Scope of Consolidation

Changes in the scope of consolidation

The consolidated financial statements as of March 31, 2016, included 307 companies (December 31, 2015: 307 companies). As in the statements as of December 31, 2015, one of these companies was accounted for as a joint operation in line with Bayer’s interest in its assets, liabilities, revenues and expenses in accordance with IFRS 11 (Joint Arrangements). Four (December 31, 2015: three) joint ventures and four (December 31, 2015: four) associates were accounted for in the consolidated financial statements using the equity method according to IAS 28 (Investments in Associates and Joint Ventures).

Acquisitions, divestitures and discontinued operations

Acquisitions

In connection with the global purchase price allocation of SeedWorks India Pvt. Ltd., India, which was acquired in July 2015, improved information about the acquired assets led to a decline in intangible assets and a corresponding increase in goodwill in the opening statement of financial position in the first quarter of 2016. In addition, the purchase price declined by €2 million as a result of the final purchase price negotiations.

In the first quarter of 2016, the effects of this and other, smaller adjustments to purchase price allocations relating to previous years’ transactions on the Group’s assets and liabilities as of the respective acquisition or adjustment dates are shown in the table. Net of acquired cash and cash equivalents, the adjustments resulted in the following cash outflow:

Acquired Assets, Assumed Liabilities and Adjustments (Fair Values at the Respective Acquisition Dates)

 

 

Q1 2016

 

 

€ million

Goodwill

 

12

Patents and technologies

 

Other intangible assets

 

(23)

Property, plant and equipment

 

Inventories

 

Other current assets

 

Cash and cash equivalents

 

Deferred tax assets

 

Provisions for pensions and other post-employment benefits

 

1

Other provisions

 

Financial liabilities

 

Other liabilities

 

Deferred tax liabilities

 

8

Net assets

 

(2)

Changes in noncontrolling interest

 

Purchase price

 

(2)

Net cash outflow for acquisitions

 

(2)

Adjustment of purchase price allocation in the previous year

The global purchase price allocation for the consumer care business of Merck & Co., Inc., United States, which was acquired in 2014, was completed in September 2015. For the first quarter of 2015, this resulted in an increase in deferred tax assets of €957 million and a corresponding decrease in goodwill of €926 million in the statement of financial position. In the income statements, income after income taxes increased by €31 million. For the first quarter of 2015, this adjustment led to an increase of €0.04 in earnings per share for continuing operations, to €1.56.

Divestitures and discontinued operations

The sale of the Diabetes Care business to Panasonic Healthcare Holdings Co., Ltd., Tokyo, Japan, for around €1 billion was completed on January 4, 2016. The transaction includes the leading Contour™ portfolio of blood glucose monitoring meters and strips, as well as other products such as Breeze™2, Elite™ and Microlet™ lancing devices.

The effect of this divestiture in the first quarter of 2016 is shown in the table:

Divestitures

 

 

Q1 2016

 

 

€ million

Assets held for sale

 

183

Liabilities directly related to assets held for sale

 

(112)

Divested net assets

 

71

The sale of the Diabetes Care business also comprises further significant obligations by Bayer that will be fulfilled over a two-year period subsequent to the date of divestiture. The sale proceeds will be recognized accordingly over a two-year period and reported as income from discontinued operations. Deferred income has been recognized in the statements of financial position and will be dissolved as the obligations are fulfilled. An amount of €125 million was recognized in sales in the first quarter of 2016. The €71 million outflow of net assets is shown in the cost of goods sold.

The obligations to be fulfilled over the next two years in connection with the divestiture of the Diabetes Care business are also reported as discontinued operations in the income statements and statements of cash flows. They resulted in sales of €24 million in the first quarter of 2016. This information is provided from the standpoint of the Bayer Group and does not present these activities as a separate entity, which means it is not possible to compare these sales against the proceeds from operational product sales achieved in the first quarter of 2015.

The items in the statements of financial position pertaining to the Diabetes Care business are shown in the segment reporting under other segments. In addition to the aforementioned deferred income (€833 million), the statements of financial position include other receivables (net: €64 million), deferred tax assets (net: €89 million) and income tax liabilities (€20 million).

The income statements for the discontinued operation are given below:

Income Statements for Discontinued Operations

 

 

Q1 2015

 

Q1 2016

 

 

€ million

 

€ million

1

EBIT = earnings before financial result and taxes

Net sales

 

238

 

149

Cost of goods sold

 

(90)

 

(96)

Gross profit

 

148

 

53

Selling expenses

 

(85)

 

(3)

Research and development expenses

 

(10)

 

(2)

General administration expenses

 

(12)

 

(7)

Other operating income / expenses

 

13

 

2

EBIT1

 

54

 

43

Financial result

 

 

 

 

 

 

 

Income before income taxes

 

54

 

43

Income taxes

 

(9)

 

(4)

Income after income taxes

 

45

 

39

The discontinued operation affected the Bayer Group statements of cash flows as follows:

Cash Flows of Discontinued Operations

 

 

Q1 2015

 

Q1 2016

 

 

€ million

 

€ million

Net cash provided by (used in) operating activities (net cash flow)

 

47

 

819

Net cash provided by (used in) investing activities

 

 

Net cash provided by (used in) financing activities

 

(47)

 

(819)

Change in cash and cash equivalents