Statements of Income
Liquidity and Capital Resources
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Management Report
Liquidity and Capital Resources
| Bayer Group Summary Cash Flow Statements | 2nd Quarter 2006 | 2nd Quarter 2007 | 1st Half 2006 | 1st Half 2007 |
| € million | ||||
| Gross cash flow* | 928 | 1,187 | 2,017 | 2,598 |
| Changes in working capital/other non-cash items | (46) | (371) | (1,097) | (1,407) |
| Net cash provided by (used in) operating activities (net cash flow), continuing operations | 882 | 816 | 920 | 1,191 |
| Net cash provided by (used in) operating activities (net cash flow), discontinued operations | 120 | (36) | 210 | 2 |
| Net cash provided by (used in) operating activities (net cash flow) (total) | 1,002 | 780 | 1,130 | 1,193 |
| Net cash provided by (used in) investing activities (total) | (13,836) | (53) | (14,028) | 4,536 |
| Net cash provided by (used in) financing activities (total) | 12,320 | (3,889) | 12,133 | (5,653) |
| Change in cash and cash equivalents due to business activities (total) | (514) | (3,162) | (765) | 76 |
| Cash and cash equivalents at beginning of period | 3,026 | 6,143 | 3,290 | 2,915 |
| Change due to exchange rate movements and to changes in scope of consolidation | (21) | (1) | (34) | (11) |
| Cash and cash equivalents at end of period | 2,491 | 2,980 | 2,491 | 2,980 |
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 first half of 2007 amounted to €2,598 million, up 28.8 percent from the first half of 2006 (€2,017 million). The increase was mainly due to the inclusion of Schering, Berlin, Germany, and the strong performance of the business. Net cash flow improved by €271 million to €1,191 million (H1 2006: €920 million), thanks to the substantial cash inflows in the first quarter.
In the second quarter, however, net cash flow fell by €66 million to €816 million (Q2 2006: €882 million), mainly because of higher tax payments, bonus payments and disbursements for restructuring. Provisions for these payments had been recorded and recognized in income in previous quarters. The total net cash flow including discontinued operations was €780 million (Q2 2006: €1,002 million), with the decline attributable primarily to the discontinued operations. The prior-year figures included the operating cash flows of the since-divested Diagnostics and H.C. Starck businesses.
In the second quarter, however, net cash flow fell by €66 million to €816 million (Q2 2006: €882 million), mainly because of higher tax payments, bonus payments and disbursements for restructuring. Provisions for these payments had been recorded and recognized in income in previous quarters. The total net cash flow including discontinued operations was €780 million (Q2 2006: €1,002 million), with the decline attributable primarily to the discontinued operations. The prior-year figures included the operating cash flows of the since-divested Diagnostics and H.C. Starck businesses.
Investing cash flow
There was a net cash inflow of €4,536 million for investing activities in the first six months of 2007, compared to a €14,028 million outflow in the prior-year period. The main items this year were €3.5 billion in proceeds from the divestment of the Diagnostics business, €0.9 billion from the sale of H.C. Starck, and €0.4 billion from the divestment of Wolff Walsrode to The Dow Chemical Company in June 2007.
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 €0.2 billion in divested cash and €0.2 billion in tax on the divestment gain paid in the second quarter, net proceeds of divestitures in the first half of 2007 totaled €3.5 billion. Further tax payments totaling some €0.3 billion will be due in subsequent quarters. 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 the 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 consisted mainly of the US$ 310 million (approximately €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 rapidly expanding U.S. cotton seed market. Cash outflows 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 half of 2007 came to €594 million (H1 2006: €566 million) and those for intangible assets to €47 million (H1 2006: €193 million), giving a total of €641 million (H1 2006: €759 million). This figure chiefly comprised expenditures for the expansion of our polymers production facilities in Caojing, China. Prior-year cash outflows for intangible assets included in particular the purchase of the European marketing rights for the blood pressure treatments Pritor® and PritorPlus®.
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 €0.2 billion in divested cash and €0.2 billion in tax on the divestment gain paid in the second quarter, net proceeds of divestitures in the first half of 2007 totaled €3.5 billion. Further tax payments totaling some €0.3 billion will be due in subsequent quarters. 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 the 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 consisted mainly of the US$ 310 million (approximately €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 rapidly expanding U.S. cotton seed market. Cash outflows 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 half of 2007 came to €594 million (H1 2006: €566 million) and those for intangible assets to €47 million (H1 2006: €193 million), giving a total of €641 million (H1 2006: €759 million). This figure chiefly comprised expenditures for the expansion of our polymers production facilities in Caojing, China. Prior-year cash outflows for intangible assets included in particular the purchase of the European marketing rights for the blood pressure treatments Pritor® and PritorPlus®.
Financing cash flow
Net cash outflow for financing activities in the first half of 2007 amounted to €5,653 million (H1 2006: €12,133 million inflow). Net loan repayments totaled €3,893 million, including €2.1 billion for the scheduled redemption of our 2002/2007 Eurobond in April 2007. The Bayer AG dividend and dividend payments to minority stockholders of consolidated companies accounted for a further €775 million (H1 2006: €527 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.
As of June 30, 2007 the Bayer Group had cash and cash equivalents of €2,980 million, including €778 million held in escrow accounts. The latter amount comprises €698 million deposited in a guarantee account following the decision by the Extraordinary Stockholders’ Meeting of Bayer Schering Pharma AG on January 17, 2007 to squeeze out Bayer Schering Pharma AG’s remaining minority stockholders. The decision means the shares 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.
As of June 30, 2007 the Bayer Group had cash and cash equivalents of €2,980 million, including €778 million held in escrow accounts. The latter amount comprises €698 million deposited in a guarantee account following the decision by the Extraordinary Stockholders’ Meeting of Bayer Schering Pharma AG on January 17, 2007 to squeeze out Bayer Schering Pharma AG’s remaining minority stockholders. The decision means the shares 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.
Liquid assets and net debt
Net debt (total) as of June 30, 2007 declined by €4.0 billion compared with December 31, 2006, to €13.6 billion, primarily because of cash inflows from the divestitures and also due to the improvement in operating cash flow. The increase compared with March 31, 2007 was mainly attributable to a dividend payment of €0.8 billion, along with the expected high level of interest and tax payments in the second quarter.
| Net Debt | Dec. 31, 2006 | March 31, 2007 | June 30, 2007 |
| € million | |||
| Noncurrent financial liabilities as per balance sheets (including derivatives) | 14,723 | 14,626 | 13,644 |
| of which mandatory convertible bond | 2,276 | 2,278 | 2,280 |
| of which hybrid bond | 1,247 | 1,245 | 1,234 |
| Current financial liabilities as per balance sheets (including derivatives) | 5,078 | 3,673 | 2,309 |
| Derivative receivables | (185) | (165) | (194) |
| Financial liabilities | 19,616 | 18,134 | 15,759 |
| Cash and cash equivalents* | (2,116) | (5,359) | (2,202) |
| Current financial assets | (27) | (5) | (6) |
| Net debt from continuing operations | 17,473 | 12,770 | 13,551 |
| Net debt from discontinued operations | 66 | 7 | 0 |
| Net debt (total) | 17,539 | 12,777 | 13,551 |
* In view of the restriction on its use, the €778 million liquidity in escrow accounts in the second quarter of 2007 (Q2 2006: €304 million) was not deducted when calculating net debt. June 30, 2007: €2,202 million = €2,980 million - €778 million (March 31, 2007: €5,359 million = €6,143 million - €784 million; Dec. 31, 2006: €2,116 million = €2,915 million - €799 million).
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