Explanatory Notes

Financial Instruments

The following table shows the carrying amounts and fair values of financial assets and liabilities by category of financial instrument under IFRS 9 and a reconciliation to the corresponding line items in the statements of financial position. Since the line items “Trade accounts receivable,” “Other receivables” and “Other liabilities” contain both financial instruments and nonfinancial 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 “Nonfinancial assets / liabilities.”

The transition effects from the reclassification and remeasurement of financial assets upon the first-time application of IFRS 9 are detailed in the section “Financial reporting standards applied for the first time in 2018.”

Carrying Amounts and Fair Values of Financial Instruments

 

 

 

 

 

 

 

 

March 31, 2018

 

 

Measured at amortized cost

 

Measured at fair value [fair value for information1]

 

Nonfinancial assets / liabilities

 

 

 

 

 

 

Based on quoted prices in active markets (Level 1)

Based on observable market data (Level 2)

Based on unobservable inputs
(Level 3)

 

 

 

 

 

 

Carrying amount

 

Carrying amount

Carrying amount

Carrying amount

 

Carrying amount

 

Carrying amount in the statement of financial position

 

 

€ million

 

€ million

€ million

€ million

 

€ million

 

€ million

1

Fair value of the financial instruments measured at amortized cost; the exemption provisions under IFRS 7.29(a) were applied for information on specific fair values.

Trade accounts receivable

 

9,343

 

 

 

 

 

155

 

9,498

Measured at amortized cost

 

9,343

 

 

 

 

 

 

 

9,343

Nonfinancial assets

 

 

 

 

 

 

 

155

 

155

Other financial assets

 

322

 

2,930

4,958

842

 

 

 

9,052

Measured at amortized cost

 

322

 

 

[322]

 

 

 

 

322

Measured at fair value through profit or loss

 

 

 

2,655

4,371

775

 

 

 

7,801

Measured at fair value through OCI (no recycling)

 

 

 

275

 

53

 

 

 

328

Derivatives

 

 

 

 

587

14

 

 

 

601

Other receivables

 

313

 

 

 

50

 

1,201

 

1,564

Measured at amortized cost

 

313

 

 

[313]

 

 

 

 

313

Measured at fair value through profit or loss

 

 

 

 

 

50

 

 

 

50

Nonfinancial assets

 

 

 

 

 

 

 

1,201

 

1,201

Cash and cash equivalents

 

5,332

 

 

 

 

 

 

 

5,332

Measured at amortized cost

 

5,332

 

 

[5,332]

 

 

 

 

5,332

Total financial assets

 

15,310

 

2,930

4,958

892

 

 

 

24,090

of which measured at amortized cost

 

15,310

 

 

 

 

 

 

 

15,310

of which measured at fair value through profit or loss

 

 

 

2,655

4,371

825

 

 

 

7,851

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

12,656

 

1,179

199

 

 

 

 

14,034

Measured at amortized cost

 

12,656

 

[11,030]

[1,991]

 

 

 

 

12,656

Measured at fair value through profit or loss (nonderivative)

 

 

 

1,179

 

 

 

 

 

1,179

Derivatives

 

 

 

 

199

 

 

 

 

199

Trade accounts payable

 

3,943

 

 

 

 

 

 

 

3,943

Measured at amortized cost

 

3,943

 

 

 

 

 

 

 

3,943

Other liabilities

 

647

 

 

194

5

 

700

 

1,546

Measured at amortized cost

 

647

 

 

[647]

 

 

 

 

647

Measured at fair value through profit or loss (nonderivative)

 

 

 

 

 

5

 

 

 

5

Derivatives

 

 

 

 

194

 

 

 

 

194

Nonfinancial liabilities

 

 

 

 

 

 

 

700

 

700

Total financial liabilities

 

17,246

 

1,179

393

5

 

 

 

18,823

of which measured at amortized cost

 

17,246

 

 

 

 

 

 

 

17,246

of which measured at fair value through profit or loss (nonderivative)

 

 

 

1,179

 

5

 

 

 

1,184

of which derivatives

 

 

 

 

393

 

 

 

 

393

The category “measured at amortized cost” within other financial assets and in financial liabilities also includes receivables and liabilities under finance leases in which Bayer is the lessor or lessee and which are therefore measured in accordance with IAS 17.

Due to the short maturities of most trade accounts receivable and payable, other receivables and liabilities, and cash and cash equivalents, their carrying amounts at the closing date do not significantly differ from the fair values.

The fair values of financial assets and liabilities measured at amortized cost that are given for information are the present values of the respective future cash flows. The present values are determined by discounting the cash flows at a closing-date interest rate, taking into account the term of the assets or liabilities and the creditworthiness of the counterparty. Where a market price is available, however, this is deemed to be the fair value.

The fair values of financial assets measured at fair value correspond to quoted prices in active markets (Level 1), or are determined using valuation techniques based on observable market data as of the end of the reporting period (Level 2) or are the present values of the respective future cash flows, determined on the basis of unobservable inputs (Level 3).

The fair values of derivatives for which no publicly quoted prices exist in active markets (Level 1) are determined using valuation techniques based on observable market data as of the end of the reporting period (Level 2). In applying valuation techniques, credit value adjustments are determined to allow for the contracting party’s credit risk.

Currency and commodity forward contracts are measured individually at their forward rates or forward prices on the closing date. These depend on spot rates or prices, including time spreads. The fair values of interest-rate hedging instruments 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.

Fair values measured using unobservable inputs are categorized within Level 3 of the fair value hierarchy. This applies to certain debt or equity instruments, in some cases to the fair values of embedded derivatives, and to obligations for contingent consideration in business combinations. Credit risk is frequently the principal unobservable input used to determine the fair values of debt instruments classified as measured at fair value by the discounted cash flow method. Here the credit spreads of comparable issuers are applied. A significant increase in credit risk could result in a lower fair value, whereas a significant decrease could result in a higher fair value. However, a relative change of 10% in the credit spread does not materially affect the fair value.

Embedded derivatives are separated from their respective host contracts, provided they are not financial instruments. Such host contracts are generally sale or purchase agreements relating to the operational business. The embedded derivatives cause the cash flows from the contracts to vary with exchange-rate or price fluctuations. The internal measurement of embedded derivatives is mainly performed using the discounted cash flow method, which is based on unobservable inputs. These include planned sales and purchase volumes, and prices derived from market data. Regular monitoring is carried out based on these fair values as part of quarterly reporting.

The financial liabilities arising from the debt instruments (exchangeable bond) issued in June 2017 that can be converted into Covestro shares are measured at fair value through profit or loss. This exchangeable bond is a hybrid financial instrument containing a debt instrument as a nonderivative host contract and multiple embedded derivatives.

The changes in the amount of financial assets and liabilities recognized at fair value based on unobservable inputs (Level 3) for each financial instrument category were as follows:

Development of Financial Assets and Liabilities (Level 3)

 

 

2018

 

 

Financial assets at fair value through profit or loss

 

Financial assets at fair value through OCI (no recycling)

 

Derivatives (net)

 

Liabilities measured at fair value (non-derivative)

 

Total

 

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

Carrying amounts of net assets (net liabilities), January 1

 

821

 

68

 

10

 

(7)

 

892

Gains (losses) recognized in profit or loss

 

3

 

 

4

 

 

7

of which related to assets / liabilities recognized in the statements of financial position

 

3

 

 

4

 

 

7

Gains (losses) recognized outside profit or loss

 

 

(4)

 

 

 

(4)

Additions of assets (liabilities)

 

1

 

 

 

 

1

Settlements of (assets) liabilities

 

 

(1)

 

 

1

 

Transfers (IFRS 5)

 

 

 

(6)

 

 

 

1

 

(5)

Disposals from divestments / changes in scope of consolidation

 

 

(4)

 

 

 

(4)

Carrying amounts of net assets (net liabilities), March 31

 

825

 

53

 

14

 

(5)

 

887

The changes recognized in profit or loss were included in other operating income / expenses, as well as in the financial result in interest income and in other financial income and expenses.

The following table shows the carrying amounts and fair values of financial assets and liabilities by category of financial instrument as of December 31, 2017, under IAS 39.

Carrying Amounts and Fair Values of Financial Instruments

 

 

 

 

 

 

 

 

Dec. 31, 2017

 

 

Measured at amortized cost

 

Measured at fair value [fair value for information1]

 

Nonfinancial assets / liabilities

 

 

 

 

 

 

Based on quoted prices in active markets (Level 1)

Based on observable market data (Level 2)

Based on unobservable inputs
(Level 3)

 

 

 

 

 

 

Carrying amount

 

Carrying amount

Carrying amount

Carrying amount

 

Carrying amount

 

Carrying amount in the statement of financial position

 

 

€ million

 

€ million

€ million

€ million

 

€ million

 

€ million

1

Fair value of the financial instruments measured at amortized cost; the exemption provisions under IFRS 7.29(a) were applied for information on specific fair values.

Trade accounts receivable

 

8,582

 

 

 

 

 

 

 

8,582

Loans and receivables

 

8,582

 

 

 

 

 

 

 

8,582

Other financial assets

 

1,823

 

452

2,085

803

 

 

 

5,163

Loans and receivables

 

1,731

 

 

[1,731]

 

 

 

 

1,731

Available-for-sale financial assets

 

35

 

448

1,452

793

 

 

 

2,728

Held-to-maturity financial assets

 

57

 

 

[58]

 

 

 

 

57

Derivatives

 

 

 

4

633

10

 

 

 

647

Other receivables

 

380

 

 

 

46

 

1,250

 

1,676

Loans and receivables

 

380

 

 

[380]

 

 

 

 

380

Available-for-sale financial assets

 

 

 

 

 

46

 

 

 

46

Nonfinancial assets

 

 

 

 

 

 

 

1,250

 

1,250

Cash and cash equivalents

 

7,581

 

 

 

 

 

 

 

7,581

Loans and receivables

 

7,581

 

 

[7,581]

 

 

 

 

7,581

Total financial assets

 

18,366

 

452

2,085

849

 

 

 

21,752

of which loans and receivables

 

18,274

 

 

 

 

 

 

 

18,274

of which available-for-sale financial assets

 

35

 

448

1,452

839

 

 

 

2,774

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

12,958

 

1,220

240

 

 

 

 

14,418

Measured at amortized cost

 

12,958

 

[11,327]

[2,183]

 

 

 

 

12,958

Measured at fair value (nonderivative)

 

 

 

1,220

 

 

 

 

 

1,220

Derivatives

 

 

 

 

240

 

 

 

 

240

Trade accounts payable

 

4,568

 

 

 

 

 

561

 

5,129

Measured at amortized cost

 

4,568

 

 

 

 

 

 

 

4,568

Nonfinancial liabilities

 

 

 

 

 

 

 

561

 

561

Other liabilities

 

681

 

2

319

7

 

1,759

 

2,768

Measured at amortized cost

 

681

 

 

[681]

 

 

 

 

681

Measured at fair value (nonderivative)

 

 

 

 

 

7

 

 

 

7

Derivatives

 

 

 

2

319

 

 

 

 

321

Nonfinancial liabilities

 

 

 

 

 

 

 

1,759

 

1,759

Total financial liabilities

 

18,207

 

1,222

559

7

 

 

 

19,995

of which measured at amortized cost

 

18,207

 

 

 

 

 

 

 

18,207

of which derivatives

 

 

 

2

559

 

 

 

 

561

The following table shows the changes in the amounts of financial assets and liabilities recognized at fair value based on unobservable inputs (Level 3) for each financial instrument category for the comparative period under IAS 39:

Development of Financial Assets and Liabilities (Level 3)

 

 

2017

 

 

Available-for-sale financial assets

 

Derivatives (net)

 

Liabilities measured at fair value (non-derivative)

 

Total

 

 

€ million

 

€ million

 

€ million

 

€ million

Carrying amounts of net assets (net liabilities), January 1

 

851

 

(8)

 

(8)

 

835

Gains (losses) recognized in profit or loss

 

4

 

3

 

 

7

of which related to assets / liabilities recognized in the statements of financial position

 

4

 

3

 

 

7

Gains (losses) recognized outside profit or loss

 

(18)

 

 

 

(18)

Additions of assets (liabilities)

 

3

 

 

 

3

Settlements of (assets) liabilities

 

 

 

 

Carrying amounts of net assets (net liabilities), March 31

 

840

 

(5)

 

(8)

 

827

Contingent liabilities and other financial commitments

The Group’s contingent liabilities amounted to €844 million as of March 31, 2018, and mainly comprised pending legal cases in several countries. Other financial liabilities totaling €52,260 million mainly resulted from the definitive merger agreement with Monsanto Company of September 14, 2016, that concerns a sum of €45,673 million and provides for Bayer’s acquisition of all outstanding shares in Monsanto Company against a cash payment of US$128 per share.

Compare to Last Year