Chairman’s Letter
Notes
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Investor Relations
Financial Statements
31. Commitments and contingencies
Contingent liabilities result entirely from liabilities assumed on behalf of third parties and comprise:
| Dec. 31, 2006 | Dec. 31, 2007 | |
| € million | ||
| Issuance and endorsement of bills | 5 | 10 |
| Warranties | 74 | 51 |
| Miscellaneous | 57 | 82 |
| Total | 136 | 143 |
Contingent liabilities refer to the potential occurrence of future events that would create an obligation. Although such events are regarded as improbable on the reporting date, they cannot be ruled out entirely.
Litigation and administrative proceedings are evaluated on a case-by-case basis considering the available information, including that from legal counsel, to assess potential outcomes. Where it is considered probable that a future obligation will result in an outflow of resources, a provision is recorded in the amount of the present value of the expected cash outflows if these are deemed to be reliably measurable. Litigation and other judicial proceedings as a rule raise complex legal issues and are subject to many uncertainties and complexities including, but not limited to, the facts and circumstances of each particular case, issues regarding the jurisdiction in which each suit is brought and differences in applicable law. Further details of material litigation risks to which the Bayer Group is exposed are given in Note [32].
Under the German Transformation Act, Bayer AG and LANXESS AG are jointly and severally liable for all obligations of Bayer AG that existed on January 28, 2005. To the extent that certain obligations were not assigned to Bayer AG under the Spin-off and Acquisition Agreement, dated September 22, 2004, between Bayer AG and LANXESS AG, Bayer AG ceases to be liable for such obligations after a five-year period. The Master Agreement, entered into between the same parties contemporaneously with the Spin-off and Acquisition Agreement, includes corresponding indemnification obligations of Bayer AG and LANXESS AG. It also contains provisions dealing with the apportionment of liabilities arising from product liability claims, environmental claims and antitrust violations as between the contracting parties.
In addition to provisions, other liabilities and contingent liabilities, there are also other financial commitments that result mainly from long-term lease and rental agreements.
Minimum non-discounted future payments relating to operating leases total €479 million (2006: €559 million). The respective payment obligations mature as follows:
Litigation and administrative proceedings are evaluated on a case-by-case basis considering the available information, including that from legal counsel, to assess potential outcomes. Where it is considered probable that a future obligation will result in an outflow of resources, a provision is recorded in the amount of the present value of the expected cash outflows if these are deemed to be reliably measurable. Litigation and other judicial proceedings as a rule raise complex legal issues and are subject to many uncertainties and complexities including, but not limited to, the facts and circumstances of each particular case, issues regarding the jurisdiction in which each suit is brought and differences in applicable law. Further details of material litigation risks to which the Bayer Group is exposed are given in Note [32].
Under the German Transformation Act, Bayer AG and LANXESS AG are jointly and severally liable for all obligations of Bayer AG that existed on January 28, 2005. To the extent that certain obligations were not assigned to Bayer AG under the Spin-off and Acquisition Agreement, dated September 22, 2004, between Bayer AG and LANXESS AG, Bayer AG ceases to be liable for such obligations after a five-year period. The Master Agreement, entered into between the same parties contemporaneously with the Spin-off and Acquisition Agreement, includes corresponding indemnification obligations of Bayer AG and LANXESS AG. It also contains provisions dealing with the apportionment of liabilities arising from product liability claims, environmental claims and antitrust violations as between the contracting parties.
In addition to provisions, other liabilities and contingent liabilities, there are also other financial commitments that result mainly from long-term lease and rental agreements.
Minimum non-discounted future payments relating to operating leases total €479 million (2006: €559 million). The respective payment obligations mature as follows:
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Financial commitments resulting from orders already placed under purchase agreements related to planned or ongoing capital expenditure projects total €256 million (2006: €507 million).
In addition, the Group has entered into research agreements with a number of third parties under which Bayer has agreed to fund various research projects or has assumed other commitments based on the achievement of certain milestones or other specific conditions. The total amount of such funding and other commitments is €932 million (2006: €956 million). At December 31, 2007, the remaining payments expected to be made to these parties, assuming the milestones or other conditions are met, were as follows:
In addition, the Group has entered into research agreements with a number of third parties under which Bayer has agreed to fund various research projects or has assumed other commitments based on the achievement of certain milestones or other specific conditions. The total amount of such funding and other commitments is €932 million (2006: €956 million). At December 31, 2007, the remaining payments expected to be made to these parties, assuming the milestones or other conditions are met, were as follows:
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Total financial commitments under cooperation agreements vary in only immaterial respects from the previous year.
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