AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 2002
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 20-F
(MARK ONE)
/ / REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF
THE
SECURITIES EXCHANGE ACT OF 1934
OR
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 1-15909
BASF AKTIENGESELLSCHAFT
(Exact name of Registrant as specified in its charter)
BASF CORPORATION*
(Translation of Registrant's name into English)
FEDERAL REPUBLIC OF GERMANY CARL BOSCH STRASSE 38
(Jurisdiction of incorporation or LUDWIGSHAFEN, GERMANY 67056
organization) (Address of principal executive offices)
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
American Depositary Shares representing New York Stock Exchange
BASF ordinary shares of no par value
BASF ordinary shares of no par value New York Stock Exchange**
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
(Title of Class)
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(D)
OF THE ACT:
None
(Title of Class)
INDICATE THE NUMBER OF OUTSTANDING SHARES OF EACH OF THE ISSUER'S CLASSES OF
CAPITAL OR COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THE ANNUAL
REPORT.
As of December 31, 2001, there were 583,401,370 BASF ordinary shares of no
par value outstanding.
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark which financial statement item the registrant has
elected to follow. Item 17 / / Item 18 /X/
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--------------------------------------------------------------------------------
* BASF Corporation is also the name of a wholly owned subsidiary of the
Registrant in the United States.
** Not for trading, but only in connection with the registration of American
Depositary Shares.
BASF Aktiengesellschaft is incorporated as a stock corporation organized
under the laws of the Federal Republic of Germany. As used in this Annual
Report, "BASF Aktiengesellschaft" refers solely to the ultimate parent company
of the BASF Group. "BASF" refers to BASF Aktiengesellschaft and its consolidated
subsidiaries.
The Consolidated Financial Statements of BASF are based on the accounting
and valuation principles of the German Commercial Code (HANDELSGESETZBUCH) and
the German Stock Corporation Act (AKTIENGESETZ).
The accounting principles conform to U.S. generally accepted accounting
principles (U.S. GAAP) to the extent permissible under the German Commercial
Code, based upon the accounting standards issued by the German Accounting
Standards Board (GASB). The reconciliation of remaining significant deviations
to U.S. GAAP is described in Note 4 to the Consolidated Financial Statements
included in Item 18.
The translation of euros into dollars has been made solely for the
convenience of the reader at the noon buying rate of the Federal Reserve Bank of
New York (the "Noon Buying Rate") on December 31, 2001, which was U.S.
$0.8901 = E1.00. No representation is made that such amounts in euros could have
been or could be converted into dollars at that or any other exchange rate on
such date or any other dates.
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This Annual Report contains certain forward-looking statements and
information relating to BASF that are based on the current expectations,
estimates and projections of its management and information currently available
to BASF. These statements include, but are not limited to, statements about
BASF's strategies, plans, objectives, expectations, intentions, expenditures,
and assumptions and other statements contained in this Annual Report that are
not historical facts. When used in this document, the words "anticipate,"
"believe," "estimate," "expect," "intend," "plan" and "project" and other
similar expressions are generally intended to identify forward-looking
statements.
These statements reflect the current views of BASF with respect to future
events, are not guarantees of future performance and involve certain risks and
uncertainties that are difficult to predict. In addition, certain
forward-looking statements are based upon assumptions as to future events that
may not prove to be accurate.
Many factors could cause the actual results, performance or achievements of
BASF to be materially different from any future results, performance or
achievements that may be expressed or implied by such forward-looking
statements. These factors include, among others:
- changes in general political, economic and business conditions in the
countries or regions in which BASF operates;
- changes in the laws or policies of governments or other governmental or
quasi-governmental activities in the countries in which BASF operates;
- changes in the composition of BASF Group companies and the successful
integration of acquisitions, divestitures and joint venture activities;
- increased price competition and the introduction of competing products by
other companies;
- the ability to develop, introduce and market innovative products and
applications;
- the length and depth of product and industry business cycles, particularly
in the automotive, construction, electrical and textile industries;
i
- changes in the demand for, supply of, and market prices of crude oil,
refined products, natural gas and petrochemicals, including changes in
production quotas in OPEC countries and the deregulation of the natural
gas transmission industry in Europe;
- the cost and availability of feedstock and other raw materials, including
naphtha, and the price of steam cracker products;
- the ability to pass increases in raw material costs on to customers;
- changes in the degree of patent and other legal protection afforded to
BASF's products;
- regulatory approval, particularly in the areas of fine chemicals,
agricultural products and plant biotechnology, and market acceptance of
new products;
- unexpected negative results from research and development and testing of
current product candidates;
- the ability to maintain plant utilization rates and to implement planned
capacity additions and expansions;
- the ability to reduce production costs by implementing technological
improvements to existing plants;
- the existence of temporary industry surplus production capacity resulting
from the integration and start-up of new world-scale plants;
- potential liability resulting from pending or future litigation, including
litigation and investigations relating to antitrust violations in the
vitamins business;
- potential liability for remedial actions under existing or future
environmental regulations;
- changes in currency exchange rates, interest rates and inflation rates;
and
- changes in business strategy and various other factors referenced in this
Annual Report.
Many of these factors are macroeconomic in nature and are, therefore, beyond
the control of BASF's management. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected, intended, planned or projected. BASF does not
intend, and does not assume any obligation, to update the forward-looking
statements contained in this Annual Report.
ii
TABLE OF CONTENTS
PART I
PAGE
--------
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT, AND ADVISERS...... 1
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE..................... 1
ITEM 3. KEY INFORMATION............................................. 3
ITEM 4. INFORMATION ON THE COMPANY.................................. 11
History and Development of the Company...................... 11
Business Overview........................................... 11
Organizational Structure.................................... 80
Description of Property..................................... 80
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS................ 85
Overview.................................................... 85
Basis of Presentation....................................... 87
Results of Operations....................................... 88
Liquidity and Capital Resources............................. 114
Exchange Rate Exposure and Risk Management.................. 122
Research and Development.................................... 123
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.................. 125
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS........... 137
ITEM 8. FINANCIAL INFORMATION....................................... 139
ITEM 9. THE OFFER AND LISTING....................................... 143
ITEM 10. ADDITIONAL INFORMATION...................................... 147
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK........................................................ 153
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES...... 168
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES............. 169
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS............................................. 169
ITEM 15. [RESERVED].................................................. 169
ITEM 16. [RESERVED].................................................. 169
PART III
ITEM 17. FINANCIAL STATEMENTS........................................ 171
ITEM 18. FINANCIAL STATEMENTS........................................ 171
ITEM 19. EXHIBITS.................................................... F-75
iii
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
1
(This page has been left blank intentionally.)
ITEM 3. KEY INFORMATION
SELECTED FINANCIAL DATA
The following selected financial data for each of the years in the five-year
period ended December 31, 2001 are excerpted from the Consolidated Financial
Statements of BASF, which have been audited by Deloitte & Touche GmbH,
independent accountants during this period. These data are set forth in
accordance with generally accepted accounting principles in Germany (German
GAAP) and U.S. GAAP for all periods presented.
Since 1998, BASF's accounting and valuation methods conform with U.S. GAAP
to the extent permissible under the German Commercial Code, which represents
German GAAP. See Notes 1 and 4 to the Consolidated Financial Statements in Item
18 for further information. As a result, the selected financial data presented
below in accordance with German GAAP for 1997 are not directly comparable to the
German GAAP data for 1998, 1999 and 2000. In 2001, BASF changed its accounting
for income taxes and the method of depreciating certain fixed assets as
described in Note 2 to the Consolidated Financial Statements. As a result, the
selected financial data for 2001 are not directly comparable to that of prior
years. The selected financial data presented below in accordance with U.S. GAAP
for the years 1999, 2000 and 2001 have been derived from the Consolidated
Financial Statements included in Item 18. The reconciliation of the differences
between German GAAP and U.S. GAAP is described in Note 4 to the Consolidated
Financial Statements.
The translation of euros into dollars for 2001 has been made solely for the
convenience of the reader at the noon buying rate of the Federal Reserve Bank of
New York (the "Noon Buying Rate") on December 31, 2001, which was U.S.
$0.8901 = E1.00. No representation is made that such euro amounts could have
been or could be converted into dollars at that or any other exchange rate on
such date or any other dates.
3
2001 2001 2000 1999 1998 1997
-------- ------------ ------------ ------------ ------------ ------------
(EUROS IN MILLIONS, EXCEPT PER SHARE DATA AND CERTAIN OTHER DATA)
INCOME STATEMENT DATA
GERMAN GAAP
Sales, net of petroleum and
natural gas taxes(1)....... $28,928 E 32,500 E 35,946 E 29,473 E 27,643 E 28,520
Gross profit on sales........ 9,179 10,312 12,691 11,081 10,368 10,359
Income from operations....... 1,083 1,217(6) 3,070(5) 2,009(4) 2,624(3) 2,731(2)
Income from ordinary
activities................. 542 609 2,827 2,606 2,771 2,726
Extraordinary income......... 5,448 6,121 -- -- -- --
Income before taxes and
minority interests......... 5,990 6,730 2,827 2,606 2,771 2,726
Income before minority
interests.................. 5,186 5,826 1,282 1,245 1,664 1,639
Net income................... 5,214 5,858 1,240 1,237 1,699 1,654
Basic earnings per share..... 8.65 9.72 2.02 2.00 2.73 2.67
BALANCE SHEET DATA
GERMAN GAAP
Fixed assets................. 19,131 21,493 21,769 16,070 14,546 12,705
Current assets including
deferred taxes and prepaid
expenses................... 13,692 15,382 16,788 13,939 12,156 11,831
Total assets................. 32,822 36,875 38,557 30,009 26,702 24,536
Stockholders' equity......... 15,596 17,522 14,295 14,145 13,250 12,031
Thereof subscribed
capital.................. 1,330 1,494 1,555 1,590 1,595 1,590
Provisions/Liabilities..... 17,226 19,353 24,262 15,864 13,452 12,505
Thereof long-term.......... 8,861 9,955 9,059 7,529 6,898 6,094
Total stockholders' equity
and liabilities............ 32,822 36,875 38,557 30,009 26,702 24,536
CAPITAL EXPENDITURES AND
DEPRECIATION
Additions to fixed assets.... 3,608 4,053 8,637 3,800 4,131 2,964
Depreciation of fixed
assets..................... 2,621 2,945 2,921 2,681 2,280 2,048
U.S. GAAP RECONCILIATION
Net income................... 5,066 5,692 1,454 1,325 1,771 N/A
Thereof from continuing
operations............... (212) (238) 1,302 1,329 1,725
Basic earnings per share... 8.41 9.45 2.37 2.14 2.84 N/A
Income from continuing
operations per share..... (0.35) (0.39) 2.13 2.15 2.77
Diluted earnings per share... 8.41 9.45 2.35 2.12 2.79 N/A
Stockholders' equity......... 16,501 18,538 15,229 14,753 13,905 N/A
KEY RATIOS
Return on sales (%)(7)....... 3.7 3.7 8.5 6.8 9.5 9.6
Return on assets before
income taxes and interest
expenses (%)(8)............ 3.1 3.1 9.9 10.2 11.9 12.6
Return on equity after taxes
(%)(9)..................... (1.0) (1.0) 9.0 9.1 13.2 14.6
WEIGHTED AVERAGE OF SHARES OUTSTANDING USED IN DETERMINING EARNINGS PER SHARE:
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- --------
Basic earnings per share........................... 602,586,176 612,806,123 618,073,268 622,476,129 N/A
Diluted earnings per share......................... 602,586,176 621,581,022 627,161,758 636,651,309 N/A
---------------
(1) Since 2000, natural gas taxes only.
(2) Including special charges of E243.
(3) Including special income of E71.
(4) Including special charges of E941.
(5) Including special charges of E330.
(6) Including special charges of E1,076.
(7) Return on sales (%) is calculated by dividing income from operations by net
sales.
(8) Return on assets before income taxes and interest expenses (%) is calculated
by dividing the profit (loss) from ordinary activities before taxes and
interest expense by the average amount of assets of the current period and
previous year.
(9) Return on equity after taxes (%) is calculated by dividing profit (loss)
excluding extraordinary income after taxes by the average amount of
stockholders' equity of the current period and the previous year.
4
REPORTABLE OPERATING SEGMENT DATA
2001 2001 2000 1999 1998 1997
-------- ----------- ----------- ----------- ----------- -----------
(EUROS IN MILLIONS)
CHEMICALS
Sales............................................ $4,000 E 4,494 E 4,504 E 3,289 E 3,220 E 3,533
Income from operations(1)........................ 322 362 640 629 837 1,015
Assets........................................... 4,314 4,847 4,232 3,386 2,853 2,552
PLASTICS & FIBERS
Sales............................................ 7,285 8,185 11,030 8,628 7,663 7,502
Income from operations(2)........................ (2) (2) 902 656 562 388
Assets........................................... 5,647 6,344 6,086 6,937 5,072 4,521
PERFORMANCE PRODUCTS
Sales............................................ 7,258 8,154 8,418 7,553 7,292 7,503
Income from operations(3)........................ 88 99 586 708 753 570
Assets........................................... 5,383 6,048 6,266 4,975 4,522 4,565
AGRICULTURAL PRODUCTS
Sales............................................ 3,096 3,478 2,428 1,745 1,750 1,641
Income from operations(4)........................ 16 18 (443) 195 203 201
Assets........................................... 5,676 6,377 6,607 1,949 1,730 1,605
FINE CHEMICALS
Sales............................................ 1,766 1,984 1,739 1,636 1,474 1,352
Income from operations(5)........................ (187) (210) (5) (774) 117 195
Assets........................................... 1,324 1,488 1,368 1,338 1,455 940
PHARMACEUTICALS -- DISCONTINUED OPERATIONS
Sales............................................ 324 364 2,526 2,197 1,850 1,570
Income from operations(6)........................ 27 30 243 (13) 59 (52)
Assets........................................... -- -- 2,228 1,887 1,697 1,461
OIL & GAS
Sales............................................ 4,020 4,516 3,957 3,051 2,685 3,198
Income from operations(7)........................ 1,164 1,308 1,310 741 276 473
Assets........................................... 2,803 3,149 3,540 3,003 2,622 2,503
OTHER
Sales............................................ 1,179 1,325 1,344 1,374 1,709 2,221
Income from operations........................... (345) (388) (163) (133) (183) (59)
Assets........................................... 7,674 8,622 8,230 6,534 6,751 6,389
BASF GROUP
Sales............................................ 28,928 32,500 35,946 29,473 27,643 28,520
Income from operations(8)........................ 1,083 1,217 3,070 2,009 2,624 2,731
Assets........................................... 32,822 36,875 38,557 30,009 26,702 24,536
---------------
(1) Includes special items in 1999: E(37); in 2000: E(5); and in 2001: E(63).
(2) Includes special items in 1997: E(82); in 1998: E19; in 1999: E2; 2000:
E101; and in 2001 E(182).
(3) Includes special items in 1997: E(48); in 1998: E19; in 1999: E(74); in
2000: E(32); and in 2001 E(298).
(4) Includes special items in 1999: E(3); in 2000: E(341); and in 2001 E(182).
(5) Includes special items in 1997: E(37); in 1998: E2; in 1999: E(829); in
2000: E(50); and in 2001 E(283).
(6) Includes special items in 1997: E(22); in 1998: E(4); in 1999: E(164); in
2000: E(62); and in 2001 E29.
(7) Includes special items in 1999: E138; in 2000: E44; and in 2001 E0.
(8) Includes special items in 1997: E(243); in 1998: E71; in 1999: E(941); in
2000: E(330); and in 2001 E(1,076).
DIVIDENDS
The Board of Executive Directors and the Supervisory Board of BASF
Aktiengesellschaft propose dividends based on BASF Aktiengesellschaft's year-end
unconsolidated financial statements. The proposal is then voted on at BASF's
Annual Meeting. The Annual Meeting is usually convened during the second quarter
of each year.
5
Since all BASF Shares are in bearer form, dividends are either remitted to
the custodian bank on behalf of the stockholder, generally within two days
following the Annual Meeting, or, in the case of stockholders personally
possessing certificates, available immediately following the Annual Meeting upon
submission of the dividend coupon therefor at the offices of BASF
Aktiengesellschaft in Ludwigshafen, Germany, or the offices of BASF
Aktiengesellschaft's appointed paying agents. See "Item 10. Additional
Information" for further information.
Record holders of BASF's American Depositary Receipts (ADRs) on the dividend
record date will be entitled to receive payment in full of the declared dividend
in respect of the year for which it is declared. Cash dividends payable to ADR
holders will be paid to The Bank of New York, as depositary, in euros and,
subject to certain exceptions, will be converted by the depositary into U.S.
dollars. The amount of dividends received by holders of ADRs may be affected by
fluctuations in exchange rates. See "Exchange Rate Information" for further
information.
The following table lists the annual dividends payable per BASF Share in
euros and the U.S. dollar equivalent in each of the years indicated. The table
also discloses the dividend amount per BASF Share for 2001 proposed by the
Supervisory Board and the Board of Executive Directors for approval at the
Annual Meeting to be held on April 30, 2002. The table does not reflect the
related tax credits available to eligible taxpayers. See "Item 10. Additional
Information -- Taxation of Dividends" for further information.
DIVIDEND PAID FOR
EACH
BASF SHARE
------------------------
YEAR ENDED DECEMBER 31, E $
----------------------- ---------- --------
2001........................................................ 1.30 1.16
2000........................................................ 2.00(1) 1.88
1999........................................................ 1.13 1.03
1998........................................................ 1.12 1.19
1997........................................................ 1.02 1.13
---------------
(1) Thereof special dividend of equity charged with 45% corporation tax.
The euro dividend amounts are translated solely for the convenience of the
reader into U.S. dollars (rounded to the nearest cent) at the Noon Buying Rate
on the dividend payment date. For the dividend proposed to be paid in 2002 for
the year ended December 31, 2001, the euro amount is translated into U.S.
dollars (rounded to the nearest cent) on the basis of the Noon Buying Rate for
the conversion from U.S. dollars into euros at the Noon Buying Rate on
December 31, 2001 of $0.8901 = E1.00.
EXCHANGE RATE INFORMATION
On January 1, 2002 the euro became the sole legal tender for business
transactions in Germany and the other eleven countries participating in the
European Monetary Union.
Since January 4, 1999, BASF Shares have been quoted in euros on the
Frankfurt Stock Exchange.
Fluctuations in the exchange rate between the euro and the U.S. dollar will
affect, among other things, the U.S. dollar amount received by holders of BASF's
ADRs upon conversion by the Depositary of any cash dividends paid in euros on
BASF Shares. It will also affect the U.S. dollar equivalent of the euro price of
BASF Shares on the Frankfurt Stock Exchange, which will affect the market price
of the ADRs on the New York Stock Exchange.
The table below sets forth, for the periods and dates indicated, the high,
low, period-average and period-end Noon Buying Rates for euros expressed in U.S.
dollars for one euro. No
6
representation is made that the euro or U.S. dollar amounts referred to herein
could have been or could be converted into U.S. dollars or euros, as the case
may be, at any particular rate.
U.S. DOLLAR FOR ONE EURO
----------------------------------------------------
YEAR HIGH LOW PERIOD AVERAGE(1) PERIOD END
---- -------- -------- ----------------- ----------
2001............................... 0.9520 0.8370 0.8909 0.8901
2000............................... 1.0335 0.8270 0.9207 0.9388
1999............................... 1.1812 1.0016 1.0588 1.0071
1998............................... 1.2178 1.0548 1.1121 1.1733
1997............................... 1.2689 1.0398 1.1244 1.0871
---------------
(1) The average of the Noon Buying Rates on the last business day of each full
month during the relevant period.
The high and low exchange rates for the euro for each month during the
previous six months is set forth below:
U.S. DOLLAR FOR ONE
EURO
----------------------
MONTH HIGH LOW
----- -------- --------
February, 2002.............................................. 0.8778 0.8613
January, 2002............................................... 0.9031 0.8594
December, 2001.............................................. 0.9044 0.8773
November, 2001.............................................. 0.8975 0.8770
October, 2001............................................... 0.9168 0.8906
September, 2001............................................. 0.9310 0.8868
The Noon Buying Rate for the euro on March 4, 2002 was quoted by the Federal
Reserve Bank of New York at 0.8705 U.S. dollars for one euro.
As of January 4, 1999, the commencement date of euro trading, the Noon
Buying Rate for the euro was quoted at $1.1812 = E1.00.
Because a substantial portion of the BASF Group's revenues and expenses are
denominated in currencies other than the euro, results of operations and cash
flows may be materially affected by movements in the exchange rate between the
euro and the respective currencies to which the Group is exposed. For a
discussion of the effect exchange rate fluctuations have on the BASF Group's
business and operations, the effect of the adoption of the euro on the Group's
operations and also the hedging techniques used to manage the Group's exposure
to such fluctuations, see "Item 5. Operating and Financial Review and Prospects
-- Exchange Rate Exposure and Risk Management" and "Item 11. Quantitative and
Qualitative Disclosures about Market Risk."
RISK FACTORS
BASF's business, financial condition or results of operations could suffer
material adverse effects due to any of the following risks. While all the risks
considered material are described below, these are not the only risks BASF
faces. Additional risks not known by BASF or not presently considered material
may also impair BASF's business operations.
CONTINUING WEAKNESS IN THE MARKET FOR CHEMICAL PRODUCTS AND IN THE GLOBAL
ECONOMY GENERALLY MAY ADVERSELY AFFECT BASF'S SALES AND EARNINGS
Continued weak demand for chemical products in the United States, as well as
ongoing economic weakness in Europe and Asia would have an adverse effect on
both sales and earnings. Those areas that are subject to commoditization, such
as BASF's basic inorganic chemicals,
7
petrochemicals, intermediates and plastics operations, are particularly
vulnerable, whereas BASF's agricultural, nutrition, cosmetics operations and
natural gas trading are less likely to suffer.
CHANGES IN REGULATORY CONTROLS COULD REDUCE THE PROFITABILITY OF BASF'S
CURRENT PRODUCTS AND COULD DELAY BASF'S INTRODUCTION OF NEW PRODUCTS
BASF must comply with a broad range of regulatory controls on the testing,
manufacture and marketing of many of its products. These regulatory controls are
particularly strict in the United States. BASF expects that regulatory controls
worldwide, and especially in the European Union (E.U.), will become increasingly
demanding. A proposed new E.U. chemicals policy could require a significant
increase in safety testing for chemical products. These safety tests could be
very cost intensive and time consuming and could lead to increased costs and
reduced operating margins for BASF's chemical products.
In addition, a proposed E.U. directive on emissions trading, if implemented,
could reduce BASF's growth opportunities, especially in Europe. The directive
requires carbon dioxide emissions to be reduced by 21% in Germany and 7.5% in
Belgium, in each case based on 1990 carbon dioxide emission levels. Compliance
with this directive could require significant capital expenditures by BASF and
could limit BASF's ability to pursue its growth strategy.
BASF IS EXPOSED TO FOREIGN CURRENCY AND INTEREST RATE RISKS
BASF conducts a significant portion of its operations outside of Europe and
therefore is exposed to risks associated with the fluctuations of foreign
currencies. BASF is subject to interest rate risks in the ordinary course of its
business.
Risk management is centralized at BASF Aktiengesellschaft and BASF Group
companies designated for that purpose, and BASF hedges against financial risks
through derivative instruments such as forward exchange contracts, currency
options, interest rate and currency swaps and combined instruments. There can be
no assurance, however, that BASF's hedging strategy will be effective and that
foreign currency and interest rate fluctuations will not adversely affect BASF's
results of operations. See "Item 11. Quantitative and Qualitative Disclosures
About Market Risk" and Note 28 to the Consolidated Financial Statements for
additional information about the nominal value and market value of BASF's
financial instruments.
BASF is also subject to credit risks to the extent that counterparties to
transactions may not be able to perform their contractual obligations. Although
BASF aims to limit the risk of default by entering into transactions only with
top-rated financial institutions and by adhering to fixed limits, defaults with
respect to significant contracts may adversely affect BASF's operating results.
SIGNIFICANT VARIATIONS IN THE COST AND AVAILABILITY OF RAW MATERIALS,
ENERGY, PRECURSORS AND INTERMEDIATES MAY ADVERSELY AFFECT BASF'S OPERATING
RESULTS
BASF uses significant amounts of raw materials and energy in manufacturing a
wide variety of products. Significant variations in the cost and availability of
raw materials, energy, precursors and intermediates may adversely affect BASF's
operating results. To control these price and supply risks, BASF purchases raw
materials through long-term contracts and on spot markets, which allows BASF to
obtain favorable prices for a portion of its raw materials, if for example
excess quantities on the spot markets lead to a short-term price reduction.
Supply contracts for the most strategically important raw materials are
negotiated and concluded centrally for the BASF Group. For more information, see
"Item 4. Information on the Company -- Supplies and Raw Materials."
8
BASF's individual business units constantly monitor changes in their
relevant supply markets and take action to minimize their risks accordingly. If
raw material costs rise despite these measures, it is not always possible to
pass the full effect of the increases on to BASF's customers in the prices for
BASF's products. Significant increases in the costs of raw materials could
materially adversely affect BASF's earnings.
CYCLICALITY MAY ADVERSELY AFFECT BASF'S OPERATING MARGINS
The results of BASF's Chemicals, Plastics & Fibers and Performance Products
segments are affected by cyclicality in various industries in which they
operate, including the automotive, construction, electric and electronics as
well as the textile industries. BASF's strategy to deal with these risks is to
constantly expand its cyclically resilient businesses, such as agrochemicals,
active ingredients for pharmaceuticals and nutrition, and trading and
transmission of natural gas. In cyclical businesses, BASF seeks to maintain cost
leadership. There can be no assurance, however, that BASF's strategies will be
effective in countering the cyclicality of the industries in which the
Chemicals, Plastics & Fibers and Performance Products segments operate. If
BASF's strategies are not effective, BASF's operating margins may suffer.
THE RESULTS OF BASF'S CROP PROTECTION BUSINESS ARE DEPENDENT ON WEATHER
CONDITIONS AND CAN BE AFFECTED BY LOCAL AND REGIONAL ECONOMIC CIRCUMSTANCES
Sales volumes of BASF's crop protection products are subject to the
agricultural sector's dependency on weather conditions. Adverse weather
conditions in a particular growing season could materially adversely affect the
results of operations of BASF's crop protection business. In addition, BASF's
crop protection products typically are sold pursuant to contracts with long
payment terms. These extended payment periods make BASF's crop protection
business susceptible to losses from receivables during local or regional
economic crises and may adversely affect BASF's operating results.
FAILURE TO SUCCESSFULLY INVEST IN NEW BUSINESSES OR PROJECTS MAY ADVERSELY
AFFECT BASF'S OPERATING RESULTS AND GROWTH STRATEGY
Integration of existing and newly acquired businesses requires difficult
decisions with respect to staffing levels, facility consolidation and resource
allocation. BASF must also plan carefully to ensure that established product
lines and brands retain or increase their market position. Any failure to
combine businesses successfully could harm BASF's operating results.
BASF's business also requires investments in large-scale projects. These
projects are often long-term and very complex, requiring substantial planning to
ensure smooth transitions among the various stages of the project and to ensure
that the project is completed on schedule. Complications and delays associated
with an investment in a large-scale project could adversely affect BASF's
ability to pursue its growth strategy and remain competitive.
FAILURE TO DEVELOP NEW PRODUCTS AND PRODUCTION TECHNOLOGIES MAY HARM BASF'S
COMPETITIVE POSITION AND OPERATING RESULTS
BASF's operating results significantly depend on the development of
commercially viable new products and production technologies. BASF devotes
substantial resources to research and development. Because of the lengthy
development process, technological challenges and intense competition, there can
be no assurance that any of the products BASF is currently developing, or may
begin to develop in the future, will become market-ready and achieve substantial
commercial success. If BASF is unsuccessful in developing new products and
production processes in the future, its competitive position and operating
results may suffer.
9
BASF IS DEPENDENT UPON HIRING AND RETAINING HIGHLY QUALIFIED MANAGEMENT AND
TECHNICAL PERSONNEL
Competition for highly qualified management and technical personnel is
intense in the industries in which BASF operates. BASF's future success depends
in part on its continued ability to hire, assimilate and retain highly skilled
employees. There can be no assurance that BASF will continue to be successful in
attracting highly qualified employees in the future.
BASF IS SUBJECT TO THE RISKS ASSOCIATED WITH THE USE OF INFORMATION
TECHNOLOGY
BASF is dependent upon technology for the distribution of information within
the BASF Group and to customers and suppliers. This information technology is
subject to risks associated with defects, errors, failures and computer viruses.
To control potential risks in the information technology area, BASF uses the
latest hardware and software and has integrated uniform information technology
infrastructures, backup systems, replicated databases, virus and access
protection, encoding systems and a high degree of internal networking. There can
be no assurance, however, that BASF's information technology systems will not
fail and cause material disruptions to BASF's business.
BASF IS SUBJECT TO SECURITY RISKS
Assessing security risks on a worldwide basis and determining their
potential impact on BASF has become an extremely difficult undertaking since the
terrorist attacks in the United States. BASF's corporate security is in close
contact with local security offices through its group-wide network, and takes
controlled precautionary steps with the help of constantly updated security
measures and recommendations (travel restrictions, tighter access controls for
production plants, up-dating of rescue and evacuation plans, emergency services,
etc.) to protect the company and its employees.
LITIGATION COULD HARM BASF'S OPERATING RESULTS AND CASH FLOWS
For further information see "Item 8. Financial Information -- Legal
Proceedings" and Note 26 to the Consolidated Financial Statements.
10
ITEM 4. INFORMATION ON THE COMPANY
HISTORY AND DEVELOPMENT OF THE COMPANY
BASF Aktiengesellschaft was incorporated as a stock corporation under the
laws of the Federal Republic of Germany on January 30, 1952 under the name
"Badische Anilin- und Soda-Fabrik AG." In 1973, the company changed its name to
BASF Aktiengesellschaft. BASF Aktiengesellschaft's headquarters are located in
Ludwigshafen, Germany; its registered office is located at Carl Bosch Strasse
38, 67056 Ludwigshafen, Federal Republic of Germany, telephone 011-49-621-60-0.
The company's agent for U.S. federal securities law purposes is BASF
Corporation, located at 3000 Continental Drive-North, Mount Olive, New Jersey
07828-1234, telephone (973) 426-2600.
Although BASF Aktiengesellschaft was incorporated in 1952, it traces its
historical origins to 1865, when a stock corporation was founded under the name
"Badische Anilin- und Soda-Fabrik" and began producing coal tar dyestuffs. The
company rapidly gained a leading position in the world dye market. In the early
1900s, Badische Anilin- und Soda-Fabrik began transforming itself into a
multifaceted chemicals company.
In the mid-1920s, Badische Anilin- und Soda-Fabrik AG was merged into I.G.
Farbenindustrie AG ("I.G. Farben"), a group formed from Germany's principal
chemical and pharmaceutical companies, including Bayer AG ("Bayer") and
Farbwerke Hoechst Aktiengesellschaft vormals Meister Lucius & Bruning
("Hoechst").
Following World War II, the Allied High Commission for Germany -- formed by
the United States, United Kingdom, France and the former Soviet Union to
administer occupied Germany -- seized the assets of I.G. Farben. Based on Law
No. 35 of the Allied High Commission, the assets were later partially dispersed
to 12 newly incorporated companies, including Hoechst, Bayer and Badische
Anilin- und Soda-Fabrik AG. Under Law No. 35, Badische Anilin- und Soda-Fabrik
AG assumed no debts, liabilities and obligations of I.G. Farben, except for
certain liabilities expressly provided for in the regulation issued by the
Allied High Commission.
In the 1950s and 1960s, BASF started to expand beyond its domestic
operations by building both production and sales facilities outside Germany and
by establishing partnerships and joint ventures in Europe, North America and
South America. In 1958, BASF established a U.S. joint venture with The Dow
Chemical Company, significantly strengthening its operations. In 1969, BASF
acquired Wyandotte Chemicals Corp., further expanding its base of operations in
the United States. These companies formed the nucleus of BASF Corporation, into
which BASF consolidated its North American activities in 1985.
In 1969, BASF acquired the German oil company Wintershall AG. Since then,
BASF has significantly strengthened and developed its exploration and marketing
of oil and gas by entering into a strategic partnership with Gazprom of Russia,
one of the world's leading natural gas producers. In 1993, BASF and Gazprom
established the joint venture WINGAS to market and distribute gas in Central and
Eastern Europe.
In 1975, BASF broadened its base in pharmaceuticals by acquiring a majority
interest in Knoll AG. BASF purchased the remaining interests in Knoll in 1982.
BASF acquired Boots Pharmaceuticals of the United Kingdom in 1995, strengthening
its presence in the North American pharmaceuticals market. In 2001, BASF sold
its pharmaceuticals business to Abbott Laboratories Inc. of Abbott Park,
Illinois.
BUSINESS OVERVIEW
INTRODUCTION
BASF is a transnational chemical company that aims to increase and sustain
its corporate value through growth and innovation. The company's product range
includes high-performance
11
products, including chemicals, plastics, coatings systems, dispersions,
agricultural products, fine chemicals as well as crude oil and natural gas.
BASF is comprised of the parent company, BASF Aktiengesellschaft of
Ludwigshafen, Germany, and 153 consolidated subsidiaries. The company has
customers in more than 170 countries and operates production sites in 39
countries.
For the year ended December 31, 2001, BASF reported sales of
E32,500 million, income from operations of E1,217 million, extraordinary income
of E6,121 million and net income after taxes and minority interests of
E5,858 million. Based on customer location, BASF's activities in Europe
accounted for 55% of BASF's total sales in 2001; North America (which includes
the United States, Mexico and Canada) accounted for 24% of sales; the Asia,
Pacific Area, Africa region accounted for 14% of sales; and South America
accounted for 7% of sales.
BUSINESS SEGMENTS
BASF has five separate business segments: Chemicals, Plastics & Fibers,
Performance Products, Agricultural Products & Nutrition and Oil & Gas. These
business segments encompass BASF's 12 operating divisions. In 2001, these
divisions were reorganized to further optimize BASF's value-adding chains by
bundling additional product groups which rely on similar technologies and
value-adding chains. For financial reporting purposes, the two operating
divisions of BASF's Agricultural Products & Nutrition business segment are
separate reportable operating segments: Agricultural Products and Fine
Chemicals. After receiving clearance from the Federal Trade Commission and the
European Union Commission, BASF sold its pharmaceuticals business on March 2,
2001 to Abbott Laboratories Inc. of Abbott Park, Illinois. Pursuant to the
requirements of U.S. GAAP, BASF's pharmaceuticals activities are disclosed as
discontinued operations as described in Item 18, Note 3 to the Consolidated
Financial Statements. For additional information on BASF's pharmaceuticals
activities as discontinued operations, see also Notes 4 and 5 to the
Consolidated Financial Statements in Item 18.
CHEMICALS
BASF produces a full range of chemicals in a highly integrated approach to
manufacturing. BASF's chemical production starts with basic petrochemicals and
inorganic chemicals substantially for captive use within the company and extends
to specialty intermediates and related products sold to external customers. BASF
sells its chemicals to a multitude of industries, particularly the chemical,
construction, automotive and electronics industries. The segment comprises the
Inorganics, Petrochemicals and Intermediates divisions. On July 1, 2001, the
former Specialty Chemicals division was dissolved, and its glycols and alkylene
oxides (for example, ethylene oxide and propylene oxide) product lines were
transferred to the Petrochemicals division. Polyurethane intermediates --
primarily, aniline -- were transferred from the Intermediates division to the
Polyurethanes division of the Plastics & Fibers segment.
PLASTICS & FIBERS
BASF is one of the world's largest producers of plastics and is also a
manufacturer of fiber products. The segment's products include styrenic
plastics, engineering and high-performance plastics, thermoplastics, foams,
nylon fibers, nylon intermediates and polyurethanes. The segment comprises the
Styrenics, Performance Polymers and Polyurethanes divisions. On July 1, 2001,
the former operating divisions Engineering Plastics and Fiber Products were
combined into the Performance Polymers division. Polyurethane intermediates --
primarily, aniline -- were transferred to the Polyurethanes division from the
Intermediates division of the Chemicals segment.
12
PERFORMANCE PRODUCTS
The Performance Products segment produces a number of BASF's high-value
chemicals. Among the segment's products are surfactants, pigments, automotive
and industrial coatings, dispersions and adhesive raw materials. BASF also is a
leading producer of acrylic acid and its derivatives as well as polymers such as
superabsorbents, which are used to manufacture sanitary care products. Formerly
known as the Colorants & Finishing Products segment, the segment was renamed and
consists of the Performance Chemicals, Coatings and Functional Polymers
divisions. On July 1, 2001, the Colorants division and Specialty Chemicals
division were merged to form the Performance Chemicals division. The
polyvinylpyrrolidone (PVP) product line for technical applications was
transferred to the Functional Polymers division from the Fine Chemicals segment.
AGRICULTURAL PRODUCTS & NUTRITION: AGRICULTURAL PRODUCTS AND FINE CHEMICALS
The Agricultural Products & Nutrition segment conducts its activities
through its Agricultural Products and Fine Chemicals divisions, which are
separate reportable operating segments. The segment produces a variety of
agricultural products, covering herbicides, fungicides and insecticides. BASF is
also a leading supplier of fine chemicals, including vitamins; carotenoids;
pharmaceutical active ingredients; polymers for pharmaceuticals, cosmetics and
human nutrition; aroma chemicals; UV (ultraviolet) filters; amino acids; and
feed enzymes. The segment, which was formerly known as the Health & Nutrition
segment, was renamed after BASF sold its pharmaceuticals business on March 2,
2001 to Abbot Laboratories Inc. of Abbott Park, Illinois, after receiving
clearance from the Federal Trade Commission and the European Union Commission.
OIL & GAS
BASF operates its Oil & Gas segment through BASF's subsidiary Wintershall AG
and its corresponding subsidiaries and affiliates. The main activities of the
Oil & Gas segment are the exploration and production of crude oil and natural
gas and, together with Wintershall AG's partner Gazprom of Russia, the
marketing, distribution and trading of natural gas in Central and Eastern
Europe.
BASF'S FINANCIAL TARGET
BASF aims to achieve a premium on the company's cost of capital.
GROUP STRATEGY
BASF's goal is to increase and sustain the company's corporate value through
growth and innovation. As the world's largest chemical company based on sales of
E32,500 million in 2001, BASF aims to capitalize on the opportunities that are
emerging from the restructuring process currently affecting the global chemical
industry. BASF's long-term strategy and activities are guided by the principles
of Sustainable Development and by the company's stated values and principles.
BASF's strategy is based on the following principles:
EXPANDING PROFITABLE BUSINESSES:
In optimizing its portfolio, BASF's goal is to expand highly profitable
business activities and concentrate on its core competencies. To achieve this
growth, BASF draws on the commercial benefits of its innovations, expands
manufacturing capacities for specific products and actively manages its
portfolio. BASF discontinues business activities which are unlikely to show
long-term profitability as part of the company's product portfolio and acquires
innovative businesses with a high potential for growth. From 1992 to 2001, BASF
sold businesses which, at the time of their divestiture, generated sales valued
at approximately E11 billion. During the same period, the company acquired
businesses which, at the time of their acquisition, generated sales valued at
13
approximately E9.5 billion. In production, BASF also enters into strategic
alliances with the aim of achieving profitable growth in our key businesses and
value-adding chains.
ENHANCING BASF'S LONG-TERM COMPETITIVENESS:
BASF believes that cost leadership is crucial to the company's long-term
competitiveness. To achieve this, BASF uses the cost efficiencies offered by
integrated large-scale plants and by the technological advances in its
production processes. BASF relies on the technology platforms in its research
and development units to develop and implement process and product innovations
effectively.
BASF's goal is to operate the most competitive sites in the chemical
industry. BASF believes that to continue to secure its long-term performance in
the chemicals business, it must use the highly integrated nature of its major
manufacturing sites (referred to by the company as VERBUND sites -- a German
word for "integrated") as effectively and extensively as possible while
consolidating the company's portfolio of production sites. Where appropriate,
BASF capitalizes on the cost advantages of its Verbund structures by building
new plants at existing Verbund sites or by building new Verbund sites such as
those in Nanjing, China, and Kuantan, Malaysia. For customers who place a high
value on being served locally, BASF can gain a competitive advantage by
operating regional sites for manufacturing customized products.
BASF's marketing and sales competence and its access to competitively-priced
raw materials, energy and precursors are also of strategic importance.
CREATING VALUE FOR BASF'S CUSTOMERS:
BASF aims to be the preferred partner for its strategic customers. In
response to growing pressures in its commodities business, BASF is turning to
modern e-commerce solutions to contain costs. In its non-commodities businesses,
the company aims to provide added value by expanding the scope of its customer
services.
BASF believes that by working closely with innovative customers the company
can exploit the potential of its research and development activities more
effectively to develop the customized solutions customers want. Therefore the
company believes it has an advantage over its competitors, thereby enhancing the
company's earnings potential.
INVESTING IN GROWTH MARKETS:
BASF focuses its resources on expanding selected businesses in specific
regions. Building production capacities in growth markets is a crucial element
of BASF's strategy, as it allows the company to supply regional markets locally.
Local production also increases the company's flexibility in high growth markets
and reduces the risks posed by temporary currency fluctuations and weak regional
growth.
BASF estimates that by 2010 the chemical market in Asia -- excluding Japan
-- will be approximately as large as the market for chemicals in Europe.
Therefore, Asia is a key market for BASF. The company aims to establish itself
quickly as one of the most important chemical manufacturers in this emerging
market. In Europe and North America, BASF is concentrating its resources on
growth markets in which the company believes it has competitive advantages over
other chemical producers.
BASF aims to be among the top three suppliers in all of the markets it
serves. The company already derives more than two-thirds of its sales from
product groups in which it is one of the top three suppliers, and it aims to
further increase this proportion.
14
RELYING ON THE DIVERSE SKILLS OF BASF'S EMPLOYEES:
BASF considers its committed and skilled employees to be one of the
company's particular strengths and also believes the company benefits from the
national and cultural diversity of its staff. Furthermore, BASF considers
teamwork to be an asset and believes it has an impact in particular on the
effectiveness of the company's research and development activities.
BASF believes the new corporate organization, which came into effect in 2001
as part of BASF's FIT FOR THE FUTURE program, will strengthen the company's ties
to customers, support its market presence and help foster a greater
entrepreneurial spirit.
CHEMICALS
SEGMENT OVERVIEW
BASF's Chemicals segment is one of the largest chemical producers in the
world based on sales. The Chemicals segment produces a wide range of products,
from basic petrochemicals and inorganic chemicals to higher-value intermediates,
allowing BASF to exploit fully the benefits of its Verbund approach to
integration.
The following table sets forth the Chemicals segment's sales to third
parties, percentage of total BASF sales, intersegmental transfers, income from
operations and capital expenditures for the last three years:
2001 2000 1999
----------- ----------- -----------
(EUROS IN MILLIONS)
Sales to third parties...................................... E 4,494 E 4,504 E 3,289
Percentage of total BASF sales.............................. 14% 13% 11%
Intersegmental transfers.................................... E 2,452 E 2,408 E 2,139
Income from operations...................................... E 362 E 640 E 629
Capital expenditures........................................ E 929 E 774 E 646
The Chemicals segment produces a wide variety of chemicals that are sold to
a multitude of industries, including the chemical, construction, automotive,
electrical, electronics, detergents, colorants, coatings and health and
nutrition industries.
The Chemicals segment exemplifies the benefits of BASF's Verbund approach to
integration because its divisions both intensively consume and manufacture
products along the company's core value-adding chains. Virtually all products
that the segment sells to external customers are produced within this integrated
network. Although most of the segment's sales are to external customers,
approximately 35% of the segment's total sales are intersegmental transfers to
other BASF operations for the manufacture of higher-value products. The products
manufactured for captive use include many basic and intermediate chemicals.
On July 1, 2001, the former Specialty Chemicals division was dissolved, and
its glycols and alkylene oxides (for example, ethylene oxide and propylene
oxide) product lines were transferred to the Petrochemicals division. All other
Specialty Chemicals operations were transferred to the Performance Chemicals
division. Polyurethane intermediates -- primarily, aniline -- were transferred
from the Intermediates division to the Polyurethanes division of the Plastics &
Fibers segment. In 2000, the former Petrochemicals & Inorganics and Industrial
Chemicals divisions were reorganized into the Inorganics and Petrochemicals
divisions. As part of this reorganization, technical nitrogen products were
transferred from Other (the former Fertilizers division) to the Inorganics
division. Data for the Chemicals segment from 1999 and 2000 have been restated
to reflect these reorganizations.
15
The divisions comprising the Chemicals segment and their principal products
are:
INORGANICS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
--------------------------------------------- ---------------------------------------------
- Inorganic basic chemicals such as - Used as starting materials for propylene
chlorine, sodium hydroxide, nitric acid oxide, polyvinyl chloride,
and sulfuric acid, as well as sodium and superabsorbents, fertilizers and other
ammonium salts high-value chemicals
- Glues and impregnating resins including - Wood-to-wood adhesives and bonding
their raw materials ammonia, urea, applications, decorative paper
formaldehyde, methanol and melamine manufacturing
- Inorganic specialties such as - Used for manufacturing tiny, intricate
Catamold-Registered Trademark- products devices
(for powder injection molding) and
carbonyl iron powder
- Electronic grade chemicals - Used for treating metal surfaces and for
manufacturing semiconductors
- Catalysts - Used in chemical reactions to increase
product yields
PETROCHEMICALS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
--------------------------------------------- ---------------------------------------------
- Cracker products including propylene, - Starting materials largely for captive use
ethylene, benzene and butadiene within BASF to manufacture plastics,
plasticizers, solvents, dispersions and
higher-value and specialty chemicals
- Industrial gases such as hydrogen, carbon - Starting materials largely for captive use
monoxide and oxygen within BASF to manufacture higher-value
chemicals
- Alkylene oxides such as ethylene oxide, - Precursors for products such as polyester
propylene oxide, as well as glycols, fibers, films and PET plastic bottles,
surfactants and glycol ethers anti- freeze, surfactants, dispersants and
detergents
- Solvents including oxo alcohols, acetates, - Solvents to process, apply, clean or
glycol ethers and specialty solvents separate materials mainly in the coatings,
pharmaceuticals and cosmetics industries
- Standard and specialty plasticizers as - Additives to soften plastics for use in
well as plasticizer raw materials the construction, cable and wire, coated
fabrics and medical industries
16
INTERMEDIATES:
MAJOR PRODUCTS PRIMARY APPLICATIONS
--------------------------------------------- ---------------------------------------------
- Amines, ethanolamines and specialty amines - Precursors or components for detergents
and cleaning products, process chemicals
and agricultural products
- Butanediol and derivatives - Chemical building blocks for plastics,
polyurethanes, fibers and paints
- Carboxylic acids and polyalcohols - Preservatives for the feed and food
industries, precursors for textile and
leather applications as well as for
coatings
- Specialty intermediates - For paper manufacturing, polymers,
textiles, leather products, pharmaceuticals
as well as agricultural products
SEGMENT STRATEGY
The competitiveness of the Chemicals segment depends upon cost leadership,
achieved through economies of scale, state of the art technology and efficient
production processes. BASF's capital expenditures and research and development
efforts are focused on building world-scale plants, as well as on developing new
technologies, processes and products.
The Chemicals segment's strategy is to maintain its leading market position
in Europe, improve its cost structure in North America, and expand its
operations in Asia. In Europe, BASF acquired the SISAS Group's production
activities in Feluy, Belgium, in mid-2001. The acquisition strengthened the
Chemical segment's activities in key products including butanediol and its
derivatives as well as phthalic anhydride. In North America, BASF and its
partner, TotalFinaElf S.A., started operation of the world's largest liquids
steam cracker at TotalFinaElf's refinery in Port Arthur, Texas, in the fourth
quarter of 2001. The steam cracker supplies propylene, ethylene and other
products to BASF's Verbund sites in Geismar, Louisiana, and Freeport, Texas. In
Asia, BASF has a number of major projects underway. These include the expansion
of the new Verbund site in Kuantan, Malaysia. BASF began manufacturing at the
site in mid-2000, and in April 2001 an oxo alcohol and syngas complex went on
stream. BASF is also constructing a new Verbund site in Nanjing, China. BASF
expects plants at the Nanjing site to begin operations in 2005.
In 2001, the Chemicals segment invested approximately E109 million in
research and development. Research activities are focused on improving
value-adding production chains that serve the segment and on developing
higher-value products. BASF is developing new products and production processes,
in particular for organic and inorganic intermediates and industrial chemicals.
17
The main capital expenditure projects of the Chemicals segment currently
include:
PROJECTED ANNUAL PROJECTED
CAPACITY AT COMPLETION START-UP OF
LOCATION PROJECT OF PROJECT OPERATIONS
-------- ------- ---------------------- -----------
(METRIC TONS)
Kuantan, Malaysia Butanediol 100,000(1) 2003
Freeport, Texas Neopentylglycols 60,000 2002
Port Arthur, Texas Butadiene 410,000(2) 2003
Ludwigshafen, Germany Polytetrahydrofuran 56,000 2002
Formaldehyde 480,000 2003
Glyoxal 60,000 2003
Tarragona, Spain Propylene 350,000(3) 2002
---------------
(1) Conducted through a joint venture between BASF (60%) and PETRONAS (40%)
(capacity reflects total joint venture capacity).
(2) Conducted through a joint venture between Shell Chemical Company (60%), BASF
(24%) and TotalFinaElf S.A. (16%) (capacity reflects total joint venture
capacity).
(3) Conducted through a joint venture between BASF (51%) and SONATRACH (49%)
(capacity reflects total joint venture capacity).
INORGANICS
OVERVIEW
BASF's Inorganics division sells approximately 400 products of which
approximately 55% are allocated for captive use. This allows BASF's other
divisions to benefit from reduced energy, transportation and infrastructure
costs and from improved efficiencies in purchasing and logistics. These internal
transfers, which are sold at market prices, include large amounts of chlorine,
sodium hydroxide, ammonia, formaldehyde, methanol and nitric acid as startup
materials to create higher-value products. This captive use within BASF provides
steady demand that helps maintain good capacity utilization rates at the
division's production plants. The remaining amount is sold to external customers
worldwide from a broad range of industries.
The principal raw materials used in the Inorganics division are natural gas,
sulfur and salt. The division purchases approximately 30% of its raw materials
from other BASF operations. Natural gas, the main raw material, is acquired
through BASF's joint venture WINGAS GmbH. All other principal raw materials are
purchased from external sources. BASF does not rely on any dominant supplier for
the raw materials of its Inorganics division.
The most important production site for the Inorganics division is BASF's
Verbund site in Ludwigshafen, Germany, where the division produces its entire
range of products. The division also produces basic inorganic chemicals such as
ammonia, chlorine, sodium hydroxide, formaldehyde, nitric acid and sulfuric acid
at the company's Verbund site in Antwerp, Belgium.
Cost leadership is vital for the Inorganics division due to the commodity
pricing structure for many of its products. BASF believes its integrated
approach to manufacturing in world-scale plants helps the division control costs
and compete effectively in its key product areas. Offering customers inorganic
specialties and innovative products, especially in the areas of electronic grade
chemicals, catalysts and powder injection molding is also important for BASF to
maintain a competitive edge and thus contributes to BASF's profitability. BASF
aims to expand its business in inorganic
18
specialties and catalysts for which the company can obtain higher margins. For
example, in 2001, BASF expanded the production capacity in Ludwigshafen,
Germany, of hydroxylamine; a chemical used in manufacturing electronic products.
The Inorganics division's sales to third parties were E677 million in 2001.
PRODUCTS
The Inorganics division has four major product lines:
INORGANIC CHEMICALS
BASF produces inorganic chemicals through value-adding chains of production
based on nitrogen, sulfur and sodium chloride. Products range from basic
chemicals such as chlorine, sodium hydroxide, nitric acid and sulfuric acid to
products such as sodium salts and ammonium salts. More than half of these
products are for captive use within BASF's Verbund. The remaining products are
sold primarily to other chemical companies.
GLUES AND IMPREGNATING RESINS
BASF offers a wide variety of tailor-made, wood-to-wood adhesives. These
adhesives are used to bind together the particles, fibers and strands found in
all types of particleboards, and are also used for surface bonding of wooden
components. In addition, BASF produces impregnating resins, which are used to
manufacture decorative paper and laminated flooring. BASF is also a producer of
glues and impregnating resin raw materials such as ammonia, formaldehyde,
methanol, urea and melamine. Europe is the primary market for this group of
products.
INORGANIC SPECIALTIES AND ELECTRONIC GRADE CHEMICALS
BASF offers a wide range of inorganic specialties which includes carbonyl
iron powder, hydroxylamine free base, hydroxylammonium sulfate, boron
trifluoride and BASF's innovative Catamold-Registered Trademark- line of
products for powder injection molding of metal and ceramic components. The
Catamold-Registered Trademark- line is especially suited for manufacturing tiny,
intricate devices such as watch casings and orthodontic appliances. BASF sells
these products globally to manufacturers in the automotive, construction and
medical sectors, among other industries. BASF also produces some inorganic
specialties in electronic grade, such as hydroxylamine free base, for use in
manufacturing semiconductors, light-emitting diodes, flat screens and plasma
screens.
CATALYSTS
Catalysts are substances that are frequently added to chemical processes to
facilitate the target reaction. Developing and manufacturing catalysts plays an
important role in BASF's strategy to protect and expand its technological
leadership because catalysts often help increase product yields. BASF's
catalysts are used mainly in internal processes and are also sold to customers
around the world.
19
The production capacities as of December 31, 2001 for the Inorganics
division's major products are as follows:
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS) PRIMARY APPLICATIONS
------- -------------------------- --------------------
Ammonia............................ 1,255,000 - Fertilizers
- Glues and impregnating resins
- Dyestuffs
- Animal nutrition
- Fiber products
Chlorine........................... 460,000 - Plastics
- Solvents
- Inorganic salts
Formaldehyde condensation
products .......................... 750,000 - Glues and impregnating resins
Formaldehyde....................... 510,000 - Glues and impregnating resins
- Solvents
Methanol........................... 450,000 - Glues and impregnating resins
- Chemical intermediates
- Solvents
- Vitamins
Sulfuric acid and oleum............ 720,000 - Fiber products
Sulfur dioxide..................... 150,000 - Bleaching and reducing agents
Sodium hydroxide................... 470,000 - Chemicals
Urea............................... 545,000 - Fertilizers
- Glues and impregnating resins
MARKETS AND DISTRIBUTION
In 2001, Europe accounted for 80% of the Inorganics division's sales to
external customers; North America for 9%; South America for 2%; and the Asia,
Pacific Area, Africa region for 9%. Besides BASF's other operating divisions,
the Inorganics division's main customers include other chemical companies, and
many of these are competitors of BASF.
The Inorganics division produces both commodities characterized by cyclical
pricing, in which changes in the costs of raw materials have an almost immediate
effect on the division's financial performance, and inorganic specialties, which
are less sensitive to price fluctuations. The Inorganics division competes on
the basis of strong customer relationships, comprehensive product service and
price. In the market for specialty products, the division also competes based on
its ability to offer innovative products, such as catalysts.
The Inorganics division sells its products primarily through BASF's own
sales force. In January 2001, BASF centralized responsibility for the sale of
electronic grade chemicals in the Inorganics division in order to provide these
products to customers more efficiently.
The Inorganics division's main competitors include ATOFINA S.A. of France,
Norsk Hydro of Norway and Gentek Inc. of the United States.
20
PETROCHEMICALS
OVERVIEW
The Petrochemicals division sells more than 200 different products and
represents the first step in BASF's Verbund approach to integration for the
company's petrochemical-based, high-value products. Approximately 50% of the
division's products are earmarked for captive use within BASF. The remaining
amount is sold to approximately 2,200 customers worldwide.
The principal raw materials used in this division are naphtha -- derived
from refining crude oil -- and natural gas. The Petrochemicals division
purchases approximately 10% of its raw materials from other BASF operations, the
majority of which is natural gas acquired from WINGAS GmbH. All other principal
raw materials are bought from external sources. BASF does not rely on any
dominant supplier for the raw materials of the Petrochemicals division.
The Petrochemicals division's principal products include the basic building
blocks of petrochemicals, which are produced primarily in steam crackers. In a
steam cracker, steam is used to crack naphtha mainly into ethylene and
propylene. Other materials produced in this process include aromatics such as
benzene, and C(4) cuts (a mixture of C(4) hydrocarbons) -- a source of
butadiene, isobutene and n-butenes. BASF also produces acetylene -- a chemical
based on natural gas and provides industrial gases for consumption at BASF's
Verbund sites in Ludwigshafen, Germany, and Antwerp, Belgium.
The division's products, which are used internally in BASF's value-adding
chains of production, include large amounts of ethylene, propylene, butadiene,
benzene, acetylene, oxo alcohols, phthalic anhydride, ethylene oxide, ethylene
glycols, propylene oxide, propylene glycol and industrial gases. This captive
use within BASF provides steady demand that helps maintain good capacity
utilization rates at the division's production plants.
In Europe, BASF operates steam crackers in Ludwigshafen, Germany, and
Antwerp, Belgium. Although the steam crackers mainly supply products for captive
use within the company, BASF maintains positions in the merchant markets for
ethylene to ensure high capacity utilization. In mid-2001, BASF obtained
approval from the European Union commission to acquire the SISAS Group's
production activities in Feluy, Belgium. Through this acquisition, BASF
strengthened its position in the European market for phthalic anhydride.
In North America, BASF and its partner TotalFinaElf S.A. have built a
world-scale steam cracker at TotalFinaElf's refinery located in Port Arthur,
Texas. The steam cracker started operations in the fourth quarter of 2001, and
will supply olefins and aromatics to BASF's Verbund sites in Geismar, Louisiana,
and Freeport, Texas. BASF is the majority partner, with a 60% ownership
interest, and the site operator. The combined investment of BASF and
TotalFinaElf amounts to approximately E1 billion, with BASF's share being
E600 million. The steam cracker's annual production capacity is 920,000 metric
tons of ethlylene and 550,000 metric tons of propylene.
In Asia, a production plant for oxo C(4) alcohols came on stream in Kuantan,
Malaysia, in April 2001.
Virtually all of the products in the Petrochemicals division are
commodities; low production cost is therefore the key to the success of the
division. Highly competitive cost positions are achieved through economies of
scale, high capacity utilization and use of all products within Verbund sites.
Many of the division's products constitute the first steps in BASF's integrated
value-adding chains and are sold to other BASF operations at market prices. By
buying these products from BASF's own Petrochemicals division, however, other
BASF operations benefit from efficiencies in logistics and savings in energy,
transportation, purchasing and infrastructure costs. This approach underpins
BASF's ability to efficiently manufacture higher-value products throughout its
operations.
The Petrochemicals division's sales to third parties were E2,079 million in
2001.
21
PRODUCTS
The following are the Petrochemicals division's main product lines:
CRACKER PRODUCTS
BASF produces the entire range of cracker products from ethylene and
propylene to benzene and C(4) cuts. Of these, propylene is the most important
starting product for BASF's value-adding chains of production in petrochemicals.
Benzene is used captively both in Ludwigshafen and Antwerp, while the residues
from benzene extraction are sold as gasoline components. Butadiene is used
captively to produce dispersions and ABS (acrylonitrile-butadiene-styrene) and
is also sold in the merchant market. Isobutene (a C(4) hydrocarbon) serves as
the starting material for the polyisobutene value-adding chain of gasoline
additives as well as the basic building block in vitamin synthesis. In Europe,
all n-butenes are used in the synthesis of plasticizers and detergent alcohols.
Higher olefins are marketed to the adhesives industry.
INDUSTRIAL GASES
These products include industrial gases such as hydrogen, carbon monoxide
and oxygen and are largely for captive use within BASF to manufacture
higher-value chemicals.
ALKYLENE OXIDES AND GLYCOLS
Ethylene oxide derived from ethylene is used mainly to produce surfactants,
ethanolamines, glycols and glycol ethers. BASF is one of Europe's largest
producers of ethylene glycol, a product used in antifreeze in the automotive
industry. BASF also supplies ethylene glycol to polyester manufacturers for the
production of fibers, films and PET (polyethylene terephthalate) plastic
bottles. Ethylene oxide and glycols form important links in BASF's ethylene
value-adding chain, and in 2001 the company increased production capacity for
these products. Propylene oxide is synthesized from propylene and serves as a
base for a wide variety of products, including surfactants, hydraulic fluids,
solvents and propylene glycol.
SOLVENTS
BASF offers a wide range of oxygenated, halogen-free solvents that are used
to dissolve other chemicals and facilitate chemical reactions. BASF is the
world's largest producer of oxo alcohols and is also a major producer of
acetates, glycol ethers and glycol ether acetates, as well as the specialty
solvents dimethylformamide (DMF), dimethylacetamide (DMAC) and cyclohexanone.
BASF sells most of these products globally, primarily to the coatings,
pharmaceuticals and cosmetics industries.
PLASTICIZERS AND PLASTICIZER RAW MATERIALS
BASF manufactures standard and specialty plasticizers, which are used in
chemical processes to make rigid plastics flexible. BASF also sells the
plasticizer precursor phthalic anhydride for use in dyestuffs and unsaturated
polyester resins, and markets plasticizers based on higher alcohols.
22
Production capacities as of December 31, 2001 for the major products in the
Petrochemicals division are as follows:
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS) PRIMARY APPLICATIONS
------- -------------------------- --------------------
Ethylene................................. 2,260,000(1) - Plastics
- Specialty chemicals
- Solvents
- Dispersions
Propylene................................ 1,300,000(2) - Plastics
- Plasticizers
- Solvents
- Specialty chemicals
Benzene.................................. 490,000(3) - Plastics
Oxo C(4) alcohols
(calculated as butyraldehyde)............ 1,070,000(4) - Plasticizers
- Dispersions
- Solvents
Phthalic anhydride....................... 259,000(5) - Plasticizers
- Resins
- Dyestuffs
Higher oxo alcohols...................... 170,000 - Plasticizers
- Detergents (ethoxylates)
Acetylene................................ 90,000 - Plastics
- Vitamins
- Pharmaceuticals
Ethylene oxide........................... 1,065,000 - Nonionic surfactants
- Ethylene glycols
Propylene oxide.......................... 124,000 - Nonionic surfactants
- Propylene glycol
Ethylene glycols......................... 750,000 - Antifreeze
- Polyester
Propylene glycol......................... 80,000 - Unsaturated polyesters, solvents
- Polyester
Glycol ethers............................ 125,000 - Solvents, brake and hydraulic
fluids
---------------
(1) Includes the total production capacity of 920,000 metric tons conducted
through a joint venture between BASF (60%) and TotalFinaElf S.A.
(2) Includes the total production capacity of 550,000 metric tons conducted
through a joint venture between BASF (60%) and TotalFinaElf S.A.
(3) Includes the total production capacity of 110,000 metric tons conducted
through a joint venture between BASF (60%) and TotalFinaElf S.A.
(4) Includes the total production capacity of 250,000 metric tons conducted
through a joint venture between BASF (60%) and PETRONAS.
(5) Includes the total production capacity of 40,000 metric tons conducted
through a joint venture between BASF (60%) and PETRONAS.
23
MARKETS AND DISTRIBUTION
In 2001, Europe accounted for 64% of the Petrochemicals division's sales to
external customers; North America for 27%; South America for 1%; and the Asia,
Pacific Area, Africa region for approximately 8%.
The Petrochemicals division sells products through BASF's own sales force as
well as through wholesalers. Specialty chemical and other chemical companies are
the primary external customers of this division, and some of the customers are
also competitors of BASF. Approximately 50% of the division's sales are to other
BASF divisions.
The Petrochemicals division produces commodities that are subject to strong
cyclicality in pricing. Changes in the costs of raw materials have an almost
immediate effect on the division's financial performance. Competition in the
market is based on strong customer relationships, comprehensive product services
and price.
BASF considers Shell Chemicals and BP Amoco plc of the United Kingdom;
Eastman Chemicals Corp., Exxon Chemicals Company and The Dow Chemical Co. of the
United States; DSM of the Netherlands; E.ON AG, DEA Mineralol AG, Celanese AG
and the Degussa AG unit Oxeno of Germany to be the main competitors in its
Petrochemicals division.
INTERMEDIATES
OVERVIEW
The Intermediates division manufactures approximately 550 products that are
sold to around 3,000 customers worldwide. These customers typically purchase the
division's chemical precursors to produce higher-value chemicals. Customers of
the Intermediates division are largely active in the manufacture of surfactants,
plastics, polyurethanes, textile fibers, resins, paints, colorants,
pharmaceuticals and agricultural products.
The Intermediates division represents an important link in BASF's Verbund
approach to integration because it purchases approximately 80% of its feedstock
from other BASF operations, thus benefiting from efficiencies in logistics and
savings in energy, transportation, purchasing and infrastructure costs. The
division also consumes by-products of other BASF chemical operations, thus
adding value to otherwise wasted product streams. The principal raw materials
that the division uses are methanol, formaldehyde, acetylene, C(4) aldehyde,
acrylonitrile, ammonia, ethylene oxide, ethylene, and chlorine.
Many of the Intermediates division's products are generally more resilient
to economic cycles than the products in the Chemicals segment's other divisions,
and many are the result of multi-step production processes within BASF before
intermediates are sold to external customers. The division, however, also
satisfies high demand within BASF for cost-efficient precursors for the
production of agricultural products, pharmaceuticals, paint resins, plastics,
adhesives, dyes, pigments and process chemicals for the textile, leather and
paper industries. Internal transfers to other BASF operations, in particular of
amines, account for approximately 25% of the division's total sales.
The keys to the Intermediates division's success are achieving technological
and cost leadership, offering customized products and, increasingly, developing
a global production presence. To increase its global presence, the Intermediates
division intends to expand its operations outside of Europe, particularly in
Asia with a major focus on the new Verbund sites in Kuantan, Malaysia, and
Nanjing, China.
BASF is specifically aiming to build on its existing global leadership
position in the production of diols and to expand its production of amines to
capture an increased share of global markets. In
24
Kuantan, Malaysia, BASF manufactures butanediol through the joint venture BASF
PETRONAS Chemicals. In mid-2001, BASF obtained approval from the European Union
Commission to acquire the SISAS Group's production activities in Feluy, Belgium.
Through the acquisition, BASF strengthened its position in the market for
butanediol and its derivatives, and also added maleic anhydride to the
division's portfolio. Maleic anhydride is used in the manufacture of unsaturated
polyester resins.
The Intermediates division's sales to third parties were E1,738 million in
2001.
PRODUCTS
The Intermediates division has four major product areas:
AMINES
BASF is among the world's top three producers of amines, which are
principally used to make detergents and cleaning products, process chemicals and
agricultural products as well as pharmaceuticals. BASF offers approximately 140
different amines worldwide. Key products include aromatic amines, ethanolamines,
ethyleneamines, alkylamines, alkylalkanolamines and specialty amines. Amines are
sold globally, but Europe is BASF's primary market for these products.
BUTANEDIOL AND DERIVATIVES
BASF is the world's largest manufacturer of 1,4-butanediol, which is a
chemical building block for products such as plastics and polyurethanes. Its
derivatives are used to produce, for example, fibers and paints. Other key
products include tetrahydrofuran, PolyTHF-Registered Trademark-,
gamma-butyrolactone and N-methylpyrrolidone, which BASF produces and sells
globally. With the acquisition of the SISAS Group's Feluy production site, this
product area now also includes maleic anhydride.
CARBOXYLIC ACIDS AND POLYALCOHOLS
This product group comprises carboxylic acids such as formic acid, propionic
acid and adipic acid, as well as polyalcohols, which include hexanediol and
neopentylglycol. These chemicals can be used, for example, to manufacture
preservatives for the feed and food industries, auxiliaries for textile and
leather applications, as well as precursors for a wide range of coatings
products. The Intermediates division sells these products globally. BASF is
focusing capital expenditures on North America and Asia as part of the company's
strategy to increase sales in these regions.
SPECIALTY INTERMEDIATES
BASF manufactures acid chloride derivatives, dialdehydes and imidazoles as
well as various chemical specialties such as alcoholates, formamide,
triphenylphosphine and several optically active intermediates. These chemicals
are often used in the manufacture of paper, polymers, textiles and leather
products and also for pharmaceuticals and agricultural products. Europe is
BASF's primary market for these products, but BASF has targeted Asia as well as
North America for future substantial growth.
25
Production capacities as of December 31, 2001 for the major products in the
Intermediates division are as follows:
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS) PRIMARY APPLICATIONS
------- -------------------------- --------------------
Alkylamines........................ 190,000 - Agricultural products
- Water treatment
- Pharmaceuticals
- Rubber chemicals
Ethanolamines/
alkylalkanolamines/
ethyleneamines..................... 255,000 - Laundry and cleaning materials
- Water treatment
- Agricultural products
- Gas purification
Specialty amines................... 90,000 - Surfactants
- Rubber industry applications
- Agricultural products
- Polyurethane and epoxies
Acid chloride derivatives.......... 40,000 - Organic peroxides
- Pharmaceuticals
Butanediol......................... 470,000(1) - Plastics
- Polyurethanes
Polytetrahydrofuran
(PolyTHF-Registered Trademark-).... 124,000 - Fibers
- Polyurethanes
Glyoxal-Registered Trademark- (40%
solution).......................... 80,000 - Textile resins
1,6-Hexanediol..................... 42,000 - Plastics
- Coating resins
Formic acid/propionic acid......... 180,000/ - Preservatives
80,000
Formamide.......................... 100,000 - Agricultural products
Maleic anhydride................... 135,000 - Unsaturated polyester resins
---------------
(1) Of which 25,000 metric tons is produced by Idemitsu BASF Co. Ltd. -- a 50-50
joint venture between Idemitsu Petrochemicals Co. Ltd. and BASF (capacity
reflects total joint venture capacity).
MARKETS AND DISTRIBUTION
In 2001, Europe accounted for approximately 52% of the Intermediates
division's sales to external customers. North and South America together
accounted for approximately 23% and the Asia, Pacific Area, Africa region for
approximately 25%. BASF sells this division's products through its own sales
force as well as through distributors.
A significant majority of the Intermediates division's products are more
resilient to economic cycles compared with the products in the Chemicals
segment's other divisions. However, the Intermediates division also manufactures
products that are commodities characterized by cyclicality in pricing. The trend
toward commodity pricing is increasing.
26
The competitors of the Intermediates division range from major industry
participants to smaller, specialized chemical companies. Besides product price,
important factors for success include quality and a reliable supply of products
along with customer service. BASF is among the top three producers worldwide in
its four intermediates business sectors. In the amines market, BASF considers
its main competitors to be Air Products Corp., The Dow Chemical Company and
Huntsman Corporation. In BASF's butanediol and derivatives activities, the
company's major competitors are International Specialty Products Inc., E.I. du
Pont de Nemours and Company, Lyondell Chemical Company and Mitsubishi Chemicals
Corporation. The main competitors in BASF's specialty intermediates business are
Sydsvenska Kemi OY, BP Amoco plc and Celanese AG.
PLASTICS & FIBERS
SEGMENT OVERVIEW
BASF is one of the world's leading plastics and fiber products manufacturers
and offers one of the industry's most comprehensive product ranges.
The following table sets forth the Plastics & Fibers segment's sales to
third parties, percentage of total BASF sales, intersegmental transfers, income
from operations and capital expenditures for the last three years:
2001 2000(1) 1999
----------- ------------ -----------
(EUROS IN MILLIONS)
Sales to third parties...................................... E 8,185 E 11,030 E 8,628
Percentage of total BASF sales.............................. 25% 31% 29%
Intersegmental transfers.................................... E 406 E 510 E 400
Income from operations...................................... E (2) E 902 E 656
Capital expenditures........................................ E 891 E 633 E 1,047
---------------
(1) The Plastics & Fibers segment's figures include BASF's polyolefins
operations for the first nine months of 2000.
The principal customers of the Plastics & Fibers segment are active in a
broad range of industries, including the construction, packaging, automotive,
household appliance, electrical and electronics, consumer products, textile, and
carpet as well as the sports and leisure industries.
The Plastics & Fibers segment benefits significantly from several levels of
Verbund-generated cost savings. The segment buys a number of raw materials
externally but does not rely on any dominant supplier.
Europe remains BASF's largest market for plastics. To ensure the ongoing
success of the Plastics & Fibers segment, BASF is currently positioning itself
to better respond to customer needs by building production sites in key markets.
BASF is also expanding existing production sites, application centers and sales
offices in the segment's major markets
On July 1, 2001, the Plastics & Fibers segment's former Engineering Plastics
and Fiber Products divisions were combined to form the new Performance Polymers
division. Polyurethane intermediates -- primarily, aniline -- were transferred
to the Polyurethanes division from the Intermediates division of the Chemicals
segment. Prior year amounts have been restated to reflect these changes.
27
The divisions comprising the Plastics & Fibers segment and their principal
products are:
STYRENICS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- PS, PS-I (polystyrene) - Packaging and disposable products
- Household appliances
- Housings for consumer electronics
- ABS (acrylonitrile-butadiene-styrene copolymers) - Electrical and consumer electronics equipment
- Household appliances
- Office equipment
- Automotive components
- ASA (acrylonitrile-styrene-acrylate copolymers) - Uncoated exterior automotive parts
- Sports equipment
- High-end electrical equipment
- SAN (styrene-acrylonitrile copolymers) - Household and toiletry items
- Cosmetics packaging
- Office and household equipment
- MABS (methacrylate-acrylonitrile-butadiene-styrene - Containers for hygiene and cosmetic products
copolymer - Medical equipment housings
- Office equipment housings
- ABS/PA blend (acrylonitrile-butadiene-styrene - Exterior and interior automotive parts
copolymer and polyamide) - Garden equipment
- Children's toys
- S/PPE blend (impact modified styrene copolymer and - Plumbing and sanitary applications
polyamide) - Battery chargers
- EPS (expandable polystyrene) - Building insulation
- Packaging
- XPS (extruded polystyrene) - Building insulation
- EPP (expandable polypropylene) - Automotive components
- Packaging for fragile products
- Insulation pads
- Sports equipment
- MF (melamine resin foam) - Automotive components
- Soundproofing materials
- Fire protection materials
- Household and consumer appliances
28
PERFORMANCE POLYMERS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- PA (polyamide) - Automotive engine components
- Flame retardant plastics for electrical components
- Housings for electrical equipment
- Films for food packaging
- PBT (polybutylene terephthalate) - Electrical connectors
- Automotive components such as windshield wiper arms
- Housings for automotive transmissions
- POM (polyoxymethylene) - Clips and fasteners
- Speaker grilles
- High-end children's toys
- Mechanical and precision engineering equipment
- PES (polyethersulfone) and PSU (polysulfone) - Automobile oil circulation systems, headlight
reflectors and housings
- Microwave dishes, infant formula bottles
- Medical equipment
- Fiber intermediate products (including caprolactam, - Carpeting
polycaprolactam, adipic acid, adiponitrile and - Apparel
hexamethylenediamine) - Upholstery fabrics
- Carpet products - Commercial, residential and automotive carpets
POLYURETHANES:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- Isocyanates - Furniture interiors
- Automotive seats and steering wheels
- Carpet backings
- Shoe soles, athletic track surfaces
- Polyols - Rigid and flexible foams
- Cable sheathings, shoe soles
- Polyurethane systems - Automotive seats
- Steering wheels, fenders, dashboards
- Polyurethane special elastomers
- Cable coverings
- Shock-absorbing plastics for automobiles or sports
equipment
- Polyurethane special elastomers - Shock absorbers and buffers in vehicles
- Components in sports equipment
- Flexible plastic cable coverings
29
SEGMENT STRATEGY
BASF's goal is to strengthen its position as one of the leading global
competitors in the plastics and fibers industry -- a position which is based
primarily on its styrenics, nylon and polyurethane value-adding chains of
chemistry.
To achieve this goal, BASF is pursuing the following strategy in its
Plastics & Fibers segment:
- MARKETING AND SELLING PRODUCTS MORE EFFICIENTLY THAN COMPETITORS IN KEY
REGIONAL MARKETS: BASF believes that continuing to improve its marketing
and sales activities in Europe, Asia and North America will contribute to
the segment's overall performance and above all to the performance of the
segment's commodities. To support this strategic goal, BASF has set up
global sales teams, which are dedicated to specific industry branches.
- INCREASING SALES OF SELECTED SPECIALTY PRODUCTS: BASF aims to expand its
position in the market for specialty products which have the potential to
make a long-term contribution to the segment's profitability and which can
be easily derived from the company's value-adding chains of chemistry.
- BOOSTING THE EFFICIENCY OF THE COMPANY'S GLOBAL PRODUCTION ACTIVITIES:
BASF intends to shift production from older plants to more efficient
world-scale plants, which rely on new technologies and offer substantial
economies of scale. In Asia, the company is continuing to expand its
production capacities and is building on its well-established base in the
region.
- BUILDING ON THE COMPANY'S STRENGTHS AS A GLOBAL MANUFACTURER OF PLASTICS:
As a manufacturer of plastics with major activities in Europe, North
America and Asia, BASF aims to become a preferred supplier of global
customers by providing on a regional basis consistently high quality
products.
- DEVELOPING FUTURE PRODUCTION CAPACITIES IN LINE WITH GROWTH IN GLOBAL
DEMAND
- WORKING CLOSELY WITH CUSTOMERS IN DEVELOPING NEW PRODUCTS AND
APPLICATIONS: BASF sells its plastics and fiber products to customers, who
in turn use these materials to make products which they sell to end
consumers. Therefore, it is essential for BASF to work closely with its
customers to develop the most suitable materials for the markets these
customers aim to serve. Furthermore, manufacturers in various industries
are increasingly relying on plastics and fiber products to replace
conventional materials. Consequently, BASF aims to collaborate with these
customers to develop the best materials for improving their manufacturing
processes.
- USING E-COMMERCE MORE EXTENSIVELY AS A DISTRIBUTION CHANNEL: BASF expects
that approximately E500 million in sales will be carried out through
e-commerce in 2002, and believes this distribution channel will continue
to make an increasing contribution to the segment's sales.
In 2001, the Plastics & Fibers segment spent approximately E146 million on
research and development activities. Research activities focus on improving
existing manufacturing processes, developing cost-effective manufacturing
alternatives, building partnerships and working together with customers to
develop innovative applications and products.
30
The main capital expenditure projects of the Plastics & Fibers segment
currently include:
PROJECTED ANNUAL
CAPACITY AT COMPLETION
OF PROJECT PROJECTED
LOCATION PROJECT (METRIC TONS) START-UP OF OPERATION
-------- ------- ---------------------- ---------------------
Caojing, China MDI (diphenylmethane
diisocyanate)............ 160,000(1) 2005
TDI (toluene
diisocyanate)............ 130,000(2) 2005
Geismar, Louisiana TDI replacement.......... 160,000 2002
Yeosu, Korea TDI...................... 140,000 2003
MDI expansion............ 160,000 2004
Altamira, Mexico Styrolux-Registered Trademark-
(styrene-
butadiene-styrene block
copolymers).............. 45,000 2003
Singapore SM (styrene monomer)..... 550,000(3) 2002
PO (propylene oxide)..... 250,000(3) 2002
Ludwigshafen, Germany EB (ethyl benzene)
replacement.............. 600,000 2002
SM (styrene monomer)
replacement.............. 550,000 2002
Ultrason-Registered Trademark-
(polyethersulfone and
polysulfone)............. 5,000 2002
Antwerp, Belgium MDI expansion............ 320,000 2003
Styrolux-Registered Trademark-
(styrene-
butadiene-styrene block
copolymers).............. 30,000 2002
Schwarzheide, Germany Basotect-Registered Trademark-
(melamine resin foam).... 2,000 2003
Tudela, Spain Styrodur
C-Registered Trademark-
(extruded polystyrene)... 100,000(4) 2002
---------------
(1) Conducted through a joint venture with SINOPEC and the Hua Yi Group of China
as well as Huntsman-ICI Polyurethanes and Nippon Polyurethanes (capacity
reflects total joint venture capacity of which BASF has a 35% share).
(2) Conducted through a joint venture with SINOPEC and the Hua Yi Group of China
(capacity reflects total joint venture capacity of which BASF has a 70%
share).
(3) Conducted through a 50-50 joint venture with Shell Eastern Petroleum
Pte. Ltd. (capacity reflects total joint venture capacity).
(4) Measured in cubic meters.
STYRENICS
OVERVIEW
BASF is one of a small number of global producers of styrenics, supplying
approximately 700 principal customers in all major geographic markets of the
world.
The Styrenics division supplies customers with plastics to make thousands of
products ranging from food containers and housings for consumer products to
foamed boards for building insulation. Polystyrene, which can be used in both
rigid and foamed applications, is an easy-to-process material and offers an
excellent price-to-performance ratio compared with alternative materials,
31
giving it an advantage in the high-growth consumer packaging and consumer goods
industries. BASF believes similar growth opportunities exist for the division's
two major products used in building insulation -- Styropor-Registered Trademark-
and Styrodur-Registered Trademark-. The division's styrene copolymers are
especially well suited for high-performance applications, which call for
materials that are stiff or durable against weathering.
The Styrenics division purchases approximately 30% of its raw materials from
within BASF, benefiting significantly from the Verbund approach to integration.
The division's principal raw materials are benzene, ethylene, butadiene rubber
and acrylonitrile. BASF continues to fine-tune Verbund structures at its
production sites and to carry out backward integration where appropriate.
BASF believes that achieving cost and technology leadership, as well as
strengthening its global presence are crucial to ensuring the continued
competitiveness of its styrenics products. Through acquisitions and capacity
expansions, BASF produces polystyrene, expandable polystyrene products and
styrene copolymers in all major markets.
Major projects over the last two years included:
- adding GPPS (general purpose polystyrene) capacity in Nanjing, China for
BASF's joint venture, Yangzi-BASF Styrenics Company Ltd. (BASF
participation: 60%);
- modernizing the ethyl benzene and styrene plants in Ludwigshafen, Germany,
and Antwerp, Belgium;
- setting up a joint venture with Shell Eastern Petroleum Pte. Ltd. to bring
a world-scale SMPO (styrene monomer/propylene oxide) plant in Singapore on
stream in the second half of 2002;
- acquiring a majority share in the polystyrene activities of Pushpa
Polymers Pvt Ltd. (PPPL) -- now BASF Styrenics Private Company Ltd. --
from the Chatterjee group in the fast-growing Indian market;
- starting up a styrene copolymers plant in Altamira, Mexico; and
- starting up a new plant for Basotect-Registered Trademark- (melamine resin
foam) in Schwarzheide, Germany.
As a result of these activities, BASF currently operates polystyrene plants
in what it considers to be the world's most important markets. The division
sells approximately 90% of its products to external customers.
In Asia and South America, which BASF views as long-term growth markets for
the Styrenics division, the company aims to expand its market presence by
improving the capacity of existing plants in the region. In Europe, the division
is focusing on consolidating and upgrading the ethyl benzene and styrene
operations and streamlining polystyrene production capacity at existing sites.
In its styrene copolymers business, the division's restructuring efforts include
improving production processes and workforce reductions. BASF intends to
continue expanding its production capacities for specialties such as
Styrolux-Registered Trademark- and Basotect in Europe. In North America, BASF is
aiming to strengthen its position in the markets for polystyrene and styrene
copolymers by concentrating its production activities, improving logistics and
streamlining its workforce.
The Styrenics division's sales to third parties were E3,267 million in 2001.
32
PRODUCTS
The Styrenics division's key product lines include:
PS, PS-I (POLYSTYRENE)
BASF's polystyrene products range from rigid and transparent general-purpose
plastics to high impact-resistant grades that customers shape using injection
molding, extrusion and blow molding. Styrolux complements BASF's polystyrene
product portfolio and combines toughness with transparency. BASF sells
polystyrene globally and ships it to customers in granulate form.
Primary applications:
- Packaging and disposable products
- Household appliances
- Housings for consumer electronics
EPS (EXPANDABLE POLYSTYRENE)
BASF sells expandable polystyrene under the brand name Styropor. Styropor is
a leading product in the building insulation market.
Neopor-Registered Trademark-, a new product with superior insulation
capabilities, has been introduced in the European market. BASF sells expandable
polystyrene globally and ships it to customers in the form of beads. Insulation
manufacturers transform the beads into foam boards for sale to wholesalers.
Other customers transform the beads into shape-molded parts for packaging.
Expandable polystyrene's advantages include heat insulation, high compressive
strength, shock absorption, low weight and moisture resistance.
Primary applications:
- Building insulation
- Packaging
ABS (ACRYLONITRILE-BUTADIENE-STYRENE COPOLYMERS)
Terluran-Registered Trademark- and Ronfalin-Registered Trademark- are trade
names for BASF's top styrene copolymer plastic. It offers superior surface
quality, colorfastness and luster.
Primary applications:
- Electrical and consumer electronics equipment
- Household appliances
- Office equipment
- Automotive components
ASA (ACRYLONITRILE-STYRENE-ACRYLATE COPOLYMERS)
Luran-Registered Trademark- S is the trade name for BASF's styrene copolymer
plastic modified with rubber to make it durable against weathering, aging and
chemicals.
Primary applications:
- Uncoated exterior automotive parts
- Sports equipment such as surfboards and boats
33
- High-end electrical equipment such as microwave ovens and coffeemakers
SAN (STYRENE-ACRYLONITRILE COPOLYMERS)
Luran is BASF's trade name for SAN plastic. It is transparent, chemical and
dishwasher resistant and offers a high degree of stiffness and resistance to
temperature change.
Primary applications:
- Household and toiletry items
- Cosmetics packaging
- Office and household equipment
MABS (METHACRYLATE-ACRYLONITRILE-BUTADIENE-STYRENE COPOLYMER)
Terlux-Registered Trademark- is the trade name for BASF's MABS plastic. It
offers transparency, luster, toughness and resistance against chemicals.
Primary applications:
- Hygiene and cosmetic product containers
- Medical equipment housings
- Office equipment housings
ABS/PA BLEND (BLEND OF ACRYLONITRILE-BUTADIENE-STYRENE COPOLYMER AND
POLYAMIDE)
Terblend-Registered Trademark- N is the trade name for BASF's blend of
plastics that offers a very high degree of toughness, excellent processibility
and luster.
Primary applications:
- Exterior and interior automotive parts (hubcaps, mirror housings,
dashboard trim pillar covers)
- Garden equipment
- Children's toys
PS/PPE BLEND (BLEND OF IMPACT MODIFIED POLYSTYRENE AND POLYPHENYLENE ETHERS)
Luranyl is the trade name for BASF's blend of plastics that offers high heat
resistance, high dimensional stability, hot water resistance and low moisture
absorption.
Primary applications:
- Plumbing and sanitary applications
- Battery chargers
XPS (EXTRUDED POLYSTYRENE)
BASF sells extruded polystyrene under the brand name Styrodur. It is a
green, extruded, rigid polystyrene foam that is made using environmentally
friendly carbon dioxide as a blowing agent. Styrodur is a leading product in the
building insulation market, where BASF sells it to wholesalers in the form of
foam boards. Sales of the Styrodur product line, which offers heat insulation,
low water absorption and compressive strength, are concentrated in Europe.
34
Primary application: Building insulation.
EPP (EXPANDABLE POLYPROPYLENE)
BASF sells expandable polypropylene, which is often used to make foam
components, under the brand name Neopolen-Registered Trademark- P. BASF ships
Neopolen to customers in the form of pre-expanded beads. Sales are concentrated
in Europe and North and South America.
Primary applications:
- Automotive components
- Packaging for fragile products
- Insulation pads
- Sports equipment
MF (MELAMINE RESIN FOAM)
BASF sells melamine resin foam under the brand name Basotect. It is a
flexible foam material that absorbs sound and offers high heat resistance and
good flame retardant attributes. BASF ships Basotect to customers as foam boards
or foam blocks. The product's primary markets are Europe, the United States and
Japan.
Primary applications:
- Automotive components
- Soundproofing materials
- Fire protection materials
- Household and consumer applications
Production capacities as of December 31, 2001 for the major products in the
Styrenics division are as follows:
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS)
------- --------------------------
Styrene and styrene-based polymers (styrene monomer,
polystyrene, expandable polystyrene, copolymers).......... 4,922,000(1)
XPS (extruded polystyrene).................................. 1,150,000(2)
EPP (expanded polypropylene)................................ 10,800
MF (melamine resin foam).................................... 150,000(2)
---------------
(1) Capacity reflects total joint venture capacities. These include:
- 550,000 metric tons of styrene monomer through a joint venture between
BASF (50%) and Shell Group;
- 120,000 metric tons of styrene monomer, 140,000 metric tons of polystyrene
and 45,000 metric tons of expandable polystyrene through a joint venture
between BASF (60%) and Yangzi Petrochemical Corporation; and
- 57,000 metric tons of expandable polystyrene through a joint venture
between BASF (50%) and Alfa Group.
(2) Measured in cubic meters.
MARKETS AND DISTRIBUTION
In 2001, Europe accounted for approximately 50% of the Styrenics division's
sales; North America for approximately 23%; the Asia, Pacific Area, Africa
region for approximately 21%; and South America for 6%.
35
The Styrenics division sells products primarily through its own regional
sales force, supported by BASF technical and marketing experts. The Styrenics
division is increasingly relying on e-commerce for distributing its products.
Activities include BASF's Plastics Portal as well as the company's participation
in Omnexus; an independent business-to-business online marketplace that focuses
on delivering products and related services to plastics injection molders around
the world.
The market for styrenics is global and characterized by narrowing margins,
price competition and a push toward greater commodity-based pricing. Competition
is predominantly based on price, followed by quality and, increasingly, on
global delivery capabilities. The division's major customers require that top
suppliers have a global presence and provide accompanying services, such as
technical support. Demand for styrenics continues to rise due to overall
economic growth in both industrial and emerging markets. In addressing these
trends, BASF aims to become a leader in terms of cost and technology and is
expanding its production and marketing presence to all major markets.
The principal global competitor of the Styrenics division is The Dow
Chemical Company of the United States. The division also competes in North
America with Nova Chemical Corporation of Canada and in Europe with ATOFINA of
France and Enichem of Italy. In Asia, BASF competes with other regional
competitors, such as Chi Mei of Taiwan.
PERFORMANCE POLYMERS
OVERVIEW
BASF is one of the world's leading producers of engineering plastics and
manufactures nylon fibers and fiber intermediates. The Performance Polymers
division's products are found in numerous items used in daily life: in
high-performance engineering plastics for automotive or electrical applications,
as well as in carpets and other textiles.
On July 1, 2001, the former Engineering Plastics and Fiber Products
divisions were combined to form the new Performance Polymers division.
Polyurethane intermediates -- primarily, aniline -- were transferred to the
Polyurethanes division from the Intermediates division of the Chemicals segment.
Prior year amounts have been restated to reflect these changes. BASF believes
that through the Performance Polymers division it will be able to exploit the
synergies of the company's nylon value-adding chain more effectively.
The Performance Polymers division's principal raw materials are cyclohexane,
ammonia and propylene, which are purchased both from external suppliers and from
within BASF. The division benefits significantly from BASF's Verbund approach to
integration, purchasing approximately 65% of the raw materials for the
division's engineering plastics products from other BASF operations.
Many of the Performance Polymers division's engineering plastics have
chemical and physical properties that enable them to withstand high temperatures
and to resist chemical exposure to corrosives and solvents. These properties
make the products less susceptible to physical damage in a variety of high
performance applications.
The division sells its engineering plastics to approximately 1,500 customers
worldwide. The customer base consists largely of high-performance plastic
molders and plastic component manufacturers in the automotive, consumer
electronics, electrical equipment and packaging industries. These customers
often rate product performance and customer support as important, but prices are
becoming increasingly critical to customers in choosing a supplier.
To compete effectively in this market, the Performance Polymers division
seeks to maintain and increase its preferred supplier status with global
customers, many of whom demand collaboration in developing specific plastic
applications. The division works with suppliers to automotive
36
manufacturers to develop specific applications for parts such as engine
components, airbag housings and electronic connectors.
To boost its competitiveness, the division is also replacing older plants
with new, world-scale plants that provide significant economies of scale and is
carrying out measures to contain costs. In Europe and North America, the
division is continuing with a restructuring program to improve the division's
long-term earnings potential. This includes consolidating its product portfolio
by eliminating unprofitable product lines, entering into strategic alliances for
its specialty products and streamlining its workforce in these regions. BASF is
also expanding the division's activities in Asia, a region to which many
customers have relocated operations, to support both regional consumption and
exports.
The Performance Polymers division also produces two types of nylon -- nylon
6 and nylon 6,6 -- as well as their monomers caprolactam, adipic acid and
hexamethylenediamine. The division sells its fiber and fiber intermediates
products to approximately 500 customers worldwide. In North America, customers
include commercial and residential carpet producers, and tier one automotive
carpet suppliers. BASF has been experiencing overcapacity for its fiber products
in North America and has been consolidating its production capacities in this
region to improve capacity utilization rates and control costs.
The Performance Polymers division's sales to third parties were
E2,241 million in 2001.
PRODUCTS
BASF's Performance Polymers division delivers its products to customers
primarily as pellets and in liquid form, but also as nylon filaments.
The Performance Polymers division offers the following product lines:
ENGINEERING PLASTICS
PA (POLYAMIDE)
Ultramid-Registered Trademark- is the trade name for BASF's plastics
based on nylon 6, nylon 6,6 and other copolymers manufactured by BASF. It
offers toughness and strength as well as both heat and chemical resistance.
Primary applications:
- Automotive engine intake manifolds, pedals and engine covers
- Flame retardant plastics for electrical components such as switches and
circuit breakers
- Housings for electrical equipment
- Films for food packaging
PBT (POLYBUTYLENE TEREPHTHALATE)
Ultradur-Registered Trademark- is the trade name for BASF's plastic
based on PBT. It features high stiffness, strength, dimensional stability
and heat and aging resistance.
Primary applications:
- Electrical connectors
- Automotive components such as windshield wiper arms
- Housings for automotive transmissions
37
POM (POLYOXYMETHYLENE)
Ultraform-Registered Trademark- is the trade name for BASF's POM
plastic. It offers high stiffness and strength, resilience and low wear.
Primary applications:
- Clips and fasteners
- Speaker grilles
- High-end children's toys
- Mechanical and precision engineering devices such as shafts and gears
PES (POLYETHER SULFONE) AND PSU (POLYSULFONE)
Ultrason-Registered Trademark- S and E are the trade names for BASF's
PES and PSU plastics. They are distinguished primarily by their high
resistance to heat and are used in high performance applications. These
products can replace other plastics such as thermosets as well as metals and
ceramics. The most important features of Ultrason are stiffness, and
resistance to water and oily substances even at high temperatures. Other
important features include electrical insulation properties and dimensional
stability.
Primary applications:
- Automobile oil circulation systems, headlight reflectors and housings
- Microwave dishes, infant formula bottles
- Medical equipment
FIBER INTERMEDIATE PRODUCTS INCLUDING CAPROLACTAM, POLYCAPROLACTAM, ADIPIC
ACID, ADIPONITRILE AND HEXAMETHYLENEDIAMINE
Caprolactam forms the basis for manufacturing polycaprolactam, the main
precursor for nylon 6. BASF sells a variety of caprolactam products, including
caprolactam in its pure form, nylon 6 for use in engineering plastics and
Ultramid BS-Registered Trademark-, a nylon 6-based spinning polymer. Adipic
acid, acrylonitrile and hexamethylenediamine form the basis for nylon 6,6. BASF
sells a variety of nylon 6,6 products, including adipic acid and
hexamethylenediamine in their pure forms, Ultramid A-Registered Trademark-,
which is used for engineering plastics, and Ultramid AS-Registered Trademark-, a
nylon 6,6-based spinning polymer. BASF sells most of these products globally.
Primary applications include precursors for fibers used in:
- Carpeting
- Apparel
- Upholstery fabrics
CARPET PRODUCTS
BASF is a leading supplier of nylon 6 BCF (bulk continuous filaments). BASF
supplies both pre-colored and natural nylon 6 BCF to the commercial and
residential carpet markets, primarily in North America and Asia. In addition,
major vehicle manufacturers in North America use BASF's solution-dyed nylon 6
yarns in automotive carpet applications. BASF's trade names for nylon fibers and
yarns include Zeftron 2000-Registered Trademark- solution-dyed nylon and
SAVANT-TM-, a new carpet fiber, which is resistant to stains and to the effects
of ozone exposure, and which is targeted at the high-end commercial carpet
segment. The division also promotes the 6ixAgain-Registered Trademark-
carpet-recycling program in
38
the United States, which recycles carpets so that the nylon materials can be
reused by BASF and resold to external customers.
Primary applications:
- Commercial carpets
- Residential carpets
- Automotive carpets
Production capacities as of December 31, 2001 for the major products in the
Performance Polymers division are as follows:
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS)
------- --------------------------
Polyamide................................................... 620,000
PBT......................................................... 80,000(1)
POM......................................................... 71,000
PES and PSU................................................. 3,000
Caprolactam................................................. 720,000
Adipic acid................................................. 270,000
Acrylonitrile............................................... 300,000
Nylon carpet fibers......................................... 120,000
---------------
(1) Conducted through a 50-50 joint venture with GE Plastics N.V. (capacity
reflects total joint venture capacity).
MARKETS AND DISTRIBUTION
In 2001, Europe accounted for 43% of the Performance Polymers division's
sales; North America for 39%; the Asia, Pacific Area, Africa region for 17%; and
South America for 1%.
The division's customers for engineering plastics, particularly in the
automotive industry, are primarily global companies that demand uniform
worldwide standards for products and services in all major markets. BASF sells
engineering plastics products primarily through its own regional sales force
supported by BASF's technical centers in Germany, the United States and Japan.
These centers not only help customers develop applications, but also
independently research new markets and applications in which plastics can
replace more conventional materials such as metal or wood. In Asia the division
is expanding its sales force to build on its solid position in the market.
The sales force responsible for the division's fiber products targets its
efforts at the mills that produce nylon-containing carpets and textiles in
Europe, Asia and the United States to create awareness and demand for the
division's products. The markets for caprolactam and the other fiber
intermediate products are characterized by cyclicality, price competition and
commodity pricing.
The Performance Polymers division is increasingly relying on e-commerce as a
channel for distributing its products. Besides operating its own Plastics
Portal, BASF also participates in Omnexus; an independent business-to-business
online marketplace that focuses on delivering products and related services to
plastics injection molders around the world.
Major global competitors in the engineering plastics market include Bayer
and Celanese AG of Germany, DuPont and General Electric Company of the United
States, DSM N.V. of the Netherlands and Rhodia S.A. of France. The nylon market
is characterized by a small number of global producers, including E.I. du Pont
de Nemours and Company, Honeywell Inc. and Solutia Inc. of the United States,
Rhodia and DSM.
39
POLYURETHANES
OVERVIEW
BASF's Polyurethanes division is one of the world's three largest producers
of polyurethanes, important specialty plastics used to produce a wide spectrum
of rigid, flexible, foamed and compact components for consumer products.
A polyurethane is a polymer that is produced through the reaction of two
liquid chemicals -- an isocyanate and a polymeric alcohol (a polyol).
Polyurethane customers buy these liquid chemicals and combine them at their own
manufacturing sites to produce polyurethane foams or parts. BASF offers over
3,500 customized polyurethane solutions. These products are often used to make a
variety of automotive parts, including bumpers, steering wheels and instrument
panels. BASF's polyurethanes can also be found in household goods, such as
mattresses and upholstery, and in sports equipment, such as in-line skates and
athletic shoes. The fashion industry is increasingly using BASF's polyurethanes,
particularly to manufacture synthetic leathers.
The Polyurethanes division sells its products to customers in two principal
ways:
- POLYURETHANE BASIC MATERIALS: The Polyurethanes division sells individual
polyurethane basic materials (isocyanates and polyols) to customers. The
customers then apply their own technology to formulate the liquid basic
materials so that when combined they will react and solidify into a
material with particular properties.
- POLYURETHANE SYSTEMS: A polyurethane system consists of pre-fabricated,
ready-to-use formulations of isocyanates and polyols. The Polyurethanes
division sells these specially formulated, tailor-made isocyanates and
polyols to customers. When the customer combines them, these liquid
chemicals react and solidify into a material that possesses the technical
properties specified by the customer.
The Polyurethanes division also sells polyurethane special elastomers, which
are specialized end products used mainly in the automotive and electrical
industry.
The Polyurethanes division's principal raw materials are toluene, benzene
and propylene. The division benefits significantly from BASF's Verbund approach
to integration, purchasing approximately 80% of its precursors from other BASF
operations. The Polyurethanes division sells the vast majority of its products
to external customers.
BASF offers its polyurethane basic materials, systems and specialized end
products to numerous customers that require a high degree of application
technology. The Polyurethanes division sells its products to a variety of
industries, some of which are highly concentrated, such as the automotive and
electrical appliance industries, and others that are highly fragmented, such as
the footwear and construction industries.
The Polyurethanes division's success can be traced to maintaining low costs,
establishing a global presence for polyurethane basic materials and maintaining
strong relationships with customers for polyurethane systems and special
elastomers. To reduce basic material costs, the division is increasing capacity
utilization rates at existing plants and shifting production from older, less
efficient plants to new, world-scale plants that offer substantial economies of
scale. In addition, the division benchmarks its production processes against
those of its competitors.
To build on its strong relationships with customers, the Polyurethanes
division is expanding its regional activities, focusing above all on the Asian
market. For example, in Singapore BASF, along with its joint venture partner
Shell Eastern Petroleum Pte Ltd., is building a world-scale plant which is
scheduled to go on stream in the second half of 2002 with an annual production
capacity of 250,000 metric tons of propylene oxide. And in Caojing, China, BASF
plans to build an integrated
40
isocyanates manufacturing facility with Huntsman and local partners that is
scheduled to come on stream in 2005.
For polyurethane systems and special elastomers, strong relationships with
leading industry customers are crucial because of the highly individualized
nature of these products. To strengthen its relationships with customers, BASF
has established a global network of system houses, which are production sites
that work closely with customers to provide specially formulated products for
individual needs. The Polyurethanes division currently has 24 system houses
around the world in locations near customers. BASF recently acquired two new
system houses in the United States and Turkey, and intends to establish or
acquire more.
The Polyurethanes division's sales to third parties were E2,677 million in
2001.
PRODUCTS
The Polyurethanes division's product lines include:
POLYURETHANE BASIC MATERIALS
The Polyurethanes division sells basic materials globally to customers that
make polyurethane plastics by reacting isocyanates with polyols.
ISOCYANATES
- MDI (DIPHENYLMETHANE DIISOCYANATE)
MDI is a versatile chemical that can be used to make flexible foams
as well as semi-rigid and rigid polyurethane plastics.
Primary applications:
- Furniture interiors
- Automotive parts such as seats and steering wheels
- Carpet backings
- Shoe soles
- TDI (TOLUENE DIISOCYANATE)
TDI is a chemical used primarily in the manufacture of flexible
foams.
Primary applications:
- Foam cushions for furniture
- Automobile seats
- Athletic track surfaces
POLYOLS
- POLYETHER POLYOLS
Polyether polyols are combined with isocyanates to make virtually all
polyurethane products, other than those made with polyester polyols.
Primary applications:
- Rigid foams
- Flexible foams
41
- POLYESTER POLYOLS
Polyester polyols are combined with isocyanates to make primarily
semi-rigid polyurethane plastics.
Primary applications:
- Cable sheathing
- Shoe soles
POLYURETHANE SYSTEMS
BASF's worldwide polyurethane systems group offers tailor-made polyurethane
products for a wide variety of applications. The systems are grouped according
to the combination of their properties, for example, rigid, flexible or
semi-rigid. BASF develops ready-to-use polyurethane systems for customers,
fulfilling customers' specific engineering requirements at its system houses
around the world. Automotive OEM (original equipment manufacturer) suppliers
comprise a significant customer group for polyurethane systems. OEM suppliers
make seats, steering wheels, fenders and dashboards using BASF's polyurethane
systems.
POLYURETHANE SPECIAL ELASTOMERS
BASF sells polyurethane special elastomers, consisting of TPU (thermoplastic
polyurethane elastomers) and cellular elastomers, mainly in Europe, South
America, North America and Japan. The automotive and electrical industries are
the major customers for these products.
TPU
BASF sells TPU under the trade name Elastollan-Registered Trademark-.
Elastollan is based on both polyether polyols and polyester polyols. It
is supplied in granular form to customers who use it primarily to make
flexible plastic cable coverings. Customers for these products are
primarily in the automotive and cable and wire industries.
CELLULAR ELASTOMERS
The trade names for BASF's cellular elastomers, or shock-absorbing,
rigid plastics, are Cellasto-Registered Trademark-,
Elastocell-Registered Trademark- and Emdicell-Registered Trademark-. BASF
is the world's largest producer of cellular elastomers and sells them,
for example, as molded end-products for use as shock absorbers and
buffers in the automotive industry and as components in sports equipment.
Production capacities as of December 31, 2001 for the major products in the
Polyurethanes division are as follows:
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS)
------- --------------------------
MDI......................................................... 560,000
TDI......................................................... 190,000
Polyester polyols........................................... 112,000
TPU (thermoplastic polyurethane)............................ 45,000
Polyether polyols........................................... 515,000
Propylene oxide............................................. 250,000(1)
---------------
(1) Conducted through a 50-50 joint venture with Shell Nederland Chemie B.V.
(capacity reflects total joint venture capacity).
42
MARKETS AND DISTRIBUTION
In 2001, Europe accounted for approximately 47% of the Polyurethanes
division's sales; North America for approximately 32%; the Asia, Pacific Area,
Africa region for approximately 18%; and South America for approximately 3%.
The Polyurethanes division markets its products on two different levels.
First, the division sells its polyurethane basic materials globally as
commodities. Second, the division sells its polyurethane systems and special
elastomers globally as customized, ready-to-use products, which comprise more
than half of the division's products based on volume.
Global demand for all polyurethane products is expected to continue growing
as the global economy continues to expand. The market for polyurethane basic
materials is less cyclical than the market for most other standard plastics,
primarily because polyurethane basic materials are relatively specialized and
are produced pursuant to proprietary technologies that BASF possesses.
Competition in the market for basic materials is based primarily on price,
although product quality and technical application assistance are also important
to customers.
The markets for polyurethane systems and special elastomers are even less
cyclical than those for polyurethane basic materials. Competition in the market
for polyurethane systems and special elastomers is based primarily on a
supplier's ability to satisfy customers' technical application needs by
providing tailor-made formulations of isocyanates and polyols and also on a
supplier's ability to accommodate customers' just-in-time approach to
manufacturing by delivering customized products quickly and at the appropriate
time.
The main competitors of the Polyurethanes division are Bayer AG of Germany,
The Dow Chemical Company, Huntsman-ICI and Lyondell Chemical Company of the
United States and Shell Chemicals U.K. of the United Kingdom.
43
PERFORMANCE PRODUCTS
SEGMENT OVERVIEW
BASF is a leading global producer of performance chemicals, coatings and
functional polymers through its Performance Products segment. Formerly known as
the Colorants & Finishing Products segment, this segment produces a broad range
of high-value chemicals that it sells to many global companies in the
automotive, paper, packaging, textile, sanitary care, construction, coatings,
printing and leather industries.
On July 1, 2001 the Colorants division and Specialty Chemicals division were
merged to form the Performance Chemicals division. The polyvinylpyrrolidone
(PVP) product line for technical applications was transferred to the Functional
Polymers division from the Fine Chemicals segment. Prior year amounts have been
restated to reflect these changes. The Functional Polymers division, formerly
known as the Dispersions division, was renamed to reflect more accurately the
division's portfolio of products, which includes not only dispersions.
The following table sets forth the segment's sales to third parties,
percentage of total BASF sales, intersegmental transfers, income from operations
and capital expenditures for the last three years:
2001 2000 1999
----------- ----------- -----------
(EUROS IN MILLIONS)
Sales to third parties...................................... E 8,154 E 8,418 E 7,553
Percentage of total BASF sales.............................. 25% 23% 26%
Intersegmental transfers.................................... E 322 E 314 E 751
Income from operations...................................... E 99 E 586 E 708
Capital expenditures........................................ E 418 E 1,332 E 394
The segment's products often represent the final stages in many value-adding
chains within BASF's Verbund approach to integration. This approach allows the
Performance Products segment to purchase many of its raw materials from within
BASF, thereby generating efficiencies in logistics and savings in energy,
transportation, purchasing and infrastructure costs. BASF uses these
efficiencies and savings to achieve cost leadership for many of the products in
the segment.
The key elements of the segment's success are developing products and
application technologies tailored to the specific requirements of customers and
better meeting customer needs by establishing and expanding manufacturing plants
and application development centers in regions where customers are active. BASF
is also investing capital in highly efficient plants to reduce production costs.
Close customer relationships are particularly important to the segment for the
development of innovative customized products and application systems.
The divisions comprising the Performance Products segment and their
principal products are:
PERFORMANCE CHEMICALS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- Pigments and resins for coatings and - Automotive, decorative, industrial paint
plastics and wood applications as well as plastics
- Printing systems - Printing inks and printing plates for print
media and packaging industries
- Isobutene derivatives such as polyisobutene - Precursors and components for products such
as fuel additives
- Surfactants - Products for detergents and cleaners,
textile and leather auxiliaries
44
- Hydrocyanic acid derivatives such as - For pulp manufacturing, electroplating,
chelating agents laundry detergents and photographic
chemicals
- Performance chemicals for textiles - Entire textile processing chain including
ink-jet inks
- Leather dyes and chemicals - Leather production using beamhouse agents
and tanning auxiliaries, fatliquors and
water repellents, drum dyes and dyeing
auxiliaries as well as products for leather
finishing
COATINGS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- Automotive OEM (original equipment - Automotive coatings for vehicle manufacturers
manufacturer) coatings
- Automotive refinish coatings - Automotive coatings for repair work
- Industrial coatings - Commercial vehicles, household appliances,
industrial buildings, automotive components
and wood finishes
- Decorative paints in South America - Interior and exterior use in residential and
commercial buildings
FUNCTIONAL POLYMERS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- Acrylic monomers - Precursors for dispersions, superabsorbents,
detergents, flocculants and fibers
- Polymers - Adhesives; paints and finishes; and non-
woven materials and chemicals for the
construction industry
- Paper chemicals - Paper-processing chemicals, paper dyes,
dispersions for paper coating
- Superabsorbents - Absorbent materials for diapers and sanitary
care products
SEGMENT STRATEGY
The focus of the Performance Products segment is on developing integrated
system solutions that provide customers with tailor-made products and
application processes. BASF believes that through these efforts it can
differentiate the segment's products and services from those of its competitors
and foster close, lasting relationships with its customers.
Key strategies for the divisions in this segment are as follows:
- PERFORMANCE CHEMICALS
The Performance Chemicals division was formed in 2001 to more effectively
market and sell BASF's high-value chemicals, which customers purchase mainly on
the basis of product quality and performance. To compete successfully with
low-cost industry leaders and new competitors from Asia and South America, the
division undertook restructuring measures over the past four years to improve
its costs structures. The division has expanded its production capacity for
nonionic surfactants in North America and aims to further strengthen its
position in this market through close
45
cooperation with key customers. The Performance Chemicals division is focusing
its capital spending on continuing to improve cost structures by employing the
most efficient technologies and processes available. In this division, BASF is
intensifying its marketing activities in Asia and North America.
- COATINGS
In the past year, the Coatings division streamlined its product lines to
eliminate less profitable products and improve its financial performance. The
division focuses on four product lines -- automotive coatings, automotive
refinish coatings, industrial coatings and, for the South American market,
decorative paints. BASF believes that the Coatings division can achieve and
sustain a leading market position and attain high profitability in these product
lines. The Coatings division is seeking to strengthen these activities through
internal growth, joint ventures and acquisitions. The division aims to
strengthen its position in Asia in particular.
- FUNCTIONAL POLYMERS
The Functional Polymers division aims to build on its position as a leading
supplier of acrylic acid and its derivatives, to improve its cost and technology
leadership, to expand its businesses in all regions and to grow profitably by
introducing innovative products. To achieve these goals, the division is
focusing its capital spending on building production plants close to customers
to reduce transportation costs. Despite a current oversupply of acrylic monomers
in Asia, demand in this region is expected to continue increasing. BASF
currently plans to build new plants for acrylic acid and acrylic esters in
Nanjing, China, which are expected to be in operation by 2005. In Europe and
North America, a comprehensive restructuring program is under way to improve the
division's cost competitiveness.
The main capital expenditure projects for the Performance Products segment
currently include:
PROJECTED ANNUAL
CAPACITY AT COMPLETION PROJECTED
OF PROJECT START-UP-
LOCATION PROJECT (METRIC TONS) OF PROJECT
-------- ------- ---------------------- ----------
Hamina, Finland Dispersions for paper coatings 140,000 2002
Geismar, Louisiana A new nonionic surfactants 40,000 2002
plant
Ludwigshafen, Germany A new plant for 10,000 2003
methanesulfonic acid
In 2001, capital expenditures for the Performance Products segment totaled
E418 million. The segment also spent E197 million on research and development
activities in 2001.
PERFORMANCE CHEMICALS
OVERVIEW
BASF is one of the world's largest manufacturers of high-value chemicals,
which the company sells through its Performance Chemicals division to over
10,000 customers worldwide in a wide variety of industries including the
detergent, printing, coating, leather, automotive, oil and textile industries.
BASF believes that its Verbund approach to integration gives the Performance
Chemicals division an advantage over small and medium-sized companies that lack
the cost advantages of integration. The Performance Chemicals division purchases
approximately 45% of its raw materials from other BASF operations, generating
efficiencies in logistics and savings in energy, transportation, purchasing and
infrastructure costs. The division consumes a multitude of raw
46
materials and has no principal raw materials or dominant suppliers. The
Performance Chemicals division sells nearly 90% of its products to external
customers.
The Performance Chemicals division is made up of business units which are
each responsible for marketing and selling the division's products to specific
industries. BASF views the detergents industry as one of the division's most
important markets. The company is one of the largest producers of nonionic
surfactants. Surfactants enhance cleansing efficiency and are used for example
in household detergents and dishwashing agents as well as in industrial and
institutional cleaning applications. The production capacity for nonionic
surfactants in North America was expanded in 2001, and BASF aims to continue
building on its position by working closely with key customers of these
products.
In the recent past, the division's products for the pigment, textile and
leather industries had experienced continual pressure on prices, a drop in
demand and worldwide overcapacity. Restructuring measures that were undertaken
over the past four years have largely been completed. As a result, the division
has improved its capacity utilization rates by narrowing its product line, by
restructuring and consolidating production sites and by transferring production
capacity from Europe to Asia, where the fastest-growing customer base is
located. By merging the marketing and sales activities for pigments and resins
in the Performance Chemicals division, BASF believes it will be able serve the
coatings industry more efficiently and strengthen its position in the market for
these products.
The Performance Chemicals division is now intensifying its marketing
activities in Asia as well as in North America, where it is focusing on the
detergent, mineral oil and printing industries. The division is working closely
with customers to develop high-value products and tailor-made solutions which
help customers optimize their production processes and reduce their costs so
that they can offer their respective customers more competitive solutions.
Through these activities, the Performance Chemicals division aims to grow faster
than the market.
The Performance Chemicals division's sales to third parties were
E3,345 million in 2001.
PRODUCTS
The Performance Chemicals division sells its products globally. The major
product groups of the Performance Chemicals division are:
PIGMENTS AND RESINS FOR COATINGS AND PLASTICS
The Performance Chemicals division offers organic and inorganic pigments,
pigment preparations, non-textile dyes, process chemicals and resins. Resins are
film-forming components used in UV (ultraviolet) curing coatings, urethane
systems and melamine based coatings. Pigments are insoluble dry coloring
materials for paints, plastics, inks and other special applications. BASF's
pigments and resins are used primarily in automotive, decorative, industrial
paint and wood applications, as well as in the plastics industry.
PRINTING SYSTEMS
The printing systems product group offers a complete range of commercial
inks for different print technologies and plates for flexography and letterpress
print processes. BASF offers printing inks for use in the printing industry,
particularly in sheet-offset systems and web-offset systems, which are used to
print newspapers and magazines, color advertising materials, books and
brochures. BASF also sells printing inks for use in the packaging industry.
47
ISOBUTENE DERIVATIVE CHEMISTRY
Isobutene is the starting material for polyisobutene, the most important
component for BASF's Keropur-Registered Trademark- and
Puradd-Registered Trademark- brand fuel additives. Through its highly reactive
polyisobutenes, BASF has established a new standard in the fuel and lubricant
additives market. BASF is the only industry supplier with a product portfolio
spanning low to ultra high molecular polyisobutenes, and is also one of the
world's largest manufacturers of polyisobutene derivatives such as
polyisobuteneamine, which is part of the isobutene value-adding chain.
SURFACTANTS
BASF produces a wide range of nonionic surfactants based on aliphatic
alcohols, ethylene and propylene oxide. Such products are used in detergents and
cleaners, textile and leather auxiliaries.
HYDROCYANIC ACID DERIVATIVE CHEMISTRY
BASF produces several chelating agents based on hydrocyanic acid which serve
as process chemicals in various industries. Applications include pulp
manufacturing, electroplating, laundry detergents, cleaners and photographic
chemicals.
PERFORMANCE CHEMICALS FOR TEXTILES
BASF offers textile and dyeing auxiliaries, pigment preparations for textile
printing as well as inks for ink-jet printing technology. BASF's product range
covers a wide spectrum of textile applications.
LEATHER DYES AND CHEMICALS
BASF is one of the world's leading producers of leather chemicals and dyes,
producing a full range of products for nearly all aspects of the leather
production process.
Production capacities for the major products in the Performance Chemicals
division as of December 31, 2001 were:
PRODUCT ANNUAL PRODUCTION CAPACITY
------- --------------------------
Organic pigments............................................ 39,500 metric tons
HDI......................................................... 10,000 metric tons
Printing inks............................................... 200,000 metric tons
Printing plates............................................. 1,000,000 square meters
Polyisobutene............................................... 75,000 metric tons
Nonionic surfactants........................................ 305,000 metric tons
MARKETS AND DISTRIBUTION
In 2001, Europe was the Performance Chemicals division's principal market,
accounting for 58% of its sales. The Asia, Pacific Area, Africa region accounted
for 18%; North America for 18%; and South America for 6%.
BASF's own regional sales network sells most of the Performance Chemicals
division's products. Distributors sell the balance of products, primarily to
smaller customers. In the Performance Chemicals division, BASF generally
considers Ciba Specialty Chemicals Holding Inc. and Clariant International Ltd.
of Switzerland, Shell Chemicals U.K. of the United Kingdom, DIC/Sun Group of
Asia and Bayer AG of Germany to be its main competitors.
48
The Performance Chemicals division is organized into the following business
units, which each market and sell the division's products to specific industries
and have specific competitors:
COATINGS, PLASTICS AND SPECIALTIES
BASF considers itself to be among the industry leaders along with Ciba,
Clariant and Bayer in supplying pigments, resins and additives to the coatings,
plastics and specialties industries. BASF sells these products primarily in
Europe from large production sites in Germany, but also supports its regional
marketing activities through production sites in Brazil and China.
PRINTING INDUSTRY
The primary market for BASF's printing systems products is Europe, but Asian
competitors dominate the global market.
AUTOMOTIVE AND OIL INDUSTRY
This business unit sells the division's fuel additives primarily under the
brand names Puradd (in the United States) and Keropur, and mainly in North
America and Europe.
DETERGENTS AND FORMULATORS
BASF, along with Sasol Chemical Industries Ltd., is a leading supplier of
nonionic surfactants to the detergents industry. Other major suppliers include
Shell International B.V. and Cognis Corp. In chelating agents, BASF is a
worldwide leading supplier together with Akzo Nobel N.V. and The Dow Chemical
Co.
TEXTILES
BASF is one of the world's top three producers of performance chemicals for
textiles, along with Clariant and Ciba. BASF is concentrating its sales and
marketing activities of these products on Asia and Europe.
LEATHER
In leather dyes and chemicals, BASF and Clariant are the world's leading
producers, and compete against Bayer, TFL Ledertechnik GmbH & Co. KG of Germany;
Stahl International B.V. of the Netherlands and a host of small regional
producers. The most important markets for BASF's leather products are Asia,
Europe and South America. BASF manufactures these products in 16 countries to
best meet the needs of a highly fragmented market comprised primarily of small
customers.
COATINGS
OVERVIEW
BASF is one of the world's leading producers of high-quality coating
products, offering innovative and environmentally responsible products for the
automotive industry, including both finishes and refinishes, and for particular
segments of the industrial coatings market. BASF also sells decorative paints in
South America for interior and exterior use in residential and commercial
buildings.
BASF's Coatings division provides customers with innovative high-solid,
waterborne and powder coating systems that reduce or eliminate solvent emissions
and are considered environmentally and economically efficient. BASF sees
significant growth opportunities for a new powder-slurry coating system it
jointly developed in partnership with DaimlerChrysler AG and Durr Systems GmbH
of Germany.
49
The key to the Coatings division's success is maintaining preferred supplier
status with major customers by working with them to develop system solutions,
which are tailor-made products and services. These system solutions help the
division differentiate its product offerings from those of its competitors and
foster lasting relationships with customers. In developing these system
solutions, the Coatings division also draws on advances stemming from BASF's
research and development activities. Currently, the Coatings division is
focusing its research activities on developing environmentally friendly coating
technologies with high quality characteristics such as scratch resistance.
Ultraviolet (UV) curing coatings represent a particularly promising technology.
Being able to deliver tailor-made products quickly is also important to the
division's success. Customers that use automotive and industrial coatings
require in particular quick delivery of coatings at specified times to
accommodate their just-in-time approach to manufacturing. To satisfy these
needs, BASF's Coatings division is locating its operations near its customers'
production sites.
Over the next five years, the Coatings division plans to invest
approximately E310 million on expanding and improving its production processes
worldwide. In Europe, this will include increasing the production capacity of
powder coatings in Verbania, Italy; Munster, Germany; and in Guadalajara, Spain.
In Munster, Germany, the Coatings division intends to expand the production
capacity of coatings resins, which are used in automotive OEM (original
equipment manufacturer) coatings. In Guadalajara, Spain, BASF is planning to
build production facilities to manufacture waterborne coatings to meet the
rising demand among Spanish automotive manufacturers for these products.
The Coatings division is seeking to strengthen its position in particular in
Asia. On October 1, 2000, BASF formed a 50-50 joint venture with Tokyo-based NOF
Corporation. BASF NOF Coatings Co., Ltd. combines NOF's and BASF's entire
coatings activities in Japan, which include automotive OEM, refinish as well as
industrial coatings and covers manufacturing, sales and marketing as well as
research and development activities. The joint venture plans to invest in new
production facilities in Japan to manufacture automotive OEM and waterborne
coatings for the automotive industry.
The Coatings division purchases approximately 15% of its raw materials from
other BASF operations. The division's principal raw materials are pigments,
solvents, resins and additives, and the division does not rely on a dominant
supplier. The Coatings division sells all of its products to external customers.
The Coatings division's sales to third parties were E2,287 million in 2001.
PRODUCTS
The Coatings division's products are sold on a global basis, with the
exception of decorative paints, which are only sold in South America. The
division has the following product lines:
AUTOMOTIVE OEM (ORIGINAL EQUIPMENT MANUFACTURER) COATINGS
BASF offers a complete line of automotive OEM coatings and extensive
technical support to major vehicle manufacturers. BASF is a leading supplier for
primer coats, fillers, top-coats and clearcoats. Most of the world's leading
automobile manufacturers are long-standing customers of BASF.
AUTOMOTIVE REFINISH COATINGS
For the refinishing of automobiles and commercial vehicles, BASF offers
topcoat and undercoat materials through coating systems under the well-known
brand names Glasurit-Registered Trademark- and R-M-Registered Trademark-. Most
of these systems, which are sold to paint distributors and automotive repair and
body shops, increasingly use solvent-reducing waterborne coatings as well as
high-solid systems.
50
INDUSTRIAL COATINGS
BASF offers environmentally efficient systems for coating industrial
products. Application technologies include powder, liquid, e-coat and coil
coatings that are used on household appliances, commercial vehicles, industrial
buildings, radiators and automotive components. Wood finishes in the furniture
industry represent another key use for BASF's industrial coatings. With the
acquisition of Rohm and Haas' industrial coatings business, BASF is now the
second largest coil coating producer by market share and volume sold in North
America and worldwide.
DECORATIVE PAINTS
BASF is the leading distributor of decorative paints for interior and
exterior use in the South American market. BASF's dispersion and building paints
are marketed under the Suvinil-Registered Trademark- trademark and enjoy a high
level of customer recognition.
Production capacities as of December 31, 2001 for the major products in the
Coatings division are as follows:
PRODUCT ANNUAL PRODUCTION CAPACITY
------- ---------------------------
(METRIC TONS)
Powder coatings............................................. 30,000
Waterborne coatings......................................... 40,000
MARKETS AND DISTRIBUTION
In 2001, Europe accounted for 39% of the Coatings division's sales. North
America accounted for 34% and South America for 19%, while the Asia, Pacific
Area, Africa region accounted for 8% of the division's sales.
BASF sells products of the Coatings division to customers, particularly
those in the automotive industry, primarily through its own sales force.
Third-party distributors also sell products to the automotive refinish,
industrial coatings and South American decorative paint businesses.
The Coatings division also relies on e-commerce as a distribution channel,
in particular for its automotive refinish coatings. In North America, customers
of BASF's automotive refinish technologies distributor chain can order products
online at bodyshopmall.com, while for customers in Europe the division has
established e-commerce portals to sell its Glasurit and R-M brands.
Although price is important to the division's customers, competition is also
based on the ability of coatings suppliers to collaborate with customers and
quickly deliver tailor-made products and applications, particularly to vehicle
manufacturers using a just-in-time approach to manufacturing. BASF's Suvinil
line of decorative paints competes in South America primarily on the basis of
brand recognition, product quality and price.
BASF considers E.I. du Pont de Nemours and Company and PPG Industries, Inc.
of the United States to be the primary global competitors of the Coatings
division, and Nippon Paint Company Ltd. and Kansai Paint Company Ltd. of Japan
to be the division's competitors in Asia.
FUNCTIONAL POLYMERS
OVERVIEW
BASF's Functional Polymers division, formerly known as the Dispersions
division, is one of the largest producers of acrylic acid and its derivative
products, which are mainly superabsorbents and dispersions. In a dispersion,
also known as an emulsion, tiny globules of polymers are suspended in a liquid,
usually water. After applying a dispersion to a solid surface, the liquid
evaporates, leaving the globules to dry uniformly over the surface. Dispersions
are used in a multitude of industries, including the manufacture of paper,
decorative paints, adhesives, non-woven materials,
51
carpets, fibers and plastics. The Functional Polymers division also manufactures
wet end chemicals for paper production. The most important customers of the
Functional Polymers division are the paper, construction, adhesive, sanitary
care and coatings industries.
The Functional Polymers division purchases approximately 70% of its raw
materials from other BASF operations through the company's Verbund. Such raw
materials include styrene, butadiene, oxo alcohols and above all propylene,
which is used to produce acrylic acid. By purchasing the vast majority of its
raw materials internally, the division benefits from BASF's economies of scale
in purchasing and producing raw materials, from efficiencies in logistics and
from savings in energy, transportation, purchasing and infrastructure costs. The
division sells most of its products to external customers, but also sells
approximately 10% of its products to other BASF operations.
BASF's goals for the Functional Polymers division are to strengthen the
division's position as a leading acrylic acid manufacturer, expand the
division's cost leadership and its business in all regions, and grow by
introducing innovative products such as polyvinylamines -- a new class of paper
chemicals.
In Europe and North America, a comprehensive restructuring program is under
way to improve the division's cost competitiveness. The division is streamlining
its workforce in Europe and shifting production from older plants to new, more
efficient plants. The division is also relocating specific production capacities
closer to customers in an effort to reduce transportation costs. In North
America, the division is reducing its workforce and consolidating its production
activities to control costs and increase capacity utiliiation rates of some
plants.
The current oversupply of acrylic monomers in Asia is expected to be
absorbed by increasing demand in this region. A new manufacturing complex for
the production of acrylic acid and acrylic esters became fully operational in
August 2000 in Kuantan, Malaysia, where it forms part of BASF's first Asian
Verbund site. In China, a new plant for acrylic dispersions went on stream in
Shanghai in 2001. BASF also plans to manufacture acrylic acid and acrylic esters
at BASF's second Asian Verbund site in Nanjing by 2005. In South America, BASF
started up a butyl acrylate plant in 2001 in Guaratingueta, Brazil, to supply
this important regional market.
The Functional Polymers division is especially committed to further
expanding its leading position as a manufacturer of superabsorbents. In 2000,
BASF acquired the superabsorbents business of Chemdal International Corporation,
an affiliate of AMCOL International Corporation with production sites in the
United States and the United Kingdom, for $657 million. Chemdal achieved sales
of E238 million in 1999. The acquisition increased BASF's annual superabsorbents
production capacity by more than 160,000 metric tons to about 300,000 metric
tons. Through this acquisition, BASF has achieved a leading position worldwide
in superabsorbents and increased the captive use of its acrylic acid. In Asia, a
region which BASF considers to have the highest growth potential, the company
started up a new plant for the production of superabsorbents in Rayong,
Thailand.
The Functional Polymers division's sales to third parties were
E2,522 million in 2001.
PRODUCTS
The Functional Polymers division sells its products globally. The division
has the following four major product groups that are to a significant extent
based on acrylic acid and its derivatives:
ACRYLIC MONOMERS
BASF is the world's largest producer of acrylic monomers, which are sold
directly to customers in the form of acrylic acid, acrylic esters and special
acrylics. Acrylic monomers are used as precursors to manufacture dispersions,
superabsorbents, detergents, flocculants and fibers. Acrylic monomers are used
as precursors to manufacture products in a wide range of industries.
52
POLYMERS
BASF's polymers products consist mainly of polymer dispersions for the
manufacture of adhesives, paints and finishes as well as non-woven materials and
chemicals for the construction industry. BASF's strengths lie particularly in
its excellent UV curable hot melt technology for adhesive raw materials as well
as in dispersions for paints and other coating materials.
PAPER CHEMICALS
BASF offers the paper industry a complete and integrated range of chemical
products for all aspects of the paper production process, including the
manufacture of untreated paper, paper finishing and wastewater treatment. The
Functional Polymers division's product range of paper chemicals consists of
paper-processing chemicals, paper dyes and dispersions for paper coating. In
2000, BASF introduced an innovative new class of process chemicals known as
polyvinylamines. Polyvinylamines are process chemicals which improve the
performance of paper production lines by removing undesirable materials and also
increase the strength of paper and board grades. A commercial-scale production
plant for this class of products started operation in Ludwigshafen, Germany, in
2001.
SUPERABSORBENTS
BASF sells superabsorbents globally to the personal hygiene industry, which
uses these products to manufacture diapers and other sanitary care products.
Production capacities as of December 31, 2001 for the major products of the
Functional Polymers division are as follows:
PRODUCT ANNUAL PRODUCTION CAPACITY
------- --------------------------
(METRIC TONS)
Acrylic monomers(1)......................................... 850,000
Superabsorbents............................................. 305,000
---------------
(1) Conducted through a joint venture between BASF (60%) and PETRONAS (40%)
(capacity reflects total joint venture capacity).
MARKETS AND DISTRIBUTION
The primary market for the Functional Polymers division is Europe, which
accounted for more than 47% of the division's sales in 2001. North America
accounted for approximately 31%; the Asia, Pacific Area, Africa region for 17%;
and South America for 5% of sales in 2001. The Functional Polymers division's
strategic goal is to increase market share in growing markets, especially in
North and South America and in Asia.
BASF sells the vast majority of the division's products primarily through
its own regional sales network. Some smaller customers purchase products through
distributors. Many of the division's products, particularly dispersions, contain
up to 50% water. To minimize transportation costs, BASF manufactures these
products at local plants and markets and sells them on a regional basis. Acrylic
monomers, however, are distributed globally from production sites in
Ludwigshafen, Germany; Antwerp, Belgium; Freeport, Texas; Kuantan, Malaysia; and
Guaratingueta, Brazil.
The Functional Polymers division is increasing its e-commerce activities to
distribute its products. The division began selling acrylic monomers through
Elemica Holding Ltd., an independent business-to-business e-commerce company.
The division's participation in WorldAccount, BASF's integrated global extranet
platform, is targeted at its customers in the adhesive, construction and paper
industries.
53
Acrylic monomers have commodity-like attributes and can be affected by
cyclicality. Other products, particularly dispersions for adhesives, paints and
non-wovens; superabsorbents; and paper process chemicals, are relatively
resilient to economic cycles and compete primarily on the basis of product
innovation and quality.
BASF's main competitor in acrylic monomers and polymers is Rohm and Haas Co.
of the United States. The Dow Chemical Company and Hercules of the United States
are BASF's main competitors in paper chemicals. In the superabsorbents business,
BASF's main global competitors are Degussa AG of Germany and Nippon Shokubai
Co., Ltd. of Japan.
AGRICULTURAL PRODUCTS & NUTRITION
SEGMENT OVERVIEW
BASF's Agricultural Products & Nutrition business segment is active in
agricultural products and fine chemicals businesses that offer opportunities for
high returns and are typically resilient to economic cycles. After receiving
clearance from the Federal Trade Commission and the European Union Commission,
BASF sold its pharmaceuticals business on March 2, 2001 to Abbott
Laboratories Inc. of Abbott Park, Illinois. Pursuant to the requirements of U.S.
GAAP, the pharmaceuticals activities are disclosed as discontinued operations as
described in Item 18 under Note 3 to the Consolidated Financial Statements.
Effective January 1, 2001, the generic pharmaceutical business with operations
in Germany, France, Italy, the Netherlands, Switzerland and Spain was sold to
Biochemie GmbH, a subsidiary of Novartis AG. For additional information on
BASF's pharmaceuticals activities as discontinued operations, see also Notes 3
and 4 to the Consolidated Financial Statements in Item 18. The gain on
disposition in 2001 is classified as extraordinary income in these financial
statements. For further information see also Note 9 to the Consolidated
Financial Statements in Item 18.
The Agricultural Products & Nutrition business segment conducts its
activities through its Agricultural Products and Fine Chemicals divisions and
until March 2, 2001 also conducted its activities through the Pharmaceuticals
division. The Agricultural Products and Fine Chemicals divisions are treated as
separate reportable operating segments, as was the Pharmaceuticals division in
2001.
The following table sets forth the sales to third parties, percentage of
total BASF sales, intersegmental transfers, income from operations and capital
expenditures for the last three years in each of the reportable operating
segments of the Agricultural Products & Nutrition business segment:
54
2001 2000 1999
----------- ----------- -----------
(EUROS IN MILLIONS)
AGRICULTURAL PRODUCTS
Sales to third parties...................................... E 3,478 E 2,428 E 1,745
Percentage of total BASF sales.............................. 11% 7% 6%
Intersegmental transfers.................................... E 30 E 34 E 36
Income from operations...................................... E 18 E (443) E 195
Capital expenditures........................................ E 130 E 3,260 E 93
FINE CHEMICALS
Sales to third parties...................................... E 1,984 E 1,739 E 1,636
Percentage of total BASF sales.............................. 6% 5% 6%
Intersegmental transfers.................................... E 29 E 44 E 53
Income from operations...................................... E (210) E (5) E (774)
Capital expenditures........................................ E 199 E 83 E 87
PHARMACEUTICALS -- DISCONTINUED OPERATIONS
Sales to third parties...................................... E 364 E 2,526 E 2,197
Percentage of total BASF sales.............................. 1% 7% 8%
Intersegmental transfers.................................... E 5 E 36 E 34
Income from operations...................................... E 30 E 243 E (13)
Capital expenditures........................................ E 20 E 121 E 101
The Agricultural Products & Nutrition business segment sells its products
primarily to customers in the farming, food processing, animal and human
nutrition and personal care industries. The segment's products include
agricultural products such as herbicides, fungicides and insecticides; and fine
chemicals such as vitamins, carotenoids, pharmaceutical active ingredients;
polymers for pharmaceuticals, cosmetics and human nutrition; aroma chemicals; UV
(ultraviolet) filters; amino acids; feed enzymes; and organic acids.
The business segment contributes to BASF's Verbund approach to integration
by purchasing a number of precursors from the company's chemical operations and
using them to create higher value products. The Fine Chemicals division in
particular benefits from efficiencies in logistics and savings in energy,
transportation, purchasing and infrastructure costs derived from internally
purchasing precursors used in manufacturing vitamins and other nutrition
products.
The Agricultural Products division, based in Mount Olive, New Jersey, is a
leading supplier and marketer of herbicides, fungicides and insecticides. On
July 1, 2000, BASF acquired the agricultural products business of American Home
Products Corp. (AHP) of Madison, New Jersey. The acquisition, the largest in
BASF's history, nearly doubles the company's agricultural products business.
BASF is also investing in the emerging field of plant biotechnology and founded
a subsidiary for these activities called BASF Plant Science GmbH in 1998.
The Fine Chemicals division serves the animal and human nutrition,
pharmaceutical, cosmetics and aroma chemicals industries, and in all of the
division's main product groups BASF is one of the top three suppliers. In
January, 2001, BASF strengthened its position as one of the world's leading
manufacturers of vitamins by acquiring the water-soluble vitamins business of
Takeda Chemical Industries Ltd. of Japan. As a result of this acquisition, BASF
accounts for approximately 25% of the world's vitamins market.
55
The divisions comprising the Agricultural Products & Nutrition business
segment and their principal products are:
AGRICULTURAL PRODUCTS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- Herbicides - Agrochemicals to control weeds
- Fungicides - Agrochemicals to control fungal attack
- Insecticides - Agrochemicals to control insect pests
FINE CHEMICALS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- Vitamins - Animal and human nutrition
- Carotenoids - Animal and human nutrition
- Enzymes - Animal nutrition
- Amino acids - Animal nutrition
- Organic acids - Grain and compound feed preservation
- Cosmetic ingredients - Personal care items such as skin-care additives and
sunscreen agents
- Polymers - Hair sprays, styling mousses, gels and hair
conditioners for the cosmetics industry; finished
dosage forms; filtration aids for beverages
- Aroma chemicals - Fragrance and flavor raw materials
- Pharmaceutical active ingredients - Pharmaceuticals
SEGMENT STRATEGY
While each of the divisions in the Agricultural Products & Nutrition
business segment faces competition and sets goals particular to its industry,
they share the following strategic objectives:
- maximizing returns from their existing product portfolios;
- ensuring a steady flow of innovative and safe products through focused
research and development as well as an increased number of collaborative
efforts and licensing agreements; and
- taking full advantage of common technology platforms.
Key strategies for the divisions in this segment are as follows:
- AGRICULTURAL PRODUCTS
The Agricultural Products division focuses on the research, development and
marketing of innovative products to improve the yields and quality of
agricultural crops. Through the acquisition of the crop protection business
of AHP, BASF has gained a leading position in the significant agricultural
markets of North and South America while strengthening its well-established
position in Europe. With its expanded line of insecticides to add to the
Agricultural Products division's line of herbicides and fungicides, the
division offers a broad product portfolio for all major crops. Through the
acquisition, the division expects to achieve annual cost savings of at least
E250 million as of 2002. More than half of this amount was
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achieved in 2001. With a research and development pipeline that consists of
14 projects--including current market introductions--as well as the
CLEARFIELD-Registered Trademark- Production System, the division expects to
expand its market share and grow faster than the global market for
agricultural products.
- FINE CHEMICALS
The Fine Chemicals division aims to achieve leading positions in the markets
it serves. The division is pursuing this strategy by exploiting economies of
scale, developing new production technologies that reduce costs, expanding
its global presence and attaining preferred supplier status with customers.
BASF believes the segment's cost position to be good overall compared with
its competitors. In the few areas where the division's production costs do
not compare favorably with those of competitors, BASF is making process
improvements in existing plants, transferring its production capacities from
smaller facilities to world-scale plants and entering into production joint
ventures to achieve economies of scale and reduce costs. In the vitamins
business, BASF acquired the water-soluble vitamins business of Takeda
Chemical Industries Ltd. of Japan to strengthen its position as one of the
leading global vitamins producers.
AGRICULTURAL PRODUCTS
OVERVIEW
BASF's Agricultural Products division is a leading manufacturer and supplier
of herbicides, fungicides and insecticides. The division's principal products
are used mainly by farmers to improve crop yields and crop quality. Through the
acquisition of the crop protection business of American Home Products Corp.
(AHP) of Madison, New Jersey, on July 1, 2000, BASF has become one of the
leaders in the agricultural products industry, almost doubling its agricultural
business.
In 2001, BASF was able to:
- successfully integrate AHP's crop protection sales force into the
Agricultural Products division's sales organization in time for the start
of the 2001 season;
- work with its dealers to reduce their inventory levels;
- achieve cost savings of more than E125 million in 2001 -- the first year
of business after combining the crop protection activities of AHP with
BASF's Agricultural Products division -- and BASF expects to achieve
annual cost savings of at least E250 million as of 2002 from this
integration;
- consolidate the division's product portfolio;
- keep the division's research and development projects on budget and
schedule;
- make progress in integrating the research and development organization and
marketing activities of AHP's crop protection business into BASF's
organization; and
- begin consolidating the new organization's production capacities.
PLANT BIOTECHNOLOGY
BASF is expanding its activities in the field of plant biotechnology in
response to advances in the market for agricultural products in which
agricultural chemicals, plant seed and biotechnology are becoming increasingly
integrated. BASF's goal in the field of plant biotechnology is to offer crop
plants with improved vitamin and nutritional content and cultivation properties.
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As part of its expansion efforts, BASF established BASF AgGenetics LLC in
July 2001. This new subsidiary will work closely with a number of established
U.S. breeding companies to enlarge the corn gene pool that is available to the
company and to significantly enhance the development of new proprietary inbred
lines in the United States.
PRODUCTS
F 500-Registered Trademark-, a major new fungicidal active ingredient of the
strobilurin class of chemistry, is currently being introduced into the market,
and the registration process for F 500 is underway in all major countries.
Registrations have already been received in 2001 in Germany, the United Kingdom,
Brazil and South Africa. The Environmental Protection Agency in the United
States has granted F 500 "Reduced Risk Status," which means its registration
application will be given preferential treatment. In September 2001, a new
production facility for the active ingredient went on stream in Schwarzheide,
Germany.
F 500 controls major plant pathogens from all classes of fungi, and is
effective against a broad spectrum of diseases in many crops including cereals,
grapes, vegetables and fruits. It is also highly effective, safe for crops and
has a favorable toxicological and ecotoxicity profile. The division's
Comet-Registered Trademark- and Opera-Registered Trademark- are the first in a
series of new fungicides based on F 500, which BASF plans to introduce over the
next few years. With its wide range of activity, F 500 is expected to become a
universal fungicide and an excellent active ingredient for formulations for the
effective management of fungal diseases.
The following table lists the Agricultural Products division's other major
active ingredients and the products they are used in:
BRAND NAME ACTIVE INGREDIENT APPLICATIONS PRIMARY MARKETS
---------- ----------------- ------------ ---------------
HERBICIDES
Basagran-Registered Trademark- Bentazon - Legumes - North America
- Cereals - South America
- Potatoes - Europe
- Rice - Asia
- Soybeans
- Turf
- Corn
- Flax
Banvel-Registered Trademark- Dicamba - Corn - North America
Clarity-Registered Trademark- - Cereals - Europe
Distinct-Registered Trademark-
Frontier-Registered Trademark- Dimethenamid - Corn - North America
Guardsman-Registered Trademark- - Soybeans - Europe
Outlook-Registered Trademark- Dimethenamid-P - Corn - North America
- Broadleaf crops
Pivot-Registered Trademark- Imidazolinones - Corn - North America
Pursuit-Registered Trademark- - Canola - South America
Lightning-Registered Trademark- - Soybeans - Australia
Odyssey-Registered Trademark- - Europe
Onduty-Registered Trademark- - Far East
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BRAND NAME ACTIVE INGREDIENT APPLICATIONS PRIMARY MARKETS
---------- ----------------- ------------ ---------------
Raptor-Registered Trademark- - Eastern Europe/ Middle
East/Africa
Butisan-Registered Trademark- Metazachlor - Canola - Europe
Novall-Registered Trademark- - Vegetables
Nimbus-Registered Trademark-
Stomp-Registered Trademark- Pendimethalin - Corn - North America
Prowl-Registered Trademark- - Cereals - Europe
Herbadox-Registered Trademark- - Rice
- Soybeans
- Legumes
Poast-Registered Trademark- Sethoxydim - Soybeans - North America
- Cotton - South America
- Peanuts
Facet-Registered Trademark- Quinclorac - Rice - North America
Accord-Registered Trademark- - Cereals - South America
- Asia
FUNGICIDES
Acrobat-Registered Trademark- Dimethomorph - Potatoes - South America
Forum-Registered Trademark- - Vines - Europe
Helmet-TM- Fenoxanil - Rice - Asia
Opus-Registered Trademark- Epoxiconazole - Cereals - Europe
- Coffee - South America
- Rice
- Sugar beets
Allegro-Registered Trademark- Kresoxim-methyl - Cereals - Europe
Juwel-Registered Trademark- - Grapes - North America
Ogam-Registered Trademark- - Fruits
Mentor-Registered Trademark- - Vegetables
Stroby-Registered Trademark-/Sovran-Registered Trademark-
Cygnus-Registered Trademark-
Opera-Registered Trademark- Pyraclostrobin - Cereals - Europe
Cabrio-Registered Trademark- - Grapes - South Africa
Comet-Registered Trademark- - Fruits - Latin America
- Vegetables
INSECTICIDES
Fastac-Registered Trademark- Alphacypermethrin - Citrus - Europe
Mageos-Registered Trademark-/Contest - Fruits - Asia
- Vines - Latin America
Counter-Registered Trademark- Terbufos - Corn - North America
- Sugar beets - Latin America
- Bananas
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In addition to herbicides, fungicides and insecticides, BASF's portfolio of
agricultural products includes the CLEARFIELD-Registered Trademark- Production
System, which combines herbicide-resistant seeds developed using enhanced plant
breeding methods with custom-designed herbicide solutions. It has proved highly
effective at controlling problematic weeds that often cannot be managed using
other products. CLEARFIELD crops currently being marketed include corn, wheat,
rice and canola, and because these varieties contain no introduced genetic
material, they are non-GMO (genetically modified organisms).
SALES
The Agricultural Products division's sales to third parties were
E3,478 million in 2001. The following table shows 2001 sales by product area:
PRODUCT AREAS 2001 SALES
------------- ----------
(EUROS IN MILLIONS)
Herbicides.................................................. 1,809
Fungicides.................................................. 848
Insecticides and other agrochemical products................ 821
RESEARCH AND DEVELOPMENT
BASF's research and development activities in Agricultural Products cover
all three areas of crop protection: fungicides, herbicides and insecticides. As
part of the company's measures to integrate AHP's crop protection activities,
BASF is concentrating the division's research and development activities in
Ludwigshafen and Limburgerhof, Germany, and at the Research Triangle Park (RTP)
in Raleigh, North Carolina. The division will close its research and development
facility in Princeton, New Jersey, in mid-2002. In addition to these research
centers, BASF has a network of trial stations that are located in key markets
around the world, which allow BASF to conduct research throughout the year and
on crops that grow only in specific regions.
In 2001, research and development spending in the Agricultural Products
division was approximately 9.9% of the division's sales to third parties.
Including new market introductions, BASF's product pipeline has 14 projects,
which includes several new active ingredients. Together with its CLEARFIELD
Production System, BASF anticipates a combined annual peak sales potential of
about E2 billion from its current product pipeline. This makes the company's
research and development pipeline one of the strongest in the industry.
PLANT BIOTECHNOLOGY
In addition to the research and development efforts discussed above, BASF in
1998 established two research joint ventures, Metanomics and SunGene, with
partners from the scientific community. Metanomics, based in Berlin, Germany, is
studying functional genomics -- the analysis of the function of individual genes
in plants, which can lead to the discovery of the key genes needed to
genetically modify crop plants. SunGene, based in Gatersleben, Germany, tests
commercially attractive genes and develops new technologies for the efficient
introduction of genes into plants. Together with the Swedish seed breeding
company Svalof Weibull, BASF established BASF Plant Science GmbH, to strengthen
its presence in the plant biotechnology field.
BASF has the goal of becoming a leading competitor in the plant
biotechnology market and expanding its position as a major supplier to the
agricultural industry. In March 2000, BASF announced that it would substantially
step up its operations in plant biotechnology. Research funds will amount to
more than E700 million over 10 years. BASF also intends to allocate additional
funds for the acquisition of seed companies or participations therein.
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BASF believes that biotechnology will be crucial to the crop protection
industry in the 21st century. However, new crop varieties developed through
biotechnology, particularly those with genetically modified traits such as
herbicide resistance, have experienced significant criticism from the public in
Western Europe. Fears about unknown health risks still dominate public
perception in Europe, and producers of genetically modified crops are struggling
to address these concerns.
BASF believes that in the long term, the benefits afforded by biotechnology
will lead to more public acceptance of products using biotechnology. At present,
BASF is focusing its biotechnology research efforts on the following areas:
- improved tolerance to cold and drought;
- higher content of plant constituents such as oil, proteins, carbohydrates;
and
- improved yield of plant constituents such as vitamins and health-promoting
fatty acids.
BASF cannot give assurances that any of its research and development
projects will survive the development process and ultimately obtain the
requisite regulatory approval or, if approved, will be commercially profitable.
Competitors may also launch competing or improved products.
MARKETS AND DISTRIBUTION
In 2001, Europe accounted for 36% of the Agricultural Products division's
sales; North America for 36%; South America for 16%; and the Asia, Pacific Area,
Africa region for 12%.
The Agricultural Products division markets its products globally with a
strong presence in every region. BASF has plants for synthesizing active
ingredients at BASF's Verbund site in Ludwigshafen and in Schwarzheide, Germany;
Hannibal, Missouri; Beaumont, Texas; Tarragona, Spain; and at BASF's Brazilian
sites in Guaratingueta, Resende and Paulinia. Products for final sale are
formulated in facilities that are usually located close to the market. The
formulating of products is carried out either at BASF plants or together with
partners.
The Agricultural Products division delivers high performance products and
competes primarily on innovation, product quality and service. BASF directs
marketing and sales efforts through multi-staged marketing channels, which
include wholesalers and commercial distributors.
The global market for agricultural products is highly seasonal, since the
main markets for these products are in the Northern Hemisphere. Sales tend to be
higher in the first and second quarters of the year, when the growing season in
North America and Europe is underway. Sales during the second half of the year,
which are driven primarily by the main growing season in Latin America, are
weaker.
Over the last 10 years, the agrochemical industry has been going through a
process of consolidation. The main factors driving this trend include:
- the need to offer a comprehensive range of products and services to
customers;
- the need to be present in all major markets;
- rising expenditures on research and development, due to increasingly
comprehensive testing requirements to ensure that potential products
comply with environmental, health and safety standards before being
registered; and
- an increase in the complexity associated with manufacturing agricultural
products.
As a result, the number of basic suppliers of crop protection products has
decreased over the past ten years.
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BASF has become one of the top players in the industry resulting from the
acquisition of the crop protection business of AHP. Including the sales
generated by the crop protection business of AHP for the entire year in 2000,
BASF would have ranked number two in fungicides, number three in herbicides and
number five in insecticides.
The market for chemical-based crop protection products decreased compared
with 2000 due to:
- historically low commodity prices for all major crops, which affected
farmers' revenues and the resources they had available to purchase
agricultural products;
- European farmers' reluctance to invest in agricultural products due to BSE
(bovine spongiform encephalopathy) and the outbreak of foot-and-mouth
disease;
- bad weather both in Europe and the United States, which resulted in less
acreage and reduced application time;
- inventory reduction programs pursued by distributors;
- reduced use of selective herbicides due to the increased use of
genetically-modified, herbicide-resistant crops; and
- a weakened global economy, further impacted by the financial crisis in
Latin America.
However, the market for agricultural products is forecast to grow in the
medium to long term. The main driver is a growing world population and therefore
a rising demand for food, which is also expected to result in new opportunities
in the field of biotechnology.
BASF considers the main competitors of the Agricultural Products division to
be Syngenta AG of Switzerland (formed in 2000 through the merger of the
agricultural products activities of Novartis AG and AstraZeneca plc); Bayer AG
of Germany, Aventis Crop Science of Aventis S.A. of France (approval by the
European Commission for the acquisition of Aventis Crop Science by Bayer is
pending); as well as Monsanto Co., The Dow Chemical Company and E.I. du Pont de
Nemours and Company of the United States.
GOVERNMENTAL REGULATION
In most countries, crop protection products (including genetically modified
plants) must obtain government regulatory approval prior to marketing. The
regulatory framework for crop protection and environmental health products is
directed to ensure the protection of the consumer, the applicator and the
environment. The strictest standards are applied in the United States, Japan and
Western Europe. In the United States, the EPA (Environmental Protection Agency)
has the responsibility for registration of all chemicals released into the
environment, including herbicides, insecticides, fungicides and plant growth
regulators irrespective of whether they are used for crop protection or for
public health. Significant amounts of EPA resources are concentrated on the
effects of crop protection products on the environment and on the safety of
fish, wildlife and water resources. Plant-biotechnology-based crop protection
products are also regulated by the USDA (U.S. Department of Agriculture) for
environmental safety of the plant and by the FDA (U.S. Food and Drug
Administration) to ensure the safety of food.
Since human exposure to a crop protection or environmental or public health
product may occur from residues on food or from residential lawn use and/or
indoor residential use, the safety assessment considers the human risk from all
anticipated routes of exposure. Special sensitivities, food consumption and
exposure patterns on infants and children are specifically considered. If the
product is used on a food crop, a legal limit for residual chemical or a
tolerance is established for the specific chemical. This limit is based on a
strict health standard and the data provided by the manufacturer.
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It generally takes five to seven years from discovery of a new active
ingredient until the dossier is submitted to the appropriate regulatory agency
for product approval. There are no statutory time frames in the United States
for registration of new crop protection and environmental health products. The
standard time frame for registration of an agricultural product, not regulated
under "reduced risk" status, is typically 30 to 36 months. For an agricultural
product in the "reduced risk" category, this time frame is shortened to an
average of 24 months. Numerous initiatives on both the part of the EPA and crop
protection manufacturers aiming to streamline the review process and reduce the
review time for a new product have not been successful.
Genetically modified plants must undergo a regulatory assessment by the USDA
for environmental safety including impact on native species and the impact of
environmental release. The FDA considers the safety of the modified food and
whether it is "substantially similar" to existing food products. Part of this
review considers the possible introduction of new toxins or potential allergens
into the food. Foods that are not considered "substantially similar" must
undergo a more detailed review and approval process by the FDA.
FINE CHEMICALS
OVERVIEW
BASF's Fine Chemicals division develops, manufactures and sells
approximately 900 different high-value specialty products to approximately 8,000
customers.
BASF's Fine Chemicals division is a leading supplier of vitamins;
carotenoids; pharmaceutical active ingredients; polymers for the
pharmaceuticals, cosmetics and human nutrition industries; raw materials for
aroma chemicals; UV (ultraviolet light) filters; amino acids; feed enzymes; and
organic acids for the animal nutrition industry. For further information on
antitrust matters involving BASF's vitamins business, see "Item 8. Financial
Information -- Legal Proceedings."
The Fine Chemicals division benefits from BASF's Verbund approach to
integration by purchasing approximately 35% of its raw materials from other BASF
operations, ensuring economies of scale, efficient use of by-products, lower
capital expenditures for capacity additions, lower transportation costs and
reliable supplies. These cost savings and other advantages improve the ability
of the Fine Chemicals division to compete in international markets, where
competition for many of its products is based on price. Virtually all of the
division's products are sold to external customers.
About 60% of the division's raw material purchases are bulk commodities from
external and internal sources, such as nutrients for vitamin premixes; sugar and
molasses for lysine and pseudoephedrine production; and urea and acetanhydride
for purines. These supplies are readily available on the market. Among specialty
inputs, no single product accounts for more than 4% of total external purchases.
Capital expenditures in the Fine Chemicals division from 1997 to 2001
included production plants and manufacturing equipment in Germany, Denmark and
the United States, particularly in the carotenoid product area. The Fine
Chemicals division's most significant capacity expansions during this period
were for the production of carotenoids; vitamin E and its precursors; UV
absorbers; and for aroma chemicals such as citral, geranonitrile and
Lysmeral-Registered Trademark-. BASF acquired the worldwide business in lysine,
a feed additive, of the South Korean Daesang Group, in May 1998. On January 4,
2001, BASF acquired the water-soluble vitamins business of Takeda Chemical
Industries Ltd., Japan.
The key elements of the division's success are establishing a global sales
presence by maintaining low costs and achieving preferred supplier status with
major customers, as this status promotes lasting relationships and often
generates higher sales volumes. BASF believes that its
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Fine Chemicals division generally has a good cost position in comparison with
its competitors. In the few areas where the division's production costs do not
compare favorably with those of competitors, BASF is making process improvements
in existing plants and transferring production capacities from smaller
facilities to world-scale plants.
The Fine Chemicals division aims to expand its role as a contract
manufacturer for the pharmaceutical industry. As more and more pharmaceutical
companies concentrate on researching, developing and marketing new products,
production of active ingredients is increasingly being contracted out to fine
chemical companies that both specialize in the synthesis of complex molecules
and have suitable multipurpose plants that meet the pharmaceutical industry's
standards. Over the next five years, BASF's goal is to become a leading contract
manufacturer for this industry.
PRODUCTS
The following are the main product lines of the Fine Chemicals division:
VITAMINS
Based on sales, BASF is the second largest vitamins producer worldwide, and
vitamins account for approximately one third of sales in the Fine Chemicals
division. BASF produces six of the 13 naturally occurring vitamins. These
include the water-soluble vitamins B(2) (riboflavin), Calpan (calcium
d-pantothenate) and C, as well as the fat-soluble vitamins A, E and D(3). The
Fine Chemicals division sells vitamins to the human and animal nutrition
industries. BASF is currently pursuing an investment program in its vitamins
business. In the first phase, BASF acquired the vitamins business of Takeda
Chemical Industries Ltd., and now offers a complete range of fat-and
water-soluble vitamins. The company estimates that as a result of the
acquisition it has a 25% share of the world market for vitamins. In the second
phase of the investment program, which is expected to be completed by 2006, BASF
plans to invest approximately E600 million to build world-scale plants for
vitamins E, B(2), C, Calpan and B(6). BASF expects to improve its market
position by expanding its range of water-soluble vitamins, gaining greater
access to the market for food industry applications, and strengthening its
presence in Asia. BASF's vitamins sales are evenly divided among Europe, North
America and Asia.
CAROTENOIDS
Carotenoids are nature-identical products that provide certain health
benefits and are also used to color foods. This product line includes
beta-carotene, cantaxanthine and astaxanthine for the food, feed and nutritional
supplement industries for human and animal nutrition. More than half of BASF's
carotenoid sales are in Europe.
PHARMACEUTICAL ACTIVE INGREDIENTS
The main products in this category are caffeine, pseudoephedrine,
theophylline, ibuprofen and povidone iodine. Beverage manufacturers are the
primary buyers of caffeine, while theophylline and pseudoephedrine are used to
treat respiratory diseases. Ibuprofen is used in a variety of over-the-counter
and prescription products to treat mild pain. All of BASF's production sites for
these products have GMP (good manufacturing practice) certification, a quality
standard granted by an independent agency and demanded by companies who market
and sell these products. BASF sells these products worldwide, with the United
States being the most important market, followed by Western Europe. BASF is the
number one producer worldwide of all the products in this category.
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POLYMERS
The Fine Chemicals division sells polymers for applications in the
cosmetics, pharmaceuticals and food industries. In pharmaceuticals, polymers are
used as binders, disintegrants, coatings and solvents for the manufacture of
finished dosage forms. The cosmetics industry uses polymers in hair care
products such as hairspray, styling mousses, gels and hair-conditioners. In the
food industry, polymers are applied as filtration aids for beverages such as
beer, wine and soft drinks. BASF sells polymers mainly in Europe.
AMINO ACIDS
Amino acids are feed additives that serve as a complementary growth area
within BASF's animal nutrition business. An important product is lysine, of
which BASF is among the top three producers. The Fine Chemicals division
produces lysine at BASF's site in Gunsan, Korea. BASF has a strong foothold in
the Asian market for amino acids, with the region accounting for half of the
sales for this product group.
ENZYMES
Enzymes, which are proteins that function as biochemical catalysts, are used
for animal nutrition to improve feed absorption. BASF's enzyme product line
includes Natuphos-Registered Trademark-, Natustarch-Registered Trademark-, and
Natugrain-Registered Trademark-, which the Fine Chemicals division produces and
markets pursuant to a cooperation agreement with DSM N.V. of the Netherlands.
Most of BASF's enzyme sales are roughly divided between Europe and North
America.
ORGANIC ACIDS
Organic acids are used as preservatives for grains and compound feeds. BASF
offers a wide range of organic acid products that suppress the growth of molds
and bacteria. BASF is the leading supplier of standard and tailor-made organic
acids for the feed industry in Europe and Asia.
COSMETICS INGREDIENTS
Cosmetics ingredients are raw materials for many personal care products,
including skin-care additives and sunscreen agents. BASF sells these products
primarily in Europe. The Fine Chemicals division offers the full range of UVA
and UVB absorbers, and in 2001 started up a new world-scale plant in
Ludwigshafen to manufacture Uvinul MC 80 -- part of BASF's product range of UV
absorbers.
AROMA CHEMICALS
Aroma chemicals are fragrance and flavor raw materials that are used as
precursors for perfumes, food products, detergents and cosmetics. BASF sells
these products primarily in Europe.
SALES
The Fine Chemicals division's sales to third parties were E1,984 million in
2001. The following table shows the Fine Chemicals division's sales for 2001 by
customer industry:
CUSTOMER INDUSTRY SALES
----------------- -------------------
(EUROS IN MILLIONS)
Animal nutrition............................................ 840
Human nutrition............................................. 385
Pharmaceuticals............................................. 408
Personal care, cosmetics and aroma chemicals................ 351
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RESEARCH AND DEVELOPMENT
The Fine Chemicals division's research and development activities focus on
constantly improving BASF's cost position while generating a flow of new
products. In 2001, the Fine Chemicals division spent approximately 4% of its
consolidated sales on research and development activities, essentially unchanged
from 2000.
Approximately 45% of the Fine Chemicals division's research and development
expenses in 2001 were allocated to human nutrition and pharmaceuticals. Around
35% were spent on products for the animal nutrition industry. The remainder was
earmarked for applications in cosmetics and aroma chemicals.
In the animal nutrition business, BASF is seeking to increase its market
share by improving product quality and reducing production costs. BASF is also
directing research efforts at extending the feed additives product range, for
example, by adding new heat-stable enzymes to the Natuphos/Natustarch range of
feed enzymes. These enzymes are designed to improve digestion in animals and
reduce the phosphate content of excretions.
Biotechnological production processes are becoming increasingly important to
the success of many fine chemical products because they reduce variable
production costs and allow for continuous improvement in the bacteria strains
and fermentation processes for vitamins and amino acids. BASF is currently
working on optimizing the fermentation and production processes for the amino
acid lysine. BASF has successfully replaced chemical synthesis with
biotechnology-based processes to produce vitamin B(2) and precursors of vitamin
C.
MARKETS AND DISTRIBUTION
In 2001, Europe accounted for 40% of the Fine Chemicals division's sales;
North America for 30%, the Asia, Pacific Area, Africa region for 23%; and South
America for 7%.
The main customers of the Fine Chemicals division are global participants in
the animal nutrition, human nutrition, pharmaceuticals, personal care and aroma
chemical industries. Many of the division's products are sold in relatively
small volumes and are often tailor-made to meet customer specifications.
BASF sells the vast majority of its fine chemical products through its own
sales force, which targets major global customers. Key account managers are
assigned to these major customers on the basis of region and product group.
Through its sales and marketing departments, BASF works closely with customers
to develop specific applications and to collaborate on developing new products.
BASF is also selling its fine chemical products through its global extranet
platform, WorldAccount and is considering selling the division's products
through Elemica Holding Ltd., an independent e-marketplace for the chemicals
industry.
BASF's competitive position depends to a large extent on its ability to
compete on both price and quality. This requires comprehensive cost leadership
in production, marketing and sales.
BASF expects the trend toward globalization and consolidation to continue
among customers of the Fine Chemicals division. Product differentiation is based
on quality, price and value-added services. BASF believes that cost-effective
production processes will be critical to ensure future success in this industry,
as will preferred supplier status with important customers. The trend toward
commoditization for certain fine chemicals, such as vitamins, is intensifying.
BASF is exposed to competition from new market entrants, especially from China.
Entrants from China, in particular, tend to be low cost producers that compete
on the basis of price, primarily in the European feed and food vitamins market.
Competition from new entrants has affected other regional feed vitamins markets
to a more limited degree.
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BASF considers its main competitors in the animal nutrition area to be Roche
Group of Switzerland, Archer Daniels Midland Co. of the United States, Novo
Nordisk A/S of Denmark, Adisseo Group and Rhodia S.A. of France, Eisai Co. Ltd.
of Japan and new entrants from China. In the human nutrition area, BASF's main
competitors are Roche and Merck KGaA of Germany. In pharmaceutical active
ingredients, BASF considers Albemarle Corporation, Mallinckrodt Inc.,
International Specialty Products Inc. and FMC Corporation of the United States
to be its main competitors, as well as a number of Chinese and Indian suppliers.
In cosmetics and aroma chemicals, Roche and Givaudan of Switzerland,
International Specialty Products, Hercules Inc., Millennium Specialty Chemicals,
IFF Inc., National Starch & Chemical Co. of the United States and Kurarai of
Japan are BASF's main competitors.
GOVERNMENTAL REGULATION
BASF's various Fine Chemicals products are subject to regulation by
government agencies throughout the world. The primary emphasis of these
requirements is to assure the safety and effectiveness of BASF's products. Of
particular importance in the United States is the Food and Drug Administration
(FDA), which regulates many of BASF's Fine Chemicals products. The FDA oversees
the marketing, manufacturing and labeling of cosmetics (e.g., sunscreen agents),
pharmaceuticals (e.g., pharmaceutical active ingredients), foods (e.g., dietary
supplements, including vitamins) and feeds (e.g., vitamins, carotenoids). The
Federal Trade Commission regulates claims made in the advertising of dietary
supplements. Animal health products are also regulated in the United States by
the United States Department of Agriculture and the Environmental Protection
Agency.
One of the major markets for BASF's fine chemicals is the European Union
(E.U.). In the E.U., similar regulatory systems are established on the national
level of different member states as well as on the pan-European government
level. Positive lists and negative lists exist in Europe and they regulate the
usage of various substances in order to ensure consumer safety. Before the
substances are added to these lists, they are subject to a rigorous approval
procedure. A product is approved in the E.U. only after its safety is assessed
by a committee of independent academic scientists.
In countries other than the United States and those of the E.U. in which
BASF conducts business, BASF is subject to regulatory and legislative climates
that are similar to or sometimes even more restrictive than those described
above. The regulatory environment in Japan, for example, can be more restrictive
than that of the United States or the E.U.
OIL & GAS
SEGMENT OVERVIEW
BASF conducts the activities of its Oil & Gas segment through its subsidiary
Wintershall AG, one of the leading oil and gas companies in Germany. Wintershall
and its affiliated companies are active in two sectors:
- OIL AND NATURAL GAS EXPLORATION AND PRODUCTION
Wintershall participates in the search and production of oil and natural gas
in 10 countries on four continents. BASF presently conducts its most
important oil exploration and production operations in North Africa and the
Middle East and in Germany, and its most significant gas exploration and
production activities in Argentina, Germany and the North Sea. Wintershall's
strategy is to increase its hydrocarbon production in the next 10 years by
at least 50%. The company also aims to maintain a ratio of proved reserves
to production at approximately
67
10 years. Wintershall markets approximately 75% of its crude oil production
through its wholly owned subsidiary Wintershall Oil AG, of Zug, Switzerland.
- NATURAL GAS DISTRIBUTION AND TRADING
BASF conducts natural gas distribution and trading activities through two
joint ventures -- WINGAS GmbH (WINGAS) and Wintershall Erdgas Handelshaus
GmbH (WIEH) -- in partnership with OAO Gazprom (Gazprom) of Russia. WINGAS
owns and operates a pipeline system in Germany that is approximately 1,900
kilometers in length for the distribution of natural gas. The company also
owns and operates one underground natural gas storage site, which has a
capacity of 157 billion cubic feet and is the largest in Western Europe.
WIEH acts exclusively as a trading company, purchasing Russian natural gas
and marketing it to WINGAS and Verbundnetz Gas AG (VNG), a transmission and
distribution company in eastern Germany in which Wintershall has a 15.8%
ownership interest. WIEH also markets Russian natural gas in Central Europe
through its Swiss subsidiary Wintershall Erdgas Handelshaus AG (WIEE) of
Zug, Switzerland.
Effective December 31, 1999, Wintershall exited the oil refining and
marketing business by selling for cash to VEBA OEL AG, a subsidiary of E.ON AG,
its Emsland refinery in Lingen, Germany, together with its 15% stake in Aral AG,
a retail gasoline station network in Germany. (The segment's 1999 financial data
include amounts from the oil refining and marketing business.) The businesses
sold to VEBA OEL had 1999 sales of approximately E1,016 million. BASF believes
its decision to divest its holdings in Aral and the Lingen refinery was a
significant step in the restructuring of its portfolio by concentrating on its
core activities in the Oil & Gas segment. The proceeds from the sale of BASF's
stake in Aral are included in BASF's financial results for 1999. The proceeds
from the sale of the refinery are included in the Oil & Gas segment's income
from operations for 1999.
The Oil & Gas segment sells most of the natural gas it produces to third
parties, however through WINGAS it also supplies BASF with natural gas consumed
at BASF's Verbund site in Ludwigshafen, Germany and at other BASF companies. The
Oil & Gas segment sells to third parties all of the oil it produces.
The following table sets forth the segment's sales to third parties,
petroleum and natural gas taxes, intersegmental transfers, royalties, income
from operations and capital expenditures:
2001 2000 1999
----------- ----------- -----------
(EUROS IN MILLIONS)
Sales to third parties, net of petroleum and natural gas
taxes(1).................................................. 4,516 E 3,957 E 3,051
Petroleum and natural gas taxes(1).......................... 268 E 259 E 1,845
Intersegmental transfers.................................... 413 E 320 E 177
Sales incl. intersegmental transfers........................ E 4,929 E 4,277 E 3,228
Royalties................................................... 312 E 276 E 214
Sales incl. intersegmental transfers, less royalties........ E 4,617 E 4,001 E 3,014
Income from operations...................................... 1,308 E 1,310 E 741
Capital expenditures........................................ 229 E 267 E 524
---------------
(1) Since 2000, natural gas taxes only
The Oil and Gas segment's sales to third parties, net of petroleum and
natural gas taxes, accounted for 10.4% of BASF's total sales in 1999 and 11.0%
of BASF's total sales in 2000. In 2001, the segment accounted for 13.9% of
BASF's total sales.
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SEGMENT STRATEGY
In its exploration and production business, the Oil & Gas segment is
pursuing a growth strategy by increasing existing oil and gas production
activities and by carrying out acquisitions. To this end, the segment aims to
increase production of oil and gas by at least 50% over the next 10 years. To
ensure the company's ongoing competitiveness, Wintershall plans to focus on the
following core regions:
- Europe,
- North Africa,
- South America (Southern Cone) and
- Russia/Caspian Sea/Middle East.
Wintershall's goal is to maintain a ratio of proved reserves to production
of approximately 10 years and a suitable balance of assets operated by
Wintershall and by third parties. Wintershall's strategy for achieving these
goals is:
- to increase oil and gas production in Germany and the North Sea through
further exploration activities and field developments;
- to expand its activities in North Africa to offset the depletion of
existing oil reserves and to expand its gas and condensate production;
- to increase production of gas from existing and new fields in Argentina in
order to meet growing demand for natural gas in the Southern Cone region;
- to pursue exploration activities in new offshore concessions in Brazil
with the goal of establishing new production activities in the region; and
- to expand oil and gas activities in Russia through strategic partnerships
such as Wintershall's partnership with Gazprom.
In the natural gas marketing and distribution business, WINGAS currently is
the fourth largest natural gas transmission and distribution company in Germany.
Over the next few years, WINGAS aims to increase its current 10% share of the
growing German gas market by expanding its transmission and distribution
activities into new regions.
Ongoing liberalization of the European natural gas market requires natural
gas distributors to give third parties access to their pipelines. This creates
significant growth opportunities for WINGAS, since the company is eligible to
transport natural gas through its competitors' extensive transmission networks.
In Europe, WINGAS intends to expand its pipeline network, focusing on regions
not yet covered by its network.
EXPLORATION AND PRODUCTION OF OIL AND NATURAL GAS
The exploration and production of oil and natural gas historically have been
Wintershall's core businesses, with operations primarily in Germany, Libya,
Argentina, Dubai and the Netherlands. In 2001, Wintershall acquired an
exploration portfolio in Brazil.
BASF believes that Wintershall presently has finding and development costs
that are below the industry average. Unlike global oil and gas exploration and
production companies, Wintershall focuses its exploration and production
activities on a select number of promising regions where a combination of local
technical expertise, strategic alliances and, where possible, operating
experience allow it to develop petroleum resources at below-average costs.
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Wintershall is the operator of most of the significant exploration and
production projects in which it has an interest. In projects where it is not the
operator, Wintershall participates in operating decisions pursuant to agreements
with operators.
The activities that the Oil & Gas segment presently conducts are as follows:
COUNTRY ACTIVITIES COUNTRY ACTIVITIES
------- ---------- ------- ----------
Argentina Oil and gas Libya Oil and gas
exploration and exploration and
production production
Azerbaijan(1) Oil exploration the Netherlands Gas exploration and
production
Brazil(1) Oil exploration Qatar Oil exploration
Dubai Oil exploration and Romania Gas exploration
production
Germany Oil and gas Russia(2) Oil exploration and
exploration and production
production
---------------
(1) Non-consolidated activities
(2) At equity consolidated activities
RESERVES
The Oil & Gas segment's most significant oil reserves are in North
Africa/Middle East and Germany, with the substantial majority of these reserves
being located in Libya. The most significant natural gas reserves are in
Argentina and Germany.
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The Oil & Gas segment's proved oil and gas reserves and proved developed oil
and gas reserves in each of four geographic areas as of December 31, 2001, 2000
and 1999 were as follows:
NORTH AFRICA
AND
MIDDLE REST OF
GERMANY EAST(1) ARGENTINA WORLD(1) TOTAL REST OF WORLD
-------- ------------ --------- -------- -------- -------------
(AT EQUITY)
AT DECEMBER 31, 2001
Oil (millions of barrels)
Proved reserves................. 101 442 39 -- 582 19
Proved developed reserves....... 70 412 28 -- 510 19
Gas (billions of cubic feet)
Proved reserves................. 500 172 1,225 134 2,031
Proved developed reserves....... 500 171 612 57 1,340
AT DECEMBER 31, 2000
Oil (millions of barrels)
Proved reserves................. 116 479 30 -- 625
Proved developed reserves....... 76 462 22 -- 560
Gas (billions of cubic feet)
Proved reserves................. 509 228 920 89 1,746
Proved developed reserves....... 503 228 519 54 1,304
AT DECEMBER 31, 1999
Oil (millions of barrels)
Proved reserves................. 86 509 26 -- 621
Proved developed reserves....... 66 465 18 -- 549
Gas (billions of cubic feet)
Proved reserves................. 432 247 788 119 1,586
Proved developed reserves....... 301 -- 476 73 850
---------------
(1) Consolidated activities only
At 2001 levels of production, in terms of barrel of oil equivalents, proved
oil reserves would last approximately 10 years. At 2001 levels of production, in
terms of cubic feet equivalents, proved gas reserves would last approximately
11 years.
EXPLORATION AND PRODUCTION
The net quantities of oil and gas produced as well as the average sales
price and production cost (lifting cost) per unit of oil and gas produced in
each of the last three years were as follows:
1999 2000 2001
----------- ----------- -----------
OIL
Net quantities produced (millions of barrels)............... 55 56 60
Average sales price less royalties (per barrel)............. E12.73 E23.76 E20.39
Average production cost (lifting cost) (per barrel)......... E 2.84 E 3.60 E 3.60
GAS
Net quantities produced (billions of cubic feet)............ 135 145 186
Average sales price less royalties (per thousand cubic
feet)..................................................... E 1.36 E 2.35 E 2.57
Average sales cost (lifting cost) (per thousand cubic
feet)..................................................... E 0.40 E 0.50 E 0.54
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Wintershall's total gross and net productive wells, total gross and net
developed acres and total gross and net developed and undeveloped acres (both
leases and concessions) as of December 31, 2001, were as follows:
NORTH AFRICA
AND REST OF
MIDDLE REST OF WORLD (AT
GERMANY EAST(1) ARGENTINA WORLD(1) TOTAL EQUITY)
-------- ------------ --------- -------- -------- ---------
OIL
Total gross productive wells..... 547.0 272.0 57.0 0.0 876.0 12.0
Total net productive wells....... 252.4 63.0 18.0 0.0 333.4 6.0
GAS
Total gross productive wells..... 150.0 0.0 147.0 22.0 319.0 0.0
Total net productive wells....... 63.4 0.0 35.0 7.2 105.6 0.0
OIL AND GAS ACREAGES
(THOUSAND OF ACRES)
Total gross developed acres...... 163.9 93.8 256.2 12.8 526.7 0.9
Total net developed acres........ 56.3 29.7 60.4 4.6 150.9 0.4
Total gross undeveloped acres.... 2,581.7 2,074.5 4,233.1 2,463.4 11,352.6 5,589.1
Total net undeveloped acres...... 1,215.6 788.0 1,322.8 1,091.8 4,418.1 2,794.5
---------------
(1) Consolidated activities only
Exploration activities are focused on Europe, the Southern Cone region of
South America, North Africa/Middle East (mainly Libya) and the Caspian Sea. The
Oil & Gas segment's exploration expenditures in 2001 were E112 million. Either
directly or through its subsidiaries, Wintershall was involved in the drilling
of 15 exploratory wells that were completed in 2001 compared with four
exploratory wells completed in 2000. In 2001, seven of the exploratory wells
completed were productive compared with none in 2000. As of December 31, 2001,
Wintershall had begun drilling five additional exploratory wells. In Brazil,
E67 million was spent on acquiring new concessions and E17 million on
exploration activities. In Azerbaijan and Russia, E27 million was spent on
exploration activities. These expenditures in Brazil and Azerbaijan are not
included in the Consolidated Financial Statements of the BASF Group, whereas the
expenditure in Russia is included on an equity basis. In Azerbaijan and Russia,
Wintershall participated in three exploratory wells, which resulted in two
discoveries. Drilling began on two additional exploratory wells at the end of
2001.
In 2001, approximately 70% of the Oil & Gas segment's oil reserves and
production activities were in North Africa and the Middle East. The substantial
majority of these reserves and production activities were in Libya, where the
segment operates several onshore oilfields and utilizes associated natural gas
for local consumption. BASF does not believe the ILSA (Iran-Libya Sanctions)
Extension Act adopted by the United States government will have a material
adverse effect on BASF's financial condition or results of operations. Remaining
oil production takes place primarily in the Mittelplate offshore oil field in
the German North Sea as well as Dubai, Argentina and Russia.
With approximately 200 million barrels of proved initial reserves, the
Mittelplate field is the largest known German oil reservoir. Wintershall and its
partner, RWE-DEA, have been producing oil from an offshore production platform
since 1987. As of 1998, the Mittelplate field has also been developed from an
onshore site by extended-reach wells. In 2001, oil production increased to
11.3 million barrels of which 5.5 million barrels were produced through
extended-reach wells. Each partner has a 50% interest in the project.
Wintershall's share of Mittelplate oil production has been contracted to RWE-DEA
and Elf Oil Germany, a unit of TotalFinaElf S.A., for refining.
72
More than 40% of Wintershall's natural gas is produced in Argentina.
Wintershall acquired its Argentine gas operations through the September 1998
dissolution of the BASF joint venture Deminex. By acquiring Deminex's gas
operations in Argentina, Wintershall added 746 billion cubic feet to its total
natural gas reserves. Since 1998, Wintershall has further developed its gas
reserves in Argentina and increased its market share in the Southern Cone region
of South America. And in 2001, the company decided to develop the Carina and
Aries gas fields off the coast of Tierra del Fuego. As a result of the economic
development in Argentina at the end of 2001, the project schedule is under
review. Wintershall also holds a 10% share in the "Cruz del Sur" gas pipeline
project. The project is expected to be completed by the first half of 2002. With
this pipeline, which runs from Punta Lara, Argentina, to Montevideo, Uruguay,
Wintershall will be able to participate in the strategic development of new gas
markets in Uruguay. Southern Brazil represents another growing gas market in
which Wintershall may participate, and the pipeline may be extended to this
region depending on market conditions.
The Oil & Gas segment has a 49.95% participation interest in and is the
operator of the first natural gas offshore project on the German continental
shelf, approximately 300 kilometers off the German North Sea coast. Production
started in September 2000 with a gas plateau rate of 112 million cubic feet per
day. The major partners in this project include BEB Erdgas und Erdol and
RWE-DEA. N.V. Nederlandse Gasunie a Dutch natural gas distributor has contracted
to purchase the natural gas produced from this field.
In spring 1999, BASF signed a German-Russian economic agreement with Gazprom
that provides a framework for future project-specific agreements. The agreement
also contemplates the joint participation of Wintershall and Gazprom in the
exploration and production of oil and gas primarily in Russia. Wintershall and
Gazprom are specifically planning to participate in the development of large
gas/condensate fields in Western Siberia. Such developments will have to be the
subject of future agreements. Gazprom and Wintershall are developing
geotechnical concepts needed for the economic and technical development of these
fields.
In Brazil, Wintershall established a significant exploration portfolio in
2001. In the third round of bidding with Agencia Nacional do Petroleo (ANP),
Wintershall acquired and became the operator of three offshore concessions in
water depths of up to 100 meters. In addition, Wintershall participated in two
deepwater exploration concessions with Esso Exploracao Espirito Santo Ltda. and
Shell Brasil Ltda.
In general, oil and gas exploration and production activities require high
levels of investment and entail particular economic risks and opportunities.
These activities tend to be highly regulated, and companies engaging in these
activities generally may face intervention by governments in matters such as:
- the award of exploration and production licenses;
- the imposition of specific drilling and other work obligations;
- environmental protection measures;
- control over the development and abandonment of fields and installations;
and
- restrictions on production.
Crude oil prices are subject to international supply and demand and other
factors that are beyond an oil company's control. Political developments can
affect world supply of and demand for oil, and therefore oil prices as well.
Such factors can also affect the price of natural gas sold under long-term
contracts because, under long-term contracts in Germany and in many other
countries, natural gas pricing typically is tied to prices of refined products
pursuant to a specified time lag.
73
Crude oil prices are generally set in U.S. dollars, while costs may be incurred
in a variety of currencies. Fluctuations in exchange rates therefore can give
rise to foreign exchange exposures.
As with most international oil and gas companies, substantial portions of
the oil and gas reserves of Wintershall are located in countries outside the
European Union and North America, some of which can be considered politically
and economically less stable than European Union or North American countries.
These reserves and the related operations may be subject to political risks,
including:
- increases in taxes and royalties;
- the establishment of production and export limits;
- the renegotiation of contracts;
- the nationalization of assets;
- changes in local government regimes and policies, as well as changes in
business customs and practices;
- payment delays;
- currency exchange restrictions; and
- losses and impairment of operations by actions of insurgent groups.
To date, none of these risks has significantly affected the Oil & Gas
segment or had a material adverse effect on BASF's financial condition or
results of operations.
Wherever possible, Wintershall arranges capital investment guarantees by the
German government to protect its investments. Covered risks include political
risks, such as the risk of war, revolution and expropriation. If any covered
risk were to materialize, Wintershall would receive approximately E160 million.
German government guarantees currently cover a total investment volume by
Wintershall of approximately E447 million, including inventory of raw materials
and supplies.
General uncertainties are inherent in estimating quantities of proved
reserves and in projecting future rates of production and timing of development
expenditures. The accuracy of any reserve estimate is a function of the quality
of available data and engineering, and geological interpretation and judgment.
Results of drilling, testing and production after the date of the estimate may
require substantial upward or downward revisions. In addition, changes in oil
and natural gas prices could have an effect on the economically recoverable
reserves. Accordingly, reserve estimates could be materially different from the
quantities of oil and natural gas that are ultimately recovered.
NATURAL GAS DISTRIBUTION AND TRADING
BASF conducts its natural gas distribution and trading activities pursuant
to an extensive agreement with OOO Gazexport, a subsidiary of OAO Gazprom of
Russia. To promote the joint marketing of mainly Russian, as well as British
North Sea and German natural gas in Germany, Wintershall and Gazprom established
two joint ventures:
- WINGAS GmbH (WINGAS) of Kassel, Germany, in which Wintershall has a 65%
ownership interest; and
- Wintershall Erdgas Handelshaus GmbH (WIEH), of Berlin, Germany, in which
Wintershall has a 50% ownership interest.
WINGAS owns and operates a large pipeline system in Germany for the
distribution of natural gas and also owns and operates one underground natural
gas storage site. WIEH acts exclusively
74
as a trading company, purchasing Russian natural gas and marketing it to WINGAS
and other natural gas providers in Germany. WIEH also markets Russian natural
gas in Central Europe through its wholly owned Swiss subsidiary, Wintershall
Erdgas Handelshaus AG (WIEE), of Zug, Switzerland.
In the medium term, the natural gas distribution and trading business has
generated stable margins and represents a source of noncyclical income for BASF.
In addition, this business ensures a reliable and cost efficient source of
natural gas for BASF's Verbund site in Ludwigshafen, Germany, and for other BASF
companies.
In 2001, WINGAS concluded new supply contracts with municipalities in
Germany and in the forward market and therefore was able to increase the sales
volume from 387 billion cubic feet to 414 billion cubic feet despite relatively
warm weather during the year. The sales volume of WINGAS, WIEH and WIEE totaled
730 billion cubic feet compared with 756 billion cubic feet for 2000. The BASF
consolidated sales volume in 2001 was 461 billion cubic feet, representing a
1.5% decrease over the previous year's sales volume of 468 million cubic feet.
WINGAS
Since 1991, WINGAS has invested approximately E2.7 billion (of which
Wintershall's share was E1.8 billion) in its natural gas distribution and
trading activities in Germany. The high-pressure pipeline system currently spans
approximately 1,900 kilometers (km). The pipeline system presently consists of
four primary legs:
- MIDAL (MITTE-DEUTSCHLAND-ANBINDUNGS-LEITUNG), which is the longest
pipeline of the WINGAS network, extending over 702 km from the North Sea
to southern Germany. To supply the metropolitan area of Hamburg, Germany,
RHG (Rehden-Hamburg-Gasleitung) branches from MIDAL north of Bielefeld,
Germany, forming a 132 km-long branch-pipe.
- STEGAL (SACHSEN-THURINGEN-ERDGAS-LEITUNG), which is a 344 km pipeline that
comes from the east and meets MIDAL south of Kassel, Germany. STEGAL
supplies eastern Germany with natural gas and connects the WINGAS pipeline
system with Czech and Slovakian pipeline systems that transport Russian
natural gas.
- WEDAL (WEST-DEUTSCHLAND-ANBINDUNGS-LEITUNG), which is a 319 km pipeline
that establishes a direct connection between the WINGAS pipeline system
and the British natural gas grid, ensuring a link to the Western European
natural gas network. WEDAL runs between Aachen, Germany, and Bielefeld,
Germany.
- JAGAL (JAMAL-GAS-ANBINDUNGS-LEITUNG), which is a 336 km pipeline completed
in October 1999 that links the large YAMAL gas field in Russia to WINGAS's
pipeline network system. JAGAL begins in Frankfurt/Oder, Germany, and
links up with STEGAL just south of Leipzig, Germany.
In addition to its natural gas pipeline network, WINGAS also owns and
operates a natural gas storage site in Rehden, Germany. It is the largest
underground gas storage site in Western Europe, with a capacity of 157 billion
cubic feet.
In 2001, WINGAS purchased 50% of the natural gas from WIEH, which in turn
purchases all of its gas from Gazprom's subsidiary Gazexport. In 2001, WINGAS
bought additional gas directly from Gazexport so that in total 261 billion cubic
feet were purchased from these suppliers. WINGAS also bought 92 billion cubic
feet from North Sea suppliers, including EdFT (Electricite de France
Trading Ltd.) and Conoco.
The biggest customer for WINGAS's natural gas is BASF's own Verbund site in
Ludwigshafen, Germany. In 2001, the site purchased approximately 87 billion
cubic feet, or approximately 21% of
75
WINGAS's distribution volume. Approximately 19 billion cubic feet, or 5%, was
sold to other BASF companies; 36% to transmission companies; 20% to regional
distributors, municipalities and industrial companies; and 18% was sold in the
forward market. Of the natural gas that WINGAS distributed in Germany in 2001,
just over half (56%) was supplied through long-term natural gas supply
agreements with more than 60 customers. Starting in 2004, WINGAS will also
supply natural gas to BASF's Verbund site in Antwerp, Belgium.
WINGAS is currently the fourth largest natural gas transmission and
distribution company in Germany, has a current market share of 10% and aims to
increase its share of the growing German gas market. Capital expenditures in
2001 totaled E39 million, of which E38 million was used for additions to the
existing infrastructure.
ENVIRONMENTAL MATTERS
BASF is subject to numerous national and local environmental laws and
regulations throughout the world concerning its operations and products in
countries in which it operates. These laws and regulations govern, among other
things, the handling, manufacture, transport and disposal of materials and the
discharge of pollutants into the environment, practices and procedures
applicable to construction and operation of sites, and the restoration and
preservation of natural resources.
BASF's operations are subject to increasingly stringent laws and government
regulations related to environmental protection and remediation. In Germany
alone, some 3,000 laws and regulations regarding environment, safety and health
affect BASF's operations. In Germany, the primary environmental laws currently
affecting BASF's operations are:
- the Chemicals Act (CHEMIKALIENGESETZ), which provides for the protection
of humans and the environment from the harmful effects of dangerous
chemical substances;
- the Federal Immission Control Act (BUNDES-IMMISSIONSSCHUTZGESETZ), which
regulates emissions from a variety of sources;
- the Ordinance on Large Firing Installations
(GROFEUERUNGSANLAGEN-VERORDNUNG), which establishes emissions limits for
different types of plants for all major air pollutants, including sulfur
dioxide, nitrogen oxides and dust;
- the Hazardous Incident Ordinance of the European Union
(STORFALL-VERORDNUNG), which classifies the accident potential of
installations and sets corresponding standards for safety management;
- the Closed Substance Cycle and Waste Management Act (KREISLAUFWIRTSCHAFTS-
UND ABFALLGESETZ), which regulates waste management, focusing on waste
avoidance and reuse of waste;
- the Federal Water Resources Act (WASSERHAUSHALTSGESETZ), which establishes
principles for the responsible use of water resources, including the
purification of wastewater;
- the Waste Water Charges Act (ABWASSERABGABENGESETZ), which establishes
wastewater emissions based on the content of harmful substances and other
parameters, such as nitrogen content and determines fees to be paid by
companies according to the emissions of these harmful substances;
- the Act on Transportation of Dangerous Goods (GESETZ ZUR BEFORDERUNG
GEFAHRLICHER GUTER), which sets standards for transportation safety and
the avoidance of the release of dangerous substances due to accidents; and
- the Federal Mining Act (BUNDESBERGGESETZ), which regulates the exploration
and production of oil and gas.
76
Although BASF believes that its production sites and operations are
currently in material compliance with all applicable laws and regulations, these
laws and regulations have required and in the future could require BASF to take
action to remediate the effects on the environment of the prior disposal or
release of chemicals or petroleum substances or waste. Such laws and regulations
have applied and in the future could apply to various sites, including BASF's
chemical plants, oil fields, waste disposal sites, chemical warehouses and
natural gas storage sites. In addition, such laws and regulations have required
and in the future could require BASF to install additional controls for certain
of its emission sources, undertake changes in its operations in future years and
remediate soil or groundwater contamination at current and/or former sites and
facilities.
BASF's operating costs for environmental protection totaled E765.3 million
in 2001. These costs are recurring or one-time costs associated with sites or
measures that are incurred in the avoidance, reduction or elimination of
deleterious effects on the environment. They include the costs of centralized
disposal sites, such as wastewater treatment plants, as well as decentralized
sites, such as residue incinerators. They also comprise different levies such as
effluent levies, water levies, costs for disposal services by third parties,
monitoring, analysis and surveillance carried out by mobile and stationary units
as well as research and development costs for reducing the incidence of
residues. BASF also spent approximately E175.8 million in 2001 on capital
expenditures for pollution control devices and equipment.
BASF also incurs costs to remediate the impact of the current and prior
disposal or release of chemicals or petroleum substances or waste, both at its
own sites and at third-party sites to which BASF has sent waste for disposal.
Worldwide, BASF had established provisions of E309 million for anticipated
investigation and clean-up costs at such sites as of December 31, 2001, and
E269 million as of December 31, 2000. In the United States, liability for
remediation of contamination is imposed generally pursuant to the federal
Comprehensive Environmental Response Compensation and Liability Act (Superfund)
and analogous state laws. Although such U.S. laws generally allow the recovery
of the total cost of cleanup from any single responsible party, cleanup costs
typically are shared among several responsible parties at third-party sites
where multiple parties sent waste to the site for disposal, and sometimes at
owned or operated sites where a predecessor or other third-party disposed of
waste on-site. BASF has been notified that it may be a potentially responsible
party at such sites. The proceedings related to these sites are in various
stages. The cleanup process has not been completed at most sites; the number,
potential liability and financial viability of other parties are typically not
fully resolved and the status of the insurance coverage for most of these
proceedings is uncertain. Consequently, BASF cannot accurately determine the
ultimate liability for investigation or cleanup costs at these sites. As events
progress at each site for which BASF has been named a potentially responsible
party or is otherwise involved in remediation of contamination, BASF accrues, as
appropriate, a liability for site cleanup. Such liabilities include all costs
that are probable and can be reasonably estimated. In establishing these
liabilities, BASF considers its shipments of waste to a site and its percentage
of total waste shipped to the site (in the case of third-party sites); the types
of waste involved; the conclusions of any studies; the magnitude of any remedial
actions which may be necessary; and the number and viability of other
potentially responsible parties. Although the ultimate liability may differ from
estimates, BASF routinely reviews the liabilities and revised estimates, as
appropriate, based on the most current information available.
BASF has established and continues to establish provisions for environmental
remediation liabilities where the amount of such liability can be reasonably
estimated. The provisions made are considered to be in accordance with U.S. GAAP
for known requirements. BASF adjusts accruals as new remediation commitments are
made and as information becomes available which changes estimates previously
made. For further information, see Note 24 to the Consolidated Financial
Statements.
77
When required by national law, BASF establishes provisions for potential,
but not confirmed, soil contamination at BASF sites around the world which are
still in operation. In general -- unless otherwise required by national law --
investigations into potential contamination and subsequent cleanup are only
required when a site is closed and the existing production facilities
dismantled. BASF cannot at this time accurately determine the ultimate potential
liability for investigation and cleanup at sites which are still in operation.
Taking into account BASF's experience to date regarding environmental matters
and facts currently known, BASF believes that capital expenditures and remedial
actions necessary to comply with existing laws and conditions governing
environmental protection will not have a material effect on BASF's consolidated
financial condition or results of operations.
In connection with the onshore and offshore oil and gas activities conducted
by BASF's subsidiary, Wintershall, BASF is subject to an increasing number of
national laws, regulations and directives governing the protection of the
environment. In connection with the exploration, drilling, production, storage,
transportation and distribution of oil and gas, these regulations may, among
other things:
- require permits;
- restrict the types, quantities and concentration of substances that may be
released into the environment;
- limit or prohibit such activities on land within environmentally protected
areas; and
- impose criminal or civil liability for pollution of soil, water and air as
a result of such activities.
Wintershall performs environmental impact studies where new oil and gas
activities are planned and complies with environmental protection principles
when onshore and offshore sites are abandoned. Environmental laws and
regulations have an increasing impact on the oil and gas industries, and
therefore on Wintershall. It is impossible to predict accurately the effect of
future developments in such laws and regulations on Wintershall's future
earnings and operations. Some risk of environmental costs and liabilities is
inherent in Wintershall's oil and gas activities, as it is with other companies
engaged in similar businesses. BASF can make no assurance that Wintershall will
not incur material costs and liabilities relating to environmental matters.
In recent years the operations of all chemical companies have become subject
to increasingly stringent legislation and regulations related to occupational
safety and health, product registration and environmental protection. Such
legislation and regulations are complex and constantly changing, and there can
be no assurance that future changes in laws or regulations would not require
BASF to install additional controls for certain of its emission sources, to
undertake changes in its manufacturing processes or to investigate possible soil
or groundwater contamination and remediate proven contamination at sites where
such cleanup is not currently required.
SUPPLIES AND RAW MATERIALS
RAW MATERIALS PROCUREMENT
Through its Verbund strategy, BASF operates in an integrated manufacturing
environment that processes basic raw materials to produce thousands of products
for sale as finished goods at various points in these manufacturing processes.
Large amounts of raw materials purchased by BASF are therefore used as
feedstocks in these value-adding chains of production.
The major raw materials that feed BASF's Verbund production sites are
hydrocarbon-based raw materials such as naphtha and LPG (liquefied petroleum
gas). These materials are used as feedstocks for the steam crackers that are
operated in Ludwigshafen, Germany; Antwerp, Belgium; and -- since the fourth
quarter of 2001 -- in Port Arthur, Texas. Other important hydrocarbon-based
78
raw materials are natural gas, benzene and propylene. BASF primarily sources its
natural gas from Russia by means of a long-term natural gas supply contract with
Gazprom. This contract is conducted through BASF's joint venture, WINGAS. Other
important materials at BASF include cyclohexane, styrene, titanium dioxide and
methanol.
BASF believes the company can purchase raw materials most efficiently
through its network of global and regional procurement teams, which BASF refers
to as its "Procurement Verbund." High-volume raw materials or those of strategic
importance, such as raw materials used at the start of BASF's value-adding
chains of chemistry, tend to be purchased by global procurement teams in order
to leverage BASF's purchasing power and secure a stable supply of key raw
materials. Regional procurement teams play an essential role in purchasing raw
materials for the company's regional production sites.
BASF has a policy of maintaining, when possible, multiple sources of supply
for materials and is not dependent on a limited number of suppliers for
essential raw materials.
BASF has not experienced any difficulty in obtaining sufficient supplies of
raw materials in recent years and believes it will be able to obtain them at
competitive market prices in the future. BASF, however, cannot give any
assurance that its ability to obtain sufficient raw materials at any time will
not be adversely affected by unforeseen developments. In addition, the prices of
raw materials may vary, perhaps significantly, from year to year.
TECHNICAL GOODS AND SERVICES PROCUREMENT
The technical goods and services that BASF purchases are related primarily
to the company's manufacturing activities, which involve significant capital
expenditures to design and build plants. These expenditures also cover the
maintenance of sites and offices around the world.
BASF's global and regional procurement teams in its Procurement Verbund work
with technicians and engineers to identify where and how technical goods and
services can be procured most efficiently. To this end, the standardization of
goods and services has a major role to play. Standardizing goods and services
tends not only to be more cost effective, but reduces the expenses associated
with servicing and maintenance. Furthermore, the company's procurement teams
work closely with suppliers to support them in developing system solutions. In
this way, the capital expenditures needed to develop such solutions can be
allocated more effectively.
E-COMMERCE
BASF is actively pursuing the opportunities offered by e-commerce to
increase the efficiency of its procurement processes. For example, increasingly
in the chemicals industry, buyers and sellers are connecting their respective
enterprise resource planning (ERP) systems through online marketplaces. In 2001,
BASF's ERP was linked to Elemica Holding Ltd., a neutral electronic marketplace
for the purchase and sale of basic, intermediate, specialty and fine chemicals.
Electronic marketplaces are also playing a strategic role in BASF's
technical goods and services procurement. For example, BASF is a founding
partner in cc-chemplorer, a marketplace for maintenance, repair and
operations-related products and services for the chemical industry. BASF
believes that its involvement in such e-commerce activities is making a positive
contribution to the speed and quality of its procurement activities.
79
ORGANIZATIONAL STRUCTURE
BASF Aktiengesellschaft is the ultimate parent company of the BASF Group.
The Group operates in five separate business segments which encompass BASF's 12
operating divisions. The business segments are reportable segments except for
business segment Agricultural Products & Nutrition, which is treated as two
reportable segments, the disclosing separately the Agricultural Products and
Fine Chemicals divisions. The divested Pharmaceuticals division was formerly
included as a third reportable segment in the business segment formerly known as
Health & Nutrition.
In 2001, BASF established 48 business units organized along industry lines.
These business units are responsible for production, marketing and sales
activities, 38 of which have a regional focus.
In addition, to its operating divisions and business units, BASF has three
corporate divisions which support the Board of Executive Directors in directing
the company's activities, and eight competence centers which oversee strategic
activities and set global standards. The corporate divisions are Legal, Taxes &
Insurance; Planning & Controlling and Finance. The competence centers are
Logistics & Information Services; Human Resources; Environment, Safety & Energy;
Purchasing; Corporate Engineering; Chemicals Research & Engineering; Specialty
Chemicals Research and Polymer Research.
SIGNIFICANT SUBSIDIARIES
The following table sets forth significant subsidiaries owned, directly or
indirectly, by BASF Aktiengesellschaft:
PERCENTAGE
NAME OF COMPANY OWNED (%)
--------------- ----------
BASF Corporation, Mount Olive, New Jersey................... 100
BASF Antwerpen N.V., Antwerp, Belgium....................... 100
Wintershall AG, Kassel, Germany............................. 100
BASF Coatings AG, Munster-Hiltrup, Germany.................. 100
Elastogran GmbH, Lemforde, Germany.......................... 100
BASF Schwarzheide GmbH, Schwarzheide, Germany............... 100
BASF Espanola S.A., Tarragona, Spain........................ 100
BASF S.A., Sao Bernardo do Campo, Brazil.................... 100
DESCRIPTION OF PROPERTY
BASF owns and operates numerous production and manufacturing sites
throughout the world. The principal offices of BASF Aktiengesellschaft are
located in Ludwigshafen, Germany. In addition, BASF operates regional
headquarters, sales offices, distribution centers and research and development
facilities worldwide.
At the heart of BASF's integration strategy are its Verbund production
sites. The following is a description of these sites including the number of
production plants:
PRODUCTION
-------------------
LOCATION ACREAGE PLANTS
-------- -------- --------
Ludwigshafen, Germany....................................... 1,760 245
Antwerp, Belgium............................................ 1,470 58
Geismar, Louisiana.......................................... 2,290 10
Freeport, Texas............................................. 510 20
80
Additional Verbund sites are currently under construction in Kuantan,
Malaysia, with the joint venture partner PETRONAS and in Nanjing, China, with
the joint venture partner SINOPEC.
See "Item 4. Information on the Company -- Environmental Matters" for
information on environmental issues related to BASF's properties. Additional
information regarding BASF's property, plant and equipment is contained in
Note 14 to the Consolidated Financial Statements included in Item 18.
For information on BASF's oil and natural gas exploration and production
activities, see "Item 4. Information on the Company -- Oil & Gas" and
"Supplementary information concerning oil and gas producing activities
(unaudited)" in Item 18.
The following is a list of BASF's significant production sites, all of which
BASF owns, except as indicated below:
REGION/ COUNTRY PRODUCTION SITE LOCATION DIVISION ACTIVITIES
--------------- ------------------------ -------------------
EUROPE
Germany Ludwigshafen(1) Petrochemicals
Inorganics
Intermediates
Styrenics
Performance Polymers
Performance Chemicals
Functional Polymers
Fine Chemicals
Agricultural Products
Besigheim Performance Chemicals
Cologne Performance Chemicals
Lemforde Polyurethanes
Minden Fine Chemicals
Munster-Hiltrup Coatings
Schwarzheide Petrochemicals
Intermediates
Styrenics
Functional Polymers
Performance Polymers
Polyurethanes
Coatings
Agricultural Products
Sinzheim Performance Chemicals
Stuttgart-Feuerbach Performance Chemicals
Willstatt Performance Chemicals
Wurzburg Coatings
Belgium Antwerp(1) Petrochemicals
Inorganics
Intermediates
Performance Chemicals
Styrenics
Polyurethanes
Performance Polymers
Functional Polymers
Feluy Intermediates
81
REGION/ COUNTRY PRODUCTION SITE LOCATION DIVISION ACTIVITIES
--------------- ------------------------ -------------------
Petrochemicals
Denmark Ballerup Fine Chemicals
Grenaa Fine Chemicals
Finland Hamina Functional Polymers
France Clermont de l'Oise Coatings
Performance Chemicals
Genay Agricultural Products
Gravelines Agricultural Products
Mitry-Mory Polyurethanes
Italy Bibbiano Styrenics
Burago Coatings
Caronno Pertusella Performance Chemicals
Cesano Maderno Performance Chemicals
Cinisello Balsamo Performance Chemicals
Villanova d'Asti Polyurethanes
Zingonia Polyurethanes
The Netherlands Moerdijk Polyurethanes
Spain Guadalajara Coatings
Hospitalet Performance Chemicals
Rubi Polyurethanes
Tarragona Petrochemicals
Styrenics
Performance Polymers
Performance Chemicals
Functional Polymers
Agricultural Products
Fine Chemicals
Tudela(2) Styrenics
Turkey Gebze Functional Polymers
Performance Chemicals
United Kingdom Alfreton Polyurethanes
Ashbourne Fine Chemicals
Cramlington Fine Chemicals
Performance Chemicals
Seal Sands Performance Polymers
Slinfold Performance Chemicals
NORTH AMERICA
Canada Arnprior, Ontario Performance Polymers
Windsor, Ontario Coatings
Mexico Altamira Styrenics
Performance Chemicals
Functional Polymers
Lerma Polyurethanes
Performance Chemicals
Tultitlan Coatings
82
REGION/ COUNTRY PRODUCTION SITE LOCATION DIVISION ACTIVITIES
--------------- ------------------------ -------------------
United States Aberdeen, Mississippi Functional Polymers
Anderson, South Carolina Performance Polymers
Beaumont, Texas Agricultural Products
Charlotte, North Carolina Performance Chemicals
Chattanooga, Tennessee Functional Polymers
Clemson, South Carolina Performance Polymers
Polyurethanes
Freeport, Texas(1) Petrochemicals
Intermediates
Performance Polymers
Functional Polymers
Geismar, Louisiana(1) Petrochemicals
Intermediates
Polyurethanes
Performance Chemicals
Fine Chemicals
Hannibal, Missouri Agricultural Products
Huntington, West Virginia Performance Chemicals
Joliet, Illinois Styrenics
Monaca, Pennsylvania Functional Polymers
Morganton, North Carolina Coatings
Port Arthur, Texas(2) Petrochemicals
Portsmouth, Virginia Functional Polymers
South Brunswick, New Jersey Styrenics
Sparks, Georgia Agricultural Products
Whitestone, South Carolina Performance Chemicals
Fine Chemicals
Wyandotte, Michigan Styrenics
Performance Polymers
Polyurethanes
Fine Chemicals
SOUTH AMERICA
Argentina General Lagos Rosario Styrenics
Performance Chemicals
Functional Polymers
Tortuguitas Coatings
Brazil Camacari Intermediates
Petrochemicals
Guaratingueta Styrenics
Performance Chemicals
Functional Polymers
Agricultural Products
Fine Chemicals
Paulinia Agricultural Products
Resende Agricultural Products
Sao Bernardo do Campo Coatings
Sao Jose dos Campos Styrenics
Chile Concon Inorganics
Styrenics
83
REGION/ COUNTRY PRODUCTION SITE LOCATION DIVISION ACTIVITIES
--------------- ------------------------ -------------------
Functional Polymers
Performance Chemicals
Santiago Styrenics
ASIA, PACIFIC AREA, AFRICA
China Caojing(3)(4) Intermediates
Nanjing(4) Styrenics
Nanjing(1)(2)(4) Petrochemicals
Intermediates
Functional Polymers
Shanghai(4) Performance Chemicals
Performance Polymers
Functional Polymers
Shenyang(4) Fine Chemicals
India Daheij Styrenics
Mangalore Performance Chemicals
Functional Polymers
Thane Styrenics
Performance Chemicals
Agricultural Products
Indonesia Jakarta, Cengkareng Functional Polymers
Performance Chemicals
Fine Chemicals
Japan Shinshiro Polyurethanes
Totsuka Coatings
Yokkaichi Intermediates
Polyurethanes
Functional Polymers
Performance Chemicals
Fine Chemicals
Korea Gunsan Fine Chemicals
Ulsan Intermediates
Styrenics
Polyurethanes
Yeosu Polyurethanes
Malaysia Kuantan(1)(2)(4) Petrochemicals
Intermediates
Functional Polymers
Pasir Gudang(4) Styrenics
Performance Chemicals
Performance Polymers
Shah Alam(4) Polyurethanes
Performance Chemicals
---------------
(1) Verbund site.
(2) Under construction.
(3) Planned.
(4) Plant is owned; land is leased.
84
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
OVERVIEW
BASF is a transnational chemical company that aims to increase and sustain
its corporate value through growth and innovation. The company's product range
includes high-performance products, including chemicals, plastics, coatings
systems, dispersions, agricultural products, fine chemicals as well as crude oil
and natural gas.
BASF is comprised of the parent company, BASF Aktiengesellschaft of
Ludwigshafen, Germany, and 153 consolidated subsidiaries. The company has
customers in more than 170 countries and operates production sites in 39
countries.
BASF conducts its worldwide operations through 12 operating divisions, which
have been aggregated into five business segments based on the nature of the
products and production processes, type of customers, channels of distribution
and nature of the regulatory environment. The business segments are reportable
segments, with the exception of Agricultural Products & Nutrition, which is
treated as two reportable segments, Agricultural Products and Fine Chemicals,
respectively. The divested Pharmaceuticals division was formerly included as a
third reportable segment in the business segment Health & Nutrition.
The reportable operating segments are:
- Chemicals
- Plastics & Fibers
- Performance Products
- Agricultural Products
- Fine Chemicals
- Pharmaceuticals (discontinued operations)
- Oil & Gas
After receiving clearance from the Federal Trade Commission and the European
Union Commission, BASF sold its pharmaceuticals business on March 2, 2001 to
Abbott Laboratories Inc. of Abbott Park, Illinois. Pursuant to the requirements
of U.S. GAAP, pharmaceuticals activities are disclosed as discontinued
operations as described in Item 18 under Note 3 to the Consolidated Financial
Statements. For additional information on BASF's pharmaceuticals activities as
discontinued operations, see also Notes 4 and 5 to the Consolidated Financial
Statements in Item 18.
CHEMICALS
In the Chemicals segment, profitability is to a large extent determined by
the margins between prices for raw materials, particularly steam cracker
feedstocks, and prices for end-products, which are set on the world commodity
markets, as well as by the cost of production, which is influenced by the level
of capacity utilization.
Because cost efficiency and a global presence are critical to the
profitability of this segment, BASF's capital expenditures are focused on
constantly improving processes and achieving technological and cost leadership
as well as expanding the worldwide presence of its chemicals business. BASF has
achieved industry leadership in many sectors of the chemical industry, operating
world-scale plants with modern technology that incorporate BASF's Verbund
approach to integration. This enhances the benefits achieved through economies
of scale. The Verbund is based
85
on the creation of company-wide value-adding chains, beginning with a favorable
cost position for the most basic starting materials and capitalizing on this
cost advantage as basic materials are processed to form more complex compounds.
High captive use ensures high capacity utilization rates of production plants,
making the Chemicals segment less dependent on fluctuations in external demand.
This also means that new capacities being brought on stream by BASF have a less
disruptive effect on the market. The Verbund approach gives BASF cost leadership
with respect to many products. BASF is currently expanding its existing Verbund
sites and building new ones in emerging markets.
The Chemicals segment sells approximately 35% of its products, mostly from
the Petrochemicals and the Inorganics divisions, to other segments. The transfer
prices for these sales are based on market prices, but offer the internal buyer
advantages through savings in logistics, including transportation and
purchasing, and in energy and infrastructure costs. Many of the raw materials
that this segment consumes are produced within BASF. For raw materials that are
not produced by BASF or where BASF's demand exceeds its own production, BASF
takes advantage of its size through centralized purchasing of raw materials
around the world for many of its operating divisions, both on the basis of
long-term contracts and in spot markets. In addition, BASF is taking advantage
of the opportunities offered by e-commerce to increase its purchasing
efficiencies for the Chemicals segment.
Raw materials account for a significant proportion of the cost in the
Chemicals segment. Therefore, the Chemicals segment is sensitive to cycles in
the prices of raw materials such as oil and gas. In addition, many of the
segment's products are used as starting materials for end-products in cyclical
industries that are affected by economic cycles such as the automotive,
chemicals and construction industries.
PLASTICS & FIBERS
The Plastics & Fibers segment produces both commodities and specialty
products. The profitability of commodity products is determined by the spread
between the prices of monomer raw materials, particularly products manufactured
in steam crackers, such as ethylene and propylene, and the prices of the polymer
end-products.
Due to increasing price competition, low production costs and high sales
volume are critical to achieving profitability. The strategy of the segment
focuses on achieving economies of scale through world-scale production and using
advanced technologies and backward integration within the Verbund. In addition,
BASF intends to stabilize earnings in this segment by developing innovative
applications, entering new markets and tailoring future capacity expansions to
the growth of specific markets.
The Plastics & Fibers segment's specialty products are relatively resilient
to economic cycles. A key success factor in the markets for these products is
the ability to maintain long-term relationships with customers. To strengthen
these relationships, BASF offers customized products and systems to meet the
specific needs of its customers. In addition, BASF is expanding its global
presence as key customers also globalize. To this end, BASF will continue to
develop its worldwide network of application centers to work closely with
customers to provide specially formulated products.
PERFORMANCE PRODUCTS
The profitability of commodity and commodity-like products in this segment
is determined mainly by the segment's production technology and costs.
Production in world-scale plants in close proximity to regional markets and the
use of leading production technologies allows BASF to maintain its status as a
low-cost, global producer.
86
The segment also produces a number of high-value chemicals that often
represent the final stages of BASF's value-adding chains. The critical success
factors for these products are product innovation, application technology and
strong customer relationships. To these ends, the development of new products is
strongly focused on customer needs.
AGRICULTURAL PRODUCTS & NUTRITION
The Agricultural Products & Nutrition business segment is comprised of
Agricultural Products and Fine Chemicals, both of which are generally
non-cyclical businesses. It has devoted substantial resources to acquisitions as
well as to research and development to become a market leader. BASF is investing
in new state-of-the-art plants, both on its own and in partnerships, to ensure
economies of scale are achieved.
OIL & GAS
In the Oil & Gas segment, crude oil prices are subject to international
supply and demand and other factors that are beyond BASF's control. Such factors
can also affect the price of natural gas because in many countries, including
Germany, natural gas prices are tied to the prices of refined products.
In BASF's activities relating to the exploration and production of oil and
natural gas, profitability is dependent on BASF's expertise to explore for new
hydrocarbon resources and to efficiently develop and produce oil and gas
deposits in its core regions.
Key factors affecting the profitability of the natural gas distribution and
trading business are BASF's access to large gas reserves, the liberalization of
the natural gas industry in Germany, the adequacy of its natural gas storage
site and its ability to procure long-term contracts covering an increasing
volume of natural gas.
BASIS OF PRESENTATION
The Consolidated Financial Statements of BASF included in Item 18 of this
report have been prepared based on BASF's accounting and valuation principles in
accordance with German GAAP as required by the German Commercial Code
(HANDELSGESETZBUCH), the standards of the German Accounting Standards Committee
(GASC) and the German Stock Corporation Act (AKTIENGESETZ).
There are certain differences relating to accounting and valuation methods
that are required under U.S. GAAP but are not allowed under German GAAP. The
effects of BASF's reconciliation of the remaining differences between German
GAAP and U.S. GAAP for the years ended December 31, 2001 and 2000 are described
in Note 4 to the Consolidated Financial Statements included in Item 18.
In June 2001, the Financial Accounting Standards Board (or "FASB") issued
Statement of Financial Accounting Standards (or "SFAS") No. 141, "Business
Combinations." SFAS 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. BASF believes that the adoption of SFAS 141 will
have no impact on the reconciliation of net income and stockholders' equity.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and other Intangible
Assets." SFAS No. 142 specifies that intangible assets with an unlimited useful
life and goodwill will no longer be amortized but will be periodically tested
for impairment and written down to fair value if considered impaired. BASF is
currently reviewing these statements to determine this impact on the amounts
disclosed in the reconciliation of net income and stockholders' equity to U.S.
GAAP in the Notes to the Consolidated Financial Statements.
87
Also, in June 2001, the FASB issued SFAS 143, "Accounting for Asset
Retirement Obligations." SFAS 143 addresses financial accounting and reporting
for obligations and costs associated with the retirement of tangible long-lived
assets. In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," which provides a single accounting model for
long-lived assets to be disposed of by sale. BASF is currently reviewing these
statements to determine this impact on the amounts disclosed in the
reconciliation of net income and stockholders' equity to U.S. GAAP in the Notes
to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
GROUP
This Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read in conjunction with the Consolidated Financial
Statements and the Notes to the Consolidated Financial Statements included in
Item 18 of this Annual Report.
After a positive start in the first quarter, the business climate worsened
steadily as the year progressed. This affected all regions to a varying extent.
BASF therefore embarked on a comprehensive restructuring program to improve its
competitive position. This program includes the closure of sites and production
plants that no longer fit BASF's strategic and business objectives. Special
charges relating to the reorganization of BASF's marketing and sales structures
were incurred, which had a significant negative effect on earnings.
88
The following table sets forth sales and income for BASF. Sales are net of
petroleum and natural gas taxes.
SALES AND EARNINGS
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
2001 YEAR 2000 YEAR 1999
-------------- -------- -------------- ----------- --------------
(EUROS IN MILLIONS, EXCEPT PER SHARE DATE)
Sales................................... E 32,499.6 (9.6) E 35,945.7 22.0 E 29,472.7
Gross profit............................ 10,311.8 (18.7) 12,690.6 14.5 11,081.4
Gross profit as a percentage of
sales (%)............................. 31.7 (10.1) 35.3 (6.1) 37.6
Income from operations.................. E 1,216.9 (60.4) E 3,069.7 52.8 E 2,008.7
Income from operations as a percentage
of sales (%).......................... 3.7 (56.5) 8.5 25.0 6.8
Special items........................... E (1,076.1) (226.1) E (330.0) -- E (941.0)
Income before taxes and minority
interests............................. 608.7 (78.5) 2,827.4 8.5 2,605.5
Net income.............................. 5,858.2 372.5 1,239.8 0.2 1,236.8
Net income as a percentage of
sales (%)............................. 18.0 429.4 3.4 (19.0) 4.2
Basic earnings per share................ E 9.72 381.2 E 2.02 1.0 E 2.00
Amounts in accordance with U.S. GAAP
Net income............................ E 5,692.4 291.6 E 1,453.6 9.7 E 1,324.8
-- from continuing operations......... (238.2) -- 1,302.1 (2.0) 1,329.1
-- from discontinued operations
including gain from disposal........ 5,892.6 3,789.5 151.5 -- (4.3)
-- cumulative effect of implementing
SFAS 133............................ 38.0 -- -- -- --
Basic earnings per share.............. E 9.45 298.7 E 2.37 10.7 E 2.14
-- from continuing operations......... (0.39) -- 2.13 (0.9) 2.15
-- from discontinued operations
including gain on disposal.......... 9.78 3,975.0 0.24 -- (0.01)
-- cumulative effect of implementing
SFAS 133............................ 0.06 -- -- -- --
-- diluted earnings per share......... 9.45 302.1 2.35 10.8 2.12
In 2001, income from operations included E1,076 million in special charges,
primarily for restructuring and streamlining measures taken in production,
marketing and sales. Compared with the previous year's special charges of
E330 million, this represents an increase in special charges of E746 million.
In conjunction with the restructuring program, charges incurred for
severance payments, losses on disposal and nonscheduled write-downs on plants to
be closed, as well as the costs of restructuring plant operations, totaled
E747 million. Special charges were also incurred as a result of
higher-than-expected fines imposed by the E.U. Commission for antitrust
violations in BASF's vitamins business. The provision established for this
penalty had to be increased by approximately E200 million. Additional charges of
E20 million were incurred for further contributions to the federal foundation
"Remembrance, Responsibility and the Future" to compensate those who suffered
injustice as forced laborers under the National Socialist regime.
Of the total special charges included in income from operations, Europe
accounted for E609 million; North America (NAFTA) for E431 million; South
America for E14 million and the Asia, Pacific Area, Africa region for
E22 million.
89
Special charges of E73 million affected the financial result. These special
charges resulted from restructuring measures taken in companies that are
accounted for under the equity method in the Consolidated Financial Statements,
such as the joint venture Basell N.V.
In 2000, special items recorded in other operating expenses and other
operating income included E590 million in special charges and E260 million in
special income. Included in special charges are costs of E344 million related to
the integration of the crop protection business of American Home Products Corp.
A further E100 million related to charges from restructuring activities in the
Pharmaceuticals segment, which included closing the research and development
site in Nottingham, United Kingdom, and workforce reductions. Other special
charges relate to the higher settlement costs for litigation brought by indirect
purchasers of vitamins in the United States. Various divestitures led to special
income of E205 million and included the sale of the
Novolen-Registered Trademark- polypropylene technology of Targor GmbH to an
international consortium, the sale of the Kraton-Registered Trademark- polymers
business to Kraton Polymers GmbH, a subsidiary of the Deutsche Shell GmbH, the
sale of the urology business in the Pharmaceuticals segment to Abbott GmbH and
the conclusion of business relating to the sale in 1999 of the refinery business
in the Oil & Gas segment.
In 1999, special items recorded in other operating expenses and in other
operating income had a negative effect on income from operations of
E941 million. Of this amount, E815 million related to provisions for
litigations, settlements and related matters for vitamins in the Fine Chemicals
segment and for the thyroid medication Synthroid-Registered Trademark- in the
Pharmaceuticals segment. A further E310 million related to asset impairments,
primarily in the Fine Chemicals, Colorants & Finishing Products and Chemicals
segments, and to charges for restructuring in the Pharmaceuticals segment and in
the Colorants & Finishing Products and Plastics & Fibers segments. In addition,
an expense of E51 million was recorded for BASF's participation in the
initiative, "Remembrance, Responsibility and the Future," to provide
compensation to those who suffered injustice as forced laborers under the
National Socialist regime. Special income of E235 million was generated by the
disposal of fixed assets due to the divestiture of the oil marketing and
refinery business in the Oil & Gas segment and of the
Compo-Registered Trademark- specialty fertilizer business.
2001 COMPARED WITH 2000
SALES
In 2001, sales decreased E3,446 million, or 9.6%, to E32,500 million. In
terms of ongoing business, i.e., excluding pharmaceuticals, polyolefins and
textile dyes, sales were E31,990 million, or 3.2% higher than in the previous
year. Major contributors to this result were the Oil & Gas and Agricultural
Products & Nutrition business segments.
The following table sets forth the various factors affecting the change in
sales:
2001
----------------------------
IN MILLIONS AS % OF SALES
------------ -------------
Volume.................................................. E (110) (0.3)
Prices.................................................. (492) (1.4)
Currency exchange....................................... (195) (0.5)
Acquisitions and additions to scope of consolidation.... 1,810 5.0
Divestitures and deconsolidations....................... (4,459) (12.4)
------------ -----
E (3,446) (9.6)
Continued weakness in the global economy had an increasingly depressive
effect on the sales volumes of our products. The majority of our operating
divisions were affected. Despite this general
90
trend, the Inorganics division increased its sales, and crude oil and natural
gas production levels were also higher than in the previous year.
For the most part, prices for our products declined in the face of falling
demand. Price levels improved in the Inorganics and Intermediates divisions,
and, to a lesser extent, in some product lines of the Coatings division.
Portfolio changes led to a decline in sales of E2,966 million, or 8.3%.
These changes involve in particular:
- the divestiture of the pharmaceuticals and generics business, and
- the impact on sales due to the transfer of the polyolefins and the textile
dye businesses to the Basell N.V. and DyStar Group joint ventures at the
end of the third quarter of 2000.
Sales were positively influenced by the following:
- the acquisition of the vitamins business from Takeda Chemical
Industries Ltd. at the beginning of 2001,
- the purchase of American Home Products Corp.'s crop protection business in
mid-2000, and
- the acquisition of the superabsorbents business of Chemdal International
Corporation in June 2000.
Additions to the scope of consolidation contributed E317 million to sales,
or 0.9%. Our subsidiary in Turkey, in which all previous operations had been
combined, is included in these numbers, as are companies in Japan, China, India,
Hungary, Poland and Russia.
GROSS PROFIT
Gross profit declined in 2001 by E2,379 million or 18.7% to
E10,312 million. As a percentage of sales, gross profit fell from 35.3% to
31.7%. The decrease reflects the continued pressure on selling prices as well as
raw material costs that did not decline until the second half of the year.
INCOME FROM OPERATIONS
Due to weak demand and high special charges, income from operations fell
sharply by E1,853 million, or 60.4% to E1,217 million. Without considering the
effect of special items, income from operations decreased E1,107 million, or
32.6%, to E2,293 million, and represented 7.1% of sales, compared with 9.5% in
the previous year.
INCOME FROM ORDINARY OPERATIONS/INCOME BEFORE TAXES
In 2001, income from ordinary operations decreased E2,218 million, or 78.5%,
to E609 million. This decline was primarily due to special items. Excluding the
effect of special items, income from ordinary operations was E1,758 million.
This represents a decline of E1,266 million, or 42%, compared with the previous
year, and is a reflection of weak economic conditions. The effect of this
decline on income from operations and on the financial result was
E1,107 million and E159 million, respectively.
EXTRAORDINARY INCOME
The sale of our pharmaceuticals business to Abbott Laboratories Inc., Abbott
Park, Illinois, resulted in extraordinary income of E6,121 million. Taxes
charged on this income were E145 million. A large part of the gains realized
relate to the sale of participations which we were able to dispose of as
tax-exempt divestitures.
91
Extraordinary income consists of:
(EUROS IN MILLIONS)
-------------------
Extraordinary gains......................................... 8,794
Extraordinary expenses...................................... 2,673
-----
6,121
The extraordinary gains include proceeds from the sale of the
pharmaceuticals business and additional compensation for the net liquidity and
net assets transferred.
The expense items include the book values of the pharmaceuticals business,
as well as provisions for warranties assumed and risks retained from the
pharmaceuticals business.
As a result of the high extraordinary income, our income before taxes and
minority interests was E6,730 million. This was E3,903 million, or 138%, more
than in the previous year.
NET INCOME/EARNINGS PER SHARE
BASF achieved net income of E5,858 million. This amount consists of
extraordinary income of E5,976 million net of the related taxes and a loss of
E118 million in income from current operations.
The effective tax rate on income from ordinary operations was 125%, compared
with 55% in the previous year. The high level of taxes is due to non-deductible
foreign taxes on oil producing operations and for fines imposed by the E.U.
Commission related to the violation of antitrust laws in the vitamins business,
which were assumed to be non-deductible. The effective tax rate was reduced by a
charge in accounting principles for deferred tax assets. Based upon the draft
Standard No. 10 from the German Accounting Standards Committee (GASC) on
accounting for deferred taxes, we also recorded deferred tax assets for tax loss
carryforwards, to the extent realization of this potential for tax reduction
through future earnings is foreseeable. These adjustments resulted in a
reduction in tax expense of E220 million.
The capitalization of deferred tax assets for tax loss carryforwards from
previous years resulted in income of E51 million, which is shown separately in
the consolidated statement of income.
Earnings per share were E9.72 in 2001, compared with E2.02 in 2000. Of this,
E9.92 related to extraordinary income.
Under U.S. GAAP, the gain on the disposal of the pharmaceuticals business as
well as the results of operations of the pharmaceuticals business of the first
two months of 2001 would be reported as discontinued operations and not as
extraordinary income. Also, the effect of adopting SFAS 133, "Accounting for
Derivatives," would have been shown as the cumulative effect of a change in
accounting principle. Under U.S. GAAP, our net income was E5,692 million, or
E(238) million excluding extraordinary income. Per share, this is E9.45, or a
loss of E0.39 after excluding extraordinary income (see Note 4 in the Notes to
the Consolidated Financial Statements).
2000 COMPARED WITH 1999
SALES
Sales (net of petroleum and natural gas taxes) rose 22% in 2000 to
E35,946 million from E29,473 million in 1999.
92
The following table sets forth the various factors affecting the change in
sales:
2000
---------------------------
IN MILLIONS AS % OF SALES
----------- -------------
Volume...................................................... E 1,902 6.5
Prices...................................................... 3,326 11.3
Currency exchange........................................... 1,947 6.6
Acquisitions and additions to scope of consolidation........ 1,231 4.2
Divestitures and deconsolidations........................... (1,933) (6.6)
----------- ----
E 6,473 22.0
Sales volumes rose 6.5% in 2000, with the Plastics & Fibers and the
Chemicals segments posting the greatest increases. High demand, additional
production capacities and increased market shares contributed to this increase.
Rising prices accounted for an 11.3% increase in sales in 2000. Prices rose
most sharply in the Oil & Gas segment and the Plastic & Fibers segment as well
as in the Petrochemicals division of the Chemicals segment to compensate for
higher raw material costs.
Positive currency effects, above all from the strength of the U.S. dollar
and an appreciation in the Japanese yen, the Brazilian real and the Korean won,
added E1,947 million to sales.
The combined effect of acquisitions, divestitures and changes in the scope
of consolidation reduced sales by E702 million or 2.4%. Acquisitions contributed
E1,056 million to sales in 2000. Major acquisitions included:
- the crop protection business of American Home Products Corp. (AHP);
- the superabsorbents business of Chemdal International Corporation; and
- the industrial coatings business of Rohm and Haas Co.
Divestitures reduced sales by E1,919 million in 2000. Divestitures included:
- the sale of the marketing and refinery business in the Oil & Gas segment
at the end of 1999;
- the sale of the Compo-Registered Trademark- specialty fertilizer business
at the end of 1999;
- the transfer of BASF's polyolefins activities conducted through the
companies Targor and Elenac to the joint venture Basell N.V. at the end of
the third quarter; sales for the first nine months of 2000 from Targor and
from BASF's participation in Elenac are included in the sales figures of
the Plastics & Fibers segment; BASF's participation in Basell N.V. is
accounted for under the equity method; and
- the transfer of the textile dye business to DyStar at the beginning of the
fourth quarter; the first nine months of global sales in 2000 for this
business were still included in the sales of the Colorants & Finishing
Products segment; BASF's participation in DyStar is accounted for under
the equity method.
Additions to the scope of consolidation and deconsolidations contributed a
net E161 million to sales. See Note 1 to the Consolidated Financial Statements
for further information on the companies that were consolidated for the first
time in 2000 and the effects thereof on the Consolidated Financial Statements.
93
GROSS PROFIT
Gross profit rose 14.5% in 2000 to E12,691 million from E11,081 million in
1999. Gross profit as a percentage of sales fell in 2000 to 35.3% from 37.6% for
the previous year, primarily due to a substantial increase in raw material
costs, which could only be passed on in part in higher prices for BASF's
products and only after a period of delay.
INCOME FROM OPERATIONS
Income from operations increased 52.8% in 2000 to E3,070 million from
E2,009 million in 1999 due to higher sales. Other operating expenses net of
other operating income fell 13.8% in 2000 to E1,537 million from E1,783 million
in 1999 due to lower special charges in 2000. Total special items resulted in
charges of E330 million in 2000 compared with charges of E941 million in 1999.
Excluding the effect of special items, income from operations increased 15.3%.
INCOME BEFORE TAXES
In 2000, income before taxes increased 8.5% to E2,827 million from
E2,606 million in 1999. The increase in income from operations was partly offset
by a decline in the financial result. The financial result in 2000 amounted to
E(243) million, E840 million lower than in 1999. In 2000, special income from
securities and the sale of participating interests totaled E133 million. This
represents a drop in special income of E619 million compared with 1999, when
BASF sold its participation in Aral AG. The interest result in 2000 declined due
to higher interest expenses from the higher financial indebtedness needed to
finance acquisitions.
NET INCOME/EARNINGS PER SHARE
The effective tax rate for 2000 stood at 54.6%. The rise in crude oil prices
triggered an increase in non-deductible income taxes levied on BASF's
exploration activities in North Africa and the Middle East. An additional factor
was a reduction in deferred tax assets resulting from the decrease in effective
tax rates as part of a package of tax reforms in Germany, from 52% to 38%.
BASF's proposed special dividend payment will result in a tax credit, as this
payment is subject to a tax rate of 30% instead of the 45% rate previously
levied on retained earnings.
In 2000, net income increased 0.2% to E1,240 million from E1,237 million in
1999. Basic earnings per share in 2000 were E2.02 compared with E2.00 in 1999.
See Note 4 to the Consolidated Financial Statements for a summary of the
principal adjustments that would be required if U.S. GAAP rather than German
GAAP had been fully applied. Net income under U.S. GAAP in 2000 was
E1,454 million, or E2.37 per share.
94
CHEMICALS
SEGMENT DATA
(EUROS IN MILLIONS)
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
2001 YEAR 2000 YEAR 1999
----------- -------- ----------- -------- -----------
Sales to third parties.......................... E 4,494 (0.2) E 4,504 36.9 E 3,289
Intersegmental transfers........................ 2,452 1.8 2,408 12.6 2,139
Sales incl. intersegmental transfers............ 6,946 0.5 6,912 27.3 5,428
Income from operations.......................... 362 (43.4) 640 1.7 629
Special items................................... (63) -- (5) -- (37)
Operating margin (%)............................ 8.1 -- 14.2 -- 19.1
Assets.......................................... E 4,847 14.5 E 4,232 25.0 E 3,386
Return on operational assets (%)................ 8.0 -- 16.8 -- 20.2
Research and development expenses............... E 109 (2.7) E 112 (1.8) E 114
Capital expenditures in tangible and intangible
assets........................................ E 929 20.0 E 774 19.8 E 646
The Chemicals segment is comprised of the Inorganics, Petrochemicals and
Intermediates divisions. On July 1, 2001, the former Specialty Chemicals
division was dissolved, and its glycols and alkylene oxides (for example,
ethylene oxide and propylene oxide) product lines were transferred to the
Petrochemicals division. All other Specialty Chemicals operations were
transferred to the Performance Chemicals division. Polyurethane
intermediates -- mainly aniline -- were transferred from the Intermediates
division to the Polyurethanes division of the Plastics & Fibers segment. In
2000, the former Petrochemicals & Inorganics and Industrial Chemicals divisions
were reorganized into the Inorganics and Petrochemicals divisions. As part of
this reorganization, technical nitrogen products were transferred from Other
(the former Fertilizers division) to the Inorganics division. Data for the
Chemicals segment from 1999 and 2000 have been restated to reflect these
reorganizations.
2001 COMPARED WITH 2000
SEGMENT OVERVIEW
In the Chemicals segment, sales to third parties decreased in 2001 to
E4,494 million from E4,504 million in 2000. Growth in sales volumes in inorganic
specialties and price increases in the Intermediates and Inorganics divisions
were insufficient to offset completely a decline in sales in the Petrochemicals
division. The oxo alcohols/plasticizers complex at the new BASF Verbund site in
Kuantan, Malaysia, also contributed to sales, as did new plants and capacity
expansion programs, such as trimethylolpropane in Ludwigshafen, Germany;
hexanediol in Freeport, Texas; and ethylene oxide in Geismar, Louisiana.
Intersegmental transfers increased 1.8% in 2001 to E2,452 million from
E2,408 million in 2000.
In 2001, income from operations decreased 43.4% to E362 million from
E640 million in 2000. Both high raw material costs in the first half of 2001,
most notably for naphtha, and the drop in the economy in the second half of the
year -- which led to reduced demand in almost all customer segments -- had a
major impact on income from operations. The Petrochemicals division came under
particularly strong price and margin pressure, especially for products with
excess capacity, such as plasticizers and solvents. Startup costs for new plants
in Port Arthur, Texas; Geismar, Louisiana; and in Kuantan, Malaysia, created
additional burdens on earnings.
95
Special items related primarily to the closure of a plant in the
Petrochemicals division at the site in Tarragona, Spain; restructuring of an
acetylene plant in Geismar, Louisiana; and integration into the Intermediates
and Petrochemicals divisions of the site acquired in Feluy, Belgium.
Through its capital expenditures, BASF strives for a globally balanced
position. To this end, BASF is strengthening BASF's operations in Europe,
optimizing its Verbund structures in North America and establishing new Verbund
sites in Asia. In 2001, BASF strengthened the Chemicals segment's core product
groups -- butanediol and its derivatives, and phthalic anhydride -- by acquiring
the SISAS Group's chemical site in Feluy, Belgium. Through capital expenditures
and acquisitions, the Chemicals segment's assets increased 14.5% in 2001 to
E4,847 million from E4,232 million in 2000.
Assuming the global economy begins to recover in 2002, BASF expects sales
and earnings in the Chemicals segment to improve.
INORGANICS
In the Inorganics division, sales to third parties in 2001 increased 8.1% to
E677 million, from E626 million in 2000. This sales growth was due primarily to
higher prices but also volumes increased slightly. We increased sales and
volumes over the previous year, above all in profitable inorganic specialties
and electronic grade chemicals.
In 2001, income from operations improved, although economic conditions in
important customer segments gradually deteriorated during the second half of the
year. By year end, the recession in the semiconductor industry had led to a
severe decline in demand for electronic grade chemicals. In the construction and
woodworking industries, economic weakness intensified competition in the glues
and impregnating resins product lines.
In 2001, BASF achieved high capacity utilization rates in its plants for
large-volume inorganic products, which BASF produces primarily for captive use
within the BASF Group (e.g., sulfuric acid, nitric acid, and the electrolysis
products chlorine and sodium hydroxide). Through economies of scale, we can
supply the Verbund cost-effectively. Products from the Inorganics division form
an important foundation for most of BASF's value-adding chains.
In addition to large-volume inorganic products, BASF's product range
includes innovative specialties such as heterogeneous catalysts, electronic
grade chemicals and powder injection molding technology. BASF is continuing to
expand these profitable areas of our business. Last year BASF increased capacity
for hydroxylamine free base -- a substance that is indispensable in the
production of microchips -- from 4,000 metric tons per year to 7,000 metric tons
per year. BASF also intensified its research efforts in the field of catalysts
with the goal of securing or achieving technology and performance leadership.
Here, BASF is focusing on catalysts with high growth rates.
In 2002, BASF expects income from operations to be lower as a result of
continuing economic weakness in glues and impregnating resins as well as
increasingly lower market prices for basic inorganic chemicals.
PETROCHEMICALS
In the Petrochemicals division, sales to third parties in 2001 were
E2,079 million, a decrease of 3.7% from 2000. In 2000, strong volume demand and
the rising price of naphtha led to significant price increases for cracker
products and, as a result, to a steady increase in sales. However, in the course
of 2001, this trend began to reverse as the economy began to slow down and raw
material prices declined. First-time contributions to sales came from new plants
that commenced operations
96
in 2001: the oxo alcohols/plasticizers complex in Kuantan, Malaysia, and the
steam cracker in Port Arthur, Texas. Also during 2001, unprofitable plants in
Tarragona, Spain were closed.
Income from operations in 2001 failed to meet expectations. After a strong
start in the first quarter, cracker margins fell sharply in the second quarter.
In addition, earnings were burdened by startup costs for the new plant in
Kuantan, Malaysia, as well as by startup costs for the steam cracker in Port
Arthur, Texas, which increased as the year progressed. The plasticizers and
solvents product lines continued to suffer from excess capacity and, as a
result, from strong price and margin pressures. In alkylene oxides and glycols,
exceptionally high gas prices at the beginning of 2001 had an adverse effect on
earnings in the United States. In Europe, BASF benefited from a high utilization
rate and expanded its ethylene oxide plant in Antwerp, Belgium during the fourth
quarter, making it the largest and most efficient in Europe.
In 2001, capital expenditures were lower than in the previous year. In the
first quarter of 2002, construction is scheduled to be completed on a propylene
plant that BASF is building with its partner SONATRACH in Tarragona, Spain.
Another major project is the construction of a steam cracker at the Verbund site
in Nanjing, China, where construction began in September 2001.
With BASF's new plants in Kuantan, Malaysia, and Port Arthur, Texas, BASF
has laid the foundation for higher sales and earnings in the years to come.
However, this expectation is based on the assumption that the global business
and economic climate will improve in the course of 2002, allowing BASF to
operate its world-scale plants most efficiently and to achieve optimal capacity
utilization rates.
INTERMEDIATES
In the Intermediates division, sales to third parties in 2001 increased 1.0%
to E1,738 million from E1,720 million in 2000. BASF achieved this growth through
higher sales prices for its products and the startup of new production
capacities. Deteriorating economic conditions reduced sales volumes --
especially in the second half of the year -- and low utilization rates resulted
in higher unit costs.
Income from operations was lower in 2001 than in 2000, as raw material costs
remained high, especially in the first half of the year. Earnings were also
burdened by the integration of the site in Feluy, Belgium, acquired at mid-year,
and startup costs for new plants (trimethylolpropane and dimethylhexanediol in
Ludwigshafen, Germany; 1.6-hexanediol in Freeport, Texas; optically active
amines in Geismar, Louisiana).
Not accounting for the acquisition in Feluy, Belgium, BASF's capital
expenditures were at the same level as last year. In 2001, BASF also focused on
expanding its production plants in Ludwigshafen, Germany; Geismar, Louisiana;
and Ulsan, Korea.
For 2002, BASF expects lower average raw material costs and substantially
lower special charges. BASF therefore anticipates earnings to be higher than in
2001, despite only a moderate increase in sales.
2000 COMPARED WITH 1999
SEGMENT OVERVIEW
In the Chemicals segment, sales to third parties rose 36.9% in 2000 to
E4,504 million from E3,289 million in 1999. All operating divisions, and above
all the Petrochemicals division, contributed to this increase in sales. Sales
volumes in 2000 increased, especially during the first half of 2000 due to high
demand for the segment's products and new production capacities. BASF was able
to increase prices for major products. The Petrochemicals division posted the
sharpest
97
rise in prices due to an increase in prices for the basic cracker products
ethylene, propylene and benzene, which was fueled by a rise in the price of
naphtha, the division's most important raw material.
Intersegmental sales increased 12.6% in 2000 to E2,408 million from E2,139
millon in 1999, reflecting higher transfer prices for cracker products from the
Petrochemicals division.
Income from operations increased 1.7% in 2000 to E640 million from
E629 million in 1999. Due to market conditions, especially for products such as
plasticizers, solvents and butanediol, BASF was unable to pass on sharply
increased raw material prices in full to customers. The Petrochemicals division
significantly increased its income from operations, primarily due to higher
margins for cracker products. However, this improvement was nearly offset by a
decline in income from operations in the segment's other divisions. As a result
of the higher cost of raw materials, income from operations as a percentage of
sales to third parties declined in 2000 to 14.2% from 19.1% in 1999.
In 2000, the Chemicals segment's assets increased by 25.0% to
E4,232 million from E3,386 million in 1999, which reflects significant
investments made by BASF with the goal of expanding this segment's business.
INORGANICS
In the Inorganics division, sales to third parties in 2000 rose 15.3% to
E626 million from E543 million in 1999. During the course of the year, BASF
increased prices for its products in this division in order to pass on the
higher cost of natural gas.
Despite an increase in sales, income from operations in 2000 was lower than
in 1999, as the Inorganics division could not increase prices for its products
to the same extent to which the cost of raw materials increased.
At the end of 2000, BASF started up the world's largest formaldehyde plant
in Ludwigshafen, Germany, with a production capacity of 180,000 metric tons per
year.
PETROCHEMICALS
In the Petrochemicals division, sales to third parties in 2000 increased
69.4% to E2,158 million from E1,274 million in 1999. The increase in sales was
due above all to substantially higher prices for cracker products and higher
sales volumes. As in 1999, the plasticizers and solvents product lines suffered
from sharp margin pressure as a result of excess manufacturing capacity
industry-wide and continued price competition. The alkylene oxides and glycols
business was influenced by high raw material costs, but sales volumes increased
and higher prices could be passed on to customers to a limited extent and after
a period of delay.
Due to favorable demand, higher raw material costs -- for example, for
naphtha -- could be passed along to a large extent in the prices for cracker
products. However, during the second half of the year, cracker margins did come
under pressure. The Petrochemicals division was again a major contributor to the
Chemical segment's income from operations.
Capital expenditures on fixed assets increased in 2000. Major projects
included the construction of a steam cracker with BASF's partner
TotalFinaElf S.A., in Port Arthur, Texas, the construction of a propane
dehydrogenation plant with partner SONATRACH in Tarragona, Spain, and the
construction of an oxo C(4) alcohol complex in Kuantan, Malaysia.
98
INTERMEDIATES
In the Intermediates division, sales to third parties in 2000 increased
16.8% to E1,720 million from E1,472 million in 1999. This increase was due to
higher sales volumes in the division's major product areas. The effect of
falling prices on sales was more than offset by positive currency effects of
approximately 9%.
Income from operations in the Intermediates division declined in 2000 due to
sharp increases in raw material costs. The division could not fully pass these
higher costs on to customers through higher prices for its products, partly
because existing sales contracts had not yet expired.
Capital expenditures rose in 2000, primarily due to the expansion of
existing plants in Ludwigshafen, Germany; Geismar, Louisiana; and Ulsan, Korea.
PLASTICS & FIBERS
SEGMENT DATA
(EUROS IN MILLIONS)
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
2001 YEAR 2000 YEAR 1999
----------- -------- ------------ -------- -----------
Sales to third parties......................... E 8,185 (25.8) E 11,030 27.8 E 8,628
Intersegmental transfers....................... 406 (20.4) 510 27.5 400
Sales incl. intersegmental transfers........... 8,591 (25.6) 11,540 27.8 9,028
Income from operations......................... (2) -- 902 37.5 656
Special items.................................. (182) -- 101 -- 2
Operating margin (%)........................... * -- 8.2 -- 7.6
Assets......................................... E 6,344 4.2 E 6,086 (12.3) E 6,937
Return on operational assets (%)............... * -- 13.9 -- 10.9
Research and development expenses.............. E 146 (15.1) E 172 (7.0) E 185
Capital expenditures in tangible and intangible
assets....................................... E 891 40.8 E 633 (39.5) E 1,047
---------------
* NEGATIVE
The Plastics & Fibers segment comprises the Styrenics, Performance Polymers
and Polyurethanes divisions. On July 1, 2001 the former operating divisions
Engineering Plastics and Fiber Products were combined into the division
Performance Polymers. Polyurethane intermediates -- mainly aniline -- were
transferred to the Polyurethanes division from the Intermediates division of the
Chemicals segment. Prior year amounts have been restated to reflect these
changes. The polyolefins business is also included in the segment data through
the end of September 2000, but is now a part of the joint venture Basell N.V.,
which is not consolidated in the Group's financial statements. The ammonium
sulfate business, which -- as part of the Fertilizers business -- was formerly
included in Other, was transferred on June 1, 2000 to the Fiber Products
division. The segment reporting for 2000 and 1999 reflects this reorganization.
2001 COMPARED WITH 2000
SEGMENT OVERVIEW
Sales to third parties in 2001 dropped 25.8% to E8,185 million from
E11,030 million in 2000.
99
On the basis of ongoing business, i.e., excluding polyolefins, sales
decreased 8.6% from E8,951 million in 2000 to E8,182 million in 2001. Sales
declined in all three of the segment's divisions, but to the greatest extent in
the Performance Polymers division. Weakening demand and the resulting decline in
sales volumes resulted in a 2.5% decreases in sales. Declining prices
contributed to a 5.2% decrease in sales, while changes in exchange rates
contributed to a 0.4% decline in sales.
The Polyurethanes division made the greatest positive contribution to the
segment's income from operations, which decreased by E904 million, resulting in
a loss of E2 million. This decrease in earnings was primarily due to reduced
demand, strong margin pressures and new plant startups, in particular in North
America.
Special charges totaling E182 million also contributed to the decline in
earnings. These charges related primarily to the planned closure of plants in
the Styrenics and Performance Polymers divisions in North America (NAFTA) and
Europe; a write-down of a styrenics plant; and the planned closure of an
obsolete toluene diisocyanate (TDI) plant in the Polyurethanes division in
Geismar, Louisiana, which will be replaced by a new plant.
In 2001, the Plastic & Fibers segment's assets increased by 4.2% to
E6,344 million in 2001 from E6,086 million in 2000. Capital expenditures,
including the acquisition of a styrene plant in Korea, were in excess of
depreciation charges by E212 million. Further additions resulted from changes in
the scope of consolidation.
For 2002, BASF expects sales and earnings to increase if the global economy
improves in the second half of the year. BASF expects the restructuring of
production in the NAFTA region to begin contributing to this development.
Overall, positive effects from the global restructuring of BASF's production are
expected to be reflected in earnings from 2003 onward.
STYRENICS
In the Styrenics division, sales to third parties in 2001 declined 7.1% to
E3,267 million from E3,517 million in 2000. Despite a difficult economic
environment, sales volumes increased 5%, but selling prices and therefore
margins were under downward pressure. Thus, price effects contributed 12% to the
decline in sales.
Income from operations did not develop satisfactorily in 2001. Business
operations in the NAFTA region did not meet BASF's expectations. Special
restructuring measures in the NAFTA region and in Europe burdened income from
operations. The Styrenics division's specialty products, however, proved to be
cyclically resilient.
In mid-2001, the division acquired a styrene plant in Korea. In addition, we
invested in an EPS plant in Brazil and in a production plant for specialized
foams in Italy. Expansion of production capacity for ethyl benzene in Antwerp,
Belgium, was completed at the end of 2001.
In 2002, BASF's new ethyl benzene and styrene plant in Ludwigshafen,
Germany, is expected to start operations and improve the efficiency of the
value-adding chain.
BASF expects that the division's sales and earnings will improve
significantly in 2002 only if there is a broad-based upturn in the economy in
2002.
PERFORMANCE POLYMERS
In the Performance Polymers division, sales to third parties in 2001 fell
15.4% to E2,241 million from E2,648 million in 2000. Weak demand in Asia
affected fiber intermediates in particular. Engineering plastics products, on
the other hand, performed well in a difficult market environment.
100
The decline in sales was due to an 11% reduction in sales volumes. In
addition, downward pressure on product prices increased steadily, while raw
material costs could not be reduced to the same extent. Approximately, price
effects accounted for a 5% decline in sales.
Income from operations fell sharply, partially due to low capacity
utilization rates. In 2001, the division was also burdened by special items
related to various restructuring measures.
As of the beginning of 2002, there are no indications that the earnings
situation in the Performance Polymers division will improve in the short term.
POLYURETHANES
In 2001, sales to third parties in the Polyurethanes division decreased 4.3%
to E2,677 million from E2,798 million in 2000.
Sales volumes declined 3% resulting from the difficult economic environment
in 2001. Price effects accounted for 1% of the decline in sales. The first full
year of operation for the MDI II plant (diphenylmethane diisocyanate) in
Geismar, Louisiana, and the development of additional distribution channels
through the purchase of system houses in the United States and Turkey
contributed to a stabilization in sales.
Despite a decline compared with 2000, income from operations before special
items in the Polyurethanes division was once again satisfactory. Higher raw
material costs, especially for benzene, toluene and propylene, could only be
passed on to customers in higher prices for BASF's products to a limited extent.
The easing in raw material costs that started in the second half of the year was
partially offset by price reductions demanded by the market.
The largest capital expenditures in the Polyurethanes division were for a
new TDI (toluene diisocyanate) plant in Geismar, Louisiana, and for the
construction of an SM/PO (styrene monomer/ propylene oxide) plant in Singapore
as part of BASF's Ellba Eastern Private Ltd. joint venture with Shell. Both
plants are scheduled to go on stream in 2002.
For 2002, BASF expects the Polyurethanes division's sales and earnings in
2002 to be comparable with 2001 levels.
2000 COMPARED WITH 1999
SEGMENT OVERVIEW
In the Plastics & Fibers segment, sales to third parties in 2000 rose 27.8%
to E11,030 million from E8,628 million in 1999. Results for BASF's polyolefins
operations are included only for the first nine months of the Plastics & Fibers
segment's results for 2000. On September 30, 2000, BASF's polyolefins business,
which BASF conducted through the companies Targor and Elenac, was combined with
the polyolefins business of Shell in the joint venture Basell N.V. BASF's share
in this joint venture is accounted for under the equity method. Excluding the
polyolefins business, the Plastics & Fibers segment's sales to third parties
increased by 36.9% in 2000.
In the Plastics & Fibers segment, sales increased in all divisions and above
all in the Styrenics division. Price increases, which were needed to compensate
for the rising cost of raw materials, accounted for a 17% increase in sales. At
the same time, due to a positive business climate in global markets, BASF was
able to increase this segment's sales volumes. Higher sales volumes contributed
to a 9% rise in sales, while positive currency effects, in particular from the
strength of the U.S. dollar, contributed 7% to the increase in sales.
Income from operations in 2000 in the Plastics & Fibers segment rose 37.5%
to E902 million from E656 million in 1999, with the Styrenics division making
the greatest contribution. The increase
101
was due to stronger sales and savings from cost-cutting measures. The higher
prices passed on to customers in 2000 only partially compensated for increases
in raw material costs. The segment's income from operations in 2000 includes
E124 million in special income from the sale of Targor's
Novolen-Registered Trademark- polypropylene technology and the sale of Elenac's
Kraton-Registered Trademark- polymers business.
In 2000, assets of the Plastics & Fibers segment declined 12.3% to
E6,086 million from E6,937 million in 1999 due to the deconsolidation of BASF's
polyolefins business. Additions, however, were made to tangible fixed assets,
primarily in the Polyurethanes and the Styrenics divisions.
STYRENICS
In the Styrenics division, sales to third parties in 2000 rose 51.7% to
E3,517 million from E2,319 million in 1999. This increase was driven primarily
by higher prices of 34% and a 7% improvement in sales volumes. Demand for
polystyrene, styrene copolymers and EPS (expandable polystyrene) was high due to
favorable market conditions for these products. Sales rose in all regions, with
the greatest increases posted in Asia and South America due to the division's
expansion strategy in these regions. Positive currency effects also contributed
to an increase in sales.
The Styrenics division made a substantial contribution to the increase in
income from operations of the Plastic & Fibers segment in 2000, primarily due to
higher sales volumes, improved margins and the effects of cost-cutting measures.
Major capital expenditures on fixed assets in the Styrenics division were
capacity expansions for ethyl benzene in Antwerp, Belgium, the construction of
new plants for the manufacture of ethyl benzene and styrene in Ludwigshafen,
Germany, and the expansion of a HIPS (high impact polystyrene) plant in Sao Jose
dos Campos, Brazil. Furthermore a new plant for styrene copolymers began
operations in the second half of 2000 in Altamira, Mexico.
PERFORMANCE POLYMERS
The Performance Polymers division includes the former Fibers division and
the following products of the Engineering Plastics division: nylon 6 and 6,6
based engineering plastics, as well as polybutylene terephthalate,
polyoxymethylene, polyether sulfone and polysulfone
(Ultradur-Registered Trademark-, Ultraform-Registered Trademark- and
Ultrason-Registered Trademark-). In the Performance Polymers division, sales to
third parties in 2000 rose 27.8% to E2,648 million, from E2,072 million in 1999.
Sales increased in all regions, with the strongest showing in Europe and
North America. Sales also increased across all product lines, with exceptional
improvements in sales of nylon 6 intermediates.
Due to higher sales, the Performance Polymers division increased its income
from operations significantly and therefore made a greater contribution to
income from operations of the Plastics & Fibers segment.
POLYURETHANES
In 2000, sales to third parties in the Polyurethanes division rose 29.7% to
E2,798 million, from E2,157 million in 1999. Improved sales volumes in all
regions -- above all for polyurethane raw materials -- accounted for an
approximately 16% increase in the division's sales. Positive currency effects,
in particular from the strength of the U.S. dollar, contributed approximately 8%
to the increase in sales. Also contributing to the increase in sales was the
acquisition of IPI International Inc. of Elkton, Maryland, in February 2000 and
of Hess Polyurethanes Inc. of Atlanta, Georgia, in July 2000 as well as the
establishment of ELLBA C.V., a Dutch-based joint venture with
102
Shell for the production of propylene oxide and styrene monomer. In the last
quarter of 1999, ELLBA began operations and was consolidated on a pro rata
basis. Excluding the effects of these structural changes, sales in the
Polyurethanes division increased approximately 24% in 2000.
Income from operations in the Polyurethanes division remained at the level
of 1999. Higher raw material costs, in particular for benzene, toluene and
propylene, could not be fully passed on to customers through higher prices. As a
result, the increase in sales did not lead to a corresponding increase in
income.
The largest capital expenditures in the Polyurethanes division were for two
additional plants in Geismar, Louisiana -- one for the production of MDI
(diphenylmethane diisocyanate), which began operations in the second half of
2000, and another for the production of TDI (toluene diisocyanate), which is
currently under construction.
PERFORMANCE PRODUCTS
SEGMENT DATA
(EUROS IN MILLIONS)
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
2001 YEAR 2000 YEAR 1999
----------- -------- ----------- -------- -----------
Sales to third parties.......................... E 8,154 (3.1) E 8,418 11.5 E 7,553
Intersegmental transfers........................ 322 2.5 314 (58.2) 751
Sales incl. intersegmental transfers............ 8,476 (2.9) 8,732 5.2 8,304
Income from operations.......................... 99 (83.1) 586 (17.2) 708
Special items................................... (298) -- (32) -- (74)
Operating margin (%)............................ 1.2 -- 7.0 -- 9.4
Assets.......................................... E 6,048 (3.5) E 6,266 25.9 E 4,975
Return on operational assets (%)................ 1.6 -- 10.4 -- 14.9
Research and development expenses............... E 197 (0.5) E 198 4.2 E 190
Capital expenditures in tangible and intangible
assets........................................ E 418 (68.6) E 1,332 238.1 E 394
The former Colorants & Finishing Products segment was renamed the
Performance Products segment, and consists of the Performance Chemicals,
Coatings and Functional Polymers divisions. Functional Polymers is the new name
for the former Dispersions division. On July 1, 2001 the Colorants division and
Specialty Chemicals division were merged to form the Performance Chemicals
division. The polyvinylpyrrolidone (PVP) product line for technical applications
was transferred to the Functional Polymers division from the Fine Chemicals
segment. Prior year amounts have been restated to reflect these changes. The
textile dye business, which was transferred to the joint venture DyStar
GmbH & Co. KG, is included in the BASF's results for 2000 through the end of the
third quarter of 2000.
2001 COMPARED WITH 2000
SEGMENT OVERVIEW
In terms of ongoing business, i.e., excluding the textile dye business,
sales to third parties in the Performance Products segment increased 0.3% in
2001 to E8,126 million, from E8,105 million in 2000. The increase in sales from
ongoing business was due to additions to the scope of consolidation. Sales
volumes and prices declined slightly. In the Coatings division, sales to third
parties increased by 4.0% compared with 2000, to E2,287 million. Sales from
ongoing business in
103
the Performance Chemicals division were E3,317 million compared with
E3,395 million in 2000. In the Functional Polymers division, sales were
E2,522 million, remaining at approximately the previous year's level.
Income from operations fell 83.1% to E99 million in 2001 from E586 million
in 2000. The continued weak economic situation in North America and Europe and
the resulting decline in demand had a negative impact on earnings in all of the
segment's divisions in 2001. In many divisions, reduced demand led to increased
price and margin pressures, which intensified during the first half of the year
due to very high raw material costs. Special items of E298 million reduced
earnings, above all in the Functional Polymers and Performance Chemicals
divisions. These relate primarily to planned site closures in Birkenhead, United
Kingdom, and Arnhem, the Netherlands, as well as to the closure of production
plants in North America and Italy.
Assets in the segment declined slightly in 2001 to E6,048 million from
E6,266 million in 2000.
For 2002, BASF expects an improvement in income from operations in the
Performance Products segment as a result of the structural and cost reduction
measures it has introduced, but only if there is growth in demand. The segment
is positioned efficiently thanks to its new organization and increased industry
focus, achieved by grouping activities along regional and global product lines.
PERFORMANCE CHEMICALS
In terms of ongoing business, i.e., excluding the textile dye business,
sales to third parties in the Performance Chemicals division declined 2.3% in
2001 to E3,317 million from E3,395 million in 2000.
Despite this decline, sales of products for the printing and for the mineral
oil industries increased. This was offset, however, by a weaker economy, which
also affected the other businesses in the Performance Chemicals division. The
9.8% decline in sales is primarily due to structural changes, in particular
relating to the transfer of the textile dye business, which reduced sales by 7%.
Price and currency effects each reduced sales by 1% each.
Due to weak demand and ongoing intense competition in North America and
Europe, income from operations was below last year's good level. Earnings in
2001 were also burdened by special items.
For 2002, BASF expects only moderate sales growth in the Performance
Chemicals division in a still weak economic environment. By focusing on the
division's most important customer industries and streamlining its product
range, BASF has laid important groundwork that will enable it to be more
competitive in this challenging environment.
COATINGS
In the Coatings division, sales to third parties in 2001 rose 4.0%, to
E2,287 million from E2,198 million in 2000. Europe and Asia in particular
contributed to this increase. Sales volumes remained at last year's level, as
declines in automotive coatings were offset by increases in industrial coatings
and decorative paints. Unfavorable currency effects were responsible for a sales
decline of 3%, with the devaluation of the Brazilian real in particular
affecting sales. Selling prices rose slightly overall, but price concessions for
industrial coatings were necessary in some cases. BASF is currently developing
this business into the Coatings division's third key product line, next to
automotive OEM and automotive refinish coatings. The joint venture with NOF
Corp. in Japan, entered into in October 2000 and consolidated in 2001, also
contributed to the growth in sales.
104
Income from operations was below last year's high level, due in particular
to a slowdown in the automotive industry in the NAFTA region. Despite intensive
marketing efforts, earnings in industrial coatings fell short of expectations.
In 2002, BASF expects an increase in sales in the Coatings division, and is
building on innovative technologies and strengthening its systems supplier
business to achieve this. BASF believes that it can increase the division's
income from operations since it expects to continue improving on its cost
structures and take full advantage of the remaining potential synergies from
acquisitions.
FUNCTIONAL POLYMERS
In the Functional Polymers division, sales to third parties in 2001 rose
0.4% to E2,522 million from the previous year's level of E2,512 million. Due to
the slowdown in the global economy, which began in the second quarter, the
strong volume growth sought was not achieved.
Prices declined slightly due to lower raw material costs -- which had to be
passed on to customers -- and to increasing pressure from competitors.
The division was able to expand its sales volumes in Asia, but lost sizable
volumes in the NAFTA region. The global trend in sales volumes for paper
chemicals and superabsorbents was favorable.
Income from operations was well below the level in 2000, in particular due
to higher special charges. These charges related primarily to the destruction in
an explosion of the division's superabsorbents plant in Birkenhead, United
Kingdom, and to provisions for the planned closure of the division's site in
Arnhem, the Netherlands, and of an acrylic acid plant and the polymin plant in
Freeport, Texas.
In Asia, a plant for the manufacture of dispersions went into operation in
Shanghai, China. In South America, the division took a first step toward
supplying this important market with local production from a butyl acrylate
plant in Guaratingueta, Brazil. In Ludwigshafen, Germany, a production plant for
the innovative paper chemical polyvinylamine started operations. In Antwerp,
Belgium, the division completed a world-scale plant for the manufacture of
superabsorbents.
Business in the Performance Polymers division will remain challenging in the
months ahead. Recovery in the division's customer industries and improved
results are not expected until the second half of 2002. BASF therefore expects
sales in the Functional Polymers division to remain at last year's level and
earnings to improve.
2000 COMPARED WITH 1999
SEGMENT OVERVIEW
In the Performance Products segment, sales to third parties in 2000 rose
11.5% to E8,418 million from E7,553 million in 1999. Sales increased in all
regions and for all divisions, but above all for the Functional Polymers and
Coatings divisions. Sales benefited from the superabsorbents business of Chemdal
International Corporation, a subsidiary of AMCOL International Corp., acquired
on June 1, 2000, as well as from the coil coatings business of Rohm and
Haas Co., acquired in March 2000.
On October 1, 2000, BASF transferred the Performance Chemicals division's
textile dye operations to the DyStar Group, a joint venture between BASF, Bayer
and Hoechst. This joint venture is accounted for under the equity method, and as
of October 1, 2000 sales and earnings from this business are not included in the
segment's results. On a comparable basis, sales in 2000 in the Performance
Products segment increased approximately 13.4%.
105
Income from operations fell 17.2% to E586 million in 2000 from E708 million
in 1999. A drastic increase in the cost of raw materials in particular in the
Functional Polymers division, could not be fully passed on to customers through
higher prices for the segment's products. Income from operations improved in
both the Performance Chemicals and Coatings divisions.
In 2000, assets in the Performance Products segment increased by 25.9% to
E6,266 million from E4,975 million in 1999. This increase was mainly due to the
acquisition of the superabsorbents business of Chemdal International Corporation
in the Functional Polymers division and from the acquisition of Rohm and Haas'
coil coatings business in the Coatings division.
The intended sale of the masterbatch business was not realized. Despite
intensive talks and negotiations with a number of potential buyers, BASF was not
convinced by any of the concepts outlined or offers made. BASF has therefore
decided to continue to operate the masterbatch business itself. The closure of
the sites in Ellesmere Port, United Kingdom, and Medellin, Columbia, which was
announced in 1999, was completed in 2000.
PERFORMANCE CHEMICALS
The segment reporting for 2000 and 1999 reflects the 2001 reorganization of
the former Colorants and Specialty Chemicals divisions into the Performance
Chemicals division. As part of this reorganization, alkylene oxides and glycols
were transferred to the Petrochemicals division and the coatings raw materials
product line was transferred from the Functional Polymers division to
Performance Chemicals division.
In the Performance Chemicals division, sales to third parties in 2000 rose
5.6% to E3,708 million from E3,510 million in 1999, primarily due to higher
sales volumes and to positive currency effects. The increase in sales was partly
offset by the textile dye business, which was transferred to DyStar, a joint
venture between Bayer AG and Hoechst AG of Germany, and was only included for
the first three quarters of the division's 2000 sales figures.
In 2000, the Performance Chemicals division increased income from
operations. The positive effect of the substantial improvement in the division's
cost structure as a result of restructuring measures carried out in previous
years was partly offset by increases in raw material costs. This increase could
only be passed on in higher prices to customers to a limited extent.
COATINGS
In the Coatings division, sales to third parties in 2000 rose 17.2%, to
E2,198 million from E1,876 million in 1999, with all regions contributing to
this increase. Sales volumes rose approximately 1%, with the greatest increase
in the automotive coatings business. Positive currency effects contributed 8% to
the increase in sales. On average, prices for the segment remained unchanged;
however, price concessions were necessary in the industrial coatings business.
Currently, the division's priority is to expand this business into one of the
division's key global activities.
Sales in the Coatings division benefited from the acquisition of the Rohm
and Haas Co. coil coatings business at the beginning of March 2000. On a
comparable basis, sales in the Coatings division increased approximately 8.7% in
2000 compared with 1999.
Income from operations in the Coatings division in 2000 improved due to
higher sales and to cost savings from restructuring measures that were carried
out in previous years. In addition, negative currency effects were lower in 2000
than in 1999, when a devaluation of the Brazilian real negatively impacted
income.
106
FUNCTIONAL POLYMERS
In the Functional Polymers division, sales to third parties in 2000 rose
15.9% to E2,512 million from E2,167 million in 1999. Sales increased across the
board for all products and in all regions. Sales volumes for dispersions used in
the paper industry and for polymer dispersions used in adhesives and paints grew
worldwide. This growth was fueled by increasing demand, with the strongest
growth in Asia. Positive currency effects contributed approximately 7% to the
division's increase in sales, with price increases accounting for approximately
3%.
The acquisition on June 1, 2000 of the superabsorbents business of Chemdal
International Corporation strengthened BASF's position in this business,
contributing approximately E135 million to the Functional Polymers division's
sales.
Income from operations for the Functional Polymers division was lower in
2000 than in 1999 due to substantial increases in raw material costs that could
be passed on to customers through higher prices for products only to a limited
extent. Income from operations was further burdened by additional depreciation
of fixed assets as well as amortization of goodwill from the Chemdal
acquisition.
In 2000, assets in the Functional Polymers division increased primarily due
to the Chemdal acquisition. In 2000, BASF started up its acrylic acid and
acrylates plant at the company's Verbund site in Kuantan, Malaysia, as well as
new plants for the manufacture of polymer dispersions in Ludwigshafen, Germany.
Further additions to assets related to production plants that are currently
under construction for the manufacture of polyvinylamines in Ludwigshafen,
Germany, and for the manufacture of superabsorbents in Antwerp, Belgium.
AGRICULTURAL PRODUCTS & NUTRITION: AGRICULTURAL PRODUCTS
SEGMENT DATA
(EUROS IN MILLIONS)
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
2001 YEAR 2000 YEAR 1999
----------- -------- ----------- -------- -----------
Sales to third parties.......................... E 3,478 43.2 E 2,428 39.1 E 1,745
Intersegmental transfers........................ 30 (11.8) 34 (5.6) 36
Sales incl. intersegmental transfers............ 3,508 42.5 2,462 38.2 1,781
Income from operations.......................... 18 -- (443) -- 195
Special items................................... (182) -- (341) -- (3)
Operating margin(%)............................. 0.5 -- * -- 11.2
Assets.......................................... E 6,377 (3.5) E 6,607 239.0 E 1,949
Return on operational assets(%)................. 0.3 -- * -- 10.6
Research and development expenses............... E 345 25.5 E 275 44.7 E 190
Capital expenditures in tangible and intangible
assets........................................ E 130 (96.0) E 3,260 -- E 93
---------------
* NEGATIVE
2001 COMPARED WITH 2000
Sales in the Agricultural Products segment in 2001 were E3,478 million,
compared with E2,428 million in 2000. This increase of E1,050 million, or 43.2%,
was due primarily to the acquisition of the
107
crop protection business of American Home Products Corp. (AHP). A decline in
prices reduced sales by 6%.
Sales increased in all regions. The segment expanded its market position in
particular in North America and Europe, where sales were up 64.1% and 43.4%,
respectively. Due to the uncertain economic situation in South America, BASF
took a cautious approach in the market to reduce credit risk which resulted in
an increase in sales of only 6.1% to E543 million.
In 2001, income from operations in the Agricultural Products segment was
E18 million, compared with a loss of E443 million in 2000 This represented an
improvement of E461 million over the previous year.
Special items reduced earnings by E182 million. Special charges related to
the use of inventory stepped-up to higher market values in connection with the
AHP acquisition, as well as to the closure of a research site in North America
(NAFTA) and additional restructuring.
The segment's assets declined in 2001 to a total of E6,377 million from
E6,607 million in 2000. Additions to tangible assets came from continuing small
optimization measures, from investments in the F 500-Registered Trademark-
production plant in Schwarzheide, Germany, from commencing the construction of a
new research building in Limburgerhof, Germany, and from the modernization of a
production plant in Brazil.
Due to the integration of AHP's crop protection business, expenses for
research and development rose 25.5% to E345 million, which represented 10% of
sales. Research and development activities are concentrated in Ludwigshafen and
Limburgerhof, Germany, and at the Research Triangle Park in Raleigh, North
Carolina. The Princeton research center in New Jersey will cease activities in
mid-2002.
Following the integration of AHP's crop protection business, BASF expects
cost savings totaling at least E250 million annually, beginning in 2002. More
than half of this amount was already realized in 2001. Assuming the successful
market launch of new products and full utilization of potential synergies, BASF
expects a further increase in sales and earnings in the Agricultural Products
segment in 2002.
2000 COMPARED WITH 1999
When not accounting for AHP's crop protection business, sales volumes in the
Agricultural Products segment (formerly the Crop Protection segment) were flat.
Prices achieved the previous year's levels when accounting for positive currency
effects. Due to the acquisition, sales rose in all regions, with total sales
increasing 39.1% in 2000 to E2,428 million from E1,745 million in 1999.
In 2000, the Agricultural Products segment incurred a loss of E443 million
compared with a positive income from operations in 1999 of E195 million. The
Agricultural Products business is highly seasonal, with sales and income from
operations generally higher in the first half of the calendar year. Therefore,
the integration of AHP's crop protection business was carried out in the second
half of the year to avoid burdening our activities in key European and North
American markets. As expected, the Agricultural Products segment did not perform
well in South America because the integration of AHP's business was carried out
in the middle of the region's growing season. Additional fixed costs as well as
the amortization of goodwill and other intangible assets from the acquisition
also had a negative impact on income from operations. Furthermore, for some
major crops, prices of agricultural products came under substantial pressure in
the face of fierce competition. The segment's loss was due primarily to special
charges of E341 million. These special charges related primarily to severance
payments resulting from workforce reductions, additional charges from the use of
the inventory stepped-up to higher market values as well as the write-down of
research in process.
108
The segment's assets increased significantly in 2000 primarily due to the
acquisition. Total assets increased to E6,607 million in 2000 from
E1,949 million in 1999 due to additions to tangible fixed assets of
E807 million, to intangible fixed assets, including goodwill, of E2,453 million
and due to an increase in current assets. Through the acquisition, BASF obtained
major production sites in the United States, France and Brazil, as well as
research and development centers in the United States, United Kingdom, Brazil
and Japan.
The segment's research and development costs increased 44.7% to
E275 million due to the integration of the research and development activities
acquired from AHP. These activities include a research and development center in
Princeton, New Jersey as well as research facilities in the United Kingdom,
Brazil and Japan. Due to the acquisition, the number of the segment's research
and development projects increased significantly.
AGRICULTURAL PRODUCTS & NUTRITION: FINE CHEMICALS
SEGMENT DATA
(EUROS IN MILLIONS)
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
2001 YEAR 2000 YEAR 1999
----------- -------- ----------- -------- -----------
Sales to third parties.......................... E 1,984 14.1 E 1,739 6.3 E 1,636
Intersegmental transfers........................ 29 (34.1) 44 (17.0) 53
Sales incl. intersegmental transfers............ 2,013 12.9 1,783 5.6 1,689
Income from operations.......................... (210) -- (5) -- (774)
Special items................................... (283) -- (50) -- (829)
Operating margin (%)............................ * -- * -- *
Assets.......................................... E 1,488 8.8 E 1,368 2.2 E 1,338
Return on operational assets (%)................ * -- * -- *
Research and development expenses............... E 78 0.0 E 78 1.3 E 77
Capital expenditures in tangible and intangible
assets........................................ E 199 139.8 E 83 (4.6) E 87
---------------
* NEGATIVE
As part of the reorganization of the BASF group, the polyvinylpyrrolidone
(PVP) product line for technical applications was transferred from the Fine
Chemicals segment to the Functional Polymers division of the Performance
Chemicals segment. Prior year amounts were restated to reflect this transfer.
2001 COMPARED WITH 2000
In the Fine Chemicals segment, sales to third parties in 2001 increased
14.1%, to E1,984 million from E1,739 million in 2000. The segment increased
sales volumes by 5%. Structural changes, in particular the purchase of the
vitamins business of Takeda Chemical Industries Ltd., contributed 11% to the
increase in sales. Excluding the effects of these structural changes, sales in
the Fine Chemicals segment were 4.8% above the previous year's level due to an
increase in sales volumes. However, the increase in sales was partially offset
by negative currency effects of 1% and by a 1% decline in prices. Some vitamins
are still under price pressure, but lysine prices have improved. Pharmaceutical
active ingredients, cosmetic raw materials, carotenoids, and enzymes for animal
nutrition all experienced particularly strong sales growth.
109
In 2001, BASF recorded a loss of E210 million in income from operations in
the Fine Chemicals segment compared with a loss of E5 million in 2000. The loss
is due to a high level of special charges; excluding these charges, earnings
would have increased compared with the previous year. Special items of
E(283) million related in particular to provisions for unexpectedly high fines
imposed by the E.U. Commission for antitrust violations in the vitamins
business. BASF has appealed against the level of these fines. Additional charges
in the Fine Chemicals segment related to the planned closure of unprofitable
plants in North America.
In the Fine Chemicals segment, assets increased in 2001 by 8.8% to
E1,488 million from E1,368 million in 2000. Besides the purchase of Takeda's
vitamins business, additions to fixed assets related primarily to the expansion
of plants for vitamin E, carotenoids, Lysmeral-Registered Trademark- and other
flavors and fragrances, as well as to the construction of a new plant for the
manufacture of UV absorbers.
For 2002, BASF expects the division to maintain the overall positive trend
with regard to sales and earnings.
2000 COMPARED WITH 1999
In the Fine Chemicals segment, sales to third parties in 2000 rose by 6.3%
to 1,739 million from 1,636 million in 1999. Sales volumes rose 6%, while
positive currency effects -- primarily from the strength of the U.S. dollar --
contributed 9% to the increase in sales. Falling sales prices, above all for
vitamins E, A and B(2) lowered sales by 10%. With respect to individual product
lines, sales increased, in particular for feed additives, products for human
nutrition and cosmetic raw materials. Sales in the pharmaceutical active
ingredients business were also higher in 2000 than in 1999. Sales also increased
in 2000 compared with 1999 due to changes in the scope of consolidation and due
to acquisitions such as the feed premix business of Japan's Takeda Kagaku Shiryo
in the third quarter of 1999. On a comparable basis, sales in the Fine Chemicals
segment increased 3.8%.
In 2000, the Fine Chemicals segment increased income from operations,
posting a loss of E5 million compared with a loss of E774 in 1999. Improving
sales volumes, favorable exchange rates and an increase in the still relatively
low price of lysine were not sufficient to offset a decline in prices for
vitamins. Income from operations in 1999 was significantly affected by
substantial special charges for fines and provisions for damage claims related
to violations of antitrust laws in the vitamins business in the United States
and other countries. In 2000, there were additional charges of E47 million,
primarily due to the settlement with indirect purchasers of vitamins in the
United States.
In the Fine Chemicals segment, assets increased in 2000 by 2.2% to
E1,368 million from E1,338 million in 1999. Additions to fixed assets included
plant expansions for carotenoids, several aroma chemicals and UV absorbers as
well as improvements in manufacturing processes for the production of vitamin C
in Grenaa, Denmark, and lysine in Gunsan, Korea.
In both 2000 and 1999, the research and development expenses for the Fine
Chemicals segment were approximately 4.5% of sales. To strengthen its position
as a leading vitamins manufacturer, BASF acquired the water-soluble vitamins
business of Takeda Chemical Industries Ltd. of Japan in January 2001.
110
HEALTH & NUTRITION: PHARMACEUTICALS (DISCONTINUED OPERATIONS)
SEGMENT DATA
(EUROS IN MILLIONS)
%
CHANGE
FROM
PREVIOUS
2001 2000 YEAR 1999
--------- ----------- -------- -----------
Sales to third parties..................................... E 364 E 2,526 15.0 E 2,197
Intersegmental transfers................................... 5 36 5.9 34
Sales incl. intersegmentel transfers....................... 369 2,562 14.8 2,231
Income from operations..................................... 30 243 -- (13)
Special items.............................................. 29 (62) -- (164)
Operating margin (%)....................................... 8 9.6 -- *
Assets..................................................... E -- E 2,228 18.1 E 1,887
Return on operational assets (%)........................... -- 11.8 -- *
Research and development expenses.......................... E 74 E 468 17.9 E 397
Capital expenditures in tangible and intangible assets..... E 20 E 121 19.8 E 101
---------------
* NEGATIVE
2001 COMPARED WITH 2000
After receiving authorization from the Federal Trade Commission and the
European Union Commission, BASF sold its pharmaceuticals business on March 2,
2001 to Abbott Laboratories Inc. of Abbott Park, Illinois. Pursuant to the
requirements of U.S. GAAP, the pharmaceuticals activities are disclosed as
discontinued operations as described in Item 18 under Note 3 to the Consolidated
Financial Statements. Effective January 1, 2001, the generic pharmaceuticals
business with operations in Germany, France, Italy, the Netherlands, Switzerland
and Spain was sold to Biochemie GmbH, a subsidiary of Novartis. For additional
information on BASF's pharmaceuticals activities as discontinued operations, see
also Notes 3 and 4 to the Consolidated Financial Statements in Item 18. The gain
on disposition in 2001 is classified as extraordinary income in these financial
statements. For further information see also Note 9 to the Consolidated
Financial Statements in Item 18.
The segment data for 2001 reflect only two months of operations as compared
with 12 months of operations for 2000.
2000 COMPARED WITH 1999
On July 1, 2000 the pharmaceutical active ingredients business was
transferred from the Pharmaceuticals segment to the Fine Chemicals segment. The
segment data for 2000 and 1999 were restated to reflect this transfer.
In the Pharmaceuticals segment, sales to third parties in 2000 rose 15.0% to
E2,526 million from E2,197 million in 1999. Sales volumes rose approximately 4%.
Positive currency effects of approximately 9%, mainly due to the strength of the
U.S. dollar and an appreciation in the Japanese yen, also contributed to the
increase in sales.
Income from operations in the Pharmaceuticals segment increased to
E243 million in 2000 from a loss of E13 million in 1999. Improved sales of
Synthroid-Registered Trademark-,
Rytmonorm-Registered Trademark-/Rythmol-Registered Trademark- and
Meridia-Registered Trademark-/
Reductil-Registered Trademark-/Raductil-Registered Trademark- and tight cost
management of research and development, production, marketing and sales
activities made a significant contribution to the rise in income from
operations. A net amount of E62 million was charged to income from operations.
Expenses were related to
111
restructuring charges (mainly in Germany and the United Kingdom), to workforce
reductions, the write-down of real estate belonging to Hokuriku Seiyaku Co. of
Japan and the settlement of class-action lawsuits in the United States involving
the medication Synthroid-Registered Trademark-. Special income included proceeds
from the divestiture of the segment's urology business in Germany and a
settlement payment in a patent dispute.
Assets of the Pharmaceuticals segment increased in 2000 by 18.1% to
E2,228 million from E1,887 million in 1999.
OIL & GAS
SEGMENT DATA
(EUROS IN MILLIONS)
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
2001 YEAR 2000 YEAR 1999
----------- -------- ----------- -------- -----------
Sales to third parties.......................... E 4,516 14.1 E 3,957 29.7 E 3,051
Intersegmental transfers........................ 413 29.1 320 80.8 177
Sales incl. intersegmental transfers............ 4,929 15.2 4,277 32.5 3,228
Royalties....................................... 312 13.0 276 29.0 214
Sales incl. intersegmental transfers, less
royalties..................................... 4,617 15.4 4,001 32.7 3,014
Income from operations.......................... 1,308 (0.2) 1,310 76.8 741
Special Items................................... -- -- 44 (68.1) 138
Operating margin (%)............................ 29.0 -- 33.1 -- 24.3
Assets.......................................... E 3,149 (11.0) E 3,540 17.9 E 3,003
Return on operational assets (%)................ 39.1 -- 40.0 -- 26.3
Research and development expenses............... E 95 90.0 E 50 6.4 E 47
Capital expenditures in tangible and intangible
assets........................................ E 229 (14.2) E 267 (49.0) E 524
2001 COMPARED WITH 2000
In the Oil & Gas segment, sales to third parties in 2001 rose 14.1% to
E4,516 million from E3,957 million in 2000. This increase was due to positive
price and currency effects contributing 8.3% and 1.3%, respectively, as well as
increased sales volumes, which contributed 4.5%. Significant contributions to
sales were made by the natural gas trading operations of BASF's subsidiary
WINGAS, which increased its sales to third parties by 30.5% to E2,251 million in
2001 from E1,725 million in 2000. Higher natural gas prices were a major factor
contributing to this increase. Developments in crude oil prices are reflected in
sales only after a period of delay. Therefore, sales in the first half of 2001
were still positively affected by the high crude oil prices that prevailed in
the second half of 2000. Due to lower demand, natural gas sales volumes totaled
214 billion kilowatt-hours, or 3% below the previous year's level.
In its exploration and production activities, the Oil & Gas segment
increased sales in 2001 by 1.5% to E2,254 million from E2,221 million in 2000,
even though the average price for U.K. Brent quality crude oil was $24 per
barrel in 2001, or $4 per barrel lower than in 2000. The resulting negative
impact from this price decrease was more than offset by a 13% increase in crude
oil and natural gas production to 93 million barrels of oil equivalent.
Intersegmental transfers rose in 2001 to E413 million from E320 million in
2000, mainly due to higher gas prices.
112
At E1,308 million, income from operations in the Oil & Gas segment was
comparable in 2001 and 2000. Income from operations is before income taxes on
oil-producing operations in North Africa and the Middle East, which are recorded
as income tax expenses. For further information, see Note 10 to the Consolidated
Financial Statements.
Assets in the Oil & Gas segment decreased 11% in 2001 to E3,149 million from
E3,540 million in 2000. Capital expenditures in tangible assets related
primarily to development projects for exploration and production activities in
Germany, North Africa and Argentina. Compared with the previous year,
exploration expenditures more than doubled, reaching E156 million in 2001. By
using the latest technologies and focusing on particularly promising regions,
BASF achieves a competitive position with regard to finding costs.
There are no visible signs of near-term improvement in the weak economic
environment for the Oil & Gas segment. BASF expects average crude oil prices to
decline further in 2002 compared with 2001. However, BASF believes that any
negative effects on sales and earnings will be offset to some extent by an
expansion in business activities.
2000 COMPARED WITH 1999
In the Oil & Gas segment, sales to third parties in 2000 rose 29.7% to
E3,957 million from E3,051 million in 1999. This increase was achieved despite
the fact that in December 1999, BASF exited the oil marketing and refinery
business, which in 1999 contributed E1,020 million to BASF's sales. The year's
strong improvement in sales, above all in the segment's oil and natural gas
exploration and production activities, which increased by 112.7% to
E2,221 million from E1,044 million in 1999, more than compensated for the
discontinuation of the marketing and refinery business. The 58.1% increase in
average crude oil prices in 2000 compared to 1999 and the continued strength of
the U.S. dollar were the primary causes for this increase in sales. In 2000, the
average price for U.K. Brent quality crude oil was $28.45 per barrel compared
with $17.99 in 1999. BASF was able to increase production by 3.2% to
80.0 million barrels of oil equivalent. The sales volume for natural gas trading
increased by 9.4% to 221.5 billion kilowatt hours, and this, along with higher
gas prices, resulted in an increase in sales of 113.5% in 2000 to
E1,725 million compared with E808 million in 1999.
Intersegmental transfers rose in 2000 to E320 million from E177 million in
1999, mainly due to higher gas prices.
Income from operations in the Oil & Gas segment increased by 76.8% in 2000
to E1,310 million from E741 million in 1999 due to significantly higher sales in
both businesses. Special income related to completed activities from the sale of
the Oil & Gas segment's refinery business in 1999. Income from operations is
before income taxes on oil-producing operations in North Africa and the Middle
East. These taxes are recorded as income tax expenses. For additional
information, see Note 8 to the Consolidated Financial Statements in Item 18.
Assets in the Oil & Gas segment increased 17.9% in 2000 to E3,540 million
from E3,003 million in 1999. This rise was related primarily to an increase in
receivables as a result of higher oil and gas prices. Additions related to fixed
assets were primarily associated with development projects for exploration and
production activities in Germany, the Netherlands, North Africa and Argentina.
113
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth the summarized cash flows of BASF in each of
the last three fiscal years:
STATEMENT OF CASH FLOW 2001 2000 1999
---------------------- ------------ ------------ ------------
(EUROS IN MILLIONS)
Net income*................................................. E (118) E 1,240 E 1,237
Depreciation of fixed assets................................ 2,933 2,929 2,690
Changes in net current assets............................... (775) (1,147) 172
Miscellaneous items......................................... 279 (30) (844)
------------ ------------ ------------
Cash provided by operating activities....................... E 2,319 E 2,992 E 3,255
Additions to tangible and intangible fixed assets........... (2,811) (2,906) (2,939)
Acquisitions and divestitures, net.......................... 7,043 (5,812) 696
Financial investments and other items....................... (112) (112) 144
------------ ------------ ------------
Cash provided by investing activities....................... E 4,120 E (8,830) E (2,099)
Proceeds from capital increases............................. (1,124) (604) (176)
Changes in financial indebtedness........................... (4,293) 6,660 (95)
Dividends paid.............................................. (1,266) (748) (697)
------------ ------------ ------------
Cash provided by financing activities....................... E (6,683) E 5,308 E (968)
Changes in cash assets affecting liquidity.................. (244) (530) 188
Initial cash assets and other changes....................... 604 1,036 802
------------ ------------ ------------
Cash and cash equivalents at year end....................... E 360 E 506 E 990
Other changes in current assets............................. 383 364 518
Liquid funds................................................ 743 870 1,508
---------------
* EXCLUDING EXTRAORDINARY INCOME
2001 COMPARED WITH 2000
CASH FROM OPERATING ACTIVITIES
Cash provided by operating activities totaled E2,319 million, which was 22%
less than in 2000. This decline was due primarily to a sharp drop in net
income -- excluding extraordinary income, which is included in cash provided by
investing activities. In 2001, fewer additional funds were required to finance
current assets than in the previous year. This improved cash flow by
E372 million.
INVESTING ACTIVITIES
Proceeds from the sale of the pharmaceuticals business far exceeded capital
expenditures for investments and acquisitions, and resulted in positive cash
flow from investing activities of E4,120 million.
Proceeds from divestitures totaled E7,503 million. These related to the sale
of the pharmaceuticals and generics businesses.
Cash used for acquisitions amounted to E461 million. Major acquisitions
included:
- the vitamins business of Takeda Chemical Industries Ltd., Japan;
- the SISAS activities at the site in Feluy, Belgium; and
- the acquisition of a styrene plant in Korea.
114
Capital expenditures on tangible and intangible fixed assets totaled
E2,811 million in 2001, or E95 million less than in 2000. On a regional basis,
capital expenditures and acquisitions were as follows:
- 47% in Europe (39% in 2000);
- 23% in North America (NAFTA) (47% in 2000);
- 4% in South America (6% in 2000); and
- 26% in Asia, Pacific Area, Africa (8% in 2000).
In the CHEMICALS segment, capital expenditures and acquisitions in 2001
increased 20% to E929 million in 2001 from E774 million in 2000. Major projects
included:
EUROPE
- a plant for the production of propylene (propane dehydrogenation) in
Tarragona, Spain;
- the expansion of production capacities for PolyTHF-Registered Trademark-
in Ludwigshafen, Germany;
- a plant for optically active amines in Ludwigshafen, Germany;
- a capacity expansion for glyoxal in Ludwigshafen, Germany;
- optimization of production of ethylene oxide and glycol in Antwerp,
Belgium;
NORTH AND SOUTH AMERICA
- the completion of a steam cracker in a joint venture with TotalFinaElf
S.A. in Port Arthur, Texas;
- plants for hexanediol/caprolactone in Freeport, Texas;
- a capacity expansion for ethylene oxide and glycols in Geismar, Louisiana;
- a plant for S-methoxyisopropylamine in Geismar, Louisiana;
- a plant for neopentylglycol in Freeport, Texas;
ASIA
- the expansion of the new Verbund site in Kuantan, Malaysia, which
includes:
- plants for oxo C(4) alcohols, phthalic anhydride and plasticizers;
- a syngas plant; and
- a plant for the manufacture of butanediol.
In the PLASTICS & FIBERS segment, capital expenditures and acquisitions in
2001 increased 41% to E891 million from E633 million in 2000. The largest
projects were:
EUROPE
- the expansion of production for ethyl benzene in Antwerp, Belgium;
- the replacement of plants for the manufacture of ethyl benzene/styrene in
Ludwigshafen, Germany;
- the expansion and construction of a new plant for
Styrolux-Registered Trademark- in Antwerp, Belgium;
115
- a capacity expansion for MDI (diphenylmethane diisocyanate) production in
Antwerp, Belgium;
- the continued modernization of the production and compounding plants for
nylon 6 in Ludwigshafen, Germany;
- the construction of Styrodur-Registered Trademark- C plants in Bibbiano,
Italy, and Tudela, Spain;
- the expansion of Ultrason-Registered Trademark- production in
Ludwigshafen, Germany;
NORTH AND SOUTH AMERICA
- the replacement of a plant for the production of TDI (toluene
diisocyanate) in Geismar, Louisiana;
- the expansion of EPS (expandable polystyrene) production in Guaratingueta,
Brazil;
ASIA
- the construction of a new plant for propylene oxide and styrene in
Singapore in the Ellba Eastern Private Ltd. joint venture with Shell; and
- the construction of a new plant for TDI (toluene diisocyanate) in Yeosu,
Korea.
In the PERFORMANCE PRODUCTS segment, capital expenditures and acquisitions
declined 69% in 2001 to E418 million from E1,332 million in 2000. Major
investment projects concluded or initiated were:
EUROPE
- the construction of a new plant for the manufacture of superabsorbents in
Antwerp, Belgium;
- the completion of the production plant for the manufacture of vinyl
formamide and polyvinylamine in Ludwigshafen, Germany; and
- the construction of a new plant for dispersions in Hamina, Finland.
In the AGRICULTURAL PRODUCTS & NUTRITION business segment, BASF spent
E349 million on capital expenditures and acquisitions in 2001. This was
E3,115 million less than in 2000, the year in which the crop protection business
of American Home Products Corp. (AHP) was acquired.
In the Agricultural Products reporting segment, capital expenditures totaled
E130 million in 2001. In addition to the completion of a new plant for the
fungicide active ingredient F 500-Registered Trademark- in Schwarzheide,
Germany, and the modernization of a production plant for the production of crop
protection active ingredients in Guaratingueta, Brazil, several replacement and
optimization projects were undertaken at various sites.
In the Fine Chemicals reporting segment, BASF spent E199 million on capital
expenditures and acquisitions in 2001 compared with E83 million in 2000. The
most important investment projects included expansions of plants for vitamin E,
carotenoids, Lysmeral-Registered Trademark- and other flavors and fragrances, as
well as the construction of a new plant for the manufacture of UV absorbers.
In the OIL & GAS SEGMENT, BASF invested E229 million in 2001 compared with
E267 million in 2000. The majority of these investments were for exploration and
production activities.
116
Capital expenditures on FINANCIAL ASSETS AND SECURITIES amounted to
E741 million, which was E99 million less than in 2000. These expenditures
included in particular:
- capital expenditures totaling E200 million for BASF Future Business GmbH
and BASF Venture Capital GmbH, as well as
- additions to other participations, securities and loans.
Expenditures for additions to financial assets and securities were offset by
a cash inflow of E629 million for proceeds from the sale of financial assets,
proceeds from the disposal of fixed assets as well as the repayment of loans and
financial receivables. This resulted in a net cash outflow of E112 million.
FINANCING ACTIVITIES
BASF used most of the cash provided by the sale of the pharmaceuticals
business to reduce financial indebtedness. As of December 31, 2001, financial
indebtedness totaled E2,835 million, and was denominated in the following
currencies:
- U.S. dollars: 28.3% (2000: 62.2%);
- euros: 48.9% (2000: 25.4%);
- renmimbi: 5.5% (2000: 2.8%); and
- other currencies: 17.3% (2000: 9.6%).
In 2001, dividend payments to the shareholders of BASF Aktiengesellschaft
for fiscal year 2000 totaled E1,214 million (2000: E695 million), or E1.30 per
qualifying share (2000: E1.13) plus a special dividend of E0.70 to repay
stockholders' equity charged with 45% corporation tax.
In 2001, BASF spent E1.3 billion to buy back 30.8 million ordinary shares,
or 5% of its share capital, at an average price of E42.22 per share.
LIQUID FUNDS
Cash and cash equivalents decreased by E146 million. Marketable securities
increased E19 million to E383 million. Total liquid funds decreased to
E743 million in 2001 from E870 million in 2000. Their share of total assets was
2.0% in 2001 compared with 2.3% in 2000.
CHANGE IN ASSETS
Total assets declined in 2001 by E1,682 million to E36,875 million due to
the sale of the pharmaceuticals business. BASF's equity ratio increased to 47.5%
from 37.1% at the end of 2000 as a result of the gain from the sale of its
pharmaceuticals business. Long-term liabilities as a share of stockholders'
equity and liabilities was 27.0% compared with 23.5% in 2000. Short-term
liabilities accounted for 25.5% of stockholders' equity and liabilities compared
with 39.4% in 2000. Financial indebtedness was reduced by E5,057 million to
E2,835 million, in particular using income from the sale of Pharmaceuticals.
COMMITMENTS FOR INVESTMENTS
In 2002, BASF is planning capital expenditures of E2.2 billion. Major
projects by segment include:
CHEMICALS
- the construction of a C(4) complex in connection with the new steam
cracker in Port Arthur, Texas;
- the construction of a steam cracker at the planned Verbund site in
Nanjing, China;
117
- a capacity expansion for ethylene oxide in Ludwigshafen, Germany;
- the modernization of a chloralkali electrolysis plant in Ludwigshafen,
Germany by conversion to a membrane process;
PLASTICS & FIBERS
- a plant for Styrolux in Altamira, Mexico;
- a plant for Basotect-Registered Trademark- in Schwarzheide, Germany;
- the reconstruction and expansion of a nylon 6 production plant in
Ludwigshafen, Germany;
- the expansion of a Cellasto-Registered Trademark- production plant in
Lemforde, Germany;
PERFORMANCE PRODUCTS
- plants for acrylic acid and acrylates at the planned Verbund site in
Nanjing, China;
- a plant for methanesulfonic acid in Ludwigshafen, Germany;
- a plant for nonionic surfactants in Geismar, Louisiana;
AGRICULTURAL PRODUCTS & NUTRITION
- a capacity expansion for vitamin E and precursors in Ludwigshafen,
Germany;
- the construction of a new plant for the production of vitamin B(2) in
Gunsan, Korea;
- the construction of a new crop protection research facility in
Limburgerhof, Germany;
OIL & GAS
- optimizing and expanding hydrocarbon production in North Africa;
- increasing crude oil production in the northern German Mittelplate field;
- developing the Carina and Aries natural gas fields off the coast of
Argentina; and
- developing new natural gas reserves in the Dutch North Sea.
2000 COMPARED WITH 1999
CASH FROM OPERATING ACTIVITIES
Investments and acquisitions reached a record level at BASF in 2000. These
capital expenditures could not be financed entirely by cash from operating
activities, but instead required additions to financial indebtedness. Cash
provided by net income, together with depreciation of fixed assets, increased on
the previous year's figure by 6.2% to E4,169 million. Fund commitments for
inventories and receivables rose due to an increase in raw material costs, which
were passed along to varying degrees through higher prices for our products.
These higher fund commitments could not be compensated for by an increase in
accounts payable and miscellaneous short-term obligations and led to a cash
outflow of E1,147 million. As a result, cash from operations in 2000 decreased
8.1% to E2,992 million from E3,255 million in 1999.
INVESTING ACTIVITIES
Total cash used for investments and acquisitions in 2000 amounted to
E8,830 million compared with E2,099 million in 1999. After deducting proceeds
from divestitures total cash used for acquisitions amounted to E5,812 million.
Capital expenditures for acquisitions totaled E6,117 million. Major
acquisitions included:
- the crop protection business of American Home Products Corp.;
118
- the superabsorbents business of Chemdal International Corporation;
- the industrial coatings business of Rohm and Haas Co.; and
- an equalization payment to Shell as part of BASF's contribution to the
polyolefins joint venture Basell N.V.
Proceeds from divestitures totaled E305 million. These included:
- the sale of the Novolen-Registered Trademark- polypropylene technology and
the Kraton-Registered Trademark- polymers business in the Plastics &
Fibers segment; and
- the sale of various businesses in the Pharmaceuticals segment and the
Oil & Gas segment.
Capital expenditures on tangible and intangible fixed assets decreased in
2000 to E2,906 million from E2,939 million in 1999.
On a regional basis, capital expenditures were as follows:
- 49% in Europe (60% in 1999);
- 33% in North America (NAFTA) (34% in 1999);
- 4% in South America (2% in 1999); and
- 14% in Asia, Pacific Area, Africa (4% in 1999).
In the Chemicals segment, capital expenditures rose 15.0% to E880 million in
2000 from E765 million in 1999. Major projects included:
EUROPE
- the expansion of production capacities for butanediol in Ludwigshafen,
Germany;
- the construction of a trimethylolpropane MP plant in Ludwigshafen,
Germany;
- the expansion of a plant in Ludwigshafen, Germany, for the manufacture of
optically-active amines;
- the construction of a new plant in Ludwigshafen, Germany, for the
manufacture of dimethylhexanediol;
- the start-up of a new formaldehyde plant in Ludwigshafen, Germany;
- the expansion of a plant for the production of dinitrotoluene (a toluene
diisocyanate precursor) in Schwarzheide, Germany;
- a capacity expansion for ethylene oxide in Antwerp, Belgium;
- a capacity expansion for complexing agents in Ludwigshafen, Germany;
NORTH AND SOUTH AMERICA
- the construction of a steam cracker through a joint venture with
TotalFinaElf S.A., in Port Arthur, Texas;
- the construction of new plants for hexanediol/caprolactone in Freeport,
Texas;
- capacity expansions for ethylene oxide and glycols in Geismar, Louisiana;
- the construction of a new plant for nonionic surfactants in Geismar,
Louisiana; and
ASIA
- the construction of new plants for oxo C(4) alcohols, phthalic anhydride
and plasticizers in Kuantan, Malaysia.
119
In the Plastics & Fibers segment, capital expenditures decreased 40% to
E599 million in 2000 compared with E998 million in 1999. The largest projects
were:
EUROPE
- the modernization of nylon 6 production and packaging plants in
Ludwigshafen, Germany;
- a capacity expansion for ethyl benzene in Antwerp, Belgium;
- the replacement of the ethyl benzene and styrene plants in Ludwigshafen,
Germany;
- the restructuring of polystyrene production in Ludwigshafen, Germany and
Antwerp, Belgium;
NORTH AND SOUTH AMERICA
- the construction of a new plant to manufacture MDI (diphenylmethane
diisocyanate) in Geismar, Louisiana;
- the construction of a new plant for the manufacture of ABS
(acrylonitrile-butadiene-styrene) in Altamira, Mexico; and
- the expansion of a polystyrene plant in Sao Jose dos Campos, Brazil.
In the Colorants & Finishing Products segment, capital expenditures
including acquisitions rose 289% in 2000 to E1260 million from E324 million in
1999. This increase was due to the completion of acquisitions. Major investment
projects concluded or initiated were:
EUROPE
- the expansion of the imine plant for the manufacture of vinyl formamide
and polyvinylamine in Ludwigshafen, Germany;
- the construction of a plant for the manufacture of superabsorbents in
Antwerp, Belgium;
NORTH AND SOUTH AMERICA
- the expansion of the production capacity of acrylate and styrene/butadiene
dispersions in Monaca, Pennsylvania;
- the expansion of production capacities for paper dyes in Altamira, Mexico;
ASIA
- the construction of an acrylic acid complex in Kuantan, Malaysia; and
- the expansion of the dispersions plant in Shanghai, China.
In the Agricultural Products segment, capital expenditures increased to
E3,260 million in 2000 from E93 million in 1999. Major capital expenditures were
related to the acquisition of the crop protection business of American Home
Products. Additional capital expenditures included the construction of
production capacities for the manufacture of the new F 500-Registered Trademark-
fungicide from the strobilurine class of active ingredients in Schwarzheide,
Germany.
In the Fine Chemicals segment, BASF invested E83 million in 2000 compared
with E87 million in 1999 on capital expenditures. The most important investment
projects included the expansion of production capacities for the manufacture of
Uvinul-Registered Trademark- MC 80, plant expansions for carotenoids and aroma
chemicals in Ludwigshafen, Germany, as well as improvements in manufacturing
processes for the production of vitamin C in Grenaa, Denmark, and lysine in
Gunsan, Korea.
In the Pharmaceuticals segment, capital expenditures increased to
E121 million from E101 million in 1999.
120
In the Oil & Gas segment, BASF invested E267 million compared with
E524 million in 1999. Development of the A6/B4 field in the German North Sea
accounted for a large share of these investments.
Capital expenditures on financial assets and securities amounted to
E840 million, which was E38 million less than in 1999. These expenditures
included in particular:
- capital expenditures for the construction of a propylene plant in
Tarragona, Spain, which is being built by BASF SONATRACH Propanchem S.A.
-- a joint venture company with the Algerian oil and gas company
SONATRACH, in which BASF has a 51% stake;
- capital expenditures for the construction of a styrene monomer and
propylene oxide plant, which is being built by Ellba Eastern Private Ltd.
-- a joint venture company with Shell in Singapore in which BASF has a 50%
stake; and
- capital expenditures for the new joint venture company with NOF
Corporation of Tokyo, Japan.
A cash outflow of E840 million for additions to financial assets and
securities compared with a cash inflow of E728 million for proceeds from the
disposal of fixed assets and securities as well as the repayment of loans
resulted in a net cash outflow of E112 million.
FINANCING ACTIVITIES
BASF assumed additional financial indebtedness of E6,660 million to finance
acquisitions and investments. This included the issue of a E1,250 million, 5.75%
Euro Bond of BASF Aktiengesellschaft 2000/2005 as well as the issue of
E4,075 million through several commercial paper facilities denominated in euros
and U.S. dollars as well as commercial paper facilities denominated in British
pounds and Swiss francs associated with the euro swap.
At year-end, financial indebtedness totaled E7,892 million and was
denominated in the following currencies:
- U.S. dollars: 62.2% (1999: 55.4%),
- euros: 25.4% (1999: 9.3%), and
- renminbi: 2.8% (1999: 14.2%).
In 2000, dividend payments to shareholders for the fiscal year 1999 totaled
E695 million (1999: E693 million) or E1.13 per share (1999: E1.12). BASF spent
E700 million on the buy-back of its shares. The exercise of warrants led to a
cash inflow of E36 million, while a cash inflow of E59 million related to
payments by PETRONAS, BASF's partner in the joint venture company BASF PETRONAS
Chemicals Sdn. Bhd.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents decreased by E484 million.
Marketable securities were reduced by E153 million to E364 million. Total
liquid funds decreased to E870 million in 2000 from E1,508 million in 1999.
Their share of total assets was 2.3% in 2000, compared with 5.0% in 1999.
CHANGE IN ASSETS
Total assets increased in 2000 by E8,548 million to E38,557 million
primarily as a result of acquisitions. An increase in raw material costs and
higher prices for BASF's products led to a rise in current assets. Currency
translation effects from the rise in the U.S. dollar also led to an increase on
the balance sheet. The equity ratio declined from 47.1% to 37.1%. Long-term
liabilities as a
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share of stockholders' equity and liabilities was 23.5% compared with 25.1% in
1999. Short-term liabilities accounted for 39.4% of stockholders' equity and
liabilities compared with 27.8% in 1999.
EXCHANGE RATE EXPOSURE AND RISK MANAGEMENT
BASF transacts its business in many currencies other than the euro. About
55% of BASF's 2001 sales, about 56% of BASF's 2000 sales and about 58% of 1999
sales were to customers in Europe, about 45% of 2001 sales, about 44% of 2000
sales and about 42% of 1999 sales were to customers outside Europe. Moreover,
about 40% of BASF's 2001 sales, about 38% of BASF's 2000 sales and about 35% of
1999 sales were attributable to BASF operations conducted outside Europe.
As a result of BASF's foreign currency exposure, exchange rate fluctuations
have a significant impact in the form of both translation risk and transaction
risk on BASF's Consolidated Financial Statements. Translation risk is the risk
that BASF's Consolidated Financial Statements expressed in euros for a
particular period or as of a certain date may be affected by changes in the
prevailing rates of the various currencies of the reporting subsidiaries against
the euro. Transaction risk arises when the currency structure of BASF's costs
and liabilities deviates to some extent from the currency structure of BASF's
sales proceeds and assets.
The effect of exchange rate fluctuations on BASF's income from operations
for 2001, 2000 and 1999 is shown in BASF's Consolidated Financial Statements
under the line items "Other operating income" and "Other operating expense." See
Notes 6 and 7 to the Consolidated Financial Statements for further information.
The net effect of exchange rate fluctuations on BASF's income from operations
amounted to a net loss of E62.6 million in 2001, a net loss of E150.7 million in
2000 and a net gain of E36.7 million in 1999. The difference between 2001 and
2000 was primarily due to the strengthening of the U.S. dollar and the weakening
of the Japanese yen. The difference between 2000 and 1999 was primarily due to
the higher U.S. dollar in comparison with the euro.
Foreign currency translation adjustments had a negative effect of
E129.5 million on stockholders' equity in 2001 primarily due to the devaluation
of the Argentine peso and the deconsolidation of the pharmaceuticals business.
In 2000, foreign currency translation adjustments had a positive effect of
E112.5 million on stockholders' equity primarily due to the strengthening of the
U.S. dollar. In 1999, the positive effect of E509.8 million on stockholders'
equity was primarily due to the strengthening of the U.S. dollar and the
Japanese yen in 1999 compared to 1998.
Exchange rate risk management is centralized at BASF Aktiengesellschaft.
BASF bases its foreign exchange risk management generally on exposures derived
from receivables and payables on the balance sheet. Planned sales revenues or
expenses are only considered if such data is based on fixed contracts.
Receivables and payables in a particular currency are netted. Normally at BASF,
receivables exceed payables resulting in substantial net exposures in U.S.
dollars and relatively small exposures in the British pound and the Japanese
yen.
To mitigate the impact of currency exchange rate fluctuations, the exposure
to currency risk is assessed on a daily basis. BASF applies a selective hedging
strategy in that a varying portion of the exposure in each currency is hedged
based on forecasts of the exchange rate development versus the euro. In this
respect, forward exchange contracts with a term of several weeks to six months
or currency options with a term of usually one month are concluded to match the
term of the hedging instruments with the term of the underlying positions.
In 2001, BASF's hedging transactions have been aimed primarily at minimizing
exchange rate risks against the U.S. dollar, the British pound, the Japanese
yen, the Singapore dollar and the Mexican peso. See "Item 11. Quantitative and
Qualitative Disclosure About Market Risk" and Note 28 to the Consolidated
Financial Statements for further information.
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RESEARCH AND DEVELOPMENT
BASF's research and development activities are aimed at developing new and
improved products, finding new applications for existing products and developing
cost-efficient and environmentally responsible manufacturing processes.
BASF spent E1.17 billion on research and development activities in 2001
compared with E1.06 billion in 2000 and E0.94 billion in 1999, excluding the
effects of the pharmaceuticals business for each year. The company spends
approximately 38% of its research budget on developing new products, and another
21% on improving existing products. Developing new and improved processes
accounts for about 31% of spending, while 11% is spent on discovering new
research methods and technologies. BASF spends 82% of its annual research budget
in Germany, 13% in North America, 3% in other European countries and 2% in South
America and Asia.
BASF employs about 8,200 people worldwide in various research and
development activities. About 6,000 employees are involved in research and
development work in Ludwigshafen, making the facility one of the world's largest
research centers in the chemical industry.
The center in Ludwigshafen and a number of decentralized research sites
worldwide form an efficient network that makes an important contribution to
BASF's Verbund approach to integration. As a consequence of the portfolio
changes BASF has reorganized its core technology platforms and reduced their
number from four to three. These three technology platforms are located in
Ludwigshafen and support the company's global activities. BASF carries out
product and market-related development worldwide in close cooperation with
customers and joint-venture partners.
The biggest share of BASF's research spending is devoted to the area of
agriculture and nutrition, where BASF is expanding its activities. The
Limburgerhof Agricultural Center in Germany and the research center in Research
Triangle Park (RTP) in Raleigh, North Carolina, develop agricultural products,
using our network of trial stations around the world. BASF conducts its own
biotechnology research and is also involved in various biotechnology research
joint ventures. BASF plans to spend more than E700 million over 10 years on
research and development activities in plant biotechnology. The activities are
concentrated in BASF Plant Science GmbH, which currently employs about 350
people worldwide.
BASF additionally conducts research activities through more than 800
cooperative agreements with universities, research institutes and industrial
partners in many countries worldwide and through various research joint
ventures.
PATENTS
BASF puts great emphasis on obtaining patents, trademarks, copyrights and
designs to protect its investment in research and development. The company seeks
the optimum protection for significant product and process developments. BASF's
patents are registered in 14 countries on average that are most relevant to the
product or process involved. This protection is crucial in the chemical industry
because profit margins often depend on implementing state-of-the-art technology
protected by patents. BASF vigorously enforces its patents and trademarks.
A number of major products and manufacturing processes no longer have patent
protection. BASF believes that the expiration of patent protection for these
established products and processes generally has not had a significant adverse
impact on the company.
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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
In accordance with the German Stock Corporation Act (AKTIENGESETZ), BASF
Aktiengesellschaft has a Board of Executive Directors (VORSTAND) and a
Supervisory Board (AUFSICHTSRAT). The two Boards are separate, and no individual
may simultaneously be a member of both Boards.
The Board of Executive Directors is responsible for managing the business of
BASF Aktiengesellschaft in accordance with the German Stock Corporation Act and
BASF Aktiengesellschaft's Articles of Association. It also represents the
company in its dealings with third parties and in court.
The principal function of the Supervisory Board is to appoint and supervise
the Board of Executive Directors. The Supervisory Board may not make management
decisions, but BASF's Articles of Association or the Supervisory Board itself
may require the prior consent of the Supervisory Board for certain types of
transactions. The Supervisory Board assumes the function of an audit committee
in its role as supervisor of the Board of Executive Directors.
Members of both the Board of Executive Directors and the Supervisory Board
owe a duty of loyalty and care to BASF Aktiengesellschaft. In exercising these
duties, the applicable standard of care is that of a diligent and prudent
businessperson. Members of both Boards must take into account a broad range of
considerations when making decisions, foremost the interests of BASF
Aktiengesellschaft, its shareholders, employees and creditors and, to a certain
extent, the interests of society. The members of the Board of Executive
Directors and the Supervisory Board are personally liable to BASF
Aktiengesellschaft for breaches of their duties of loyalty and care.
BOARD OF EXECUTIVE DIRECTORS
The number of members of the Board of Executive Directors is determined by
the Supervisory Board, subject to a minimum number of two members. As of
December 31, 2001, BASF Aktiengesellschaft's Board of Executive Directors had
eight members. On December 14, 2001, the Supervisory Board appointed Klaus Peter
Lobbe as an additional member of the Board of Executive Directors effective
January 1, 2002.
Pursuant to the Memorandum and Articles of Association of BASF
Aktiengesellschaft, any two members of the Board of Executive Directors or one
member and the holder of a special power of attorney (PROKURA) may bind the
company.
The Board of Executive Directors must report regularly to the Supervisory
Board on the current business of BASF Aktiengesellschaft, on the company's
business policies and other fundamental matters regarding the future conduct of
the company's business, on the company's profitability, particularly on its
return on equity, as well as on any exceptional matters that may arise from time
to time. The Supervisory Board is also entitled to request special reports at
any time.
The Supervisory Board appoints members to the Board of Executive Directors
for a maximum term of five years. Members of the Board of Executive Directors
may be re-appointed or have their terms extended for one or more terms of no
more than five years.
Under certain circumstances, such as a serious breach of duty or a bona fide
vote of no confidence by a majority of votes at a shareholders' meeting, a
member of the Board of Executive Directors may be removed by the Supervisory
Board prior to the expiration of his or her term. A member of the Board of
Executive Directors may not deal with or vote on matters relating to proposals,
arrangements or contracts between that member and the company.
The Articles of Association of BASF Aktiengesellschaft require decisions of
the Board of Executive Directors to be made by a simple majority unless the law
requires a larger majority. In case of a tie, the vote of the chairman of the
Board is decisive.
125
The following table lists the current members of the Board of Executive
Directors, their ages as of December 31, 2001, and the years in which they were
first appointed to the Board:
DR. JURGEN F. STRUBE
Age: 62................ First year appointed: 1985 Year term expires: 2003
PROFESSIONAL CAREER
1969 Joined Finance department of BASF Aktiengesellschaft
1970 Worked at BASF Antwerpen, Belgium, and in BASF
Aktiengesellschaft's Logistics division
1974 Assigned to BASF Brasileira S.A., Sao Paulo, Brazil,
responsible for the company's logistics and administrative
activities, and later on also for the company's chemicals
and plastics
1980 Head of Glasurit do Brasil Ltda.
1982 President of the Brazil regional division
1985 Appointed to the Board of Executive Directors
1990 Appointed Chairman of the Board of Executive Directors
POSITION & MAIN AREAS OF RESPONSIBILITY
Chairman of the Board of Executive Directors -- Legal, Taxes & Insurance,
Planning & Controlling, Executive Management and Development, Corporate
Communication
MEMBERSHIPS ON SUPERVISORY BOARDS
Since 1990 Allianz Lebensversicherungs-AG, Stuttgart, Germany
Since 1996 Hochtief AG, Essen, Germany
Since 1998 Commerzbank AG, Frankfurt, Germany
Since 1998 Hapag-Lloyd AG, Hamburg, Germany
Since 2000 Linde AG, Wiesbaden, Germany
Since 2000 Bertelsmann AG, Gutersloh, Germany
Since May 2001 Bayerische Motorenwerke Aktiengesellschaft, Munich, Germany
MAX DIETRICH KLEY
Age: 61................ First year appointed: 1990 Year term expires: 2003
PROFESSIONAL CAREER
1969 Joined the Legal department of BASF Aktiengesellschaft
1977 Head of the Tax department
1982 Chief Executive Officer of Gewerkschaft Auguste Victoria,
Marl, Germany
1987 President of the Energy and Coal division
1990 Appointed to the Board of Executive Directors
1999 Appointed Deputy Chairman of the Board of Executive
Directors
POSITION & MAIN AREAS OF RESPONSIBILITY
Deputy Chairman and Chief Financial Officer -- Finance, Oil & Gas, Coatings,
Raw Materials Purchasing, Eastern Europe, West Asia, Africa regional division,
Investor Relations, Corporate Audit
126
MEMBERSHIPS ON SUPERVISORY BOARDS
Since 1990 Bayerische Hypo-und Vereinsbank AG, Munich, Germany
Since 1992 Gerling-Konzern Speziale
Kreditversicherungs-Aktiengesellschaft, Cologne, Germany
Since 1993 Landesbank Rheinland-Pfalz, Mainz, Germany
Since 1995 Lausitzer Braunkohle AG, Senftenberg, Germany
Since 1995 Mannesmann Demag Krauss Maffei AG, Munich, Germany
Since 2000 Basell N.V., Hoofddorp, the Netherlands
Since 2000 RWE Plus AG, Essen, Germany
Since 2001 Siberian-Urals Petrochemical and Gas company (SIBUR),
Moscow, Russia
HELMUT BECKS
Age: 57................ First year appointed: 1996 Year term expires: 2006
PROFESSIONAL CAREER
1971 Joined BASF in October 1971 and initially worked in
instrumentation in the Works Engineering division
1988 Head of the Electrical Engineering department
1991 President of BASF AG Site Engineering
1994 President of the BASF Group's South East Asia/Australia
regional division headquartered in Singapore
1996 Appointed to the Board of Executive Directors
POSITION & MAIN AREAS OF RESPONSIBILITY
Director -- Asia region, Corporate Engineering
MEMBERSHIPS ON SUPERVISORY BOARDS
Since Hannoversche Lebensversicherung a.G., Hanover, Germany
2000......
DR. JOHN FELDMANN
Age: 52................ First year appointed: 2000 Year term expires: 2004
PROFESSIONAL CAREER
1988 Joined BASF Aktiengesellschaft in product management for
detergent additives
1990 Group leader, Strategic Planning
1993 Vice president, Strategic Planning department
1996 Delegate to BASF South East Asia regional headquarters and
president, South East Asia/Australia regional division
headquartered in Singapore
1999 Head of cross-divisional negotiating teams, Ludwigshafen,
Germany
2000 Appointed to the Board of Executive Directors
127
POSITION & MAIN AREAS OF RESPONSIBILITY
Director -- Styrenics, Performance Polymers, Polyurethanes, Polymer Research
MEMBERSHIPS ON SUPERVISORY BOARDS
Since Basell N.V., Hoofddorp, the Netherlands
2000......
DR. JURGEN HAMBRECHT
Age: 55................ First year appointed: 1997 Year term expires: 2007
PROFESSIONAL CAREER
1976 Joined BASF Aktiengesellschaft's Polymers Laboratory,
responsible for polystyrene, styrenic copolymers and
polyphenylene ethers
1985 Head of Research and Purchasing at Lacke und Farben AG,
Munster, Germany (now BASF Coatings AG)
1990 President, Engineering Plastics division
1995 President, East Asia division based in Hong Kong
1997 Appointed to the Board of Executive Directors
POSITION & MAIN AREAS OF RESPONSIBILITY
Director -- Inorganics, Petrochemicals, Intermediates, Research &
Engineering Chemicals, Head of the sites in Antwerp, Belgium and Schwarzheide,
Germany
MEMBERSHIPS ON SUPERVISORY BOARDS
Since 2000 Bilfinger + Berger Bauaktiengesellschaft, Frankfurt, Germany
Since 2000 Basell N.V., Hoofddorp, the Netherlands
KLAUS PETER LOBBE
Age: 55................ First year appointed: 2002 Year term expires: 2006
PROFESSIONAL CAREER
1966 Joined BASF Aktiengesellschaft and initially worked as
trainee and product manager
1975 Delegated to BASF Japan Ltd.
1987 Head of Diols Marketing, Intermediates division
1990 Group vice president, Marketing, Intermediates division
1993 President, Industrial Chemicals division
1996 President, Coatings division and Chairman of the Board of
Executive Directors of BASF Coatings AG
2002 Appointed to the Board of Executive Directors
POSITION & MAIN AREAS OF RESPONSIBILITY
Director -- Coatings, North America region
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DR. STEFAN MARCINOWSKI
Age: 48................ First year appointed: 1997 Year term expires: 2007
PROFESSIONAL CAREER
1979 Joined BASF Aktiengesellschaft's Main Laboratory to work in
biotechnological research
1986 Liaison officer to the Chairman of the Board of Executive
Directors
1988 Senior vice president, Public Relations department
1992 Vice-Presidente Executivo BASF Brasileira S.A., Sao Paulo,
Brazil
1995 President, Plastic Foams & Reaction Resins division
1997 Appointed to the Board of Executive Directors
POSITION & MAIN AREAS OF RESPONSIBILITY
Director and Research Executive Director -- Functional Polymers, Performance
Chemicals, South America regional division, University Relations & Research
Planning
PETER OAKLEY
Age: 48................ First year appointed: 1998 Year term expires: 2003
PROFESSIONAL CAREER
1977 Joined Economics department of BASF Aktiengesellschaft
1980 Financial controller within the Southeast Asia Regional
division
1984 Head of Finance, Administration and Logistics at BASF China
Ltd., Hong Kong
1991 Group vice president of the Crop Protection business in
North America, based in Raleigh, North Carolina
1995 President, Crop Protection division
1998 Appointed to the Board of Executive Directors and Chairman
and Chief Executive Officer of BASF Corporation based in
Mount Olive, New Jersey
POSITION & MAIN AREAS OF RESPONSIBILITY:
Director -- Agricultural Products, Fine Chemicals, Specialty Chemicals
Research, Plant Biotechnology
129
EGGERT VOSCHERAU
Age: 58................ First year appointed: 1996 Year term expires: 2006
PROFESSIONAL CAREER
1969 Joined BASF, delegation to Peru
1981 Management position BASF Brasileira S.A., Sao Paulo, Brazil
1984 Vice-Presidente Executivo BASF Brasileira S.A., Sao Paulo,
Brazil
1986 President, Crop Protection division, Ludwigshafen, Germany
1991 President, North American Consumer Products division
(Pharmaceuticals, Crop Protection and Fine Chemicals); in
addition, from 1994 president of Latin America North
division
1996 Appointed member of the Board of Executive Directors
1997 Chairman and Chief Executive Officer of BASF Corporation
POSITION & MAIN AREAS OF RESPONSIBILITY:
Director -- Industrial Relations Director; Europe region; Human Resources;
Logistics & Information Services; Environment, Safety & Energy; BASF AG Works
Engineering; Occupational Medicine & Health Protection; Europe region; Head of
the Ludwigshafen Site
MEMBERSHIPS ON SUPERVISORY BOARDS
Since 1999 Dresdner Bank Lateinamerika AG, Hamburg, Germany
Since 2000 Haftpflichtverband der Deutschen Industrie V.a.G., Hanover,
Germany (German Industry Liability Association)
SUPERVISORY BOARD
The Supervisory Board consists of 20 members, 10 of whom are elected by
shareholders at BASF Aktiengesellschaft's Annual Meeting and 10 of whom are
elected by employees as required by the German Codetermination Act
(MITBESTIMMUNGSGESETZ). Any Supervisory Board member elected by the shareholders
at BASF Aktiengesellschaft's Annual Meeting may be removed by a majority of the
votes cast at a subsequent meeting of shareholders. Any Board member elected by
the employees may be removed by three-quarters of the votes cast by the class of
employees that the member represents.
Aside from Mr. Arthur L. Kelly, all current shareholder representatives on
the Supervisory Board were elected in 1998. Mr. Kelly was appointed by the
district court of Ludwigshafen on December 7, 2000, as a replacement for
Dr. Marcus Bierich, who died on November 25, 2000.
The Supervisory Board appoints a chairman and a deputy chairman from among
its members. The chairman of the Supervisory Board must be elected by a majority
of two-thirds of the Board members. If a majority is not reached in the first
vote, the members of the Supervisory Board, who were elected by the
shareholders, elect the chairman.
At least half of the total required number of members of the Supervisory
Board must be present or participate in decision-making to constitute a quorum.
Unless otherwise provided for by law or BASF Aktiengesellschaft's Articles of
Association, resolutions are passed by a simple majority of the votes cast. In
the event of a tie, a second vote is held, and the chairman may cast a deciding
vote.
Supervisory Board members are elected to terms of approximately five years.
The terms expire at the end of the Annual Meeting after the fourth fiscal year
following the year in which the
130
members were elected. The current terms of all Supervisory Board members expire
at the end of the Annual Meeting in 2003. Compensation for Board members is
determined by BASF Aktiengesellschaft's Articles of Association.
The following table lists the current members of BASF Aktiengesellschaft's
Supervisory Board, their respective ages as of December 31, 2001, their
principal occupation and the year in which they were first elected or appointed
to the Supervisory Board:
YEAR
FIRST
NAME AGE PRINCIPAL OCCUPATION ELECTED
---- -------- -------------------- --------
DR. BERTHOLD LEIBINGER 71 Managing Director of TRUMPF GmbH + Co KG 1998
Chairman
VOLKER OBENAUER(1) 59 Chairman of the works council of BASF Group 1993
Deputy Chairman
WOLFGANG DANIEL(1) 44 Deputy Chairman of the works council of the 1996
Ludwigshafen site of BASF Aktiengesellschaft
ETIENNE GRAF DAVIGNON 69 President of Societe Generale de Belgique 1993
DR. FRANCOIS DIEDERICH 49 Professor at Zurich Technical University 1998
DR. TESSEN VON HEYDEBRECK 56 Member of the Board of Executive Directors 1998
of Deutsche Bank AG
DR. WOLFGANG JENTZSCH 69 Retired member of the Board of Executive 1995
Directors of BASF Aktiengesellschaft
ARTHUR L. KELLY 64 Chief Executive Officer of KEL Enterprises 2000
L.P., Chicago, Illinois
ROLF KLEFFMANN(1) 52 Chairman of the works council of Wintershall 1998
AG's Barnstorf oil plant
ULRICH KUPPERS(1) 46 Manager of the Ludwigshafen branch of the 1994
Mining, Chemical and Energy Industries Union
(INDUSTRIEGEWERKSCHAFT BERGBAU, CHEMIE,
ENERGIE)
KONRAD MANTEUFFEL(1) 49 Member of the works council of the 1999
Ludwigshafen site of BASF Aktiengesellschaft
DR. KARLHEINZ MESSMER(1) 57 Plant Manager at the Ludwigshafen site of 1993
BASF Aktiengesellschaft
ROBERT OSWALD(1) 46 Chairman of the works council of the 2000
Ludwigshafen site of BASF Aktiengesellschaft
ELLEN SCHNEIDER(1) 51 Chairwoman of the joint works council of 1993
Elastogran GmbH
DR. HERMANN SCHOLL 66 Managing Director of Robert Bosch GmbH 1998
DR. HENNING SCHULTE-NOELLE 59 Chairman of the Board of Executive Directors 1992
of Allianz AG
ROBERT STUDER 63 Retired Chairman of Union Bank of 1993
Switzerland
JURGEN WALTER(1) 56 Member of the Central Board of Executive 1998
Directors of the Mining, Chemical and Energy
Industries Union (INDUSTRIEGEWERKSCHAFT
BERGBAU, CHEMIE, ENERGIE)
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YEAR
FIRST
NAME AGE PRINCIPAL OCCUPATION ELECTED
---- -------- -------------------- --------
HELMUT WERNER 65 Retired Chairman of the Board of Executive 1993
Directors of Mercedes-Benz AG
GERHARD ZIBELL(1) 51 Regional Manager of the Mining, Chemical and 1998
Energy Industries Union
(INDUSTRIEGEWERKSCHAFT BERGBAU, CHEMIE,
ENERGIE) Rhineland - Palatinate/Saar region
---------------
(1) Employee representative.
COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate amount of compensation BASF Aktiengesellschaft and its
subsidiaries paid during the year ended December 31, 2001, to all members of the
Board of Executive Directors and the Supervisory Board, as a group, was
E11.3 million. Of this amount, members of the Board of Executive Directors
received E9.3 million and members of the Supervisory Board received
E2.0 million. These sums include accrued performance-related bonuses for 2001.
Additionally, the pro rata value of stock options granted to the members of the
Board of Executive Directors in 2001 amounts to E4.2 million.
The total compensation BASF Aktiengesellschaft and its subsidiaries paid
during the year ended December 31, 2001, to former members of the Board of
Executive Directors and their beneficiaries was E4.8 million. In 2001,
E2.1 million was set aside for the provision of pensions and similar benefits to
the Board of Executive Directors, and as of December 31, pension provisions
totaled E57.3 million. No commitments were assumed in favor of the members of
the Supervisory Board or the Board of Executive Directors.
Pursuant to its Articles of Association, BASF Aktiengesellschaft reimburses
each Supervisory Board member for out-of-pocket expenses. BASF
Aktiengesellschaft also grants each Supervisory Board member a fixed annual
payment of E5,000 and additional compensation based on dividends paid to BASF
Aktiengesellschaft shareholders. This latter amount is E1,750 for each
percentage point that aggregate dividends in a given year exceed 4% of BASF
Aktiengesellschaft's subscribed capital. The chairman of the Supervisory Board
receives a payment of twice and the deputy chairman receives a payment of 1.5
times this amount. For the year ended December 31, 2001, approximately 47% of
the total compensation paid to members of the Supervisory Board consisted of
dividend-based compensation.
Pursuant to BASF's stock option program, each member of the Board of
Executive Directors is entitled to receive options on BASF Shares corresponding
to 10 to 30% of the Board member's individual performance-related bonus. See
"Item 6. Directors, Senior Management and Employees -- BASF Stock Option Program
(BOP)" for further details on the number of options granted and on the terms and
conditions of the options' rights.
BOARD PRACTICES
The Supervisory Board has established a special committee known in Germany
as the "PERSONALAUSSCHUSS." The members of this committee are Dr. Berthold
Leibinger, Dr. Henning Schulte-Noelle, Volker Obenauer and Jurgen Walter. This
committee is responsible for reviewing and approving the terms and conditions of
contracts between BASF Aktiengesellschaft and members of the Board of Executive
Directors.
Directors' service contracts with BASF or with any of its subsidiaries do
not include benefits which are provided upon termination of employment.
132
SHARE OWNERSHIP BY MEMBERS OF THE BOARD OF EXECUTIVE DIRECTORS AND THE
SUPERVISORY BOARD
No member of the Board of Executive Directors or the Supervisory Board
beneficially owns 1% or more of the outstanding BASF Shares.
EMPLOYEES
As of December 31, 2001, BASF employed a workforce of 92,545 people
worldwide, which represented a decline of approximately 10.4% from the end of
2000 largely related to the pharmaceutical divestiture. About 55.0% of the
workforce is based in Germany. Expenditures for salaries and wages totaled
E4,858 million in 2001, down from E5,307 million in 2000. For further
information, see Note 12 to the Consolidated Financial Statements included in
Item 18.
The following table details BASF's workforce on a regional basis as of
December 31, 2001, 2000 and 1999.
2001 2000 1999
-------- -------- --------
Europe...................................................... 63,339 68,861 73,789
thereof Germany........................................... 50,939 54,356 58,158
North America............................................... 14,531 17,331 15,685
South America............................................... 5,749 6,913 6,688
Asia, Pacific Area, Africa.................................. 8,926 10,168 8,466
Total....................................................... 92,545 103,273 104,628
As of December 31, 2001, BASF Aktiengesellschaft employed 39,354 people at
its headquarters in Ludwigshafen, Germany, compared with 41,117 people as of
December 31, 2000.
Many of BASF's employees who are not considered management in Germany are
members of labor unions. Almost all of these union members belong to the Mining,
Chemical and Energy Industries Union (INDUSTRIEGEWERKSCHAFT BERGBAU, CHEMIE,
ENERGIE). None of BASF's sites in Germany is operated on a "closed shop" basis,
meaning that employees are not required to join a union. In Germany, collective
bargaining agreements for employees below management level are generally
negotiated between the regional association of employers within a particular
industry and the respective unions.
In addition, under German law, employees elect a works council (BETRIEBSRAT)
that participates in determining company policy, especially with regard to
certain voluntary compensation matters and benefits.
The most recent collective bargaining agreement for employees in Germany
represented by labor unions, which covers most of BASF's employees in Germany,
was signed in March 2000 and expires February 28, 2002.
BASF considers its labor relations to be positive and anticipates reaching
future agreements with its labor unions on terms satisfactory to all parties.
There can be no assurances, however, that new agreements will be reached without
a work stoppage or strike or on terms satisfactory to BASF. A prolonged work
stoppage or strike at any of BASF's major manufacturing sites could have a
material adverse effect on the company's results of operations. BASF has not
experienced any material strikes during the last 10 years.
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AGREEMENT 2003
In the "Agreement 2003" signed in April 2000, BASF management and employee
representatives of BASF's Ludwigshafen site reached an agreement. The agreement
calls for continued workforce reductions by the end of 2003 that will be
achieved through socially responsible measures. A similar agreement was in form
from 1997 through 2000. Incentives for voluntary retirement, such as part-time
contracts for those approaching retirement (6,085 contract signed as of
December 31, 2001) and increased internal job market flexibility will all help
reduce the workforce without forced layoffs, and yet simultaneously permit the
hiring of new younger employees. For the period between 2001 and the end of
2003, BASF expects an annual workforce reduction of approximately 1,300
positions.
BASF STOCK OPTION PROGRAM (BOP)
The BASF Stock Option Program (BOP) is offered to the Board of Executive
Directors and approximately 1,200 of BASF's senior executives. Approximately 75%
of the eligible senior executives opted to participate in the program. The
program became effective on April 30, 1999, after BASF's shareholders approved a
conditional capital increase for the program at the Annual Meeting on April 29,
1999. At the Annual Meeting on April 26, 2001 the shareholders approved a new
conditional capital increase to incorporate certain changes to the BOP effective
as of 2001.
An executive participating in the BOP receives four option rights for each
BASF Share held by such executive for the purpose of taking part in the BOP (the
"BOP Shares"). The number of BOP Shares eligible for the BOP is determined by an
amount representing 10 to 30% of the executive's annual variable compensation
and by the relevant "market price" of BASF Shares, which is the volume weighted
average of the prices quoted in the Xetra-Registered Trademark- electronic
trading system of Deutsche Borse AG on the day after the Annual Meeting (the
"BOP Share Price"). In 2001, the BOP Share Price was E47.87 and in the years
2000 and 1999 it was E47.80 and E41.60, respectively. Annual variable
compensation for a member of the Board of Executive Directors is determined by
the Supervisory Board pursuant to the terms of the executive director's
employment agreement with BASF. Annual variable compensation for any other
senior executive is determined by such senior executive's superiors pursuant to
rules established by the Board of Executive Directors, and is based on BASF's
performance and individual target agreement.
Option rights granted in 1999 and 2000 may not be exercised prior to three
years after the grant date. They expire 15 days after the sixth Annual Meeting
of BASF Aktiengesellschaft following the grant date. Option rights granted in
2001 may not be exercised prior to July 1, 2003. They expire 15 days after the
eighth Annual Meeting of BASF Aktiengesellschaft following the grant date.
Each option right entitles the holder to two subscription rights. The first
subscription right permits participants to purchase one BASF Share at the BOP
Share Price provided that the market price of BASF Shares on the exercise date
is more than 30% higher than the BOP Share Price. The second subscription right
permits participants to purchase one BASF Share at a discount, provided that the
performance of BASF Shares exceeds the performance of a benchmark index. For
options granted in 1999 and 2000 the benchmark index is the DOW Jones EURO
STOXX(SM) Total Return Index ("the EURO STOXX") and for options granted in 2001
the benchmark index is the Dow Jones Global Chemicals Total Return Index (the
"DJ Chemicals"). The discount is equal to twice the percentage by which BASF
Shares have outperformed the benchmark index since the date of issue of the
relevant right.
An option right may be exercised if the exercise criteria for one or both of
the underlying subscription rights have been satisfied. If an option right is
exercised based on the exercisability of only one subscription right, then the
other unexercisable subscription right terminates. The
134
monetary benefit resulting from the exercise of option rights being granted for
one BOP Share may not exceed 10 times the BOP Share Price.
For details about the number of stock options granted see the table below:
2001 2000 1999
--------- --------- ---------
Stock options outstanding as of January 1................. 2,057,003 1,172,728
Stock options granted..................................... 1,133,204 917,016 1,178,440
-thereof to members of the Board of Executive Directors... 137,060 126,228 166,616
Option rights lapsed(1)................................... 97,475 32,741 5,712
Stock options outstanding as of December 31............... 3,092,732 2,057,003 1,172,728
---------------
(1) Option rights lapse if the option holders no longer work for BASF or have
sold part of their BOP Shares.
EMPLOYEE STOCK PURCHASE PROGRAM
In 1999, BASF Aktiengesellschaft and several other German subsidiaries of
BASF launched a stock purchase program for their employees. At present, various
European and Mexican subsidiaries participate in the program. The program allows
an employee to purchase BASF Shares at market prices by using all or part of the
annual variable salary that the employee receives from the employing company.
For every block of 10 BASF Shares so purchased, the employee will be granted one
additional BASF Share after one, three, five, seven and 10 years without further
payment, provided that the BASF Shares purchased under the program are still
held by the employee.
2001 2000 1999
--------- -------- --------
Number of BASF Shares held under the program as of January
1......................................................... 745,840 220,840
Number of BASF Shares purchased under the program........... 434,800 544,730 223,980
Maximum amount of free shares granted....................... 217,400 272,365 111,990
Shares expired.............................................. 49,960 19,730 3,140
Number of BASF Shares held under the program as of
December 31............................................... 1,130,680 745,840 220,840
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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
MAJOR SHAREHOLDERS
The capital stock of BASF Aktiengesellschaft consists of ordinary shares
with no par value (STUCKAKTIEN) that are issued only in bearer form ("BASF
Shares"). As of December 31, 2001, BASF Aktiengesellschaft had an aggregate of
583,401,370 BASF Shares outstanding. Because the holders of BASF Shares are not
registered with BASF Aktiengesellschaft or any other organization, BASF
Aktiengesellschaft generally cannot determine who its shareholders are or how
many shares a particular shareholder owns. Notwithstanding the foregoing, based
on its most recent survey, BASF Aktiengesellschaft believes that, as of
January 10, 2001, approximately 9.4% of the BASF Shares were held by
shareholders in the United States.
The German Securities Trading Act (WERTPAPIERHANDELSGESETZ) requires any
investor who holds voting securities of a German corporation listed on a stock
exchange within the European Union or European Economic Area to promptly notify
the corporation and the German Federal Supervisory Authority for Securities
Trading (BUNDESAUFSICHTSAMT FUR DEN WERTPAPIERHANDEL) whenever its holdings
reach, exceed or fall below 5%, 10%, 25%, 50% or 75% of the corporation's
outstanding voting rights. In addition, any investor holding 5% or more of the
voting rights of a listed German corporation was required to provide the
corporation with an initial notification of the level of its holdings prior to
the first Annual Meeting of the corporation held after April 1, 1995. If an
investor fails to provide the notices described above, the investor will forfeit
any rights that are attached to its securities during the period of such
failure. The German Securities Trading Act contains various rules designed to
ensure the attribution of shares to the person who has effective control over
the shares.
Allianz Aktiengesellschaft has notified BASF that it directly or indirectly
holds more than 10% of the BASF Shares. Information available as of
December 31, 2001 indicated that Allianz Aktiengesellschaft and its subsidiaries
held an aggregate of 10.21% of the BASF Shares.
To its knowledge, BASF Aktiengesellschaft is not owned or controlled
directly or indirectly by any corporation, foreign government or any person,
jointly or severally.
RELATED PARTY TRANSACTIONS
The existing loans between BASF and affiliated and associated companies and
participating interests as of December 31, 2001 are shown in Note 15 to the
Consolidated Financial Statements included in Item 18. There are no loans
outstanding to members of the Supervisory Board and the Executive Board.
Allianz Aktiengesellschaft, through certain of its subsidiaries, currently
provides insurance services to BASF in a number of different areas. BASF
Aktiengesellschaft believes that these services are provided on an arm's length
basis.
Certain members of the Supervisory Board and the Board of Executive
Directors are members of supervisory or executive boards of financial
institutions with which BASF engages in certain transactions in the ordinary
course of business and at terms at the time prevailing in the market for
comparable transactions with other persons.
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ITEM 8. FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS
See "Item 18. Financial Statements."
EXPORT SALES
BASF manufactures products mainly in Europe (primarily Germany) and North
America and to an increasing extent in Asia. BASF's products are then sold in
markets worldwide. Therefore, a large share of BASF's products are manufactured
in Germany and exported for sale in Asia and to a lesser extent in South
America. The following table sets forth BASF's primary exports:
PRODUCED IN REGIONAL EXPORTS/
REGION REGIONAL SALES REGION IMPORTS
------ ------------------- ------------------- -------------------
(EUROS IN MILLIONS) (EUROS IN MILLIONS) (EUROS IN MILLIONS)
Europe..................................... 17,984 19,399 1,415
- Thereof Germany.......................... 7,212 13,417 6,205
North America.............................. 7,654 7,772 118
South America.............................. 2,188 1,842 (346)
Asia, Pacific Area, Africa................. 4,674 3,487 (1,187)
Total...................................... 32,500 32,500 0
LEGAL PROCEEDINGS
In addition to the legal proceedings and claims described below, BASF is
involved in a number of legal proceedings and claims incidental to the normal
conduct of its businesses, relating to such matters as product liability, patent
infringement, licensing, tax assessments, competition, past waste disposal
practices and release of chemicals into the environment. Although the outcome of
these proceedings and claims cannot be predicted with certainty, BASF
Aktiengesellschaft believes that, except for liabilities resulting from the
antitrust claims relating to vitamins, any resulting liabilities, net of amounts
recoverable from insurance or otherwise, will not, in the aggregate, have a
material adverse effect on BASF's consolidated results of operations, financial
condition and cash flows.
ANTITRUST CLAIMS RELATING TO VITAMINS
In 1999 and in 2000, BASF Aktiengesellschaft as well as BASF Australia Ltd.
entered into agreements with the United States Department of Justice, the
Canadian Competition Bureau and the Australian Department of Justice by which
BASF Aktiengesellschaft and BASF Australia Ltd. agreed to plead guilty to
certain violations of antitrust laws relating to the sale of vitamin products in
respective countries. The relevant courts accepted the guilty pleas and the
recommended fines of $225 million, C$19 million and A$7.5 million. On
November 21, 2001, the European Commission imposed a fine of E296.2 million
against BASF Aktiengesellschaft. BASF has appealed against this decision.
Proceedings are still running in Mexico, Brazil and Australia (relating only
to vitamin C).
BASF has agreed to settle the class action lawsuits with plaintiffs that
purchased products directly from vitamins manufacturers. Terms of the settlement
agreement call for seven vitamins manufacturers to contribute $1.17 billion. The
Company's share of this settlement is $287 million. The United States district
court for the District of Columbia granted final approval of the proposed
settlement on March 28, 2000. Because numerous large customers have elected to
opt out of the proposed settlement, BASF Aktiengesellschaft's share has been
reduced to $90 million including fees of plaintiffs attorneys. Individual
settlements with a series of such customers have been concluded. The payments
for these settlements are within the range indicated above.
139
State court actions on behalf of indirect purchasers are proceeding
separately in approximately 28 states. BASF has agreed to settle state class
action law suits in 24 states. Terms of the settlement agreements call for six
vitamin manufacturers to contribute up to $396 million, subject to approval of
the settlements in various state courts. If the settlements are finally
approved, BASF Aktiengesellschaft will be obligated to pay up to $97 million of
the total amount. All settlements have been granted preliminary approval.
Further claims for damages have been filed in Canada, New Zealand and in
Australia.
The company has established provisions for the costs that they can currently
anticipate in excess of the amounts agreed upon and paid. BASF does not believe,
that the additional charges relating to unsettled vitamin antitrust proceedings
will have a substantial impact on the profitability of the company.
SYNTHROID-REGISTERED TRADEMARK--RELATED CLAIMS
This proceeding concerned class action lawsuits against Knoll Pharmaceutical
Company (KPC) of BASF's Pharmaceutical business, which was discontinued in 2001.
The lawsuits challenged Knoll's delaying publication of a study comparing
Synthroid-Registered Trademark- to certain branded and generic products.
Final approval of a proposed 1997 settlement was not granted. Knoll
subsequently negotiated a new proposed settlement with consumers, and
third-party payors providing for a payment of $25.5 million in addition to the
$98 million paid into escrow in late 1997 (plus the accrued interest thereon).
The United States District Court of Chicago granted final approval of the new
proposed settlement on August 4, 2000. A number of appeals have been filed. On
August 31, 2001, the United States Court of Appeals granted final confirmation
of the settlement. However, the district court needs to determine attorneys'
fees and costs, before the payment is made.
ADDITIONAL PROCEEDINGS
In 2001, class action lawsuits against BASF Aktiengesellschaft and some of
its affiliates were filed at United States courts. It was alleged that sales of
automotive refinish coatings had violated antitrust laws. BASF considers these
allegations to be unfounded and will consequently file for dismissal of the
lawsuits.
OTHER PROCEEDINGS
In 2001, BASF Aktiengesellschaft and certain of its subsidiaries have been
named defendants in numerous class action law suits alleging violations of the
Sherman Act and state statutes in connection with the sale of automotive
refinish coatings. Based on BASF's internal investigation these law suits are
without any merits, and BASF will, therefore, file motions to dismiss.
DIVIDEND POLICY
The Board of Executive Directors and the Supervisory Board of BASF
Aktiengesellschaft propose dividends based on BASF Aktiengesellschaft's year-end
unconsolidated financial statements. The proposal is then voted on at BASF's
Annual Meeting. The Annual Meeting is usually convened during the second quarter
of each year.
Since all BASF Shares are in bearer form, dividends are either remitted to
the custodian bank on behalf of the stockholder, generally within two days
following the Annual Meeting, or, in the case of stockholders personally
possessing certificates, available immediately following the Annual Meeting upon
submission of the dividend coupon therefor at the offices of BASF
Aktiengesellschaft in Ludwigshafen, Germany, or the offices of BASF
Aktiengesellschaft's appointed paying agents.
140
See "Item 10. Additional Information" for further information. Record holders of
BASF's American Depositary Receipts (ADRs) on the dividend record date will be
entitled to receive payment in full of the declared dividend in respect of the
year for which it is declared. Cash dividends payable to ADR holders will be
paid to The Bank of New York, as depositary, in euros and, subject to certain
exceptions, will be converted by the depositary into U.S. dollars. The amount of
dividends received by holders of ADRs may be affected by fluctuations in
exchange rates. See "Item 3 -- Exchange Rate Information" for further
information.
BASF Aktiengesellschaft expects to continue to pay dividends, although there
can be no assurance as to the particular amounts that would be paid from year to
year. The payment of future dividends will depend on BASF's financial condition.
See "Item 5. Operating and Financial Review and Prospects."
SIGNIFICANT CHANGES
Except as otherwise disclosed in this Annual Report, there has been no
material change in the financial position of BASF Aktiengesellschaft since
December 31, 2001.
141
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ITEM 9. THE OFFER AND LISTING
LISTING DETAILS
PRINCIPAL MARKET FOR BASF SHARES
The principal trading market for BASF Shares is the Frankfurt Stock
Exchange. BASF Shares are also traded on the other German stock exchanges,
namely Berlin, Bremen, Dusseldorf, Hamburg, Hanover, Munich and Stuttgart. In
addition, BASF Shares are traded on the London, Paris and Swiss stock exchanges.
Since June 7, 2000, American Depositary Receipts (ADRs), each representing
one BASF Share, have been traded on the New York Stock Exchange (NYSE) under the
trade symbol "BF."
Options on BASF Shares are traded on Eurex, the German-Swiss derivatives
market jointly owned and operated by Deutsche Borse AG and the Swiss Stock
Exchange.
TRADING ON THE FRANKFURT STOCK EXCHANGE
The Frankfurt Stock Exchange, which is operated by Deutsche Borse AG, is the
largest of the eight German stock exchanges. The aggregate annual turnover of
the Frankfurt Stock Exchange in 2001 amounted to E3.81 billion (based on the
exchange's practice of separately recording the sale and purchase components
involved in any trade) for both equity and debt instruments. The Frankfurt Stock
Exchange is, in terms of turnover in 2001, the third largest stock exchange in
the world, after the New York Stock Exchange (NYSE) and the Nasdaq National
Market.
In 2001, trading on the Frankfurt Stock Exchange accounted for approximately
86% of the turnover in exchange-traded securities in Germany. As of
December 31, 2001, the equity securities of 5,777 companies, of which 4,865 were
non-German, were traded on the Frankfurt Stock Exchange.
Trading on the floor of the Frankfurt Stock Exchange starts each business
day at 9:00 a.m. and continues until 8:00 p.m., Central European Time. Markets
in listed securities are generally of the auction type, but listed securities
also change hands in interbank dealer markets off the Frankfurt Stock Exchange.
Price formation is by open outcry, as determined by state-appointed specialists
(AMTLICHE KURSMAKLER), who are themselves exchange members but are not permitted
to deal with the public. Prices for active stocks are quoted continuously during
stock exchange hours.
BASF Shares are also traded on Xetra-Registered Trademark- (Exchange
Electronic Trading), an integrated computerized trading system operated by the
Frankfurt Stock Exchange. Xetra is available during the operating hours of the
Frankfurt Stock Exchange to brokers and banks that are members of a German stock
exchange. Xetra is integrated into the Frankfurt Stock Exchange and is subject
to its rules and regulations.
Transactions on the Frankfurt Stock Exchange (including transactions within
the Xetra system) settle on the second business day following trading.
Transactions on the Frankfurt Stock Exchange, which may occur when one of the
parties to the transaction is foreign, are generally settled on the second
business day following trading. The parties, however, may agree upon a different
settlement period. German banks' standard terms and conditions for securities
transactions require that all customer orders to buy or sell listed securities
be executed on a stock exchange unless a customer gives specific instructions to
the contrary.
The Hessian Exchange Supervisory Authority and the Trading Monitors of the
Frankfurt Stock Exchange both monitor trading on the Frankfurt Stock Exchange.
The exchange may suspend a quotation if orderly stock exchange trading is
temporarily endangered or if a suspension is
143
necessary to protect the public interest. Trading activities are also monitored
by the German Federal Supervisory Authority for Securities Trading
(BUNDESAUFSICHTSAMT FUR DEN WERTPAPIERHANDEL).
BASF Shares are included in the DEUTSCHE AKTIENINDEX (DAX), the leading
index of trading on the Frankfurt Stock Exchange. The DAX is a continuously
updated, capital-weighted performance index of 30 highly capitalized German
companies. The shares included in the DAX are selected on the basis of share
turnover and market capitalization.
As of September 20, 1999, BASF Shares are also included in the Dow Jones
EURO STOXX(SM) 50 Index comprised of the 50 companies with the highest market
capitalization in countries participating in the European Monetary Union (EMU).
BASF Shares are also included in the Dow Jones STOXX600 Index comprised of
some 600 companies located in Europe. BASF Shares are also included in the Dow
Jones EURO STOXX Index comprised of some 313 companies in 11 of the 12 countries
that are members of the EMU. This index is a component of the 16-country Dow
Jones STOXX 600 Index. STOXX Ltd. is the operating company of the Dow Jones
STOXX Indexes. BASF Shares are also part of the S&P Global 100 Index, which is
comprised of 100 large companies with global businesses from around the world.
The S&P Global 100 Index is sponsored by Standard & Poor's and the New York
Stock Exchange.
According to statistics provided by the Frankfurt Stock Exchange, the
average daily volume of BASF Shares traded on the exchange in 2001 was 6,980,228
shares.
SHARE PRICE HISTORY
The table below shows for the periods indicated the high and low official
daily quotation for BASF Shares on the Frankfurt Stock Exchange as reported by
Deutsche Borse AG and also the high and low of the DAX. See "Item 3. Key
Information" for information on exchange rates between the U.S. dollar and the
euro during the periods in this table.
PRICE PER BASF SHARE DAX
----------------------------- -----------------------
HIGH LOW HIGH LOW
----------- ----------- -------- --------
QUARTERLY HIGH AND LOWS
1997
First quarter................................ E34.15 E28.71 3,460.59 2,848.77
Second quarter............................... E35.33 E31.04 3,805.29 3,215.24
Third quarter................................ E37.66 E30.91 4,438.93 3,819.85
Fourth quarter............................... E34.46 E28.58 4,347.24 3,567.22
1998
First quarter................................ E41.82 E30.55 5,102.35 4,087.28
Second quarter............................... E44.41 E39.24 5,915.13 5,018.67
Third quarter................................ E47.50 E31.19 6,171.43 4,433.87
Fourth quarter............................... E36.25 E29.81 5,121.48 3,896.08
1999
First quarter................................ E34.35 E30.19 5,443.62 4,678.72
Second quarter............................... E42.60 E34.50 5,492.36 4,845.45
Third quarter................................ E45.00 E39.70 5,655.30 4,999.24
Fourth quarter............................... E52.20 E39.50 6,958.14 5,156.28
2000
First quarter................................ E51.80 E42.15 8,064.97 6,474.92
Second quarter............................... E49.75 E40.01 7,555.92 6,834.88
Third quarter................................ E45.55 E39.55 7,480.14 6,682.92
Fourth quarter............................... E48.45 E40.15 7,136.30 6,200.71
2001
First quarter................................ E50.45 E42.80 6,795.14 5,388.02
Second quarter............................... E49.83 E43.60 6,278.90 5,553.46
Third quarter................................ E47.70 E31.00 6,109.50 3,787.23
Fourth quarter............................... E44.10 E37.21 5,271.29 4,239.97
144
MONTHLY HIGH AND LOWS OF THE LAST SIX MONTHS
HIGH LOW
----------- -----------
2001
September..................................... E46.89 E31.00
October....................................... E41.07 E37.21
November...................................... E43.33 E37.70
December...................................... E44.10 E40.56
2002
January....................................... E45.30 E41.85
February...................................... E45.00 E40.75
---------------
(1) Effective January 2, 2001 the Frankfurt Stock Exchange no longer determines
official daily quotes for odd-lot trades (KASSAKURSE). As of this date the
stock price information provided above is based on Xetra, the integrated
computerized trading system through which the Frankfurt Stock Exchange
conducts trading in equity securities.
AMERICAN DEPOSITARY RECEIPTS
BASF Aktiengesellschaft entered into a deposit agreement with The Bank of
New York, as depositary, for the issuance of American Depositary Receipts
evidencing American Depositary Shares (ADSs). Each ADS represents one BASF Share
or evidence of the right to receive one BASF Share.
The following table sets forth, for the period indicated, the high and low
sales price per BASF ADR, as reported on the New York Stock Exchange Composite
Tape.
HIGH LOW
------------------- -------------------
2001
September.......................... USD 42.00 USD 28.80
October............................ USD 37.15 USD 33.76
November........................... USD 38.78 USD 34.19
December........................... USD 39.44 USD 36.28
2002
January............................ USD 39.60 USD 37.10
February........................... USD 39.06 USD 35.85
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ITEM 10. ADDITIONAL INFORMATION
ARTICLES OF ASSOCIATION
BASF incorporates herein all information regarding its Articles of
Association by reference to its Registration Statement on Form 20-F (File
No. 1-15909), as filed with the Securities and Exchange Commission on May 25,
2000.
ACQUISITION OF BASF SHARES BY BASF AKTIENGESELLSCHAFT
Under the German Stock Corporation Act, a stock corporation may acquire its
own shares in a limited number of exceptional cases, including if so authorized
by a shareholder resolution adopted at a General Shareholders' Meeting. At the
Annual Meetings of BASF Aktiengesellschaft held on April 27, 2000 and April 26,
2001, the shareholders authorized the Board of Executive Directors to buy back
BASF Shares representing up to 10% of BASF Aktiengesellschaft's outstanding
share capital. The Board of Executive Directors may either cancel the shares
re-bought, reducing the company's outstanding share capital, re-sell the shares
subject to a further resolution adopted at an Annual Meeting, or use the shares
to service option rights granted to participants of the BASF Stock Option
Program. In 2001, BASF Aktiengesellschaft had bought 30,775.000 BASF Shares, or
approximately 5.0% of the then outstanding BASF Shares. The Board of Executive
Directors has cancelled 25,975,000 of these re-bought BASF Shares, reducing the
company's outstanding share capital. On December 18, 2001, the Board of
Executive Directors also decided to cancel the remaining 4,800,000 re-bought
BASF Shares.
MATERIAL CONTRACTS
On March 20, 2000, BASF acquired from American Home Products Corp. of
Madison, New Jersey, the entire crop protection business conducted by American
Cyanamid Company, a subsidiary of the seller. The transaction closed on July 1,
2000, after anti-trust clearance had been received from the Federal Trade
Commission and the European Union Commission. It was consummated through asset
and share transactions in more than 65 jurisdictions worldwide, including the
United States. BASF acquired all inventories, manufacturing facilities, customer
relations, research and development activities, know-how, intellectual property
rights, product registrations, accounts receivable and all other tangible and
intangible assets. BASF also assumed contractual rights and obligations,
provided the assets and contracts were primarily related to the seller's crop
protection business. All employees working primarily for the acquired business
were offered employment by BASF. The acquisition contract provides for
representations and warranties, including indemnity provisions, as is customary
in this kind of transaction. Major claims triggering the seller's responsibility
to indemnify BASF have not emerged as of the date of this Annual Report. The
total consideration to be paid by BASF under the acquisition contract consisted
of a cash payment of $3.8 billion and the assumption of $94 million of debt. The
cash payment was adjusted as of the closing date pursuant to the terms of the
acquisition agreement and all amounts due have been paid in full.
On December 14, 2000, BASF and Abbott Laboratories Inc. of Abbott Park,
Illinois, entered into an agreement for the sale of BASF's worldwide non-generic
pharmaceuticals business to Abbott Laboratories. Under the agreement, BASF
transferred the shares in its subsidiaries conducting its worldwide non-generic
pharmaceuticals business, excluding the production of certain pharmaceutical
active ingredients, to Abbott Laboratories. The purchase price was $6.9 billion
on a cash and debt-free basis, to be adjusted by the balance of cash and debt at
closing. The agreement provides for customary representations and indemnities
capped at 25% of the purchase price. The transaction closed on March 2, 2001,
after anti-trust clearance had been received from the Federal Trade Commission
and the European Union Commission.
147
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are, except in limited embargo circumstances pursuant to resolutions
adopted by the United Nations or the European Union, no legal restrictions in
Germany on international capital movements and foreign exchange transactions.
For statistical purposes only, every individual or corporation residing in
Germany (a "Resident") must report to the German Central Bank (DEUTSCHE
BUNDESBANK), subject only to certain immaterial exceptions, any payment received
from or made to or on account of an individual or corporation residing outside
Germany (a "Nonresident") if such payment exceeds E12,500 or the equivalent in a
foreign currency. In addition, Residents must report any claims against or any
liabilities payable to Nonresidents if such claims or liabilities in the
aggregate exceed E1,500,000 or the equivalent in a foreign currency during any
one month.
Neither German Law nor the Articles of Association (SATZUNG) of BASF
Aktiengesellschaft impose any limitations on the rights of Nonresident or
foreign owners to hold or vote BASF Shares, including those represented by
American Depositary Receipts (ADRs).
TAXATION
The following is a summary of material U.S. federal income and German tax
considerations relating to the ownership of American Depositary Shares (ADSs) or
BASF Shares by an Eligible U.S. Holder (as defined below).
The discussion is based on tax laws of the United States and Germany as in
effect on the date of this Annual Report, including the Convention between the
United States of America and the Federal Republic of Germany for the Avoidance
of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on
Income and Capital and to Certain Other Taxes (the "Income Tax Treaty"), and the
Convention Between the United States of America and the Federal Republic of
Germany for the Avoidance of Double Taxation with respect to Taxes on Estates,
Inheritances, and Gifts (the "Estate Tax Treaty"). All such laws are subject to
change, possibly with retroactive effect, and to different interpretations. The
discussion also is based in part upon the representations of the Depositary and
the assumption that each obligation in the Deposit Agreement and any related
agreement will be performed in accordance with its terms.
The discussion does not purport to be a comprehensive description of all the
tax considerations that may be relevant to the ownership of ADSs or BASF Shares.
In particular, it does not address any aspect of U.S. federal tax law other than
income taxation, or any aspect of German tax law other than income, gift,
inheritance and wealth taxation, and it does not cover the tax laws of any state
or municipality, or any jurisdiction outside the United States and Germany.
Moreover, the discussion does not consider any specific facts or circumstances
that may apply to a particular Eligible U.S. Holder, and does not take into
account any special tax rules to which certain holders (including, without
limitation, tax-exempt organizations, persons subject to the alternative minimum
tax, securities broker-dealers, financial institutions, persons holding ADSs or
BASF Shares in a hedging transaction or as part of a straddle or conversion
transaction, persons having a functional currency other than the U.S. dollar,
persons that own, or that are treated as owning, 10% or more of the voting power
of our stock and persons that received ADSs or BASF Shares pursuant to the
exercise of employee stock options or otherwise as compensation) may be subject.
Owners of ADSs or BASF Shares are urged to consult their tax advisers
regarding the U.S. federal, state, local, German and other tax consequences of
owning and disposing of ADSs or BASF Shares. In particular, owners of ADSs or
BASF Shares are urged to consult their tax advisers to confirm their status as
Eligible U.S. Holders and the consequence to them if they do not so qualify.
148
For purposes of the discussion that follows, an "Eligible U.S. Holder" is
any beneficial owner of ADSs or BASF Shares who or which (i) is a resident of
the United States for the purposes of the Income Tax Treaty, such as a U.S.
citizen or U.S. corporation, (ii) is not also a resident of the Federal Republic
of Germany for the purposes of the Income Tax Treaty, (iii) owns the ADSs or
BASF Shares as capital assets, (iv) does not hold ADSs or BASF Shares as part of
the business property of a permanent establishment located in Germany or as part
of a fixed base of an individual located in Germany and used for the performance
of independent personal services, (v) is entitled to benefits under the Income
Tax Treaty with respect to income and gain derived in connection with the ADSs
or BASF Shares, and (vi) if not an individual, is not subject to the limitation
on benefits restrictions in the Income Tax Treaty.
In general, for U.S. federal income tax purposes, holders of ADRs (as
defined below) evidencing ADSs will be treated as the owners of the BASF Shares
represented by those ADSs.
TAXATION OF DIVIDENDS
Under U.S. federal income tax law, Eligible U.S. Holders are generally
required to include in their gross income, as ordinary dividend income, the
gross amount of any distribution paid from the current or accumulated earnings
and profits of BASF (as determined under U.S. federal income tax principles).
The amount of dividend income for U.S. federal income tax purposes is not
reduced by German taxes withheld from a dividend distribution in respect of the
ADSs or BASF Shares. Eligible U.S. Holders that are corporations will not be
entitled to the dividends-received deduction with respect to such distributions.
As a German corporation, BASF is required to withhold taxes on dividends
paid to German resident and nonresident stockholders. Beginning with dividends
paid in 2002, the required withholding rate applicable to BASF dividends is 20%
plus a solidarity surcharge of 5.5% thereon, equal to 1.1% of the gross dividend
(i.e., 5.5% of the 20% tax). Accordingly, a total German withholding tax of
21.1% of the gross dividend is required. These withholding tax rates reflect
changes made in the German tax law that are effective with respect to BASF
dividends paid in 2002 and thereafter. BASF dividends paid in prior years were
subject to 25% withholding tax plus the 5.5% solidarity surcharge for a total of
26.375% withholding tax.
An Eligible U.S. Holder is entitled to a refund of a portion of the
withholding tax, reducing the net German tax rate to that permitted under the
Income Tax Treaty, i.e., 15% of the gross dividend. Dividends paid by BASF in
prior years were subject to the German imputation system then in effect. Under
that system, German resident individuals received a tax credit based on
qualifying dividends received from German corporations and U.S. residents
received a related Treaty benefit reducing the German tax on such dividends to
10%. With repeal of the imputation credit for dividends paid in 2002, the
special 10% Treaty rate no longer applies.
The portion of the German income tax withheld that cannot be refunded under
the Income Tax Treaty may be claimed either as a foreign tax credit against the
U.S. federal income tax liability of an Eligible U.S. Holder or as a deduction
in computing taxable income. For U.S. foreign tax credit purposes, dividends
received in respect of the ADSs or BASF Shares generally will be treated as
passive income (or, in some circumstances, financial services income) derived
from sources outside the United States. The rules and limitations relating to
foreign tax credits are complex, and Eligible U.S. holders should consult their
own tax advisors regarding the availability of foreign tax credits and the
application of the foreign tax credit limitations to their particular
situations.
To illustrate the foregoing, for each $100 gross amount of dividend paid by
BASF in 2002 to an Eligible U.S. Holder, $21.10 of German tax would be withheld,
of which $6.10 would be refundable. For U.S. federal income tax purposes, the
U.S. Holder would report dividend income of $100 (to the
149
extent paid out of current and accumulated earnings and profits) and foreign
taxes paid of $15, for purposes of calculating the Foreign Tax Credit or the
deduction for taxes paid.
For U.S. federal income tax purposes, dividends paid by BASF in euros are
included in the gross income of an Eligible U.S. Holder in a U.S. dollar amount
calculated by reference to the exchange rate in effect on the date the dividends
(including the deemed refund of German corporate tax) are received by such
Eligible U.S. Holder or, in the case of ADSs, by the Depositary. If a dividend
paid in euros is converted into U.S. dollars on the date received, Eligible U.S.
Holders generally should not be required to recognize foreign currency gain or
loss in respect of the dividend.
GENERAL REFUND PROCEDURES REGARDING GERMAN WITHHOLDING TAX
Pursuant to administrative procedures, claims for refunds under the Income
Tax Treaty generally must be submitted to the German Federal Tax Authority
(BUNDESAMT FUR FINANZEN) either individually by an Eligible U.S. Holder, or
collectively (introduced on a trial basis) by the Depositary (or a custodian as
its designated agent) on behalf of all Eligible U.S. Holders owning ADSs. Claims
must be filed within four years of the end of the calendar year in which the
dividend was received.
The collective refund procedure may not be available for eligible U.S.
Holders entitled to refunds in excess of E150 for the calendar year. In such
event, those holders must file separate claims or may qualify for the simplified
refund procedure described below. Details of the collective refund procedure
will be available from the Depositary.
Individual claims for refund have to be made on a special German claim form
that must be filed with the German Federal Tax Authority at Bundesamt fur
Finanzen, Friedhofstrasse 1, 53221 Bonn, Germany. The German claim-for-refund
form may be obtained from the German Federal Tax Authority at the same address
where applications are filed, or from the Embassy of the Federal Republic of
Germany at 4645 Reservoir Road, N.W., Washington, D.C. 20007-1998. Forms can
also be obtained from the Office of the Assistant Commissioner (International),
Internal Revenue Service, 950 L'Enfant Plaza South, SW, Washington, DC 20024,
Attention: Taxpayer Service Division.
As part of the individual refund claim, an Eligible U.S. Holder must submit
to the German Federal Tax Authority the original bank voucher (or certified copy
thereof) issued by the paying entity documenting the tax withheld, and an
official certification on IRS Form 6166 of such Eligible U.S. Holder's last
filed U.S. federal income tax return. IRS Form 6166 may be obtained by sending a
request to the Internal Revenue Service Center, Foreign Certification Request,
P.O. Box 16347, Philadelphia, PA 19114-0447. Requests for certification are to
be made in writing and must include the Eligible U.S. Holder's name, mailing
address and social security or employer identification number, the form number
for the relevant U.S. federal income tax return and the tax period for which the
certification is requested.
The Internal Revenue Service will send the certification directly to the
German Federal Tax Authority if requested by the Eligible U.S. Holder. If no
such request is made, the Internal Revenue Service will send a certificate on
IRS Form 6166 to the Eligible U.S. Holder, which then must submit the
certification with its claim for refund. The Internal Revenue Service
certification is valid for three years and need only be resubmitted in a fourth
year in the event of a subsequent application for refund.
SIMPLIFIED REFUND PROCEDURE REGARDING GERMAN WITHHOLDING TAX IN RESPECT OF ADSS
OR BASF SHARES DEPOSITED WITH THE DEPOSITORY TRUST COMPANY IN NEW YORK
As of May 7, 1999, Eligible U.S. Holders may make applications for refunds
payable under the Income Tax Treaty by using a simplified refund procedure
instead of the general refund procedures
150
described above. Eligible U.S. Holders may use the simplified refund procedure
only with respect to taxes withheld on dividends in respect of ADSs or BASF
Shares deposited with The Depository Trust Company in New York. Under the
simplified refund procedure, refund applications will be filed in a special
(simplified) collective procedure with the aid of the "Elective Dividend
Service" (the "EDS") installed at The Depository Trust Company.
In the EDS system, the participants maintaining accounts at The Depository
Trust Company report the positions held by them at the relevant cutoff date that
qualify for share dividends subject to withholding tax at the appropriate rates
under the Income Tax Treaty. The reports of the individual participants will be
compiled by The Depository Trust Company into a collective application and
submitted to the German Federal Tax Authority for conditional refund. After
initially checking only arithmetical correctness, the German Federal Tax
Authority will make a refund as required to The Depository Trust Company. The
refund will be made at the earliest on the due date of the withholding tax
pursuant to German tax law.
The Depository Trust Company will distribute the refund amounts in
accordance with EDS data to the participants to be passed on to the beneficial
owners.
TAXATION OF CAPITAL GAINS
Upon a sale or other taxable disposition of ADSs or BASF Shares, an Eligible
U.S. Holder will recognize a gain or loss for U.S. federal income tax purposes
in an amount equal to the difference between the amount realized from the sale
or other disposition, and the Eligible U.S. Holder's tax basis in the ADSs or
BASF Shares. Such gain or loss generally will be treated as a capital gain or
loss derived from U.S. sources, and will be a long-term capital gain or loss if
the Eligible U.S. Holder's holding period for the ADSs or BASF Shares exceeds
one year. In the case of certain Eligible U.S. Holders (including individuals),
long-term capital gains are taxable at preferential U.S. federal income tax
rates. The deduction of capital losses is subject to certain limitations under
U.S. federal income tax law.
Deposits and withdrawals of BASF Shares in exchange for ADSs generally will
not be considered a taxable event for U.S. federal income tax purposes.
Under the Income Tax Treaty, an Eligible U.S. Holder will not be liable for
German tax on capital gains realized or accrued on the sale or other disposition
of ADSs or BASF Shares.
GIFT AND INHERITANCE TAXES-GERMAN TAXATION
An Eligible U.S. Holder who is an individual and whose domicile is
determined to be in the United States for purposes of the Estate Tax Treaty will
not be subject to German inheritance and gift tax (the equivalent of the U.S.
federal estate and gift tax) upon the individual's death or upon the making of a
gift unless the ADSs or BASF Shares (i) are part of the business property of a
permanent establishment located in Germany or (ii) are part of the assets of a
fixed base of an individual located in Germany and used for the performance of
independent personal services. An individual's domicile in the United States,
however, does not prevent imposition of German inheritance and gift tax with
respect to an heir, donee, or other beneficiary who is domiciled in Germany at
the time the individual died or the gift was made.
The Estate Tax Treaty also provides a credit against U.S. federal estate and
gift tax liability for the amount of inheritance and gift tax paid to Germany,
subject to certain limitations, in a case where the ADSs or BASF Shares are
subject to German inheritance or gift tax and U.S. federal estate or gift tax.
151
OTHER GERMAN TAXES
There are no German transfer, stamp or other similar taxes that would apply
to Eligible U.S. Holders that purchase or sell ADSs or BASF Shares. The wealth
tax is no longer levied in respect of any taxation periods that start on or
after January 1, 1997. For collection periods from 1998 on, the trade capital
tax has been abrogated.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Dividends on ADSs or BASF Shares, and payments of the proceeds of a sale of
ADSs or BASF Shares, paid within the United States or through certain
U.S.-related intermediaries are subject to Internal Revenue Service information
reporting, and may be subject to backup withholding at a 31% rate unless the
holder (i) is a corporation or other exempt recipient or (ii) provides a correct
taxpayer identification number, certifies that no loss of exemption from backup
withholding has occurred and otherwise complies with the backup withholding
requirements.
DOCUMENTS ON DISPLAY
BASF is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended. In accordance with these requirements, BASF files
reports and other information with the Securities and Exchange Commission. These
materials, including this Annual Report and the exhibits thereto, may be
inspected and copied at the Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 233 Broad
Street, New York, New York 10279. Copies of the materials may be obtained from
the Public Reference Room of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The public may obtain information on
the operation of the Commission's Public Reference Room by calling the
Commission in the United States at 1-800-SEC-0330. The Commission also maintains
a web site at www.sec.gov that contains reports, proxy statements and other
information regarding registrants that file electronically with the Commission.
BASF's Annual Report and some of the other information submitted by BASF to the
Commission may be accessed through this web site. In addition, material filed by
BASF can be inspected at the offices of the New York Stock Exchange at 20 Broad
Street, New York, New York 10005.
152
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
BASF is exposed to foreign currency and interest rate risks in the normal
course of business. In cases where BASF intends to hedge against these risks,
financial derivatives are used, including forward exchange contracts, currency
options, interest rate/currency swaps or combined instruments. In addition,
derivative instruments are used to replace transactions in original financial
instruments, such as shares or fixed-income securities.
Exclusive use is made of commonly used instruments with sufficient market
liquidity. Derivative financial instruments are only used if they have
corresponding underlying positions arising from the operating business, cash
investments and financing. The leverage effect that can be achieved with
derivatives is deliberately not used. The derivative instruments held by BASF
are solely held for purposes other than trading.
Where financial derivatives have a positive market value, BASF is exposed to
credit risks in the event of non-performance by their counterparties. The credit
risk is minimized by exclusively trading contracts with major creditworthy
financial institutions.
To ensure efficient risk management, market risks are centralized at BASF
Aktiengesellschaft and BASF Group companies designated for this purpose. BASF
has developed and implemented internal guidelines based on the principles of
separation of the placement function from the settlement function for derivative
instruments.
The risks arising from changes in exchange rates and interest rates as a
result of the underlying transactions and the derivative transactions concluded
to hedge them are monitored constantly. For this purpose, market quotations or
computer or mathematical models are used to determine the current market values
not only of the underlying transactions but also of the derivative transactions
and these are compared with each other. Where derivative instruments were
entered into as replacement for original financial instruments, market trends
are also monitored constantly.
INTEREST RATE RISK MANAGEMENT
BASF employs interest rate sensitive financial instruments to manage the
liquidity and cash needs of its operations. Financial liabilities consist of
bank loans (44% of financial liabilities), which BASF group companies worldwide
took from numerous local banks in their various home currencies. Additionally, a
fixed rate euro bond is outstanding (44% of financial liabilities) as well as a
number of variable and fixed-rate U.S. dollar-bonds denominated infrastructure
and environmental bonds with a preferred tax status in the United States (11% of
financial liabilities). The remaining debt consists of a number of other bonds
or commercial paper (1% of financial liabilities).
In addition to the interest rate risk exposure resulting from financial
liabilities described above, BASF entered into a number of interest derivatives,
combined interest/currency derivatives or combined interest/equity derivatives
with banks. In most cases BASF is obliged to pay a fixed rate in a foreign
currency and receives a variable rate in euros. Such swaps were concluded to
optimize the internal financing of group companies worldwide and to offer the
internal parties the desired credit terms and cash flows. BASF also entered into
a swap contract for which BASF pays a quarterly variable rate and receives a
positive equity index performance. That instrument is described in greater
detail under "Other Derivatives" and "Marketable Securities" below.
153
The following information on debt is presented in euro equivalents, which is
BASF's reporting currency.
PRINCIPAL (NOTIONAL) AMOUNT
INTEREST RATE -- DECEMBER 31, 2000
EXPECTED MATURITY DATE
(EUROS IN MILLIONS) FAIR VALUE
----------------------------------------------------------------- DECEMBER 31,
2001 2002 2003 2004 2005 THEREAFTER TOTAL 2000
-------- -------- -------- -------- -------- ---------- -------- ------------
DEBT, INCLUDING CURRENT PORTION
U.S. DOLLAR (USD)
Fixed rate........................... 4,454.7 6.8 20.2 20.3 11.7 18.2 4,531.9 4,529.3
Weighted avg. interest rate (fixed).. 6.3% 6.8% 7.4% 7.4% 7.5% 6.8%
Variable rate........................ 37.4 80.6 -- -- 16.1 240.4 374.5 374.5
Interest rate (variable)............. 7.5% 7.9% -- -- 4.3% 4.9%
SUBTOTAL............................. 4,906.4 4,903.8
EURO (EUR)
Fixed rate........................... 680.9 5.3 4.6 2.7 1,251.3 13.2 1,957.9 1,986.7
Weighted avg. interest rate (fixed).. 4.8% 4.3% 3.1% 3.7% 5.7% 3.4%
Variable rate........................ 35.5 1.9 1.8 1.6 1.4 0.8 43.0 43.0
Interest rate (variable)............. 4.0% 3.0% 3.0% 3.0% 3.0% 0.0%
SUBTOTAL............................. 2,000.9 2,029.7
CHINESE RENMINBI (CNY)
Fixed rate........................... 177.0 -- -- -- -- -- 177.0 177.0
Weighted avg. interest rate (fixed).. 5.6% -- -- -- -- --
Variable rate........................ 15.3 11.7 19.5 -- -- -- 46.5 46.5
Interest rate (variable)............. 6.1% 6.0% 5.9% -- -- --
SUBTOTAL............................. 223.5 223.5
OTHER CURRENCIES
Fixed rate........................... 304.8 16.1 12.0 3.3 8.6 25.6 370.3 370.3
Weighted avg. interest rate (fixed).. 8.0% 12.4% 9.0% 8.1% 6.2% 7.0%
Variable rate........................ 386.8 1.1 1.1 -- 1.8 -- 390.8 390.8
Interest rate (variable)............. 13.4% 14.0% 14.0% -- 2.1% --
SUBTOTAL............................. 761.1 761.1
------- -------
TOTAL................................ 7,891.9 7,918.1
154
PRINCIPAL (NOTIONAL) AMOUNT
INTEREST RATE -- DECEMBER 31, 2001
EXPECTED MATURITY DATE
(EUROS IN MILLIONS) FAIR VALUE
----------------------------------------------------------------- DECEMBER 31,
2002 2003 2004 2005 2006 THEREAFTER TOTAL 2001
-------- -------- -------- -------- -------- ---------- -------- ------------
DEBT, INCLUDING CURRENT PORTION
U.S. DOLLAR (USD)
Fixed rate........................... 291.9 46.9 -- -- -- 28.3 367.1 367.8
Weighted avg. interest rate (fixed).. 6.2% 8.2% -- -- -- 5.0%
Variable rate........................ 44.6 75.5 21.3 12.4 -- 282.2 436.0 436.0
Interest rate (variable)............. 3.7% 3.5% 3.5% 3.4% 1.9%
SUBTOTAL............................. 803.1 803.8
EURO (EUR)
Fixed rate........................... 11.4 1.0 2.6 1,250.2 0.3 11.6 1,277.1 1,318.1
Weighted avg. interest rate (fixed).. 4.7% 6.7% 4.4% 5.6% 5.1% 3.8%
Variable rate........................ 5.7 16.2 14.2 16.0 55.3 1.0 108.4 108.4
Interest rate (variable)............. 3.5% 5.0% 5.0% 4.7% 5.0% 5.0%
SUBTOTAL............................. 1,385.5 1,426.5
CHINESE RENMINBI (CNY)
Fixed rate........................... 132.1 -- -- -- -- -- 132.1 132.1
Weighted avg. interest rate (fixed).. 5.1% -- -- -- -- --
Variable rate........................ 4.1 20.6 -- -- -- -- 24.7 24.7
Interest rate (variable)............. 6.0% 5.9% -- -- -- --
SUBTOTAL............................. 156.8 156.8
OTHER CURRENCIES
Fixed rate........................... 53.0 12.5 14.2 27.0 -- -- 106.7 106.7
Weighted avg. interest rate (fixed).. 18.0% 7.9% 10.7% 7.0% -- --
Variable rate........................ 366.6 11.3 3.2 -- 1.8 -- 382.9 382.9
Interest rate (variable)............. 9.6% 13.4% 5.8% -- 3.2% --
SUBTOTAL............................. 489.6 489.6
------- -------
TOTAL................................ 2,835.0 2,876.7
Fixed rate euro debt due in 2005 includes the 5.75% Euro Bond issued by BASF
Aktiengesellschaft in 2000 with an amount of E1,250 million.
Other currencies at December 31, 2001, in which BASF has issued debt are
primarily the Korean won, the Malaysian ringgit and the Brazilian real.
155
The following information on derivatives is presented in euro equivalents,
which is BASF's reporting currency. The instruments' actual cash flows are
denominated in the currencies noted parenthetically.
INTEREST RATE SWAPS -- DECEMBER 31, 2000
EXPECTED MATURITY DATE
(EUROS IN MILLIONS)
----------------------------------------------------------------- TOTAL
2001 2002 2003 2004 2005 THEREAFTER AMOUNT FAIR VALUE
-------- -------- -------- -------- -------- ---------- -------- ----------
EURO (EUR)
Payer swap........................... 18 18 0.22
Weighted to average pay rate
(fixed)............................ 4.4%
Weighted average receive rate
(variable)......................... 4.8%
U.S. DOLLAR (USD)
Payer swap........................... 18 18 (0.09)
Weighted to average pay rate
(fixed)............................ 6.3%
Weighted average receive rate
(variable)......................... 5.9%
INTEREST RATE SWAPS -- DECEMBER 31, 2001
EXPECTED MATURITY DATE
(EUROS IN MILLIONS)
----------------------------------------------------------------- TOTAL
2002 2003 2004 2005 2006 THEREAFTER AMOUNT FAIR VALUE
-------- -------- -------- -------- -------- ---------- -------- ----------
U.S. DOLLAR (USD)
Payer swap........................... 15 15 (0.40)
Weighted to average pay rate
(fixed)............................ 6.3%
Weighted average receive rate
(variable)......................... 2.9%
The total volume of interest rate swaps decreased from E36 million in 2000
to E15 million in 2001.
INTEREST RATE AND CROSS CURRENCY SWAPS -- DECEMBER 31, 2000
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
----------------------------------------------------------------- TOTAL
2001 2002 2003 2004 2005 THEREAFTER AMOUNT FAIR VALUE
-------- -------- -------- -------- -------- ---------- -------- ----------
U.S. DOLLAR (USD)/GERMAN MARK (DEM)
Amount payable on maturity (USD)..... 56 56
Amount receivable on maturity
(DEM).............................. 45 45 (6.29)
Weighted average pay rate (fixed,
USD)............................... n.a.(1)
Weighted average receive rate (fixed,
DEM)............................... n.a.(1)
156
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
----------------------------------------------------------------- TOTAL
2001 2002 2003 2004 2005 THEREAFTER AMOUNT FAIR VALUE
-------- -------- -------- -------- -------- ---------- -------- ----------
Amount payable on maturity (USD)..... 215 215 301 65 796
Amount receivable on maturity
(DEM).............................. 141 159 254 55 609 (215.69)
Weighted average pay rate (fixed,
USD)............................... 7.6% 6.7% 4.9%(2) 9.6%
Weighted average receive rate
(variable, DEM).................... 4.7% 4.8% 5.4% 5.1%
Amount payable on maturity (USD)..... 12 41 53
Amount receivable on maturity
(DEM).............................. 10 36 46 (7.02)
Weighted average pay rate (variable,
USD)............................... 6.3% 6.0%
Weighted average receive rate
(variable, DEM).................... 4.9% 5.0%
U.S. DOLLAR (USD)/EURO (EUR)
Amount payable on maturity (USD)..... 108 108
Amount receivable on maturity
(EUR).............................. 117 117 9.07
Weighted average pay rate (variable,
USD)............................... 6.8%
Weighted average receive rate
(variable, EUR).................... 5.8%
Amount payable on maturity (USD)..... 215 215 430 107 967 1,934
Amount receivable on maturity
(EUR).............................. 224 209 407 103 919 1,862 (152.60)
Weighted average pay rate (fixed,
USD)............................... 7.3% 7.6% 6.1% 7.4% 7.3%
Weighted average receive rate
(variable, EUR).................... 4.7% 4.9% 3.6% 4.9% 5.2%
DUTCH GUILDER (NLG)/GERMAN MARK (DEM)
Amount payable on maturity (NLG)..... 3 3
Amount receivable on maturity
(DEM).............................. 3 3 (0.04)
Weighted average pay rate (fixed,
NLG)............................... 6.0%
Weighted average receive rate
(variable, DEM).................... 4.7%
157
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
----------------------------------------------------------------- TOTAL
2001 2002 2003 2004 2005 THEREAFTER AMOUNT FAIR VALUE
-------- -------- -------- -------- -------- ---------- -------- ----------
JAPANESE YEN (JPY)/GERMAN MARK (DEM)
Amount payable on maturity (JPY)..... 0(3) 0
Amount receivable on maturity
(DEM).............................. 0(3) 0 (0.09)
Weighted average pay rate (fixed,
JPY)............................... 2.4%
Weighted average receive rate
(variable, DEM).................... 4.7%
JAPANESE YEN (JPY)/EURO (EUR)
Amount payable on maturity (JPY)..... 1 30 3 34
Amount receivable on maturity
(EUR).............................. 1 34 3 38 3.36
Weighted average pay rate (fixed,
JPY)............................... 2.6% 1.3% 0.7%
Weighted average receive rate
(variable, EUR).................... 4.7% 4.8% 4.8%
CANADIAN DOLLAR (CAD)/GERMAN MARK
(DEM)
Amount payable on maturity (CAD)..... 14 14
Amount receivable on maturity
(DEM).............................. 11 11 (3.52)
Weighted average pay rate (fixed,
CAD)............................... 6.9%
Weighted average receive rate
(variable, DEM).................... 4.7%
BRAZILIAN REAL (BRL)/U.S. DOLLAR
(USD)
Amount payable on maturity (BRL)..... 10 10
Amount receivable on maturity
(USD).............................. 11 11 0.40
Weighted average pay rate (fixed,
BRL)............................... 1.8%
Weighted average receive rate (fixed,
USD)............................... 0%(4)
Amount payable on maturity (BRL)..... 69 69
Amount receivable on maturity
(USD).............................. 75 75 2.99
Weighted average pay rate (variable,
BRL)............................... 1.8%
Weighted average receive rate (fixed
USD)............................... 0%(4)
SPANISH PESETA (ESP)/GERMAN MARK
(DEM)
Amount payable on maturity (ESP)..... 24 24
Amount receivable on maturity
(DEM).............................. 24 24 (0.17)
Weighted average pay rate (fixed,
ESP)............................... 5.5%
Weighted average receive rate
(variable DEM)..................... 4.7%
158
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
----------------------------------------------------
2001 2002 2003 2004 2005 THEREAFTER TOTAL AMOUNT FAIR VALUE
-------- -------- -------- -------- -------- ---------- ------------ ----------
U.S. DOLLAR (USD)/KOREAN WON (KRW)
Amount payable on maturity (KRW)..... 102 102
Amount receivable on maturity
(USD).............................. 108 108 3.37
Weighted average pay rate (fixed,
KRW)............................... 8.1%
Weighted average receive rate
(variable USD)..................... 7.7%
------------------
(1) Amounts stated under USD/DEM-fixed/fixed in the column "Thereafter"
represent two swaps with predefined cashflows. Respective interest rates
have not been agreed upon by the parties.
(2) Total Amount of USD/DEM-fixed/variable includes a swap of $80 million with
an ascending interest rate from 2% to 19.5% per annum.
(3) The notional amount of this contract is less than E1 million.
(4) Interest rates on cross currency swaps between Brazilian real (BRL) and U.S.
dollars (USD) are quoted in Brazil as the difference between the higher BRL
interest rate and the lower USD interest rate. The difference is shown under
the BRL interest rate.
INTEREST RATE AND CROSS CURRENCY SWAPS -- DECEMBER 31, 2001
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
----------------------------------------------------
2002 2003 2004 2005 2006 THEREAFTER TOTAL AMOUNT FAIR VALUE
-------- -------- -------- -------- -------- ---------- ------------ ----------
U.S. DOLLAR (USD)/GERMAN MARK (DEM)
Amount payable on maturity (USD)..... 41 41
Amount receivable on maturity
(DEM).............................. 40 40 (8.50)
Weighted average pay rate (fixed,
USD)............................... n.a.(1)
Weighted average receive rate (fixed,
DEM)............................... n.a.(1)
Amount payable on maturity (USD)..... 154 159 252(2) 55 620
Amount receivable on maturity
(DEM).............................. 243 227 316 68 854 (276.44)
Weighted average pay rate (fixed,
USD)............................... 7.4% 6.7% 9.7% 9.6%
Weighted average receive rate
(variable, DEM).................... 3.8% 3.3% 4.4% 7.6%
U.S. DOLLAR (USD)/EURO (EUR)
Amount payable on maturity (USD)..... 224 490 407 103 290 629 2,143
Amount receivable on maturity
(EUR).............................. 227 510 454 113 340 681 2,325 (324.07)
Weighted average pay rate (fixed,
USD)............................... 7.3% 6.3% 6.7% 7.4% 6.5% 7.7%
Weighted average receive rate
(variable, EUR).................... 3.6% 4.3% 3.6% 3.6% 3.5% 3.8%
159
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
----------------------------------------------------
2002 2003 2004 2005 2006 THEREAFTER TOTAL AMOUNT FAIR VALUE
-------- -------- -------- -------- -------- ---------- ------------ ----------
DUTCH GUILDER (NLG)/GERMAN MARK (DEM)
Amount payable on maturity (NLG)..... 3 3
Amount receivable on maturity
(DEM).............................. 3 3 (0.67)
Weighted average pay rate (fixed,
NLG)............................... 6.0%
Weighted average receive rate
(variable, DEM).................... 4.5%
JAPANESE YEN (JPY)/EURO (EUR)
Amount payable on maturity (JPY)..... 34 2 36
Amount receivable on maturity
(EUR).............................. 28 2 30 5.89
Weighted average pay rate (fixed,
JPY)............................... 1.3% 0.7%
Weighted average receive rate
(variable, EUR).................... 4.0% 3.9%
SPANISH PESETA (ESP)/GERMAN MARK
(DEM)
Amount payable on maturity (ESP)..... 24 24
Amount receivable on maturity
(DEM).............................. 24 24 (0.17)
Weighted average pay rate (fixed,
ESP)............................... 5.6%
Weighted average receive rate
(variable DEM)..................... 4.8%
U.S. DOLLAR (USD)/KOREAN WON (KRW)
Amount payable on maturity (KRW)..... 114 100 214
Amount receivable on maturity
(USD).............................. 114 102 216 13.04
Weighted average pay rate (fixed,
KRW)............................... 8.1% 6.0%
Weighted average receive rate
(variable USD)..................... 4.5% 5.0%
---------------
(1) Amounts stated under USD/DEM-fixed/fixed in the column "Thereafter"
represent two swaps with predefined cashflows. Respective interest rates
have not been agreed upon by the parties.
(2) Total Amount of USD/DEM-fixed/variable includes a swap of $78.3 million with
a stepped interest rate beginning at 9.5% and ending at 19.5% p.a.
The total volume of interest rate and cross currency swaps increased from
E2,977 million to E3,081 million as of December 31, 2001 due to new intercompany
loans requiring hedges of the intendant foreign exchange risk. The total fair
value of the swaps changed from E(366) million in 2000 to E(591) million as of
December 31, 2001 mainly due to the rise in the exchange rate of the U.S. dollar
versus the euro and the decrease in U.S. fixed interest rates.
160
OTHER DERIVATIVES -- DECEMBER 31, 2000
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN
MILLIONS)
----------------------------------------------------
2001 2002 2003 2004 2005 THEREAFTER TOTAL AMOUNT FAIR VALUE
-------- -------- -------- -------- -------- ---------- ------------ ----------
Equity index swap(1)................. 26 26 10.10
Weighted average pay rate
(variable)......................... 4.7%
Weighted average receive rate
(variable)......................... n.a.
------------------
(1) Represents an index swap to create synthetic share investments with a
guarantee of the capital invested.
OTHER DERIVATIVES -- DECEMBER 31, 2001
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN
MILLIONS)
----------------------------------------------------
2002 2003 2004 2005 2006 THEREAFTER TOTAL AMOUNT FAIR VALUE
-------- -------- -------- -------- -------- ---------- ------------ ----------
Equity index swap(1)................. 26 26 5.06
Weighted average pay rate
(variable)......................... 3.3%
Weighted average receive rate
(variable)......................... n.a.
---------------
(1) Represents an index swap to create synthetic share investments with a
guarantee of the capital invested.
FOREIGN EXCHANGE RISK MANAGEMENT
The principal derivative financial instruments used by BASF to hedge foreign
currency exposures resulting from trade receivables, trade payables and
commercial paper denominated in foreign currency are forward foreign exchange
contracts and currency options. In 2001, transactions in these hedging
instruments were primarily aimed at hedging the exchange rate risk arising from
the U.S. dollar, the Canadian dollar, the Australian dollar, the British pound,
the Mexican peso, the Swiss franc, the Japanese yen and the Singapore dollar.
As of December 31, 2000, the company had entered into foreign exchange
forward contracts and currency options related to the foreign exchange exposure
arising from the sale of BASF's pharmaceutical business in U.S. dollars with a
nominal volume of $4.0 billion. For additional information on the sale of the
pharmaceuticals business, see Note 3 to the Consolidated Financial Statements in
Item 18.
Intercompany loans within the BASF Group must frequently be denominated in a
currency which is foreign to the intercompany borrower or the intercompany
lender or both. The foreign currency risks inherent in such loans are hedged by
forward foreign exchange contracts or foreign currency borrowings from third
parties in such cases where the loan has a short term or a variable maturity.
Longer term intercompany loans with fixed maturity schedules are hedged
primarily with cross currency swaps.
The tables below provide information about significant derivative financial
instruments which are sensitive to changes in foreign currency exchange rates.
161
FOREIGN CURRENCY FORWARD CONTRACTS -- DECEMBER 31, 2000(1)
WEIGHTED AVERAGE
CONTRACT AMOUNT FORWARD FAIR VALUE
(EUROS IN MILLIONS) EXCHANGE RATE (EUROS IN MILLIONS)
------------------- ---------------- -------------------
EURO (EUR)
Sale Australian dollar (AUD)............... 45.6 1.62 1.59
Sale Canadian dollar (CAD)................. 35.5 1.41 (0.24)
Sale Danish krona (DKK).................... 6.1 7.46 0.00
Sale British pound (GBP)................... 216.5 0.61 5.00
Sale Japanese yen (JPY).................... 92.1 93.96 10.39
Sale New Zealand dollar (NZD).............. 1.9 2.11 0.01
Sale Swedish krona (SEK)................... 2.2 8.43 0.09
Sale Singapore dollar (SGD)................ 59.9 1.97 (15.22)
Sale U.S. dollar (USD)..................... 5,701.2 0.90 223.44
Sale Mexican peso (MXN).................... 126.9 9.91 (6.97)
Purchase U.S. dollar (USD)................. 4,004.2 0.88 (223.25)
Purchase Canadian dollar (CAD)............. 18.2 1.38 (0.21)
Purchase Swiss francs (CHF)................ 19.9 1.51 (0.08)
Purchase British pound (GBP)............... 70.8 0.61 (2.07)
Purchase Japanese yen (JPY)................ 9.9 104.29 (0.07)
Purchase Mexican peso (MXN)................ 6.3 8.95 0.01
GERMAN MARK (DEM)
Sale Indian rupee (INR).................... 0.1 21.15 0.01
Sale Malaysian ringgit (MYR)............... 0.2 1.66 (0.02)
Sale Australian dollar (AUD)............... 1.3 1.20 0.05
U.S. DOLLAR (USD)
Sale Australian dollar (AUD)............... 5.5 0.55 0.04
Sale Chinese renminbi (CNY)................ 2.0 8.23 0.01
Sale Mexican peso (MXP).................... 130.6 11.09 (11.30)
Sale Indonesian rupia (IDR)................ 1.1 7.65 0.20
Sale Argentine peso (ARS).................. 49.0 1.01 0.20
Sale Taiwan dollar (TWD)................... 18.8 32.03 0.50
Sale Indian rupee (INR).................... 2.0 47.23 0.00
Sale Malaysian ringgit (MYR)............... 1.0 3.75 (0.01)
Purchase Philippine peso (PhP)............. 1.0 50.91 0.01
SINGAPORE DOLLAR (SGD)
Sale Malaysian ringgit (MYR)............... 0.2 2.19 (0.02)
---------------
(1) All maturing in 2001 except for E24.7 million in 2002, E139.9 million in
2003, E92.8 million in 2004, E32.0 million in 2005 and E43.5 million
thereafter.
162
FOREIGN CURRENCY FORWARD CONTRACTS -- DECEMBER 31, 2001(1)
WEIGHTED AVERAGE
CONTRACT AMOUNT FORWARD FAIR VALUE
(EUROS IN MILLIONS) EXCHANGE RATE (EUROS IN MILLIONS)
------------------- ---------------- -------------------
EURO (EUR)
Sale Australian dollar (AUD)............... 49.5 1.77 (1.28)
Sale Canadian dollar (CAD)................. 28.4 1.41 (0.06)
Sale Danish krona (DKK).................... 27.3 7.45 0.00(2)
Sale British pound (GBP)................... 190.9 0.62 (2.26)
Sale Japanese yen (JPY).................... 213.0 107.85 12.61
Sale New Zealand dollar (NZD).............. 1.6 2.15 (0.01)
Sale Swedish krona (SEK)................... 2.0 9.44 (0.02)
Sale Turkish lira (TRL).................... 2.9 1,403,000.00 (0.13)
Sale Polish zlotys (PLN)................... 1.5 3.76 (0.08)
Sale Singapore dollar (SGD)................ 55.8 2.01 (12.91)
Sale Malaysian ringgit (MYR)............... 1.5 3.37 (0.01)
Sale Thai baht (THB)....................... 15.1 39.38 (0.16)
Sale U.S. dollar (USD)..................... 3,077.6 0.90 (70.79)
Sale Swiss francs (CHF).................... 21.1 1.47 (0.18)
Sale South African rand (ZAR).............. 17.4 8.82 3.05
Purchase U.S. dollar (USD)................. 537.0 0.93 12.51
Purchase Singapore dollar (SGD)............ 21.8 1.66 0.38
U.S. DOLLAR (USD)
Sale Australian dollar (AUD)............... 0.4 0.52 0.01
Sale Mexican peso (MXP).................... 113.4 9.92 (4.91)
Sale Singapore dollar (SGD)................ 7.9 1.79 0.23
Sale South African rand (ZAR).............. 6.9 10.08 1.21
Sale Brazilian real (BRL).................. 587.6 2.56 (62.94)
Sale Taiwan dollar (TWD)................... 21.7 34.68 0.22
Sale Thai baht (THB)....................... 9.7 44.66 (0.05)
Sale Indian rupee (INR).................... 23.3 51.52 0.01
Sale Malaysian ringgit (MYR)............... 3.3 3.80 0.00(2)
Purchase Colombian peso (COP).............. 2.6 2,547.15 (0.15)
Purchase Philippine peso (PhP)............. 1.6 52.73 0.02
SINGAPORE DOLLAR (SGD)
Sale Malaysian ringgit (MYR)............... 0.1 2.07 0.00(2)
Sale Japanese yen (JPY).................... 8.7 69.76 0.11
---------------
(1) All maturing in 2002 except of E615.7 million in 2003-2005 and
E110.2 million after 2005.
(2) The Fair Value of this contract is less than E0.01 million.
The total volume of forward currency contracts decreased from
E10,630 million in 2000 to E5,052 million as of December 31, 2001 due to the
expiry of contracts entered into to hedge the foreign exchange risk inherent
firstly in the denomination of the sale price for BASF's pharmaceutical business
in U.S. dollars and secondly in U.S. dollar denominated commercial paper, which
was repaid during 2001. The total fair value of the outstanding forward
contracts worsened from E(18) million at December 31, 2000 to E(126) million as
of December 31, 2001 mainly due to the rise of the U.S. dollar versus the euro
and the decline of the U.S. dollar versus the Brazilian real.
163
FOREIGN CURRENCY OPTIONS -- DECEMBER 31, 2000 (ALL MATURING IN 2001)
CONTRACT AMOUNT WEIGHTED AVERAGE FAIR VALUE
(EUROS IN MILLIONS) OPTION STRIKE PRICE (EUROS IN MILLIONS)
------------------- ------------------- -------------------
Japanese yen (JPY) put (buy)/euro (EUR)
call.................................... 78 95.74 7.3
Japanese yen (JPY) call (sell)/euro (EUR)
put..................................... 87 86.47 (0.3)
U.S. dollar (USD) put (buy)/euro (EUR)
call.................................... 2,116 0.83 71.8
U.S. dollar (USD) call (sell)/euro (EUR)
put..................................... 1,940 0.89 (12.7)
FOREIGN CURRENCY OPTIONS -- DECEMBER 31, 2001 (ALL MATURING IN 2002)
CONTRACT AMOUNT WEIGHTED AVERAGE FAIR VALUE
(EUROS IN MILLIONS) OPTION STRIKE PRICE (EUROS IN MILLIONS)
------------------- ------------------- -------------------
Japanese yen (JPY) put (buy)/euro (EUR)
call.................................... 41 98.28 (0.2)
Japanese yen (JPY) call (sell)/euro (EUR)
put..................................... 36 109.02 2.1
U.S. dollar (USD) put (buy)/euro (EUR)
call.................................... 38 0.88 (0.4)
U.S. dollar (USD) call (sell)/euro (EUR)
put..................................... 38 0.91 0.0(1)
---------------
(1) The fair value of this contract is less than E0.1 million.
The total volume of foreign currency options decreased from E4,221 million
at December 31, 2000 to 153 million at December 31, 2001 due the expiry of
foreign currency options entered into to hedge the foreign exchange exposure
arising from the sale of BASF's pharmaceutical business in U.S. dollars. The
total fair value of foreign currency options changed from E66 million to only
E2 million due to the decline in the volume of outstanding options.
164
CROSS CURRENCY SWAPS -- DECEMBER 31, 2000
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
------------------------------------------------------------------ TOTAL
2001 2002 2003 2004 2005 THEREAFTER AMOUNT FAIR VALUE
-------- -------- --------- -------- -------- ---------- -------- ----------
PAYMENT OF U.S. DOLLAR (USD)
Notional amount...................... 12 256 215 301 121 905 (229.00)
Average contract rate German mark
(DEM) per U.S. dollar (USD)........ 1.82 1.45 1.56 1.77 1.73 1.63
PAYMENT OF U.S. DOLLAR (USD)
Notional amount...................... 215 323 430 107 967 2,042 (143.53)
Average contract rate U.S. dollar
(USD) per euro (EUR)............... 0.89 0.92 0.98 0.97 0.98 0.96
PAYMENT OF DUTCH GUILDER (NLG)
Notional amount...................... 3 3 (0.04)
Average contract rate German mark
(DEM) for 100 Dutch guilder
(NLG).............................. 89.29 89.29
PAYMENT OF JAPANESE YEN (JPY)
Notional amount...................... 0(1) 0 (0.09)
Average contract rate German mark for
100 Japanese yen (JPY)............. 1.49 1.49
PAYMENT OF JAPANESE YEN (JPY)
Notional amount...................... 1 30 3 34 3.36
Average contract rate Japanese yen
per euro (EUR)..................... 135.85 94.60 129.30 98.88
PAYMENT OF CANADIAN DOLLAR (CAD)
Notional amount...................... 14 14 (3.52)
Average contract rate German mark
(DEM) per Canadian dollar (CAD).... 1.08 1.08
PAYMENT OF BRAZILIAN REAL (BRL)
Notional amount...................... 79 79 3.39
Average contract rate Brazilian real
(BRL) per U. S. dollar (USD)....... 1.79 1.79
PAYMENT OF SPANISH PESETA (ESP)
Notional amount...................... 24 24 (0.17)
Average contract rate German mark
(DEM) for 100 Spanish peseta
(ESP).............................. 1.19 1.19
PAYMENT OF KOREAN WON (KRW)..........
Notional amount...................... 102 102 3.37
Average contract rate Korean won per
U.S. dollar (USD).................. 1,201.00 1,201.00
---------------
(1) The notional amount of this contract is less than E1 million.
165
CROSS CURRENCY SWAPS -- DECEMBER 31, 2001
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
----------------------------------------------------------------- TOTAL
2002 2003 2004 2005 2006 THEREAFTER AMOUNT FAIR VALUE
-------- -------- -------- -------- -------- ---------- -------- ----------
PAYMENT OF U.S. DOLLAR (USD)
Notional amount...................... 154 159 252 55 41 661 (284.94)
Average contract rate German mark
(DEM) per U.S. dollar (USD)........ 1.41 1.56 1.77 1.78 2.31 1.64
PAYMENT OF U.S. DOLLAR (USD)
Notional amount...................... 224 490 407 103 290 629 2,143 (324.07)
Average contract rate U.S. dollar
(USD) per euro (EUR)............... 0.89 0.92 0.98 0.97 1.03 0.95 0.96
PAYMENT OF DUTCH GUILDER (NLG)
Notional amount...................... 3 3 (0.67)
Average contract rate German mark
(DEM) for 100 Dutch guilder
(NLG).............................. 89.29 89.29
PAYMENT OF JAPANESE YEN (JPY)
Notional amount...................... 34 2 36 5.89
Average contract rate Japanese yen
per euro (EUR)..................... 94.60 107.75 95.43
PAYMENT OF SPANISH PESETA (ESP)
Notional amount...................... 24 24 (0.17)
Average contract rate German mark
(DEM) for 100 Spanish peseta
(ESP).............................. 1.19 1.19
PAYMENT OF KOREAN WON (KRW)
Notional amount...................... 114 100 214 13.04
Average contract rate Korean won per
U.S. dollar (USD).................. 1,201.00 1,289.78 1,243.06
The total volume of cross currency swaps increased from E2,977 million to
E3,081 million as of December 31, 2001 due to new intercompany loans requiring
hedges of the intendant foreign exchange risk. The total fair value of the swaps
changed from E(366) million in 2000 to E(591) million as of December 31, 2001
mainly due to the rise in the exchange rate of the U.S. dollar versus the euro
and the decrease in U.S. fixed interest rates.
MARKETABLE SECURITIES
As of December 31, 2001, BASF owned debt and equity securities which are
exposed to price changes. These financial instruments are used as profitable
investments of BASF's cash surplus and are not held for trading purposes. All
securities are quoted on stock exchanges, and the funds have readily
determinable market prices. The securities are reflected in the U.S. GAAP
reconciliation at their fair value of E629.2 million, which includes unrealized
gains of E246.3 million. See Note 18 to the Consolidated Financial Statements in
Item 18 for further information. BASF carefully monitors developments in the
financial markets.
In addition, BASF entered into a swap contract for which BASF pays a
quarterly variable rate and receives a positive equity index performance (for
details see the "Other Derivatives" table above in "Interest Rate Risk
Management"). Such a swap was concluded to synthetically create an
166
equity investment using the variable interest payments from liquid funds. While
BASF is obliged to pay on a quarterly basis a variable interest rate, the
payments of the counterparties are dependent on the DAX-Index development during
the stipulated term. However, a special provision insures that negative
DAX-Index performance is not required to be reimbursed. Therefore the maximum
equity exposure is a zero payment from the counterparties. The fair value of the
DAX-Libor-Swap was E5.0 million as of December 31, 2001.
A 10% change in overall equity prices would not materially impact BASF's
operations, financial position or cash flows.
COMMODITY PRICE RISKS
Certain BASF divisions are exposed to fluctuations in prices for raw
materials and commodities. BASF operates in markets where the prices of raw
materials and products are commonly affected by cyclical movements of the
economy.
In order to secure the supply of raw materials, BASF has signed long-term
supply contracts and is buying additional quantities on spot markets. Some of
the most important raw materials involved are:
- Naphtha
- Propylene
- Benzene
- Titanium dioxide
- Cyclohexene
- Methanol
- Alpha olefins
The following measures are taken to avoid and manage risks in the purchase
of raw materials:
- BASF avoids supply problems by entering into long-term contracts with at
least two suppliers for each significant raw material. The quantities
contracted are divided by the suppliers based on their ability to ensure
supply security. BASF enters into long-term contracts only after a strict
evaluation of the supplier's financial condition and technical
capabilities as well as its environmental safety record, so that supply
problems and quality problems are reduced to a minimum.
- Price risks are managed through several measures. Purchasing raw materials
through long-term contracts and on spot markets allows BASF to obtain
favorable prices for a portion of its raw materials, if for example excess
quantities on the spot markets lead to a short-term price reduction. In
long-term contracts, price conditions are based on published raw material
price quotations and lead to the permanent adjustment of prices (price
gliding clauses) or are adjusted at least on a quarterly basis.
167
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
168
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Not applicable.
ITEM 15 [RESERVED]
ITEM 16. [RESERVED]
169
(This page has been left blank intentionally.)
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18 FINANCIAL STATEMENTS
The following Consolidated Financial Statements, together with the report of
Deloitte & Touche GmbH thereon, are filed as part of this Annual Report.
PAGE
--------
Report of Independent Accountants......................... F-1
Consolidated Financial Statements
Consolidated Statements of Income for the years ended
December 31, 2001, 2000 and 1999....................... F-2
Consolidated Balance Sheets at December 31, 2001 and
2000................................................... F-3
Consolidated Statements of Cash Flows for the years
ended December 31, 2001, 2000 and 1999................. F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2001, 2000 and 1999........... F-5
Notes to the Consolidated Financial Statements.......... F-6
171
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the accompanying consolidated balance sheets of BASF
Aktiengesellschaft and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Germany and in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such Consolidated Financial Statements present fairly, in
all material respects, the financial position of BASF Aktiengesellschaft and its
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
Germany.
As discussed in Note 2 to the Consolidated Financial Statements, the Company
changed its method of accounting for tax loss carryforwards in 2001.
Application of accounting principles generally accepted in the United States
of America would have affected stockholders' equity as of December 31, 2001 and
2000 and net income for each of the three years in the period ended
December 31, 2001 to the extent summarized in Note 4 to the Consolidated
Financial Statements.
Frankfurt am Main,
March 1, 2002
Deloitte & Touche GmbH
Wirtschaftsprufungsgesellschaft
Professor Dr. Emmerich Bukowski
Wirtschaftsprufer Wirtschaftsprufer
F-1
BASF GROUP
CONSOLIDATED STATEMENTS OF INCOME
(EUROS AND DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
NOTE 2001 2001 2000 1999
-------- --------- --------------- --------------- ---------------
Sales.................................. $29,166.8 E 32,768.0 E 36,205.1 E 31,318.2
Natural gas taxes...................... (238.9) (268.4) (259.4) (1,845.5)*
--------- --------------- --------------- ---------------
SALES, NET OF NATURAL GAS TAXES........ 5 28,927.9 32,499.6 35,945.7 29,472.7
Cost of sales.......................... (19,749.4) (22,187.8) (23,255.1) (18,391.3)
--------- --------------- --------------- ---------------
GROSS PROFIT ON SALES.................. 9,178.5 10,311.8 12,690.6 11,081.4
Selling expenses....................... (4,578.3) (5,143.6) (5,786.5) (5,279.9)
General and administrative expenses.... (586.8) (659.3) (772.0) (677.0)
Research and development expenses...... (1,110.0) (1,247.1) (1,525.8) (1,333.0)
Other operating income................. 6 784.6 881.5 1,415.3 978.2
Other operating expenses............... 7 (2,604.8) (2,926.4) (2,951.9) (2,761.0)
--------- --------------- --------------- ---------------
INCOME FROM OPERATIONS................. 1,083.2 1,216.9 3,069.7 2,008.7
--------- --------------- --------------- ---------------
Expense/income from financial assets... (186.3) (209.3) (31.0) 727.4
Write-downs of, and losses from,
retirement of financial assets as
well as securities held as current
assets............................... (20.2) (22.7) (6.8) (22.2)
Interest result........................ (334.9) (376.2) (204.5) (108.4)
--------- --------------- --------------- ---------------
FINANCIAL RESULT....................... 8 (541.4) (608.2) (242.3) 596.8
--------- --------------- --------------- ---------------
INCOME FROM ORDINARY ACTIVITIES........ 541.8 608.7 2,827.4 2,605.5
Extraordinary income................... 9 5,448.1 6,120.8 -- --
INCOME BEFORE TAXES AND MINORITY
INTERESTS............................ 5,989.9 6,729.5 2,827.4 2,605.5
Effect of the change in accounting
principles for deferred taxes........ 2 45.0 50.6
Income taxes........................... 10 (849.6) (954.5) (1,545.0) (1,360.8)
--------- --------------- --------------- ---------------
INCOME BEFORE MINORITY INTERESTS....... 5,185.3 5,825.6 1,282.4 1,244.7
Minority interests..................... 11 (29.0) (32.6) 42.6 7.9
--------- --------------- --------------- ---------------
NET INCOME............................. $ 5,214.3 E 5,858.2 E 1,239.8 E 1,236.8
--------- --------------- --------------- ---------------
EARNINGS PER SHARE..................... $ 8.65 E 9.72 E 2.02 E 2.00
---------------
* 1999 including petroleum taxes
Solely for the convenience of the reader, the 2001 financial information has
been translated into U.S. dollars using the December 31, 2001 noon buying rate
of the Federal Reserve Bank of New York of $0.8901 = E1.00.
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-2
BASF GROUP
CONSOLIDATED BALANCE SHEETS
(EUROS AND DOLLARS IN MILLIONS)
AT DECEMBER 31,
-------------------------------------------
NOTE 2001 2001 2000
-------- --------- -------------- --------------
ASSETS
Intangible assets........................................... 13 $ 3,509.4 E 3,942.7 E 4,538.2
Property, plant and equipment............................... 14 12,630.3 14,189.8 13,640.6
Financial assets............................................ 15 2,991.4 3,360.7 3,589.7
--------- -------------- --------------
FIXED ASSETS................................................ 19,131.1 21,493.2 21,768.5
--------- -------------- --------------
Inventories................................................. 16 4,456.6 5,006.8 5,211.6
Accounts receivable, trade.................................. 5,229.8 5,875.5 6,067.6
Receivables from affiliated companies....................... 562.5 631.9 916.9
Miscellaneous receivables and other assets.................. 1,363.4 1,531.7 2,142.2
--------- -------------- --------------
Receivables and other assets................................ 17 7,155.7 8,039.1 9,126.7
--------- -------------- --------------
Marketable securities....................................... 18 340.8 382.9 364.1
Cash and cash equivalents................................... 320.3 359.9 505.5
--------- -------------- --------------
Liquid funds................................................ 661.1 742.8 869.6
--------- -------------- --------------
CURRENT ASSETS.............................................. 12,273.4 13,788.7 15,207.9
--------- -------------- --------------
DEFERRED TAXES.............................................. 10 1,221.7 1,372.5 1,270.5
PREPAID EXPENSES............................................ 19 196.4 220.6 310.3
--------- -------------- --------------
TOTAL ASSETS................................................ 32,822.6 36,875.0 38,557.2
--------- -------------- --------------
STOCKHOLDERS' EQUITY AND LIABILITIES
Subscribed capital.......................................... 20 1,329.4 1,493.5 1,554.9
Capital surplus............................................. 20 2,593.7 2,913.9 2,745.7
Retained earnings........................................... 21 10,879.2 12,222.4 8,851.1
Currency translation adjustment............................. 473.8 532.3 661.8
Minority interests.......................................... 22 320.2 359.7 481.3
--------- -------------- --------------
STOCKHOLDERS' EQUITY........................................ 15,596.3 17,521.8 14,294.8
--------- -------------- --------------
Provisions for pensions and similar obligations............. 23 3,518.3 3,952.7 4,228.3
Provisions for taxes........................................ 550.7 618.7 778.4
Other provisions............................................ 24 4,957.5 5,569.6 4,536.8
--------- -------------- --------------
PROVISIONS.................................................. 9,026.5 10,141.0 9,543.5
--------- -------------- --------------
Bonds and other liabilities to capital market............... 25 1,417.5 1,592.5 6,230.5
Liabilities to credit institutions.......................... 25 1,105.9 1,242.5 1,661.4
Accounts payable, trade..................................... 2,195.9 2,467.0 2,848.1
Liabilities to affiliated companies......................... 509.7 572.6 391.8
Miscellaneous liabilities................................... 25 2,658.0 2,986.2 3,190.1
--------- -------------- --------------
LIABILITIES................................................. 7,887.0 8,860.8 14,321.9
--------- -------------- --------------
DEFERRED INCOME............................................. 312.8 351.4 397.0
--------- -------------- --------------
TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES.................. $32,822.6 E 36,875.0 E 38,557.2
--------- -------------- --------------
---------------
Solely for the convenience of the reader, the 2001 financial information has
been translated into U.S. dollars using the December 31, 2001 noon buying rate
of the Federal Reserve Bank of New York of $0.8901 = E1.00.
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-3
BASF GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS*
(EUROS AND DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2001 2001 2000 1999
--------- -------------- -------------- --------------
Net income (excluding extraordinary income)...... $ (104.7) E (117.6) E 1,239.8 E 1,236.8
Depreciation and amortization of fixed assets.... 2,610.8 2,933.1 2,928.9 2,690.0
Changes in long-term provisions and other
non-cash items................................. 314.1 352.9 343.8 162.6
(Gains) losses from disposal of fixed assets..... (65.9) (74.0) (373.2) (1,006.6)
Changes in inventories........................... 89.3 100.3 (676.0) (218.5)
Changes in receivables........................... (193.0) (216.8) (1,088.4) (1,326.6)
Changes in other operating assets and
liabilities.................................... (586.8) (659.2) 617.0 1,717.3
--------- -------------- -------------- --------------
CASH PROVIDED BY OPERATING ACTIVITIES............ 2,063.8 2,318.7 2,991.9 3,255.0
--------- -------------- -------------- --------------
Additions to tangible and intangible fixed
assets......................................... (2,501.7) (2,810.6) (2,905.9) (2,938.7)
Additions to financial assets and securities..... (659.1) (740.5) (839.6) (877.7)
Payments related to acquisitions................. (410.6) (461.3) (6,117.2) (397.3)
Proceeds from divestitures....................... 6,678.8 7,503.4 304.9 1,093.5
Proceeds from the disposal of fixed assets and
securities..................................... 559.5 628.6 727.8 1,021.7
--------- -------------- -------------- --------------
CASH USED IN INVESTING ACTIVITIES................ 3,666.9 4,119.6 (8,830.0) (2,098.5)
--------- -------------- -------------- --------------
Proceeds from capital increases.................. 156.2 175.5 95.3 80.1
Share repurchase................................. (1,156.6) (1,299.4) (699.8) (255.6)
Proceeds from the addition of financial
indebtedness................................... 1,583.9 1,779.5 11,238.9 2,350.9
Repayment of financial indebtedness.............. (5,404.6) (6,071.9) (4,579.4) (2,446.2)
Dividends paid
- To shareholders of BASF Aktiengesellschaft..... (1,080.7) (1,214.1) (694.7) (692.8)
- To minority shareholders....................... (46.4) (52.2) (52.8) (4.7)
--------- -------------- -------------- --------------
CASH USED IN FINANCING ACTIVITIES................ (5,948.2) (6,682.6) 5,307.5 (968.3)
--------- -------------- -------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS.......... (217.5) (244.3) (530.6) 188.2
--------- -------------- -------------- --------------
Effects on cash and cash equivalents
- From foreign exchange rates.................... 3.3 3.7 27.4 19.6
- From changes in scope of consolidation......... 84.6 95.0 18.5 25.5
Cash and cash equivalents as of beginning of
year........................................... 449.9 505.5 990.2 756.9
--------- -------------- -------------- --------------
CASH AND CASH EQUIVALENTS AS OF END OF YEAR...... 320.3 359.9 505.5 990.2
--------- -------------- -------------- --------------
Marketable securities............................ 340.8 382.9 364.1 517.4
--------- -------------- -------------- --------------
LIQUID FUNDS AS SHOWN ON THE BALANCE SHEET....... $ 661.1 E 742.8 E 869.6 E 1,507.6
--------- -------------- -------------- --------------
---------------
* For other information regarding Consolidated Statements of Cash Flows, see
explanations in Note 12.
Solely for the convenience of the reader, the 2001 financial information has
been translated into U.S. dollars using the December 31, 2001 noon buying rate
of the Federal Reserve Bank of New York of $0.8901 = E1.00
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-4
BASF GROUP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(EUROS IN MILLIONS)
NUMBER OF
SUBSCRIBED CURRENCY
SHARES SUBSCRIBED CAPITAL RETAINED TRANSLATION
2001 OUTSTANDING CAPITAL SURPLUS EARNINGS ADJUSTMENT
---- ----------- ------------- ------------- -------------- ------------
January 1, 2001............................... 607,399,370 E 1,554.9 E 2,745.7 E 8,851.1 E 661.8
Issuance of new shares from conditional
capital through the exercise of warrants
attached to the 1986/2001 3% U.S. Dollar
Option Bond of BASF Finance Europe N.V...... 6,777,000 17.4 89.4 -- --
Share buy-back and cancellation of own shares
including own shares intended to be
cancelled................................... (30,775,000) (78.8) 78.8 (1,299.5) --
Dividends paid................................ -- -- -- (1,214.1) --
Net income.................................... -- -- -- 5,858.2 --
(Decrease)/increase of foreign currency
translation adjustments..................... -- -- -- -- (129.5)
Capital injection by minority interests....... -- -- -- -- --
Changes in scope of consolidation and other
changes..................................... -- -- -- 26.7 --
----------- ------------- ------------- -------------- ------------
December 31, 2001............................. 583,401,370 E 1,493.5 E 2,913.9 E 12,222.4 E 532.3
----------- ------------- ------------- -------------- ------------
TOTAL
MINORITY STOCKHOLDERS'
2001 INTERESTS EQUITY
---- ------------ --------------
January 1, 2001............................... E 481.3 E 14,294.8
Issuance of new shares from conditional
capital through the exercise of warrants
attached to the 1986/2001 3% U.S. Dollar
Option Bond of BASF Finance Europe N.V...... -- 106.8
Share buy-back and cancellation of own shares
including own shares intended to be
cancelled................................... -- (1,299.5)
Dividends paid................................ (52.2)* (1,266.3)
Net income.................................... (32.6) 5,825.6
(Decrease)/increase of foreign currency
translation adjustments..................... -- (129.5)
Capital injection by minority interests....... 68.8 68.8
Changes in scope of consolidation and other
changes..................................... (105.6) (78.9)
------------ --------------
December 31, 2001............................. E 359.7 E 17,521.8
------------ --------------
NUMBER OF
SUBSCRIBED CURRENCY
SHARES SUBSCRIBED CAPITAL RETAINED TRANSLATION
2000 OUTSTANDING CAPITAL SURPLUS EARNINGS ADJUSTMENT
---- ----------- ------------- ------------- ------------- -----------
January 1, 2000................................ 620,984,640 E 1,589.7 E 2,675.2 E 9,001.7 E 549.3
Issuance of new shares from conditional capital
through the exercise of warrants attached to
the 1986/2001 3% U.S. Dollar Option Bond of
BASF Finance Europe N.V...................... 2,271,230 5.8 29.9 -- --
Share buy-back and cancellation of own
shares....................................... (15,856,500) (40.6) 40.6 (699.8) --
Dividends paid................................. -- -- -- (694.7) --
Net income..................................... -- -- -- 1,239.8 --
(Decrease)/increase of foreign currency
translation adjustments...................... -- -- -- -- 112.5
Capital injection by minority interests........ -- -- -- -- --
Changes in scope of consolidation and other
changes...................................... -- -- -- 4.1 --
----------- ------------- ------------- ------------- -----------
December 31, 2000.............................. 607,399,370 E 1,554.9 E 2,745.7 E 8,851.1 E 661.8
----------- ------------- ------------- ------------- -----------
TOTAL
MINORITY STOCKHOLDERS'
2000 INTERESTS EQUITY
---- ----------- --------------
January 1, 2000................................ E 329.3 E 14,145.2
Issuance of new shares from conditional capital
through the exercise of warrants attached to
the 1986/2001 3% U.S. Dollar Option Bond of
BASF Finance Europe N.V...................... -- 35.7
Share buy-back and cancellation of own
shares....................................... -- (699.8)
Dividends paid................................. (52.8)* (747.5)
Net income..................................... 42.6 1,282.4
(Decrease)/increase of foreign currency
translation adjustments...................... (5.3) 107.2
Capital injection by minority interests........ 59.5 59.5
Changes in scope of consolidation and other
changes...................................... 108.0 112.1
----------- --------------
December 31, 2000.............................. E 481.3 E 14,294.8
----------- --------------
NUMBER OF
SUBSCRIBED CURRENCY
SHARES SUBSCRIBED CAPITAL RETAINED TRANSLATION
1999 OUTSTANDING CAPITAL SURPLUS EARNINGS ADJUSTMENT
---- ----------- ------------- ------------- -------------- ------------
January 1, 1999............................... 623,794,150 E 1,594.7 E 2,590.1 E 8,695.1 E 39.5
Issuance of new shares from conditional
capital through the exercise of warrants
attached to the 1986/2001 3% U.S. Dollar
Option Bond of BASF Finance Europe N.V...... 5,086,690 13.0 67.1 -- --
Share buy-back and cancellation of own
shares...................................... (7,896,200) (20.2) 20.2 (255.6) --
Capital increase to reconcile nominal value of
BASF Shares to E2.56 per share.............. -- 2.2 (2.2) -- --
Dividends paid................................ -- -- -- (692.8) --
Net income.................................... -- -- -- 1,236.8 --
Increase of foreign currency translation
adjustments................................. -- -- -- -- 509.8
Changes in scope of consolidation and other
changes..................................... -- -- -- 18.2 --
----------- ------------- ------------- -------------- ------------
December 31, 1999............................. 620,984,640 E 1,589.7 E 2,675.2 E 9,001.7 E 549.3
----------- ------------- ------------- -------------- ------------
TOTAL
MINORITY STOCKHOLDERS'
1999 INTERESTS EQUITY
---- ------------ --------------
January 1, 1999............................... E 330.7 E 13,250.1
Issuance of new shares from conditional
capital through the exercise of warrants
attached to the 1986/2001 3% U.S. Dollar
Option Bond of BASF Finance Europe N.V...... -- 80.1
Share buy-back and cancellation of own
shares...................................... -- (255.6)
Capital increase to reconcile nominal value of
BASF Shares to E2.56 per share.............. -- --
Dividends paid................................ (4.7)* (697.5)
Net income.................................... 7.9 1,244.7
Increase of foreign currency translation
adjustments................................. 32.3 542.1
Changes in scope of consolidation and other
changes..................................... (36.9) (18.7)
------------ --------------
December 31, 1999............................. E 329.3 E 14,145.2
------------ --------------
---------------
* Profit and loss transfers to minority interests
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-5
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
The Consolidated Financial Statements of BASF Aktiengesellschaft ("BASF" or
"BASF Aktiengesellschaft") are based on the accounting and valuation principles
of the German Commercial Code (HANDELSGESETZBUCH) and the German Stock
Corporation Act (AKTIENGESETZ). The accounting principles conform to generally
accepted accounting principles in the United States (U.S. GAAP) to the extent
permissible under the German Commercial Code based on the accounting standards
issued by the German Accounting Standard Committee (GASC). The reconciliation of
remaining significant deviations to U.S. GAAP is described in Note 4 to these
Consolidated Financial Statements.
The translation of euros into U.S. dollars ($) has been made solely for the
convenience of the reader at the noon buying rate of the Federal Reserve Bank of
New York on December 31, 2001, which was $0.8901 = E1.00. No representation is
made that such euro amounts could have been or could be converted into dollars
at that or any other exchange rate on such date or any other dates.
(B) SCOPE OF CONSOLIDATION
The Consolidated Financial Statements include BASF Aktiengesellschaft, the
parent company, and all material subsidiaries in which BASF Aktiengesellschaft
directly or indirectly exercises a majority of the voting rights or which are
otherwise controlled by BASF Aktiengesellschaft (collectively, the "Company").
Furthermore, material 50% joint ventures are included on a proportional
consolidation basis, with the exception of the joint venture Basell N.V. of BASF
and Shell, which is accounted for using the equity-method. Basell N.V. largely
operates independently and is not included in the planning and approval
processes of BASF. Subsidiaries and joint ventures whose impact on the net
worth, financial position and results of the Company is individually and in the
aggregate immaterial, are excluded from the scope of consolidation.
Consolidated companies and changes to the scope of consolidation:
2001 2000 1999
-------- -------- --------
Consolidated companies as of beginning of year.............. 170 150 132
- Thereof proportional consolidation........................ 6 16 17
First-time consolidations................................... 27 41 26
- Thereof proportional consolidation........................ 5 -- 2
Deconsolidations............................................ 43 21 8
- Thereof proportional consolidation........................ -- 10 3
Consolidated as of December 31.............................. 154 170 150
--- --- ---
- Thereof proportional consolidation........................ 11 6 16
Generally, affiliated companies not consolidated due to immateriality,
non-proportionally consolidated joint ventures and associated companies are
accounted for using the equity method.
F-6
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Associated companies represent those entities where the Company has a
participation of at least 20% and exercises a significant influence over the
operating and financial policies.
2001 2000 1999
-------- -------- --------
Affiliated companies........................................ 24 22 25
Joint ventures.............................................. 1 3 7
Other associated companies.................................. 3 3 3
-- -- --
28 28 35
Major changes to the scope of consolidation, other than those relating to
corporate structure, relate to the following:
2001:
First-time consolidations comprise:
- BASF SONATRACH Propanchem S.A., Tarragona, Spain, (BASF's share: 51%,
SONATRACH: 49%), which constructs plants for propylene production.
- Ellba Eastern Private Ltd., Singapore, our joint venture with Shell to
produce styrene and propylene oxide.
- BASF-YPC Company Ltd., Nanjing, China, our joint venture with SINOPEC to
setup a petrochemical Verbund site in Nanjing, China.
- BASF NOF Coatings Company Ltd., Tokyo, Japan, our joint venture with NOF,
Tokyo, Japan, for the production and marketing of coatings, especially for
the Japanese market.
- BASF Styrenics Private Ltd., Mumbai, India, a producer of polystyrene,
which was acquired at the end of 2000.
- Another 22 subsidiaries, previously not consolidated, located in Turkey,
Japan, China, Russia, Poland, Norway, Finland and other countries.
Deconsolidations comprise:
- 32 companies in the course of the sale of the pharmaceuticals and generics
business;
- 11 companies due to merger with other affiliates, liquidation or declining
significance.
2000:
First-time consolidations comprise:
- BASF Coatings Ltd., Deeside, United Kingdom, a coil coatings manufacturer,
acquired from Norsk Hydro in 1999.
- BASF PETRONAS Chemicals Sdn. Bhd. (BASF's share: 60%, PETRONAS' share:
40%) and BASF Services (Malaysia) Sdn. Bhd., Petaling Jaya, Malaysia,
which operate the Verbund site in Kuantan, Malaysia.
F-7
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- 22 subsidiaries from the crop protection business of American Home
Products Corp. acquired in the middle of 2000; the major part of this
business was directly acquired through asset purchases by consolidated
subsidiaries of BASF.
- Another 16 subsidiaries previously not consolidated.
Deconsolidations comprise primarily:
- The divestiture of Wintershall (U.K.) Limited and Wintershall Exploration
(U.K.) Limited, London, United Kingdom.
- 14 companies of the Targor Group and the Elenac Group, due to the
contribution of the polyolefins business to the joint venture Basell N.V.
1999:
First-time consolidations comprise:
- ELLBA C.V. (formerly Basell C.V.) of Rotterdam, the Netherlands, a joint
venture with Shell that has been consolidated since the start-up of the
styrene monomer and propylene oxide plant.
- Salchi Spa of Italy, an industrial coatings manufacturer acquired in 1998
and now known as BASF Coatings Spa of Burago Molgora, Milan, Italy.
- Wintershall Energia S.A. of Buenos Aires, Argentina. The operation was
taken over in 1998 when Deminex was split between the partners.
- Another 23 subsidiaries previously not consolidated, mainly in the
Pharmaceuticals segment and Polyurethanes division.
Deconsolidations comprise:
- The divestiture of BASF Horticulture et Jardin S.A. of Levallois, France.
- The divestiture of Wintershall Canada Ltd. of Calgary, Alberta, Canada.
- The divestiture of the former joint venture Ultrasorb Chemikalien GmbH of
Ludwigshafen, Germany.
F-8
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EFFECTS ON FINANCIAL STATEMENTS
Changes in the scope of consolidation, acquisitions and divestitures had the
following effects on the changes in the Consolidated Financial Statements:
2001 2000 1999
------------------------- ------------------------- -----------------------
(EUROS IN MILLIONS)
Fixed assets................ E (522.6) (2.4)% E 5,140.7 32.0% E 505.9 3.5%
Thereof property, plant and
equipment................. 155.4 1.1 633.5 5.1 343.0 3.2
Inventories and
receivables............... (1,105.4) (6.9) 1,357.5 10.9 (318.7) (3.0)
Liquid funds................ (261.0) (30.0) 4.6 0.3 711.1 47.3
-------------- ------- -------------- ------ ------------ -----
Assets...................... E (1,889.0) (4.9)% E 6,502.8 21.7% E 898.3 3.4%
-------------- ------- -------------- ------ ------------ -----
Stockholders' equity........ 5,690.6 39.8 343.3 2.4 400.3 3.0
Financial liabilities....... (5,654.2) (71.6) 5,855.6 452.4 107.6 8.2
Other liabilities........... (1,925.4) (11.8) 303.9 2.1 390.4 3.2
-------------- ------- -------------- ------ ------------ -----
Stockholders' equity and
liabilities............... E (1,889.0) (4.9)% E 6,502.8 21.7% E 898.3 3.4%
-------------- ------- -------------- ------ ------------ -----
Sales....................... E (2,649) (7.4)% E (702) (2.4)% E 869 3.1%
Thereof:
Acquisitions................ 1,486 1,056 627
Divestitures................ (4,452) (1,919) (331)
Changes in scope of
consolidation............. 317 161 573
SIGNIFICANT ACQUISITION
On July 1, 2000, the Company acquired the worldwide crop protection business
of American Home Products Corp. (AHP). This business manufactures a wide range
of herbicides, insecticides, fungicides and biotechnology products for the
professional and industrial markets around the world. It operates 14 production
facilities for active ingredients and formulations worldwide.
For accounting purposes, the acquisition has been treated as a purchase,
and, accordingly, the results of operations of the acquired business are
included in the accompanying financial statements beginning July 1, 2000. The
Company has integrated this business into its Agricultural Products segment.
Goodwill after allocation of the purchase price to identifiable assets and
liabilities is amortized over 20 years on a straight-line basis.
The following unaudited pro forma data summarize the results of operations
for the years 2000 and 1999, as if the above acquisition had been completed as
of the beginning of these periods. The pro forma data give effect to actual
operating results prior to the acquisition, adjusted to include the pro forma
effect of interest expense, amortization of intangibles and income taxes. The
2000 pro forma data include a one-time cost of E344 million related to the
integration of the business. The pro forma results do not include any
anticipated cost savings from the combination of the crop protection businesses
of AHP and BASF. These pro forma amounts do not purport to be
F-9
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
indicative of the results that would have actually been obtained if the
acquisition occurred as of the beginning of the periods presented or that may be
obtained in the future.
2000 1999
-------------- --------------
Net sales................................................... E 37,130.7 E 31,038.7
Income from operations...................................... 3,381.7 2,062.7
Net income.................................................. 1,351.8 1,118.8
Earnings per share (German GAAP)............................ 2.20 1.81
The effects on a pro forma basis of 2001 and 1999 acquisitions on net sales,
net income and basic and diluted earnings per share were not material.
PROPORTIONAL CONSOLIDATION
The Company accounts for its investments in 11 joint ventures (2000: 6,
1999: 16) using the proportional consolidation method, as permitted under German
GAAP. Under U.S. GAAP, all investments in joint ventures must be accounted for
using the equity method. The differences in accounting treatment between
proportional consolidation and the equity method of accounting have no impact on
reported stockholders' equity or net income. Rather, they relate solely to
matters of classification and display. The United States Securities and Exchange
Commission (SEC) permits the omission of such differences in classification and
display in the reconciliation to U.S. GAAP appearing in Note 4.
Condensed financial information relating to the Company's pro rata interest
in joint ventures accounted for using the proportional consolidation method is
as follows:
AS OF DECEMBER 31,
---------------------------
BALANCE SHEET INFORMATION 2001 2000
------------------------- ------------- -----------
(EUROS IN MILLIONS)
Fixed assets................................................ E 851.0 E 283.4
Current assets.............................................. 679.0 408.2
------------- -----------
Total assets................................................ E 1,530.0 E 691.6
------------- -----------
Stockholders' equity........................................ E 459.4 E 71.8
Provisions.................................................. 179.4 109.2
Liabilities................................................. 891.2 510.6
------------- -----------
Total liabilities and stockholders' equity.................. E 1,530.0 E 691.6
------------- -----------
YEAR ENDED DECEMBER 31,
---------------------------------------------
STATEMENT OF INCOME INFORMATION 2001 2000 1999
------------------------------- ------------- ------------- -------------
(EUROS IN MILLIONS)
Sales.................................................. E 1,809.4 E 2,732.3 E 1,885.7
Income from operations................................. 82.9 164.5 156.8
Net income............................................. 81.5 137.7 113.7
F-10
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31,
----------------------------------------
CASH FLOW INFORMATION 2001 2000 1999
--------------------- ------------ ----------- -----------
(EUROS IN MILLIONS)
Cash provided by operating activities...................... E 180.9 E 68.7 E 120.5
Cash used in investing activities.......................... (382.5) (13.9) (85.6)
Cash used in (provided by) financing activities............ 168.0 (50.5) (60.3)
------------ ----------- -----------
Net change in cash and cash equivalents.................... (33.6) 5.8 19.4
SUMMARIZED FINANCIAL INFORMATION FOR SIGNIFICANT ASSOCIATED COMPANIES ACCOUNTED
FOR USING THE EQUITY METHOD
Condensed financial information of the significant companies accounted for
using the equity method, Basell Group (BASF's share: 50%), DyStar Group (BASF's
share: 30%) and Svalof Weibull Group (BASF's share: 40%) is as follows:
AS OF DECEMBER 31,
-----------------------------
BALANCE SHEET INFORMATION 2001 2000
------------------------- ------------- -------------
(EUROS IN MILLIONS)
Fixed assets................................................ E 5,900.1 E 6,014.8
Current assets.............................................. 2,607.2 3,222.5
------------- -------------
Total assets................................................ E 8,507.3 E 9,237.3
------------- -------------
Stockholders' equity........................................ E 3,800.6 E 4,038.6
Provisions.................................................. 865.4 1,027.4
Liabilities................................................. 3,841.3 4,171.3
------------- -------------
Total liabilities and stockholders' equity.................. E 8,507.3 E 9,237.3
------------- -------------
BASF's investment........................................... 1,799.6 1,917.8
------------- -------------
YEAR ENDED DECEMBER 31,
---------------------------------
STATEMENT OF INCOME INFORMATION 2001 2000
------------------------------- ------------- -------------
(EUROS IN MILLIONS)
Sales....................................................... E 7,708.0 E 2,820.0
Income from operations...................................... (222.7) (101.7)
Net income.................................................. (218.1) (135.9)
------------- -------------
BASF's share of net income.................................. (108.2) (59.9)
------------- -------------
Goodwill was E165.1 million for Basell N.V. and E25.3 million for the DyStar
Group at the initial application of the equity method in 2000.
LIST OF SHAREHOLDINGS: A list of companies included in the Consolidated
Financial Statements as well as a list of all companies in which BASF has a
participation, has been deposited in the Commercial Register HRB 3000 in
Ludwigshafen, Germany, as required by the German Commercial Code,
Section 313(2). The list of shareholdings can be obtained as a separate report
from BASF Aktiengesellschaft.
F-11
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(C) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BALANCE SHEET DATE: The Consolidated Financial Statements are generally
prepared using the individual financial statements of the companies forming part
of the group (hereinafter referred to as "consolidated companies"). Such
financial statements are generally prepared as of the balance sheet date of the
Consolidated Financial Statements. In certain cases, interim financial
statements or adjusted statements as of the balance sheet date of the
Consolidated Financial Statements are prepared and used.
UNIFORM VALUATION: Assets and liabilities of consolidated companies are
accounted for and valued uniformly in accordance with the principles described
herein. Where the accounting and valuation methods applied in the financial
statements of the consolidated companies differ from these principles,
appropriate adjustments are made to the relevant items. For companies accounted
for under the equity method, significant deviations in the valuation methods are
adjusted.
ELIMINATIONS: Transactions between consolidated companies are eliminated in
full and those for joint ventures, on a pro rata basis. Inter-company profits
resulting from sales between consolidated companies are eliminated unless they
originate from the construction of plants under customary market conditions and
are of minor importance. With regard to the companies accounted for under the
equity method, inter-company profits resulting from sales on customary market
conditions are not eliminated because the amounts are insignificant or because
determining them would involve a disproportionate amount of effort.
CAPITAL CONSOLIDATION: Capital consolidation is based on a method
equivalent to the purchase method required under U.S. GAAP. At the time of
acquisition, the acquisition cost of participations is offset against the
proportionate share of equity acquired. Differences arising are allocated to the
assets or liabilities of the acquired company up to their fair values or
capitalized as intangible fixed assets. Differences not allocated to individual
assets are capitalized as goodwill and amortized within the expected useful
life, within a period of five to 20 years.
REVENUE RECOGNITION: Revenues from product sales and the performance of
services are recognized upon shipment to customers or performance of services.
Provisions for discounts, sales returns, rebates to customers, estimated future
warranty obligations and other claims are provided for in the same period the
related sales are recorded. Revenues on long-term natural gas contracts are
recognized when the gas is delivered. The terms of such contracts do not fix
price.
INTANGIBLE ASSETS: Intangible assets are valued at acquisition cost less
scheduled straight-line amortization. The weighted average amortization period
for the intangible assets is 11 years for 2001 and eight years for 2000 based on
the following expected useful lives:
ESTIMATED LIVES
(YEARS)
-----------------------
2001 2000
-------- --------
Goodwill.................................................... 5 - 20 5 - 20
Product rights and licenses................................. 3 - 10 3 - 15
Marketing, supply and similar rights........................ 4 - 20 4 - 20
Know-how and patents........................................ 5 - 15 5 - 15
Concessions, explorations rights and similar rights......... 3 - 25 3 - 25
Software.................................................... 2 - 5 2 - 5
Other rights and values..................................... 5 - 25 5 - 25
F-12
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company evaluates goodwill and other intangible assets whenever
significant events or changes in circumstances occur which might impair recovery
of recorded asset costs.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
acquisition or production cost less scheduled depreciation over their estimated
useful lives. Low-value assets are fully depreciated in the year of acquisition
and are shown as retirements. Movable depreciable fixed assets that are
functionally integrated are treated as a single asset item. The cost of
self-constructed plants includes direct costs and an appropriate proportion of
the production overhead, but excludes financing costs for the period of
construction. Fixed assets, including natural gas pipelines, are depreciated
using the straight-line method. Movable fixed assets put into operation before
2001 are mostly depreciated by the declining balance method, with a change to
straight-line depreciation if this results in higher depreciation rates (see
Note 2).
The weighted average periods of depreciation are as follows for 2001 and
2000:
ESTIMATED LIVES
-----------------------
2001 2000
-------- --------
(YEARS)
Building and structural installations....................... 23 22
Industrial plant and machinery.............................. 10 9
Long-distance natural gas pipelines......................... 25 25
Working and office equipment and other facilities........... 10 8
Property, plant and equipment are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable. Measurement of an impairment loss for long-lived assets that the
Company expects to hold and use is based on the fair value of the asset, which
is usually based on the expected future discounted cash flows from the use of
the asset and its eventual disposition.
The Company follows the successful efforts method of accounting for its oil
and gas operations. Under this method, costs of successful and uncompleted oil
and gas drilling operations are capitalized as tangible assets. Successful
drillings are depreciated under the unit-of-production method. Successful
drillings of German operations that began production prior to 2001 are
depreciated under the declining balance method over the estimated useful lives
of eight years (for drilling in old fields) and 15 years. Geophysical
expenditures, including exploratory and dry-hole costs, are charged against
income.
FINANCIAL ASSETS: Shares in more significant non-consolidated affiliated or
associated companies are accounted for by the equity method. Other shares,
participations and securities held as fixed assets are shown at acquisition cost
or, where an other-than-temporary impairment of value occurs, at the appropriate
lower values. Investments in affiliated and associated companies accounted for
using the equity method are carried at cost of acquisition, plus the Company's
equity in undistributed earnings. Goodwill associated with such investments is
amortized over a period of between five and 10 years.
Loans are stated at cost or, in the case of non-interest-bearing loans or
loans at below market interest rates, at their present value. Loans are
considered impaired when, based on current information and events, it is
probable that the Company will be unable to collect all amounts due. In such
circumstances, the Company recognizes an impairment loss based on the estimated
fair value of the loan.
F-13
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES: Inventories are carried at the lower of acquisition or
production costs or market values, as appropriate. These lower values are the
replacement costs of raw materials and factory supplies and merchandise and, in
the case of work in process and finished products, the expected sales proceeds
less costs to be incurred prior to sale. Production costs include, in addition
to direct costs, an appropriate allocation of production overhead using normal
utilization rates of the production plants. Financing costs are not included.
Construction-in-progress relates mainly to plants under construction for
third parties. Expected profits are not recognized until the final or partial
billing of a project; expected losses are recognized by write-downs to the lower
attributable values.
RECEIVABLES AND OTHER ASSETS: Receivables are generally carried at their
nominal value; notes receivable and loans generating no or a low-interest income
are discounted to their present values. Risks of collectibility and
transferability are covered by appropriate valuation allowances.
SECURITIES: Securities held as fixed assets, as well as marketable
securities, are valued individually at cost or at lower quoted or market values.
DEFERRED TAX ASSETS: Deferred tax assets are recorded for taxable temporary
differences between the valuation of assets and liabilities in the financial
statements of the consolidated companies and the carrying amounts for tax
purposes. Beginning in the year 2001, deferred taxes have been recorded for tax
loss carryforwards (see Note 2). For companies located in Germany a 38% tax rate
is applied, for other companies the tax rates applicable in the individual
countries are used. If expected future earnings of a company make it seem more
likely than not that the tax benefits will not be realized, appropriate
valuation allowances are made.
PROVISIONS: Provisions for pensions are based on actuarial computations
predominantly according to the projected unit credit method. Similar
obligations, especially those arising from promises made by North American Group
companies to pay the healthcare costs and life insurance premiums of retired
staff and their dependents, are included in pension provisions.
Tax provisions are recognized for income taxes and other taxes in the amount
necessary to meet the expected payment obligations, less any prepayments that
have been made. Provisions for deferred taxes are recognized for a net liability
from taxable temporary differences between the valuation of assets and
liabilities in the financial statements of the consolidated companies and the
carrying amounts for tax purposes, using the tax rates applicable in the
individual countries.
Other provisions are recorded for the expected amounts of liabilities and
probable losses from pending transactions. Maintenance provisions are
established to cover omitted maintenance procedures as of the end of the year,
expected to be incurred within the first three months of the following year. The
amount provided is based on reasonable commercial judgement.
Environmental expenditures that relate to an existing condition caused by
past operations and prescribed by current legal requirements that do not have
future economic benefit are expensed. Liabilities for these expenditures are
recorded on an undiscounted basis when environmental assessments or clean-ups
are probable, the costs can be reasonably estimated and no future economic
benefit is expected.
Provisions for required recultivation associated with oil and gas
operations, especially the filling of wells and clearance of oilfields, or the
operation of landfill sites are built up in installments over their expected
service lives. In addition, provisions are accrued in installments for regular
F-14
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shutdowns within prescribed intervals of certain large-scale plants as required
by technical surveillance authorities.
Provisions for restructuring measures are recorded when a commitment from
management exists and a detailed plan has been established. Such provisions
include severance payments and other personnel-related costs, as well as
specific site restructuring costs such as the costs for demolition and closure.
Provisions for long-service and anniversary bonuses are actuarially
calculated using an interest rate predominantly of 5.5%. For short-time working
programs for those employees nearing retirement, the present value of promised
top-up payments are set aside in full and the wage and salary payments due
during the passive phase of agreements are accrued through installments,
discounted at an interest rate of 5.5%.
Provisions are recorded for the expected costs of short-time working
contracts that are anticipated to be contracted during the term of the
collective bargaining agreements, taking into consideration the ceilings
provided in the collective agreements.
CONVERSION OF FOREIGN CURRENCY ITEMS: The cost of assets acquired in
foreign currencies and revenues from sales in foreign currencies are recorded at
current rates on transaction dates. Short-term foreign currency receivables and
liabilities are valued at the rate on the balance sheet date. Long-term foreign
currency receivables are recorded at the rate prevailing on the acquisition date
or at the lower rate on the balance sheet date. Long-term foreign currency
liabilities are recorded at the rate prevailing on the acquisition date or at
the higher rate on the balance sheet date. Foreign-currency receivables or
liabilities that are hedged are carried at hedge rates.
DERIVATIVE FINANCIAL INSTRUMENTS: Derivative financial instruments are
treated as pending transactions and are not recorded as assets or liabilities.
When applicable, underlying transactions and hedging measures are combined and
valued accordingly. Profits from hedging transactions which cannot be allocated
to a particular underlying transaction are recorded in income upon maturity.
Unrealized losses from hedging transaction, which cannot be allocated to a
particular underlying transaction are recognized currently in earnings and
included in provisions.
TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS: The translation of
foreign currency financial statements conforms with Statement of Financial
Accounting Standard (SFAS) No. 52, "Foreign Currency Translation." The local
currency is the functional currency of BASF subsidiaries and joint ventures in
North America, Japan, Korea, China, Brazil, Singapore, and for oil and gas
operations in Argentina. Balance sheet items are translated to euros at year-end
rates except equity accounts at historical rates. Expenses and income are
translated at quarterly average rates and accumulated for the year. The effects
of rate changes are shown as "currency translation adjustment" and reported as a
separate component of equity.
Where the euro is the functional currency, non-monetary assets and
liabilities carried at historical values are translated using historical rates.
Monetary assets and liabilities (and any non-monetary assets and liabilities
carried at fair value) are translated using the year end rates, and expenses and
income are converted at quarterly average rates cumulated to year-end figures,
except for those items derived from balance sheet items converted at historical
rates, which are also translated at historical rates. Foreign exchange gains or
losses resulting from the remeasurement process are included in other operating
expenses or income.
F-15
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS PER SHARE: The calculation of earnings per share under German GAAP
is based on the average number of common shares outstanding during the
applicable period and the net income of the period.
USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION: The preparation of
financial statements in conformity with GAAP requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. In the preparation of these Consolidated Financial
Statements, estimates and assumptions have been made by management concerning
the selection of useful lives of property, plant and equipment and intangible
assets, the measurement of provisions, the carrying value of investments, and
other similar evaluations of assets and obligations. Actual results could differ
from these estimates.
2. CHANGE IN ACCOUNTING PRINCIPLES
Additions of movable assets to property, plant and equipment since
January 1, 2001 are depreciated using the straight-line method, which is
considered to better reflect the development of values of the Company's plants.
Movable assets of property, plant and equipment already in use before the end of
2000 continue to be depreciated by the declining balance method. Successful
drillings in the oil and gas operations added in 2001 are depreciated under the
unit-of-production method. Successful drillings of German operations that began
production prior to 2001 continue to be depreciated under the declining balance
method.
The effect of the change in depreciation methods was to reduce depreciation
expense by E171.9 million and to increase net income by E110.2 million, or E0.18
per share.
Beginning in 2001, deferred tax assets for tax loss carryforwards are
recorded if the expected future earnings of a company make it seem more likely
than not that the tax benefit will be realized. This accounting treatment,
mandatory under U.S. GAAP, is allowed in Germany based on the recently issued
Standard No. 10 of the German Accounting Standards Board.
Deferred tax assets for tax loss carryforwards arising in 2001 reduced
income tax expenses and correspondingly increased net income by E219.7 million,
or E0.37 per share.
Deferred tax assets recorded retroactively for tax loss carryforwards prior
to 2001 resulted in an increase in net income of E50.6 million, or E0.08 per
share, which is disclosed separately in the Consolidated Statements of Income as
"Effect of the change in accounting principles for deferred taxes."
The changes in accounting principles increased earnings per share by E0.63.
3. DISCONTINUED OPERATIONS
On March 2, 2001, BASF's pharmaceuticals business was sold on the basis of
an agreement dated December 14, 2000 to Abbott Laboratories Inc., Abbott Park,
Illinois. Net sales and income of the pharmaceuticals business are included in
the financial statements of the BASF Group as well as in the data of the former
business segment Health & Nutrition (now called: Agricultural Products &
Nutrition) for 1999, 2000 and for the period ended March 1, 2001.
F-16
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pharmaceuticals business is considered a discontinued operation under
U.S. GAAP and would therefore not be included in the results from continuing
operations for the years 1999 through 2001. The effect on the Consolidated
Financial Statements would be as follows:
INCOME STATEMENT:
2001 2000 1999
-------- -------- --------
Sales....................................................... E364 E2,526 E2,197
Income from operations...................................... 30 243 (13)
Income before taxes......................................... 31 260 3
Net income/income from discontinued operations.............. 19 156 2
The effect on net income from discontinued operations has been determined
using a 40% income tax rate.
The gain on the disposal of the pharmaceuticals business is separately
disclosed as extraordinary income (Note 9). According to U.S. GAAP, this gain
would be adjusted for U.S. GAAP valuation differences and reported as part of
income from discontinued operations.
4. RECONCILIATION TO U.S. GAAP
The Consolidated Financial Statements comply with U.S. GAAP as far as
permissible under German GAAP. The remaining differences between German and U.S.
GAAP relate to valuation methods that are required under U.S. GAAP but which are
not permissible under German GAAP.
The following is a summary of the significant adjustments to net income and
stockholders' equity that would be required if U.S. GAAP had been fully applied
rather than German GAAP.
F-17
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECONCILIATION OF NET INCOME TO U.S. GAAP
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
NOTE 2001 2001 2000 1999
-------- -------- -------------- -------------- --------------
(EUROS AND DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Net income as reported in the Consolidated
Financial Statements of income under
German GAAP.............................. $5,214.4 E 5,858.2 E 1,239.8 E 1,236.8
Adjustments required to conform with
U.S. GAAP:
Capitalization of interest................. (a) 45.1 50.7 53.7 26.1
Capitalization of software developed for
internal use............................. (b) 57.1 64.1 51.0 50.1
Valuation of pension funds................. (c) 72.7 81.7 118.9 70.9
Accounting for derivatives at fair value
and valuation of long-term foreign
currency items........................... (d) (66.1) (74.3) 69.4 (36.0)
Valuation of securities.................... (e) (4.0) (4.5) -- (0.7)
U.S. GAAP adjustments relating to companies
accounted for under the equity method.... (f) (27.0) (30.3) 8.3 8.3
Other adjustments.......................... (g) (6.1) (6.8) (9.0) (27.1)
Deferred taxes and recognition of tax
credit................................... (h) (224.3) (252.0) (73.7) 3.1
Minority interests......................... (i) 5.0 5.6 (4.8) (6.7)
-------- -------------- -------------- --------------
NET INCOME IN ACCORDANCE WITH U.S. GAAP.... $5,066.8 E 5,692.4 E 1,453.6 E 1,324.8
-------- -------------- -------------- --------------
Thereof:
Income (loss) from continuing
operations............................. (212.0) (238.2) 1,302.1 1,329.1
Income from discontinued operations
including gain from disposal............. 5,245.0 5,892.6 151.5 (4.3)
Cumulative effect of implementing SFAS
133.................................... 33.8 38.0 -- --
BASIC EARNINGS PER SHARE IN ACCORDANCE WITH
U.S. GAAP................................ $ 8.41 E 9.45 E 2.37 E 2.14
(Loss) income from continuing
operations............................. $ (0.35) E (0.39) E 2.13 E 2.15
Income from discontinued operations
including gain from disposal........... $ 8.71 E 9.78 E 0.24 E (0.01)
Cumulative effect of implementing SFAS
133.................................... $ 0.05 E 0.06 -- --
Diluted earnings per share in accordance
with U.S. GAAP......................... $ 8.41 E 9.45 E 2.35 E 2.12
EARNINGS PER SHARE
The calculation of earnings per common share is based on the
weighted-average number of common shares outstanding during the applicable
period. The calculation of diluted earnings per common share reflects the effect
of all dilutive potential common shares that were outstanding during the
respective period. For computing diluted earnings per share, interest expense on
convertible bonds, net of taxes, has been added to net income.
F-18
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options related to the BASF stock option program (BOP) for senior management
(see Note 27) for which the exercise hurdles were met have not been included in
the computation of diluted earnings per share because they would have had an
anti-dilutive effect.
The determination of shares outstanding is as follows:
2001 2000 1999
----------- ----------- -----------
Weighted average shares outstanding................. 602,586,176 612,806,123 618,073,268
Effect of dilutive securities:
Incremental shares from assumed conversion of
convertible bonds................................. -- 8,774,899 9,088,490
----------- ----------- -----------
Weighted average shares outstanding, adjusted for
dilutive securities............................... 602,586,176 621,581,022 627,161,758
----------- ----------- -----------
RECONCILIATION OF STOCKHOLDERS' EQUITY TO U.S. GAAP
YEAR ENDED DECEMBER 31,
-------------------------------------------
NOTE 2001 2001 2000
-------- --------- -------------- --------------
(EUROS AND DOLLARS IN MILLIONS)
Stockholders' equity as reported in the Consolidated
Balance Sheets under German GAAP.................. $15,596.2 E17,521.8 E14,294.8
Minority interests.................................. (320.2) (359.7) (481.3)
--------- -------------- --------------
Stockholders' equity excluding minority interests... 15,276.0 17,162.1 13,813.5
Adjustments required to conform with U.S. GAAP:
Capitalization of interest.......................... (a) 504.2 566.5 517.9
Capitalization of software developed for internal
use............................................... (b) 147.0 165.2 101.1
Valuation of pension funds.......................... (c) 766.3 860.9 795.1
Accounting for derivatives at fair value and
valuation of long-term foreign currency items..... (d) 33.5 37.6 102.7
Valuation of securities............................. (e) 323.4 363.3 254.3
U.S. GAAP adjustments relating to companies
accounted for under the equity method............. (f) 112.2 126.0 156.3
Other adjustments................................... (g) 103.7 116.5 69.2
Deferred taxes and recognition of tax credit........ (h) (748.8) (841.3) (557.4)
Minority interests.................................. (i) (16.6) (18.6) (23.8)
--------- -------------- --------------
STOCKHOLDERS' EQUITY IN ACCORDANCE WITH U.S. GAAP... $16,500.9 E18,538.2 E15,228.9
--------- -------------- --------------
(A) CAPITALIZATION OF INTEREST
For U.S. GAAP purposes, the Company capitalizes interest on borrowings
during the active construction period of major capital projects. Capitalized
interest is added to the cost of the underlying assets and is amortized over the
useful lives of the asset. The capitalization of interest relating to capital
projects is not permissible under German GAAP.
In calculating capitalized interest, the Company has made assumptions with
respect to the capitalization rate and the average amount of accumulated
expenditures. The Company's
F-19
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subsidiaries generally use the entity specific weighted average borrowing rate
as the capitalization rate.
(B) CAPITALIZATION OF SOFTWARE DEVELOPED FOR INTERNAL USE
Certain costs incurred for computer software developed or obtained for the
Company's internal use are to be capitalized beginning in 1999 (Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use") and amortized over the expected useful life of the
software. Such costs have been expensed in these financial statements because
the capitalization of self-developed intangible assets is not permissible under
German GAAP.
(C) VALUATION OF PENSION FUNDS
Pension benefits under Company pension schemes are partly funded in a
legally independent fund "BASF Pensionskasse VVaG" ("BASF Pensionskasse"). The
companies' contribution to the BASF Pensionskasse is included in expenses for
pensions and assistance.
BASF guarantees the commitments of the BASF Pensionskasse. For U.S. GAAP
purposes, BASF Pensionskasse would be classified as a defined benefit plan and
therefore included in the calculation of net periodic pension cost as well as
the projected benefit obligation and plan assets. The valuation of the pension
obligations under the projected unit credit method and of the fund assets of
BASF Pensionskasse at market values would result in a prepaid pension asset
according to U.S. GAAP that is not recorded in the Consolidated Financial
Statements under German GAAP.
Net periodic pension cost according to U.S. GAAP would be lower than showing
the Company's contribution to the BASF Pensionskasse as expense.
Information about the funded status of the BASF Pensionskasse is provided in
the following table:
2001 2000
------------- -------------
(EUROS IN MILLIONS)
Plan assets as of December 31,.............................. E3,886.4 E4,137.3
Projected benefit obligation as of December 31,............. 3,294.3 3,213.4
------------- -------------
Funded status............................................... 592.1 923.9
Unrecognized actuarial losses (gains)....................... 59.8 (327.2)
------------- -------------
Prepaid pension asset....................................... E 651.9 E 596.7
------------- -------------
The valuation of certain pension plans of foreign subsidiaries, according to
SFAS No. 87 also resulted in prepaid pension assets (Note 23), included in the
reconciliation to U.S. GAAP. After consideration of unrecognized actuarial gains
and losses, E209.0 million in 2001 and E198.4 million in 2000 were included in
the reconciliation to U.S. GAAP.
(D) ACCOUNTING FOR DERIVATIVES AT FAIR VALUE AND VALUATION OF LONG-TERM FOREIGN
CURRENCY ITEMS
Beginning in 2001, derivative contracts are to be accounted for at fair
values as required by SFAS Nos. 133 and 138. Where hedge accounting is not
applicable, changes in the fair values of derivative contracts are to be
included in net income, together with foreign exchange gains and losses of the
underlying transactions.
F-20
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At the beginning of 2001, the implementation of SFAS No. 133 increased
income before taxes by E66.8 million consisting of E(127.2) million negative
fair values of derivative contracts and E194.0 million foreign exchange gains on
the underlying transactions. The cumulative effect on net income was
E38.0 million.
Under German GAAP, long-term receivables and liabilities denominated in a
foreign currency are converted into euros at the exchange rates of the date when
the transactions took place or the lower exchange rates at the end of the year
for receivables and the higher exchange rates for liabilities. U.S. GAAP
requires conversion at the exchange rate at the end of the year. Furthermore,
hedge accounting is applied in these financial statements to a larger extent
than allowed by SFAS No. 133. Positive fair values of derivative contracts for
which hedge accounting is not applicable are deferred until settlement or
termination of the derivative contract.
An exchange loss of E48.6 million for the overvaluation of the Brazilian
real would have been charged to 1999 net income under U.S. GAAP.
Under German GAAP, unrealized gains on swap and other forward contracts are
deferred until settlement or termination while unrealized losses are recognized
as of each period end. Under U.S. GAAP, these contracts are marked to market.
The amounts included in the reconciliation of net income were E44.6 million in
2000 and E12.4 million in 1999, and in the reconciliation of shareholders'
equity E50.0 million in 2000.
(E) VALUATION OF SECURITIES
Under U.S. GAAP, available-for-sale securities are recorded at market values
on the balance sheet date. The effect of the change in valuation is immediately
recognized in a separate component of stockholders' equity. Realized profits and
losses are credited or charged to income, as are other than temporary
impairments of value. The major part of securities and other investments are
considered to be available-for-sale. Under German GAAP, such securities and
other investments are valued at the lower of acquisition cost or market value at
the balance sheet date.
(F) U.S. GAAP ADJUSTMENTS RELATING TO COMPANIES ACCOUNTED FOR UNDER THE EQUITY
METHOD
For purposes of the reconciliation to U.S. GAAP, the earnings of companies
accounted for using the equity method have been determined using valuation
principles prescribed by U.S. GAAP.
(G) OTHER ADJUSTMENTS
This caption includes the reversal of maintenance provisions, the
reclassification of the provision for stock compensation, and other items.
German GAAP requires companies to accrue as of the end of the year for the
expected costs of omitted maintenance procedures expected to take place within
the first three months of the following year. Such costs would be expensed as
incurred under U.S. GAAP. The amounts included in the reconciliation of net
income related to the maintenance provision were E(5.6) million in 2001, E(1.4)
million in 2000 and E2.8 million in 1999, and in the reconciliation of
stockholders' equity were E27.3 million in 2001 and E32.9 million in 2000. For
purposes of reconciliation to U.S. GAAP, the recording of stock compensation
expense results in a credit to stockholders' equity rather than a balance sheet
provision.
F-21
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(H) DEFERRED TAXES
The adjustments required to conform with U.S. GAAP would result in taxable
temporary differences between the valuation of assets and liabilities in the
Consolidated Financial Statements and the carrying amount for tax purposes.
Resulting adjustments for deferred taxes primarily relate to the aforementioned
U.S. GAAP reconciling items.
Additionally, this amount also includes deferred tax liabilities related to
the currency translation adjustment and, until December 31, 2000, deferred tax
assets for tax loss carryforwards of E75.6 million. Beginning in 2001, deferred
tax assets for tax loss carryforwards are recorded in the financial statements
(see Note 2).
In accordance with German GAAP, the tax credit related to the distribution
of retained earnings previously taxed at higher rates is accounted for as a
reduction of income tax expense in the financial year for which the distribution
has been recommended.
The revised corporation tax system in Germany recognizes such credits as a
reduction of income taxes payable in the year the dividend is paid. According to
U.S. GAAP, such tax credits are to be recognized as a reduction of income tax
expenses in the period in which the tax credits will be recognized for tax
purposes. This leads to a deferral of the recognition of the reduction of taxes
related to the dividend payment in 2002.
(I) MINORITY INTERESTS
The share of minority shareholders in the aforementioned reconciliation
items to U.S. GAAP of net income and stockholders' equity are reported
separately.
CONSOLIDATION OF MAJORITY-OWNED SUBSIDIARIES
U.S. GAAP requires the consolidation of all controlled subsidiaries. Under
German GAAP, the Company does not consolidate certain subsidiaries because their
combined effect on financial position, results of operations and cash flows is
not material. The effect of non-consolidated subsidiaries for 2001, 2000 and
1999, on total assets, total liabilities, stockholders' equity, net sales and
net income was less than 3%.
Additionally, under German GAAP, the Company accounts on a prospective basis
for previous unconsolidated subsidiaries that are added to the scope of
consolidation. U.S. GAAP requires consolidation for all periods that a
subsidiary is controlled. Had the previously unconsolidated companies that were
newly consolidated in 2001 or 2000 been consolidated in 2000 or 1999, the effect
on the 2000 and 1999 net sales, net income, assets and liabilities would have
been immaterial.
NEW U.S. GAAP ACCOUNTING STANDARDS NOT YET ADOPTED
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations." SFAS No. 141 requires the purchase method of accounting for
business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. BASF does not believe that the adoption of SFAS
No. 141 will have a significant impact on the reconciliation of net income and
stockholders' equity.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and other Intangible
Assets." SFAS No. 142 specifies that intangible assets with an unlimited useful
life and goodwill will no longer be
F-22
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amortized but will be periodically tested for impairment and written down to
fair value if considered impaired. BASF is currently reviewing these statements
to determine this impact on the amounts disclosed in the reconciliation of net
income and stockholders' equity to U.S. GAAP in the Notes to the Consolidated
Financial Statements.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses financial accounting and reporting for
obligations and costs associated with the retirement of tangible long-lived
assets. In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which provides a single accounting
model for long-lived assets to be disposed of by sale. BASF is currently
reviewing these statements to determine this impact on the amounts disclosed in
the reconciliation of net income and stockholders' equity to U.S. GAAP in the
Notes to the Consolidated Financial Statements.
REPORTING OF COMPREHENSIVE INCOME
Comprehensive income in accordance with SFAS No. 130, "Reporting
Comprehensive Income," includes the impact of revenues, gains, expenses and
losses, that are not included in net income under U.S. GAAP.
COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31,
---------------------------------------------
2001 2000 1999
------------- ------------- -------------
(EUROS IN MILLIONS)
Net income in accordance with U.S. GAAP..................... E 5,692.4 E 1,453.6 E 1,324.8
Other comprehensive income, net of tax:
Foreign currency translation adjustments.................... (116.0) 113.2 529.8
Unrealized holding gains on securities...................... 113.5 158.3 8.0
Deferred taxes.............................................. (37.5) 89.8 (171.1)
------------- ------------- -------------
Other comprehensive income (loss), net of tax............... (40.0) 361.3 366.7
------------- ------------- -------------
Comprehensive income, net of tax............................ E 5,652.4 E 1,814.9 E 1,691.5
------------- ------------- -------------
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31,
---------------------------------
2001 2000
--------------- ---------------
(EUROS IN MILLIONS)
Stockholders' equity according to U.S. GAAP before
accumulated other comprehensive income.................... E17,754.4 E14,401.3
Accumulated other comprehensive income:
Foreign currency translation adjustments.................... 560.2 682.4
Unrealized holding gains on securities...................... 368.6 255.1
Deferred taxes.............................................. (145.0) (109.9)
--------------- ---------------
Accumulated other comprehensive income:..................... 783.8 827.6
--------------- ---------------
Total stockholders' equity according to U.S.
GAAP including comprehensive income......................... E18,538.2 E15,228.9
--------------- ---------------
F-23
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. SEGMENT REPORTING
The Company is a worldwide manufacturer and supplier of more than 8,000
products. The Company offers a wide range of products, including chemicals,
plastics, coatings systems, dispersions, agricultural products, fine chemicals,
crude oil and natural gas.
The Company conducts its worldwide operations through 12 operating
divisions, which have been aggregated into five business segments based on the
nature of the products and production processes, the type of customers, the
channels of distribution and the nature of the regulatory environment. The
business segments are reportable segments except for the business segment
Agricultural Products & Nutrition, which is treated as two reportable segments,
disclosing separately Agricultural Products and Fine Chemicals. The divested
Pharmaceuticals division was formerly included as a third reportable segment in
the business segment Health & Nutrition.
The business segment Chemicals contains the operating divisions Inorganics,
Petrochemicals and Intermediates. The former operating division of Specialty
Chemicals was dissolved as of July 1, 2001 and the strategic business units of
glykols, alkylene oxides as well as ethylene and propylene oxides have been
transferred to the Petrochemicals operating division. The other activities of
the Specialty Chemicals operating division have been allocated to the operating
division of Performance Products.
The business segment Plastics & Fibers includes the operating divisions
Styrenics, Performance Polymers and Polyurethanes. The former operating
divisions of Engineering Plastics and Fiber Products were merged as of July 1,
2001 to create the Performance Polymers operating division. Up to
September 2000, the polyolefins business was included in the business segment's
figures. This business was transferred to the associated company Basell N.V.,
which is not consolidated.
The business segment Colorants & Finishing Products has been renamed
Performance Products. It consists of the operating divisions Performance
Chemicals, Coatings and Functional Polymers. The former operating divisions
Dispersions, Colorants as well as some parts of Specialty Chemicals have been
combined to form the operating division Performance Chemicals. Up to
September 2000, the figures of the operating division include the textile dye
business of the former Colorants operating division. This business has been
transferred to the non-consolidated associated company DyStar.
The business segment Health & Nutrition was renamed Agricultural Products &
Nutrition. Figures for the divested pharmaceuticals business are included in the
segment's figures through February 2001.
Besides these changes, certain strategic business units have been reassigned
to other operating divisions in order to better reflect the Company's
value-adding-chains.
Segment reporting data for prior years have been restated to reflect these
organizational changes.
The Oil & Gas segment consists of the operating division Oil and Gas, which
conducts oil and gas exploration and trades in natural gas.
Business activities not allocated to any operating division are shown as
"Other" and comprise the sale of feedstock, remaining Fertilizers activities,
engineering and other services as well as rental income.
F-24
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The income from operations recorded as "Other" includes mainly costs of
exploratory research of E202 million in 2001 (2000: E168 million; 1999:
E124 million).
Transfers between the reportable segments are generally valued at
market-based prices and the revenues generated by these transfers are shown in
the table below as "Intersegmental transfers."
F-25
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AGRICULTURAL PRODUCTS & NUTRITIOAGRIC
----------------------------------------
THEREOF
PLASTICS & PERFORMANCE AGRICULTURAL FINE
SEGMENT DATA 2001 CHEMICALS FIBERS PRODUCTS TOTAL PRODUCTS CHEMICALS
----------------- ----------- ----------- ------------- ----------- ------------ -----------
(EUROS IN MILLIONS)
NET SALES....................... E 4,494 E 8,185 E 8,154 E 5,826 E 3,478 E 1,984
Change (%).................... (0.2) (25.8) (3.1) (13.0) 43.2 14.1
Intersegmental transfers........ 2,452 406 322 62 30 29
----------- ----------- ----------- ----------- ----------- -----------
Sales including intersegmental
transfers..................... 6,946 8,591 8,476 5,888 3,508 2,013
Income from operations (EBIT)... 362 (2) 99 (162) 18 (210)
Change (%).................... (43.4) -- (83.1) 21.0 -- --
Assets.......................... 4,847 6,344 6,048 7,865 6,377 1,488
Return on operational assets
(%)........................... 8.0 -- 1.6 -- 0.3 --
Research and development
expense....................... 109 146 197 497 345 78
Additions to tangible and
intangible fixed assets....... 929 891 418 349 130 199
Depreciation of tangible and
intangible fixed assets....... 457 679 661 715 496 191
AGRICULTURAL PRODUCTS & NUTRITION
-------------------------
EOF
E
SEGMENT DATA 2001 CALS PHARMACEUTICALS* OIL & GAS OTHER TOTAL
----------------- ----- ----------------- ----------- ----------- ------------
(EUROS IN MILLIONS)
NET SALES....................... E 364 E 4,516 E 1,325 E 32,500
Change (%).................... (85.6) 14.1 (1.4) (9.6)
Intersegmental transfers........ 5 413 477 4,132
----------- ----------- ----------- ------------
Sales including intersegmental
transfers..................... 369 4,929 1,802 36,632
Income from operations (EBIT)... 30 1,308 (388) 1,217
Change (%).................... (87.7) (0.2) (138.0) (60.4)
Assets.......................... -- 3,149 8,622 36,875
Return on operational assets
(%)........................... -- 39.1 -- 3.9
Research and development
expense....................... 74 95 203 1,247
Additions to tangible and
intangible fixed assets....... 20 229 497 3,313
Depreciation of tangible and
intangible fixed assets....... 28 302 111 2,925
---------------
* until the end of February 2001
F-26
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AGRICULTURAL PRODUCTS & NUTRITIAGRICU
-----------------------------------------
THEREOF
PLASTICS & PERFORMANCE AGRICULTURAL FINE
SEGMENT DATA 2000 CHEMICALS FIBERS PRODUCTS TOTAL PRODUCTS CHEMICALS
----------------- ----------- ------------ ------------- ------------ ------------ -----------
(EUROS IN MILLIONS)
NET SALES....................... E 4,504 E 11,030 E 8,418 E 6,693 E 2,428 E 1,739
Change (%).................... 36.9 27.8 11.5 20.0 39.1 6.3
Intersegmental transfers........ 2,408 510 314 83 34 44
----------- ------------ ----------- ------------ ----------- -----------
Sales including intersegmental
transfers..................... 6,912 11,540 8,732 6,776 2,462 1,783
Income from operations.......... 640 902 586 (205) (443) (5)
Change (%).................... 1.7 37.5 (17.2) 65.4 -- 99.4
Assets.......................... 4,232 6,086 6,266 10,203 6,607 1,368
Return on operational assets
(%)........................... 16.8 13.9 10.4 -- -- --
Research and development
expense....................... 112 172 198 821 275 78
Additions to tangible and
intangible fixed assets....... 774 633 1,332 3,464 3,260 83
Depreciation of tangible and
intangible fixed assets....... 455 692 554 845 412 159
AGRICULTURAL PRODUCTS & NUTRITION
-------------------------
REOF
NE
SEGMENT DATA 2000 ICALS PHARMACEUTICALS OIL & GAS OTHER TOTAL
----------------- ------ ---------------- ----------- ----------- ------------
(EUROS IN MILLIONS)
NET SALES....................... E 2,526 E 3,957 E 1,344 E 35,946
Change (%).................... 15.0 29.7 (2.2) 22.0
Intersegmental transfers........ 36 320 264 3,899
----------- ----------- ----------- ------------
Sales including intersegmental
transfers..................... 2,562 4,277 1,608 39,845
Income from operations.......... 243 1,310 (163) 3,070
Change (%).................... -- 76.8 (22.6) 52.8
Assets.......................... 2,228 3,540 8,230 38,557
Return on operational assets
(%)........................... 11.8 40.0 -- 10.8
Research and development
expense....................... 468 50 173 1,526
Additions to tangible and
intangible fixed assets....... 121 267 461 6,931
Depreciation of tangible and
intangible fixed assets....... 274 272 98 2,916
F-27
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AGRICULTURAL PRODUCTS & NUTRITIAGRICU
----------------------------------------
THEREOF
PLASTICS & PERFORMANCE AGRICULTURAL FINE
SEGMENT DATA 1999 CHEMICALS FIBERS PRODUCTS TOTAL PRODUCTS CHEMICALS
----------------- ----------- ----------- ------------- ----------- ------------ -----------
(EUROS IN MILLIONS)
NET SALES........................ E 3,289 E 8,628 E 7,553 E 5,578 E 1,745 E 1,636
Change (%)..................... 2.1 12.6 3.6 29.5 (0.3) 11.0
Intersegmental transfers......... 2,139 400 751 123 36 53
----------- ----------- ----------- ----------- ----------- -----------
Sales including intersegmental
transfers...................... 5,428 9,028 8,304 5,701 1,781 1,689
Income from operations........... 629 656 708 (592) 195 (774)
Change (%)..................... (24.9) 16.7 (6.0) (3.9)
Assets........................... 3,386 6,937 4,975 5,174 1,949 1,338
Return on operational assets
(%)............................ 20.2 10.9 14.9 (11.8) 10.6 (55.4)
Research and development
expense........................ 114 185 190 664 190 77
Additions to tangible and
intangible fixed assets........ 646 1,047 394 281 93 87
Depreciation of tangible and
intangible fixed assets........ 400 611 494 784 175 353
AGRICULTURAL PRODUCTS & NUTRITION
-------------------------
REOF
NE
SEGMENT DATA 1999 ICALS PHARMACEUTICALS OIL & GAS OTHER TOTAL
----------------- ------ ---------------- ----------- ----------- ------------
(EUROS IN MILLIONS)
NET SALES........................ E 2,197 E 3,051 E 1,374 E 29,473
Change (%)..................... 18.8 13.6 (19.6) 6.6
Intersegmental transfers......... 34 177 224 3,814
----------- ----------- ----------- ------------
Sales including intersegmental
transfers...................... 2,231 3,228 1,598 33,287
Income from operations........... (13) 741 (133) 2,009
Change (%)..................... (122.0) 168.5 27.3 (23.4)
Assets........................... 1,887 3,003 6,534 30,009
Return on operational assets
(%)............................ (0.7) 26.3 -- 8.6
Research and development
expense........................ 397 47 133 1,333
Additions to tangible and
intangible fixed assets........ 101 524 361 3,253
Depreciation of tangible and
intangible fixed assets........ 256 281 92 2,662
F-28
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GEOGRAPHICAL SEGMENT DATA
NORTH
THEREOF AMERICA SOUTH ASIA, PACIFIC
EUROPE GERMANY (NAFTA) AMERICA AREA, AFRICA TOTAL
------------ ------------ ------------ ----------- ------------- ------------
(EUROS IN MILLIONS)
2001
LOCATION OF CUSTOMERS
Sales............................ E 17,984 E 7,212 E 7,654 E 2,188 E 4,674 E 32,500
Change (%)....................... (10.5) (8.7) (9.1) (12.5) (5.1) (9.6)
Share (%)........................ 55 22 24 7 14 100
LOCATION OF COMPANIES
Sales............................ 19,399 13,417 7,772 1,842 3,487 32,500
Sales including interregional
transfers...................... 21,652 -- 8,440 1,927 3,770 35,789
Income from operations........... 1,926 1,347 (678) (3) (28) 1,217
Additions to tangible and
intangible fixed assets........ 1,539 933 759 144 871 3,313
Assets........................... 19,296 13,318 10,616 2,201 4,762 36,875
2000
LOCATION OF CUSTOMERS
Sales............................ E 20,103 E 7,897 E 8,419 E 2,500 E 4,924 E 35,946
Change (%)....................... 18.3 13.9 24.3 35.7 27.5 22.0
Share (%)........................ 56 22 23 7 14 100
LOCATION OF COMPANIES
Sales............................ 22,203 14,457 8,441 2,127 3,175 35,946
Sales including interregional
transfers...................... 24,444 -- 8,929 2,232 3,532 39,137
Income from operations........... 2,577 1,864 99 233 161 3,070
Additions to tangible and
intangible fixed assets........ 2,674 1,298 3,294 431 532 6,931
Assets........................... 20,612 13,836 11,364 2,479 4,102 38,557
1999
LOCATION OF CUSTOMERS
Sales............................ E 16,996 E 6,934 E 6,773 E 1,842 E 3,862 E 29,473
Change (%)....................... 1.9 (1.1) 8.4 12.3 25.3 6.6
Share (%)........................ 58 24 23 6 13 100
LOCATION OF COMPANIES
Sales............................ 19,119 12,718 6,783 1,484 2,087 29,473
Sales including interregional
transfers...................... 20,853 -- 7,156 1,556 2,329 31,894
Income from operations........... 1,258 542 481 126 144 2,009
Additions to tangible and
intangible fixed assets........ 1,950 1,595 1,105 83 115 3,253
Assets........................... 18,744 12,959 7,062 1,438 2,765 30,009
F-29
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. OTHER OPERATING INCOME
2001 2000 1999
----------- ------------- -----------
(EUROS IN MILLIONS)
Release and adjustment of provisions........................ E 164.4 E 239.5 E 142.1
Income from miscellaneous revenue-generating activities..... 115.9 128.4 74.8
Gains from foreign currency transactions and conversion..... 252.6 499.5 323.8
Gains from disposal of assets............................... 91.7 251.3 266.9
Other....................................................... 256.9 296.6 170.6
----------- ------------- -----------
E 881.5 E 1,415.3 E 978.2
----------- ------------- -----------
RELEASE AND ADJUSTMENTS OF PROVISIONS relate principally to environmental
protection and remediation provisions, sales and purchase provisions, shutdown
and restructuring provisions, litigation and claims provisions, maintenance
provision, provisions for risks from tax audit and various other items in the
normal course of business.
Provision releases and adjustments arise because present circumstances
indicate that they are no longer probable and estimable or that the probable
amount has been reduced.
INCOME FROM MISCELLANEOUS REVENUE-GENERATING ACTIVITIES primarily represents
revenues from energy sales, sales of raw materials and income from rentals.
GAINS FROM THE DISPOSAL OF ASSETS in 2001 were especially related to the
sale of the generics business of the Pharmaceuticals operating division to
Novartis.
Gains in 2000 arose primarily from the sale of the
Novolen-Registered Trademark- polypropylene technology of Targor GmbH and the
Kraton-Registered Trademark- polymer business of Elenac GmbH.
Gains in 1999 related primarily to the sale of the Company's
COMPO-Registered Trademark- business in specialty fertilizers and the marketing
and sales of the Company's agricultural fertilizers operations; the sale of the
Company's oil refining business, including a refinery in Lingen, Germany, and
the divestiture of the Canadian oil and gas production activities of the Oil &
Gas segment.
OTHER includes income from management and marketing services, miscellaneous
sales and various other sundry items.
7. OTHER OPERATING EXPENSES
2001 2000 1999
------------- ------------- -------------
(EUROS IN MILLIONS)
Integration measures, reorganization and shutdowns.......... E 1,006.6 E 792.7 E 248.6
Environmental protection and safety measures, costs of
demolition of fixed assets and costs related to the
preparation of capital expenditure projects............... 260.8 271.2 263.2
Losses from foreign currency transactions and conversion.... 315.2 650.2 287.1
Costs from miscellaneous revenue-generating activities...... 245.3 116.6 65.3
Goodwill amortization....................................... 252.0 353.2 260.3
Losses from disposal of assets.............................. 30.8 68.6 30.0
Other....................................................... 815.7 699.4 1,606.5
------------- ------------- -------------
Total....................................................... E 2,926.4 E 2,951.9 E 2,761.0
------------- ------------- -------------
F-30
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTEGRATION MEASURES, REORGANIZATION AND SHUTDOWNS arose primarily for the
planned shutdown of sites and plants that do not fit with our strategic and
economic requirements in 2001. Sites in North America (NAFTA), South America,
the United Kingdom, the Netherlands, Germany, Australia and other countries will
be shut down. Additionally 1,000 European employees will be made redundant as a
consequence of the reorganization of the marketing structures. The related costs
total E747.4 million.
In 2000, charges of E344.2 million related in particular to the integration
of the crop protection business of AHP, which was acquired in 2000. They
comprise severance payments resulting from workforce reductions, the write-off
of research in process included in goodwill, and, additional charges resulting
from the sale of inventory whose base had been stepped-up as part of the
purchase price allocation. Further expenses were related to the restructuring of
the Pharmaceuticals segment.
In 1999, charges included current expenses of E123.1 million for temporarily
unutilized production plants. Additional charges related to the permanent
shutdown of the following sites: the Company's multi-division site in Medellin,
Colombia; the Colorants division's site in Ellesmere Port, United Kingdom; the
pharmaceutical production site in Beeston, United Kingdom; and the fertilizer
production site in Ostend, Belgium.
COSTS FROM MISCELLANEOUS REVENUE-GENERATING ACTIVITIES represents costs
related to other miscellaneous revenue-generating activities as shown in
Note 6.
OTHER include additional provisions of E200 million for the fine imposed by
the E.U. Commission related to the antitrust procedure against several vitamins
producers in 2001. Further charges relate to provisions for expected losses on
accounts receivable in Argentina, waiving the peg of the Argentine peso to the
U.S. dollar, as well as scrapping of inventories and other various items.
In 2000 and 1999, expenses for litigations and claims relate primarily to
sanctions and compensation payments associated with the vitamins antitrust
proceedings in the United States and various other countries along with payments
resulting from lawsuits involving the drug Synthroid-Registered Trademark-.
F-31
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. FINANCIAL RESULT
YEAR ENDED DECEMBER 31
------------------------------------------
2001 2000 1999
------------ ------------ ------------
(EUROS IN MILLIONS)
Income from participating interests and similar income...... E 49.3 E 66.6 E 731.2
- Thereof from affiliated companies......................... 14.3 18.7 16.8
Income from profit transfer agreements...................... 4.2 14.0 6.1
Losses from loss transfer agreements........................ (11.0) (15.7) (11.3)
(Losses)/income from companies accounted for under the
equity method............................................. (251.8) (95.9) 1.4
------------ ------------ ------------
Net income from financial assets............................ (209.3) (31.0) 727.4
------------ ------------ ------------
Write-down of, and losses from, retirement of financial
assets as well as securities held as current assets....... (22.7) (6.8) (22.2)
------------ ------------ ------------
Income from other securities and financial assets........... 13.7 106.5 64.6
- Thereof from affiliated companies......................... 1.3 1.1 14.0
Other interest, income from sale of marketable securities
and similar income........................................ 157.0 256.2 123.0
- Thereof from affiliated companies......................... 18.7 21.6 4.7
Interest and similar expenses............................... (546.9) (567.2) (296.0)
- Thereof to affiliated companies........................... (12.8) (9.0) (5.0)
------------ ------------ ------------
Interest result............................................. (376.2) (204.5) (108.4)
------------ ------------ ------------
Financial result............................................ E (608.2) E (242.3) E 596.8
------------ ------------ ------------
Amortization of goodwill of companies accounted for under the equity method
totaling E54.6 million in 2001 (2000: E24.5 million, 1999: E21.0 million) as
well as income from the release of negative goodwill of E2.0 million in 2001
(2000: E2.0 million, 1999: E2.0 million) are included in (losses)/income from
companies accounted for under the equity method.
The (losses)/income from companies accounted for under the equity method
includes in 2001 charges at Basell N.V. for closures of its sites in Wilton,
United Kingdom and Tarragona, Spain, as well as restructuring charges for sites
in the United States.
In 1999, income from participating interests and similar income included a
gain from the sale of BASF's interests in the IVAX Corporation and Aral AG,
which was sold to VEBA OEL AG. The divestiture of the holdings in Aral AG
together with the disposal of the refinery business shown in income from
operations increased net income by E373 million.
In 2000, other interest, income from the sale of marketable securities and
similar income includes gains from the sale of securities and swaps of
E129 million (1999: E20 million).
F-32
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. EXTRAORDINARY INCOME
2001
-------------------
(EUROS IN MILLIONS)
Extraordinary revenues..................................... E 8,793.9
Extraordinary expenses..................................... 2,673.1
-------------
Extraordinary income....................................... E 6,120.8
-------------
Extraordinary revenues were generated from the sale of the pharmaceuticals
business including compensation for the surrendered liquid funds net of assumed
financial debt as well as the payment for excess net assets compared to
reference net assets at the date of the contract.
Extraordinary expenses include the book values of the pharmaceuticals
business and the liquid funds. Further included are provisions for warranties or
risks retained in connection with the sale of the pharmaceuticals business.
The extraordinary income is charged with E145.0 million income taxes.
10. INCOME TAXES
2001 2000 1999
------------- ------------- -------------
(EUROS IN MILLIONS)
German corporation tax...................................... E 449.1 E 477.0 E 591.3
German trade income tax..................................... 104.9 143.8 178.1
Foreign income tax.......................................... 242.7 467.2 460.4
Income taxes on oil-producing operations non-compensable
with German corporation tax............................... 487.1 462.2 165.0
Refunds/loss carry back..................................... (32.7) (77.5) (14.1)
------------- ------------- -------------
Current taxes............................................... 1,251.1 1,472.7 1,380.7
Deferred taxes.............................................. (296.6) 72.3 (19.9)
------------- ------------- -------------
Income taxes................................................ E 954.5 E 1,545.0 E 1,360.8
------------- ------------- -------------
Other taxes................................................. 174.6 168.8 149.3
------------- ------------- -------------
Total taxation.............................................. E 1,129.1 E 1,713.8 E 1,510.1
------------- ------------- -------------
Other taxes includes real estate taxes and other comparable taxes; they are
shown under the appropriate expense items of the statement of income.
The regional breakdown of income before taxes was as follows:
2001 2000 1999
------------- ------------- -------------
(EUROS IN MILLIONS)
Germany...................................... E 970.1 E 1,736.4 E 1,211.5
Foreign...................................... (361.4) 1,091.0 1,394.0
------------- ------------- -------------
E 608.7 E 2,827.4 E 2,605.5
------------- ------------- -------------
In 2001, a federal German corporation tax of 25% plus a 5.5% solidarity
surcharge will be levied on corporate income. This tax charge is final because
the imputation system has been terminated. In 2000 and 1999, retained corporate
income in Germany was subject to a federal
F-33
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
corporation income tax of 40%. Additionally, a solidarity surcharge of 5.5% was
levied on the federal German corporation tax. Upon distribution of a dividend,
the federal German corporation tax rate was reduced to 30%.
German trade income tax, which varies depending on the municipality where
the industrial activities take place, is levied at a weighted average rate of
16.2%. This tax is deductible for federal corporation tax purposes.
Income of foreign sources is taxed at the income tax rates applicable in the
respective countries of domicile.
For German companies, deferred taxes are calculated using a tax rate of 38%
(1999: 52%). For foreign companies, deferred taxes are calculated using the tax
rates applicable in the individual foreign countries. Such rates averaged 34% in
2001, 28% in 2000 and 36% in 1999. The reduction of German corporation tax
resulted in an E132 million charge in 2000 and an E45 million charge in 1999
shown below in "Other."
Income from foreign sources which is distributed in the form of a dividend
to the parent company is generally exempt from additional German corporation
taxes through double taxation treaties. Income taxes on oil-producing operations
in certain regions, which can amount to up to 85%, may be compensated up to an
equivalent level with German corporation tax. The non-compensable amount is
shown separately in the reconciliation from the statutory tax rate in Germany to
the effective tax rate.
F-34
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECONCILIATION FROM THE STATUTORY TAX RATE IN GERMANY TO THE EFFECTIVE TAX RATE:
2001 2000 1999
---------------------- ------------------------ ------------------------
AMOUNT % AMOUNT % AMOUNT %
----------- -------- ------------- -------- ------------- --------
(EUROS IN MILLIONS)
German corporation tax (excluding
extraordinary income in 2001)....... E 152.2 25.0% E 1,131.0 40.0% E 1,042.2 40.0%
Credit for dividend distribution...... (126.4) (20.7) (260.3) (9.2) (150.4) (5.8)
German trade income tax net of
corporation tax..................... 11.5 1.9 86.3 3.1 106.9 4.1
Solidarity surcharge.................. 26.2 4.3 37.4 1.3 38.0 1.5
Foreign tax-rate differential......... 34.3 5.6 (82.1) (2.9) (104.4) (4.0)
Non-taxable income.................... (72.9) (12.0) (72.3) (2.6) (65.0) (2.5)
Non-deductible expenses, including
amortization of goodwill............ 242.0 39.8 237.6 8.4 328.7 12.6
(Loss)/income from companies accounted
for under the equity
method.............................. 63.0 10.3 38.4 1.4 (0.6) --
Utilization of tax loss carryforwards
and refund of taxes................. (32.7) (5.4) (143.4) (5.1) (20.4) (0.8)
Income taxes on oil-producing
operations non-compensable with
German corporation tax.............. 487.2 80.0 462.2 16.3 165.0 6.3
Other................................. 25.2 4.2 110.2 3.9 20.8 0.8
----------- ------ ------------- ----- ------------- -----
Income taxes/effective tax rate....... E 809.6 133.0% E 1,545.0 54.6% E 1,360.8 52.2%
----------- ------ ------------- ----- ------------- -----
Cumulative effect of capitalization of
deferred tax assets for tax loss
carryforwards of prior years........ (50.6) (8.3)
Income taxes, including the cumulative
effect of the change in accounting
for deferred taxes on tax loss
carryforwards....................... 759.0 124.7
Deferred taxes are recorded in conformity with U.S. GAAP. Beginning in 2001,
deferred tax assets on tax loss carryforwards are recorded. Deferred tax assets
have also been recorded for tax loss carryforwards arising prior to 2001. If
expected future earnings of a company make it more likely than not that the
future tax benefits will not be realized, adequate valuation allowances are
established.
F-35
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets or liabilities relate to the following items:
2001 2000
------------- -------------
(EUROS IN MILLIONS)
Intangible assets........................................... E (27.3) E 103.0
Property, plant and equipment............................... (225.5) (316.9)
Financial assets............................................ 1.6 (0.2)
Inventories and accounts receivable......................... 158.2 37.7
Loss carryforwards.......................................... 422.6 --
Provisions for pensions and similar obligations............. 295.5 375.3
Other provisions and liabilities............................ 503.7 563.2
Securities and others....................................... 243.7 508.4
------------- -------------
TOTAL....................................................... E 1,372.5 E 1,270.5
------------- -------------
- Thereof short-term........................................ 571.2 463.8
------------- -------------
DEFERRED TAX LIABILITIES
Property, plant and equipment............................... 218.8 244.3
Other....................................................... 57.6 125.1
------------- -------------
TOTAL....................................................... E 276.4 E 369.4
------------- -------------
- Thereof short-term........................................ 31.0 105.7
------------- -------------
Deferred tax liabilities are included in "provisions for taxes" in the
Consolidated Balance Sheets.
German tax losses may generally be carried forward indefinitely.
Foreign loss carryforwards have varying expiration periods through 2021 and
are subject to limitations with regard to offsetting against future taxable
income. Deferred tax liabilities have not been provided for withholding taxes or
additional corporate income taxes due in Germany in the absence of double
taxation treaties for unremitted earnings of foreign subsidiaries or affiliated
companies or investments accounted for under the equity method.
In 2001, deferred tax assets include E422.6 million (net of a valuation
allowance of E76.3 million) due to the following tax loss carryforwards. In
2000, E75.6 million (net of a valuation allowance of E16.3) were included in the
U.S. GAAP reconciliation.
2001 2000
-------------- ------------
(EUROS IN MILLIONS)
Tax loss carryforwards of German subsidiaries............... 8.2 98.9
Tax loss carryforwards of foreign subsidiaries.............. 1,271.0 228.3
-------------- ------------
TOTAL....................................................... E 1,279.2 E 327.2
-------------- ------------
F-36
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECONCILIATION OF DEFERRED TAX ASSETS/LIABILITIES TO U.S. GAAP
Under U.S. GAAP, deferred tax liabilities would increase, or deferred tax
assets decrease by E841.3 million in 2001 (2000: E633.1 million) due to
adjustment of the following balance sheet items as shown in the reconciliation
to U.S. GAAP:
2001 2000
----------- -----------
(EUROS IN MILLIONS)
Property, plant and equipment............................... E 209.3 E 192.8
Financial assets and marketable securities.................. 179.7 141.6
Prepaid pension expense..................................... 316.4 292.2
Tax credit related to the distribution of retained earnings
previously taxed at higher rate and others................ 135.9 6.5
----------- -----------
TOTAL....................................................... E 841.3 E 633.1
----------- -----------
11. MINORITY INTERESTS
2001 2000 1999
----------- ---------- ----------
(EUROS IN MILLIONS)
Minority interests in profits............................... E 91.7 E 76.3 E 43.2
Minority interests in losses................................ 124.3 33.7 35.3
----------- ---------- ----------
E (32.6) E 42.6 E 7.9
----------- ---------- ----------
Minority interests in profits relate to the Group companies engaged in
trading of natural gas. Minority interests in losses relate mainly to BASF
PETRONAS Chemicals Sdn. Bhd., Malaysia, as well as the operator of the steam
cracker at Port Arthur, Texas, and Yangzi-BASF Styrenics Company Ltd., China.
In 2000, minority interests in profits related furthermore to Knoll
Pharmaceuticals Ltd., India, and Yangzi-BASF Styrenics Company Ltd., China.
See Note 22 for a detailed analysis of consolidated subsidiaries with
minority shareholdings.
12. OTHER INFORMATION
PERSONNEL COSTS
2001 2000 1999
------------- ------------- -------------
(EUROS IN MILLIONS)
Wages and salaries.......................................... E 4,857.8 E 5,306.8 E 4,934.7
Social security contributions and expenses for pensions and
assistance................................................ 1,170.2 1,288.7 1,244.8
- Thereof for pensions...................................... 372.2 401.0 388.7
------------- ------------- -------------
TOTAL....................................................... E 6,028.0 E 6,595.5 E 6,179.5
------------- ------------- -------------
The short-time contracts for German employees nearing retirement led to a
reduction of pension liabilities because payments associated with the period
between retirement and entry into the government pension program are no longer
an obligation of the Company.
F-37
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
German Group companies incurred costs for employee representatives to comply
with statutory regulations of E9.9 million in 2001 (2000: E10.4 million, 1999:
E10.1 million).
AVERAGE NUMBER OF EMPLOYEES
PROPORTIONALLY
FULLY CONSOLIDATED COMPANIES CONSOLIDATED COMPANIES
------------------------------ ------------------------------
2001 2000 1999 2001 2000 1999
-------- -------- -------- -------- -------- --------
Europe.................................... 64,068 70,770 73,957 258 2,592 3,456
- Thereof Germany......................... 51,368 55,546 58,083 20 2,178 2,962
North America (NAFTA)..................... 15,007 16,546 15,668 684 734 744
South America............................. 6,088 7,002 6,902 -- -- --
Asia, Pacific Area, Africa................ 8,660 9,773 8,453 900 60 166
------ ------- ------- ----- ----- -----
TOTAL..................................... 93,823 104,091 104,980 1,842 3,386 4,366
------ ------- ------- ----- ----- -----
- Thereof with trainee contracts.......... 2,868 3,066 3,208 7 110 150
- Thereof with limited-term contracts..... 2,320 3,113 3,198 85 59 72
The above number of employees of proportionally consolidated companies are
given in full; if they are taken into account at 50%, the average number of
personnel for the Company is 94,744 in 2001, 105,784 in 2000 and 107,163 in
1999.
INFORMATION RELATING TO THE BOARD OF EXECUTIVE DIRECTORS AND SUPERVISORY BOARD
OF BASF AKTIENGESELLSCHAFT
2001 2000 1999
---------- ---------- ----------
Supervisory Board emoluments................................ E 2.0 E 2.0 E 1.6
Board of Executive Directors emoluments..................... 9.3 8.5 9.2
Pension for former members of the Board of Executive
Directors and their surviving dependents.................. 4.8 5.9 5.7
Pension provisions for former member of the Board of
Executive Directors and their surviving dependents........ 57.3 56.8 50.2
Loans to the Board of Executive Directors and the
Supervisory Board......................................... -- -- --
Contingent liabilities for the benefit of the Board of
Executive Directors and the Supervisory Board............. -- -- --
Under the BASF stock option program, the members of the Board of Executive
Directors were granted 137,060 option rights in 2001, 126,228 in 2000 and
166,616 in 1999. These options rights entitle such directors to purchase, if the
exercise hurdles are met, a maximum of 274,120 shares from the option rights of
2001. The members of the Board of Executive Directors, including retired
members, hold in total 429,904 option rights entitling them to buy up to 859,808
BASF Shares. Additional personnel costs related to the issuance of these options
totaled E4.2 million in 2001, thereof E1.6 million for option rights issued in
2001 and E2.6 million for option rights issued in 1999 and 2000. See Note 27 for
further information.
The members of the Board of Executive Directors and the Supervisory Board as
well as their membership on other supervisory boards are shown in "Item 6. --
Directors, Senior Management and Employees."
F-38
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ADDITIONAL INFORMATION ON STATEMENTS OF CASH FLOWS
Cash generated from operating activities was derived after interest payments
of E428.9 million in 2001, E472.2 million in 2000 and E237.5 million in 1999.
Income taxes paid totaled E528.2 million in 2001, E839.0 million in 2000 and
E592.7 million in 1999.
Cash generated from operating activities was increased from the sale of
accounts receivable by E192.7 million in 2001, E779.5 million in 2000 and
E298.3 million in 1999.
13. INTANGIBLE ASSETS
PATENTS, LICENSES,
TRADEMARKS AND ADVANCE
SIMILAR RIGHTS GOODWILL PAYMENTS TOTAL
------------------ ------------- ---------- -------------
(EUROS IN MILLIONS)
ACQUISITION COSTS
Balance as of January 1, 2001................. E 3,247.5 E 3,419.1 E 27.8 E 6,694.4
Change in scope of consolidation.............. 33.2 45.6 -- 78.8
Additions..................................... 216.6 53.0 6.1 275.7
Disposals..................................... 1,184.8 326.8 4.3 1,515.9
Transfers, including exchange rate changes.... 90.8 78.1 (21.5) 147.4
------------- ------------- ---------- -------------
Balance as of December 31, 2001............... 2,403.3 3,269.0 8.1 5,680.4
------------- ------------- ---------- -------------
ACCUMULATED AMORTIZATION
Balance as of January 1, 2001................. 1,364.4 790.5 1.3 2,156.2
Change in scope of consolidation.............. 1.9 4.3 -- 6.2
Additions..................................... 365.0 252.0 -- 617.0
Disposals..................................... 793.9 295.0 -- 1,088.9
Transfers, including exchange rate changes.... 34.3 13.0 (0.1) 47.2
------------- ------------- ---------- -------------
Balance as of December 31, 2001............... 971.7 764.8 1.2 1,737.7
------------- ------------- ---------- -------------
NET BOOK VALUE AS OF DECEMBER 31, 2001........ E 1,431.6 E 2,504.2 E 6.9 E 3,942.7
------------- ------------- ---------- -------------
ACQUISITION COSTS
Balance as of January 1, 2000................. E 2,589.9 E 1,357.7 E 7.8 E 3,955.4
Change in scope of consolidation.............. (8.4) 25.7 (0.1) 17.2
Additions..................................... 840.9 2,434.5 24.8 3,300.2
Disposals..................................... 212.5 105.5 1.8 319.8
Transfers, including exchange rate changes.... 37.6 (293.3) (2.9) (258.6)
------------- ------------- ---------- -------------
Balance as of December 31, 2000............... 3,247.5 3,419.1 27.8 6,694.4
------------- ------------- ---------- -------------
ACCUMULATED AMORTIZATION
Balance as of January 1, 2000................. 1,199.3 608.0 1.3 1,808.6
Change in scope of consolidation.............. (2.9) 0.8 -- (2.1)
Additions..................................... 317.5 353.2 0.2 670.9
Disposals..................................... 165.7 104.3 0.2 270.2
Transfers, including exchange rate changes.... 16.2 (67.2) -- (51.0)
------------- ------------- ---------- -------------
Balance as of December 31, 2000............... 1,364.4 790.5 1.3 2,156.2
------------- ------------- ---------- -------------
NET BOOK VALUE AS OF DECEMBER 31, 2000........ E 1,883.1 E 2,628.6 E 26.5 E 4,538.2
------------- ------------- ---------- -------------
F-39
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additions in 2001 include the purchase of the vitamins business of Takeda
Chemical Industries Ltd., Japan.
Disposals and transfers in 2001 are mainly due to the sale of the
pharmaceuticals business.
Write-downs in 2001 were made for expected long-term value impairments of
E86.3 million of production technology and supply rights related to a
superabsorbents plant in Birkenhead, United Kingdom. This plant was heavily
damaged in an explosion and a replacement plant built at the Antwerp site will
be based on a different technology.
Additions in 2000 primarily include the acquisition of the crop protection
business of American Home Products Corp., thereof goodwill of E1,929.4 million
and product rights of E498.5 million, as well as goodwill and supply rights of
the superabosrbents business Chemdal acquired from Amcol International Corp. and
the goodwill from the oil coatings business acquired from Rohm and Haas.
Disposals and transfers in 2000 result primarily from the deconsolidation of
the companies of the Targor Group and the Elenac Group due to their inclusion in
the joint venture Basell N.V.
Write-downs in 2000 include the portion of goodwill from the acquisition of
AHP's crop protection business related to research in progress (E87.5 million).
F-40
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. PROPERTY, PLANT AND EQUIPMENT
LAND, LAND RIGHTS
AND BUILDINGS ADVANCE
INCLUDING MACHINERY AND MISCELLANEOUS PAYMENTS AND
BUILDINGS ON LAND TECHNICAL EQUIPMENT AND CONSTRUCTION IN
OWNED BY OTHERS EQUIPMENT FIXTURES PROGRESS TOTAL
----------------- -------------- ------------- --------------- --------------
(EUROS IN MILLIONS)
ACQUISITION COSTS
Balance as of January 1, 2001..... E 6,736.9 E 26,688.0 E 3,441.8 E 2,728.8 E 39,595.5
Change in scope of
consolidation................... 215.1 132.3 29.6 176.8 553.8
Additions......................... 158.8 781.5 130.6 1,966.2 3,037.1
Disposals......................... 591.7 837.5 687.6 157.9 2,274.7
Transfers, including exchange rate
changes......................... 186.9 1,803.8 8.1 (1,832.5) 166.3
------------- -------------- ------------- ------------- --------------
Balance as of December 31, 2001... 6,706.0 28,568.1 2,922.5 2,881.4 41,078.0
------------- -------------- ------------- ------------- --------------
ACCUMULATED DEPRECIATION
Balance as of January 1, 2001..... 3,828.9 19,435.4 2,687.9 2.7 25,954.9
Change in scope of
consolidation................... 90.7 73.3 19.4 -- 183.4
Additions......................... 241.8 1,792.6 247.0 26.1 2,307.5
Disposals......................... 318.1 666.7 546.5 25.3 1,556.6
Transfers, including exchange rate
changes......................... 5.6 58.1 (64.6) (0.1) (1.0)
------------- -------------- ------------- ------------- --------------
Balance as of December 31, 2001... 3,848.9 20,692.7 2,343.2 3.4 26,888.2
------------- -------------- ------------- ------------- --------------
NET BOOK VALUE AS OF DECEMBER 31,
2001............................ E 2,857.1 E 7,875.4 E 579.3 E 2,878.0 E 14,189.8
------------- -------------- ------------- ------------- --------------
ACQUISITION COSTS
Balance as of January 1, 2000..... E 6,704.7 E 25,952.7 E 3,326.0 E 2,276.9 E 38,260.3
Change in scope of
consolidation................... 54.1 (39.5) 5.7 316.3 336.6
Additions......................... 226.5 922.5 230.1 2,251.5 3,630.6
Disposals......................... 292.1 615.8 336.4 10.4 1,254.7
Transfers, including exchange rate
changes......................... 43.7 468.1 216.4 (2,105.5) (1,377.3)
------------- -------------- ------------- ------------- --------------
Balance as of December 31, 2000... 6,736.9 26,688.0 3,441.8 2,728.8 39,595.5
------------- -------------- ------------- ------------- --------------
ACCUMULATED DEPRECIATION
Balance as of January 1, 2000..... 3,839.4 19,333.2 2,668.7 2.7 25,844.0
Change in scope of
consolidation................... 1.8 (29.4) 1.9 -- (25.7)
Additions......................... 245.9 1,665.4 333.0 1.0 2,245.3
Disposals......................... 165.9 534.2 326.1 0.4 1,026.6
Transfers, including exchange rate
changes......................... (92.3) (999.6) 10.4 (0.6) (1,082.1)
------------- -------------- ------------- ------------- --------------
Balance as of December 31, 2000... 3,828.9 19,435.4 2,687.9 2.7 25,954.9
------------- -------------- ------------- ------------- --------------
NET BOOK VALUE AS OF DECEMBER 31,
2000............................ E 2,908.0 E 7,252.6 E 753.9 E 2,726.1 E 13,640.6
------------- -------------- ------------- ------------- --------------
Impairment losses in 2001 of E179.3 million relate to a superabsorbents
plant in Birkenhead, United Kingdom, which was heavily damaged in an explosion
as well as to a site in Arnhem, the Netherlands, and various sites in North
America whose closure has been decided as a consequence of their unsatisfactory
earnings potentials.
Impairment losses of E27.1 million were recorded in 2000 in particular by
Hokuriku Seiyaku Ltd., Japan, for non-operating land and building due to a major
decrease of market values.
F-41
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. FINANCIAL ASSETS
PARTICIPATIONS
AND SECURITIES
SHARES IN SHARES IN SHARES IN SECURITIES HELD AS FIXED
AFFILIATED ASSOCIATED PARTICIPATING HELD AS FIXED ASSETS
COMPANIES COMPANIES INTERESTS ASSETS (SUBTOTAL)
------------ ------------- ------------- ------------- --------------
(EUROS IN MILLIONS)
ACQUISITION COSTS
Balance as of January 1, 2001.............. E 678.4 E 2,127.4 E 220.7 E 39.3 E 3,065.8
Change in scope of consolidation........... (326.0) (51.8) -- -- (377.8)
Additions.................................. 345.1 77.7 9.6 2.6 435.0
Disposals.................................. 85.8 40.1 1.8 21.3 149.0
Transfers, including exchange rate
changes.................................. (6.6) (242.5) 4.2 6.6 (238.3)
------------ ------------- ----------- ---------- -------------
Balance as of December 31, 2001............ 605.1 1,870.7 232.7 27.2 2,735.7
------------ ------------- ----------- ---------- -------------
ACCUMULATED DEPRECIATION
Balance as of January 1, 2001.............. 20.7 1.0 1.4 1.7 24.8
Change in scope of consolidation........... (0.9) -- -- -- (0.9)
Additions.................................. 19.7 -- -- 0.2 19.9
Disposals.................................. 3.1 -- -- 0.1 3.2
Transfers, including exchange rate
changes.................................. (4.6) -- -- (0.1) (4.7)
------------ ------------- ----------- ---------- -------------
Balance as of December 31, 2001............ 31.8 1.0 1.4 1.7 35.9
------------ ------------- ----------- ---------- -------------
NET BOOK VALUE AS OF DECEMBER 31, 2001..... E 573.3 E 1,869.7 E 231.3 E 25.5 E 2,699.8
------------ ------------- ----------- ---------- -------------
LOANS TO
ASSOCIATED
COMPANIES LOANS AND
LOANS TO AND OTHER
AFFILIATED PARTICIPATING OTHER LOANS AND INVESTMENTS TOTAL FINANCIAL
COMPANIES INTERESTS INVESTMENTS (SUBTOTAL) ASSETS
----------- ------------- --------------- ----------- ---------------
(EUROS IN MILLIONS)
ACQUISITION COSTS
Balance as of January 1, 2001........... E 25.1 E 349.8 E 178.3 E 553.2 E 3,619.0
Change in scope of consolidation........ (13.6) (60.0) 0.8 (72.8) (450.6)
Additions............................... 100.8 173.5 30.4 304.7 739.7
Disposals............................... 5.3 102.0 27.9 135.2 284.2
Transfers, including exchange rate
changes............................... 12.7 (2.2) 4.8 15.3 (223.0)
----------- ----------- ----------- ----------- -------------
Balance as of December 31, 2001......... 119.7 359.1 186.4 665.2 3,400.9
----------- ----------- ----------- ----------- -------------
ACCUMULATED DEPRECIATION
Balance as of January 1, 2001........... 0.2 -- 4.3 4.5 29.3
Change in scope of consolidation........ -- -- -- -- (0.9)
Additions............................... -- -- 0.7 0.7 20.6
Disposals............................... -- -- 1.7 1.7 4.9
Transfers, including exchange rate
changes............................... -- 0.8 -- 0.8 (3.9)
----------- ----------- ----------- ----------- -------------
Balance as of December 31, 2001......... 0.2 0.8 3.3 4.3 40.2
----------- ----------- ----------- ----------- -------------
NET BOOK VALUE AS OF DECEMBER 31, 2001.. E 119.5 E 358.3 E 183.1 E 660.9 E 3,360.7
----------- ----------- ----------- ----------- -------------
F-42
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PARTICIPATIONS
AND SECURITIES
SHARES IN SHARES IN SHARES IN SECURITIES HELD AS FIXED
AFFILIATED ASSOCIATED PARTICIPATING HELD AS FIXED ASSETS
COMPANIES COMPANIES INTERESTS ASSETS (SUBTOTAL)
------------ ------------- ------------- ------------- --------------
(EUROS IN MILLIONS)
ACQUISITION COSTS
Balance as of January 1, 2000.............. E 910.8 E 151.0 E 192.9 E 31.2 E 1,285.9
Change in scope of consolidation........... (252.6) (6.8) -- -- (259.4)
Additions.................................. 128.3 1,289.3 10.4 8.9 1,436.9
Disposals.................................. 0.8 31.8 -- 8.2 40.8
Transfers, including exchange rate
changes.................................. (107.3) 725.7 17.4 7.4 643.2
------------ ------------- ----------- ---------- -------------
Balance as of December 31, 2000............ 678.4 2,127.4 220.7 39.3 3,065.8
------------ ------------- ----------- ---------- -------------
ACCUMULATED DEPRECIATION
Balance as of January 1, 2000.............. 13.6 17.6 12.0 2.1 45.3
Change in scope of consolidation........... (1.2) 23.0 -- -- 21.8
Additions.................................. 3.2 -- 0.3 0.8 4.3
Disposals.................................. 0.5 16.7 -- 1.2 18.4
Transfers, including exchange rate
changes.................................. 5.6 (22.9) (10.9) -- (28.2)
------------ ------------- ----------- ---------- -------------
Balance as of December 31, 2000............ 20.7 1.0 1.4 1.7 24.8
------------ ------------- ----------- ---------- -------------
NET BOOK VALUE AS OF DECEMBER 31, 2000..... E 657.7 E 2,126.4 E 219.3 E 37.6 E 3,041.0
------------ ------------- ----------- ---------- -------------
LOANS TO
ASSOCIATED
COMPANIES LOANS AND
LOANS TO AND OTHER TOTAL
AFFILIATED PARTICIPATING OTHER LOANS AND INVESTMENTS FINANCIAL
COMPANIES INTERESTS INVESTMENTS (SUBTOTAL) ASSETS
---------- ------------- --------------- ----------- -------------
(EUROS IN MILLIONS)
ACQUISITION COSTS
Balance as of January 1, 2000............... E 22.7 E 85.2 E 162.7 E 270.6 E 1,556.5
Change in scope of consolidation............ 0.8 49.9 -- 50.7 (208.7)
Additions................................... 14.8 228.6 25.9 269.3 1,706.2
Disposals................................... 13.2 11.4 18.7 43.3 84.1
Transfers, including exchange rate
changes................................... -- (2.5) 8.4 5.9 649.1
---------- ----------- ----------- ----------- -------------
Balance as of December 31, 2000............. 25.1 349.8 178.3 553.2 3,619.0
---------- ----------- ----------- ----------- -------------
ACCUMULATED DEPRECIATION
Balance as of January 1, 2000............... 0.2 -- 4.4 4.6 49.9
Change in scope of consolidation............ -- -- -- -- 21.8
Additions................................... -- -- 0.8 0.8 5.1
Disposals................................... -- -- 0.7 0.7 19.1
Transfers, including exchange rate
changes................................... -- -- (0.2) (0.2) (28.4)
---------- ----------- ----------- ----------- -------------
Balance as of December 31, 2000............. 0.2 -- 4.3 4.5 29.3
---------- ----------- ----------- ----------- -------------
NET BOOK VALUE AS OF DECEMBER 31, 2000...... E 24.9 E 349.8 E 174.0 E 548.7 E 3,589.7
---------- ----------- ----------- ----------- -------------
In 2001, additions to "Shares in affiliated companies" resulted from a
capital increase at BASF Future Business GmbH of E200 million intended to
develop new business areas. Changes in the scope of consolidation resulted from
the inclusion of the joint ventures BASF NOF Coatings Company Ltd., Japan; BASF
SONATRACH Propanchem S.A., Spain; Ellba Eastern Private Ltd., Singapore, and
BASF-YPC Company, China, in the scope of consolidation.
In 2000, additions and transfers of "Shares in associated companies" were
caused by the contribution of the polyolefins businesses of Elenac and Targor
into the joint venture Basell N.V. and the contribution of BASF's textile dye
business into the joint venture DyStar. These joint ventures
F-43
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are accounted for according to the equity method. Changes in scope of
consolidation of "Shares in affiliated companies" relate to the consolidation of
BASF PETRONAS Chemicals Sdn. Bhd. Additions to "Shares in affiliated companies"
relate to BASF SONATRACH Propanchem S.A., Spain, and BASF Styrenics Holding
Company including its subsidiary (formerly Pushpa Polymers Private Ltd., Mumbai,
India).
OTHER FINANCIAL ASSETS
The book and market values of available-for-sale "Securities held as fixed
assets" and "Shares in participating interests" is summarized below:
2001 2000
--------------------------------------- --------------------------------------
BOOK MARKET UNREALIZED BOOK MARKET UNREALIZED
VALUES VALUES GAINS VALUES VALUES GAINS
----------- ----------- ----------- ----------- ----------- ----------
(EUROS IN MILLIONS)
Fixed-term interest bearing securities...... E 1.5 E 1.5 -- -- -- --
Mutual funds................................ 6.2 6.2 -- 22.5 22.5 --
Other shareholdings and securities.......... 249.1 366.1 117.0 234.4 322.1 87.7
----------- ----------- ----------- ----------- ----------- ----------
TOTAL....................................... E 256.8 E 373.8 E 117.0 E 256.9 E 344.6 E 87.7
----------- ----------- ----------- ----------- ----------- ----------
The disposal of available-for-sale securities generated neither proceeds nor
gains in 2001. In 2000, the disposal of available-for-sale securities led to
proceeds of E7.0 million and a gain of E0.1 million.
16. INVENTORIES
2001 2000
------------- -------------
(EUROS IN MILLIONS)
Raw materials and factory supplies.......................... E 1,176.1 E 1,196.0
Work-in-process, finished goods and merchandise............. 3,759.9 3,991.5
Construction in progress.................................... 56.2 9.7
Advance payments............................................ 14.6 14.4
------------- -------------
TOTAL....................................................... E 5,006.8 E 5,211.6
------------- -------------
"Work-in-process" and "Finished goods and merchandise" are combined into one
item due to the production conditions in the chemical industry.
The acquisition or production cost of raw materials, work in process,
finished goods and merchandise is mainly determined by the last-in-first-out
(LIFO) method. Factory supplies are carried predominantly at average cost.
Inventories of E3,130.2 million or 63% of total inventories in 2001 and
E3,225.9 million or 62% of total inventories in 2000 are valued according to the
LIFO method. The difference between the carrying value determined according to
the LIFO method and higher average cost is E72.0 million in 2001 and
E255.0 million in 2000.
F-44
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. RECEIVABLES AND OTHER ASSETS
2001 2000
--------------------------- ---------------------------
THEREOF THEREOF
NON-CURRENT NON-CURRENT
----------- -----------
(EUROS IN MILLIONS)
Accounts receivable, trade....................... E 5,875.5 E 16.7 E 6,067.6 E 24.7
Receivables from affiliated companies............ 631.9 0.6 916.9 2.5
Receivables from associated companies and other
participating interests........................ 248.4 -- 319.9 --
Other assets..................................... 1,283.3 183.4 1,822.3 159.1
------------- ----------- ------------- -----------
Miscellaneous receivables and other assets....... 1,531.7 183.4 2,142.2 159.1
------------- ----------- ------------- -----------
TOTAL............................................ E 8,039.1 E 200.7 E 9,126.7 E 186.3
------------- ----------- ------------- -----------
COMPOSITION OF OTHER ASSETS
2001 2000
------------- -------------
(EUROS IN MILLIONS)
Tax refund claims........................................... E 457.5 E 616.0
Loans and interest receivables.............................. 116.5 103.7
Receivables from commission sales........................... 0.8 3.5
Receivables from the sale of non-trade assets............... 17.9 90.1
Employee receivables........................................ 43.1 44.2
Rents and deposits.......................................... 48.6 41.4
Insurance claims............................................ 25.2 25.3
Other....................................................... 573.7 898.1
------------- -------------
TOTAL....................................................... E 1,283.3 E 1,822.3
------------- -------------
Prepaid expenses accounted for E131.1 million in 2001 and E15.1 million in
2000. In particular, "Other" includes in 2000 accruals from financial
derivatives of E266.5 million.
VALUATION ALLOWANCES FOR DOUBTFUL ACCOUNTS
NOT AFFECTING
BALANCE AS OF AFFECTING INCOME INCOME BALANCE AS OF
JANUARY 1, ------------------------- ------------------------ DECEMBER 31,
2001 ADDITIONS RELEASES ADDITIONS RELEASES 2001
------------- ----------- ----------- ---------- ----------- --------------------------
(EUROS IN MILLIONS)
Accounts receivables, trade... E 404.1 E 228.7 E 108.4 E 78.1 E 110.6 E 491.9
Miscellaneous receivables and
other assets................ 81.6 9.7 20.7 2.5 5.7 E 67.4
----------- ----------- ----------- ---------- ----------- --------------------------
TOTAL......................... E 485.7 E 238.4 E 129.1 E 80.6 E 116.3 E 559.3
----------- ----------- ----------- ---------- ----------- --------------------------
F-45
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOT AFFECTING
BALANCE AS OF AFFECTING INCOME INCOME BALANCE AS OF
JANUARY 1, ------------------------- ------------------------ DECEMBER 31,
2000 ADDITIONS RELEASES ADDITIONS RELEASES 2000
------------- ----------- ----------- ----------- ---------- --------------------------
(EUROS IN MILLIONS)
Accounts receivables, trade... E 368.2 E 108.3 E 146.3 E 95.3 E 21.4 E 404.1
Miscellaneous receivables and
other assets................ 74.1 27.6 6.1 12.9 26.9 81.6
----------- ----------- ----------- ----------- ---------- --------------------------
TOTAL......................... E 442.3 E 135.9 E 152.4 E 108.2 E 48.3 E 485.7
----------- ----------- ----------- ----------- ---------- --------------------------
NOT AFFECTING
BALANCE AS OF AFFECTING INCOME INCOME BALANCE AS OF
JANUARY 1, ----------------------- ----------------------- DECEMBER 31,
1999 ADDITIONS RELEASES ADDITIONS RELEASES 1999
------------- ---------- ---------- ---------- ---------- --------------------------
(EUROS IN MILLIONS)
Accounts receivables, trade...... E 320.8 E 46.7 E 5.0 E 15.6 E 9.9 E 368.2
Miscellaneous receivables and
other assets................... 78.7 6.8 7.6 6.6 10.4 74.1
----------- ---------- ---------- ---------- ---------- --------------------------
TOTAL............................ E 399.5 E 53.5 E 12.6 E 22.2 E 20.3 E 442.3
----------- ---------- ---------- ---------- ---------- --------------------------
Additions and releases not affecting income relate primarily to changes in
scope of consolidation, to translation adjustments and write-offs of receivables
previously provided for. Valuation allowances for trade accounts receivable
include probable losses associated with the political and economic conditions in
certain countries, disallowing or postponing the remittance of foreign exchange
to the creditors.
18. MARKETABLE SECURITIES
2001 2000
--------------------------------------- ---------------------------------------
BOOK MARKET UNREALIZED BOOK MARKET UNREALIZED
VALUES VALUES GAINS VALUES VALUES GAINS
----------- ----------- ----------- ----------- ----------- -----------
(EUROS IN MILLIONS)
Fixed-term interest bearing securities...... E 12.7 E 12.7 -- E 14.3 E 14.3 --
Shares...................................... 369.6 615.9 246.3 317.2 567.0 249.8
Mutual funds................................ -- -- -- 22.0 25.4 3.4
Other securities............................ 0.6 0.6 -- 10.6 11.7 1.1
----------- ----------- ----------- ----------- ----------- -----------
TOTAL....................................... E 382.9 E 629.2 E 246.3 E 364.1 E 618.4 E 254.3
----------- ----------- ----------- ----------- ----------- -----------
The disposal of available-for-sale securities generated neither proceeds nor
gains in 2001. In 2000, the disposal of available-for-sale securities led to
proceeds of E480.6 million and E744.2 million in 1999. The gains realized from
these sales were E118.1 million in 2000 and E27.7 million in 1999.
F-46
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MATURITIES OF FIXED-TERM SECURITIES
2001 2000
------------------------ ------------------------
MARKET MARKET
BOOK VALUES VALUES BOOK VALUES VALUES
----------- ---------- ----------- ----------
(EUROS IN MILLIONS)
Less than 1 year..................................... E 5.1 E 5.1 E 1.9 E 1.9
Between 1 and 5 years................................ 7.6 7.6 12.4 12.4
---------- ---------- ---------- ----------
TOTAL................................................ E 12.7 E 12.7 E 14.3 E 14.3
---------- ---------- ---------- ----------
19. PREPAID EXPENSES
2001 2000
------------------------- -------------------------
THEREOF THEREOF
NON-CURRENT NON-CURRENT
----------- -----------
(EUROS IN MILLIONS)
Discounts........................................... E 6.2 E 4.4 E 9.9 E 6.2
Miscellaneous....................................... 214.4 53.8 300.4 125.3
TOTAL............................................... E 220.6 E 58.2 E 310.3 E 131.5
----------- ---------- ----------- -----------
"Discounts," which relate to the 5.75% Euro Bond 2000/2005 of BASF
Aktiengesellschaft, are capitalized and amortized as interest expense over the
term of the underlying obligations. The remaining discount of the 3% U.S. Dollar
Option Bond 1986/2001 of BASF Finance Europe N.V. has been fully amortized in
2001.
20. CAPITAL AND RESERVES
CONDITIONAL CAPITAL
---------------------------------------
2001 2000 1999
----------- ----------- -----------
(EUROS IN MILLIONS)
January 1................................................... E 158.3 E 164.1 E 138.7
Cancellation of option rights for option bonds to be issued
until April 1, 2001....................................... (102.4) -- --
Authorization through the Annual Meeting on April 26, 2001,
for the issuance of new shares to fulfill the exercising
of warrants related to option bonds, which may be issued
until April 1, 2006....................................... 384.0 -- --
Authorization through the Annual Meeting on April 26, 2001,
for the issuance of new shares under the BASF Stock Option
Program BOP 2001/2005 and BOP 1999/2000................... 38.4 -- 38.4
Limitation of the issuance of new shares to be issued under
the BASF Stock Option Program BOP 1999/2000 to the
3,923,344 warrants issued until April 25, 2001, according
to the resolution at the Annual Meeting at April 26,
2001...................................................... (28.4) -- --
Issuance of new shares from the conditional capital through
the exercise of warrants attached to the 1996/2001 3% U.S.
Dollar Option Bond of BASF Finance Europe N.V............. (17.4) (5.8) (13.0)
Cancellation of warrants from the Option Bond 1996/2001..... (0.1) -- --
----------- ----------- -----------
DECEMBER 31................................................. E 432.4 E 158.3 E 164.1
----------- ----------- -----------
F-47
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AUTHORIZED CAPITAL
---------------------------------------
2001 2000 1999
----------- ----------- -----------
(EUROS IN MILLIONS)
January 1................................................... E 500.0 E 500.0 E 306.8
Suspension of old authorization through the Annual Meeting
on April 29, 1999......................................... -- -- (306.8)
Authorization through the Annual Meeting on April 29, 1999
for the issuance of new shares against cash or
contribution in kind...................................... -- -- 500.0
----------- ----------- -----------
DECEMBER 31................................................. E 500.0 E 500.0 E 500.0
----------- ----------- -----------
SUBSCRIBED CAPITAL
-----------------------------------
OUTSTANDING SUBSCRIBED CAPITAL
SHARES CAPITAL RESERVE
----------- ---------- --------
Outstanding shares as of December 31, 2001.................. 588,201,370 1,505.8 2,901.6
Repurchased shares intended to be cancelled................. 4,800,000 (12.3) 12.3
----------- ------- -------
OUTSTANDING SHARES AS DISCLOSED IN THE FINANCIAL
STATEMENTS................................................ 583,401,370 1,493.5 2,913.9
A total of 30,775,000 shares were acquired in 2001, of which 25,975,000
shares were cancelled in 2001. The Board of Executive Directors decided in 2001
to cancel the remaining 4,800,000 shares, which was not formally completed as of
December 31, 2001. The subscribed capital is shown net of these shares.
SHARE REPURCHASE
The Board of Executive Directors received approval at the Annual Meeting on
April 26, 2001, to repurchase BASF's Shares to a maximum amount of 10% of
subscribed capital until October 1, 2002. The shares shall be purchased on the
stock exchange or through a public purchase offer addressed to all shareholders.
If BASF Shares are purchased on a stock exchange, the price paid for the shares
may not be higher than the highest market price on the buying day and it may not
be lower than 25% of that market price. In the case of a public purchase offer,
the price offered by BASF may be a maximum of 25% higher than the highest market
price on the third trading day prior to the publishing of the public purchase
offer.
This authorization supersedes the validity of the prior authorizations to
repurchase BASF Shares. The Board of Executive Directors is authorized to cancel
repurchased shares without further shareholder approval.
A sale of repurchased BASF Shares requires the respective authorization
through the Annual Meeting unless the shares are utilized to serve warrants from
the BASF Stock Option Program BOP 1999/2000 and BOP 2001/2005. Furthermore,
repurchased shares may be sold to participants in the Stock Option Program
2001/2005, to fulfill the participants' investment requirements in BASF Shares
according to the clauses of the Stock Option Program in order to meet conditions
for the granting of options.
Based on the respective authorizations, a total of 30,775,000 shares, or 5%
of the issued shares have been acquired in 2001. The average purchase price was
E42.22 per share. Of these shares a total of 25,975,000 shares were cancelled by
December 31, 2001. The remaining 4,800,000 own shares of BASF Aktiengesellschaft
were acquired for the purpose of cancellation. Therefore, the subscribed capital
is shown net of these own shares at December 31, 2001. During
F-48
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2000, BASF purchased and cancelled a total of 15,856,500 shares, or 2.6% of
issued shares, at an average price of E44.13 per share.
CONDITIONAL CAPITAL
The Annual Meeting on April 26, 2001, authorized the Board of Executive
Directors to make an additional conditional increase in the subscribed capital
of up to E384.0 million to fulfill the exercising of warrants related to option
bonds which may be issued until April 1, 2006.
Conditional capital of up to E38.4 million is reserved to fulfill stock
options granted under the BASF Stock Option Program BOP 2001/2005 to the members
of the Board of Executive Directors and other senior executives of BASF and its
subsidiaries; up to E10.0 million conditional capital is reserved to fulfill
stock options from the Stock Option Program 1999/2000. An amount of less than
E0.1 million is reserved to meet compensation claims of former shareholders of
Wintershall.
AUTHORIZED CAPITAL
At the Annual Meeting of April 29, 1999, shareholders authorized the Board
of Executive Directors, with the approval of the Supervisory Board, to increase
subscribed capital by issuing new shares in an amount of up to E500.0 million
against cash or contribution in kind through May 1, 2004. The Board of Executive
Directors is empowered to decide on the exclusion of shareholders' subscription
rights for these new shares.
CAPITAL SURPLUS
Capital surplus includes premiums from the issuance of shares, the fair
value of warrants attached to option bonds and negative goodwill from the
capital consolidation resulting from acquisitions of subsidiaries against issue
of BASF Shares at par value.
21. RETAINED EARNINGS
2001 2000 1999
-------------- ------------- -------------
(EUROS IN MILLIONS, EXCLUDING PER
SHARE INFORMATION)
Legal reserves.............................................. E 206.6 E 240.2 E 233.8
Other retained earnings and profit retained................. 12,015.8 8,610.9 8,767.9
- Thereof proposed dividend................................. 758.4 1,214.1 701.7
-------------- ------------- -------------
TOTAL....................................................... E 12,222.4 E 8,851.1 E 9,001.7
-------------- ------------- -------------
Proposed dividend per share................................. E 1.30 E 2.00 E 1.13
The changes in scope of consolidation decreased the legal reserves by
E49.9 million in 2000, by E0.7 million in 2000 and by E(0.6) million in 1999.
Transfers from "Other retained earnings and profit retained" increased legal
reserves by E16.3 million in 2001, by E7.1 million in 2000 and by E4.9 million
in 1999.
F-49
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22. MINORITY INTERESTS
MINORITY INTEREST AMOUNT
-----------------------------------------------
COMPANY PARTNER % 2001 % 2000
------- ------- -------- ----------- -------- -----------
Wingas GmbH, Kassel, Germany Gazprom, Moscow, Russia 35.0 E 84.9 35.0 E 87.2
Hokuriku Seiyaku Co. Ltd. Publicly traded shares
Katsuyama-Shi, Fukui, Japan Sold -- 33.3 125.0
Yangzi-BASF Styrenics Co. Yangzi Petrochem. Corp.,
Ltd., Nanjing, China Nanjing, China 40.0 61.4 40.0 62.3
Knoll Pharmaceuticals Ltd., Publicly traded shares
Mumbai, India Sold -- 49.0 14.8
BASF India Ltd., Mumbai, Publicly traded shares
India 47.31 20.1 50.0 18.0
BASF PETRONAS Chemicals PETRONAS (Petroliam Nasional
Sdn. Bhd., Jaya, Malaysia Bhd.), Kuala Lumpur,
Malaysia 40.0 126.5 40.0 160.6
BASF SONATRACH PropanChem SONATRACH, Algiers, Algeria
S.A.,
Tarragona, Spain 49.0 39.3 -- --
BASF FINA Petrochemicals TotalFinaElf, Paris, France
Ltd., Port Arthur, Texas 40.0 17.2 -- --
Others 10.3 13.4
----------- -----------
E 359.7 E 481.3
----------- -----------
23. PROVISIONS FOR PENSIONS AND SIMILAR OBLIGATIONS
In addition to governmental pension schemes, most employees are entitled to
Company pension benefits resulting from defined contribution and defined benefit
plans. Benefits generally depend on years of service, contribution or
compensation and consider the legal, fiscal and economic conditions of the
countries where companies are located.
The pension plans for BASF Aktiengesellschaft and other German subsidiaries
include a funded plan, BASF Pensionskasse, which is financed by equal
contributions of employees and the Company and the returns on its assets.
For German Group subsidiaries, additional Company pension commitments are
financed primarily by pension provisions. In the case of non-German
subsidiaries, pension entitlements are covered in some cases by pension
provisions, but mainly by external insurance companies or pension funds.
The valuation according to the "projected unit credit method" as defined by
SFAS No. 87 is based on the following average rates:
2001 2000
---- --------
Interest rate............................................... 6.5% 6.4%
Projected increase of wages and salaries.................... 3.3 3.5
Projected pension increase.................................. 1.1 1.4
Expected return on plan assets.............................. 8.9 8.6
F-50
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Development of the projected benefit obligation:
2001 2000
------------- -------------
(EUROS IN MILLIONS)
Projected benefit obligation as of January 1................ E 6,285.8 E 6,198.3
Service cost................................................ 133.3 155.4
Interest cost............................................... 379.3 390.2
Benefits paid............................................... (435.7) (394.9)
Participants' contributions................................. 3.2 3.7
Change in actuarial assumptions............................. (66.8) (75.4)
Settlements and other changes............................... (419.0) (91.7)
Exchange rate changes....................................... 99.8 100.2
------------- -------------
Projected benefit obligation as of December 31.............. E 5,979.9 E 6,285.8
------------- -------------
Development of the plan assets:
2001 2000
------------- -------------
(EUROS IN MILLIONS)
Plan assets as of January 1................................. E 2,731.0 E 2,834.5
Actual return on plan assets................................ (177.5) 61.8
Employer contributions...................................... 23.2 72.2
Participants' contributions................................. 3.2 3.7
Benefits paid............................................... (199.4) (179.0)
Exchange rate changes....................................... 95.9 115.0
Other changes............................................... (33.2) (177.2)
------------- -------------
Plan assets as of December 31............................... 2,443.2 2,731.0
Pre-financing of foreign plans.............................. (213.6) (201.8)
------------- -------------
Plan assets as of December 31 excluding pre-financing....... E 2,229.6 E 2,529.2
------------- -------------
The valuation of the pension fund assets of foreign pension funds under SFAS
No. 87 showed the pre-financing shown above.
The funded status, excluding pre-financing, is as follows:
2001 2000
------------- -------------
(EUROS IN MILLIONS)
Projected benefit obligation as of December 31.............. E 5,979.9 E 6,285.8
Less pension fund assets as of December 31, excluding
pre-financing............................................. 2,229.6 2,529.2
------------- -------------
Funded status............................................... 3,750.3 3,756.6
Unrecognized amounts........................................ (150.3) 132.9
Provisions for pensions..................................... 3,600.0 3,889.5
Provisions for similar obligations.......................... 352.7 338.8
------------- -------------
Provisions for pensions and similar obligations............. E 3,952.7 E 4,228.3
------------- -------------
Similar obligations refer to commitments by BASF's North American Group
companies to provide for the costs of medical and life insurance benefits for
employees and eligible dependents
F-51
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
after retirement. They are based upon an actuarial valuation, considering the
future cost trend and a discount rate of 7.5%.
Composition of the net periodic pension cost:
2001 2000 1999
----------- ----------- -----------
(EUROS IN MILLIONS)
Service cost................................................ E 133.3 E 155.4 E 136.6
Interest cost............................................... 379.3 390.2 354.7
Expected return on plan assets.............................. (233.5) (203.4) (182.4)
Amortization of prior service cost.......................... 10.0 9.2 --
Other amortization amounts.................................. (0.1) -- 0.1
Settlement gains............................................ (32.1) (52.7) (26.0)
----------- ----------- -----------
Expenses for defined benefit plans.......................... 256.9 298.7 283.0
Expenses for defined contribution plans..................... 81.9 75.6 82.3
Expenses for similar obligations............................ 33.4 26.7 23.4
----------- ----------- -----------
Net periodic pension cost................................... E 372.2 E 401.0 E 388.7
----------- ----------- -----------
24. OTHER PROVISIONS
2001 2000
----------------------------- -----------------------------
THEREOF THEREOF
CURRENT CURRENT
------------- -------------
(EUROS IN MILLIONS)
Oil and gas production............................. E 368.3 -- E 367.7 --
Environmental protection and remediation costs..... 309.1 146.5 269.0 133.3
Personnel costs.................................... 1,247.0 836.2 1,297.2 856.0
Sales and purchase risks........................... 841.1 833.9 788.4 776.0
Integration, shutdown and restructuring costs...... 421.4 359.4 285.0 250.5
Legal, damage claims, guarantees and related
commitments...................................... 1,873.0 426.2 829.5 191.4
Maintenance and repair costs....................... 91.0 26.8 120.3 81.6
Outstanding billings from suppliers................ 87.1 87.1 132.0 132.0
Other.............................................. 331.6 242.5 447.7 398.5
------------- ------------- ------------- -------------
E 5,569.6 E 2,958.6 E 4,536.8 E 2,819.3
------------- ------------- ------------- -------------
OIL AND GAS PRODUCTION: Accrued costs for filling of wells and the removal
of production equipment after the end of production are accumulated by
installments during the expected production period.
ENVIRONMENTAL PROTECTION AND REMEDIATION COSTS: Expected costs for
rehabilitating contaminated sites, water protection, recultivating landfills,
removal of environmental pollution at existing production or warehouse equipment
and other measures.
PERSONNEL COSTS: The personnel cost provision includes obligations to grant
long-time service bonuses and anniversary payments, vacation pay, variable
compensation including related social security contributions and other accruals
as well as provisions for early retirement and short-working programs for
employees nearing retirement. Most German BASF companies have various
F-52
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
programs that entitle employees who are at least 55 years old to reduce their
working hours to 50% for up to six years. Under such arrangements, employees
generally work full time during the first half of the transition period and
leave the Company at the start of the second period. Employees receive a minimum
85% of their net salary throughout the transition period.
SALES AND PURCHASE RISKS: The sales and purchase risks provision includes
warranties, product liability, customer rebates, payment discounts and other
price reductions, sales commissions and provisions for expected losses on
committed purchases or similar obligations.
INTEGRATION, SHUTDOWN AND RESTRUCTURING COSTS: Such provisions include
severance payments to employees as well as specific site shutdown or
restructuring costs, including the costs for demolition and similar measures.
The movement in shutdown and restructuring provisions is as follows:
AMOUNT
AMOUNT ACCRUED
ACCRUED AS OF
AS OF JANUARY 1, AMOUNT PAID IN OTHER CHANGES DECEMBER 31,
2001 2001 2001 2001
----------------- -------------- ------------- -------------
(EUROS IN MILLIONS)
Severance.......................... E 193.3 E (49.6) E 93.6 E 237.3
Plant closure and demolition....... 61.3 (50.4) 110.1 121.0
Other.............................. 30.4 (9.6) 42.3 63.1
----------- ------------ ----------- -----------
TOTAL.............................. E 285.0 E (109.6) E 246.0 E 421.4
----------- ------------ ----------- -----------
AMOUNT
AMOUNT ACCRUED
ACCRUED AS OF
AS OF JANUARY 1, AMOUNT PAID IN OTHER CHANGES DECEMBER 31,
2000 2000 2000 2000
----------------- -------------- ------------- -------------
(EUROS IN MILLIONS)
Severance.......................... E 111.3 E (144.7) E 226.7 E 193.3
Plant closure and demolition....... 52.6 (14.5) 23.2 61.3
Other.............................. 17.0 (65.7) 79.1 30.4
----------- ------------ ----------- -----------
TOTAL.............................. E 180.9 E (224.9) E 329.0 E 285.0
----------- ------------ ----------- -----------
AMOUNT
AMOUNT ACCRUED
ACCRUED AS OF
AS OF JANUARY 1, AMOUNT PAID IN OTHER CHANGES DECEMBER 31,
1999 1999 1999 1999
----------------- -------------- ------------- -------------
(EUROS IN MILLIONS)
Severance.......................... E 98.0 E (42.9) E 56.2 E 111.3
Plant closure and demolition....... 47.7 (36.4) 41.3 52.6
Other.............................. 13.0 (4.6) 8.6 17.0
----------- ------------ ----------- -----------
TOTAL.............................. E 158.7 E (83.9) E 106.1 E 180.9
----------- ------------ ----------- -----------
In 2001, provisions for severance payments had to be set up for the planned
shutdown of numerous plants and production sites located predominantly in North
America (NAFTA), South
F-53
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
America, the United Kingdom, the Netherlands and Italy. Further charges arose
from the restructuring of the Company's sales and marketing organization.
In 2000, provisions for severance costs for employees resulted from the
integration of the crop protection business acquired from American Home Products
Corp. (AHP) and from the workforce reduction in the Pharmaceuticals segment.
Provisions of E403.7 million were accrued for these measures, thereof
E243 million for severance cost of employees of the acquired crop protection
business of AHP without a charge to profits.
In 1999, BASF approved plans to close the multi-division site in Medellin,
Colombia, the Performance Products site in Ellesmere Port, United Kingdom, the
Pharmaceuticals production site in Beeston, United Kingdom, and the Fertilizers
site in Ostend, Belgium. These plans represent primarily severance costs for
employees associated with these sites as well as demolition costs and the cost
of fulfilling contractual obligations after the sites were closed. Pretax
charges of E123.9 million were recorded for these measures, which were expected
to be substantially completed in the year 2000.
LEGAL, DAMAGE CLAIMS, GUARANTEES AND RELATED COMMITMENTS: Provisions are
recorded for the expected cost of outstanding litigation and claims of third
parties, including regulatory authorities, other guarantees and warrantees for
trust proceedings. The significant proceedings are described in Note 26.
Additions in 2001 relate to guarantees granted and risks retained in
connection with the sale of the pharmaceuticals business. An additional
E200 million resulted from the fine imposed by the E.U. Commission for
violations of anti-trust laws relating to the sale of vitamin products. The
provisions set up hitherto were insufficient due to the unexpectedly high fine.
MAINTENANCE AND REPAIR COSTS: Provision for maintenance and repair costs
covers omitted maintenance procedures as of the end of the year that are
expected to be incurred within the first three months of the following year and
certain provisions for the overhauling of large-scale plants within prescribed
intervals.
25. LIABILITIES
FINANCIAL LIABILITIES
2001 2000
------------- -------------
(EUROS IN MILLIONS)
5.75% Euro Bond 2000/2005 of BASF Aktiengesellschaft........ E 1,250.0 E 1,250.0
3% U.S. Dollar Option Bond 1986/2001 of BASF Finance Europe
N.V. repaid in 2001....................................... -- 247.8
Other bonds................................................. 311.9 277.4
Comercial paper............................................. 30.6 4,455.3
------------- -------------
Bonds and other liabilities to the capital market........... 1,592.5 6,230.5
Liabilities to credit institutions.......................... 1,242.5 1,661.4
------------- -------------
Financial liabilities....................................... E 2,835.0 E 7,891.9
------------- -------------
F-54
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial liabilities are denominated predominantly in the following
currencies and have the following average interest rates for short-term
liabilities:
2001 2000 2001 2000
------------- ------------- ------------ --------------
(EUROS IN MILLIONS)
U.S. dollars........................................... E 803.1 E 4,906.4 5.9% 7.2%
Euros.................................................. 1,385.5 2,000.9 4.3% 4.6%
Chinese renminbi....................................... 156.8 223.5 5.2% 5.7%
Other.................................................. 489.6 761.1 9.4% 11.6%
------------- ------------- ------------ --------------
TOTAL.................................................. E 2,835.0 E 7,891.9 7.3% 8.0%
------------- ------------- ------------ --------------
Financial liabilities have the following maturities as of December 31, 2001:
(EUROS IN MILLIONS)
-------------------
2002....................................................... E 909.4
2003....................................................... 184.0
2004....................................................... 55.4
2005....................................................... 1,305.6
2006....................................................... 57.4
Thereafter................................................. 323.2
-------------
TOTAL...................................................... E 2,835.0
-------------
The 5.75% Euro Bond 2000/2005 of BASF Aktiengesellschaft was issued in
July 2000 in the amount of E1,250 million. The Bond is listed on the Frankfurt
Stock Exchange and the Stuttgart Stock Exchange.
The 3% U.S. Dollar Option Bond 1986/2001 of BASF Finance Europe N.V. was
repaid on April 9, 2001.
LIABILITIES TO CREDIT INSTITUTIONS
Liabilities to credit institutions relate to a large number of different
credit institutions in various countries. Liabilities to credit institutions
denominated in Chinese renminbi result from the local financing of Chinese joint
ventures.
At the end of 2001, the Company had committed and unused credit lines of
E2,800 million with variable interest rates. In addition, the Company had
E410 million uncommitted credit lines free of charges.
F-55
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MISCELLANEOUS LIABILITIES
2001 2000
----------------------------- -----------------------------
THEREOF THEREOF
CURRENT CURRENT
------------- -------------
(EUROS IN MILLIONS)
Advances received on account of orders............. E 105.9 E 103.9 E 48.5 E 41.1
Liabilities on bills............................... 24.3 24.3 59.7 59.7
Liabilities to companies in which participations
are held......................................... 297.3 293.6 330.2 329.8
Tax liabilities.................................... 281.5 281.2 451.3 450.1
Liabilities relating to social security............ 152.4 152.4 157.3 157.3
Non-trade liabilities to joint venture partners.... 466.4 16.1 481.6 27.4
Other miscellaneous liabilities.................... 1,658.4 1,141.7 1,661.5 1,399.0
------------- ------------- ------------- -------------
Total.............................................. 2,986.2 2,013.2 3,190.1 2,464.4
Deferred income.................................... 351.4 165.9 397.0 177.5
------------- ------------- ------------- -------------
Total miscellaneous liabilities and deferred
income........................................... E 3,337.6 E 2,179.1 E 3,587.1 E 2,641.9
------------- ------------- ------------- -------------
Liabilities to companies in which participations are held include
liabilities to joint ventures accounted for using the proportional consolidation
method of E254.4 million as of December 31, 2001 and of E143.4 million as of
December 31, 2000, and liabilities relating to associated companies accounted
for under the equity or costs method of E42.9 million as of December 31, 2001
and E186.8 million as of December 31, 2000.
Generally, non-trade liabilities to companies in which participations are
held bear interest at market rates plus a mark-up of less than 1%.
Non-trade liabilities to joint venture partners are related to the financing
of fixed assets projects. In 2001, liabilities of E450.3 million carry interest
at rates of between 6.30% to 6.98%. E362.8 million of them mature after more
than five years.
MATURITIES OF LIABILITIES
2001 2000
---------------------------- -----------------------------
CURRENT OVER 5 YEARS CURRENT OVER 5 YEARS
------------- ------------ -------------- ------------
(EUROS IN MILLIONS)
Bonds and other liabilities to the capital
market....................................... E 15.5 E 310.5 E 4,670.2 E 259.4
Liabilities to credit institutions............. 893.9 77.4 1,409.8 38.6
Accounts payable, trade........................ 2,451.7 11.3 2,828.9 5.4
Liabilities to affiliated companies............ 510.0 -- 318.4 --
Advances received on account of orders......... 103.9 -- 41.1 --
Liabilities on bills........................... 24.3 -- 59.7 --
Liabilities to companies in which
participations are held...................... 293.6 -- 329.8 --
Other miscellaneous liabilities................ 1,591.4 496.4 2,033.9 548.7
------------- ----------- -------------- -----------
TOTAL.......................................... E5,884.3 E895.6 E11,691.8 E852.1
F-56
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SECURED LIABILITIES
2001 2000
---- ----------
(EUROS IN
MILLIONS)
Liabilities to credit institutions.......................... E 9.4 E 31.4
Miscellaneous liabilities................................... 1.0 1.9
---------- ----------
E 10.4 E 33.3
---------- ----------
The above liabilities are collateralized by mortgages, land charges or
securities. In addition, covenants were given with regard to adherence to
certain balance sheet ratios.
CONTINGENT LIABILITIES
Contingent liabilities as listed below, have not been accrued as the risk of
loss is not considered propable.
2001 2000
----------- -----------
(EUROS IN MILLIONS)
Bills of exchange.......................................... E 60.4 E 93.2
- Thereof to affiliated companies.......................... 0.6 2.7
Guarantees................................................. 282.6 285.5
Warranties................................................. 48.4 48.6
Granting collateral on behalf of third-party liabilities... 15.6 8.7
----------- -----------
E 407.0 E 436.0
----------- -----------
OTHER FINANCIAL OBLIGATIONS
2001 2000
------------- -------------
(EUROS IN MILLIONS)
Remaining cost of construction in progress.................. E 2,982.4 E 3,966.3
- Thereof purchase commitment............................... 466.4 512.6
Commitments from long-term rental and leasing contracts..... 926.1 1,173.0
Repurchase commitments...................................... 193.2 781.9
Capital contribution and loan commitments................... 2.5 635.7
------------- -------------
TOTAL....................................................... E 4,104.2 E 6,556.9
------------- -------------
Repurchase commitments are related to accounts receivables.
In 2000, BASF had payment commitments for equity contributions and loans to
BASF-YPC Company Ltd., which was not yet included in the scope of consolidation.
BASF-YPC Company Ltd. is building the Verbund site in Nanjing, China, together
with BASF's partner SINOPEC.
F-57
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Obligations from rental and lease contracts are due as follows:
(EUROS IN MILLIONS)
-------------------
2002....................................................... E225.3
2003....................................................... 160.0
2004....................................................... 125.4
2005....................................................... 105.8
2006....................................................... 84.0
2007 and thereafter........................................ 225.6
-----------
TOTAL...................................................... E 926.1
-----------
PURCHASE COMMITMENTS FOR RAW MATERIALS AND NATURAL GAS FROM LONG-TERM CONTRACTS
The Company has entered into long-term purchase contracts for natural gas,
the vast majority of which are coupled with long-term supply contracts to
customers. In addition, the Company purchases raw materials globally, both on
the basis of long-term contracts and in spot markets. In general, such
commitments are at prices that are regularly adjusted to market conditions. The
fixed and determinable portions of long-term purchase contracts with a remaining
term of more than one year as of December 31, 2001, are as follows:
(EUROS IN MILLIONS)
-------------------
2002....................................................... E6,618.0
2003....................................................... 3,541.0
2004....................................................... 2,313.0
2005....................................................... 1,860.0
2006....................................................... 1,723.0
2007 and thereafter........................................ 10,807.0
--------------
TOTAL...................................................... E 26,862.0
--------------
26. LITIGATION AND CLAIMS
In the context of its ordinary business operations, BASF is a defendant in
class action lawsuits brought before United States courts and individual actions
before labor courts and civil courts or comparable institutions in Germany and
abroad. Significant proceedings are discussed below.
ANTITRUST CLAIMS RELATING TO VITAMINS
In 1999 and in 2000, BASF Aktiengesellschaft as well as BASF Australia Ltd.
entered into agreements with the United States Department of Justice and the
Canadian Competition Bureau and the Australian Department of Justice by which
BASF Aktiengesellschaft and BASF Australia Ltd. agreed to plead guilty to
certain violations of antitrust laws relating to the sale of vitamin products in
the respective countries. The relevant courts accepted the guilty pleas and the
recommended fines of $225 million, C$19 million and A$7.5 million. On
November 21, 2001, the European Commission imposed a fine of E296.2 million
against BASF Aktiengesellschaft. BASF has appealed against this decision.
Proceedings are still running in Mexico, Brazil and Australia (relating only
to vitamin C).
F-58
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BASF has agreed to settle the class action lawsuits with plaintiffs that
purchased products directly from vitamin manufacturers. Terms of the settlement
agreement call for seven vitamin manufacturers to contribute $1.17 billion. The
Company's share of this settlement is $287 million. The United States district
court for the District of Columbia granted final approval of the proposed
settlement on March 28, 2000. Because numerous large customers have elected to
opt out of the proposed settlement, BASF Aktiengesellschaft's share has been
reduced to $90 million including fees of the plaintiffs' attorneys. Individual
settlements with a series of such customers have been concluded. The payments
for these settlements are within the range indicated above.
State court actions on behalf of indirect purchasers are proceeding
separately in approximately 28 states. BASF has agreed to settle state class
action lawsuits in 24 states. Terms of the settlement agreements call for six
vitamin manufacturers to contribute up to $396 million, subject to approval of
the settlements in various state courts. If the settlements are finally
approved, BASF Aktiengesellschaft will be obligated to pay up to $97 million of
the total amount. All settlements have been granted preliminary approval.
Further claims for damages have been filed in Canada, New Zealand and in
Australia.
The Company has established provisions for the costs that it can currently
anticipate in excess of the amounts agreed upon and paid. BASF does not believe
that the additional charges relating to unsettled vitamin antitrust proceedings
will have a substantial impact on the profitability of the Company.
SYNTHROID-REGISTERED TRADEMARK- RELATED CLAIMS
This proceeding concerned class action lawsuits against Knoll Pharmaceutical
Company (KPC) of BASF's Pharmaceutical business, discontinued in 2001. The
lawsuits challenged Knoll's delaying the publication of a study comparing
Synthroid-Registered Trademark- to certain branded and generic products.
Final approval of a proposed settlement of 1997 was not granted. Knoll
subsequently negotiated a new proposed settlement with consumers and third-party
payors providing for a payment of $25.5 million in addition to the $98 million
paid into escrow in late 1997 (plus the accrued interest thereon). The United
States District Court of Chicago granted final approval of the new proposed
settlement on August 4, 2000. A number of appeals have been filed. On
August 31, 2001, the United States Court of Appeals granted final confirmation
of the settlement. However, the district court needs to determine attorneys'
fees and costs before the payment is made.
ADDITIONAL PROCEEDINGS
In 2001, class action lawsuits against BASF Aktiengesellschaft and some of
its affiliates were filed at United States Courts. It was alleged that sales of
automotive refinish coatings had violated antitrust laws. BASF considers these
allegations to be unfounded and will consequently file for dismissal of the
lawsuits.
27. STOCK-BASED COMPENSATION
BASF STOCK OPTION PROGRAM (BOP): The Annual Meeting of April 26, 2001,
approved the modified BASF stock option program for senior executives of the
Company worldwide. For information on the increase of conditional capital, see
Note 20. Approximately 1,200 senior executives, including the Board of Executive
Directors, are authorized to participate in this program.
F-59
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
To participate in the stock option program, each participant must make an
individual investment in BASF Shares in the amount of 10% to 30% of his or her
individual variable compensation. The number of shares to be applied for through
the BOP program is determined by the defined amount of the variable compensation
and the weighted average market price quotation for BASF Shares, which was
E47.87 on April 27, 2001. The options of the Stock Option Program 2001 can be
exercised between July 1, 2003 and the 15th day after the Annual Meeting in
2009.
For each BASF Share of the individual investment, a participant receives
four options, each of which entitles a holder to purchase a maximum of two BASF
Shares (Share A and Share B) at a price lower than the market price if, on the
exercise date of the option, the exercise hurdles described below have been
exceeded.
Options to purchase Share A may be exercised if the market price of BASF
Shares exceeds 30% of the market price at the grant date of the options. The
exercise price of Share A will be the market price at the exercise date less the
share price increase since granting the option (this reduction is limited to
100% of the grant price). Options to purchase Share B may be exercised if the
cumulative percentage performance of BASF Shares exceeds the percentage
performance of the Dow Jones Global Chemicals Total Return Index (DJ Chemicals).
The exercise price of Share B will be the market price at the exercise date of
the option minus twice the percentage outperformance of BASF Shares compared to
the DJ Chemicals index.
Each option right may only be exercised if the performance targets are
achieved and may only be exercised once, meaning that if only one performance
target is met and that option is exercised, the other option right expires. The
option can be exercised within one month after the target is met. The maximum
gain for a participant from the BOP program is limited to 10 times the original
individual investment.
The BOP 1999 and BOP 2000 stock option programs were structured in a similar
way to the BOP 2001 program. The options granted may be exercised between the
day after the Annual Meetings in 2002 and 2003 and the 15th day after the Annual
Meetings in 2005 and 2006, respectively. The benchmark index to determine the
value of the option on Share B is the Dow Jones EURO STOXX(SM) Total Return
Index (EURO STOXX(SM)). To participate in the BOP program, each participant must
make an individual investment in BASF Shares in the amount of 10% to 30% of his
or her individual variable compensation. The invested amount is used to purchase
BASF Shares at the market price of the first business day after the Annual
Meeting, which was E47.80 on April 28, 2000 for the BOP 2000 stock option
program and E41.60 on April 30, 1999 for the BOP 1999 stock option program.
Details on the fair value and the number of options issued are described
below. The fair value of BOP 2001 is calculated based on the full-term structure
of interest rates given by deposit and
F-60
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
swap rates, as quoted April 27, 2001. For BOP 2000 and BOP 1999, a risk-free
interest rate of 5.39% and 3.59% is used, respectively.
BASF STOCK OPTION PROGRAM
-------------------------------------------
2001 2000 1999
--------------- ----------- -----------
Fair value at grant date................................... E 35.91 E 29.59 E 25.04
Parameter used*:
Dividend (yield) of BASF Shares............................ E 1.30 p.a. 2.59% 3.11%
Volatility of BASF Shares.................................. 30% 30% 30%
Volatility of Index**...................................... 20% 20% 20%
Correlation BASF quotation : Index**....................... 50% 60% 60%
---------------
* Assuming a continuous exercise of the options during the exercise period of
6 years for options of 2001 and 3 years for options of 2000 and 1999
** 2001: DJ Chemicals, 2000 and 1999: EURO STOXX(SM)
BASF STOCK OPTION PROGRAM
---------------------------------
2001 2000 1999
--------- --------- ---------
Number of options outstanding as of January 1......... 2,057,003 1,172,728 --
Number of options granted............................. 1,133,204 917,016 1,178,440
Number of options lapsed*............................. 97,475 32,741 5,712
--------- --------- ---------
Number of options outstanding as of December 31....... 3,092,732 2,057,003 1,172,728
---------------
* Option rights lapse if the option holders no longer work for BASF or have
sold part of their BOP shares
Total compensation cost for the stock option programs is determined by
valuing the number of outstanding options with the fair value of the options at
the grant date. This total compensation cost will be recognized by a charge to
income over the period in which the related employees' services are rendered
(2001: two years, 2000 and 1999: three years). Compensation cost of
E30.2 million was recorded in 2001, E15.9 million in 2000 and E6.5 million in
1999.
BASF "PLUS" INCENTIVE SHARE PROGRAM: In 1999, BASF started an incentive
share program called "plus" for all eligible employees except the senior
executives entitled to participate in the BOP. Currently, employees of German
and of various European and Mexican subsidiaries are entitled to participate in
the program.
Each participant must make an individual investment in BASF Shares from his
or her variable compensation. For each 10 BASF Shares purchased in the program,
a participant receives one BASF Share at no cost after one, three, five, seven
and 10 years of holding the BASF Shares. The right to receive free BASF Shares
expires if a participant sells the individual investment in BASF Shares, if the
participant stops working for the Company or one year after retirement.
F-61
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Details on the incentive share program are described below.
BASF INCENTIVE SHARE PROGRAM "PLUS"
-------------------------------------
2001 2000 1999
--------- -------- --------
Number of shares held as individual investment as of
January 1.............................................. 745,840 220,840 --
Number of shares added to the individual investment...... 434,800 544,730 223,980
Number of subscription rights lapsed..................... 49,960 19,730 3,140
--------- ------- -------
Number of shares held as individual investment as of
December 31............................................ 1,130,680 745,840 220,840
The Company provides for the value of the free shares over the period until
the shares are to be issued based on the year-end price of BASF Shares.
Compensation cost of E4.4 million was recorded in 2001, E2.7 million in 2000 and
E1.1 million in 1999.
28. FINANCIAL INSTRUMENTS AND DERIVATIVE INSTRUMENTS
DERIVATIVE INSTRUMENTS: The Company is exposed to foreign currency,
interest rate and commodity risks during the normal course of business. In cases
where the Company intends to hedge against these risks, derivatives are used,
including forward exchange contracts, currency options, interest rate/currency
swaps or combined instruments or commodity derivatives. In addition, derivative
instruments are used to replace transactions in original financial instruments,
such as shares or fixed-interest securities. Derivative instruments are only
used if they have a corresponding underlying position or planned transaction
arising from the operating business, cash investments and financing. The
leverage effect that can be achieved with derivatives is deliberately not used.
The derivative instruments held by the Company are not held for the purpose of
speculation.
Where derivatives have a positive market value, the Company is exposed to
credit risks in the event of non-performance of their counterparts. The credit
risk is minimized by exclusively trading contracts with major creditworthy
financial institutions.
To ensure efficient risk management, market risks are centralized at BASF
Aktiengesellschaft, except when certain subsidiaries have been authorized to
close derivative contracts under the principles mentioned above. The Company has
developed and implemented internal guidelines based on the principles of
separation of functions for completion and execution of derivative instruments.
The risks arising from changes in exchange rates and interest rates as a
result of the underlying transactions and the derivative transactions concluded
to secure them are monitored constantly. The same is effective for the
derivative instruments, which are used to replace transactions in original
financial instruments. For this purpose, market quotations or computer or
mathematical models are used to determine the current market values not only of
the underlying transactions but also of the derivative transactions and these
are compared with each other.
FOREIGN EXCHANGE AND INTEREST RATE RISK MANAGEMENT: Foreign currency
derivatives are primarily aimed at hedging the exchange rate risk against the
U.S. dollar, the Canadian dollar, the Australian dollar, the British pound, the
Swiss franc, the Japanese yen and the Singapore dollar.
F-62
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest derivatives or combined interest/currency derivatives were
concluded to hedge loans granted to group companies. In the case of interest
swaps or combined instruments, the difference between interest paid and interest
received is deferred and is reflected in the interest result. As far as other
derivatives are concerned, index swaps were used to create synthetic share
investments with a guarantee of the capital invested.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of a financial
instrument is the price at which the instrument could be exchanged between
willing parties. Fair value amounts are estimated by the Company management
based on available market information and appropriate valuation techniques.
These estimates do not necessarily reflect the amount that could be realized or
would be paid in the current market.
Book and estimated fair values of financial instruments, for which it is
practicable to estimate the fair value, were as follows:
DECEMBER 31, 2001 DECEMBER 31, 2000
----------------------------- -----------------------------
BOOK VALUES FAIR VALUES BOOK VALUES FAIR VALUES
------------- ------------- ------------- -------------
(EUROS IN MILLIONS)
ASSETS
Financial assets (details, see Note 15)....... E 3,360.7 E 3,477.7 E 3,589.7 E 3,677.4
Accounts receivable, trade and other assets... 8,039.1 8,057.7 9,126.7 9,133.3
Marketable securities (details, see Note
18)......................................... 382.9 629.2 364.1 618.4
Cash and cash equivalents..................... 359.9 359.9 505.5 505.5
LIABILITIES
Financial liabilities......................... E 2,835.0 E 2,876.7 E 7,891.9 E 7,918.1
Accounts payable, trade and other
liabilities................................. 6,025.8 6,038.9 6,430.0 6,429.3
ACCOUNTS RECEIVABLE AND OTHER ASSETS, ACCOUNTS PAYABLE AND OTHER
LIABILITIES: For trade accounts receivable, liquid funds and other assets,
trade accounts payable and other liabilities, the book value approximates the
fair value. For non-current amounts, the difference between book value and fair
value represents primarily unrecognized gains from foreign currency balances.
The fair value of financial assets and marketable securities represents
market values from securities exchanges at the balance sheet date. The market
value of financial liabilities represents a valuation of bonds at inter-bank
rates.
F-63
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BREAKDOWN OF DERIVATIVE INSTRUMENTS:
NOMINAL AMOUNTS FAIR VALUES
DECEMBER 31 DECEMBER 31
------------------------------ --------------------------
2001 2000 2001 2000
------------- -------------- ------------ -----------
(EUROS IN MILLIONS)
Forward exchange contracts.......................... E 5,051.6 E 10,630.0 E (125.5) E (17.8)
Currency options.................................... 153.4 4,220.9 1.5 66.1
------------- -------------- ------------ -----------
FOREIGN CURRENCY DERIVATIVES........................ 5,205.0 14,850.9 (124.0) 48.3
------------- -------------- ------------ -----------
Interest rate swaps................................. 15.1 36.0 (0.4) 0.1
Interest rate/cross currency swaps.................. 3,081.1 2,977.2 (590.9) (367.9)
------------- -------------- ------------ -----------
INTEREST RATE DERIVATIVES........................... 3,096.2 3,013.2 (591.3) (367.8)
------------- -------------- ------------ -----------
Commodity derivatives and other derivatives......... 33.4 25.6 4.8 10.1
------------- -------------- ------------ -----------
The nominal values are the totals of the purchases and sales of the
particular derivatives on a gross basis. The fair market values correspond to
the difference between the cost and resale value, which is determined from
market quotations or by the use of option pricing models or, in the case of
unlisted contracts, the termination amount in the event of premature
cancellation. Offsetting changes in the valuation of the underlying transactions
are not taken into account.
Provisions for probable losses from fluctuations of foreign exchange rates,
interest rates or prices amounted to E11.1 million in 2001 and E47.4 million for
2000. All changes of the fair value of financial instruments and derivative
contracts had been recognized as required by U.S. GAAP and the impact on net
income and stockholders' equity in accordance to U.S. GAAP is disclosed in
Note 4.
Interest rate and cross currency swaps are related to internal financing of
Group companies worldwide. Commodity derivatives are used to hedge raw material
prices, e.g., for naphtha.
SUPPLEMENTARY INFORMATION CONCERNING OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)
OIL AND GAS PRODUCING ACTIVITIES
"Additional Petroleum Data" disclosures are presented in accordance with the
provisions of SFAS No. 69, "Disclosure of Oil and Gas Producing Activities."
Accordingly, volumes of reserves and production exclude royalty interests of
third parties, and royalty payments are shown as reductions in revenues.
In 2001, Wintershall began accounting for an investment in Russia in
accordance with the equity method. The respective results of operations, costs
incurred, capitalized costs, reserves and discounted future net cash flows are
disclosed proportionally to Wintershall's participation.
RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES
Results of operations from oil and gas producing activities represent only
those revenues and expenses directly associated with Wintershall's oil and gas
production. These amounts do not include any allocation of interest expenses or
corporate overheads and are therefore not necessarily indicative of
contributions to consolidated net earnings of the Company. Estimated income
taxes
F-64
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
were computed by applying the statutory income tax rates to the pretax income
from producing activities.
INVESTMENTS
NORTH AFRICA/ REST OF AT EQUITY,
2001 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL REST OF WORLD
---- --------- ------------- --------- -------- ----------- -------------
(EUROS IN MILLIONS)
RESULTS OF OPERATIONS
- Sales to consolidated
companies................ E 21 E -- E -- E -- E 21 E 7
- Sales to third parties..... 422 1,195 280 90 1,987 21
- Royalties.................. 54 229 30 0 313 2
--------- ----------- --------- -------- ----------- --------
TOTAL SALES.................... 389 966 250 90 1,695 26
--------- ----------- --------- -------- ----------- --------
- Production costs........... 72 139 84 20 315 8
- Exploration expenses....... 22 23 13 20 78 2
- Depreciation, depletion,
amortization and
valuation................ 54 63 25 22 164 3
- Other...................... -- 9 -- 0 9 3
--------- ----------- --------- -------- ----------- --------
Total costs.................... 148 234 122 62 566 16
--------- ----------- --------- -------- ----------- --------
Result before taxes............ 241 732 128 28 1,129 10
- Income taxes............... 135 659 23 17 834 3
--------- ----------- --------- -------- ----------- --------
Result after taxes............. E 106 E 73 E 105 E 11 E 295 E 7
--------- ----------- --------- -------- ----------- --------
INVESTMENTS
NORTH AFRICA/ REST OF AT EQUITY,
2000 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL REST OF WORLD
---- --------- ------------- --------- -------- ----------- -------------
(EUROS IN MILLIONS)
RESULTS OF OPERATIONS
- Sales to consolidated
companies................ E 8 E -- E -- E -- E 8 E --
- Sales to third parties 325 1,306 278 35 1,944 --
- Royalties 26 220 29 1 276 --
--------- ----------- --------- -------- ----------- --------
TOTAL SALES.................... 307 1,086 249 34 1,676 --
--------- ----------- --------- -------- ----------- --------
- Production costs........... 64 127 73 13 277 --
- Exploration expenses....... 11 18 5 4 38 --
- Depreciation, depletion,
amortization and
valuation................ 50 55 26 5 136 --
- Other...................... -- -- -- -- -- --
--------- ----------- --------- -------- ----------- --------
Total costs.................... 125 200 104 22 451 --
--------- ----------- --------- -------- ----------- --------
Result before taxes............ 182 886 145 12 1,225 --
- Income taxes 102 783 26 6 917 --
--------- ----------- --------- -------- ----------- --------
Result after taxes............. E 80 E 103 E 119 E 6 E 308 E --
--------- ----------- --------- -------- ----------- --------
F-65
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENTS
NORTH AFRICA/ REST OF AT EQUITY,
1999 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL REST OF WORLD
---- --------- ------------- --------- -------- ----------- -------------
(EUROS IN MILLIONS)
RESULTS OF OPERATIONS
- Sales to consolidated
companies................ E 40 E -- E -- E 2 E 42 E --
- Sales to third parties 117 726 169 48 1,060 --
- Royalties 9 183 19 3 214 --
--------- --------- --------- -------- ----------- --------
TOTAL SALES.................... 148 543 150 47 888 --
--------- --------- --------- -------- ----------- --------
- Production costs........... 40 110 38 22 210 --
- Exploration expenses....... 9 12 11 8 40 --
- Depreciation, depletion,
amortization and
valuation................ 43 55 28 20 146 --
- Other...................... -- -- 4 (1) 3 --
--------- --------- --------- -------- ----------- --------
Total costs.................... 92 177 81 49 399 --
--------- --------- --------- -------- ----------- --------
Result before taxes............ 56 366 69 (2) 489 --
- Income taxes............... 31 304 15 (2) 348 --
--------- --------- --------- -------- ----------- --------
Result after taxes............. E 25 E 62 E 54 E 0 E 141 E --
--------- --------- --------- -------- ----------- --------
COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT
ACTIVITIES
Costs incurred represent amounts capitalized or charged against income as
incurred in connection with oil and gas property acquisition, exploration and
development activities. Exploration and development costs include applicable
depreciation of support equipment and sites used in such activities.
INVESTMENTS
NORTH AFRICA/ REST OF AT EQUITY,
2001 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL REST OF WORLD
---- -------- ------------- --------- -------- --------- -------------
(EUROS IN MILLIONS)
COSTS INCURRED
Property acquisitions:
- Proved....................... E -- E -- E -- E -- E -- E --
- Unproved..................... -- -- -- 2 2 --
Exploration...................... 28 35 13 28 104 3
Development...................... 51 34 49 5 139 1
-------- -------- -------- -------- --------- --------
Total costs...................... E 79 E 69 E 62 E 35 E 245 E 4
-------- -------- -------- -------- --------- --------
F-66
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENTS
NORTH AFRICA/ REST OF AT EQUITY,
2000 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL REST OF WORLD
---- -------- ------------- --------- -------- --------- -------------
(EUROS IN MILLIONS)
COSTS INCURRED
Property acquisitions:
- Proved....................... E -- E -- E -- E 19 E 19 E --
- Unproved..................... -- -- -- -- -- --
Exploration...................... 12 27 5 6 50 --
Development...................... 59 20 22 26 127 --
-------- -------- -------- -------- --------- --------
Total costs...................... E 71 E 47 E 27 E 51 E 196 E --
-------- -------- -------- -------- --------- --------
INVESTMENTS
NORTH AFRICA/ REST OF AT EQUITY,
1999 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL REST OF WORLD
---- -------- ------------- --------- -------- --------- -------------
(EUROS IN MILLIONS)
COSTS INCURRED
Property acquisitions:
- Proved....................... E -- E -- E -- E -- E -- E --
- Unproved..................... -- -- -- 2 2 --
Exploration...................... 7 11 11 10 39 --
Development...................... 81 15 36 11 143 --
-------- -------- -------- -------- --------- --------
Total costs...................... E 88 E 26 E 47 E 23 E 184 E --
-------- -------- -------- -------- --------- --------
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
Capitalized costs represent total expenditures on proved and unproved oil
and gas properties with related accumulated depreciation, depletion and
amortization.
INVESTMENTS
NORTH AFRICA/ REST OF AT EQUITY,
2001 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL REST OF WORLD
---- --------- ------------- --------- --------- ----------- -------------
(EUROS IN MILLIONS)
CAPITALIZED COSTS
Gross costs:
- Proved properties E 349 E 575 E 528 E 28 E 1,480 E 19
- Unproved properties........ 23 10 -- 7 40 1
- Other equipment............ 427 178 -- 146 751 7
Accumulated depreciation,
depletion, amortization and
valuation allowances:
- Proved properties.......... 279 402 381 10 1,072 6
- Unproved properties........ 0 10 -- 4 14 --
- Other equipment............ 342 173 -- 110 625 5
--------- --------- --------- --------- ----------- --------
Total net costs................ E 178 E 178 E 147 E 57 E 560 E 16
--------- --------- --------- --------- ----------- --------
F-67
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENTS
NORTH AFRICA/ REST OF AT EQUITY,
2000 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL REST OF WORLD
---- --------- ------------- --------- -------- ----------- -------------
(EUROS IN MILLIONS)
CAPITALIZED COSTS
Gross costs:
- Proved properties.......... E 339 E 540 E 651 E 19 E 1,549 E --
- Unproved properties........ 16 -- 1 7 24 --
- Other equipment............ 406 181 -- 140 727 --
Accumulated depreciation,
depletion, amortization and
valuation allowances: --
- Proved properties.......... 281 346 482 2 1,111 --
- Unproved properties........ -- -- -- 4 4 --
- Other equipment............ 320 168 -- 98 586 --
--------- --------- --------- -------- ----------- --------
Total net costs................ E 160 E 207 E 170 E 62 E 599 E --
--------- --------- --------- -------- ----------- --------
INVESTMENTS
NORTH AFRICA/ REST OF AT EQUITY,
1999 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL REST OF WORLD
---- --------- ------------- --------- --------- ----------- -------------
(EUROS IN MILLIONS)
CAPITALIZED COSTS
Gross costs:
- Proved properties E 328 E 412 E 582 E 71 E 1,393 E --
- Unproved properties........ 5 1 7 13 --
- Other equipment............ 380 169 -- 116 665 --
Accumulated depreciation,
depletion, amortization and
valuation allowances: --
- Proved properties.......... 264 320 424 39 1,047 --
- Unproved properties........ -- -- -- 4 4 --
- Other equipment............ 311 164 -- 99 574 --
--------- --------- --------- --------- ----------- --------
Total net costs................ E 138 E 97 E 159 E 52 E 446 E --
--------- --------- --------- --------- ----------- --------
OIL AND NATURAL GAS RESERVES
Proved oil and gas reserves are the estimated volumes of crude oil, natural
gas and natural gas liquids that are shown by geological and engineering data
with reasonable certainty to be recoverable in future years from known reserves
under existing economic and operating conditions, i.e., prices and costs as of
the date the estimates are made. Prices only reflect changes in existing prices
resulting from contractual arrangements, not escalation based on future
conditions. Proved reserves exclude royalties and interests of third parties.
Proved developed reserves are reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods. Additional
oil and gas expected to be obtained through the application of fluid injection
or other improved recovery techniques for supplementing natural forces and
mechanisms of primary recovery are included as proved developed reserves only
after testing in the form of a pilot project or after the operation of an
installed program has confirmed through production response that increased
recovery will be achieved.
F-68
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Numerous uncertainties are inherent in estimating quantities of proved
reserves and in projecting future rates of production and timing development
expenditures. The accuracy of any reserve estimate is a function of the quality
of available data and engineering and geological interpretation and judgement.
Results of drilling, testing and production after the date of the estimate may
necessitate substantial upward or downward revisions. In addition, changes in
oil and natural gas prices could have an effect on the quantities of proved
reserves because the estimates of reserves are based on prices and costs at the
date when such estimates are made.
The tables below show the estimated net quantities, calculated in compliance
with Regulation S-X, Rule 4-10(a), as of December 31, 1999, 2000 and 2001 of the
Company's proved oil and gas reserves and proved developed oil and gas reserves,
as well as changes in estimated proved reserves as a result of production and
other factors. The Company's reserves for 1999, 2000 and 2001 include reserves
owned directly by the Company and its consolidated subsidiaries.
INVESTMENTS
NORTH AFRICA/ REST OF AT EQUITY,
GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL REST OF WORLD
2001 -------- ------------- --------- -------- -------- -------------
ESTIMATED PROVED OIL RESERVES
(MILLIONS OF BARRELS)
Proved developed and undeveloped
reserves, beginning of year........... 116 479 30 -- 625 --
- Revisions and other changes......... (6) 9 7 -- 10 21
- Extensions and discoveries.......... -- -- 7 -- 7 --
- Improved recovery................... -- -- -- -- -- --
- Purchase of reserves................ -- -- -- -- -- --
- Sale of reserves.................... -- -- -- -- -- --
- Production.......................... 9 46 5 -- 60 2
--- --- ----- --- ----- ---
End of year............................. 101 442 39 -- 582 19
Proved developed reserves, beginning of
year.................................. 76 462 22 -- 560 --
End of year............................. 70 412 28 -- 510 19
ESTIMATED PROVED GAS RESERVES (BSCF)
Proved developed and undeveloped
reserves, beginning of year........... 509 228 920 89 1,746 --
- Revisions and other changes......... 49 (36) 91 -- 104 --
- Extensions and discoveries.......... -- -- 296 69 365 --
- Improved recovery................... -- -- -- -- -- --
- Purchase of reserves................ -- -- -- -- -- --
- Sale of reserves.................... -- -- -- -- -- --
- Production.......................... 58 20 82 24 184 --
--- --- ----- --- ----- ---
End of year............................. 500 172 1,225 134 2,031 --
Proved developed reserves, beginning of
year.................................. 503 228 519 54 1,304 --
End of year............................. 500 171 612 57 1,340 --
F-69
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENTS
NORTH AFRICA/ REST OF AT EQUITY,
GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL REST OF WORLD
2000 -------- ------------- --------- -------- -------- -------------
ESTIMATED PROVED OIL RESERVES
(MILLIONS OF BARRELS)
Proved developed and undeveloped
reserves, beginning of year........... 86 509 26 -- 621 --
- Revisions and other changes......... 37 1 9 -- 47 --
- Extensions and discoveries.......... -- 16 -- -- 16 --
- Improved recovery................... -- -- -- -- -- --
- Purchase of reserves................ -- -- -- -- -- --
- Sale of reserves.................... -- 3 -- -- 3 --
- Production.......................... 7 44 5 -- 56 --
--- --- ----- --- ----- ---
End of year............................. 116 479 30 -- 625 --
Proved developed reserves, beginning of
year.................................. 66 465 18 -- 549 --
End of year............................. 76 462 22 -- 560 --
ESTIMATED PROVED GAS RESERVES (BSCF)
Proved developed and undeveloped
reserves, beginning of year........... 432 247 788 119 1,586 --
- Revisions and other changes......... 120 (13) 213 (1) 319 --
- Extensions and discoveries.......... -- -- -- -- -- --
- Improved recovery................... -- -- -- -- -- --
- Purchase of reserves................ -- -- -- 16 16 --
- Sale of reserves.................... -- -- -- 30 30 --
- Production.......................... 43 6 81 15 145 --
--- --- ----- --- ----- ---
End of year............................. 509 228 920 89 1,746 --
Proved developed reserves, beginning of
year.................................. 301 -- 476 73 850 --
End of year............................. 503 228 519 54 1,304 --
F-70
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENTS
NORTH AFRICA/ REST OF AT EQUITY,
GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL REST OF WORLD
1999 -------- ------------- --------- -------- -------- -------------
ESTIMATED PROVED OIL RESERVES
(MILLIONS OF BARRELS)
Proved developed and undeveloped
reserves, beginning of year........... 37 545 27 6 615 --
- Revisions and other changes......... 55 8 4 -- 67 --
- Extensions and discoveries.......... -- -- -- -- -- --
- Improved recovery................... -- -- -- -- -- --
- Purchase of reserves................ -- -- -- -- -- --
- Sale of reserves.................... -- -- -- 6 6 --
- Production.......................... 6 44 5 -- 55 --
--- --- ----- --- ----- ---
End of year............................. 86 509 26 0 621 --
Proved developed reserves, beginning of
year.................................. 34 509 14 5 562 --
End of year............................. 66 465 18 -- 549 --
ESTIMATED PROVED GAS RESERVES (BSCF)
Proved developed and undeveloped
reserves, beginning of year........... 470 247 746 195 1,658 --
- Revisions and other changes......... 3 -- 108 (7) 104 --
- Extensions and discoveries.......... -- -- -- -- -- --
- Improved recovery................... -- -- -- -- -- --
- Purchase of reserves................ -- -- 4 -- 4 --
- Sale of reserves.................... -- -- -- 45 45 --
- Production.......................... 41 -- 70 24 135 --
--- --- ----- --- ----- ---
End of year............................. 432 247 788 119 1,586 --
Proved developed reserves, beginning of
year.................................. 343 -- 400 142 885 --
End of year............................. 301 -- 476 73 850 --
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES
The information presented below has been prepared in accordance with SFAS
No. 69, which requires the standardized measure of discounted future net cash
flows to be based on year-end sales prices, costs and statutory income tax rates
and a 10% annual discount rate. Because prices used in the calculation are as of
December, the standardized measure could vary significantly from year to year
depending on market conditions at that specific date.
The projection should not be viewed as realistic estimates of future cash
flows nor should the "standardized measure" be interpreted as representing
current value to the company. Material revisions of estimates of proved reserves
may occur in the future, development and production of the reserves may not
occur in the period assumed, actual prices realized are expected to vary
significantly from those used and actual costs may also vary. The company's
investment and operating decisions are not based on the information presented
below, but on a wide range of reserves, and on different price and cost
assumptions from those reflected in this information.
F-71
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Beyond the above considerations, the "standardized measure" is also not
directly comparable with asset balances appearing elsewhere in the Consolidated
Financial Statements because any such comparison would require a reconciling
adjustment.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES
INVESTMENTS
NORTH AFRICA/ REST OF AT EQUITY,
GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL REST OF WORLD
2001 ----------- ------------- ----------- --------- ------------ -------------
(EUROS IN MILLIONS)
DISCOUNTED FUTURE NET CASH FLOW
Revenues............................. E 3,111 E 6,758 E 1,720 E 372 E 11,961 E 211
Production/development costs......... 1,429 1,795 873 164 4,261 95
Income taxes......................... 727 4,108 207 104 5,146 28
Future net cash flows................ 955 855 640 104 2,554 88
Discounted to present value at a 10%
annual rate........................ 242 302 256 25 825 34
Total................................ E 713 E 553 E 384 E 79 E 1,729 E 54
----------- ----------- ----------- --------- ------------ ---------
INVESTMENTS
NORTH AFRICA/ REST OF AT EQUITY,
GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL REST OF WORLD
2000 ----------- ------------- ----------- --------- ------------ -------------
(EUROS IN MILLIONS)
DISCOUNTED FUTURE NET CASH FLOW
Revenues............................. E 3,597 E 10,424 E 1,895 E 297 E 16,213 E --
Production/development costs......... 1,453 1,951 690 120 4,214 --
Income taxes......................... 903 7,346 277 92 8,618 --
Future net cash flows................ 1,241 1,127 928 85 3,381 --
Discounted to present value at a 10%
annual rate........................ 405 410 316 9 1,140 --
Total................................ E 836 E 717 E 612 E 76 E 2,241 E --
----------- ------------ ----------- --------- ------------ ---------
INVESTMENTS
NORTH AFRICA/ REST OF AT EQUITY,
GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL REST OF WORLD
1999 ----------- ------------- ----------- --------- ------------ -------------
(EUROS IN MILLIONS)
DISCOUNTED FUTURE NET CASH FLOW
Revenues............................. E 2,483 E 10,651 E 1,443 E 229 E 14,806 E --
Production/development costs......... 1,068 1,778 508 151 3,505 --
Income taxes......................... 904 7,774 194 29 8,901 --
Future net cash flows................ 511 1,099 741 49 2,400 --
Discounted to present value at a 10%
annual rate........................ 133 405 287 10 835 --
Total................................ E 378 E 694 E 454 E 39 E 1,565 E --
----------- ------------ ----------- --------- ------------ ---------
F-72
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARY OF CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES
INVESTMENTS
NORTH AFRICA/ REST OF AT EQUITY,
GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL REST OF WORLD
2001 ---------- ------------- ---------- --------- ------------ -------------
(EUROS IN MILLIONS)
SUMMARY OF CHANGES
Balance as of January 1............... E 836 E 717 E 612 E 76 E 2,241 E --
Sales and transfers of oil and gas
produced, net of production costs... (325) (848) (121) (71) (1,365) --
Net changes in prices and in
development and production cost..... (73) (1,765) (305) 20 (2,123) --
Extension, discoveries and improved
recovery, less related costs........ -- -- 1 23 24 --
Revisions of previous quantity
estimates........................... 102 (64) 42 (1) 79 --
Development costs incurred during the
period.............................. 65 51 18 5 139 --
Changes in estimated future
development cost.................... (91) 54 18 (3) (22) --
Purchase (sales) of reserves in
place -- net........................ -- -- -- -- -- --
Accredition of discount............... 127 481 72 12 692 --
Net changes in income taxes........... 72 1,927 47 18 2,064 --
Others................................ -- -- -- -- -- 54
Balance as of December 31............. 713 553 384 79 1,729 54
INVESTMENTS
NORTH AFRICA/ REST OF AT EQUITY,
GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL REST OF WORLD
2000 ---------- ------------- ---------- --------- ------------ -------------
(EUROS IN MILLIONS)
SUMMARY OF CHANGES
Balance as of January 1............... E 378 E 694 E 454 E 39 E 1,565 E --
Sales and transfers of oil and gas
produced, net of production costs... (245) (917) (180) (21) (1,363) --
Net changes in prices and in
development and production cost..... 393 336 158 89 976 --
Extension, discoveries and improved
recovery, less related costs........ -- 103 -- -- 103 --
Revisions of previous quantity
estimates........................... 278 (57) 209 21 451 --
Development costs incurred during the
period.............................. 66 46 26 26 164 --
Changes in estimated future
development cost.................... (98) (105) (41) (11) (255) --
Purchase (sales) of reserves in
place -- net........................ -- (8) -- (21) (29) --
Accredition of discount............... 84 492 51 5 632 --
Net changes in income taxes........... (20) 133 (65) (53) (5) --
Others................................ -- -- -- 2 2 --
Balance as of December 31............. 836 717 612 76 2,241 --
F-73
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENTS
NORTH AFRICA/ REST OF AT EQUITY,
GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL REST OF WORLD
1999 ---------- ------------- ---------- --------- ------------ -------------
(EUROS IN MILLIONS)
SUMMARY OF CHANGES
Balance as of January 1............... E (14) E 218 E 184 E 60 E 448 E --
Sales and transfers of oil and gas
produced, net of production costs... (103) (428) (118) (16) (665) --
Net changes in prices and in
development and production cost..... 383 4,572 293 19 5,267 --
Extension, discoveries and improved
recovery, less related costs........ -- -- -- -- -- --
Revisions of previous quantity
estimates........................... 327 40 83 (3) 447 --
Development costs incurred during the
period.............................. 81 16 38 7 142 --
Changes in estimated future
development cost.................... 87 78 (15) (9) 141 --
Purchase.............................. -- -- -- (20) (20) --
Accredition of discount............... 12 53 24 5 94 --
Net changes in income taxes........... (395) (4,306) (35) (5) (4,741) --
Others................................ -- 451 -- 1 452 --
Balance as of December 31............. 378 694 454 39 1,565 --
F-74
ITEM 19. EXHIBITS
1.1 Articles of Association (SATZUNG) of BASF Aktiengesellschaft as amended to
date (previously filed as Exhibit 2.1 to BASF Aktiengesellschaft's
Registration Statement on Form 20-F dated May 25, 2000, File No. 1-15909).
4.1 Purchase Agreement dated March 20, 2000, by and among American Cyanamid
Company, American Home Products Corporation and BASF Aktiengesellschaft
(previously filed as Exhibit 3.1 to BASF Aktiengesellschaft's Registration
Statement on Form 20-F dated May 25, 2000, File No. 1-15909).*
4.2 Purchase Agreement dated December 14, 2000, by and among Abbott Laboratories
and BASF Aktiengesellschaft (previously filed as Exhibit 4.2 to BASF
Aktiengesellschaft's Annual Report on Form 20-F dated March 14, 2001, File
No. 1-15909).*
8.1 List of subsidiaries of BASF Aktiengesellschaft (List of Shares Held 2001).
------------
* Confidential portions have been redacted and filed separately with the
Securities and Exchange Commission.
F-75
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
Date: March 14, 2002 BASF AKTIENGESELLSCHAFT
By: [LOGO]
--------------------------------------------
Name: Dr. Jurgen F. Strube
Title: Chairman of the Board of
Executive Directors
By: [LOGO]
--------------------------------------------
Name: Max Dietrich Kley
Title: Deputy Chairman of the Board of
Executive Directors