Overview of Sales, Earnings and Financial Position
Explanatory Notes
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Financial Statements/Notes
Explanatory Notes
Accounting policies
Pursuant to Section 315a of the German Commercial Code, the consolidated interim financial statements as of September 30, 2007 have been prepared according to the International Financial Reporting Standards (IFRS) – including IAS 34 – of the International Accounting Standards Board (IASB), London, which are endorsed by the European Union, and the Interpretations of the International Financial Reporting Interpretations Committee (IFRIC), in effect at the closing date.
Reference should be made as appropriate to the notes to the consolidated financial statements for the 2006 fiscal year, particularly with regard to recognition and valuation principles.
Reference should be made as appropriate to the notes to the consolidated financial statements for the 2006 fiscal year, particularly with regard to recognition and valuation principles.
The ordinary shares to be issued upon conversion of the mandatory convertible bond are treated as already issued shares. Diluted earnings per share are therefore equal to basic earnings per share.
| Calculation of Earnings per Share | 3rd Quarter 2006 | 3rd Quarter 2007 | First Nine Months 2006 | First Nine Months 2007 |
| € million | ||||
| Income after taxes | 320 | 1,178 | 1,372 | 4,645 |
| Income attributable to minority interest | 0 | 3 | 0 | 1 |
| Income attributable to Bayer AG stockholders | 320 | 1,175 | 1,372 | 4,644 |
| Income from discontinued operations | 66 | (2) | 105 | 2,396 |
| Financing expenses for the mandatory convertible bond, net of tax effects | 25 | 25 | 48 | 73 |
| Adjusted income after taxes from continuing operations | 279 | 1,202 | 1,315 | 2,321 |
| Adjusted net income | 345 | 1,200 | 1,420 | 4,717 |
| Weighted average number of issued ordinary shares | 760,276,703 | 764,341,920 | 740,429,832 | 764,341,920 |
| Potential shares to be issued upon conversion of the mandatory convertible bond | 60,115,244 | 59,585,493 | 41,299,096 | 59,558,606 |
| Adjusted weighted average total number of issued and potential ordinary shares | 820,391,947 | 823,927,413 | 781,728,928 | 823,900,526 |
| Basic earnings per share (€) | ||||
| from continuing operations | 0.34 | 1.46 | 1.68 | 2.82 |
| from continuing and discontinued operations | 0.42 | 1.46 | 1.82 | 5.73 |
| Diluted earnings per share (€) | ||||
| from continuing operations | 0.34 | 1.46 | 1.68 | 2.82 |
| from continuing and discontinued operations | 0.42 | 1.46 | 1.82 | 5.73 |
2006 figures restated
Changes in the Bayer Group
Scope of consolidation
As of September 30, 2007, the Bayer Group comprised 329 fully or proportionately consolidated companies, compared with 432 companies as of December 31, 2006. This decrease is primarily the result of companies leaving the group through the Diagnostics, H.C. Starck and Wolff Walsrode divestitures and of intragroup mergers of companies as part of the integration of Schering, Berlin, Germany.
Consolidation of Schering
In June 2006, the majority of the shares of Schering AG, Berlin, Germany, were acquired by Bayer Schering GmbH (then known as Dritte BV GmbH), a subsidiary of Bayer AG. As of June 23, 2006, Schering AG was included in full in the consolidated financial statements of the Bayer Group. As of September 30, 2007, Bayer Schering GmbH held 96.3 percent of the shares of Bayer Schering Pharma AG.
The Extraordinary Stockholders’ Meeting of Bayer Schering Pharma AG resolved on January 17, 2007, to effect a squeeze-out of the remaining minority stockholders. Pursuant to this resolution, the shares held by minority stockholders will be transferred to the majority stockholder Bayer Schering GmbH in return for a cash compensation payment of €98.98 per share.
Acquisitions
On September 13, 2007, Bayer HealthCare acquired a biologics manufacturing facility in Emeryville, California, from Novartis. Bayer HealthCare will continue the production of Betaseron® at the Emeryville site, gaining full control of the entire manufacturing and process technology used in the production of Betaseron® and retaining the Emeryville work force. The amount paid for the transfer of the facility – including the Biologics License Application, which permits the manufacturing of biotechnological products – along with supplies and certain buildings, was US$ 183 million (approx. €137 million). The acquisition resulted in the addition of €30 million in property, plant and equipment, €56 million in inventories and a €53 million receivable for leased assets in the third quarter of 2007.
On May 31, 2007 an agreement was signed to acquire Stoneville Pedigreed Seed Company, a leading U.S. producer of cotton seeds, from Monsanto for US$ 310 million (approximately €230 million). The acquired company was included in full in the consolidated financial statements of the Bayer Group effective June 1, 2007. The as yet incomplete allocation of the purchase price among the acquired assets and liabilities at the date of acquisition resulted in the addition of more than €200 million in intangible assets, including goodwill, in the second quarter. Adjustments to the purchase price allocation may be made in the future. The goodwill remaining after the purchase price allocation is largely attributable to synergies in the areas of technology and marketing. In addition, the acquisition strengthens the position of Bayer’s BioScience business unit in the U.S. cotton seed market.
Bayer MaterialScience completed its acquisition of the Ure-Tech Group, Taiwan, on July 1, 2007. The as yet incomplete allocation of the purchase price among the acquired assets and liabilities at the date of acquisition resulted in the addition of more than €40 million in intangible assets, including goodwill, in the third quarter. Adjustments to the purchase price allocation may be made in the future.
Discontinued operations
In mid-2006 Bayer AG and Siemens AG signed an agreement concerning the sale of the Diagnostics business, which was transferred to the new owner on January 2, 2007.
On November 23, 2006 an agreement was concluded to divest the activities of the H.C. Starck group, formerly assigned to the Materials segment, to a consortium of two financial investors, Advent International and The Carlyle Group. This business was transferred to the new owners on February 1, 2007.
The agreement to sell the companies of the Wolff Walsrode group, which operates principally in the field of cellulose chemistry, to The Dow Chemical Company, United States, was signed in December 2006. Wolff Walsrode also was formerly assigned to the Materials segment. Following approval by the antitrust authorities, the transfer of this business took place on June 30, 2007.
The Diagnostics activities, H.C. Starck and Wolff Walsrode are recognized as discontinued operations. The prior-period data have been restated accordingly.
This information, which is provided from the standpoint of the Bayer Group, is to be regarded as part of the reporting for the entire Bayer Group by analogy with our segment reporting and is not intended to portray either the discontinued operations or the remaining operations of Bayer as separate entities. This presentation is thus in line with the principles for reporting discontinued operations.
As of September 30, 2007, the Bayer Group comprised 329 fully or proportionately consolidated companies, compared with 432 companies as of December 31, 2006. This decrease is primarily the result of companies leaving the group through the Diagnostics, H.C. Starck and Wolff Walsrode divestitures and of intragroup mergers of companies as part of the integration of Schering, Berlin, Germany.
Consolidation of Schering
In June 2006, the majority of the shares of Schering AG, Berlin, Germany, were acquired by Bayer Schering GmbH (then known as Dritte BV GmbH), a subsidiary of Bayer AG. As of June 23, 2006, Schering AG was included in full in the consolidated financial statements of the Bayer Group. As of September 30, 2007, Bayer Schering GmbH held 96.3 percent of the shares of Bayer Schering Pharma AG.
The Extraordinary Stockholders’ Meeting of Bayer Schering Pharma AG resolved on January 17, 2007, to effect a squeeze-out of the remaining minority stockholders. Pursuant to this resolution, the shares held by minority stockholders will be transferred to the majority stockholder Bayer Schering GmbH in return for a cash compensation payment of €98.98 per share.
Acquisitions
On September 13, 2007, Bayer HealthCare acquired a biologics manufacturing facility in Emeryville, California, from Novartis. Bayer HealthCare will continue the production of Betaseron® at the Emeryville site, gaining full control of the entire manufacturing and process technology used in the production of Betaseron® and retaining the Emeryville work force. The amount paid for the transfer of the facility – including the Biologics License Application, which permits the manufacturing of biotechnological products – along with supplies and certain buildings, was US$ 183 million (approx. €137 million). The acquisition resulted in the addition of €30 million in property, plant and equipment, €56 million in inventories and a €53 million receivable for leased assets in the third quarter of 2007.
On May 31, 2007 an agreement was signed to acquire Stoneville Pedigreed Seed Company, a leading U.S. producer of cotton seeds, from Monsanto for US$ 310 million (approximately €230 million). The acquired company was included in full in the consolidated financial statements of the Bayer Group effective June 1, 2007. The as yet incomplete allocation of the purchase price among the acquired assets and liabilities at the date of acquisition resulted in the addition of more than €200 million in intangible assets, including goodwill, in the second quarter. Adjustments to the purchase price allocation may be made in the future. The goodwill remaining after the purchase price allocation is largely attributable to synergies in the areas of technology and marketing. In addition, the acquisition strengthens the position of Bayer’s BioScience business unit in the U.S. cotton seed market.
Bayer MaterialScience completed its acquisition of the Ure-Tech Group, Taiwan, on July 1, 2007. The as yet incomplete allocation of the purchase price among the acquired assets and liabilities at the date of acquisition resulted in the addition of more than €40 million in intangible assets, including goodwill, in the third quarter. Adjustments to the purchase price allocation may be made in the future.
Discontinued operations
In mid-2006 Bayer AG and Siemens AG signed an agreement concerning the sale of the Diagnostics business, which was transferred to the new owner on January 2, 2007.
On November 23, 2006 an agreement was concluded to divest the activities of the H.C. Starck group, formerly assigned to the Materials segment, to a consortium of two financial investors, Advent International and The Carlyle Group. This business was transferred to the new owners on February 1, 2007.
The agreement to sell the companies of the Wolff Walsrode group, which operates principally in the field of cellulose chemistry, to The Dow Chemical Company, United States, was signed in December 2006. Wolff Walsrode also was formerly assigned to the Materials segment. Following approval by the antitrust authorities, the transfer of this business took place on June 30, 2007.
The Diagnostics activities, H.C. Starck and Wolff Walsrode are recognized as discontinued operations. The prior-period data have been restated accordingly.
This information, which is provided from the standpoint of the Bayer Group, is to be regarded as part of the reporting for the entire Bayer Group by analogy with our segment reporting and is not intended to portray either the discontinued operations or the remaining operations of Bayer as separate entities. This presentation is thus in line with the principles for reporting discontinued operations.
| Discontinued Operations | Diagnostics | H.C. Starck | Wolff Walsrode | Total | ||||
| € million | 3rd Quarter 2006 | 3rd Quarter 2007 | 3rd Quarter 2006 | 3rd Quarter 2007 | 3rd Quarter 2006 | 3rd Quarter 2007 | 3rd Quarter 2006 | 3rd Quarter 2007 |
| Net sales | 364 | - | 239 | - | 85 | - | 688 | - |
| Operating result (EBIT)* | 80 | - | 19 | (1) | 10 | (1) | 109 | (2) |
| Income after taxes | 51 | - | 9 | (1) | 6 | (1) | 66 | (2) |
| Gross cash flow* | 29 | - | 21 | (1) | 14 | (1) | 64 | (2) |
| Net cash flow* | (26) | 0 | 5 | (1) | 1 | (1) | (20) | (2) |
| Net investing cash flow | (26) | (107) | (12) | 7 | (5) | 1 | (43) | (99) |
| Net financing cash flow | 52 | 107 | 7 | (6) | 4 | 0 | 63 | 101 |
| € million | First | First Nine Months 2007 | First Nine Months 2006 | First Nine Months 2007 | First Nine Months 2006 | First Nine Months 2007 | First Nine Months 2006 | First Nine Months 2007 |
| Net sales | 1,119 | - | 733 | 74 | 252 | 172 | 2,104 | 246 |
| Operating result (EBIT)* | 120 | 2,778 | 35 | 108 | 23 | 266 | 178 | 3,152 |
| Income after taxes | 78 | 2,044 | 16 | 102 | 11 | 250 | 105 | 2,396 |
| Gross cash flow* | 143 | (10) | 74 | 13 | 34 | 14 | 251 | 17 |
| Net cash flow* | 145 | (32) | 42 | 25 | 3 | 7 | 190 | 0 |
| Net investing cash flow | (72) | 3,432 | (34) | 929 | (11) | 431 | (117) | 4,792 |
| Net financing cash flow | (73) | (3,400) | (8) | (954) | 8 | (438) | (73) | (4,792) |
* for definition see Bayer Group Key Data
Related parties
In the course of the operating business, materials, inventories and services are sourced from a large number of business partners around the world. These include companies in which an interest is held, and companies with which members of the Supervisory Board of Bayer AG are associated. Transactions with these companies are carried out on an arm’s length basis. Business with such companies was not material from the viewpoint of the Bayer Group. The Bayer Group was not a party to any transaction of an unusual nature or structure that was material to it or to companies or persons closely associated with it, nor does it intend to be party to such transactions in the future. Business transactions with companies included in the consolidated financial statements at equity, or at cost less impairment charges, mainly comprised trade in goods and services. The value of these transactions was, however, immaterial from the point of view of the Bayer Group. The same applies to financial receivables and payables vis-à-vis related parties.
Leverkusen, November 5, 2007
Bayer Aktiengesellschaft
Board of Management
Werner Wenning Klaus Kühn Dr. Wolfgang Plischke Dr. Richard Pott
Leverkusen, November 5, 2007
Bayer Aktiengesellschaft
Board of Management
Werner Wenning Klaus Kühn Dr. Wolfgang Plischke Dr. Richard Pott
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