1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 2000
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 organization) LUDWIGSHAFEN, GERMANY 67056
(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
BASF ordinary Shares of no par value New York Stock Exchange
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, 2000, there were 607,399,370 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]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* 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.
2
3
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).
As of January 1, 1998, certain accounting and valuation methods have been
adjusted to U.S. generally accepted accounting principles (U.S. GAAP) to the
extent permissible under the German Commercial Code. The effects of these
changes and the reconciliation of remaining significant deviations to U.S. GAAP
are described in Note 3 to the Consolidated Financial Statements included in
Item 18. Insignificant deviations from U.S. GAAP have not been reconciled to
U.S. GAAP because the impact on net income and stockholders' equity is not
material.
As of January 1, 1999, the financial statements have been prepared in euros
(E). The Consolidated Financial Statements for the years ending December 31,
1998, and December 31, 1997, were originally prepared in German marks (DM); they
have been converted into euros at the official fixed conversion rate as of
January 1, 1999, of DM1.95583 = E1.00. The restated financial statements depict
the same trends and relationships among BASF accounts as those previously
reported prior to the introduction of the euro. Unless otherwise indicated, all
monetary amounts shown in the Consolidated Financial Statements and in the Notes
are expressed in million euros, except per share amounts.
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, 2000, which was
E1.0652 = $1.00. 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;
i
4
- 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;
- 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 steamcracker products;
- the ability to pass increases in raw material prices 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 pharmaceuticals, fine
chemicals, crop protection 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;
- the successful integration of and conversion to the euro; 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
5
TABLE OF CONTENTS
PART I
PAGE
-------
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT, AND ADVISERS...... 1
ITEM 2. OFFERING STATISTICS AND EXPECTED TIMETABLE.................. 1
ITEM 3. KEY INFORMATION............................................. 2
ITEM 4. INFORMATION ON THE COMPANY.................................. 7
Background and Historical Development....................... 7
Business Overview........................................... 8
Description of Business Segments............................ 13
Chemicals................................................... 13
Plastics & Fibers........................................... 28
Colorants & Finishing Products.............................. 49
Health & Nutrition.......................................... 59
Oil & Gas................................................... 81
Environmental Matters....................................... 92
Supplies and Raw Materials.................................. 95
E-commerce.................................................. 96
Description of Property..................................... 98
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS................ 104
Overview.................................................... 104
Basis of Presentation....................................... 107
Results of Operations....................................... 108
Liquidity and Capital Resources............................. 138
Exchange Rate Exposure and Risk Management.................. 149
Research and Development.................................... 150
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.................. 151
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS........... 162
ITEM 8. FINANCIAL INFORMATION....................................... 163
ITEM 9. THE OFFER AND LISTING....................................... 166
ITEM 10. ADDITIONAL INFORMATION...................................... 170
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK........................................................ 176
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES...... 191
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES............. 192
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS............................................. 192
ITEM 15. [RESERVED].................................................. 192
ITEM 16. [RESERVED].................................................. 192
PART III
ITEM 17. FINANCIAL STATEMENTS........................................ 193
ITEM 18. FINANCIAL STATEMENTS........................................ 193
ITEM 19. EXHIBITS.................................................... 194
iii
6
7
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
1
8
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, 2000 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, 2 and 3 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 1996 and 1997 are not
directly comparable to the German GAAP data for 1998, 1999 and 2000. The
selected financial data presented below in accordance with U.S. GAAP for the
years 1998, 1999 and 2000 have been derived from the Consolidated Financial
Statements included in Item 18. The reconciliation of the remaining deviations
to U.S. GAAP is described in Note 3 to the Consolidated Financial Statements.
As of January 1, 1999, the Consolidated Financial Statements have been
prepared in euros (E). All amounts in the tables below have been converted into
euros at the official fixed conversion rate as of January 1, 1999 of
DM1.95583 = E1.00. The restated data depict the same trends and relationships
among BASF accounts as those previously reported prior to the introduction of
the euro.
The translation of euros into dollars for 2000 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, 2000, which was
E1.0652 = $1.00. 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.
2
9
2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- --------
(EUROS IN MILLIONS, EXCEPT PER SHARE DATA AND CERTAIN OTHER DATA)
INCOME STATEMENT DATA
GERMAN GAAP
Sales, net of petroleum and natural gas taxes... $33,746 E35,946 E29,473 E27,643 E28,520 E24,939
Gross profit on sales........................... 11,914 12,691 11,081 10,368 10,359 9,047
Income from operations.......................... 2,882(4) 3,070(4) 2,009(3) 2,624(2) 2,731(1) 2,195
Income before taxes and minority interests...... 2,654 2,827 2,606 2,771 2,726 2,257
Income before minority interests................ 1,204 1,282 1,245 1,664 1,639 1,452
Net income...................................... 1,164 1,240 1,237 1,699 1,654 1,427
Basic earnings per share........................ 1.90 2.02 2.00 2.73 2.67 2.32
BALANCE SHEET DATA
GERMAN GAAP
Fixed assets.................................... 20,437 21,769 16,070 14,546 12,705 11,607
Current assets including deferred taxes and
prepaid expenses.............................. 15,760 16,788 13,939 12,156 11,831 10,746
Total assets.................................... 36,197 38,557 30,009 26,702 24,536 22,353
Stockholders' equity............................ 13,420 14,295 14,145 13,250 12,031 10,476
Thereof subscribed capital.................... 1,460 1,555 1,590 1,595 1,590 1,580
Provisions/Liabilities.......................... 22,777 24,262 15,864 13,452 12,505 11,877
Thereof long-term............................. 8,505 9,059 7,529 6,898 6,094 6,223
Total stockholders' equity and liabilities...... 36,197 38,557 30,009 26,702 24,536 22,353
CAPITAL EXPENDITURES AND DEPRECIATION
Additions to fixed assets....................... 8,108 8,637 3,800 4,131 2,964 3,510
Depreciation of fixed assets.................... 2,742 2,921 2,681 2,280 2,048 1,874
U.S. GAAP RECONCILIATION
Net income...................................... 1,365 1,454 1,325 1,771 N/A N/A
Thereof from continuing operations............ 1,222 1,302 1,329 1,725
Basic earnings per share........................ 2.22 2.37 2.14 2.84 N/A N/A
Income from continuing operations per share... 2.00 2.13 2.15 2.77
Diluted earnings per share...................... 2.21 2.35 2.12 2.79 N/A N/A
Stockholders' equity............................ 14,297 15,229 14,753 13,905 N/A N/A
KEY RATIOS
Return on sales (%)(5).......................... 8.5 8.5 6.8 9.5 9.6 8.8
Return on assets before income taxes and
interest expenses (%)(6)...................... 9.9 9.9 10.2 11.9 12.6 11.4
Return on equity after taxes (%)(7)............. 9.0 9.0 9.1 13.2 14.6 14.8
WEIGHTED AVERAGE OF SHARES OUTSTANDING USED IN DETERMINING EARNINGS PER SHARE:
2000 1999 1998 1997 1996
----------- ----------- ----------- ---- ----
Basic earnings per share.............................. 612,806,123 618,073,268 622,476,129 N/A N/A
Diluted earnings per share............................ 621,581,022 627,161,758 636,651,309 N/A N/A
- ---------------
(1) Including special charges of E243.
(2) Including special income of E71.
(3) Including special charges of E941.
(4) Including special charges of E330.
(5) Return on sales (%) is calculated by dividing income from operations by net
sales.
(6) Return on assets before income taxes and interest expenses (%) is calculated
by dividing the profit (loss) before taxes and interest expense by the
average amount of assets of the current period and previous year.
(7) Return on equity after taxes (%) is calculated by dividing profit (loss)
after taxes by the average amount of stockholders' capital of the current
period and the previous year.
3
10
REPORTABLE OPERATING SEGMENT DATA
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(EUROS IN MILLIONS)
CHEMICALS
Sales....................................................... E5,789 E4,423 E4,300 E4,472 E3,737
Income from operations...................................... 713 737 961 1,114 902
Assets...................................................... 4,999 4,112 3,483 3,163 2,347
PLASTICS & FIBERS
Sales....................................................... 11,030 8,628 7,663 7,502 6,275
Income from operations(1)................................... 889 644 545 375 502
Assets...................................................... 6,009 6,843 4,983 4,423 3,185
COLORANTS & FINISHING PRODUCTS
Sales....................................................... 7,109 6,395 6,188 6,540 5,770
Income from operations(2)................................... 522 608 642 480 289
Assets...................................................... 5,576 4,343 3,981 4,052 3,489
AGRICULTURAL PRODUCTS
Sales....................................................... 2,428 1,745 1,750 1,641 1,152
Income from operations(3)................................... (443) 195 203 201 135
Assets...................................................... 6,607 1,949 1,730 1,605 804
FINE CHEMICALS
Sales....................................................... 1,763 1,660 1,498 1,376 1,149
Income from operations(4)................................... (1) (770) 121 199 145
Assets...................................................... 1,368 1,338 1,455 940 674
PHARMACEUTICALS
Sales....................................................... 2,526 2,197 1,850 1,570 1,386
Income from operations(5)................................... 243 (13) 59 (52) 60
Assets...................................................... 2,228 1,887 1,697 1,461 1,308
OIL & GAS
Sales....................................................... 3,957 3,051 2,685 3,198 2,663
Income from operations(6)................................... 1,310 741 276 473 380
Assets...................................................... 3,540 3,003 2,622 2,503 2,155
OTHERS
Sales....................................................... 1,344 1,374 1,709 2,221 2,807
Income from operations...................................... (163) (133) (183) (59) (218)
Assets...................................................... 8,230 6,534 6,751 6,389 8,391
BASF GROUP
Sales....................................................... 35,946 29,473 27,643 28,520 24,939
Income from operations(7)................................... 3,070 2,009 2,624 2,731 2,195
Assets...................................................... 38,557 30,009 26,702 24,536 22,353
- ---------------
(1) Includes special items in 1997: E(82); in 1998: E19; in 1999: E2; and in
2000: E101.
(2) Includes special items in 1997: E(48); in 1998: E19; in 1999: E(74); and in
2000: E(26).
(3) Includes special items in 2000: E(341).
(4) Includes special items in 1997: E(37); in 1998: E2; in 1999: E(829); and in
2000: E(50).
(5) Includes special items in 1997: E(22); in 1998: E(4); in 1999: E(164); and
in 2000: E(62).
(6) Includes special items in 1999: E138; and in 2000: E44.
(7) Includes special items in 1997: E(243); in 1998: E71; in 1999: E(941); and
in 2000: E(330).
4
11
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.
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 German marks or 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
German marks respectively euros since 1999 and the U.S. dollar equivalent in
each of the years indicated. The table also discloses the dividend amount per
BASF Share for 2000 proposed by the Supervisory Board and the Board of Executive
Directors for approval at the Annual Meeting to be held on April 26, 2001. 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, DM E $
- ----------------------- ----- ----- -----
2000............................................. 2.00 1.88
1999............................................. 1.13 1.03
1998............................................. 2.20 1.12 1.19
1997............................................. 2.00 1.02 1.13
1996............................................. 1.70 0.87 1.00
The German mark/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 2001 for the year ended December 31, 2000, 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, 2000 of E1.0652 = $1.00.
EXCHANGE RATE INFORMATION
On January 1, 1999, the new single European currency, the euro, was
established alongside the national currencies of the 11 participating countries.
The euro is a fully convertible currency. There are, except in limited embargo
circumstances, no legal restrictions in Germany on international capital
movements and foreign exchange transactions.
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.
5
12
The table below sets forth, for the periods and dates indicated, the high,
low, period-average and period-end Noon Buying Rates for the German mark or
euros expressed in German marks or euro per U.S. dollar. No representation is
made that the German mark, euro or U.S. dollar amounts referred to herein could
have been or could be converted into U.S. dollars, euros or German marks, as the
case may be, at any particular rate.
YEAR HIGH LOW PERIOD AVERAGE(1) PERIOD END
- ---- ------------------- ------------------- ------------------- -------------------
2000................. E 1.2092 E 0.9676 E 1,0861 E 1.0652
1999................. E 0.8466 E 0.9984 E 0.9445 E 0.9930
1998................. DM 1.8542(E0.9480) DM 1.6060(E0.8211) DM 1.7587(E0.8992) DM 1.6670(E0.8523)
1997................. DM 1.8810(E0.9617) DM 1.5413(E0.7880) DM 1.7394(E0.8893) DM 1.7991(E0.9198)
1996................. DM 1.5655(E0.8004) DM 1.4354(E0.7339) DM 1.5070(E0.7705) DM 1.5387(E0.7867)
1995................. DM 1.5612(E0.7982) DM 1.3565(E0.6935) DM 1.4261(E0.7291) DM 1.4345(E0.7334)
- ---------------
(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 each month during the previous six
month is set forth below:
MONTH HIGH LOW
- ----- ------- -------
February, 2001.................................... E1.1041 E1.0644
January, 2001..................................... E1.0892 E1.0488
December, 2000.................................... E1.1401 E1.0652
November, 2000.................................... E1.1930 E1.1502
October, 2000..................................... E1.2092 E1.1356
September, 2000................................... E1.1818 E1.1266
August, 2000...................................... E1.1264 E1.0836
The Noon Buying Rate for the euro on March 1, 2001 was quoted by the
Federal Reserve Bank of New York at 0.9291 U.S. dollars for one euro, or as the
exchange rate is defined above, at 1.0763 euros for one U.S. Dollar.
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."
6
13
ITEM 4. INFORMATION ON THE COMPANY
BACKGROUND AND HISTORICAL DEVELOPMENT
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. 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.
7
14
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-value chemicals, plastics, colorants and pigments, dispersions,
automotive and industrial coatings, agricultural products and fine chemicals as
well as crude oil and natural gas.
BASF is comprised of the parent company, BASF Aktiengesellschaft of
Ludwigshafen, Germany, and 169 consolidated subsidiaries. The company has
customers in more than 170 countries and operates production sites in 39
countries.
For the year ended December 31, 2000, BASF reported sales of E35,946
million, income from operations of E3,070 million and net income after taxes and
minority interests of E1,240 million. Based on customer location, BASF's
activities in Europe accounted for 56% of BASF's total sales in 2000, North
America (comprised of the United States, Mexico and Canada) accounted for 23% of
sales, the Asia, Pacific Area, Africa region accounted for 14% of sales and
South America accounted for 7% of sales.
Although Europe remains the company's primary market, BASF expects that its
activities outside of Europe will make an increasingly larger contribution to
its business. BASF plans to invest approximately E2.7 billion between 2001 and
2005 in its activities in North America, where it currently produces
approximately 90% of the products it sells there. BASF has also set a goal of
generating 20% of its worldwide sales in the Asia-Pacific region by 2010, with
70% of these sales originating from local production. BASF is reinforcing its
integrated approach to manufacturing, known in German as "Verbund," as it
expands its activities in North America and Asia. In North America, BASF is
currently building a world-scale steamcracker to provide for regional integrated
production. BASF is also benefiting from integrating its steamcracker with the
refinery of its partner TotalFinaElf S.A. In Asia, BASF is in the process of
building an integrated manufacturing site in Kuantan, Malaysia, and is planning
to build one in Nanjing, China. In Singapore, through the joint venture ELLBA
Eastern Private Ltd., BASF together with the Royal Dutch Shell Group (Shell) is
building a styrene monomer and propylene oxide plant, which is scheduled to
start up in the second half of 2002.
BASF is committed to strengthening its financial performance and
competitive position by bolstering cyclically resilient operations. Business
areas that BASF considers to be resilient to economic cycles include BASF's
production of high-value chemicals, fine chemicals and agricultural products.
BASF is also expanding its marketing, distribution and trading activities in the
European natural gas market with partner Gazprom of Russia in order to diminish
the effects of business cycles in BASF's other activities. Furthermore, BASF
seeks to strengthen its financial performance and competitive position by
achieving cost and market leadership in operations that are sensitive to
economic cycles and by expanding its activities in growth regions such as Asia
and North and South America.
BASF's long-term strategy and activities are guided by the principles of
Sustainable Development. The company's objective is to meet the economic,
ecological and social needs of today's society without compromising the ability
of future generations to meet their own needs. BASF contributes to Sustainable
Development by participating in the worldwide "Responsible Care(R)" initiative
developed by companies in the global chemical industry. BASF's aims are to avoid
accidents, to prevent its activities from impairing human and animal health and
to tailor its product range to the tenets of sustainability.
BUSINESS SEGMENTS
BASF has five separate business segments: Chemicals, Plastics & Fibers,
Colorants & Finishing Products, Health & Nutrition and Oil & Gas. These business
segments encompass BASF's 15
8
15
operating divisions. For financial reporting purposes, BASF treats the three
operating divisions of BASF's Health & Nutrition business segment as three
separate reportable operating segments: Agricultural Products, Fine Chemicals
and Pharmaceuticals. 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 2 to the Consolidated
Financial Statements. 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.
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 high-value chemicals and related products sold to external customers. BASF
sells its chemicals to a multitude of industries, particularly the chemical,
construction, automotive and electronics industries.
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 and polyurethanes.
Colorants & Finishing Products
The Colorants & Finishing Products segment produces a number of BASF's
high-value chemicals. Among the segment's products are colorants, pigments,
automotive and industrial coatings, dispersions and adhesive raw materials. BASF
also manufactures superabsorbents, which are used to manufacture sanitary care
products.
Health & Nutrition: Agricultural Products, Fine Chemicals and
Pharmaceuticals
BASF is active in the areas of agricultural products and fine chemicals.
BASF produces a variety of agricultural products, including fungicides,
herbicides and insecticides. BASF is also a leading supplier of fine chemicals,
including vitamins and other nutrients for human and animal nutrition. BASF sold
its pharmaceuticals business on March 2, 2001 to Abbott Laboratories Inc. of
Abbott Park, Illinois. In pharmaceuticals, BASF focused on therapeutic areas
with high medical need and large patient populations. BASF's pharmaceuticals
activities are treated as discontinued operations.
Oil & Gas
BASF operates its Oil & Gas segment through BASF's subsidiary Wintershall
AG and its corresponding subsidiaries. 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.
9
16
SIGNIFICANT SUBSIDIARIES
The following table sets forth significant subsidiaries owned, directly or
indirectly, by BASF Aktiengesellschaft:
PERCENTAGE
NAME OF COMPANY OWNED
- --------------- ----------
BASF Antwerpen N.V., Antwerp, Belgium....................... 100%
BASF Corporation, Mount Olive, New Jersey................... 100%
Wintershall AG, Kassel, Germany............................. 100%
BASF'S FINANCIAL TARGET
BASF has set a financial target of increasing income from operations before
special items on an average annual basis of 10% from 2000 to 2002.
GROUP STRATEGY
BASF's strategy is to increase and sustain shareholder value through growth
and innovation.
BASF AIMS TO CONTINUE GROWING BY:
- Sustaining and improving its strong market presence
Based on its sales of E35,946 million in 2000, BASF is the largest
chemical company in the world. BASF offers customers a breadth of
expertise in the fields of high-value chemicals, plastics and fibers,
colorants and pigments, dispersions, automotive and industrial coatings,
agricultural products and fine chemicals and in the crude oil and
natural gas businesses. BASF derives more than two-thirds of its sales
and earnings from product groups in which it is one of the top three
suppliers. The company aims to further increase the proportion of sales
and earnings it achieves in such product groups. BASF's global presence
and world-scale production activities support its position as a
cost-leader in the industry, helping BASF achieve above-average earnings
even in periods of economic downturn. Cost-leadership is particularly
important for BASF businesses that are more vulnerable to economic
cycles, such as standard products. Such businesses account for
approximately half of BASF's portfolio. By building world-scale plants
in the regions in which its customers are located and expanding its
product range through acquisitions, divestitures and strategic
alliances, BASF is seeking to strengthen its market presence and improve
earnings.
- Extending its unique Verbund approach to integration
BASF believes it is one of the world's most efficient chemical producers
due to the highly integrated nature of its major manufacturing sites.
BASF's integrated approach, known in German as "Verbund," generates
significant efficiencies throughout BASF's production activities, which
BASF believes historically has allowed the company to achieve higher
operating returns than its less-integrated competitors. BASF's Verbund
sites in Europe, North America and Asia are among the largest chemical
manufacturing sites in the world and serve as regional centers for the
company's global production activities. By integrating plants and
processes vertically and horizontally in dozens of value-adding chains
at its sites around the world, BASF estimates that it achieves annual
cost savings of approximately E800 million. This approach allows BASF to
manufacture basic chemicals predominantly for transfer or sale to other
operations within the company. Although the transfer prices to internal
purchasers are predominantly based on market prices, the
10
17
Verbund offers internal buyers significant savings in logistics and in
energy, transportation, purchasing and infrastructure costs. BASF's
operations transform products that they buy internally into a multitude
of precursors, intermediates, polymers and high-value end products for
sale to external customers. About 75% of the products that BASF sells to
external customers through its activities in the Chemicals, Plastics &
Fibers and Colorants & Finishing Products segments are produced at its
Verbund sites. Besides Ludwigshafen, Verbund sites are located in
Antwerp, Belgium; Tarragona, Spain; Geismar, Louisiana and Freeport,
Texas. A Verbund site is currently under construction in Kuantan,
Malaysia and planned for Nanjing, China.
- Expanding its business operations in growth markets
In growth regions, BASF is expanding its activities through integrated
production sites, and is focusing its capital expenditures program above
all on Asia -- the region with the highest growth potential for chemical
products. BASF is constructing plants in Seraya, Singapore and in
Caojing, China; expanding its production site in Yosu, Korea and its
Verbund site in Kuantan, Malaysia; and planning a new Verbund site in
Nanjing, China. BASF's goal is to increase sales in Asia from a current
13% of group sales to 20% by 2010, while at the same time increasing the
proportion of local production from 40% to 70%.
BASF'S INNOVATIONS ARE BASED ON:
- Continually renewing its products and processes
Improving and developing products and processes safeguards BASF's
leadership position. Over the past decade, BASF has invested an average
of E100 million a year in research on improving major manufacturing
processes. This investment has lowered BASF's current annual
manufacturing costs by approximately E1 billion compared to costs in
1990. BASF is also working toward improving its business processes by
expanding its e-commerce activities so that it can provide its customers
with products and services in a quicker and more timely manner.
- Offering customers creative system solutions
BASF's application specialists and researchers work closely with
customers to ascertain and develop the types of products that customers
want.
- Exploiting the diversity of its chemistry research for product
development
Through its extensive network of research activities, BASF aims to
exploit the product development potential that its broad base of
research in chemistry affords it. BASF conducts research activities at
its research facilities in Ludwigshafen, Germany, at its regional
research centers and at those of its subsidiaries, through its interests
in start-up companies and through approximately 800 cooperations with
leading universities, institutes and business partners.
To support its strategy of increasing and sustaining shareholder value
through growth and innovation, BASF aims to increasingly align the interests of
management with those of shareholders. In 2000, BASF implemented a worldwide
stock option program for senior executives that allows them to purchase company
stock on preferential terms if BASF shares achieve defined performance goals.
BASF has also established an employee stock purchase program, which is available
to employees in Germany who are not eligible for the stock option program. With
the introduction of BASF's shares on the New York Stock Exchange in June 2000,
BASF Corporation in the United States introduced a share program for its
employees. BASF is currently introducing employee stock purchase programs
11
18
in other countries as well. In addition, believing that stockholders should
receive an appropriate share of profits, BASF more than doubled its dividends
between 1994 and 1999. For 2000, BASF will again propose to the Annual Meeting
to raise the dividend. In response to changes in German tax law which are
effective as of 2001, BASF will also propose to pay a special dividend to
maximize shareholder benefits. The company also started a share buy-back program
in 1999 and launched a second program in March 2000, allocating up to E2 billion
for the buy-back of BASF shares.
12
19
DESCRIPTION OF BUSINESS SEGMENTS
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 full range of products,
from basic petrochemicals and inorganic chemicals to high-value specialty
chemicals, 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:
2000 1999 1998
------ ------ ------
(EUROS IN MILLIONS)
Sales to third parties......................... E5,789 E4,423 E4,300
Percentage of total BASF sales................. 16% 15% 16%
Intersegmental transfers....................... E2,363 E1,882 E1,955
Income from operations......................... E 713 E 737 E 961
Capital expenditures........................... E 880 E 765 E 588
The Chemicals segment produces a wide variety of chemicals that are sold to
a multitude of industries, including the chemical, construction, automotive,
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 30% 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.
The Chemicals segment's strategic goal is to expand and strengthen its
position as a competitive and profitable global producer. The Chemicals segment
aims to maintain its leading market position in Europe and to expand operations
in North America and the Asia-Pacific region. On December 29, 2000, BASF
announced that, subject to approval by regulatory authorities, BASF expects to
acquire by April 2001 the production activities in Feluy, Belgium of the SISAS
Group, strengthening its position in the European market for butanediol and its
derivatives, as well as for phthalic anhydride and plasticizers. Achieving
economies of scale and making investments in technology, processes and products
are the most important factors for the segment's competitiveness. BASF's capital
expenditures relating to the Chemicals segment are focused on building new
world-scale plants that offer state-of-the-art technology.
As part of its intention to fulfill its strategic goals, BASF has
reorganized activities in its Chemicals segment in mid-2000. BASF's
Petrochemicals & Inorganics and Industrial Chemicals divisions were reorganized
to form two new global operating divisions. BASF believes the new organizational
structure will better conform to its value-adding chains and make the company's
integration even more efficient. The former Petrochemicals & Inorganics division
was renamed "Petrochemicals" and is responsible for the manufacture and
marketing of products from steamcrackers as well as industrial gases,
plasticizers and solvents. The former Industrial Chemicals division was renamed
"Inorganics" and is responsible for the production and marketing of inorganic
chemicals, including ammonia, nitric acid, sulfuric acid and chlorine, as well
as of catalysts, glues and impregnating resins. With this reorganization, some
of the plants formerly operated by the
13
20
Fertilizers division have been allocated to the Chemicals and Plastics & Fibers
segments with a corresponding restatement of the segment data. Data for the
Chemicals segment from 1998, 1999 and 2000 have been restated to reflect this
new organizational structure.
The divisions comprising the Chemicals segment and their principal products
are:
PETROCHEMICALS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- Cracker products including propylene, - Starting materials largely for captive
ethylene, benzene and butadiene use 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
monoxide and oxygen use within BASF to manufacture
higher-value chemicals
- 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
- Solvents including oxo alcohols, - Solvents to process, apply, clean or
acetates, glycol ethers and specialty separate materials mainly in the
solvents coatings, pharmaceuticals and cosmetics
industries
INORGANICS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- Inorganic chemicals such as ammonia, - Starting materials for fertilizers, food
urea, nitric acid, sulfuric acid, additives, auxiliaries for chemicals
chlorine, as well as inorganic
specialties such as electronic grade
chemicals and hydroxylamine products
- Catalysts - Used in chemical reactions in order to
increase product yields
- Glues and impregnating resins including - Wood-to-wood adhesives and bonding
their raw materials, formaldehyde, applications, decorative paper
methanol and melamine manufacturing
- Catamold(R) products for powder injection - For manufacturing tiny, intricate devices
molding of metal and ceramic components such as watch casings
14
21
INTERMEDIATES:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- Amines including aniline, ethanolamines - Precursors or components for detergents
and specialty amines 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
SPECIALTY CHEMICALS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- Ethylene derivatives such as ethylene - Precursors and components for products
oxide, glycols, surfactants and glycol such as detergents, anti-freeze and
ethers polyester fibers, films and PET plastic
bottles
- Isobutene derivatives such as - Precursors and components for products
polyisobutene such as fuel and lubricant additives
- Hydrocyanic acid derivatives such as - For paper manufacturing, electroplating,
chelating agents detergents and photographic chemicals
- Propylene derivatives such as propylene - Precursors and components for products
oxide, propylene glycols as well as such as surfactants, hydraulic fluids,
acrylic acid derivatives solvents, propylene glycols, dispersants
and detergents
SEGMENT STRATEGY
The Chemicals segment provides the foundation for BASF's Verbund approach
to integration, supplying all of the company's chemical customers -- both
internal and external -- with a wide spectrum of quality chemicals at
competitive prices.
The Chemical segment's strategy is to maintain its leading market position
in Europe, to expand operations in North America and the Asia-Pacific region and
to improve its competitive position by employing the most efficient technologies
and processes available.
BASF has major projects underway in North America and Asia. A major project
in Asia is the expansion of the new Verbund site in Kuantan, Malaysia, where the
first plant went on stream in March 2000. In addition, BASF is planning a new
Verbund site in Nanjing, China. BASF expects plants at the Nanjing site to start
up in 2005. In North America, BASF and its partner, TotalFinaElf S.A., are
currently building the world's largest liquid steamcracker at TotalFinaElf's
refinery in Port Arthur, Texas. The steamcracker, scheduled to begin operation
in the second half of 2001, will supply propylene, ethylene and other products
to BASF's Verbund sites in Geismar, Louisiana, and Freeport, Texas.
15
22
In 2000, the Chemicals segment invested approximately E147 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 and
specialty chemicals.
The main capital expenditure projects of the Chemicals segment currently
include:
PROJECTED ANNUAL PROJECTED
CAPACITY AT COMPLETION START-UP OF
LOCATION PROJECT OF PROJECT OPERATION
- -------- ------- ---------------------- -----------
(METRIC TONS)
Kuantan, Malaysia Oxo C4 alcohols 240,000(1) 2001
Phthalic anhydride 40,000(1) 2001
Plasticizers 100,000(1) 2001
Butanediol 100,000(1) 2002
Formic acid 50,000(1) 2003
Port Arthur, Texas Steamcracker 830,000 ethylen
and 2001
860,000 propylene(2
Butadiene 410,000(3) 2003
Ludwigshafen, Germany Polytetrahydrofuran 56,000 2002
Formaldehyde 480,000 2003
Trimethylolpropane 20,000 2001
Optically active amines 2,000 2001
Butanediol expansion 190,000 2000
Dimethylhexanediol 2,000 2001
Antwerp, Belgium Ethylene oxide expansion 415,000 2001
Glycols expansion 300,000 2001
Freeport, Texas Hexanediol 25,000 2001
Neopentylglycols 60,000 2002
Geismar, Louisiana Ethylene oxide expansion 420,000 2001
Glycols expansion 390,000 2001
S-Methoxyisopropylamine 2,500 2001
- ---------------
(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 BASF (60%) and TotalFinaElf S.A.
(40%) (capacity reflects total joint venture capacity).
(3) Conducted through a joint venture between Shell Chemical Company (60%), BASF
(24%) and TotalFinaElf S.A. (16%) (capacity reflects total joint venture
capacity).
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
16
23
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 produced in steamcrackers, which use steam to crack
naphtha mainly into ethylene and propylene -- two important petrochemical
materials. Other materials produced in this process include aromatics such as
benzene, and C4 cuts (a mixture of C4 hydrocarbons) -- a precursor for
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 major amounts of ethylene, propylene, butadiene,
benzene, acetylene, oxo alcohols, phthalic anhydride, polyisobutene and
industrial gases. This captive use within BASF provides steady demand that helps
maintain good capacity utilization levels at the division's production plants.
In Europe, BASF operates three steamcrackers -- two in Ludwigshafen,
Germany and one in Antwerp, Belgium. They supply these Verbund sites with basic
chemical building blocks such as ethylene, propylene, C4 cuts and aromatics for
BASF's derivatives plants that produce ethyl benzene (a styrene precursor),
ethylene oxide (a precursor for monoethylene glycol), as well as nitrobenzene,
aniline and diphenylmethane diisocyanate (MDI). Although the steamcrackers
mainly supply products for captive use within the company, BASF maintains
positions in the merchant markets for ethylene to ensure high capacity
utilization.
In North America, BASF and its partner TotalFinaElf S.A. are currently
building a world-scale steamcracker at TotalFinaElf's refinery located in Port
Arthur, Texas. The steamcracker, scheduled to start operations in the second
half of 2001, 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 will be approximately E1 billion, with BASF's share being E600
million. The steamcracker will have an annual capacity of approximately 830,000
metric tons of ethylene and 860,000 metric tons of propylene. In a new joint
venture, BASF is planning to build the world's largest butadiene extraction
plant in Port Arthur, Texas, with partners TotalFinaElf and Shell.
In Asia, a production plant for oxo C4 alcohols is scheduled to come on
stream in Kuantan, Malaysia during the second quarter of 2001. BASF also plans
to build a steamcracker as part of its new Verbund site in Nanjing, China, in
cooperation with its partner, China Petroleum & Chemical Corporation (SINOPEC).
Virtually all of the products in the Petrochemicals division are
commodities; low production cost is therefore 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 E1,773 million in
2000.
17
24
PRODUCTS
The following are the Petrochemicals division's main product lines:
Plasticizers and Plasticizer Raw Materials
BASF is the second largest producer of plasticizers, which are used in
chemical processes to make rigid plastics flexible. BASF's product range
includes standard plasticizers based on phthalic anhydride under the trade name
Palatinol(R), which are used, for example, to produce flexible PVC. BASF also
produces specialty plasticizers under the trade names Plastomoll(R) and
Palamoll(R), which are based on BASF's range of aliphatic diols. BASF also sells
the plasticizer precursor phthalic anhydride for use in dyestuffs and
unsaturated polyester resins and markets higher plasticizer range alcohols. BASF
sells these products globally, primarily to the construction, cable and wire,
coated fabrics and medical industries.
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.
Cracker Products
BASF produces the entire range of cracker products from propylene and
ethylene to benzene and C4 cuts. Of these, propylene is the most important
starting product for BASF's value-adding chains of production in petrochemicals.
BASF consumes the propylene it produces; however, more ethylene is produced than
needed for captive use. To ensure that BASF's steamcrackers are used at a high
capacity, the excess ethylene is sold in Germany and the Benelux countries
through an ethylene pipeline system. Generally, European producers can meet
demand in Europe for ethylene. BASF will also begin selling surplus ethylene out
of its Verbund site in Port Arthur, Texas, by the third quarter of 2001. 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 C4 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.
18
25
Production capacity for the major products in the Petrochemicals division
is as follows:
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS) PRIMARY APPLICATIONS
------- -------------------------- --------------------
Ethylene............................ 1,300,000 - Plastics
- Specialty chemicals
- Solvents
- Dispersions
Propylene........................... 750,000 - Plastics
- Plasticizers
- Solvents
- Specialty chemicals
Benzene............................. 480,000 - Plastics
Oxo C4 alcohols..................... 880,000 - Plasticizers
(calculated as butyraldehyde) - Dispersions
- Solvents
Phthalic anhydride.................. 127,000 - Plasticizers
- Resins
- Dyestuffs
Higher oxo alcohols................. 170,000 - Plasticizers
- Detergents (ethoxylates)
Acetylene........................... 90,000 - Plastics
- Vitamins
- Pharmaceuticals
MARKETS AND DISTRIBUTION
In 2000, Europe accounted for 76% of the Petrochemicals division's sales to
external customers, North America for 16% and the Asia, Pacific Area, Africa
region for approximately 7%.
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. The market for
plasticizers and oxo alcohols is characterized by excess capacity, which has
resulted in stiff competition and pricing pressure. Competition in the market is
based on strong customer relationships, comprehensive product services and
price.
The primary competitors of BASF's Petrochemicals division are a diverse
number of medium and large chemical companies. BASF considers BP Amoco Chemical,
Inc. of the United Kingdom; Eastman Chemicals Corp., Exxon Chemicals Company and
Union Carbide Corp. of the United States; and Celanese AG and the Degussa AG
unit Oxeno of Germany to be its main competitors in the areas of plasticizers
and solvents. In the ethylene market, BASF's main competitors are The Dow
Chemical Company of the United States; DSM of the Netherlands; E.ON AG (formerly
VEBA AG) and DEA Mineralol AG of Germany; and Shell Chemicals and BP Amoco
Chemical Inc. of the United Kingdom.
INORGANICS
OVERVIEW
BASF's Inorganics division sells approximately 400 products of which
approximately 55% are allocated for captive use, allowing BASF's other divisions
to benefit from reduced energy,
19
26
transportation and infrastructure costs as well as improved efficiencies in
purchasing and logistics. These internal transfers, which are sold at market
prices, include major amounts of formaldehyde, chlorine, ammonia, methanol,
nitric acid and sodium hydroxide as startup materials to create higher-value
products. This captive use within BASF provides steady demand that helps
maintain good capacity utilization levels 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 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 contribute to BASF's profitability.
The Inorganics division's sales to third parties were E626 million in 2000.
PRODUCTS
The Inorganics division has four major product lines:
Inorganic Chemicals
BASF produces a wide range of inorganic chemicals through value-adding
chains of production based on nitrogen, sulfur and sodium chloride. Products
range from basic chemicals such as ammonia, chlorine, sodium hydroxide, nitric
acid and sulfuric acid, to inorganic specialties such as electronic grade
chemicals, hydroxylamine products, carbonyl iron powder, boron trifluoride and
salts for food additives. Products are sold globally, primarily to other
chemical companies.
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.
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. BASF is also a producer of glues and impregnating
resin raw materials such as formaldehyde, methanol, urea and melamine. Europe
represents the primary market for this group of products.
20
27
Catamold(R)
BASF has developed the innovative Catamold(R) line of products for powder
injection molding of metal and ceramic components. The Catamold(R) 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.
The production capacity for the Inorganics division's major products is 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................... 600,000 - 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 2000, Europe accounted for 83% of the Inorganics division's sales to
external customers, North America for 8% and the Asia, Pacific Area, Africa
region for 8%. 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 relatively 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.
The Inorganics division's primary competitors consist of a diverse number
of medium and large chemical companies. The division's main competitors include
ATOFINA S.A. of France, Norsk Hydro of Norway and Gentek Inc. of the United
States. In the market for catalysts, the division's main competitors include
Sud-Chemie AG of Germany, Criterion Catalyst & Technology Company of the United
States and Procatalyse SA of France, while in the market for glues and
impregnating resins,
21
28
Nordkemi Oy of Finland (consisting of the former Dyno Industrier ASA of Norway
and Neste Chemicals of Finland) and ATOFINA S.A. of France are among BASF's
competitors.
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 create higher-value chemicals.
The division has four major product areas:
- amines;
- butanediol and derivatives;
- carboxylic acids and polyalcohols; and
- specialty intermediates.
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, C4 aldehyde,
acrylonitrile, ammonia, ethylene oxide, ethylene, chlorine, benzene and nitric
acid.
Many of the Intermediates division's products are resilient to economic
cycles, making the division a steady and solid contributor to BASF's
profitability. The division's products are often 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 30% 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 achieve technological
and cost leadership, BASF participates in targeted research and process
development programs for new, efficient world-scale production sites. The
Intermediates division cooperates with key customers to develop new, tailor-made
products. 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, as well as
the production site in Ulsan, Korea. 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.
The Intermediates division's sales to third parties were E1,720 million in
2000.
22
29
PRODUCTS
The Intermediates division has four major product areas:
Amines
BASF is one of the world's largest 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 such as aniline
(manufactured mainly for captive use within BASF), 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. Besides
1,4-butanediol, other key products include tetrahydrofuran, PolyTHF(R),
gamma-butyrolactone and N-methylpyrrolidone. BASF produces and sells these
products globally.
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.
Production capacity for the major products in the Intermediates division is
as follows:
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS) PRIMARY APPLICATIONS
------- -------------------------- --------------------
Aniline/Dinitrotoluene........ 375,000/85,000 - Polyurethane plastics
- Rubber industry applications
Alkylamines................... 190,000 - Agricultural products
- Water treatment
- Pharmaceuticals
- Rubber chemicals
Ethanolamines/
Alkylalkanolamines.......... 255,000 - Laundry and cleaning
materials
- Water treatment
- Agricultural products
- Gas purification
Specialty amines.............. 150,000 - Surfactants
- Rubber industry applications
23
30
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS) PRIMARY APPLICATIONS
------- -------------------------- --------------------
- Agricultural products
- Polyurethane and epoxy
Acid chloride derivatives..... 40,000 - Organic peroxides
- Pharmaceuticals
Butanediol.................... 400,000 - Plastics and polyurethanes
Polytetrahydrofuran - Fibers
(PolyTHF(R))................ 84,000 - Polyurethanes
Hexanediol.................... 30,500 - Plastics
- Coating resins
Formic acid/propionic acid.... 180,000/80,000 - Preservatives
Formamide..................... 100,000 - Agricultural products
MARKETS AND DISTRIBUTION
In 2000, Europe accounted for approximately 47% of the Intermediates
division's sales to external customers. North and South America together
accounted for approximately 26% and the Asia, Pacific Area, Africa region
accounted for approximately 27%. 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
resilient to economic cycles, but the division also manufactures products that
are commodities characterized by cyclicality in pricing. The trend toward
commodity pricing is increasing.
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. Approximately 10 medium to large
companies compete globally in the amines market. BASF considers its global
competitors based in the United States to be Union Carbide Corp., Air Products
Corp., The Dow Chemical Company and Huntsman Corporation. Its key European
competitors are UCB S.A. of Belgium and Akzo Nobel N.V. of the Netherlands. In
its butanediol and derivatives activities, BASF considers its competitors to be
International Specialty Products Inc. and E.I. du Pont de Nemours and Company of
the United States; Mitsubishi Chemicals Corporation and Tonen Chemical
Corporation of Japan; Shinwa Petrochemicals of Korea; and Dairen Chemical
Corporation of Taiwan. Main competitors in BASF's specialty intermediates
business are PPG Industries, Inc. of the United States and Groupe SNPE of
France. The competitors in carboxylic acids and polyalcohols business include
Kemira OY of Finland and BP Amoco Chemical, Inc., Celanese AG of Germany, Union
Carbide Corp. and Eastman Chemicals Corp. of the United States and UBE of Japan.
SPECIALTY CHEMICALS
OVERVIEW
The Specialty Chemicals division, which is one of the world's largest
manufacturers of high-value chemicals, produces more than 1,200 products that
are sold to over 4,000 customers worldwide in more than 50 major industries.
The Specialty Chemicals division produces surfactants and chelates for
detergents and cleaning products, antifreeze and brake fluids for the automotive
industry and fuel and lubricant additives for the mineral oil industry. The
division also sells ethylene glycol to manufacturers of polyester fibers, films
and PET (polyethylene terephthalate) plastic bottles. The division's
electroplating chemicals are used in the electronics industry and its biocides
are used for disinfection in various applications. Specialty polymers are sold
to the construction industry for use in concrete and for seawater desalination
- -- a technology in which BASF is a leader.
24
31
Products of the Specialty Chemicals division often represent the end
products of several significant value-adding chains within BASF's Verbund.
BASF's approach to integration gives the Specialty Chemicals division an
advantage over small and medium-sized companies that lack the cost advantages of
integration. The most important chains from which the division benefits are
based on derivatives of ethylene, propylene, isobutene and hydrocyanic acid.
BASF is among the world's largest producers of ethylene oxide, which is a
derivative of ethylene, and offers a large variety of products based on this
chemical. The Specialty Chemicals division manufactures ethylene oxide at large
world-scale plants at BASF's Verbund sites and is responsible for a substantial
part of BASF's ethylene-based products. The division purchases 85% of its
precursors from within BASF and sells almost 80% of its products to external
customers.
BASF's goal is to become one of the world's leading producers of nonionic
surfactants based on ethylene oxide, both through acquisitions and by expanding
its production capacity. Surfactants enhance cleansing efficiency and are used,
for example, in household detergents and dishwashing agents as well as in
industrial and institutional cleaning applications. BASF acquired and
successfully integrated the U.S. surfactants businesses of both PPG Industries,
Inc. and Olin Corporation of the United States at the end of 1997. These
acquisitions considerably increased BASF's market share of specialty surfactants
and helped BASF become a leading supplier of surfactants in North America. The
new nonionic surfactants plant at BASF's site in Geismar, Louisiana, will make a
significant contribution to the company's already strong market position in the
United States. In 1998, BASF also acquired the U.S. chelating agents business of
Ciba Specialty Chemicals Holding Inc. of Switzerland, improving its position as
a global supplier of chelating agents, which are used to manufacture pulp and
detergents among other products.
In Europe, BASF acquired the polyethylene glycols business from BP France
in 1999. This acquisition enhanced BASF's position as a leading nonionic
surfactants manufacturer in the European market. BASF further strengthened its
position in the European antifreeze-market through the acquisition of the
antifreeze business of France's ACIA Societe in 1999.
The Specialty Chemicals division's goal is to expand its regional presence
outside of Europe, particularly for surfactants in North America and for glycols
in Asia. The division also aims to work closely with customers to develop
higher-value products, especially in the market for detergents. BASF is actively
expanding its marketing activities and production capacity in the Asia-Pacific
region to achieve medium and long-term growth. The ethylene oxide and glycols
sites within BASF's planned Verbund site in Nanjing, China, are part of this
growth strategy.
The Specialty Chemicals division's sales to third parties were E1,670
million in 2000.
PRODUCTS
The Specialty Chemicals division's products are largely based on four
value-adding chains: ethylene, isobutene, hydrocyanic acid and propylene. The
division sells its products worldwide, but sales are concentrated mostly in
Europe and the United States.
Ethylene Derivative Chemistry
Ethylene derivative chemistry products form the core of the Specialty
Chemicals division. These products are used mainly to produce surfactants,
glycols and glycol ethers. BASF produces nonionic surfactants, which are often
used in detergents, that are based on aliphatic alcohols and ethylene oxide or
on block polymers that are produced by combining ethylene oxide and propylene
oxide. BASF is one of Europe's largest ethylene glycol producers, 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 plastic
bottles. Waxes synthesized from ethylene also are used in various surface
treatment applications for automobiles and floors. Ethylene oxide and glycols
form important links in BASF's ethylene value-adding chain, and the company
plans to further increase its production capacity for these products.
25
32
Isobutene Derivative Chemistry
Isobutene is the starting material for BASF's Keropur(R) and Glissopal(R)
brand fuel and lubricant additives. BASF is one of the world's largest suppliers
of polyisobutene and its derivatives, such as polyisobuteneamine, which are part
of the isobutene value-adding chain. The key markets for fuel additives are
North America and Europe. Polyisobutene is marketed directly to motor oil
additive manufacturers.
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. In 2001, BASF plans to increase its production capacity for chelating
agents by installing additional reactors at the existing chelating agent plant
at its production site in Ludwigshafen, Germany.
Propylene Derivative Chemistry
Propylene oxide is synthesized within the Specialty Chemicals division from
propylene and serves as a base for a wide variety of products, including
surfactants, hydraulic fluids, solvents and propylene glycols. Another product
of the propylene value-adding chain is acrylic acid, which is used as a starting
material in the Specialty Chemicals division to manufacture dispersants and
auxiliary chemicals for detergents and water treatment. In addition to the
production capacity listed below, BASF has access to additional capacity of
propylene oxide through its ELLBA C.V. joint venture with Shell Nederland Chemie
B.V. of the Netherlands. This additional capacity is allocated for captive use
by the Polyurethanes division.
Production capacity for the major products in the Specialty Chemicals
division is as follows:
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS) PRIMARY APPLICATIONS
------- -------------------------- --------------------
Alkoxylation products..... 305,000 - Nonionic surfactants
Chelating agents.......... 55,000 - Paper manufacturing
- Detergents
Ethylene oxide............ 1,000,000 - Nonionic surfactants
- Glycols
Propylene oxide........... 124,000 - Nonionic surfactants
- Propylene glycols
Ethylene glycols.......... 690,000 - Antifreeze
- Polyester
Propylene glycols......... 80,000 - Unsaturated polyesters, solvents
Glycol ethers............. 125,000 - Solvents, brake and hydraulic fluids
MARKETS AND DISTRIBUTION
In 2000, Europe accounted for approximately 51% of the Specialty Chemicals
division's sales to external customers, while North America accounted for
approximately 36%. The Asia, Pacific Area, Africa region and South America
together accounted for the remaining sales of approximately 13%.
BASF sells products from the Specialty Chemicals division through its own
sales force, as well as through wholesalers. Some of the division's customers
are also competitors of other BASF divisions.
Competition varies significantly in the markets for the division's numerous
products. In the markets for some basic products, such as ethylene glycol,
competition is based mainly on price.
26
33
Competition in the markets for high-value products, such as specialty
surfactants and fuel additives, is based mainly on product offering and quality
and product performance.
Competitors in the industry range from a large number of small, specialized
chemical manufacturers to the world's largest global chemical companies. BASF
considers the principal competitors of its Specialty Chemicals division to be
Clariant International Ltd. of Switzerland, Shell Chemicals U.K. of the United
Kingdom and The Dow Chemical Company of the United States.
27
34
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 products of the Plastics & Fibers segment include:
- standard plastics, such as polystyrene;
- polyurethane raw materials and polyurethane products and systems;
- nylon fibers and nylon intermediates;
- styrene copolymers used in higher-value plastic applications; and
- engineering plastics, which are high-performance materials that can
withstand high temperatures, are resistant to chemicals and can often
replace metal and other materials in applications.
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:
2000(1) 1999 1998
------- ------ ------
(EUROS IN MILLIONS)
Sales to third parties.................... E11,030 E8,628 E7,663
Percentage of total BASF sales............ 31% 29% 28%
Intersegmental transfers.................. E 490 E 378 E 375
Income from operations.................... E 889 E 644 E 545
Capital expenditures...................... E 599 E 998 E 746
- ---------------
(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,
electronics, consumer products, textiles and sports and leisure industries.
The Plastics & Fibers segment, which offers some of the most advanced
products of BASF's value-adding chains, benefits significantly from several
levels of Verbund-generated cost savings. The Plastics & Fibers segment also
benefits from the ability of BASF's Verbund sites to guarantee a steady flow of
precursors, even during periods of industry short supply. The segment buys a
number of raw materials externally but does not rely on any dominant supplier.
Europe is BASF's core market for plastics. To ensure the continued success
of the Plastics & Fibers segment, BASF is currently positioning itself to better
respond to customer needs by building regional production sites in the key
markets of the segment's leading customers. BASF is also expanding existing
production sites, application centers and sales offices in the segment's major
markets as well as establishing and acquiring new sites to serve emerging growth
markets such as Asia and South America. Finding new applications in cooperation
with customers is also important for the Plastics & Fibers segment's future
success.
28
35
The divisions comprising the Plastics & Fibers segment and their principal
products are:
STYRENIC POLYMERS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- PS, PS-I (polystyrene) - Packaging and disposable products
- Household appliances
- Housings for consumer electronics
- EPS (expandable polystyrene) and XPS - Building insulation
(extruded polystyrene) - Packaging
- EPP (expanded 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
ENGINEERING PLASTICS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- ABS (acrylonitrile-butadiene-styrene) - Electrical and consumer electronics
equipment
- Household appliances
- Office equipment
- Automotive components
- ASA (acrylonitrile-styrene-acrylate) - Uncoated exterior automotive parts
- Sports equipment
- High-end electrical equipment
- SAN (styrene-acrylonitrile) - Household and toiletry items
- Cosmetics packaging
- Office and household appliances
- 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
29
36
ENGINEERING PLASTICS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- POM (polyoxymethylene) - Clips and fasteners
- Speaker grilles
- High-end children's toys
- Mechanical and precision engineering
equipment
- PES (polyethersulfone) - Medical equipment
- Automotive components
- PSU (polysulfone) - Chemical engineering materials
POLYURETHANES:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- Polyurethane basic materials - Polyurethane plastics
- Isocyanates - Furniture interiors
- Automotive interiors
- Carpet backings
- Polyols - Rigid and flexible foams
- Cable sheathings
- Polyurethane systems - Automotive seats
- Steering wheels, fenders, dashboards
- Polyurethane special elastomers
- Cable coverings
- Shock-absorbing plastics for automobiles
or sports equipment
FIBER PRODUCTS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- Caprolactam - Precursor for nylon 6
- Adipic acid - Precursor for nylon 6,6
- Hexamethylenediamine - Precursor for nylon 6,6
- Acrylonitrile - Precursor for nylon 6,6
- Plastics application
- Polycaprolactam (nylon 6) - Spinning polymers
- Engineering plastics
- Nylon filaments (nylon 6) - Textile fibers for apparel
- Carpet fibers for residential,
commercial and automotive applications
30
37
FIBER PRODUCTS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- Nylon 6,6 - Spinning polymers
- Engineering plastics
- Industrial fibers - Fire-blocking, filtration and workwear
applications
- Commercial carpet products
POLYOLEFINS (TRANSFERRED TO THE JOINT VENTURE BASELL N.V. ON SEPTEMBER 30, 2000):
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- Various polypropylene grades: - Consumer product packaging
- Containers
Standard polymers - Appliance housings
Compounds - Luggage
Metallocene polypropylene - Outdoor furniture
- Fibers for use in rugs, ropes, nets and
carpets
- Children's toys
- Automotive components
- Various polyethylene grades: - Packaging for food products
- Plastic bags
PE-LD (low-density polyethylene) - Bottles
PE-LLD (linear low-density polyethylene) - Barrels
PE-HD (high-density polyethylene) - Plastic films for applications in
agriculture and construction
- Pipes and cables
- Fibers
SEGMENT STRATEGY
BASF's goal is to strengthen its position as one of the leading global
competitors in the plastics and fibers industry. BASF believes that achieving
cost and technology leadership, developing a global presence and innovative new
products are the keys to the success of the Plastics & Fibers segment.
To achieve its goals, BASF plans to:
- achieve cost leadership by developing state-of-the-art technologies to
manufacture products in world-scale plants offering significant economies
of scale;
- consolidate production at existing plants;
- establish the most efficient and effective business processes;
- extend current product applications through technological development;
- develop new product markets;
- expand business in regions with growth potential, such as Asia and South
America;
- exploit new marketing channels such as e-commerce;
- enter strategic partnerships when appropriate; and
- continue focusing on developing more environmentally friendly and
cost-efficient products.
31
38
To achieve cost and technology leadership, the Plastics & Fibers segment is
targeting its capital expenditures on the construction of new, world-scale
plants, on the consolidation of production at existing plants and on research
and development.
As part of its goal to develop a global presence, the Plastics & Fibers
segment is targeting investments to take advantage of considerable growth
potential in Asia and South America. BASF's expansion in Asia includes the
world's largest single train ABS plastic production plant in Ulsan, Korea, which
began operations in 1998, as well as a production site in Nanjing, China. The
Nanjing site, where BASF also plans to build a major Verbund site, currently
produces the complete styrene value-adding chain and includes plants for ethyl
benzene, styrene, polystyrene and expandable polystyrene. The Nanjing operations
are part of the BASF-YPC Company Ltd. joint venture with Yangzi Petrochemical
Corp. BASF has a 60% interest in this joint venture. In South America, BASF's
new high impact polystyrene (HIPS) plant commenced operations in August 2000,
supplementing HIPS production capacity at BASF's site in Sao Jose dos Campos,
Brazil, by 65%. A third expansion phase is planned for 2001.
As part of its strategy to enter into partnerships where appropriate, BASF
and Shell Petroleum N.V., a holding company in the Royal Dutch/Shell Group of
Companies, signed in December 1999 an agreement to combine the companies Elenac,
Targor and Montell to create one of the world's largest polyolefin companies.
The agreement became effective September 30, 2000. BASF and Shell each own 50%
of the new joint venture, Basell N.V., which is a holding company based in the
Netherlands. BASF contributed E879 million in cash, BASF's 50% stake in Elenac
and its 100% stake in Targor to the joint venture, which is the world's largest
polypropylene producer and its fourth largest polyethylene producer. Shell
contributed its 100% stake in Montell and its 50% stake in Elenac. The new joint
venture, which began operations in the fourth quarter of 2000, is consolidated
on an equity basis.
Effective January 1, 1999, BASF placed its PVC (polyvinyl chloride)
activities in its Solvin joint venture with Solvay of Belgium. BASF has a 25%
ownership interest in Solvin, which has assumed the marketing responsibility for
BASF's PVC-based products. The joint venture strengthens BASF's relatively small
market position in PVC by uniting BASF's activities with those of Solvay, one of
the world's leading PVC manufacturers.
In 2000, the Plastics & Fibers segment invested approximately E167 million
in 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.
The main capital expenditure projects of the Plastics & Fibers segment
currently include:
PROJECTED ANNUAL
CAPACITY AT COMPLETION PROJECTED
OF PROJECT START-UP OF
LOCATION PROJECT (METRIC TONS) OPERATION
- -------- ------- ---------------------- -----------
Caojing, China MDI (diphenylmethane
diisocyanate) (40% stake)....... 160,000(1) 2004
TDI (toluene diisocyanate) (70%
stake).......................... 130,000(2) 2004
Geismar, Louisiana TDI expansion................... 160,000 2002
Yosu, Korea Polyetherols expansion.......... 30,000 2001
TDI............................. 140,000 2003
MDI expansion................... 160,000 2004
Altamira, Mexico Styrolux(R) (styrene butadiene
styrene block copolymers)....... 45,000 2003
32
39
PROJECTED ANNUAL
CAPACITY AT COMPLETION PROJECTED
OF PROJECT START-UP OF
LOCATION PROJECT (METRIC TONS) OPERATION
- -------- ------- ---------------------- -----------
Singapore SM (styrene monomers)........... 550,000(3) 2002
PO (propylene oxide)............ 250,000(3) 2002
Ludwigshafen, Germany EB (ethyl benzene).............. 600,000 2002
SM (styrene monomer)............ 550,000 2002
Styrolux(R) (styrene butadiene
styrene block copolymers)
expansion....................... 20,000 2001
Antwerp, Belgium EB expansion.................... 890,000 2001
Caprolactam expansion........... 330,000 2002
Styrolux(R) (styrene butadiene
styrene block copolymers)
expansion....................... 35,000 2001
Styrolux(R) (styrene butadiene
styrene block copolymers)....... 30,000 2002
Guaratingueta, Brazil EPS (expandable polystyrene).... 40,000 2001
Bibbiano, Italy Styrodur C(R) (expanded
polystyrene).................... 200,000(4) 2001
Navarra, Spain Styrodur C(R) (expanded
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).
(2) Conducted through a joint venture with SINOPEC and the Hua Yi Group of China
(capacity reflects total joint venture capacity).
(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.
STYRENIC POLYMERS
OVERVIEW
BASF, the inventor of polystyrene, is one of a small number of global
producers of styrenic polymers, supplying approximately 700 principal customers
in all major geographic markets of the world.
The Styrenic Polymers 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 to alternative
materials, 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(R) and
Styrodur(R).
The Styrenic Polymers division purchases approximately 30% of its raw
materials from within BASF, benefiting significantly from the Verbund approach
to integration. For example, by purchasing from BASF both benzene and ethylene
to manufacture styrene, a precursor for polystyrene, the division benefits from
efficiencies in logistics and lower transportation costs. In addition, BASF's
Verbund provides the division with a reliable source of precursors, even during
periods of short supply, as was the case in 2000. The division's principal raw
materials are benzene, ethylene,
33
40
butadiene rubber and pentane. The division sells approximately 90% of its
products to external customers.
BASF believes that achieving cost and technology leadership, as well as
strengthening its global presence are crucial to ensuring the continued
competitiveness of its styrenic polymers products. Through acquisitions and
capacity expansions, BASF has completed the first phase of a globalization
strategy aimed at producing polystyrene and expanded polystyrene products on a
regional basis in all major markets.
Major projects over the last two years included:
- integrating the acquired polystyrene business of CBE (BASF Poliestireno)
into BASF S.A., Brazil;
- adding additional GPPS (general purpose polystyrene) capacity to BASF's
site in Nanjing, China;
- starting up a new Styropor(R) plant in Nanjing, China;
- expanding the capacity of the HIPS (high impact polystyrene) plant in Sao
Jose dos Campos, Brazil;
- 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; and
- setting up a joint venture for the production of polystyrene and
expandable polystyrene with OAO Nishnekamskneftechim in the Republic of
Tatarstan, which is part of the Russian Federation.
As a result of these activities, BASF currently operates polystyrene plants
in what it considers to be the world's most important markets.
BASF will further expand in the growth markets of Asia and South America by
improving the potential output of existing plants and by adding new capacities.
The main focus in Europe is to consolidate and upgrade the ethyl benzene and
styrene operations and streamline polystyrene production capacity at existing
European sites. The concentration of production, the closure of production lines
and workforce reductions are a vital part of the restructuring efforts in BASF's
polystyrene business and led to improved overall competitiveness in 2000. BASF
also achieved improvements in its logistics and cost reductions as a result of
the restructuring project for its foams business in Europe. In North America,
BASF is aiming to strengthen its position in the markets for polystyrene and
expandable polystyrene by concentrating its production activities, improving
logistics and streamlining its workforce.
The Styrenic Polymers division's sales to third parties were E2,768 million
in 2000.
PRODUCTS
The Styrenic Polymers 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.
34
41
Styrolux(R) complements BASF's polystyrene product portfolio and combines
toughness and 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(R).
Invented by BASF 50 years ago, Styropor(R) is a leading product in the building
insulation market. In 2000, Neopor(R), a new product with superior insulation
capabilities, was broadly 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
XPS (Extruded Polystyrene)
BASF sells extruded polystyrene under the brand name Styrodur(R). It is a
green, extruded, rigid polystyrene foam that is made using environmentally
friendly carbon dioxide as a blowing agent. Styrodur(R) 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(R) product line, which offers heat
insulation, low water absorption and compressive strength, are concentrated in
Europe.
Primary applications:
- Building insulation
EPP (Expandable Polypropylene)
BASF sells expandable polypropylene, which is often used to make foam
components, under the brand name Neopolen P(R). BASF ships Neopolen(R) 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(R). It is a
flexible foam material that absorbs sound and offers high heat resistance and
good flame retardant attributes. BASF ships Basotect(R) to customers as foam
boards or foam blocks. The product's primary markets are Europe, the United
States and Japan.
35
42
Primary applications:
- Automotive components
- Soundproofing materials
- Fire protection materials
- Household and consumer applications
Production capacity for the major products in the Styrenic Polymers
division is as follows:
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS)
- ------- --------------------------
Ethyl benzene.................................... 1,550,000
Styrene monomer.................................. 550,000(1)
Styrene monomer.................................. 1,595,000
Polystyrene...................................... 1,517,000
EPS (expandable polystyrene)..................... 580,000
XPS (extruded polystyrene)....................... 980,000(2)
EPP (expanded polypropylene)..................... 10,800
MF (melamine resin foam)......................... 150,000(2)
- ---------------
(1) Conducted through a 50-50 joint venture with Shell Eastern Petroleum Pte.
Ltd. (capacity reflects total joint venture capacity).
(2) Measured in cubic meters.
MARKETS AND DISTRIBUTION
In 2000, Europe accounted for approximately 44% of the Styrenic Polymers
division's sales, North America for approximately 25%, the Asia, Pacific Area,
Africa region for approximately 22% and South America for 10%.
The Styrenic Polymers division sells products primarily through its own
regional sales force, supported by BASF technical and marketing experts.
The market for styrenic polymers 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 and reliable delivery. Demand for styrenic
polymers continues to rise due to overall economic growth in both industrial and
emerging markets. To address these trends, BASF is seeking cost and technology
leadership and is expanding its production and marketing presence to all major
markets.
The principal global competitor of the Styrenic Polymers 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. BASF competes with other regional competitors, such
as Chi Mei of Taiwan in Asia.
ENGINEERING PLASTICS
OVERVIEW
BASF is one of the world's leading producers of engineering plastics.
BASF's Engineering Plastics division produces one of the industry's broadest
product ranges for a wide variety of high-performance applications. The division
sells its products to approximately 1,500 customers worldwide. The customer base
consists largely of high-performance plastic molders and a variety of
36
43
plastic component manufacturers in the automotive, consumer electronics,
electrical equipment and packaging industries.
Many of the Engineering Plastics division's products 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. BASF has played an active role in the automotive industry's shift
from metals to plastics to lower vehicle weight and production costs and to
improve fuel efficiency. The Engineering Plastics division often works with
suppliers to automotive manufacturers to develop specific applications for parts
such as engine components, airbag housings and electronic connectors. BASF's
Ultramid(R) plastic, for example, is one of the world's leading products used in
manufacturing automotive engine manifolds.
The Engineering Plastics division benefits from BASF's Verbund approach to
integration by purchasing 55% of its raw materials from other BASF operations.
The division purchases most of its monomers, such as caprolactam, butadiene and
styrene, from within BASF and purchases glass fibers and polymer additives from
external sources. By purchasing from within BASF, the division generates
efficiencies in logistics and savings in energy, transportation, purchasing and
infrastructure costs. The Engineering Plastics division sells virtually all of
its products to external customers.
Customers of the Engineering Plastics division often rate product
performance and customer support as important, but prices are becoming an
increasingly critical factor in choosing a supplier. To compete effectively, the
Engineering Plastics division must contain costs by consolidating its product
line and replacing older plants with new, world-scale plants that provide
significant economies of scale. In addition to containing costs, it is paramount
for BASF to have preferred supplier status with global customers, many of whom
demand collaboration in the development of specific plastic applications.
Preferred supplier status ensures early involvement in a customer's projects and
fosters close and lasting business relationships.
The Engineering Plastics division's sales to third parties were E1,769
million in 2000.
PRODUCTS
Engineering plastics are sold in the form of pellets, enabling customers to
manufacture an array of specific components for high-performance applications.
The Engineering Plastics division's products, all of which are sold
globally, are:
Styrene Copolymers
ABS (Acrylonitrile-Butadiene-Styrene Copolymers)
Terluran(R) and Ronfalin(R) are trade names for BASF's top styrene
copolymer plastic. They offer 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(R) S is the trade name for BASF's styrene copolymer plastic
modified with rubber to make it durable against weathering, aging and
chemicals.
37
44
Primary applications:
- Uncoated exterior automotive parts
- Sports equipment such as surfboards and boats
- High-end electrical equipment such as microwave ovens and
coffeemakers
SAN (Styrene-Acrylonitrile Copolymers)
Luran(R) 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(R) 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(R) 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(R) 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
38
45
Technical Plastics
PA (Polyamide)
Ultramid(R) 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(R) is the trade name for BASF's plastic based on PBT. It
features high stiffness, strength, dimensional stability and aging
resistance.
Primary applications:
- Electrical connectors
- Automotive components such as windshield wiper arms
POM (Polyoxymethylene)
Ultraform(R) 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(R) S and E are the trade names for BASF's PES and PSU
plastics. They are used in high performance applications that exceed the
capabilities of other plastics. These products can replace other
plastics such as thermosets as well as metals and ceramics. The most
important features of Ultrason(R) are stiffness, mechanical strength and
its ability to perform continuously at high temperatures. Other
important features include electrical insulation properties and
dimensional stability.
Primary applications:
- Chemical engineering materials
- Medical equipment
- Automotive components
39
46
Production capacity for the major products in the Engineering Plastics
division is as follows:
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS)
- ------- --------------------------
ABS, ASA, SAN.................................... 530,000
Nylon 6 and 6,6 and PBT.......................... 373,000
POM.............................................. 71,000
PES and PSU...................................... 3,000
MARKETS AND DISTRIBUTION
In 2000, Europe accounted for 56% of the Engineering Plastics division's
sales, North America for 22%, the Asia, Pacific Area, Africa region for 20% and
South America for 2%.
BASF sells engineering plastics products primarily through its own regional
sales force. BASF employees at technical centers in Germany, France, the United
Kingdom, Spain, the United States and Japan intensively support the activities
of the Engineering Plastics division. 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 2000, the Engineering Plastics division invested in establishing
e-commerce as an additional sales channel. In the fourth quarter of 2000, BASF's
vendor portal for engineering plastics became operational in Europe, while at
the same time BASF and other thermoplastics suppliers launched an e-marketplace
in the United States for plastics injection molders called Omnexus.com. This
electronic marketplace aims to reduce transaction costs for customers around the
world. Plans call for these portals to become operational in other regions.
The Engineering Plastics division's leading customers, particularly in the
automotive industry, are primarily global companies that demand uniform
worldwide standards for products and services in all major markets of the world.
The engineering plastics business is a specialized one and competition is based
more on product quality than on price. However, some of the products within the
division's styrene copolymers group have also become commodity-like, and price
is becoming an increasingly important factor for many customers when choosing
suppliers. To maintain a solid customer base, BASF must achieve cost leadership
and secure preferred supplier status with customers. BASF's focus is on
strengthening its position in Europe and expanding its business in North
America. BASF is also expanding the Engineering Plastics division's activities
in Asia, a region to which many customers have relocated operations, to support
both regional consumption and exports.
Major global competitors of the Engineering Plastics division include Bayer
AG and Celanese AG of Germany, as well as The Dow Chemical Company, E.I. du Pont
de Nemours and Company, and General Electric Company of the United States and
Chi Mei of Taiwan. Plastics activities are a significant part of the portfolio
for all of these global competitors.
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's polyurethane
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
40
47
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. These purchases from within BASF generate efficiencies in logistics
and savings in energy, transportation, purchasing and infrastructure costs. 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 keys to the Polyurethane division's success are maintaining low costs
and 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 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 establish a global presence for basic materials, the Polyurethanes
division is investing in additional production capacity in Europe, North America
and Asia, which are the primary markets for the three main polyurethane
precursors -- polyols and the isocyanates MDI (diphenylmethane diisocyanate) and
TDI (toluene diisocyanate).
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, and BASF intends to establish or
acquire more. BASF's system houses include two new sites recently established in
China and Malaysia.
The Polyurethanes division's sales to third parties were E2,798 million in
2000.
41
48
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
- 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
- Polyester Polyols
Polyester polyols are combined with isocyanates to make
primarily semi-rigid polyurethane plastics.
Primary applications:
- Cable sheathing
- Shoe soles
42
49
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 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 (Thermoplastic Polyurethane Elastomers)
BASF sells TPU under the trade name Elastollan(R). Elastollan(R) 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(R), Elastocell(R) and Emdicell(R). 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 capacity for the major products in the Polyurethanes division is
as follows:
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS)
- ------- --------------------------
MDI............................................ 540,000
TDI............................................ 190,000
Polyester polyols.............................. 112,000
TPU (thermoplastic polyurethane)............... 35,000
Propylene oxide................................ 250,000(1)
- ---------------
(1) Conducted through a 50-50 joint venture with Shell Eastern Petroleum Pte.
Ltd. (capacity reflects total joint venture capacity).
MARKETS AND DISTRIBUTION
In 2000, Europe accounted for approximately 48% of the Polyurethane
division's sales, North America for approximately 31%, the Asia, Pacific Area,
Africa region for approximately 17% and South America for approximately 4%.
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. BASF's 24 system houses
located around the world act as distribution channels for all of the
Polyurethanes division's products. Elastogran GmbH, a 100% subsidiary of BASF,
conducts BASF's polyurethane systems and special elastomer activities in Europe,
the Middle East and Africa. Elastogran has three manufacturing locations in
Germany and eight throughout the rest of Europe.
43
50
Global demand for all polyurethane products continues to rise because of
general economic growth in both industrial and emerging markets. The market for
polyurethane basic materials is characterized by some cyclicality, but less so
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. Strong customer relationships are important in the markets for these
products.
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. BASF is the third
largest producer based on volume, after Dow and Bayer, of polyurethane basic
materials and systems. BASF is the market leader for cellular elastomers,
followed by Freudenberg & Company of Germany and Dunlop Adhesives of the United
States. BASF is among the top three suppliers of TPU, and Bayer and The BF
Goodrich Company of the United States are BASF's major competitors with respect
to this product.
FIBER PRODUCTS
OVERVIEW
The Fiber Products division is a global leader in the production of nylon
fibers and intermediates. Based on volume, BASF supplies more than a fifth of
the total annual world production of caprolactam, a key ingredient needed to
manufacture the precursor polycaprolactam for nylon 6 -- one of two major types
of nylon. The division's products are found in numerous items used in daily
life, particularly in carpets, clothing and other textiles, and also in
high-performance engineering plastics made from nylon.
The Fiber Products division produces two types of nylon -- nylon 6 and
nylon 6,6. Nylon 6 is made from caprolactam and is used in tufted, knitted and
woven fabrics, such as carpets and apparel, in molded plastics and in tires.
Nylon 6,6 is made from adipic acid and hexa-methylenediamine and is used in home
furnishings and, like nylon 6, in woven fabrics and apparel. BASF is continuing
to strengthen its position as the world's largest producer of nylon 6, with
major nylon intermediate manufacturing sites in North America and Europe. BASF's
Fiber Products division delivers its products to customers primarily as pellets
and in liquid form but also as nylon filaments.
The Fiber Products division's principal raw materials are cyclohexane,
ammonia and propylene, which are purchased both from within BASF and from
external suppliers. The division benefits significantly from BASF's Verbund
approach to integration, purchasing approximately 70% of the precursors for
nylon 6 and 40% of the precursors for nylon 6,6 from other BASF operations.
These purchases from within BASF generate efficiencies in logistics and savings
in energy, transportation, purchasing and infrastructure costs. Based on volume,
the Fiber Products division sells approximately 60% of the caprolactam it
produces to external customers. The remaining 40% are used captively by the
Fiber Products and Engineering Plastics divisions.
The division's customer base varies from region to region. In the more
mature markets of Europe and North America, there are a small number of large
customers, whereas in emerging markets, such as Asia, the customer base consists
of numerous, smaller customers. The primary customers of the Fiber Products
division are textile fiber producers in Europe and Asia as well as
44
51
commercial and residential carpet producers in the United States, including Shaw
Industries, Inc. and Mohawk Industries. BASF also sells automotive carpet fibers
and interior products to major automotive manufacturers.
BASF's goal for the Fiber Products division is to expand its existing
presence in the market for high-end nylon products, which allow for higher
margins, while maintaining profitable growth in other product areas. Although
the market for nylon fibers is global and relatively mature, BASF believes there
is room for growth in all major markets for high-end nylons, particularly in
Asian countries such as Taiwan, Indonesia and China. BASF's basic nylon 6
products are already the industry standard in Asia. To take advantage of
potential growth in the high-end nylon market, BASF is committed to continuously
improving the quality and performance of its caprolactam and nylon
intermediates.
With respect to its other product areas, BASF aims to strengthen its
position as the world's largest producer of nylon 6 by making its products more
cost-effective and by expanding its production capacity for caprolactam, the key
precursor of nylon 6. BASF increased its production of nylon 6 intermediates at
its sites in Freeport, Texas and Antwerp, Belgium. In the production of nylon,
recent research activities in the Fiber Products division have led to the use of
more cost-effective nylon precursors, which are based on butadiene instead of
cyclohexane and propylene as raw materials. This patented process has tested
successfully, and BASF is planning to implement it on a commercial scale at a
new plant that BASF is contemplating to build on its own or with a partner. In
the production of carpet fibers, BASF has established a joint venture with
Shanghai World Best Company Ltd. for the production of nylon 6 carpet fibers in
Asia. The joint venture commenced operations in 1999 and serves markets in
China, Japan, Australia and New Zealand.
The Fiber Products division's sales to third parties were E1,628 million in
2000.
PRODUCTS
BASF has the following product lines in its Fiber Products division:
Fiber Intermediate Products including Caprolactam, Polycaprolactam, Adipic
Acid 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(R), 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(R), which is used for engineering plastics, and Ultramid
AS(R), 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(R) solution-dyed nylon, Zeftron 2000(R) ZX
solution-dyed nylon and SAVANT(TM), a new stain resistant carpet fiber targeted
at the high-end commercial carpet segment. The division has also introduced the
6ixAgain(R) carpet-recycling program in the United States, which
45
52
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
Textile Products
BASF offers a diversified line of fine denier nylon yarns and mid-denier
flat filament yarns and POY yarns (partially oriented yarns), both of which are
superior grades of nylon 6 that are soft and comfortable. BASF is also a primary
supplier of nylon 6 for high-performance upholstery fabrics for commercial use.
Some of BASF's trade names include Matinesse(R) nylon, Micro Touch(R)
microdenier nylon, Shimmereen(R) nylon, Silky Touch(R) microdenier nylon, Ultra
Touch(R) nylon, Zefsport(R) nylon and Zeftron(R) 200 nylon. BASF sells these
products mainly in the United States.
Primary applications:
- Intimate apparel, swimwear and active-wear
- Socks and circular knit items
- Automotive headliner fabrics
Industrial Fibers
The industrial fibers business consists of two major product lines:
Basofil(R) heat and flame resistant fiber and the Resistat(R) collection of
conductive and anti-static fibers. Resistat(R) is twisted with other fibers to
produce commercial carpet fibers and other specialty products. These products
are sold globally. Primary applications:
- Basofil(R) fibers for fire-blocking, filtration and workwear applications
- Resistat(R) fibers for commercial carpet products
Production capacity for the major products in the Fiber Products division
is as follows:
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS)
- ------- --------------------------
Caprolactam...................................... 720,000
Adipic acid...................................... 260,000
Acrylonitrile.................................... 300,000
Nylon carpet fibers.............................. 120,000
Nylon textile fibers............................. 25,000
Nylon polymers for fibers........................ 375,000
MARKETS AND DISTRIBUTION
In 2000, North America accounted for approximately 39% of the Fiber
Products division's sales, Europe for approximately 38% and the Asia, Pacific
Area, Africa region for approximately 22%.
BASF sells products of the Fiber Products division through its own regional
sales force, which is supported by BASF marketing and technical service groups.
The Fiber Products division targets its marketing efforts at the mills that
produce and the retailers that sell nylon-containing textiles and carpets in
Europe, Asia and the United States to create awareness and demand for its
products.
46
53
The markets for caprolactam and the other intermediate products are
characterized by cyclicality, price competition and commodity pricing. BASF is
seeking cost and technology leadership in nylon production by developing
commercially its new nylon precursors that are based on butadiene, which is more
cost-effective than BASF's existing production based on cyclohexane and
propylene. For nylon 6 fibers, the most important criteria cited by customers in
their decision to buy fiber products from BASF are product quality, product
performance and BASF's reliability as a supplier. Price, however, is becoming
increasingly important to nylon 6 customers for basic nylon 6 products and
high-end products as well.
The nylon market is characterized by a small number of global producers,
including E.I. du Pont de Nemours and Company, Honeywell Inc. (owned by GE) and
Solutia Inc. of the United States, DSM N.V. of the Netherlands and Rhodia S.A.
of France. DuPont is the largest worldwide producer of all nylon products based
on volume, followed by BASF and Rhodia. Competition for nylon 6 remains keen
among major suppliers in Western Europe, Japan, Russia and Poland. BASF is the
largest nylon 6 producer worldwide, based on volume, followed by Honeywell and
DSM. The market for nylon 6,6 is characterized by a small number of major
competitors. DuPont is the dominant nylon 6,6 manufacturer worldwide followed by
BASF.
POLYOLEFINS
OVERVIEW
In October 2000, BASF and the Royal/Dutch Shell Group combined their
polyolefin activities, which were conducted through the companies Elenac, Targor
and Montell N.V. to create Basell N.V., one of the world's largest polyolefins
companies with over 20 production sites in Europe, Asia and the Americas and
approximately 9,400 employees. BASF and Shell each own 50% of Basell N.V., the
holding company that is headquartered in Hoofddorp, the Netherlands.
The new joint venture, an example of BASF's strategy to work in
partnerships where appropriate to achieve market and cost leadership, is
expected to be the global leader in polypropylene and the fourth largest
producer of polyethylene. BASF contributed E879 million in cash and its 50%
stake in Elenac as well as its wholly-owned subsidiary Targor to the new joint
venture. For the first nine months of 2000, these activities, which include
BASF's procurement of naphtha for Elenac, had combined sales of approximately
E2,060 million and income from operations of about E110 million. As of October
1, 2000, BASF began accounting for the new joint venture under the equity
method.
In March 2000, the European Commission approved the new joint venture after
BASF and Shell committed to divesting approximately 600,000 metric tons of
polypropylene production and approximately 130,000 metric tons of compounding
capacity as well as Targor's Novolen(R) polypropylene licensing business, which
was sold in the third quarter of 2000. BASF and Shell also agreed that other
companies could obtain a license or immunity for metallocene catalysts from the
new joint venture under non-discriminating conditions. Basell N.V. obtained
final approval from the U.S. Federal Trade Commission in September 2000.
Before Basell N.V. was formed, BASF had grouped its polyolefins activities
in two separate entities -- the joint ventures Elenac and Targor:
- Elenac was a European-oriented 50-50 joint venture with Shell Petroleum
N.V. that commenced operations on March 1, 1998 to produce and market
polyethylene plastic products. BASF consolidated the Elenac group of
companies on a pro rata basis. Elenac was Europe's second largest
supplier of polyethylene, producing annually about two million metric
tons at sites in Germany, France, Spain and the United Kingdom. Elenac
also sold licenses for polyethylene production technologies and
catalysts.
47
54
The following table lists Elenac's principal products:
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS) PRIMARY APPLICATIONS
- ------- -------------------------- --------------------
Ethylene........................ 1,430,000 - Precursor for polyethylene
Propylene....................... 540,000 - Precursor for polypropylene
PE-LD (low-density polyethylene, - Food packaging
BASF trade name Lupolen(R))... 1,020,000(1) - Films for agriculture and
construction
- Cables
PE-LLD (linear low-density - Packaging
polyethylene, BASF trade name - Films for agriculture and
Lupolex(R))................... 210,000 construction
- Health and hygiene films
PE-HD (high density - Bottles, barrels, containers
polyethylene, BASF trade name - Pipes
Lupolen(R))................... 1,180,000 - Fuel tanks
- Fibers
- Film for carrying bags
- ---------------
(1) This figure includes the new production capacity in Berre, France, which
will come on stream in the first half of 2000.
- Targor, which was originally a joint venture with Hoechst AG of Germany
before BASF acquired full ownership, was Europe's largest polypropylene
manufacturer and also sold licenses for polypropylene production
technologies and catalysts. Targor, which operated an annual total
polymerization capacity of 1.67 million metric tons, had production sites
in Germany, France, Spain, the United Kingdom and the Netherlands.
The following table lists Targor's principal products:
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS) PRIMARY APPLICATIONS
- ------- -------------------------- --------------------
Standard polypropylene (BASF - Packaging
trade name Novolen(R))........ 1,675,000(1) - Fibers for ropes, nets and
carpets
- Automotive components
Polypropylene compounds with - Electrical engineering parts
mineral or glass-fiber - Automotive components
reinforcement (BASF trade name - Construction elements
Hostacom(R)).................. 340,000
Metallocene-catalyzed - High-performance films
polypropylene (BASF trade name - High-transparency films and
Metocene(R)).................. 60,000 containers
- ---------------
(1) This figure includes raw materials for polypropylene compounds.
In addition to its 50% stake in Elenac, Shell has contributed its
wholly-owned subsidiary Montell N.V. to the new joint venture. Montell was a
global leader in the production, marketing and sale of polypropylene, advanced
polypropylene materials and related products. The company operated plants on
five continents.
To secure approval from the European Commission for the joint venture
Basell N.V., BASF and Shell have committed to reducing Basell N.V.'s production
capacity for standard polypropylene by 600,000 metric tons and its capacity for
polypropylene compounds by 130,000 metric tons.
48
55
COLORANTS & FINISHING PRODUCTS
SEGMENT OVERVIEW
BASF is a leading global producer of performance products, colorants and
coatings through its Colorants & Finishing Products segment. The 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.
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:
2000 1999 1998
------ ------ ------
(EUROS IN MILLIONS)
Sales to third parties................................. E7,109 E6,395 E6,188
Percentage of total BASF sales......................... 20% 22% 22%
Intersegmental transfers............................... E 265 E 259 E 291
Income from operations................................. E 522 E 608 E 642
Capital expenditures................................... E1,260 E 324 E 348
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 Colorants & Finishing 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, particularly the acrylic acid-based products of the
segment's Dispersions division.
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 Colorants & Finishing Products segment and
their principal products are:
COLORANTS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
- -------------- --------------------
- - Pigments - Plastics, printing inks, automotive,
decorative and industrial paint
applications
- - Printing systems - Printing inks and printing plates for
print media and packaging industries
- - Textile dyes(1) - Dyes for coloring cloth, textile
fibers, yarn and fabrics
49
56
MAJOR PRODUCTS PRIMARY APPLICATIONS
- -------------- --------------------
- - Textile chemicals - Textile manufacture using sizes,
pretreatment products,
- fluorescent brighteners, dyeing
auxiliaries, textile printing and
finishing products, ink-jet inks
- - Leather dyes and chemicals - Leather production using beamhouse
products, tanning agents and tanning
auxiliaries, fatliquors and water
repellents, drum dyes and dyeing
auxiliaries
- ---------------
(1) As of October 1, 2000, the textile dye activities of the Colorant &
Finishing Products segment were transferred to DyStar GmbH, BASF's joint
venture with Bayer AG and Hoechst AG. BASF's investment is included in
BASF's Consolidated Financial Statements in accordance with the equity
method.
COATINGS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
- -------------- --------------------
- - Automotive OEM (original equipment - Automotive coatings for vehicle
manufacturer) coatings manufacturers
- - Automotive refinish coatings - Automotive coatings for repair work
- - Industrial coatings - Commercial vehicles
- Household appliances
- Industrial buildings
- Automotive components
- Wood finishes
- - Decorative paints in South America - Interior and exterior use in
residential and commercial buildings
DISPERSIONS:
MAJOR PRODUCTS PRIMARY APPLICATIONS
- -------------- --------------------
- - Acrylic monomers - Precursors for dispersions,
superabsorbents, detergents,
flocculants and fibers
- - Polymers - Adhesives
- Paints and finishes
- Non-woven materials
- Coatings
- - Paper chemicals - Paper-processing chemicals
- Paper dyes
- Dispersions for paper coating
- - Superabsorbents - Absorbent materials for diapers and
sanitary care products
50
57
SEGMENT STRATEGY
The focus of the Colorants & Finishing Products segment is on developing
integrated system solutions that provide customers with tailor-made products and
application processes. These efforts allow the segment to differentiate its
products and services from those of its competitors and to foster close, lasting
relationships with its customers.
Key strategies for the divisions in this segment are as follows:
- Colorants
The goal of the Colorants division is to grow faster than the market by
offering customized solutions. As the result of a restructuring program
that began in the mid-1990s, the division has been able to improve its
cost structure, allowing it to compete successfully against both
low-cost industry leaders and new competitors from Asia and South
America. The Colorants division is focusing its capital spending on
continuing to improve production efficiency and to expand and modernize
its activities in strong growth sectors, such as organic pigments and
printing systems.
- Coatings
The Coatings division plans to build on the success of restructuring
measures, which streamlined the division's product lines to eliminate
less profitable products and improve the division's financial
performance. The division's current focus on four core product lines --
automotive coatings, automotive refinish coatings, industrial coatings
and, for the South American market, decorative paints -- resulted from
these efforts. BASF believes that the Coatings division can achieve and
sustain a leading market position and attain high profitability in these
core product lines. With its restructuring efforts expected to be
completed by 2002, the Coatings division is seeking to strengthen its
core activities through internal growth, joint ventures and
acquisitions.
- Dispersions
To satisfy growing demand for the Dispersions division's products in
North America and Asia, BASF plans to establish a broader geographic
presence while maintaining both cost leadership and its current position
as a leading acrylic acid manufacturer. BASF is focusing the division's
capital spending on adding capacity to allow for the production of
dispersions in all regions. In Europe and North America, a restructuring
program is being implemented to improve the efficiency of regional
operations. While new manufacturing sites for acrylic acid and acrylic
esters are in the planning stage for Brazil and China, BASF is also
planning to establish new plants to manufacture superabsorbents in
Europe and South America, and to expand existing capacities for
superabsorbents in Asia.
The main capital expenditure projects for the Colorants & Finishing
Products segment currently include:
PROJECTED ANNUAL
CAPACITY AT COMPLETION PROJECTED
OF PROJECT START-UP
LOCATION PROJECT (METRIC TONS) OF PROJECT
- -------- ------- ---------------------- ----------
Guaratingueta, Brazil.............. Butyl acrylate 50,000 2001
Antwerp, Belgium................... Superabsorbents 120,000 2001
Ludwigshafen, Germany.............. Paper processing chemicals 60,000 2001
Altamira, Mexico................... Paper dyes 12,500 2001
Hamina, Finland.................... Dispersions for paper coating 140,000 2002
51
58
In 2000, capital expenditures for the Colorants & Finishing Products
segment totaled E1,260 million. The segment also spent E168 million on research
and development activities in 2000.
COLORANTS
OVERVIEW
BASF's Colorants division provides product solutions to customers who use
pigments, textile chemicals, leather chemicals and dyes, and printing systems.
The division's customers are primarily in the construction, automotive, textile
and leather industries as well as in the electronics and packaging industries.
In each of these industries, BASF commands a strong market position in all major
regions.
BASF is one of the world's major pigment suppliers, a leader in the
production of organic and inorganic pigments and a top global supplier of
complete printing ink and printing plate systems. The division's textile
chemicals business unit covers virtually the entire spectrum of non-colored
textile applications as well as products for textile printing. BASF is also a
world leader in the leather chemicals and dyes business.
The Colorants division purchases approximately 25% 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 materials and has no principal raw materials or
dominant suppliers. The Colorants division sells virtually all of its products
to external customers.
In the recent past, the Colorants division had experienced continual
pressure on prices, a drop in demand and worldwide overcapacity for many of its
products, all of which had adversely affected the profitability of the division.
Over the last four years, the division has undertaken considerable restructuring
measures to improve efficiency. As a result, the division has improved its
capacity utilization by narrowing its product line, restructuring and
consolidating production sites and transferring production capacity from Europe
to Asia and South America, where its fastest-growing customer base is located.
Together, these measures are helping to improve the division's profitability.
Effective October 1, 2000, BASF merged its textile dye operations into
DyStar GmbH -- a joint venture between BASF, Bayer AG and Hoechst AG. Bayer and
Hoechst each own a 35% share in the joint venture, with BASF holding the
remaining 30%. BASF accounts for the joint venture under the equity method.
The Colorants division is now intensifying its marketing activities in
emerging growth regions, particularly North America and Asia. Focusing on
business areas with strong growth and profit potential such as organic pigments
and printing systems, the division is working closely with customers to develop
tailor-made solutions which help customers to optimize their production
processes and reduce their costs so that they can offer their respective
customers more competitive solutions. Through these activities, the Colorants
division aims to grow faster than the market.
The Colorants division's sales to third parties were E2,252 million in
2000. This figure only includes sales from the division's textile dyes business
for the first nine months of 2000.
PRODUCTS
The Colorants division sells its products on a worldwide basis, but has
mainly regional markets. The major product lines of the Colorants division are:
Pigments
The pigments product group offers organic and inorganic pigments, pigment
preparations, non-textile dyes and process chemicals. Pigments are insoluble dry
coloring materials for paints, inks and special applications. BASF's pigment
products are used in the plastics and printing industries, as
52
59
well as in automotive, decorative and industrial paint applications. The primary
market for BASF's pigment products is Europe, while the strategic focus for
growth is North America, Japan and emerging markets in Asia.
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. The
primary market for BASF's printing systems products is Europe.
Textile Dyes
BASF merged its textile dyes operations into DyStar on October 1, 2000.
Before this merger, BASF's dyestuffs for colorants were grouped into four
product lines: reactive dyes, disperse dyes, vat dyes and indigo, which covered
more than 70% of the total worldwide textile dyes market by product type. The
most important sales region was Asia, followed by Europe and North America.
Textile Chemicals
BASF offers textile and dyeing auxiliaries, pigment preparations for
textile printing as well as inks and auxiliaries for ink-jet printing
technology. BASF's product range covers a wide spectrum of textile applications.
The primary markets for BASF's textile chemicals are Asia and Europe.
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. The primary markets for BASF's leather products are Europe,
Asia and South America.
Production capacity for the major products in the Colorants division is as
follows:
PRODUCT ANNUAL PRODUCTION CAPACITY
- ------- --------------------------
Organic pigments.................................... 36,100 metric tons
Printing inks....................................... 150,000 metric tons
Printing plates..................................... 1,000,000 square meters
Textile chemicals/leather chemicals and dyes........ 165,000 metric tons
MARKETS AND DISTRIBUTION
In 2000, Europe was the Colorants division's principal market, accounting
for 53% of its sales. The Asia, Pacific Area, Africa region accounted for 24%,
North America for 14% and South America for 9%.
BASF's own regional sales network sells approximately 95% of the Colorants
division's products. Distributors sell the balance of products, primarily to
smaller customers.
Many of the products the Colorants division manufactures are commodity-like
and are characterized by fairly uniform pricing worldwide. A number of these,
however, were transferred along with the textile dyes activities to DyStar in
October 2000. For the remaining products, the division is focusing on enhancing
the value of these products through additional customer service.
BASF generally considers Ciba Specialty Chemicals Holding Inc., Clariant
International Ltd. of Switzerland, DIC/Sun Group of Asia and Bayer AG of Germany
to be its main competitors, although each product group in the Colorants
division has specific competitors:
53
60
- In pigments, BASF considers itself to be among the industry leaders along
with Ciba, DIC/Sun Group and Clariant. BASF sells its pigments primarily
in Europe from large production sites in Germany, but also supports its
regional marketing activities through production sites in Brazil, the
United States and China.
- In printing systems, BASF is a leading printing system supplier in
Europe, but Asian competitors dominate the global market.
- Before the transfer of its textile dyes activities to DyStar, BASF was
one of the world's leading producers of textile dyes, along with DyStar
and Ciba, and was considered the global market leader in vat dyes and
indigo.
- In textile chemicals, BASF is one of the world's top three producers,
along with Clariant and Ciba. BASF's activities have a strategic regional
focus on Asia and Europe.
- In leather dyes and chemicals, BASF and Clariant are the world's leading
producers and compete against Bayer AG, 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 20 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. This economical and environmentally friendly system reduces the
amount of paint needed to coat a vehicle without compromising quality.
BASF sells a majority of its coating products to automobile manufacturers
for coating new vehicles, which accounted for 40% of the Coatings division's
sales in 2000, and to automotive refinishers, which accounted for 25% of sales.
In 2000, the industrial coatings business accounted for 20% of the division's
sales and the decorative paints business in South America for 15%.
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 plans to build on the success of a restructuring
program, in which the division's product lines were streamlined to eliminate
less profitable products and improve the division's financial performance. The
division's current focus on four core product lines -- automotive coatings,
automotive refinish coatings, industrial coatings and, for the South American
market, decorative paints -- resulted from these streamlining efforts. BASF
believes that the Coatings division can achieve and sustain a leading market
position and attain high profitability in these core product lines.
With its restructuring efforts expected to be completed by 2002, the
Coatings division is seeking to strengthen its core activities through internal
growth, joint ventures and acquisitions. The Coatings
54
61
division made two acquisitions in industrial coatings to make BASF a world
leader in the field. In September 1999, BASF acquired the worldwide coatings
business of Norsk Hydro ASA, which is comprised of the Hydro Coatings Group, UK.
On March 1, 2000, BASF completed its acquisition of Morton Industrial Coatings,
which had come under the ownership of Rohm and Haas Co. when Rohm acquired
Morton International in June 1999.
The Coatings division is also seeking to strengthen its position in Asia.
On October 1, 2000, BASF formed a new 50-50 joint venture with Tokyo-based NOF
Corporation. The joint venture combines NOF's and BASF's entire coatings
activities in Japan, which include automotive OEM, refinish as well as
industrial coatings. The new joint venture will cover manufacturing, sales and
marketing as well as research and development activities.
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 to differentiate its product offerings from those of its
competitors and to foster lasting relationships with customers. Being able to
deliver tailor-made products quickly is also important to the division's
success. Customers that use automotive and industrial coatings in particular
require 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.
The Coatings division's sales to third parties were E2,198 million in 2000.
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 four major product lines:
Automotive OEM 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(R) and R-M(R). 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.
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, transportation equipment,
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(R) trademark and enjoy a high level of customer
recognition.
55
62
Production capacity for the major products in the Coatings division is as
follows:
ANNUAL PRODUCTION CAPACITY
PRODUCT (METRIC TONS)
- ------- --------------------------
Powder coatings................................ 25,000
Waterborne coatings............................ 40,000
MARKETS AND DISTRIBUTION
In 2000, Europe accounted for 39% of the Coatings division's sales. North
America accounted for 36% and South America for 22%, while the Asia, Pacific
Area, Africa region accounted for 3% of the division's sales. BASF is a global
competitor in the coatings industry and is expanding in all regional markets,
especially in South America and Asia.
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. BASF also
licenses some of its paint and coating technology to third parties.
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(R) 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 worldwide 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.
DISPERSIONS
OVERVIEW
BASF's Dispersions division is one of the largest producers of acrylic acid
and its derivative products, which are mainly dispersions and superabsorbents.
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,
carpets, fibers and plastics. The division also manufactures superabsorbents,
which are used as absorbent materials in sanitary care products such as diapers.
The most important customers of the Dispersions division are the paper,
construction, adhesive, sanitary care and coatings industries.
The Dispersions division purchases approximately 70% of its raw materials
from other BASF operations through the company's Verbund. Such raw materials
include styrene, butadiene 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 Dispersions division are to maintain the division's
position as a leading acrylic acid manufacturer, to maintain and improve the
division's cost leadership, to expand the business in all regions and to grow by
introducing innovative products such as polyvinylamines -- a class of paper
chemicals. To achieve these goals, BASF is focusing the division's capital
spending on increasing the company's production capacity for dispersions in all
regions. In Europe and North America, a comprehensive restructuring program is
under way to improve the division's cost
56
63
competitiveness. In Malaysia, a new manufacturing complex for the production of
acrylic acid and acrylic esters became fully operational in August, while
similar facilities are in the planning stage for China as well as Brazil.
The Dispersions division is especially committed to building on its leading
position as a manufacturer of superabsorbents. On June 1, 2000, BASF acquired
the superabsorbents manufacturer Chemdal International Corporation, an affiliate
of AMCOL International Corporation, for $657 million. Chemdal achieved sales of
E238 million in 1999 with production sites in the United States, the United
Kingdom and Thailand. 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.
The Dispersions division's sales to third parties were E2,659 million in
2000.
PRODUCTS
The Dispersions 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. These products are used in
a wide range of industries.
Polymers
The Dispersions division's polymers products consist mainly of polymer
dispersions for the manufacture of adhesives, paints and finishes, non-woven
materials and coatings. 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
Dispersion division's product range consists of process chemicals, paper dyes
and dispersions for paper coating. In 2000, BASF introduced an innovative new
class of process chemicals known as polyvinylamines. Polyvinylamines improve the
quality of paper by making it more resistant to tearing, which helps
manufacturers produce paper more efficiently. A commercial-scale production
plant for this class of products is currently under construction in
Ludwigshafen, Germany, and is scheduled to start up operations by the end of
2001.
Superabsorbents
BASF sells superabsorbents globally to the personal hygiene industry, which
uses these products to manufacture absorbent materials such as diapers and other
sanitary care products.
MARKETS AND DISTRIBUTION
The primary market for the Dispersions division is Europe, which accounted
for more than 49% of the division's sales in 2000. North America accounted for
approximately 31%, the Asia, Pacific Area, Africa region for 15% and South
America for 5% of sales in 2000. The Dispersions division's strategic goal is to
increase market share in growing markets, especially in the Americas and the
Asia-Pacific region.
57
64
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 and Kuantan, Malaysia.
Prices for the Dispersions division's products depend on the costs of raw
materials that the division purchases primarily from other BASF operations, and
also on industry capacity utilization. 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 Stockhausen GmbH & Co. of Germany
and Nippon Shokubai Co., Ltd. of Japan.
58
65
HEALTH & NUTRITION
SEGMENT OVERVIEW
BASF's Health & 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 2 to the Consolidated Financial Statements. 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 Health & Nutrition business segment conducts its activities through its
Agricultural Products and Fine Chemicals divisions and during 2000 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 2000. Each of the
divisions focuses on specific product areas or therapeutic categories and
develops, produces and markets products on a global basis. These products
include agricultural products such as herbicides, fungicides and insecticides;
fine chemicals such as vitamins, nutraceuticals, and animal nutrition products,
including amino acids and enzymes; and pharmaceuticals.
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 the company's history, nearly doubles BASF's agricultural products
business. To reflect the division's wider selection of products resulting from
this acquisition, the division, which was formerly known as the "Crop
Protection" division, was renamed "Agricultural Products" as of July 1, 2000.
The following table sets forth for each of the Health & Nutrition business
segment's reportable operating segments 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:
2000 1999 1998
------ ------ ------
(EUROS IN MILLIONS)
AGRICULTURAL PRODUCTS
Sales to third parties...................................... E2,428 E1,745 E1,750
Percentage of total BASF sales.............................. 7% 6% 6%
Intersegmental transfers.................................... E 34 E 36 E 49
Income from operations...................................... (443) 195 203
Capital expenditures........................................ E3,260 E 93 247
FINE CHEMICALS(1)
Sales to third parties...................................... E1,763 E1,660 E1,498
Percentage of total BASF sales.............................. 5% 6% 5%
Intersegmental transfers.................................... E 44 E 53 E 43
Income from operations...................................... (1) (770) 121
Capital expenditures........................................ E 83 E 87 614
PHARMACEUTICALS -- DISCONTINUED OPERATIONS(1)
Sales to third parties...................................... E2,526 E2,197 1,850
Percentage of total BASF sales.............................. 7% 8% 7%
Intersegmental transfers.................................... E 36 E 34 1
Income from operations...................................... 243 (13) 59
Capital expenditures........................................ E 121 E 101 141
- ---------------
(1) Data for 2000, 1999 and 1998 have been restated to reflect the transfer of
the pharmaceutical active ingredients business from the Pharmaceuticals
division to the Fine Chemicals division.
59
66
The Health & Nutrition business segment sells its products primarily to
customers in the farming, food processing, animal and human nutrition, personal
care and healthcare industries.
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 ability to continuously develop innovative and safe products and to
bring them quickly to market is critical to the success of the Health &
Nutrition business segment. The Agricultural Products division focuses on
traditional fungicide, herbicide and insecticide applications. In addition, BASF
is investing in the emerging field of plant biotechnology and founded a
subsidiary for these activities called BASF Plant Science GmbH. In the Fine
Chemicals division, generating a flow of new products and reducing costs are
particularly important to the competitiveness of the division. The Fine
Chemicals division believes it generally has a good cost position 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 and entering into production joint ventures to achieve
economies of scale and reduce costs. BASF's Pharmaceuticals division targeted
therapeutic areas with high medical need and large patient populations.
The divisions comprising the Health & 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
- Nutraceuticals - 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
60
67
PHARMACEUTICALS(1):
MAJOR PRODUCTS PRIMARY APPLICATIONS
-------------- --------------------
- Ethical drugs - Cardiovascular
- Antiobesity
- Thyroid insufficiency
- Pain/Anti-inflammatory
- Central nervous system
- ---------------
(1) 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 2 to the
Consolidated Financial Statements. 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.
SEGMENT STRATEGY
While each of the divisions in the Health & Nutrition business segment
faces competition and sets goals particular to its industry, they all share the
following strategic objectives:
- maximizing returns from their existing product portfolios;
- ensuring a steady flow of new and innovative products through focused
research and development and 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 is assuming 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 approximately E250 million as of 2002,
with about half the amount being achieved in 2001. With a research and
development pipeline consisting of 15 projects and plans to introduce
two new active ingredients per year over the next five years, the
division expects to expand its market share and grow faster than the
global market for agricultural products.
- Fine Chemicals
BASF's Fine Chemicals division is focusing on its core businesses in
order to achieve profitable growth. In these businesses, the division
aims to achieve a leading position in the markets its 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 that, overall, the division has a good cost position in
comparison to 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 entering into
production joint ventures to achieve economies of scale and reduce
costs. In the vitamins business, BASF acquired the water-soluble
vitamins business
61
68
of Takeda Chemical Industries Ltd. of Japan to strengthen its position
as one of the leading global vitamins producers.
- Pharmaceuticals
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 2 to the Consolidated Financial Statements. 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.
During the past year, BASF restructured its Pharmaceuticals activities
by streamlining its portfolio in order to focus on prescription drugs.
To that end, BASF sold its over-the-counter and its generics businesses,
as well as some minor activities. The division also concentrated its
research and development activities on cardiovascular disease and immune
system disorders by closing its research and development site in
Nottingham, United Kingdom, which focused on central nervous system
disorders and obesity, and reduced its global workforce.
AGRICULTURAL PRODUCTS
OVERVIEW
BASF's Agricultural Products division is a leading supplier and marketer of
herbicides, fungicides and insecticides. The division's principal products are
sold mainly to farmers, who use them to improve crop yields and quality. On July
1, 2000, BASF acquired the crop protection business of American Home Products
Corp. (AHP) of Madison, New Jersey for approximately $3.9 billion. The
Agricultural Products division, which was formerly known as the "Crop
Protection" division, was renamed to reflect the division's wider selection of
products resulting from the acquisition. The acquisition more than doubled
BASF's agricultural products business.
Through the integration of the crop protection business of AHP, BASF has
become one of the leaders in the agricultural products industry due to three key
factors:
- BASF has strengthened its position in the major agricultural markets of
North and South America and improved its established position in Europe.
In addition, product offerings in Asia have been significantly increased.
- BASF has strengthened its portfolio in key markets around the world. The
herbicide product range has been significantly broadened while an
established and proven line of insecticides has also been added to BASF's
portfolio.
- BASF has an R&D pipeline containing 15 projects expected to be launched
by 2006 with a combined peak annual sales potential of about E2 billion.
Through the acquisition, BASF also acquired the CLEARFIELD(TM) Production
System, which combines herbicide-resistant seeds developed using enhanced plant
breeding methods with custom-designed herbicide solutions. The CLEARFIELD(TM)
Production System has proven highly effective at controlling problematic weeds
that often cannot be managed using other products. CLEARFIELD(TM) crops include
corn, wheat, rice, canola, and sunflower, and because these crops contain no
introduced genetic material, they are non-GMO (genetically modified organisms).
The combination of the crop protection business of AHP with BASF's
Agricultural Products business is expected to lead to annual cost savings of
approximately E250 million as of 2002, with about half the amount being achieved
in 2001. BASF's Agricultural Products division's global headquarters were moved
to Mount Olive, New Jersey, which is also the headquarters of BASF
62
69
Corporation -- BASF Aktiengesellschaft's North American subsidiary. This move
reflects the global nature of the agricultural products business and the
increased importance of the Americas for the division's business. The
Agricultural Products division operates in 170 countries. The research and
development activities include research centers in Europe, the United States,
the United Kingdom, Brazil and Japan.
The acquisition of the crop protection business of AHP marks another
milestone in BASF's long-term strategy to become a leader in agricultural
products. Other significant acquisitions in recent years include:
- the U.S. and Canadian corn herbicide business of Sandoz AG of Switzerland
in 1996, making BASF one of the major players in the worldwide corn
herbicide market; and
- a majority stake in Micro Flo, the second-largest supplier of generic
products for the U.S. crop protection market, in 1998.
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.
Over the past three years, BASF has expanded biotechnology activities through
strategic partnerships and acquisitions, including:
- the establishment of two plant biotechnology joint ventures in 1998
called Metanomics and SunGene;
- the acquisition in 1999 of a 40% ownership stake in the Swedish seed
breeding company Svalof Weibull and the founding of the joint venture
BASF Plant Science GmbH into which the plant biotechnology research of
BASF and Svalof Weibull were merged; and
- the acquisition in December 2000 of the US biotechnology and genetics
company ExSeed Genetics, LLC, which is at the forefront of developing
nutritionally enhanced traits in corn and which has a strong pipeline in
starch technology research.
PRODUCTS
The following table lists BASF's major agricultural products.
BRAND NAME ACTIVE INGREDIENT APPLICATIONS PRIMARY MARKETS
- ---------- ----------------- ------------ ---------------
Herbicides
Basagran(R) Bentazon - Legumes - North America
- Cereals - South America
- Potatoes - Europe
- Rice - Asia
- Soybeans
- Turf
- Corn
- Flax
Banvel(R) Dicamba - Corn - North America
Clarity(R) - Cereals - Europe
Distinct(R)
Frontier(R) Dimethenamid - Corn - North America
Guardsman(R) - Soybeans - Europe
63
70
BRAND NAME ACTIVE INGREDIENT APPLICATIONS PRIMARY MARKETS
- ---------- ----------------- ------------ ---------------
Outlook(R) Dimethenamid-p - Broadleaf crops
Pivot(R) Imidazolinones - Corn - North America
Pursuit(R) - Canola - South America
Lightning(R) - Soybeans - Australia
Odyssey(R) - Europe
Onduty(R) - Far East
Raptor(R) - Eastern Europe/
Middle East/Africa
Butisan(R) Metazachlor - Canola - Europe
Novall(R) - Vegetables
Nimbus(R)
Stomp(R) Pendimethalin - Corn - North America
Prowl(R) - Cereals - Europe
Herbadox(R) - Rice
- Soybeans
- Legumes
Poast(R) Sethoxydim - Soybeans - North America
- Cotton - South America
- Peanuts
Facet(R) Quinclorac - Rice - North America
Accord(R) - Cereals - South America
- Asia
Fungicides
Acrobat(R) Dimethomorph - Potatoes - Europe
Forum(R) - Vines - South America
Opus(R) Epoxiconazole - Cereals - Europe
- Coffee - South America
- Rice
- Sugar beets
Allegro(R) Kresoxim-methyl - Cereals - Europe
Juwel(R) - Grapes - North America
Ogam(R) - Fruits
Mentor(R) - Vegetables
Stroby(R)/Sovran(R)
Cygnus(R)
Insecticides
Fastac(R) Alphacypermethrin - Citrus - Europe
Mageos(R)/Contest(R) - Fruits - Asia
- Vines - Latin America
Counter(R) Terbufos - Corn - North America
- Sugar beets - Latin America
- Bananas
64
71
SALES
The Agricultural Products division's sales to third parties were E2,428
million in 2000. The following tables show 2000 sales by product area and
region:
PRODUCT AREAS 2000 SALES
- ------------- -------------------
(EUROS IN MILLIONS)
Herbicides............................................... E1,228
Fungicides............................................... E 665
Insecticides............................................. E 282
Other agrochemical products (soil fumigants, growth
regulators)............................................ E 253
RESEARCH AND DEVELOPMENT
BASF's research and development activities in Agricultural Products cover
all three areas of crop protection: fungicides, herbicides and insecticides. In
2000, research and development spending in the Agricultural Products division
was approximately 11% of the division's sales to third parties. BASF's research
and development pipeline contains 15 projects expected to be launched by 2006
with a combined peak annual sales potential of about E2 billion, making the
company's research and development pipeline one of the strongest in the
industry. It will allow BASF to bring an average of two new active ingredients
to market every year for the next six to seven years.
One of these new developments is a major new fungicidal active ingredient
of the strobilurin class of chemistry, which was first presented to the
scientific community in November 2000. The active ingredient, named F 500(R),
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. With its wide range of
activity, F 500(R) is expected to become a universal fungicide and an excellent
active ingredient for formulations for the effective management of fungal
diseases.
The registration process for F 500(R) is underway in all major countries.
The Environmental Protection Agency in the United States has granted F 500(R)
"Reduced Risk Status," which means its registration application will be given
preferential treatment.
BASF has put great emphasis on developing innovative products that comply
with the highest environmental and safety standards. BASF uses synergies in
basic research with BASF's Fine Chemicals divisions to identify new product
development candidates.
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 the next ten years. BASF also intends to allocate
additional funds for the acquisition of seed companies or participations
therein.
65
72
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's biotechnology efforts are focused instead on the use of
biotechnology to create crop plants that are more resilient to adverse weather
conditions and that have increased vitamin and nutritional content. 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 2000, Europe accounted for 36% of the Agricultural Products division's
sales, North America for 32%, the Asia, Pacific Area, Africa region for 11% and
South America for 21%. BASF has plants for synthesizing active ingredients at
BASF's Verbund site in Ludwigshafen and Schwarzheide, Germany; Hannibal,
Missouri; Tarragona, Spain; at BASF's Brazilian sites in Guaratingueta, Resende
and Paulina, as well as in Puerto Rico. End products are formulated at several
BASF facilities, which are usually located close to the market.
The Agricultural Products division delivers high performance products and
competes primarily on product quality, innovation 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 seasonal and sales are
affected by regional growing seasons. Over the last ten years, the agrochemical
industry has been going through a process of consolidation in response to rising
capital expenditures. These rising costs are mainly due to increasingly
comprehensive testing requirements to ensure that potential products comply with
environmental, health and safety standards before being registered. Other cost
factors include complex manufacturing process engineering, as well as a need to
be present in all major markets. As a result, the number of basic suppliers of
crop protection products has decreased over the past ten years. Accounting for
the acquisition of the crop protection business of AHP, BASF would have ranked
number three in 1999 based on pro forma sales, number three in herbicide sales,
number three in fungicide sales and number five in insecticide sales.
The market for chemical-based crop protection products is forecast to
continue growing over the long term. The main driver is a growing world
population and therefore a rising demand for food. Currently, the market for
crop protection products is relatively flat due to reduced farm subsidies in
industrial countries, low commodity prices and a resulting drop in farmers'
incomes. In addition, the introduction of genetically modified,
herbicide-resistant crops has reduced the use of selective herbicides while
creating new opportunities in the field of biotechnology.
BASF considers the main competitors of the Agricultural Products division
to be Syngenta A.G. of Switzerland (formed in 2000 through the merger of the
agricultural products activities of Novartis AG and AstraZeneca plc); Aventis
S.A. of France; Monsanto Co., The Dow Chemical Company and E.I. du Pont de
Nemours and Company of the United States, as well as Bayer AG of Germany.
66
73
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 the 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.
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 a pesticide, not regulated under
"reduced risk" status, is typically 30 to 36 months. For a pesticide 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 6,100
customers.
BASF is one of the world's leading vitamin producers, and vitamins account
for about a third of the Fine Chemicals division's sales. For further
information on antitrust matters involving BASF's vitamins business, see "Item
8. Financial Information -- Legal Proceedings."
The division's other major products include:
- carotenoids and nutraceuticals for the food and nutritional supplement
industries;
- enzymes and amino acids for the animal nutrition industry;
- polymers for the cosmetics, pharmaceuticals and human nutrition
industries;
- raw materials for aroma chemicals; and
67
74
- pharmaceutical active ingredients, which were transferred from the
Pharmaceuticals division on July 1, 2000. Data for the Fine Chemicals
division have been restated to reflect this transfer.
The Fine Chemicals division benefits from BASF's Verbund approach to
integration by purchasing approximately 40% 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 pseudo-ephedrine 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 1996 to 2000
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 precursors and UV absorbers as
well as for aroma chemicals such as citral and geranonitrile. 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. Through this agreement, BASF
acquired a vitamin C production plant in Wilmington, North Carolina.
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 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
entering into production joint ventures to achieve economies of scale and reduce
costs. To foster close relationships with major customers, the Fine Chemicals
division is establishing near its customers additional regional technology
centers and premix plants for both animal and human nutrition. These facilities
allow the division to collaborate with customers in the product development
process and to take advantage of BASF's substantial research and development
capacity.
PRODUCTS
The following are the main product lines of the Fine Chemicals group:
Vitamins
Vitamins is the largest of the Fine Chemicals division's product groups in
terms of sales. 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
production of precursors for vitamin C is now coming on stream in a joint
venture with Cerestar and Merck KGaA of Germany. The Fine Chemicals division
sells vitamins to the human and animal nutrition industries. Through the
acquisition of the vitamins business of Takeda Chemical Industries Ltd., 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. Approximately half of BASF's vitamins
sales are in Europe, 30% in North America and 20% in Asia.
68
75
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.
Nutraceuticals
BASF defines nutraceuticals as naturally occurring substances with benefits
for health, fitness and well-being, which are typically present in human food.
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(R), Natustarch(R), and Natugrain(R), 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.
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 one of the world's largest producers. BASF became a lysine
producer in May 1998 by acquiring the worldwide lysine business of South Korea's
Daesang Group. The Fine Chemicals division has a strong foothold in the Asian
market for amino acids, with the region accounting for half of the sales for
this product group.
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 fashion-driven personal
care products, including skin-care additives and sunscreen agents. BASF sells
these products primarily in Europe. In 1999 BASF acquired the Z-Cote(R)
zinc-based UVA absorber business of sunSmart Inc. of the United States to
broaden and strengthen its sunscreen ingredients product line.
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 hair spray, 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.
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.
69
76
Pharmaceutical Active Ingredients
The pharmaceutical active ingredients business was transferred from the
Pharmaceuticals to the Fine Chemicals division on July 1, 2000. The segment data
were restated to reflect this transfer for all periods presented. The main
products in this category are caffeine, theophylline, ephedrine, acetaminophen
and ibuprofen. Beverage manufacturers are the primary buyers of caffeine, while
theophylline and ephedrine are used to treat respiratory diseases. Acetaminophen
and ibuprofen are used in a variety of over-the-counter and prescription
products to treat mild pain. All of BASF Pharma'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, except
acetaminophen, where it is number three.
SALES
The Fine Chemicals division's sales to third parties were E1,763 million in
2000. The following table shows the Fine Chemicals division's sales for 2000 by
customer industry:
CUSTOMER INDUSTRY SALES
- ----------------- -------------------
(EUROS IN MILLIONS)
Animal nutrition......................................... E747
Personal care, cosmetics, aroma chemicals and other
products............................................... E351
Human nutrition.......................................... E237
Pharmaceuticals.......................................... E428
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 2000, the Fine Chemicals division spent approximately 4% of its
consolidated sales on research and development activities, essentially unchanged
from 1999.
Approximately 40% of the Fine Chemicals division's research and development
expenses in 2000 were allocated to human nutrition and pharmaceuticals. Around
34% were spent on products for the animal nutrition industry. The remainder was
earmarked for applications in cosmetics and aroma chemicals as well as for new
business development.
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(R)/Natustarch(R)
range of feed enzymes. These enzymes are designed to improve digestion in
animals and reduce the phosphate content of excretions. In the medium term, BASF
intends to launch NSP (non-starch polysaccharide) enzymes and a new variety of
Natugrain(R).
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 as well as for the production of a pseudoephedrine precursor. BASF
has successfully replaced chemical synthesis with biotechnology-based processes
to produce vitamin B(2) and precursors of vitamin C.
70
77
MARKETS AND DISTRIBUTION
In 2000, Europe accounted for 38% of the Fine Chemicals division's sales,
North America for 33%, the Asia, Pacific Area, Africa region for 22% 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.
These departments, which are located regionally around the world, offer
customers extensive technical and laboratory services.
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 fat-soluble vitamins, is
intensifying, and competition based on price is likely to increase in the
future. 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.
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, Aventis/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. (formerly Bush Boake Allen 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 dietary supplements, including
vitamins. The Federal Trade Commission regulates claims made in the advertising
of dietary supplements. The Center for Veterinary Medicine within the FDA is
responsible for ensuring that animal drugs and medicated feeds are safe and
effective for their intended uses and that food from treated animals is safe for
human consumption. 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
(EU). In the EU, similar regulatory systems are established on the national
level of different member states as well as
71
78
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 EU only
after its safety is assessed by a committee of independent academic scientists.
In countries other than the United States and those of the EU 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 EU.
PHARMACEUTICALS (DISCONTINUED OPERATIONS)
OVERVIEW
BASF Pharma encompassed the worldwide pharmaceutical activities of BASF.
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 2 to the Consolidated Financial
Statements. 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.
BASF Pharma's products focus on five therapeutic areas: cardiovascular,
thyroid, antiobesity, central nervous system and pain/inflammation. The
division's research and development activities in 2000 focused on cardiovascular
disease and immune system disorders.
BASF entered the pharmaceuticals industry when it acquired Nordmark-Werke
of Germany in 1968. Since that time, BASF expanded its pharmaceuticals
operations both through internal growth and through acquisitions, including:
- a majority holding in Knoll AG of Germany in 1975 and full ownership in
1982;
- the ethical/prescription-based pharmaceutical business of Boots plc of
the United Kingdom in 1995; and
- a majority stake in Hokuriku Seiyaku Co. of Japan in 1996 (first
consolidated in 1998).
BASF used these acquisitions to strengthen its presence in European, the
U.S. and several Asian ethical drug markets and to begin building a business
platform in Japan, the second largest pharmaceuticals market in the world.
BASF Pharma's flagship products in 2000 were Synthroid(R), a synthetic
thyroxine compound to treat thyroid insufficiency,
Meridia(R)/Reductil(R)/Raductil(R), a medication to help manage obesity,
Isoptin(R) for the treatment of hypertension, coronary heart disease and angina,
as well as Rytmonorm(R)/Rythmol(R) for the treatment of arrhythmia.
In January 2000, BASF announced a series of major changes to BASF Pharma's
business focus and organization. It was announced that BASF Pharma would
concentrate on the research, development and production as well as marketing and
sales of prescription medications.
In 2000, BASF took the following initiatives with respect to BASF Pharma's
business focus:
- BASF Pharma sold its generics business to the Novartis subsidiary,
Biochemie GmbH of Kundel, Austria, effective January 1, 2001;
- BASF Pharma streamlined its product portfolio, eliminating more than 500
items;
- BASF Pharma entered into a business transfer agreement with Smith &
Nephew of the United Kingdom on January 1, 2000, for the marketing and
sale of the wound care product Iruxol(R)/Santyl(R);
72
79
- BASF Pharma sold its German over-the-counter business to Rentschler
Arzneimittel GmbH on April 1, 2000, and its German urology business to
Abbott GmbH of Germany on May 31, 2000;
- BASF Pharma's pharmaceutical active ingredients business was transferred
to BASF's Fine Chemicals division on July 1; segment data were restated
to account for the transfer of the business; and
- BASF Pharma sold its production plant in Uetersen, Germany by means of
management buyout as a part of its strategy to streamline its global
infrastructure and lower production costs.
In 2000, BASF took the following initiatives with respect to BASF Pharma's
organization:
- on February 1, BASF set up the BASF Pharma Executive Board, a new global
management team based in London, to focus on key geographic markets and
therapeutic areas;
- in Ludwigshafen, Germany, BASF Pharma's workforce was reduced. In
Nottingham, United Kingdom, BASF Pharma closed its research and
development site which had specialized in central nervous system and
obesity projects; and
- BASF Pharma continued to streamline its global sales organization, partly
by means of workforce reductions which focused on France, Spain and the
United Kingdom.
PRODUCTS
The following table lists representative BASF Pharma products in 2000:
BRAND NAME ACTIVE INGREDIENT INDICATION
---------- ----------------- ----------
Cardiovascular
Isoptin(R)(2) Verapamil Coronary heart disease,
hypertension and arrhythmia
Rytmonorm(R)/Rythmol(R)(3) Propafenon Arrhythmia
Gopten(R)/Mavik(R)(7) Trandolapril Hypertension/post myocardial
infarction
Tarka(R)(9) Verapamil and trandolapril Hypertension
Antiobesity
Meridia(R)/Reductil(R)/ Sibutramine Obesity
Raductil(R)(4)
Thyroid Insufficiency
Synthroid(R)(1) Synthetic thyroxine Hypothyroidism
Pain/Anti-Inflammatory
Dilaudid(R)(10) Hydromorphone Severe pain
Brufen(R)(6) Ibuprofen Mild pain
Vicodin(R)/Vicoprofen(R)(5) Hydrocodone and Moderate to severe pain
acetaminophen or ibuprofen
Specialty Products
Hokunalin Patch(R)(8) Tulobuterol Asthma
- ---------------
* Numbers in table indicate ranking as one of BASF Pharma's best-selling drugs
in 2000.
73
80
Cardiovascular Products
Isoptin(R), a calcium-channel blocker, was the second best-selling product
in BASF Pharma's portfolio in 2000 and is sold worldwide, with its major market
in France and Germany. The drug has been without patent protection since the
early to mid-1980s and faces increasingly strong competition from generics
manufacturers. BASF expects declining sales for Isoptin(R) in the major European
markets as a result of both falling prices and declining volumes. BASF expects
Isoptin(R) sales to remain stable in other markets.
Rytmonorm(R)/Rythmol(R) is a sodium-channel blocker and was BASF Pharma's
third best-selling product in 2000. The drug is marketed in 75 countries, with
the United States being the most important market. Although the drug has been
without patent protection since the early 1990s, sales of the drug have grown at
an annual compounded average rate of 14% during the last three years. In October
2000, the Food and Drug Administration (FDA) posted a notice indicating that it
had approved a generic version of propafenon, the active ingredient found in
Rytmonorm(R)/Rythmol(R). A slow-release formulation of Rytmonorm(R)/Rythmol(R)
that is patent-protected until 2014 is currently in Phase III clinical trials.
Gopten(R)/Mavik(R) was originally licensed from the former Hoechst AG of
Germany and has patent protection until 2007. This drug is an
angiotensin-converting-enzyme inhibitor, also known as an ACE inhibitor, and was
launched in 1993 and is sold worldwide.
Tarka(R) is marketed in more than 20 countries, primarily in Europe, and is
used to treat hypertension in patients who do not respond to treatment with
either Isoptin(R) or Gopten(R) alone. Tarka(R) is a fixed combination of the
active ingredients verapamil and trandolapril. It was launched in 1997 and has
patent protection in the European Union until 2012 and in the United States
until 2015.
Antiobesity Products
Meridia(R)/Reductil(R)/Raductil(R) is an antiobesity product that inhibits
the re-uptake by brain cells of the natural signal chemicals serotonin and
norepinephrine, which leads to a feeling of fullness and reduces food intake.
The drug is sold in more than 30 countries. The product is marketed under the
brand name Meridia(R) in the United States, Reductil(R) in Europe and South
America and Raductil(R) in Central America and the Caribbean. The drug has
patent protection for use in the treatment of obesity until 2012 in the United
States and until 2014 in the European Union.
Thyroid Insufficiency Products
Synthroid(R) remained BASF Pharma's top-selling medication in 2000 and is
one of the most-prescribed medications in the United States. It is used to treat
people suffering from hypothyroidism, or insufficient production of thyroid
hormones. The drug is also sold in Canada, Brazil and Belgium. Synthroid(R) has
been without patent protection for more than 40 years. BASF nevertheless sees
growth opportunities for the drug in the treatment of currently undiagnosed
patients and through the introduction of the drug in new commercially attractive
markets.
Pain/Anti-Inflammatory Products
Vicodin(R), Vicoprofen(R) and Dilaudid(R) all treat moderate to severe
pain. In 2000, BASF Pharma marketed these drugs mainly in the United States.
BASF Pharma also marketed Brufen(R) in 2000, which is used for treating mild
pain, mainly outside the United States. Dilaudid(R), Brufen(R) and Vicodin(R) do
not have patent protection. Vicoprofen(R) was introduced in 1997 and has patent
protection until 2003. BASF signed in 1999 a three-year agreement with Walter
Lorenz Surgical, Inc., of the United States to jointly promote Vicoprofen(R) to
oral and craniomaxillofacial surgeons in the United States. In 2000, Abbott
Laboratories Inc. of Abbott Park, Illinois and BASF signed a co-promotion
agreement under which Abbott agreed to promote Vicoprofen(R) and Dilaudid(R) to
74
81
hospital-based physicians, hospitals, emergency rooms and free-standing surgical
centers in the United States.
Specialty Products
Hokunalin Patch(R) is the world's first and only tape formulation for the
management of asthma, and posted the highest sales of BASF Pharma's specialty
products for niche markets. Currently sold in Japan only, the Hokunalin Patch(R)
contains the active ingredient tulobuterol which is transmitted from the patch
through the patient's skin. Due to the product's successful performance in
Japan, BASF Pharma believed that the Hokunalin Patch(R) would have a strong
potential for being registered and marketed internationally.
Pharmaceutical Active Ingredients
As part of BASF Pharma's new orientation in 2000 to focus on the research,
development and production as well as the marketing and sales of prescription
medications, the pharmaceutical active ingredients business was transferred to
BASF's Fine Chemicals division on July 1, 2000.
Generic Pharmaceuticals
As part of BASF Pharma's new business focus in 2000, the company sold its
generic pharmaceuticals business to the generics division of Novartis, effective
January 1, 2001. BASF Pharma's generics business was focused on European
markets.
SALES
The Pharmaceuticals division's sales to third parties were E2,526 million
in 2000. Ethical drugs, which BASF defines as drugs that require a prescription
from a physician and which are sold under an individual brand name, represented
BASF Pharma's core business in 2000. Sales of these drugs increased 16% in 2000
to E2,485 million.
The following table shows BASF Pharma's ethical drugs sales for 2000 by
therapeutic field:
PRODUCT 2000 SALES
- ------- -------------------
(EUROS IN MILLIONS)
Cardiovascular........................................... E652
Thyroid.................................................. E474
Antiobesity.............................................. E188
Pain/inflammation........................................ E361
Central nervous system................................... E245
Sales from BASF's top 10 drugs were E1,520 million in 2000, representing
approximately 60% of BASF Pharma's sales.
Synthroid(R) sales have been growing at an annual compounded average rate
of 14% since 1997 and were E474 million in 2000. Almost all managed care
programs in the United States provide reimbursement for Synthroid(R), which
significantly contributes to the drug's success. In 2000, a class action lawsuit
was settled in which BASF was named as a defendant for allegedly suppressing
bioequivalence data in a report published in 1997. For further information about
litigation involving Synthroid(R), see "Item 3. Key Information" and Note 24 to
the Consolidated Financial Statements included in Item 18.
In the United States, the Food and Drug Administration (FDA) requires that
companies interested in selling ethical drugs in the United States file New Drug
Applications for those products which are considered new drugs under the Federal
Food, Drug and Cosmetic Act. Companies are otherwise required to submit
petitions to this regulating authority outlining why they believe their drugs
are not "new drugs" under this act. BASF Pharma was originally allowed to launch
Synthroid(R)
75
82
in the United States without having to file an application or submit a petition.
In August, 1997, the FDA published a notice requesting that manufacturers of
levothyroxine sodium drug products, such as Synthroid(R), file New Drug
Applications or petitions stating why they believed their products not to be new
drugs under the Federal Food, Drug and Cosmetic Act. In response to the FDA
Notice, Knoll Pharmaceutical Company filed a petition with the FDA on December
15, 1997, requesting the FDA recognize the Synthroid(R) brand of levothyroxine
to be "Generally Recognized as Safe and Effective," and thus, under the law, not
to be a new drug requiring a New Drug Application. To date, the FDA has not
responded to Knoll's petition.
Meridia(R)/Reductil(R)/Raductil(R), which was launched in the United States
in February 1998, was BASF Pharma's fourth largest-selling product in 2000 with
sales of E188 million, increasing by 37%. BASF intended to launch this product
worldwide. The committee for proprietary medicinal products (CPMP) of the
European Agency for the Evaluation of Medicinal Products (EMEA) gave a positive
opinion on the active ingredient sibutramine in November 2000. This is expected
to lead to the EU Commission's approval of sibutramine in February 2001. BASF
established partnerships with Eisai of Japan for the Japanese market. The
agreement with Germany's AstraZeneca GmbH for the German market ended on
friendly terms on December 31, 2000.
Isoptin(R) sales were E204 million in 2000. Isoptin(R) has been without
patent protection since the early to mid-1980s. Sales have been declining since
the early 1990s primarily due to cost containment measures in health care and
more recently due to competition from generics. This decline in sales, however,
appears to be leveling off in many markets.
RESEARCH AND DEVELOPMENT
In 2000, BASF Pharma focused its research and development on discovering
innovative therapies in areas with high medical need and large patient
populations. The company identified the cardiovascular system and immunology as
its two main areas of research. In the field of immunology, BASF focused on
septic shock and rheumatoid arthritis, and in its research employed fully human
monoclonal antibodies, a technology with a potentially broad scope of
application.
In 2000, BASF Pharma spent E468 million, or approximately 19% of sales, on
research and development. BASF Pharma's primary research centers are located in
Ludwigshafen, Germany; Worcester, Massachusetts; and Katsuyama, Japan. As part
of its strategy to focus its research and development activities, BASF Pharma
disposed of its Nottingham-based research and development center, which had
concentrated on research projects in the areas of the central nervous system and
early obesity.
Drug development is time consuming, expensive and unpredictable. On
average, only one out of many thousands of chemical compounds discovered by
researchers proves to be both medically effective and safe enough to become an
approved medicine. The process from discovery to regulatory approval takes on
average 12 years. Candidates can fail at any stage of the process, which
consists of three major phases, and candidates may ultimately fail to receive
regulatory approval even after the last stage. Viprinex(R), which was developed
for the treatment of strokes, has been taken out of development after
disappointing results from the latest study.
Four products are currently in late stages of clinical development.
Depending on positive Phase III clinical trial data, BASF Pharma expects that
these products will be launched by 2003. These products are:
PRODUCT/ BRAND NAME INDICATION STATUS
- ------------------- ---------- ---------------
Dilaudid OROS(R) Pain In registration
Segard(R) Septic shock Phase III
Rythmol SR(R) Arrhythmia Phase III
D2E7 Rheumatoid arthritis Phase III
76
83
D2E7, BASF Pharma's flagship development project in 2000, is the first
fully human monoclonal antibody against rheumatoid arthritis. This product went
to Phase III in February 2000. Sales of D2E7 are expected to begin early in
2003.
Several of BASF Pharma's strategic partnerships with pharmaceutical
companies and biotechnology firms are opening additional opportunities for the
development, sale and marketing of new drugs. The following table lists BASF
Pharma's most significant research and development partnerships in 2000:
ALLIANCE PARTNER THERAPEUTIC OR TECHNOLOGY AREA
- ---------------- ------------------------------
Alza (USA) Pain
Cambridge Antibody Technology (UK) Human monoclonal antibodies
Eisai (Japan) Rheumatoid arthritis and obesity
EVOTEC BioSystems (Germany) Ultra high-throughput screening
Genetic Institute/American Home Autoimmune diseases
Products (USA)
Hayashibara (Japan) Human monoclonal antibodies
Mitsui (Japan) Thrombosis
Warner-Lambert (USA) Autoimmune diseases
These partnerships are conducted pursuant to standard research and
development agreements that provide for milestone payments, that is, payments
upon attaining certain stages of development. All of the products that are the
subjects of these agreements are still in the development/registration stages.
Also in the area of research and development, BASF Pharma was building its
expertise to exploit the potential of melt extrusion technology, which is widely
used with plastics. BASF has applied this technology for use with
pharmaceuticals. BASF Pharma intended to develop and produce improved solid
dosage forms of active ingredients that have low aqueous solubility or poor
bioavailability, meaning the absorption by the body. BASF was examining several
active ingredients for possible improvements. The technology is commercialized
for in-house use mainly in the area of generics, but it is also made available
to other companies on a contract manufacturing basis.
In May 2000, BASF Pharma launched the first melt-extrusion based product.
The new tablet contains verapamil for the treatment of hypertension and is sold
under the name Isoptin(R) SR-E 240 in Poland alongside Isoptin(R) SR which is
available in the conventional tablet form. Other European launches of the
verapamil extrudate are set to follow as soon as authorization to market the
product has been granted.
MARKETS AND DISTRIBUTION
In 2000, Europe accounted for approximately 35% of BASF Pharma's sales and
North America for approximately 41%. Sales in the Asia, Pacific Area, Africa
region were approximately 17%. South America accounted for about 7%.
BASF Pharma was present in all major pharmaceutical markets in 2000, and
sales activities focused on approximately 100 countries. Sales, however,
remained concentrated in the United States, Western Europe and Japan, the most
significant markets for pharmaceuticals.
In 2000, BASF Pharma's products were marketed primarily to physicians.
Marketing and sales efforts were also directed at healthcare maintenance
organizations in the United States and at government agencies and private
insurance groups in Europe and elsewhere. BASF Pharma's own sales force usually
conducted sales and marketing activities. BASF Pharma also marketed certain
pharmaceutical products in the United States directly to consumers by way of
television, newspaper and magazine advertising. For example, BASF Pharma had
been utilizing direct-to-consumer advertising since October 1998 to market its
antiobesity drug Meridia(R) in the United States. In some
77
84
markets, direct-to-consumer advertising for prescription drugs is restricted or
prohibited, for example in most European countries.
In 2000, BASF Pharma had a number of agreements with other pharmaceuticals
companies for co-marketing and co-promoting its products in specific countries.
Co-marketing refers to a product sold under different brand names, and
co-promotion refers to a product sold under the same brand name. The following
table sets forth these major co-marketing and co-promotion activities:
COUNTRY COMPANY BRAND COOPERATION
- ------- ----------------------------- ----------------------------- ------------
Italy Glaxo-Wellcome plc. Quomem/Zyban(1) Co-marketing
Bracco/Glaxo-Wellcome plc. Reductil/Ectiva(1)/Reduxade(1) Co-marketing
Pharmacia Corp. Furoic/Prefolic(1) Co-marketing
Germany Aventis S.A. Gopten/Udrik(1), Co-marketing
Tarka/Udramil(1)
The Procter & Gamble Company Tarka Co-promotion(2)
AstraZeneca Plc Reductil Co-promotion(2)
Novartis Exelon Co-promotion(2)
Spain Alter Gopten/Odrik(1), Co-marketing
Tarka/Trifen(1)
Glaxo-Wellcome plc. Ranix/Zantac(1) Co-marketing
France Aventis S.A. Gopten/Odrik(1), Co-marketing
Tarka/Ocadrik(1)
United Kingdom Byk Gulden GmbH Protium Co-promotion
Japan Eisai Co. Ltd. Vasolan (Isoptin) Co-promotion
United Sates Kos Pharmaceuticals Inc. Mavik, Tarka Co-promotion
Walter Lorenz Surgicals Inc. Vicoprofen Co-promotion
Abbott Laboratories Inc. Vicoprofen, Dilaudid Co-promotion
- ---------------
(1) Brand names of co-marketing partner.
(2) These agreements had terminated by December 31, 2000.
In many countries, pharmaceutical products are subject to
government-imposed price controls, budgets or reimbursement programs. Since the
early 1990s, pressure has been growing for healthcare cost containment in many
countries.
Competition in the pharmaceuticals industry is based on innovative
research, rapid product development, low-cost production and creative marketing.
The ability to attract qualified personnel and to secure capital resources is
also an important competitive factor. BASF Pharma's products competed with the
products of other international pharmaceutical companies and research-based
biotechnology companies. In addition, in 2000 BASF Pharma competed in some
markets with generic product producers. BASF Pharma's main competitors in 2000
were Roche Group of Switzerland in the market for antiobesity products. In the
field of cardiovascular products, Pfizer Inc. of the United States and Bayer AG
of Germany were the main competitors for calcium-channel blockers in
hypertension and American Home Products Corporation of the United States for
arrhythmia products. In the market for thyroid products, BASF Pharma's
competitors in 2000 were mainly generic manufacturers as well as branded
generics that have recently been authorized by the
78
85
FDA. In the market for pain/inflammation products, BASF Pharma competed in 2000
with a number of local competitors and suppliers of over-the-counter products.
GOVERNMENTAL REGULATION
Pharmaceutical products must receive regulatory approval before they can be
marketed in individual countries. The regulatory requirements follow stringent
standards that vary among different countries. Before a drug can qualify for
marketing approval, a registration dossier must be submitted to a regulatory
authority for review and evaluation. The registration dossier principally
contains detailed information about the safety, efficacy and quality of a new
medication. It also provides details about the manufacturing process, the
production plant and information provided to patients. The registration process
can last between a few months and a few years and depends on the nature of the
medication under review, the quality of the submitted data and the efficiency of
the review procedure. If a drug meets the approval requirements, a regulatory
authority will grant a product license for marketing. After the product launch
and during marketing, it is a legal requirement that the manufacturer monitor
potential adverse reactions and report any to the appropriate authorities.
The process of developing a pharmaceutical product from discovery through
testing, registration and initial product launch typically takes more than 10
years. In clinical Phase I, a pharmaceutical compound is tested in a small group
of healthy volunteers for safety, side effects and pharmacological profile. In
clinical Phase II, a pharmaceutical compound is tested in a limited number of
patient volunteers for safety, efficacy and appropriate dosage. In clinical
Phase III, a pharmaceutical compound is tested in a larger diverse group of
patient volunteers to assess safety, efficacy, side effects and dosage in a
statistically significant fashion. The results of these clinical trials are then
submitted to appropriate regulatory authorities with the objective of obtaining
approval to sell the drug. After commercial launch, trials are held to monitor
the safety and efficacy of the products in large patient groups and to
investigate potential new applications.
The principal regulatory authority in the United States is the FDA, which
administers and executes requirements covering the testing, approval, safety,
effectiveness, manufacturing, labeling and marketing of prescription
pharmaceuticals. Over the years, FDA requirements have increased the amount of
time and money necessary to develop new products and bring them to market in the
United States. In 1997, the Food and Drug Administration Modernization Act was
passed and was the culmination of a comprehensive legislative reform effort
designed to streamline regulatory procedures within the FDA and to improve the
regulation of drugs, medical devices, and food. The legislation was principally
designed to ensure the timely availability of safe and effective drugs and
biologics by expediting the premarket review process for new products. A key
provision of the legislation is the re-authorization of the Prescription Drug
User Fee Act of 1992, which permits the continued collection of user fees from
prescription drug manufacturers to augment FDA resources earmarked for the
review of human drug applications. This helps provide the resources necessary to
ensure the timely approval of safe and effective new drugs.
In the European Union (EU), there are two different approval procedures
available: a centralized procedure and one based on the Mutual Recognition
Procedure. The London-based European Agency for the Evaluation of Medicinal
Products (EMEA) governs the centralized drug registration and approval process
and consists of two committees, one for proprietary medicinal products (CPMP)
and one for veterinary medicinal products (CVMP). Each member state of the EU
has two members on each committee. The committee makes a recommendation based on
a review of an appointed rapporteur and co-rapporteur, who are part of the
CPMP/CVMP. Following the committee's recommendation, the European Commission
issues its formal decision, which is valid throughout the EU without further
action. When the approval process is successful, the drug may be marketed within
all member states of the EU. The other method is the Mutual Recognition
Procedure in which one country carries out the primary and main evaluation. The
other member states then have 90 days to decide if they accept or reject the
decision made by the reference member state. If the countries do not follow the
decision of the reference country, then the process can be referred to
79
86
the CPMP and will be reviewed there as in the centralized procedure. The formal
decision will be made by the European Commission based on this evaluation.
In Japan, there are two issues that make the approval process difficult for
drugs developed outside of that country. First, the Japanese approval agency
only recognizes some of the documents used in registration procedures in other
countries. Second, the Japanese approval agency requires that tests to determine
appropriate dosages for Japanese patients be conducted on Japanese patient
volunteers. Due to these issues, parts of Phase II and of Phase III of the
clinical program generally need to be repeated in Japan. This could mean a delay
of two or three years in introducing a drug developed outside of Japan to the
Japanese market.
In recent years, efforts have been made between the EU, the United States
and Japan to achieve shorter development and registration times for medicinal
products by harmonizing the individual requirements of the three regions. The
process is called the International Conference on Harmonization. For the
foreseeable future, however, approval must be obtained in each market.
80
87
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 primary areas:
- Oil and Natural Gas Exploration and Production
Wintershall participates in the search and production of oil and
natural gas in 9 countries on four continents. BASF presently conducts
its most important oil exploration and production operations in North
Africa and the Middle East as well as in Germany, and its most
significant gas exploration and production activities in Argentina and
Germany. Wintershall's strategy is to increase its hydrocarbon
production in the next five to 10 years by at least 50% while
maintaining a ratio of proved reserves to production of at least 8
years. Wintershall markets approximately 80% 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
more than 1,800 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 marketing and
refinery business by selling for cash to VEBA OEL AG, a subsidiary of VEBA 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 1998 and 1999
financial data include amounts from the oil marketing and refinery business.)
The businesses sold to VEBA OEL had 1999 sales of approximately E1,016 million.
Prior to the transaction, Wintershall had sold to ARAL approximately 60% of the
transportation fuels produced at the Lingen refinery, which has a capacity of
80,000 barrels per day. Wintershall had marketed the remaining 40% of the
transportation fuel, as well as other products manufactured at the refinery,
through its own sales force. BASF believes its decision to divest its holdings
in ARAL and the Lingen refinery were significant steps in the restructuring of
its portfolio and 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, but 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.
81
88
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:
2000 1999 1998
------ ------ ------
(EUROS IN MILLIONS)
Sales to third parties, net of petroleum and natural
gas taxes............................................ E3,957 E3,051 E2,685
Petroleum and natural gas taxes........................ 259 1,845 1,603
Intersegmental transfers............................... 320 177 235
Sales incl. intersegmental transfers................... 4,277 3,228 2,920
Royalties.............................................. 276 214 204
Sales incl. intersegmental transfers, less royalties... 4,001 3,014 2,716
Income from operations................................. 1,310 741 276
Capital expenditures................................... 267 524 505
The Oil and Gas segment's sales to third parties, net of petroleum and
natural gas taxes, accounted for 9.7% of BASF's total sales in 1998 and 10.4% of
BASF's total sales in 1999. In 2000, the segment accounted for 11.0% of BASF's
total sales.
SEGMENT STRATEGY
In its exploration and production business, the Oil & Gas segment aims to
increase both oil and gas production by at least 50% in the next five to 10
years while maintaining a ratio of proved reserves to production of at least 8
years. Wintershall's strategy for achieving this goal is:
- to increase oil and gas production in Germany through further exploration
activities and field developments;
- to expand its activities in North Africa to offset the depletion of
existing oil reserves;
- to engage in the exploration and development of oil and gas in Russia
through a strategic partnership with Gazprom;
- to expand exploration activities and develop through contract agreements
with third parties existing oil reserves in Europe, the Caspian
Sea/Middle East and South America; and
- to increase its production of gas from existing and new fields in
Argentina in order to satisfy increasing demand for natural gas in the
Southern Cone region in South America.
Wintershall is seeking to achieve its growth strategy by also divesting of
activities with only a limited potential for expansion. Subsequent to the sale
of Wintershall Canada in 1999, Wintershall divested its subsidiaries Wintershall
(U.K.) Ltd. and Wintershall Exploration (U.K.) Ltd. as of January 1, 2000 as
well as its interest in an oilfield in Qatar as of March 1, 2000. Wintershall
considers this divestment program to be completed.
In the natural gas marketing and distribution business, WINGAS currently is
the fourth largest natural gas transmission and distribution company in Germany
with an actual market share of 10%. By pursuing strategic pipeline ventures and
selectively investing in expanding its infrastructure, WINGAS is striving to
secure long-term contracts covering 20% of the anticipated German gas market in
2010.
Ongoing deregulation of the European natural gas market requires natural
gas distributors, including WINGAS, to give third parties access to their
pipelines. Deregulation creates significant growth opportunities because, with
access to third-party pipelines, WINGAS is eligible to transport natural gas
through the extensive transmission networks of its competitors and increase its
customer base.
82
89
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,
Dubai and the Netherlands. Upon the 1998 dissolution of Deminex, a former joint
venture among Wintershall, VEBA OEL and RWE-DEA, Wintershall acquired
significant natural gas exploration and production operations in Argentina as
well as non-consolidated activities in Russia and Azerbaijan.
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 prolific hydrocarbon 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.
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 assumes a variety of roles ranging from supplying funds to
participating 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 exploration Netherlands Gas exploration and
production
Azerbaijan* Oil exploration
Dubai Oil exploration and Romania Gas exploration and
production production
Germany Oil and gas exploration Russia* Oil exploration and
and production production
Libya Oil and gas exploration
and production
- ---------------
* Non-consolidated activities.
83
90
RESERVES
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, 2000,
1999 and 1998 were as follows:
NORTH AFRICA
AND REST OF
GERMANY MIDDLE EAST* ARGENTINA WORLD* TOTAL
------- ------------ --------- ------- -----
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
AT DECEMBER 31, 1998
Oil (millions of barrels)
Proved reserves...................... 37 545 27 6 615
Proved developed reserves............ 34 509 14 5 562
Gas (billions of cubic feet)
Proved reserves...................... 470 247 746 195 1,658
Proved developed reserves............ 343 -- 400 142 885
- ---------------
* Consolidated activities only
At 2000 levels of production, in terms of barrel of oil equivalents, proved
oil reserves would last approximately 11 years. At 2000 levels of production, in
terms of cubic feet equivalents, proved gas reserves would last approximately 12
years.
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.
84
91
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:
1998 1999 2000
----- ------ ------
OIL
Net quantities produced (millions of barrels)............... 53 55 56
Average sales price (per barrel)............................ E7.20 E12.73 E23.76
Average production cost (lifting cost) (per barrel)......... E2.89 E 2.84 E 3.60
GAS
Net quantities produced (billions of cubic feet)............ 71 135 145
Average sales price (per thousand cubic feet)............... E2.06 E 1.36 E 2.35
Average production cost (lifting cost) (per thousand cubic
feet)..................................................... E0.65 E 0.40 E 0.50
Wintershall's total gross and net productive wells, total gross and net
developed acres and total gross and net undeveloped acres (both leases and
concessions) as of December 31, 2000, were as follows:
NORTH AFRICA
AND REST OF
GERMANY MIDDLE EAST* ARGENTINA WORLD* TOTAL
------- ------------ --------- ------- --------
OIL
Total gross productive wells........ 571 274 58 0 903
Total net productive wells.......... 260.6 61.2 19.0 0.0 340.8
GAS
Total gross productive wells........ 148 0 152 16 316
Total net productive wells.......... 63.1 0.0 38.0 6.2 107.3
OIL AND GAS ACREAGES
(THOUSANDS OF ACRES)
Total gross developed acres......... 163.9 93.0 256.2 11.1 524.2
Total net developed acres........... 56.3 28.9 60.4 4.1 149.7
Total gross undeveloped acres....... 2,221.8 2,170.6 3,229.2 2,417.1 10,038.7
Total net undeveloped acres......... 1,067.9 793.6 971.4 1,082.5 3,915.4
For Comparison: 1999
Total gross developed acres......... 160.1 100.5 167.9 16.2 444.7
Total net developed acres........... 54.8 30.0 44.6 4.5 133.9
Total gross undeveloped acres....... 2,320.6 2,557.1 3,315.8 1,152.8 9,346.3
Total net undeveloped acres......... 997.6 605.9 988.1 433.8 3,025.4
- ---------------
* Consolidated activities only
The Oil & Gas segment's exploration expenditures in 2000 were E57 million.
Either directly or through its subsidiaries, Wintershall was involved in the
drilling of four exploratory wells that were completed in 2000 compared with 14
exploratory wells completed in 1999. In 2000, none of the exploratory wells
completed were productive compared to 9 in 1999. This reduction in the number of
productive exploratory wells is the result of Wintershall's efforts in 2000 to
streamline its exploration portfolio by focusing on remaining exploration
targets in mature concessions. Mature concessions have a developed
intrastructure, making successful exploration more cost effective. Nevertheless,
the chance of success in mature concessions is low. Wintershall has now
completed this process of restructuring its exploration portfolio. As of
December 31, 2000, Wintershall had begun drilling 5 additional exploratory
wells. Exploration activities are focused on North Africa (mainly Libya),
Caspian Sea/Middle East, the Southern Cone region of South America, and Europe.
85
92
More than 70% of the Oil & Gas segment's oil reserves and production
activities are in North Africa and the Middle East. The substantial majority of
these reserves and production activities are in Libya, where the segment
operates several onshore oilfields and utilizes associated natural gas for local
consumption. Remaining oil production takes place primarily in the Mittelplate
offshore oil field in the German North Sea as well as Dubai, Argentina and
Russia. In August 1996, the United States adopted the Iran and Libya Sanctions
Act. The Sanctions Act requires the President of the United States to impose
under particular circumstances two or more enumerated sanctions on companies
that engage in trade or investment activities in Libya. BASF cannot predict
future interpretations of, or the implementation policy of the U.S. government
with respect to, the Sanctions Act. BASF, however, does not believe that the
Sanctions Act will have a material adverse effect on BASF's financial condition
or results of operations.
With 208 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. Each
partner has a 50% interest in the project. A horizontal well drilled into the
Mittelplate field from an onshore site struck oil-bearing horizons in 1998. With
two additional extended-reach wells completed, field production was increased as
of April 2000 from 5.6 to 12.6 million barrels per year. 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.
Over half 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. The principal reason for the
dissolution was to allow the partners in the joint venture to control their own
exploration and production operations and to manage costs more effectively in
the increasingly competitive exploration and production business. By acquiring
Deminex's gas operations in Argentina, Wintershall added 746 billion cubic feet
to its total natural gas reserves. Wintershall intends to further develop its
gas reserves in Argentina and to increase its market share in the Southern Cone
region of South America. Wintershall also holds a 10% share in the "Cruz del
Sur" gas pipeline project. Due to delays in concluding gas sales contracts with
Uruguayan customers, the project is expected to be completed by the beginning 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 expects to 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 production volume 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 oil and gas fields in the Timan-Pechora region and in
Western Siberia. Such development will have to be the subject of future
agreements. Gazprom and Wintershall have developed geotechnical concepts needed
for the economic and technical development of these fields. Along with other
projects, Wintershall aims to develop the Prirazlomnoye oilfield in the arctic
Pechora Sea with proved reserves of 525 million barrels.
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
86
93
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. 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. German
government guarantees currently cover a total investment volume by Wintershall
of approximately E230 million, including inventory of raw materials and
supplies. Wintershall would receive approximately E195 million if any of the
covered risks were to materialize.
Wintershall's oil and gas production in Argentina has become a major
contributor to the company's total worldwide production. Privatization of former
state-owned companies in Argentina has created growth opportunities and
competition in the private sector. Wintershall intends to exploit its
substantial gas reserves in Argentina by increasing its share of the Argentine
gas market and by exporting Argentine natural gas, partly through integrated
projects.
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
87
94
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 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.
The natural gas distribution and trading business is driven by 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 2000, the sales volume of WINGAS, WIEH and WIEE totaled 756 billion
cubic feet, representing a 9% increase over the previous year's sales of 691
billion cubic feet. The BASF consolidated sales volume in 2000 was 468 billion
cubic feet, representing a 15% increase over the previous year's sales volume of
409 billion cubic feet.
WINGAS
WINGAS engages in three primary activities in Germany:
- buying and selling natural gas,
- constructing and operating natural gas pipelines and underground storage
sites, and
- providing third parties with natural gas transportation and storage
services.
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
more than 1,800 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.
88
95
- 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.
89
96
The following illustration depicts WINGAS's existing pipeline system:
[WINGAS PIPELINE MAP]
90
97
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 2000, WINGAS purchased 67% of the natural gas that it distributed from
WIEH, which in turn purchases all of its gas from Gazprom and its subsidiary,
Gazexport. In 2000, WINGAS started to buy additional gas directly from Gazexport
so that in total 289 billion cubic feet were purchased from these suppliers.
WINGAS also buys significant amounts of natural gas from North Sea suppliers,
including BG plc and Conoco, and expects to purchase approximately 97 billion
cubic feet from these suppliers in 2001, compared to 76 billion cubic feet in
2000.
The biggest customer for WINGAS's natural gas is BASF's own Verbund site in
Ludwigshafen, Germany. The site purchased approximately 81 billion cubic feet,
or approximately 21% of WINGAS's distribution volume, in 2000. Approximately 18
billion cubic feet (5%) are sold to other BASF companies. Starting in 2003,
WINGAS will also supply natural gas to BASF's Verbund site in Antwerp, Belgium.
In 2000, WINGAS distributed 58% of its natural gas in Germany through
long-term natural gas supply agreements with more than 60 customers.
Transmission companies purchased 42% of WINGAS's annual distribution volume, and
regional distributors, municipalities and industrial companies purchased 16%.
The remaining 16% was sold in the forward market.
Due to a merger of two German transmission companies in 2000, WINGAS is
currently the fourth largest natural gas transmission and distribution company
in Germany and has a current market share of 10% and aims to obtain 20% of the
anticipated German market in 2010.
WINGAS's capital expenditures in 2000 totaled E85 million of which E81
million was used for additions to the existing infrastructure.
The ongoing deregulation of the European natural gas market will
significantly affect the business environment of the Oil & Gas segment's natural
gas activities. Deregulation requires natural gas distributors, including
WINGAS, to give third parties access to their pipelines. This access also
creates significant growth opportunities for WINGAS because WINGAS could
transport natural gas through the extensive transmission networks of its larger
competitors and increase its customer base.
WIEH AND WIEE
WIEH acts exclusively as a natural gas trading company, purchasing Russian
natural gas and marketing it to WINGAS, Verbundnetz Gas AG and to the BASF
production site in Schwarzheide, Germany. WIEH also markets Russian natural gas
in Central Europe, primarily in Romania and Bulgaria, through its wholly-owned
Swiss subsidiary, WIEE. In Romania, WIEE is the main importer of Russian natural
gas.
91
98
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 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 Ordinance on Large Combustion Plants
(Grossfeuerungsanlagen-Verordnung), which establishes emissions limits
for different types of plants for all major air pollutants, including
sulfur dioxide, nitrogen oxides and dust;
- the Recycling Act (Kreislaufwirtschafts- und Abfallgesetz), which
regulates waste management, focusing on waste avoidance and reuse of
waste;
- the Water Resources Management 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
charges for wastewater emissions based on the content of harmful
substances and other parameters, such as nitrogen content;
- the Federal Pollution Control Act (Bundes-Immissionsschutzgesetz), which
regulates emissions from a variety of sources, including downstream
refineries;
- the Act on Transportation of Dangerous Goods (Gesetz zur Beforderung
gefahrlicher Guter), which sets standards for transportation safety and
the avoidance of accidents due to the release of dangerous substances;
- the Control of Major Accident Hazard Directive of the European Union
(Storfall-Verordnung), which classifies the accident potential of
installations and sets corresponding standards for safety management; and
- the Federal Mining Act (Bundesberggesetz), which regulates the
exploration and production of oil and gas.
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 site. 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 sites.
BASF's operating costs for environmental protection totaled E764 million in
2000. 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,
92
99
costs for disposal services by third parties, monitoring, analysis and
surveillance carried out by mobile and stationary measuring as well as research
and development costs for reducing the incidence of residues. BASF also spent
approximately E112 million in 2000 on capital expenditures for pollution control
units 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 reserves of E269 million for anticipated
investigation and clean-up costs at such sites as of December 31, 2000, and E260
million as of December 31, 1999. 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 reserves for environmental
remediation liabilities where the amount of such liability can be reasonably
estimated. The provisions made are considered to be materially in accordance
with U.S. GAAP for known requirements. BASF adjusts accrual as new remediation
commitments are made and as information becomes available which changes
estimates previously made. For further information, see Note 22 to the
Consolidated Financial Statements.
When required by national law, BASF establishes reserves 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.
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;
93
100
- 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. 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.
94
101
SUPPLIES AND RAW MATERIALS
RAW MATERIALS PURCHASING
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
gases). These materials are used as feedstocks for the steamcrackers that are
operated in Ludwigshafen, Germany; Antwerp, Belgium; and in the future in Port
Arthur, Texas. Other important hydrocarbon-based 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 takes advantage of its purchasing power by centrally purchasing 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 actively
pursuing efficiencies by taking advantage of the opportunities offered by
e-commerce. For further information on BASF's e-commerce activities, see "Item
4. Information on the Company -- E-commerce."
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 PURCHASING
BASF also uses the Verbund strategy for purchasing technical goods and
services. BASF invests approximately E5 billion annually in technical goods and
services. BASF achieves competitive prices by means of centralized purchasing,
e-procurement and long-term supply agreements.
95
102
E-COMMERCE
E-commerce is rapidly changing the way the chemical industry conducts
business. BASF is taking advantage of the opportunities offered by electronic
commerce to improve customer relationships, enhance its supply chain
productivity and increase its purchasing efficiencies. BASF expects to conduct
about 50% of its business online by the end of 2005. BASF wants to secure a
European leadership position in e-commerce and plans to invest about E75 million
over the next two years to expand its Internet activities.
BASF's e-commerce strategy is focused on three major areas:
- System-to-system solutions:
System-to-system solutions refers to the direct link between the raw
materials purchasing systems -- known as enterprise resource planning
(ERP) systems -- of companies or business partners. An example of this
is vendor-managed inventory, in which inventory levels are monitored
electronically so that supply and purchasing procedures can be
streamlined.
- Electronic marketplaces:
BASF has been involved in setting up several, independent marketplaces
for both sales and purchasing activities. Through these marketplaces,
BASF buys and sells raw materials through both short- and long-term
contracts, purchases technical materials and equipment and oversees the
processing of customer orders.
- Extranet and portals:
BASF also sells products and services online through its own Extranet
-- a venue through which any BASF registered customer or supplier can
purchase or offer products.
Strategic partnerships will play an important role in BASF's e-commerce
strategy. The following is a list of BASF principal partnerships in the area of
e-commerce:
- Elemica:
In August 2000, BASF along with 7 other companies, set up Elemica
Holding Ltd. -- a new business-to-business e-commerce company that aims
to offer integrated solutions and services for buying and selling
basic, intermediate, specialty and fine chemicals. An independent
entity, Elemica focuses on removing costs from the supply chain,
thereby benefiting both buyers and sellers. Elemica plans to start up
operations during the first quarter of 2001. The participating
companies have earmarked an initial $140 million for the project. Some
of the other companies participating in the venture include ATOFINA,
Bayer AG, BP Amoco, The Dow Chemical Company, E.I. du Pont de Nemours,
Mitsui Chemicals Corporation, Mitsubishi Chemicals Corporation, Rhodia
S.A., Rohm and Haas Company, Sumitomo Chemical Corporation and Van
Waters & Rogers Inc.
- cc-markets:
On October 25, 2000, BASF together with Degussa AG, Henkel KGaA and SAP
AG formed an independent joint venture called cc-markets online Ltd.
for the procurement of technical goods and services. By December 31,
additional companies had joined cc-markets. cc-markets aims to improve
the purchasing process for technical goods and services at these
companies by integrating the systems they use for their purchasing
activities, thereby reducing administrative costs at these companies.
The companies involved do not intend to use cc-markets to pool their
purchasing power or to outsource their procurement activities as has
been attempted with similar electronic marketplaces. Rather, cc-markets
operates as an open and neutral marketplace, offering both buyers and
sellers a way to optimize their business processes. cc-markets is the
first electronic
96
103
marketplace in the chemical industry to use the new joint solution
marketplace technology developed by SAP AG and Commerce One Inc.,
giving it a competitive edge. As of mid-November, orders for products
can be placed online, and online auctioning is possible.
- ChemConnect:
BASF has acquired an equity stake in ChemConnect Inc., which is one of
the world's biggest Internet marketplaces for chemical products through
its World Chemical Exchange(R). The World Chemical Exchange(R) is a
global chemical exchange, providing an open neutral market for chemical
and plastics manufacturers, buyers and intermediaries to conduct
real-time online transactions for a wide range of products.
- Omnexus.com:
In June 2000, BASF together with Bayer AG of Germany, The Dow Chemical
Company, E.I. du Pont de Nemours and Ticona set up Omnexus.com -- an
independent business-to-business online marketplace that focuses on
delivering products and related services to plastics injection molders
around the world. The potential size of this market is estimated to be
approximately $50 billion annually. This electronic marketplace aims to
reduce transaction costs for customers around the world who buy and
sell thermoplastic raw materials, other materials used in manufacturing
plastics, molding equipment, tooling, maintenance supplies, packaging
materials and other related services. The new company will initially
serve customers in North America, and plans to expand quickly to
Europe, Asia and the rest of the world.
- yet2.com:
BASF is a member of the www.yet2.com consortium for marketing
technologies via the Internet. This first global marketplace for
technology intellectual property was established by the U.S. company
yet2.com Inc. of Cambridge, Massachusetts. Members of the consortium,
as well as other companies, offer their technologies to yet2.com for
marketing on the Internet. BASF expects technologies that it has
developed but has not yet exploited commercially to be better used as a
result of this new marketing method.
97
104
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 sites:
PRODUCTION
----------------
LOCATION ACREAGE SITES
-------- ------- -----
Ludwigshafen, Germany....................................... 1,760 350
Antwerp, Belgium............................................ 1,470 50
Tarragona, Spain............................................ 240 15
Geismar, Louisiana.......................................... 2,290 10
Freeport, Texas............................................. 510 18
A Verbund site is currently under construction in Kuantan, Malaysia, with
the joint venture partner Petronas. BASF also plans to build a Verbund site in
Nanjing, China, with its 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
12 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)" on pages F-64 to F-74.
98
105
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
Specialty Chemicals
Styrenic Polymers
Engineering Plastics
Fiber Products
Colorants
Dispersions
Fine Chemicals
Agricultural Products
Besigheim Colorants
Cologne Colorants
Lemforde Polyurethanes
Minden Fine Chemicals
Munster-Hiltrup Coatings
Schwarzheide Intermediates
Styrenic Polymers
Dispersions
Engineering Plastics
Polyurethanes
Coatings
Agricultural Products
Stuttgart-Feuerbach Colorants
Willstatt Colorants
Belgium Antwerp(1) Petrochemicals
Inorganics
Intermediates
Specialty Chemicals
Styrenic Polymers
Polyurethanes
Fiber Products
Dispersions
Denmark Ballerup Fine Chemicals
Grenaa Fine Chemicals
France Clermont de l'Oise Coatings
Colorants
Genay Agricultural Products
Gravelines Agricultural Products
Mitry-Mory Polyurethanes
Italy Bibbiano Styrenic Polymers
Burago Coatings
Cesano Maderno Colorants
Cinisello Balsamo Colorants
Villanova d'Asti Polyurethanes
Zingonia Polyurethanes
99
106
REGION/ COUNTRY PRODUCTION SITE LOCATION DIVISION ACTIVITIES
- --------------- ------------------------ -------------------
The Netherlands Apeldoorn Dispersions
Moerdijk Polyurethanes
Spain Guadalajara Coatings
Hospitalet Colorants
Rubi Polyurethanes
Tarragona(1) Agricultural Products
Petrochemicals
Intermediates
Styrenic Polymers
Engineering Plastics
Dispersions
United Kingdom Alfreton Polyurethanes
Ashbourne Fine Chemicals
Cramlington Fine Chemicals
Seal Sands Fiber Products
Slinfold Colorants
North America
Canada Arnprior, Ontario Fiber Products
Windsor, Ontario Coatings
Mexico Altamira Styrenic Polymers
Engineering Plastics
Colorants
Dispersions
Lerma Polyurethanes
Specialty Chemicals
Tultitlan Coatings
United States Anderson, South Carolina Fiber Products
Beaumont, Texas Agricultural Products
Clemson, South Carolina Fiber Products
Polyurethanes
Freeport, Texas(1) Intermediates
Engineering Plastics
Fiber Products
Dispersions
Geismar, Louisiana(1) Petrochemicals
Intermediates
Polyurethanes
Specialty Chemicals
Fine Chemicals
Hannibal, Missouri Agricultural Products
Joliet, Illinois Styrenic Polymers
Monaca, Pennsylvania Dispersions
Morganton, North Carolina Coatings
Port Arthur, Texas(2) Petrochemicals
South Brunswick, New Jersey Styrenic Polymers
Wyandotte, Michigan Styrenic Polymers
Polyurethanes
Engineering Plastics
Fine Chemicals
100
107
REGION/ COUNTRY PRODUCTION SITE LOCATION DIVISION ACTIVITIES
- --------------- ------------------------ -------------------
South America
Argentina Buenos Aires Polyurethanes
General Lagos Rosario Styrenic Polymers
Colorants
Dispersions
Specialty Chemicals
Tortuguitas Coatings
Brazil Camacari Intermediates
Petrochemicals
Guaratingueta Intermediates
Styrenic Polymers
Colorants
Dispersions
Agricultural Products
Specialty Chemicals
Paulina Agricultural Products
Resede Agricultural Products
Sao Bernardo do Campo Coatings
Polyurethanes
Sao Jose dos Campos Styrenic Polymers
Chile Concon Styrenic Polymers
Dispersions
Santiago Styrenic Polymers
Asia-Pacific
China Caojing(3)(4) Polyurethanes
Nanjing(4) Styrenic Polymers
Nanjing(1)(3)(4) Petrochemicals
Dispersions
Specialty Chemicals
Intermediates
Shanghai(4) Colorants
Fiber Products
Coatings
Dispersions
Shenyang(4) Fine Chemicals
India Mangalore Colorants
Dispersions
Mumbai (Bombay) Colorants
Thane Styrenic Polymers
Colorants
Specialty Chemicals
Agricultural Products
Indonesia Ceng Kareng(2)(3) Dispersions
Japan Shinshiro Polyurethanes
Totsuka(3)(4) Coatings
Yokkaichi Intermediates
Dispersions
Fine Chemicals
101
108
REGION/ COUNTRY PRODUCTION SITE LOCATION DIVISION ACTIVITIES
- --------------- ------------------------ -------------------
Korea Kunsan Fine Chemicals
Ulsan Intermediates
Styrenic Polymers
Engineering Plastics
Polyurethanes
Yeochun Polyurethanes
Malaysia Kuantan(1)(2)(4) Intermediates
Dispersions/Petrochemicals
Pasir Gudang(4) Styrenic Polymers
Engineering Plastics
Shah Alam(4) Polyurethanes
- ---------------
(1) Verbund site.
(2) Under construction.
(3) Planned.
(4) Plant is owned; land is leased.
DISCONTINUED OPERATIONS
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 2 to the Consolidated
Financial Statements. 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 following table lists the
significant BASF production sites relating to the discontinued pharmaceutical
activities:
REGION/ COUNTRY PRODUCTION SITE LOCATION
- --------------- ------------------------
Europe
Germany Ludwigshafen
Uetersen
Italy Liscate
Spain Madrid
Switzerland Liestal
San Antonino
North America
Mexico Mexico City
Puerto Rico Jayuya
United States Bishop, Texas
Whippany, New Jersey
Wyandotte, Michigan
102
109
REGION/ COUNTRY PRODUCTION SITE LOCATION
- --------------- ------------------------
South America
Brazil Jacarepagua/Rio de Janeiro
Colombia Bogota
Asia Pacific
India Jejuri(1)
Goa(1)
Japan Katsuyama
Pakistan Karachi
- ---------------
(1) Plant is owned; land is leased.
103
110
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
OVERVIEW
BASF is a return-focused global company generating long-term growth and
profitability from its chemical businesses, positioning itself for continuing
growth in agriculture and nutrition and strengthening its presence in European
and other oil and gas markets. The company offers a wide range of products,
including high-value chemicals, plastics, colorants, automotive coatings,
agricultural products, fine chemicals, petrochemicals, crude oil and natural
gas.
BASF's strategy is to be globally competitive. BASF has expanded its
worldwide presence in response to the needs of its customers and presently
maintains business ties with customers in more than 170 countries and operates
sites in 39 countries. This globalization also exposes BASF to different
economic cycles in various regions and has had a stabilizing effect on BASF's
profitability.
BASF conducts its worldwide operations through five business segments,
which encompass 15 operating divisions. These operating divisions have been
aggregated into seven reportable operating segments based on the nature of the
products and production processes, on the type of customers, on the channels of
distribution and on the nature of regulatory environment.
The reportable operating segments are:
- Chemicals
- Plastics & Fibers
- Colorants & Finishing Products
- Agricultural Products (formerly known as "Crop Protection")
- Fine Chemicals
- Pharmaceuticals
- 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 2 to the Consolidated
Financial Statements. 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.
CHEMICALS
In the Chemicals segment, profitability is determined by the margins
between prices for raw materials, particularly steamcracker 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. The Chemicals segment's long-term profitability also depends on its
ability to compete globally.
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 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
104
111
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 existing Verbund sites and building new ones in emerging
markets.
The Chemicals segment sells approximately 30% 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 structure 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 steamcrackers, such as ethylene and propylene, and the prices of the polymer
end-products.
Due to increasing price competition and the resulting margin pressure, 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 margins in this
segment by means of restructuring programs aimed at replacing smaller, less
efficient plants.
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.
COLORANTS & FINISHING PRODUCTS
The profitability of the Colorants & Finishing Products segment is
determined both by prices in value-adding chains based on acrylic acid and by
BASF's ability to offer its customers innovative solutions. BASF is one of the
world's largest producers of acrylic acid and its derivative products.
The profitability of commodity and commodity-like products in this segment
is determined mainly by the segment's production technology and costs. Through
production in world-scale plants and the use of advanced technology, BASF
maintains its status as a low-cost, global producer.
The segment also produces a number of specialty products which are
relatively insensitive to economic cycles. The critical success factors for
these products are application technology, product innovation and strong
customer relationships.
105
112
HEALTH & NUTRITION: AGRICULTURAL PRODUCTS, FINE CHEMICALS AND PHARMACEUTICALS
In the Health & Nutrition business segment, which is generally
non-cyclical, profitability depends on BASF's ability to successfully bring new
products to market as quickly as possible, to produce these products in a
cost-efficient manner and to achieve a solid market position in specific
application areas. To achieve ongoing product innovation in the segment, BASF
has substantially increased its research spending in recent years and has
entered into cooperations, partnerships and licensing agreements for the
development and use of new product technologies. BASF is investing in new
state-of-the-art plants, both on its own and with partners, to achieve economies
of scale. 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.
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 use of its prospecting
expertise to increase and focus its exploration and production activities on
sites where there is a high probability of discovering and extracting oil and
gas deposits.
Key factors affecting the profitability of the natural gas distribution and
trading business are BASF's access to large gas reserves, the timely expansion
of its pipeline grid in Germany, the potential deregulation 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.
The profitability of BASF and its operating segments can be affected by
changes in currency exchange rates. See "Item 5. Operating and Financial Review
and Prospects -- Exchange Rate Exposure and Risk Management." included in this
Annual Report.
106
113
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) and the German Stock Corporation Act (Aktiengesetz). In
connection with the continued internationalization of BASF's accounting and
disclosure policies, some of BASF's accounting and valuation principles were
adjusted as of January 1, 1998 to comply with U.S. GAAP to the extent
permissible under the German Commercial Code.
The adjustments to BASF's accounting and valuation principles relate
primarily to:
- a revaluation of BASF's pension commitments using the projected unit
credit method required by SFAS (Statement of Financial Accounting
Standards) No. 87, "Employers' Accounting for Pensions"; and
- the capitalization of deferred tax assets.
The adjustments also include:
- the elimination of the effects of any accounting and valuation methods
allowed exclusively for tax purposes;
- the conversion of short-term foreign currency receivables and liabilities
at year-end exchange rates;
- the accrual of provisions for the overhauling of large manufacturing
plants within prescribed intervals; and
- the recording of deferred taxes arising from the above accounting
changes.
These adjustments reflect the primary differences between German GAAP and
U.S. GAAP that affected the BASF financial statements. There are certain other
differences relating to 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, 2000 and 1999 are described in Note 3 to the Consolidated Financial
Statements included in Item 18.
The segment information presented in this report reflects the
implementation of SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." Transfers between operating segments are generally valued
at market-based prices, and the revenues generated by these transfers are shown
in the tables below as "intersegmental transfers."
In 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." It requires that
all derivative instruments be recorded at fair value as either assets or
liabilities in the statement of financial position. This Statement was amended
by Statement No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of FASB Statement No. 133." The standard will
be effective for BASF beginning January 1, 2001. BASF is evaluating the effect
Statement No. 133 will have 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.
107
114
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 as
well as with "Item 8. Financial Information" included in this Annual Report.
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
2000 YEAR 1999 YEAR 1998
--------- -------- --------- -------- ---------
(EUROS IN MILLIONS, EXCEPT PER SHARE DATA)
Sales................................ E35,945.7 22.0 E29,472.7 6.6 E27,642.9
Gross profit......................... 12,690.6 14.5 11,081.4 6.9 10,368.4
Gross profit as a percentage of sales
(%)................................ 35.3 37.6 37.5
Income from operations............... E 3,069.7 52.8 E 2,008.7 (23.4) E 2,623.7
Income from operations as a
percentage of sales (%)............ 8.5 6.8 9.5
Special items........................ E (330) E (941) E 71
Income before taxes and minority
interests.......................... 2,827.4 8.5 2,605.5 (6.0) 2,770.8
Net income........................... 1,239.8 0.2 1,236.8 (27.2) 1,699.4
Net income as a percentage of sales
(%)................................ 3.4 4.2 6.1
Basic earnings per share............. E 2.02 1.0 E 2.00 (26.7) E 2.73
Net income in accordance with U.S.
GAAP............................... 1,453.6 9.7 1,324.8 (25.2) 1,771.0
Basic earnings per share in
accordance with U.S. GAAP.......... 2.37 10.7 2.14 (24.7) 2.84
Diluted earnings per share in
accordance with U.S. GAAP.......... 2.35 10.8 2.12 (24.0) 2.79
In 2000, special items recorded in other operating expenses and other
operating income include 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
Corporation. 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(R) polypropylen technology of Targor to an international consortium, the
sale of the Kraton(R) 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
108
115
and for the thyroid medication Synthroid(R) in the Pharmaceuticals segment. A
further E310 million relate 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(R) specialty fertilizer business.
In 1998, special items recorded in other operating expense and other
operating income were E71 million. They primarily refer to E169 million in gains
from divestitures in the Colorants & Finishing Products segment and in the
Plastics & Fibers segment. They also include additional income of E86 million
from adjustments in the salary and pension benefit systems. This special income
was partially offset by E90 million in charges from restructuring in the
Plastics & Fibers segment and in the Colorants & Finishing Products segment and
a loss of E94 million from impairments and other asset write-downs.
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.
The following table sets forth the various factors affecting the change in
sales:
2000
----------------------------
IN MILLIONS AS % OF SALES
----------- -------------
Volume..................................................... E1,902 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)
------- ----
E6,473 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 Corporation (AHP);
- the superabsorbents manufacturer Chemdal International Corporation; and
- the industrial coatings business of Rohm and Haas Co.
Divestitures reduced sales by E1,919 million in 2000. Divestitures
included:
109
116
- the sale of the marketing and refinery business in the Oil & Gas segment
at the end of 1999;
- the sale of the Compo(R) 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 dyes business to DyStar GmbH 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.
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 to 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 to 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 to E2.00 in 1999. See
Note 3 to the Consolidated Financial Statements for a summary of the principal
adjustments that would be required if U.S.
110
117
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.
1999 COMPARED WITH 1998
Sales
Sales (net of petroleum and natural gas taxes) rose 6.6% in 1999 to E29,473
million from E27,643 million in 1998.
The following table sets forth the various factors affecting the change in
sales:
1999
----------------------------
IN MILLIONS AS % OF SALES
----------- -------------
Volume..................................................... E1,597 5.8
Prices..................................................... (1,078) (3.9)
Currency exchange.......................................... 442 1.6
Acquisitions and additions to scope of consolidation....... 1,288 4.7
Divestitures and deconsolidations.......................... (419) (1.6)
------- ----
E1,830 6.6
Sales volumes, which rose 5.8% in 1999, were the primary cause for the
increase in sales. Sales volumes rose particularly in the Plastics & Fibers
segment, reflecting improved worldwide business conditions.
The increase in volumes was partially offset by a 3.9% decrease in prices.
This decrease started in the second half of 1998 and continued during the first
half of 1999. All reportable segments, except the Oil & Gas segment and the
Pharmaceuticals segment, were affected. In the Oil & Gas segment, sharply higher
crude oil prices, particularly in the second half of 1999, increased sales. This
segment contributed 1.3% to the overall improvement of BASF sales.
The combined effect of acquisitions, divestitures and changes in the scope
of consolidation contributed 3.1 percentage points to the increase in sales.
Currency translation effects, mainly resulting from the strength of the
U.S. dollar and from the appreciation of the Japanese yen and the Korean won but
partially offset by the depreciation of the Brazilian real, added E442 million
to sales.
Acquisitions contributed E627 million to sales in 1999. The acquisitions
included the purchasing of:
- the Hostalen polyethylene business of Hoechst AG through Elenac, a 50-50
joint venture with Shell Petroleum N.V.;
- the superabsorbents business of Clariant International Ltd.;
- the ABS plastics business of DSM N.V.;
- the chelating agents business of CIBA Specialty Chemicals;
- the paracetamol business of Celanese AG;
- a majority interest in the generic crop protection products supplier,
Micro Flo Co.;
- the animal nutrition business of Takeda Kagaku Shiryo;
111
118
- the lysine business of Daesang; and
- the polyol business of Dongsung Chemical.
Divestitures reduced sales by E331 million in 1999. The divestitures
included selling:
- a 35% stake in Comparex Informationssysteme GmbH, including four
subsidiaries;
- the glass-mat-reinforced thermoplastic business to Symalit;
- the container coatings business of BASF Coatings BV to PPG.
Additions to the scope of consolidation contributed E573 million to sales.
See Note 1(b) to the Consolidated Financial Statements for further information
on the companies that were consolidated for the first time in 1999 and the
effects thereof on the Consolidated Financial Statements.
Gross Profit
Gross profit rose 6.9% in 1999 to E11,081 million from E10,368 million in
1998. Gross profit as a percentage of sales remained substantially unchanged at
37.6%. The 6.5% increase in costs of goods sold was primarily due to higher raw
material costs, but it was more than offset by the higher sales in 1999.
Income from Operations
Income from operations fell 23.4% in 1999 to E2,009 million from E2,624
million in 1998, due to higher other operating expenses, which were partially
offset by other operating income. Other operating expenses reduced by other
operating income increased 154.7% in 1999 to E1,783 million from E700 million in
1998. This increase was primarily due to special items included in other
operating expenses as well as in other operating income. Total special items
resulted in a charge of E941 million to income from operations in 1999, as
previously discussed.
Excluding the effect of special items of E71 million in 1998 and E(941)
million in 1999, income from operations increased primarily due to the large
increase in income from operations in the Oil & Gas segment from E276 million in
1998 to E741 million in 1999. As a result of sharply higher crude oil prices,
income from operations increased in both the oil and gas exploration and
production business as well as in the oil marketing and refinery business.
Income before Taxes
Income before taxes fell 6.0% in 1999 to E2,606 million from E2,771 million
in 1998. This decrease was due to the decline in income from operations that was
partially offset by an improvement in the 1999 financial result to E597 million
from E147 million in 1998. The 1999 financial result included income from the
sale of BASF's stake in the German gasoline station network, ARAL AG, which was
part of the sale of BASF's oil marketing and refinery business to VEBA OEL AG of
Germany, as well as its stake in IVAX Corporation of the United States. These
effects were partially offset by a decline of the interest result in 1999 from a
gain of E108 million in 1998 to a loss of E108 million in 1999. This decline was
due to the absence of E122 million in one-time gains from the sale of securities
and swaps that were realized in 1998 and also due to higher interest expense
from increased financial indebtedness during 1999.
112
119
Net Income/Earnings Per Share
The effective tax rate for 1999 rose to 52.2% in 1999 from 39.9% in 1998,
and led to a 22.9% increase in income tax expense in 1999 to E1,360.8 million
from E1,106.8 million in 1998. This increase was primarily due to higher taxes
on the increased income from BASF's oil producing operations that are not fully
deductible from German corporation taxes. Further increases resulted from the
reduction in the deferred tax rates for German group companies to 52% compared
with 56% in 1998. Deferred tax assets were reduced accordingly, resulting in
higher income tax expense.
Net income in 1999 declined 27.2% to E1,236.8 million from E1,699 million
in 1998. Basic earnings per share fell 26.7% to E2.00 in 1999 from E2.73 in
1998. See Note 3 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 1999 was E1,324.8
million, or E2.14 per share.
CHEMICALS
SEGMENT DATA
(EUROS IN MILLIONS)
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
2000 YEAR 1999 YEAR 1998
------ -------- ------ -------- ------
Sales to third parties................... E5,789 30.9 E4,423 2.9 E4,300
Intersegmental transfers................. 2,363 25.6 1,882 (3.7) 1,955
Sales incl. intersegmental transfers..... 8,152 29.3 6,305 0.8 6,255
Income from operations................... 713 (3.3) 737 (23.3) 961
Operating margin (%)..................... 12.3 16.7 22.3
Assets................................... E4,999 21.6 E4,112 18.1 E3,483
Return on operational assets (%)......... 15.6 19.4 28.9
Research and development expenses........ E 147 (1.3) E 149 0.7 E 148
2000 COMPARED WITH 1999
Segment Overview
In mid 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
Others (the former Fertilizers division) to the Inorganics division. The segment
reporting for 2000 and 1999 reflects this reorganization.
The Petrochemicals division manufactures cracker products, industrial
gases, solvents and plasticizers. The new Inorganics division manufactures
inorganic chemicals, catalysts, glues and impregnating resins, as well as the
Catamold(R) line of products for powder injection molding in metal and ceramic
components.
In the Chemicals segment, sales to third parties rose 30.9% in 2000 to
E5,789 million from E4,423 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 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.
113
120
Intersegmental sales increased 25.6% in 2000 to E2,363 million from E1,882
million in 1999, reflecting higher transfer prices for cracker products from the
Petrochemicals division.
Income from operations decreased 3.3% in 2000 to E713 million from E737
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 more than 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 12.3% from 16.7% in
1999.
Further developments in the Chemicals segment's income from operations will
continue to depend on the development of crude oil prices. For 2001, BASF
anticipates a lower average crude oil price per barrel than in 2000. The
Chemicals segment's sales and income from operations will significantly depend
on BASF's ability to pass higher raw material costs on to customers through
higher prices for its products, to further improve on its strong global position
and to fully utilize plant capacity -- in particular for products affected by
surplus capacities, such as oxo C4 alcohols, plasticizers and glycols.
In 2000, the Chemicals segment's assets increased by 21.6% to E4,999
million from E4,112 million in 1999, which reflects significant investments made
by BASF with the goal of expanding this segment's business.
Petrochemicals
The segment reporting for 2000 and 1999 reflects the mid 2000
reorganization of the former Petrochemicals & Inorganics and Industrial
Chemicals divisions into the Inorganics and Petrochemicals divisions.
In the Petrochemicals division, sales to third parties in 2000 increased
77.5% to E1,773 million from E999 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.
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 steamcracker 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 C4
alcohol complex in Kuantan, Malaysia.
With the startup of the steamcracker in Port Arthur, Texas, during the
second half of 2001, BASF expects sales to increase substantially in 2001 and
2002. Due to startup costs, income from operations is expected to decline in
2001, but is expected to make a significant contribution to the Chemical
segment's income from operations in subsequent years.
Inorganics
The segment reporting for 2000 and 1999 reflects the mid 2000
reorganization of the former Petrochemicals & Inorganics and Industrial
Chemicals divisions into the Inorganics and Petrochemicals divisions. As part of
this reorganization, technical nitrogen products were transferred from Others
(the former Fertilizers division) to the Inorganics division.
114
121
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 the price of 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.
For 2001, BASF expects sales in the Inorganics division to remain strong,
with income from operations increasing slightly due primarily to strong growth
in demand for inorganic specialties and electronic grade chemicals.
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.
Given rising demand for BASF's products, which BASF expects to meet through the
startup of several new plants by the end of 2002, as well as higher selling
prices, BASF expects that the Intermediates division will improve income from
operations in 2001. Subject to approval by the European regulatory authorities,
BASF will acquire the butanediol, phthalic anhydride and plasticizers activities
of the SISAS Group in Feluy, Belgium. BASF expects the costs of the integration
to result in special charges in 2001.
Specialty Chemicals
In the Specialty Chemicals division, sales to third parties in 2000 rose
18.5% to E1,670 million from E1,409 million in 1999, primarily due to higher
sales volumes and to positive currency effects of approximately 8%. Improved
prices - in particular for surfactants, chelates, and polymeric additives - also
contributed to the sales increase.
Increases in raw material costs - in particular for ethylene and
propylene - could only be passed on in higher prices to customers to a limited
extent and after a period of delay. As a result, income from operations fell.
In the market for glycols, operations providing additional production
capacity are scheduled to start up, which will maintain downward price pressure.
Nevertheless, BASF expects that in 2001 on a comparable basis, the Specialty
Chemicals division will make an improved contribution to the Chemicals segment's
income from operations due to higher sales.
1999 COMPARED WITH 1998
Segment Overview
In mid 2000 the former Petrochemicals & Inorganics and the Industrial
Chemicals divisions were reorganized into the Inorganics and the Petrochemicals
division. As part of this reorganization, technical nitrogen products were
transferred from Others (the former Fertilizers division) to the Inorganics
division. The segment reporting for 1999 and 1998 reflects this reorganization.
115
122
The new Petrochemicals division manufactures cracker products, industrial
gases, solvents and plasticizers. The new Inorganics division manufactures
inorganic chemicals, catalysts, glues and impregnating resins, as well as the
Catamold(R) line of products for powder injection molding in metal and ceramic
components.
In the Chemicals segment, sales to third parties rose 2.9% in 1999 to
E4,423 million from E4,300 million in 1998 due to higher sales in all operating
divisions. This increase in sales was attributable to higher sales volumes
resulting from improved business conditions worldwide in the second half of the
year, especially in the last quarter. The effect of higher sales volumes was
partially offset by a drop in prices during the first half of 1999, mainly due
to industry-wide oversupply caused by weak global demand. The Specialty
Chemicals division was the major contributor to the segment's increase in sales.
Intersegmental transfers fell 3.8% in 1999 to E1,882 million from E1,955 million
in 1998. Operating margins including intersegmental transfers were 11.2% in 1999
compared to 15.9% in 1998. These decreases were, primarily due to lower
intersegmental transfer prices in the Petrochemicals & Inorganics division as a
result of lower market prices for products manufactured in steamcrackers,
especially in the first half of the year.
Income from operations decreased 23.3% in 1999 to E737 million from E961
million in 1998. Income from operations remained substantially unchanged in the
Specialty Chemicals division, but income from operations decreased in 1999 in
all other divisions of the Chemicals segment. These decreases were due to a drop
in sales prices for the divisions' products during the first half of 1999 and to
substantially higher raw material costs in the second half of 1999. These higher
raw material costs, especially for steamcracker feedstock, eroded margins, since
market conditions enabled BASF to increase product prices only in the fourth
quarter of 1999, and then only to a limited extent. Assets of the Chemicals
segment rose 18.1% in 1999 to E4,112 million from E3,483 million in 1998
primarily due to significant additions to tangible fixed assets in the
Petrochemicals & Inorganics and Intermediates divisions, as discussed below.
Research and development expenses remained substantially unchanged in 1999.
Petrochemicals
The segment reporting for 1999 and 1998 reflects the mid 2000
reorganization of the former Petrochemicals & Inorganics and Industrial
Chemicals divisions into the Inorganics and Petrochemicals divisions. In the
Petrochemicals division, sales to third parties rose 0.7% in 1999 to E999
million from E992 million in 1998. After the decline in prices for the
division's products in 1998, prices for products manufactured in steamcrackers
increased at a constant rate, especially in the third and fourth quarters of
1999. Prices for steamcracker feedstock, however, rose at a significantly higher
rate, resulting in lower steamcracker operating margins. As discussed in the
segment overview, margins have begun to recover since the fourth quarter of
1999.
The Petrochemicals division was a substantial contributor to the segment's
decrease in income from operations in 1999. This decrease was due to the erosion
of steamcracker margins.
In the Petrochemicals division, capital expenditures on fixed assets
increased significantly in 1999. This increase was due to the start-up of a new
acetylene plant in Geismar, Louisiana, and the ongoing construction of a
steamcracker with BASF's partner, TotalFinaElf S.A., in Port Arthur, Texas, as
well as the completion of the aromatics extraction unit within BASF's
steamcracker in Antwerp, Belgium.
Inorganics
The segment reporting for 1999 and 1998 reflects the mid 2000
reorganization of the former Petrochemicals & Inorganics and Industrial
Chemicals divisions into the Inorganics and Petrochemicals divisions. As part of
this reorganization, technical nitrogen products were transferred from Others
(the former Fertilizers division) to the Inorganics division.
116
123
In the Inorganics division, sales to third parties rose 0.7% in 1999 to
E543 million from E539 million in 1998. The Inorganics division was a major
contributor to the Chemicals segment's decrease in income for operations in
1999. Price and margin pressure resulted from excess manufacturing capacity
industry-wide and from continued price competition for almost all the division's
products.
Capital expenditures on tangible fixed assets in the Inorganics division
related to the expansion of the production site for formaldehyde in
Ludwigshafen, Germany.
Intermediates
In the Intermediates division, sales to third parties in 1999 increased
2.2% to E1,472 million from E1,441 million in 1998. This increase was primarily
due to higher demand for amines and higher sales of diols in a growing market.
The Intermediates division was a substantial contributor to the Chemicals
segment's decline in income from operations, primarily because of price
competition, which decreased prices for the division's products, and because of
higher costs for the division's raw materials. Due to increasing demand, BASF
expects margins to improve in 2000. Income from operations in 1999 included a
special depreciation charge for the impairment of tangible fixed assets. This
special depreciation charge resulted from a re-appraisal of BASF's property
adjacent to its production site in Yokkaichi, Japan, which reflected lower
market prices.
The division's capital expenditures rose 53.5% in 1999, primarily due to
the start-up of a new butanediol/tetrahydrofuran plant in Ulsan, Korea. Further
additions to tangible fixed assets included expanding capacities of alkylamines
in Ludwigshafen, Germany; ethylamines in Antwerp, Belgium; and
polytetrahydrofuran in Geismar, Louisiana.
Specialty Chemicals
Sales to third parties in the Specialty Chemicals rose 6.1% in 1999 to
E1,409 million from E1,328 million in 1998. This increase was mainly due to
higher sales volumes, especially for surfactants, as well as to higher prices
for ethylene glycol resulting from improved market conditions. Sales in 1999
included additional sales from the chelating agents business in North America,
which was acquired from CIBA in the second half of 1998, and from additions to
the scope of consolidation. These additional sales were offset by the transfer
of superabsorbents sales at the end of 1998 from the Specialty Chemicals
division to the Dispersions division of the Colorants & Finishing Products
segment. Excluding these effects, sales to third parties increased approximately
6% in 1999. The effects of the higher sales on income from operations in the
Specialty Chemicals division was partially offset by lower income from the
lubricant additives business as a result of intense competition, especially in
the United States.
Capital expenditures in the Specialty Chemicals division rose 59.5% in
1999. Important additions to the tangible fixed assets included the ongoing
expansion of ethylene oxide and ethylene glycol production sites in Geismar,
Louisiana.
117
124
PLASTICS & FIBERS
SEGMENT DATA
(EUROS IN MILLIONS)
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
2000 YEAR 1999 YEAR 1998
------- -------- ------ -------- ------
Sales to third parties...................... E11,030 27.8 E8,628 12.6 E7,663
Intersegmental transfers.................... 490 29.6 378 0.8 375
Sales incl. intersegmental transfers........ 11,520 27.9 9,006 12.0 8,038
Income from operations...................... 889 38.0 644 18.2 545
Special items............................... 101 2 19
Operating margin (%)........................ 8.1 7.5 7.1
Assets...................................... E 6,009 (12.2) E6,843 37.3 E4,983
Return on operational assets (%)............ 13.8 10.9 11.6
Research and development expenses........... E 167 (7.2) E 180 (4.3) E 188
2000 COMPARED WITH 1999
Segment Overview
The ammonium sulfate business, which -- as part of the Fertilizers business
- -- was formerly included in Others, was transferred on June 1, 2000 to the Fiber
Products division. The segment reporting for 2000 and 1999 reflects this
reorganization.
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 Styrenic Polymers 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 38% to
E889 million from E644 million in 1999, with the Styrenic Polymers division
making the greatest contribution. The increase 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(R) polypropylene technology and the sale of
Elenac's Kraton(R) polymers business.
For 2001, BASF expects global demand for plastics to grow by over 5%. In
Asia and South America, growth is expected to be even stronger. Due to BASF's
established position in these regions, the Plastics & Fibers division is
expected to benefit strongly from this development. Therefore, BASF anticipates
that in 2001, income from operations on a comparable basis will continue to
rise.
118
125
In 2000, assets of the Plastics & Fibers segment declined 12.2% to E6,009
million from E6,843 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 Styrenic Polymers divisions.
Styrenic Polymers
In the Styrenic Polymers division, sales to third parties in 2000 rose
51.5% to E2,768 million from E1,827 million in 1999. This increase was driven
primarily by higher prices of 34% and a 7% improvement in sales volumes. Demand
for polystyrene 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 Styrenic Polymers 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 Styrenic Polymers
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.
For 2001, BASF expects that demand for the Styrenic Polymers division's
products will continue to grow in all regions. The division expects to meet this
growing demand by expanding its production capacity. Prices for the division's
products will depend to a great extent on the price of crude oil and on the
extent to which higher raw material costs can be passed on to customers through
higher prices for products.
The development in the cost of raw materials could have an uncertain impact
on the division's income from operations.
Engineering Plastics
In the Engineering Plastics division, sales to third parties in 2000 rose
38.6% to E1,769 million from E1,276 million in 1999. Sales increased in all
regions and in all product lines. Improved sales volumes, above all for products
for the automotive and electronics industries, accounted for a 20% increase in
sales. During the course of the year, the division raised prices for its
products in order to pass on the effects of higher raw material costs. Positive
currency effects contributed approximately 9% to the increase in sales in 2000.
In the first quarter of 1999, BASF acquired the ABS
(acrylonitrile-butadiene-styrene) business from DSM of the Netherlands.
Excluding this acquisition, sales of the Engineering Plastics division increased
approximately 36% in 2000 on a comparable basis.
Income from operations in the Engineering Plastics division was lower than
in 1999. The effect of higher sales on income from operations was more than
offset by increasing raw material costs. In 2001, BASF expects sales and income
from operations in the Engineering Plastics division to increase due to higher
capacity utilization of new plants in North America and Malaysia as well as the
start up of new plants in Europe. The division also expects to generate a
significantly larger share of its sales through e-commerce.
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
119
126
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 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.
BASF anticipates that sales and income from operations in the Polyurethanes
division will increase in 2001, however, increases in the cost of raw materials
during the first quarter of 2001 may pose a risk if such increases continue.
Fiber Products
In the Fiber Products division, sales to third parties in 2000 rose 26.4%
to E1,628 million, from E1,288 million in 1999. About 17% of the increase in
sales was due to price increases and approximately 8% to the strength of the
U.S. dollar. An approximately 1% increase in sales volumes related to the
economic recovery that began in Asian markets in the second half of 1999. Sales
increased in all regions, with the strongest showings 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 Fiber Products division increased its income from
operations significantly and therefore made a greater contribution to income
from operations of the Plastics & Fibers segment.
BASF expects sales and income from operations in the Fiber Products
division to remain flat. Following on the strong performance in 2000, demand, in
Asia in particular, may decline slightly. Nevertheless, BASF believes that the
division is well positioned due to its very competitive manufacturing costs for
fiber intermediates, and its portfolio of high performance polymers.
Polyolefins
Data for the Plastics & Fibers segment only include the Polyolefins
business for the first three quarters of 2000.
On a comparable basis, the Polyolefins division's sales to third parties
for the first nine months of 2000 rose 45.6% to E2,067 million from E1,420
million for the first nine months of 1999. Sales increased above all in Europe.
Nevertheless, price increases were not sufficient to compensate for a sharp rise
in raw material costs.
The Polyolefins division made a positive contribution to the Plastics &
Fibers segment's income from operations due, in large part, to special income
from the divestitures mentioned above.
120
127
1999 COMPARED WITH 1998
Segment Overview
On June 1, 2000 the ammonium sulfate business, which was formerly
integrated in Others, was integrated in the Fiber Products division. The segment
reporting for 1999 and 1998 reflects this reorganization.
In the Plastics & Fibers segment, sales to third parties rose 12.6% in 1999
to E8,628 million from E7,663 million in 1998. Sales in all of the segment's
operating divisions rose due to higher sales volumes in 1999 due to higher
demand resulting from improved worldwide business conditions. The impact of
increasing volumes was partially offset by lower prices in the first half of the
year. The polyolefins operations and the Engineering Plastics and Polyurethanes
divisions in particular contributed to this increase. The sales of these three
divisions increased in 1999 primarily due to the addition to BASF's polyolefins
operations of the Hostalen business acquired from Hoechst, the addition to the
Engineering Plastics division of the ABS business acquired from DSM and the
addition to the Polyurethanes division of the polyol business acquired from
Dongsung Chemical and the rigid foam business acquired from ARCO. Excluding
these acquisitions, sales of the Plastic & Fibers segment increased
approximately 9%.
Income from operations rose 18.2% in 1999 to E644 million from E545 million
in 1998 due to increased income from operations in four of the five operating
divisions within the Plastics & Fibers segment. These increases were
attributable to stronger sales and to savings from cost-cutting measures. A
slight decline in income from operations in the Styrenic Polymers division
partially offset the increases in the Plastics & Fibers segment's other
operating divisions. The decline in the Styrenic Polymers division's income from
operations was due to higher depreciation on production plants and to the
absence of gains from divestitures, that were included in the division's income
from operations in 1998. BASF expects demand for the products of the Plastics &
Fibers segment to rise in 2000 due to improving general economic conditions.
Assets of the Plastics & Fibers segment rose 37.3% in 1999 to E6,843
million from E4,983 million in 1998 due to additions to tangible fixed assets in
all regions in which the segment operates and to additions to the scope of
consolidation. Additions to tangible and intangible assets rose in 1999 to E998
from E746 million in 1998. Major capital expenditures on fixed assets included
the following:
Europe
- Construction of a new TDI (toluene diisocyanate) plant in
Schwarzheide, Germany, for the Polyurethanes division.
- Expansion of production capacity for PBT (polybutylene terephthalate)
in Schwarzheide, Germany, for BASF's joint venture with GE Plastics in
the Engineering Plastics division.
- Streamlining polyethylene production and constructing of a new plant
for PE-HD (high-density polyethylene) in Wesseling, Germany, for
BASF's polyolefins operations (through the Elenac joint venture).
- Construction of a new plant for PE-LD (low-density polyethylene) in
Berre, France, for BASF's polyolefins operations (through the Elenac
joint venture).
- Expansion of the production capacities of the polyether polyols plant
in Antwerp, Belgium, for the Polyurethanes division.
- Expansion of the nylon 6 polymerization unit in Antwerp, Belgium, for
the Fiber Products division.
- Modernization of the nylon 6 production and compounding plants in
Ludwigshafen, Germany.
121
128
North and South America
- Expansion of compounding sites in Wyandotte, Michigan, for the
Engineering Plastics division.
- Expansion of the caprolactam plant in Freeport, Texas, for the Fiber
Products division.
- Construction of an additional plant to manufacture MDI
(diphenylmethane diisocyanate) in Geismar, Louisiana, for the
Polyurethanes division.
- Construction of a new styrene copolymers plant in Altamira, Mexico,
for the Engineering Plastics division.
- Expansion of EPS (expandable polystyrene) production capacity in
Guaratingueta, Brazil.
- Additional capacity for the production of HIPS (high-impact
polystyrene) in Sao Jose dos Campos, Brazil.
Asia
- Construction of new compounding sites in Pasir Gudang, Malaysia, for
the Engineering Plastics division.
- Expansion of the polystyrene plant in Nanjing, China, for BASF's joint
venture, Yangzi-BASF Styrenics, for the Styrenic Polymers division.
- Capital contributions made to Basell Eastern, Singapore, a joint
venture between BASF and Shell, for the construction of a plant to
manufacture styrene and propylene oxide in the Engineering Plastics
division.
- Construction of a new plant for TDI in Yosu, Korea.
- Additional capacity for the production of MDI in Yosu, Korea.
- Additional capacity for the production of polyether polyols in Ulsan,
Korea.
Styrenic Polymers
In the Styrenic Polymers division, sales to third parties rose 9.7% in 1999
to E1,827 million from E1,666 million in 1998, primarily due to increased sales
volumes, especially for styrene, polystyrene and EPS (expandable polystyrene)
resulting from higher demand. Sales increased in all regions, especially in
North and South America. Sales to third parties in South America increased in
part due to the inclusion of sales of BASF Poliestireno of Brazil, which was
consolidated for the first time in 1999 and contributed approximately 4% to the
sales increase in 1999. The increase in the division's sales to third parties
was partially offset by a loss of sales resulting from the Styrenic Polymers
division's divestiture of its glass-mat-reinforced thermoplastics business.
Excluding the effects of the new consolidation and the divestiture, sales of the
Styrenic Polymers division increased approximately 7% in 1999.
Income from operations in 1999 fell due to higher depreciation on new
production plants in the United States and Brazil and due to the absence of
gains from divestitures, which were included in the division's income from
operations in 1998. The decrease in income from operations was partially offset
by lower unit costs resulting from higher capacity utilization, cost-cutting
measures and improved margins in the second half of the year.
Engineering Plastics
In the Engineering Plastics division, sales to third parties rose 20.2% in
1999 to E1,276 million from E1,062 million in 1998. Sales increased in all
regions, primarily due to an approximately 26% increase in sales volumes,
particularly from products sold to the automotive and electrical industries.
122
129
The increase in sales volumes was partially offset by an approximately 6%
decrease in sales prices for all products.
The division's 1999 sales to third parties included sales of the ABS
(acrylonitrile-butadiene-styrene) copolymer business acquired in 1999 from DSM
of the Netherlands and sales of the POM (polyoxymethylene) business of Ultraform
Corporation, a former joint venture between BASF and Degussa-Huls. BASF acquired
a 100% ownership interest in this company in 1999. Excluding the effects of
these acquisitions, sales of the Engineering Plastics division rose
approximately 14% in 1999.
The Engineering Plastics division contributed significantly to the
increased income from operations of the Plastics & Fibers segment in 1999,
primarily because of the division's improved operating margins. These improved
margins resulted from higher sales, reduced fixed costs and higher utilization
rates at production plants, including the full utilization of BASF's world-scale
ABS plant in Korea that started operations in 1998.
Polyurethanes
In the Polyurethanes division, sales to third parties rose 10.8% in 1999 to
E2,157 million from E1,996 million in 1998, primarily due to increased sales
volumes in Europe and Asia. Demand was particularly strong for polyurethane
basic materials and polyurethane systems. Increased sales volumes and, to a
lesser extent, positive currency effects from the Korean won contributed 15.4%
to the increase in sales in 1999. These effects, however, were partially offset
by lower sales prices of approximately 4.6%. Sales to third parties included the
sales of four subsidiaries that were consolidated for the first time in 1999.
These sales contributed approximately 3% to the increase. Sales to third parties
also included sales of the European rigid foam business acquired from Arco in
1999 and from the polyol business acquired from Dongsung Chemical. Excluding the
effects of the new consolidations and the acquisition, sales of the
Polyurethanes division increased approximately 5% in 1999.
The Polyurethanes division contributed significantly to the increased
income from operations of the Plastics & Fibers segment in 1999 due to the
division's higher sales and lower raw material costs during the first half of
the year, especially for propylene, benzene and toluene.
Fiber Products
On June 1, 2000 the ammonium sulfate business which was formerly integrated
in Others was integrated in the Fiber Products division. In connection with the
reorganization, the division data presented for 1998 and 1999 was restated to
reflect this new structure.
In the Fiber Products division, sales to third parties remained
substantially unchanged in 1999, rising 1.4% in 1999 to E1,288 million from
E1,271 million in 1998. The recovery in the second half of 1999, first of the
Asian markets and then of the European fiber markets, especially for nylon 6
intermediates, led to higher demand and higher prices, especially in the last
quarter of the year. The increase in sales in the last half of the year,
particularly in the fourth quarter more than offset the decline in the first
half of 1999.
The Fiber Products division contributed significantly to the increased
income from operations of the Plastics & Fibers segment in 1999 due to higher
sales in Asia and Europe as well as reduced fixed costs, especially in North
America.
Polyolefins
Polyolefins sales to third parties rose by 21.0% to E2,080 million in 1999
from E1,719 million in 1998. The increase in sales was due to higher sales
volumes resulting from market growth and to higher prices for polyethylene
products. Sales to third parties in 1999 included sales of the Hostalen
123
130
polyethylene business acquired from Hoechst AG of Germany at the end of 1998.
Excluding the effects of this acquisition, sales rose approximately 8%.
Polyolefins activities contributed significantly to the increased income
from operations of the Plastics & Fibers segment in 1999 due to improved margins
in the second half of the year.
COLORANTS & FINISHING PRODUCTS
SEGMENT DATA
(EUROS IN MILLIONS)
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
2000 YEAR 1999 YEAR 1998
------- -------- ------- -------- -------
Sales to third parties..................... E 7,109 11.2 E 6,395 3.3 E 6,188
Intersegmental transfers................... 265 2.3 259 (11.0) 291
Sales incl. intersegmental transfers....... 7,374 10.8 6,654 2.7 6,479
Income from operations..................... 522 (14.1) 608 (5.3) 642
Special items.............................. (26) (74) 19
Operating margin (%)....................... 7.3 9.5 10.4
Assets..................................... E 5,576 28.4 E 4,343 9.1 E 3,981
Return on operational assets (%)........... 10.5 14.6 16.0
Research and development expenses.......... E 168 5.0 E 160 1.3 E 158
2000 COMPARED WITH 1999
Segment Overview
In the Colorants & Finishing Products segment, sales to third parties in
2000 rose 11.2% to E7,109 million from E6,395 million in 1999. Sales increased
in all regions and for all divisions, but above all for the Dispersions and
Coatings divisions. Positive currency effects -- primarily due to the strength
of the U.S. dollar -- accounted for an increase in sales of approximately 7%.
Sales also 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 Colorants division's textile dyes
operations to DyStar, 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 Colorants & Finishing Products
segment increased approximately 8%.
Income from operations fell 14.1% to E522 million in 2000 from E608 million
in 1999. A drastic increase in the cost of raw materials in particular in the
Dispersions division, could not be fully passed on to customers through higher
prices for the segment's products. Income from operations improved in both the
Coatings and Colorants divisions.
In 2000, assets in the Colorants & Finishing Products segment increased by
28.4% to E5,576 million from E4,343 million in 1999. This increase was mainly
due to the acquisition of the superabsorbents manufacturer Chemdal International
Corporation in the Dispersions 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
124
131
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 last year, was completed in
2000.
Colorants
In the Colorants division, sales to third parties in 2000 rose only 1.6% to
E2,252 million from E2,217 million in 1999 since the textile dyes business,
which was transferred to DyStar, was only included for the first three quarters
of the division's 2000 sales figures.
On a comparable basis, sales to third parties in the Colorants division
increased 6.4% in 2000. Improvements in the division's product portfolio and
high growth rates in Asia's dynamic markets resulted in higher sales volumes and
a subsequent increase of 2% in sales for all product lines, and in particular
for the division's products for the printing and leather industries.
Due to continued stiff competition, sales prices weakened, largely
offsetting the increase in sales volumes. Positive currency effects contributed
approximately 6% to the increase in the division's sales.
In 2000, the Colorants division increased income from operations
considerably due to a substantial improvement in the division's cost structure
as a result of restructuring measures carried out in previous years.
BASF expects sales and income from operations to increase in 2001.
Nevertheless, it is difficult to predict future developments in currency
exchange rates. BASF believes it is well positioned to deal with these
uncertainties based on its strong presence in high growth customer markets.
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 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.
In 2001, BASF expects sales in the Coatings division to increase primarily
due to the new joint venture with NOF Corporation in Japan. The Coatings
division expects to increase income from operations by further improving its
cost structure and achieving synergies from its recent acquisitions. BASF is
relying on new technologies and system solutions to counteract a possible
slowdown in demand in the automotive industry.
Dispersions
In the Dispersions division, sales to third parties in 2000 rose 15.5% to
E2,659 million from E2,302 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
125
132
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 manufacturer Chemdal
International Corporation strengthened BASF's position in this business,
contributing approximately E135 million to the Dispersions division's sales.
Income from operations for the Dispersions 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 Dispersions division increased primarily due to the
acquisition of Chemdal. 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.
For 2001, the Dispersions division expects an improvement in income from
operations due to increases in sales volumes and higher prices. Uncertainties
are related to the development of raw material costs.
1999 COMPARED WITH 1998
Segment Overview
In the Colorants & Finishing Products segment, sales to third parties rose
3.3% in 1999 to E6,395 million from E6,188 million in 1998. Sales increased in
all divisions, especially in the Dispersions division as a result of additional
sales from the acquisition of the superabsorbents business of Clariant
International Ltd. of Switzerland in the fourth quarter of 1998.
Income from operations fell 5.3% to E608 million in 1999 from E642 million
in 1998. Special items of E74 million were charged to income from operations in
1999. These special items resulted from restructuring measures in the Colorants
division and from the closure of BASF's multi-divisional production site in
Medellin, Colombia, which particularly affected income from operations in the
Coatings division. For further information, see Note 22 to the Consolidated
Financial Statements.
To improve the cost structure of the Colorants division, BASF closed
production sites and relocated production capacity to Asia. The most significant
restructuring measure was the closure of the division's site in Ellesmere Port,
United Kingdom. The decision to close the site was announced in the second
quarter of 1999. Completion of the closure is expected at the end of 2000.
Charges from the closure of the Ellesmere Port site consist primarily of
personnel-related costs for approximately 70 employees and write-offs of
tangible fixed assets.
The decision to close the Coatings division's production site in Medellin,
Colombia, was announced in the third quarter of 1999. Completion of the closure
is expected at the end of the first half of 2000. Charges from the closure of
the production site in Medellin consist primarily of personnel related cost for
approximately 70 employees and write-offs of tangible fixed assets. For further
information, see Note 22 to the Consolidated Financial Statements.
Assets of the Colorants & Finishing Products segment increased in 1999 by
9.1% to E4,343 million from E3,981 million in 1998 due to additions to tangible
and intangible fixed assets totaling E324 million, especially in the Dispersions
division. Major capital expenditures included the following:
126
133
Europe
- Construction of new plants to manufacture polymer dispersions in
Ludwigshafen, Germany, for the Dispersions division.
- Construction of new plants to manufacture vinyl formamide and
polyvinylamines for paper chemicals in Ludwigshafen, Germany, for the
Dispersions division.
- Expansion of capacities to manufacture yellow pigments in
Ludwigshafen, Germany, for the Colorants divisionm
North and South America
- Expansion of production capacity for manufacturing acrylate and
styrene/butadiene dispersions in Monaca, Pennsylvania, for the
Dispersions division.
- Construction of a new powder coatings manufacturing plant in
Morganton, North Carolina, for the Coatings division.
- Construction of a new plant to manufacture paper dyes in Altamira,
Mexico, for the Colorants division.
- Construction of a new plant to manufacture butyl acrylate in
Guaratingueta, Brazil, for the Dispersions division.
Asia
- Construction of a new plant to manufacture acrylate dispersions in
Shanghai, China.
Research and development costs in the Colorants & Finishing Products
segment remained substantially unchanged.
Colorants
In the Colorants division, sales to third parties increased slightly in
1999 to E2,217 million from E2,201 million in 1998. Sales rose in Asia due to
increased demand as the region recovered from its economic crisis. These
positive effects were offset by lower sales in Europe due to continuing low
demand and strong price pressure on textile dyes.
Without giving effect to the special items resulting from the restructuring
measures in the Colorants division, this division contributed substantially to
the increase in income from operations of the Colorants & Finishing Products
segment in 1999 as a result of the recovery of the division's business in Asia
and the ongoing improvement of the division's cost structure in all operations.
BASF intends to reorganize the textile dyes business within the Colorants
division by combining its operations with those of DyStar, a joint venture
between Bayer AG of Germany and Hoechst AG of Germany. In addition, BASF intends
to sell the division's masterbatch business, which produces pigment preparations
used to color plastics.
Coatings
In the Coatings division, sales to third parties increased slightly in
1999, by 1.1%, to E1,876 million from E1,855 million in 1998. Sales increased in
all regions other than South America, where sales suffered due to the 21%
devaluation of the Brazilian real against the German mark in 1999. Sales
increases, particularly in automotive coatings, offset entirely the decline in
sales in decorative paints, which was primarily due to the depreciation of the
Brazilian real.
The division's 1999 sales included sales of Salchi Spa, Italy, now known as
BASF Coatings Spa., which was acquired and accounted for under the equity method
in 1998 but was fully
127
134
consolidated for the first time in 1999. Excluding the effect of this
consolidation, the division's sales decreased by approximately 2% primarily due
to the depreciation of the Brazilian real.
Income from operations in the Coatings division decreased as a result of
the effects of the depreciation of the Brazilian real. Income from operations
included special items of approximately E7 million resulting from the closure of
the production site in Medellin, Colombia.
Dispersions
In the Dispersions division, sales to third parties in 1999 rose 8.0% to
E2,302 million from E2,132 million in 1998 due to sales from the superabsorbents
business of Clariant International Ltd. of Switzerland, which was acquired in
the fourth quarter of 1998. Sales rose in all regions.
Despite higher sales, income from operations remained substantially
unchanged because higher raw material prices put pressure on margins. In the
fourth quarter of 1999, margins in the Dispersions division began to improve
when it became possible to pass on higher raw material prices to customers.
Income from operations in 1999 included special items totaling E24 million.
These special items included an impairment loss on tangible fixed assets of the
polyamine plant in Freeport, Texas, for the production of paper chemicals and
special charges from the closure of the multi-divisional site in Medellin,
Colombia.
HEALTH & NUTRITION: AGRICULTURAL PRODUCTS
SEGMENT DATA
(EUROS IN MILLIONS)
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
2000 YEAR 1999 YEAR 1998
------ -------- ------ -------- ------
Sales to third parties....................... E2,428 39.1 E1,745 (0.3) E1,750
Intersegmental transfers..................... 34 (5.5) 36 (26.5) 49
Sales incl. intersegmental transfers......... 2,462 38.2 1,781 (1.0) 1,799
Income from operations....................... (443) 195 (3.9) 203
Special Items................................ (341) (3) (6)
Operating margin (%)......................... 11.2 11.6
Assets....................................... E6,607 239.0 E1,949 12.7 E1,730
Return on operational assets (%) ...... 10.6 12.2
Research and development expenses............ E275 44.7 E190 (2.1) E194
2000 COMPARED WITH 1999
When not accounting for AHP's crop protection business, sales volumes in
the Agricultural Products division (formerly the "Crop Protection" division)
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
128
135
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 step-up to higher market values as well as the
write-down of research in process.
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.
Through the acquisition of AHP's crop protection business, BASF expects to
achieve annual cost savings of approximately E250 million as of 2002, with half
the amount being achieved in 2001. Due to its presence in key markets and in all
crop protection product groups, the Agricultural Products segment expects to
strengthen its market position in all major regions and significantly increase
income from operations in 2001.
1999 COMPARED WITH 1998
In the Crop Protection (renamed "Agricultural Products" on July 1, 2000)
segment, sales to third parties remained substantially unchanged in 1999,
totaling E1,745 million, despite a drop in demand, particularly in North America
and Western Europe. Fungicide sales increased 4% to E549 million, although the
global fungicide market decreased by approximately 5%. Herbicide sales fell 6%
to E900 million in line with the global herbicide market decrease of 7%.
In North America, low agricultural commodity prices and increased planting
of genetically modified crops in 1999 increased price competition for crop
protection products and the preference of farmers for low-priced, off-patent
products. Despite the increase in price competition, sales of the Crop
Protection segment in North America increased 5% in 1999 to E609 million. This
increase was mainly due to the contribution to sales of Micro Flo, a leading
supplier of generic products in the United States. BASF acquired a majority
stake in Micro Flo in mid-1998. More than 70% of Micro Flo's sales are currently
in the field of insecticides, growth regulators and fungicides.
In Western and Central Europe, lower commodity prices, deteriorating
economic conditions for farmers, an increase in the rate of land left
uncultivated and reduced fungal diseases as a result of weather conditions in
1999 adversely affected the market for crop protection products. Due to these
factors, sales of the Crop Protection segment in Western Europe and Central
Europe decreased 4% in 1999 to E736 million.
Despite a significant decrease in the South American market for crop
protection products in 1999, sales in South America remained relatively stable
as a result of growing fungicide sales. Sales in 1999 were E249 million as
compared to E252 million in 1998.
Income from operations decreased slightly in 1999 to E195 million from E203
million in 1998. Expenditures for research and development decreased slightly to
E190 million in 1999 from E194 million in 1998 and remained approximately 11% of
the Crop Protection segment's sales. As a result of research and development
efforts in previous years, the Crop Protection segment launched
129
136
three new herbicides in time for the 1999 growing seasons. The segment's assets
increased 12.7% in 1999 to E1,949 million from E1,730 million in 1998.
HEALTH & NUTRITION: FINE CHEMICALS
SEGMENT DATA
(EUROS IN MILLIONS)
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
2000 YEAR 1999 YEAR 1998
------ -------- ------ -------- ------
Sales to third parties....................... E1,763 6.2 E1,660 10.8 E1,498
Intersegmental transfers..................... 44 (17.0) 53 23.3 43
Sales incl. intersegmental transfers......... 1,807 5.5 1,713 11.2 1,541
Income from operations....................... (1) (770) 121
Special items................................ (50) (829) 2
Operating margin (%)......................... 8.1
Assets....................................... E1,368 2.2 E1,338 (8.0) E1,455
Return on operational assets (%)
Research and development expenses............ E 78 1.3 E 77 16.7 E 66
2000 COMPARED WITH 1999
On July 1, 2000, BASF transferred the pharmaceutical active ingredients
business from the Pharmaceuticals segment to the Fine Chemicals segment. The
segment data for 2000 and 1999 were restated to reflect this transfer.
In the Fine Chemicals segment, sales to third parties in 2000 rose by 6.2%
to E1,763 million from E1,660 million in 1999. Sales volumes rose 5%, 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 to 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 E1 million compared with a loss of E770 million 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 Kunsan, 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.
130
137
of Japan in January 2001. Due to the acquisition and expected growth of BASF's
products, BASF expects sales in the Fine Chemicals segment to increase in 2001.
However, the integration of the vitamins business of Takeda will have a negative
impact on the segment's earnings in 2001.
Obligations from violations of antitrust laws are accounted for in the
Consolidated Financial Statements as liabilities or provisions if they have not
already been met through payment of agreed-upon amounts. BASF has accrued
provisions to account for additional charges, which are currently foreseeable.
BASF cannot exclude the possibility of further charges. However, BASF believes
that these charges will not have a significant effect on the profitability of
the BASF Group. For additional information about these proceedings, see "Item 8.
Financial Information -- Legal Proceedings" included in this Annual Report.
Apart from possible special charges, BASF anticipates it will be in a position
to improve earnings in this segment.
1999 COMPARED WITH 1998
On July 1, 2000, BASF transferred the pharmaceutical active ingredients
business from the Pharmaceuticals segment to the Fine Chemicals segment. The
segment data for 1999 and 1998 were restated to reflect this transfer.
In the Fine Chemicals segment, sales to third parties rose 10.8% in 1999 to
E1,660 million from E1,498 million in 1998 due to a significant increase in
sales volumes, partially offset by a decline in prices. Sales increased in all
markets, especially in human nutrition. Prices declined for vitamins, especially
for vitamins E, A and B(2) due to increased competition from Chinese producers,
and for lysine, especially in the first half of the year.
Sales to third parties in 1999 included sales attributable to the lysine
business acquired from the Korean Daesang Group, to the animal nutrition
business acquired from Takeda Kagaku Shiryo, Japan, and to the worldwide
Z-Cote(R) inorganic UVA (ultraviolet light) absorber business acquired from
sunSmart Incorporated of the United States. Excluding the effects of these
acquisitions, sales to third parties increased by approximately 6% in 1999.
Transfers to other segments remained substantially unchanged.
The Fine Chemicals segment incurred a loss of E770 million in 1999 compared
to a positive income from operations of E121 million in 1998. The loss was due
to special charges of E829 million primarily related to the violation of
antitrust laws in the vitamins business in the United States and other
countries. See Note 24 to the Consolidated Financial Statements for further
information on the antitrust violations.
Special charges also included an unscheduled write-down on intangible
assets of the lysine business acquired in 1998 from the Daesang Group, Korea.
The write-down resulted from the reassessment of the recoverability of the
recorded intangible assets through future earnings. These are expected to be
lower as a result of the sharp decline in the market price for lysine.
The aforementioned price declines for vitamins and lysine also had a
significant negative effect on income from operations.
Assets in the Fine Chemicals segment decreased in 1999 by 8.0% to E1,338
million from E1,455 million in 1998 due to the aforementioned write-down of
intangible assets of the lysine business.
In both 1999 and 1998, the cost of the Fine Chemicals segment's research
and development was approximately 4.5% of sales.
131
138
HEALTH & NUTRITION: PHARMACEUTICALS (DISCONTINUED OPERATIONS)
SEGMENT DATA
(EUROS IN MILLIONS)
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
2000 YEAR 1999 YEAR 1998
------ -------- ------ -------- ------
Sales to third parties....................... E2,526 15.0 E2,197 18.8 E1,850
Intersegmental transfers..................... 36 5.9 34 1
Sales incl. intersegmental transfers......... 2,562 14.8 2,231 20.5 1,851
Income from operations....................... 243 (13) (122.0) 59
Special items................................ (62) (164) (4)
Operating margin (%)......................... 9.6 3.2
Assets....................................... E2,228 18.1 E1,887 11.2 E1,697
Return on operational assets (%)............. 11.8
Research and development expenses............ E 468 17.9 E 397 6.1 E 374
2000 COMPARED WITH 1999
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 2 to the Consolidated
Financial Statements. 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.
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.
Synthroid(R) - a thyroid medication that is BASF Pharma's top selling drug,
Meridia(R)/Reductil(R)/ Raductil(R) (an antiobesity product), Hokunalin Patch(R)
(for the treatment of asthma) and Vicoprofen(R) (for the treatment of pain) were
the largest contributors to an increase in the segment's sales. Synthroid(R) was
the third most dispensed prescription medication in the United States in 2000.
Sales of Meridia(R)/Reductil(R)/Raductil(R), Vicoprofen(R) (without Vicodin(R)),
Tarka(R), Hokunalin Patch(R) (Japan) and Ganaton(R) (Japan), which were launched
between 1998 and 1999, increased by approximately 47% in 2000 to E415 million.
Reductil(R), which contains the active ingredient sibutramine, was first
launched in Germany and Switzerland in February 1999. By December 2000,
Reductil(R) had already been launched in over 30 countries.
132
139
The following table lists BASF's top selling drugs in 1999 and 2000:
SALES SALES CHANGE
BRAND NAME ACTIVE INGREDIENT INDICATION 2000 1999 IN %
---------- ----------------- ---------- ----- ----- ------
(EUROS IN MILLIONS)
1 Synthroid(R) Levothyroxine Hypothyroidism 474 397 19.4
2 Isoptin(R) Verapamil Coronary heart disease, 204 204 0
hypertension,
arrhythmia
3 Rytmonorm(R)/Rythmol(R) Propafenone Arrhythmia 192 167 15.0
4 Meridia(R)/Reductil(R)/ Sibutramine Obesity 188 137 37.2
Raductil(R)
5 Vicodin(R)/Vicoprofen(R) Hydrocodone and Moderate to severe pain 139 115 20.9
acetaminophen/
ibuprofen
6 Brufen(R) Ibuprofen Mild pain 89 86 3.5
7 Gopten(R) Trandolapril Hypertension, post 77 64 20.3
myocardial infarction
8 Hokunalin Patch(R) Tulobuterol Asthma and bronchitis 60 22 172.7
9 Tarka(R) Verapamil/ Hypertension 49 39 25.6
Trandolapril
10 Dilaudid(R) Hydromorphone Severe Pain 48 38 26.3
------ ------ -----
TOTAL............................................................... 1,520 1,269 19.8
====== ====== =====
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(R), Rytmonorm(R)/Rythmol(R) and Meridia(R)/ Reductil(R)/Raductil(R)
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 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(R). 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.
Effective January 1, 2001, the Pharmaceuticals segment sold its generic
pharmaceuticals business with operations in Germany, France, Italy, the
Netherlands, Switzerland and Spain to Biochemie GmbH, a subsidiary of Novartis.
1999 COMPARED WITH 1998
On July 1, 2000 the pharmaceutical active ingredients business was
transferred from the Pharmaceuticals segment to the Fine Chemicals segment. The
segment data for 1999 and 1998 were restated to reflect this transfer.
In the Pharmaceuticals segment, sales to third parties in 1999 rose 18.8%
to E2,197 million from E1,850 million in 1998. Sales to third parties increased
in part due to the first-time consolidation of 12 BASF subsidiaries. Almost all
of these subsidiaries were accounted for under the equity method in previous
years. Apart from the effect of the new consolidations, sales to third parties
in 1999 rose as a result of sales increases in all major markets, especially in
the segment's most important markets, the United States and Japan. Sales to
third parties, based on local currency amounts, increased by 17% in Japan and by
9% in the United States.
133
140
Sales of ethical drugs rose 17.8% in 1999 to E2,140 million from E1,817
million in 1998.
Synthroid(R) contributed the most to the increase in total ethical drug
sales in 1999 with an increase in sales of 27%. In 1999, Synthroid(R) was the
second most dispensed prescription medication in the United States. Sales of the
recently launched products Meridia(R)/Reductil(R), Vicoprofen(R), Tarka(R),
Ganaton(R) (Japan) and Hokunalin patch(R) (Japan) increased overall by 17% to
E279 million in 1999.
The following table lists BASF's top selling drugs in 1998 and 1999:
SALES SALES CHANGE
BRAND NAME ACTIVE INGREDIENT INDICATION 1998 1999 IN %
---------- ----------------- ---------- ----- ----- ------
(EUROS IN MILLIONS)
1 Synthroid(R) Thyroxine Hypothyroidism E 313 E 397 27
2 Isoptin(R) Verapamil Coronary heart disease, 214 204 (5)
hypertension,
arrhythmia
3 Rytmonorm(R)/Rythmol(R) Propafenone Arrhythmia 141 167 18
4 Meridia(R)/Reductil(R)/ Sibutramine Obesity 141 137 (2)
Raductil(R)
5 Vicodin(R)/Vicoprofen(R) Hydrocodone and Moderate to severe pain 106 115 9
acetaminophen/
ibuprofen
6 Brufen(R) Ibuprofen Mild pain 76 86 14
7 Iruxol(R) Collagenase Wound healing 64 67 5
8 Gopten(R) Trandolapril Hypertension/post 56 64 15
myocardial infarction
9 Tarka(R) Verapamil/ Hypertension 33 39 20
Trandolapril
10 Dilaudid(R) Hydromorphone Severe Pain 37 38 3
------ ------ ----
TOTAL............................................................... E1,182 E1,314 11
====== ====== ====
Exceptional Synthroid(R) sales growth in 1999 resulted primarily from price
increases, as well as from growth in prescriptions and from wholesaler
stockpiling. Sales of Meridia(R)/Reductil(R)/Raductil(R) declined slightly in
1999, despite a 9% increase in the number of Meridia(R) prescriptions issued in
the United States in 1999. Sales for this drug in 1998 were driven by high
initial demand, which typically accompanies novel treatments entering the
consumer-driven antiobesity market. The decrease also resulted from initial
wholesaler stockpiling in the United States in 1998. Meridia(R)/
Reductil(R)/Raductil(R) was approved and launched in 16 additional countries in
1999.
Intersegmental transfers in the Pharmaceuticals segment increased
substantially in 1999 to E34 million from E1 million due to higher transfers to
the Fine Chemicals segment, especially for the U.S. human nutrition market,
where the Fine Chemicals segment markets the nutraceutical SAMe
(S-adenosylmethionine).
Income from operations in the Pharmaceuticals segment decreased
significantly to a loss of E13 million in 1999 from E59 million in 1998 due to
special charges of E164 million. Special charges in 1999 relate primarily to the
settlement of U.S. class action lawsuits concerning Synthroid(R). Additional
compensation payments were committed to State Attorneys General in the United
States and to the Institute for the Advancement of Community Pharmacy. See Note
24 to the Consolidated Financial Statements for further information on the
lawsuits involving Synthroid(R).
Further special charges resulted from provisions for several restructuring
measures. The charges consist primarily of write-downs and personnel-related
costs for approximately 270 employees resulting from the closure of the
production site in Beeston, United Kingdom. See Note 22 to the Consolidated
Financial Statements for further information on the site closure.
134
141
An increase in sales of high margin products, such as Synthroid(R) and
Rytmonorm(R)/Rythmol(R), and decreasing launch costs for Meridia(R)/Reductil(R)
and Vicoprofen(R) had a significant positive effect on income from operations.
Tight cost management in research and development as well as in marketing and
sales also contributed positively to income from operations. The addition of 12
subsidiaries to the scope of consolidation contributed approximately E14 million
to income from operations.
Research and development costs increased in 1999 by 6.1% to E397 million
from E374 million in 1998, which represents 18.1% of the segment's sales in 1999
as compared to 20.2% of sales in 1998.
Assets of the Pharmaceuticals segment increased in 1999 by 11.2% to E1,887
million from E1,697 million in 1998 due to additions to tangible and intangible
assets from several capacity expansion projects for pharmaceutical manufacturing
plants and from the additions to the scope of consolidation. These capital
expenditures were E101 million in 1999 as compared to E141 million in 1998.
OIL & GAS
SEGMENT DATA
(EUROS IN MILLIONS)
% %
CHANGE CHANGE
FROM FROM
PREVIOUS PREVIOUS
2000 YEAR 1999 YEAR 1998
------ -------- ------- -------- ------
Sales to third parties....................... E3,957 29.7 E3,051 13.6 E2,685
Intersegmental transfers..................... 320 80.8 177 (24.7) 235
Sales incl. intersegmental transfers......... 4,277 32.5 3,228 10.6 2,920
Royalties.................................... 276 29.0 214 4.9 204
Sales incl. intersegmental transfers, less
royalties.................................. 4,001 32.7 3,014 11.0 2,716
Income from operations....................... 1,310 76.8 741 168.5 276
Special Items................................ 44 138 19
Operating Margin (%)......................... 33.1 24.3 10.3
Assets....................................... E3,540 17.9 E3,003 14.5 E2,622
Return on operational assets (%)............. 40.0 26.3 10.8
Research and development expenses............ E 50 6.4 E 47 (6.0) E 50
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 compensating 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 to
$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.
135
142
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.
In the short-term, BASF expects volatility in crude oil prices followed by
a stabilization in prices toward the end of the winter heating period in the
Northern Hemisphere. On average, BASF estimates that crude oil prices will be
lower in 2001 than in the previous year. However, BASF expects that the
resulting effects on sales and earnings will be largely offset by the ongoing
expansion of activities in exploration and production and in natural gas
trading.
1999 COMPARED WITH 1998
In the Oil & Gas segment, sales to third parties rose 13.6% in 1999 to
E3,051 from E2,685 in 1998, primarily due to the 41.4% increase in average crude
oil prices in 1999 compared to 1998. In 1999, the average crude oil price for
U.K. Brent quality crude oil per barrel was $17.99 compared to $12.72 in 1998.
Other factors contributing to increased sales were the strength of the U.S.
dollar and the first time consolidation of Wintershall Energia, Argentina, which
contributed E168 million to the increase in sales. Due to this first-time
consolidation, production increased by 19.4% to 77.5 million barrels of oil
equivalent. Excluding the new consolidation, sales of the Oil & Gas segment
increased 7.4% in 1999, and production declined by almost 7% to 60.5 million
barrels of oil equivalent, mainly resulting from the imposition of strict OPEC
production quotas. Sales to third parties in the oil and natural gas exploration
and production business increased by 40.3% in 1999 to E1,044 from E744 in 1998,
due to the aforementioned reasons. Sales to third parties in the oil marketing
and refinery business increased 20.1% in 1999 to E1,152 from E959 million in
1998, due to the higher crude oil prices and a higher utilization rate at the
refinery in Lingen, Germany, which had a scheduled major shutdown in 1998.
In December 1999, BASF exited the oil marketing and refinery business by
selling for cash to VEBA OEL AG, a subsidiary of VEBA AG, its Emsland refinery
in Lingen, Germany together with its 15% share in ARAL AG, a retail gasoline
station network in Germany. The gains from the sale of BASF's stake in ARAL are
included in BASF's financial result for 1999. The gains from the sale of the
refinery are included in the Oil & Gas segment's income from operations for
1999.
Sales from natural gas distribution and trading decreased 11.6% in 1999 to
E808 million from E914 million in 1998. This decrease was primarily due to lower
sales in Central Europe.
Intersegmental transfers decreased in 1999 to E177 million from E235
million in 1998 due to lower volumes of gas supplies.
Income from operations in the Oil & Gas segment increased by 168.5% in 1999
to E741 million from E276 million in 1998. Income from operations in 1999
included gains from the sale of the refinery in Lingen, Germany, and the sale of
Wintershall's operations in Canada. Income from operations in 1998 included
gains from the sale of a natural gas reservoir. The increase in income from
operations was also due to significantly higher income in the exploration and
production
136
143
business and the oil marketing and refinery business as result of the higher
crude oil prices. Income from operations is before income taxes on oil-producing
operations that are non-compensable with German corporate tax. See Note 8 to the
Consolidated Financial Statements and "Group-1999 Compared with 1998-Net
Income/Earnings Per Share."
Assets in the Oil & Gas segment increased 14.5% in 1999 to E3,003 million
from E2,622 million in 1998 due to additions to tangible fixed assets, which
offset the effects of the divestitures. The additions included assets from the
first time consolidation of Wintershall Energia, Argentina. Capital expenditures
rose 3.8% in 1999 to E524 million from E505 million in 1998.
137
144
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth the summarized cash flows of BASF in each of
the last three fiscal years:
STATEMENTS OF CASH FLOW 2000 1999 1998
----------------------- ------- ------- -------
(EUROS IN MILLIONS)
Net income.................................................. E 1,240 E 1,237 E 1,699
Depreciation of fixed assets................................ 2,929 2,690 2,289
Changes in net current assets............................... (1,147) 172 181
Miscellaneous items......................................... (30) (844) (425)
------- ------- -------
CASH PROVIDED BY OPERATING ACTIVITIES....................... E 2,992 E 3,255 E 3,744
Additions to tangible and intangible fixed assets........... (2,906) (2,939) (2,722)
Acquisitions and divestitures, net.......................... (5,812) 696 (760)
Financial investments and other items....................... (112) 144 255
------- ------- -------
CASH USED IN INVESTING ACTIVITIES........................... E(8,830) E(2,099) E(3,227)
Proceeds from capital increases............................. (604) (176) 27
Changes in financial indebtedness........................... 6,660 (95) (95)
Dividends paid.............................................. (748) (697) (630)
------- ------- -------
CASH USED IN FINANCING ACTIVITIES........................... E 5,308 E (968) E (698)
Changes in cash assets affecting liquidity.................. (530) 188 (181)
Initial cash assets and other changes....................... 1,036 802 938
------- ------- -------
CASH AND CASH EQUIVALENTS AT YEAR END....................... E 506 E 990 E 757
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 Corporation;
- the superabsorbents manufacturer 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:
138
145
- the sale of the Novolen(R) polypropylene technology and the Kraton(R)
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);
- 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
- Expansion of production capacities for butanediol in Ludwigshafen,
Germany.
- Construction of a trimethylolpropane MP plant in Ludwigshafen,
Germany.
- Expansion of a plant in Ludwigshafen, Germany, for the manufacture of
optically-active amines.
- Construction of a new plant in Ludwigshafen, Germany, for the
manufacture of dimethylhexanediol.
- Start-up of a new formaldehyde plant in Ludwigshafen, Germany.
- Expansion of a plant for the production of dinitrotoluene (a toluene
diisocyanate precursor) in Schwarzheide, Germany.
- Capacity expansion for ethylene oxide in Antwerp, Belgium.
- Capacity expansion for complexing agents in Ludwigshafen, Germany.
North and South America
- Construction of a steamcracker through a joint venture with
TotalFinaElf S.A., in Port Arthur, Texas.
- Construction of new plants for hexanediol/caprolactone in Freeport,
Texas.
- Capacity expansions for ethylene oxide and glycols in Geismar,
Louisiana.
- Construction of a new plant for nonionic surfactants in Geismar,
Louisiana.
Asia
- Construction of new plants for oxo C4 alcohols, phthalic anhydride and
plasticizers in Kuantan, Malaysia.
139
146
In the Plastics & Fibers segment, capital expenditures decreased 40% to
E599 million in 2000 compared with E998 million in 1999. The largest projects
were as follows:
Europe
- Modernization of nylon 6 production and packaging plants in
Ludwigshafen, Germany.
- Capacity expansion for ethyl benzene in Antwerp, Belgium.
- Replacement of the ethyl benzene and styrene plants in Ludwigshafen,
Germany.
- Restructuring of polystyrene production in Ludwigshafen, Germany and
Antwerp, Belgium.
North and South America
- Construction of a new plant to manufacture MDI (diphenylmethane
diisocyanate) in Geismar, Louisiana.
- Construction of a new plant for the manufacture of ABS
(acrylonitrile-butadiene-styrene) in Altamira, Mexico.
- 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 as follows:
Europe
- Expansion of the imine plant for the manufacture of vinyl formamide
and polyvinylamine in Ludwigshafen, Germany.
- Construction of a plant for the manufacture of superabsorbents in
Antwerp, Belgium.
North and South America
- Expansion of the production capacity of acrylate and styrene/butadiene
dispersions in Monaca, Pennsylvania.
- Expansion of production capacities for paper dyes in Altamira, Mexico.
Asia
- Construction of an acrylic acid complex in Kuantan, Malaysia.
- 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(R) fungicide from the
strobilurine class of active ingredients in Schwarzheide, Germany.
In the Fine Chemicals segment, BASF invested E83 million in 2000 compared
to E87 million in 1999 on capital expenditures. The most important investment
projects included the expansion of production capacities for the manufacture of
Uvinul(R) 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 Kunsan, Korea.
In the Pharmaceuticals segment, capital expenditures increased to E121
million from E101 million in 1999.
140
147
In the Oil & Gas segment, we 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.
- 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%),
- 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.
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 share of
141
148
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.
Commitments for Investments
For 2001, BASF is planning capital expenditures of approximately E3.0
billion (excluding the pharmaceuticals business) mainly to expand existing
production facilities. See "Item 4. Information on the Company" for further
information on these projects.
Major projects by segment include:
Chemicals
- Completion of a steamcracker in Port Arthur, Texas.
- Ongoing construction of a new propylene plant in Tarragona, Spain.
- Continued expansion of the production site in Kuantan, Malaysia for
oxo C4 alcohols and plasticizers with the construction of a new plant
for butanediol.
- Additional capacity for PTHF in Ludwigshafen, Germany.
- Capacity expansion for neopentylglycol in Freeport, Texas.
- Capacity expansion for ethylene oxide in Ludwigshafen, Germany and
Geismar, Louisiana.
Plastics & Fibers
- Replacement of ethyl benzene/styrene plants in Ludwigshafen, Germany.
- Construction of a new plant to manufacture ethyl benzene in Antwerp,
Belgium.
- Construction of a new plant to manufacture Styrolux(R) in Antwerp,
Belgium.
- General refurbishment and expansion of nylon 6 production in
Ludwigshafen, Germany.
- Ongoing construction of a new plant for propylene oxide and styrene in
Singapore.
- Replacement of an old plant with a modern plant for the production of
TDI (toluene diisocyanate) in Geismar, Louisiana.
Colorants & Finishing Products
- Construction of a new plant for superabsorbents in Antwerp, Belgium.
- Construction of a new plant for vinyl formamide and polyvinylamine in
Ludwigshafen, Germany.
- Construction of a new plant for dispersions in Hamina, Finland.
Agricultural Products
- Ongoing construction of a new plant to manufacture the F 500(R)
fungicide in Schwarzheide, Germany.
- Construction of a new research center for agricultural products in
Limburgerhof, Germany.
- Construction of new plants to manufacture the fungicides BAS 510 F and
BAS 505 F in Guaratingueta, Brazil.
142
149
Fine Chemicals
- Expansion of a plant to manufacture vitamin E in Ludwigshafen,
Germany.
- Expansion of a plant to manufacture Lysmeral(R) in Ludwigshafen,
Germany.
Oil & Gas
- Expansion of existing reserves (field development).
- Optimizing production in North Africa.
- Developing existing reserves in the northern German Mittelplate field.
- Developing existing reserves in Argentina's Canadon Alpha field.
In March 2001, BASF realized $6.9 billion from the sale of its
pharmaceuticals business. The proceeds from the sale will partly be used to
reduce BASF's short-term financial indebtedness and for the further buy-back of
BASF shares.
On March 8, 2000, BASF Aktiengesellschaft announced its intention to buy
back BASF shares over the following months for a total purchase price of up to
E2 billion. As of December 31, 2000, BASF Aktiengesellschaft had bought back
15,856,500 BASF shares, or 2.6% of the outstanding BASF shares, for a total
purchase price of E700 million or E44.13 per share. See Note 18 in the
Consolidated Financial Statements for further information on the share
repurchase.
BASF expects that the cash flow from operating activities in 2001 will be
sufficient to fund BASF's planned capital expenditure program of approximately
E3.0 billion and its working capital requirements. In addition, BASF has
established a global commercial paper program of up to $5.0 billion to fund
temporary financing requirements.
At the Annual Meeting on April 29, 1999, BASF shareholders authorized the
Board of Executive Directors to increase BASF's subscribed capital by up to E500
million with the issuance of new shares. See Note 18 to Consolidated Financial
Statements for further information. BASF has no current plans to issue new
shares.
1999 COMPARED WITH 1998
Cash from Operating Activities
The primary source of liquidity for BASF in 1999 and 1998 was cash provided
by operating activities. Cash from operations decreased 13.1% in 1999 to E3,255
million from E3,744 million in 1998. The cash outflow in 1999 from the change in
receivables and inventories was E1,545 million, while in 1998 there was a cash
inflow from the change in receivables and inventories of E430 million. The cash
outflow in 1999 was more than offset by cash inflows from an increase of E1,717
million in accounts payable, trade and other accrued liabilities. In 1999, cash
generated from operating activities included E299.1 million from the sale of
accounts receivable.
Investing Activities
Total capital investments, including acquisitions and investments in
financial assets, decreased 13.4% in 1999 to E4,214 million from E4,868 million
in 1998.
Cash used for investing activities, after deducting income from
divestitures, decreased 35.0% to E2,099 million from E3,227 million in 1998. As
discussed below, this decrease was primarily due to higher proceeds from
divestitures and significantly lower spending for acquisitions, partially offset
by the higher capital expenditures on tangible and intangible fixed assets. The
additions to tangible and intangible assets included:
- plant construction in the Chemicals segment,
143
150
- plant construction and acquisitions in the Plastics & Fibers segment,
- plant construction in the Colorants & Finishing Products segment,
- plant construction in the Crop Protection (renamed "Agricultural
Products" on July 1, 2000) segment, and
- natural gas pipeline expansions and expenditures on oil and gas
exploration in the Oil & Gas segment.
Capital expenditures on tangible and intangible fixed assets rose 8.0% in
1999 to E2,939 million from E2,722 million in 1998. Further additions of E397
million were the result of acquisitions in 1999 as compared to E969 million in
1998.
Spending in Europe in 1999 accounted for 60% of total spending compared
with 56% in 1998. In North America, spending rose to 34% of total capital
expenditures compared with 29% in 1998. In the Asia, Pacific Area, Africa
region, spending declined to 4% of total capital expenditures compared with 6%
in 1998. Spending in South America remained generally unchanged at 2%.
In the Chemicals segment, capital expenditures rose 30.0% to E763 million
in 1999 compared with E587 million in 1998. Capital expenditures included:
- the start-up of a new acetylene plant in Geismar, Louisiana;
- the ongoing construction of a steamcracker with BASF's partner,
TotalFinaElf S.A., in Port Arthur, Texas;
- the completion of the aromatics extraction unit within BASF's
steamcracker in Antwerp, Belgium;
- the expansion of production sites for formaldehyde, butanediols and
optically active intermediates in Ludwigshafen, Germany;
- the start-up of a new butanediol/tetrahydrofurane plant in Ulsan,
Korea;
- expanding capacities of methylamines and butylamines in Ludwigshafen,
Germany;
- expanding capacities of ethylamines in Antwerp, Belgium; and
- expanding capacities of polytetrahydrofuran in Geismar, Louisiana.
Capital contributions made for the construction of production plants to
manufacture syngas, oxo alcohols, phthalic anhydride and plasticizers at the
Verbund site in Kuantan, Malaysia are not included in these capital
expenditures.
In the Plastics & Fibers segment, capital expenditures rose 33.8% to E998
million in 1999 compared with E746 million in 1998. The main additions to
tangible assets in 1999 were as follows:
Europe
- Construction of a new TDI (toluene diisocyanate) plant in
Schwarzheide, Germany.
- Expansion of production capacity for PBT (polybutylene terephthalate)
in Schwarzheide, Germany for BASF's joint venture with GE Plastics.
- Streamlining polyethylene production and construction of a new plant
for PE-HD (high-density polyethylene) in Wesseling, Germany, for the
BASF's polyolefins operations (through the Elenac joint venture).
- Construction of a new plant for PE-LD (low-density polyethylene) in
Berre, France (through the Elenac joint venture).
- Expansion of the production capacities of the polyether polyols plant
in Antwerp, Belgium.
- Expansion of the nylon 6 polymerization unit in Antwerp, Belgium.
144
151
North and South America
- Expansion of production sites for compounding engineering plastics in
Wyandotte, Michigan.
- Expansion of the caprolactam plant in Freeport, Texas.
- Construction of an additional plant to manufacture MDI
(diphenylmethane diisocyanate) in Geismar, Louisiana.
- Construction of a new styrene copolymers plant in Altamira, Mexico
Asia
- Construction of new compounding sites in Pasir Gudang, Malaysia.
- Expansion of the polystyrene plant in Nanjing, China for BASF's joint
venture, Yangzi-BASF Styrenics.
Not included are the capital contributions made to ELLBA Eastern,
Singapore, a joint venture between BASF and Shell, for the construction of
production sites to manufacture styrene monomer and propylene oxide in the
Engineering Plastics division.
In the Colorants & Finishing Products segment, capital expenditures
decreased by 6.9% in 1999 to E324 million from E348 million in 1998. The major
projects concluded or initiated were as follows:
Europe
- Construction of new plants for the manufacture of polymer dispersions
in Ludwigshafen, Germany.
- Construction of new plants for the manufacture of vinyl formamide and
polyvinylamines for paper chemicals in Ludwigshafen, Germany.
- Expansion of capacities to manufacture yellow pigments in
Ludwigshafen, Germany.
North and South America
- Expansion of the production capacity to manufacture acrylate and
styrene/butadiene dispersions in Monaca, Pennsylvania.
- Construction of a new powder coatings production plant in Morganton,
North Carolina.
- Construction of a new plant to manufacture paper dyes in Altamira,
Mexico.
- Construction of a new plant to manufacture butyl acrylate in
Guaratingueta, Brazil.
Asia
- Construction of a new plant to manufacture acrylate dispersions in
Shanghai, China.
Not included are the capital contributions of E153 million made to BASF
Petronas for the construction of the acrylate complex at the Verbund site in
Kuantan, Malaysia.
In the Pharmaceuticals segment, capital expenditures decreased to E115
million from E169 million in 1998. Capital expenditures consisted of modernizing
and expanding pharmaceutical manufacturing plants.
In the Fine Chemicals segment, capital expenditures decreased to E73
million from E586 million in 1998. Capital expenditures included expanding
production capacities for the citral and Lysmeral(R) fragrances, the expansion
of the production capacity for carotenoids and the construction of a new plant
for the ultraviolet light absorber, Uvinul(R).
145
152
In the Agricultural Products segment, capital expenditures decreased to E93
million from E247 million in 1998. The major capital expenditures included:
- the start-up of a new production plant for the formulation of
fungicides in Tarragona, Spain;
- the start-up of a production plant to manufacture a precursor for a
new grass herbicide in Ludwigshafen, Germany;
- the construction of production facilities to manufacture a new rice
herbicide in Ludwigshafen, Germany; and
- the construction of a production plant to manufacture a precursor for
strobilurin fungicides in Ludwigshafen, Germany.
In the Oil & Gas segment, capital expenditures rose 3.8% to E524 million
from E505 million in 1998, primarily due to the completion of the JAGAL gas
connection line that links Russian gas reserves from the Yamal peninsula in
Siberia to WINGAS's pipeline network system in Western Europe and to
expenditures for oil and gas exploration in Germany, North Africa/Middle East
and Argentina.
See "Item 4. Information on the Company" and "Item 5. Operating and
Financial Review and Prospects -- Results of Operations" for more information on
individual projects.
In 1999, proceeds from divestitures were E1,094 million resulting primarily
from the sale of the oil marketing and refinery business and the sale of the
COMPO(R) specialty fertilizers business.
See "Item 1. Description of Business" and "Item 9. Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Results of
Operations" for more information on these divestitures.
Proceeds from the sale of financial assets and securities amounted to E980
million in 1999. Cash used for investments in financial assets and securities
was E878 million, resulting in an excess cash inflow in 1999 of E102 million.
The investments in financial assets included the acquisition of a 40% ownership
stake in the Swedish seed company Svalof Weibull AB, within the Crop Protection
segment as well as capital contributions of E153 million to the joint venture
BASF Petronas Chemicals Sdn. Bhd Malaysia/BASF Services Malaysia for the Verbund
site in Kuantan, Malaysia.
Further proceeds were realized from the sale of tangible and intangible
fixed assets of E42 million compared to E92 million in 1998.
Financing Activities
Financing activities resulted in a cash outflow of E968 million in 1999, an
increase of E270 million compared to 1998. The increase was primarily
attributable to BASF's share buy-back program which accounted for E256 million
of this amount. The exercise of warrants from the 3% U.S. Dollar Option Bonds of
BASF Finance Europe 1986/2001 led to a cash inflow of E80 million. Dividend
payments to BASF shareholders amounted to E693 million as compared to E537
million in 1998. Dividends per share in 1999 were E1.13, compared with E1.12 in
1998.
The cash outflow from the repayment of financial indebtedness exceeded the
cash inflow from additional financial indebtedness by E95 million in 1999. A
major component of the repayment was the redemption of the 7% U.S. Dollar Bonds
of BASF Finance Europe 1992/1999 with a value of $200 million.
Total financial indebtedness for 1999 amounted to E1,294 million, a
decrease of 1.7% compared to 1998. Approximately 55.4% of the financial
indebtedness was denominated in U.S. dollars in 1999, compared to 59% in 1998.
Approximately 14.2% was denominated in Chinese renminbi,
146
153
compared to 12.2% in 1998. Approximately 9.3% was denominated in euros, compared
to 15.2% in 1998.
Short-term borrowing accounted for 27.8% of total liabilities and equity in
1999 compared with 24.6% in 1998.
At the end of 1999, BASF had E497 million in unused credit lines. The
credit lines are cancelable at the option of either the bank or BASF. In
addition, to support BASF's anticipated level of commercial paper issuances,
various banks have committed backup lines of credit in the amount of E719
million for BASF's global commercial paper program, which was established in
July 1999 and allows BASF to issue commercial paper in an amount up to US$2.3
billion. BASF can also draw on these lines when there is no commercial paper
outstanding.
Cash and Cash Equivalents
The decrease of cash used in investing activities, which was partially
offset by a decrease in cash from operating activities and an increase of each
used for financing activities, led to an increase of E188 million in cash and
cash equivalents.
Marketable securities decreased to E518 million in 1999 from E745 million
in 1998. Total liquid funds increased to E1,508 million in 1999 from E1,503
million in 1998. Their share of total assets was 5.0% in 1999, compared to 5.6%
in 1998.
Commitments for Investments
At the end of 1999, BASF planned to spend about E2.5 billion on investments
during 2000. BASF plans to maintain spending at 2000 levels during 2001. Funds
are to be used to build new production plants and to expand existing production
sites. See "Item 4. Information on the Company" for further information on these
projects. The Chemicals segment accounts for the largest share of capital
expenditures.
Major commitments for capital expenditures by segment in 2000 are as
follows:
Chemicals
- Ongoing construction of a steamcracker in Port Arthur, Texas.
- Construction of a new propylene plant in Tarragona, Spain.
- Construction of new plants to manufacture hexanediol and caprolactone
in Freeport, Texas.
- Ongoing construction of new oxo alcohols and plasticizers production
sites in Kuantan, Malaysia.
- Additional capacity for the production of surfactants in Geismar,
Louisiana.
- Additional capacity for butanediol in Ludwigshafen, Germany.
- Additional capacity for neopentylglycol in Freeport, Texas.
- Additional capacity for ethylene oxide and glycols in Geismar,
Louisiana.
Colorants & Finishing Products
- Ongoing construction of plants for acrylic acid in Kuantan, Malaysia.
- Construction of a new plant for superabsorbents in Antwerp, Belgium.
- Construction of a new plant for vinyl formamide in Ludwigshafen,
Germany.
- Ongoing activities to add capacity for dispersions in Ludwigshafen,
Germany.
147
154
Plastics & Fibers
- Additional capacity for the production of MDI in Geismar, Louisiana.
- Construction of a new plant for polyethylene in Berre, France.
- Construction of a new plant for polyethylene in Wesseling, Germany.
- Construction of a new plant for polypropylene in Tarragona, Spain.
- Ongoing construction of a new plant for propylene oxide and styrene in
Singapore.
- Additional capacity for the production of TDI in Schwarzheide,
Germany.
- Construction of a new plant for the production of TDI in Geismar,
Louisiana.
- Construction of new plants to manufacture ethyl benzene and styrene in
Ludwigshafen, Germany.
- Additional capacity for ethyl benzene in Antwerp, Belgium.
- Construction of new plants for nylon 6 in Ludwigshafen, Germany.
- Expansion of EPS (expandable polystyrene) production capacity in
Guaratingueta, Brazil.
- Additional capacity for the production of HIPS in Sao Jose dos Campos,
Brazil.
- Construction of a new plant for TDI in Yosu, Korea.
- Additional capacity for the production of MDI in Yosu, Korea.
- Additional capacity for the production of polyether polyols in Ulsan,
Korea.
Agricultural Products
- Construction of new production sites to manufacture a new fungicide
from the strobilurin class of active ingredients in Schwarzheide,
Germany.
Oil & Gas
- Expansion of pipelines, especially the JAGAL gas connection line, that
links Russian gas reserves from the Yamal peninsula in Siberia to
WINGAS's pipeline network system in Western Europe.
- Participation in the construction of the Cruz del Sur pipelines,
connecting Buenos Aires, Argentina to Montevideo, Uruguay.
- Participation in the exploration of the first German offshore gas
field in the German sector of the North Sea.
In addition to the above described projects, further commitments include
the replacement of tangible assets, the restructuring of related investments and
additions to existing capacities in the normal course of BASF's businesses.
148
155
EXCHANGE RATE EXPOSURE AND RISK MANAGEMENT
BASF transacts its business in many currencies other than the German mark
and the euro. Although about 22% of BASF's 2000 sales, about 24% of BASF's 1999
sales and about 25% of 1998 sales were to customers in Germany, about 44% of
2000 sales, about 42% of 1999 sales and about 40% of 1998 sales were to
customers outside Europe. Moreover, about 38% of BASF's 2000 sales, about 35% of
BASF's 1999 sales and about 33% of 1998 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 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 German mark and the euro.
Transaction risk is the risk that 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 2000, 1999 and 1998 is shown in BASF's Consolidated Financial Statements
under the line items "Other operating income" and "Other operating expense." See
Note 5 and 6 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 E150.7 million in 2000, a net gain of E36.7 million in
1999 and a net loss of E164.1 million in 1998. The difference between 2000 and
1999 and the difference between 1999 and 1998 was primarily due to the higher
U.S. dollar in comparison with the euro and German mark.
Foreign currency translation adjustments had a positive effect of E112.5
million on stockholders' equity in 2000 primarily due to the strengthening of
the U.S. dollar. Foreign currency translation adjustments had a positive effect
of E509.8 million on stockholders' equity in 1999 primarily due to the
strengthening of the U.S. dollar and the Japanese yen in 1999 compared to 1998.
Foreign currency translation adjustments had a negative effect of E160.8 million
on stockholders' equity in 1998 primarily due to the weakening U.S. dollar in
1998.
Exchange rate risk management is centralized at BASF Aktiengesellschaft and
is conducted by BASF divisions designated for this purpose. BASF bases its
foreign exchange risk management generally on exposures derived from receivables
and payables already accounted for. Planned sales revenues or expenses are only
considered if such data is based on fixed contracts. To calculate the exchange
rate exposure in a particular currency, receivables and payables are netted
first. Generally receivables exceed payables resulting in substantial net
exposures in U.S. dollars, the British pound and the Japanese yen.
To mitigate the impact of currency exchange rate fluctuations, the
remaining 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 2000, 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 26 to the
Consolidated Financial Statements for further information.
149
156
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 E1.53 billion on research and development activities in 2000
compared with E1.33 billion in 1999 and E1.31 billion in 1998. The company
spends approximately 50% of its research budget on developing new products, and
another 20% on improving existing products. Developing new and improved
processes accounts for about 25% of spending, while 5% is spent on discovering
new research methods and technologies. BASF spends 65% of its annual research
budget in Germany, 25% in North America, 6% in other European countries and 4%
in Asia.
BASF employs about 10,000 people worldwide in various research and
development activities. About 7,000 employees are involved in research and
development work in Ludwigshafen, making the city 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. BASF's four main research divisions in
Ludwigshafen support the company's global activities. BASF carries out product
and market-related development worldwide in close cooperation with customers and
joint-venture partners.
More than half of BASF's research spending is devoted to the area of health
and nutrition, where BASF is expanding its activities. The Limburgerhof
Agricultural Center in Germany and agricultural research stations around the
world develop agricultural products. BASF conducts its own biotechnology
research and is also involved in various biotechnology research joint ventures.
Over the next ten years, BASF plans to spend a total of E700 million on research
and development activities in plant biotechnology. The activities are
concentrated in BASF Plant Science GmbH, which currently employs about 200
people worldwide.
BASF conducts its research activities through more than 800 cooperation
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 protected in 14 countries on average and, at a minimum, in those
countries that are most relevant to the product or process involved. This
protection is crucial in the chemicals 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.
150
157
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, including 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. BASF
Aktiengesellschaft's Board of Executive Directors currently has eight members.
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.
151
158
The following table lists the current members of the Board of Executive
Directors, their ages as of December 31, 2000, and the years in which they were
first appointed to the Board:
DR. JURGEN F. STRUBE
Age: 61........................ First year appointed: 1985 Year term expires: 2003
Professional career
1969 Joined Finance department of BASF Aktiengesellschaft
1970 Worked at BASF Antwerp, 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 and based in
the United States, responsible for Information Systems,
Fiber Products and the North America regional division
1988 Member of the Board of Executive Directors and based in
Ludwigshafen, Germany, responsible for the Plastic Foams,
Polyolefins and PVC divisions, as well as the Brazil and
Latin America regional divisions
1990 Appointed Chairman of the Board of Executive Directors
Position & Main Areas of Responsibility
Chairman of the Board of Executive Directors
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 May 2000 Linde AG, Wiesbaden, Germany
Since Dec. 2000 Bertelsmann AG, Gutersloh, Germany
MAX DIETRICH KLEY
Age: 60........................ 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
152
159
Position & Main Areas of Responsibility
Deputy Chairman and Chief Financial Officer -- Finance, Oil and Gas,
Coatings, Raw Materials Purchasing, Eastern Europe, West Asia, Africa regional
division
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 Oct. 2000 Basell N.V., Hoofddorp, the Netherlands
Since Nov. 2000 RWE Plus AG, Essen, Germany
HELMUT BECKS
Age: 56........................ First year appointed: 1996 Year term expires: 2001
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
1997 Appointed Ludwigshafen Site Director
Position & Main Areas of Responsibility
Director -- Asia region, Corporate Engineering
Memberships on Supervisory Boards
Since July 2000 Hannoversche Lebensversicherung a.G., Hanover, Germany
DR. JOHN FELDMANN
Age: 51........................ 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
2000 Appointed member of the Board of Executive Directors
153
160
Position & Main Areas of Responsibility
Director -- Styrenic Polymers, Performance Polymers, Polyurethanes, Polymer
Research
Memberships on Supervisory Boards
Since Oct. 2000 Basell N.V., Hoofddorp, the Netherlands
DR. JURGEN HAMBRECHT
Age: 54........................ First year appointed: 1997 Year term expires: 2002
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 and based in Hong Kong
1997 Appointed member of 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
May 1999 -- May 2000 Deutsche Gesellschaft fur Kunststoff-Recycling mbH, Cologne,
Germany (Chairman)
Since 2000 Bilfinger + Berger Bauaktiengesellschaft, Frankfurt, Germany
Since Oct. 2000 Basell N.V., Hoofddorp, the Netherlands
DR. STEFAN MARCINOWSKI
Age: 47........................ First year appointed: 1997 Year term expires: 2002
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 member of the Board of Executive Directors
Position & Main Areas of Responsibility
Director and Research Executive Director -- Functional Polymers,
Performance Chemicals, South America regional division
154
161
PETER OAKLEY
Age: 47........................ 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 -- North America region, Agricultural Products, Fine Chemicals,
Specialty Chemicals Research, Plant Biotechnology
EGGERT VOSCHERAU
Age: 57........................ First year appointed: 1996 Year term expires: 2001
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 in
the United States and responsible on Board of Executive
Directors for the Fiber Products division as well as the
company's regional activities in the Americas
Position & Main Areas of Responsibility:
Director -- Industrial Relations Director, Europe region, Human Resources,
Logistics & Information Services, Environment, Safety & Energy, BASF AG Works
Engineering, 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)
155
162
DR. VOLKER TRAUTZ (UNTIL APRIL 2000)
Age: 55........................ First year appointed: 1995 Year term expired: 2000
Professional career
1974 Joined BASF Aktiengesellschaft, Ludwigshafen, Germany
1978 Delegate to Glasurit do Brasil Ltda.
1985 Appointed Member of the Executive Management of Glasurit do
Brasil Ltda.
1988 Managing Director of BASF Brasiliera S.A., Sao Paulo, Brazil
1990 Named President of the Latin America South Division
1991 President of the Information Systems Division Managing
Director of BASF Magnetics GmbH
1995 Appointed member of the Board of Executive Directors
Position & Main Areas of Responsibility (until April 2000):
Director -- Styrenic Polymers, Engineering Plastics, Polyurethanes, as well
as the Polymers Laboratory and the East Asia, Japan and South East
Asia/Australia divisions
Memberships on Supervisory Boards
Until May 1999 Deutsche Gesellschaft fur Kunststoff-Recycling mbH, Cologne,
Germany (Chairman)
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 Co-determination Act
(Mitbestimmungsgesetz).
Aside from Mr. Arthur L. Kelly, all current shareholder representatives on
the Supervisory Board were elected in 1999. 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. Furthermore, Mr. Robert Oswald
was appointed by the district court of Ludwigshafen on August 18, 2000 as the
replacement for Mr. Gunter Klein. This appointment is effective October 1, 2000.
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.
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 members were elected. The current term expires
at the end of the Annual Meeting in 2004. Compensation for Board members is
determined by BASF Aktiengesellschaft's Articles of Association.
156
163
The following table lists the current members of BASF Aktiengesellschaft's
Supervisory Board, their respective ages as of December 31, 2000, their
principal occupation and the year in which they were first elected or appointed
to the Supervisory Board:
YEAR
NAME AGE PRINCIPAL OCCUPATION FIRST ELECTED
- ---- --- -------------------- -------------
DR. BERTHOLD LEIBINGER................. 70 Managing Director of TRUMPF GmbH + Co KG 1998
Chairman
VOLKER OBENAUER(1)..................... 58 Chairman of the works council of BASF 1993
Deputy Chairman Group
WOLFGANG DANIEL(1)..................... 43 Deputy Chairman of the works council of 1996
the Ludwigshafen site of BASF
Aktiengesellschaft
ETIENNE GRAF DAVIGNON.................. 68 President of Societe Generale de 1993
Belgique
DR. FRANCOIS DIEDERICH................. 48 Professor at Zurich Technical University 1998
DR. TESSEN VON HEYDEBRECK.............. 55 Member of the Board of Executive 1998
Directors of Deutsche Bank AG
DR. WOLFGANG JENTZSCH.................. 68 Retired member of the Board of Executive 1995
Directors of BASF Aktiengesellschaft
ARTHUR L. KELLY........................ 63 Chief Executive Officer of KEL 2000
Enterprises L.P., Chicago
ROLF KLEFFMANN(1)...................... 51 Chairman of the works council of 1998
Wintershall AG's Barnstorf oil plant
ULRICH KUPPERS(1)...................... 45 Manager of the Ludwigshafen branch of 1994
the Mining, Chemical and Energy
Industries Union (Industriegewerkschaft
Bergbau, Chemie, Energie)
KONRAD MANTEUFFEL(1)................... 48 Member of the works council of the 1999
Ludwigshafen site of BASF
Aktiengesellschaft
DR. KARLHEINZ MESSMER(1)............... 56 Plant Manager at the Ludwigshafen site 1993
of BASF Aktiengesellschaft
ROBERT OSWALD(1)....................... 45 Chairman of the works council of the 2000
Ludwigshafen site of BASF
Aktiengesellschaft
ELLEN SCHNEIDER(1)..................... 50 Chairwoman of the joint works council of 1993
Elastogran GmbH
DR. HERMANN SCHOLL..................... 65 Managing Director of Robert Bosch GmbH 1998
DR. HENNING SCHULTE-NOELLE............. 58 Chairman of the Board of Executive 1992
Directors of Allianz AG
ROBERT STUDER.......................... 62 Retired Chairman of Union Bank of 1993
Switzerland
157
164
YEAR
NAME AGE PRINCIPAL OCCUPATION FIRST ELECTED
- ---- --- -------------------- -------------
JURGEN WALTER(1)....................... 55 Member of the Central Board of Executive 1998
Directors of the Mining, Chemical and
Energy Industries Union
(Industriegewerkschaft Bergbau, Chemie,
Energie)
HELMUT WERNER.......................... 64 Retired Chairman of the Board of 1993
Executive Directors of Mercedes-Benz AG
GERHARD ZIBELL(1)...................... 50 Regional Manager of the Mining, Chemical 1998
and Energy Industries Union
(Industriegewerkschaft Bergbau, Chemie,
Energie) Rhineland-Palatinate/Saar
region
- ---------------
(1) Employees' representative.
COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate amount of compensation BASF Aktiengesellschaft and its
subsidiaries paid during the year ended December 31, 2000, to all members of the
Board of Executive Directors and the Supervisory Board, as a group, was E10.5
million. Of this amount, members of the Board of Executive Directors received
E8.5 million and members of the Supervisory Board received E2.0 million. These
sums include accrued performance-related bonuses for 2000. Additionally, the pro
rata value of stock options granted to the members of the Board of Executive
Directors in 2000 amounts to E0.7 million.
The total compensation BASF Aktiengesellschaft and its subsidiaries paid
during the year ended December 31, 2000, to former members of the Board of
Executive Directors and their beneficiaries was E5.9 million. In 2000, E1.8
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
E56.8 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, 2000, approximately 95% 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 by investing
part of his individual performance-related bonus in BASF Shares. In 1999,
members of the Board of Executive Directors were granted a total of 166,616
options with rights to subscribe to up to 333,232 BASF Shares at a preferential
price. In 2000, a total of 126,228 options with up to 252,456 subscription
rights were granted to members of the Board of Executive Directors. See "Item 6.
Directors, Senior Management and Employees -- BASF Stock Option Program (BOP)"
for further details on the terms and conditions of the options' rights.
158
165
BOARD PRACTICES
The Supervisory Board has established a special remuneration committee
("Personalausschuss"). The members of this committee are Dr. Berthold Leibinger,
Dr. Henning Schulte-Noelle, Volker Obenauer and Jurgen Walter. The remuneration
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.
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, 2000, BASF employed a workforce of 103,273 people
worldwide, which represented a decline of approximately 1.3% from the end of
1999. About 52.6% of the workforce is based in Germany. Expenditures for
salaries and wages totaled E5,307 million in 2000, up from E4,935 million in
1999. For further information, see Note 10 to the Consolidated Financial
Statements included in Item 18.
The following table details BASF's workforce on a regional basis as of
December 31, 2000, 1999 and 1998.
2000 1999 1998
------- ------- -------
Europe............................................ 68,861 73,789 75,738
thereof Germany................................. 54,356 58,158 60,021
North America..................................... 17,331 15,685 15,908
South America..................................... 6,913 6,688 6,512
Asia, Pacific Area, Africa........................ 10,168 8,466 7,787
TOTAL............................................. 103,273 104,628 105,945
As of December 31, 2000, BASF Aktiengesellschaft employed 41,117 people at
its headquarters in Ludwigshafen, Germany, compared with 42,789 people as of
December 31, 1999.
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. In addition,
approximately 45% of BASF's European workforce outside of Germany, 10% of its
workforce in the United States and Canada, 30% of its workforce in Mexico, 70%
of its workforce in South America and 40% of its workforce in the Asia, Pacific
Area, Africa region is represented by labor unions and/or company-specific
collective bargaining organizations.
159
166
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.
AGREEMENT 2000/AGREEMENT 2003
In the "Agreement 2000" signed in October 1997, BASF management and
employees' representatives of BASF's Ludwigshafen site agreed to achieve by the
end of 2000 a personnel level, excluding trainees, of between 39,000 and 41,000
employees. This workforce reduction will be achieved for the most part through
socially responsible measures, including voluntary part-time working conditions
for those nearing retirement, voluntary termination agreements for other
employees wishing to leave the company and modest loans to those wanting to
start their own businesses. The definition of the workforce under Agreement 2000
included 39,433 people at the Ludwigshafen site as of December 31, 2000, down
from 42,470 in October 1997 when the program was started.
In the "Agreement 2003" signed in April 2000, BASF management and
employees' representatives of BASF's Ludwigshafen site reached a new agreement
based on the original October 1997 agreement. The new pact calls for continued
workforce reductions that will be achieved through socially responsible
measures. The total number of employees at the Ludwigshafen site as of December
31, 2000, was 41,117. 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 in 2000.
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.
An executive participating in the BOP may invest between 10% and 30% of his
or her annual variable compensation in BASF Shares. 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. For each BASF Share purchased under the BOP
(the "BOP Shares"), the participant automatically receives four option rights on
the day after an Annual Meeting, known as the grant date. The purchase price for
BOP Shares is based on a "market price," which is the volume weighted average of
the prices quoted in the Xetra(R) electronic trading system of Deutsche Borse AG
on the grant date (the "BOP Share Price"). In 1999, the BOP Share Price was
E41.60 and in 2000 the BOP Share Price was E47.80. Pursuant to the BOP, more
than 900 executives have received option rights allowing them to purchase BASF
Shares.
Option rights 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.
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 the Dow Jones EURO
STOXX(SM)
160
167
Total Return Index (the "EURO STOXX"). The discount is equal to twice the
percentage by which BASF Shares have outperformed the EURO STOXX 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 monetary benefit
resulting from the exercise of option rights being granted for one BOP Share may
not exceed 10 times the BOP Share Price.
In 1999, approximately 900 senior executives eligible for the BOP purchased
an aggregate of 294,610 BOP Shares under the program at a BOP Share Price of
E41.60. This aggregate number includes 41,654 BOP Shares bought by members of
the Board of Executive Directors. According to the BOP conditions and based on
the number of BOP Shares purchased, a total of 1,178,440 option rights have been
granted to participants, of which 166,616 have been granted to members of the
Board of Executive Directors. These option rights entitle participants to
purchase up to 2,356,880 BASF Shares on the terms described above.
As of December 31, 2000, a total of 31,625 of the option rights granted in
1999 had lapsed because the option holders no longer worked for BASF or had sold
some of their shares. Overall, a total of 1,146,815 option rights of the 1999
BOP still exist.
In 2000, approximately 900 senior executives eligible for the BOP purchased
an aggregate of 226,790 BOP Shares under the program at a BOP Share Price of
E47.80. This aggregate number includes 31,557 BOP Shares bought by members of
the Board of Executive Directors. According to the BOP conditions and based on
the number of BOP Shares purchased, a total of 917,016 option rights have been
granted to participants, of which 126,228 have been granted to members of the
Board of Executive Directors. These option rights entitle participants to
purchase up to 1,834,032 BASF Shares on the terms described above.
EMPLOYEE STOCK PURCHASE PROGRAM
In 1999, BASF Aktiengesellschaft and several other German subsidiaries of
BASF launched a stock purchase program for their employees. 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 ten 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.
In 1999, approximately 12,000 employees of BASF companies in Germany
purchased 223,980 BASF Shares under the program, entitling them to receive up to
111,990 additional BASF Shares. As of December 31, 1999, a total of 18,876 of
these shares holding the right to receive free shares had expired so the total
amount of shares qualifying under the "plus" program is 205,104.
In 2000, approximately 14,000 employees of BASF companies in Germany and
several other European countries purchased 544,730 BASF Shares under the
program, entitling them to receive up to 272,365 additional BASF Shares.
161
168
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, 2000, BASF Aktiengesellschaft had an aggregate of
607,399,370 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 and several of its subsidiaries have notified
BASF that they directly or indirectly hold more than 10% of the BASF Shares.
Information available as of December 31, 2000 indicated that Allianz
Aktiengesellschaft and its subsidiaries held an aggregate of 11.9% 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, 2000 are shown in Note 13 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.
162
169
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:
REGIONAL SALES PRODUCED IN REGION REGIONAL EXPORTS (IMPORTS)
REGION (EUROS IN MILLIONS) (EUROS IN MILLIONS) (EUROS IN MILLIONS)
- ------ ------------------- ------------------- --------------------------
Europe.......................... 20,103 22,203 2,100
- - thereof Germany............... 7,897 14,457 6,560
North America................... 8,419 8,441 22
South America................... 2,500 2,127 (373)
Asia, Pacific Area, Africa...... 4,924 3,175 (1,749)
Total........................... 35,946 35,946 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, BASF Aktiengesellschaft entered into agreements with the United
States Department of Justice and the Canadian Competition Bureau by which BASF
Aktiengesellschaft agreed to plead guilty to certain violations of antitrust
laws relating to the sale of vitamin products in the United States and in
Canada. The relevant courts accepted the guilty pleas and the recommended fines.
On October 20, 2000, BASF Australia Ltd. entered into a settlement
agreement with the antitrust agency in Australia by which BASF Australia Ltd.
admitted certain violations of Australian antitrust laws and agreed to pay a
penalty of A$7.5 million. Court approval of the settlement is still pending.
Government investigations against BASF or the respective local subsidiaries of
BASF continue in the European Union, Japan, Mexico and Brazil.
BASF Aktiengesellschaft, certain of its subsidiaries and other vitamin
producers have also been named as defendants in numerous civil lawsuits,
including class action lawsuits and actions on behalf of individual plaintiffs,
alleging violations of the Sherman Antitrust Act and state statutes. On June 22,
1998, the lawsuits filed in the federal courts were consolidated for pretrial
purposes in the United States District Court for the District of Columbia, In
re: Vitamin Antitrust Litigation, Misc. No. 99-197 (TFH). The federal actions
principally allege violations of the Sherman Antitrust Act and seek damages of
three times the losses caused to persons who purchased vitamins directly from
the defendants. BASF has agreed to settle the class action lawsuits with
plaintiffs who purchased products in the United States directly from vitamin
manufacturers. Terms of the settlement agreement called for seven vitamin
manufacturers to contribute up to $1.17 billion, including plaintiffs' legal
163
170
costs. BASF Aktiengesellschaft's share of the total amount would have been $287
million. The United States District Court for the District of Columbia granted
final approval of the proposed settlement (except with regard to attorneys'
fees) on March 28, 2000. Because plaintiffs representing approximately 80% of
relevant BASF sales have elected to opt out of the proposed settlement, BASF
Aktiengesellschaft's share has been reduced to $62 million plus interest (which
has been paid) and up to $29 million in plaintiffs' legal costs. Many of such
opt-out plaintiffs have filed complaints in various federal courts alleging
violations of the Sherman Act substantially similar to those alleged in the
class actions. Individual settlements have been reached with customers
representing approximately 20% of the relevant BASF sales in the United States.
State court actions are proceeding separately in approximately 28 states.
These actions principally allege violations of state law and seek damages based
on losses suffered by persons who were indirect purchasers of vitamins from the
defendants, including in some cases treble damages, injunctions, punitive
damages, statutory penalties and restitution. 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, including
plaintiffs' legal costs, subject to approval of the settlements in various state
courts. If the settlements are approved, BASF Aktiengesellschaft will be
obligated to pay up to $97 million of the total amount, of which BASF
Aktiengesellschaft already has paid $7 million.
In addition, beginning in June and July of 1999, civil lawsuits relating to
antitrust issues were initiated in Canada and Australia. Because all of these
actions are in the early procedural stages, BASF cannot predict their outcome.
Although the final resolution of these civil actions and the continuing
government investigations mentioned above could in the aggregate have a material
effect on BASF's consolidated operating results for a particular reporting
period, BASF believes that the matters should not have a material adverse effect
on BASF's financial condition and cash flows.
SYNTHROID(R)-RELATED CLAIMS
On October 30, 1997, Knoll Pharmaceutical Company (Knoll), a subsidiary of
BASF Corporation, announced that a United States district court in Chicago gave
preliminary approval of a proposed settlement of a series of class action
lawsuits involving its thyroid medication Synthroid(R). The lawsuits challenged
Knoll's delaying publication of a study conducted by Dong et al. that compared
Synthroid(R) to certain branded and generic products. The study concluded that
Synthroid(R) and some competing products are bioequivalent. Although Knoll
believes the study was flawed and the conclusion incorrect, Knoll agreed to the
proposed settlement to avoid burdensome and expensive litigation which would
have drained valuable resources necessary to continue building its leadership
position in thyroid treatment.
Under the terms of the proposed settlement, consumers who bought
Synthroid(R) between January 1, 1990 and October 30, 1997 would have been
eligible to receive a pro rata share of a settlement fund consisting of $98
million in cash. If as many as five million claimants had participated, eligible
claimants would have received payment in the amount of $19.60, less a
proportionate share of court awarded attorneys' fees and related costs. If the
number of eligible claimants had exceeded five million, Knoll would have
contributed additional payments to the settlement fund until the fund reached a
maximum of $135 million.
For various reasons, including the unclear position of third party payors,
final approval of the proposed 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 preliminary approval of the new proposed
settlement on October 8, 1999. Based on a fairness hearing on April 27, 2000,
final approval was granted on August 4, 2000. A number of appeals have been
filed in the United States Court of Appeals for the Seventh Circuit by objectors
appealing the denial of their motions to intervene and by lead counsel for the
customer
164
171
class and lead counsel for the third party payor class appealing the award of
attorneys' fees and costs. The appeals have been consolidated and are pending.
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 therefore 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 German marks or 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.
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, 2000.
165
172
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 2000 amounted to E5.20 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 1999, the third largest stock exchange in
the world, after the New York Stock Exchange (NYSE) and the Nasdaq National
Market.
In 2000, trading on the Frankfurt Stock Exchange accounted for
approximately 85% of the turnover in exchange-traded securities in Germany. As
of December 31, 2000, the equity securities of 5,694 companies, of which 4,789
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(R) (Exchange Electronic Trading), an
integrated computerized trading system operated by the Frankfurt Stock Exchange.
Xetra(R) is available during the operating hours of the Frankfurt Stock Exchange
to brokers and banks that are members of a German stock exchange. Xetra(R) 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(R) system) settle on the second business day following trading.
Transactions off 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 necessary to protect the public
interest. Trading activities are also monitored by the German Federal
Supervisory Authority for Securities Trading (Bundesaufsichtsamt fur den
Wertpapierhandel ).
166
173
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 STOXX(SM)600 Index comprised
of some 600 companies located in Europe. BASF Shares are also included in the
Dow Jones EURO STOXX(SM) 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(SM)600 Index. STOXX Limited is the operating company
of the Dow Jones STOXX(SM) 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 2000 was 6,924,071
shares.
167
174
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, German
mark and the euro during the periods in this table.
PRICE PER BASF SHARE DAX
----------------------------------------- -------------------
HIGH LOW HIGH LOW
---- --- ---- ---
QUARTERLY HIGH AND LOWS
1996
First Quarter............ DM 40.42 (E 20.67) DM 32.56 (E 16.65) 2,525.42 2,284.86
Second Quarter........... DM 43.80 (E 22.39) DM 39.41 (E 20.15) 2,573.69 2,457.49
Third Quarter............ DM 49.00 (E 25.05) DM 39.30 (E 20.09) 2,666.55 2,447.80
Fourth Quarter........... DM 61.95 (E 31.67) DM 47.31 (E 24.19) 2,909.91 2,655.73
1997
First Quarter............ DM 66.80 (E 34.15) DM 56.15 (E 28.71) 3,460.59 2,848.77
Second Quarter........... DM 69.10 (E 35.33) DM 60.70 (E 31.04) 3,805.29 3,215.24
Third Quarter............ DM 73.65 (E 37.66) DM 60.45 (E 30.91) 4,438.93 3,819.85
Fourth Quarter........... DM 67.40 (E 34.46) DM 55.90 (E 28.58) 4,347.24 3,567.22
1998
First Quarter............ DM 81.80 (E 41.82) DM 59.75 (E 30.55) 5,102.35 4,087.28
Second Quarter........... DM 86.85 (E 44.41) DM 76.75 (E 39.24) 5,915.13 5,018.67
Third Quarter............ DM 92.90 (E 47.50) DM 61.00 (E 31.19) 6,171.43 4,433.87
Fourth Quarter........... DM 70.90 (E 36.25) DM 58.30 (E 29.81) 5,121.48 3,896.08
1999
First Quarter............ E 34.35(1) E 30.19 5,443.62 4,678.72
Second Quarter........... E 42.60 E 34.50 5,492.36 4,845.45
Third Quarter............ E 45.00 E 39.70 5,655.30 4,999.24
Fourth Quarter........... E 52.20 E 39.50 6,958.14 5,156.28
2000
First Quarter............ E 51.80 E 42.15 8,064.97 6,474.92
Second Quarter........... E 49.75 E 40.01 7,555.92 6,834.88
Third Quarter............ E 45.55 E 39.55 7,480.14 6,682.92
Fourth Quarter........... E 48.45 E 40.15 7,136.30 6,200.71
- ---------------
(1) As of January 4, 1999, the first day the euro was traded, all stocks on the
Frankfurt Stock Exchange were quoted in euros. The fixed conversion rate of
the German mark to the euro is DM1.95583 = E1.00.
MONTHLY HIGH AND LOWS OF THE LAST SIX MONTHS
September.................................... E 43.75 E 39.55
October...................................... E 46.00 E 40.15
November..................................... E 45.60 E 42.80
December..................................... E 48.45 E 43.60
2001
January...................................... E 49.16 E 44.25(1)
February..................................... E 48.95 E 46.55(1)
- ---------------
(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(R) -- the
integrated computerized trading system through which the Frankfurt Stock
Exchange conducts trading in equity securities.
168
175
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
------------- -------------
2000
June................. USD 43 7/8 USD 37 3/8
July................. USD 42 1/8 USD 40 1/16
August............... USD 41 1/8 USD 37 7/16
September............ USD 38 9/16 USD 34 1/4
October.............. USD 39 1/4 USD 34
November............. USD 39 3/16 USD 36 7/16
December............. USD 44 7/16 USD 38 7/8
2001
January.............. USD 46.50 USD 41.6875
February............. USD 45.23 USD 42.85
169
176
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 29, 1999 and April 27,
2000, 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, or re-sell the
shares subject to a further resolution adopted at a Annual Meeting. Between
March 8, 2000 and October 31, 2000, BASF Aktiengesellschaft had bought
15,856,500 BASF Shares, approximately 2.5% of the then outstanding BASF Shares.
The Board of Executive Directors has cancelled these re-bought BASF Shares,
reducing the company's outstanding share capital.
MATERIAL CONTRACTS
On March 20, 2000, BASF acquired from American Home Products Corporation 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
U.S. 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 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 will
transfer 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 is $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.
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
As of January 1, 1999, Germany and 10 other member states of the European
Union (Austria, Belgium, Finland, France, Ireland, Italy, Luxembourg, the
Netherlands, Portugal and Spain)
170
177
introduced the euro as their single currency. In 2000, Greece joined these
countries and introduced the euro as the twelfth member state of the European
Union.
The former national currencies of these countries are being used as
denominations of the euro for an interim period ending by December 31, 2001.
During this interim period, the former national currencies are converted into
euros at fixed conversion rates that were established prior to the introduction
of the euro. The euro and, as a denomination thereof, the German mark are fully
convertible currencies.
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 DM5,000 (approximately E2,556)
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 DM3,000,000 (approximately E1,533,875) or
the equivalent in a foreign currency during any one month. Residents must also
report any direct investment outside Germany if such investment exceeds
DM100,000 (approximately E51,129) or the equivalent in a foreign currency.
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 United States federal income and
German tax considerations relating to the ownership of 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 United States 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
171
178
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 United States 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.
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 United States 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 United States federal income tax law, Eligible U.S. Holders generally
will be required to include in their gross income, as ordinary dividend income,
the gross amount of any distribution paid by us out of our current or
accumulated earnings and profits (as determined under United States federal
income tax principles). An Eligible U.S. Holder's dividend income for United
States federal income tax purposes will not be reduced by the amount of German
withholding taxes imposed on a distribution made by us 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.
Under German tax law, German corporations are required to withhold tax on
dividends in an amount equal to 25% of the gross amount paid to resident and
nonresident stockholders plus the solidarity surcharge of 5.5% thereon (equal to
1.375% of the gross amount). As of January 1, 2002 the withholding tax rate on
dividends will be reduced to 20% plus the solidarity surcharge of 5.5% thereon
(see "Corporate Taxation in Germany," below). In the case of an Eligible U.S.
Holder, the German withholding tax is partially refunded under the Income Tax
Treaty to reduce the withholding tax to 15% of the gross amount of the dividend.
In addition, so long as the German imputation system provides German resident
individual stockholders with a tax credit for corporate taxes with respect to
dividends paid by German corporations, the Income Tax Treaty provides that
Eligible U.S. Holders are entitled to a further refund equal to 5% of the gross
amount of the dividend. For United States federal income tax purposes, the
benefit resulting from this refund is treated as a dividend received by the
Eligible U.S. Holder with respect to German corporate taxes. Eligible U.S.
Holders should be aware that, as a result of German tax legislation enacted in
2000, the 5% refund will no longer be available after December 31, 2001. See
"Corporate Taxation in Germany," below.
Subject to applicable limitations and conditions under United States
federal income tax law, German income taxes withheld from dividends received in
respect of ADSs or BASF Shares may be claimed by Eligible U.S. Holders either as
credits against their U.S. federal income tax liability, or as deductions in
computing their taxable income. For United States foreign tax credit purposes,
dividends received in respect of the ADSs or BASF Shares generally will be
treated as passive (or, in some circumstances, financial services) income
derived from sources outside the United States.
172
179
The rules relating to foreign tax credits are complex, and Eligible U.S. holders
should consult with 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 to an Eligible U.S. Holder, the dividend after partial refund of the 25%
withholding tax (plus the solidarity surcharge of 5.5% thereon) under the Income
Tax Treaty would be subject to a German withholding tax of $15. If the Eligible
U.S. Holder also applied for the additional 5% refund, German withholding tax
effectively would be reduced to $10, and the cash received per $100 gross amount
of dividend would be $90. For United States federal income tax purposes, the
U.S. Holder would be treated as receiving total dividend income of $105.88 (to
the extent paid out of our current and accumulated earnings and profits, as
determined under United States federal income tax principles), consisting of the
$100 gross amount of dividend and the deemed refund of German corporate tax of
$5.88. The notional $105.88 dividend would be deemed to have been subject to
German withholding tax of $15.88. Thus, for each $100 gross amount of dividend,
the Eligible U.S. Holder would include $105.88 in gross income, and would be
entitled to claim a foreign tax credit (or, alternatively, a deduction) of
$15.88, subject to the generally applicable limitations and conditions under
United States federal income tax law.
For United States federal income tax purposes, dividends paid by BASF in
German marks or euros will be 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 German marks or 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 DM300 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 United States 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
173
180
identification number, the form number for the relevant United States 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 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 (Bundesamt fur Finanzen) for
conditional refund. After initially checking only arithmetical correctness, the
German Federal Tax Authority (Bundesamt fur Finanzen) 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 United States 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 United States 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 United States federal income tax rates. The deduction of capital
losses is subject to certain limitations under United States federal income tax
law.
Deposits and withdrawals of BASF Shares in exchange for ADSs generally will
not be considered a taxable event for United States 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 United
States 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
174
181
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 United States 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 United States federal estate
or gift tax.
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.
CORPORATE TAXATION IN GERMANY
In 2000, the Parliament of the Federal Republic of Germany enacted a bill
reforming corporate tax and reducing tax rates, effective January 1, 2001. Among
many other changes, the tax reform abolished the imputation system (corporation
tax credit system). As a result, at the shareholder level, the credit for
corporation tax paid by the corporation, and the 5% refund of corporate taxes to
Eligible U.S. holders under the Income Tax Treaty, has been removed. In
addition, the withholding tax on income from capital investment would be reduced
by 5%. As this piece of the new tax law is subject to transitional provisions,
it will only come into effect as of January 1, 2002 (the 5% refund will still
apply in 2001).
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 7 World Trade
Center, New York, New York 10048. 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 http://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.
175
182
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
BASF is exposed to foreign currency and interest rate risks during 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-interest 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 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 and BASF Group companies designated for this purpose. BASF
has developed and implemented internal guidelines based on the principles of
separation of the conclusion 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 are
completed as replacement for original financial instruments, market trends are
also monitored constantly.
INTEREST RATE RISK MANAGEMENT
BASF holds interest rate sensitive financial instruments to manage the
liquidity and cash needs of its operations. Financial liabilities consist of
bank loans (21% of financial liabilities), which BASF group companies worldwide
took from numerous local banks in their various home currencies. Additionally,
fixed-rate U.S. dollar and euro bonds are outstanding (19% of financial
liabilities) as well as a number of variable and fixed-rate U.S.
dollar-denominated infrastructure and environmental bonds with a preferred tax
status in the United States (4% of financial liabilities). The remaining debt
consists of a number of other bonds or commercial paper (56% of financial
liabilities, thereof 55% short-term commercial paper).
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 German marks and 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.
176
183
The following information on debt is presented in euro (E) equivalents,
which is BASF's reporting currency.
PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY
INTEREST RATE -- DECEMBER 31, 1999
FAIR VALUE
DECEMBER 31,
2000 2001 2002 2003 2004 THEREAFTER TOTAL 1999
----- ----- ----- ----- ----- ---------- ------- ------------
DEBT, INCLUDING CURRENT PORTION
U.S. DOLLAR (USD)
Fixed rate...................... 101.1 284.1 18.9 13.8 13.6 23.5 455.0 444.3
Weighted avg.
interest rate (fixed)......... 7.0% 3.8% 7.3% 7.2% 7.1% 6.8%
Variable rate................... 50.4 4.7 2.3 -- -- 204.2 261.6 261.6
Interest rate (variable)........ 6.9% 6.6% 6.6% -- -- 4.8%
SUBTOTAL........................ 716.6 705.9
EURO (EUR)
Fixed rate...................... 45.4 6.1 4.7 4.5 14.6 3.1 78.4 78.4
Weighted avg.
interest rate (fixed)......... 3.4% 4.8% 4.7% 3.8% 3.9% 1.5%
Variable rate................... 31.7 4.9 2.0 1.8 1.6 0.6 42.6 42.6
Interest rate (variable)........ 3.3% 3.1% 3.1% 3.1% 3.1% 1.7%
SUBTOTAL........................ 121.0 121.0
CHINESE RENMINBI
(CNY)
Fixed rate...................... 141.9 -- -- -- -- -- 141.9 141.9
Weighted avg.
interest rate (fixed)......... 6.1% -- -- -- -- --
Variable rate................... 4.7 26.4 10.9 -- -- -- 42.0 42.0
Interest rate (variable)........ 6.6% 6.3% 6.4% -- -- --
SUBTOTAL........................ 183.9 183.9
OTHER CURRENCIES
Fixed rate...................... 167.1 43.0 16.4 4.2 0.1 -- 230.8 230.8
Weighted avg.
interest rate (fixed)......... 7.9% 9.6% 12.5% 9.5% 5.5% --
Variable rate................... 34.9 4.6 -- -- 2.6 -- 42.1 42.1
Interest rate (variable)........ 9.4% 10.6% -- -- 2.1% --
SUBTOTAL........................ 272.9 272.9
----- ----- ----- ----- ----- ----- ------- -------
TOTAL........................... 577.2 373.8 55.2 24.3 32.5 231.4 1,294.4 1,283.7
177
184
PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY
INTEREST RATE -- DECEMBER 31, 2000
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%
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
Fixed rate U.S. dollar debt with a remaining term of less than one year of
E4,454.7 million includes E4,056.5 million of commercial paper of BASF
Aktiengesellschaft as well as the 3% U.S. Dollar Option Bond 1986/2001 of BASF
Finance Europe N.V. with an amount of E247.8 million due in 2001.
Other currencies at December 31, 2000, in which BASF has issued debt are
primarily the Korean won, the Malaysian ringgit, the Brazilian real and the
British pound.
178
185
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, 1999
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
----------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER TOTAL AMOUNT FAIR VALUE
---- ----- ---- ---- ---- ---------- ------------------- -------------------
(EUROS IN MILLIONS) (EUROS IN MILLIONS)
U.S. DOLLAR
Payer Swap..................... 7 141 148 2.03
Weighted to average pay rate
(fixed)...................... 6.7% 7.0%
Weighted average receive rate
(variable)................... 6.4% 7.2%
INTEREST RATE SWAPS -- DECEMBER 31, 2000
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
---------------------------------------------
2001 2002 2003 2004 2005 THEREAFTER TOTAL AMOUNT FAIR VALUE
---- ---- ---- ---- ---- ---------- ------------------- -------------------
(EUROS IN MILLIONS) (EUROS IN MILLIONS)
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%
The total volume of interest rate swaps decreased from E148 million in 1999
to E36 million in 2000.
INTEREST RATE AND CROSS CURRENCY SWAPS -- DECEMBER 31, 1999
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
----------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER TOTAL AMOUNT FAIR VALUE
---- ----- ---- ---- ---- ---------- ------------------- -------------------
(EUROS IN MILLIONS) (EUROS IN MILLIONS)
U.S. DOLLAR (USD)/GERMAN MARK
(DEM)
Amount payable on maturity
(USD)........................ 199 64 263
Amount receivable on maturity
(DEM)........................ 143 61 204 (60.63)
Weighted average pay rate
(fixed, USD)................. 7.3% n.a.(1)
Weighted average receive rate
(fixed, DEM)................. 6.8% n.a.(1)
Amount payable on maturity
(USD)........................ 199 199 199 538(2) 1,135
Amount receivable on maturity
(DEM)........................ 141 159 184 494(2) 978 (148.43)
Weighted average pay rate
(fixed, USD)................. 7.6% 6.7% 5.8% 7.4%
179
186
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
----------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER TOTAL AMOUNT FAIR VALUE
---- ----- ---- ---- ---- ---------- ------------------- -------------------
(EUROS IN MILLIONS) (EUROS IN MILLIONS)
Weighted average receive rate
(variable, DEM).............. 4.5% 5.0% 5.1% 5.3%
Amount payable on maturity
(USD)........................ 37 62 99
Amount receivable on maturity
(DEM)........................ 35 59 93 (6.75)
Weighted average pay rate
(variable, USD).............. 6.6% 6.8%
Weighted average receive rate
(variable, DEM).............. 4.1% 4.6%
DUTCH GUILDER (NLG)/GERMAN MARK
(DEM)
Amount payable on maturity
(NLG)........................ 4 4
Amount receivable on maturity
(DEM)........................ 4 4 0.04
Weighted average pay rate
(fixed, NLG)................. 6.2%
Weighted average receive rate
(fixed, DEM)................. 5.8%
Amount payable on maturity
(NLG)........................ 3 3
Amount receivable on maturity
(DEM)........................ 3 3 (0.02)
Weighted average pay rate
(fixed, NLG)................. 6.0%
Weighted average receive rate
(variable, DEM).............. 4.5%
JAPANESE YEN (JPY)/GERMAN MARK
(DEM)
Amount payable on maturity
(JPY)........................ 4 4 9
Amount receivable on maturity
(DEM)........................ 3 3 7 (1.92)
Weighted average pay rate
(fixed, JPY)................. 2.5% 0.7%
Weighted average receive rate
(variable, DEM).............. 4.1% 5.1%
CANADIAN DOLLAR (CAD)/GERMAN
MARK (DEM)
Amount payable on maturity
(CAD)........................ 14 14
Amount receivable on maturity
(DEM)........................ 11 11 (2.68)
Weighted average pay rate
(fixed, CAD)................. 6.9%
Weighted average receive rate
(variable, DEM).............. 4.3%
180
187
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
----------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER TOTAL AMOUNT FAIR VALUE
---- ----- ---- ---- ---- ---------- ------------------- -------------------
(EUROS IN MILLIONS) (EUROS IN MILLIONS)
BRAZILIAN REAL (BRL) /U.S.
DOLLAR (USD)
Amount payable on maturity
(BRL)........................ 74 10 84
Amount receivable on maturity
(USD)........................ 70 10 80 (5.11)
Weighted average pay rate
(fixed, BRL)................. 9.5% 10.1%
Weighted average receive rate
(fixed, USD)................. 0%(3) 0%(3)
SPANISH PESETA (ESP)/GERMAN
MARK (DEM)
Amount payable on maturity
(ESP)........................ 24 24
Amount receivable on maturity
(DEM)........................ 24 24 (0.64)
Weighted average pay rate
(fixed, ESP)................. 5.5%
Weighted average receive rate
(fixed, DEM)................. 4.6%
- ---------------
(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) 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. This
difference is shown under the BRL interest rate.
INTEREST RATE AND CROSS CURRENCY SWAPS -- DECEMBER 31, 2000
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
------------------------------------------------
2001 2002 2003 2004 2005 THEREAFTER TOTAL AMOUNT FAIR VALUE
---- ---- ---- ---- ------- ---------- ------------------- -------------------
(EUROS IN MILLIONS) (EUROS IN MILLIONS)
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)
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
181
188
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
------------------------------------------------
2001 2002 2003 2004 2005 THEREAFTER TOTAL AMOUNT FAIR VALUE
---- ---- ---- ---- ------- ---------- ------------------- -------------------
(EUROS IN MILLIONS) (EUROS IN MILLIONS)
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%
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%
182
189
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
------------------------------------------------
2001 2002 2003 2004 2005 THEREAFTER TOTAL AMOUNT FAIR VALUE
---- ---- ---- ---- ------- ---------- ------------------- -------------------
(EUROS IN MILLIONS) (EUROS IN MILLIONS)
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%
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.
183
190
The total volume of interest rate and cross currency swaps increased from
E1,409 million in 1999 to E2,977 million in 2000. This was due to a number of
new U.S. dollar/Euro swaps that BASF entered into to hedge the currency risk on
increased internal financing of group companies worldwide as a result of the
acquisition of the crop protection business from American Home Products
Corporation. The total fair value of the swaps changed from E(228) million in
1999 to E(366) million in 2000 mainly due to the rising U.S. dollar exchange
rate versus the German mark and the euro and to increased volumes overall.
OTHER DERIVATIVES -- DECEMBER 31, 1999
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
--------------------------------------------------
1999 2000 2001 2002 2003 THEREAFTER TOTAL AMOUNT FAIR VALUE
----- ----- ----- ----- ----- ---------- ------------------- -------------------
(EUROS IN MILLIONS) (EUROS IN MILLIONS)
Equity Index Swap(1)....... 51 51 26.02
Weighted average pay rate
(variable)............... 4.8%
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, 2000
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
--------------------------------------------------
2001 2002 2003 2004 2005 THEREAFTER TOTAL AMOUNT FAIR VALUE
----- ----- ----- ----- ----- ---------- ------------------- -------------------
(EUROS IN MILLIONS) (EUROS IN MILLIONS)
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.
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 2000, 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.
BASF 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. As of December 31, 2000, the company
had entered into contracts with a nominal volume of $4.0 billion. For additional
information on the sales of the pharmaceuticals business, see Note 2 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.
184
191
The tables below provide information about significant derivative financial
instruments which are sensitive to changes in foreign currency exchange rates.
FOREIGN CURRENCY FORWARD CONTRACTS -- DECEMBER 31, 1999(1)
WEIGHTED AVERAGE
CONTRACT AMOUNT FORWARD FAIR VALUE
(EUROS IN MILLIONS) EXCHANGE RATE (EUROS IN MILLIONS)
------------------- ---------------- -------------------
EURO (EUR)
Sale Australian dollar (AUD)........ 27.8 1.63 (0.97)
Sale Canadian dollar (CAD).......... 6.8 1.49 (0.10)
Sale Danish krone (DKK)............. 13.5 7.44 (0.00)
Sale British pound (GBP)............ 168.7 0.64 (3.87)
Sale Hong Kong dollar (HKD)......... 0.7 7.81 (0.01)
Sale Japanese yen (JPY)............. 64.2 109.05 (4.17)
Sale New Zealand dollar (NZD)....... 2.5 2.06 (0.15)
Sale Swedish krona (SEK)............ 2.1 8.79 (0.05)
Sale Singapore dollar (SGD)......... 67.1 2.01 (12.51)
Sale Thai baht (THB)................ 0.6 41.80 (0.06)
Sale U.S. dollar (USD).............. 1,676.0 1.04 (35.45)
Purchase Singapore dollar (SGD)..... 8.2 1.71 (0.14)
Purchase U.S. dollar (USD).......... 183.7 1.03 3.01
U.S. DOLLAR (USD)
Sale Australian dollar (AUD)........ 12.5 1.54 (0.05)
Sale Chinese renminbi (CNY)......... 5.7 8.31 (0.30)
Sale Mexican peso (MXP)............. 90.5 11.42 (13.04)
Sale British pound (GBP)............ 0.5 0.62 (0.00)
Sale Indonesian rupia (IDR)......... 6.0 7,236.00 (0.10)
Sale Malaysian ringgit (MYR)........ 3.6 3.77 0.03
Sale Brazilian real (BRL)........... 6.1 2.03 (0.64)
Sale UF(2).......................... 3.0 0.03 (0.06)
Sale Argentine peso (ARS)........... 19.9 1.00 (0.07)
Sale Taiwan dollar (TWD)............ 11.4 31.60 (0.12)
Sale Thai baht (THB)................ 4.2 38.52 (0.09)
Purchase Danish krona (DKK)......... 18.9 7.41 (0.95)
Purchase Colombian peso (COP)....... 8.1 2,175.41 (1.10)
BRITISH POUND (GBP)
Sale Australian dollar (AUD)........ 2.0 2.53 (0.04)
Purchase Japanese yen (JPY)......... 0.1 163.75 0.00
Purchase Danish krona (DKK)......... 0.4 11.98 (0.02)
JAPANESE YEN (JPY)
Purchase Danish krona (DKK)......... 0.8 7.26 (0.14)
AUSTRALIAN DOLLAR (AUD)
Purchase Danish krona (DKK)......... 0.3 4.83 (0.02)
NEW ZEALAND DOLLAR (NZD)
Purchase Danish krona (DKK)......... 0.1 3.86 (0.01)
- ---------------
(1) All maturing in 2000 except for E12 million in 2001-2003 and E67
million in 2004.
(2) UF = Unidad de Fomento equals 15.066 Chilean pesos.
185
192
FOREIGN CURRENCY FORWARD CONTRACTS -- DECEMBER 31, 2000(1)
WEIGHTED AVERAGE
FORWARD
CONTRACT AMOUNT EXCHANGE FAIR VALUE
(EUROS IN MILLIONS) 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 Canada 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.
The total volume of forward currency contracts increased from E2,416
million in 1999 to E10,630 million in 2000. BASF entered into foreign exchange
forward contracts related to the foreign exchange exposure arising from the sale
of BASF's pharmaceutical business in U.S. dollars. Furthermore, new contracts
were closed as a result of an increased number of intercompany loans within the
BASF Group resulting from the acquisition of the crop protection business of
American Home Products Corporation and from increased issuance of commercial
paper. The total fair value of foreign currency forward contracts changed from
E(71) million to E(18) million.
186
193
FOREIGN CURRENCY OPTIONS -- DECEMBER 31, 1999 (ALL MATURING IN 2000)
CONTRACT AMOUNT WEIGHTED AVERAGE FAIR VALUE
(EUROS IN MILLIONS) OPTION STRIKE PRICE (EUROS IN MILLIONS)
------------------- ------------------- -------------------
Euro (EUR) call (sell)/Japanese yen (JPY)
put (buy)................................. 73 109.03 1.5
Euro (EUR) put (buy)/Japanese yen (JPY) call
(sell).................................... 79 101.82 (5.0)
U.S. dollar (USD) call (sell)/Brazilian real
(BRL) put (buy)(1)........................ 41 1.89 1.0
- ---------------
(1) This position includes the purchase of USD calls in an aggregate amount
of E30 million for which the final strike price is dependent on an
variable interbank interest rate (CD). Therefore the strike price can
only be estimated.
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)
The total volume of foreign currency options increased from E193 million in
1999 to E4,221 million in 2000 due to foreign currency options to reduce 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 E(3) million to E66 million.
187
194
CROSS CURRENCY SWAPS -- DECEMBER 31, 1999
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
--------------------------------------------------- TOTAL AMOUNT FAIR VALUE
2000 2001 2002 2003 2004 THEREAFTER (EUROS IN MILLIONS) (EUROS IN MILLIONS)
----- ----- ------ ----- ----- ---------- ------------------- -------------------
PAYMENT OF U.S. DOLLAR
(USD)
Notional amount......... 199 37 261 199 199 601 1,497 (215.82)
Average contract rate
German mark (DEM) per
U.S. dollar (USD)..... 1.40 1.80 1.49 1.56 1.80 1.80 1.66
PAYMENT OF DUTCH GUILDER
(NLG)
Notional amount......... 7 7 0.02
Average contract rate
German mark (DEM) for
100 Dutch guilders
(NLG)................. 89.17 89.17
PAYMENT OF JAPANESE YEN
(JPY)
Notional amount......... 4 4 9 (1.92)
Average contract rate
German mark (DEM) for
100 Japanese yen
(JPY)................. 1.47 1.51 1.49
PAYMENT OF CANADIAN
DOLLAR (CAD)
Notional amount......... 14 14 (2.68)
Average contract rate
German mark (DEM) per
Canadian dollar
(CAD)................. 1.08 1.08
PAYMENT OF SPANISH
PESETA (ESP)
Notional amount......... 24 24 (0.64)
Average contract rate
German mark (DEM) for
100 Spanish pesetas
(ESP)................. 1.19 1.19
PAYMENT OF BRAZILIAN
REAL (BRL)
Notional amount......... 74 10 84 (5.11)
Average contract rate
Brazilian real per
U.S. dollar (USD)..... 1.90 1.85 1.89
188
195
CROSS CURRENCY SWAPS -- DECEMBER 31, 2000
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
--------------------------------------------------- TOTAL AMOUNT FAIR VALUE
2001 2002 2003 2004 2005 THEREAFTER (EUROS IN MILLIONS) (EUROS IN MILLIONS)
------ ----- ------ ----- ---- ---------- ------------------- -------------------
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 guilders
(NLG)................... 89.29 89.29
PAYMENT OF JAPANESE YEN
(JPY)
Notional amount........... 0(1) 0 (0.09)
Average contract rate
German mark (DEM) 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 (JPY) 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
- ---------------
(1) The notional amount of this contract is less than E1 million.
189
196
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
---------------------------------------------------- TOTAL AMOUNT FAIR VALUE
2001 2002 2003 2004 2005 THEREAFTER (EUROS IN MILLIONS) (EUROS IN MILLIONS)
----- ----- ------- ----- ----- ---------- ------------------- -------------------
PAYMENT OF SPANISH
PESETA (ESP)
Notional amount........ 24 24 (0.17)
Average contract
rate.................
German mark (DEM) for
100 Spanish pesetas
(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)......... 1201.00 1201.00
The total volume of cross currency swaps went up from E1,409 million in
1999 to E2,977 million in 2000. This was due to a number of new U.S. dollar/Euro
swaps that BASF entered into to hedge the currency risk on increased internal
financing of group companies worldwide as a result of the acquisition of the
crop protection business from American Home Products Corporation. The total fair
value of the swaps changed from E(228) million in 1999 to E(366) million in 2000
mainly due to the rising U.S. dollar exchange rate versus the German mark and
the euro and to overall increased volumes.
OTHER DERIVATIVES -- DECEMBER 31, 1999
EXPECTED MATURITY DATE
(NOTIONAL AMOUNTS, EUROS IN MILLIONS)
--------------------------------------------------- TOTAL AMOUNT FAIR VALUE
2000 2001 2002 2003 2004 THEREAFTER (EUROS IN MILLIONS) (EUROS IN MILLIONS)
----- ----- ------ ----- ----- ---------- ------------------- -------------------
PAYMENT OF U.S. DOLLAR
(USD)
Break forward(1).......... 12 12 (1.11)
Average contractual
forward
exchange rate........... 2.07
- ---------------
(1) Represents a foreign currency forward contract (purchase of U.S.
dollar, sale of Brazilian real at a forward rate of 2.07 BRL/USD)
combined with the purchase of a put option at a strike price of 1.87
BRL/USD in order to hedge a U.S. dollar liability. The additional put
will reduce the purchase cost for the notional U.S. dollar amount if
the exchange rate falls below 1.87 BRL/USD.
MARKETABLE SECURITIES
As of December 31, 2000, BASF owns debt and equity securities as well as
mutual funds 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 by 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 E681.4 million, which includes
unrealized gains of E254.3 million. See Note 16 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). Such a swap was concluded to
synthetically create an 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
190
197
performance must not be reimbursed. Therefore the maximum equity exposure is a
zero payment from the counterparties. The fair value of the DAX-Libor-Swap was
E10 million as of December 31, 2000.
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:
- 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.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
191
198
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]
192
199
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, 2000, 1999 and 1998.......................... F-2
Consolidated Balance Sheets at December 31, 2000 and
1999................................................... F-3
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999
and 1998............................................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2000, 1999 and 1998........... F-5
Notes to the Consolidated Financial Statements.............. F-7
193
200
201
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the accompanying consolidated balance sheets of BASF
Aktiengesellschaft and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 2000. 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, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
Germany.
Application of accounting principles generally accepted in the United
States of America would have affected stockholders' equity as of December 31,
2000 and 1999 and net income for each of the three years in the period ended
December 31, 2000 to the extent summarized in Note 3 to the consolidated
financial statements.
Frankfurt am Main,
February 28, 2001
(March 2, 2001 as to Note 2)
Deloitte & Touche GmbH
Wirtschaftsprufungsgesellschaft
/s/ EMMERICH /s/ KOMPENHANS
Professor Dr. Emmerich Kompenhans
Wirtschaftsprufer Wirtschaftsprufer
F-1
202
BASF GROUP
CONSOLIDATED STATEMENTS OF INCOME
(EUROS AND DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
----------------------------------------------
NOTE 2000 2000 1999 1998
---- ---------- --------- --------- ---------
Sales.................................... $ 33,989.0 E36,205.1 E31,318.2 E29,245.6
Petroleum and natural gas taxes.......... (243.5) (259.4) (1,845.5) (1,602.7)
---------- --------- --------- ---------
SALES, NET OF PETROLEUM AND NATURAL GAS
TAXES.................................. 4 33,745.5 35,945.7 29,472.7 27,642.9
Cost of sales............................ (21,831.7) (23,255.1) (18,391.3) (17,274.5)
---------- --------- --------- ---------
GROSS PROFIT ON SALES.................... 11,913.8 12,690.6 11,081.4 10,368.4
Selling expenses......................... (5,432.3) (5,786.5) (5,279.9) (4,963.2)
General and administrative expenses...... (724.7) (772.0) (677.0) (772.5)
Research and development expenses........ (1,432.4) (1,525.8) (1,333.0) (1,309.3)
Other operating income................... 5 1,328.7 1,415.3 978.2 1,136.9
Other operating expenses................. 6 (2,771.3) (2,951.9) (2,761.0) (1,836.6)
---------- --------- --------- ---------
INCOME FROM OPERATIONS................... 2,881.8 3,069.7 2,008.7 2,623.7
---------- --------- --------- ---------
Expense/income from financial assets..... (29.1) (31.0) 727.4 87.7
Write-downs of, and losses from,
retirement of financial assets as well
as securities held as current assets... (6.4) (6.8) (22.2) (48.4)
Interest result.......................... (192.0) (204.5) (108.4) 107.8
---------- --------- --------- ---------
FINANCIAL RESULT......................... 7 (227.5) (242.3) 596.8 147.1
---------- --------- --------- ---------
INCOME BEFORE TAXES AND MINORITY
INTERESTS.............................. 2,654.3 2,827.4 2,605.5 2,770.8
---------- --------- --------- ---------
Income taxes............................. 8 (1,450.4) (1,545,0) (1,360.8) (1,106.8)
---------- --------- --------- ---------
INCOME BEFORE MINORITY INTERESTS......... 1,203.9 1,282.4 1,244.7 1,664.0
Minority interests....................... 9 40.0 42.6 7.9 (35.4)
---------- --------- --------- ---------
NET INCOME............................... $ 1,163.9 E 1,239.8 E 1,236.8 E 1,699.4
---------- --------- --------- ---------
EARNINGS PER SHARE....................... $ 1.90 E 2.02 E 2.00 E 2.73
- ---------------
Solely for the convenience of the reader, the 2000 financial information has
been translated into United States dollars using the December 31, 2000 noon
buying rate of the Federal Reserve Bank of New York of $1.00 = E1.0652.
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-2
203
BASF GROUP
CONSOLIDATED BALANCE SHEETS
(EUROS AND DOLLARS IN MILLIONS)
AT DECEMBER 31,
-----------------------------------
NOTE 2000 2000 1999
---- --------- --------- ---------
ASSETS
Intangible assets............................ 11 $ 4,260.4 E 4,538.2 E 2,146.8
Property, plant and equipment................ 12 12,805.7 13,640.6 12,416.3
Financial assets............................. 13 3,370.0 3,589.7 1,506.6
--------- --------- ---------
FIXED ASSETS................................. 20,436.1 21,768.5 16,069.7
--------- --------- ---------
Inventories.................................. 14 4,892.6 5,211.6 4,027.7
Accounts receivable, trade................... 5,696.2 6,067.6 4,966.7
Receivables from affiliated companies........ 860.8 916.9 724.5
Miscellaneous receivables and other assets... 2,011.0 2,142.2 1,357.2
--------- --------- ---------
Receivables and other assets................. 15 8,568.0 9,126.7 7,048.4
--------- --------- ---------
Marketable securities........................ 16 341.8 364.1 517.4
Cash and cash equivalents.................... 474.6 505.5 990.2
--------- --------- ---------
Liquid funds................................. 816.4 869.6 1,507.6
--------- --------- ---------
CURRENT ASSETS............................... 14,277.0 15,207.9 12,583.7
--------- --------- ---------
DEFERRED TAXES............................... 8 1,192.7 1,270.5 1,225.4
PREPAID EXPENSES............................. 17 291.3 310.3 130.2
--------- --------- ---------
TOTAL ASSETS................................. 36,197.1 38,557.2 30,009.0
--------- --------- ---------
STOCKHOLDERS' EQUITY AND LIABILITIES
Subscribed capital........................... 1,459.7 1,554.9 1,589.7
Capital surplus.............................. 18 2,577.6 2,745.7 2,675.2
Retained earnings............................ 19 8,309.3 8,851.1 9,001.7
Currency translation adjustment.............. 621.4 661.8 549.3
Minority interests........................... 20 451.8 481.3 329.3
--------- --------- ---------
STOCKHOLDERS' EQUITY......................... 13,419.8 14,294.8 14,145.2
--------- --------- ---------
Provisions for pensions and similar
obligations................................ 21 3,969.5 4,228.3 4,170.0
Provisions for taxes......................... 730.8 778.4 662.6
Other provisions............................. 22 4,259.1 4,536.8 3,805.1
--------- --------- ---------
PROVISIONS................................... 8,959.4 9,543.5 8,637.7
--------- --------- ---------
Bonds and other liabilities to capital
market..................................... 23 5,849.1 6,230.5 516.7
Liabilities to credit institutions........... 23 1,559.7 1,661.4 777.7
Accounts payable, trade...................... 2,673.8 2,848.1 2,316.0
Liabilities to affiliated companies.......... 367.8 391.8 208.0
Miscellaneous liabilities.................... 23 2,994.8 3,190.1 3,217.4
--------- --------- ---------
LIABILITIES.................................. 13,445.2 14,321.9 7,035.8
--------- --------- ---------
DEFERRED INCOME.............................. 372.7 397.0 190.3
--------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES... $36,197.1 E38,557.2 E30,009.0
--------- --------- ---------
- ---------------
Solely for the convenience of the reader, the 2000 financial information has
been translated into United States dollars using the December 31, 2000 noon
buying rate of the Federal Reserve Bank of New York of $1.00 = E1.0652.
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-3
204
BASF GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EUROS AND DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31,
-------------------------------------------------
2000 2000 1999 1998
---------- ---------- ---------- ----------
Net income.............................. $ 1,163.9 E 1,239.8 E 1,236.8 E 1,699.4
Depreciation of fixed assets............ 2,749.6 2,928.9 2,690.0 2,288.7
Changes in long-term provisions......... 151.4 161.3 204.5 (229.7)
Other non-cash items.................... 171.3 182.5 (41.9) (47.4)
(Gains) losses from disposal of fixed
assets and securities................. (350.3) (373.2) (1,006.6) (148.4)
Changes in inventories.................. (634.6) (676.0) (218.5) 93.1
Changes in receivables.................. (1,021.7) (1,088.4) (1,326.6) 336.8
Changes in other operating assets and
liabilities........................... 579.2 617.0 1,717.3 (248.0)
---------- ---------- ---------- ----------
CASH PROVIDED BY OPERATING ACTIVITIES... 2,808.8 2,991.9 3,255.0 3,744.5
---------- ---------- ---------- ----------
Additions to tangible and intangible
fixed assets.......................... (2,728.1) (2,905.9) (2,938.7) (2,722.2)
Additions to financial assets and
securities............................ (788.2) (839.6) (877.7) (1,177.0)
Payments related to acquisitions........ (5,742.8) (6,117.2) (397.3) (968.9)
Proceeds from divestitures.............. 286.3 304.9 1,093.5 208.6
Proceeds from the disposal of fixed
assets and securities................. 683.2 727.8 1,021.7 1,432.4
---------- ---------- ---------- ----------
CASH USED IN INVESTING ACTIVITIES....... (8,289.6) (8,830.0) (2,098.5) (3,227.1)
---------- ---------- ---------- ----------
Proceeds from capital increases......... 89.4 95.3 80.1 27.3
Share repurchase........................ (656.9) (699.8) (255.6) --
Proceeds from the addition of financial
indebtedness.......................... 10,551.0 11,238.9 2,350.9 336.9
Repayment of financial indebtedness..... (4,299.1) (4,579.4) (2,446.2) (431.6)
Dividends paid
- -- To shareholders of BASF
Aktiengesellschaft.................... (652.2) (694.7) (692.8) (636.1)
- -- To minority shareholders............. (49.5) (52.8) (4.7) 5.7
---------- ---------- ---------- ----------
CASH USED IN FINANCING ACTIVITIES....... 4,982.7 5,307.5 (968.3) (697.8)
---------- ---------- ---------- ----------
NET CHANGE IN CASH AND CASH
EQUIVALENTS........................... (498.1) (530.6) 188.2 (180.4)
---------- ---------- ---------- ----------
Effects on cash and cash equivalents
- -- From foreign exchange rates.......... 25.7 27.4 19.6 (17.1)
- -- From changes in scope of
consolidation......................... 17.4 18.5 25.5 111.6
Cash and cash equivalents as of
beginning of year..................... 929.6 990.2 756.9 842.8
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS AS OF END OF
YEAR.................................. 474.6 505.5 990.2 756.9
---------- ---------- ---------- ----------
Marketable securities................... 341.8 364.1 517.4 745.7
---------- ---------- ---------- ----------
LIQUID FUNDS AS SHOWN ON THE BALANCE
SHEET................................. $ 816.4 E 869.6 E 1,507.6 E 1,502.6
---------- ---------- ---------- ----------
- ---------------
Solely for the convenience of the reader, the 2000 financial information has
been translated into United States dollars using the December 31, 2000 noon
buying rate of the Federal Reserve Bank of New York of $1.00 = E1.0652.
The accompanying Notes are an integral part of these Consolidated Financial
Statements
F-4
205
BASF GROUP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(EUROS IN MILLIONS)
NUMBER OF
SUBSCRIBED CURRENCY TOTAL
SHARES SUBSCRIBED CAPITAL RETAINED TRANSLATION MINORITY STOCKHOLDERS
2000 OUTSTANDING CAPITAL SURPLUS EARNINGS ADJUSTMENT INTERESTS EQUITY
- ---- ----------- ---------- --------- --------- ----------- --------- ------------
January 1, 2000............... 620,984,640 E 1,589.7 E 2,675.2 E 9,001.7 E 549.3 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..... 2,271,230 5.8 29.9 -- -- -- 35.7
Share buy-back and
cancellation of own
shares...................... (15,856,500) (40.6) 40.6 (699.8) -- -- (699.8)
Dividends paid................ -- -- -- (694.7) -- (52.8)* (747.5)
Net income.................... -- -- -- 1,239.8 -- 42.6 1,282.4
(Decrease)/increase of foreign
currency translation
adjustments................. -- -- -- -- 112.5 (5.3) 107.2
Capital injection by minority
interests................... -- -- -- -- -- 59.5 59.5
Changes in scope of
consolidation and other
changes..................... -- -- -- 4.1 -- 108.0 112.1
----------- --------- --------- --------- ------- ------- ----------
December 31, 2000............. 607,399,370 E 1,554.9 E 2,745.7 E 8,851.1 E 661.8 E 481.3 E 14,294.8
----------- --------- --------- --------- ------- ------- ----------
- ---------------
* Profit and loss transfers to minority interests
NUMBER OF
SUBSCRIBED CURRENCY TOTAL
SHARES SUBSCRIBED CAPITAL RETAINED TRANSLATION MINORITY STOCKHOLDERS
OUTSTANDING CAPITAL SURPLUS EARNINGS ADJUSTMENT INTERESTS EQUITY
----------- ---------- -------- -------- ----------- --------- ------------
1999
January 1, 1999...................... 623,794,150 E1,594.7 E2,590.1 E8,695.1 E 39.5 E330.7 E13,250.1
Issuance of new shares from
conditional capital through the
exercise of warrants attached to
the 1986/2001 3% U.S. Dollar Option
Bond............................... 5,086,690 13.0 67.1 -- -- -- 80.1
Share buy-back and cancellation of
own shares......................... (7,896,200) (20.2) 20.2 (255.6) -- -- (255.6)
Capital increase to reconcile nominal
value of BASF shares to E2.56 per
share.............................. -- 2.2 (2.2) -- -- -- --
Dividends paid....................... -- -- -- (692.8) -- (4.7)* (697.5)
Net income........................... -- -- -- 1,236.8 -- 7.9 1,244.7
Increase of foreign currency
translation adjustments............ -- -- -- -- 509.8 32.3 542.1
Changes in scope of consolidation and
other changes...................... -- -- -- 18.2 -- (36.9) (18.7)
----------- -------- -------- -------- ------ ------ ---------
December 31, 1999.................... 620,984,640 E1,589.7 E2,675.2 E9,001.7 E549.3 E329.3 E14,145.2
----------- -------- -------- -------- ------ ------ ---------
- ---------------
* Profit and loss transfers to minority interests
F-5
206
BASF GROUP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- CONTINUED
(EUROS IN MILLIONS)
NUMBER OF
SUBSCRIBED CURRENCY TOTAL
SHARES SUBSCRIBED CAPITAL RETAINED TRANSLATION MINORITY STOCKHOLDERS
1998 OUTSTANDING CAPITAL SURPLUS EARNINGS ADJUSTMENT INTERESTS EQUITY
- ---- ----------- ---------- -------- -------- ----------- --------- ------------
December 31, 1997, as previously
reported........................... 622,062,680 E1,590.2 E2,567.2 E7,417.9 E 200.3 E254.8 E12,030.4
Changes in accounting methods to U.S.
GAAP to the extent permitted under
the German Commercial Code......... -- -- -- 238.1 -- (43.3) 194.8
----------- -------- -------- -------- ------- ------ ---------
January 1, 1998, restated............ 622,062,680 1,590.2 2,567.2 7,656.0 200.3 211.5 12,225.2
Issuance of new shares from
conditional capital through the
exercise of warrants attached to
the 1986/2001 3% U.S. Dollar Option
Bond............................... 1,731,460 4.5 22.9 -- -- -- 27.4
Issuance of new shares from
conditional capital to former
Wintershall shareholders as
compensation for Wintershall shares
outstanding from the tender offer
in 1968(1)......................... 10 -- -- -- -- -- --
Dividends paid....................... -- -- -- (636.1) -- 5.7* (630.4)
Net income........................... -- -- -- 1,699.4 -- (35.4) 1,664.0
(Decrease)/increase of foreign
currency translation adjustments... -- -- -- -- (160.8) 5.4 (155.4)
Changes in scope of consolidation and
other changes...................... -- -- -- (24.2) -- 143.5 119.3
----------- -------- -------- -------- ------- ------ ---------
December 31, 1998.................... 623,794,150 E1,594.7 E2,590.1 E8,695.1 E 39.5 E330.7 E13,250.1
----------- -------- -------- -------- ------- ------ ---------
- ---------------
(1) Amount is less than E100,000.
* Profit and loss transfers to minority interests
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-6
207
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. The reconciliation of remaining
significant deviations to U.S. GAAP is described in Note 3 to these Consolidated
Financial Statements.
On January 1, 1999, the euro was introduced as the common legal currency of
11 member states of the European Economic and Monetary Union, including Germany.
BASF has adopted the euro as its reporting currency in its Consolidated
Financial Statements and translated all German mark (DM) amounts at the fixed
exchange rate for German marks to euro. Although these statements depict the
same trends as would have been shown had they been presented in German marks,
they may not be directly comparable to the financial statements of other
companies that have also been restated in euros. The euro did not exist prior to
January 1999, and accordingly historical exchange rates for the euro are not
available. A comparison of the Consolidated Financial Statements and those of
another company that had historically used a reporting currency other than the
German mark that takes into account actual fluctuations in exchange rates could
give a much different impression than a comparison of the Consolidated Financial
Statements and those of another company as translated into euros. The financial
statements previously denominated in German marks have been translated into
euros using the fixed exchange rate applicable since January 1, 1999 (E1 = DM
1.95583) for all periods presented. All monetary amounts shown in the
Consolidated Financial Statements are expressed in millions of euros, except per
share amounts.
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, 2000, which was $1.00 = E1.0652. 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, formed at the end of the third quarter of the year 2000. Basell N.V.
comprises the polyolefins business of the companies Elenac, Targor and Montell,
including their subsidiaries. Basell N.V. largely operates independently and is
not included in the planning and approval processes of BASF. Basell N.V. is
therefore not included on a proportional consolidation basis, but accounted for
using the equity method. Subsidiaries and joint ventures whose impact on the net
worth, financial position and results of the Company are immaterial,
individually and in the aggregate, are excluded from the scope of consolidation.
F-7
208
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Consolidated companies and changes to the scope of consolidation:
2000 1999 1998
---- ---- ----
Consolidated companies as of beginning of year.............. 150 132 124
- - Thereof proportional consolidation........................ 16 17 9
First-time consolidations................................... 41 26 19
- - Thereof proportional consolidation........................ -- 2 8
Deconsolidations............................................ 21 8 11
- - Thereof proportional consolidation........................ 10 3 --
--- --- ---
Consolidated as of December 31.............................. 170 150 132
--- --- ---
- - Thereof proportional consolidation........................ 6 16 17
Generally, affiliated companies not consolidated due to immateriality and
associated companies are accounted for using the equity method. Associated
companies represent those entities where the Company, through a participation of
at least 20%, exercises significant influence over the operating and financial
policies thereof.
2000 1999 1998
---- ---- ----
Affiliated companies........................................ 22 25 32
Joint ventures.............................................. 3 7 8
Other associated companies.................................. 3 3 1
-- -- --
Companies accounted for using the equity method as of
December 31............................................... 28 35 41
-- -- --
Major changes to the scope of consolidation, other than those relating to
corporate structure, relate to the following:
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.
- 22 subsidiaries from the crop protection business of American Home
Products Corporation acquired in the middle of 2000; the major part of
this business was directly acquired through asset purchases by
consolidated subsidiaries of BASF.
- Another seven 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.
F-8
209
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
1998:
First-time consolidations comprise:
- Elenac Group of Kehl, Germany, and Strasbourg, France (which consists of
eight companies), a joint venture that combined the European polyethylene
businesses of BASF and Shell as of March 1, 1998. The Company has a 50%
ownership interest in this venture. Elenac acquired the polyethylene
business of Montell N.V. of the Netherlands effective March 1, 1998, as
well as the Hostalen business of Hoechst AG effective December 31, 1998.
The former joint venture company, Rheinische Olefinwerke GmbH, became
part of Elenac.
- Micro Flo Co. of Lakeland, Florida, a supplier of generic crop protection
products in the United States, which was acquired on June 30, 1998.
- A total of six companies headquartered in Korea, Japan, China and
Singapore that were included due to their increased importance.
Deconsolidations comprise:
- The divestiture of Chemag AG of Frankfurt, Germany, a trading company.
- The divestiture of Comparex Informationssysteme GmbH of Mannheim,
Germany, an information technology company (including four subsidiaries).
F-9
210
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:
2000 1999 1998
----------------- -------------- -----------------
(EUROS IN MILLIONS)
Fixed assets...................... E5,140.7 32.0% E505.9 3.5% E1,363.2 10.7%
Thereof property, plant and
equipment....................... 633.5 5.1 343.0 3.2 796.0 8.8
Inventories and receivables....... 1,357.5 10.9 (318.7) (3.0) 189.7 1.9
Liquid funds...................... 4.6 0.3 711.1 47.3 (645.2) (35.0)
-------- ------ --------
Assets............................ E6,502.8 21.7% E898.3 3.4% E 907.7 3.7%
-------- ------ --------
Stockholders' equity.............. 343.3 2.4 400.3 3.0 260.6 2.2
Financial liabilities............. 5,855.6 452.4 107.6 8.2 338.7 30.1
Other liabilities................. 303.9 2.1 390.4 3.2 308.4 2.7
-------- ------ --------
Stockholders' equity and
liabilities..................... E6,502.8 21.7% E898.3 3.4% E 907.7 3.7%
-------- ------ --------
Sales............................. E (702) (2.4)% E 869 3.1% E 483 1.7%
Thereof:
Acquisitions...................... 1,056 627 963
Divestitures...................... (1,919) (331) (627)
Changes in scope of
consolidation................... 161 573 147
SIGNIFICANT ACQUISITION
On July 1, 2000, the Company acquired the worldwide crop protection
business of American Home Products Corporation (AHP). This business manufactures
a wide range of herbicide, insecticide, fungicide 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 E344 million one-time cost 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 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.
F-10
211
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2000 1999
--------- ---------
Net sales................................................ E37,130.7 E31,038.7
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
On a pro forma basis, if the 1999 and 1998 acquisitions had taken place at
the beginning of 1999 and 1998 respectively, the impact on net sales, net income
and basic and diluted earnings per share would not have been material.
PROPORTIONAL CONSOLIDATION
The Company accounts for its investments in 6 joint ventures (1999: 16,
1998: 17) 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 3.
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 2000 1999
- ------------------------- ------- ---------
(EUROS IN MILLIONS)
Fixed assets................................................ E283.4 E860.4
Current assets.............................................. 408.2 658.7
------ --------
Total assets................................................ E691.6 E1,519.1
------ --------
Stockholders' equity........................................ E 71.8 E441.9
Provisions.................................................. 109.2 233.5
Liabilities................................................. 510.6 843.7
------ --------
Total liabilities and stockholders' equity.................. E691.6 E1,519.1
------ --------
YEAR ENDED DECEMBER 31,
--------------------------------
STATEMENT OF INCOME INFORMATION 2000 1999 1998
- ------------------------------- -------- -------- --------
(EUROS IN MILLIONS)
Sales............................................. E2,732.3 E1,885.7 E1,716.6
Income from operations............................ 164.5 156.8 108.2
Net income........................................ 137.7 113.7 87.0
CASH FLOW INFORMATION
Cash provided by operating activities............. E68.7 E120.5 E201.9
Cash used in investing activities................. (13.9) (85.6) (347.2)
Cash used in (provided by) financing activities... (50.5) (60.3) 163.4
Net change in cash and cash equivalent............ 5.8 19.4 21.1
F-11
212
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARIZED FINANCIAL INFORMATION FOR SIGNIFICANT ASSOCIATED COMPANIES ACCOUNTED
FOR USING THE EQUITY METHOD
In the Consolidated Financial Statements for 2000, the following
significant associated companies are accounted for using the equity method for
the first time: Basell Group (BASF's share: 50%) and DyStar Group (BASF's share:
30%). Condensed financial information of these significant associated companies
and for Svalof Weibull Group (BASF's share: 40%), which was for the first time
accounted for by the equity method in 1999, is as follows:
BALANCE SHEET INFORMATION AS OF DECEMBER 31, 2000
- ------------------------- -----------------------
(EUROS IN MILLIONS)
Fixed assets.............................................. E6,014.8
Current assets............................................ 3,222.5
---------
Total assets.............................................. E9,237.3
---------
Stockholders' equity...................................... E4,038.6
Provisions................................................ 1,027.4
Liabilities............................................... 4,171.3
---------
Total liabilities and stockholders' equity................ E9,237.3
---------
BASF's investment......................................... 1,917.8
STATEMENT OF INCOME INFORMATION YEAR ENDED DECEMBER 31, 2000
- ------------------------------- ----------------------------
(EUROS IN MILLIONS)
Sales..................................................... E2,820.0
Income from operations.................................... (101.7)
Net income................................................ (135.9)
---------
BASF's share of net income................................ (59.9)
Goodwill was E165.1 million for Basell N.V., E25.3 million for the DyStar
Group and E123.3 million in 1999 for the Svalof-Weibull Group.
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 at the Commercial Registry 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.
(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.
F-12
213
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 eight years for 2000 and 1999 based on the
following expected useful lives:
ESTIMATED LIVES
----------------
2000 1999
------ ------
Goodwill.................................................... 5-20 5-15
Product rights and licenses................................. 3-15 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 3-5
Other rights and values..................................... 5-25 5-25
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. Movable fixed assets are mostly depreciated by the declining
balance method, with a change to straight-line depreciation if this results in
higher depreciation rates. Long-distance natural gas pipelines and immovable
fixed assets are depreciated using the straight-line method.
F-13
214
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average periods of depreciation, for 2000 and 1999, are as
follows:
ESTIMATED LIVES
---------------
Building and structural installations....................... 22
Industrial plant and machinery.............................. 9
Long-distance natural gas pipelines......................... 25
Working and office equipment and other facilities........... 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. In performing this review of recoverability, the Company
estimates the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying value of
the asset, an impairment loss is recognized. 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.
Generally, long-lived assets to be disposed of are reported at the lower of
carrying amount or fair value less cost to sell.
The Company follows the successful efforts method of accounting for its oil
and gas activities. Under this method, costs of successful and uncompleted oil
and gas drilling operations are capitalized as tangible assets. They are
depreciated under the declining balance method over the estimated useful lives
of eight years (for drilling operations in old fields) or 15 years. In certain
regions, they are depreciated under the unit-of-production basis. Geophysical
expenditures, including exploratory and dry-hole costs, are charged against
income.
FINANCIAL ASSETS: Shares in affiliated and associated companies not
accounted for by the equity method and other 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.
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 and an average profit margin or costs of
reproduction. 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 billing of a
project; expected losses are recognized by write-downs to the lower attributable
values.
F-14
215
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 using the tax rates applicable in the individual countries. 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
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%.
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-
F-15
216
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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: The Company uses derivative financial
instruments to manage foreign currency, interest rate and commodity price risks
arising from booked, pending and planned underlying activities. Foreign currency
receivables or liabilities that are hedged are recognized at forward rates and
option strike prices. Profits from currency derivatives which cannot be
allocated to a particular underlying transaction are recorded in income upon
maturity. Unrealized losses from forward foreign exchange contracts and currency
options which cannot be allocated to a particular underlying transaction are
recognized currently in earnings and included in provisions. For interest rate
and interest rate/cross currency swaps, cash values of interest exchange amounts
are accrued and recognized in interest income.
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 since January 1, 2000, and for oil
and gas operations in Argentina. Balance sheet items are translated to euros at
year-end rates, expenses and income at quarterly average rates and equity
accounts at historical rates. 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, 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.
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 those estimates.
F-16
217
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(D) CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING AND VALUATION METHODS
To the extent permissible under the German Commercial Code, accounting and
valuation methods were adjusted to U.S. GAAP as of January 1, 1998. The
cumulative effects of these changes as of January 1, 1998, have been debited or
credited directly to retained earnings in the Consolidated Financial Statements
as follows:
(EUROS IN MILLIONS)
Valuation of pension obligations in accordance with the
projected unit credit method (SFAS No. 87, "Employers'
Accounting for Pensions")................................. E (961.8)
Elimination of special tax valuation measures............... 210.4
Other adjustments........................................... (107.1)
Deferred tax assets/liabilities for above adjustments and
for temporary differences between the carrying value of
assets/liabilities for book and tax purposes.............. 1,053.3
Minority interests.......................................... 43.3
--------
Total credit to retained earnings as of January 1, 1998..... E 238.1
--------
Until December 31, 1997, pension obligations were accounted for by adopting
"the entry age normal method" in accordance with German tax regulation and other
statutory accounting regulations. Obligations arising from pension commitments
were revalued as of January 1, 1998, using the projected unit credit method
required by SFAS No. 87 considering the revised 1998 mortality tables of Dr.
Heubeck, which are generally applicable for German companies.
The effects of any accounting and valuation methods allowed exclusively for
tax purposes, such as depreciation allowances or the deferral of gains from the
disposal of fixed assets, have been fully eliminated from the Consolidated
Financial Statements.
Other adjustments related mainly to the change of the valuation methods of
short-term foreign currency receivables and liabilities. They are converted at
year-end exchange rates instead of using lower (receivables) or higher
(payables) exchange rates at the inception of the receivable or payable.
Provisions for the overhauling to certain large-scale plants within
prescribed intervals are accrued in installments instead of being charged to
income as incurred.
Deferred tax assets were recognized for taxable temporary differences
between the valuation of assets and liabilities in the commercial and tax
balance sheets of the consolidated companies. Furthermore, deferred taxes
arising from the above mentioned accounting changes are included.
F-17
218
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
These adjustments resulted in the following increases (decreases) of
balance sheet items as of January 1, 1998:
(EUROS IN MILLIONS)
Property, plant and equipment............................... E 192.3
Inventories/receivables..................................... (46.1)
Deferred tax assets......................................... 1,053.3
Prepaid expenses............................................ (44.0)
--------
TOTAL ASSETS................................................ E1,155.5
--------
Retained earnings........................................... 238.1
Minority interests.......................................... (43.3)
Special reserves............................................ (18.1)
Provisions for pensions and similar obligations............. 917.8
Other provisions/liabilities................................ 61.0
--------
TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES.................. E1,155.5
--------
F-18
219
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. DISCONTINUED OPERATIONS AND SUBSEQUENT EVENT
On December 14, 2000, BASF and Abbott Laboratories of the United States
signed a contract for the sale of BASF's pharmaceuticals business, operated by
BASF Pharma Holding GmbH, Ludwigshafen, Germany, and its subsidiaries.
Subsequent to the preparation of the German Financial Statements and the
issuance of the auditors' report as of February 28, 2001, approval from the
relevant governmental antitrust authorities was granted for the sale of BASF's
pharmaceuticals business. On March 2, 2001, the sale to Abbott Laboratories for
$6.9 billion was completed. The gain on disposition in 2001 will depend upon the
final net asset value of the pharmaceuticals business as of the closing date.
The pharmaceuticals business was a reportable segment within the Health &
Nutrition segment and its disposition would be treated according to U.S. GAAP as
a discontinued operation. In accordance with German GAAP, the results of the
pharmaceuticals business are not reported separately from BASF's continuing
operations. If the pharmaceuticals business were classified as a discontinued
operation, the Consolidated Financial Statements would be impacted as follows:
INCOME STATEMENT:
2000 1999 1998
------ ------ ------
(EUROS IN MILLIONS)
Sales.................................................. E2,526 E2,197 E1,850
Income from operations................................. 243 (13) 59
Income before taxes.................................... 260 3 78
Net income/Income from discontinued operations......... 156 2 47
REGIONS:
Sales and income from operations were achieved in the following regions
with the respective assets:
NORTH ASIA
THEREOF AMERICA SOUTH PACIFIC AREA,
EUROPE GERMANY (NAFTA) AMERICA AFRICA TOTAL
------ ------- ------- ------- ------------- ------
(EUROS IN MILLIONS)
2000
Sales....................... E 982 E 384 E1,019 E 156 E369 E2,526
Income from operations...... (90) (171) 297 27 9 243
Assets...................... 1,099 749 754 97 278 2,228
1999
Sales....................... E 929 E 376 E 861 E 134 E273 E2,197
Income from operations...... (302) (394) 231 28 30 (13)
Assets...................... 846 532 743 68 230 1,887
1998
Sales....................... E 853 E 394 E 729 E 109 E159 E1,850
Income from operations...... (159) (249) 177 26 15 59
Assets...................... 850 560 664 40 143 1,697
F-19
220
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. 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.
YEAR ENDED DECEMBER 31,
------------------------------------------------
RECONCILIATION OF NET INCOME TO NOTE 2000 2000 1999 1998
U.S. GAAP ---- --------- --------- --------- ---------
(EUROS AND DOLLARS IN MILLIONS EXCEPT PER SHARE
AMOUNTS)
Net income as reported in the
Consolidated Financial Statements of
income under German GAAP............ $1,163.9 E1,239.8 E1,236.8 E1.699.4
Adjustments required to conform with
U.S. GAAP:
Capitalization of interest............ (a) 50.4 53.7 26.1 35.4
Capitalization of software developed
for internal use.................... (b) 47.9 51.0 50.1 --
Valuation of pension funds............ (c) 111.6 118.9 70.9 (33.6)
Valuation of long-term foreign
currency items and financial
derivatives......................... (d) 65.1 69.4 (36.0) 52.6
Valuation of securities............... (e) -- -- (0.7) (1.4)
U.S. GAAP adjustments relating to
companies accounted for under the
equity method....................... (f) 7.8 8.3 8.3 23.1
Other adjustments..................... (g) (8.4) (9.0) (27.1) (20.0)
Deferred taxes........................ (h) (69.2) (73.7) 3.1 27.8
Minority interests.................... (i) (4.5) (4.8) (6.7) (12.3)
-------- -------- -------- --------
NET INCOME IN ACCORDANCE WITH U.S.
GAAP................................ $1,364.6 E1,453.6 E1,324.8 E1,771.0
-------- -------- -------- --------
thereof net income from continuing
operations.......................... 1,222.4 1,302.1 1,329.1 1,724.8
BASIC EARNINGS PER SHARE IN ACCORDANCE
WITH U.S. GAAP...................... $ 2.22 E 2.37 E 2.14 E 2.84
Income from continuing operations per
share............................... $ 2.00 E 2.13 E 2.15 E 2.77
Diluted earnings per share in
accordance with U.S. GAAP........... $ 2.21 E 2.35 E 2.12 E 2.79
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 of
E4.9 million (1999: E4.2, 1998: E2.1) on convertible bonds, net of taxes, has
been added to net income.
F-20
221
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options related to the BASF stock option program (BOP) for senior
management (see Note 25) for which the exercise hurdles were not met or which
would have an anti-dilutive effect if exercised have not been included in the
computation of diluted earnings per share.
The determination of shares outstanding is as follows:
2000 1999 1998
----------- ----------- -----------
Weighted average shares outstanding........... 612,806,123 618,073,268 622,476,129
Incremental shares from assumed conversion of
convertible bonds........................... 8,774,899 9,088,490 14,175,180
----------- ----------- -----------
Weighted average shares outstanding, adjusted
for dilutive securities..................... 621,581,022 627,161,758 636,651,309
----------- ----------- -----------
YEAR ENDED DECEMBER 31,
-----------------------------------
NOTE 2000 2000 1999
RECONCILIATION OF STOCKHOLDER'S EQUITY TO U.S. GAAP ---- --------- --------- ---------
(EUROS AND DOLLARS IN MILLIONS)
Stockholders' equity as reported in the
Consolidated Balance Sheets under German GAAP... $13,419.8 E14,294.8 E14,145.2
Minority interests............................... (451.8) (481.3) (329.3)
--------- --------- ---------
Stockholders' equity excluding minority
interests...................................... 12,968.0 13,813.5 13,815.9
Adjustments required to conform with U.S. GAAP:
Capitalization of interest....................... (a) 486.2 517.9 476.4
Capitalization of software developed for internal
use............................................ (b) 94.9 101.1 50.1
Valuation of pension funds....................... (c) 746.4 795.1 700.2
Valuation of long-term foreign currency items and
financial derivatives.......................... (d) 96.4 102.7 33.3
Valuation of securities.......................... (e) 238.7 254.3 95.9
U.S. GAAP adjustments relating to companies
accounted for under the equity method.......... (f) 146.7 156.3 115.3
Other adjustments................................ (g) 65.0 69.2 30.6
Deferred taxes................................... (h) (523.3) (557.4) (546.4)
Minority interests............................... (i) (22.3) (23.8) (18.5)
--------- --------- ---------
STOCKHOLDERS' EQUITY IN ACCORDANCE WITH U.S.
GAAP........................................... $14,296.7 E15,228.9 E14,752.8
--------- --------- ---------
(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 subsidiaries generally use the entity specific
weighted average borrowing rate as the capitalization rate.
F-21
222
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(B) CAPITALIZATION OF SOFTWARE DEVELOPED FOR INTERNAL USE
In March 1998 the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The SOP provides
guidance with respect to accounting for the various types of costs incurred for
computer software developed or obtained for the Company's internal use. The
Company adopted SOP 98-1 as of January 1, 1999 resulting in the subsequent
capitalization and depreciation of certain costs, which have been expensed 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") which
is managed similar to a defined contribution plan and is subject to Germany's
Law on the Supervision of Private Insurance Companies.
BASF guarantees the commitments of the BASF Pensionskasse. For U.S. GAAP
purposes, BASF Pensionskasse would be classified as a defined benefit plan. 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. The effect of this
reconciling item on the Company's net income is to record less pension expense
under U.S. GAAP as the actuarially calculated net periodic pension cost is less
than the pension contributions charged to income under German GAAP. In 1998,
however, this item also includes the reversal of a 86.3 million gain recorded
under German GAAP for the transfer to the BASF Pensionskasse of the legal
liability relating to the adjustment of retiree pensions every three years for
inflation.
Information about the funded status of the BASF Pensionskasse is provided
in the following table:
2000 1999
-------- --------
(EUROS IN MILLIONS)
Plan assets as of December 31,.............................. E4,137.3 E4,280.5
Projected benefit obligation as of December 31,............. 3,213.4 3,205.9
-------- --------
Funded status............................................... 923.9 1,074.6
Unrecognized actuarial gains................................ (327.2) (545.5)
-------- --------
Prepaid pension asset....................................... E 596.7 E 529.1
-------- --------
The valuation of certain pension plans of foreign subsidiaries, according
to SFAS No. 87 also resulted in prepaid pension assets (Note 21), included in
the reconciliation to U.S. GAAP. After consideration of unrecognized actuarial
gains and losses, E198.4 million in 2000 and E171.1 million in 1999 were
included in the reconciliation to U.S. GAAP.
(D) VALUATION OF LONG-TERM FOREIGN CURRENCY ITEMS AND FINANCIAL DERIVATIVES
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 the conversion
of such items into the reporting currency at the exchange rates in effect at the
end of the year.
F-22
223
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A provision of E48.6 million was recorded for the overvaluation of the
Brazilian real as of December 31, 1998. Since the expected exchange losses from
U.S.-dollar-denominated liabilities of the Company's Brazilian subsidiary became
effective only in the first quarter of 1999, after the real was allowed to float
against other currencies, the exchange loss 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, E12.4 million in 1999 and E(0.1) million in 1998, and in the
reconciliation of shareholders' equity E50.0 million in 2000 and E22.6 million
in 1999.
(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 shareholders' 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(1.4) million in 2000, E2.8
million in 1999 and E(19.6) million in 1998, and in the reconciliation of
shareholders' equity were E32.9 million in 2000 and E34.3 million in 1999. 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.
(H) DEFERRED TAXES
The adjustments for deferred taxes primarily relate to the aforementioned
U.S. GAAP reconciling items. Furthermore, German GAAP does not allow companies
to recognize deferred tax assets on tax loss carryforwards. Such deferred tax
assets of E75.6 million (1999: E162.7 million) have been included in the
reconciliation to U.S. GAAP. This amount includes also deferred taxes related to
currency translation adjustments.
(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.
F-23
224
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATION OF MAJORITY-OWNED SUBSIDIARIES
U.S. GAAP requires the consolidation of all majority-owned 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
2000, 1999 and 1998, on total assets, total liabilities, shareholders' equity,
net sales and net income was less than 3%.
Additionally, under German GAAP, the Company accounts on a prospective
basis for previously 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 2000 been consolidated in 1999 or 1998, the effect on the
1999 and 1998 net sales, net income, assets and liabilities would have been
immaterial. Had the previously unconsolidated companies that were newly
consolidated in 1999 been consolidated in 1998, net sales for the year ended
December 31, 1998, would have been E28,178.3 million. The effect on the
Company's U.S. GAAP net income for the year ended December 31, 1998, would have
been immaterial.
NEW U.S. GAAP ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral
of the Effective Date of FASB Statement No. 133" which defers the effective date
of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June
15, 2000. SFAS No. 133, "Accounting for Derivative Instruments and Hedging
activities," (SFAS No. 133), issued in June 1998, and SFAS No. 138, an amendment
of SFAS No. 133, issued in June 2000, require that all derivative financial
instruments be reflected on the balance sheet at fair value, with changes in
fair value recognized periodically in earnings or as a component of other
comprehensive income, depending on the nature of the underlying item being
hedged. In the event that an entity does not effectively hedge against an
underlying item, changes in the fair value of the derivative will be recognized
currently in the statement of operations. The Company has prepared for the
adoption of this statement in its Consolidated Financial Statements for the
fiscal year 2001.
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 under U.S. GAAP are not included in net income.
YEAR ENDED DECEMBER 31
--------------------------------
2000 1999 1998
-------- -------- --------
COMPREHENSIVE INCOME (EUROS IN MILLIONS)
Net income in accordance with U.S. GAAP................. E1,453.6 E1,324.8 E1,771.0
Other comprehensive income, net of tax:
Foreign currency translation adjustments................ 113.2 529.8 (160.8)
Unrealized holding gains on securities.................. 158.3 8.0 42.9
Deferred taxes.......................................... 89.8 (171.1) (4.3)
-------- -------- --------
Other comprehensive income (loss), net of tax........... 361.3 366.7 (122.2)
-------- -------- --------
Comprehensive income, net of tax........................ E1,814.9 E1,691.5 E1,648.8
-------- -------- --------
F-24
225
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31
----------------------
2000 1999
--------- ---------
STATEMENT OF STOCKHOLDER'S EQUITY (EUROS IN MILLIONS)
Stockholders' equity according to U.S. GAAP before
accumulated other comprehensive income.................... E14,401.3 E14,286.5
Accumulated other comprehensive income:
Foreign currency translation adjustments.................... 682.4 569.2
Unrealized holding gains on securities...................... 255.1 96.8
Deferred taxes.............................................. (109.9) (199.7)
--------- ---------
Accumulated other comprehensive income...................... 827.6 466.3
--------- ---------
Total stockholders' equity according to U.S. GAAP including
comprehensive income...................................... E15,228.9 E14,752.8
--------- ---------
4. 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 high-value
chemicals, plastics, dyestuffs, pigments, dispersions, automotive and industrial
coatings, agricultural products, fine chemicals, crude oil and natural gas.
The Company conducts its worldwide operations through 15 operating
divisions, which have been aggregated into seven reportable operating segments
based on the nature of the products and production processes, on the type of
customers, on the channels of distribution and on the nature of the regulatory
environment. The operating segments Agricultural Products, Fine Chemicals and
Pharmaceuticals are included in the business segment Health & Nutrition.
Certain products and assets have been transferred to different reporting
divisions. To the extent that such transfers affect the reportable segments,
prior year amounts have been restated. See "Item 4. Description of Business" for
further information about the Company's segment activities.
The pharmaceuticals business was divested to Abbott Laboratories (see Note
2) and would therefore be classified as a discontinued operation under U.S.
GAAP. BASF retains the pharmaceutical active ingredients business, which was
integrated into the Fine Chemicals segment as of July 1, 2000.
The operating divisions of the Chemicals segment have been reorganized in
mid 2000. The new operating division Petrochemicals now includes all cracker
products, to better portray the Verbund approach to integration. The new
operating division Inorganics includes inorganic chemicals and catalysts as well
as glues and impregnating resins that were previously part of the former
operating division Industrial Chemicals. The Technical Nitrogen strategic
business unit was reclassified to the Chemicals segment and the Ammonium Sulfate
strategic business unit was reclassified to the Plastic and Fibers segment.
These parts of the former operating division Fertilizers had previously been
shown under "Others".
The polyolefins business was included in the figures of the Plastics and
Fibers segment until September 30, 2000 at which time it was contributed to the
joint venture, Basell N.V.
The textile dyes business was included in the figures of the Colorants &
Finishing Products segment and the Colorants division, respectively, until
September 30, 2000 at which time it was contributed to DyStar GmbH & Co. KG.
F-25
226
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At the end of 1999, BASF sold its COMPO(R) business in specialty
fertilizers for the home and garden to K+S Aktiengesellschaft of Kassel,
Germany, which also took over the marketing and sales of agricultural
fertilizers manufactured by the Company. As a result, the Company included the
sales, earnings and assets of the Fertilizers division in "Other" for 1999 and
prior years.
Transfers between the operating segments are generally valued at
market-based prices and the revenues generated by these transfers are shown in
the table below as "Intersegmental transfers."
The income from operations recorded as "Other" includes mainly costs of
exploratory research of E168 million in 2000 (1999: E124 million; 1998: E121
million).
F-26
227
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEGMENT DATA
2000
HEALTH & NUTRITION
COLORANTS ----------------------------------
& AGRI-
PLASTICS FINISHING CULTURAL FINE PHARMA- OIL &
CHEMICALS & FIBERS PRODUCTS PRODUCTS CHEMICALS CEUTICALS GAS OTHER
--------- -------- --------- -------- --------- --------- ------ ------
(EUROS IN MILLIONS)
Net sales.................... E5,789 E11,030 E7,109 E2,428 E1,763 E2,526 E3,957 E1,344
Change (%)................. 30.9 27.8 11.2 39.1 6.2 15.0 29.7 (2.2)
Intersegmental transfers..... 2,363 490 265 34 44 36 320 265
------ ------- ------ ------ ------ ------ ------ ------
Sales including
intersegmental transfers..... 8,152 11,520 7,374 2,462 1,807 2,562 4,277 1,609
Income from operations....... 713 889 522 (443) (1) 243 1,310 (163)
Change (%)................. (3.3) 38.0 (14.1) -- -- -- 76.8 (22.6)
Assets....................... 4,999 6,009 5,576 6,607 1,368 2,228 3,540 8,230
Return on operational assets
(%).......................... 15.6 13.8 10.5 -- -- 11.8 40.0 --
Research and development
expense...................... 147 167 168 275 78 468 50 173
Additions to tangible and
intangible fixed assets...... 880 599 1,260 3,260 83 121 267 461
Depreciation of tangible and
intangible fixed assets...... 549 675 477 412 159 274 272 98
TOTAL
-------
Net sales.................... E35,946
Change (%)................. 22.0
Intersegmental transfers..... 3,817
-------
Sales including
intersegmental transfers..... 39,763
Income from operations....... 3,070
Change (%)................. 52.8
Assets....................... 38,557
Return on operational assets
(%).......................... 10.8
Research and development
expense...................... 1,526
Additions to tangible and
intangible fixed assets...... 6,931
Depreciation of tangible and
intangible fixed assets...... 2,916
F-27
228
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEGMENT DATA
1999
HEALTH & NUTRITION
COLORANTS ---------------------------------
PLASTICS & AGRI-
& FINISHING CULTURAL FINE PHARMA- OIL &
CHEMICALS FIBERS PRODUCTS PRODUCTS CHEMICALS CEUTICALS GAS OTHER TOTAL
--------- -------- --------- -------- --------- --------- ------ ------ -------
(EUROS IN MILLIONS)
Net sales...................... E4,423 E8,628 E6,395 E1,745 E1,660 E2,197 E3,051 E1,374 E29,473
Change (%)................... 2.9 12.6 3.3 (0.3) 10.8 18.8 13.6 (19.6) 6.6
Intersegmental transfers....... 1,882 378 259 36 53 34 177 224 3,043
------ ------ ------ ------ ------ ------ ------ ------ -------
Sales including intersegmental
transfers.................... 6,305 9,006 6,654 1,781 1,713 2,231 3,228 1,598 32,516
Income from operations......... 737 644 608 195 (770) (13) 741 (133) 2,009
Change (%)................... (23.3) 18.2 (5.3) (3.9) -- (122.0) 168.5 -- (23.4)
Assets......................... 4,112 6,843 4,343 1,949 1,338 1,887 3,003 6,534 30,009
Return on operational assets
(%).......................... 19.4 10.9 14.6 10.6 (55.2) (0.7) 26.3 -- 8.6
Research and development
expense...................... 149 180 160 190 77 397 47 133 1,333
Additions to tangible and
intangible fixed assets...... 765 998 324 93 87 101 524 361 3,253
Depreciation of tangible and
intangible fixed assets...... 486 596 423 175 353 256 281 92 2,662
F-28
229
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEGMENT DATA
1998
COLORANTS
PLASTICS &
& FINISHING AGRICULTURAL FINE PHARMA- OIL &
CHEMICALS FIBERS PRODUCTS PRODUCTS CHEMICALS CEUTICALS GAS OTHER TOTAL
--------- -------- --------- ------------ --------- --------- ------ ------ -------
(EUROS IN MILLIONS)
Net sales................... E4,300 E7,663 E6,188 E1,750 E1,498 E1,850 E2,685 E1,709 E27,643
Change (%)................ (3.8) 2.1 (5.4) 6.7 8.9 17.8 (16.0) (23.1) (3.1)
Intersegmental transfers.... 1,955 375 291 49 43 1 235 209 3,158
------ ------ ------ ------ ------ ------ ------ ------ -------
Sales including
intersegmental
transfers................. 6,255 8,038 6,479 1,799 1,541 1,851 2,920 1,918 30,801
Income from operations...... 961 545 642 203 121 59 276 (183) 2,624
Change (%)................ (13.7) 45.3 33.8 1.0 (39.2) -- (41.7) -- (3.9)
Assets...................... 3,483 4,983 3,981 1,730 1,455 1,697 2,622 6,751 26,702
Return on operational assets
(%)....................... 28.9 11.6 16.0 12.2 10.1 3.7 10.8 -- 12.7
Research and development
expense................... 148 188 158 194 66 374 50 131 1,309
Additions to tangible and
intangible fixed assets... 588 746 348 247 614 141 505 533 3,722
Depreciation of tangible and
intangible fixed assets... 458 563 382 158 158 218 238 85 2,260
F-29
230
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GEOGRAPHICAL SEGMENT DATA
Sales, sales including interregional transfers, income from operations,
additions to tangible and intangible fixed assets and assets for the years ended
December 31, are as follows:
NORTH ASIA PACIFIC
THEREOF AMERICA SOUTH AREA,
EUROPE GERMANY (NAFTA) AMERICA AFRICA TOTAL
-------- -------- -------- -------- ------------- --------
(EUROS IN MILLIONS)
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... 2,540 1,803 99 233 198 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
1998
Location of customers
Sales.................... E 16,672 E 7,011 E 6,249 E 1,640 E 3,082 E 27,643
Change (%)............... (4.4) (4.6) 4.7 (2.1) (10.3) (3.1)
Share (%)................ 60 25 23 6 11 100
Location of companies
Sales.................... 18,508 12,188 6,210 1,305 1,620 27,643
Sales including
interregional
transfers.............. 20,102 -- 6,516 1,398 1,809 29,825
Income from operations... 2,033 1,301 515 16 60 2,624
Additions to tangible and
intangible fixed
assets................. 2,214 1,840 1,092 69 347 3,722
Assets................... 17,842 12,313 5,478 1,065 2,317 26,702
F-30
231
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. OTHER OPERATING INCOME
2000 1999 1998
-------- ------ --------
(EUROS IN MILLIONS)
Release of provisions...................................... E 239.5 E142.1 E 389.3
Income from miscellaneous revenue-generating activities.... 128.4 74.8 154.8
Gains from foreign currency transactions and conversion.... 499.5 323.8 193.1
Gains from disposal of assets.............................. 251.3 266.9 153.7
Other...................................................... 296.6 170.6 246.0
-------- ------ --------
E1,415.3 E978.2 E1,136.9
-------- ------ --------
RELEASE OF PROVISIONS relate principally to obligations to personnel, the
environmental protection and remediation provision, sales and purchase
provisions, litigation and claims provisions, shutdown and restructuring
provisions, the maintenance provision and the reserve for income tax audit
liabilities.
Provision releases arise because present circumstances indicate that they
are no longer probable and estimable or that the probable amount has been
reduced.
In 1998, release of provisions included the use of provisions of E149
million as, prior to 1999, the corresponding expenditures were recorded directly
as expenses.
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 2000 includes primarily the sale of
the Novolen(R) polypropylene technology of Targor GmbH and the Kraton(R) polymer
business of Elenac GmbH.
Gains from the disposal of assets in 1999 related primarily to the sale of
the Company's COMPO(R) 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.
Gains from disposal of assets in 1998 include amounts relating to the
divestiture of certain lines of business of the Coatings division within the
Colorants & Finishing Products segment, the disposal of a 35% stake in Comparex
GmbH, which was deconsolidated, the divestiture of the thermoplastics business
of the Styrenic Polymer division of the Plastics & Fibers segment and to the
contribution in kind of the polyethylene business of BASF Aktiengesellschaft to
the Elenac joint venture.
OTHER includes income from management and marketing services, income from
divestitures other than the disposal of fixed assets and various other sundry
items.
F-31
232
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. OTHER OPERATING EXPENSES
2000 1999 1998
-------- -------- --------
(EUROS IN MILLIONS)
Integration measures, reorganization and shutdowns........ E 792.7 E 248.6 E 290.1
Environmental protection and safety measures, costs of
demolition of fixed assets and costs related to the
preparation of capital expenditure projects............. 271.2 263.2 212.3
Losses from foreign currency transactions and
conversion.............................................. 650.2 287.1 357.2
Costs from miscellaneous revenue-generating activities.... 116.6 65.3 150.8
Goodwill amortization..................................... 353.2 260.3 170.9
Losses from disposal of assets............................ 68.6 30.0 33.0
Other..................................................... 699.4 1,606.5 622.3
-------- -------- --------
TOTAL..................................................... E2,951.9 E2,761.0 E1,836.6
-------- -------- --------
INTEGRATION MEASURES, REORGANIZATION AND SHUTDOWNS charges of E344.2
million in 2000 are related especially to the integration of the crop protection
business of AHP, which was acquired in 2000. With regard to the integration of
the crop protection business of AHP, other operating expenses 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.
In 1998, the charges consisted mainly of expected shutdown expenses for two
North American sites in the Colorants & Finishing Products segment and for
production sites in the Plastic & Fibers segment at the Company's sites in
Ludwigshafen, Germany, and Antwerp, Belgium.
COSTS FROM MISCELLANEOUS REVENUE-GENERATING ACTIVITIES represents costs
related to other miscellaneous revenue-generating activities as shown in Note 5.
OTHER is comprised of several items including valuation allowances on
doubtful accounts, liquidation of inventories, expenses for litigation and
claims and various other sundry 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(R).
F-32
233
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. FINANCIAL RESULT
YEAR ENDED DECEMBER 31
-----------------------------
2000 1999 1998
------- ------- -------
(EUROS IN MILLIONS)
Income from participating interests and similar income...... E66.6 E731.2 E61.3
- - Thereof from affiliated companies......................... 18.7 16.8 36.4
Income from profit transfer agreements...................... 14.0 6.1 11.2
Losses from loss transfer agreements........................ (15.7) (11.3) (21.5)
(Losses)/income from companies accounted for under the
equity method............................................. (95.9) 1.4 36.7
------- ------- -------
Net income from financial assets............................ (31.0) 727.4 87.7
------- ------- -------
Write-down of, and losses from, retirement of financial
assets as well as securities held as current assets....... (6.8) (22.2) (48.4)
------- ------- -------
Income from other securities and financial assets........... 106.5 64.6 69.5
- - Thereof from affiliated companies......................... 1.1 14.0 20.6
Other interest, income from sale of marketable securities
and similar income........................................ 256.2 123.0 310.1
- - Thereof from affiliated companies......................... 21.6 4.7 14.7
Interest and similar expenses............................... (567.2) (296.0) (271.8)
- - Thereof to affiliated companies........................... (9.0) (5.0) (6.6)
------- ------- -------
Interest result............................................. (204.5) (108.4) 107.8
------- ------- -------
Financial result............................................ E(242.3) E596.8 E147.1
------- ------- -------
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.
Amortization of goodwill of companies accounted for under the equity method
totaling E24.5 million in 2000 (1999: E21 million, 1998: E41 million) as well as
income from the release of negative goodwill of E2.0 million are included in
income from companies accounted for under the equity method in 2000 and 1999.
Other interest, income from sale of marketable securities and similar
income includes gains from the sale of securities and swaps of E129 million in
2000, E20 million in 1999 and E122 million in 1998.
According to German GAAP, no interest expense has been capitalized for the
construction of fixed assets. The capitalization of interest cost for qualifying
assets is part of the reconciliation to U.S. GAAP.
F-33
234
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
2000 1999 1998
-------- -------- --------
(EUROS IN MILLIONS)
German corporation tax..................................... E477.0 E591.3 E421.8
German trade income tax.................................... 143.8 178.1 168.3
Foreign income tax......................................... 467.2 460.4 401.6
Income taxes on oil-producing operations non-compensable
with German corporation tax.............................. 462.2 165.0 62.8
Refunds/loss carry back.................................... (77.5) (14.1) (33.9)
-------- -------- --------
Current taxes.............................................. 1,472.7 1,380.7 1,020.6
Deferred taxes............................................. 72.3 (19.9) 86.2
-------- -------- --------
Income taxes............................................... E1,545.0 E1,360.8 E1,106.8
-------- -------- --------
Other taxes of E168.8 million in 2000, E149.3 million in 1999 and E121.9
million in 1998 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:
2000 1999 1998
-------- -------- --------
(EUROS IN MILLIONS)
Germany.................................................... E1,736.4 E1,211.5 E1,579.3
Foreign.................................................... 1,091.0 1,394.0 1,191.5
-------- -------- --------
E2,827.4 E2,605.5 E2,770.8
-------- -------- --------
Retained corporate income in Germany was subject to a federal corporation
income tax of 40% in 2000 and 1999 and 45% in 1998. Additionally, a solidarity
surcharge of 5.5% is levied on the federal corporate tax. Upon distribution of a
dividend, the federal corporation income tax rate is reduced to 30% through a
release of the income tax provision on current years' income or by a refund of
taxes previously paid in excess of 30% on income.
For fiscal years beginning before January 1, 2001, an imputation system is
applicable. Upon distribution of a dividend, shareholders resident in Germany
are entitled to a tax credit in the amount of the 30% federal corporation taxes
paid by the corporation.
In 2001 a federal corporation tax of 25% will be levied on corporate
income. This tax charge is final, because the imputation system will be
terminated.
German trade income tax, which varies by the municipalities where the
industrial undertakings take place, is levied at a weighted average rate of 16%.
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.
Deferred tax assets and liabilities are calculated using the tax rate
applicable in the individual foreign countries. Such rate averaged 28% in 2000,
36% in 1999 and 31% in 1998. For German companies, the provision was based on a
tax rate of 38% in 2000 (1999: 52%, 1998: 56%). The reduction of federal
corporation tax resulted in a E132 million charge in 2000 and a E45 million
charge in 1999 shown below under "Other".
F-34
235
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign income tax rates in 2000 varied between 4.5% (1999: 4.5%, 1998:
4.5%) and 42% (1999: 42%, 1998: 48%). 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.
RECONCILIATION FROM THE STATUTORY TAX RATE IN GERMANY TO THE EFFECTIVE TAX RATE:
2000 1999 1998
---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
-------- ---- -------- ---- -------- ----
(EUROS IN MILLIONS)
German corporation tax............ E1,131.0 40.0% E1,042.2 40.0% E1,246.9 45.0%
Credit for dividend
distribution.................... (260.3) (9.2) (150.4) (5.8) (148.5) (5.4)
German trade income tax net of
corporation tax................. 86.3 3.1 106.9 4.1 92.6 3.3
Solidarity surcharge (5.5%)....... 37.4 1.3 38.0 1.5 28.4 1.0
Foreign tax-rate differential..... (82.1) (2.9) (104.4) (4.0) (138.1) (5.0)
Non-taxable income................ (72.3) (2.6) (65.0) (2.5) (121.7) (4.4)
Non-deductible expenses, including
amortization of goodwill........ 237.6 8.4 328.7 12.6 84.6 3.1
Income from companies accounted
for under the equity method..... 38.4 1.4 (0.6) -- (16.6) (0.6)
Utilization of tax-loss
carryforwards and refund of
taxes........................... (143.4) (5.1) (20.4) (0.8) (44.5) (1.6)
Income taxes on oil-producing
operations non-compensable with
German corporation tax.......... 462.2 16.3 165.0 6.3 62.8 2.3
Other............................. 110.2 3.9 20.8 0.8 60.9 2.2
-------- ---- -------- ---- -------- ----
Income taxes/effective tax rate... E1,545.0 54.6% E1,360.8 52.2% E1,106.8 39.9%
-------- ---- -------- ---- -------- ----
F-35
236
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax assets and liabilities, calculated in accordance with
U.S. GAAP -- except for deferred tax assets on tax loss carryforwards which may
not be set-up under German GAAP -- are summarized as follows:
DEFERRED TAX ASSETS
2000 1999
-------- --------
(EUROS IN MILLIONS)
Intangible assets........................................... E 103.0 E 225.3
Property, plant and equipment............................... (316.9) (164.3)
Financial assets............................................ (0.2) (67.0)
Inventories and accounts receivable......................... 37.7 160.3
Provisions for pensions and similar obligations............. 375.3 507.6
Other provisions............................................ 563.2 550.9
Other....................................................... 508.4 12.6
-------- --------
TOTAL....................................................... E1,270.5 E1,225.4
-------- --------
- - Thereof short-term........................................ 463.8 390.6
-------- --------
DEFERRED TAX LIABILITIES
Property, plant and equipment............................... 244.3 164.0
Other....................................................... 125.1 68.0
-------- --------
TOTAL....................................................... E 369.4 E 232.0
-------- --------
- - Thereof short-term........................................ 105.7 110.4
-------- --------
Deferred tax liabilities are included in "provisions for taxes" in the
consolidated balance sheets.
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 E633.1 million in 2000 (1999: E709.1 million) due to
adjustment of the following balance sheet items as shown in the reconciliation
to U.S. GAAP:
2000 1999
-------- --------
(EUROS IN MILLIONS)
Property, plant and equipment............................... E192.8 E202.4
Financial assets and marketable securities.................. 141.6 106.1
Prepaid pension expense..................................... 292.2 331.4
Other....................................................... 6.5 69.2
------ ------
TOTAL....................................................... E633.1 E709.1
------ ------
According to U.S. GAAP, deferred tax assets would increase by E75.6 million
in 2000 due to the following tax-loss carryforwards (net of a valuation
allowance of E16.3 million) and E162.7 million in 1999 (net of valuation
allowance of E8.9 million).
2000 1999
-------- --------
(EUROS IN MILLIONS)
Tax loss carryforwards of German subsidiaries:
Corporation tax............................................. E 82.3 E185.2
Trade income tax............................................ 16.6 18.8
Tax loss carryforwards of foreign subsidiaries.............. E228.3 E266.0
F-36
237
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under U.S. GAAP, valuation allowances are established if, based on the
weight of evidence, it is more likely than not that deferred tax assets will not
be realized through the future taxable income of the respective subsidiaries and
affiliated companies.
German tax losses may generally be carried forward indefinitely.
Foreign loss carryforwards have varying expiration periods 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.
9. MINORITY INTEREST
2000 1999 1998
----- ----- ------
(EUROS IN MILLIONS)
Minority interest in profits................................ E76.3 E43.2 E 32.4
Minority interest in losses................................. 33.7 35.3 67.8
----- ----- ------
E42.6 E 7.9 E(35.4)
----- ----- ------
See Note 20 for a detailed analysis of consolidated subsidiaries with
minority shareholdings.
10. OTHER INFORMATION
PERSONNEL COSTS
2000 1999 1998
-------- -------- --------
(EUROS IN MILLIONS)
Wages and salaries........................................ E5,306.8 E4,934.7 E4,840.3
Social security contributions and expenses for pensions
and assistance.......................................... 1,288.7 1,244.8 1,169.7
- - Thereof for pensions.................................... 401.0 388.7 308.6
-------- -------- --------
TOTAL..................................................... E6,595.5 E6,179.5 E6,010.0
-------- -------- --------
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.
German group companies incurred costs for employees' representatives to
comply with statutory regulations of E10.4 million in 2000, E10.1 million in
1999 and E10.7 million in 1998.
Pension costs in 1998 include a credit of E86.3 million resulting from an
agreement between BASF Aktiengesellschaft and other German subsidiaries with
BASF Pensionskasse. As part of the agreement, BASF Pensionskasse accepted the
legal liability resulting from adjusting pensions granted every third year to
the general development of net wages in Germany. BASF Aktiengesellschaft and
other subsidiaries in Germany previously carried this liability on their balance
sheets for the portion of pension benefits granted by BASF Pensionskasse.
Pension costs for 1998 do not include the additional pension provisions
resulting from the change of the valuation methods to conform with SFAS No. 87
totaling E961.8 million. (See Note 1 for further information).
F-37
238
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AVERAGE NUMBER OF EMPLOYEES
PROPORTIONALLY CONSOLIDATED
FULLY CONSOLIDATED COMPANIES COMPANIES
----------------------------- -----------------------------
2000 1999 1998 2000 1999 1998
------- ------- ------- ------- ------- -------
Europe........................... 70,770 73,957 75,314 2,592 3,456 2,975
- - Thereof Germany................ 55,546 58,083 59,215 2,178 2,962 2,596
North America (NAFTA)............ 16,546 15,668 15,438 734 744 807
South America.................... 7,002 6,902 6,449 -- -- --
Asia, Pacific Area, Africa....... 9,773 8,453 7,656 60 166 360
------- ------- ------- ----- ----- -----
TOTAL............................ 104,091 104,980 104,857 3,386 4,366 4,142
------- ------- ------- ----- ----- -----
- - Thereof with trainee
contracts...................... 3,066 3,208 3,060 110 150 148
- - Thereof with limited-term
contracts...................... 3,113 3,198 3,107 59 72 23
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 105,784 in 2000, 107,163 in 1999 and 106,928 in
1998.
The number of trainee contracts mainly concern vocational trainees. Most of
these trainee contracts are within the Company's Germany operations.
INFORMATION RELATING TO THE BOARD OF EXECUTIVE DIRECTORS AND SUPERVISORY BOARD
OF
BASF AKTIENGESELLSCHAFT
2000 1999 1998
----- ----- -----
Supervisory Board emoluments................................ E 2.0 E 1.6 E 1.6
Board of Executive Directors emoluments..................... 8.5 9.2 12.5
Pension for former members of the Board of Executive
Directors and their surviving dependents.................. 5.9 5.7 4.4
Pension provisions for former members of the Board of
Executive Directors and their surviving dependents........ 56.8 50.2 41.6
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............. -- -- --
The members of the Board of Executive Directors were granted 126,228 option
rights in 2000 and 166,616 option rights in 1999 under the BASF stock option
program (BOP). These options rights entitle such directors to purchase, if
certain objectives are achieved, of a maximum of 252,456 shares from the option
right of 2000 and of 333,232 shares from the option right of 1999 at a
preferential price. Personnel costs related to the issuance of these options
totaled E2.1 million in 2000 and E0.9 million in 1999. The personnel costs of
E2.1 million in 2000 include E1.4 million due to the over 3 years accrued
expenses resulting from the granted option rights in 1999. See Note 25 for
further information.
ADDITIONAL INFORMATION ON STATEMENTS OF CASH FLOWS
Cash generated from operating activities was derived after interest
payments of E472.2 million in 2000, E237.5 million in 1999 and E255.6 million in
1998. Income taxes paid totaled E839.0 million in 2000, E592.7 million in 1999
and E977.7 million in 1998.
F-38
239
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash generated from operating activities was increased by E779.5 million in
2000 and E298.3 million in 1999 from the sale of accounts receivable.
11. INTANGIBLE ASSETS
PATENTS, LICENSES,
TRADEMARKS AND ADVANCE
SIMILAR RIGHTS GOODWILL PAYMENTS TOTAL
------------------ -------- -------- --------
(EUROS IN MILLIONS)
ACQUISITION COSTS
Balance as of January 1, 2000............ E2,589.9 E1,357.7 E 7.8 E3,955.4
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
Write-backs.............................. 1.0 -- -- 1.0
Transfers, including exchange rate
changes................................ 17.2 (67.2) -- (50.0)
-------- -------- ----- --------
Balance as of December 31, 2000.......... 1,364.4 790.5 1.3 2,156.2
-------- -------- ----- --------
NET BOOK VALUE AS OF DECEMBER 31, 2000... E1,883.1 E2,628.6 E26.5 E4,538.2
-------- -------- ----- --------
ACQUISITION COSTS
Balance as of January 1, 1999............ E2,249.5 E 838.2 E 7.4 E3,095.1
Change in scope of consolidation......... 72.8 139.9 0.4 213.1
Additions................................ 218.3 265.7 5.5 489.5
Disposals................................ 81.0 12.0 1.3 94.3
Transfers, including exchange rate
changes................................ 130.3 125.9 (4.2) 252.0
-------- -------- ----- --------
Balance as of December 31, 1999.......... 2,589.9 1,357.7 7.8 3,955.4
-------- -------- ----- --------
ACCUMULATED AMORTIZATION
Balance as of January 1, 1999............ 842.9 286.2 1.1 1,130.2
Change in scope of consolidation......... 9.5 52.4 -- 61.9
Additions................................ 383.5 260.3 0.2 644.0
Disposals................................ 72.2 12.7 -- 84.9
Write-backs.............................. 1.1 -- -- 1.1
Transfers, including exchange rate
changes................................ 36.7 21.8 -- 58.5
-------- -------- ----- --------
Balance as of December 31, 1999.......... 1,199.3 608.0 1.3 1,808.6
-------- -------- ----- --------
NET BOOK VALUE AS OF DECEMBER 31, 1999... E1,390.6 E 749.7 E 6.5 E2,146.8
-------- -------- ----- --------
Additions in 2000 primarily include the acquisition of the crop protection
business of American Home Products Corporation, thereof goodwill of E1,929.4
million and product rights of E498.5 million, as well as goodwill and supply
rights of the superabsorbents business Chemdal acquired from Amcol International
Corp. and the goodwill from the coil coatings business acquired from Rohm and
Haas.
F-39
240
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
American Home Products' Corporation's crop protection business related to
research in progress (E87.5 million).
Changes in the scope of consolidation in 1999 were related primarily to gas
concessions of Wintershall Energia S.A. of Argentina and goodwill of first-time
consolidated subsidiaries in the Pharmaceuticals segment. Additions included the
acquisition of rights to purchase propylene oxide from Lyondell Chemical Company
of Houston, Texas, and the acquisition of the remaining 50% ownership stake in
Targor from Hoechst/Celanese.
Unscheduled write-downs recorded in 1999 under the item "other operating
expenses" were made for expected long-term value impairments of E161.1 million
on intangible assets. The most significant charge was recorded for the
impairment of know-how, goodwill and other intangible assets related to the
lysine business of the Fine Chemicals segment. Management of the Company
determined that the future undiscounted cash flows associated with the assets of
the lysine business were insufficient to recover their carrying value.
Accordingly, such assets were written down to fair value, which was determined
on the basis of discounted cash flows.
F-40
241
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. PROPERTY, PLANT AND EQUIPMENT
LAND, LAND RIGHTS
AND BUILDINGS
INCLUDING BUILDINGS MACHINERY AND MISCELLANEOUS ADVANCE PAYMENTS
ON LAND TECHNICAL EQUIPMENT AND CONSTRUCTION
OWNED BY OTHERS EQUIPMENT AND FIXTURES IN PROGRESS TOTAL
------------------- ------------- ------------- ---------------- ---------
(EUROS IN MILLIONS)
ACQUISITION COSTS
Balance as of January 1, 2000... E6,704.7 E25,952.7 E3,326.0 E2,276.9 E38,260.3
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
Write-backs..................... -- 0.8 -- -- 0.8
Transfers, including exchange
rate changes.................. (92.3) (998.8) 10.4 (0.6) (1,081.3)
-------- --------- -------- -------- ---------
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............. E2,908.0 E 7,252.6 E 753.9 E2,726.1 E13,640.6
-------- --------- -------- -------- ---------
ACQUISITION COSTS
Balance as of January 1, 1999... E6,216.9 E23,931.1 E3,120.9 E1,681.5 E34,950.4
Change in scope of
consolidation................. 46.1 529.4 31.7 229.1 836.3
Additions....................... 76.5 701.4 157.1 1,828.6 2,763.6
Disposals....................... 158.0 1,344.3 283.9 11.4 1,797.6
Transfers, including exchange
rate changes.................. 523.2 2,135.1 300.2 (1,450.9) 1,507.6
-------- --------- -------- -------- ---------
Balance as of December 31,
1999.......................... 6,704.7 25,952.7 3,326.0 2,276.9 38,260.3
-------- --------- -------- -------- ---------
ACCUMULATED DEPRECIATION
Balance as of January 1, 1999... 3,588.8 18,117.4 2,489.2 0.6 24,196.0
Change in scope of
consolidation................. 13.7 419.1 21.0 -- 453.8
Additions....................... 207.9 1,495.8 311.8 2.7 2,018.2
Disposals....................... 110.5 1,214.3 265.8 -- 1,590.6
Write-backs..................... 0.6 3.8 -- -- 4.4
Transfers, including exchange
rate changes.................. 140.1 519.0 112.5 (0.6) 771.0
-------- --------- -------- -------- ---------
Balance as of December 31,
1999.......................... 3,839.4 19,333.2 2,668.7 2.7 25,844.0
-------- --------- -------- -------- ---------
NET BOOK VALUE AS OF
DECEMBER 31, 1999............. E2,865.3 E 6,619.5 E 657.3 E2,274.2 E12,416.3
-------- --------- -------- -------- ---------
F-41
242
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Impairment losses of E27.1 million were recorded in 2000, in particular by
Hokuriku Seiyaku Ltd., Japan for non-operating land and buildings due to a major
decrease of market values.
Impairment losses of E46.1 million were recorded in 1999 related to
production sites in Medellin, Colombia; Ellesmere Port, United Kingdom;
Freeport, United States; and Yokkaichi, Japan and E28.3 million in 1998 related
primarily to measures taken at two BASF Corporation sites in North America.
These actions were necessary primarily because of excess production capacity and
insufficient demand for certain products. Management of the Company determined
that the future undiscounted cash flows associated with the production sites
were insufficient to recover their carrying value. Such assets were written down
to their fair values based upon discounted cash flows, using appropriate
discount rates.
13. FINANCIAL ASSETS
PARTICIPATIONS
SHARES IN SHARES IN SHARES IN SECURITIES AND SECURITIES HELD AS
AFFILIATED ASSOCIATED PARTICIPATING HELD AS FIXED ASSETS
COMPANIES COMPANIES INTERESTS FIXED ASSETS (SUBTOTAL)
---------- ---------- ------------- ------------ ----------------------
(EUROS IN MILLION)
ACQUISITION COSTS
Balance as of January 1, 2000... E 910.8 E 151.0 E192.9 E31.2 E1,285.9
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
Write-backs..................... -- -- -- -- --
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 E2,126.4 E219.3 E37.6 E3,041.0
------- -------- ------ ----- --------
F-42
243
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LOANS TO
ASSOCIATED
COMPANIES
LOANS TO AND OTHER LOANS LOANS AND OTHER TOTAL
AFFILIATED PARTICIPATING AND INVESTMENTS FINANCIAL
COMPANIES INTERESTS INVESTMENTS (SUBTOTAL) ASSETS
---------- ------------- --------------- --------------- ---------
(EUROS IN MILLION)
ACQUISITION COSTS
Balance as of January 1, 2000............ E 22.7 E 85.2 E162.7 E270.6 E1,556.5
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
Write-backs.............................. -- -- -- -- --
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 E349.8 E174.0 E548.7 E3,589.7
------ ------ ------ ------ --------
PARTICIPATIONS
SHARES IN SHARES IN SHARES IN SECURITIES AND SECURITIES HELD AS
AFFILIATED ASSOCIATED PARTICIPATING HELD AS FIXED ASSETS
COMPANIES COMPANIES INTERESTS FIXED ASSETS (SUBTOTAL)
---------- ---------- ------------- ------------ ----------------------
(EUROS IN MILLION)
ACQUISITION COSTS
Balance as of January 1, 1999.......... E 796.8 E 197.1 E260.7 E41.7 E1,296.3
Change in scope of consolidation....... (103.3) 2.1 1.7 0.5 (99.0)
Additions.............................. 252.4 191.9 47.8 3.4 495.5
Disposals.............................. 22.0 81.4 152.1 7.7 263.2
Transfers, including exchange rate
changes.............................. (13.1) (158.7) 34.8 (6.7) (143.7)
-------- ------- ------ ----- --------
Balance as of December 31, 1999........ 910.8 151.0 192.9 31.2 1,285.9
-------- ------- ------ ----- --------
ACCUMULATED DEPRECIATION
Balance as of January 1, 1999.......... 17.4 20.9 86.7 3.5 128.5
Change in scope of consolidation....... (2.3) -- -- -- (2.3)
Additions.............................. 1.8 3.4 12.3 0.3 17.8
Disposals.............................. 3.8 6.7 85.8 1.8 98.1
Write-backs............................ -- -- -- -- --
Transfers, including exchange rate
changes.............................. 0.5 -- (1.2) 0.1 (0.6)
-------- ------- ------ ----- --------
Balance as of December 31, 1999........ 13.6 17.6 12.0 2.1 45.3
-------- ------- ------ ----- --------
NET BOOK VALUE AS OF DECEMBER 31,
1999................................. E 897.2 E 133.4 E180.9 E29.1 E1,240.6
-------- ------- ------ ----- --------
F-43
244
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LOANS TO
ASSOCIATED
LOANS COMPANIES
TO AND OTHER LOANS LOANS AND OTHER TOTAL
AFFILIATED PARTICIPATING AND INVESTMENTS FINANCIAL
COMPANIES INTERESTS INVESTMENTS (SUBTOTAL) ASSETS
---------- ------------- ----------- --------------- ---------
(EUROS IN MILLION)
ACQUISITION COSTS
Balance as of January 1, 1999..... E435.4 E90.0 E137.3 E662.7 E1,959.0
Change in scope of
consolidation................... -- (28.5) 0.7 (27.8) (126.8)
Additions......................... 3.5 24.3 23.1 50.9 546.4
Disposals......................... 415.9 1.2 19.9 437.0 700.2
Transfers, including exchange rate
changes......................... (0.3) 0.6 21.5 21.8 (121.9)
------ ----- ------ ------ --------
Balance as of December 31, 1999... 22.7 85.2 162.7 270.6 1,556.5
------ ----- ------ ------ --------
ACCUMULATED DEPRECIATION
Balance as of January 1, 1999..... 0.2 0.4 3.8 4.4 132.9
Change in scope of
consolidation................... -- -- -- -- (2.3)
Additions......................... -- -- 1.4 1.4 19.2
Disposals......................... -- -- 0.7 0.7 98.8
Write-backs....................... -- 0.4 0.1 0.5 0.5
Transfers, including exchange rate
changes......................... -- -- -- -- (0.6)
------ ----- ------ ------ --------
Balance as of December 31, 1999... 0.2 -- 4.4 4.6 49.9
------ ----- ------ ------ --------
NET BOOK VALUE AS OF DECEMBER 31,
1999............................ E 22.5 E85.2 E158.3 E266.0 E1,506.6
------ ----- ------ ------ --------
In 2000, changes in scope of consolidation of "Shares in associated
companies" were caused by the contribution of the polyolefine businesses of
Elenac and Targor into the joint venture Basell N.V. and the contribution of
BASF's textile dyes business into the joint venture DyStar GmbH & Co. KG,
Frankfurt. 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), and "Shares in associated
companies" comprise the cash contribution to Shell in connection with the
establishment of the Basell N.V. polyolefins joint venture.
In 1999, additions to "Shares in affiliated companies" related primarily to
capital increases for construction projects at BASF's Verbund site in Kuantan,
Malaysia. The Kuantan site is operated by BASF Petronas Chemicals Sdn. Bhd., a
joint venture in which BASF holds a 60% ownership stake, and BASF Services
(Malaysia), a company in which BASF holds a 100% ownership stake, which were
consolidated as of January 1, 2000. Additions to "Shares in associated
companies" included the acquisition of a 40% ownership stake in Svalof Weibull,
a seed breeding company based in Svalof, Sweden.
F-44
245
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
AVAILABLE-FOR-SALE SECURITIES
The book and market values of available-for-sale securities held as fixed
assets and shares in participating interests is summarized below:
2000 1999
---------------------------- ----------------------------
BOOK MARKET UNREALIZED BOOK MARKET UNREALIZED
VALUES VALUES GAINS VALUES VALUES GAINS
------ ------ ---------- ------ ------ ----------
(EUROS IN MILLIONS)
Mutual funds..................... E 22.5 E 22.5 E -- E 24.1 E 24.4 E0.3
Other shareholdings and
securities..................... 234.4 322.1 87.7 185.9 186.0 0.1
------ ------ ----- ------ ------ ----
TOTAL............................ E256.9 E344.6 E87.7 E210.0 E210.4 E0.4
------ ------ ----- ------ ------ ----
The disposal of available-for-sale securities generated proceeds of E7.0
million in 2000 and E3.1 million in 1999 and a gain of E0.1 million in 2000 and
a loss of E0.3 million in 1999.
14. INVENTORIES
2000 1999
-------- --------
(EUROS IN MILLIONS)
Raw materials and factory supplies.......................... E1,196.0 E 943.4
Work-in-process, finished goods and merchandise............. 3,991.5 3,029.6
Construction in progress.................................... 9.7 47.4
Advance payments............................................ 14.4 7.3
-------- --------
TOTAL....................................................... E5,211.6 E4,027.7
-------- --------
"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 E3,225.9 million or 62% of total inventories in 2000 and E2,441.7
million or 61% of total inventories in 1999 are valued according to the LIFO
method. The difference between the carrying value determined according to the
LIFO method and higher average cost is E255.0 million in 2000 and E148.0 million
in 1999.
F-45
246
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. RECEIVABLES AND OTHER ASSETS
2000 1999
----------------------- -----------------------
THEREOF THEREOF
NON-CURRENT NON-CURRENT
----------- -----------
(EUROS IN MILLIONS)
Accounts receivable, trade.................. E6,067.6 E 24.7 E4,966.7 E 47.4
Receivables from affiliated companies....... 916.9 2.5 724.5 3.6
Receivables from associated companies and
other participating interests............. 319.9 -- 389.4 --
Other assets................................ 1,822.3 159.1 967.8 123.8
-------- ------ -------- ------
Miscellaneous receivables and other
assets.................................... 2,142.2 159.1 1,357.2 123.8
-------- ------ -------- ------
TOTAL....................................... E9,126.7 E186.3 E7,048.4 E174.8
-------- ------ -------- ------
COMPOSITION OF OTHER ASSETS
2000 1999
--------- -------
(EUROS IN MILLIONS)
Tax refund claims........................................... E 616.0 E282.2
Loans and interest receivables.............................. 103.7 33.0
Deferrals from financial instruments........................ 266.5 8.3
Receivables from commission sales........................... 3.5 53.9
Receivables from the sale of non-trade assets............... 90.1 47.4
Employee receivables........................................ 44.2 32.4
Rent and deposits........................................... 41.4 71.7
Insurance claims............................................ 25.3 10.9
Other....................................................... 631.6 428.0
-------- ------
TOTAL....................................................... E1,822.3 E967.8
-------- ------
VALUATION ALLOWANCES FOR DOUBTFUL ACCOUNTS
BALANCE AS OF AFFECTING INCOME NOT AFFECTING INCOME BALANCE AS OF
JANUARY 1, -------------------- -------------------- DECEMBER 31,
2000 ADDITIONS RELEASES ADDITIONS RELEASES 2000
------------- --------- -------- --------- -------- -------------
2000 (EUROS IN MILLIONS)
Accounts receivables,
trade................... E368.2 E108.3 E146.3 E 95.3 E 21.4 E404.1
Miscellaneous receivables
and other assets........ 74.1 27.6 6.1 12.9 26.9 81.6
------ ------ ------ ------ ------ ------
TOTAL..................... E442.3 E135.9 E152.4 E108.2 E 48.3 E485.7
------ ------ ------ ------ ------ ------
BALANCE AS OF AFFECTING INCOME NOT AFFECTING INCOME BALANCE AS OF
JANUARY 1, -------------------- -------------------- DECEMBER 31,
1999 ADDITIONS RELEASES ADDITIONS RELEASES 1999
------------- --------- -------- --------- -------- -------------
1999 (EUROS IN MILLIONS)
Accounts receivables,
trade.................. E320.8 E 46.7 E 5.0 E 15.6 E 9.9 E368.2
Miscellaneous receivables
and other assets....... 78.7 6.8 7.6 6.6 10.4 74.1
------ ------ ------ ------ ------ ------
TOTAL.................... E399.5 E 53.5 E 12.6 E 22.2 E 20.3 E442.3
------ ------ ------ ------ ------ ------
F-46
247
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BALANCE AS OF AFFECTING INCOME NOT AFFECTING INCOME BALANCE AS OF
JANUARY 1, -------------------- -------------------- DECEMBER 31,
1998 ADDITIONS RELEASES ADDITIONS RELEASES 1998
------------- --------- -------- --------- -------- -------------
1998 (EUROS IN MILLIONS)
Accounts receivables,
trade.................. E323.3 E 44.5 E 45.4 E 5.8 E 7.4 E320.8
Miscellaneous receivables
and other assets....... 80.3 16.4 4.0 3.6 17.6 78.7
------ ------ ------ ------ ------ ------
TOTAL.................... E403.6 E 60.9 E 49.4 E 9.4 E 25.0 E399.5
------ ------ ------ ------ ------ ------
Additions and releases not affecting income relate primarily to translation
adjustments and write-offs of receivables previously provided for. Valuation
allowances for trade accounts receivables take into consideration probable
losses associated with the political and economic conditions in certain
countries, especially with regard to the availability of foreign exchange for
the remittance of the owed amounts.
16. MARKETABLE SECURITIES
The securities book and market values are as follows:
2000 1999
------------------------------ ------------------------------
BOOK MARKET UNREALIZED BOOK MARKET UNREALIZED
VALUES VALUES GAINS VALUES VALUES GAINS
------ ------ ---------- ------ ------ ----------
(EUROS IN MILLIONS)
AVAILABLE-FOR-SALE
SECURITIES
Fixed-term securities....... E 14.3 E 14.3 E -- E 74.9 E 74.9 E --
Shares...................... 317.2 567.0 249.8 388.2 402.9 14.7
Mutual funds................ 22.0 25.4 3.4 38.4 43.2 4.8
Other securities............ 10.6 11.7 1.1 15.9 15.9 --
------ ------ ------ ------ ------ -----
TOTAL....................... E364.1 E618.4 E254.3 E517.4 E536.9 E19.5
------ ------ ------ ------ ------ -----
The disposal of available-for-sale securities generated proceeds of E480.6
million in 2000, E744.2 million in 1999 and E1,041.7 million in 1998 and gains
of E118.1 million in 2000, E27.7 million in 1999 and E57.3 million in 1998.
2000 1999
--------------- ---------------
BOOK MARKET BOOK MARKET
VALUE VALUE VALUE VALUE
----- ------ ----- ------
(EUROS IN MILLIONS)
MATURITIES OF FIXED-TERM SECURITIES AS OF DECEMBER 31,
Less than 1 year......................................... E 1.9 E 1.9 E62.6 E62.6
Between 1 and 5 years.................................... 12.4 12.4 12.3 12.3
----- ----- ----- -----
TOTAL.................................................... E14.3 E14.3 E74.9 E74.9
----- ----- ----- -----
F-47
248
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. PREPAID EXPENSES
THEREOF THEREOF
2000 NON CURRENT 1999 NON CURRENT
------ ----------- ------ -----------
(EUROS IN MILLIONS)
Discounts......................................... E 9.9 E 6.2 E 9.8 E 2.0
Miscellaneous..................................... 300.4 125.3 120.4 34.5
------ ------ ------ -----
TOTAL............................................. E310.3 E131.5 E130.2 E36.5
------ ------ ------ -----
"Discounts" which relate to the 3% U.S. Dollar Option Bond 1986/2001 and
the 5.75% Euro Bond 2000/2005 of BASF Aktiengesellschaft are capitalized and
amortized as interest expense over the term of the underlying obligations.
18. SUBSCRIBED AND ADDITIONAL PAID-IN CAPITAL
CONDITIONAL CAPITAL AUTHORIZED CAPITAL
------------------------ ------------------------
2000 1999 1998 2000 1999 1998
------ ------ ------ ------ ------ ------
(EUROS IN MILLIONS)
JANUARY 1............................ E164.1 E138.7 E143.2 E500.0 E306.8 E306.8
Authorizations through the Annual
Meeting on April 29, 1999, for the
issuance of new shares under the
BASF Stock Option Program (BOP).... 38.4
Suspension of old authorizations
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
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.... (5.8) (13.0) (4.5)
------ ------ ------ ------ ------ ------
DECEMBER 31.......................... E158.3 E164.1 E138.7 E500.0 E500.0 E306.8
------ ------ ------ ------ ------ ------
SUBSCRIBED CAPITAL
The Annual Meeting on April 29, 1999, approved an increase of E2.2 million
in the subscribed capital through a transfer from capital surplus. (See
Consolidated Statements of Stockholders' Equity for 1999). The objective of this
increase was to keep the equivalent amount of subscribed capital per share as a
two-digit cent figure of E2.56 after the conversion of the subscribed capital to
euros from German marks.
SHARE REPURCHASE
The Board of Executive Directors received approval at the Annual Meeting on
May 19, 1998, to repurchase BASF's shares to a maximum amount of 10% of
subscribed capital until October 1, 1999. If BASF shares are purchased on a
stock exchange, the price paid for the shares may not be higher than the highest
market price at the Frankfurt Stock Exchange on the buying day and it may
F-48
249
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
not be lower than 75% 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. The Board of Executive Directors is authorized to cancel
repurchased shares without further shareholder approval. As a result, BASF
repurchased between January 13 and February 19, 1999, a total of 7,896,200
shares, or 1.3% of the issued shares, at an average price of E32.37 per share
and then canceled the repurchased shares as authorized. This resulted in
reduction to subscribed capital of E20.2 million. Acquisition costs of E255.6
million were charged against retained earnings.
At the Annual Meeting on April 29, 1999, the shareholders again authorized
the Board of Executive Directors to repurchase BASF shares to a maximum of 10%
of the then subscribed capital until October 1, 2000, at the same conditions as
outlined in the 1998 authorization. Based on this authorization BASF bought
between March 8 and April 11, 2000, a total of 6,215,000 shares, or 1% of total
outstanding shares, at an average price of E48.37 per share. The shares have
been cancelled.
At the Annual Meeting in April 27, 2000, the shareholders again authorized
the Board of Executive Directors to repurchase BASF shares to a maximum of 10%
of the then subscribed capital until October 1, 2001, under the same conditions
as outlined in the 1998 authorization. Additionally, the Board of Executive
Directors was authorized to use repurchased shares for the issuance of shares
under the Stock Option Program authorized by the Annual Meeting on April 29,
1999.
Based on the authorization of April 27, 2000, BASF repurchased a total of
9,641,500 shares, or 1.6% of the issued shares, at an average price of E41.40
per share between June 19 and October 16, 2000. The repurchased shares were
cancelled as authorized. During 2000, a total of 15,856,500 shares or 2.6% of
issued shares have been acquired and cancelled. This resulted in reduction to
subscribed capital of E40.6 million. Acquisition cost of E699.8 million were
charged to retained earnings.
CONDITIONAL CAPITAL
As of December 31, 2000, the share capital can be conditionally increased
by up to E17.5 million compared with E23.3 million as of December 31, 1999, due
to the exercising of warrants related to the 3% U.S. Dollar Bond 1986/2001. Less
than E100,000 is related to the conversion rights of former shareholders of
Wintershall AG as of December 31, 2000, and December 31, 1999.
The Annual Meeting on May 9, 1996, authorized the Board of Executive
Directors for an additional conditional increase in the subscribed capital of up
to E102.4 million to fulfill the exercising of warrants related to option bonds
which may be issued until April 1, 2001.
In addition, the Annual Meeting on April 29, 1999, approved an increase in
the conditional capital of up to E38.4 million to fulfill stock options granted
to the members of the Board of Executive Directors and other senior executives
of BASF and its subsidiaries.
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.
F-49
250
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 pre-1986 acquisitions of subsidiaries
against issue of BASF shares at par value.
19. RETAINED EARNINGS
2000 1999 1998
-------- -------- --------
(EUROS IN MILLIONS, EXCLUDING PER SHARE
INFORMATION)
Legal reserves................................ E 240.2 E 233.8 E 228.3
Other retained earnings and profit retained... 8,610.9 8,767.9 8,466.8
- - Thereof proposed dividend................... 1,214.8 701.7 692.8
-------- -------- --------
TOTAL......................................... E8,851.1 E9,001.7 E8,695.1
-------- -------- --------
Proposed dividend per share................... E 2.00 E 1.13 E 1.12
In 2000, the legal reserves rose by E7.1 million compared to an increase in
1999 of E4.9 million and in 1998 of E47.1 million due to transfers from other
retained earnings and profit retained and in 2000 by E(0.7) million compared
with E0.6 million in 1999 and E2.6 million in 1998 due to changes in the scope
of consolidation.
20. MINORITY INTEREST
Minority interests in stockholders' equity of consolidated subsidiaries is
primarily attributable to the following companies:
MINORITY INTEREST AMOUNT
-----------------------------
COMPANY PARTNER % 2000 % 1999
- ------- ------- ---- ------ ---- ------
Wingas GmbH, Kassel, Germany.... ZGG-Zarubezhgaz-Erdgas handel 35.0 E 87.2 35.0 E 80.2
GmbH, Berlin, Germany
Hokuriku Seiyaku Co. Ltd.,
Katsuyama-Shi, Fukui, Japan... Publicly traded shares 33.3 125.0 35.9 145.3
Yangzi-BASF Styrenics Co. Ltd.,
Nanjing, China................ Yangzi Petrochem. Corp., Nanjing, China 40.0 62.3 40.0 48.8
Knoll Pharmaceuticals Ltd.,
Mumbai, India................. Publicly traded shares 49.0 14.8 49.0 20.9
BASF India Ltd., Mumbai,
India......................... Publicly traded shares 50.0 18.0 50.0 15.0
BASF Petronas Chemicals Sdn.
Bhd., Jaya, Malaysia.......... Petronas (Petroliam Nasional Bhd.), 40.0 160.6 -- --
Kuala Lumpur, Malaysia
Others.......................... 13.4 19.1
------ ------
E481.3 E329.3
------ ------
F-50
251
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
21. PROVISIONS FOR PENSIONS AND SIMILAR OBLIGATIONS
Most employees are entitled to Company pension benefits resulting from
defined contribution and defined benefit plans. The benefits granted vary
according to the legal, fiscal and economic conditions of the countries where
subsidiaries and affiliated companies are located. Pension obligations comprise
pensions payable after retirement, in case of disability or for surviving
dependents. Benefits generally depend on years of service and compensation
during the final years of employment.
The pension plans for BASF Aktiengesellschaft and most 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.
As a legally independent fund, it is subject to Germany's Law on the
Supervision of Private Insurance Companies. The fund grants pensions based on
the accumulated contributions made by the employee.
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 life insurance or pension funds.
Pension plans and their respective costs are predominantly determined using
the "projected unit credit method" as defined by SFAS No. 87. The weighted
average rates used for calculating the principal retirement plans are as
follows:
2000 1999
---- ----
Interest rate............................................... 6.4% 6.4%
Projected increase of wages and salaries.................... 3.5 3.4
Projected pension increase.................................. 1.4 1.4
Expected return on plan assets.............................. 8.6 8.4
The change in the projected benefit obligation is as follows:
2000 1999
-------- --------
(EUROS IN MILLIONS)
Projected benefit obligation as of January 1................ E6,198.3 E5,942.6
Service cost................................................ 155.4 136.6
Interest cost............................................... 390.2 354.7
Benefits paid............................................... (394.9) (353.2)
Participants' contributions................................. 3.7 6.6
Change in actuarial assumptions............................. (75.4) (175.4)
Settlements and other changes............................... (91.7) (86.7)
Currency exchange........................................... 100.2 373.1
-------- --------
Projected benefit obligation as of December 31.............. E6,285.8 E6,198.3
-------- --------
F-51
252
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The change in plan assets is as follows:
2000 1999
-------- --------
(EUROS IN MILLIONS)
Plan assets as of January 1................................. E2,834.5 E2,263.2
Actual return on plan assets................................ 61.8 368.0
Employer contributions...................................... 72.2 18.2
Participants' contributions................................. 3.7 6.6
Benefits paid............................................... (179.0) (150.0)
Currency exchange........................................... 115.0 342.6
Other changes............................................... (177.2) (14.1)
-------- --------
Plan assets as of December 31............................... 2,731.0 2,834.5
Prepaid pension assets of foreign plans..................... (201.8) (282.3)
-------- --------
Plan assets as of December 31 excluding prepaid pension
assets.................................................... E2,529.2 E2,552.2
-------- --------
The valuation of the pension fund assets of foreign pension funds under
SFAS 87 showed the pre-financing shown above.
The funded status, excluding prepaid pension assets, is as follows:
2000 1999
-------- --------
(EUROS IN MILLIONS)
Projected benefit obligation as of December 31.............. E6,285.8 E6,198.3
Less pension fund assets as of December 31.................. 2,529.2 2,552.2
-------- --------
Funded status............................................... 3,756.6 3,646.1
Unrecognized amounts........................................ 132.9 204.7
-------- --------
Provisions for pensions..................................... 3,889.5 3,850.8
Provisions for similar obligations.......................... 338.8 319.2
-------- --------
Provisions for pensions and similar obligations............. E4,228.3 E4,170.0
-------- --------
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 after retirement. They are based upon an
actuarial valuation, considering the future cost trend and a discount rate of
7.75%.
F-52
253
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net periodic pension cost are presented in the
following table:
2000 1999 1998
------- ------- -------
(EUROS IN MILLIONS)
Service cost................................................ E 155.4 E 136.6 E 120.0
Interest cost............................................... 390.2 354.7 363.2
Expected return on plan assets.............................. (203.4) (182.4) (149.5)
Amortization of prior service cost.......................... 9.2 -- --
Other amortization amounts.................................. -- 0.1 --
Settlement gains............................................ (52.7) (26.0) (145.7)
------- ------- -------
Expenses for defined benefit plans.......................... 298.7 283.0 188.0
Expenses for defined contribution plans..................... 75.6 82.3 97.6
Expenses for health care benefits........................... 26.7 23.4 23.0
------- ------- -------
Net periodic pension cost................................... E 401.0 E 388.7 E 308.6
------- ------- -------
22. OTHER PROVISIONS
THEREOF THEREOF
2000 CURRENT 1999 CURRENT
-------- -------- -------- --------
(EUROS IN MILLIONS)
Oil and gas production........................ E 367.7 E -- E 350.2 E --
Environmental protection and remediation
costs....................................... 269.0 133.3 260.0 130.7
Personnel costs............................... 1,297.2 856.0 1,135.2 711.0
Sales and purchase risks...................... 788.4 776.0 533.7 526.8
Integration, shutdown and restructuring
costs....................................... 285.0 250.5 180.9 145.1
Legal, damage claims and related
commitments................................. 829.5 191.4 733.7 272.8
Maintenance and repair costs.................. 120.3 81.6 125.5 61.1
Other......................................... 579.7 530.5 485.9 437.5
-------- -------- -------- --------
E4,536.8 E2,819.3 E3,805.1 E2,285.0
-------- -------- -------- --------
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 and
other current or future measures necessary to comply with currently existing
legal requirements or currently existing agreements with supervisory
authorities.
PERSONNEL COSTS: The personnel cost provision includes long-time service
bonuses and anniversary payments, vacation pay, variable compensation, social
security contributions and other personnel related accruals. Most German BASF
companies have various programs that entitle employees who are at least 55 years
old to reduce their working hours to 50% for up to six years. Under this
arrangement, 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
(i) for sales, discounts, rebates, contractual customer bonuses, product
liability, warranties and compensation
F-53
254
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
claims of commercial agents, and (ii) for purchases, sundry accruals for
purchases and provisions for losses on committed purchases/other obligations.
INTEGRATION, SHUTDOWN AND RESTRUCTURING COSTS: Such provisions include
severance payments to employees as well as specific site restructuring costs
such as the costs for demolition, closure and similar measures.
The movement in shutdown and restructuring provisions is as follows:
AMOUNT
AMOUNT ACCRUED AS
ACCRUED AS OF OF
JANUARY 1, AMOUNT PAID IN OTHER CHANGES DECEMBER 31,
2000 2000 2000 2000
------------- -------------- ------------- ------------
(EUROS IN MILLIONS)
Severance........................ E111.3 E(144.7) E226.7 E193.3
Plant closure and demolition..... 52.6 (14.5) 23.2 61.3
Other............................ 17.0 (65.7) 79.1 30.4
------ ------- ------ ------
TOTAL............................ E180.9 E(224.9) E329.0 E285.0
------ ------- ------ ------
AMOUNT
AMOUNT ACCRUED AS
ACCRUED AS OF 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 E111.3
Plant closure and demolition..... 47.7 (36.4) 41.3 52.6
Other............................ 13.0 (4.6) 8.6 17.0
------ ------- ------ ------
TOTAL............................ E158.7 E (83.9) E106.1 E180.9
------ ------- ------ ------
AMOUNT
AMOUNT ACCRUED AS
ACCRUED AS OF OF
JANUARY 1, AMOUNT PAID IN OTHER CHANGES DECEMBER 31,
1998 1998 1998 1998
------------- -------------- ------------- ------------
(EUROS IN MILLIONS)
Severance........................ E100.6 E (30.1) E 27.5 E 98.0
Plant closure and demolition..... 63.6 (31.7) 15.8 47.7
Other............................ 41.9 (39.1) 10.2 13.0
------ ------- ------ ------
TOTAL............................ E206.1 E(100.9) E 53.5 E158.7
------ ------- ------ ------
In 2000, BASF integrated the crop protection business acquired from
American Home Products Corporation, which involved severance costs for employees
of the acquired business as well as BASF employees. Provisions for the closure
of the site in Nottingham, United Kingdom, and the "Program 20" for workforce
reduction were made in the Pharmaceuticals segment. Provision of E403.7 million
were accrued for these measures, thereof E243 million without a charge to
profits for severance cost of the employees of the acquired crop protection
business of American Home Product Corporation.
In 1999, BASF approved plans to close the multi-division site in Medellin,
Colombia, the Colorants and Finishing Products site in Ellesmere Port, United
Kingdom, the Pharmaceuticals
F-54
255
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 have been closed. Pretax
charges of E123.9 million were recorded for these measures, which are expected
to be substantially completed in the year 2000.
In 1998, a U.S. subsidiary approved restructuring programs that would
result in the consolidation and realignment of certain manufacturing processes
with its North American paper dyes and solvent borne base coats and clear-coat
businesses. The anticipated closure and realignment plans include the
recognition of pre-tax charge of E25.6 million including demolition costs as
well as severance and outplacement costs for employees associated with the two
affected sites. The majority of costs related to such programs were expected to
be incurred in 1999; however due to construction delays on the replacement
plants, only E6.4 million was expended in 1999.
LEGAL, DAMAGE CLAIMS AND RELATED COMMITMENTS: Provisions are recorded for
the expected cost of outstanding litigation and claims of third parties,
including regulatory authorities. The significant proceedings are described in
Note 24.
MAINTENANCE AND REPAIR COSTS: Provision for maintenance and repair costs
covers omitted maintenance procedures as of the end of the year, 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.
OTHER: Other provisions relate in particular to amounts not yet invoiced
from suppliers for products and services received.
23. LIABILITIES
FINANCIAL LIABILITIES
2000 1999
-------- --------
(EUROS IN MILLIONS)
5.75% Euro Bond 2000/2005 of BASF Aktiengesellschaft........ E1,250.0 E --
3% U.S. Dollar Option Bond 1986/2001 of BASF Finance Europe
N.V....................................................... 247.8 229.2
Other bonds................................................. 277.4 221.6
Commercial paper............................................ 4,455.3 65.9
-------- --------
Bonds and other liabilities to the capital market........... 6,230.5 516.7
Liabilities to credit institutions.......................... 1,661.4 777.7
-------- --------
Financial liabilities....................................... E7,891.9 E1,294.4
-------- --------
Financial liabilities are denominated predominantly in the following
currencies and average interest rates for short-term liabilities:
2000 1999 2000 1999
-------- -------- ----- -----
U.S. dollar....................................... E4,906.4 E 716.6 7.2% 6.9%
Euros............................................. 2,000.9 121.0 4.6% 3.3%
Chinese renminbi.................................. 223.5 183.9 5.7% 6.1%
Other............................................. 761.1 272.9 11.6% 7.5%
-------- -------- ----- -----
TOTAL............................................. E7,891.9 E1,294.4 ffl8.0% ffl6.4%
-------- -------- ----- -----
F-55
256
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial liabilities have the following maturities as of December 31,
2000:
(EUROS IN MILLIONS)
2001........................................................ E6,080.0
2002........................................................ 135.8
2003........................................................ 59.1
2004........................................................ 27.8
2005........................................................ 1,290.9
Thereafter.................................................. 298.3
--------
TOTAL....................................................... E7,891.9
--------
The 5.75% Euro Bond 2000/2005 of BASF Aktiengesellschaft was issued in July
2000. 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.
consists of 235,000 bonds of U.S. $1,000, such bonds are listed on the
Luxembourg Stock Exchange and mature on April 9, 2001. Each bond allows for 10
BASF shares to be issued upon the exercise of one warrant against payment of the
exercise price of E157.48. This subscription right may be exercised at April 9,
2001.
Other bonds include demand reserve and pollution control bonds issued by
BASF Corporation, due between 2002 and 2035 and bearing interest rates at rates
of between 4.30% and 6.75%.
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 2000, the Company had committed and unused credit lines of
E2,700 million with variable interest rates. In addition, the Company had E235
million uncommitted credit lines.
MISCELLANEOUS LIABILITIES AND DEFERRED INCOME
THEREOF THEREOF
2000 CURRENT 1999 CURRENT
-------- -------- -------- --------
(EUROS IN MILLIONS)
Advances received on account of orders.............. E 48.5 E 41.1 E 91.8 E 81.1
Liabilities on bills................................ 59.7 59.7 41.6 31.3
Liabilities to companies in which participations are
held.............................................. 330.2 329.8 170.3 170.2
Tax liabilities..................................... 451.3 450.1 621.6 619.9
Liabilities relating to social security............. 157.3 157.3 103.6 103.2
Non-trade liabilities to joint venture partners..... 481.6 27.4 662.8 --
Other miscellaneous liabilities..................... 1,661.5 1,399.0 1,525.7 1,424.4
-------- -------- -------- --------
Total miscellaneous liabilities..................... 3,190.1 2,464.4 3,217.4 2,430.1
Deferred income..................................... 397.0 177.5 190.3 66.4
-------- -------- -------- --------
Total miscellaneous liabilities and deferred
income............................................ E3,587.1 E2,641.9 E3,407.7 E2,496.5
-------- -------- -------- --------
Liabilities to companies in which participations are held include
liabilities to joint ventures accounted for using the proportional consolidation
method of E143.4 million as of December 31, 2000 and of E136.3 million as of
December 31, 1999 and liabilities relating to associated companies accounted for
under the equity or costs method of E186.8 million as of December 31, 2000 and
of E34.0 million as of December 31, 1999.
F-56
257
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 asset projects. In 2000, liabilities of E453.8 million carry
interest at rates of between 5.99% to 6.98%. E362.7 million of them mature after
more than five years.
In 1999 other miscellaneous liabilities included payables of E510 million
in sanctions and settlements related to the vitamin antitrust proceedings and
E244 million associated with fair value accounting for foreign currency
derivatives, which increased to E309 million in 2000.
SECURED LIABILITIES
2000 1999
------- -------
(EUROS IN MILLIONS)
Liabilities to credit institutions.......................... E31.4 E22.7
Miscellaneous liabilities................................... 1.9 17.4
----- -----
E33.3 E40.1
----- -----
The above liabilities are collateralized by mortgages, land charges or
securities. In addition, negative declarations were made 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 probable.
2000 1999
-------- --------
(EUROS IN MILLIONS)
Bills of exchange........................................... E 93.2 E120.1
- - Thereof to affiliated companies........................... 2.7 3.2
Guarantees.................................................. 285.5 245.5
Warranties.................................................. 48.6 62.5
Granting collateral on behalf of third-parties.............. 8.7 4.7
------ ------
E436.0 E432.8
------ ------
OTHER FINANCIAL OBLIGATIONS
2000 1999
-------- --------
(EUROS IN MILLIONS)
Remaining cost of construction in progress.................. E3,966.3 E3,104.0
- - Thereof purchase commitment............................... 512.6 1,098.1
Commitments from long-term rental and leasing contracts..... 1,173.0 653.8
Repurchase commitments...................................... 781.9 572.5
Payment and loan commitments................................ 635.7 0.6
-------- --------
TOTAL....................................................... E6,556.9 E4,330.9
-------- --------
Repurchase commitments are related to accounts receivables and securities.
F-57
258
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BASF has payment commitments for equity contributions and loans to BASF-YPC
Company Ltd., which is not consolidated. BASF-YPC Company Ltd. is building the
Verbund site in Nanjing, China, together with BASF's partner SINOPEC.
Obligations from rental and lease contracts are due as follows:
(EUROS IN MILLIONS)
2001........................................................ E 181.1
2002........................................................ 144.7
2003........................................................ 128.1
2004........................................................ 100.2
2005........................................................ 82.5
2006 and thereafter......................................... 536.4
--------
TOTAL....................................................... E1,173.0
--------
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, 2000, are as follows:
(EUROS IN MILLIONS)
2001........................................................ E 7,241
2002........................................................ 3,985
2003........................................................ 2,861
2004........................................................ 2,158
2005........................................................ 1,879
2006 and thereafter......................................... 10,558
-------
TOTAL....................................................... E28,682
-------
24. LITIGATION AND CLAIMS
In the context of its ordinary business operations, BASF is a defendant in
class action lawsuits brought before United States federal 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, BASF Aktiengesellschaft entered into agreements with the United
States Department of Justice and the Canadian Competition Bureau by which BASF
Aktiengesellschaft agreed to plead guilty to certain violations of antitrust
laws relating to the sale of vitamin products in the United States and in
Canada. The relevant courts accepted the guilty pleas and the recommended fines
of $225 million and C$19 million, respectively.
On October 20, 2000, BASF Australia Ltd. entered into a settlement
agreement with the antitrust agency in Australia by which BASF Australia Ltd.
admitted certain violations of Australian antitrust laws and agreed to pay a
penalty of AUD 7.5 million. Court approval of the settlement is still
F-58
259
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
pending. Government investigations against BASF or the respective local
subsidiaries of BASF continue in the EU, Japan, Mexico and Brazil.
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 plaintiffs representing approximately 80%
of relevant BASF sales have elected to opt out of the proposed settlement, BASF
Aktiengesellschaft's share has been reduced to $62 million. Individual
settlements at class action settlement conditions have been reached for $46.8
million with customers representing approximately 20% of the relevant BASF
sales.
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 approved, BASF
Aktiengesellschaft will be obligated to pay up to $97 million of the total
amount.
In addition, beginning in June and July of 1999, civil lawsuits relating to
antitrust issues were initiated in Canada and Australia. The company has
established provision for the costs that they can currently anticipate. BASF
cannot exclude the possibility of additional charges, but does not believe, that
this will have a substantial impact on the profitability of the company.
SYNTHROID(R)-RELATED CLAIMS
On October 30, 1997, Knoll Pharmaceutical Company (Knoll), a subsidiary of
BASF Corporation, announced that a United States district court in Chicago gave
preliminary approval of a proposed settlement of a series of class action
lawsuits involving its thyroid medication Synthroid(R). The lawsuits challenged
Knoll's delaying publication of a study conducted by Dong et al. that compared
Synthroid(R) to certain branded and generic products. The study concluded that
Synthroid(R) and some competing products are bioequivalent. Although Knoll
believes the study was flawed and the conclusion incorrect, Knoll agreed to the
proposed settlement to avoid burdensome and expensive litigation.
Under the terms of the proposed settlement, consumers who bought
Synthroid(R) between January 1, 1990 and October 30, 1997 would have been
eligible to receive a pro rata share of a settlement fund consisting of $98
million in cash. If as many as five million claimants had participated, eligible
claimants would have received payment in the amount of $19.60, less a
proportionate share of court awarded attorneys' fees and related costs. If the
number of eligible claimants had exceeded five million, Knoll would have
contributed additional payments to the settlement fund until the fund reached a
maximum of $135 million.
For various reasons, including the unclear position of third party payors,
final approval of the proposed 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 preliminary approval of the new proposed
settlement on October 8, 1999. Based on a fairness hearing on April 27, 2000,
final approval was granted on August 4, 2000. A number of appeals have been
filed in the United States Court of Appeals for the Seventh Circuit by objectors
appealing the denial of their motions to intervene and by lead counsel for the
customer
F-59
260
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
class and lead counsel for the third party payor class appealing the award of
attorneys' fees and costs. The appeals have been consolidated and are pending.
In 1999, additional payments were made in a new settlement with a coalition
of the state attorneys generals in the United States. In addition, a provision
was made to pay for a settlement with the Institute for Advancement of Community
Pharmacy (IACP).
25. STOCK-BASED COMPENSATION
BASF STOCK OPTION PROGRAM: The Annual Meeting of April 29, 1999, approved
the BASF stock option program (BOP) for senior executives of the Company
worldwide and also approved an increase in conditional capital to provide shares
to fulfill the execution of eligible option rights. The Annual Meeting of April
27, 2000, was informed by the Board of Executive Directors that the BOP will be
continued without any changes. Approximately 1,200 senior executives, including
the Board of Executive Directors, are authorized to participate in this program.
To participate in the BOP program, each participant must make an individual
investment in BASF shares in the amount of 10% to 30% of their 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
E41.60 on April 30, 1999, for the BOP 1999 and E47.80 on April 28, 2000, for the
BOP 2000. For each BASF share purchased, 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 performance targets described below have been met.
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 EURO STOXX(SM). 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 EURO STOXX(SM) 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
maximum gain for a participant from the BOP program is limited to 10 times the
original individual investment.
The options granted under the BOP 2000 program (BOP 1999 program) may be
exercised between the day after the Annual Meeting in 2003 (2002) and the 15th
day after the Annual Meeting in 2006 (2005) except in the four-week periods
prior to the announcement of BASF's quarterly and annual financial results and
the six-week periods prior to the Annual Meeting. The options granted are not
transferable and lapse if the participants sell the shares from their investment
or leave BASF.
As of April 30, 1999, a total of 1,178,440 option rights were granted under
the BOP 1999 program, enabling senior executives to buy up to 2,356,880 shares,
conditional on the performance targets being achieved. As of December 31, 2000,
a total of 31,625 option rights were forfeited because the holders no longer
worked for BASF or had sold some of their shares. Overall, a total of 1,146,815
option rights granted under the BOP 1999 program still exist.
On April 30, 1999, the fair value of the options granted at this date was
E25.04 per option. The fair value of the option was determined by using a
risk-free interest rate of 3.59%, a BASF dividend
F-60
261
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
yield of 3.11%, a volatility factor for BASF shares of 30%, a volatility of 20%
for the EURO STOXX(SM) and a correlation between the BASF share price and EURO
STOXX(SM) Total Return Index of 60%. The exercise period for the options is
assumed to be continuous during the three years the options are exercisable.
As of April 28, 2000, a total of 917,016 option rights were granted under
the BOP 2000 program, enabling senior executives to buy up to 1,834,032 shares,
conditional on the performance targets being achieved. As of December 31, 2000,
overall a total of 910,188 option rights granted under the BOP 2000 program
still exist.
On April 28, 2000, the fair value of the options granted at this date was
E29.59 per option. The fair value of the option was determined by using a
risk-free interest rate of 5.39%, a BASF dividend yield of 2.59%, a volatility
factor for BASF shares of 30%, a volatility of 20% for the EURO STOXX(SM) and a
correlation between the BASF share price and EURO STOXX(SM) Total Return Index
of 60%. The exercise period for the options is assumed to be continuous during
the three years the options are exercisable.
Total compensation cost of E27.1 million for the BOP 2000 program and E29.5
million for the BOP 1999 program 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
three-year period in which the related employees' services are rendered.
Compensation cost of E15.9 million was recorded 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.
Employees of BASF companies in Germany, Switzerland and Poland are
currently authorized to participate in "plus", and further subsidiaries are
planning to join the program in 2001.
Each participant must make an individual investment in BASF shares from
their 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 their individual investment in BASF shares, if
the participant stops working for the Company or one year after the participant
retires.
On April 30, 1999, employees of BASF companies bought 223,980 BASF shares
with the right to receive free shares. As of December 31, 2000, a total of
18,876 of these shares holding the right to receive free shares had been sold,
so the total amount of shares qualifying under the "plus" program is 205,104. On
April 28, 2000, employees of BASF companies bought 544,730 shares with the right
to receive free shares, of which 540,700 were still held by the employees as of
December 31, 2000. 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 E2.7 million was recorded in 2000 and E1.1 million
in 1999.
26. FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT: 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, 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-interest securities. Exclusive
use is made of commonly used instruments with sufficient market liquidity.
Derivative financial instruments are only used if they have a
F-61
262
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 solely held for purposes other than trading.
Where financial 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 and other subsidiaries designated for this purpose. 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 U.S.
dollar, the Canadian dollar, the Australian dollar, the British pound, the Swiss
franc, the Japanese yen and the Singapore dollar.
Interest derivatives or combined interest/currency derivatives were
concluded to hedge loans extended to group companies. 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:
DEC. 31, 2000 DEC. 31, 1999
----------------------- -----------------------
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
---------- ---------- ---------- ----------
(EUROS IN MILLIONS)
ASSETS:
Financial assets (details see Note 13).......... E3,589.7 E3,677.4 E1,506.6 E1,507.0
Accounts receivable and other assets............ 9,126.7 9,133.3 7,048.4 7,080.2
Marketable securities (details see Note 16)..... 364.1 618.4 517.4 536.9
Cash and cash equivalents....................... 505.5 505.5 990.2 990.2
LIABILITIES:
Financial liabilities........................... E7,891.9 E7,918.1 E1,294.4 E1,283.7
Accounts payable and other liabilities.......... 6,430.0 6,429.3 5,741.4 5,739.9
F-62
263
BASF GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTS RECEIVABLE AND OTHER ASSETS, ACCOUNTS PAYABLE AND OTHER
LIABILITIES: For accounts receivable and other assets, 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.
BREAKDOWN OF DERIVATIVE FINANCIAL INSTRUMENTS:
NOMINAL AMOUNTS FAIR VALUE
DECEMBER 31, DECEMBER 31,
--------------------- ------------------
2000 1999 2000 1999
--------- -------- ------- -------
(EUROS IN MILLIONS)
Forward exchange contracts..................... E10,630.0 E2,416.0 E (17.8) E (71.1)
Currency options............................... 4,220.9 193.4 66.1 (2.5)
--------- -------- ------- -------
FOREIGN CURRENCY DERIVATIVES................... 14,850.9 2,609.4 48.3 (73.6)
--------- -------- ------- -------
Interest rate swaps............................ 36.0 147.7 0.1 2.0
Interest rate/cross currency swaps............. 2,977.2 1,409.0 (367.9) (227.9)
--------- -------- ------- -------
INTEREST RATE DERIVATIVES...................... 3,013.2 1,556.7 (367.8) (225.9)
--------- -------- ------- -------
OTHER DERIVATIVES.............................. 25.6 62.6 10.1 24.9
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.
The use of foreign currency derivatives increased related to Commercial
Paper issued in foreign currency to finance the acquisition of the crop
protection business from American Home Products Corp. Furthermore, contracts
were closed related to the foreign exchange exposure arising from the expected
sale proceeds of BASF's pharmaceuticals business in U.S. dollars. The total
volume of interest rate and cross currency swaps increased due to increased
internal financing of group companies in foreign currencies because of the
acquisition of the crop protection business from American Home Products Corp.
F-63
264
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.
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 were computed by applying the statutory income tax rates to the pretax
income from producing activities.
NORTH AFRICA/ REST OF
1998 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
- ---- ------- ------------- --------- ------- -----
(EUROS IN MILLIONS)
RESULTS OF OPERATIONS
- Sales to consolidated companies... E 32 E -- E -- E 2 E 34
- Sales to third parties............ 123 516 -- 59 698
- Other sales....................... -- -- -- 1 1
- Royalties......................... 14 188 -- 2 204
---- ---- ---- ---- ----
Total sales.......................... 141 328 -- 60 529
---- ---- ---- ---- ----
Production costs..................... 60 117 -- 23 200
Exploration expenses................. 2 18 -- 10 30
Depreciation, depletion, amortization
and valuation...................... 31 61 -- 21 113
Others............................... -- -- -- 1 1
---- ---- ---- ---- ----
Total costs.......................... 93 196 -- 55 344
---- ---- ---- ---- ----
Result before taxes.................. 48 132 -- 5 185
Income taxes......................... 27 110 -- 5 142
---- ---- ---- ---- ----
Result after taxes................... E 21 E 22 E -- E -- E 43
---- ---- ---- ---- ----
F-64
265
NORTH AFRICA/ REST OF
1999 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
- ---- ------- ------------- --------- ------- ------
(EUROS IN MILLIONS)
RESULTS OF OPERATIONS
- Sales to consolidated companies........ E 40 E -- E -- E 2 E 42
- Sales to third parties................. 117 726 169 48 1,060
- Other sales............................ -- -- -- -- --
- 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
- Others................................. -- -- 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 -- E 141
---- ---- ---- ---- ------
NORTH AFRICA/ REST OF
2000 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
- ---- ------- ------------- --------- ------- ------
(EUROS IN MILLIONS)
RESULTS OF OPERATIONS
- Sales to consolidated companies........ E 8 E -- E -- E -- E 8
- 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
- Others................................. -- -- -- -- --
---- ------ ---- ---- ------
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 E119 E 6 E 308
---- ------ ---- ---- ------
F-65
266
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.
NORTH AFRICA/ REST OF
1998 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
- ---- ------- ------------- --------- ------- -----
(EUROS IN MILLIONS)
COSTS INCURRED
Property acquisitions:
- Proved............................ E -- E -- E -- E 1 E 1
- Unproved.......................... -- -- -- 3 3
Exploration.......................... 16 39 -- 14 69
Development.......................... 26 42 -- 11 79
---- ---- ---- ---- ----
Total Costs.......................... E 42 E 81 E -- E 29 E152
---- ---- ---- ---- ----
NORTH AFRICA/ REST OF
1999 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
- ---- ------- ------------- --------- ------- -----
(EUROS IN MILLIONS)
COSTS INCURRED
Property acquisitions:
- Proved............................ 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 E184
---- ---- ---- ---- ----
NORTH AFRICA/ REST OF
2000 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
- ---- ------- ------------- --------- ------- -----
(EUROS IN MILLIONS)
COSTS INCURRED
Property acquisitions:
- Proved............................ E -- E -- E -- E 19 E 19
- Unproved.......................... -- -- -- -- --
Exploration.......................... 12 27 5 6 50
Development.......................... 59 20 22 26 127
---- ---- ---- ---- ----
Total Costs.......................... E 71 E 47 E 27 E 51 E196
---- ---- ---- ---- ----
F-66
267
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.
NORTH AFRICA/ REST OF
1998 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
- ---- ------- ------------- --------- ------- -----
(EUROS IN MILLIONS)
CAPITALIZED COSTS
Gross costs:
- Proved properties................. E309 E451 E -- E129 E889
- Unproved properties............... 5 -- -- 7 12
- Other equipment................... 355 167 -- 112 634
Accumulated depreciation, depletion,
amortization and valuation
allowances:
- Proved properties................. 258 322 -- 66 646
- Unproved properties............... -- -- -- 1 1
- Other equipment................... 327 162 -- 96 585
---- ---- ---- ---- ----
Total net costs...................... E 84 E134 E -- E 85 E303
---- ---- ---- ---- ----
NORTH AFRICA/ REST OF
1999 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
- ---- ------- ------------- --------- ------- ------
(EUROS IN MILLIONS)
CAPITALIZED COSTS
Gross costs:
- Proved properties................ E328 E412 E582 E 71 E1,393
- 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..................... E138 E 97 E159 E 52 E 446
---- ---- ---- ---- ------
NORTH AFRICA/ REST OF
2000 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
- ---- ------- ------------- --------- ------- ------
(EUROS IN MILLIONS)
CAPITALIZED COSTS
Gross costs:
- Proved properties................ E339 540 E651 E 19 E 1549
- 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 1111
- Unproved properties.............. -- -- -- 4 4
- Other equipment.................. 320 168 -- 98 586
---- ---- ---- ---- ------
Total net costs..................... E160 E207 E170 E 62 E 599
---- ---- ---- ---- ------
F-67
268
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.
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, 1998, 1999 and
2000 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 1998, 1999 and 2000
include reserves owned directly by the Company and its consolidated
subsidiaries. Reserve figures and the standardized measure of discounted cash
flows for 1998 also include amounts related to Wintershall Energia, Argentina,
which was transferred to the Company in 1998 following the split-up of Deminex.
Due to the immaterial impact on the results of operations and financial position
of the Company, the investment in Wintershall Energia was accounted for in
accordance with the equity method for the last three months of 1998. It has been
fully consolidated beginning January 1, 1999.
F-68
269
NORTH AFRICA/ REST OF
1998 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
- ---- ------- ------------- --------- ------- -----
(MILLIONS OF BARRELS)
ESTIMATED PROVED OIL RESERVES
Proved developed and undeveloped
reserves, beginning of year........ 38 410 -- 6 454
- Revisions and other changes....... 4 182 -- 1 187
- Extensions and discoveries........ -- -- -- -- --
- Reserves added from split-up of
Deminex............................ -- -- 27 -- 27
- Improved recovery................. -- -- -- -- --
- Purchase of reserves.............. -- -- -- -- --
- Sale of reserves.................. -- -- -- -- --
- Production........................ 5 47 -- 1 53
---- ---- ---- ---- ----
End of year.......................... 37 545 27 6 615
Proved developed reserves, beginning
of year............................ 36 408 -- 6 450
End of year.......................... 34 509 14 5 562
ESTIMATED PROVED GAS RESERVES (BSCF)
Proved developed and undeveloped
reserves, beginning of year........ 464 -- -- 206 670
- Revision and other changes........ 34 247 -- (18) 263
- Extensions and discoveries........ 15 -- -- 35 50
- Reserves added from split-up of
Deminex............................ -- -- 746 -- 746
- Improved recovery................. -- -- -- -- --
- Purchase of reserves.............. -- -- -- -- --
- Sale of reserves.................. -- -- -- -- --
- Production........................ 43 -- -- 28 71
---- ---- ---- ---- ----
End of year.......................... 470 247 746 195 1,658
Proved developed reserves, beginning
of year............................ 333 -- -- 140 473
End of year.......................... 343 -- 400 142 885
F-69
270
NORTH AFRICA/ REST OF
1999 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
- ---- ------- ------------- --------- ------- ------
(MILLIONS OF BARRELS)
ESTIMATED PROVED OIL RESERVES
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 -- 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
- Revision 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
F-70
271
NORTH AFRICA/ REST OF
2000 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
- ---- ------- ------------- --------- ------- ------
(MILLIONS OF BARRELS)
ESTIMATED PROVED OIL RESERVES
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
- Revision 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
Note: Revisions and other changes in estimated proved gas reserves for
North Africa/Middle East in 1998 consists of reserves which, as a result of
changes in economic factors relating to marketability, became proved gas
reserves.
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.
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.
F-71
272
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES
NORTH AFRICA/ REST OF
1998 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
- ---- ------- ------------- --------- ------- ------
(EUROS IN MILLIONS)
DISCOUNTED FUTURE NET CASH FLOW
Revenues............................ E1,254 E2,504 E907 E330 E4,995
Production/Development costs........ 1,098 1,691 426 212 3,427
Income taxes........................ 210 478 135 27 850
Future net cash flows............... (54) 335 346 91 718
Discounted to present value at a 10%
annual rate....................... (40) 117 162 31 270
------ ------ ---- ---- ------
TOTAL............................... E (14) E 218 E184 E 60 E 448
------ ------ ---- ---- ------
NORTH AFRICA/ REST OF
1999 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
- ---- ------- ------------- --------- ------- -------
(EUROS IN MILLIONS)
DISCOUNTED FUTURE NET CASH FLOW
Revenues........................... E2,483 E10,651 E1,443 E229 E14,806
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
------ ------- ------ ---- -------
NORTH AFRICA/ REST OF
2000 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
- ---- ------- ------------- --------- ------- -------
(EUROS IN MILLIONS)
DISCOUNTED FUTURE NET CASH FLOW
Revenues........................... E3,597 E10,424 E1,895 E297 E16,213
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
------ ------- ------ ---- -------
F-72
273
SUMMARY OF CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES
NORTH AFRICA/ REST OF
1998 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
- ---- ------- ------------- --------- ------- ------
(EUROS IN MILLIONS)
SUMMARY OF CHANGES
Balance as of January 1............. E 94 E 341 E -- E130 E 565
Sales and transfers of oil and gas
produced, net of production....... (78) (196) -- (33) (307)
Net changes in prices and in
development and production cost... (271) (1,722) -- (82) (2,075)
Extension, discoveries and improved
recovery, less related costs...... (9) -- 184 -- 175
Revisions of previous quantity
estimates......................... 55 140 -- 11 206
Development costs incurred during
the period........................ 26 70 -- 10 106
Changes in estimated future
development cost.................. 17 (131) -- (12) (126)
Accretion of discount............... 31 188 -- 15 234
Net changes in income taxes......... 121 1,397 -- 21 1,539
Others.............................. -- 131 -- -- 131
Balance as of December 31........... (14) 218 184 60 448
NORTH AFRICA/ REST OF
1999 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
- ---- ------- ------------- --------- ------- ------
(EUROS IN MILLIONS)
SUMMARY OF CHANGES
Balance as of January 1............. E (14) E 218 E184 E 60 E 448
Sales and transfers of oil and gas
produced, net of production....... (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)
Accretion 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-73
274
NORTH AFRICA/ REST OF
2000 GERMANY MIDDLE EAST ARGENTINA WORLD TOTAL
- ---- ------- ------------- --------- ------- ------
(EUROS IN MILLIONS)
SUMMARY OF CHANGES
Balance as of January 1............. E 378 E 694 E454 E 39 E1,565
Sales and transfers of oil and gas
produced, net of production....... (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...... 0 103 0 0 103
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) 0 (21) (29)
Accretion of discount............... 84 492 51 5 632
Net changes in income taxes......... (20) 133 (65) (53) (5)
Others.............................. 0 0 0 2 2
Balance as of December 31........... 836 717 612 76 2,241
F-74
275
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.*
8.1 List of subsidiaries of BASF Aktiengesellschaft (List of Shares Held 2000).
- ---------------
* Confidential portions have been redacted and filed separately with the
Securities and Exchange Commission.
194
276
[THIS PAGE INTENTIONALLY LEFT BLANK]
277
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, 2001 BASF AKTIENGESELLSCHAFT
By: /s/ Dr. Jurgen F. Strube
--------------------------------------
Name: Dr. Jurgen F. Strube
Title: Chairman of the Board of
Executive Directors
By: /s/ Max Dietrich Kley
--------------------------------------
Name: Max Dietrich Kley
Title: Deputy Chairman of the
Board of Executive Directors