Statements of Income
Calculation of EBIT(DA) Before Special Items for the Schering Business
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Management Report
Calculation of EBIT(DA) Before Special Items for the Schering Business
The first-time consolidation of the Schering business involves allocating the purchase price among the acquired assets and assumed liabilities in accordance with the International Financial Reporting Standards (IFRS) (see also Notes to the Interim Report).
One of the effects of the purchase price allocation, which has not yet been completed, is an upward revaluation or “step-up” of the acquired inventories and noncurrent assets. The greater part of the noncurrent asset step-up relates to assets used for production. Depreciation of the step-up amount results in a long-term increase in the cost of production of goods manufactured after the acquisition date. The “work-down” of the inventory step-up as the acquired inventories are sold off results in charges to earnings in the short term.
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.
In the third quarter of 2006, special items in EBIT and EBITDA include €37 million and €267 million, respectively, in charges resulting from the purchase price allocation.
One of the effects of the purchase price allocation, which has not yet been completed, is an upward revaluation or “step-up” of the acquired inventories and noncurrent assets. The greater part of the noncurrent asset step-up relates to assets used for production. Depreciation of the step-up amount results in a long-term increase in the cost of production of goods manufactured after the acquisition date. The “work-down” of the inventory step-up as the acquired inventories are sold off results in charges to earnings in the short term.
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.
In the third quarter of 2006, special items in EBIT and EBITDA include €37 million and €267 million, respectively, in charges resulting from the purchase price allocation.
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