Equity The foremost objectives of our financial management are to help bring about a sustained increase in Bayer’s value for the benefit of all stakeholders, and to ensure the Group’s creditworthiness and liquidity. The pursuit of these goals means reducing our cost of capital, optimizing our capital structure, improving our financing cash flow and effectively managing risk. The rating agencies commissioned by Bayer assess Bayer’s creditworthiness as follows: (XLS:) Download Rating Long-term rating Short-term rating S&P Global Ratings A– A–2 Moody’s A3 P–2 These credit ratings reflect the company’s high solvency and ensure access to a broad investor base for financing purposes. As a result of the agreed acquisition of Monsanto, both S & P Global Ratings and Moody’s are reviewing the possibility of downgrade. Bayer will continue to target an investment-grade rating after the successful closing of the Monsanto acquisition. We remain committed to the single “A” credit rating category over the long term. Apart from utilizing cash inflows from our operating business to reduce net financial debt, we are implementing our financial strategy by way of vehicles such as the subordinated hybrid bonds schließen Hybrid bond A hybrid bond is a corporate bond with equity-equivalent properties, usually with either no maturity date or a very long maturity. Due to its subordination, it has a lower likelihood of repayment than a normal bond in the event of issuer bankruptcy. issued in July 2014 and April 2015, the mandatory convertible notes issued in November 2016, the authorized and conditional capital, and a potential share buyback program. The changes in the various components of equity during 2016 and 2017 are shown in the consolidated statements of changes in equity. Capital stock The capital stock of Bayer AG on December 31, 2017, amounted to €2,117 million (2016: €2,117 million), divided into 826,947,808 (2016: 826,947,808) registered no-par shares, and was fully paid in. Each no-par share confers one voting right. Authorized and conditional capital The authorized and conditional capital was comprised as follows: (XLS:) Download Authorized and Conditional Capital Capital Resolution Amount / shares Expires Purpose Authorized capital I April 29, 2014 €530 million April 28, 2019 Increase the capital stock by issuing new no-par shares against cash contributions and / or contributions in kind, the latter not to exceed €423 million Authorized capital II April 29, 2014 €212 million April 28, 2019 Increase the capital stock by issuing new no-par shares against cash contributions Conditional capital April 29, 2014 €212 million / up to 82,694,750 no-par shares April 28, 2019 Increase the capital stock by granting no-par shares to the holders of bonds with warrants or convertible notes, profit participation certificates or income bonds; the authorizations to issue such instruments are limited to a total nominal amount of €6 billion. Capital increases are effected by issuing new registered no-par shares. Stockholders must normally be granted subscription rights. However, subscription rights may be excluded under certain conditions stated in the authorization resolutions. Absent a further resolution of the Annual Stockholders’ Meeting on the exclusion of stockholders’ subscription rights, the Board of Management may only use the existing authorizations to increase the capital stock out of the authorized capital I and II or the conditional capital – while excluding stockholders’ subscription rights – up to a total amount of 20% of the capital stock that existed when the respective resolutions were adopted by the Annual Stockholders’ Meeting on April 29, 2014. All issuances or sales of no-par shares or of bonds with warrants or conversion rights or obligations that are effected while excluding stockholders’ subscription rights also count toward this 20% limit. Details of the authorized and conditional capital are provided in the Notice of the Annual Stockholders’ Meeting of April 29, 2014, and on the Bayer website. The authorized capital I and the authorized capital II have not been utilized so far. On November 22, 2016, Bayer placed mandatory convertible notes in the amount of €4,000 million without granting subscription rights to existing stockholders of the company. The notes, denominated in units of €100,000, were issued by Bayer Capital Corporation B.V. under the subordinated guarantee of Bayer AG. At maturity, the outstanding amount of the notes will be mandatorily converted into registered no-par shares of Bayer AG. After deduction of €48 million in transaction costs and recognition of €191 million in deferred taxes, €3,491 million were allocated to capital reserves and €652 million to financial liabilities. The deferred taxes result from temporary differences in accounting for the liability component and were recognized outside profit or loss in equity. As at December 31, 2017, the financial liability had decreased by €125 million, resulting in a €41 million deferred tax reversal through profit or loss. The issuance of the mandatory convertible notes constitutes a utilization of the conditional capital. Accumulated comprehensive income Accumulated comprehensive income comprises retained earnings and accumulated other comprehensive income. The retained earnings comprise prior years’ undistributed income of consolidated companies and all remeasurements of the net defined benefit liability for pension or other post-employment benefits that are recognized outside profit or loss. The accumulated other comprehensive income comprises exchange differences, the changes in fair values of cash flow hedges and available-for-sale financial assets, and the revaluation surplus. In 2017, an amount of €4 million (2016: €4 million) corresponding to the annual amortization / depreciation of the respective assets was transferred from the revaluation surplus to retained earnings. Dividend Under the German Stock Corporation Act (AktG), the dividend payment is determined by the distributable profit reported in the annual financial statements of Bayer AG, which are prepared according to the German Commercial Code. Retained earnings were diminished by payment of the dividend of €2.70 per share for 2016. The proposed dividend for the 2017 fiscal year is €2.80 per share, which – based on the current number of shares – would result in a total dividend payment of €2,315 million. Payment of the proposed dividend is contingent upon approval by the stockholders at the Annual Stockholders’ Meeting and therefore is not recognized as a liability in the consolidated financial statements. Noncontrolling interest The changes in noncontrolling interest in equity during 2016 and 2017 are shown in the following table: (XLS:) Download Changes in Noncontrolling Interest in Equity 2016 2017 € million € million January 1 1,180 1,564 Changes in equity not recognized in profit or loss Remeasurements of the net liability under defined benefit pension plans (27) 49 Changes in fair value of cash flow hedges – – Changes in fair value of securities – – Exchange differences on translation of operations outside the eurozone 17 (155) Other changes in equity 157 (2,025) Dividend payments (58) (131) Income after income taxes 295 758 December 31 1,564 60 Of the dividend payments, €129 million pertained to the noncontrolling interest in the equity of Covestro AG. The principal subsidiary with third-party noncontrolling interest holders is Bayer CropScience Limited, India. The interest and share of voting rights attributable to noncontrolling interest amounted to 31.3% as at December 31, 2017 (December 31, 2016: 31.4%), and the equity attributable to this noncontrolling interest stood at €52 million (2016: €85 million). During fiscal 2017, Bayer AG reduced its interest in Covestro AG from 64.2% to 24.6%. In the first quarter, Bayer sold 22 million shares of Covestro AG to institutional investors at a price of €66.50 per share. A further 17.25 million shares of Covestro AG were sold to institutional investors in the second quarter at a price of €62.25 per share. Further, 8 million shares of Covestro AG were deposited in Bayer Pension Trust e. V. at a price of €63.04 per share. In the third quarter of 2017, Bayer AG sold shares 19 million shares in Covestro AG at a price of €63.25 per share on September 12, 2017, and approximately 14 million Covestro AG shares at a price of €71.72 on September 29, 2017. The buyers of the around 14 million shares sold on September 29, 2017 agreed to be bound by a lock-up arrangement pursuant to which they would not sell the shares they purchased until at least December 11, 2017. Under the contractual agreement, Bayer retained the economic exposure to the price of these shares at least until that date. The reductions in Bayer’s interest through September 12, 2017, detailed above, had a €4.2 billion positive effect on Bayer Group equity, which was recognized in other changes in equity. Of this amount, €2.7 billion was attributable to stockholders of Bayer AG and €1.5 billion to noncontrolling interest. As part of the deconsolidation at the end of September 2017, the noncontrolling interest in Covestro AG equity was de-recognized in its entirety. See Note “Scope of Consolidation; Subsidiaries and Affiliates” for details on the deconsolidation of Covestro. As of December 31, 2017, Bayer held 24.6% of the shares of Covestro AG. Bayer Pension Trust e.V. held a further 8.9%.