4 – Segment reporting

BASF’s worldwide business is managed by operating divisions that are aggregated into six segments for reporting purposes.

Chemicals consists of the Inorganics, Petrochemicals and Intermediates divisions. Its portfolio ranges from basic chemicals, glues and electronic chemicals to solvents and plasticizers, as well as starting materials for products such as detergents, plastics, textile fibers, paints and coatings and pharmaceuticals.

Plastics is composed of the Performance Polymers and Polyurethanes divisions.

As of August 1, 2010, the division Nutrition & Health was established within the Performance Products segment. This division’s core business areas include human and animal nutrition as well as pharmaceuticals, which were previously part of the Care Chemicals division. The new division Nutrition & Health had been formed to prepare for the integration of the Cognis activities. Performance Products now includes five divisions that primarily make customer-specific specialties alongside standard products. In addition to Care Chemicals and Nutrition & Health, these divisions are Dispersions & Pigments, Paper Chemicals and Performance Chemicals.

Functional Solutions comprises the Catalysts, Construction Chemicals and Coatings divisions.

Agricultural Solutions contains the Crop Protection division.

Oil & Gas is composed of the Oil & Gas division with the Exploration & Production and Natural Gas Trading business sectors.

Activities not allocated to a particular segment are reported under Other and include, in particular, Styrenics as well as our fertilizer activities. In addition, the sale of raw materials, engineering and other services, rental income and leases are reported under Other. Group corporate costs consist of the expenses for steering the BASF Group; these costs are not allocated to the segments, they are reported under Other.

With our cross-divisional corporate research, which is also reported under Other, we develop growth clusters and ensure the long-term competence of BASF with regard to technology and methods.

Earnings from currency conversion that are not allocated to the segments are reported under Other as are earnings from the hedging of raw materials prices and foreign currency exchange risks. Expenses and revenues from the BASF option program are also reported under Other.

In the first three quarters of 2010, sales in Other increased significantly compared with the same period of 2009. This was mainly due to the positive business development in Styrenics. Earnings in the Styrenics business also increased substantially. Provisions for the BASF option program had a negative impact on earnings because BASF shares outperformed the benchmark index MSCI World Chemicals in the first three quarters of 2010.

Transfers between the segments are almost always executed at market-based prices. The allocation of assets and depreciation to the segments is based on economic control. Assets used by more than one segment are allocated based on the percentage of usage.

In the reconciliation reporting for Oil & Gas, the income from operations of the Oil & Gas segment is reconciled to the contribution of the companies in this segment to the net income of the BASF Group.

Other income includes all expenses and income not included in income from operations of the segment, the interest result and the miscellaneous financial result.

The increase in income from participations in the first three quarters resulted chiefly from earnings at OAO Severneftegazprom, which is accounted for using the equity method.