1.2 – Changes in accounting principles

The application of the following International Financial Reporting Standards effective January 1, 2013, resulted in changes for BASF’s accounting methods in 2013:

IFRS 10 – Consolidated Financial Statements

IFRS 10 contains a new, comprehensive definition of control. The new standard replaces the provisions of IAS 27 – Separate Financial Statements (previously “Consolidated and Separate Financial Statements”), which regulates the preparation of consolidated financial statements, as well as SIC12 Consolidation – Special Purpose Entities. According to both IAS 27 and IFRS 10, a group consists of a parent entity and the subsidiaries controlled by the parent. IFRS 10 provides a new definition of control compared with IAS 27. This is applied in determining the companies to be consolidated. “Control” assumes the simultaneous fulfillment of the following three criteria:

  • The parent company holds decision-making power over the relevant activities of the investee,
  • The parent company has rights to variable returns from the investee, and
  • The parent company can use its decision-making power to affect the variable returns.

Based on corporate governance and potential supplementary agreements, companies were analyzed for their relevant activities and variable returns, and the link between the variable returns and the extent to which their relevant activities could be influenced.

Upon application of the new standard, four companies have been switched from full consolidation to the equity method. For three companies, no control exists according to IFRS 10, as BASF’s partners in these companies have the ability to influence the determination and implementation of certain relevant activities through supervisory bodies. Despite an investment of 51%, the oil and gas production company in Libya is not controlled according to IFRS 10, because contractual arrangements with the Libyan government strictly limit influence on variable returns after income taxes.

While BASF does not hold majority shares in ZAO Gazprom YRGM Trading, BASF is entitled to the earnings of the company due to profit distribution arrangements, so that the company is fully consolidated in the Group Consolidated Financial Statements.

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Effects of initial use of IFRS 10 (million €)

 

January 1, 2012

Noncurrent assets

(364)

Thereof property, plant and equipment

(574)

investments accounted for using the equity method

217

Current assets

(324)

Thereof cash and cash equivalents

(34)

Total assets

(688)

 

 

Equity

(207)

Noncurrent liabilities

(377)

Thereof financial indebtedness

Current liabilities

(104)

Thereof financial indebtedness

Total equity and liabilities

(688)

IFRS 11 – Joint Arrangements

Until the end of 2012, BASF principally consolidated companies controlled together with a partner in the financial statements on a proportional basis, pursuant to IAS 31. According to IFRS 11, which regulates the accounting of joint arrangements, joint ventures must now be distinguished from joint operations. In the case of a joint venture, the parties that have joint control of a legally independent company have rights to the net assets of that arrangement. In joint operations, the parties that have joint control have direct rights to the assets and obligations for the liabilities relating to the arrangement. This requirement is particularly fulfilled if the production output of the joint arrangement is almost entirely transferred to the partners and there is no access to external financing sources.

Shares in joint ventures must now be accounted for using the equity method. In the case of joint operations, the proportional share of assets, liabilities, income and expenses must be reported.

Companies whose corporate governance structures classified them as joint arrangements were analyzed to determine if they met the criteria for joint ventures or joint operations as per IFRS 11. This required an analysis of the joint arrangement’s structure and, if the arrangement was structured through a separate vehicle, its legal form, contractual arrangements and all other facts and circumstances were reviewed. Upon application of the new standard, 14 BASF Group companies were shifted to the equity method instead of being proportionally consolidated. For eight companies, BASF must report the proportional share of assets, liabilities, income and expenses, since they market their products directly to the partners and have no access to external financing.

The following shows the impact of the shift from proportional consolidation to equity accounting as part of the initial application of IFRS 11 effective January 1, 2012:

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Effects of initial use of IFRS 11 (million €)

 

January 1, 2012

Noncurrent assets

57

Thereof property, plant and equipment

(1,210)

investments accounted for using the equity method

1417

Current assets

(1,045)

Thereof cash and cash equivalents

(111)

Total assets

(988)

 

 

Equity

9

Noncurrent liabilities

(374)

Thereof financial indebtedness

(349)

Current liabilities

(623)

Thereof financial indebtedness

(151)

Total equity and liabilities

(988)

Reclassification of equity income as part of income from operations

With the application of IFRSs 10 and 11, the equity income, which was previously reported as part of the financial result, is now reported as part of income from operations (EBIT). The changed presentation in income from operations reflects the operational character of investments accounted for using the equity method.

IFRS 12 – Disclosure of Interests in Other Entities

IFRS 12 stipulates the disclosures required with regard to the new IFRS 10 – Consolidated Financial Statements and IFRS 11 – Joint Arrangements. This standard replaces the disclosures previously required by IAS 27 – Separate Financial Statements and IAS 28 – Investments in Associates. The application of IFRS 12 is intended to enable assessment of the nature of, and risks associated with, interests in subsidiaries, joint arrangements, associated companies and unconsolidated structured entities.

To this end, the significant judgments and assumptions are described which are used to determine control, joint control or significant influence for the inclusion of the investment in the consolidated financial statements. Disclosures of interests in subsidiaries provide insight into the group structure and the influence of the other entities. Summarized financial information must be reported for subsidiaries whose minority interests are material to the Consolidated Financial Statements as a whole. Information on joint arrangements and associated companies furthermore enables the evaluation of the nature, extent and financial effects of these investments. This includes disclosures on contractual relationships, the description of activities and summarized financial information for joint arrangements and associated companies that are considered material for the Consolidated Financial Statements.

IAS 19 (revised) – Employee Benefits

The most significant change of IAS 19 (revised) requires that experience-based adjustments and effects from changes of actuarial assumptions, reported as actuarial gains and losses, must be recognized directly in other comprehensive income. The previous option of immediate recognition in the income statement, reporting in equity, or delayed reporting according to the corridor method, was abolished. The amendment does not affect the total amount of BASF’s equity because actuarial gains and losses have already been treated in accordance with the approach required by IAS 19 (revised). The accumulated amount of actuarial gains and losses, which was previously a part of retained earnings, has been reclassified to other comprehensive income. This reclassification amounted to €2,444 million at the end of 2013 and €3,571 million at the end of 2012.

With IAS 19 (revised), changes in the benefit levels resulting from plan amendments with retroactive effect on past service are no longer to be amortized over the vesting period. The retroactive benefit amendments are to be recognized immediately in EBIT in the year of the plan amendment. The application of this accounting policy led to a reduction in the EBIT of the BASF Group of €3 million for 2013 and an increase of €16 million for 2012. This impacted the amount of pension provisions accordingly.

Additionally, the revised standard requires that returns on plan assets recognized in the income statement are no longer calculated according to expectations but are instead based on the discount rate applied for pension obligations. The application of this accounting method led to a reduction of €110 million in the BASF Group’s financial result in 2013 and €80 million for 2012. The amounts recognized for remeasurements of defined contribution plans in other comprehensive income increased accordingly.

The clarified definition of termination benefits in IAS 19 (revised) and the resulting change in accounting policy for early-retirement agreements reduced EBIT by €7 million in 2013 and by €17 million in 2012. This resulted in an increase in other provisions by the same amount.

Statement of income and expense recognized in equity (amendments to IAS 1)

As a result of amendments to IAS 1, income and expenses recognized directly in equity that will be reclassified to the statement of income at a later date must now be distinguished from those that will never be reclassified.

Amendments to IFRS 7 – Financial Instruments: Disclosures

With this amendment to IFRS 7, the disclosure requirements on financial instruments that either are, or can be, offset are expanded. These changes have no material impact on the Consolidated Financial Statements of the BASF Group.

IFRS 13 – Fair Value Measurement

This standard provides for the uniform measurement of fair value in IFRS-prepared financial statements. All fair value measurements required by other standards must now follow the uniform guidance provided by IFRS 13; only for IAS 17 and IFRS 2 do individual rules remain. The standard furthermore replaces and expands the disclosure requirements on fair value measurements in other IFRSs. IFRS 13 defines fair value as the exit price; that is, the price that would be received to sell an asset or paid to transfer a liability. A three-level hierarchy has been introduced based on dependence on observable market prices, as previously known from the fair value measurement of financial assets. In accordance with the transitional provisions of IFRS 13, the new fair value measurement guidance has been applied prospectively and no comparative information for new disclosures has been provided. Notwithstanding the above, the change had no material impact on the measurements of the Group’s assets and liabilities.

Amendments to IAS 36 – Impairment of Assets

A new mandatory disclosure for goodwill impairment tests as per IAS 36 was introduced as a consequential amendment from IFRS 13 – Fair Value Measurement. Consequently, the recoverable amount of cash-generating units must be disclosed regardless of whether an impairment was actually made. This note was introduced by the IASB unintentionally, however, and deleted with the amendment from May 2013.

Furthermore, this amendment results in additional disclosures when an impairment is made and the recoverable amount is calculated based on fair value. The early adoption of the resulting changes was effective for the 2013 business year.

IFRS Annual Improvements: Cycle 2009 - 2011

Five standards were changed as part of the Annual Improvements project. The adjustment of the wording in certain IFRSs aims to clarify the guidance provided in existing standards. There are also changes that have an impact on accounting, recognition, measurement and information in the notes. The affected standards are IAS 1, IAS 16, IAS 32, IAS 34 and IFRS 1. These changes have no material impact on the Consolidated Financial Statements of the BASF Group.

Reclassification of loans within noncurrent assets

Long-term loans are now reported under other receivables and miscellaneous assets. Such loans were previously reported in the balance sheet under other financial assets. The change in presentation better reflects the economic substance of this item as a receivable. The prior year figures have been adjusted for comparability. As of January 1, 2012, €252 million in loans were reclassified from “other financial assets” in the balance sheet to “other receivables and miscellaneous assets” as well as €259 million as of December 31, 2012.

Changes in segment structure

BASF optimized its organizational structure effective January 1, 2013. Since this date, BASF’s business has been conducted by 14 (previously 15) operating divisions aggregated into five (previously six) segments for reporting purposes. The divisions are largely allocated to the segments based on their business models. The Plastics segment has been dissolved; its businesses with high-volume products and basic polymers have been integrated into the Chemicals segment, and the businesses with innovative plastics have been bundled into the new Performance Materials division in the Functional Materials & Solutions segment.

The following provides a summary of the effects of the changes resulting from IFRS 10, IFRS 11, IAS 19 (revised), amendments to IAS 1 and the reclassification of loans for the reporting year 2012. The effects on net income and earnings per share resulted from the first-time application of IAS 19 (revised).

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Restatement of statement of income for 2012 as a result of revised accounting and reporting standards (million €)

2012
(restated)

2012
(previous)

Change

1

Including income from companies accounted for using the equity method reported in the 2012 financial result

Sales

72,129

78,729

(6,600)

Cost of sales

(54,266)

(58,022)

3,756

Gross profit on sales

17,863

20,707

(2,844)

 

 

 

 

Selling expenses

(7,447)

(7,644)

197

General and administrative expenses

(1,359)

(1,392)

33

Research and development expenses

(1,732)

(1,746)

14

Other operating income

1,709

1,722

(13)

Other operating expenses

(2,653)

(2,671)

18

Income from companies accounted for using the equity method1

361

361

Income from operations

6,742

8,976

(2,234)

 

 

 

 

Income from companies accounted for using the equity method

171

(171)

Other income from shareholdings

75

75

Other expenses from shareholdings

(43)

(43)

Interest income

177

179

(2)

Interest expense

(724)

(752)

28

Other financial results

(250)

(170)

(80)

Financial results

(765)

(540)

(225)

 

 

 

 

Income before taxes and minority interests

5,977

8,436

(2,459)

Income taxes

(910)

(3,214)

2,304

Income before minority interests

5,067

5,222

(155)

 

 

 

 

Minority interests

(248)

(343)

95

Net income

4,819

4,879

(60)

 

 

 

 

Earnings per share (€)

5.25

5.31

(0.06)

Dilution effects

Diluted earnings per share (€)

5.25

5.31

(0.06)

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Restatement of income before minority interests and statement of income and expense recognized directly in equity for 2012 as a result of revised accounting and reporting standards (million €)

2012
(restated)

2012
(previous)

Change

Income before minority interests

5,067

5,222

(155)

 

 

 

 

Remeasurements of defined benefit plans

(2,732)

(2,813)

81

Remeasurements due to acquisition of majority shares

(3)

(3)

Deferred taxes for items that will not be reclassified to the statement of income

847

874

(27)

Total income and expense recognized directly in equity that will not be reclassified to the statement of income at a later date

(1,888)

(1,942)

54

 

 

 

 

Foreign currency translation adjustment

(211)

(211)

Fair value changes in available-for-sale securities

7

7

Cash flow hedges

12

12

Hedges in net investments on foreign operations

2

2

Deferred taxes for items that will be reclassified into the statement of income

(11)

(11)

Total income and expense recognized directly in equity that will be reclassified to the statement of income at a later date

(201)

(201)

 

 

 

 

Minority interests

(9)

(9)

Total income and expense recognized directly in equity

(2,098)

(2,152)

54

 

 

 

 

Income before minority interests and statement of income and expense recognized directly in equity

2,969

3,070

(101)

Thereof attributable to shareholders of BASF SE

2,730

2,736

(6)

attributable to minority interests

239

334

(95)

Restatement of balance sheet for 2012 as a result of revised accounting and reporting standards

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Balance sheet – assets (million €)

 

December 31, 2012

 

January 1, 2012

 

restated

previous

change

 

restated

previous

change

Intangible assets

12,193

12,241

(48)

 

11,850

11,919

(69)

Property, plant and equipment

16,610

18,177

(1,567)

 

16,182

17,966

(1,784)

Investments accounted for using the equity method

3,459

2,045

1,414

 

3,486

1,852

1,634

Other financial assets

613

880

(267)

 

578

848

(270)

Deferred tax assets

1,473

1,545

(72)

 

862

941

(79)

Other receivables and noncurrent assets

911

650

261

 

816

561

255

Noncurrent assets

35,259

35,538

(279)

 

33,774

34,087

(313)

 

 

 

 

 

 

 

 

Inventories

9,581

9,930

(349)

 

9,676

10,059

(383)

Accounts receivable, trade

9,506

10,138

(632)

 

10,151

10,886

(735)

Other receivables and miscellaneous current assets

3,455

3,504

(49)

 

3,679

3,781

(102)

Marketable securities

14

23

(9)

 

14

19

(5)

Cash and cash equivalents

1,647

1,777

(130)

 

1,903

2,048

(145)

Assets of disposal groups

3,264

3,417

(153)

 

295

295

Current assets

27,467

28,789

(1,322)

 

25,718

27,088

(1,370)

Total assets

62,726

64,327

(1,601)

 

59,492

61,175

(1,683)

 

 

 

 

 

 

 

 

Balance sheet – equity and liabilities (million €)

 

December 31, 2012

 

January 1, 2012

 

restated

previous

change

 

restated

previous

change

Subscribed capital

1,176

1,176

 

1,176

1,176

Capital surplus

3,188

3,188

 

3,203

3,203

Retained earnings

23,708

20,106

3,602

 

21,168

19,446

1,722

Other equity items

(3,461)

110

(3,571)

 

(1,372)

314

(1,686)

Equity of shareholders of BASF SE

24,611

24,580

31

 

24,175

24,139

36

Minority interests

1,010

1,224

(214)

 

1,040

1,246

(206)

Equity

25,621

25,804

(183)

 

25,215

25,385

(170)

 

 

 

 

 

 

 

 

Provisions for pensions and similar obligations

5,421

5,460

(39)

 

3,162

3,189

(27)

Other provisions

2,925

3,024

(99)

 

3,223

3,335

(112)

Deferred tax liabilities

2,234

2,511

(277)

 

2,301

2,628

(327)

Financial indebtedness

8,704

9,113

(409)

 

8,670

9,019

(349)

Other liabilities

1,111

1,083

28

 

1,171

1,142

29

Noncurrent liabilities

20,395

21,191

(796)

 

18,527

19,313

(786)

 

 

 

 

 

 

 

 

Accounts payable, trade

4,502

4,696

(194)

 

4,827

5,121

(294)

Provisions

2,628

2,687

(59)

 

3,115

3,210

(95)

Tax liabilities

870

1,080

(210)

 

841

1,038

(197)

Financial indebtedness

4,094

4,242

(148)

 

3,833

3,985

(152)

Other liabilities

2,623

2,395

228

 

3,047

3,036

11

Liabilities of disposal groups

1,993

2,232

(239)

 

87

87

Current liabilities

16,710

17,332

(622)

 

15,750

16,477

(727)

Total equity and liabilities

62,726

64,327

(1,601)

 

59,492

61,175

(1,683)

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Restatement of statement of cash flows for 2012 as a result of revised accounting and reporting standards (million €)

 

2012
(restated)

2012
(previous)

Change

Net income

4,819

4,879

(60)

Depreciation and amortization of intangible assets, property, plant and equipment and financial assets

3,288

3,561

(273)

Changes in inventories

(672)

(640)

(32)

Changes in receivables

(1,104)

(1,122)

18

Changes in operating liabilities and other provisions

932

807

125

Changes in pension provisions, defined benefit assets, net assets of disposal groups and other non-cash items

(223)

(314)

91

Net gains from disposal of noncurrent assets and securities

(438)

(438)

Cash provided by operating activities

6,602

6,733

(131)

 

 

 

 

Payments related to intangible assets and property, plant and equipment

(4,015)

(4,149)

134

Payments related to financial assets and securities

(144)

(144)

Payments related to acquisitions

(1,043)

(1,043)

Proceeds from divestitures

724

724

Proceeds from the disposal of noncurrent assets and securities

501

524

(23)

Cash used in investing activities

(3,977)

(4,088)

111

 

 

 

 

Capital increases/repayments and other equity transactions

(1)

(1)

Proceeds from the addition of financial liabilities

4,904

5,005

(101)

Repayment of financial liabilities

(5,247)

(5,291)

44

Dividends paid

 

 

 

To shareholders of BASF SE

(2,296)

(2,296)

minority shareholders

(264)

(345)

81

Cash used in financing activities

(2,904)

(2,928)

24

Net changes in cash and cash equivalents

(279)

(283)

4

 

 

 

 

Effects on cash and cash equivalents

 

 

 

From foreign exchange rates

21

10

11

changes in scope of consolidation

2

2

Cash and cash equivalents at the beginning of the year

1,903

2,048

(145)

Cash and cash equivalents at the end of the year

1,647

1,777

(130)

IFRSs and IFRICs not yet to be considered

The effects on the BASF Group financial statements of the IFRSs and IFRICs not yet in force or not yet endorsed by the European Union in the 2013 fiscal year were reviewed and are explained below. Other new standards or interpretations and amendments of existing standards and interpretations have no material impact on the BASF Group. Implementing the standards before endorsement by the European Union is not planned.

IFRS 9 – Financial Instruments

In November 2009, IASB published IFRS 9 – Financial Instruments. As the first phase of the project to replace IAS 39 – Financial Instruments: Recognition and Measurement, this standard introduces new classes, classification criteria and measurement criteria for financial instruments. In addition, new requirements under IFRS 9 were published in October 2010 on the accounting for financial liabilities and the derecognition of financial instruments. In particular, these changes will affect those financial liabilities that were optionally measured at fair value.

In November 2013, new regulations were published pertaining to hedge accounting. These contain future requirements for the accounting treatment of hedging relationships. For liabilities measured at fair value, an amendment to IFRS 9 furthermore allows the early application of the option to recognize changes in the fair value attributable to changes in the liability’s credit risk directly in equity. Moreover, the effective date of January 1, 2015, was rescinded. A new effective date will only be determined when the standard is complete. Only afterward is endorsement by the European Union foreseen.

The potential impact on BASF is currently being analyzed.