##### 



As filed with the Securities and Exchange Commission on
March 15, 2007








UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 20-F


|           |  |                                                                                                                                          
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                                                          
|o          |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
    12(g) OF THE SECURITIES EXCHANGE ACT OF 1934                                     
|          
|OR        
|          
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2006.
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934                                             
|          
|OR        
|          
|o          |  | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934                                          
|           |  | Date of event requiring this shell company report....                                                                                    

For the transition period from

to


Commission file number 001-16829


BAYER AKTIENGESELLSCHAFT


(Exact name of Registrant as specified in its charter)


BAYER CORPORATION*


(Translation of Registrants name into English)


Federal Republic of Germany


(Jurisdiction of incorporation or organization)


Bayerwerk, Gebäude W11


Kaiser-Wilhelm-Allee


51368 Leverkusen, GERMANY


(Address of principal executive offices)





Securities registered or to be registered pursuant to
Section 12(b) of the Act.


|                                                                                                                                  |  |                                                      
|--------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------
|Title of Each Class:                                                                                                              |  | Name of Each Exchange on Which Registered:           
|                                                                                                                                  |  |                                                      
|American Depositary Shares representing Bayer AG
    ordinary shares of no par value
    Bayer AG ordinary shares of no par value |  | New York Stock Exchange
    New York Stock Exchange**

Securities registered or to be registered pursuant to
Section 12(g) of the Act.


None




Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act.


None










þ o




o þ






þ o o




þ o o




o þ




o þ






o o




|  |                                                                                                            
|- | -----------------------------------------------------------------------------------------------------------
|* | Bayer Corporation is also the name of a wholly-owned subsidiary
    of the registrant in the United States.

|   |                                                                                                 
|-- | ------------------------------------------------------------------------------------------------
|** | Not for trading, but only in connection with the registration of
    American Depositary Shares.









---



##### 










TABLE OF CONTENTS


|          |  |                                                                                  |  |      |     | 
|--------- |  | -------------------------------------------------------------------------------- |  | ---- | --- | 
|          |  |                                                                                  |  | Page |    
|          |  |                                                                                  |  |      |    
|PART I   
|Item 1.   |  | Identity of Directors, Senior Management
    and Advisors                        |  |      | 5   | 
|Item 2.   |  | Offer Statistics and Expected Timetable                                          |  |      | 5   | 
|Item 3.   |  | Key Information                                                                  |  |      | 5   | 
|Item 4.   |  | Information on the Company                                                       |  |      | 14  | 
|          |  | History and Development of the Company                                           |  |      | 14  | 
|          |  | Business                                                                         |  |      | 17  | 
|          |  | Bayer HealthCare                                                                 |  |      | 19  | 
|          |  | Bayer CropScience                                                                |  |      | 38  | 
|          |  | Bayer MaterialScience                                                            |  |      | 45  | 
|          |  | Intellectual Property Protection                                                 |  |      | 55  | 
|          |  | Governmental Regulation                                                          |  |      | 58  | 
|          |  | Organizational Structure                                                         |  |      | 63  | 
|          |  | Property, Plants and Equipment                                                   |  |      | 65  | 
|Item 4A.  |  | Unresolved Staff Comments                                                        |  |      | 67  | 
|Item 5.   |  | Operating and Financial Review and
    Prospects                                 |  |      | 68  | 
|          |  | Overview                                                                         |  |      | 68  | 
|          |  | Critical Accounting Policies                                                     |  |      | 68  | 
|          |  | Operating Results 2004, 2005 and 2006                                            |  |      | 76  | 
|          |  | Bayer Group                                                                      |  |      | 84  | 
|          |  | Segment Data                                                                     |  |      | 89  | 
|          |  | Liquidity and Capital Resources 2004, 2005
    and 2006                          |  |      | 98  | 
|          |  | Research and Development                                                         |  |      | 108 | 
|          |  | Basis of Presentation                                                            |  |      | 108 | 
|Item 6.   |  | Directors, Senior Management and
    Employees                                   |  |      | 110 | 
|Item 7.   |  | Major Shareholders and Related Party
    Transactions                            |  |      | 126 | 
|Item 8.   |  | Financial Information                                                            |  |      | 127 | 
|Item 9.   |  | The Listing                                                                      |  |      | 141 | 
|Item 10.  |  | Additional Information                                                           |  |      | 143 | 
|Item 11.  |  | Quantitative and Qualitative Disclosures
    about Market Risk                   |  |      | 151 | 
|Item 12.  |  | Description of Securities Other Than Equity
    Securities                       |  |      | 157 | 
|PART II  
|Item 13.  |  | Defaults, Dividend Arrearages and
    Delinquencies                              |  |      | 158 | 
|Item 14.  |  | Material Modifications to the Rights of
    Security Holders and Use of Proceeds |  |      | 158 | 
|Item 15.  |  | Controls and Procedures                                                          |  |      | 158 | 
|Item 16.  |  | [Reserved]                                                                       |  |      | 159 | 
|Item 16A. |  | Audit Committee Financial Expert                                                 |  |      | 159 | 
|Item 16B. |  | Code of Ethics                                                                   |  |      | 159 | 
|Item 16C. |  | Principal Accountant Fees and Services                                           |  |      | 159 | 
|Item 16D. |  | Exemptions from the Listing Standards for
    Audit Committees                   |  |      | 160 | 
|Item 16E. |  | Purchases of Equity Securities by the
    Issuer and Affiliated Purchasers       |  |      | 161 | 
|         
|PART III 
|Item 17.  |  | Financial Statements                                                             |  |      | 162 | 
|Item 18.  |  | Financial Statements                                                             |  |      | 162 | 
|Item 19.  |  | Exhibits                                                                         |  |      | 162 | 

2



---



##### 



Defined Terms and Conventions


20-F,


20-F




Forward-Looking Information


20-F






| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | cyclicality in our industries;                                                                             
|
| |  | reduced demand for older products in response to advances in
    technology;                               
|
| |  | increasingly stringent regulatory controls;                                                                
|
| |  | increased raw materials prices;                                                                            
|
| |  | the expiration of patent protections;                                                                      
|
| |  | environmental liabilities and compliance costs;                                                            
|
| |  | failure to compete successfully, integrate acquired companies or
    develop new products and technologies;
|
| |  | risks from hazardous materials;                                                                            
|
| |  | litigation and product liability claims; and                                                               
|
| |  | fluctuations in currency exchange rates.                                                                   

Key
Information  Risk Factors Information on
the Company Operating and Financial Review
and Prospects 20-F.




Enforceability of Civil Liabilities




3



---



##### 







Vollstreckungsurteil




| |   |                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the U.S. court lacked jurisdiction, as determined under
    German law;                                                                                                                                                                                                                      
|
| |  | the person against whom the judgment was obtained did not
    receive service of process adequate to permit a proper defense,
    did not otherwise acquiesce in the original action and raises
    the lack of service of process as a defense against the grant of
    the execution order;
|
| |  | the judgment would conflict with the final judgment of a German
    court or with the final judgment of another foreign court that
    is recognizable under German law;                                                                                                                     
|
| |  | recognition of the judgment would violate an important principle
    of German law, especially basic constitutional rights; or                                                                                                                                                               
|
| |  | there is a lack of reciprocity between Germany and the
    jurisdiction whose court rendered the original judgment.                                                                                                                                                                          





4



---



##### 






PART I







|        |                                                          
|------- | ---------------------------------------------------------
|Item 1. | Identity of Directors, Senior Management and
    Advisors








|        |                                        
|------- | ---------------------------------------
|Item 2. | Offer Statistics and Expected Timetable








|        |                
|------- | ---------------
|Item 3. | Key Information

Selected Financial Data


20-F


20-F 


5



---



##### 







| |                                   
| | ----------------------------------
| | Consolidated Income Statement Data

|                                                                                           |                                                                                                     |                                      |        |      |      |  |        |      |  |  |        |      |  |      |        |      |      |  |        |      |   |  |        |      |  
|------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------- | ------------------------------------ | ------ | ---- | ---- |  | ------ | ---- |  |  | ------ | ---- |  | ---- | ------ | ---- | ---- |  | ------ | ---- | - |  | ------ | ---- | -
|                                                                                           |                                                                                                     | Year Ended December 31,              |       
|                                                                                           |                                                                                                     |                                      |       
|                                                                                           |                                                                                                     | 2002                                 |        |      | 2003 |  |        | 2004 |  |  | 2005   |      |  | 2006 |        |      | 2006 | 
|                                                                                           |                                                                                                     |                                      |        |      |      |  |        |      |  |  |        |      |  |      |        |      |      | 
|                                                                                           |                                                                                                     |                                     |        |      |     |  |        |     |  |  |       |      |  |     |        |      | $    | 
|                                                                                           |                                                                                                     | (In millions, except per share data) |       
|IFRS:                                                                                      |                                                                                                     |                                      |        |      |      |  |        |      |  |  |        |      |  |      |        |      |      |  |        |      |   |  |        |     
|Net sales (continuing
    operations)(a)                                                   |                                                                                                     |                                      | 20,022 |      |      |  | 20,222 |      |  |  | 20,925 |      |  |      | 24,701 |      |      |  | 28,956 |      |   |  | 38,213 |     
|Operating result (continuing
    operations)(a)                                            |                                                                                                     |                                      | 788    |      |      |  | 526    |      |  |  | 1,657  |      |  |      | 2,514  |      |      |  | 2,762  |      |   |  | 3,645  |     
|Non-operating
    result(a)                                                                |                                                                                                     |                                      | (401   | )    |      |  | (687   | )    |  |  | (632   | )    |  |      | (602   | )    |      |  | (782   | )    |   |  | (1,032 | )   
|Income before income
    taxes(a)                                                          |                                                                                                     |                                      | 387    |      |      |  | (161   | )    |  |  | 1,025  |      |  |      | 1,912  |      |      |  | 1,980  |      |   |  | 2,613  |     
|Income
    taxes(a)                                                                        |                                                                                                     |                                      | 3      |      |      |  | 74     |      |  |  | (401   | )    |  |      | (538   | )    |      |  | (454   | )    |   |  | (599   | )   
|Income (loss) after
    taxes(a)                                                           |                                                                                                     |                                      | 390    |      |      |  | (87    | )    |  |  | 624    |      |  |      | 1,374  |      |      |  | 1,526  |      |   |  | 2,014  |     
|Income (loss) after taxes from discontinued
    operations(a)                              |                                                                                                     |                                      | 688    |      |      |  | (1,204 | )    |  |  | 58     |      |  |      | 221    |      |      |  | 169    |      |   |  | 223    |     
|Income (loss) after taxes total                                                            |                                                                                                     |                                      | 1,078  |      |      |  | (1,291 | )    |  |  | 682    |      |  |      | 1,595  |      |      |  | 1,695  |      |   |  | 2,237  |     
|Minority stockholders interest                                                            |                                                                                                     |                                      | (3     | )    |      |  | (12    | )    |  |  | 3      |      |  |      | 2      |      |      |  | (12    | )    |   |  | (16    | )   
|Net income (loss)                                                                          |                                                                                                     |                                      | 1,075  |      |      |  | (1,303 | )    |  |  | 685    |      |  |      | 1,597  |      |      |  | 1,683  |      |   |  | 2,221  |     
|                                                                                           | Adjustment for financing expenses for the mandatory convertible
    bond, net of tax effect
    (c) |                                      |        |     |      |  |        |     |  |  |        |     |  |      |        |     |      |  |        | 72   |   |  |        | 95   |  
|Adjusted net income
    (loss)(c)                                                          |                                                                                                     |                                      | 1,075  |      |      |  | (1,303 | )    |  |  | 685    |      |  |      | 1,597  |      |      |  | 1,755  |      |   |  | 2,316  |     
|Average number of shares in
    issue(c)                                                   |                                                                                                     |                                      | 730    |      |      |  | 730    |      |  |  | 730    |      |  |      | 730    |      |      |  | 746    |      |   |  | 746    |     
|                                                                                           | Potential ordinary shares (mandatory convertible
    bond)(c)                                       |                                      |        |     |      |  |        |     |  |  |        |     |  |      |        |     |      |  |        | 46   |   |  |        | 46   |  
|Adjusted weighted average number of shares issued and potential
    ordinary
    shares(c) |                                                                                                     |                                      | 730    |      |      |  | 730    |      |  |  | 730    |      |  |      | 730    |      |      |  | 792    |      |   |  | 792    |     
|Operating result from continuing operations                                                |                                                                                                     |                                      |        |      |      |  |        |      |  |  |        |      |  |      |        |      |      |  |        |      |   |  |        |     
|                                                                                           | per
    share(a)(c)                                                                                 |                                      |        | 1.08 |      |  |        | 0.72 |  |  |        | 2.27 |  |      |        | 3.44 |      |  |        | 3.49 |   |  |        | 4.60 |  
|Basic and diluted net income (loss) per
    share(c)                                       |                                                                                                     |                                      | 1.47   |      |      |  | (1.78  | )    |  |  | 0.94   |      |  |      | 2.19   |      |      |  | 2.22   |      |   |  | 2.92   |     
|Dividends per
    share(c)                                                                 |                                                                                                     |                                      | 0.90   |      |      |  | 0.50   |      |  |  | 0.55   |      |  |      | 0.95   |      |      |  | N/A    | (b)  |   |  | N/A    | (b) 
|U.S. GAAP:                                                                                 |                                                                                                     |                                      |        |      |      |  |        |      |  |  |        |      |  |      |        |      |      |  |        |      |   |  |        |     
|Net income (loss)                                                                          |                                                                                                     |                                      | 1,277  |      |      |  | (1,445 | )    |  |  | 653    |      |  |      | 1,327  |      |      |  | 269    |      |   |  | 353    |     
|                                                                                           | Adjustment for guaranteed
    dividend(d)                                                           |                                      |        |     |      |  |        |     |  |  |        |     |  |      |        |     |      |  |        | (26  | ) |  |        | (34  | )
|Net income available to common stockholders
    (d)                                        |                                                                                                     |                                      | 1,277  |      |      |  | (1,445 | )    |  |  | 653    |      |  |      | 1,327  |      |      |  | 243    |      |   |  | 319    |     
|Basic and diluted net income (loss) per
    share(d),(e)                                   |                                                                                                     |                                      | 1.75   |      |      |  | (1.98  | )    |  |  | 0.89   |      |  |      | 1.82   |      |      |  | 0.33   |      |   |  | 0.43   |     






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Prior year data have been adjusted to reflect the fact that the
    Diagnostics division, the H.C. Starck business and the Wolff
    Walsrode business are reported as discontinued operations. For
    further information on these restatements, see Note 7.2 to
    the consolidated financial statements appearing elsewhere in
    this annual report on
    Form 20-F.                                                                                                                                          
|   
|(b) |  | The dividend payment for 2006 has not yet been decided on. Our
    Supervisory Board has accepted our Board of Managements
    proposal to recommend at our Annual Stockholders Meeting a
    dividend for 2006 of
    1.00 per
    share, for a total dividend of
    764 million.                                                                                                                                                                                                                               
|   
|(c) |  | IAS 33 (Earnings per Share) provides that ordinary shares
    that will be issued upon the conversion of a mandatorily
    convertible instrument are included in the calculation of basic
    earnings per share from the date the convertible instrument is
    entered into. We therefore have added the shares to be issued
    upon conversion of our mandatory convertible bond to our average
    number of shares in issue. Because these shares are deemed
    already to have been converted into equity for

6



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##### 



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | purposes of IAS 33, we have also adjusted our net income
    (loss) for purposes of the per share calculations to exclude the
    financing expenses (net of tax effect) we accrued on the
    mandatorily convertible bond.                                                                                                                                                                                        
|   
|(d) |  | Under U.S. GAAP, net income available to common shareholders is
    reduced by the guaranteed dividend payable to the minority
    shareholders of Bayer Schering Pharma AG under the terms of the
    Domination and Profit and Loss Transfer Agreement we entered
    into with Bayer Schering Pharma AG.                                                                                                         
|   
|(e) |  | According to SFAS No. 128 (Earnings per Share),
    potential shares to be issued upon conversion of a mandatory
    convertible bond are not to be included in the calculation of
    basic earnings per share. The potential shares to be issued upon
    conversion were not included in the computation of diluted
    earnings per share for U.S. GAAP purposes because their effect
    would be antidilutive.



| |                                
| | -------------------------------
| | Consolidated Balance Sheet Data

|                                          |  |               |        |  |      |  |        |      |  |  |        |  |  |      |        |  |      |  |        |  |  |  |        | 
|----------------------------------------- |  | ------------- | ------ |  | ---- |  | ------ | ---- |  |  | ------ |  |  | ---- | ------ |  | ---- |  | ------ |  |  |  | ------ | 
|                                          |  | December 31,  |       
|                                          |  |               |       
|                                          |  | 2002          |        |  | 2003 |  |        | 2004 |  |  | 2005   |  |  | 2006 |        |  | 2006 | 
|                                          |  |               |        |  |      |  |        |      |  |  |        |  |  |      |        |  |      | 
|                                          |  |              |        |  |     |  |        |     |  |  |       |  |  |     |        |  | $    | 
|                                          |  | (In millions) |       
|IFRS:                                     |  |               |        |  |      |  |        |      |  |  |        |  |  |      |        |  |      |  |        |  |  |  |        | 
|Total assets                              |  |               | 40,966 |  |      |  | 37,516 |      |  |  | 37,588 |  |  |      | 36,722 |  |      |  | 55,891 |  |  |  | 73,759 | 
|Stockholders equity                      |  |               | 14,666 |  |      |  | 11,290 |      |  |  | 10,943 |  |  |      | 11,157 |  |      |  | 12,851 |  |  |  | 16,959 | 
|Liabilities                               |  |               | 26,300 |  |      |  | 26,226 |      |  |  | 26,645 |  |  |      | 25,565 |  |      |  | 43,040 |  |  |  | 56,800 | 
|of which noncurrent financial obligations |  |               | 7,228  |  |      |  | 7,288  |      |  |  | 7,025  |  |  |      | 7,185  |  |      |  | 14,723 |  |  |  | 19,430 | 
|U.S. GAAP:                                |  |               |        |  |      |  |        |      |  |  |        |  |  |      |        |  |      |  |        |  |  |  |        | 
|Stockholders equity                      |  |               | 16,734 |  |      |  | 13,325 |      |  |  | 13,046 |  |  |      | 12,347 |  |      |  | 12,181 |  |  |  | 16,076 | 
|Total assets                              |  |               | 42,668 |  |      |  | 38,012 |      |  |  | 38,496 |  |  |      | 38,133 |  |      |  | 54,756 |  |  |  | 72,261 | 

Dividends


Additional
Information  Taxation.


|                                   |  |      |      |  |      |  |      |      |  |  |     |    
|---------------------------------- |  | ---- | ---- |  | ---- |  | ---- | ---- |  |  | --- | ---
|                                   |  | 2004 |      |  | 2005 |  |      | 2006 | 
|                                   |  |      |      |  |      |  |      |      | 
|Total dividend (
    in millions) |  |      | 402  |  |      |  | 694  |      |  |  | N/A | (a)
|Dividend per share
    ()         |  |      | 0.55 |  |      |  | 0.95 |      |  |  | N/A | (a)
|Dividend per share ($)             |  |      | 0.68 |  |      |  | 1.18 |      |  |  | N/A | (a)






|    |                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The dividend payment for 2006 has not yet been decided on. Our
    Supervisory Board has accepted our Board of Managements
    proposal to recommend at our Annual Stockholders Meeting a
    dividend for 2006 of
    1.00 per
    share, for a total dividend of
    764 million.

Financial Information 
Dividend Policy and Liquidation Proceeds.


7



---



##### 



Exchange Rate Data




|     |  |                        |        |  |         |  |        |      |  |  |        |  |  |  |        | 
|---- |  | ---------------------- | ------ |  | ------- |  | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|Year |  | Period End             |        |  | Average |  |        | High |  |  | Low    | 
|     |  |                        |        |  |         |  |        |      |  |  |        | 
|     |  | (U.S. dollar per euro) |       
|2002 |  |                        | 1.0485 |  |         |  | 0.9454 |      |  |  | 1.0485 |  |  |  | 0.8594 | 
|2003 |  |                        | 1.2597 |  |         |  | 1.1321 |      |  |  | 1.2597 |  |  |  | 1.0361 | 
|2004 |  |                        | 1.3538 |  |         |  | 1.2438 |      |  |  | 1.3625 |  |  |  | 1.1801 | 
|2005 |  |                        | 1.1842 |  |         |  | 1.2449 |      |  |  | 1.3476 |  |  |  | 1.1667 | 
|2006 |  |                        | 1.3197 |  |         |  | 1.2563 |      |  |  | 1.3327 |  |  |  | 1.1860 | 

|                    |  |              |        |  |     |  |        | 
|------------------- |  | ------------ | ------ |  | --- |  | ------ | 
|Previous six months |  | High         |        |  | Low | 
|                    |  |              |        |  |     | 
|                    |  | (U.S. dollar |       
|                    |  | per euro)    |       
|September 2006      |  |              | 1.2833 |  |     |  | 1.2648 | 
|October 2006        |  |              | 1.2773 |  |     |  | 1.2502 | 
|November 2006       |  |              | 1.3261 |  |     |  | 1.2705 | 
|December 2006       |  |              | 1.3327 |  |     |  | 1.3073 | 
|January 2007        |  |              | 1.3286 |  |     |  | 1.2904 | 
|February 2007       |  |              | 1.3246 |  |     |  | 1.2933 | 

 20-F, 


Risk Factors


An investment in our shares or ADSs involves a significant
degree of risk. You should carefully consider these risk factors
and the other information in this annual report on
Form 20-F before
deciding to invest in our shares or ADSs. The risks described
below are the ones we consider material. However, they are not
the only ones that may exist. Additional risks not known to us
or that we consider immaterial may also have an impact on our
business operations. The occurrence of any of these events could
seriously harm our business, operating results and financial
condition. In that case, the trading price of our shares or ADSs
could decline and you could lose all or part of your
investment.




| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | Failure to develop new products and production
    technologies may harm our competitive position





8



---



##### 





| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | Regulatory controls and changes in public policy may
    reduce the profitability of new or current products









, Information on the Company 
Business  Governmental Regulation.




| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | The loss of patent protection/ineffective patent
    protection or patent expiration may reduce revenues

Financial
Information  Legal Proceedings






9



---



##### 



Information on
the Company  Business  Intellectual
Property Protection








| |                                                 
| | ------------------------------------------------
| | Potential liabilities due to cross-contamination

state-of




| |                                                                           
| | --------------------------------------------------------------------------
| | Cyclicality may reduce our operating margins or cause
    operating losses







| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | Our operating margins may decrease if we are not able to
    pass increased raw material prices on to customers





| |                                                                         
| | ------------------------------------------------------------------------
| | Shortages of our products due to capacity decreases may
    reduce sales





10



---



##### 







| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Risks from the handling of hazardous materials and
    environmental liabilities could negatively impact our operating
    results





Information on the Company  Business 
Governmental Regulation.




| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | Disruptions in our information technology systems can lead
    to disruptions in our business processes

e.g.




| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | Failure to compete successfully or integrate newly
    acquired businesses may reduce our operating profits







Financial Information  Legal
Proceedings




11



---



##### 



Operating and
Financial Review and Prospects  Critical Accounting
Policies  Intangible assets and property, plant and
equipment.




| |                                                              
| | -------------------------------------------------------------
| | Existing insurance coverage may turn out to be
    inadequate





| |                                                                            
| | ---------------------------------------------------------------------------
| | Significant fluctuations in exchange rates affect our
    financial results

Quantitative and Qualitative
Disclosures about Market Risk.




| |                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Negative developments affecting the capital markets may
    make additional contributions to our pension funds necessary,
    and changes in the yield assumptions could have an impact on the
    valuation of liabilities

e.g. e.g. 20-F.




| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | Litigation and administrative claims could harm our
    operating results and cash flows



Lipobay/
Baycol Cipro®


Lipobay/ Baycol


12



---



##### 




Existing insurance coverage may turn out to be inadequate.


Financial Information  Legal
Proceedings




| |                                                                           
| | --------------------------------------------------------------------------
| | Our transactions relating to LANXESS expose us to
    continuing liability





Additional
Information  Material Contracts.


13



---



##### 








|        |                           
|------- | --------------------------
|Item 4. | Information on the Company




HISTORY AND DEVELOPMENT OF THE COMPANY


Aktiengesellschaft


Sitz 20-F.


Operating and Financial Review and
Prospects  Liquidity and Capital Resources 2004, 2005
and 2006  Capital Expenditures 20-F.


acquisitions




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In 2004, Bayer spent a total of
    0.4 billion
    on acquisitions. Of this amount, approximately
    0.1 billion
    was used for the purchase of Crompton Corporations
    50 percent stake in the Gustafson joint venture (seed
    treatment business) based in the United States, Canada and
    Mexico, in which Bayer already held a 50 percent share. In
    connection with the acquisition of Roches consumer health
    business in 2005, Bayer acquired, by the end of 2004,
    Roches 50 percent interest in the Bayer-Roche joint
    venture that had been established in the United States in 1996.
    The purchase price for the 50 percent equity interest was
    0.2 billion.
    Not included in the 2004 total acquisition amount is the initial
    payment of
    0.2 billion
    we made for Roches consumer health business outside the
    United States (except Japan), because, as of December 31,
    2004, this business had not yet been transferred to Bayer.                                                                                                                                                                      
|
| |  | In 2005, we spent a total of
    2.4 billion
    on acquisitions. Roches consumer health business outside
    the United States (except Japan) was acquired for approximately
    2.1 billion.
    Both this amount and the 2005 total acquisition amount include
    the initial payment of
    0.2 billion
    we made in 2004 for Roches consumer health business
    outside the United States (except Japan). Since January 2005,
    the business involving non-prescription drugs and vitamins has
    been part of Bayer HealthCares Consumer Care division.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |   | The remaining 2005 acquisition amount of approximately
    0.3 billion
    related primarily to expenses incurred in connection with a
    license agreement for the active ingredient fipronil, and a
    co-marketing and distribution agreement with Schering-Plough for
    the cardiovascular drug
    Zetia®.
    Bayer Schering Pharma AG and Schering-Plough Corporation, New
    Jersey are unaffiliated companies that have been totally
    independent of each other for many years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | In 2006, we spent a total of
    15.4 billion
    net of acquired cash and cash equivalents on acquisitions. With
    effect from June 23, 2006, we acquired a majority of the
    shares of Schering AG, Berlin, Germany (subsequently renamed
    Bayer Schering Pharma AG, Berlin, Germany), which is fully
    consolidated in the Bayer Group financial statements beginning
    on that date. The purchase price for 96.24 percent of the
    shares (percentage of shares outstanding as of December 31,
    2006) was
    16.2 billion
    and ancillary acquisition costs of
    0.1 billion
    were incurred. In addition, we assumed about
    1 billion
    in cash and cash equivalents and liabilities of
    0.2 billion.
    The acquired business activities concentrate in the areas
    gynecology and andrology (major brands:
    Yasmin®
    and
    Mirena®),
    diagnostic imaging (major brand:
    Magnevist®),
    specialized therapeutics (major brands:
    Betaferon®
    and
    Betaseron®)
    and oncology. The EU and U.S. antitrust authorities have
    unconditionally approved the transaction. For details on the
    financing

14



---



##### 



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | of this transaction, refer to Item 5, Operating and
    Financial Review and Prospects  Liquidity and Capital
    Resources 2004, 2005 and 2006  Development of net
    debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | The domination and profit and loss transfer agreement between
    Bayer Schering Pharma AG and Bayer Schering GmbH, a wholly-owned
    subsidiary of Bayer AG was approved at the Extraordinary General
    Stockholders Meeting of Bayer Schering Pharma AG on
    September 13, 2006 and became effective with its entry in
    the commercial register of Bayer Schering Pharma AG on
    October 27, 2006. On September 30, 2006, our interest
    in Bayer Schering Pharma AGs voting capital amounted to
    96.1 percent, thus exceeding the proportion required to effect a
    squeeze-out of the minority stockholders, or forced
    transfer of the Bayer Schering Pharma AG shares held by these
    shareholders to Bayer Schering GmbH, as permitted under German
    corporate law. A resolution approving the squeeze-out in
    exchange for cash compensation determined in accordance with
    German law was passed at an Extraordinary General
    Shareholders Meeting of Bayer Schering Pharma AG held in
    Berlin on January 17, 2007.
|
| |  | The remaining amount spent on acquisitions in 2006 of
    approximately
    0.1 billion
    was primarily related to the acquisition of the U.S. based
    company Metrika, a manufacturer of diabetes monitoring systems.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

divestitures




| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In July 2004, we sold, pursuant to contractual
    obligations, our 15 percent interest in the KWS Saat AG, a
    seed company acquired as part of Aventis CropScience in 2002.
|
| |  | In 2005, we divested our LANXESS subgroup, our plasma
    operations and several CropScience operations.                                                                       



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  LANXESS: At the end of January 2005, the
    LANXESS subgroup was spun off and ceased to be part of the Bayer
    Group. As part of its portfolio realignment, Bayer had combined
    its former Bayer Chemicals segment (except for Wolff Walsrode
    and H.C. Starck) with parts of its former Bayer Polymers
    business to form the LANXESS subgroup with economic effect from
    July 1, 2004. LANXESS is reported as discontinued
    operations prior to the spin-off. For further details refer to
    Item 5, Operating and Financial Review and
    Prospects  Operating Results 2004, 2005 and
    2006  Discontinued Operationsand Note 7.2
    to the consolidated financial statements contained elsewhere in
    this annual report on
    Form 20-F.
|
| |  Plasma: At the end of March 2005, Bayer
    divested the U.S. plasma operations of its former
    Biological Products division to two U.S. financial
    investors for approximately
    0.2 billion.
    These operations are reported as discontinued operations. For
    further details refer to Item 5, Operating and Financial
    Review and Prospects  Operating Results 2004, 2005
    and 2006  Discontinued Operationsand
    Note 7.2 to the consolidated financial statements contained
    elsewhere in this annual report on
    Form 20-F.                                                                                                                                                                                                            



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In 2006, we sold our 49.9 percent interest in the
    joint venture GE Bayer Silicones to the other partner General
    Electric. Furthermore, we divested manufacturing facilities
    formerly used by the Diagnostics and Diabetes Care businesses to
    the U.K.-based Kimball Electronics Wales Limited; an Animal
    Health vaccine factory in Cologne, Germany, to Intervet
    International BV; and a number of active ingredients used by the
    Crop Protection and the Environmental Science business groups.





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  Diagnostics: At the end of June 2006, Bayer
    signed an agreement with Siemens AG to sell the Diagnostics
    division to Siemens for approximately
    4.3 billion.
    The transaction closed in January 2007. The Diagnostics division
    is reported as discontinued operations prior to the sale. For
    details refer to Item 5, Operating and Financial Review
    and Prospects  Operating Results 2004, 2005 and
    2006  Discontinued Operationsand Note 7.2
    to the consolidated financial statements contained elsewhere in
    this annual report on
    Form 20-F.

15



---



##### 





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  H.C. Starck: In November 2006, Bayer signed
    an agreement with two financials investors, Advent International
    and The Carlyle Group, concerning the sale of the H.C. Starck
    business to them for approximately
    1.2 billion.
    The transaction closed in early February 2007. The H.C. Starck
    business is reported as discontinued operations prior to the
    sale. For details refer to Item 5, Operating and
    Financial Review and Prospects  Operating Results
    2004, 2005 and 2006  Discontinued Operationsand
    Note 7.2 to the consolidated financial statements contained
    elsewhere in this annual report on
    Form 20-F.                                                                                
|
| |  Wolff Walsrode: In December 2006, Bayer
    signed an agreement with The Dow Chemical Company concerning the
    sale of the Wolff Walsrode business. The sale is subject to the
    approval of the relevant antitrust authorities. Assuming these
    approvals are received, we expect the closing of the transaction
    to occur by the end of the first half of 2007. The Wolff
    Walsrode business is reported as discontinued operations prior
    to the sale. For details refer to Item 5, Operating and
    Financial Review and Prospects  Operating Results
    2004, 2005 and 2006  Discontinued Operationsand
    Note 7.2 to the consolidated financial statements contained
    elsewhere in this annual report on
    Form 20-F.

16



---



##### 






BUSINESS








| |   |                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |  | Bayer HealthCare(consisting of the Pharmaceuticals
    segment and the Consumer Health segment) develops, produces and
    markets:



| |                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  prescription pharmaceuticals, including, among
    others, medication for the treatment of multiple sclerosis,
    hormonal preparations for fertility control and menopause
    management, biological products, products for the treatment of
    cancer and coronary heart disease, anti-infective products and
    diagnostic imaging products; and
|
| |  over-the-counter
    medications and nutritional supplements, blood glucose
    monitoring systems, veterinary medicines and nutritionals and
    grooming products for companion animals and livestock.                                                                                                                                               



| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Bayer CropScience(consisting of the Crop Protection
    segment and the Environmental Science, BioScience segment)
    develops, produces and markets:



| |                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  a comprehensive portfolio of fungicides, herbicides,
    insecticides and seed treatment products to meet a wide range of
    regional requirements; and                  
|
| |  a wide range of products for the green industry,
    garden care, non-agricultural pest and weed control and
    conventional seeds, and is active in plant biotechnology.



| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | Bayer MaterialScience(comprising the Materials segment
    and the Systems segment) primarily develops, manufactures and
    markets:



| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| |  high-quality plastic granules, sheets and
    films; and                                                                             
|
| |  polyurethanes for a wide variety of applications as
    well as coating and adhesive raw materials and basic inorganic
    chemicals.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Bayer Business Services, which provides information
    management, accounting, consulting and administrative services.                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Bayer Technology Services, which provides engineering
    functions such as process development, process and plant
    engineering, construction and optimization.                                                                                                                                                                                                                                                                                                          
|
| |  | Bayer Industry Services, which operates the Bayer
    Chemical Park network of industrial facilities in Germany and
    provides site-specific services in the areas of technology,
    environmental protection, waste management, utility supply,
    infrastructure, safety, chemical analysis and vocational
    training to Bayer and non-Bayer companies. Bayer Industry
    Services GmbH & Co. OHG is held by Bayer AG
    (60 percent) and by LANXESS (40 percent).

  




17



---



##### 







|                                              |                                   |                     |        |            |                |  |       |      |            |  |                |       |  |            |       |      |                |  |        |       |  |  |       |      | 
|--------------------------------------------- | --------------------------------- | ------------------- | ------ | ---------- | -------------- |  | ----- | ---- | ---------- |  | -------------- | ----- |  | ---------- | ----- | ---- | -------------- |  | ------ | ----- |  |  | ----- | ---- | 
|                                              |                                   |                     |        | Percentage |                |  |       |      | Percentage |  |                |       |  | Percentage |      
|                                              |                                   | 2004                |        |            | of total sales |  |       | 2005 |            |  | of total sales |       |  | 2006       |       |      | of total sales | 
|                                              |                                   |                     |        |            |                |  |       |      |            |  |                |       |  |            |       |      |                | 
|                                              |                                   | (Euros in millions) |       
|HealthCare                                    |                                   |                     | 6,736  |            |                |  | 32.2  |      |            |  | 7,996          |       |  |            | 32.4  |      |                |  | 11,724 |       |  |  | 40.5  |     
|                                              | Pharmaceuticals(a)                |                     |        | 3,961      |                |  |       | 18.9 |            |  |                | 4,067 |  |            |       | 16.5 |                |  |        | 7,478 |  |  |       | 25.8 | 
|                                              | Consumer Health                   |                     |        | 2,775      |                |  |       | 13.3 |            |  |                | 3,929 |  |            |       | 15.9 |                |  |        | 4,246 |  |  |       | 14.7 | 
|CropScience                                   |                                   |                     | 5,946  |            |                |  | 28.4  |      |            |  | 5,896          |       |  |            | 23.9  |      |                |  | 5,700  |       |  |  | 19.7  |     
|                                              | Crop Protection                   |                     |        | 4,957      |                |  |       | 23.7 |            |  |                | 4,874 |  |            |       | 19.7 |                |  |        | 4,644 |  |  |       | 16.0 | 
|                                              | Environmental Science, BioScience |                     |        | 989        |                |  |       | 4.7  |            |  |                | 1,022 |  |            |       | 4.2  |                |  |        | 1,056 |  |  |       | 3.7  | 
|MaterialScience                               |                                   |                     | 7,566  |            |                |  | 36.2  |      |            |  | 9,446          |       |  |            | 38.2  |      |                |  | 10,161 |       |  |  | 35.1  |     
|                                              | Materials                         |                     |        | 2,217      |                |  |       | 10.6 |            |  |                | 2,837 |  |            |       | 11.4 |                |  |        | 2,925 |  |  |       | 10.1 | 
|                                              | Systems                           |                     |        | 5,349      |                |  |       | 25.6 |            |  |                | 6,609 |  |            |       | 26.8 |                |  |        | 7,236 |  |  |       | 25.0 | 
|Reconciliation                                |                                   |                     | 677    |            |                |  | 3.2   |      |            |  | 1,363          |       |  |            | 5.5   |      |                |  | 1,371  |       |  |  | 4.7   |     
|Total Sales from Continuing
    Operations(b) |                                   |                     | 20,925 |            |                |  | 100.0 |      |            |  | 24,701         |       |  |            | 100.0 |      |                |  | 28,956 |       |  |  | 100.0 |     






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | The segments sales figures for 2006 include the acquired
    business of Schering AG as of June 23, 2006.                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(b) |  | In accordance with the accounting standard IFRS 5 and other
    related standards, the financial information presented in this
    annual report on
    Form 20-F only
    includes the continuing operations of the Bayer Group and its
    segments, except where specific reference is made to
    discontinued operations or Group total. Our revenues from
    discontinued operations were
    2,845 million
    in 2006,
    3,309 million
    in 2005 and
    8,833 million
    in 2004.

18



---



##### 






BAYER HEALTHCARE


20-F Operating and Financial Review and
Prospects  Operating Results 2004, 2005 and
2006  Discontinued Operations


PHARMACEUTICALS


Overview


Yasmin ® Mirena ® Magnevist ® Betaferon ® Betaseron ®  History and Development of the
Company




i.e.


19



---



##### 





|                         |                                                            |                                 |       |      |       |  |       |      |       |  |       |      |       | 
|------------------------ | ---------------------------------------------------------- | ------------------------------- | ----- | ---- | ----- |  | ----- | ---- | ----- |  | ----- | ---- | ----- | 
|                         |                                                            | 2004                            |       |      | 2005  |  |       | 2006 |      
|                         |                                                            |                                 |       |      |       |  |       |      |      
|                         |                                                            | (Euros in millions except       |      
|                         |                                                            | percentages)                    |      
|Total External net sales |                                                            |                                 | 3,961 |      |       |  | 4,067 |      |       |  | 7,478 |     
|                         | Percentage of total sales from Group continuing operations |                                 |       | 18.9 | %     |  |       | 16.5 | %     |  |       | 25.8 | %    
|                         | External net sales by category of activity                 |                                 |       |      |       |  |       |      |       |  |       |      |      
|                         |                                                            | Primary
    Care(a)             |       |      | 2,950 |  |       |      | 2,831 |  |       |      | 3,091 | 
|                         |                                                            | Womens
    Health(b)           |       |      |      |  |       |      |      |  |       |      | 1,320 | 
|                         |                                                            | Hematology/ Cardiology          |       |      | 967   |  |       |      | 1,201 |  |       |      | 1,142 | 
|                         |                                                            | Diagnostic
    Imaging(c)       |       |      |      |  |       |      |      |  |       |      | 697   | 
|                         |                                                            | Specialized
    Therapeutics(c) |       |      |      |  |       |      |      |  |       |      | 678   | 
|                         |                                                            | Oncology(d)                     |       |      | 44    |  |       |      | 35    |  |       |      | 432   | 
|                         |                                                            | Dermatology(c)                  |       |      |      |  |       |      |      |  |       |      | 118   | 
|Intersegment sales       |                                                            |                                 | 38    |      |       |  | 58    |      |       |  | 51    |     
|Operating result         |                                                            |                                 | 399   |      |       |  | 475   |      |       |  | 563   |     






|    |  |                                                                       
|--- |  | ----------------------------------------------------------------------
|(a) |  | For 2006, including the former andrology business of Schering AG.     
|(b) |  | Represents the former gynecology business of Schering AG.             
|(c) |  | Represents the respective acquired businesses of Schering AG.         
|(d) |  | For 2006, including the acquired oncology business of Schering
    AG.



|                                   |       |                     |       |       |      |  |       |       |  |  |       |       | 
|---------------------------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                   |       | 2004                |       |       | 2005 |  |       | 2006  | 
|                                   |       |                     |       |       |      |  |       |       | 
|                                   |       | (Euros in millions) |      
|Europe                             |       |                     | 1,577 |       |      |  | 1,600 |       |  |  | 3,046 |      
|North America                      |       |                     | 1,172 |       |      |  | 1,129 |       |  |  | 2,226 |      
|Asia/ Pacific                      |       |                     | 851   |       |      |  | 900   |       |  |  | 1,313 |      
|Latin America/ Africa/ Middle East |       |                     | 361   |       |      |  | 438   |       |  |  | 893   |      
|                                   |       |                     |       |       |      |  |       |       | 
|                                   | Total |                     |       | 3,961 |      |  |       | 4,067 |  |  |       | 7,478 | 
|                                   |       |                     |       |       |      |  |       |       | 

20



---



##### 





|                                                            |       |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               |  |       |       |  |  |      |  | 
|----------------------------------------------------------- | ----- | --------- | ----- | ------------- | ------------- |  | --------- | ----- | ------------- |  | ------------- | --------- |  | ------------- | ---- |  | ------------- |  | ----- | ----- |  |  | ---- |  | 
|                                                            |       | 2004      |       |               | 2005          |  |           | 2006  |              
|                                                            |       |           |       |               |               |  |           |       |              
|                                                            |       |           |       | Percentage of |               |  |           |       | Percentage of |  |               |           |  | Percentage of |     
|Product(a)                                                  |       | Sales     |       |               | Segment Sales |  |           | Sales |               |  | Segment Sales |           |  | Sales         |      |  | Segment Sales | 
|                                                            |       |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 
|                                                            |       | (Euros in |       |               |               |  | (Euros in |       |               |  |               | (Euros in |  |               |     
|                                                            |       | millions) |       |               |               |  | millions) |       |               |  |               | millions) |  |               |     
|Betaferon®/Betaseron®
    (Specialized
    Therapeutics)(b) |       |           |      |               |               |  |           |       |               |  |              |           |  |               |      |  |               |  | 535   |       |  |  | 7.2  | 
|Yasmin®/YAZ®/Yasminelle®
    (Womens
    Health)(b)        |       |           |      |               |               |  |           |       |               |  |              |           |  |               |      |  |               |  | 451   |       |  |  | 6.0  | 
|Kogenate®
    (Hematology/ Cardiology)                      |       |           | 563   |               |               |  | 14.2      |       |               |  | 663           |           |  |               | 16.3 |  |               |  | 787   |       |  |  | 10.5 | 
|Adalat®
    (Primary Care)                                  |       |           | 670   |               |               |  | 16.9      |       |               |  | 659           |           |  |               | 16.2 |  |               |  | 657   |       |  |  | 8.8  | 
|Ciprobay®/
    Cipro®
    (Primary Care)                    |       |           | 837   |               |               |  | 21.2      |       |               |  | 525           |           |  |               | 12.9 |  |               |  | 513   |       |  |  | 6.9  | 
|Avalox®/
    Avelox®
    (Primary Care)                     |       |           | 318   |               |               |  | 8.0       |       |               |  | 364           |           |  |               | 9.0  |  |               |  | 396   |       |  |  | 5.3  | 
|Levitra®
    (Primary Care)                                 |       |           | 193   |               |               |  | 4.9       |       |               |  | 260           |           |  |               | 6.4  |  |               |  | 314   |       |  |  | 4.2  | 
|Mirena®
    (Womens
    Health)(b)                         |       |           |      |               |               |  |           |       |               |  |              |           |  |               |      |  |               |  | 166   |       |  |  | 2.2  | 
|Magnevist®
    (Diagnostic
    Imaging)(b)                  |       |           |      |               |               |  |           |       |               |  |              |           |  |               |      |  |               |  | 171   |       |  |  | 2.3  | 
|Glucobay®
    (Primary Care)                                |       |           | 278   |               |               |  | 7.0       |       |               |  | 295           |           |  |               | 7.3  |  |               |  | 308   |       |  |  | 4.1  | 
|Other                                                       |       |           | 1,102 |               |               |  | 27.8      |       |               |  | 1,301         |           |  |               | 31.9 |  |               |  | 3,180 |       |  |  | 42.5 | 
|                                                            |       |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 
|                                                            | Total |           |       | 3,961         |               |  |           |       |               |  |               | 4,067     |  |               |      |  |               |  |       | 7,478 |  |  |      |  | 
|                                                            |       |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 






|    |  |                                                                    
|--- |  | -------------------------------------------------------------------
|(a) |  | Products are ranked by the fourth quarter 2006 sales.              
|   
|(b) |  | Acquired as part of Scherings pharmaceutical business in
    2006.

Segment Strategy


i.e.


Yasmin ® Magnevist ® Betaferon ® Kogenate ® Nexavar ®


Avalox ® Avelox ® Levitra ® Adalat ® Glucobay ® Ciprobay ® Cipro ® Pritor ® PritorPlus ®


Operating and
Financial Review and Prospects  Research and
Development


21



---



##### 




Research and Development 
Collaborations


Major Products


Primary Care


Adalat ®


Cipro ® Ciproxin ® Ciproxine ® Ciprobay ® Ciproxina ® Baycip ® Ciflox ® Uniflox ® Cipro ®


Avelox ® Avalox ® Izilox ® Actira ® Octegra ®


Levitra ®


Glucobay ® Glucor ® Precose ® Prandase ® Glucobay ®


Womens Health


Yasmin ® Yasmin ® YAZ ® Yasmin ® YAZ ® Yasminelle ® Yasmin ®


Mirena ® , Mirena ®


Hematology/ Cardiology


Kogenate ® FS Kogenate ® Bayer Kogenate ®


22



---



##### 



Diagnostic Imaging


Magnevist ®


Ultravist ®


Specialized Therapeutics


Betaferon ® Betaseron ®


Markets and Distribution






Levitra ® Cipro ® Avelox ® e.g. Zetia ®


59-7939) Elmiron ®




Betaferon ®


Kogenate ® Kogenate ®




23



---



##### 









| |   |                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Primary Care: Pfizer, GlaxoSmithKline and Abbott Laboratories
    (antibacterial products); Pfizer, Novartis, AstraZeneca and
    Merck & Co (hypertension and coronary heart disease
    therapy); Takeda, GlaxoSmithKline, Sanofi-Aventis and
    Bristol-Myers Squibb (oral antidiabetics); Pfizer and Eli Lilly
    (erectile dysfunction);
|
| |  | Womens Health: Wyeth, Johnson & Johnson,
    Novartis, Barr Laboratories and Watson Pharmaceuticals;                                                                                                                                                                                                                                          
|
| |  | Hematology/ Cardiology: Baxter, Wyeth and CSL Behring;                                                                                                                                                                                                                                                                                         
|
| |  | Diagnostic Imaging: Bracco, Tyco Healthcare Group and Altana
    (Nycomed acquired Altanas pharmaceuticals business
    effective December 31, 2006) (X-ray and MRI contrast media
    products) and Liebel-Flarsheim (contrast media application
    technologies products);                                                                 
|
| |  | Specialized Therapeutics: Biogen Idec, Serono.                                                                                                                                                                                                                                                                                                 

Research and Development


20-F Kogenate ®




| |                                                                   
| | ------------------------------------------------------------------
| | Status of Development of Selected Compounds in Clinical
    Trials

Continuing Development of Compounds in Phase II/ III
Clinical Trials






24



---



##### 





|                          |  |                                                        |  |             
|------------------------- |  | ------------------------------------------------------ |  | ------------
|Project                   |  | Indication                                             |  | Status      
|                          |  |                                                        |  |             
|Avelox®                   |  | New indications                                        |  | In Phase III
|Nexavar®                  |  | Advanced renal cell carcinoma                          |  | FDA approval
|                          |  | Hepatocellular carcinoma                               |  | In Phase III
|                          |  | Malignant melanoma                                     |  | In Phase III
|                          |  | NSCLC                                                  |  | In Phase III
|                          |  | Other cancer types                                     |  | In Phase II 
|Rivaroxaban (BAY 59-7939) |  | VTE prevention                                         |  | In Phase III
|                          |  | VTE treatment                                          |  | In Phase III
|                          |  | Stroke prevention in patients with atrial fibrillation |  | In Phase III
|                          |  | Acute Coronary Syndrome/ Myocardial Infarction         |  | In Phase II 
|VEGF Trap                 |  | Treatment of eye diseases                              |  | In Phase II 

Nexavar ®


Nexavar® Nexavar ® Nexavar ®


Nexavar ® Nexavar ® Nexavar ® Nexavar ®


Rivaroxaban


25



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##### 



ZK-EPO YAZ ®


ZK-EPO ZK-EPO


YAZ® YAZ ® YAZ ® YAZ ®


Continuing Development of Compounds prior to Phase II/
III Clinical Trials


Kogenate. Kogenate ® Kogenate ® 
Next Generation Kogenate ® Bio-Set Kogenate ® 
Next Generation. Kogenate ® -FS


Suspended and Discontinued Development of Compounds in
Phase II/ III Clinical Trials


Alfimeprase.


Trasylol ® Trasylol ® Trasylol ® Trasylol ® Trasylol ® Update on
Trasylol®-marketed
product




| |                                                                          
| | -------------------------------------------------------------------------
| | Bayer HealthCare posts information on clinical trials on
    the internet



26



---



##### 





Collaborations




| |                        
| | -----------------------
| | Research Collaborations



|                                |  |                                                                                         
|------------------------------- |  | ----------------------------------------------------------------------------------------
|Partner                         |  | Objective                                                                               
|                                |  |                                                                                         
|Affimetrix                      |  | Understanding the disease mechanism and identifying new targets                         
|ARTEMIS Pharmaceuticals GmbH    |  | In vivo validation of targets                                                           
|Avid                            |  | Radiopharmaceuticals compounds                                                          
|Bausch&Lomb                     |  | SEGRA ophthalmology                                                                     
|ChemDiv                         |  | Synthesis of compounds                                                                  
|ComGenex                        |  | Synthesis of compounds                                                                  
|Genedata                        |  | Expressionist software                                                                  
|Inpharmatica                    |  | Kinase SARfari in Silico Drug Discovery                                                 
|Monash University               |  | New targets for gender health                                                           
|MorphoSys AG                    |  | Antibody diagnostics and therapeutics for cancer and other life
    threatening diseases
|Neurosciences Victoria Ltd.     |  | Treatment of neurodegenerative disorders                                                
|Peregrine Pharmaceuticals, Inc. |  | Selective cancer diagnostics (vascular targeting agents)                                
|Proteros                        |  | X-ray structure analysis                                                                
|Seattle Genetics                |  | Increasing the pool of potential drug candidates by biomolecules                        
|University Stanford/ Gambhir    |  | New PET tracers                                                                         
|Warner Chillcott                |  | SEGRA for dermatology                                                                   



| |                                   
| | ----------------------------------
| | Product Development Collaborations





| |     
| | ----
| | Onyx

Nexavar ®




| |                  
| | -----------------
| | Johnson & Johnson





| |       
| | ------
| | Nuvelo

Research and
Development Status of


27



---



##### 



Development of Selected Compounds in Clinical
Trials  Suspended and Discontinued Development of
Compounds in Phase II/ III Clinical Trials Alfimeprase




| |                          
| | -------------------------
| | Regeneron Pharmaceuticals





| |             
| | ------------
| | Astra Zeneca





| |               
| | --------------
| | Celera Genomic

mode-of




| |                          
| | -------------------------
| | Avid Radiopharmaceuticals

proof-of




| |                    
| | -------------------
| | Genzyme Corporation

Campath ® Campath ® Campath ®




| |                
| | ---------------
| | Novartis Pharma





| |                      
| | ---------------------
| | Sonus Pharmaceuticals

®




| |                      
| | ---------------------
| | Titan Pharmaceuticals



28



---



##### 







| |                      
| | ---------------------
| | Life Cycle Management

Adalat ®  .
Fludara ®  




| |                        
| | -----------------------
| | In-licensing activities

Pritor® PritorPlus ® Research and
Development Status of Development of Selected
Compounds in Clinical Trials  Suspended and
Discontinued Development of Compounds in Phase II/ III
Clinical Trials Alfimeprase Product Development Collaborations


Update on
Trasylol® -marketed
product


Trasylol® Trasylol ®


Trasylol ®


Trasylol ® Trasylol ®




29



---



##### 



Trasylol ® Trasylol ®


Trasylol ®


Trasylol ® Trasylol ® Trasylol ® Trasylol ® Trasylol ® Trasylol ®  Research and
Development  Status of Development of Selected
Compounds in Clinical Trials  Suspended and
Discontinued Development of Compounds in Phase II/ III
Clinical Trials 
Trasylol ®


Trasylol ®


Trasylol ®


30



---



##### 



CONSUMER HEALTH


Overview



Business




|                         |                                                            |                            |       |      |       |  |       |      |       |  |       |      |       | 
|------------------------ | ---------------------------------------------------------- | -------------------------- | ----- | ---- | ----- |  | ----- | ---- | ----- |  | ----- | ---- | ----- | 
|                         |                                                            | 2004                       |       |      | 2005  |  |       | 2006 |      
|                         |                                                            |                            |       |      |       |  |       |      |      
|                         |                                                            | (Euros in millions, except |      
|                         |                                                            | percentages)               |      
|Total external net sales |                                                            |                            | 2,775 |      |       |  | 3,929 |      |       |  | 4,246 |     
|                         | Percentage of total sales from Group continuing operations |                            |       | 13.3 | %     |  |       | 15.9 | %     |  |       | 14.7 | %    
|                         | External net sales by category of activity                 |                            |       |      |       |  |       |      |       |  |       |      |      
|                         |                                                            | Consumer Care              |       |      | 1,336 |  |       |      | 2,355 |  |       |      | 2,531 | 
|                         |                                                            | Diabetes Care              |       |      | 653   |  |       |      | 718   |  |       |      | 810   | 
|                         |                                                            | Animal Health              |       |      | 786   |  |       |      | 856   |  |       |      | 905   | 
|Intersegment sales       |                                                            |                            | 18    |      |       |  | 21    |      |       |  | 7     |     
|Operating result         |                                                            |                            | 448   |      |       |  | 448   |      |       |  | 750   |     



|                                   |       |                     |       |       |      |  |       |       |  |  |       |       | 
|---------------------------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                   |       | 2004                |       |       | 2005 |  |       | 2006  | 
|                                   |       |                     |       |       |      |  |       |       | 
|                                   |       | (Euros in millions) |      
|Europe                             |       |                     | 927   |       |      |  | 1,592 |       |  |  | 1,691 |      
|North America                      |       |                     | 1,235 |       |      |  | 1,321 |       |  |  | 1,463 |      
|Asia/ Pacific                      |       |                     | 187   |       |      |  | 301   |       |  |  | 336   |      
|Latin America/ Africa/ Middle East |       |                     | 426   |       |      |  | 715   |       |  |  | 756   |      
|                                   |       |                     |       |       |      |  |       |       | 
|                                   | Total |                     |       | 2,775 |      |  |       | 3,929 |  |  |       | 4,246 | 
|                                   |       |                     |       |       |      |  |       |       | 

31



---



##### 





|                                                 |       |           |     |               |               |  |           |       |               |  |               |           |  |               |      |  |               |  |       |       |  |  |      |  | 
|------------------------------------------------ | ----- | --------- | --- | ------------- | ------------- |  | --------- | ----- | ------------- |  | ------------- | --------- |  | ------------- | ---- |  | ------------- |  | ----- | ----- |  |  | ---- |  | 
|                                                 |       | 2004      |     |               | 2005          |  |           | 2006  |              
|                                                 |       |           |     |               |               |  |           |       |              
|                                                 |       |           |     | Percentage of |               |  |           |       | Percentage of |  |               |           |  | Percentage of |     
|Product                                          |       | Sales     |     |               | Segment Sales |  |           | Sales |               |  | Segment Sales |           |  | Sales         |      |  | Segment Sales | 
|                                                 |       |           |     |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 
|                                                 |       | (Euros in |     |               |               |  | (Euros in |       |               |  |               | (Euros in |  |               |     
|                                                 |       | millions) |     |               |               |  | millions) |       |               |  |               | millions) |  |               |     
|Ascensia®
    (Diabetes Care)                    |       |           | 627 |               |               |  | 22.6      |       |               |  | 701           |           |  |               | 17.8 |  |               |  | 788   |       |  |  | 18.6 | 
|Aspirin®
    (Consumer
    Care)(a)              |       |           | 454 |               |               |  | 16.4      |       |               |  | 453           |           |  |               | 11.5 |  |               |  | 465   |       |  |  | 11.0 | 
|Advantage®/Advantix®
    (Animal Health)         |       |           | 206 |               |               |  | 7.4       |       |               |  | 249           |           |  |               | 6.3  |  |               |  | 275   |       |  |  | 6.5  | 
|Aleve®/Naproxen(Consumer
    Care)(b)            |       |           | 90  |               |               |  | 3.2       |       |               |  | 178           |           |  |               | 4.5  |  |               |  | 227   |       |  |  | 5.3  | 
|Canesten®
    (Consumer Care)                    |       |           | 140 |               |               |  | 5.0       |       |               |  | 145           |           |  |               | 3.7  |  |               |  | 162   |       |  |  | 3.8  | 
|Baytril®
    (Animal Health)                     |       |           | 160 |               |               |  | 5.8       |       |               |  | 163           |           |  |               | 4.1  |  |               |  | 162   |       |  |  | 3.8  | 
|Bepanthen®/Bepanthol®
    (Consumer
    Care)(c) |       |           |    |               |               |  |           |       |               |  | 114           |           |  |               | 2.9  |  |               |  | 131   |       |  |  | 3.1  | 
|Supradyn®
    (Consumer
    Care)(c)             |       |           |    |               |               |  |           |       |               |  | 125           |           |  |               | 3.2  |  |               |  | 130   |       |  |  | 3.1  | 
|One-A-Day®
    (Consumer Care)                   |       |           | 127 |               |               |  | 4.6       |       |               |  | 118           |           |  |               | 3.0  |  |               |  | 124   |       |  |  | 2.9  | 
|Alka-Seltzer®
    (Consumer Care)                |       |           | 94  |               |               |  | 3.4       |       |               |  | 95            |           |  |               | 2.4  |  |               |  | 101   |       |  |  | 2.4  | 
|Other                                            |       |           | 877 |               |               |  | 31.6      |       |               |  | 1,588         |           |  |               | 40.6 |  |               |  | 1,681 |       |  |  | 39.5 | 
|                                                 |       |           |     |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 
|                                                 | Total |           |     | 2,775         |               |  |           |       |               |  |               | 3,929     |  |               |      |  |               |  |       | 4,246 |  |  |      |  | 
|                                                 |       |           |     |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | CardioAspirinof our
    Aspirin®
    product family is also distributed by our Pharmaceuticals
    segment. These figures do not include sales by the
    Pharmaceuticals segment. The sales for
    Aspirin®
    and CardioAspirin, including the ones made by the
    Pharmaceuticals segment, amount to
    674 million
    in 2006,
    630 million
    in 2005 and
    601 million
    in 2004.



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | As the product
    Aleve®
    was part of the former U.S. joint venture with Roche, sales
    figures for 2004 only represent the Bayer portion of the joint
    ventures sales. 2005 sales figures represent total sales
    of the product after our acquisition of the remaining
    50 percent of the U.S. joint venture from Roche.
    Naproxenis the active ingredient included in products
    marketed in the United States under the brand
    Aleve®
    and in other countries using different local brands, the latter
    having been acquired as part of Roches consumer health
    business in 2005.
|   
|(c) |  | Acquired as part of Roches consumer health business in
    2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

Segment Strategy




(over-the Aleve® Aspirin® Bepanthen® Canesten® One-A-Day® Supradyn® over-the


32



---



##### 







Consumer Care




| |               
| | --------------
| | Major Products



| |           
| | ----------
| | Analgesics



Aspirin ® Bayer ® Aleve ® Flanax ® Apronax ® Aleve ® Midol ®


e.g. Aspirin ® Protect Bayer ® Low Dose Aspirin Regimen




| |           
| | ----------
| | Cough/Cold



Alka-Seltzer
Plus ® Tabcin ® Alka-Seltzer
Plus ® Aleve ® Cold & Sinus


33



---



##### 





| |                
| | ---------------
| | Dermatologicals

The dermatological category of our Consumer Care division is
not related to the Dermatology business unit of our
Pharmaceuticals segment.




Canesten ® Rid ® Bepanthen ® Bepanthol ®




| |                  
| | -----------------
| | Gastrointestinals



Alka-Seltzer ® Phillips ® Milk of Magnesia Rennie ® Talcid ®




| |             
| | ------------
| | Nutritionals



One-A-Day ® WeightSmart ® Flintstones ® Supradyn ® Redoxon ® Berocca ®






| |                         
| | ------------------------
| | Markets and Distribution







Aleve ® Flanax ® Apronax ®


34



---



##### 









| |                         
| | ------------------------
| | Research and Development





| |   |                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | efficient development of new products and indications to support
    current brands; and                                                                                                                                                                                               
|
| |  | product development, clinical and regulatory strategies, which
    provide opportunity to capitalize on new technologies, expanded
    label indications and reclassifications of products from those
    for which a prescription is required to those dispensed
    over-the-counter.



Diabetes Care




| |         
| | --------
| | Overview





| |               
| | --------------
| | Major Products

Ascensia ® Ascensia ® Breeze ® Ascensia ® Confirm,
Ascensia ® Dex ® Ascensia ® Esprit Ascensia
Elite ® Ascensia
Brio ® Ascensia ® Entrust Ascensia ® Contour ®




| |                         
| | ------------------------
| | Markets and Distribution







Ascensia ®


35



---



##### 







| |                         
| | ------------------------
| | Research and Development





Ascensia ®




Animal Health




| |         
| | --------
| | Overview





| |               
| | --------------
| | Major Products

K9
Advantix ® Advantage ® Droncit ® Bayticol ® Baycox ® Baytril ®




| |                         
| | ------------------------
| | Markets and Distribution







36



---



##### 











| |                         
| | ------------------------
| | Research and Development







|                                    |  |                                                                                    |  |                                                                                                     
|----------------------------------- |  | ---------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------
|Projects/Products                   |  | Indication                                                                         |  | Status                                                                                              
|                                    |  |                                                                                    |  |                                                                                                     
|Imidacloprid Combinations           |  | Control of fleas, ticks, heartworm and gastrointestinal worms in
    cats and dogs |  | Clinical development; one combination in launch in the United
    States                            
|Emodepside                          |  | Gastrointestinal worms in cats and dogs                                            |  | Clinical Development; one indication in registration in the
    United States                       
|Red mite control remedy             |  | Red mite control in Poultry                                                        |  | Submitted                                                                                           
|Baycox®
    calves                  |  | Coccidiosis control in calves                                                      |  | In registration                                                                                     
|Baytril®
    swine (North America)  |  | Antimicrobial infections in pigs                                                   |  | In registration                                                                                     
|Veraflox®
    (pradofloxacin)       |  | Antimicrobial for dogs and cats                                                    |  | In development in the United States; resubmission after initial
    rejection in EU under evaluation
|Projects on non-infectious diseases |  | Renal failure and congestive heart failure in dog and cats                         |  | Clinical development started                                                                        

37



---



##### 






BAYER CROPSCIENCE




CROP PROTECTION


Overview






|                         |                                                            |                            |       |      |       |  |       |      |       |  |       |      |       | 
|------------------------ | ---------------------------------------------------------- | -------------------------- | ----- | ---- | ----- |  | ----- | ---- | ----- |  | ----- | ---- | ----- | 
|                         |                                                            | 2004                       |       |      | 2005  |  |       | 2006 |      
|                         |                                                            |                            |       |      |       |  |       |      |      
|                         |                                                            | (Euros in millions, except |      
|                         |                                                            | percentages)               |      
|Total External net sales |                                                            |                            | 4,957 |      |       |  | 4,874 |      |       |  | 4,644 |     
|                         | Percentage of total sales from Group continuing operations |                            |       | 23.7 | %     |  |       | 19.7 | %     |  |       | 16.0 | %    
|                         | External net sales by category of activity                 |                            |       |      |       |  |       |      |       |  |       |      |      
|                         |                                                            | Insecticides               |       |      | 1,378 |  |       |      | 1,311 |  |       |      | 1,219 | 
|                         |                                                            | Fungicides                 |       |      | 1,277 |  |       |      | 1,248 |  |       |      | 1,200 | 
|                         |                                                            | Herbicides                 |       |      | 1,855 |  |       |      | 1,840 |  |       |      | 1,758 | 
|                         |                                                            | Seed Treatment             |       |      | 447   |  |       |      | 475   |  |       |      | 467   | 
|Intersegment sales       |                                                            |                            | 71    |      |       |  | 70    |      |       |  | 59    |     
|Operating result         |                                                            |                            | 386   |      |       |  | 532   |      |       |  | 384   |     



|                                   |       |                     |       |       |      |  |       |       |  |  |       |       | 
|---------------------------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                   |       | 2004                |       |       | 2005 |  |       | 2006  | 
|                                   |       |                     |       |       |      |  |       |       | 
|                                   |       | (Euros in millions) |      
|Europe                             |       |                     | 1,898 |       |      |  | 1,901 |       |  |  | 1,909 |      
|North America                      |       |                     | 979   |       |      |  | 1,076 |       |  |  | 996   |      
|Asia/ Pacific                      |       |                     | 820   |       |      |  | 811   |       |  |  | 772   |      
|Latin America/ Africa/ Middle East |       |                     | 1,260 |       |      |  | 1,086 |       |  |  | 967   |      
|                                   |       |                     |       |       |      |  |       |       | 
|                                   | Total |                     |       | 4,957 |      |  |       | 4,874 |  |  |       | 4,644 | 
|                                   |       |                     |       |       |      |  |       |       | 

38



---



##### 



(a)


|                                                                   |       |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               |  |       |       |  |  |      |  | 
|------------------------------------------------------------------ | ----- | --------- | ----- | ------------- | ------------- |  | --------- | ----- | ------------- |  | ------------- | --------- |  | ------------- | ---- |  | ------------- |  | ----- | ----- |  |  | ---- |  | 
|                                                                   |       | 2004      |       |               | 2005          |  |           | 2006  |              
|                                                                   |       |           |       |               |               |  |           |       |              
|                                                                   |       |           |       | Percentage of |               |  |           |       | Percentage of |  |               |           |  | Percentage of |     
|Product                                                            |       | Sales     |       |               | Segment Sales |  |           | Sales |               |  | Segment Sales |           |  | Sales         |      |  | Segment Sales | 
|                                                                   |       |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 
|                                                                   |       | (Euros in |       |               |               |  | (Euros in |       |               |  |               | (Euros in |  |               |     
|                                                                   |       | millions) |       |               |               |  | millions) |       |               |  |               | millions) |  |               |     
|Confidor®/
    Gaucho®/Admire®(b)(c)(Insecticides/ Seed Treatment) |       |           | 455   |               |               |  | 9.2       |       |               |  | 444           |           |  |               | 9.1  |  |               |  | 416   |       |  |  | 9.0  | 
|Folicur®/
    Raxil®(b)(Fungicides/ Seed Treatment)                |       |           | 401   |               |               |  | 8.1       |       |               |  | 327           |           |  |               | 6.7  |  |               |  | 261   |       |  |  | 5.6  | 
|Basta®/
    Liberty®(b)(Herbicides)                                |       |           | 189   |               |               |  | 3.8       |       |               |  | 212           |           |  |               | 4.3  |  |               |  | 223   |       |  |  | 4.8  | 
|Puma®(b)(Herbicides)                                               |       |           | 226   |               |               |  | 4.6       |       |               |  | 202           |           |  |               | 4.1  |  |               |  | 193   |       |  |  | 4.2  | 
|Flint®/
    Stratego®/Sphere®(b)(Fungicides)                       |       |           | 235   |               |               |  | 4.7       |       |               |  | 188           |           |  |               | 3.9  |  |               |  | 172   |       |  |  | 3.7  | 
|Atlantis®
    (Herbicides)                                         |       |           | 97    |               |               |  | 2.0       |       |               |  | 142           |           |  |               | 2.9  |  |               |  | 169   |       |  |  | 3.6  | 
|Proline®
    (Fungicides)                                          |       |           | 23    |               |               |  | 0.4       |       |               |  | 91            |           |  |               | 1.9  |  |               |  | 144   |       |  |  | 3.1  | 
|Poncho®
    (Seed Treatment)                                       |       |           | 57    |               |               |  | 1.1       |       |               |  | 110           |           |  |               | 2.3  |  |               |  | 127   |       |  |  | 2.7  | 
|Betanal®(b)(Herbicides)                                            |       |           | 143   |               |               |  | 2.9       |       |               |  | 127           |           |  |               | 2.6  |  |               |  | 119   |       |  |  | 2.6  | 
|Temik®
    (Insecticides)                                          |       |           | 109   |               |               |  | 2.2       |       |               |  | 104           |           |  |               | 2.1  |  |               |  | 106   |       |  |  | 2.3  | 
|Other                                                              |       |           | 3,022 |               |               |  | 61.0      |       |               |  | 2,927         |           |  |               | 60.1 |  |               |  | 2,714 |       |  |  | 58.4 | 
|                                                                   |       |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 
|                                                                   | Total |           |       | 4,957         |               |  |           |       |               |  |               | 4,874     |  |               |      |  |               |  |       | 4,644 |  |  |      |  | 
|                                                                   |       |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 






|    |  |                                                                                                                                                                                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | The amounts shown represent sales by main active ingredient
    group; for the sake of clarity, however, only the principal
    brands and categories of activity are listed.                                                  
|   
|(b) |  | The main active ingredients contained in these products are also
    used in products sold by the Environmental Science business
    group. These figures do not include sales by the Environmental
    Science business group.
|   
|(c) |  | The active ingredient imidacloprid contained in these products
    is also used in the Animal Health segments
    Advantage®
    product. These figures do not include sales by the Animal Health
    segment.                

Segment Strategy






1







|    |                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | This statement is based on 2005 sales data published in
    AgriFutura, The newsletter of Phillips MCDougall-
    Agriservices, No. 77 (March 2006)and the moving annual
    total sales data 2005/2006 published in Cropnosis
    Agrochemical Monitor 182 (December 2006); the respective
    publications with data for the full year 2006 have not yet been
    published as of March 12, 2007.

39



---



##### 





Major Products




| |             
| | ------------
| | Insecticides

Confidor ® Admire ® e.g. e.g.


Temik ® Temik ® Temik ®


Decis ® Decis ®




| |           
| | ----------
| | Fungicides

Folicur ® Folicur ®


Flint ® Flint ® e.g. Sphere ® Stratego ® Nativo ®


Proline ®




| |           
| | ----------
| | Herbicides

Basta ® Liberty ® InVigor ® Ignite ® FiberMax ®


Puma ®


Atlantis ® Alister ® Olympus ® Flex


40



---



##### 





| |               
| | --------------
| | Seed Treatment

Gaucho ®


Poncho ®


Raxil ®


Markets and Distribution












| |                         
| | ------------------------
| | Research and Development









e.g.


41



---



##### 





|                       |  |                |  |                        
|---------------------- |  | -------------- |  | -----------------------
|New active ingredients |  | Product Family |  | Status                 
|                       |  |                |  |                        
|Fluopicolide           |  | Fungicides     |  | Launched in 2006       
|Flubendiamide          |  | Insecticides   |  | Launch expected in 2007
|Tembotrione            |  | Herbicides     |  | Launch expected in 2007

Infinito ®


Belt ® Belt ® Belt ®


Laudis ® Laudis ®


ENVIRONMENTAL SCIENCE, BIOSCIENCE


Overview






|                         |                                                            |                            |     |     |      |  |       |      |     |  |       |     |     | 
|------------------------ | ---------------------------------------------------------- | -------------------------- | --- | --- | ---- |  | ----- | ---- | --- |  | ----- | --- | --- | 
|                         |                                                            | 2004                       |     |     | 2005 |  |       | 2006 |    
|                         |                                                            |                            |     |     |      |  |       |      |    
|                         |                                                            | (Euros in millions, except |    
|                         |                                                            | percentages)               |    
|Total External net sales |                                                            |                            | 989 |     |      |  | 1,022 |      |     |  | 1,056 |    
|                         | Percentage of total sales from Group continuing operations |                            |     | 4.7 | %    |  |       | 4.2  | %   |  |       | 3.7 | %  
|                         | External net sales by category of activity                 |                            |     |     |      |  |       |      |     |  |       |     |    
|                         |                                                            | Environmental Science      |     |     | 678  |  |       |      | 694 |  |       |     | 714 | 
|                         |                                                            | BioScience                 |     |     | 311  |  |       |      | 328 |  |       |     | 342 | 
|Intersegment sales       |                                                            |                            | 7   |     |      |  | 13    |      |     |  | 6     |    
|Operating result         |                                                            |                            | 106 |     |      |  | 158   |      |     |  | 200   |    



|                                   |       |                     |     |     |      |  |     |       |  |  |     |       | 
|---------------------------------- | ----- | ------------------- | --- | --- | ---- |  | --- | ----- |  |  | --- | ----- | 
|                                   |       | 2004                |     |     | 2005 |  |     | 2006  | 
|                                   |       |                     |     |     |      |  |     |       | 
|                                   |       | (Euros in millions) |    
|Europe                             |       |                     | 340 |     |      |  | 340 |       |  |  | 342 |      
|North America                      |       |                     | 433 |     |      |  | 452 |       |  |  | 461 |      
|Asia/ Pacific                      |       |                     | 107 |     |      |  | 122 |       |  |  | 135 |      
|Latin America/ Africa/ Middle East |       |                     | 109 |     |      |  | 108 |       |  |  | 118 |      
|                                   |       |                     |     |     |      |  |     |       | 
|                                   | Total |                     |     | 989 |      |  |     | 1,022 |  |  |     | 1,056 | 
|                                   |       |                     |     |     |      |  |     |       | 

42



---



##### 



 Merit ® Premise ®    K-Othrine ® Deltagard ®  


Segment Strategy








Environmental Science




| |         
| | --------
| | Overview





| |               
| | --------------
| | Major Products

Merit ® Premise ® Merit ® Premise ®


K-Othrine ® Deltagard ®


Maxforce ® Maxforce ®


Bayer
Advanced ® Bayer
Garden ®


43



---



##### 





| |                         
| | ------------------------
| | Markets and Distribution











| |                         
| | ------------------------
| | Research and Development



Tartan tm Forbid tm Quickbayt ® Termite Killer Granules All-In-One Lawn Weed & Crabgrass Killer 2,4-D Exemptor ®


BioScience




| |         
| | --------
| | Overview





| |               
| | --------------
| | Major Products

Nunhems ®


FiberMax ® FiberMax ®


InVigor ® InVigor ® Liberty ® InVigor ®


Arize ®


44



---



##### 





| |                         
| | ------------------------
| | Markets and Distribution

InVigor ® FiberMax ®








| |                         
| | ------------------------
| | Research and Development



e.g.







BAYER MATERIALSCIENCE




MATERIALS


Overview


 History and Development of the
Company Operating and Financial Review and
Prospects  Operating Results 2004, 2005 and
2006  Discontinued Operations 20-F, WOLFF WALSRODE (Discontinued Operation)




45



---



##### 





|                         |                                                            |                             |       |      |       |  |       |      |       |  |       |      |       | 
|------------------------ | ---------------------------------------------------------- | --------------------------- | ----- | ---- | ----- |  | ----- | ---- | ----- |  | ----- | ---- | ----- | 
|                         |                                                            | 2004                        |       |      | 2005  |  |       | 2006 |      
|                         |                                                            |                             |       |      |       |  |       |      |      
|                         |                                                            | (Euros in millions, except  |      
|                         |                                                            | percentages)                |      
|Total External net sales |                                                            |                             | 2,217 |      |       |  | 2,837 |      |       |  | 2,925 |     
|                         | Percentage of total sales from Group continuing operations |                             |       | 10.6 | %     |  |       | 11.4 | %     |  |       | 10.1 | %    
|                         | External net sales by category of activity                 |                             |       |      |       |  |       |      |       |  |       |      |      
|                         |                                                            | Polycarbonates              |       |      | 2,035 |  |       |      | 2,645 |  |       |      | 2,720 | 
|                         |                                                            | Thermoplastic Polyurethanes |       |      | 182   |  |       |      | 192   |  |       |      | 205   | 
|Intersegment sales       |                                                            |                             | 13    |      |       |  | 14    |      |       |  | 25    |     
|Operating result         |                                                            |                             | 184   |      |       |  | 514   |      |       |  | 289   |     



|                                   |       |                     |     |       |      |  |       |       |  |  |       |       | 
|---------------------------------- | ----- | ------------------- | --- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                   |       | 2004                |     |       | 2005 |  |       | 2006  | 
|                                   |       |                     |     |       |      |  |       |       | 
|                                   |       | (Euros in millions) |    
|Europe                             |       |                     | 863 |       |      |  | 1,063 |       |  |  | 1,100 |      
|North America                      |       |                     | 481 |       |      |  | 609   |       |  |  | 599   |      
|Asia/ Pacific                      |       |                     | 716 |       |      |  | 908   |       |  |  | 947   |      
|Latin America/ Africa/ Middle East |       |                     | 157 |       |      |  | 257   |       |  |  | 279   |      
|                                   |       |                     |     |       |      |  |       |       | 
|                                   | Total |                     |     | 2,217 |      |  |       | 2,837 |  |  |       | 2,925 | 
|                                   |       |                     |     |       |      |  |       |       | 

 Makrolon ®    Bayblend ®  


Segment Strategy




 Bayer MaterialScience  Systems state-of




46



---



##### 



Polycarbonates




| |         
| | --------
| | Overview





| |               
| | --------------
| | Major Products



| |                                     
| | ------------------------------------
| | Polycarbonates
    (Makrolon®/APEC®)

Makrolon ® APEC ®




| |                                                 
| | ------------------------------------------------
| | Polycarbonate Blends
    (Bayblend®/Makroblend®)

Bayblend ® Makroblend ®




| |                    
| | -------------------
| | Polycarbonate Films

Makrofol ® Makrolon ® Makrofol ® Makrolon ® Bayblend ®


Bayfol ® Bayfol ®




| |                                           
| | ------------------------------------------
| | Polycarbonate Sheets (Fabricated Products)

Makrolon ® ,
Bayloy ® ,
Vivak ® Axpet ® Makrolon ®


47



---



##### 





| |                         
| | ------------------------
| | Markets and Distribution













| |                         
| | ------------------------
| | Research and Development







|                                            |  |                                                           
|------------------------------------------- |  | ----------------------------------------------------------
|Product/ Brand Name                         |  | Application                                               
|                                            |  |                                                           
|Surface-modified
    Makrolon®              |  | Automotive, extrusion, architecture, electrical           
|Improved
    Makrolon®
    ODS grade        |  | New ODS formats, such as Blue Laser based disks and HD-DVD
|Extension of
    Bayblend®
    FR series    |  | Business machines/ information technology                 
|Makrolon®
    with improved flame retardant |  | Electrical, automotive                                    
|Diffusor sheets for LCD Screens             |  | Electrical/electronic                                     

Makrofol ®


48



---



##### 



Thermoplastic Polyurethanes




| |         
| | --------
| | Overview





| |               
| | --------------
| | Major Products

Desmopan ® ,
Texin ® Desmomelt ® Desmoflex ® Walotex ® Walopur ® , Platilon ® Dureflex ® Utechllan ®




| |                         
| | ------------------------
| | Markets and Distribution

e.g.








TPU Resins:


TPU Films:




| |                         
| | ------------------------
| | Research and Development





SYSTEMS


Overview




49



---



##### 





|                         |                                                            |                             |       |      |       |  |       |      |       |  |       |      |       | 
|------------------------ | ---------------------------------------------------------- | --------------------------- | ----- | ---- | ----- |  | ----- | ---- | ----- |  | ----- | ---- | ----- | 
|                         |                                                            | 2004                        |       |      | 2005  |  |       | 2006 |      
|                         |                                                            |                             |       |      |       |  |       |      |      
|                         |                                                            | (Euros in millions, except  |      
|                         |                                                            | percentages)                |      
|Total External net sales |                                                            |                             | 5,349 |      |       |  | 6,609 |      |       |  | 7,236 |     
|                         | Percentage of total sales from Group continuing operations |                             |       | 25.6 | %     |  |       | 26.8 | %     |  |       | 25.0 | %    
|                         | External net sales by category of activity                 |                             |       |      |       |  |       |      |       |  |       |      |      
|                         |                                                            | Polyurethanes               |       |      | 3,872 |  |       |      | 4,792 |  |       |      | 5,182 | 
|                         |                                                            | Coatings Adhesives Sealants |       |      | 1,237 |  |       |      | 1,330 |  |       |      | 1,488 | 
|                         |                                                            | Inorganic Basic Chemicals   |       |      | 218   |  |       |      | 380   |  |       |      | 403   | 
|                         |                                                            | Others                      |       |      | 22    |  |       |      | 107   |  |       |      | 163   | 
|Intersegment sales       |                                                            |                             | 116   |      |       |  | 142   |      |       |  | 138   |     
|Operating result         |                                                            |                             | 348   |      |       |  | 736   |      |       |  | 703   |     



|                                   |       |                     |       |       |      |  |       |       |  |  |       |       | 
|---------------------------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                   |       | 2004                |       |       | 2005 |  |       | 2006  | 
|                                   |       |                     |       |       |      |  |       |       | 
|                                   |       | (Euros in millions) |      
|Europe                             |       |                     | 2,494 |       |      |  | 3,035 |       |  |  | 3,302 |      
|North America                      |       |                     | 1,483 |       |      |  | 1,891 |       |  |  | 2,023 |      
|Asia/ Pacific                      |       |                     | 822   |       |      |  | 979   |       |  |  | 1,060 |      
|Latin America/ Africa/ Middle East |       |                     | 550   |       |      |  | 704   |       |  |  | 851   |      
|                                   |       |                     |       |       |      |  |       |       | 
|                                   | Total |                     |       | 5,349 |      |  |       | 6,609 |  |  |       | 7,236 | 
|                                   |       |                     |       |       |      |  |       |       | 

 Desmodur ® Mondur ®    Arcol®  


Segment Strategy




state-of




50



---



##### 







Polyurethanes




| |         
| | --------
| | Overview





| |               
| | --------------
| | Major Products

Desmodur ® Desmophen ® .


ready-to






| |                         
| | ------------------------
| | Markets and Distribution











51



---



##### 











| |                         
| | ------------------------
| | Research and Development



time-to




|                   |  |                                                
|------------------ |  | -----------------------------------------------
|Product/Brand Name |  | Application                                    
|                   |  |                                                
|Baypreg®
    F     |  | Automotive door trim carrier                   
|Multitec®          |  | Bathtubs, hood/fender for agricultural vehicles
|Baydur®            |  | Combinations with wood                         

Coatings, Adhesives, Sealants




| |         
| | --------
| | Overview





| |               
| | --------------
| | Major Products



| |                     
| | --------------------
| | Resins and Hardeners

Desmophen ® ,
Rucote ® Bayhydrol ® Desmodur ® Desmodur ® BL,
Crelan ® Bayhydur ®




| |                      
| | ---------------------
| | Special raw materials

Pergut ® Impranil ® Baybond ®


52



---



##### 





| |                       
| | ----------------------
| | Adhesive raw materials

Dispercoll ® ,
Desmocoll ® Baypren ®




| |                         
| | ------------------------
| | Markets and Distribution













| |   |                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------
| |  | Resin components (RES): Cytec, Cray Valley, DIC
    (Dainippon Ink and Chemicals), DSM, Eternal, BASF;  
|
| |  | Aliphatic isocyanates (BMI): Rhodia, Degussa, BASF, Asahi
    Kasei, NPU (Nippon Polyurethane Industry);
|
| |  | Aromatic isocyanates (BMI): Dow Chemical, Mitsui
    Chemicals, SAPICI.                                 



| |                         
| | ------------------------
| | Research and Development









Inorganic Basic Chemicals




| |         
| | --------
| | Overview



53



---



##### 





| |               
| | --------------
| | Major Products









| |                         
| | ------------------------
| | Markets and Distribution









| |                         
| | ------------------------
| | Research and Development



WOLFF WALSRODE (Discontinued Operation)


Overview


Operating and Financial Review and
Prospects  Operating Results 2004, 2005 and
2006  Discontinued Operations 20-F.




|                   |  |                     |     |  |      |  |     |      |  |  |     | 
|------------------ |  | ------------------- | --- |  | ---- |  | --- | ---- |  |  | --- | 
|                   |  | 2004                |     |  | 2005 |  |     | 2006 | 
|                   |  |                     |     |  |      |  |     |      | 
|                   |  | (Euros in millions) |    
|External net sales |  |                     | 328 |  |      |  | 329 |      |  |  | 334 | 
|Operating result   |  |                     | 40  |  |      |  | 36  |      |  |  | 40  | 

54



---



##### 





| |         
| | --------
| | Overview



Major Products


Cellulose Derivatives




| |   |                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Walocel®Mis an additive that regulates water balance. It improves the
    workability and adhesion of building materials such as tile
    adhesives, plasters, mortars and dispersion paints.                                             
|
| |  | Walsroder®NCserves in resin form in wood coatings and other
    industrial coatings as well as in printing inks for flexible
    packaging. It is also used as a component of nail polish and
    other specialty items.                  
|
| |  | Walocel®Cis used primarily as a thickener and binder in water-based
    systems. It is used in pharmaceuticals, dairy products and
    toothpaste, as well as in ceramics compounding, textile and
    paper manufacture and oil drilling.

Other




| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | Under the brand name
    Walsroder®,
    we offer a wide range of sausage skins for industrial or
    handcraft usage.




INTELLECTUAL PROPERTY PROTECTION






Patents






| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | individual active ingredients;                                                      
|
| |  | specific compounds, formulations and combinations containing
    active ingredients;
|
| |  | manufacturing processes;                                                            
|
| |  | intermediates useful in the manufacture of products;                                
|
| |  | genomic research; and                                                               
|
| |  | new uses for existing products.                                                     

Financial Information 
Legal Proceedings.


55



---



##### 





Adalat ® Avelox ® Betaferon ® Campath ® Cipro ® Leukine ® Levitra ® Magnevist ® Mirena ® Ultravist ® Yasmin ®




| |                               
| | ------------------------------
| | Term and Expiration of Patents









| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | subsequently granted patents on processes and intermediates used
    in manufacturing the active ingredient;
|
| |  | patents relating to specific uses for the active ingredient;                                                
|
| |  | patents relating to novel compositions and formulations; and                                                
|
| |  | in certain markets (including the United States), market
    exclusivity under laws other than patent laws. 

56



---



##### 



Adalat ® Avelox ® Betaseron ® Yasmin ® Magnevist ® Ultravist ® Mirena ® Campath ® Leukine ®


|                        |                            |         |      |      |        |  |      |      |  |  |       |      |  |       |      |      |       |  |      |        |  |  |        |      |  |  |      |      |  |  |      |      | 
|----------------------- | -------------------------- | ------- | ---- | ---- | ------ |  | ---- | ---- |  |  | ----- | ---- |  | ----- | ---- | ---- | ----- |  | ---- | ------ |  |  | ------ | ---- |  |  | ---- | ---- |  |  | ---- | ---- | 
|                        |                            | Market  |     
|                        |                            |         |     
|Product                 |                            | Germany |      |      | France |  |      | U.K. |  |  | Italy |      |  | Spain |      |      | Japan |  |      | U.S.A. |  |  | Canada |     
|                        |                            |         |      |      |        |  |      |      |  |  |       |      |  |       |      |      |       |  |      |        |  |  |        |     
|Adalat®                 |                            |         |      |      |        |  |      |      |  |  |       |      |  |       |      |      |       |  |      |        |  |  |        |      |  |  |      |      |  |  |      |     
|                        | Crystal patent (Retard)    |         |      |     |        |  |      |     |  |  |       |     |  |       |      |     |       |  |      |       |  |  |        |     |  |  |      | 2010 |  |  |      |     | 
|                        | Adalat®
    CC (Coat Core) |         |      | 2008 |        |  |      | 2008 |  |  |       | 2008 |  |       |      | 2008 |       |  |      | 2008   |  |  |        | 2008 |  |  |      | 2008 |  |  |      | 2009 | 
|Avelox®                 |                            |         |      |      |        |  |      |      |  |  |       |      |  |       |      |      |       |  |      |        |  |  |        |      |  |  |      |      |  |  |      |     
|                        | Compound                   |         |      | 2014 |        |  |      | 2014 |  |  |       | 2014 |  |       |      | 2014 |       |  |      | 2014   |  |  |        | 2009 |  |  |      | 2014 |  |  |      | 2015 | 
|                        | Hydrochloride-Monohydrate  |         |      | 2016 |        |  |      | 2016 |  |  |       | 2016 |  |       |      | 2016 |       |  |      | 2016   |  |  |        | 2016 |  |  |      | 2016 |  |  |      | 2016 | 
|                        | Tablet formulation         |         |      | 2019 |        |  |      | 2019 |  |  |       | 2019 |  |       |      | 2019 |       |  |      | 2019   |  |  |        | 2019 |  |  |      | 2019 |  |  |      | 2019 | 
|Ciprofloxacin           |                            |         |      |      |        |  |      |      |  |  |       |      |  |       |      |      |       |  |      |        |  |  |        |      |  |  |      |      |  |  |      |     
|                        | Active ingredient          |         |      |     |        |  |      |     |  |  |       |     |  |       |      | 2007 | (a)   |  |      |       |  |  |        |     |  |  |      |     |  |  |      |     | 
|                        | IV formulation             |         |      | 2006 |        |  |      | 2006 |  |  |       | 2006 |  |       |      | 2006 |       |  |      | 2006   |  |  |        | 2011 |  |  |      | 2007 |  |  |      | 2008 | 
|                        | Tablet formulation         |         |      | 2007 |        |  |      | 2007 |  |  |       | 2007 |  |       |      | 2007 |       |  |      | 2007   |  |  |        | 2007 |  |  |      | 2011 |  |  |      | 2009 | 
|Imidacloprid            |                            |         | 2006 |      |        |  | 2006 |      |  |  | 2006  |      |  |       | 2006 |      |       |  | 2007 |        |  |  |       |      |  |  | 2006 |      |  |  | 2007 |     
|Vardenafil compound     |                            |         | 2018 |      |        |  | 2018 |      |  |  | 2018  |      |  |       | 2018 |      |       |  | 2018 |        |  |  | 2018   |      |  |  | 2018 |      |  |  | 2018 |     
|Sorafenib compound      |                            |         | 2020 |      |        |  | 2020 |      |  |  | 2020  |      |  |       | 2020 |      |       |  | 2020 |        |  |  | 2020   |      |  |  | 2022 |      |  |  | 2020 |     
|Betaseron®
    product  |                            |         | 2008 |      |        |  | 2008 |      |  |  | 2008  |      |  |       | 2008 |      |       |  | 2008 |        |  |  | 2008   |      |  |  | 2007 |      |  |  | 2016 |     
|Yasmin®
    formulation |                            |         | 2020 | (b)  |        |  | 2020 | (b)  |  |  | 2020  | (b)  |  |       | 2020 | (b)  |       |  | 2020 | (b)    |  |  | 2020   | (b)  |  |  | 2020 | (b)  |  |  | 2020 | (b) 
|Magnevist®              |                            |         |      |      |        |  |      |      |  |  |       |      |  |       |      |      |       |  |      |        |  |  |        |      |  |  |      |      |  |  |      |     
|                        | Product                    |         |      |     |        |  |      |     |  |  |       |     |  |       |      | 2007 |       |  |      |       |  |  |        |     |  |  |      | 2011 |  |  |      |     | 
|                        | Formulation                |         |      | 2007 |        |  |      | 2007 |  |  |       | 2007 |  |       |      | 2007 |       |  |      | 2007   |  |  |        | 2007 |  |  |      | 2009 |  |  |      | 2010 | 
|                        | Method of use              |         |      |     |        |  |      |     |  |  |       |     |  |       |      |     |       |  |      |       |  |  |        |     |  |  |      | 2013 |  |  |      |     | 
|Ultravist®
    product  |                            |         |     |      |        |  |     |      |  |  |      |      |  |       | 2009 |      |       |  |     |        |  |  |       |      |  |  |     |      |  |  |     |     
|Mirena®                 |                            |         |      |      |        |  |      |      |  |  |       |      |  |       |      |      |       |  |      |        |  |  |        |      |  |  |      |      |  |  |      |     
|                        | Device (inserter)          |         |      | 2015 |        |  |      | 2015 |  |  |       | 2015 |  |       |      | 2015 |       |  |      | 2015   |  |  |        |     |  |  |      | 2015 |  |  |      | 2015 | 
|                        | Process                    |         |      | 2013 |        |  |      | 2013 |  |  |       | 2013 |  |       |      | 2013 |       |  |      | 2013   |  |  |        | 2013 |  |  |      | 2013 |  |  |      | 2013 | 
|Campath®
    product    |                            |         | 2014 |      |        |  | 2014 |      |  |  | 2014  |      |  |       | 2014 |      |       |  | 2014 |        |  |  | 2014   |      |  |  | 2015 |      |  |  | 2014 |     
|Leukine®
    product    |                            |         |     |      |        |  |     |      |  |  |      |      |  |       |     |      |       |  |     |        |  |  |       |      |  |  | 2012 |      |  |  | 2017 |     






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Including extension of the original patent term which was
    scheduled to expire in 2001 by national supplementary protection
    certificate until 2009 and later reduction of said extension
    until 2007 under Italian Law No. 112/2002. The final
    reduced term remains uncertain and falls within the jurisdiction
    of an ordinary court. The law and its application by the Italian
    Patent and Trademark office has been legally challenged and may
    be subject to further legal challenges.
|   
|(b) |  | Composition comprising micronized drospirenone together with
    ethinylestradiol.                                                                                                                                                                                                                                                                                                                                                                                                                                

Financial Information  Legal
Proceedings


Trademarks


Adalat ® Aleve ® ,
Ascensia ® ,
Aspirin ® ,
Avalox ® /
Avelox ® ,
Basta ® /
Liberty ® ,
Betaferon ® Betaseron ® ,
Ciprobay ® /
Cipro ® ,
Confidor ® /
Gaucho ® /
Admire ® /
Merit ® ,
Flint ® /
Stratego ® /
Sphere ® Kogenate ® ,
Levitra ® ,
Magnevist ® Makrolon ® Yasmin ®


57



---



##### 








GOVERNMENTAL REGULATION




Product Regulation










| |                        
| | -----------------------
| | Pharmaceutical Products

Key
Information  Risk Factors  Regulatory
controls and changes in public policy may reduce the
profitability of new or current products.




58



---



##### 









e.g. e.g.






| |                       
| | ----------------------
| | Consumer Care Products





| |                       
| | ----------------------
| | Diabetes Care Products



59



---



##### 









| |                       
| | ----------------------
| | Animal Health Products



 Pharmaceutical Products.




| |                         
| | ------------------------
| | Crop Protection Products







60



---



##### 



e.g.




| |                               
| | ------------------------------
| | Environmental Science Products











| |                    
| | -------------------
| | BioScience Products





EU Regulations




61



---



##### 



e.g.






e.g.


Health, Safety and Environmental Regulations






| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | emissions into the air;                                                                                                
|
| |  | discharges of waste water;                                                                                             
|
| |  | incidental and other releases into the environment;                                                                    
|
| |  | generation, handling, storage, transportation, treatment and
    disposal of hazardous and non-hazardous materials; and
|
| |  | construction and operation of facilities.                                                                              





clean-up


62



---



##### 



clean-up





Responsible Care Global
Charter


time-to





ORGANIZATIONAL STRUCTURE










 Business.


63



---



##### 



Subsidiaries






|                                                   |  |          |      | 
|-------------------------------------------------- |  | -------- | ---- | 
|                                                   |  | Bayers  |     
|Company Name and Place of Business                 |  | Interest |     
|                                                   |  |          |     
|                                                   |  | (%)      |     
|Germany                                            |  |          |      | 
|Bayer Business Services GmbH, Leverkusen           |  |          | 100  | 
|Bayer CropScience AG, Monheim                      |  |          | 100  | 
|Bayer CropScience Deutschland GmbH, Langenfeld     |  |          | 100  | 
|Bayer CropScience GmbH, Frankfurt                  |  |          | 100  | 
|Bayer HealthCare AG, Leverkusen                    |  |          | 100  | 
|Bayer Industry Services GmbH & Co. OHG, Leverkusen |  |          | 60   | 
|Bayer MaterialScience AG, Leverkusen               |  |          | 100  | 
|Bayer Schering GmbH, Leverkusen                    |  |          | 100  | 
|Bayer Schering Pharma AG, Berlin                   |  |          | 96.2 | 
|Bayer Technology Services GmbH, Leverkusen         |  |          | 100  | 
|Bayer Vital GmbH, Leverkusen                       |  |          | 100  | 
|Schering Deutschland GmbH, Berlin                  |  |          | 100  | 
|                                                  
|Other European Countries                           |  |          |      | 
|Bayer Antwerpen Comm.V, Belgium                    |  |          | 100  | 
|Bayer Biologicals S.r.l., Italy                    |  |          | 100  | 
|Bayer Consumer Care AG, Switzerland                |  |          | 100  | 
|Bayer CropScience France S.A.S., France            |  |          | 100  | 
|Bayer CropScience Limited, U.K.                    |  |          | 100  | 
|Bayer CropScience S.A., France                     |  |          | 99.9 | 
|Bayer CropScience S.r.l., Italy                    |  |          | 100  | 
|Bayer International S.A., Switzerland              |  |          | 99.7 | 
|Bayer Pharma SAS, France                           |  |          | 99.9 | 
|Bayer Polyols S.N.C., France                       |  |          | 100  | 
|Bayer Polyurethanes B.V., The Netherlands          |  |          | 100  | 
|Bayer Public Limited Company, U.K.                 |  |          | 100  | 
|Bayer S.p.A., Italy                                |  |          | 100  | 
|Bayer SP.Z.O.O., Poland                            |  |          | 100  | 
|Quimica Farmaceutica Bayer, S.A., Spain            |  |          | 100  | 

64



---



##### 



|                                                                |  |          |      | 
|--------------------------------------------------------------- |  | -------- | ---- | 
|                                                                |  | Bayers  |     
|Company Name and Place of Business                              |  | Interest |     
|                                                                |  |          |     
|                                                                |  | (%)      |     
|North America                                                   |  |          |      | 
|Bayer Corporate and Business Services LLC, USA                  |  |          | 100  | 
|Bayer CropScience Inc., Canada                                  |  |          | 100  | 
|Bayer CropScience LP, USA                                       |  |          | 100  | 
|Bayer HealthCare LLC, USA                                       |  |          | 100  | 
|Bayer Inc., Canada                                              |  |          | 100  | 
|Bayer MaterialScience LLC, USA                                  |  |          | 100  | 
|Bayer Pharmaceuticals Corporation, USA                          |  |          | 100  | 
|BAYPO Limited Partnership, USA                                  |  |          | 100  | 
|Berlex Inc., USA                                                |  |          | 100  | 
|Medrad, Inc., USA                                               |  |          | 100  | 
|                                                               
|Asia/Pacific                                                    |  |          |      | 
|Bayer Australia Limited, Australia                              |  |          | 99.9 | 
|Bayer CropScience K.K., Japan                                   |  |          | 100  | 
|Bayer HealthCare Co. Ltd., China                                |  |          | 100  | 
|Bayer Korea Ltd., Republic of Korea                             |  |          | 100  | 
|Bayer MaterialScience Limited, Hong Kong                        |  |          | 100  | 
|Bayer MaterialScience Trading (Shanghai) Company Limited, China |  |          | 100  | 
|Bayer Thai Company Limited, Thailand                            |  |          | 99.9 | 
|Bayer Yakuhin, Ltd., Japan                                      |  |          | 100  | 
|Nihon Schering K.K., Japan                                      |  |          | 100  | 
|Sumika Bayer Urethane Co., Ltd., Japan                          |  |          | 60   | 
|                                                               
|Latin America/Africa/Middle East                                |  |          |      | 
|Bayer (Proprietary) Limited, South Africa                       |  |          | 100  | 
|Bayer de Mexico, S.A. de C.V., Mexico                           |  |          | 100  | 
|Bayer S.A., Argentina                                           |  |          | 99.9 | 
|Bayer S.A., Brazil                                              |  |          | 99.9 | 
|Bayer Türk Kimya Sanayi Limited Sirketi, Turkey                 |  |          | 100  | 



|                                                             |  |          |      | 
|------------------------------------------------------------ |  | -------- | ---- | 
|                                                             |  | Bayers  |     
|Company Name and Place of Business                           |  | Interest |     
|                                                             |  |          |     
|                                                             |  | (%)      |     
|Lyondell Bayer Manufacturing Maasvlakte VOF, The Netherlands |  |          | 50.0 | 
|Palthough Industries (1998) Ltd., Israel                     |  |          | 25.0 | 
|PO JV, LP, USA                                               |  |          | 43.4 | 
|Polygal Plastics Industries Ltd., Israel                     |  |          | 25.8 | 




PROPERTY, PLANTS AND EQUIPMENT




65



---



##### 



 Markets and
Distribution Research and Development


Erbbaurechte


 


 History and Development of the Company.


 History and
Development of the Company Operating
and Financial Review and Prospects  Operating Results
2004, 2005 and 2006  Discontinued
Operations  Diagnostics.




|                  |                         |                   |  |     |           |  |                                                                                                                           
|----------------- | ----------------------- | ----------------- |  | --- | --------- |  | --------------------------------------------------------------------------------------------------------------------------
|                  |                         | Size of developed |  |     |          
|                  |                         | property in       |  |     |          
|                  |                         | thousand square   |  |     |          
|Location          |                         | meters            |  |     | Major use
|                  |                         |                   |  |     |          
|Bayer HealthCare  |                         |                   |  |     |           | 
|                  | Leverkusen, Germany     |                   |  | 125 |           |  | Formulation and packaging of pharmaceutical products                                                                      
|                  | Wuppertal, Germany      |                   |  | 448 |           |  | Production of active ingredients for ethical pharmaceutical
    products, research and development                        
|                  | Berkeley, California    |                   |  | 112 |           |  | Production of recombinant FVIII                                                                                           
|                  | Myerstown, Pennsylvania |                   |  | 44  |           |  | Formulation and packaging of Consumer Care products                                                                       
|                  | Mishawaka, Indiana      |                   |  | 32  |           |  | Production of instruments for Diabetes Care division                                                                      
|                  | Bergkamen, Germany      |                   |  | 505 |           |  | Production of active pharmaceutical ingredients, administration                                                           
|                  | Berlin-Wedding, Germany |                   |  | 173 |           |  | Production and packaging of contrast media; packaging of solids;
    research and development, offices                    
|                  | Turku, Finland          |                   |  | 98  |           |  | Production of gynecological and andrological products, and
    solids (Oncology); research and development, offices       
|Bayer CropScience |                         |                   |  |     |           | 
|                  | Monheim, Germany        |                   |  | 650 |           |  | Research and development of insecticidal and fungicidal active
    ingredients, global Bayer CropScience headquarters     
|                  | Frankfurt, Germany      |                   |  | 90  |           |  | Research and development of herbicidal active ingredients,
    manufacturing for Crop Protection and Environmental Science
|                  | Dormagen, Germany       |                   |  | 140 |           |  | Manufacturing for Crop Protection and Environmental Science,
    industrialization of new active ingredients              
|                  | Kansas City, Missouri   |                   |  | 340 |           |  | Manufacturing for Crop Protection and Environmental Science                                                               
|                  | Haelen, The Netherlands |                   |  | 560 |           |  | Research and development as well as production of seeds for
    BioScience                                                

66



---



##### 



|                      |                            |                   |  |       |           |  |                                                                                                                                                                                               
|--------------------- | -------------------------- | ----------------- |  | ----- | --------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                      |                            | Size of developed |  |       |          
|                      |                            | property in       |  |       |          
|                      |                            | thousand square   |  |       |          
|Location              |                            | meters            |  |       | Major use
|                      |                            |                   |  |       |          
|Bayer MaterialScience |                            |                   |  |       |           | 
|                      | Krefeld-Uerdingen, Germany |                   |  | 208   |           |  | Production of polycarbonates, diphenylmethane diisocyanates,
    chlorine, caustic soda, hydrochloric acid and hydrogen                                                                       
|                      | Baytown, Texas             |                   |  | 1,628 |           |  | Production of base- and modified isocyanates, polycarbonates,
    diphenylmethane diisocyanates, toluene diisocyanates, chlorine,
    caustic soda, hydrochloric acid and hydrogen            
|                      | Dormagen, Germany          |                   |  | 264   |           |  | Production of modified isocyanates, resins, polycarbonate films,
    toluene diisocyanates, polyether, thermoplastic polyurethanes,
    chlorine, caustic soda, hydrochloric acid and hydrogen
|                      | Antwerp, Belgium           |                   |  | 639   |           |  | Production of polycarbonates, aniline, nitrobenzene and polyether                                                                                                                             
|                      | Brunsbüttel, Germany       |                   |  | 137   |           |  | Production of diphenylmethane diisocyanates, toluene
    diisocyanates, chlorine, hydrochloric acid and hydrogen                                                                              



|                                               |  |                |     |  |          |                |        |                   
|---------------------------------------------- |  | -------------- | --- |  | -------- | -------------- | ------ | ------------------
|                                               |  | Plant Capacity |     |  | Start-Up |                | Status
|                                               |  |                |     |  |          |                |       
|                                               |  | (in kt)        |     |  |          |                |       
|Coatings, Adhesives, Sealants
    (Desmodur®N) |  |                | 12  |  |          | April 2003     |        | In operation      
|Coatings, Adhesives, Sealants
    (Desmodur®L) |  |                | 11  |  |          | January 2005   |        | In operation      
|Polycarbonates (Compounding)                   |  |                | 40  |  |          | July 2005      |        | In operation      
|Polycarbonates (PCS Phase I)                   |  |                | 100 |  |          | September 2006 |        | In operation      
|Polyurethanes (MDI Phase I, MMDI-Splitter),    |  |                | 80  |  |          | September 2006 |        | In operation      
|Coatings, Adhesives, Sealants (HDI-4)          |  |                | 30  |  |          | February 2007  |        | In operation      
|Polyurethanes (MDI Phase II)                   |  |                | 350 |  |          | 2008           |        | Under construction
|Polycarbonates (PCS Phase II)                  |  |                | 100 |  |          | 2008           |        | Under construction
|Polyurethanes (TDI)                            |  |                | 300 |  |          | 2009           |        | Planning phase    

Business  Governmental
Regulation  Health, Safety and Environmental
Regulations. Operating and Financial Review and Prospects 
Liquidity and Capital Resources 2004, 2005 and
2006 Capital Expenditures 20-F.





Item 4A.     Unresolved
Staff Comments




67



---



##### 








|        |                                             
|------- | --------------------------------------------
|Item 5. | Operating and Financial Review and Prospects

20-F.


Forward-Looking Information.


 Critical
Accounting Policies


20-F 20-F.





OVERVIEW




Information on the
Company  Business  Organizational Structure.


20-F Information on the
Company  History and Development of the Company 20-F .





CRITICAL ACCOUNTING POLICIES




68



---



##### 





20-F.


20-F.


Intangible assets and property, plant and equipment


20-F,   


20-F,


 


69



---



##### 



 




|                                             |  |                     |    |  |      |  |    |      |  |  |     | 
|-------------------------------------------- |  | ------------------- | -- |  | ---- |  | -- | ---- |  |  | --- | 
|                                             |  | 2004                |    |  | 2005 |  |    | 2006 | 
|                                             |  |                     |    |  |      |  |    |      | 
|                                             |  | (Euros in millions) |   
|Impairment charges (continuing operations)   |  |                     | 26 |  |      |  | 77 |      |  |  | 172 | 
|Impairment charges (discontinued operations) |  |                     | 63 |  |      |  | 0  |      |  |  | 18  | 
|                                             |  |                     |    |  |      |  |    |      | 
|Total impairment charges                     |  |                     | 89 |  |      |  | 77 |      |  |  | 190 | 
|                                             |  |                     |    |  |      |  |    |      | 



   


 Viadur ®  e.g. 


     




Research and development




70



---



##### 





Net sales






| |   |                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the significant risks and rewards of ownership of the goods are
    transferred to the customer,                                                                
|
| |  | the company retains neither continuing managerial involvement to
    the degree usually associated with ownership nor effective
    control over the goods sold,
|
| |  | the amount of revenue and costs incurred or to be incurred can
    be measured reliably, and                                                                    
|
| |  | it is probable that the economic benefits associated with the
    transaction will flow to the company.                                                         



20-F.








71



---



##### 





Pensions and other post-employment benefits


i.e. i.e.






return-on




 20-F


72



---



##### 





Environmental provisions


 




20-F.


Litigation provisions






73



---



##### 





  Lipobay/ Baycol  Phenylpropanolamine


 Lipobay/
Baycol  


  Lipobay/ Baycol    20-F.


20-F.


Income taxes




  


20-F.


Acquisition accounting




74



---



##### 







i.e.


step-up   




| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | Outcome of research and development activities regarding
    compound efficacy, results of clinical trials, etc.;           
|
| |  | Probability of obtaining regulatory approval in several
    countries;                                                      
|
| |  | Long-term sales forecast;                                                                                                   
|
| |  | Anticipation of selling price erosion rates after the end of
    patent protection due to generic competition in the market;
|
| |  | Behavior of competitors (launch of competing products, marketing
    initiatives, etc.).                                    







75



---



##### 







 step-ups 





OPERATING RESULTS 2004, 2005 AND 2006


Introduction




| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Most significant drivers of our sales, results of
    operations and cash flows in 2006





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Acquisition and divestiture activities  particularly
    our acquisition of Schering (The names Bayer Schering
    Pharma or Schering as used in this annual
    report on
    Form 20-F always
    refer to Bayer Schering Pharma AG, Berlin, Germany, or its
    predecessor, Schering AG, Berlin, Germany, respectively. The
    reference to Bayer Schering Pharma AG or Schering AG also
    includes business conducted by affiliated entities. Bayer
    Schering Pharma AG and Schering-Plough Corporation, New Jersey,
    are unaffiliated companies that have been totally independent of
    each other for many years.);
|
| |  | The general economic situation and the continued positive
    business climates in the industries of some of our customers in
    the course of 2006; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Raw materials, pricing  i.e., the effects on
    our results of operations of the increased prices of
    petrochemical raw materials, other precursors and energy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

 Expenses and gains relating to the
reorientation of our business and to other material unusual
effects.


76



---



##### 





| |                                       
| | --------------------------------------
| | Acquisition and divestiture activities



| |                                                        
| | -------------------------------------------------------
| | Effects on net sales from acquisitions and divestitures

 


|                                                                                                                 |  |           |       |  
|---------------------------------------------------------------------------------------------------------------- |  | --------- | ----- | -
|                                                                                                                 |  | Change in |      
|                                                                                                                 |  | 2006      |      
|                                                                                                                 |  | from 2005 |      
|                                                                                                                 |  |           |      
|                                                                                                                 |  | (Euros in |      
|                                                                                                                 |  | millions) |      
|Acquisitions                                                                                                     |  |           |       |  
|Schering AG, Germany                                                                                             |  |           | 3,082 |  
|Other                                                                                                            |  |           | 24    |  
|                                                                                                                 |  |           |      
|                                                                                                                 |  |           | 3,106 |  
|                                                                                                                 |  |           |      
|Divestitures                                                                                                     |  |           |       |  
|Termination of distribution activities for Plasma in Canada
    (divested in 2005)                               |  |           | (100  | )
|Net sales to LANXESS(until spin-off on January 31,
    2005, sales to LANXESS were classified as internal sales) |  |           | 69    |  
|Disposition of several active ingredients, CropScience in 2005                                                   |  |           | (50   | )
|                                                                                                                 |  |           |      
|                                                                                                                 |  |           | (81   | )
|                                                                                                                 |  |           |      
|Net effects on sales                                                                                             |  |           | 3,025 |  
|                                                                                                                 |  |           |      

|                                                                                                                                 |  |           |       | 
|-------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ----- | 
|                                                                                                                                 |  | Change in |      
|                                                                                                                                 |  | 2005      |      
|                                                                                                                                 |  | from 2004 |      
|                                                                                                                                 |  |           |      
|                                                                                                                                 |  | (Euros in |      
|                                                                                                                                 |  | millions) |      
|Acquisitions                                                                                                                     |  |           |       | 
|Roche consumer health business                                                                                                   |  |           | 1,061 | 
|Divestitures                                                                                                                     |  |           |       | 
|Net sales to LANXESSafter the spin-off on
    January 31, 2005 (in 2004, sales to LANXESS were classified
    as internal sales) |  |           | 981   | 
|Other (net effect)                                                                                                               |  |           | 28    | 
|                                                                                                                                 |  |           |      
|Net effects on sales                                                                                                             |  |           | 2,070 | 
|                                                                                                                                 |  |           |      



| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | Effect on operating result from the purchase price allocation
    in connection with the acquisition of Schering AG, Berlin,
    Germany

20-F  Critical Accounting Policies 
Acquisition accounting


Betaferon ® Betaseron ® step-up step-up e.g.


77



---



##### 



 step-up


step-up  stepped-up step-up  Critical
Accounting Policies  Acquisition accounting




| |                                                        
| | -------------------------------------------------------
| | Effect on operating result from Schering AG integration

 




| |                                                  
| | -------------------------------------------------
| | Effect on cash flows from Schering AG acquisition

    Liquidity and
Capital Resources 2004, 2005 and 2006  Cash
Flows  Financing Activities




| |                           
| | --------------------------
| | General Economic Situation





| |                       
| | ----------------------
| | Raw Materials, Pricing





| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | Expenses and gains relating to the reorientation of our
    business and to other material unusual effects



78



---



##### 







|                                                   |                                                                                                                    |      |      |     |      |  |      |      |   |  |      |      |  
|-------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | ---- | ---- | --- | ---- |  | ---- | ---- | - |  | ---- | ---- | -
|Description                                        |                                                                                                                    | 2004 |      |     | 2005 |  |      | 2006 |  
|                                                   |                                                                                                                    |      |      |     |      |  |      |      |  
|Impairment charges and write-downs                 |                                                                                                                    |      | 0    |     |      |  | (18  | )    |   |  | (66  | )   
|Restructuring Charges and unscheduled amortization |                                                                                                                    |      |      |     |      |  |      |      |   |  |      |     
|                                                   | Relating to HealthCare activities                                                                                  |      |      | (69 | )    |  |      | (41  | ) |  |      | (24  | )
|                                                   | Relating to CropSciences activities                                                                                |      |      | (13 | )    |  |      | (35  | ) |  |      | (79  | )
|                                                   | Relating to MaterialScience activities                                                                             |      |      | 0   |      |  |      | (33  | ) |  |      | (60  | )
|                                                   | Relating to Others activities                                                                                      |      |      | 0   |      |  |      | 0    |   |  |      | (37  | )
|                                                   |                                                                                                                    |      |      |     |      |  |      |      |  
|                                                   |                                                                                                                    |      | (82  | )   |      |  | (109 | )    |   |  | (200 | )   
|Portfolio changes                                  |                                                                                                                    |      |      |     |      |  |      |      |   |  |      |     
|                                                   | Expenses relating to the integration of Schering AG,
    Germany(a)                                                |      |      | 0   |      |  |      | 0    |   |  |      | (179 | )
|                                                   | Expenses relating to the integration of the Roche consumer
    health business                                     |      |      | (14 | )    |  |      | (71  | ) |  |      | (24  | )
|                                                   | Miscellaneous                                                                                                      |      |      | (26 | )    |  |      | (1   | ) |  |      | 41   |  
|                                                   |                                                                                                                    |      |      |     |      |  |      |      |  
|                                                   |                                                                                                                    |      | (40  | )   |      |  | (72  | )    |   |  | (162 | )   
|Litigation related and other charges               |                                                                                                                    |      |      |     |      |  |      |      |   |  |      |     
|                                                   | Arbitration proceedings in the United States relating to the
    production of propylene oxide                     |      |      | 0   |      |  |      | 0    |   |  |      | (109 | )
|                                                   | Provisions in connection with antitrust litigation related to
    polymer products                                 |      |      | (27 | )    |  |      | (336 | ) |  |      | (37  | )
|                                                   | Charges in connection with the termination of the co-promotion
    agreement with GlaxoSmithKline for
    Levitra® |      |      | 0   |      |  |      | (106 | ) |  |      | 0    |  
|                                                   | One-time non-cash gain due to changes to our pension plans in
    the United States and Germany                    |      |      | 0   |      |  |      | 238  |   |  |      | 0    |  
|                                                   | Litigation-related expenses in connection with HealthCare
    products                                             |      |      | (63 | )    |  |      | (105 | ) |  |      | (59  | )
|                                                   | Miscellaneous                                                                                                      |      |      | (30 | )    |  |      | (25  | ) |  |      | 0    |  
|                                                   |                                                                                                                    |      |      |     |      |  |      |      |  
|                                                   |                                                                                                                    |      | (120 | )   |      |  | (334 | )    |   |  | (205 | )   
|Total                                              |                                                                                                                    |      | (242 | )   |      |  | (533 | )    |   |  | (633 | )   
|                                                   |                                                                                                                    |      |      |     |      |  |      |      |  






|    |  |                                                                                                                         
|--- |  | ------------------------------------------------------------------------------------------------------------------------
|(a) |  | For details on charges relating to the Schering AG acquisition
    refer to Acquisition and divestiture
    activities.



| |                                   
| | ----------------------------------
| | Impairment charges and write-downs

 Viadur® Viadur ®


79



---



##### 





| |                      
| | ---------------------
| | Restructuring charges

  


    




| |                  
| | -----------------
| | Portfolio changes

Information on the
Company  History and Development of the Company.  Acquisition and
divestiture activities


   




| |                                     
| | ------------------------------------
| | Litigation related and other charges

Financial Information  Legal Proceedings




| |                          
| | -------------------------
| | Changes in Exchange Rates

Quantitative and
Qualitative Disclosures about Market Risk  Currency
Risk


   Bayer Group  Segment Data


80



---



##### 



20-F


Discontinued Operations




| |                                     
| | ------------------------------------
| | Reporting of Discontinued Operations

20-F,








| |            
| | -----------
| | Diagnostics




Advia ® Rapid tm Multistix ® Clinitek ®


        




| |            
| | -----------
| | H.C. Starck






        


81



---



##### 





| |               
| | --------------
| | Wolff Walsrode



Information on the Company  Business 
WOLFF WALSRODE (Discontinued Operation)


        




| |        
| | -------
| | LANXESS





     


Key Information  Risk
Factors  Our transactions relating to LANXESS expose
us to continuing liability Additional
Information  Material contracts




| |                  
| | -----------------
| | Plasma activities

Kogenate ®


    non-U.S.


  


82



---



##### 



  


20-F.


|                  |  |                                         |       |           |                     |           |       |                     |  |  |       |  |  |      |     |  |      |  |     |      |  |  |      |  |  |      |     |  |  |  |     |  |  |  |     | 
|----------------- |  | --------------------------------------- | ----- | --------- | ------------------- | --------- | ----- | ------------------- |  |  | ----- |  |  | ---- | --- |  | ---- |  | --- | ---- |  |  | ---- |  |  | ---- | --- |  |  |  | --- |  |  |  | --- | 
|                  |  | Diagnostics                             |       |           | H.C. Starck         |           |       | Wolff Walsrode      | 
|                  |  |                                         |       |           |                     |           |       |                     | 
|                  |  | 2004                                    |       |           | 2005                |           |       | 2006                |  |  | 2004  |  |  | 2005 |     |  | 2006 |  |     | 2004 |  |  | 2005 |  |  | 2006 |    
|                  |  |                                         |       |           |                     |           |       |                     |  |  |       |  |  |      |     |  |      |  |     |      |  |  |      |  |  |      |    
|                  |  | (Euros in millions)                     |       |           | (Euros in millions) |           |       | (Euros in millions) | 
|Net sales         |  |                                         | 1,322 |           |                     |           | 1,433 |                     |  |  | 1,526 |  |  |      | 703 |  |      |  | 920 |      |  |  | 985  |  |  |      | 328 |  |  |  | 329 |  |  |  | 334 | 
|Operating result  |  |                                         | 109   |           |                     |           | 179   |                     |  |  | 203   |  |  |      | 69  |  |      |  | 83  |      |  |  | 55   |  |  |      | 40  |  |  |  | 36  |  |  |  | 40  | 
|Net income (loss) |  |                                         | 71    |           |                     |           | 118   |                     |  |  | 117   |  |  |      | 34  |  |      |  | 46  |      |  |  | 32   |  |  |      | 20  |  |  |  | 20  |  |  |  | 20  | 
|Affected segments |  | (Former Diagnostics,
    Diabetes Care) |       | Materials |                     | Materials

|                  |  |                     |       |                 |                     |       |     |                         |  |  |      |  |  |      |     |   |      |  |     |      |  |  |      |  |  |      |       |  |  |  |       |  |  |  |       | 
|----------------- |  | ------------------- | ----- | --------------- | ------------------- | ----- | --- | ----------------------- |  |  | ---- |  |  | ---- | --- | - | ---- |  | --- | ---- |  |  | ---- |  |  | ---- | ----- |  |  |  | ----- |  |  |  | ----- | 
|                  |  |                     |       |                 |                     | Total |    
|                  |  | LANXESS             |       |                 | Plasma              |       |     | Discontinued Operations | 
|                  |  |                     |       |                 |                     |       |     |                         | 
|                  |  | 2004                |       |                 | 2005                |       |     | 2006                    |  |  | 2004 |  |  | 2005 |     |   | 2006 |  |     | 2004 |  |  | 2005 |  |  | 2006 |      
|                  |  |                     |       |                 |                     |       |     |                         |  |  |      |  |  |      |     |   |      |  |     |      |  |  |      |  |  |      |      
|                  |  | (Euros in millions) |       |                 | (Euros in millions) |       |     | (Euros in millions)     | 
|Net sales         |  |                     | 6,053 |                 |                     |       | 503 |                         |  |  |     |  |  |      | 427 |   |      |  | 124 |      |  |  |     |  |  |      | 8,833 |  |  |  | 3,309 |  |  |  | 2,845 | 
|Operating result  |  |                     | 78    |                 |                     |       | 62  |                         |  |  |     |  |  |      | (97 | ) |      |  | (2  | )    |  |  |     |  |  |      | 199   |  |  |  | 358   |  |  |  | 298   | 
|Net income (loss) |  |                     | (4    | )               |                     |       | 38  |                         |  |  |     |  |  |      | (63 | ) |      |  | (1  | )    |  |  |     |  |  |      | 58    |  |  |  | 221   |  |  |  | 169   | 
|Affected segments |  | (LANXESS)           |       | Pharmaceuticals |                     |       |     |                         |  |  |      |  |  |      |     |  

83



---



##### 






Bayer Group


The financial information presented for 2004, 2005 and 2006
reflects the continuing operations of the Bayer Group and its
segments, except where specific reference is made to
discontinued operations or Group total. In 2006, due to the
Schering acquisition and the discontinued Diagnostics division,
we changed our segment structure and reporting to reflect our
new corporate structure. We restated our segment reporting for
2004 and 2005 accordingly. The Diagnostics division and the H.C.
Starck and Wolff Walsrode businesses are reported as
discontinued operations. (The names Bayer Schering
Pharma or Schering as used in this annual
report on
Form 20-F always
refer to Bayer Schering Pharma AG, Berlin, Germany, or its
predecessor, Schering AG, Berlin, Germany, respectively. Bayer
Schering Pharma AG also includes business conducted by
affiliated entities. Bayer Schering Pharma AG and
Schering-Plough Corporation, New Jersey are unaffiliated
companies that have been totally independent of each other for
many years.)




|                                                |                            |                     |        |               |  |             |       |               |  |         |        |      |  |  |       |   |  |  |        |      | 
|----------------------------------------------- | -------------------------- | ------------------- | ------ | ------------- |  | ----------- | ----- | ------------- |  | ------- | ------ | ---- |  |  | ----- | - |  |  | ------ | ---- | 
|                                                |                            |                     |        | Change from   |  |             |       | Change from   |  |        
|                                                |                            | 2004(a)             |        | Previous Year |  | 2005(a),(b) |       | Previous Year |  | 2006(c)
|                                                |                            |                     |        |               |  |             |       |               |  |        
|                                                |                            |                     |        | (%)           |  |             |       | (%)           |  |        
|                                                |                            | (Euros in millions)
|Net sales                                       |                            |                     | 20,925 |               |  |             | 18.0  |               |  |         | 24,701 |      |  |  | 17.2  |   |  |  | 28,956 |     
|Gross profit                                    |                            |                     | 9,839  |               |  |             | 14.7  |               |  |         | 11,289 |      |  |  | 21.2  |   |  |  | 13,681 |     
|                                                | as percentage of sales (%) |                     |        | 47.0          |  |             |       |               |  |         |        | 45.7 |  |  |       |   |  |  |        | 47.2 | 
|Selling expenses                                |                            |                     | (4,783 | )             |  |             | (9.7  | )             |  |         | (5,247 | )    |  |  | (24.5 | ) |  |  | (6,534 | )   
|Research and development expenses               |                            |                     | (1,772 | )             |  |             | 2.4   |               |  |         | (1,729 | )    |  |  | (32.9 | ) |  |  | (2,297 | )   
|General administration expenses                 |                            |                     | (1,285 | )             |  |             | (1.7  | )             |  |         | (1,307 | )    |  |  | (22.3 | ) |  |  | (1,599 | )   
|Other operating income                          |                            |                     | 802    |               |  |             | (3.4  | )             |  |         | 775    |      |  |  | (5.8  | ) |  |  | 730    |     
|Other operating expenses                        |                            |                     | (1,144 | )             |  |             | (10.8 | )             |  |         | (1,267 | )    |  |  | 3.8   |   |  |  | (1,219 | )   
|Operating result                                |                            |                     | 1,657  |               |  |             | 51.7  |               |  |         | 2,514  |      |  |  | 9.9   |   |  |  | 2,762  |     
|                                                | as percentage of sales (%) |                     |        | 7.8           |  |             |       |               |  |         |        | 10.2 |  |  |       |   |  |  |        | 9.5  | 
|Non-operating result                            |                            |                     | (632   | )             |  |             | 4.7   |               |  |         | (602   | )    |  |  | (29.9 | ) |  |  | (782   | )   
|Income before income taxes                      |                            |                     | 1,025  |               |  |             | 86.5  |               |  |         | 1,912  |      |  |  | 3.6   |   |  |  | 1,980  |     
|Income from continuing operations after taxes   |                            |                     | 624    |               |  |             | 120.2 |               |  |         | 1,374  |      |  |  | 11.1  |   |  |  | 1,526  |     
|Income from discontinued operations after taxes |                            |                     | 58     |               |  |             |      |               |  |         | 221    |      |  |  | (23.5 | ) |  |  | 169    |     
|Group net income (total)                        |                            |                     | 685    |               |  |             | 133.1 |               |  |         | 1,597  |      |  |  | 5.4   |   |  |  | 1,683  |     






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | 2004 and 2005 data have been adjusted to reflect the fact that
    the Diagnostics division, the H.C. Starck business and the Wolff
    Walsrode business are reported as discontinued operations. For
    further information on these restatements, see 
    Discontinued Operationsand Note 7.2 to the
    consolidated financial statements appearing elsewhere in this
    annual report on
    Form 20-F.
|   
|(b) |  | The consumer health business acquired from Roche is reflected in
    the income statement with effect from January 1, 2005.                                                                                                                                                                                                                                                                                     
|   
|(c) |  | The pharmaceuticals business acquired from Schering AG, Germany
    is reflected in the income statement with effect from
    June 23, 2006.                                                                                                                                                                                                                                                                    

84



---



##### 





|                                   |  |                     |       |               |  |             |      |               |  |         |        |  |  |  |      |  |  |  |        | 
|---------------------------------- |  | ------------------- | ----- | ------------- |  | ----------- | ---- | ------------- |  | ------- | ------ |  |  |  | ---- |  |  |  | ------ | 
|                                   |  |                     |       | Change from   |  |             |      | Change from   |  |        
|                                   |  | 2004(a)             |       | Previous Year |  | 2005(a),(b) |      | Previous Year |  | 2006(c)
|                                   |  |                     |       |               |  |             |      |               |  |        
|                                   |  |                     |       | (%)           |  |             |      | (%)           |  |        
|                                   |  | (Euros in millions)
|Europe                             |  |                     | 8,751 |               |  |             | 23.1 |               |  |         | 10,771 |  |  |  | 17.5 |  |  |  | 12,652 | 
|North America                      |  |                     | 5,790 |               |  |             | 12.2 |               |  |         | 6,496  |  |  |  | 19.8 |  |  |  | 7,779  | 
|Asia/ Pacific                      |  |                     | 3,509 |               |  |             | 16.1 |               |  |         | 4,073  |  |  |  | 13.2 |  |  |  | 4,610  | 
|Latin America/ Africa/ Middle East |  |                     | 2,875 |               |  |             | 16.9 |               |  |         | 3,361  |  |  |  | 16.5 |  |  |  | 3,915  | 






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | 2004 and 2005 data have been adjusted to reflect the fact that
    the Diagnostics division, the H.C. Starck business and the Wolff
    Walsrode business are reported as discontinued operations. For
    further information on these restatements, see 
    Discontinued Operationsand Note 7.2 to the
    consolidated financial statements appearing elsewhere in this
    annual report on
    Form 20-F.
|   
|(b) |  | The consumer health business acquired from Roche is reflected in
    the income statement with effect from January 1, 2005.                                                                                                                                                                                                                                                                                     
|   
|(c) |  | The pharmaceuticals business acquired from Schering AG, Germany
    is reflected in the income statement with effect from
    June 23, 2006.                                                                                                                                                                                                                                                                    



| |                        
| | -----------------------
| | 2006 compared with 2005



| |          
| | ---------
| | Net Sales

  


   Introduction  Acquisition and
divestiture activities




| |             
| | ------------
| | Gross Profit

 




| |                 
| | ----------------
| | Operating Result



85



---



##### 



  


  


  


     


            Viadur®  


   step-up 




| |                     
| | --------------------
| | Non-Operating Result

      




| |                           
| | --------------------------
| | Income Before Income Taxes

 




| |             
| | ------------
| | Income Taxes

 


86



---



##### 



  




| |                                                
| | -----------------------------------------------
| | Income from Discontinued Operations After Taxes



 


 Discontinued Operations 20-F.




| |           
| | ----------
| | Net Income

      




| |                        
| | -----------------------
| | 2005 compared with 2004



| |          
| | ---------
| | Net Sales

    




| |             
| | ------------
| | Gross Profit






| |                 
| | ----------------
| | Operating Result

 


87



---



##### 



 


 


    


     


    




| |                     
| | --------------------
| | Non-Operating Result

   




| |                           
| | --------------------------
| | Income Before Income Taxes

 




| |             
| | ------------
| | Income Taxes

   




| |                                                
| | -----------------------------------------------
| | Income from Discontinued Operations After Taxes

    


 Discontinued Operations 20-F.


88



---



##### 





| |           
| | ----------
| | Net Income

      





Segment Data


In 2006, due to the acquisition of the business of Schering
AG, Berlin, Germany and the divestiture of the Diagnostics
division, we changed our segment structure and reporting to
reflect our new corporate structure in compliance with IAS 14
(Segment Reporting). We restated our segment reporting for 2004
and 2005, accordingly. The changes in our segments are as
follows: Due to the divestiture of our U.S. Plasma business
in 2005, the former Pharmaceuticals, Biological Products segment
has been renamed as the Pharmaceuticals segment with effect from
January 1, 2006. The historical Bayer pharmaceuticals and
biological products businesses and the acquired Schering
business form the Pharmaceuticals segment. The former Consumer
Care and Animal Health segments were combined with the Diabetes
Care division to form the new segment Consumer Health. Due to
the divestment activities regarding the H.C. Starck and Wolff
Walsrode businesses, the Materials segment comprises the
Polycarbonates and Thermoplastic Polyurethanes business units.
The Diagnostics division, as well as the H.C. Starck and Wolff
Walsrode businesses, are reported as discontinued operations.
See also  Discontinued Operations.




| |                
| | ---------------
| | Pharmaceuticals

|                     |  |                     |       |               |  |      |      |               |  |         |       |  |  |  |       |   |  |  |       | 
|-------------------- |  | ------------------- | ----- | ------------- |  | ---- | ---- | ------------- |  | ------- | ----- |  |  |  | ----- | - |  |  | ----- | 
|                     |  |                     |       | Change from   |  |      |      | Change from   |  |        
|                     |  | 2004                |       | Previous Year |  | 2005 |      | Previous Year |  | 2006(a)
|                     |  |                     |       |               |  |      |      |               |  |        
|                     |  |                     |       | (%)           |  |      |      | (%)           |  |        
|                     |  | (Euros in millions)
|Net sales (external) |  |                     | 3,961 |               |  |      | 2.7  |               |  |         | 4,067 |  |  |  | 83.9  |   |  |  | 7,478 | 
|Intersegment sales   |  |                     | 38    |               |  |      | 52.6 |               |  |         | 58    |  |  |  | (12.1 | ) |  |  | 51    | 
|Operating result     |  |                     | 399   |               |  |      | 19.0 |               |  |         | 475   |  |  |  | 18.5  |   |  |  | 563   | 






|    |  |                                                                                                                                  
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------
|(a) |  | The acquired pharmaceuticals business of Schering AG is
    reflected in the income statement with effect from June 23,
    2006.

89



---



##### 





|                                                            |                         |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               |  |       |       |  |  |      |     | 
|----------------------------------------------------------- | ----------------------- | --------- | ----- | ------------- | ------------- |  | --------- | ----- | ------------- |  | ------------- | --------- |  | ------------- | ---- |  | ------------- |  | ----- | ----- |  |  | ---- | --- | 
|                                                            |                         | 2004      |       |               | 2005          |  |           | 2006  |              
|                                                            |                         |           |       |               |               |  |           |       |              
|                                                            |                         |           |       | Percentage of |               |  |           |       | Percentage of |  |               |           |  | Percentage of |     
|Product(a)                                                  |                         | Sales     |       |               | Segment Sales |  |           | Sales |               |  | Segment Sales |           |  | Sales         |      |  | Segment Sales | 
|                                                            |                         |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 
|                                                            |                         | (Euros in |       |               |               |  | (Euros in |       |               |  |               | (Euros in |  |               |     
|                                                            |                         | millions) |       |               |               |  | millions) |       |               |  |               | millions) |  |               |     
|Betaferon®/Betaseron®
    (Specialized
    Therapeutics)(b) |                         |           |      |               |               |  |           |       |               |  |              |           |  |               |      |  |               |  | 535   |       |  |  | 7.2  |    
|Yasmin®/YAZ®/Yasminelle®                                    |                         |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               |  |       |       |  |  |      |    
|                                                            | (Womens
    Health)(b) |           |       |              |               |  |           |       |               |  |               |          |  |               |      |  |               |  |       | 451   |  |  |      | 6.0 | 
|Kogenate®
    (Hematology/ Cardiology)                      |                         |           | 563   |               |               |  | 14.2      |       |               |  | 663           |           |  |               | 16.3 |  |               |  | 787   |       |  |  | 10.5 |    
|Adalat®
    (Primary Care)                                  |                         |           | 670   |               |               |  | 16.9      |       |               |  | 659           |           |  |               | 16.2 |  |               |  | 657   |       |  |  | 8.8  |    
|Ciprobay®/
    Cipro®
    (Primary Care)                    |                         |           | 837   |               |               |  | 21.2      |       |               |  | 525           |           |  |               | 12.9 |  |               |  | 513   |       |  |  | 6.9  |    
|Avalox®/
    Avelox®
    (Primary Care)                     |                         |           | 318   |               |               |  | 8.0       |       |               |  | 364           |           |  |               | 9.0  |  |               |  | 396   |       |  |  | 5.3  |    
|Levitra®
    (Primary Care)                                 |                         |           | 193   |               |               |  | 4.9       |       |               |  | 260           |           |  |               | 6.4  |  |               |  | 314   |       |  |  | 4.2  |    
|Mirena®
    (Womens
    Health)(b)                         |                         |           |      |               |               |  |           |       |               |  |              |           |  |               |      |  |               |  | 166   |       |  |  | 2.2  |    
|Magnevist®
    (Diagnostic
    Imaging)(b)                  |                         |           |      |               |               |  |           |       |               |  |              |           |  |               |      |  |               |  | 171   |       |  |  | 2.3  |    
|Glucobay®
    (Primary Care)                                |                         |           | 278   |               |               |  | 7.0       |       |               |  | 295           |           |  |               | 7.3  |  |               |  | 308   |       |  |  | 4.1  |    
|Other                                                       |                         |           | 1,102 |               |               |  | 27.8      |       |               |  | 1,301         |           |  |               | 31.9 |  |               |  | 3,180 |       |  |  | 42.5 |    
|                                                            |                         |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 
|                                                            | Total                   |           |       | 3,961         |               |  |           |       |               |  |               | 4,067     |  |               |      |  |               |  |       | 7,478 |  |  |      |     | 
|                                                            |                         |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 






|    |  |                                                                       
|--- |  | ----------------------------------------------------------------------
|(a) |  | Products are ranked by the fourth quarter 2006 sales.                 
|   
|(b) |  | Acquired as part of Schering AGs pharmaceutical business
    in 2006.

year-on pro rata temporis




|                                                     |  |           |     |  |      |  |     | 
|---------------------------------------------------- |  | --------- | --- |  | ---- |  | --- | 
|Year-on-year sales per product (unaudited)           |  | 2005      |     |  | 2006 | 
|                                                     |  |           |     |  |      | 
|                                                     |  | (Euros in |    
|                                                     |  | millions) |    
|Betaferon®/Betaseron®
    (Specialized Therapeutics) |  |           | 867 |  |      |  | 991 | 
|Yasmin®/YAZ®/Yasminelle®
    (Womens Health)        |  |           | 586 |  |      |  | 794 | 
|Magnevist®
    (Diagnostic Imaging)                  |  |           | 328 |  |      |  | 323 | 
|Mirena®
    (Womens Health)                         |  |           | 243 |  |      |  | 301 | 



| |                        
| | -----------------------
| | 2006 compared with 2005

  20-F


90



---



##### 



  


 Levitra ® CardioAspirin ® Avalox® Avelox ® Pritor ® PritorPlus ®  Cipro ® Ciprobay ®


 Trasylol ® Kogenate ® follow-up Trasylol ® Information on the Company 
Business  Bayer HealthCare 
Pharmaceuticals  Update on
Trasylol ® -marketed
product


   Fludara ® Androcur ® Campath ® Nexavar ® 


pro rata temporis  Yasmin ® YAZ ® Yasminelle ® year-on Year-on Mirena ®


 pro rata temporis Year-on Magnevist ® Ultravist ® year-on


 pro rata temporis Betaferon ® Betaseron ® year-on


 pro rata temporis Skinoren ® year-on Advantan ® year-on


   step-up   Kogenate ® Levitra ® Avalox ® Avelox ® 


91



---



##### 



  Viadur ®     Levitra ® 




| |                        
| | -----------------------
| | 2005 compared with 2004

 


Trasylol ® Avelox ® Levitra ®  Cipro ® Kogenate ®   Bio-Set ®


   Levitra ®  Lipobay/ Baycol      Lipobay/ Baycol   




| |                
| | ---------------
| | Consumer Health

With effect from June 30, 2006, the former Consumer Care
and Animal Health segments were combined with the Diabetes Care
division in the new segment Consumer Health. The Diagnostics
division is reported as discontinued operations.


|                     |  |                     |       |               |  |         |      |               |  |      |       |  |  |  |       |   |  |  |       | 
|-------------------- |  | ------------------- | ----- | ------------- |  | ------- | ---- | ------------- |  | ---- | ----- |  |  |  | ----- | - |  |  | ----- | 
|                     |  |                     |       | Change from   |  |         |      | Change from   |  |     
|                     |  | 2004                |       | Previous Year |  | 2005(a) |      | Previous Year |  | 2006
|                     |  |                     |       |               |  |         |      |               |  |     
|                     |  |                     |       | (%)           |  |         |      | (%)           |  |     
|                     |  | (Euros in millions)
|Net sales (external) |  |                     | 2,775 |               |  |         | 41.6 |               |  |      | 3,929 |  |  |  | 8.1   |   |  |  | 4,246 | 
|Intersegment sales   |  |                     | 18    |               |  |         | 16.7 |               |  |      | 21    |  |  |  | (66.7 | ) |  |  | 7     | 
|Operating result     |  |                     | 448   |               |  |         | 0.0  |               |  |      | 448   |  |  |  | 67.4  |   |  |  | 750   | 






|    |  |                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------
|(a) |  | The consumer health business acquired from Roche is reflected in
    the income statement with effect from January 1, 2005.



| |                        
| | -----------------------
| | 2006 compared with 2005

 


92



---



##### 



 Aleve ® Bepanthen ® Bepanthol ® Canesten ®


 Ascensia ® Contour ® Elite Ascensia ®


 Advantage ® Profender ®


Information on the Company  Business.


     




| |                        
| | -----------------------
| | 2005 compared with 2004

 


  Bepanthen ® /
Bepanthol ® Rennie ® Supradyn ® 





  Advantage ® Advocate ® Profender ®


       


93



---



##### 





| |                
| | ---------------
| | Crop Protection

|                     |  |                     |       |               |  |      |      |               |  |      |       |  |  |  |       |   |  |  |       | 
|-------------------- |  | ------------------- | ----- | ------------- |  | ---- | ---- | ------------- |  | ---- | ----- |  |  |  | ----- | - |  |  | ----- | 
|                     |  |                     |       | Change from   |  |      |      | Change from   |  |     
|                     |  | 2004                |       | Previous Year |  | 2005 |      | Previous Year |  | 2006
|                     |  |                     |       |               |  |      |      |               |  |     
|                     |  |                     |       | (%)           |  |      |      | (%)           |  |     
|                     |  | (Euros in millions)
|Net sales (external) |  |                     | 4,957 |               |  |      | (1.7 | )             |  |      | 4,874 |  |  |  | (4.7  | ) |  |  | 4,644 | 
|Intersegment sales   |  |                     | 71    |               |  |      | (1.4 | )             |  |      | 70    |  |  |  | (15.7 | ) |  |  | 59    | 
|Operating result     |  |                     | 386   |               |  |      | 37.8 |               |  |      | 532   |  |  |  | (27.8 | ) |  |  | 384   | 



| |                        
| | -----------------------
| | 2006 compared with 2005

 


 Oberon ® Envidor ®  Folicur ® Flint ®  Atlantis ® Olympus ® Basta ® Liberty ®  Poncho ® EfA ® Bariton ® Scenic ® Information on
the Company  Business.


     




| |                        
| | -----------------------
| | 2005 compared with 2004

 


  Flint ® Folicur ®


94



---



##### 



 Atlantis ® Hussar ® MaisTer ® Olympus ® 


         




| |                                  
| | ---------------------------------
| | Environmental Science, BioScience

|                     |  |                     |     |               |  |      |      |               |  |      |       |  |  |  |       |   |  |  |       | 
|-------------------- |  | ------------------- | --- | ------------- |  | ---- | ---- | ------------- |  | ---- | ----- |  |  |  | ----- | - |  |  | ----- | 
|                     |  |                     |     | Change from   |  |      |      | Change from   |  |     
|                     |  | 2004                |     | Previous Year |  | 2005 |      | Previous Year |  | 2006
|                     |  |                     |     |               |  |      |      |               |  |     
|                     |  |                     |     | (%)           |  |      |      | (%)           |  |     
|                     |  | (Euros in millions)
|Net sales (external) |  |                     | 989 |               |  |      | 3.3  |               |  |      | 1,022 |  |  |  | 3.3   |   |  |  | 1,056 | 
|Intersegment sales   |  |                     | 7   |               |  |      | 85.7 |               |  |      | 13    |  |  |  | (53.8 | ) |  |  | 6     | 
|Operating result     |  |                     | 106 |               |  |      | 49.1 |               |  |      | 158   |  |  |  | 26.6  |   |  |  | 200   | 



| |                        
| | -----------------------
| | 2006 compared with 2005

 


  Information on the Company 
Business.


 




| |                        
| | -----------------------
| | 2005 compared with 2004

 


 Premise ® Revolver ® K-O
Tab ®  InVigor ® FiberMax ®


   


95



---



##### 



 




| |          
| | ---------
| | Materials

Due to the divestment activities regarding the H.C. Starck
and Wolff Walsrode businesses, the Materials segment comprises
the Polycarbonates and Thermoplastic Polyurethanes business
units. Both H.C. Starck and Wolff Walsrode are reported as
discontinuing operations. See also  Discontinued
Operations.


|                     |  |                     |       |               |  |      |       |               |  |      |       |  |  |  |       |   |  |  |       | 
|-------------------- |  | ------------------- | ----- | ------------- |  | ---- | ----- | ------------- |  | ---- | ----- |  |  |  | ----- | - |  |  | ----- | 
|                     |  |                     |       | Change from   |  |      |       | Change from   |  |     
|                     |  | 2004                |       | Previous Year |  | 2005 |       | Previous Year |  | 2006
|                     |  |                     |       |               |  |      |       |               |  |     
|                     |  |                     |       | (%)           |  |      |       | (%)           |  |     
|                     |  | (Euros in millions)
|Net sales (external) |  |                     | 2,217 |               |  |      | 28.0  |               |  |      | 2,837 |  |  |  | 3.1   |   |  |  | 2,925 | 
|Intersegment sales   |  |                     | 13    |               |  |      | 7.7   |               |  |      | 14    |  |  |  | 78.6  |   |  |  | 25    | 
|Operating result     |  |                     | 184   |               |  |      | 179.3 |               |  |      | 514   |  |  |  | (43.8 | ) |  |  | 289   | 



| |                        
| | -----------------------
| | 2006 compared with 2005

  Information on the Company  Business


  
Systems 




| |                        
| | -----------------------
| | 2005 compared with 2004

 


  




| |        
| | -------
| | Systems

|                     |  |                     |       |               |  |      |       |               |  |      |       |  |  |  |      |   |  |  |       | 
|-------------------- |  | ------------------- | ----- | ------------- |  | ---- | ----- | ------------- |  | ---- | ----- |  |  |  | ---- | - |  |  | ----- | 
|                     |  |                     |       | Change from   |  |      |       | Change from   |  |     
|                     |  | 2004                |       | Previous Year |  | 2005 |       | Previous Year |  | 2006
|                     |  |                     |       |               |  |      |       |               |  |     
|                     |  |                     |       | (%)           |  |      |       | (%)           |  |     
|                     |  | (Euros in millions)
|Net sales (external) |  |                     | 5,349 |               |  |      | 23.6  |               |  |      | 6,609 |  |  |  | 9.5  |   |  |  | 7,236 | 
|Intersegment sales   |  |                     | 116   |               |  |      | 22.4  |               |  |      | 142   |  |  |  | (2.8 | ) |  |  | 138   | 
|Operating result     |  |                     | 348   |               |  |      | 111.5 |               |  |      | 736   |  |  |  | (4.5 | ) |  |  | 703   | 

96



---



##### 





| |                        
| | -----------------------
| | 2006 compared with 2005

  Information on the
Company  Business.


      


2005 compared with 2004


 


      


97



---



##### 






LIQUIDITY AND CAPITAL RESOURCES 2004, 2005 AND 2006


Cash Flows


20-F  Financing Activities




|                                                                                                        |  |                     |       |               |  |      |        |               |  |         |        |   |  |  |        |   |  |  |         |  
|------------------------------------------------------------------------------------------------------- |  | ------------------- | ----- | ------------- |  | ---- | ------ | ------------- |  | ------- | ------ | - |  |  | ------ | - |  |  | ------- | -
|                                                                                                        |  |                     |       | Change from   |  |      |        | Change from   |  |        
|                                                                                                        |  | 2004                |       | Previous Year |  | 2005 |        | Previous Year |  | 2006(b)
|                                                                                                        |  |                     |       |               |  |      |        |               |  |        
|                                                                                                        |  |                     |       | (%)           |  |      |        | (%)           |  |        
|                                                                                                        |  | (Euros in millions)
|Net cash provided by (used in) operating activities (net cash
    flow, continuing
    operations)(a)   |  |                     | 1,959 |               |  |      | 64.7   |               |  |         | 3,227  |   |  |  | 21.7   |   |  |  | 3,928   |  
|Net cash provided by (used in) operating activities (net cash
    flow, discontinued
    operations)(a) |  |                     | 491   |               |  |      | (44.0  | )             |  |         | 275    |   |  |  |       |   |  |  | 275     |  
|Net cash provided by (used in) operating activities (net cash
    flow, total)                          |  |                     | 2,450 |               |  |      | 42.9   |               |  |         | 3,502  |   |  |  | 20.0   |   |  |  | 4,203   |  
|Net cash provided by (used in) investing activities (total)                                             |  |                     | (814  | )             |  |      | (113.9 | )             |  |         | (1,741 | ) |  |  |       |   |  |  | (14,730 | )
|Net cash provided by (used in) financing activities (total)                                             |  |                     | (761  | )             |  |      | (147.2 | )             |  |         | (1,881 | ) |  |  |       |   |  |  | 10,199  |  
|Change in cash and cash equivalents                                                                     |  |                     | 875   |               |  |      |       |               |  |         | (120   | ) |  |  | (173.3 | ) |  |  | (328    | )
|Cash and cash equivalents at beginning of period                                                        |  |                     | 2,734 |               |  |      | 30.6   |               |  |         | 3,570  |   |  |  | (7.8   | ) |  |  | 3,290   |  
|Change in scope of consolidation                                                                        |  |                     | 6     |               |  |      |       |               |  |         | (196   | ) |  |  | 99.0   |   |  |  | (2      | )
|Exchange rate movements                                                                                 |  |                     | (45   | )             |  |      |       |               |  |         | 36     |   |  |  |       |   |  |  | (45     | )
|Cash and cash equivalents at end of year                                                                |  |                     | 3,570 |               |  |      | (7.8   | )             |  |         | 3,290  |   |  |  | (11.4  | ) |  |  | 2,915   |  






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | 2004 and 2005 data have been adjusted to reflect the fact that
    the Diagnostics division, the H.C. Starck business and the Wolff
    Walsrode business are reported as discontinued operations. For
    further information on these restatements, see
     Operating Results 2004, 2005 and 2006 
    Discontinued Operationsand Note 7.2 to the
    consolidated financial statements appearing elsewhere in this
    annual report on
    Form 20-F.
|   
|(b) |  | The pharmaceuticals business of Schering AG, Germany is
    reflected in the financial statements with effect from
    June 23, 2006.                                                                                                                                                                                                                                                                                                                       



| |                               
| | ------------------------------
| | Cash from Operating Activities

    


98



---



##### 



   year-on  


     




| |                     
| | --------------------
| | Investing Activities

    U.S.-based 


     Pritor ® PritorPlus ®   


 


      


           


99



---



##### 








| |                     
| | --------------------
| | Financing Activities

      


       Development of net debt


         Financial Information  Legal
Proceedings


     


100



---



##### 



Development of net debt


  


|                                                                                                                            |                                    |                     |        |   |               |  |        |               |  |  |        |       | 
|--------------------------------------------------------------------------------------------------------------------------- | ---------------------------------- | ------------------- | ------ | - | ------------- |  | ------ | ------------- |  |  | ------ | ----- | 
|                                                                                                                            |                                    | Dec. 31, 2004       |        |   | Dec. 31, 2005 |  |        | Dec. 31, 2006 | 
|                                                                                                                            |                                    |                     |        |   |               |  |        |               | 
|                                                                                                                            |                                    | (Euros in millions) |       
|Noncurrent financial liabilities as per balance sheet (including
    derivatives)                                           |                                    |                     | 7,025  |   |               |  | 7,185  |               |  |  | 14,723 |      
|                                                                                                                            | thereof mandatory convertible bond |                     |        |  |               |  |        |              |  |  |        | 2,276 | 
|                                                                                                                            | thereof hybrid bond                |                     |        |  |               |  |        | 1,268         |  |  |        | 1,247 | 
|Current financial liabilities as per balance sheet (including
    derivatives)                                              |                                    |                     | 2,166  |   |               |  | 1,767  |               |  |  | 5,078  |      
|Derivative receivables                                                                                                      |                                    |                     | (701   | ) |               |  | (188   | )             |  |  | (185   | )    
|Cash and cash equivalents as per balance sheet less cash
    earmarked for civil litigation settlements and the squeeze-out |                                    |                     | (3,570 | ) |               |  | (3,037 | )(a)          |  |  | (2,116 | )(b) 
|Marketable securities and other instruments                                                                                 |                                    |                     | (29    | ) |               |  | (233   | )             |  |  | (27    | )    
|Net debt* (continuing operations)                                                                                           |                                    |                     | 4,891  |   |               |  | 5,494  |               |  |  | 17,473 |      
|Net debt* (discontinued operations)                                                                                         |                                    |                     | 531    |   |               |  | 0      |               |  |  | 66     |      
|Net debt* (total)                                                                                                           |                                    |                     | 5,422  |   |               |  | 5,494  |               |  |  | 17,539 |      






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Cash and cash equivalents as per balance sheet
    (3,290 million)
    minus cash deposited in escrow accounts
    (253 million)
    equals
    3,037 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(b) |  | Cash and cash equivalents as per balance sheet
    (2,915 million)
    minus cash deposited in escrow accounts
    (799 million)
    equals
    2,116 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|*   |  | Net Debt is defined neither under IFRS nor under
    U.S. GAAP and may not be comparable with measures of the
    same or similar title that are reported by other companies.
    Under SEC rules Net Debt is considered a non-GAAP
    financial measure. It should not be considered as a substitute
    for, or confused with, any IFRS or U.S. GAAP financial
    measure. We believe the most comparable IFRS and U.S. GAAP
    measures are noncurrent and current financial obligations. Bayer
    defines Net Debt as described above and believes
    that this measure provides investors, analysts and credit rating
    agencies with useful information disclosing and summarizing the
    status of the net financial borrowings due to third parties. We
    believe that subtracting cash and cash equivalents from our
    noncurrent and current financial obligations (that includes
    liabilities from derivative financial instruments) and netting
    this with the receivables resulting from derivative financial
    instruments is appropriate in providing a useful measure of the
    obligations associated with our outstanding debt. We thus
    believe that Net Debt is an indicator of the Bayer
    Groups creditworthiness. However, the subtraction of cash
    and cash equivalents should not cause the reader to believe that
    we have less debt than actually appears on our balance sheet.
    For this reason, you should consider our net debt
    measure in conjunction with the noncurrent and current financial
    obligations recorded on our balance sheet.

101



---



##### 



       




|                    |                                                |                             |      |     |               |  |      |     |     | 
|------------------- | ---------------------------------------------- | --------------------------- | ---- | --- | ------------- |  | ---- | --- | --- | 
|                    |                                                | June 30, 2006               |      |     | Dec. 31, 2006 | 
|                    |                                                |                             |      |     |               | 
|                    |                                                | (Euros in billions)         |     
|Credit utilization: |                                                |                             |      |     |               |  |      |    
|                    | Bridge financing
    (7 billion
    facility) |                             |      | 0.6 |               |  |      | 0   |    
|                    | Syndicated loan
    (7 billion
    facility)  |                             |      | 7.0 |               |  |      | 5.7 |    
|                    |                                                | Thereof due within one year |      |     | 3.0           |  |      |     | 1.7 | 
|Bond issues         |                                                |                             |      |     |               |  |      |    
|                    | Three-year floating Eurobond                   |                             |      | 1.6 |               |  |      | 1.6 |    
|                    | Seven-year fixed-rate Eurobond                 |                             |      | 1.0 |               |  |      | 1.0 |    
|                    | Twelve-year fixed-rate sterling bond           |                             |      | 0.4 |               |  |      | 0.5 |    
|                    | Mandatory convertible bond                     |                             |      | 2.3 |               |  |      | 2.3 |    
|Stock placement     |                                                |                             |      |     |               |  |      |    
|                    | New shares                                     |                             |      |    |               |  |      | 1.2 |    
|                    |                                                |                             |      |     |               | 
|Total               |                                                |                             | 12.9 |     |               |  | 12.3 |    

 





   20-F).  


      


102



---



##### 





Financing Strategy












20-F.


       


20-F.


103



---



##### 



Capital Expenditures




  





104



---



##### 





|     |      |  |         |                                   |             |                                                                                                         
|---- | ---- |  | ------- | --------------------------------- | ----------- | --------------------------------------------------------------------------------------------------------
|Year |      |  | Segment |                                   | Description
|     |      |  |         |                                   |            
|     | 2004 |  |         | Pharmaceuticals                   |             | Construction of a process development facility
    (Kogenate®)
    in Berkeley, California              
|     |      |  |         | Crop Protection                   |             | Installation of a production line for the new fungicide
    Fandango, Kansas City, Kansas               
|     |      |  |         | Materials                         |             | Construction of a production facility for polycarbonate in
    Caojing, Peoples Republic of China (PRC)
|     |      |  |         | Systems                           |             | Expansion of isocyanate capacities in Tarragona, Spain; Baytown,
    Texas, and Brunsbüttel, Germany    
|     |      |  |         |                                   |             | Construction of production facility for
    methylene-diphenyl-diisocyanate in Caojing, PRC             
|     |      |  |         |                                   |             | Expansion of polyisocyanate capacity in Caojing, PRC                                                    
|     |      |  |         |                                   |             | Construction of a production facility for
    hexamethylene-diisocyanate in Caojing, PRC                
|     | 2005 |  |         | Pharmaceuticals                   |             | Construction of a clinical manufacturing facility for
    Kogenate®
    in Berkeley, California         
|     |      |  |         | Consumer Health                   |             | Expansion of a production facility in Jakarta, Indonesia                                                
|     |      |  |         | Crop Protection                   |             | Insourcing and relocation of products/intermediates in Dormagen,
    Knapsack and Frankfurt, Germany    
|     |      |  |         |                                   |             | Product insourcing projects in Vapi and Ankleshwar, India                                               
|     |      |  |         | Environmental Science, BioScience |             | Expansion of greenhouse facilities in Haelen, The Netherlands                                           
|     |      |  |         | Materials                         |             | Construction of a polycarbonate compounding facility in Caojing,
    PRC                                
|     |      |  |         |                                   |             | Expansion of the polycarbonate facility in Map Ta Phut, Thailand                                        
|     |      |  |         |                                   |             | Start of capacity expansion projects for polycarbonate in
    Caojing, PRC                              
|     |      |  |         | Systems                           |             | Construction of a
    Desmodur®-L
    production facility in Caojing, PRC                               
|     |      |  |         |                                   |             | Start of construction of a world-scale MDI production facility
    in Caojing, PRC                      
|     |      |  |         |                                   |             | Installation of a new plant for MDI specialty products in
    Baytown, Texas                            
|     |      |  |         |                                   |             | Capacity increase of the chlorine production facility in
    Baytown, Texas                             
|     | 2006 |  |         | Pharmaceuticals                   |             | Construction of a clinical manufacturing facility for
    Kogenate®
    in Berkeley, California         
|     |      |  |         |                                   |             | Expansion of a production facility in Beijing, PRC                                                      
|     |      |  |         | Consumer Health                   |             | Expansion of a production facility in Jakarta, Indonesia                                                
|     |      |  |         | Crop Protection                   |             | Insourcing of intermediates in Knapsack, Germany                                                        
|     |      |  |         |                                   |             | Expansion of warehouse, manufacturing and formulation plants in
    Frankfurt and Dormagen, Germany     
|     |      |  |         |                                   |             | Expansion of fungicide production capacity in Dormagen, Germany                                         
|     |      |  |         |                                   |             | Site consolidation in Baranquilla, Columbia                                                             
|     |      |  |         | Environmental Science, BioScience |             | Construction of a seed processing facility in Lethbridge, Canada                                        
|     |      |  |         | Materials                         |             | Expansion of the polycarbonate facility in Map Ta Phut, Thailand                                        
|     |      |  |         |                                   |             | Capacity expansion projects for polycarbonate in Caojing, PRC                                           
|     |      |  |         | Systems                           |             | Construction of a world-scale MDI production facility in
    Caojing, PRC                               
|     |      |  |         |                                   |             | Installation of a new plant for MDI specialty products in
    Baytown, Texas                            

105



---



##### 



Commitments




| |                               
| | ------------------------------
| | Off-Balance Sheet Arrangements

20-F.




| |                                                   
| | --------------------------------------------------
| | Contractual Obligations and Commercial Commitments



|                                                       |  |                     |        |       |          |             |           |             |                |                |       |  |       |         |       |  |  |  |       | 
|------------------------------------------------------ |  | ------------------- | ------ | ----- | -------- | ----------- | --------- | ----------- | -------------- | -------------- | ----- |  | ----- | ------- | ----- |  |  |  | ----- | 
|                                                       |  |                     |        |       |          | One Year to |           |             | Three Years to |                |       | 
|                                                       |  |                     |        | Under |          |             | Less than |             |                | Less than Five |       |  | After |        
|Contractual Obligations                                |  | Total               |        |       | One Year |             |           | Three Years |                |                | Years |  |       | 5 Years |      
|                                                       |  |                     |        |       |          |             |           |             |                |                |       |  |       |         |      
|                                                       |  | (Euros in millions) |       
|Long-term debt, excluding capital leases               |  |                     | 19,417 |       |          |             | 5,009     |             |                |                | 4,775 |  |       |         | 4,021 |  |  |  | 5,612 | 
|Capital leases without interest portion                |  |                     | 384    |       |          |             | 69        |             |                |                | 46    |  |       |         | 40    |  |  |  | 229   | 
|Operating leases                                       |  |                     | 559    |       |          |             | 148       |             |                |                | 194   |  |       |         | 140   |  |  |  | 77    | 
|Purchase obligations                                   |  |                     | 507    |       |          |             | 467       |             |                |                | 40    |  |       |         | 0     |  |  |  | 0     | 
|Other long-term liabilities (collaboration agreements) |  |                     | 956    |       |          |             | 168       |             |                |                | 314   |  |       |         | 167   |  |  |  | 307   | 
|Other
    liabilities(a)                               |  |                     | 3,504  |       |          |             | 3,055     |             |                |                | 242   |  |       |         | 31    |  |  |  | 176   | 
|                                                       |  |                     |        |       |          |             |           |             |                |                |       |  |       |         |      
|Total contractual obligations                          |  |                     | 25,327 |       |          |             | 8,916     |             |                |                | 5,611 |  |       |         | 4,399 |  |  |  | 6,401 | 
|                                                       |  |                     |        |       |          |             |           |             |                |                |       |  |       |         |      






|    |                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Other liabilities comprise primarily guarantees of bills and
    checks, payment guarantees and indirect financial guarantees;
    commissions to customers and expense reimbursements; as well as
    social security and payroll liabilities and other liabilities as
    set forth in Note 29 to the consolidated financial
    statements included elsewhere in this annual report on
    Form 20-F.




  Development of net debt. 20-F .




| |                  
| | -----------------
| | Other Commitments

   


  


106



---



##### 





  20-F. 20-F.


Borrowings



Commitments  Contractual Obligations and Commercial
Commitments 20-F.


Funding and Treasury Policies


over-the


     







Quantitative and Qualitative Disclosures about Market
Risk.


107



---



##### 



Inflation, Seasonality and Cyclicality


Information on the Company





RESEARCH AND DEVELOPMENT




|                                       |                          |                     |       |               |  |      |      |               |   |      |       |     |  |  |      |      |   |  |       |       | 
|-------------------------------------- | ------------------------ | ------------------- | ----- | ------------- |  | ---- | ---- | ------------- | - | ---- | ----- | --- |  |  | ---- | ---- | - |  | ----- | ----- | 
|                                       |                          |                     |       | Change from   |  |      |      | Change from   |   |     
|                                       |                          | 2004                |       | Previous Year |  | 2005 |      | Previous Year |   | 2006
|                                       |                          |                     |       |               |  |      |      |               |   |     
|                                       |                          |                     |       | (%)           |  |      |      | (%)           |   |     
|                                       |                          | (Euros in millions)
|Research and development expenditures: |                          |                     |       |               |  |      |      |               |   |      |       |     |  |  |      |      |   |  |       |      
|                                       | Bayer HealthCare         |                     |       | 878           |  |      |      | (5.0          | ) |      |       | 834 |  |  |      | 71.0 |   |  |       | 1,426 | 
|                                       | Bayer CropScience        |                     |       | 679           |  |      |      | (2.2          | ) |      |       | 664 |  |  |      | (7.5 | ) |  |       | 614   | 
|                                       | Bayer MaterialScience    |                     |       | 199           |  |      |      | 7.5           |   |      |       | 214 |  |  |      | 6.1  |   |  |       | 227   | 
|                                       | Reconciliation           |                     |       | 16            |  |      |      | 6.3           |   |      |       | 17  |  |  |      | 76.5 |   |  |       | 30    | 
|                                       |                          |                     |       |               |  |      |      |               |   |      |       |     |  |  |      |      |   |  |       |      
|Total from Continuing Operations       |                          |                     | 1,772 |               |  |      | (2.4 | )             |   |      | 1,729 |     |  |  | 32.9 |      |   |  | 2,297 |      
|                                       | As a percentage of sales |                     |       | 8.5           |  |      |      |               |   |      |       | 7.0 |  |  |      |      |   |  |       | 7.9   | 



Information on the Company  Business Information on the Company 
Business  Intellectual Property Protection





BASIS OF PRESENTATION


20-F


Effects of new accounting pronouncements




| |                                                            
| | -----------------------------------------------------------
| | Accounting standards applied for the first time in
    2006



| |     
| | ----
| | IFRS

20-F.




| |          
| | ---------
| | U.S. GAAP



108



---



##### 







|                                                                            |  |                     |        |  
|--------------------------------------------------------------------------- |  | ------------------- | ------ | -
|                                                                            |  | (Euros in millions) |       
|                                                                            |  |                     |       
|U.S. GAAP equity at December 31, 2006 prior to adoption of
    SFAS No. 158 |  |                     | 12,512 |  
|Adoption of SFAS No. 158  recognition of
    actuarial gains/ losses       |  |                     | (3,350 | )
|Adoption of SFAS No. 158  prior service cost                               |  |                     | 131    |  
|Adoption of SFAS No. 158  reversal of
    additional minimum liability     |  |                     | 2,667  |  
|Deferred taxes on the entries above                                         |  |                     | 221    |  
|U.S. GAAP equity at December 31, 2006 after adoption of
    SFAS No. 158    |  |                     | 12,181 |  



| |                                  
| | ---------------------------------
| | Newly issued accounting standards



| |     
| | ----
| | IFRS

20-F.




| |          
| | ---------
| | U.S. GAAP







109



---



##### 








|        |                                           
|------- | ------------------------------------------
|Item 6. | Directors, Senior Management and Employees

Directors and Senior Management


Aktiengesetz Vorstand Aufsichtsrat









Board of Management




Prokura








110



---



##### 





| |  |                                   |  |          |  |                      |      | 
| |  | --------------------------------- |  | -------- |  | -------------------- | ---- | 
| |  | Name and Age                      |  | Position |  | Current Term Expires
| |  |                                   |  |          |  |                     
| |  | Werner Wenning (60)               |  | Chairman |  |                      | 2010 | 
| |  | Dr. Udo Oels
    (63)(a)          |  | Member   |  |                      | 2006 | 
| |  | Klaus Kühn (55)                   |  | Member   |  |                      | 2012 | 
| |  | Dr. Richard Pott (53)             |  | Member   |  |                      | 2012 | 
| |  | Dr. Wolfgang Plischke
    (55)(b) |  | Member   |  |                      | 2009 | 






|    |                      
|--- | ---------------------
|(a) | Until April 28, 2006.



|    |                     
|--- | --------------------
|(b) | As of March 1, 2006.

Werner Wenning


Dr. Udo Oels


Klaus Kühn


Dr. Richard Pott Arbeitsdirektor


Dr. Wolfgang Plischke


111



---



##### 





| |                  
| | -----------------
| | Supervisory Board

Mitbestimmungsgesetz Geschäftsordnung




| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the acquisition or disposition of assets;                                                                                                         
|
| |  | the acquisition, disposition or encumbrance of real property;                                                                                     
|
| |  | the acquisition or disposition of Company shares; and                                                                                             
|
| |  | the issuance of bonds, entering into credit agreements, or grant
    of guarantees, sureties (Bürgschaften) and loans,
    except to subsidiaries.







|                      |  |               |  |                                                         |  |         |      |  |                     |                                                                                                                                                                                      
|--------------------- |  | ------------- |  | ------------------------------------------------------- |  | ------- | ---- |  | ------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                      |  |               |  |                                                         |  | First   |      |  | Membership on other
|Name                  |  | Position      |  | Principal Occupation                                    |  | Elected |      |  | Supervisory Boards 
|                      |  |               |  |                                                         |  |         |      |  |                    
|Dr. Manfred Schneider |  | Chairman      |  | Former chairman of the Management Board                 |  |         | 2002 |  |                     | Allianz SE, DaimlerChrysler AG, Linde AG,
    Metro AG, RWE AG, TUI AG                                                                                                               
|*Thomas de
    Win(1) |  | Vice Chairman |  | Chairman of the Bayer Central Works Council, Leverkusen |  |         | 2002 |  |                     | Bayer MaterialScience AG                                                                                                                                                             
|Dr. Paul Achleitner   |  | Member        |  | Member of the management board, Allianz SE              |  |         | 2002 |  |                     | Allianz Deutschland AG, Allianz Global Investors AG,
    Allianz Lebensversicherungs-AG, Allianz Elementar
    Versicherungs-AG, Allianz Elementar Lebensversicherungs-AG,
    RWE AG

112



---



##### 



|                                     |  |               |  |                                                                                                         |  |         |      |  |                     |                                                                                                                    
|------------------------------------ |  | ------------- |  | ------------------------------------------------------------------------------------------------------- |  | ------- | ---- |  | ------------------- | -------------------------------------------------------------------------------------------------------------------
|                                     |  |               |  |                                                                                                         |  | First   |      |  | Membership on other
|Name                                 |  | Position      |  | Principal Occupation                                                                                    |  | Elected |      |  | Supervisory Boards 
|                                     |  |               |  |                                                                                                         |  |         |      |  |                    
|Dr. Josef Ackermann                  |  | Member        |  | Chairman of the management board, Deutsche Bank AG                                                      |  |         | 2002 |  |                     | Deutsche Lufthansa AG, Linde AG, Siemens AG                                                                        
|*Andreas
    Becker(2)               |  | Member        |  | Chairman of the Works Council of H.C. Starck                                                            |  |         | 2005 |  |                     | H.C. Starck GmbH                                                                                                   
|*Willy
    Beumann(3)                |  | Member        |  | Chairman of the Works Council, Wuppertal Site                                                           |  |         | 2007 |  |                     | Bayer HealthCare AG                                                                                                
|*Karl-Josef Ellrich                  |  | Member        |  | Chairman of the Works Council, Dormagen Site, Chairman of the
    Bayer Group Works Council, Leverkusen |  |         | 2000 |  |                     | Bayer CropScience AG                                                                                               
|*Dr. Thomas Fischer                  |  | Member        |  | Head of Process and Plant Safety, Bayer MaterialScience                                                 |  |         | 2005 |  |                     | Bayer MaterialScience AG                                                                                           
|*Erhard
    Gipperich(4)             |  | Vice Chairman |  | Chairman of the Group and Central Works Councils of Bayer AG,
    Leverkusen                            |  |         | 1998 |  |                     |                                                                                                                    
|*Peter
    Hausmann(5)               |  | Member        |  | North Rhine District Secretary of the German Mine, Chemical and
    Power Workers Union                |  |         | 2006 |  |                     | Procter & Gamble Manufacturing GmbH                                                                                
|*Thomas Hellmuth                     |  | Member        |  | Agricultural Engineer                                                                                   |  |         | 2002 |  |                     |                                                                                                                   
|Prof. Dr.-Ing. e.h. Hans-Olaf Henkel |  | Member        |  | Honorary professor of the University of Mannheim                                                        |  |         | 2002 |  |                     | Continental AG, DaimlerChrysler Aerospace AG, EPG AG, SMS GmbH,
    Brambles Industries Ltd., Orange SA, Ringier AG
|*Reiner
    Hoffmann(6)              |  | Member        |  | Deputy Secretary of the European Trade Union Confederation (ETUC)                                       |  |         | 2006 |  |                     | Sasol Germany GmbH                                                                                                 
|*Gregor
    Jüsten(7)                |  | Member        |  | Member of the Works Councils, Leverkusen Site                                                           |  |         | 2006 |  |                     |                                                                                                                   
|Dr. rer. pol. Klaus Kleinfeld        |  | Member        |  | Chairman of the management board, Siemens AG                                                            |  |         | 2005 |  |                     | Alcoa Inc., Citigroup Inc.                                                                                         
|Dr. h.c. Martin Kohlhaussen          |  | Member        |  | Chairman of the supervisory board, Commerzbank AG                                                       |  |         | 1992 |  |                     | Hochtief AG, ThyssenKrupp AG, Schering AG (until
    September 13, 2006)                                           
|John Christian Kornblum              |  | Member        |  | Chairman of Lazard & Co.                                                                                |  |         | 2002 |  |                     | Motorola Inc., ThyssenKrupp Technologies AG                                                                        
|*Petra Kronen                        |  | Member        |  | Chairwoman of the Works Council, Uerdingen Site                                                         |  |         | 2000 |  |                     | Bayer MaterialScience AG                                                                                           
|*Hubertus Schmoldt                   |  | Member        |  | Chairman of German Mine, Chemical and Power Workers Union                                              |  |         | 1995 |  |                     | Deutsche BP AG, DOW Olefinverbund GmbH, E.ON AG, RAG AG, RAG
    Coal International                                
|*Dieter
    Schulte(8)               |  | Member        |  | Former Chairman of German Unions Federation                                                             |  |         | 1997 |  |                     |                                                                                                                   

113



---



##### 



|                                           |  |          |  |                                                                                      |  |         |      |  |                     |                                                                                                                                                                                            
|------------------------------------------ |  | -------- |  | ------------------------------------------------------------------------------------ |  | ------- | ---- |  | ------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                           |  |          |  |                                                                                      |  | First   |      |  | Membership on other
|Name                                       |  | Position |  | Principal Occupation                                                                 |  | Elected |      |  | Supervisory Boards 
|                                           |  |          |  |                                                                                      |  |         |      |  |                    
|Dr.-Ing. Ekkehard D. Schulz                |  | Member   |  | Chairman of the management board, ThyssenKrupp AG                                    |  |         | 2005 |  |                     | AXA Konzern AG, Commerzbank AG, Deutsche Bahn AG,
    MAN AG, RAG AG, RAG Beteiligungs-AG, RWE AG,
    ThyssenKrupp Services AG, ThyssenKrupp Elevator AG,
    ThyssenKrupp Technologies AG
|Dr.-Ing. e.h. Jürgen Weber                 |  | Member   |  | Chairman of the supervisory board, Deutsche Lufthansa AG                             |  |         | 2003 |  |                     | Allianz Lebensversicherungs-AG, Deutsche Bank AG, Deutsche
    Post AG, Voith AG, LP Holding GmbH, Tetra Laval
    Group, Willi Bogner GmbH & Co. KGaA                                     
|*Siegfried
    Wendlandt(9)                |  | Member   |  | North Rhine District Secretary of German Mine, Chemical and
    Power Workers Union |  |         | 2001 |  |                     |                                                                                                                                                                                            
|Prof. Dr. Dr. h.c. Ernst- Ludwig Winnacker |  | Member   |  | Secretary General of the European Research Council (ERC)                             |  |         | 1997 |  |                     | MediGene AG, KWS Saat AG, Wacker Chemie AG                                                                                                                                                 






|    |  |                                                            
|--- |  | -----------------------------------------------------------
|(1) |  | Vice Chairman of the Supervisory Board since March 2, 2006.
|   
|(2) |  | Resigned February 1, 2007.                                 
|   
|(3) |  | First elected February 20, 2007.                           
|   
|(4) |  | Resigned January 31, 2006; Vice Chairman until resignation.
|   
|(5) |  | First elected April 28, 2006.                              
|   
|(6) |  | First elected October 11, 2006.                            
|   
|(7) |  | Elected February 1, 2006.                                  
|   
|(8) |  | Resigned September 18, 2006.                               
|   
|(9) |  | Resigned April 28, 2006.                                   



| |                             
| | ----------------------------
| | Supervisory Board Committees





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Presidium was established pursuant to § 27
    (3) of the Co-Determination Act and consists of the
    chairman and vice chairman of the Supervisory Board, as well as
    of one stockholder representative and one employee
    representative. It serves as our mediation committee
    (Vermittlungsausschuss) with respect to nominations to
    the Board of Management. The purpose of this committee is to
    nominate persons for election to the Board of Management by a
    simple majority of the votes of the Supervisory Board in the
    event that the Supervisory Board is unable to appoint members of
    the Board of Management with the votes of at least a two thirds
    majority of the Supervisory Board. Pursuant to § 9
    (2) of the Standard Operating Procedures
    (Geschäftsordnung) of the Supervisory Board, the
    Presidium also prepares the general meetings of the full
    Supervisory Board. The current members of the Presidium are
    Mr. Schneider (chairman), Mr. Achleitner, Mr. de
    Win (since March 2, 2006, succeeding Mr. Gipperich who
    resigned January 31, 2006) and Mr. Schmoldt.
|
| |  | The personnel committee (Personalausschuss) was
    established pursuant to § 10 of the Standard Operating
    Procedures of the Supervisory Board. The personnel committee
    consists of four members of the Supervisory Board. The chairman
    of the Supervisory Board acts as chairman of the personnel
    committee. The main responsibility of the personnel committee is
    the determination of the salary and further conditions of the
    employment of Board of Management members, the legal
    representation of the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

114



---



##### 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | Company in affairs with Board of Management members pursuant to
    § 112 of the German Stock Corporation Act, the
    approval of agreements with Supervisory Board members pursuant
    to § 114 of the German Stock Corporation Act and the
    approval of loans granted to Supervisory Board and Board of
    Management members and other persons pursuant to § 89
    and § 115 of the German Stock Corporation Act. The
    current members of the personnel committee are
    Mr. Schneider (chairman), Mr. Kohlhaussen,
    Mr. Ellrich and Ms. Kronen.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | The audit committee (Prüfungsausschuss) was
    established pursuant to § 11 of the Standard Operating
    Procedures of the Supervisory Board. The audit committee
    consists of six members of the Supervisory Board. The main
    responsibilities of the audit committee are oversight of
    financial accounting, risk management, the preparation of the
    resolutions of the Supervisory Board with respect to the annual
    financial statements, the review of all non-audit services to be
    performed by the independent auditor, oversight over the
    independent auditors including scope of services, fees and
    schedules, the direct receipt of the audit reports, and the
    direct receipt of reports of accounting irregularities. The
    current members of the audit committee are Mr. Kohlhaussen
    (chairman), Mr. Schneider, Mr. Fischer,
    Mr. Henkel, Mr. Hausmann (as of April 29, 2006,
    succeeding Mr. Wendlandt who was a member until
    April 28, 2006) and Mr. de Win.
|
| |  | The committee relating to issues in connection with the takeover
    and integration of Schering AG, Berlin, Germany (Schering
    Ausschuss) was established pursuant to § 8 of the
    Standard Operating Procedures of the Supervisory Board. The
    Schering committee consists of four members of the Supervisory
    Board. Its main responsibilities are the oversight of the tender
    offer for all shares including shares represented by American
    Depositary Shares (ADS) in Schering as well as decisions
    relating to the financing or refinancing of the takeover. The
    Schering committee was established on March 23, 2006. The
    current members of the Schering committee are
    Mr. Schneider, Mr. Schmoldt, Mr. Schulz and
    Mr. de Win.                                                                                                                                                                                                                                                

Share Ownership




Compensation




| |                    
| | -------------------
| | Board of Management



         


115



---



##### 






Aspire I  Employee Stock-Based Compensation
Programs  Long-term incentive program for members of
the Board of Management and other senior executives Aspire I








| |                                                       
| | ------------------------------------------------------
| | Remuneration of the Members of the Board of Management

|                                        |                                                          |            |           |           |       |  |           |           |  |  |              |           |  |             |         |           |       |  |         |           |  |  |           |           | 
|--------------------------------------- | -------------------------------------------------------- | ---------- | --------- | --------- | ----- |  | --------- | --------- |  |  | ------------ | --------- |  | ----------- | ------- | --------- | ----- |  | ------- | --------- |  |  | --------- | --------- | 
|                                        |                                                          | Werner     |           |           | Klaus |  |           | Dr. Udo   |  |  | Dr. Wolfgang |           |  | Dr. Richard |         |           |      
|                                        |                                                          | Wenning    |           |           | Kühn  |  |           | Oels(a)   |  |  | Plischke(b)  |           |  | Pott        |         |           | Total | 
|                                        |                                                          |            |           |           |       |  |           |           |  |  |              |           |  |             |         |           |       | 
|                                        |                                                          | (In Euros) |          
|Base salary                             |                                                          |            | 748,872   |           |       |  | 412,236   |           |  |  | 343,526      |           |  |             | 343,530 |           |       |  | 412,236 |           |  |  | 2,260,400 |          
|Fixed supplement                        |                                                          |            | 325,132   |           |       |  | 316,366   |           |  |  | 142,205      |           |  |             | 142,206 |           |       |  | 170,647 |           |  |  | 1,096,556 |          
|Variable bonus                          |                                                          |            | 1,525,086 |           |       |  | 1,034,615 |           |  |  | 567,335      |           |  |             | 689,745 |           |       |  | 827,694 |           |  |  | 4,644,475 |          
|Remuneration in kind and other benefits |                                                          |            | 47,926    |           |       |  | 35,571    |           |  |  | 9,594        |           |  |             | 18,163  |           |       |  | 31,137  |           |  |  | 142,391   |          
|                                        | Directly effected remuneration                           |            |           | 2,647,016 |       |  |           | 1,798,788 |  |  |              | 1,062,660 |  |             |         | 1,193,644 |       |  |         | 1,441,714 |  |  |           | 8,143,822 | 
|Stock-based compensation                |                                                          |            |           |           |       |  |           |           |  |  |              |           |  |             |         |           |       |  |         |           |  |  |           |          
|                                        | Entitlements earned in 2006                              |            |           | 820,514   |       |  |           | 480,609   |  |  |              | 538,181   |  |             |         | 193,188   |       |  |         | 461,939   |  |  |           | 2,494,431 | 
|                                        | Change in value of entitlements earned
    prior to 2006 |            |           | 339,733   |       |  |           | 229,617   |  |  |              | 104,125   |  |             |         | 66,262    |       |  |         | 164,952   |  |  |           | 904,689   | 






|    |                      
|--- | ---------------------
|(a) | Until April 28, 2006.
|   
|(b) | Since March 1, 2006. 



|                                        |                                                          |            |           |           |       |  |         |           |  |  |              |           |  |             |   |   |       |  |         |           |  |  |           |           | 
|--------------------------------------- | -------------------------------------------------------- | ---------- | --------- | --------- | ----- |  | ------- | --------- |  |  | ------------ | --------- |  | ----------- | - | - | ----- |  | ------- | --------- |  |  | --------- | --------- | 
|                                        |                                                          | Werner     |           |           | Klaus |  |         | Dr. Udo   |  |  | Dr. Wolfgang |           |  | Dr. Richard |   |   |      
|                                        |                                                          | Wenning    |           |           | Kühn  |  |         | Oels(a)   |  |  | Plischke(b)  |           |  | Pott        |   |   | Total | 
|                                        |                                                          |            |           |           |       |  |         |           |  |  |              |           |  |             |   |   |       | 
|                                        |                                                          | (In Euros) |          
|Base salary                             |                                                          |            | 748,872   |           |       |  | 412,236 |           |  |  | 412,236      |           |  |             |  |   |       |  | 412,236 |           |  |  | 1,985,580 |          
|Fixed supplement                        |                                                          |            | 325,132   |           |       |  | 170,647 |           |  |  | 170,647      |           |  |             |  |   |       |  | 170,647 |           |  |  | 837,073   |          
|Variable bonus                          |                                                          |            | 1,554,615 |           |       |  | 843,713 |           |  |  | 843,713      |           |  |             |  |   |       |  | 843,713 |           |  |  | 4,085,754 |          
|Remuneration in kind and other benefits |                                                          |            | 40,169    |           |       |  | 35,266  |           |  |  | 41,942       |           |  |             |  |   |       |  | 39,044  |           |  |  | 156,421   |          
|                                        | Directly effected remuneration                           |            |           | 2,668,788 |       |  |         | 1,461,862 |  |  |              | 1,468,538 |  |             |   |  |       |  |         | 1,465,640 |  |  |           | 7,064,828 | 
|Stock-based compensation                |                                                          |            |           |           |       |  |         |           |  |  |              |           |  |             |   |   |       |  |         |           |  |  |           |          
|                                        | Entitlements earned in 2005                              |            |           | 495,504   |       |  |         | 285,748   |  |  |              | 285,748   |  |             |   |  |       |  |         | 284,248   |  |  |           | 1,351,248 | 
|                                        | Change in value of entitlements earned
    prior to 2005 |            |           | 169,289   |       |  |         | 99,693    |  |  |              | 99,693    |  |             |   |  |       |  |         | 98,055    |  |  |           | 466,730   | 






|    |                      
|--- | ---------------------
|(a) | Until April 28, 2006.
|   
|(b) | Since March 1, 2006. 

116



---



##### 





|                                                                            |         |            |  |         |       |  |  |         |  |  |              |         |  |             |  |         |       |  |  |         |  |  |  |         | 
|--------------------------------------------------------------------------- | ------- | ---------- |  | ------- | ----- |  |  | ------- |  |  | ------------ | ------- |  | ----------- |  | ------- | ----- |  |  | ------- |  |  |  | ------- | 
|                                                                            |         | Werner     |  |         | Klaus |  |  | Dr. Udo |  |  | Dr. Wolfgang |         |  | Dr. Richard |  |         |      
|                                                                            |         | Wenning    |  |         | Kühn  |  |  | Oels(a) |  |  | Plischke(b)  |         |  | Pott        |  |         | Total | 
|                                                                            |         |            |  |         |       |  |  |         |  |  |              |         |  |             |  |         |       | 
|                                                                            |         | (In Euros) | 
|Fair value as of grant date of options granted under the Aspire
    program |         |            |  |         |       |  |  |         |  |  |              |         |  |             |  |         |       |  |  |         |  |  |  |        
|                                                                            | in 2006 |            |  | 268,113 |       |  |  | 181,886 |  |  |              | 40,419  |  |             |  | 117,597 |       |  |  | 145,509 |  |  |  | 753,524 | 
|                                                                            | in 2005 |            |  | 253,636 |       |  |  | 137,652 |  |  |              | 137,652 |  |             |  |        |       |  |  | 137,652 |  |  |  | 666,592 | 






|    |                      
|--- | ---------------------
|(a) | Until April 28, 2006.
|(b) | Since March 1, 2006. 

 


 Employee Pension Plan.




|                                                     |         |            |  |         |       |  |  |           |  |  |              |   |  |             |  |           |       |  |  |         |  |  |  |           | 
|---------------------------------------------------- | ------- | ---------- |  | ------- | ----- |  |  | --------- |  |  | ------------ | - |  | ----------- |  | --------- | ----- |  |  | ------- |  |  |  | --------- | 
|                                                     |         | Werner     |  |         | Klaus |  |  | Dr. Udo   |  |  | Dr. Wolfgang |   |  | Dr. Richard |  |           |      
|                                                     |         | Wenning    |  |         | Kühn  |  |  | Oels(a)   |  |  | Plischke(b)  |   |  | Pott        |  |           | Total | 
|                                                     |         |            |  |         |       |  |  |           |  |  |              |   |  |             |  |           |       | 
|                                                     |         | (In Euros) | 
|Current service cost for pension entitlements earned |         |            |  |         |       |  |  |           |  |  |              |   |  |             |  |           |       |  |  |         |  |  |  |          
|                                                     | in 2006 |            |  | 398,564 |       |  |  | 1,651,294 |  |  |              |  |  |             |  | 1,644,517 |       |  |  | 233,284 |  |  |  | 3,927,659 | 
|                                                     | in 2005 |            |  | 311,158 |       |  |  | 420,046   |  |  |              |  |  |             |  |          |       |  |  | 186,600 |  |  |  | 917,804   | 






|    |                      
|--- | ---------------------
|(a) | Until April 28, 2006.
|(b) | Since March 1, 2006. 







117



---



##### 





   






| |                  
| | -----------------
| | Supervisory Board

    











118



---



##### 







| |                                                     
| | ----------------------------------------------------
| | Remuneration of the Members of the Supervisory Board

|                                          |  |              |            |  |              |  |           |        |  |  |            | 
|----------------------------------------- |  | ------------ | ---------- |  | ------------ |  | --------- | ------ |  |  | ---------- | 
|                                          |  | Fixed        |            |  | Variable     |  |           |       
|                                          |  | Remuneration |            |  | Remuneration |  |           | Totals | 
|                                          |  |              |            |  |              |  |           |        | 
|                                          |  | (In Euros)   |           
|Dr. Paul Achleitner                       |  |              | 75,000.00  |  |              |  | 37.500,00 |        |  |  | 112,500.00 | 
|Dr. Josef Ackermann                       |  |              | 60,000.00  |  |              |  | 30,000.00 |        |  |  | 90,000.00  | 
|*Andreas
    Becker(1)                    |  |              | 60,000.00  |  |              |  | 30,000.00 |        |  |  | 90,000.00  | 
|*Karl-Josef Ellrich                       |  |              | 75,000.00  |  |              |  | 37,500.00 |        |  |  | 112,500.00 | 
|*Dr. Thomas Fischer                       |  |              | 75,000.00  |  |              |  | 37,500.00 |        |  |  | 112,500.00 | 
|*Erhard
    Gipperich(2)                  |  |              | 8,917.81   |  |              |  | 4,458.91  |        |  |  | 13,376.72  | 
|**Peter
    Hausmann(3)                   |  |              | 50,958.90  |  |              |  | 25,479.45 |        |  |  | 76,438.35  | 
|*Thomas Hellmuth                          |  |              | 60,000.00  |  |              |  | 30,000.00 |        |  |  | 90,000.00  | 
|Prof. Dr.-Ing. e.h. Hans-Olaf Henkel      |  |              | 75,000.00  |  |              |  | 37,500.00 |        |  |  | 112,500.00 | 
|**Reiner
    Hoffmann(4)                  |  |              | 13,479.45  |  |              |  | 6,739.73  |        |  |  | 20,219.18  | 
|*Gregor
    Jüsten(5)                     |  |              | 54,904.11  |  |              |  | 27,452.05 |        |  |  | 82,356.16  | 
|Dr. rer. pol. Klaus Kleinfeld             |  |              | 60,000.00  |  |              |  | 30,000.00 |        |  |  | 90,000.00  | 
|Dr. h.c. Martin Kohlhaussen               |  |              | 105,000.00 |  |              |  | 52,500.00 |        |  |  | 157,500.00 | 
|John Christian Kornblum                   |  |              | 60,000.00  |  |              |  | 30,000.00 |        |  |  | 90,000.00  | 
|*Petra Kronen                             |  |              | 75,000.00  |  |              |  | 37,500.00 |        |  |  | 112,500.00 | 
|**Hubertus Schmoldt                       |  |              | 86,671.23  |  |              |  | 43,335.62 |        |  |  | 130,006.85 | 
|Dr. Manfred Schneider                     |  |              | 180,000.00 |  |              |  | 90,000.00 |        |  |  | 270,000.00 | 
|**Dieter
    Schulte(6)                   |  |              | 42,904.11  |  |              |  | 21,452.05 |        |  |  | 64,356.16  | 
|Dr.-Ing. Ekkehard D. Schulz               |  |              | 71,671.23  |  |              |  | 35,835.62 |        |  |  | 107,506.85 | 
|Dr.-Ing. e.h. Jürgen Weber                |  |              | 60,000.00  |  |              |  | 30,000.00 |        |  |  | 90,000.00  | 
|**Siegfried
    Wendlandt(7)              |  |              | 24,246.58  |  |              |  | 12,123.29 |        |  |  | 36,369.87  | 
|*Thomas de Win                            |  |              | 124,273.97 |  |              |  | 62,136.99 |        |  |  | 186,410.96 | 
|Prof. Dr. Dr. h.c. Ernst-Ludwig Winnacker |  |              | 60,000.00  |  |              |  | 30,000.00 |        |  |  | 90,000.00  | 






|    |                                   
|--- | ----------------------------------
|(1) | Resigned February 1, 2007.        
|   
|(2) | Resigned January 31, 2006.        
|   
|(3) | First elected on April 28, 2006.  
|   
|(4) | First elected on October 11, 2006.
|   
|(5) | First elected February 1, 2006.   
|   
|(6) | Resigned September 18, 2006.      
|   
|(7) | Resigned April 28, 2006.          



| |                                           
| | ------------------------------------------
| | Employee Stock-Based Compensation Programs





119



---



##### 











|                                        |  |                     |    |   |                 |       |    |               |  |  |          |   |  |           |    |   |       |  |    |   |  |  |     |  
|--------------------------------------- |  | ------------------- | -- | - | --------------- | ----- | -- | ------------- |  |  | -------- | - |  | --------- | -- | - | ----- |  | -- | - |  |  | --- | -
|                                        |  |                     |    |   |                 | Stock |    |               |  |  |          |   | 
|                                        |  | Stock Option        |    |   | Stock Incentive |       |    | Participation |  |  |          |   |  |           |   
|                                        |  | program             |    |   | program         |       |    | program       |  |  | Aspire I |   |  | Aspire II |    |   | Total | 
|                                        |  |                     |    |   |                 |       |    |               |  |  |          |   |  |           |    |   |       | 
|                                        |  | (Euros in millions) |   
|December 31, 2005                       |  |                     | 13 |   |                 |       | 3  |               |  |  | 11       |   |  |           | 11 |   |       |  | 23 |   |  |  | 61  |  
|Additions                               |  |                     | 7  |   |                 |       | 2  |               |  |  | 5        |   |  |           | 22 |   |       |  | 29 |   |  |  | 65  |  
|Utilization                             |  |                     | (7 | ) |                 |       | (2 | )             |  |  | (4       | ) |  |           | (4 | ) |       |  | (8 | ) |  |  | (25 | )
|Reversal                                |  |                     | 0  |   |                 |       | 0  |               |  |  | 0        |   |  |           | 0  |   |       |  | 0  |   |  |  | 0   |  
|Reclassification to current liabilities |  |                     |   |   |                 |       |   |               |  |  |         |   |  |           | (2 | ) |       |  | (5 | ) |  |  | (7  | )
|Currency effects                        |  |                     |   |   |                 |       |   |               |  |  |         |   |  |           | (1 | ) |       |  | (1 | ) |  |  | (2  | )
|                                        |  |                     |    |   |                 |       |    |               |  |  |          |   |  |           |    |   |       | 
|December 31, 2006                       |  |                     | 13 |   |                 |       | 3  |               |  |  | 12       |   |  |           | 26 |   |       |  | 38 |   |  |  | 92  |  
|                                        |  |                     |    |   |                 |       |    |               |  |  |          |   |  |           |    |   |       | 

     


  




|                                                   |  |      |       |   |      |  |       |  
|-------------------------------------------------- |  | ---- | ----- | - | ---- |  | ----- | -
|                                                   |  | 2005 |       |   | 2006 | 
|                                                   |  |      |       |   |      | 
|Dividend yield                                     |  |      | 2.27  | % |      |  | 2.29  | %
|Risk-free interest rate                            |  |      | 2.92  | % |      |  | 3.83  | %
|Volatility of Bayer stock                          |  |      | 38.00 | % |      |  | 21.52 | %
|Volatility of the EURO STOXX
    50sm              |  |      | 19.55 | % |      |  | 13.14 | %
|Correlation between Bayer stock price and the EURO |  |      |       |   |      |  |       |  
|STOXX
    50sm                                     |  |      | 0.56  |   |      |  | 0.61  |  



120



---



##### 



Long-term incentive program for members of the
Board of Management and other senior executives
(Aspire I)




sm






| |                                                                  
| | -----------------------------------------------------------------
| | Long-term incentive program for middle management
    (Aspire II)





| |   |                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | No personal investment in Bayer shares is required.                                                                                                                                             
|
| |  | The amount of the award in relation to the employees
    personal Aspire target opportunity is based entirely on the
    absolute performance of Bayer stock during the performance
    period.
|
| |  | The award varies between 0 percent and 150 percent of
    the Aspire target opportunity.                                                                                                        

sm


Stock Participation
Program (2006) for other managers and non-managerial
employees


Tagestiefstkurs 





Tagestiefstkurs    







| |                                            
| | -------------------------------------------
| | Stock-based compensation programs 2000-2004



121



---



##### 





|                                                            |  |              |           |  |                 |  |           |                     |  |  |           | 
|----------------------------------------------------------- |  | ------------ | --------- |  | --------------- |  | --------- | ------------------- |  |  | --------- | 
|                                                            |  | Stock Option |           |  | Stock Incentive |  |           | Stock Participation | 
|                                                            |  | program      |           |  | program         |  |           | program             | 
|                                                            |  |              |           |  |                 |  |           |                     | 
|Year of issue                                               |  |              | 2001-2004 |  |                 |  | 2000-2004 |                     |  |  | 2000-2004 | 
|Original term in years                                      |  |              | 5         |  |                 |  | 10        |                     |  |  | 10        | 
|Retention period/distribution date in years from issue date |  |              | 3         |  |                 |  | 2/6/10    |                     |  |  | 2/6/10    | 
|Reference price                                             |  |              | 0         |  |                 |  | 0         |                     |  |  | 0         | 
|Performance criteria                                        |  |              | Yes       |  |                 |  | Yes       |                     |  |  | No        | 



| |                                 
| | --------------------------------
| | Stock Option Program (2001-2004)





SM









| |                                    
| | -----------------------------------
| | Stock Incentive Program (2000-2004)



SM




| |                                        
| | ---------------------------------------
| | Stock Participation Program (2000-2004)



122



---



##### 





| |                      
| | ---------------------
| | Employee Pension Plan

RPK RPK Beitragsbemessungsgrenze gesetzliche Rentenversicherung   Grundrente RPK RPK


Zusatzrente RPK


Bayer-Pensionskasse Bayer-Pensionskasse Zusatzrente  


i.e.  Compensation. i.e.


20-F.


123



---



##### 



Employees




|                          |  |                                    |        |               |  |      |       |               |  |      |        |  |  |  |       |  |  |  |        | 
|------------------------- |  | ---------------------------------- | ------ | ------------- |  | ---- | ----- | ------------- |  | ---- | ------ |  |  |  | ----- |  |  |  | ------ | 
|                          |  | Employees* by Activity Average For
|                          |  |                                   
|                          |  |                                    |        | Change from   |  |      |       | Change from   |  |     
|                          |  | 2004                               |        | Previous Year |  | 2005 |       | Previous Year |  | 2006
|                          |  |                                    |        |               |  |      |       |               |  |     
|                          |  |                                    |        | (%)           |  |      |       | (%)           |  |     
|Technology/ Manufacturing |  |                                    | 42,282 |               |  |      | (1.24 | )             |  |      | 41,757 |  |  |  | 7.95  |  |  |  | 45,076 | 
|Marketing                 |  |                                    | 23,689 |               |  |      | 4.36  |               |  |      | 24,723 |  |  |  | 25.79 |  |  |  | 31,098 | 
|Administration            |  |                                    | 7,850  |               |  |      | (1.03 | )             |  |      | 7,769  |  |  |  | 29.54 |  |  |  | 10,064 | 
|Research and development  |  |                                    | 8,532  |               |  |      | (4.77 | )             |  |      | 8,125  |  |  |  | 27.46 |  |  |  | 10,356 | 
|                          |  |                                    |        |               |  |      |       |               |  |      |        |  |  |  |       |  |  |  |        | 
|Total                     |  |                                    | 82,353 |               |  |      | (0.02 | )             |  |      | 82,374 |  |  |  | 17.26 |  |  |  | 96,594 | 
|                          |  |                                    |        |               |  |      |       |               |  |      |        |  |  |  |       |  |  |  |        | 

|                                   |  |                                        |        |               |  |      |        |               |  |      |        |  |  |  |       |  |  |  |        | 
|---------------------------------- |  | -------------------------------------- | ------ | ------------- |  | ---- | ------ | ------------- |  | ---- | ------ |  |  |  | ----- |  |  |  | ------ | 
|                                   |  | Breakdown by Region As of December 31,
|                                   |  |                                       
|                                   |  |                                        |        | Change from   |  |      |        | Change from   |  |     
|                                   |  | 2004                                   |        | Previous Year |  | 2005 |        | Previous Year |  | 2006
|                                   |  |                                        |        |               |  |      |        |               |  |     
|                                   |  |                                        |        | (%)           |  |      |        | (%)           |  |     
|Europe                             |  |                                        | 44,483 |               |  |      | 1.56   |               |  |      | 45,179 |  |  |  | 26.70 |  |  |  | 57,241 | 
|North America                      |  |                                        | 14,900 |               |  |      | (12.08 | )             |  |      | 13,100 |  |  |  | 31.30 |  |  |  | 17,200 | 
|Asia/ Pacific                      |  |                                        | 11,500 |               |  |      | 14.78  |               |  |      | 13,200 |  |  |  | 31.06 |  |  |  | 17,300 | 
|Latin America/ Africa/ Middle East |  |                                        | 9,600  |               |  |      | 10.42  |               |  |      | 10,600 |  |  |  | 29.25 |  |  |  | 13,700 | 
|Corporate                          |  |                                        | 517    |               |  |      | 0.77   |               |  |      | 521    |  |  |  | 7.29  |  |  |  | 559    | 






|  |                                                                                                                                                                                                                                                                                                                 
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Starting with the second quarter of 2006, the number of
    employees was converted to fulltime equivalents, which means
    part-time employees are included in proportion of their
    contractual working hours. This presentation improves the
    comparability of personnel expenses and employee numbers.

Labor Relations






monatliches
Tarifentgelt


124



---



##### 





Verband der Angestellten Akademiker


Betriebsrat Gesamtbetriebsrat Konzernbetriebsrat Betriebsverfassungsgesetz




| |   |                                                                  
| | - | -----------------------------------------------------------------
| |  | working hours (namely, beginning and end of daily working hours);
|
| |  | vacation guidelines;                                             
|
| |  | social services (e.g., subsidized cafeterias); and               
|
| |  | distribution guidelines for performance-related bonuses.         

Europaforum




125



---



##### 








|        |                                                  
|------- | -------------------------------------------------
|Item 7. | Major Shareholders and Related Party Transactions

Major Shareholders




Wertpapierhandelsgesetz; WpHG












126



---



##### 



Directors, Senior Management and
Employees  Share Ownership.


Related Party Transactions




20-F,




| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | enterprises that, directly or indirectly, control or are
    controlled by, or are under common control with, us (except at
    arms length conditions in the ordinary course of business);
|
| |  | enterprises in which we have significant influence or which have
    significant influence over us (except at arms length
    conditions in the ordinary course of business);              
|
| |  | shareholders beneficially owning a 10 percent or greater
    interest in our voting power;                                                                                                  
|
| |  | key management personnel; or                                                                                                                                                                
|
| |  | enterprises in which persons described above own, directly or
    indirectly, a substantial interest in the voting power.                                                                   

Interests of Experts and Counsel









|        |                      
|------- | ---------------------
|Item 8. | Financial Information

Consolidated Financial Statements and Other Financial
Information


Financial Statements.


Legal Proceedings






| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | product liability;                                                              
|
| |  | competition and antitrust;                                                      
|
| |  | patent validity and infringement;                                               
|
| |  | tax assessments; and                                                            
|
| |  | past waste disposal practices and release of chemicals into the
    environment.



127



---



##### 



20-F




Product liability
proceedings




| |                           
| | --------------------------
| | Lipobay/ Baycol litigation

Baycol


U.S. litigation.


Baycol Baycol




Baycol Baycol, Baycol Baycol


128



---



##### 



Baycol


Baycol Baycol


Litigation in other countries. Baycol


Impact of cerivastatin litigation on Bayer.


 




Baycol Baycol


HIV/ HCV related actions




129



---



##### 



non-U.S. non-U.S. forum non conveniens






| |                                     
| | ------------------------------------
| | Phenylpropanolamine (PPA) litigation

over-the




 






| |                      
| | ---------------------
| | Thimerosal litigation

over-the




| |                      
| | ---------------------
| | Isocyanate litigation



130



---



##### 









Hormone Replacement Therapies
product litigation






| |                      
| | ---------------------
| | Antitrust proceedings



| |                                                                  
| | -----------------------------------------------------------------
| | Proceedings involving former rubber-related lines of
    business

Government investigations.






131



---



##### 










Civil litigation.








| |                                                                              
| | -----------------------------------------------------------------------------
| | Proceedings involving polyester polyols, urethanes and
    urethane chemicals

Government investigation.


132



---



##### 





Civil litigation.






| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Proceedings involving polyether polyols and other precursors
    for urethane end-use products

Government investigation.


Civil litigation. inter
alia


inter
alia




| |                                                                                 
| | --------------------------------------------------------------------------------
| | Impact of rubber-related and urethane-related antitrust
    proceedings on Bayer

  






133



---



##### 









| |                                    
| | -----------------------------------
| | Proceedings involving Ciprofloxacin

Cipro ® Cipro ®


Cipro ® Cipro ®


Cipro ®






134



---



##### 







| |                                   
| | ----------------------------------
| | Proceedings involving
    Premise®

Premise ® Premise ®


Premise ®




| |                                                 
| | ------------------------------------------------
| | Average wholesale price manipulation proceedings







| |                                                            
| | -----------------------------------------------------------
| | Patent validity challenges and infringement
    proceedings



| |                                   
| | ----------------------------------
| | Proceedings involving Moxifloxacin

Avelox ® Avelox ® Avelox ®


30-month


135



---



##### 



30-month


Avelox ®


Vigamox ®




| |                                    
| | -----------------------------------
| | Proceedings involving
    Kogenate®

Kogenate ®




| |                                            
| | -------------------------------------------
| | Proceeding involving blood glucose monitors

Ascensia ® Contour ®




| |                                               
| | ----------------------------------------------
| | Versant®
    Diagnostic Assays related actions

Versant®


136



---



##### 







| |                                                                 
| | ----------------------------------------------------------------
| | Proceedings involving syringe injectors and related
    products









| |                                          
| | -----------------------------------------
| | Proceedings involving oral contraceptives

Yasmin ®


YAZ ®


Yasmin ® YAZ ®




| |                                      
| | -------------------------------------
| | Betaseron®
    supply related actions

Betaseron ® Betaseron ®


137



---



##### 





| |                      
| | ---------------------
| | Securities litigation

non-U.S. non-U.S.




| |                                   
| | ----------------------------------
| | Schering AG shareholder litigation

Anfechtungs- und Nichtigkeitsklagen


Freigabeverfahren


Amtslöschungsverfahren


Spruchverfahren Abfindung Ausgleich






138



---



##### 



Bundesgerichtshof Anfechtungs- und
Nichtigkeitsklagen




| |                    
| | -------------------
| | Asbestos litigation









| |                             
| | ----------------------------
| | Other commercial proceedings



| |                     
| | --------------------
| | Lyondell Arbitration







| |                                                     
| | ----------------------------------------------------
| | Proceedings involving Limagrain Genetics Corporation



139



---



##### 







| |                                                
| | -----------------------------------------------
| | Proceedings involving genetically modified rice









| |                     
| | --------------------
| | Overtime wage claims



Dividend Policy and Liquidation Proceeds




andere Gewinnrücklagen gesetzliche
Rücklagen


140



---



##### 











Key Information 
Dividends.


Significant Changes


20-F, 20-F.







|        |            
|------- | -----------
|Item 9. | The Listing

Listing Details and Markets






141



---



##### 





|                    |                |                 |       |       |                |  |       |       |  |  |       |       |  |  |       |       | 
|------------------- | -------------- | --------------- | ----- | ----- | -------------- |  | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                    |                | Frankfurt Stock |       |       | New York Stock | 
|                    |                | Exchange (b)    |       |       | Exchange (b)   | 
|                    |                |                 |       |       |                | 
|                    |                | High            |       |       | Low            |  |       | High  |  |  | Low   |      
|                    |                |                 |       |       |                |  |       |       |  |  |       |      
|                    |                | (In euros)      |       |       | (In dollars)   | 
|2002(a)             |                |                 | 38.22 |       |                |  | 16.35 |       |  |  | 36.00 |       |  |  | 17.30 |      
|2003                |                |                 | 22.09 |       |                |  | 9.63  |       |  |  | 29.41 |       |  |  | 11.24 |      
|2004                |                |                 | 23.83 |       |                |  | 18.26 |       |  |  | 34.12 |       |  |  | 23.52 |      
|2005:               |                |                 |       |       |                |  |       |       |  |  |       |       |  |  |       |      
|                    | First quarter  |                 |       | 26.82 |                |  |       | 22.02 |  |  |       | 35.61 |  |  |       | 30.84 | 
|                    | Second quarter |                 |       | 28.62 |                |  |       | 24.79 |  |  |       | 34.94 |  |  |       | 31.16 | 
|                    | Third quarter  |                 |       | 30.84 |                |  |       | 26.78 |  |  |       | 38.50 |  |  |       | 31.85 | 
|                    | Fourth quarter |                 |       | 35.92 |                |  |       | 27.86 |  |  |       | 42.87 |  |  |       | 33.70 | 
|Full year 2005      |                |                 | 35.92 |       |                |  | 22.02 |       |  |  | 42.87 |       |  |  | 30.84 |      
|2006:               |                |                 |       |       |                |  |       |       |  |  |       |       |  |  |       |      
|                    | First quarter  |                 |       | 36.37 |                |  |       | 31.70 |  |  |       | 44.31 |  |  |       | 37.60 | 
|                    | Second quarter |                 |       | 36.75 |                |  |       | 30.56 |  |  |       | 47.73 |  |  |       | 38.05 | 
|                    | Third quarter  |                 |       | 40.20 |                |  |       | 35.32 |  |  |       | 51.40 |  |  |       | 44.34 | 
|                    | Fourth quarter |                 |       | 40.92 |                |  |       | 38.83 |  |  |       | 54.00 |  |  |       | 49.37 | 
|Full year 2006      |                |                 | 40.92 |       |                |  | 30.56 |       |  |  | 54.00 |       |  |  | 37.60 |      
|Previous six months |                |                 |       |       |                |  |       |       |  |  |       |       |  |  |       |      
|                    | September 2006 |                 |       | 40.20 |                |  |       | 37.83 |  |  |       | 51.07 |  |  |       | 47.89 | 
|                    | October 2006   |                 |       | 40.80 |                |  |       | 39.20 |  |  |       | 52.09 |  |  |       | 49.37 | 
|                    | November 2006  |                 |       | 40.45 |                |  |       | 38.93 |  |  |       | 52.62 |  |  |       | 50.24 | 
|                    | December 2006  |                 |       | 40.92 |                |  |       | 38.83 |  |  |       | 54.00 |  |  |       | 51.58 | 
|                    | January 2007   |                 |       | 45.20 |                |  |       | 40.20 |  |  |       | 59.18 |  |  |       | 52.05 | 
|                    | February 2007  |                 |       | 45.56 |                |  |       | 43.47 |  |  |       | 60.00 |  |  |       | 56.72 | 






|    |                                                   
|--- | --------------------------------------------------
|(a) | From January 24, 2002 for New York Stock Exchange.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | The spin-off of LANXESS from Bayer became legally effective on
    January 28, 2005 and trading in the shares of LANXESS on
    the Frankfurt Stock Exchange commenced on January 31, 2005.
    Since January 31, 2005, Bayer shares have been traded ex
    LANXESS on the Frankfurt Stock Exchange and since
    February 8, 2005, Bayer ADSs have been traded ex LANXESS on
    the New York Stock Exchange. The Bayer share prices presented
    here for the Frankfurt Stock Exchange (Xetra) have been
    retroactively adjusted by Bloomberg in October 2006. The Bayer
    ADS prices presented here for the New York Stock Exchange have
    not been retroactively adjusted for the spin-off.






142



---



##### 








|         |                       
|-------- | ----------------------
|Item 10. | Additional Information

Memorandum and Articles of Association


20-F.




| |             
| | ------------
| | Registration

Handelsregister Amtsgericht




| |                    
| | -------------------
| | Object and Purposes





| |                                                                 
| | ----------------------------------------------------------------
| | Members of the Board of Management and the Supervisory
    Board

Aktiengesetz












| |                                                                 
| | ----------------------------------------------------------------
| | Rights, Preferences and Restrictions Attaching to our
    Shares



| |                   
| | ------------------
| | Information Rights

Jahresabschluss Lagebericht


143



---



##### 







| |                                        
| | ---------------------------------------
| | Dividend Rights and Other Distributions

Financial Information  Dividend Policy and
Liquidation Proceeds.




| |              
| | -------------
| | Voting Rights



i.e






| |                   
| | ------------------
| | Liquidation Rights





| |                   
| | ------------------
| | Pre-emptive Rights

Bezugsrecht




| |                 
| | ----------------
| | Derivative suits



144



---



##### 











| |                                                           
| | ----------------------------------------------------------
| | Stockholders Meetings  Convocation and
    Participation






elektronischer Bundesanzeiger




| |                     
| | --------------------
| | Repurchase of Shares





145



---



##### 





| |                       
| | ----------------------
| | Anti-takeover Defenses

Wertpapiererwerbs- und
Übernahmegesetz i.e.




| |                        
| | -----------------------
| | Disclosure Requirements

Wertpapierhandelsgesetz Major Shareholders and Related Party Transactions 
Major Shareholders.







Material contracts




| |                    
| | -------------------
| | Relating to LANXESS

Umwandlungsgesetz Handelsregister Amtsgericht Köln




146



---



##### 



 




| |                                        
| | ---------------------------------------
| | Relating to the Schering AG acquisition

    20-F. 


Operating and Financial
Review and Prospects  Liquidity and Capital Resources
2004, 2005 and 2006.


Exchange controls




Taxation


20-F,




147



---



##### 



non-U.S.




We urge you to consult your tax advisor as to the
U.S. federal income and German tax consequences of holding
Bayer AG shares, including the particular facts and
circumstances that may be unique to you, and as to any other tax
consequences of holding Bayer AG shares.




| |                      
| | ---------------------
| | Taxation of Dividends









148



---



##### 











| |                  
| | -----------------
| | Refund Procedures









149



---



##### 











| |                          
| | -------------------------
| | Taxation of Capital Gains







| |                                  
| | ---------------------------------
| | German Gift and Inheritance Taxes







| |                                    
| | -----------------------------------
| | German Capital Tax (Vermögensteuer)

Vermögensteuer Vermögensteuer




| |                   
| | ------------------
| | Other German Taxes



150



---



##### 





| |                                                      
| | -----------------------------------------------------
| | U.S. Information Reporting and Backup
    Withholding

U.S.-related W-9 Non-U.S. non-U.S. W-8BEN) U.S.-related




Documents on display




Significant Differences in Corporate Governance Practices









|         |                                                               
|-------- | --------------------------------------------------------------
|Item 11. | Quantitative and Qualitative Disclosures about Market
    Risk

Market Risk






| |   |                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Currency exchange rate fluctuations. We are exposed to
    fluctuations between the euro and other major world currencies.
    The majority of our currency fluctuation risks are between the
    euro and the U.S. dollar, between the euro and the Japanese
    yen and between the euro and the Canadian dollar.
|
| |  | Interest rate fluctuations. We are exposed to changes in
    interest rates. Our primary interest rate exposure is to
    fluctuations in short- and long-term European and
    U.S. interest rates.                                                                                                               
|
| |  | Credit risk. We are exposed to credit risk with respect
    to the counterparties in our transactions.                                                                                                                                                                                                             
|
| |  | Raw material, commodity and energy price fluctuations. We
    are exposed to possible increases in raw material, commodity and
    energy prices. We may not be able to pass any such increases on
    to our customers.                                                                                           



over-the


151



---



##### 







| |                     
| | --------------------
| | Sensitivity Analysis





| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a simultaneous, parallel foreign exchange rates shift in which
    the euro depreciates against all currencies by 10 percent;                     
|
| |  | a simultaneous, parallel commodity price increase of
    20 percent in all relevant commodities with respect to
    which we hold derivatives; and
|
| |  | a parallel shift of 100 basis points of the interest rate
    yield curves in all currencies.                                                     

easy-to






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The risk-mitigating effects caused by correlation and
    diversification among different currencies, commodity prices and
    interest rate areas or between these different risk exposures
    are not taken into account. This may lead to an overestimation
    of risk, since a simultaneous adverse shift in all currencies,
    commodity prices and yield curves is highly unlikely.                                                                                                                                                                                                        
|
| |  | Unlike other more complex risk modeling concepts, it applies
    only two shifts (up or down) in each risk category with the
    direction causing the adverse outcome chosen. While it is
    possible to apply more sophisticated risk measurement
    techniques, it is our view that sensitivity analysis gives
    decision makers in our non-financial businesses a sufficient
    warning of potential losses. We may apply further detailed
    analyses using the specific facts of a given situation to
    determine if appropriate corrective actions are needed.                       
|
| |  | Sensitivity analyses offer a snapshot of exposures
    at and between specific dates in time. However, there is
    continuous change in the Other Than Trading Portfolio. For
    example, positions are continually being opened and closed,
    assets and liabilities mature and new interest rates take
    effect. We accept this limitation and whenever we believe that
    more current information is required, produce either updated
    sensitivity analyses or utilize other management reporting
    options to understand in detail the effects of changing market
    conditions.

152



---



##### 





| |   |                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Sensitivity analyses do not provide an answer to the question of
    how long a sharp rise or fall of market rates will
    continue. Accordingly, we develop our own market direction
    projections and obtain other professional predictions that we
    then use in our financial planning and in modeling earnings
    impacts.







| |                   
| | ------------------
| | Interest Rate Risk







| |                                 
| | --------------------------------
| | Derivative financial instruments

over-the




|                                |  |                     |        |  |              |  |        |      |  |  |      |  |  |  |     |  
|------------------------------- |  | ------------------- | ------ |  | ------------ |  | ------ | ---- |  |  | ---- |  |  |  | --- | -
|                                |  | Notional Amount     |        |  | Fair Value   | 
|                                |  | As of               |        |  | As of        | 
|                                |  | December 31,        |        |  | December 31, | 
|                                |  |                     |        |  |              | 
|                                |  | 2005                |        |  | 2006         |  |        | 2005 |  |  | 2006 | 
|                                |  |                     |        |  |              |  |        |      |  |  |      | 
|                                |  | (Euros in millions) |       
|Interest rate hedging contracts |  |                     | 11,327 |  |              |  | 11,633 |      |  |  | 109  |  |  |  | (47 | )

   


153



---



##### 







| |                     
| | --------------------
| | Sensitivity Analysis

  Operating and Financial Review and
Prospects  Liquidity and Capital Resources 2004, 2005
and 2006  Development of net debt   




| |              
| | -------------
| | Currency Risk





| |                 
| | ----------------
| | Transaction Risk





| |                 
| | ----------------
| | Translation Risk

Period-to 20-F.




154



---



##### 



 




| |                                 
| | --------------------------------
| | Derivative financial instruments







|                                                                                         |  |                     |       |  |              |  |        |      |  |  |      |   |  |  |    | 
|---------------------------------------------------------------------------------------- |  | ------------------- | ----- |  | ------------ |  | ------ | ---- |  |  | ---- | - |  |  | -- | 
|                                                                                         |  | Notional Amount     |       |  | Fair Value   | 
|                                                                                         |  | As of               |       |  | As of        | 
|                                                                                         |  | December 31,        |       |  | December 31, | 
|                                                                                         |  |                     |       |  |              | 
|                                                                                         |  | 2005                |       |  | 2006         |  |        | 2005 |  |  | 2006 |  
|                                                                                         |  |                     |       |  |              |  |        |      |  |  |      |  
|                                                                                         |  | (Euros in millions) |      
|Forward exchange contracts, currency swaps and interest and
    principal currency swaps |  |                     | 5,532 |  |              |  | 11,990 |      |  |  | (115 | ) |  |  | 98 | 
|Currency options                                                                         |  |                     | 169   |  |              |  | 76     |      |  |  | (2   | ) |  |  | 1  | 

 




| |                     
| | --------------------
| | Sensitivity Analysis

        




| |            
| | -----------
| | Credit Risk



155



---



##### 





| |                                                
| | -----------------------------------------------
| | Raw Materials, Commodity and Energy Price Risks





| |   |                    
| | - | -------------------
| |  | Benzene;           
|
| |  | Phenol;            
|
| |  | Acetone;           
|
| |  | Propylene oxide;   
|
| |  | Ethylene;          
|
| |  | Toluene;           
|
| |  | Electric power; and
|
| |  | Steam.             







| |   |                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | coverage of recurrent requirements with long-term contracts to
    reduce the price volatility of purchases on the spot markets;                                                                          
|
| |  | incorporating pricing formulas linked to economic indices and
    pre-products into our contracts, rather than using published
    prices;                                                                
|
| |  | stock-keeping, flexibility in supply sources and, wherever
    possible, other alternative production plants to limit risks
    from raw material availability (only applicable to raw
    materials); and
|
| |  | hedging.                                                                                                                                                                                                  



| |                                 
| | --------------------------------
| | Derivative financial instruments

over-the




156



---



##### 





|                                   |  |                     |     |  |              |  |     |      |  |  |      |   |  |  |     |  
|---------------------------------- |  | ------------------- | --- |  | ------------ |  | --- | ---- |  |  | ---- | - |  |  | --- | -
|                                   |  | Notional            |     |  |             
|                                   |  | Amount              |     |  | Fair Value   | 
|                                   |  | As of               |     |  | As of        | 
|                                   |  | December 31,        |     |  | December 31, | 
|                                   |  |                     |     |  |              | 
|                                   |  | 2005                |     |  | 2006         |  |     | 2005 |  |  | 2006 |  
|                                   |  |                     |     |  |              |  |     |      |  |  |      |  
|                                   |  | (Euros in millions) |    
|Commodity hedging contracts        |  |                     | 416 |  |              |  | 323 |      |  |  | 85   |   |  |  | (73 | )
|Commodity option hedging contracts |  |                     | 49  |  |              |  | 66  |      |  |  | (13  | ) |  |  | (15 | )

 




| |                     
| | --------------------
| | Sensitivity Analysis

 







|         |                                                           
|-------- | ----------------------------------------------------------
|Item 12. | Description of Securities Other Than Equity
    Securities



157



---



##### 






PART II







|         |                                                
|-------- | -----------------------------------------------
|Item 13. | Defaults, Dividend Arrearages and Delinquencies








|         |                                                                                 
|-------- | --------------------------------------------------------------------------------
|Item 14. | Material Modifications to the Rights of Security Holders
    and Use of Proceeds








|         |                        
|-------- | -----------------------
|Item 15. | Controls and Procedures

Disclosure Controls and Procedures






Report of Bayer AGs Management on Internal Control
over Financial Reporting






 




158



---



##### 





Attestation of the Registered Public Accounting
Firm




Changes in Internal Control over Financial
Reporting









|         |           
|-------- | ----------
|Item 16. | [Reserved]






|          |                                 
|--------- | --------------------------------
|Item 16A. | Audit Committee Financial Expert

20-F.







|          |               
|--------- | --------------
|Item 16B. | Code of Ethics

20-F,







|          |                                       
|--------- | --------------------------------------
|Item 16C. | Principal Accountant Fees and Services

Independent Auditor Fees




|                        |       |                     |    |    |      |  |    |      |  |  |    |    | 
|----------------------- | ----- | ------------------- | -- | -- | ---- |  | -- | ---- |  |  | -- | -- | 
|Type of fees            |       | 2004                |    |    | 2005 |  |    | 2006 | 
|                        |       |                     |    |    |      |  |    |      | 
|                        |       | (Euros in millions) |   
|Audit fees              |       |                     | 18 |    |      |  | 16 |      |  |  | 26 |   
|Audit-related fees      |       |                     | 8  |    |      |  | 5  |      |  |  | 4  |   
|Tax fees                |       |                     | 1  |    |      |  | 1  |      |  |  | 1  |   
|Fees for other services |       |                     | *  |    |      |  | 1  |      |  |  | 7  |   
|                        |       |                     |    |    |      |  |    |      | 
|                        | Total |                     |    | 27 |      |  |    | 23   |  |  |    | 38 | 
|                        |       |                     |    |    |      |  |    |      | 






|  |  |                                                           
|- |  | ----------------------------------------------------------
|* |  | All other fees amounted to less than
    500,000 in 2004.

de
minimis 2-01 S-X


159



---



##### 





| |                                      
| | -------------------------------------
| | Audit Committee Pre-Approval Policies

Aufsichtsrat




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Audit services up to an annual aggregate, which was
    18 million
    in 2004,
    16 million
    in 2005 and
    26 million
    in 2006 for Bayer Group and Bayer AG and which include the audit
    of the consolidated financial statements of Bayer and its
    affiliates; services necessary to provide audit opinions;
    services in connection with the submission of reports to the
    SEC; attest services for reports prepared on Bayers
    internal control system and review of Bayers information
    systems; accounting and disclosure advice in connection with the
    annual audit; and audit services relating to the audit of
    restated prior-year figures, if any.
|
| |  | Audit-related services, which include acquisition/disposition
    due diligence; audits of material companies acquired or to be
    acquired, of carve-out statements relating to acquisitions or
    dispositions, of closing balances for dispositions and of
    employee benefit plans; procedures necessary to meet finance,
    accounting or other regulatory reporting requirements; advice on
    internal control systems; reviews of Bayers information
    systems unrelated to audit; assistance in interpreting SEC
    requirements; and evaluation of risk management.                                                                                                              
|
| |  | Tax advisory services, provided that the auditor or affiliate
    does not act as a representative of Bayer and did not recommend
    the transaction to which the tax advisory services relate; these
    include tax planning and advice; assistance with tax compliance;
    reviewing tax declarations; assistance in tax audits and
    appeals; and tax appraisals.                                                                                                                                                                                                                                                                                                                            
|
| |  | Other services, which include other risk management advice;
    audits of valuations performed by other advisors; analysis or
    review of business plans or planning processes (but not design
    or implementation thereof); and other financial related advice.                                                                                                                                                                                                                                                                                                                                                                                                                                 








|          |                                                               
|--------- | --------------------------------------------------------------
|Item 16D. | Exemptions from the Listing Standards for Audit
    Committees

10A-3(b)(1)(iv)(C) 10A-3.


160



---



##### 








|          |                                                                           
|--------- | --------------------------------------------------------------------------
|Item 16E. | Purchases of Equity Securities by the Issuer and
    Affiliated Purchasers



|              |  |              |         |  |                |                  |       |                     |                   |  |                     |  |  |  |       | 
|------------- |  | ------------ | ------- |  | -------------- | ---------------- | ----- | ------------------- | ----------------- |  | ------------------- |  |  |  | ----- | 
|              |  |              |         |  |                |                  |       | Maximum Number      |                  
|              |  |              |         |  |                |                  |       | (or Approximate     |                  
|              |  |              |         |  |                | Total Number of  |       |                     | Dollar Value) of  | 
|              |  |              |         |  |                | Shares Purchased |       |                     | Shares (or Units) | 
|              |  | Total Number |         |  | Average Price  |                  |       | as Part of Publicly |                   |  | that May Yet Be     | 
|              |  | of Shares    |         |  | Paid per Share |                  |       | Announced Plans     |                   |  | Purchased Under the | 
|Period (2006) |  | Purchased(a) |         |  | in Euro(b)     |                  |       | or Programs         |                   |  | Plans or Programs   | 
|              |  |              |         |  |                |                  |       |                     |                   |  |                     | 
|January       |  |              | 22,773  |  |                |                  | 37.01 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|February      |  |              | 30,570  |  |                |                  | 34.41 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|March         |  |              | 35,293  |  |                |                  | 34.27 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|April         |  |              | 50,496  |  |                |                  | 33.62 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|May           |  |              | 53,487  |  |                |                  | 36.90 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|June          |  |              | 136,619 |  |                |                  | 34.48 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|July          |  |              | 26,989  |  |                |                  | 35.71 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|August        |  |              | 27,207  |  |                |                  | 38.48 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|September     |  |              | 38,472  |  |                |                  | 38.52 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|October       |  |              | 532,391 |  |                |                  | 40.79 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|November      |  |              | 24,817  |  |                |                  | 40.10 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|December      |  |              | 23,618  |  |                |                  | 40.59 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Relates to purchases of Bayer AG ordinary shares of no par value
    made by Bayer or Bayers US subsidiaries to accommodate its
    employee stock participation programs in Germany and the United
    States. Purchases made by Bayer under the remaining employee
    stock participation programs represent an amount that is
    immaterial in the aggregate. Our Board of Management is
    authorized until October 27, 2007 to purchase Bayer AG
    ordinary shares representing up to 10 percent of
    Bayers capital stock, including for the purpose of
    accommodating Bayers Stock Participation Program. For
    further information on our Stock Participation Program, see
    Item 6, Directors, Senior Management and
    Employees  Compensation  Employee
    Stock-Based Compensation Program.
|   
|(b) |  | Average price paid per share includes commissions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          



161



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PART III







|         |                     
|-------- | --------------------
|Item 17. | Financial Statements








|         |                     
|-------- | --------------------
|Item 18. | Financial Statements








|         |         
|-------- | --------
|Item 19. | Exhibits

20-F:


|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 1.1  |  | Articles of Association (Satzung) of Bayer AG, as amended
    to date, in English translation.                                                                                                                                                                                                                                                                                                                                                                             
|Exhibit 2.1  |  | The total amount of long-term debt securities Bayer AG
    authorized under any instrument does not exceed 10 percent
    of the total assets of the Company. Bayer AG agrees to furnish
    to the Securities and Exchange Commission, upon its request, a
    copy of any instrument defining the rights of holders of
    long-term debt of Bayer AG or its subsidiaries for which
    consolidated or unconsolidated financial statements are required
    to be filed.
|Exhibit 4.1  |  | Spin-Off and Acquisition Agreement, dated September 22,
    2004, between Bayer AG and LANXESS AG, in English translation,
    incorporated by reference to Exhibit 4.1 to Bayer AGs
    Annual Report on Form 20-F for the Year Ended
    December 31, 2004.                                                                                                                                                                                                             
|Exhibit 4.2  |  | Master Agreement, dated September 22, 2004, between Bayer
    AG and LANXESS AG, in English translation, incorporated by
    reference to Exhibit 4.2 to Bayer AGs Annual Report
    on Form 20-F for the Year Ended December 31, 2004.                                                                                                                                                                                                                                   
|Exhibit 4.3  |  | 7,000,000,000
    Syndicated Facilities Agreement, dated 23 March 2006, by and
    among Bayer AG; Citigroup Global Markets Limited and Credit
    Suisse International, as Mandated Lead Arrangers; Citigroup
    Global Markets Limited and Credit Suisse International, as
    Bookrunners; and Citibank International plc, as Facility Agent,
    incorporated by reference to the Schedule TO filed by Bayer
    AG on April 13, 2006.                               
|Exhibit 8.1  |  | Significant subsidiaries as of the end of the year covered by
    this report as defined in rule 1-02(w) of Regulation S-X:
    See Item 4, Information on the Company 
    Organizational Structure.                                                                                                                                                                                                                                                                     
|Exhibit 12.1 |  | Certification of the Principal Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                            
|Exhibit 12.2 |  | Certification of the Principal Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                            
|Exhibit 13.1 |  | Certification in accordance with 18 U.S.C. § 1350
    as adopted by § 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                               

162



---



##### 



SIGNATURES


20-F


BAYER AG









|       |                                    
|------ | -----------------------------------
|Title: | Chairman of the Board of Management








|       |                
|------ | ---------------
|Title: | General Counsel



163



---



##### 



BAYER GROUP


Index to Consolidated Financial Statements


|                                                   |                                                                                                                       |  |     |     | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- |  | --- | --- | 
|Independent Auditors Report                       |                                                                                                                       |  | F-2 |    
|Consolidated Financial Statements:                 |                                                                                                                       |  |     |    
|                                                   | Consolidated Statements of Income for the
    years ended December 31, 2006, 2005 and 2004                            |  |     | F-4 | 
|                                                   | Consolidated Balance Sheets as of
    December 31, 2006 and 2005                                                      |  |     | F-5 | 
|                                                   | Consolidated Statements of Cash Flows for
    the years ended December 31, 2006, 2005 and 2004                        |  |     | F-6 | 
|                                                   | Consolidated Statements of Recognized
    Income and Expense for the years ended December 31, 2006,
    2005 and 2004 |  |     | F-7 | 
|Notes to the Consolidated Financial
    Statements |                                                                                                                       |  | F-8 |    

F-1



---



##### 






Report of Independent Registered Public Accounting Firm







Consolidated financial statements








20-F.


Internal control over financial reporting


Controls and Procedures  Report of
Bayer AGs Management on Internal Control over Financial
Reporting


F-2



---



##### 









Controls and
Procedures  Report of Bayer AGs Management on
Internal Control over Financial Reporting  












|                                                                                 |  |                                                                           
|-------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------
|/s/ ALBRECHTP.
    Albrecht
    Wirtschaftsprüfer
    (German Public Accountant) |  | /s/ LINKEV.
    Linke
    Wirtschaftsprüfer
    (German Public Accountant)

F-3



---



##### 






Bayer Group


Consolidated Statements of Income


|                                                |                                                                 |      |        |             |      |  |         |      |   |  |         |       |   |  |         |       | 
|----------------------------------------------- | --------------------------------------------------------------- | ---- | ------ | ----------- | ---- |  | ------- | ---- | - |  | ------- | ----- | - |  | ------- | ----- | 
|                                                |                                                                 | Note |        |             | 2004 |  |         | 2005 |   |  | 2006    |      
|                                                |                                                                 |      |        |             |      |  |         |      |   |  |         |      
|                                                |                                                                 |      |        | ( million) |     
|Net sales                                       |                                                                 |      | [8]    |             |      |  | 20,925  |      |   |  | 24,701  |       |   |  | 28,956  |      
|Cost of goods sold                              |                                                                 |      |        |             |      |  | (11,086 | )    |   |  | (13,412 | )     |   |  | (15,275 | )    
|                                                |                                                                 |      |        |             |      |  |         |      |   |  |         |      
|Gross profit                                    |                                                                 |      |        |             |      |  | 9,839   |      |   |  | 11,289  |       |   |  | 13,681  |      
|                                                |                                                                 |      |        |             |      |  |         |      |   |  |         |      
|Selling expenses                                |                                                                 |      | [9]    |             |      |  | (4,783  | )    |   |  | (5,247  | )     |   |  | (6,534  | )    
|Research and development expenses               |                                                                 |      |        |             |      |  | (1,772  | )    |   |  | (1,729  | )     |   |  | (2,297  | )    
|General administration expenses                 |                                                                 |      |        |             |      |  | (1,285  | )    |   |  | (1,307  | )     |   |  | (1,599  | )    
|Other operating income                          |                                                                 |      | [10]   |             |      |  | 802     |      |   |  | 775     |       |   |  | 730     |      
|Other operating expenses                        |                                                                 |      | [11]   |             |      |  | (1,144  | )    |   |  | (1,267  | )     |   |  | (1,219  | )    
|                                                |                                                                 |      |        |             |      |  |         |      |   |  |         |      
|Operating result                                |                                                                 |      |        |             |      |  | 1,657   |      |   |  | 2,514   |       |   |  | 2,762   |      
|                                                |                                                                 |      |        |             |      |  |         |      |   |  |         |      
|Equity-method loss                              |                                                                 |      | [13.1] |             |      |  | (139    | )    |   |  | (10     | )     |   |  | (25     | )    
|Non-operating income                            |                                                                 |      |        |             |      |  | 483     |      |   |  | 632     |       |   |  | 931     |      
|Non-operating expenses                          |                                                                 |      |        |             |      |  | (976    | )    |   |  | (1,224  | )     |   |  | (1,688  | )    
|                                                |                                                                 |      |        |             |      |  |         |      |   |  |         |      
|Non-operating result                            |                                                                 |      | [13]   |             |      |  | (632    | )    |   |  | (602    | )     |   |  | (782    | )    
|                                                |                                                                 |      |        |             |      |  |         |      |   |  |         |      
|Income before income taxes                      |                                                                 |      |        |             |      |  | 1,025   |      |   |  | 1,912   |       |   |  | 1,980   |      
|                                                |                                                                 |      |        |             |      |  |         |      |   |  |         |      
|Income taxes                                    |                                                                 |      | [14]   |             |      |  | (401    | )    |   |  | (538    | )     |   |  | (454    | )    
|                                                |                                                                 |      |        |             |      |  |         |      |   |  |         |      
|Income from continuing operations after taxes   |                                                                 |      |        |             |      |  | 624     |      |   |  | 1,374   |       |   |  | 1,526   |      
|                                                |                                                                 |      |        |             |      |  |         |      |   |  |         |      
|Income from discontinued operations after taxes |                                                                 |      | [7.2]  |             |      |  | 58      |      |   |  | 221     |       |   |  | 169     |      
|                                                |                                                                 |      |        |             |      |  |         |      |   |  |         |      
|Income after taxes                              |                                                                 |      |        |             |      |  | 682     |      |   |  | 1,595   |       |   |  | 1,695   |      
|                                                |                                                                 |      |        |             |      |  |         |      |   |  |         |      
|                                                | of which attributable to minority interest                      |      |        | [15]        |      |  |         | (3   | ) |  |         | (2    | ) |  |         | 12    | 
|                                                |                                                                 |      |        |             |      |  |         |      |   |  |         |      
|                                                | of which attributable to Bayer AG stockholders (net
    income) |      |        |             |      |  |         | 685  |   |  |         | 1,597 |   |  |         | 1,683 | 
|                                                |                                                                 |      |        |             |      |  |         |      |   |  |         |      
|                                               
|Earnings per share
    ()                      |                                                                 |      |        |             |      |  |         |      |   |  |         |       |   |  |         |      
|From continuing operations                      |                                                                 |      | [16]   |             |      |  |         |      |   |  |         |       |   |  |         |      
|                                                |                                                                 |      |        |             |      |  |         |      |   |  |         |      
|                                                | Basic*                                                          |      |        |             |      |  |         | 0.86 |   |  |         | 1.88  |   |  |         | 2.00  | 
|                                                | Diluted*                                                        |      |        |             |      |  |         | 0.86 |   |  |         | 1.88  |   |  |         | 2.00  | 
|                                                |                                                                 |      |        |             |      |  |         |      |   |  |         |      
|From continuing and discontinued operations     |                                                                 |      | [16]   |             |      |  |         |      |   |  |         |       |   |  |         |      
|                                                |                                                                 |      |        |             |      |  |         |      |   |  |         |      
|                                                | Basic*                                                          |      |        |             |      |  |         | 0.94 |   |  |         | 2.19  |   |  |         | 2.22  | 
|                                                | Diluted*                                                        |      |        |             |      |  |         | 0.94 |   |  |         | 2.19  |   |  |         | 2.22  | 
|                                                |                                                                 |      |        |             |      |  |         |      |   |  |         |      






|  |                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------
|  | 2004 and 2005 figures restated                                                                                              
| 
|* | The ordinary shares to be issued upon conversion of the
    mandatory convertible bond are treated as already issued shares.

F-4



---



##### 






Bayer Group


Consolidated Balance Sheets


|                                                                                     |  |      |       |             |               |  |        |               |  |  |        | 
|------------------------------------------------------------------------------------ |  | ---- | ----- | ----------- | ------------- |  | ------ | ------------- |  |  | ------ | 
|                                                                                     |  | Note |       |             | Dec. 31, 2005 |  |        | Dec. 31, 2006 | 
|                                                                                     |  |      |       |             |               |  |        |               | 
|                                                                                     |  |      |       | ( million) |              
|Noncurrent assets                                                                    |  |      |       |             |               |  |        |               |  |  |        | 
|Goodwill                                                                             |  |      | [17]  |             |               |  | 2,623  |               |  |  | 8,227  | 
|Other intangible assets                                                              |  |      | [17]  |             |               |  | 5,065  |               |  |  | 15,807 | 
|Property, plant and equipment                                                        |  |      | [18]  |             |               |  | 8,321  |               |  |  | 8,867  | 
|Investments in associates                                                            |  |      | [19]  |             |               |  | 795    |               |  |  | 532    | 
|Other financial assets                                                               |  |      | [20]  |             |               |  | 1,429  |               |  |  | 1,094  | 
|Other receivables                                                                    |  |      | [21]  |             |               |  | 199    |               |  |  | 165    | 
|Deferred taxes                                                                       |  |      | [14]  |             |               |  | 1,698  |               |  |  | 1,205  | 
|                                                                                     |  |      |       |             |               |  |        |               | 
|                                                                                     |  |      |       |             |               |  | 20,130 |               |  |  | 35,897 | 
|                                                                                     |  |      |       |             |               |  |        |               | 
|Current assets                                                                       |  |      |       |             |               |  |        |               |  |  |        | 
|Inventories                                                                          |  |      | [22]  |             |               |  | 5,504  |               |  |  | 6,153  | 
|Trade accounts receivable                                                            |  |      | [23]  |             |               |  | 5,204  |               |  |  | 5,802  | 
|Other financial assets                                                               |  |      | [20]  |             |               |  | 447    |               |  |  | 401    | 
|Other receivables                                                                    |  |      | [21]  |             |               |  | 1,421  |               |  |  | 1,217  | 
|Claims for tax refunds                                                               |  |      |       |             |               |  | 726    |               |  |  | 581    | 
|Cash and cash equivalents                                                            |  |      | [36]  |             |               |  | 3,290  |               |  |  | 2,915  | 
|Assets held for sale and discontinued operations                                     |  |      | [7.2] |             |               |  |       |               |  |  | 2,925  | 
|                                                                                     |  |      |       |             |               |  |        |               | 
|                                                                                     |  |      |       |             |               |  | 16,592 |               |  |  | 19,994 | 
|                                                                                     |  |      |       |             |               |  |        |               | 
|Assets                                                                               |  |      |       |             |               |  | 36,722 |               |  |  | 55,891 | 
|                                                                                     |  |      |       |             |               |  |        |               | 
|Stockholders equity                                                                 |  |      | [24]  |             |               |  |        |               |  |  |        | 
|Capital stock of Bayer AG                                                            |  |      |       |             |               |  | 1,870  |               |  |  | 1,957  | 
|Capital reserves of Bayer AG                                                         |  |      |       |             |               |  | 2,942  |               |  |  | 4,028  | 
|Other reserves                                                                       |  |      |       |             |               |  | 6,265  |               |  |  | 6,782  | 
|                                                                                     |  |      |       |             |               |  |        |               | 
|                                                                                     |  |      |       |             |               |  | 11,077 |               |  |  | 12,767 | 
|                                                                                     |  |      |       |             |               |  |        |               | 
|Equity attributable to minority interest                                             |  |      |       |             |               |  | 80     |               |  |  | 84     | 
|                                                                                     |  |      |       |             |               |  |        |               | 
|                                                                                     |  |      |       |             |               |  | 11,157 |               |  |  | 12,851 | 
|                                                                                     |  |      |       |             |               |  |        |               | 
|Noncurrent liabilities                                                               |  |      |       |             |               |  |        |               |  |  |        | 
|Provisions for pensions and other post-employment benefits                           |  |      | [25]  |             |               |  | 7,174  |               |  |  | 6,543  | 
|Other provisions                                                                     |  |      | [26]  |             |               |  | 1,340  |               |  |  | 1,464  | 
|Financial liabilities                                                                |  |      | [27]  |             |               |  | 7,185  |               |  |  | 14,723 | 
|Other liabilities                                                                    |  |      | [29]  |             |               |  | 516    |               |  |  | 449    | 
|Deferred taxes                                                                       |  |      | [14]  |             |               |  | 280    |               |  |  | 4,346  | 
|                                                                                     |  |      |       |             |               |  |        |               | 
|                                                                                     |  |      |       |             |               |  | 16,495 |               |  |  | 27,525 | 
|                                                                                     |  |      |       |             |               |  |        |               | 
|Current liabilities                                                                  |  |      |       |             |               |  |        |               |  |  |        | 
|Other provisions                                                                     |  |      | [26]  |             |               |  | 3,009  |               |  |  | 3,765  | 
|Financial liabilities                                                                |  |      | [27]  |             |               |  | 1,767  |               |  |  | 5,078  | 
|Trade accounts payable                                                               |  |      | [28]  |             |               |  | 1,974  |               |  |  | 2,369  | 
|Tax liabilities                                                                      |  |      |       |             |               |  | 304    |               |  |  | 400    | 
|Other liabilities                                                                    |  |      | [29]  |             |               |  | 2,016  |               |  |  | 3,055  | 
|Liabilities directly related to assets held for sale and
    discontinued operations |  |      | [7.2] |             |               |  |       |               |  |  | 848    | 
|                                                                                     |  |      |       |             |               |  |        |               | 
|                                                                                     |  |      |       |             |               |  | 9,070  |               |  |  | 15,515 | 
|                                                                                     |  |      |       |             |               |  |        |               | 
|Stockholders equity and liabilities                                                 |  |      |       |             |               |  | 36,722 |               |  |  | 55,891 | 
|                                                                                     |  |      |       |             |               |  |        |               | 

F-5



---



##### 






Bayer Group


Consolidated Statements of Cash Flows


|                                                                                                                        |  |      |       |             |      |  |        |      |  |  |        |   |  |  |         |  
|----------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ----------- | ---- |  | ------ | ---- |  |  | ------ | - |  |  | ------- | -
|                                                                                                                        |  | Note |       |             | 2004 |  |        | 2005 |  |  | 2006   |  
|                                                                                                                        |  |      |       |             |      |  |        |      |  |  |        |  
|                                                                                                                        |  |      |       | ( million) |     
|Income after taxes from continuing operations                                                                           |  |      |       |             |      |  | 624    |      |  |  | 1,374  |   |  |  | 1,526   |  
|Income taxes                                                                                                            |  |      |       |             |      |  | 401    |      |  |  | 538    |   |  |  | 454     |  
|Non-operating result                                                                                                    |  |      |       |             |      |  | 632    |      |  |  | 602    |   |  |  | 782     |  
|Income taxes paid                                                                                                       |  |      |       |             |      |  | (407   | )    |  |  | (463   | ) |  |  | (763    | )
|Depreciation and amortization                                                                                           |  |      |       |             |      |  | 1,729  |      |  |  | 1,608  |   |  |  | 1,913   |  
|Change in pension provisions                                                                                            |  |      |       |             |      |  | (393   | )    |  |  | (501   | ) |  |  | (295    | )
|(Gains) losses on retirements of noncurrent assets                                                                      |  |      |       |             |      |  | (35    | )    |  |  | (44    | ) |  |  | (133    | )
|Non-cash effects of the remeasurement of acquired assets
    (inventory work-down)                                      |  |      |       |             |      |  |       |      |  |  |       |   |  |  | 429     |  
|                                                                                                                        |  |      |       |             |      |  |        |      |  |  |        |  
|Operating cash flow before changes in net working capital
    (gross operating cash flow)                               |  |      |       |             |      |  | 2,551  |      |  |  | 3,114  |   |  |  | 3,913   |  
|                                                                                                                        |  |      |       |             |      |  |        |      |  |  |        |  
|Decrease (increase) in inventories                                                                                      |  |      |       |             |      |  | (365   | )    |  |  | (130   | ) |  |  | (155    | )
|Decrease (increase) in trade accounts receivable                                                                        |  |      |       |             |      |  | (359   | )    |  |  | 211    |   |  |  | (201    | )
|(Decrease) increase in trade accounts payable                                                                           |  |      |       |             |      |  | (13    | )    |  |  | (117   | ) |  |  | 130     |  
|Changes in other working capital, other non-cash items                                                                  |  |      |       |             |      |  | 145    |      |  |  | 149    |   |  |  | 241     |  
|                                                                                                                        |  |      |       |             |      |  |        |      |  |  |        |  
|Net cash provided by (used in) operating activities
    (net cash flow, continuing operations)                          |  |      | [33]  |             |      |  | 1,959  |      |  |  | 3,227  |   |  |  | 3,928   |  
|                                                                                                                        |  |      |       |             |      |  |        |      |  |  |        |  
|Net cash provided by (used in) operating activities (net cash
    flow, discontinued operations)                        |  |      | [7.2] |             |      |  | 491    |      |  |  | 275    |   |  |  | 275     |  
|                                                                                                                        |  |      |       |             |      |  |        |      |  |  |        |  
|Net cash provided by (used in) operating activities
    (net cash flow, total)                                          |  |      |       |             |      |  | 2,450  |      |  |  | 3,502  |   |  |  | 4,203   |  
|                                                                                                                        |  |      |       |             |      |  |        |      |  |  |        |  
|Cash outflows for additions to property, plant, equipment and
    intangible assets                                     |  |      |       |             |      |  | (1,251 | )    |  |  | (1,389 | ) |  |  | (1,876  | )
|Cash inflows from sales of property, plant, equipment and other
    assets                                              |  |      |       |             |      |  | 124    |      |  |  | 105    |   |  |  | 185     |  
|Cash inflows from divestitures                                                                                          |  |      |       |             |      |  | 76     |      |  |  | 293    |   |  |  | 489     |  
|Cash inflows from noncurrent financial assets                                                                           |  |      |       |             |      |  | 90     |      |  |  | 1,189  |   |  |  | 850     |  
|Cash outflows for acquisitions less acquired cash                                                                       |  |      |       |             |      |  | (358   | )    |  |  | (2,188 | ) |  |  | (15,351 | )
|Interest and dividends received                                                                                         |  |      |       |             |      |  | 400    |      |  |  | 451    |   |  |  | 686     |  
|Cash inflows (outflows) from current financial assets                                                                   |  |      |       |             |      |  | 105    |      |  |  | (202   | ) |  |  | 287     |  
|                                                                                                                        |  |      |       |             |      |  |        |      |  |  |        |  
|Net cash provided by (used in) investing activities
    (total)                                                         |  |      | [34]  |             |      |  | (814   | )    |  |  | (1,741 | ) |  |  | (14,730 | )
|                                                                                                                        |  |      |       |             |      |  |        |      |  |  |        |  
|Capital contributions                                                                                                   |  |      |       |             |      |  | 10     |      |  |  |       |   |  |  | 1,174   |  
|Bayer AG dividend, dividend payments to minority stockholders,
    reimbursements of advance capital gains tax payments |  |      |       |             |      |  | (559   | )    |  |  | (440   | ) |  |  | (535    | )
|Issuances of debt                                                                                                       |  |      |       |             |      |  | 1,393  |      |  |  | 2,005  |   |  |  | 13,931  |  
|Retirements of debt                                                                                                     |  |      |       |             |      |  | (881   | )    |  |  | (2,659 | ) |  |  | (3,216  | )
|Interest paid                                                                                                           |  |      |       |             |      |  | (724   | )    |  |  | (787   | ) |  |  | (1,155  | )
|                                                                                                                        |  |      |       |             |      |  |        |      |  |  |        |  
|Net cash provided by (used in) financing activities
    (total)                                                         |  |      | [35]  |             |      |  | (761   | )    |  |  | (1,881 | ) |  |  | 10,199  |  
|                                                                                                                        |  |      |       |             |      |  |        |      |  |  |        |  
|Change in cash and cash equivalents due to business
    activities (total)                                              |  |      |       |             |      |  | 875    |      |  |  | (120   | ) |  |  | (328    | )
|                                                                                                                        |  |      |       |             |      |  |        |      |  |  |        |  
|Cash and cash equivalents at beginning of year                                                                          |  |      |       |             |      |  | 2,734  |      |  |  | 3,570  |   |  |  | 3,290   |  
|                                                                                                                        |  |      |       |             |      |  |        |      |  |  |        |  
|Change in cash and cash equivalents due to changes in scope of
    consolidation                                        |  |      |       |             |      |  | 6      |      |  |  | (196   | ) |  |  | (2      | )
|Change in cash and cash equivalents due to exchange rate
    movements                                                  |  |      |       |             |      |  | (45    | )    |  |  | 36     |   |  |  | (45     | )
|                                                                                                                        |  |      |       |             |      |  |        |      |  |  |        |  
|Cash and cash equivalents at end of year                                                                                |  |      | [36]  |             |      |  | 3,570  |      |  |  | 3,290  |   |  |  | 2,915   |  
|                                                                                                                        |  |      |       |             |      |  |        |      |  |  |        |  






F-6



---



##### 






Bayer Group


Consolidated Statements of Recognized Income and Expense


|                                                                                                                                        |                                                  |             |      |    |          |  |        |          |  |  |       |       | 
|--------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | ----------- | ---- | -- | -------- |  | ------ | -------- |  |  | ----- | ----- | 
|                                                                                                                                        |                                                  | Dec. 31,    |      |    | Dec. 31, |  |        | Dec. 31, | 
|                                                                                                                                        |                                                  | 2004        |      |    | 2005     |  |        | 2006     | 
|                                                                                                                                        |                                                  |             |      |    |          |  |        |          | 
|                                                                                                                                        |                                                  | ( million) |     
|Changes in fair values of derivatives designated as hedges,
    recognized in stockholders equity                                      |                                                  |             | 64   |    |          |  | (15    | )        |  |  | (59   | )    
|Changes in fair values of derivatives designated as hedges,
    recognized in the income statement                                      |                                                  |             | 4    |    |          |  | 3      |          |  |  | 11    |      
|Changes in fair values of available-for-sale financial assets,
    recognized in stockholders equity                                   |                                                  |             | 12   |    |          |  | 9      |          |  |  | (7    | )    
|Changes in fair values of available-for-sale financial
    assets, recognized in the income statement                                   |                                                  |             | (6   | )  |          |  |       |          |  |  |      |      
|Revaluation surplus (IFRS 3)                                                                                                            |                                                  |             | 66   |    |          |  |       |          |  |  |      |      
|Changes in actuarial gains (losses) relating to pensions and
    other post-employment benefits, recognized in stockholders
    equity |                                                  |             | (740 | )  |          |  | (1,207 | )        |  |  | 448   |      
|Exchange differences on translation of operations outside the
    euro zone                                                             |                                                  |             | (304 | )  |          |  | 857    |          |  |  | (725  | )    
|Deferred taxes on valuation adjustments, recognized directly in
    stockholders equity                                                |                                                  |             | 251  |    |          |  | 470    |          |  |  | (148  | )    
|Deferred taxes on valuation adjustments, removed from
    stockholders equity and recognized in the income
    statement               |                                                  |             | (2   | )  |          |  |       |          |  |  | 3     |      
|                                                                                                                                        |                                                  |             |      |    |          |  |        |          | 
|Valuation adjustments recognized directly in
    stockholders equity                                                                   |                                                  |             | (655 | )  |          |  | 117    |          |  |  | (477  | )    
|                                                                                                                                        |                                                  |             |      |    |          |  |        |          | 
|Income after taxes                                                                                                                      |                                                  |             | 682  |    |          |  | 1,595  |          |  |  | 1,695 |      
|Total income and expense recognized in the financial
    statements                                                                     |                                                  |             | 27   |    |          |  | 1,712  |          |  |  | 1,218 |      
|                                                                                                                                        |  of which attributable to minority interest     |             |      | (3 | )        |  |        | 6        |  |  |       | 7     | 
|                                                                                                                                        |  of which attributable to Bayer AG stockholders |             |      | 30 |          |  |        | 1,706    |  |  |       | 1,211 | 

F-7



---



##### 






Notes to the Consolidated Financial Statements of the Bayer
Group


[1]     Key Data by Business Segment
and Region


Key Data by Business Segment


|                                                                                          |  |                 |        |          |             |  |        |                 |          |  |            |   |  |      |        |   |      |  |        |      |  |  |        |    |  |  |       |   |  |  |       |  
|----------------------------------------------------------------------------------------- |  | --------------- | ------ | -------- | ----------- |  | ------ | --------------- | -------- |  | ---------- | - |  | ---- | ------ | - | ---- |  | ------ | ---- |  |  | ------ | -- |  |  | ----- | - |  |  | ----- | -
|                                                                                          |  | HealthCare      |        |          | CropScience | 
|                                                                                          |  |                 |        |          |             | 
|                                                                                          |  |                 |        |          |             |  |        | Environmental   |         
|                                                                                          |  |                 |        | Consumer |             |  |        |                 | Science, | 
|                                                                                          |  | Pharmaceuticals |        |          | Health      |  |        | Crop Protection |          |  | BioScience |  
|                                                                                          |  |                 |        |          |             |  |        |                 |          |  |            |  
|Business Segments                                                                         |  | 2005            |        |          | 2006        |  |        | 2005            |          |  | 2006       |   |  | 2005 |        |   | 2006 |  |        | 2005 |  |  | 2006   |   
|                                                                                          |  |                 |        |          |             |  |        |                 |          |  |            |   |  |      |        |   |      |  |        |      |  |  |        |   
|                                                                                          |  | ( million)     |       
|Net sales (external)                                                                      |  |                 | 4,067  |          |             |  | 7,478  |                 |          |  | 3,929      |   |  |      | 4,246  |   |      |  | 4,874  |      |  |  | 4,644  |    |  |  | 1,022 |   |  |  | 1,056 |  
| Change                                                                                  |  |                 | 2.7    | %        |             |  | 83.9   | %               |          |  | 41.6       | % |  |      | 8.1    | % |      |  | (1.7   | )%   |  |  | (4.7   | )% |  |  | 3.3   | % |  |  | 3.3   | %
| Change currency adjusted                                                                |  |                 | 1.7    | %        |             |  | 84.5   | %               |          |  | 40.3       | % |  |      | 8.5    | % |      |  | (4.3   | )%   |  |  | (5.2   | )% |  |  | 2.1   | % |  |  | 3.7   | %
|Intersegment sales                                                                        |  |                 | 58     |          |             |  | 51     |                 |          |  | 21         |   |  |      | 7      |   |      |  | 70     |      |  |  | 59     |    |  |  | 13    |   |  |  | 6     |  
|Other operating income                                                                    |  |                 | 48     |          |             |  | 224    |                 |          |  | 48         |   |  |      | 39     |   |      |  | 226    |      |  |  | 186    |    |  |  | 35    |   |  |  | 20    |  
|Operating result                                                                          |  |                 | 475    |          |             |  | 563    |                 |          |  | 448        |   |  |      | 750    |   |      |  | 532    |      |  |  | 384    |    |  |  | 158   |   |  |  | 200   |  
|Operating cash flow before changes in net working capital (gross
    operating cash flow) |  |                 | 449    |          |             |  | 1,086  |                 |          |  | 474        |   |  |      | 634    |   |      |  | 762    |      |  |  | 691    |    |  |  | 202   |   |  |  | 209   |  
|Capital invested                                                                          |  |                 | 2,501  |          |             |  | 18,253 |                 |          |  | 3,498      |   |  |      | 3,477  |   |      |  | 7,372  |      |  |  | 7,203  |    |  |  | 1,477 |   |  |  | 1,403 |  
|CFRoI                                                                                     |  |                 | 18.7   | %        |             |  | 10.5   | %               |          |  | 13.3       | % |  |      | 18.2   | % |      |  | 10.7   | %    |  |  | 9.5    | %  |  |  | 13.8  | % |  |  | 14.5  | %
|Net cash flow                                                                             |  |                 | 481    |          |             |  | 1,053  |                 |          |  | 606        |   |  |      | 473    |   |      |  | 699    |      |  |  | 748    |    |  |  | 205   |   |  |  | 150   |  
|Equity-method income (loss)                                                               |  |                 |       |          |             |  |       |                 |          |  |           |   |  |      |       |   |      |  |       |      |  |  |       |    |  |  |      |   |  |  |      |  
|Equity-method investments                                                                 |  |                 | 4      |          |             |  |       |                 |          |  |           |   |  |      |       |   |      |  |       |      |  |  |       |    |  |  |      |   |  |  |      |  
|Total assets                                                                              |  |                 | 3,489  |          |             |  | 25,860 |                 |          |  | 4,622      |   |  |      | 4,372  |   |      |  | 8,836  |      |  |  | 7,712  |    |  |  | 1,591 |   |  |  | 1,444 |  
|Capital expenditures                                                                      |  |                 | 142    |          |             |  | 476    |                 |          |  | 83         |   |  |      | 100    |   |      |  | 175    |      |  |  | 156    |    |  |  | 26    |   |  |  | 41    |  
|Amortization and depreciation                                                             |  |                 | 188    |          |             |  | 488    |                 |          |  | 169        |   |  |      | 146    |   |      |  | 494    |      |  |  | 505    |    |  |  | 100   |   |  |  | 77    |  
|Liabilities                                                                               |  |                 | 2,086  |          |             |  | 3,451  |                 |          |  | 1,366      |   |  |      | 1,154  |   |      |  | 2,668  |      |  |  | 2,088  |    |  |  | 369   |   |  |  | 311   |  
|Research and development expenses                                                         |  |                 | 680    |          |             |  | 1,257  |                 |          |  | 154        |   |  |      | 169    |   |      |  | 548    |      |  |  | 500    |    |  |  | 116   |   |  |  | 114   |  
|Number of employees (as of Dec. 31)                                                       |  |                 | 16,800 |          |             |  | 40,000 |                 |          |  | 11,400     |   |  |      | 11,400 |   |      |  | 15,800 |      |  |  | 15,000 |    |  |  | 2,700 |   |  |  | 2,900 |  

|                                                                                          |  |                 |       |   |         |  |       |                |  |  |            |   |  |      |       |   |      |  |        |      |  |  |        |   |  |  |        |   |  |  |         |  
|----------------------------------------------------------------------------------------- |  | --------------- | ----- | - | ------- |  | ----- | -------------- |  |  | ---------- | - |  | ---- | ----- | - | ---- |  | ------ | ---- |  |  | ------ | - |  |  | ------ | - |  |  | ------- | -
|                                                                                          |  | MaterialScience |       |   |         |  |       |                |  |  |           
|                                                                                          |  |                 |       |   |         |  |       |                | 
|                                                                                          |  |                 |       |   |         |  |       | Continuing     | 
|                                                                                          |  | Materials       |       |   | Systems |  |       | Reconciliation |  |  | Operations |  
|                                                                                          |  |                 |       |   |         |  |       |                |  |  |            |  
|Business Segments                                                                         |  | 2005            |       |   | 2006    |  |       | 2005           |  |  | 2006       |   |  | 2005 |       |   | 2006 |  |        | 2005 |  |  | 2006   |  
|                                                                                          |  |                 |       |   |         |  |       |                |  |  |            |   |  |      |       |   |      |  |        |      |  |  |        |  
|                                                                                          |  | ( million)     |      
|Net sales (external)                                                                      |  |                 | 2,837 |   |         |  | 2,925 |                |  |  | 6,609      |   |  |      | 7,236 |   |      |  | 1,363  |      |  |  | 1,371  |   |  |  | 24,701 |   |  |  | 28,956  |  
| Change                                                                                  |  |                 | 28.0  | % |         |  | 3.1   | %              |  |  | 23.6       | % |  |      | 9.5   | % |      |  |       |      |  |  |       |   |  |  | 18.0   | % |  |  | 17.2    | %
| Change currency adjusted                                                                |  |                 | 27.4  | % |         |  | 3.4   | %              |  |  | 22.8       | % |  |      | 9.7   | % |      |  |       |      |  |  |       |   |  |  | 16.7   | % |  |  | 17.4    | %
|Intersegment sales                                                                        |  |                 | 14    |   |         |  | 25    |                |  |  | 142        |   |  |      | 138   |   |      |  | (318   | )    |  |  | (286   | ) |  |  |       |   |  |  |        |  
|Other operating income                                                                    |  |                 | 14    |   |         |  | 17    |                |  |  | 41         |   |  |      | 66    |   |      |  | 363    |      |  |  | 178    |   |  |  | 775    |   |  |  | 730     |  
|Operating result                                                                          |  |                 | 514   |   |         |  | 289   |                |  |  | 736        |   |  |      | 703   |   |      |  | (349   | )    |  |  | (127   | ) |  |  | 2,514  |   |  |  | 2,762   |  
|Operating cash flow before changes in net working capital (gross
    operating cash flow) |  |                 | 473   |   |         |  | 364   |                |  |  | 781        |   |  |      | 802   |   |      |  | (27    | )    |  |  | 127    |   |  |  | 3,114  |   |  |  | 3,913   |  
|Capital invested                                                                          |  |                 | 2,706 |   |         |  | 2,789 |                |  |  | 4,791      |   |  |      | 4,691 |   |      |  | 2,848  |      |  |  | 1,541  |   |  |  | 25,193 |   |  |  | 39,357  |  
|CFRoI                                                                                     |  |                 | 19.0  | % |         |  | 13.2  | %              |  |  | 17.1       | % |  |      | 16.9  | % |      |  |       |      |  |  |       |   |  |  | 12.5   | % |  |  | 12.1    | %
|Net cash flow                                                                             |  |                 | 466   |   |         |  | 324   |                |  |  | 871        |   |  |      | 957   |   |      |  | (101   | )    |  |  | 223    |   |  |  | 3,227  |   |  |  | 3,928   |  
|Equity-method income (loss)                                                               |  |                 | 37    |   |         |  | 29    |                |  |  | (47        | ) |  |      | (54   | ) |      |  |       |      |  |  |       |   |  |  | (10    | ) |  |  | (25     | )
|Equity-method investments                                                                 |  |                 | 208   |   |         |  | 28    |                |  |  | 580        |   |  |      | 504   |   |      |  |       |      |  |  |       |   |  |  | 792    |   |  |  | 532     |  
|Total assets                                                                              |  |                 | 2,770 |   |         |  | 2,742 |                |  |  | 5,125      |   |  |      | 4,745 |   |      |  | 7,493  |      |  |  | 6,091  |   |  |  | 33,926 |   |  |  | 52,966  |  
|Capital expenditures                                                                      |  |                 | 304   |   |         |  | 282   |                |  |  | 338        |   |  |      | 471   |   |      |  | 142    |      |  |  | 213    |   |  |  | 1,210  |   |  |  | 1,739   |  
|Amortization and depreciation                                                             |  |                 | 151   |   |         |  | 159   |                |  |  | 320        |   |  |      | 348   |   |      |  | 186    |      |  |  | 190    |   |  |  | 1,608  |   |  |  | 1,913   |  
|Liabilities                                                                               |  |                 | 610   |   |         |  | 597   |                |  |  | 1,632      |   |  |      | 1,681 |   |      |  | 15,970 |      |  |  | 32,910 |   |  |  | 24,701 |   |  |  | 42,192  |  
|Research and development expenses                                                         |  |                 | 70    |   |         |  | 76    |                |  |  | 144        |   |  |      | 151   |   |      |  | 17     |      |  |  | 30     |   |  |  | 1,729  |   |  |  | 2,297   |  
|Number of employees (as of Dec. 31)                                                       |  |                 | 4,700 |   |         |  | 5,000 |                |  |  | 9,400      |   |  |      | 9,900 |   |      |  | 21,800 |      |  |  | 21,800 |   |  |  | 82,600 |   |  |  | 106,000 |  

F-8



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


Key Data by Business Segment


|                                                                                          |  |                 |        |          |             |  |        |                 |          |  |            |    |  |      |        |   |      |  |        |      |  |  |        |    |  |  |       |   |  |  |       |  
|----------------------------------------------------------------------------------------- |  | --------------- | ------ | -------- | ----------- |  | ------ | --------------- | -------- |  | ---------- | -- |  | ---- | ------ | - | ---- |  | ------ | ---- |  |  | ------ | -- |  |  | ----- | - |  |  | ----- | -
|                                                                                          |  | HealthCare      |        |          | CropScience | 
|                                                                                          |  |                 |        |          |             | 
|                                                                                          |  |                 |        |          |             |  |        | Environmental   |         
|                                                                                          |  |                 |        | Consumer |             |  |        |                 | Science, | 
|                                                                                          |  | Pharmaceuticals |        |          | Health      |  |        | Crop Protection |          |  | BioScience |   
|                                                                                          |  |                 |        |          |             |  |        |                 |          |  |            |   
|Business Segments                                                                         |  | 2004            |        |          | 2005        |  |        | 2004            |          |  | 2005       |    |  | 2004 |        |   | 2005 |  |        | 2004 |  |  | 2005   |   
|                                                                                          |  |                 |        |          |             |  |        |                 |          |  |            |    |  |      |        |   |      |  |        |      |  |  |        |   
|                                                                                          |  | ( million)     |       
|Net sales (external)                                                                      |  |                 | 3,961  |          |             |  | 4,067  |                 |          |  | 2,775      |    |  |      | 3,929  |   |      |  | 4,957  |      |  |  | 4,874  |    |  |  | 989   |   |  |  | 1,022 |  
| Change                                                                                  |  |                 | (9.4   | )%       |             |  | 2.7    | %               |          |  | (1.5       | )% |  |      | 41.6   | % |      |  | 3.2    | %    |  |  | (1.7   | )% |  |  | 2.7   | % |  |  | 3.3   | %
| Change currency adjusted                                                                |  |                 | (5.9   | )%       |             |  | 1.7    | %               |          |  | 4.1        | %  |  |      | 40.3   | % |      |  | 7.0    | %    |  |  | (4.3   | )% |  |  | 7.5   | % |  |  | 2.1   | %
|Intersegment sales                                                                        |  |                 | 38     |          |             |  | 58     |                 |          |  | 18         |    |  |      | 21     |   |      |  | 71     |      |  |  | 70     |    |  |  | 7     |   |  |  | 13    |  
|Other operating income                                                                    |  |                 | 129    |          |             |  | 48     |                 |          |  | 38         |    |  |      | 48     |   |      |  | 146    |      |  |  | 226    |    |  |  | 37    |   |  |  | 35    |  
|Operating result                                                                          |  |                 | 399    |          |             |  | 475    |                 |          |  | 448        |    |  |      | 448    |   |      |  | 386    |      |  |  | 532    |    |  |  | 106   |   |  |  | 158   |  
|Operating cash flow before changes in net working capital (gross
    operating cash flow) |  |                 | 386    |          |             |  | 449    |                 |          |  | 352        |    |  |      | 474    |   |      |  | 739    |      |  |  | 762    |    |  |  | 154   |   |  |  | 202   |  
|Capital invested                                                                          |  |                 | 2,305  |          |             |  | 2,501  |                 |          |  | 1,390      |    |  |      | 3,498  |   |      |  | 6,932  |      |  |  | 7,372  |    |  |  | 1,454 |   |  |  | 1,477 |  
|CFRoI                                                                                     |  |                 | 16.8   | %        |             |  | 18.7   | %               |          |  | 24.8       | %  |  |      | 13.3   | % |      |  | 10.9   | %    |  |  | 10.7   | %  |  |  | 10.6  | % |  |  | 13.8  | %
|Net cash flow                                                                             |  |                 | 261    |          |             |  | 481    |                 |          |  | 546        |    |  |      | 606    |   |      |  | 637    |      |  |  | 699    |    |  |  | 141   |   |  |  | 205   |  
|Equity-method income (loss)                                                               |  |                 |       |          |             |  |       |                 |          |  |           |    |  |      |       |   |      |  |       |      |  |  |       |    |  |  |      |   |  |  |      |  
|Equity-method investments                                                                 |  |                 | 4      |          |             |  | 4      |                 |          |  |           |    |  |      |       |   |      |  |       |      |  |  |       |    |  |  |      |   |  |  |      |  
|Total assets                                                                              |  |                 | 4,052  |          |             |  | 3,489  |                 |          |  | 2,289      |    |  |      | 4,622  |   |      |  | 9,117  |      |  |  | 8,836  |    |  |  | 1,703 |   |  |  | 1,591 |  
|Capital expenditures                                                                      |  |                 | 115    |          |             |  | 142    |                 |          |  | 71         |    |  |      | 83     |   |      |  | 181    |      |  |  | 175    |    |  |  | 28    |   |  |  | 26    |  
|Amortization and depreciation                                                             |  |                 | 174    |          |             |  | 188    |                 |          |  | 113        |    |  |      | 169    |   |      |  | 592    |      |  |  | 494    |    |  |  | 135   |   |  |  | 100   |  
|Liabilities                                                                               |  |                 | 2,138  |          |             |  | 2,086  |                 |          |  | 968        |    |  |      | 1,366  |   |      |  | 2,450  |      |  |  | 2,668  |    |  |  | 360   |   |  |  | 369   |  
|Research and development expenses                                                         |  |                 | 740    |          |             |  | 680    |                 |          |  | 138        |    |  |      | 154    |   |      |  | 571    |      |  |  | 548    |    |  |  | 108   |   |  |  | 116   |  
|Number of employees (as of Dec. 31)                                                       |  |                 | 18,400 |          |             |  | 16,800 |                 |          |  | 8,300      |    |  |      | 11,400 |   |      |  | 16,400 |      |  |  | 15,800 |    |  |  | 2,800 |   |  |  | 2,700 |  

|                                                                                          |  |                 |       |   |         |  |       |                |  |  |            |   |  |      |       |   |      |  |        |      |  |  |        |   |  |  |        |   |  |  |        |  
|----------------------------------------------------------------------------------------- |  | --------------- | ----- | - | ------- |  | ----- | -------------- |  |  | ---------- | - |  | ---- | ----- | - | ---- |  | ------ | ---- |  |  | ------ | - |  |  | ------ | - |  |  | ------ | -
|                                                                                          |  | MaterialScience |       |   |         |  |       |                |  |  |           
|                                                                                          |  |                 |       |   |         |  |       |                | 
|                                                                                          |  |                 |       |   |         |  |       | Continuing     | 
|                                                                                          |  | Materials       |       |   | Systems |  |       | Reconciliation |  |  | Operations |  
|                                                                                          |  |                 |       |   |         |  |       |                |  |  |            |  
|Business Segments                                                                         |  | 2004            |       |   | 2005    |  |       | 2004           |  |  | 2005       |   |  | 2004 |       |   | 2005 |  |        | 2004 |  |  | 2005   |  
|                                                                                          |  |                 |       |   |         |  |       |                |  |  |            |   |  |      |       |   |      |  |        |      |  |  |        |  
|                                                                                          |  | ( million)     |      
|Net sales (external)                                                                      |  |                 | 2,217 |   |         |  | 2,837 |                |  |  | 5,349      |   |  |      | 6,609 |   |      |  | 677    |      |  |  | 1,363  |   |  |  | 20,925 |   |  |  | 24,701 |  
| Change                                                                                  |  |                 | 17.3  | % |         |  | 28.0  | %              |  |  | 14.4       | % |  |      | 23.6  | % |      |  |       |      |  |  |       |   |  |  | 3.5    | % |  |  | 18.0   | %
| Change currency adjusted                                                                |  |                 | 23.2  | % |         |  | 27.4  | %              |  |  | 18.8       | % |  |      | 22.8  | % |      |  |       |      |  |  |       |   |  |  | 7.7    | % |  |  | 16.7   | %
|Intersegment sales                                                                        |  |                 | 13    |   |         |  | 14    |                |  |  | 116        |   |  |      | 142   |   |      |  | (263   | )    |  |  | (318   | ) |  |  |       |   |  |  |       |  
|Other operating income                                                                    |  |                 | 22    |   |         |  | 14    |                |  |  | 106        |   |  |      | 41    |   |      |  | 324    |      |  |  | 363    |   |  |  | 802    |   |  |  | 775    |  
|Operating result                                                                          |  |                 | 184   |   |         |  | 514   |                |  |  | 348        |   |  |      | 736   |   |      |  | (214   | )    |  |  | (349   | ) |  |  | 1,657  |   |  |  | 2,514  |  
|Operating cash flow before changes in net working capital (gross
    operating cash flow) |  |                 | 271   |   |         |  | 473   |                |  |  | 484        |   |  |      | 781   |   |      |  | 165    |      |  |  | (27    | ) |  |  | 2,551  |   |  |  | 3,114  |  
|Capital invested                                                                          |  |                 | 2,267 |   |         |  | 2,706 |                |  |  | 4,344      |   |  |      | 4,791 |   |      |  | 3,684  |      |  |  | 2,848  |   |  |  | 22,376 |   |  |  | 25,193 |  
|CFRoI                                                                                     |  |                 | 11.9  | % |         |  | 19.0  | %              |  |  | 9.8        | % |  |      | 17.1  | % |      |  |       |      |  |  |       |   |  |  | 10.8   | % |  |  | 12.5   | %
|Net cash flow                                                                             |  |                 | 152   |   |         |  | 466   |                |  |  | 289        |   |  |      | 871   |   |      |  | (67    | )    |  |  | (101   | ) |  |  | 1,959  |   |  |  | 3,227  |  
|Equity-method income (loss)                                                               |  |                 | 4     |   |         |  | 37    |                |  |  | (131       | ) |  |      | (47   | ) |      |  | (12    | )    |  |  |       |   |  |  | (139   | ) |  |  | (10    | )
|Equity-method investments                                                                 |  |                 | 176   |   |         |  | 208   |                |  |  | 562        |   |  |      | 580   |   |      |  |       |      |  |  |       |   |  |  | 742    |   |  |  | 792    |  
|Total assets                                                                              |  |                 | 2,513 |   |         |  | 2,770 |                |  |  | 4,724      |   |  |      | 5,125 |   |      |  | 5,796  |      |  |  | 7,493  |   |  |  | 30,194 |   |  |  | 33,926 |  
|Capital expenditures                                                                      |  |                 | 106   |   |         |  | 304   |                |  |  | 185        |   |  |      | 338   |   |      |  | 135    |      |  |  | 142    |   |  |  | 821    |   |  |  | 1,210  |  
|Amortization and depreciation                                                             |  |                 | 168   |   |         |  | 151   |                |  |  | 326        |   |  |      | 320   |   |      |  | 221    |      |  |  | 186    |   |  |  | 1,729  |   |  |  | 1,608  |  
|Liabilities                                                                               |  |                 | 511   |   |         |  | 610   |                |  |  | 1,475      |   |  |      | 1,632 |   |      |  | 15,608 |      |  |  | 15,970 |   |  |  | 23,510 |   |  |  | 24,701 |  
|Research and development expenses                                                         |  |                 | 60    |   |         |  | 70    |                |  |  | 139        |   |  |      | 144   |   |      |  | 16     |      |  |  | 17     |   |  |  | 1,772  |   |  |  | 1,729  |  
|Number of employees (as of Dec. 31)                                                       |  |                 | 4,400 |   |         |  | 4,700 |                |  |  | 8,900      |   |  |      | 9,400 |   |      |  | 21,800 |      |  |  | 21,800 |   |  |  | 81,000 |   |  |  | 82,600 |  

F-9



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


Key Data by Business Region


|                                                                                          |  |             |        |   |               |  |        |                |  |  |                    |   |  |      |        |    |      |  |        |      |  |  |        |   |  |      |        |   |      |  |        |      |  |  |        |   |  |  |       |   |  |  |        |   |  |  |        |  
|----------------------------------------------------------------------------------------- |  | ----------- | ------ | - | ------------- |  | ------ | -------------- |  |  | ------------------ | - |  | ---- | ------ | -- | ---- |  | ------ | ---- |  |  | ------ | - |  | ---- | ------ | - | ---- |  | ------ | ---- |  |  | ------ | - |  |  | ----- | - |  |  | ------ | - |  |  | ------ | -
|                                                                                          |  |             |        |   |               |  |        | Latin America/ | 
|                                                                                          |  | Europe      |        |   | North America |  |        | Asia/Pacific   |  |  | Africa/Middle East |  
|                                                                                          |  |             |        |   |               |  |        |                |  |  |                    |  
|Regions                                                                                   |  | 2004        |        |   | 2005          |  |        | 2006           |  |  | 2004               |   |  | 2005 |        |    | 2006 |  |        | 2004 |  |  | 2005   |   |  | 2006 |        |   | 2004 |  |        | 2005 |  |  | 2006   |  
|                                                                                          |  |             |        |   |               |  |        |                |  |  |                    |   |  |      |        |    |      |  |        |      |  |  |        |   |  |      |        |   |      |  |        |      |  |  |        |  
|                                                                                          |  | ( million) |       
|Net sales (external)  by market                                                          |  |             | 8,751  |   |               |  | 10,771 |                |  |  | 12,652             |   |  |      | 5,790  |    |      |  | 6,496  |      |  |  | 7,779  |   |  |      | 3,509  |   |      |  | 4,073  |      |  |  | 4,610  |   |  |  | 2,875 |   |  |  | 3,361  |   |  |  | 3,915  |  
| Change                                                                                  |  |             | 7.2    | % |               |  | 23.1   | %              |  |  | 17.5               | % |  |      | (8.1   | )% |      |  | 12.2   | %    |  |  | 19.8   | % |  |      | 9.4    | % |      |  | 16.1   | %    |  |  | 13.2   | % |  |  | 12.7  | % |  |  | 16.9   | % |  |  | 16.5   | %
| Change currency adjusted                                                                |  |             | 7.2    | % |               |  | 22.9   | %              |  |  | 17.4               | % |  |      |       |    |      |  | 11.3   | %    |  |  | 19.9   | % |  |      | 15.1   | % |      |  | 15.2   | %    |  |  | 15.0   | % |  |  | 19.1  | % |  |  | 10.5   | % |  |  | 16.0   | %
|Net sales (external)  by point of origin                                                 |  |             | 9,531  |   |               |  | 11,655 |                |  |  | 13,696             |   |  |      | 5,807  |    |      |  | 6,492  |      |  |  | 7,776  |   |  |      | 3,306  |   |      |  | 3,931  |      |  |  | 4,410  |   |  |  | 2,281 |   |  |  | 2,623  |   |  |  | 3,074  |  
| Change                                                                                  |  |             | 7.7    | % |               |  | 22.3   | %              |  |  | 17.5               | % |  |      | (8.0   | )% |      |  | 11.8   | %    |  |  | 19.8   | % |  |      | 9.8    | % |      |  | 18.9   | %    |  |  | 12.2   | % |  |  | 11.6  | % |  |  | 15.0   | % |  |  | 17.2   | %
| Change currency adjusted                                                                |  |             | 7.7    | % |               |  | 22.1   | %              |  |  | 17.5               | % |  |      | 0.1    | %  |      |  | 10.9   | %    |  |  | 19.9   | % |  |      | 15.9   | % |      |  | 18.0   | %    |  |  | 14.0   | % |  |  | 19.2  | % |  |  | 6.9    | % |  |  | 16.5   | %
|Interregional sales                                                                       |  |             | 3,129  |   |               |  | 3,536  |                |  |  | 4,315              |   |  |      | 1,303  |    |      |  | 1,485  |      |  |  | 1,795  |   |  |      | 142    |   |      |  | 176    |      |  |  | 210    |   |  |  | 114   |   |  |  | 172    |   |  |  | 228    |  
|Other operating income                                                                    |  |             | 570    |   |               |  | 397    |                |  |  | 474                |   |  |      | 116    |    |      |  | 227    |      |  |  | 98     |   |  |      | 57     |   |      |  | 49     |      |  |  | 46     |   |  |  | 59    |   |  |  | 102    |   |  |  | 112    |  
|Operating result                                                                          |  |             | 889    |   |               |  | 1,167  |                |  |  | 1,581              |   |  |      | 281    |    |      |  | 767    |      |  |  | 821    |   |  |      | 323    |   |      |  | 436    |      |  |  | 296    |   |  |  | 395   |   |  |  | 310    |   |  |  | 204    |  
|Operating cash flow before changes in net working capital (gross
    operating cash flow) |  |             | 1,374  |   |               |  | 1,557  |                |  |  | 2,495              |   |  |      | 611    |    |      |  | 978    |      |  |  | 1,016  |   |  |      | 336    |   |      |  | 431    |      |  |  | 335    |   |  |  | 340   |   |  |  | 265    |   |  |  | 183    |  
|Equity-method income (loss)                                                               |  |             | (39    | ) |               |  | 6      |                |  |  | 1                  |   |  |      | (100   | )  |      |  | (17    | )    |  |  | (27    | ) |  |      |       |   |      |  | 1      |      |  |  | 1      |   |  |  |      |   |  |  |       |   |  |  |       |  
|Equity-method investments                                                                 |  |             | 429    |   |               |  | 440    |                |  |  | 232                |   |  |      | 307    |    |      |  | 345    |      |  |  | 297    |   |  |      | 2      |   |      |  | 3      |      |  |  | 3      |   |  |  | 4     |   |  |  | 4      |   |  |  |       |  
|Total assets                                                                              |  |             | 17,784 |   |               |  | 18,939 |                |  |  | 37,255             |   |  |      | 6,707  |    |      |  | 7,145  |      |  |  | 7,881  |   |  |      | 2,483  |   |      |  | 3,589  |      |  |  | 3,965  |   |  |  | 1,830 |   |  |  | 2,351  |   |  |  | 2,500  |  
|Capital expenditures                                                                      |  |             | 460    |   |               |  | 497    |                |  |  | 777                |   |  |      | 193    |    |      |  | 244    |      |  |  | 398    |   |  |      | 122    |   |      |  | 380    |      |  |  | 472    |   |  |  | 46    |   |  |  | 89     |   |  |  | 92     |  
|Amortization and depreciation                                                             |  |             | 1,073  |   |               |  | 980    |                |  |  | 1,201              |   |  |      | 434    |    |      |  | 419    |      |  |  | 459    |   |  |      | 117    |   |      |  | 99     |      |  |  | 138    |   |  |  | 43    |   |  |  | 56     |   |  |  | 68     |  
|Liabilities                                                                               |  |             | 15,566 |   |               |  | 17,091 |                |  |  | 29,985             |   |  |      | 5,122  |    |      |  | 4,779  |      |  |  | 4,928  |   |  |      | 946    |   |      |  | 1,047  |      |  |  | 1,463  |   |  |  | 733   |   |  |  | 992    |   |  |  | 1,049  |  
|Research and development expenses                                                         |  |             | 1,286  |   |               |  | 1,193  |                |  |  | 1,639              |   |  |      | 398    |    |      |  | 445    |      |  |  | 551    |   |  |      | 68     |   |      |  | 66     |      |  |  | 80     |   |  |  | 20    |   |  |  | 25     |   |  |  | 27     |  
|Number of employees (as of Dec. 31)                                                       |  |             | 45,000 |   |               |  | 45,700 |                |  |  | 57,800             |   |  |      | 14,900 |    |      |  | 13,100 |      |  |  | 17,200 |   |  |      | 11,500 |   |      |  | 13,200 |      |  |  | 17,300 |   |  |  | 9,600 |   |  |  | 10,600 |   |  |  | 13,700 |  

|                                                                                          |  |                |        |   |                       |  |        |      |  |  |        |   |  |      |        |   |      |  |        |   |  |  |         |  
|----------------------------------------------------------------------------------------- |  | -------------- | ------ | - | --------------------- |  | ------ | ---- |  |  | ------ | - |  | ---- | ------ | - | ---- |  | ------ | - |  |  | ------- | -
|                                                                                          |  | Reconciliation |        |   | Continuing Operations | 
|                                                                                          |  |                |        |   |                       | 
|Regions                                                                                   |  | 2004           |        |   | 2005                  |  |        | 2006 |  |  | 2004   |   |  | 2005 |        |   | 2006 | 
|                                                                                          |  |                |        |   |                       |  |        |      |  |  |        |   |  |      |        |   |      | 
|                                                                                          |  | ( million)    |       
|Net sales (external)  by market                                                          |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 20,925 |   |      |  | 24,701 |   |  |  | 28,956  |  
| Change                                                                                  |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 3.5    | % |      |  | 18.0   | % |  |  | 17.2    | %
| Change currency adjusted                                                                |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 7.7    | % |      |  | 16.7   | % |  |  | 17.4    | %
|Net sales (external)  by point of origin                                                 |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 20,925 |   |      |  | 24,701 |   |  |  | 28,956  |  
| Change                                                                                  |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 3.5    | % |      |  | 18.0   | % |  |  | 17.2    | %
| Change currency adjusted                                                                |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 7.7    | % |      |  | 16.7   | % |  |  | 17.4    | %
|Interregional sales                                                                       |  |                | (4,688 | ) |                       |  | (5,369 | )    |  |  | (6,548 | ) |  |      |       |   |      |  |       |   |  |  |        |  
|Other operating income                                                                    |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 802    |   |      |  | 775    |   |  |  | 730     |  
|Operating result                                                                          |  |                | (231   | ) |                       |  | (166   | )    |  |  | (140   | ) |  |      | 1,657  |   |      |  | 2,514  |   |  |  | 2,762   |  
|Operating cash flow before changes in net working capital (gross
    operating cash flow) |  |                | (110   | ) |                       |  | (117   | )    |  |  | (116   | ) |  |      | 2,551  |   |      |  | 3,114  |   |  |  | 3,913   |  
|Equity-method income (loss)                                                               |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | (139   | ) |      |  | (10    | ) |  |  | (25     | )
|Equity-method investments                                                                 |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 742    |   |      |  | 792    |   |  |  | 532     |  
|Total assets                                                                              |  |                | 1,390  |   |                       |  | 1,902  |      |  |  | 1,365  |   |  |      | 30,194 |   |      |  | 33,926 |   |  |  | 52,966  |  
|Capital expenditures                                                                      |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 821    |   |      |  | 1,210  |   |  |  | 1,739   |  
|Amortization and depreciation                                                             |  |                | 62     |   |                       |  | 54     |      |  |  | 47     |   |  |      | 1,729  |   |      |  | 1,608  |   |  |  | 1,913   |  
|Liabilities                                                                               |  |                | 1,143  |   |                       |  | 792    |      |  |  | 4,767  |   |  |      | 23,510 |   |      |  | 24,701 |   |  |  | 42,192  |  
|Research and development expenses                                                         |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 1,772  |   |      |  | 1,729  |   |  |  | 2,297   |  
|Number of employees (as of Dec. 31)                                                       |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 81,000 |   |      |  | 82,600 |   |  |  | 106,000 |  

F-10



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


[2]     General information














 


cost-of








F-11



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


[3]     Effects of new accounting
pronouncements




| |                                                            
| | -----------------------------------------------------------
| | Accounting standards applied for the first time in
    2006















| |                                  
| | ---------------------------------
| | Newly issued accounting standards



F-12



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)








[4]     Basic principles of the
consolidated financial statements




| |                                                               
| | --------------------------------------------------------------
| | [4.1]     Scope of consolidation
    and consolidation methods









F-13



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)










| |                                           
| | ------------------------------------------
| | [4.2]     Foreign currency
    translation













|            |  |     |  |              |        |  |              |  |        |      |  |  |        |  |  |      |        |  |      |  |        |  |  |  |        | 
|----------- |  | --- |  | ------------ | ------ |  | ------------ |  | ------ | ---- |  |  | ------ |  |  | ---- | ------ |  | ---- |  | ------ |  |  |  | ------ | 
|            |  |     |  | Closing rate |        |  | Average rate | 
|            |  |     |  |              |        |  |              | 
|            |  |     |  | 2004         |        |  | 2005         |  |        | 2006 |  |  | 2004   |  |  | 2005 |        |  | 2006 | 
|            |  |     |  |              |        |  |              |  |        |      |  |  |        |  |  |      |        |  |      | 
|            |  |     |  | (1)         |        |  | (1)         | 
|Argentina   |  | ARS |  |              | 4.05   |  |              |  | 3.57   |      |  |  | 4.04   |  |  |      | 3.66   |  |      |  | 3.64   |  |  |  | 3.86   | 
|Brazil      |  | BRL |  |              | 3.62   |  |              |  | 2.76   |      |  |  | 2.82   |  |  |      | 3.64   |  |      |  | 3.04   |  |  |  | 2.73   | 
|U.K.        |  | GBP |  |              | 0.71   |  |              |  | 0.69   |      |  |  | 0.67   |  |  |      | 0.68   |  |      |  | 0.68   |  |  |  | 0.68   | 
|Japan       |  | JPY |  |              | 139.65 |  |              |  | 138.90 |      |  |  | 156.93 |  |  |      | 134.40 |  |      |  | 136.86 |  |  |  | 146.04 | 
|Canada      |  | CAD |  |              | 1.64   |  |              |  | 1.37   |      |  |  | 1.53   |  |  |      | 1.62   |  |      |  | 1.51   |  |  |  | 1.42   | 
|Mexico      |  | MXN |  |              | 15.23  |  |              |  | 12.59  |      |  |  | 14.27  |  |  |      | 14.04  |  |      |  | 13.58  |  |  |  | 13.69  | 
|Switzerland |  | CHF |  |              | 1.54   |  |              |  | 1.56   |      |  |  | 1.61   |  |  |      | 1.54   |  |      |  | 1.55   |  |  |  | 1.57   | 
|U.S.A.      |  | USD |  |              | 1.36   |  |              |  | 1.18   |      |  |  | 1.32   |  |  |      | 1.24   |  |      |  | 1.24   |  |  |  | 1.26   | 



| |                                                         
| | --------------------------------------------------------
| | [4.3]     Basic recognition and
    valuation principles



| |                                     
| | ------------------------------------
| | Net sales and other operating income





F-14



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)










| |                                  
| | ---------------------------------
| | Research and development expenses











F-15



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)






| |                                     
| | ------------------------------------
| | Goodwill and other intangible assets







| |                              
| | -----------------------------
| | Property, plant and equipment















F-16



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                   |  |  |       |          | 
|---------------------------------- |  |  | ----- | -------- | 
|Buildings                          |  |  | 20 to | 50 years | 
|Outdoor infrastructure             |  |  | 10 to | 20 years | 
|Plant installations                |  |  | 6 to  | 20 years | 
|Machinery and equipment            |  |  | 6 to  | 12 years | 
|Laboratory and research facilities |  |  | 3 to  | 5 years  | 
|Storage tanks and pipelines        |  |  | 10 to | 20 years | 
|Vehicles                           |  |  | 4 to  | 8 years  | 
|Computer equipment                 |  |  | 3 to  | 5 years  | 
|Furniture and fixtures             |  |  | 4 to  | 10 years | 





| |                 
| | ----------------
| | Financial assets







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Financial assets held at fair value through profit or losscomprise those financial assets that are held for trading.
    This category comprises receivables from forward commodity
    contracts and receivables from other derivative financial
    instruments, which are included in other financial
    assets, except where hedge accounting is used. Changes in
    the fair value of financial assets in this category are
    recognized in the income statement when the increase or decrease
    in value occurs.                                                                                                                            
|
| |  | Loans and receivablesare non-derivative financial assets
    that are not quoted in an active market. They are carried at
    amortized cost. This category comprises trade accounts
    receivable, the financial receivables and loans included in
    other financial assets, the additional financial receivables and
    loans reflected in miscellaneous receivables, and cash and cash
    equivalents. Interest income from items assigned to this
    category is determined using the effective interest method,
    insofar as such items are not classified as current receivables
    and the effect of discounting interest is not material.
|
| |  | Held-to-maturity
    financial assetsare non-derivative financial assets, with
    fixed or determinable payments, that are to be held for a fixed
    period of time. They are accounted for at amortized cost using
    the effective interest method.
    Held-to-maturity
    financial investments are recognized in other financial assets.                                                                                                                                                                                                                                                                                                         
|
| |  | Available-for-sale financial assetsare those
    non-derivative financial assets that are not assigned to any of
    the above categories. In particular, they comprise equity
    instruments recognized at fair value and debt instruments not to
    be held to maturity, which are included in other financial
    assets. Changes in the fair                                                                                                                                                                                                                                                                                                        

F-17



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




| |  |                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | value of available-for-sale financial assets are recognized in
    stockholders equity and not released to the income
    statement until the assets are sold or impaired. Where possible,
    a fair value for equity and debt securities is derived from
    market data. Financial assets for which no market price is
    available and whose fair value cannot be reliably estimated are
    carried at amortized cost.

held-to










| |            
| | -----------
| | Inventories





| |      
| | -----
| | Taxes











| |           
| | ----------
| | Provisions



F-18



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)














| |                      
| | ---------------------
| | Financial liabilities













F-19



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




| |                                  
| | ---------------------------------
| | Other receivables and liabilities





[4.4]     Cash
flow statement










[4.5]     Procedure
used in global impairment testing and its impact








F-20



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)










[5]     Critical accounting
policies










| |                                                    
| | ---------------------------------------------------
| | Intangible assets and property, plant and equipment

  


F-21



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




   




|                                             |  |             |    |  |      |  |    |      |  |  |     | 
|-------------------------------------------- |  | ----------- | -- |  | ---- |  | -- | ---- |  |  | --- | 
|                                             |  | 2004        |    |  | 2005 |  |    | 2006 | 
|                                             |  |             |    |  |      |  |    |      | 
|                                             |  | ( million) |   
|Impairment charges (continuing businesses)   |  |             | 26 |  |      |  | 77 |      |  |  | 172 | 
|Impairment charges (discontinued operations) |  |             | 63 |  |      |  |   |      |  |  | 18  | 
|                                             |  |             |    |  |      |  |    |      | 
|Total impairment charges                     |  |             | 89 |  |      |  | 77 |      |  |  | 190 | 
|                                             |  |             |    |  |      |  |    |      | 



   


F-22



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


 ®  


     






| |                         
| | ------------------------
| | Research and development





| |          
| | ---------
| | Net sales





| |   |                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the significant risks and rewards of ownership of the goods are
    transferred to the customer,                                                                
|
| |  | the company retains neither continuing managerial involvement to
    the degree usually associated with ownership nor effective
    control over the goods sold,
|
| |  | the amount of revenue and costs incurred or to be incurred can
    be measured reliably, and                                                                    
|
| |  | it is probable that the economic benefits associated with the
    transaction will flow to the company.                                                         



F-23



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)














| |                                            
| | -------------------------------------------
| | Pensions and other post-employment benefits

i.e. i.e.




F-24



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)






return-on









| |                         
| | ------------------------
| | Environmental provisions

 




F-25



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)








| |                      
| | ---------------------
| | Litigation provisions





  


  


    


F-26



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




| |             
| | ------------
| | Income taxes



  






| |                       
| | ----------------------
| | Acquisition accounting







i.e.


F-27



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




step-up   




| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | Outcome of research and development activities regarding
    compound efficacy, results of clinical trails, etc.;           
|
| |  | Probability of obtaining regulatory approval in several
    countries;                                                      
|
| |  | Long-term sales forecast;                                                                                                   
|
| |  | Anticipation of selling price erosion rates after the end of
    patent protection due to generic competition in the market;
|
| |  | Behavior of competitors (launch of competing products, marketing
    initiatives, etc.).                                    









 step-ups 


[6]     Segment reporting






F-28



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                   |                                   |            |                                                                                                                                                                                                                                 
|------------------ | --------------------------------- | ---------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Subgroup / Segment |                                   | Activities
|                   |                                   |           
|HealthCare         |                                   |           
|                   | Pharmaceuticals                   |            | Development, production and marketing of prescription
    pharmaceuticals, such as for the treatment of hypertension,
    cardiovascular diseases, infectious diseases, cancer and
    multiple sclerosis, and for contraception
|                   | Consumer Health                   |            | Development, production and marketing of over-the-counter
    medications, diagnostic products, nutritional supplements for
    humans and animals, veterinary medicines and grooming products
    for animals                  
|CropScience        |                                   |           
|                   | Crop Protection                   |            | Development, production and marketing of a comprehensive
    portfolio of fungicides, herbicides, insecticides and seed
    treatment products to meet a wide range of regional requirements                                    
|                   | Environmental Science, BioScience |            | Development, production and marketing of a wide range of
    products for the green industry, garden care, non-agricultural
    pest and weed control, plant biotechnology, and conventional
    seeds                          
|MaterialScience    |                                   |           
|                   | Materials                         |            | Development, production and marketing of high-quality plastics
    granules, sheets and films                                                                                                                                   
|                   | Systems                           |            | Development, production and marketing of polyurethanes for a
    wide variety of applications and of coating and adhesive raw
    materials; production and marketing of inorganic basic chemicals                              











| |   |                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The intersegment sales reflect intragroup transactions effected
    at transfer prices fixed on an arms-length basis.                                                                                                                                                                                                           
|
| |  | The operating cash flow before changes in net working capital
    (gross operating cash flow) comprises the income after taxes
    from continuing operations plus income taxes plus/minus
    non-operating result minus income taxes paid plus depreciation
    and amortization and write-downs, minus write-backs, plus/minus

F-29



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | changes in pension provisions, minus gains/plus losses on
    retirements of noncurrent assets, plus non-cash charges
    resulting from the remeasurement of acquired assets. The change
    in pension provisions includes the elimination of non-cash
    components of the income from continuing operations after taxes.
    It also contains benefit payments during the year.                                                                                                           
|
| |  | The net cash flow is the cash flow from operating activities as
    defined in IAS 7 (Cash Flow Statements).                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | The capital invested comprises all assets serving the respective
    segment that are required to yield a return on their cost of
    acquisition. Noncurrent assets are included at cost of
    acquisition or construction throughout their useful lives
    because the calculation of cash flow return on investment
    (CFRoI) requires that depreciation and amortization be excluded.
    Interest-free liabilities are deducted. The capital invested is
    stated as of December 31.
|
| |  | The CFRoI is the ratio of the operating cash flow before changes
    in net working capital (gross operating cash flow) to the
    average capital invested for the year and is thus a measure of
    the return on capital employed.                                                                                                                                                                                                                                                          
|
| |  | The equity items reflect the earnings and carrying amounts of
    companies recognized at equity (associates). They are allocated
    to the segments where possible.                                                                                                                                                                                                                                                                                                                          
|
| |  | Details of capital expenditures, amortization and depreciation
    are as shown in the tables detailing changes in the Groups
    asset structure. The effects of the purchase price allocation
    for Bayer Schering Pharma AG, Germany are reflected in
    depreciation and amortization.                                                                                                                                                                                                 
|
| |  | Since financial management of Group companies is carried out
    centrally by Bayer AG, financial liabilities are not allocated
    directly to the respective segments. Consequently, the
    liabilities shown for the individual segments do not include
    financial liabilities.                                                                                                                                                                                                         
|
| |  | The number of employees is reported as full-time equivalents,
    with part-time employees included in proportion to their
    contractual working hours. The prior-year figures have been
    restated accordingly.                                                                                                                                                                                                                                                                           



|              |  |             |        |  |      |  |        | 
|------------- |  | ----------- | ------ |  | ---- |  | ------ | 
|              |  | 2005        |        |  | 2006 | 
|              |  |             |        |  |      | 
|              |  | ( million) |       
|Germany       |  |             | 5,758  |  |      |  | 21,235 | 
|Finland       |  |             | 1      |  |      |  | 1,503  | 
|France        |  |             | 1,311  |  |      |  | 1,200  | 
|United States |  |             | 4,062  |  |      |  | 4,026  | 
|Others        |  |             | 4,877  |  |      |  | 4,937  | 
|              |  |             |        |  |      | 
|              |  |             | 16,009 |  |      |  | 32,901 | 
|              |  |             |        |  |      | 

F-30



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


[7]     Changes in the Bayer
Group




| |                                     
| | ------------------------------------
| | [7.1]     Scope of
    consolidation

|                                          |  |         |    |       |           |  |     |       |  |  |     |  
|----------------------------------------- |  | ------- | -- | ----- | --------- |  | --- | ----- |  |  | --- | -
|                                          |  |         |    | Other |           |  |    
|                                          |  | Germany |    |       | countries |  |     | Total | 
|                                          |  |         |    |       |           |  |     |       | 
|Bayer AG and consolidated companies       |  |         |    |       |           |  |     |       |  |  |     |  
|December 31, 2005                         |  |         | 54 |       |           |  | 229 |       |  |  | 283 |  
|Changes in the scope of consolidation     |  |         | 3  |       |           |  | (6  | )     |  |  | (3  | )
|Additions                                 |  |         | 33 |       |           |  | 127 |       |  |  | 160 |  
|Retirements                               |  |         |   |       |           |  | (8  | )     |  |  | (8  | )
|                                          |  |         |    |       |           |  |     |       | 
|December 31, 2006                         |  |         | 90 |       |           |  | 342 |       |  |  | 432 |  
|                                          |  |         |    |       |           |  |     |       | 
|Companies included at equity (associates) |  |         |    |       |           |  |     |       |  |  |     |  
|December 31, 2005                         |  |         | 3  |       |           |  | 8   |       |  |  | 11  |  
|Changes in the scope of consolidation     |  |         |   |       |           |  | (2  | )     |  |  | (2  | )
|Additions                                 |  |         |   |       |           |  |    |       |  |  |    |  
|Retirements                               |  |         | (2 | )     |           |  | (1  | )     |  |  | (3  | )
|                                          |  |         |    |       |           |  |     |       | 
|December 31, 2006                         |  |         | 1  |       |           |  | 5   |       |  |  | 6   |  
|                                          |  |         |    |       |           |  |     |       | 







|                          |  |             |     |  
|------------------------- |  | ----------- | --- | -
|                          |  | 2006        |    
|                          |  |             |    
|                          |  | ( million) |    
|Current assets            |  |             | 21  |  
|Noncurrent assets         |  |             | 56  |  
|Current liabilities       |  |             | (30 | )
|Noncurrent liabilities    |  |             | (9  | )
|                          |  |             |    
|Net assets                |  |             | 38  |  
|                          |  |             |    
|Income                    |  |             | 59  |  
|Expenses                  |  |             | (64 | )
|                          |  |             |    
|Income (loss) after taxes |  |             | (5  | )
|                          |  |             |    





F-31



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                                   |  |              |      | 
|-------------------------------------------------- |  | ------------ | ---- | 
|                                                   |  | Bayers      |     
|Company Name and Place of Business                 |  | Interest (%) |     
|                                                   |  |              |     
|Germany                                            |  |              |      | 
|Bayer Business Services GmbH, Leverkusen           |  |              | 100  | 
|Bayer CropScience AG, Monheim                      |  |              | 100  | 
|Bayer CropScience Deutschland GmbH, Langenfeld     |  |              | 100  | 
|Bayer CropScience GmbH, Frankfurt                  |  |              | 100  | 
|Bayer HealthCare AG, Leverkusen                    |  |              | 100  | 
|Bayer Industry Services GmbH & Co. OHG, Leverkusen |  |              | 60   | 
|Bayer MaterialScience AG, Leverkusen               |  |              | 100  | 
|Bayer Schering GmbH, Leverkusen                    |  |              | 100  | 
|Bayer Schering Pharma AG, Berlin                   |  |              | 96.2 | 
|Bayer Technology Services GmbH, Leverkusen         |  |              | 100  | 
|Bayer Vital GmbH, Leverkusen                       |  |              | 100  | 
|Schering Deutschland GmbH, Berlin                  |  |              | 100  | 
|Other European Countries                           |  |              |      | 
|Bayer Antwerpen Comm.V, Belgium                    |  |              | 100  | 
|Bayer Biologicals S.r.l., Italy                    |  |              | 100  | 
|Bayer Consumer Care AG, Switzerland                |  |              | 100  | 
|Bayer CropScience France S.A.S., France            |  |              | 100  | 
|Bayer CropScience Limited, U.K.                    |  |              | 100  | 
|Bayer CropScience S.A., France                     |  |              | 99.9 | 
|Bayer CropScience S.r.l., Italy                    |  |              | 100  | 
|Bayer International S.A., Switzerland              |  |              | 99.7 | 
|Bayer Pharma SAS, France                           |  |              | 99.9 | 
|Bayer Polyols S.N.C., France                       |  |              | 100  | 
|Bayer Polyurethanes B.V., Netherlands              |  |              | 100  | 
|Bayer Public Limited Company, U.K.                 |  |              | 100  | 
|Bayer S.p.A., Italy                                |  |              | 100  | 
|Bayer SP.Z.O.O., Poland                            |  |              | 100  | 
|Quimica Farmaceutica Bayer, S.A., Spain            |  |              | 100  | 
|North America                                      |  |              |      | 
|Bayer Corporate and Business Services LLC, U.S.A.  |  |              | 100  | 
|Bayer CropScience Inc., Canada                     |  |              | 100  | 
|Bayer CropScience LP, U.S.A.                       |  |              | 100  | 
|Bayer HealthCare LLC, U.S.A.                       |  |              | 100  | 
|Bayer Inc., Canada                                 |  |              | 100  | 
|Bayer MaterialScience LLC, U.S.A.                  |  |              | 100  | 
|Bayer Pharmaceuticals Corporation, U.S.A.          |  |              | 100  | 
|BAYPO Limited Partnership, U.S.A.                  |  |              | 100  | 
|Berlex Inc., U.S.A.                                |  |              | 100  | 
|Medrad Inc., U.S.A.                                |  |              | 100  | 

F-32



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


|                                                                |  |              |      | 
|--------------------------------------------------------------- |  | ------------ | ---- | 
|                                                                |  | Bayers      |     
|Company Name and Place of Business                              |  | Interest (%) |     
|                                                                |  |              |     
|Asia/Pacific                                                    |  |              |      | 
|Bayer Australia Limited, Australia                              |  |              | 99.9 | 
|Bayer CropScience K.K., Japan                                   |  |              | 100  | 
|Bayer HealthCare Co. Ltd., China                                |  |              | 100  | 
|Bayer Korea Ltd., Republic of Korea                             |  |              | 100  | 
|Bayer MaterialScience Limited, Hong Kong                        |  |              | 100  | 
|Bayer MaterialScience Trading (Shanghai) Company Limited, China |  |              | 100  | 
|Bayer Thai Company Limited, Thailand                            |  |              | 99.9 | 
|Bayer Yakuhin, Ltd., Japan                                      |  |              | 100  | 
|Nihon Schering K.K., Japan                                      |  |              | 100  | 
|Sumika Bayer Urethane Co., Ltd., Japan                          |  |              | 60   | 
|Latin America/ Africa/ Middle East                              |  |              |      | 
|Bayer (Proprietary) Limited, South Africa                       |  |              | 100  | 
|Bayer de Mexico, S.A. de C.V., Mexico                           |  |              | 100  | 
|Bayer S.A., Argentina                                           |  |              | 99.9 | 
|Bayer S.A., Brazil                                              |  |              | 99.9 | 
|Bayer Türk Kimya Sanayi Limited Sirketi, Turkey                 |  |              | 100  | 



|                                                         |  |              |      | 
|-------------------------------------------------------- |  | ------------ | ---- | 
|                                                         |  | Bayers      |     
|Company Name and Place of Business                       |  | Interest (%) |     
|                                                         |  |              |     
|Lyondell Bayer Manufacturing Maasvlakte VOF, Netherlands |  |              | 50   | 
|Palthough Industries (1998) Ltd., Israel                 |  |              | 25   | 
|PO JV, LP, U.S.A.                                        |  |              | 43.4 | 
|Polygal Plastics Industries Ltd., Israel                 |  |              | 25.8 | 





|                                              |  |                  
|--------------------------------------------- |  | -----------------
|Company Name                                  |  | Place of Business
|                                              |  |                  
|Bayer 04 Immobilien GmbH                      |  | Leverkusen       
|Bayer 04 Leverkusen Fußball GmbH              |  | Leverkusen       
|Bayer 04 Mobilien GmbH                        |  | Leverkusen       
|Bayer Beteiligungsverwaltungsgesellschaft mbH |  | Leverkusen       
|Bayer Bitterfeld GmbH                         |  | Greppin          
|Bayer Business Services GmbH                  |  | Leverkusen       
|Bayer Chemicals AG                            |  | Leverkusen       
|Bayer CropScience AG                          |  | Monheim          
|Bayer Direct Services GmbH                    |  | Leverkusen       
|Bayer Gastronomie GmbH                        |  | Leverkusen       
|Bayer Gesellschaft für Beteiligungen mbH      |  | Leverkusen       
|Bayer HealthCare AG                           |  | Leverkusen       
|Bayer Industry Services GmbH & Co. OHG        |  | Leverkusen       

F-33



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


|                                                             |  |                  
|------------------------------------------------------------ |  | -----------------
|Company Name                                                 |  | Place of Business
|                                                             |  |                  
|Bayer Innovation GmbH                                        |  | Düsseldorf       
|Bayer Kaufhaus GmbH                                          |  | Leverkusen       
|Bayer MaterialScience AG                                     |  | Leverkusen       
|Bayer MaterialScience Customer Services GmbH                 |  | Leverkusen       
|Bayer Schering GmbH                                          |  | Leverkusen       
|Bayer Technology Services GmbH                               |  | Leverkusen       
|Bayer Vital GmbH                                             |  | Leverkusen       
|Bayfin GmbH                                                  |  | Leverkusen       
|Case Tech GmbH & Co. KG                                      |  | Bomlitz          
|Chemion Logistik GmbH                                        |  | Leverkusen       
|Drugofa GmbH                                                 |  | Köln             
|DYNEVO GmbH                                                  |  | Leverkusen       
|EPUREX Films GmbH & Co. KG                                   |  | Bomlitz          
|Erste K-W-A Beteiligungsgesellschaft mbH                     |  | Leverkusen       
|Euroservices Bayer GmbH                                      |  | Leverkusen       
|Generics Holding GmbH                                        |  | Leverkusen       
|GeWoGe Gesellschaft für Wohnen und Gebäudemanagement
    mbH |  | Leverkusen       
|GP Grenzach Produktions GmbH                                 |  | Grenzach         
|ICON Genetics GmbH                                           |  | München          
|KVP Pharma+Veterinär-Produkte GmbH                           |  | Kiel             
|Probis GmbH                                                  |  | Bomlitz          
|Sportrechte Vermarktungs- und Verwertungs-GmbH & Co. oHG     |  | Leverkusen       
|Travel Board GmbH                                            |  | Leverkusen       
|Wolff Cellulosics GmbH & Co. KG                              |  | Bomlitz          
|Wolff Walsrode AG                                            |  | Walsrode         
|Zweite K-W-A Beteiligungsgesellschaft mbH                    |  | Leverkusen       



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | [7.2]     Business combinations
    and other acquisitions; divestments and discontinued
    operations



 




| |                                            
| | -------------------------------------------
| | Acquisition of Schering AG, Berlin, Germany



F-34



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




  


  




    


  


F-35



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                            |                                          |                       |        |   |            |  |        |                       |  |  |        |    | 
|------------------------------------------- | ---------------------------------------- | --------------------- | ------ | - | ---------- |  | ------ | --------------------- |  |  | ------ | -- | 
|                                            |                                          | Net Carrying Amount   |        |   |            |  |       
|                                            |                                          | at the Date of First- |        |   | Fair-Value |  |        | Net Carrying Amount   | 
|                                            |                                          | Time Consolidation    |        |   | Adjustment |  |        | After the Acquisition | 
|                                            |                                          |                       |        |   |            |  |        |                       | 
|                                            |                                          | ( million)           |       
|Acquired assets and assumed liabilities     |                                          |                       |        |   |            |  |        |                       |  |  |        |   
|Goodwill                                    |                                          |                       | 364    |   |            |  | 5,407  |                       |  |  | 5,771  |   
|Other intangible assets                     |                                          |                       | 297    |   |            |  | 11,745 |                       |  |  | 12,042 |   
|Property, plant and equipment               |                                          |                       | 1,123  |   |            |  | 453    |                       |  |  | 1,576  |   
|Other noncurrent assets                     |                                          |                       | 233    |   |            |  | (1     | )                     |  |  | 232    |   
|Inventories                                 |                                          |                       | 837    |   |            |  | 848    |                       |  |  | 1,685  |   
|Other current assets                        |                                          |                       | 1,671  |   |            |  |       |                       |  |  | 1,671  |   
|Cash and cash equivalents                   |                                          |                       | 1,025  |   |            |  |       |                       |  |  | 1,025  |   
|Pensions and other post-employment benefits |                                          |                       | (345   | ) |            |  |       |                       |  |  | (345   | ) 
|Other provisions                            |                                          |                       | (1,078 | ) |            |  | (78    | )                     |  |  | (1,156 | ) 
|Financial liabilities                       |                                          |                       | (243   | ) |            |  |       |                       |  |  | (243   | ) 
|Other liabilities                           |                                          |                       | (690   | ) |            |  |       |                       |  |  | (690   | ) 
|Deferred taxes                              |                                          |                       | 295    |   |            |  | (4,841 | )                     |  |  | (4,546 | ) 
|                                            |                                          |                       |        |   |            |  |        |                       | 
|Net assets                                  |                                          |                       | 3,489  |   |            |  | 13,533 |                       |  |  | 17,022 |   
|                                            |                                          |                       |        |   |            |  |        |                       | 
|Minority interests                          |                                          |                       |        |   |            |  |        |                       |  |  | (15    | ) 
|                                            |                                          |                       |        |   |            |  |        |                       | 
|Purchase price                              |                                          |                       |        |   |            |  |        |                       |  |  | 17,007 |   
|                                            |                                          |                       |        |   |            |  |        |                       | 
|                                            | of which are ancillary acquisition costs |                       |        |   |            |  |        |                       |  |  |        | 71 | 
|Acquired cash and cash equivalents          |                                          |                       |        |   |            |  |        |                       |  |  | 1,025  |   
|Liabilities to minority stockholders        |                                          |                       |        |   |            |  |        |                       |  |  | 736    |   
|                                            |                                          |                       |        |   |            |  |        |                       | 
|Net cash outflow for the acquisition        |                                          |                       |        |   |            |  |        |                       |  |  | 15,246 |   
|                                            |                                          |                       |        |   |            |  |        |                       | 







F-36



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                             |  |             |       | 
|---------------------------- |  | ----------- | ----- | 
|                             |  | Fair value  |      
|                             |  |             |      
|                             |  | ( million) |      
|Company names                |  |             | 725   | 
|Product-related brand names  |  |             | 940   | 
|Product-related technologies |  |             | 9,118 | 
|IPR&D projects               |  |             | 1,191 | 
|Software                     |  |             | 68    | 





| |                   
| | ------------------
| | Other acquisitions











|                                        |                                          |             |     |   | 
|--------------------------------------- | ---------------------------------------- | ----------- | --- | - | 
|                                        |                                          | 2006        |    
|                                        |                                          |             |    
|                                        |                                          | ( million) |    
|Acquired assets and assumed liabilities |                                          |             |     |  
|Goodwill                                |                                          |             | 33  |  
|Other intangible assets                 |                                          |             | 75  |  
|Property, plant and equipment           |                                          |             | 6   |  
|Other assets                            |                                          |             | 10  |  
|Cash and cash equivalents               |                                          |             | 1   |  
|Provisions                              |                                          |             | (1  | )
|Financial liabilities                   |                                          |             | (1  | )
|Other liabilities                       |                                          |             | (3  | )
|Deferred taxes                          |                                          |             | (8  | )
|                                        |                                          |             |    
|Purchase price                          |                                          |             | 112 |  
|                                        |                                          |             |    
|                                        | of which are ancillary acquisition costs |             |     |  | 
|Cash and cash equivalents acquired      |                                          |             | 1   |  
|                                        |                                          |             |    
|Net cash outflow for acquisitions       |                                          |             | 111 |  
|                                        |                                          |             |    

F-37



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




| |                                    
| | -----------------------------------
| | Acquisitions after the closing date

over-the   ®








| |                     
| | --------------------
| | Acquisitions in 2005

® ® ® ® ®





     




|                                               |  |             |       | 
|---------------------------------------------- |  | ----------- | ----- | 
|                                               |  | ( million) |      
|                                               |  |             |      
|Acquisition costs excluding assumption of debt |  |             | 2,056 | 
|Ancillary acquisition costs                    |  |             | 28    | 
|                                               |  |             |      
|Purchase price                                 |  |             | 2,084 | 
|                                               |  |             |      
|Fair value of acquired net assets              |  |             | 1,440 | 
|Goodwill                                       |  |             | 644   | 

 


F-38



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                               |                                          |                     |      |   |             |  |       |                       |  |  |       |    | 
|---------------------------------------------- | ---------------------------------------- | ------------------- | ---- | - | ----------- |  | ----- | --------------------- |  |  | ----- | -- | 
|                                               |                                          | Net Carrying Amount |      |   |             |  |      
|                                               |                                          | Prior to the        |      |   | Fair Value  |  |       | Net Carrying Amount   | 
|                                               |                                          | Acquisition         |      |   | Adjustments |  |       | After the Acquisition | 
|                                               |                                          |                     |      |   |             |  |       |                       | 
|                                               |                                          | ( million)         |     
|Acquired assets and assumed liabilities        |                                          |                     |      |   |             |  |       |                       |  |  |       |   
|Other intangible assets                        |                                          |                     |     |   |             |  | 1,142 |                       |  |  | 1,142 |   
|Goodwill                                       |                                          |                     |     |   |             |  | 644   |                       |  |  | 644   |   
|Property, plant and equipment                  |                                          |                     | 142  |   |             |  | 9     |                       |  |  | 151   |   
|Inventories                                    |                                          |                     | 97   |   |             |  | 57    |                       |  |  | 154   |   
|Other current assets (excluding liquid assets) |                                          |                     | 255  |   |             |  | 9     |                       |  |  | 264   |   
|Liquid assets                                  |                                          |                     | 28   |   |             |  |      |                       |  |  | 28    |   
|Pensions and other post-employment benefits    |                                          |                     | (25  | ) |             |  |      |                       |  |  | (25   | ) 
|Other provisions                               |                                          |                     | (9   | ) |             |  |      |                       |  |  | (9    | ) 
|Financial liabilities                          |                                          |                     | (74  | ) |             |  |      |                       |  |  | (74   | ) 
|Other liabilities                              |                                          |                     | (129 | ) |             |  |      |                       |  |  | (129  | ) 
|Deferred taxes                                 |                                          |                     | 6    |   |             |  | (68   | )                     |  |  | (62   | ) 
|                                               |                                          |                     |      |   |             |  |       |                       | 
|Purchase price                                 |                                          |                     |      |   |             |  |       |                       |  |  | 2,084 |   
|                                               |                                          |                     |      |   |             |  |       |                       | 
|                                               | of which are ancillary acquisition costs |                     |      |   |             |  |       |                       |  |  |       | 28 | 
|Assumed net financial liabilities              |                                          |                     |      |   |             |  |       |                       |  |  | (46   | ) 
|                                               |                                          |                     |      |   |             |  |       |                       | 
|Net cash outflow for the acquisition           |                                          |                     |      |   |             |  |       |                       |  |  | 2,130 |   
|                                               |                                          |                     |      |   |             |  |       |                       | 



|                                      |  |             |       |  |             |  |       | 
|------------------------------------- |  | ----------- | ----- |  | ----------- |  | ----- | 
|                                      |  | Fair value  |       |  | Useful life | 
|                                      |  |             |       |  |             | 
|                                      |  | ( million) |       |  | (years)     | 
|Trademarks                            |  |             | 1,055 |  |             |  | 20-30 | 
|Marketing and customer-related rights |  |             | 41    |  |             |  | 20-30 | 
|Software and technologies             |  |             | 46    |  |             |  | 5-8   | 









® 


F-39



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)









|                                  |  |             |     | 
|--------------------------------- |  | ----------- | --- | 
|                                  |  | ( million) |    
|                                  |  |             |    
|Acquisition costs                 |  |             | 276 | 
|Ancillary acquisition costs       |  |             |    | 
|                                  |  |             |    
|Purchase price                    |  |             | 276 | 
|                                  |  |             |    
|Fair value of acquired net assets |  |             | 259 | 
|Goodwill                          |  |             | 17  | 



|                                                                          |                                          |             |     |   | 
|------------------------------------------------------------------------- | ---------------------------------------- | ----------- | --- | - | 
|                                                                          |                                          | 2005        |    
|                                                                          |                                          |             |    
|                                                                          |                                          | ( million) |    
|Acquired assets and assumed liabilities                                   |                                          |             |     |  
|Other intangible assets                                                   |                                          |             | 242 |  
|Goodwill                                                                  |                                          |             | 17  |  
|Property, plant and equipment                                             |                                          |             | 4   |  
|Other financial assets                                                    |                                          |             | 3   |  
|Other current assets                                                      |                                          |             | 10  |  
|                                                                          |                                          |             |    
|Purchase price                                                            |                                          |             | 276 |  
|                                                                          |                                          |             |    
|                                                                          | of which are ancillary acquisition costs |             |     |  | 
|Assumed net financial liabilities                                         |                                          |             |    |  
|                                                                          |                                          |             |    
|Net cash outflow for the business combinations and other
    acquisitions |                                          |             | 276 |  
|                                                                          |                                          |             |    



Divestitures










® ® ® 


F-40



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                      |  |             |     | 
|------------------------------------- |  | ----------- | --- | 
|                                      |  | 2006        |    
|                                      |  |             |    
|                                      |  | ( million) |    
|Divested assets and liabilities       |  |             |     | 
|Goodwill                              |  |             | 2   | 
|Other intangible assets               |  |             | 5   | 
|Property, plant and equipment         |  |             | 16  | 
|Financial assets                      |  |             | 195 | 
|Inventories                           |  |             | 26  | 
|Other assets and liabilities          |  |             |    | 
|Net gain/loss on divestitures         |  |             | 281 | 
|                                      |  |             |    
|Total sale price                      |  |             | 525 | 
|                                      |  |             |    
|Divested cash and cash equivalents    |  |             |    | 
|                                      |  |             |    
|Net cash inflow from the divestitures |  |             | 525 | 
|                                      |  |             |    




® 







|                                            |  |             |    |  
|------------------------------------------- |  | ----------- | -- | -
|                                            |  | 2005        |   
|                                            |  |             |   
|                                            |  | ( million) |   
|Divested assets and liabilities             |  |             |    |  
|Other intangible assets                     |  |             | 5  |  
|Property, plant and equipment               |  |             | 13 |  
|Other financial assets                      |  |             | 7  |  
|Other current assets                        |  |             | 3  |  
|Pensions and other post-employment benefits |  |             | (7 | )
|Other provisions                            |  |             | (1 | )
|Net gain on divestitures                    |  |             | 67 |  
|                                            |  |             |   
|Total selling price                         |  |             | 87 |  
|                                            |  |             |   
|Net divested financial liabilities          |  |             |   |  
|                                            |  |             |   
|Net cash inflow from the divestitures       |  |             | 87 |  
|                                            |  |             |   

Discontinued
operations




F-41



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)












|                                        |                                            |             |        |    |                 |  |      |      |   |  |      |   |  |      |      |     |      |  |     |     |   |  |   |   | 
|--------------------------------------- | ------------------------------------------ | ----------- | ------ | -- | --------------- |  | ---- | ---- | - |  | ---- | - |  | ---- | ---- | --- | ---- |  | --- | --- | - |  | - | - | 
|                                        |                                            | LANXESS     |        |    | Plasma business | 
|                                        |                                            |             |        |    |                 | 
|                                        |                                            | 2004        |        |    | 2005            |  |      | 2006 |   |  | 2004 |   |  | 2005 |      |     | 2006 | 
|                                        |                                            |             |        |    |                 |  |      |      |   |  |      |   |  |      |      |     |      | 
|                                        |                                            | ( million) |        |    | ( million)     | 
|Net sales                               |                                            |             | 6,053  |    |                 |  | 503  |      |   |  |     |   |  |      | 427  |     |      |  | 124 |     |   |  |  |  
|Cost of goods sold                      |                                            |             | (4,635 | )  |                 |  | (345 | )    |   |  |     |   |  |      | (309 | )   |      |  | (91 | )   |   |  |  |  
|Selling expenses                        |                                            |             | (846   | )  |                 |  | (62  | )    |   |  |     |   |  |      | (56  | )   |      |  | (14 | )   |   |  |  |  
|Research and development expenses       |                                            |             | (126   | )  |                 |  | (8   | )    |   |  |     |   |  |      | (48  | )   |      |  | (11 | )   |   |  |  |  
|General administration expenses         |                                            |             | (263   | )  |                 |  | (20  | )    |   |  |     |   |  |      | (18  | )   |      |  | (11 | )   |   |  |  |  
|Other operating income (expenses)  net |                                            |             | (105   | )  |                 |  | (6   | )    |   |  |     |   |  |      | (93  | )   |      |  | 1   |     |   |  |  |  
|                                        |                                            |             |        |    |                 |  |      |      |   |  |      |   |  |      |      |     |      | 
|Operating result                        |                                            |             | 78     |    |                 |  | 62   |      |   |  |     |   |  |      | (97  | )   |      |  | (2  | )   |   |  |  |  
|                                        |                                            |             |        |    |                 |  |      |      |   |  |      |   |  |      |      |     |      | 
|Non-operating result                    |                                            |             | (84    | )  |                 |  | (4   | )    |   |  |     |   |  |      |     |     |      |  |    |     |   |  |  |  
|                                        |                                            |             |        |    |                 |  |      |      |   |  |      |   |  |      |      |     |      | 
|Income (loss) before income taxes       |                                            |             | (6     | )  |                 |  | 58   |      |   |  |     |   |  |      | (97  | )   |      |  | (2  | )   |   |  |  |  
|                                        |                                            |             |        |    |                 |  |      |      |   |  |      |   |  |      |      |     |      | 
|Income taxes                            |                                            |             | 2      |    |                 |  | (20  | )    |   |  |     |   |  |      | 34   |     |      |  | 1   |     |   |  |  |  
|                                        |                                            |             |        |    |                 |  |      |      |   |  |      |   |  |      |      |     |      | 
|Income (loss) after taxes               |                                            |             | (4     | )  |                 |  | 38   |      |   |  |     |   |  |      | (63  | )   |      |  | (1  | )   |   |  |  |  
|                                        |                                            |             |        |    |                 |  |      |      |   |  |      |   |  |      |      |     |      | 
|of which:                               |                                            |             |        |    |                 |  |      |      |   |  |      |   |  |      |      |     |      |  |     |     |   |  |   |  
|                                        | Current income (loss) (before taxes)       |             |        | (6 | )               |  |      | 58   |   |  |      |  |  |      |      | (7  | )    |  |     | 22  |   |  |   |  | 
|                                        | Income taxes                               |             |        | 2  |                 |  |      | (20  | ) |  |      |  |  |      |      | 3   |      |  |     | (7  | ) |  |   |  | 
|                                        |                                            |             |        |    |                 |  |      |      |   |  |      |   |  |      |      |     |      | 
|                                        | Current income (loss) (after taxes)        |             |        | (4 | )               |  |      | 38   |   |  |      |  |  |      |      | (4  | )    |  |     | 15  |   |  |   |  | 
|                                        |                                            |             |        |    |                 |  |      |      |   |  |      |   |  |      |      |     |      | 
|                                        | Income (loss) from the sale (before taxes) |             |        |   |                 |  |      |     |   |  |      |  |  |      |      | (90 | )    |  |     | (24 | ) |  |   |  | 
|                                        | Income taxes                               |             |        |   |                 |  |      |     |   |  |      |  |  |      |      | 31  |      |  |     | 8   |   |  |   |  | 
|                                        |                                            |             |        |    |                 |  |      |      |   |  |      |   |  |      |      |     |      | 
|                                        | Income (loss) from the sale (after taxes)  |             |        |   |                 |  |      |     |   |  |      |  |  |      |      | (59 | )    |  |     | (16 | ) |  |   |  | 
|                                        |                                            |             |        |    |                 |  |      |      |   |  |      |   |  |      |      |     |      | 

F-42



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


|                                        |                                            |             |       |     |             |  |       |      |   |  |       |     |   |      |      |     |      |  |      |     |   |  |      |     |  
|--------------------------------------- | ------------------------------------------ | ----------- | ----- | --- | ----------- |  | ----- | ---- | - |  | ----- | --- | - | ---- | ---- | --- | ---- |  | ---- | --- | - |  | ---- | --- | -
|                                        |                                            | Diagnostics |       |     | H.C. Starck | 
|                                        |                                            |             |       |     |             | 
|                                        |                                            | 2004        |       |     | 2005        |  |       | 2006 |   |  | 2004  |     |   | 2005 |      |     | 2006 | 
|                                        |                                            |             |       |     |             |  |       |      |   |  |       |     |   |      |      |     |      | 
|                                        |                                            | ( million) |       |     | ( million) | 
|Net sales                               |                                            |             | 1,322 |     |             |  | 1,433 |      |   |  | 1,526 |     |   |      | 703  |     |      |  | 920  |     |   |  | 985  |    
|Cost of goods sold                      |                                            |             | (577  | )   |             |  | (652  | )    |   |  | (660  | )   |   |      | (535 | )   |      |  | (738 | )   |   |  | (806 | )  
|Selling expenses                        |                                            |             | (370  | )   |             |  | (370  | )    |   |  | (394  | )   |   |      | (50  | )   |      |  | (54  | )   |   |  | (51  | )  
|Research and development expenses       |                                            |             | (118  | )   |             |  | (120  | )    |   |  | (124  | )   |   |      | (30  | )   |      |  | (29  | )   |   |  | (28  | )  
|General administration expenses         |                                            |             | (95   | )   |             |  | (95   | )    |   |  | (94   | )   |   |      | (20  | )   |      |  | (22  | )   |   |  | (32  | )  
|Other operating income (expenses)  net |                                            |             | (53   | )   |             |  | (17   | )    |   |  | (51   | )   |   |      | 1    |     |      |  | 6    |     |   |  | (13  | )  
|                                        |                                            |             |       |     |             |  |       |      |   |  |       |     |   |      |      |     |      | 
|Operating result                        |                                            |             | 109   |     |             |  | 179   |      |   |  | 203   |     |   |      | 69   |     |      |  | 83   |     |   |  | 55   |    
|                                        |                                            |             |       |     |             |  |       |      |   |  |       |     |   |      |      |     |      | 
|Non-operating result                    |                                            |             |      |     |             |  | 2     |      |   |  | (1    | )   |   |      | (14  | )   |      |  | (10  | )   |   |  | (5   | )  
|                                        |                                            |             |       |     |             |  |       |      |   |  |       |     |   |      |      |     |      | 
|Income (loss) before income taxes       |                                            |             | 109   |     |             |  | 181   |      |   |  | 202   |     |   |      | 55   |     |      |  | 73   |     |   |  | 50   |    
|                                        |                                            |             |       |     |             |  |       |      |   |  |       |     |   |      |      |     |      | 
|Income taxes                            |                                            |             | (38   | )   |             |  | (63   | )    |   |  | (85   | )   |   |      | (21  | )   |      |  | (27  | )   |   |  | (18  | )  
|                                        |                                            |             |       |     |             |  |       |      |   |  |       |     |   |      |      |     |      | 
|Income (loss) after taxes               |                                            |             | 71    |     |             |  | 118   |      |   |  | 117   |     |   |      | 34   |     |      |  | 46   |     |   |  | 32   |    
|                                        |                                            |             |       |     |             |  |       |      |   |  |       |     |   |      |      |     |      | 
|of which:                               |                                            |             |       |     |             |  |       |      |   |  |       |     |   |      |      |     |      |  |      |     |   |  |      |    
|                                        | Current income (loss) (before taxes)       |             |       | 109 |             |  |       | 181  |   |  |       | 202 |   |      |      | 55  |      |  |      | 73  |   |  |      | 50  |  
|                                        | Income taxes                               |             |       | (38 | )           |  |       | (63  | ) |  |       | (85 | ) |      |      | (21 | )    |  |      | (27 | ) |  |      | (18 | )
|                                        |                                            |             |       |     |             |  |       |      |   |  |       |     |   |      |      |     |      | 
|                                        | Current income (loss) (after taxes)        |             |       | 71  |             |  |       | 118  |   |  |       | 117 |   |      |      | 34  |      |  |      | 46  |   |  |      | 32  |  
|                                        |                                            |             |       |     |             |  |       |      |   |  |       |     |   |      |      |     |      | 
|                                        | Income (loss) from the sale (before taxes) |             |       |    |             |  |       |     |   |  |       |    |   |      |      |    |      |  |      |    |   |  |      |    |  
|                                        | Income taxes                               |             |       |    |             |  |       |     |   |  |       |    |   |      |      |    |      |  |      |    |   |  |      |    |  
|                                        |                                            |             |       |     |             |  |       |      |   |  |       |     |   |      |      |     |      | 
|                                        | Income (loss) from the sale (after taxes)  |             |       |    |             |  |       |     |   |  |       |    |   |      |      |    |      |  |      |    |   |  |      |    |  
|                                        |                                            |             |       |     |             |  |       |      |   |  |       |     |   |      |      |     |      | 

F-43



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


|                                        |                                            |                |      |     |             |  |      |      |   |  |      |     |   |      |        |     |      |  |        |      |   |  |        |      |  
|--------------------------------------- | ------------------------------------------ | -------------- | ---- | --- | ----------- |  | ---- | ---- | - |  | ---- | --- | - | ---- | ------ | --- | ---- |  | ------ | ---- | - |  | ------ | ---- | -
|                                        |                                            | Wolff Walsrode |      |     | Total       | 
|                                        |                                            |                |      |     |             | 
|                                        |                                            | 2004           |      |     | 2005        |  |      | 2006 |   |  | 2004 |     |   | 2005 |        |     | 2006 | 
|                                        |                                            |                |      |     |             |  |      |      |   |  |      |     |   |      |        |     |      | 
|                                        |                                            | ( million)    |      |     | ( million) | 
|Net sales                               |                                            |                | 328  |     |             |  | 329  |      |   |  | 334  |     |   |      | 8,833  |     |      |  | 3,309  |      |   |  | 2,845  |     
|Cost of goods sold                      |                                            |                | (223 | )   |             |  | (225 | )    |   |  | (233 | )   |   |      | (6,279 | )   |      |  | (2,051 | )    |   |  | (1,699 | )   
|Selling expenses                        |                                            |                | (37  | )   |             |  | (42  | )    |   |  | (45  | )   |   |      | (1,359 | )   |      |  | (542   | )    |   |  | (490   | )   
|Research and development expenses       |                                            |                | (7   | )   |             |  | (8   | )    |   |  | (8   | )   |   |      | (329   | )   |      |  | (176   | )    |   |  | (160   | )   
|General administration expenses         |                                            |                | (21  | )   |             |  | (20  | )    |   |  | (19  | )   |   |      | (417   | )   |      |  | (168   | )    |   |  | (145   | )   
|Other operating income (expenses)  net |                                            |                |     |     |             |  | 2    |      |   |  | 11   |     |   |      | (250   | )   |      |  | (14    | )    |   |  | (53    | )   
|                                        |                                            |                |      |     |             |  |      |      |   |  |      |     |   |      |        |     |      | 
|Operating result                        |                                            |                | 40   |     |             |  | 36   |      |   |  | 40   |     |   |      | 199    |     |      |  | 358    |      |   |  | 298    |     
|                                        |                                            |                |      |     |             |  |      |      |   |  |      |     |   |      |        |     |      | 
|Non-operating result                    |                                            |                | (7   | )   |             |  | (3   | )    |   |  | (7   | )   |   |      | (105   | )   |      |  | (15    | )    |   |  | (13    | )   
|                                        |                                            |                |      |     |             |  |      |      |   |  |      |     |   |      |        |     |      | 
|Income (loss) before income taxes       |                                            |                | 33   |     |             |  | 33   |      |   |  | 33   |     |   |      | 94     |     |      |  | 343    |      |   |  | 285    |     
|                                        |                                            |                |      |     |             |  |      |      |   |  |      |     |   |      |        |     |      | 
|Income taxes                            |                                            |                | (13  | )   |             |  | (13  | )    |   |  | (13  | )   |   |      | (36    | )   |      |  | (122   | )    |   |  | (116   | )   
|                                        |                                            |                |      |     |             |  |      |      |   |  |      |     |   |      |        |     |      | 
|Income (loss) after taxes               |                                            |                | 20   |     |             |  | 20   |      |   |  | 20   |     |   |      | 58     |     |      |  | 221    |      |   |  | 169    |     
|                                        |                                            |                |      |     |             |  |      |      |   |  |      |     |   |      |        |     |      | 
|of which:                               |                                            |                |      |     |             |  |      |      |   |  |      |     |   |      |        |     |      |  |        |      |   |  |        |     
|                                        | Current income (loss) (before taxes)       |                |      | 33  |             |  |      | 33   |   |  |      | 33  |   |      |        | 184 |      |  |        | 367  |   |  |        | 285  |  
|                                        | Income taxes                               |                |      | (13 | )           |  |      | (13  | ) |  |      | (13 | ) |      |        | (67 | )    |  |        | (130 | ) |  |        | (116 | )
|                                        |                                            |                |      |     |             |  |      |      |   |  |      |     |   |      |        |     |      | 
|                                        | Current income (loss) (after taxes)        |                |      | 20  |             |  |      | 20   |   |  |      | 20  |   |      |        | 117 |      |  |        | 237  |   |  |        | 169  |  
|                                        |                                            |                |      |     |             |  |      |      |   |  |      |     |   |      |        |     |      | 
|                                        | Income (loss) from the sale (before taxes) |                |      |    |             |  |      |     |   |  |      |    |   |      |        | (90 | )    |  |        | (24  | ) |  |        |     |  
|                                        | Income taxes                               |                |      |    |             |  |      |     |   |  |      |    |   |      |        | 31  |      |  |        | 8    |   |  |        |     |  
|                                        |                                            |                |      |     |             |  |      |      |   |  |      |     |   |      |        |     |      | 
|                                        | Income (loss) from the sale (after taxes)  |                |      |    |             |  |      |     |   |  |      |    |   |      |        | (59 | )    |  |        | (16  | ) |  |        |     |  
|                                        |                                            |                |      |     |             |  |      |      |   |  |      |     |   |      |        |     |      | 

F-44



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                                                                     |  |             |   |  |             |  |       |      |  |  |      |  |  |  |       | 
|------------------------------------------------------------------------------------ |  | ----------- | - |  | ----------- |  | ----- | ---- |  |  | ---- |  |  |  | ----- | 
|                                                                                     |  | Diagnostics |   |  | H.C. Starck | 
|                                                                                     |  |             |   |  |             | 
|                                                                                     |  | 2005        |   |  | 2006        |  |       | 2005 |  |  | 2006 | 
|                                                                                     |  |             |   |  |             |  |       |      |  |  |      | 
|                                                                                     |  | ( million) |  
|Noncurrent assets                                                                    |  |             |  |  |             |  | 822   |      |  |  |     |  |  |  | 391   | 
|                                                                                     |  |             |   |  |             |  |       |      |  |  |      | 
|Goodwill and other intangible assets                                                 |  |             |  |  |             |  | 383   |      |  |  |     |  |  |  | 33    | 
|Property, plant and equipment                                                        |  |             |  |  |             |  | 356   |      |  |  |     |  |  |  | 300   | 
|Other noncurrent assets                                                              |  |             |  |  |             |  | 42    |      |  |  |     |  |  |  | 15    | 
|Deferred taxes                                                                       |  |             |  |  |             |  | 41    |      |  |  |     |  |  |  | 43    | 
|                                                                                     |  |             |   |  |             |  |       |      |  |  |      | 
|Current assets                                                                       |  |             |  |  |             |  | 700   |      |  |  |     |  |  |  | 676   | 
|                                                                                     |  |             |   |  |             |  |       |      |  |  |      | 
|Inventories                                                                          |  |             |  |  |             |  | 235   |      |  |  |     |  |  |  | 506   | 
|Trade accounts receivable                                                            |  |             |  |  |             |  | 422   |      |  |  |     |  |  |  | 162   | 
|Other current assets                                                                 |  |             |  |  |             |  | 43    |      |  |  |     |  |  |  | 8     | 
|                                                                                     |  |             |   |  |             |  |       |      |  |  |      | 
|Assets held for sale and discontinued operations                                     |  |             |  |  |             |  | 1,522 |      |  |  |     |  |  |  | 1,067 | 
|                                                                                     |  |             |   |  |             |  |       |      |  |  |      | 
|Noncurrent liabilities                                                               |  |             |  |  |             |  | 33    |      |  |  |     |  |  |  | 233   | 
|                                                                                     |  |             |   |  |             |  |       |      |  |  |      | 
|Provisions for pensions and other post-employment benefits                           |  |             |  |  |             |  | 26    |      |  |  |     |  |  |  | 182   | 
|Other provisions                                                                     |  |             |  |  |             |  |      |      |  |  |     |  |  |  | 30    | 
|Financial liabilities                                                                |  |             |  |  |             |  |      |      |  |  |     |  |  |  |      | 
|Other noncurrent liabilities                                                         |  |             |  |  |             |  |      |      |  |  |     |  |  |  |      | 
|Deferred taxes                                                                       |  |             |  |  |             |  | 7     |      |  |  |     |  |  |  | 21    | 
|                                                                                     |  |             |   |  |             |  |       |      |  |  |      | 
|Current liabilities                                                                  |  |             |  |  |             |  | 299   |      |  |  |     |  |  |  | 125   | 
|                                                                                     |  |             |   |  |             |  |       |      |  |  |      | 
|Other provisions                                                                     |  |             |  |  |             |  | 100   |      |  |  |     |  |  |  | 20    | 
|Financial liabilities                                                                |  |             |  |  |             |  |      |      |  |  |     |  |  |  | 58    | 
|Trade accounts payable                                                               |  |             |  |  |             |  | 74    |      |  |  |     |  |  |  | 29    | 
|Other current liabilities                                                            |  |             |  |  |             |  | 125   |      |  |  |     |  |  |  | 18    | 
|                                                                                     |  |             |   |  |             |  |       |      |  |  |      | 
|                                                                                    
|Liabilities directly related to assets held for sale and
    discontinued operations |  |             |  |  |             |  | 332   |      |  |  |     |  |  |  | 358   | 
|                                                                                     |  |             |   |  |             |  |       |      |  |  |      | 

F-45



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


|                                                                                     |  |             |   |  |       |  |     |      |  |  |      |  |  |  |       | 
|------------------------------------------------------------------------------------ |  | ----------- | - |  | ----- |  | --- | ---- |  |  | ---- |  |  |  | ----- | 
|                                                                                     |  | Wolff       |   |  |      
|                                                                                     |  | Walsrode    |   |  | Total | 
|                                                                                     |  |             |   |  |       | 
|                                                                                     |  | 2005        |   |  | 2006  |  |     | 2005 |  |  | 2006 | 
|                                                                                     |  |             |   |  |       |  |     |      |  |  |      | 
|                                                                                     |  | ( million) |  
|Noncurrent assets                                                                    |  |             |  |  |       |  | 214 |      |  |  |     |  |  |  | 1,427 | 
|                                                                                     |  |             |   |  |       |  |     |      |  |  |      | 
|Goodwill and other intangible assets                                                 |  |             |  |  |       |  | 8   |      |  |  |     |  |  |  | 424   | 
|Property, plant and equipment                                                        |  |             |  |  |       |  | 194 |      |  |  |     |  |  |  | 850   | 
|Other noncurrent assets                                                              |  |             |  |  |       |  | 2   |      |  |  |     |  |  |  | 59    | 
|Deferred taxes                                                                       |  |             |  |  |       |  | 10  |      |  |  |     |  |  |  | 94    | 
|                                                                                     |  |             |   |  |       |  |     |      |  |  |      | 
|Current assets                                                                       |  |             |  |  |       |  | 122 |      |  |  |     |  |  |  | 1,498 | 
|                                                                                     |  |             |   |  |       |  |     |      |  |  |      | 
|Inventories                                                                          |  |             |  |  |       |  | 61  |      |  |  |     |  |  |  | 802   | 
|Trade accounts receivable                                                            |  |             |  |  |       |  | 53  |      |  |  |     |  |  |  | 637   | 
|Other current assets                                                                 |  |             |  |  |       |  | 8   |      |  |  |     |  |  |  | 59    | 
|                                                                                     |  |             |   |  |       |  |     |      |  |  |      | 
|Assets held for sale and discontinued operations                                     |  |             |  |  |       |  | 336 |      |  |  |     |  |  |  | 2,925 | 
|                                                                                     |  |             |   |  |       |  |     |      |  |  |      | 
|Noncurrent liabilities                                                               |  |             |  |  |       |  | 115 |      |  |  |     |  |  |  | 381   | 
|                                                                                     |  |             |   |  |       |  |     |      |  |  |      | 
|Provisions for pensions and other post-employment benefits                           |  |             |  |  |       |  | 89  |      |  |  |     |  |  |  | 297   | 
|Other provisions                                                                     |  |             |  |  |       |  | 7   |      |  |  |     |  |  |  | 37    | 
|Financial liabilities                                                                |  |             |  |  |       |  |    |      |  |  |     |  |  |  |      | 
|Other noncurrent liabilities                                                         |  |             |  |  |       |  |    |      |  |  |     |  |  |  |      | 
|Deferred taxes                                                                       |  |             |  |  |       |  | 19  |      |  |  |     |  |  |  | 47    | 
|                                                                                     |  |             |   |  |       |  |     |      |  |  |      | 
|Current liabilities                                                                  |  |             |  |  |       |  | 43  |      |  |  |     |  |  |  | 467   | 
|                                                                                     |  |             |   |  |       |  |     |      |  |  |      | 
|Other provisions                                                                     |  |             |  |  |       |  | 11  |      |  |  |     |  |  |  | 131   | 
|Financial liabilities                                                                |  |             |  |  |       |  | 8   |      |  |  |     |  |  |  | 66    | 
|Trade accounts payable                                                               |  |             |  |  |       |  | 16  |      |  |  |     |  |  |  | 119   | 
|Other current liabilities                                                            |  |             |  |  |       |  | 8   |      |  |  |     |  |  |  | 151   | 
|                                                                                     |  |             |   |  |       |  |     |      |  |  |      | 
|                                                                                    
|Liabilities directly related to assets held for sale and
    discontinued operations |  |             |  |  |       |  | 158 |      |  |  |     |  |  |  | 848   | 
|                                                                                     |  |             |   |  |       |  |     |      |  |  |      | 

F-46



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                                    |  |             |      |   |                 |  |     |             |  |  |      |  |  |      |     |   |      |  |      |      |  |  |      |  |  |      |      |   |  |  |      |   |  |  |      |  
|--------------------------------------------------- |  | ----------- | ---- | - | --------------- |  | --- | ----------- |  |  | ---- |  |  | ---- | --- | - | ---- |  | ---- | ---- |  |  | ---- |  |  | ---- | ---- | - |  |  | ---- | - |  |  | ---- | -
|                                                    |  | LANXESS     |      |   | Plasma business |  |     | Diagnostics | 
|                                                    |  |             |      |   |                 |  |     |             | 
|                                                    |  | 2004        |      |   | 2005            |  |     | 2006        |  |  | 2004 |  |  | 2005 |     |   | 2006 |  |      | 2004 |  |  | 2005 |  |  | 2006 |     
|                                                    |  |             |      |   |                 |  |     |             |  |  |      |  |  |      |     |   |      |  |      |      |  |  |      |  |  |      |     
|                                                    |  | ( million) |     
|Net cash provided by (used in) operating activities |  |             | 234  |   |                 |  | (80 | )           |  |  |     |  |  |      | (46 | ) |      |  | 40   |      |  |  |     |  |  |      | 246  |   |  |  | 264  |   |  |  | 154  |  
|Net cash provided by (used in) investing activities |  |             | (253 | ) |                 |  | (19 | )           |  |  |     |  |  |      | (30 | ) |      |  | 206  |      |  |  |     |  |  |      | (93  | ) |  |  | (97  | ) |  |  | (107 | )
|Net cash provided by (used in) financing activities |  |             | 19   |   |                 |  | 99  |             |  |  |     |  |  |      | 76  |   |      |  | (246 | )    |  |  |     |  |  |      | (153 | ) |  |  | (167 | ) |  |  | (47  | )
|                                                    |  |             |      |   |                 |  |     |             |  |  |      |  |  |      |     |   |      |  |      |      |  |  |      |  |  |      |     
|Change in cash and cash equivalents                 |  |             |     |   |                 |  |    |             |  |  |     |  |  |      |    |   |      |  |     |      |  |  |     |  |  |      |     |   |  |  |     |   |  |  |     |  
|                                                    |  |             |      |   |                 |  |     |             |  |  |      |  |  |      |     |   |      |  |      |      |  |  |      |  |  |      |     

|                                                    |  |             |     |   |                |  |     |       |  |  |      |   |  |      |     |   |      |  |     |      |  |  |      |   |  |      |      |   |  |  |      |   |  |  |      |  
|--------------------------------------------------- |  | ----------- | --- | - | -------------- |  | --- | ----- |  |  | ---- | - |  | ---- | --- | - | ---- |  | --- | ---- |  |  | ---- | - |  | ---- | ---- | - |  |  | ---- | - |  |  | ---- | -
|                                                    |  | H.C. Starck |     |   | Wolff Walsrode |  |     | Total | 
|                                                    |  |             |     |   |                |  |     |       | 
|                                                    |  | 2004        |     |   | 2005           |  |     | 2006  |  |  | 2004 |   |  | 2005 |     |   | 2006 |  |     | 2004 |  |  | 2005 |   |  | 2006 |     
|                                                    |  |             |     |   |                |  |     |       |  |  |      |   |  |      |     |   |      |  |     |      |  |  |      |   |  |      |     
|                                                    |  | ( million) |    
|Net cash provided by (used in) operating activities |  |             | (2  | ) |                |  | 10  |       |  |  | 78   |   |  |      | 59  |   |      |  | 41  |      |  |  | 43   |   |  |      | 491  |   |  |  | 275  |   |  |  | 275  |  
|Net cash provided by (used in) investing activities |  |             | (40 | ) |                |  | (48 | )     |  |  | (55  | ) |  |      | (13 | ) |      |  | (20 | )    |  |  | (17  | ) |  |      | (429 | ) |  |  | 22   |   |  |  | (179 | )
|Net cash provided by (used in) financing activities |  |             | 42  |   |                |  | 38  |       |  |  | (23  | ) |  |      | (46 | ) |      |  | (21 | )    |  |  | (26  | ) |  |      | (62  | ) |  |  | (297 | ) |  |  | (96  | )
|                                                    |  |             |     |   |                |  |     |       |  |  |      |   |  |      |     |   |      |  |     |      |  |  |      |   |  |      |     
|Change in cash and cash equivalents                 |  |             |    |   |                |  |    |       |  |  |     |   |  |      |    |   |      |  |    |      |  |  |     |   |  |      |     |   |  |  |     |   |  |  |     |  
|                                                    |  |             |     |   |                |  |     |       |  |  |      |   |  |      |     |   |      |  |     |      |  |  |      |   |  |      |     

Notes to the Statements of Income


[8]     Net sales


     




|                                                              |  |             |       |  
|------------------------------------------------------------- |  | ----------- | ----- | -
|2006                                                          |  | ( million) |      
|                                                              |  |             |      
|Acquisitions                                                  |  |             |       |  
|Schering AG, Germany                                          |  |             | 3,082 |  
|Other                                                         |  |             | 24    |  
|                                                              |  |             |      
|                                                              |  |             | 3,106 |  
|                                                              |  |             |      
|Divestitures                                                  |  |             |       |  
|Cessation of plasma distribution in Canada (divested in 2005) |  |             | (100  | )
|BCS active ingredients                                        |  |             | (50   | )
|                                                              |  |             |      
|                                                              |  |             | (150  | )
|                                                              |  |             |      
|LANXESS sales revenues (January 1  31, 2005)                 |  |             | 69    |  
|                                                              |  |             |      
|Net effect of portfolio changes                               |  |             | 3,025 |  
|                                                              |  |             |      

    


F-47



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)





|                                                                   |  |             |       |  
|------------------------------------------------------------------ |  | ----------- | ----- | -
|2005                                                               |  | ( million) |      
|                                                                   |  |             |      
|Acquisitions                                                       |  |             |       |  
|Roche Consumer Health business                                     |  |             | 1,061 |  
|Gustafson (remaining 50 percent acquired in 2004)                  |  |             | 25    |  
|Other                                                              |  |             | 7     |  
|                                                                   |  |             |      
|                                                                   |  |             | 1,093 |  
|                                                                   |  |             |      
|Divestitures                                                       |  |             | (4    | )
|                                                                   |  |             |      
|Net sales to LANXESS after the spin-off on January 31,
    2005(1) |  |             | 981   |  
|                                                                   |  |             |      
|                                                                   |  |             | 981   |  
|                                                                   |  |             |      
|Net effect of portfolio changes                                    |  |             | 2,070 |  
|                                                                   |  |             |      






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | A trading relationship now exists between the Bayer Group and
    the LANXESS Group as separate enterprises following the spin-off
    of what was previously the LANXESS subgroup of Bayer. The
    relevant agreements are concluded on an arms-length basis.
    Under these agreements, the Bayer Group supplies goods and
    services to the LANXESS Group. Some of the transactions relate
    to products, such as chlorine or caustic soda solution, that are
    supplied to LANXESS by the MaterialScience subgroup. Others are
    service transactions in the areas of IT systems development and
    application support, IT infrastructure, site services and
    engineering services. Prior to the spin-off, the resulting
    revenues were recorded as intragroup sales and eliminated in the
    consolidation.



[9]     Selling expenses


     


[10]     Other operating income


|                                                                                         |  |             |     |  |      |  |     |      |  |  |     | 
|---------------------------------------------------------------------------------------- |  | ----------- | --- |  | ---- |  | --- | ---- |  |  | --- | 
|                                                                                         |  | 2004        |     |  | 2005 |  |     | 2006 | 
|                                                                                         |  |             |     |  |      |  |     |      | 
|                                                                                         |  | ( million) |    
|Gains from sales of intangibles, property, plant and equipment
    and from divestitures |  |             | 182 |  |      |  | 150 |      |  |  | 169 | 
|Write-backs of receivables and other assets                                              |  |             | 48  |  |      |  | 79  |      |  |  | 98  | 
|Reversals of unutilized provisions                                                       |  |             | 60  |  |      |  | 25  |      |  |  | 55  | 
|Recognition of exchange rate hedges                                                      |  |             | 72  |  |      |  | 105 |      |  |  | 120 | 
|Miscellaneous operating income                                                           |  |             | 440 |  |      |  | 416 |      |  |  | 288 | 
|                                                                                         |  |             |     |  |      |  |     |      | 
|                                                                                         |  |             | 802 |  |      |  | 775 |      |  |  | 730 | 
|                                                                                         |  |             |     |  |      |  |     |      | 

  


F-48



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


[11]     Other operating expenses


|                                                                                          |  |             |        |   |      |  |        |      |  |  |        |  
|----------------------------------------------------------------------------------------- |  | ----------- | ------ | - | ---- |  | ------ | ---- |  |  | ------ | -
|                                                                                          |  | 2004        |        |   | 2005 |  |        | 2006 | 
|                                                                                          |  |             |        |   |      |  |        |      | 
|                                                                                          |  | ( million) |       
|Amortization and write-downs of acquired goodwill                                         |  |             | (166   | ) |      |  |       |      |  |  |       |  
|Losses from sales of intangibles, property, plant and equipment
    and from divestitures |  |             | (126   | ) |      |  | (126   | )    |  |  | (31    | )
|Write-downs of trade accounts receivable                                                  |  |             | (86    | ) |      |  | (165   | )    |  |  | (138   | )
|Expenses related to significant legal risks                                               |  |             | (149   | ) |      |  | (451   | )    |  |  | (205   | )
|Recognition of exchange rate hedges                                                       |  |             | (76    | ) |      |  | (58    | )    |  |  | (126   | )
|Miscellaneous operating expenses                                                          |  |             | (541   | ) |      |  | (467   | )    |  |  | (719   | )
|                                                                                          |  |             |        |   |      |  |        |      | 
|                                                                                          |  |             | (1,144 | ) |      |  | (1,267 | )    |  |  | (1,219 | )
|                                                                                          |  |             |        |   |      |  |        |      | 

   


®   


 ®


[12]     Personnel
expenses/employees


|                                                             |  |             |       |  |      |  |       |      |  |  |       | 
|------------------------------------------------------------ |  | ----------- | ----- |  | ---- |  | ----- | ---- |  |  | ----- | 
|                                                             |  | 2004        |       |  | 2005 |  |       | 2006 | 
|                                                             |  |             |       |  |      |  |       |      | 
|                                                             |  | ( million) |      
|Wages and salaries                                           |  |             | 4,347 |  |      |  | 4,309 |      |  |  | 5,216 | 
|Social expenses and expenses for pensions and other benefits |  |             | 1,236 |  |      |  | 1,009 |      |  |  | 1,414 | 
| of which for defined-contribution pension
    plans        |  |             | 272   |  |      |  | 320   |      |  |  | 392   | 
| of which for defined-benefit pension plans                 |  |             | 143   |  |      |  | 38    |      |  |  | 198   | 
|                                                             |  |             |       |  |      |  |       |      | 
|                                                             |  |             | 5,583 |  |      |  | 5,318 |      |  |  | 6,630 | 
|                                                             |  |             |       |  |      |  |       |      | 

      







F-49



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                          |  |      |        |  |      |  |        |      |  |  |        | 
|------------------------- |  | ---- | ------ |  | ---- |  | ------ | ---- |  |  | ------ | 
|                          |  | 2004 |        |  | 2005 |  |        | 2006 | 
|                          |  |      |        |  |      |  |        |      | 
|Marketing                 |  |      | 23,689 |  |      |  | 24,723 |      |  |  | 31,098 | 
|Technology/ Manufacturing |  |      | 42,282 |  |      |  | 41,757 |      |  |  | 45,076 | 
|Research and development  |  |      | 8,532  |  |      |  | 8,125  |      |  |  | 10,356 | 
|Administration            |  |      | 7,850  |  |      |  | 7,769  |      |  |  | 10,064 | 
|                          |  |      |        |  |      |  |        |      | 
|                          |  |      | 82,353 |  |      |  | 82,374 |      |  |  | 96,594 | 
|                          |  |      |        |  |      |  |        |      | 
|of which trainees         |  |      | 2,545  |  |      |  | 2,547  |      |  |  | 2,715  | 





[13]     Non-operating result


           


[13.1]     Income
(loss) from investments in affiliated companies 
net


|                                                                                            |  |             |      |   |      |  |     |      |  |  |     |  
|------------------------------------------------------------------------------------------- |  | ----------- | ---- | - | ---- |  | --- | ---- |  |  | --- | -
|                                                                                            |  | 2004        |      |   | 2005 |  |     | 2006 | 
|                                                                                            |  |             |      |   |      |  |     |      | 
|                                                                                            |  | ( million) |     
|Net loss from investments in associates (equity-method loss)                                |  |             | (139 | ) |      |  | (10 | )    |  |  | (25 | )
|Expenses                                                                                    |  |             |      |   |      |  |     |      |  |  |     |  
|Write-downs of investments in affiliated companies                                          |  |             | (11  | ) |      |  | (27 | )    |  |  | (20 | )
|Losses from the sale of investments in affiliated companies                                 |  |             | (4   | ) |      |  |    |      |  |  | (12 | )
|Income                                                                                      |  |             |      |   |      |  |     |      |  |  |     |  
|Dividends from affiliated companies and income from profit and
    loss transfer agreements |  |             |     |   |      |  | 10  |      |  |  | 5   |  
|Gains from the sale of investments in affiliated companies                                  |  |             | 11   |   |      |  | 5   |      |  |  | 259 |  
|                                                                                            |  |             |      |   |      |  |     |      | 
|                                                                                            |  |             | (143 | ) |      |  | (22 | )    |  |  | 207 |  
|                                                                                            |  |             |      |   |      |  |     |      | 

      




F-50



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


[13.2]     Interest
expense  net


|                                   |  |             |      |   |      |  |      |      |  |  |        |  
|---------------------------------- |  | ----------- | ---- | - | ---- |  | ---- | ---- |  |  | ------ | -
|                                   |  | 2004        |      |   | 2005 |  |      | 2006 | 
|                                   |  |             |      |   |      |  |      |      | 
|                                   |  | ( million) |     
|Expenses                           |  |             |      |   |      |  |      |      |  |  |        |  
|Interest and similar expenses      |  |             | (654 | ) |      |  | (909 | )    |  |  | (1,381 | )
|Income                             |  |             |      |   |      |  |      |      |  |  |        |  
|Income from other financial assets |  |             | 13   |   |      |  | 7    |      |  |  | 10     |  
|Other interest and similar income  |  |             | 414  |   |      |  | 564  |      |  |  | 643    |  
|                                   |  |             |      |   |      |  |      |      | 
|                                   |  |             | (227 | ) |      |  | (338 | )    |  |  | (728   | )
|                                   |  |             |      |   |      |  |      |      | 




  


  


[13.3]     Other
non-operating expense  net


|                                                |  |             |      |   |      |  |      |      |  |  |      |  
|----------------------------------------------- |  | ----------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                                |  | 2004        |      |   | 2005 |  |      | 2006 | 
|                                                |  |             |      |   |      |  |      |      | 
|                                                |  | ( million) |     
|Expenses                                        |  |             |      |   |      |  |      |      |  |  |      |  
|Interest-portion of interest-bearing provisions |  |             | (220 | ) |      |  | (234 | )    |  |  | (223 | )
|Net exchange loss                               |  |             | (16  | ) |      |  | (18  | )    |  |  | (18  | )
|Miscellaneous non-operating expenses            |  |             | (71  | ) |      |  | (36  | )    |  |  | (34  | )
|Income                                          |  |             |      |   |      |  |      |      |  |  |      |  
|Miscellaneous non-operating income              |  |             | 45   |   |      |  | 46   |      |  |  | 14   |  
|                                                |  |             |      |   |      |  |      |      | 
|                                                |  |             | (262 | ) |      |  | (242 | )    |  |  | (261 | )
|                                                |  |             |      |   |      |  |      |      | 

   


F-51



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


[14]     Income taxes






|                              |  |             |      |   |      |  |      |      |  |  |      |  
|----------------------------- |  | ----------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                              |  | 2004        |      |   | 2005 |  |      | 2006 | 
|                              |  |             |      |   |      |  |      |      | 
|                              |  | ( million) |     
|Income taxes paid or accrued  |  |             |      |   |      |  |      |      |  |  |      |  
| Germany                     |  |             | (90  | ) |      |  | (143 | )    |  |  | (139 | )
| Other countries             |  |             | (317 | ) |      |  | (320 | )    |  |  | (624 | )
|                              |  |             |      |   |      |  |      |      | 
|                              |  |             | (407 | ) |      |  | (463 | )    |  |  | (763 | )
|                              |  |             |      |   |      |  |      |      | 
|Deferred taxes                |  |             |      |   |      |  |      |      |  |  |      |  
| from temporary differences  |  |             | (160 | ) |      |  | (178 | )    |  |  | (12  | )
| from tax loss carryforwards |  |             | 166  |   |      |  | 103  |      |  |  | 321  |  
|                              |  |             |      |   |      |  |      |      | 
|                              |  |             | 6    |   |      |  | (75  | )    |  |  | 309  |  
|                              |  |             |      |   |      |  |      |      | 
|Income taxes                  |  |             | (401 | ) |      |  | (538 | )    |  |  | (454 | )
|                              |  |             |      |   |      |  |      |      | 

  




|                                               |  |               |        |          |               |  |        |            |          |  |             |   |  |  |        |  
|---------------------------------------------- |  | ------------- | ------ | -------- | ------------- |  | ------ | ---------- | -------- |  | ----------- | - |  |  | ------ | -
|                                               |  | Dec. 31, 2005 |        |          | Dec. 31, 2006 | 
|                                               |  |               |        |          |               | 
|                                               |  |               |        | Deferred |               |  |        |            | Deferred | 
|                                               |  | Deferred      |        |          | Tax           |  |        | Deferred   |          |  | Tax         |  
|                                               |  | Tax Assets    |        |          | Liabilities   |  |        | Tax Assets |          |  | Liabilities |  
|                                               |  |               |        |          |               |  |        |            |          |  |             |  
|                                               |  | ( million)   |       
|Intangible assets                              |  |               | 159    |          |               |  | 983    |            |          |  | 157         |   |  |  | 5,164  |  
|Property, plant and equipment                  |  |               | 184    |          |               |  | 780    |            |          |  | 78          |   |  |  | 936    |  
|Financial assets                               |  |               | 26     |          |               |  | 235    |            |          |  | 104         |   |  |  | 277    |  
|Inventories                                    |  |               | 377    |          |               |  | 66     |            |          |  | 482         |   |  |  | 374    |  
|Receivables                                    |  |               | 123    |          |               |  | 344    |            |          |  | 66          |   |  |  | 526    |  
|Other assets                                   |  |               | 34     |          |               |  | 253    |            |          |  | 24          |   |  |  | 50     |  
|Pension provisions                             |  |               | 1,522  |          |               |  | 436    |            |          |  | 1,431       |   |  |  | 503    |  
|Other provisions                               |  |               | 666    |          |               |  | 68     |            |          |  | 791         |   |  |  | 125    |  
|Liabilities                                    |  |               | 726    |          |               |  | 20     |            |          |  | 592         |   |  |  | 43     |  
|Tax loss carryforwards                         |  |               | 1,047  |          |               |  |       |            |          |  | 1,217       |   |  |  |       |  
|Valuation allowance for tax loss carryforwards |  |               | (261   | )        |               |  |       |            |          |  | (85         | ) |  |  |       |  
|                                               |  |               |        |          |               |  |        |            |          |  |             |  
|                                               |  |               | 4,603  |          |               |  | 3,185  |            |          |  | 4,857       |   |  |  | 7,998  |  
|                                               |  |               |        |          |               |  |        |            |          |  |             |  
|of which noncurrent                            |  |               | 3,443  |          |               |  | 2,365  |            |          |  | 2,989       |   |  |  | 6,813  |  
|                                               |  |               |        |          |               |  |        |            |          |  |             |  
|Set-off                                        |  |               | (2,905 | )        |               |  | (2,905 | )          |          |  | (3,652      | ) |  |  | (3,652 | )
|                                               |  |               |        |          |               |  |        |            |          |  |             |  
|                                               |  |               | 1,698  |          |               |  | 280    |            |          |  | 1,205       |   |  |  | 4,346  |  
|                                               |  |               |        |          |               |  |        |            |          |  |             |  

   


F-52



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


 


  




|                          |  |               |       |  |               |  |       | 
|------------------------- |  | ------------- | ----- |  | ------------- |  | ----- | 
|                          |  | Dec. 31, 2005 |       |  | Dec. 31, 2006 | 
|                          |  |               |       |  |               | 
|                          |  | ( million)   |      
|One year                  |  |               |      |  |               |  | 9     | 
|Two years                 |  |               |      |  |               |  | 14    | 
|Three years               |  |               |      |  |               |  | 60    | 
|Four years                |  |               | 4     |  |               |  | 67    | 
|Five years and thereafter |  |               | 2,714 |  |               |  | 3,075 | 
|                          |  |               |       |  |               | 
|                          |  |               | 2,718 |  |               |  | 3,225 | 
|                          |  |               |       |  |               | 

            


 


   


  


F-53



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)








       




|                                                                                                |  |             |      |   |      |  |     |             |  |  |      |   |  |             |     |   |   |  |      |   |  |  |     |  
|----------------------------------------------------------------------------------------------- |  | ----------- | ---- | - | ---- |  | --- | ----------- |  |  | ---- | - |  | ----------- | --- | - | - |  | ---- | - |  |  | --- | -
|                                                                                                |  | 2004        |      |   | 2005 |  |     | 2006        | 
|                                                                                                |  |             |      |   |      |  |     |             | 
|                                                                                                |  | ( million) |      |   | %    |  |     | ( million) |  |  | %    |   |  | ( million) |     |   | % | 
|                                                                                                |  |             |      |   |      |  |     |             |  |  |      |   |  |             |     |   |   | 
|Theoretical income tax expense (income)                                                         |  |             | 356  |   |      |  | 100 |             |  |  | 671  |   |  |             | 100 |   |   |  | 695  |   |  |  | 100 |  
|Reduction in taxes due to tax-free income                                                       |  |             |      |   |      |  |     |             |  |  |      |   |  |             |     |   |   |  |      |   |  |  |     |  
| Tax-free income from affiliated companies and
    divestiture proceeds                        |  |             | (4   | ) |      |  | (1  | )           |  |  | (6   | ) |  |             | (1  | ) |   |  | (5   | ) |  |  | (1  | )
| Other                                                                                         |  |             | (84  | ) |      |  | (24 | )           |  |  | (99  | ) |  |             | (15 | ) |   |  | (107 | ) |  |  | (15 | )
|Utilization of off-balance-sheet loss carryforwards                                             |  |             | (30  | ) |      |  | (8  | )           |  |  | (34  | ) |  |             | (5  | ) |   |  | (1   | ) |  |  |    |  
|First-time recognition of previously unrecognized deferred tax
    assets on loss carryforwards |  |             |     |   |      |  |    |             |  |  |     |   |  |             |    |   |   |  | (203 | ) |  |  | (30 | )
|Reversion of tax provision                                                                      |  |             |     |   |      |  |    |             |  |  | (104 | ) |  |             | (15 | ) |   |  |     |   |  |  |    |  
|Increase in taxes due to non-tax-deductible expenses                                            |  |             |      |   |      |  |     |             |  |  |      |   |  |             |     |   |   |  |      |   |  |  |     |  
| Write-downs on investments                                                                    |  |             | 13   |   |      |  | 4   |             |  |  | 10   |   |  |             | 1   |   |   |  | 8    |   |  |  | 1   |  
| Amortization of goodwill                                                                      |  |             | 63   |   |      |  | 18  |             |  |  |     |   |  |             |    |   |   |  |     |   |  |  |    |  
| Expenses related to litigation                                                                |  |             | 31   |   |      |  | 9   |             |  |  | 17   |   |  |             | 3   |   |   |  | 1    |   |  |  |    |  
| Other                                                                                         |  |             | 30   |   |      |  | 8   |             |  |  | 53   |   |  |             | 8   |   |   |  | 94   |   |  |  | 14  |  
|Other tax effects                                                                               |  |             | 26   |   |      |  | 7   |             |  |  | 30   |   |  |             | 4   |   |   |  | (28  | ) |  |  | (4  | )
|                                                                                                |  |             |      |   |      |  |     |             |  |  |      |   |  |             |     |   |   | 
|Actual income tax expense (income)                                                              |  |             | 401  |   |      |  | 113 |             |  |  | 538  |   |  |             | 80  |   |   |  | 454  |   |  |  | 65  |  
|                                                                                                |  |             |      |   |      |  |     |             |  |  |      |   |  |             |     |   |   | 
|Effective tax rate in %                                                                         |  |             | 39.1 |   |      |  |     |             |  |  | 28.1 |   |  |             |     |   |   |  | 22.9 |   |  |  |     |  

[15]     Income attributable to
minority interest


     


[16]     Earnings per share from
continuing and discontinued operations




F-54



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                                                                              |                                                                                     |             |             |   |      |  |             |      |  |  |             |            | 
|--------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ----------- | ----------- | - | ---- |  | ----------- | ---- |  |  | ----------- | ---------- | 
|                                                                                              |                                                                                     | 2004        |             |   | 2005 |  |             | 2006 | 
|                                                                                              |                                                                                     |             |             |   |      |  |             |      | 
|                                                                                              |                                                                                     | ( million) |            
|Income after taxes                                                                            |                                                                                     |             | 682         |   |      |  | 1,595       |      |  |  | 1,695       |           
|Income attributable to minority interest                                                      |                                                                                     |             | (3          | ) |      |  | (2          | )    |  |  | 12          |           
|Income attributable to Bayer AG stockholders                                                  |                                                                                     |             | 685         |   |      |  | 1,597       |      |  |  | 1,683       |           
|Income from discontinued operations                                                           |                                                                                     |             | 58          |   |      |  | 221         |      |  |  | 169         |           
|Financing expenses for the mandatory convertible bond, net of
    tax effects
    ( million) |                                                                                     |             |            |   |      |  |            |      |  |  | 72          |           
| Adjusted income after taxes from continuing
    operations
    ( million)                  |                                                                                     |             | 627         |   |      |  | 1,376       |      |  |  | 1,586       |           
| Adjusted net income
    ( million)                                                         |                                                                                     |             | 685         |   |      |  | 1,597       |      |  |  | 1,755       |           
|Weighted average number of issued ordinary shares                                             |                                                                                     |             | 730,341,920 |   |      |  | 730,341,920 |      |  |  | 746,456,988 |           
|                                                                                              | Potential shares to be issued upon conversion of the mandatory
    convertible bond |             |             |  |      |  |             |     |  |  |             | 45,300,595 | 
|Adjusted weighted average total number of issued and potential
    ordinary shares            |                                                                                     |             | 730,341,920 |   |      |  | 730,341,920 |      |  |  | 791,757,583 |           
|Basic earnings per share
    ()                                                              |                                                                                     |             |             |   |      |  |             |      |  |  |             |           
| from continuing operations                                                                  |                                                                                     |             | 0.86        |   |      |  | 1.88        |      |  |  | 2.00        |           
| from continuing and discontinued operations                                                 |                                                                                     |             | 0.94        |   |      |  | 2.19        |      |  |  | 2.22        |           
|Diluted earnings per share
    ()                                                            |                                                                                     |             |             |   |      |  |             |      |  |  |             |           
| from continuing operations                                                                  |                                                                                     |             | 0.86        |   |      |  | 1.88        |      |  |  | 2.00        |           
| from continuing and discontinued operations                                                 |                                                                                     |             | 0.94        |   |      |  | 2.19        |      |  |  | 2.22        |           



  


Notes to the Balance Sheets






F-55



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


[17]     Goodwill and other
intangible assets




|                                                                |                      |             |       |   |         |  |        |            |              |  |        |            |  |        |            |    |          |         |       |          |  |  |       |    |  |  |       |   |  |  |        |    | 
|--------------------------------------------------------------- | -------------------- | ----------- | ----- | - | ------- |  | ------ | ---------- | ------------ |  | ------ | ---------- |  | ------ | ---------- | -- | -------- | ------- | ----- | -------- |  |  | ----- | -- |  |  | ----- | - |  |  | ------ | -- | 
|                                                                |                      |             |       |   |         |  |        | Marketing  |              |  |        |            |  |        | Other      |    |          |        
|                                                                |                      |             |       |   |         |  |        | and        |              |  |        |            |  |        | Rights and |    |          |        
|                                                                |                      | Acquired    |       |   |         |  |        |            | Distribution |  |        | Production |  |        | IPR&D      |    |          | Advance |       |          | 
|                                                                |                      | Goodwill    |       |   | Patents |  |        | Trademarks |              |  | Rights |            |  | Rights |            |    | Projects |         |       | 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                           |                      |             |      |   |         |  |       |            |              |  |       |            |  |        |           |    |          |         |      |          |  |  |      |    |  |  |      |   |  |  |       |   
|Acquisitions                                                    |                      |             | 5,804 |   |         |  | 8,880  |            |              |  | 1,666  |            |  |        | 174        |    |          |         |      |          |  |  | 1,218 |    |  |  | 179   |   |  |  | 17,921 |   
|Capital Expenditures                                            |                      |             |      |   |         |  | 10     |            |              |  |       |            |  |        | 139        |    |          |         | 11    |          |  |  | 105   |    |  |  | 78    |   |  |  | 343    |   
|Retirements                                                     |                      |             | (2    | ) |         |  | (12    | )          |              |  | (23    | )          |  |        | (1         | )  |          |         | (3    | )        |  |  |      |    |  |  | (31   | ) |  |  | (72    | ) 
|Reclassifications to current assets                             |                      |             | (42   | ) |         |  | (397   | )          |              |  | (4     | )          |  |        | (313       | )  |          |         |      |          |  |  |      |    |  |  | (101  | ) |  |  | (857   | ) 
|Transfers                                                       |                      |             |      |   |         |  | (6     | )          |              |  | 2      |            |  |        | 3          |    |          |         |      |          |  |  |      |    |  |  | (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                           |                      |             |      |   |         |  |       |            |              |  |       |            |  |        |           |    |          |         |      |          |  |  |      |    |  |  |      |   |  |  |       |   
|Retirements                                                     |                      |             |      |   |         |  | (11    | )          |              |  | (20    | )          |  |        | (1         | )  |          |         | (1    | )        |  |  |      |    |  |  | (24   | ) |  |  | (57    | ) 
|Reclassifications to current assets                             |                      |             |      |   |         |  | (210   | )          |              |  | (2     | )          |  |        | (149       | )  |          |         |      |          |  |  |      |    |  |  | (72   | ) |  |  | (433   | ) 
|Amortization and write-downs in 2006                            |                      |             |      |   |         |  | 533    |            |              |  | 126    |            |  |        | 101        |    |          |         | 164   |          |  |  | 41    |    |  |  | 135   |   |  |  | 1,100  |   
|                                                                | of which write-downs |             |       |  |         |  |        |           |              |  |        |           |  |        |            | 20 |          |         |       |         |  |  |       | 41 |  |  |       | 4 |  |  |        | 65 | 
|Write-backs                                                     |                      |             |      |   |         |  |       |            |              |  |       |            |  |        |           |    |          |         |      |          |  |  |      |    |  |  |      |   |  |  |       |   
|Transfers                                                       |                      |             |      |   |         |  |       |            |              |  | 1      |            |  |        | (3         | )  |          |         |      |          |  |  |      |    |  |  | (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 |   
|                                                                |                      |             |       |   |         |  |        |            |              |  |        |            |  |        |            |    |          |         |       |          |  |  |       |   



F-56



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                        |  |                 |       |          |        |  |     |            |      |               |            |          |  |            |       |   |             |  |     |   |  |  |       |  
|--------------------------------------- |  | --------------- | ----- | -------- | ------ |  | --- | ---------- | ---- | ------------- | ---------- | -------- |  | ---------- | ----- | - | ----------- |  | --- | - |  |  | ----- | -
|                                        |  |                 |       |          |        |  |     |            |      | Environmental |            |          | 
|                                        |  |                 |       | Consumer |        |  |     |            | Crop |               |            | Science, |  |            |      
|                                        |  | Pharmaceuticals |       |          | Health |  |     | HealthCare |      |               | Protection |          |  | BioScience |       |   | CropScience | 
|                                        |  |                 |       |          |        |  |     |            |      |               |            |          |  |            |       |   |             | 
|                                        |  | ( 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   |  |                 |      |          |        |  |    |            |      |               |           |          |  |            |      |   |             |  |    |   |  |  |      |  
|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 |  
|                                        |  |                 |       |          |        |  |     |            |      |               |            |          |  |            |       |   |             | 

F-57



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


|                                        |  |             |     |   |         |  |    |                 |  |  |                |   |  |             |   |  |  |  |       |  
|--------------------------------------- |  | ----------- | --- | - | ------- |  | -- | --------------- |  |  | -------------- | - |  | ----------- | - |  |  |  | ----- | -
|                                        |  | Materials   |     |   | Systems |  |    | MaterialScience |  |  | Reconciliation |   |  | 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   |  |             |    |   |         |  |   |                 |  |  |               |   |  |             |  |  |  |  |      |  
|Acquisitions                            |  |             | 1   |   |         |  |   |                 |  |  | 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 |  
|                                        |  |             |     |   |         |  |    |                 |  |  |                |   |  |             |  

  ®  ®




|                                            |  |             |       | 
|------------------------------------------- |  | ----------- | ----- | 
|Estimated Amortization of Intangible Assets |  | ( million) |      
|                                            |  |             |      
|2007                                        |  |             | 1,324 | 
|2008                                        |  |             | 1,495 | 
|2009                                        |  |             | 1,416 | 
|2010                                        |  |             | 1,240 | 
|2011                                        |  |             | 1,177 | 



F-58



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                                                               |                      |             |       |   |         |  |       |            |              |  |        |            |  |        |        |    |          |         |       |          |  |  |       |   |  |  |       |   |  |  |        |    | 
|------------------------------------------------------------------------------ | -------------------- | ----------- | ----- | - | ------- |  | ----- | ---------- | ------------ |  | ------ | ---------- |  | ------ | ------ | -- | -------- | ------- | ----- | -------- |  |  | ----- | - |  |  | ----- | - |  |  | ------ | -- | 
|                                                                               |                      |             |       |   |         |  |       |            |              |  |        |            |  | Other  |        |    |         
|                                                                               |                      |             |       |   |         |  |       | Marketing  |              |  |        |            |  |        | Rights |    |          |        
|                                                                               |                      |             |       |   |         |  |       | and        |              |  |        |            |  |        | and    |    |          |        
|                                                                               |                      | Acquired    |       |   |         |  |       |            | Distribution |  |        | Production |  |        | IPR&D  |    |          | Advance |       |          | 
|                                                                               |                      | Goodwill    |       |   | Patents |  |       | Trademarks |              |  | Rights |            |  | Rights |        |    | Projects |         |       | Payments |  |  | Total |  
|                                                                               |                      |             |       |   |         |  |       |            |              |  |        |            |  |        |        |    |          |         |       |          |  |  |       |  
|                                                                               |                      | ( million) |      
|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                                          |                      |             |      |   |         |  |      |            |              |  |       |            |  |        |       |    |          |         |      |          |  |  |      |   |  |  |      |   |  |  |       |   
|Acquisitions                                                                   |                      |             | 661   |   |         |  | 13    |            |              |  | 1,068  |            |  |        | 160    |    |          |         | 74    |          |  |  |      |   |  |  | 69    |   |  |  | 2,045  |   
|Capital Expenditures                                                           |                      |             |      |   |         |  | 12    |            |              |  |       |            |  |        | 6      |    |          |         |      |          |  |  |      |   |  |  | 78    |   |  |  | 96     |   
|Retirements                                                                    |                      |             | (44   | ) |         |  | (68   | )          |              |  | (7     | )          |  |        |       |    |          |         | (11   | )        |  |  |      |   |  |  | (154  | ) |  |  | (284   | ) 
|Transfers                                                                      |                      |             |      |   |         |  | 41    |            |              |  | (4     | )          |  |        | (3     | )  |          |         | (11   | )        |  |  |      |   |  |  | (25   | ) |  |  | (2     | ) 
|Elimination of accumulated amortization prior to the 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                                          |                      |             |      |   |         |  |      |            |              |  |       |            |  |        |       |    |          |         |      |          |  |  |      |   |  |  |      |   |  |  |       |   
|Retirements                                                                    |                      |             |      |   |         |  | (53   | )          |              |  | (1     | )          |  |        |       |    |          |         | (4    | )        |  |  |      |   |  |  | (129  | ) |  |  | (187   | ) 
|Amortization and write-downs in 2005                                           |                      |             |      |   |         |  | 155   |            |              |  | 92     |            |  |        | 76     |    |          |         | 164   |          |  |  |      |   |  |  | 135   |   |  |  | 622    |   
|                                                                               | of which write-downs |             |       |  |         |  |       | 4          |              |  |        | 1          |  |        |        | 15 |          |         |       |         |  |  |       |  |  |  |       | 2 |  |  |        | 22 | 
|Write-backs                                                                    |                      |             |      |   |         |  |      |            |              |  |       |            |  |        |       |    |          |         |      |          |  |  |      |   |  |  |      |   |  |  |       |   
|Transfers                                                                      |                      |             |      |   |         |  | 1     |            |              |  | (1     | )          |  |        |       |    |          |         | (5    | )        |  |  |      |   |  |  | 4     |   |  |  | (1     | ) 
|Elimination of accumulated amortization prior to the application
    of IFRS 3 |                      |             | (643  | ) |         |  |      |            |              |  |       |            |  |        |       |    |          |         |      |          |  |  |      |   |  |  |      |   |  |  | (643   | ) 
|Exchange differences                                                           |                      |             | 39    |   |         |  | 30    |            |              |  | 15     |            |  |        | 31     |    |          |         | 2     |          |  |  |      |   |  |  | 144   |   |  |  | 261    |   
|                                                                               |                      |             |       |   |         |  |       |            |              |  |        |            |  |        |        |    |          |         |       |          |  |  |       |  
|Accumulated amortization and write-downs, December 31,
    2005                |                      |             |      |   |         |  | 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  |   
|                                                                               |                      |             |       |   |         |  |       |            |              |  |        |            |  |        |        |    |          |         |       |          |  |  |       |  



F-59



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


[18]     Property, plant and
equipment




|                                                                |                      |             |       |    |               |            |        |                 |         |  |             |   |  |       |      |    |  |  |        |     | 
|--------------------------------------------------------------- | -------------------- | ----------- | ----- | -- | ------------- | ---------- | ------ | --------------- | ------- |  | ----------- | - |  | ----- | ---- | -- |  |  | ------ | --- | 
|                                                                |                      |             |       |    |               |            |        | Construction in |         |  |            
|                                                                |                      |             |       |    |               |            |        | Progress and    |         |  |            
|                                                                |                      |             |       |    |               | Furniture, |        |                 | Advance |  |             |  
|                                                                |                      | Land        |       |    | Plant         |            |        | Fixtures        |         |  | Payments to |   |  |      
|                                                                |                      | and         |       |    | Installations |            |        | and Other       |         |  | Vendors and |   |  |      
|                                                                |                      | Buildings   |       |    | and Machinery |            |        | Equipment       |         |  | Contractors |   |  | Total |     
|                                                                |                      |             |       |    |               |            |        |                 |         |  |             |   |  |       |     
|                                                                |                      | ( million) |      
|Gross carrying amounts, December 31, 2005                       |                      |             | 7,014 |    |               |            | 12,913 |                 |         |  | 1,960       |   |  |       | 910  |    |  |  | 22,797 |    
|Changes in the scope of consolidation                           |                      |             |      |    |               |            |       |                 |         |  | (1          | ) |  |       |     |    |  |  | (1     | )  
|Acquisitions                                                    |                      |             | 784   |    |               |            | 507    |                 |         |  | 204         |   |  |       | 87   |    |  |  | 1,582  |    
|Capital Expenditures                                            |                      |             | 130   |    |               |            | 369    |                 |         |  | 184         |   |  |       | 913  |    |  |  | 1,596  |    
|Retirements                                                     |                      |             | (165  | )  |               |            | (264   | )               |         |  | (204        | ) |  |       | (5   | )  |  |  | (638   | )  
|Reclassifications to current assets                             |                      |             | (467  | )  |               |            | (1,029 | )               |         |  | (636        | ) |  |       | (80  | )  |  |  | (2,212 | )  
|Transfers                                                       |                      |             | 233   |    |               |            | 487    |                 |         |  | 129         |   |  |       | (795 | )  |  |  | 54     |    
|Exchange differences                                            |                      |             | (262  | )  |               |            | (469   | )               |         |  | (70         | ) |  |       | (59  | )  |  |  | (860   | )  
|                                                                |                      |             |       |    |               |            |        |                 |         |  |             |   |  |       |     
|Gross carrying amounts, December 31, 2006                       |                      |             | 7,267 |    |               |            | 12,514 |                 |         |  | 1,566       |   |  |       | 971  |    |  |  | 22,318 |    
|                                                                |                      |             |       |    |               |            |        |                 |         |  |             |   |  |       |     
|Accumulated depreciation and write-downs, December 31, 2005     |                      |             | 3,857 |    |               |            | 9,156  |                 |         |  | 1,463       |   |  |       |     |    |  |  | 14,476 |    
|Changes in the scope of consolidation                           |                      |             |      |    |               |            |       |                 |         |  | (1          | ) |  |       |     |    |  |  | (1     | )  
|Retirements                                                     |                      |             | (98   | )  |               |            | (237   | )               |         |  | (171        | ) |  |       |     |    |  |  | (506   | )  
|Reclassifications to current assets                             |                      |             | (252  | )  |               |            | (678   | )               |         |  | (432        | ) |  |       |     |    |  |  | (1,362 | )  
|Depreciation and write-downs in 2006                            |                      |             | 276   |    |               |            | 774    |                 |         |  | 241         |   |  |       | 31   |    |  |  | 1,322  |    
|                                                                | of which write-downs |             |       | 46 |               |            |        | 39              |         |  |             | 9 |  |       |      | 31 |  |  |        | 125 | 
|Write-backs                                                     |                      |             |      |    |               |            |       |                 |         |  |            |   |  |       |     |    |  |  |       |    
|Transfers                                                       |                      |             | 4     |    |               |            | 1      |                 |         |  | (2          | ) |  |       |     |    |  |  | 3      |    
|Exchange differences                                            |                      |             | (117  | )  |               |            | (313   | )               |         |  | (49         | ) |  |       | (2   | )  |  |  | (481   | )  
|                                                                |                      |             |       |    |               |            |        |                 |         |  |             |   |  |       |     
|Accumulated depreciation and write-downs, December 31,
    2006 |                      |             | 3,670 |    |               |            | 8,703  |                 |         |  | 1,049       |   |  |       | 29   |    |  |  | 13,451 |    
|                                                                |                      |             |       |    |               |            |        |                 |         |  |             |   |  |       |     
|Net carrying amounts, December 31, 2006                         |                      |             | 3,597 |    |               |            | 3,811  |                 |         |  | 517         |   |  |       | 942  |    |  |  | 8,867  |    
|                                                                |                      |             |       |    |               |            |        |                 |         |  |             |   |  |       |     

 


       


     


F-60



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)






|                                                                |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |      |   |  |  |        |  
|--------------------------------------------------------------- |  | ----------- | ----- | - | ------------- | ---------- | ------ | --------------- | ------- |  | ----------- | - |  | ----- | ---- | - |  |  | ------ | -
|                                                                |  |             |       |   |               |            |        | Construction in |         |  |            
|                                                                |  |             |       |   |               |            |        | Progress and    |         |  |            
|                                                                |  |             |       |   |               | Furniture, |        |                 | Advance |  |             |  
|                                                                |  | Land        |       |   | Plant         |            |        | Fixtures        |         |  | Payments to |   |  |      
|                                                                |  | and         |       |   | Installations |            |        | and Other       |         |  | Vendors and |   |  |      
|                                                                |  | Buildings   |       |   | and Machinery |            |        | Equipment       |         |  | Contractors |   |  | Total |     
|                                                                |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|                                                                |  | ( million) |      
|Gross carrying amounts, December 31, 2004                       |  |             | 6,562 |   |               |            | 12,021 |                 |         |  | 1,873       |   |  |       | 505  |   |  |  | 20,961 |  
|Changes in the scope of consolidation                           |  |             | 5     |   |               |            | 3      |                 |         |  | 3           |   |  |       |     |   |  |  | 11     |  
|Acquisitions                                                    |  |             | 73    |   |               |            | 63     |                 |         |  | 8           |   |  |       | 11   |   |  |  | 155    |  
|Capital Expenditures                                            |  |             | 81    |   |               |            | 223    |                 |         |  | 103         |   |  |       | 885  |   |  |  | 1,292  |  
|Retirements                                                     |  |             | (176  | ) |               |            | (304   | )               |         |  | (239        | ) |  |       | (9   | ) |  |  | (728   | )
|Transfers                                                       |  |             | 147   |   |               |            | 284    |                 |         |  | 120         |   |  |       | (549 | ) |  |  | 2      |  
|Exchange differences                                            |  |             | 322   |   |               |            | 623    |                 |         |  | 92          |   |  |       | 67   |   |  |  | 1,104  |  
|                                                                |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|Gross carrying amounts, December 31, 2005                       |  |             | 7,014 |   |               |            | 12,913 |                 |         |  | 1,960       |   |  |       | 910  |   |  |  | 22,797 |  
|                                                                |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|Accumulated depreciation and write-downs, December 31, 2004     |  |             | 3,610 |   |               |            | 8,292  |                 |         |  | 1,397       |   |  |       |     |   |  |  | 13,299 |  
|Changes in the scope of consolidation                           |  |             | 1     |   |               |            | 1      |                 |         |  | 3           |   |  |       |     |   |  |  | 5      |  
|Retirements                                                     |  |             | (148  | ) |               |            | (270   | )               |         |  | (211        | ) |  |       | (5   | ) |  |  | (634   | )
|Depreciation and write-downs in 2005                            |  |             | 244   |   |               |            | 757    |                 |         |  | 207         |   |  |       | 5    |   |  |  | 1,213  |  
|of which write-downs                                            |  |             | 37    |   |               |            | 12     |                 |         |  | 1           |   |  |       | 5    |   |  |  | 55     |  
|Write-backs                                                     |  |             |      |   |               |            |       |                 |         |  |            |   |  |       |     |   |  |  |       |  
|Transfers                                                       |  |             | 16    |   |               |            | (16    | )               |         |  | 1           |   |  |       |     |   |  |  | 1      |  
|                                                                |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|Exchange differences                                            |  |             | 134   |   |               |            | 392    |                 |         |  | 66          |   |  |       |     |   |  |  | 592    |  
|                                                                |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|Accumulated depreciation and write-downs, December 31,
    2005 |  |             | 3,857 |   |               |            | 9,156  |                 |         |  | 1,463       |   |  |       |     |   |  |  | 14,476 |  
|                                                                |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|Net carrying amounts, December 31, 2005                         |  |             | 3,157 |   |               |            | 3,757  |                 |         |  | 497         |   |  |       | 910  |   |  |  | 8,321  |  
|                                                                |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     

F-61



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


[19]     Investments in
associates




|                                    |  |             |     |   |      |  |      |  
|----------------------------------- |  | ----------- | --- | - | ---- |  | ---- | -
|                                    |  | 2005        |     |   | 2006 | 
|                                    |  |             |     |   |      | 
|                                    |  | ( million) |    
|Net carrying amounts, Jan. 1        |  |             | 744 |   |      |  | 795  |  
|Acquisitions                        |  |             |    |   |      |  | 2    |  
|Other additions                     |  |             | 17  |   |      |  | 46   |  
|Retirements                         |  |             |    |   |      |  | (195 | )
|Reclassifications to current assets |  |             |    |   |      |  | (3   | )
|Equity-method loss after taxes      |  |             | (10 | ) |      |  | (30  | )
|Miscellaneous                       |  |             | (4  | ) |      |  | (47  | )
|Exchange differences                |  |             | 48  |   |      |  | (36  | )
|                                    |  |             |     |   |      | 
|Net carrying amounts, Dec. 31       |  |             | 795 |   |      |  | 532  |  
|                                    |  |             |     |   |      | 

®




 


 


F-62



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




Aggregated income statement data of associates included at
equity


|                                                                                  |  |             |       |   |      |  |       |  
|--------------------------------------------------------------------------------- |  | ----------- | ----- | - | ---- |  | ----- | -
|                                                                                  |  | 2005        |       |   | 2006 | 
|                                                                                  |  |             |       |   |      | 
|                                                                                  |  | ( million) |      
|Net sales                                                                         |  |             | 1,335 |   |      |  | 1,593 |  
|Gross profit                                                                      |  |             | 151   |   |      |  | 320   |  
|Net loss                                                                          |  |             | (47   | ) |      |  | (46   | )
|Bayers share of net loss                                                         |  |             | (22   | ) |      |  | (20   | )
|Miscellaneous                                                                     |  |             | 12    |   |      |  | (5    | )
|                                                                                  |  |             |       |   |      | 
|Net loss from interests in associates included at equity
    (equity-method loss) |  |             | (10   | ) |      |  | (25   | )
|                                                                                  |  |             |       |   |      | 

Aggregated balance sheet data of associates included at
equity


|                                                     |  |               |       |  |               |  |       | 
|---------------------------------------------------- |  | ------------- | ----- |  | ------------- |  | ----- | 
|                                                     |  | Dec. 31, 2005 |       |  | Dec. 31, 2006 | 
|                                                     |  |               |       |  |               | 
|                                                     |  | ( million)   |      
|Noncurrent assets                                    |  |               | 1,478 |  |               |  | 1,100 | 
|Current assets                                       |  |               | 469   |  |               |  | 253   | 
|Noncurrent liabilities                               |  |               | 33    |  |               |  | 10    | 
|Current liabilities                                  |  |               | 295   |  |               |  | 218   | 
|Stockholders equity                                 |  |               | 1,619 |  |               |  | 1,125 | 
|Bayers share of stockholders equity                |  |               | 742   |  |               |  | 507   | 
|Miscellaneous                                        |  |               | 53    |  |               |  | 25    | 
|                                                     |  |               |       |  |               | 
|Net carrying amount of associates included at equity |  |               | 795   |  |               |  | 532   | 
|                                                     |  |               |       |  |               | 



[20]     Other financial assets




|                                                        |                                   |               |       |          |               |  |     |       |          |  |         |     |  |  |     |    | 
|------------------------------------------------------- | --------------------------------- | ------------- | ----- | -------- | ------------- |  | --- | ----- | -------- |  | ------- | --- |  |  | --- | -- | 
|                                                        |                                   | Dec. 31, 2005 |       |          | Dec. 31, 2006 | 
|                                                        |                                   |               |       |          |               | 
|                                                        |                                   |               |       | of which |               |  |     |       | of which | 
|                                                        |                                   | Total         |       |          | current       |  |     | Total |          |  | current |    
|                                                        |                                   |               |       |          |               |  |     |       |          |  |         |    
|                                                        |                                   | ( million)   |      
|Loans and receivables                                   |                                   |               | 595   |          |               |  | 50  |       |          |  | 450     |     |  |  | 165 |   
|                                                        | of which pertaining to associates |               |       | 4        |               |  |     |      |          |  |         | 3   |  |  |     | 2  | 
|Available-for-sale financial assets                     |                                   |               | 500   |          |               |  | 233 |       |          |  | 395     |     |  |  | 38  |   
|                                                        | of which debt instruments         |               |       | 239      |               |  |     | 230   |          |  |         | 66  |  |  |     | 28 | 
|                                                        | of which equity instruments       |               |       | 261      |               |  |     | 3     |          |  |         | 329 |  |  |     | 10 | 
|Held-to-maturity financial investments                  |                                   |               | 150   |          |               |  | 35  |       |          |  | 172     |     |  |  | 32  |   
|Receivables from commodity derivative contracts         |                                   |               | 280   |          |               |  | 87  |       |          |  | 137     |     |  |  | 32  |   
|Receivables from other derivative financial instruments |                                   |               | 242   |          |               |  | 14  |       |          |  | 280     |     |  |  | 121 |   
|Receivables under lease agreements                      |                                   |               | 109   |          |               |  | 28  |       |          |  | 61      |     |  |  | 13  |   
|                                                        |                                   |               |       |          |               |  |     |       |          |  |         |    
|                                                        |                                   |               | 1,876 |          |               |  | 447 |       |          |  | 1,495   |     |  |  | 401 |   
|                                                        |                                   |               |       |          |               |  |     |       |          |  |         |    

F-63



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)








       




|                                                                                |  |               |     |   |               |  |     |            |  |  |            |   |  |  |    |  
|------------------------------------------------------------------------------- |  | ------------- | --- | - | ------------- |  | --- | ---------- |  |  | ---------- | - |  |  | -- | -
|                                                                                |  | Dec. 31, 2005 |     |   | Dec. 31, 2006 | 
|                                                                                |  |               |     |   |               | 
|                                                                                |  | Equity        |     |   | Debt          |  |     | Equity     |  |  | Debt       |  
|                                                                                |  | instrument    |     |   | instrument    |  |     | instrument |  |  | instrument |  
|                                                                                |  |               |     |   |               |  |     |            |  |  |            |  
|                                                                                |  | ( million)   |    
|Acquisition costs less impairment losses recognized in the
    income statement |  |               | 233 |   |               |  | 240 |            |  |  | 315        |   |  |  | 59 |  
|Fair value adjustments recognized in stockholders equity                       |  |               |     |   |               |  |     |            |  |  |            |   |  |  |    |  
| losses                                                                        |  |               | (25 | ) |               |  | (1  | )          |  |  | (34        | ) |  |  | (1 | )
| gains                                                                         |  |               | 53  |   |               |  |    |            |  |  | 48         |   |  |  | 8  |  
|                                                                                |  |               |     |   |               |  |     |            |  |  |            |  
|Recognized fair value                                                           |  |               | 261 |   |               |  | 239 |            |  |  | 329        |   |  |  | 66 |  
|                                                                                |  |               |     |   |               |  |     |            |  |  |            |  



   


F-64



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|               |               |               |     |    | 
|-------------- | ------------- | ------------- | --- | -- | 
|               |               | Dec. 31, 2005 |    
|               |               |               |    
|               |               | ( million)   |    
|Lease payments |               |               |     |   
|Maturing in    |               |               |     |   
|               | 2006          |               |     | 32 | 
|               | 2007          |               |     | 28 | 
|               | 2008          |               |     | 17 | 
|               | 2009          |               |     | 10 | 
|               | 2010          |               |     | 6  | 
|               | 2011 or later |               |     | 34 | 
|               |               |               |    
|               |               |               | 127 |   
|               |               |               |    

|                   |               |             |    |   | 
|------------------ | ------------- | ----------- | -- | - | 
|                   |               | ( million) |   
|                   |               |             |   
|Interest component |               |             |    |  
|Maturing in        |               |             |    |  
|                   | 2006          |             |    | 4 | 
|                   | 2007          |             |    | 3 | 
|                   | 2008          |             |    | 3 | 
|                   | 2009          |             |    | 2 | 
|                   | 2010          |             |    | 2 | 
|                   | 2011 or later |             |    | 4 | 
|                   |               |             |   
|                   |               |             | 18 |  
|                   |               |             |   

|                                 |               |             |     |    | 
|-------------------------------- | ------------- | ----------- | --- | -- | 
|                                 |               | ( million) |    
|                                 |               |             |    
|Receivables under finance leases |               |             |     |   
|Maturing in                      |               |             |     |   
|                                 | 2006          |             |     | 28 | 
|                                 | 2007          |             |     | 25 | 
|                                 | 2008          |             |     | 14 | 
|                                 | 2009          |             |     | 8  | 
|                                 | 2010          |             |     | 4  | 
|                                 | 2011 or later |             |     | 30 | 
|                                 |               |             |    
|                                 |               |             | 109 |   
|                                 |               |             |    

|               |               |               |    |    | 
|-------------- | ------------- | ------------- | -- | -- | 
|               |               | Dec. 31, 2006 |   
|               |               |               |   
|               |               | ( million)   |   
|Lease payments |               |               |    |   
|Maturing in    |               |               |    |   
|               | 2007          |               |    | 15 | 
|               | 2008          |               |    | 15 | 
|               | 2009          |               |    | 5  | 
|               | 2010          |               |    | 4  | 
|               | 2011          |               |    | 3  | 
|               | 2012 or later |               |    | 29 | 
|               |               |               |   
|               |               |               | 71 |   
|               |               |               |   

|                   |               |             |    |   | 
|------------------ | ------------- | ----------- | -- | - | 
|                   |               | ( million) |   
|                   |               |             |   
|Interest component |               |             |    |  
|Maturing in        |               |             |    |  
|                   | 2007          |             |    | 2 | 
|                   | 2008          |             |    | 2 | 
|                   | 2009          |             |    | 2 | 
|                   | 2010          |             |    | 1 | 
|                   | 2011          |             |    | 1 | 
|                   | 2012 or later |             |    | 2 | 
|                   |               |             |   
|                   |               |             | 10 |  
|                   |               |             |   

|                                 |               |             |    |    | 
|-------------------------------- | ------------- | ----------- | -- | -- | 
|                                 |               | ( million) |   
|                                 |               |             |   
|Receivables under finance leases |               |             |    |   
|Maturing in                      |               |             |    |   
|                                 | 2007          |             |    | 13 | 
|                                 | 2008          |             |    | 13 | 
|                                 | 2009          |             |    | 3  | 
|                                 | 2010          |             |    | 3  | 
|                                 | 2011          |             |    | 2  | 
|                                 | 2012 or later |             |    | 27 | 
|                                 |               |             |   
|                                 |               |             | 61 |   
|                                 |               |             |   

F-65



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


[21]     Other receivables


 


|                                             |  |               |       |          |               |  |       |       |          |  |         |  |  |  |       | 
|-------------------------------------------- |  | ------------- | ----- | -------- | ------------- |  | ----- | ----- | -------- |  | ------- |  |  |  | ----- | 
|                                             |  | Dec. 31, 2005 |       |          | Dec. 31, 2006 | 
|                                             |  |               |       |          |               | 
|                                             |  |               |       | of which |               |  |       |       | of which | 
|                                             |  | Total         |       |          | current       |  |       | Total |          |  | current | 
|                                             |  |               |       |          |               |  |       |       |          |  |         | 
|                                             |  | ( million)   |      
|Benefit plan assets in excess of obligations |  |               | 37    |          |               |  |      |       |          |  | 38      |  |  |  |      | 
|Payroll receivables                          |  |               | 29    |          |               |  | 29    |       |          |  | 27      |  |  |  | 26    | 
|Royalties receivable                         |  |               | 51    |          |               |  | 48    |       |          |  | 66      |  |  |  | 66    | 
|Interest receivable                          |  |               | 310   |          |               |  | 305   |       |          |  | 266     |  |  |  | 266   | 
|Miscellaneous receivables                    |  |               | 1,193 |          |               |  | 1,039 |       |          |  | 985     |  |  |  | 859   | 
|                                             |  |               |       |          |               |  |       |       |          |  |         | 
|                                             |  |               | 1,620 |          |               |  | 1,421 |       |          |  | 1,382   |  |  |  | 1,217 | 
|                                             |  |               |       |          |               |  |       |       |          |  |         | 






   


[22]     Inventories




|                                                               |  |               |       |  |               |  |       | 
|-------------------------------------------------------------- |  | ------------- | ----- |  | ------------- |  | ----- | 
|                                                               |  | Dec. 31, 2005 |       |  | Dec. 31, 2006 | 
|                                                               |  |               |       |  |               | 
|                                                               |  | ( million)   |      
|Raw materials and supplies                                     |  |               | 902   |  |               |  | 1,004 | 
|Work in process, finished goods and goods purchased for resale |  |               | 4,595 |  |               |  | 5,145 | 
|Advance payments                                               |  |               | 7     |  |               |  | 4     | 
|                                                               |  |               |       |  |               | 
|                                                               |  |               | 5,504 |  |               |  | 6,153 | 
|                                                               |  |               |       |  |               | 

   




|                                          |  |             |      |   |      |  |      |  
|----------------------------------------- |  | ----------- | ---- | - | ---- |  | ---- | -
|                                          |  | 2005        |      |   | 2006 | 
|                                          |  |             |      |   |      | 
|                                          |  | ( million) |     
|Balance as of January 1                   |  |             | (311 | ) |      |  | (340 | )
|Changes in the scope of consolidation     |  |             | (3   | ) |      |  |     |  
|Additions expensed                        |  |             | (166 | ) |      |  | (180 | )
|Deductions due to reversal or utilization |  |             | 156  |   |      |  | 151  |  
|Reclassifications to current assets       |  |             |     |   |      |  | 46   |  
|Exchange differences                      |  |             | (16  | ) |      |  | 12   |  
|                                          |  |             |      |   |      | 
|Balance as of December 31                 |  |             | (340 | ) |      |  | (311 | )
|                                          |  |             |      |   |      | 

F-66



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


[23]     Trade accounts
receivable


       




|                                          |  |             |      |   |      |  |      |  
|----------------------------------------- |  | ----------- | ---- | - | ---- |  | ---- | -
|                                          |  | 2005        |      |   | 2006 | 
|                                          |  |             |      |   |      | 
|                                          |  | ( million) |     
|Balance as of January 1                   |  |             | (273 | ) |      |  | (334 | )
|Changes in the scope of consolidation     |  |             | 1    |   |      |  |     |  
|Additions expensed                        |  |             | (158 | ) |      |  | (145 | )
|Deductions due to reversal or utilization |  |             | 118  |   |      |  | 152  |  
|Reclassifications to current assets       |  |             |     |   |      |  | 22   |  
|Exchange differences                      |  |             | (22  | ) |      |  |     |  
|                                          |  |             |      |   |      | 
|Balance as of December 31                 |  |             | (334 | ) |      |  | (305 | )
|                                          |  |             |      |   |      | 

[24]     Changes in
Stockholders Equity




|                      |  |             |       |  |             |  |       |          |  |                 |              |   |                 |          |        |   |               |  |     |   |  |  |        |  
|--------------------- |  | ----------- | ----- |  | ----------- |  | ----- | -------- |  | --------------- | ------------ | - | --------------- | -------- | ------ | - | ------------- |  | --- | - |  |  | ------ | -
|                      |  |             |       |  |             |  |       | Equity   |  |                 | Equity       |   |                 |         
|                      |  | Capital     |       |  | Capital     |  |       |          |  | Attributable to |              |   | Attributable to |          |        |  
|                      |  | Stock of    |       |  | Reserves of |  |       | Other    |  |                 | Bayer AG     |   |                 | Minority |        |   | Stockholders | 
|                      |  | Bayer AG    |       |  | Bayer AG    |  |       | Reserves |  |                 | Stockholders |   |                 | Interest |        |   | Equity        | 
|                      |  |             |       |  |             |  |       |          |  |                 |              |   |                 |          |        |   |               | 
|                      |  | ( million) |      
|Dec. 31, 2004         |  |             | 1,870 |  |             |  | 2,942 |          |  |                 | 6,020        |   |                 |          | 10,832 |   |               |  | 111 |   |  |  | 10,943 |  
|                      |  |             |       |  |             |  |       |          |  |                 |              |   |                 |          |        |   |               | 
|Spin-off of LANXESS   |  |             |      |  |             |  |      |          |  |                 | (1,059       | ) |                 |          | (1,059 | ) |               |  | (19 | ) |  |  | (1,078 | )
|Capital contributions |  |             |      |  |             |  |      |          |  |                 |             |   |                 |          |       |   |               |  |    |   |  |  |       |  
|Other changes         |  |             |      |  |             |  |      |          |  |                 | 1,304        |   |                 |          | 1,304  |   |               |  | (12 | ) |  |  | 1,292  |  
|                      |  |             |       |  |             |  |       |          |  |                 |              |   |                 |          |        |   |               | 
|Dec. 31, 2005         |  |             | 1,870 |  |             |  | 2,942 |          |  |                 | 6,265        |   |                 |          | 11,077 |   |               |  | 80  |   |  |  | 11,157 |  
|                      |  |             |       |  |             |  |       |          |  |                 |              |   |                 |          |        |   |               | 
|Capital contributions |  |             | 87    |  |             |  | 1,086 |          |  |                 |             |   |                 |          | 1,173  |   |               |  |    |   |  |  | 1,173  |  
|Other changes         |  |             |      |  |             |  |      |          |  |                 | 517          |   |                 |          | 517    |   |               |  | 4   |   |  |  | 521    |  
|                      |  |             |       |  |             |  |       |          |  |                 |              |   |                 |          |        |   |               | 
|Dec. 31, 2006         |  |             | 1,957 |  |             |  | 4,028 |          |  |                 | 6,782        |   |                 |          | 12,767 |   |               |  | 84  |   |  |  | 12,851 |  
|                      |  |             |       |  |             |  |       |          |  |                 |              |   |                 |          |        |   |               | 

    


 


F-67



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




  





F-68



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                                                                                |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          |  |  |     |   |  |  |        |  
|----------------------------------------------------------------------------------------------- |  | ----------------- | -- | ----------------- | -------------------- | ---------- | ------ | ---------- |  | -------- | ----------- | - | ----------- | ------------- | ------ | --------- | ------ |  | ----- | -------- |  |  | --- | - |  |  | ------ | -
|                                                                                                |  |                   |    | Accumulated Other |                      |            |       
|                                                                                                |  | Retained Earnings |    |                   | Comprehensive Income |            |        |           
|                                                                                                |  |                   |    |                   |                      |            |        |           
|                                                                                                |  |                   |    |                   |                      | Fair Value |        |            |  |          |            
|                                                                                                |  | Revaluation       |    |                   | Other Retained       |            |        |            |  | Exchange |             |   | Measurement |               |        | Cash Flow |        |  | Other |         
|                                                                                                |  | Surplus           |    |                   | Earnings             |            |        | Net Income |  |          | Differences |   |             | of Securities |        |           | Hedges |  |       | Reserves | 
|                                                                                                |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          | 
|                                                                                                |  | ( million)       |   
|Dec. 31, 2004                                                                                   |  |                   | 66 |                   |                      |            | 7,235  |            |  |          | 685         |   |             |               | (2,003 | )         |        |  | 20    |          |  |  | 17  |   |  |  | 6,020  |  
|Spin-off of LANXESS                                                                             |  |                   |    |                   |                      |            | (1,438 | )          |  |          |             |   |             |               | 379    |           |        |  |       |          |  |  |     |   |  |  | (1,059 | )
|Changes in stockholders equity not recognized in net
    income                                |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          |  |  |     |   |  |  |        |  
|Changes in fair value of securities and cash flow hedges                                        |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  | 9     |          |  |  | (15 | ) |  |  | (6     | )
|Changes in actuarial gains (losses) relating to pensions and
    other post-employment benefits |  |                   |    |                   |                      |            | (1,207 | )          |  |          |             |   |             |               |        |           |        |  |       |          |  |  |     |   |  |  | (1,207 | )
|Exchange differences on translation of operations outside the
    euro zone                     |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               | 849    |           |        |  |       |          |  |  |     |   |  |  | 849    |  
|Deferred taxes on valuation adjustments offset directly against
    stockholders equity        |  |                   |    |                   |                      |            | 470    |            |  |          |             |   |             |               |        |           |        |  | (6    | )        |  |  | 6   |   |  |  | 470    |  
|Other changes in stockholders equity                                                           |  |                   | (4 | )                 |                      |            | 4      |            |  |          |             |   |             |               |        |           |        |  |       |          |  |  |     |   |  |  |       |  
|Transfer of changes recognized in income                                                        |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |      |          |  |  | 3   |   |  |  | 3      |  
|                                                                                                |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          | 
|                                                                                                |  |                   | 62 |                   |                      |            | 5,064  |            |  |          | 685         |   |             |               | (775   | )         |        |  | 23    |          |  |  | 11  |   |  |  | 5,070  |  
|                                                                                                |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          | 
|Dividend payments                                                                               |  |                   |    |                   |                      |            |        |            |  |          | (402        | ) |             |               |        |           |        |  |       |          |  |  |     |   |  |  | (402   | )
|Allocation to retained earnings                                                                 |  |                   |    |                   |                      |            | 283    |            |  |          | (283        | ) |             |               |        |           |        |  |       |          |  |  |     |   |  |  |       |  
|                                                                                                |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          | 
|                                                                                                |  |                   |    |                   |                      |            | 283    |            |  |          | (685        | ) |             |               |        |           |        |  |       |          |  |  |     |   |  |  | (402   | )
|                                                                                                |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          | 
|Changes in stockholders equity recognized in net
    income                                    |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          |  |  |     |   |  |  |        |  
|Net income 2005                                                                                 |  |                   |    |                   |                      |            |        |            |  |          | 1,597       |   |             |               |        |           |        |  |       |          |  |  |     |   |  |  | 1,597  |  
|                                                                                                |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          | 
|                                                                                                |  |                   |    |                   |                      |            |        |            |  |          | 1,597       |   |             |               |        |           |        |  |       |          |  |  |     |   |  |  | 1,597  |  
|                                                                                                |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          | 
|Dec. 31, 2005                                                                                   |  |                   | 62 |                   |                      |            | 5,347  |            |  |          | 1,597       |   |             |               | (775   | )         |        |  | 23    |          |  |  | 11  |   |  |  | 6,265  |  
|                                                                                                |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          | 
|Changes in stockholders equity not recognized in net
    income                                |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          |  |  |     |   |  |  |        |  
|Changes in fair value of securities and cash flow hedges                                        |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  | (7    | )        |  |  | (59 | ) |  |  | (66    | )
|Changes in actuarial gains (losses) relating to pensions and
    other post-employment benefits |  |                   |    |                   |                      |            | 448    |            |  |          |             |   |             |               |        |           |        |  |       |          |  |  |     |   |  |  | 448    |  
|Exchange differences on translation of operations outside the
    euro zone                     |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               | (720   | )         |        |  |       |          |  |  |     |   |  |  | (720   | )
|Deferred taxes on valuation adjustments offset directly against
    stockholders equity        |  |                   |    |                   |                      |            | (166   | )          |  |          |             |   |             |               |        |           |        |  | 2     |          |  |  | 16  |   |  |  | (148   | )
|Other changes in stockholders equity                                                           |  |                   | (4 | )                 |                      |            | 4      |            |  |          |             |   |             |               |        |           |        |  |       |          |  |  |     |   |  |  |       |  
|Transfer of changes recognized in income                                                        |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          |  |  | 14  |   |  |  | 14     |  
|                                                                                                |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          | 
|                                                                                                |  |                   | 58 |                   |                      |            | 5,633  |            |  |          | 1,597       |   |             |               | (1,495 | )         |        |  | 18    |          |  |  | (18 | ) |  |  | 5,793  |  
|                                                                                                |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          | 
|Dividend payments                                                                               |  |                   |    |                   |                      |            |        |            |  |          | (694        | ) |             |               |        |           |        |  |       |          |  |  |     |   |  |  | (694   | )
|Allocation to retained earnings                                                                 |  |                   |    |                   |                      |            | 903    |            |  |          | (903        | ) |             |               |        |           |        |  |       |          |  |  |     |   |  |  |       |  
|                                                                                                |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          | 
|                                                                                                |  |                   |    |                   |                      |            | 903    |            |  |          | (1,597      | ) |             |               |        |           |        |  |       |          |  |  |     |   |  |  | (694   | )
|                                                                                                |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          | 
|Changes in stockholders equity recognized in net
    income                                    |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          |  |  |     |   |  |  |        |  
|Net income 2006                                                                                 |  |                   |    |                   |                      |            |        |            |  |          | 1,683       |   |             |               |        |           |        |  |       |          |  |  |     |   |  |  | 1,683  |  
|                                                                                                |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          | 
|                                                                                                |  |                   |    |                   |                      |            |        |            |  |          | 1,683       |   |             |               |        |           |        |  |       |          |  |  |     |   |  |  | 1,683  |  
|                                                                                                |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          | 
|Dec. 31, 2006                                                                                   |  |                   | 58 |                   |                      |            | 6,536  |            |  |          | 1,683       |   |             |               | (1,495 | )         |        |  | 18    |          |  |  | (18 | ) |  |  | 6,782  |  
|                                                                                                |  |                   |    |                   |                      |            |        |            |  |          |             |   |             |               |        |           |        |  |       |          | 

F-69



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


 








|                                                                                                |  |              |     |   |      |  |     |  
|----------------------------------------------------------------------------------------------- |  | ------------ | --- | - | ---- |  | --- | -
|                                                                                                |  | Equity       |    
|                                                                                                |  | Attributable |    
|                                                                                                |  | to Minority  |    
|                                                                                                |  | Interest     |    
|                                                                                                |  |              |    
|                                                                                                |  | 2005         |     |   | 2006 | 
|                                                                                                |  |              |     |   |      | 
|                                                                                                |  | ( million)  |    
|January 1                                                                                       |  |              | 111 |   |      |  | 80  |  
|Spin-off of LANXESS                                                                             |  |              | (19 | ) |      |  |    |  
|Changes in stockholders equity not recognized in net
    income                                |  |              |     |   |      |  |     |  
|Changes in fair value of securities and cash flow hedges                                        |  |              |    |   |      |  |    |  
|Changes in actuarial gains (losses) relating to pensions and
    other post-employment benefits |  |              |    |   |      |  |    |  
|Exchange differences on translation of operations outside the
    euro zone                     |  |              | 8   |   |      |  | (5  | )
|Deferred taxes on valuation adjustments offset directly against
    stockholders equity        |  |              |    |   |      |  |    |  
|Other changes in stockholders equity                                                           |  |              | 20  |   |      |  | 14  |  
|                                                                                                |  |              |     |   |      | 
|                                                                                                |  |              | 120 |   |      |  | 89  |  
|                                                                                                |  |              |     |   |      | 
|Dividend payments                                                                               |  |              | (38 | ) |      |  | (15 | )
|Allocation to retained earnings                                                                 |  |              |    |   |      |  | (2  | )
|                                                                                                |  |              |     |   |      | 
|                                                                                                |  |              | (38 | ) |      |  | (17 | )
|                                                                                                |  |              |     |   |      | 
|Changes in stockholders equity recognized in net
    income                                    |  |              |     |   |      |  |     |  
|Net income                                                                                      |  |              | (2  | ) |      |  | 12  |  
|                                                                                                |  |              |     |   |      | 
|                                                                                                |  |              | (2  | ) |      |  | 12  |  
|                                                                                                |  |              |     |   |      | 
|December 31                                                                                     |  |              | 80  |   |      |  | 84  |  
|                                                                                                |  |              |     |   |      | 



F-70



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


[25]     Provisions for pensions and
other post-employment benefits




|                |  |               |       |                       |               |  |       |               |  |  |               |  |  |               |     |  |               |  |       |  |  |  |       | 
|--------------- |  | ------------- | ----- | --------------------- | ------------- |  | ----- | ------------- |  |  | ------------- |  |  | ------------- | --- |  | ------------- |  | ----- |  |  |  | ----- | 
|                |  |               |       | Other Post-Employment |               |  |      
|                |  | Pensions      |       |                       | Benefits      |  |       | Total         | 
|                |  |               |       |                       |               |  |       |               | 
|                |  | Dec. 31, 2005 |       |                       | Dec. 31, 2006 |  |       | Dec. 31, 2005 |  |  | Dec. 31, 2006 |  |  | Dec. 31, 2005 |     |  | Dec. 31, 2006 | 
|                |  |               |       |                       |               |  |       |               |  |  |               |  |  |               |     |  |               | 
|                |  | ( million)   |      
|Germany         |  |               | 5,657 |                       |               |  | 5,304 |               |  |  | 158           |  |  |               | 139 |  |               |  | 5,815 |  |  |  | 5,443 | 
|Other countries |  |               | 832   |                       |               |  | 587   |               |  |  | 527           |  |  |               | 513 |  |               |  | 1,359 |  |  |  | 1,100 | 
|                |  |               |       |                       |               |  |       |               |  |  |               |  |  |               |     |  |               | 
|Total           |  |               | 6,489 |                       |               |  | 5,891 |               |  |  | 685           |  |  |               | 652 |  |               |  | 7,174 |  |  |  | 6,543 | 
|                |  |               |       |                       |               |  |       |               |  |  |               |  |  |               |     |  |               | 







defined contribution


  


defined benefit i.e. i.e.










|                               |  |             |      |   |                 |  |      |             |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |      |      |   |  |  |      |   |  |  |      |  
|------------------------------ |  | ----------- | ---- | - | --------------- |  | ---- | ----------- |  |  | ---- | - |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | - |  | ---- | ---- | - |  |  | ---- | - |  |  | ---- | -
|                               |  | Germany     |      |   | Other Countries |  |      | Total       | 
|                               |  |             |      |   |                 |  |      |             | 
|                               |  | 2004        |      |   | 2005            |  |      | 2006        |  |  | 2004 |   |  | 2005 |      |   | 2006 |  |      | 2004 |  |  | 2005 |   |  | 2006 |     
|                               |  |             |      |   |                 |  |      |             |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |      |     
|                               |  | ( million) |      |   | ( million)     |  |      | ( million) | 
|Current service cost           |  |             | 135  |   |                 |  | 138  |             |  |  | 195  |   |  |      | 135  |   |      |  | 122  |      |  |  | 76   |   |  |      | 270  |   |  |  | 260  |   |  |  | 271  |  
|Past service cost              |  |             | 18   |   |                 |  | 56   |             |  |  | (8   | ) |  |      | 3    |   |      |  | 4    |      |  |  | 3    |   |  |      | 21   |   |  |  | 60   |   |  |  | (5   | )
|Interest cost                  |  |             | 451  |   |                 |  | 432  |             |  |  | 466  |   |  |      | 223  |   |      |  | 222  |      |  |  | 230  |   |  |      | 674  |   |  |  | 654  |   |  |  | 696  |  
|Expected return on plan assets |  |             | (262 | ) |                 |  | (237 | )           |  |  | (270 | ) |  |      | (222 | ) |      |  | (237 | )    |  |  | (262 | ) |  |      | (484 | ) |  |  | (474 | ) |  |  | (532 | )
|Plan curtailments              |  |             |     |   |                 |  |     |             |  |  | (2   | ) |  |      | (58  | ) |      |  | (317 | )    |  |  | (20  | ) |  |      | (58  | ) |  |  | (317 | ) |  |  | (22  | )
|Plan settlements               |  |             |     |   |                 |  |     |             |  |  |     |   |  |      | (3   | ) |      |  |     |      |  |  | (2   | ) |  |      | (3   | ) |  |  |     |   |  |  | (2   | )
|                               |  |             |      |   |                 |  |      |             |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |      |     
|                               |  |             | 342  |   |                 |  | 389  |             |  |  | 381  |   |  |      | 78   |   |      |  | (206 | )    |  |  | 25   |   |  |      | 420  |   |  |  | 183  |   |  |  | 406  |  
|                               |  |             |      |   |                 |  |      |             |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |      |     

F-71



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                               |  |             |    |  |                 |  |    |             |  |  |      |  |  |      |      |   |      |  |     |      |  |  |      |   |  |      |      |   |  |  |     |   |  |  |     |  
|------------------------------ |  | ----------- | -- |  | --------------- |  | -- | ----------- |  |  | ---- |  |  | ---- | ---- | - | ---- |  | --- | ---- |  |  | ---- | - |  | ---- | ---- | - |  |  | --- | - |  |  | --- | -
|                               |  | Germany     |    |  | Other Countries |  |    | Total       | 
|                               |  |             |    |  |                 |  |    |             | 
|                               |  | 2004        |    |  | 2005            |  |    | 2006        |  |  | 2004 |  |  | 2005 |      |   | 2006 |  |     | 2004 |  |  | 2005 |   |  | 2006 |     
|                               |  |             |    |  |                 |  |    |             |  |  |      |  |  |      |      |   |      |  |     |      |  |  |      |   |  |      |     
|                               |  | ( million) |    |  | ( million)     |  |    | ( million) | 
|Current service cost           |  |             | 29 |  |                 |  | 17 |             |  |  | 19   |  |  |      | 31   |   |      |  | 30  |      |  |  | 24   |   |  |      | 60   |   |  |  | 47  |   |  |  | 43  |  
|Past service cost              |  |             |   |  |                 |  |   |             |  |  |     |  |  |      | (139 | ) |      |  | (61 | )    |  |  | (12  | ) |  |      | (139 | ) |  |  | (61 | ) |  |  | (12 | )
|Interest cost                  |  |             | 5  |  |                 |  | 5  |             |  |  | 4    |  |  |      | 51   |   |      |  | 51  |      |  |  | 51   |   |  |      | 56   |   |  |  | 56  |   |  |  | 55  |  
|Expected return on plan assets |  |             |   |  |                 |  |   |             |  |  |     |  |  |      | (24  | ) |      |  | (27 | )    |  |  | (27  | ) |  |      | (24  | ) |  |  | (27 | ) |  |  | (27 | )
|Plan curtailments              |  |             |   |  |                 |  |   |             |  |  |     |  |  |      | (5   | ) |      |  | (10 | )    |  |  | (25  | ) |  |      | (5   | ) |  |  | (10 | ) |  |  | (25 | )
|Plan settlements               |  |             |   |  |                 |  |   |             |  |  |     |  |  |      |     |   |      |  |    |      |  |  | 1    |   |  |      |     |   |  |  |    |   |  |  | 1   |  
|                               |  |             |    |  |                 |  |    |             |  |  |      |  |  |      |      |   |      |  |     |      |  |  |      |   |  |      |     
|                               |  |             | 34 |  |                 |  | 22 |             |  |  | 23   |  |  |      | (86  | ) |      |  | (17 | )    |  |  | 12   |   |  |      | (52  | ) |  |  | 5   |   |  |  | 35  |  
|                               |  |             |    |  |                 |  |    |             |  |  |      |  |  |      |      |   |      |  |     |      |  |  |      |   |  |      |     

              












|                                                       |  |             |       |   |      |  |       |  
|------------------------------------------------------ |  | ----------- | ----- | - | ---- |  | ----- | -
|                                                       |  | 2005        |       |   | 2006 | 
|                                                       |  |             |       |   |      | 
|                                                       |  | ( million) |      
|Balance as of January 1                                |  |             | 6,219 |   |      |  | 7,174 |  
|Acquisitions and changes in the scope of consolidation |  |             | 25    |   |      |  | 341   |  
|Additions                                              |  |             | 1,849 |   |      |  | 497   |  
|Utilization                                            |  |             | (615  | ) |      |  | (565  | )
|Reversal                                               |  |             | (403  | ) |      |  | (519  | )
|Reclassifications to current liabilities               |  |             |      |   |      |  | (297  | )
|Exchange differences                                   |  |             | 99    |   |      |  | (88   | )
|                                                       |  |             |       |   |      | 
|Balance as of December 31                              |  |             | 7,174 |   |      |  | 6,543 |  
|                                                       |  |             |       |   |      | 

F-72



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


 


F-73



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                                                          |  |             |        |             |             |  |        |      |  |  |      |   |  |  |      |  
|------------------------------------------------------------------------- |  | ----------- | ------ | ----------- | ----------- |  | ------ | ---- |  |  | ---- | - |  |  | ---- | -
|                                                                          |  | Germany     |       
|                                                                          |  |             |       
|                                                                          |  |             |        | Other Post- |            
|                                                                          |  |             |        | Employment  |            
|                                                                          |  | Pension     |        |             | Benefit     | 
|                                                                          |  | Obligations |        |             | Obligations | 
|                                                                          |  |             |        |             |             | 
|                                                                          |  | 2005        |        |             | 2006        |  |        | 2005 |  |  | 2006 |  
|                                                                          |  |             |        |             |             |  |        |      |  |  |      |  
|                                                                          |  | ( million) |       
|Defined benefit obligation as of January 1                                |  |             | 8,866  |             |             |  | 10,256 |      |  |  | 184  |   |  |  | 158  |  
|Acquisitions                                                              |  |             | 14     |             |             |  | 1,703  |      |  |  |     |   |  |  | 6    |  
|Changes due to divestitures and changes in the scope of
    consolidation |  |             |       |             |             |  | (10    | )    |  |  |     |   |  |  |     |  
|Current service cost                                                      |  |             | 138    |             |             |  | 195    |      |  |  | 17   |   |  |  | 19   |  
|Interest cost                                                             |  |             | 432    |             |             |  | 466    |      |  |  | 5    |   |  |  | 4    |  
|Employee contributions                                                    |  |             | 26     |             |             |  | 26     |      |  |  |     |   |  |  |     |  
|Plan changes                                                              |  |             | 56     |             |             |  | (8     | )    |  |  |     |   |  |  |     |  
|Plan settlements                                                          |  |             |       |             |             |  |       |      |  |  |     |   |  |  |     |  
|Net actuarial (gain) loss                                                 |  |             | 1,160  |             |             |  | (487   | )    |  |  |     |   |  |  |     |  
|Benefits paid                                                             |  |             | (436   | )           |             |  | (489   | )    |  |  | (48  | ) |  |  | (46  | )
|Plan curtailments                                                         |  |             |       |             |             |  | (2     | )    |  |  |     |   |  |  |     |  
|Reclassifications to current assets/liabilities                           |  |             |       |             |             |  | (293   | )    |  |  |     |   |  |  | (2   | )
|Exchange differences                                                      |  |             |       |             |             |  |       |      |  |  |     |   |  |  |     |  
|                                                                          |  |             |        |             |             |  |        |      |  |  |      |  
|Defined benefit obligation as of December 31                              |  |             | 10,256 |             |             |  | 11,357 |      |  |  | 158  |   |  |  | 139  |  
|                                                                          |  |             |        |             |             |  |        |      |  |  |      |  
|Fair value of plan assets as of January 1                                 |  |             | 4,373  |             |             |  | 4,599  |      |  |  |     |   |  |  |     |  
|Acquisitions                                                              |  |             |       |             |             |  | 1,497  |      |  |  |     |   |  |  |     |  
|Changes due to divestitures and changes in the scope of
    consolidation |  |             |       |             |             |  | (5     | )    |  |  |     |   |  |  |     |  
|Actual return on plan assets                                              |  |             | 330    |             |             |  | 116    |      |  |  |     |   |  |  |     |  
|Plan settlements                                                          |  |             |       |             |             |  |       |      |  |  |     |   |  |  |     |  
|Employer contributions                                                    |  |             | 306    |             |             |  | 325    |      |  |  | 48   |   |  |  | 46   |  
|Employee contributions                                                    |  |             | 26     |             |             |  | 26     |      |  |  |     |   |  |  |     |  
|Benefits paid                                                             |  |             | (436   | )           |             |  | (489   | )    |  |  | (48  | ) |  |  | (46  | )
|Reclassifications to current assets/liabilities                           |  |             |       |             |             |  | (16    | )    |  |  |     |   |  |  |     |  
|Exchange differences                                                      |  |             |       |             |             |  |       |      |  |  |     |   |  |  |     |  
|                                                                          |  |             |        |             |             |  |        |      |  |  |      |  
|Fair value of plan assets as of December 31                               |  |             | 4,599  |             |             |  | 6,053  |      |  |  |     |   |  |  |     |  
|                                                                          |  |             |        |             |             |  |        |      |  |  |      |  
|Funded status as of December 31                                           |  |             | (5,657 | )           |             |  | (5,304 | )    |  |  | (158 | ) |  |  | (139 | )
|                                                                          |  |             |        |             |             |  |        |      |  |  |      |  
|Unrecognized past service cost                                            |  |             |       |             |             |  |       |      |  |  |     |   |  |  |     |  
|Unrecognized transition obligation                                        |  |             |       |             |             |  |       |      |  |  |     |   |  |  |     |  
|Asset limitation due to uncertainty of obtaining future benefits          |  |             |       |             |             |  |       |      |  |  |     |   |  |  |     |  
|                                                                          |  |             |        |             |             |  |        |      |  |  |      |  
|Net recognized liability as of December 31                                |  |             | (5,657 | )           |             |  | (5,304 | )    |  |  | (158 | ) |  |  | (139 | )
|                                                                          |  |             |        |             |             |  |        |      |  |  |      |  
|Amounts recognized in the balance sheet                                   |  |             |        |             |             |  |        |      |  |  |      |   |  |  |      |  
|Prepaid benefit assets                                                    |  |             |       |             |             |  |       |      |  |  |     |   |  |  |     |  
|Provisions for pensions and other post-employment benefits                |  |             | (5,657 | )           |             |  | (5,304 | )    |  |  | (158 | ) |  |  | (139 | )
|                                                                          |  |             |        |             |             |  |        |      |  |  |      |  
|Net recognized liability as of December 31                                |  |             | (5,657 | )           |             |  | (5,304 | )    |  |  | (158 | ) |  |  | (139 | )
|                                                                          |  |             |        |             |             |  |        |      |  |  |      |  

F-74



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                                                          |  |                 |       |             |             |  |       |      |  |  |      |   |  |  |      |  
|------------------------------------------------------------------------- |  | --------------- | ----- | ----------- | ----------- |  | ----- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                                          |  | Other Countries |      
|                                                                          |  |                 |      
|                                                                          |  |                 |       | Other Post- |            
|                                                                          |  |                 |       | Employment  |            
|                                                                          |  | Pension         |       |             | Benefit     | 
|                                                                          |  | Obligations     |       |             | Obligations | 
|                                                                          |  |                 |       |             |             | 
|                                                                          |  | 2005            |       |             | 2006        |  |       | 2005 |  |  | 2006 |  
|                                                                          |  |                 |       |             |             |  |       |      |  |  |      |  
|                                                                          |  | ( million)     |      
|Defined benefit obligation as of January 1                                |  |                 | 3,807 |             |             |  | 4,269 |      |  |  | 724  |   |  |  | 878  |  
|Acquisitions                                                              |  |                 | 11    |             |             |  | 405   |      |  |  |     |   |  |  | 27   |  
|Changes due to divestitures and changes in the scope of
    consolidation |  |                 |      |             |             |  |      |      |  |  |     |   |  |  |     |  
|Current service cost                                                      |  |                 | 122   |             |             |  | 76    |      |  |  | 30   |   |  |  | 24   |  
|Interest cost                                                             |  |                 | 222   |             |             |  | 230   |      |  |  | 51   |   |  |  | 51   |  
|Employee contributions                                                    |  |                 | 5     |             |             |  | 2     |      |  |  |     |   |  |  |     |  
|Plan changes                                                              |  |                 | 4     |             |             |  | 8     |      |  |  |     |   |  |  | (10  | )
|Plan settlements                                                          |  |                 | (52   | )           |             |  | (4    | )    |  |  |     |   |  |  |     |  
|Net actuarial (gain) loss                                                 |  |                 | 262   |             |             |  | (1    | )    |  |  |     |   |  |  | 54   |  
|Benefits paid                                                             |  |                 | (198  | )           |             |  | (211  | )    |  |  | (47  | ) |  |  | (45  | )
|Plan curtailments                                                         |  |                 | (317  | )           |             |  | (20   | )    |  |  | (10  | ) |  |  | (25  | )
|Reclassifications to current assets/liabilities                           |  |                 |      |             |             |  | (155  | )    |  |  |     |   |  |  | (1   | )
|Exchange differences                                                      |  |                 | 403   |             |             |  | (251  | )    |  |  | 130  |   |  |  | (89  | )
|                                                                          |  |                 |       |             |             |  |       |      |  |  |      |  
|Defined benefit obligation as of December 31                              |  |                 | 4,269 |             |             |  | 4,348 |      |  |  | 878  |   |  |  | 864  |  
|                                                                          |  |                 |       |             |             |  |       |      |  |  |      |  
|Fair value of plan assets as of January 1                                 |  |                 | 2,841 |             |             |  | 3,485 |      |  |  | 286  |   |  |  | 359  |  
|Acquisitions                                                              |  |                 |      |             |             |  | 307   |      |  |  |     |   |  |  |     |  
|Changes due to divestitures and changes in the scope of
    consolidation |  |                 |      |             |             |  |      |      |  |  |     |   |  |  |     |  
|Actual return on plan assets                                              |  |                 | 321   |             |             |  | 421   |      |  |  | 22   |   |  |  | 44   |  
|Plan settlements                                                          |  |                 | (32   | )           |             |  | (1    | )    |  |  |     |   |  |  | (1   | )
|Employer contributions                                                    |  |                 | 176   |             |             |  | 173   |      |  |  | 53   |   |  |  | 38   |  
|Employee contributions                                                    |  |                 | 5     |             |             |  | 2     |      |  |  |     |   |  |  |     |  
|Benefits paid                                                             |  |                 | (198  | )           |             |  | (211  | )    |  |  | (47  | ) |  |  | (45  | )
|Reclassifications to current assets/liabilities                           |  |                 |      |             |             |  | (150  | )    |  |  |     |   |  |  |     |  
|Exchange differences                                                      |  |                 | 372   |             |             |  | (222  | )    |  |  | 45   |   |  |  | (38  | )
|                                                                          |  |                 |       |             |             |  |       |      |  |  |      |  
|Fair value of plan assets as of December 31                               |  |                 | 3,485 |             |             |  | 3,804 |      |  |  | 359  |   |  |  | 357  |  
|                                                                          |  |                 |       |             |             |  |       |      |  |  |      |  
|Funded status as of December 31                                           |  |                 | (784  | )           |             |  | (544  | )    |  |  | (519 | ) |  |  | (507 | )
|                                                                          |  |                 |       |             |             |  |       |      |  |  |      |  
|Unrecognized past service cost                                            |  |                 | (3    | )           |             |  | 2     |      |  |  | (8   | ) |  |  | (6   | )
|Unrecognized transition obligation                                        |  |                 |      |             |             |  |      |      |  |  |     |   |  |  |     |  
|Asset limitation due to uncertainty of obtaining future benefits          |  |                 | (8    | )           |             |  | (7    | )    |  |  |     |   |  |  |     |  
|                                                                          |  |                 |       |             |             |  |       |      |  |  |      |  
|Net recognized liability as of December 31                                |  |                 | (795  | )           |             |  | (549  | )    |  |  | (527 | ) |  |  | (513 | )
|                                                                          |  |                 |       |             |             |  |       |      |  |  |      |  
|Amounts recognized in the balance sheet                                   |  |                 |       |             |             |  |       |      |  |  |      |   |  |  |      |  
|Prepaid benefit assets                                                    |  |                 | 37    |             |             |  | 38    |      |  |  |     |   |  |  |     |  
|Provisions for pensions and other post-employment benefits                |  |                 | (832  | )           |             |  | (587  | )    |  |  | (527 | ) |  |  | (513 | )
|                                                                          |  |                 |       |             |             |  |       |      |  |  |      |  
|Net recognized liability as of December 31                                |  |                 | (795  | )           |             |  | (549  | )    |  |  | (527 | ) |  |  | (513 | )
|                                                                          |  |                 |       |             |             |  |       |      |  |  |      |  

F-75



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                                                          |  |             |        |             |             |  |        |      |  |  |       |   |  |  |       |  
|------------------------------------------------------------------------- |  | ----------- | ------ | ----------- | ----------- |  | ------ | ---- |  |  | ----- | - |  |  | ----- | -
|                                                                          |  | Total       |       
|                                                                          |  |             |       
|                                                                          |  |             |        | Other Post- |            
|                                                                          |  |             |        | Employment  |            
|                                                                          |  | Pension     |        |             | Benefit     | 
|                                                                          |  | Obligations |        |             | Obligations | 
|                                                                          |  |             |        |             |             | 
|                                                                          |  | 2005        |        |             | 2006        |  |        | 2005 |  |  | 2006  |  
|                                                                          |  |             |        |             |             |  |        |      |  |  |       |  
|                                                                          |  | ( million) |       
|Defined benefit obligation as of January 1                                |  |             | 12,673 |             |             |  | 14,525 |      |  |  | 908   |   |  |  | 1,036 |  
|Acquisitions                                                              |  |             | 25     |             |             |  | 2,108  |      |  |  |      |   |  |  | 33    |  
|Changes due to divestitures and changes in the scope of
    consolidation |  |             |       |             |             |  | (10    | )    |  |  |      |   |  |  |      |  
|Current service cost                                                      |  |             | 260    |             |             |  | 271    |      |  |  | 47    |   |  |  | 43    |  
|Interest cost                                                             |  |             | 654    |             |             |  | 696    |      |  |  | 56    |   |  |  | 55    |  
|Employee contributions                                                    |  |             | 31     |             |             |  | 28     |      |  |  |      |   |  |  |      |  
|Plan changes                                                              |  |             | 60     |             |             |  |       |      |  |  |      |   |  |  | (10   | )
|Plan settlements                                                          |  |             | (52    | )           |             |  | (4     | )    |  |  |      |   |  |  |      |  
|Net actuarial (gain) loss                                                 |  |             | 1,422  |             |             |  | (488   | )    |  |  |      |   |  |  | 54    |  
|Benefits paid                                                             |  |             | (634   | )           |             |  | (700   | )    |  |  | (95   | ) |  |  | (91   | )
|Plan curtailments                                                         |  |             | (317   | )           |             |  | (22    | )    |  |  | (10   | ) |  |  | (25   | )
|Reclassifications to current assets/liabilities                           |  |             |       |             |             |  | (448   | )    |  |  |      |   |  |  | (3    | )
|Exchange differences                                                      |  |             | 403    |             |             |  | (251   | )    |  |  | 130   |   |  |  | (89   | )
|                                                                          |  |             |        |             |             |  |        |      |  |  |       |  
|Defined benefit obligation as of December 31                              |  |             | 14,525 |             |             |  | 15,705 |      |  |  | 1,036 |   |  |  | 1,003 |  
|                                                                          |  |             |        |             |             |  |        |      |  |  |       |  
|Fair value of plan assets as of January 1                                 |  |             | 7,214  |             |             |  | 8,084  |      |  |  | 286   |   |  |  | 359   |  
|Acquisitions                                                              |  |             |       |             |             |  | 1,804  |      |  |  |      |   |  |  |      |  
|Changes due to divestitures and changes in the scope of
    consolidation |  |             |       |             |             |  | (5     | )    |  |  |      |   |  |  |      |  
|Actual return on plan assets                                              |  |             | 651    |             |             |  | 537    |      |  |  | 22    |   |  |  | 44    |  
|Plan settlements                                                          |  |             | (32    | )           |             |  | (1     | )    |  |  |      |   |  |  | (1    | )
|Employer contributions                                                    |  |             | 482    |             |             |  | 498    |      |  |  | 101   |   |  |  | 84    |  
|Employee contributions                                                    |  |             | 31     |             |             |  | 28     |      |  |  |      |   |  |  |      |  
|Benefits paid                                                             |  |             | (634   | )           |             |  | (700   | )    |  |  | (95   | ) |  |  | (91   | )
|Reclassifications to current assets/liabilities                           |  |             |       |             |             |  | (166   | )    |  |  |      |   |  |  |      |  
|Exchange differences                                                      |  |             | 372    |             |             |  | (222   | )    |  |  | 45    |   |  |  | (38   | )
|                                                                          |  |             |        |             |             |  |        |      |  |  |       |  
|Fair value of plan assets as of December 31                               |  |             | 8,084  |             |             |  | 9,857  |      |  |  | 359   |   |  |  | 357   |  
|                                                                          |  |             |        |             |             |  |        |      |  |  |       |  
|Funded status as of December 31                                           |  |             | (6,441 | )           |             |  | (5,848 | )    |  |  | (677  | ) |  |  | (646  | )
|                                                                          |  |             |        |             |             |  |        |      |  |  |       |  
|Unrecognized past service cost                                            |  |             | (3     | )           |             |  | 2      |      |  |  | (8    | ) |  |  | (6    | )
|Unrecognized transition obligation                                        |  |             |       |             |             |  |       |      |  |  |      |   |  |  |      |  
|Asset limitation due to uncertainty of obtaining future benefits          |  |             | (8     | )           |             |  | (7     | )    |  |  |      |   |  |  |      |  
|                                                                          |  |             |        |             |             |  |        |      |  |  |       |  
|Net recognized liability as of December 31                                |  |             | (6,452 | )           |             |  | (5,853 | )    |  |  | (685  | ) |  |  | (652  | )
|                                                                          |  |             |        |             |             |  |        |      |  |  |       |  
|Amounts recognized in the balance sheet                                   |  |             |        |             |             |  |        |      |  |  |       |   |  |  |       |  
|Prepaid benefit assets                                                    |  |             | 37     |             |             |  | 38     |      |  |  |      |   |  |  |      |  
|Provisions for pensions and other post-employment benefits                |  |             | (6,489 | )           |             |  | (5,891 | )    |  |  | (685  | ) |  |  | (652  | )
|                                                                          |  |             |        |             |             |  |        |      |  |  |       |  
|Net recognized liability as of December 31                                |  |             | (6,452 | )           |             |  | (5,853 | )    |  |  | (685  | ) |  |  | (652  | )
|                                                                          |  |             |        |             |             |  |        |      |  |  |       |  

F-76



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


       


     




  










|                                          |  |                               |        |            |                 |  |        |      |            |  |        |  |  |      |        |  |      |  |        |  |  |  |        | 
|----------------------------------------- |  | ----------------------------- | ------ | ---------- | --------------- |  | ------ | ---- | ---------- |  | ------ |  |  | ---- | ------ |  | ---- |  | ------ |  |  |  | ------ | 
|                                          |  | Plan Assets as of December 31 |       
|                                          |  |                               |       
|                                          |  | Germany                       |        |            | Other Countries | 
|                                          |  |                               |        |            |                 | 
|                                          |  |                               |        | Target for |                 |  |        |      | Target for | 
|                                          |  | 2005                          |        |            | 2006            |  |        | 2007 |            |  | 2005   |  |  | 2006 |        |  | 2007 | 
|                                          |  |                               |        |            |                 |  |        |      |            |  |        |  |  |      |        |  |      | 
|                                          |  | (in %)                        |       
|Equity securities (directly held)         |  |                               | 0.04   |            |                 |  | 13.36  |      |            |  | 13.10  |  |  |      | 50.98  |  |      |  | 50.84  |  |  |  | 49.09  | 
|Debt securities                           |  |                               | 53.75  |            |                 |  | 41.68  |      |            |  | 42.14  |  |  |      | 41.26  |  |      |  | 40.46  |  |  |  | 41.24  | 
|Special securities funds                  |  |                               | 25.65  |            |                 |  | 26.13  |      |            |  | 22.62  |  |  |      |       |  |      |  | 0.01   |  |  |  | 0.01   | 
|Real estate and special real estate funds |  |                               | 12.13  |            |                 |  | 8.92   |      |            |  | 12.92  |  |  |      | 1.58   |  |      |  | 3.03   |  |  |  | 3.14   | 
|Other                                     |  |                               | 8.43   |            |                 |  | 9.91   |      |            |  | 9.22   |  |  |      | 6.18   |  |      |  | 5.66   |  |  |  | 6.52   | 
|                                          |  |                               |        |            |                 |  |        |      |            |  |        |  |  |      |        |  |      | 
|                                          |  |                               | 100.00 |            |                 |  | 100.00 |      |            |  | 100.00 |  |  |      | 100.00 |  |      |  | 100.00 |  |  |  | 100.00 | 
|                                          |  |                               |        |            |                 |  |        |      |            |  |        |  |  |      |        |  |      | 



F-77



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                          |  |                               |   |            |                 |  |   |      |            |  |      |  |  |      |        |  |      |  |        |  |  |  |        | 
|----------------------------------------- |  | ----------------------------- | - | ---------- | --------------- |  | - | ---- | ---------- |  | ---- |  |  | ---- | ------ |  | ---- |  | ------ |  |  |  | ------ | 
|                                          |  | Plan Assets as of December 31 |  
|                                          |  |                               |  
|                                          |  | Germany                       |   |            | Other Countries | 
|                                          |  |                               |   |            |                 | 
|                                          |  |                               |   | Target for |                 |  |   |      | Target for | 
|                                          |  | 2005                          |   |            | 2006            |  |   | 2007 |            |  | 2005 |  |  | 2006 |        |  | 2007 | 
|                                          |  |                               |   |            |                 |  |   |      |            |  |      |  |  |      |        |  |      | 
|                                          |  | in %                          |   |            | in %            |  |   | in % |            |  | in % |  |  | in % |        |  | in % | 
|Equity securities (directly held)         |  |                               |  |            |                 |  |  |      |            |  |     |  |  |      | 56.10  |  |      |  | 56.80  |  |  |  | 53.00  | 
|Debt securities                           |  |                               |  |            |                 |  |  |      |            |  |     |  |  |      | 35.40  |  |      |  | 35.30  |  |  |  | 35.00  | 
|Special securities funds                  |  |                               |  |            |                 |  |  |      |            |  |     |  |  |      |       |  |      |  |       |  |  |  |       | 
|Real estate and special real estate funds |  |                               |  |            |                 |  |  |      |            |  |     |  |  |      |       |  |      |  |       |  |  |  |       | 
|Other                                     |  |                               |  |            |                 |  |  |      |            |  |     |  |  |      | 8.50   |  |      |  | 7.90   |  |  |  | 12.00  | 
|                                          |  |                               |   |            |                 |  |   |      |            |  |      |  |  |      |        |  |      | 
|                                          |  |                               |  |            |                 |  |  |      |            |  |     |  |  |      | 100.00 |  |      |  | 100.00 |  |  |  | 100.00 | 
|                                          |  |                               |   |            |                 |  |   |      |            |  |      |  |  |      |        |  |      | 







|                                          |  |         |      |       |           |  |      |       |  |  |      |  |  |      |      |  |      |  |      |  |  |  |      | 
|----------------------------------------- |  | ------- | ---- | ----- | --------- |  | ---- | ----- |  |  | ---- |  |  | ---- | ---- |  | ---- |  | ---- |  |  |  | ---- | 
|                                          |  |         |      | Other |           |  |     
|                                          |  | Germany |      |       | Countries |  |      | Total | 
|                                          |  |         |      |       |           |  |      |       | 
|                                          |  | 2005    |      |       | 2006      |  |      | 2005  |  |  | 2006 |  |  | 2005 |      |  | 2006 | 
|                                          |  |         |      |       |           |  |      |       |  |  |      |  |  |      |      |  |      | 
|                                          |  | in %    |      |       | in %      |  |      | in %  |  |  | in % |  |  | in % |      |  | in % | 
|Pension obligations                       |  |         |      |       |           |  |      |       |  |  |      |  |  |      |      |  |      |  |      |  |  |  |      | 
|Discount rate                             |  |         | 4.25 |       |           |  | 4.60 |       |  |  | 5.50 |  |  |      | 5.65 |  |      |  | 4.60 |  |  |  | 4.90 | 
|Projected future remuneration increases   |  |         | 2.50 |       |           |  | 2.60 |       |  |  | 4.00 |  |  |      | 4.10 |  |      |  | 2.75 |  |  |  | 2.85 | 
|Projected future benefit increases        |  |         | 1.25 |       |           |  | 1.50 |       |  |  | 2.75 |  |  |      | 2.45 |  |      |  | 1.45 |  |  |  | 1.60 | 
|Other post-employment benefit obligations |  |         |      |       |           |  |      |       |  |  |      |  |  |      |      |  |      |  |      |  |  |  |      | 
|Discount rate                             |  |         | 3.25 |       |           |  | 4.30 |       |  |  | 6.00 |  |  |      | 6.25 |  |      |  | 5.65 |  |  |  | 6.00 | 



|                                          |  |         |      |       |           |  |      |       |  |  |      |  |  |      |      |  |      |  |      |  |  |  |      | 
|----------------------------------------- |  | ------- | ---- | ----- | --------- |  | ---- | ----- |  |  | ---- |  |  | ---- | ---- |  | ---- |  | ---- |  |  |  | ---- | 
|                                          |  |         |      | Other |           |  |     
|                                          |  | Germany |      |       | Countries |  |      | Total | 
|                                          |  |         |      |       |           |  |      |       | 
|                                          |  | 2005    |      |       | 2006      |  |      | 2005  |  |  | 2006 |  |  | 2005 |      |  | 2006 | 
|                                          |  |         |      |       |           |  |      |       |  |  |      |  |  |      |      |  |      | 
|                                          |  | in %    |      |       | in %      |  |      | in %  |  |  | in % |  |  | in % |      |  | in % | 
|Pension obligations                       |  |         |      |       |           |  |      |       |  |  |      |  |  |      |      |  |      |  |      |  |  |  |      | 
|Discount rate                             |  |         | 5.00 |       |           |  | 4.25 |       |  |  | 5.75 |  |  |      | 5.50 |  |      |  | 5.20 |  |  |  | 4.60 | 
|Projected future remuneration increases   |  |         | 2.50 |       |           |  | 2.50 |       |  |  | 4.10 |  |  |      | 4.00 |  |      |  | 2.95 |  |  |  | 2.75 | 
|Projected future benefit increases        |  |         | 1.25 |       |           |  | 1.25 |       |  |  | 2.70 |  |  |      | 2.75 |  |      |  | 1.40 |  |  |  | 1.45 | 
|Expected return on plan assets            |  |         | 5.50 |       |           |  | 5.25 |       |  |  | 7.50 |  |  |      | 7.50 |  |      |  | 6.35 |  |  |  | 6.10 | 
|Other post-employment benefit obligations |  |         |      |       |           |  |      |       |  |  |      |  |  |      |      |  |      |  |      |  |  |  |      | 
|Discount rate                             |  |         | 3.25 |       |           |  | 3.25 |       |  |  | 6.00 |  |  |      | 6.00 |  |      |  | 5.40 |  |  |  | 5.65 | 
|Expected return on plan assets            |  |         |     |       |           |  |     |       |  |  | 8.25 |  |  |      | 8.25 |  |      |  | 8.25 |  |  |  | 8.25 | 



F-78



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                                  |  |             |      |   |                 |  |      |            |  |  |            |   |  |            |     |   |            |  |        |   |  |  |       |  
|------------------------------------------------- |  | ----------- | ---- | - | --------------- |  | ---- | ---------- |  |  | ---------- | - |  | ---------- | --- | - | ---------- |  | ------ | - |  |  | ----- | -
|                                                  |  | Germany     |      |   | Other Countries |  |      | Total      | 
|                                                  |  |             |      |   |                 |  |      |            | 
|                                                  |  | 0.5         |      |   | 0.5             |  |      | 0.5        |  |  | 0.5        |   |  | 0.5        |     |   | 0.5        | 
|                                                  |  | Percentage  |      |   | Percentage      |  |      | Percentage |  |  | Percentage |   |  | Percentage |     |   | Percentage | 
|                                                  |  | Point       |      |   | Point           |  |      | Point      |  |  | Point      |   |  | Point      |     |   | Point      | 
|                                                  |  | Increase    |      |   | Decrease        |  |      | Increase   |  |  | Decrease   |   |  | Increase   |     |   | Decrease   | 
|                                                  |  |             |      |   |                 |  |      |            |  |  |            |   |  |            |     |   |            | 
|                                                  |  | ( million) |     
|Pension obligations                               |  |             |      |   |                 |  |      |            |  |  |            |   |  |            |     |   |            |  |        |   |  |  |       |  
|Change in discount rate                           |  |             | (771 | ) |                 |  | 865  |            |  |  | (273       | ) |  |            | 295 |   |            |  | (1,044 | ) |  |  | 1,160 |  
|Change in projected future remuneration increases |  |             | 139  |   |                 |  | (132 | )          |  |  | 56         |   |  |            | (50 | ) |            |  | 195    |   |  |  | (182  | )
|Change in projected future benefit increases      |  |             | 568  |   |                 |  | (531 | )          |  |  | 70         |   |  |            | (31 | ) |            |  | 638    |   |  |  | (562  | )
|Other post-employment benefit obligations         |  |             |      |   |                 |  |      |            |  |  |            |   |  |            |     |   |            |  |        |   |  |  |       |  
|Change in discount rate                           |  |             | (1   | ) |                 |  | 1    |            |  |  | (42        | ) |  |            | 42  |   |            |  | (43    | ) |  |  | 43    |  



|                                                  |  |             |     |   |                 |  |     |            |  |  |            |   |  |            |    |   |            |  |     |   |  |  |     |  
|------------------------------------------------- |  | ----------- | --- | - | --------------- |  | --- | ---------- |  |  | ---------- | - |  | ---------- | -- | - | ---------- |  | --- | - |  |  | --- | -
|                                                  |  | Germany     |     |   | Other Countries |  |     | Total      | 
|                                                  |  |             |     |   |                 |  |     |            | 
|                                                  |  | 0.5         |     |   | 0.5             |  |     | 0.5        |  |  | 0.5        |   |  | 0.5        |    |   | 0.5        | 
|                                                  |  | Percentage  |     |   | Percentage      |  |     | Percentage |  |  | Percentage |   |  | Percentage |    |   | Percentage | 
|                                                  |  | Point       |     |   | Point           |  |     | Point      |  |  | Point      |   |  | Point      |    |   | Point      | 
|                                                  |  | Increase    |     |   | Decrease        |  |     | Increase   |  |  | Decrease   |   |  | Increase   |    |   | Decrease   | 
|                                                  |  |             |     |   |                 |  |     |            |  |  |            |   |  |            |    |   |            | 
|                                                  |  | ( million) |    
|Pension obligations                               |  |             |     |   |                 |  |     |            |  |  |            |   |  |            |    |   |            |  |     |   |  |  |     |  
|Change in discount rate                           |  |             | (10 | ) |                 |  | 10  |            |  |  | (1         | ) |  |            | (1 | ) |            |  | (11 | ) |  |  | 9   |  
|Change in projected future remuneration increases |  |             | 9   |   |                 |  | (8  | )          |  |  | 4          |   |  |            | (4 | ) |            |  | 13  |   |  |  | (12 | )
|Change in projected future benefit increases      |  |             | 33  |   |                 |  | (30 | )          |  |  | 3          |   |  |            | (2 | ) |            |  | 36  |   |  |  | (32 | )
|Change in expected return on plan assets          |  |             | (30 | ) |                 |  | 30  |            |  |  | (18        | ) |  |            | 18 |   |            |  | (48 | ) |  |  | 48  |  
|Other post-employment benefit obligations         |  |             |     |   |                 |  |     |            |  |  |            |   |  |            |    |   |            |  |     |   |  |  |     |  
|Change in discount rate                           |  |             |    |   |                 |  |    |            |  |  | (2         | ) |  |            | 2  |   |            |  | (2  | ) |  |  | 2   |  
|Change in expected return on plan assets          |  |             |    |   |                 |  |    |            |  |  | (2         | ) |  |            | 2  |   |            |  | (2  | ) |  |  | 2   |  

F-79



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                                    |  |                  |    |  |                  |  |     |  
|--------------------------------------------------- |  | ---------------- | -- |  | ---------------- |  | --- | -
|                                                    |  | Increase of One  |    |  | Decrease of One  | 
|                                                    |  | Percentage Point |    |  | Percentage Point | 
|                                                    |  |                  |    |  |                  | 
|                                                    |  | ( million)      |   
|Impact on pension expense                           |  |                  | 3  |  |                  |  | (2  | )
|Impact on other post-employment benefit obligations |  |                  | 65 |  |                  |  | (60 | )



|                                          |  |             |     |      |                 |  |     |           |      |  |      |  |  |      |     |  |           |  |     |  |  |  |     | 
|----------------------------------------- |  | ----------- | --- | ---- | --------------- |  | --- | --------- | ---- |  | ---- |  |  | ---- | --- |  | --------- |  | --- |  |  |  | --- | 
|                                          |  | Germany     |     |      | Other Countries | 
|                                          |  |             |     |      |                 | 
|                                          |  |             |     | 2007 |                 |  |     |           | 2007 | 
|                                          |  | 2005        |     |      | 2006            |  |     | Projected |      |  | 2005 |  |  | 2006 |     |  | Projected | 
|                                          |  |             |     |      |                 |  |     |           |      |  |      |  |  |      |     |  |           | 
|                                          |  | ( million) |    
|Pensions obligations                      |  |             | 306 |      |                 |  | 325 |           |      |  | 348  |  |  |      | 176 |  |           |  | 173 |  |  |  | 92  | 
|Other post-employment benefit obligations |  |             | 48  |      |                 |  | 46  |           |      |  | 39   |  |  |      | 53  |  |           |  | 38  |  |  |  | 44  | 
|                                          |  |             |     |      |                 |  |     |           |      |  |      |  |  |      |     |  |           | 
|Total                                     |  |             | 354 |      |                 |  | 371 |           |      |  | 387  |  |  |      | 229 |  |           |  | 211 |  |  |  | 136 | 
|                                          |  |             |     |      |                 |  |     |           |      |  |      |  |  |      |     |  |           | 



|            |  |             |       |             |                 |  |    |             |             |  |             |  |  |             |     |  |             |  |       |  |  |  |     | 
|----------- |  | ----------- | ----- | ----------- | --------------- |  | -- | ----------- | ----------- |  | ----------- |  |  | ----------- | --- |  | ----------- |  | ----- |  |  |  | --- | 
|            |  | Germany     |       |             | Other Countries |  |    | Total       |            
|            |  |             |       |             |                 |  |    |             |            
|            |  |             |       | Other Post- |                 |  |    |             | Other Post- |  |             |  |  | Other Post- |    
|            |  |             |       | Employment  |                 |  |    |             | Employment  |  |             |  |  | Employment  |    
|            |  | Pension     |       |             | Benefit         |  |    | Pension     |             |  | Benefit     |  |  | Pension     |     |  | Benefit     | 
|            |  | Obligations |       |             | Obligations     |  |    | Obligations |             |  | Obligations |  |  | Obligations |     |  | Obligations | 
|            |  |             |       |             |                 |  |    |             |             |  |             |  |  |             |     |  |             | 
|            |  | ( million) |      
|2007        |  |             | 528   |             |                 |  | 39 |             |             |  | 191         |  |  |             | 43  |  |             |  | 719   |  |  |  | 82  | 
|2008        |  |             | 544   |             |                 |  | 29 |             |             |  | 195         |  |  |             | 45  |  |             |  | 739   |  |  |  | 74  | 
|2009        |  |             | 566   |             |                 |  | 22 |             |             |  | 205         |  |  |             | 48  |  |             |  | 771   |  |  |  | 70  | 
|2010        |  |             | 587   |             |                 |  | 20 |             |             |  | 221         |  |  |             | 52  |  |             |  | 808   |  |  |  | 72  | 
|2011        |  |             | 609   |             |                 |  | 16 |             |             |  | 241         |  |  |             | 55  |  |             |  | 850   |  |  |  | 71  | 
|2012 - 2016 |  |             | 3,378 |             |                 |  | 12 |             |             |  | 1,327       |  |  |             | 312 |  |             |  | 4,705 |  |  |  | 324 | 

F-80



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                                                                        |  |                               |        |                        |                 |  |        |      |  |  |        |   |  |      |        |   |      |  |        |      |  |  |       |   |  |  |       |   |  |  |       |  
|--------------------------------------------------------------------------------------- |  | ----------------------------- | ------ | ---------------------- | --------------- |  | ------ | ---- |  |  | ------ | - |  | ---- | ------ | - | ---- |  | ------ | ---- |  |  | ----- | - |  |  | ----- | - |  |  | ----- | -
|                                                                                        |  |                               |        | Pensions Obligations  |                
|                                                                                        |  | Pension Obligations  Germany |        |                        | Other Countries | 
|                                                                                        |  |                               |        |                        |                 | 
|                                                                                        |  | 2003                          |        |                        | 2004            |  |        | 2005 |  |  | 2006   |   |  | 2003 |        |   | 2004 |  |        | 2005 |  |  | 2006  |  
|                                                                                        |  |                               |        |                        |                 |  |        |      |  |  |        |   |  |      |        |   |      |  |        |      |  |  |       |  
|                                                                                        |  | ( million)                   |       
|Defined benefit obligation                                                              |  |                               | 8,099  |                        |                 |  | 8,866  |      |  |  | 10,256 |   |  |      | 11,357 |   |      |  | 3,746  |      |  |  | 3,807 |   |  |  | 4,269 |   |  |  | 4,348 |  
|Fair value of plan assets                                                               |  |                               | 4,240  |                        |                 |  | 4,373  |      |  |  | 4,599  |   |  |      | 6,053  |   |      |  | 2,675  |      |  |  | 2,841 |   |  |  | 3,485 |   |  |  | 3,804 |  
|                                                                                        |  |                               |        |                        |                 |  |        |      |  |  |        |   |  |      |        |   |      |  |        |      |  |  |       |  
|Funded status                                                                           |  |                               | (3,859 | )                      |                 |  | (4,493 | )    |  |  | (5,657 | ) |  |      | (5,304 | ) |      |  | (1,071 | )    |  |  | (966  | ) |  |  | (784  | ) |  |  | (544  | )
|                                                                                        |  |                               |        |                        |                 |  |        |      |  |  |        |   |  |      |        |   |      |  |        |      |  |  |       |  
|Accumulated actuarial gains (losses) relating to benefit
    obligation as of January 1 |  |                               | (670   | )                      |                 |  | (1,119 | )    |  |  | (1,682 | ) |  |      | (2,842 | ) |      |  | (98    | )    |  |  | (304  | ) |  |  | (421  | ) |  |  | (692  | )
|Changes due to divestitures and changes in the scope of
    consolidation               |  |                               |       |                        |                 |  |       |      |  |  |       |   |  |      | 1      |   |      |  |       |      |  |  |      |   |  |  |      |   |  |  |      |  
|Newly arisen during the year due to changes in actuarial
    parameters                 |  |                               | (610   | )                      |                 |  | (575   | )    |  |  | (1,122 | ) |  |      | 441    |   |      |  | (249   | )    |  |  | (161  | ) |  |  | (265  | ) |  |  | 46    |  
|Newly arisen during the year due to experience adjustments                              |  |                               | 161    |                        |                 |  | 12     |      |  |  | (38    | ) |  |      | 46     |   |      |  | 13     |      |  |  | 19    |   |  |  | 3     |   |  |  | (45   | )
|Allocations to discontinued operations                                                  |  |                               |       |                        |                 |  |       |      |  |  |       |   |  |      | 61     |   |      |  |       |      |  |  |      |   |  |  |      |   |  |  | 34    |  
|Exchange differences                                                                    |  |                               |       |                        |                 |  |       |      |  |  |       |   |  |      |       |   |      |  | 30     |      |  |  | 25    |   |  |  | (9    | ) |  |  |      |  
|                                                                                        |  |                               |        |                        |                 |  |        |      |  |  |        |   |  |      |        |   |      |  |        |      |  |  |       |  
|December 31                                                                             |  |                               | (1,119 | )                      |                 |  | (1,682 | )    |  |  | (2,842 | ) |  |      | (2,293 | ) |      |  | (304   | )    |  |  | (421  | ) |  |  | (692  | ) |  |  | (657  | )
|                                                                                        |  |                               |        |                        |                 |  |        |      |  |  |        |   |  |      |        |   |      |  |        |      |  |  |       |  
|Accumulated actuarial gains (losses) relating to plan
    assets
    as of January 1    |  |                               | (753   | )                      |                 |  | (735   | )    |  |  | (786   | ) |  |      | (693   | ) |      |  | (631   | )    |  |  | (315  | ) |  |  | (204  | ) |  |  | (125  | )
|Changes due to divestitures and changes in the scope of
    consolidation               |  |                               |       |                        |                 |  |       |      |  |  |       |   |  |      |       |   |      |  |       |      |  |  |      |   |  |  |      |   |  |  |      |  
|Newly arisen during the year                                                            |  |                               | 18     |                        |                 |  | (51    | )    |  |  | 93     |   |  |      | (154   | ) |      |  | 230    |      |  |  | 100   |   |  |  | 84    |   |  |  | 159   |  
|Allocations to discontinued operations                                                  |  |                               |       |                        |                 |  |       |      |  |  |       |   |  |      | 1      |   |      |  |       |      |  |  |      |   |  |  |      |   |  |  | (19   | )
|Exchange differences                                                                    |  |                               |       |                        |                 |  |       |      |  |  |       |   |  |      |       |   |      |  | 86     |      |  |  | 11    |   |  |  | (5    | ) |  |  |      |  
|                                                                                        |  |                               |        |                        |                 |  |        |      |  |  |        |   |  |      |        |   |      |  |        |      |  |  |       |  
|December 31                                                                             |  |                               | (735   | )                      |                 |  | (786   | )    |  |  | (693   | ) |  |      | (846   | ) |      |  | (315   | )    |  |  | (204  | ) |  |  | (125  | ) |  |  | 15    |  
|                                                                                        |  |                               |        |                        |                 |  |        |      |  |  |        |   |  |      |        |   |      |  |        |      |  |  |       |  
|Asset limitation due to uncertainty of obtaining future
    benefits as of January 1    |  |                               | 1,058  |                        |                 |  | 1,058  |      |  |  | 1,058  |   |  |      | 1,058  |   |      |  |       |      |  |  | 7     |   |  |  | 9     |   |  |  | 17    |  
|Changes due to divestitures and changes in the scope of
    consolidation               |  |                               |       |                        |                 |  |       |      |  |  |       |   |  |      |       |   |      |  |       |      |  |  |      |   |  |  |      |   |  |  |      |  
|Newly arisen during the year                                                            |  |                               |       |                        |                 |  |       |      |  |  |       |   |  |      |       |   |      |  | 7      |      |  |  | 2     |   |  |  | 8     |   |  |  | (9    | )
|Allocations to discontinued operations                                                  |  |                               |       |                        |                 |  |       |      |  |  |       |   |  |      |       |   |      |  |       |      |  |  |      |   |  |  |      |   |  |  |      |  
|Exchange differences                                                                    |  |                               |       |                        |                 |  |       |      |  |  |       |   |  |      |       |   |      |  |       |      |  |  |      |   |  |  |      |   |  |  | (1    | )
|                                                                                        |  |                               |        |                        |                 |  |        |      |  |  |        |   |  |      |        |   |      |  |        |      |  |  |       |  
|December 31                                                                             |  |                               | 1,058  |                        |                 |  | 1,058  |      |  |  | 1,058  |   |  |      | 1,058  |   |      |  | 7      |      |  |  | 9     |   |  |  | 17    |   |  |  | 7     |  
|                                                                                        |  |                               |        |                        |                 |  |        |      |  |  |        |   |  |      |        |   |      |  |        |      |  |  |       |  

F-81



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)





|                                                                                        |  |                       |      |   |      |  |      |      |  |  |      |   |  |  |      |  
|--------------------------------------------------------------------------------------- |  | --------------------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                                                        |  | Other Post-Employment |     
|                                                                                        |  | Benefit Obligations  |     
|                                                                                        |  | Other Countries       |     
|                                                                                        |  |                       |     
|                                                                                        |  | 2003                  |      |   | 2004 |  |      | 2005 |  |  | 2006 |  
|                                                                                        |  |                       |      |   |      |  |      |      |  |  |      |  
|                                                                                        |  | ( million)           |     
|Defined benefit obligation                                                              |  |                       | 886  |   |      |  | 724  |      |  |  | 878  |   |  |  | 864  |  
|Fair value of plan assets                                                               |  |                       | 263  |   |      |  | 286  |      |  |  | 359  |   |  |  | 357  |  
|                                                                                        |  |                       |      |   |      |  |      |      |  |  |      |  
|Funded status                                                                           |  |                       | (623 | ) |      |  | (438 | )    |  |  | (519 | ) |  |  | (507 | )
|                                                                                        |  |                       |      |   |      |  |      |      |  |  |      |  
|Accumulated actuarial gains (losses) relating
    to benefit obligation as of January 1 |  |                       | (20  | ) |      |  | (222 | )    |  |  | (259 | ) |  |  | (259 | )
|Changes due to divestitures and changes in the
    scope of consolidation               |  |                       |     |   |      |  |     |      |  |  |     |   |  |  |     |  
|Newly arisen during the year due to changes
    in actuarial parameters                 |  |                       | (190 | ) |      |  | (38  | )    |  |  | (31  | ) |  |  | (71  | )
|Newly arisen during the year due to
    experience adjustments                          |  |                       | (42  | ) |      |  | (17  | )    |  |  | 31   |   |  |  | 17   |  
|Allocations to discontinued operations                                                  |  |                       |     |   |      |  |     |      |  |  |     |   |  |  |     |  
|Exchange differences                                                                    |  |                       | 30   |   |      |  | 18   |      |  |  |     |   |  |  | 2    |  
|                                                                                        |  |                       |      |   |      |  |      |      |  |  |      |  
|December 31                                                                             |  |                       | (222 | ) |      |  | (259 | )    |  |  | (259 | ) |  |  | (311 | )
|                                                                                        |  |                       |      |   |      |  |      |      |  |  |      |  
|Accumulated actuarial gains (losses) relating
    to plan assets as of January 1        |  |                       | (92  | ) |      |  | (49  | )    |  |  | (36  | ) |  |  | (41  | )
|Changes due to divestitures and changes in the
    scope of consolidation               |  |                       |     |   |      |  |     |      |  |  |     |   |  |  |     |  
|Newly arisen during the year                                                            |  |                       | 29   |   |      |  | 11   |      |  |  | (5   | ) |  |  | 17   |  
|Allocations to discontinued operations                                                  |  |                       |     |   |      |  |     |      |  |  |     |   |  |  |     |  
|Exchange differences                                                                    |  |                       | 14   |   |      |  | 2    |      |  |  |     |   |  |  |     |  
|                                                                                        |  |                       |      |   |      |  |      |      |  |  |      |  
|December 31                                                                             |  |                       | (49  | ) |      |  | (36  | )    |  |  | (41  | ) |  |  | (24  | )
|                                                                                        |  |                       |      |   |      |  |      |      |  |  |      |  
|Asset limitation due to uncertainty of
    obtaining future benefits as of January 1    |  |                       |     |   |      |  |     |      |  |  |     |   |  |  |     |  
|Changes due to divestitures and changes in the
    scope of consolidation               |  |                       |     |   |      |  |     |      |  |  |     |   |  |  |     |  
|Newly arisen during the year                                                            |  |                       |     |   |      |  |     |      |  |  |     |   |  |  |     |  
|Allocations to discontinued operations                                                  |  |                       |     |   |      |  |     |      |  |  |     |   |  |  |     |  
|Exchange differences                                                                    |  |                       |     |   |      |  |     |      |  |  |     |   |  |  |     |  
|                                                                                        |  |                       |      |   |      |  |      |      |  |  |      |  
|December 31                                                                             |  |                       |     |   |      |  |     |      |  |  |     |   |  |  |     |  
|                                                                                        |  |                       |      |   |      |  |      |      |  |  |      |  

F-82



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)





|                                                                                        |  |                             |        |                               |                     |  |        |      |  |  |        |   |  |      |        |   |      |  |       |      |  |  |      |   |  |  |       |   |  |  |       |  
|--------------------------------------------------------------------------------------- |  | --------------------------- | ------ | ----------------------------- | ------------------- |  | ------ | ---- |  |  | ------ | - |  | ---- | ------ | - | ---- |  | ----- | ---- |  |  | ---- | - |  |  | ----- | - |  |  | ----- | -
|                                                                                        |  |                             |        | Other Post-Employment Benefit |                    
|                                                                                        |  | Pension Obligations  Total |        |                               | Obligations  Total | 
|                                                                                        |  |                             |        |                               |                     | 
|                                                                                        |  | 2003                        |        |                               | 2004                |  |        | 2005 |  |  | 2006   |   |  | 2003 |        |   | 2004 |  |       | 2005 |  |  | 2006 |  
|                                                                                        |  |                             |        |                               |                     |  |        |      |  |  |        |   |  |      |        |   |      |  |       |      |  |  |      |  
|                                                                                        |  | ( million)                 |       
|Defined benefit obligation                                                              |  |                             | 11,845 |                               |                     |  | 12,673 |      |  |  | 14,525 |   |  |      | 15,705 |   |      |  | 1,088 |      |  |  | 908  |   |  |  | 1,036 |   |  |  | 1,003 |  
|Fair value of plan assets                                                               |  |                             | 6,915  |                               |                     |  | 7,214  |      |  |  | 8,084  |   |  |      | 9,857  |   |      |  | 263   |      |  |  | 286  |   |  |  | 359   |   |  |  | 357   |  
|                                                                                        |  |                             |        |                               |                     |  |        |      |  |  |        |   |  |      |        |   |      |  |       |      |  |  |      |  
|Funded status                                                                           |  |                             | (4,930 | )                             |                     |  | (5,459 | )    |  |  | (6,441 | ) |  |      | (5,848 | ) |      |  | (825  | )    |  |  | (622 | ) |  |  | (677  | ) |  |  | (646  | )
|                                                                                        |  |                             |        |                               |                     |  |        |      |  |  |        |   |  |      |        |   |      |  |       |      |  |  |      |  
|Accumulated actuarial gains (losses) relating to benefit
    obligation as of January 1 |  |                             | (768   | )                             |                     |  | (1,423 | )    |  |  | (2,103 | ) |  |      | (3,534 | ) |      |  | (20   | )    |  |  | (222 | ) |  |  | (259  | ) |  |  | (259  | )
|Changes due to divestitures and changes in the scope of
    consolidation               |  |                             |       |                               |                     |  |       |      |  |  |       |   |  |      | 1      |   |      |  |      |      |  |  |     |   |  |  |      |   |  |  |      |  
|Newly arisen during the year due to changes in actuarial
    parameters                 |  |                             | (859   | )                             |                     |  | (736   | )    |  |  | (1,387 | ) |  |      | 487    |   |      |  | (190  | )    |  |  | (38  | ) |  |  | (31   | ) |  |  | (71   | )
|Newly arisen during the year due to
    experience adjustments                          |  |                             | 174    |                               |                     |  | 31     |      |  |  | (35    | ) |  |      | 1      |   |      |  | (42   | )    |  |  | (17  | ) |  |  | 31    |   |  |  | 17    |  
|Allocations to discontinued operations                                                  |  |                             |       |                               |                     |  |       |      |  |  |       |   |  |      | 95     |   |      |  |      |      |  |  |     |   |  |  |      |   |  |  |      |  
|Exchange differences                                                                    |  |                             | 30     |                               |                     |  | 25     |      |  |  | (9     | ) |  |      |       |   |      |  | 30    |      |  |  | 18   |   |  |  |      |   |  |  | 2     |  
|                                                                                        |  |                             |        |                               |                     |  |        |      |  |  |        |   |  |      |        |   |      |  |       |      |  |  |      |  
|December 31                                                                             |  |                             | (1,423 | )                             |                     |  | (2,103 | )    |  |  | (3,534 | ) |  |      | (2,950 | ) |      |  | (222  | )    |  |  | (259 | ) |  |  | (259  | ) |  |  | (311  | )
|                                                                                        |  |                             |        |                               |                     |  |        |      |  |  |        |   |  |      |        |   |      |  |       |      |  |  |      |  
|Accumulated actuarial gains (losses) relating to plan assets
    as of January 1        |  |                             | (1,384 | )                             |                     |  | (1,050 | )    |  |  | (990   | ) |  |      | (818   | ) |      |  | (92   | )    |  |  | (49  | ) |  |  | (36   | ) |  |  | (41   | )
|Changes due to divestitures and changes in the scope of
    consolidation               |  |                             |       |                               |                     |  |       |      |  |  |       |   |  |      |       |   |      |  |      |      |  |  |     |   |  |  |      |   |  |  |      |  
|Newly arisen during the year                                                            |  |                             | 248    |                               |                     |  | 49     |      |  |  | 177    |   |  |      | 5      |   |      |  | 29    |      |  |  | 11   |   |  |  | (5    | ) |  |  | 17    |  
|Allocations to discontinued operations                                                  |  |                             |       |                               |                     |  |       |      |  |  |       |   |  |      | (18    | ) |      |  |      |      |  |  |     |   |  |  |      |   |  |  |      |  
|Exchange differences                                                                    |  |                             | 86     |                               |                     |  | 11     |      |  |  | (5     | ) |  |      |       |   |      |  | 14    |      |  |  | 2    |   |  |  |      |   |  |  |      |  
|                                                                                        |  |                             |        |                               |                     |  |        |      |  |  |        |   |  |      |        |   |      |  |       |      |  |  |      |  
|December 31                                                                             |  |                             | (1,050 | )                             |                     |  | (990   | )    |  |  | (818   | ) |  |      | (831   | ) |      |  | (49   | )    |  |  | (36  | ) |  |  | (41   | ) |  |  | (24   | )
|                                                                                        |  |                             |        |                               |                     |  |        |      |  |  |        |   |  |      |        |   |      |  |       |      |  |  |      |  
|Asset limitation due to uncertainty of obtaining future
    benefits as of January 1    |  |                             | 1,058  |                               |                     |  | 1,065  |      |  |  | 1,067  |   |  |      | 1,075  |   |      |  |      |      |  |  |     |   |  |  |      |   |  |  |      |  
|Changes due to divestitures and changes in the scope of
    consolidation               |  |                             |       |                               |                     |  |       |      |  |  |       |   |  |      |       |   |      |  |      |      |  |  |     |   |  |  |      |   |  |  |      |  
|Newly arisen during the year                                                            |  |                             | 7      |                               |                     |  | 2      |      |  |  | 8      |   |  |      | (9     | ) |      |  |      |      |  |  |     |   |  |  |      |   |  |  |      |  
|Allocations to discontinued operations                                                  |  |                             |       |                               |                     |  |       |      |  |  |       |   |  |      |       |   |      |  |      |      |  |  |     |   |  |  |      |   |  |  |      |  
|Exchange differences                                                                    |  |                             |       |                               |                     |  |       |      |  |  |       |   |  |      | (1     | ) |      |  |      |      |  |  |     |   |  |  |      |   |  |  |      |  
|                                                                                        |  |                             |        |                               |                     |  |        |      |  |  |        |   |  |      |        |   |      |  |       |      |  |  |      |  
|December 31                                                                             |  |                             | 1,065  |                               |                     |  | 1,067  |      |  |  | 1,075  |   |  |      | 1,065  |   |      |  |      |      |  |  |     |   |  |  |      |   |  |  |      |  
|                                                                                        |  |                             |        |                               |                     |  |        |      |  |  |        |   |  |      |        |   |      |  |       |      |  |  |      |  



F-83



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|     |                 
|---- | ----------------
|[26] | Other provisions



|                                         |                  |             |       |           |             |  |               |             |  |  |               |               |  |             |       |     |       |  |      |               |  |  |       |     |  |  |      |     |  |  |        |       | 
|---------------------------------------- | ---------------- | ----------- | ----- | --------- | ----------- |  | ------------- | ----------- |  |  | ------------- | ------------- |  | ----------- | ----- | --- | ----- |  | ---- | ------------- |  |  | ----- | --- |  |  | ---- | --- |  |  | ------ | ----- | 
|                                         |                  |             |       | Personnel |             |  | Environmental |             |  |  |               | Trade-Related |  |             | Legal |     |       |  |      |              
|                                         |                  | Taxes       |       |           | Commitments |  |               | Remediation |  |  | Restructuring |               |  | Commitments |       |     | Risks |  |      | Miscellaneous |  |  | Total |    
|                                         |                  |             |       |           |             |  |               |             |  |  |               |               |  |             |       |     |       |  |      |               |  |  |       |    
|                                         |                  | ( million) |      
|December 31, 2005                        |                  |             | 803   |           |             |  | 1,485         |             |  |  | 279           |               |  |             | 92    |     |       |  | 648  |               |  |  | 663   |     |  |  | 379  |     |  |  | 4,349  |      
|                                         | of which current |             |       | 431       |             |  |               | 837         |  |  |               | 81            |  |             |       | 83  |       |  |      | 641           |  |  |       | 588 |  |  |      | 348 |  |  |        | 3,009 | 
|Changes in the scope of consolidation    |                  |             | 347   |           |             |  | 447           |             |  |  | 19            |               |  |             | 11    |     |       |  | 103  |               |  |  | 63    |     |  |  | 197  |     |  |  | 1,187  |      
|Additions                                |                  |             | 616   |           |             |  | 1,090         |             |  |  | 43            |               |  |             | 172   |     |       |  | 896  |               |  |  | 150   |     |  |  | 771  |     |  |  | 3,738  |      
|Utilization                              |                  |             | (488  | )         |             |  | (1,005        | )           |  |  | (44           | )             |  |             | (55   | )   |       |  | (745 | )             |  |  | (383  | )   |  |  | (463 | )   |  |  | (3,183 | )    
|Reversal                                 |                  |             | (133  | )         |             |  | (89           | )           |  |  | (9            | )             |  |             | (9    | )   |       |  | (78  | )             |  |  | (39   | )   |  |  | (125 | )   |  |  | (482   | )    
|Reclassifications to current liabilities |                  |             | (13   | )         |             |  | (86           | )           |  |  | (8            | )             |  |             | (7    | )   |       |  | (10  | )             |  |  | (1    | )   |  |  | (43  | )   |  |  | (168   | )    
|Exchange differences                     |                  |             | (43   | )         |             |  | (50           | )           |  |  | (18           | )             |  |             | (8    | )   |       |  | (45  | )             |  |  | (19   | )   |  |  | (29  | )   |  |  | (212   | )    
|                                         |                  |             |       |           |             |  |               |             |  |  |               |               |  |             |       |     |       |  |      |               |  |  |       |    
|December 31, 2006                        |                  |             | 1,089 |           |             |  | 1,792         |             |  |  | 262           |               |  |             | 196   |     |       |  | 769  |               |  |  | 434   |     |  |  | 687  |     |  |  | 5,229  |      
|                                         |                  |             |       |           |             |  |               |             |  |  |               |               |  |             |       |     |       |  |      |               |  |  |       |    
|                                         | of which current |             |       | 870       |             |  |               | 1,081       |  |  |               | 38            |  |             |       | 149 |       |  |      | 763           |  |  |       | 328 |  |  |      | 536 |  |  |        | 3,765 | 



|                       |               |               |       |       |  |                        |               |  |       |       | 
|---------------------- | ------------- | ------------- | ----- | ----- |  | ---------------------- | ------------- |  | ----- | ----- | 
|                       |               | Dec. 31, 2005 |       |       |  |                        | Dec. 31, 2006 | 
|                       |               |               |       |       |  |                        |               | 
|                       |               | ( million)   |       |       |  |                        | ( million)   | 
|Expected disbursements |               |               |       |       |  | Expected disbursements |               |  |       |      
|                       | 2006          |               |       | 3,009 |  |                        | 2007          |  |       | 3,765 | 
|                       | 2007          |               |       | 231   |  |                        | 2008          |  |       | 466   | 
|                       | 2008          |               |       | 125   |  |                        | 2009          |  |       | 275   | 
|                       | 2009          |               |       | 81    |  |                        | 2010          |  |       | 125   | 
|                       | 2010          |               |       | 229   |  |                        | 2011          |  |       | 88    | 
|                       | 2011 or later |               |       | 674   |  |                        | 2012 or later |  |       | 510   | 
|                       |               |               |       |       |  |                        |               | 
|                       |               |               | 4,349 |       |  |                        |               |  | 5,229 |      
|                       |               |               |       |       |  |                        |               | 

 






|       |                         
|------ | ------------------------
|[26.1] | Stock-based compensation







F-84



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)










|                                         |  |             |    |   |           |  |    |               |  |  |          |   |  |           |    |   |       |  |    |   |  |  |     |  
|---------------------------------------- |  | ----------- | -- | - | --------- |  | -- | ------------- |  |  | -------- | - |  | --------- | -- | - | ----- |  | -- | - |  |  | --- | -
|                                         |  | Stock       |    |   | Stock     |  |    | Stock         |  |  |          |   |  |           |   
|                                         |  | Option      |    |   | Incentive |  |    | Participation |  |  |          |   |  |           |   
|                                         |  | Program     |    |   | Program   |  |    | Program       |  |  | Aspire I |   |  | Aspire II |    |   | Total | 
|                                         |  |             |    |   |           |  |    |               |  |  |          |   |  |           |    |   |       | 
|                                         |  | ( million) |   
|December 31, 2005                        |  |             | 13 |   |           |  | 3  |               |  |  | 11       |   |  |           | 11 |   |       |  | 23 |   |  |  | 61  |  
|Additions                                |  |             | 7  |   |           |  | 2  |               |  |  | 5        |   |  |           | 22 |   |       |  | 29 |   |  |  | 65  |  
|Utilization                              |  |             | (7 | ) |           |  | (2 | )             |  |  | (4       | ) |  |           | (4 | ) |       |  | (8 | ) |  |  | (25 | )
|Reversal                                 |  |             |   |   |           |  |   |               |  |  |         |   |  |           |   |   |       |  |   |   |  |  |    |  
|Reclassifications to current liabilities |  |             |   |   |           |  |   |               |  |  |         |   |  |           | (2 | ) |       |  | (5 | ) |  |  | (7  | )
|Exchange differences                     |  |             |   |   |           |  |   |               |  |  |         |   |  |           | (1 | ) |       |  | (1 | ) |  |  | (2  | )
|                                         |  |             |    |   |           |  |    |               |  |  |          |   |  |           |    |   |       | 
|December 31, 2006                        |  |             | 13 |   |           |  | 3  |               |  |  | 12       |   |  |           | 26 |   |       |  | 38 |   |  |  | 92  |  
|                                         |  |             |    |   |           |  |    |               |  |  |          |   |  |           |    |   |       | 

     


  




|                                                                  |  |      |       |   |      |  |       |  
|----------------------------------------------------------------- |  | ---- | ----- | - | ---- |  | ----- | -
|                                                                  |  | 2005 |       |   | 2006 | 
|                                                                  |  |      |       |   |      | 
|Dividend yield                                                    |  |      | 2.27  | % |      |  | 2.29  | %
|Risk-free interest rate                                           |  |      | 2.92  | % |      |  | 3.83  | %
|Volatility of Bayer stock                                         |  |      | 38.00 | % |      |  | 21.52 | %
|Volatility of the EURO
    STOXX 50sm                             |  |      | 19.55 | % |      |  | 13.14 | %
|Correlation between Bayer stock price and the EURO
    STOXX 50sm |  |      | 0.56  |   |      |  | 0.61  |  



F-85



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | Long-term incentive program for members of the Board of
    Management and other senior executives (Aspire I)



sm






| |                                                                  
| | -----------------------------------------------------------------
| | Long-term incentive program for middle management
    (Aspire II)





| |   |                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | No personal investment in Bayer shares is required.                                                                                                                                             
|
| |  | The amount of the award in relation to the employees
    personal Aspire target opportunity is based entirely on the
    absolute performance of Bayer stock during the performance
    period.
|
| |  | The award varies between 0 percent and 150 percent of
    the Aspire target opportunity.                                                                                                        

sm




| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Stock Participation Program (2006) for other managers
    and non-managerial employees







   





F-86



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




| |                                            
| | -------------------------------------------
| | Stock-based compensation programs 2000-2004





|                                                            |  |              |             |  |                 |  |             |                     |  |  |             | 
|----------------------------------------------------------- |  | ------------ | ----------- |  | --------------- |  | ----------- | ------------------- |  |  | ----------- | 
|                                                            |  | Stock Option |             |  | Stock Incentive |  |             | Stock Participation | 
|                                                            |  | Program      |             |  | Program         |  |             | Program             | 
|                                                            |  |              |             |  |                 |  |             |                     | 
|Year of issue                                               |  |              | 2000 - 2004 |  |                 |  | 2000 - 2004 |                     |  |  | 2000 - 2004 | 
|Original term in years                                      |  |              | 5           |  |                 |  | 10          |                     |  |  | 10          | 
|Retention period/distribution date in years from issue date |  |              | 3           |  |                 |  | 2/6/10      |                     |  |  | 2/6/10      | 
|Reference price                                             |  |              | 0           |  |                 |  | 0           |                     |  |  | 0           | 
|Performance criteria                                        |  |              | Yes         |  |                 |  | Yes         |                     |  |  | No          | 



| |                                 
| | --------------------------------
| | Stock Option Program (2001-2004)





sm









| |                                    
| | -----------------------------------
| | Stock Incentive Program (2000-2004)



sm


F-87



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)






| |                                        
| | ---------------------------------------
| | Stock Participation Program (2000-2004)





|       |                         
|------ | ------------------------
|[26.2] | Environmental protection







   






|       |                      
|------ | ---------------------
|[26.3] | Restructuring charges

   


F-88



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)





   


  


 













    


F-89



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)





|                                         |  |             |     |   |             |  |     |       |  |  |     |  
|---------------------------------------- |  | ----------- | --- | - | ----------- |  | --- | ----- |  |  | --- | -
|                                         |  | Severance   |     |   |             |  |    
|                                         |  | Payments    |     |   | Other Costs |  |     | Total | 
|                                         |  |             |     |   |             |  |     |       | 
|                                         |  | ( million) |    
|Balance as of January 1, 2006            |  |             | 41  |   |             |  | 51  |       |  |  | 92  |  
|Changes in the scope of consolidation    |  |             | 11  |   |             |  |    |       |  |  | 11  |  
|Additions                                |  |             | 124 |   |             |  | 48  |       |  |  | 172 |  
|Utilization                              |  |             | (29 | ) |             |  | (26 | )     |  |  | (55 | )
|Reversal                                 |  |             | (4  | ) |             |  | (5  | )     |  |  | (9  | )
|Reclassifications to current liabilities |  |             | (6  | ) |             |  | (1  | )     |  |  | (7  | )
|Exchange differences                     |  |             | (1  | ) |             |  | (7  | )     |  |  | (8  | )
|                                         |  |             |     |   |             |  |     |       | 
|Balance as of December 31, 2006          |  |             | 136 |   |             |  | 60  |       |  |  | 196 |  
|                                         |  |             |     |   |             |  |     |       | 





|     |                      
|---- | ---------------------
|[27] | Financial liabilities



|                                                  |  |               |       |          |               |  |       |       |          |  |         |  |  |  |       | 
|------------------------------------------------- |  | ------------- | ----- | -------- | ------------- |  | ----- | ----- | -------- |  | ------- |  |  |  | ----- | 
|                                                  |  | Dec. 31, 2005 |       |          | Dec. 31, 2006 | 
|                                                  |  |               |       |          |               | 
|                                                  |  |               |       | of which |               |  |       |       | of which | 
|                                                  |  | Total         |       |          | current       |  |       | Total |          |  | current | 
|                                                  |  |               |       |          |               |  |       |       |          |  |         | 
|                                                  |  | ( million)   |      
|Bonds and notes                                   |  |               | 6,953 |          |               |  | 336   |       |          |  | 11,852  |  |  |  | 2,137 | 
|Liabilities to banks                              |  |               | 703   |          |               |  | 602   |       |          |  | 6,805   |  |  |  | 2,273 | 
|Liabilities under finance leases                  |  |               | 468   |          |               |  | 61    |       |          |  | 384     |  |  |  | 69    | 
|Commercial paper                                  |  |               | 174   |          |               |  | 174   |       |          |  |        |  |  |  |      | 
|Liabilities from derivative financial instruments |  |               | 168   |          |               |  | 111   |       |          |  | 187     |  |  |  | 31    | 
|Other financial liabilities                       |  |               | 486   |          |               |  | 483   |       |          |  | 573     |  |  |  | 568   | 
|                                                  |  |               |       |          |               |  |       |       |          |  |         | 
|                                                  |  |               | 8,952 |          |               |  | 1,767 |       |          |  | 19,801  |  |  |  | 5,078 | 
|                                                  |  |               |       |          |               |  |       |       |          |  |         | 



|            |               |               |       |       |  |             |               |  |        |       | 
|----------- | ------------- | ------------- | ----- | ----- |  | ----------- | ------------- |  | ------ | ----- | 
|            |               | Dec. 31, 2005 |       |       |  |             | Dec. 31, 2006 | 
|            |               |               |       |       |  |             |               | 
|            |               | ( million)   |       |       |  |             | ( million)   | 
|Maturing in |               |               |       |       |  | Maturing in |               |  |        |      
|            | 2006          |               |       | 1,767 |  |             | 2007          |  |        | 5,078 | 
|            | 2007          |               |       | 2,152 |  |             | 2008          |  |        | 254   | 
|            | 2008          |               |       | 262   |  |             | 2009          |  |        | 4,567 | 
|            | 2009          |               |       | 486   |  |             | 2010          |  |        | 32    | 
|            | 2010          |               |       | 36    |  |             | 2011          |  |        | 4,029 | 
|            | 2011 or later |               |       | 4,249 |  |             | 2012 or later |  |        | 5,841 | 
|            |               |               |       |       |  |             |               | 
|            |               |               | 8,952 |       |  |             |               |  | 19,801 |      
|            |               |               |       |       |  |             |               | 

F-90



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




 


 






|                         |          |  |        |  |          |  |  |                                           |  |                   |  |  |          |  |  |  |        | 
|------------------------ | -------- |  | ------ |  | -------- |  |  | ----------------------------------------- |  | ----------------- |  |  | -------- |  |  |  | ------ | 
|Effective                |          |  | Stated |  |          |  |  |                                           |  | Dec. 31,          |  |  | Dec. 31, | 
|Rate                     |          |  | Rate   |  |          |  |  | Nominal Volume                            |  | 2005              |  |  | 2006     | 
|                         |          |  |        |  |          |  |  |                                           |  |                   |  |  |          | 
|                         |          |  |        |  |          |  |  | ( million)                               | 
|Bayer AG                 |          |  |        |  |          |  |  |                                           |  |                  
|                         | 5.515%   |  |        |  | 5.375%   |  |  | Eurobonds 2002/2007                       |  | EUR 2,137 million |  |  | 2,098    |  |  |  | 2,137  | 
|                         | 6.075%   |  |        |  | 6.000%   |  |  | Eurobonds 2002/2012                       |  | EUR 2,000 million |  |  | 2,104    |  |  |  | 2,010  | 
|                         | 5.155%   |  |        |  | 5.000%   |  |  | Hybrid bonds 2005/2105 (2015)             |  | EUR 1,300 million |  |  | 1,268    |  |  |  | 1,247  | 
|                         | floating |  |        |  | floating |  |  | Eurobonds 2006/2009                       |  | EUR 1,600 million |  |  |         |  |  |  | 1,596  | 
|                         | 4.621%   |  |        |  | 4.500%   |  |  | Eurobonds 2006/2013                       |  | EUR 1,000 million |  |  |         |  |  |  | 993    | 
|                         | 5.774%   |  |        |  | 5.625%   |  |  | Sterling bonds 2006/2018                  |  | GBP 250 million   |  |  |         |  |  |  | 368    | 
|                         | 5.541%   |  |        |  | 5.625%   |  |  | Sterling bonds 2006/2018 (second tranche) |  | GBP 100 million   |  |  |         |  |  |  | 150    | 
|                         | variable |  |        |  | variable |  |  | Bonds (private placement) 2003/2006       |  | EUR 250 million   |  |  | 250      |  |  |  |       | 
|                         | variable |  |        |  | variable |  |  | Bonds (private placement) 2004/2006       |  | EUR 50 million    |  |  | 50       |  |  |  |       | 
|                         | 3.502%   |  |        |  | 3.490%   |  |  | Bonds (private placement) 2004/2008       |  | EUR 20 million    |  |  | 20       |  |  |  | 20     | 
|                         | 0.160%   |  |        |  | 0.160%   |  |  | Bonds (private placement) 2005/2006       |  | JPY 5 billion     |  |  | 36       |  |  |  |       | 
|Bayer Capital Corp. B.V. |          |  |        |  |          |  |  |                                           |  |                  
|                         | 7.117%   |  |        |  | 6.625%   |  |  | Mandatory convertible bond 2006/2009      |  | EUR 2,300 million |  |  |         |  |  |  | 2,276  | 
|Bayer Corporation        |          |  |        |  |          |  |  |                                           |  |                  
|                         | 7.180%   |  |        |  | 7.125%   |  |  | Notes 1995/2015                           |  | USD 200 million   |  |  | 164      |  |  |  | 144    | 
|                         | 6.670%   |  |        |  | 6.650%   |  |  | Notes 1998/2028                           |  | USD 350 million   |  |  | 294      |  |  |  | 263    | 
|                         | 6.210%   |  |        |  | 6.200%   |  |  | Bonds 1998/2028 (2008)                    |  | USD 250 million   |  |  | 213      |  |  |  | 190    | 
|                         | 4.043%   |  |        |  | 3.750%   |  |  | Bonds (private placement) 2004/2009       |  | EUR 460 million   |  |  | 456      |  |  |  | 458    | 
|                         |          |  |        |  |          |  |  |                                           |  |                   |  |  |          | 
|                         |          |  |        |  |          |  |  |                                           |  |                   |  |  | 6,953    |  |  |  | 11,852 | 
|                         |          |  |        |  |          |  |  |                                           |  |                   |  |  |          | 

100-year 


 3-month 


F-91



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)












     


   


F-92



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|               |               |               |     |     | 
|-------------- | ------------- | ------------- | --- | --- | 
|               |               | Dec. 31, 2005 |    
|               |               |               |    
|               |               | ( million)   |    
|Lease payments |               |               |     |    
|Maturing in    |               |               |     |    
|               | 2006          |               |     | 82  | 
|               | 2007          |               |     | 68  | 
|               | 2008          |               |     | 36  | 
|               | 2009          |               |     | 38  | 
|               | 2010          |               |     | 45  | 
|               | 2011 or later |               |     | 327 | 
|               |               |               |    
|               |               |               | 596 |    
|               |               |               |    

|                   |               |             |     |    | 
|------------------ | ------------- | ----------- | --- | -- | 
|                   |               | ( million) |    
|                   |               |             |    
|Interest component |               |             |     |   
|Maturing in        |               |             |     |   
|                   | 2006          |             |     | 21 | 
|                   | 2007          |             |     | 19 | 
|                   | 2008          |             |     | 17 | 
|                   | 2009          |             |     | 16 | 
|                   | 2010          |             |     | 16 | 
|                   | 2011 or later |             |     | 39 | 
|                   |               |             |    
|                   |               |             | 128 |   
|                   |               |             |    

|                                 |               |             |     |     | 
|-------------------------------- | ------------- | ----------- | --- | --- | 
|                                 |               | ( million) |    
|                                 |               |             |    
|Liabilities under finance leases |               |             |     |    
|Maturing in                      |               |             |     |    
|                                 | 2006          |             |     | 61  | 
|                                 | 2007          |             |     | 49  | 
|                                 | 2008          |             |     | 19  | 
|                                 | 2009          |             |     | 22  | 
|                                 | 2010          |             |     | 29  | 
|                                 | 2011 or later |             |     | 288 | 
|                                 |               |             |    
|                                 |               |             | 468 |    
|                                 |               |             |    

|               |               |               |     |     | 
|-------------- | ------------- | ------------- | --- | --- | 
|               |               | Dec. 31, 2006 |    
|               |               |               |    
|               |               | ( million)   |    
|Lease payments |               |               |     |    
|Maturing in    |               |               |     |    
|               | 2007          |               |     | 86  | 
|               | 2008          |               |     | 40  | 
|               | 2009          |               |     | 36  | 
|               | 2010          |               |     | 35  | 
|               | 2011          |               |     | 32  | 
|               | 2012 or later |               |     | 257 | 
|               |               |               |    
|               |               |               | 486 |    
|               |               |               |    

|                   |               |             |     |    | 
|------------------ | ------------- | ----------- | --- | -- | 
|                   |               | ( million) |    
|                   |               |             |    
|Interest component |               |             |     |   
|Maturing in        |               |             |     |   
|                   | 2007          |             |     | 17 | 
|                   | 2008          |             |     | 16 | 
|                   | 2009          |             |     | 14 | 
|                   | 2010          |             |     | 14 | 
|                   | 2011          |             |     | 13 | 
|                   | 2012 or later |             |     | 28 | 
|                   |               |             |    
|                   |               |             | 102 |   
|                   |               |             |    

|                                 |               |             |     |     | 
|-------------------------------- | ------------- | ----------- | --- | --- | 
|                                 |               | ( million) |    
|                                 |               |             |    
|Liabilities under finance leases |               |             |     |    
|Maturing in                      |               |             |     |    
|                                 | 2007          |             |     | 69  | 
|                                 | 2008          |             |     | 24  | 
|                                 | 2009          |             |     | 22  | 
|                                 | 2010          |             |     | 21  | 
|                                 | 2011          |             |     | 19  | 
|                                 | 2012 or later |             |     | 229 | 
|                                 |               |             |    
|                                 |               |             | 384 |    
|                                 |               |             |    

 


[28]     Trade accounts payable


       


F-93



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


[29]     Other liabilities




|                                              |  |               |       |          |               |  |       |       |          |  |         |  |  |  |       | 
|--------------------------------------------- |  | ------------- | ----- | -------- | ------------- |  | ----- | ----- | -------- |  | ------- |  |  |  | ----- | 
|                                              |  | Dec. 31, 2005 |       |          | Dec. 31, 2006 | 
|                                              |  |               |       |          |               | 
|                                              |  |               |       | of which |               |  |       |       | of which | 
|                                              |  | Total         |       |          | current       |  |       | Total |          |  | current | 
|                                              |  |               |       |          |               |  |       |       |          |  |         | 
|                                              |  | ( million)   |      
|Accrued interest on liabilities               |  |               | 424   |          |               |  | 424   |       |          |  | 561     |  |  |  | 561   | 
|Payroll liabilities                           |  |               | 232   |          |               |  | 162   |       |          |  | 196     |  |  |  | 133   | 
|Liabilities for social expenses               |  |               | 115   |          |               |  | 114   |       |          |  | 146     |  |  |  | 138   | 
|License liabilities                           |  |               | 33    |          |               |  | 33    |       |          |  | 3       |  |  |  | 3     | 
|Advance payments received and drafts accepted |  |               | 33    |          |               |  | 32    |       |          |  | 30      |  |  |  | 28    | 
|Liabilities from commodity futures contracts  |  |               | 209   |          |               |  | 6     |       |          |  | 209     |  |  |  | 76    | 
|Liabilities to minority stockholders          |  |               | 39    |          |               |  |      |       |          |  | 756     |  |  |  | 736   | 
|Miscellaneous liabilities                     |  |               | 1,447 |          |               |  | 1,245 |       |          |  | 1,603   |  |  |  | 1,380 | 
|                                              |  |               |       |          |               |  |       |       |          |  |         | 
|                                              |  |               | 2,532 |          |               |  | 2,016 |       |          |  | 3,504   |  |  |  | 3,055 | 
|                                              |  |               |       |          |               |  |       |       |          |  |         | 

 






       


 




   


[30]     Financial Instruments


[30.1]     Management
of financial and commodity price risks






F-94



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


over-the






| |              
| | -------------
| | Currency risk









| |                   
| | ------------------
| | Interest rate risk







| |                        
| | -----------------------
| | Procurement market risk





| |            
| | -----------
| | Credit risk





F-95



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|       |                              
|------ | -----------------------------
|[30.2] | Primary financial instruments

 




|       |                                                                               
|------ | ------------------------------------------------------------------------------
|[30.3] | Economic hedges and hedge accounting with derivative
    financial instruments









F-96



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                                     |                           |               |        |            |               |  |     |            |            |  |          |      |   |            |        |        |            |  |     |     |  |  |      |     |  
|---------------------------------------------------- | ------------------------- | ------------- | ------ | ---------- | ------------- |  | --- | ---------- | ---------- |  | -------- | ---- | - | ---------- | ------ | ------ | ---------- |  | --- | --- |  |  | ---- | --- | -
|                                                     |                           | Dec. 31, 2005 |        |            | Dec. 31, 2006 | 
|                                                     |                           |               |        |            |               | 
|                                                     |                           |               |        | Fair Value |               |  |     |            | Fair Value | 
|                                                     |                           |               |        |            |               |  |     |            |            | 
|                                                     |                           | Notional      |        |            | Positive      |  |     | Negative   |            |  | Notional |      |   | Positive   |        |        | Negative   | 
|                                                     |                           | Amount        |        |            | Fair Value    |  |     | Fair Value |            |  | Amount   |      |   | Fair Value |        |        | Fair Value | 
|                                                     |                           |               |        |            |               |  |     |            |            |  |          |      |   |            |        |        |            | 
|                                                     |                           | ( million)   |        |            | ( million)   | 
|Currency hedging of recorded transactions            |                           |               | 4,759  |            |               |  | 18  |            |            |  | (105     | )    |   |            | 10,305 |        |            |  | 78  |     |  |  | (29  | )  
|                                                     |                           |               |        |            |               |  |     |            |            |  |          |      |   |            |        |        |            | 
|Forward exchange contracts                           |                           |               | 3,600  |            |               |  | 15  |            |            |  | (34      | )    |   |            | 8,960  |        |            |  | 40  |     |  |  | (19  | )  
|of which FV hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |      |   |            |       |        |            |  |    |     |  |  |     |    
|of which CF hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |      |   |            |       |        |            |  |    |     |  |  |     |    
|Currency options                                     |                           |               | 44     |            |               |  | 1   |            |            |  | (1       | )    |   |            | 76     |        |            |  | 2   |     |  |  | (1   | )  
|of which FV hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |      |   |            |       |        |            |  |    |     |  |  |     |    
|of which CF hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |      |   |            |       |        |            |  |    |     |  |  |     |    
|Cross-currency interest-rate swaps                   |                           |               | 1,115  |            |               |  | 2   |            |            |  | (70      | )    |   |            | 1,269  |        |            |  | 36  |     |  |  | (9   | )  
|of which FV hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |      |   |            |       |        |            |  |    |     |  |  |     |    
|of which CF hedges                                   |                           |               | 460    |            |               |  |    |            |            |  | (10      | )    |   |            | 965    |        |            |  | 33  |     |  |  | (9   | )  
|                                                     |                           |               |        |            |               |  |     |            |            |  |          |      |   |            |        |        |            | 
|Currency hedging of forecasted transactions          |                           |               | 942    |            |               |  | 10  |            |            |  | (40      | )    |   |            | 1,761  |        |            |  | 54  |     |  |  | (4   | )  
|                                                     |                           |               |        |            |               |  |     |            |            |  |          |      |   |            |        |        |            | 
|Forward exchange contracts                           |                           |               | 817    |            |               |  | 5   |            |            |  | (33      | )    |   |            | 1,761  |        |            |  | 54  |     |  |  | (4   | )  
|of which FV hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |      |   |            |       |        |            |  |    |     |  |  |     |    
|of which CF hedges                                   |                           |               | 809    |            |               |  | 5   |            |            |  | (33      | )    |   |            | 1,201  |        |            |  | 51  |     |  |  | (2   | )  
|Currency options                                     |                           |               | 125    |            |               |  | 5   |            |            |  | (7       | )    |   |            |       |        |            |  |    |     |  |  |     |    
|of which FV hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |      |   |            |       |        |            |  |    |     |  |  |     |    
|of which CF hedges                                   |                           |               | 93     |            |               |  | 3   |            |            |  | (7       | )    |   |            |       |        |            |  |    |     |  |  |     |    
|                                                     |                           |               |        |            |               |  |     |            |            |  |          |      |   |            |        |        |            | 
|Interest rate hedging of recorded transactions       |                           |               | 11,327 |            |               |  | 174 |            |            |  | (66      | )    |   |            | 11,633 |        |            |  | 110 |     |  |  | (157 | )  
|                                                     |                           |               |        |            |               |  |     |            |            |  |          |      |   |            |        |        |            | 
|Interest rate swaps                                  |                           |               | 10,327 |            |               |  | 172 |            |            |  | (65      | )    |   |            | 10,633 |        |            |  | 106 |     |  |  | (156 | )  
|of which FV hedges                                   |                           |               | 5,533  |            |               |  | 30  |            |            |  | (31      | )    |   |            | 5,708  |        |            |  | 22  |     |  |  | (145 | )  
|of which CF hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |      |   |            |       |        |            |  |    |     |  |  |     |    
|Interest rate options                                |                           |               | 1,000  |            |               |  | 2   |            |            |  | (1       | )    |   |            | 1,000  |        |            |  | 4   |     |  |  | (1   | )  
|of which FV hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |      |   |            |       |        |            |  |    |     |  |  |     |    
|of which CF hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |      |   |            |       |        |            |  |    |     |  |  |     |    
|                                                     |                           |               |        |            |               |  |     |            |            |  |          |      |   |            |        |        |            | 
|Commodity price hedging                              |                           |               | 465    |            |               |  | 280 |            |            |  | (209     | )    |   |            | 389    |        |            |  | 137 |     |  |  | (225 | )  
|                                                     |                           |               |        |            |               |  |     |            |            |  |          |      |   |            |        |        |            | 
|Forward commodity contracts                          |                           |               | 416    |            |               |  | 210 |            |            |  | (125     | )    |   |            | 323    |        |            |  | 76  |     |  |  | (149 | )  
|of which FV hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |      |   |            |       |        |            |  |    |     |  |  |     |    
|of which CF hedges                                   |                           |               | 168    |            |               |  | 70  |            |            |  | (1       | )    |   |            | 72     |        |            |  | 2   |     |  |  | (70  | )  
|Commodity option contracts                           |                           |               | 49     |            |               |  | 70  |            |            |  | (84      | )    |   |            | 66     |        |            |  | 61  |     |  |  | (76  | )  
|of which FV hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |      |   |            |       |        |            |  |    |     |  |  |     |    
|of which CF hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |      |   |            |       |        |            |  |    |     |  |  |     |    
|                                                     |                           |               |        |            |               |  |     |            |            |  |          |      |   |            |        |        |            | 
|Total                                                |                           |               | 17,493 |            |               |  | 482 |            |            |  | (420     | )    |   |            | 24,088 |        |            |  | 379 |     |  |  | (415 | )  
|                                                     |                           |               |        |            |               |  |     |            |            |  |          |      |   |            |        |        |            | 
|of which short-term derivative financial instruments |                           |               | 5,443  |            |               |  | 116 |            |            |  | (161     | )    |   |            | 15,484 |        |            |  | 135 |     |  |  | (57  | )  
|                                                     | for currency hedging      |               |        | 4,872      |               |  |     | 29         |            |  |          | (155 | ) |            |        | 11,101 |            |  |     | 103 |  |  |      | (31 | )
|                                                     | for interest rate hedging |               |        | 350        |               |  |     |           |            |  |          |     |   |            |        | 4,127  |            |  |     |    |  |  |      | (4  | )
|                                                     | for commodity hedging     |               |        | 221        |               |  |     | 87         |            |  |          | (6   | ) |            |        | 256    |            |  |     | 32  |  |  |      | (22 | )

F-97



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




| |                  
| | -----------------
| | Fair value hedges

  


 






| |                 
| | ----------------
| | Cash flow hedges

   


     





[31]     Commitments and
contingencies





|                                  |  |               |     |  |               |  |     | 
|--------------------------------- |  | ------------- | --- |  | ------------- |  | --- | 
|                                  |  | Dec. 31, 2005 |     |  | Dec. 31, 2006 | 
|                                  |  |               |     |  |               | 
|                                  |  | ( million)   |    
|Issuance and endorsement of bills |  |               | 12  |  |               |  | 5   | 
|Guarantees                        |  |               | 93  |  |               |  |    | 
|Other commitments                 |  |               | 72  |  |               |  | 74  | 
|Miscellaneous                     |  |               |    |  |               |  | 57  | 
|                                  |  |               |     |  |               | 
|                                  |  |               | 177 |  |               |  | 136 | 
|                                  |  |               |     |  |               | 







F-98



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)






 


|            |               |               |     |     |  |             |               |  |     |     | 
|----------- | ------------- | ------------- | --- | --- |  | ----------- | ------------- |  | --- | --- | 
|            |               | Dec. 31, 2005 |     |     |  |             | Dec. 31, 2006 | 
|            |               |               |     |     |  |             |               | 
|            |               | ( million)   |     |     |  |             | ( million)   | 
|Maturing in |               |               |     |     |  | Maturing in |               |  |     |    
|            | 2006          |               |     | 106 |  |             | 2007          |  |     | 148 | 
|            | 2007          |               |     | 90  |  |             | 2008          |  |     | 106 | 
|            | 2008          |               |     | 71  |  |             | 2009          |  |     | 88  | 
|            | 2009          |               |     | 62  |  |             | 2010          |  |     | 74  | 
|            | 2010          |               |     | 49  |  |             | 2011          |  |     | 66  | 
|            | 2011 or later |               |     | 74  |  |             | 2012 or later |  |     | 77  | 
|            |               |               |     |     |  |             |               | 
|            |               |               | 452 |     |  |             |               |  | 559 |    
|            |               |               |     |     |  |             |               | 

  





 


|            |               |               |     |     |  |             |               |  |     |     | 
|----------- | ------------- | ------------- | --- | --- |  | ----------- | ------------- |  | --- | --- | 
|            |               | Dec. 31, 2005 |     |     |  |             | Dec. 31, 2006 | 
|            |               |               |     |     |  |             |               | 
|            |               | ( million)   |     |     |  |             | ( million)   | 
|Maturing in |               |               |     |     |  | Maturing in |               |  |     |    
|            | 2006          |               |     | 109 |  |             | 2007          |  |     | 168 | 
|            | 2007          |               |     | 111 |  |             | 2008          |  |     | 198 | 
|            | 2008          |               |     | 82  |  |             | 2009          |  |     | 116 | 
|            | 2009          |               |     | 93  |  |             | 2010          |  |     | 79  | 
|            | 2010          |               |     | 85  |  |             | 2011          |  |     | 88  | 
|            | 2011 or later |               |     | 82  |  |             | 2012 or later |  |     | 307 | 
|            |               |               |     |     |  |             |               | 
|            |               |               | 562 |     |  |             |               |  | 956 |    
|            |               |               |     |     |  |             |               | 



F-99



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)






|     |            
|---- | -----------
|[32] | Legal risks







| |               
| | --------------
| | Lipobay/Baycol










non-U.S. non-U.S.




| |       
| | ------
| | Cipro®

®


F-100



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)








| |                                    
| | -----------------------------------
| | Rubber, polyester polyols, urethane



| |                                                                            
| | ---------------------------------------------------------------------------
| | Proceedings involving product lines of the former Rubber
    Business Group








| |                                                                              
| | -----------------------------------------------------------------------------
| | Proceedings involving polyester polyols, urethanes and
    urethane chemicals









| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Proceedings involving polyether polyols and other precursors
    for urethane end-use products

inter alia


F-101



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)






| |                                               
| | ----------------------------------------------
| | Impact of these antitrust proceedings on Bayer

 








| |                                                
| | -----------------------------------------------
| | Proceedings involving genetically modified rice









| |                                          
| | -----------------------------------------
| | Proceedings involving oral contraceptives



| |        
| | -------
| | Yasmin®

®


F-102



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




| |     
| | ----
| | YAZ®

®


® ®




| |                                      
| | -------------------------------------
| | Proceedings involving propylene oxide







| |                                                                 
| | ----------------------------------------------------------------
| | Proceedings involving syringe injectors and related
    products









| |                                
| | -------------------------------
| | Patent and contractual disputes

® ®




F-103



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)








| |                                       
| | --------------------------------------
| | Product liability and other litigation



U.S.-wide








®






| |                                                            
| | -----------------------------------------------------------
| | Liability considerations following the LANXESS
    spin-off



F-104



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


Notes to the Statements of Cash Flows




|     |                                                    
|---- | ---------------------------------------------------
|[33] | Net cash provided by (used in) operating activities

  


         


step-up 




|     |                                                    
|---- | ---------------------------------------------------
|[34] | Net cash provided by (used in) investing activities

     


    ® ®


      


  


 


F-105



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


 




|     |                                                    
|---- | ---------------------------------------------------
|[35] | Net cash provided by (used in) financing activities

    


      




|     |                          
|---- | -------------------------
|[36] | Cash and cash equivalents

  


    


Other information




|     |           
|---- | ----------
|[37] | Audit fees



|                                                    |  |             |   |  |      |  |    | 
|--------------------------------------------------- |  | ----------- | - |  | ---- |  | -- | 
|                                                    |  | 2005        |   |  | 2006 | 
|                                                    |  |             |   |  |      | 
|                                                    |  | ( million) |  
|Financial statements auditing                       |  |             | 5 |  |      |  | 10 | 
|Audit-related services and other audit work         |  |             | 3 |  |      |  | 3  | 
|Tax consultancy                                     |  |             |  |  |      |  | 1  | 
|Other services rendered to Bayer AG or subsidiaries |  |             | 1 |  |      |  | 1  | 
|                                                    |  |             |   |  |      | 
|                                                    |  |             | 9 |  |      |  | 15 | 
|                                                    |  |             |   |  |      | 





|     |                
|---- | ---------------
|[38] | Related parties



F-106



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)






|            |  |             |     |   |      |  |      |  
|----------- |  | ----------- | --- | - | ---- |  | ---- | -
|            |  | 2005        |     |   | 2006 | 
|            |  |             |     |   |      | 
|            |  | ( million) |    
|Income      |  |             | 229 |   |      |  | 188  |  
|Receivables |  |             | 98  |   |      |  | 143  |  
|Liabilities |  |             | (68 | ) |      |  | (127 | )

 






|     |                                                                                      
|---- | -------------------------------------------------------------------------------------
|[39] | Total remuneration of the Board of Management and the
    Supervisory Board and loans

   




|                                                                                  |  |         |           |  |        |  |           |         |  |  |              |  |  |             |           |  |        |  |           |  |  |  |           | 
|--------------------------------------------------------------------------------- |  | ------- | --------- |  | ------ |  | --------- | ------- |  |  | ------------ |  |  | ----------- | --------- |  | ------ |  | --------- |  |  |  | --------- | 
|                                                                                  |  | Werner  |           |  | Klaus  |  |           | Dr. Udo |  |  | Dr. Wolfgang |  |  | Dr. Richard |           |  |       
|                                                                                  |  | Wenning |           |  | Kühn   |  |           | Oels*   |  |  | Plischke**   |  |  | Pott        |           |  | Total  | 
|                                                                                  |  |         |           |  |        |  |           |         |  |  |              |  |  |             |           |  |        | 
|                                                                                  |  | (In )  |           |  | (In ) |  |           | (In )  |  |  | (In )       |  |  | (In )      |           |  | (In ) | 
|Base salary                                                                       |  |         | 748,872   |  |        |  | 412,236   |         |  |  | 343,526      |  |  |             | 343,530   |  |        |  | 412,236   |  |  |  | 2,260,400 | 
|Fixed supplement                                                                  |  |         | 325,132   |  |        |  | 316,366   |         |  |  | 142,205      |  |  |             | 142,206   |  |        |  | 170,647   |  |  |  | 1,096,556 | 
|Variable bonus                                                                    |  |         | 1,525,086 |  |        |  | 1,034,615 |         |  |  | 567,335      |  |  |             | 689,745   |  |        |  | 827,694   |  |  |  | 4,644,475 | 
|Remuneration in kind and other benefits                                           |  |         | 47,926    |  |        |  | 35,571    |         |  |  | 9,594        |  |  |             | 18,163    |  |        |  | 31,137    |  |  |  | 142,391   | 
|                                                                                  |  |         |           |  |        |  |           |         |  |  |              |  |  |             |           |  |        | 
|Directly effected remuneration                                                    |  |         | 2,647,016 |  |        |  | 1,798,788 |         |  |  | 1,062,660    |  |  |             | 1,193,644 |  |        |  | 1,441,714 |  |  |  | 8,143,822 | 
|                                                                                  |  |         |           |  |        |  |           |         |  |  |              |  |  |             |           |  |        | 
|Stock-based compensation entitlements earned in 2006                              |  |         | 820,514   |  |        |  | 480,609   |         |  |  | 538,181      |  |  |             | 193,188   |  |        |  | 461,939   |  |  |  | 2,494,431 | 
|Change in value of stock-based compensation entitlements earned
    prior to 2006 |  |         | 339,733   |  |        |  | 229,617   |         |  |  | 104,125      |  |  |             | 66,262    |  |        |  | 164,952   |  |  |  | 904,689   | 






|   |  |                                                          
|-- |  | ---------------------------------------------------------
|*  |  | member of the Board of Management until April 28, 2006   
|** |  | member of the Board of Management effective March 1, 2006

F-107



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                                                                  |  |         |           |  |        |  |           |         |  |  |              |  |  |             |   |  |        |  |           |  |  |  |           | 
|--------------------------------------------------------------------------------- |  | ------- | --------- |  | ------ |  | --------- | ------- |  |  | ------------ |  |  | ----------- | - |  | ------ |  | --------- |  |  |  | --------- | 
|                                                                                  |  | Werner  |           |  | Klaus  |  |           | Dr. Udo |  |  | Dr. Wolfgang |  |  | Dr. Richard |   |  |       
|                                                                                  |  | Wenning |           |  | Kühn   |  |           | Oels*   |  |  | Plischke**   |  |  | Pott        |   |  | Total  | 
|                                                                                  |  |         |           |  |        |  |           |         |  |  |              |  |  |             |   |  |        | 
|                                                                                  |  | (In )  |           |  | (In ) |  |           | (In )  |  |  | (In )       |  |  | (In )      |   |  | (In ) | 
|Base salary                                                                       |  |         | 748,872   |  |        |  | 412,236   |         |  |  | 412,236      |  |  |             |  |  |        |  | 412,236   |  |  |  | 1,985,580 | 
|Fixed supplement                                                                  |  |         | 325,132   |  |        |  | 170,647   |         |  |  | 170,647      |  |  |             |  |  |        |  | 170,647   |  |  |  | 837,073   | 
|Variable bonus                                                                    |  |         | 1,554,615 |  |        |  | 843,713   |         |  |  | 843,713      |  |  |             |  |  |        |  | 843,713   |  |  |  | 4,085,754 | 
|Remuneration in kind and other benefits                                           |  |         | 40,169    |  |        |  | 35,266    |         |  |  | 41,942       |  |  |             |  |  |        |  | 39,044    |  |  |  | 156,421   | 
|                                                                                  |  |         |           |  |        |  |           |         |  |  |              |  |  |             |   |  |        | 
|Directly effected remuneration                                                    |  |         | 2,668,788 |  |        |  | 1,461,862 |         |  |  | 1,468,538    |  |  |             |  |  |        |  | 1,465,640 |  |  |  | 7,064,828 | 
|                                                                                  |  |         |           |  |        |  |           |         |  |  |              |  |  |             |   |  |        | 
|Stock-based compensation entitlements earned in 2005                              |  |         | 495,504   |  |        |  | 285,748   |         |  |  | 285,748      |  |  |             |  |  |        |  | 284,248   |  |  |  | 1,351,248 | 
|Change in value of stock-based compensation entitlements earned
    prior to 2005 |  |         | 169,289   |  |        |  | 99,693    |         |  |  | 99,693       |  |  |             |  |  |        |  | 98,055    |  |  |  | 466,730   | 






|   |  |                                                          
|-- |  | ---------------------------------------------------------
|*  |  | member of the Board of Management until April 28, 2006   
|** |  | member of the Board of Management effective March 1, 2006



|                                                                                      |  |         |         |  |        |  |         |         |  |  |              |  |  |             |         |  |        |  |         |  |  |  |         | 
|------------------------------------------------------------------------------------- |  | ------- | ------- |  | ------ |  | ------- | ------- |  |  | ------------ |  |  | ----------- | ------- |  | ------ |  | ------- |  |  |  | ------- | 
|                                                                                      |  | Werner  |         |  | Klaus  |  |         | Dr. Udo |  |  | Dr. Wolfgang |  |  | Dr. Richard |         |  |       
|                                                                                      |  | Wenning |         |  | Kühn   |  |         | Oels*   |  |  | Plischke**   |  |  | Pott        |         |  | Total  | 
|                                                                                      |  |         |         |  |        |  |         |         |  |  |              |  |  |             |         |  |        | 
|                                                                                      |  | (In )  |         |  | (In ) |  |         | (In )  |  |  | (In )       |  |  | (In )      |         |  | (In ) | 
|Fair value of newly granted stock-based compensation as of grant
    date
    in 2006 |  |         | 268,113 |  |        |  | 181,886 |         |  |  | 40,419       |  |  |             | 117,597 |  |        |  | 145,509 |  |  |  | 753,524 | 
|in 2005                                                                               |  |         | 253,636 |  |        |  | 137,652 |         |  |  | 137,652      |  |  |             |        |  |        |  | 137,652 |  |  |  | 666,592 | 






|   |  |                                                          
|-- |  | ---------------------------------------------------------
|*  |  | member of the Board of Management until April 28, 2006   
|** |  | member of the Board of Management effective March 1, 2006



|                                                                 |  |         |         |  |        |  |           |         |  |  |              |  |  |             |           |  |        |  |         |  |  |  |           | 
|---------------------------------------------------------------- |  | ------- | ------- |  | ------ |  | --------- | ------- |  |  | ------------ |  |  | ----------- | --------- |  | ------ |  | ------- |  |  |  | --------- | 
|                                                                 |  | Werner  |         |  | Klaus  |  |           | Dr. Udo |  |  | Dr. Wolfgang |  |  | Dr. Richard |           |  |       
|                                                                 |  | Wenning |         |  | Kühn   |  |           | Oels*   |  |  | Plischke**   |  |  | Pott        |           |  | Total  | 
|                                                                 |  |         |         |  |        |  |           |         |  |  |              |  |  |             |           |  |        | 
|                                                                 |  | (In )  |         |  | (In ) |  |           | (In )  |  |  | (In )       |  |  | (In )      |           |  | (In ) | 
|Current service cost for pension entitlements earned
    in 2006 |  |         | 398,564 |  |        |  | 1,615,294 |         |  |  |             |  |  |             | 1,644,517 |  |        |  | 233,284 |  |  |  | 3,927,659 | 
|in 2005                                                          |  |         | 311,158 |  |        |  | 420,046   |         |  |  |             |  |  |             |          |  |        |  | 186,600 |  |  |  | 917,804   | 






|   |  |                                                          
|-- |  | ---------------------------------------------------------
|*  |  | member of the Board of Management until April 28, 2006   
|** |  | member of the Board of Management effective March 1, 2006



F-108



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


   






|     |                  
|---- | -----------------
|[40] | Subsequent events

  








F-109



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


[41]  U.S. GAAP information




|                                                     |  |       |   |             |      |  |             |      |  |             |       |   |                     |      |        |   |  |  |        |  
|---------------------------------------------------- |  | ----- | - | ----------- | ---- |  | ----------- | ---- |  | ----------- | ----- | - | ------------------- | ---- | ------ | - |  |  | ------ | -
|                                                     |  | Notes |   |             | 2004 |  |             | 2005 |  |             | 2006  |   |                     | 2006 |       
|                                                     |  |       |   |             |      |  |             |      |  |             |       |   |                     |      |       
|                                                     |  |       |   | ( million) |      |  | ( million) |      |  | ( million) |       |   | (U.S. $ million(*)) |     
|Income after taxes reported under IFRS               |  |       |   |             |      |  | 682         |      |  |             | 1,595 |   |                     |      | 1,695  |   |  |  | 2,237  |  
|Business combinations                                |  |       | a |             |      |  | 192         |      |  |             | (4    | ) |                     |      | 79     |   |  |  | 104    |  
|Pensions and other post-employment benefits          |  |       | b |             |      |  | (325        | )    |  |             | (450  | ) |                     |      | (168   | ) |  |  | (222   | )
|In-process research and development                  |  |       | c |             |      |  | 38          |      |  |             | 8     |   |                     |      | (1,375 | ) |  |  | (1,815 | )
|Asset impairment                                     |  |       | d |             |      |  | (7          | )    |  |             | 23    |   |                     |      | 23     |   |  |  | 30     |  
|Early retirement program                             |  |       | e |             |      |  | (58         | )    |  |             | (20   | ) |                     |      | (27    | ) |  |  | (36    | )
|Revaluation surplus                                  |  |       | f |             |      |  |            |      |  |             | 4     |   |                     |      | 4      |   |  |  | 5      |  
|Minority interest                                    |  |       | g |             |      |  | 3           |      |  |             | 2     |   |                     |      | (12    | ) |  |  | (16    | )
|Other                                                |  |       | h |             |      |  | (14         | )    |  |             | (12   | ) |                     |      | (17    | ) |  |  | (22    | )
|Deferred tax effect on U.S. GAAP adjustments         |  |       |   |             |      |  | 142         |      |  |             | 181   |   |                     |      | 67     |   |  |  | 88     |  
|                                                     |  |       |   |             |      |  |             |      |  |             |       |   |                     |      |       
|Income after taxes reported under U.S. GAAP          |  |       |   |             |      |  | 653         |      |  |             | 1,327 |   |                     |      | 269    |   |  |  | 353    |  
|                                                     |  |       |   |             |      |  |             |      |  |             |       |   |                     |      |       
|Basic and diluted earnings per share under U.S. GAAP |  |       |   |             |      |  | 0.89        |      |  |             | 1.82  |   |                     |      | 0.33   |   |  |  | 0.43   |  

|                                              |  |       |   |              |      |  |             |      |  |                     |        |   |  |  |        |  
|--------------------------------------------- |  | ----- | - | ------------ | ---- |  | ----------- | ---- |  | ------------------- | ------ | - |  |  | ------ | -
|                                              |  |       |   | December 31, |     
|                                              |  |       |   |              |     
|                                              |  | Notes |   |              | 2005 |  |             | 2006 |  |                     | 2006   |  
|                                              |  |       |   |              |      |  |             |      |  |                     |        |  
|                                              |  |       |   | ( million)  |      |  | ( million) |      |  | (U.S. $ million(*)) |       
|Stockholders equity reported under IFRS      |  |       |   |              |      |  | 11,157      |      |  |                     | 12,851 |   |  |  | 16,959 |  
|Business combinations                         |  |       | a |              |      |  | 1,013       |      |  |                     | 950    |   |  |  | 1,254  |  
|Pensions and other post-employment benefits   |  |       | b |              |      |  | 691         |      |  |                     | 11     |   |  |  | 15     |  
|In-process research and development           |  |       | c |              |      |  | (87         | )    |  |                     | (1,454 | ) |  |  | (1,919 | )
|Asset impairment                              |  |       | d |              |      |  | (138        | )    |  |                     | (114   | ) |  |  | (150   | )
|Early retirement program                      |  |       | e |              |      |  | 101         |      |  |                     | 74     |   |  |  | 98     |  
|Revaluation surplus                           |  |       | f |              |      |  | (62         | )    |  |                     | (58    | ) |  |  | (77    | )
|Minority interest                             |  |       | g |              |      |  | (80         | )    |  |                     | (84    | ) |  |  | (111   | )
|Other                                         |  |       | h |              |      |  | 19          |      |  |                     | 2      |   |  |  | 3      |  
|Deferred tax effect on U.S. GAAP adjustments  |  |       |   |              |      |  | (267        | )    |  |                     | 3      |   |  |  | 4      |  
|                                              |  |       |   |              |      |  |             |      |  |                     |        |  
|Stockholders equity reported under U.S. GAAP |  |       |   |              |      |  | 12,347      |      |  |                     | 12,181 |   |  |  | 16,076 |  
|                                              |  |       |   |              |      |  |             |      |  |                     |        |  

F-110



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


|                                                                                                                                                         |            |              |        |   |             |  |        |                     |  |  |        |   | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ------------ | ------ | - | ----------- |  | ------ | ------------------- |  |  | ------ | - | 
|                                                                                                                                                         |            | December 31, |       
|                                                                                                                                                         |            |              |       
|                                                                                                                                                         |            | 2005         |        |   | 2006        |  |        | 2006                | 
|                                                                                                                                                         |            |              |        |   |             |  |        |                     | 
|                                                                                                                                                         |            | ( million)  |        |   | ( million) |  |        | (U.S. $ million(*)) | 
|Components of stockholders equity in accordance with                                                                                                    |            |              |        |   |             |  |        |                     |  |  |        |  
|                                                                                                                                                         | U.S. GAAP: |              |        |   |             |  |        |                     |  |  |        |   | 
|Capital stock of Bayer AG                                                                                                                                |            |              | 1,870  |   |             |  | 1,957  |                     |  |  | 2,583  |  
|Capital reserves of Bayer AG                                                                                                                             |            |              | 2,942  |   |             |  | 4,028  |                     |  |  | 5,316  |  
|Retained earnings                                                                                                                                        |            |              | 10,224 |   |             |  | 9,684  |                     |  |  | 12,780 |  
|Accumulated other comprehensive income:                                                                                                                  |            |              |        |   |             |  |        |                     |  |  |        |  
| Unrealized market value adjustment on securities
    available for sale (net of taxes of
    (7) million,
    (6) million
    and U.S. $(8) million) |            |              | 28     |   |             |  | 23     |                     |  |  | 30     |  
| Unrealized market value adjustment on cash flow
    hedges (net of taxes of
    (6) million,
    13 million
    and U.S. $17 million)                |            |              | 11     |   |             |  | (18    | )                   |  |  | (24    | )
| Recognition of actuarial gains/ losses and prior
    service cost (net of taxes
    1,288 million
    and U.S. $1,700 million)                        |            |              |       |   |             |  | (1,926 | )                   |  |  | (2,542 | )
| Additional minimum pension liability (net of taxes
    of
    1,289 million)                                                                          |            |              | (1,920 | ) |             |  |       |                     |  |  |       |  
|Translation differences                                                                                                                                  |            |              | (808   | ) |             |  | (1,567 | )                   |  |  | (2,067 | )
|                                                                                                                                                         |            |              |        |   |             |  |        |                     | 
|Total                                                                                                                                                    |            |              | 12,347 |   |             |  | 12,181 |                     |  |  | 16,076 |  
|                                                                                                                                                         |            |              |        |   |             |  |        |                     | 






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(*) |  | The 2006 U.S. dollar figures have been translated at an
    exchange rate of
    1.0000 =
    U.S. $1.3197 which is the noon buying rate of the Federal
    Reserve Bank of New York on December 29, 2006, the last
currency trading day in December 2006. Such
    translations should not be construed as representations that the
    euro amounts represent, or have been or could be converted into,
    United States dollars at that or any other rate.

a. Business
combinations






 


  


F-111



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


 95-3





b. Pension and other
post-employment benefits








| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. Under IFRS, due to the retrospective application of IAS
    19 (amended 2004), actuarial gains and losses arising from
    valuing the assets and liabilities of the Companys pension
    and post employment defined benefit plans at fair value are
    recognized immediately in the statement of recognized income and
    expense for all periods presented. These actuarial gains and
    losses are not recognized in the income statement in subsequent
    periods. Under U.S. GAAP, prior to the adoption of
    SFAS No. 158 in 2006, these differences were not
    recognized on the balance sheet or within stockholders
    equity, and were recognized in the income statement only when
    they exceeded 10 percent of the greater of the projected
    benefit plan obligation or the market-related value of plan
    assets. Beginning with the adoption of SFAS No. 158,
    previously unrecognized actuarial gains and losses are
    recognized immediately within stockholders equity (other
    comprehensive income). Accordingly, upon the adoption of SFAS
    No. 158 all existing IFRS to U.S. GAAP differences in
    equity, except for amounts due to past service costs
    unrecognized under IFRS, are eliminated. Differences will
    continue to exist in the recognition of expenses in the income
    statement as the recognition of actuarial gains and losses was
    not impacted by the adoption of SFAS No. 158 and
    actuarial gains and losses continue to be recognized into the
    income statement in accordance with SFAS No. 87 and
    SFAS No. 106.
|
| | 2. Under SFAS No. 87, prior to the adoption of
    SFAS No. 158, an additional minimum liability was
    required to be reported and recognized in certain instances when
    the accumulated benefit obligation exceeded the fair value of
    plan assets. If an additional minimum liability was recognized,
    a contra amount was recognized first as an intangible asset up
    to the amount of unrecognized prior service costs, with any
    excess being reported in other comprehensive income. In 2006,
    2005 and 2004 the recognition of an additional minimum liability
    of
    2,705 million,
    3,265 million
    and
    1,024 million
    respectively, resulted in the recognition of an intangible asset
    in the amount of
    38 million,
    56 million
    and nil,
    respectively. The additional minimum liability and intangible
    asset recognized in 2006 were eliminated according to the
    adoption of SFAS No. 158.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | 3. In 2004 the Company amended its retiree medical plan.
    Under IFRS, this plan amendment qualified either as a negative
    plan amendment for fully vested employees or a plan curtailment
    for unvested or partially vested employees. Gains resulting from
    negative plan amendments relating to fully vested employees and
    plan curtailments are recognized in income when they occur.
    Under U.S. GAAP, the retiree medical plan amendment is
    considered a negative plan amendment in accordance with
    SFAS No. 106 and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

F-112



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | the reduction in benefit obligation is first reduced by any
    existing unrecognized prior service cost resulting from previous
    plan benefit improvements and then reduced by any remaining
    transition obligations. The remaining gain is recognized as a
    prior service cost over the remaining years of service until the
    benefit becomes vested. The related adjustment recorded in 2004
    amounted to
    139 million
    (thereof
    11 million
    related to discontinued operations) and reflects the reversal of
    prior service costs and curtailments recognized under IFRS
    within other operating income and income from
    discontinued operations, respectively, which are either
    not permitted to be recorded under U.S. GAAP or are to be
    recorded on a deferred basis. Further, other changes relating to
    certain benefit plans in 2004 resulted in a curtailment of these
    plans under both IFRS and U.S. GAAP. For IFRS purposes, a
    curtailment gain of
    62 million
    was recognized in other operating income. However,
    for U.S. GAAP purposes, the
    62 million
    gain recognized under IFRS has been reversed, as the entire gain
    was offset by existing unrecognized actuarial losses. In
    aggregate, a total of
    201 million
    (thereof
    11 million
    related to discontinued operations) of income recognized under
    IFRS in other operating income in connection with
    plan amendments in 2004 have been reversed under U.S. GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | 4. In 2005, the Company replaced several defined benefit
    plans with defined contribution plans. As a result of this
    change, active employees participating in these plans will cease
    accruing pension benefits under these plans which results in a
    curtailment of the plan obligation. In addition, as a result of
    a reduction in headcount relating to the disposal of the Plasma
    business, a curtailment of plan obligation occurred. Under IFRS,
    curtailment gains of
    327 million
    (thereof
    45 million
    related to discontinued operations) were recognized in
    other operating income and income from
    discontinued operations, respectively, as a result of
    these changes. However, for U.S. GAAP purposes,
    308 million
    (thereof
    45 million
    related to discontinued operations) of the gains recognized
    under IFRS have been reversed, as the gains were partially
    offset by existing unrecognized actuarial losses. Furthermore,
    the Company amended certain benefit plans granting additional
    benefits for services periods rendered previously. Under IFRS,
    these prior service costs are recognized over the remaining
    vesting period or, where benefits are already vested, are to be
    recognized immediately. Under U.S. GAAP, these prior
    service costs are to be recognized over the remaining service
    lives of the active employees. The reversal of prior service
    costs which are recognized earlier under IFRS, offset with the
    amortization of negative prior service costs under
    U.S. GAAP relating to the 2004 amendment of the retiree
    medical plan, resulted in a reversal of a net gain in the amount
    of
    1 million
    for U.S. GAAP purposes. Furthermore, as a result of the
    LANXESS spin-off in January 2005, the Company eliminated an
    existing U.S. GAAP net equity difference at
    December 31, 2004 in the amount of
    345 million
    (decrease in net equity) and
    104 million
    (increase in net equity) related to actuarial gains and losses
    and additional minimum liability, respectively.
|
| | 5. In 2006, curtailments of plan obligations occurred from
    the Company having entered into agreements to divest the
    Diagnostics Division and the H.C. Starck and Wolff Walsrode
    businesses as well as from the reduction of headcount relating
    to certain restructuring measures. Under IFRS, as a result of
    these events, curtailment gains of
    10 million
    and
    37 million
    were recognized in other operating income and
    income from discontinued operations, respectively.
    However, for U.S. GAAP purposes,
    8 million
    and
    37 million
    of the gains recognized in other operating income
    and income from discontinued operations,
    respectively, were reversed as the gains were either not
    permitted to be recognized, until the point of time when the
    divestment of the businesses occurred, or were offset by
    existing unrecognized actuarial losses. The reversal of prior
    service costs recognized earlier under IFRS, offset with the
    amortization of negative prior service costs under
    U.S. GAAP resulted in a reversal of a net loss in the
    amount of
    1 million
    in fiscal year 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

F-113



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                                                            |  |             |        |   |      |  |        |  
|--------------------------------------------------------------------------- |  | ----------- | ------ | - | ---- |  | ------ | -
|                                                                            |  | 2005        |        |   | 2006 | 
|                                                                            |  |             |        |   |      | 
|                                                                            |  | ( million) |       
|Pension and OPEB benefits:                                                  |  |             |        |   |      |  |        |  
|Net liability recognized for IFRS                                           |  |             | (7,137 | ) |      |  | (6,505 | )
|Difference in unrecognized actuarial gains and losses/ asset
    limitation |  |             | 4,046  |   |      |  | 3,299  |  
|Difference in unrecognized prior service cost                               |  |             | (146   | ) |      |  | (127   | )
|Additional minimum liability under SFAS No. 87                              |  |             | (3,265 | ) |      |  | (2,660 | )
|                                                                            |  |             |        |   |      | 
|Net liability recognized for U.S. GAAP before adoption
    of SFAS No. 158  |  |             | (6,502 | ) |      |  | (5,993 | )
|                                                                            |  |             |        |   |      | 
|Adoption of SFAS No. 158  recognition of
    actuarial gains/ losses       |  |             |       |   |      |  | (3,292 | )
|Adoption of SFAS No. 158  prior service cost                               |  |             |       |   |      |  | 131    |  
|Adoption of SFAS No. 158  reversal of
    additional minimum liability     |  |             |       |   |      |  | 2,660  |  
|                                                                            |  |             |        |   |      | 
|Net liability recognized for U.S. GAAP after adoption of
    SFAS No. 158   |  |             | (6,502 | ) |      |  | (6,494 | )
|                                                                            |  |             |        |   |      | 

|                                                       |  |             |     |  |      |  |     |      |  |  |     |  
|------------------------------------------------------ |  | ----------- | --- |  | ---- |  | --- | ---- |  |  | --- | -
|                                                       |  | 2004        |     |  | 2005 |  |     | 2006 | 
|                                                       |  |             |     |  |      |  |     |      | 
|                                                       |  | ( million) |    
|Pension and OPEB benefits:                             |  |             |     |  |      |  |     |      |  |  |     |  
|Net periodic benefit cost recognized for IFRS          |  |             | 352 |  |      |  | 207 |      |  |  | 454 |  
|Difference in recognition of actuarial amounts         |  |             | 112 |  |      |  | 139 |      |  |  | 121 |  
|Difference in recognition of prior service amounts     |  |             | 128 |  |      |  | 1   |      |  |  | (1  | )
|Difference in pension curtailment and settlement costs |  |             | 62  |  |      |  | 263 |      |  |  | 8   |  
|                                                       |  |             |     |  |      |  |     |      | 
|Net periodic benefit cost recognized for U.S. GAAP     |  |             | 654 |  |      |  | 610 |      |  |  | 582 |  
|                                                       |  |             |     |  |      |  |     |      | 



|                                                                                                  |  |             |    |  |      |  |    |      |  |  |    | 
|------------------------------------------------------------------------------------------------- |  | ----------- | -- |  | ---- |  | -- | ---- |  |  | -- | 
|                                                                                                  |  | 2004        |    |  | 2005 |  |    | 2006 | 
|                                                                                                  |  |             |    |  |      |  |    |      | 
|                                                                                                  |  | ( million) |   
|Net U.S. GAAP income statement difference on pensions
    and other post-employment benefit plans |  |             | 23 |  |      |  | 47 |      |  |  | 40 | 

|                                                                                                                       |  |             |   |  |      |  |     |  
|---------------------------------------------------------------------------------------------------------------------- |  | ----------- | - |  | ---- |  | --- | -
|                                                                                                                       |  | 2005        |   |  | 2006 | 
|                                                                                                                       |  |             |   |  |      | 
|                                                                                                                       |  | ( million) |  
|Net U.S. GAAP equity difference on pensions and other
    post-employment benefits before adoption of
    SFAS No. 158 |  |             |  |  |      |  | (13 | )
|Adoption of SFAS No. 158  recognition of
    actuarial gains/ losses                                                  |  |             |  |  |      |  | 58  |  
|Adoption of SFAS No. 158  prior service cost                                                                          |  |             |  |  |      |  |    |  
|Adoption of SFAS No. 158  reversal of
    additional minimum liability                                                |  |             |  |  |      |  | (45 | )
|                                                                                                                       |  |             |   |  |      | 
|Net U.S. GAAP equity difference on pensions and other
    post-employment benefits after adoption of
    SFAS No. 158  |  |             |  |  |      |  |    |  
|                                                                                                                       |  |             |   |  |      | 

|                                                                                               |  |             |     |  |      |  |     |      |  |  |     | 
|---------------------------------------------------------------------------------------------- |  | ----------- | --- |  | ---- |  | --- | ---- |  |  | --- | 
|                                                                                               |  | 2004        |     |  | 2005 |  |     | 2006 | 
|                                                                                               |  |             |     |  |      |  |     |      | 
|                                                                                               |  | ( million) |    
|Total U.S. GAAP income statement difference on pensions
    and other post-employment benefits |  |             | 325 |  |      |  | 450 |      |  |  | 168 | 

F-114



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


|                                                                                                                         |  |             |      |   |      |  |        |  
|------------------------------------------------------------------------------------------------------------------------ |  | ----------- | ---- | - | ---- |  | ------ | -
|                                                                                                                         |  | 2005        |      |   | 2006 | 
|                                                                                                                         |  |             |      |   |      | 
|                                                                                                                         |  | ( million) |     
|Total U.S. GAAP equity difference on pensions and other
    post-employment benefits before adoption of
    SFAS No. 158 |  |             | (691 | ) |      |  | (563   | )
|Adoption of SFAS No. 158  recognition of
    actuarial gains/ losses                                                    |  |             |     |   |      |  | 3,350  |  
|Adoption of SFAS No. 158  prior service cost                                                                            |  |             |     |   |      |  | (131   | )
|Adoption of SFAS No. 158  reversal of
    additional minimum liability                                                  |  |             |     |   |      |  | (2,667 | )
|                                                                                                                         |  |             |      |   |      | 
|Total U.S. GAAP equity difference on pensions and other
    post-employment benefits after adoption of
    SFAS No. 158  |  |             | (691 | ) |      |  | (11    | )
|                                                                                                                         |  |             |      |   |      | 

c. In-Process Research
and Development




  


 


  


  


d. Asset
impairments




F-115



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


 


    


 


e. Early retirement
program


i.e. 05-5





f. Revaluation
surplus




F-116



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


    


g. Minority
interest




h. Other









Additional U.S. GAAP disclosures




| |                                     
| | ------------------------------------
| | Goodwill and other intangible assets







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The first step is to compare each reporting units fair
    value with its carrying amount including goodwill. If a
    reporting units carrying amount exceeds its fair value,
    this indicates that its goodwill may be impaired and the second
    step is required.                                                                                                                                                                                                                                                                                                                                                              
|
| |  | The second step is to compare the implied fair value of the
    reporting units goodwill with the carrying amount of its
    goodwill. The implied fair value is computed by allocating the
    reporting units fair value to all of its assets and
    liabilities in a manner that is similar to a purchase price
    allocation in a business combination in accordance with SFAS
    No. 141. The remaining unallocated purchase price is the
    implied fair value of the reporting units goodwill. If the
    implied fair value of goodwill is less than its carrying value,
    the difference is recorded as an impairment.



F-117



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)






  








|                                                                                                     |  |             |     |   |      |  |        |  
|---------------------------------------------------------------------------------------------------- |  | ----------- | --- | - | ---- |  | ------ | -
|                                                                                                     |  | 2005        |     |   | 2006 | 
|                                                                                                     |  |             |     |   |      | 
|                                                                                                     |  | ( million) |    
|Goodwill:                                                                                            |  |             |     |   |      |  |        |  
|Differences in carrying amount of goodwill written-off directly
    to equity before January 1, 1995 |  |             | 454 |   |      |  | 407    |  
|FAS 142 and IFRS 3 transition differences                                                            |  |             | 507 |   |      |  | 507    |  
|Differences on account of IPR&D included in goodwill under
    IFRS                                  |  |             | (61 | ) |      |  | (53    | )
|Differences in impairments                                                                           |  |             | (18 | ) |      |  |       |  
|Purchase price and purchase price allocation differences                                             |  |             |    |   |      |  | (532   | )
|                                                                                                     |  |             |     |   |      | 
|Differences in carrying amount of goodwill                                                           |  |             | 882 |   |      |  | 329    |  
|                                                                                                     |  |             |     |   |      | 
|Other intangible assets:                                                                             |  |             |     |   |      |  |        |  
|FAS 142 and IFRS 3 transition differences                                                            |  |             | 32  |   |      |  | 32     |  
|IPR&D from acquisitions, expensed under U.S. GAAP                                                    |  |             | (25 | ) |      |  | (1,400 | )
|Differences in impairments                                                                           |  |             |    |   |      |  |       |  
|Purchase price and purchase price allocation differences                                             |  |             | 20  |   |      |  | 16     |  
|Revaluation surplus                                                                                  |  |             | (62 | ) |      |  | (58    | )
|Additional Minimum Liabilities                                                                       |  |             | 56  |   |      |  |       |  
|Other differences                                                                                    |  |             | 10  |   |      |  |       |  
|                                                                                                     |  |             |     |   |      | 
|Differences in carrying amount of other intangible assets                                            |  |             | 31  |   |      |  | (1,410 | )
|                                                                                                     |  |             |     |   |      | 
|Total U.S. GAAP increase in intangible assets                                                        |  |             | 913 |   |      |  | (1,081 | )
|                                                                                                     |  |             |     |   |      | 

Business Combination




F-118



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)






|                             |  |             |        |  |             |  |        | 
|---------------------------- |  | ----------- | ------ |  | ----------- |  | ------ | 
|Bayer Group Pro Forma Totals |  | (Unaudited) |        |  | (Unaudited) | 
|                             |  |             |        |  |             | 
|                             |  | ( million) |        |  | ( million) | 
|                             |  | 2005        |        |  | 2006        | 
|                             |  |             |        |  |             | 
|Net sales                    |  |             | 30,112 |  |             |  | 31,689 | 
|Income after tax             |  |             | 782    |  |             |  | 1,255  | 
|Earnings per share           |  |             | 1.07   |  |             |  | 1.68   | 

In-Process Research and Development






DUB-OC (gynecology)




Paccocath (oncology)






| |                        
| | -----------------------
| | Discontinued operations



F-119



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


 


     




|                                                   |  |             |     |  |             |  |       |             |  |  |                 |  |  |  |     | 
|-------------------------------------------------- |  | ----------- | --- |  | ----------- |  | ----- | ----------- |  |  | --------------- |  |  |  | --- | 
|                                                   |  | 2004        |     |  | 2005        |  |       | 2006        |  |  | 2006            | 
|                                                   |  |             |     |  |             |  |       |             |  |  |                 | 
|                                                   |  | ( million) |     |  | ( million) |  |       | ( million) |  |  | (U.S.$ million) | 
|Income (loss) after tax from continuing operations |  |             | 546 |  |             |  | 1,128 |             |  |  | 129             |  |  |  | 168 | 
|Discontinued operations  net of tax               |  |             | 107 |  |             |  | 199   |             |  |  | 140             |  |  |  | 185 | 
|                                                   |  |             |     |  |             |  |       |             |  |  |                 | 
|Income (loss) after tax reported under U.S. GAAP   |  |             | 653 |  |             |  | 1,327 |             |  |  | 269             |  |  |  | 353 | 
|                                                   |  |             |     |  |             |  |       |             |  |  |                 | 

|                                                                           |  |             |             |  |             |  |             |             |  |  |                    |   |  |  |             |  
|-------------------------------------------------------------------------- |  | ----------- | ----------- |  | ----------- |  | ----------- | ----------- |  |  | ------------------ | - |  |  | ----------- | -
|                                                                           |  | 2004        |             |  | 2005        |  |             | 2006        |  |  | 2006               |  
|                                                                           |  |             |             |  |             |  |             |             |  |  |                    |  
|Earnings per Share                                                         |  | ( million) |             |  | ( million) |  |             | ( million) |  |  | (U.S.$ million(*)) |  
|Income (loss) after tax reported under U.S. GAAP                           |  |             | 653         |  |             |  | 1,327       |             |  |  | 269                |   |  |  | 353         |  
|Guaranteed dividend                                                        |  |             |            |  |             |  |            |             |  |  | (26                | ) |  |  | (34         | )
|Net income available to common stockholders                                |  |             | 653         |  |             |  | 1,327       |             |  |  | 243                |   |  |  | 319         |  
|Weighted average number of shares outstanding                              |  |             | 730,341,920 |  |             |  | 730,341,920 |             |  |  | 746,456,988        |   |  |  | 746,456,988 |  
|                                                                           |  |             |             |  |             |  |             |             |  |  |                    |  
|Basic earnings per share under U.S. GAAP                                   |  |             | 0.89        |  |             |  | 1.82        |             |  |  | 0.33               |   |  |  | 0.43        |  
|                                                                           |  |             |             |  |             |  |             |             |  |  |                    |  
|Income (loss) from continuing operations                                   |  |             | 546         |  |             |  | 1,128       |             |  |  | 129                |   |  |  | 168         |  
|Guaranteed dividend                                                        |  |             |            |  |             |  |            |             |  |  | (26                | ) |  |  | (34         | )
|Net income available to common shareholders from continuing
    operations |  |             | 546         |  |             |  | 1,128       |             |  |  | 103                |   |  |  | 134         |  
|Weighted average number of shares outstanding                              |  |             | 730,341,920 |  |             |  | 730,341,920 |             |  |  | 746,456,988        |   |  |  | 746,456,988 |  
|                                                                           |  |             |             |  |             |  |             |             |  |  |                    |  
|Basic earnings per share under U.S. GAAP from continuing
    operations    |  |             | 0.75        |  |             |  | 1.55        |             |  |  | 0.14               |   |  |  | 0.18        |  
|                                                                           |  |             |             |  |             |  |             |             |  |  |                    |  
|Income (loss) from discontinuing operations                                |  |             | 107         |  |             |  | 199         |             |  |  | 140                |   |  |  | 185         |  
|Weighted average number of shares outstanding                              |  |             | 730,341,920 |  |             |  | 730,341,920 |             |  |  | 746,456,988        |   |  |  | 746,456,988 |  
|                                                                           |  |             |             |  |             |  |             |             |  |  |                    |  
|Basic earnings per share under U.S. GAAP from
    discontinuing operations |  |             | 0.14        |  |             |  | 0.27        |             |  |  | 0.19               |   |  |  | 0.25        |  
|                                                                           |  |             |             |  |             |  |             |             |  |  |                    |  



F-120



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)






| |                           
| | --------------------------
| | Classification differences





       


     







| |                     
| | --------------------
| | Comprehensive income



F-121



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




|                                                                                                                                                                      |  |             |      |   |             |  |        |             |  |  |      |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ---- | - | ----------- |  | ------ | ----------- |  |  | ---- | -
|                                                                                                                                                                      |  | 2004        |      |   | 2005        |  |        | 2006        | 
|                                                                                                                                                                      |  |             |      |   |             |  |        |             | 
|                                                                                                                                                                      |  | ( million) |      |   | ( million) |  |        | ( million) | 
|Net income (loss) under U.S. GAAP                                                                                                                                     |  |             | 653  |   |             |  | 1,327  |             |  |  | 269  |  
|Other comprehensive income (loss):                                                                                                                                    |  |             |      |   |             |  |        |             |  |  |      |  
|Unrealized market value adjustment on available-for-sale
    securities (net of taxes of
    (2) million,
    (6) million
    and
    2 million,
    respectively) |  |             | 18   |   |             |  | 3      |             |  |  | (6   | )
|Unrealized market value adjustment on cash flow hedges (net of
    taxes of
    (18) million,
    6 million,
    and
    16 million)                               |  |             | 46   |   |             |  | (9     | )           |  |  | (43  | )
|Reclassification adjustment:                                                                                                                                          |  |             |      |   |             |  |        |             |  |  |      |  
|Net realized (gains)/losses on sales of securities (net of taxes
    of nil,
    nil, and
    nil,
    respectively)                                               |  |             | (6   | ) |             |  |       |             |  |  |     |  
|Net realized (gains)/losses on sales of cash flow hedges (net of
    taxes of
    (1)million,
    nil and
    3 million,
    respectively)                         |  |             | 2    |   |             |  | 3      |             |  |  | 14   |  
|Additional minimum pension liability (net of taxes of
    155 million,
    916 million
    and
    (217) million,
    respectively)                                |  |             | (232 | ) |             |  | (1,373 | )           |  |  | 325  |  
|Foreign currency translation adjustment                                                                                                                               |  |             | (398 | ) |             |  | 1,359  |             |  |  | (759 | )
|                                                                                                                                                                      |  |             |      |   |             |  |        |             | 
|Comprehensive income (loss) under U.S. GAAP                                                                                                                           |  |             | 83   |   |             |  | 1,310  |             |  |  | (200 | )
|                                                                                                                                                                      |  |             |      |   |             |  |        |             | 



| |                       
| | ----------------------
| | Employee benefit plans






     




| |                 
| | ----------------
| | Plans in Germany

 


|                                                                                              |  |              |        |  |      |  |       | 
|--------------------------------------------------------------------------------------------- |  | ------------ | ------ |  | ---- |  | ----- | 
|                                                                                              |  | December 31, |       
|                                                                                              |  |              |       
|Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets |  | 2005         |        |  | 2006 | 
|                                                                                              |  |              |        |  |      | 
|                                                                                              |  | ( million)  |       
|Projected benefit obligation                                                                  |  |              | 10,256 |  |      |  | 9,931 | 
|Accumulated benefit obligation                                                                |  |              | 9,919  |  |      |  | 9,684 | 
|Fair value of plan assets                                                                     |  |              | 4,599  |  |      |  | 4,487 | 

F-122



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




| |                         
| | ------------------------
| | Plans in other countries

 


|                                                                                              |  |              |       |  |      |  |       | 
|--------------------------------------------------------------------------------------------- |  | ------------ | ----- |  | ---- |  | ----- | 
|                                                                                              |  | December 31, |      
|                                                                                              |  |              |      
|Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets |  | 2005         |       |  | 2006 | 
|                                                                                              |  |              |       |  |      | 
|                                                                                              |  | ( million)  |      
|Projected benefit obligation                                                                  |  |              | 3,920 |  |      |  | 1,599 | 
|Accumulated benefit obligation                                                                |  |              | 3,722 |  |      |  | 1,428 | 
|Fair value of plan assets                                                                     |  |              | 3,198 |  |      |  | 1,011 | 



| |      
| | -----
| | Total

|                                                                                              |  |              |        |  |      |  |        | 
|--------------------------------------------------------------------------------------------- |  | ------------ | ------ |  | ---- |  | ------ | 
|                                                                                              |  | December 31, |       
|                                                                                              |  |              |       
|Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets |  | 2005         |        |  | 2006 | 
|                                                                                              |  |              |        |  |      | 
|                                                                                              |  | ( million)  |       
|Projected benefit obligation                                                                  |  |              | 14,176 |  |      |  | 11,530 | 
|Accumulated benefit obligation                                                                |  |              | 13,641 |  |      |  | 11,112 | 
|Fair value of plan assets                                                                     |  |              | 7,797  |  |      |  | 5,498  | 



| |                         
| | ------------------------
| | Stock-based compensation





| |                           
| | --------------------------
| | Proportional consolidation





|                          |  |               |     |   |               |  |     |  
|------------------------- |  | ------------- | --- | - | ------------- |  | --- | -
|Balance Sheet Information |  | Dec. 31, 2005 |     |   | Dec. 31, 2006 | 
|                          |  |               |     |   |               | 
|                          |  | ( million)   |    
|Current assets            |  |               | 15  |   |               |  | 21  |  
|Noncurrent assets         |  |               | 62  |   |               |  | 56  |  
|Pension provisions        |  |               |    |   |               |  |    |  
|Other provisions          |  |               | (16 | ) |               |  | (23 | )
|Financial liabilities     |  |               | (3  | ) |               |  | (3  | )
|Remaining liabilities     |  |               | (14 | ) |               |  | (6  | )

F-123



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


|                                |  |               |    |  |               |  |    |  
|------------------------------- |  | ------------- | -- |  | ------------- |  | -- | -
|Statement of Income Information |  | Dec. 31, 2005 |    |  | Dec. 31, 2006 | 
|                                |  |               |    |  |               | 
|                                |  | ( million)   |   
|Net sales                       |  |               | 48 |  |               |  | 56 |  
|Operating result                |  |               | 4  |  |               |  | (7 | )
|Net income (loss)               |  |               | 3  |  |               |  | (5 | )

|                                                    |  |               |    |   |               |  |    |  
|--------------------------------------------------- |  | ------------- | -- | - | ------------- |  | -- | -
|Statement of Cash Flow Information                  |  | Dec. 31, 2005 |    |   | Dec. 31, 2006 | 
|                                                    |  |               |    |   |               | 
|                                                    |  | ( million)   |   
|Net cash provided by operating activities           |  |               | 3  |   |               |  | 2  |  
|Net cash provided by (used in) investing activities |  |               | (9 | ) |               |  | 6  |  
|Net cash provided by (used in) financing activities |  |               | 1  |   |               |  | (1 | )

Self-insurance


  


Consolidated financial statements and other financial
information


Financial Statements


Legal Proceedings






| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | product liability;                                                              
|
| |  | competition and antitrust;                                                      
|
| |  | patent validity and infringement;                                               
|
| |  | tax assessments; and                                                            
|
| |  | past waste disposal practices and release of chemicals into the
    environment.

20-F




F-124



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)






| |                              
| | -----------------------------
| | Product liability proceedings



| |                           
| | --------------------------
| | Lipobay/ Baycol litigation

Baycol


U.S. litigation.


Baycol Baycol




Baycol Baycol, Baycol. Baycol. Baycol.


Baycol. Baycol.


F-125



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


Litigation in other countries. Baycol


Impact of cerivastatin litigation on Bayer.


 




Baycol Baycol




| |                         
| | ------------------------
| | HIV/ HCV related actions

non-U.S. non-U.S. forum non conveniens


F-126



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)








| |                                     
| | ------------------------------------
| | Phenylpropanolamine (PPA) litigation

over-the




 






| |                      
| | ---------------------
| | Thimerosal litigation

over-the




| |                      
| | ---------------------
| | Isocyanate litigation



F-127



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)










| |                                                 
| | ------------------------------------------------
| | Hormone Replacement Therapies product litigation





| |                      
| | ---------------------
| | Antitrust proceedings



| |                                                                  
| | -----------------------------------------------------------------
| | Proceedings involving former rubber-related lines of
    business

Government investigations.






F-128



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)









Civil litigation.








| |                                                                              
| | -----------------------------------------------------------------------------
| | Proceedings involving polyester polyols, urethanes and
    urethane chemicals

Government investigation.


F-129



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




Civil litigation.






| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Proceedings involving polyether polyols and other precursors
    for urethane end-use products

Government investigation.


Civil litigation. inter
alia


inter
alia




| |                                                                                 
| | --------------------------------------------------------------------------------
| | Impact of rubber-related and urethane-related antitrust
    proceedings on Bayer

  




F-130



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)










| |                                    
| | -----------------------------------
| | Proceedings involving Ciprofloxacin

Cipro ® Cipro ®


Cipro ® Cipro ®


Cipro ®




F-131



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)








| |                                   
| | ----------------------------------
| | Proceedings involving
    Premise®

Premise ® Premise ®


Premise ®




| |                                                 
| | ------------------------------------------------
| | Average wholesale price manipulation proceedings







| |                                                            
| | -----------------------------------------------------------
| | Patent validity challenges and infringement
    proceedings



| |                                   
| | ----------------------------------
| | Proceedings involving Moxifloxacin

Avelox ® Avelox ® Avelox ®


F-132



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




30-month 30-month


Avelox ®


Vigamox ®




| |                                    
| | -----------------------------------
| | Proceedings involving
    Kogenate®

Kogenate ®




| |                                            
| | -------------------------------------------
| | Proceeding involving blood glucose monitors

Ascensia ® Contour ®


F-133



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




| |                                               
| | ----------------------------------------------
| | Versant®
    Diagnostic Assays related actions

Versant®




| |                                                                 
| | ----------------------------------------------------------------
| | Proceedings involving syringe injectors and related
    products









| |                                          
| | -----------------------------------------
| | Proceedings involving oral contraceptives

®


®


® ®


F-134



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)




| |                                      
| | -------------------------------------
| | Betaseron®
    supply related actions

Betaseron ® Betaseron ®




| |                      
| | ---------------------
| | Securities litigation

non-U.S. non-U.S.




| |                                   
| | ----------------------------------
| | Schering AG shareholder litigation

Anfechtungs-
und Nichtigkeitsklagen


Freigabeverfahren


Amtslöschungsverfahren


Spruchverfahren Abfindung Ausgleich


F-135



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)






Bundesgerichtshof Anfechtungs-
und Nichtigkeitsklagen




| |                    
| | -------------------
| | Asbestos litigation









| |                             
| | ----------------------------
| | Other commercial proceedings



| |                     
| | --------------------
| | Lyondell Arbitration



F-136



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)






| |                                                     
| | ----------------------------------------------------
| | Proceedings involving Limagrain Genetics Corporation





| |                                                
| | -----------------------------------------------
| | Proceedings involving genetically modified rice









| |                     
| | --------------------
| | Overtime wage claims



F-137



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)


Effect of new accounting pronouncements




| |                                                            
| | -----------------------------------------------------------
| | Accounting standards applied for the first time in
    2006



| |          
| | ---------
| | U.S. GAAP





|                                                                            |  |             |        |  
|--------------------------------------------------------------------------- |  | ----------- | ------ | -
|                                                                            |  | ( million) |       
|U.S. GAAP equity at December 31, 2006 prior to adoption of
    SFAS No. 158 |  |             | 12,512 |  
|Adoption of SFAS No. 158  recognition of
    actuarial gains/(losses)      |  |             | (3,350 | )
|Adoption of SFAS No. 158  prior service cost                               |  |             | 131    |  
|Adoption of SFAS No. 158  reversal of
    additional minimum liability     |  |             | 2,667  |  
|Deferred taxes on the entries above                                         |  |             | 221    |  
|                                                                            |  |             |       
|U.S. GAAP equity at December 31, 2006 after adoption of
    SFAS No. 158    |  |             | 12,181 |  
|                                                                            |  |             |       



| |                                  
| | ---------------------------------
| | Newly issued accounting standards



| |          
| | ---------
| | U.S. GAAP





F-138



---



##### 



Notes to the Consolidated Financial Statements of the Bayer
Group  (Continued)










F-139