Bayer AG - Annual Report 2006 - Goodwill and other intangible assets

Financial Statements

17. Goodwill and other intangible assets

Changes in intangible assets in 2006 were as follows:

	Acquired goodwill	Patents	Trade- marks	Marketing and distribution rights	Production rights	R&D projects	Other rights and advance payments	Total
€ million
Gross carrying amounts, December 31, 2005	2,623	1,705	2,127	880	1,990	-	2,108	11,433
Changes in the scope of consolidation	0	-	-	-	-	-	0	0
Acquisitions	5,804	8,880	1,666	174	-	1,218	179	17,921
Capital expenditures	-	10	0	139	11	105	78	343
Retirements	(2)	(12)	(23)	(1)	(3)	-	(31)	(72)
Reclassifications to current assets	(42)	(397)	(4)	(313)	0	-	(101)	(857)
Transfers	0	(6)	2	3	0	-	(53)	(54)
Exchange differences	(156)	(65)	(80)	(64)	(4)	(6)	(141)	(516)
Gross carrying amounts, December 31, 2006	8,227	10,115	3,688	818	1,994	1,317	2,039	28,198

Accumulated amortization and write-downs, December 31, 2005	-	735	436	312	667	-	1,595	3,745
Changes in the scope of consolidation	-	-	-	-	-	-	0	0
Retirements	-	(11)	(20)	(1)	(1)	-	(24)	(57)
Reclassifications to current assets	-	(210)	(2)	(149)	0	-	(72)	(433)
Amortization and write-downs in 2006	-	533	126	101	164	41	135	1,100
of which write-downs	-	0	-	20	-	41	4	65
Write-backs	-	-	-	-	-	-	-	-
Transfers	-	0	1	(3)	0	-	(1)	(3)
Exchange differences	-	(26)	(15)	(30)	(2)	-	(115)	(188)
Accumulated amortization and write-downs, December 31, 2006	-	1,021	526	230	828	41	1,518	4,164
Net carrying amounts, December 31, 2006	8,227	9,094	3,162	588	1,166	1,276	521	24,034

For further information on acquisitions and divestitures, see Note [7.2].

Details of the impairment testing procedure for goodwill are given in Note [4.5]. The residual carrying amounts of goodwill for the operating subgroups and reporting segments are shown in the table:

	Pharmaceuticals	Consumer Health	Health- Care	Crop Protection	Environ- mental Science, BioScience	Crop- Science
€ million
Net carrying amounts, January 1, 2005	2	174	176	1,145	415	1,560
Changes in the scope of consolidation	-	-	-	-	-	-
Acquisitions	-	644	644	5	3	8
Retirements	-	(1)	(1)	(30)	(13)	(43)
Amortization and write-downs in 2005	-	-	-	-	-	-
Exchange differences	-	78	78	45	10	55
Net carrying amounts, December 31, 2005	2	895	897	1,165	415	1,580
Changes in the scope of consolidation	-	-	-	0	-	0
Acquisitions	5,772	24	5,796	2	5	7
Retirements	-	-	-	(2)	-	(2)
Reclassifications to current assets	-	(11)	(11)	-	-	-
Amortization and write-downs in 2006	-	-	-	-	-	-
Exchange differences	(47)	(45)	(92)	(29)	(31)	(60)
Net carrying amounts, December 31, 2006	5,727	863	6,590	1,136	389	1,525

	Materials	Systems	Material- Science	Recon- ciliation	Bayer Group
€ million
Net carrying amounts, January 1, 2005	118	12	130	-	1,866
Changes in the scope of consolidation	-	-	-	-	-
Acquisitions	-	9	9	-	661
Retirements	-	-	-	-	(44)
Amortization and write-downs in 2005	-	-	-	-	-
Exchange differences	6	1	7	-	140
Net carrying amounts, December 31, 2005	124	22	146	-	2,623
Changes in the scope of consolidation	-	-	-	-	0
Acquisitions	1	0	1	-	5,804
Retirements	-	-	-	-	(2)
Reclassifications to current assets	(31)	-	(31)	-	(42)
Amortization and write-downs in 2006	-	-	-	-	-
Exchange differences	(3)	(1)	(4)	-	(156)
Net carrying amounts, December 31, 2006	91	21	112	-	8,227

In January 2006, Bayer HealthCare and Nuvelo Inc. concluded a global development and marketing agreement for the drug alfimeprase. Nuvelo received an advance payment of €41 million through which Bayer secured the global marketing rights to this product outside the United States. Accordingly, this amount was capitalized as an intangible asset at the start of 2006. In December 2006, Bayer HealthCare and Nuvelo Inc. announced that two phase III clinical studies with alfimeprase had failed to achieve primary and key secondary end-points. As a result, this asset was written off. In 2006, the €19 million value of the marketing and commercialization rights to Viadur® was written off, continuing the action taken in 2005, when a write-down of €15 million was made on intangible assets related to this product. It has been confirmed that Viadur® would not have long-term viability in the market.

Over the next five years, amortization of the intangible assets recognized in 2006 is expected to be as follows:

Estimated amortization of intangible assets
€ million
2007	1,324
2008	1,495
2009	1,416
2010	1,240
2011	1,177

Possible future acquisitions and/or divestments of intangible assets are not taken into account in computing these amounts and may therefore cause them to vary.

Changes in intangible assets in 2005 were as follows:

	Acquired goodwill	Patents	Trade- marks	Marketing and distribution rights	Production rights	R&D projects	Other rights and advance payments	Total
in Mio €
Gross carrying amounts, December 31, 2004	2,470	1,634	1,029	626	1,933	-	1,953	9,645
Changes in the scope of consolidation	-	-	-	-	-	-	0	0
Acquisitions	661	13	1,068	160	74	-	69	2,045
Capital expenditures	-	12	-	6	0	-	78	96
Retirements	(44)	(68)	(7)	0	(11)	-	(154)	(284)
Transfers	-	41	(4)	(3)	(11)	-	(25)	(2)
Elimination of accumulated amortization prior to application of IFRS 3	(643)	-	-	-	-	-	-	(643)
Exchange differences	179	73	41	91	5	-	187	576
Gross carrying amounts, December 31, 2005	2,623	1,705	2,127	880	1,990	-	2,108	11,433

Accumulated amortization and write-downs, December 31, 2004	604	602	331	205	510	-	1,441	3,693
Changes in the scope of consolidation	-	-	-	-	-	-	0	0
Retirements	0	(53)	(1)	0	(4)	-	(129)	(187)
Amortization and write-downs in 2006	-	155	92	76	164	-	135	622
of which write-downs	-	4	1	15	0	-	2	22
Write-backs	-	-	-	-	-	-	0	0
Transfers	-	1	(1)	0	(5)	-	4	(1)
Elimination of accumulated amortization prior to application of IFRS 3	(643)	-	-	-	-	-	-	(643)
Exchange differences	39	30	15	31	2	-	144	261
Accumulated amortization and write-downs, December 31, 2005	0	735	436	312	667	-	1,595	3,745
Net carrying amounts, December 31, 2005	2,623	970	1,691	568	1,323	-	513	7,688

Following the publication of IFRS 3 (Business Combinations) and the revised standards IAS 36 (Impairment of Assets) and IAS 38 (Intangible Assets), goodwill and other intangible assets with indefinite useful lives are no longer amortized as of January 1, 2005 but tested regularly for impairment. There are no accumulated value adjustments for goodwill. The respective adjustments made in 2005 are shown in the line “Elimination of accumulated amortization prior to application of IFRS 3.”

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