Annual Report 1996 BASF Group 1996 1995 Change Figures in Millions of DM %

The photo theme: Our market is the world

Annual Report 1996 BASF Group 1996 1995 Change Figures in millions of DM %

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

Cash flow 6,798 6,368 +6,8 Capital expenditures 3,639 3,024 +20.3 Research and development expense 2,286 2,088 +9.5 Dividend paid by BASF Aktiengesellschaft 1,051 854 +23.1 Dividend 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 Change Sales in millions of DM %

At a glance Health & Nutrition 9,115 7,986 +14.1 Colorants & Finishing Products 11,285 10,766 +4.8 We are a multinational chemical Chemicals 7,300 7,255 +0.6 company. Our operations extend Plastics & Fibers 12,080 12,456 –3.0 from oil and gas to high-tech Oil & Gas 5,208 4,207 +23.8 chemical products. Other* 3,788 3,559 +6.4 The BASF Group comprises BASF Aktiengesellschaft and all 48,776 46,229 +5.5 companies which are directly or indirectly at least 50-percent Income from operations in millions of DM 1996 1995 Change owned by BASF Aktiengesell- schaft or come under Group million DM management. The Financial statements of the Group include Health & Nutrition 781 194 +587 majority holdings in full, and 50- Colorants & Finishing Products 565 291 +274 percent participations on a pro Chemicals 1,733 2,054 –321 rata basis. Group companies of Plastics & Fibers 974 1,499 –525 minor significance are not consol- Oil & Gas 744 201 +543 idated. Kali und Salz GmbH is not Other* –504 –216 –288 consolidated either, because of considerable restrictions on the 4,293 4,023 +270 rights of Kali und Salz Beteili- gungs AG, which has a majority holding. Regions (location of customers) 1996 1995 Change Sales in millions of DM %

Europe 30,830 29,819 +3.4 thereof Germany 12,971 12,614 +2.8 North America (including Mexico) 9,547 8,963 +6.5 South America 2,691 2,339 +15.0 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 not allocatable to operations The photo theme: Our market is the world

Singapore’s young In addition to our Man- 2 The BASF share skyline is a symbol of galore site in India, the rapid growth in the which we are extend- 3 Preface Asian states. By 2010, ing, large facilities are the Asian markets will planned in China and 4 Management’s analysis be as important for Malaysia. The integra- chemical and pharma- tion of the production ceutical products plants at these sites 16 Health & Nutrition as the European and will play a special role. 18 Colorants & North American Europe is our home Finishing Products markets. market. We are a sup- 20 Chemicals BASF is committing plier held in high 22 Plastics & Fibers itself in Asia in order esteem by our custom- to develop the new ers and we want to 24 Oil & Gas growth markets. In shape our growth May 1997, a new worldwide from our 26 From the regions Board ressort respon- strong position in sible for the Asian Europe. 30 Research and development region will be estab- Altogether, BASF has lished and headquar- production facilities in 32 Annual financial statements tered in Hong Kong. 39 countries and sells The Textile & Leather its products in 170 36 Development of Dyes & Chemicals Divi- countries. fixed assets sion has been taking As the world market is care of its customers so important, BASF’s 38 Major affiliates from Singapore since international opera- 1996. This is also the tions are the theme of 40 Notes BASF Group and headquarters of the this year’s photos. BASF Aktiengesellschaft South-East Asia, Aus- tralia Division. The origins of BASF’s 54 Report of the Asian business go Supervisory Board back more than 100 54 Supervisory Board years. To begin with, 55 Board of Executive Directors we exported only dyes. After the Second World 55 Division heads War, Asia became attractive for coopera- 56 Ten-year summary tions and capital expenditures, which Presented to the resulted in agencies 45th Annual Meeting on and, later, production Thursday, May 15, 1997, sites being established. Plants were 10.00 a.m., at erected in Japan, Aus- BASF Feierabendhaus, tralia, Pakistan and Leuschnerstrasse 47, Indonesia. Ludwigshafen am Rhein, Germany The BASF share

Key BASF share data 1996 1995* Change in value of an investment in BASF shares in 1996 Number of shares outstanding (without tax credit) as of Dec. 31: Millions of shares 618** 610

Per share in DM 200

Dividend 1.70 1.40 BASF shares Dividend including 180 tax credit 2.43 2.00 Net income 4.51 4.05 Net income (DVFA/SG result) 4.40 3.77 160 Cash flow 11.00 10.44 Equity 33.15 29.40 140 Year-end price 59.00 32.30 DAX Year’s high 61.95 33.68 portfolio Year’s low 32.56 27.72 120 ** 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 100 (see page 46) DJFMAMJJASOND

The BASF share As of July 1, 1996, the quota- above the comparable DAX their own shares in the capital tion of our share was reduced figure of 7.3 percent. market. We believe that it to a nominal value of DM 5 must be possible to set off Our success in per share. Vigorous dividend rise such shares against the The dividend of DM 1.70 per equity as shown in the bal- restructuring the Strong price gains share proposed by the Board ance sheet. company and in The BASF share price made of Executive Directors and the placing strategic strong gains over the year. Supervisory Board exceeds Investor-relations activities On the Frankfurt Stock the previous year’s payment We maintain an intensive dia- emphasis on Exchange, the maximum was by 21.4 percent and is a new logue with investors and core operations, reached on December 10, record. For the first time, financial analysts, in which 1996, at a spot price of BASF is paying total divi- our international contacts are greater interna- DM 61.95 and a closing price dends to its shareholders in becoming increasingly impor- tionalization and of DM 62.18. On a spot price excess of DM 1 billion, a tant. In discussions and at better profit- basis, the year-end price of reassertion of our principle of investor-relations meetings, DM 59.00 was 82.7 percent giving our shareholders an we shall continue to give a ability are espe- up on that of the previous appropriate share of the clear picture of BASF’s strat- cially taken into year. Investors who rein- company’s earnings. egy and the prospects in our vested the 1995 dividend various operations. In con- account by the (excluding the tax credit) Abolition of the maximum junction with our other chan- financial markets. earned an 89.2 percent return voting right nels of communication, we The result is on their investment in 1996. The Board of Executive Direc- want to satisfy the increased tors and the Supervisory demand for information, make greater interest in Long-term yield also better Board are proposing to the BASF more open and bolster our share. BASF’s than the market Annual Meeting that the our shareholders’ confidence A 10-year comparison of restriction on the maximum in their company. stock exchange yields also shows an invest- voting right, introduced on value grew con- ment in BASF shares to be June 12, 1975, should be BASF on the Internet siderably. ahead of the market. An abolished. The main reasons BASF now has its own home investor who acquired BASF for its existence no longer pages on the Internet. Infor- shares for a single payment of apply due to the introduction mation on BASF shares can DM 10,000 on January 1, of the obligation to notify be found under: 1987 and reinvested each large-lot purchases and of the http://www.basf.de/share year’s dividend (excluding the takeover code. tax credit) in more BASF shares would have increased Share buy-back the value of the holding to We welcome the planned DM 32,100 by the end of amendment to the Stock Cor- 1996. This represents an poration Law, under which average annual yield of 12.4 German companies, like oth- percent, which is significantly ers, will be able to buy back

2 Preface

Dear We are pleased to be able to propose a higher dividend to you. In 1996, we achieved new shareholders peaks in sales and earnings. The return on assets before income taxes and interest expenses rose by 11.4 percent. Although capital outlay was significantly higher, we were not able to achieve the top values of 1988 and 1989. Our operations that are less sensitive to cyclical trends made an increasing contribution to the good 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 United States. Our position in textile dyes improved following the acquisition of Zeneca’s business. The magnetic 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 ventures 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 production. For us, this means more than just integrating individual production plants at one site into a tight network of internal supplier-customer relationships. We also set up integrated energy supply systems and exploit synergistic effects in the areas of infrastructure, logistics and distribution, which extend up to the supply of raw materials and the disposal of residues. We estimate 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 fuels due 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 the United States. In Asia, we have plans to create high-efficiency sites in China, Malaysia and India. I am convinced that our policy will be just as successful there as it has been at the other integrated 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 confidence you place in the future of our company.

Yours sincerely

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

3 Management’s analysis

Management’s We enjoyed Prices in some BASF’s Board of analysis another success- operations were Executive Directors ful year in 1996, unsatisfactory. Front row, from left: Helmut Becks, BASF Group and taking advantage They declined Dr. J. Dieter Stein, BASF Aktiengesellschaft Prof. Dr. of brisk demand perceptibly. More Dietmar Werner, on world markets favorable ex- Eggert Voscherau to increase our change rates, ex- Back row, from left: Dr. Volker Trautz, sales. Our pro- panding opera- Prof. Dr. Hans-Jürgen Quadbeck-Seeger, duction plants tions that are less Max Dietrich Kley, operated at close dependent on Dr. Jürgen Strube, Dr. Hanns-Helge Stechl, to full capacity. cyclical factors Gerhard R. Wolf, and focusing on Dr. Albrecht Eckell In Germany, how- increased profit- ever, demand ability enabled us was sluggish in to improve on the most industrial previous year’s sectors. We good results. increased natural gas sales significantly.

4 Management’s analysis

Sales and earnings Million DM

BASF Group 1996 1995 BASF Aktiengesellschaft 1996 1995

Sales 48,776 46,229 Sales 20,607 21,061 – Germany 6,304 7,026 Income from operations 4,293 4,023 – Exports 14,303 14,035 Financial results 121 105 Profit before taxes 4,414 4,128 Profit before taxes 2,215 2,301 Income taxes 1,575 1,705 Income taxes 514 947 Minority interests 49 –48 Net income 1,701 1,354 Net income 2,790 2,471 Appropriation of net income – Dividend 1,051 854 – Transferred to revenue reserve 650 500

Sales Earnings Further expenditure of Proposed distribution of In the BASF Group, we BASF Group profit before DM 302 million was incurred retained profit achieved sales of DM 48,776 taxes rose by DM 286 million as one-off charges asso- BASF Aktiengesellschaft’s million in 1996, an improve- to DM 4,414 million. Special ciated with changes to the retained profit totals ment of DM 2,547 million over charges – reduced by special pensions fund and as addi- DM 1,051 million. We pro- the previous year’s figure. income – are included in tional provisions for environ- pose to the Annual Meeting The 5.5-percent increase this figure in an amount of mental protection and site the distribution of a dividend consisted of the following DM 517 million. clean-ups. of DM 1.70 per share. changes: Special charges amounting to Special income totaling DM 435 million were required DM 486 million arose from the Million DM % for restructuring and divesti- payment of insurance claims tures. The magnetic product for environmental and other Volume business was sold to KOHAP damage, and adjustments to growth +2,658 +5.7 Inc., Korea. Plants and facil- various provisions and value Price ities in the United States and corrections. changes –1,172 –2.5 Indonesia that were not Net income after taxes was Exchange included in the sale were shut DM 2,790 million, which is rate changes +921 +2.0 down. A comprehensive pro- DM 319 million or 12.9 per- Scope of gram of restructuring is being cent more than in the previ- consolidation +140 +0.3 implemented in coatings and ous year. The fact that net paints, as well as in printing income increased more than +2,547 +5.5 systems. Other expenses earnings before taxes is sub- related to the integration of stantially due to the carrying Zeneca’s textile dye business. forward of the loss made by Unscheduled write-downs BASF Magnetics Holding reduced earnings by DM 266 GmbH. million. Because of the changes in circumstances resulting from the opening of the market in Brazil, we adjusted the book values of various plants there to the cash values of the expected future cash flow. Our holding in IVAX Corporation was also subject to value reductions because of the sharp fall in the company’s share price.

5 Management’s analysis

Operations Sales Sales incl. intersegment Income from tranfers* operations

Change Change Change Million 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 +587 Colorants & Finishing Products 11,285 10,766 +4.8 12,071 11,565 +4.4 565 291 +274 Chemicals 7,300 7,255 +0.6 10,888 10,982 –0.9 1,733 2,054 –321 Plastics & Fibers 12,080 12,456 –3.0 12,804 13,183 –2.9 974 1,499 –525 Oil & Gas 5,208 4,207 +23.8 5,567 4,581 +21.5 744 201 +543 Other** 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

Operations Sales and earnings in Health as a result of acquiring the In Colorants & Finishing & Nutrition increased sub- Sandoz corn herbicide busi- Products, we improved sales We have expanded reporting stantially. An important contri- ness. Fertilizer sales and and earnings. Textile and on the operations. In addition bution was made by the suc- earnings also made gratifying leather dyes and chemicals to sales and income from cessful pharmaceutical busi- progress, with a slight rise in are still exposed to tough operations, we list: ness in the United States and west European consumption competition, especially in Assets belonging to the Europe, boosted by the inte- and the capacity shutdowns Asia, and this greatly reduced operations. Under “Other” we gration of Boots plc’s phar- of recent years leading to a earnings. From August, the present the operational maceutical operations. Our balance between supply and operations acquired from assets of Comparex Informa- fine chemicals made a solid demand. Higher raw material Zeneca played a major part in tionssysteme and other busi- contribution to sales and costs meant that earnings did increasing sales of our textile ness. We also list here finan- earnings. Vitamin C was an not fully reflect price dyes. Earnings from colorants cial assets, other receivables exception. The high-earning increases. and process chemicals and liquidity to assist in the crop protection business improved overall despite fall- transition to the assets of the improved significantly, thanks ing prices for printing ink pig- BASF Group. especially to the fungicides ments. Dispersion sales rose The Return on operational Opus® and Brio®. We expect slightly, and these products assets is the ratio of income another jump in sales in 1997 once again proved strong from operations to average earners, thanks in particular operational assets. to new production plants for In Research and develop- acrylic acid and acrylates. We ment expense, the item slightly increased earnings in “Other” relates mainly to coatings and paints. Changes expenditures on exploratory in the product mix, more research, which cannot be advantageous exchange rates allocated. and lower costs of coatings Capital expenditures and raw materials improved earn- Depreciation include intan- ings despite the restructuring gible assets. expense.

6 Management’s analysis

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 1,877 666 580 6,823 6,540 8.5 4.5 385 376 785 657 749 856 4,556 4,646 37.7 42.6 245 229 511 442 756 895 6,185 5,986 16.0 24.5 350 325 916 437 742 778 4,215 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

Sales in Chemicals remained Sales in Plastics & Fibers Sales and earnings in Oil & at a high level although price declined and earnings Gas improved considerably. competition was fierce. Our dropped significantly. Markets Rising oil prices, increased capacities for important basic were weak and prices initially crude oil production, the and industrial chemicals, declined sharply, especially increase in the value of the which we produce at efficient, for polyolefins, PVC and engi- U.S. dollar and, especially, integrated sites, were well uti- neering plastics. However, the expansion of our natural lized. Cracker product prices demand picked up in the gas merchant business were began to recover in the sec- course of the year and we contributory factors here. ond quarter. Higher raw achieved higher prices. The Capital expenditures on the material costs meant, how- engineering plastic business natural gas pipeline network ever, that earnings only par- in Asia and South and North and the expansion of mer- tially reflected improvements America did well. We are chant sales proceeded on in revenues. Prices and mar- improving structures in schedule in cooperation with gins of industrial chemicals Europe and are aiming at cost our partner Gazprom. Con- declined as a whole. Earnings leadership with new world- struction started on the stabilized on a high level. scale plants that we are con- WEDAL pipeline through the Business in intermediates structing in the NAFTA Region Ruhr area, where the first proved gratifyingly robust. and the growth markets of section has been completed. The increase in earnings here Asia. Business in foams was helped to limit the overall depressed by softness in the decline in this operation. European construction indus- Sales of specialty chemicals try. Revenues were under remained steady; earnings heavy pressure worldwide, again matched the previous and earnings were unsatisfac- year’s level. tory as a result. Polyure- thanes, however, saw a gratifying improvement in sales and, especially, earnings. Sales of fiber products improved slightly and earnings achieved a satisfactory level.

7 Management’s analysis

Regions Location of customers Location of companies Sales Sales Sales incl. inter- Income from segment transfers* operations

Change Change Change Change over 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 +137 thereof Germany 12,971 +2.8 24,047 +1.3 – – 2,086 –141 North America (including Mexico) 9,547 +6.5 9,356 +7.9 9,871 +8.2 981 +211 South America 2,691 +15.0 2,100 +13.9 2,210 +16.7 9 –92 Asia, 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)

Regions In France, the significant In South America, our busi- In southeast Asia, our rate of increase in sales was above ness increased gratifyingly increase exceeded the The growth in BASF Group all attributable to a good busi- with the stabilization of markets’ high growth. Sales sales derived primarily from ness with crop protection national economies. Sales rose despite falling prices. In business with our customers agents and pharmaceuticals. were up by 15 percent. Earn- eastern Asia, too, the rise in outside Germany, where sales Italy and Spain also contrib- ings were affected by special sales outstripped market increased by 6.5 percent. uted more to sales, partly for charges. growth. Business in China is In Europe, our home market, exchange rate reasons. In the Mercosur countries and being consistently expanded. sales made up the ground Increased sales in the United Chile, there was a significant In Japan, we consolidated lost during the first half and Kingdom were mainly due to upswing in demand. Improved our position after successfully exceeded the previous year’s the expanded pharmaceutical sales in Brazil derived mainly reversing the trend in the pre- high level by 3.4 percent. Vol- business and the integration from engineering plastics, vious year. Our companies umes were slightly higher. of the textile dyes taken over building paints, pharmaceuti- improved their sales by Exchange rates developed from Zeneca. We extended cals and crop protection 17 percent in yen. favorably, although selling our business in eastern agents. prices declined. Europe’s Europe. Sales in Asia, the Pacific contribution to earnings In North America, our com- Area and Africa were up by improved. panies improved both sales about 12 percent. Earnings Sales in Germany rose by 2.8 and earnings in the NAFTA improved despite advance percent. Business declined Region. BASF Corporation’s investments for the expansion initially but picked up in the profit before taxes in U.S. dol- of our Asian operations. second half. Sales and earn- lars rose by 25 percent. We have set ourselves ambi- ings in Oil & Gas improved BASF de México made a tious targets in Asia. We aim considerably and plastics vol- sound operating profit after to double our market share umes were high, although fall- the country’s peso crisis had by 2010 and increase local ing prices affected earnings been overcome. production, which now severely. Pharmaceuticals recorded accounts for 30 percent of above-average growth in the the region’s sales, to 70 per- NAFTA Region, and sales of cent. We are planning inte- plastics and dispersions also grated sites with SINOPEC in improved significantly. China and PETRONAS in Malaysia. BASF’s site at Mangalore, India, will be expanded.

8 Management’s analysis

Cash flow Cash and cash items Financial indebtedness Billion DM Billion DM Billion DM

8 8 8

6 6 6

4 4 4

4.451 4.635 5.565 6.368 6.798 2 2 4.557 5.239 5.949 6.193 3.827 2

4.962 5.364 3.632 2.833 2.038 0 0 0 92 9394 95 96 92 9394 95 96 92 9394 95 96

Finance Source and rose mainly due to the acqui- 39.3 percent (previous year: application of funds sitions in the second half. The 38.3 percent). We achieved a return on The improvement in earnings increment in receivables is As a result of the use of avail- assets before income taxes resulted in an increase in primarily attributable to higher able liquidity to cover the and interest expenses of 11.4 cash flow of DM 430 million sales during the fourth quar- financial requirement, liquidity percent, exceeding the previ- or 6.8 percent to DM 6,798 ter. By comparison with the as a proportion of total assets ous year’s gratifying figure million. Depreciation remained same period last year, we fell to 8.8 percent (previous despite an increased bal- at the previous year’s level. increased sales by DM 1,545 year: 14.7 percent). ance-sheet total. The financial Cash flow amounted to 13.9 million. Equity as a proportion of total requirement increased, partly percent of sales, slightly more Overall, the financial require- capital rose to 46.9 percent as a result of acquisitions, than in 1995. The cash flow ment for fixed and current (previous year: 42.6 percent). and was financed from the per DM 5 share improved assets rose by DM 1,894 mil- Equity increased as a result of cash flow of DM 6.8 billion slightly to DM 11.00 (previous lion to DM 7,607 million. 80 the improvement in earnings and available liquidity. year: DM 10.44). percent of this financial and also rose by DM 255 mil- Additions to fixed assets requirement and of the divi- lion because of the exercising totaled DM 6,637 million, dend of DM 854 million paid of option rights. DM 1,662 million more than for the 1995 financial year Financial indebtedness in the previous year. This was financed from cash flow. amounted to only 4.7 percent resulted from the increased The remaining financial of total capital (previous year: investment in tangible assets requirement was covered by 6.7 percent). and further additions result- using our liquidity, which also ing from the acquisition of made it possible to further Stable returns Sandoz’s corn herbicide busi- reduce the financial indebted- Returns were again gratifying. ness and Zeneca’s textile dye ness, especially by the repay- Although total assets grew by operations. ment of the 8% U.S. Dollar 4 percent, we increased the In financial assets, the grant Bonds of BASF Finance return on assets before of a credit by our affiliate Kali- Europe N.V. of 1989. Despite income taxes and interest Bank to Gazprom to help with this reduction, net liquidity expenses to 11.4 percent. the construction of the Yamal after the deduction of finan- Our aim is to achieve a return natural gas transit pipeline, cial indebtedness amounts to of at least 10 percent as an and the acquisition of a DM 1,789 million. average for an economic majority shareholding in the cycle. The return on equity Japanese pharmaceutical Asset and capital structure after taxes improved to 14.8 company Hokuriku Seiyaku Fixed assets as a proportion percent (previous year: 14.3 Co., Ltd. resulted in a much of total assets rose to 51.9 percent). The return on sales higher application of funds percent (previous year: 47.0 before income taxes and inter- than in the previous year. percent), and the proportion est expenses was 10 percent In current assets, the total of total assets accounted for and exceeded the previous funds tied up increased by by current assets (excluding year’s level. DM 970 million. Inventories liquidity) was slightly up at

9 Management’s analysis

Return on assets Return on equity Return on sales before income taxes and after taxes before income taxes and interest expenses interest expenses % % %

12 16 12 12 8 8 8 4 4 4

4.3 3.8 6.0 9.9 10.0 3.9 6.5 11.2 4.7 11.4 5.2 7.6 14.3 14.8 4.2 0 0 0 92 9394 95 96 92 93 94 95 96 92 93 94 95 96

Statement of source and 1996 1995 Structure of assets and Million % application of funds Million DM Million DM liabilities in 1996 DM

Net income 2,790 2,471 Assets Depreciation of fixed assets 3,709 3,707 Intangible assets 2,536 5.8 Retirement of tangible Tangible assets 16,071 36.8 and intangible assets 154 133 Financial assets 4,094 9.3 Change in long-term provisions and in miscellaneous items 145 57 Fixed assets 22,701 51.9

Cash flow 6,798 6,368 Inventories 7,169 16.4 Receivables 10,021 22.9 Dividend for the preceding year 854 610 Cash and cash items 3,827 8.8

Internal financing 5,944 5,758 Current assets* 21,017 48.1

Capital expenditures 3,639 3,024 Assets 43,718 100.0 Net additions to financial assets 2,014 614 Additions of intangible assets and other items 984 1,337

Fixed assets 6,637 4,975

Change in inventories 371 391 Equity and liabilities Change in receivables 599 347 Paid-in capital 8,008 18.3 Revenue reserves 12,248 28.0 Current assets 970 738 Translation adjustment –253 –0.5 Minority interests 486 1.1 Application of funds 7,607 5,713 Equity 20,489 46.9 Balance of internal financing –1,663 45

Increase in paid-in capital 255 – Long-term provisions and Change in financial indebtedness –890 –836 special reserves 9,881 22.6 Change in other liabilities –176 1,059 Long-term liabilities 2,290 5.2 Short-term provisions and Balance of external financing –811 223 liabilities 11,058 25.3

Change in scope of consolidation 107 –23 Liabilities* 23,229 53.1

Change in cash items –2,367 245 Equity and liabilities 43,718 100.0

* Including prepaid expenses, deferred income and special reserves

10 Management’s analysis

Research and Capital expenditures Capital expenditures in development expense 1996 by regions

Million DM Million DM % Asia, Pacific Area, Africa 3 2000 4000

South America 2

1500 3000 North America (including Mexico) 29

1000 2000 2,048 1,934 1,916 2,088 2,286 4,151 4,139 2,707 3,024 3,639 500 1000 Europe 66 thereof Germany 48 0 0 92 9394 95 96 92 9394 95 96

Shaping our own future Research and development At the Ludwigshafen site, neopentyl glycol and carbon We spent DM 2,286 million additional capacity for the oxychloride derivatives; We are shaping our future on R&D. We also invested production of isophorone at Wesseling, we are increas- with innovative products and DM 247 million in new labor- diamine, alkylaminopropyl- ing the polyethylene, polypro- processes from our research atories, pilot plants and amines, optically active inter- pylene and cracker capacities operations, long-term capital equipment. mediates and specific vinyl at Rheinische Olefinwerke; expenditures and structural 10,091 people worked in monomers, the coproduction at Antwerp, Belgium, a plant improvement programs. Our laboratories in the BASF of methanol in one of the for the production of formal- aim is to respond actively to Group, 2,393 of them with ammonia plants and the dehyde is under construction; the ever-changing market university degrees. regeneration of triphenylphos- in the United States, we are requirements and convert The inventiveness of our phine from triphenylphos- building a new synthesis gas them into business success. employees resulted in 1,107 phine oxide; plant at Freeport, Texas, and basic patent applications at Schwarzheide, plants for expanding capacity there for

worldwide in 1996. Our port- the compounding of styrene oxo-C4 products, acrylates, folio of patents and patent copolymers and, in our joint Ultramid® and caprolactam. applications rose to about venture with General Electric, Capacity is being expanded 75,000. for the production of polybu- for specialty amides, butyro- tylene terephthalate (PBT); lactone and N-methylpyrrol- Capital expenditures at Antwerp, Belgium, plants idone at Geismar, Louisiana, Capital expenditures on tan- for the production of ethanol- and high-impact polystyrene gible fixed assets were amines and nitrobenzene and capacity at Joliet, Illinois. DM 3,639 million, 20.3 per- the expansion of the steam- Polyacetal capacity at Ultra- cent more than in the previ- cracker and styrene capacity; form Company in Mobile, Ala- ous year. This includes at Enka, North Carolina, a bama, is being doubled; DM 297 million for herbicide plant for the production of at Altamira, Mexico, we are facilities that we acquired. Basofil® fibers; building plants to produce DM 1,750 million was spent at Altamira, Mexico, a plant styrene copolymers and poly- on plant and equipment in for the production of styr- styrene; Germany, of which BASF ene/butadiene dispersions; at Ulsan, BASF Korea is build- Aktiengesellschaft accounted in China, plants at Shanghai ing a polyTHF plant and for DM 924 million. BASF Colorants and Auxilia- Hyosung-BASF is erecting a We plan to increase capital ries Company Ltd. for the plant for ABS plastics; expenditures further in 1997 production of textile dyes, in China, we are building a to DM 3,800 million. auxiliaries and pigments. neopentylglycol plant The following facilities were We have made a start on together with Jilin Chemical completed and brought on additional projects: Industrial Corporation at Jilin stream: At Ludwigshafen, we are and a nylon carpet fiber plant expanding the steamcracker with China Worldbest Group capacity and plants for the Corp. in Shanghai. production of butanediol,

11 Management’s analysis

Acquisitions and Further cooperations are divestiture of a 40-percent Colorful ceremony: cooperations planned: holding in Comparex Informa- A plant of Shanghai We have taken over various We intend to contribute our tionssysteme GmbH to Per- BASF Colorants and Auxiliaries Company companies and lines of busi- polyethylene operations to a setel Holdings Ltd., Johan- Ltd. (SBCA) for the ness, acquired participating joint venture with Shell, which nesburg, South Africa; production of leather interests and established joint is additionally to acquire the acquisition of all the shares in and textile auxiliaries ventures as follows: European polyethylene busi- Knoll-Norton GmbH from opened with a cele- bration. Acquisition of a majority ness of Montell Polyolefins IVAX and realignment of our SBCA, in which BASF shareholding in the pharma- B.V.; Rheinische Olefinwerke cooperation under licensing has a 75-percent hold- ceutical company Hokuriku GmbH of Wesseling, in which agreements; ing, was founded in Seiyaku Co., Ltd., Japan; BASF and Shell each hold 50 sale of the worldwide mag- 1994. It has been pro- purchase of the generics percent, will also belong to netic product business to ducing cationic textile dyes since 1995 and companies of GNR-pharma the new company. KOHAP Inc., Korea, and shut- organic pigments since S.A., France, and Sudco B.V., In cooperation with Shell, it is down of production in Indo- June 1996 in the Netherlands; planned to set up the joint nesia; Pudong industrial area acquisition of a 49-percent venture BASELL, which will contribution of our European of Shanghai. BASF is now involved in 8 joint interest in M. Dohmen GmbH, build a new plant at Moerdijk, business in unsaturated poly- ventures in China. Willich, which markets dyes Netherlands, for the produc- ester resins to a joint venture for automobile textiles; tion of propylene oxide and in which the Dutch company Giant pipes and com- takeover of the worldwide styrene. DSM holds 60 percent of the plex equipment in the textile dye operations from Another joint venture is being shares, and sale of our 50- basement of BASF’s Bioresearch Center in Zeneca Ltd., London, as of planned with Hoechst to take percent interest in the Chi- Worcester, Massachu- August 1, 1996; over both partners’ polypro- nese joint venture with Jinling setts, are used for founding of a joint venture, pylene operations. Petrochemical Company recovering energy. headquartered in Heidelberg, to DSM; BASF utilizes waste heat successfully with the U.S. biotech com- Structural measures sale of the oilfield chemical worldwide, which pany Lynx Therapeutics for To optimize our product port- business to Baker Perform- greatly reduces site biotechnological and genetic folio and improve structures, ance Chemicals Inc., with energy requirements. engineering research; we realigned some operations production remaining at BASF; This cuts costs and takeover of the U.K. company and gave up or sold some conclusion of an agreement benefits the environment at the same time. Frank Wright, which operates businesses and interests: with Potash Corporation of in the feed premix sector; Foundation of BASF Health Saskatchewan Inc. on the acquisition of a substantial and Nutrition A/S headquar- sale of 51 percent of our part of the Sandoz business tered in Denmark; shares in Kali und Salz Beteili- in corn herbicides. foundation of BASF (China) gungs AG. After the German Company Ltd. as a holding Cartel Office has decided not company, headquartered in to allow the acquisition, we Beijing, to steer our opera- intend to apply to the German tions in China; Minister for Economic Affairs for permission for the merger.

12 Management’s analysis

Environment, safety and Highly efficient energy Eco-audit Emissions energy generation Since January 1997, the Despite high plant utilization We are continuing the imple- Schwarzheide site has been rates, emissions at the Lud- Our business operations are mentation of gas/steam tur- certified according to eco- wigshafen site were reduced geared to Sustainable Devel- bine technology. A plant using audit standards. The experi- again. The volume of waste- opment, which was agreed it began operation at Rheini- ence gained will be evaluated water entering our treatment on as a common objective by sche Olefinwerke, Wesseling. for audits at other BASF sites. plant and the ammonium and the states attending the UN A similar plant will go on dirt content dropped by about Conference in Rio de Janeiro stream in Ludwigshafen at the More flexible approval 5 percent. in 1992. We also participate end of 1997. The existing gas procedures in the chemical industry’s turbine power plant at the Approval procedures have Environment Report worldwide voluntary Respon- Tarragona site in Spain is been shortened as a result of Our Environment Report sible Care initiative. We being expanded. The British intensive discussions with contains more detailed infor- regard it as a permanent duty electricity company National local authorities, especially at mation. to improve our performance Power is building a new gas the German sites of Ludwigs- in safety, health and environ- turbine power plant at our hafen and Schwarzheide. The mental protection, a principle Seal Sands site. These capital amendment to the German that applies to the entire expenditures will further Air Pollution Control Act will

BASF Group and all its pro- reduce CO2 emissions. further speed up implementa- duction operations, services tion of our projects. and products. Safety management Our employees bear a high Ludwigshafen site: Work New environmental protec- responsibility at their work- accidents tion facilities places. This is why we ensure The number of accidents New wastewater treatment that they are well trained, increased slightly but plants began operation at carefully familiarized with their remained low. With 4.6 Mangalore, India, and Con- job and receive ongoing edu- reportable accidents per mil- con, Chile. The treatment cation, which includes safety lion working hours, or 6.7 per plant at Knoll’s Minden site and environmental protection. thousand employees, the was expanded. A treatment Safety management in the accident rate is a quarter of plant is under construction BASF Group was the subject the average for the German at the Monaca site in the of 47 safety and environmen- chemical industry. United States. Total capital tal protection audits at 35 expenditures amounted to sites. DM 23 million.

13 Management’s analysis

Employees by regions Personnel expense

As per December 31 1996 1995 Change Million DM 1996 1995 Change %

Europe 77,646 80,929 –3,283 Wages and salaries 8,718.4 8,404.3 +3.7 thereof Germany 61,067 63,715 –2,648 Social contributions North America (including Mexico) 14,714 15,282 –568 and expenses for pension benefits South America 6,362 6,869 –507 and assistance 2,306.5 2,414.1 –4.5 – thereof for pension Asia, Pacific Area, Africa 4,684 3,485 +1,199 benefits 764.5 961.3 –20.5

103,406 106,565 –3,159 11,024.9 10,818.4 +1.9

Employees Personnel costs Career advancement and At the end of 1996, 7,493 Personnel costs, including training employees of outside con- The number of employees in BASF Magnetics, rose by We continue to consider tractors were working at the the BASF Group fell to DM 207 million to DM 11,025 career advancement and Ludwigshafen site, 161 more 103,406, a drop of 3,159 million mainly because of the training to be very important. than in the previous year. since the end of 1995. change in the scope of con- In Germany alone, 54,369 Between 1991 and 1995, There was an increment of solidation and the Zeneca employees or 86 percent of despite the reduction in the 2,152 people as a result of acquisition. Wages and sala- the workforce took part in number of jobs, 7,600 people changes in the scope of con- ries accounted for DM 8,718 training, on which we spent were taken on at BASF solidation and the acquisition million of this, and social DM 73 million. Aktiengesellschaft, including of the textile dye business contributions, pension bene- 4,000 who had completed from Zeneca. Set against this fits and assistance for End-of-year payments and their training and 1,000 uni- was a reduction of 5,311 DM 2,307 million. Personnel asset formation versity graduates. The num- people in the BASF Group as expenditure increased by 3.1 The end-of-year payments in ber of people hired in 1996 a whole, of whom 3,069 were (previous year: 4.5) percent the German Group compa- was 3,100. taken on by other companies with reference to the average nies increased by DM 25 mil- As in previous years, we as a result of the sale of number of employees. lion compared with 1995. As again offered jobs at the Lud- BASF Magnetics and the compensation for not being wigshafen site to all 604 peo- printing ink business in North Training covered by the statutory sav- ple who had completed their America. At year-end, 3,079 young ings enhancement plan, training. The number of new The number of people people were undergoing exempt employees acquired trainees rose again from 722 employed in Germany was vocational training in our BASF shares to a nominal to 768. This means that we 61,067 or 59 percent of total Group companies in Ger- value of DM 1.2 million. are training considerably employees, 2,648 fewer than many. They accounted for more young people than we in the previous year. In Euro- 5 percent of the total work- BASF Aktiengesellschaft need for our own workforce. pean countries other than force, slightly more than the Compared with 1995, the At the end of 1996, 2,378 Germany, the number of previous year. Spending on workforce was 44,402, down young people were undergo- employees fell by 635 to vocational training fell slightly by a total of 223 employees. ing training, representing 5.4 16,579. The workforce out- by DM 2 million to DM 138 We recruited 1,331 employ- percent of the total work- side Europe increased, mainly million. During the year under ees from outside the com- force. in Asia, by 124 to 25,760. report, we again took on pany. Apart from this, 295 Absences due to illness at most of those who had com- returned from military or com- BASF Aktiengesellschaft were pleted training. munity service or child-care down in 1996 from 4.9 to 4.6 leave to resume work. Lim- percent. The overtime rate fell ited-term employment con- by 0.1 percent, compared tracts were concluded with with the previous year, to 0.4 70 long-term unemployed. percent.

14 Management’s analysis

Outlook We will raise We are preparing Under the microscope, the surface of paper capital expendi- for closer inte- looks like a mountain We are confident tures probably to gration in Europe. range. Yupi Seteaningsih, a about 1997. DM 3.8 billion. Our regional laboratory assistant at BASF Indonesia, tests The world econ- R&D expenditure organization is the effect of paper auxiliaries. omy will con- will again be at a being geared to They render paper tinue to make high level, with a it, as are our absorbent to ink – a must for brilliant prints. good progress. planned sum of sites and capital Demand in Ger- DM 2.1 billion. expenditures. many has picked From a position up. Our strategi- Our home market of strength in cally improved is Europe. This is Europe, we want position will help why the future to shape our us to take advan- single European growth in the tage of the oppor- currency is very world’s markets. tunities that arise. important to us. The elimination We are planning of exchange rate further growth fluctuations and with a portfolio transaction costs strengthened within Europe by divestitures will bring advan- and acquisitions. tages and make We expect to planning more increase sales to reliable. over DM 49 billion and we want to improve earnings further.

15 Operations

Health & Nutrition

Sales Income Capital expenditures Billion DM Million DM Million DM 12 1000 1000

10 800 800

8 600 600 6 400 400 4

6.80 6.71 7.27 7.99 9.12 200 200 2 231 493 575 208 636 194 781 0 0 0 203 209 700 92 93 949596 92 93 94 95 96 92 93 94 95 96

Health & Nutrition This operation comprises U.S. Food and Drug Adminis- ued the development of the pharmaceuticals, fine chemi- tration and expect marketing generic business in Europe. cals with the emphasis on authorization in the United The joint venture with IVAX We are strength- vitamins, as well as crop pro- States in 1997, and in Europe was replaced by a new tection agents and fertilizers. a year later. arrangement. We now have ening Health & Our range is made up of Tarka®, a cardiovascular access to the attractive IVAX Nutrition as one drugs for treating disorders of combination product, was products under exclusive and of the cyclically the cardiovascular system, granted marketing authoriza- nonexclusive licensing agree- CNS and gastrointestinal tion in the United States, Ger- ments. more stable tract, analgesics and drugs many and other European operations. Sales for wound healing; pharma- countries. Registration pro- Fine chemicals on ceutical chemicals; vitamins ceedings are currently under expansion course were DM 9.1 bil- and other fine chemicals for way for the neuroleptic zote- The steady demand for fine lion. Most of the the pharmaceutical, food and pine in Europe and the anal- chemicals ensured good 14.1-percent cosmetics industries, as well gesic Vicoprofen® in the capacity utilization rates. as for animal nutrition; crop United States. Other develop- Sales and earnings remained increase in sales protection agents, especially ment projects include prod- high. derived from our herbicides and fungicides; ucts for treating septicemia Volumes of fat-soluble vita- and a wide range of straight and apoplexy. mins and carotenoids made expanded phar- and compound nitrogen fer- The pharmaceutical opera- satisfactory progress. Our maceutical oper- tilizers. tions acquired from Boots plc business in water-soluble ations and from were integrated according to vitamins suffered from the Pharmaceuticals again plan. keen price competition in new crop protec- successful In Japan, we acquired a vitamin C. As part of our tion products. Sales and earnings in our majority shareholding in strategy to sell more vitamins pharmaceutical business rose Hokuriku Seiyaku Co., Ltd. via feed premixes, we took Earnings rose to considerably, with Synthroid®, We therefore now have our over the British company DM 781 million. our thyroid drug, making own infrastructure to develop Frank Wright and are building particularly good progress. and market our products in additional premix plants in the Sales of Isoptin® for the treat- the world’s second largest United States and Brazil. New ment of hypertension pharmaceutical market. The products stimulated the feed remained steady, while those company operates in the enzyme business. of Rytmonorm® for arrhyth- fields of antibiotics and drugs mia increased again. for the peripheral and central Products under development nervous systems and respira- are promising. We have high tory diseases. Some promis- hopes for sibutramine, a new ing development projects are product for treating obesity in the pipeline. and diseases associated with With the purchase of the it. We have received an French GNR-pharma S.A. and approvable letter from the Dutch Sudco B.V., we contin-

16 Operations

William Boult of Knoll There was strong demand for fungicide from the strobilurin contested market for sulfur Pharmaceuticals pro- our specialties for the cos- class to be launched for use fertilizers in Germany and the ducing the basic sub- metics industry. UV absorbers in various crops. Combined rest of western Europe. stance for MeridiaTM. This new development for skin protection improved with other active ingredients Business in specialty prod- is for treating obesity their market position. Our and marketed as Brio® in ucts for the home and garden and associated dis- patented top product Uvinul® Germany and Allegro® in Bel- was expanded in European eases. Marketing T 150 was granted marketing gium, it made a very success- markets. Sales of both market authorization in the authorization in Japan. The ful start. gardening and home garden- United States is expected in 1997 and cation-active hair-care poly- We purchased most of ing products increased. in Europe a year later. mer Luviquat® Hold, which is Sandoz’s corn herbicide busi- Higher prices and more favor- superior to the market stan- ness, thus increasing the able exchange rates contrib- dard, is already attracting number of crops covered by uted to the gratifying growth great interest in its launch our product range. This in earnings. phase. acquisition, which also We are implementing exten- includes a development prod- sive capital expenditures at uct, improves our position the Ludwigshafen site to fur- especially in North America. ther expand our market position in carotenoids, vitamins Fertilizers successful and fragrances. The upturn in fertilizers continued and we raised sales Growth in crop protection and earnings again. We We expanded our position in are developing innovative the crop protection business advisory systems that are and increased sales and being well received by our earnings again. customers. The herbicides Butisan Star® A slight increase in west for oilseed rape and Rebell® European consumption and for sugarbeets gained market the capacity shutdowns of share in western Europe. The recent years have restored cereal fungicide Opus®, now the balance between supply in its third year on the market, and demand. Increased raw again lived up to our high material costs meant that expectations. This gives us earnings only partially reflect the leadership in Europe’s price rises. most important markets. We further improved our Our new active ingredient kre- range of multinutrient fertiliz- soxim-methyl, produced in a ers. We maintained our lead- new plant in Brazil, is the first ing position in the keenly

17 Operations

Colorants & Finishing Products

Sales Income Capital expenditures Billion DM Million DM Million DM 12 1000 1000

10 800 800

8 600 600 6 10.31 11.29

10.20 10.75 10.77 400 400 4 587 645 200 200 805 579 582 2 316 227 325 291 565 0 0 0 92 93 94 9596 92 93 94 95 96 92 93 94 95 96

Colorants & Our numerous dyes, pig- The joint venture Shanghai in the United States. Thanks Finishing ments, finishing products, BASF Colorants and Auxilia- to new process chemicals, a process chemicals, disper- ries Co. Ltd. began produc- greater proportion of waste- Products sions, coatings and printing tion of textile and leather paper can be used in paper- systems are used for a wide auxiliaries in September. making without any quality variety of purposes by our loss. Sales in Color- customers in the automotive, Colorants & process Our European market position ants & Finishing construction, chemical, print- chemicals steady in printing inks and plates ing, adhesives, coatings, Despite increasing competi- was consolidated, and earn- Products rose by leather, paper and textile tion, we held our ground in ings from printing inks 4.8 percent to industries. the colorants and process improved. Business with chemicals business. Falling these products was trans- DM 11.3 billion. Structural change in prices reduced earnings, ferred to an independent Earnings textile and leather dyes however, especially in printing company, Drucksysteme increased to and chemicals ink pigments. GmbH, in January 1997. Our Although we raised sales of Volumes of our innovative new sheet-fed offset inks with DM 565 million. our products for the textile Paliocrom® special-effect pig- vegetable-based binders and and leather industries, earn- ments for automotive finishes flexographic printing plates ings remained unsatisfactory. increased significantly world- for exposure without a film Structural changes continue: wide. There was continuing made good progress. Customers are relocating their brisk demand for our heat- production facilities, and new stable, weatherfast pigments Growth for dispersions capacity is being created at for coloring bottle crates, gas We further increased sales of sites where costs are lower. pipes and fibers. Interest in polymer dispersions and Ongoing cost pressure on our Uvinul® light stabilizers for monomers. In monomers, textile and leather producers plastics, and lead-free PVC new acrylic acid and acrylate also impacts dye prices. stabilizers grew. plants at Antwerp, Belgium, We acquired and integrated We adapted to the increasing made a special contribution. Zeneca’s textile dye business. volumes of color products by The new acrylic acid plant at It complements our existing expanding regional produc- Freeport, Texas, will go on range, especially with reactive tion sites. The pigment pro- stream in mid-1997. In Asia, dyes, increases the volume of duction facility at our joint plants are planned in Malaysia business and improves cost venture in Shanghai went on and China. structures in production and stream successfully. The polymer business marketing. We defended our strong posi- advanced gratifyingly, espe- In line with our increasing tion in products for the paper cially in the second half. The concentration on Asian mar- industry and in specialty inks initial losses caused by kets, we have managed our in Europe and further im- adverse weather conditions worldwide business from Sin- proved it overseas, especially were more than recovered in gapore since October 1996.

18 Operations

In awe of fast sports the course of the year, espe- Coatings and paints Industrial coatings did very cars: BASF refinish cially in dispersions for coat- on the up well and improved their mar- paints not only conjure ings. We increased our share We increased sales consider- ket position. Our concept of up logos and special finishes, but must also of the market for paper-finish- ably in the growing market for supplying complete systems withstand a variety of ing products. Business in coatings and paints. New was a contributory factor adverse effects under adhesives raw materials products, more favorable here. extreme conditions. remained at a high level. Dis- exchange rates and lower In the dwindling market for The cars are not persions for floor coverings prices for coatings raw mate- building paints, we held our painted on the production line but in special- recorded strong growth in rials resulted in improved but ground in Europe with the ized workshops where North America and especially still not satisfactory earnings Glasurit® and Herbol® brands. extensive expertise is in Australia, where we took despite special charges. Business with the Suvinil® required. over this line from Huntsman. Our business in automotive brand improved significantly BASF Corporation has built a technical service Capacity for polymer disper- coatings was expanded with in Brazil and Argentina. center for refinish sions was expanded in Aus- wet- and powder-finish paints in Whitehouse, tralia and China. New plants systems that go particularly Ohio. Here, employees were brought on stream at easy on the environment. from carmakers, body- the Mangalore site in India Cooperation with leading car shops and dealers receive all the informa- and at Altamira, Mexico. manufacturers further tion they need on improved the efficiency of paints and color coating processes. Produc- matching. tion of waterborne coatings began in Mexico. In Canada, the capacity for new automotive finishes was expanded. We are bolstering our market position in Asia through cooperations. We made good progress in the marketing of low-emission automotive refinishes. Demand was high for waterborne coatings and high-solids systems of the Glasurit® and R-M® brands. We gained market share in eastern and southern Europe and Brazil.

19 Operations

Chemicals

Sales Income Capital expenditures Billion DM Million DM Million DM 8 2000 1000

1600 800 6

1200 600 4 800 400

2 5.32 5.27 6.44 7.26 7.30 400 200 402 401 923 608 506 756 568 1,095 2,054 1,733 0 0 0 92 93 94 9596 92 93 94 95 96 92 93 94 95 96

Chemicals At our big integrated sites, we Sales of catalysts, already In Asia, we considerably produce important basic strong, increased further. The improved our market position chemicals primarily for cap- business in catalysts for gas in solvents and plasticizers Sales in Chemi- tive use: ethylene, propylene, generation was sold to ICI at and are planning to build pro- acetylene, synthesis gas, the beginning of 1997. duction plants with partners. cals rose slightly ammonia, methanol, sulfuric The conversion of one of our Volumes also increased in by 0.6 percent to acid, chlorine and sodium ammonia plants to coproduce North and South America. DM 7.3 billion. hydroxide solution. From methanol was completed at From early 1998, additional these, in numerous upgrading year-end. This new concept volumes of oxo products will Earnings were steps, we produce industrial will enable us to optimize be available from the DM 1,733 million. chemicals and intermediates costs by deciding whether to expanded plant at Freeport, for chemical syntheses. Our produce or purchase. Texas. specialty chemicals are used, Despite weaker demand from for example, in detergents Industrial chemicals well the construction and furniture and cleaning agents, in oil positioned industries, we consolidated production and for antifreezes The worldwide availability of our strong position in laminat- and fuel additives in the auto- industrial chemicals was ing and impregnating resins in motive industry. greater than in the previous Europe, our key market. Pro- year, resulting in falling prices ductivity will be further Volumes of basic and margins. Earnings were increased and competitive- chemicals steady stable at a high level. ness improved. Integration at Strong and steady volumes Our high-tech chemicals, Antwerp is being extended characterized the basic such as plasticizers, solvents with a new plant for the pro- chemicals business. After and laminating and impreg- duction of formaldehyde. months of price erosion, nating resins, are produced especially for cracker prod- by our own processes in Intermediates on growth ucts, the trend was reversed large-scale plants that are course from the second quarter part of highly efficient inte- Demand for our intermediates onward. However, increased grated structures. Capacity remained strong and we raw material prices meant utilization rates at Ludwigs- raised sales and earnings that improved revenues were hafen, Tarragona, Spain, and again. not fully reflected in earnings. Freeport, Texas, remained We compensated for falling In inorganic chemicals, the high. consumption of amines in upward trend for specialties Europe by selectively expand- and products for the electron- ing our business outside of ics industry continued.

20 Operations

From road to rail: Europe. Additional capacities The new business in optically Keropur® fuel additives with a BASF’s Logistics Divi- for ethanolamines and alkyl- active intermediates made superior cost/performance sion is making inten- aminopropylamines will give gratifying progress. These ratio improved their market sive use of the pos- sibilities of shipping us an above-average share of innovative building blocks are position in Europe and North goods by rail. market growth. Following the increasingly being used in the America. They were launched This form of transpor- expansion of isophorone synthesis of pharmaceuticals in Japan, the most important tation is reliable and diamine production, we can and crop protection agents. Asian market. ecofriendly and thus play an even more active part tailor-made to customers’ require- in epoxy resins. Specialty chemicals on a ments. By easing con- Formic acid and adipic acid good level gestion on the roads, were the mainstays of growth Customer interest in our spe- BASF helps to keep in our carboxylic acids. A cialty chemicals remained traffic moving. second formic acid plant at strong. Overall, we matched Ludwigshafen improved our the previous year’s good market position. We are plan- earnings. Worldwide demand ning to build further monocar- for ethylene glycol suffered, boxylic acid production plants however, from extensive in Asia. stockpiling by manufacturers Carbon oxychloride deriva- of polyester fibers and anti- tives progressed favorably. freezes; volumes and reve- Therefore, capacity was again nues fell across the board. increased. Innovative developments Despite falling prices, diols strengthened our position in generally did well. Strong specialty polymers for deter- demand for butanediol and its gents and cleaning agents. A derivatives helped us here. new product in the Sokalan® We want to boost our pres- line for preventing the forma- ence in Asia and develop the tion of deposits in seawater butanediol/tetrahydrofu- desalination plants was suc- ran/polytetrahydrofuran prod- cessfully launched. uct line in Korea. We expect Our business in oilfield chemi- neopentyl glycol to gain addi- cals was sold to Baker Per- tional impetus from its use in formance Chemicals Inc. Our low-emission powder-coating plants will continue to pro- systems and are preparing for duce for Baker. increased demand with capital expenditures at Ludwigs- hafen and in China.

21 Operations

Plastics & Fibers

Sales Income Capital expenditures Billion DM Million DM Million DM 12 2000 1000

10 1600 800

8 1200 600 6 800 400 12.46 12.08 4 10.43 9.81 9,09 11.39 400 579 467 902 387 787 54 1,499 974 200 2 0 –340 0 -400 –81 0 92 93 94 95 96 92 93 94 95 96 92 93 94 95 96

Plastics & Focal points of our plastics the joint venture a good posi- with Degussa, we are dou- Fibers range are polyolefins, engi- tion in the market. bling polyacetal capacity. neering plastics, styrene- We are improving the effi- In China, the plants of Yangzi- based foams, and polyure- ciency of existing plants and BASF Styrenics Co. (YBS) for thanes. We also produce fiber investing in new ones in order the production of ethylben- Plastics & Fibers intermediates and synthetic to improve cost-effectiveness. zene, styrene and polystyrene sales fell by 3.0 fibers. We have started building a will go on stream in 1997. A percent to plant for polypropylene large-scale plant for ABS New prospects for copolymers at ROW. plastics is under construction DM 12.1 billion. polyolefins at Ulsan, our joint site with Earnings reached The market for polyolefins Global expansion in Hyosung in Korea. and PVC was influenced by engineering plastics PBT from our joint venture DM 974 million. keen competition. Earnings Demand for engineering plas- with GE Plastics at Schwarz- were significantly lower than tics picked up during the sec- heide has been available in the previous year and were ond half. Business in Asia and since early 1997, giving us a unsatisfactory. South and North America much stronger position in this We aim to put our business progressed well. Despite growth segment for engineer- on a new basis and are pre- increased volumes, sales and ing plastics. paring cooperations. earnings declined signifi- In 1997, we intend to contrib- cantly. Foams sluggish ute our polyethylene opera- We are improving our struc- The softness of the European tions to a joint venture with tures in Europe and are striv- construction industry Shell that will also acquire ing for cost leadership with impaired our foam business. Montell’s European business. new world-scale plants which Revenues were under heavy This planned cooperation will we are building in the NAFTA pressure worldwide and earn- be based on the long-stand- Region and the growth mar- ings were unsatisfactory. We ing partnership with Shell at kets of Asia. Our objective is are facing up to the chal- Rheinische Olefinwerke a regionally balanced high- lenges of the market with (ROW), and take advantage of earning portfolio in our core structural adjustments and the fact that the sites and operations. process improvements. product ranges complement In addition to the new com- In North and South America each other well. modity polystyrene plant in and especially in Asia, We are planning a joint ven- Mexico, we are building a demand for Styropor® was ture with Hoechst that will plant for high-impact polystyr- dynamic. Work began on the combine the partners’ poly- ene in the United States. In construction of a plant at YBS propylene businesses. The Mexico, we are building a styr- in China. It will join the pro- new dimension, the pooling of ene copolymer plant that duction facilities in Japan, sophisticated know-how and uses the advantages of our Korea, India and Malaysia as a strong position in polypro- new process. At Ultraform our fifth Styropor® unit in pylene compounds will give Company, our joint venture Asia. This will further reduce

22 Operations

The internal paneling economic dependence on duction of propylene oxide The new nylon-6 plant at of refrigerators in Europe. and styrene at Moerdijk, Antwerp began production in China is made of BASF We vigorously pushed ahead Netherlands. The proposed the spring of 1997, and polystyrene. A joint venture with the conversion to carbon joint venture BASELL will nylon-6 production at Free- between the German dioxide as the blowing agent facilitate backward integration port is currently being refrigerator manufac- in the production of Styro- in polyether polyols in Europe. extended to meet captive turer Haier and a dur®, our green insulating We are planning to build a demand for engineering plas- Chinese company in boards, which we produce system house in Malaysia for tics. For the expansion of our Qingdao produces the thermoformed parts. at 4 sites in Europe. This the Asian market. fiber business in Asia, we are The plastic for this will Styrodur® C already accounts planning a joint venture with in future be supplied for half of our volumes in Fiber products steady DuPont to produce fiber inter- by a joint venture Germany. We increased sales of our mediates by a new process. between BASF and Yangzi Petrochemicals Gratifying progress was made fiber products. Earnings Co., Yangzi-BASF by Elastopreg®, glass-mat- dropped but were still satis- Styrenics. reinforced large-area pre- factory. We further improved pregs for the automotive our product and customer industry. portfolios and production cost structures. Polyurethanes successful Volumes of carpet fibers were Our strategy for polyure- gratifying. Our plants oper- thanes is being successfully ated at full capacity. Market implemented. Sales increased share was consolidated. To in line with market growth and expand our business in earnings improved signifi- China, we set up a joint ven- cantly. However, revenues ture together with China came under pressure in the Worldbest Group Corp. and second half. began the construction of a Business in PUR systems and nylon carpet fiber plant. PUR specialty elastomers Textile fibers held their ground made good progress. In Bra- and made a steady contribu- zil, it exceeded our expectation to earnings. Production tions after we had acquired a of Basofil®, the high-tempera- system house. ture-resistant fiber, got off to We are planning to increase a successful start. volumes and are debottle- Demand for fiber intermedi- necking MDI production at ates led to high capacity utili- our sites in the United States, zation rates. Price pressure in Korea and Belgium. the Asian market reduced We are planning to join Shell earnings in the nylon-6 busi- in building a plant for the pro- ness during the second half.

23 Operations

Oil & Gas

Sales Income Capital expenditures Billion DM Million DM Million DM 6 800 1200

600 1000

4 800 400 600 200 2 400 155 297 201 744 4.19 4.35 4.08 4.21 5.21 0 200 1,193 398 251 470 422 0 -200 –38 0 92 93 949596 92 93 94 95 96 92* 93 94 95 96

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

Oil & Gas The Oil & Gas operation is increasing supplies to cus- the previous year’s level, handled by Wintershall AG tomers in the German market. which was low because we and its affiliates. We explore Petroleum products made a sold less. This growth came Oil & Gas sales for and produce crude oil and greater contribution to earn- particularly from Germany. natural gas, refine oil, market ings despite the scheduled Our share of production from rose by 23.8 per- petroleum products and sell inspection of the Lingen refin- the DEMINEX holding was cent to DM 5.2 crude oil and natural gas. ery. This was mainly due to unchanged at 1.7 million met- billion (excluding ongoing, consistent efficiency ric tons of crude oil and 0.5 Sales and earnings improvements. Refinery mar- billion cubic meters of natural petroleum and significantly up gins remained unsatisfactory. gas. natural gas Firm crude oil prices, further Despite improvements in mid- increases in oil production dle distillates and motor fuels, Petroleum product taxes). Earnings and high natural gas volumes the overall upturn was only volumes slightly down improved to in Germany at the start of the slight. Volumes of petroleum prod- DM 744 million. year led to a 12-percent rise ucts fell slightly to 4.0 million in sales. Earnings gratifyingly Crude oil and natural gas metric tons because of the reflected this trend. production up again inspection shutdown of the Once again, most earnings Total production, including refinery at Lingen. About 60 derived from oil and gas pro- our share in DEMINEX, was percent of motor fuels were duction. Earnings from the 9.4 million metric tons of oil marketed through the ARAL natural gas merchant busi- equivalent. gas-station network, in which ness improved as a result of Wintershall’s crude oil pro- Wintershall has a 15-percent duction was up by 30 percent holding. The remainder was at 5.6 million metric tons. sold through our own market- Production from the Al ing organization. Rayyan field in Qatar began in November. Natural gas production was raised to 2.0 billion cubic meters, a hike of 16 percent compared with

24 Operations

This pipeline will trans- At the Lingen refinery, DM 37 Natural gas earnings Our partner Gazprom is port natural gas across million was invested in up again developing major gas fields mountains, valleys and replacements and improve- In the course of expanding on the Yamal peninsula in rivers from Siberia to western Europe. The ments. Substantial capital our natural gas business, we Siberia and planning to sup- picture shows the expenditures for process substantially increased vol- ply some of the gas to west- Yamal pipeline going improvements and the mod- umes in the German market ern Europe. A pipeline is under the Oder River. ernization of the coking plants and improved earnings. being built for this purpose The first section of the are planned for the coming Work began on the construc- through Belarus and Poland pipeline from Szamo- tuly in western Poland years. tion of the west German pipe- to Frankfurt an der Oder. Kali- to Mallnow in eastern In 1996, the German petro- line (WEDAL) connecting Bank GmbH, a subsidiary of Germany was com- leum industry again suffered Bielefeld with Aachen on the Wintershall AG, granted a pleted in 1996. from a surplus of petroleum German-Belgian border. The loan of DM 1 billion in January Natural gas from Rus- sia flowed through this products. A combination of first section, as far as Soest, 1996 to support the con- section for the first site disadvantages, surplus has been completed. The struction of this natural gas time at the end of capacity and stagnating con- diversification of natural gas transit pipeline. 1996. The gas is sold sumption reduced refinery purchases continued. Under The Yamal-Europe pipeline by WIEH, a joint earnings. The restrictive envi- supply agreements with Brit- system is being gradually venture between the BASF Group company ronmental regulations alone ish Gas and Conoco, extended eastward, using Wintershall and put Germany at a cost disad- WINGAS will purchase a total existing free pipeline capacity. Gazprom. vantage of about DM 4 per of 3 billion cubic meters of At the end of 1996, we metric ton in comparison with natural gas per year from the received the first delivery of Rotterdam. British sector of the North natural gas at a new terminal Sea on a long-term basis for Russian gas in Frankfurt from 1998. an der Oder. Volumes of natural gas in Germany totaled about 11 billion cubic meters in 1996. We will be increasing this figure continuously and aim to increase our share of the German market to 15 percent by 2010.

25 Regions

From the regions Our market is the world Demand for chemicals in Ger- Plastics, with their light We are a transnational com- many was sluggish. Overall, weight and stability, pany operating throughout sales slightly increased by 2.8 are as big a break- through in automobile The BASF Group the world and we conduct percent due to growth in our design as steel was in business with customers in Oil & Gas operation. Plastics large structures. operates in many 170 countries. BASF Group did well in terms of volumes, Numerous plastics countries with companies operate produc- but falling prices impacted made by BASF are used in cars in such tion plants in 39 countries. earnings severely. Our wide different political, diverse applications as Modern logistic systems range in Colorants & Finishing Lupolen® fuel tanks, economic and maintain the flow of products Products helped us to which can be made social structures. and goods between the vari- expand our market position. into any shape, poly- ous regions. Marketing, distri- At BASF Schwarzheide urethane coverings for In line with the steering wheels, bution and technical service GmbH, we made a profit Luran®, Luran® S or OECD recom- are being expanded in before taxes for the first time. Terluran® operating regional markets. Although sales in most west elements and mendations for ® We carry out development European countries were Ultramid inlet manifolds. multinational work close to the markets slightly down on the previous companies, we and optimize products and year, the marketing of our processes together with our products in France made are aware of our customers. In this way, we good progress. New crop numerous provide innovative solutions protection agents and phar- responsibilities. which contribute to our maceuticals were an impor- customers’ success. tant factor here. In Italy and Spain, we Europe – our home market achieved gratifying growth In Europe, we increased sales rates with our products for by 3.4 percent. Here, we health and nutrition and the achieved 63 percent of the textile and leather industries, BASF Group’s sales and 75 and with polyurethanes. Busi- percent of income from oper- ness in plastics and chemi- ations. cals was characterized by unsatisfactory prices despite strong demand.

26 Regions

Final check before Increased sales in the United We increased vitamin E In coatings and paints, cost transportation: Earl Kingdom were largely attrib- capacity at the Wyandotte, structures were improved Millet, who works in utable to the pharmaceutical Michigan, site. Rapid consistently. Our subsidiary the tank farm at the Geismar works, seals business and the textile dyes progress is being made with Automotive Refinish Technol- the drums and checks taken over from Zeneca. the construction of new ogies Inc. is strengthening the closures. Geismar Our core operations in the plants for acrylic acid, acry- distribution outlets for auto- in Louisiana is BASF reform states of central and lates and oxo alcohols at motive refinishes. Integration Corporation’s largest eastern Europe did well. We Freeport, Texas, and also of the textile dye business site. improved our position in the with the increase in capacity acquired from Zeneca is CIS states, especially Russia. for fiber intermediates and going according to plan. nylon 6. Production of the Earnings in the NAFTA heat-resistant fiber Basofil® Structural adjustments in Region up again began at the Enka, North South America We gained market share in the Carolina, site. The stabilization of South NAFTA Region. Sales of plas- BASF de México achieved a America’s economies also tics, dispersions and pharma- sound operating profit, with gave a gratifying boost to our ceuticals grew faster than our structural measures play- business there. Demand for average. BASF Corporation’s ing their part. We simplified our products was strong in pre-tax earnings in U.S. dol- the company’s organization the Mercosur countries of lars increased vigorously by and increased efficiency. A Brazil, Argentina, Uruguay 25 percent and in German plant for styrene/butadiene and Paraguay, and in Chile. In marks by 31 percent. dispersions started up at Brazil, sales improved, espe- We expanded our production Altamira, Mexico. New plants cially in engineering plastics, plants. We will be continuing are being built to supply pre- building paints, pharmaceuti- this policy in the coming dominantly the NAFTA market cals and crop protection years and investing about with polystyrene and styrene agents. Earnings were not U.S.$ 600 million in tangible copolymers. satisfactory. In view of the assets each year. We reached an agreement change in general economic with Air Products and Chemi- conditions resulting from the cals Inc. to supply dinitroto- opening of the market, we luene from a new plant at our adjusted the book values of Geismar, Louisiana, site, thus various plants in Brazil to the improving our position in cash values of the future polyurethanes. cash flow. Earnings in Argen- tina and Chile improved significantly.

27 Regions

The countries belonging to Ambitious targets in Asia Following the integration of Crop protection agents the Andean Pact are going We have set ourselves ambi- Boots plc's pharmaceutical must be more and through a radical process of tious targets in Asia. We aim operations, Knoll’s affiliates more effective at lower and lower application reform, and economic activity to share in the growth of this in Pakistan and India made rates. Extensive series is somewhat depressed. region, which is expected to gratifying contributions to of trials that take Despite the effects of this, be considerably higher than in earnings. years are therefore most of our companies the developed markets. In the Dispersion capacity was necessary. Here, at BASF’s Agri- achieved satisfactory earn- medium term, we expect an increased in Australia and cultural Products Cen- ings. At BASF Química annual market expansion in Indonesia. At our site in Man- ter in Raleigh, North Colombiana, earnings were real terms of more than 7 per- galore, India, we brought a Carolina, the effect of a adversely affected by special cent in the rising countries of new dispersion plant on crop protection agent factors. Asia. stream and are expanding on corn is being tested. We geared our organization By 2010, the BASF Group dye production. In Malaysia, to the increasing cohesion of intends to achieve 20 percent we are constructing a Tamol® the South American markets. of its sales and earnings in plant to meet the fast-grow- Costs were cut by efficiency Asia. We want to double our ing demand for concrete measures and structural market share by then. Sales aggregates. A system house improvements. We are con- from local production in Asia for polyurethanes is being sistently endeavoring to are planned to rise from built in Kuala Lumpur. improve the cost effective- 30 percent at present to Together with our partner ness of our sites and plants. 70 percent. PETRONAS, we intend to With specific capital expendi- With these aims in mind, we build an acrylic acid plant at tures, we want to share in the are expanding our production Kuantan, Malaysia, the first growth of the South American facilities in the region. Over project in a planned inte- markets and take advantage the next 5 years, we want to grated chemical site that is of new business opportu- make 25 percent of our capi- intended to supply mainly the nities. tal expenditures in Asia. ASEAN market. Further plants for oxo alcohols, plasticizers Production hike in and intermediates will follow. southeast Asia Volumes of our products in southeast Asia grew faster than the market. Local production was further increased. Sales improved despite falling prices but earnings were affected by advance expenditures for the expansion of our business in this region.

28 Regions

Colorful capes Expansion in east Asia We are aiming to use our account, sales in yen grew brighten the scene in Economic development in competence in the planning, by 17 percent, with new Nanjing, China. BASF east Asia is still very dynamic construction and operation of companies making a major operates 8 joint ventures in the People’s even though the pace is eas- integrated production sites to contribution. Republic of China. One ing in certain countries, such build petrochemical plants at The Nisso BASF Agro joint of them produces texas Korea and Taiwan. Our Nanjing together with China production venture bolstered tile dyes and organic sales grew more quickly than Petrochemical Corporation our crop protection business. pigments, and another the markets. The mainstays (SINOPEC) and its subsidiary Following the acquisition of a makes coatings especially for automobiles. were chemicals, plastics and SINOPEC Yangzi Petrochemi- majority holding in the phar- fiber intermediates. cal Corporation. At present, maceutical company Hoku- New plants for the production we and our partners are riku Seiyaku, we now have of textile dyes and auxiliaries examining the technical and direct access to the Japanese as well as pigments began economic conditions for a pharmaceutical market, the operation at Shanghai BASF steamcracker and down- second largest in the world. Colorants and Auxiliaries stream facilities. We are also In September, Toyota became (SBCA). BASF Shanghai investigating the possibility of the first Japanese car manu- Coatings began producing a joint venture to produce facturer to fit inlet manifolds and marketing paints and MDI and TDI in Shanghai. made from Ultramid®, BASF’s coatings on schedule at the glass-fiber-reinforced poly- beginning of 1997. Business stronger in Japan amide. Following the previous year’s successful trend reversal, we further improved our position in Japan during 1996. Gratify- ing progress in the domestic market and the change in the value of the yen, which bene- fited exports, helped BASF Japan to increase sales. If unconsolidated Group companies are taken into

29 Research and development

Research and We have built up a highly effi- We are also developing bio- Endless DNA development cient integrated system of technological processes in sequences are chemical and technical know- order to manufacture higher decoded and utilized by genetic research. how, which we use to system- value-added products. For Dr. Burkhard Kröger atically exploit synergies to example, vitamin B2 is pro- from cardiovascular We quickly con- meet our customers’ stricter duced by a fermentation pro- research at Ludwigs- vert scientific and requirements, including eco- cess. We start with a vegeta- hafen examines a section of a sequence logy aspects. A few examples ble oil and obtain the desired technical disco- from the Lifeseq from our wide range of pro- product direct in a single-step genome database, veries and expe- jects will make this clear. process. Production capacity which BASF licensed rience as well as was expanded by optimizing from the Californian Competitive position the microorganisms used. specialists Incyte in pioneering ideas 1996 in the hope of improved by innovative finding sites of action into new prod- processes Technological leadership for new therapeutic ucts, processes We intend to commercialize a boost from catalysts agents. new and economically attrac- Catalysts accelerate chemical Genetic research has good prospects and applications. tive process for producing processes and reduce the because it offers new R&D is the key to caprolactam on the basis of formation of byproducts. ways of developing adipodinitrile in a joint venture New, selective catalytic pro- active compounds and innovation and an with DuPont. Caprolactam is cesses make more efficient therapeutic methods mainly used as a raw material use of the raw materials and for treating serious essential element diseases. in shaping our for our Ultramid® grades and are, thus, an important contri- for nylon 6 fibers. bution to Sustainable Deve- future. Caprolactam is, therefore, an lopment. important link in our integra- For example, a new catalyst ted production system. It is has significantly improved the also used as a raw material production of phthalic anhy- for specific vinyl monomers dride, a precursor for plasti- for producing specialty che- cizers. A key to this success micals, such as adhesives, was cooperation between hair-setting products and various disciplines at our inte- detergents. We produce grated Ludwigshafen site. these vinyl monomers by a We achieved a major advance new efficient process, which in catalysts for the production reinforces our position as the of polyolefins. Through syste- market leader in this segment. matic R&D work, we improved productivity in the

30 Research and development

The aim of microreac- manufacture of Novolen®, For detergents, we also deve- new synthesis strategy, com- tor experiments is to which is processed into film, loped the Sokalan® HP binatorial chemistry, allows develop optimum sheeting and fibers, and grades. These are polymers the rapid automated synthe- chemical reactions without any undesired enhanced product quality. that improve dirt release and sis of a very large number of byproducts. provide better protection test substances. This is fol- The same reactions New solutions to against dirt being redeposited lowed by high throughput take place in the customers’ problems on the washing. screening, which very quickly microreactor as in We use modern scientific identifies promising active BASF’s large-scale plants, but are much methods to devise innovative New methods for innova- compound lead structures. easier to study and solutions to our customers’ tive active compounds refine. This means that problems. Computer simula- New insights into the interac- Cooperation on future- the reactor can be tion provides an understand- tion between active com- oriented technologies optimized for each separate reaction. ing of the properties of solids pounds and biological sys- Together with the American Chemical engineers at the molecular level. Crystal tems, and new discoveries in biotech company Lynx Thera- have developed a design has made it possible molecular biology paved the peutics, we have set up a microreactor in which to develop new pigments for way to innovative products. joint venture in the field of the reactions take modern coatings. One exam- A new drug for the treatment molecular biology. Lynx pro- place in diamond- ® carved channels as ple is Paliogen Red, a trans- of schizophrenia is based on vides a new DNA sequencing fine as hairs. parent pigment that is out- the selective blockage of a technology by means of standingly suitable for water- particular dopamine receptor which dynamic processes can borne coatings. in the brain. The neuroleptic be monitored at the molecular The interaction of chemistry can alleviate the symptoms of level, thus opening new and molecular modeling also schizophrenia without the routes to the discovery of provided the key to our new usual severe side effects. active compounds. biodegradable complexing In addition to projects at a The company is headquar- agent. For the first time, we more advanced stage, an tered in Heidelberg. We were able to use computer endothelin receptor antago- regard this as an important models to predict the ecologi- nist for the treatment of step toward strengthening cal properties of products. various diseases of the car- and expanding biotechnologi- The new, readily biodegrada- diovascular system is at an cal and genetic engineering ble complexing agent methyl- early stage of clinical devel- research in Germany and the glycinediacetic acid binds opment. Rhine-Neckar triangle, one of interfering metal ions and To speed up innovation, we the award-winning regions in exhibits a broad spectrum of are relying on modern tech- the German Government’s action in detergents and nologies in research to find “BioRegio” development cleaning agents. new active compounds. A program.

31 Annual financial statements

Balance sheet of the BASF Group as of December 31, 1996 Million DM

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

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

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

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

Accounts receivable – trade 7,262.9 6,563.9 Receivables from affiliated companies 730.3 703.7 Miscellaneous 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 3,865.4 Checks, 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 3,048.8 Capital surplus (13) 4,917.6 4,703.9 Revenue reserves and profit retained (14) 12,248.2 10,317.0 Translation adjustment (6) –252.5 –495.4 Minority 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 6,657.5 Provisions for taxes 1,278.0 1,234.7 Other 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 1,387.9 Liabilities to credit institutions 998.0 1,444.9 Accounts payable – trade 3,183.8 2,770.7 Liabilities to affiliated companies 402.2 459.1 Miscellaneous 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

32 Annual financial statements

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

Notes 1996 1995

Sales (21) 52,201.9 49,402.6

– Petroleum and natural gas taxes 3,425.9 3,173.5 Sales (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 7,747.9 General administration expense 1,198.0 1,087.4 Research and development expense 2,285.8 2,087.9 Other operating income (22) 1,925.5 2,013.8 Other operating expense (22) 3,388.8 3,530.4

Income from operations 4,293.1 4,022.8

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

33 Annual financial statements

Balance sheet of BASF Aktiengesellschaft as of December 31, 1996 Million DM

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

Intangible assets (7) 713.0 115.7 Tangible assets (7) 3,020.3 2,991.0 Financial 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 1,768.2 Receivables from affiliated companies 3,337.4 2,190.4 Miscellaneous receivables and other assets 351.4 303.6

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

Securities 2,153.2 2,689.2 Cash 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 4,522.2 Revenue reserve (14) 5,439.4 4,789.4 Profit 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 4,534.0 Provisions for taxes 989.5 923,9 Other provisions (16) 2,633.4 2,626.5

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

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

34 Annual financial statements

Profit and loss account of BASF Aktiengesellschaft January 1 – December 31, 1996 Million 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 2,981.2 General administration expense 432.9 404.0 Research and development expense 1,416.8 1,310.5 Other operating income (22) 602.1 694.3 Other operating expense (22) 922.7 894.5

Income from operations 1,787.3 2,330.0

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

35 Annual financial statements

Development of fixed assets as of December 31, 1996 Million 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 rights and assets, as well as licenses for such rights and assets 2,263.8 14.1 774.0 185.2 17.9 2,884.6 Goodwill 434.9 105.4 227.6 48.3 5.9 725.5 Payments 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 including buildings on land owned by others 10,642.0 37.4 124.0 273.7 162.1 10,691.8 Machinery and technical equipment 38,365.0 230.1 976.6 1,172.5 1,931.0 40,330.2 Miscellaneous equipment and fixtures 5,390.7 6.8 303.3 511.7 359.9 5,549.0 Payments 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 2,152.4 Loans to affiliated companies 86.8 –46.8 1,026.7 15.6 0.5 1,051.6 Shares in associated companies 535.6 –100.2 12.8 11.9 36.8 473.1 Shares in participating interests 341.2 – 94.9 0.5 –0.2 435.4 Loans to associated companies and participating interests 35.7 – 67.6 39.8 1.8 65.3 Securities held as fixed assets 68.0 – 9.1 19.0 –0.2 57.9 Other 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 – 833.1 Goodwill 17.1 17.1 Payments on account – 0.9 – – 0.9

Intangible assets 356.6 658.7 164.2 – 851.1

Land, land rights and buildings including buildings on land owned by others 4,260.0 32.1 10.1 28.7 4,310.7 Machinery and technical equipment 14,469.2 336.6 198.5 379.3 14,986.6 Miscellaneous equipment and fixtures 2,474.5 121.8 117.8 108.3 2,586.8 Payments 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 – 15,325.9 Loans to affiliated companies 911.6 10.0 185.7 – 735.9 Participating interests 431.7 12.6 9.5 – 434.8 Loans to participating interests 22.6 – 22.6 Other 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

36 Annual financial statements

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 1,557.8 268.0 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 4,168.8 29,927.9 117.5 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 1,468.8 4.9 –4.9 – – – – – 1,051.6 81.9 54.5 1.4 – – – – 55.9 417.2 481.1 4.5 – 130.3 0.3 – – 134.5 300.9 336.7

– – – – – – – 65.3 35.7 1.0 – 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 – 136.4 696.7 115.7 1.7 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 3,428.4 882.3 951.9 13,418.4 562.2 195.7 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 9,662.3 2.8 – 0.6 – 2.2 733.7 908.8 0.8 0.3 0.2 – 0.9 433.9 430.9 22.6 4.2 – 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

37 Annual financial statements

Major affiliates

Company name and headquarters Number of employees Capital expenditures Sales Profit before taxes Dec. 31, 1996 Million DM 1996 Million DM 1996 Million DM 1996 Products and services Dec. 31,1995 Million DM1995 MillionDM1995 Million DM1995 Europe

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

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

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

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

BASF Lacke + Farben AG, Münster 4,142 46.3 1,720.5 12.6 Coatings, 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 1.8 Coatings, paints, printing inks, pigments 1,244 9.9 479.2 –3.8

BASF plc, Cheadle, Great Britain 1,346 30.3 1,665.8 99.5 Chemicals, 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 9.9 Coatings, paints, printing inks, pigments 576 7.1 317.8 5.6

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

Elastogran GmbH, Lemförde 3 1,222 19.9 1,626.8 117.5 Basic polyurethane products and systems, 1,209 14.7 1,513.2 107.5 PUR 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 5,558.5 804.1 Crude 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.

38 Annual financial statements

Major affiliates

North America

BASF Corporation, Mount Olive, 13,454 985.7 9,541.8 889.6 New Jersey, USA 6 14,051 503.7 8,889.3 678.8 Chemicals, 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 44.9 Mexico 6 1,113 30.4 233.8 –50.8 Chemicals, colorants and finishing products, coatings

South America

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

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

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

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

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

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

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

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

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

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

Mitsubishi Chemical BASF Company Ltd., 273 11.7 215.4 –0.9 Yokkaichi, Japan 4 279 14.0 252.8 –4.1 Styropor®, 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 transferred 2 Our holding: 60 (1995: 100) percent 3 Including its consolidated majority-owned German affiliates 4 Our holding: 50 percent 5 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 affiliates 7 Our holding: 40 percent, under uniform control

39 Notes BASF Group and BASF Aktiengesellschaft

The notes to the financial statements of the legislation; all disclosures relating to the Group BASF Group and BASF Aktiengesellschaft are apply to the Konzern. The financial statements combined. Unless expressly noted, the disclo- were prepared in accordance with the provi- sures refer to both financial statements. The sions of the German Commercial Code (HGB) BASF Group is identical with the BASF Kon- and the Stock Corporation Law (AktG). zern in its conformity with German accounting

(1) Scope of consolida- Domestic and foreign subsidiaries are included sellschaft. Furthermore, 35 subsidiaries, not tion, participating in the Group financial statements in full, and fully consolidated, and 13 associated compa- interests significant 50-percent-owned affiliates on a nies are included at their proportional share of pro rata basis. Subsidiaries of minor signifi- net equity (equity method). cance are not consolidated. The additions to the scope of consolidation The magnetic product business was sold to and the divestiture of the magnetic product KOHAP Inc., Korea, with effect from the end of business had the following effect on the Group the year. As a result, 4 companies were re- balance sheet: moved from the consolidated balance sheet as of December 31, 1996. Their sales and earn- Million DM % ings for 1996 are still included in the Group figures. Fixed assets – 214.2 –1.1 We signed a contract with Potash Corporation – thereof: tangible assets 65.4 of Saskatchewan Inc., Canada, to sell 51 per- Current assets –130.0 – 0.6 cent of our shares in Kali und Salz Beteiligungs Aktiengesellschaft, subject to antitrust laws or Assets – 344.2 – 0.8 official approval. This company was still fully consolidated on December 31, 1996, and its Equity –132.3 – 0.7 major affiliates, including Kali und Salz GmbH and Potash Company of Canada Ltd., were Provisions –193.6 –1.3 included under the equity method as before. Liabilities –18.3 – 0.2 The following companies were consolidated for the first time in 1996: Total liabilities – 211.9 – 0.9 – BASF Horticulture et Jardin S.A., Roche-Lez-Beaupré, France – BHC Company, Dallas, U.S. Sales revenues increased by DM 140 million or – BASF (Thai) Ltd., Bangkok, Thailand 0.3 percent as a result and on account of – Knoll Pharmaceuticals Ltd., Bombay, India acquisitions after the deduction of further dives- – Hanwha-BASF Urethane Ltd., Seoul, titures and due to relocations of certain other South Korea businesses to the other operational revenues. The number of consolidated companies also The comparability of the Group result is not changed because of restructuring measures significantly affected by the new additions, under company law. since the results of the newly consolidated As a result, the Group financial statements in- companies have already been included under clude 97 subsidiaries and 10 fifty-percent- the equity method. owned affiliates apart from BASF Aktienge-

(2) Consolidation The financial statements of the consolidated Where the accounting and valuation methods methods companies are prepared as of the balance applied in the financial statements of the con- sheet date of the Group financial statements. solidated companies deviate from these princi- In exceptional cases, interim financial state- ples, appropriate adjustments have been ments or extrapolations are drawn up as of the made to the relevant items. For companies ac- balance sheet date of the Group financial counted for under the equity method, signifi- statement. cant deviations in valuation methods have also Assets and liabilities of consolidated compa- been adjusted. nies are included uniformly in the Group finan- Intercompany sales, income and expense, and cial statements in accordance with the ac- loans, receivables, liabilities and provisions, counting and valuation methods described are eliminated in full; for 50-percent-owned here and in Note 3. Apart from consolidations, affiliates, on a pro rata basis. the financial statements of BASF Aktienge- Intercompany profits resulting from deliveries sellschaft are not adjusted for inclusion in the and services rendered between consolidated Group financial statements, except for pro- companies are eliminated, unless they origi- ceeds from stock warrants, which are included nate from the construction of plants on cus- in capital surplus including issues prior to 1985. tomary market conditions and are of minor

40 Notes BASF Group and BASF Aktiengesellschaft importance. With respect to the companies in- ate share in equity of such participations at the cluded by the equity method, intercompany time of the acquisition of the shares. The re- profits resulting from deliveries or services ren- sulting differences are allocated to the assets dered on customary market conditions are not or liabilities of the acquired companies up to eliminated, because the amounts are insignifi- their fair values. Any residual balances are cant or determining them would involve a dis- added to the assets as goodwill, and for the proportionately high effort. most part amortized within 5 years. Debit bal- The acquisition cost of participations is elimi- ances are debited to income pro rata to com- nated on consolidation against the proportion- pensate for expected special charges.

(3) Accounting and Intangible assets are valued at acquisition cost Years valuation methods less scheduled straight-line depreciation. Intangible assets Special write-downs are made in cases Product rights 7– 15 of expected permanent impairment of Marketing rights and similar 5 – 20 value. Know-how or patents 5 – 15 The average weighted depreciation period is Licenses and other rights of use 3 – 27 8 years, based on the following expected Software 3 – 25 useful lives: Other rights and values 5 – 10

Tangible assets Tangible assets are stated at acquisition or Years production cost less depreciation. Movable fixed assets subject to depreciation whose Buildings and structural installations 21 technical components of production are per- Industrial plant and machinery 9 manently integrated through their function and Long-distance natural gas pipelines 25 use are combined into a single asset item. Working and office equipment and The cost of self-constructed plants includes other facilities 8 direct costs and an appropriate proportion of the production overhead, but excludes financ- Special write-downs are made in cases of ex- ing costs for the period of construction. pected permanent impairment of value. Low Movable fixed assets are mostly depreciated value assets are fully depreciated in the year of by the declining balance method over the ex- acquisition and are shown as retirements. pected useful life, with a change to straight- Oil and gas exploration and drilling costs are line depreciation when this is higher. Long-dis- capitalized as tangible assets. They are depre- tance natural gas pipelines are the exception; ciated primarily by the declining balance they are depreciated using the straight-line method based on their estimated useful lives of method over their customary useful life. The 8 (for drilling operations in old fields) or 15 immovable fixed assets are mainly depreciated years. However, in certain regions, depreciation using the straight-line method. is calculated on the basis of production. Geo- The average weighted periods of depreciation physical expenditures, including exploratory and are as follows: dryhole costs, are charged against income.

Financial assets The acquisition cost of the companies ac- nent impairment of value, at the appropriate counted for by the equity method is increased lower values. or decreased by the proportionate share of net Loans are stated at acquisition cost or, in the income. The same principles apply to the full case of non-interest bearing loans or loans at consolidation as to the capital consolidation below market interest rates, at present value. and allocation of the resulting differences to Forseeable risks are covered by appropriate the assets and liabilities. Residual balances are write-downs. mainly amortized as goodwill within 5 years. Securities held as fixed assets are stated at The subsidiary companies included under the cost or, in the case of expected permanent equity method are shown as “shares in affili- impairment of value, at the appropriate lower ated companies”. values. The other participating interests are accounted for at cost or, in the case of expected perma-

Goods on lease Goods on lease consist of EDP equipment by devaluations in order to take into consider- (central processing units and peripheral ation lower attributable values on the return of equipment). They are shown at cost, reduced the equipment.

41 Notes BASF Group and BASF Aktiengesellschaft Inventories “Work in progress” and “Finished goods and The acquisition or production cost of raw merchandise” are combined into one item for materials, work in progress, finished goods the BASF Aktiengesellschaft inventories due to and merchandise is mainly determined by the the production conditions in the chemical in- LIFO method (annual-period LIFO), factory dustry. supplies generally by the average cost Uncompleted contracts relate mainly to do- method. The inventories of certain foreign com- mestic and foreign plants under construction panies for which a similar LIFO method is not for third parties. Expected profits are not allowed under local valuation rules are carried shown until final settlement of accounts for the at average cost in the Group financial state- projects in question, while expected losses are ments. This relates particularly to the dollar recognized by being written down to the lower value method applied in the case of BASF Cor- attributable value. poration. Inventories are carried at acquisition or pro- In the case of raw materials and factory sup- duction cost or the lower quoted or market plies, the lower market value represents the re- value, or at such lower values as appropriate. placement costs thereof, and, in the case of Production costs include direct costs and an work in progress and finished products, the appropriate portion of the production overhead lower appropriate value represents associated allocated using normal utilization rates of the production costs or the expected sales reve- production plants. Financing costs for the pro- nues less costs to be incurred prior to sale and duction period and costs for the company an average profit margin. pension scheme and voluntary social benefits are not included.

Receivables and other Receivables are carried at their nominal value. ferability, as well as general credit risks, are assets Notes receivable and non-interest-bearing or covered by appropriate write-downs and flat- low-interest-bearing loans are carried at their rate valuation adjustments. present value. Risks for collectibility and trans-

Marketable securities These are carried individually at cost or at bearing securities, some of them in closed in- lower stock-market or market values as appro- vestment funds. priate. They consist mainly of fixed-interest-

Special reserves with In the case of German companies, special re- of assets according to § 6 b Income Tax Law equity portion serves with equity portion may be formed in (EStG) and reserves for capital investments in accordance with the tax regulations for certain developing countries according to § 1 of the situations. The figure shown includes, in par- Developing Countries Tax Law. Appropriations ticular, the apportionment of gains from sales and write-backs are shown in Note 22.

Provisions The principles for the determination of provi- from consolidation operations which are ex- sions for pensions and similar obligations and pected to be offset in future years. Credit and their composition are explained in Note 15. debit differences are accumulated in each indi- Provisions for taxes, uncertain liabilities, antici- vidual case. In the event of residual credit bal- pated losses from uncompleted transactions ances, no apportionments are recorded for and deferred maintenance expenses to be in- deferred taxes. curred within the first 3 months of the following Provisions for required recultivation associated business year are recognized, in accordance with oil and gas exploration, especially the fill- with reasonable commercial expectation, in the ing of wells and clearance of oil fields, or the sum necessary to meet expected future pay- operation of landfill sites are recorded over the ment obligations, losses or expenses. Further- expected service life. more, some Group companies collect provi- Provisions for long-service and anniversary sions in installments for regular shutdowns of bonuses in the German Group companies are certain large-scale plants. formed by the partial value method at a calcu- Provisions for deferred taxes are recognized lated interest rate of 5.5 percent. Foreign for valuation differences between the commer- Group companies use comparable procedures cial and fiscal balance sheets of the consoli- permissible under national law. dated companies and for differences resulting

42 Notes BASF Group and BASF Aktiengesellschaft (4) Influence of special The German companies in the Group also ap- Other special depreciation, special reserves tax valuation measures ply certain balance-sheet and valuation princi- with equity portion or omitted write-offs are re- ples permitted on the basis of tax regulations. tained in the Group financial statements. Special depreciation allowed under the Devel- Mainly as a result of taking into account retro- opment Areas Law and measures based on spective scheduled depreciation for special tax circumstances which must be eliminated, are write-downs undertaken in earlier years, the not included in the Group financial statements. effect on earnings is as follows:

Million DM BASF Group BASF AG

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

Adjusted net income 2,772.0 1,684.0

The omitted write-offs were DM 2.9 million for or buildings, will be subject to scheduled the BASF Group and DM 2.4 million for BASF depreciation over the next few years. This is of Aktiengesellschaft. The influences arising from no substantial importance for the individual earlier special depreciation facilities, with the years as regards the future tax payment. exception of profits of sale transferred to land

(5) Continuity in There has been no change in the accounting operating income or expense but rather as a accounting and and valuation methods. There was a change in component of the financial result. The operat- valuation methods the way in which profits or losses from retire- ing result in 1995 would be reduced by ments of investments and securities shown as DM 25.4 million in the BASF Group and by current assets were presented in 1996. These DM 36.1 million at BASF Aktiengesellschaft on are no longer listed as a component of other a comparable basis.

(6) Currency conversion The cost of assets acquired in foreign curren- Foreign currency receivables are recorded at Conversion of foreign cies, as well as revenues from sales in foreign the rate prevailing on the acquisition date or at currency items currencies, are recorded at current rates on the lower rate on the balance sheet date. For- transaction dates. Items covered by specific eign currency liabilities are recorded at the rate hedging measures are recorded at the hedged prevailing on the acquisition date or at the rate. higher rate on the balance sheet date.

Conversion of foreign Currency conversion is based on the interna- on the date of acquisition or production (his- currency financial tionally recognized principle of the functional torical rates), all other assets, liabilities and statements currency. provisions at year-end current rates. The paid- The local currency is the functional currency in equity is converted at rates on the date of of our subsidiaries and affiliates in North payment or acquisition; earned equity is deter- America, Japan and Korea, because of the low mined as a remaining balance in the balance utilization of the German mark in the trading sheets converted in accordance with these operations. The balance sheet items are con- principles. verted to DM at year-end current rates, and Expenses and income are converted at quar- the expense and revenue at quarterly average terly average rates, or monthly average rates rates. The difference between the equity at the for companies in high-inflation countries, ex- rates on the date of payment or accumulation cept when they are shown in the balance- and at year-end current rates is classified sep- sheet items converted at historical rates. The arately as “translation adjustment”. The adjust- changes to balance sheet items converted at ment of fixed assets to year-end current rates year-end exchange rates are reported under is included in the “reclassifications” category in other operating expense or income. the development of fixed assets. In the case of companies in high-inflation The financial statements of the other compa- countries, sales revenues, interest and foreign nies are converted in accordance with the exchange results, inventories and trade ac- modified temporal method. The fixed assets, counts receivable and payable have been ad- except loans, are converted at rates in effect justed for inflation.

43 Notes BASF Group and BASF Aktiengesellschaft Notes to the balance The development of gross book values and are shown in a schedule following the balance sheet amortizations by individual categories of fixed sheet and profit and loss account. assets and a summary of the major affiliates

(7) Intangible and The additions to intangible assets relate pri- subsidiary BASF S.A., Brazil. As a result of the tangible assets marily to product rights and developments and opening of the Brazilian market, various pro- goodwill resulting from the acquisition of duction units are not competitive. Accordingly, Zeneca’s textile dye business and Sandoz’s the book values had to be adjusted to the corn herbicide business. cash values of the expected future cash flows. Unscheduled write-downs of tangible assets to Overall, the following special write-downs were a lower assigned value mainly relate to our carried out:

Million DM BASF Group BASF AG

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

(8) Financial assets The additions to “Shares in affiliated compa- Depreciation for permanent impairment in nies” result primarily from the acquisition of a value and discounts on loans amounted to majority holding in the Japanese pharmaceuti- DM 150.9 million in the BASF Group, particu- cal company Hokuriku Seiyaku Co., Ltd. larly for the reduction in value of our holding in In the case of BASF Aktiengesellschaft, there IVAX Corporation because of the sharp fall in were further additions resulting from capital in- the quoted price of these shares. creases in consolidated companies, mainly In the case of BASF Aktiengesellschaft, the BASF Chemie-Beteiligungsgesellschaft mbH, carrying values of the participations in BASF in anticipation of a future commitment in China, S.A., Brazil, BASF Vitaminfabrik A/S, Denmark, as well as Knoll AG and BASF S.A., Brazil. in connection with the merger with BASF The increases in “Loans to affiliated compa- Health & Nutrition A/S, Denmark, and BASF nies” include the granting of a loan by our sub- (Malaysia) Sdn. Bhd., Malaysia, were written sidiary Kali-Bank of DM 1 billion to our Russian down by DM 195.0 million as a result of the fall joint venture partner Gazprom to assist with in the capitalized income value. the construction of the Yamal natural gas transit pipeline.

(9) Inventories Inventories are as follows:

BASF Group BASF AG Million DM 1996 1995 1996 1995

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

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

For BASF Group inventories valued on the DM 26 million and work in progress, finished LIFO basis, LIFO reserves are approximately goods and merchandise at approximately DM 251 million. For BASF Aktiengesellschaft, DM 115 million. raw materials are valued at approximately

44 Notes BASF Group and BASF Aktiengesellschaft (10) Receivables and The miscellaneous receivables and other other assets assets consist of: Breakdown of miscellaneous receivables BASF Group BASF AG and other assets Million DM 1996 1995 1996 1995

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

1,607.7 1,638.7 351.4 303.6

Other assets include DM 77.7 million for the Aktiengesellschaft of accrued items, mainly of BASF Group and DM 54.0 million for BASF accrued interest.

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

BASF Group BASF AG Million DM 1996 1995 1996 1995

Accounts receivable – trade 18.7 16.0 0.9 1.9 Receivables from affiliated companies 26.6 21.8 4.8 0.8 Receivables 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

(11) Prepaid expenses BASF Group BASF AG Million 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

Deferred tax assets are formed for lower DM 110.5 million were offset against the valuations in the commercial balance sheet as deferred tax assets. compared with the fiscal balance sheet. These Debit discount, arising primarily from the issue differences arise from consolidation opera- of a low-interest bond, is capitalized and writ- tions, especially the elimination of interim prof- ten down as interest expense over the term of its in inventories. Deferred tax liabilities of the underlying obligations.

45 Notes BASF Group and BASF Aktiengesellschaft (12) Subscribed capital In accordance with a resolution of the Annual value of DM 5 each. The stock exchange Meeting of May 9, 1996, 2,000,000 shares listing was converted to the DM 5 share on with a nominal value of DM 50 each were con- July 1, 1996. verted to 20,000,000 shares with a nominal

Number of shares Nominal value DM DM 5 DM 50

January 1, 1996 60,976,628 3,048,831,400 Conversion 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 41,428,950 Additions from conditional capital through exchange of Wintershall shares 26 1,300

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

Conditional capital The conditional capital of BASF Aktiengesell- As the Annual Meeting of May 9, 1996 author- schaft totals DM 299,585,000. Of this, ized the Board of Executive Directors to do so, DM 99,585,000 is reserved for settling sub- bonds in the nominal sum of up to DM 600 scription rights connected with Bond million may be issued by April 1, 2001, 1986/2001 of BASF Finance Europe N.V. and together with option rights to new shares in a for settling compensation claims by former total nominal sum of up to DM 200 million. Wintershall shareholders.

Subscription rights The subscription rights from the 3% U.S. Dol- 1,991,421 shares in BASF Aktiengesellschaft lar Bond 1986/2001 of BASF Finance Europe at a price of DM 308 per share with a nominal N.V. allow the purchase, by April 9, 2001, of value of DM 50.

Authorized capital The Board of Executive Directors is authorized, in § 3 in the Articles of Incorporation to the ex- with the approval of the Supervisory Board, to tent to which they would be entitled after exer- increase the capital stock by the issue of new cising the subscription right. In the case of shares in the amount of up to DM 600 million capital increases against cash contributions up for cash or contributions in kind through to a maximum total sum of DM 300 million, the April 1, 2000. The legal subscription privilege legal subscription privilege can be overruled if can be overruled to the extent necessary to the issue price of the new shares is not sub- grant subscription rights for new shares to the stantially below the stock exchange price. bearers of warrants from the bonds mentioned

(13) Capital surplus Million DM BASF Group BASF AG

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

December 31, 1996 4,917.6 4,736.0

Capital surplus includes share premiums from carrying participating interests acquired by stock issues, compensation for stock warrants issuing shares of BASF Aktiengesellschaft at and for the BASF Group credit balances from the par value of shares issued. the capital consolidation, which resulted from

46 Notes BASF Group and BASF Aktiengesellschaft (14) Revenue reserve Revenue reserve Million DM and profit retained BASF Group January 1, 1996 295.8 Transfers 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 10,021.2 Dividend of BASF Aktiengesellschaft (previous year) – 853.7 Transfers to legal reserves –10.6 Net income after minority interests 2,790.2 Changes in the scope of consolidation and other changes – 4.9

December 31, 1996 11,942.2

In the Group financial statements, “Other combined into one item in order to take into revenue reserves” and “Profit retained” are account the special features of consoliation.

BASF Aktiengesellschaft Other revenue reserves Million DM

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

December 31, 1996 5,439.4

Profit retained Million DM

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

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

(15) Provisions for Most employees of the consolidated compa- Additional company pension commitments are pensions and similar nies are entitled not only to future pensions financed, in the case of German companies, obligations from statutory pension plans but also to pay- by pension provisions. These are determined ments from contributory or performance- by actuarial principles by the modified entry oriented pension plans. The benefits are gen- age normal method with a discount rate of erally determined by the length of employment, 6 percent. Adjustments under § 16 Employee remuneration or contributions of the entitled Social Security Benefits Law (Betr AVG) are employees, taking into account the provisions recognized in the amount of advance commit- of labor and social law in the various countries. ments entered into or by installments in accor- For BASF Aktiengesellschaft and other Ger- dance with the expected need of adjustment. man group companies, basic benefits are pro- In the case of foreign Group companies, pen- vided by the legally independent BASF Pension sion entitlements are covered in some cases Benefits System, which is financed by contri- by pension provisions but mainly by externally butions from members and companies and is financed pension funds, which show the fol- subject to the Law on the Supervision of Pri- lowing obligations and assets: vate Insurance Companies (VAG).

Million DM 1996 1995

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

Commitments by our North American Group calculated in accordance with actuarial rules, companies to provide for the costs of medical allowing for future cost trends, using a dis- and life insurance benefits for employees and count rate of 7.5 percent. The provisions dependents after retirement are recorded as amount to DM 522.5 million (1995: DM 559.5 obligations similar to pensions. They are million).

47 Notes BASF Group and BASF Aktiengesellschaft (16) Other provisions BASF Group BASF AG Million DM 1996 1995 1996 1995

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

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

(17) Liabilities BASF Group BASF AG Bonds and other liabilities Million DM 1996 1995 1996 1995 to the capital market 8% U.S. Dollar Bonds of BASF Finance Europe 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 – –

Other liabilities BASF Group BASF AG Million DM 1996 1995 1996 1995

Advances received on account of orders 131.4 103.5 58.9 24.5 Liabilities on bills 19.1 28.6 – – Liabilities to companies in which participations are held 393.3 378.1 119.0 111.2 Miscellaneous 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 AG Million DM Up to More Up to More one than one than year 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 9.7 Accounts payable – trade 3,155.5 – 832.9 – Liabilities to affiliated companies 385.7 – 4,703.9 1.0 Advances 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 1.5 Other liabilities 1,469.8 811.4 391.1 14.5

6.209.4 1,093.8 6,091.5 26.7

48 Notes BASF Group and BASF Aktiengesellschaft Secured liabilities BASF Group BASF AG Million DM 1996 1995 1996 1995

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

286.1 360.7 109.9 59.1

Liabilities are collateralized primarily by maintain certain financial ratios have been mortgages or land charges. Covenants to declared.

(18) Contingent BASF Group BASF AG liabilities Million DM 1996 1995 1996 1995

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 1,425.2 Contingent liabilities from warranties 74.4 56.1 324.7 251.7 Contingent 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 financial BASF Group BASF AG commitments Million DM 1996 1995 1996 1995

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

Uncompleted investment projects will be com- Other commitments comprise DM 2.5 million of pleted and financed according to schedule. BASF Aktiengesellschaft to affiliated companies.

(20) Derivative financial To reduce the risks of foreign exchange and positions, cash investments or finance arising instruments interest rate changes, use is made of forward from the operating business, and is subject to exchange and option transactions as well as strict internal controls in compliance with the interest or currency swaps or combined instru- principles of separation of functions. ments. Their use is confined to hedging the BASF Group BASF AG Million DM Nominal Market Nominal Market value value value value

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

6,008.9 –100.5 3,307.2 – 82.8

The nominal values are the totals for the pur- in the case of unlisted contracts, the yield in chase and sale of the specific derivatives with- the event of premature writing back. Contrary out netting. The market values correspond to value developments resulting from the basic the difference between the cost and resale transactions are not taken into account. To value, which is determined from market quota- limit the risk of nonpayment, transactions are tions or by the use of option price models or, concluded only with leading banks.

49 Notes BASF Group and BASF Aktiengesellschaft Notes to the profit and loss account and other disclosures

(21) Sales BASF Group BASF AG Breakdown by operations Million DM 1996 1995 1996 1995

Health & Nutrition 9,115.0 7,986.2 4,058.4 3,842.4 Colorants & Finishing Products 11,284.6 10,766.0 4,670.8 4,466.0 Chemicals 7,300.3 7,255.4 5,521.2 5,668.7 Plastics & Fibers 12,079.8 12,456.0 5,679.0 6,230.4 Oil & 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 21,060.8 Petroleum/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

The sales of “Information Systems”, shown as counted for by Comparex Informationssysteme a separate operation last year, are included GmbH and the magnetic product business under “Other”; the previous year’s figures have sold at year-end. been adjusted. A substantial proportion is ac-

Breakdown by regions BASF Group BASF AG Million 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 1,174.2 South America 2,691.4 2,338.6 538.7 471.4 Asia, 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 21,060.8 Petroleum/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

(22) Other operating BASF Group expenses or income Million DM 1996 1995 Other operating income Dissolution or adjustment of provisions 907.7 935.1 Income from other nontypical transactions 218.1 155.7 Profits from foreign currency and conversion transactions 413.7 378.5 Dissolution 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

Other operating expenses BASF Group Million DM 1996 1995

Costs of restructuring, shutdowns, severance packages and other personnel obligations 828.1 697.9 Environmental protection and safety measures, costs of demolition, disposal and projects excluded from capitalization 330.6 431.8 Losses from foreign exchange and conversion transactions 322.8 561.8 Prime costs of the other nontypical transactions 216.7 153.8 Transfers 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

50 Notes BASF Group and BASF Aktiengesellschaft The expenses of restructuring and shutdown Indonesia, which were not included in the sale, measures include charges resulting from the were shut down. Additional charges were divestiture of the magnetic product business, incurred as a result of the restructuring of which we sold to KOHAP Inc., Korea. Coatings and of Printing Systems. Plants and facilities in the United States and

(23) Net income from BASF Group BASF AG financial assets Million DM 1996 1995 1996 1995

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 67.4 182.8 Expenses from loss transfers 118.6 73.0 153.1 351.9 Results of affiliated and associated companies (equity method) 77.1 52.2 – –

107.7 128.3 388.6 8.7

BASF Group: The profits of affiliated and asso- paid by Comparex Informationssysteme ciated companies shown by the equity method GmbH, Mannheim, with DM 132.7 million, in- include, in addition to the proportions of the cluding corporation tax credits, and BASF profits made, amortization of goodwill and ad- Coordination Center N.V., Antwerp, with justments of negative differences. The profits DM 199.6 million, BASF Española S.A., Barce- primarily relate to income from Kali und Salz lona, with DM 17.8 million, BASF Magnetics GmbH, Kassel, with DM 55.7 million, in partic- France S.A., Levallois, with DM 23.1 million, ular as a result of the adjustment of a negative and BASF France S.A., Levallois, with DM 17.7 difference, Potash Company of Canada Group, million. Toronto, with DM 28.1 million, and Polioles, Income from profit transfers were derived pri- S.A. de C.V., Mexico City, with DM 7.1 million. marily from Rheinische Olefinwerke GmbH, Losses were incurred by Shanghai BASF Wesseling, and from BASF Schwarzheide Colorants and Auxiliaries Co., Shanghai, with GmbH, Schwarzheide. Expenses from loss DM 40.7 million, Hokuriku Seiyaku Co., Ltd., transfers relate primarily to Knoll AG, Ludwigs- Katsuyama City, caused by scheduled depreci- hafen, with which a profit-sharing agreement ation of goodwill, with DM 16.6 million, and was concluded in 1996, and BASF Waren- und Wintershall (UK) Ltd., London, with DM 14.3 Anlagenvertriebs- und -leasing GmbH, Lud- million. wigshafen. BASF Aktiengesellschaft: Income from participating interests relates primarily to dividends

(24) Interest result BASF Group BASF AG Million DM 1996 1995 1996 1995

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

The interest expenses also include charges from invoicing after tax office investigations.

51 Notes BASF Group and BASF Aktiengesellschaft (25) Taxes BASF Group BASF AG Million 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, trade from allocating these taxes is included in other income tax and similar income-related taxes as operating income. well as deferred taxes. Tax expenses of BASF Other taxes, particularly property tax, trade Aktiengesellschaft also include income taxes capital tax and real estate tax, are allocated to to be paid for companies under tax assump- operational costs. tion agreements; the corresponding income

(26) Cost of materials of Million DM 1996 1995 BASF Aktiengesellschaft Cost of raw materials, consumables and supplies and for purchased merchandise 9,018.5 9,366.2 Cost of purchased services 2,149.5 1,851.4

11,168.0 11,217.6

(27) Employees BASF Group BASF AG Personnel cost Million DM 1996 1995 1996 1995

Wages and salaries 8,718.4 8,404.3 4,090.0 4,053.4 Social 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

Cost of employees’ On the basis of statutory regulations, German representatives. BASF Aktiengesellschaft ac- representatives Group companies incurred costs of DM 22.5 counted for DM 13.5 million (1995: DM 12.6 million (1995: DM 21.0 million) for employees’ million) of this sum.

Average number of Fully consolidated Pro rata consolidated employees companies 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 3,525 thereof with trainee contracts 2,785 2,901 133 138

The personnel figures for the companies which 50 percent, the average number of personnel are consolidated pro rata are given in full in the for the Group is 106,074 in 1996 and 107,320 above list; if they are taken into account at in 1995.

BASF AG 1996 1995

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

43,988 44,547

52 Notes BASF Group and BASF Aktiengesellschaft (28) Minority interests BASF Group Million DM 1996 1995

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

48.5 – 47.2

The minority interests in profits relate to inter- Gazprom Group in the earnings of the compa- ests in the profits of Kali und Salz Beteiligungs nies active in the natural gas business are in- AG and its affiliated companies, EBEWE Arz- cluded both in the profit interests and in the neimittel Ges. mbH and Comparex Informa- loss interests. tionssysteme GmbH. Interests held by the

(29) Remuneration of Total remuneration of the Supervisory Board Loans granted to members of the Board of Ex- the Board of Executive amounts to DM 2.4 million, of the Board of Ex- ecutive Directors amount to DM 0.1 million Directors and the ecutive Directors to DM 19.2 million, including (1995: DM 0.3 million), the loans bearing an Supervisory Board, the remunerations granted by subsidiaries in interest rate of 5 percent. The terms are 10 advances and loans the amount of DM 2.4 million. These sums in- years. During 1996, loans of DM 0.2 million granted clude the deferred success-dependent pay- were repaid. New loans were not granted. ments for 1996. Total remuneration of former There were no commitments assumed in favor members of the Board of Executive Directors of these persons. The members of the Board and their survivors amounts to DM 7.7 million. of Executive Directors and of the Supervisory Pension provisions for former members of the Board are listed on separate pages following Board of Executive Directors amount to these notes. DM 61.9 million.

Proposed distribution We propose to the Annual Meeting of Share- stock of DM 3,090,261,650 entitled to a divi- of profit retained holders the distribution of a dividend of DM 1.70 dend will be DM 1,050,688,961, leaving an un- per share at a nominal value of DM 5 from the distributed amount of DM 98,182. profit retained of DM 1,050,787,143 of BASF We propose this amount be carried forward. Aktiengesellschaft. Eligible domestic shareholders also receive a tax credit of DM 0.73. Ludwigshafen, March 4, 1997 If the proposal is accepted, the dividend payable for the 1996 financial year on capital The Board of Executive Directors

Accountants’ opinion The accounting records and the financial The financial statements of the BASF Group, statements of BASF Aktiengesellschaft, which which we have audited in accordance with we have audited in accordance with profes- professional standards, comply with the Ger- sional standards, comply with the German le- man legal provisions. gal provisions. The financial statements of the BASF Group, The financial statements of BASF Aktienge- prepared in accordance with generally ac- sellschaft, prepared in accordance with gener- cepted accounting principles, give a true and ally accepted accounting principles, give a true fair view of the net worth, financial position and fair view of the net worth, financial posi- and earnings of the BASF Group. tion and earnings of BASF Aktiengesellschaft. The BASF Group Management’s Analysis, The BASF Aktiengesellschaft Management’s which is combined with the Management’s Analysis, which is combined with the BASF Analysis of BASF Aktiengesellschaft, is consis- Group Management’s Analysis, is consistent tent with the financial statements of the BASF with the financial statements of BASF Aktien- Group. gesellschaft.

Deloitte & Touche GmbH Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft Wirtschaftsprüfungsgesellschaft

Frankfurt, March 4, 1997 Frankfurt, March 4, 1997

Prof. Dr. Emmerich Kompenhans Prof. Dr. Emmerich Dr. Künnemann Wirtschaftsprüfer Wirtschaftsprüfer Wirtschaftsprüfer Wirtschaftsprüfer

53 Report of the Supervisory Board

We carefully supervised the management of the company’s Aktiengesellschaft, have been examined by Deloitte & Touche affairs during the period under review. We kept ourselves fully GmbH, the auditors elected by the Annual Meeting, and have and continuously informed about important issues of manage- been given an unqualified opinion. The auditors gave detailed ment in 6 meetings with the Board of Executive Directors and explanations of their report at a meeting specifically called for by reviewing its written and verbal reports. Reporting included this purpose before the accounts meeting. Having concluded the major companies in the BASF Group. At two of our examination we concur with the auditors and see no the meetings, division presidents of BASF reported on their grounds for objections. operations. We dealt thoroughly with the strategic orientation The Financial Statements and Management’s Analysis of the of the BASF Group. In accordance with the statutes, we BASF Group as well as the report of the auditors Deloitte & discussed major acquisitions and divestitures made in this Touche GmbH elected by the Annual Meeting, who have connection. expressed an unqualified opinion, have been brought to our In March 1996, we appointed Messrs. Helmut Becks and attention. At today’s meeting, we approved the Financial State- Eggert Voscherau to the Board of Executive Directors of the ments of the company drawn up by the Board of Executive company, with effect from November 1, 1996. Dr. Jürgen Directors, which are thus final, and concur with the proposal Hambrecht and Dr. Stefan Marcinowski were appointed to the of the Board of Executive Directors regarding the retained Board in December 1996. They will take up office at the end profit. of the Annual Meeting of the company on May 15, 1997. Mr. Wolfgang Daniel succeeded Mr. Ulrich Nickel as member We have examined the Financial Statements and Manage- of the Supervisory Board on September 9, 1996. ment’s Analysis of BASF Aktiengesellschaft and the proposal for the appropriation of net income. The Financial Statements, Ludwigshafen, March 18, 1997 including the books and Management’s Analysis of BASF The Supervisory Board

Supervisory Board

Dr. rer. nat. Hans Albers Professor Dr. rer. nat. Ulrich Nickel Klaus Südhofer Bad Dürkheim Manfred Eigen Frankenthal Recklinghausen Chairman Göttingen Deputy Chairman of the Deputy Chairman of Industrie- Works Council of the gewerkschaft Bergbau und Ener- Professor Dr. rer. nat. Director, Max Planck Institute for Biophysical Chemistry Ludwigshafen Works gie (Mining and Energy Industries Matthias Seefelder in Göttingen of BASF Aktiengesellschaft Union) Heidelberg Deceased September 9, 1996 Honorary Chairman Lothar Hick Jürgen Walter Limburgerhof Ellen Schneider Neustadt am Rübenberge Volker Obenauer Member of the Works Council Wallenhorst Member of the Central Board Ludwigshafen of the Ludwigshafen Works Chairwoman of the Joint Works of Executive Directors Deputy Chairman of BASF Aktiengesellschaft Council of Elastogran GmbH of Industriegewerkschaft Chairman of the Works Council Chemie-Papier-Keramik Dr. jur. of the Ludwigshafen Works Dr. rer. nat. (Chemical, Paper and Ceramics of BASF Aktiengesellschaft Wolfgang Jentzsch Henning Schulte-Noelle Industries Union) Munich Dr. phil. Marcus Bierich Mannheim Chairman of the Board Dr. rer. pol. Ulrich Weiss Stuttgart Ulrich Küppers of Executive Directors Bad Soden Chairman of the Supervisory Ludwigshafen of Allianz Aktiengesellschaft Member of the Board of Board of Robert Bosch GmbH General Manager of the Executive Directors Gerhard Sebastian Wolfgang Daniel Ludwigshafen branch of of Deutsche Bank AG Industriegewerkschaft Ludwigshafen Limburgerhof Chemie-Papier-Keramik Member of the Works Council Helmut Werner Deputy Chairman of the (Chemical, Paper and Ceramics of the Ludwigshafen Works Stuttgart Works Council of the Industries Union) of BASF Aktiengesellschaft Ludwigshafen Works of BASF Aktiengesellschaft Professor Dr. rer. nat. Gerhard Söllner We mourn Mr. Ulrich Nickel, From September 9, 1996 Hans Joachim Langmann Philippsthal Chairman of the who died on September 9, Etienne Graf Davignon Jugenheim/Bergstrasse Chairman of the Board of Joint Works Council 1996 at the age of 60. As Brussels of Kali und Salz GmbH Deputy Chairman of the President of Société Générale Executive Directors of Works Council of the Lud- de Belgique Merck KGaA Robert Studer wigshafen Works of BASF Dr. rer. nat. Zurich Aktiengesellschaft, he had Karlheinz Messmer President of the Administrative Council of been a member of our Weisenheim am Berg Schweizerische Bankgesellschaft Plant Manager at the Supervisory Board since (Union Bank of Switzerland) Ludwigshafen Works of 1991. BASF Aktiengesellschaft

54 Board of Division heads Executive Directors

Dr. Jürgen Strube José-Maria Bach Dr. Jürgen Hambrecht Dr. Gerhard Paul Chairman Southern Europe East Asia Colorants Laboratory Dr. Ralf Bethke Dr. Hans Jörg Henne Dr. Werner Prätorius Dr. Hanns-Helge Stechl Potash & Salt Environment, Safety & Energy Engineering Plastics Deputy Chairman Erich Binckli Herbert O. Hetz Dr. Siegfried Riedmüller Central Europe Corporate Information Services Colorants & Process Chemicals Dr. Albrecht Eckell Dr. Egon Buhr Dr. Carl A. Jennings Professor Max Dietrich Kley BASF Aktiengesellschaft North America Dr. Hans-Uwe Schenck Works Engineering Chemicals BASF Group Human Resources Professor Dr. Hans-Jürgen Dr. Manfred Buller Wilfried Kahlmann Professor Quadbeck-Seeger North America South America Dr. Burghard Schmitt Coatings Dr. Hans Kast Polyolefins & PVC Dr. J. Dieter Stein Dr. Werner Burgert Japan Dr. Thorlef Spickschen Fiber Products Pharmaceuticals Dr. Volker Trautz Helmut Klamm Dr. Dieter Degner Logistics Barry John Stickings Ammonia Laboratory Professor Dr. Dietmar Werner Dr. Harald Köhl Northern Europe Up to December 31, 1996 Dr. Hans-Hermann Dehmel Specialty Chemicals Dr. Eckart Sünner BASF Aktiengesellschaft Dr. Josef F. Kohnle Legal, Taxes & Insurance Gerhard R. Wolf Human Resources Dispersions Dr. Dieter Suter Herbert Detharding Professor Dr. Werner Küsters Fine Chemicals From November 1, 1996: Oil & Gas Main Laboratory Dieter Thomaschewski Helmut Becks Jean-Pierre Dhanis Dr. Jürgen Lenz Fertilizers Eggert Voscherau Polyurethanes Corporate Engineering Eggert Voscherau Dr. Antoon Dieusaert Klaus Peter Löbbe North America Antwerp Works Coatings Consumer Products & Life Dr. Christian Dudeck Science Dr. Stefan Marcinowski Intermediates Winfried Werwie Foam Plastics & Eastern Europe, Africa, Dr. John Feldmann Reactive Resins West Asia Southeast Asia/Australia Klaus Messinger Professor Dr. Walter Frey North America Engineering Research & Finance Development Wolfgang Mörike Dr. Elmar Frommer Raw Materials Purchasing Planning & Controlling Dr. Albrecht Müller Dr. R. Wayne Godwin Textile & Leather Dyes & North America Chemicals Polymers Dr. Rolf Niess Dr. Walter Gramlich Basic Chemicals Industrial Chemicals Dr. Dietmar Nissen Harald Grunert Polymers Laboratory Finance Peter Oakley Crop Protection As of December 31, 1996

55 Ten-year summary BASF Group

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 2,536 Tangible assets 9,807 10,716 11,865 13,252 14,629 15,214 17,722 15,993 15,399 16,071 Financial 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 goods on lease 5,671 6,067 6,533 6,407 6,456 6,748 6,317 6,262 6,725 7,169 Accounts receivable – trade 4,861 5,920 5,805 5,793 5,655 5,446 5,748 6,483 6,564 7,263 Miscellaneous receivables 2,299 2,239 2,422 2,913 3,233 3,370 2,765 2,592 2,808 2,758 Receivables 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 8,008 Revenue reserves and profit retained 4,873 5,330 6,661 7,054 7,372 7,315 7,629 8,441 10,317 12,248 Translation adjustment –232 –453 –496 –253 Minority 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 other long-term provisions* 8,314 8,918 9,228 9,696 9,353 9,980 10,185 9,857 9,776 9,881 Tax and other short-term provisions 2,947 3,390 3,631 3,820 4,167 3,795 3,821 4,147 4,680 4,677 Provisions* 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 2,038 Accounts payable – trade 2,505 2,905 3,096 3,385 3,224 2,892 2,802 2,995 2,771 3,184 Other liabilities 1,692 2,409 2,030 2,136 2,167 2,761 3,242 3,308 4,048 3,449 Liabilities 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

56 Ten-year summary BASF Group

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

Sales and earnings Sales 38,805 42,323 46,163 45,043 44,556 41,933 40,568 43,674 46,229 48,776 Income from operations 2,586 3,710 4,329 2,755 2,180 1,311 1,032 2,149 4,023 4,293 Profit before taxes 2,587 3,726 4,384 2,747 2,110 1,239 1,058 2,111 4,128 4,414 Net income 1,055 1,432 2,030 1,111 1,056 613 761 1,170 2,423 2,839 Net 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 depreciation Additions 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 3,639 Depreciation of fixed 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 4.51 Cash flow 4,380 5,504 5,520 5,024 4,765 4,451 4,635 5,565 6,368 6,798 Cash flow per share (DM) 79 97 97 88 84 78 79 91 104 11.00 Return on sales before income taxes and interest expenses (%) 7.8 9.7 10.6 7.3 5.9 4.3 3.8 6.0 9.9 10.0 Return 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 11.4 Return 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 of BASF Aktiengesellschaft 820 1,184 1,398 1,041 884 770 668 910 1,354 1,701 Transferred to revenue reserve 265 500 600 300 200 200 200 300 500 650 Dividend 555 684 798 741 684 570 468 610 854 1,051 Dividend 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

Please contact

Investor Relations: Klaus D. Jessen Tel. +49-621-60-43263 Further reporting Fax +49-621-60-22500

First quarter 1997 May 15,1997 Press Department, Business First half 1997 August 14,1997 and Financial Press: Third quarter 1997 November 13,1997 Bernd Gerling Year 1997 March 26,1998 Fax +49-621-60-20129 Internet: 1998 Annual Meeting May 19,1998 Tel. +49-621-60-99938 http://www.basf.de/annual-report This report was printed with K+E printing inks on paper produced using BASF finishes and colorants.

BASF Aktiengesellschaft 67056 Ludwigshafen Germany