Bayer AG - Stockholders' Newsletter First Quarter 2007 - Calculation of EBIT(DA) Before Special Items

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Management Report

Calculation of EBIT(DA) Before Special Items

EBITDA, EBITDA before special items and EBIT before special items are not defined in the International Financial Reporting Standards and should therefore be regarded only as supplementary information. The company considers the underlying earnings figures to be more suitable indicators of operating performance since they are not affected by special items, and EBITDA before special items is not affected by depreciation, amortization or write-downs/write-backs. The company also believes that these indicators give readers a clearer picture of the results of operations and ensure greater comparability of data over time.

Special Items Reconciliation	EBIT 1st Quarter 2006	EBIT 1st Quarter 2007	EBITDA 1st Quarter 2006	EBITDA 1st Quarter 2007
€ million
After special items	1,049	1,175	1,436	1,774
HealthCare	6	139	6	165
Schering PPA effects*	0	20	0	64
Schering integration costs	0	119	0	101
Litigation	5	0	5	0
Other	1	0	1	0
CropScience	0	39	0	36
Restructuring	0	39	0	36
MaterialScience	112	6	112	0
Restructuring	0	6	0	0
Litigation	112	0	112	0
Reconciliation	10	16	10	15
Restructuring Industry Services	0	16	0	15
Litigation	10	0	10	0
Total special items	128	200	128	216
Before special items	1,177	1,375	1,564	1,990

* The purchase price paid for Schering AG, Germany, was allocated among the acquired assets and assumed liabilities in accordance with the International Financial Reporting Standards (IFRS). The purchase price allocation, which is not yet complete, resulted in total charges to EBIT of €224 million in the first quarter of 2007. To ensure comparability with future earnings data, the expected long-term effects of the step-up are reflected in EBIT and EBITDA before special items, whereas temporary, non-cash effects of the purchase price allocation are eliminated. When calculating EBIT before special items, we deducted a €20 million special charge recorded in this connection. EBIT before special items therefore reflects €204 million in charges resulting from the purchase price allocation. EBITDA before special items remains unaffected by the purchase price allocation.