint operations in line with Bayer’s interest in their assets, liabilities, revenues and expenses in accordance with IFRS 11 (Joint Arrangements). In addition, three joint ventures (December 31, 2012: three joint ventures) and two associated companies (December 31, 2012: two associated companies) were accounted for in the consolidated financial statements using the equity method according to IAS 28 (Investments in Associates and Joint Ventures).

Acquisitions and divestitures

Acquisitions

On January 2, 2013, HealthCare wholly acquired the U.S. company Teva Animal Health Inc. The acquisition broadens HealthCare’s range of anti-infective solutions for livestock and expands the existing product offering to include reproductive hormones. The transaction also adds dermatological products for companion animals, pet wellness products and nutraceuticals to the company’s portfolio. The parties agreed on a provisional one-time payment of €40 million plus potential milestone payments, for which an amount of €46 million was included in the purchase price allocation. The milestone payments are mainly dependent on the achievement of various sales targets and product approvals. The purchase price pertained mainly to product trademarks. Sales of €8 million were recorded since the acquisition date.

On January 18, 2013, CropScience acquired all the shares of Prophyta Biologischer Pflanzenschutz GmbH, a leading supplier of biological crop protection products headquartered in Malchow in the German state of Mecklenburg-Western Pomerania. In addition to research and development facilities, the acquisition also includes state-of-the-art production and formulation facilities in the city of Wismar. A one-time payment of €25 million was agreed. The purchase price pertained mainly to technologies, research and development projects and goodwill. In addition, two related distribution rights were acquired for €5 million. Sales of €3 million were recorded since the acquisition date.

On March 15, 2013, CropScience wholly acquired soybean seed producer Wehrtec Ltda and the soybean business of Agricola Wehrmann Ltda. Both companies are headquartered in Cristalina in the Brazilian state of Goiás. This transaction strengthens the research and development activities of CropScience in soybeans and contributes to the development of varieties tailored to the requirements of Brazilian soybean growers. A purchase price of €37 million was agreed along with potential milestone payments of up to €11 million. The purchase price pertained mainly to marketable crop plants, breeding material and goodwill. Sales of €7 million were recorded since the acquisition date.

In June 2013, HealthCare successfully completed the tender offer for the shares of Conceptus, Inc., currently headquartered in Milpitas, California, United States, and acquired 100% of the outstanding shares. Conceptus, Inc. has developed Essure™, the only non-surgical permanent birth control method, which it markets in the U.S. and other countries. This acquisition enables Bayer to offer an even broader range of short-term, long-term and permanent contraceptive choices for women. A purchase price of €780 million was paid, pertaining mainly to technology and trademark rights. The goodwill remaining after the purchase price allocation is attributable to various factors, including significant cost savings in the marketing and sales functions along with general administration and infrastructure synergies. Sales of €45 million were recorded since the acquisition date.

In April 2013, the District Court of Berlin reached a decision in the court proceeding initiated by former minority stockholders of Bayer Pharma AG (formerly Bayer Schering Pharma AG) to review the adequacy of compensation payments made by Bayer in connection with the domination and profit and loss transfer agreement of 2006. The court decided that the compensation by Bayer at the time should be increased by about 40%. Bayer disagrees with this decision and has appealed. The potential supplementary payment represents a subsequent purchase price adjustment according to the March 31, 2004 version of IFRS 3 applicable at the acquisition date. Provisional goodwill of €261 million, excluding interest, has been capitalized for this proceeding and for the parallel proceeding relating to the squeeze-out of the former minority stockholders.

On July 1, 2013, HealthCare acquired all the shares of Steigerwald Arzneimittelwerk GmbH, Darmstadt, Germany. Steigerwald holds a strong position in the German phytopharmaceuticals market, which is focused on pharmacy-only herbal medicines. Its product portfolio includes Iberogast™ for the treatment of functional gastrointestinal disorders and Laif™ for the treatment of mild to moderate depression. A provisional one-time payment of approximately €222 million was agreed. The purchase price pertained mainly to product trademarks, technologies and goodwill. Sales of €15 million were recorded since the acquisition date.

The purchase price allocations for Teva Animal Health Inc., Conceptus, Inc. and Steigerwald Arzneimittelwerk GmbH currently remain incomplete pending compilation and review of the relevant financial information. It is therefore possible that changes will be made in the allocation of the purchase price to the individual assets and liabilities.

The effects of these transactions 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 and including payments relating to acquisitions made in previous years/quarters, they resulted in the following cash outflow:

Acquired Assets and Assumed Liabilities in 2013[Table 40]
Fair
value
Of which
Conceptus, Inc.
€ million € million
Goodwill 818 487
Other intangible assets 767 426
Property, plant and equipment 55 14
Other noncurrent assets 2 1
Inventories 58 24
Other current assets 33 26
Other current financial assets 7 7
Deferred tax assets 93 79
Cash and cash equivalents 74 58
Provision for pensions (9)
Other provisions (16) (10)
Financial liabilities (84) (83)
Other liabilities (90) (76)
Deferred tax liabilities (293) (173)
Net assets 1,415 780
Non-controlling interest
Changes in non-controlling interest
Net purchase prices 1,415 780
Acquired cash and cash equivalents (74) (58)
Liabilities for future payments (292)
Payments for previous years’/quarters’ acquisitions 13
Net cash outflow for acquisitions 1,062 722

The cash outflows for acquisitions and for the purchase of additional interests in subsidiaries in the first nine months of 2012 amounted to €455 million and related mainly to the purchases of the remaining 50% interest in the systems house joint venture Baulé S.A.S., France; the watermelon and melon seed business of the U.S. company Abbott & Cobb, Inc., Feasterville, Pennsylvania; and the U.S. biological crop protection company AgraQuest, Inc., Davis, California.

Divestitures
On June 1, 2013, MaterialScience sold its global powder polyester resins business and its U.S.-based liquid polyester resins merchant business to Stepan Company of Northfield, Illinois, United States. A purchase price of €45 million was agreed. The divestment gain of €42 million is reported under special items.

We received further revenue-based payments of €25 million in connection with the transfer of the hematological oncology portfolio to Genzyme Corp., United States, effected in May 2009.

The effects in the first nine months of 2013 of the above divestiture, an additional smaller divestiture and the payments received from Genzyme were as follows:

Divestitures[Table 41]
2013
€ million
Property, plant and equipment 13
Other current assets 4
Other provisions (2)
Other liabilitites (3)
Net assets 12
Net cash inflow from divestitures 79
Divested net assets (12)
Changes in future cash payments receivable (25)
Net gain from divestitures (before taxes) 42

Income from divestitures in the first nine months of 2012 amounted to €139 million, mainly comprising revenue-based payments in connection with the transfer of the hematological oncology portfolio to Genzyme Corp., United States, and the transfer of the production site for Leukine™.

Financial instruments

The following table shows the carrying amounts and fair values of financial assets and liabilities by category of financial instrument and a reconciliation to the corresponding line item in the statements of financial position. Since the line items “Other receivables,” “Trade accounts payable” and “Other liabilities” contain both financial instruments and non-financial 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-financial assets/liabilities.”

Carrying Amounts and Fair Values of Financial Instruments[Table 42]
Sep. 30, 2013


Carried at
amortized cost


Carried at
fair value
Non-
financial assets/
liabilities
Carrying
amount in
the state-
ment of
financial position





Carrying amount
Sep. 30,
2013
Fair value
(for informa-
tion)
Based on quoted
prices in
active
markets
(Level 1)


Based on market-
derived data
(Level 2)

Based on
individual
unobserv-
able inputs
(Level 3)
Carrying amount
Carrying amount Carrying
amount
Carrying
amount
€ million € million € million € million € million € million € million
Trade accounts receivable 8,093 8,093
Loans and receivables 8,093 8,093 8,093
Other financial assets 1,023 347 533 29 1,932
Loans and receivables 900 900 900
Available-for-sale financial assets 26 347 373
Held-to-maturity financial assets 97 99 97
Derivatives that qualify for hedge accounting 265 265
Derivatives that do not qualify
for hedge accounting




268

29


297
Other receivables 552 1,363 1,915
Loans and receivables 552 552 552
Non-financial assets 1,363 1,363
Cash and cash equivalents 1,615 1,615
Loans and receivables 1,615 1,615 1,615
Total financial assets 11,283   347 533 29   12,192
of which loans and receivables 11,160 11,160
Financial liabilities 9,640 283 9,923
Carried at amortized cost 9,640 9,935 9,640
Derivatives that qualify for hedge accounting 182 182
Derivatives that do not qualify
for hedge accounting




101



101
Trade accounts payable 3,964 86 4,050
Carried at amortized cost 3,964 3,964 3,964
Non-financial liabilities 86 86
Other liabilities 692 38 26 956 1,712
Carried at amortized cost 692 691 692
Derivatives that qualify for hedge accounting 17 17
Derivatives that do not qualify
for hedge accounting




21

26


47
Non-financial liabilities 956 956
Total financial liabilities 14,296     321 26   14,643
of which carried at amortized cost 14,296 14,296
of which derivatives that qualify
for hedge accounting




199



199
of which derivatives that do not qualify
for hedge accounting




122

26


148

The loans and receivables included in other financial assets and the financial liabilities measured at amortized cost also contain receivables and liabilities, respectively, under finance leases where Bayer is the lessor or lessee and which therefore have to be measured in accordance with IAS 17.

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 did not significantly differ from the fair values.

The fair value stated for noncurrent receivables, loans, held-to-maturity financial investments and non-derivative financial liabilities is the present value of the respective future cash flows. This was determined by discounting the cash flows at a closing-date interest rate that takes into account the term of the assets or liabilities and the creditworthiness of the counterparty. Where a market price was available, however, this was deemed to be the fair value.

The fair values of available-for-sale financial assets correspond to quoted prices in active markets for identical assets (Level 1).

The fair values of derivatives for which no observable market prices existed were determined using valuation techniques based on market-derived data as of the end of the reporting period (Level 2). In applying valuation techniques, credit value adjustments were determined to allow for the contracting party’s credit risk.

The respective currency and commodity forward contracts were 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 and cross-currency interest-rate swaps were determined by discounting future cash flows over the remaining terms of the instruments at market rates of interest, taking into account any foreign currency translation as of the closing date.

Embedded derivatives were measured using valuation techniques based on individual unobservable inputs (Level 3). These included planned sales and purchase volumes, and prices derived from market data. Embedded derivatives were separated from their respective host contracts. Such host contracts are generally sales or purchase agreements relating to the operational business. The embedded derivatives cause the cash flows from the contracts to vary with fluctuations in exchange rates, commodity prices or other prices, for example.

The changes in the net amount of financial assets and liabilities recognized at fair value based on individual unobservable inputs were as follows:

Changes in the Net Amount of Financial Assets and Liabilities Recognized at Fair Value
Based on Individual Unobservable Inputs


[Table 43]
2013
€ million
Net carrying amounts, Jan. 1 22
Gains (losses) recognized in profit or loss (19)
of which related to assets/liabilities still recognized in the statements of financial position (19)
Gains (losses) recognized outside profit or loss
Additions
Retirements
Reclassifications
Net carrying amounts, Sep. 30 3

No gains or losses from divestments were recorded in the first nine months of 2013. The changes recognized in profit or loss were included in other operating income or expenses.

Legal risks

To find out more about the Bayer Group’s legal risks, please see the Bayer Annual Report 2012, which can be downloaded free of charge at www.bayer.com. Since the Bayer Annual Report 2012, the following significant changes have occurred in respect of the legal risks:

HealthCare

Product-related litigations

Magnevist: As of October 17, 2013, there were approximately 40 lawsuits pending and served upon Bayer in the United States involving the gadolinium-based contrast agent Magnevist™. As of October 17, 2013, Bayer had reached agreements, without admission of liability, with approximately 310 plaintiffs in the United States to settle their claims. Bayer believes the risks remaining in this litigation are no longer material.

Trasylol (aprotinin) is a drug approved for use in managing bleeding in patients undergoing coronary artery bypass graft surgery. As of October 17, 2013, there were nine lawsuits pending in the United States and served upon Bayer on behalf of persons alleging, in particular, personal injuries from the use of Trasylol™. Bayer also has been served with three class actions in Canada. As of October 17, 2013, Bayer had reached agreements, without admission of liability, with approximately 1,130 plaintiffs in the United States to settle their claims. Bayer believes the risks remaining in this litigation are no longer material.

A qui tam complaint relating to marketing practices for Trasylol™ and Avelox™ filed by a former Bayer employee is pending in the United States District Court in New Jersey. The U.S. government has declined to intervene at the present time.

Yasmin/YAZ: As of October 18, 2013, the number of claimants in the pending lawsuits and claims in the United States totaled about 5,000 (excluding claims already settled). Claimants allege that they have suffered personal injuries, some of them fatal, from the use of Bayer’s drospirenone-containing oral contraceptive products such as Yasmin™ and/or YAZ™ or from the use of Ocella™ and/or Gianvi™, generic versions of Yasmin™ and YAZ™, respectively, marketed by Barr Laboratories, Inc. in the United States. In August 2013, the Attorney General for the Commonwealth of Kentucky filed an action against Bayer alleging off-label promotion of YAZ™ and Yasmin™ in violation of state consumer protection statutes. Bayer is cooperating with the Attorney General. In Israel, one class action was served upon Bayer in June 2013.

As of October 18, 2013, Bayer had reached agreements, without admission of liability, to settle the claims of approximately 7,660 claimants in the U.S. for a total amount of about US$1.575 billion. Bayer has only been settling claims in the U.S. for venous clot injuries (deep vein thrombosis or pulmonary embolism) after a case-specific analysis of medical records on a rolling basis. Such injuries are alleged by about 2,300 of the pending unsettled claimants. Bayer will continue to consider the option of settling such individual lawsuits in the U.S. on a case-by-case basis.

In March 2013, Bayer agreed to settle, without admission of liability, lawsuits in which plaintiffs allege a gallbladder injury for a total maximum aggregate amount of US$24 million. As of October 18, 2013, about 8,800 plaintiffs had decided to participate in the settlement, which represents more than 95% (90% participation required) of the eligible plaintiffs, so the settlement will go forward.

Competition Law Proceedings

Cipro: In June 2013, Bayer reached agreement, without admission of liability, to settle the class action brought by indirect purchasers of Cipro™ in California. The agreement requires approval by the California Superior Court having jurisdiction. Such approval was granted on a preliminary basis in August 2013. Bayer took appropriate accounting measures in the second quarter of 2013.

Patent disputes

Yasmin: In June 2012, Watson Pharmaceuticals, Inc., Watson Laboratories Inc. and Watson Pharma, Inc. had filed a complaint against Bayer in a U.S. state court in New York. Watson sought compensatory and punitive damages claiming malicious prosecution, tortious interference and unjust enrichment by Bayer in connection with the prior patent infringement proceedings. In October 2013, Watson voluntarily dismissed its complaint. This ends the proceedings concerning Yasmin patent disputes in the U.S.

YAZ: In the patent infringement proceedings against Watson, Sandoz and Lupin, the U.S. Court of Appeals for the Federal Circuit in April 2013 invalidated Bayer’s patent claims and reversed last year’s judgment by the lower court. Bayer’s request for a rehearing was denied. Bayer considers the remaining unresolved issues in the YAZ™ patent disputes in the U.S. to be no longer material.

Finacea: In March 2013, Bayer filed a patent infringement suit in a U.S. federal court against Glenmark Generics Ltd. In January 2013, Bayer had received a notice from Glenmark that Glenmark had filed an Abbreviated New Drug Application with a Paragraph IV certification (an “ANDA IV”) seeking approval of a generic version of Bayer’s Finacea™ topical gel in the United States.

Staxyn: In May 2013, Bayer filed a patent infringement suit in a U.S. federal court against Par Pharmaceutical, Inc. and Par Pharmaceutical Companies, Inc. In April 2013, Bayer had received notice of an ANDA IV pursuant to which Par Pharmaceutical seeks approval to market a generic version of Bayer’s erectile dysfunction treatment Staxyn™ prior to patent expiration in the United States. Staxyn™ is an orodispersible (orally disintegrating) formulation of Levitra™. Both drug products contain the same active ingredient, which is protected in the U.S. by two patents expiring in 2018.

Beyaz/Safyral: In June 2013, Bayer received another notice from Watson Laboratories, Inc. that Watson has filed an ANDA IV seeking approval of a generic version of Bayer’s Beyaz™ oral contraceptive in the United States. Bayer has again filed a patent infringement suit against Watson in U.S. federal court. The lawsuit filed upon Watson’s earlier notice had been dismissed without prejudice in September 2012. The U.S. Food and Drug Administration (FDA) had determined that Watson’s ANDA was not substantially complete. Consequently Watson’s notice to Bayer was of no legal effect. In April 2013, Bayer received a notice from Watson that Watson had filed an ANDA IV seeking approval of a generic version of Safyral™, Bayer’s second oral contraceptive containing folate, in the United States. In response, Bayer filed suit against Watson in U.S. federal court in June 2013 for infringement of the same patent.

Further Legal Proceedings

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. In appropriate cases Bayer has agreed to settlements and will continue to consider this option in the future. Bayer believes the risks remaining in this litigation are no longer material.

Bayer Pharma AG former shareholder litigation: In the court proceeding initiated by former minority shareholders of Bayer Pharma AG (formerly Bayer Schering Pharma AG) to review the adequacy of compensation payments made by Bayer in connection with the 2006 domination and profit and loss transfer agreement, the District Court (Landgericht) of Berlin decided in April 2013 that the compensation paid by Bayer at the time should be increased by about 40%. Bayer disagrees with this decision and has appealed. Appropriate accounting measures have been taken for this proceeding as well as for the parallel proceeding relating to the squeeze-out of the former minority shareholders.

Related parties

Related parties as defined in IAS 24 (Related Party Disclosures) are those entities and persons that are able to exert influence on Bayer AG and its subsidiaries or over which Bayer AG or its subsidiaries exercise control or have a significant influence. They include, in particular, non-consolidated subsidiaries, joint ventures, associates, post-employment benefit plans and the corporate officers of Bayer AG. Sales to related parties were not material from the viewpoint of the Bayer Group. Goods and services to the value of €0.5 billion were procured from the associated company PO JV, LP, Wilmington, Delaware, United States, mainly in the course of normal business operations. There was no significant change in receivables or payables vis-à-vis related parties compared with December 31, 2012.

Leverkusen, October 29, 2013

Bayer Aktiengesellschaft

The Board of Management

Dr. Marijn Dekkers       Werner Baumann       Michael König       Prof. Dr. Wolfgang Plischke

Last updated: October 31, 2013  Copyright © Bayer AG
http://www.stockholders-newsletter-q3-2013.bayer.com