##### Table of Contents



As filed with the Securities and Exchange Commission on
March 6, 2006








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, 2005.
|          
|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                                                       |  |      | 15  | 
|             |  | History and Development of the Company                                           |  |      | 15  | 
|             |  | Business                                                                         |  |      | 17  | 
|             |  | Bayer HealthCare                                                                 |  |      | 19  | 
|             |  | Bayer CropScience                                                                |  |      | 38  | 
|             |  | Bayer MaterialScience                                                            |  |      | 47  | 
|             |  | Intellectual Property Protection                                                 |  |      | 58  | 
|             |  | Governmental Regulation                                                          |  |      | 60  | 
|             |  | Organizational Structure                                                         |  |      | 65  | 
|             |  | Property, Plants and Equipment                                                   |  |      | 67  | 
|Item 4A.     |  | Unresolved Staff Comments                                                        |  |      | 69  | 
|Item 5.      |  | Operating and Financial Review and
    Prospects                                 |  |      | 70  | 
|             |  | Overview                                                                         |  |      | 70  | 
|             |  | Critical Accounting Policies                                                     |  |      | 70  | 
|             |  | Operating Results 2003, 2004 and 2005                                            |  |      | 75  | 
|             |  | Bayer Group                                                                      |  |      | 84  | 
|             |  | Segment Data                                                                     |  |      | 88  | 
|             |  | Liquidity and Capital Resources 2003, 2004
    and 2005                          |  |      | 99  | 
|             |  | Research and Development                                                         |  |      | 106 | 
|             |  | Basis of Presentation                                                            |  |      | 106 | 
|Item 6.      |  | Directors, Senior Management and
    Employees                                   |  |      | 110 | 
|Item 7.      |  | Major Shareholders and Related Party
    Transactions                            |  |      | 124 | 
|Item 8.      |  | Financial Information                                                            |  |      | 125 | 
|Item 9.      |  | The Listing                                                                      |  |      | 136 | 
|Item 10.     |  | Additional Information                                                           |  |      | 137 | 
|Item 11.     |  | Quantitative and Qualitative Disclosures
    about Market Risk                   |  |      | 146 | 
|Item 12.     |  | Description of Securities Other Than Equity
    Securities                       |  |      | 152 | 
|            
|PART II     
|Item 13.     |  | Defaults, Dividend Arrearages and
    Delinquencies                              |  |      | 153 | 
|Item 14.     |  | Material Modifications to the Rights of
    Security Holders and Use of Proceeds |  |      | 153 | 
|Item 15.     |  | Controls and Procedures                                                          |  |      | 153 | 
|Item 16.     |  | [Reserved]                                                                       |  |      | 153 | 
|Item 16A.    |  | Audit Committee Financial Expert                                                 |  |      | 153 | 
|Item 16B.    |  | Code of Ethics                                                                   |  |      | 153 | 
|Item 16C.    |  | Principal Accountant Fees and Services                                           |  |      | 154 | 
|Item 16D.    |  | Exemptions from the Listing Standards for
    Audit Committees                   |  |      | 155 | 
|Item 16E.    |  | Purchases of Equity Securities by the
    Issuer and Affiliated Purchasers       |  |      | 155 | 
|            
|PART III    
|Item 17.     |  | Financial Statements                                                             |  |      | 156 | 
|Item 18.     |  | Financial Statements                                                             |  |      | 156 | 
|Item 19.     |  | Exhibits                                                                         |  |      | 156 | 
|Exhibit 1.1 
|Exhibit 4.4 
|Exhibit 4.5 
|Exhibit 4.6 
|Exhibit 4.7 
|Exhibit 12.1
|Exhibit 12.2
|Exhibit 13.1



2



---



##### Table of Contents



Defined Terms and Conventions


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




Enforceability of Civil Liabilities under U.S. Federal
Securities Laws








3



---



##### Table of Contents



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



---



##### Table of Contents






PART I







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

Directors and Senior Management









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








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

Selected Financial Data







5



---



##### Table of Contents







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

|                                                       |                             |                                      |        |      |      |  |        |      |  |  |        |      |  |      |        |      |      |  |        |      |  |  |        |      | 
|------------------------------------------------------ | --------------------------- | ------------------------------------ | ------ | ---- | ---- |  | ------ | ---- |  |  | ------ | ---- |  | ---- | ------ | ---- | ---- |  | ------ | ---- |  |  | ------ | ---- | 
|                                                       |                             | Year ended December 31,              |       
|                                                       |                             |                                      |       
|                                                       |                             | 2001                                 |        |      | 2002 |  |        | 2003 |  |  | 2004   |      |  | 2005 |        |      | 2005 | 
|                                                       |                             |                                      |        |      |      |  |        |      |  |  |        |      |  |      |        |      |      | 
|                                                       |                             |                                     |        |      |     |  |        |     |  |  |       |      |  |     |        |      | $    | 
|                                                       |                             | (In millions, except per share data) |       
|IFRS:                                                  |                             |                                      |        |      |      |  |        |      |  |  |        |      |  |      |        |      |      |  |        |      |  |  |        |     
|Net sales (continuing operations)                      |                             |                                      | 21,981 |      |      |  | 22,283 |      |  |  | 22,417 |      |  |      | 23,278 |      |      |  | 27,383 |      |  |  | 32,427 |     
|Operating result (continuing operations)               |                             |                                      | 1,518  |      |      |  | 815    |      |  |  | 575    |      |  |      | 1,875  |      |      |  | 2,812  |      |  |  | 3,330  |     
|Non-operating
    result(1)                            |                             |                                      | (467   | )    |      |  | (423   | )    |  |  | (708   | )    |  |      | (653   | )    |      |  | (613   | )    |  |  | (726   | )   
|Income before income
    taxes(1)                      |                             |                                      | 1,051  |      |      |  | 392    |      |  |  | (133   | )    |  |      | 1,222  |      |      |  | 2,199  |      |  |  | 2,604  |     
|Income
    taxes(1)                                    |                             |                                      | (173   | )    |      |  | 5      |      |  |  | 84     |      |  |      | (473   | )    |      |  | (641   | )    |  |  | (759   | )   
|Income after
    taxes(1)                              |                             |                                      | 878    |      |      |  | 397    |      |  |  | (49    | )    |  |      | 749    |      |      |  | 1,558  |      |  |  | 1,845  |     
|Income after taxes from discontinued
    operations(1) |                             |                                      | 50     |      |      |  | 681    |      |  |  | (1,242 | )    |  |      | (67    | )    |      |  | 37     |      |  |  | 44     |     
|Income after taxes
    total(1)                        |                             |                                      | 928    |      |      |  | 1,078  |      |  |  | (1,291 | )    |  |      | 682    |      |      |  | 1,595  |      |  |  | 1,889  |     
|Minority stockholders interest                        |                             |                                      | 4      |      |      |  | (3     | )    |  |  | (12    | )    |  |      | 3      |      |      |  | 2      |      |  |  | 2      |     
|Net income                                             |                             |                                      | 932    |      |      |  | 1,075  |      |  |  | (1,303 | )    |  |      | 685    |      |      |  | 1,597  |      |  |  | 1,891  |     
|Average number of shares in issue                      |                             |                                      | 730    |      |      |  | 730    |      |  |  | 730    |      |  |      | 730    |      |      |  | 730    |      |  |  | 730    |     
|Operating result from continuing                       |                             |                                      |        |      |      |  |        |      |  |  |        |      |  |      |        |      |      |  |        |      |  |  |        |     
|                                                       | operations per
    share(1) |                                      |        | 2.08 |      |  |        | 1.12 |  |  |        | 0.79 |  |      |        | 2.57 |      |  |        | 3.85 |  |  |        | 4.56 | 
|Basic net income/loss per
    share(1)                 |                             |                                      | 1.28   |      |      |  | 1.47   |      |  |  | (1.78  | )    |  |      | 0.94   |      |      |  | 2.19   |      |  |  | 2.59   |     
|Diluted net income/loss per
    share(1)               |                             |                                      | 1.28   |      |      |  | 1.47   |      |  |  | (1.78  | )    |  |      | 0.94   |      |      |  | 2.19   |      |  |  | 2.59   |     
|Dividends per
    share(1)                             |                             |                                      | 0.90   |      |      |  | 0.90   |      |  |  | 0.50   |      |  |      | 0.55   |      |      |  | N/A    | (2)  |  |  | N/A    | (2) 
|U.S. GAAP:                                             |                             |                                      |        |      |      |  |        |      |  |  |        |      |  |      |        |      |      |  |        |      |  |  |        |     
|Net income                                             |                             |                                      | 800    |      |      |  | 1,277  |      |  |  | (1,445 | )    |  |      | 653    |      |      |  | 1,327  |      |  |  | 1,571  |     
|Basic and diluted net income per share                 |                             |                                      | 1.10   |      |      |  | 1.75   |      |  |  | (1.98  | )    |  |      | 0.89   |      |      |  | 1.82   |      |  |  | 2.15   |     






|    |                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Prior year data have been restated for these items due to
    adoption of new IFRS accounting standards. For more details, see
    Notes 2, 3 and 28 to the consolidated financial statements
    appearing elsewhere in this annual report.                                           
|   
|(2) | The dividend payment for 2005 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 2005 of
    0.95 per share,
    for a total dividend of
    694 million.

6



---



##### Table of Contents





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

|                                          |  |                                      |        |  |      |  |        |      |  |  |        |  |  |      |        |  |      |  |        |  |  |  |        | 
|----------------------------------------- |  | ------------------------------------ | ------ |  | ---- |  | ------ | ---- |  |  | ------ |  |  | ---- | ------ |  | ---- |  | ------ |  |  |  | ------ | 
|                                          |  | Year ended December 31,              |       
|                                          |  |                                      |       
|                                          |  | 2001                                 |        |  | 2002 |  |        | 2003 |  |  | 2004   |  |  | 2005 |        |  | 2005 | 
|                                          |  |                                      |        |  |      |  |        |      |  |  |        |  |  |      |        |  |      | 
|                                          |  |                                     |        |  |     |  |        |     |  |  |       |  |  |     |        |  | $    | 
|                                          |  | (In millions, except per share data) |       
|IFRS:                                     |  |                                      |        |  |      |  |        |      |  |  |        |  |  |      |        |  |      |  |        |  |  |  |        | 
|Total
    Assets(1)                       |  |                                      | 36,868 |  |      |  | 40,966 |      |  |  | 37,516 |  |  |      | 37,588 |  |      |  | 36,722 |  |  |  | 43,486 | 
|Stockholders
    equity(1)               |  |                                      | 16,916 |  |      |  | 14,666 |      |  |  | 11,290 |  |  |      | 10,943 |  |      |  | 11,157 |  |  |  | 13,212 | 
|Liabilities(1)                            |  |                                      | 19,952 |  |      |  | 26,300 |      |  |  | 26,226 |  |  |      | 26,645 |  |      |  | 25,565 |  |  |  | 30,274 | 
|of which noncurrent financial obligations |  |                                      | 2,981  |  |      |  | 7,228  |      |  |  | 7,288  |  |  |      | 7,025  |  |      |  | 7,185  |  |  |  | 8,508  | 
|U.S. GAAP:                                |  |                                      |        |  |      |  |        |      |  |  |        |  |  |      |        |  |      |  |        |  |  |  |        | 
|Stockholders equity                      |  |                                      | 18,300 |  |      |  | 16,734 |      |  |  | 13,325 |  |  |      | 13,046 |  |      |  | 12,347 |  |  |  | 14,621 | 
|Total assets                              |  |                                      | 37,831 |  |      |  | 42,668 |      |  |  | 38,012 |  |  |      | 38,496 |  |      |  | 38,133 |  |  |  | 45,157 | 






|    |                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Prior year data have been restated for these items due to
    adoption of new IFRS accounting standards. For more details, see
    Notes 2, 3 and 28 to the consolidated financial statements
    appearing elsewhere in this annual report.

Dividends


Additional
Information  Taxation


|                                   |  |      |      |  |      |  |      |      |  |  |     |    
|---------------------------------- |  | ---- | ---- |  | ---- |  | ---- | ---- |  |  | --- | ---
|                                   |  | 2003 |      |  | 2004 |  |      | 2005 | 
|                                   |  |      |      |  |      |  |      |      | 
|Total dividend (
    in millions) |  |      | 365  |  |      |  | 402  |      |  |  | N/A | (1)
|Dividend per
    share ()         |  |      | 0.50 |  |      |  | 0.55 |      |  |  | N/A | (1)
|Dividend per share ($)             |  |      | 0.57 |  |      |  | 0.68 |      |  |  | N/A | (1)






|    |                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The dividend payment for 2005 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 2005 of
    0.95 per share,
    for a total dividend of
    694 million.

Financial Information 
Dividend Policy and Liquidation Proceeds.


7



---



##### Table of Contents



Exchange Rate Data




|     |  |                        |        |  |         |  |        |      |  |  |        |  |  |  |        | 
|---- |  | ---------------------- | ------ |  | ------- |  | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|Year |  | Period End             |        |  | Average |  |        | High |  |  | Low    | 
|     |  |                        |        |  |         |  |        |      |  |  |        | 
|     |  | (U.S. dollar per euro) |       
|2001 |  |                        | 0.8901 |  |         |  | 0.8909 |      |  |  | 0.9535 |  |  |  | 0.8370 | 
|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 | 

|                    |  |              |        |  |     |  |        | 
|------------------- |  | ------------ | ------ |  | --- |  | ------ | 
|Previous six months |  | High         |        |  | Low | 
|                    |  |              |        |  |     | 
|                    |  | (U.S. dollar |       
|                    |  | per euro)    |       
|September 2005      |  |              | 1.2538 |  |     |  | 1.2011 | 
|October 2005        |  |              | 1.2148 |  |     |  | 1.1914 | 
|November 2005       |  |              | 1.2067 |  |     |  | 1.1667 | 
|December 2005       |  |              | 1.2041 |  |     |  | 1.1699 | 
|January 2006        |  |              | 1.2287 |  |     |  | 1.1980 | 
|February 2006       |  |              | 1.2100 |  |     |  | 1.1860 | 

 


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.




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





8



---



##### Table of Contents









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







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







9



---



##### Table of Contents





Information on the Company 
Governmental Regulation




| |                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our operating margins may decrease if we are not be able
    to pass increased raw material prices on to customers or if
    prices for our products decrease faster than raw material
    prices





| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | Shortages or disruptions of supplies to customers due to
    unplanned capacity decreases or shutdowns of production plants
    may reduce sales





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

Financial Information  Legal Proceedings


Lipobay/ Baycol


10



---



##### Table of Contents



Cipro ®


Lipobay/ Baycol  Existing insurance coverage may turn out
to be inadequate


Financial Information  Legal
Proceedings




| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | Competition from generic pharmaceuticals after patent
    expiration may reduce market share and sales revenue

per
se Information on the Company 
Intellectual Property Protection






| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | The loss of patent protection or ineffective patent
    protection for marketed products may result in loss of sales to
    competing products

Financial Information  Legal Proceedings






| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Failure to compete successfully or weak performance by our
    marketing partners may reduce our operating results



11



---



##### Table of Contents







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





Additional Information  Material
Contracts






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





| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | pipeline and storage tank leaks and ruptures;                                                                  
|
| |  | fires and explosions;                                                                                          
|
| |  | malfunction and operational failure; and                                                                       
|
| |  | releases, discharges or disposal of toxic and/or hazardous
    substances resulting from these or other causes.



Information on the Company 
Business  Governmental Regulation


12



---



##### Table of Contents





| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Environmental liabilities and compliance costs may have a
    significant negative effect on our operating results





| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | that we currently own or operate;                                                                                                        
|
| |  | that we formerly owned or operated;                                                                                                      
|
| |  | where we disposed of waste from our operations;                                                                                          
|
| |  | where external toll manufacturers operate or operated; or                                                                                
|
| |  | where property owned by third parties was contaminated by the
    emission or spill of contaminants for which we bear
    responsibility.

Information on the
Company  Governmental Regulation








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





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





| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | the relative prices at which we and our competitors sell
    products in the same market;
|
| |  | the cost of products and services we require for our operations;
    and                 
|
| |  | the euro-denominated items in our financial statements.                                  

Quantitative and Qualitative Disclosures about Market
Risk


13



---



##### Table of Contents





| |                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Negative developments affecting 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





14



---



##### Table of Contents








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




HISTORY AND DEVELOPMENT OF THE COMPANY


Aktiengesellschaft


Sitz 30-1 20-F. 15205-9741.


Operating and Financial Review and
Prospects  Liquidity and Capital Resources 2003, 2004
and 2005  Capital Expenditures






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In 2003, we spent a total of
    68 million
    on acquisitions, mainly for increasing our interest in the Bayer
    Polymers Sheet Europe Group (formerly known as Makroform) to
    100 percent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | 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 a first
    payment of
    0.2 billion
    we made for Roches Consumer Health business in the rest of
    the world, 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 in the
    rest of the world (except in Japan) was acquired for
    approximately
    2.1 billion.
    Both this amount and the 2005 total acquisition amount include
    the first payment of
    0.2 billion
    we made for Roches Consumer Health business in the rest of
    the world. Since January 2005, the business involving
    non-prescription drugs and vitamins has been part of Bayer
    HealthCares Consumer Care Division and has already been
    integrated into the Bayer organization. Aside from the
    50 percent stake in the Bayer-Roche joint venture, the
    acquired business includes five production sites, consumer
    brands such as
    Aleve®,
    Bepanthen®,
    Redoxon®,
    Rennie®
    and
    Supradyn®,
    vitamins and nutritional supplements. The acquisition has
    primarily been financed through the use of our own funds,
    although loans were taken out in several countries for legal and
    tax reasons.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The remaining 2005 acquisition amount of approximately
    0.3 billion
    related primarily to expenses incurred in connection with a
    license agreement and a co-marketing and distribution agreement.
    After divesting its product rights concerning the active
    ingredient fipronil (see below), Bayer signed an agreement with
    BASF at the end of January 2005 to license back fipronil for
    agricultural uses in certain countries outside Europe, the
    United States and Brazil. The transaction has been approved by
    the relevant authorities. In July 2005, Bayer acquired marketing
    rights for the cardiovascular drug
    Zetia®
    under a co-marketing and distribution agreement with
    Schering-Plough.

15



---



##### Table of Contents







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In 2003, we sold the remaining parts of the household
    insecticides business
    (0.3 billion),
    our 50 percent interest in PolymerLatex
    (0.1 billion)
    and our stake in the biotechnology company Millennium
    Pharmaceuticals, Inc.
    (0.3 billion).
    As part of the conditions imposed by the European, U.S. and
    Canadian antitrust authorities in connection with the Aventis
    CropScience acquisition in 2002, a number of active ingredients,
    especially in the area of insecticides and fungicides, were
    divested
    (1.3 billion).
    In particular, Bayer divested the product rights concerning the
    active ingredient fipronil in the first quarter of 2003.
|
| |  | 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. Those portions of our business that were combined into our
    LANXESS subgroup and subsequently spun off are shown as
    discontinued operations in accordance with
    International Financial Reporting Standard (IFRS) 5. For further
    information on IFRS 5 and the treatment of LANXESS for reporting
    purposes, please refer to Item 5, Operating and
    Financial Review and Prospects  Operating Results
    2003, 2004 and 2005  Discontinued Operations and
    Note 7.2 to the consolidated financial statements contained
    elsewhere in this annual report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | 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 (approximately
    0.2 billion).
    All plasma activities in the United States were transferred to
    Talecris BioTherapeutics, Inc. (Talecris), a corporation newly
    formed by the two investors. To account for the final agreements
    signed at the end of March 2005, we adjusted the previous
    years presentation to show the continued
    non-U.S. marketing and distribution activities as part of
    the continuing operations. In our financial statements for 2005,
    only the U.S. plasma business is reflected in discontinued
    operations. Revenues from our marketing and distribution
    activities for plasma products outside the United States are
    reflected in sales from continuing operations of our
    Pharmaceuticals, Biological Products segment. The comparative
    periods 2004 and 2003 have been adjusted to reflect the
    inclusion of non-U.S. distribution in continuing
    operations. For further details on the treatment of our plasma
    operations for reporting purposes, please refer to
     Bayer HealthCare  Pharmaceuticals,
    Biological Products; Item 5, Operating and Financial
    Review and Prospects  Operating Results 2003, 2004
    and 2005  Discontinued Operations; and
    Note 7.2 to the consolidated financial statements contained
    elsewhere in this annual report.
|
| |  | The Bayer CropScience subgroup divested a number of operations
    in 2005 for an aggregate selling price of approximately
    80 million.
    These included the subsidiaries Philagro Holding S.A., France,
    and EqSeeds Comercia de Sementes Ltda., Brazil, as well as the
    location in Hauxton, UK. Bayer CropScience also divested the
    businesses relating to the manufacturing and marketing of
    certain active ingredients used by the Crop Protection business
    units and the Environmental Science business group, including
    the acaricide and insecticide amitraz
    (Mitac®).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

16



---



##### Table of Contents






BUSINESS








| |   |                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Bayer HealthCare (consisting of four segments:
    Pharmaceuticals, Biological Products (renamed Pharmaceuticals as
    of January 1, 2006); Consumer Care; Diabetes Care,
    Diagnostics; and Animal Health) develops, produces and markets:



| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | prescription pharmaceuticals and biological products;                                                  
|
| |  | over-the-counter medications and nutritional supplements;                                              
|
| |  | diagnostic products for laboratory testing, near-patient testing
    and self-testing applications; and
|
| |  | veterinary medicines, nutritionals and grooming products for
    companion animals and livestock.      



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



| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | develops and markets a comprehensive portfolio of fungicides,
    herbicides, insecticides and seed treatment products to meet a
    wide range of regional requirements; and                  
|
| |  | develops and markets 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, methylcellulose, metallic and
    ceramic powders and semi-finished products; and                 
|
| |  | polyurethanes for a wide variety of applications as well as
    coating and adhesive raw materials and basic inorganic chemicals.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Bayer Technology Services, which provides engineering
    functions such as process development, process and plant
    engineering, construction and optimization.                                                                                                                                                                                                                                                                                                          
|
| |  | Bayer Business Services, which provides information
    management, accounting, consulting and administrative services.                                                                                                                                                                                                                                                                                                                                                     
|
| |  | 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



---



##### Table of Contents



Responsible
Care ®


  






|                                              |                                             |                     |        |            |                |  |       |      |            |  |                |       |  |            |       |      |                |  |        |       |  |  |       |      | 
|--------------------------------------------- | ------------------------------------------- | ------------------- | ------ | ---------- | -------------- |  | ----- | ---- | ---------- |  | -------------- | ----- |  | ---------- | ----- | ---- | -------------- |  | ------ | ----- |  |  | ----- | ---- | 
|                                              |                                             |                     |        | Percentage |                |  |       |      | Percentage |  |                |       |  | Percentage |      
|                                              |                                             | 2003                |        |            | of total sales |  |       | 2004 |            |  | of total sales |       |  | 2005       |       |      | of total sales | 
|                                              |                                             |                     |        |            |                |  |       |      |            |  |                |       |  |            |       |      |                | 
|                                              |                                             | (Euros in millions) |       
|HealthCare                                    |                                             |                     | 8,497  |            |                |  | 37.9  |      |            |  | 8,058          |       |  |            | 34.6  |      |                |  | 9,429  |       |  |  | 34.4  |     
|                                              | Pharmaceuticals, Biological
    Products(a) |                     |        | 4,371      |                |  |       | 19.5 |            |  |                | 3,961 |  |            |       | 17.0 |                |  |        | 4,067 |  |  |       | 14.9 | 
|                                              | Consumer Care                               |                     |        | 1,403      |                |  |       | 6.3  |            |  |                | 1,336 |  |            |       | 5.7  |                |  |        | 2,355 |  |  |       | 8.6  | 
|                                              | Diabetes Care, Diagnostics                  |                     |        | 1,933      |                |  |       | 8.6  |            |  |                | 1,975 |  |            |       | 8.5  |                |  |        | 2,151 |  |  |       | 7.9  | 
|                                              | Animal Health                               |                     |        | 790        |                |  |       | 3.5  |            |  |                | 786   |  |            |       | 3.4  |                |  |        | 856   |  |  |       | 3.0  | 
|CropScience                                   |                                             |                     | 5,764  |            |                |  | 25.7  |      |            |  | 5,946          |       |  |            | 25.5  |      |                |  | 5,896  |       |  |  | 21.5  |     
|                                              | Crop Protection                             |                     |        | 4,801      |                |  |       | 21.4 |            |  |                | 4,957 |  |            |       | 21.3 |                |  |        | 4,874 |  |  |       | 17.8 | 
|                                              | Environmental Science, BioScience           |                     |        | 963        |                |  |       | 4.3  |            |  |                | 989   |  |            |       | 4.2  |                |  |        | 1,022 |  |  |       | 3.7  | 
|MaterialScience                               |                                             |                     | 7,453  |            |                |  | 33.2  |      |            |  | 8,597          |       |  |            | 36.9  |      |                |  | 10,695 |       |  |  | 39.1  |     
|                                              | Materials                                   |                     |        | 2,777      |                |  |       | 12.4 |            |  |                | 3,248 |  |            |       | 13.9 |                |  |        | 4,086 |  |  |       | 14.9 | 
|                                              | Systems                                     |                     |        | 4,676      |                |  |       | 20.8 |            |  |                | 5,349 |  |            |       | 23.0 |                |  |        | 6,609 |  |  |       | 24.2 | 
|Reconciliation                                |                                             |                     | 703    |            |                |  | 3.2   |      |            |  | 677            |       |  |            | 3.0   |      |                |  | 1,363  |       |  |  | 5.0   |     
|Total Sales from Continuing
    Operations(b) |                                             |                     | 22,417 |            |                |  | 100.0 |      |            |  | 23,278         |       |  |            | 100.0 |      |                |  | 27,383 |       |  |  | 100.0 |     






|    |                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------
|(a) | With effect from January 1, 2006, the former
    Pharmaceuticals, Biological Products segment has been renamed
    the Pharmaceuticals segment.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | In accordance with new accounting standard IFRS 5 and other
    related standards, the financial information presented in this
    annual report only includes the continuing operations of the
    Bayer Group and its segments, except where specific reference is
    made to discontinued operations. Our revenues from discontinued
    operations were
    627 million
    in 2005,
    6,480 million
    in 2004 and
    6,150 million
    in 2003.

18



---



##### Table of Contents






BAYER HEALTHCARE


PHARMACEUTICALS, BIOLOGICAL PRODUCTS


Overview




i.e.


Polyglobin ® Gamimune ® N,
Gamunex ® Prolastin ® Kogenate ® Operating and Financial Review and
Prospects  Operating Results 2003, 2004 and
2005  Discontinued Operations.




|                   |                              |                     |       |      |      |  |       |      |   |  |       |      |  
|------------------ | ---------------------------- | ------------------- | ----- | ---- | ---- |  | ----- | ---- | - |  | ----- | ---- | -
|                   |                              | 2003                |       |      | 2004 |  |       | 2005 |  
|                   |                              |                     |       |      |      |  |       |      |  
|                   |                              | (Euros in millions) |      
|External net sales |                              |                     | 4,371 |      |      |  | 3,961 |      |   |  | 4,067 |     
|                   | Percentage of total sales    |                     |       | 19.5 |      |  |       | 17.0 |   |  |       | 14.9 |  
|Intersegment sales |                              |                     | 42    |      |      |  | 38    |      |   |  | 58    |     
|Operating result   |                              |                     | (16   | )    |      |  | 399   |      |   |  | 475   |     
|                   | thereof special
    items(a) |                     |       | (515 | )    |  |       | (53  | ) |  |       | (140 | )






|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The significant special items are detailed in Item 5,
    Operating and Financial Review and Prospects 
    Operating Results 2003, 2004 and 2005  Segment
    Data.

19



---



##### Table of Contents





|                                  |       |                     |       |       |      |  |       |       |  |  |       |       | 
|--------------------------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                  |       | 2003                |       |       | 2004 |  |       | 2005  | 
|                                  |       |                     |       |       |      |  |       |       | 
|                                  |       | (Euros in millions) |      
|Europe                            |       |                     | 1,412 |       |      |  | 1,577 |       |  |  | 1,600 |      
|North America                     |       |                     | 1,817 |       |      |  | 1,172 |       |  |  | 1,129 |      
|Asia/Pacific                      |       |                     | 804   |       |      |  | 851   |       |  |  | 900   |      
|Latin America/ Africa/Middle East |       |                     | 338   |       |      |  | 361   |       |  |  | 438   |      
|                                  |       |                     |       |       |      |  |       |       | 
|                                  | Total |                     |       | 4,371 |      |  |       | 3,961 |  |  |       | 4,067 | 
|                                  |       |                     |       |       |      |  |       |       | 

     


|                 |       |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               |  |     |       |  |  |      |  | 
|---------------- | ----- | --------- | ----- | ------------- | ------------- |  | --------- | ----- | ------------- |  | ------------- | --------- |  | ------------- | ---- |  | ------------- |  | --- | ----- |  |  | ---- |  | 
|                 |       | 2003      |       |               | 2004          |  |           | 2005  |              
|                 |       |           |       |               |               |  |           |       |              
|                 |       |           |       | 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) |  |               |     
|Kogenate®        |       |           | 497   |               |               |  | 11.4      |       |               |  | 563           |           |  |               | 14.2 |  |               |  | 663 |       |  |  | 16.3 | 
|Adalat®          |       |           | 676   |               |               |  | 15.5      |       |               |  | 670           |           |  |               | 16.9 |  |               |  | 659 |       |  |  | 16.2 | 
|Ciprobay®/Cipro® |       |           | 1,411 |               |               |  | 32.3      |       |               |  | 837           |           |  |               | 21.2 |  |               |  | 525 |       |  |  | 12.9 | 
|Avalox®/Avelox®  |       |           | 299   |               |               |  | 6.8       |       |               |  | 318           |           |  |               | 8.0  |  |               |  | 364 |       |  |  | 9.0  | 
|Glucobay®        |       |           | 273   |               |               |  | 6.2       |       |               |  | 278           |           |  |               | 7.0  |  |               |  | 295 |       |  |  | 7.2  | 
|Levitra®         |       |           | 144   |               |               |  | 3.3       |       |               |  | 193           |           |  |               | 4.9  |  |               |  | 260 |       |  |  | 6.4  | 
|Trasylol®        |       |           | 157   |               |               |  | 3.6       |       |               |  | 171           |           |  |               | 4.3  |  |               |  | 230 |       |  |  | 5.7  | 
|Aspirin®(a)      |       |           | 111   |               |               |  | 2.5       |       |               |  | 147           |           |  |               | 3.7  |  |               |  | 177 |       |  |  | 4.3  | 
|Other            |       |           | 803   |               |               |  | 18.4      |       |               |  | 784           |           |  |               | 19.8 |  |               |  | 894 |       |  |  | 22.0 | 
|                 |       |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 
|                 | Total |           |       | 4,371         |               |  |           |       |               |  |               | 3,961     |  |               |      |  |               |  |     | 4,067 |  |  |      |  | 
|                 |       |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 






|    |                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------
|(a) | CardioAspirin is also distributed by our Consumer Care
    division. These figures do not include sales by the Consumer
    Care division.

Segment Strategy


i.e. Kogenate ® Trasylol ® Nexavar ® 59-7939. Operating and Financial Review and
Prospects  Research and Development.


Nexavar ®




20



---



##### Table of Contents



Avelox ® Levitra ® Adalat ® Glucobay ® Cipro ®


See Operating
and Financial Review and Prospects  Research and
Development Pritor ®


Major Products


Adalat ®


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


Avelox ® , Avalox ® ,
Izilox ® Actira ® Octegra ®


Glucobay ® ,
Glucor ® Precose ® Prandase ® Glucobay ®


Levitra ®


e.g. Aspirin ® Protect Aspirin Regimen Bayer


Kogenate ® FS Kogenate ® Bayer Kogenate ®


Helixate ® FS



Business


21



---



##### Table of Contents



Trasylol® Trasylol ®


Trasylol ®


Trasylol ®


Trasylol ® Trasylol ® Trasylol ® Trasylol ® Trasylol ® Trasylol ®


Trasylol ®


Markets and Distribution






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


Elmiron ®


22



---



##### Table of Contents





Kogenate ® Kogenate ®








| |   |                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------
| |  | antibacterial products: Pfizer, GlaxoSmithKline and Abbott
    Laboratories;                       
|
| |  | hypertension and coronary heart disease therapy: Pfizer,
    Novartis, AstraZeneca and Merck & Co.;
|
| |  | oral antidiabetics: Takeda, GlaxoSmithKline, Aventis and
    Bristol-Myers Squibb;                 
|
| |  | blood coagulation: Baxter, Wyeth and ZLB Behring; and                                              
|
| |  | erectile dysfunction: Pfizer and Eli Lilly.                                                        

Research and Development


Kogenate ®






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

Adalat ®  .


23



---



##### Table of Contents





| |                    
| | -------------------
| | Phase II/III Trials



Nexavar ® Nexavar ®




|                                    |  |                                                        |  |             
|----------------------------------- |  | ------------------------------------------------------ |  | ------------
|Project                             |  | Indication                                             |  | Status      
|                                    |  |                                                        |  |             
|Factor Xa inhibitor                 |  | VTE prevention,                                        |  | In Phase III
|                                    |  | VTE treatment,                                         |  | In Phase II 
|                                    |  | Stroke prevention in patients with atrial fibrillation |  |             
|Nexavar®                            |  | Advanced renal cell carcinoma,                         |  | FDA approval
|                                    |  | Hepatocellular carcinoma,                              |  | In Phase III
|                                    |  | Malignant melanoma, NSCLC,                             |  |             
|                                    |  | First line renal cell carcinoma                        |  | In Phase II 
|Trasylol®
    (aprotinin injection) |  | Hematology                                             |  | In Phase III
|                                    |  | (Hip-surgery, Spinal-surgery)                          |  |             
|Alfimeprase                         |  | Acute peripheral arterial                              |  | In Phase III
|                                    |  | occlusion (PAO)/catheter occlusion (CO)                |  |             





| |          
| | ---------
| | Kogenate®

Kogenate ® Kogenate ® Next Generation Kogenate ® Bio-Set ®




| |                                
| | -------------------------------
| | Kogenate® 
    Next Generation

Kogenate ® 
Next Generation.


24



---



##### Table of Contents



Kogenate ® FS 79-4980 Kogenate ® -FS




| |                                                  
| | -------------------------------------------------
| | Kogenate®
    FS
    Bio-Set®
    Delivery System

Kogenate ® Bio-Set ® Bio-Set ® Bio-Set ® Bio-Set ®




| |             
| | ------------
| | Gene Therapy





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



Collaborations




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



|                                                                                                                         |  |                                                                                                                              |  |                                             
|------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------
|Research Cycle                                                                                                           |  | Discipline/ Technique                                                                                                        |  | Research Company                            
|                                                                                                                         |  |                                                                                                                              |  |                                             
|Understanding the disease mechanism and identifying new targets                                                          |  | Functional genomics
    (functional analysis of genetic data)                                                                |  | Affymetrix, CuraGen                         
|Screening the candidate substances                                                                                       |  | High-throughput screening
    (rapid, automated testing of compounds for potential
    effectiveness against a given target) |  | Axxam                                       
|Increasing the pool of potential drug candidates by
    small-chemical molecules and macromolecules (proteins, peptides) |  | Pharmacophore informatics Pool of Bayer biomolecules
    (for example, monoclonal antibodies and conjugates)                 |  | MetaKey Software Morphosys; Seattle Genetics





| |        
| | -------
| | CuraGen

15-year


25



---



##### Table of Contents



76-7171, 76-7171




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





| |     
| | ----
| | Onyx

Nexavar ®




| |                
| | ---------------
| | Schering-Plough

Avelox ® Levitra ® . Markets and Distribution.




| |                
| | ---------------
| | GlaxoSmithKline

Levitra ® Levitra ®




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

59-7939




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

Pritor® PritorPlus®


CONSUMER CARE


Overview



Business,


26



---



##### Table of Contents







|                   |                              |                     |       |     |      |  |       |      |   |  |       |      |  
|------------------ | ---------------------------- | ------------------- | ----- | --- | ---- |  | ----- | ---- | - |  | ----- | ---- | -
|                   |                              | 2003                |       |     | 2004 |  |       | 2005 |  
|                   |                              |                     |       |     |      |  |       |      |  
|                   |                              | (Euros in millions) |      
|External net sales |                              |                     | 1,403 |     |      |  | 1,336 |      |   |  | 2,355 |     
|                   | Percentage of total sales    |                     |       | 6.3 |      |  |       | 5.7  |   |  |       | 8.6  |  
|Intersegment sales |                              |                     | 7     |     |      |  | 16    |      |   |  | 14    |     
|Operating result   |                              |                     | 486   |     |      |  | 183   |      |   |  | 174   |     
|                   | thereof special
    items(a) |                     |       | 288 |      |  |       | (30  | ) |  |       | (118 | )






|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The significant special items are detailed in Item 5,
    Operating and Financial Review and Prospects 
    Operating Results 2003, 2004 and 2005  Segment
    Data.



|                                  |       |                     |     |       |      |  |     |       |  |  |       |       | 
|--------------------------------- | ----- | ------------------- | --- | ----- | ---- |  | --- | ----- |  |  | ----- | ----- | 
|                                  |       | 2003                |     |       | 2004 |  |     | 2005  | 
|                                  |       |                     |     |       |      |  |     |       | 
|                                  |       | (Euros in millions) |    
|Europe                            |       |                     | 387 |       |      |  | 401 |       |  |  | 1,019 |      
|North America                     |       |                     | 668 |       |      |  | 616 |       |  |  | 665   |      
|Asia/Pacific                      |       |                     | 56  |       |      |  | 40  |       |  |  | 132   |      
|Latin America/ Africa/Middle East |       |                     | 292 |       |      |  | 279 |       |  |  | 539   |      
|                                  |       |                     |     |       |      |  |     |       | 
|                                  | Total |                     |     | 1,403 |      |  |     | 1,336 |  |  |       | 2,355 | 
|                                  |       |                     |     |       |      |  |     |       | 



|                   |       |           |     |            |       |  |           |       |            |  |       |           |  |            |      |  |       |  |       |       |  |  |      |  | 
|------------------ | ----- | --------- | --- | ---------- | ----- |  | --------- | ----- | ---------- |  | ----- | --------- |  | ---------- | ---- |  | ----- |  | ----- | ----- |  |  | ---- |  | 
|                   |       | 2003      |     |            | 2004  |  |           | 2005  |           
|                   |       |           |     |            |       |  |           |       |           
|                   |       |           |     | Percentage |       |  |           |       | Percentage |  |       |           |  | Percentage |     
|                   |       |           |     | of Segment |       |  |           |       | of Segment |  |       |           |  | of Segment |     
|Product            |       | Sales     |     |            | Sales |  |           | Sales |            |  | Sales |           |  | Sales      |      |  | Sales | 
|                   |       |           |     |            |       |  |           |       |            |  |       |           |  |            |      |  |       | 
|                   |       | (Euros in |     |            |       |  | (Euros in |       |            |  |       | (Euros in |  |            |     
|                   |       | millions) |     |            |       |  | millions) |       |            |  |       | millions) |  |            |     
|Aspirin®(a)        |       |           | 463 |            |       |  | 33.0      |       |            |  | 454   |           |  |            | 34.0 |  |       |  | 453   |       |  |  | 19.2 | 
|Aleve®/Naproxen(b) |       |           | 88  |            |       |  | 6.3       |       |            |  | 90    |           |  |            | 6.7  |  |       |  | 178   |       |  |  | 7.6  | 
|Canesten®          |       |           | 135 |            |       |  | 9.6       |       |            |  | 140   |           |  |            | 10.5 |  |       |  | 145   |       |  |  | 6.2  | 
|Supradyn®(c)       |       |           |    |            |       |  |          |       |            |  |      |           |  |            |     |  |       |  | 125   |       |  |  | 5.3  | 
|One-A-Day®         |       |           | 130 |            |       |  | 9.3       |       |            |  | 127   |           |  |            | 9.5  |  |       |  | 118   |       |  |  | 5.0  | 
|Other              |       |           | 587 |            |       |  | 41.8      |       |            |  | 525   |           |  |            | 39.3 |  |       |  | 1,336 |       |  |  | 56.7 | 
|                   |       |           |     |            |       |  |           |       |            |  |       |           |  |            |      |  |       | 
|                   | Total |           |     | 1,403      |       |  |           |       |            |  |       | 1,336     |  |            |      |  |       |  |       | 2,355 |  |  |      |  | 
|                   |       |           |     |            |       |  |           |       |            |  |       |           |  |            |      |  |       | 






|    |                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|(a) | CardioAspirin is also distributed by our Pharmaceuticals
    division. These figures do not include sales by the
    Pharmaceuticals division.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | As the product
    Aleve®
    was part of the former U.S. joint venture with Roche, sales
    figures for 2003 and 2004 only represent the Bayer portion of
    the joint ventures sales. 2005 sales figures represent
    total sales of the product after the acquisition of the
    remaining 50 percent of the U.S. joint venture.
    Naproxen is 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.

27



---



##### Table of Contents



Segment Strategy




Aspirin® Supradyn® One-A-Day® Canesten® Bepanthen®




Major Products




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



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




| |                                                                                
| | -------------------------------------------------------------------------------
| | CardioAspirin (see  Pharmaceuticals, Biological
    Products  Major Products)

e.g. Aspirin ® Protect Aspirin Regimen Bayer




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



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




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



28



---



##### Table of Contents



Canesten ® Rid ® Bepanthen ® Bepanthol ®




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



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




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



One-A-Day ® tm Flintstones ®


Supradyn ® Redoxon ® Berocca ®




Markets and Distribution














| |   |                                                                     
| | - | --------------------------------------------------------------------
| |  | analgesics: Johnson & Johnson, Bristol-Myers Squibb and
    Wyeth;  
|
| |  | cough and cold products: Pfizer, Schering Plough and Novartis;      
|
| |  | dermatological products: Johnson & Johnson, Pfizer and
    Novartis;

29



---



##### Table of Contents





| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | gastrointestinal products: Procter & Gamble, Johnson &
    Johnson and GlaxoSmithKline; and
|
| |  | vitamins: Wyeth and Merck KGaA.                                                            

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.



DIAGNOSTICS, DIABETES CARE


Overview



Business




|                   |                              |                     |       |     |      |  |       |      |  |  |       |     | 
|------------------ | ---------------------------- | ------------------- | ----- | --- | ---- |  | ----- | ---- |  |  | ----- | --- | 
|                   |                              | 2003                |       |     | 2004 |  |       | 2005 | 
|                   |                              |                     |       |     |      |  |       |      | 
|                   |                              | (Euros in millions) |      
|External net sales |                              |                     | 1,933 |     |      |  | 1,975 |      |  |  | 2,151 |    
|                   | Percentage of total sales    |                     |       | 8.6 |      |  |       | 8.5  |  |  |       | 7.9 | 
|Intersegment sales |                              |                     | 0     |     |      |  | 1     |      |  |  | 1     |    
|Operating result   |                              |                     | 115   |     |      |  | 217   |      |  |  | 274   |    
|                   | thereof special
    items(a) |                     |       | (20 | )    |  |       | 0    |  |  |       | 34  | 






|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The significant special items are detailed in Item 5,
    Operating and Financial Review and Prospects 
    Operating Results 2003, 2004 and 2005  Segment
    Data.



|                                  |       |                     |     |       |      |  |     |       |  |  |     |       | 
|--------------------------------- | ----- | ------------------- | --- | ----- | ---- |  | --- | ----- |  |  | --- | ----- | 
|                                  |       | 2003                |     |       | 2004 |  |     | 2005  | 
|                                  |       |                     |     |       |      |  |     |       | 
|                                  |       | (Euros in millions) |    
|Europe                            |       |                     | 735 |       |      |  | 785 |       |  |  | 848 |      
|North America                     |       |                     | 836 |       |      |  | 824 |       |  |  | 893 |      
|Asia/Pacific                      |       |                     | 246 |       |      |  | 249 |       |  |  | 277 |      
|Latin America/ Africa/Middle East |       |                     | 116 |       |      |  | 117 |       |  |  | 133 |      
|                                  |       |                     |     |       |      |  |     |       | 
|                                  | Total |                     |     | 1,933 |      |  |     | 1,975 |  |  |     | 2,151 | 
|                                  |       |                     |     |       |      |  |     |       | 

30



---



##### Table of Contents





|              |       |                     |       |       |      |  |       |       |  |  |       |       | 
|------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|Division      |       | 2003                |       |       | 2004 |  |       | 2005  | 
|              |       |                     |       |       |      |  |       |       | 
|              |       | (Euros in millions) |      
|Diagnostics   |       |                     | 1,308 |       |      |  | 1,322 |       |  |  | 1,433 |      
|Diabetes Care |       |                     | 625   |       |      |  | 653   |       |  |  | 718   |      
|              |       |                     |       |       |      |  |       |       | 
|              | Total |                     |       | 1,933 |      |  |       | 1,975 |  |  |       | 2,151 | 
|              |       |                     |       |       |      |  |       |       | 



|                      |       |           |     |               |               |  |           |       |               |  |               |           |  |               |      |  |               |  |     |       |  |  |      |  | 
|--------------------- | ----- | --------- | --- | ------------- | ------------- |  | --------- | ----- | ------------- |  | ------------- | --------- |  | ------------- | ---- |  | ------------- |  | --- | ----- |  |  | ---- |  | 
|                      |       | 2003      |     |               | 2004          |  |           | 2005  |              
|                      |       |           |     |               |               |  |           |       |              
|                      |       |           |     | 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®             |       |           | 578 |               |               |  | 29.9      |       |               |  | 627           |           |  |               | 31.7 |  |               |  | 701 |       |  |  | 32.6 | 
|Advia
    Centaur®    |       |           | 387 |               |               |  | 20.0      |       |               |  | 441           |           |  |               | 22.3 |  |               |  | 512 |       |  |  | 23.8 | 
|Rapidlab®/Rapidpoint® |       |           | 154 |               |               |  | 8.0       |       |               |  | 153           |           |  |               | 7.7  |  |               |  | 163 |       |  |  | 7.6  | 
|Clinitek®Urinalysis   |       |           | 156 |               |               |  | 8.1       |       |               |  | 147           |           |  |               | 7.4  |  |               |  | 152 |       |  |  | 7.1  | 
|Advia
    Hematology® |       |           | 117 |               |               |  | 6.0       |       |               |  | 130           |           |  |               | 6.6  |  |               |  | 141 |       |  |  | 6.6  | 
|Other                 |       |           | 541 |               |               |  | 28.0      |       |               |  | 477           |           |  |               | 24.3 |  |               |  | 482 |       |  |  | 22.3 | 
|                      |       |           |     |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 
|                      | Total |           |     | 1,933         |               |  |           |       |               |  |               | 1,975     |  |               |      |  |               |  |     | 2,151 |  |  |      |  | 
|                      |       |           |     |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 

Segment Strategy




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









| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | focusing on growth in market segments that offer the greatest
    opportunity;                                                                 
|
| |  | expanding to reach new groups of customers with our existing
    products while investing in fast growing markets such as Asia
    Pacific; and
|
| |  | building customer loyalty by delivering cost efficient systems
    solutions across all groups of customers we serve.                          



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





31



---



##### Table of Contents



Diagnostics




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





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



| |                           
| | --------------------------
| | Central Laboratory Testing

Advia ® Advia ® Advia
Centaur ® ,
Advia
Centaur ® CP Advia ® 1650 LabCell ® WorkCell tm CentraLink ®




| |                     
| | --------------------
| | Near Patient Testing

Rapid tm Rapidlab ® 1200 Multistix ® Clinitek ® DCA
2000 ® +




| |                  
| | -----------------
| | Molecular Testing

Versant ®




| |                
| | ---------------
| | Home Healthcare

Viterion tm 100 TeleHealth
Monitor Viterion tm 500
TeleHealth Monitor


32



---



##### Table of Contents





|                                            |  |                                                                                                                                                                                |  |                          
|------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------
|Product/ Brand Name                         |  | Principal application                                                                                                                                                          |  | Status(a)                
|                                            |  |                                                                                                                                                                                |  |                          
|Advia
    Centaur®
    menu expansion       |  | Eight new infectious disease assays launched (HCV, HAV
    IgM & Total, HBc IgM, anti-HBs & HBc Total,
    HBsAg and HBsAg Confirmatory). Two additional claims for BNP.       |  | Launched throughout 2005 
|Advia®1650and
    Advia® 2400menu expansion |  | Nine new drugs-of-abuse assays (cannabinoid (thC), opiate
    (300 & 2000), benzodiazepine, methadone, phencyclidine,
    propoxyphene, cocaine, amphetamine and barbiturate). |  | Launched throughout 2005 
|Rapidlab®1200                               |  | High throughput, bench-top analyzer                                                                                                                                            |  | Launched in July 2005    
|Advia
    Centaur®CP                        |  | Medium throughput, bench-top immunoassay analyzer                                                                                                                              |  | Launched in November 2005






|    |                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The term throughout refers to the fact that there
    are various versions of the products that were launched at
    different times throughout the year; launched in
    refers to a single product.



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







Advia ®






| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Central Laboratory Testing: Roche, Abbott, Beckman Coulter, Dade
    Behring and Ortho Clinical Diagnostics;                                                               
|
| |  | Molecular Testing: Roche, Abbott and Gen-Probe;                                                                                                                            
|
| |  | Near Patient Testing: Roche, Radiometer, Abbott, Ortho Clinical
    Diagnostics and Biosite;                                                                               
|
| |  | Home Healthcare: Alere Medical, AMD Telemedicine, American
    TeleCare, Cardiocom, Cybernet Medical, Health Hero Honeywell
    HomMed, iMetrikus, Philips Medical Systems.

33



---



##### Table of Contents





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





| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | in Central Laboratory Testing, through development of the
    Advia®
    family of systems and in the expansion of assays in growth areas;                                  
|
| |  | in Molecular Testing, through menu expansion of assays for
    infectious disease and automation;                                                                           
|
| |  | in Near Patient Testing, through enhancements of our DCA
    2000®+
    analyzer and through expansion of the immunoassay menu on the
    Clinitek
    Status®
    analyzer.





|                                                              |  |                                                                                                                        |  |                                 
|------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | --------------------------------
|Product/ Brand Name                                           |  | Principal Application                                                                                                  |  | Status(a)                       
|                                                              |  |                                                                                                                        |  |                                 
|Advia
    Centaur®
    and Advia
    Centaur®CPmenu expansion |  | Menu expansion for infectious disease, autoimmune, transplant
    drug monitoring, allergy and cardiovascular disease. |  | Launches planned throughout 2006
|Advia®1800                                                    |  | Fully automated chemistry analyzer with 1800 test throughput per
    hour                                              |  | Launch planned in 2006          
|Versant®440                                                   |  | Complete viral-load molecular system                                                                                   |  | Launch planned in 2006          
|Advia
    Centaur®XP                                          |  | Next generation high throughput immunoassay system                                                                     |  | Launch planned in 2006          






|    |                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The term launch(es) planned throughout refers to the
    fact that there are multiple products that we expect to launch
    at different times throughout the year; launch planned
    in refers to a single product.







Diabetes Care




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



34



---



##### Table of Contents





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

Ascensia ® Ascensia ® Breeze ® Ascensia ® Confirm,
Ascensia ® Dex ® Ascensia ® Esprit 10-test Ascensia
Elite ® Ascensia
Brio ® Ascensia ® Entrust Ascensia ® Contour ®




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







Ascensia ®






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





Ascensia ®


non-invasive


35



---



##### Table of Contents



ANIMAL HEALTH


Overview






|                   |                              |                     |     |     |      |  |     |      |  |  |     |     | 
|------------------ | ---------------------------- | ------------------- | --- | --- | ---- |  | --- | ---- |  |  | --- | --- | 
|                   |                              | 2003                |     |     | 2004 |  |     | 2005 | 
|                   |                              |                     |     |     |      |  |     |      | 
|                   |                              | (Euros in millions) |    
|External net sales |                              |                     | 790 |     |      |  | 786 |      |  |  | 856 |    
|                   | Percentage of total sales    |                     |     | 3.5 |      |  |     | 3.4  |  |  |     | 3.0 | 
|Intersegment sales |                              |                     | 6   |     |      |  | 4   |      |  |  | 8   |    
|Operating result   |                              |                     | 172 |     |      |  | 157 |      |  |  | 179 |    
|                   | thereof special
    items(a) |                     |     | 22  |      |  |     | 0    |  |  |     | 7   | 






|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The significant special items are detailed in Item 5,
    Operating and Financial Review and Prospects 
    Operating Results 2003, 2004 and 2005  Segment
    Data.



|                                  |       |                     |     |     |      |  |     |      |  |  |     |     | 
|--------------------------------- | ----- | ------------------- | --- | --- | ---- |  | --- | ---- |  |  | --- | --- | 
|                                  |       | 2003                |     |     | 2004 |  |     | 2005 | 
|                                  |       |                     |     |     |      |  |     |      | 
|                                  |       | (Euros in millions) |    
|Europe                            |       |                     | 242 |     |      |  | 245 |      |  |  | 252 |    
|North America                     |       |                     | 305 |     |      |  | 295 |      |  |  | 314 |    
|Asia/Pacific                      |       |                     | 122 |     |      |  | 120 |      |  |  | 141 |    
|Latin America/ Africa/Middle East |       |                     | 121 |     |      |  | 126 |      |  |  | 149 |    
|                                  |       |                     |     |     |      |  |     |      | 
|                                  | Total |                     |     | 790 |      |  |     | 786  |  |  |     | 856 | 
|                                  |       |                     |     |     |      |  |     |      | 



|                 |       |                     |     |     |      |  |     |      |  |  |     |     | 
|---------------- | ----- | ------------------- | --- | --- | ---- |  | --- | ---- |  |  | --- | --- | 
|                 |       | 2003                |     |     | 2004 |  |     | 2005 | 
|                 |       |                     |     |     |      |  |     |      | 
|                 |       | (Euros in millions) |    
|Food Animal      |       |                     | 383 |     |      |  | 375 |      |  |  | 394 |    
|Companion Animal |       |                     | 407 |     |      |  | 411 |      |  |  | 462 |    
|                 |       |                     |     |     |      |  |     |      | 
|                 | Total |                     |     | 790 |      |  |     | 786  |  |  |     | 856 | 
|                 |       |                     |     |     |      |  |     |      | 

 Advantage ® K9
Advantix ®    Baytril ®  


Segment Strategy






36



---



##### Table of Contents





Major Products




| |              
| | -------------
| | Parasiticides

K9
Advantix ® easy-to-use spot-on .


Advantage ® easy-to-use, spot-on


Droncit ® Drontal ®


Bayticol ®


Baycox ®




| |               
| | --------------
| | Antimicrobials

Baytril ®




| |            
| | -----------
| | Biologicals

(FMD-vaccines)




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

e.g. Baytril ® Baycox ®




| |             
| | ------------
| | Farm Hygiene



Markets and Distribution


South-East




non-prescription non-prescription over-the-counter




37



---



##### Table of Contents









Research and Development








|                                                   |  |                                                                                    |  |                                                                  
|-------------------------------------------------- |  | ---------------------------------------------------------------------------------- |  | -----------------------------------------------------------------
|Projects/ Products                                 |  | Indication                                                                         |  | Status                                                           
|                                                   |  |                                                                                    |  |                                                                  
|Endoparasiticide and ectoparasiticide combinations |  | Control of fleas, ticks, heartworm and gastrointestinal worms in
    cats and dogs |  | Launch/in registration/in clinical development                   
|Red mite control remedy                            |  | Poultry                                                                            |  | Submitted                                                        
|Baycox®
    calves                                 |  | Coccidiosis control in calves                                                      |  | In registration                                                  
|Baytril®
    swine (North America)                 |  | Antimicrobial infections in pigs                                                   |  | In registration                                                  
|Pradofloxacin                                      |  | Antimicrobial for dogs and cats                                                    |  | In clinical development, two formulations in EU already submitted
|Renal failure and congestive heart failure         |  | Non-infectious diseases in dog and cats                                            |  | Clinical development started                                     




BAYER CROPSCIENCE



Business,


CROP PROTECTION


Overview




38



---



##### Table of Contents





|                   |                              |                     |       |      |      |  |       |      |   |  |       |      | 
|------------------ | ---------------------------- | ------------------- | ----- | ---- | ---- |  | ----- | ---- | - |  | ----- | ---- | 
|                   |                              | 2003                |       |      | 2004 |  |       | 2005 |  
|                   |                              |                     |       |      |      |  |       |      |  
|                   |                              | (Euros in millions) |      
|External net sales |                              |                     | 4,801 |      |      |  | 4,957 |      |   |  | 4,874 |     
|                   | Percentage of total sales    |                     |       | 21.4 |      |  |       | 21.3 |   |  |       | 17.8 | 
|Intersegment sales |                              |                     | 62    |      |      |  | 71    |      |   |  | 70    |     
|Operating result   |                              |                     | 242   |      |      |  | 386   |      |   |  | 532   |     
|                   | thereof special
    items(a) |                     |       | (70  | )    |  |       | (42  | ) |  |       | 7    | 






|    |  |                                                                                                                                                                       
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | The significant special items are detailed in Item 5,
    Operating and Financial Review and Prospects 
    Operating Results 2003, 2004 and 2005  Segment
    Data.



|                                  |       |                     |       |       |      |  |       |       |  |  |       |       | 
|--------------------------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                  |       | 2003                |       |       | 2004 |  |       | 2005  | 
|                                  |       |                     |       |       |      |  |       |       | 
|                                  |       | (Euros in millions) |      
|Europe                            |       |                     | 1,945 |       |      |  | 1,898 |       |  |  | 1,901 |      
|North America                     |       |                     | 919   |       |      |  | 979   |       |  |  | 1,076 |      
|Asia/Pacific                      |       |                     | 863   |       |      |  | 820   |       |  |  | 811   |      
|Latin America/ Africa/Middle East |       |                     | 1,074 |       |      |  | 1,260 |       |  |  | 1,086 |      
|                                  |       |                     |       |       |      |  |       |       | 
|                                  | Total |                     |       | 4,801 |      |  |       | 4,957 |  |  |       | 4,874 | 
|                                  |       |                     |       |       |      |  |       |       | 



|               |       |                     |       |       |      |  |       |       |  |  |       |       | 
|-------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|               |       | 2003                |       |       | 2004 |  |       | 2005  | 
|               |       |                     |       |       |      |  |       |       | 
|               |       | (Euros in millions) |      
|Insecticides   |       |                     | 1,376 |       |      |  | 1,378 |       |  |  | 1,311 |      
|Fungicides     |       |                     | 1,168 |       |      |  | 1,277 |       |  |  | 1,248 |      
|Herbicides     |       |                     | 1,848 |       |      |  | 1,855 |       |  |  | 1,840 |      
|Seed Treatment |       |                     | 409   |       |      |  | 447   |       |  |  | 475   |      
|               |       |                     |       |       |      |  |       |       | 
|               | Total |                     |       | 4,801 |      |  |       | 4,957 |  |  |       | 4,874 | 
|               |       |                     |       |       |      |  |       |       | 

39



---



##### Table of Contents



(1)


|                                                                   |       |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               |  |       |       |  |  |      |  | 
|------------------------------------------------------------------ | ----- | --------- | ----- | ------------- | ------------- |  | --------- | ----- | ------------- |  | ------------- | --------- |  | ------------- | ---- |  | ------------- |  | ----- | ----- |  |  | ---- |  | 
|                                                                   |       | 2003      |       |               | 2004          |  |           | 2005  |              
|                                                                   |       |           |       |               |               |  |           |       |              
|                                                                   |       |           |       | 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®(a)(b)(Insecticides/ Seed Treatment) |       |           | 467   |               |               |  | 9.7       |       |               |  | 455           |           |  |               | 9.2  |  |               |  | 444   |       |  |  | 9.1  | 
|Folicur®/
    Raxil®(a)(Fungicides/ Seed Treatment)                |       |           | 310   |               |               |  | 6.5       |       |               |  | 401           |           |  |               | 8.1  |  |               |  | 327   |       |  |  | 6.7  | 
|Basta®/
    Liberty®(a)(Herbicides)                                |       |           | 153   |               |               |  | 3.2       |       |               |  | 189           |           |  |               | 3.8  |  |               |  | 212   |       |  |  | 4.3  | 
|Puma®(a)(Herbicides)                                               |       |           | 226   |               |               |  | 4.7       |       |               |  | 226           |           |  |               | 4.6  |  |               |  | 202   |       |  |  | 4.1  | 
|Flint®/Stratego®/Sphere®(a)(Fungicides)                            |       |           | 190   |               |               |  | 4.0       |       |               |  | 235           |           |  |               | 4.7  |  |               |  | 188   |       |  |  | 3.9  | 
|Atlantis®/Mesomaxx®
    (Herbicides)                               |       |           | 58    |               |               |  | 1.2       |       |               |  | 97            |           |  |               | 2.0  |  |               |  | 142   |       |  |  | 2.9  | 
|Betanal®(a)(Herbicides)                                            |       |           | 142   |               |               |  | 3.0       |       |               |  | 143           |           |  |               | 2.9  |  |               |  | 127   |       |  |  | 2.6  | 
|Poncho®
    (Seed Treatment)                                       |       |           | 19    |               |               |  | 0.4       |       |               |  | 57            |           |  |               | 1.1  |  |               |  | 110   |       |  |  | 2.3  | 
|Temik®
    (Insecticides)                                          |       |           | 90    |               |               |  | 1.9       |       |               |  | 109           |           |  |               | 2.2  |  |               |  | 104   |       |  |  | 2.1  | 
|Fenikan®(a)(Herbicides)                                            |       |           | 105   |               |               |  | 2.2       |       |               |  | 104           |           |  |               | 2.1  |  |               |  | 101   |       |  |  | 2.1  | 
|Other                                                              |       |           | 3,041 |               |               |  | 63.2      |       |               |  | 2,941         |           |  |               | 59.3 |  |               |  | 2,917 |       |  |  | 59.9 | 
|                                                                   |       |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 
|                                                                   | Total |           |       | 4,801         |               |  |           |       |               |  |               | 4,957     |  |               |      |  |               |  |       | 4,874 |  |  |      |  | 
|                                                                   |       |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 






|    |  |                                                                                                                                                                                                                
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | The main active ingredients contained in these products are also
    used in products sold by the Environmental Science business
    group.                                                                    
|   
|(b) |  | 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






(2)













|    |                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The amounts shown represent sales by main active ingredient
    group; for the sake of clarity, however, only the principal
    brands are listed.





|    |                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | This statement is based on 2004 and first half 2005 data
    published inAgriFutura, The newsletter of Phillips
    McDougall-Agriservice, No. 65 (March 2005) and
    No. 70 (August 2005); data for the full year 2005
    have not yet been published.

40



---



##### Table of Contents



Major Products




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

Confidor ® Admire ®


Temik ® Temik ® Temik ®


Decis ® Decis ®




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

Folicur ® Folicur ®


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


Proline ® Septoria tritici, Fusarium spp




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

Basta ® Liberty ®


Puma ®


Mesomaxx ® Atlantis ® Alister ® ,
Olympus ® Flex




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

Gaucho ®


41



---



##### Table of Contents



Poncho ®


Raxil ®


Markets and Distribution




.






Research and Development










e.g.


42



---



##### Table of Contents





|                       |  |                |  |                             
|---------------------- |  | -------------- |  | ----------------------------
|New active ingredients |  | Product Family |  | Status                      
|                       |  |                |  |                             
|Fluoxastrobin          |  | Fungicides     |  | Launched in
    2004/2005(a)
|Spiromesifen           |  | Insecticides   |  | Launched in
    2004/2005(a)
|Ethiprole              |  | Insecticides   |  | Launched in 2005            
|Fluopicolide           |  | Fungicides     |  | Launch expected in 2006     



| | 
| | 
| | 



| |     |                                                                                                                                                     | 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | (a) | This active ingredient was first registered in a key market at
    the end of 2004, whereas its first significant sales were
    generated in 2005. | 

Fandango ® Bariton ® Scenic ®


Oberon ® Oberon ® Oberon ®


Curbix ® Kirappu ®


Infinito ®


ENVIRONMENTAL SCIENCE, BIOSCIENCE


Overview






|                   |                              |                     |     |     |      |  |     |      |  |  |       |     |  
|------------------ | ---------------------------- | ------------------- | --- | --- | ---- |  | --- | ---- |  |  | ----- | --- | -
|                   |                              | 2003                |     |     | 2004 |  |     | 2005 | 
|                   |                              |                     |     |     |      |  |     |      | 
|                   |                              | (Euros in millions) |    
|External net sales |                              |                     | 963 |     |      |  | 989 |      |  |  | 1,022 |    
|                   | Percentage of total sales    |                     |     | 4.3 |      |  |     | 4.2  |  |  |       | 3.7 |  
|Intersegment sales |                              |                     | 14  |     |      |  | 7   |      |  |  | 13    |    
|Operating result   |                              |                     | 100 |     |      |  | 106 |      |  |  | 158   |    
|                   | thereof special
    items(a) |                     |     | (11 | )    |  |     | 12   |  |  |       | (2  | )



| | 
| | 
| | 



| |     |                                                                                                                                                                        | 
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | (a) | The significant special items are detailed in Item 5,
    Operating and Financial Review and Prospects 
    Operating Results 2003, 2004 and 2005  Segment
    Data. | 

43



---



##### Table of Contents





|                                 |       |                     |     |     |      |  |     |      |  |  |     |       | 
|-------------------------------- | ----- | ------------------- | --- | --- | ---- |  | --- | ---- |  |  | --- | ----- | 
|                                 |       | 2003                |     |     | 2004 |  |     | 2005 | 
|                                 |       |                     |     |     |      |  |     |      | 
|                                 |       | (Euros in millions) |    
|Europe                           |       |                     | 351 |     |      |  | 340 |      |  |  | 340 |      
|North America                    |       |                     | 420 |     |      |  | 433 |      |  |  | 452 |      
|Asia/Pacific                     |       |                     | 100 |     |      |  | 107 |      |  |  | 122 |      
|Latin America/Africa/Middle East |       |                     | 92  |     |      |  | 109 |      |  |  | 108 |      
|                                 |       |                     |     |     |      |  |     |      | 
|                                 | Total |                     |     | 963 |      |  |     | 989  |  |  |     | 1,022 | 
|                                 |       |                     |     |     |      |  |     |      | 



|                      |       |                     |     |     |      |  |     |      |  |  |     |       | 
|--------------------- | ----- | ------------------- | --- | --- | ---- |  | --- | ---- |  |  | --- | ----- | 
|                      |       | 2003                |     |     | 2004 |  |     | 2005 | 
|                      |       |                     |     |     |      |  |     |      | 
|                      |       | (Euros in millions) |    
|Environmental Science |       |                     | 692 |     |      |  | 678 |      |  |  | 694 |      
|BioScience            |       |                     | 271 |     |      |  | 311 |      |  |  | 328 |      
|                      |       |                     |     |     |      |  |     |      | 
|                      | Total |                     |     | 963 |      |  |     | 989  |  |  |     | 1,022 | 
|                      |       |                     |     |     |      |  |     |      | 

(3)  Merit ® Premise ®    K-Othrine ®  


Segment Strategy




(4)









|    |                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | The amounts shown represent sales by main active ingredient
    group; for the sake of clarity, however, only the principal
    brands are listed.

|    |                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------
|(4) | This statement is based on 2004 data published in the Cropnosis
    report Industry performance Agchems&Agbiotech 2004-05
    (September 2005).

44



---



##### Table of Contents



Environmental Science




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





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

Premise ® Merit ®


K-Othrine ® Deltagard ®


Maxforce ® Maxforce ®


Bayer
Advanced ® Bayer
Garden ®




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











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



Allectus ® Armada ® K-O
Tab ® Forbid ® Quickbayt ®


45



---



##### Table of Contents



BioScience




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





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

Nunhems ®


FiberMax ® FiberMax ®


InVigor ® InVigor ®


Arize tm




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

InVigor ® FiberMax ®








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



e.g.




46



---



##### Table of Contents






BAYER MATERIALSCIENCE



Business


MATERIALS


Overview




|                   |                              |                     |       |      |      |  |       |      |  |  |       |      | 
|------------------ | ---------------------------- | ------------------- | ----- | ---- | ---- |  | ----- | ---- |  |  | ----- | ---- | 
|                   |                              | 2003                |       |      | 2004 |  |       | 2005 | 
|                   |                              |                     |       |      |      |  |       |      | 
|                   |                              | (Euros in millions) |      
|External net sales |                              |                     | 2,777 |      |      |  | 3,248 |      |  |  | 4,086 |     
|                   | Percentage of total sales    |                     |       | 12.4 |      |  |       | 13.9 |  |  |       | 14.9 | 
|Intersegment sales |                              |                     | 10    |      |      |  | 13    |      |  |  | 14    |     
|Operating result   |                              |                     | 58    |      |      |  | 293   |      |  |  | 633   |     
|                   | thereof special
    items(a) |                     |       | (29  | )    |  |       | 0    |  |  |       | 27   | 






|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The significant special items are detailed in Item 5,
    Operating and Financial Review and Prospects 
    Operating Results 2003, 2004 and 2005  Segment
    Data.



|                                  |       |                     |       |       |      |  |       |       |  |  |       |       | 
|--------------------------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                  |       | 2003                |       |       | 2004 |  |       | 2005  | 
|                                  |       |                     |       |       |      |  |       |       | 
|                                  |       | (Euros in millions) |      
|Europe                            |       |                     | 1,246 |       |      |  | 1,382 |       |  |  | 1,697 |      
|North America                     |       |                     | 608   |       |      |  | 703   |       |  |  | 901   |      
|Asia/Pacific                      |       |                     | 747   |       |      |  | 947   |       |  |  | 1,164 |      
|Latin America/ Africa/Middle East |       |                     | 176   |       |      |  | 216   |       |  |  | 324   |      
|                                  |       |                     |       |       |      |  |       |       | 
|                                  | Total |                     |       | 2,777 |      |  |       | 3,248 |  |  |       | 4,086 | 
|                                  |       |                     |       |       |      |  |       |       | 



|                            |       |                     |       |       |      |  |       |       |  |  |       |       | 
|--------------------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                            |       | 2003                |       |       | 2004 |  |       | 2005  | 
|                            |       |                     |       |       |      |  |       |       | 
|                            |       | (Euros in millions) |      
|Polycarbonates              |       |                     | 1,713 |       |      |  | 2,035 |       |  |  | 2,645 |      
|Thermoplastic Polyurethanes |       |                     | 177   |       |      |  | 182   |       |  |  | 192   |      
|Wolff Walsrode              |       |                     | 323   |       |      |  | 328   |       |  |  | 329   |      
|H.C. Starck                 |       |                     | 564   |       |      |  | 703   |       |  |  | 920   |      
|                            |       |                     |       |       |      |  |       |       | 
|                            | Total |                     |       | 2,777 |      |  |       | 3,248 |  |  |       | 4,086 | 
|                            |       |                     |       |       |      |  |       |       | 

 Makrolon ®    Bayblend ®  


47



---



##### Table of Contents



Segment Strategy












Polycarbonates




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





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



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

Makrolon ® APEC ®




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



48



---



##### Table of Contents



Makroblend ® Bayblend ®




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

Makrofol ® Makrolon ® Makrofol ® Makrolon ® Bayblend ®


Bayfol ® Bayfol ®




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

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




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







BayerONE ®




49



---



##### Table of Contents





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







|                                         |  |                                                
|---------------------------------------- |  | -----------------------------------------------
|Product/ Brand Name                      |  | Application                                    
|                                         |  |                                                
|Surface-modified
    Makrolon®           |  | Automotive                                     
|Improved
    Makrolon®
    ODS grade     |  | New ODS formats, such as Blue Laser based disks
|Extension of
    Bayblend®
    FR series |  | Business machines/ information technology      
|Diffusor sheets for LCD Screens          |  | Electric/ Electronic                           

Exatec® 900


Thermoplastic Polyurethanes




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





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

Desmopan ® ,
Texin ® and
Desmomelt ® Desmoflex ® Desmoflex® Walotex ® Walopur ® Platilon ® Dureflex ® e.g.




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



50



---



##### Table of Contents











TPU Resins:


TPU Films:




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





Wolff Walsrode




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





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



| |                      
| | ---------------------
| | Cellulose Derivatives



| |   |                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Walocel®M is 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®NC serves 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®C is 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.



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





51



---



##### Table of Contents









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





H.C. Starck




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





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

Kulite ® Molyform ® Ampergy ® Amperkat ® Amperit ® Ampersint ® Baytron ® Levasil ®




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



Amperit ®


52



---



##### Table of Contents







| |   |                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Metallic products and compounds
    (Kulite®,
    Molyform®,
    Ampersint®
    and other non-branded metallic and ceramic powders and part):
    Wolfram Bergbau- und Hütten GmbH, Cabot Group, Mitsui,
    MolymetOMG, Osram Sylvania, Japan New Metals, Plansee AG, Phelps
    Dodge;
|
| |  | Battery intermediates
    (Ampergy®):
    Tanaka Chemical, Kelong, Kansai Catalysts Co. Ltd, Jiangmen
    Chancsun Umicore Industry Co., Ltd.;                                                                                                                                          
|
| |  | Chemical catalysts
    (Amerkat®):
    Johnson Matthey, Degussa, Grace-Davison, Engelhard;                                                                                                                                                                                              
|
| |  | Thermal spray powders
    (Amperit®):
    Praxair, Sulzer Metco, Fujimi;                                                                                                                                                                                                                
|
| |  | Ceramic powders and parts: Denki Kagaku, SB Boron; GE Advanced
    Ceramics, Tokuyama.                                                                                                                                                                                                  



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







|                                                       |  |                              
|------------------------------------------------------ |  | -----------------------------
|Product/ Brand Name                                    |  | Application                  
|                                                       |  |                              
|Powder and components for SOFC                         |  | SOFC (Solid Oxide Fuel Cells)
|Tantalum 70/80, 100/120 and 150 K powder               |  | Capacitors                   
|Molybdenum plates for physical vapor disposition (PVD) |  | Flat panel displays          
|Tantalum plates for PVD                                |  | Microelectronic devices      
|HEM (High Energy Milled) and prealloyed binder powders |  | Powder metallurgy            

SYSTEMS


Overview






|                   |                              |                     |       |      |      |  |       |      |   |  |       |      |  
|------------------ | ---------------------------- | ------------------- | ----- | ---- | ---- |  | ----- | ---- | - |  | ----- | ---- | -
|                   |                              | 2003                |       |      | 2004 |  |       | 2005 |  
|                   |                              |                     |       |      |      |  |       |      |  
|                   |                              | (Euros in millions) |      
|External net sales |                              |                     | 4,676 |      |      |  | 5,349 |      |   |  | 6,609 |     
|                   | Percentage of total sales    |                     |       | 20.8 |      |  |       | 23.0 |   |  |       | 24.2 |  
|Intersegment sales |                              |                     | 103   |      |      |  | 116   |      |   |  | 142   |     
|Operating result   |                              |                     | (455  | )    |      |  | 348   |      |   |  | 736   |     
|                   | thereof special
    items(a) |                     |       | (715 | )    |  |       | (27  | ) |  |       | (62  | )






|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The significant special items are detailed in Item 5,
    Operating and Financial Review and Prospects 
    Operating Results 2003, 2004 and 2005  Segment
    Data.

53



---



##### Table of Contents





|                                  |       |                     |       |       |      |  |       |       |  |  |       |       | 
|--------------------------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                  |       | 2003                |       |       | 2004 |  |       | 2005  | 
|                                  |       |                     |       |       |      |  |       |       | 
|                                  |       | (Euros in millions) |      
|Europe                            |       |                     | 2,107 |       |      |  | 2,494 |       |  |  | 3,035 |      
|North America                     |       |                     | 1,406 |       |      |  | 1,483 |       |  |  | 1,891 |      
|Asia/Pacific                      |       |                     | 678   |       |      |  | 822   |       |  |  | 979   |      
|Latin America/ Africa/Middle East |       |                     | 485   |       |      |  | 550   |       |  |  | 704   |      
|                                  |       |                     |       |       |      |  |       |       | 
|                                  | Total |                     |       | 4,676 |      |  |       | 5,349 |  |  |       | 6,609 | 
|                                  |       |                     |       |       |      |  |       |       | 



|                            |       |                     |       |       |      |  |       |       |  |  |       |       | 
|--------------------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                            |       | 2003                |       |       | 2004 |  |       | 2005  | 
|                            |       |                     |       |       |      |  |       |       | 
|                            |       | (Euros in millions) |      
|Polyurethanes               |       |                     | 3,228 |       |      |  | 3,872 |       |  |  | 4,792 |      
|Coatings Adhesives Sealants |       |                     | 1,191 |       |      |  | 1,237 |       |  |  | 1,330 |      
|Inorganic Basic Chemicals   |       |                     | 218   |       |      |  | 218   |       |  |  | 380   |      
|Others                      |       |                     | 39    |       |      |  | 22    |       |  |  | 107   |      
|                            |       |                     |       |       |      |  |       |       | 
|                            | Total |                     |       | 4,676 |      |  |       | 5,349 |  |  |       | 6,609 | 
|                            |       |                     |       |       |      |  |       |       | 

 Desmodur ®   Desmodur ®


Segment Strategy










54



---



##### Table of Contents



Polyurethanes




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





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

Desmodur ® Desmophen ® .








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

















55



---



##### Table of Contents





| |                      
| | ---------------------
| | Production facilities







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





Coatings, Adhesives, Sealants




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





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



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

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




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

Pergut ® Impranil ® Baybond ®




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

Dispercoll ® ,
Desmocoll ® Baypren ®




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



56



---



##### Table of Contents













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



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





Inorganic Basic Chemicals




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





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









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



57



---



##### Table of Contents









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






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




Adalat ® Avelox ® Cipro ® Levitra ®


58



---



##### Table of Contents





| |                               
| | ------------------------------
| | 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. 

Adalat ® Avelox ®


|                    |                            |         |      |      |        |  |      |      |  |  |       |      |  |       |      |      |       |  |      |        |  |  |        |      |  |  |      |      |  |  |      |      | 
|------------------- | -------------------------- | ------- | ---- | ---- | ------ |  | ---- | ---- |  |  | ----- | ---- |  | ----- | ---- | ---- | ----- |  | ---- | ------ |  |  | ------ | ---- |  |  | ---- | ---- |  |  | ---- | ---- | 
|                    |                            | 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          |         |      |     |        |  |      |     |  |  |       |     |  |       |      | 2009 |       |  |      |       |  |  |        |     |  |  |      |     |  |  |      |     | 
|                    | 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 |     

Financial Information  Legal
Proceedings


Trademarks


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


59



---



##### Table of Contents






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.




60



---



##### Table of Contents







e.g. e.g.




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





| |                     
| | --------------------
| | Diagnostics Products







61



---



##### Table of Contents





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





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









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









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



62



---



##### Table of Contents













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





Proposed new EU Regulations








63



---



##### Table of Contents







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.                                                                              












64



---



##### Table of Contents



Responsible Care Global Charter,







ORGANIZATIONAL STRUCTURE










 Business.


Subsidiaries




65



---



##### Table of Contents





|                                                   |  |          |      | 
|-------------------------------------------------- |  | -------- | ---- | 
|                                                   |  | 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 HealthCare AG, Leverkusen                    |  |          | 100  | 
|Bayer Industry Services GmbH & Co. OHG, Leverkusen |  |          | 60   | 
|Bayer MaterialScience AG, Leverkusen               |  |          | 100  | 
|Bayer Technology Services GmbH, Leverkusen         |  |          | 100  | 
|Bayer Vital GmbH, Leverkusen                       |  |          | 100  | 
|H.C. Starck GmbH, Goslar                           |  |          | 100  | 
|Wolff Cellulosics GmbH & Co. KG, Walsrode          |  |          | 100  | 
|                                                  
|Other European Countries                           |  |          |      | 
|Bayer Antwerpen Comm.V, Belgium                    |  |          | 100  | 
|Bayer Consumer Care AG, Switzerland                |  |          | 100  | 
|Bayer CropScience France S.A.S., France            |  |          | 100  | 
|Bayer CropScience Limited, U.K                     |  |          | 100  | 
|Bayer CropScience S.r.l., Italy                    |  |          | 100  | 
|Bayer Diagnostics Europe Ltd., Ireland             |  |          | 100  | 
|Bayer International S.A., Switzerland              |  |          | 99.7 | 
|Bayer Pharma S.A.S., France                        |  |          | 99.9 | 
|Bayer Polyols S.N.C., France                       |  |          | 100  | 
|Bayer Public Limited Company, U.K                  |  |          | 100  | 
|Bayer S.p.A., Italy                                |  |          | 100  | 
|Bayer Santé Familiale S.A.S., France               |  |          | 100  | 
|Bayer SP.Z.O.O., Poland                            |  |          | 100  | 
|Quimica Farmaceutica Bayer, S.A., Spain            |  |          | 100  | 
|                                                  
|North America                                      |  |          |      | 
|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  | 
|H.C. Starck Inc., USA                              |  |          | 100  | 

66



---



##### Table of Contents



|                                                |  |          |      | 
|----------------------------------------------- |  | -------- | ---- | 
|                                                |  | Bayers  |     
|Company Name and Place of Business              |  | Interest |     
|                                                |  |          |     
|                                                |  | (%)      |     
|Asia/Pacific                                    |  |          |      | 
|Bayer Australia Limited, Australia              |  |          | 99.9 | 
|Bayer CropScience K.K., Japan                   |  |          | 100  | 
|Bayer Korea Ltd., Republic of Korea             |  |          | 100  | 
|Bayer MaterialScience Limited, Hong Kong        |  |          | 100  | 
|Bayer Medical Ltd., Japan                       |  |          | 100  | 
|Bayer South East Asia Pte Ltd., Singapore       |  |          | 100  | 
|Bayer Yakuhin, Ltd., Japan                      |  |          | 100  | 
|H.C. Starck Ltd., Japan                         |  |          | 100  | 
|Sumika Bayer Urethane Co., Ltd., Japan          |  |          | 60   | 
|                                               
|Latin America/ Africa/Middle East               |  |          |      | 
|Bayer (Proprietary) Limited, South Africa       |  |          | 100  | 
|Bayer CropScience Ltda., Brazil                 |  |          | 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 |     
|                                                         |  |          |     
|                                                         |  | (%)      |     
|GE Bayer Silicones GmbH & Co. KG, Germany                |  |          | 49.9 | 
|Lyondell Bayer Manufacturing Maasvlakte VOF, Netherlands |  |          | 50.0 | 
|Palthough Industries (1998) Ltd., Israel                 |  |          | 20.0 | 
|PO JV, LP, USA                                           |  |          | 42.7 | 
|Polygal Plastics Industries Ltd., Israel                 |  |          | 25.8 | 




PROPERTY, PLANTS AND EQUIPMENT


 Markets and Distribution Research and Development


Erbbaurechte




67



---



##### Table of Contents



History and Development of the Company


Erbbaurechte  History and Development of
the Company Operating and Financial
Review and Prospects  Operating Results 2003, 2004
and 2005  Discontinued Operations 
LANXESS




|                      |                            |                   |  |       |           |  |                                                                                                                                                                                               
|--------------------- | -------------------------- | ----------------- |  | ----- | --------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                      |                            | 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                                                                                                                                          
|Bayer CropScience     |                            |                   |  |       |           | 
|                      | Monheim, Germany           |                   |  | 651   |           |  | Research and development for Crop Protection and Environmental
    Science, headquarters of Bayer CropScience                                                                                 
|                      | Frankfurt, Germany         |                   |  | 261   |           |  | Research and development as well as production and formulation
    for Crop Protection and Environmental Science                                                                              
|                      | Dormagen, Germany          |                   |  | 140   |           |  | Production and formulation for Crop Protection and Environmental
    Science                                                                                                                  
|                      | Kansas City, Missouri      |                   |  | 732   |           |  | Production and formulation for Crop Protection and Environmental
    Science                                                                                                                  
|                      | Haelen, The Netherlands    |                   |  | 500   |           |  | Research and development as well as production for BioScience
    (Seeds)                                                                                                                     
|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                                                                              

68



---



##### Table of Contents





|                                               |  |                |     |  |          |                            |        |                   
|---------------------------------------------- |  | -------------- | --- |  | -------- | -------------------------- | ------ | ------------------
|                                               |  | 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 |  |          | expected: 2nd quarter 2006 |        | Under construction
|Polyurethanes (MDI Phase I, MMDI-Splitter)     |  |                | 80  |  |          | expected: 3rd quarter 2006 |        | Under construction
|Coatings, Adhesives, Sealants (HDI-4)          |  |                | 30  |  |          | expected: January 2007     |        | Under construction
|Polyurethanes (MDI Phase II)                   |  |                | 350 |  |          | 2008                       |        |                   
|Polycarbonates (PCS Phase II)                  |  |                | 100 |  |          | 2008                       |        |                   
|Polyurethanes (TDI)                            |  |                | 160 |  |          | 2009                       |        |                   

Information on the Company 
Governmental Regulation  Health, Safety and
Environmental Regulations Operating and Financial Review and
Prospects  Liquidity and Capital Resources 2003, 2004
and 2005 Capital expenditures





Item 4A.     Unresolved
Staff Comments




69



---



##### Table of Contents






Item 5.     Operating and
Financial Review and Prospects




 Forward-Looking Information.


 Critical
Accounting Policies,


 Basis of Presentation 
Effects of new accounting pronouncements





OVERVIEW




Information on the
Company  Business 
Organizational Structure.


Information on the Company  History
and Development of the Company .


 Operating Results 2003, 2004 and
2005  Discontinued Operations





CRITICAL ACCOUNTING POLICIES




70



---



##### Table of Contents









Intangible assets and property, plant and equipment


  




 i.e  


71



---



##### Table of Contents







Research and development




Net sales







72



---



##### Table of Contents



Pensions and other post-employment benefits


i.e. i.e.











Doubtful accounts


e.g.


73



---



##### Table of Contents






Environmental provisions







Litigation provisions






 Financial Information 
Legal Proceedings


74



---



##### Table of Contents



Income taxes


 





OPERATING RESULTS 2003, 2004 AND 2005


Introduction




| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Most significant drivers of our sales, results of
    operations and cash flows in 2005





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The general economic situation and improvements in the business
    climates in the industries of some of our customers in the
    course of 2005;                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Raw materials, pricing  i.e., the effects on
    our results of operations of the increased prices of
    petrochemical raw materials, other precursors and energy;                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Effects on net sales from acquisitions and
    divestitures  particularly our acquisition of
    Roches Consumer Health business and our spin-off of
    LANXESS;                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Our incurrence of other charges that we view as special,
    consisting primarily of provisions established and other
    expenses incurred in connection with legal matters (special
    charges did not affect our sales, results of operations and cash
    flows to the same extent as they did in 2003, when we incurred
    substantial impairment charges, unscheduled amortization
    expenses and other write-downs), which are discussed
    in   Reconciliation from operating result to
    operating result before special items.

i.e.




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



75



---



##### Table of Contents





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





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

 


|                                                                                                                                 |  |           |       |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ----- | -
|                                                                                                                                 |  | Change in |      
|                                                                                                                                 |  | 2005      |      
|                                                                                                                                 |  | from 2004 |      
|                                                                                                                                 |  |           |      
|                                                                                                                                 |  | (Euros in |      
|                                                                                                                                 |  | millions) |      
|Acquisitions                                                                                                                     |  |           |       |  
|Roche                                                                                                                            |  |           | 1,061 |  
|Gustafson (remaining 50 percent acquired in 2004)                                                                                |  |           | 25    |  
|BaySystems                                                                                                                       |  |           | 7     |  
|                                                                                                                                 |  |           |      
|                                                                                                                                 |  |           | 1,093 |  
|                                                                                                                                 |  |           |      
|Divestitures                                                                                                                     |  |           |       |  
|Nutritions, Spain (divested in 2004)                                                                                             |  |           | (4    | )
|                                                                                                                                 |  |           |      
|Net sales to LANXESSafter the spin-off on
    January 31, 2005 (in 2004, sales to LANXESS were classified
    as internal sales) |  |           | 981   |  
|                                                                                                                                 |  |           |      
|Net effects on sales                                                                                                             |  |           | 2,070 |  
|                                                                                                                                 |  |           |      

76



---



##### Table of Contents



|                                                                                                            |  |           |      |  
|----------------------------------------------------------------------------------------------------------- |  | --------- | ---- | -
|                                                                                                            |  | Change in |     
|                                                                                                            |  | 2004      |     
|                                                                                                            |  | from 2003 |     
|                                                                                                            |  |           |     
|                                                                                                            |  | (Euros in |     
|                                                                                                            |  | millions) |     
|Acquisitions                                                                                                |  |           |      |  
|Gustafson                                                                                                   |  |           | 34   |  
|Other                                                                                                       |  |           | 11   |  
|                                                                                                            |  |           |     
|                                                                                                            |  |           | 45   |  
|                                                                                                            |  |           |     
|Divestitures                                                                                                |  |           |      |  
|Dispositions in compliance with antitrust conditions in
    connection with purchase of Aventis CropScience |  |           | (100 | )
|PolymerLatex group (divested in 2003)                                                                       |  |           | (62  | )
|Walothen GmbH (divested in 2003)                                                                            |  |           | (47  | )
|Household insecticides business (divested in 2003)                                                          |  |           | (25  | )
|Animal Health vaccines (divested in 2003)                                                                   |  |           | (16  | )
|Bayer Shell (divested in 2003)                                                                              |  |           | (15  | )
|Other                                                                                                       |  |           | (4   | )
|                                                                                                            |  |           |     
|                                                                                                            |  |           | (269 | )
|                                                                                                            |  |           |     
|Net effects on sales                                                                                        |  |           | (224 | )
|                                                                                                            |  |           |     



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Reconciliation from operating result to operating result
    before special items


Discontinued Operations


77



---



##### Table of Contents





|                                                   |                     |                     |       |        |      |  |       |      |   |  |       |      |  
|-------------------------------------------------- | ------------------- | ------------------- | ----- | ------ | ---- |  | ----- | ---- | - |  | ----- | ---- | -
|                                                   |                     | 2003                |       |        | 2004 |  |       | 2005 |  
|                                                   |                     |                     |       |        |      |  |       |      |  
|                                                   |                     | (Euros in millions) |      
|Operating result                                   |                     |                     | 575   |        |      |  | 1,875 |      |   |  | 2,812 |     
|Impairment charges and write-downs                 |                     |                     | (622  | )      |      |  | 0     |      |   |  | 0     |     
|Restructuring charges and unscheduled amortization |                     |                     | (405  | )      |      |  | (82   | )    |   |  | (127  | )   
|Portfolio changes                                  |                     |                     | 458   |        |      |  | (40   | )    |   |  | (72   | )   
|Other charges                                      |                     |                     | (495  | )      |      |  | (120  | )    |   |  | (289  | )   
|                                                   |                     |                     |       |        |      |  |       |      |  
|                                                   | Total special items |                     |       | (1,064 | )    |  |       | (242 | ) |  |       | (488 | )
|Operating result before special items              |                     |                     | 1,639 |        |      |  | 2,117 |      |   |  | 3,300 |     
|                                                   |                     |                     |       |        |      |  |       |      |  



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







Discontinued Operations




| |                                                   
| | --------------------------------------------------
| | Restructuring charges and unscheduled amortization




|                                                                                                 |  |                     |    |  |              |  |    |         |  |  |       |  |  |  |     | 
|------------------------------------------------------------------------------------------------ |  | ------------------- | -- |  | ------------ |  | -- | ------- |  |  | ----- |  |  |  | --- | 
|                                                                                                 |  | Severance           |    |  | Unscheduled  |  |    | Other   |  |  |      
|Activity/ Business in 2005                                                                       |  | Payments            |    |  | Amortization |  |    | Charges |  |  | Total | 
|                                                                                                 |  |                     |    |  |              |  |    |         |  |  |       | 
|                                                                                                 |  | (Euros in millions) |   
|Reorganization of the polyurethanes business                                                     |  |                     | 0  |  |              |  | 0  |         |  |  | 33    |  |  |  | 33  | 
|Restructuring measures relating to CropScience activities in
    France                          |  |                     | 23 |  |              |  | 0  |         |  |  | 0     |  |  |  | 23  | 
|Consolidation of smaller CropScience sites in the United States                                  |  |                     | 7  |  |              |  | 2  |         |  |  | 3     |  |  |  | 12  | 
|Relocation of headquarters of the Diabetes Care division to
    Tarrytown, New York              |  |                     | 7  |  |              |  | 12 |         |  |  | 0     |  |  |  | 19  | 
|Reduction in useful economic life of licenses and inventory
    write-down                       |  |                     | 0  |  |              |  | 15 |         |  |  | 3     |  |  |  | 18  | 
|Restructuring of pharmaceutical activities in West Haven,
    Connecticut and Wuppertal, Germany |  |                     | 0  |  |              |  | 17 |         |  |  | 5     |  |  |  | 22  | 
|                                                                                                 |  |                     |    |  |              |  |    |         |  |  |       | 
|Totals                                                                                           |  |                     | 37 |  |              |  | 46 |         |  |  | 44    |  |  |  | 127 | 
|                                                                                                 |  |                     |    |  |              |  |    |         |  |  |       | 

78



---



##### Table of Contents






|                                                                            |  |                     |    |  |              |  |   |         |  |  |       |  |  |  |    | 
|--------------------------------------------------------------------------- |  | ------------------- | -- |  | ------------ |  | - | ------- |  |  | ----- |  |  |  | -- | 
|                                                                            |  | Severance           |    |  | Unscheduled  |  |   | Other   |  |  |      
|Activity/ Business in 2004                                                  |  | Payments            |    |  | Amortization |  |   | Charges |  |  | Total | 
|                                                                            |  |                     |    |  |              |  |   |         |  |  |       | 
|                                                                            |  | (Euros in millions) |   
|Restructuring of the pharmaceutical research and development
    activities |  |                     | 24 |  |              |  | 0 |         |  |  | 0     |  |  |  | 24 | 
|Closure of major parts of a production facility in Hauxton,
    U.K.        |  |                     | 5  |  |              |  | 7 |         |  |  | 1     |  |  |  | 13 | 
|Personnel reductions in connection with the Schering-Plough
    alliance    |  |                     | 32 |  |              |  | 0 |         |  |  | 13    |  |  |  | 45 | 
|                                                                            |  |                     |    |  |              |  |   |         |  |  |       | 
|Totals                                                                      |  |                     | 61 |  |              |  | 7 |         |  |  | 14    |  |  |  | 82 | 
|                                                                            |  |                     |    |  |              |  |   |         |  |  |       | 




|                                                                                  |  |                     |     |  |              |  |     |         |  |  |       |  |  |  |     | 
|--------------------------------------------------------------------------------- |  | ------------------- | --- |  | ------------ |  | --- | ------- |  |  | ----- |  |  |  | --- | 
|                                                                                  |  | Severance           |     |  | Unscheduled  |  |     | Other   |  |  |      
|Activity/ Business in 2003                                                        |  | Payments            |     |  | Amortization |  |     | Charges |  |  | Total | 
|                                                                                  |  |                     |     |  |              |  |     |         |  |  |       | 
|                                                                                  |  | (Euros in millions) |    
|Closure of research facilities in Kyoto, Japan and Berkeley,
    California       |  |                     | 10  |  |              |  | 101 |         |  |  | 28    |  |  |  | 139 | 
|Continued integration of businesses acquired in 2002 from
    Aventis CropScience |  |                     | 100 |  |              |  | 2   |         |  |  | 0     |  |  |  | 102 | 
|Personnel adjustments in Polymers area                                            |  |                     | 28  |  |              |  | 0   |         |  |  | 0     |  |  |  | 28  | 
|Plant closure in West Haven, Connecticut                                          |  |                     | 8   |  |              |  | 21  |         |  |  | 3     |  |  |  | 32  | 
|Closure of the polyether production site at Institute, West
    Virginia          |  |                     | 3   |  |              |  | 12  |         |  |  | 4     |  |  |  | 19  | 
|Further ongoing restructuring programs to improve profitability                   |  |                     | 0   |  |              |  | 5   |         |  |  | 36    |  |  |  | 41  | 
|Totals                                                                            |  |                     | 149 |  |              |  | 141 |         |  |  | 71    |  |  |  | 361 | 
|                                                                                  |  |                     |     |  |              |  |     |         |  |  |       | 
|Write-downs on enterprise management systems                                      |  |                     | 0   |  |              |  | 44  |         |  |  | 0     |  |  |  | 44  | 
|                                                                                  |  |                     |     |  |              |  |     |         |  |  |       | 
|Totals                                                                            |  |                     | 149 |  |              |  | 185 |         |  |  | 71    |  |  |  | 405 | 
|                                                                                  |  |                     |     |  |              |  |     |         |  |  |       | 



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

Information on the Company  History
and Development of the Company.   


  


  


79



---



##### Table of Contents



    




| |              
| | -------------
| | Other charges

  Financial
Information  Legal Proceedings    Levitra ® 





  Financial Information  Legal
Proceedings,  Lipobay/ Baycol 


  Lipobay/
Baycol  Lipobay/ Baycol




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

Quantitative and
Qualitative Disclosures about Market Risk  Currency
Risk.


80



---



##### Table of Contents





|                 |  |                                    |        |                 |              |  |        |      |  |  |        |  |  |  |        | 
|---------------- |  | ---------------------------------- | ------ | --------------- | ------------ |  | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|                 |  | Units of Foreign Currency per Euro |       
|                 |  |                                    |       
|                 |  |                                    |        | Average For the |             
|                 |  |                                    |        | Year Ended      |             
|                 |  | At December 31,                    |        |                 | December 31, | 
|                 |  |                                    |        |                 |              | 
|                 |  | 2004                               |        |                 | 2005         |  |        | 2004 |  |  | 2005   | 
|                 |  |                                    |        |                 |              |  |        |      |  |  |        | 
|Argentinean peso |  |                                    | 4.05   |                 |              |  | 3.57   |      |  |  | 3.66   |  |  |  | 3.64   | 
|Brazilian real   |  |                                    | 3.62   |                 |              |  | 2.76   |      |  |  | 3.64   |  |  |  | 3.04   | 
|British pound    |  |                                    | 0.71   |                 |              |  | 0.69   |      |  |  | 0.68   |  |  |  | 0.68   | 
|Canadian dollar  |  |                                    | 1.64   |                 |              |  | 1.37   |      |  |  | 1.62   |  |  |  | 1.51   | 
|Japanese yen     |  |                                    | 139.65 |                 |              |  | 138.90 |      |  |  | 134.40 |  |  |  | 136.86 | 
|Mexican peso     |  |                                    | 15.23  |                 |              |  | 12.59  |      |  |  | 14.04  |  |  |  | 13.58  | 
|Swiss franc      |  |                                    | 1.54   |                 |              |  | 1.56   |      |  |  | 1.54   |  |  |  | 1.55   | 
|U.S. dollar      |  |                                    | 1.36   |                 |              |  | 1.18   |      |  |  | 1.24   |  |  |  | 1.24   | 

   Quantitative and Qualitative Disclosures about
Market Risk.


Discontinued Operations




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







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







81



---



##### Table of Contents





         


       


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




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

Kogenate ®




        


  


82



---



##### Table of Contents





|                  |  |                     |        |                                          |                     |  |       |                               |  |  |      |  |  |      |      |   |      |  |     |      |  |  |      |   |  |      |        |   |  |  |       |   |  |  |     | 
|----------------- |  | ------------------- | ------ | ---------------------------------------- | ------------------- |  | ----- | ----------------------------- |  |  | ---- |  |  | ---- | ---- | - | ---- |  | --- | ---- |  |  | ---- | - |  | ---- | ------ | - |  |  | ----- | - |  |  | --- | 
|                  |  | LANXESS             |        |                                          | Plasma              |  |       | Total Discontinued Operations | 
|                  |  |                     |        |                                          |                     |  |       |                               | 
|                  |  | 2003                |        |                                          | 2004                |  |       | 2005                          |  |  | 2003 |  |  | 2004 |      |   | 2005 |  |     | 2003 |  |  | 2004 |   |  | 2005 |       
|                  |  |                     |        |                                          |                     |  |       |                               |  |  |      |  |  |      |      |   |      |  |     |      |  |  |      |   |  |      |       
|                  |  | (Euros in millions) |        |                                          | (Euros in millions) |  |       | (Euros in millions)           | 
|Net sales         |  |                     | 5,776  |                                          |                     |  | 6,053 |                               |  |  | 503  |  |  |      | 374  |   |      |  | 427 |      |  |  | 124  |   |  |      | 6,150  |   |  |  | 6,480 |   |  |  | 627 | 
|Operating result  |  |                     | (1,288 | )                                        |                     |  | 78    |                               |  |  | 62   |  |  |      | (392 | ) |      |  | (97 | )    |  |  | (2   | ) |  |      | (1,680 | ) |  |  | (19   | ) |  |  | 60  | 
|Special items     |  |                     | (1,204 | )                                        |                     |  | (99   | )                             |  |  |     |  |  |      | (317 | ) |      |  | (95 | )    |  |  |     |   |  |      | (1,521 | ) |  |  | (194  | ) |  |  |    | 
|Net income (loss) |  |                     | (973   | )                                        |                     |  | (4    | )                             |  |  | 38   |  |  |      | (269 | ) |      |  | (63 | )    |  |  | (1   | ) |  |      | (1,242 | ) |  |  | (67   | ) |  |  | 37  | 
|Affected segments |  | (LANXESS)           |        | Pharmaceuticals, Biological
    Products |                     |  |       |                               |  |  |      |  |  |      |      |  

83



---



##### Table of Contents








Bayer Group


In accordance with the new accounting standard IFRS 5 and
other applicable IFRS standards, the financial information
presented for 2003, 2004 and 2005 only reflects continuing
operations of the Bayer Group and its segments, except where
specific reference is made to discontinued operations.
Furthermore, the figures for 2003 and 2004 have been restated to
give effect to a change in the reporting of funded pension
obligations in accordance with revised IAS 19 (Employee
Benefits) and adjusted to reflect a change in presentation of
our former plasma business. Our non-U.S. plasma operations,
which had previously been classified as discontinuing
operations, are now included in continuing
operations (For details, please refer to 
Discontinued Operations). Moreover, the LANXESS spin-off in
early 2005 and the acquisition of Roches Consumer Health
business led to a shift in the relative sizes of our business in
terms of sales, operating result and assets. We therefore
changed our segment structure and reporting with effect from
January 1, 2005. We restated our segment reporting for 2003
and 2004 to correspond to the new structure in compliance with
IAS 14 (Segment Reporting).




|                                                |                            |                     |        |             |               |  |       |         |             |  |               |      |  |         |       |   |  |  |        |      | 
|----------------------------------------------- | -------------------------- | ------------------- | ------ | ----------- | ------------- |  | ----- | ------- | ----------- |  | ------------- | ---- |  | ------- | ----- | - |  |  | ------ | ---- | 
|                                                |                            |                     |        | Change from |               |  |       |         | Change from |  |               |     
|                                                |                            | 2003(a)             |        |             | Previous Year |  |       | 2004(a) |             |  | Previous Year |      |  | 2005(b) |      
|                                                |                            |                     |        |             |               |  |       |         |             |  |               |      |  |         |      
|                                                |                            |                     |        | (%)         |               |  |       |         | (%)         |  |               |     
|                                                |                            | (Euros in millions) |       
|Net sales                                       |                            |                     | 22,417 |             |               |  | 3.8   |         |             |  | 23,278        |      |  |         | 17.6  |   |  |  | 27,383 |     
|Gross profit                                    |                            |                     | 10,638 |             |               |  | 2.1   |         |             |  | 10,857        |      |  |         | 13.8  |   |  |  | 12,356 |     
|                                                | as percentage of sales (%) |                     |        | 47.5        |               |  |       |         |             |  |               | 46.6 |  |         |       |   |  |  |        | 45.1 | 
|Selling expenses                                |                            |                     | (5,515 | )           |               |  | 5.0   |         |             |  | (5,240        | )    |  |         | (9.0  | ) |  |  | (5,713 | )   
|Research and development expenses               |                            |                     | (2,190 | )           |               |  | 12.0  |         |             |  | (1,927        | )    |  |         | 2.1   |   |  |  | (1,886 | )   
|General and administrative expenses             |                            |                     | (1,410 | )           |               |  | (0.8  | )       |             |  | (1,421        | )    |  |         | (1.6  | ) |  |  | (1,444 | )   
|Other operating income                          |                            |                     | 1,073  |             |               |  | (31.0 | )       |             |  | 740           |      |  |         | 7.3   |   |  |  | 794    |     
|Other operating expenses                        |                            |                     | (2,021 | )           |               |  | 43.9  |         |             |  | (1,134        | )    |  |         | (14.2 | ) |  |  | (1,295 | )   
|Operating result                                |                            |                     | 575    |             |               |  |      |         |             |  | 1,875         |      |  |         | 50.0  |   |  |  | 2,812  |     
|                                                | as percentage of sales (%) |                     |        | 2.6         |               |  |       |         |             |  |               | 8.1  |  |         |       |   |  |  |        | 10.3 | 
|Non-operating result                            |                            |                     | (708   | )           |               |  | 7.8   |         |             |  | (653          | )    |  |         | 6.1   |   |  |  | (613   | )   
|Income before income taxes                      |                            |                     | (133   | )           |               |  |      |         |             |  | 1,222         |      |  |         | 80.0  |   |  |  | 2,199  |     
|Income from continuing operations after taxes   |                            |                     | (49    | )           |               |  |      |         |             |  | 749           |      |  |         | 108.0 |   |  |  | 1,558  |     
|Income from discontinued operations after taxes |                            |                     | (1,242 | )           |               |  | 94.6  |         |             |  | (67           | )    |  |         |      |   |  |  | 37     |     
|Group net income (total)                        |                            |                     | (1,303 | )           |               |  |      |         |             |  | 685           |      |  |         | 133.1 |   |  |  | 1,597  |     






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | 2003 and 2004 data have been restated to give effect to a change
    in the reporting of funded pension obligations in accordance
    with revised IAS 19 (Employee Benefits) and adjusted to reflect
    the LANXESS spin-off and the sale of the U.S. plasma
    operations in accordance with IFRS 5 and other applicable IFRS
    standards. For further information on these restatements,
    see  Discontinued Operations and Note 7.2
    to the consolidated financial statements appearing elsewhere in
    this annual report.



|    |                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------
|(b) | The Consumer Health business acquired from Roche is reflected in
    the income statement with effect from January 1, 2005.

84



---



##### Table of Contents





|                                  |  |                     |       |             |               |  |      |      |             |  |               |  |  |      |      |  |  |  |        | 
|--------------------------------- |  | ------------------- | ----- | ----------- | ------------- |  | ---- | ---- | ----------- |  | ------------- |  |  | ---- | ---- |  |  |  | ------ | 
|                                  |  |                     |       | Change from |               |  |      |      | Change from |  |               | 
|                                  |  | 2003                |       |             | Previous Year |  |      | 2004 |             |  | Previous Year |  |  | 2005 |     
|                                  |  |                     |       |             |               |  |      |      |             |  |               |  |  |      |     
|                                  |  |                     |       | (%)         |               |  |      |      | (%)         |  |               | 
|                                  |  | (Euros in millions) |      
|Europe                            |  |                     | 9,110 |             |               |  | 7.3  |      |             |  | 9,775         |  |  |      | 22.0 |  |  |  | 11,930 | 
|North America                     |  |                     | 6,981 |             |               |  | (6.7 | )    |             |  | 6,512         |  |  |      | 12.7 |  |  |  | 7,340  | 
|Asia/Pacific                      |  |                     | 3,625 |             |               |  | 9.3  |      |             |  | 3,962         |  |  |      | 15.5 |  |  |  | 4,578  | 
|Latin America/ Africa/Middle East |  |                     | 2,701 |             |               |  | 12.1 |      |             |  | 3,029         |  |  |      | 16.7 |  |  |  | 3,535  | 



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



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

    




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






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



 


 


 


    


85



---



##### Table of Contents



     


        Introduction  Reconciliation from
operating result to operating result before special items  




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

   




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

 




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

   




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



 


 Discontinued Operations




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

  


86



---



##### Table of Contents



   




| |                        
| | -----------------------
| | 2004 compared with 2003



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

      
Introduction  Effects on net sales from acquisitions
and divestitures




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






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

 


 


 


        


    Lipobay/
Baycol   Lipobay/ Baycol


    Introduction  Reconciliation from
operating result to operating result before special items. 


87



---



##### Table of Contents





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

   Liquidity
and Capital Resources 2003, 2004 and 2005  Cash
Flows  Financing Activities




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

 




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

   




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

  


 Discontinued Operations




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

      





Segment Data


The LANXESS spin-off in early 2005 and the acquisition of
Roches Consumer Health business led to a shift in the
relative sizes of our business in terms of sales, operating
result and assets. We therefore changed our segment structure
and reporting with effect from January 1, 2005. We restated
our segment reporting for 2003 and 2004 to correspond to the new
structure in compliance with IAS 14 (Segment Reporting).


 Introduction  Reconciliation from
operating result to operating result before special items


88



---



##### Table of Contents





| |                                     
| | ------------------------------------
| | Pharmaceuticals, Biological Products

Effective January 1, 2006 the former Pharmaceuticals,
Biological Products segment has been renamed the Pharmaceuticals
segment.


|                                      |  |                     |       |             |               |  |      |         |             |  |               |   |  |      |      |  |  |  |       |  
|------------------------------------- |  | ------------------- | ----- | ----------- | ------------- |  | ---- | ------- | ----------- |  | ------------- | - |  | ---- | ---- |  |  |  | ----- | -
|                                      |  |                     |       | Change from |               |  |      |         | Change from |  |               |  
|                                      |  | 2003(1)             |       |             | Previous Year |  |      | 2004(1) |             |  | Previous Year |   |  | 2005 |     
|                                      |  |                     |       |             |               |  |      |         |             |  |               |   |  |      |     
|                                      |  |                     |       | (%)         |               |  |      |         | (%)         |  |               |  
|                                      |  | (Euros in millions) |      
|Net sales (external)                  |  |                     | 4,371 |             |               |  | (9.4 | )       |             |  | 3,961         |   |  |      | 2.7  |  |  |  | 4,067 |  
|Intersegment sales                    |  |                     | 42    |             |               |  | (9.5 | )       |             |  | 38            |   |  |      | 52.6 |  |  |  | 58    |  
|Operating result                      |  |                     | (16   | )           |               |  |     |         |             |  | 399           |   |  |      | 19.0 |  |  |  | 475   |  
|Special items                         |  |                     | (515  | )           |               |  |     |         |             |  | (53           | ) |  |      |     |  |  |  | (140  | )
|                                      |  |                     |       |             |               |  |      |         |             |  |               |   |  |      |     
|Operating result before special items |  |                     | 499   |             |               |  | (9.4 | )       |             |  | 452           |   |  |      | 36.1 |  |  |  | 615   |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 2003 and 2004 data have been restated to reflect the sale of the
    U.S. plasma operations in accordance with IFRS 5. As
    explained above under  Discontinued
    Operations, only our U.S. plasma operations are
    classified as discontinued operations. Our
    non-U.S. plasma operations, which had previously been
    classified as discontinuing operations, are now
    included in continuing operations. For further
    information on these restatements, see 
    Discontinued Operations and Note 7.2 to the
    consolidated financial statements appearing elsewhere in this
    annual report.



|     |  |                                                                                                                                     |  |                     |      |  
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | ---- | -
|Year |  | Nature of special item                                                                                                              |  | Income/ charge      |     
|     |  |                                                                                                                                     |  |                     |     
|     |  |                                                                                                                                     |  | (Euros in millions) |     
|2003 |  | Charges taken on the basis of the final agreement reached with
    the majority of  insurers in connection with
    Lipobay/ Baycol |  |                     | (300 | )
|     |  | Closure of research and production facilities                                                                                       |  |                     | (171 | )
|2004 |  | Charges in connection with restructuring pharmaceuticals
    research and  development                                              |  |                     | (24  | )
|     |  | Gain on a sale of a license                                                                                                         |  |                     | 39   |  
|     |  | Charges in connection with Lipobay/ Baycol                                                                                          |  |                     | (47  | )
|     |  | Restructuring charges in connection with the Schering-Plough
    alliance                                                           |  |                     | (45  | )
|     |  | Pension curtailment in connection with the Schering-Plough
    alliance                                                             |  |                     | 24   |  
|2005 |  | Charges in connection with the termination of the co-promotion
    agreement with  GlaxoSmithKline for
    Levitra®                 |  |                     | (106 | )
|     |  | Litigation-related expenses in connection with Lipobay/
    Baycol                                                                  |  |                     | (43  | )
|     |  | One-time non-cash gain due to changes to our pension plans in
    the United States  and Germany                                    |  |                     | 49   |  
|     |  | Restructuring of pharmaceutical activities in West Haven,
    Connecticut and  Wuppertal, Germany                                   |  |                     | (22  | )



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

  


  Trasylol ® Avelox ® Levitra ®  Cipro ®


89



---



##### Table of Contents



 Business.


  Kogenate ®   Bio-Set ®


   


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




| |                        
| | -----------------------
| | 2004 compared with 2003

  


  Cipro ® Ciprobay ® Cipro ®  Levitra ® Levitra ®   Avalox ® Avelox ®  Adalat® Aspirin ® Cardio Trasylol ® Glucobay ®


 Kogenate ® 


   Cipro ®


  Lipobay/ Baycol,   


90



---



##### Table of Contents



Lipobay/ Baycol




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

|                                      |  |                     |       |             |               |  |       |      |             |  |               |   |  |         |       |   |  |  |       |  
|------------------------------------- |  | ------------------- | ----- | ----------- | ------------- |  | ----- | ---- | ----------- |  | ------------- | - |  | ------- | ----- | - |  |  | ----- | -
|                                      |  |                     |       | Change from |               |  |       |      | Change from |  |               |  
|                                      |  | 2003                |       |             | Previous Year |  |       | 2004 |             |  | Previous Year |   |  | 2005(a) |      
|                                      |  |                     |       |             |               |  |       |      |             |  |               |   |  |         |      
|                                      |  |                     |       | (%)         |               |  |       |      | (%)         |  |               |  
|                                      |  | (Euros in millions) |      
|Net sales (external)                  |  |                     | 1,403 |             |               |  | (4.8  | )    |             |  | 1,336         |   |  |         | 76.3  |   |  |  | 2,355 |  
|Intersegment sales                    |  |                     | 7     |             |               |  | 128.6 |      |             |  | 16            |   |  |         | (12.5 | ) |  |  | 14    |  
|Operating result                      |  |                     | 486   |             |               |  | (62.3 | )    |             |  | 183           |   |  |         | (4.9  | ) |  |  | 174   |  
|Special items                         |  |                     | 288   |             |               |  |      |      |             |  | (30           | ) |  |         |      |   |  |  | (118  | )
|                                      |  |                     |       |             |               |  |       |      |             |  |               |   |  |         |      
|Operating result before special items |  |                     | 198   |             |               |  | 7.6   |      |             |  | 213           |   |  |         | 37.1  |   |  |  | 292   |  






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



|     |  |                                                                                 |  |                     |     |  
|---- |  | ------------------------------------------------------------------------------- |  | ------------------- | --- | -
|Year |  | Nature of special item                                                          |  | Income/ charge      |    
|     |  |                                                                                 |  |                     |    
|     |  |                                                                                 |  | (Euros in millions) |    
|2003 |  | Divestment of household insecticides business                                   |  |                     | 256 |  
|2004 |  | Provision for litigation                                                        |  |                     | (16 | )
|     |  | Expenses relating to the integration of the Roche Consumer
    Health  business |  |                     | (14 | )
|2005 |  | Expenses relating to the integration of the Roche Consumer
    Health  business |  |                     | (71 | )
|     |  | Provision for litigation                                                        |  |                     | (62 | )



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

 


Bepanthen ® /Bepanthol ® Rennie ® Supradyn ®   Business.


      




| |                        
| | -----------------------
| | 2004 compared with 2003




91



---



##### Table of Contents



Aspirin ® Complex Aspirin ®


     




| |                           
| | --------------------------
| | Diabetes Care, Diagnostics

|                                      |  |                     |       |             |               |  |      |      |             |  |               |  |  |      |      |  |  |  |       | 
|------------------------------------- |  | ------------------- | ----- | ----------- | ------------- |  | ---- | ---- | ----------- |  | ------------- |  |  | ---- | ---- |  |  |  | ----- | 
|                                      |  |                     |       | Change from |               |  |      |      | Change from |  |               | 
|                                      |  | 2003                |       |             | Previous Year |  |      | 2004 |             |  | Previous Year |  |  | 2005 |     
|                                      |  |                     |       |             |               |  |      |      |             |  |               |  |  |      |     
|                                      |  |                     |       | (%)         |               |  |      |      | (%)         |  |               | 
|                                      |  | (Euros in millions) |      
|Net sales (external)                  |  |                     | 1,933 |             |               |  | 2.2  |      |             |  | 1,975         |  |  |      | 8.9  |  |  |  | 2,151 | 
|Intersegment sales                    |  |                     | 0     |             |               |  |     |      |             |  | 1             |  |  |      | 0.0  |  |  |  | 1     | 
|Operating result                      |  |                     | 115   |             |               |  | 88.7 |      |             |  | 217           |  |  |      | 26.3 |  |  |  | 274   | 
|Special
    items(a)                  |  |                     | (20   | )           |               |  |     |      |             |  | 0             |  |  |      |     |  |  |  | 34    | 
|                                      |  |                     |       |             |               |  |      |      |             |  |               |  |  |      |     
|Operating result before special items |  |                     | 135   |             |               |  | 60.7 |      |             |  | 217           |  |  |      | 10.6 |  |  |  | 240   | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The primary special items in 2003 were write-downs on enterprise
    management systems (minus
    43 million)
    and a litigation settlement
    (22 million).
    Special items in 2005 were charges of
    19 million
    in connection with the reorganization of headquarters in the
    United States and a one-time non-cash gain of
    53 million
    due to changes to our pension plans in the United States and
    Germany.



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

 


  Advia
Centaur ®  Business.


     




| |                        
| | -----------------------
| | 2004 compared with 2003

  


 Ascensia ® Breeze Ascensia ® Contour/ Microfill


92



---



##### Table of Contents



 Advia ® 1200


     




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

|                                      |  |                     |     |             |               |  |       |      |             |  |               |  |  |      |       |  |  |  |     | 
|------------------------------------- |  | ------------------- | --- | ----------- | ------------- |  | ----- | ---- | ----------- |  | ------------- |  |  | ---- | ----- |  |  |  | --- | 
|                                      |  |                     |     | Change from |               |  |       |      | Change from |  |               | 
|                                      |  | 2003                |     |             | Previous Year |  |       | 2004 |             |  | Previous Year |  |  | 2005 |      
|                                      |  |                     |     |             |               |  |       |      |             |  |               |  |  |      |      
|                                      |  |                     |     | (%)         |               |  |       |      | (%)         |  |               | 
|                                      |  | (Euros in millions) |    
|Net sales (external)                  |  |                     | 790 |             |               |  | (0.5  | )    |             |  | 786           |  |  |      | 8.9   |  |  |  | 856 | 
|Intersegment sales                    |  |                     | 6   |             |               |  | (33.3 | )    |             |  | 4             |  |  |      | 100.0 |  |  |  | 8   | 
|Operating result                      |  |                     | 172 |             |               |  | (8.7  | )    |             |  | 157           |  |  |      | 14.0  |  |  |  | 179 | 
|Special
    items(a)                  |  |                     | 22  |             |               |  |      |      |             |  | 0             |  |  |      |      |  |  |  | 7   | 
|                                      |  |                     |     |             |               |  |       |      |             |  |               |  |  |      |      
|Operating result before special items |  |                     | 150 |             |               |  | 4.7   |      |             |  | 157           |  |  |      | 9.6   |  |  |  | 172 | 






|    |                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Special items in 2003 primarily included gains from the disposal
    of the rights to the
    Bayovac®/Baypamun®
    products. Special items in 2005 related to a one-time non-cash
    gain of
    7 million
    due to changes to our pension plans in the United States and
    Germany.



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

  Advantage ® Advocate ® Profender ®  Business.


   




| |                        
| | -----------------------
| | 2004 compared with 2003

   Advantix ® Advantage ® Baytril ®


 


93



---



##### Table of Contents





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

|                                      |  |                     |       |             |               |  |      |      |             |  |               |   |  |      |      |   |  |  |       | 
|------------------------------------- |  | ------------------- | ----- | ----------- | ------------- |  | ---- | ---- | ----------- |  | ------------- | - |  | ---- | ---- | - |  |  | ----- | 
|                                      |  |                     |       | Change from |               |  |      |      | Change from |  |               |  
|                                      |  | 2003                |       |             | Previous Year |  |      | 2004 |             |  | Previous Year |   |  | 2005 |     
|                                      |  |                     |       |             |               |  |      |      |             |  |               |   |  |      |     
|                                      |  |                     |       | (%)         |               |  |      |      | (%)         |  |               |  
|                                      |  | (Euros in millions) |      
|Net sales (external)                  |  |                     | 4,801 |             |               |  | 3.2  |      |             |  | 4,957         |   |  |      | (1.7 | ) |  |  | 4,874 | 
|Intersegment sales                    |  |                     | 62    |             |               |  | 14.5 |      |             |  | 71            |   |  |      | (1.4 | ) |  |  | 70    | 
|Operating result                      |  |                     | 242   |             |               |  | 59.5 |      |             |  | 386           |   |  |      | 37.8 |   |  |  | 532   | 
|Special items                         |  |                     | (70   | )           |               |  |     |      |             |  | (42           | ) |  |      |     |   |  |  | 7     | 
|                                      |  |                     |       |             |               |  |      |      |             |  |               |   |  |      |     
|Operating result before special items |  |                     | 312   |             |               |  | 37.2 |      |             |  | 428           |   |  |      | 22.7 |   |  |  | 525   | 



|     |  |                                                                                                                           |  |                     |     |  
|---- |  | ------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | --- | -
|Year |  | Nature of special item                                                                                                    |  | Income/ charge      |    
|     |  |                                                                                                                           |  |                     |    
|     |  |                                                                                                                           |  | (Euros in millions) |    
|2003 |  | Restructuring related to the Aventis CropScience acquisition                                                              |  |                     | (91 | )
|     |  | Gains from the divestment of former Bayer CropScience products
    in connection with the Aventis CropScience acquisition |  |                     | 46  |  
|2004 |  | Closure of major parts of a production facility in Hauxton,
    U.K.                                                      |  |                     | (13 | )
|     |  | Pension accruals in connection with divestiture to BASF                                                                   |  |                     | (14 | )
|2005 |  | Restructuring measures relating to CropScience activities in
    France                                                   |  |                     | (20 | )
|     |  | Termination of a research and development cooperation                                                                     |  |                     | (15 | )
|     |  | One-time non-cash gain due to changes to our pension plans in
    the United States and Germany                           |  |                     | 46  |  



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

 


  Flint ® Folicur ®  Atlantis ® Hussar ® MaisTer ® Olympus ®   Business.


        


94



---



##### Table of Contents





| |                        
| | -----------------------
| | 2004 compared with 2003




 Confidor ® Gaucho ® Admire ®    Folicur ® Flint ® Flint ®   Basta ® Liberty ®  Atlantis ®  Poncho ®


    .




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

|                                      |  |                     |     |             |               |  |       |      |             |  |               |  |  |      |      |  |  |  |       |  
|------------------------------------- |  | ------------------- | --- | ----------- | ------------- |  | ----- | ---- | ----------- |  | ------------- |  |  | ---- | ---- |  |  |  | ----- | -
|                                      |  |                     |     | Change from |               |  |       |      | Change from |  |               | 
|                                      |  | 2003                |     |             | Previous Year |  |       | 2004 |             |  | Previous Year |  |  | 2005 |     
|                                      |  |                     |     |             |               |  |       |      |             |  |               |  |  |      |     
|                                      |  |                     |     | (%)         |               |  |       |      | (%)         |  |               | 
|                                      |  | (Euros in millions) |    
|Net sales (external)                  |  |                     | 963 |             |               |  | 2.7   |      |             |  | 989           |  |  |      | 3.3  |  |  |  | 1,022 |  
|Intersegment sales                    |  |                     | 14  |             |               |  | (50.0 | )    |             |  | 7             |  |  |      | 85.7 |  |  |  | 13    |  
|Operating result                      |  |                     | 100 |             |               |  | 6.0   |      |             |  | 106           |  |  |      | 49.1 |  |  |  | 158   |  
|Special
    items(a)                  |  |                     | (11 | )           |               |  |      |      |             |  | 12            |  |  |      |     |  |  |  | (2    | )
|                                      |  |                     |     |             |               |  |       |      |             |  |               |  |  |      |     
|Operating result before special items |  |                     | 111 |             |               |  | (15.3 | )    |             |  | 94            |  |  |      | 70.2 |  |  |  | 160   |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Special items in 2003 comprise restructuring expenses related to
    the Aventis CropScience acquisition
    (11 million)
    and in 2004 gains from the sale of biotechnology assets. Special
    items in 2005 primarily relate to the consolidation of smaller
    sites in the United States (charge of
    8 million)
    and to an one-time non-cash gain due to changes to our pension
    plans in the United States and Germany
    (9 million).



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

 


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


95



---



##### Table of Contents



       




| |                        
| | -----------------------
| | 2004 compared with 2003

   InVigor ® FiberMax ®


 




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

|                                      |  |                     |       |             |               |  |      |      |             |  |               |  |  |      |       |  |  |  |       | 
|------------------------------------- |  | ------------------- | ----- | ----------- | ------------- |  | ---- | ---- | ----------- |  | ------------- |  |  | ---- | ----- |  |  |  | ----- | 
|                                      |  |                     |       | Change from |               |  |      |      | Change from |  |               | 
|                                      |  | 2003                |       |             | Previous Year |  |      | 2004 |             |  | Previous Year |  |  | 2005 |      
|                                      |  |                     |       |             |               |  |      |      |             |  |               |  |  |      |      
|                                      |  |                     |       | (%)         |               |  |      |      | (%)         |  |               | 
|                                      |  | (Euros in millions) |      
|Net sales (external)                  |  |                     | 2,777 |             |               |  | 17.0 |      |             |  | 3,248         |  |  |      | 25.8  |  |  |  | 4,086 | 
|Intersegment sales                    |  |                     | 10    |             |               |  | 30.0 |      |             |  | 13            |  |  |      | 7.7   |  |  |  | 14    | 
|Operating result                      |  |                     | 58    |             |               |  |     |      |             |  | 293           |  |  |      | 116.0 |  |  |  | 633   | 
|Special items                         |  |                     | (29   | )           |               |  |     |      |             |  | 0             |  |  |      |      |  |  |  | 27    | 
|                                      |  |                     |       |             |               |  |      |      |             |  |               |  |  |      |      
|Operating result before special items |  |                     | 87    |             |               |  |     |      |             |  | 293           |  |  |      | 106.8 |  |  |  | 606   | 



|     |  |                                                                                                 |  |                     |     |  
|---- |  | ----------------------------------------------------------------------------------------------- |  | ------------------- | --- | -
|Year |  | Nature of special item                                                                          |  | Income/charge       |    
|     |  |                                                                                                 |  |                     |    
|     |  |                                                                                                 |  | (Euros in millions) |    
|2003 |  | Restructuring charges in connection with headcount reductions                                   |  |                     | (16 | )
|     |  | Expenses for achieving staff reductions through special early
    retirement                    |  |                     | (9  | )
|2005 |  | One-time non-cash gain due to changes to our pension plans in
    the United States and Germany |  |                     | 27  |  



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

   Business


    


96



---



##### Table of Contents





| |                        
| | -----------------------
| | 2004 compared with 2003

  


   




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

|                                      |  |                     |       |             |               |  |      |      |             |  |               |   |  |      |       |  |  |  |       |  
|------------------------------------- |  | ------------------- | ----- | ----------- | ------------- |  | ---- | ---- | ----------- |  | ------------- | - |  | ---- | ----- |  |  |  | ----- | -
|                                      |  |                     |       | Change from |               |  |      |      | Change from |  |               |  
|                                      |  | 2003                |       |             | Previous Year |  |      | 2004 |             |  | Previous Year |   |  | 2005 |      
|                                      |  |                     |       |             |               |  |      |      |             |  |               |   |  |      |      
|                                      |  |                     |       | (%)         |               |  |      |      | (%)         |  |               |  
|                                      |  | (Euros in millions) |      
|Net sales (external)                  |  |                     | 4,676 |             |               |  | 14.4 |      |             |  | 5,349         |   |  |      | 23.6  |  |  |  | 6,609 |  
|Intersegment sales                    |  |                     | 103   |             |               |  | 12.6 |      |             |  | 116           |   |  |      | 22.4  |  |  |  | 142   |  
|Operating result                      |  |                     | (455  | )           |               |  |     |      |             |  | 348           |   |  |      | 111.5 |  |  |  | 736   |  
|Special items                         |  |                     | (715  | )           |               |  |     |      |             |  | (27           | ) |  |      |      |  |  |  | (62   | )
|                                      |  |                     |       |             |               |  |      |      |             |  |               |   |  |      |      
|Operating result before special items |  |                     | 260   |             |               |  | 44.2 |      |             |  | 375           |   |  |      | 112.8 |  |  |  | 798   |  



|     |  |                                                                                                                              |  |                     |      |  
|---- |  | ---------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | ---- | -
|Year |  | Nature of special item                                                                                                       |  | Income/ charge      |     
|     |  |                                                                                                                              |  |                     |     
|     |  |                                                                                                                              |  | (Euros in millions) |     
|2003 |  | Impairment charges                                                                                                           |  |                     | (622 | )
|     |  | Shutdown and restructuring charges                                                                                           |  |                     | (60  | )
|2004 |  | Legal provisions for agreement with U.S. authorities in the
    context of an investigation into prices for polymer products |  |                     | (27  | )
|2005 |  | One-time non-cash gain due to changes to our pension plans in
    the United States and Germany                              |  |                     | 47   |  
|     |  | Legal provisions in connection with antitrust litigation related
    to polymer products                                     |  |                     | (66  | )
|     |  | Charges relating to the reorganization of the polyurethanes
    business                                                     |  |                     | (33  | )



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

   Business


97



---



##### Table of Contents



        




| |                        
| | -----------------------
| | 2004 compared with 2003

    


      


98



---



##### Table of Contents






LIQUIDITY AND CAPITAL RESOURCES 2003, 2004 AND 2005


Cash Flows






|                                                                                                 |  |                     |        |             |               |  |       |         |             |  |               |   |  |      |        |   |  |  |        |  
|------------------------------------------------------------------------------------------------ |  | ------------------- | ------ | ----------- | ------------- |  | ----- | ------- | ----------- |  | ------------- | - |  | ---- | ------ | - |  |  | ------ | -
|                                                                                                 |  |                     |        | Change from |               |  |       |         | Change from |  |               |  
|                                                                                                 |  | 2003(a)             |        |             | Previous Year |  |       | 2004(a) |             |  | Previous Year |   |  | 2005 |       
|                                                                                                 |  |                     |        |             |               |  |       |         |             |  |               |   |  |      |       
|                                                                                                 |  |                     |        | (%)         |               |  |       |         | (%)         |  |               |  
|                                                                                                 |  | (Euros in millions) |       
|Gross operating cash flow                                                                        |  |                     | 2,741  |             |               |  | 5.3   |         |             |  | 2,885         |   |  |      | 20.5   |   |  |  | 3,477  |  
|Changes in working capital                                                                       |  |                     | 517    |             |               |  |      |         |             |  | (623          | ) |  |      |       |   |  |  | 65     |  
|Net cash provided by (used in) operating activities (net cash
    flow, continuing operations)   |  |                     | 3,258  |             |               |  | (30.6 | )       |             |  | 2,262         |   |  |      | 56.6   |   |  |  | 3,542  |  
|Net cash provided by (used in) operating activities (net cash
    flow, discontinued operations) |  |                     | 35     |             |               |  |      |         |             |  | 188           |   |  |      |       |   |  |  | (40    | )
|Net cash provided by (used in) operating activities (net cash
    flow, total)                   |  |                     | 3,293  |             |               |  | (25.6 | )       |             |  | 2,450         |   |  |      | 42.9   |   |  |  | 3,502  |  
|Net cash provided by (used in) investing activities (total)                                      |  |                     | 460    |             |               |  |      |         |             |  | (814          | ) |  |      | (113.9 | ) |  |  | (1,741 | )
|Net cash provided by (used in) financing activities (total)                                      |  |                     | (1,761 | )           |               |  | 56.8  |         |             |  | (761          | ) |  |      | (147.2 | ) |  |  | (1,881 | )
|Change in cash and cash equivalents                                                              |  |                     | 1,992  |             |               |  | (56.1 | )       |             |  | 875           |   |  |      |       |   |  |  | (120   | )
|Cash and cash equivalents at beginning of period                                                 |  |                     | 767    |             |               |  |      |         |             |  | 2,734         |   |  |      | 30.6   |   |  |  | 3,570  |  
|Change in scope of consolidation                                                                 |  |                     | 1      |             |               |  |      |         |             |  | 6             |   |  |      |       |   |  |  | (196   | )
|Exchange rate movements                                                                          |  |                     | (26    | )           |               |  | (73.1 | )       |             |  | (45           | ) |  |      |       |   |  |  | 36     |  
|Cash and cash equivalents at end of year                                                         |  |                     | 2,734  |             |               |  | 30.6  |         |             |  | 3,570         |   |  |      | (7.8   | ) |  |  | 3,290  |  
|Marketable securities and other instruments                                                      |  |                     | 129    |             |               |  | (77.5 | )       |             |  | 29            |   |  |      |       |   |  |  | 233    |  
|Liquid assets as per balance sheet                                                               |  |                     | 2,863  |             |               |  | 25.7  |         |             |  | 3,599         |   |  |      | (2.1   | ) |  |  | 3,523  |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | 2003 and 2004 data have been restated to account for a change in
    the reporting of funded pension obligations in accordance with
    revised IAS 19 (Employee Benefits) and to reflect the LANXESS
    spin-off and the sale of the U.S. plasma operations in
    accordance with IFRS 5. As explained above under 
    Operating Results 2003, 2004 and 2005 
    Discontinued Operations, only our U.S. plasma
    operations are classified as discontinued
    operations. Our non-U.S. plasma operations, which had
    previously been classified as discontinuing
    operations, are now included in continuing
    operations. For further information on these restatements,
    see  Operating Results 2003, 2004 and
    2005  Discontinued Operations and Note 7.2
    to the consolidated financial statements appearing elsewhere in
    this annual report.



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

  


99



---



##### Table of Contents





     


     




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

    


   


           


     


100



---



##### Table of Contents





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

       


  Financial Information  Legal
Proceedings   


      


    




|                                                                                                        |  |                    |        |   |               |  |        |               |  |  |        |     
|------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | - | ------------- |  | ------ | ------------- |  |  | ------ | ----
|                                                                                                        |  | Dec. 31, 2003      |        |   | Dec. 31, 2004 |  |        | Dec. 31, 2005 | 
|                                                                                                        |  |                    |        |   |               |  |        |               | 
|                                                                                                        |  | (Euros in million) |       
|Noncurrent financial liabilities as per balance sheet (including
    derivatives)                       |  |                    | 6,772  |   |               |  | 7,025  |               |  |  | 7,185  |     
|Current financial liabilities as per balance sheet (including
    derivatives)                          |  |                    | 2,046  |   |               |  | 2,166  |               |  |  | 1,767  |     
|Derivative receivables                                                                                  |  |                    | (609   | ) |               |  | (701   | )             |  |  | (188   | )   
|Cash and cash equivalents as per balance sheet less cash
    earmarked for civil litigation settlements |  |                    | (2,863 | ) |               |  | (3,599 | )             |  |  | (3,270 | )(a)
|Net debt* (continuing operations)                                                                       |  |                    | 5,346  |   |               |  | 4,891  |               |  |  | 5,494  |     
|Net debt* (discontinued operations)                                                                     |  |                    | 606    |   |               |  | 531    |               |  |  | 0      |     
|Net debt* (total)                                                                                       |  |                    | 5,952  |   |               |  | 5,422  |               |  |  | 5,494  |     






|    |                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Liquid assets as per balance sheet
    (3,523 million)
    minus cash deposited in escrow accounts
    (253 million)
    equals
    3,270 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 liquid assets 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


101



---



##### Table of Contents



believe that Net Debt is an indicator of the
Bayer Groups creditworthiness. However, the subtraction of
liquid assets 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.


Financing Strategy















  


Capital Expenditures




  





102



---



##### Table of Contents





|     |      |  |         |                                          |             |                                                                                                                                                                                                                                                                                                                                                          
|---- | ---- |  | ------- | ---------------------------------------- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Year |      |  | Segment |                                          | Description
|     |      |  |         |                                          |            
|     | 2003 |  |         | Pharmaceuticals,                         |             | Addition to capacity solid dosage plant, Leverkusen, Germany                                                                                                                                                                                                                                                                                             
|     |      |  |         | Biological Products                      |             | Construction of a sterile filling facility, Berkeley, California                                                                                                                                                                                                                                                                                         
|     |      |  |         | Consumer Care                            |             | Construction of a lacquering (small-scale production), Greppin,
    Germany                                                                                                                                                                                                                                                                              
|     |      |  |         | Diabetes Care, Diagnostics               |             | Elkhart site consolidation, Elkhart, Indiana                                                                                                                                                                                                                                                                                                             
|     |      |  |         | Animal Health                            |             | Good manufacturing practice upgrade, Panwol, South Korea                                                                                                                                                                                                                                                                                                 
|     |      |  |         | Crop Protection                          |             | Multi-purpose plant, Dormagen, Germany
    Fungicide plant extension, Muttenz, Switzerland                                                                                                                                                                                                                                                               
|     |      |  |         | Environmental Science, BioScience        |             | New research & development building, Gent, Belgium                                                                                                                                                                                                                                                                                                       
|     |      |  |         | Materials                                |             | Expansion of methylcellulose production, Bitterfeld, Germany                                                                                                                                                                                                                                                                                             
|     |      |  |         | Systems                                  |             | Expansion of isocyanate capacity including precursors,
    Brunsbüttel and Dormagen, Germany
    Expansion/ modification of electrolysis plant, Leverkusen,
    Germany                                                                                                                                                                                  
|     | 2004 |  |         | Pharmaceuticals,
    Biological Products |             | Construction of 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 production facility for polycarbonate in
    Caojing, PRC Expansion of capacities for tantalum powder in
    Goslar, Germany                                                                                                                                                                                                             
|     |      |  |         | 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 production facility for
    hexamethylene-diiisocyanate in Caojing, PRC
|     | 2005 |  |         | Pharmaceuticals,
    Biological Products |             | Construction of a clinical manufacturing facility for Kogenate
    in Berkeley, California                                                                                                                                                                                                                                                               
|     |      |  |         | Consumer Care                            |             | Expansion of 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®-Lproduction 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                                 

103



---



##### Table of Contents



Commitments




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





| |                                                   
| | --------------------------------------------------
| | 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               |  |                     | 8,484  |       |          |             | 1,706     |             |                |                | 2,346 |  |       |         | 471 |  |  |  | 3,961 | 
|Capital leases without interest portion                |  |                     | 468    |       |          |             | 61        |             |                |                | 68    |  |       |         | 51  |  |  |  | 288   | 
|Operating leases                                       |  |                     | 452    |       |          |             | 106       |             |                |                | 161   |  |       |         | 111 |  |  |  | 74    | 
|Purchase obligations                                   |  |                     | 294    |       |          |             | 292       |             |                |                | 2     |  |       |         | 0   |  |  |  | 0     | 
|Other long-term liabilities (collaboration agreements) |  |                     | 562    |       |          |             | 109       |             |                |                | 193   |  |       |         | 178 |  |  |  | 82    | 
|Other
    liabilities(a)                               |  |                     | 2,532  |       |          |             | 2,016     |             |                |                | 304   |  |       |         | 89  |  |  |  | 123   | 
|                                                       |  |                     |        |       |          |             |           |             |                |                |       |  |       |         |    
|Total contractual obligations                          |  |                     | 12,792 |       |          |             | 4,290     |             |                |                | 3,074 |  |       |         | 900 |  |  |  | 4,528 | 
|                                                       |  |                     |        |       |          |             |           |             |                |                |       |  |       |         |    






|    |                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 32 to the consolidated financial
    statements included elsewhere in this annual report.






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

   


  




   Financing
Strategy.


104



---



##### Table of Contents



Borrowings



Commitments  Contractual Obligations and Commercial
Commitments


Funding and Treasury Policies




     







Quantitative and Qualitative Disclosures about Market
Risk.


Inflation, Seasonality and Cyclicality


Information on the Company


105



---



##### Table of Contents






RESEARCH AND DEVELOPMENT




|                                       |                          |                    |       |             |               |  |       |       |             |  |               |     |  |      |      |      |   |  |       |     | 
|-------------------------------------- | ------------------------ | ------------------ | ----- | ----------- | ------------- |  | ----- | ----- | ----------- |  | ------------- | --- |  | ---- | ---- | ---- | - |  | ----- | --- | 
|                                       |                          |                    |       | Change from |               |  |       |       | Change from |  |               |    
|                                       |                          | 2003               |       |             | Previous Year |  |       | 2004  |             |  | Previous Year |     |  | 2005 |     
|                                       |                          |                    |       |             |               |  |       |       |             |  |               |     |  |      |     
|                                       |                          |                    |       | (%)         |               |  |       |       | (%)         |  |               |    
|                                       |                          | (Euros in million) |      
|Research and development expenditures: |                          |                    |       |             |               |  |       |       |             |  |               |     |  |      |      |      |   |  |       |    
|                                       | Bayer HealthCare         |                    |       | 1,201       |               |  |       | (17.1 | )           |  |               | 996 |  |      |      | (4.2 | ) |  |       | 954 | 
|                                       | Bayer CropScience        |                    |       | 725         |               |  |       | (6.3  | )           |  |               | 679 |  |      |      | (2.2 | ) |  |       | 664 | 
|                                       | Bayer MaterialScience    |                    |       | 249         |               |  |       | (5.2  | )           |  |               | 236 |  |      |      | 6.4  |   |  |       | 251 | 
|                                       | Reconciliation           |                    |       | 15          |               |  |       | 6.7   |             |  |               | 16  |  |      |      | 6.3  |   |  |       | 17  | 
|                                       |                          |                    |       |             |               |  |       |       |             |  |               |     |  |      |     
|Total from Continuing Operations       |                          |                    | 2,190 |             |               |  | (12.0 | )     |             |  | 1,927         |     |  |      | (2.1 | )    |   |  | 1,886 |    
|                                       | As a percentage of sales |                    |       | 9.8         |               |  |       |       |             |  |               | 8.3 |  |      |      |      |   |  |       | 6.9 | 



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





BASIS OF PRESENTATION


20-F


Effects of new accounting pronouncements




| |                                                            
| | -----------------------------------------------------------
| | Accounting standards applied for the first time in
    2005







106



---



##### Table of Contents



 




i.e. 








SIC-12 SIC-12s SIC-12




107



---



##### Table of Contents







   




|                                     |                                                                                      |                    |  |       |            |  |          |              |   |  |  |       | 
|------------------------------------ | ------------------------------------------------------------------------------------ | ------------------ |  | ----- | ---------- |  | -------- | ------------ | - |  |  | ----- | 
|                                     |                                                                                      | Carrying           |  |       |            |  | Carrying |             
|                                     |                                                                                      | amount before      |  |       | Impact of  |  |          | amount after |  
|                                     |                                                                                      | the change         |  |       | the change |  |          | the change   |  
|                                     |                                                                                      |                    |  |       |            |  |          |              |  
|                                     |                                                                                      | (Euros in million) | 
|Assets                               |                                                                                      |                    |  |       |            |  |          |              |   |  |  |      
|                                     | Benefit plan assets in excess of obligations                                         |                    |  | 540   |            |  |          | (468         | ) |  |  | 72    | 
|                                     | Deferred tax assets                                                                  |                    |  | 936   |            |  |          | 283          |   |  |  | 1,219 | 
|                                     | Assets held for sale and discontinued operations                                     |                    |  | 4,788 |            |  |          | (31          | ) |  |  | 4,757 | 
|Stockholders Equity and Liabilities |                                                                                      |                    |  |       |            |  |          |              |   |  |  |      
|                                     | Other reserves                                                                       |                    |  | 7,452 |            |  |          | (1,432       | ) |  |  | 6,020 | 
|                                     | Provisions for pensions and other post-employment benefits                           |                    |  | 4,581 |            |  |          | 1,638        |   |  |  | 6,219 | 
|                                     | Deferred tax liabilities                                                             |                    |  | 1,171 |            |  |          | (527         | ) |  |  | 644   | 
|                                     | Liabilities directly related to assets held for sale and
    discontinued operations |                    |  | 2,282 |            |  |          | 105          |   |  |  | 2,387 | 



108



---



##### Table of Contents









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









109



---



##### Table of Contents



U.S. GAAP


18-1,





Item 6.     Directors,
Senior Management and Employees


Directors and Senior Management


Aktiengesetz Vorstand Aufsichtsrat








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



Prokura






110



---



##### Table of Contents









|   |  |                            |  |          |  |                      |      | 
|-- |  | -------------------------- |  | -------- |  | -------------------- | ---- | 
|   |  | Name and Age               |  | Position |  | Current Term Expires |     
|   |  |                            |  |          |  |                      |     
|   |  | Werner Wenning (59)        |  | Chairman |  |                      | 2007 | 
|*  |  | Dr. Udo Oels (62)          |  | Member   |  |                      | 2006 | 
|   |  | Klaus Kühn (54)            |  | Member   |  |                      | 2007 | 
|   |  | Dr. Richard Pott (52)      |  | Member   |  |                      | 2007 | 
|** |  | Dr. Wolfgang Plischke (54) |  | Member   |  |                      | 2009 | 






| |   |                     
| | - | --------------------
| | * | Until April 28, 2006



|   |                    
|-- | -------------------
|** | As of March 1, 2006

Werner Wenning


Dr. Udo Oels


Klaus Kühn


Dr. Richard Pott Arbeitsdirektor


Dr. Wolfgang Plischke




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

Mitbestimmungsgesetz


111



---



##### Table of Contents



Geschäftsordnung




| |   |                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the acquisition or disposition of assets;                                                                                                            
|
| |  | the acquisition, disposition or encumbrance of real property;                                                                                        
|
| |  | the creation of new business units or the disposition of
    existing units; and                                                                     
|
| |  | the issuance of bonds, entering into of credit agreements, or
    grant of guaranties, 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 AG, DaimlerChrysler AG, Linde AG, Metro AG, RWE AG, TUI
    AG  
|*Erhard
    Gipperich(1)   |  | Vice Chairman |  | Chairman of the Group and Central Works Councils of Bayer AG,
    Leverkusen |  |         | 1998 |  |                     | Baywoge GmbH                                                            
|Dr. Paul Achleitner        |  | Member        |  | Member of the management board, Allianz AG                                   |  |         | 2002 |  |                     | Allianz Global Investors AG, Allianz Immobilien GmbH, MAN AG,
    RWE AG
|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                                                        
|*Karl-Josef Ellrich        |  | Member        |  | Chairman of the Works Council, Dormagen Site                                 |  |         | 2000 |  |                     | Bayer CropScience AG                                                    
|*Dr. Thomas
    Fischer(3) |  | Member        |  | Head of Process and Plant Safety, Bayer MaterialScience                      |  |         | 2005 |  |                     | Bayer MaterialScience AG                                                
|*Thomas Hellmuth           |  | Member        |  | Agricultural Engineer                                                        |  |         | 2002 |  |                     |                                                                        

112



---



##### Table of Contents



|                                     |  |          |  |                                                            |  |         |      |  |                     |                                                                                                                                                                                                      
|------------------------------------ |  | -------- |  | ---------------------------------------------------------- |  | ------- | ---- |  | ------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                     |  |          |  |                                                            |  | First   |      |  | Membership on other
|Name                                 |  | Position |  | Principal Occupation                                       |  | Elected |      |  | Supervisory Boards 
|                                     |  |          |  |                                                            |  |         |      |  |                    
|Prof. Dr.-Ing. E.h. Hans-Olaf Henkel |  | Member   |  | Honorary professor of the University of Mannheim           |  |         | 2002 |  |                     | Continental AG, DaimlerChrysler Aerospace AG, SMS GmbH, Brambles
    Industries, Orange SA, Ringier AG                                                                                               
|Gregor
    Jüsten(4)                 |  | Member   |  | Member of the Works Councils, Leverkusen Site              |  |         | 2006 |  |                     |                                                                                                                                                                                                     
|Dr. rer. pol. Klaus
    Kleinfeld(5) |  | 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 |  |                     | Heraeus Holding GmbH, Hochtief AG, Intermediate Capital Group,
    National Pensions Reserve Fund, Schering AG, ThyssenKrupp AG,
    Verlagsgruppe Georg von Holtzbrinck GmbH                        
|John Christian Kornblum              |  | Member   |  | Chairman of Lazard & Co.                                   |  |         | 2002 |  |                     | ThyssenKrupp Technologies AG, Motorola Inc.                                                                                                                                                          
|*Petra Kronen                        |  | Member   |  | Chairwoman of the Works Council, Uerdingen Site            |  |         | 2000 |  |                     | Bayer MaterialScience AG                                                                                                                                                                             
|Dr. Heinrich von
    Pierer(6)       |  | Member   |  | Chairman of the supervisory board, Siemens AG              |  |         | 1993 |  |                     | Deutsche Bank AG, Hochtief AG, Münchener
    Rückversicherungs- Gesellschaft AG, ThyssenKrupp AG,
    Volkswagen AG                                                                                  
|*Wolfgang
    Schenk(7)              |  | Member   |  | Engineer                                                   |  |         | 2002 |  |                     |                                                                                                                                                                                                     
|*Hubertus Schmoldt                   |  | Member   |  | Chairman of German Mine, Chemical and Power Workers Union |  |         | 1995 |  |                     | BHW AG, Deutsche BP AG, DOW Olefinverbund GmbH, E.ON AG, RAG AG,
    RAG Coal International                                                                                                          
|*Dieter Schulte                      |  | Member   |  | Former Chairman of German Unions Federation                |  |         | 1997 |  |                     |                                                                                                                                                                                                     
|Dr.-Ing. Ekkehard D. Schulz
    (5)  |  | Member   |  | Chairman of the management board, ThyssenKrupp AG          |  |         | 2005 |  |                     | AXA Konzern AG, Commerzbank AG, Deutsche Bahn AG, MAN AG, RAG
    AG, TUI AG, ThyssenKrupp Automotive AG, ThyssenKrupp Elevator
    AG, ThyssenKrupp Services AG, ThyssenKrupp Steel Beteiligungen AG

113



---



##### Table of Contents



|                                          |  |          |  |                                                                                      |  |         |      |  |                     |                                                                                                                                               
|----------------------------------------- |  | -------- |  | ------------------------------------------------------------------------------------ |  | ------- | ---- |  | ------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------
|                                          |  |          |  |                                                                                      |  | First   |      |  | Membership on other
|Name                                      |  | Position |  | Principal Occupation                                                                 |  | Elected |      |  | Supervisory Boards 
|                                          |  |          |  |                                                                                      |  |         |      |  |                    
|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, Thomas Cook AG, Voith AG, Loyalty Partner GmbH, Tetra Laval
    Group
|*Siegfried Wendlandt                      |  | Member   |  | North Rhine District Secretary of German Mine, Chemical and
    Power Workers Union |  |         | 2001 |  |                     | Baywoge GmbH, HT Troplast AG, Rütgers AG                                                                                                      
|*Reinhard
    Wendt(6)                    |  | Member   |  | Chairman of the works council of Wolff Walsrode AG                                   |  |         | 2002 |  |                     | Wolff Walsrode AG                                                                                                                             
|*Thomas de Win                            |  | Member   |  | Commercial
    Clerk(8)                                                              |  |         | 2002 |  |                     | Bayer Material Science AG                                                                                                                     
|Prof. Dr. Dr. h.c Ernst- Ludwig Winnacker |  | Member   |  | University Professor, Bonn; President of the German Research
    Association, Bonn   |  |         | 1997 |  |                     | MEDIGENE AG, KWS Saat AG, Wacker Chemie AG                                                                                                    
|Dr. Hermann
    Wunderlich(6)             |  | Member   |  | Former Vice Chairman of the Management Board                                         |  |         | 1996 |  |                     |                                                                                                                                              






|    |                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Resigned January 31, 2006                                                                                                                             
|   
|(2) | First elected April 29, 2005                                                                                                                          
|   
|(3) | First elected September 30, 2005                                                                                                                      
|   
|(4) | Elected February 1, 2006.                                                                                                                             
|   
|(5) | Elected April 29, 2005 to serve until the 2007 Annual
    Stockholders Meeting                                                                       
|   
|(6) | Resigned April 29, 2005                                                                                                                               
|   
|(7) | Resigned September 30, 2005                                                                                                                           
|   
|(8) | Chairman of the Group and Central Works Council of Bayer AG
    since February 1, 2006; Vice Chairman of the Supervisory
    Board since March 2, 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 nomination committee
    (Vermittlungsausschuss). The purpose of this committee is
    to nominate members of the Board of Management for election 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. Gipperich (until 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



---



##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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. Wendlandt and Mr. de Win.

Share Ownership




Compensation


(5)           





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











|    |                                                                              
|--- | -----------------------------------------------------------------------------
|(5) | EBITDA is defined as operating result plus depreciation and
    amortization.

115



---



##### Table of Contents





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

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

 












Verbraucherpreisindex). 
Employee Pension Plan.


   




116



---



##### Table of Contents








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

|                                          |  |              |            |  |              |  |           |        |  |  |            | 
|----------------------------------------- |  | ------------ | ---------- |  | ------------ |  | --------- | ------ |  |  | ---------- | 
|                                          |  | Basic        |            |  | Variable     |  |           |       
|                                          |  | Remuneration |            |  | Remuneration |  |           | Totals | 
|                                          |  |              |            |  |              |  |           |        | 
|                                          |  | (In Euros)   |           
|Dr. Paul Achleitner                       |  |              | 70,041.67  |  |              |  | 21,012.50 |        |  |  | 91,054.17  | 
|Dr. Josef Ackermann                       |  |              | 60,000.00  |  |              |  | 18,000.00 |        |  |  | 78,000.00  | 
|*Andreas
    Becker(1)                    |  |              | 40,167.00  |  |              |  | 12,050.00 |        |  |  | 52,217.00  | 
|*Karl-Josef Ellrich                       |  |              | 75,000.00  |  |              |  | 22,500.00 |        |  |  | 97,500.00  | 
|*Dr. Thomas
    Fischer(3)                |  |              | 18,750.00  |  |              |  | 5,625.00  |        |  |  | 24,375.00  | 
|*Erhard
    Gipperich(5)                  |  |              | 105,000.00 |  |              |  | 31,500.00 |        |  |  | 136,500.00 | 
|*Thomas Hellmuth                          |  |              | 60,000.00  |  |              |  | 18,000.00 |        |  |  | 78,000.00  | 
|Prof. Dr.-Ing. e.h. Hans-Olaf Henkel      |  |              | 75,000.00  |  |              |  | 22,500.00 |        |  |  | 97,500.00  | 
|Dr. rer. pol. Klaus
    Kleinfeld(1)      |  |              | 40,167.00  |  |              |  | 12,050.00 |        |  |  | 52,217.00  | 
|Dr. h.c. Martin Kohlhaussen               |  |              | 105,000.00 |  |              |  | 31,500.00 |        |  |  | 136,500.00 | 
|John Christian Kornblum                   |  |              | 60,000.00  |  |              |  | 18,000.00 |        |  |  | 78,000.00  | 
|*Petra Kronen                             |  |              | 75,000.00  |  |              |  | 22,500.00 |        |  |  | 97,500.00  | 
|Dr. Heinrich von
    Pierer(2)            |  |              | 24,791.33  |  |              |  | 7,437.50  |        |  |  | 32,228.83  | 
|*Wolfgang
    Schenk(4)                   |  |              | 56,250.00  |  |              |  | 16,875.00 |        |  |  | 73,125.00  | 
|*Hubertus Schmoldt                        |  |              | 75,000.00  |  |              |  | 22,500.00 |        |  |  | 97,500.00  | 
|Dr. Manfred Schneider                     |  |              | 180,000.00 |  |              |  | 54,000.00 |        |  |  | 234,000.00 | 
|*Dieter Schulte                           |  |              | 60,000.00  |  |              |  | 18,000.00 |        |  |  | 78,000.00  | 
|Dr.-Ing. Ekkehard D.
    Schulz(1)        |  |              | 40,167.00  |  |              |  | 12,050.00 |        |  |  | 52,217.00  | 
|Dr.-Ing. e.h. Jürgen Weber                |  |              | 60,000.00  |  |              |  | 18,000.00 |        |  |  | 78,000.00  | 
|*Siegfried Wendlandt                      |  |              | 75,000.00  |  |              |  | 22,500.00 |        |  |  | 97,500.00  | 
|*Reinhard
    Wendt(2)                    |  |              | 19,833.00  |  |              |  | 5,950.00  |        |  |  | 25,783.00  | 
|*Thomas de Win                            |  |              | 75,000.00  |  |              |  | 22,500.00 |        |  |  | 97,500.00  | 
|Prof. Dr. Dr. h.c. Ernst-Ludwig Winnacker |  |              | 60,000.00  |  |              |  | 18,000.00 |        |  |  | 78,000.00  | 
|Dr. Hermann
    Wunderlich(2)             |  |              | 19,833.00  |  |              |  | 5,950.00  |        |  |  | 25,783.00  | 






|    |                                  
|--- | ---------------------------------
|(1) | First elected April 29, 2005.    
|   
|(2) | Resigned April 29, 2005.         
|   
|(3) | First elected September 30, 2005.
|   
|(4) | Resigned September 30, 2005.     
|   
|(5) | Resigned January 31, 2006.       



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







117



---



##### Table of Contents











|                                        |  |                    |   |  |                 |  |   |                     |  |  |   | 
|--------------------------------------- |  | ------------------ | - |  | --------------- |  | - | ------------------- |  |  | - | 
|                                        |  | Stock option       |   |  | Stock incentive |  |   | Stock participation | 
|                                        |  | program            |   |  | program         |  |   | program             | 
|                                        |  |                    |   |  |                 |  |   |                     | 
|                                        |  | (Euros in million) |  
|Intrinsic value as of December 31, 2004 |  |                    | 2 |  |                 |  | 1 |                     |  |  | 1 | 
|One-time remeasurement effect           |  |                    | 1 |  |                 |  | 1 |                     |  |  | 5 | 
|                                        |  |                    |   |  |                 |  |   |                     | 
|Fair value as of January 1, 2005        |  |                    | 3 |  |                 |  | 2 |                     |  |  | 6 | 
|                                        |  |                    |   |  |                 |  |   |                     | 



|                  |  |                    |    |  |                 |  |   |                     |  |  |          |   |  |           |    |  |  |  |    | 
|----------------- |  | ------------------ | -- |  | --------------- |  | - | ------------------- |  |  | -------- | - |  | --------- | -- |  |  |  | -- | 
|                  |  | Stock option       |    |  | Stock incentive |  |   | Stock participation |  |  |          |   | 
|                  |  | program            |    |  | program         |  |   | program             |  |  | Aspire I |   |  | Aspire II |   
|                  |  |                    |    |  |                 |  |   |                     |  |  |          |   |  |           |   
|                  |  | (Euros in million) |   
|January 1, 2005   |  |                    | 3  |  |                 |  | 2 |                     |  |  | 6        |   |  |           | 0  |  |  |  | 0  | 
|Allocations       |  |                    | 10 |  |                 |  | 1 |                     |  |  | 6        |   |  |           | 11 |  |  |  | 23 | 
|Utilization       |  |                    |   |  |                 |  | 0 |                     |  |  | 0        |   |  |           | 0  |  |  |  | 0  | 
|Reversal          |  |                    | 0  |  |                 |  | 0 |                     |  |  | (1       | ) |  |           | 0  |  |  |  | 0  | 
|                  |  |                    |    |  |                 |  |   |                     |  |  |          |   |  |           |   
|December 31, 2005 |  |                    | 13 |  |                 |  | 3 |                     |  |  | 11       |   |  |           | 11 |  |  |  | 23 | 
|                  |  |                    |    |  |                 |  |   |                     |  |  |          |   |  |           |   

    







|                                                                  |  |              
|----------------------------------------------------------------- |  | -------------
|Dividend yield                                                    |  | 2.27 percent 
|Risk-free interest rate                                           |  | 2.92 percent 
|Volatility of Bayer stock                                         |  | 38.00 percent
|Volatility of the EURO STOXX
    50sm                             |  | 19.55 percent
|Correlation between Bayer stock price and the EURO STOXX
    50sm |  | 0.56         



118



---



##### Table of Contents





| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | 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 (2005) for other managers
    and non-managerial employees





| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | up to 30 Bayer shares at a discount of
    6.75 per share
    and                             
|
| |  | additional Bayer shares at a 15 percent discount up to a
    maximum total value of
    2,500.








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



119



---



##### Table of Contents





|                                                            |  |              |           |  |                 |  |           |                     |  |  |           | 
|----------------------------------------------------------- |  | ------------ | --------- |  | --------------- |  | --------- | ------------------- |  |  | --------- | 
|                                                            |  | 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 (2000-2004)





sm









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



sm




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



120



---



##### Table of Contents





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

RPK RPK, Beitragsbemessungsgrenze gesetzliche Rentenversicherung   . Grundrente RPK RPK


Zusatzrente RPK


Bayer-Pensionskasse Bayer-Pensionskasse,  Zusatzrente   i.e.   Zusatzrente


i.e.  Compensation. i.e.




121



---



##### Table of Contents





Employees




|                          |  |                                   |        |             |               |  |       |      |             |  |               |  |  |      |       |   |  |  |        | 
|------------------------- |  | --------------------------------- | ------ | ----------- | ------------- |  | ----- | ---- | ----------- |  | ------------- |  |  | ---- | ----- | - |  |  | ------ | 
|                          |  | Employees by Activity Average for |       
|                          |  |                                   |       
|                          |  |                                   |        | Change from |               |  |       |      | Change from |  |               | 
|                          |  | 2003                              |        |             | Previous Year |  |       | 2004 |             |  | Previous Year |  |  | 2005 |      
|                          |  |                                   |        |             |               |  |       |      |             |  |               |  |  |      |      
|                          |  |                                   |        | (%)         |               |  |       |      | (%)         |  |               | 
|Technology/ Manufacturing |  |                                   | 46,441 |             |               |  | (5.19 | )    |             |  | 44,033        |  |  |      | (0.05 | ) |  |  | 44,011 | 
|Marketing                 |  |                                   | 30,254 |             |               |  | (2.24 | )    |             |  | 29,576        |  |  |      | 3.32  |   |  |  | 30,558 | 
|Administration            |  |                                   | 9,073  |             |               |  | (0.61 | )    |             |  | 9,018         |  |  |      | 4.33  |   |  |  | 9,409  | 
|Research                  |  |                                   | 10,544 |             |               |  | (9.33 | )    |             |  | 9,560         |  |  |      | (3.92 | ) |  |  | 9,185  | 
|                          |  |                                   |        |             |               |  |       |      |             |  |               |  |  |      |      
|Total                     |  |                                   | 96,312 |             |               |  | (4.28 | )    |             |  | 92,187        |  |  |      | 1.06  |   |  |  | 93,163 | 
|                          |  |                                   |        |             |               |  |       |      |             |  |               |  |  |      |      

|                                  |  |                                        |        |             |               |  |       |      |             |  |               |  |  |      |       |   |  |  |        | 
|--------------------------------- |  | -------------------------------------- | ------ | ----------- | ------------- |  | ----- | ---- | ----------- |  | ------------- |  |  | ---- | ----- | - |  |  | ------ | 
|                                  |  | Breakdown by Region As of December 31, |       
|                                  |  |                                        |       
|                                  |  |                                        |        | Change from |               |  |       |      | Change from |  |               | 
|                                  |  | 2003                                   |        |             | Previous Year |  |       | 2004 |             |  | Previous Year |  |  | 2005 |      
|                                  |  |                                        |        |             |               |  |       |      |             |  |               |  |  |      |      
|                                  |  |                                        |        | (%)         |               |  |       |      | (%)         |  |               | 
|Europe                            |  |                                        | 51,900 |             |               |  | (1.93 | )    |             |  | 50,900        |  |  |      | 1.96  |   |  |  | 51,900 | 
|North America                     |  |                                        | 18,700 |             |               |  | (4.81 | )    |             |  | 17,800        |  |  |      | (8.99 | ) |  |  | 16,200 | 
|Asia/Pacific                      |  |                                        | 12,200 |             |               |  | 0.0   |      |             |  | 12,200        |  |  |      | 13.93 |   |  |  | 13,900 | 
|Latin America/ Africa/Middle East |  |                                        | 10,000 |             |               |  | 3.00  |      |             |  | 10,300        |  |  |      | 8.74  |   |  |  | 11,200 | 
|Corporate                         |  |                                        | 500    |             |               |  | 0.0   |      |             |  | 500           |  |  |      | 0.0   |   |  |  | 500    | 

Labor Relations






monatliches
Tarifentgelt




122



---



##### Table of Contents



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


Krefeld-Uerdingen,


123



---



##### Table of Contents






Item 7.     Major
Shareholders and Related Party Transactions


Major Shareholders




Wertpapierhandelsgesetz




e.g.






Directors, Senior Management and
Employees  Share Ownership.


Related Party Transactions




124



---



##### Table of Contents



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.





125



---



##### Table of Contents







| |                              
| | -----------------------------
| | Product liability proceedings



| |                        
| | -----------------------
| | Cerivastatin litigation



U.S. litigation.






Litigation in other countries.


126



---



##### Table of Contents





Impact of cerivastatin litigation on Bayer.


  








| |                                 
| | --------------------------------
| | Blood plasma products litigation

HIV-related actions.


HIV/HCV-related actions.




127



---



##### Table of Contents







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









  


 




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





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



128



---



##### Table of Contents











| |                                   
| | ----------------------------------
| | Proceedings involving Imidacloprid





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



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

Government investigations.






129



---



##### Table of Contents










Civil litigation.






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

Government investigation.


Civil litigation.




130



---



##### Table of Contents







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

Government investigation.


Civil litigation.




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

  








Additional Information 
Material Contracts




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

Cipro ®


131



---



##### Table of Contents



Cipro ®


Cipro ® Cipro ®


Cipro®








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

Premise® Premise®


Premise®




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



132



---



##### Table of Contents









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



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

Hatch-Waxman Avelox ® Avelox ® Avelox ®




Avelox ®


Hatch-Waxman Vigamox ®




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

Patent-related. Kogenate ® Helixate ®


133



---



##### Table of Contents





Contract-related. Helixate ®




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

Ascensia® Contour®




| |                                       
| | --------------------------------------
| | Advia
    Centaur®-related
    actions

Patent-related action. ® ACS:180 ® Advia
Centaur ®




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





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





134



---



##### Table of Contents









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



| |                              
| | -----------------------------
| | Proceedings involving Everest





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









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



Dividend Policy and Liquidation Proceeds




135



---



##### Table of Contents



andere Gewinnrücklagen gesetzliche Rücklagen










Key Information 
Dividends.


Significant Changes







Item 9.     The
Listing


Listing Details and Markets






136



---



##### Table of Contents





|                    |                |                 |       |       |                   |  |       |       |  |  |       |       |  |  |       |       | 
|------------------- | -------------- | --------------- | ----- | ----- | ----------------- |  | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                    |                | Frankfurt Stock |       |       | New York Stock    | 
|                    |                | Exchange(2)     |       |       | Exchange(2)       | 
|                    |                |                 |       |       |                   | 
|                    |                | High            |       |       | Low               |  |       | High  |  |  | Low   |      
|                    |                |                 |       |       |                   |  |       |       |  |  |       |      
|                    |                | (In Euros)      |       |       | (In U.S. dollars) | 
|2001                |                |                 | 53.51 |       |                   |  | 24.57 |       |  |  |       |       |  |  |       |      
|2002(1)             |                |                 | 38.37 |       |                   |  | 16.41 |       |  |  | 36.00 |       |  |  | 17.30 |      
|2003                |                |                 | 22.17 |       |                   |  | 9.67  |       |  |  | 29.41 |       |  |  | 11.24 |      
|2004:               |                |                 |       |       |                   |  |       |       |  |  |       |       |  |  |       |      
|                    | First quarter  |                 |       | 23.88 |                   |  |       | 18.33 |  |  |       | 32.15 |  |  |       | 23.52 | 
|                    | Second quarter |                 |       | 22.33 |                   |  |       | 18.88 |  |  |       | 29.09 |  |  |       | 24.52 | 
|                    | Third quarter  |                 |       | 22.27 |                   |  |       | 18.68 |  |  |       | 29.17 |  |  |       | 24.33 | 
|                    | Fourth quarter |                 |       | 23.92 |                   |  |       | 20.44 |  |  |       | 34.12 |  |  |       | 27.00 | 
|Full year 2004      |                |                 | 23.92 |       |                   |  | 18.33 |       |  |  | 34.12 |       |  |  | 23.52 |      
|2005:               |                |                 |       |       |                   |  |       |       |  |  |       |       |  |  |       |      
|                    | First quarter  |                 |       | 26.82 |                   |  |       | 22.11 |  |  |       | 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 |       |                   |  | 22.11 |       |  |  | 42.87 |       |  |  | 30.84 |      
|Previous six months |                |                 |       |       |                   |  |       |       |  |  |       |       |  |  |       |      
|                    | September 2005 |                 |       | 30.84 |                   |  |       | 28.70 |  |  |       | 38.50 |  |  |       | 35.23 | 
|                    | October 2005   |                 |       | 31.23 |                   |  |       | 27.86 |  |  |       | 37.35 |  |  |       | 33.70 | 
|                    | November 2005  |                 |       | 33.95 |                   |  |       | 28.86 |  |  |       | 40.32 |  |  |       | 34.34 | 
|                    | December 2005  |                 |       | 35.92 |                   |  |       | 33.73 |  |  |       | 42.87 |  |  |       | 39.83 | 
|                    | January 2006   |                 |       | 36.37 |                   |  |       | 33.61 |  |  |       | 44.31 |  |  |       | 40.80 | 
|                    | February 2006  |                 |       | 35.07 |                   |  |       | 33.50 |  |  |       | 41.95 |  |  |       | 40.07 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | From January 24, 2002 for New York Stock Exchange.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(2) | 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 share prices presented here for
    the New York Stock Exchange have not been retroactively adjusted
    for the spin-off.









Item 10.     Additional
Information


Memorandum and Articles of Association




137



---



##### Table of Contents



20-F.




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

Handelsregister Amtsgericht




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





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













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



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

Jahresabschluss Lagebericht




138



---



##### Table of Contents





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

Dividend Policy and Liquidation Proceeds.




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



i.e






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





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

Bezugsrecht




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




139



---



##### Table of Contents








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






elektronischer Bundesanzeiger




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







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

i.e.


140



---



##### Table of Contents







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

Wertpapierhandelsgesetz Major Shareholders and Related Party Transactions 
Major Shareholders.





Wertpapiererwerbs- und
Übernahmegesetz


Material contracts




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

Umwandlungsgesetz Handelsregister Amtsgericht Köln


 


141



---



##### Table of Contents







| |                  
| | -----------------
| | Relating to Roche

 




Exchange controls




Taxation






142



---



##### Table of Contents







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















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



143



---



##### Table of Contents

















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



144



---



##### Table of Contents







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







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

Vermögensteuer Vermögensteuer




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





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





145



---



##### Table of Contents



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, between the euro and the Canadian dollar and between the
    U.S. dollar and the Brazilian real.
|
| |  | 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.                                                                                                                                              





146



---



##### Table of Contents





| |                     
| | --------------------
| | 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.                                                     







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.
|
| |  | 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.                                                                                                                                                                                                                                                             





147



---



##### Table of Contents







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







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





|                                |  |                     |       |  |              |  |        |      |  |  |      |  |  |  |     | 
|------------------------------- |  | ------------------- | ----- |  | ------------ |  | ------ | ---- |  |  | ---- |  |  |  | --- | 
|                                |  | Notional Amount     |       |  | Fair value   | 
|                                |  | As of               |       |  | As of        | 
|                                |  | December 31,        |       |  | December 31, | 
|                                |  |                     |       |  |              | 
|                                |  | 2004                |       |  | 2005         |  |        | 2004 |  |  | 2005 | 
|                                |  |                     |       |  |              |  |        |      |  |  |      | 
|                                |  | (Euros in millions) |      
|Interest rate hedging contracts |  |                     | 5,791 |  |              |  | 11,327 |      |  |  | 149  |  |  |  | 109 | 

   




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

 




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



148



---



##### Table of Contents







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





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





  




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





149



---



##### Table of Contents





|                                                                                         |  |                     |       |  |              |  |       |      |  |  |      |  |  |  |      |  
|---------------------------------------------------------------------------------------- |  | ------------------- | ----- |  | ------------ |  | ----- | ---- |  |  | ---- |  |  |  | ---- | -
|                                                                                         |  | Notional Amount     |       |  | Fair Value   | 
|                                                                                         |  | As of               |       |  | As of        | 
|                                                                                         |  | December 31,        |       |  | December 31, | 
|                                                                                         |  |                     |       |  |              | 
|                                                                                         |  | 2004                |       |  | 2005         |  |       | 2004 |  |  | 2005 | 
|                                                                                         |  |                     |       |  |              |  |       |      |  |  |      | 
|                                                                                         |  | (Euros in millions) |      
|Forward exchange contracts, currency swaps and interest and
    principal currency swaps |  |                     | 6,210 |  |              |  | 5,533 |      |  |  | 480  |  |  |  | (116 | )
|Currency options                                                                         |  |                     | 123   |  |              |  | 169   |      |  |  | 10   |  |  |  | (2   | )

 




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

       




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





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





| |   |                 
| | - | ----------------
| |  | Benzene;        
|
| |  | Phenol;         
|
| |  | Acetone;        
|
| |  | Propylene oxide;
|
| |  | Ethylene;       
|
| |  | Toluene;        

150



---



##### Table of Contents





| |   |                    
| | - | -------------------
| |  | 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







|                                   |  |                     |     |  |              |  |     |      |  |  |      |  |  |  |     |  
|---------------------------------- |  | ------------------- | --- |  | ------------ |  | --- | ---- |  |  | ---- |  |  |  | --- | -
|                                   |  | Notional            |     |  |             
|                                   |  | Amount              |     |  | Fair Value   | 
|                                   |  | As of               |     |  | As of        | 
|                                   |  | December 31,        |     |  | December 31, | 
|                                   |  |                     |     |  |              | 
|                                   |  | 2004                |     |  | 2005         |  |     | 2004 |  |  | 2005 | 
|                                   |  |                     |     |  |              |  |     |      |  |  |      | 
|                                   |  | (Euros in millions) |    
|Commodity hedging contracts        |  |                     | 802 |  |              |  | 416 |      |  |  | 28   |  |  |  | 85  |  
|Commodity option hedging contracts |  |                     |     |  |              |  | 49  |      |  |  |      |  |  |  | (13 | )

  .


151



---



##### Table of Contents





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

 







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



152



---



##### Table of Contents






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










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






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








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



153



---



##### Table of Contents








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

Independent Auditor Fees




|                        |       |                     |    |    |      |  |    |      |  |  |    |    | 
|----------------------- | ----- | ------------------- | -- | -- | ---- |  | -- | ---- |  |  | -- | -- | 
|Type of fees            |       | 2003                |    |    | 2004 |  |    | 2005 | 
|                        |       |                     |    |    |      |  |    |      | 
|                        |       | (Euros in millions) |   
|Audit fees              |       |                     | 23 |    |      |  | 18 |      |  |  | 16 |   
|Audit-related fees      |       |                     | 3  |    |      |  | 8  |      |  |  | 5  |   
|Tax fees                |       |                     | 1  |    |      |  | 1  |      |  |  | 1  |   
|Fees for other services |       |                     | *  |    |      |  | *  |      |  |  | 1  |   
|                        |       |                     |    |    |      |  |    |      | 
|                        | Total |                     |    | 27 |      |  |    | 27   |  |  |    | 23 | 
|                        |       |                     |    |    |      |  |    |      | 






|  |                                                                       
|- | ----------------------------------------------------------------------
|* | All other fees amounted to less than
    500,000 in 2003
    and 2004





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

Aufsichtsrat




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Audit services up to an annual aggregate, which was
    23 million
    in 2003,
    18 million
    in 2004 and
    16 million
    in 2005 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.                                                                                                                                                                                                                                                                                                                                                                                                                                 

154



---



##### Table of Contents










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








|          |                                                                           
|--------- | --------------------------------------------------------------------------
|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 (2005) |  | Purchased(a) |         |  | in Euro(b)     |                  |       | or Programs         |                   |  | Plans or Programs   | 
|              |  |              |         |  |                |                  |       |                     |                   |  |                     | 
|January       |  |              | 29,671  |  |                |                  | 26.67 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|February      |  |              | 33,916  |  |                |                  | 26.42 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|March         |  |              | 36,633  |  |                |                  | 29.32 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|April         |  |              | 52,284  |  |                |                  | 25.61 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|May           |  |              | 69,290  |  |                |                  | 25.51 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|June          |  |              | 30,521  |  |                |                  | 28.64 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|July          |  |              | 31,236  |  |                |                  | 27.60 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|August        |  |              | 30,933  |  |                |                  | 29.74 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|September     |  |              | 150,338 |  |                |                  | 29.84 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|October       |  |              | 371,323 |  |                |                  | 28.88 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|November      |  |              | 95,250  |  |                |                  | 28.59 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 
|December      |  |              | 33,482  |  |                |                  | 34.17 |                     |                   |  | [N/A]               |  |  |  | [N/A] | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Relates to purchases of Bayer AG ordinary shares of no par value
    made by Bayer to accommodate its employee stock participation
    programs in Germany, the United States and Canada. 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 28, 2006 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  Employee Stock-Based
    Compensation Program.
|   
|(b) | Average price paid per share includes commissions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

155



---



##### Table of Contents






PART III







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








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

F-1 F-134,







|         |         
|-------- | --------
|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, is 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, is
    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  |  | Share and Asset Purchase Agreement, dated as of July 16,
    2004, by and among Roche Holding AG, Roche Finanz AG,
    Roche Pharmholding B.V., Roche Deutschland
    Holding GmbH, Hoffmann-La Roche France SAS and Bayer
    HealthCare AG, and the amendment thereto dated as of
    December 28, 2004, in English translation, is incorporated
    by reference to Exhibit 4.3 to Bayer AGs Annual
    Report on Form 20-F for the Year Ended December 31,
    2004.  
|Exhibit 4.4  |  | Summary of Employment Arrangements between Bayer AG and
    Werner Wenning.                                                                                                                                                                                                                                                                                                                                                                                                
|Exhibit 4.5  |  | Summary of Employment Arrangements between Bayer AG and
    Dr. Udo Oels.                                                                                                                                                                                                                                                                                                                                                                                                  
|Exhibit 4.6  |  | Summary of Employment Arrangements between Bayer AG and
    Klaus Kühn.                                                                                                                                                                                                                                                                                                                                                                                                    
|Exhibit 4.7  |  | Summary of Employment Arrangements between Bayer AG and
    Dr. Richard Pott.                                                                                                                                                                                                                                                                                                                                                                                              
|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.                                                                                                                                                                                                                                                                                                                                                               

156



---



##### Table of Contents



SIGNATURES




BAYER AG






















157



---



##### Table of Contents



BAYER GROUP


Index to Consolidated Financial Statements


|                                               |                                                                                                                   |      |     |     | 
|---------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ---- | --- | --- | 
|                                               |                                                                                                                   | Page |    
|                                               |                                                                                                                   |      |    
|Independent Auditors Report                   |                                                                                                                   |      | F-2 |    
|Consolidated Financial Statements:             |                                                                                                                   |      |     |    
|                                               | Consolidated Statements of Income for the years ended
    December 31, 2005, 2004 and 2003                        |      |     | F-3 | 
|                                               | Consolidated Balance Sheets as of December 31, 2005 and 2004                                                      |      |     | F-4 | 
|                                               | Consolidated Statements of Cash Flows for the years ended
    December 31, 2005, 2004 and 2003                    |      |     | F-5 | 
|                                               | Consolidated Statements of Recognized Income and Expense for the
    years ended December 31, 2005, 2004 and 2003 |      |     | F-6 | 
|Notes to the Consolidated Financial Statements |                                                                                                                   |      | F-7 |    

F-1



---



##### Table of Contents



Report of Independent Registered Public Accounting Firm




























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

F-2



---



##### Table of Contents



Bayer Group


Consolidated Statements of Income


|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |      |   |  |         |       |  
|------------------------------------------------------ | --------------------------------------------------------- | ---- | ------ | ----------- | ---- |  | ------- | ------ | - |  | ------- | ---- | - |  | ------- | ----- | -
|                                                       |                                                           | Note |        |             | 2003 |  |         | 2004   |   |  | 2005    |     
|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |     
|                                                       |                                                           |      |        | ( million) |     
|Net sales                                              |                                                           |      | [8]    |             |      |  | 22,417  |        |   |  | 23,278  |      |   |  | 27,383  |      
|Cost of goods sold                                     |                                                           |      |        |             |      |  | (11,779 | )      |   |  | (12,421 | )    |   |  | (15,027 | )    
|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |     
|Gross profit                                           |                                                           |      |        |             |      |  | 10,638  |        |   |  | 10,857  |      |   |  | 12,356  |      
|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |     
|Selling expenses                                       |                                                           |      | [9]    |             |      |  | (5,515  | )      |   |  | (5,240  | )    |   |  | (5,713  | )    
|Research and development expenses                      |                                                           |      | [10]   |             |      |  | (2,190  | )      |   |  | (1,927  | )    |   |  | (1,886  | )    
|General administration expenses                        |                                                           |      |        |             |      |  | (1,410  | )      |   |  | (1,421  | )    |   |  | (1,444  | )    
|Other operating income                                 |                                                           |      | [11]   |             |      |  | 1,073   |        |   |  | 740     |      |   |  | 794     |      
|Other operating expenses                               |                                                           |      | [12]   |             |      |  | (2,021  | )      |   |  | (1,134  | )    |   |  | (1,295  | )    
|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |     
|Operating result                                       |                                                           |      | [14]   |             |      |  | 575     |        |   |  | 1,875   |      |   |  | 2,812   |      
|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |     
|Equity-method loss                                     |                                                           |      | [15.1] |             |      |  | (165    | )      |   |  | (139    | )    |   |  | (10     | )    
|Non-operating income                                   |                                                           |      |        |             |      |  | 750     |        |   |  | 483     |      |   |  | 634     |      
|Non-operating expenses                                 |                                                           |      |        |             |      |  | (1,293  | )      |   |  | (997    | )    |   |  | (1,237  | )    
|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |     
|Non-operating result                                   |                                                           |      | [15]   |             |      |  | (708    | )      |   |  | (653    | )    |   |  | (613    | )    
|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |     
|Income (loss) before income taxes                      |                                                           |      |        |             |      |  | (133    | )      |   |  | 1,222   |      |   |  | 2,199   |      
|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |     
|Income taxes                                           |                                                           |      | [16]   |             |      |  | 84      |        |   |  | (473    | )    |   |  | (641    | )    
|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |     
|Income (loss) from continuing operations after taxes   |                                                           |      |        |             |      |  | (49     | )      |   |  | 749     |      |   |  | 1,558   |      
|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |     
|Income (loss) from discontinued operations after taxes |                                                           |      | [7.2]  |             |      |  | (1,242  | )      |   |  | (67     | )    |   |  | 37      |      
|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |     
|Income (loss) after taxes                              |                                                           |      |        |             |      |  | (1,291  | )      |   |  | 682     |      |   |  | 1,595   |      
|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |     
|of which                                               |                                                           |      |        |             |      |  |         |        |   |  |         |      |   |  |         |      
|                                                       | attributable to minority interest                         |      |        | [17]        |      |  |         | 12     |   |  |         | (3   | ) |  |         | (2    | )
|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |     
|                                                       | attributable to Bayer AG stockholders (net income (loss)) |      |        |             |      |  |         | (1,303 | ) |  |         | 685  |   |  |         | 1,597 |  
|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |     
|Earnings (loss) per share
    ()                      |                                                           |      |        |             |      |  |         |        |   |  |         |      |   |  |         |      
|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |     
|From continuing operations                             |                                                           |      | [18]   |             |      |  | (0.08   | )      |   |  | 1.03    |      |   |  | 2.14    |      
|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |     
|                                                       | Basic                                                     |      |        |             |      |  |         | (0.08  | ) |  |         | 1.03 |   |  |         | 2.14  |  
|                                                       | Diluted                                                   |      |        |             |      |  |         | (0.08  | ) |  |         | 1.03 |   |  |         | 2.14  |  
|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |     
|From continuing and discontinued operations            |                                                           |      | [18]   |             |      |  | (1.78   | )      |   |  | 0.94    |      |   |  | 2.19    |      
|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |     
|                                                       | Basic                                                     |      |        |             |      |  |         | (1.78  | ) |  |         | 0.94 |   |  |         | 2.19  |  
|                                                       | Diluted                                                   |      |        |             |      |  |         | (1.78  | ) |  |         | 0.94 |   |  |         | 2.19  |  
|                                                       |                                                           |      |        |             |      |  |         |        |   |  |         |     



F-3



---



##### Table of Contents



Bayer Group


Consolidated Balance Sheets


|                                                                                     |                                             |      |       |             |               |  |        |               |  |  |        |       | 
|------------------------------------------------------------------------------------ | ------------------------------------------- | ---- | ----- | ----------- | ------------- |  | ------ | ------------- |  |  | ------ | ----- | 
|                                                                                     |                                             | Note |       |             | Dec. 31, 2004 |  |        | Dec. 31, 2005 | 
|                                                                                     |                                             |      |       |             |               |  |        |               | 
|                                                                                     |                                             |      |       | ( million) |              
|Noncurrent assets                                                                    |                                             |      |       |             |               |  |        |               |  |  |        |      
|Goodwill and other intangible assets                                                 |                                             |      | [19]  |             |               |  | 5,952  |               |  |  | 7,688  |      
|Property, plant and equipment                                                        |                                             |      | [20]  |             |               |  | 7,662  |               |  |  | 8,321  |      
|Investments in associates                                                            |                                             |      | [21]  |             |               |  | 744    |               |  |  | 795    |      
|Other financial assets                                                               |                                             |      | [22]  |             |               |  | 1,169  |               |  |  | 1,429  |      
|Other receivables                                                                    |                                             |      | [23]  |             |               |  | 113    |               |  |  | 199    |      
|Deferred taxes                                                                       |                                             |      | [16]  |             |               |  | 1,219  |               |  |  | 1,698  |      
|                                                                                     |                                             |      |       |             |               |  |        |               | 
|                                                                                     |                                             |      |       |             |               |  | 16,859 |               |  |  | 20,130 |      
|                                                                                     |                                             |      |       |             |               |  |        |               | 
|Current assets                                                                       |                                             |      |       |             |               |  |        |               |  |  |        |      
|Inventories                                                                          |                                             |      | [24]  |             |               |  | 4,738  |               |  |  | 5,504  |      
|Trade accounts receivable                                                            |                                             |      | [25]  |             |               |  | 4,475  |               |  |  | 5,204  |      
|Other financial assets                                                               |                                             |      | [22]  |             |               |  | 794    |               |  |  | 214    |      
|Other receivables                                                                    |                                             |      | [23]  |             |               |  | 1,543  |               |  |  | 1,421  |      
|Claims for tax refunds                                                               |                                             |      | [16]  |             |               |  | 823    |               |  |  | 726    |      
|Liquid assets                                                                        |                                             |      | [26]  |             |               |  |        |               |  |  |        |      
|                                                                                     | Marketable securities and other instruments |      |       |             |               |  |        | 29            |  |  |        | 233   | 
|                                                                                     | Cash and cash equivalents                   |      |       |             |               |  |        | 3,570         |  |  |        | 3,290 | 
|                                                                                     |                                             |      |       |             |               |  |        |               | 
|                                                                                     |                                             |      |       |             |               |  | 15,972 |               |  |  | 16,592 |      
|                                                                                     |                                             |      |       |             |               |  |        |               | 
|Assets held for sale and discontinued operations                                     |                                             |      | [7.2] |             |               |  | 4,757  |               |  |  |       |      
|                                                                                     |                                             |      |       |             |               |  |        |               | 
|Total current assets                                                                 |                                             |      |       |             |               |  | 20,729 |               |  |  | 16,592 |      
|                                                                                     |                                             |      |       |             |               |  |        |               | 
|Assets                                                                               |                                             |      |       |             |               |  | 37,588 |               |  |  | 36,722 |      
|                                                                                     |                                             |      |       |             |               |  |        |               | 
|Equity attributable to Bayer AG stockholders                                         |                                             |      |       |             |               |  |        |               |  |  |        |      
|Capital stock of Bayer AG                                                            |                                             |      |       |             |               |  | 1,870  |               |  |  | 1,870  |      
|Capital reserves of Bayer AG                                                         |                                             |      |       |             |               |  | 2,942  |               |  |  | 2,942  |      
|Other reserves                                                                       |                                             |      |       |             |               |  | 6,399  |               |  |  | 6,265  |      
|Accumulated other comprehensive income (loss) from discontinued
    operations       |                                             |      |       |             |               |  | (379   | )             |  |  |       |      
|                                                                                     |                                             |      |       |             |               |  |        |               | 
|                                                                                     |                                             |      |       |             |               |  | 10,832 |               |  |  | 11,077 |      
|                                                                                     |                                             |      |       |             |               |  |        |               | 
|Equity attributable to minority interest                                             |                                             |      |       |             |               |  | 111    |               |  |  | 80     |      
|                                                                                     |                                             |      |       |             |               |  |        |               | 
|Stockholders equity                                                                 |                                             |      | [27]  |             |               |  | 10,943 |               |  |  | 11,157 |      
|                                                                                     |                                             |      |       |             |               |  |        |               | 
|Noncurrent liabilities                                                               |                                             |      |       |             |               |  |        |               |  |  |        |      
|Provisions for pensions and other post-employment benefits                           |                                             |      | [28]  |             |               |  | 6,219  |               |  |  | 7,174  |      
|Other provisions                                                                     |                                             |      | [29]  |             |               |  | 1,204  |               |  |  | 1,340  |      
|Financial liabilities                                                                |                                             |      | [30]  |             |               |  | 7,025  |               |  |  | 7,185  |      
|Miscellaneous liabilities                                                            |                                             |      | [32]  |             |               |  | 203    |               |  |  | 516    |      
|Deferred taxes                                                                       |                                             |      | [16]  |             |               |  | 644    |               |  |  | 280    |      
|                                                                                     |                                             |      |       |             |               |  |        |               | 
|                                                                                     |                                             |      |       |             |               |  | 15,295 |               |  |  | 16,495 |      
|                                                                                     |                                             |      |       |             |               |  |        |               | 
|Current liabilities                                                                  |                                             |      |       |             |               |  |        |               |  |  |        |      
|Other provisions                                                                     |                                             |      | [29]  |             |               |  | 2,707  |               |  |  | 3,009  |      
|Financial liabilities                                                                |                                             |      | [30]  |             |               |  | 2,166  |               |  |  | 1,767  |      
|Trade accounts payable                                                               |                                             |      | [31]  |             |               |  | 1,759  |               |  |  | 1,974  |      
|Tax liabilities                                                                      |                                             |      | [16]  |             |               |  | 413    |               |  |  | 304    |      
|Miscellaneous liabilities                                                            |                                             |      | [32]  |             |               |  | 1,918  |               |  |  | 2,016  |      
|                                                                                     |                                             |      |       |             |               |  |        |               | 
|                                                                                     |                                             |      |       |             |               |  | 8,963  |               |  |  | 9,070  |      
|                                                                                     |                                             |      |       |             |               |  |        |               | 
|Liabilities directly related to assets held for sale and
    discontinued operations |                                             |      | [7.2] |             |               |  | 2,387  |               |  |  |       |      
|                                                                                     |                                             |      |       |             |               |  |        |               | 
|Total current liabilities                                                            |                                             |      |       |             |               |  | 11,350 |               |  |  | 9,070  |      
|                                                                                     |                                             |      |       |             |               |  |        |               | 
|Liabilities                                                                          |                                             |      |       |             |               |  | 26,645 |               |  |  | 25,565 |      
|                                                                                     |                                             |      |       |             |               |  |        |               | 
|Stockholders equity and liabilities                                                 |                                             |      |       |             |               |  | 37,588 |               |  |  | 36,722 |      
|                                                                                     |                                             |      |       |             |               |  |        |               | 



F-4



---



##### Table of Contents



Bayer Group


Consolidated Statements of Cash Flows


|                                                                                                 |  |      |       |             |      |  |        |      |  |  |        |   |  |  |        |  
|------------------------------------------------------------------------------------------------ |  | ---- | ----- | ----------- | ---- |  | ------ | ---- |  |  | ------ | - |  |  | ------ | -
|                                                                                                 |  | Note |       |             | 2003 |  |        | 2004 |  |  | 2005   |  
|                                                                                                 |  |      |       |             |      |  |        |      |  |  |        |  
|                                                                                                 |  |      |       | ( million) |     
|Operating result                                                                                 |  |      |       |             |      |  | 575    |      |  |  | 1,875  |   |  |  | 2,812  |  
|Income taxes                                                                                     |  |      |       |             |      |  | (728   | )    |  |  | (490   | ) |  |  | (541   | )
|Depreciation and amortization                                                                    |  |      |       |             |      |  | 3,050  |      |  |  | 1,959  |   |  |  | 1,835  |  
|Change in pension provisions                                                                     |  |      |       |             |      |  | (51    | )    |  |  | (424   | ) |  |  | (586   | )
|(Gains) Losses on retirements of noncurrent assets                                               |  |      |       |             |      |  | (105   | )    |  |  | (35    | ) |  |  | (43    | )
|                                                                                                 |  |      |       |             |      |  |        |      |  |  |        |  
|Gross cash flow                                                                                  |  |      |       |             |      |  | 2,741  |      |  |  | 2,885  |   |  |  | 3,477  |  
|                                                                                                 |  |      |       |             |      |  |        |      |  |  |        |  
|Decrease (Increase) in inventories                                                               |  |      |       |             |      |  | (127   | )    |  |  | (425   | ) |  |  | (181   | )
|Decrease (Increase) in trade accounts receivable                                                 |  |      |       |             |      |  | 116    |      |  |  | (404   | ) |  |  | 156    |  
|(Decrease) Increase in trade accounts payable                                                    |  |      |       |             |      |  | (90    | )    |  |  | (5     | ) |  |  | (115   | )
|Changes in other working capital, other non-cash items                                           |  |      |       |             |      |  | 618    |      |  |  | 211    |   |  |  | 205    |  
|Net cash provided by (used in) operating activities (net cash
    flow, continuing operations)   |  |      | [36]  |             |      |  | 3,258  |      |  |  | 2,262  |   |  |  | 3,542  |  
|                                                                                                 |  |      |       |             |      |  |        |      |  |  |        |  
|Net cash provided by (used in) operating activities (net cash
    flow, discontinued operations) |  |      | [7.2] |             |      |  | 35     |      |  |  | 188    |   |  |  | (40    | )
|                                                                                                 |  |      |       |             |      |  |        |      |  |  |        |  
|Net cash provided by (used in) operating activities (net cash
    flow, total)                   |  |      |       |             |      |  | 3,293  |      |  |  | 2,450  |   |  |  | 3,502  |  
|                                                                                                 |  |      |       |             |      |  |        |      |  |  |        |  
|Cash outflows for additions to property, plant, equipment and
    intangible assets              |  |      |       |             |      |  | (1,653 | )    |  |  | (1,251 | ) |  |  | (1,389 | )
|Cash inflows from sales of property, plant, equipment and other
    assets                       |  |      |       |             |      |  | 1,644  |      |  |  | 200    |   |  |  | 398    |  
|Cash inflows from sales of investments                                                           |  |      |       |             |      |  | 258    |      |  |  | 90     |   |  |  | 1,189  |  
|Cash outflows for acquisitions less acquired cash                                                |  |      |       |             |      |  | (72    | )    |  |  | (358   | ) |  |  | (2,188 | )
|Interest and dividends received                                                                  |  |      |       |             |      |  | 366    |      |  |  | 400    |   |  |  | 451    |  
|Cash inflows from (outflows for) marketable securities                                           |  |      |       |             |      |  | (83    | )    |  |  | 105    |   |  |  | (202   | )
|                                                                                                 |  |      |       |             |      |  |        |      |  |  |        |  
|Net cash provided by (used in) investing activities
    (total)                                  |  |      | [37]  |             |      |  | 460    |      |  |  | (814   | ) |  |  | (1,741 | )
|                                                                                                 |  |      |       |             |      |  |        |      |  |  |        |  
|Capital contributions                                                                            |  |      |       |             |      |  |       |      |  |  | 10     |   |  |  |       |  
|Bayer AG dividend and dividend payments to minority stockholders                                 |  |      |       |             |      |  | (664   | )    |  |  | (559   | ) |  |  | (440   | )
|Issuances of debt                                                                                |  |      |       |             |      |  | 1,621  |      |  |  | 1,393  |   |  |  | 2,005  |  
|Retirements of debt                                                                              |  |      |       |             |      |  | (1,936 | )    |  |  | (881   | ) |  |  | (2,659 | )
|Interest paid                                                                                    |  |      |       |             |      |  | (782   | )    |  |  | (724   | ) |  |  | (787   | )
|                                                                                                 |  |      |       |             |      |  |        |      |  |  |        |  
|Net cash provided by (used in) financing activities
    (total)                                  |  |      | [38]  |             |      |  | (1,761 | )    |  |  | (761   | ) |  |  | (1,881 | )
|                                                                                                 |  |      |       |             |      |  |        |      |  |  |        |  
|Change in cash and cash equivalents due to business
    activities (total)                       |  |      |       |             |      |  | 1,992  |      |  |  | 875    |   |  |  | (120   | )
|                                                                                                 |  |      |       |             |      |  |        |      |  |  |        |  
|Cash and cash equivalents at beginning of year                                                   |  |      |       |             |      |  | 767    |      |  |  | 2,734  |   |  |  | 3,570  |  
|                                                                                                 |  |      |       |             |      |  |        |      |  |  |        |  
|Change in cash and cash equivalents due to changes in scope of
    consolidation                 |  |      |       |             |      |  | 1      |      |  |  | 6      |   |  |  | (196   | )
|Change in cash and cash equivalents due to exchange rate
    movements                           |  |      |       |             |      |  | (26    | )    |  |  | (45    | ) |  |  | 36     |  
|                                                                                                 |  |      |       |             |      |  |        |      |  |  |        |  
|Cash and cash equivalents at end of year                                                         |  |      | [39]  |             |      |  | 2,734  |      |  |  | 3,570  |   |  |  | 3,290  |  
|                                                                                                 |  |      |       |             |      |  |        |      |  |  |        |  
|Marketable securities and other instruments                                                      |  |      |       |             |      |  | 129    |      |  |  | 29     |   |  |  | 233    |  
|                                                                                                 |  |      |       |             |      |  |        |      |  |  |        |  
|Liquid assets as per balance sheets                                                              |  |      |       |             |      |  | 2,863  |      |  |  | 3,599  |   |  |  | 3,523  |  
|                                                                                                 |  |      |       |             |      |  |        |      |  |  |        |  



F-5



---



##### Table of Contents



Bayer Group


Consolidated Statements of Recognized Income and Expense


|                                                                                                                      |                                                  |             |        |        |          |  |      |          |   |  |        |       | 
|--------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | ----------- | ------ | ------ | -------- |  | ---- | -------- | - |  | ------ | ----- | 
|                                                                                                                      |                                                  | Dec. 31,    |        |        | Dec. 31, |  |      | Dec. 31, |  
|                                                                                                                      |                                                  | 2003        |        |        | 2004     |  |      | 2005     |  
|                                                                                                                      |                                                  |             |        |        |          |  |      |          |  
|                                                                                                                      |                                                  | ( million) |       
|Changes in fair values of hedging instruments, recognized in
    stockholders equity                                 |                                                  |             | (15    | )      |          |  | 64   |          |   |  | (15    | )    
|Gains (losses) on hedging instruments, recognized in the
    income statement                                         |                                                  |             | 3      |        |          |  | 4    |          |   |  | 3      |      
|Changes in fair values of available-for-sale securities,
    recognized in stockholders equity                       |                                                  |             | 19     |        |          |  | 12   |          |   |  | 9      |      
|Gains (losses) on available-for-sale securities, recognized
    in the income statement                               |                                                  |             | 1      |        |          |  | (6   | )        |   |  |       |      
|Revaluation surplus (IFRS 3)                                                                                          |                                                  |             |       |        |          |  | 66   |          |   |  |       |      
|Actuarial gains (losses) relating to pensions and other
    post-employment benefits                                  |                                                  |             | (519   | )      |          |  | (740 | )        |   |  | (1,207 | )    
|Exchange differences on translation of operations outside the
    euro zone                                           |                                                  |             | (1,106 | )      |          |  | (304 | )        |   |  | 857    |      
|Deferred taxes on valuation adjustments, recognized directly in
    stockholders equity                              |                                                  |             | 229    |        |          |  | 251  |          |   |  | 470    |      
|Deferred taxes on valuation adjustments, removed from
    stockholders equity and recognized in the income statement |                                                  |             | (1     | )      |          |  | (2   | )        |   |  |       |      
|                                                                                                                      |                                                  |             |        |        |          |  |      |          |  
|Valuation adjustments recognized directly in
    stockholders equity                                                 |                                                  |             | (1,389 | )      |          |  | (655 | )        |   |  | 117    |      
|                                                                                                                      |                                                  |             |        |        |          |  |      |          |  
|Income (loss) after taxes                                                                                             |                                                  |             | (1,291 | )      |          |  | 682  |          |   |  | 1,595  |      
|Total income and expense recognized in the financial
    statements                                                   |                                                  |             | (2,680 | )      |          |  | 27   |          |   |  | 1,712  |      
|                                                                                                                      |  of which attributable to minority interest     |             |        | 12     |          |  |      | (3       | ) |  |        | 6     | 
|                                                                                                                      |  of which attributable to Bayer AG stockholders |             |        | (2,692 | )        |  |      | 30       |   |  |        | 1,706 | 



F-6



---



##### Table of Contents



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   | 
|                                    |  |                  |        |    |               | 
|                                    |  | Pharmaceuticals, |        |    |               |  |                |             |  |  |               |    | Environmental |                
|                                    |  | Biological       |        |    |               |  | Diabetes Care, |             |  |  |               |    |               | Science,        |      
|                                    |  | Products         |        |    | Consumer Care |  |                | Diagnostics |  |  | Animal Health |    |               | Crop Protection |       |   | BioScience | 
|                                    |  |                  |        |    |               |  |                |             |  |  |               |    |               |                 |       |   |            | 
|Business Segments                   |  | 2004             |        |    | 2005          |  |                | 2004        |  |  | 2005          |    |               | 2004            |       |   | 2005       |  |       | 2004 |  |  | 2005  |   |  | 2004 |       |    | 2005 |  |       | 2004 |  |  | 2005   |  
|                                    |  |                  |        |    |               |  |                |             |  |  |               |    |               |                 |       |   |            |  |       |      |  |  |       |   |  |      |       |    |      |  |       |      |  |  |        |  
|                                    |  | ( million)      |       
|Net sales (external)                |  |                  | 3,961  |    |               |  | 4,067          |             |  |  | 1,336         |    |               |                 | 2,355 |   |            |  | 1,975 |      |  |  | 2,151 |   |  |      | 786   |    |      |  | 856   |      |  |  | 4,957  |   |  |  | 4,874  |    |  |  | 989   |   |  |  | 1,022 |  
| Change                            |  |                  | (9.4   | )% |               |  | 2.7            | %           |  |  | (4.8          | )% |               |                 | 76.3  | % |            |  | 2.2   | %    |  |  | 8.9   | % |  |      | (0.5  | )% |      |  | 8.9   | %    |  |  | 3.2    | % |  |  | (1.7   | )% |  |  | 2.7   | % |  |  | 3.3   | %
| Change currency adjusted          |  |                  | (5.9   | )% |               |  | 1.7            | %           |  |  | 1.4           | %  |               |                 | 75.2  | % |            |  | 6.9   | %    |  |  | 8.1   | % |  |      | 4.5   | %  |      |  | 7.1   | %    |  |  | 7.0    | % |  |  | (4.3   | )% |  |  | 7.5   | % |  |  | 2.1   | %
|Intersegment sales                  |  |                  | 38     |    |               |  | 58             |             |  |  | 16            |    |               |                 | 14    |   |            |  | 1     |      |  |  | 1     |   |  |      | 4     |    |      |  | 8     |      |  |  | 71     |   |  |  | 70     |    |  |  | 7     |   |  |  | 13    |  
|Other operating income              |  |                  | 128    |    |               |  | 49             |             |  |  | 20            |    |               |                 | 38    |   |            |  | 6     |      |  |  | 67    |   |  |      | 12    |    |      |  | 5     |      |  |  | 134    |   |  |  | 217    |    |  |  | 37    |   |  |  | 33    |  
|Operating result                    |  |                  | 399    |    |               |  | 475            |             |  |  | 183           |    |               |                 | 174   |   |            |  | 217   |      |  |  | 274   |   |  |      | 157   |    |      |  | 179   |      |  |  | 386    |   |  |  | 532    |    |  |  | 106   |   |  |  | 158   |  
|Return on sales                     |  |                  | 10.1   | %  |               |  | 11.7           | %           |  |  | 13.7          | %  |               |                 | 7.4   | % |            |  | 11.0  | %    |  |  | 12.7  | % |  |      | 20.0  | %  |      |  | 20.9  | %    |  |  | 7.8    | % |  |  | 10.9   | %  |  |  | 10.7  | % |  |  | 15.5  | %
|Gross cash flow                     |  |                  | 386    |    |               |  | 449            |             |  |  | 161           |    |               |                 | 223   |   |            |  | 287   |      |  |  | 320   |   |  |      | 109   |    |      |  | 146   |      |  |  | 739    |   |  |  | 762    |    |  |  | 154   |   |  |  | 202   |  
|Capital invested                    |  |                  | 2,305  |    |               |  | 2,501          |             |  |  | 792           |    |               |                 | 2,860 |   |            |  | 1,817 |      |  |  | 1,978 |   |  |      | 392   |    |      |  | 408   |      |  |  | 6,932  |   |  |  | 7,372  |    |  |  | 1,454 |   |  |  | 1,477 |  
|CFRoI                               |  |                  | 16.8   | %  |               |  | 18.7           | %           |  |  | 20.1          | %  |               |                 | 7.6   | % |            |  | 14.7  | %    |  |  | 16.9  | % |  |      | 27.2  | %  |      |  | 36.5  | %    |  |  | 10.9   | % |  |  | 10.7   | %  |  |  | 10.6  | % |  |  | 13.8  | %
|Net cash flow                       |  |                  | 261    |    |               |  | 481            |             |  |  | 279           |    |               |                 | 323   |   |            |  | 388   |      |  |  | 373   |   |  |      | 125   |    |      |  | 174   |      |  |  | 637    |   |  |  | 699    |    |  |  | 141   |   |  |  | 205   |  
|Equity-method income (loss)         |  |                  |       |    |               |  |               |             |  |  |              |    |               |                 |      |   |            |  |      |      |  |  |      |   |  |      |      |    |      |  |      |      |  |  |       |   |  |  |       |    |  |  |      |   |  |  |      |  
|Equity-method investments           |  |                  | 4      |    |               |  | 4              |             |  |  |              |    |               |                 |      |   |            |  |      |      |  |  |      |   |  |      |      |    |      |  |      |      |  |  |       |   |  |  |       |    |  |  |      |   |  |  |      |  
|Total assets                        |  |                  | 4,052  |    |               |  | 3,489          |             |  |  | 1,287         |    |               |                 | 3,621 |   |            |  | 1,809 |      |  |  | 1,955 |   |  |      | 554   |    |      |  | 642   |      |  |  | 9,117  |   |  |  | 8,836  |    |  |  | 1,703 |   |  |  | 1,591 |  
|Capital expenditures                |  |                  | 115    |    |               |  | 142            |             |  |  | 40            |    |               |                 | 59    |   |            |  | 121   |      |  |  | 108   |   |  |      | 25    |    |      |  | 21    |      |  |  | 181    |   |  |  | 175    |    |  |  | 28    |   |  |  | 26    |  
|Amortization and depreciation       |  |                  | 174    |    |               |  | 188            |             |  |  | 69            |    |               |                 | 120   |   |            |  | 170   |      |  |  | 178   |   |  |      | 23    |    |      |  | 24    |      |  |  | 592    |   |  |  | 494    |    |  |  | 135   |   |  |  | 100   |  
|Liabilities                         |  |                  | 2,138  |    |               |  | 2,086          |             |  |  | 505           |    |               |                 | 816   |   |            |  | 687   |      |  |  | 748   |   |  |      | 202   |    |      |  | 341   |      |  |  | 2,450  |   |  |  | 2,668  |    |  |  | 360   |   |  |  | 369   |  
|Research and development expenses   |  |                  | 740    |    |               |  | 680            |             |  |  | 45            |    |               |                 | 57    |   |            |  | 144   |      |  |  | 148   |   |  |      | 67    |    |      |  | 69    |      |  |  | 571    |   |  |  | 548    |    |  |  | 108   |   |  |  | 116   |  
|Number of employees (as of Dec. 31) |  |                  | 18,400 |    |               |  | 16,900         |             |  |  | 3,800         |    |               |                 | 6,800 |   |            |  | 7,000 |      |  |  | 7,100 |   |  |      | 2,900 |    |      |  | 3,000 |      |  |  | 16,500 |   |  |  | 16,000 |    |  |  | 2,900 |   |  |  | 2,800 |  

|                                    |  |                 |       |   |         |  |       |                |  |  |            |   |  |      |       |   |      |  |        |      |  |  |        |   |  |  |        |   |  |  |        |  
|----------------------------------- |  | --------------- | ----- | - | ------- |  | ----- | -------------- |  |  | ---------- | - |  | ---- | ----- | - | ---- |  | ------ | ---- |  |  | ------ | - |  |  | ------ | - |  |  | ------ | -
|                                    |  | MaterialScience |       |   |         |  |       |                |  |  |           
|                                    |  |                 |       |   |         |  |       |                | 
|                                    |  |                 |       |   |         |  |       | Continuing     | 
|                                    |  | Materials       |       |   | Systems |  |       | Reconciliation |  |  | Operations |  
|                                    |  |                 |       |   |         |  |       |                |  |  |            |  
|Business Segments                   |  | 2004            |       |   | 2005    |  |       | 2004           |  |  | 2005       |   |  | 2004 |       |   | 2005 |  |        | 2004 |  |  | 2005   |  
|                                    |  |                 |       |   |         |  |       |                |  |  |            |   |  |      |       |   |      |  |        |      |  |  |        |  
|                                    |  | ( million)     |      
|Net sales (external)                |  |                 | 3,248 |   |         |  | 4,086 |                |  |  | 5,349      |   |  |      | 6,609 |   |      |  | 677    |      |  |  | 1,363  |   |  |  | 23,278 |   |  |  | 27,383 |  
| Change                            |  |                 | 17.0  | % |         |  | 25.8  | %              |  |  | 14.4       | % |  |      | 23.6  | % |      |  |       |      |  |  |       |   |  |  | 3.8    | % |  |  | 17.6   | %
| Change currency adjusted          |  |                 | 22.1  | % |         |  | 25.5  | %              |  |  | 18.8       | % |  |      | 22.8  | % |      |  |       |      |  |  |       |   |  |  | 8.0    | % |  |  | 16.4   | %
|Intersegment sales                  |  |                 | 13    |   |         |  | 14    |                |  |  | 116        |   |  |      | 142   |   |      |  | (266   | )    |  |  | (320   | ) |  |  |       |   |  |  |       |  
|Other operating income              |  |                 | 32    |   |         |  | 19    |                |  |  | 96         |   |  |      | 26    |   |      |  | 275    |      |  |  | 340    |   |  |  | 740    |   |  |  | 794    |  
|Operating result                    |  |                 | 293   |   |         |  | 633   |                |  |  | 348        |   |  |      | 736   |   |      |  | (214   | )    |  |  | (349   | ) |  |  | 1,875  |   |  |  | 2,812  |  
|Return on sales                     |  |                 | 9.0   | % |         |  | 15.5  | %              |  |  | 6.5        | % |  |      | 11.1  | % |      |  |       |      |  |  |       |   |  |  | 8.1    | % |  |  | 10.3   | %
|Gross cash flow                     |  |                 | 400   |   |         |  | 621   |                |  |  | 484        |   |  |      | 781   |   |      |  | 165    |      |  |  | (27    | ) |  |  | 2,885  |   |  |  | 3,477  |  
|Capital invested                    |  |                 | 3,645 |   |         |  | 4,325 |                |  |  | 4,344      |   |  |      | 4,791 |   |      |  | 3,684  |      |  |  | 2,848  |   |  |  | 25,365 |   |  |  | 28,560 |  
|CFRoI                               |  |                 | 11.1  | % |         |  | 15.6  | %              |  |  | 9.8        | % |  |      | 17.1  | % |      |  |       |      |  |  |       |   |  |  | 10.8   | % |  |  | 12.4   | %
|Net cash flow                       |  |                 | 209   |   |         |  | 517   |                |  |  | 289        |   |  |      | 871   |   |      |  | (67    | )    |  |  | (101   | ) |  |  | 2,262  |   |  |  | 3,542  |  
|Equity-method income (loss)         |  |                 | 4     |   |         |  | 37    |                |  |  | (131       | ) |  |      | (47   | ) |      |  | (12    | )    |  |  |       |   |  |  | (139   | ) |  |  | (10    | )
|Equity-method investments           |  |                 | 178   |   |         |  | 211   |                |  |  | 562        |   |  |      | 580   |   |      |  |       |      |  |  |       |   |  |  | 744    |   |  |  | 795    |  
|Total assets                        |  |                 | 3,789 |   |         |  | 4,314 |                |  |  | 4,724      |   |  |      | 5,125 |   |      |  | 5,796  |      |  |  | 7,149  |   |  |  | 32,831 |   |  |  | 36,722 |  
|Capital expenditures                |  |                 | 147   |   |         |  | 377   |                |  |  | 185        |   |  |      | 338   |   |      |  | 135    |      |  |  | 142    |   |  |  | 977    |   |  |  | 1,388  |  
|Amortization and depreciation       |  |                 | 249   |   |         |  | 225   |                |  |  | 326        |   |  |      | 320   |   |      |  | 221    |      |  |  | 186    |   |  |  | 1,959  |   |  |  | 1,835  |  
|Liabilities                         |  |                 | 964   |   |         |  | 1,090 |                |  |  | 1,475      |   |  |      | 1,632 |   |      |  | 15,477 |      |  |  | 15,815 |   |  |  | 24,258 |   |  |  | 25,565 |  
|Research and development expenses   |  |                 | 97    |   |         |  | 107   |                |  |  | 139        |   |  |      | 144   |   |      |  | 16     |      |  |  | 17     |   |  |  | 1,927  |   |  |  | 1,886  |  
|Number of employees (as of Dec. 31) |  |                 | 9,100 |   |         |  | 9,300 |                |  |  | 8,800      |   |  |      | 9,500 |   |      |  | 22,300 |      |  |  | 22,300 |   |  |  | 91,700 |   |  |  | 93,700 |  

F-7



---



##### Table of Contents



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


Key Data by Business Segment


|                                    |  |                  |        |    |               |  |                |             |  |  |               |    |               |                 |       |    |            |  |       |      |  |  |       |   |  |      |       |    |      |  |       |      |  |  |        |   |  |  |        |   |  |  |       |   |  |  |       |  
|----------------------------------- |  | ---------------- | ------ | -- | ------------- |  | -------------- | ----------- |  |  | ------------- | -- | ------------- | --------------- | ----- | -- | ---------- |  | ----- | ---- |  |  | ----- | - |  | ---- | ----- | -- | ---- |  | ----- | ---- |  |  | ------ | - |  |  | ------ | - |  |  | ----- | - |  |  | ----- | -
|                                    |  | HealthCare       |        |    | CropScience   | 
|                                    |  |                  |        |    |               | 
|                                    |  | Pharmaceuticals, |        |    |               |  |                |             |  |  |               |    | Environmental |                
|                                    |  | Biological       |        |    |               |  | Diabetes Care, |             |  |  |               |    |               | Science,        |      
|                                    |  | Products         |        |    | Consumer Care |  |                | Diagnostics |  |  | Animal Health |    |               | Crop Protection |       |    | BioScience | 
|                                    |  |                  |        |    |               |  |                |             |  |  |               |    |               |                 |       |    |            | 
|Business Segments                   |  | 2003             |        |    | 2004          |  |                | 2003        |  |  | 2004          |    |               | 2003            |       |    | 2004       |  |       | 2003 |  |  | 2004  |   |  | 2003 |       |    | 2004 |  |       | 2003 |  |  | 2004   |  
|                                    |  |                  |        |    |               |  |                |             |  |  |               |    |               |                 |       |    |            |  |       |      |  |  |       |   |  |      |       |    |      |  |       |      |  |  |        |  
|                                    |  | ( million)      |       
|Net sales (external)                |  |                  | 4,371  |    |               |  | 3,961          |             |  |  | 1,403         |    |               |                 | 1,336 |    |            |  | 1,933 |      |  |  | 1,975 |   |  |      | 790   |    |      |  | 786   |      |  |  | 4,801  |   |  |  | 4,957  |   |  |  | 963   |   |  |  | 989   |  
| Change                            |  |                  | 0.9    | %  |               |  | (9.4           | )%          |  |  | (18.2         | )% |               |                 | (4.8  | )% |            |  | (5.2  | )%   |  |  | 2.2   | % |  |      | (7.1  | )% |      |  | (0.5  | )%   |  |  | 20.0   | % |  |  | 3.2    | % |  |  | 38.6  | % |  |  | 2.7   | %
| Change currency adjusted          |  |                  | 12.2   | %  |               |  | (5.9           | )%          |  |  | (5.8          | )% |               |                 | 1.4   | %  |            |  | 5.1   | %    |  |  | 6.9   | % |  |      | 4.7   | %  |      |  | 4.5   | %    |  |  | 32.1   | % |  |  | 7.0    | % |  |  | 56.1  | % |  |  | 7.5   | %
|Intersegment sales                  |  |                  | 42     |    |               |  | 38             |             |  |  | 7             |    |               |                 | 16    |    |            |  |      |      |  |  | 1     |   |  |      | 6     |    |      |  | 4     |      |  |  | 62     |   |  |  | 71     |   |  |  | 14    |   |  |  | 7     |  
|Other operating income              |  |                  | 100    |    |               |  | 128            |             |  |  | 347           |    |               |                 | 20    |    |            |  | 36    |      |  |  | 6     |   |  |      | 25    |    |      |  | 12    |      |  |  | 278    |   |  |  | 134    |   |  |  | 51    |   |  |  | 37    |  
|Operating result                    |  |                  | (16    | )  |               |  | 399            |             |  |  | 486           |    |               |                 | 183   |    |            |  | 115   |      |  |  | 217   |   |  |      | 172   |    |      |  | 157   |      |  |  | 242    |   |  |  | 386    |   |  |  | 100   |   |  |  | 106   |  
|Return on sales                     |  |                  | (0.4   | )% |               |  | 10.1           | %           |  |  | 34.6          | %  |               |                 | 13.7  | %  |            |  | 5.9   | %    |  |  | 11.0  | % |  |      | 21.8  | %  |      |  | 20.0  | %    |  |  | 5.0    | % |  |  | 7.8    | % |  |  | 10.4  | % |  |  | 10.7  | %
|Gross cash flow                     |  |                  | 180    |    |               |  | 386            |             |  |  | 371           |    |               |                 | 161   |    |            |  | 277   |      |  |  | 287   |   |  |      | 144   |    |      |  | 109   |      |  |  | 692    |   |  |  | 739    |   |  |  | 168   |   |  |  | 154   |  
|Capital invested                    |  |                  | 2,287  |    |               |  | 2,305          |             |  |  | 808           |    |               |                 | 792   |    |            |  | 2,083 |      |  |  | 1,817 |   |  |      | 409   |    |      |  | 392   |      |  |  | 6,575  |   |  |  | 6,932  |   |  |  | 1,458 |   |  |  | 1,454 |  
|CFRoI                               |  |                  | 5.8    | %  |               |  | 16.8           | %           |  |  | 39.7          | %  |               |                 | 20.1  | %  |            |  | 12.8  | %    |  |  | 14.7  | % |  |      | 27.1  | %  |      |  | 27.2  | %    |  |  | 9.3    | % |  |  | 10.9   | % |  |  | 11.0  | % |  |  | 10.6  | %
|Net cash flow                       |  |                  | (67    | )  |               |  | 261            |             |  |  | 444           |    |               |                 | 279   |    |            |  | 275   |      |  |  | 388   |   |  |      | 226   |    |      |  | 125   |      |  |  | 847    |   |  |  | 637    |   |  |  | 318   |   |  |  | 141   |  
|Equity-method income (loss)         |  |                  |       |    |               |  |               |             |  |  |              |    |               |                 |      |    |            |  |      |      |  |  |      |   |  |      |      |    |      |  |      |      |  |  |       |   |  |  |       |   |  |  |      |   |  |  |      |  
|Equity-method investments           |  |                  | 4      |    |               |  | 4              |             |  |  |              |    |               |                 |      |    |            |  |      |      |  |  |      |   |  |      |      |    |      |  |      |      |  |  |       |   |  |  |       |   |  |  |      |   |  |  |      |  
|Total assets                        |  |                  | 4,089  |    |               |  | 4,052          |             |  |  | 1,078         |    |               |                 | 1,287 |    |            |  | 2,129 |      |  |  | 1,809 |   |  |      | 575   |    |      |  | 554   |      |  |  | 8,921  |   |  |  | 9,117  |   |  |  | 1,824 |   |  |  | 1,703 |  
|Capital expenditures                |  |                  | 158    |    |               |  | 115            |             |  |  | 46            |    |               |                 | 40    |    |            |  | 155   |      |  |  | 121   |   |  |      | 21    |    |      |  | 25    |      |  |  | 236    |   |  |  | 181    |   |  |  | 177   |   |  |  | 28    |  
|Amortization and depreciation       |  |                  | 328    |    |               |  | 174            |             |  |  | 69            |    |               |                 | 69    |    |            |  | 231   |      |  |  | 170   |   |  |      | 32    |    |      |  | 23    |      |  |  | 600    |   |  |  | 592    |   |  |  | 149   |   |  |  | 135   |  
|Liabilities                         |  |                  | 2,418  |    |               |  | 2,138          |             |  |  | 512           |    |               |                 | 505   |    |            |  | 614   |      |  |  | 687   |   |  |      | 229   |    |      |  | 202   |      |  |  | 2,556  |   |  |  | 2,450  |   |  |  | 412   |   |  |  | 360   |  
|Research and development expenses   |  |                  | 920    |    |               |  | 740            |             |  |  | 46            |    |               |                 | 45    |    |            |  | 163   |      |  |  | 144   |   |  |      | 72    |    |      |  | 67    |      |  |  | 630    |   |  |  | 571    |   |  |  | 95    |   |  |  | 108   |  
|Number of employees (as of Dec. 31) |  |                  | 19,100 |    |               |  | 18,400         |             |  |  | 3,800         |    |               |                 | 3,800 |    |            |  | 7,200 |      |  |  | 7,000 |   |  |      | 2,900 |    |      |  | 2,900 |      |  |  | 16,300 |   |  |  | 16,500 |   |  |  | 3,100 |   |  |  | 2,900 |  

|                                    |  |                 |       |    |         |  |       |                |  |  |            |    |  |      |       |   |      |  |        |      |  |  |        |   |  |  |        |   |  |  |        |  
|----------------------------------- |  | --------------- | ----- | -- | ------- |  | ----- | -------------- |  |  | ---------- | -- |  | ---- | ----- | - | ---- |  | ------ | ---- |  |  | ------ | - |  |  | ------ | - |  |  | ------ | -
|                                    |  | MaterialScience |       |    |         |  |       |                |  |  |           
|                                    |  |                 |       |    |         |  |       |                | 
|                                    |  |                 |       |    |         |  |       | Continuing     | 
|                                    |  | Materials       |       |    | Systems |  |       | Reconciliation |  |  | Operations |   
|                                    |  |                 |       |    |         |  |       |                |  |  |            |   
|Business Segments                   |  | 2003            |       |    | 2004    |  |       | 2003           |  |  | 2004       |    |  | 2003 |       |   | 2004 |  |        | 2003 |  |  | 2004   |  
|                                    |  |                 |       |    |         |  |       |                |  |  |            |    |  |      |       |   |      |  |        |      |  |  |        |  
|                                    |  | ( million)     |      
|Net sales (external)                |  |                 | 2,777 |    |         |  | 3,248 |                |  |  | 4,676      |    |  |      | 5,349 |   |      |  | 703    |      |  |  | 677    |   |  |  | 22,417 |   |  |  | 23,278 |  
| Change                            |  |                 | (3.4  | )% |         |  | 17.0  | %              |  |  | (2.3       | )% |  |      | 14.4  | % |      |  |       |      |  |  |       |   |  |  | 0.6    | % |  |  | 3.8    | %
| Change currency adjusted          |  |                 | 5.1   | %  |         |  | 22.1  | %              |  |  | 6.5        | %  |  |      | 18.8  | % |      |  |       |      |  |  |       |   |  |  | 10.9   | % |  |  | 8.0    | %
|Intersegment sales                  |  |                 | 10    |    |         |  | 13    |                |  |  | 103        |    |  |      | 116   |   |      |  | (244   | )    |  |  | (266   | ) |  |  |       |   |  |  |       |  
|Other operating income              |  |                 | 21    |    |         |  | 32    |                |  |  | 44         |    |  |      | 96    |   |      |  | 171    |      |  |  | 275    |   |  |  | 1,073  |   |  |  | 740    |  
|Operating result                    |  |                 | 58    |    |         |  | 293   |                |  |  | (455       | )  |  |      | 348   |   |      |  | (127   | )    |  |  | (214   | ) |  |  | 575    |   |  |  | 1,875  |  
|Return on sales                     |  |                 | 2.1   | %  |         |  | 9.0   | %              |  |  | (9.7       | )% |  |      | 6.5   | % |      |  |       |      |  |  |       |   |  |  | 2.6    | % |  |  | 8.1    | %
|Gross cash flow                     |  |                 | 312   |    |         |  | 400   |                |  |  | 623        |    |  |      | 484   |   |      |  | (26    | )    |  |  | 165    |   |  |  | 2,741  |   |  |  | 2,885  |  
|Capital invested                    |  |                 | 3,557 |    |         |  | 3,645 |                |  |  | 5,551      |    |  |      | 4,344 |   |      |  | 5,297  |      |  |  | 3,684  |   |  |  | 28,025 |   |  |  | 25,365 |  
|CFRoI                               |  |                 | 8.0   | %  |         |  | 11.1  | %              |  |  | 10.3       | %  |  |      | 9.8   | % |      |  |       |      |  |  |       |   |  |  | 9.6    | % |  |  | 10.8   | %
|Net cash flow                       |  |                 | 332   |    |         |  | 209   |                |  |  | 781        |    |  |      | 289   |   |      |  | 102    |      |  |  | (67    | ) |  |  | 3,258  |   |  |  | 2,262  |  
|Equity-method income (loss)         |  |                 | (11   | )  |         |  | 4     |                |  |  | (23        | )  |  |      | (131  | ) |      |  | (131   | )    |  |  | (12    | ) |  |  | (165   | ) |  |  | (139   | )
|Equity-method investments           |  |                 | 163   |    |         |  | 178   |                |  |  | 703        |    |  |      | 562   |   |      |  |       |      |  |  |       |   |  |  | 870    |   |  |  | 744    |  
|Total assets                        |  |                 | 3,861 |    |         |  | 3,789 |                |  |  | 3,957      |    |  |      | 4,724 |   |      |  | 6,589  |      |  |  | 5,796  |   |  |  | 33,023 |   |  |  | 32,831 |  
|Capital expenditures                |  |                 | 169   |    |         |  | 147   |                |  |  | 295        |    |  |      | 185   |   |      |  | 143    |      |  |  | 135    |   |  |  | 1,400  |   |  |  | 977    |  
|Amortization and depreciation       |  |                 | 269   |    |         |  | 249   |                |  |  | 1,108      |    |  |      | 326   |   |      |  | 264    |      |  |  | 221    |   |  |  | 3,050  |   |  |  | 1,959  |  
|Liabilities                         |  |                 | 829   |    |         |  | 964   |                |  |  | 1,494      |    |  |      | 1,475 |   |      |  | 14,969 |      |  |  | 15,477 |   |  |  | 24,033 |   |  |  | 24,258 |  
|Research and development expenses   |  |                 | 116   |    |         |  | 97    |                |  |  | 133        |    |  |      | 139   |   |      |  | 15     |      |  |  | 16     |   |  |  | 2,190  |   |  |  | 1,927  |  
|Number of employees (as of Dec. 31) |  |                 | 9,100 |    |         |  | 9,100 |                |  |  | 9,200      |    |  |      | 8,800 |   |      |  | 22,600 |      |  |  | 22,300 |   |  |  | 93,300 |   |  |  | 91,700 |  

F-8



---



##### Table of Contents



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                                   |  | 2003        |        |   | 2004          |  |        | 2005           |  |  | 2003               |   |  | 2004 |        |    | 2005 |  |        | 2003 |  |  | 2004   |   |  | 2005 |        |    | 2003 |  |        | 2004 |  |  | 2005   |  
|                                          |  |             |        |   |               |  |        |                |  |  |                    |   |  |      |        |    |      |  |        |      |  |  |        |   |  |      |        |    |      |  |        |      |  |  |        |  
|                                          |  | ( million) |       
|Net sales (external)  by market          |  |             | 9,110  |   |               |  | 9,775  |                |  |  | 11,930             |   |  |      | 6,981  |    |      |  | 6,512  |      |  |  | 7,340  |   |  |      | 3,625  |    |      |  | 3,962  |      |  |  | 4,578  |   |  |  | 2,701  |    |  |  | 3,029  |   |  |  | 3,535  |  
| Change                                  |  |             | 2.6    | % |               |  | 7.3    | %              |  |  | 22.0               | % |  |      | 0.8    | %  |      |  | (6.7   | )%   |  |  | 12.7   | % |  |      | (3.5   | )% |      |  | 9.3    | %    |  |  | 15.5   | % |  |  | (1.0   | )% |  |  | 12.1   | % |  |  | 16.7   | %
| Change currency adjusted                |  |             | 3.6    | % |               |  | 7.4    | %              |  |  | 21.9               | % |  |      | 19.0   | %  |      |  | 1.6    | %    |  |  | 11.9   | % |  |      | 8.5    | %  |      |  | 14.7   | %    |  |  | 14.8   | % |  |  | 17.2   | %  |  |  | 18.4   | % |  |  | 10.4   | %
|Net sales (external)  by point of origin |  |             | 9,873  |   |               |  | 10,646 |                |  |  | 12,912             |   |  |      | 7,027  |    |      |  | 6,570  |      |  |  | 7,386  |   |  |      | 3,398  |    |      |  | 3,708  |      |  |  | 4,383  |   |  |  | 2,119  |    |  |  | 2,354  |   |  |  | 2,702  |  
| Change                                  |  |             | 6.3    | % |               |  | 7.8    | %              |  |  | 21.3               | % |  |      | (2.8   | )% |      |  | (6.5   | )%   |  |  | 12.4   | % |  |      | (1.6   | )% |      |  | 9.1    | %    |  |  | 18.2   | % |  |  | (8.3   | )% |  |  | 11.1   | % |  |  | 14.8   | %
| Change currency adjusted                |  |             | 7.1    | % |               |  | 7.8    | %              |  |  | 21.1               | % |  |      | 15.0   | %  |      |  | 1.9    | %    |  |  | 11.6   | % |  |      | 11.3   | %  |      |  | 14.9   | %    |  |  | 17.4   | % |  |  | 12.3   | %  |  |  | 18.6   | % |  |  | 6.7    | %
|Interregional sales                       |  |             | 3,333  |   |               |  | 3,512  |                |  |  | 3,933              |   |  |      | 1,705  |    |      |  | 1,690  |      |  |  | 1,913  |   |  |      | 233    |    |      |  | 193    |      |  |  | 198    |   |  |  | 113    |    |  |  | 119    |   |  |  | 176    |  
|Other operating income                    |  |             | 748    |   |               |  | 492    |                |  |  | 348                |   |  |      | 53     |    |      |  | 130    |      |  |  | 295    |   |  |      | 79     |    |      |  | 57     |      |  |  | 49     |   |  |  | 193    |    |  |  | 61     |   |  |  | 102    |  
|Operating result                          |  |             | 602    |   |               |  | 953    |                |  |  | 1,285              |   |  |      | (400   | )  |      |  | 396    |      |  |  | 924    |   |  |      | 119    |    |      |  | 362    |      |  |  | 455    |   |  |  | 421    |    |  |  | 395    |   |  |  | 314    |  
|Return on sales                           |  |             | 6.1    | % |               |  | 9.0    | %              |  |  | 10.0               | % |  |      | (5.7   | )% |      |  | 6.0    | %    |  |  | 12.5   | % |  |      | 3.5    | %  |      |  | 9.8    | %    |  |  | 10.4   | % |  |  | 19.9   | %  |  |  | 16.8   | % |  |  | 11.6   | %
|Gross cash flow                           |  |             | 1,388  |   |               |  | 1,503  |                |  |  | 1,733              |   |  |      | 803    |    |      |  | 770    |      |  |  | 1,126  |   |  |      | 268    |    |      |  | 376    |      |  |  | 459    |   |  |  | 368    |    |  |  | 346    |   |  |  | 276    |  
|Equity-method income (loss)               |  |             | (166   | ) |               |  | (39    | )              |  |  | 6                  |   |  |      |       |    |      |  | (100   | )    |  |  | (17    | ) |  |      | 1      |    |      |  |       |      |  |  | 1      |   |  |  |       |    |  |  |       |   |  |  |       |  
|Equity-method investments                 |  |             | 452    |   |               |  | 431    |                |  |  | 443                |   |  |      | 412    |    |      |  | 307    |      |  |  | 345    |   |  |      | 2      |    |      |  | 2      |      |  |  | 3      |   |  |  | 4      |    |  |  | 4      |   |  |  | 4      |  
|Total assets                              |  |             | 19,659 |   |               |  | 19,118 |                |  |  | 20,294             |   |  |      | 7,770  |    |      |  | 7,684  |      |  |  | 8,199  |   |  |      | 2,521  |    |      |  | 2,754  |      |  |  | 3,904  |   |  |  | 1,466  |    |  |  | 1,885  |   |  |  | 2,423  |  
|Capital expenditures                      |  |             | 805    |   |               |  | 550    |                |  |  | 606                |   |  |      | 422    |    |      |  | 231    |      |  |  | 284    |   |  |      | 119    |    |      |  | 140    |      |  |  | 400    |   |  |  | 54     |    |  |  | 56     |   |  |  | 98     |  
|Amortization and depreciation             |  |             | 1,376  |   |               |  | 1,173  |                |  |  | 1,077              |   |  |      | 1,360  |    |      |  | 542    |      |  |  | 526    |   |  |      | 239    |    |      |  | 132    |      |  |  | 113    |   |  |  | 56     |    |  |  | 50     |   |  |  | 65     |  
|Liabilities                               |  |             | 15,097 |   |               |  | 16,058 |                |  |  | 17,638             |   |  |      | 5,543  |    |      |  | 5,328  |      |  |  | 5,040  |   |  |      | 1,122  |    |      |  | 987    |      |  |  | 1,088  |   |  |  | 634    |    |  |  | 742    |   |  |  | 1,007  |  
|Research and development expenses         |  |             | 1,521  |   |               |  | 1,322  |                |  |  | 1,228              |   |  |      | 580    |    |      |  | 515    |      |  |  | 565    |   |  |      | 74     |    |      |  | 70     |      |  |  | 68     |   |  |  | 15     |    |  |  | 20     |   |  |  | 25     |  
|Number of employees (as of Dec. 31)       |  |             | 52,400 |   |               |  | 51,400 |                |  |  | 52,400             |   |  |      | 18,700 |    |      |  | 17,800 |      |  |  | 16,200 |   |  |      | 12,200 |    |      |  | 12,200 |      |  |  | 13,900 |   |  |  | 10,000 |    |  |  | 10,300 |   |  |  | 11,200 |  

|                                          |  |                |        |   |                       |  |        |      |  |  |        |   |  |      |        |   |      |  |        |   |  |  |        |  
|----------------------------------------- |  | -------------- | ------ | - | --------------------- |  | ------ | ---- |  |  | ------ | - |  | ---- | ------ | - | ---- |  | ------ | - |  |  | ------ | -
|                                          |  | Reconciliation |        |   | Continuing Operations | 
|                                          |  |                |        |   |                       | 
|Regions                                   |  | 2003           |        |   | 2004                  |  |        | 2005 |  |  | 2003   |   |  | 2004 |        |   | 2005 | 
|                                          |  |                |        |   |                       |  |        |      |  |  |        |   |  |      |        |   |      | 
|                                          |  | ( million)    |       
|Net sales (external)  by market          |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 22,417 |   |      |  | 23,278 |   |  |  | 27,383 |  
| Change                                  |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 0.6    | % |      |  | 3.8    | % |  |  | 17.6   | %
| Change currency adjusted                |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 10.9   | % |      |  | 8.0    | % |  |  | 16.4   | %
|Net sales (external)  by point of origin |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 22,417 |   |      |  | 23,278 |   |  |  | 27,383 |  
| Change                                  |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 0.6    | % |      |  | 3.8    | % |  |  | 17.6   | %
| Change currency adjusted                |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 10.9   | % |      |  | 8.0    | % |  |  | 16.4   | %
|Interregional sales                       |  |                | (5,384 | ) |                       |  | (5,514 | )    |  |  | (6,220 | ) |  |      |       |   |      |  |       |   |  |  |       |  
|Other operating income                    |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 1,073  |   |      |  | 740    |   |  |  | 794    |  
|Operating result                          |  |                | (167   | ) |                       |  | (231   | )    |  |  | (166   | ) |  |      | 575    |   |      |  | 1,875  |   |  |  | 2,812  |  
|Return on sales                           |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 2.6    | % |      |  | 8.1    | % |  |  | 10.3   | %
|Gross cash flow                           |  |                | (86    | ) |                       |  | (110   | )    |  |  | (117   | ) |  |      | 2,741  |   |      |  | 2,885  |   |  |  | 3,477  |  
|Equity-method income (loss)               |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | (165   | ) |      |  | (139   | ) |  |  | (10    | )
|Equity-method investments                 |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 870    |   |      |  | 744    |   |  |  | 795    |  
|Total assets                              |  |                | 1,607  |   |                       |  | 1,390  |      |  |  | 1,902  |   |  |      | 33,023 |   |      |  | 32,831 |   |  |  | 36,722 |  
|Capital expenditures                      |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 1,400  |   |      |  | 977    |   |  |  | 1,388  |  
|Amortization and depreciation             |  |                | 19     |   |                       |  | 62     |      |  |  | 54     |   |  |      | 3,050  |   |      |  | 1,959  |   |  |  | 1,835  |  
|Liabilities                               |  |                | 1,637  |   |                       |  | 1,143  |      |  |  | 792    |   |  |      | 24,033 |   |      |  | 24,258 |   |  |  | 25,565 |  
|Research and development expenses         |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 2,190  |   |      |  | 1,927  |   |  |  | 1,886  |  
|Number of employees (as of Dec. 31)       |  |                |       |   |                       |  |       |      |  |  |       |   |  |      | 93,300 |   |      |  | 91,700 |   |  |  | 93,700 |  

F-9



---



##### Table of Contents



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


[2]     General information










 














F-10



---



##### Table of Contents



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
    2005





 




i.e. 




F-11



---



##### Table of Contents



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














   


F-12



---



##### Table of Contents



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




|                                                                                     |  |                   |       |  |               |  |        |                  |  |  |       | 
|------------------------------------------------------------------------------------ |  | ----------------- | ----- |  | ------------- |  | ------ | ---------------- |  |  | ----- | 
|                                                                                     |  | Carrying amount   |       |  | Impact of the |  |        | Carrying amount  | 
|                                                                                     |  | before the change |       |  | change        |  |        | after the change | 
|                                                                                     |  |                   |       |  |               |  |        |                  | 
|                                                                                     |  | ( million)       |      
|Assets                                                                               |  |                   |       |  |               |  |        |                  |  |  |       | 
|Benefit plan assets in excess of obligations                                         |  |                   | 540   |  |               |  | (468   | )                |  |  | 72    | 
|Deferred tax assets                                                                  |  |                   | 936   |  |               |  | 283    |                  |  |  | 1,219 | 
|Assets held for sale and discontinued operations                                     |  |                   | 4,788 |  |               |  | (31    | )                |  |  | 4,757 | 
|Stockholders equity and liabilities                                                 |  |                   |       |  |               |  |        |                  |  |  |       | 
|Other reserves                                                                       |  |                   | 7,452 |  |               |  | (1,432 | )                |  |  | 6,020 | 
|Provisions for pensions and other post-employment benefits                           |  |                   | 4,581 |  |               |  | 1,638  |                  |  |  | 6,219 | 
|Deferred tax liabilities                                                             |  |                   | 1,171 |  |               |  | (527   | )                |  |  | 644   | 
|Liabilities directly related to assets held for sale and
    discontinued operations |  |                   | 2,282 |  |               |  | 105    |                  |  |  | 2,387 | 







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



F-13



---



##### Table of Contents



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








[4]     Basic principles of the
consolidated financial statements




| |                                    
| | -----------------------------------
| | [4.1]     Consolidation
    methods













F-14



---



##### Table of Contents



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








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













|            |  |     |  |              |        |  |              |  |        |      |  |  |        |  |  |      |        |  |      |  |        |  |  |  |        | 
|----------- |  | --- |  | ------------ | ------ |  | ------------ |  | ------ | ---- |  |  | ------ |  |  | ---- | ------ |  | ---- |  | ------ |  |  |  | ------ | 
|            |  |     |  | Closing rate |        |  | Average rate | 
|            |  |     |  |              |        |  |              | 
|            |  |     |  | 2003         |        |  | 2004         |  |        | 2005 |  |  | 2003   |  |  | 2004 |        |  | 2005 | 
|            |  |     |  |              |        |  |              |  |        |      |  |  |        |  |  |      |        |  |      | 
|            |  |     |  | (1)         |        |  | (1)         | 
|Argentina   |  | ARS |  |              | 3.70   |  |              |  | 4.05   |      |  |  | 3.57   |  |  |      | 3.33   |  |      |  | 3.66   |  |  |  | 3.64   | 
|Brazil      |  | BRL |  |              | 3.66   |  |              |  | 3.62   |      |  |  | 2.76   |  |  |      | 3.47   |  |      |  | 3.64   |  |  |  | 3.04   | 
|U.K.        |  | GBP |  |              | 0.70   |  |              |  | 0.71   |      |  |  | 0.69   |  |  |      | 0.69   |  |      |  | 0.68   |  |  |  | 0.68   | 
|Japan       |  | JPY |  |              | 135.05 |  |              |  | 139.65 |      |  |  | 138.90 |  |  |      | 130.96 |  |      |  | 134.40 |  |  |  | 136.86 | 
|Canada      |  | CAD |  |              | 1.62   |  |              |  | 1.64   |      |  |  | 1.37   |  |  |      | 1.58   |  |      |  | 1.62   |  |  |  | 1.51   | 
|Mexico      |  | MXN |  |              | 14.18  |  |              |  | 15.23  |      |  |  | 12.59  |  |  |      | 12.22  |  |      |  | 14.04  |  |  |  | 13.58  | 
|Switzerland |  | CHF |  |              | 1.56   |  |              |  | 1.54   |      |  |  | 1.56   |  |  |      | 1.52   |  |      |  | 1.54   |  |  |  | 1.55   | 
|U.S.A.      |  | USD |  |              | 1.26   |  |              |  | 1.36   |      |  |  | 1.18   |  |  |      | 1.13   |  |      |  | 1.24   |  |  |  | 1.24   | 

F-15



---



##### Table of Contents



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




| |                                                   
| | --------------------------------------------------
| | [4.3]     Recognition and
    valuation principles



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











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







F-16



---



##### Table of Contents



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








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

 


 









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





F-17



---



##### Table of Contents



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                           |  |  | 5 to  8 years  | 
|Computer equipment                 |  |  | 3 to  5 years  | 
|Furniture and fixtures             |  |  | 4 to 10 years  | 





| |                          
| | -------------------------
| | Investments in associates





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



F-18



---



##### Table of Contents



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




i.e.










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









F-19



---



##### Table of Contents



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




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











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















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



F-20



---



##### Table of Contents



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










| |                                          
| | -----------------------------------------
| | Miscellaneous receivables and liabilities





[4.4]     Cash
flow statement












F-21



---



##### Table of Contents



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






[4.5]     Procedure
and impact of global impairment testing
















F-22



---



##### Table of Contents



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




|                                    |  |                  |   |  |          |  |     |                |  |  |        |   |  |             |               |      |            |  |          |            |  |  |       |   |  |  |     |  
|----------------------------------- |  | ---------------- | - |  | -------- |  | --- | -------------- |  |  | ------ | - |  | ----------- | ------------- | ---- | ---------- |  | -------- | ---------- |  |  | ----- | - |  |  | --- | -
|                                    |  | Pharmaceuticals, |   |  |          |  |     |                |  |  |        |   |  |             | Environmental |     
|                                    |  | Biological       |   |  | Consumer |  |     | Diabetes Care, |  |  | Animal |   |  |             |               | Crop |            |  | Science, |           
|                                    |  | Products         |   |  | Care     |  |     | Diagnostics    |  |  | Health |   |  | Health Care |               |      | Protection |  |          | BioScience | 
|                                    |  |                  |   |  |          |  |     |                |  |  |        |   |  |             |               |      |            |  |          |            | 
|                                    |  | ( million)      |  
|Net carrying amounts, Jan. 1, 2004  |  |                  | 2 |  |          |  | 99  |                |  |  | 13     |   |  |             |              |      |            |  | 114      |            |  |  | 1,168 |   |  |  | 459 |  
|Amortization in 2004                |  |                  |  |  |          |  | (13 | )              |  |  | (2     | ) |  |             |              |      |            |  | (15      | )          |  |  | (98   | ) |  |  | (36 | )
|Acquisitions                        |  |                  |  |  |          |  | 113 |                |  |  |       |   |  |             |              |      |            |  | 113      |            |  |  | 101   |   |  |  |    |  
|Retirements                         |  |                  |  |  |          |  | (22 | )              |  |  |       |   |  |             |              |      |            |  | (22      | )          |  |  | (1    | ) |  |  |    |  
|Exchange differences                |  |                  |  |  |          |  | (14 | )              |  |  |       |   |  |             |              |      |            |  | (14      | )          |  |  | (27   | ) |  |  | (8  | )
|Changes in scope of consolidation   |  |                  |  |  |          |  |    |                |  |  |       |   |  |             |              |      |            |  |         |            |  |  | 2     |   |  |  |    |  
|                                    |  |                  |   |  |          |  |     |                |  |  |        |   |  |             |               |      |            |  |          |            | 
|Net carrying amounts, Dec. 31, 2004 |  |                  | 2 |  |          |  | 163 |                |  |  | 11     |   |  |             |              |      |            |  | 176      |            |  |  | 1,145 |   |  |  | 415 |  
|                                    |  |                  |   |  |          |  |     |                |  |  |        |   |  |             |               |      |            |  |          |            | 
|Amortization in 2005                |  |                  |  |  |          |  |    |                |  |  |       |   |  |             |              |      |            |  |         |            |  |  |      |   |  |  |    |  
|Acquisitions                        |  |                  |  |  |          |  | 644 |                |  |  |       |   |  |             |              |      |            |  | 644      |            |  |  | 5     |   |  |  | 3   |  
|Retirements                         |  |                  |   |  |          |  | (1  | )              |  |  |       |   |  |             |              |      |            |  | (1       | )          |  |  | (30   | ) |  |  | (13 | )
|Exchange differences                |  |                  |  |  |          |  | 77  |                |  |  | 1      |   |  |             |              |      |            |  | 78       |            |  |  | 45    |   |  |  | 10  |  
|                                    |  |                  |   |  |          |  |     |                |  |  |        |   |  |             |               |      |            |  |          |            | 
|Net carrying amounts, Dec. 31, 2005 |  |                  | 2 |  |          |  | 883 |                |  |  | 12     |   |  |             |              |      |            |  | 897      |            |  |  | 1,165 |   |  |  | 415 |  
|                                    |  |                  |   |  |          |  |     |                |  |  |        |   |  |             |               |      |            |  |          |            | 

|                                    |  |             |       |   |           |  |     |         |  |  |                  |   |  |                |     |   |             |  |   |  |  |  |       |  
|----------------------------------- |  | ----------- | ----- | - | --------- |  | --- | ------- |  |  | ---------------- | - |  | -------------- | --- | - | ----------- |  | - |  |  |  | ----- | -
|                                    |  | CropScience |       |   | Materials |  |     | Systems |  |  | Material Science |   |  | Reconciliation |     |   | Bayer Group | 
|                                    |  |             |       |   |           |  |     |         |  |  |                  |   |  |                |     |   |             | 
|                                    |  | ( million) |      
|Net carrying amounts, Jan. 1, 2004  |  |             | 1,627 |   |           |  | 144 |         |  |  | 13               |   |  |                | 157 |   |             |  |  |  |  |  | 1,898 |  
|Amortization in 2004                |  |             | (134  | ) |           |  | (24 | )       |  |  | (1               | ) |  |                | (25 | ) |             |  |  |  |  |  | (174  | )
|Acquisitions                        |  |             | 101   |   |           |  |    |         |  |  |                 |   |  |                |    |   |             |  |  |  |  |  | 214   |  
|Retirements                         |  |             | (1    | ) |           |  |    |         |  |  |                 |   |  |                |    |   |             |  |  |  |  |  | (23   | )
|Exchange differences                |  |             | (35   | ) |           |  | (2  | )       |  |  |                 |   |  |                | (2  | ) |             |  |  |  |  |  | (51   | )
|Changes in scope of consolidation   |  |             | 2     |   |           |  |    |         |  |  |                 |   |  |                |    |   |             |  |  |  |  |  | 2     |  
|                                    |  |             |       |   |           |  |     |         |  |  |                  |   |  |                |     |   |             | 
|Net carrying amounts, Dec. 31, 2004 |  |             | 1,560 |   |           |  | 118 |         |  |  | 12               |   |  |                | 130 |   |             |  |  |  |  |  | 1,866 |  
|                                    |  |             |       |   |           |  |     |         |  |  |                  |   |  |                |     |   |             | 
|Amortization in 2005                |  |             |      |   |           |  |    |         |  |  |                 |   |  |                |    |   |             |  |  |  |  |  |      |  
|Acquisitions                        |  |             | 8     |   |           |  |    |         |  |  | 9                |   |  |                | 9   |   |             |  |  |  |  |  | 661   |  
|Retirements                         |  |             | (43   | ) |           |  |    |         |  |  |                 |   |  |                |    |   |             |  |  |  |  |  | (44   | )
|Exchange differences                |  |             | 55    |   |           |  | 6   |         |  |  | 1                |   |  |                | 7   |   |             |  |  |  |  |  | 140   |  
|                                    |  |             |       |   |           |  |     |         |  |  |                  |   |  |                |     |   |             | 
|Net carrying amounts, Dec. 31, 2005 |  |             | 1,580 |   |           |  | 124 |         |  |  | 22               |   |  |                | 146 |   |             |  |  |  |  |  | 2,623 |  
|                                    |  |             |       |   |           |  |     |         |  |  |                  |   |  |                |     |   |             | 



[5]     Critical accounting
policies






F-23



---



##### Table of Contents



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








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

  




 i.e.  




F-24



---



##### Table of Contents



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








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





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






F-25



---



##### Table of Contents



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




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

i.e. i.e.











| |                  
| | -----------------
| | Doubtful accounts

e.g.


F-26



---



##### Table of Contents



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







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








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








F-27



---



##### Table of Contents



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




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

 


[6]     Segment reporting








|                   |                                       |            |                                                                                                                                                                                          
|------------------ | ------------------------------------- | ---------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Subgroup / Segment |                                       | Activities
|                   |                                       |           
|HealthCare         |                                       |           
|                   | Pharmaceuticals, Biological Products  |            | Development and marketing of prescription pharmaceuticals                                                                                                                                
|                   | Consumer Care                         |            | Development and marketing of over-the-counter medications and
    nutritional supplements                                                                                                
|                   | Diabetes Care,
    Diagnostics        |            | Development and marketing of diagnostic products for laboratory
    testing, near-patient testing and self-testing applications                                                          
|                   | Animal Health                         |            | Development and marketing of veterinary medicines, nutritionals
    and grooming products for companion animals and livestock                                                            
|CropScience        |                                       |           
|                   | Crop Protection                       |            | Development 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 and marketing of a wide range of products for the
    green industry, garden care, non-agricultural pest and weed
    control and conventional seeds, and plant biotechnology

F-28



---



##### Table of Contents



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


|                   |           |            |                                                                                                                                                                                                          
|------------------ | --------- | ---------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Subgroup / Segment |           | Activities
|                   |           |           
|MaterialScience    |           |           
|                   | Materials |            | Production and marketing of high-quality plastics granules,
    methylcellulose, metallic and ceramic powders and semi-finished
    products                                                             
|                   | Systems   |            | Development, manufacturing and marketing of polyurethanes for a
    wide variety of applications as well as coating and adhesive raw
    materials; production and marketing of basic inorganic chemicals







reconciliation






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The intersegment sales reflect intragroup transactions effected
    at transfer prices fixed on an arms-length basis.                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | The return on sales is the ratio of the operating result to
    external net sales.                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | The gross cash flow comprises the operating result plus
    depreciation, amortization and write-downs, minus income taxes,
    minus gains/plus losses on retirements of noncurrent assets,
    plus/minus changes in pension provisions. The latter item
    includes the elimination of non-cash components of the operating
    result. It also contains benefit payments during the year.                                                                                                 
|
| |  | The net cash flow is the cash flow from operating activities as
    defined in IAS 7.                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | 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 gross cash flow to the average
    capital invested for the year and is thus a measure of the
    return on capital employed.                                                                                                                                                                                                                                                                                                                                    
|
| |  | The equity items are those reflected in the balance sheet and
    income statement. They are allocated to the segments where
    possible.                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Capital expenditures, amortization and depreciation relate to
    intangible assets, property, plant and equipment.                                                                                                                                                                                                                                                                                                                                                                            

F-29



---



##### Table of Contents



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




| |   |                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.

[7]     Changes in the Bayer
Group




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

|                                                      |  |         |     |       |           |  |     |       |  |  |     |  
|----------------------------------------------------- |  | ------- | --- | ----- | --------- |  | --- | ----- |  |  | --- | -
|                                                      |  |         |     | Other |           |  |    
|                                                      |  | Germany |     |       | Countries |  |     | Total | 
|                                                      |  |         |     |       |           |  |     |       | 
|Bayer AG and consolidated companies                   |  |         |     |       |           |  |     |       |  |  |     |  
|January 1, 2005                                       |  |         | 69  |       |           |  | 280 |       |  |  | 349 |  
|Additions                                             |  |         |    |       |           |  | 7   |       |  |  | 7   |  
|Retirements                                           |  |         | (17 | )     |           |  | (59 | )     |  |  | (76 | )
|Reclassifications                                     |  |         | 2   |       |           |  | 1   |       |  |  | 3   |  
|                                                      |  |         |     |       |           |  |     |       | 
|December 31, 2005                                     |  |         | 54  |       |           |  | 229 |       |  |  | 283 |  
|                                                      |  |         |     |       |           |  |     |       | 
|Companies included at equity (associates)             |  |         |     |       |           |  |     |       |  |  |     |  
|January 1, 2005                                       |  |         | 3   |       |           |  | 8   |       |  |  | 11  |  
|Additions                                             |  |         |    |       |           |  |    |       |  |  |    |  
|Retirements                                           |  |         |    |       |           |  |    |       |  |  |    |  
|Reclassifications                                     |  |         |    |       |           |  |    |       |  |  |    |  
|                                                      |  |         |     |       |           |  |     |       | 
|December 31, 2005                                     |  |         | 3   |       |           |  | 8   |       |  |  | 11  |  
|                                                      |  |         |     |       |           |  |     |       | 
|Non-consolidated subsidiaries                         |  |         |     |       |           |  |     |       |  |  |     |  
|January 1, 2005                                       |  |         | 37  |       |           |  | 90  |       |  |  | 127 |  
|Additions                                             |  |         | 5   |       |           |  | 6   |       |  |  | 11  |  
|Retirements                                           |  |         | (8  | )     |           |  | (22 | )     |  |  | (30 | )
|Reclassifications                                     |  |         |    |       |           |  |    |       |  |  |    |  
|                                                      |  |         |     |       |           |  |     |       | 
|December 31, 2005                                     |  |         | 34  |       |           |  | 74  |       |  |  | 108 |  
|                                                      |  |         |     |       |           |  |     |       | 
|Other affiliated companies (Bayers
    interest >5%) |  |         | 31  |       |           |  | 35  |       |  |  | 66  |  
|                                                      |  |         |     |       |           |  |     |       | 
|Additions                                             |  |         | 6   |       |           |  | 3   |       |  |  | 9   |  
|Retirements                                           |  |         | (4  | )     |           |  | (12 | )     |  |  | (16 | )



F-30



---



##### Table of Contents



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




|                       |  |             |     |  
|---------------------- |  | ----------- | --- | -
|                       |  | 2005        |    
|                       |  |             |    
|                       |  | ( million) |    
|Current assets         |  |             | 15  |  
|Noncurrent assets      |  |             | 62  |  
|Current liabilities    |  |             | (23 | )
|Noncurrent liabilities |  |             | (10 | )
|                       |  |             |    
|Net assets             |  |             | 44  |  
|                       |  |             |    
|Income                 |  |             | 50  |  
|Expenses               |  |             | (47 | )
|                       |  |             |    
|Income after taxes     |  |             | 3   |  
|                       |  |             |    







|                                                   |  |              |     | 
|-------------------------------------------------- |  | ------------ | --- | 
|                                                   |  | 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 HealthCare AG, Leverkusen                    |  |              | 100 | 
|Bayer Industry Services GmbH & Co. OHG, Leverkusen |  |              | 60  | 
|Bayer MaterialScience AG, Leverkusen               |  |              | 100 | 
|Bayer Technology Services GmbH, Leverkusen         |  |              | 100 | 
|Bayer Vital GmbH, Leverkusen                       |  |              | 100 | 
|H. C. Starck GmbH, Goslar                          |  |              | 100 | 
|Wolff Cellulosics GmbH & Co. KG, Walsrode          |  |              | 100 | 

F-31



---



##### Table of Contents



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


|                                                |  |              |      | 
|----------------------------------------------- |  | ------------ | ---- | 
|                                                |  | Bayers      |     
|Company Name and Place of Business              |  | Interest (%) |     
|                                                |  |              |     
|Other European Countries                        |  |              |      | 
|Bayer Antwerpen Comm.V, Belgium                 |  |              | 100  | 
|Bayer Consumer Care AG, Switzerland             |  |              | 100  | 
|Bayer CropScience France S.A.S., France         |  |              | 100  | 
|Bayer CropScience Limited, U.K.                 |  |              | 100  | 
|Bayer CropScience S.r.l., Italy                 |  |              | 100  | 
|Bayer Diagnostics Europe Ltd., Ireland          |  |              | 100  | 
|Bayer International S.A., Switzerland           |  |              | 99.7 | 
|Bayer Pharma S.A.S., France                     |  |              | 99.9 | 
|Bayer Polyols S.N.C., France                    |  |              | 100  | 
|Bayer Public Limited Company, U.K.              |  |              | 100  | 
|Bayer S.p.A., Italy                             |  |              | 100  | 
|Bayer Santé Familiale S.A.S., France            |  |              | 100  | 
|Bayer SP.Z.O.O., Poland                         |  |              | 100  | 
|Quimica Farmaceutica Bayer, S.A., Spain         |  |              | 100  | 
|North America                                   |  |              |      | 
|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  | 
|H.C. Starck Inc., U.S.A.                        |  |              | 100  | 
|Asia/Pacific                                    |  |              |      | 
|Bayer Australia Limited, Australia              |  |              | 99.9 | 
|Bayer CropScience K.K., Japan                   |  |              | 100  | 
|Bayer Korea Ltd., Republic of Korea             |  |              | 100  | 
|Bayer MaterialScience Limited, Hong Kong        |  |              | 100  | 
|Bayer Medical Ltd., Japan                       |  |              | 100  | 
|Bayer South East Asia Pte Ltd., Singapore       |  |              | 100  | 
|Bayer Yakuhin, Ltd., Japan                      |  |              | 100  | 
|H.C. Starck Ltd., Japan                         |  |              | 100  | 
|Sumika Bayer Urethane Co., Ltd., Japan          |  |              | 60   | 
|Latin America/ Africa/Middle East               |  |              |      | 
|Bayer (Proprietary) Limited, South Africa       |  |              | 100  | 
|Bayer CropScience Ltda., Brazil                 |  |              | 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  | 

F-32



---



##### Table of Contents



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




|                                                         |  |              |      | 
|-------------------------------------------------------- |  | ------------ | ---- | 
|                                                         |  | Bayers      |     
|Company Name and Place of Business                       |  | Interest (%) |     
|                                                         |  |              |     
|GE Bayer Silicones GmbH & Co. KG, Germany                |  |              | 49.9 | 
|Lyondell Bayer Manufacturing Maasvlakte VOF, Netherlands |  |              | 50   | 
|Palthough Industries (1998) Ltd., Israel                 |  |              | 20   | 
|PO JV, LP, U.S.A.                                        |  |              | 42.7 | 
|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 Gastronomie GmbH                            |  | Leverkusen       
|Bayer Gesellschaft für Beteiligungen mbH          |  | Greppin          
|Bayer HealthCare AG                               |  | Leverkusen       
|Bayer Industry Services GmbH & Co. OHG            |  | Leverkusen       
|Bayer Innovation GmbH                             |  | Leverkusen       
|Bayer MaterialScience AG                          |  | Leverkusen       
|Bayer MaterialScience Customer Services GmbH      |  | Leverkusen       
|Bayer Technology Services GmbH                    |  | Leverkusen       
|Bayer Vital GmbH                                  |  | Leverkusen       
|Bayer-Handelsgesellschaft mbH                     |  | Leverkusen       
|Bayer-Kaufhaus 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       
|Gesellschaft für Wohnen und Gebäudemanagement mbH |  | Leverkusen       
|GP Grenzach Produktions GmbH                      |  | Grenzach         
|KVP Pharma+Veterinär-Produkte GmbH                |  | Kiel             

F-33



---



##### Table of Contents



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


|                                                         |  |                  
|-------------------------------------------------------- |  | -----------------
|Company Name                                             |  | Place of Business
|                                                         |  |                  
|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; discontinued
    operations

Business combinations


  


® ® ® ® ®





     




|                                               |  |             |       | 
|---------------------------------------------- |  | ----------- | ----- | 
|                                               |  | ( 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-34



---



##### Table of Contents



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    |   
|Financial liabilities                          |                                          |                     | (74  | ) |             |  |      |                       |  |  | (74   | ) 
|Miscellaneous liabilities                      |                                          |                     | (129 | ) |             |  |      |                       |  |  | (129  | ) 
|Pensions and other post-employment benefits    |                                          |                     | (25  | ) |             |  |      |                       |  |  | (25   | ) 
|Other provisions                               |                                          |                     | (9   | ) |             |  |      |                       |  |  | (9    | ) 
|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-35



---



##### Table of Contents



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-36



---



##### Table of Contents



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










|                                            |  |             |    |  
|------------------------------------------- |  | ----------- | -- | -
|                                            |  | 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 |  



 


   


 


 ® ® ® 


F-37



---



##### Table of Contents



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





divestitures, 












|                                         |  |              |     |   |              |  |    |  
|---------------------------------------- |  | ------------ | --- | - | ------------ |  | -- | -
|2004                                     |  | Acquisitions |     |   | Divestitures | 
|                                         |  |              |     |   |              | 
|                                         |  | ( million)  |    
|Noncurrent assets                        |  |              | 358 |   |              |  | 79 |  
|Current assets (excluding liquid assets) |  |              | 98  |   |              |  |   |  
|Liquid assets                            |  |              |    |   |              |  | 2  |  
|                                         |  |              |     |   |              | 
|Assets                                   |  |              | 456 |   |              |  | 81 |  
|                                         |  |              |     |   |              | 
|Pension provisions                       |  |              | (1  | ) |              |  |   |  
|Other provisions                         |  |              | (2  | ) |              |  |   |  
|Financial obligations                    |  |              |    |   |              |  |   |  
|Remaining liabilities                    |  |              | (41 | ) |              |  | (2 | )
|                                         |  |              |     |   |              | 
|Liabilities                              |  |              | (44 | ) |              |  | (2 | )
|                                         |  |              |     |   |              | 

Discontinued operations






F-38



---



##### Table of Contents



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






®




F-39



---



##### Table of Contents



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




|                                                                          |  |             |        |   |                 |  |        |             |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |      |        |   |  |  |        |   |  |  |      |  
|------------------------------------------------------------------------- |  | ----------- | ------ | - | --------------- |  | ------ | ----------- |  |  | ---- | - |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | - |  | ---- | ------ | - |  |  | ------ | - |  |  | ---- | -
|                                                                          |  | LANXESS     |        |   | Plasma Business |  |        | Total       | 
|                                                                          |  |             |        |   |                 |  |        |             | 
|                                                                          |  | 2003        |        |   | 2004            |  |        | 2005        |  |  | 2003 |   |  | 2004 |      |   | 2005 |  |      | 2003 |  |  | 2004 |   |  | 2005 |       
|                                                                          |  |             |        |   |                 |  |        |             |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |      |       
|                                                                          |  | ( million) |        |   | ( million)     |  |        | ( million) | 
|Net sales                                                                 |  |             | 5,776  |   |                 |  | 6,053  |             |  |  | 503  |   |  |      | 374  |   |      |  | 427  |      |  |  | 124  |   |  |      | 6,150  |   |  |  | 6,480  |   |  |  | 627  |  
|Cost of goods sold                                                        |  |             | (4,701 | ) |                 |  | (4,635 | )           |  |  | (345 | ) |  |      | (314 | ) |      |  | (309 | )    |  |  | (91  | ) |  |      | (5,015 | ) |  |  | (4,944 | ) |  |  | (436 | )
|Selling expenses                                                          |  |             | (881   | ) |                 |  | (846   | )           |  |  | (62  | ) |  |      | (62  | ) |      |  | (56  | )    |  |  | (14  | ) |  |      | (943   | ) |  |  | (902   | ) |  |  | (76  | )
|Research and development expenses                                         |  |             | (168   | ) |                 |  | (126   | )           |  |  | (8   | ) |  |      | (44  | ) |      |  | (48  | )    |  |  | (11  | ) |  |      | (212   | ) |  |  | (174   | ) |  |  | (19  | )
|General administration expenses                                           |  |             | (242   | ) |                 |  | (263   | )           |  |  | (20  | ) |  |      | (18  | ) |      |  | (18  | )    |  |  | (11  | ) |  |      | (260   | ) |  |  | (281   | ) |  |  | (31  | )
|Other operating income (expenses)  net                                   |  |             | (1,072 | ) |                 |  | (105   | )           |  |  | (6   | ) |  |      | (328 | ) |      |  | (93  | )    |  |  | 1    |   |  |      | (1,400 | ) |  |  | (198   | ) |  |  | (5   | )
|                                                                          |  |             |        |   |                 |  |        |             |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |      |       
|Operating result from discontinued operations                             |  |             | (1,288 | ) |                 |  | 78     |             |  |  | 62   |   |  |      | (392 | ) |      |  | (97  | )    |  |  | (2   | ) |  |      | (1,680 | ) |  |  | (19    | ) |  |  | 60   |  
|                                                                          |  |             |        |   |                 |  |        |             |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |      |       
|Non-operating result                                                      |  |             | (87    | ) |                 |  | (84    | )           |  |  | (4   | ) |  |      |     |   |      |  |     |      |  |  |     |   |  |      | (87    | ) |  |  | (84    | ) |  |  | (4   | )
|                                                                          |  |             |        |   |                 |  |        |             |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |      |       
|Net income (loss) before income taxes                                     |  |             | (1,375 | ) |                 |  | (6     | )           |  |  | 58   |   |  |      | (392 | ) |      |  | (97  | )    |  |  | (2   | ) |  |      | (1,767 | ) |  |  | (103   | ) |  |  | 56   |  
|                                                                          |  |             |        |   |                 |  |        |             |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |      |       
|Income taxes                                                              |  |             | 402    |   |                 |  | 2      |             |  |  | (20  | ) |  |      | 123  |   |      |  | 34   |      |  |  | 1    |   |  |      | 525    |   |  |  | 36     |   |  |  | (19  | )
|                                                                          |  |             |        |   |                 |  |        |             |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |      |       
|Income (loss) after taxes                                                 |  |             | (973   | ) |                 |  | (4     | )           |  |  | 38   |   |  |      | (269 | ) |      |  | (63  | )    |  |  | (1   | ) |  |      | (1,242 | ) |  |  | (67    | ) |  |  | 37   |  
|                                                                          |  |             |        |   |                 |  |        |             |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |      |       
|Of which:                                                                 |  |             |        |   |                 |  |        |             |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |      |        |   |  |  |        |   |  |  |      |  
|Current income (loss) from discontinued operations (before taxes)         |  |             | (1,375 | ) |                 |  | (6     | )           |  |  | 58   |   |  |      | (72  | ) |      |  | (7   | )    |  |  | 22   |   |  |      | (1,447 | ) |  |  | (13    | ) |  |  | 80   |  
|Income taxes                                                              |  |             | 402    |   |                 |  | 2      |             |  |  | (20  | ) |  |      |     |   |      |  | 3    |      |  |  | (7   | ) |  |      | 402    |   |  |  | 5      |   |  |  | (27  | )
|Current income (loss) from discontinued operations (after taxes)          |  |             | (973   | ) |                 |  | (4     | )           |  |  | 38   |   |  |      | (72  | ) |      |  | (4   | )    |  |  | 15   |   |  |      | (1,045 | ) |  |  | (8     | ) |  |  | 53   |  
|Income (loss) from the sale of discontinued operations (before
    taxes) |  |             |       |   |                 |  |       |             |  |  |     |   |  |      | (320 | ) |      |  | (90  | )    |  |  | (24  | ) |  |      | (320   | ) |  |  | (90    | ) |  |  | (24  | )
|Income taxes                                                              |  |             |       |   |                 |  |       |             |  |  |     |   |  |      | 123  |   |      |  | 31   |      |  |  | 8    |   |  |      | 123    |   |  |  | 31     |   |  |  | 8    |  
|Income (loss) from the sale of discontinued operations (after
    taxes)  |  |             |       |   |                 |  |       |             |  |  |     |   |  |      | (197 | ) |      |  | (59  | )    |  |  | (16  | ) |  |      | (197   | ) |  |  | (59    | ) |  |  | (16  | )
|Total income (loss) from discontinued operations after taxes              |  |             | (973   | ) |                 |  | (4     | )           |  |  | 38   |   |  |      | (269 | ) |      |  | (63  | )    |  |  | (1   | ) |  |      | (1,242 | ) |  |  | (67    | ) |  |  | 37   |  



F-40



---



##### Table of Contents



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




|                                                                                     |  |             |       |        |          |  |   |       |  |  |      |  |  |      |   |  |      |  |       |  |  |  |   | 
|------------------------------------------------------------------------------------ |  | ----------- | ----- | ------ | -------- |  | - | ----- |  |  | ---- |  |  | ---- | - |  | ---- |  | ----- |  |  |  | - | 
|                                                                                     |  |             |       | Plasma |          |  |  
|                                                                                     |  | LANXESS     |       |        | Business |  |   | Total | 
|                                                                                     |  |             |       |        |          |  |   |       | 
|                                                                                     |  | 2004        |       |        | 2005     |  |   | 2004  |  |  | 2005 |  |  | 2004 |   |  | 2005 | 
|                                                                                     |  |             |       |        |          |  |   |       |  |  |      |  |  |      |   |  |      | 
|                                                                                     |  | ( million) |      
|Noncurrent assets                                                                    |  |             | 1,900 |        |          |  |  |       |  |  | 124  |  |  |      |  |  |      |  | 2,024 |  |  |  |  | 
|                                                                                     |  |             |       |        |          |  |   |       |  |  |      |  |  |      |   |  |      | 
|Goodwill and other intangible assets                                                 |  |             | 65    |        |          |  |  |       |  |  |     |  |  |      |  |  |      |  | 65    |  |  |  |  | 
|Property, plant and equipment                                                        |  |             | 1,521 |        |          |  |  |       |  |  | 1    |  |  |      |  |  |      |  | 1,522 |  |  |  |  | 
|Other noncurrent assets                                                              |  |             | 106   |        |          |  |  |       |  |  |     |  |  |      |  |  |      |  | 106   |  |  |  |  | 
|Deferred taxes                                                                       |  |             | 208   |        |          |  |  |       |  |  | 123  |  |  |      |  |  |      |  | 331   |  |  |  |  | 
|                                                                                     |  |             |       |        |          |  |   |       |  |  |      |  |  |      |   |  |      | 
|Current assets                                                                       |  |             | 2,328 |        |          |  |  |       |  |  | 405  |  |  |      |  |  |      |  | 2,733 |  |  |  |  | 
|                                                                                     |  |             |       |        |          |  |   |       |  |  |      |  |  |      |   |  |      | 
|Inventories                                                                          |  |             | 1,151 |        |          |  |  |       |  |  | 326  |  |  |      |  |  |      |  | 1,477 |  |  |  |  | 
|Trade accounts receivable                                                            |  |             | 1,029 |        |          |  |  |       |  |  | 76   |  |  |      |  |  |      |  | 1,105 |  |  |  |  | 
|Other current assets                                                                 |  |             | 148   |        |          |  |  |       |  |  | 3    |  |  |      |  |  |      |  | 151   |  |  |  |  | 
|                                                                                     |  |             |       |        |          |  |   |       |  |  |      |  |  |      |   |  |      | 
|Assets held for sale and discontinued operations                                     |  |             | 4,228 |        |          |  |  |       |  |  | 529  |  |  |      |  |  |      |  | 4,757 |  |  |  |  | 
|                                                                                     |  |             |       |        |          |  |   |       |  |  |      |  |  |      |   |  |      | 
|Noncurrent liabilities                                                               |  |             | 968   |        |          |  |  |       |  |  |     |  |  |      |  |  |      |  | 968   |  |  |  |  | 
|                                                                                     |  |             |       |        |          |  |   |       |  |  |      |  |  |      |   |  |      | 
|Provisions for pensions and other post-employment benefits                           |  |             | 573   |        |          |  |  |       |  |  |     |  |  |      |  |  |      |  | 573   |  |  |  |  | 
|Other provisions                                                                     |  |             | 238   |        |          |  |  |       |  |  |     |  |  |      |  |  |      |  | 238   |  |  |  |  | 
|Financial liabilities                                                                |  |             | 92    |        |          |  |  |       |  |  |     |  |  |      |  |  |      |  | 92    |  |  |  |  | 
|Miscellaneous noncurrent liabilities                                                 |  |             | 42    |        |          |  |  |       |  |  |     |  |  |      |  |  |      |  | 42    |  |  |  |  | 
|Deferred taxes                                                                       |  |             | 23    |        |          |  |  |       |  |  |     |  |  |      |  |  |      |  | 23    |  |  |  |  | 
|                                                                                     |  |             |       |        |          |  |   |       |  |  |      |  |  |      |   |  |      | 
|Current liabilities                                                                  |  |             | 1,299 |        |          |  |  |       |  |  | 120  |  |  |      |  |  |      |  | 1,419 |  |  |  |  | 
|                                                                                     |  |             |       |        |          |  |   |       |  |  |      |  |  |      |   |  |      | 
|Other provisions                                                                     |  |             | 207   |        |          |  |  |       |  |  | 20   |  |  |      |  |  |      |  | 227   |  |  |  |  | 
|Financial liabilities                                                                |  |             | 439   |        |          |  |  |       |  |  |     |  |  |      |  |  |      |  | 439   |  |  |  |  | 
|Trade accounts payable                                                               |  |             | 494   |        |          |  |  |       |  |  | 23   |  |  |      |  |  |      |  | 517   |  |  |  |  | 
|Miscellaneous current liabilities                                                    |  |             | 159   |        |          |  |  |       |  |  | 77   |  |  |      |  |  |      |  | 236   |  |  |  |  | 
|                                                                                     |  |             |       |        |          |  |   |       |  |  |      |  |  |      |   |  |      | 
|Liabilities directly related to assets held for sale and
    discontinued operations |  |             | 2,267 |        |          |  |  |       |  |  | 120  |  |  |      |  |  |      |  | 2,387 |  |  |  |  | 
|                                                                                     |  |             |       |        |          |  |   |       |  |  |      |  |  |      |   |  |      | 



|                                                    |  |             |      |   |                 |  |      |       |  |  |      |   |  |      |     |   |      |  |     |      |  |  |      |   |  |      |      |   |  |  |      |   |  |  |      |  
|--------------------------------------------------- |  | ----------- | ---- | - | --------------- |  | ---- | ----- |  |  | ---- | - |  | ---- | --- | - | ---- |  | --- | ---- |  |  | ---- | - |  | ---- | ---- | - |  |  | ---- | - |  |  | ---- | -
|                                                    |  | LANXESS     |      |   | Plasma Business |  |      | Total | 
|                                                    |  |             |      |   |                 |  |      |       | 
|                                                    |  | 2003        |      |   | 2004            |  |      | 2005  |  |  | 2003 |   |  | 2004 |     |   | 2005 |  |     | 2003 |  |  | 2004 |   |  | 2005 |     
|                                                    |  |             |      |   |                 |  |      |       |  |  |      |   |  |      |     |   |      |  |     |      |  |  |      |   |  |      |     
|                                                    |  | ( million) |     
|Net cash provided by (used in) operating activities |  |             | 131  |   |                 |  | 234  |       |  |  | (80  | ) |  |      | (96 | ) |      |  | (46 | )    |  |  | 40   |   |  |      | 35   |   |  |  | 188  |   |  |  | (40  | )
|Net cash provided by (used in) investing activities |  |             | (247 | ) |                 |  | (253 | )     |  |  | (19  | ) |  |      | (31 | ) |      |  | (30 | )    |  |  | 206  |   |  |      | (278 | ) |  |  | (283 | ) |  |  | 187  |  
|Net cash provided by (used in) financing activities |  |             | 116  |   |                 |  | 19   |       |  |  | 99   |   |  |      | 127 |   |      |  | 76  |      |  |  | (246 | ) |  |      | 243  |   |  |  | 95   |   |  |  | (147 | )
|                                                    |  |             |      |   |                 |  |      |       |  |  |      |   |  |      |     |   |      |  |     |      |  |  |      |   |  |      |     
|Change in cash and cash equivalents                 |  |             |     |   |                 |  |     |       |  |  |     |   |  |      |    |   |      |  |    |      |  |  |     |   |  |      |     |   |  |  |     |   |  |  |     |  
|                                                    |  |             |      |   |                 |  |      |       |  |  |      |   |  |      |     |   |      |  |     |      |  |  |      |   |  |      |     

F-41



---



##### Table of Contents



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


Notes to the Statements of Income


[8]     Net sales


     


|                                                                   |  |           |       |  
|------------------------------------------------------------------ |  | --------- | ----- | -
|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   |  
|                                                                   |  |           |      
|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.

    


F-42



---



##### Table of Contents



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





|                                                                           |  |           |      |  
|-------------------------------------------------------------------------- |  | --------- | ---- | -
|2004                                                                       |  |  million |     
|                                                                           |  |           |     
|Acquisitions                                                               |  |           |      |  
|Gustafson (50 percent acquired in 2004)                                    |  |           | 34   |  
|Other                                                                      |  |           | 11   |  
|                                                                           |  |           |     
|                                                                           |  |           | 45   |  
|                                                                           |  |           |     
|Divestitures                                                               |  |           |      |  
|Compliance with antitrust conditions by Bayer CropScience                  |  |           | (100 | )
|PolymerLatex (divested in 2003)                                            |  |           | (62  | )
|Walothen GmbH (divested in 2003)                                           |  |           | (47  | )
|Household insecticides business of Bayer HealthCare (divested in
    2003) |  |           | (25  | )
|Animal vaccine at Bayer HealthCare (divested in 2003)                      |  |           | (16  | )
|Bayer Shell, Belgium                                                       |  |           | (15  | )
|Other                                                                      |  |           | (4   | )
|                                                                           |  |           |     
|                                                                           |  |           | (269 | )
|                                                                           |  |           |     
|Net effect of portfolio changes                                            |  |           | (224 | )
|                                                                           |  |           |     

     


|                                                                  |  |           |       |  
|----------------------------------------------------------------- |  | --------- | ----- | -
|2003                                                              |  |  million |      
|                                                                  |  |           |      
|Acquisitions                                                      |  |           |       |  
|Aventis CropScience Holding S.A., Lyon, France (acquired in 2002) |  |           | 1,450 |  
|Visible Genetics Inc., Canada (acquired in 2002)                  |  |           | 9     |  
|Tectrade A/S, Copenhagen, Denmark (acquired in 2002)              |  |           | 6     |  
|Other                                                             |  |           | 1     |  
|                                                                  |  |           |      
|                                                                  |  |           | 1,466 |  
|                                                                  |  |           |      
|Divestitures                                                      |  |           |       |  
|Compliance with antitrust conditions by Bayer CropScience         |  |           | (435  | )
|Household insecticides business of Bayer HealthCare               |  |           | (272  | )
|PolymerLatex Group                                                |  |           | (117  | )
|Walothen GmbH                                                     |  |           | (10   | )
|Other                                                             |  |           | (7    | )
|                                                                  |  |           |      
|                                                                  |  |           | (841  | )
|                                                                  |  |           |      
|Net effect of portfolio changes                                   |  |           | 625   |  
|                                                                  |  |           |      



F-43



---



##### Table of Contents



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


[9]     Selling expenses


     


[10]     Research and development
expenses




[11]     Other operating income


|                                                                             |  |             |       |  |      |  |     |      |  |  |     | 
|---------------------------------------------------------------------------- |  | ----------- | ----- |  | ---- |  | --- | ---- |  |  | --- | 
|                                                                             |  | 2003        |       |  | 2004 |  |     | 2005 | 
|                                                                             |  |             |       |  |      |  |     |      | 
|                                                                             |  | ( million) |      
|Gains from sales of property, plant and equipment/ portfolio
    adjustments |  |             | 643   |  |      |  | 184 |      |  |  | 151 | 
|Reversals of unutilized provisions                                           |  |             | 104   |  |      |  | 61  |      |  |  | 27  | 
|Write-backs of receivables and other assets                                  |  |             | 67    |  |      |  | 48  |      |  |  | 79  | 
|Recognition of exchange rate hedges                                          |  |             | 103   |  |      |  |    |      |  |  | 47  | 
|Miscellaneous operating income                                               |  |             | 156   |  |      |  | 447 |      |  |  | 490 | 
|                                                                             |  |             |       |  |      |  |     |      | 
|                                                                             |  |             | 1,073 |  |      |  | 740 |      |  |  | 794 | 
|                                                                             |  |             |       |  |      |  |     |      | 

 


[12]     Other operating expenses


|                                                   |  |             |        |   |      |  |        |      |  |  |        |  
|-------------------------------------------------- |  | ----------- | ------ | - | ---- |  | ------ | ---- |  |  | ------ | -
|                                                   |  | 2003        |        |   | 2004 |  |        | 2005 | 
|                                                   |  |             |        |   |      |  |        |      | 
|                                                   |  | ( million) |       
|Amortization and write-downs of acquired goodwill  |  |             | (269   | ) |      |  | (174   | )    |  |  |       |  
|Write-downs of trade accounts receivable           |  |             | (103   | ) |      |  | (88    | )    |  |  | (168   | )
|Losses from sales of property, plant and equipment |  |             | (103   | ) |      |  | (127   | )    |  |  | (128   | )
|Impairment write-downs, excluding goodwill         |  |             | (535   | ) |      |  |       |      |  |  |       |  
|Litigation-related expenses                        |  |             | (372   | ) |      |  | (149   | )    |  |  | (451   | )
|Miscellaneous operating expenses                   |  |             | (639   | ) |      |  | (596   | )    |  |  | (548   | )
|                                                   |  |             |        |   |      |  |        |      | 
|                                                   |  |             | (2,021 | ) |      |  | (1,134 | )    |  |  | (1,295 | )
|                                                   |  |             |        |   |      |  |        |      | 

 ®   


   


F-44



---



##### Table of Contents



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


[13]     Costs by type


[13.1]     Cost
of materials


        


[13.2]     Personnel
expenses


|                                                             |  |             |       |  |      |  |       |      |  |  |       |  
|------------------------------------------------------------ |  | ----------- | ----- |  | ---- |  | ----- | ---- |  |  | ----- | -
|                                                             |  | 2003        |       |  | 2004 |  |       | 2005 | 
|                                                             |  |             |       |  |      |  |       |      | 
|                                                             |  | ( million) |      
|Wages and salaries                                           |  |             | 4,982 |  |      |  | 4,822 |      |  |  | 4,803 |  
|Social expenses and expenses for pensions and other benefits |  |             | 1,501 |  |      |  | 1,204 |      |  |  | 1,109 |  
| of which for defined-contribution pension
    plans        |  |             | 283   |  |      |  | 284   |      |  |  | 341   |  
| of which for defined-benefit pension plans                 |  |             | 497   |  |      |  | 146   |      |  |  | (21   | )
|                                                             |  |             |       |  |      |  |       |      | 
|                                                             |  |             | 6,483 |  |      |  | 6,026 |      |  |  | 5,912 |  
|                                                             |  |             |       |  |      |  |       |      | 

    


 




|                         |  |      |        |  |      |  |        |      |  |  |        | 
|------------------------ |  | ---- | ------ |  | ---- |  | ------ | ---- |  |  | ------ | 
|                         |  | 2003 |        |  | 2004 |  |        | 2005 | 
|                         |  |      |        |  |      |  |        |      | 
|Marketing                |  |      | 30,254 |  |      |  | 29,576 |      |  |  | 30,558 | 
|Technology               |  |      | 46,441 |  |      |  | 44,033 |      |  |  | 44,011 | 
|Research and development |  |      | 10,544 |  |      |  | 9,560  |      |  |  | 9,185  | 
|Administration           |  |      | 9,073  |  |      |  | 9,018  |      |  |  | 9,409  | 
|                         |  |      |        |  |      |  |        |      | 
|                         |  |      | 96,312 |  |      |  | 92,187 |      |  |  | 93,163 | 
|                         |  |      |        |  |      |  |        |      | 
|of which trainees        |  |      | 2,485  |  |      |  | 2,545  |      |  |  | 2,547  | 



F-45



---



##### Table of Contents



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


[13.2]     Other
taxes


  


[14]     Operating result




 


F-7.


[15]     Non-operating result


|                              |  |             |        |   |      |  |      |      |  |  |        |  
|----------------------------- |  | ----------- | ------ | - | ---- |  | ---- | ---- |  |  | ------ | -
|                              |  | 2003        |        |   | 2004 |  |      | 2005 | 
|                              |  |             |        |   |      |  |      |      | 
|                              |  | ( million) |       
|Equity-method
    loss(1)     |  |             | (165   | ) |      |  | (139 | )    |  |  | (10    | )
|Non-operating
    income(2)   |  |             | 750    |   |      |  | 483  |      |  |  | 634    |  
|Non-operating
    expenses(3) |  |             | (1,293 | ) |      |  | (997 | )    |  |  | (1,237 | )
|                              |  |             |        |   |      |  |      |      | 
|                              |  |             | (708   | ) |      |  | (653 | )    |  |  | (613   | )
|                              |  |             |        |   |      |  |      |      | 



[15.1]     Loss
from investments in affiliated companies  net




|                                                                                                   |  |             |      |   |      |  |      |      |  |  |     |  
|-------------------------------------------------------------------------------------------------- |  | ----------- | ---- | - | ---- |  | ---- | ---- |  |  | --- | -
|                                                                                                   |  | 2003        |      |   | 2004 |  |      | 2005 | 
|                                                                                                   |  |             |      |   |      |  |      |      | 
|                                                                                                   |  | ( million) |     
|Equity-method
    loss(1)                                                                          |  |             | (165 | ) |      |  | (139 | )    |  |  | (10 | )
|Write-downs of investments in affiliated
    companies(3)                                          |  |             | (124 | ) |      |  | (11  | )    |  |  | (28 | )
|Dividends from affiliated companies and income from profit and
    loss transfer
    agreements(2) |  |             | 5    |   |      |  |     |      |  |  | 10  |  
| of which
    1 million
    (2004: nil;
    2003:
    3 million)
    from subsidiaries         |  |             |      |   |      |  |      |      |  |  |     |  
|Gains from the sale of investments in affiliated companies
    (2)                                 |  |             | 191  |   |      |  | 11   |      |  |  | 6   |  
|Losses from the sale of investments in affiliated
    companies(3)                                 |  |             | (2   | ) |      |  | (4   | )    |  |  | 0   |  
|                                                                                                   |  |             |      |   |      |  |      |      | 
|                                                                                                   |  |             | (95  | ) |      |  | (143 | )    |  |  | (22 | )
|                                                                                                   |  |             |      |   |      |  |      |      | 

  


F-46



---



##### Table of Contents



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


 


[15.2]     Interest
expense  net




|                                                                                                     |  |             |      |   |      |  |      |      |  |  |      |  
|---------------------------------------------------------------------------------------------------- |  | ----------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                                                                                     |  | 2003        |      |   | 2004 |  |      | 2005 | 
|                                                                                                     |  |             |      |   |      |  |      |      | 
|                                                                                                     |  | ( million) |     
|Income from other securities and
    loans(2)                                                        |  |             | 17   |   |      |  | 13   |      |  |  | 7    |  
|Other interest and similar
    income(2)                                                             |  |             | 501  |   |      |  | 414  |      |  |  | 565  |  
| of which
    1 million
    (2004:
    1 million;
    2003:
    2 million)
    from subsidiaries |  |             |      |   |      |  |      |      |  |  |      |  
|Interest and similar
    expenses(3)                                                                 |  |             | (817 | ) |      |  | (656 | )    |  |  | (913 | )
| of which
    1 million
    (2004:
    9 million;
    2003:
    6 million)
    to subsidiaries   |  |             |      |   |      |  |      |      |  |  |      |  
|                                                                                                     |  |             |      |   |      |  |      |      | 
|                                                                                                     |  |             | (299 | ) |      |  | (229 | )    |  |  | (341 | )
|                                                                                                     |  |             |      |   |      |  |      |      | 



  


  


[15.3]     Other
non-operating expense  net




|                                                       |  |             |      |   |      |  |      |      |  |  |      |  
|------------------------------------------------------ |  | ----------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                                       |  | 2003        |      |   | 2004 |  |      | 2005 | 
|                                                       |  |             |      |   |      |  |      |      | 
|                                                       |  | ( million) |     
|Interest portion of interest-bearing
    provisions(3) |  |             | (270 | ) |      |  | (231 | )    |  |  | (246 | )
|Net exchange
    loss(3)                               |  |             | (13  | ) |      |  | (24  | )    |  |  | (14  | )
|Miscellaneous non-operating
    expenses(3)            |  |             | (67  | ) |      |  | (71  | )    |  |  | (36  | )
|Miscellaneous non-operating
    income(2)              |  |             | 36   |   |      |  | 45   |      |  |  | 46   |  
|                                                       |  |             |      |   |      |  |      |      | 
|                                                       |  |             | (314 | ) |      |  | (281 | )    |  |  | (250 | )
|                                                       |  |             |      |   |      |  |      |      | 

 


F-47



---



##### Table of Contents



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


[16]     Income taxes






|                              |  |             |      |   |      |  |      |      |  |  |      |  
|----------------------------- |  | ----------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                              |  | 2003        |      |   | 2004 |  |      | 2005 | 
|                              |  |             |      |   |      |  |      |      | 
|                              |  | ( million) |     
|Income taxes paid or accrued  |  |             |      |   |      |  |      |      |  |  |      |  
| Germany                     |  |             | (276 | ) |      |  | (115 | )    |  |  | (161 | )
| Other countries             |  |             | (452 | ) |      |  | (375 | )    |  |  | (380 | )
|                              |  |             |      |   |      |  |      |      | 
|                              |  |             | (728 | ) |      |  | (490 | )    |  |  | (541 | )
|                              |  |             |      |   |      |  |      |      | 
|Deferred taxes                |  |             |      |   |      |  |      |      |  |  |      |  
| from temporary differences  |  |             | 717  |   |      |  | (150 | )    |  |  | (205 | )
| from tax loss carryforwards |  |             | 95   |   |      |  | 167  |      |  |  | 105  |  
|                              |  |             |      |   |      |  |      |      | 
|                              |  |             | 812  |   |      |  | 17   |      |  |  | (100 | )
|                              |  |             |      |   |      |  |      |      | 
|Income taxes                  |  |             | 84   |   |      |  | (473 | )    |  |  | (641 | )
|                              |  |             |      |   |      |  |      |      | 

  




|                                               |  |               |        |   |               |  |        |              |  |  |              |   |  |  |        |  
|---------------------------------------------- |  | ------------- | ------ | - | ------------- |  | ------ | ------------ |  |  | ------------ | - |  |  | ------ | -
|                                               |  | Dec. 31, 2004 |        |   | Dec. 31, 2005 | 
|                                               |  |               |        |   |               | 
|                                               |  | Deferred Tax  |        |   | Deferred Tax  |  |        | Deferred Tax |  |  | Deferred Tax |  
|                                               |  | Assets        |        |   | Liabilities   |  |        | Assets       |  |  | Liabilities  |  
|                                               |  |               |        |   |               |  |        |              |  |  |              |  
|                                               |  | ( million)   |        |   | ( million)   | 
|Intangible assets                              |  |               | 149    |   |               |  | 1,029  |              |  |  | 159          |   |  |  | 983    |  
|Property, plant and equipment                  |  |               | 80     |   |               |  | 820    |              |  |  | 184          |   |  |  | 780    |  
|Financial assets                               |  |               | 43     |   |               |  | 174    |              |  |  | 26           |   |  |  | 235    |  
|Inventories                                    |  |               | 275    |   |               |  | 73     |              |  |  | 377          |   |  |  | 66     |  
|Receivables                                    |  |               | 77     |   |               |  | 168    |              |  |  | 123          |   |  |  | 344    |  
|Other assets                                   |  |               | 10     |   |               |  | 389    |              |  |  | 34           |   |  |  | 253    |  
|Pension provisions                             |  |               | 1,102  |   |               |  | 209    |              |  |  | 1,522        |   |  |  | 436    |  
|Other provisions                               |  |               | 767    |   |               |  | 131    |              |  |  | 666          |   |  |  | 68     |  
|Other liabilities                              |  |               | 644    |   |               |  | 78     |              |  |  | 726          |   |  |  | 20     |  
|Tax loss carryforwards                         |  |               | 584    |   |               |  |       |              |  |  | 1,047        |   |  |  |       |  
|Valuation allowance for tax loss carryforwards |  |               | (85    | ) |               |  |       |              |  |  | (261         | ) |  |  |       |  
|                                               |  |               |        |   |               |  |        |              |  |  |              |  
|                                               |  |               | 3,646  |   |               |  | 3,071  |              |  |  | 4,603        |   |  |  | 3,185  |  
|                                               |  |               |        |   |               |  |        |              |  |  |              |  
|Set-off                                        |  |               | (2,427 | ) |               |  | (2,427 | )            |  |  | (2,905       | ) |  |  | (2,905 | )
|                                               |  |               |        |   |               |  |        |              |  |  |              |  
|                                               |  |               | 1,219  |   |               |  | 644    |              |  |  | 1,698        |   |  |  | 280    |  
|                                               |  |               |        |   |               |  |        |              |  |  |              |  

F-48



---



##### Table of Contents



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




|                       |  |               |       |  |          |  |       |               |  |  |          |  |  |  |       | 
|---------------------- |  | ------------- | ----- |  | -------- |  | ----- | ------------- |  |  | -------- |  |  |  | ----- | 
|                       |  | Total as at   |       |  | of which |  |       | Total as at   |  |  | of which | 
|                       |  | Dec. 31, 2004 |       |  | current  |  |       | Dec. 31, 2005 |  |  | current  | 
|                       |  |               |       |  |          |  |       |               |  |  |          | 
|                       |  | ( million)   |      
|Deferred tax assets    |  |               | 1,219 |  |          |  | 509   |               |  |  | 1,698    |  |  |  | 709   | 
|Claims for tax refunds |  |               | 823   |  |          |  | 815   |               |  |  | 726      |  |  |  | 719   | 
|                       |  |               |       |  |          |  |       |               |  |  |          | 
|                       |  |               | 2,042 |  |          |  | 1,324 |               |  |  | 2,424    |  |  |  | 1,428 | 
|                       |  |               |       |  |          |  |       |               |  |  |          | 

|                            |  |               |       |  |          |  |       |               |  |  |          |  |  |  |     | 
|--------------------------- |  | ------------- | ----- |  | -------- |  | ----- | ------------- |  |  | -------- |  |  |  | --- | 
|                            |  | Total as at   |       |  | of which |  |       | Total as at   |  |  | of which | 
|                            |  | Dec. 31, 2004 |       |  | current  |  |       | Dec. 31, 2005 |  |  | current  | 
|                            |  |               |       |  |          |  |       |               |  |  |          | 
|                            |  | ( million)   |      
|Deferred tax liabilities    |  |               | 644   |  |          |  | 430   |               |  |  | 280      |  |  |  | 187 | 
|Provisions for income taxes |  |               | 997   |  |          |  | 648   |               |  |  | 803      |  |  |  | 431 | 
|Tax liabilities             |  |               | 413   |  |          |  | 413   |               |  |  | 304      |  |  |  | 302 | 
|                            |  |               |       |  |          |  |       |               |  |  |          | 
|                            |  |               | 2,054 |  |          |  | 1,491 |               |  |  | 1,387    |  |  |  | 920 | 
|                            |  |               |       |  |          |  |       |               |  |  |          | 

      




|                          |  |             |       |  |          |  |       |          |  |  |       | 
|------------------------- |  | ----------- | ----- |  | -------- |  | ----- | -------- |  |  | ----- | 
|                          |  | Dec. 31,    |       |  | Dec. 31, |  |       | Dec. 31, | 
|                          |  | 2003        |       |  | 2004     |  |       | 2005     | 
|                          |  |             |       |  |          |  |       |          | 
|                          |  | ( million) |      
|One year                  |  |             | 19    |  |          |  | 4     |          |  |  |      | 
|Two years                 |  |             | 7     |  |          |  | 2     |          |  |  |      | 
|Three years               |  |             | 41    |  |          |  |      |          |  |  |      | 
|Four years                |  |             | 104   |  |          |  |      |          |  |  | 4     | 
|Five years and thereafter |  |             | 1,258 |  |          |  | 1,494 |          |  |  | 2,714 | 
|                          |  |             |       |  |          |  |       |          | 
|                          |  |             | 1,429 |  |          |  | 1,500 |          |  |  | 2,718 | 
|                          |  |             |       |  |          |  |       |          | 

           


 


F-49



---



##### Table of Contents



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


   





 


        


F-50



---



##### Table of Contents



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




|                                                                         |  |             |      |   |      |  |      |             |  |  |      |   |  |             |     |   |   |  |      |   |  |  |     |  
|------------------------------------------------------------------------ |  | ----------- | ---- | - | ---- |  | ---- | ----------- |  |  | ---- | - |  | ----------- | --- | - | - |  | ---- | - |  |  | --- | -
|                                                                         |  | 2003        |      |   | 2004 |  |      | 2005        | 
|                                                                         |  |             |      |   |      |  |      |             | 
|                                                                         |  | ( million) |      |   | %    |  |      | ( million) |  |  | %    |   |  | ( million) |     |   | % | 
|                                                                         |  |             |      |   |      |  |      |             |  |  |      |   |  |             |     |   |   | 
|Theoretical income tax expense (income)                                  |  |             | (50  | ) |      |  | 100  |             |  |  | 428  |   |  |             | 100 |   |   |  | 774  |   |  |  | 100 |  
|Reduction in taxes due to tax-free income                                |  |             |      |   |      |  |      |             |  |  |      |   |  |             |     |   |   |  |      |   |  |  |     |  
| Relating to the divestiture of Millennium                              |  |             | (76  | ) |      |  | 152  |             |  |  |     |   |  |             |    |   |   |  |     |   |  |  |    |  
| Tax-free income from affiliated companies and
    divestiture proceeds |  |             | (34  | ) |      |  | 68   |             |  |  | (4   | ) |  |             | (1  | ) |   |  | (6   | ) |  |  | (1  | )
| Other                                                                  |  |             | (66  | ) |      |  | 132  |             |  |  | (84  | ) |  |             | (20 | ) |   |  | (99  | ) |  |  | (13 | )
|Utilization of off-balance-sheet loss carryforwards                      |  |             | (3   | ) |      |  | 6    |             |  |  | (30  | ) |  |             | (7  | ) |   |  | (34  | ) |  |  | (4  | )
|Tax provision reversal in the U.S.                                       |  |             |     |   |      |  |     |             |  |  |     |   |  |             |    |   |   |  | (104 | ) |  |  | (13 | )
|Increase in taxes due to non-tax-deductible expenses                     |  |             |      |   |      |  |      |             |  |  |      |   |  |             |     |   |   |  |      |   |  |  |     |  
| Write-downs on investments                                             |  |             | 49   |   |      |  | (98  | )           |  |  | 13   |   |  |             | 3   |   |   |  | 10   |   |  |  | 1   |  
| Amortization of goodwill                                               |  |             | 56   |   |      |  | (112 | )           |  |  | 63   |   |  |             | 15  |   |   |  |     |   |  |  |    |  
| Impairment charges                                                     |  |             | 38   |   |      |  | (76  | )           |  |  |     |   |  |             |    |   |   |  |     |   |  |  |    |  
| Expenses for litigation                                                |  |             | 24   |   |      |  | (48  | )           |  |  | 31   |   |  |             | 7   |   |   |  | 17   |   |  |  | 2   |  
| Other                                                                  |  |             | 14   |   |      |  | (28  | )           |  |  | 30   |   |  |             | 7   |   |   |  | 53   |   |  |  | 7   |  
|Other tax effects                                                        |  |             | (36  | ) |      |  | 72   |             |  |  | 26   |   |  |             | 6   |   |   |  | 30   |   |  |  | 4   |  
|                                                                         |  |             |      |   |      |  |      |             |  |  |      |   |  |             |     |   |   | 
|Actual tax expense (income)                                              |  |             | (84  | ) |      |  | 168  |             |  |  | 473  |   |  |             | 111 |   |   |  | 641  |   |  |  | 83  |  
|                                                                         |  |             |      |   |      |  |      |             |  |  |      |   |  |             |     |   |   | 
|Effective tax rate in %                                                  |  |             | 63.2 |   |      |  |      |             |  |  | 38.7 |   |  |             |     |   |   |  | 29.1 |   |  |  |     |  

[17]     Minority stockholders
interest in income/ losses


     


[18]     Earnings per share
() from
continuing and discontinued operations




|                                              |  |                  |             |  |      |  |             |      |  |  |             | 
|--------------------------------------------- |  | ---------------- | ----------- |  | ---- |  | ----------- | ---- |  |  | ----------- | 
|                                              |  | 2003             |             |  | 2004 |  |             | 2005 | 
|                                              |  |                  |             |  |      |  |             |      | 
|                                              |  | Number of shares |            
|Weighted average number of shares outstanding |  |                  |             |  |      |  |             |      |  |  |             | 
| basic                                       |  |                  | 730,341,920 |  |      |  | 730,341,920 |      |  |  | 730,341,920 | 
|Dilutive potential ordinary shares            |  |                  |            |  |      |  |            |      |  |  |            | 
|Weighted average number of shares outstanding |  |                  |             |  |      |  |             |      |  |  |             | 
| diluted                                     |  |                  | 730,341,920 |  |      |  | 730,341,920 |      |  |  | 730,341,920 | 

F-51



---



##### Table of Contents



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


|                                                       |  |             |             |   |      |  |             |      |  |  |             |  
|------------------------------------------------------ |  | ----------- | ----------- | - | ---- |  | ----------- | ---- |  |  | ----------- | -
|                                                       |  | 2003        |             |   | 2004 |  |             | 2005 | 
|                                                       |  |             |             |   |      |  |             |      | 
|                                                       |  | ( million) |            
|Income (loss) after taxes                              |  |             | (1,291      | ) |      |  | 682         |      |  |  | 1,595       |  
| attributable to minority interest                    |  |             | (12         | ) |      |  | (3          | )    |  |  | (2          | )
| attributable to Bayer AG stockholders (net income)   |  |             | (1,303      | ) |      |  | 685         |      |  |  | 1,597       |  
|Income (loss) after taxes from discontinued operations |  |             | (1,242      | ) |      |  | (67         | )    |  |  | 37          |  
|Weighted average number of shares                      |  |             | 730,341,920 |   |      |  | 730,341,920 |      |  |  | 730,341,920 |  
|Basic earnings (loss) per
    share ()                |  |             |             |   |      |  |             |      |  |  |             |  
| from continuing operations                           |  |             | (0.08       | ) |      |  | 1.03        |      |  |  | 2.14        |  
| from continuing and discontinued operations          |  |             | (1.78       | ) |      |  | 0.94        |      |  |  | 2.19        |  
|Diluted earnings (loss) per
    share ()              |  |             |             |   |      |  |             |      |  |  |             |  
| from continuing operations                           |  |             | (0.08       | ) |      |  | 1.03        |      |  |  | 2.14        |  
| from continuing and discontinued operations          |  |             | (1.78       | ) |      |  | 0.94        |      |  |  | 2.19        |  



|                                                                                                                                                    |  |                    |      |  |      |  |      |      |  |  |   | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---- |  | ---- |  | ---- | ---- |  |  | - | 
|                                                                                                                                                    |  | Effect on Earnings |     
|                                                                                                                                                    |  | Per Share          |     
|                                                                                                                                                    |  |                    |     
|                                                                                                                                                    |  | 2003               |      |  | 2004 |  |      | 2005 | 
|                                                                                                                                                    |  |                    |      |  |      |  |      |      | 
|Cessation of amortization of goodwill and other intangible
    assets with indefinite useful lives in accordance with
    IFRS 3, IAS 36 and IAS 38 |  |                    | 0.28 |  |      |  | 0.26 |      |  |  |  | 
|Offsetting of unrealized actuarial gains and losses in benefit
    accounting against equity in accordance with IAS 19, amended 2004                |  |                    | 0.08 |  |      |  | 0.12 |      |  |  |  | 
|                                                                                                                                                    |  |                    |      |  |      |  |      |      | 
|Total effect of accounting changes on earnings per share                                                                                            |  |                    | 0.36 |  |      |  | 0.38 |      |  |  |  | 
|                                                                                                                                                    |  |                    |      |  |      |  |      |      | 



  


F-52



---



##### Table of Contents



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


Notes to the Balance Sheets


[19]     Goodwill and other
intangible assets




|                                                                               |  |                     |       |   |          |  |       |          |  |  |       |   |  |  |        |  
|------------------------------------------------------------------------------ |  | ------------------- | ----- | - | -------- |  | ----- | -------- |  |  | ----- | - |  |  | ------ | -
|                                                                               |  | Acquired            |       |   |          |  |       |          | 
|                                                                               |  | Concessions,        |       |   |          |  |       |          | 
|                                                                               |  | Industrial Property |       |   |          |  |       |          | 
|                                                                               |  | Rights, Similar     |       |   |          |  |       |          | 
|                                                                               |  | Rights and Assets,  |       |   |          |  |       |          | 
|                                                                               |  | and Licenses        |       |   | Acquired |  |       | Advance  |  |  |      
|                                                                               |  | Thereunder          |       |   | Goodwill |  |       | Payments |  |  | Total |  
|                                                                               |  |                     |       |   |          |  |       |          |  |  |       |  
|                                                                               |  | ( million)         |      
|Gross carrying amounts, Dec. 31, 2004                                          |  |                     | 7,137 |   |          |  | 2,470 |          |  |  | 38    |   |  |  | 9,645  |  
|Exchange differences                                                           |  |                     | 395   |   |          |  | 179   |          |  |  | 2     |   |  |  | 576    |  
|Elimination of accumulated amortization prior to the application
    of IFRS 3 |  |                     |      |   |          |  | (643  | )        |  |  |      |   |  |  | (643   | )
|Changes in scope of consolidation                                              |  |                     |      |   |          |  |      |          |  |  |      |   |  |  |       |  
|Acquisitions                                                                   |  |                     | 1,384 |   |          |  | 661   |          |  |  |      |   |  |  | 2,045  |  
|Capital expenditures                                                           |  |                     | 82    |   |          |  |      |          |  |  | 14    |   |  |  | 96     |  
|Retirements                                                                    |  |                     | (217  | ) |          |  | (44   | )        |  |  | (23   | ) |  |  | (284   | )
|Transfers                                                                      |  |                     | 15    |   |          |  |      |          |  |  | (17   | ) |  |  | (2     | )
|                                                                               |  |                     |       |   |          |  |       |          |  |  |       |  
|Gross carrying amounts, Dec. 31, 2005                                          |  |                     | 8,796 |   |          |  | 2,623 |          |  |  | 14    |   |  |  | 11,433 |  
|                                                                               |  |                     |       |   |          |  |       |          |  |  |       |  
|Accumulated amortization and write-downs,
    Dec. 31, 2004                    |  |                     | 3,088 |   |          |  | 604   |          |  |  | 1     |   |  |  | 3,693  |  
|Exchange differences                                                           |  |                     | 222   |   |          |  | 39    |          |  |  |      |   |  |  | 261    |  
|Elimination of accumulated amortization prior to the application
    of IFRS 3 |  |                     |      |   |          |  | (643  | )        |  |  |      |   |  |  | (643   | )
|Changes in scope of consolidation                                              |  |                     |      |   |          |  |      |          |  |  |      |   |  |  |       |  
|Amortization and write-downs in 2005                                           |  |                     | 622   |   |          |  |      |          |  |  |      |   |  |  | 622    |  
| of which write-downs                                                         |  |                     | 22    |   |          |  |      |          |  |  |      |   |  |  | 22     |  
|Write-backs                                                                    |  |                     |      |   |          |  |      |          |  |  |      |   |  |  |       |  
|Retirements                                                                    |  |                     | (187  | ) |          |  |      |          |  |  |      |   |  |  | (187   | )
|Transfers                                                                      |  |                     | (1    | ) |          |  |      |          |  |  |      |   |  |  | (1     | )
|                                                                               |  |                     |       |   |          |  |       |          |  |  |       |  
|Accumulated amortization and write-downs,
    Dec. 31, 2005                    |  |                     | 3,744 |   |          |  |      |          |  |  | 1     |   |  |  | 3,745  |  
|                                                                               |  |                     |       |   |          |  |       |          |  |  |       |  
|Net carrying amounts, Dec. 31, 2005                                            |  |                     | 5,052 |   |          |  | 2,623 |          |  |  | 13    |   |  |  | 7,688  |  
|                                                                               |  |                     |       |   |          |  |       |          |  |  |       |  
|Net carrying amounts, Dec. 31, 2004                                            |  |                     | 4,049 |   |          |  | 1,866 |          |  |  | 37    |   |  |  | 5,952  |  





F-53



---



##### Table of Contents



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






|                                                            |  |             |       |   |            |              |       |        |            |  |        |       |  |        |       |   |       |  |       |   |  |  |       |  
|----------------------------------------------------------- |  | ----------- | ----- | - | ---------- | ------------ | ----- | ------ | ---------- |  | ------ | ----- |  | ------ | ----- | - | ----- |  | ----- | - |  |  | ----- | -
|                                                            |  |             |       |   |            | Marketing    |       |        |            |  |        |       | 
|                                                            |  |             |       |   |            | and          |       |        |            |  |        |       | 
|                                                            |  |             |       |   |            | Distribution |       |        | Production |  |        | Other |  |        |      
|                                                            |  | Patents     |       |   | Trademarks |              |       | Rights |            |  | Rights |       |  | Rights |       |   | Total | 
|                                                            |  |             |       |   |            |              |       |        |            |  |        |       |  |        |       |   |       | 
|                                                            |  | ( million) |      
|Gross carrying amounts, Dec. 31, 2004                       |  |             | 1,634 |   |            |              | 1,029 |        |            |  | 626    |       |  |        | 1,933 |   |       |  | 1,915 |   |  |  | 7,137 |  
|Exchange differences                                        |  |             | 73    |   |            |              | 41    |        |            |  | 91     |       |  |        | 5     |   |       |  | 185   |   |  |  | 395   |  
|Changes in scope of consolidation                           |  |             |      |   |            |              |      |        |            |  |       |       |  |        |      |   |       |  |      |   |  |  |      |  
|Acquisitions                                                |  |             | 13    |   |            |              | 1,068 |        |            |  | 160    |       |  |        | 74    |   |       |  | 69    |   |  |  | 1,384 |  
|Capital expenditures                                        |  |             | 12    |   |            |              |      |        |            |  | 6      |       |  |        |      |   |       |  | 64    |   |  |  | 82    |  
|Retirements                                                 |  |             | (68   | ) |            |              | (7    | )      |            |  |       |       |  |        | (11   | ) |       |  | (131  | ) |  |  | (217  | )
|Transfers                                                   |  |             | 41    |   |            |              | (4    | )      |            |  | (3     | )     |  |        | (11   | ) |       |  | (8    | ) |  |  | 15    |  
|                                                            |  |             |       |   |            |              |       |        |            |  |        |       |  |        |       |   |       | 
|Gross carrying amounts, Dec. 31, 2005                       |  |             | 1,705 |   |            |              | 2,127 |        |            |  | 880    |       |  |        | 1,990 |   |       |  | 2,094 |   |  |  | 8,796 |  
|                                                            |  |             |       |   |            |              |       |        |            |  |        |       |  |        |       |   |       | 
|Accumulated amortization and write-downs, Dec. 31, 2004     |  |             | 602   |   |            |              | 331   |        |            |  | 205    |       |  |        | 510   |   |       |  | 1,440 |   |  |  | 3,088 |  
|Exchange differences                                        |  |             | 30    |   |            |              | 15    |        |            |  | 31     |       |  |        | 2     |   |       |  | 144   |   |  |  | 222   |  
|Changes in scope of consolidation                           |  |             |      |   |            |              |      |        |            |  |       |       |  |        |      |   |       |  |      |   |  |  |      |  
|Amortization and write-downs in 2005                        |  |             | 155   |   |            |              | 92    |        |            |  | 76     |       |  |        | 164   |   |       |  | 135   |   |  |  | 622   |  
| of which write-downs                                      |  |             | 4     |   |            |              | 1     |        |            |  | 15     |       |  |        |      |   |       |  | 2     |   |  |  | 22    |  
|Write-backs                                                 |  |             |      |   |            |              |      |        |            |  |       |       |  |        |      |   |       |  |      |   |  |  |      |  
|Retirements                                                 |  |             | (53   | ) |            |              | (1    | )      |            |  |       |       |  |        | (4    | ) |       |  | (129  | ) |  |  | (187  | )
|Transfers                                                   |  |             | 1     |   |            |              | (1    | )      |            |  |       |       |  |        | (5    | ) |       |  | 4     |   |  |  | (1    | )
|                                                            |  |             |       |   |            |              |       |        |            |  |        |       |  |        |       |   |       | 
|Accumulated amortization and write-downs, Dec. 31,
    2005 |  |             | 735   |   |            |              | 436   |        |            |  | 312    |       |  |        | 667   |   |       |  | 1,594 |   |  |  | 3,744 |  
|                                                            |  |             |       |   |            |              |       |        |            |  |        |       |  |        |       |   |       | 
|Net carrying amounts, Dec. 31, 2005                         |  |             | 970   |   |            |              | 1,691 |        |            |  | 568    |       |  |        | 1,323 |   |       |  | 500   |   |  |  | 5,052 |  
|                                                            |  |             |       |   |            |              |       |        |            |  |        |       |  |        |       |   |       | 
|Net carrying amounts, Dec. 31, 2004                         |  |             | 1,032 |   |            |              | 698   |        |            |  | 421    |       |  |        | 1,423 |   |       |  | 475   |   |  |  | 4,049 |  



|                                            |  |             |     | 
|------------------------------------------- |  | ----------- | --- | 
|Estimated Amortization of Intangible Assets |  | ( million) |    
|                                            |  |             |    
|2006                                        |  |             | 575 | 
|2007                                        |  |             | 446 | 
|2008                                        |  |             | 418 | 
|2009                                        |  |             | 378 | 
|2010                                        |  |             | 367 | 



F-54



---



##### Table of Contents



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




|                                                            |  |                     |       |   |          |  |       |          |  |  |       |   |  |  |       |  
|----------------------------------------------------------- |  | ------------------- | ----- | - | -------- |  | ----- | -------- |  |  | ----- | - |  |  | ----- | -
|                                                            |  | Acquired            |       |   |          |  |       |          | 
|                                                            |  | Concessions,        |       |   |          |  |       |          | 
|                                                            |  | Industrial Property |       |   |          |  |       |          | 
|                                                            |  | Rights, Similar     |       |   |          |  |       |          | 
|                                                            |  | Rights and Assets,  |       |   |          |  |       |          | 
|                                                            |  | and Licenses        |       |   | Acquired |  |       | Advance  |  |  |      
|                                                            |  | Thereunder          |       |   | Goodwill |  |       | Payments |  |  | Total |  
|                                                            |  |                     |       |   |          |  |       |          |  |  |       |  
|                                                            |  | ( million)         |      
|Gross carrying amounts, Dec. 31, 2003                       |  |                     | 7,110 |   |          |  | 2,522 |          |  |  | 45    |   |  |  | 9,677 |  
|Exchange differences                                        |  |                     | (175  | ) |          |  | (66   | )        |  |  |      |   |  |  | (241  | )
|Changes in scope of consolidation                           |  |                     | 1     |   |          |  | 2     |          |  |  |      |   |  |  | 3     |  
|Acquisitions                                                |  |                     | 140   |   |          |  | 214   |          |  |  |      |   |  |  | 354   |  
|Capital expenditures                                        |  |                     | 52    |   |          |  |      |          |  |  | 35    |   |  |  | 87    |  
|Retirements                                                 |  |                     | (44   | ) |          |  | (202  | )        |  |  | (6    | ) |  |  | (252  | )
|Transfers                                                   |  |                     | 53    |   |          |  |      |          |  |  | (36   | ) |  |  | 17    |  
|                                                            |  |                     |       |   |          |  |       |          |  |  |       |  
|Gross carrying amounts, Dec. 31, 2004                       |  |                     | 7,137 |   |          |  | 2,470 |          |  |  | 38    |   |  |  | 9,645 |  
|                                                            |  |                     |       |   |          |  |       |          |  |  |       |  
|Accumulated amortization and write-downs, Dec. 31, 2003     |  |                     | 2,637 |   |          |  | 624   |          |  |  | 5     |   |  |  | 3,266 |  
|Exchange differences                                        |  |                     | (111  | ) |          |  | (15   | )        |  |  |      |   |  |  | (126  | )
|Changes in scope of consolidation                           |  |                     | 1     |   |          |  |      |          |  |  |      |   |  |  | 1     |  
|Amortization and write-downs in 2004                        |  |                     | 577   |   |          |  | 174   |          |  |  |      |   |  |  | 751   |  
| of which write-downs                                      |  |                     | 4     |   |          |  |      |          |  |  |      |   |  |  | 4     |  
|Write-backs                                                 |  |                     |      |   |          |  |      |          |  |  |      |   |  |  |      |  
|Retirements                                                 |  |                     | (31   | ) |          |  | (179  | )        |  |  |      |   |  |  | (210  | )
|Transfers                                                   |  |                     | 15    |   |          |  |      |          |  |  | (4    | ) |  |  | 11    |  
|                                                            |  |                     |       |   |          |  |       |          |  |  |       |  
|Accumulated amortization and write-downs, Dec. 31,
    2004 |  |                     | 3,088 |   |          |  | 604   |          |  |  | 1     |   |  |  | 3,693 |  
|                                                            |  |                     |       |   |          |  |       |          |  |  |       |  
|Net carrying amounts, Dec. 31, 2004                         |  |                     | 4,049 |   |          |  | 1,866 |          |  |  | 37    |   |  |  | 5,952 |  
|                                                            |  |                     |       |   |          |  |       |          |  |  |       |  

F-55



---



##### Table of Contents



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




|                                                            |  |             |       |   |            |              |       |        |            |  |        |       |  |        |       |   |       |  |       |   |  |  |       |  
|----------------------------------------------------------- |  | ----------- | ----- | - | ---------- | ------------ | ----- | ------ | ---------- |  | ------ | ----- |  | ------ | ----- | - | ----- |  | ----- | - |  |  | ----- | -
|                                                            |  |             |       |   |            | Marketing    |       |        |            |  |        |       | 
|                                                            |  |             |       |   |            | and          |       |        |            |  |        |       | 
|                                                            |  |             |       |   |            | Distribution |       |        | Production |  |        | Other |  |        |      
|                                                            |  | Patents     |       |   | Trademarks |              |       | Rights |            |  | Rights |       |  | Rights |       |   | Total | 
|                                                            |  |             |       |   |            |              |       |        |            |  |        |       |  |        |       |   |       | 
|                                                            |  | ( million) |      
|Gross carrying amounts, Dec. 31, 2003                       |  |             | 1,745 |   |            |              | 886   |        |            |  | 654    |       |  |        | 1,931 |   |       |  | 1,894 |   |  |  | 7,110 |  
|Exchange differences                                        |  |             | (33   | ) |            |              | (15   | )      |            |  | (39    | )     |  |        | (1    | ) |       |  | (87   | ) |  |  | (175  | )
|Changes in scope of consolidation                           |  |             |      |   |            |              |      |        |            |  |       |       |  |        |      |   |       |  | 1     |   |  |  | 1     |  
|Acquisitions                                                |  |             |      |   |            |              | 138   |        |            |  | 1      |       |  |        |      |   |       |  | 1     |   |  |  | 140   |  
|Capital expenditures                                        |  |             | 15    |   |            |              |      |        |            |  | 6      |       |  |        |      |   |       |  | 31    |   |  |  | 52    |  
|Retirements                                                 |  |             | (44   | ) |            |              |      |        |            |  |       |       |  |        |      |   |       |  |      |   |  |  | (44   | )
|Transfers                                                   |  |             | (49   | ) |            |              | 20    |        |            |  | 4      |       |  |        | 3     |   |       |  | 75    |   |  |  | 53    |  
|                                                            |  |             |       |   |            |              |       |        |            |  |        |       |  |        |       |   |       | 
|Gross carrying amounts, Dec. 31, 2004                       |  |             | 1,634 |   |            |              | 1,029 |        |            |  | 626    |       |  |        | 1,933 |   |       |  | 1,915 |   |  |  | 7,137 |  
|                                                            |  |             |       |   |            |              |       |        |            |  |        |       |  |        |       |   |       | 
|Accumulated amortization and write-downs, Dec. 31, 2003     |  |             | 503   |   |            |              | 275   |        |            |  | 162    |       |  |        | 351   |   |       |  | 1,346 |   |  |  | 2,637 |  
|Exchange differences                                        |  |             | (18   | ) |            |              | (8    | )      |            |  | (13    | )     |  |        |      |   |       |  | (72   | ) |  |  | (111  | )
|Changes in scope of consolidation                           |  |             |      |   |            |              |      |        |            |  |       |       |  |        |      |   |       |  | 1     |   |  |  | 1     |  
|Amortization and write-downs in 2004                        |  |             | 148   |   |            |              | 56    |        |            |  | 56     |       |  |        | 159   |   |       |  | 158   |   |  |  | 577   |  
| of which write-downs                                      |  |             |      |   |            |              |      |        |            |  |       |       |  |        |      |   |       |  | 4     |   |  |  | 4     |  
|Write-backs                                                 |  |             |      |   |            |              |      |        |            |  |       |       |  |        |      |   |       |  |      |   |  |  |      |  
|Retirements                                                 |  |             | (31   | ) |            |              |      |        |            |  |       |       |  |        |      |   |       |  |      |   |  |  | (31   | )
|Transfers                                                   |  |             |      |   |            |              | 8     |        |            |  |       |       |  |        |      |   |       |  | 7     |   |  |  | 15    |  
|                                                            |  |             |       |   |            |              |       |        |            |  |        |       |  |        |       |   |       | 
|Accumulated amortization and write-downs, Dec. 31,
    2004 |  |             | 602   |   |            |              | 331   |        |            |  | 205    |       |  |        | 510   |   |       |  | 1,440 |   |  |  | 3,088 |  
|                                                            |  |             |       |   |            |              |       |        |            |  |        |       |  |        |       |   |       | 
|Net carrying amounts, Dec. 31, 2004                         |  |             | 1,032 |   |            |              | 698   |        |            |  | 421    |       |  |        | 1,423 |   |       |  | 475   |   |  |  | 4,049 |  
|                                                            |  |             |       |   |            |              |       |        |            |  |        |       |  |        |       |   |       | 
|Net carrying amounts, Dec. 31, 2003                         |  |             | 1,242 |   |            |              | 611   |        |            |  | 492    |       |  |        | 1,580 |   |       |  | 548   |   |  |  | 4,473 |  

F-56



---



##### Table of Contents



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


[20]     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, Dec. 31, 2004                       |  |             | 6,562 |   |               |            | 12,021 |                 |         |  | 1,873       |   |  |       | 505  |   |  |  | 20,961 |  
|Exchange differences                                        |  |             | 322   |   |               |            | 623    |                 |         |  | 92          |   |  |       | 67   |   |  |  | 1,104  |  
|Changes in 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      |  
|                                                            |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|Gross carrying amounts, Dec. 31, 2005                       |  |             | 7,014 |   |               |            | 12,913 |                 |         |  | 1,960       |   |  |       | 910  |   |  |  | 22,797 |  
|                                                            |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|Accumulated depreciation and write-downs, Dec. 31, 2004     |  |             | 3,610 |   |               |            | 8,292  |                 |         |  | 1,397       |   |  |       |     |   |  |  | 13,299 |  
|Exchange differences                                        |  |             | 134   |   |               |            | 392    |                 |         |  | 66          |   |  |       |     |   |  |  | 592    |  
|Changes in scope of consolidation                           |  |             | 1     |   |               |            | 1      |                 |         |  | 3           |   |  |       |     |   |  |  | 5      |  
|Depreciation and write-downs in 2005                        |  |             | 244   |   |               |            | 757    |                 |         |  | 207         |   |  |       | 5    |   |  |  | 1,213  |  
| of which write-downs                                      |  |             | 37    |   |               |            | 12     |                 |         |  | 1           |   |  |       | 5    |   |  |  | 55     |  
|Write-backs                                                 |  |             |      |   |               |            |       |                 |         |  |            |   |  |       |     |   |  |  |       |  
|Retirements                                                 |  |             | (148  | ) |               |            | (270   | )               |         |  | (211        | ) |  |       | (5   | ) |  |  | (634   | )
|Transfers                                                   |  |             | 16    |   |               |            | (16    | )               |         |  | 1           |   |  |       |     |   |  |  | 1      |  
|                                                            |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|Accumulated depreciation and write-downs, Dec. 31,
    2005 |  |             | 3,857 |   |               |            | 9,156  |                 |         |  | 1,463       |   |  |       |     |   |  |  | 14,476 |  
|                                                            |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|Net carrying amounts, Dec. 31, 2005                         |  |             | 3,157 |   |               |            | 3,757  |                 |         |  | 497         |   |  |       | 910  |   |  |  | 8,321  |  
|                                                            |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|Net carrying amounts, Dec. 31, 2004                         |  |             | 2,952 |   |               |            | 3,729  |                 |         |  | 476         |   |  |       | (505 | ) |  |  | 7,662  |  



   


   


     


F-57



---



##### Table of Contents



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, Dec. 31, 2003                       |  |             | 6,362 |   |               |            | 12,309 |                 |         |  | 1,897       |   |  |       | 690  |   |  |  | 21,258 |  
|Exchange differences                                        |  |             | (134  | ) |               |            | (261   | )               |         |  | (25         | ) |  |       | (24  | ) |  |  | (444   | )
|Changes in scope of consolidation                           |  |             | 7     |   |               |            | 36     |                 |         |  | 27          |   |  |       | (1   | ) |  |  | 69     |  
|Acquisitions                                                |  |             |      |   |               |            | 4      |                 |         |  |            |   |  |       |     |   |  |  | 4      |  
|Capital Expenditures                                        |  |             | 93    |   |               |            | 191    |                 |         |  | 104         |   |  |       | 502  |   |  |  | 890    |  
|Retirements                                                 |  |             | (12   | ) |               |            | (466   | )               |         |  | (299        | ) |  |       | (22  | ) |  |  | (799   | )
|Transfers                                                   |  |             | 246   |   |               |            | 208    |                 |         |  | 169         |   |  |       | (640 | ) |  |  | (17    | )
|                                                            |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|Gross carrying amounts, Dec. 31, 2004                       |  |             | 6,562 |   |               |            | 12,021 |                 |         |  | 1,873       |   |  |       | 505  |   |  |  | 20,961 |  
|                                                            |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|Accumulated depreciation and write-downs, Dec. 31, 2003     |  |             | 3,344 |   |               |            | 8,111  |                 |         |  | 1,388       |   |  |       | 14   |   |  |  | 12,857 |  
|Exchange differences                                        |  |             | (28   | ) |               |            | (160   | )               |         |  | (20         | ) |  |       |     |   |  |  | (208   | )
|Changes in scope of consolidation                           |  |             | 5     |   |               |            | 8      |                 |         |  | 25          |   |  |       |     |   |  |  | 38     |  
|Depreciation and write-downs in 2004                        |  |             | 213   |   |               |            | 785    |                 |         |  | 210         |   |  |       |     |   |  |  | 1,208  |  
| of which write-downs                                      |  |             | 14    |   |               |            | 8      |                 |         |  |            |   |  |       |     |   |  |  | 22     |  
|Write-backs                                                 |  |             | (1    | ) |               |            | (2     | )               |         |  |            |   |  |       |     |   |  |  | (3     | )
|Retirements                                                 |  |             |      |   |               |            | (340   | )               |         |  | (242        | ) |  |       |     |   |  |  | (582   | )
|Transfers                                                   |  |             | 77    |   |               |            | (110   | )               |         |  | 36          |   |  |       | (14  | ) |  |  | (11    | )
|                                                            |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|Accumulated depreciation and write-downs, Dec. 31,
    2004 |  |             | 3,610 |   |               |            | 8,292  |                 |         |  | 1,397       |   |  |       |     |   |  |  | 13,299 |  
|                                                            |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|Net carrying amounts, Dec. 31, 2004                         |  |             | 2,952 |   |               |            | 3,729  |                 |         |  | 476         |   |  |       | 505  |   |  |  | 7,662  |  
|                                                            |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     

[21]     Investments in
associates




|                             |  |             |      |   |      |  |     |  
|---------------------------- |  | ----------- | ---- | - | ---- |  | --- | -
|                             |  | 2004        |      |   | 2005 | 
|                             |  |             |      |   |      | 
|                             |  | ( million) |     
|Net carrying amount, Jan. 1  |  |             | 870  |   |      |  | 744 |  
|Acquisitions                 |  |             |     |   |      |  |    |  
|Equity-method loss           |  |             | (139 | ) |      |  | (10 | )
|Exchange differences         |  |             | 8    |   |      |  | 48  |  
|Other additions              |  |             |     |   |      |  | 17  |  
|Miscellaneous                |  |             | 5    |   |      |  | (4  | )
|                             |  |             |      |   |      | 
|Net carrying amount, Dec. 31 |  |             | 744  |   |      |  | 795 |  
|                             |  |             |      |   |      | 





F-58



---



##### Table of Contents



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








 




Associates aggregated income statement data


|                                                                 |  |             |       |   |      |  |       |  
|---------------------------------------------------------------- |  | ----------- | ----- | - | ---- |  | ----- | -
|                                                                 |  | 2004        |       |   | 2005 | 
|                                                                 |  |             |       |   |      | 
|                                                                 |  | ( million) |      
|Net sales                                                        |  |             | 1,236 |   |      |  | 1,335 |  
|Gross profit                                                     |  |             | 119   |   |      |  | 151   |  
|Net loss                                                         |  |             | (74   | ) |      |  | (47   | )
|Bayers share of net loss                                        |  |             | (38   | ) |      |  | (22   | )
|Other(1)                                                         |  |             | (101  | ) |      |  | 12    |  
|                                                                 |  |             |       |   |      | 
|Net loss from investments in associates (equity-method
    loss) |  |             | (139  | ) |      |  | (10   | )
|                                                                 |  |             |       |   |      | 

F-59



---



##### Table of Contents



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


Associates aggregated balance sheet data


|                                      |  |               |       |  |               |  |       | 
|------------------------------------- |  | ------------- | ----- |  | ------------- |  | ----- | 
|                                      |  | Dec. 31, 2004 |       |  | Dec. 31, 2005 | 
|                                      |  |               |       |  |               | 
|                                      |  | ( million)   |      
|Noncurrent assets                     |  |               | 1,468 |  |               |  | 1,478 | 
|Current assets                        |  |               | 359   |  |               |  | 469   | 
|Noncurrent liabilities                |  |               | 29    |  |               |  | 33    | 
|Current liabilities                   |  |               | 257   |  |               |  | 295   | 
|Stockholders equity                  |  |               | 1,541 |  |               |  | 1,619 | 
|Bayers share of stockholders equity |  |               | 709   |  |               |  | 742   | 
|Other(1)                              |  |               | 35    |  |               |  | 53    | 
|                                      |  |               |       |  |               | 
|Net carrying amount of associates     |  |               | 744   |  |               |  | 795   | 
|                                      |  |               |       |  |               | 






|    |                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The category other mainly comprises differences
    arising from adjustments of data to Bayers accounting
    policies, purchase price allocations and their amortization in
    income, and impairment losses.

[22]     Other financial assets




|                                         |  |               |       |          |               |  |     |       |          |  |         |  |  |  |     | 
|---------------------------------------- |  | ------------- | ----- | -------- | ------------- |  | --- | ----- | -------- |  | ------- |  |  |  | --- | 
|                                         |  | Dec. 31, 2004 |       |          | Dec. 31, 2005 | 
|                                         |  |               |       |          |               | 
|                                         |  |               |       | of which |               |  |     |       | of which | 
|                                         |  | Total         |       |          | current       |  |     | Total |          |  | current | 
|                                         |  |               |       |          |               |  |     |       |          |  |         | 
|                                         |  | ( million)   |      
|Equity investments                       |  |               | 69    |          |               |  |    |       |          |  | 52      |  |  |  |    | 
|Loans                                    |  |               | 484   |          |               |  | 24  |       |          |  | 509     |  |  |  | 25  | 
|Available-for-sale financial instruments |  |               | 203   |          |               |  |    |       |          |  | 215     |  |  |  |    | 
|Held-to-maturity financial instruments   |  |               | 113   |          |               |  | 26  |       |          |  | 150     |  |  |  | 35  | 
|Miscellaneous financial assets           |  |               | 1,094 |          |               |  | 744 |       |          |  | 717     |  |  |  | 154 | 
|                                         |  |               |       |          |               |  |     |       |          |  |         | 
|                                         |  |               | 1,963 |          |               |  | 794 |       |          |  | 1,643   |  |  |  | 214 | 
|                                         |  |               |       |          |               |  |     |       |          |  |         | 

|                            |  |               |    |  |               |  |    | 
|--------------------------- |  | ------------- | -- |  | ------------- |  | -- | 
|                            |  | Dec. 31, 2004 |    |  | Dec. 31, 2005 | 
|                            |  |               |    |  |               | 
|                            |  | ( million)   |   
|Investments in subsidiaries |  |               | 48 |  |               |  | 39 | 
|Investments in associates   |  |               | 21 |  |               |  | 13 | 
|                            |  |               |    |  |               | 
|                            |  |               | 69 |  |               |  | 52 | 
|                            |  |               |    |  |               | 



F-60



---



##### Table of Contents



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


|      |                                        |               |     |          |               |  |    |       |          |  |         |     |  |  |    |    | 
|----- | -------------------------------------- | ------------- | --- | -------- | ------------- |  | -- | ----- | -------- |  | ------- | --- |  |  | -- | -- | 
|      |                                        | Dec. 31, 2004 |     |          | Dec. 31, 2005 | 
|      |                                        |               |     |          |               | 
|      |                                        |               |     | of which |               |  |    |       | of which | 
|      |                                        | Total         |     |          | current       |  |    | Total |          |  | current |    
|      |                                        |               |     |          |               |  |    |       |          |  |         |    
|      |                                        | ( million)   |    
|Loans |                                        |               |     |          |               |  |    |       |          |  |         |     |  |  |    |   
|      | of which to subsidiaries               |               |     |         |               |  |    |      |          |  |         |    |  |  |    |   | 
|      | of which to other affiliated companies |               |     | 2        |               |  |    |      |          |  |         | 1   |  |  |    |   | 
|      | of which to third parties              |               |     | 482      |               |  |    | 24    |          |  |         | 508 |  |  |    | 25 | 
|      |                                        |               |     |          |               |  |    |       |          |  |         |    
|      |                                        |               | 484 |          |               |  | 24 |       |          |  | 509     |     |  |  | 25 |   
|      |                                        |               |     |          |               |  |    |       |          |  |         |    

|                                         |                             |               |     |          |               |  |    |       |          |  |         |     |  |  |    |   | 
|---------------------------------------- | --------------------------- | ------------- | --- | -------- | ------------- |  | -- | ----- | -------- |  | ------- | --- |  |  | -- | - | 
|                                         |                             | Dec. 31, 2004 |     |          | Dec. 31, 2005 | 
|                                         |                             |               |     |          |               | 
|                                         |                             |               |     | of which |               |  |    |       | of which | 
|                                         |                             | Total         |     |          | current       |  |    | Total |          |  | current |    
|                                         |                             |               |     |          |               |  |    |       |          |  |         |    
|                                         |                             | ( million)   |    
|Available-for-sale financial instruments |                             |               |     |          |               |  |    |       |          |  |         |     |  |  |    |  
|                                         | of which equity instruments |               |     | 189      |               |  |    |      |          |  |         | 206 |  |  |    |  | 
|                                         | of which debt instruments   |               |     | 14       |               |  |    |      |          |  |         | 9   |  |  |    |  | 
|                                         |                             |               |     |          |               |  |    |       |          |  |         |    
|                                         |                             |               | 203 |          |               |  |   |       |          |  | 215     |     |  |  |   |  
|                                         |                             |               |     |          |               |  |    |       |          |  |         |    
|Held-to-maturity financial instruments   |                             |               | 113 |          |               |  | 26 |       |          |  | 150     |     |  |  | 35 |  
|                                         |                             |               |     |          |               |  |    |       |          |  |         |    
|                                         |                             |               | 316 |          |               |  | 26 |       |          |  | 365     |     |  |  | 35 |  
|                                         |                             |               |     |          |               |  |    |       |          |  |         |    



|                                  |  |             |      |   |      |  |     |  
|--------------------------------- |  | ----------- | ---- | - | ---- |  | --- | -
|                                  |  | 2004        |      |   | 2005 | 
|                                  |  |             |      |   |      | 
|                                  |  | ( million) |     
|Gross carrying amounts, Jan. 1    |  |             | 447  |   |      |  | 412 |  
|Exchange differences              |  |             | (6   | ) |      |  | 10  |  
|Changes in scope of consolidation |  |             | 32   |   |      |  |    |  
|Changes in fair value (gains)     |  |             | 18   |   |      |  | 16  |  
|Changes in fair value (losses)    |  |             | (6   | ) |      |  | (7  | )
|Acquisitions                      |  |             |     |   |      |  | 2   |  
|Other additions                   |  |             | 190  |   |      |  | 103 |  
|Retirements                       |  |             | (263 | ) |      |  | (84 | )
|                                  |  |             |      |   |      | 
|Gross carrying amounts, Dec. 31   |  |             | 412  |   |      |  | 452 |  
|                                  |  |             |      |   |      | 
|Accumulated write-downs, Jan. 1   |  |             | 218  |   |      |  | 209 |  
|Exchange differences              |  |             |     |   |      |  | 3   |  
|Changes in scope of consolidation |  |             |     |   |      |  |    |  
|Write-downs during the year       |  |             | 23   |   |      |  | 26  |  
|Write-backs                       |  |             | (10  | ) |      |  | (1  | )
|Retirements                       |  |             | (22  | ) |      |  |    |  
|                                  |  |             |      |   |      | 
|Accumulated write-downs, Dec. 31  |  |             | 209  |   |      |  | 237 |  
|                                  |  |             |      |   |      | 
|Net carrying amounts, Dec. 31     |  |             | 203  |   |      |  | 215 |  
|                                  |  |             |      |   |      | 

F-61



---



##### Table of Contents



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




|                                                        |  |               |       |          |               |  |     |       |          |  |         |  |  |  |     | 
|------------------------------------------------------- |  | ------------- | ----- | -------- | ------------- |  | --- | ----- | -------- |  | ------- |  |  |  | --- | 
|                                                        |  | Dec. 31, 2004 |       |          | Dec. 31, 2005 | 
|                                                        |  |               |       |          |               | 
|                                                        |  |               |       | of which |               |  |     |       | of which | 
|                                                        |  | Total         |       |          | current       |  |     | Total |          |  | current | 
|                                                        |  |               |       |          |               |  |     |       |          |  |         | 
|                                                        |  | ( million)   |      
|Receivables from short-term loans                       |  |               | 53    |          |               |  | 25  |       |          |  | 74      |  |  |  | 13  | 
|Receivables from commodity futures contracts            |  |               | 59    |          |               |  | 33  |       |          |  | 280     |  |  |  | 87  | 
|Receivables from other derivative financial instruments |  |               | 724   |          |               |  | 517 |       |          |  | 242     |  |  |  | 14  | 
|Lease payments receivable                               |  |               | 58    |          |               |  | 20  |       |          |  | 109     |  |  |  | 28  | 
|Remaining miscellaneous financial assets                |  |               | 200   |          |               |  | 149 |       |          |  | 12      |  |  |  | 12  | 
|                                                        |  |               |       |          |               |  |     |       |          |  |         | 
|                                                        |  |               | 1,094 |          |               |  | 744 |       |          |  | 717     |  |  |  | 154 | 
|                                                        |  |               |       |          |               |  |     |       |          |  |         | 

   




   


F-62



---



##### Table of Contents



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




|               |               |               |    |    | 
|-------------- | ------------- | ------------- | -- | -- | 
|               |               | Dec. 31, 2004 |   
|               |               |               |   
|               |               | ( million)   |   
|Lease payments |               |               |    |   
|Maturing in    |               |               |    |   
|               | 2005          |               |    | 22 | 
|               | 2006          |               |    | 16 | 
|               | 2007          |               |    | 12 | 
|               | 2008          |               |    | 8  | 
|               | 2009          |               |    | 4  | 
|               | 2010 or later |               |    | 1  | 
|               |               |               |   
|               |               |               | 63 |   
|               |               |               |   

|                   |               |             |   |   | 
|------------------ | ------------- | ----------- | - | - | 
|                   |               | ( million) |  
|                   |               |             |  
|Interest component |               |             |   |  
|Maturing in        |               |             |   |  
|                   | 2005          |             |   | 2 | 
|                   | 2006          |             |   | 1 | 
|                   | 2007          |             |   | 1 | 
|                   | 2008          |             |   | 1 | 
|                   | 2009          |             |   |  | 
|                   | 2010 or later |             |   |  | 
|                   |               |             |  
|                   |               |             | 5 |  
|                   |               |             |  

|                                 |               |             |    |    | 
|-------------------------------- | ------------- | ----------- | -- | -- | 
|                                 |               | ( million) |   
|                                 |               |             |   
|Receivables under finance leases |               |             |    |   
|Maturing in                      |               |             |    |   
|                                 | 2005          |             |    | 20 | 
|                                 | 2006          |             |    | 15 | 
|                                 | 2007          |             |    | 11 | 
|                                 | 2008          |             |    | 7  | 
|                                 | 2009          |             |    | 4  | 
|                                 | 2010 or later |             |    | 1  | 
|                                 |               |             |   
|                                 |               |             | 58 |   
|                                 |               |             |   

|               |               |               |  |     | 
|-------------- | ------------- | ------------- |  | --- | 
|               |               | 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 |   
|                                 |               |             |    

F-63



---



##### Table of Contents



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


[23]     Other receivables


 


|                                             |  |               |       |          |               |  |       |       |          |  |         |  |  |  |       | 
|-------------------------------------------- |  | ------------- | ----- | -------- | ------------- |  | ----- | ----- | -------- |  | ------- |  |  |  | ----- | 
|                                             |  | Dec. 31, 2004 |       |          | Dec. 31, 2005 | 
|                                             |  |               |       |          |               | 
|                                             |  |               |       | of which |               |  |       |       | of which | 
|                                             |  | Total         |       |          | current       |  |       | Total |          |  | current | 
|                                             |  |               |       |          |               |  |       |       |          |  |         | 
|                                             |  | ( million)   |      
|Benefit plan assets in excess of obligations |  |               | 72    |          |               |  |      |       |          |  | 37      |  |  |  |      | 
|Payroll receivables                          |  |               | 39    |          |               |  | 39    |       |          |  | 29      |  |  |  | 29    | 
|Deferred charges                             |  |               | 159   |          |               |  | 142   |       |          |  | 210     |  |  |  | 193   | 
|Royalties receivable                         |  |               | 249   |          |               |  | 249   |       |          |  | 51      |  |  |  | 48    | 
|Interest receivable on loans                 |  |               | 190   |          |               |  | 190   |       |          |  | 310     |  |  |  | 305   | 
|Miscellaneous receivables                    |  |               | 947   |          |               |  | 923   |       |          |  | 983     |  |  |  | 846   | 
|                                             |  |               |       |          |               |  |       |       |          |  |         | 
|                                             |  |               | 1,656 |          |               |  | 1,543 |       |          |  | 1,620   |  |  |  | 1,421 | 
|                                             |  |               |       |          |               |  |       |       |          |  |         | 



   


 


[24]     Inventories


   




|                                                               |  |               |       |  |               |  |       | 
|-------------------------------------------------------------- |  | ------------- | ----- |  | ------------- |  | ----- | 
|                                                               |  | Dec. 31, 2004 |       |  | Dec. 31, 2005 | 
|                                                               |  |               |       |  |               | 
|                                                               |  | ( million)   |      
|Raw materials and supplies                                     |  |               | 920   |  |               |  | 902   | 
|Work in process, finished goods and goods purchased for resale |  |               | 3,811 |  |               |  | 4,595 | 
|Advance payments                                               |  |               | 7     |  |               |  | 7     | 
|                                                               |  |               |       |  |               | 
|                                                               |  |               | 4,738 |  |               |  | 5,504 | 
|                                                               |  |               |       |  |               | 



|                                  |  |             |      |   |      |  |      |  
|--------------------------------- |  | ----------- | ---- | - | ---- |  | ---- | -
|                                  |  | 2004        |      |   | 2005 | 
|                                  |  |             |      |   |      | 
|                                  |  | ( million) |     
|Balance at beginning of year      |  |             | (304 | ) |      |  | (311 | )
|Additions charged to expense      |  |             | (171 | ) |      |  | (166 | )
|Exchange differences              |  |             | 10   |   |      |  | (16  | )
|Changes in scope of consolidation |  |             | (1   | ) |      |  | (3   | )
|Deductions due to utilization     |  |             | 155  |   |      |  | 156  |  
|                                  |  |             |      |   |      | 
|Balance at end of year            |  |             | (311 | ) |      |  | (340 | )
|                                  |  |             |      |   |      | 

F-64



---



##### Table of Contents



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


[25]     Trade accounts
receivable


 


           




|                                  |  |             |      |   |      |  |      |  
|--------------------------------- |  | ----------- | ---- | - | ---- |  | ---- | -
|                                  |  | 2004        |      |   | 2005 | 
|                                  |  |             |      |   |      | 
|                                  |  | ( million) |     
|Balance at beginning of year      |  |             | (280 | ) |      |  | (273 | )
|Additions charged to expense      |  |             | (88  | ) |      |  | (158 | )
|Exchange differences              |  |             | 1    |   |      |  | (22  | )
|Changes in scope of consolidation |  |             | (1   | ) |      |  | 1    |  
|Deductions due to utilization     |  |             | 95   |   |      |  | 118  |  
|                                  |  |             |      |   |      | 
|Balance at end of year            |  |             | (273 | ) |      |  | (334 | )
|                                  |  |             |      |   |      | 

[26]     Liquid assets


|                                            |  |               |       |  |               |  |       | 
|------------------------------------------- |  | ------------- | ----- |  | ------------- |  | ----- | 
|                                            |  | Dec. 31, 2004 |       |  | Dec. 31, 2005 | 
|                                            |  |               |       |  |               | 
|                                            |  | ( million)   |      
|Marketable securities and other instruments |  |               | 29    |  |               |  | 233   | 
|Cash and cash equivalents                   |  |               | 3,570 |  |               |  | 3,290 | 
|                                            |  |               |       |  |               | 
|                                            |  |               | 3,599 |  |               |  | 3,523 | 
|                                            |  |               |       |  |               | 
|of which earmarked for antitrust payments   |  |               |      |  |               |  | 253   | 






|                                       |  |               |   |  |               |  |    |             |  |  |             |  |  |  |     | 
|-------------------------------------- |  | ------------- | - |  | ------------- |  | -- | ----------- |  |  | ----------- |  |  |  | --- | 
|                                       |  | Dec. 31, 2004 |   |  | Dec. 31, 2005 | 
|                                       |  |               |   |  |               | 
|                                       |  | Equity        |   |  | Debt          |  |    | Equity      |  |  | Debt        | 
|                                       |  | Instruments   |   |  | Instruments   |  |    | Instruments |  |  | Instruments | 
|                                       |  |               |   |  |               |  |    |             |  |  |             | 
|                                       |  | ( million)   |  
|Cost                                   |  |               | 2 |  |               |  | 27 |             |  |  | 3           |  |  |  | 230 | 
|Fair-value losses recognized in equity |  |               |  |  |               |  |   |             |  |  |            |  |  |  |    | 
|Fair-value gains recognized in equity  |  |               |  |  |               |  |   |             |  |  |            |  |  |  |    | 
|                                       |  |               |   |  |               |  |    |             |  |  |             | 
|                                       |  |               | 2 |  |               |  | 27 |             |  |  | 3           |  |  |  | 230 | 
|                                       |  |               |   |  |               |  |    |             |  |  |             | 

F-65



---



##### Table of Contents



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


[27]     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, 2003         |  |             | 1,870 |  |             |  | 2,942 |          |  |                 | 6,355        |   |                 |          | 11,167 |   |               |  | 123 |   |  |  | 11,290 |  
|                      |  |             |       |  |             |  |       |          |  |                 |              |   |                 |          |        |   |               | 
|Capital contributions |  |             |      |  |             |  |      |          |  |                 |             |   |                 |          |       |   |               |  |    |   |  |  |       |  
|Other changes         |  |             |      |  |             |  |      |          |  |                 | (335         | ) |                 |          | (335   | ) |               |  | (12 | ) |  |  | (347   | )
|                      |  |             |       |  |             |  |       |          |  |                 |              |   |                 |          |        |   |               | 
|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 |  
|                      |  |             |       |  |             |  |       |          |  |                 |              |   |                 |          |        |   |               | 




  










F-66



---



##### Table of Contents



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




|                                                                                                              |  |                   |    |          |                                        |  |            |            |  |  |             |   |  |               |        |   |           |  |    |          |  |  |     |   |  |  |        |  
|------------------------------------------------------------------------------------------------------------- |  | ----------------- | -- | -------- | -------------------------------------- |  | ---------- | ---------- |  |  | ----------- | - |  | ------------- | ------ | - | --------- |  | -- | -------- |  |  | --- | - |  |  | ------ | -
|                                                                                                              |  | Retained Earnings |    |          | Accumulated Other Comprehensive Income | 
|                                                                                                              |  |                   |    |          |                                        | 
|                                                                                                              |  |                   |    | Currency |                                        |  | Fair-Value |            |  | 
|                                                                                                              |  | Revaluation       |    |          | Other Retained                         |  |            | Net Income |  |  | Translation |   |  | Remeasurement |        |   | Cash Flow |  |    | Other    | 
|                                                                                                              |  | Surplus           |    |          | Earnings                               |  |            | (Loss)     |  |  | Adjustment  |   |  | of Securities |        |   | Hedges    |  |    | Reserves | 
|                                                                                                              |  |                   |    |          |                                        |  |            |            |  |  |             |   |  |               |        |   |           |  |    |          | 
|                                                                                                              |  | ( million)       |   
|Dec. 31, 2003                                                                                                 |  |                   |   |          |                                        |  | 9,375      |            |  |  | (1,303      | ) |  |               | (1,699 | ) |           |  | 13 |          |  |  | (31 | ) |  |  | 6,355  |  
|Changes in stockholders equity not recognized in net
    income                                              |  |                   |    |          |                                        |  |            |            |  |  |             |   |  |               |        |   |           |  |    |          |  |  |     |   |  |  |        |  
|Fair value remeasurement of securities and cash flow hedges                                                   |  |                   |    |          |                                        |  |            |            |  |  |             |   |  |               |        |   |           |  | 12 |          |  |  | 64  |   |  |  | 76     |  
|Changes in accumulated actuarial gains and losses relating to
    pensions and other post-employment benefits |  |                   |    |          |                                        |  | (740       | )          |  |  |             |   |  |               |        |   |           |  |    |          |  |  |     |   |  |  | (740   | )
|Exchange differences on translation of operations outside the
    euro zone                                   |  |                   |    |          |                                        |  |            |            |  |  |             |   |  |               | (304   | ) |           |  |    |          |  |  |     |   |  |  | (304   | )
|Deferred taxes on valuation adjustments offset directly against
    stockholders equity                      |  |                   |    |          |                                        |  | 268        |            |  |  |             |   |  |               |        |   |           |  | 1  |          |  |  | (18 | ) |  |  | 251    |  
|Other changes in stockholders equity                                                                         |  |                   | 66 |          |                                        |  |            |            |  |  |             |   |  |               |        |   |           |  |    |          |  |  |     |   |  |  | 66     |  
|Transfer of changes recognized in income                                                                      |  |                   |    |          |                                        |  |            |            |  |  |             |   |  |               |        |   |           |  | (6 | )        |  |  | 2   |   |  |  | (4     | )
|                                                                                                              |  |                   |    |          |                                        |  |            |            |  |  |             |   |  |               |        |   |           |  |    |          | 
|                                                                                                              |  |                   | 66 |          |                                        |  | 8,903      |            |  |  | (1,303      | ) |  |               | (2,003 | ) |           |  | 20 |          |  |  | 17  |   |  |  | 5,700  |  
|                                                                                                              |  |                   |    |          |                                        |  |            |            |  |  |             |   |  |               |        |   |           |  |    |          | 
|Dividend payments                                                                                             |  |                   |    |          |                                        |  |            |            |  |  | (365        | ) |  |               |        |   |           |  |    |          |  |  |     |   |  |  | (365   | )
|Allocation to retained earnings                                                                               |  |                   |    |          |                                        |  | (1,668     | )          |  |  | 1,668       |   |  |               |        |   |           |  |    |          |  |  |     |   |  |  |       |  
|                                                                                                              |  |                   |    |          |                                        |  |            |            |  |  |             |   |  |               |        |   |           |  |    |          | 
|                                                                                                              |  |                   |   |          |                                        |  | (1,668     | )          |  |  | 1,303       |   |  |               |       |   |           |  |   |          |  |  |    |   |  |  | (365   | )
|                                                                                                              |  |                   |    |          |                                        |  |            |            |  |  |             |   |  |               |        |   |           |  |    |          | 
|Changes in stockholders equity recognized in net
    income                                                  |  |                   |    |          |                                        |  |            |            |  |  |             |   |  |               |        |   |           |  |    |          |  |  |     |   |  |  |        |  
|Net income 2004                                                                                               |  |                   |    |          |                                        |  |            |            |  |  | 685         |   |  |               |        |   |           |  |    |          |  |  |     |   |  |  | 685    |  
|                                                                                                              |  |                   |    |          |                                        |  |            |            |  |  |             |   |  |               |        |   |           |  |    |          | 
|                                                                                                              |  |                   |   |          |                                        |  |           |            |  |  | 685         |   |  |               |       |   |           |  |   |          |  |  |    |   |  |  | 685    |  
|                                                                                                              |  |                   |    |          |                                        |  |            |            |  |  |             |   |  |               |        |   |           |  |    |          | 
|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                                              |  |                   |    |          |                                        |  |            |            |  |  |             |   |  |               |        |   |           |  |    |          |  |  |     |   |  |  |        |  
|Fair value remeasurement of securities and cash flow hedges                                                   |  |                   |    |          |                                        |  |            |            |  |  |             |   |  |               |        |   |           |  | 9  |          |  |  | (15 | ) |  |  | (6     | )
|Changes in accumulated actuarial gains and 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  |  
|                                                                                                              |  |                   |    |          |                                        |  |            |            |  |  |             |   |  |               |        |   |           |  |    |          | 

F-67



---



##### Table of Contents



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


 










F-68



---



##### Table of Contents



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




|                                                                                                              |  |              |     |   |      |  |     |  
|------------------------------------------------------------------------------------------------------------- |  | ------------ | --- | - | ---- |  | --- | -
|                                                                                                              |  | Equity       |    
|                                                                                                              |  | Attributable |    
|                                                                                                              |  | to Minority  |    
|                                                                                                              |  | Interest     |    
|                                                                                                              |  |              |    
|                                                                                                              |  | 2004         |     |   | 2005 | 
|                                                                                                              |  |              |     |   |      | 
|                                                                                                              |  | ( million)  |    
|Jan. 01,                                                                                                      |  |              | 123 |   |      |  | 111 |  
|                                                                                                              |  |              |     |   |      | 
|Spin-off of LANXESS                                                                                           |  |              |    |   |      |  | (19 | )
|                                                                                                              |  |              |     |   |      | 
|Changes in stockholders equity not recognized in net
    income                                              |  |              |     |   |      |  |     |  
|Fair value remeasurement of securities and cash flow hedges                                                   |  |              |    |   |      |  |    |  
|Changes in accumulated actuarial gains and losses relating to
    pensions and other post-employment benefits |  |              |    |   |      |  |    |  
|Exchange differences on translation of operations outside the
    euro zone                                   |  |              |    |   |      |  | 8   |  
|Deferred taxes on valuation adjustments offset directly against
    stockholders equity                      |  |              |    |   |      |  |    |  
|Other changes in stockholders equity                                                                         |  |              | 2   |   |      |  | 20  |  
|                                                                                                              |  |              |     |   |      | 
|                                                                                                              |  |              | 125 |   |      |  | 120 |  
|                                                                                                              |  |              |     |   |      | 
|Dividend payments                                                                                             |  |              | (11 | ) |      |  | (38 | )
|Allocation to/from retained earnings                                                                          |  |              |    |   |      |  |    |  
|                                                                                                              |  |              |     |   |      | 
|                                                                                                              |  |              | (11 | ) |      |  | (38 | )
|                                                                                                              |  |              |     |   |      | 
|Changes in stockholders equity recognized in net
    income                                                  |  |              |     |   |      |  |     |  
|Net income                                                                                                    |  |              | (3  | ) |      |  | (2  | )
|                                                                                                              |  |              |     |   |      | 
|                                                                                                              |  |              | (3  | ) |      |  | (2  | )
|                                                                                                              |  |              |     |   |      | 
|Dec. 12,                                                                                                      |  |              | 111 |   |      |  | 80  |  
|                                                                                                              |  |              |     |   |      | 

 






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




|                |  |               |       |                       |               |  |       |               |  |  |               |  |  |               |     |  |               |  |       |  |  |  |       | 
|--------------- |  | ------------- | ----- | --------------------- | ------------- |  | ----- | ------------- |  |  | ------------- |  |  | ------------- | --- |  | ------------- |  | ----- |  |  |  | ----- | 
|                |  |               |       | Other Post-Employment |               |  |      
|                |  | Pensions      |       |                       | Benefits      |  |       | Total         | 
|                |  |               |       |                       |               |  |       |               | 
|                |  | Dec. 31, 2004 |       |                       | Dec. 31, 2005 |  |       | Dec. 31, 2004 |  |  | Dec. 31, 2005 |  |  | Dec. 31, 2004 |     |  | Dec. 31, 2005 | 
|                |  |               |       |                       |               |  |       |               |  |  |               |  |  |               |     |  |               | 
|                |  | ( million)   |      
|Germany         |  |               | 4,531 |                       |               |  | 5,657 |               |  |  | 184           |  |  |               | 158 |  |               |  | 4,715 |  |  |  | 5,815 | 
|Other countries |  |               | 1,003 |                       |               |  | 832   |               |  |  | 501           |  |  |               | 527 |  |               |  | 1,504 |  |  |  | 1,359 | 
|                |  |               |       |                       |               |  |       |               |  |  |               |  |  |               |     |  |               | 
|Total           |  |               | 5,534 |                       |               |  | 6,489 |               |  |  | 685           |  |  |               | 685 |  |               |  | 6,219 |  |  |  | 7,174 | 
|                |  |               |       |                       |               |  |       |               |  |  |               |  |  |               |     |  |               | 

F-69



---



##### Table of Contents



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










  


i.e. i.e.   








F-70



---



##### Table of Contents



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




|                                                                                     |  |                   |       |  |               |          |        |              |  |  |       | 
|------------------------------------------------------------------------------------ |  | ----------------- | ----- |  | ------------- | -------- | ------ | ------------ |  |  | ----- | 
|                                                                                     |  |                   |       |  |               | Carrying |       
|                                                                                     |  | Carrying Amount   |       |  | Impact of the |          |        | Amount After | 
|                                                                                     |  | Before the Change |       |  | Change        |          |        | the Change   | 
|                                                                                     |  |                   |       |  |               |          |        |              | 
|                                                                                     |  | ( million)       |      
|Assets                                                                               |  |                   |       |  |               |          |        |              |  |  |       | 
|Benefit plan assets in excess of obligations                                         |  |                   | 540   |  |               |          | (468   | )            |  |  | 72    | 
|Deferred tax assets                                                                  |  |                   | 936   |  |               |          | 283    |              |  |  | 1,219 | 
|Assets held for sale and discontinued operations                                     |  |                   | 4,788 |  |               |          | (31    | )            |  |  | 4,757 | 
|Stockholders equity and liabilities                                                 |  |                   |       |  |               |          |        |              |  |  |       | 
|Other reserves                                                                       |  |                   | 7,452 |  |               |          | (1,432 | )            |  |  | 6,020 | 
|Provisions for pensions and other post-employment benefits                           |  |                   | 4,581 |  |               |          | 1,638  |              |  |  | 6,219 | 
|Deferred tax liabilities                                                             |  |                   | 1,171 |  |               |          | (527   | )            |  |  | 644   | 
|Liabilities directly related to assets held for sale and
    discontinued operations |  |                   | 2,282 |  |               |          | 105    |              |  |  | 2,387 | 

     







 




F-71



---



##### Table of Contents



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                           |  |                  | 4  |  |                  |  | (4  | )
|Impact on other post-employment benefit obligations |  |                  | 76 |  |                  |  | (76 | )

         


 




Germany


|                               |  |                      |      |                       |                     |  |      |          |  |  |          |   |  |          |     |  |          |  |    |  |  |  |    | 
|------------------------------ |  | -------------------- | ---- | --------------------- | ------------------- |  | ---- | -------- |  |  | -------- | - |  | -------- | --- |  | -------- |  | -- |  |  |  | -- | 
|                               |  |                      |      | Other Post-Employment |                    
|                               |  | Pensions Obligations |      |                       | Benefit Obligations | 
|                               |  |                      |      |                       |                     | 
|                               |  | Dec. 31,             |      |                       | Dec. 31,            |  |      | Dec. 31, |  |  | Dec. 31, |   |  | Dec. 31, |     |  | Dec. 31, | 
|                               |  | 2003                 |      |                       | 2004                |  |      | 2005     |  |  | 2003     |   |  | 2004     |     |  | 2005     | 
|                               |  |                      |      |                       |                     |  |      |          |  |  |          |   |  |          |     |  |          | 
|                               |  | ( million)          |      |                       | ( million)         | 
|Current service cost           |  |                      | 115  |                       |                     |  | 135  |          |  |  | 138      |   |  |          | 104 |  |          |  | 29 |  |  |  | 17 | 
|Past service cost              |  |                      | 18   |                       |                     |  | 18   |          |  |  | 56       |   |  |          |    |  |          |  |   |  |  |  |   | 
|Interest cost                  |  |                      | 439  |                       |                     |  | 451  |          |  |  | 432      |   |  |          | 4   |  |          |  | 5  |  |  |  | 5  | 
|Expected return on plan assets |  |                      | (252 | )                     |                     |  | (262 | )        |  |  | (237     | ) |  |          |    |  |          |  |   |  |  |  |   | 
|Plan curtailments              |  |                      |     |                       |                     |  |     |          |  |  |         |   |  |          |    |  |          |  |   |  |  |  |   | 
|Plan settlements               |  |                      |     |                       |                     |  |     |          |  |  |         |   |  |          |    |  |          |  |   |  |  |  |   | 
|                               |  |                      |      |                       |                     |  |      |          |  |  |          |   |  |          |     |  |          | 
|                               |  |                      | 320  |                       |                     |  | 342  |          |  |  | 389      |   |  |          | 108 |  |          |  | 34 |  |  |  | 22 | 
|                               |  |                      |      |                       |                     |  |      |          |  |  |          |   |  |          |     |  |          | 

Other countries


|                               |  |                      |      |                       |                     |  |      |          |  |  |          |   |  |          |     |   |          |  |      |   |  |  |     |  
|------------------------------ |  | -------------------- | ---- | --------------------- | ------------------- |  | ---- | -------- |  |  | -------- | - |  | -------- | --- | - | -------- |  | ---- | - |  |  | --- | -
|                               |  |                      |      | Other Post-Employment |                    
|                               |  | Pensions Obligations |      |                       | Benefit Obligations | 
|                               |  |                      |      |                       |                     | 
|                               |  | Dec. 31,             |      |                       | Dec. 31,            |  |      | Dec. 31, |  |  | Dec. 31, |   |  | Dec. 31, |     |   | Dec. 31, | 
|                               |  | 2003                 |      |                       | 2004                |  |      | 2005     |  |  | 2003     |   |  | 2004     |     |   | 2005     | 
|                               |  |                      |      |                       |                     |  |      |          |  |  |          |   |  |          |     |   |          | 
|                               |  | ( million)          |      |                       | ( million)         | 
|Current service cost           |  |                      | 182  |                       |                     |  | 135  |          |  |  | 122      |   |  |          | 12  |   |          |  | 31   |   |  |  | 30  |  
|Past service cost              |  |                      | 12   |                       |                     |  | 3    |          |  |  | 4        |   |  |          | (5  | ) |          |  | (139 | ) |  |  | (61 | )
|Interest cost                  |  |                      | 235  |                       |                     |  | 223  |          |  |  | 222      |   |  |          | 48  |   |          |  | 51   |   |  |  | 51  |  
|Expected return on plan assets |  |                      | (202 | )                     |                     |  | (222 | )        |  |  | (237     | ) |  |          | (20 | ) |          |  | (24  | ) |  |  | (27 | )
|Plan curtailments              |  |                      |     |                       |                     |  | (58  | )        |  |  | (317     | ) |  |          |    |   |          |  | (5   | ) |  |  | (10 | )
|Plan settlements               |  |                      | 59   |                       |                     |  | (3   | )        |  |  |         |   |  |          |    |   |          |  |     |   |  |  |    |  
|                               |  |                      |      |                       |                     |  |      |          |  |  |          |   |  |          |     |   |          | 
|                               |  |                      | 286  |                       |                     |  | 78   |          |  |  | (206     | ) |  |          | 35  |   |          |  | (86  | ) |  |  | (17 | )
|                               |  |                      |      |                       |                     |  |      |          |  |  |          |   |  |          |     |   |          | 

F-72



---



##### Table of Contents



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


Total


|                               |  |                      |      |                       |                     |  |      |          |  |  |          |   |  |          |     |   |          |  |      |   |  |  |     |  
|------------------------------ |  | -------------------- | ---- | --------------------- | ------------------- |  | ---- | -------- |  |  | -------- | - |  | -------- | --- | - | -------- |  | ---- | - |  |  | --- | -
|                               |  |                      |      | Other Post-Employment |                    
|                               |  | Pensions Obligations |      |                       | Benefit Obligations | 
|                               |  |                      |      |                       |                     | 
|                               |  | Dec. 31,             |      |                       | Dec. 31,            |  |      | Dec. 31, |  |  | Dec. 31, |   |  | Dec. 31, |     |   | Dec. 31, | 
|                               |  | 2003                 |      |                       | 2004                |  |      | 2005     |  |  | 2003     |   |  | 2004     |     |   | 2005     | 
|                               |  |                      |      |                       |                     |  |      |          |  |  |          |   |  |          |     |   |          | 
|                               |  | ( million)          |      |                       | ( million)         | 
|Current service cost           |  |                      | 297  |                       |                     |  | 270  |          |  |  | 260      |   |  |          | 116 |   |          |  | 60   |   |  |  | 47  |  
|Past service cost              |  |                      | 30   |                       |                     |  | 21   |          |  |  | 60       |   |  |          | (5  | ) |          |  | (139 | ) |  |  | (61 | )
|Interest cost                  |  |                      | 674  |                       |                     |  | 674  |          |  |  | 654      |   |  |          | 52  |   |          |  | 56   |   |  |  | 56  |  
|Expected return on plan assets |  |                      | (454 | )                     |                     |  | (484 | )        |  |  | (474     | ) |  |          | (20 | ) |          |  | (24  | ) |  |  | (27 | )
|Plan curtailments              |  |                      |     |                       |                     |  | (58  | )        |  |  | (317     | ) |  |          |    |   |          |  | (5   | ) |  |  | (10 | )
|Plan settlements               |  |                      | 59   |                       |                     |  | (3   | )        |  |  |         |   |  |          |    |   |          |  |     |   |  |  |    |  
|                               |  |                      |      |                       |                     |  |      |          |  |  |          |   |  |          |     |   |          | 
|                               |  |                      | 606  |                       |                     |  | 420  |          |  |  | 183      |   |  |          | 143 |   |          |  | (52  | ) |  |  | 5   |  
|                               |  |                      |      |                       |                     |  |      |          |  |  |          |   |  |          |     |   |          | 







  






F-73



---



##### Table of Contents



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




|                                          |  |                               |        |  |                 |  |        |      |  |  |        |  |  |  |        | 
|----------------------------------------- |  | ----------------------------- | ------ |  | --------------- |  | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|                                          |  | Plan Assets as of December 31 |       
|                                          |  |                               |       
|                                          |  | Germany                       |        |  | Other Countries | 
|                                          |  |                               |        |  |                 | 
|                                          |  | 2004                          |        |  | 2005            |  |        | 2004 |  |  | 2005   | 
|                                          |  |                               |        |  |                 |  |        |      |  |  |        | 
|                                          |  | In %                          |        |  | In %            |  |        | In % |  |  | In %   | 
|Equity securities (directly held)         |  |                               | 0.04   |  |                 |  | 0.04   |      |  |  | 59.01  |  |  |  | 50.98  | 
|Debt securities                           |  |                               | 52.50  |  |                 |  | 53.75  |      |  |  | 33.04  |  |  |  | 41.26  | 
|Special securities funds                  |  |                               | 22.38  |  |                 |  | 25.65  |      |  |  | 0.39   |  |  |  |       | 
|Real estate and special real estate funds |  |                               | 12.65  |  |                 |  | 12.13  |      |  |  | 0.22   |  |  |  | 1.58   | 
|Other                                     |  |                               | 12.43  |  |                 |  | 8.43   |      |  |  | 7.34   |  |  |  | 6.18   | 
|                                          |  |                               |        |  |                 |  |        |      |  |  |        | 
|                                          |  |                               | 100.00 |  |                 |  | 100.00 |      |  |  | 100.00 |  |  |  | 100.00 | 
|                                          |  |                               |        |  |                 |  |        |      |  |  |        | 



|                                          |  |                       |       |  |                 |  |        | 
|----------------------------------------- |  | --------------------- | ----- |  | --------------- |  | ------ | 
|                                          |  | Target Structure 2006 |      
|                                          |  |                       |      
|                                          |  | Germany               |       |  | Other Countries | 
|                                          |  |                       |       |  |                 | 
|                                          |  | In %                  |       |  | In %            | 
|Equity securities (directly held)         |  |                       |      |  |                 |  | 48.57  | 
|Debt securities                           |  |                       | 40-60 |  |                 |  | 40.54  | 
|Special securities funds                  |  |                       | 10-30 |  |                 |  |       | 
|Real estate and special real estate funds |  |                       | 10-25 |  |                 |  | 3.24   | 
|Other                                     |  |                       | 5-15  |  |                 |  | 7.65   | 
|                                          |  |                       |       |  |                 | 
|                                          |  |                       |       |  |                 |  | 100.00 | 
|                                          |  |                       |       |  |                 | 





|                                          |  |                               |   |  |                 |  |   |      |  |  |        |  |  |  |        | 
|----------------------------------------- |  | ----------------------------- | - |  | --------------- |  | - | ---- |  |  | ------ |  |  |  | ------ | 
|                                          |  | Plan Assets as of December 31 |  
|                                          |  |                               |  
|                                          |  | Germany                       |   |  | Other Countries | 
|                                          |  |                               |   |  |                 | 
|                                          |  | 2004                          |   |  | 2005            |  |   | 2004 |  |  | 2005   | 
|                                          |  |                               |   |  |                 |  |   |      |  |  |        | 
|                                          |  | In %                          |   |  | In %            |  |   | In % |  |  | In %   | 
|Equity securities (directly held)         |  |                               |  |  |                 |  |  |      |  |  | 55.20  |  |  |  | 56.10  | 
|Debt securities                           |  |                               |  |  |                 |  |  |      |  |  | 35.00  |  |  |  | 35.40  | 
|Special securities funds                  |  |                               |  |  |                 |  |  |      |  |  |       |  |  |  |       | 
|Real estate and special real estate funds |  |                               |  |  |                 |  |  |      |  |  |       |  |  |  |       | 
|Other                                     |  |                               |  |  |                 |  |  |      |  |  | 9.80   |  |  |  | 8.50   | 
|                                          |  |                               |   |  |                 |  |   |      |  |  |        | 
|                                          |  |                               |  |  |                 |  |  |      |  |  | 100.00 |  |  |  | 100.00 | 
|                                          |  |                               |   |  |                 |  |   |      |  |  |        | 

F-74



---



##### Table of Contents



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


|                                          |  |                       |   |  |                 |  |        | 
|----------------------------------------- |  | --------------------- | - |  | --------------- |  | ------ | 
|                                          |  | Target Structure 2006 |  
|                                          |  |                       |  
|                                          |  | Germany               |   |  | Other Countries | 
|                                          |  |                       |   |  |                 | 
|                                          |  | In %                  |   |  | In %            | 
|Equity securities (directly held)         |  |                       |  |  |                 |  | 53.00  | 
|Debt securities                           |  |                       |  |  |                 |  | 35.00  | 
|Special securities funds                  |  |                       |  |  |                 |  |       | 
|Real estate and special real estate funds |  |                       |  |  |                 |  |       | 
|Other                                     |  |                       |  |  |                 |  | 12.00  | 
|                                          |  |                       |   |  |                 | 
|                                          |  |                       |  |  |                 |  | 100.00 | 
|                                          |  |                       |   |  |                 | 







|                                                          |  |                |       |                |             |             |       |      |  |  |      |   |  |  |      |  
|--------------------------------------------------------- |  | -------------- | ----- | -------------- | ----------- | ----------- | ----- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                          |  |                |       |                |             | Other Post- |      
|                                                          |  |                |       | Employment     |            
|                                                          |  | Pensions       |       |                | Benefit     |            
|                                                          |  | Obligations    |       |                | Obligations |            
|                                                          |  |                |       |                |             |            
|                                                          |  | 2004           |       |                | 2005        |             |       | 2004 |  |  | 2005 |  
|                                                          |  |                |       |                |             |             |       |      |  |  |      |  
|Discount rate                                             |  |                |       |                |             |             |       |      |  |  |      |   |  |  |      |  
| used to determine benefit expense                       |  |                | 5.50% |                |             |             | 5.00% |      |  |  | 3.50 | % |  |  | 3.25 | %
| used to determine benefit obligation                    |  |                | 5.00% |                |             |             | 4.25% |      |  |  | 3.25 | % |  |  | 3.25 | %
|Projected future remuneration increases                   |  |                |       |                |             |             |       |      |  |  |      |   |  |  |      |  
| used to determine benefit expense                       |  |                | 2.50% |                |             |             | 2.50% |      |  |  | N/A  |   |  |  | N/A  |  
| used to determine benefit obligation                    |  |                | 2.50% |                |             |             | 2.50% |      |  |  | N/A  |   |  |  | N/A  |  
|Projected future benefit increases                        |  |                |       |                |             |             |       |      |  |  |      |   |  |  |      |  
| used to determine benefit expense                       |  |                | 1.25% |                |             |             | 1.25% |      |  |  | N/A  |   |  |  | N/A  |  
| used to determine benefit obligation                    |  |                | 1.25% |                |             |             | 1.25% |      |  |  | N/A  |   |  |  | N/A  |  
|Projected employee turnover (according to age and gender) |  | Empirical data |       | Empirical data
|Expected return on plan assets                            |  |                |       |                |             |             |       |      |  |  |      |   |  |  |      |  
| used to determine benefit expense                       |  |                | 6.00% |                |             |             | 5.50% |      |  |  | N/A  |   |  |  | N/A  |  

F-75



---



##### Table of Contents



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




|                                                          |  |                |       |                |             |             |       |      |  |  |      |   |  |  |      |  
|--------------------------------------------------------- |  | -------------- | ----- | -------------- | ----------- | ----------- | ----- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                          |  |                |       |                |             | Other Post- |      
|                                                          |  |                |       | Employment     |            
|                                                          |  | Pensions       |       |                | Benefit     |            
|                                                          |  | Obligations    |       |                | Obligations |            
|                                                          |  |                |       |                |             |            
|                                                          |  | 2004           |       |                | 2005        |             |       | 2004 |  |  | 2005 |  
|                                                          |  |                |       |                |             |             |       |      |  |  |      |  
|Discount rate                                             |  |                |       |                |             |             |       |      |  |  |      |   |  |  |      |  
| used to determine benefit expense                       |  |                | 6.10% |                |             |             | 5.75% |      |  |  | 6.25 | % |  |  | 6.00 | %
| used to determine benefit obligation                    |  |                | 5.75% |                |             |             | 5.50% |      |  |  | 6.00 | % |  |  | 6.00 | %
|Projected future remuneration increases                   |  |                |       |                |             |             |       |      |  |  |      |   |  |  |      |  
| used to determine benefit expense                       |  |                | 4.20% |                |             |             | 4.10% |      |  |  | N/A  |   |  |  | N/A  |  
| used to determine benefit obligation                    |  |                | 4.10% |                |             |             | 4.00% |      |  |  | N/A  |   |  |  | N/A  |  
|Projected future benefit increases                        |  |                |       |                |             |             |       |      |  |  |      |   |  |  |      |  
| used to determine benefit expense                       |  |                | 2.90% |                |             |             | 2.70% |      |  |  | N/A  |   |  |  | N/A  |  
| used to determine benefit obligation                    |  |                | 2.70% |                |             |             | 2.75% |      |  |  | N/A  |   |  |  | N/A  |  
|Projected employee turnover (according to age and gender) |  | Empirical data |       | Empirical data
|Expected return on plan assets                            |  |                |       |                |             |             |       |      |  |  |      |   |  |  |      |  
| used to determine benefit expense                       |  |                | 7.70% |                |             |             | 7.50% |      |  |  | 8.25 | % |  |  | 8.25 | %



|                                                          |  |                |       |                |             |             |       |      |  |  |      |   |  |  |      |  
|--------------------------------------------------------- |  | -------------- | ----- | -------------- | ----------- | ----------- | ----- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                          |  |                |       |                |             | Other Post- |      
|                                                          |  |                |       | Employment     |            
|                                                          |  | Pensions       |       |                | Benefit     |            
|                                                          |  | Obligations    |       |                | Obligations |            
|                                                          |  |                |       |                |             |            
|                                                          |  | 2004           |       |                | 2005        |             |       | 2004 |  |  | 2005 |  
|                                                          |  |                |       |                |             |             |       |      |  |  |      |  
|Discount rate                                             |  |                |       |                |             |             |       |      |  |  |      |   |  |  |      |  
| used to determine benefit expense                       |  |                | 5.90% |                |             |             | 5.20% |      |  |  | 5.70 | % |  |  | 5.40 | %
| used to determine benefit obligation                    |  |                | 5.20% |                |             |             | 4.60% |      |  |  | 5.40 | % |  |  | 5.65 | %
|Projected future remuneration increases                   |  |                |       |                |             |             |       |      |  |  |      |   |  |  |      |  
| used to determine benefit expense                       |  |                | 3.00% |                |             |             | 2.95% |      |  |  | N/A  |   |  |  | N/A  |  
| used to determine benefit obligation                    |  |                | 2.95% |                |             |             | 2.75% |      |  |  | N/A  |   |  |  | N/A  |  
|Projected future benefit increases                        |  |                |       |                |             |             |       |      |  |  |      |   |  |  |      |  
| used to determine benefit expense                       |  |                | 1.45% |                |             |             | 1.40% |      |  |  | N/A  |   |  |  | N/A  |  
| used to determine benefit obligation                    |  |                | 1.40% |                |             |             | 1.45% |      |  |  | N/A  |   |  |  | N/A  |  
|Projected employee turnover (according to age and gender) |  | Empirical data |       | Empirical data
|Expected return on plan assets                            |  |                |       |                |             |             |       |      |  |  |      |   |  |  |      |  
| used to determine benefit expense                       |  |                | 6.35% |                |             |             | 6.35% |      |  |  | 8.25 | % |  |  | 8.25 | %



F-76



---



##### Table of Contents



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




|                                                                 |  |             |        |             |             |  |        |      |  |  |      |   |  |  |      |  
|---------------------------------------------------------------- |  | ----------- | ------ | ----------- | ----------- |  | ------ | ---- |  |  | ---- | - |  |  | ---- | -
|                                                                 |  | Germany     |       
|                                                                 |  |             |       
|                                                                 |  |             |        | Other Post- |            
|                                                                 |  |             |        | Employment  |            
|                                                                 |  | Pension     |        |             | Benefit     | 
|                                                                 |  | Obligations |        |             | Obligations | 
|                                                                 |  |             |        |             |             | 
|                                                                 |  | 2004        |        |             | 2005        |  |        | 2004 |  |  | 2005 |  
|                                                                 |  |             |        |             |             |  |        |      |  |  |      |  
|                                                                 |  | ( million) |       
|Defined benefit obligation                                       |  |             |        |             |             |  |        |      |  |  |      |   |  |  |      |  
|At beginning of year                                             |  |             | 8,099  |             |             |  | 8,866  |      |  |  | 202  |   |  |  | 184  |  
|Current service cost                                             |  |             | 135    |             |             |  | 138    |      |  |  | 29   |   |  |  | 17   |  
|Interest cost                                                    |  |             | 451    |             |             |  | 432    |      |  |  | 5    |   |  |  | 5    |  
|Employee contributions                                           |  |             | 32     |             |             |  | 26     |      |  |  |     |   |  |  |     |  
|Plan changes                                                     |  |             | 18     |             |             |  | 56     |      |  |  |     |   |  |  |     |  
|Plan settlements                                                 |  |             |       |             |             |  |       |      |  |  |     |   |  |  |     |  
|Net actuarial (gain) loss                                        |  |             | 563    |             |             |  | 1,160  |      |  |  |     |   |  |  |     |  
|Translation differences                                          |  |             |       |             |             |  |       |      |  |  |     |   |  |  |     |  
|Benefits paid                                                    |  |             | (432   | )           |             |  | (436   | )    |  |  | (52  | ) |  |  | (48  | )
|Mergers/ acquisitions                                            |  |             |       |             |             |  | 14     |      |  |  |     |   |  |  |     |  
|Divestitures                                                     |  |             |       |             |             |  |       |      |  |  |     |   |  |  |     |  
|Plan curtailments                                                |  |             |       |             |             |  |       |      |  |  |     |   |  |  |     |  
|                                                                 |  |             |        |             |             |  |        |      |  |  |      |  
|At year end                                                      |  |             | 8,866  |             |             |  | 10,256 |      |  |  | 184  |   |  |  | 158  |  
|                                                                 |  |             |        |             |             |  |        |      |  |  |      |  
|Fair value of plan assets                                        |  |             |        |             |             |  |        |      |  |  |      |   |  |  |      |  
|At beginning of year                                             |  |             | 4,240  |             |             |  | 4,373  |      |  |  |     |   |  |  |     |  
|Actual return on plan assets                                     |  |             | 211    |             |             |  | 330    |      |  |  |     |   |  |  |     |  
|Mergers/acquisitions                                             |  |             |       |             |             |  |       |      |  |  |     |   |  |  |     |  
|Divestitures                                                     |  |             |       |             |             |  |       |      |  |  |     |   |  |  |     |  
|Plan settlements                                                 |  |             |       |             |             |  |       |      |  |  |     |   |  |  |     |  
|Translation differences                                          |  |             |       |             |             |  |       |      |  |  |     |   |  |  |     |  
|Employer contributions                                           |  |             | 322    |             |             |  | 306    |      |  |  | 52   |   |  |  | 48   |  
|Employee contributions                                           |  |             | 32     |             |             |  | 26     |      |  |  |     |   |  |  |     |  
|Benefits paid                                                    |  |             | (432   | )           |             |  | (436   | )    |  |  | (52  | ) |  |  | (48  | )
|                                                                 |  |             |        |             |             |  |        |      |  |  |      |  
|At year end                                                      |  |             | 4,373  |             |             |  | 4,599  |      |  |  |     |   |  |  |     |  
|                                                                 |  |             |        |             |             |  |        |      |  |  |      |  
|                                                                 |  |             |        |             |             |  |        |      |  |  |      |  
|Funded status at year end                                        |  |             | (4,493 | )           |             |  | (5,657 | )    |  |  | (184 | ) |  |  | (158 | )
|                                                                 |  |             |        |             |             |  |        |      |  |  |      |  
|Unrecognized past service cost                                   |  |             |       |             |             |  |       |      |  |  |     |   |  |  |     |  
|Unrecognized transition obligation                               |  |             |       |             |             |  |       |      |  |  |     |   |  |  |     |  
|Asset limitation due to uncertainty of obtaining future benefits |  |             |       |             |             |  |       |      |  |  |     |   |  |  |     |  
|                                                                 |  |             |        |             |             |  |        |      |  |  |      |  
|Net recognized liability                                         |  |             | (4,493 | )           |             |  | (5,657 | )    |  |  | (184 | ) |  |  | (158 | )
|                                                                 |  |             |        |             |             |  |        |      |  |  |      |  
|Amounts recognized in the balance sheet                          |  |             |        |             |             |  |        |      |  |  |      |   |  |  |      |  
|Prepaid benefit assets                                           |  |             | 38     |             |             |  |       |      |  |  |     |   |  |  |     |  
|Provisions for pensions and other post-employment benefits       |  |             | (4,531 | )           |             |  | (5,657 | )    |  |  | (184 | ) |  |  | (158 | )
|                                                                 |  |             |        |             |             |  |        |      |  |  |      |  
|Net recognized liability                                         |  |             | (4,493 | )           |             |  | (5,657 | )    |  |  | (184 | ) |  |  | (158 | )
|                                                                 |  |             |        |             |             |  |        |      |  |  |      |  

F-77



---



##### Table of Contents



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


|                                                                 |  |                 |        |             |             |  |       |      |  |  |      |   |  |  |      |  
|---------------------------------------------------------------- |  | --------------- | ------ | ----------- | ----------- |  | ----- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                                 |  | Other Countries |       
|                                                                 |  |                 |       
|                                                                 |  |                 |        | Other Post- |            
|                                                                 |  |                 |        | Employment  |            
|                                                                 |  | Pension         |        |             | Benefit     | 
|                                                                 |  | Obligations     |        |             | Obligations | 
|                                                                 |  |                 |        |             |             | 
|                                                                 |  | 2004            |        |             | 2005        |  |       | 2004 |  |  | 2005 |  
|                                                                 |  |                 |        |             |             |  |       |      |  |  |      |  
|                                                                 |  | ( million)     |       
|Defined benefit obligation                                       |  |                 |        |             |             |  |       |      |  |  |      |   |  |  |      |  
|At beginning of year                                             |  |                 | 3,746  |             |             |  | 3,807 |      |  |  | 886  |   |  |  | 724  |  
|Current service cost                                             |  |                 | 135    |             |             |  | 122   |      |  |  | 31   |   |  |  | 30   |  
|Interest cost                                                    |  |                 | 223    |             |             |  | 222   |      |  |  | 51   |   |  |  | 51   |  
|Employee contributions                                           |  |                 | 4      |             |             |  | 5     |      |  |  |     |   |  |  |     |  
|Plan changes                                                     |  |                 | (3     | )           |             |  | 4     |      |  |  | (196 | ) |  |  |     |  
|Plan settlements                                                 |  |                 | (3     | )           |             |  | (52   | )    |  |  |     |   |  |  |     |  
|Net actuarial (gain) loss                                        |  |                 | 142    |             |             |  | 262   |      |  |  | 55   |   |  |  |     |  
|Translation differences                                          |  |                 | (200   | )           |             |  | 403   |      |  |  | (51  | ) |  |  | 130  |  
|Benefits paid                                                    |  |                 | (182   | )           |             |  | (198  | )    |  |  | (46  | ) |  |  | (47  | )
|Mergers/ acquisitions                                            |  |                 |       |             |             |  | 11    |      |  |  |     |   |  |  |     |  
|Divestitures                                                     |  |                 |       |             |             |  |      |      |  |  |     |   |  |  |     |  
|Plan curtailments                                                |  |                 | (55    | )           |             |  | (317  | )    |  |  | (6   | ) |  |  | (10  | )
|                                                                 |  |                 |        |             |             |  |       |      |  |  |      |  
|At year end                                                      |  |                 | 3,807  |             |             |  | 4,269 |      |  |  | 724  |   |  |  | 878  |  
|                                                                 |  |                 |        |             |             |  |       |      |  |  |      |  
|Fair value of plan assets                                        |  |                 |        |             |             |  |       |      |  |  |      |   |  |  |      |  
|At beginning of year                                             |  |                 | 2,675  |             |             |  | 2,841 |      |  |  | 263  |   |  |  | 286  |  
|Actual return on plan assets                                     |  |                 | 322    |             |             |  | 321   |      |  |  | 35   |   |  |  | 22   |  
|Mergers/acquisitions                                             |  |                 |       |             |             |  |      |      |  |  |     |   |  |  |     |  
|Divestitures                                                     |  |                 |       |             |             |  |      |      |  |  |     |   |  |  |     |  
|Plan settlements                                                 |  |                 | (1     | )           |             |  | (32   | )    |  |  |     |   |  |  |     |  
|Translation differences                                          |  |                 | (149   | )           |             |  | 372   |      |  |  | (22  | ) |  |  | 45   |  
|Employer contributions                                           |  |                 | 172    |             |             |  | 176   |      |  |  | 56   |   |  |  | 53   |  
|Employee contributions                                           |  |                 | 4      |             |             |  | 5     |      |  |  |     |   |  |  |     |  
|Benefits paid                                                    |  |                 | (182   | )           |             |  | (198  | )    |  |  | (46  | ) |  |  | (47  | )
|                                                                 |  |                 |        |             |             |  |       |      |  |  |      |  
|At year end                                                      |  |                 | 2,841  |             |             |  | 3,485 |      |  |  | 286  |   |  |  | 359  |  
|                                                                 |  |                 |        |             |             |  |       |      |  |  |      |  
|                                                                 |  |                 |        |             |             |  |       |      |  |  |      |  
|Funded status at year end                                        |  |                 | (966   | )           |             |  | (784  | )    |  |  | (438 | ) |  |  | (519 | )
|                                                                 |  |                 |        |             |             |  |       |      |  |  |      |  
|Unrecognized past service cost                                   |  |                 | (3     | )           |             |  | (3    | )    |  |  | (63  | ) |  |  | (8   | )
|Unrecognized transition obligation                               |  |                 |       |             |             |  |      |      |  |  |     |   |  |  |     |  
|Asset limitation due to uncertainty of obtaining future benefits |  |                 |       |             |             |  | (8    | )    |  |  |     |   |  |  |     |  
|                                                                 |  |                 |        |             |             |  |       |      |  |  |      |  
|Net recognized liability                                         |  |                 | (969   | )           |             |  | (795  | )    |  |  | (501 | ) |  |  | (527 | )
|                                                                 |  |                 |        |             |             |  |       |      |  |  |      |  
|Amounts recognized in the balance sheet                          |  |                 |        |             |             |  |       |      |  |  |      |   |  |  |      |  
|Prepaid benefit assets                                           |  |                 | 34     |             |             |  | 37    |      |  |  |     |   |  |  |     |  
|Provisions for pensions and other post-employment benefits       |  |                 | (1,003 | )           |             |  | (832  | )    |  |  | (501 | ) |  |  | (527 | )
|                                                                 |  |                 |        |             |             |  |       |      |  |  |      |  
|Net recognized liability                                         |  |                 | (969   | )           |             |  | (795  | )    |  |  | (501 | ) |  |  | (527 | )
|                                                                 |  |                 |        |             |             |  |       |      |  |  |      |  

F-78



---



##### Table of Contents



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


|                                                                 |  |             |        |             |             |  |        |      |  |  |       |   |  |  |       |  
|---------------------------------------------------------------- |  | ----------- | ------ | ----------- | ----------- |  | ------ | ---- |  |  | ----- | - |  |  | ----- | -
|                                                                 |  | Total       |       
|                                                                 |  |             |       
|                                                                 |  |             |        | Other Post- |            
|                                                                 |  |             |        | Employment  |            
|                                                                 |  | Pension     |        |             | Benefit     | 
|                                                                 |  | Obligations |        |             | Obligations | 
|                                                                 |  |             |        |             |             | 
|                                                                 |  | 2004        |        |             | 2005        |  |        | 2004 |  |  | 2005  |  
|                                                                 |  |             |        |             |             |  |        |      |  |  |       |  
|                                                                 |  | ( million) |       
|Defined benefit obligation                                       |  |             |        |             |             |  |        |      |  |  |       |   |  |  |       |  
|At beginning of year                                             |  |             | 11,845 |             |             |  | 12,673 |      |  |  | 1,088 |   |  |  | 908   |  
|Current service cost                                             |  |             | 270    |             |             |  | 260    |      |  |  | 60    |   |  |  | 47    |  
|Interest cost                                                    |  |             | 674    |             |             |  | 654    |      |  |  | 56    |   |  |  | 56    |  
|Employee contributions                                           |  |             | 36     |             |             |  | 31     |      |  |  |      |   |  |  |      |  
|Plan changes                                                     |  |             | 15     |             |             |  | 60     |      |  |  | (196  | ) |  |  |      |  
|Plan settlements                                                 |  |             | (3     | )           |             |  | (52    | )    |  |  |      |   |  |  |      |  
|Net actuarial (gain) loss                                        |  |             | 705    |             |             |  | 1,422  |      |  |  | 55    |   |  |  |      |  
|Translation differences                                          |  |             | (200   | )           |             |  | 403    |      |  |  | (51   | ) |  |  | 130   |  
|Benefits paid                                                    |  |             | (614   | )           |             |  | (634   | )    |  |  | (98   | ) |  |  | (95   | )
|Mergers/ acquisitions                                            |  |             |       |             |             |  | 25     |      |  |  |      |   |  |  |      |  
|Divestitures                                                     |  |             |       |             |             |  |       |      |  |  |      |   |  |  |      |  
|Plan curtailments                                                |  |             | (55    | )           |             |  | (317   | )    |  |  | (6    | ) |  |  | (10   | )
|                                                                 |  |             |        |             |             |  |        |      |  |  |       |  
|At year end                                                      |  |             | 12,673 |             |             |  | 14,525 |      |  |  | 908   |   |  |  | 1,036 |  
|                                                                 |  |             |        |             |             |  |        |      |  |  |       |  
|Fair value of plan assets                                        |  |             |        |             |             |  |        |      |  |  |       |   |  |  |       |  
|At beginning of year                                             |  |             | 6,915  |             |             |  | 7,214  |      |  |  | 263   |   |  |  | 286   |  
|Actual return on plan assets                                     |  |             | 533    |             |             |  | 651    |      |  |  | 35    |   |  |  | 22    |  
|Mergers/ acquisitions                                            |  |             |       |             |             |  |       |      |  |  |      |   |  |  |      |  
|Divestitures                                                     |  |             |       |             |             |  |       |      |  |  |      |   |  |  |      |  
|Plan settlements                                                 |  |             | (1     | )           |             |  | (32    | )    |  |  |      |   |  |  |      |  
|Translation differences                                          |  |             | (149   | )           |             |  | 372    |      |  |  | (22   | ) |  |  | 45    |  
|Employer contributions                                           |  |             | 494    |             |             |  | 482    |      |  |  | 108   |   |  |  | 101   |  
|Employee contributions                                           |  |             | 36     |             |             |  | 31     |      |  |  |      |   |  |  |      |  
|Benefits paid                                                    |  |             | (614   | )           |             |  | (634   | )    |  |  | (98   | ) |  |  | (95   | )
|                                                                 |  |             |        |             |             |  |        |      |  |  |       |  
|At year end                                                      |  |             | 7,214  |             |             |  | 8,084  |      |  |  | 286   |   |  |  | 359   |  
|                                                                 |  |             |        |             |             |  |        |      |  |  |       |  
|                                                                 |  |             |        |             |             |  |        |      |  |  |       |  
|Funded status at year end                                        |  |             | (5,459 | )           |             |  | (6,441 | )    |  |  | (622  | ) |  |  | (677  | )
|                                                                 |  |             |        |             |             |  |        |      |  |  |       |  
|Unrecognized past service cost                                   |  |             | (3     | )           |             |  | (3     | )    |  |  | (63   | ) |  |  | (8    | )
|Unrecognized transition obligation                               |  |             |       |             |             |  |       |      |  |  |      |   |  |  |      |  
|Asset limitation due to uncertainty of obtaining future benefits |  |             |       |             |             |  | (8     | )    |  |  |      |   |  |  |      |  
|                                                                 |  |             |        |             |             |  |        |      |  |  |       |  
|Net recognized liability                                         |  |             | (5,462 | )           |             |  | (6,452 | )    |  |  | (685  | ) |  |  | (685  | )
|                                                                 |  |             |        |             |             |  |        |      |  |  |       |  
|Amounts recognized in the balance sheet                          |  |             |        |             |             |  |        |      |  |  |       |   |  |  |       |  
|Prepaid benefit assets                                           |  |             | 72     |             |             |  | 37     |      |  |  |      |   |  |  |      |  
|Provisions for pensions and other post-employment benefits       |  |             | (5,534 | )           |             |  | (6,489 | )    |  |  | (685  | ) |  |  | (685  | )
|                                                                 |  |             |        |             |             |  |        |      |  |  |       |  
|Net recognized liability                                         |  |             | (5,462 | )           |             |  | (6,452 | )    |  |  | (685  | ) |  |  | (685  | )
|                                                                 |  |             |        |             |             |  |        |      |  |  |       |  

F-79



---



##### Table of Contents



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




Germany


|                                                  |  |                      |      |                       |                     |  |      |                |  |  |                |   |  |  |   | 
|------------------------------------------------- |  | -------------------- | ---- | --------------------- | ------------------- |  | ---- | -------------- |  |  | -------------- | - |  |  | - | 
|                                                  |  |                      |      | Other Post-Employment |                    
|                                                  |  | Pensions Obligations |      |                       | Benefit Obligations | 
|                                                  |  |                      |      |                       |                     | 
|                                                  |  | 0.5 Percentage       |      |                       | 0.5 Percentage      |  |      | 0.5 Percentage |  |  | 0.5 Percentage |  
|                                                  |  | Point Increase       |      |                       | Point Decrease      |  |      | Point Increase |  |  | Point Decrease |  
|                                                  |  |                      |      |                       |                     |  |      |                |  |  |                |  
|                                                  |  | ( million)          |     
|Change in discount rate                           |  |                      |      |                       |                     |  |      |                |  |  |                |   |  |  |   | 
| Benefit obligation 2005                         |  |                      | (730 | )                     |                     |  | 827  |                |  |  | (1             | ) |  |  | 1 | 
| Benefit expense 2006                            |  |                      | 7    |                       |                     |  | (7   | )              |  |  |                |   |  |  |   | 
|Change in projected future remuneration increases |  |                      |      |                       |                     |  |      |                |  |  |                |   |  |  |   | 
| Benefit obligation 2005                         |  |                      | 89   |                       |                     |  | (81  | )              |  |  |                |   |  |  |   | 
| Benefit expense 2006                            |  |                      | 10   |                       |                     |  | (9   | )              |  |  |                |   |  |  |   | 
|Change in projected future benefit increases      |  |                      |      |                       |                     |  |      |                |  |  |                |   |  |  |   | 
| Benefit obligation 2005                         |  |                      | 549  |                       |                     |  | (504 | )              |  |  |                |   |  |  |   | 
| Benefit expense 2006                            |  |                      | 34   |                       |                     |  | (31  | )              |  |  |                |   |  |  |   | 
|Change in expected return on plan assets          |  |                      |      |                       |                     |  |      |                |  |  |                |   |  |  |   | 
| Benefit expense 2006                            |  |                      | (23  | )                     |                     |  | 23   |                |  |  |                |   |  |  |   | 

Other countries


|                                                  |  |                      |      |                       |                     |  |     |                |  |  |                |   |  |  |    |  
|------------------------------------------------- |  | -------------------- | ---- | --------------------- | ------------------- |  | --- | -------------- |  |  | -------------- | - |  |  | -- | -
|                                                  |  |                      |      | Other Post-Employment |                    
|                                                  |  | Pensions Obligations |      |                       | Benefit Obligations | 
|                                                  |  |                      |      |                       |                     | 
|                                                  |  | 0.5 Percentage       |      |                       | 0.5 Percentage      |  |     | 0.5 Percentage |  |  | 0.5 Percentage |  
|                                                  |  | Point Increase       |      |                       | Point Decrease      |  |     | Point Increase |  |  | Point Decrease |  
|                                                  |  |                      |      |                       |                     |  |     |                |  |  |                |  
|                                                  |  | ( million)          |     
|Change in discount rate                           |  |                      |      |                       |                     |  |     |                |  |  |                |   |  |  |    |  
| Benefit obligation 2005                         |  |                      | (292 | )                     |                     |  | 328 |                |  |  | (58            | ) |  |  | 46 |  
| Benefit expense 2006                            |  |                      | 5    |                       |                     |  | (6  | )              |  |  | 3              |   |  |  | (4 | )
|Change in projected future remuneration increases |  |                      |      |                       |                     |  |     |                |  |  |                |   |  |  |    |  
| Benefit obligation 2005                         |  |                      | 42   |                       |                     |  | (39 | )              |  |  |                |   |  |  |    |  
| Benefit expense 2006                            |  |                      | 5    |                       |                     |  | (5  | )              |  |  |                |   |  |  |    |  
|Change in projected future benefit increases      |  |                      |      |                       |                     |  |     |                |  |  |                |   |  |  |    |  
| Benefit obligation 2005                         |  |                      | 71   |                       |                     |  | (45 | )              |  |  |                |   |  |  |    |  
| Benefit expense 2006                            |  |                      | 4    |                       |                     |  | (3  | )              |  |  |                |   |  |  |    |  
|Change in expected return on plan assets          |  |                      |      |                       |                     |  |     |                |  |  |                |   |  |  |    |  
| Benefit expense 2006                            |  |                      | (17  | )                     |                     |  | 17  |                |  |  | (2             | ) |  |  | 2  |  

F-80



---



##### Table of Contents



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


Total


|                                                  |                           |                      |  |                       |                     |  |  |                |   |  |                |     |   |  |  |    |  
|------------------------------------------------- | ------------------------- | -------------------- |  | --------------------- | ------------------- |  |  | -------------- | - |  | -------------- | --- | - |  |  | -- | -
|                                                  |                           |                      |  | Other Post-Employment |                    
|                                                  |                           | Pensions Obligations |  |                       | Benefit Obligations | 
|                                                  |                           |                      |  |                       |                     | 
|                                                  |                           | 0.5 Percentage       |  |                       | 0.5 Percentage      |  |  | 0.5 Percentage |   |  | 0.5 Percentage |    
|                                                  |                           | Point Increase       |  |                       | Point Decrease      |  |  | Point Increase |   |  | Point Decrease |    
|                                                  |                           |                      |  |                       |                     |  |  |                |   |  |                |    
|                                                  |                           | ( million)          | 
|Change in discount rate                           |                           |                      |  |                       |                     |  |  |                |   |  |                |     |   |  |  |   
|                                                  |  Benefit obligation 2005 |                      |  | (1,022                | )                   |  |  | 1,155          |   |  |                | (59 | ) |  |  | 47 |  
|                                                  |  Benefit expense 2006    |                      |  | 12                    |                     |  |  | (13            | ) |  |                | 3   |   |  |  | (4 | )
|Change in projected future remuneration increases |                           |                      |  |                       |                     |  |  |                |   |  |                |     |   |  |  |   
|                                                  |  Benefit obligation 2005 |                      |  | 131                   |                     |  |  | (120           | ) |  |                |     |   |  |  |    |  
|                                                  |  Benefit expense 2006    |                      |  | 15                    |                     |  |  | (14            | ) |  |                |     |   |  |  |    |  
|Change in projected future benefit increases      |                           |                      |  |                       |                     |  |  |                |   |  |                |     |   |  |  |   
|                                                  |  Benefit obligation 2005 |                      |  | 620                   |                     |  |  | (549           | ) |  |                |     |   |  |  |    |  
|                                                  |  Benefit expense 2006    |                      |  | 38                    |                     |  |  | (34            | ) |  |                |     |   |  |  |    |  
|Change in expected return on plan assets          |                           |                      |  |                       |                     |  |  |                |   |  |                |     |   |  |  |   
|                                                  |  Benefit expense 2006    |                      |  | (40                   | )                   |  |  | 40             |   |  |                | (2  | ) |  |  | 2  |  



|                |  |                      |     |                       |                     |  |     |           |      |  |      |  |  |      |     |  |           |  |     |  |  |  |    | 
|--------------- |  | -------------------- | --- | --------------------- | ------------------- |  | --- | --------- | ---- |  | ---- |  |  | ---- | --- |  | --------- |  | --- |  |  |  | -- | 
|                |  |                      |     | Other Post-Employment |                    
|                |  | Pensions Obligations |     |                       | Benefit Obligations | 
|                |  |                      |     |                       |                     | 
|                |  |                      |     | 2006                  |                     |  |     |           | 2006 | 
|                |  | 2004                 |     |                       | 2005                |  |     | Projected |      |  | 2004 |  |  | 2005 |     |  | Projected | 
|                |  |                      |     |                       |                     |  |     |           |      |  |      |  |  |      |     |  |           | 
|                |  | ( million)          |    
|Germany         |  |                      | 322 |                       |                     |  | 306 |           |      |  | 320  |  |  |      | 52  |  |           |  | 48  |  |  |  | 45 | 
|Other countries |  |                      | 172 |                       |                     |  | 176 |           |      |  | 77   |  |  |      | 56  |  |           |  | 53  |  |  |  | 51 | 
|                |  |                      |     |                       |                     |  |     |           |      |  |      |  |  |      |     |  |           | 
|Total           |  |                      | 494 |                       |                     |  | 482 |           |      |  | 397  |  |  |      | 108 |  |           |  | 101 |  |  |  | 96 | 
|                |  |                      |     |                       |                     |  |     |           |      |  |      |  |  |      |     |  |           | 



|          |  |             |       |             |                 |  |    |             |             |  |             |  |  |             |     |  |             |  |       |  |  |  |     | 
|--------- |  | ----------- | ----- | ----------- | --------------- |  | -- | ----------- | ----------- |  | ----------- |  |  | ----------- | --- |  | ----------- |  | ----- |  |  |  | --- | 
|          |  | 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) |      
|2006      |  |             | 454   |             |                 |  | 45 |             |             |  | 190         |  |  |             | 45  |  |             |  | 644   |  |  |  | 90  | 
|2007      |  |             | 466   |             |                 |  | 39 |             |             |  | 198         |  |  |             | 47  |  |             |  | 664   |  |  |  | 86  | 
|2008      |  |             | 483   |             |                 |  | 29 |             |             |  | 210         |  |  |             | 50  |  |             |  | 693   |  |  |  | 79  | 
|2009      |  |             | 501   |             |                 |  | 22 |             |             |  | 227         |  |  |             | 53  |  |             |  | 728   |  |  |  | 75  | 
|2010      |  |             | 520   |             |                 |  | 13 |             |             |  | 248         |  |  |             | 56  |  |             |  | 768   |  |  |  | 69  | 
|2011-2015 |  |             | 2,890 |             |                 |  | 9  |             |             |  | 1,504       |  |  |             | 330 |  |             |  | 4,394 |  |  |  | 339 | 

    


F-81



---



##### Table of Contents



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


  


     






|                           |  |                       |        |   |                        |  |        |          |  |  |          |   |  |          |        |   |          |  |       |   |  |  |       |  
|-------------------------- |  | --------------------- | ------ | - | ---------------------- |  | ------ | -------- |  |  | -------- | - |  | -------- | ------ | - | -------- |  | ----- | - |  |  | ----- | -
|                           |  | Pension Obligations  |        |   | Pensions Obligations  | 
|                           |  | Germany               |        |   | Other Countries        | 
|                           |  |                       |        |   |                        | 
|                           |  | Dec. 31,              |        |   | Dec. 31,               |  |        | Dec. 31, |  |  | Dec. 31, |   |  | Dec. 31, |        |   | Dec. 31, | 
|                           |  | 2003                  |        |   | 2004                   |  |        | 2005     |  |  | 2003     |   |  | 2004     |        |   | 2005     | 
|                           |  |                       |        |   |                        |  |        |          |  |  |          |   |  |          |        |   |          | 
|                           |  | ( million)           |       
|Defined benefit obligation |  |                       | 8,099  |   |                        |  | 8,866  |          |  |  | 10,256   |   |  |          | 3,746  |   |          |  | 3,807 |   |  |  | 4,269 |  
|Fair value of plan assets  |  |                       | 4,240  |   |                        |  | 4,373  |          |  |  | 4,599    |   |  |          | 2,675  |   |          |  | 2,841 |   |  |  | 3,485 |  
|                           |  |                       |        |   |                        |  |        |          |  |  |          |   |  |          |        |   |          | 
|Funded status              |  |                       | (3,859 | ) |                        |  | (4,493 | )        |  |  | (5,657   | ) |  |          | (1,071 | ) |          |  | (966  | ) |  |  | (784  | )
|                           |  |                       |        |   |                        |  |        |          |  |  |          |   |  |          |        |   |          | 

|                                                                                                                    |  |             |        |   |      |  |        |      |  |  |        |   |  |      |      |   |      |  |      |   |  |  |      |  
|------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------ | - | ---- |  | ------ | ---- |  |  | ------ | - |  | ---- | ---- | - | ---- |  | ---- | - |  |  | ---- | -
|Accumulated actuarial gains/(losses) relating to benefit obligation                                                 |  | 2003        |        |   | 2004 |  |        | 2005 |  |  | 2003   |   |  | 2004 |      |   | 2005 | 
|                                                                                                                    |  |             |        |   |      |  |        |      |  |  |        |   |  |      |      |   |      | 
|                                                                                                                    |  | ( million) |       
|At beginning of year                                                                                                |  |             | (670   | ) |      |  | (1,119 | )    |  |  | (1,682 | ) |  |      | (98  | ) |      |  | (304 | ) |  |  | (421 | )
|Actuarial gains/ (losses) during the year relating to benefit
    obligation due to changes in actuarial parameters |  |             | (610   | ) |      |  | (575   | )    |  |  | (1,122 | ) |  |      | (249 | ) |      |  | (161 | ) |  |  | (265 | )
|Actuarial gains/ (losses) during the year relating to benefit
    obligation due to changes in empirical data       |  |             | 161    |   |      |  | 12     |      |  |  | (38    | ) |  |      | 13   |   |      |  | 19   |   |  |  | 3    |  
|Changes due to mergers, acquisitions and divestitures                                                               |  |             |       |   |      |  |       |      |  |  |       |   |  |      |     |   |      |  |     |   |  |  |     |  
|Translation differences                                                                                             |  |             |       |   |      |  |       |      |  |  |       |   |  |      | 30   |   |      |  | 25   |   |  |  | (9   | )
|                                                                                                                    |  |             |        |   |      |  |        |      |  |  |        |   |  |      |      |   |      | 
|At year end                                                                                                         |  |             | (1,119 | ) |      |  | (1,682 | )    |  |  | (2,842 | ) |  |      | (304 | ) |      |  | (421 | ) |  |  | (692 | )
|                                                                                                                    |  |             |        |   |      |  |        |      |  |  |        |   |  |      |      |   |      | 

|                                                                  |  |             |      |   |      |  |      |      |  |  |      |   |  |      |      |   |      |  |      |   |  |  |      |  
|----------------------------------------------------------------- |  | ----------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | - |  | ---- | ---- | - | ---- |  | ---- | - |  |  | ---- | -
|Accumulated actuarial gains/(losses) relating to plan assets      |  | 2003        |      |   | 2004 |  |      | 2005 |  |  | 2003 |   |  | 2004 |      |   | 2005 | 
|                                                                  |  |             |      |   |      |  |      |      |  |  |      |   |  |      |      |   |      | 
|                                                                  |  | ( million) |     
|At beginning of year                                              |  |             | (753 | ) |      |  | (735 | )    |  |  | (786 | ) |  |      | (631 | ) |      |  | (315 | ) |  |  | (204 | )
|Actuarial gains/ (losses) relating to plan assets during the year |  |             | 18   |   |      |  | (51  | )    |  |  | 93   |   |  |      | 230  |   |      |  | 100  |   |  |  | 84   |  
|Changes due to mergers, acquisitions and divestitures             |  |             |     |   |      |  |     |      |  |  |     |   |  |      |     |   |      |  |     |   |  |  |     |  
|Translation differences                                           |  |             |     |   |      |  |     |      |  |  |     |   |  |      | 86   |   |      |  | 11   |   |  |  | (5   | )
|                                                                  |  |             |      |   |      |  |      |      |  |  |      |   |  |      |      |   |      | 
|At year end                                                       |  |             | (735 | ) |      |  | (786 | )    |  |  | (693 | ) |  |      | (315 | ) |      |  | (204 | ) |  |  | (125 | )
|                                                                  |  |             |      |   |      |  |      |      |  |  |      |   |  |      |      |   |      | 

|                                                                 |  |             |       |  |      |  |       |      |  |  |       |  |  |      |   |  |      |  |   |  |  |  |    | 
|---------------------------------------------------------------- |  | ----------- | ----- |  | ---- |  | ----- | ---- |  |  | ----- |  |  | ---- | - |  | ---- |  | - |  |  |  | -- | 
|Asset limitation due to uncertainty of obtaining future benefits |  | 2003        |       |  | 2004 |  |       | 2005 |  |  | 2003  |  |  | 2004 |   |  | 2005 | 
|                                                                 |  |             |       |  |      |  |       |      |  |  |       |  |  |      |   |  |      | 
|                                                                 |  | ( million) |      
|At beginning of year                                             |  |             | 1,058 |  |      |  | 1,058 |      |  |  | 1,058 |  |  |      |  |  |      |  | 7 |  |  |  | 9  | 
|Changes due to asset limitation during the year                  |  |             |      |  |      |  |      |      |  |  |      |  |  |      | 7 |  |      |  | 2 |  |  |  | 8  | 
|Changes due to mergers, acquisitions and divestitures            |  |             |      |  |      |  |      |      |  |  |      |  |  |      |  |  |      |  |  |  |  |  |   | 
|Translation differences                                          |  |             |      |  |      |  |      |      |  |  |      |  |  |      |  |  |      |  |  |  |  |  |   | 
|                                                                 |  |             |       |  |      |  |       |      |  |  |       |  |  |      |   |  |      | 
|At year end                                                      |  |             | 1,058 |  |      |  | 1,058 |      |  |  | 1,058 |  |  |      | 7 |  |      |  | 9 |  |  |  | 17 | 
|                                                                 |  |             |       |  |      |  |       |      |  |  |       |  |  |      |   |  |      | 

F-82



---



##### Table of Contents



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


|                           |  |                       |      |   |                       |  |                       |                       |  |  |          |   |  |          |        |   |          |  |        |          |  |  |          |   |  |          |       |   |  |  |      |   |  |  |       |  
|-------------------------- |  | --------------------- | ---- | - | --------------------- |  | --------------------- | --------------------- |  |  | -------- | - |  | -------- | ------ | - | -------- |  | ------ | -------- |  |  | -------- | - |  | -------- | ----- | - |  |  | ---- | - |  |  | ----- | -
|                           |  | Other Post-Employment |      |   |                       |  | Other Post-Employment |                      
|                           |  | Benefit Obligations  |      |   | Pension Obligations  |  |                       | Benefit Obligations  | 
|                           |  | Other Countries       |      |   | Total                 |  |                       | Total                 | 
|                           |  |                       |      |   |                       |  |                       |                       | 
|                           |  | Dec. 31,              |      |   | Dec. 31,              |  |                       | Dec. 31,              |  |  | Dec. 31, |   |  | Dec. 31, |        |   | Dec. 31, |  |        | Dec. 31, |  |  | Dec. 31, |   |  | Dec. 31, |      
|                           |  | 2003                  |      |   | 2004                  |  |                       | 2005                  |  |  | 2003     |   |  | 2004     |        |   | 2005     |  |        | 2003     |  |  | 2004     |   |  | 2005     |      
|                           |  |                       |      |   |                       |  |                       |                       |  |  |          |   |  |          |        |   |          |  |        |          |  |  |          |   |  |          |      
|                           |  | ( million)           |     
|Defined benefit obligation |  |                       | 886  |   |                       |  | 724                   |                       |  |  | 878      |   |  |          | 11,845 |   |          |  | 12,673 |          |  |  | 14,525   |   |  |          | 1,088 |   |  |  | 908  |   |  |  | 1,036 |  
|Fair value of plan assets  |  |                       | 263  |   |                       |  | 286                   |                       |  |  | 359      |   |  |          | 6,915  |   |          |  | 7,214  |          |  |  | 8,084    |   |  |          | 263   |   |  |  | 286  |   |  |  | 359   |  
|                           |  |                       |      |   |                       |  |                       |                       |  |  |          |   |  |          |        |   |          |  |        |          |  |  |          |   |  |          |      
|Funded status              |  |                       | (623 | ) |                       |  | (438                  | )                     |  |  | (519     | ) |  |          | (4,930 | ) |          |  | (5,459 | )        |  |  | (6,441   | ) |  |          | (825  | ) |  |  | (622 | ) |  |  | (677  | )
|                           |  |                       |      |   |                       |  |                       |                       |  |  |          |   |  |          |        |   |          |  |        |          |  |  |          |   |  |          |      

|                                                                                                                   |  |             |      |   |      |  |      |      |  |  |      |   |  |      |        |   |      |  |        |      |  |  |        |   |  |      |      |   |  |  |      |   |  |  |      |  
|------------------------------------------------------------------------------------------------------------------ |  | ----------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | - |  | ---- | ------ | - | ---- |  | ------ | ---- |  |  | ------ | - |  | ---- | ---- | - |  |  | ---- | - |  |  | ---- | -
|Accumulated actuarial gains/(losses)                                                                               |  |             |      |   |      |  |      |      |  |  |      |   |  |      |        |   |      | 
|relating to benefit obligation                                                                                     |  | 2003        |      |   | 2004 |  |      | 2005 |  |  | 2003 |   |  | 2004 |        |   | 2005 |  |        | 2003 |  |  | 2004   |   |  | 2005 |     
|                                                                                                                   |  |             |      |   |      |  |      |      |  |  |      |   |  |      |        |   |      |  |        |      |  |  |        |   |  |      |     
|                                                                                                                   |  | ( million) |     
|At beginning of year                                                                                               |  |             | (20  | ) |      |  | (222 | )    |  |  | (259 | ) |  |      | (768   | ) |      |  | (1,423 | )    |  |  | (2,103 | ) |  |      | (20  | ) |  |  | (222 | ) |  |  | (259 | )
|Actuarial gains/(losses) during the year relating to benefit
    obligation due to changes in actuarial parameters |  |             | (190 | ) |      |  | (38  | )    |  |  | (31  | ) |  |      | (859   | ) |      |  | (736   | )    |  |  | (1,387 | ) |  |      | (190 | ) |  |  | (38  | ) |  |  | (31  | )
|Actuarial gains/(losses) during the year relating to benefit
    obligation due to changes in empirical data       |  |             | (42  | ) |      |  | (17  | )    |  |  | 31   |   |  |      | 174    |   |      |  | 31     |      |  |  | (35    | ) |  |      | (42  | ) |  |  | (17  | ) |  |  | 31   |  
|Changes due to mergers, acquisitions and divestitures                                                              |  |             |     |   |      |  |     |      |  |  |     |   |  |      |       |   |      |  |       |      |  |  |       |   |  |      |     |   |  |  |     |   |  |  |     |  
|Translation differences                                                                                            |  |             | 30   |   |      |  | 18   |      |  |  |     |   |  |      | 30     |   |      |  | 25     |      |  |  | (9     | ) |  |      | 30   |   |  |  | 18   |   |  |  |     |  
|                                                                                                                   |  |             |      |   |      |  |      |      |  |  |      |   |  |      |        |   |      |  |        |      |  |  |        |   |  |      |     
|At year end                                                                                                        |  |             | (222 | ) |      |  | (259 | )    |  |  | (259 | ) |  |      | (1,423 | ) |      |  | (2,103 | )    |  |  | (3,534 | ) |  |      | (222 | ) |  |  | (259 | ) |  |  | (259 | )
|                                                                                                                   |  |             |      |   |      |  |      |      |  |  |      |   |  |      |        |   |      |  |        |      |  |  |        |   |  |      |     

|                                                                 |  |             |     |   |      |  |     |      |  |  |      |   |  |      |        |   |      |  |        |      |  |  |      |   |  |      |     |   |  |  |     |   |  |  |     |  
|---------------------------------------------------------------- |  | ----------- | --- | - | ---- |  | --- | ---- |  |  | ---- | - |  | ---- | ------ | - | ---- |  | ------ | ---- |  |  | ---- | - |  | ---- | --- | - |  |  | --- | - |  |  | --- | -
|Accumulated actuarial gains/(losses)                             |  |             |     |   |      |  |     |      |  |  |      |   |  |      |        |   |      | 
|relating to plan assets                                          |  | 2003        |     |   | 2004 |  |     | 2005 |  |  | 2003 |   |  | 2004 |        |   | 2005 |  |        | 2003 |  |  | 2004 |   |  | 2005 |    
|                                                                 |  |             |     |   |      |  |     |      |  |  |      |   |  |      |        |   |      |  |        |      |  |  |      |   |  |      |    
|                                                                 |  | ( million) |    
|At beginning of year                                             |  |             | (92 | ) |      |  | (49 | )    |  |  | (36  | ) |  |      | (1,384 | ) |      |  | (1,050 | )    |  |  | (990 | ) |  |      | (92 | ) |  |  | (49 | ) |  |  | (36 | )
|Actuarial gains/(losses) relating to plan assets during the year |  |             | 29  |   |      |  | 11  |      |  |  | (5   | ) |  |      | 248    |   |      |  | 49     |      |  |  | 177  |   |  |      | 29  |   |  |  | 11  |   |  |  | (5  | )
|Changes due to mergers, acquisitions and divestitures            |  |             |    |   |      |  |    |      |  |  |     |   |  |      |       |   |      |  |       |      |  |  |     |   |  |      |    |   |  |  |    |   |  |  |    |  
|Translation differences                                          |  |             | 14  |   |      |  | 2   |      |  |  |     |   |  |      | 86     |   |      |  | 11     |      |  |  | (5   | ) |  |      | 14  |   |  |  | 2   |   |  |  |    |  
|                                                                 |  |             |     |   |      |  |     |      |  |  |      |   |  |      |        |   |      |  |        |      |  |  |      |   |  |      |    
|At year end                                                      |  |             | (49 | ) |      |  | (36 | )    |  |  | (41  | ) |  |      | (1,050 | ) |      |  | (990   | )    |  |  | (818 | ) |  |      | (49 | ) |  |  | (36 | ) |  |  | (41 | )
|                                                                 |  |             |     |   |      |  |     |      |  |  |      |   |  |      |        |   |      |  |        |      |  |  |      |   |  |      |    

|                                                      |  |             |   |  |      |  |   |      |  |  |      |  |  |      |       |  |      |  |       |      |  |  |       |  |  |      |   |  |  |  |   |  |  |  |   | 
|----------------------------------------------------- |  | ----------- | - |  | ---- |  | - | ---- |  |  | ---- |  |  | ---- | ----- |  | ---- |  | ----- | ---- |  |  | ----- |  |  | ---- | - |  |  |  | - |  |  |  | - | 
|Asset limitation due to uncertainty of                |  |             |   |  |      |  |   |      |  |  |      |  |  |      |       |  |      | 
|obtaining future benefits                             |  | 2003        |   |  | 2004 |  |   | 2005 |  |  | 2003 |  |  | 2004 |       |  | 2005 |  |       | 2003 |  |  | 2004  |  |  | 2005 |  
|                                                      |  |             |   |  |      |  |   |      |  |  |      |  |  |      |       |  |      |  |       |      |  |  |       |  |  |      |  
|                                                      |  | ( million) |  
|At beginning of year                                  |  |             |  |  |      |  |  |      |  |  |     |  |  |      | 1,058 |  |      |  | 1,065 |      |  |  | 1,067 |  |  |      |  |  |  |  |  |  |  |  |  | 
|Changes due to asset limitation during the year       |  |             |  |  |      |  |  |      |  |  |     |  |  |      | 7     |  |      |  | 2     |      |  |  | 8     |  |  |      |  |  |  |  |  |  |  |  |  | 
|Changes due to mergers, acquisitions and divestitures |  |             |  |  |      |  |  |      |  |  |     |  |  |      |      |  |      |  |      |      |  |  |      |  |  |      |  |  |  |  |  |  |  |  |  | 
|Translation differences                               |  |             |  |  |      |  |  |      |  |  |     |  |  |      |      |  |      |  |      |      |  |  |      |  |  |      |  |  |  |  |  |  |  |  |  | 
|                                                      |  |             |   |  |      |  |   |      |  |  |      |  |  |      |       |  |      |  |       |      |  |  |       |  |  |      |  
|At year end                                           |  |             |  |  |      |  |  |      |  |  |     |  |  |      | 1,065 |  |      |  | 1,067 |      |  |  | 1,075 |  |  |      |  |  |  |  |  |  |  |  |  | 
|                                                      |  |             |   |  |      |  |   |      |  |  |      |  |  |      |       |  |      |  |       |      |  |  |       |  |  |      |  



F-83



---



##### Table of Contents



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




|                                  |  |             |       |  
|--------------------------------- |  | ----------- | ----- | -
|                                  |  | ( million) |      
|                                  |  |             |      
|Balance at beginning of year      |  |             | 6,219 |  
|Currency effects                  |  |             | 99    |  
|Changes in scope of consolidation |  |             | 25    |  
|Allocations                       |  |             | 1,849 |  
|Utilisation                       |  |             | (615  | )
|Reversal                          |  |             | (403  | )
|                                  |  |             |      
|Balance at end of year            |  |             | 7,174 |  
|                                  |  |             |      

[29]     Other provisions




|                                         |  |               |       |          |               |  |       |       |          |  |         |  |  |  |       | 
|---------------------------------------- |  | ------------- | ----- | -------- | ------------- |  | ----- | ----- | -------- |  | ------- |  |  |  | ----- | 
|                                         |  | Dec. 31, 2004 |       |          | Dec. 31, 2005 | 
|                                         |  |               |       |          |               | 
|                                         |  |               |       | of which |               |  |       |       | of which | 
|                                         |  | Total         |       |          | current       |  |       | Total |          |  | current | 
|                                         |  |               |       |          |               |  |       |       |          |  |         | 
|                                         |  | ( million)   |      
|Provisions for taxes                     |  |               | 997   |          |               |  | 648   |       |          |  | 803     |  |  |  | 431   | 
|Provisions for personnel commitments     |  |               | 1,261 |          |               |  | 692   |       |          |  | 1,485   |  |  |  | 837   | 
|Provisions for environmental remediation |  |               | 249   |          |               |  | 41    |       |          |  | 279     |  |  |  | 81    | 
|Provisions for restructuring             |  |               | 163   |          |               |  | 152   |       |          |  | 92      |  |  |  | 83    | 
|Provisions for trade-related commitments |  |               | 593   |          |               |  | 587   |       |          |  | 648     |  |  |  | 641   | 
|Miscellaneous provisions                 |  |               | 648   |          |               |  | 587   |       |          |  | 1,042   |  |  |  | 936   | 
|                                         |  |               |       |          |               |  |       |       |          |  |         | 
|                                         |  |               | 3,911 |          |               |  | 2,707 |       |          |  | 4,349   |  |  |  | 3,009 | 
|                                         |  |               |       |          |               |  |       |       |          |  |         | 



|                       |               |               |       |       | 
|---------------------- | ------------- | ------------- | ----- | ----- | 
|                       |               | Dec. 31, 2004 |      
|                       |               |               |      
|                       |               | ( million)   |      
|Expected disbursements |               |               |       |      
|                       | 2005          |               |       | 2,707 | 
|                       | 2006          |               |       | 374   | 
|                       | 2007          |               |       | 63    | 
|                       | 2008          |               |       | 43    | 
|                       | 2009          |               |       | 30    | 
|                       | 2010 or later |               |       | 694   | 
|                       |               |               |      
|                       |               |               | 3,911 |      
|                       |               |               |      

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

F-84



---



##### Table of Contents



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




|                          |  |             |       |         |               |  |    |          |  |  |            |  |  |             |       |  |          |  |        |      |  |  |      |   |  |  |       | 
|------------------------- |  | ----------- | ----- | ------- | ------------- |  | -- | -------- |  |  | ---------- |  |  | ----------- | ----- |  | -------- |  | ------ | ---- |  |  | ---- | - |  |  | ----- | 
|                          |  |             |       | Changes |               |  |    |          |  |  |            |  |  |             |      
|                          |  | Jan. 1,     |       |         | in scope of   |  |    | Currency |  |  |            |  |  |             |       |  | Dec. 31, | 
|                          |  | 2005        |       |         | consolidation |  |    | effects  |  |  | Allocation |  |  | Utilization |       |  | Reversal |  |        | 2005 | 
|                          |  |             |       |         |               |  |    |          |  |  |            |  |  |             |       |  |          |  |        |      | 
|                          |  | ( million) |      
|Taxes                     |  |             | 997   |         |               |  | (7 | )        |  |  | 69         |  |  |             | 438   |  |          |  | (355   | )    |  |  | (339 | ) |  |  | 803   | 
|Personnel commitments     |  |             | 1,261 |         |               |  | 5  |          |  |  | 52         |  |  |             | 915   |  |          |  | (681   | )    |  |  | (67  | ) |  |  | 1,485 | 
|Environmental remediation |  |             | 249   |         |               |  |   |          |  |  | 16         |  |  |             | 53    |  |          |  | (30    | )    |  |  | (9   | ) |  |  | 279   | 
|Restructuring             |  |             | 163   |         |               |  |   |          |  |  | 10         |  |  |             | 70    |  |          |  | (124   | )    |  |  | (27  | ) |  |  | 92    | 
|Trade-related commitments |  |             | 593   |         |               |  |   |          |  |  | 57         |  |  |             | 969   |  |          |  | (898   | )    |  |  | (73  | ) |  |  | 648   | 
|Miscellaneous             |  |             | 648   |         |               |  | 11 |          |  |  | 60         |  |  |             | 829   |  |          |  | (417   | )    |  |  | (89  | ) |  |  | 1,042 | 
|                          |  |             |       |         |               |  |    |          |  |  |            |  |  |             |       |  |          |  |        |      | 
|Total                     |  |             | 3,911 |         |               |  | 9  |          |  |  | 264        |  |  |             | 3,274 |  |          |  | (2,505 | )    |  |  | (604 | ) |  |  | 4,349 | 
|                          |  |             |       |         |               |  |    |          |  |  |            |  |  |             |       |  |          |  |        |      | 

  




[29.1]     Stock-based
compensation












F-85



---



##### Table of Contents



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




|                                        |  |             |   |  |           |  |   |               |  |  |   | 
|--------------------------------------- |  | ----------- | - |  | --------- |  | - | ------------- |  |  | - | 
|                                        |  | Stock       |   |  | Stock     |  |   | Stock         | 
|                                        |  | Option      |   |  | Incentive |  |   | Participation | 
|                                        |  | Program     |   |  | Program   |  |   | Program       | 
|                                        |  |             |   |  |           |  |   |               | 
|                                        |  | ( million) |  
|Intrinsic value as of December 31, 2004 |  |             | 2 |  |           |  | 1 |               |  |  | 1 | 
|One-time remeasurement effect           |  |             | 1 |  |           |  | 1 |               |  |  | 5 | 
|                                        |  |             |   |  |           |  |   |               | 
|Fair value as of January 1, 2005        |  |             | 3 |  |           |  | 2 |               |  |  | 6 | 
|                                        |  |             |   |  |           |  |   |               | 



|                  |  |             |    |  |           |  |   |               |  |  |          |   |  |           |    |  |  |  |    | 
|----------------- |  | ----------- | -- |  | --------- |  | - | ------------- |  |  | -------- | - |  | --------- | -- |  |  |  | -- | 
|                  |  | Stock       |    |  | Stock     |  |   | Stock         |  |  |          |   | 
|                  |  | Option      |    |  | Incentive |  |   | Participation |  |  |          |   | 
|                  |  | Program     |    |  | Program   |  |   | Program       |  |  | Aspire I |   |  | Aspire II |   
|                  |  |             |    |  |           |  |   |               |  |  |          |   |  |           |   
|                  |  | ( million) |   
|January 1, 2005   |  |             | 3  |  |           |  | 2 |               |  |  | 6        |   |  |           |   |  |  |  |   | 
|Allocations       |  |             | 10 |  |           |  | 1 |               |  |  | 6        |   |  |           | 11 |  |  |  | 23 | 
|Utilization       |  |             |   |  |           |  |  |               |  |  |         |   |  |           |   |  |  |  |   | 
|Reversal          |  |             |   |  |           |  |  |               |  |  | (1       | ) |  |           |   |  |  |  |   | 
|                  |  |             |    |  |           |  |   |               |  |  |          |   |  |           |   
|December 31, 2005 |  |             | 13 |  |           |  | 3 |               |  |  | 11       |   |  |           | 11 |  |  |  | 23 | 
|                  |  |             |    |  |           |  |   |               |  |  |          |   |  |           |   

    







|                                                                  |  |  |       |  
|----------------------------------------------------------------- |  |  | ----- | -
|Dividend yield                                                    |  |  | 2.27  | %
|Risk-free interest rate                                           |  |  | 2.92  | %
|Volatility of Bayer stock                                         |  |  | 38.00 | %
|Volatility of the EURO STOXX
    50SM                             |  |  | 19.55 | %
|Correlation between Bayer stock price and the EURO STOXX
    50SM |  |  | 0.56  |  





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



SM


F-86



---



##### Table of Contents



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






| |                                                                  
| | -----------------------------------------------------------------
| | 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 (2005) for other managers
    and non-managerial employees





| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | up to 30 Bayer shares at a discount of
    6.75 per share
    and                             
|
| |  | additional Bayer shares at a 15 percent discount up to a
    maximum total value of
    2,500.






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
(2000-2004)






F-87



---



##### Table of Contents



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




SM







Stock Incentive Program
(2000-2004)




SM


Stock Participation Program
(2000-2004)




[29.2]     Environmental
Protection






F-88



---



##### Table of Contents



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




   




[29.3]     Restructuring
charges


    


 


  





 


F-89



---



##### Table of Contents



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


 


 


 


 


  


   




|                             |  |             |      |   |             |  |     |       |  |  |      |  
|---------------------------- |  | ----------- | ---- | - | ----------- |  | --- | ----- |  |  | ---- | -
|                             |  | Severance   |      |   |             |  |    
|                             |  | Payments    |      |   | Other Costs |  |     | Total | 
|                             |  |             |      |   |             |  |     |       | 
|                             |  | ( million) |     
|Balance at January 1, 2004   |  |             | 130  |   |             |  | 87  |       |  |  | 217  |  
|Additions                    |  |             | 73   |   |             |  | 17  |       |  |  | 90   |  
|Utilization                  |  |             | (97  | ) |             |  | (41 | )     |  |  | (138 | )
|Exchange differences         |  |             | (3   | ) |             |  | (3  | )     |  |  | (6   | )
|                             |  |             |      |   |             |  |     |       | 
|Balance at December 31, 2004 |  |             | 103  |   |             |  | 60  |       |  |  | 163  |  
|                             |  |             |      |   |             |  |     |       | 
|Additions                    |  |             | 50   |   |             |  | 20  |       |  |  | 70   |  
|Utilization                  |  |             | (121 | ) |             |  | (30 | )     |  |  | (151 | )
|Exchange differences         |  |             | 9    |   |             |  | 1   |       |  |  | 10   |  
|                             |  |             |      |   |             |  |     |       | 
|Balance at December 31, 2005 |  |             | 41   |   |             |  | 51  |       |  |  | 92   |  
|                             |  |             |      |   |             |  |     |       | 



F-90



---



##### Table of Contents



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


[30]     Financial liabilities




|                                                  |  |               |       |          |               |  |       |       |          |  |         |  |  |  |       | 
|------------------------------------------------- |  | ------------- | ----- | -------- | ------------- |  | ----- | ----- | -------- |  | ------- |  |  |  | ----- | 
|                                                  |  | Dec. 31, 2004 |       |          | Dec. 31, 2005 | 
|                                                  |  |               |       |          |               | 
|                                                  |  |               |       | of which |               |  |       |       | of which | 
|                                                  |  | Total         |       |          | current       |  |       | Total |          |  | current | 
|                                                  |  |               |       |          |               |  |       |       |          |  |         | 
|                                                  |  | ( million)   |      
|Debentures                                        |  |               | 6,885 |          |               |  | 376   |       |          |  | 6,953   |  |  |  | 336   | 
|Liabilities to banks                              |  |               | 480   |          |               |  | 363   |       |          |  | 703     |  |  |  | 602   | 
|Liabilities under lease agreements                |  |               | 419   |          |               |  | 55    |       |          |  | 468     |  |  |  | 61    | 
|Liabilities from the issuance of promissory notes |  |               | 112   |          |               |  | 112   |       |          |  | 1       |  |  |  | 1     | 
|Commercial paper                                  |  |               | 861   |          |               |  | 861   |       |          |  | 174     |  |  |  | 174   | 
|Liabilities from derivative financial instruments |  |               | 69    |          |               |  | 49    |       |          |  | 168     |  |  |  | 111   | 
|Other financial liabilities                       |  |               | 365   |          |               |  | 350   |       |          |  | 485     |  |  |  | 482   | 
|                                                  |  |               |       |          |               |  |       |       |          |  |         | 
|                                                  |  |               | 9,191 |          |               |  | 2,166 |       |          |  | 8,952   |  |  |  | 1,767 | 
|                                                  |  |               |       |          |               |  |       |       |          |  |         | 



|            |               |               |       |       | 
|----------- | ------------- | ------------- | ----- | ----- | 
|            |               | Dec. 31, 2004 |      
|            |               |               |      
|            |               | ( million)   |      
|Maturing in |               |               |       |      
|            | 2005          |               |       | 2,166 | 
|            | 2006          |               |       | 365   | 
|            | 2007          |               |       | 3,067 | 
|            | 2008          |               |       | 47    | 
|            | 2009          |               |       | 683   | 
|            | 2010 or later |               |       | 2,863 | 
|            |               |               |      
|            |               |               | 9,191 |      
|            |               |               |      

|            |               |               |       |       | 
|----------- | ------------- | ------------- | ----- | ----- | 
|            |               | Dec. 31, 2005 |      
|            |               |               |      
|            |               | ( million)   |      
|Maturing in |               |               |       |      
|            | 2006          |               |       | 1,767 | 
|            | 2007          |               |       | 2,152 | 
|            | 2008          |               |       | 262   | 
|            | 2009          |               |       | 486   | 
|            | 2010          |               |       | 36    | 
|            | 2011 or later |               |       | 4,249 | 
|            |               |               |      
|            |               |               | 8,952 |      
|            |               |               |      

 


 


 




F-91



---



##### Table of Contents



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




|                          |          |  |        |  |          |  |  |                                   |  |                   |  |  |          |  |  |  |       | 
|------------------------- | -------- |  | ------ |  | -------- |  |  | --------------------------------- |  | ----------------- |  |  | -------- |  |  |  | ----- | 
|Effective                 |          |  | Stated |  |          |  |  |                                   |  | Dec. 31,          |  |  | Dec. 31, | 
|Rate                      |          |  | Rate   |  |          |  |  | Nominal Volume                    |  | 2004              |  |  | 2005     | 
|                          |          |  |        |  |          |  |  |                                   |  |                   |  |  |          | 
|                          |          |  |        |  |          |  |  | ( million)                       | 
|Bayer AG                  |          |  |        |  |          |  |  |                                   |  |                  
|                          | 5.515%   |  |        |  | 5.375%   |  |  | Eurobonds 2002/2007               |  | EUR 2,137 million |  |  | 3,018    |  |  |  | 2,098 | 
|                          | 6.075%   |  |        |  | 6.000%   |  |  | Eurobonds 2002/2012               |  | EUR 2,000 million |  |  | 2,129    |  |  |  | 2,104 | 
|                          | 5.155%   |  |        |  | 5.000%   |  |  | Hybrid bonds 2005/2105 (2015)     |  | EUR 1,300 million |  |  |         |  |  |  | 1,268 | 
|                          | 3.500%   |  |        |  | 3.500%   |  |  | Bonds Private Placement 2003/2005 |  | EUR 15 million    |  |  | 15       |  |  |  |      | 
|                          | variable |  |        |  | variable |  |  | Bonds Private Placement 2003/2006 |  | EUR 250 million   |  |  | 250      |  |  |  | 250   | 
|                          | 2.470%   |  |        |  | 2.470%   |  |  | Bonds Private Placement 2004/2005 |  | EUR 25 million    |  |  | 25       |  |  |  |      | 
|                          | variable |  |        |  | variable |  |  | Bonds Private Placement 2004/2006 |  | EUR 50 million    |  |  | 50       |  |  |  | 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 Corporation |          |  |        |  |          |  |  |                                   |  |                  
|                          | variable |  |        |  | variable |  |  | Bonds Private Placement 2002/2005 |  | EUR 65 million    |  |  | 65       |  |  |  |      | 
|Bayer Corporation         |          |  |        |  |          |  |  |                                   |  |                  
|                          | 7.180%   |  |        |  | 7.125%   |  |  | Notes 1995/2015                   |  | USD 200 million   |  |  | 145      |  |  |  | 164   | 
|                          | 6.670%   |  |        |  | 6.650%   |  |  | Notes 1998/2028                   |  | USD 350 million   |  |  | 257      |  |  |  | 294   | 
|                          | 6.210%   |  |        |  | 6.200%   |  |  | Bonds 1998/2028 (2008)            |  | USD 250 million   |  |  | 184      |  |  |  | 213   | 
|                          | 4.043%   |  |        |  | 3.750%   |  |  | Bonds Private Placement 2004/2009 |  | EUR 460 million   |  |  | 456      |  |  |  | 456   | 
|Bayer Ltd., Japan         |          |  |        |  |          |  |  |                                   |  |                  
|                          | 3.750%   |  |        |  | 3.750%   |  |  | Bonds 2000/2005                   |  | CHF 400 million   |  |  | 271      |  |  |  |      | 
|                          |          |  |        |  |          |  |  |                                   |  |                   |  |  |          | 
|                          |          |  |        |  |          |  |  |                                   |  |                   |  |  | 6,885    |  |  |  | 6,953 | 
|                          |          |  |        |  |          |  |  |                                   |  |                   |  |  |          | 

     


 (3-month


 


F-92



---



##### Table of Contents



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


  













     


   


F-93



---



##### Table of Contents



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




|               |               |               |     |     | 
|-------------- | ------------- | ------------- | --- | --- | 
|               |               | Dec. 31, 2004 |    
|               |               |               |    
|               |               | ( million)   |    
|Lease payments |               |               |     |    
|Maturing in    |               |               |     |    
|               | 2005          |               |     | 76  | 
|               | 2006          |               |     | 71  | 
|               | 2007          |               |     | 38  | 
|               | 2008          |               |     | 31  | 
|               | 2009          |               |     | 21  | 
|               | 2010 or later |               |     | 311 | 
|               |               |               |    
|               |               |               | 548 |    
|               |               |               |    

|                   |               |             |     |    | 
|------------------ | ------------- | ----------- | --- | -- | 
|                   |               | ( million) |    
|                   |               |             |    
|Interest component |               |             |     |   
|Maturing in        |               |             |     |   
|                   | 2005          |             |     | 21 | 
|                   | 2006          |             |     | 17 | 
|                   | 2007          |             |     | 15 | 
|                   | 2008          |             |     | 14 | 
|                   | 2009          |             |     | 9  | 
|                   | 2010 or later |             |     | 53 | 
|                   |               |             |    
|                   |               |             | 129 |   
|                   |               |             |    

|                                 |               |             |     |     | 
|-------------------------------- | ------------- | ----------- | --- | --- | 
|                                 |               | ( million) |    
|                                 |               |             |    
|Liabilities under finance leases |               |             |     |    
|Maturing in                      |               |             |     |    
|                                 | 2005          |             |     | 55  | 
|                                 | 2006          |             |     | 54  | 
|                                 | 2007          |             |     | 23  | 
|                                 | 2008          |             |     | 17  | 
|                                 | 2009          |             |     | 12  | 
|                                 | 2010 or later |             |     | 258 | 
|                                 |               |             |    
|                                 |               |             | 419 |    
|                                 |               |             |    

|               |               |               |     |     | 
|-------------- | ------------- | ------------- | --- | --- | 
|               |               | 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 |    
|                                 |               |             |    

 


[31]     Trade accounts payable


         


F-94



---



##### Table of Contents



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


[32]     Miscellaneous
liabilities




|                                                         |  |               |       |          |               |  |       |       |          |  |         |  |  |  |       | 
|-------------------------------------------------------- |  | ------------- | ----- | -------- | ------------- |  | ----- | ----- | -------- |  | ------- |  |  |  | ----- | 
|                                                         |  | Dec. 31, 2004 |       |          | Dec. 31, 2005 | 
|                                                         |  |               |       |          |               | 
|                                                         |  |               |       | of which |               |  |       |       | of which | 
|                                                         |  | Total         |       |          | current       |  |       | Total |          |  | current | 
|                                                         |  |               |       |          |               |  |       |       |          |  |         | 
|                                                         |  | ( million)   |      
|Accrued interest on liabilities                          |  |               | 292   |          |               |  | 292   |       |          |  | 424     |  |  |  | 424   | 
|Payroll liabilities                                      |  |               | 298   |          |               |  | 223   |       |          |  | 232     |  |  |  | 162   | 
|Liabilities for social expenses                          |  |               | 136   |          |               |  | 125   |       |          |  | 115     |  |  |  | 114   | 
|License liabilities                                      |  |               | 42    |          |               |  | 42    |       |          |  | 33      |  |  |  | 33    | 
|Advance payments received                                |  |               | 26    |          |               |  | 25    |       |          |  | 30      |  |  |  | 30    | 
|Liabilities from the acceptance of drafts                |  |               | 5     |          |               |  | 5     |       |          |  | 3       |  |  |  | 2     | 
|Liabilities from commodity futures contracts             |  |               | 31    |          |               |  | 7     |       |          |  | 209     |  |  |  | 6     | 
|Deferred income                                          |  |               | 603   |          |               |  | 530   |       |          |  | 511     |  |  |  | 362   | 
|Long-term capital contributions of minority stockholders |  |               |      |          |               |  |      |       |          |  | 39      |  |  |  |      | 
|Other miscellaneous liabilities                          |  |               | 688   |          |               |  | 669   |       |          |  | 936     |  |  |  | 883   | 
|                                                         |  |               |       |          |               |  |       |       |          |  |         | 
|                                                         |  |               | 2,121 |          |               |  | 1,918 |       |          |  | 2,532   |  |  |  | 2,016 | 
|                                                         |  |               |       |          |               |  |       |       |          |  |         | 

 




   







 


   




F-95



---



##### Table of Contents



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


[33]     Financial Instruments


[33.1]     Management
of financial and commodity price risks








Currency risk








Interest rate risk






Credit risk






F-96



---



##### Table of Contents



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


Raw Materials, Commodity and
Energy Price Risks




[33.2]     Primary
financial instruments






 




|       |                                                                               
|------ | ------------------------------------------------------------------------------
|[33.3] | Economic hedges and hedge accounting with derivative
    financial instruments









F-97



---



##### Table of Contents



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




|                                                     |                           |               |        |            |               |  |     |            |            |  |          |     |   |            |        |       |            |  |     |    |  |  |      |      |  
|---------------------------------------------------- | ------------------------- | ------------- | ------ | ---------- | ------------- |  | --- | ---------- | ---------- |  | -------- | --- | - | ---------- | ------ | ----- | ---------- |  | --- | -- |  |  | ---- | ---- | -
|                                                     |                           | Dec. 31, 2004 |        |            | Dec. 31, 2005 | 
|                                                     |                           |               |        |            |               | 
|                                                     |                           |               |        | 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 realized transactions            |                           |               | 5,854  |            |               |  | 505 |            |            |  | (45      | )   |   |            | 4,759  |       |            |  | 18  |    |  |  | (105 | )   
|                                                     |                           |               |        |            |               |  |     |            |            |  |          |     |   |            |        |       |            | 
|Forward exchange contracts                           |                           |               | 4,420  |            |               |  | 108 |            |            |  | (45      | )   |   |            | 3,600  |       |            |  | 15  |    |  |  | (34  | )   
|of which FV hedges                                   |                           |               | 75     |            |               |  |    |            |            |  | (3       | )   |   |            |       |       |            |  |    |    |  |  |     |     
|of which CF hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |     |   |            |       |       |            |  |    |    |  |  |     |     
|Currency options                                     |                           |               | 20     |            |               |  | 1   |            |            |  |         |     |   |            | 44     |       |            |  | 1   |    |  |  | (1   | )   
|of which FV hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |     |   |            |       |       |            |  |    |    |  |  |     |     
|of which CF hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |     |   |            |       |       |            |  |    |    |  |  |     |     
|Cross-currency interest-rate swaps                   |                           |               | 1,414  |            |               |  | 396 |            |            |  |         |     |   |            | 1,115  |       |            |  | 2   |    |  |  | (70  | )   
|of which FV hedges                                   |                           |               | 182    |            |               |  | 92  |            |            |  |         |     |   |            |       |       |            |  |    |    |  |  |     |     
|of which CF hedges                                   |                           |               | 459    |            |               |  | 45  |            |            |  |         |     |   |            | 460    |       |            |  |    |    |  |  | (10  | )   
|                                                     |                           |               |        |            |               |  |     |            |            |  |          |     |   |            |        |       |            | 
|Currency hedging of forecasted transactions          |                           |               | 479    |            |               |  | 31  |            |            |  | (1       | )   |   |            | 942    |       |            |  | 10  |    |  |  | (40  | )   
|                                                     |                           |               |        |            |               |  |     |            |            |  |          |     |   |            |        |       |            | 
|Forward exchange contracts                           |                           |               | 376    |            |               |  | 22  |            |            |  | (1       | )   |   |            | 817    |       |            |  | 5   |    |  |  | (33  | )   
|of which FV hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |     |   |            |       |       |            |  |    |    |  |  |     |     
|of which CF hedges                                   |                           |               | 371    |            |               |  | 22  |            |            |  | (1       | )   |   |            | 809    |       |            |  | 5   |    |  |  | (33  | )   
|Currency options                                     |                           |               | 103    |            |               |  | 9   |            |            |  |         |     |   |            | 125    |       |            |  | 5   |    |  |  | (7   | )   
|of which FV hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |     |   |            |       |       |            |  |    |    |  |  |     |     
|of which CF hedges                                   |                           |               | 103    |            |               |  | 9   |            |            |  |         |     |   |            | 93     |       |            |  | 3   |    |  |  | (7   | )   
|                                                     |                           |               |        |            |               |  |     |            |            |  |          |     |   |            |        |       |            | 
|Interest rate hedging of realized transactions       |                           |               | 5,791  |            |               |  | 198 |            |            |  | (49      | )   |   |            | 11,327 |       |            |  | 174 |    |  |  | (66  | )   
|                                                     |                           |               |        |            |               |  |     |            |            |  |          |     |   |            |        |       |            | 
|Interest rate swaps                                  |                           |               | 5,791  |            |               |  | 198 |            |            |  | (49      | )   |   |            | 10,327 |       |            |  | 172 |    |  |  | (65  | )   
|of which FV hedges                                   |                           |               | 4,104  |            |               |  | 176 |            |            |  | (1       | )   |   |            | 5,533  |       |            |  | 30  |    |  |  | (31  | )   
|of which CF hedges                                   |                           |               | 575    |            |               |  |    |            |            |  | (29      | )   |   |            |       |       |            |  |    |    |  |  |     |     
|Interest rate options                                |                           |               |       |            |               |  |    |            |            |  |         |     |   |            | 1,000  |       |            |  | 2   |    |  |  | (1   | )   
|of which FV hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |     |   |            |       |       |            |  |    |    |  |  |     |     
|of which CF hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |     |   |            |       |       |            |  |    |    |  |  |     |     
|                                                     |                           |               |        |            |               |  |     |            |            |  |          |     |   |            |        |       |            | 
|Commodity price hedging                              |                           |               | 802    |            |               |  | 59  |            |            |  | (31      | )   |   |            | 465    |       |            |  | 280 |    |  |  | (209 | )   
|                                                     |                           |               |        |            |               |  |     |            |            |  |          |     |   |            |        |       |            | 
|Forward commodity contracts                          |                           |               | 802    |            |               |  | 59  |            |            |  | (31      | )   |   |            | 416    |       |            |  | 210 |    |  |  | (125 | )   
|of which FV hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |     |   |            |       |       |            |  |    |    |  |  |     |     
|of which CF hedges                                   |                           |               | 10     |            |               |  | 2   |            |            |  |         |     |   |            | 168    |       |            |  | 71  |    |  |  | (1   | )   
|Commodity option contracts                           |                           |               |       |            |               |  |    |            |            |  |         |     |   |            | 49     |       |            |  | 70  |    |  |  | (84  | )   
|of which FV hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |     |   |            |       |       |            |  |    |    |  |  |     |     
|of which CF hedges                                   |                           |               |       |            |               |  |    |            |            |  |         |     |   |            |       |       |            |  |    |    |  |  |     |     
|                                                     |                           |               |        |            |               |  |     |            |            |  |          |     |   |            |        |       |            | 
|Total                                                |                           |               | 12,926 |            |               |  | 793 |            |            |  | (126     | )   |   |            | 17,493 |       |            |  | 482 |    |  |  | (420 | )   
|                                                     |                           |               |        |            |               |  |     |            |            |  |          |     |   |            |        |       |            | 
|of which short-term derivative financial instruments |                           |               | 6,468  |            |               |  | 547 |            |            |  | (54      | )   |   |            | 5,443  |       |            |  | 116 |    |  |  | (161 | )   
|                                                     | for currency hedging      |               |        | 5,864      |               |  |     | 488        |            |  |          | (46 | ) |            |        | 4,872 |            |  |     | 29 |  |  |      | (155 | )
|                                                     | for interest rate hedging |               |        | 109        |               |  |     | 26         |            |  |          | (1  | ) |            |        | 350   |            |  |     |   |  |  |      |     |  
|                                                     | for commodity hedging     |               |        | 495        |               |  |     | 33         |            |  |          | (7  | ) |            |        | 221   |            |  |     | 87 |  |  |      | (6   | )

F-98



---



##### Table of Contents



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


Fair value hedges


  


 




Cash flow hedges


   


     





[34]     Commitments and
contingencies





|                                  |  |               |     |  |               |  |     | 
|--------------------------------- |  | ------------- | --- |  | ------------- |  | --- | 
|                                  |  | Dec. 31, 2004 |     |  | Dec. 31, 2005 | 
|                                  |  |               |     |  |               | 
|                                  |  | ( million)   |    
|Issuance and endorsement of bills |  |               | 7   |  |               |  | 12  | 
|Guarantees                        |  |               | 70  |  |               |  | 93  | 
|Other commitments                 |  |               | 117 |  |               |  | 72  | 
|                                  |  |               |     |  |               | 
|                                  |  |               | 194 |  |               |  | 177 | 
|                                  |  |               |     |  |               | 





F-99



---



##### Table of Contents



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








 


|              |  |               |     | 
|------------- |  | ------------- | --- | 
|              |  | Dec. 31, 2004 |    
|              |  |               |    
|Maturing in   |  | ( million)   |    
|2005          |  |               | 96  | 
|2006          |  |               | 80  | 
|2007          |  |               | 69  | 
|2008          |  |               | 59  | 
|2009          |  |               | 51  | 
|2010 or later |  |               | 86  | 
|              |  |               |    
|              |  |               | 441 | 
|              |  |               |    

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

 





 


|              |  |               |     | 
|------------- |  | ------------- | --- | 
|              |  | Dec. 31, 2004 |    
|              |  |               |    
|Maturing in   |  | ( million)   |    
|2005          |  |               | 193 | 
|2006          |  |               | 153 | 
|2007          |  |               | 165 | 
|2008          |  |               | 76  | 
|2009          |  |               | 93  | 
|2010 or later |  |               | 167 | 
|              |  |               |    
|              |  |               | 847 | 
|              |  |               |    

|              |  |               |     | 
|------------- |  | ------------- | --- | 
|              |  | Dec. 31, 2005 |    
|              |  |               |    
|Maturing in   |  | ( million)   |    
|2006          |  |               | 109 | 
|2007          |  |               | 111 | 
|2008          |  |               | 82  | 
|2009          |  |               | 93  | 
|2010          |  |               | 85  | 
|2011 or later |  |               | 82  | 
|              |  |               |    
|              |  |               | 562 | 
|              |  |               |    

F-100



---



##### Table of Contents



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


[35]     Legal risks






Lipobay/ Baycol:




 




PPA:









F-101



---



##### Table of Contents



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


Lipobay/ Baycol
and PPA




Cipro®: ®




Rubber, polyester polyols, urethane:


Proceedings involving the
former rubber-related lines of business







Proceedings involving
polyester polyols, urethanes and urethane chemicals






F-102



---



##### Table of Contents



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


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




Impact of antitrust
proceedings on Bayer


  








Patent and contractual disputes: ®


® ®


®




F-103



---



##### Table of Contents



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




Product liability and other litigation:








®




[36]     Net cash provided by
operating activities


   F-7.         


[37]     Net cash used in investing
activities


               


F-104



---



##### Table of Contents



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


   


[38]     Net cash used in financing
activities


          


[39]     Cash and cash equivalents
at end of year


     





Other information


[40]     Audit fees





|                                                    |  |             |   | 
|--------------------------------------------------- |  | ----------- | - | 
|                                                    |  | 2005        |  
|                                                    |  |             |  
|                                                    |  | ( million) |  
|Financial statements auditing                       |  |             | 5 | 
|Audit-related services and other audit work         |  |             | 3 | 
|Tax consultancy                                     |  |             |  | 
|Other services rendered to Bayer AG or subsidiaries |  |             | 1 | 
|                                                    |  |             |  
|                                                    |  |             | 9 | 
|                                                    |  |             |  



[41]     Related Parties




F-105



---



##### Table of Contents



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






|                   |  |             |      |   |      |  |      |  
|------------------ |  | ----------- | ---- | - | ---- |  | ---- | -
|                   |  | 2004        |      |   | 2005 | 
|                   |  |             |      |   |      | 
|                   |  | ( million) |     
|Revenue            |  |             | 123  |   |      |  | 229  |  
|Purchased services |  |             | (365 | ) |      |  | (378 | )
|Receivables        |  |             | 102  |   |      |  | 98   |  
|Liabilities        |  |             | (87  | ) |      |  | (68  | )

 




[42]     Total remuneration of the
Board of Management and the Supervisory Board, advances and
loans


          











F-106



---



##### Table of Contents



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




|                 |  |             |           |       |            |  |          |              |  |             |                |                          |             |           |             |              |        |                |           |         |  |  |           |  |  |  |         | 
|---------------- |  | ----------- | --------- | ----- | ---------- |  | -------- | ------------ |  | ----------- | -------------- | ------------------------ | ----------- | --------- | ----------- | ------------ | ------ | -------------- | --------- | ------- |  |  | --------- |  |  |  | ------- | 
|                 |  |             |           |       |            |  |          |              |  |             |                | Stock-Based Compensation |            
|                 |  |             |           |       |            |  |          |              |  |             |                |                          |            
|                 |  |             |           |       |            |  |          |              |  |             |                |                          |             | Change in |            
|                 |  |             |           |       |            |  |          |              |  |             |                |                          |             | Value of  |            
|                 |  |             |           |       |            |  |          | Remuneration |  |             |                |                          | Entitlement |           |             | Entitlements |       
|                 |  |             |           | Fixed |            |  | Variable |              |  | in Kind and |                |                          |             |           | Acquired in |              |        | Acquired Prior |          
|                 |  | Base Salary |           |       | Supplement |  |          | Bonus        |  |             | Other Payments |                          |             | Total     |             |              | 2005   |                |           | to 2005 | 
|                 |  |             |           |       |            |  |          |              |  |             |                |                          |             |           |             |              |        |                |           |         | 
|                 |  | (In )      |           |       | (In )     |  |          | (In )       |  |             | (In )         |                          |             | (In )    |             |              | (In ) |                |           | (In )  | 
|Klaus Kühn       |  |             | 412,236   |       |            |  | 170,647  |              |  |             | 843,713        |                          |             |           | 35,266      |              |        |                | 1,461,862 |         |  |  | 285,748   |  |  |  | 99,693  | 
|Dr. Udo Oels     |  |             | 412,236   |       |            |  | 170,647  |              |  |             | 843,713        |                          |             |           | 41,942      |              |        |                | 1,468,538 |         |  |  | 285,748   |  |  |  | 99,693  | 
|Dr. Richard Pott |  |             | 412,236   |       |            |  | 170,647  |              |  |             | 843,713        |                          |             |           | 39,044      |              |        |                | 1,465,640 |         |  |  | 284,248   |  |  |  | 98,055  | 
|Werner Wenning   |  |             | 748,872   |       |            |  | 325,132  |              |  |             | 1,554,615      |                          |             |           | 40,169      |              |        |                | 2,668,788 |         |  |  | 495,504   |  |  |  | 169,289 | 
|                 |  |             |           |       |            |  |          |              |  |             |                |                          |             |           |             |              |        |                |           |         | 
|                 |  |             | 1,985,580 |       |            |  | 837,073  |              |  |             | 4,085,754      |                          |             |           | 156,421     |              |        |                | 7,064,828 |         |  |  | 1,351,248 |  |  |  | 466,730 | 
|                 |  |             |           |       |            |  |          |              |  |             |                |                          |             |           |             |              |        |                |           |         | 

 










   


   




F-107



---



##### Table of Contents



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


[43]     Subsequent events




® ® 






®


®


® ® ® ® ® ®


®




F-108



---



##### Table of Contents



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


Product liability
proceedings


Cerivastatin litigation


U.S. litigation.




Litigation in other countries.


Impact of cerivastatin litigation on Bayer.


HIV/HCV-related actions.


Phenylpropanolamine (PPA)
litigation






Proceeding involving
moxifloxacin


® ® ®


Antitrust proceedings


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


Government investigation.


F-109



---



##### Table of Contents



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




[44]     U.S. GAAP
information




|                                                                |  |       |   |             |      |  |             |      |  |             |      |   |                    |      |       |   |  |  |       |  
|--------------------------------------------------------------- |  | ----- | - | ----------- | ---- |  | ----------- | ---- |  | ----------- | ---- | - | ------------------ | ---- | ----- | - |  |  | ----- | -
|                                                                |  | Notes |   |             | 2003 |  |             | 2004 |  |             | 2005 |   |                    | 2005 |      
|                                                                |  |       |   |             |      |  |             |      |  |             |      |   |                    |      |      
|                                                                |  |       |   | ( million) |      |  | ( million) |      |  | ( million) |      |   | (U.S.$ million(*)) |     
|Net income (loss) reported under IFRS                           |  |       |   |             |      |  | (1,291      | )    |  |             | 682  |   |                    |      | 1,595 |   |  |  | 1,889 |  
|Business combinations                                           |  |       | a |             |      |  | 28          |      |  |             | 192  |   |                    |      | (4    | ) |  |  | (5    | )
|Pensions and other post-employment benefits                     |  |       | b |             |      |  | (121        | )    |  |             | (325 | ) |                    |      | (450  | ) |  |  | (532  | )
|In-process research and development                             |  |       | c |             |      |  | 12          |      |  |             | 38   |   |                    |      | 8     |   |  |  | 9     |  
|Asset impairment                                                |  |       | d |             |      |  | (360        | )    |  |             | (7   | ) |                    |      | 23    |   |  |  | 27    |  
|Early retirement program                                        |  |       | e |             |      |  | 178         |      |  |             | (58  | ) |                    |      | (20   | ) |  |  | (24   | )
|Revaluation surplus                                             |  |       | f |             |      |  |            |      |  |             |     |   |                    |      | 4     |   |  |  | 5     |  
|Minority interest                                               |  |       | g |             |      |  | (12         | )    |  |             | 3    |   |                    |      | 2     |   |  |  | 2     |  
|Other                                                           |  |       | h |             |      |  | (13         | )    |  |             | (14  | ) |                    |      | (12   | ) |  |  | (14   | )
|Deferred tax effect on U.S. GAAP adjustments                    |  |       |   |             |      |  | 134         |      |  |             | 142  |   |                    |      | 181   |   |  |  | 214   |  
|                                                                |  |       |   |             |      |  |             |      |  |             |      |   |                    |      |      
|Net income (loss) reported under U.S. GAAP                      |  |       |   |             |      |  | (1,445      | )    |  |             | 653  |   |                    |      | 1,327 |   |  |  | 1,571 |  
|                                                                |  |       |   |             |      |  |             |      |  |             |      |   |                    |      |      
|Basic and diluted earnings (loss) per share under
    U.S. GAAP |  |       |   |             |      |  | (1.98       | )    |  |             | 0.89 |   |                    |      | 1.82  |   |  |  | 2.15  |  
|                                                                |  |       |   |             |      |  |             |      |  |             |      |   |                    |      |      

|                                              |  |       |   |              |      |  |             |      |  |                    |        |   |  |  |        |  
|--------------------------------------------- |  | ----- | - | ------------ | ---- |  | ----------- | ---- |  | ------------------ | ------ | - |  |  | ------ | -
|                                              |  |       |   | December 31, |     
|                                              |  |       |   |              |     
|                                              |  | Notes |   |              | 2004 |  |             | 2005 |  |                    | 2005   |  
|                                              |  |       |   |              |      |  |             |      |  |                    |        |  
|                                              |  |       |   | ( million)  |      |  | ( million) |      |  | (U.S.$ million(*)) |       
|Stockholders equity reported under IFRS      |  |       |   |              |      |  | 10,943      |      |  |                    | 11,157 |   |  |  | 13,212 |  
|Business combinations                         |  |       | a |              |      |  | 1,003       |      |  |                    | 1,013  |   |  |  | 1,200  |  
|Pensions and other post-employment benefits   |  |       | b |              |      |  | 2,317       |      |  |                    | 691    |   |  |  | 818    |  
|In-process research and development           |  |       | c |              |      |  | (93         | )    |  |                    | (87    | ) |  |  | (103   | )
|Asset impairment                              |  |       | d |              |      |  | (162        | )    |  |                    | (138   | ) |  |  | (163   | )
|Early retirement program                      |  |       | e |              |      |  | 151         |      |  |                    | 101    |   |  |  | 120    |  
|Revaluation surplus                           |  |       | f |              |      |  | (66         | )    |  |                    | (62    | ) |  |  | (73    | )
|Minority interest                             |  |       | g |              |      |  | (111        | )    |  |                    | (80    | ) |  |  | (95    | )
|Other                                         |  |       | h |              |      |  | 28          |      |  |                    | 19     |   |  |  | 21     |  
|Deferred tax effect on U.S. GAAP adjustments  |  |       |   |              |      |  | (964        | )    |  |                    | (267   | ) |  |  | (316   | )
|                                              |  |       |   |              |      |  |             |      |  |                    |        |  
|Stockholders equity reported under U.S. GAAP |  |       |   |              |      |  | 13,046      |      |  |                    | 12,347 |   |  |  | 14,621 |  
|                                              |  |       |   |              |      |  |             |      |  |                    |        |  

F-110



---



##### Table of Contents



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


|                                                                                                                                                        |  |              |        |   |             |  |        |                    |  |  |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------ | - | ----------- |  | ------ | ------------------ |  |  | ------ | -
|                                                                                                                                                        |  | December 31, |       
|                                                                                                                                                        |  |              |       
|                                                                                                                                                        |  | 2004         |        |   | 2005        |  |        | 2005               | 
|                                                                                                                                                        |  |              |        |   |             |  |        |                    | 
|                                                                                                                                                        |  | ( million)  |        |   | ( million) |  |        | (U.S.$ million(*)) | 
|Components of stockholders equity in accordance with
    U.S. GAAP:                                                                                    |  |              |        |   |             |  |        |                    |  |  |        |  
|Capital stock of Bayer AG                                                                                                                               |  |              | 1,870  |   |             |  | 1,870  |                    |  |  | 2,215  |  
|Capital reserves of Bayer AG                                                                                                                            |  |              | 2,942  |   |             |  | 2,942  |                    |  |  | 3,484  |  
|Retained earnings                                                                                                                                       |  |              | 10,968 |   |             |  | 10,224 |                    |  |  | 12,107 |  
|Accumulated other comprehensive income:                                                                                                                 |  |              |        |   |             |  |        |                    |  |  |        |  
| Unrealized market value adjustment on securities
    available for sale (net of taxes of
    (2) million,
    (7) million
    and U.S.$(8) million) |  |              | 25     |   |             |  | 28     |                    |  |  | 33     |  
| Unrealized market value adjustment on cash flow
    hedges (net of taxes of
    (11) million,
    (6) million
    and U.S.$(7) million)             |  |              | 17     |   |             |  | 11     |                    |  |  | 13     |  
| Additional minimum pension liability (net of taxes
    of
    415 million,
    1,289 million
    and U.S.$1,526 million)                            |  |              | (609   | ) |             |  | (1,920 | )                  |  |  | (2,274 | )
|Translation differences                                                                                                                                 |  |              | (2,167 | ) |             |  | (808   | )                  |  |  | (957   | )
|                                                                                                                                                        |  |              |        |   |             |  |        |                    | 
|Total                                                                                                                                                   |  |              | 13,046 |   |             |  | 12,347 |                    |  |  | 14,621 |  
|                                                                                                                                                        |  |              |        |   |             |  |        |                    | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(*) | The 2005 U.S. dollar figures have been translated at an
    exchange rate of
    1.0000 =
    U.S.$1.1842 which is the noon buying rate of the Federal Reserve
    Bank of New York on December 31, 2005. 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



---



##### Table of Contents



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


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. Under U.S. GAAP, these
    differences are recognized in the income statement only when
    they exceed 10 percent of the greater of the projected benefit
    plan obligation or the market-related value of plan assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | 2. Under SFAS No. 87, an additional minimum
    liability may be required to be recognized in certain instances
    when the accumulated benefit obligation exceeds the fair value
    of plan assets. If an additional minimum liability is
    recognized, a contra amount is recognized first as an intangible
    asset up to the amount of unrecognized prior service costs, with
    any excess being reported in other comprehensive income. Such
    requirement does not exist under IFRS. In 2005, 2004 and 2003,
    the recognition of an additional minimum liability of
    3,265 million,
    1,024 million
    and
    637 million,
    respectively, resulted in the recognition of an intangible asset
    in the amount of
    56 million,
    nil and
    nil,
    respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | 3. Under U.S. GAAP, the Company amortized over the
    remaining average service lives of employees the unrecognized
    transition obligation of
    238 million
    that resulted from the adoption of SFAS No. 87 in
    1994. As of December 31, 2003 the unrecognized transition
    obligation from 1994 was fully amortized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | 4. 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 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
    (13 years). The related adjustment recorded in 2004
    amounted to
    139 million
    and reflects the reversal of prior service costs and
    curtailments recognized under IFRS within other operating
    income 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 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
    of income recognized under IFRS in other operating
    income in connection with plan amendments in 2004 have
    been reversed under U.S. GAAP.
|
| | 5. 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
    were recognized in other operating income as a
    result of these                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F-112



---



##### Table of Contents



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




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | changes. However, for U.S. GAAP purposes,
    308 million
    of the gains recognized under IFRS have been reversed, as the
    gains were partially offset by existing unrecognized 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.

 




|                                                                           |  |             |        |   |      |  |        |  
|-------------------------------------------------------------------------- |  | ----------- | ------ | - | ---- |  | ------ | -
|                                                                           |  | 2004        |        |   | 2005 | 
|                                                                           |  |             |        |   |      | 
|                                                                           |  | ( million) |       
|Pension and OPEB benefits:                                                 |  |             |        |   |      |  |        |  
|Net liability recognized for IFRS                                          |  |             | (6,147 | ) |      |  | (7,137 | )
|Difference in unrecognized actuarial gains and losses/asset
    limitation |  |             | 3,123  |   |      |  | 4,046  |  
|Difference in unrecognized prior service cost                              |  |             | (127   | ) |      |  | (146   | )
|Additional minimum liability under SFAS No. 87                             |  |             | (920   | ) |      |  | (3,265 | )
|                                                                           |  |             |        |   |      | 
|Net liability recognized for U.S. GAAP                                     |  |             | (4,071 | ) |      |  | (6,502 | )
|                                                                           |  |             |        |   |      | 

|                                                       |  |             |     |  |      |  |     |      |  |  |     | 
|------------------------------------------------------ |  | ----------- | --- |  | ---- |  | --- | ---- |  |  | --- | 
|                                                       |  | 2003        |     |  | 2004 |  |     | 2005 | 
|                                                       |  |             |     |  |      |  |     |      | 
|                                                       |  | ( million) |    
|Pension and OPEB benefits:                             |  |             |     |  |      |  |     |      |  |  |     | 
|Net periodic benefit cost recognized for IFRS          |  |             | 749 |  |      |  | 368 |      |  |  | 188 | 
|Difference in recognition of actuarial amounts         |  |             | 89  |  |      |  | 112 |      |  |  | 141 | 
|Amortization of transition obligation                  |  |             | 23  |  |      |  |    |      |  |  |    | 
|Difference in recognition of prior service amounts     |  |             |    |  |      |  | 139 |      |  |  | 1   | 
|Difference in pension curtailment and settlement costs |  |             |    |  |      |  | 62  |      |  |  | 308 | 
|                                                       |  |             |     |  |      |  |     |      | 
|Net periodic benefit cost recognized for U.S. GAAP     |  |             | 861 |  |      |  | 681 |      |  |  | 638 | 
|                                                       |  |             |     |  |      |  |     |      | 



|                                                                                                  |  |             |   |  |      |  |    |      |  |  |   | 
|------------------------------------------------------------------------------------------------- |  | ----------- | - |  | ---- |  | -- | ---- |  |  | - | 
|                                                                                                  |  | 2003        |   |  | 2004 |  |    | 2005 | 
|                                                                                                  |  |             |   |  |      |  |    |      | 
|                                                                                                  |  | ( million) |  
|Net U.S. GAAP income statement difference on pensions
    and other post-employment benefit plans |  |             | 9 |  |      |  | 12 |      |  |  |  | 

|                                                                                   |  |             |      |   |      |  |   | 
|---------------------------------------------------------------------------------- |  | ----------- | ---- | - | ---- |  | - | 
|                                                                                   |  | 2004        |      |   | 2005 | 
|                                                                                   |  |             |      |   |      | 
|                                                                                   |  | ( million) |     
|Net U.S. GAAP equity difference on pensions and other
    post-employment benefits |  |             | (241 | ) |      |  |  | 

F-113



---



##### Table of Contents



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


|                                                                                               |  |             |     |  |      |  |     |      |  |  |     | 
|---------------------------------------------------------------------------------------------- |  | ----------- | --- |  | ---- |  | --- | ---- |  |  | --- | 
|                                                                                               |  | 2003        |     |  | 2004 |  |     | 2005 | 
|                                                                                               |  |             |     |  |      |  |     |      | 
|                                                                                               |  | ( million) |    
|Total U.S. GAAP income statement difference on pensions
    and other post-employment benefits |  |             | 121 |  |      |  | 325 |      |  |  | 450 | 

|                                                                                     |  |             |        |   |      |  |      |  
|------------------------------------------------------------------------------------ |  | ----------- | ------ | - | ---- |  | ---- | -
|                                                                                     |  | 2004        |        |   | 2005 | 
|                                                                                     |  |             |        |   |      | 
|                                                                                     |  | ( million) |       
|Total U.S. GAAP equity difference on pensions and other
    post-employment benefits |  |             | (2,317 | ) |      |  | (691 | )

c. In-process research
and development









  


 


d. Asset
impairments




 


F-114



---



##### Table of Contents



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


 


    


 


e. Early retirement
program


i.e.





f. Revaluation
surplus


   


F-115



---



##### Table of Contents



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 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-116



---



##### Table of Contents



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




 


  








|                                                                                                     |  |             |     |   |      |  |     |  
|---------------------------------------------------------------------------------------------------- |  | ----------- | --- | - | ---- |  | --- | -
|                                                                                                     |  | 2004        |     |   | 2005 | 
|                                                                                                     |  |             |     |   |      | 
|                                                                                                     |  | ( million) |    
|Goodwill:                                                                                            |  |             |     |   |      |  |     |  
|Differences in carrying amount of goodwill written-off directly
    to equity before January 1, 1995 |  |             | 397 |   |      |  | 454 |  
|FAS 142 and IFRS 3 transition differences                                                            |  |             | 554 |   |      |  | 507 |  
|Differences on account of IPR&D included in goodwill under
    IFRS                                  |  |             | (60 | ) |      |  | (61 | )
|Differences in impairments                                                                           |  |             | (29 | ) |      |  | (18 | )
|Purchase price and purchase price allocation differences                                             |  |             |    |   |      |  |    |  
|                                                                                                     |  |             |     |   |      | 
|Differences in carrying amount of goodwill                                                           |  |             | 862 |   |      |  | 882 |  
|                                                                                                     |  |             |     |   |      | 
|Other intangible assets:                                                                             |  |             |     |   |      |  |     |  
|FAS 142 and IFRS 3 transition differences                                                            |  |             | 32  |   |      |  | 32  |  
|IPR&D from acquisitions, expensed under U.S. GAAP                                                    |  |             | (33 | ) |      |  | (25 | )
|Differences in impairments                                                                           |  |             |    |   |      |  |    |  
|Purchase price and purchase price allocation differences                                             |  |             | 20  |   |      |  | 20  |  
|Revaluation surplus                                                                                  |  |             | (66 | ) |      |  | (62 | )
|Additional Minimum Liabilities                                                                       |  |             |    |   |      |  | 56  |  
|Other differences                                                                                    |  |             | 10  |   |      |  | 10  |  
|                                                                                                     |  |             |     |   |      | 
|Differences in carrying amount of other intangible assets                                            |  |             | (37 | ) |      |  | 31  |  
|                                                                                                     |  |             |     |   |      | 
|Total U.S. GAAP increase in intangible assets                                                        |  |             | 825 |   |      |  | 913 |  
|                                                                                                     |  |             |     |   |      | 

F-117



---



##### Table of Contents



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


Business Combination











|                                  |  |             |        | 
|--------------------------------- |  | ----------- | ------ | 
|Bayer Group Pro Forma 2004 Totals |  | (Unaudited) |       
|                                  |  |             |       
|                                  |  | ( million) |       
|Net sales                         |  |             | 24,290 | 
|Income after tax                  |  |             | 529    | 
|Earnings per share                |  |             | 0.72   | 

Discontinued
operations


  




        


F-118



---



##### Table of Contents



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




|                                         |  |             |        |   |             |  |     |             |  |  |                 |  |  |  |       | 
|---------------------------------------- |  | ----------- | ------ | - | ----------- |  | --- | ----------- |  |  | --------------- |  |  |  | ----- | 
|                                         |  | 2003        |        |   | 2004        |  |     | 2005        |  |  | 2005            | 
|                                         |  |             |        |   |             |  |     |             |  |  |                 | 
|                                         |  | ( million) |        |   | ( million) |  |     | ( million) |  |  | (U.S.$ million) | 
|Income (loss) from continuing operations |  |             | (623   | ) |             |  | 657 |             |  |  | 1,289           |  |  |  | 1,526 | 
|Discontinued operations  net of tax     |  |             | (822   | ) |             |  | (4  | )           |  |  | 38              |  |  |  | 45    | 
|                                         |  |             |        |   |             |  |     |             |  |  |                 | 
|Net income/loss reported under U.S. GAAP |  |             | (1,445 | ) |             |  | 653 |             |  |  | 1,327           |  |  |  | 1,571 | 
|                                         |  |             |        |   |             |  |     |             |  |  |                 | 

|                                            |                                            |             |       |       |             |  |      |             |   |  |                 |      |  |  |      |      | 
|------------------------------------------- | ------------------------------------------ | ----------- | ----- | ----- | ----------- |  | ---- | ----------- | - |  | --------------- | ---- |  |  | ---- | ---- | 
|Earnings per Share                          |                                            | 2003        |       |       | 2004        |  |      | 2005        |   |  | 2005            |     
|                                            |                                            |             |       |       |             |  |      |             |   |  |                 |     
|                                            |                                            | ( million) |       |       | ( million) |  |      | ( million) |   |  | (U.S.$ million) |     
|Basic and diluted:                          |                                            |             |       |       |             |  |      |             |   |  |                 |      |  |  |      |     
|                                            | Income (loss) from continuing operations   |             |       | (0.85 | )           |  |      | 0.90        |   |  |                 | 1.77 |  |  |      | 2.09 | 
|                                            | Income (loss) from discontinued operations |             |       | (1.13 | )           |  |      | (0.01       | ) |  |                 | 0.05 |  |  |      | 0.06 | 
|                                            |                                            |             |       |       |             |  |      |             |   |  |                 |     
|Basic and diluted earnings (loss) per share |                                            |             | (1.98 | )     |             |  | 0.89 |             |   |  | 1.82            |      |  |  | 2.15 |     
|                                            |                                            |             |       |       |             |  |      |             |   |  |                 |     

Classification
differences


 




 


     


Financial assets and
liabilities


  


F-119



---



##### Table of Contents



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


Segment reporting




Deferred tax assets:


|                    |  |             |       |  |             |  |       |             |  |  |       | 
|------------------- |  | ----------- | ----- |  | ----------- |  | ----- | ----------- |  |  | ----- | 
|                    |  | Dec. 31,    |       |  | Dec. 31,    |  |       | Dec. 31,    | 
|                    |  | 2003        |       |  | 2004        |  |       | 2005        | 
|                    |  |             |       |  |             |  |       |             | 
|                    |  | ( million) |       |  | ( million) |  |       | ( million) | 
|United States       |  |             | 1,010 |  |             |  | 985   |             |  |  | 867   | 
|Germany             |  |             | 195   |  |             |  | 200   |             |  |  | 474   | 
|Japan               |  |             | 98    |  |             |  | 99    |             |  |  | 71    | 
|Brazil              |  |             | 61    |  |             |  | 59    |             |  |  | 120   | 
|Others              |  |             | 243   |  |             |  | 207   |             |  |  | 166   | 
|                    |  |             |       |  |             |  |       |             | 
|Deferred tax assets |  |             | 1,607 |  |             |  | 1,550 |             |  |  | 1,698 | 
|                    |  |             |       |  |             |  |       |             | 

Long-lived assets:


|                  |  |             |        |  |             |  |        |             |  |  |        | 
|----------------- |  | ----------- | ------ |  | ----------- |  | ------ | ----------- |  |  | ------ | 
|                  |  | Dec. 31,    |        |  | Dec. 31,    |  |        | Dec. 31,    | 
|                  |  | 2003        |        |  | 2004        |  |        | 2005        | 
|                  |  |             |        |  |             |  |        |             | 
|                  |  | ( million) |        |  | ( million) |  |        | ( million) | 
|Germany           |  |             | 7,312  |  |             |  | 6,765  |             |  |  | 5,758  | 
|United States     |  |             | 4,338  |  |             |  | 3,948  |             |  |  | 4,062  | 
|France            |  |             | 1,502  |  |             |  | 1,356  |             |  |  | 1,311  | 
|Others            |  |             | 3,299  |  |             |  | 3,132  |             |  |  | 4,878  | 
|                  |  |             |        |  |             |  |        |             | 
|Long-lived assets |  |             | 16,451 |  |             |  | 15,201 |             |  |  | 16,009 | 
|                  |  |             |        |  |             |  |        |             | 

Comprehensive income




F-120



---



##### Table of Contents



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




|                                                                                                                                                                        |  |             |        |   |             |  |      |             |  |  |        |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------ | - | ----------- |  | ---- | ----------- |  |  | ------ | -
|                                                                                                                                                                        |  | 2003        |        |   | 2004        |  |      | 2005        | 
|                                                                                                                                                                        |  |             |        |   |             |  |      |             | 
|                                                                                                                                                                        |  | ( million) |        |   | ( million) |  |      | ( million) | 
|Net income (loss) under U.S. GAAP                                                                                                                                       |  |             | (1,445 | ) |             |  | 653  |             |  |  | 1,327  |  
|Other comprehensive income (loss):                                                                                                                                      |  |             |        |   |             |  |      |             |  |  |        |  
|Unrealized market value adjustment on available-for-sale
    securities (net of taxes of
    (2) million,
    (2) million
    and
    (6) million,
    respectively) |  |             | 27     |   |             |  | 18   |             |  |  | 3      |  
|Unrealized market value adjustment on cash flow hedges (net of
    taxes of
    19 million,
    (18) million,
    and
    6 million)                                 |  |             | (29    | ) |             |  | 46   |             |  |  | (9     | )
|Reclassification adjustment:                                                                                                                                            |  |             |        |   |             |  |      |             |  |  |        |  
|Net realized (gains)/losses on sales of securities (net of taxes
    of
    (4) million,
    nil, and
    nil,
    respectively)                                     |  |             | 1      |   |             |  | (6   | )           |  |  |       |  
|Net realized (gains)/losses on sales of cash flow hedges (net of
    taxes of
    (2)million,
    (1) million and
    nil,
    respectively)                         |  |             | 3      |   |             |  | 2    |             |  |  | 3      |  
|Additional minimum pension liability (net of taxes of
    63 million,
    155 million
    and
    916 million,
    respectively)                                     |  |             | (94    | ) |             |  | (232 | )           |  |  | (1,373 | )
|Foreign currency translation adjustment                                                                                                                                 |  |             | (1,222 | ) |             |  | (398 | )           |  |  | 1,359  |  
|                                                                                                                                                                        |  |             |        |   |             |  |      |             | 
|Comprehensive income (loss) under U.S. GAAP                                                                                                                             |  |             | (2,759 | ) |             |  | 83   |             |  |  | 1,310  |  
|                                                                                                                                                                        |  |             |        |   |             |  |      |             | 

Employee benefit
plans




     


Plans in Germany


 


|                                                                                              |  |              |       |  |      |  |        | 
|--------------------------------------------------------------------------------------------- |  | ------------ | ----- |  | ---- |  | ------ | 
|                                                                                              |  | December 31, |      
|                                                                                              |  |              |      
|Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets |  | 2004         |       |  | 2005 | 
|                                                                                              |  |              |       |  |      | 
|                                                                                              |  | ( million)  |      
|Projected benefit obligation                                                                  |  |              | 4,939 |  |      |  | 10,256 | 
|Accumulated benefit obligation                                                                |  |              | 4,795 |  |      |  | 9,919  | 
|Fair value of plan assets                                                                     |  |              | 44    |  |      |  | 4,599  | 

F-121



---



##### Table of Contents



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 |  | 2004         |       |  | 2005 | 
|                                                                                              |  |              |       |  |      | 
|                                                                                              |  | ( million)  |      
|Projected benefit obligation                                                                  |  |              | 2,895 |  |      |  | 3,920 | 
|Accumulated benefit obligation                                                                |  |              | 2,543 |  |      |  | 3,722 | 
|Fair value of plan assets                                                                     |  |              | 2,208 |  |      |  | 3,198 | 

Total


|                                                                                              |  |              |       |  |      |  |        | 
|--------------------------------------------------------------------------------------------- |  | ------------ | ----- |  | ---- |  | ------ | 
|                                                                                              |  | December 31, |      
|                                                                                              |  |              |      
|Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets |  | 2004         |       |  | 2005 | 
|                                                                                              |  |              |       |  |      | 
|                                                                                              |  | ( million)  |      
|Projected benefit obligation                                                                  |  |              | 7,834 |  |      |  | 14,176 | 
|Accumulated benefit obligation                                                                |  |              | 7,338 |  |      |  | 13,641 | 
|Fair value of plan assets                                                                     |  |              | 2,252 |  |      |  | 7,797  | 

Stock-based
compensation




Proportional
consolidation






|                          |  |               |     |   |               |  |     |  
|------------------------- |  | ------------- | --- | - | ------------- |  | --- | -
|Balance Sheet Information |  | Dec. 31, 2004 |     |   | Dec. 31, 2005 | 
|                          |  |               |     |   |               | 
|                          |  | ( million)   |    
|Current assets            |  |               | 16  |   |               |  | 15  |  
|Noncurrent assets         |  |               | 41  |   |               |  | 62  |  
|Pension provisions        |  |               |    |   |               |  |    |  
|Other provisions          |  |               | (14 | ) |               |  | (16 | )
|Financial liabilities     |  |               | (2  | ) |               |  | (3  | )
|Remaining liabilities     |  |               | (15 | ) |               |  | (14 | )

F-122



---



##### Table of Contents



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


|                                |  |               |    |   |               |  |    | 
|------------------------------- |  | ------------- | -- | - | ------------- |  | -- | 
|Statement of Income Information |  | Dec. 31, 2004 |    |   | Dec. 31, 2005 | 
|                                |  |               |    |   |               | 
|                                |  | ( million)   |   
|Net sales                       |  |               | 30 |   |               |  | 48 | 
|Operating result                |  |               |   |   |               |  | 4  | 
|Net income (loss)               |  |               | (1 | ) |               |  | 3  | 

|                                                    |  |               |    |   |               |  |    |  
|--------------------------------------------------- |  | ------------- | -- | - | ------------- |  | -- | -
|Statement of Cash Flow Information                  |  | Dec. 31, 2004 |    |   | Dec. 31, 2005 | 
|                                                    |  |               |    |   |               | 
|                                                    |  | ( million)   |   
|Net cash provided by operating activities           |  |               | 9  |   |               |  | 3  |  
|Net cash provided by (used in) investing activities |  |               | 3  |   |               |  | (9 | )
|Net cash provided by (used in) financing activities |  |               | (4 | ) |               |  | 1  |  

Self-insurance


 


Consolidated financial statements and other financial
information




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.





F-123



---



##### Table of Contents



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




Product liability
proceedings


Cerivastatin litigation




U.S. litigation.






Litigation in other countries.


F-124



---



##### Table of Contents



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




Impact of cerivastatin litigation on Bayer.


  






Blood plasma products
litigation


HIV-related actions.


HIV/HCV-related actions.




F-125



---



##### Table of Contents



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




Phenylpropanolamine (PPA)
litigation










  


 


Thimerosal litigation




F-126



---



##### Table of Contents



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


Isocyanate litigation








Proceedings involving
Imidacloprid




Antitrust proceedings


Proceedings involving former
rubber-related lines of business


Government investigations.




F-127



---



##### Table of Contents



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









Civil litigation.




Proceedings involving
polyester polyols, urethanes and urethane chemicals


Government investigation.


Civil litigation.


F-128



---



##### Table of Contents



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






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


Civil litigation.


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


  










Proceedings involving
Ciprofloxacin




F-129



---



##### Table of Contents



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


® ®


® ®


®






Proceedings involving
Premise






F-130



---



##### Table of Contents



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


Average wholesale price
manipulation proceedings






Patent validity challenges
and infringement proceedings


Proceedings involving
Moxifloxacin


® ® ®




®


Proceedings involving
Kogenate


Patent-related. ® ®


F-131



---



##### Table of Contents



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


Contract-related. ®


Proceeding involving blood
glucose monitors




ADVIA
Centaur®-related
actions


Patent-related action. ® ® ADVIA
Centaur®


Securities litigation




Asbestos litigation






F-132



---



##### Table of Contents



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






Other commercial proceedings


Proceedings involving
Everest




Lyondell Arbitration








Proceedings involving
Limagrain Genetics Corporation




F-133



---



##### Table of Contents



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


Effect of new accounting pronouncements


U.S. GAAP










F-134