Statements of Income
Liquidity and Capital Resources
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Management Report
Liquidity and Capital Resources
| Bayer Group Summary Cash Flow Statements | 3rd Quarter 2006 | 3rd Quarter 2007 | First Nine Months 2006 | First Nine Months 2006 |
| € million | ||||
| Gross cash flow* | 1,135 | 1,165 | 3,152 | 3,763 |
| Changes in working capital/ other non-cash items | 380 | 458 | (717) | (949) |
| Net cash provided by (used in) operating activities (net cash flow), continuing operations | 1,515 | 1,623 | 2,435 | 2,814 |
| Net cash provided by (used in) operating activities (net cash flow), discontinued operations | (20) | (2) | 190 | 0 |
| Net cash provided by (used in) operating activities (net cash flow) (total) | 1,495 | 1,621 | 2,625 | 2,814 |
| Net cash provided by (used in) investing activities (total) | (1,313) | (603) | (15,341) | 3,933 |
| Net cash provided by (used in) financing activities (total) | 235 | (1,538) | 12,368 | (7,191) |
| Change in cash and cash equivalents due to business activities (total) | 417 | (520) | (348) | (444) |
| Cash and cash equivalents at beginning of period | 2,491 | 2,980 | 3,290 | 2,915 |
| Change due to exchange rate movements and to changes in scope of consolidation | (1) | (79) | (35) | (90) |
| Cash and cash equivalents at end of period | 2,907 | 2,381 | 2,907 | 2,381 |
2006 figures restated
* for definition see Bayer Group Key Data
* for definition see Bayer Group Key Data
Operating cash flow
Gross cash flow in the third quarter of 2007 increased by 2.6 percent from the prior-year period to €1,165 million (Q3 2006: €1,135 million). Net cash flow improved by €108 million to €1,623 million (Q3 2006: €1,515 million) due to a decrease in cash tied up in working capital. The total net cash flow including discontinued operations was €1,621 million (Q3 2006: €1,495 million).
Gross cash flow in the first nine months of 2007 improved by 19.4 percent from the same period of last year to €3,763 million (9M 2006: €3,152 million) as a result of the strong business performance and the inclusion of Schering. Net cash flow rose by €379 million to €2,814 million (9M 2006: €2,435 million), mainly due to the high inflows in the first quarter. The total net cash flow including discontinued operations was €2,814 million (9M 2006: €2,625 million).
Gross cash flow in the first nine months of 2007 improved by 19.4 percent from the same period of last year to €3,763 million (9M 2006: €3,152 million) as a result of the strong business performance and the inclusion of Schering. Net cash flow rose by €379 million to €2,814 million (9M 2006: €2,435 million), mainly due to the high inflows in the first quarter. The total net cash flow including discontinued operations was €2,814 million (9M 2006: €2,625 million).
Investing cash flow
There was a net cash inflow of €3,933 million for investing activities in the first nine months of 2007, compared with a €15,341 million outflow in the prior-year period. The main items here were divestment proceeds of €3.4 billion for the Diagnostics business, €0.9 billion for H.C. Starck and €0.4 billion for Wolff Walsrode.
The €4.3 billion transaction volume for the Diagnostics business comprised an initial receipt of €0.4 billion at the end of 2006 and a further purchase-price payment of €3.9 billion in the first quarter of 2007. After deducting approximately €0.2 billion in divested cash and a total of €0.3 billion in tax payments made in the second and third quarters on the divestment gain, net proceeds of divestitures in the first nine months of 2007 totaled €3.4 billion. Further tax payments totaling some €0.2 billion will be due in subsequent periods. We sold H.C. Starck to Advent International and The Carlyle Group for approximately €1.2 billion. The transaction volume consisted mainly of a cash component in excess of €0.9 billion, including compensation for financial liabilities, along with the assumption of €0.2 billion in pension obligations. The €0.5 billion proceeds of the sale of Wolff Walsrode mainly comprised a cash component of €0.4 billion, including compensation for financial liabilities, and the assumption of pension obligations by the acquirer.
Cash outflows for acquisitions included the US$ 310 million (approx. €230 million) purchase price for U.S. cotton seed producer Stoneville. Bayer CropScience acquired Stoneville Pedigreed Seed Company from Monsanto in June 2007 in order to strengthen the position of its BioScience business unit in the U.S. cotton seed market. Further, in September 2007, Bayer HealthCare completed the acquisition, agreed in March 2007, of a biologics production facility in Emeryville, California, from Novartis and made a purchase price payment of US$ 183 million (approx. €137 million). On July 1, 2007, Bayer MaterialScience completed the acquisition of the Ure-Tech Group, Taiwan, a supplier of TPU resins and films, at a purchase price of US$ 82 million (approx. €61 million). Cash outflows for acquisitions in the prior-year period were largely attributable to the acquisition of Schering, Berlin, Germany.
Cash outflows for property, plant and equipment in the first nine months of 2007 came to €989 million (9M 2006: €847 million) and those for intangible assets to €134 million (9M 2006: €237 million), giving a total of €1,123 million (9M 2006: €1,084 million). This figure included the expenditures for the expansion of our polymers production facilities in Caojing, China.
The €4.3 billion transaction volume for the Diagnostics business comprised an initial receipt of €0.4 billion at the end of 2006 and a further purchase-price payment of €3.9 billion in the first quarter of 2007. After deducting approximately €0.2 billion in divested cash and a total of €0.3 billion in tax payments made in the second and third quarters on the divestment gain, net proceeds of divestitures in the first nine months of 2007 totaled €3.4 billion. Further tax payments totaling some €0.2 billion will be due in subsequent periods. We sold H.C. Starck to Advent International and The Carlyle Group for approximately €1.2 billion. The transaction volume consisted mainly of a cash component in excess of €0.9 billion, including compensation for financial liabilities, along with the assumption of €0.2 billion in pension obligations. The €0.5 billion proceeds of the sale of Wolff Walsrode mainly comprised a cash component of €0.4 billion, including compensation for financial liabilities, and the assumption of pension obligations by the acquirer.
Cash outflows for acquisitions included the US$ 310 million (approx. €230 million) purchase price for U.S. cotton seed producer Stoneville. Bayer CropScience acquired Stoneville Pedigreed Seed Company from Monsanto in June 2007 in order to strengthen the position of its BioScience business unit in the U.S. cotton seed market. Further, in September 2007, Bayer HealthCare completed the acquisition, agreed in March 2007, of a biologics production facility in Emeryville, California, from Novartis and made a purchase price payment of US$ 183 million (approx. €137 million). On July 1, 2007, Bayer MaterialScience completed the acquisition of the Ure-Tech Group, Taiwan, a supplier of TPU resins and films, at a purchase price of US$ 82 million (approx. €61 million). Cash outflows for acquisitions in the prior-year period were largely attributable to the acquisition of Schering, Berlin, Germany.
Cash outflows for property, plant and equipment in the first nine months of 2007 came to €989 million (9M 2006: €847 million) and those for intangible assets to €134 million (9M 2006: €237 million), giving a total of €1,123 million (9M 2006: €1,084 million). This figure included the expenditures for the expansion of our polymers production facilities in Caojing, China.
Financing cash flow
Net cash outflow for financing activities in the first nine months of 2007 amounted to €7,191 million (9M 2006: €12,368 million net inflow). Net loan repayments totaled €5,209 million, including €2.1 billion for the scheduled redemption of our 2002/2007 Eurobond in April 2007. The Bayer AG dividend for 2006, paid in the second quarter of 2007, and dividend payments to minority stockholders of consolidated companies accounted for a further €775 million (9M 2006: €533 million). The item “Bayer AG dividend, dividend payments to minority stockholders” in the prior-year period contained an inflow of €176 million from the reimbursement of advance capital gains tax payments made on intragroup dividends in 2004.
Liquid assets and net debt
As of September 30, 2007 the Bayer Group had cash and cash equivalents of €2,381 million, including €777 million held in escrow accounts. These are earmarked for payments to be made in connection with the squeeze-out of the remaining minority stockholders of Bayer Schering Pharma AG and civil law settlements of antitrust proceedings. Pursuant to a resolution of the Extraordinary Stockholders’ Meeting of Bayer Schering Pharma AG on January 17, 2007, the shares in that company that are still held by minority stockholders will be transferred to the main stockholder, Bayer Schering GmbH, a wholly owned subsidiary of Bayer AG, in return for cash compensation of €98.98 per share. Dissenting stockholders are seeking to have the stockholder resolution set aside or to have it declared null and void. In view of the restriction on its use, the liquidity held in escrow accounts was not deducted when calculating net debt.
During the third quarter of 2007 we reduced net debt (total) by €0.8 billion to €12.7 billion. This was the result of a €1.4 billion reduction in financial liabilities, partly offset by a €0.6 billion decrease in cash and cash equivalents. Net debt (total) stood at €12.7 billion on September 30, 2007, having fallen by €4.8 billion since December 31, 2006, thanks largely to cash inflows from the divestitures and also to an improvement in operating cash flow. Net debt should be viewed against the fact that noncurrent financial liabilities include both the 100-year hybrid bond and the mandatory convertible bond in full. However, when computing debt indicators, rating agencies classify hybrid bonds partially as equity and mandatory convertible bonds entirely as equity. These bonds therefore boost the Group’s rating-specific debt indicators.
Standard & Poor’s gives Bayer AG a long-term issuer rating of BBB+ with positive outlook, while Moody’s gives the company a rating of A3 with negative outlook. The short-term ratings are A-2 (Standard & Poor’s) and P-2 (Moody’s). These investment-grade ratings evidence a continuing high level of creditworthiness.
During the third quarter of 2007 we reduced net debt (total) by €0.8 billion to €12.7 billion. This was the result of a €1.4 billion reduction in financial liabilities, partly offset by a €0.6 billion decrease in cash and cash equivalents. Net debt (total) stood at €12.7 billion on September 30, 2007, having fallen by €4.8 billion since December 31, 2006, thanks largely to cash inflows from the divestitures and also to an improvement in operating cash flow. Net debt should be viewed against the fact that noncurrent financial liabilities include both the 100-year hybrid bond and the mandatory convertible bond in full. However, when computing debt indicators, rating agencies classify hybrid bonds partially as equity and mandatory convertible bonds entirely as equity. These bonds therefore boost the Group’s rating-specific debt indicators.
Standard & Poor’s gives Bayer AG a long-term issuer rating of BBB+ with positive outlook, while Moody’s gives the company a rating of A3 with negative outlook. The short-term ratings are A-2 (Standard & Poor’s) and P-2 (Moody’s). These investment-grade ratings evidence a continuing high level of creditworthiness.
| Net Debt | Dec. 31, 2006 | June 30, 2007 | Sept. 30, 2007 |
| € million | |||
| Noncurrent financial liabilities as per balance sheets (including derivatives) | 14,723 | 13,644 | 13,307 |
| of which mandatory convertible bond | 2,276 | 2,280 | 2,283 |
| of which hybrid bond | 1,247 | 1,234 | 1,236 |
| Current financial liabilities as per balance sheets (including derivatives) | 5,078 | 2,309 | 1,298 |
| - Derivative receivables | (185) | (194) | (219) |
| Financial liabilities | 19,616 | 15,759 | 14,386 |
| - Cash and cash equivalents* | (2,116) | (2,202) | (1,604) |
| - Current financial assets | (27) | (6) | (62) |
| Net debt from continuing operations | 17,473 | 13,551 | 12,720 |
| Net debt from discontinued operations | 66 | 0 | 0 |
| Net debt (total) | 17,539 | 13,551 | 12,720 |
* In view of the restriction on its use, the €777 million liquidity in escrow accounts in the third quarter of 2007 (Q3 2006: €310 million) was not deducted when calculating net debt. Sept. 30, 2007: €1,604 million = €2.381 million - €777 million (June 30, 2007: €2.202 million = €2.980 million - €778 million; Dec. 31, 2006: €2,116 million = €2,915 million - €799 million).
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