Chairman’s Letter
Notes
Bayer Links
Financial Statements
7. Changes in the Bayer Group
 7.1 Scope of consolidation |
| 7.2 Business combinations and other acquisitions, divestments and discontinued operations |
| Germany | Other countries | Total | |
| Bayer AG and consolidated companies | |||
| December 31, 2005 | 54 | 229 | 283 |
| Changes in the scope of consolidation | 3 | (6) | (3) |
| Additions | 33 | 127 | 160 |
| Retirements | - | (8) | (8) |
| December 31, 2006 | 90 | 342 | 432 |
| Companies included at equity (associates) | |||
| December 31, 2005 | 3 | 8 | 11 |
| Changes in the scope of consolidation | - | (2) | (2) |
| Additions | - | - | - |
| Retirements | (2) | (1) | (3) |
| December 31, 2006 | 1 | 5 | 6 |
The increase in the number of fully consolidated companies in 2006 is primarily due to the inclusion of 155 Schering group companies since the second quarter.
Five joint ventures – the same number as in the previous year – are included by proportionate consolidation in compliance with IAS 31 (Interests in Joint Ventures). Excluded from consolidation are 103 subsidiaries that in aggregate are immaterial to the net worth, financial position and earnings of the Bayer Group; they account for less than 0.3 percent of Group sales, less than 0.7 percent of stockholders’ equity and less than 0.4 percent of total assets.
The effect of joint ventures on the Group balance sheet and income statement is as follows:
Five joint ventures – the same number as in the previous year – are included by proportionate consolidation in compliance with IAS 31 (Interests in Joint Ventures). Excluded from consolidation are 103 subsidiaries that in aggregate are immaterial to the net worth, financial position and earnings of the Bayer Group; they account for less than 0.3 percent of Group sales, less than 0.7 percent of stockholders’ equity and less than 0.4 percent of total assets.
The effect of joint ventures on the Group balance sheet and income statement is as follows:
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While six companies are accounted for by the equity method, 39 associates of minor importance are stated at cost less impairment charges.
A list of Bayer AG’s direct and indirect holdings is published in the electronic version of the German Federal Gazette. It is also available directly from Bayer AG on request.
The principal companies consolidated in the financial statements are listed in the following table:
A list of Bayer AG’s direct and indirect holdings is published in the electronic version of the German Federal Gazette. It is also available directly from Bayer AG on request.
The principal companies consolidated in the financial statements are listed in the following table:
| Company Name and Place of Business | Bayer’s interest |
| % | |
| Germany | |
| Bayer Business Services GmbH, Leverkusen | 100 |
| Bayer CropScience AG, Monheim | 100 |
| Bayer CropScience Deutschland GmbH, Langenfeld | 100 |
| Bayer CropScience GmbH, Frankfurt | 100 |
| Bayer HealthCare AG, Leverkusen | 100 |
| Currenta GmbH & Co. OHG, Leverkusen | 60 |
| Bayer MaterialScience AG, Leverkusen | 100 |
| Bayer Schering GmbH, Leverkusen | 100 |
| Bayer Schering Pharma AG, Berlin | 96.2 |
| Bayer Technology Services GmbH, Leverkusen | 100 |
| Bayer Vital GmbH, Leverkusen | 100 |
| Schering Deutschland GmbH, Berlin | 100 |
| Other European countries | |
| Bayer Antwerpen Comm.V, Belgium | 100 |
| Bayer Biologicals S.r.l., Italy | 100 |
| Bayer Consumer Care AG, Switzerland | 100 |
| Bayer CropScience France S.A.S., France | 100 |
| Bayer CropScience Limited, U.K. | 100 |
| Bayer CropScience S.A., France | 99.9 |
| Bayer CropScience S.r.l., Italy | 100 |
| Bayer International S.A., Switzerland | 99.7 |
| Bayer Pharma SAS, France | 99.9 |
| Bayer Polyols S.N.C., France | 100 |
| Bayer Polyurethanes B.V., Netherlands | 100 |
| Bayer Public Limited Company, U.K. | 100 |
| Bayer S.p.A., Ptaly | 100 |
| Bayer SP.Z.O.O., Poland | 100 |
| Quimica Farmaceutica Bayer, S.A., Spain | 100 |
| North America | |
| Bayer Corporate and Business Services LLC, USA | 100 |
| Bayer CropScience Inc., Kanada | 100 |
| Bayer CropScience LP, USA | 100 |
| Bayer HealthCare LLC, USA | 100 |
| Bayer Inc., Kanada | 100 |
| Bayer MaterialScience LLC, USA | 100 |
| Bayer Pharmaceuticals Corporation, USA | 100 |
| BAYPO Limited Partnership, USA | 100 |
| Berlex Inc., USA | 100 |
| Medrad Inc., USA | 100 |
| Asia/Pacific | |
| Bayer Australia Limited, Australia | 99.9 |
| Bayer CropScience K.K., Japan | 100 |
| Bayer HealthCare Co. Ltd., China | 100 |
| Bayer Korea Ltd., Republik Korea | 100 |
| Bayer MaterialScience Limited, Hongkong | 100 |
| Bayer MaterialScience Trading (Shanghai) Company Limited, China | 100 |
| Bayer Thai Company Limited, Thailand | 99.9 |
| Bayer Yakuhin, Ltd., Japan | 100 |
| Nihon Schering K.K., Japan | 100 |
| Sumika Bayer Urethane Co., Ltd., Japan | 60 |
| Latin America/Africa/Middle East | |
| Bayer (Proprietary) Limited, South Africa | 100 |
| Bayer de Mexico, S.A. de C.V., Mexiko | 100 |
| Bayer S.A., Argentina | 99.9 |
| Bayer S.A., Brazil | 99.9 |
| Bayer Türk Kimya Sanayi Limited Sirketi, Turkey | 100 |
Also included in the consolidated financial statements are the following material associates, which are accounted for by the equity method:
| Company Name and Place of Business | Bayer’s interest |
| % | |
| Lyondell Bayer Manufacturing Maasvlakte VOF, Netherlands | 50 |
| Palthough Industries (1998) Ltd., Israel | 25 |
| PO JV, LP, U.S.A. | 43.4 |
| Polygal Plastics Industries Ltd., Israel | 25.8 |
The following domestic subsidiaries availed themselves in 2006 of certain exemptions granted under Sections 264, paragraph 3 and 264 b, No. 4 of the German Commercial Code regarding the preparation, auditing and publication of financial statements:
| Company Name | Place of Business |
| Bayer 04 Immobilien GmbH | Leverkusen |
| Bayer 04 Leverkusen Fußball GmbH | Leverkusen |
| Bayer 04 Mobilien GmbH | Leverkusen |
| Bayer Beteiligungsverwaltungsgesellschaft mbH | Leverkusen |
| Bayer Bitterfeld GmbH | Greppin |
| Bayer Business Services GmbH | Leverkusen |
| Bayer Chemicals AG | Leverkusen |
| Bayer CropScience AG | Monheim |
| Bayer Direct Services GmbH | Leverkusen |
| Bayer Gastronomie GmbH | Leverkusen |
| Bayer Gesellschaft für Beteiligungen mbH | Leverkusen |
| Bayer HealthCare AG | Leverkusen |
| Currenta GmbH & Co. OHG | Leverkusen |
| Bayer Innovation GmbH | Düsseldorf |
| Bayer Kaufhaus GmbH | Leverkusen |
| Bayer MaterialScience AG | Leverkusen |
| Bayer MaterialScience Customer Services GmbH | Leverkusen |
| Bayer Schering GmbH | Leverkusen |
| Bayer Technology Services GmbH | Leverkusen |
| Bayer Vital GmbH | Leverkusen |
| Bayfin GmbH | Leverkusen |
| Case Tech GmbH & Co. KG | Bomlitz |
| Chemion Logistik GmbH | Leverkusen |
| Drugofa GmbH | Cologne |
| DYNEVO GmbH | Leverkusen |
| EPUREX Films GmbH & Co. KG | Bomlitz |
| Erste K-W-A Beteiligungsgesellschaft mbH | Leverkusen |
| Euroservices Bayer GmbH | Leverkusen |
| Generics Holding GmbH | Leverkusen |
| GeWoGe Gesellschaft für Wohnen und Gebäudemanagement mbH | Leverkusen |
| GP Grenzach Produktions GmbH | Grenzach |
| ICON Genetics GmbH | Munich |
| KVP Pharma+Veterinär-Produkte GmbH | Kiel |
| Probis GmbH | Bomlitz |
| Sportrechte Vermarktungs- und Verwertungs-GmbH & Co. oHG | Leverkusen |
| Travel Board GmbH | Leverkusen |
| Wolff Cellulosics GmbH & Co. KG | Bomlitz |
| Wolff Walsrode AG | Walsrode |
| Zweite K-W-A Beteiligungsgesellschaft mbH | Leverkusen |
Acquisitions are accounted for by the purchase method in accordance with IFRS 3 (Business Combinations), the results of the acquired businesses therefore being included in the consolidated financial statements as from the respective dates of acquisition. The purchase prices of acquisitions of companies domiciled outside the euro zone are translated at the exchange rates in effect at the respective dates of acquisition.
A total of €15,357 million was spent for acquisitions in 2006. The purchase prices of the acquired companies or businesses were settled in cash. Goodwill arising on these acquisitions totaled €5,804 million and is subject to an annual impairment test.
Acquisition of Schering AG, Berlin, Germany
In June 2006, the wholly owned subsidiary Bayer Schering GmbH (at that time Dritte BV GmbH) acquired a majority interest in Schering AG, Berlin, Germany, which is included in full in the consolidated financial statements of the Bayer Group as of June 23, 2006. On that date Bayer Schering GmbH held 87.99 percent of the voting capital of Schering AG. This was preceded by a public takeover offer issued to stockholders of Schering AG by Bayer Schering GmbH on April 13, 2006. The European Commission cleared the acquisition on May 24, 2006; approval from the U.S. antitrust authorities was granted on April 21, 2006.
On July 31, 2006, Bayer Schering GmbH and Schering AG, as a dependent company, concluded a domination and profit and loss transfer agreement, which was approved by an Extraordinary Stockholders’ Meeting of Schering AG on September 13, 2006. This agreement took effect on October 27, 2006 when it was entered in the commercial register for the headquarters of Schering AG. Schering AG was renamed Bayer Schering Pharma AG, Germany* effective December 29, 2006.
By December 31, 2006, Bayer Schering GmbH had raised its holding in the voting capital of Bayer Schering Pharma AG, Germany* to 96.24 percent through the addition of further shares. The shares in Bayer Schering Pharma AG, Germany* were purchased in tranches involving total cash outflows of €16,271 million, less total acquisition-related cash and cash equivalents of €1,025 million. The ancillary costs of the acquisition amounted to about €71 million.
The Extraordinary Stockholders’ Meeting of Bayer Schering Pharma AG, Germany* on January 17, 2007 resolved to squeeze out 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 cash compensation of €98.98 per share. Liabilities for anticipated cash compensation payments and guaranteed dividends to the minority stockholders raise the purchase price by €736 million to €17,007 million.
At the time they were acquired, the activities of Bayer Schering Pharma AG, Germany* and its subsidiaries (referred to here collectively as “Schering”) focused on the areas of gynecology and andrology, diagnostic imaging, specialized therapeutics, oncology, and the dermatology business operated by the Intendis group.
In fiscal 2006, Schering contributed €3,082 million to Bayer Group sales. It had a net negative effect of €119 million on the operating result (EBIT) after integration and restructuring expenses of €179 million and charges of €551 million from the purchase price allocation. Income after taxes of the acquired business for the period since the date of first-time consolidation was minus €37 million.
If Schering had already been acquired effective January 1, 2006, the Bayer Group would have had sales of €31,689 million in 2006. Income after taxes would have amounted to €1,448 million, taking into account the effects of the revaluation of acquired assets and the financing costs for the full year. Earnings per share from continuing and discontinued operations would have been €1.90.
The purchase price allocation to the acquired assets and assumed liabilities at the date of acquisition is shown in the table. Including the acquired cash and cash equivalents and the ancillary acquisition costs, it resulted in the net cash outflow shown below:
A total of €15,357 million was spent for acquisitions in 2006. The purchase prices of the acquired companies or businesses were settled in cash. Goodwill arising on these acquisitions totaled €5,804 million and is subject to an annual impairment test.
Acquisition of Schering AG, Berlin, Germany
In June 2006, the wholly owned subsidiary Bayer Schering GmbH (at that time Dritte BV GmbH) acquired a majority interest in Schering AG, Berlin, Germany, which is included in full in the consolidated financial statements of the Bayer Group as of June 23, 2006. On that date Bayer Schering GmbH held 87.99 percent of the voting capital of Schering AG. This was preceded by a public takeover offer issued to stockholders of Schering AG by Bayer Schering GmbH on April 13, 2006. The European Commission cleared the acquisition on May 24, 2006; approval from the U.S. antitrust authorities was granted on April 21, 2006.
On July 31, 2006, Bayer Schering GmbH and Schering AG, as a dependent company, concluded a domination and profit and loss transfer agreement, which was approved by an Extraordinary Stockholders’ Meeting of Schering AG on September 13, 2006. This agreement took effect on October 27, 2006 when it was entered in the commercial register for the headquarters of Schering AG. Schering AG was renamed Bayer Schering Pharma AG, Germany* effective December 29, 2006.
By December 31, 2006, Bayer Schering GmbH had raised its holding in the voting capital of Bayer Schering Pharma AG, Germany* to 96.24 percent through the addition of further shares. The shares in Bayer Schering Pharma AG, Germany* were purchased in tranches involving total cash outflows of €16,271 million, less total acquisition-related cash and cash equivalents of €1,025 million. The ancillary costs of the acquisition amounted to about €71 million.
The Extraordinary Stockholders’ Meeting of Bayer Schering Pharma AG, Germany* on January 17, 2007 resolved to squeeze out 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 cash compensation of €98.98 per share. Liabilities for anticipated cash compensation payments and guaranteed dividends to the minority stockholders raise the purchase price by €736 million to €17,007 million.
At the time they were acquired, the activities of Bayer Schering Pharma AG, Germany* and its subsidiaries (referred to here collectively as “Schering”) focused on the areas of gynecology and andrology, diagnostic imaging, specialized therapeutics, oncology, and the dermatology business operated by the Intendis group.
In fiscal 2006, Schering contributed €3,082 million to Bayer Group sales. It had a net negative effect of €119 million on the operating result (EBIT) after integration and restructuring expenses of €179 million and charges of €551 million from the purchase price allocation. Income after taxes of the acquired business for the period since the date of first-time consolidation was minus €37 million.
If Schering had already been acquired effective January 1, 2006, the Bayer Group would have had sales of €31,689 million in 2006. Income after taxes would have amounted to €1,448 million, taking into account the effects of the revaluation of acquired assets and the financing costs for the full year. Earnings per share from continuing and discontinued operations would have been €1.90.
The purchase price allocation to the acquired assets and assumed liabilities at the date of acquisition is shown in the table. Including the acquired cash and cash equivalents and the ancillary acquisition costs, it resulted in the net cash outflow shown below:
| Net carrying amount at the date of first-time consolidation | Fair-value adjustment | Net carrying amount after the acquisition | |
| € million | |||
| Acquired assets and assumed liabilities | |||
| Goodwill | 364 | 5,407 | 5,771 |
| Other intangible assets | 297 | 11,745 | 12,042 |
| Property, plant and equipment | 1,123 | 453 | 1,576 |
| Other noncurrent assets | 233 | (1) | 232 |
| Inventories | 837 | 848 | 1,685 |
| Other current assets | 1,671 | - | 1,671 |
| Cash and cash equivalents | 1,025 | - | 1,025 |
| Pensions and other post-employment benefits | (345) | - | (345) |
| Other provisions | (1,078) | (78) | (1,156) |
| Financial liabilities | (243) | - | (243) |
| Other liabilities | (690) | - | (690) |
| Deferred taxes | 295 | (4,841) | (4,546) |
| Net assets | 3,489 | 13,533 | 17,022 |
| Minority interests | (15) | ||
| Purchase price | 17,007 | ||
| of which ancillary acquisition costs | 71 | ||
| Acquired cash and cash equivalents | 1,025 | ||
| Liabilities to minority stockholders | 736 | ||
| Net cash outflow for the acquisition | 15,246 |
The fair-value adjustment reflects the differences between the previous net carrying amounts and the respective fair values in the acquirer’s balance sheet at the date of acquisition.
The purchase price allocation reflects all information with respect to revaluation amounts calculated as of the date of acquisition, but has not yet been completed. Therefore, changes may yet be made in the allocation of the purchase price to the individual assets.
The goodwill remaining after the purchase price allocation is attributable to a number of factors. Apart from general synergies in administration processes and infrastructures, such factors also include significant cost savings in the R&D, marketing, sales, procurement and production functions. In addition, the acquisition strengthens the Bayer Group’s global market position in the pharmaceuticals business.
The fair values of the acquired intangible assets are as follows:
The purchase price allocation reflects all information with respect to revaluation amounts calculated as of the date of acquisition, but has not yet been completed. Therefore, changes may yet be made in the allocation of the purchase price to the individual assets.
The goodwill remaining after the purchase price allocation is attributable to a number of factors. Apart from general synergies in administration processes and infrastructures, such factors also include significant cost savings in the R&D, marketing, sales, procurement and production functions. In addition, the acquisition strengthens the Bayer Group’s global market position in the pharmaceuticals business.
The fair values of the acquired intangible assets are as follows:
| Fair value | |
| € million | |
| Company names | 725 |
| Product-related brand names | 940 |
| Product-related technologies | 9,118 |
| IPR&D projects | 1,191 |
| Software | 68 |
Company names are not amortized as they have no definite useful life. Product-related brand names are amortized over average periods of 18 years. The projected average useful life is 14 years for product-related technologies and 16 years for IPR&D projects. The residual useful life of acquired property, plant and equipment carried at fair value is determined in accordance with the principles set forth in Note [4.3]. The amortization of the adjustment for first-time consolidation of inventories is based on inventory turnover of the respective products. The useful lives and amortization periods are reflected analogously in deferred taxes.
Other acquisitions
In addition to the acquisition of the majority of the shares of Bayer Schering Pharma AG, Germany*, the following significant acquisitions were made in 2006:
Effective January 9, 2006 Bayer Innovation GmbH acquired the biotech company Icon Genetics AG, Munich, Germany. Icon Genetics discovers innovative methods for the development and use of engineered plants to produce therapeutically active substances. The purchase price was €18 million.
On July 6, 2006, Bayer HealthCare LLC, U.S.A., acquired Metrika Inc., Sunnyvale, California, U.S.A., for €57 million. Metrika manufactures and markets the
A1CNow+ appliance to monitor long-term blood glucose levels in diabetics.
These and further smaller acquisitions affected the Group’s assets and liabilities as of the dates of acquisition as shown in the table. Including acquired cash and cash equivalents, they resulted in the following net outflow:
Other acquisitions
In addition to the acquisition of the majority of the shares of Bayer Schering Pharma AG, Germany*, the following significant acquisitions were made in 2006:
Effective January 9, 2006 Bayer Innovation GmbH acquired the biotech company Icon Genetics AG, Munich, Germany. Icon Genetics discovers innovative methods for the development and use of engineered plants to produce therapeutically active substances. The purchase price was €18 million.
On July 6, 2006, Bayer HealthCare LLC, U.S.A., acquired Metrika Inc., Sunnyvale, California, U.S.A., for €57 million. Metrika manufactures and markets the
A1CNow+ appliance to monitor long-term blood glucose levels in diabetics. These and further smaller acquisitions affected the Group’s assets and liabilities as of the dates of acquisition as shown in the table. Including acquired cash and cash equivalents, they resulted in the following net outflow:
| 2006 | |
| € million | |
| Acquired assets and assumed liabilities | |
| Goodwill | 33 |
| Other intangible assets | 75 |
| Property, plant and equipment | 6 |
| Other assets | 10 |
| Cash and cash equivalents | 1 |
| Provisions | (1) |
| Financial liabilities | (1) |
| Other liabilities | (3) |
| Deferred taxes | (8) |
| Purchase price | 112 |
| of which ancillary acquisition costs | 0 |
| Cash and cash equivalents acquired | 1 |
| Net cash outflow for acquisitions | 111 |
Acquisitions after the closing date
Between the closing date and the approval of the annual financial statements for publication, Bayer HealthCare AG, Leverkusen, is expected to acquire the over-the-counter cough and cold products portfolio of the Topsun Group, Shanghai, China. The purchase price is approximately €103 million plus contingent payments of around €19 million subject to fulfillment of certain performance criteria. The agreement also comprises the transfer of the Gaitianli manufacturing facility in Qidong and the national sales force, and has been submitted to the regulatory authorities for approval. Chief among the products to be acquired from Topsun is the market-leading White & Black® brand.
Further, in October 2006 Bayer MaterialScience agreed to aquire Taiwan’s Ure-Tech Group, the largest producer of thermoplastic polyurethane (TPU) in the Asia-Pacific region.
The transfer of these businesses had not yet taken place by the date on which these financial statements were approved for publication.
Divestitures
In 2006 the Bayer Group made the following significant divestitures, the proceeds of which totaled €525 million.
On November 30, 2006 Bayer sold its 49.9 percent interest in the GE Bayer Silicones joint venture to its partner General Electric. The sale of this interest generated proceeds of €431 million.
On April 3, 2006, Bayer Diagnostics Manufacturing Limited, Bridgend, U.K., divested its production facilities and activities to Kimball Electronics Wales Limited. The businesses divested comprise the manufacture of appliances for the diagnostics and diabetes care market.
To strengthen the focus on its core business, the Bayer CropScience subgroup divested various active ingredients and related rights in its Crop Protection segment in 2006, including Asulam®, a herbicide that was marketed as Asulox® and Asilan®. Total proceeds of divestitures by Bayer CropScience in fiscal 2006 were €47 million.
These and additional, minor divestitures affected the Group’s assets and liabilities as of the respective dates of divestiture as follows:
Between the closing date and the approval of the annual financial statements for publication, Bayer HealthCare AG, Leverkusen, is expected to acquire the over-the-counter cough and cold products portfolio of the Topsun Group, Shanghai, China. The purchase price is approximately €103 million plus contingent payments of around €19 million subject to fulfillment of certain performance criteria. The agreement also comprises the transfer of the Gaitianli manufacturing facility in Qidong and the national sales force, and has been submitted to the regulatory authorities for approval. Chief among the products to be acquired from Topsun is the market-leading White & Black® brand.
Further, in October 2006 Bayer MaterialScience agreed to aquire Taiwan’s Ure-Tech Group, the largest producer of thermoplastic polyurethane (
TPU) in the Asia-Pacific region. The transfer of these businesses had not yet taken place by the date on which these financial statements were approved for publication.
Divestitures
In 2006 the Bayer Group made the following significant divestitures, the proceeds of which totaled €525 million.
On November 30, 2006 Bayer sold its 49.9 percent interest in the GE Bayer Silicones joint venture to its partner General Electric. The sale of this interest generated proceeds of €431 million.
On April 3, 2006, Bayer Diagnostics Manufacturing Limited, Bridgend, U.K., divested its production facilities and activities to Kimball Electronics Wales Limited. The businesses divested comprise the manufacture of appliances for the diagnostics and diabetes care market.
To strengthen the focus on its core business, the Bayer CropScience subgroup divested various active ingredients and related rights in its Crop Protection segment in 2006, including Asulam®, a herbicide that was marketed as Asulox® and Asilan®. Total proceeds of divestitures by Bayer CropScience in fiscal 2006 were €47 million.
These and additional, minor divestitures affected the Group’s assets and liabilities as of the respective dates of divestiture as follows:
| 2006 | |
| € million | |
| Divested assets and liabilities | |
| Goodwill | 2 |
| Other intangible assets | 5 |
| Property, plant and equipment | 16 |
| Financial assets | 195 |
| Inventories | 26 |
| Other assets and liabilities | 0 |
| Net gain/loss on the divestitures | 281 |
| Total sale price | 525 |
| Divested cash and cash equivalents | - |
| Net cash inflow from the divestitures | 525 |
Discontinued operations
On June 29, 2006, Bayer AG concluded an agreement with Siemens AG on the sale of the diagnostics business. This transaction closed 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.
An agreement was signed on December 18, 2006 to sell the companies of the Wolff Walsrode group, which operates principally in the field of cellulose chemistry, to The Dow Chemical Company, U.S.A. Wolff Walsrode also was formerly assigned to the Materials segment. Pending the approval of the antitrust authorities, the transfer of this business is expected to take place in the first half of 2007.
The diagnostics activities, H.C. Starck and Wolff Walsrode are recognized as discontinued operations in 2006. The corresponding information is provided from the standpoint of the Bayer Group, not for the purpose of separately portraying either the discontinued operations or the remaining operations of Bayer.
On January 28, 2005 the spin-off of LANXESS from Bayer AG was entered in the commercial register and thus took legal effect. In March 2005, the plasma operations of the Bayer HealthCare subgroup in the United States were divested. The LANXESS and plasma operations were recognized as discontinued operations in 2005.
A breakdown of the results of discontinued operations is given below:
On June 29, 2006, Bayer AG concluded an agreement with Siemens AG on the sale of the diagnostics business. This transaction closed 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.
An agreement was signed on December 18, 2006 to sell the companies of the Wolff Walsrode group, which operates principally in the field of cellulose chemistry, to The Dow Chemical Company, U.S.A. Wolff Walsrode also was formerly assigned to the Materials segment. Pending the approval of the antitrust authorities, the transfer of this business is expected to take place in the first half of 2007.
The diagnostics activities, H.C. Starck and Wolff Walsrode are recognized as discontinued operations in 2006. The corresponding information is provided from the standpoint of the Bayer Group, not for the purpose of separately portraying either the discontinued operations or the remaining operations of Bayer.
On January 28, 2005 the spin-off of LANXESS from Bayer AG was entered in the commercial register and thus took legal effect. In March 2005, the plasma operations of the Bayer HealthCare subgroup in the United States were divested. The LANXESS and plasma operations were recognized as discontinued operations in 2005.
A breakdown of the results of discontinued operations is given below:
| Lanxess | Plasma business | Diagnostics | H.C. Starck | Wolff Walsrode | Total | |||||||
| € million | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 |
| Net sales | 503 | - | 124 | - | 1,433 | 1,526 | 920 | 985 | 329 | 334 | 3,309 | 2,845 |
| Cost of goods sold | (345) | - | (91) | - | (652) | (660) | (738) | (806) | (225) | (233) | (2,051) | (1,699) |
| Selling expenses | (62) | - | (14) | - | (370) | (394) | (54) | (51) | (42) | (45) | (542) | (490) |
| Research and development expenses | (8) | - | (11) | - | (120) | (124) | (29) | (28) | (8) | (8) | (176) | (160) |
| General administration expenses | (20) | - | (11) | - | (95) | (94) | (22) | (32) | (20) | (19) | (168) | (145) |
| Other operating income (expenses) - net | (6) | - | 1 | - | (17) | (51) | 6 | (13) | 2 | 11 | (14) | (53) |
| Operating result (EBIT) | 62 | - | (2) | - | 179 | 203 | 83 | 55 | 36 | 40 | 358 | 298 |
| Non-operating result | (4) | - | - | - | 2 | (1) | (10) | (5) | (3) | (7) | (15) | (13) |
| Income (loss) before income taxes | 58 | - | (2) | - | 181 | 202 | 73 | 50 | 33 | 33 | 343 | 285 |
| Income taxes | (20) | - | 1 | - | (63) | (85) | (27) | (18) | (13) | (13) | (122) | (116) |
| Income (loss) after taxes | 38 | - | (1) | - | 118 | 117 | 46 | 32 | 20 | 20 | 221 | 169 |
| of which: | ||||||||||||
| Current income (loss) before taxes | 58 | - | 22 | - | 181 | 202 | 73 | 50 | 33 | 33 | 367 | 285 |
| Income taxes | (20) | - | (7) | - | (63) | (85) | (27) | (18) | (13) | (13) | (130) | (116) |
| Current income (loss) after taxes | 38 | - | 15 | - | 118 | 117 | 46 | 32 | 20 | 20 | 237 | 169 |
| Income (loss) from the sale before taxes | - | - | (24) | - | - | - | - | - | - | - | (24) | - |
| Income taxes | - | - | 8 | - | - | - | - | - | - | - | 8 | - |
| Income (loss) from the sale after taxes | - | - | (16) | - | - | - | - | - | - | - | (16) | - |
The separate asset and liability line items in the balance sheet reflect the following amounts pertaining to the discontinued operations as of December 31:
| Diagnostics | H.C. Starck | Wolff Walsrode | Total | |||||
| € million | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 |
| Noncurrent assets | - | 822 | - | 391 | - | 214 | - | 1,427 |
| Goodwill and other intangible assets | - | 383 | - | 33 | - | 8 | - | 424 |
| Property, plant and equipment | - | 356 | - | 300 | - | 194 | - | 850 |
| Other noncurrent assets | - | 42 | - | 15 | - | 2 | - | 59 |
| Deferred taxes | - | 41 | - | 43 | - | 10 | - | 94 |
| Current assets | - | 700 | - | 676 | - | 122 | - | 1,498 |
| Inventories | - | 235 | - | 506 | - | 61 | - | 802 |
| Trade accounts receivable | - | 422 | - | 162 | - | 53 | - | 637 |
| Other current assets | - | 43 | - | 8 | - | 8 | - | 59 |
| Assets held for sale and discontinued operations | - | 1,522 | - | 1,067 | - | 336 | - | 2,925 |
| Noncurrent liabilities | - | 33 | - | 233 | - | 115 | - | 381 |
| Provisions for pensions and other post- employment benefits | - | 26 | - | 182 | - | 89 | - | 297 |
| Other provisions | - | - | - | 30 | - | 7 | - | 37 |
| Financial liabilities | - | - | - | - | - | - | - | - |
| Other noncurrent liabilities | - | - | - | - | - | - | - | - |
| Deferred taxes | - | 7 | - | 21 | - | 19 | - | 47 |
| Current liabilities | - | 299 | - | 125 | - | 43 | - | 467 |
| Other provisions | - | 100 | - | 20 | - | 11 | - | 131 |
| Financial liabilities | - | - | - | 58 | - | 8 | - | 66 |
| Trade accounts payable | - | 74 | - | 29 | - | 16 | - | 119 |
| Other current liabilities | - | 125 | - | 18 | - | 8 | - | 151 |
| Liabilities directly related to assets held for sale and discontinued operations | - | 332 | - | 358 | - | 158 | - | 848 |
Discontinued operations affected the Group cash flow statements as follows:
| Lanxess | Plasma business | Diagnostics | H.C. Starck | Wolff Walsrode | Total | |||||||
| € million | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 |
| Net cash provided by (used in) operating activities | (80) | - | 40 | - | 264 | 154 | 10 | 78 | 41 | 43 | 275 | 275 |
| Net cash provided by (used in) investing activities | (19) | - | 206 | - | (97) | (107) | (48) | (55) | (20) | (17) | 22 | (179) |
| Net cash provided by (used in) financing activities | 99 | - | (246) | - | (167) | (47) | 38 | (23) | (21) | (26) | (297) | (96) |
| Change in cash and cash equivalents | 0 | - | 0 | - | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
*
The names "Bayer Schering Pharma" or "Schering" as used in this publication always refer to Bayer Schering Pharma AG, Berlin, Germany, or its predecessor, Schering AG, Berlin, Germany, respectively.
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