Annual Report 1996 - basf.com · Asia, Pacific Area, Africa 5,708 5,108 +11.7 48,776 46,229 +5.5 * Sales from other activities, income from other activities, and expense and income

Annual Report1996

The photo theme: Our market is the world

At a glance

We are a multinational chemical

company. Our operations extend

from oil and gas to high-tech

chemical products.

The BASF Group comprises

BASF Aktiengesellschaft and all

companies which are directly or

indirectly at least 50-percent

owned by BASF Aktiengesell-

schaft or come under Group

management. The Financial

statements of the Group include

majority holdings in full, and 50-

percent participations on a pro

rata basis. Group companies of

minor significance are not consol-

idated. Kali und Salz GmbH is not

consolidated either, because of

considerable restrictions on the

rights of Kali und Salz Beteili-

gungs AG, which has a majority

holding.

BASF Group 1996 1995 ChangeFigures in millions of DM %

Sales 48,776 46,229 +5.5Income from operations 4,293 4,023 +6.7Profit before taxes 4,414 4,128 +6.9Net income after taxes andminority interests 2,790 2,471 +12.9

Cash flow 6,798 6,368 +6,8Capital expenditures 3,639 3,024 +20.3Research and development expense 2,286 2,088 +9.5Dividend paid by BASF Aktiengesellschaft 1,051 854 +23.1Dividend per share in DM (nominal value DM 5) 1.70 1.40 +21.4

Number of employees (as of December 31) 103,406 106,565 –3.0

Operations 1996 1995 ChangeSales in millions of DM %

Health & Nutrition 9,115 7,986 +14.1Colorants & Finishing Products 11,285 10,766 +4.8Chemicals 7,300 7,255 +0.6Plastics & Fibers 12,080 12,456 –3.0Oil & Gas 5,208 4,207 +23.8Other* 3,788 3,559 +6.4

48,776 46,229 +5.5

Income from operations in millions of DM 1996 1995 Changemillion DM

Health & Nutrition 781 194 +587Colorants & Finishing Products 565 291 +274Chemicals 1,733 2,054 –321Plastics & Fibers 974 1,499 –525Oil & Gas 744 201 +543Other* –504 –216 –288

4,293 4,023 +270

Regions (location of customers) 1996 1995 ChangeSales in millions of DM %

Europe 30,830 29,819 +3.4thereof Germany 12,971 12,614 +2.8North America (including Mexico) 9,547 8,963 +6.5South America 2,691 2,339 +15.0Asia, Pacific Area, Africa 5,708 5,108 +11.7

48,776 46,229 +5.5

* Sales from other activities, income from other activities, and expense and income not allocatable to operations

Singapore’s young skyline is a symbol ofthe rapid growth in theAsian states. By 2010,the Asian markets willbe as important forchemical and pharma-ceutical products as the European andNorth American markets.BASF is committingitself in Asia in order to develop the newgrowth markets. InMay 1997, a newBoard ressort respon-sible for the Asianregion will be estab-lished and headquar-tered in Hong Kong.The Textile & LeatherDyes & Chemicals Divi-sion has been takingcare of its customersfrom Singapore since1996. This is also theheadquarters of theSouth-East Asia, Aus-tralia Division.The origins of BASF’sAsian business goback more than 100years. To begin with,we exported only dyes.After the Second WorldWar, Asia becameattractive for coopera-tions and capitalexpenditures, whichresulted in agenciesand, later, productionsites being estab-lished. Plants wereerected in Japan, Aus-tralia, Pakistan andIndonesia.

In addition to our Man-galore site in India,which we are extend-ing, large facilities areplanned in China andMalaysia. The integra-tion of the productionplants at these siteswill play a special role.Europe is our homemarket. We are a sup-plier held in highesteem by our custom-ers and we want toshape our growthworldwide from ourstrong position inEurope.Altogether, BASF hasproduction facilities in39 countries and sellsits products in 170countries.As the world market isso important, BASF’sinternational opera-tions are the theme ofthis year’s photos.

The photo theme: Our market is the world

2 The BASF share

3 Preface

4 Management’s analysis

16 Health & Nutrition18 Colorants &

Finishing Products20 Chemicals22 Plastics & Fibers24 Oil & Gas

26 From the regions

30 Research and development

32 Annual financial statements36 Development of

fixed assets

38 Major affiliates

40 Notes BASF Group andBASF Aktiengesellschaft

54 Report of theSupervisory Board

54 Supervisory Board55 Board of Executive Directors55 Division heads

56 Ten-year summary

Presented to the45th Annual Meeting onThursday, May 15, 1997,10.00 a.m., at BASF Feierabendhaus, Leuschnerstrasse 47, Ludwigshafen am Rhein, Germany

2

The BASF share

Our success inrestructuring thecompany and inplacing strategicemphasis on core operations,greater interna-tionalization andbetter profit-ability are espe-cially taken intoaccount by thefinancial markets.The result isgreater interest inour share. BASF’sstock exchangevalue grew con-siderably.

As of July 1, 1996, the quota-tion of our share was reducedto a nominal value of DM 5per share.

Strong price gainsThe BASF share price madestrong gains over the year. On the Frankfurt StockExchange, the maximum wasreached on December 10,1996, at a spot price of DM 61.95 and a closing priceof DM 62.18. On a spot pricebasis, the year-end price ofDM 59.00 was 82.7 percentup on that of the previousyear. Investors who rein-vested the 1995 dividend(excluding the tax credit)earned an 89.2 percent returnon their investment in 1996.

Long-term yield also betterthan the marketA 10-year comparison ofyields also shows an invest-ment in BASF shares to beahead of the market. Aninvestor who acquired BASFshares for a single payment ofDM 10,000 on January 1,1987 and reinvested eachyear’s dividend (excluding thetax credit) in more BASFshares would have increasedthe value of the holding to DM 32,100 by the end of1996. This represents anaverage annual yield of 12.4percent, which is significantly

above the comparable DAXfigure of 7.3 percent.

Vigorous dividend riseThe dividend of DM 1.70 pershare proposed by the Boardof Executive Directors and theSupervisory Board exceedsthe previous year’s paymentby 21.4 percent and is a newrecord. For the first time,BASF is paying total divi-dends to its shareholders inexcess of DM 1 billion, areassertion of our principle ofgiving our shareholders anappropriate share of thecompany’s earnings.

Abolition of the maximumvoting rightThe Board of Executive Direc-tors and the SupervisoryBoard are proposing to theAnnual Meeting that therestriction on the maximumvoting right, introduced onJune 12, 1975, should beabolished. The main reasonsfor its existence no longerapply due to the introductionof the obligation to notifylarge-lot purchases and of thetakeover code.

Share buy-backWe welcome the plannedamendment to the Stock Cor-poration Law, under whichGerman companies, like oth-ers, will be able to buy back

their own shares in the capitalmarket. We believe that itmust be possible to set offsuch shares against theequity as shown in the bal-ance sheet.

Investor-relations activitiesWe maintain an intensive dia-logue with investors andfinancial analysts, in whichour international contacts arebecoming increasingly impor-tant. In discussions and atinvestor-relations meetings,we shall continue to give aclear picture of BASF’s strat-egy and the prospects in ourvarious operations. In con-junction with our other chan-nels of communication, wewant to satisfy the increaseddemand for information, makeBASF more open and bolsterour shareholders’ confidencein their company.

BASF on the InternetBASF now has its own homepages on the Internet. Infor-mation on BASF shares canbe found under:http://www.basf.de/share

The BASF share

Key BASF share data 1996 1995*

Number of shares outstandingas of Dec. 31: Millions of shares 618** 610

Per share in DM

Dividend 1.70 1.40Dividend includingtax credit 2.43 2.00Net income 4.51 4.05Net income (DVFA/SG result) 4.40 3.77Cash flow 11.00 10.44Equity 33.15 29.40

Year-end price 59.00 32.30Year’s high 61.95 33.68Year’s low 32.56 27.72

** Figures for 1995 adapted to the DM 5 quotation** Number of shares still to be issued for the exer-

cise of stock warrants: 2 million DM 50 shares (see page 46)

Change in value of an investment in BASF shares in 1996 (without tax credit)

D J F M A M J J A S O N D

BASF shares

DAX portfolio

200

180

160

140

120

100

Dearshareholders

We are pleased to be able to propose a higher dividend to you. In 1996, we achieved newpeaks in sales and earnings. The return on assets before income taxes and interest expensesrose by 11.4 percent. Although capital outlay was significantly higher, we were not able toachieve the top values of 1988 and 1989.Our operations that are less sensitive to cyclical trends made an increasing contribution to thegood result. The improved return figures show that we are on the right lines with the optimiza-tion of the portfolio.I would like to mention only the most important steps. In the Pharmaceuticals and Crop Protec-tion Divisions, we took advantage of opportunities to make acquisitions in Japan and the UnitedStates. Our position in textile dyes improved following the acquisition of Zeneca’s business. Themagnetic media operations were sold as of the end of the year, and we are planning to relin-quish our majority holding in Kali und Salz Beteiligungs AG. We are setting up new joint ven-tures with Shell for the production of polyethylene and with Hoechst for polypropylene.Our company’s strategy is consistently geared to earnings and returns. Integration is the main-stay of this policy. Our integrated sites demonstrate how to get the best out of chemical pro-duction. For us, this means more than just integrating individual production plants at one siteinto a tight network of internal supplier-customer relationships. We also set up integratedenergy supply systems and exploit synergistic effects in the areas of infrastructure, logistics anddistribution, which extend up to the supply of raw materials and the disposal of residues. Weestimate that the worldwide cost advantages amount to at least DM 1 billion per year.At Antwerp, for example, virtually no steam now has to be generated from valuable fossil fuelsdue to energy integration of the 50 plants in operation there. Integrated sites are, therefore,also the most efficient form of production from an ecological viewpoint.We are also strengthening integration by expanding our works at Geismar and Freeport in theUnited States. In Asia, we have plans to create high-efficiency sites in China, Malaysia andIndia. I am convinced that our policy will be just as successful there as it has been at the otherintegrated sites.I am counting on our employees here, and I take this opportunity to thank all who actively contribute to our joint success. And, of course, I also thank you, our shareholders, for the confi-dence you place in the future of our company.

Yours sincerely

Jürgen Strube, Chairman of the Board of Executive Directors of BASF Aktiengesellschaft

3

Preface

Management’sanalysis

BASF Group andBASF Aktiengesellschaft

We enjoyed another success-ful year in 1996,taking advantageof brisk demandon world marketsto increase oursales. Our pro-duction plantsoperated at closeto full capacity.

In Germany, how-ever, demandwas sluggish inmost industrialsectors. Weincreased naturalgas sales signifi-cantly.

Prices in someoperations wereunsatisfactory.They declinedperceptibly. Morefavorable ex-change rates, ex-panding opera-tions that are lessdependent oncyclical factorsand focusing onincreased profit-ability enabled usto improve on theprevious year’sgood results.

BASF’s Board of Executive Directors

Front row, from left:Helmut Becks,Dr. J. Dieter Stein,Prof. Dr. Dietmar Werner,Eggert Voscherau

Back row, from left:Dr. Volker Trautz,Prof. Dr. Hans-JürgenQuadbeck-Seeger,Max Dietrich Kley,Dr. Jürgen Strube,Dr. Hanns-Helge Stechl,Gerhard R. Wolf,Dr. Albrecht Eckell

Management’s analysis

4

Sales and earningsMillion DM

BASF Group 1996 1995

Sales 48,776 46,229

Income from operations 4,293 4,023Financial results 121 105

Profit before taxes 4,414 4,128Income taxes 1,575 1,705Minority interests 49 –48

Net income 2,790 2,471

BASF Aktiengesellschaft 1996 1995

Sales 20,607 21,061– Germany 6,304 7,026– Exports 14,303 14,035

Profit before taxes 2,215 2,301Income taxes 514 947

Net income 1,701 1,354

Appropriation of net income– Dividend 1,051 854– Transferred to revenue reserve 650 500

SalesIn the BASF Group, weachieved sales of DM 48,776million in 1996, an improve-ment of DM 2,547 million overthe previous year’s figure.The 5.5-percent increaseconsisted of the followingchanges:

Million DM %

Volume growth +2,658 +5.7Price changes –1,172 –2.5Exchange rate changes +921 +2.0Scope of consolidation +140 +0.3

+2,547 +5.5

EarningsBASF Group profit beforetaxes rose by DM 286 millionto DM 4,414 million. Specialcharges – reduced by specialincome – are included in this figure in an amount of DM 517 million.Special charges amounting toDM 435 million were requiredfor restructuring and divesti-tures. The magnetic productbusiness was sold to KOHAPInc., Korea. Plants and facil-ities in the United States andIndonesia that were notincluded in the sale were shutdown. A comprehensive pro-gram of restructuring is beingimplemented in coatings andpaints, as well as in printingsystems. Other expensesrelated to the integration ofZeneca’s textile dye business.Unscheduled write-downsreduced earnings by DM 266million. Because of thechanges in circumstancesresulting from the opening ofthe market in Brazil, weadjusted the book values ofvarious plants there to thecash values of the expectedfuture cash flow. Our holdingin IVAX Corporation was alsosubject to value reductionsbecause of the sharp fall inthe company’s share price.

Further expenditure of DM 302 million was incurredas one-off charges asso-ciated with changes to thepensions fund and as addi-tional provisions for environ-mental protection and siteclean-ups.Special income totaling DM 486 million arose from thepayment of insurance claimsfor environmental and otherdamage, and adjustments tovarious provisions and valuecorrections.Net income after taxes wasDM 2,790 million, which isDM 319 million or 12.9 per-cent more than in the previ-ous year. The fact that netincome increased more thanearnings before taxes is sub-stantially due to the carryingforward of the loss made byBASF Magnetics HoldingGmbH.

Proposed distribution ofretained profitBASF Aktiengesellschaft’sretained profit totals DM 1,051 million. We pro-pose to the Annual Meetingthe distribution of a dividendof DM 1.70 per share.


5

Operations

We have expanded reportingon the operations. In additionto sales and income fromoperations, we list:Assets belonging to theoperations. Under “Other” wepresent the operationalassets of Comparex Informa-tionssysteme and other busi-ness. We also list here finan-cial assets, other receivablesand liquidity to assist in thetransition to the assets of theBASF Group.The Return on operationalassets is the ratio of incomefrom operations to averageoperational assets.In Research and develop-ment expense, the item“Other” relates mainly toexpenditures on exploratoryresearch, which cannot beallocated.Capital expenditures andDepreciation include intan-gible assets.

Sales and earnings in Health& Nutrition increased sub-stantially. An important contri-bution was made by the suc-cessful pharmaceutical busi-ness in the United States andEurope, boosted by the inte-gration of Boots plc’s phar-maceutical operations. Ourfine chemicals made a solidcontribution to sales andearnings. Vitamin C was an exception. The high-earningcrop protection businessimproved significantly, thanksespecially to the fungicidesOpus® and Brio®. We expectanother jump in sales in 1997

as a result of acquiring theSandoz corn herbicide busi-ness. Fertilizer sales andearnings also made gratifyingprogress, with a slight rise inwest European consumptionand the capacity shutdownsof recent years leading to abalance between supply anddemand. Higher raw materialcosts meant that earnings didnot fully reflect priceincreases.

In Colorants & FinishingProducts, we improved salesand earnings. Textile andleather dyes and chemicalsare still exposed to toughcompetition, especially inAsia, and this greatly reducedearnings. From August, theoperations acquired fromZeneca played a major part inincreasing sales of our textiledyes. Earnings from colorantsand process chemicalsimproved overall despite fall-ing prices for printing ink pig-ments. Dispersion sales roseslightly, and these products once again proved strongearners, thanks in particularto new production plants foracrylic acid and acrylates. Weslightly increased earnings incoatings and paints. Changesin the product mix, moreadvantageous exchange ratesand lower costs of coatingsraw materials improved earn-ings despite the restructuringexpense.


6

Operations Sales Sales incl. intersegment Income fromtranfers* operations

Change Change ChangeMillion DM % Million DM % Million DM Million DM

1996 1995 1996 1995 1996 1995

Health & Nutrition 9,115 7,986 +14.1 9,445 8,299 +13.8 781 194 +587Colorants & Finishing Products 11,285 10,766 +4.8 12,071 11,565 +4.4 565 291 +274Chemicals 7,300 7,255 +0.6 10,888 10,982 –0.9 1,733 2,054 –321Plastics & Fibers 12,080 12,456 –3.0 12,804 13,183 –2.9 974 1,499 –525Oil & Gas 5,208 4,207 +23.8 5,567 4,581 +21.5 744 201 +543Other** 3,788 3,559 +6.4 4,007 3,776 +6.1 –504 –216 –288

48,776 46,229 +5.5 54,782 52,386 +4.6 4,293 4,023 +270

* Exchange of goods and services between operations** Sales from other activities, income from other activities, and expense, income and assets not allocatable to operations*** Including intangible assets

Sales in Chemicals remainedat a high level although pricecompetition was fierce. Ourcapacities for important basicand industrial chemicals, which we produce at efficient,integrated sites, were well uti-lized. Cracker product pricesbegan to recover in the sec-ond quarter. Higher rawmaterial costs meant, how-ever, that earnings only par-tially reflected improvementsin revenues. Prices and mar-gins of industrial chemicalsdeclined as a whole. Earningsstabilized on a high level.Business in intermediatesproved gratifyingly robust.The increase in earnings herehelped to limit the overalldecline in this operation.Sales of specialty chemicalsremained steady; earningsagain matched the previousyear’s level.

Sales in Plastics & Fibersdeclined and earningsdropped significantly. Marketswere weak and prices initially declined sharply, especiallyfor polyolefins, PVC and engi-neering plastics. However,demand picked up in thecourse of the year and weachieved higher prices. Theengineering plastic businessin Asia and South and NorthAmerica did well. We areimproving structures inEurope and are aiming at costleadership with new world-scale plants that we are con-structing in the NAFTA Regionand the growth markets ofAsia. Business in foams wasdepressed by softness in theEuropean construction indus-try. Revenues were underheavy pressure worldwide, and earnings were unsatisfac-tory as a result. Polyure-thanes, however, saw a grati-fying improvement in salesand, especially, earnings.Sales of fiber productsimproved slightly and earn-ings achieved a satisfactorylevel.

Sales and earnings in Oil &Gas improved considerably.Rising oil prices, increasedcrude oil production, theincrease in the value of theU.S. dollar and, especially,the expansion of our naturalgas merchant business werecontributory factors here.Capital expenditures on thenatural gas pipeline networkand the expansion of mer-chant sales proceeded onschedule in cooperation withour partner Gazprom. Con-struction started on theWEDAL pipeline through theRuhr area, where the firstsection has been completed.


7

Assets Return on Research and Capital Depreciation ***operational assets development expense expenditures ***

Million DM % Million DM Million DM Million DM

1996 1995 1996 1995 1996 1995 1996 1995 1996 1995

6,288 5,736 13.0 4.0 961 816 1,431 1,877 666 5806,823 6,540 8.5 4.5 385 376 785 657 749 8564,556 4,646 37.7 42.6 245 229 511 442 756 8956,185 5,986 16.0 24.5 350 325 916 437 742 7784,215 4,135 17.8 4.8 77 95 441 476 409 378

15,651 14,992 268 247 642 673 193 159

43,718 42,035 13.0 12.9 2,286 2,088 4,726 4,562 3,515 3,646

Regions

The growth in BASF Groupsales derived primarily frombusiness with our customersoutside Germany, where salesincreased by 6.5 percent.In Europe, our home market,sales made up the groundlost during the first half andexceeded the previous year’shigh level by 3.4 percent. Vol-umes were slightly higher.Exchange rates developedfavorably, although sellingprices declined. Europe’scontribution to earningsimproved.Sales in Germany rose by 2.8percent. Business declinedinitially but picked up in thesecond half. Sales and earn-ings in Oil & Gas improvedconsiderably and plastics vol-umes were high, although fall-ing prices affected earningsseverely.

In France, the significantincrease in sales was aboveall attributable to a good busi-ness with crop protectionagents and pharmaceuticals.Italy and Spain also contrib-uted more to sales, partly forexchange rate reasons.Increased sales in the UnitedKingdom were mainly due tothe expanded pharmaceuticalbusiness and the integrationof the textile dyes taken overfrom Zeneca. We extendedour business in easternEurope.In North America, our com-panies improved both salesand earnings in the NAFTARegion. BASF Corporation’sprofit before taxes in U.S. dol-lars rose by 25 percent. BASF de México made asound operating profit afterthe country’s peso crisis hadbeen overcome.Pharmaceuticals recordedabove-average growth in theNAFTA Region, and sales ofplastics and dispersions alsoimproved significantly.

In South America, our busi-ness increased gratifyinglywith the stabilization ofnational economies. Saleswere up by 15 percent. Earn-ings were affected by specialcharges.In the Mercosur countries andChile, there was a significantupswing in demand. Improvedsales in Brazil derived mainlyfrom engineering plastics,building paints, pharmaceuti-cals and crop protectionagents.Sales in Asia, the PacificArea and Africa were up byabout 12 percent. Earningsimproved despite advanceinvestments for the expansionof our Asian operations.We have set ourselves ambi-tious targets in Asia. We aimto double our market shareby 2010 and increase localproduction, which nowaccounts for 30 percent ofthe region’s sales, to 70 per-cent. We are planning inte-grated sites with SINOPEC inChina and PETRONAS inMalaysia. BASF’s site at Mangalore, India, will beexpanded.

In southeast Asia, our rate ofincrease exceeded themarkets’ high growth. Salesrose despite falling prices. Ineastern Asia, too, the rise insales outstripped marketgrowth. Business in China isbeing consistently expanded.In Japan, we consolidatedour position after successfullyreversing the trend in the pre-vious year. Our companiesimproved their sales by 17 percent in yen.


8

Regions Location of customers Location of companiesSales Sales Sales incl. inter- Income from

segment transfers* operations

Change Change Change Changeover 1995 over 1995 over 1995 over 1995

Million DM % Million DM % Million DM % Million DM Million DM

Europe 30,830 +3.4 35,090 +3.9 37,902 +4.7 3,208 +137thereof Germany 12,971 +2.8 24,047 +1.3 – – 2,086 –141North America(including Mexico) 9,547 +6.5 9,356 +7.9 9,871 +8.2 981 +211South America 2,691 +15.0 2,100 +13.9 2,210 +16.7 9 –92Asia, Pacific Area, Africa 5,708 +11.7 2,230 +13.9 2,294 +13.2 95 +14

48,776 +5.5 48,776 +5.5 52,277 +6.1 4,293 +270

* Exchange of goods and services between regions (export)

Cash and cash items Billion DM

8

6

4

2

093 95 9692

4.55

7

3.82

7

6.19

3

5.23

9

94

5.94

9

Financial indebtedness Billion DM

8

6

4

2

0

93 95 9692

4.96

2

2.83

3

2.03

8

5.36

4

94

3.63

2

Cash flow Billion DM

8

6

4

2

093 95 9692

4.45

1

6.79

8

6.36

8

4.63

5

945.

565

Finance

We achieved a return onassets before income taxesand interest expenses of 11.4percent, exceeding the previ-ous year’s gratifying figuredespite an increased bal-ance-sheet total. The financialrequirement increased, partlyas a result of acquisitions,and was financed from thecash flow of DM 6.8 billionand available liquidity.

Source and application of fundsThe improvement in earningsresulted in an increase incash flow of DM 430 millionor 6.8 percent to DM 6,798million. Depreciation remainedat the previous year’s level.Cash flow amounted to 13.9percent of sales, slightly morethan in 1995. The cash flowper DM 5 share improvedslightly to DM 11.00 (previousyear: DM 10.44).Additions to fixed assetstotaled DM 6,637 million, DM 1,662 million more than in the previous year. Thisresulted from the increasedinvestment in tangible assetsand further additions result-ing from the acquisition ofSandoz’s corn herbicide busi-ness and Zeneca’s textile dyeoperations.In financial assets, the grantof a credit by our affiliate Kali-Bank to Gazprom to help withthe construction of the Yamalnatural gas transit pipeline,and the acquisition of amajority shareholding in theJapanese pharmaceuticalcompany Hokuriku SeiyakuCo., Ltd. resulted in a muchhigher application of fundsthan in the previous year.In current assets, the totalfunds tied up increased byDM 970 million. Inventories

rose mainly due to the acqui-sitions in the second half. Theincrement in receivables isprimarily attributable to highersales during the fourth quar-ter. By comparison with thesame period last year, weincreased sales by DM 1,545million.Overall, the financial require-ment for fixed and currentassets rose by DM 1,894 mil-lion to DM 7,607 million. 80percent of this financialrequirement and of the divi-dend of DM 854 million paidfor the 1995 financial yearwas financed from cash flow.The remaining financialrequirement was covered byusing our liquidity, which alsomade it possible to furtherreduce the financial indebted-ness, especially by the repay-ment of the 8% U. S. DollarBonds of BASF FinanceEurope N.V. of 1989. Despitethis reduction, net liquidityafter the deduction of finan-cial indebtedness amounts toDM 1,789 million.

Asset and capital structureFixed assets as a proportionof total assets rose to 51.9percent (previous year: 47.0percent), and the proportionof total assets accounted forby current assets (excludingliquidity) was slightly up at

39.3 percent (previous year:38.3 percent).As a result of the use of avail-able liquidity to cover thefinancial requirement, liquidityas a proportion of total assetsfell to 8.8 percent (previousyear: 14.7 percent).Equity as a proportion of totalcapital rose to 46.9 percent(previous year: 42.6 percent).Equity increased as a result ofthe improvement in earningsand also rose by DM 255 mil-lion because of the exercisingof option rights.Financial indebtednessamounted to only 4.7 percentof total capital (previous year:6.7 percent).

Stable returnsReturns were again gratifying.Although total assets grew by4 percent, we increased thereturn on assets beforeincome taxes and interestexpenses to 11.4 percent.Our aim is to achieve a returnof at least 10 percent as anaverage for an economiccycle. The return on equityafter taxes improved to 14.8percent (previous year: 14.3percent). The return on salesbefore income taxes and inter-est expenses was 10 percentand exceeded the previousyear’s level.


9

Return on sales before income taxes and interest expenses %

12

8

4

0

9692 93

3.8

94 95

6.0

4.3

10.0

9.9

Return on assets before income taxes and interest expenses %

12

8

4

0

93 95 9692

4.7

11.4

11.2

3.9

94

6.5

Return on equity after taxes %

16

12

8

4

0

93 95 9692

14.8

14.3

5.2

94

7.6

4.2


10

Statement of source and 1996 1995application of funds Million DM Million DM

Net income 2,790 2,471Depreciation of fixed assets 3,709 3,707Retirement of tangibleand intangible assets 154 133Change in long-term provisionsand in miscellaneous items 145 57

Cash flow 6,798 6,368

Dividend for the preceding year 854 610

Internal financing 5,944 5,758

Capital expenditures 3,639 3,024Net additions to financial assets 2,014 614Additions of intangible assets and other items 984 1,337

Fixed assets 6,637 4,975

Change in inventories 371 391Change in receivables 599 347

Current assets 970 738

Application of funds 7,607 5,713

Balance of internal financing –1,663 45

Increase in paid-in capital 255 –Change in financial indebtedness –890 –836Change in other liabilities –176 1,059

Balance of external financing –811 223

Change in scope of consolidation 107 –23

Change in cash items –2,367 245

Structure of assets and Million %liabilities in 1996 DM

AssetsIntangible assets 2,536 5.8Tangible assets 16,071 36.8Financial assets 4,094 9.3

Fixed assets 22,701 51.9

Inventories 7,169 16.4Receivables 10,021 22.9Cash and cash items 3,827 8.8

Current assets* 21,017 48.1

Assets 43,718 100.0

Equity and liabilitiesPaid-in capital 8,008 18.3Revenue reserves 12,248 28.0Translation adjustment –253 –0.5Minority interests 486 1.1

Equity 20,489 46.9

Long-term provisions andspecial reserves 9,881 22.6Long-term liabilities 2,290 5.2Short-term provisions andliabilities 11,058 25.3

Liabilities* 23,229 53.1

Equity and liabilities 43,718 100.0

* Including prepaid expenses, deferred income and special reserves

Shaping our own future

We are shaping our futurewith innovative products andprocesses from our researchoperations, long-term capitalexpenditures and structuralimprovement programs. Ouraim is to respond actively tothe ever-changing marketrequirements and convertthem into business success.

Research and developmentWe spent DM 2,286 millionon R&D. We also invested DM 247 million in new labor-atories, pilot plants andequipment.10,091 people worked inlaboratories in the BASFGroup, 2,393 of them withuniversity degrees.The inventiveness of ouremployees resulted in 1,107basic patent applicationsworldwide in 1996. Our port-folio of patents and patentapplications rose to about75,000.

Capital expendituresCapital expenditures on tan-gible fixed assets were DM 3,639 million, 20.3 per-cent more than in the previ-ous year. This includes DM 297 million for herbicidefacilities that we acquired. DM 1,750 million was spenton plant and equipment inGermany, of which BASFAktiengesellschaft accountedfor DM 924 million.We plan to increase capitalexpenditures further in 1997to DM 3,800 million.The following facilities werecompleted and brought onstream:

At the Ludwigshafen site,additional capacity for theproduction of isophorone diamine, alkylaminopropyl-amines, optically active inter-mediates and specific vinylmonomers, the coproductionof methanol in one of theammonia plants and theregeneration of triphenylphos-phine from triphenylphos-phine oxide;at Schwarzheide, plants forthe compounding of styrenecopolymers and, in our jointventure with General Electric,for the production of polybu-tylene terephthalate (PBT);at Antwerp, Belgium, plantsfor the production of ethanol-amines and nitrobenzene andthe expansion of the steam-cracker and styrene capacity;at Enka, North Carolina, aplant for the production ofBasofil® fibers; at Altamira, Mexico, a plantfor the production of styr-ene/butadiene dispersions;in China, plants at ShanghaiBASF Colorants and Auxilia-ries Company Ltd. for theproduction of textile dyes,auxiliaries and pigments.We have made a start onadditional projects: At Ludwigshafen, we areexpanding the steamcrackercapacity and plants for theproduction of butanediol,

neopentyl glycol and carbonoxychloride derivatives;at Wesseling, we are increas-ing the polyethylene, polypro-pylene and cracker capacitiesat Rheinische Olefinwerke;at Antwerp, Belgium, a plantfor the production of formal-dehyde is under construction;in the United States, we arebuilding a new synthesis gasplant at Freeport, Texas, andexpanding capacity there foroxo-C4 products, acrylates,Ultramid® and caprolactam.Capacity is being expandedfor specialty amides, butyro-lactone and N-methylpyrrol-idone at Geismar, Louisiana,and high-impact polystyrenecapacity at Joliet, Illinois.Polyacetal capacity at Ultra-form Company in Mobile, Ala-bama, is being doubled;at Altamira, Mexico, we arebuilding plants to producestyrene copolymers and poly-styrene;at Ulsan, BASF Korea is build-ing a polyTHF plant and Hyosung-BASF is erecting aplant for ABS plastics;in China, we are building aneopentylglycol planttogether with Jilin ChemicalIndustrial Corporation at Jilinand a nylon carpet fiber plantwith China Worldbest GroupCorp. in Shanghai.


11

Research and development expense Million DM

2000

1500

1000

500

0

93 95 9692

2,04

8

2,28

6

2,08

8

1,93

4

941,

916

Capital expenditures Million DM

4000

3000

2000

1000

093 95 9692

4,15

1

3,63

9

3,02

4

4,13

9

94

2,70

7

Capital expenditures in 1996 by regions %

Asia, Pacific Area, Africa

South America

North America (including Mexico)

Europe thereof Germany

66

3

2

29

48

Acquisitions and cooperationsWe have taken over variouscompanies and lines of busi-ness, acquired participatinginterests and established jointventures as follows:Acquisition of a majorityshareholding in the pharma-ceutical company HokurikuSeiyaku Co., Ltd., Japan;purchase of the genericscompanies of GNR-pharmaS.A., France, and Sudco B.V.,Netherlands;acquisition of a 49-percentinterest in M. Dohmen GmbH,Willich, which markets dyesfor automobile textiles;takeover of the worldwidetextile dye operations fromZeneca Ltd., London, as ofAugust 1, 1996;founding of a joint venture,headquartered in Heidelberg,with the U.S. biotech com-pany Lynx Therapeutics forbiotechnological and geneticengineering research;takeover of the U.K. companyFrank Wright, which operatesin the feed premix sector;acquisition of a substantialpart of the Sandoz businessin corn herbicides.

Further cooperations areplanned:We intend to contribute ourpolyethylene operations to ajoint venture with Shell, whichis additionally to acquire theEuropean polyethylene busi-ness of Montell PolyolefinsB.V.; Rheinische OlefinwerkeGmbH of Wesseling, in whichBASF and Shell each hold 50percent, will also belong tothe new company.In cooperation with Shell, it isplanned to set up the jointventure BASELL, which willbuild a new plant at Moerdijk,Netherlands, for the produc-tion of propylene oxide andstyrene.Another joint venture is beingplanned with Hoechst to takeover both partners’ polypro-pylene operations.

Structural measuresTo optimize our product port-folio and improve structures,we realigned some operationsand gave up or sold somebusinesses and interests:Foundation of BASF Healthand Nutrition A/S headquar-tered in Denmark;foundation of BASF (China)Company Ltd. as a holdingcompany, headquartered inBeijing, to steer our opera-tions in China;

divestiture of a 40-percentholding in Comparex Informa-tionssysteme GmbH to Per-setel Holdings Ltd., Johan-nesburg, South Africa;acquisition of all the shares inKnoll-Norton GmbH fromIVAX and realignment of ourcooperation under licensingagreements;sale of the worldwide mag-netic product business toKOHAP Inc., Korea, and shut-down of production in Indo-nesia;contribution of our Europeanbusiness in unsaturated poly-ester resins to a joint venturein which the Dutch companyDSM holds 60 percent of theshares, and sale of our 50-percent interest in the Chi-nese joint venture with JinlingPetrochemical Company to DSM;sale of the oilfield chemicalbusiness to Baker Perform-ance Chemicals Inc., withproduction remaining at BASF;conclusion of an agreementwith Potash Corporation ofSaskatchewan Inc. on thesale of 51 percent of ourshares in Kali und Salz Beteili-gungs AG. After the GermanCartel Office has decided notto allow the acquisition, weintend to apply to the GermanMinister for Economic Affairsfor permission for the merger.

Colorful ceremony: A plant of ShanghaiBASF Colorants andAuxiliaries CompanyLtd. (SBCA) for theproduction of leatherand textile auxiliariesopened with a cele-bration.SBCA, in which BASFhas a 75-percent hold-ing, was founded in1994. It has been pro-ducing cationic textiledyes since 1995 andorganic pigments sinceJune 1996 in thePudong industrial areaof Shanghai. BASF isnow involved in 8 jointventures in China.

Giant pipes and com-plex equipment in thebasement of BASF’sBioresearch Center inWorcester, Massachu-setts, are used forrecovering energy.BASF utilizes wasteheat successfullyworldwide, whichgreatly reduces siteenergy requirements.This cuts costs andbenefits the environ-ment at the same time.


12

Environment, safety andenergy

Our business operations aregeared to Sustainable Devel-opment, which was agreedon as a common objective bythe states attending the UNConference in Rio de Janeiroin 1992. We also participatein the chemical industry’sworldwide voluntary Respon-sible Care initiative. Weregard it as a permanent dutyto improve our performancein safety, health and environ-mental protection, a principlethat applies to the entireBASF Group and all its pro-duction operations, servicesand products.

New environmental protec-tion facilitiesNew wastewater treatmentplants began operation atMangalore, India, and Con-con, Chile. The treatmentplant at Knoll’s Minden sitewas expanded. A treatmentplant is under construction at the Monaca site in theUnited States. Total capitalexpenditures amounted toDM 23 million.

Highly efficient energygenerationWe are continuing the imple-mentation of gas/steam tur-bine technology. A plant usingit began operation at Rheini-sche Olefinwerke, Wesseling.A similar plant will go onstream in Ludwigshafen at theend of 1997. The existing gasturbine power plant at theTarragona site in Spain isbeing expanded. The Britishelectricity company NationalPower is building a new gasturbine power plant at ourSeal Sands site. These capitalexpenditures will furtherreduce CO2 emissions.

Safety managementOur employees bear a highresponsibility at their work-places. This is why we ensurethat they are well trained,carefully familiarized with theirjob and receive ongoing edu-cation, which includes safetyand environmental protection.Safety management in theBASF Group was the subjectof 47 safety and environmen-tal protection audits at 35sites.

Eco-auditSince January 1997, theSchwarzheide site has beencertified according to eco-audit standards. The experi-ence gained will be evaluatedfor audits at other BASF sites.

More flexible approval proceduresApproval procedures havebeen shortened as a result ofintensive discussions withlocal authorities, especially atthe German sites of Ludwigs-hafen and Schwarzheide. Theamendment to the GermanAir Pollution Control Act willfurther speed up implementa-tion of our projects.

Ludwigshafen site: WorkaccidentsThe number of accidentsincreased slightly butremained low. With 4.6reportable accidents per mil-lion working hours, or 6.7 perthousand employees, theaccident rate is a quarter ofthe average for the Germanchemical industry.

EmissionsDespite high plant utilizationrates, emissions at the Lud-wigshafen site were reducedagain. The volume of waste-water entering our treatmentplant and the ammonium anddirt content dropped by about5 percent.

Environment ReportOur Environment Report contains more detailed infor-mation.


13

Employees

The number of employees inthe BASF Group fell to103,406, a drop of 3,159since the end of 1995.There was an increment of2,152 people as a result ofchanges in the scope of con-solidation and the acquisitionof the textile dye businessfrom Zeneca. Set against thiswas a reduction of 5,311people in the BASF Group asa whole, of whom 3,069 weretaken on by other companiesas a result of the sale ofBASF Magnetics and theprinting ink business in NorthAmerica.The number of peopleemployed in Germany was61,067 or 59 percent of totalemployees, 2,648 fewer thanin the previous year. In Euro-pean countries other thanGermany, the number ofemployees fell by 635 to16,579. The workforce out-side Europe increased, mainlyin Asia, by 124 to 25,760.

Personnel costsPersonnel costs, includingBASF Magnetics, rose by DM 207 million to DM 11,025million mainly because of thechange in the scope of con-solidation and the Zenecaacquisition. Wages and sala-ries accounted for DM 8,718million of this, and socialcontributions, pension bene-fits and assistance for DM 2,307 million. Personnelexpenditure increased by 3.1(previous year: 4.5) percentwith reference to the averagenumber of employees.

TrainingAt year-end, 3,079 youngpeople were undergoingvocational training in ourGroup companies in Ger-many. They accounted for 5 percent of the total work-force, slightly more than theprevious year. Spending onvocational training fell slightlyby DM 2 million to DM 138million. During the year underreport, we again took onmost of those who had com-pleted training.

Career advancement andtrainingWe continue to considercareer advancement andtraining to be very important.In Germany alone, 54,369employees or 86 percent ofthe workforce took part intraining, on which we spentDM 73 million.

End-of-year payments andasset formationThe end-of-year payments inthe German Group compa-nies increased by DM 25 mil-lion compared with 1995. Ascompensation for not beingcovered by the statutory sav-ings enhancement plan,exempt employees acquiredBASF shares to a nominalvalue of DM 1.2 million.

BASF AktiengesellschaftCompared with 1995, theworkforce was 44,402, downby a total of 223 employees.We recruited 1,331 employ-ees from outside the com-pany. Apart from this, 295returned from military or com-munity service or child-careleave to resume work. Lim-ited-term employment con-tracts were concluded with70 long-term unemployed.

At the end of 1996, 7,493employees of outside con-tractors were working at theLudwigshafen site, 161 morethan in the previous year.Between 1991 and 1995,despite the reduction in thenumber of jobs, 7,600 peoplewere taken on at BASFAktiengesellschaft, including4,000 who had completedtheir training and 1,000 uni-versity graduates. The num-ber of people hired in 1996was 3,100.As in previous years, weagain offered jobs at the Lud-wigshafen site to all 604 peo-ple who had completed theirtraining. The number of newtrainees rose again from 722to 768. This means that weare training considerablymore young people than weneed for our own workforce.At the end of 1996, 2,378young people were undergo-ing training, representing 5.4percent of the total work-force.Absences due to illness atBASF Aktiengesellschaft weredown in 1996 from 4.9 to 4.6percent. The overtime rate fellby 0.1 percent, comparedwith the previous year, to 0.4percent.


14

Employees by regions

As per December 31 1996 1995 Change

Europe 77,646 80,929 –3,283

thereof Germany 61,067 63,715 –2,648

North America (including Mexico) 14,714 15,282 –568

South America 6,362 6,869 –507

Asia, Pacific Area, Africa 4,684 3,485 +1,199

103,406 106,565 –3,159

Personnel expense

Million DM 1996 1995 Change %

Wages and salaries 8,718.4 8,404.3 + 3.7

Social contributions

and expenses for

pension benefits

and assistance 2,306.5 2,414.1 –4.5

– thereof for pension

benefits 764.5 961.3 –20.5

11,024.9 10,818.4 + 1.9

Outlook

We are confidentabout 1997. The world econ-omy will con-tinue to makegood progress.Demand in Ger-many has pickedup. Our strategi-cally improvedposition will helpus to take advan-tage of the oppor-tunities that arise.

We are planningfurther growthwith a portfoliostrengthened by divestituresand acquisitions.We expect toincrease sales toover DM 49 bil-lion and we want to improve earn-ings further.

We will raise capital expendi-tures probably to DM 3.8 billion.R&D expenditurewill again be at ahigh level, with aplanned sum ofDM 2.1 billion.

Our home marketis Europe. This iswhy the futuresingle Europeancurrency is veryimportant to us.The eliminationof exchange ratefluctuations andtransaction costswithin Europe will bring advan-tages and makeplanning morereliable.

We are preparingfor closer inte-gration in Europe.Our regionalorganization isbeing geared toit, as are our sites and capitalexpenditures.From a positionof strength inEurope, we wantto shape ourgrowth in theworld’s markets.

Under the microscope, the surface of paperlooks like a mountainrange. Yupi Seteaningsih, a laboratory assistant atBASF Indonesia, teststhe effect of paperauxiliaries.They render paperabsorbent to ink – amust for brilliant prints.


15

Health & Nutrition

We are strength-ening Health &Nutrition as oneof the cyclicallymore stableoperations. Saleswere DM 9.1 bil-lion. Most of the14.1-percentincrease in salesderived from ourexpanded phar-maceutical oper-ations and fromnew crop protec-tion products.Earnings rose toDM 781 million.

This operation comprisespharmaceuticals, fine chemi-cals with the emphasis onvitamins, as well as crop pro-tection agents and fertilizers.Our range is made up ofdrugs for treating disorders ofthe cardiovascular system,CNS and gastrointestinaltract, analgesics and drugsfor wound healing; pharma-ceutical chemicals; vitaminsand other fine chemicals forthe pharmaceutical, food andcosmetics industries, as wellas for animal nutrition; cropprotection agents, especiallyherbicides and fungicides;and a wide range of straightand compound nitrogen fer-tilizers.

Pharmaceuticals againsuccessfulSales and earnings in ourpharmaceutical business roseconsiderably, with Synthroid®,our thyroid drug, making particularly good progress.Sales of Isoptin® for the treat-ment of hypertensionremained steady, while thoseof Rytmonorm® for arrhyth-mia increased again.Products under developmentare promising. We have highhopes for sibutramine, a newproduct for treating obesityand diseases associated withit. We have received anapprovable letter from the

U.S. Food and Drug Adminis-tration and expect marketingauthorization in the UnitedStates in 1997, and in Europea year later.Tarka®, a cardiovascularcombination product, wasgranted marketing authoriza-tion in the United States, Ger-many and other Europeancountries. Registration pro-ceedings are currently underway for the neuroleptic zote-pine in Europe and the anal-gesic Vicoprofen® in theUnited States. Other develop-ment projects include prod-ucts for treating septicemiaand apoplexy.The pharmaceutical opera-tions acquired from Boots plcwere integrated according toplan.In Japan, we acquired amajority shareholding in Hokuriku Seiyaku Co., Ltd.We therefore now have ourown infrastructure to developand market our products inthe world’s second largestpharmaceutical market. Thecompany operates in thefields of antibiotics and drugsfor the peripheral and centralnervous systems and respira-tory diseases. Some promis-ing development projects arein the pipeline.With the purchase of theFrench GNR-pharma S.A. andDutch Sudco B.V., we contin-

ued the development of thegeneric business in Europe.The joint venture with IVAXwas replaced by a newarrangement. We now haveaccess to the attractive IVAXproducts under exclusive andnonexclusive licensing agree-ments.

Fine chemicals on expansion courseThe steady demand for finechemicals ensured goodcapacity utilization rates.Sales and earnings remainedhigh.Volumes of fat-soluble vita-mins and carotenoids madesatisfactory progress. Ourbusiness in water-solublevitamins suffered from thekeen price competition invitamin C. As part of ourstrategy to sell more vitaminsvia feed premixes, we tookover the British companyFrank Wright and are buildingadditional premix plants in theUnited States and Brazil. Newproducts stimulated the feedenzyme business.

Operations

16

Health & Nutrition

Sales Billion DM12

10

8

6

4

2

0

96

92 93

Income Million DM

9692 93

1000

800

600

400

200

0

94 9495 95


9692 93

1000

800

600

400

200

0

94 95

9.12

6.80

6.71

7.27

7.99

700

203

209

231

493

781

575

208

636

194

William Boult of Knoll Pharmaceuticals pro-ducing the basic sub-stance for MeridiaTM.This new developmentis for treating obesityand associated dis-eases. Marketingauthorization in theUnited States isexpected in 1997 andin Europe a year later.

There was strong demand forour specialties for the cos-metics industry. UV absorbersfor skin protection improvedtheir market position. Ourpatented top product Uvinul®

T 150 was granted marketingauthorization in Japan. Thecation-active hair-care poly-mer Luviquat® Hold, which issuperior to the market stan-dard, is already attractinggreat interest in its launchphase.We are implementing exten-sive capital expenditures atthe Ludwigshafen site to fur-ther expand our market posi-tion in carotenoids, vitaminsand fragrances.

Growth in crop protectionWe expanded our position inthe crop protection businessand increased sales andearnings again.The herbicides Butisan Star®

for oilseed rape and Rebell®

for sugarbeets gained marketshare in western Europe. Thecereal fungicide Opus®, nowin its third year on the market,again lived up to our highexpectations. This gives usthe leadership in Europe’smost important markets.Our new active ingredient kre-soxim-methyl, produced in anew plant in Brazil, is the first

fungicide from the strobilurinclass to be launched for usein various crops. Combinedwith other active ingredientsand marketed as Brio® inGermany and Allegro® in Bel-gium, it made a very success-ful start.We purchased most ofSandoz’s corn herbicide busi-ness, thus increasing thenumber of crops covered byour product range. Thisacquisition, which alsoincludes a development prod-uct, improves our positionespecially in North America.

Fertilizers successfulThe upturn in fertilizers con-tinued and we raised salesand earnings again. We are developing innovativeadvisory systems that arebeing well received by ourcustomers.A slight increase in westEuropean consumption andthe capacity shutdowns ofrecent years have restoredthe balance between supplyand demand. Increased rawmaterial costs meant thatearnings only partially reflectprice rises.We further improved ourrange of multinutrient fertiliz-ers. We maintained our lead-ing position in the keenly

contested market for sulfurfertilizers in Germany and therest of western Europe.Business in specialty prod-ucts for the home and gardenwas expanded in Europeanmarkets. Sales of both marketgardening and home garden-ing products increased.Higher prices and more favor-able exchange rates contrib-uted to the gratifying growthin earnings.

Operations

17

Colorants & Finishing Products

Sales in Color-ants & FinishingProducts rose by4.8 percent toDM 11.3 billion.Earningsincreased to DM 565 million.

Our numerous dyes, pig-ments, finishing products,process chemicals, disper-sions, coatings and printingsystems are used for a widevariety of purposes by ourcustomers in the automotive,construction, chemical, print-ing, adhesives, coatings,leather, paper and textileindustries.

Structural change in textile and leather dyesand chemicalsAlthough we raised sales ofour products for the textileand leather industries, earn-ings remained unsatisfactory.Structural changes continue:Customers are relocating theirproduction facilities, and newcapacity is being created atsites where costs are lower.Ongoing cost pressure ontextile and leather producersalso impacts dye prices.We acquired and integratedZeneca’s textile dye business.It complements our existingrange, especially with reactivedyes, increases the volume ofbusiness and improves coststructures in production andmarketing.In line with our increasing concentration on Asian mar-kets, we have managed ourworldwide business from Sin-gapore since October 1996.

The joint venture ShanghaiBASF Colorants and Auxilia-ries Co. Ltd. began produc-tion of textile and leather auxiliaries in September.

Colorants & processchemicals steadyDespite increasing competi-tion, we held our ground inthe colorants and processchemicals business. Fallingprices reduced earnings,however, especially in printingink pigments.Volumes of our innovativePaliocrom® special-effect pig-ments for automotive finishesincreased significantly world-wide. There was continuingbrisk demand for our heat-stable, weatherfast pigmentsfor coloring bottle crates, gaspipes and fibers. Interest inour Uvinul® light stabilizers forplastics, and lead-free PVCstabilizers grew.We adapted to the increasingvolumes of color products byexpanding regional produc-tion sites. The pigment pro-duction facility at our jointventure in Shanghai went onstream successfully.We defended our strong posi-tion in products for the paperindustry and in specialty inksin Europe and further im-proved it overseas, especially

in the United States. Thanksto new process chemicals, agreater proportion of waste-paper can be used in paper-making without any qualityloss.Our European market positionin printing inks and plateswas consolidated, and earn-ings from printing inksimproved. Business withthese products was trans-ferred to an independentcompany, DrucksystemeGmbH, in January 1997. Ournew sheet-fed offset inks withvegetable-based binders andflexographic printing platesfor exposure without a filmmade good progress.

Growth for dispersionsWe further increased sales ofpolymer dispersions andmonomers. In monomers,new acrylic acid and acrylateplants at Antwerp, Belgium,made a special contribution.The new acrylic acid plant atFreeport, Texas, will go onstream in mid-1997. In Asia,plants are planned in Malaysiaand China.The polymer businessadvanced gratifyingly, espe-cially in the second half. Theinitial losses caused byadverse weather conditionswere more than recovered in

Operations

18

Colorants & Finishing Products

Sales Billion DM12

10

8

6

4

2

0

9692 93 94

Income Million DM

9692 93 94

1000

800

600

400

200

0

95 95


9692 93 94

1000

800

600

400

200

0

95

11.2

9

10.3

1

10.2

0

10.7

5

10.7

7

805

582

579

587

645

565

316

227

325

291

In awe of fast sports cars: BASF refinishpaints not only conjureup logos and specialfinishes, but must alsowithstand a variety ofadverse effects underextreme conditions.The cars are notpainted on the produc-tion line but in special-ized workshops whereextensive expertise isrequired.BASF Corporation hasbuilt a technical servicecenter for refinishpaints in Whitehouse,Ohio. Here, employeesfrom carmakers, body-shops and dealersreceive all the informa-tion they need onpaints and colormatching.

the course of the year, espe-cially in dispersions for coat-ings. We increased our shareof the market for paper-finish-ing products. Business inadhesives raw materialsremained at a high level. Dis-persions for floor coveringsrecorded strong growth inNorth America and especiallyin Australia, where we tookover this line from Huntsman.Capacity for polymer disper-sions was expanded in Aus-tralia and China. New plantswere brought on stream atthe Mangalore site in Indiaand at Altamira, Mexico.

Coatings and paints on the upWe increased sales consider-ably in the growing market forcoatings and paints. Newproducts, more favorableexchange rates and lowerprices for coatings raw mate-rials resulted in improved butstill not satisfactory earningsdespite special charges.Our business in automotivecoatings was expanded withwet- and powder-finishsystems that go particularlyeasy on the environment.Cooperation with leading carmanufacturers furtherimproved the efficiency ofcoating processes. Produc-tion of waterborne coatingsbegan in Mexico. In Canada,the capacity for new automo-tive finishes was expanded.We are bolstering our marketposition in Asia through coop-erations.We made good progress inthe marketing of low-emissionautomotive refinishes.Demand was high for water-borne coatings and high-sol-ids systems of the Glasurit®

and R-M® brands. We gainedmarket share in eastern andsouthern Europe and Brazil.

Industrial coatings did verywell and improved their mar-ket position. Our concept ofsupplying complete systemswas a contributory factorhere.In the dwindling market forbuilding paints, we held ourground in Europe with theGlasurit® and Herbol® brands.Business with the Suvinil®

brand improved significantlyin Brazil and Argentina.

Operations

19

Operations

20

Chemicals

Sales Billion DM8

6

4

2

0

9692 93 94

Income Million DM

9692 93 94

2000

1600

1200

800

400

0

95 95


9692 93 94

1000

800

600

400

200

0

95

5.32

7.30

5.27

6.44

7.26

923

506

608

402

401

756

568

1,09

5

2,05

4

1,73

3

Chemicals

Sales in Chemi-cals rose slightlyby 0.6 percent toDM 7.3 billion.Earnings wereDM 1,733 million.

At our big integrated sites, weproduce important basicchemicals primarily for cap-tive use: ethylene, propylene,acetylene, synthesis gas,ammonia, methanol, sulfuricacid, chlorine and sodiumhydroxide solution. Fromthese, in numerous upgradingsteps, we produce industrialchemicals and intermediatesfor chemical syntheses. Ourspecialty chemicals are used,for example, in detergentsand cleaning agents, in oilproduction and for antifreezesand fuel additives in the auto-motive industry.

Volumes of basic chemicals steadyStrong and steady volumescharacterized the basicchemicals business. Aftermonths of price erosion,especially for cracker prod-ucts, the trend was reversedfrom the second quarteronward. However, increasedraw material prices meantthat improved revenues werenot fully reflected in earnings.In inorganic chemicals, theupward trend for specialtiesand products for the electron-ics industry continued.

Sales of catalysts, alreadystrong, increased further. Thebusiness in catalysts for gasgeneration was sold to ICI atthe beginning of 1997.The conversion of one of ourammonia plants to coproducemethanol was completed atyear-end. This new conceptwill enable us to optimizecosts by deciding whether toproduce or purchase.

Industrial chemicals wellpositionedThe worldwide availability ofindustrial chemicals wasgreater than in the previousyear, resulting in falling pricesand margins. Earnings werestable at a high level.Our high-tech chemicals,such as plasticizers, solventsand laminating and impreg-nating resins, are producedby our own processes inlarge-scale plants that arepart of highly efficient inte-grated structures. Capacityutilization rates at Ludwigs-hafen, Tarragona, Spain, andFreeport, Texas, remainedhigh.

In Asia, we considerablyimproved our market positionin solvents and plasticizersand are planning to build pro-duction plants with partners.Volumes also increased inNorth and South America.From early 1998, additionalvolumes of oxo products willbe available from theexpanded plant at Freeport,Texas.Despite weaker demand fromthe construction and furnitureindustries, we consolidatedour strong position in laminat-ing and impregnating resins inEurope, our key market. Pro-ductivity will be furtherincreased and competitive-ness improved. Integration atAntwerp is being extendedwith a new plant for the pro-duction of formaldehyde.

Intermediates on growthcourseDemand for our intermediatesremained strong and weraised sales and earningsagain.We compensated for fallingconsumption of amines inEurope by selectively expand-ing our business outside of

Operations

21

From road to rail: BASF’s Logistics Divi-sion is making inten-sive use of the pos-sibilities of shippinggoods by rail.This form of transpor-tation is reliable andecofriendly and thustailor-made tocustomers’ require-ments. By easing con-gestion on the roads,BASF helps to keeptraffic moving.

Europe. Additional capacitiesfor ethanolamines and alkyl-aminopropylamines will giveus an above-average share ofmarket growth. Following theexpansion of isophorone diamine production, we canplay an even more active partin epoxy resins.Formic acid and adipic acidwere the mainstays of growthin our carboxylic acids. Asecond formic acid plant atLudwigshafen improved ourmarket position. We are plan-ning to build further monocar-boxylic acid production plantsin Asia.Carbon oxychloride deriva-tives progressed favorably.Therefore, capacity was againincreased.Despite falling prices, diolsgenerally did well. Strongdemand for butanediol and itsderivatives helped us here.We want to boost our pres-ence in Asia and develop thebutanediol/tetrahydrofu-ran/polytetrahydrofuran prod-uct line in Korea. We expectneopentyl glycol to gain addi-tional impetus from its use inlow-emission powder-coatingsystems and are preparing forincreased demand with capi-tal expenditures at Ludwigs-hafen and in China.

The new business in opticallyactive intermediates madegratifying progress. Theseinnovative building blocks areincreasingly being used in thesynthesis of pharmaceuticalsand crop protection agents.

Specialty chemicals on agood levelCustomer interest in our spe-cialty chemicals remainedstrong. Overall, we matchedthe previous year’s goodearnings. Worldwide demandfor ethylene glycol suffered,however, from extensivestockpiling by manufacturersof polyester fibers and anti-freezes; volumes and reve-nues fell across the board.Innovative developmentsstrengthened our position inspecialty polymers for deter-gents and cleaning agents. Anew product in the Sokalan®

line for preventing the forma-tion of deposits in seawaterdesalination plants was suc-cessfully launched.Our business in oilfield chemi-cals was sold to Baker Per-formance Chemicals Inc. Ourplants will continue to pro-duce for Baker.

Keropur® fuel additives with asuperior cost/performanceratio improved their marketposition in Europe and NorthAmerica. They were launchedin Japan, the most importantAsian market.

Operations

22

Plastics & Fibers

Sales Billion DM12

10

8

6

4

2

0

95 9692 93

Income Million DM

92 93 94 95 96

2000

1600

1200

800

400

0

-400

94

–81

54


92 93 94 95

1000

800

600

400

200

0

96

–340

9,09

12.4

6

12.0

8

10.4

3

9.81

11.3

9

787

387

902

579

467

974

1,49

9

Plastics & Fibers

Plastics & Fiberssales fell by 3.0percent to DM 12.1 billion. Earnings reachedDM 974 million.

Focal points of our plasticsrange are polyolefins, engi-neering plastics, styrene-based foams, and polyure-thanes. We also produce fiberintermediates and syntheticfibers.

New prospects for polyolefinsThe market for polyolefinsand PVC was influenced bykeen competition. Earningswere significantly lower thanin the previous year and wereunsatisfactory.We aim to put our businesson a new basis and are pre-paring cooperations.In 1997, we intend to contrib-ute our polyethylene opera-tions to a joint venture withShell that will also acquireMontell’s European business.This planned cooperation willbe based on the long-stand-ing partnership with Shell atRheinische Olefinwerke(ROW), and take advantage ofthe fact that the sites andproduct ranges complementeach other well.We are planning a joint ven-ture with Hoechst that willcombine the partners’ poly-propylene businesses. Thenew dimension, the pooling ofsophisticated know-how anda strong position in polypro-pylene compounds will give

the joint venture a good posi-tion in the market.We are improving the effi-ciency of existing plants andinvesting in new ones in orderto improve cost-effectiveness.We have started building aplant for polypropylene copolymers at ROW.

Global expansion in engineering plasticsDemand for engineering plas-tics picked up during the sec-ond half. Business in Asia andSouth and North Americaprogressed well. Despiteincreased volumes, sales andearnings declined signifi-cantly.We are improving our struc-tures in Europe and are striv-ing for cost leadership withnew world-scale plants whichwe are building in the NAFTARegion and the growth mar-kets of Asia. Our objective isa regionally balanced high-earning portfolio in our coreoperations.In addition to the new com-modity polystyrene plant inMexico, we are building aplant for high-impact polystyr-ene in the United States. InMexico, we are building a styr-ene copolymer plant thatuses the advantages of ournew process. At UltraformCompany, our joint venture

with Degussa, we are dou-bling polyacetal capacity.In China, the plants of Yangzi-BASF Styrenics Co. (YBS) forthe production of ethylben-zene, styrene and polystyrenewill go on stream in 1997. Alarge-scale plant for ABSplastics is under constructionat Ulsan, our joint site withHyosung in Korea.PBT from our joint venturewith GE Plastics at Schwarz-heide has been availablesince early 1997, giving us amuch stronger position in thisgrowth segment for engineer-ing plastics.

Foams sluggishThe softness of the Europeanconstruction industryimpaired our foam business.Revenues were under heavypressure worldwide and earn-ings were unsatisfactory. Weare facing up to the chal-lenges of the market withstructural adjustments andprocess improvements.In North and South Americaand especially in Asia,demand for Styropor® wasdynamic. Work began on theconstruction of a plant at YBSin China. It will join the pro-duction facilities in Japan,Korea, India and Malaysia asour fifth Styropor® unit inAsia. This will further reduce

Operations

23

The internal paneling of refrigerators inChina is made of BASFpolystyrene.A joint venturebetween the Germanrefrigerator manufac-turer Haier and a Chinese company inQingdao produces thethermoformed parts.The plastic for this willin future be suppliedby a joint venturebetween BASF andYangzi PetrochemicalsCo., Yangzi-BASF Styrenics.

economic dependence onEurope.We vigorously pushed aheadwith the conversion to carbondioxide as the blowing agentin the production of Styro-dur®, our green insulatingboards, which we produce at 4 sites in Europe. ThisStyrodur® C already accountsfor half of our volumes inGermany.Gratifying progress was madeby Elastopreg®, glass-mat-reinforced large-area pre-pregs for the automotiveindustry.

Polyurethanes successfulOur strategy for polyure-thanes is being successfullyimplemented. Sales increasedin line with market growth andearnings improved signifi-cantly. However, revenuescame under pressure in thesecond half.Business in PUR systems andPUR specialty elastomersmade good progress. In Bra-zil, it exceeded our expecta-tions after we had acquired asystem house.We are planning to increasevolumes and are debottle-necking MDI production atour sites in the United States,Korea and Belgium.We are planning to join Shellin building a plant for the pro-

duction of propylene oxideand styrene at Moerdijk,Netherlands. The proposedjoint venture BASELL willfacilitate backward integrationin polyether polyols in Europe.We are planning to build asystem house in Malaysia forthe Asian market.

Fiber products steadyWe increased sales of ourfiber products. Earningsdropped but were still satis-factory. We further improvedour product and customerportfolios and production coststructures.Volumes of carpet fibers weregratifying. Our plants oper-ated at full capacity. Marketshare was consolidated. Toexpand our business inChina, we set up a joint ven-ture together with ChinaWorldbest Group Corp. andbegan the construction of anylon carpet fiber plant.Textile fibers held their groundand made a steady contribu-tion to earnings. Productionof Basofil®, the high-tempera-ture-resistant fiber, got off toa successful start.Demand for fiber intermedi-ates led to high capacity utili-zation rates. Price pressure inthe Asian market reducedearnings in the nylon-6 busi-ness during the second half.

The new nylon-6 plant at Antwerp began production inthe spring of 1997, andnylon-6 production at Free-port is currently beingextended to meet captivedemand for engineering plas-tics. For the expansion of ourfiber business in Asia, we areplanning a joint venture withDuPont to produce fiber inter-mediates by a new process.

Oil & Gas

Oil & Gas salesrose by 23.8 per-cent to DM 5.2billion (excludingpetroleum andnatural gastaxes). Earningsimproved to DM 744 million.

The Oil & Gas operation ishandled by Wintershall AGand its affiliates. We explorefor and produce crude oil andnatural gas, refine oil, marketpetroleum products and sellcrude oil and natural gas.

Sales and earnings significantly upFirm crude oil prices, furtherincreases in oil productionand high natural gas volumesin Germany at the start of theyear led to a 12-percent risein sales. Earnings gratifyinglyreflected this trend.Once again, most earningsderived from oil and gas pro-duction. Earnings from thenatural gas merchant busi-ness improved as a result of

increasing supplies to cus-tomers in the German market.Petroleum products made agreater contribution to earn-ings despite the scheduledinspection of the Lingen refin-ery. This was mainly due toongoing, consistent efficiencyimprovements. Refinery mar-gins remained unsatisfactory.Despite improvements in mid-dle distillates and motor fuels,the overall upturn was onlyslight.

Crude oil and natural gasproduction up againTotal production, includingour share in DEMINEX, was9.4 million metric tons of oilequivalent.Wintershall’s crude oil pro-duction was up by 30 percentat 5.6 million metric tons.Production from the AlRayyan field in Qatar began inNovember. Natural gas pro-duction was raised to 2.0 bil-lion cubic meters, a hike of 16 percent compared with

the previous year’s level,which was low because wesold less. This growth cameparticularly from Germany.Our share of production fromthe DEMINEX holding wasunchanged at 1.7 million met-ric tons of crude oil and 0.5billion cubic meters of naturalgas.

Petroleum product volumes slightly downVolumes of petroleum prod-ucts fell slightly to 4.0 millionmetric tons because of theinspection shutdown of therefinery at Lingen. About 60percent of motor fuels weremarketed through the ARALgas-station network, in whichWintershall has a 15-percentholding. The remainder wassold through our own market-ing organization.

Operations

24

Oil & Gas

Sales Billion DM6

4

2

0

9692 93

Income Million DM

9692 93

800

600

400

200

0

-200

94 9495 95


9692* 93

1200

1000

800

600

400

200

0

94 95

4.21

5.21

4.19

4.35

4.08

470

422

251

1,19

3

398

201

744

297

–38

155

* plus DM 1,383 million for natural gas projects (not yet consolidated in 1992)

This pipeline will trans-port natural gas acrossmountains, valleys andrivers from Siberia towestern Europe. Thepicture shows theYamal pipeline goingunder the Oder River.The first section of thepipeline from Szamo-tuly in western Polandto Mallnow in easternGermany was com-pleted in 1996.Natural gas from Rus-sia flowed through thissection for the firsttime at the end of1996. The gas is soldby WIEH, a joint venture between theBASF Group companyWintershall and Gazprom.

At the Lingen refinery, DM 37million was invested inreplacements and improve-ments. Substantial capitalexpenditures for processimprovements and the mod-ernization of the coking plantsare planned for the comingyears.In 1996, the German petro-leum industry again sufferedfrom a surplus of petroleumproducts. A combination ofsite disadvantages, surpluscapacity and stagnating con-sumption reduced refineryearnings. The restrictive envi-ronmental regulations aloneput Germany at a cost disad-vantage of about DM 4 permetric ton in comparison withRotterdam.

Natural gas earnings up againIn the course of expandingour natural gas business, wesubstantially increased vol-umes in the German marketand improved earnings.Work began on the construc-tion of the west German pipe-line (WEDAL) connecting Bielefeld with Aachen on theGerman-Belgian border. Thefirst section, as far as Soest,has been completed. Thediversification of natural gaspurchases continued. Undersupply agreements with Brit-ish Gas and Conoco, WINGAS will purchase a totalof 3 billion cubic meters ofnatural gas per year from theBritish sector of the NorthSea on a long-term basisfrom 1998.Volumes of natural gas inGermany totaled about 11 bil-lion cubic meters in 1996. Wewill be increasing this figurecontinuously and aim toincrease our share of the German market to 15 percentby 2010.

Our partner Gazprom isdeveloping major gas fieldson the Yamal peninsula inSiberia and planning to sup-ply some of the gas to west-ern Europe. A pipeline isbeing built for this purposethrough Belarus and Polandto Frankfurt an der Oder. Kali-Bank GmbH, a subsidiary ofWintershall AG, granted aloan of DM 1 billion in January1996 to support the con-struction of this natural gastransit pipeline.The Yamal-Europe pipelinesystem is being graduallyextended eastward, usingexisting free pipeline capacity.At the end of 1996, wereceived the first delivery ofnatural gas at a new terminalfor Russian gas in Frankfurtan der Oder.

Operations

25

From the regions

The BASF Groupoperates in manycountries withdifferent political,economic andsocial structures.In line with theOECD recom-mendations formultinationalcompanies, weare aware of ournumerousresponsibilities.

Our market is the worldWe are a transnational com-pany operating throughoutthe world and we conductbusiness with customers in170 countries. BASF Groupcompanies operate produc-tion plants in 39 countries.Modern logistic systemsmaintain the flow of productsand goods between the vari-ous regions. Marketing, distri-bution and technical serviceare being expanded inregional markets.We carry out developmentwork close to the marketsand optimize products andprocesses together with ourcustomers. In this way, weprovide innovative solutionswhich contribute to ourcustomers’ success.

Europe – our home marketIn Europe, we increased salesby 3.4 percent. Here, weachieved 63 percent of theBASF Group’s sales and 75percent of income from oper-ations.

Demand for chemicals in Ger-many was sluggish. Overall,sales slightly increased by 2.8percent due to growth in ourOil & Gas operation. Plasticsdid well in terms of volumes,but falling prices impactedearnings severely. Our widerange in Colorants & FinishingProducts helped us toexpand our market position.At BASF SchwarzheideGmbH, we made a profitbefore taxes for the first time.Although sales in most westEuropean countries wereslightly down on the previousyear, the marketing of ourproducts in France madegood progress. New cropprotection agents and phar-maceuticals were an impor-tant factor here.In Italy and Spain, weachieved gratifying growthrates with our products forhealth and nutrition and thetextile and leather industries,and with polyurethanes. Busi-ness in plastics and chemi-cals was characterized byunsatisfactory prices despitestrong demand.

Plastics, with their light weight and stability,are as big a break-through in automobiledesign as steel was inlarge structures.Numerous plasticsmade by BASF areused in cars in suchdiverse applications asLupolen® fuel tanks,which can be madeinto any shape, poly-urethane coverings forsteering wheels,Luran®, Luran® S orTerluran® operatingelements and Ultramid® inlet mani-folds.

Regions

26

Final check before transportation: EarlMillet, who works inthe tank farm at theGeismar works, sealsthe drums and checksthe closures. Geismarin Louisiana is BASFCorporation’s largestsite.

Increased sales in the UnitedKingdom were largely attrib-utable to the pharmaceuticalbusiness and the textile dyestaken over from Zeneca.Our core operations in thereform states of central andeastern Europe did well. Weimproved our position in theCIS states, especially Russia.

Earnings in the NAFTARegion up againWe gained market share in theNAFTA Region. Sales of plas-tics, dispersions and pharma-ceuticals grew faster thanaverage. BASF Corporation’spre-tax earnings in U.S. dol-lars increased vigorously by25 percent and in Germanmarks by 31 percent.We expanded our productionplants. We will be continuingthis policy in the comingyears and investing aboutU.S.$ 600 million in tangibleassets each year.

We increased vitamin Ecapacity at the Wyandotte,Michigan, site. Rapidprogress is being made withthe construction of newplants for acrylic acid, acry-lates and oxo alcohols atFreeport, Texas, and also with the increase in capacityfor fiber intermediates andnylon 6. Production of theheat-resistant fiber Basofil®

began at the Enka, NorthCarolina, site.BASF de México achieved asound operating profit, withour structural measures play-ing their part. We simplifiedthe company’s organizationand increased efficiency. Aplant for styrene/butadienedispersions started up atAltamira, Mexico. New plantsare being built to supply pre-dominantly the NAFTA marketwith polystyrene and styrenecopolymers.We reached an agreementwith Air Products and Chemi-cals Inc. to supply dinitroto-luene from a new plant at ourGeismar, Louisiana, site, thusimproving our position inpolyurethanes.

In coatings and paints, coststructures were improvedconsistently. Our subsidiaryAutomotive Refinish Technol-ogies Inc. is strengtheningdistribution outlets for auto-motive refinishes. Integrationof the textile dye businessacquired from Zeneca isgoing according to plan.

Structural adjustments inSouth AmericaThe stabilization of SouthAmerica’s economies alsogave a gratifying boost to ourbusiness there. Demand forour products was strong inthe Mercosur countries ofBrazil, Argentina, Uruguayand Paraguay, and in Chile. InBrazil, sales improved, espe-cially in engineering plastics,building paints, pharmaceuti-cals and crop protectionagents. Earnings were notsatisfactory. In view of thechange in general economicconditions resulting from theopening of the market, weadjusted the book values ofvarious plants in Brazil to thecash values of the future cash flow. Earnings in Argen-tina and Chile improved sig-nificantly.

Regions

27

The countries belonging tothe Andean Pact are goingthrough a radical process ofreform, and economic activityis somewhat depressed.Despite the effects of this,most of our companiesachieved satisfactory earn-ings. At BASF QuímicaColombiana, earnings wereadversely affected by specialfactors.We geared our organizationto the increasing cohesion ofthe South American markets.Costs were cut by efficiencymeasures and structuralimprovements. We are con-sistently endeavoring toimprove the cost effective-ness of our sites and plants.With specific capital expendi-tures, we want to share in thegrowth of the South Americanmarkets and take advantageof new business opportu-nities.

Ambitious targets in AsiaWe have set ourselves ambi-tious targets in Asia. We aimto share in the growth of thisregion, which is expected tobe considerably higher than inthe developed markets. In themedium term, we expect anannual market expansion inreal terms of more than 7 per-cent in the rising countries ofAsia.By 2010, the BASF Groupintends to achieve 20 percentof its sales and earnings inAsia. We want to double ourmarket share by then. Salesfrom local production in Asiaare planned to rise from 30 percent at present to 70 percent.With these aims in mind, weare expanding our productionfacilities in the region. Overthe next 5 years, we want tomake 25 percent of our capi-tal expenditures in Asia.

Production hike in southeast AsiaVolumes of our products insoutheast Asia grew fasterthan the market. Local pro-duction was furtherincreased. Sales improveddespite falling prices butearnings were affected byadvance expenditures for theexpansion of our business inthis region.

Following the integration ofBoots plc's pharmaceuticaloperations, Knoll’s affiliates in Pakistan and India madegratifying contributions toearnings.Dispersion capacity wasincreased in Australia andIndonesia. At our site in Man-galore, India, we brought anew dispersion plant onstream and are expandingdye production. In Malaysia,we are constructing a Tamol®

plant to meet the fast-grow-ing demand for concreteaggregates. A system housefor polyurethanes is beingbuilt in Kuala Lumpur.Together with our partnerPETRONAS, we intend tobuild an acrylic acid plant atKuantan, Malaysia, the firstproject in a planned inte-grated chemical site that isintended to supply mainly theASEAN market. Further plantsfor oxo alcohols, plasticizersand intermediates will follow.

Crop protection agents must be more andmore effective at lower and lower applicationrates. Extensive seriesof trials that take years are thereforenecessary.Here, at BASF’s Agri-cultural Products Cen-ter in Raleigh, NorthCarolina, the effect of acrop protection agenton corn is beingtested.

Regions

28

Colorful capes brighten the scene inNanjing, China. BASFoperates 8 joint ven-tures in the People’sRepublic of China. Oneof them produces tex-tile dyes and organicpigments, and anothermakes coatings espe-cially for automobiles.

Expansion in east AsiaEconomic development ineast Asia is still very dynamiceven though the pace is eas-ing in certain countries, suchas Korea and Taiwan. Oursales grew more quickly thanthe markets. The mainstayswere chemicals, plastics andfiber intermediates.New plants for the productionof textile dyes and auxiliariesas well as pigments beganoperation at Shanghai BASFColorants and Auxiliaries(SBCA). BASF ShanghaiCoatings began producingand marketing paints andcoatings on schedule at thebeginning of 1997.

We are aiming to use ourcompetence in the planning,construction and operation ofintegrated production sites tobuild petrochemical plants atNanjing together with ChinaPetrochemical Corporation(SINOPEC) and its subsidiarySINOPEC Yangzi Petrochemi-cal Corporation. At present,we and our partners areexamining the technical andeconomic conditions for asteamcracker and down-stream facilities. We are alsoinvestigating the possibility ofa joint venture to produceMDI and TDI in Shanghai.

Business stronger in JapanFollowing the previous year’ssuccessful trend reversal, wefurther improved our positionin Japan during 1996. Gratify-ing progress in the domesticmarket and the change in thevalue of the yen, which bene-fited exports, helped BASFJapan to increase sales. Ifunconsolidated Group com-panies are taken into

account, sales in yen grew by 17 percent, with new companies making a majorcontribution.The Nisso BASF Agro jointproduction venture bolsteredour crop protection business.Following the acquisition of amajority holding in the phar-maceutical company Hoku-riku Seiyaku, we now havedirect access to the Japanesepharmaceutical market, thesecond largest in the world.In September, Toyota becamethe first Japanese car manu-facturer to fit inlet manifoldsmade from Ultramid®, BASF’sglass-fiber-reinforced poly-amide.

Regions

29

Research and development

We quickly con-vert scientific andtechnical disco-veries and expe-rience as well aspioneering ideasinto new prod-ucts, processesand applications.R&D is the key toinnovation and anessential elementin shaping ourfuture.

We have built up a highly effi-cient integrated system ofchemical and technical know-how, which we use to system-atically exploit synergies tomeet our customers’ stricterrequirements, including eco-logy aspects. A few examplesfrom our wide range of pro-jects will make this clear.

Competitive positionimproved by innovativeprocessesWe intend to commercialize anew and economically attrac-tive process for producingcaprolactam on the basis ofadipodinitrile in a joint venturewith DuPont. Caprolactam ismainly used as a raw materialfor our Ultramid® grades andfor nylon 6 fibers.Caprolactam is, therefore, animportant link in our integra-ted production system. It isalso used as a raw materialfor specific vinyl monomersfor producing specialty che-micals, such as adhesives,hair-setting products anddetergents. We producethese vinyl monomers by anew efficient process, whichreinforces our position as themarket leader in this segment.

We are also developing bio-technological processes inorder to manufacture highervalue-added products. Forexample, vitamin B2 is pro-duced by a fermentation pro-cess. We start with a vegeta-ble oil and obtain the desiredproduct direct in a single-stepprocess. Production capacitywas expanded by optimizingthe microorganisms used.

Technological leadershipboost from catalystsCatalysts accelerate chemicalprocesses and reduce theformation of byproducts.New, selective catalytic pro-cesses make more efficientuse of the raw materials andare, thus, an important contri-bution to Sustainable Deve-lopment.For example, a new catalysthas significantly improved theproduction of phthalic anhy-dride, a precursor for plasti-cizers. A key to this successwas cooperation betweenvarious disciplines at our inte-grated Ludwigshafen site.We achieved a major advancein catalysts for the productionof polyolefins. Through syste-matic R&D work, we im-proved productivity in the

Endless DNA sequences aredecoded and utilizedby genetic research.Dr. Burkhard Krögerfrom cardiovascularresearch at Ludwigs-hafen examines a sec-tion of a sequencefrom the Lifeseqgenome database,which BASF licensedfrom the Californianspecialists Incyte in1996 in the hope offinding sites of actionfor new therapeuticagents. Genetic research hasgood prospectsbecause it offers newways of developingactive compounds andtherapeutic methodsfor treating serious diseases.


30

The aim of microreac-tor experiments is todevelop optimumchemical reactionswithout any undesiredbyproducts.The same reactionstake place in themicroreactor as inBASF’s large-scaleplants, but are mucheasier to study andrefine. This means thatthe reactor can beoptimized for eachseparate reaction.Chemical engineershave developed amicroreactor in whichthe reactions takeplace in diamond-carved channels asfine as hairs.

manufacture of Novolen®,which is processed into film,sheeting and fibers, andenhanced product quality.

New solutions to customers’ problemsWe use modern scientificmethods to devise innovativesolutions to our customers’problems. Computer simula-tion provides an understand-ing of the properties of solidsat the molecular level. Crystaldesign has made it possibleto develop new pigments formodern coatings. One exam-ple is Paliogen® Red, a trans-parent pigment that is out-standingly suitable for water-borne coatings.The interaction of chemistryand molecular modeling alsoprovided the key to our newbiodegradable complexingagent. For the first time, wewere able to use computermodels to predict the ecologi-cal properties of products.The new, readily biodegrada-ble complexing agent methyl-glycinediacetic acid bindsinterfering metal ions andexhibits a broad spectrum ofaction in detergents and cleaning agents.

For detergents, we also deve-loped the Sokalan® HP grades. These are polymersthat improve dirt release andprovide better protectionagainst dirt being redepositedon the washing.

New methods for innova-tive active compoundsNew insights into the interac-tion between active com-pounds and biological sys-tems, and new discoveries inmolecular biology paved theway to innovative products.A new drug for the treatmentof schizophrenia is based onthe selective blockage of aparticular dopamine receptorin the brain. The neurolepticcan alleviate the symptoms ofschizophrenia without theusual severe side effects.In addition to projects at amore advanced stage, anendothelin receptor antago-nist for the treatment ofvarious diseases of the car-diovascular system is at anearly stage of clinical devel-opment.To speed up innovation, weare relying on modern tech-nologies in research to findnew active compounds. A

new synthesis strategy, com-binatorial chemistry, allowsthe rapid automated synthe-sis of a very large number oftest substances. This is fol-lowed by high throughputscreening, which very quicklyidentifies promising activecompound lead structures.

Cooperation on future-oriented technologiesTogether with the Americanbiotech company Lynx Thera-peutics, we have set up ajoint venture in the field ofmolecular biology. Lynx pro-vides a new DNA sequencingtechnology by means ofwhich dynamic processes canbe monitored at the molecularlevel, thus opening new routes to the discovery ofactive compounds.The company is headquar-tered in Heidelberg. Weregard this as an importantstep toward strengtheningand expanding biotechnologi-cal and genetic engineeringresearch in Germany and theRhine-Neckar triangle, one ofthe award-winning regions inthe German Government’s“BioRegio” development program.


31

32

Annual financial statementsBalance sheet of the BASF Groupas of December 31, 1996Million DM

Assets Notes Dec. 31, 1996 Dec. 31, 1995

Intangible assets (7) 2,535.5 1,730.0Tangible assets (7) 16,071.0 15,399.3Financial assets (8) 4,094.4 2,615.5

Fixed assets (3/4) 22,700.9 19,744.8

Goods on lease 151.3 183.3Inventories (9) 7,018.2 6,541.6

Accounts receivable – trade 7,262.9 6,563.9Receivables from affiliated companies 730.3 703.7Miscellaneous receivables and other assets 1,607.7 1,638.7

Receivables and other assets (10) 9,600.9 8,906.3

Securities 2,670.7 3,865.4Checks, cash on hand, central bank balances, bank balances 1,156.0 2,328.0

Current assets (3) 20,597.1 21,824.6

Prepaid expenses (11) 420.3 465.9

43,718.3 42,035.3

Equity and Liabilities

Subscribed capital (12) 3,090.3 3,048.8Capital surplus (13) 4,917.6 4,703.9Revenue reserves and profit retained (14) 12,248.2 10,317.0Translation adjustment (6) –252.5 – 495.4Minority interests 485.9 353.2

Equity 20,489.5 17,927.5

Special reserves (3) 61.9 77.9

Pension provisions and similar obligations (15) 6,747.6 6,657.5Provisions for taxes 1,278.0 1,234.7Other provisions (16) 6,470.6 6,485.9

Provisions (3/16) 14,496.2 14,378.1

Bonds and other liabilities to the capital market 1,040.2 1,387.9Liabilities to credit institutions 998.0 1,444.9Accounts payable – trade 3,183.8 2,770.7Liabilities to affiliated companies 402.2 459.1Miscellaneous liabilities 2,875.0 3,444.2

Liabilities (17) 8,499.2 9,506.8

Deferred income 171.5 145.0

43,718.3 42,035.3

33

Annual financial statements

Profit and loss account of the BASF GroupJanuary 1 – December 31, 1996Million DM

Notes 1996 1995

Sales (21) 52,201.9 49,402.6

– Petroleum and natural gas taxes 3,425.9 3,173.5Sales (without petroleum and natural gas taxes) (21) 48,776.0 46,229.1

Cost of sales 31,080.8 29,766.5

Gross profit on sales 17,695.2 16,462.6

Selling expense 8,455.0 7,747.9General administration expense 1,198.0 1,087.4Research and development expense 2,285.8 2,087.9Other operating income (22) 1,925.5 2,013.8Other operating expense (22) 3,388.8 3,530.4

Income from operations 4,293.1 4,022.8

Net income from financial assets (23) 107.7 128.3Amortization of and losses from retirement of financial assets as well as securities held as current assets 169.6 44.2Interest result (24) 182.5 21.3

Profit before taxes* 4,413.7 4,128.2

Income taxes (25) 1,575.0 1,704.9

Net income 2,838.7 2,423.3

Minority interests in profit/loss (28) 48.5 – 47.2

Net income after minority interests 2,790.2 2,470.5

* Results from ordinary activities

34


Balance sheet of BASF Aktiengesellschaftas of December 31, 1996Million DM

Assets Notes Dec. 31, 1996 Dec. 31, 1995

Intangible assets (7) 713.0 115.7Tangible assets (7) 3,020.3 2,991.0Financial assets (8) 14,874.9 11,016.0

Fixed assets (3/4) 18,608.2 14,122.7

Inventories (9) 2,415.0 2,363.4

Accounts receivable – trade 1,961.0 1,768.2Receivables from affiliated companies 3,337.4 2,190.4Miscellaneous receivables and other assets 351.4 303.6

Receivables and other assets (10) 5,649.8 4,262.2

Securities 2,153.2 2,689.2Cash on hand, central bank balances, bank balances 254.8 1,044.5

Current assets (3) 10,472.8 10,359.3

Prepaid expenses (11) 9.9 10.4

29,090.9 24,492.4

Equity and Liabilities

Subscribed capital (12) 3,090.3 3,048.8(Conditional capital: 299.6)Capital surplus (13) 4,736.0 4,522.2Revenue reserve (14) 5,439.4 4,789.4Profit retained (14) 1,050.8 853.8

Equity 14,316.5 13,214.2

Special reserves (3) 26.7 37.9

Pension provisions (15) 4,683.0 4,534.0Provisions for taxes 989.5 923,9Other provisions (16) 2,633.4 2,626.5

Provisions (3/16) 8,305.9 8,084.4

Liabilities to credit institutions 62.6 77.9Accounts payable – trade 849.1 909.8Liabilities to affiliated companies 4,718.6 1,433.4Miscellaneous liabilities 585.2 719.2

Liabilities (17) 6,215.5 3,140.3

Deferred income 226.3 15.6

29,090.9 24,492.4

35


Profit and loss account of BASF AktiengesellschaftJanuary 1 – December 31, 1996Million DM

Notes 1996 1995

Sales (21) 20,607.2 21,060.8

Cost of sales 13,575.9 13,834.9

Gross profit on sales 7,031.3 7,225.9

Selling expense 3,073.7 2,981.2General administration expense 432.9 404.0Research and development expense 1,416.8 1,310.5Other operating income (22) 602.1 694.3Other operating expense (22) 922.7 894.5

Income from operations 1,787.3 2,330.0

Net income from financial assets (23) 388.6 8.7Amortization of and losses from retirement of financial assets as well as securities held as current assets 222.3 263.5Interest result (24) 261.3 226.1

Profit before taxes* 2,214.9 2,301.3

Income taxes (25) 514.2 947.6

Net income 1,700.7 1,353.7

* Results from ordinary activities

36


Development of fixed assetsas of December 31, 1996Million DM

BASF Group Gross book values

Jan. 1, Change in Additions Retire- Reclassi- Dec. 31,1996 scope of ments fications 1996

consolidation

Concessions, industrial and similar rightsand assets, as well aslicenses for such rights and assets 2,263.8 14.1 774.0 185.2 17.9 2,884.6Goodwill 434.9 105.4 227.6 48.3 5.9 725.5Payments on account 5.8 2.0 85.3 – –0.8 92.3

Intangible assets 2,704.5 121.5 1,086.9 233.5 23.0 3,702.4

Land, land rights and buildings includingbuildings on land owned by others 10,642.0 37.4 124.0 273.7 162.1 10,691.8Machinery and technical equipment 38,365.0 230.1 976.6 1,172.5 1,931.0 40,330.2Miscellaneous equipment and fixtures 5,390.7 6.8 303.3 511.7 359.9 5,549.0Payments on account and construction in progress 1,722.1 18.1 2,235.0 23.2 –1,952.0 2,000.0

Tangible assets 56,119.8 292.4 3,638.9 1,981.1 501.0 58,571.0

Shares in affiliated companies 1,682.2 –232.6 894.8 167.8 –24.2 2,152.4Loans to affiliated companies 86.8 –46.8 1,026.7 15.6 0.5 1,051.6Shares in associated companies 535.6 –100.2 12.8 11.9 36.8 473.1Shares in participating interests 341.2 – 94.9 0.5 –0.2 435.4Loans to associated companies and participating interests 35.7 – 67.6 39.8 1.8 65.3Securities held as fixed assets 68.0 – 9.1 19.0 –0.2 57.9Other loans and other investments 156.5 1.2 32.0 34.2 35.9 191.4

Financial assets 2,906.0 –378.4 2,137.9 288.8 50.4 4,427.1

Fixed assets 61,730.3 35.5 6,863.7 2,503.4 574.4 66,700.5

BASF Aktiengesellschaft

Industrial and similar rights and assets,as well as licenses for such rights and assets 356.6 640.7 164.2 – 833.1Goodwill 17.1 17.1Payments on account – 0.9 – – 0.9

Intangible assets 356.6 658.7 164.2 – 851.1

Land, land rights and buildings includingbuildings on land owned by others 4,260.0 32.1 10.1 28.7 4,310.7Machinery and technical equipment 14,469.2 336.6 198.5 379.3 14,986.6Miscellaneous equipment and fixtures 2,474.5 121.8 117.8 108.3 2,586.8Payments on account and construction in progress 632.7 433.9 0.2 –516.3 550.1

Tangible assets 21,836.4 924.4 326.6 – 22,434.2

Shares in affiliated companies 11,639.4 4,527.7 841.2 – 15,325.9Loans to affiliated companies 911.6 10.0 185.7 – 735.9Participating interests 431.7 12.6 9.5 – 434.8Loans to participating interests 22.6 – 22.6Other loans and other investments 18.2 2.7 5.0 – 15.9

Financial assets 13,000.9 4,575.6 1,041.4 – 16,535.1

Fixed assets 35,193.9 6,158.7 1,532.2 – 39,820.4

37


Amortization Net book values

Jan. 1, Change in Additions Retire- Write- Reclassi- Dec. 31, Dec. 31, Dec. 31,1996 scope of ments backs fications 1996 1996 1995

consolidation

706.0 4.9 295.4 179.2 – 4.2 831.3 2,053.3 1,557.8268.0 30.7 78.6 45.0 – 1.8 334.1 391.4 166.9

0.5 1.3 0.2 – 0.5 – 1.5 90.8 5.3

974.5 36.9 374.2 224.2 0.5 6.0 1,166.9 2.535.5 1,730.0

6,473.2 –15.6 398.3 176.9 – –81.1 6,597.9 4,093.9 4,168.829,927.9 117.5 2,230.2 1,112.5 – 307.4 31,470.5 8,859.7 8,437.1

4,315.2 –5.5 509.3 469.1 – 80.6 4,430.5 1,118.5 1,075.5

4.2 – 2.8 – – –5.9 1.1 1,998.9 1,717.9

40,720.5 96.4 3,140.6 1,758.5 – 301.0 42,500.0 16,071.0 15,399.3

213.4 –2.8 17.1 97.6 – –1.0 129.1 2,023.3 1,468.84.9 –4.9 – – – – – 1,051.6 81.9

54.5 1.4 – – – – 55.9 417.2 481.14.5 – 130.3 0.3 – – 134.5 300.9 336.7

– – – – – – – 65.3 35.71.0 – 2.4 0.2 – –0.1 3.1 54.8 67.0

12.2 – 1.1 2.8 – –0.4 10.1 181.3 144.3

290.5 –6.3 150.9 100.9 – –1.5 332.7 4,094.4 2,615.5

41,985.5 127.0 3,665.7 2,083.6 0.5 305.5 43,999.6 22,700.9 19,744.8

240.9 59.7 164.2 – 136.4 696.7 115.71.7 1.7 15.4

– – – – – 0.9

240.9 61.4 164.2 – 138.1 713.0 115.7

3,308.1 125.4 4.3 –0.8 3,428.4 882.3 951.913,418.4 562.2 195.7 1.0 13,785.9 1,200.7 1,050.8

2,118.9 195.1 114.2 –0.2 2,199.6 387.2 355.6

– – – – – 550.1 632.7

18,845.4 882.7 314.2 – 19,413.9 3,020.3 2,991.0

1,977.1 195.0 517.4 – 1,654.7 13,671.2 9,662.32.8 – 0.6 – 2.2 733.7 908.80.8 0.3 0.2 – 0.9 433.9 430.9

22.64.2 – 1.8 – 2.4 13.5 14.0

1,984.9 195.3 520.0 – 1,660.2 14,874.9 11,016.0

21,071.2 1,139.4 998.4 – 21,212.2 18,608.2 14,122.7

38

Major affiliates

Company name and headquarters Number of employees Capital expenditures Sales Profit before taxesDec. 31, 1996 Million DM 1996 Million DM 1996 Million DM 1996

Products and services Dec. 31,1995 Million DM 1995 MillionDM1995 Million DM 1995

Europe

BASF Antwerpen N.V., Antwerp, Belgium 3,563 399.7 3,645.0 289.8Fertilizers, plastics, 3,552 328.6 3,517.6 408.1intermediates for plastics and fibers, chemicals

BASF Española S.A., Barcelona, Spain 991 63.3 1,011.1 83.4Chemicals, plastics, finishing products, 981 47.7 1,008.0 97.2sale of fertilizers and crop protection products

BASF France S.A., Levallois-Perret, France 519 2.4 1,422.2 25.7Sale of fertilizers and crop protection products, 526 2.2 1,459.6 26.4chemicals, plastics, colorants and finishing products

BASF Italia Spa, Cesano Maderno, Italy 653 23.8 570.3 20.2Colorants and finishing products 678 16.4 509.4 37.1

BASF Lacke + Farben AG, Münster 4,142 46.3 1,720.5 12.6Coatings, paints, printing inks 5,188 62.3 1,743.7 –82.7

BASF Peintures + Encres S.A., Clermont, France 1,228 11.3 507.8 1.8Coatings, paints, printing inks, pigments 1,244 9.9 479.2 –3.8

BASF plc, Cheadle, Great Britain 1,346 30.3 1,665.8 99.5Chemicals, polypropylene, fiber intermediates 1,157 16.7 1,584.0 24.3

BASF Schwarzheide GmbH, Schwarzheide 2,249 86.2 813.8 21.81

Polyurethane products and systems, foamed plastics, 2,273 91.8 755.4 44.91

crop protection products, waterborne coatings

BASF Vernici e Inchiostri Spa, Cinisello Balsamo, Italy 573 6.7 350.5 9.9Coatings, paints, printing inks, pigments 576 7.1 317.8 5.6

Comparex Informationssysteme GmbH, Mannheim 2 591 5.1 970.0 89.8Sale and renting of data processing 610 8.7 827.8 60.8and storage equipment, services

Elastogran GmbH, Lemförde 3 1,222 19.9 1,626.8 117.5Basic polyurethane products and systems, 1,209 14.7 1,513.2 107.5PUR special elastomers and technical parts

Knoll AG, Ludwigshafen 3 3,408 79.8 1,154.8 –63.01

Pharmaceuticals, pharmaceutical chemicals 3,388 75.3 1,081.2 –52.2

Rheinische Olefinwerke GmbH, Wesseling 4 2,426 150.7 1,973.4 102.41

Polyolefins, styrene, butadiene, epoxy resins, 2,490 80.0 2,228.5 421.41

thermoplastic rubber

Wintershall AG, Celle/Kassel 5 2,014 422.0 5,558.5 804.1Crude oil, natural gas, petroleum products 2,083 469.6 4,572.2 204.7

The compilation of the total holding (list of shares held) pursuant to § 313, Section 2 or § 285, No. 11 of the Commercial Code, has been deposited with the Commercial Register in Ludwigshafen, HRB 3000.


39


Major affiliates

Company name and headquarters Number of employees Capital expenditures Sales Profit before taxesDec. 31, 1996 Million DM 1996 Million DM 1996 Million DM 1996

Products and services Dec. 31, 1995 Million DM 1995 Million DM 1995 Million DM 1995

North America

BASF Corporation, Mount Olive, 13,454 985.7 9,541.8 889.6New Jersey, USA 6 14,051 503.7 8,889.3 678.8Chemicals, crop protection products, plastics, fibers, colorants, finishing products, coatings, pharmaceuticals

BASF de México, S.A. de C.V., Mexico City, 1,142 42.3 324.6 44.9Mexico 6 1,113 30.4 233.8 – 50.8Chemicals, colorants and finishing products, coatings

South America

BASF Argentina S.A., Buenos Aires, Argentina 362 2.7 233.4 7.7Styropor®, finishing products, crop protection products 374 2.0 187.8 4.6

BASF Química Colombiana S.A., Medellin, Colombia 467 9.9 130.2 – 11.7Chemicals, polyester resins, 530 2.9 140.9 4.3finishing products, crop protection products

BASF S.A., São Bernardo do Campo, Brazil 4,459 38.9 1,585.3 – 91.2Chemicals, colorants, finishing products, 4,957 73.6 1,353.5 – 29.4coatings and paints, crop protection products, Styropor®

Asia, Pacific Area

BASF Australia Ltd., Melbourne, Australia 261 18.9 264.6 – 10.6Plastics, finishing products 283 9.0 250.0 0.2

BASF India Ltd., Bombay, India 937 18.1 110.7 6.3Styropor®, colorants, 834 33.0 105.2 9.9finishing products, crop protection products

BASF Japan Ltd., Tokyo, Japan 402 4.3 812.6 35.8Chemicals, finishing products, plastics 408 4.7 841.8 23.8

BASF (Malaysia) Sdn. Bhd., Petaling Jaya, Malaysia 221 15.8 118.8 – 8.1Styropor® 223 1.6 137.5 – 2.2

Hanwha-BASF Urethane Ltd., Seoul, Korea 4 278 19.8 179.0 16.4Basic polyurethane products and systems 279 7.4 151.3 6.7

Hyosung-BASF Co., Ltd., Seoul, Korea 4 479 25.8 379.5 4.5Styropor®, polystyrene, styrene copolymers 451 28.6 428.2 5.4

Knoll Pharmaceuticals Ltd., Bombay, India 7 883 10.3 95.1 15.1Pharmaceuticals, pharmaceutical chemicals 909 0.5 75.2 6.0

Mitsubishi Chemical BASF Company Ltd., 273 11.7 215.4 – 0.9Yokkaichi, Japan 4 279 14.0 252.8 – 4.1Styropor®, polymer dispersions, foam sheeting

The values of the non-German companies were translated to DM at average quarterly exchange rates, and for South American companies to DM at average monthly exchange rates.

1 Before profit/loss transferred2 Our holding: 60 (1995: 100) percent3 Including its consolidated majority-owned German affiliates4 Our holding: 50 percent5 Including its consolidated majority-owned and 50-percent affiliates, 1995 results before extraordinary items.

There is a profit and loss transfer agreement between BASF Aktiengesellschaft and Wintershall AG.6 Including its consolidated majority-owned affiliates7 Our holding: 40 percent, under uniform control

40

The notes to the financial statements of theBASF Group and BASF Aktiengesellschaft arecombined. Unless expressly noted, the disclo-sures refer to both financial statements. TheBASF Group is identical with the BASF Kon-zern in its conformity with German accounting

legislation; all disclosures relating to the Groupapply to the Konzern. The financial statementswere prepared in accordance with the provi-sions of the German Commercial Code (HGB)and the Stock Corporation Law (AktG).

Domestic and foreign subsidiaries are includedin the Group financial statements in full, andsignificant 50-percent-owned affiliates on apro rata basis. Subsidiaries of minor signifi-cance are not consolidated.The magnetic product business was sold toKOHAP Inc., Korea, with effect from the end ofthe year. As a result, 4 companies were re-moved from the consolidated balance sheet asof December 31, 1996. Their sales and earn-ings for 1996 are still included in the Groupfigures.We signed a contract with Potash Corporationof Saskatchewan Inc., Canada, to sell 51 per-cent of our shares in Kali und Salz BeteiligungsAktiengesellschaft, subject to antitrust laws orofficial approval. This company was still fullyconsolidated on December 31, 1996, and itsmajor affiliates, including Kali und Salz GmbHand Potash Company of Canada Ltd., were included under the equity method as before.The following companies were consolidated forthe first time in 1996:– BASF Horticulture et Jardin S.A.,

Roche-Lez-Beaupré, France– BHC Company, Dallas, U.S.– BASF (Thai) Ltd., Bangkok, Thailand– Knoll Pharmaceuticals Ltd., Bombay, India– Hanwha-BASF Urethane Ltd., Seoul,

South KoreaThe number of consolidated companies alsochanged because of restructuring measuresunder company law.As a result, the Group financial statements in-clude 97 subsidiaries and 10 fifty-percent-owned affiliates apart from BASF Aktienge-

sellschaft. Furthermore, 35 subsidiaries, notfully consolidated, and 13 associated compa-nies are included at their proportional share ofnet equity (equity method).The additions to the scope of consolidationand the divestiture of the magnetic productbusiness had the following effect on the Groupbalance sheet:

Million DM %

Fixed assets – 214.2 –1.1– thereof: tangible assets 65.4Current assets –130.0 – 0.6

Assets – 344.2 – 0.8

Equity –132.3 – 0.7

Provisions –193.6 –1.3Liabilities –18.3 – 0.2

Total liabilities – 211.9 – 0.9

Sales revenues increased by DM 140 million or0.3 percent as a result and on account of acquisitions after the deduction of further dives-titures and due to relocations of certain otherbusinesses to the other operational revenues.The comparability of the Group result is notsignificantly affected by the new additions,since the results of the newly consolidatedcompanies have already been included underthe equity method.

Notes BASF Group and BASF Aktiengesellschaft

(1) Scope of consolida-tion, participating interests

(2) Consolidation methods

The financial statements of the consolidatedcompanies are prepared as of the balancesheet date of the Group financial statements.In exceptional cases, interim financial state-ments or extrapolations are drawn up as of thebalance sheet date of the Group financialstatement.Assets and liabilities of consolidated compa-nies are included uniformly in the Group finan-cial statements in accordance with the ac-counting and valuation methods describedhere and in Note 3. Apart from consolidations,the financial statements of BASF Aktienge-sellschaft are not adjusted for inclusion in theGroup financial statements, except for pro-ceeds from stock warrants, which are includedin capital surplus including issues prior to 1985.

Where the accounting and valuation methodsapplied in the financial statements of the con-solidated companies deviate from these princi-ples, appropriate adjustments have beenmade to the relevant items. For companies ac-counted for under the equity method, signifi-cant deviations in valuation methods have alsobeen adjusted.Intercompany sales, income and expense, andloans, receivables, liabilities and provisions,are eliminated in full; for 50-percent-owned affiliates, on a pro rata basis.Intercompany profits resulting from deliveriesand services rendered between consolidatedcompanies are eliminated, unless they origi-nate from the construction of plants on cus-tomary market conditions and are of minor

Tangible assets are stated at acquisition orproduction cost less depreciation. Movablefixed assets subject to depreciation whosetechnical components of production are per-manently integrated through their function anduse are combined into a single asset item.The cost of self-constructed plants includesdirect costs and an appropriate proportion ofthe production overhead, but excludes financ-ing costs for the period of construction.Movable fixed assets are mostly depreciatedby the declining balance method over the ex-pected useful life, with a change to straight-line depreciation when this is higher. Long-dis-tance natural gas pipelines are the exception;they are depreciated using the straight-linemethod over their customary useful life. Theimmovable fixed assets are mainly depreciatedusing the straight-line method. The average weighted periods of depreciationare as follows:

Years

Buildings and structural installations 21Industrial plant and machinery 9Long-distance natural gas pipelines 25Working and office equipment and other facilities 8

Special write-downs are made in cases of ex-pected permanent impairment of value. Lowvalue assets are fully depreciated in the year ofacquisition and are shown as retirements.Oil and gas exploration and drilling costs arecapitalized as tangible assets. They are depre-ciated primarily by the declining balancemethod based on their estimated useful lives of8 (for drilling operations in old fields) or 15years. However, in certain regions, depreciationis calculated on the basis of production. Geo-physical expenditures, including exploratory anddryhole costs, are charged against income.


41

Tangible assets

Financial assets The acquisition cost of the companies ac-counted for by the equity method is increasedor decreased by the proportionate share of netincome. The same principles apply to the fullconsolidation as to the capital consolidationand allocation of the resulting differences tothe assets and liabilities. Residual balances aremainly amortized as goodwill within 5 years.The subsidiary companies included under theequity method are shown as “shares in affili-ated companies”.The other participating interests are accountedfor at cost or, in the case of expected perma-

nent impairment of value, at the appropriatelower values.Loans are stated at acquisition cost or, in thecase of non-interest bearing loans or loans atbelow market interest rates, at present value.Forseeable risks are covered by appropriatewrite-downs.Securities held as fixed assets are stated atcost or, in the case of expected permanentimpairment of value, at the appropriate lowervalues.

Goods on lease Goods on lease consist of EDP equipment(central processing units and peripheral equipment). They are shown at cost, reduced

by devaluations in order to take into consider-ation lower attributable values on the return ofthe equipment.

Intangible assets are valued at acquisition costless scheduled straight-line depreciation.Special write-downs are made in cases of expected permanent impairment of value.The average weighted depreciation period is 8 years, based on the following expected useful lives:

Years

Product rights 7 – 15Marketing rights and similar 5 – 20Know-how or patents 5 – 15Licenses and other rights of use 3 – 27Software 3 – 25Other rights and values 5 – 10

(3) Accounting and valuation methodsIntangible assets

importance. With respect to the companies in-cluded by the equity method, intercompanyprofits resulting from deliveries or services ren-dered on customary market conditions are noteliminated, because the amounts are insignifi-cant or determining them would involve a dis-proportionately high effort.The acquisition cost of participations is elimi-nated on consolidation against the proportion-

ate share in equity of such participations at thetime of the acquisition of the shares. The re-sulting differences are allocated to the assetsor liabilities of the acquired companies up totheir fair values. Any residual balances areadded to the assets as goodwill, and for themost part amortized within 5 years. Debit bal-ances are debited to income pro rata to com-pensate for expected special charges.

In the case of German companies, special re-serves with equity portion may be formed inaccordance with the tax regulations for certainsituations. The figure shown includes, in par-ticular, the apportionment of gains from sales

of assets according to § 6 b Income Tax Law(EStG) and reserves for capital investments indeveloping countries according to § 1 of theDeveloping Countries Tax Law. Appropriationsand write-backs are shown in Note 22.

Special reserves withequity portion


42

Inventories “Work in progress” and “Finished goods andmerchandise” are combined into one item forthe BASF Aktiengesellschaft inventories due tothe production conditions in the chemical in-dustry.Uncompleted contracts relate mainly to do-mestic and foreign plants under constructionfor third parties. Expected profits are notshown until final settlement of accounts for theprojects in question, while expected losses arerecognized by being written down to the lowerattributable value.Inventories are carried at acquisition or pro-duction cost or the lower quoted or marketvalue, or at such lower values as appropriate.Production costs include direct costs and anappropriate portion of the production overheadallocated using normal utilization rates of theproduction plants. Financing costs for the pro-duction period and costs for the companypension scheme and voluntary social benefitsare not included.

The acquisition or production cost of raw materials, work in progress, finished goodsand merchandise is mainly determined by theLIFO method (annual-period LIFO), factorysupplies generally by the average costmethod. The inventories of certain foreign com-panies for which a similar LIFO method is notallowed under local valuation rules are carriedat average cost in the Group financial state-ments. This relates particularly to the dollarvalue method applied in the case of BASF Cor-poration.In the case of raw materials and factory sup-plies, the lower market value represents the re-placement costs thereof, and, in the case ofwork in progress and finished products, thelower appropriate value represents associatedproduction costs or the expected sales reve-nues less costs to be incurred prior to sale andan average profit margin.

Receivables and other assets

Receivables are carried at their nominal value.Notes receivable and non-interest-bearing orlow-interest-bearing loans are carried at theirpresent value. Risks for collectibility and trans-

ferability, as well as general credit risks, arecovered by appropriate write-downs and flat-rate valuation adjustments.

Marketable securities These are carried individually at cost or at lower stock-market or market values as appro-priate. They consist mainly of fixed-interest-

bearing securities, some of them in closed in-vestment funds.

Provisions The principles for the determination of provi-sions for pensions and similar obligations andtheir composition are explained in Note 15.Provisions for taxes, uncertain liabilities, antici-pated losses from uncompleted transactionsand deferred maintenance expenses to be in-curred within the first 3 months of the followingbusiness year are recognized, in accordancewith reasonable commercial expectation, in thesum necessary to meet expected future pay-ment obligations, losses or expenses. Further-more, some Group companies collect provi-sions in installments for regular shutdowns ofcertain large-scale plants.Provisions for deferred taxes are recognizedfor valuation differences between the commer-cial and fiscal balance sheets of the consoli-dated companies and for differences resulting

from consolidation operations which are ex-pected to be offset in future years. Credit anddebit differences are accumulated in each indi-vidual case. In the event of residual credit bal-ances, no apportionments are recorded fordeferred taxes.Provisions for required recultivation associatedwith oil and gas exploration, especially the fill-ing of wells and clearance of oil fields, or theoperation of landfill sites are recorded over theexpected service life.Provisions for long-service and anniversary bonuses in the German Group companies areformed by the partial value method at a calcu-lated interest rate of 5.5 percent. ForeignGroup companies use comparable procedurespermissible under national law.


43

(4) Influence of specialtax valuation measures

The German companies in the Group also ap-ply certain balance-sheet and valuation princi-ples permitted on the basis of tax regulations.Special depreciation allowed under the Devel-opment Areas Law and measures based oncircumstances which must be eliminated, arenot included in the Group financial statements.

Other special depreciation, special reserveswith equity portion or omitted write-offs are re-tained in the Group financial statements.Mainly as a result of taking into account retro-spective scheduled depreciation for special taxwrite-downs undertaken in earlier years, theeffect on earnings is as follows:

(5) Continuity in accounting and valuation methods

There has been no change in the accountingand valuation methods. There was a change inthe way in which profits or losses from retire-ments of investments and securities shown ascurrent assets were presented in 1996. Theseare no longer listed as a component of other

operating income or expense but rather as acomponent of the financial result. The operat-ing result in 1995 would be reduced by DM 25.4 million in the BASF Group and by DM 36.1 million at BASF Aktiengesellschaft ona comparable basis.

(6) Currency conversionConversion of foreign currency items

The cost of assets acquired in foreign curren-cies, as well as revenues from sales in foreigncurrencies, are recorded at current rates ontransaction dates. Items covered by specifichedging measures are recorded at the hedgedrate.

Foreign currency receivables are recorded atthe rate prevailing on the acquisition date or atthe lower rate on the balance sheet date. For-eign currency liabilities are recorded at the rateprevailing on the acquisition date or at thehigher rate on the balance sheet date.

Million DM BASF Group BASF AG

Net income 2,790.2 1,700.7Tax influence –18.2 –16.7

Adjusted net income 2,772.0 1,684.0

The omitted write-offs were DM 2.9 million forthe BASF Group and DM 2.4 million for BASFAktiengesellschaft. The influences arising fromearlier special depreciation facilities, with theexception of profits of sale transferred to land

or buildings, will be subject to scheduled depreciation over the next few years. This is ofno substantial importance for the individualyears as regards the future tax payment.

Currency conversion is based on the interna-tionally recognized principle of the functionalcurrency. The local currency is the functional currency of our subsidiaries and affiliates in North America, Japan and Korea, because of the lowutilization of the German mark in the tradingoperations. The balance sheet items are con-verted to DM at year-end current rates, andthe expense and revenue at quarterly averagerates. The difference between the equity at therates on the date of payment or accumulationand at year-end current rates is classified sep-arately as “translation adjustment”. The adjust-ment of fixed assets to year-end current ratesis included in the “reclassifications” category inthe development of fixed assets.The financial statements of the other compa-nies are converted in accordance with themodified temporal method. The fixed assets,except loans, are converted at rates in effect

on the date of acquisition or production (his-torical rates), all other assets, liabilities andprovisions at year-end current rates. The paid-in equity is converted at rates on the date ofpayment or acquisition; earned equity is deter-mined as a remaining balance in the balancesheets converted in accordance with theseprinciples. Expenses and income are converted at quar-terly average rates, or monthly average ratesfor companies in high-inflation countries, ex-cept when they are shown in the balance-sheet items converted at historical rates. Thechanges to balance sheet items converted atyear-end exchange rates are reported underother operating expense or income.In the case of companies in high-inflationcountries, sales revenues, interest and foreignexchange results, inventories and trade ac-counts receivable and payable have been ad-justed for inflation.

Conversion of foreign currency financial statements


44

The development of gross book values andamortizations by individual categories of fixedassets and a summary of the major affiliates

are shown in a schedule following the balancesheet and profit and loss account.

Notes to the balancesheet

Million DM BASF Group BASF AG

Permanent impairment in value 118.9 12.4Depreciation permissible for tax purposes, mainly in accordance with § 6 b Income Tax Law (EStG) in excess of regular depreciation 27.9 15.3

For BASF Group inventories valued on theLIFO basis, LIFO reserves are approximatelyDM 251 million. For BASF Aktiengesellschaft,raw materials are valued at approximately

DM 26 million and work in progress, finishedgoods and merchandise at approximately DM 115 million.

(7) Intangible and tangible assets

The additions to intangible assets relate pri-marily to product rights and developments andgoodwill resulting from the acquisition ofZeneca’s textile dye business and Sandoz’scorn herbicide business.Unscheduled write-downs of tangible assets toa lower assigned value mainly relate to our

subsidiary BASF S.A., Brazil. As a result of theopening of the Brazilian market, various pro-duction units are not competitive. Accordingly,the book values had to be adjusted to thecash values of the expected future cash flows.Overall, the following special write-downs werecarried out:

Inventories are as follows:

BASF Group BASF AGMillion DM 1996 1995 1996 1995

Raw materials and supplies 387.6 425.4Work in progress, finishedgoods and merchandise 6,806.9 6,399.9 1,813.0 1,787.3Uncompleted contracts 182.7 126.5 212.1 146.1Payment on account 28.6 15.2 2.3 4.6

7,018.2 6,541.6 2,415.0 2,363.4

(9) Inventories

(8) Financial assets The additions to “Shares in affiliated compa-nies” result primarily from the acquisition of amajority holding in the Japanese pharmaceuti-cal company Hokuriku Seiyaku Co., Ltd.In the case of BASF Aktiengesellschaft, therewere further additions resulting from capital in-creases in consolidated companies, mainlyBASF Chemie-Beteiligungsgesellschaft mbH,in anticipation of a future commitment in China,as well as Knoll AG and BASF S.A., Brazil.The increases in “Loans to affiliated compa-nies” include the granting of a loan by our sub-sidiary Kali-Bank of DM 1 billion to our Russianjoint venture partner Gazprom to assist withthe construction of the Yamal natural gas tran-sit pipeline.

Depreciation for permanent impairment invalue and discounts on loans amounted toDM 150.9 million in the BASF Group, particu-larly for the reduction in value of our holding inIVAX Corporation because of the sharp fall inthe quoted price of these shares.In the case of BASF Aktiengesellschaft, thecarrying values of the participations in BASFS.A., Brazil, BASF Vitaminfabrik A/S, Denmark,in connection with the merger with BASFHealth & Nutrition A/S, Denmark, and BASF(Malaysia) Sdn. Bhd., Malaysia, were writtendown by DM 195.0 million as a result of the fallin the capitalized income value.


45

Residual terms of receivables

Receivables having a residual term in excess of one year are as follows:


Accounts receivable – trade 18.7 16.0 0.9 1.9Receivables from affiliated companies 26.6 21.8 4.8 0.8Receivables from companies in which participations are held 44.6 37.9 – –Other assets 189.0 157.2 19.7 8.8

Miscellaneous receivables and other assets 233.6 195.1 19.7 8.8

278.9 232.9 25.4 11.5

(10) Receivables andother assetsBreakdown of miscellaneous receivablesand other assets

The miscellaneous receivables and other assets consist of:


Receivables from companiesin which participations are held 442.7 408.0 115.3 38.2Other assets 1,165.0 1,230.7 236.1 265.4

1,607.7 1,638.7 351.4 303.6

(11) Prepaid expenses BASF Group BASF AGMillion DM 1996 1995 1996 1995

Deferred tax assets 135.0 118.6 – –Debit discount 65.4 106.0 – –Miscellaneous 219.9 241.3 9.9 10.4

420.3 465.9 9.9 10.4

Other assets include DM 77.7 million for theBASF Group and DM 54.0 million for BASF

Aktiengesellschaft of accrued items, mainly ofaccrued interest.

Deferred tax assets are formed for lower valuations in the commercial balance sheet ascompared with the fiscal balance sheet. Thesedifferences arise from consolidation opera-tions, especially the elimination of interim prof-its in inventories. Deferred tax liabilities of

DM 110.5 million were offset against the deferred tax assets.Debit discount, arising primarily from the issueof a low-interest bond, is capitalized and writ-ten down as interest expense over the term ofthe underlying obligations.


46

The Board of Executive Directors is authorized,with the approval of the Supervisory Board, toincrease the capital stock by the issue of newshares in the amount of up to DM 600 millionfor cash or contributions in kind through April 1, 2000. The legal subscription privilegecan be overruled to the extent necessary togrant subscription rights for new shares to thebearers of warrants from the bonds mentioned

in § 3 in the Articles of Incorporation to the ex-tent to which they would be entitled after exer-cising the subscription right. In the case ofcapital increases against cash contributions upto a maximum total sum of DM 300 million, thelegal subscription privilege can be overruled ifthe issue price of the new shares is not sub-stantially below the stock exchange price.

Authorized capital

Conditional capital The conditional capital of BASF Aktiengesell-schaft totals DM 299,585,000. Of this, DM 99,585,000 is reserved for settling sub-scription rights connected with Bond1986/2001 of BASF Finance Europe N.V. andfor settling compensation claims by formerWintershall shareholders.

As the Annual Meeting of May 9, 1996 author-ized the Board of Executive Directors to do so,bonds in the nominal sum of up to DM 600million may be issued by April 1, 2001, together with option rights to new shares in atotal nominal sum of up to DM 200 million.

Subscription rights The subscription rights from the 3 % U.S. Dol-lar Bond 1986/2001 of BASF Finance EuropeN.V. allow the purchase, by April 9, 2001, of

1,991,421 shares in BASF Aktiengesellschaftat a price of DM 308 per share with a nominalvalue of DM 50.

(12) Subscribed capital In accordance with a resolution of the AnnualMeeting of May 9, 1996, 2,000,000 shareswith a nominal value of DM 50 each were con-verted to 20,000,000 shares with a nominal

value of DM 5 each. The stock exchange listing was converted to the DM 5 share onJuly 1, 1996.

Capital surplus includes share premiums fromstock issues, compensation for stock warrantsand for the BASF Group credit balances fromthe capital consolidation, which resulted from

carrying participating interests acquired by issuing shares of BASF Aktiengesellschaft atthe par value of shares issued.

Number of shares Nominal value DMDM 5 DM 50

January 1, 1996 60,976,628 3,048,831,400Conversion to DM 5 share 20,000,000 – 2,000,000 –Additions from conditional capital by exercising subscription rights connected with the 3 % U.S. Dollar Bond 1986/2001 of BASF Finance Europe N.V. 828,579 41,428,950Additions from conditional capital through exchange of Wintershall shares 26 1,300

December 31, 1996 20,000,000 59,805,233 3,090,261,650

(13) Capital surplus Million DM BASF Group BASF AG

January 1, 1996 4,703.9 4,522.2Additions 213.7 213.8

December 31, 1996 4,917.6 4,736.0


47

(14) Revenue reserveand profit retainedBASF Group

Revenue reserve Million DM

January 1, 1996 295.8Transfers from other revenue reserves and profit retained, and changes in the scope of consolidation 10.2

December 31, 1996 306.0

Other revenue reserves and profit retained Million DM

January 1, 1996 10,021.2Dividend of BASF Aktiengesellschaft (previous year) – 853.7Transfers to legal reserves –10.6Net income after minority interests 2,790.2Changes in the scope of consolidation and other changes – 4.9

December 31, 1996 11,942.2

In the Group financial statements, “Other revenue reserves” and “Profit retained” are

combined into one item in order to take intoaccount the special features of consoliation.

Other revenue reserves Million DM

January 1, 1996 4,789.4Appropriations from net income 650.0

December 31, 1996 5,439.4

Profit retained Million DM

Net income (DM 1,700,669,820) 1,700.7Profit carried forward from preceding year (DM 117,323) 0.1Appropriations to other revenue reserves (DM 650,000,000) – 650.0

December 31, 1996 (DM 1,050,787,143) 1,050.8

BASF Aktiengesellschaft

(15) Provisions for pensions and similar obligations

Most employees of the consolidated compa-nies are entitled not only to future pensionsfrom statutory pension plans but also to pay-ments from contributory or performance-oriented pension plans. The benefits are gen-erally determined by the length of employment,remuneration or contributions of the entitledemployees, taking into account the provisionsof labor and social law in the various countries.For BASF Aktiengesellschaft and other Ger-man group companies, basic benefits are pro-vided by the legally independent BASF PensionBenefits System, which is financed by contri-butions from members and companies and issubject to the Law on the Supervision of Pri-vate Insurance Companies (VAG).

Additional company pension commitments arefinanced, in the case of German companies,by pension provisions. These are determinedby actuarial principles by the modified entryage normal method with a discount rate of 6 percent. Adjustments under § 16 EmployeeSocial Security Benefits Law (Betr AVG) arerecognized in the amount of advance commit-ments entered into or by installments in accor-dance with the expected need of adjustment.In the case of foreign Group companies, pen-sion entitlements are covered in some casesby pension provisions but mainly by externallyfinanced pension funds, which show the fol-lowing obligations and assets:

Commitments by our North American Groupcompanies to provide for the costs of medicaland life insurance benefits for employees anddependents after retirement are recorded asobligations similar to pensions. They are

calculated in accordance with actuarial rules,allowing for future cost trends, using a dis-count rate of 7.5 percent. The provisionsamount to DM 522.5 million (1995: DM 559.5million).

Million DM 1996 1995

Cash value of future benefits 2,404.9 1,787.8Fund assets at market values 2,694.5 2,187.4


8 % U.S. Dollar Bonds of BASF FinanceEurope N.V. of 1989, repaid 1996 – 429.5 – –3 % U.S. Dollar Bonds with warrants of BASF Finance Europe N.V. of 1986, due 2001 357.4 329.3 – –7% U.S. Dollar Bonds of BASF Finance Europe N.V. of 1992, due 1999 290.6 267.7 – –3.3 – 6.8 % Pollution Control and Industrial Development Bonds of BASF Corporation, due 1997 – 2031 171.2 134.8 – –Commercial Paper and other 221.0 226.6 – –

1,040.2 1,387.9 – –

(17) LiabilitiesBonds and other liabilitiesto the capital market


48

(16) Other provisions BASF Group BASF AGMillion DM 1996 1995 1996 1995

Oil and gas production, mining 743.0 750.7 – –Environmental protection measures 723.2 726.3 398.4 373.4Personnel obligations 1,698.9 1,627.2 1,046.1 1,096.3Sales and purchases risks 836.3 1,158.7 222.4 207.9Shutdown and restructuring operations 594.7 589.5 115.2 2.2Maintenance and repairs 257.0 267.6 67.6 71.5Others 1,617.5 1,365.9 783.7 875.2

6,470.6 6,485.9 2,633.4 2,626.5

Other liabilities BASF Group BASF AGMillion DM 1996 1995 1996 1995

Advances received on account of orders 131.4 103.5 58.9 24.5Liabilities on bills 19.1 28.6 – –Liabilities to companies in which participations are held 393.3 378.1 119.0 111.2Miscellaneous liabilities 2,331.2 2,934.0 407.3 583.5– thereof taxes (465.5) (847.2) (109.8) (399.1)– thereof relating to social security (287.3) (190.2) (115.6) (32.6)

2,875.0 3,444.2 585.2 719.2

Residual terms of liabilities BASF Group BASF AGMillion DM Up to More Up to More

one than one thanyear 5 years year 5 years

Bonds and other liabilities to the capital market 74.3 168.8 – –Liabilities to credit institutions 604.0 112.9 10.3 9.7Accounts payable – trade 3,155.5 – 832.9 –Liabilities to affiliated companies 385.7 – 4,703.9 1.0Advances received on account of orders 112.5 – 40.1 –Liabilities on bills 19.1 – – –Liabilities to companies in which participations are held 388.5 0.7 113.2 1.5Other liabilities 1,469.8 811.4 391.1 14.5

6.209.4 1,093.8 6,091.5 26.7


49


Bonds 0.3 1.1 – –Liabilities to credit institutions 88.3 209.9 1.7 2.8Miscellaneous liabilities 197.5 149.7 108.2 56.3

286.1 360.7 109.9 59.1

Secured liabilities

(18) Contingent liabilities


Contingent liabilities from the issuance and endorsement of bills of exchange 333.0 149.7 214.8 54.9– thereof to affiliated companies (29.1) (13.8) (28.5) (13.0)Contingent liabilities from guarantees 302.8 330.6 988.1 1,425.2Contingent liabilities from warranties 74.4 56.1 324.7 251.7Contingent liabilities from the granting of security for third party liabilities 5.7 2.0 1.0 3.0

715.9 538.4 1,528.6 1,734.8

(19) Other financialcommitments


Remaining cost of uncompleted investment projects 2,910.0 2,700.8 1,122.5 1,422.5– thereof purchase commitment (826.2) (733.7) (260.7) (276.0)Commitments from long-term rental and leasing contracts 1,055.4 1,013.9 373.7 370.5– thereof payable during the following year (233.7) (229.5) (49.1) (49.9)– thereof payable during second to fifth years (446.7) (442.8) (146.7) (147.5)Miscellaneous liabilities 94.9 60.6 2.3 3.3

4,060.3 3,775.3 1,498.5 1,796.3

Liabilities are collateralized primarily by mortgages or land charges. Covenants to

maintain certain financial ratios have been declared.

Uncompleted investment projects will be com-pleted and financed according to schedule.

Other commitments comprise DM 2.5 million ofBASF Aktiengesellschaft to affiliated companies.

(20) Derivative financialinstruments

To reduce the risks of foreign exchange andinterest rate changes, use is made of forwardexchange and option transactions as well asinterest or currency swaps or combined instru-ments. Their use is confined to hedging the

positions, cash investments or finance arisingfrom the operating business, and is subject tostrict internal controls in compliance with theprinciples of separation of functions.

BASF Group BASF AGMillion DM Nominal Market Nominal Market

value value value value

Foreign currency derivatives 5,224.1 –104.4 2,607.2 – 87.4Interest derivatives 777.0 3.8 700.0 4.6Other derivatives 7.8 0.1 – –

6,008.9 –100.5 3,307.2 – 82.8

The nominal values are the totals for the pur-chase and sale of the specific derivatives with-out netting. The market values correspond tothe difference between the cost and resalevalue, which is determined from market quota-tions or by the use of option price models or,

in the case of unlisted contracts, the yield inthe event of premature writing back. Contraryvalue developments resulting from the basictransactions are not taken into account. Tolimit the risk of nonpayment, transactions areconcluded only with leading banks.


50


Health & Nutrition 9,115.0 7,986.2 4,058.4 3,842.4Colorants & Finishing Products 11,284.6 10,766.0 4,670.8 4,466.0Chemicals 7,300.3 7,255.4 5,521.2 5,668.7Plastics & Fibers 12,079.8 12,456.0 5,679.0 6,230.4Oil & Gas 5,207.5 4,207.1 – –Other 3,788.8 3,558.4 677.8 853.3

Sales of operations 48,776.0 46,229.1 20,607.2 21,060.8Petroleum/natural gas taxes 3,425.9 3,173.5 – –

Sales incl. petroleum/natural gas taxes 52,201.9 49,402.6 20,607.2 21,060.8

Notes to the profit andloss account and otherdisclosures

(21) SalesBreakdown by operations

Breakdown by regions BASF Group BASF AGMillion DM 1996 1995 1996 1995

Europe 30,829.3 29,819.1 15,512.7 16,388.6– thereof Germany (12,971.0) (12,614.3) (6,303.6) (7,026.1)North America (including Mexico) 9,547.0 8,963.2 1,297.6 1,174.2South America 2,691.4 2,338.6 538.7 471.4Asia, Pacific Area, Africa 5,708.3 5,108.2 3,258.2 3,026.6

Sales 48,776.0 46,229.1 20,607.2 21,060.8Petroleum/natural gas taxes 3,425.9 3,173.5 – –

Sales incl. petroleum/natural gas taxes 52,201.9 49,402.6 20,607.2 21,060.8

BASF GroupMillion DM 1996 1995

Dissolution or adjustment of provisions 907.7 935.1Income from other nontypical transactions 218.1 155.7Profits from foreign currency and conversion transactions 413.7 378.5Dissolution of special reserves 27.9 30.5– thereof: BASF AG (15.4) (7.4)Other 358.1 514.0

1,925.5 2,013.8

The sales of “Information Systems”, shown asa separate operation last year, are includedunder “Other”; the previous year’s figures havebeen adjusted. A substantial proportion is ac-

counted for by Comparex InformationssystemeGmbH and the magnetic product businesssold at year-end.

(22) Other operating expenses or incomeOther operating income

Other operating expenses BASF GroupMillion DM 1996 1995

Costs of restructuring, shutdowns, severance packages and other personnel obligations 828.1 697.9Environmental protection and safety measures, costs of demolition, disposal and projects excluded from capitalization 330.6 431.8Losses from foreign exchange and conversion transactions 322.8 561.8Prime costs of the other nontypical transactions 216.7 153.8Transfers to special reserves 11.9 47.8– thereof: BASF AG (4.2) (35.5)Other 1,678.7 1,637.3

3,388.8 3,530.4


51

BASF Group: The profits of affiliated and asso-ciated companies shown by the equity methodinclude, in addition to the proportions of theprofits made, amortization of goodwill and ad-justments of negative differences. The profitsprimarily relate to income from Kali und SalzGmbH, Kassel, with DM 55.7 million, in partic-ular as a result of the adjustment of a negativedifference, Potash Company of Canada Group,Toronto, with DM 28.1 million, and Polioles,S.A. de C.V., Mexico City, with DM 7.1 million.Losses were incurred by Shanghai BASFColorants and Auxiliaries Co., Shanghai, withDM 40.7 million, Hokuriku Seiyaku Co., Ltd.,Katsuyama City, caused by scheduled depreci-ation of goodwill, with DM 16.6 million, andWintershall (UK) Ltd., London, with DM 14.3million.BASF Aktiengesellschaft: Income from partici-pating interests relates primarily to dividends

paid by Comparex InformationssystemeGmbH, Mannheim, with DM 132.7 million, in-cluding corporation tax credits, and BASF Coordination Center N.V., Antwerp, with DM 199.6 million, BASF Española S.A., Barce-lona, with DM 17.8 million, BASF MagneticsFrance S.A., Levallois, with DM 23.1 million,and BASF France S.A., Levallois, with DM 17.7million.Income from profit transfers were derived pri-marily from Rheinische Olefinwerke GmbH,Wesseling, and from BASF SchwarzheideGmbH, Schwarzheide. Expenses from losstransfers relate primarily to Knoll AG, Ludwigs-hafen, with which a profit-sharing agreementwas concluded in 1996, and BASF Waren- undAnlagenvertriebs- und -leasing GmbH, Lud-wigshafen.


Income from other investments and financial assets 62.6 27.4 50.8 55.8– thereof from affiliated companies (33.3) (6.5) (48.8) (53.9)Other interest, income from sale of current asset securities and similar income 604.7 449.7 360.4 299.5– thereof from affiliated companies (11.5) (8.0) (41.0) (45.2)Interest and similar expenses 484.8 455.8 149.9 129.2– thereof to affiliated companies (25.0) (45.5) (83.1) (99.0)

182.5 21.3 261.3 226.1

(23) Net income from financial assets


Income from participating interests and similar income 26.8 21.1 474.3 177.8– thereof from affiliated companies (16.4) (18.5) (464.4) (173.8)Income from profit transfers 122.4 128.0 67.4 182.8Expenses from loss transfers 118.6 73.0 153.1 351.9Results of affiliated and associated companies (equity method) 77.1 52.2 – –

107.7 128.3 388.6 8.7

(24) Interest result

The interest expenses also include chargesfrom invoicing after tax office investigations.

The expenses of restructuring and shutdownmeasures include charges resulting from thedivestiture of the magnetic product business,which we sold to KOHAP Inc., Korea. Plants and facilities in the United States and

Indonesia, which were not included in the sale,were shut down. Additional charges were incurred as a result of the restructuring ofCoatings and of Printing Systems.


52

On the basis of statutory regulations, GermanGroup companies incurred costs of DM 22.5million (1995: DM 21.0 million) for employees’

representatives. BASF Aktiengesellschaft ac-counted for DM 13.5 million (1995: DM 12.6million) of this sum.

Average number of employees

Fully consolidated Pro rata consolidatedcompanies companies

BASF Group 1996 1995 1996 1995

Europe 78,510 79,619 2,714 2,785– thereof Germany (61,480) (62,511) (2,448) (2,518)North America (including Mexico) 14,876 15,758 7 –South America 6,681 7,084 – –Asia, Pacific Area, Africa 4,140 3,096 1,012 740

104,207 105,557 3,733 3,525thereof with trainee contracts 2,785 2,901 133 138

Million DM 1996 1995

Cost of raw materials, consumables and supplies and for purchased merchandise 9,018.5 9,366.2Cost of purchased services 2,149.5 1,851.4

11,168.0 11,217.6


Wages and salaries 8,718.4 8,404.3 4,090.0 4,053.4Social security contributions and expenses for pensions and assistance 2,306.5 2,414.1 1,106.8 1,255.9– thereof for pensions (764.5) (961.3) (420.9) (579.3)

11,024.9 10,818.4 5,196.8 5,309.3

(25) Taxes BASF Group BASF AGMillion DM 1996 1995 1996 1995

Income taxes 1,575.0 1,704.9 514.2 947.6– thereof taxes for oil-producing operations (284.8) (173.4) (–) (–)Other taxes 259.8 308.1 61.9 111.5

1,834.8 2,013.0 576.1 1,059.1

Income taxes comprise corporation tax, tradeincome tax and similar income-related taxes aswell as deferred taxes. Tax expenses of BASFAktiengesellschaft also include income taxesto be paid for companies under tax assump-tion agreements; the corresponding income

from allocating these taxes is included in otheroperating income.Other taxes, particularly property tax, tradecapital tax and real estate tax, are allocated tooperational costs.

(27) EmployeesPersonnel cost

(26) Cost of materials ofBASF Aktiengesellschaft

Cost of employees’ representatives

The personnel figures for the companies whichare consolidated pro rata are given in full in theabove list; if they are taken into account at

50 percent, the average number of personnelfor the Group is 106,074 in 1996 and 107,320in 1995.

BASF AG 1996 1995

Hourly workers 19,113 19,350Salaried employees 22,791 23,002Trainees 2,084 2,195

43,988 44,547


53

(28) Minority interests BASF GroupMillion DM 1996 1995

Minority interests in profits 150.2 89.6Minority interests in losses 101.7 136.8

48.5 – 47.2

(29) Remuneration ofthe Board of ExecutiveDirectors and the Supervisory Board, advances and loansgranted

Total remuneration of the Supervisory Boardamounts to DM 2.4 million, of the Board of Ex-ecutive Directors to DM 19.2 million, includingthe remunerations granted by subsidiaries inthe amount of DM 2.4 million. These sums in-clude the deferred success-dependent pay-ments for 1996. Total remuneration of formermembers of the Board of Executive Directorsand their survivors amounts to DM 7.7 million.Pension provisions for former members of theBoard of Executive Directors amount to DM 61.9 million.

Loans granted to members of the Board of Ex-ecutive Directors amount to DM 0.1 million(1995: DM 0.3 million), the loans bearing aninterest rate of 5 percent. The terms are 10years. During 1996, loans of DM 0.2 millionwere repaid. New loans were not granted.There were no commitments assumed in favorof these persons. The members of the Boardof Executive Directors and of the SupervisoryBoard are listed on separate pages followingthese notes.

The minority interests in profits relate to inter-ests in the profits of Kali und Salz BeteiligungsAG and its affiliated companies, EBEWE Arz-neimittel Ges. mbH and Comparex Informa-tionssysteme GmbH. Interests held by the

Gazprom Group in the earnings of the compa-nies active in the natural gas business are in-cluded both in the profit interests and in theloss interests.

We propose to the Annual Meeting of Share-holders the distribution of a dividend of DM 1.70per share at a nominal value of DM 5 from theprofit retained of DM 1,050,787,143 of BASFAktiengesellschaft. Eligible domestic sharehold-ers also receive a tax credit of DM 0.73.If the proposal is accepted, the dividend pay-able for the 1996 financial year on capital

stock of DM 3,090,261,650 entitled to a divi-dend will be DM 1,050,688,961, leaving an un-distributed amount of DM 98,182.We propose this amount be carried forward.

Ludwigshafen, March 4, 1997

The Board of Executive Directors

Proposed distribution of profit retained

Accountants’ opinion The accounting records and the financialstatements of BASF Aktiengesellschaft, whichwe have audited in accordance with profes-sional standards, comply with the German le-gal provisions.The financial statements of BASF Aktienge-sellschaft, prepared in accordance with gener-ally accepted accounting principles, give a trueand fair view of the net worth, financial posi-tion and earnings of BASF Aktiengesellschaft.The BASF Aktiengesellschaft Management’sAnalysis, which is combined with the BASFGroup Management’s Analysis, is consistentwith the financial statements of BASF Aktien-gesellschaft.

Deloitte & Touche GmbHWirtschaftsprüfungsgesellschaft

Frankfurt, March 4, 1997

Prof. Dr. Emmerich KompenhansWirtschaftsprüfer Wirtschaftsprüfer

The financial statements of the BASF Group,which we have audited in accordance withprofessional standards, comply with the Ger-man legal provisions.The financial statements of the BASF Group,prepared in accordance with generally ac-cepted accounting principles, give a true andfair view of the net worth, financial positionand earnings of the BASF Group.The BASF Group Management’s Analysis,which is combined with the Management’sAnalysis of BASF Aktiengesellschaft, is consis-tent with the financial statements of the BASFGroup.

Deloitte & Touche GmbHWirtschaftsprüfungsgesellschaft

Frankfurt, March 4, 1997

Prof. Dr. Emmerich Dr. KünnemannWirtschaftsprüfer Wirtschaftsprüfer

54

Dr. rer. nat. Hans AlbersBad DürkheimChairman

Professor Dr. rer. nat.Matthias SeefelderHeidelbergHonorary Chairman

Volker ObenauerLudwigshafenDeputy ChairmanChairman of the Works Councilof the Ludwigshafen Worksof BASF Aktiengesellschaft

Dr. phil. Marcus BierichStuttgartChairman of the SupervisoryBoard of Robert Bosch GmbH

Wolfgang DanielLimburgerhofDeputy Chairman of the Works Council of the Ludwigshafen Worksof BASF AktiengesellschaftFrom September 9, 1996

Etienne Graf DavignonBrusselsPresident of Société Générale de Belgique

Professor Dr. rer. nat.Manfred EigenGöttingenDirector, Max Planck Institutefor Biophysical Chemistryin Göttingen

Lothar HickLimburgerhofMember of the Works Councilof the Ludwigshafen Worksof BASF Aktiengesellschaft

Dr. rer. nat. Wolfgang JentzschMannheim

Ulrich KüppersLudwigshafenGeneral Manager of the Ludwigshafen branch of IndustriegewerkschaftChemie -Papier -Keramik(Chemical, Paper and CeramicsIndustries Union)

Professor Dr. rer. nat.Hans Joachim LangmannJugenheim/BergstrasseChairman of the Board of Executive Directors of Merck KGaA

Dr. rer. nat.Karlheinz MessmerWeisenheim am BergPlant Manager at the Ludwigshafen Works of BASF Aktiengesellschaft

Ulrich NickelFrankenthalDeputy Chairman of theWorks Council of the Ludwigshafen Worksof BASF AktiengesellschaftDeceased September 9, 1996

Ellen SchneiderWallenhorstChairwoman of the Joint WorksCouncil of Elastogran GmbH

Dr. jur.Henning Schulte-NoelleMunichChairman of the Boardof Executive Directorsof Allianz Aktiengesellschaft

Gerhard SebastianLudwigshafenMember of the Works Councilof the Ludwigshafen Worksof BASF Aktiengesellschaft

Gerhard Söllner PhilippsthalChairman of the Joint Works Councilof Kali und Salz GmbH

Robert StuderZurichPresident of the Administrative Council ofSchweizerische Bankgesellschaft(Union Bank of Switzerland)

Klaus Südhofer RecklinghausenDeputy Chairman of Industrie-gewerkschaft Bergbau und Ener-gie (Mining and Energy IndustriesUnion)

Jürgen WalterNeustadt am RübenbergeMember of the Central Boardof Executive Directorsof Industriegewerkschaft Chemie -Papier -Keramik(Chemical, Paper and CeramicsIndustries Union)

Dr. rer. pol. Ulrich WeissBad SodenMember of the Board of Executive Directorsof Deutsche Bank AG

Helmut WernerStuttgart

Report of the Supervisory Board

Supervisory Board

We carefully supervised the management of the company’s affairs during the period under review. We kept ourselves fullyand continuously informed about important issues of manage-ment in 6 meetings with the Board of Executive Directors andby reviewing its written and verbal reports. Reporting includedthe major companies in the BASF Group. At two of the meetings, division presidents of BASF reported on theiroperations. We dealt thoroughly with the strategic orientationof the BASF Group. In accordance with the statutes, we discussed major acquisitions and divestitures made in thisconnection.In March 1996, we appointed Messrs. Helmut Becks and Eggert Voscherau to the Board of Executive Directors of thecompany, with effect from November 1, 1996. Dr. JürgenHambrecht and Dr. Stefan Marcinowski were appointed to theBoard in December 1996. They will take up office at the endof the Annual Meeting of the company on May 15, 1997.We have examined the Financial Statements and Manage-ment’s Analysis of BASF Aktiengesellschaft and the proposalfor the appropriation of net income. The Financial Statements,including the books and Management’s Analysis of BASF

Aktiengesellschaft, have been examined by Deloitte & ToucheGmbH, the auditors elected by the Annual Meeting, and havebeen given an unqualified opinion. The auditors gave detailedexplanations of their report at a meeting specifically called forthis purpose before the accounts meeting. Having concludedour examination we concur with the auditors and see nogrounds for objections.The Financial Statements and Management’s Analysis of theBASF Group as well as the report of the auditors Deloitte &Touche GmbH elected by the Annual Meeting, who have expressed an unqualified opinion, have been brought to ourattention. At today’s meeting, we approved the Financial State-ments of the company drawn up by the Board of Executive Directors, which are thus final, and concur with the proposalof the Board of Executive Directors regarding the retainedprofit.Mr. Wolfgang Daniel succeeded Mr. Ulrich Nickel as memberof the Supervisory Board on September 9, 1996.

Ludwigshafen, March 18, 1997

The Supervisory Board

We mourn Mr. Ulrich Nickel,who died on September 9,1996 at the age of 60. AsDeputy Chairman of theWorks Council of the Lud-wigshafen Works of BASF Aktiengesellschaft, he hadbeen a member of our Supervisory Board since1991.

55

Dr. Jürgen StrubeChairman

Dr. Hanns-Helge StechlDeputy Chairman

Dr. Albrecht Eckell

Max Dietrich Kley

Professor Dr. Hans-JürgenQuadbeck-Seeger

Dr. J. Dieter Stein

Dr. Volker Trautz

Professor Dr. Dietmar WernerUp to December 31, 1996

Gerhard R. Wolf

From November 1, 1996:

Helmut BecksEggert Voscherau

José-Maria BachSouthern Europe

Dr. Ralf BethkePotash & Salt

Erich BinckliCentral Europe

Dr. Egon BuhrBASF AktiengesellschaftWorks Engineering

Dr. Manfred BullerNorth AmericaCoatings

Dr. Werner BurgertFiber Products

Dr. Dieter DegnerAmmonia Laboratory

Dr. Hans-Hermann DehmelBASF AktiengesellschaftHuman Resources

Herbert DethardingOil & Gas

Jean-Pierre DhanisPolyurethanes

Dr. Antoon DieusaertAntwerp Works

Dr. Christian DudeckIntermediates

Dr. John FeldmannSoutheast Asia/Australia

Professor Dr. Walter FreyEngineering Research & Development

Dr. Elmar FrommerPlanning & Controlling

Dr. R. Wayne GodwinNorth America Polymers

Dr. Walter GramlichIndustrial Chemicals

Harald GrunertFinance

Dr. Jürgen HambrechtEast Asia

Dr. Hans Jörg HenneEnvironment, Safety & Energy

Herbert O. HetzCorporate Information Services

Dr. Carl A. JenningsNorth America Chemicals

Wilfried KahlmannSouth America

Dr. Hans KastJapan

Helmut KlammLogistics

Dr. Harald KöhlSpecialty Chemicals

Dr. Josef F. KohnleDispersions

Professor Dr. Werner KüstersMain Laboratory

Dr. Jürgen LenzCorporate Engineering

Klaus Peter LöbbeCoatings

Dr. Stefan MarcinowskiFoam Plastics & Reactive Resins

Klaus MessingerNorth America Finance

Wolfgang MörikeRaw Materials Purchasing

Dr. Albrecht MüllerTextile & Leather Dyes & Chemicals

Dr. Rolf NiessBasic Chemicals

Dr. Dietmar NissenPolymers Laboratory

Peter OakleyCrop Protection

Dr. Gerhard PaulColorants Laboratory

Dr. Werner PrätoriusEngineering Plastics

Dr. Siegfried RiedmüllerColorants & Process Chemicals

Professor Dr. Hans-Uwe SchenckBASF Group Human Resources

Professor Dr. Burghard SchmittPolyolefins & PVC

Dr. Thorlef SpickschenPharmaceuticals

Barry John StickingsNorthern Europe

Dr. Eckart SünnerLegal, Taxes & Insurance

Dr. Dieter SuterFine Chemicals

Dieter ThomaschewskiFertilizers

Eggert VoscherauNorth America Consumer Products & LifeScience

Winfried WerwieEastern Europe, Africa, West Asia

As of December 31, 1996

Division headsBoard of Executive Directors

Million DM 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

Balance sheet

Intangible assets 816 993 818 734 650 683 638 512 1,730 2,536Tangible assets 9,807 10,716 11,865 13,252 14,629 15,214 17,722 15,993 15,399 16,071Financial assets 1,392 1,238 1,534 1,693 1,692 2,955 1,929 2,068 2,616 4,094

Fixed assets 12,015 12,947 14,217 15,679 16,971 18,852 20,289 18,573 19,745 �22,701

Inventories and goodson lease 5,671 6,067 6,533 6,407 6,456 6,748 6,317 6,262 6,725 7,169Accounts receivable – trade 4,861 5,920 5,805 5,793 5,655 5,446 5,748 6,483 6,564 7,263Miscellaneous receivables 2,299 2,239 2,422 2,913 3,233 3,370 2,765 2,592 2,808 2,758Receivables 7,160 8,159 8,227 8,706 8,888 8,816 8,513 9,075 9,372 10,021

Cash and cash items 4,945 5,557 6,150 5,963 5,157 4,557 5,239 5,949 6,193 3,827

Current assets * 17,776 19,783 20,910 21,076 20,501 20,121 20,069 21,286 22,290 21,017

Assets 29,791 32,730 35,127 36,755 37,472 38,973 40,358 39,859 42,035 43,718

Paid-in capital 6,974 7,174 7,176 7,176 7,177 7,182 7,387 7,753 7,753 8,008Revenue reserves andprofit retained 4,873 5,330 6,661 7,054 7,372 7,315 7,629 8,441 10,317 12,248Translation adjustment –232 –453 –496 –253Minority interests 119 129 120 118 86 86 160 179 353 486

Equity 11,966 12,633 13,957 14,348 14,635 14,583 14,944 15,920 17,927 20,489

Pension and otherlong-term provisions * 8,314 8,918 9,228 9,696 9,353 9,980 10,185 9,857 9,776 9,881Tax and othershort-term provisions 2,947 3,390 3,631 3,820 4,167 3,795 3,821 4,147 4,680 4,677Provisions * 11,261 12,308 12,859 13,516 13,520 13,775 14,006 14,004 14,456 14,558

Financial indebtedness 2,367 2,475 3,185 3,370 3,926 4,962 5,364 3,632 2,833 2,038Accounts payable – trade 2,505 2,905 3,096 3,385 3,224 2,892 2,802 2,995 2,771 3,184Other liabilities 1,692 2,409 2,030 2,136 2,167 2,761 3,242 3,308 4,048 3,449Liabilities 6,564 7,789 8,311 8,891 9,317 10,615 11,408 9,935 9,652 8,671

Liabilities * 17,825 20,097 21,170 22,407 22,837 24,390 25,414 23,939 24,108 23,229

Equity liabilities 29,791 32,730 35,127 36,755 37,472 38,973 40,358 39,859 42,035 43,718

* Including prepaid expenses, deferred income and special reserves

Ten-year summary BASF Group

56

Ten-year summary BASF Group

Million DM 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

Sales and earningsSales 38,805 42,323 46,163 45,043 44,556 41,933 40,568 43,674 46,229 48,776Income from operations 2,586 3,710 4,329 2,755 2,180 1,311 1,032 2,149 4,023 4,293Profit before taxes 2,587 3,726 4,384 2,747 2,110 1,239 1,058 2,111 4,128 4,414Net income 1,055 1,432 2,030 1,111 1,056 613 761 1,170 2,423 2,839Net income after taxes and minority interests 1,051 1,410 2,015 1,107 1,039 615 858 1,284 2,471 2,790

Capital expenditures and depreciationAdditions to fixed assets 3,180 4,247 4,379 5,098 5,381 5,730 4,423 3,274 5,363 6,864– thereof in tangible assets 2,758 3,495 3,956 4,458 4,800 4,151 4,139 2,707 3,024 3,639Depreciation offixed assets 2,835 3,133 3,043 3,293 3,463 3,541 3,342 4,380 3,687 3,666– thereof on tangible assets 2,663 2,798 2,767 3,025 3,176 3,338 3,174 4,027 3,339 3,141

Number of employees– at year-end 133,759 134,834 136,990 134,647 129,434 123,254 112,020 106,266 106,565 103,406– year’s average 132,920 134,517 136,579 136,295 130,328 126,028 117,368 107,716 107,320 106,074

Personnel costs 9,604 10,120 11,049 11,262 11,260 11,171 10,770 10,391 10,818 11,025

Key data*Net income per share (DM) 18.9 24.7 35.4 19.4 18.2 10.8 14.7 21.1 40.5 4.51Cash flow 4,380 5,504 5,520 5,024 4,765 4,451 4,635 5,565 6,368 6,798Cash flow per share (DM) 79 97 97 88 84 78 79 91 104 11.00Return on salesbefore income taxes and interest expenses (%) 7.8 9.7 10.6 7.3 5.9 4.3 3.8 6.0 9.9 10.0Return on assets before income taxes and interest expenses (%) 10.3 13.1 14.4 9.2 7.1 4.7 3.9 6.5 11.2 11.4Return on equity after taxes (%) 8.9 11.6 15.3 7.8 7.3 4.2 5.2 7.6 14.3 14.8

Appropriation of net income*Net income ofBASF Aktiengesellschaft 820 1,184 1,398 1,041 884 770 668 910 1,354 1,701Transferred to revenue reserve 265 500 600 300 200 200 200 300 500 650Dividend 555 684 798 741 684 570 468 610 854 1,051Dividend per share (DM) 10 12 14** 13 12 10 8 10 14 1.70

Number of shares* (1000) 55,484 56,985 56,995 56,997 57,003 57,039 58,450 60,977 60,977 618,052

* from 1996, based on shares with a nominal value of DM 5** including DM 1.00 anniversary bonus

Further reporting

First quarter 1997 May 15,1997First half 1997 August 14, 1997Third quarter 1997 November 13, 1997Year 1997 March 26,19981998 Annual Meeting May 19,1998

Please contact

Investor Relations:Klaus D. JessenTel. +49-621-60-43263Fax +49-621-60-2 2500

Press Department, Business and Financial Press:Bernd GerlingFax +49-621-60-2 0129 Internet:Tel. +49-621-60-99938 http://www.basf.de/annual-report

This report was printed withK+E printing inks on paperproduced using BASF finishesand colorants.

BASF Aktiengesellschaft67056 LudwigshafenGermany

Documents

Annual Report 1996 - basf.com · Asia, Pacific Area, Africa 5,708 5,108 +11.7 48,776 46,229 +5.5 * Sales from other activities, income from other activities, and expense and income