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Financial Statements
24. Changes in stockholders’ equity
The components of stockholders’ equity and their changes during 2005 and 2006 are shown in the following table.
| Capital stock of Bayer AG | Capital reserves of Bayer AG | Other reserves | Equity attributable to Bayer AG stockholders | Equity attributable to minority interest | Stock- holders’ equity | |
| € million | ||||||
| December 31, 2004 | 1,870 | 2,942 | 6,020 | 10,832 | 111 | 10,943 |
| Spin-off of Lanxess | - | - | (1,059) | (1,059) | (19) | (1,078) |
| Capital contributions | - | - | - | - | - | 0 |
| Other changes | - | - | 1,304 | 1,304 | (12) | 1,292 |
| December 31, 2005 | 1,870 | 2,942 | 6,265 | 11,077 | 80 | 11,157 |
| Capital contributions | 87 | 1,086 | - | 1,173 | - | 1,173 |
| Other changes | - | - | 517 | 517 | 4 | 521 |
| December 31, 2006 | 1,957 | 4,028 | 6,782 | 12,767 | 84 | 12,851 |
The capital stock of Bayer AG totals €1,957 million (2005: €1,870 million) and is divided into 764,341,920 (2005: 730,341,920) no-par bearer shares. Each share confers one voting right. On July 6, 2006, 34 million new shares were placed with German and international institutional investors by means of an accelerated bookbuilding process. The proceeds of this capital increase were around €1,182 million less €9 million for bank charges. The issue price of the new shares, which carry full entitlement to the dividend for fiscal 2006, was €34.75 per share. The related 4.7 percent cash increase in the company’s capital stock was approved by the Supervisory Board and implemented on the basis of the authorization granted by the Annual Stockholders’ Meeting on April 28, 2006 (Authorized Capital II).
Authorized capital of €465 million was approved by the Annual Stockholders’ Meeting on April 28, 2006. It expires on April 27, 2011. It can be used to increase the capital stock by issuing new no-par bearer shares against cash contributions or contributions in kind, but capital increases against contributions in kind may not exceed a total of €370 million. Stockholders must normally be granted subscription rights. However, subject to the approval of the Supervisory Board, the Board of Management is authorized to exclude subscription rights for the stockholders with respect to any excess shares remaining after rights have been allocated (fractional amounts) and also to the extent necessary to grant subscription rights for new shares to holders of convertible bonds or bonds with attached warrants or mandatory convertible bonds issued by Bayer AG or its Group companies, who would be entitled to subscription rights upon exercise of the conversion rights or warrants. In addition the Board of Management is authorized to exclude stockholders’ subscription rights, subject to the approval of the Supervisory Board, in cases where an increase in capital against contributions in kind is carried out for the purpose of acquiring companies, parts of companies, participating interests in companies or other assets.
Further authorized capital was also approved by the Annual Stockholders’ Meeting on April 28, 2006. The Board of Management is authorized until April 27, 2011 to increase the capital stock, subject to the approval of the Supervisory Board, by up to a total of €186 million in one or more installments by issuing new no-par bearer shares against cash contributions. Of this amount, €87.04 million was used for the capital increase effected on July 6, 2006. The remaining authorized capital thus stood at €98.96 million on the balance sheet date. Under the resolution adopted by the Annual Stockholders’ Meeting, stockholders must normally be granted subscription rights. However, the Board of Management is authorized to exclude subscription rights for stockholders with respect to one or more capital increases out of the Authorized Capital II, subject to the approval of the Supervisory Board, provided that such capital increase does not exceed 10 percent of the capital stock existing at the time this authorization becomes effective or the time this authorization is exercised, for purposes of issuing new shares against cash contributions at a price that is not significantly below the market price of shares in the company that are already listed on the stock exchange at the time the issue price is finally determined. Shares acquired on the basis of an authorization of the Stockholders’ Meeting and sold pursuant to Section 71, Paragraph 1, No. 8, Sentence 5 of the German Stock Corporation Act in conjunction with Section 186, Paragraph 3, Sentence 4 of that Act during the term of this authorization shall count toward the above 10 percent limit. Shares issued or to be issued to service bonds with conversion rights, attached warrants or mandatory conversion rights shall also count toward this limit where such bonds were issued during the term of this authorization and stockholders’ subscription rights were excluded by application of Section 186, Paragraph 3, Sentence 4 of the German Stock Corporation Act.
Conditional capital of €186.88 million, corresponding to 73,000,000 shares, exists to service the conversion rights contained in a mandatory convertible bond issued by Bayer Capital Corporation B.V. on April 6, 2006.
The components of stockholders’ equity and their changes during 2005 and 2006 are shown in the following table.
Authorized capital of €465 million was approved by the Annual Stockholders’ Meeting on April 28, 2006. It expires on April 27, 2011. It can be used to increase the capital stock by issuing new no-par bearer shares against cash contributions or contributions in kind, but capital increases against contributions in kind may not exceed a total of €370 million. Stockholders must normally be granted subscription rights. However, subject to the approval of the Supervisory Board, the Board of Management is authorized to exclude subscription rights for the stockholders with respect to any excess shares remaining after rights have been allocated (fractional amounts) and also to the extent necessary to grant subscription rights for new shares to holders of convertible bonds or bonds with attached warrants or mandatory convertible bonds issued by Bayer AG or its Group companies, who would be entitled to subscription rights upon exercise of the conversion rights or warrants. In addition the Board of Management is authorized to exclude stockholders’ subscription rights, subject to the approval of the Supervisory Board, in cases where an increase in capital against contributions in kind is carried out for the purpose of acquiring companies, parts of companies, participating interests in companies or other assets.
Further authorized capital was also approved by the Annual Stockholders’ Meeting on April 28, 2006. The Board of Management is authorized until April 27, 2011 to increase the capital stock, subject to the approval of the Supervisory Board, by up to a total of €186 million in one or more installments by issuing new no-par bearer shares against cash contributions. Of this amount, €87.04 million was used for the capital increase effected on July 6, 2006. The remaining authorized capital thus stood at €98.96 million on the balance sheet date. Under the resolution adopted by the Annual Stockholders’ Meeting, stockholders must normally be granted subscription rights. However, the Board of Management is authorized to exclude subscription rights for stockholders with respect to one or more capital increases out of the Authorized Capital II, subject to the approval of the Supervisory Board, provided that such capital increase does not exceed 10 percent of the capital stock existing at the time this authorization becomes effective or the time this authorization is exercised, for purposes of issuing new shares against cash contributions at a price that is not significantly below the market price of shares in the company that are already listed on the stock exchange at the time the issue price is finally determined. Shares acquired on the basis of an authorization of the Stockholders’ Meeting and sold pursuant to Section 71, Paragraph 1, No. 8, Sentence 5 of the German Stock Corporation Act in conjunction with Section 186, Paragraph 3, Sentence 4 of that Act during the term of this authorization shall count toward the above 10 percent limit. Shares issued or to be issued to service bonds with conversion rights, attached warrants or mandatory conversion rights shall also count toward this limit where such bonds were issued during the term of this authorization and stockholders’ subscription rights were excluded by application of Section 186, Paragraph 3, Sentence 4 of the German Stock Corporation Act.
Conditional capital of €186.88 million, corresponding to 73,000,000 shares, exists to service the conversion rights contained in a mandatory convertible bond issued by Bayer Capital Corporation B.V. on April 6, 2006.
The components of stockholders’ equity and their changes during 2005 and 2006 are shown in the following table.
| Retained earnings | Accumulated other comprehensive income | ||||||
| € million | Revalu-ation surplus | Other retained earnings | Net income | Exchange differences | Fair-value measurement of securities | Cash flow hedges | Other reserves |
| December 31, 2004 | 66 | 7,235 | 685 | (2,003) | 20 | 17 | 6,020 |
| Spin-off of Lanxess | (1,438) | 379 | (1,059) | ||||
| Changes in stockholders’ equity not recognized in net income | |||||||
| Changes in fair value of securities and cash flow hedges | 9 | (15) | (6) | ||||
| Changes in actuarial gains/losses on defined benefit obligations for pensions and other post-employment benefits | (1,207) | (1,207) | |||||
| Exchange differences on translation of operations outside the euro zone | 849 | 849 | |||||
| Deferred taxes on valuation adjustments offset directly against stockholders’ equity | 470 | (6) | 6 | 470 | |||
| Other changes in stockholders’ equity | (4) | 4 | 0 | ||||
| Transfer of changes recognized in income | 0 | 3 | 3 | ||||
| 62 | 5,064 | 685 | (775) | 23 | 11 | 5,070 | |
| Dividend payments | (402) | (402) | |||||
| Allocations to retained earnings | 283 | (283) | 0 | ||||
| 283 | (685) | (402) | |||||
| Changes in stockholders’ equity recognized in net income | |||||||
| Net income 2005 | 1,597 | 1,597 | |||||
| 1,597 | 1,597 | ||||||
| December 31, 2005 | 62 | 5,347 | 1,597 | (775) | 23 | 11 | 6,265 |
| Changes in stockholders’ equity not recognized in net income | |||||||
| Changes in fair value of securities and cash flow hedges | (7) | (59) | (66) | ||||
| Changes in actuarial gains/losses on defined benefit obligations for pensions and other post-employment benefits | 448 | 448 | |||||
| Exchange differences on translation of operations outside the euro zone | (720) | (720) | |||||
| Deferred taxes on valuation adjustments offset directly against stockholders’ equity | (166) | 2 | 16 | (148) | |||
| Other changes in stockholders’ equity | (4) | 4 | 0 | ||||
| Transfer of changes recognized in income | 14 | 14 | |||||
| 58 | 5,633 | 1,597 | (1,495) | 18 | (18) | 5,793 | |
| Dividend payments | (694) | (694) | |||||
| Allocations to retained earnings | 903 | (903) | 0 | ||||
| 903 | (1,597) | (694) | |||||
| Changes in stockholders’ equity recognized in net income | |||||||
| Net income 2006 | 1,683 | 1,683 | |||||
| 1,683 | 1,683 | ||||||
| December 31, 2006 | 58 | 6,536 | 1,683 | (1,495) | 18 | (18) | 6,782 |
The effect of the revaluation of assets relating to acquisitions made in stages is recognized in equity in compliance with IFRS 3 (Business Combinations). If an enterprise is acquired in several stages, all assets and liabilities of the company have to be completely revalued on the date on which the acquiring company gains control and recognized at fair value. If the new fair value of the assets already held by the acquiring company exceeds their carrying amount, the carrying amount must be increased accordingly. This adjustment is recognized in a separate equity item (revaluation surplus) and thus has no effect on net income. The revaluation surplus of €62 million reported under stockholders’ equity in 2005 was entirely due to the acquisition of the remaining 50 percent interest in an 
OTC joint venture with Roche in the United States that was established in 1996. In 2006 the €4 million portion of the revaluation surplus that relates to scheduled amortization/depreciation of the respective assets was transferred to retained earnings.
The retained earnings contain prior years’ undistributed income of consolidated companies.
Under IAS 19 (Employee Benefits), which contains an option for the accounting treatment of actuarial gains and losses from defined benefit plans, all such gains and losses are recognized in the retained earnings of the Bayer Group. Changes in fair values of cash flow hedges and available-for-sale financial assets are recognized in other comprehensive income.
The components of third-party minority interests in Group equity and their changes during 2006 and 2005 are shown in the following table.
OTC joint venture with Roche in the United States that was established in 1996. In 2006 the €4 million portion of the revaluation surplus that relates to scheduled amortization/depreciation of the respective assets was transferred to retained earnings. The retained earnings contain prior years’ undistributed income of consolidated companies.
Under IAS 19 (Employee Benefits), which contains an option for the accounting treatment of actuarial gains and losses from defined benefit plans, all such gains and losses are recognized in the retained earnings of the Bayer Group. Changes in fair values of cash flow hedges and available-for-sale financial assets are recognized in other comprehensive income.
The components of third-party minority interests in Group equity and their changes during 2006 and 2005 are shown in the following table.
| Equity attributable to minority interest | ||
| € million | 2005 | 2006 |
| January 1 | 111 | 80 |
| Spin-off of Lanxess | (19) | - |
| Changes in stockholders’ equity not recognized in net income | ||
| Changes in fair value of securities and cash flow hedges | - | 0 |
| Changes in actuarial gains/losses on defined benefit obligations for pensions and other post-employment benefits | 0 | 0 |
| Exchange differences on translation of operations outside the euro zone | 8 | (5) |
| Deferred taxes on valuation adjustments offset directly against stockholders’ equity | 0 | 0 |
| Other changes in stockholders’ equity | 20 | 14 |
| 120 | 89 | |
| Dividend payments | (38) | (15) |
| Allocations to retained earnings | 0 | (2) |
| (38) | (17) | |
| Changes in stockholders’ equity recognized in net income | ||
| Net income | (2) | 12 |
| (2) | 12 | |
| December 31 | 80 | 84 |
Minority stockholders’ interest mainly comprises third parties’ shares in the equity of the consolidated subsidiaries Sumika Bayer Urethane Co. Ltd., Japan; Bayer CropScience Limited, India; Bayer Polymers Co., Ltd., China; Berlimed, S.A., Spain; Bayer CropScience Nufarm Ltd., United Kingdom; Justesa Imagen, S.A., Spain; and Bayer Diagnostics India Limited, India.
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