##### Table of Contents



As filed with the Securities and Exchange Commission on
March 15, 2005








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, 2004.                                                        
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934        

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 |  | New York Stock Exchange                   
|Bayer AG ordinary shares of no par value                                             |  | 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




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

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









---










TABLE OF CONTENTS


|             |  |                                                                                  |  |      |     | 
|------------ |  | -------------------------------------------------------------------------------- |  | ---- | --- | 
|             |  |                                                                                  |  | Page |    
|             |  |                                                                                  |  |      |    
|PART I      
|Item 1.      |  | Identity of Directors, Senior Management
    and Advisors                        |  |      | 5   | 
|Item 2.      |  | Offer Statistics and Expected Timetable                                          |  |      | 5   | 
|Item 3.      |  | Key Information                                                                  |  |      | 5   | 
|Item 4.      |  | Information on the Company                                                       |  |      | 14  | 
|             |  | History and Development of the Company                                           |  |      | 14  | 
|             |  | Business                                                                         |  |      | 15  | 
|             |  | Bayer HealthCare                                                                 |  |      | 16  | 
|             |  | Bayer CropScience                                                                |  |      | 36  | 
|             |  | Bayer MaterialScience                                                            |  |      | 42  | 
|             |  | LANXESS                                                                          |  |      | 54  | 
|             |  | Intellectual Property Protection                                                 |  |      | 57  | 
|             |  | Governmental Regulation                                                          |  |      | 59  | 
|             |  | Organizational Structure                                                         |  |      | 64  | 
|             |  | Property, Plants and Equipment                                                   |  |      | 66  | 
|Item 5.      |  | Operating and Financial Review and
    Prospects                                 |  |      | 68  | 
|             |  | Overview                                                                         |  |      | 68  | 
|             |  | Critical Accounting Policies                                                     |  |      | 69  | 
|             |  | Operating Results 2002, 2003 and 2004                                            |  |      | 73  | 
|             |  | Bayer Group                                                                      |  |      | 79  | 
|             |  | Segment Data                                                                     |  |      | 83  | 
|             |  | Liquidity and Capital Resources 2002, 2003
    and 2004                          |  |      | 94  | 
|             |  | Research and Development                                                         |  |      | 101 | 
|             |  | Basis of Presentation                                                            |  |      | 101 | 
|Item 6.      |  | Directors, Senior Management and
    Employees                                   |  |      | 106 | 
|Item 7.      |  | Major Shareholders and Related Party
    Transactions                            |  |      | 116 | 
|Item 8.      |  | Financial Information                                                            |  |      | 117 | 
|Item 9.      |  | The Listing                                                                      |  |      | 128 | 
|Item 10.     |  | Additional Information                                                           |  |      | 130 | 
|Item 11.     |  | Quantitative and Qualitative Disclosures
    about Market Risk                   |  |      | 135 | 
|Item 12.     |  | Description of Securities Other Than Equity
    Securities                       |  |      | 140 | 
|            
|PART II     
|Item 13.     |  | Defaults, Dividend Arrearages and
    Delinquencies                              |  |      | 140 | 
|Item 14.     |  | Material Modifications to the Rights of
    Security Holders and Use of Proceeds |  |      | 140 | 
|Item 15.     |  | Controls and Procedures                                                          |  |      | 140 | 
|Item 16.     |  | [Reserved]                                                                       |  |      | 141 | 
|Item 16A.    |  | Audit Committee Financial Expert                                                 |  |      | 141 | 
|Item 16B.    |  | Code of Ethics                                                                   |  |      | 141 | 
|Item 16C.    |  | Principal Accountant Fees and Services                                           |  |      | 141 | 
|Item 16D.    |  | Exemptions from the Listing Standards for
    Audit Committees                   |  |      | 142 | 
|Item 16E.    |  | Purchases of Equity Securities by the
    Issuer and Affiliated Purchasers       |  |      | 142 | 
|            
|PART III    
|Item 17.     |  | Financial Statements                                                             |  |      | 143 | 
|Item 18.     |  | Financial Statements                                                             |  |      | 143 | 
|Item 19.     |  | Exhibits                                                                         |  |      | 143 | 
|EXHIBIT 1.1 
|EXHIBIT 4.1 
|EXHIBIT 4.2 
|EXHIBIT 4.3 
|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






Forward-Looking Information








| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | 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,              |       
|                                                      |  |                                      |       
|                                                      |  | 2000                                 |        |     | 2001 |  |        | 2002 |  |  | 2003   |       |  | 2004 |        |       | 2004 | 
|                                                      |  |                                      |        |     |      |  |        |      |  |  |        |       |  |      |        |       |      | 
|                                                      |  |                                     |        |     |     |  |        |     |  |  |       |       |  |     |        |       | $    | 
|                                                      |  | (In millions, except per share data) |       
|IFRS:                                                 |  |                                      |        |     |      |  |        |      |  |  |        |       |  |      |        |       |      |  |        |     |  |  |        |    
|Net sales from continuing operations                  |  |                                      |       | (1) |      |  | 21,702 |      |  |  | 22,038 |       |  |      | 22,178 |       |      |  | 23,045 |     |  |  | 31,198 |    
|Net sales from discontinuing operations               |  |                                      |       | (1) |      |  | 8,573  |      |  |  | 7,586  |       |  |      | 6,389  |       |      |  | 6,713  |     |  |  | 9,088  |    
|Net sales                                             |  |                                      | 30,971 |     |      |  | 30,275 |      |  |  | 29,624 |       |  |      | 28,567 |       |      |  | 29,758 |     |  |  | 40,286 |    
|Operating result from continuing operations           |  |                                      |       | (1) |      |  | 1,466  |      |  |  | 781    | (2)   |  |      | 520    | (2)   |      |  | 1,790  |     |  |  | 2,423  |    
|Operating result from discontinuing operations        |  |                                      |       | (1) |      |  | 210    |      |  |  | 737    | (2)   |  |      | (1,639 | ) (2) |      |  | 18     |     |  |  | 24     |    
|Operating result                                      |  |                                      | 3,287  |     |      |  | 1,676  |      |  |  | 1,518  | (2)   |  |      | (1,119 | ) (2) |      |  | 1,808  |     |  |  | 2,447  |    
|Non-operating result                                  |  |                                      | (297   | )   |      |  | (561   | )    |  |  | (562   | ) (2) |  |      | (875   | ) (2) |      |  | (823   | )   |  |  | (1,114 | )  
|Income before income taxes                            |  |                                      | 2,990  |     |      |  | 1,115  |      |  |  | 956    |       |  |      | (1,994 | )     |      |  | 985    |     |  |  | 1,333  |    
|Income taxes                                          |  |                                      | (1,148 | )   |      |  | (154   | )    |  |  | 107    |       |  |      | 645    |       |      |  | (385   | )   |  |  | (521   | )  
|Income after taxes                                    |  |                                      | 1,842  |     |      |  | 961    |      |  |  | 1,063  |       |  |      | (1,349 | )     |      |  | 600    |     |  |  | 812    |    
|Minority stockholders interest                       |  |                                      | (26    | )   |      |  | 4      |      |  |  | (3     | )     |  |      | (12    | )     |      |  | 3      |     |  |  | 4      |    
|Net income                                            |  |                                      | 1,816  |     |      |  | 965    |      |  |  | 1,060  |       |  |      | (1,361 | )     |      |  | 603    |     |  |  | 816    |    
|Average number of shares in issue                     |  |                                      | 730    |     |      |  | 730    |      |  |  | 730    |       |  |      | 730    |       |      |  | 730    |     |  |  | 730    |    
|Operating result from continuing operations per share |  |                                      |       | (1) |      |  | 2.01   |      |  |  | 1.07   | (2)   |  |      | 0.71   | (2)   |      |  | 2.45   |     |  |  | 3.32   |    
|Basic net income/loss per share                       |  |                                      | 2.49   |     |      |  | 1.32   |      |  |  | 1.45   |       |  |      | (1.86  | )     |      |  | 0.83   |     |  |  | 1.12   |    
|Diluted net income/loss per share                     |  |                                      | 2.49   |     |      |  | 1.32   |      |  |  | 1.45   |       |  |      | (1.86  | )     |      |  | 0.83   |     |  |  | 1.12   |    
|Dividends per share                                   |  |                                      | 1.40   |     |      |  | 0.90   |      |  |  | 0.90   |       |  |      | 0.50   |       |      |  | N/A    | (3) |  |  | N/A    | (3)
|U.S. GAAP:                                            |  |                                      |        |     |      |  |        |      |  |  |        |       |  |      |        |       |      |  |        |     |  |  |        |    
|Net income                                            |  |                                      | 1,783  |     |      |  | 800    |      |  |  | 1,277  |       |  |      | (1,445 | )     |      |  | 653    |     |  |  | 885    |    
|Basic and diluted net income per share                |  |                                      | 2.44   |     |      |  | 1.10   |      |  |  | 1.75   |       |  |      | (1.98  | )     |      |  | 0.89   |     |  |  | 1.21   |    






|    |                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We do not present discontinuing operations for 2000 because we
    were unable without unreasonable effort and expense to restate
    these years financial data to reflect the operations we
    classified as discontinuing operations in all more recent
    periods.                      
|   
|(2) | 2002 and 2003 data have been restated for these items because of
    a change in the reporting of funded pension obligations. For
    more details, see Note 7 to the consolidated financial
    statements appearing elsewhere in this annual report on
    Form 20-F.                        
|   
|(3) | The dividend payment for 2004 has not yet been decided on. Our
    Supervisory Board has accepted our Board of Managements
    proposal to recommend at our annual general shareholders
    meeting a dividend for 2004 of
    0.55 per
    share, for a total dividend of
    402 million.

6



---



##### Table of Contents





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

|                                         |  |                                      |        |     |      |  |        |      |  |  |        |  |  |      |        |  |      |  |        |  |  |  |        | 
|---------------------------------------- |  | ------------------------------------ | ------ | --- | ---- |  | ------ | ---- |  |  | ------ |  |  | ---- | ------ |  | ---- |  | ------ |  |  |  | ------ | 
|                                         |  | Year Ended December 31,              |       
|                                         |  |                                      |       
|                                         |  | 2000                                 |        |     | 2001 |  |        | 2002 |  |  | 2003   |  |  | 2004 |        |  | 2004 | 
|                                         |  |                                      |        |     |      |  |        |      |  |  |        |  |  |      |        |  |      | 
|                                         |  |                                     |        |     |     |  |        |     |  |  |       |  |  |     |        |  | $    | 
|                                         |  | (In millions, except per share data) |       
|IFRS:                                    |  |                                      |        |     |      |  |        |      |  |  |        |  |  |      |        |  |      |  |        |  |  |  |        | 
|Total assets                             |  |                                      | 36,451 |     |      |  | 37,039 |      |  |  | 41,692 |  |  |      | 37,445 |  |      |  | 37,804 |  |  |  | 51,179 | 
|of which discontinuing operations        |  |                                      |       | (1) |      |  | 8,813  |      |  |  | 6,077  |  |  |      | 4,648  |  |      |  | 4,934  |  |  |  | 6,680  | 
|Stockholders equity                     |  |                                      | 16,140 |     |      |  | 16,992 |      |  |  | 15,335 |  |  |      | 12,213 |  |      |  | 12,268 |  |  |  | 16,608 | 
|Liabilities                              |  |                                      | 20,074 |     |      |  | 20,019 |      |  |  | 26,237 |  |  |      | 25,109 |  |      |  | 25,425 |  |  |  | 34,420 | 
|of which long-term financial liabilities |  |                                      | 2,803  |     |      |  | 3,071  |      |  |  | 7,318  |  |  |      | 7,378  |  |      |  | 7,117  |  |  |  | 9,635  | 
|of which discontinuing operations        |  |                                      |       | (1) |      |  | 3,489  |      |  |  | 2,824  |  |  |      | 2,190  |  |      |  | 2,351  |  |  |  | 3,183  | 
|U.S. GAAP:                               |  |                                      |        |     |      |  |        |      |  |  |        |  |  |      |        |  |      |  |        |  |  |  |        | 
|Stockholders equity                     |  |                                      | 19,110 |     |      |  | 18,300 |      |  |  | 16,734 |  |  |      | 13,327 |  |      |  | 13,047 |  |  |  | 17,663 | 
|Total assets                             |  |                                      | 38,740 |     |      |  | 37,831 |      |  |  | 42,668 |  |  |      | 38,012 |  |      |  | 38,496 |  |  |  | 52,116 | 






|    |                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We do not present discontinuing operations for 2000 because we
    were unable without unreasonable effort and expense to restate
    these years financial data to reflect the operations we
    classified as discontinuing operations in all more recent
    periods.

Dividends


Additional
Information  Taxation.


|                                   |  |      |      |  |      |  |      |      |  |  |     |    
|---------------------------------- |  | ---- | ---- |  | ---- |  | ---- | ---- |  |  | --- | ---
|                                   |  | 2002 |      |  | 2003 |  |      | 2004 | 
|                                   |  |      |      |  |      |  |      |      | 
|Total dividend (
    in millions) |  |      | 657  |  |      |  | 365  |      |  |  | N/A | (1)
|Dividend per share
    ()         |  |      | 0.90 |  |      |  | 0.50 |      |  |  | N/A | (1)
|Dividend per share ($)             |  |      | 1.22 |  |      |  | 0.68 |      |  |  | N/A | (1)






|    |                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The dividend payment for 2004 has not yet been decided on. Our
    Supervisory Board has accepted our Board of Managements
    proposal to recommend at our annual general shareholders
    meeting a dividend for 2004 of
    0.55 per
    share, for a total dividend of
    402 million.

Financial Information 
Dividend Policy and Liquidation Proceeds.


Exchange Rate Data




|     |  |                        |        |  |         |  |        |      |  |  |        |  |  |  |        | 
|---- |  | ---------------------- | ------ |  | ------- |  | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|Year |  | Period End             |        |  | Average |  |        | High |  |  | Low    | 
|     |  |                        |        |  |         |  |        |      |  |  |        | 
|     |  | (U.S. dollar per euro) |       
|2000 |  |                        | 0.9388 |  |         |  | 0.9233 |      |  |  | 1.0335 |  |  |  | 0.8270 | 
|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 | 

7



---



##### Table of Contents



|                    |  |                  |        |  |     |  |        | 
|------------------- |  | ---------------- | ------ |  | --- |  | ------ | 
|Previous Six Months |  | High             |        |  | Low | 
|                    |  |                  |        |  |     | 
|                    |  | (U.S. dollar per |       
|                    |  | euro)            |       
|September 2004      |  |                  | 1.2417 |  |     |  | 1.2052 | 
|October 2004        |  |                  | 1.2783 |  |     |  | 1.2271 | 
|November 2004       |  |                  | 1.3288 |  |     |  | 1.2703 | 
|December 2004       |  |                  | 1.3625 |  |     |  | 1.3224 | 
|January 2005        |  |                  | 1.3476 |  |     |  | 1.2954 | 
|February 2005       |  |                  | 1.3274 |  |     |  | 1.2773 | 

 


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.




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

Handelsregister Amtsgericht Köln




Additional Information  Material
Contracts




8



---



##### Table of Contents





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









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











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


10



---



##### Table of Contents





Lipobay/
Baycol


Existing insurance coverage may turn out to be inadequate.




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

per
se, Information on the Company  Intellectual Property
Protection, Financial
Information  Legal Proceedings,






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





11



---



##### Table of Contents





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




| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | 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 our 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  Business  Governmental
Regulation.








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



12



---



##### Table of Contents







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




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





13



---



##### Table of Contents








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




HISTORY AND DEVELOPMENT OF THE COMPANY


Aktiengesellschaft


Sitz


Liquidity and Capital Resources 2002, 2003 and
2004  Capital Expenditures Notes to the Consolidated
Financial Statements of the Bayer Group  Key Data by
Business Segment.






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In 2002, we spent a total of
    7.9 billion
    on acquisitions, mainly for the acquisition of Aventis
    CropScience effective June 1, 2002 from Aventis and
    Schering. Approval of this acquisition by the relevant antitrust
    authorities, particularly in Europe and the United States, was
    conditional upon our divesting or outlicensing a number of
    products, which we completed in the course of 2004. In 2002, we
    also acquired Visible Genetics Inc. in Canada and Tectrade A/ S
    in Denmark.
|
| |  | In 2003, we spent a total of
    72 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.                                                                                                                                                              

 Rennie® Bepanthen®   






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In 2002, we divested the following businesses:
    Haarmann & Reimer
    (1.7 billion);
    the remaining 30 percent share in Agfa-Gevaert N.V. for
    0.7 billion
    (70 percent had already been divested in 1999); our
    94.9 percent interest in Bayer Wohnungen GmbH
    (0.5 billion);
    our French and Spanish generic pharmaceutical operations
    (0.1 billion);
    and a large part of the global household insecticides business
    of our Consumer Care division
    (0.4 billion).
|
| |  | 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                                                                                                                                                                                                                                                                                 

14



---



##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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, a number of active ingredients
    especially in the area of insecticides and fungicides were
    divested
    (1.3 billion).
|
| |  | 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.                                                                                                                                                        

Handelsregister Amtsgericht Köln


 





BUSINESS








| |   |                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Bayer HealthCare(consisting of our three health care
    segments: Pharmaceuticals, Biological Products; Consumer Care,
    Diagnostics; and Animal Health) develops, produces and markets
    products for the prevention, diagnosis and treatment of human
    and animal diseases.
|
| |  | Bayer CropScience(consisting of our CropScience segment)
    is active in the area of chemical crop protection and seed
    treatment, non-agricultural pest and weed control and plant
    biotechnology.                                                                           
|
| |  | Bayer MaterialScience(comprising our Materials segment
    and our Systems segment) primarily develops, manufactures and
    markets products in the polyurethane, polycarbonate, cellulose
    derivatives and special metals field.                                                





| |   |                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Bayer Technology Services, which provides engineering
    functions.                                                                                                                                                                                                                                                 
|
| |  | Bayer Business Services, which provides information
    management, accounting and reporting, consulting and
    administrative services.                                                                                                                                                                            
|
| |  | Bayer Industry Services, which operates the Bayer
    Chemical Park network of industrial facilities in Germany and
    provides site-specific services. Since July 1, 2004, Bayer
    Industry Services GmbH & Co. OHG has been
    60 percent held by Bayer AG and 40 percent held by
    LANXESS Deutschland GmbH.

15



---



##### Table of Contents





sustainable development, Responsible Care® .


   






|                                     |  |                     |        |  |      |  |        |      |  |  |        | 
|------------------------------------ |  | ------------------- | ------ |  | ---- |  | ------ | ---- |  |  | ------ | 
|                                     |  | 2002                |        |  | 2003 |  |        | 2004 | 
|                                     |  |                     |        |  |      |  |        |      | 
|                                     |  | (Euros in millions) |       
|HealthCare                           |  |                     | 9,372  |  |      |  | 8,871  |      |  |  | 8,485  | 
|Pharmaceuticals, Biological Products |  |                     | 4,767  |  |      |  | 4,745  |      |  |  | 4,388  | 
|Consumer Care, Diagnostics           |  |                     | 3,755  |  |      |  | 3,336  |      |  |  | 3,311  | 
|Animal Health                        |  |                     | 850    |  |      |  | 790    |      |  |  | 786    | 
|CropScience                          |  |                     | 4,697  |  |      |  | 5,764  |      |  |  | 5,946  | 
|MaterialScience                      |  |                     | 7,659  |  |      |  | 7,453  |      |  |  | 8,597  | 
|Materials                            |  |                     | 2,875  |  |      |  | 2,777  |      |  |  | 3,248  | 
|Systems                              |  |                     | 4,784  |  |      |  | 4,676  |      |  |  | 5,349  | 
|LANXESS                              |  |                     | 6,241  |  |      |  | 5,776  |      |  |  | 6,053  | 
|Reconciliation                       |  |                     | 1,655  |  |      |  | 703    |      |  |  | 677    | 
|Total Bayer Group                    |  |                     | 29,624 |  |      |  | 28,567 |      |  |  | 29,758 | 




BAYER HEALTHCARE


PHARMACEUTICALS, BIOLOGICAL PRODUCTS


Overview




16



---



##### Table of Contents





|                   |                                  |                     |       |      |      |  |       |      |   |  |       |      |  
|------------------ | -------------------------------- | ------------------- | ----- | ---- | ---- |  | ----- | ---- | - |  | ----- | ---- | -
|                   |                                  | 2002                |       |      | 2003 |  |       | 2004 |  
|                   |                                  |                     |       |      |      |  |       |      |  
|                   |                                  | (Euros in millions) |      
|External net sales |                                  |                     | 4,767 |      |      |  | 4,745 |      |   |  | 4,388 |     
|                   | Percentage of total sales        |                     |       | 16.1 |      |  |       | 16.6 |   |  |       | 14.7 |  
|                   | thereof discontinuing operations |                     |       | 679  |      |  |       | 613  |   |  |       | 660  |  
|Intersegment sales |                                  |                     | 33    |      |      |  | 51    |      |   |  | 42    |     
|Operating result   |                                  |                     | (200  | )    |      |  | (408  | )    |   |  | 302   |     
|                   | thereof discontinuing operations |                     |       | (113 | )    |  |       | (349 | ) |  |       | (56  | )
|                   | thereof special
    items(1)     |                     |       | (333 | )    |  |       | (832 | ) |  |       | (148 | )






|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The significant special items are detailed in Item 5,
    Operating and Financial Review and Prospects 
    Operating Results 2002, 2003 and 2004  Segment
    Data.



|                                   |       |                     |       |       |      |  |       |       |  |  |       |       | 
|---------------------------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                   |       | 2002                |       |       | 2003 |  |       | 2004  | 
|                                   |       |                     |       |       |      |  |       |       | 
|                                   |       | (Euros in millions) |      
|Europe                             |       |                     | 1,411 |       |      |  | 1,419 |       |  |  | 1,582 |      
|North America                      |       |                     | 2,084 |       |      |  | 2,154 |       |  |  | 1,565 |      
|Asia/ Pacific                      |       |                     | 884   |       |      |  | 809   |       |  |  | 854   |      
|Latin America/ Africa/ Middle East |       |                     | 388   |       |      |  | 363   |       |  |  | 387   |      
|                                   |       |                     |       |       |      |  |       |       | 
|                                   | Total |                     |       | 4,767 |      |  |       | 4,745 |  |  |       | 4,388 | 
|                                   |       |                     |       |       |      |  |       |       | 

     


|                                               |  |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               |  |       |  |  |  |      | 
|---------------------------------------------- |  | --------- | ----- | ------------- | ------------- |  | --------- | ----- | ------------- |  | ------------- | --------- |  | ------------- | ---- |  | ------------- |  | ----- |  |  |  | ---- | 
|                                               |  | 2002      |       |               | 2003          |  |           | 2004  |              
|                                               |  |           |       |               |               |  |           |       |              
|                                               |  |           |       | 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) |  |               |     
|Ciprobay®/ Cipro® (Pharmaceuticals)            |  |           | 1,411 |               |               |  | 29.6      |       |               |  | 1,411         |           |  |               | 29.7 |  |               |  | 837   |  |  |  | 19.1 | 
|Adalat® (Pharmaceuticals)                      |  |           | 800   |               |               |  | 16.8      |       |               |  | 676           |           |  |               | 14.2 |  |               |  | 670   |  |  |  | 15.3 | 
|Kogenate® (Biological Products)                |  |           | 400   |               |               |  | 8.4       |       |               |  | 497           |           |  |               | 10.5 |  |               |  | 563   |  |  |  | 12.8 | 
|Gamimune® N/Gamunex® (Biological
    Products) |  |           | 333   |               |               |  | 7.0       |       |               |  | 304           |           |  |               | 6.4  |  |               |  | 343   |  |  |  | 7.8  | 
|Avalox®/ Avelox® (Pharmaceuticals)             |  |           | 280   |               |               |  | 5.9       |       |               |  | 299           |           |  |               | 6.3  |  |               |  | 318   |  |  |  | 7.2  | 
|Glucobay® (Pharmaceuticals)                    |  |           | 287   |               |               |  | 6.0       |       |               |  | 273           |           |  |               | 5.8  |  |               |  | 278   |  |  |  | 6.3  | 
|Levitra® (Pharmaceuticals)                     |  |           | 6     |               |               |  | 0.1       |       |               |  | 144           |           |  |               | 3.0  |  |               |  | 193   |  |  |  | 4.4  | 
|Trasylol® (Pharmaceuticals)                    |  |           | 154   |               |               |  | 3.2       |       |               |  | 157           |           |  |               | 3.3  |  |               |  | 171   |  |  |  | 3.9  | 
|Prolastin® (Biological Products)               |  |           | 151   |               |               |  | 3.2       |       |               |  | 166           |           |  |               | 3.5  |  |               |  | 166   |  |  |  | 3.8  | 
|Other                                          |  |           | 945   |               |               |  | 19.8      |       |               |  | 818           |           |  |               | 17.3 |  |               |  | 849   |  |  |  | 19.4 | 
|                                               |  |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 
|Total                                          |  |           | 4,767 |               |               |  |           |       |               |  | 4,745         |           |  |               |      |  |               |  | 4,388 |  |  |  |      | 
|                                               |  |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 

17



---



##### Table of Contents



Segment Strategy




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







| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | focusing our research activities on the areas: Cardiovascular
    Risk Management including Diabetes and Oncology; and 
|
| |  | working on regional co-operations, alliances and licensing, all
    as appropriate in light of the local circumstances.

 Research and
Development  Life Cycle Management.


 Research and
Development.


Markets and Distribution.




| |                    
| | -------------------
| | Biological Products

Kogenate Kogenate Kogenate


Pharmaceuticals




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





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

Cipro Ciproxin Ciproxine Ciprobay Ciproxina Baycip Ciflox Uniflox Cipro Cipro Cipro


Adalat


Avelox® Avalox® Izilox Actira Octegra®


18



---



##### Table of Contents



Acarbose Glucobay® Glucor® Precose® Prandase Glucobay®


Trasylol


Levitra Financial Information  Legal Proceedings Levitra®


Aspirin® Protect Aspirin Regimen Bayer




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





Levitra® Levitra® Cipro® Avelox Levitra® Zetia®








19



---



##### Table of Contents







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



 Segment Strategy




i.e






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

Adalat® 




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





20



---



##### Table of Contents





|                             |  |            |            |  |        |  |               | 
|---------------------------- |  | ---------- | ---------- |  | ------ |  | ------------- | 
|Project                      |  | Indication |            |  | Status | 
|                             |  |            |            |  |        | 
|Factor Xa inhibitor          |  |            | Thrombosis |  |        |  | In Phase II   | 
|Raf Kinase & VEGFR inhibitor |  |            | Cancer     |  |        |  | In Phase  III | 







| |                                    
| | -----------------------------------
| | Microbial resistance to antibiotics







| |               
| | --------------
| | Collaborations



21



---



##### Table of Contents





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



|                                                                                                                             |  |                                                                                                                          |  |                                                           
|---------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------
|Research Cycle                                                                                                               |  | Discipline/Technique                                                                                                     |  | Research Company                                          
|                                                                                                                             |  |                                                                                                                          |  |                                                           
|Understanding the disease mechanism and identifying new targets                                                              |  | Functional genomics
    (functional analysis of genetic data)                                                            |  | Millennium; Affymetrix; CuraGen                           
|                                                                                                                             |  | Proteomics(mapping protein expression and function in
    an organism or tissue)/Target Validation                       |  | Galapagos; Pharmagene; Dharmacon; Cenix; Cellzome; Artemis
|                                                                                                                             |  | Bioinformatics(applying the tools of Information
    Technology to biological data analysis)                             |  | Lion Bioscience                                           
|Screening the candidate substances                                                                                           |  | High-throughput screening (rapid, automated testing of
    compounds for potential effectiveness against a given target) |  | Axxam; Discovery Partners                                 
|                                                                                                                             |  | Toxico- and Pharmacogenomics (increasing the quality
    and probability of success of drug candidates)                  |  | CuraGen                                                   
|Increasing the pool of potential drug candidates by
    small-chemical molecules and macromolecules (proteins,
    peptides) |  | Combinatorial chemistry (techniques for increasing the
    number and diversity of test compounds)                       |  | ComGenex                                                  
|                                                                                                                             |  | X-ray crystallography                                                                                                    |  | Structural Genomix                                        
|                                                                                                                             |  | Pharmacophore informatics                                                                                                |  | Lion Bioscience                                           
|                                                                                                                             |  | Pool of Bayer biomolecules (for example,
    monoclonal antibodies and conjugates)                                       |  | Morphosys; Seattle Genetics                               






| |           
| | ----------
| | Millennium





| |                
| | ---------------
| | LION Bioscience



22



---



##### Table of Contents







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





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





| |     
| | ----
| | Onyx





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

Avelox® Levitra®




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

Levitra® Levitra®




| |        
| | -------
| | Paratek





| |       
| | ------
| | Indena





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

Zetia® Emselex®


23



---



##### Table of Contents



Zetia® Emselex®


Biological Products




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



Polyglobin® Gamimune® N Gamunex® Prolastin® Kogenate®




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



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

Kogenate FS Kogenate Bayer Kogenate


Helixate FS.




| |                                                   
| | --------------------------------------------------
| | Plasma Products (our plasma business will be sold)

Gamunex® Gamunex®


Gamimune Polyglobin


Prolastin




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









24



---



##### Table of Contents



Kogenate , Kogenate






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

Kogenate  Next Generation,
Kogenate BIOSET, Prolastin (Alpha C) IGIV-C (Gamunex )
Expanded Indications




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

|        |  |                                                                               |  |        |            | 
|------- |  | ----------------------------------------------------------------------------- |  | ------ | ---------- | 
|Product |  | Indication                                                                    |  | Status |           
|        |  |                                                                               |  |        |           
|IGIV-C  |  | Multiple Sclerosis  New Indication                                           |  |        | Phase II   | 
|IGIV-C  |  | ITP (idiopathic thrombocytopenic purpura) Rapid Infusion                      |  |        | Phase  III | 
|IGIV-C  |  | CIDP  New Indication (Chronic inflammatory
    demyelinating polyneuropathy) |  |        | Phase  III | 
|IGIV-C  |  | PID (primary immune deficiency) Rapid Infusion                                |  |        | Phase  III | 



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

Kogenate Next Generation


Kogenate FS


Kogenate Kogenate FS






| |                                      
| | -------------------------------------
| | Kogenate®-FS BIO SET® Delivery System

Kogenate ® BIO-SET .




| |                                                   
| | --------------------------------------------------
| | Plasma Products (our plasma business will be sold)



| |                                            
| | -------------------------------------------
| | Prolastin®  Aerosolized AAT and Alpha-1 MP

Prolastin®


25



---



##### Table of Contents









| |                              
| | -----------------------------
| | IGIV-C  Expanded Indications

Gamunex®




| |               
| | --------------
| | R&D Facilities

Kogenate® .


CONSUMER CARE, DIAGNOSTICS




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





|                   |                              |                     |       |      |      |  |       |      |  |  |       |      |  
|------------------ | ---------------------------- | ------------------- | ----- | ---- | ---- |  | ----- | ---- |  |  | ----- | ---- | -
|                   |                              | 2002                |       |      | 2003 |  |       | 2004 | 
|                   |                              |                     |       |      |      |  |       |      | 
|                   |                              | (Euros in millions) |      
|External net sales |                              |                     | 3,755 |      |      |  | 3,336 |      |  |  | 3,311 |     
|                   | Percentage of total sales    |                     |       | 12.7 |      |  |       | 11.7 |  |  |       | 11.1 |  
|Intersegment sales |                              |                     | 2     |      |      |  | 4     |      |  |  | 18    |     
|Operating result   |                              |                     | 593   |      |      |  | 601   |      |  |  | 400   |     
|                   | thereof special
    items(1) |                     |       | 214  |      |  |       | 268  |  |  |       | (30  | )






|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The significant special items are detailed in Item 5,
    Operating and Financial Review and Prospects 
    Operating Results 2002, 2003 and 2004  Segment
    Data.



|                                   |       |                     |       |       |      |  |       |       |  |  |       |       | 
|---------------------------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                   |       | 2002                |       |       | 2003 |  |       | 2004  | 
|                                   |       |                     |       |       |      |  |       |       | 
|                                   |       | (Euros in millions) |      
|Europe                             |       |                     | 1,194 |       |      |  | 1,122 |       |  |  | 1,186 |      
|North America                      |       |                     | 1,581 |       |      |  | 1,504 |       |  |  | 1,440 |      
|Asia/ Pacific                      |       |                     | 456   |       |      |  | 302   |       |  |  | 289   |      
|Latin America/ Africa/ Middle East |       |                     | 524   |       |      |  | 408   |       |  |  | 396   |      
|                                   |       |                     |       |       |      |  |       |       | 
|                                   | Total |                     |       | 3,755 |      |  |       | 3,336 |  |  |       | 3,311 | 
|                                   |       |                     |       |       |      |  |       |       | 

26



---



##### Table of Contents





|                                                    |       |                     |       |       |      |  |       |       |  |  |       |       | 
|--------------------------------------------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|Division                                            |       | 2002                |       |       | 2003 |  |       | 2004  | 
|                                                    |       |                     |       |       |      |  |       |       | 
|                                                    |       | (Euros in millions) |      
|Consumer Care                                       |       |                     | 1,716 |       |      |  | 1,403 |       |  |  | 1,336 |      
|Diagnostics (formerly Professional Testing Systems) |       |                     | 1,310 |       |      |  | 1,308 |       |  |  | 1,322 |      
|Diabetes Care (formerly Self Testing Systems)       |       |                     | 729   |       |      |  | 625   |       |  |  | 653   |      
|                                                    |       |                     |       |       |      |  |       |       | 
|                                                    | Total |                     |       | 3,755 |      |  |       | 3,336 |  |  |       | 3,311 | 
|                                                    |       |                     |       |       |      |  |       |       | 

 Ascensia®    Aspirin® (1)    Advia® Centaur  


Segment Strategy




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



Aspirin Pravachol Pravachol




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









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












|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|(1) | The figures include CardioAspirin, which is partially
    distributed by our Pharmaceuticals division.

27



---



##### Table of Contents





Consumer Care




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





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



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



Aspirin Bayer Aleve Aleve Midol Midol Extended
Relief (tm)




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

Aspirin Protect Aspirin Regimen Bayer




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



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




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



Canesten Rid


28



---



##### Table of Contents





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



Alka-Seltzer Phillips Milk of Magnesia Talcid




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



One-A-Day tm Flintstones


Supradyn Bepanthen Rennie Redoxon Aleve Flanax Berocca Aleve  Consumer Care,
Diagnostics  Segment Strategy  Consumer
Care


Midol® Extended
Relief (tm) One-A-Day




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













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

29



---



##### Table of Contents





Diagnostics




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





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



| |                                                         
| | --------------------------------------------------------
| | Central Laboratory Testing (formerly Laboratory Testing)

The ADVIA® family of
products is the centerpiece of our Central Laboratory Testing
portfolio, which provides a wide range of solutions for the
laboratory. ADVIA® products include medium- and
high-throughput systems for immuno-diagnostics (the measurement
of such substances as proteins, steroids, drugs and antibodies
in patients blood), clinical chemistry, hematology and
other diagnostic disciplines. The main systems include ADVIA
Centaur®, Advia®2400and, for the
laboratory integration and automation solutions,
LabCell® and
WorkCell (TM) .
In addition to broadening our ADVIA® product line,
we have continued to strengthen its market position in 2004 with
the introduction of two FDA-approved Hepatitis B assays:
anti-HBc IgM and anti-HBs. FDA approval for three additional
Hepatitis assays (two Hepatitis B and one Hepatitis C) was
received in late 2004. These assays will be launched in 2005.
FDA clearance was also received for two additional claims for
our BNP test, a high-value cardiac marker.




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

We provide a variety of solutions
for the Near Patient Testing environment, both in the hospital
and in physicians office laboratories. For the critical
care environment, we offer the
Rapid (TM) family of instruments and reagents for the measurement of blood
gases and electrolytes. In the field of urinalysis, we offer the
Multistix® family of urine reagent strips for visual
reading of up to 10 parameters and the Clinitek®
line of instruments for automated sample analysis. We also offer
the DCA 2000®+ system that provides diagnostic tests
for diabetes and kidney disease management.




| |                                                      
| | -----------------------------------------------------
| | Molecular Testing (formerly Nucleic Acid Diagnostics)

VERSANT®




| |               
| | --------------
| | TeleHealthcare

The joint venture with Matsushita
Electric
Industrial (TM) Co. Ltd. established the subsidiary
Viterion (TM) TeleHealthcare LLC, an independent company that is marketing
products and services for the telemedicine sector, in 2003. Main
products are the
Viterion (TM) 100 TeleHealth Monitor, a compact home health care monitor and
the
Viterion (TM) 500 TeleHealth Monitor, a state-of-the-art home health care
monitor.


30



---



##### Table of Contents





|                              |  |                                  |  |                          
|----------------------------- |  | -------------------------------- |  | -------------------------
|Product/Brand Name            |  | Principal application            |  | Status(1)                
|                              |  |                                  |  |                          
|ADVIA Centaur® menu expansion |  | Infectious disease, two          |  | Launched throughout 2004 
|                              |  | additional claims for BNP        |  |                          
|ADVIA IMS® 800imenu expansion |  | Integrated immunodiagnostics and |  | Launched throughout 2004 
|                              |  | clinical chemistry               |  |                          
|ADVIA® 1200                   |  | Low- to medium-volume clinical   |  | Launched in November 2004
|                              |  | chemistry analyzer               |  |                          
|ADVIA® 2120                   |  | 2nd generation hematology        |  | Launched in May 2004     
|                              |  | platform to ADVIA® 120           |  |                          






|    |                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 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: Abbott, Roche, Beckman
    Coulter, Dade Behring and Johnson & Johnson;
|
| |  | Molecular Testing: Roche, Abbott and Gen-Probe;                                                    
|
| |  | Near Patient Testing: Roche, Radiometer and
    Instrumentation Laboratory;                        
|
| |  | TeleHealthcare: HomMed, American Telecare, Health Hero,
    Philips Medical, Alere Medical.        



| |                         
| | ------------------------
| | 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; and                                     

31



---



##### Table of Contents





| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | in Near Patient Testing, through enhancements of our Rapid
    systems and Clinitek products, and entry into the point-of-care
    immunoassay market.





|                              |  |                                                                                            |  |                                 
|----------------------------- |  | ------------------------------------------------------------------------------------------ |  | --------------------------------
|Product/Brand Name            |  | Principal Application                                                                      |  | Status(1)                       
|                              |  |                                                                                            |  |                                 
|ADVIA Centaur® CP             |  | Medium-volume immunoassay analyzer                                                         |  | Launch planned for 2005         
|Rabidlab® 1200                |  | Blood gas/electrolyte analyzer                                                             |  | Launch planned for 2005         
|ADVIA Centaur®menu expansion  |  | Completion of full infectious disease panel, autoimmune and
    transplant drug monitoring |  | Launch planned throughout 2005  
|ADVIA IMS® 800imenu expansion |  | Menu expansion for clinical chemistry                                                      |  | Launches planned throughout 2005






|    |                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 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
    for refers to a single product.





Diabetes Care




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





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

Ascensia® Ascensia® Breeze® Confirm Ascensia® DEX® Ascensia® Contour® Ascensia ELITE®


Ascensia®
BRIO Ascensia® BRIO i.e. i.e.


32



---



##### Table of Contents





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







Ascensia®
Breeze/ Confirm® Ascensia® Contour/ Entrust®






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





Ascensia


SonoPrep (tm)


ANIMAL HEALTH


Overview




33



---



##### Table of Contents





|                   |                              |                     |     |     |      |  |     |      |  |  |     |     | 
|------------------ | ---------------------------- | ------------------- | --- | --- | ---- |  | --- | ---- |  |  | --- | --- | 
|                   |                              | 2002                |     |     | 2003 |  |     | 2004 | 
|                   |                              |                     |     |     |      |  |     |      | 
|                   |                              | (Euros in millions) |    
|External net sales |                              |                     | 850 |     |      |  | 790 |      |  |  | 786 |    
|                   | Percentage of total sales    |                     |     | 2.9 |      |  |     | 2.8  |  |  |     | 2.6 | 
|Intersegment sales |                              |                     | 1   |     |      |  | 8   |      |  |  | 4   |    
|Operating result   |                              |                     | 168 |     |      |  | 172 |      |  |  | 157 |    
|                   | thereof special
    items(1) |                     |     | (11 | )    |  |     | 22   |  |  |     | 0   | 






|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The significant special items are detailed in Item 5,
    Operating and Financial Review and Prospects 
    Operating Results 2002, 2003 and 2004  Segment
    Data.



|                                   |       |                     |     |     |      |  |     |      |  |  |     |     | 
|---------------------------------- | ----- | ------------------- | --- | --- | ---- |  | --- | ---- |  |  | --- | --- | 
|                                   |       | 2002                |     |     | 2003 |  |     | 2004 | 
|                                   |       |                     |     |     |      |  |     |      | 
|                                   |       | (Euros in millions) |    
|Europe                             |       |                     | 243 |     |      |  | 242 |      |  |  | 245 |    
|North America                      |       |                     | 337 |     |      |  | 305 |      |  |  | 295 |    
|Asia/ Pacific                      |       |                     | 136 |     |      |  | 122 |      |  |  | 120 |    
|Latin America/ Africa/ Middle East |       |                     | 134 |     |      |  | 121 |      |  |  | 126 |    
|                                   |       |                     |     |     |      |  |     |      | 
|                                   | Total |                     |     | 850 |      |  |     | 790  |  |  |     | 786 | 
|                                   |       |                     |     |     |      |  |     |      | 



|                 |       |                     |     |     |      |  |     |      |  |  |     |     | 
|---------------- | ----- | ------------------- | --- | --- | ---- |  | --- | ---- |  |  | --- | --- | 
|                 |       | 2002                |     |     | 2003 |  |     | 2004 | 
|                 |       |                     |     |     |      |  |     |      | 
|                 |       | (Euros in millions) |    
|Food Animal      |       |                     | 414 |     |      |  | 383 |      |  |  | 375 |    
|Companion Animal |       |                     | 436 |     |      |  | 407 |      |  |  | 411 |    
|                 |       |                     |     |     |      |  |     |      | 
|                 | Total |                     |     | 850 |      |  |     | 790  |  |  |     | 786 | 
|                 |       |                     |     |     |      |  |     |      | 

 Advantage K9Advantix    Baytril  


Segment Strategy






34



---



##### Table of Contents



Major Products




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

K9 Advantix®


Advantage


Droncit Drontal


Bayticol


Baycox




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

Baytril




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





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

Baytril® Baycox®




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



Markets and Distribution










35



---



##### 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




BAYER CROPSCIENCE


Overview




36



---



##### Table of Contents





|                   |                              |                     |       |      |      |  |       |      |   |  |       |      |  
|------------------ | ---------------------------- | ------------------- | ----- | ---- | ---- |  | ----- | ---- | - |  | ----- | ---- | -
|                   |                              | 2002(1)             |       |      | 2003 |  |       | 2004 |  
|                   |                              |                     |       |      |      |  |       |      |  
|                   |                              | (Euros in millions) |      
|External net sales |                              |                     | 4,697 |      |      |  | 5,764 |      |   |  | 5,946 |     
|                   | Percentage of total sales    |                     |       | 15.9 |      |  |       | 20.2 |   |  |       | 20.0 |  
|Intersegment sales |                              |                     | 90    |      |      |  | 69    |      |   |  | 57    |     
|Operating result   |                              |                     | (112  | )    |      |  | 342   |      |   |  | 492   |     
|                   | thereof special
    items(2) |                     |       | 67   |      |  |       | (81  | ) |  |       | (30  | )






|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The figures contain sales from the acquired Aventis CropScience
    business since June 2002.                                                                         
|   
|(2) | The significant special items are detailed in Item 5,
    Operating and Financial Review and Prospects 
    Operating Results 2002, 2003 and 2004  Segment
    Data.



|                                   |       |                     |       |       |      |  |       |       |  |  |       |       | 
|---------------------------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                   |       | 2002                |       |       | 2003 |  |       | 2004  | 
|                                   |       |                     |       |       |      |  |       |       | 
|                                   |       | (Euros in millions) |      
|Europe                             |       |                     | 1,851 |       |      |  | 2,296 |       |  |  | 2,238 |      
|North America                      |       |                     | 1,024 |       |      |  | 1,339 |       |  |  | 1,412 |      
|Asia/ Pacific                      |       |                     | 797   |       |      |  | 963   |       |  |  | 927   |      
|Latin America/ Africa/ Middle East |       |                     | 1,025 |       |      |  | 1,166 |       |  |  | 1,369 |      
|                                   |       |                     |       |       |      |  |       |       | 
|                                   | Total |                     |       | 4,697 |      |  |       | 5,764 |  |  |       | 5,946 | 
|                                   |       |                     |       |       |      |  |       |       | 



|                      |                |                     |       |       |      |  |       |       |  |  |       |       | 
|--------------------- | -------------- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                      |                | 2002                |       |       | 2003 |  |       | 2004  | 
|                      |                |                     |       |       |      |  |       |       | 
|                      |                | (Euros in millions) |      
|Crop Protection       |                |                     | 4,002 |       |      |  | 4,801 |       |  |  | 4,957 |      
|                      | Insecticides   |                     |       | 1,250 |      |  |       | 1,376 |  |  |       | 1,378 | 
|                      | Fungicides     |                     |       | 1,030 |      |  |       | 1,168 |  |  |       | 1,277 | 
|                      | Herbicides     |                     |       | 1,452 |      |  |       | 1,848 |  |  |       | 1,855 | 
|                      | Seed Treatment |                     |       | 270   |      |  |       | 409   |  |  |       | 447   | 
|Environmental Science |                |                     | 605   |       |      |  | 692   |       |  |  | 678   |      
|BioScience            |                |                     | 90    |       |      |  | 271   |       |  |  | 311   |      
|                      |                |                     |       |       |      |  |       |       | 
|                      | Total          |                     |       | 4,697 |      |  |       | 5,764 |  |  |       | 5,946 | 
|                      |                |                     |       |       |      |  |       |       | 

37



---



##### Table of Contents





|                                                                                               |       |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               |  |       |       |  |  |      |  | 
|---------------------------------------------------------------------------------------------- | ----- | --------- | ----- | ------------- | ------------- |  | --------- | ----- | ------------- |  | ------------- | --------- |  | ------------- | ---- |  | ------------- |  | ----- | ----- |  |  | ---- |  | 
|                                                                                               |       | 2002      |       |               | 2003          |  |           | 2004  |              
|                                                                                               |       |           |       |               |               |  |           |       |              
|                                                                                               |       |           |       | 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®/
    Merit®(a)(Insectides/ Seed Treatment/ Environmental Sciences) |       |           | 561   |               |               |  | 11.9      |       |               |  | 590           |           |  |               | 10.2 |  |               |  | 603   |       |  |  | 10.1 | 
|Folicur®/ Raxil®(Fungicides/ Seed
    Treatment)                                               |       |           | 260   |               |               |  | 5.5       |       |               |  | 315           |           |  |               | 5.5  |  |               |  | 411   |       |  |  | 6.9  | 
|FLINT®/ Stratego®/ Sphere®
    (Fungicides)                                                    |       |           | 159   |               |               |  | 3.4       |       |               |  | 200           |           |  |               | 3.5  |  |               |  | 240   |       |  |  | 4.0  | 
|Puma®(b)(Herbicides)                                                                           |       |           | 92    |               |               |  | 2.0       |       |               |  | 226           |           |  |               | 3.9  |  |               |  | 227   |       |  |  | 3.8  | 
|Basta®/
    Liberty®(b)(Herbicides)                                                            |       |           | 70    |               |               |  | 1.5       |       |               |  | 159           |           |  |               | 2.8  |  |               |  | 197   |       |  |  | 3.3  | 
|Decis®/
    K-Othrine®(b)(Insecticides/ Environmental Science)                                 |       |           | 87    |               |               |  | 1.9       |       |               |  | 159           |           |  |               | 2.8  |  |               |  | 172   |       |  |  | 2.9  | 
|Betanal®(b)(Herbicides)                                                                        |       |           | 41    |               |               |  | 0.9       |       |               |  | 143           |           |  |               | 2.5  |  |               |  | 144   |       |  |  | 2.4  | 
|Fenikan®(b)(Herbicides)                                                                        |       |           | 71    |               |               |  | 1.5       |       |               |  | 115           |           |  |               | 2.0  |  |               |  | 118   |       |  |  | 2.0  | 
|Temik®(b)(Insecticides)                                                                        |       |           | 59    |               |               |  | 1.3       |       |               |  | 90            |           |  |               | 1.6  |  |               |  | 109   |       |  |  | 1.8  | 
|Aliette®(b)(Fungicides)                                                                        |       |           | 64    |               |               |  | 1.4       |       |               |  | 107           |           |  |               | 1.9  |  |               |  | 99    |       |  |  | 1.7  | 
|Other                                                                                          |       |           | 3,233 |               |               |  | 68.7      |       |               |  | 3,660         |           |  |               | 63.3 |  |               |  | 3,626 |       |  |  | 61.1 | 
|                                                                                               |       |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 
|                                                                                               | Total |           |       | 4,697         |               |  |           |       |               |  |               | 5,764     |  |               |      |  |               |  |       | 5,946 |  |  |      |  | 
|                                                                                               |       |           |       |               |               |  |           |       |               |  |               |           |  |               |      |  |               | 






|    |  |                                                                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | The active ingredient imidacloprid contained in these products
    is also used in the Animal Health segments
    Advantage® product.
|   
|(b) |  | Sales after the acquisition of the Aventis CropScience group
    (June 2002).                                                         

Segment Strategy






(2)











|    |                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | This statement is based on 2003 and first half of 2004 data
    published in AgriFutura, The newsletter of Phillips
    McDougall  Agriservice, No. 53 (March 2004) and
    No. 58 (August 2004); data for the full year 2004 have
    not yet been published.

38



---



##### Table of Contents









| |   |                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Agricultural Crops focuses on delivering seeds and crops with
    improved performance and productivity, particularly with respect
    to our core crops cotton, oilseed rape (canola) and rice.                            
|
| |  | In New Business Ventures, we are developing innovative
    plant-derived materials for applications in fields such as
    health, biomaterials and nutrition.                                                               
|
| |  | In the Vegetables field, where the Nunhems unit of BioScience is
    among the leading developers and suppliers of high quality
    vegetable seed varieties (based on sales), we intend to pursue
    growth opportunities.

Major Products




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



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

Confidor Admire


Decis Decis


Temik Temik Temik




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

Folicur Folicur Folicur Folicur


Flint Flint Stratego Sphere


Aliette Aliette Mikal Valiant


39



---



##### Table of Contents





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

Puma


Basta Liberty


Betanal




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

Gaucho


Poncho


Raxil




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

Premise Merit


K-Othrine Deltagard


Maxforce Maxforce


Bayer Advanced Bayer Garden




| |           
| | ----------
| | BioScience

Nunhems


FiberMax FiberMax


40



---



##### Table of Contents



InVigor InVigor


Arize (tm)


Markets and Distribution












InVigor FiberMax




Research and Development






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







41



---



##### Table of Contents









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





| |           
| | ----------
| | BioScience







|                       |  |                |  |                        
|---------------------- |  | -------------- |  | -----------------------
|New active ingredients |  | Product Family |  | Status                 
|                       |  |                |  |                        
|Prothioconazole        |  | Fungicides     |  | Launched in 2004       
|Spiromesifen           |  | Insecticides   |  | Launch expected in 2005
|Fluoxastrobin          |  | Fungicides     |  | Launch expected in 2005

Proline Proline Prosaro Input Redigo


Oberon Oberon Oberon


Fandango Bariton Scenic





BAYER MATERIALSCIENCE




42



---



##### Table of Contents



MATERIALS


Overview




|                   |                              |                     |       |     |      |  |       |      |   |  |       |      | 
|------------------ | ---------------------------- | ------------------- | ----- | --- | ---- |  | ----- | ---- | - |  | ----- | ---- | 
|                   |                              | 2002                |       |     | 2003 |  |       | 2004 |  
|                   |                              |                     |       |     |      |  |       |      |  
|                   |                              | (Euros in millions) |      
|External net sales |                              |                     | 2,875 |     |      |  | 2,777 |      |   |  | 3,248 |     
|                   | Percentage of total sales    |                     |       | 9.7 |      |  |       | 9.7  |   |  |       | 10.9 | 
|Intersegment sales |                              |                     | 24    |     |      |  | 23    |      |   |  | 27    |     
|Operating result   |                              |                     | 174   |     |      |  | 58    |      |   |  | 293   |     
|                   | thereof special
    items(1) |                     |       | (2  | )    |  |       | (29  | ) |  |       | 0    | 






|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The significant special items are detailed in Item 5,
    Operating and Financial Review and Prospects 
    Operating Results 2002, 2003 and 2004  Segment
    Data.



|                                   |       |                    |       |       |      |  |       |       |  |  |       |       | 
|---------------------------------- | ----- | ------------------ | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                   |       | 2002               |       |       | 2003 |  |       | 2004  | 
|                                   |       |                    |       |       |      |  |       |       | 
|                                   |       | (Euro in millions) |      
|Europe                             |       |                    | 1,229 |       |      |  | 1,246 |       |  |  | 1,382 |      
|North America                      |       |                    | 724   |       |      |  | 608   |       |  |  | 703   |      
|Asia/ Pacific                      |       |                    | 766   |       |      |  | 747   |       |  |  | 947   |      
|Latin America/ Africa/ Middle East |       |                    | 156   |       |      |  | 176   |       |  |  | 216   |      
|                                   |       |                    |       |       |      |  |       |       | 
|                                   | Total |                    |       | 2,875 |      |  |       | 2,777 |  |  |       | 3,248 | 
|                                   |       |                    |       |       |      |  |       |       | 



|                            |       |                    |       |       |      |  |       |       |  |  |       |       | 
|--------------------------- | ----- | ------------------ | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                            |       | 2002               |       |       | 2003 |  |       | 2004  | 
|                            |       |                    |       |       |      |  |       |       | 
|                            |       | (Euro in millions) |      
|Polycarbonates              |       |                    | 1,742 |       |      |  | 1,713 |       |  |  | 2,035 |      
|Thermoplastic Polyurethanes |       |                    | 181   |       |      |  | 177   |       |  |  | 182   |      
|Wolff Walsrode              |       |                    | 345   |       |      |  | 323   |       |  |  | 328   |      
|H.C. Starck                 |       |                    | 607   |       |      |  | 564   |       |  |  | 703   |      
|                            |       |                    |       |       |      |  |       |       | 
|                            | Total |                    |       | 2,875 |      |  |       | 2,777 |  |  |       | 3,248 | 
|                            |       |                    |       |       |      |  |       |       | 

 Makrolon    Bayblend  


Segment Strategy




43



---



##### Table of Contents









Polycarbonates




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





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



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

Makrolon APEC®




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

Makroblend Bayblend




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

Makrofol Makrolon Makrofol Makrolon Bayblend


Bayfol® Bayfol®


44



---



##### Table of Contents





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

Makrolon , Bayloy ,Vivak Axpet .




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













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







|                                  |  |                                         
|--------------------------------- |  | ----------------------------------------
|Product/Brand Name                |  | Application                             
|                                  |  |                                         
|Surface-modified Makrolon®        |  | Automotive                              
|Improved Makrolon®ODS grade       |  | Recordable ODS formats, such as DVD-R   
|Extension of Bayblend®FR series   |  | Business machines/information technology
|New Materials for Makrolon®Sheets |  | Electric/Electronic                     



45



---



##### Table of Contents



Thermoplastic Polyurethanes




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





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

Desmopan Texin Walotex Walopur Platilon Dureflex® .




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













| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| |  | TPU Granules: BASF/ Elastogran, Lubrizol/ Noveon,
    Huntsman, Taiwan Uretec, Dow Chemical;
|
| |  | TPU Film: Stevens Urethane, Fait, Ding Zing.                                                



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





Wolff Walsrode




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



46



---



##### Table of Contents





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



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



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



| |      
| | -----
| | Other



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



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











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





H.C. Starck




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



47



---



##### Table of Contents





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



| |                                
| | -------------------------------
| | Metallic products and compounds



Kulite


Molyform Lubriform Molyform




| |                      
| | ---------------------
| | Battery intermediates

Ampergy Ampergy .




| |                   
| | ------------------
| | Chemical catalysts

Amperkat




| |                      
| | ---------------------
| | Thermal spray powders

Amperit Amperit




| |                          
| | -------------------------
| | Ceramic powders and parts





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







48



---



##### Table of Contents







| |   |                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Metallic products and compounds: Wolfram Bergbau- und
    Hütten GmbH, Cabot Group (including its associated joint
    ventures), Mitsui, MolymetOMG, Osram Sylvania, Japan New Metals,
    Plansee AG, Phelps Dodge;
|
| |  | Battery intermediates: Tanaka Chemical, Umicore;                                                                                                                                                                     
|
| |  | Chemical catalysts: Johnson Matthey, Degussa,
    Grace-Davison, Engelhard;                                                                                                                                          
|
| |  | Thermal spray powders: 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)
|Niobium Oxide 60, 80 and 120 K           |  | Capacitors                   
|Tantalum 70/80, 100/120 and 150 K powder |  | Capacitors                   
|Molybdenum plates for PVD                |  | Flat panel displays          

SYSTEMS


Overview






|                   |                              |                     |       |      |      |  |       |      |   |  |       |      |  
|------------------ | ---------------------------- | ------------------- | ----- | ---- | ---- |  | ----- | ---- | - |  | ----- | ---- | -
|                   |                              | 2002                |       |      | 2003 |  |       | 2004 |  
|                   |                              |                     |       |      |      |  |       |      |  
|                   |                              | (Euros in millions) |      
|External net sales |                              |                     | 4,784 |      |      |  | 4,676 |      |   |  | 5,349 |     
|                   | Percentage of total sales    |                     |       | 16.1 |      |  |       | 16.4 |   |  |       | 18.0 |  
|Intersegment sales |                              |                     | 303   |      |      |  | 297   |      |   |  | 339   |     
|Operating result   |                              |                     | (78   | )    |      |  | (455  | )    |   |  | 348   |     
|                   | thereof special
    items(1) |                     |       | (296 | )    |  |       | (715 | ) |  |       | (27  | )






|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The significant special items are detailed in Item 5,
    Operating and Financial Review and Prospects 
    Operating Results 2002, 2003 and 2004  Segment
    Data.

49



---



##### Table of Contents





|                                   |       |                     |       |       |      |  |       |       |  |  |       |       | 
|---------------------------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                   |       | 2002                |       |       | 2003 |  |       | 2004  | 
|                                   |       |                     |       |       |      |  |       |       | 
|                                   |       | (Euros in millions) |      
|Europe                             |       |                     | 2,085 |       |      |  | 2,107 |       |  |  | 2,494 |      
|North America                      |       |                     | 1,536 |       |      |  | 1,406 |       |  |  | 1,483 |      
|Asia/ Pacific                      |       |                     | 677   |       |      |  | 678   |       |  |  | 822   |      
|Latin America/ Africa/ Middle East |       |                     | 486   |       |      |  | 485   |       |  |  | 550   |      
|                                   |       |                     |       |       |      |  |       |       | 
|                                   | Total |                     |       | 4,784 |      |  |       | 4,676 |  |  |       | 5,349 | 
|                                   |       |                     |       |       |      |  |       |       | 



|                            |       |                     |       |       |      |  |       |       |  |  |       |       | 
|--------------------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                            |       | 2002                |       |       | 2003 |  |       | 2004  | 
|                            |       |                     |       |       |      |  |       |       | 
|                            |       | (Euros in millions) |      
|Polyurethanes               |       |                     | 3,274 |       |      |  | 3,228 |       |  |  | 3,872 |      
|Coatings Adhesives Sealants |       |                     | 1,318 |       |      |  | 1,191 |       |  |  | 1,237 |      
|Inorganic Basic Chemicals   |       |                     | 181   |       |      |  | 218   |       |  |  | 218   |      
|Others                      |       |                     | 11    |       |      |  | 39    |       |  |  | 22    |      
|                            |       |                     |       |       |      |  |       |       | 
|                            | Total |                     |       | 4,784 |      |  |       | 4,676 |  |  |       | 5,349 | 
|                            |       |                     |       |       |      |  |       |       | 

 Desmodur  Desmodur


Segment Strategy










Polyurethanes




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



50



---



##### Table of Contents





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

Desmodur® Desmophen®








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




















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



51



---



##### Table of Contents







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





Coatings Adhesives Sealants




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





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



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

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




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

Pergut Impranil® Baybond®




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

Dispercoll® Desmocoll® Baypren® .




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







52



---



##### Table of Contents







Resin components (RES):




| |                                 |                                                                            
| | ------------------------------- | ---------------------------------------------------------------------------
| |   Aliphatic isocyanates (BMI): | Rhodia, Degussa, BASF, Asahi Kasei, NPU (Nippon Polyurethane
    Industry);

Aromatic isocyanates (BMI):




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





Inorganic Basic Chemicals




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





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









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



53



---



##### Table of Contents









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






LANXESS


Overview


Handelsregister Amtsgericht Köln






|                   |                              |                     |       |      |      |  |        |        |   |  |       |      |  
|------------------ | ---------------------------- | ------------------- | ----- | ---- | ---- |  | ------ | ------ | - |  | ----- | ---- | -
|                   |                              | 2002                |       |      | 2003 |  |        | 2004   |  
|                   |                              |                     |       |      |      |  |        |        |  
|                   |                              | (Euros in millions) |      
|External net sales |                              |                     | 6,241 |      |      |  | 5,776  |        |   |  | 6,053 |     
|                   | Percentage of total sales    |                     |       | 21.1 |      |  |        | 20.2   |   |  |       | 20.3 |  
|Intersegment sales |                              |                     | 501   |      |      |  | 557    |        |   |  | 659   |     
|Operating result   |                              |                     | (128  | )    |      |  | (1,290 | )      |   |  | 74    |     
|                   | thereof special
    items(1) |                     |       | (244 | )    |  |        | (1,204 | ) |  |       | (99  | )






|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The significant special items are detailed in Item 5,
    Operating and Financial Review and Prospects 
    Operating Results 2002, 2003 and 2004  Segment
    Data.

54



---



##### Table of Contents





|                                   |       |                     |       |       |      |  |       |       |  |  |       |       | 
|---------------------------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                   |       | 2002                |       |       | 2003 |  |       | 2004  | 
|                                   |       |                     |       |       |      |  |       |       | 
|                                   |       | (Euros in millions) |      
|Europe                             |       |                     | 3,072 |       |      |  | 3,045 |       |  |  | 3,134 |      
|North America                      |       |                     | 1,558 |       |      |  | 1,320 |       |  |  | 1,372 |      
|Asia/ Pacific                      |       |                     | 1,040 |       |      |  | 899   |       |  |  | 981   |      
|Latin America/ Africa/ Middle East |       |                     | 571   |       |      |  | 512   |       |  |  | 566   |      
|                                   |       |                     |       |       |      |  |       |       | 
|                                   | Total |                     |       | 6,241 |      |  |       | 5,776 |  |  |       | 6,053 | 
|                                   |       |                     |       |       |      |  |       |       | 



|                       |       |                     |       |       |      |  |       |       |  |  |       |       | 
|---------------------- | ----- | ------------------- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                       |       | 2002                |       |       | 2003 |  |       | 2004  | 
|                       |       |                     |       |       |      |  |       |       | 
|                       |       | (Euros in millions) |      
|Chemical Intermediates |       |                     | 1,107 |       |      |  | 1,062 |       |  |  | 1,132 |      
|Performance Chemicals  |       |                     | 2,081 |       |      |  | 1,884 |       |  |  | 1,856 |      
|Engineering Plastics   |       |                     | 1,484 |       |      |  | 1,339 |       |  |  | 1,586 |      
|Performance Rubber     |       |                     | 1,459 |       |      |  | 1,358 |       |  |  | 1,400 |      
|Other                  |       |                     | 110   |       |      |  | 133   |       |  |  | 79    |      
|                       |       |                     |       |       |      |  |       |       | 
|                       | Total |                     |       | 6,241 |      |  |       | 5,776 |  |  |       | 6,053 | 
|                       |       |                     |       |       |      |  |       |       | 



Major Products




| |                   
| | ------------------
| | Performance Rubber









| |                     
| | --------------------
| | Engineering Plastics

Novodur Lustran Absolac Lustran Absolan Triax Centrex .




55



---



##### Table of Contents









| |                       
| | ----------------------
| | Chemical Intermediates

Bayferrox®






| |                      
| | ---------------------
| | Performance Chemicals



Markets and Distribution














Performance Rubber:


Engineering Plastics:


56



---



##### Table of Contents



Chemical Intermediates:


Performance Chemicals:


Research and Development


Therban AT Therban AT





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.






57



---



##### Table of Contents



Adalat Avelox Cipro Levitra




| |                               
| | ------------------------------
| | 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                  |         |      | 2009 |        |  |      | 2009 |  |  |       | 2009 |  |       |      | 2014 |       |  |      | 2009   |  |  |        | 2009 |  |  |      | 2014 |  |  |      | 2016 | 
|                    | 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   |  |  |        | 2006 |  |  |      | 2007 |  |  |      | 2008 | 
|                    | Tablet formulation        |         |      | 2007 |        |  |      | 2007 |  |  |       | 2007 |  |       |      | 2007 |       |  |      | 2007   |  |  |        | 2007 |  |  |      | 2011 |  |  |      | 2009 | 
|Imidacloprid        |                           |         | 2006 |      |        |  | 2006 |      |  |  | 2006  |      |  |       | 2006 |      |       |  | 2007 |        |  |  | 2005   |      |  |  | 2006 |      |  |  | 2007 |     
|Vardenafil compound |                           |         | 2018 |      |        |  | 2018 |      |  |  | 2018  |      |  |       | 2018 |      |       |  | 2018 |        |  |  | 2018   |      |  |  | 2018 |      |  |  | 2018 |     

Financial Information  Legal
Proceedings


Trademarks


Alka-Seltzer Aspirin Canesten Flint One-A-Day Rid Admire


58



---



##### Table of Contents






GOVERNMENTAL REGULATION




Product Regulation










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







59



---



##### Table of Contents







| |                    
| | -------------------
| | Biological Products





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





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









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



60



---



##### Table of Contents







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





Centralized
Procedure Mutual Recognition Procedure National Procedure




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









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



61



---



##### Table of Contents













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





Proposed new EU Regulations










62



---



##### 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.                                                                              










Responsible Care ,


63



---



##### Table of Contents








ORGANIZATIONAL STRUCTURE










Business.


Subsidiaries




|                                               |  |          |     | 
|---------------------------------------------- |  | -------- | --- | 
|                                               |  | Bayers  |    
|Company Name and Place of Business             |  | Interest |    
|                                               |  |          |    
|                                               |  | (%)      |    
|Germany                                        |  |          |     | 
|Bayer Chemicals AG, Leverkusen                 |  |          | 100 | 
|Bayer CropScience AG, Monheim                  |  |          | 100 | 
|Bayer CropScience Deutschland GmbH, Langenfeld |  |          | 100 | 
|Bayer CropScience GmbH, Frankfurt              |  |          | 100 | 
|Bayer HealthCare AG, Leverkusen                |  |          | 100 | 
|Bayer MaterialScience AG, Leverkusen           |  |          | 100 | 
|Bayer Vital GmbH, Leverkusen                   |  |          | 100 | 
|H.C. Starck GmbH, Goslar                       |  |          | 100 | 
|LANXESS Deutschland GmbH, Leverkusen           |  |          | 100 | 

64



---



##### Table of Contents



|                                          |  |          |       | 
|----------------------------------------- |  | -------- | ----- | 
|                                          |  | Bayers  |      
|Company Name and Place of Business        |  | Interest |      
|                                          |  |          |      
|                                          |  | (%)      |      
|Other European Countries                  |  |          |       | 
|Bayer Antwerpen N.V., Belgium             |  |          | 100   | 
|Bayer Biologicals S.r.I., Italy           |  |          | 100   | 
|Bayer CropScience France S.A.S., France   |  |          | 100   | 
|Bayer CropScience Limited, U.K.           |  |          | 100   | 
|Bayer CropScience S.A., France            |  |          | 100   | 
|Bayer Diagnostics Europe Ltd., Ireland    |  |          | 100   | 
|Bayer International S.A., Switzerland     |  |          | 100   | 
|Bayer Pharma S.A.S., France               |  |          | 100   | 
|Bayer Polimeros S.L., Spain               |  |          | 100   | 
|Bayer Polyurethanes B.V., Netherlands     |  |          | 100   | 
|Bayer Public Limited Company, U.K.        |  |          | 100   | 
|Bayer S.p.A., Italy                       |  |          | 100   | 
|LANXESS International SA, Switzerland     |  |          | 100   | 
|LANXESS N.V., Belgium                     |  |          | 100   | 
|Quimica Farmaceutica Bayer S.A., Spain    |  |          | 100   | 
|North America                             |  |          |       | 
|Bayer CropScience LP, USA                 |  |          | 100   | 
|Bayer HealthCare LLC, USA                 |  |          | 100   | 
|Bayer Inc., Canada                        |  |          | 100   | 
|Bayer MaterialScience LLC, USA            |  |          | 100   | 
|Bayer Pharmaceuticals Corporation, USA    |  |          | 100   | 
|Asia/ Pacific                             |  |          |       | 
|Bayer CropScience K.K., Japan             |  |          | 100   | 
|Bayer Korea Ltd., Republic Korea          |  |          | 100   | 
|Bayer MaterialScience Limited, Hong Kong  |  |          | 100   | 
|Bayer Medical Ltd., Japan                 |  |          | 100   | 
|Bayer South East Asia Pte Ltd., Singapore |  |          | 100   | 
|Bayer Thai Company Limited, Thailand      |  |          | 99.98 | 
|Bayer Yakuhin, Ltd., Japan                |  |          | 100   | 
|H.C. Starck-V TECH Ltd./ Japan            |  |          | 100   | 
|Sumika Bayer Urethane Co., Ltd., Japan    |  |          | 60    | 
|Latin America/ Africa/ Middle East        |  |          |       | 
|Bayer CropScience Ltda., Brazil           |  |          | 100   | 
|Bayer de Mexico, S.A. de C.V., Mexico     |  |          | 100   | 
|Bayer (Proprietary) Limited, South Africa |  |          | 100   | 
|Bayer S.A., Brazil                        |  |          | 100   | 
|Bayer S.A., Argentina                     |  |          | 100   | 

65



---



##### Table of Contents





|                                                         |  |          |      | 
|-------------------------------------------------------- |  | -------- | ---- | 
|                                                         |  | Bayers  |     
|Company Name and Place of Business                       |  | Interest |     
|                                                         |  |          |     
|                                                         |  | (%)      |     
|Lyondell Bayer Manufacturing Maasvlakte VOF, Netherlands |  |          | 50   | 
|PO JV, LP Corporation, USA                               |  |          | 42.7 | 




PROPERTY, PLANTS AND EQUIPMENT


Information on the Company  Market and
Distribution Research and Development


Erbbaurechte




66



---



##### Table of Contents





|                      |                            |               |  |       |           |  |                                                                                                                                                                                               
|--------------------- | -------------------------- | ------------- |  | ----- | --------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                      |                            | Size in       |  |       |          
|                      |                            | Thousand      |  |       |          
|Location              |                            | Square Meters |  |       | Major Use
|                      |                            |               |  |       |          
|Bayer HealthCare      |                            |               |  |       |           | 
|                      | Leverkusen, Germany        |               |  | 135   |           |  | Formulation and packaging of pharmaceutical products                                                                                                                                          
|                      | Wuppertal, Germany         |               |  | 448   |           |  | Production of active ingredients for ethical pharmaceutical
    products, research and development                                                                                            
|                      | Berkeley, California       |               |  | 186   |           |  | Production of recombinant FVIII                                                                                                                                                               
|                      | Myerstown, Pennsylvania    |               |  | 250   |           |  | Formulation and packaging of Consumer Care products                                                                                                                                           
|                      | Mishawaka, Indiana         |               |  | 131   |           |  | Production of instruments for Diabetes Care division                                                                                                                                          
|Bayer CropScience     |                            |               |  |       |           | 
|                      | Monheim, Germany           |               |  | 651   |           |  | Research and development for the business groups Crop Protection
    and Environmental Science, headquarters of Bayer CropScience AG                                                          
|                      | Frankfurt, Germany         |               |  | 261   |           |  | Research and development as well as production and formulation
    for Crop Protection and Environmental Science                                                                              
|                      | Dormagen, Germany          |               |  | 142   |           |  | Production and formulation for Crop Protection and Environmental
    Science                                                                                                                  
|                      | Kansas City, Missouri      |               |  | 850   |           |  | Production and formulation for Crop Protection                                                                                                                                                
|                      | Haelen, The Netherlands    |               |  | 500   |           |  | Research and development as well as production for the business
    group BioScience (Seeds)                                                                                                  
|Bayer MaterialScience |                            |               |  |       |           | 
|                      | Krefeld-Uerdingen, Germany |               |  | 3,700 |           |  | Production of polycarbonates, diphenylmethane diisocyanates,
    chlorine, caustic soda, hydrochloric acid and hydrogen                                                                       
|                      | Baytown, Texas             |               |  | 6,870 |           |  | Production of base- and modified isocyanates, polycarbonates,
    diphenylmethane diisocyanates, toluene diisocyanates, chlorine,
    caustic soda, hydrochloric acid and hydrogen            
|                      | Dormagen, Germany          |               |  | 5,858 |           |  | Production of modified isocyanates, resins, polycarbonate films,
    toluene diisocyanates, polyether, thermoplastic polyurethanes,
    chlorine, caustic soda, hydrochloric acid and hydrogen
|                      | Antwerp, Belgium           |               |  | 1,580 |           |  | Production of polycarbonates, aniline, nitrobenzene and polyether                                                                                                                             
|                      | Brunsbüttel, Germany       |               |  | 3,300 |           |  | Production of diphenylmethane diisocyanates, toluene
    diisocyanates, chlorine, hydrochloric acid and hydrogen                                                                              

Information on the Company 
Health, Safety and Environmental Regulation. Liquidity and Capital Resources
 Capital expenditures Notes to the
Consolidated Financial Statements of the Bayer Group  19
Property, plant and equipment.


67



---



##### Table of Contents








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



 Forward-Looking Information.


 Critical
Accounting Policies,







OVERVIEW




Information on the Company  Business  Organizational Structure.


Information on the Company  History
and Development of the Company Operating
and Financial Review and Prospects  Acquisitions and
Dispositions.


(Handelsregister) i.e. , Risk
Factors  Our transactions relating to LANXESS expose
us to continuing liability Material
Contracts.




68



---



##### Table of Contents





|                  |  |                     |       |                  |                     |                |        |                     |                     |  |                     |  |  |            |      |   |      |  |      |      |  |  |      |   |  |      |     |  |      |  |   |      |  |  |      |  |  |  |       |  |  |  |        |   |  |  |       |  
|----------------- |  | ------------------- | ----- | ---------------- | ------------------- | -------------- | ------ | ------------------- | ------------------- |  | ------------------- |  |  | ---------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | - |  | ---- | --- |  | ---- |  | - | ---- |  |  | ---- |  |  |  | ----- |  |  |  | ------ | - |  |  | ----- | -
|                  |  |                     |       |                  |                     | Haarmann &     |        |                     | Total Discontinuing | 
|                  |  | LANXESS             |       |                  | Plasma              |                |        | Reimer              |                     |  | Operations          | 
|                  |  |                     |       |                  |                     |                |        |                     |                     |  |                     | 
|                  |  | 2002                |       |                  | 2003                |                |        | 2004                |                     |  | 2002                |  |  | 2003       |      |   | 2004 |  |      | 2002 |  |  | 2003 |   |  | 2004 |     |  | 2002 |  |   | 2003 |  |  | 2004 | 
|                  |  |                     |       |                  |                     |                |        |                     |                     |  |                     |  |  |            |      |   |      |  |      |      |  |  |      |   |  |      |     |  |      |  |   |      |  |  |      | 
|                  |  | (Euros in millions) |       |                  | (Euros in millions) |                |        | (Euros in millions) |                     |  | (Euros in millions) | 
|Net sales         |  |                     | 6,241 |                  |                     |                | 5,776  |                     |                     |  | 6,053               |  |  |            | 679  |   |      |  | 613  |      |  |  | 660  |   |  |      | 666 |  |      |  |  |      |  |  |     |  |  |  | 7,586 |  |  |  | 6,389  |   |  |  | 6,713 |  
|Operating result  |  |                     | (128  | )                |                     |                | (1,290 | )                   |                     |  | 74                  |  |  |            | (113 | ) |      |  | (349 | )    |  |  | (56  | ) |  |      | 978 |  |      |  |  |      |  |  |     |  |  |  | 737   |  |  |  | (1,639 | ) |  |  | 18    |  
|Net income (loss) |  |                     | (104  | )                |                     |                | (992   | )                   |                     |  | 9                   |  |  |            | (126 | ) |      |  | (226 | )    |  |  | (56  | ) |  |      | 954 |  |      |  |  |      |  |  |     |  |  |  | 724   |  |  |  | (1,218 | ) |  |  | (47   | )
|Affected segments |  | LANXESS             |       | Pharmaceuticals, |                     | Reconciliation |        |                     |                     |  |                     |  |  |            |      |   |      | 
|                  |  |                     |       |                  |                     |                |        |                     |                     |  |                     |  |  | Biological |      |   |      |  |      |      |  |  |      |   |  |      |     |  |      |  |   |      |  |  |      |  |  | 
|                  |  |                     |       |                  |                     |                |        |                     |                     |  |                     |  |  | Products   |      |   |      |  |      |      |  |  |      |   |  |      |     |  |      |  |   |      |  |  |      |  |  | 




CRITICAL ACCOUNTING POLICIES






Use of Estimates




Intangible assets and property, plant and equipment








69



---



##### Table of Contents







Research and Development




Revenue Recognition




70



---



##### Table of Contents







Pensions and other benefit obligations




Doubtful accounts




Environmental provisions




71



---



##### Table of Contents



Additional
Information  Material Contracts.


Litigation provisions






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









72



---



##### Table of Contents



Income taxes









OPERATING RESULTS 2002, 2003 AND 2004


Introduction




| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Most significant drivers of our sales, results of
    operations and cash flows in 2004





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Changes in exchange rates  i.e., the effects
    on our results of operations of the substantial strengthening of
    the euro against other currencies, especially the
    U.S. dollar;                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Raw materials, pricing  i.e., the effects on
    our results of operations of the increased prices of
    petrochemical raw materials, other precursors and energy;                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | 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; and
|
| |  | The general economic situation and recovery of some user
    industries in the course of 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                     



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

Quantitative and Qualitative Disclosures about
Market Risk  Currency Risk.






73



---



##### Table of Contents





|                 |  |                                    |        |                 |              |  |        |      |  |  |        |  |  |  |        | 
|---------------- |  | ---------------------------------- | ------ | --------------- | ------------ |  | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|                 |  | Units of Foreign Currency per Euro |       
|                 |  |                                    |       
|                 |  |                                    |        | Average For the |             
|                 |  |                                    |        | Year Ended      |             
|                 |  | At December 31,                    |        |                 | December 31, | 
|                 |  |                                    |        |                 |              | 
|                 |  | 2003                               |        |                 | 2004         |  |        | 2003 |  |  | 2004   | 
|                 |  |                                    |        |                 |              |  |        |      |  |  |        | 
|Argentinean peso |  |                                    | 3.70   |                 |              |  | 4.05   |      |  |  | 3.33   |  |  |  | 3.66   | 
|Brazilian real   |  |                                    | 3.66   |                 |              |  | 3.62   |      |  |  | 3.47   |  |  |  | 3.64   | 
|Canadian dollar  |  |                                    | 1.62   |                 |              |  | 1.64   |      |  |  | 1.58   |  |  |  | 1.62   | 
|British pound    |  |                                    | 0.70   |                 |              |  | 0.71   |      |  |  | 0.69   |  |  |  | 0.68   | 
|Japanese yen     |  |                                    | 135.05 |                 |              |  | 139.65 |      |  |  | 130.96 |  |  |  | 134.40 | 
|Mexican peso     |  |                                    | 14.18  |                 |              |  | 15.23  |      |  |  | 12.22  |  |  |  | 14.04  | 
|Swiss franc      |  |                                    | 1.56   |                 |              |  | 1.54   |      |  |  | 1.52   |  |  |  | 1.54   | 
|U.S. dollar      |  |                                    | 1.26   |                 |              |  | 1.36   |      |  |  | 1.13   |  |  |  | 1.24   | 

   Quantitative and Qualitative Disclosures
about Market Risk.




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





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









74



---



##### Table of Contents









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

 


|                                                                                                            |  |                |      |  
|----------------------------------------------------------------------------------------------------------- |  | -------------- | ---- | -
|                                                                                                            |  | 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 | )
|                                                                                                            |  |                |     

|                                                    |  |                |       | 
|--------------------------------------------------- |  | -------------- | ----- | 
|                                                    |  | Change in 2003 |      
|                                                    |  | from 2002      |      
|                                                    |  |                |      
|                                                    |  | (Euros in      |      
|                                                    |  | millions)      |      
|Acquisitions                                        |  |                |       | 
|Aventis CropScience Holding S.A. (acquired in 2002) |  |                | 1,450 | 
|Visible Genetics Inc. (acquired in 2002)            |  |                | 9     | 
|Tectrade A/ S (acquired in 2002)                    |  |                | 6     | 
|Other                                               |  |                | 1     | 
|                                                    |  |                |      
|                                                    |  |                | 1,466 | 
|                                                    |  |                |      

75



---



##### Table of Contents



|                                                                              |  |                |        |  
|----------------------------------------------------------------------------- |  | -------------- | ------ | -
|                                                                              |  | Change in 2003 |       
|                                                                              |  | from 2002      |       
|                                                                              |  |                |       
|                                                                              |  | (Euros in      |       
|                                                                              |  | millions)      |       
|Divestitures                                                                  |  |                |        |  
|Haarmann & Reimer Group (divested in 2002)                                    |  |                | (666   | )
|Dispositions in compliance with antitrust conditions by Bayer
    CropScience |  |                | (435   | )
|Household insecticides business                                               |  |                | (272   | )
|PolymerLatex group                                                            |  |                | (117   | )
|Organic pigments                                                              |  |                | (54    | )
|Walothen GmbH                                                                 |  |                | (10    | )
|Other                                                                         |  |                | (7     | )
|                                                                              |  |                |       
|                                                                              |  |                | (1,561 | )
|                                                                              |  |                |       
|Net effects on sales                                                          |  |                | (95    | )
|                                                                              |  |                |       



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





|                                                   |                     |                     |       |     |      |  |        |        |   |  |       |      |  
|-------------------------------------------------- | ------------------- | ------------------- | ----- | --- | ---- |  | ------ | ------ | - |  | ----- | ---- | -
|                                                   |                     | 2002                |       |     | 2003 |  |        | 2004   |  
|                                                   |                     |                     |       |     |      |  |        |        |  
|                                                   |                     | (Euros in millions) |      
|Operating result                                   |                     |                     | 1,518 |     |      |  | (1,119 | )      |   |  | 1,808 |     
|Impairment charges and write-downs                 |                     |                     | (289  | )   |      |  | (1,927 | )      |   |  | (63   | )   
|Restructuring charges and unscheduled amortization |                     |                     | (470  | )   |      |  | (508   | )      |   |  | (82   | )   
|Portfolio changes                                  |                     |                     | 1,905 |     |      |  | 469    |        |   |  | (111  | )   
|Other charges                                      |                     |                     | (364  | )   |      |  | (619   | )      |   |  | (180  | )   
|                                                   |                     |                     |       |     |      |  |        |        |  
|                                                   | Total special items |                     |       | 782 |      |  |        | (2,585 | ) |  |       | (436 | )
|Operating result before special items              |                     |                     | 736   |     |      |  | 1,466  |        |   |  | 2,244 |     
|                                                   |                     |                     |       |     |      |  |        |        |  

76



---



##### Table of Contents





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

   Procedure used in global
impairment testing and its impact


 




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




|                                                                            |              |                     |    |    |              |  |   |         |  |  |       |    |  |  |    |    | 
|--------------------------------------------------------------------------- | ------------ | ------------------- | -- | -- | ------------ |  | - | ------- |  |  | ----- | -- |  |  | -- | -- | 
|                                                                            |              | 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 |   
|                                                                            |              |                     |    |    |              |  |   |         |  |  |       |   
|                                                                            | Grand 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                                            |              |                     | 52  |     |              |  | 0   |         |  |  | 0     |    |  |  | 52  |    
|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                   |              |                     | 9   |     |              |  | 9   |         |  |  | 46    |    |  |  | 64  |    
|Totals                                                                            |              |                     | 182 |     |              |  | 145 |         |  |  | 81    |    |  |  | 408 |    
|                                                                                  |              |                     |     |     |              |  |     |         |  |  |       |   
|Write-downs on enterprise management systems                                      |              |                     | 0   |     |              |  | 100 |         |  |  | 0     |    |  |  | 100 |    
|                                                                                  |              |                     |     |     |              |  |     |         |  |  |       |   
|                                                                                  | Grand totals |                     |     | 182 |              |  |     | 245     |  |  |       | 81 |  |  |     | 508 | 
|                                                                                  |              |                     |     |     |              |  |     |         |  |  |       |   



77



---



##### Table of Contents



|                                                                                                              |              |                     |    |           |         |  |    |       |  |  |    |     | 
|------------------------------------------------------------------------------------------------------------- | ------------ | ------------------- | -- | --------- | ------- |  | -- | ----- |  |  | -- | --- | 
|                                                                                                              |              |                     |    | Severance |         |  |   
|                                                                                                              |              |                     |    | Payments  |         |  |   
|                                                                                                              |              |                     |    | and       |         |  |   
|                                                                                                              |              | Unscheduled         |    |           | Other   |  |    |      
|Activity/Business in 2002                                                                                     |              | Amortization        |    |           | Charges |  |    | Total | 
|                                                                                                              |              |                     |    |           |         |  |    |       | 
|                                                                                                              |              | (Euros in millions) |   
|Integration of businesses acquired from Aventis CropScience                                                   |              |                     | 0  |           |         |  | 89 |       |  |  | 89 |    
|Restructuring of the rubber production site in Sarnia, Ontario,
    Canada                                    |              |                     | 41 |           |         |  | 26 |       |  |  | 67 |    
|Closure of polymers production in Rieme, Belgium                                                              |              |                     | 31 |           |         |  | 7  |       |  |  | 38 |    
|Closure of production of iron oxide in New Martinsville,
    West Virginia                                    |              |                     | 10 |           |         |  | 20 |       |  |  | 30 |    
|Closure of powder coatings production in Hicksville, New York                                                 |              |                     | 18 |           |         |  | 8  |       |  |  | 26 |    
|Restructuring measures in connection with sale of organic
    pigments facility in Bushy Park, South Carolina |              |                     | 23 |           |         |  | 0  |       |  |  | 23 |    
|Restructuring of the Consumer Care production in Elkhart, Indiana                                             |              |                     | 8  |           |         |  | 12 |       |  |  | 20 |    
|Closure of production plant in Barcelona, Spain                                                               |              |                     | 2  |           |         |  | 17 |       |  |  | 19 |    
|Expenses in connection with cooperation arrangement with
    Aventis Behring                                  |              |                     | 0  |           |         |  | 17 |       |  |  | 17 |    
|Reduction of headcount in Polymers area                                                                       |              |                     | 0  |           |         |  | 10 |       |  |  | 10 |    
|Restructuring in New Martinsville, West Virginia                                                              |              |                     | 7  |           |         |  | 3  |       |  |  | 10 |    
|Further ongoing restructuring programs to improve profitability                                               |              |                     | 14 |           |         |  | 9  |       |  |  | 23 |    
|                                                                                                              | Totals       |                     |    | 154       |         |  |    | 218   |  |  |    | 372 | 
|                                                                                                              |              |                     |    |           |         |  |    |       | 
|Write-downs on enterprise management systems                                                                  |              |                     | 98 |           |         |  | 0  |       |  |  | 98 |    
|                                                                                                              |              |                     |    |           |         |  |    |       | 
|                                                                                                              | Grand totals |                     |    | 252       |         |  |    | 218   |  |  |    | 470 | 
|                                                                                                              |              |                     |    |           |         |  |    |       | 



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

History and Development of the Company.   


  


    


     


78



---



##### Table of Contents





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

  Legal Proceedings,       





Bayer Group




|                                               |                            |                     |        |             |               |  |       |      |             |  |               |        |   |      |       |     |  |  |        |        | 
|---------------------------------------------- | -------------------------- | ------------------- | ------ | ----------- | ------------- |  | ----- | ---- | ----------- |  | ------------- | ------ | - | ---- | ----- | --- |  |  | ------ | ------ | 
|                                               |                            |                     |        | Change from |               |  |       |      | Change from |  |               |       
|                                               |                            | 2002                |        |             | Previous Year |  |       | 2003 |             |  | Previous Year |        |   | 2004 |      
|                                               |                            |                     |        |             |               |  |       |      |             |  |               |        |   |      |      
|                                               |                            |                     |        | (%)         |               |  |       |      | (%)         |  |               |       
|                                               |                            | (Euros in millions) |       
|Net sales from continuing operations           |                            |                     | 22,038 |             |               |  | 0.6   |      |             |  | 22,178        |        |   |      | 3.9   |     |  |  | 23,045 |       
|Net sales from discontinuing operations        |                            |                     | 7,586  |             |               |  | (15.8 | )    |             |  | 6,389         |        |   |      | 5.1   |     |  |  | 6,713  |       
|                                               | Net sales                  |                     |        | 29,624      |               |  |       | (3.6 | )           |  |               | 28,567 |   |      |       | 4.2 |  |  |        | 29,758 | 
|Gross
    profit(1)                            |                            |                     | 11,909 |             |               |  | (1.2  | )    |             |  | 11,766        |        |   |      | 5.2   |     |  |  | 12,376 |       
|                                               | as percentage of sales (%) |                     |        | 40.2        |               |  |       |     |             |  |               | 41.2   |   |      |       |    |  |  |        | 41.6   | 
|Selling
    expenses(1)                        |                            |                     | (6,959 | )           |               |  | 7.2   |      |             |  | (6,460        | )      |   |      | 4.7   |     |  |  | (6,155 | )     
|Research and development
    expenses(1)       |                            |                     | (2,588 | )           |               |  | 7.1   |      |             |  | (2,404        | )      |   |      | 12.4  |     |  |  | (2,107 | )     
|General and administrative expenses
    (1)    |                            |                     | (1,480 | )           |               |  | (13.0 | )    |             |  | (1,673        | )      |   |      | (2.5  | )   |  |  | (1,714 | )     
|Other operating income                         |                            |                     | 2,706  |             |               |  | (57.2 | )    |             |  | 1,158         |        |   |      | (30.6 | )   |  |  | 804    |       
|Other operating expenses                       |                            |                     | (2,070 | )           |               |  | (69.4 | )    |             |  | (3,506        | )      |   |      | 60.2  |     |  |  | (1,396 | )     
|Operating result from continuing operations    |                            |                     | 781    |             |               |  | (33.4 | )    |             |  | 520           |        |   |      | 244.2 |     |  |  | 1,790  |       
|Operating result from discontinuing operations |                            |                     | 737    |             |               |  |      |      |             |  | (1,639        | )      |   |      |      |     |  |  | 18     |       
|                                               | Operating
    result(1)    |                     |        | 1,518       |               |  |       |     |             |  |               | (1,119 | ) |      |       |    |  |  |        | 1,808  | 
|                                               | as percentage of sales (%) |                     |        | 5.1         |               |  |       |     |             |  |               | (3.9   | ) |      |       |    |  |  |        | 6.1    | 
|Non-operating
    result(1)                    |                            |                     | (562   | )           |               |  | (55.7 | )    |             |  | (875          | )      |   |      | 5.9   |     |  |  | (823   | )     
|Income before income taxes                     |                            |                     | 956    |             |               |  |      |      |             |  | (1,994        | )      |   |      |      |     |  |  | 985    |       
|Net income                                     |                            |                     | 1,060  |             |               |  |      |      |             |  | (1,361        | )      |   |      |      |     |  |  | 603    |       






|    |                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 2002 and 2003 data have been restated for these items because of
    a change in the reporting of funded pension obligations. For
    more details, see Note 7 to the consolidated financial
    statements appearing elsewhere in this annual report on
    Form 20-F.

79



---



##### Table of Contents





|                                   |  |                     |        |             |               |  |      |      |             |  |               |  |  |      |      |   |  |  |        | 
|---------------------------------- |  | ------------------- | ------ | ----------- | ------------- |  | ---- | ---- | ----------- |  | ------------- |  |  | ---- | ---- | - |  |  | ------ | 
|                                   |  |                     |        | Change from |               |  |      |      | Change from |  |               | 
|                                   |  | 2002                |        |             | Previous Year |  |      | 2003 |             |  | Previous Year |  |  | 2004 |     
|                                   |  |                     |        |             |               |  |      |      |             |  |               |  |  |      |     
|                                   |  |                     |        | (%)         |               |  |      |      | (%)         |  |               | 
|                                   |  | (Euros in millions) |       
|Europe                             |  |                     | 12,266 |             |               |  | (0.8 | )    |             |  | 12,162        |  |  |      | 6.2  |   |  |  | 12,915 | 
|North America                      |  |                     | 9,005  |             |               |  | (4.1 | )    |             |  | 8,636         |  |  |      | (4.2 | ) |  |  | 8,277  | 
|Asia/ Pacific                      |  |                     | 4,901  |             |               |  | (7.6 | )    |             |  | 4,529         |  |  |      | 9.2  |   |  |  | 4,946  | 
|Latin America/ Africa/ Middle East |  |                     | 3,452  |             |               |  | (6.1 | )    |             |  | 3,240         |  |  |      | 11.7 |   |  |  | 3,620  | 



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



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

       




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



 




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



 


   Business Pharmaceuticals, Biological Products Research and Development.


 


80



---



##### Table of Contents



    


  


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




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

  Liquidity
and Capital Resources 2002, 2003 and 2004  Cash
Flows  Financing Activities




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

 




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

   




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

  




| |                        
| | -----------------------
| | 2003 compared with 2002



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

     


81



---



##### Table of Contents





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






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







       


   Lipobay Baycol. Financial
Information  Legal Proceedings


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




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

  




| |                                  
| | ---------------------------------
| | Income (Loss) Before Income Taxes

 




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

   


82



---



##### Table of Contents





| |         
| | --------
| | Net Loss







Segment Data


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




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

|                                               |                            |                     |       |             |               |  |        |        |             |  |               |       |   |      |       |      |   |  |       |       | 
|---------------------------------------------- | -------------------------- | ------------------- | ----- | ----------- | ------------- |  | ------ | ------ | ----------- |  | ------------- | ----- | - | ---- | ----- | ---- | - |  | ----- | ----- | 
|                                               |                            |                     |       | Change from |               |  |        |        | Change from |  |               |      
|                                               |                            | 2002                |       |             | Previous Year |  |        | 2003   |             |  | Previous Year |       |   | 2004 |      
|                                               |                            |                     |       |             |               |  |        |        |             |  |               |       |   |      |      
|                                               |                            |                     |       | (%)         |               |  |        |        | (%)         |  |               |      
|                                               |                            | (Euros in millions) |      
|Net sales (external), continuing operations    |                            |                     | 4,088 |             |               |  | 1.1    |        |             |  | 4,132         |       |   |      | (9.8  | )    |   |  | 3,728 |      
|Net sales (external), discontinuing operations |                            |                     | 679   |             |               |  | (9.7   | )      |             |  | 613           |       |   |      | 7.7   |      |   |  | 660   |      
|                                               |                            |                     |       |             |               |  |        |        |             |  |               |       |   |      |      
|                                               | Total net sales (external) |                     |       | 4,767       |               |  |        | (0.5   | )           |  |               | 4,745 |   |      |       | (7.5 | ) |  |       | 4,388 | 
|Intersegment sales                             |                            |                     | 33    |             |               |  | 54.5   |        |             |  | 51            |       |   |      | (17.6 | )    |   |  | 42    |      
|Operating result from continuing operations    |                            |                     | (87   | )           |               |  | 32.2   |        |             |  | (59           | )     |   |      |      |      |   |  | 358   |      
|Operating result from discontinuing operations |                            |                     | (113  | )           |               |  | (208.8 | )      |             |  | (349          | )     |   |      | 84.0  |      |   |  | (56   | )    
|                                               |                            |                     |       |             |               |  |        |        |             |  |               |       |   |      |      
|                                               | Total operating result     |                     |       | (200        | )             |  |        | (104.0 | )           |  |               | (408  | ) |      |       |     |   |  |       | 302   | 
|Special items                                  |                            |                     | (333  | )           |               |  | (149.8 | )      |             |  | (832          | )     |   |      | 82.2  |      |   |  | (148  | )    
|                                               |                            |                     |       |             |               |  |        |        |             |  |               |       |   |      |      
|Operating result before special items          |                            |                     | 133   |             |               |  | 218.8  |        |             |  | 424           |       |   |      | 6.1   |      |   |  | 450   |      



|     |      |  |                        |                                                                                                                                      |               |  |      |  
|---- | ---- |  | ---------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ------------- |  | ---- | -
|Year |      |  | Nature of Special Item |                                                                                                                                      | Income/Charge | 
|     |      |  |                        |                                                                                                                                      |               | 
|     |      |  |                        | (Euros in                                                                                                                            |              
|     |      |  |                        | millions)                                                                                                                            |              
|     | 2002 |  |                        | Legal provisions for settlement with U.S. authorities in
    the context of an investigation into pharmaceuticals product
    prices |               |  | (272 | )
|     |      |  |                        | Restructuring and write-downs                                                                                                        |               |  | (58  | )
|     | 2003 |  |                        | Charges taken on the basis of the final agreement reached with
    the majority of insurers in connection with Lipobay/
    Baycol   |               |  | (300 | )
|     |      |  |                        | Impairments and write-downs of plasma business                                                                                       |               |  | (317 | )
|     |      |  |                        | Closure of research and production facilities                                                                                        |               |  | (171 | )
|     | 2004 |  |                        | Losses in connection with the divestment of the plasma business                                                                      |               |  | (71  | )
|     |      |  |                        | Write-downs in connection with the divestment of the plasma
    business                                                             |               |  | (24  | )
|     |      |  |                        | 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   |  



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

 


83



---



##### Table of Contents






  Cipro Ciprobay Cipro  Cipro XR Levitra


Levitra   Levitra Levitra Financial
Information  Legal Proceedings  Patent
validity challenges and infringement proceedings; patent-related
antitrust actions  Vardenafil-related actions.


Avalox Avelox  Adalat Aspirin Cardio Trasylol Glucobay


 Kogenate Kogenate Gamunex


   Cipro


   Lipobay/ Baycol,     Lipobay/ Baycol.




| |                        
| | -----------------------
| | 2003 compared with 2002

  


84



---



##### Table of Contents



Levitra Levitra  Avalox / Avelox  Levitra Avalox /
Avelox Adalat  Ciprobay /
Cipro 


Kogenate   Kogenate


    Kogenate Kogenate


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




| |                           
| | --------------------------
| | Consumer Care, Diagnostics

|                                      |  |                     |       |             |               |  |       |      |             |  |               |  |  |      |       |   |  |  |       |  
|------------------------------------- |  | ------------------- | ----- | ----------- | ------------- |  | ----- | ---- | ----------- |  | ------------- |  |  | ---- | ----- | - |  |  | ----- | -
|                                      |  |                     |       | Change from |               |  |       |      | Change from |  |               | 
|                                      |  | 2002                |       |             | Previous Year |  |       | 2003 |             |  | Previous Year |  |  | 2004 |      
|                                      |  |                     |       |             |               |  |       |      |             |  |               |  |  |      |      
|                                      |  |                     |       | (%)         |               |  |       |      | (%)         |  |               | 
|                                      |  | (Euros in millions) |      
|Net sales (external)                  |  |                     | 3,755 |             |               |  | (11.2 | )    |             |  | 3,336         |  |  |      | (0.7  | ) |  |  | 3,311 |  
|Intersegment sales                    |  |                     | 2     |             |               |  | 100.0 |      |             |  | 4             |  |  |      | 350.0 |   |  |  | 18    |  
|Operating result                      |  |                     | 593   |             |               |  | 1.3   |      |             |  | 601           |  |  |      | (33.4 | ) |  |  | 400   |  
|Special items                         |  |                     | 214   |             |               |  | 25.2  |      |             |  | 268           |  |  |      |      |   |  |  | (30   | )
|Operating result before special items |  |                     | 379   |             |               |  | (12.1 | )    |             |  | 333           |  |  |      | 29.1  |   |  |  | 430   |  



|     |      |  |                        |                                                                |               |  |     |  
|---- | ---- |  | ---------------------- | -------------------------------------------------------------- | ------------- |  | --- | -
|Year |      |  | Nature of Special Item |                                                                | Income/Charge | 
|     |      |  |                        |                                                                |               | 
|     |      |  |                        | (Euros in                                                      |              
|     |      |  |                        | millions)                                                      |              
|     | 2002 |  |                        | Divestment of household insecticides business                  |               |  | 272 |  
|     |      |  |                        | Closure of production facility and restructuring charges       |               |  | (44 | )
|     | 2003 |  |                        | Divestment of household insecticides business                  |               |  | 256 |  
|     | 2004 |  |                        | Provision for litigation                                       |               |  | (16 | )
|     |      |  |                        | Expenses relating to the integration of the Roche OTC business |               |  | (14 | )

85



---



##### Table of Contents





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

  


 Aspirin Complex. Aspirin


 Ascensia Breeze Ascensia Contour/ Microfill


 ADVIA 1200


    




| |                        
| | -----------------------
| | 2003 compared with 2002

        One-A-Day  Aleve


   ADVIA Centaur    


  


86



---



##### Table of Contents



 




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

|                                      |  |                     |     |             |               |  |       |      |             |  |               |  |  |      |       |   |  |  |     | 
|------------------------------------- |  | ------------------- | --- | ----------- | ------------- |  | ----- | ---- | ----------- |  | ------------- |  |  | ---- | ----- | - |  |  | --- | 
|                                      |  |                     |     | Change from |               |  |       |      | Change from |  |               | 
|                                      |  | 2002                |     |             | Previous Year |  |       | 2003 |             |  | Previous Year |  |  | 2004 |      
|                                      |  |                     |     |             |               |  |       |      |             |  |               |  |  |      |      
|                                      |  |                     |     | (%)         |               |  |       |      | (%)         |  |               | 
|                                      |  | (Euros in millions) |    
|Net sales (external)                  |  |                     | 850 |             |               |  | (7.1  | )    |             |  | 790           |  |  |      | (0.5  | ) |  |  | 786 | 
|Intersegment sales                    |  |                     | 1   |             |               |  | 700.0 |      |             |  | 8             |  |  |      | (50.0 | ) |  |  | 4   | 
|Operating result                      |  |                     | 168 |             |               |  | 2.4   |      |             |  | 172           |  |  |      | (8.7  | ) |  |  | 157 | 
|Special
    items(1)                  |  |                     | (11 | )           |               |  |      |      |             |  | 22            |  |  |      |      |   |  |  | 0   | 
|Operating result before special items |  |                     | 179 |             |               |  | (16.2 | )    |             |  | 150           |  |  |      | 4.7   |   |  |  | 157 | 






|    |                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Special items were accounted for primarily by gains from the
    disposal of the rights to the Bayovac®/
    Baypamun® products in 2003 and charges in 2002 for a
    writedown on an enterprise management system.



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

   Advantix Advantage Baytril


 




| |                        
| | -----------------------
| | 2003 compared with 2002

   Advantix


Bayovac Baypamun


   Advantix  


87



---



##### Table of Contents





| |            
| | -----------
| | CropScience

|                                      |  |                     |       |             |               |  |       |      |             |  |               |   |  |      |       |   |  |  |       |  
|------------------------------------- |  | ------------------- | ----- | ----------- | ------------- |  | ----- | ---- | ----------- |  | ------------- | - |  | ---- | ----- | - |  |  | ----- | -
|                                      |  |                     |       | Change from |               |  |       |      | Change from |  |               |  
|                                      |  | 2002                |       |             | Previous Year |  |       | 2003 |             |  | Previous Year |   |  | 2004 |      
|                                      |  |                     |       |             |               |  |       |      |             |  |               |   |  |      |      
|                                      |  |                     |       | (%)         |               |  |       |      | (%)         |  |               |  
|                                      |  | (Euros in millions) |      
|Net sales (external)                  |  |                     | 4,697 |             |               |  | 22.7  |      |             |  | 5,764         |   |  |      | 3.2   |   |  |  | 5,946 |  
|Intersegment sales                    |  |                     | 90    |             |               |  | (23.3 | )    |             |  | 69            |   |  |      | (17.4 | ) |  |  | 57    |  
|Operating result                      |  |                     | (112  | )           |               |  |      |      |             |  | 342           |   |  |      | 43.9  |   |  |  | 492   |  
|Special items                         |  |                     | 67    |             |               |  |      |      |             |  | (81           | ) |  |      | 63.0  |   |  |  | (30   | )
|Operating result before special items |  |                     | (179  | )           |               |  |      |      |             |  | 423           |   |  |      | 23.4  |   |  |  | 522   |  



|     |      |  |                        |                                                                          |               |  |      |  
|---- | ---- |  | ---------------------- | ------------------------------------------------------------------------ | ------------- |  | ---- | -
|Year |      |  | Nature of Special Item |                                                                          | Income/Charge | 
|     |      |  |                        |                                                                          |               | 
|     |      |  |                        | (Euros in                                                                |              
|     |      |  |                        | millions)                                                                |              
|     | 2002 |  |                        | Restructuring related to the Aventis CropScience acquisition             |               |  | (89  | )
|     |      |  |                        | Gains on divestments relating to the Aventis CropScience
    acquisition |               |  | 172  |  
|     | 2003 |  |                        | Restructuring related to the Aventis CropScience acquisition             |               |  | (102 | )
|     |      |  |                        | Gains on sale of the prior Bayer CropScience products                    |               |  | 46   |  
|     | 2004 |  |                        | Closure of major parts of a production facility in Hauxton, U.K.         |               |  | (13  | )



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

   


 Confidor Gaucho Admire Merit  Envidor   Folicur Flint Folicur  Flint  Sphere Stratego Proline  Basta Liberty  Atlantis Poncho





 InVigor FiberMax


 


88



---



##### Table of Contents



  




| |                        
| | -----------------------
| | 2003 compared with 2002

 


 Confidor Gaucho Admire Merit  Folicur Raxil  Folicur Raxil Flint  Stratego Sphere


Puma Basta


Envidor Poncho


 Merit MaxForce Premise Deltagard K-Othrine Bayer Advanced Bayer
Garden


 FiberMax InVigor




     


89



---



##### Table of Contents





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

|                                      |  |                     |       |             |               |  |          |      |             |  |               |   |  |      |       |  |  |  |       | 
|------------------------------------- |  | ------------------- | ----- | ----------- | ------------- |  | -------- | ---- | ----------- |  | ------------- | - |  | ---- | ----- |  |  |  | ----- | 
|                                      |  |                     |       | Change from |               |  |          |      | Change from |  |               |  
|                                      |  | 2002                |       |             | Previous Year |  |          | 2003 |             |  | Previous Year |   |  | 2004 |      
|                                      |  |                     |       |             |               |  |          |      |             |  |               |   |  |      |      
|                                      |  |                     |       | (%)         |               |  |          |      | (%)         |  |               |  
|                                      |  | (Euros in millions) |      
|Net sales (external)                  |  |                     | 2,875 |             |               |  | (3.4     | )    |             |  | 2,777         |   |  |      | 17.0  |  |  |  | 3,248 | 
|Intersegment sales                    |  |                     | 24    |             |               |  | (4.2     | )    |             |  | 23            |   |  |      | 17.4  |  |  |  | 27    | 
|Operating result                      |  |                     | 174   |             |               |  | (66.7    | )    |             |  | 58            |   |  |      | 405.2 |  |  |  | 293   | 
|Special items                         |  |                     | (2    | )           |               |  | (1,350.0 | )    |             |  | (29           | ) |  |      |      |  |  |  | 0     | 
|                                      |  |                     |       |             |               |  |          |      |             |  |               |   |  |      |      
|Operating result before special items |  |                     | 176   |             |               |  | (50.6    | )    |             |  | 87            |   |  |      | 236.8 |  |  |  | 293   | 



|     |      |  |                        |                                                                              |               |  |     |  
|---- | ---- |  | ---------------------- | ---------------------------------------------------------------------------- | ------------- |  | --- | -
|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  | )



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

  


   




| |                        
| | -----------------------
| | 2003 compared with 2002

    


  


90



---



##### Table of Contents





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

|                                      |  |                     |       |             |               |  |        |      |             |  |               |   |  |      |      |  |  |  |       |  
|------------------------------------- |  | ------------------- | ----- | ----------- | ------------- |  | ------ | ---- | ----------- |  | ------------- | - |  | ---- | ---- |  |  |  | ----- | -
|                                      |  |                     |       | Change from |               |  |        |      | Change from |  |               |  
|                                      |  | 2002                |       |             | Previous Year |  |        | 2003 |             |  | Previous Year |   |  | 2004 |     
|                                      |  |                     |       |             |               |  |        |      |             |  |               |   |  |      |     
|                                      |  |                     |       | (%)         |               |  |        |      | (%)         |  |               |  
|                                      |  | (Euros in millions) |      
|Net sales (external)                  |  |                     | 4,784 |             |               |  | (2.3   | )    |             |  | 4,676         |   |  |      | 14.4 |  |  |  | 5,349 |  
|Intersegment sales                    |  |                     | 303   |             |               |  | (2.0   | )    |             |  | 297           |   |  |      | 14.1 |  |  |  | 339   |  
|Operating result                      |  |                     | (78   | )           |               |  | (483.3 | )    |             |  | (455          | ) |  |      |     |  |  |  | 348   |  
|Special items                         |  |                     | (296  | )           |               |  | (141.6 | )    |             |  | (715          | ) |  |      | 96.2 |  |  |  | (27   | )
|                                      |  |                     |       |             |               |  |        |      |             |  |               |   |  |      |     
|Operating result before special items |  |                     | 218   |             |               |  | 19.3   |      |             |  | 260           |   |  |      | 44.2 |  |  |  | 375   |  



|     |      |  |                        |                                                                                                                               |               |  |      |  
|---- | ---- |  | ---------------------- | ----------------------------------------------------------------------------------------------------------------------------- | ------------- |  | ---- | -
|Year |      |  | Nature of Special Item |                                                                                                                               | Income/Charge | 
|     |      |  |                        |                                                                                                                               |               | 
|     |      |  |                        | (Euros in                                                                                                                     |              
|     |      |  |                        | millions)                                                                                                                     |              
|     | 2002 |  |                        | Impairment charges                                                                                                            |               |  | (205 | )
|     |      |  |                        | Closure of production facilities and restructuring charges                                                                    |               |  | (73  | )
|     | 2003 |  |                        | Impairment charges                                                                                                            |               |  | (622 | )
|     |      |  |                        | Closure of production facilities and restructuring charges                                                                    |               |  | (60  | )
|     | 2004 |  |                        | Legal provisions for agreement with U.S. authorities in the
    context of an investigation into prices for polyester polyols |               |  | (27  | )



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

    


      




| |                        
| | -----------------------
| | 2003 compared with 2002

  


91



---



##### Table of Contents



   


    


LANXESS




|                                      |  |                     |       |             |               |  |        |      |             |  |               |   |  |      |      |  |  |  |       |  
|------------------------------------- |  | ------------------- | ----- | ----------- | ------------- |  | ------ | ---- | ----------- |  | ------------- | - |  | ---- | ---- |  |  |  | ----- | -
|                                      |  |                     |       | Change from |               |  |        |      | Change from |  |               |  
|                                      |  | 2002                |       |             | Previous Year |  |        | 2003 |             |  | Previous Year |   |  | 2004 |     
|                                      |  |                     |       |             |               |  |        |      |             |  |               |   |  |      |     
|                                      |  |                     |       | (%)         |               |  |        |      | (%)         |  |               |  
|                                      |  | (Euros in millions) |      
|Net sales (external)                  |  |                     | 6,241 |             |               |  | (7.5   | )    |             |  | 5,776         |   |  |      | 4.8  |  |  |  | 6,053 |  
|Intersegment sales                    |  |                     | 501   |             |               |  | 11.2   |      |             |  | 557           |   |  |      | 18.3 |  |  |  | 659   |  
|Operating result                      |  |                     | (128  | )           |               |  | (907.8 | )    |             |  | (1,290        | ) |  |      |     |  |  |  | 74    |  
|Special items                         |  |                     | (244  | )           |               |  | (393.4 | )    |             |  | (1,204        | ) |  |      | 91.8 |  |  |  | (99   | )
|                                      |  |                     |       |             |               |  |        |      |             |  |               |   |  |      |     
|Operating result before special items |  |                     | 116   |             |               |  |       |      |             |  | (86           | ) |  |      |     |  |  |  | 173   |  



|     |      |  |                        |                                                                                                                  |               |  |      |  
|---- | ---- |  | ---------------------- | ---------------------------------------------------------------------------------------------------------------- | ------------- |  | ---- | -
|Year |      |  | Nature of Special Item |                                                                                                                  | Income/Charge | 
|     |      |  |                        |                                                                                                                  |               | 
|     |      |  |                        | (Euros in                                                                                                        |              
|     |      |  |                        | millions)                                                                                                        |              
|     | 2002 |  |                        | Impairment charges related to the fibers business                                                                |               |  | (84  | )
|     |      |  |                        | Restructuring and closure of production facility                                                                 |               |  | (120 | )
|     | 2003 |  |                        | Impairment charges                                                                                               |               |  | (988 | )
|     |      |  |                        | Personnel-related measurements                                                                                   |               |  | (97  | )
|     |      |  |                        | Provision established with respect to European Commission
    investigation                                      |               |  | (50  | )
|     | 2004 |  |                        | Impairment charges                                                                                               |               |  | (68  | )
|     |      |  |                        | Provision for environmental protection                                                                           |               |  | (40  | )
|     |      |  |                        | Adjustments in connection with the 2003 impairments relating to
    our former polymers and chemicals activities |               |  | 29   |  
|     |      |  |                        | Litigation related expenses in connection with an investigation
    into prices for rubber products              |               |  | (21  | )



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

  





92



---



##### Table of Contents












    


   




| |                        
| | -----------------------
| | 2003 compared with 2002

   


       




93



---



##### Table of Contents



       





LIQUIDITY AND CAPITAL RESOURCES 2002, 2003 AND 2004


Cash Flows







|                                                    |                                  |                     |        |             |               |  |         |       |             |  |               |      |   |      |       |       |   |  |       |      |  
|--------------------------------------------------- | -------------------------------- | ------------------- | ------ | ----------- | ------------- |  | ------- | ----- | ----------- |  | ------------- | ---- | - | ---- | ----- | ----- | - |  | ----- | ---- | -
|                                                    |                                  |                     |        | Change from |               |  |         |       | Change from |  |               |     
|                                                    |                                  | 2002                |        |             | Previous Year |  |         | 2003  |             |  | Previous Year |      |   | 2004 |      
|                                                    |                                  |                     |        |             |               |  |         |       |             |  |               |      |   |      |      
|                                                    |                                  |                     |        | (%)         |               |  |         |       | (%)         |  |               |     
|                                                    |                                  | (Euros in millions) |       
|Gross operating cash
    flow(1)                    |                                  |                     | 2,782  |             |               |  | 2.9     |       |             |  | 2,864         |      |   |      | 12.1  |       |   |  | 3,210 |     
|                                                    | thereof discontinuing operations |                     |        | 399         |               |  |         | (60.4 | )           |  |               | 158  |   |      |       | 131.6 |   |  |       | 366  |  
|Changes in working
    capital(1)                   |                                  |                     | 1,676  |             |               |  | (74.4   | )     |             |  | 429           |      |   |      |      |       |   |  | (760  | )   
|Net cash provided by operating activities           |                                  |                     | 4,458  |             |               |  | (26.1   | )     |             |  | 3,293         |      |   |      | (25.6 | )     |   |  | 2,450 |     
|                                                    | thereof discontinuing operations |                     |        | 461         |               |  |         | (92.8 | )           |  |               | 33   |   |      |       | 560.6 |   |  |       | 218  |  
|Net cash provided by (used in) investing activities |                                  |                     | (6,570 | )           |               |  |        |       |             |  | 460           |      |   |      |      |       |   |  | (814  | )   
|                                                    | thereof discontinuing operations |                     |        | 936         |               |  |         |      |             |  |               | (274 | ) |      |       | (3.3  | ) |  |       | (283 | )
|Net cash provided by (used in) financing activities |                                  |                     | 2,171  |             |               |  |        |       |             |  | (1,761        | )    |   |      | 56.8  |       |   |  | (761  | )   
|                                                    | thereof discontinuing operations |                     |        | (23         | )             |  |         |      |             |  |               | 241  |   |      |       | (73.0 | ) |  |       | 65   |  
|Change in cash and cash equivalents                 |                                  |                     | 59     |             |               |  | 3,276.3 |       |             |  | 1,992         |      |   |      | (56.1 | )     |   |  | 875   |     
|Cash and cash equivalents at beginning of period    |                                  |                     | 719    |             |               |  | 6.7     |       |             |  | 767           |      |   |      | 256.5 |       |   |  | 2,734 |     
|Change in scope of consolidation                    |                                  |                     | 4      |             |               |  | (75.0   | )     |             |  | 1             |      |   |      | 500.0 |       |   |  | 6     |     
|Exchange rate movements                             |                                  |                     | (15    | )           |               |  | (73.3   | )     |             |  | (26           | )    |   |      | (73.1 | )     |   |  | (45   | )   
|Cash and cash equivalents at end of year            |                                  |                     | 767    |             |               |  | 256.5   |       |             |  | 2,734         |      |   |      | 30.6  |       |   |  | 3,570 |     
|Marketable securities and other instruments         |                                  |                     | 29     |             |               |  | 344.8   |       |             |  | 129           |      |   |      | (77.5 | )     |   |  | 29    |     
|Liquid assets as per balance sheet                  |                                  |                     | 796    |             |               |  | 259.7   |       |             |  | 2,863         |      |   |      | 25.7  |       |   |  | 3,599 |     






|    |                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 2002 and 2003 data have been restated for these items because we
    altered our gross cash flow computation. For more details, see
    Note 39 to the consolidated financial statements appearing
    in the F-pages in this annual report on Form 20-F.

94



---



##### Table of Contents





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

  


   




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

       


  


  


   


    




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

         


95



---



##### Table of Contents



    




|                                                                                  |  |                     |       |   |          |  |        |          |  |  |        |  
|--------------------------------------------------------------------------------- |  | ------------------- | ----- | - | -------- |  | ------ | -------- |  |  | ------ | -
|                                                                                  |  | Dec. 31,            |       |   | Dec. 31, |  |        | Dec. 31, | 
| million                                                                         |  | 2002                |       |   | 2003     |  |        | 2004     | 
|                                                                                  |  |                     |       |   |          |  |        |          | 
|                                                                                  |  | (Euros in millions) |      
|Long-term financial liabilities as per balance sheet (including
    derivatives)  |  |                     | 7,318 |   |          |  | 7,378  |          |  |  | 7,117  |  
|Short-term financial liabilities as per balance sheet (including
    derivatives) |  |                     | 2,841 |   |          |  | 2,048  |          |  |  | 2,605  |  
|Derivative receivables as per balance sheet                                       |  |                     | (502  | ) |          |  | (611   | )        |  |  | (701   | )
|Liquid assets as per balance sheet                                                |  |                     | (796  | ) |          |  | (2,863 | )        |  |  | (3,599 | )
|Net debt*                                                                         |  |                     | 8,861 |   |          |  | 5,952  |          |  |  | 5,422  |  






|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | 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 long- and short-term 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 long- and
    short-term financial obligations (that includes liabilities from
    derivative financial instruments) and netting this with the
    receivables resulting from derivative financial instruments is
    appropriate in providing a useful measure of the obligations
    associated with our outstanding debt. We thus believe that
    Net Debt is an indicator of the Bayer Groups
    creditworthiness. However, the subtraction of 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 long- and short-term financial obligations recorded on
    our balance sheet.

 Borrowings,







96



---



##### Table of Contents






  


Capital Expenditures


  





97



---



##### Table of Contents





|     |      |  |         |                                      |             |                                                                                                                                                                                        
|---- | ---- |  | ------- | ------------------------------------ | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Year |      |  | Segment |                                      | Description
|     |      |  |         |                                      |            
|     | 2002 |  |         | Pharmaceuticals, Biological Products |             | Construction of a sterile filling facility for Factor VIII,
    Berkeley, California                                                                                                   
|     |      |  |         | Consumer Care, Diagnostics           |             | Construction of a small volume facility with pilot plant for
    Aspirin production, Greppin, Germany                                                                                  
|     |      |  |         | CropScience                          |             | Completion of a multi-purpose facility for crop protection
    products, Dormagen, Germany                                                                                             
|     |      |  |         | Materials                            |             | Expansion of nitrocellulose production, Bomlitz, Germany                                                                                                                               
|     |      |  |         |                                      |             | Expansion of polycarbonate capacity including precursors,
    Uerdingen, Germany                                                                                                       
|     |      |  |         | Systems                              |             | Expansion of isocyanate capacity including precursors,
    Brunsbüttel, Dormagen and Krefeld-Uerdingen, Germany, and
    Niihama, Japan                                                
|     |      |  |         |                                      |             | Expansion/modification of electrolysis plants, Leverkusen,
    Germany                                                                                                                 
|     |      |  |         | LANXESS                              |             | Efficiency improvement in the integrated aromatics production
    network, Leverkusen, Germany Modification of butyl rubber
    production, Zwijndrecht, Belgium, and Sarnia, Canada   
|     |      |  |         |                                      |             | Expansion of capacity for ABS plastics, Tarragona, Spain, and
    Map Ta Phut, Thailand                                                                                                
|     | 2003 |  |         | Pharmaceuticals, Biological Products |             | Addition to capacity solid dosage plant, Leverkusen, Germany
    Construction of a sterile filling facility, Berkeley, California                                                      
|     |      |  |         | Consumer Care, Diagnostics           |             | Construction of a lacquering facility (small-scale production),
    Greppin, Germany                                                                                                   
|     |      |  |         |                                      |             | Elkhart site consolidation, Elkhart, Indiana                                                                                                                                           
|     |      |  |         | Animal Health                        |             | Good manufacturing practice upgrade, Panwol, South Korea                                                                                                                               
|     |      |  |         | CropScience                          |             | Multi-purpose plant, Dormagen, Germany                                                                                                                                                 
|     |      |  |         |                                      |             | Fungicide plant extension, Muttenz, Switzerland                                                                                                                                        
|     |      |  |         |                                      |             | 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                                                                                                                      
|     |      |  |         | LANXESS                              |             | Efficiency improvement in the integrated aromatics production
    network, Leverkusen, Germany                                                                                         
|     |      |  |         |                                      |             | Expansion of capacity for ABS plastics, Tarragona, Spain, and
    Map Ta Phut, Thailand                                                                                                
|     |      |  |         |                                      |             | Modification of butyl rubber production, Zwijndrecht, Belgium,
    and Sarnia, Canada                                                                                                  
|     | 2004 |  |         | Pharmaceuticals, Biological Products |             | Construction of process development facility (Kogenate) in
    Berkeley, California                                                                                                    
|     |      |  |         |                                      |             | Installation of a new production plant for an active ingredient
    for the treatment of Alpha1 Antitrypsin Deficiency in Clayton,
    North Carolina (discontinuing operations Plasma)
|     |      |  |         | CropScience                          |             | 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                                                                                   

98



---



##### Table of Contents



|     |  |  |         |         |             |                                                                                            
|---- |  |  | ------- | ------- | ----------- | -------------------------------------------------------------------------------------------
|Year |  |  | Segment |         | Description
|     |  |  |         |         |            
|     |  |  |         |         |             | Construction of production facility for
    methylene-diphenyl-diisocyanate in Caojing, PRC
|     |  |  |         |         |             | Expansion of polyisocyanate capacity in Caojing, PRC                                       
|     |  |  |         |         |             | Construction of production facility for
    hexamethylene-diisocyanate in Caojing, PRC     
|     |  |  |         | LANXESS |             | Construction and expansion of alphamin production in Leverkusen,
    Germany               

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               |  |                     | 9,260  |       |          |             | 2,528     |             |                |                | 3,369 |  |       |         | 731   |  |  |  | 2,632 | 
|Capital leases without interest portion                |  |                     | 462    |       |          |             | 77        |             |                |                | 87    |  |       |         | 33    |  |  |  | 265   | 
|Operating leases                                       |  |                     | 481    |       |          |             | 101       |             |                |                | 160   |  |       |         | 123   |  |  |  | 97    | 
|Purchase obligations                                   |  |                     | 189    |       |          |             | 185       |             |                |                | 4     |  |       |         | 0     |  |  |  | 0     | 
|Other long-term liabilities (collaboration agreements) |  |                     | 868    |       |          |             | 195       |             |                |                | 323   |  |       |         | 174   |  |  |  | 176   | 
|Other
    liabilities(1)                               |  |                     | 2,168  |       |          |             | 2,038     |             |                |                | 67    |  |       |         | 25    |  |  |  | 38    | 
|                                                       |  |                     |        |       |          |             |           |             |                |                |       |  |       |         |      
|Total contractual obligations                          |  |                     | 13,428 |       |          |             | 5,061     |             |                |                | 4,010 |  |       |         | 1,086 |  |  |  | 3,271 | 
|                                                       |  |                     |        |       |          |             |           |             |                |                |       |  |       |         |      






|    |                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Other liabilities comprise primarily guarantees of bills and
    checks, payment guarantees and indirect financial guarantees;
    commissions to customers and expense reimbursements; as well as
    tax, social security and payroll liabilities and other
    liabilities as set forth in Note 32 to the consolidated
    financial statements.






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

   


  


99



---



##### Table of Contents





   Financing
activities.


Borrowings



Contractual Obligations and Commercial Commitments


Funding and Treasury Policies




     


  





100



---



##### Table of Contents



 Quantitative
and Qualitative Disclosures about Market Risk.


 


Quantitative and
Qualitative Disclosures about Market Risk.


Inflation, Seasonality and Cyclicality


Information on the Company





RESEARCH AND DEVELOPMENT




|                                      |                            |      |  |             |               |  |  |      |             |  |               |       |  |      |  |       |   |  |  |       | 
|------------------------------------- | -------------------------- | ---- |  | ----------- | ------------- |  |  | ---- | ----------- |  | ------------- | ----- |  | ---- |  | ----- | - |  |  | ----- | 
|                                      |                            |      |  | Change from |               |  |  |      | Change from |  |               |      
|                                      |                            | 2002 |  |             | Previous Year |  |  | 2003 |             |  | Previous Year |       |  | 2004 | 
|                                      |                            |      |  |             |               |  |  |      |             |  |               |       |  |      | 
|                                      |                            |      |  | (%)         |               |  |  |      | (%)         |  |               |      
|Research and development expenditure: |                            |      |  |             |               |  |  |      |             |  |               |       |  |      |  |       |   |  |  |      
|                                      | Amount (euros in millions) |      |  | 2,588       |               |  |  | (7.1 | )           |  |               | 2,404 |  |      |  | (12.4 | ) |  |  | 2,107 | 
|                                      | As a percentage of sales   |      |  | 8.7         |               |  |  |     |             |  |               | 8.4   |  |      |  |       |   |  |  | 7.1   | 



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





BASIS OF PRESENTATION




New Accounting Standards




101



---



##### Table of Contents



















102



---



##### Table of Contents



 














103



---



##### Table of Contents











U.S. GAAP








104



---



##### Table of Contents

















105



---



##### Table of Contents










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

Directors and Senior Management


Aktiengesetz Vorstand Aufsichtsrat








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



Prokura








106



---



##### Table of Contents





|                      |  |          |  |                      |      | 
|--------------------- |  | -------- |  | -------------------- | ---- | 
|Name and Age          |  | Position |  | Current Term Expires |     
|                      |  |          |  |                      |     
|Werner Wenning (58)   |  | Chairman |  |                      | 2007 | 
|Dr. Udo Oels (61)     |  | Member   |  |                      | 2006 | 
|Klaus Kühn (53)       |  | Member   |  |                      | 2007 | 
|Dr. Richard Pott (51) |  | Member   |  |                      | 2007 | 

Werner Wenning


Dr. Udo Oels


Klaus Kühn


Dr. Richard Pott Arbeitsdirektor.




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

Mitbestimmungsgesetz 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.



107



---



##### Table of Contents











|                                      |  |               |  |                                                                                      |  |               |      | 
|------------------------------------- |  | ------------- |  | ------------------------------------------------------------------------------------ |  | ------------- | ---- | 
|Name                                  |  | Position      |  | Principal Occupation                                                                 |  | First Elected |     
|                                      |  |               |  |                                                                                      |  |               |     
|Dr. Manfred Schneider                 |  | Chairman      |  | Former chairman of the Management Board, Bayer AG                                    |  |               | 2002 | 
|*Erhard Gipperich                     |  | Vice Chairman |  | Chairman of the Group and Central Works Councils of
    Bayer AG, Leverkusen         |  |               | 1998 | 
|Dr. Paul Achleitner                   |  | Member        |  | Member of the management board, Allianz AG                                           |  |               | 2002 | 
|Dr. Josef Ackermann                   |  | Member        |  | Chairman of the management board, Deutsche Bank AG                                   |  |               | 2002 | 
|*Karl-Josef Ellrich                   |  | Member        |  | Chairman of the Works Council, Dormagen Site                                         |  |               | 2000 | 
|Prof. Dr.-Ing. e.h. Hans-Olaf Henkel  |  | Member        |  | President of the Leibniz Association                                                 |  |               | 2002 | 
|*Thomas Hellmuth                      |  | Member        |  | Agricultural Engineer                                                                |  |               | 2002 | 
|Dr. h.c. Martin Kohlhaussen           |  | Member        |  | Chairman of the supervisory board, Commerzbank AG                                    |  |               | 1992 | 
|John Christian Kornblum               |  | Member        |  | Chairman of Lazard & Co.                                                             |  |               | 2002 | 
|*Petra Kronen                         |  | Member        |  | Chairwoman of the Works Council, Uerdingen Site                                      |  |               | 2000 | 
|Dr. Heinrich von Pierer               |  | Member        |  | Chairman of the supervisory board, Siemens AG                                        |  |               | 1993 | 
|*Wolfgang Schenk                      |  | Member        |  | Engineer                                                                             |  |               | 2002 | 
|*Hubertus Schmoldt                    |  | Member        |  | Chairman of German Mine, Chemical and Power Workers Union                           |  |               | 1995 | 
|*Dieter Schulte                       |  | Member        |  | Former Chairman of German Unions Federation                                          |  |               | 1997 | 
|Dipl.-Ing. Dr.-Ing. e.h. Jürgen Weber |  | Member        |  | Chairman of the supervisory board, Deutsche Lufthansa AG                             |  |               | 2003 | 
|*Siegfried Wendlandt                  |  | Member        |  | North Rhine District Secretary of German Mine, Chemical and
    Power Workers Union |  |               | 2001 | 
|*Reinhard Wendt                       |  | Member        |  | Printer                                                                              |  |               | 2002 | 

108



---



##### Table of Contents



|                                          |  |          |  |                                                                                    |  |               |      | 
|----------------------------------------- |  | -------- |  | ---------------------------------------------------------------------------------- |  | ------------- | ---- | 
|Name                                      |  | Position |  | Principal Occupation                                                               |  | First Elected |     
|                                          |  |          |  |                                                                                    |  |               |     
|*Thomas de Win                            |  | Member   |  | Commercial Clerk                                                                   |  |               | 2002 | 
|Prof. Dr. Dr. h.c. Ernst-Ludwig Winnacker |  | Member   |  | University Professor, Bonn; President of the German Research
    Association, Bonn |  |               | 1997 | 
|Dr. Hermann Wunderlich                    |  | Member   |  | Former Vice Chairman of the Management Board, Bayer AG                             |  |               | 1996 | 



| |                             
| | ----------------------------
| | 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 shareholder 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. Gipperich, Mr. von
    Pierer 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 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. Henkel,
    Mr. Schenk, Mr. Wendlandt and Mr. de Win.                                                                                                                                                                            

Share Ownership




Compensation




109



---



##### Table of Contents



    




  Verbraucherpreisindex). 
Employee Pension Plan.


 


 Employee option plans Stock Option Program.






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

|                 |  |        |                |  |             |         |         |            |          |  |         |                     |  |       |           |  |       |  |           |              |  |  |        |  |  |  |         | 
|---------------- |  | ------ | -------------- |  | ----------- | ------- | ------- | ---------- | -------- |  | ------- | ------------------- |  | ----- | --------- |  | ----- |  | --------- | ------------ |  |  | ------ |  |  |  | ------- | 
|                 |  |        |                |  |             |         |         |            |          |  |         | Stock Option Rights | 
|                 |  |        |                |  |             |         |         |            |          |  |         | (2004 Tranche)      | 
|                 |  |        |                |  |             | Fixed   |         |            | Variable |  |         |                     |  |       |          
|                 |  | Period |                |  | Base Salary |         |         | Supplement |          |  | Bonus   |                     |  | Total |           |  | Units |  |           | Market Value | 
|                 |  |        |                |  |             |         |         |            |          |  |         |                     |  |       |           |  |       |  |           |              | 
|                 |  |        |                |  |             | (Euros) |         |            |          |  |         |                     | 
|Klaus Kühn       |  |        | Jan.-Dec. 2004 |  |             |         | 408,417 |            |          |  | 170,647 |                     |  |       | 771,120   |  |       |  | 1,350,184 |              |  |  | 6,735  |  |  |  | 212,355 | 
|Dr. Udo Oels     |  |        | Jan.-Dec. 2004 |  |             |         | 411,613 |            |          |  | 170,647 |                     |  |       | 771,120   |  |       |  | 1,353,380 |              |  |  | 6,735  |  |  |  | 212,355 | 
|Dr. Richard Pott |  |        | Jan.-Dec. 2004 |  |             |         | 408,627 |            |          |  | 170,647 |                     |  |       | 771,120   |  |       |  | 1,350,394 |              |  |  | 6,735  |  |  |  | 212,355 | 
|Werner Wenning   |  |        | Jan.-Dec. 2004 |  |             |         | 711,359 |            |          |  | 298,632 |                     |  |       | 1,352,520 |  |       |  | 2,362,511 |              |  |  | 11,820 |  |  |  | 372,685 | 



110



---



##### Table of Contents








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

|                                          |  |              |         |  |              |  |        |        |  |  |         | 
|----------------------------------------- |  | ------------ | ------- |  | ------------ |  | ------ | ------ |  |  | ------- | 
|                                          |  | Basic        |         |  | Variable     |  |        |       
|                                          |  | Remuneration |         |  | Remuneration |  |        | Totals | 
|                                          |  |              |         |  |              |  |        |        | 
|                                          |  | (Euros)      |        
|Dr. Paul Achleitner                       |  |              | 40,000  |  |              |  | 6,000  |        |  |  | 46,000  | 
|Dr. Josef Ackermann                       |  |              | 40,000  |  |              |  | 6,000  |        |  |  | 46,000  | 
|*Karl-Josef Ellrich                       |  |              | 50,000  |  |              |  | 7,500  |        |  |  | 57,500  | 
|*Erhard Gipperich                         |  |              | 70,000  |  |              |  | 10,500 |        |  |  | 80,500  | 
|*Thomas Hellmuth                          |  |              | 40,000  |  |              |  | 6,000  |        |  |  | 46,000  | 
|Prof. Dr.-Ing. e.h. Hans-Olaf Henkel      |  |              | 50,000  |  |              |  | 7,500  |        |  |  | 57,500  | 
|Dr. h.c. Martin Kohlhaussen               |  |              | 70,000  |  |              |  | 10,500 |        |  |  | 80,500  | 
|John Christian Kornblum                   |  |              | 40,000  |  |              |  | 6,000  |        |  |  | 46,000  | 
|*Petra Kronen                             |  |              | 50,000  |  |              |  | 7,500  |        |  |  | 57,500  | 
|Dr. Heinrich von Pierer                   |  |              | 50,000  |  |              |  | 7,500  |        |  |  | 57,500  | 
|*Wolfgang Schenk                          |  |              | 50,000  |  |              |  | 7,500  |        |  |  | 57,500  | 
|Hubertus Schmoldt                         |  |              | 50,000  |  |              |  | 7,500  |        |  |  | 57,500  | 
|Dr. Manfred Schneider                     |  |              | 120,000 |  |              |  | 18,000 |        |  |  | 138,000 | 
|Dieter Schulte                            |  |              | 40,000  |  |              |  | 6,000  |        |  |  | 46,000  | 
|Dipl.-Ing. Dr.-Ing. e.h. Jürgen Weber     |  |              | 40,000  |  |              |  | 6,000  |        |  |  | 46,000  | 
|Siegfried Wendlandt                       |  |              | 50,000  |  |              |  | 7,500  |        |  |  | 57,500  | 
|*Reinhard Wendt                           |  |              | 40,000  |  |              |  | 6,000  |        |  |  | 46,000  | 
|*Thomas de Win                            |  |              | 50,000  |  |              |  | 7,500  |        |  |  | 57,500  | 
|Prof. Dr. Dr. h.c. Ernst-Ludwig Winnacker |  |              | 40,000  |  |              |  | 6,000  |        |  |  | 46,000  | 
|Dr. Hermann Wunderlich                    |  |              | 40,000  |  |              |  | 6,000  |        |  |  | 46,000  | 





| |                                   
| | ----------------------------------
| | Board of Management severance plan









111



---



##### Table of Contents





| |                      
| | ---------------------
| | Employee option plans






stock option program stock
incentive program stock participation program








| |                     
| | --------------------
| | Stock Option Program







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Share Performance Criterion: If the Bayer AG share price has
    increased at least 25 percent from the starting date of the
    tranche, each option right entitles the participant to have the
    cash value of one Bayer share for each option exercised added to
    the calculation. This amount will then be multiplied by the
    weighting for the share performance criterion (this factor is
    currently 1, set at the beginning and valid throughout the
    term of the tranche).                                                                   
|
| |  | Share Outperformance Criterion: Outperformance is the difference
    between the percentage change in the price of the Bayer share
    and the percentage change in the Dow Jones EURO STOXX 50(SM)
    price index from the start of the program to the time the option
    is exercised. If the Bayer share has outperformed the index, the
    participant will, for each option exercised, have the cash value
    of one Bayer share at the start of the program added to the
    calculation, multiplied by the share outperformance. This amount
    is then

112



---



##### Table of Contents



| |  |                                                                                                                                                                            
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | multiplied by the weighting for the share outperformance
    criterion (this factor is currently 3, set at the beginning
    and valid throughout the term of the tranche).



   




| |                        
| | -----------------------
| | Stock Incentive Program





|                            |  |                             |   | 
|--------------------------- |  | --------------------------- | - | 
|                            |  | Incentive Payments Received |  
|Distribution Date at End of |  | (per 10 Deposited Shares)   |  
|                            |  |                             |  
|Second year                 |  |                             | 2 | 
|Sixth year                  |  |                             | 4 | 
|Tenth year                  |  |                             | 4 | 







| |                            
| | ---------------------------
| | Stock Participation Program





113



---



##### Table of Contents







|                            |  |                             |   | 
|--------------------------- |  | --------------------------- | - | 
|                            |  | Incentive Payments Received |  
|Distribution Date at End of |  | (per 10 Deposited Shares)   |  
|                            |  |                             |  
|Second year                 |  |                             | 1 | 
|Sixth year                  |  |                             | 2 | 
|Tenth year                  |  |                             | 2 | 






Employees




|               |  |      |         |                       |               |  |       |      |             |  |               |  |  |      |       |   |  |  |         | 
|-------------- |  | ---- | ------- | --------------------- | ------------- |  | ----- | ---- | ----------- |  | ------------- |  |  | ---- | ----- | - |  |  | ------- | 
|               |  |      |         | Employees by Activity |              
|               |  |      |         | Average for           |              
|               |  |      |         |                       |              
|               |  |      |         | Change from           |               |  |       |      | Change from |  |               | 
|               |  | 2002 |         |                       | Previous Year |  |       | 2003 |             |  | Previous Year |  |  | 2004 |      
|               |  |      |         |                       |               |  |       |      |             |  |               |  |  |      |      
|               |  |      |         | (%)                   |               |  |       |      | (%)         |  |               | 
|Technology     |  |      | 66,051  |                       |               |  | (4.85 | )    |             |  | 62,850        |  |  |      | (4.25 | ) |  |  | 60,178  | 
|Marketing      |  |      | 35,985  |                       |               |  | (3.39 | )    |             |  | 34,765        |  |  |      | (2.70 | ) |  |  | 33,828  | 
|Administration |  |      | 10,035  |                       |               |  | (9.69 | )    |             |  | 9,063         |  |  |      | 3.44  |   |  |  | 9,375   | 
|Research       |  |      | 12,521  |                       |               |  | (7.34 | )    |             |  | 11,602        |  |  |      | (9.98 | ) |  |  | 10,444  | 
|               |  |      |         |                       |               |  |       |      |             |  |               |  |  |      |      
|Total          |  |      | 124,592 |                       |               |  | (5.07 | )    |             |  | 118,280       |  |  |      | (3.77 | ) |  |  | 113,825 | 
|               |  |      |         |                       |               |  |       |      |             |  |               |  |  |      |      

|                                   |  |                     |        |             |               |  |       |      |             |  |               |  |  |      |        |   |  |  |        | 
|---------------------------------- |  | ------------------- | ------ | ----------- | ------------- |  | ----- | ---- | ----------- |  | ------------- |  |  | ---- | ------ | - |  |  | ------ | 
|                                   |  | Breakdown by Region |       
|                                   |  | As of December 31,  |       
|                                   |  |                     |       
|                                   |  |                     |        | Change from |               |  |       |      | Change from |  |               | 
|                                   |  | 2002                |        |             | Previous Year |  |       | 2003 |             |  | Previous Year |  |  | 2004 |       
|                                   |  |                     |        |             |               |  |       |      |             |  |               |  |  |      |       
|                                   |  |                     |        | (%)         |               |  |       |      | (%)         |  |               | 
|Europe                             |  |                     | 70,100 |             |               |  | (5.71 | )    |             |  | 66,100        |  |  |      | (2.72  | ) |  |  | 64,300 | 
|North America                      |  |                     | 24,600 |             |               |  | (5.28 | )    |             |  | 23,300        |  |  |      | (4.29  | ) |  |  | 22,300 | 
|Asia/ Pacific                      |  |                     | 15,400 |             |               |  | (9.74 | )    |             |  | 13,900        |  |  |      | 1.44   |   |  |  | 14,100 | 
|Latin America/ Africa/ Middle East |  |                     | 12,000 |             |               |  | (4.17 | )    |             |  | 11,500        |  |  |      | 2.61   |   |  |  | 11,800 | 
|Corporate                          |  |                     | 500    |             |               |  | 20.00 |      |             |  | 600           |  |  |      | (16.67 | ) |  |  | 500    | 

114



---



##### Table of Contents



Labor Relations




monatliches
Tarifentgelt


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




115



---



##### Table of Contents







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

Bayer-Pensionskasse Pensionskasse, gesetzliche
Rentenversicherung   Pensionskasse. Grundrente Pensionskasse Pensionskasse, gesetzliche Rentenversicherung  Zusatzrente   Grundrente RPK. (Zusatzrente)







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

Major Shareholders




Wertpapierhandelsgesetz Wertpapierhandelsgesetz




116



---



##### Table of Contents







Directors, Senior Management and Employees.


Related Party Transactions








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




Legal Proceedings






| |   |                                           
| | - | ------------------------------------------
| |  | product liability;                        
|
| |  | patent validity and infringement disputes;
|
| |  | tax assessments;                          

117



---



##### Table of Contents





| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | competition and antitrust; and                                                  
|
| |  | past waste disposal practices and release of chemicals into the
    environment.





| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Patent validity challenges and infringement proceedings;
    patent-related antitrust actions









| |                              
| | -----------------------------
| | Ciprofloxacin-related actions

Patent-related actions.


118



---



##### Table of Contents




Antitrust actions.


Antitrust actions.














| |                             
| | ----------------------------
| | Moxifloxacin-related actions



119



---



##### Table of Contents



Avelox® Avelox®




| |                           
| | --------------------------
| | Vardenafil-related actions

inter alia








| |                        
| | -----------------------
| | Aventis Behring actions

Patent Litigation. Kogenate Kogenate Helixate




Contract Litigation. Helixate




| |                               
| | ------------------------------
| | ADVIA Centaur®-related actions

Patent-related action.


120



---



##### Table of Contents



ADVIA
Centaur




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

HIV/HCV-related actions.






Cerivastatin-related actions. Baycol




121



---



##### Table of Contents



Baycol. Baycol Baycol Baycol




 






Baycol Baycol


Phenylpropanolamine (PPA) actions.


122



---



##### Table of Contents












Thimerosal actions.






| |                   
| | ------------------
| | Everest litigation



123



---



##### Table of Contents







| |                     
| | --------------------
| | Imidacloprid actions

Gaucho®






| |                
| | ---------------
| | Fipronil action





| |                    
| | -------------------
| | BASF Fipronil claim





| |                          
| | -------------------------
| | Limagrain indemnity claim



124



---



##### Table of Contents







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















| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Rubber-related actions-Polyester polyols investigation/
    Urethane-related products actions





125



---



##### Table of Contents


















126



---



##### Table of Contents









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





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





127



---



##### Table of Contents





Dividend Policy and Liquidation Proceeds




andere Gewinnrücklagen gesetzliche
Rücklagen










Key Information 
Dividends.


Significant Changes









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

Listing Details and Markets




128



---



##### Table of Contents







|                     |                |                 |       |       |                |  |       |       |  |  |       |       |  |  |       |       | 
|-------------------- | -------------- | --------------- | ----- | ----- | -------------- |  | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                     |                | Frankfurt Stock |       |       | New York Stock | 
|                     |                | Exchange(1)     |       |       | Exchange(2)    | 
|                     |                |                 |       |       |                | 
|                     |                | High            |       |       | Low            |  |       | High  |  |  | Low   |      
|                     |                |                 |       |       |                |  |       |       |  |  |       |      
|                     |                | (In euros)      |       |       | (In dollars)   | 
|2000                 |                |                 | 56.50 |       |                |  | 38.52 |       |  |  |      |       |  |  |      |      
|2001                 |                |                 | 58.00 |       |                |  | 23.90 |       |  |  |      |       |  |  |      |      
|2002                 |                |                 | 40.80 |       |                |  | 17.45 |       |  |  | 36.00 |       |  |  | 17.30 |      
|2003:                |                |                 |       |       |                |  |       |       |  |  |       |       |  |  |       |      
|                     | First quarter  |                 |       | 22.42 |                |  |       | 10.28 |  |  |       | 23.38 |  |  |       | 11.24 | 
|                     | Second quarter |                 |       | 20.60 |                |  |       | 12.47 |  |  |       | 24.03 |  |  |       | 13.60 | 
|                     | Third quarter  |                 |       | 21.28 |                |  |       | 18.55 |  |  |       | 23.93 |  |  |       | 21.43 | 
|                     | Fourth quarter |                 |       | 23.58 |                |  |       | 17.97 |  |  |       | 29.41 |  |  |       | 21.21 | 
|Full year 2003       |                |                 | 23.58 |       |                |  | 10.28 |       |  |  | 29.41 |       |  |  | 11.24 |      
|2004:                |                |                 |       |       |                |  |       |       |  |  |       |       |  |  |       |      
|                     | First quarter  |                 |       | 25.39 |                |  |       | 19.49 |  |  |       | 32.15 |  |  |       | 23.52 | 
|                     | Second quarter |                 |       | 23.75 |                |  |       | 20.08 |  |  |       | 29.29 |  |  |       | 24.52 | 
|                     | Third quarter  |                 |       | 23.68 |                |  |       | 19.86 |  |  |       | 29.17 |  |  |       | 24.33 | 
|                     | Fourth quarter |                 |       | 25.44 |                |  |       | 21.74 |  |  |       | 34.12 |  |  |       | 27.00 | 
|Full year 2004       |                |                 | 25.44 |       |                |  | 19.49 |       |  |  | 34.12 |       |  |  | 23.52 |      
|Previous six months: |                |                 |       |       |                |  |       |       |  |  |       |       |  |  |       |      
|                     | September 2004 |                 |       | 22.22 |                |  |       | 20.89 |  |  |       | 27.62 |  |  |       | 25.22 | 
|                     | October 2004   |                 |       | 23.16 |                |  |       | 21.74 |  |  |       | 28.74 |  |  |       | 27.00 | 
|                     | November 2004  |                 |       | 24.42 |                |  |       | 22.54 |  |  |       | 32.02 |  |  |       | 28.80 | 
|                     | December 2004  |                 |       | 25.44 |                |  |       | 24.22 |  |  |       | 34.12 |  |  |       | 32.34 | 
|                     | January 2005   |                 |       | 25.10 |                |  |       | 23.51 |  |  |       | 33.82 |  |  |       | 31.06 | 
|                     | February 2005  |                 |       | 26.79 |                |  |       | 24.47 |  |  |       | 35.29 |  |  |       | 32.58 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 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, the Bayer shares have been trading
    ex LANXESS on the Frankfurt Stock Exchange, and since
    February 8, 2005, the Bayer ADRs have been trading ex
    LANXESS on the New York Stock Exchange. The share prices
    presented here have not been retroactively adjusted for the
    spin-off.
|   
|(2) | From January 24, 2002 for the New York Stock Exchange.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   






129



---



##### Table of Contents








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

Description of Share Capital


Satzung


Directors, Senior Management and Employees 
Compensation  Employee option plans.


Material contracts




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

Umwandlungsgesetz Handelsregister Amtsgericht Köln


 




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

 


130



---



##### Table of Contents





Exchange controls




Taxation








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.


131



---



##### Table of Contents





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









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

http://www.bff-online.de/Steuer Vordrucke/KSt KapSt/AntragErstattungKapE USA.pdf




132



---



##### Table of Contents















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







| |                                          
| | -----------------------------------------
| | Passive Foreign Investment Company Status



133



---



##### Table of Contents





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







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

Vermögensteuer Vermögensteuer




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





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





Documents on display




Memorandum and Articles of Association




134



---



##### Table of Contents



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.                                                                                                                                               



 




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



135



---



##### Table of Contents







| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A simultaneous, parallel foreign exchange rates shift in which
    the euro appreciates 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.                                                                                                                                                                                                                                                             







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



136



---



##### Table of Contents









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





|                                |  |                     |       |  |              |  |       |      |  |  |      |  |  |  |     | 
|------------------------------- |  | ------------------- | ----- |  | ------------ |  | ----- | ---- |  |  | ---- |  |  |  | --- | 
|                                |  | Notional Amount     |       |  | Fair value   | 
|                                |  | As of               |       |  | As of        | 
|                                |  | December 31,        |       |  | December 31, | 
|                                |  |                     |       |  |              | 
|                                |  | 2003                |       |  | 2004         |  |       | 2003 |  |  | 2004 | 
|                                |  |                     |       |  |              |  |       |      |  |  |      | 
|                                |  | (Euros in millions) |      
|Interest rate hedging contracts |  |                     | 6,331 |  |              |  | 7,204 |      |  |  | 485  |  |  |  | 545 | 

   




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

   




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





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



137



---



##### Table of Contents







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







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





Interest Rate Risk


|                                              |  |                     |       |  |              |  |       |      |  |  |      |  |  |  |    | 
|--------------------------------------------- |  | ------------------- | ----- |  | ------------ |  | ----- | ---- |  |  | ---- |  |  |  | -- | 
|                                              |  | Notional Amount     |       |  | Fair Value   | 
|                                              |  | As of               |       |  | As of        | 
|                                              |  | December 31,        |       |  | December 31, | 
|                                              |  |                     |       |  |              | 
|                                              |  | 2003                |       |  | 2004         |  |       | 2003 |  |  | 2004 | 
|                                              |  |                     |       |  |              |  |       |      |  |  |      | 
|                                              |  | (Euros in millions) |      
|Forward exchange contracts and currency swaps |  |                     | 3,984 |  |              |  | 4,851 |      |  |  | 143  |  |  |  | 94 | 
|Currency options                              |  |                     | 266   |  |              |  | 133   |      |  |  | 11   |  |  |  | 9  | 

 




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



138



---



##### Table of Contents



     




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





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





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







| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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; and                 
|
| |  | stock-keeping, flexibility in supply sources and, wherever
    possible, other alternative production plants to limit risks
    from raw material availability.



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



139



---



##### Table of Contents







|                            |  |                     |     |  |              |  |     |      |  |  |      |  |  |  |    | 
|--------------------------- |  | ------------------- | --- |  | ------------ |  | --- | ---- |  |  | ---- |  |  |  | -- | 
|                            |  | Notional Amount     |     |  | Fair Value   | 
|                            |  | As of               |     |  | As of        | 
|                            |  | December 31,        |     |  | December 31, | 
|                            |  |                     |     |  |              | 
|                            |  | 2003                |     |  | 2004         |  |     | 2003 |  |  | 2004 | 
|                            |  |                     |     |  |              |  |     |      |  |  |      | 
|                            |  | (Euros in millions) |    
|Commodity hedging contracts |  |                     | 224 |  |              |  | 817 |      |  |  | 11   |  |  |  | 29 | 

 




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

 







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






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





140



---



##### Table of Contents








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






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








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









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

Independent Auditor Fees




|                   |  |             |    |  |      |  |    | 
|------------------ |  | ----------- | -- |  | ---- |  | -- | 
|Type of Fees       |  | 2003        |    |  | 2004 | 
|                   |  |             |    |  |      | 
|                   |  | ( million) |   
|Audit fees         |  |             | 23 |  |      |  | 18 | 
|Audit-related fees |  |             | 3  |  |      |  | 8  | 
|Tax fees           |  |             | 1  |  |      |  | 1  | 
|All other fees     |  |             | *  |  |      |  | *  | 
|                   |  |             |    |  |      | 
|Total              |  |             | 27 |  |      |  | 27 | 
|                   |  |             |    |  |      | 






|  |                                                                        
|- | -----------------------------------------------------------------------
|* | 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
    26 million
    in 2004 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                                                                                                                                                                                                                                                                                                                                                                                                          

141



---



##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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;
    other financial advice; valuation services; consultations and
    recommendations relating to valuation methods; non-audit
    appraisals of valuations; analysis or review of business plans
    or planning processes (but not design or implementation
    thereof); and preparation of financial statements if it is
    reasonably certain that the statements will not subsequently be
    audited by the auditor or an affiliate.








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








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



142



---



##### Table of Contents






PART III







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








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








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



|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                                                                                                                                                                                                                                                                                                                                 
|Exhibit 4.2  |  | Master Agreement, dated September 22, 2004, between Bayer
    AG and LANXESS AG, in English translation.                                                                                                                                                                                                                                                                                                                                                                   
|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.                                                                                                                                         
|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.                                                                                                                                                                                                                                                                                                                                                               

143



---



##### Table of Contents



SIGNATURES






| |                                           
| | ------------------------------------------
| | BAYER AG                                  
|
| | /s/ Werner Wenning                        
| |                                           
| | Name: Werner Wenning                      
| | Title: Chairman of the Board of Management
|
| | /s/ Dr. Roland Hartwig                    
| |                                           
| | Name: Dr. Roland Hartwig                  
| | Title: General Counsel                    



144



---



##### 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, 2004, 2003 and 2002     |                                  |     | F-3 |    
|                                                   | Consolidated Balance Sheets as of
    December 31, 2004 and 2003                               |                                  |     | F-4 |    
|                                                   | Consolidated Statements of Changes in
    Stockholders Equity for the years ended             |                                  |     |     |    
|                                                   |                                                                                                | December 31, 2004, 2003 and 2002 |     |     | F-5 | 
|                                                   | Consolidated Statements of Cash Flows for
    the years ended December 31, 2004, 2003 and 2002 |                                  |     | F-6 |    
|Notes to the Consolidated Financial
    Statements |                                                                                                |                                  | F-7 |    

F-1



---



##### Table of Contents






Report of Independent Registered Public Accounting Firm


























|                                                                                                                   |  |  |  |                                                                                                             
|------------------------------------------------------------------------------------------------------------------ |  |  |  | ------------------------------------------------------------------------------------------------------------
|                                                                                                                  
|/s/ ALBRECHT
    -----------------------------------------------
    P. Albrecht
    (Certified Public Accountant) |  |  |  | /s/ LINKE
    -----------------------------------------------
    V. Linke
    (Certified Public Accountant)

F-2



---



##### Table of Contents






Bayer Group


Consolidated Statements of Income


|                                                                     |  |      |      |             |      |  |         |      |  |  |         |   |  |  |         |  
|-------------------------------------------------------------------- |  | ---- | ---- | ----------- | ---- |  | ------- | ---- |  |  | ------- | - |  |  | ------- | -
|                                                                     |  | Note |      |             | 2002 |  |         | 2003 |  |  | 2004    |  
|                                                                     |  |      |      |             |      |  |         |      |  |  |         |  
|                                                                     |  |      |      | ( million) |     
|Net sales                                                            |  |      | [1]  |             |      |  | 29,624  |      |  |  | 28,567  |   |  |  | 29,758  |  
|of which discontinuing operations                                    |  |      | [6]  |             |      |  | 7,586   |      |  |  | 6,389   |   |  |  | 6,713   |  
|                                                                     |  |      |      |             |      |  |         |      |  |  |         |  
|Cost of goods sold                                                   |  |      |      |             |      |  | (17,715 | )    |  |  | (16,801 | ) |  |  | (17,382 | )
|                                                                     |  |      |      |             |      |  |         |      |  |  |         |  
|Gross profit                                                         |  |      |      |             |      |  | 11,909  |      |  |  | 11,766  |   |  |  | 12,376  |  
|                                                                     |  |      |      |             |      |  |         |      |  |  |         |  
|Selling expenses                                                     |  |      | [2]  |             |      |  | (6,959  | )    |  |  | (6,460  | ) |  |  | (6,155  | )
|Research and development expenses                                    |  |      | [3]  |             |      |  | (2,588  | )    |  |  | (2,404  | ) |  |  | (2,107  | )
|General administration expenses                                      |  |      |      |             |      |  | (1,480  | )    |  |  | (1,673  | ) |  |  | (1,714  | )
|Other operating income                                               |  |      | [4]  |             |      |  | 2,706   |      |  |  | 1,158   |   |  |  | 804     |  
|Other operating expenses                                             |  |      | [5]  |             |      |  | (2,070  | )    |  |  | (3,506  | ) |  |  | (1,396  | )
|                                                                     |  |      |      |             |      |  |         |      |  |  |         |  
|Operating result                                                     |  |      | [7]  |             |      |  | 1,518   |      |  |  | (1,119  | ) |  |  | 1,808   |  
|                                                                     |  |      |      |             |      |  |         |      |  |  |         |  
|of which discontinuing operations                                    |  |      | [6]  |             |      |  | 737     |      |  |  | (1,639  | ) |  |  | 18      |  
|Income (Expenses) from investments in affiliated
    companies  net |  |      | [8]  |             |      |  | 223     |      |  |  | (93     | ) |  |  | (158    | )
|Interest expense  net                                               |  |      | [9]  |             |      |  | (449    | )    |  |  | (353    | ) |  |  | (275    | )
|Other non-operating expenses  net                                   |  |      | [10] |             |      |  | (336    | )    |  |  | (429    | ) |  |  | (390    | )
|                                                                     |  |      |      |             |      |  |         |      |  |  |         |  
|Non-operating results                                                |  |      |      |             |      |  | (562    | )    |  |  | (875    | ) |  |  | (823    | )
|                                                                     |  |      |      |             |      |  |         |      |  |  |         |  
|Income (loss) before income taxes                                    |  |      |      |             |      |  | 956     |      |  |  | (1,994  | ) |  |  | 985     |  
|                                                                     |  |      |      |             |      |  |         |      |  |  |         |  
|Income taxes                                                         |  |      | [11] |             |      |  | 107     |      |  |  | 645     |   |  |  | (385    | )
|                                                                     |  |      |      |             |      |  |         |      |  |  |         |  
|Income (loss) after taxes                                            |  |      |      |             |      |  | 1,063   |      |  |  | (1,349  | ) |  |  | 600     |  
|                                                                     |  |      |      |             |      |  |         |      |  |  |         |  
|Minority stockholders interest                                      |  |      | [13] |             |      |  | (3      | )    |  |  | (12     | ) |  |  | 3       |  
|                                                                     |  |      |      |             |      |  |         |      |  |  |         |  
|Net income (loss)                                                    |  |      |      |             |      |  | 1,060   |      |  |  | (1,361  | ) |  |  | 603     |  
|                                                                     |  |      |      |             |      |  |         |      |  |  |         |  
|Basic and diluted earnings (loss) per share
    ()                  |  |      | [14] |             |      |  | 1.45    |      |  |  | (1.86   | ) |  |  | 0.83    |  
|                                                                     |  |      |      |             |      |  |         |      |  |  |         |  



F-3



---



##### Table of Contents






Bayer Group


Consolidated Balance Sheets


|                                            |                                                            |      |      |             |      |  |          |        |   |  |        |        |  
|------------------------------------------- | ---------------------------------------------------------- | ---- | ---- | ----------- | ---- |  | -------- | ------ | - |  | ------ | ------ | -
|                                            |                                                            |      |      | Dec. 31,    |      |  | Dec. 31, |       
|                                            |                                                            | Note |      |             | 2003 |  |          | 2004   |  
|                                            |                                                            |      |      |             |      |  |          |        |  
|                                            |                                                            |      |      | ( million) |     
|ASSETS                                     
|Noncurrent assets                           |                                                            |      |      |             |      |  |          |        |   |  |        |       
|Intangible assets                           |                                                            |      | [18] |             |      |  | 6,514    |        |   |  | 6,017  |       
|Property, plant and equipment               |                                                            |      | [19] |             |      |  | 9,937    |        |   |  | 9,184  |       
|Investments                                 |                                                            |      | [20] |             |      |  | 1,781    |        |   |  | 1,654  |       
|                                            |                                                            |      |      |             |      |  |          |        |  
|                                            |                                                            |      |      |             |      |  | 18,232   |        |   |  | 16,855 |       
|                                            |                                                            |      |      |             |      |  |          |        |  
|Current assets                              |                                                            |      |      |             |      |  |          |        |   |  |        |       
|Inventories                                 |                                                            |      | [21] |             |      |  | 5,885    |        |   |  | 6,215  |       
|Receivables and other assets                |                                                            |      |      |             |      |  |          |        |   |  |        |       
|                                            | Trade accounts receivable                                  |      |      | [22]        |      |  |          | 5,071  |   |  |        | 5,580  |  
|                                            |                                                            |      |      |             |      |  |          |        |  
|                                            | Other receivables and other assets                         |      |      | [23]        |      |  |          | 3,854  |   |  |        | 4,153  |  
|                                            |                                                            |      |      |             |      |  |          |        |  
|                                            |                                                            |      |      |             |      |  | 8,925    |        |   |  | 9,733  |       
|Liquid assets                               |                                                            |      | [24] |             |      |  |          |        |   |  |        |       
|Marketable securities and other instruments |                                                            |      |      |             |      |  | 129      |        |   |  | 29     |       
|Cash and cash equivalents                   |                                                            |      |      |             |      |  | 2,734    |        |   |  | 3,570  |       
|                                            |                                                            |      |      |             |      |  |          |        |  
|                                            |                                                            |      |      |             |      |  | 2,863    |        |   |  | 3,599  |       
|                                            |                                                            |      |      |             |      |  |          |        |  
|                                            |                                                            |      |      |             |      |  | 17,673   |        |   |  | 19,547 |       
|                                            |                                                            |      |      |             |      |  |          |        |  
|Deferred taxes                              |                                                            |      | [11] |             |      |  | 1,298    |        |   |  | 1,235  |       
|                                            |                                                            |      |      |             |      |  |          |        |  
|Deferred charges                            |                                                            |      | [25] |             |      |  | 242      |        |   |  | 167    |       
|                                            |                                                            |      |      |             |      |  |          |        |  
|Total assets                                |                                                            |      |      |             |      |  | 37,445   |        |   |  | 37,804 |       
|                                            |                                                            |      |      |             |      |  |          |        |  
|of which discontinuing operations           |                                                            |      | [35] |             |      |  | 4,648    |        |   |  | 4,934  |       
|                                           
|STOCKHOLDERS EQUITY AND LIABILITIES       
|Stockholders equity                        |                                                            |      | [26] |             |      |  |          |        |   |  |        |       
|Capital stock of Bayer AG                   |                                                            |      |      |             |      |  | 1,870    |        |   |  | 1,870  |       
|Capital reserves of Bayer AG                |                                                            |      |      |             |      |  | 2,942    |        |   |  | 2,942  |       
|Retained earnings                           |                                                            |      |      |             |      |  | 10,479   |        |   |  | 8,753  |       
|Net income (loss)                           |                                                            |      |      |             |      |  | (1,361   | )      |   |  | 603    |       
|Revaluation surplus                         |                                                            |      |      |             |      |  |         |        |   |  | 66     |       
|Other comprehensive income                  |                                                            |      |      |             |      |  |          |        |   |  |        |       
|                                            | Currency translation adjustment                            |      |      |             |      |  |          | (1,699 | ) |  |        | (2,003 | )
|                                            | Miscellaneous items                                        |      |      |             |      |  |          | (18    | ) |  |        | 37     |  
|                                            |                                                            |      |      |             |      |  |          |        |  
|                                            |                                                            |      |      |             |      |  | 12,213   |        |   |  | 12,268 |       
|                                            |                                                            |      |      |             |      |  |          |        |  
|Minority stockholders interest             |                                                            |      | [27] |             |      |  | 123      |        |   |  | 111    |       
|                                            |                                                            |      |      |             |      |  |          |        |  
|Liabilities                                 |                                                            |      |      |             |      |  |          |        |   |  |        |       
|Long-term liabilities                       |                                                            |      |      |             |      |  |          |        |   |  |        |       
|                                            | Long-term financial liabilities                            |      |      | [30]        |      |  |          | 7,378  |   |  |        | 7,117  |  
|                                            | Miscellaneous long-term liabilities                        |      |      | [32]        |      |  |          | 98     |   |  |        | 130    |  
|                                            | Provisions for pensions and other post-employment benefits |      |      | [28]        |      |  |          | 5,072  |   |  |        | 4,999  |  
|                                            | Other long-term provisions                                 |      |      | [29]        |      |  |          | 1,343  |   |  |        | 1,400  |  
|                                            |                                                            |      |      |             |      |  |          |        |  
|                                            |                                                            |      |      |             |      |  | 13,891   |        |   |  | 13,646 |       
|                                            |                                                            |      |      |             |      |  |          |        |  
|Short-term liabilities                      |                                                            |      |      |             |      |  |          |        |   |  |        |       
|                                            | Short-term financial liabilities                           |      |      | [30]        |      |  |          | 2,048  |   |  |        | 2,605  |  
|                                            | Trade accounts payable                                     |      |      | [31]        |      |  |          | 2,265  |   |  |        | 2,276  |  
|                                            | Miscellaneous short-term liabilities                       |      |      | [32]        |      |  |          | 2,361  |   |  |        | 2,038  |  
|                                            | Short-term provisions                                      |      |      | [29]        |      |  |          | 2,448  |   |  |        | 2,969  |  
|                                            |                                                            |      |      |             |      |  |          |        |  
|                                            |                                                            |      |      |             |      |  | 9,122    |        |   |  | 9,888  |       
|                                            |                                                            |      |      |             |      |  |          |        |  
|                                            |                                                            |      |      |             |      |  | 23,013   |        |   |  | 23,534 |       
|                                            |                                                            |      |      |             |      |  |          |        |  
|of which discontinuing operations           |                                                            |      | [35] |             |      |  | 2,077    |        |   |  | 2,255  |       
|                                            |                                                            |      |      |             |      |  |          |        |  
|Deferred taxes                              |                                                            |      | [11] |             |      |  | 1,462    |        |   |  | 1,247  |       
|                                            |                                                            |      |      |             |      |  |          |        |  
|Deferred income                             |                                                            |      | [34] |             |      |  | 634      |        |   |  | 644    |       
|                                            |                                                            |      |      |             |      |  |          |        |  
|Total stockholders equity and liabilities  |                                                            |      |      |             |      |  | 37,445   |        |   |  | 37,804 |       
|                                            |                                                            |      |      |             |      |  |          |        |  



F-4



---



##### Table of Contents






Bayer Group


Consolidated Statements of Changes in Stockholders
Equity


|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               |  |      |      |   |  |     |     |   |  |        |        |  
|---------------------------------------------------------------------------------------------- | --------------------------------- | ------------------------------ | ----------- | -------- | ----- |  | -------- | -------- |  | ----------- | ---------- |  |  | -------- | -- | ------------------- | ----------- |  | ------ | ----------- | - |  | ---------------- | ------ | ----- | --------- | ------ | ------ | ------------- |  | ---- | ---- | - |  | --- | --- | - |  | ------ | ------ | -
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    | Miscellaneous Items |             |  |       
|                                                                                               |                                   |                                |             | Capital  |       |  | Capital  |          |  |             |            |  |  |          |    |                     |             |  |        |             |  
|                                                                                               |                                   |                                |             | Stock of |       |  | Reserves |          |  | Revaluation |            |  |  |          |    |                     | Currency    |  |        | Fair-Value  |   |  |                  |        | Total |          
|                                                                                               |                                   | Number of                      |             |          | Bayer |  |          | of Bayer |  |             | Surplus of |  |  | Retained |    |                     | Net Income/ |  |        | Translation |   |  | Remeasurement of |        |       | Cash Flow |        |        | Stockholders | 
|                                                                                               |                                   | Shares                         |             |          | AG    |  |          | AG       |  |             | Bayer AG   |  |  | Earnings |    |                     | Loss        |  |        | Adjustment  |   |  | Securities       |        |       | Hedges    |        |        | Equity        | 
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               | 
|                                                                                               |                                   | ( million, except share data) |            
|Jan. 1, 2002                                                                                   |                                   |                                | 730,341,920 |          |       |  | 1,870    |          |  |             | 2,942      |  |  |          |   |                     |             |  | 9,841  |             |   |  | 965              |        |       |           | 759    |        |               |  | 554  |      |   |  | (9  | )   |   |  | 16,922 |       
|Changes in stockholders equity resulting from capital
    contributions and dividend payments |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               |  |      |      |   |  |     |     |   |  |        |       
|                                                                                               | Dividend payments                 |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  | (657   | )     |           |        |        |               |  |      |      |   |  |     |     |   |  |        | (657   | )
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               | 
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  | (657             | )      |       |           |        |        |               |  |      |      |   |  |     |     |   |  | (657   | )     
|Other changes in stockholders equity not recognized in
    net income                         |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               |  |      |      |   |  |     |     |   |  |        |       
|                                                                                               | Exchange differences              |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        | (1,352 | )             |  |      |      |   |  |     |     |   |  |        | (1,352 | )
|                                                                                               | Other differences                 |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               |  |      | (561 | ) |  |     | (4  | ) |  |        | (565   | )
|                                                                                               | of which realized (gains) losses  |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               |  |      | (154 | ) |  |     | 9   |   |  |        | (145   | )
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               | 
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           | (1,352 | )      |               |  | (561 | )    |   |  | (4  | )   |   |  | (1,917 | )     
|Changes in stockholders equity recognized in net
    income                                   |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               |  |      |      |   |  |     |     |   |  |        |       
|                                                                                               | Allocation to retained earnings   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        | 235         |   |  |                  | (308   | )     |           |        |        |               |  |      |      |   |  |     |     |   |  |        | (73    | )
|                                                                                               | Income after taxes for 2002       |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  | 1,060  |       |           |        |        |               |  |      |      |   |  |     |     |   |  |        | 1,060  |  
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               | 
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  | 235    |             |   |  | 752              |        |       |           |        |        |               |  |      |      |   |  |     |     |   |  | 987    |       
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               | 
|Dec. 31, 2002                                                                                  |                                   |                                | 730,341,920 |          |       |  | 1,870    |          |  |             | 2,942      |  |  |          |   |                     |             |  | 10,076 |             |   |  | 1,060            |        |       |           | (593   | )      |               |  | (7   | )    |   |  | (13 | )   |   |  | 15,335 |       
|Changes in stockholders equity resulting from capital
    contributions and dividend payments |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               |  |      |      |   |  |     |     |   |  |        |       
|                                                                                               | Dividend payments                 |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  | (657   | )     |           |        |        |               |  |      |      |   |  |     |     |   |  |        | (657   | )
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               | 
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  | (657             | )      |       |           |        |        |               |  |      |      |   |  |     |     |   |  | (657   | )     
|Other changes in stockholders equity not recognized in
    net income                         |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               |  |      |      |   |  |     |     |   |  |        |       
|                                                                                               | Exchange differences              |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        | (1,106 | )             |  |      |      |   |  |     |     |   |  |        | (1,106 | )
|                                                                                               | Other differences                 |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               |  |      | 20   |   |  |     | (18 | ) |  |        | 2      |  
|                                                                                               | of which realized (gains) losses  |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               |  |      | 1    |   |  |     | 3   |   |  |        | 4      |  
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               | 
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           | (1,106 | )      |               |  | 20   |      |   |  | (18 | )   |   |  | (1,104 | )     
|Changes in stockholders equity recognized in net
    income                                   |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               |  |      |      |   |  |     |     |   |  |        |       
|                                                                                               | Allocation to retained earnings   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        | 403         |   |  |                  | (403   | )     |           |        |        |               |  |      |      |   |  |     |     |   |  |        | 0      |  
|                                                                                               | Income after taxes for 2003       |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  | (1,361 | )     |           |        |        |               |  |      |      |   |  |     |     |   |  |        | (1,361 | )
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               | 
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  | 403    |             |   |  | (1,764           | )      |       |           |        |        |               |  |      |      |   |  |     |     |   |  | (1,361 | )     
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               | 
|Dec. 31, 2003                                                                                  |                                   |                                | 730,341,920 |          |       |  | 1,870    |          |  |             | 2,942      |  |  |          |   |                     |             |  | 10,479 |             |   |  | (1,361           | )      |       |           | (1,699 | )      |               |  | 13   |      |   |  | (31 | )   |   |  | 12,213 |       
|Changes in stockholders equity resulting from capital
    contributions and dividend payments |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               |  |      |      |   |  |     |     |   |  |        |       
|                                                                                               | Dividend payments                 |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  | (365   | )     |           |        |        |               |  |      |      |   |  |     |     |   |  |        | (365   | )
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               | 
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  | (365             | )      |       |           |        |        |               |  |      |      |   |  |     |     |   |  | (365   | )     
|Other changes in stockholders equity not recognized in
    net income                         |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               |  |      |      |   |  |     |     |   |  |        |       
|                                                                                               | Exchange differences              |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        | (304   | )             |  |      |      |   |  |     |     |   |  |        | (304   | )
|                                                                                               | Other differences                 |                                |             |          |       |  |          |          |  |             |            |  |  |          |    | 66                  |             |  |        |             |   |  |                  |        |       |           |        |        |               |  |      | 7    |   |  |     | 48  |   |  |        | 121    |  
|                                                                                               | of which realized (gains) losses  |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               |  |      | (6   | ) |  |     | 2   |   |  |        | (4     | )
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               | 
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          | 66 |                     |             |  |        |             |   |  |                  |        |       |           | (304   | )      |               |  | 7    |      |   |  | 48  |     |   |  | (183   | )     
|Changes in stockholders equity recognized in net
    income                                   |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               |  |      |      |   |  |     |     |   |  |        |       
|                                                                                               | Allocation from retained earnings |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        | (1,726      | ) |  |                  | 1,726  |       |           |        |        |               |  |      |      |   |  |     |     |   |  |        | 0      |  
|                                                                                               | Income after taxes for 2004       |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  | 603    |       |           |        |        |               |  |      |      |   |  |     |     |   |  |        | 603    |  
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               | 
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  | (1,726 | )           |   |  | 2,329            |        |       |           |        |        |               |  |      |      |   |  |     |     |   |  | 603    |       
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               | 
|Dec. 31, 2004                                                                                  |                                   |                                | 730,341,920 |          |       |  | 1,870    |          |  |             | 2,942      |  |  |          | 66 |                     |             |  | 8,753  |             |   |  | 603              |        |       |           | (2,003 | )      |               |  | 20   |      |   |  | 17  |     |   |  | 12,268 |       
|                                                                                               |                                   |                                |             |          |       |  |          |          |  |             |            |  |  |          |    |                     |             |  |        |             |   |  |                  |        |       |           |        |        |               | 



F-5



---



##### Table of Contents






Bayer Group


Consolidated Statements of Cash Flows


|                                                                                 |  |      |      |             |      |  |        |      |  |  |        |   |  |  |        |  
|-------------------------------------------------------------------------------- |  | ---- | ---- | ----------- | ---- |  | ------ | ---- |  |  | ------ | - |  |  | ------ | -
|                                                                                 |  | Note |      |             | 2002 |  |        | 2003 |  |  | 2004   |  
|                                                                                 |  |      |      |             |      |  |        |      |  |  |        |  
|                                                                                 |  |      |      | ( million) |     
|Operating result                                                                 |  |      |      |             |      |  | 1,518  |      |  |  | (1,119 | ) |  |  | 1,808  |  
|Income taxes                                                                     |  |      |      |             |      |  | (301   | )    |  |  | (607   | ) |  |  | (527   | )
|Depreciation and amortization                                                    |  |      |      |             |      |  | 3,312  |      |  |  | 4,735  |   |  |  | 2,322  |  
|Change in pension provisions                                                     |  |      |      |             |      |  | (346   | )    |  |  | (43    | ) |  |  | (430   | )
|(Gains) Losses on retirements of noncurrent assets                               |  |      |      |             |      |  | (1,401 | )    |  |  | (102   | ) |  |  | 37     |  
|                                                                                 |  |      |      |             |      |  |        |      |  |  |        |  
|Gross cash provided by (used in) operating activities                            |  |      |      |             |      |  | 2,782  |      |  |  | 2,864  |   |  |  | 3,210  |  
|                                                                                 |  |      |      |             |      |  |        |      |  |  |        |  
|of which discontinuing operations                                                |  |      | [42] |             |      |  | 399    |      |  |  | 158    |   |  |  | 366    |  
|(Increase) Decrease in inventories                                               |  |      |      |             |      |  | (55    | )    |  |  | (49    | ) |  |  | (556   | )
|(Increase) Decrease in trade accounts receivable                                 |  |      |      |             |      |  | 546    |      |  |  | 115    |   |  |  | (561   | )
|Increase (Decrease) in trade accounts payable                                    |  |      |      |             |      |  | 419    |      |  |  | (143   | ) |  |  | 52     |  
|Changes in other assets and liabilities                                          |  |      |      |             |      |  | 766    |      |  |  | 506    |   |  |  | 305    |  
|                                                                                 |  |      |      |             |      |  |        |      |  |  |        |  
|Net cash provided by (used in) operating activities                              |  |      | [39] |             |      |  | 4,458  |      |  |  | 3,293  |   |  |  | 2,450  |  
|                                                                                 |  |      |      |             |      |  |        |      |  |  |        |  
|of which discontinuing operations                                                |  |      | [42] |             |      |  | 461    |      |  |  | 33     |   |  |  | 218    |  
|Cash outflows for additions to property, plant and equipment                     |  |      |      |             |      |  | (2,239 | )    |  |  | (1,653 | ) |  |  | (1,251 | )
|Cash inflows from sales of property, plant and equipment                         |  |      |      |             |      |  | 2,114  |      |  |  | 1,644  |   |  |  | 200    |  
|Cash inflows from sales of investments                                           |  |      |      |             |      |  | 903    |      |  |  | 258    |   |  |  | 90     |  
|Cash outflows for acquisitions less acquired cash                                |  |      |      |             |      |  | (7,776 | )    |  |  | (72    | ) |  |  | (358   | )
|Interest and dividends received                                                  |  |      |      |             |      |  | 402    |      |  |  | 366    |   |  |  | 400    |  
|Cash inflows from (outflows for) marketable securities                           |  |      |      |             |      |  | 26     |      |  |  | (83    | ) |  |  | 105    |  
|                                                                                 |  |      |      |             |      |  |        |      |  |  |        |  
|Net cash provided by (used in) investing activities                              |  |      | [40] |             |      |  | (6,570 | )    |  |  | 460    |   |  |  | (814   | )
|                                                                                 |  |      |      |             |      |  |        |      |  |  |        |  
|of which discontinuing operations                                                |  |      | [42] |             |      |  | 936    |      |  |  | (274   | ) |  |  | (283   | )
|Capital contributions                                                            |  |      |      |             |      |  | 0      |      |  |  | 0      |   |  |  | 10     |  
|Bayer AG dividend and dividend payments to minority stockholders                 |  |      |      |             |      |  | (662   | )    |  |  | (664   | ) |  |  | (559   | )
|Issuances of debt                                                                |  |      |      |             |      |  | 7,427  |      |  |  | 1,621  |   |  |  | 1,393  |  
|Retirements of debt                                                              |  |      |      |             |      |  | (3,890 | )    |  |  | (1,936 | ) |  |  | (881   | )
|Interest paid                                                                    |  |      |      |             |      |  | (704   | )    |  |  | (782   | ) |  |  | (724   | )
|                                                                                 |  |      |      |             |      |  |        |      |  |  |        |  
|Net cash provided by (used in) financing activities                              |  |      | [41] |             |      |  | 2,171  |      |  |  | (1,761 | ) |  |  | (761   | )
|                                                                                 |  |      |      |             |      |  |        |      |  |  |        |  
|of which discontinuing operations                                                |  |      | [42] |             |      |  | (23    | )    |  |  | 241    |   |  |  | 65     |  
|                                                                                 |  |      |      |             |      |  |        |      |  |  |        |  
|Change in cash and cash equivalents due to business
    activities               |  |      |      |             |      |  | 59     |      |  |  | 1,992  |   |  |  | 875    |  
|                                                                                 |  |      |      |             |      |  |        |      |  |  |        |  
|Cash and cash equivalents at beginning of year                                   |  |      |      |             |      |  | 719    |      |  |  | 767    |   |  |  | 2,734  |  
|                                                                                 |  |      |      |             |      |  |        |      |  |  |        |  
|Change in cash and cash equivalents due to changes in scope of
    consolidation |  |      |      |             |      |  | 4      |      |  |  | 1      |   |  |  | 6      |  
|Change in cash and cash equivalents due to exchange rate
    movements           |  |      |      |             |      |  | (15    | )    |  |  | (26    | ) |  |  | (45    | )
|                                                                                 |  |      |      |             |      |  |        |      |  |  |        |  
|Cash and cash equivalents at end of year                                         |  |      | [43] |             |      |  | 767    |      |  |  | 2,734  |   |  |  | 3,570  |  
|                                                                                 |  |      |      |             |      |  |        |      |  |  |        |  
|Marketable securities and other instruments                                      |  |      |      |             |      |  | 29     |      |  |  | 129    |   |  |  | 29     |  
|                                                                                 |  |      |      |             |      |  |        |      |  |  |        |  
|Liquid assets as per balance sheets                                              |  |      |      |             |      |  | 796    |      |  |  | 2,863  |   |  |  | 3,599  |  
|                                                                                 |  |      |      |             |      |  |        |      |  |  |        |  



F-6



---



##### Table of Contents






Notes to the Consolidated Financial Statements of the Bayer
Group


Key Data by Business Segment


|                                    |  |                  |        |          |               |  |        |                |  |  |               |   |  |             |       |   |           |  |        |         |  |  |        |    |  |      |       |    |      |  |       |      |  |  |        |   |  |      |        |   |      |  |       |    |  |  |       |   |  |  |       |    |  |  |       |  
|----------------------------------- |  | ---------------- | ------ | -------- | ------------- |  | ------ | -------------- |  |  | ------------- | - |  | ----------- | ----- | - | --------- |  | ------ | ------- |  |  | ------ | -- |  | ---- | ----- | -- | ---- |  | ----- | ---- |  |  | ------ | - |  | ---- | ------ | - | ---- |  | ----- | -- |  |  | ----- | - |  |  | ----- | -- |  |  | ----- | -
|                                    |  |                  |        | Of Which |               |  |        |                |  |  |               |   |  |             |       |   |           |  |        |         |  |  |        |    | 
|                                    |  | Pharmaceuticals/ |        |          | Discontinuing |  |        |                |  |  |               |   |  |             |       |   |           |  |        |         |  |  |        |   
|                                    |  | Biological       |        |          | Operations    |  |        | Consumer Care/ |  |  |               |   |  |             |       |   |          
|                                    |  | Products         |        |          | Plasma        |  |        | Diagnostics    |  |  | Animal Health |   |  | CropScience |       |   | Materials |  |        | Systems | 
|                                    |  |                  |        |          |               |  |        |                |  |  |               |   |  |             |       |   |           |  |        |         | 
|Business Segments                   |  | 2003             |        |          | 2004          |  |        | 2003           |  |  | 2004          |   |  | 2003        |       |   | 2004      |  |        | 2003    |  |  | 2004   |    |  | 2003 |       |    | 2004 |  |       | 2003 |  |  | 2004   |   |  | 2003 |        |   | 2004 | 
|                                    |  |                  |        |          |               |  |        |                |  |  |               |   |  |             |       |   |           |  |        |         |  |  |        |    |  |      |       |    |      |  |       |      |  |  |        |   |  |      |        |   |      | 
|                                    |  | ( million)      |       
|Net sales (external)                |  |                  | 4,745  |          |               |  | 4.388  |                |  |  | 613           |   |  |             | 660   |   |           |  | 3,336  |         |  |  | 3,311  |    |  |      | 790   |    |      |  | 786   |      |  |  | 5,764  |   |  |      | 5,946  |   |      |  | 2,777 |    |  |  | 3,248 |   |  |  | 4,676 |    |  |  | 5,349 |  
| Change in                        |  |                  | (0.5   | )%       |               |  | (7.5   | )%             |  |  |              |   |  |             |      |   |           |  | (11.2  | )%      |  |  | (0.7   | )% |  |      | (7.1  | )% |      |  | (0.5  | )%   |  |  | 22.7   | % |  |      | 3.2    | % |      |  | (3.4  | )% |  |  | 17.0  | % |  |  | (2.3  | )% |  |  | 14.4  | %
| Change in local currencies        |  |                  | 11.4   | %        |               |  | (3.4   | )%             |  |  |              |   |  |             |      |   |           |  | (0.3   | )%      |  |  | 4.6    | %  |  |      | 4.7   | %  |      |  | 4.5   | %    |  |  | 32.4   | % |  |      | 7.1    | % |      |  | 5.1   | %  |  |  | 22.1  | % |  |  | 6.5   | %  |  |  | 18.8  | %
|Intersegment sales                  |  |                  | 51     |          |               |  | 42     |                |  |  |              |   |  |             |      |   |           |  | 4      |         |  |  | 18     |    |  |      | 8     |    |      |  | 4     |      |  |  | 69     |   |  |      | 57     |   |      |  | 23    |    |  |  | 27    |   |  |  | 297   |    |  |  | 339   |  
|Other operating income              |  |                  | 100    |          |               |  | 128    |                |  |  |              |   |  |             |      |   |           |  | 383    |         |  |  | 26     |    |  |      | 25    |    |      |  | 12    |      |  |  | 329    |   |  |      | 171    |   |      |  | 21    |    |  |  | 32    |   |  |  | 44    |    |  |  | 96    |  
|Operating result                    |  |                  | (408   | )        |               |  | 302    |                |  |  | (349          | ) |  |             | (56   | ) |           |  | 601    |         |  |  | 400    |    |  |      | 172   |    |      |  | 157   |      |  |  | 342    |   |  |      | 492    |   |      |  | 58    |    |  |  | 293   |   |  |  | (455  | )  |  |  | 348   |  
|Return on sales                     |  |                  | (8.6   | )%       |               |  | 6.9    | %              |  |  |              |   |  |             |      |   |           |  | 18.0   | %       |  |  | 12.1   | %  |  |      | 21.8  | %  |      |  | 20.0  | %    |  |  | 5.9    | % |  |      | 8.3    | % |      |  | 2.1   | %  |  |  | 9.0   | % |  |  | (9.7  | )% |  |  | 6.5   | %
|Gross cash flow                     |  |                  | 23     |          |               |  | 405    |                |  |  | (122          | ) |  |             | 60    |   |           |  | 648    |         |  |  | 448    |    |  |      | 144   |    |      |  | 109   |      |  |  | 860    |   |  |      | 893    |   |      |  | 312   |    |  |  | 400   |   |  |  | 623   |    |  |  | 484   |  
|Capital invested                    |  |                  | 3,001  |          |               |  | 2,934  |                |  |  |              |   |  |             |      |   |           |  | 2,891  |         |  |  | 2,609  |    |  |      | 409   |    |      |  | 392   |      |  |  | 8,033  |   |  |      | 8,386  |   |      |  | 3,557 |    |  |  | 3,645 |   |  |  | 5,551 |    |  |  | 4,344 |  
|CFRoI                               |  |                  | 0.6    | %        |               |  | 14.4   | %              |  |  |              |   |  |             |      |   |           |  | 20.9   | %       |  |  | 15.6   | %  |  |      | 27.1  | %  |      |  | 25.4  | %    |  |  | 9.6    | % |  |      | 10.6   | % |      |  | 8.0   | %  |  |  | 10.8  | % |  |  | 10.3  | %  |  |  | 9.2   | %
|Net cash flow                       |  |                  | (163   | )        |               |  | 215    |                |  |  | (98           | ) |  |             | (16   | ) |           |  | 719    |         |  |  | 667    |    |  |      | 226   |    |      |  | 125   |      |  |  | 1,165  |   |  |      | 778    |   |      |  | 332   |    |  |  | 209   |   |  |  | 781   |    |  |  | 289   |  
|Equity-method income (loss)         |  |                  |       |          |               |  |       |                |  |  |              |   |  |             |      |   |           |  |       |         |  |  |       |    |  |      |      |    |      |  |      |      |  |  |       |   |  |      |       |   |      |  | 1     |    |  |  | 2     |   |  |  | (23   | )  |  |  | (131  | )
|Equity-method investments           |  |                  | 4      |          |               |  | 4      |                |  |  |              |   |  |             |      |   |           |  |       |         |  |  |       |    |  |      |      |    |      |  |      |      |  |  |       |   |  |      |       |   |      |  | 16    |    |  |  | 29    |   |  |  | 703   |    |  |  | 562   |  
|Total assets                        |  |                  | 4,632  |          |               |  | 4,581  |                |  |  | 619           |   |  |             | 621   |   |           |  | 3,207  |         |  |  | 3,096  |    |  |      | 575   |    |      |  | 554   |      |  |  | 10,745 |   |  |      | 10,820 |   |      |  | 3,861 |    |  |  | 3,789 |   |  |  | 3,957 |    |  |  | 4,724 |  
|Capital expenditures                |  |                  | 185    |          |               |  | 134    |                |  |  |              |   |  |             |      |   |           |  | 201    |         |  |  | 161    |    |  |      | 21    |    |      |  | 25    |      |  |  | 413    |   |  |      | 209    |   |      |  | 169   |    |  |  | 147   |   |  |  | 295   |    |  |  | 185   |  
|Amortization and depreciation       |  |                  | 555    |          |               |  | 220    |                |  |  | 227           |   |  |             | 46    |   |           |  | 300    |         |  |  | 239    |    |  |      | 32    |    |      |  | 23    |      |  |  | 749    |   |  |      | 727    |   |      |  | 269   |    |  |  | 249   |   |  |  | 1,108 |    |  |  | 326   |  
|Liabilities                         |  |                  | 2,279  |          |               |  | 2,067  |                |  |  | 89            |   |  |             | 134   |   |           |  | 961    |         |  |  | 1,021  |    |  |      | 207   |    |      |  | 176   |      |  |  | 2,808  |   |  |      | 2,607  |   |      |  | 726   |    |  |  | 843   |   |  |  | 1,360 |    |  |  | 1,328 |  
|Research and development expenses   |  |                  | 964    |          |               |  | 788    |                |  |  | 44            |   |  |             | 47    |   |           |  | 209    |         |  |  | 189    |    |  |      | 72    |    |      |  | 67    |      |  |  | 725    |   |  |      | 679    |   |      |  | 116   |    |  |  | 97    |   |  |  | 133   |    |  |  | 139   |  
|Number of employees (as of Dec. 31) |  |                  | 20,700 |          |               |  | 20,000 |                |  |  | 1,600         |   |  |             | 1,600 |   |           |  | 11,000 |         |  |  | 10,800 |    |  |      | 2,900 |    |      |  | 2,900 |      |  |  | 19,400 |   |  |      | 19,400 |   |      |  | 9,100 |    |  |  | 9,100 |   |  |  | 9,200 |    |  |  | 8,800 |  

|                                        |  |               |        |    |                |  |        |             |  |  |        |   |  |      |        |   |      |  |         |    |  |  |         |  
|--------------------------------------- |  | ------------- | ------ | -- | -------------- |  | ------ | ----------- |  |  | ------ | - |  | ---- | ------ | - | ---- |  | ------- | -- |  |  | ------- | -
|                                        |  | LANXESS       |        |    |                |  |        |             |  |  |       
|                                        |  | Discontinuing |        |    |                |  |       
|                                        |  | Operations    |        |    | Reconciliation |  |        | Bayer Group | 
|                                        |  |               |        |    |                |  |        |             | 
|Business Segments                       |  | 2003          |        |    | 2004           |  |        | 2003        |  |  | 2004   |   |  | 2003 |        |   | 2004 | 
|                                        |  |               |        |    |                |  |        |             |  |  |        |   |  |      |        |   |      | 
|                                        |  | ( million)   |       
|Net sales (external)                    |  |               | 5,776  |    |                |  | 6,053  |             |  |  | 703    |   |  |      | 677    |   |      |  | 28,567  |    |  |  | 29,758  |  
| Change in                            |  |               | (7.5   | )% |                |  | 4.8    | %           |  |  |       |   |  |      |       |   |      |  | (3.6    | )% |  |  | 4.2     | %
| Change in local currencies            |  |               | (1.7   | )% |                |  | 7.8    | %           |  |  |       |   |  |      |       |   |      |  | 5.0     | %  |  |  | 8.2     | %
|Intersegment sales                      |  |               | 557    |    |                |  | 659    |             |  |  | (1,009 | ) |  |      | (1,146 | ) |      |  |        |    |  |  |        |  
|Other operating income                  |  |               | 85     |    |                |  | 64     |             |  |  | 171    |   |  |      | 275    |   |      |  | 1,158   |    |  |  | 804     |  
|Operating result                        |  |               | (1,290 | )  |                |  | 74     |             |  |  | (139   | ) |  |      | (258   | ) |      |  | (1,119  | )  |  |  | 1,808   |  
|Return on sales                         |  |               | (22.3  | )% |                |  | 1.2    | %           |  |  |       |   |  |      |       |   |      |  | (3.9    | )% |  |  | 6.1     | %
|Gross cash flow                         |  |               | 280    |    |                |  | 306    |             |  |  | (26    | ) |  |      | 165    |   |      |  | 2,864   |    |  |  | 3,210   |  
|Capital invested                        |  |               | 5,658  |    |                |  | 4,112  |             |  |  | 5,297  |   |  |      | 3,684  |   |      |  | 34,397  |    |  |  | 30,106  |  
|CFRoI                                   |  |               | 4.6    | %  |                |  | 6.7    | %           |  |  |       |   |  |      |       |   |      |  | 8.1     | %  |  |  | 9.9     | %
|Net cash flow                           |  |               | 131    |    |                |  | 234    |             |  |  | 102    |   |  |      | (67    | ) |      |  | 3,293   |    |  |  | 2,450   |  
|Equity-method income (loss)             |  |               |       |    |                |  |       |             |  |  | (143   | ) |  |      | (10    | ) |      |  | (165    | )  |  |  | (139    | )
|Equity-method investments               |  |               |       |    |                |  |       |             |  |  | 147    |   |  |      | 149    |   |      |  | 870     |    |  |  | 744     |  
|Total assets                            |  |               | 4,029  |    |                |  | 4,313  |             |  |  | 6,439  |   |  |      | 5,927  |   |      |  | 37,445  |    |  |  | 37,804  |  
|Capital expenditures                    |  |               | 312    |    |                |  | 279    |             |  |  | 143    |   |  |      | 135    |   |      |  | 1,739   |    |  |  | 1,275   |  
|Amortization and depreciation           |  |               | 1,458  |    |                |  | 317    |             |  |  | 264    |   |  |      | 221    |   |      |  | 4,735   |    |  |  | 2,322   |  
|Liabilities                             |  |               | 2,101  |    |                |  | 2,217  |             |  |  | 14,667 |   |  |      | 15,166 |   |      |  | 25,109  |    |  |  | 25,425  |  
|Research and development
    expenses   |  |               | 168    |    |                |  | 126    |             |  |  | 17     |   |  |      | 22     |   |      |  | 2,404   |    |  |  | 2,107   |  
|Number of employees (as of
    Dec. 31) |  |               | 20,500 |    |                |  | 19,700 |             |  |  | 22,600 |   |  |      | 22,300 |   |      |  | 115,400 |    |  |  | 113,000 |  

F-7



---



##### Table of Contents



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


Key Data by Business Segment


|                                    |  |                  |        |          |               |  |        |                |  |  |               |   |  |             |       |   |           |  |        |         |  |  |        |    |  |      |       |    |      |  |       |      |  |  |        |    |  |      |        |   |      |  |        |    |  |  |       |    |  |  |       |    |  |  |       |   
|----------------------------------- |  | ---------------- | ------ | -------- | ------------- |  | ------ | -------------- |  |  | ------------- | - |  | ----------- | ----- | - | --------- |  | ------ | ------- |  |  | ------ | -- |  | ---- | ----- | -- | ---- |  | ----- | ---- |  |  | ------ | -- |  | ---- | ------ | - | ---- |  | ------ | -- |  |  | ----- | -- |  |  | ----- | -- |  |  | ----- | --
|                                    |  |                  |        | Of Which |               |  |        |                |  |  |               |   |  |             |       |   |           |  |        |         |  |  |        |    | 
|                                    |  | Pharmaceuticals/ |        |          | Discontinuing |  |        |                |  |  |               |   |  |             |       |   |           |  |        |         |  |  |        |   
|                                    |  | Biological       |        |          | Operations    |  |        | Consumer Care/ |  |  |               |   |  |             |       |   |          
|                                    |  | Products         |        |          | Plasma        |  |        | Diagnostics    |  |  | Animal Health |   |  | CropScience |       |   | Materials |  |        | Systems | 
|                                    |  |                  |        |          |               |  |        |                |  |  |               |   |  |             |       |   |           |  |        |         | 
|Business Segments                   |  | 2002             |        |          | 2003          |  |        | 2002           |  |  | 2003          |   |  | 2002        |       |   | 2003      |  |        | 2002    |  |  | 2003   |    |  | 2002 |       |    | 2003 |  |       | 2002 |  |  | 2003   |    |  | 2002 |        |   | 2003 | 
|                                    |  |                  |        |          |               |  |        |                |  |  |               |   |  |             |       |   |           |  |        |         |  |  |        |    |  |      |       |    |      |  |       |      |  |  |        |    |  |      |        |   |      | 
|                                    |  | ( million)      |       
|Net sales (external)                |  |                  | 4,767  |          |               |  | 4,745  |                |  |  | 679           |   |  |             | 613   |   |           |  | 3,755  |         |  |  | 3,336  |    |  |      | 850   |    |      |  | 790   |      |  |  | 4,697  |    |  |      | 5,764  |   |      |  | 2,875  |    |  |  | 2,777 |    |  |  | 4,784 |    |  |  | 4,676 |   
| Change in                        |  |                  | (16.8  | )%       |               |  | (0.5   | )%             |  |  |              |   |  |             |      |   |           |  | (8.5   | )%      |  |  | (11.2  | )% |  |      | (0.9  | )% |      |  | (7.1  | )%   |  |  | 65.5   | %  |  |      | 22.7   | % |      |  | (1.8   | )% |  |  | (3.4  | )% |  |  | (1.4  | )% |  |  | (2.3  | )%
| Change in local currencies        |  |                  | (12.4  | )%       |               |  | 11.4   | %              |  |  |              |   |  |             |      |   |           |  | (1.5   | )%      |  |  | (0.3   | )% |  |      | 5.8   | %  |      |  | 4.7   | %    |  |  | 72.4   | %  |  |      | 32.4   | % |      |  | (0.7   | )% |  |  | 5.1   | %  |  |  | (0.5  | )% |  |  | 6.5   | % 
|Intersegment sales                  |  |                  | 33     |          |               |  | 51     |                |  |  |              |   |  |             |      |   |           |  | 2      |         |  |  | 4      |    |  |      | 1     |    |      |  | 8     |      |  |  | 90     |    |  |      | 69     |   |      |  | 24     |    |  |  | 23    |    |  |  | 303   |    |  |  | 297   |   
|Other operating income              |  |                  | 120    |          |               |  | 100    |                |  |  |              |   |  |             |      |   |           |  | 321    |         |  |  | 383    |    |  |      | 9     |    |      |  | 25    |      |  |  | 328    |    |  |      | 329    |   |      |  | 48     |    |  |  | 21    |    |  |  | 49    |    |  |  | 44    |   
|Operating result                    |  |                  | (200   | )        |               |  | (408   | )              |  |  | (113          | ) |  |             | (349  | ) |           |  | 593    |         |  |  | 601    |    |  |      | 168   |    |      |  | 172   |      |  |  | (112   | )  |  |      | 342    |   |      |  | 174    |    |  |  | 58    |    |  |  | (78   | )  |  |  | (455  | ) 
|Return on sales                     |  |                  | (4.2   | )%       |               |  | (8.6   | )%             |  |  |              |   |  |             |      |   |           |  | 15.8   | %       |  |  | 18.0   | %  |  |      | 19.8  | %  |      |  | 21.8  | %    |  |  | (2.4   | )% |  |      | 5.9    | % |      |  | 6.1    | %  |  |  | 2.1   | %  |  |  | (1.6  | )% |  |  | (9.7  | )%
|Gross cash flow                     |  |                  | (88    | )        |               |  | 23     |                |  |  | (78           | ) |  |             | (122  | ) |           |  | 774    |         |  |  | 648    |    |  |      | 168   |    |      |  | 144   |      |  |  | 448    |    |  |      | 860    |   |      |  | 372    |    |  |  | 312   |    |  |  | 698   |    |  |  | 623   |   
|Capital invested                    |  |                  | 4,095  |          |               |  | 3,001  |                |  |  |              |   |  |             |      |   |           |  | 3,152  |         |  |  | 2,891  |    |  |      | 592   |    |      |  | 409   |      |  |  | 10,085 |    |  |      | 8,033  |   |      |  | 4,341  |    |  |  | 3,557 |    |  |  | 6,642 |    |  |  | 5,551 |   
|CFRoI                               |  |                  | (1.8   | )%       |               |  | 0.6    | %              |  |  |              |   |  |             |      |   |           |  | 22.4   | %       |  |  | 20.9   | %  |  |      | 28.0  | %  |      |  | 27.1  | %    |  |  | 5.7    | %  |  |      | 9.6    | % |      |  | 9.4    | %  |  |  | 8.0   | %  |  |  | 9.7   | %  |  |  | 10.3  | % 
|Net cash flow                       |  |                  | 484    |          |               |  | (163   | )              |  |  | (129          | ) |  |             | (98   | ) |           |  | 951    |         |  |  | 719    |    |  |      | 140   |    |      |  | 226   |      |  |  | 1,212  |    |  |      | 1,165  |   |      |  | 450    |    |  |  | 332   |    |  |  | 658   |    |  |  | 781   |   
|Equity-method income (loss)         |  |                  |       |          |               |  |       |                |  |  |              |   |  |             |      |   |           |  |       |         |  |  |       |    |  |      |      |    |      |  |      |      |  |  |       |    |  |      |       |   |      |  | 1      |    |  |  | 1     |    |  |  | (3    | )  |  |  | (23   | ) 
|Equity-method investments           |  |                  | 16     |          |               |  | 4      |                |  |  |              |   |  |             |      |   |           |  |       |         |  |  |       |    |  |      |      |    |      |  |      |      |  |  |       |    |  |      |       |   |      |  | 24     |    |  |  | 16    |    |  |  | 729   |    |  |  | 703   |   
|Total assets                        |  |                  | 4,221  |          |               |  | 4,632  |                |  |  | 862           |   |  |             | 619   |   |           |  | 3,352  |         |  |  | 3,207  |    |  |      | 637   |    |      |  | 575   |      |  |  | 13,462 |    |  |      | 10,745 |   |      |  | 4,160  |    |  |  | 3,861 |    |  |  | 4,264 |    |  |  | 3,957 |   
|Capital expenditures                |  |                  | 178    |          |               |  | 185    |                |  |  |              |   |  |             |      |   |           |  | 272    |         |  |  | 201    |    |  |      | 26    |    |      |  | 21    |      |  |  | 297    |    |  |      | 413    |   |      |  | 394    |    |  |  | 169   |    |  |  | 508   |    |  |  | 295   |   
|Amortization and depreciation       |  |                  | 350    |          |               |  | 555    |                |  |  | 32            |   |  |             | 227   |   |           |  | 339    |         |  |  | 300    |    |  |      | 49    |    |      |  | 32    |      |  |  | 628    |    |  |      | 749    |   |      |  | 279    |    |  |  | 269   |    |  |  | 820   |    |  |  | 1,108 |   
|Liabilities                         |  |                  | 2,130  |          |               |  | 2,279  |                |  |  | 90            |   |  |             | 89    |   |           |  | 1,236  |         |  |  | 961    |    |  |      | 304   |    |      |  | 207   |      |  |  | 2,944  |    |  |      | 2,808  |   |      |  | 848    |    |  |  | 726   |    |  |  | 1,590 |    |  |  | 1,360 |   
|Research and development expenses   |  |                  | 1,074  |          |               |  | 964    |                |  |  | 44            |   |  |             | 44    |   |           |  | 237    |         |  |  | 209    |    |  |      | 81    |    |      |  | 72    |      |  |  | 600    |    |  |      | 725    |   |      |  | 97     |    |  |  | 116   |    |  |  | 152   |    |  |  | 133   |   
|Number of employees (as of Dec. 31) |  |                  | 21,900 |          |               |  | 20,700 |                |  |  | 1,400         |   |  |             | 1,600 |   |           |  | 12,700 |         |  |  | 11,000 |    |  |      | 3,000 |    |      |  | 2,900 |      |  |  | 20,700 |    |  |      | 19,400 |   |      |  | 10,100 |    |  |  | 9,100 |    |  |  | 9,100 |    |  |  | 9,200 |   

|                                        |  |               |        |    |                |  |            |               |            |          |             |   |  |      |        |   |      |  |     |      |  |  |      |  |  |  |         |    |  |  |         |   
|--------------------------------------- |  | ------------- | ------ | -- | -------------- |  | ---------- | ------------- | ---------- | -------- | ----------- | - |  | ---- | ------ | - | ---- |  | --- | ---- |  |  | ---- |  |  |  | ------- | -- |  |  | ------- | --
|                                        |  |               |        |    |                |  |            |               |            | Of Which |             |   |  |      |       
|                                        |  |               |        |    |                |  |            | Discontinuing |            |          |             |   | 
|                                        |  | LANXESS       |        |    |                |  |            |               | Operations |          |             |   |  |     
|                                        |  | Discontinuing |        |    |                |  | Haarmann & |               |            |         
|                                        |  | Operations    |        |    | Reconciliation |  |            | Reimer        |            |          | Bayer Group |  
|                                        |  |               |        |    |                |  |            |               |            |          |             |  
|Business Segments                       |  | 2002          |        |    | 2003           |  |            | 2002          |            |          | 2003        |   |  | 2002 |        |   | 2003 |  |     | 2002 |  |  | 2003 | 
|                                        |  |               |        |    |                |  |            |               |            |          |             |   |  |      |        |   |      |  |     |      |  |  |      | 
|                                        |  | ( million)   |       
|Net sales (external)                    |  |               | 6,241  |    |                |  | 5,776      |               |            |          | 1,655       |   |  |      | 703    |   |      |  | 666 |      |  |  |     |  |  |  | 29,624  |    |  |  | 28,567  |   
| Change in                            |  |               | (10.4  | )% |                |  | (7.5       | )%            |            |          |            |   |  |      |       |   |      |  |    |      |  |  |     |  |  |  | (2.2    | )% |  |  | (3.6    | )%
| Change in local currencies            |  |               | (7.2   | )% |                |  | (1.7       | )%            |            |          |            |   |  |      |       |   |      |  |    |      |  |  |     |  |  |  | 2.6     | %  |  |  | 5.0     | % 
|Intersegment sales                      |  |               | 501    |    |                |  | 557        |               |            |          | (954        | ) |  |      | (1,009 | ) |      |  |    |      |  |  |     |  |  |  |        |    |  |  |        |   
|Other operating income                  |  |               | 83     |    |                |  | 85         |               |            |          | 1,748       |   |  |      | 171    |   |      |  |    |      |  |  |     |  |  |  | 2,706   |    |  |  | 1,158   |   
|Operating result                        |  |               | (128   | )  |                |  | (1,290     | )             |            |          | 1,101       |   |  |      | (139   | ) |      |  | 978 |      |  |  |     |  |  |  | 1,518   |    |  |  | (1,119  | ) 
|Return on sales                         |  |               | (2.1   | )% |                |  | (22.3      | )%            |            |          |            |   |  |      |       |   |      |  |    |      |  |  |     |  |  |  | 5.1     | %  |  |  | (3.9    | )%
|Gross cash flow                         |  |               | 401    |    |                |  | 280        |               |            |          | 9           |   |  |      | (26    | ) |      |  | 76  |      |  |  |     |  |  |  | 2,782   |    |  |  | 2,864   |   
|Capital invested                        |  |               | 6,379  |    |                |  | 5,658      |               |            |          | 1,426       |   |  |      | 5,297  |   |      |  |    |      |  |  |     |  |  |  | 36,712  |    |  |  | 34,397  |   
|CFRoI                                   |  |               | 5.5    | %  |                |  | 4.6        | %             |            |          |            |   |  |      |       |   |      |  |    |      |  |  |     |  |  |  | 7.5     | %  |  |  | 8.1     | % 
|Net cash flow                           |  |               | 503    |    |                |  | 131        |               |            |          | 60          |   |  |      | 102    |   |      |  | 87  |      |  |  |     |  |  |  | 4,458   |    |  |  | 3,293   |   
|Equity-method income (loss)             |  |               |       |    |                |  |           |               |            |          | 7           |   |  |      | (143   | ) |      |  |    |      |  |  |     |  |  |  | 5       |    |  |  | (165    | ) 
|Equity-method investments               |  |               |       |    |                |  |           |               |            |          | 326         |   |  |      | 147    |   |      |  |    |      |  |  |     |  |  |  | 1,095   |    |  |  | 870     |   
|Total assets                            |  |               | 5,215  |    |                |  | 4,029      |               |            |          | 6,381       |   |  |      | 6,439  |   |      |  |    |      |  |  |     |  |  |  | 41,692  |    |  |  | 37,445  |   
|Capital expenditures                    |  |               | 393    |    |                |  | 312        |               |            |          | 315         |   |  |      | 143    |   |      |  |    |      |  |  |     |  |  |  | 2,383   |    |  |  | 1,739   |   
|Amortization and depreciation           |  |               | 626    |    |                |  | 1,458      |               |            |          | 221         |   |  |      | 264    |   |      |  | 48  |      |  |  |     |  |  |  | 3,312   |    |  |  | 4,735   |   
|Liabilities                             |  |               | 2,734  |    |                |  | 2,101      |               |            |          | 14,451      |   |  |      | 14,667 |   |      |  |    |      |  |  |     |  |  |  | 26,237  |    |  |  | 25,109  |   
|Research and development
    expenses   |  |               | 157    |    |                |  | 168        |               |            |          | 190         |   |  |      | 17     |   |      |  | 45  |      |  |  |     |  |  |  | 2,588   |    |  |  | 2,404   |   
|Number of employees (as of
    Dec. 31) |  |               | 21,500 |    |                |  | 20,500     |               |            |          | 23,600      |   |  |      | 22,600 |   |      |  |    |      |  |  |     |  |  |  | 122,600 |    |  |  | 115,400 |   

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                                   |  | 2002        |        |   | 2003          |  |        | 2004           |  |  | 2002               |   |  | 2003 |        |    | 2004 |  |        | 2002 |  |  | 2003   |    |  | 2004 |        |   | 2002 |  |        | 2003 |  |  | 2004   |  
|                                          |  |             |        |   |               |  |        |                |  |  |                    |   |  |      |        |    |      |  |        |      |  |  |        |    |  |      |        |   |      |  |        |      |  |  |        |  
|                                          |  | ( million) |       
|Net sales (external)  by market          |  |             | 12,266 |   |               |  | 12,162 |                |  |  | 12,915             |   |  |      | 9,005  |    |      |  | 8,636  |      |  |  | 8,277  |    |  |      | 4,901  |   |      |  | 4,529  |      |  |  | 4,946  |   |  |  | 3,452  |   |  |  | 3,240  |    |  |  | 3,620  |  
|Net sales (external)  by point of origin |  |             | 13,894 |   |               |  | 13,518 |                |  |  | 14,454             |   |  |      | 9,135  |    |      |  | 8,763  |      |  |  | 8,434  |    |  |      | 4,010  |   |      |  | 3,913  |      |  |  | 4,254  |   |  |  | 2,585  |   |  |  | 2,373  |    |  |  | 2,616  |  
|of which discontinuing operations         |  |             | 4,147  |   |               |  | 3,717  |                |  |  | 3,883              |   |  |      | 2,322  |    |      |  | 1,848  |      |  |  | 1,976  |    |  |      | 727    |   |      |  | 564    |      |  |  | 587    |   |  |  | 390    |   |  |  | 260    |    |  |  | 267    |  
| Change in                              |  |             | 0.4    | % |               |  | (2.7   | )%             |  |  | 6.9                | % |  |      | (9.3   | )% |      |  | (4.1   | )%   |  |  | (3.8   | )% |  |      | 2.0    | % |      |  | (2.4   | )%   |  |  | 8.7    | % |  |  | 5.9    | % |  |  | (8.2   | )% |  |  | 10.2   | %
| Change in local currencies              |  |             | 0.5    | % |               |  | (2.7   | )%             |  |  | 6.9                | % |  |      | (3.9   | )% |      |  | 11.4   | %    |  |  | 4.9    | %  |  |      | 7.6    | % |      |  | 10.2   | %    |  |  | 14.6   | % |  |  | 33.3   | % |  |  | 11.1   | %  |  |  | 17.5   | %
|Interregional sales                       |  |             | 3,181  |   |               |  | 3,833  |                |  |  | 4,028              |   |  |      | 1,961  |    |      |  | 1,876  |      |  |  | 1,900  |    |  |      | 227    |   |      |  | 266    |      |  |  | 239    |   |  |  | 139    |   |  |  | 151    |    |  |  | 157    |  
|Other operating income                    |  |             | 2,447  |   |               |  | 812    |                |  |  | 547                |   |  |      | 90     |    |      |  | 64     |      |  |  | 134    |    |  |      | 86     |   |      |  | 84     |      |  |  | 59     |   |  |  | 83     |   |  |  | 198    |    |  |  | 64     |  
|Operating result                          |  |             | 1,836  |   |               |  | (267   | )              |  |  | 1,015              |   |  |      | (699   | )  |      |  | (1,184 | )    |  |  | 238    |    |  |      | 216    |   |      |  | 67     |      |  |  | 421    |   |  |  | 410    |   |  |  | 433    |    |  |  | 364    |  
|of which discontinuing operations         |  |             | 1,035  |   |               |  | (832   | )              |  |  | 105                |   |  |      | (395   | )  |      |  | (767   | )    |  |  | (114   | )  |  |      | 33     |   |      |  | (52    | )    |  |  | 58     |   |  |  | 64     |   |  |  | 12     |    |  |  | (31    | )
|Return on sales                           |  |             | 13.2   | % |               |  | (2.0   | )%             |  |  | 7.0                | % |  |      | (7.7   | )% |      |  | (13.5  | )%   |  |  | 2.8    | %  |  |      | 5.4    | % |      |  | 1.7    | %    |  |  | 9.9    | % |  |  | 15.9   | % |  |  | 18.2   | %  |  |  | 13.9   | %
|Gross cash flow                           |  |             | 1,522  |   |               |  | 1,483  |                |  |  | 1,731              |   |  |      | 809    |    |      |  | 743    |      |  |  | 836    |    |  |      | 308    |   |      |  | 333    |      |  |  | 416    |   |  |  | 370    |   |  |  | 391    |    |  |  | 336    |  
|Capital invested                          |  |             | 21,338 |   |               |  | 20,000 |                |  |  | 16,604             |   |  |      | 11,594 |    |      |  | 9,325  |      |  |  | 7,896  |    |  |      | 2,460  |   |      |  | 2,258  |      |  |  | 2,459  |   |  |  | 1,322  |   |  |  | 1,197  |    |  |  | 1,275  |  
|CFRoI                                     |  |             | 8.0    | % |               |  | 7.2    | %              |  |  | 9.5                | % |  |      | 6.6    | %  |      |  | 7.1    | %    |  |  | 9.7    | %  |  |      | 11.9   | % |      |  | 14.1   | %    |  |  | 17.6   | % |  |  | 25.2   | % |  |  | 31.1   | %  |  |  | 27.2   | %
|Equity-method income (loss)               |  |             | 5      |   |               |  | (166   | )              |  |  | (39                | ) |  |      |       |    |      |  |       |      |  |  | (100   | )  |  |      |       |   |      |  | 1      |      |  |  |       |   |  |  |       |   |  |  |       |    |  |  |       |  
|Equity-method investments                 |  |             | 572    |   |               |  | 452    |                |  |  | 431                |   |  |      | 505    |    |      |  | 412    |      |  |  | 307    |    |  |      | 2      |   |      |  | 2      |      |  |  | 2      |   |  |  | 16     |   |  |  | 4      |    |  |  | 4      |  
|Total assets                              |  |             | 23,694 |   |               |  | 22,400 |                |  |  | 22,380             |   |  |      | 11,565 |    |      |  | 9,045  |      |  |  | 8,978  |    |  |      | 3,225  |   |      |  | 2,731  |      |  |  | 2,928  |   |  |  | 1,734  |   |  |  | 1,627  |    |  |  | 2,070  |  
|Capital expenditures                      |  |             | 1,422  |   |               |  | 1,047  |                |  |  | 761                |   |  |      | 676    |    |      |  | 496    |      |  |  | 303    |    |  |      | 188    |   |      |  | 138    |      |  |  | 149    |   |  |  | 97     |   |  |  | 58     |    |  |  | 62     |  
|Amortization and depreciation             |  |             | 1,746  |   |               |  | 2,351  |                |  |  | 1,413              |   |  |      | 1,344  |    |      |  | 1,963  |      |  |  | 659    |    |  |      | 153    |   |      |  | 333    |      |  |  | 125    |   |  |  | 64     |   |  |  | 69     |    |  |  | 56     |  
|Liabilities                               |  |             | 14,370 |   |               |  | 15,898 |                |  |  | 16,335             |   |  |      | 6,390  |    |      |  | 5,253  |      |  |  | 5,199  |    |  |      | 1,613  |   |      |  | 1,189  |      |  |  | 1,271  |   |  |  | 945    |   |  |  | 675    |    |  |  | 833    |  
|Research and development expenses         |  |             | 1,809  |   |               |  | 1,673  |                |  |  | 1,441              |   |  |      | 712    |    |      |  | 641    |      |  |  | 576    |    |  |      | 50     |   |      |  | 74     |      |  |  | 70     |   |  |  | 17     |   |  |  | 16     |    |  |  | 20     |  
|Number of employees (as of Dec. 31)       |  |             | 70,600 |   |               |  | 66,700 |                |  |  | 64,800             |   |  |      | 24,600 |    |      |  | 23,300 |      |  |  | 22,300 |    |  |      | 15,400 |   |      |  | 13,900 |      |  |  | 14,100 |   |  |  | 12,000 |   |  |  | 11,500 |    |  |  | 11,800 |  

|                                              |  |                |        |   |             |  |        |      |  |  |        |   |  |      |         |    |      |  |         |    |  |  |         |  
|--------------------------------------------- |  | -------------- | ------ | - | ----------- |  | ------ | ---- |  |  | ------ | - |  | ---- | ------- | -- | ---- |  | ------- | -- |  |  | ------- | -
|                                              |  | Reconciliation |        |   | Bayer Group | 
|                                              |  |                |        |   |             | 
|Regions                                       |  | 2002           |        |   | 2003        |  |        | 2004 |  |  | 2002   |   |  | 2003 |         |    | 2004 | 
|                                              |  |                |        |   |             |  |        |      |  |  |        |   |  |      |         |    |      | 
|Net sales (external)  by market              |  |                |       |   |             |  |       |      |  |  |       |   |  |      | 29,624  |    |      |  | 28,567  |    |  |  | 29,758  |  
|Net sales (external)  by point of
    origin |  |                |       |   |             |  |       |      |  |  |       |   |  |      | 29,624  |    |      |  | 28,567  |    |  |  | 29,758  |  
|of which discontinuing operations             |  |                |       |   |             |  |       |      |  |  |       |   |  |      | 7,586   |    |      |  | 6,389   |    |  |  | 6,713   |  
| Change in                                  |  |                |       |   |             |  |       |      |  |  |       |   |  |      | (2.2    | )% |      |  | (3.6    | )% |  |  | 4.2     | %
| Change in local currencies                  |  |                |       |   |             |  |       |      |  |  |       |   |  |      | 2.6     | %  |      |  | 5.0     | %  |  |  | 8.2     | %
|Interregional sales                           |  |                | (5,508 | ) |             |  | (6,126 | )    |  |  | (6,324 | ) |  |      |        |    |      |  |        |    |  |  |        |  
|Other operating income                        |  |                |       |   |             |  |       |      |  |  |       |   |  |      | 2,706   |    |      |  | 1,158   |    |  |  | 804     |  
|Operating result                              |  |                | (245   | ) |             |  | (168   | )    |  |  | (230   | ) |  |      | 1,518   |    |      |  | (1,119  | )  |  |  | 1,808   |  
|of which discontinuing operations             |  |                |       |   |             |  |       |      |  |  |       |   |  |      | 737     |    |      |  | (1,639  | )  |  |  | 18      |  
|Return on sales                               |  |                |       |   |             |  |       |      |  |  |       |   |  |      | 5.1     | %  |      |  | (3.9    | )% |  |  | 6.1     | %
|Gross cash flow                               |  |                | (227   | ) |             |  | (86    | )    |  |  | (109   | ) |  |      | 2,782   |    |      |  | 2,864   |    |  |  | 3,210   |  
|Capital invested                              |  |                | (2     | ) |             |  | 1,617  |      |  |  | 1,872  |   |  |      | 36,712  |    |      |  | 34,397  |    |  |  | 30,106  |  
|CFRoI                                         |  |                |       |   |             |  |       |      |  |  |       |   |  |      | 7.5     | %  |      |  | 8.1     | %  |  |  | 9.9     | %
|Equity-method income (loss)                   |  |                |       |   |             |  |       |      |  |  |       |   |  |      | 5       |    |      |  | (165    | )  |  |  | (139    | )
|Equity-method investments                     |  |                |       |   |             |  |       |      |  |  |       |   |  |      | 1,095   |    |      |  | 870     |    |  |  | 744     |  
|Total assets                                  |  |                | 1,474  |   |             |  | 1,642  |      |  |  | 1,448  |   |  |      | 41,692  |    |      |  | 37,445  |    |  |  | 37,804  |  
|Capital expenditures                          |  |                |       |   |             |  |       |      |  |  |       |   |  |      | 2,383   |    |      |  | 1,739   |    |  |  | 1,275   |  
|Amortization and depreciation                 |  |                | 5      |   |             |  | 19     |      |  |  | 69     |   |  |      | 3,312   |    |      |  | 4,735   |    |  |  | 2,322   |  
|Liabilities                                   |  |                | 2,919  |   |             |  | 2,094  |      |  |  | 1,787  |   |  |      | 26,237  |    |      |  | 25,109  |    |  |  | 25,425  |  
|Research and development
    expenses         |  |                |       |   |             |  |       |      |  |  |       |   |  |      | 2,588   |    |      |  | 2,404   |    |  |  | 2,107   |  
|Number of employees (as of
    Dec. 31)       |  |                |       |   |             |  |       |      |  |  |       |   |  |      | 122,600 |    |      |  | 115,400 |    |  |  | 113,000 |  

F-9



---



##### Table of Contents



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


Accounting policies








 










Effect of new accounting pronouncements






F-10



---



##### Table of Contents



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














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)








Basic principles of the consolidated financial statements




| |                      
| | ---------------------
| | Consolidation methods















F-13



---



##### Table of Contents



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




| |                             
| | ----------------------------
| | Foreign currency translation















|            |  |     |  |          |        |  |           |  |        |              |  |  |        |  |  |      |        |  |      |  |        |  |  |  |        | 
|----------- |  | --- |  | -------- | ------ |  | --------- |  | ------ | ------------ |  |  | ------ |  |  | ---- | ------ |  | ---- |  | ------ |  |  |  | ------ | 
|            |  |     |  |          |        |  |           |  |        | Average Rate | 
|            |  |     |  |          |        |  |          
|            |  |     |  | 2002 Clo |        |  | sing3Rate |  |        | 2004         |  |  | 2002   |  |  | 2003 |        |  | 2004 | 
|            |  |     |  |          |        |  |           |  |        |              |  |  |        |  |  |      |        |  |      | 
|            |  |     |  |          |        |  |           |  |        |              |  |  |        |  |  |      |       
|            |  |     |  | (1)     |        |  | (1)      | 
|Argentina   |  | ARS |  |          | 3.53   |  |           |  | 3.70   |              |  |  | 4.05   |  |  |      | 2.97   |  |      |  | 3.33   |  |  |  | 3.66   | 
|Brazil      |  | BRL |  |          | 3.71   |  |           |  | 3.66   |              |  |  | 3.62   |  |  |      | 2.78   |  |      |  | 3.47   |  |  |  | 3.64   | 
|U.K.        |  | GBP |  |          | 0.65   |  |           |  | 0.70   |              |  |  | 0.71   |  |  |      | 0.63   |  |      |  | 0.69   |  |  |  | 0.68   | 
|Japan       |  | JPY |  |          | 124.39 |  |           |  | 135.05 |              |  |  | 139.65 |  |  |      | 118.06 |  |      |  | 130.96 |  |  |  | 134.40 | 
|Canada      |  | CAD |  |          | 1.66   |  |           |  | 1.62   |              |  |  | 1.64   |  |  |      | 1.48   |  |      |  | 1.58   |  |  |  | 1.62   | 
|Mexico      |  | MXN |  |          | 10.99  |  |           |  | 14.18  |              |  |  | 15.23  |  |  |      | 9.15   |  |      |  | 12.22  |  |  |  | 14.04  | 
|Switzerland |  | CHF |  |          | 1.45   |  |           |  | 1.56   |              |  |  | 1.54   |  |  |      | 1.47   |  |      |  | 1.52   |  |  |  | 1.54   | 
|U.S.A.      |  | USD |  |          | 1.05   |  |           |  | 1.26   |              |  |  | 1.36   |  |  |      | 0.95   |  |      |  | 1.13   |  |  |  | 1.24   | 



| |                                     
| | ------------------------------------
| | Recognition and valuation principles



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



F-14



---



##### Table of Contents



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






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







| |                  
| | -----------------
| | Intangible assets









F-15



---



##### Table of Contents



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




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















|                                   |  |  |                | 
|---------------------------------- |  |  | -------------- | 
|Buildings                          |  |  | 20 to 50 years | 
|Outdoor infrastructure             |  |  | 10 to 20 years | 
|Plant installations                |  |  | 6 to 20 years  | 
|Machinery and apparatus            |  |  | 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



F-16



---



##### Table of Contents



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














| |                      
| | ---------------------
| | Financial instruments





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











| |                                   
| | ----------------------------------
| | Other receivables and other assets



F-17



---



##### Table of Contents



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




| |               
| | --------------
| | Deferred taxes







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











| |            
| | -----------
| | Liabilities





| |                
| | ---------------
| | Deferred income





| |                    
| | -------------------
| | Cash flow statement



F-18



---



##### Table of Contents



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




 


Procedure used in global impairment testing and its impact














F-19



---



##### Table of Contents



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




|                                              |  |             |       |  |      |  |    | 
|--------------------------------------------- |  | ----------- | ----- |  | ---- |  | -- | 
|                                              |  | 2003        |       |  | 2004 | 
|                                              |  |             |       |  |      | 
|                                              |  | ( million) |      
|Goodwill                                      |  |             | 167   |  |      |  | 20 | 
|of which LANXESS                              |  |             | 80    |  |      |  | 20 | 
|of which Materials                            |  |             |      |  |      |  |   | 
|of which Systems                              |  |             | 87    |  |      |  |   | 
|Intangible assets, excluding goodwill         |  |             | 511   |  |      |  | 2  | 
|of which LANXESS                              |  |             | 84    |  |      |  | 2  | 
|of which Materials                            |  |             |      |  |      |  |   | 
|of which Systems                              |  |             | 427   |  |      |  |   | 
|Property, plant and equipment                 |  |             | 1,131 |  |      |  | 46 | 
|of which LANXESS                              |  |             | 824   |  |      |  | 46 | 
|of which Materials                            |  |             |      |  |      |  |   | 
|of which Systems                              |  |             | 108   |  |      |  |   | 
|of which Pharmaceuticals, Biological Products |  |             | 199   |  |      |  |   | 
|Total                                         |  |             | 1,809 |  |      |  | 68 | 
|of which LANXESS                              |  |             | 988   |  |      |  | 68 | 
|of which Materials                            |  |             |      |  |      |  |   | 
|of which Systems                              |  |             | 622   |  |      |  |   | 
|of which Pharmaceuticals, Biological Products |  |             | 199   |  |      |  |   | 



Scope of consolidation




F-20



---



##### Table of Contents



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




|                      |  |           |     |  
|--------------------- |  | --------- | --- | -
|                      |  |  million |    
|                      |  |           |    
|Noncurrent assets     |  |           | 71  |  
|Current assets        |  |           | 20  |  
|Pension provisions    |  |           | 0   |  
|Other provisions      |  |           | (15 | )
|Financial obligations |  |           | (46 | )
|Remaining liabilities |  |           | (5  | )
|                      |  |           |    
|Net assets            |  |           | 25  |  
|                      |  |           |    
|Income                |  |           | 49  |  
|Expenses              |  |           | (55 | )
|                      |  |           |    
|Income after taxes    |  |           | (6  | )
|                      |  |           |    





Acquisitions/ Divestitures


Acquisitions


 


   


 


F-21



---



##### Table of Contents



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




  


     


divestitures, 








F-22



---



##### Table of Contents



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




|                                         |  |              |     |   |              |  |    |  
|---------------------------------------- |  | ------------ | --- | - | ------------ |  | -- | -
|2004                                     |  | Acquisitions |     |   | Divestitures | 
|                                         |  |              |     |   |              | 
|                                         |  | ( million)  |    
|Noncurrent assets                        |  |              | 358 |   |              |  | 79 |  
|Current assets (excluding liquid assets) |  |              | 98  |   |              |  | 0  |  
|Liquid assets                            |  |              | 0   |   |              |  | 2  |  
|                                         |  |              |     |   |              | 
|Assets                                   |  |              | 456 |   |              |  | 81 |  
|                                         |  |              |     |   |              | 
|Pension provisions                       |  |              | (1  | ) |              |  |   |  
|Other provisions                         |  |              | (2  | ) |              |  |   |  
|Financial obligations                    |  |              |    |   |              |  |   |  
|Remaining liabilities                    |  |              | (41 | ) |              |  | (2 | )
|                                         |  |              |     |   |              | 
|                                        
|Liabilities                              |  |              | (44 | ) |              |  | (2 | )
|                                         |  |              |     |   |              | 

|                                         |  |              |    |  |              |  |       |  
|---------------------------------------- |  | ------------ | -- |  | ------------ |  | ----- | -
|2003                                     |  | Acquisitions |    |  | Divestitures | 
|                                         |  |              |    |  |              | 
|                                         |  | ( million)  |   
|Noncurrent assets                        |  |              | 52 |  |              |  | 239   |  
|Current assets (excluding liquid assets) |  |              |   |  |              |  | 1,262 |  
|Liquid assets                            |  |              |   |  |              |  | 5     |  
|                                         |  |              |    |  |              | 
|Assets                                   |  |              | 52 |  |              |  | 1,506 |  
|                                         |  |              |    |  |              | 
|Pension provisions                       |  |              |   |  |              |  | (10   | )
|Other provisions                         |  |              |   |  |              |  | (11   | )
|Financial obligations                    |  |              |   |  |              |  | (8    | )
|Remaining liabilities                    |  |              |   |  |              |  | (28   | )
|                                         |  |              |    |  |              | 
|                                        
|Liabilities                              |  |              |   |  |              |  | (57   | )
|                                         |  |              |    |  |              | 



F-23



---



##### Table of Contents



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




|                                               |  |              |     | 
|---------------------------------------------- |  | ------------ | --- | 
|                                               |  | Bayers      |    
|Company Name and Place of Business             |  | Interest (%) |    
|                                               |  |              |    
|Germany                                        |  |              |     | 
|Bayer Chemicals AG, Leverkusen                 |  |              | 100 | 
|Bayer CropScience AG, Monheim                  |  |              | 100 | 
|Bayer CropScience Deutschland GmbH, Langenfeld |  |              | 100 | 
|Bayer CropScience GmbH, Frankfurt              |  |              | 100 | 
|Bayer HealthCare AG, Leverkusen                |  |              | 100 | 
|Bayer MaterialScience AG, Leverkusen           |  |              | 100 | 
|Bayer Vital GmbH, Leverkusen                   |  |              | 100 | 
|H.C. Starck GmbH, Goslar                       |  |              | 100 | 
|LANXESS Deutschland GmbH, Leverkusen           |  |              | 100 | 
|Other European Countries                       |  |              |     | 
|Bayer Antwerpen N.V., Belgium                  |  |              | 100 | 
|Bayer Biologicals S.r.l., Italy                |  |              | 100 | 
|Bayer CropScience France S.A.S., France        |  |              | 100 | 
|Bayer CropScience Limited, U.K.                |  |              | 100 | 
|Bayer CropScience S.A., France                 |  |              | 100 | 
|Bayer Diagnostics Europe Ltd., Ireland         |  |              | 100 | 
|Bayer International S.A., Switzerland          |  |              | 100 | 
|Bayer Pharma S.A.S., France                    |  |              | 100 | 
|Bayer Polimeros S. L., Spain                   |  |              | 100 | 
|Bayer Polyurethanes B.V., Netherlands          |  |              | 100 | 
|Bayer Public Limited Company, U.K.             |  |              | 100 | 
|Bayer S.p.A., Italy                            |  |              | 100 | 
|LANXESS International S.A., Switzerland        |  |              | 100 | 
|LANXESS N.V., Belgium                          |  |              | 100 | 
|Quimica Farmaceutica Bayer, S.A., Spain        |  |              | 100 | 
|North America                                  |  |              |     | 
|Bayer CropScience LP, USA                      |  |              | 100 | 
|Bayer HealthCare LLC, USA                      |  |              | 100 | 
|Bayer Inc., Canada                             |  |              | 100 | 
|Bayer MaterialScience LLC, USA                 |  |              | 100 | 
|Bayer Pharmaceuticals Corporation, USA         |  |              | 100 | 

F-24



---



##### Table of Contents



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


|                                          |  |              |       | 
|----------------------------------------- |  | ------------ | ----- | 
|                                          |  | Bayers      |      
|Company Name and Place of Business        |  | Interest (%) |      
|                                          |  |              |      
|Asia/ Pacific                             |  |              |       | 
|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 Thai Company Limited, Thailand      |  |              | 99.98 | 
|Bayer Yakuhin Ltd., Japan                 |  |              | 100   | 
|H.C. Starck-V TECH Ltd., Japan            |  |              | 100   | 
|Sumika Bayer Urethane Co., Ltd., Japan    |  |              | 60    | 
|Latin America/ Africa/ Middle East        |  |              |       | 
|Bayer CropScience Ltda., Brazil           |  |              | 100   | 
|Bayer de Mexico, S.A. de C.V., Mexico     |  |              | 100   | 
|Bayer (Proprietary) Ltd., South Africa    |  |              | 100   | 
|Bayer S.A., Argentina                     |  |              | 100   | 
|Bayer S.A., Brazil                        |  |              | 100   | 



|                                                         |  |              |      | 
|-------------------------------------------------------- |  | ------------ | ---- | 
|                                                         |  | Bayers      |     
|Company Name and Place of Business                       |  | Interest (%) |     
|                                                         |  |              |     
|Lyondell Bayer Manufacturing Maasvlakte VOF, Netherlands |  |              | 50   | 
|PO JV, LP Corporation, USA                               |  |              | 42.7 | 

F-25



---



##### Table of Contents



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




|                                                                |  |                  
|--------------------------------------------------------------- |  | -----------------
|Company Name                                                    |  | Place of Business
|                                                                |  |                  
|Bayer Bitterfeld GmbH                                           |  | Greppin          
|Bayer Business Services GmbH                                    |  | Leverkusen       
|Bayer Business Solutions GmbH                                   |  | Leverkusen       
|Bayer Chemicals AG                                              |  | Leverkusen       
|Bayer CropScience AG                                            |  | Monheim          
|Bayer Diagnostics Betriebsverpachtungs-GmbH                     |  | Fernwald         
|Bayer Gastronomie GmbH                                          |  | Leverkusen       
|Bayer Gesellschaft für Beteiligungen mbH                        |  | Greppin          
|Bayer-Handelsgesellschaft mbH                                   |  | Leverkusen       
|Bayer HealthCare AG                                             |  | Leverkusen       
|Bayer Industry Services GmbH & Co. OHG                          |  | Leverkusen       
|Bayer Innovation GmbH                                           |  | Leverkusen       
|Bayer-Kaufhaus GmbH                                             |  | Leverkusen       
|Bayer MaterialScience AG                                        |  | Leverkusen       
|Bayer MaterialScience Customer Services GmbH & Co. KG           |  | Leverkusen       
|Bayer Technology Services GmbH                                  |  | Leverkusen       
|Bayer Vital GmbH                                                |  | Leverkusen       
|Case Tech GmbH & Co. KG                                         |  | Bomlitz          
|Chemion Logistik GmbH                                           |  | Leverkusen       
|Drugofa GmbH                                                    |  | Cologne          
|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                   |  | Leverkusen       
|KG III Augusta Grundstücksverwaltungsgesellschaft
    mbH & Co. |  | Mainz            
|KVP Pharma + Veterinär-Produkte GmbH                            |  | Kiel             
|Probis GmbH                                                     |  | Bomlitz          
|Travel Board GmbH                                               |  | Leverkusen       
|Wolff Cellulosics GmbH & Co. KG                                 |  | Bomlitz          
|Wolff Walsrode AG                                               |  | Walsrode         
|Zweite K-W-A Beteiligungsgesellschaft mbH                       |  | Leverkusen       

Notes to the Statements of Income




|    |          
|--- | ---------
|[1] | Net sales

     


F-26



---



##### 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                                                      |  |           |        |  
|Haarmann & Reimer Group (divested in 2002)                        |  |           | (666   | )
|Compliance with antitrust conditions by Bayer CropScience         |  |           | (435   | )
|Household insecticides business of Bayer HealthCare               |  |           | (272   | )
|PolymerLatex Group                                                |  |           | (117   | )
|Organic Pigments                                                  |  |           | (54    | )
|Walothen GmbH                                                     |  |           | (10    | )
|Other                                                             |  |           | (7     | )
|                                                                  |  |           |       
|                                                                  |  |           | (1,561 | )
|                                                                  |  |           |       
|Net effect of portfolio changes                                   |  |           | (95    | )
|                                                                  |  |           |       

F-27



---



##### Table of Contents



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


     


|                                               |  |           |       |  
|---------------------------------------------- |  | --------- | ----- | -
|2002                                           |  |  million |      
|                                               |  |           |      
|Acquisitions                                   |  |           |       |  
|Aventis CropScience Holding S.A., Lyon, France |  |           | 1,977 |  
|Tectrade A/ S, Copenhagen, Denmark             |  |           | 12    |  
|Other                                          |  |           | 3     |  
|                                               |  |           |      
|                                               |  |           | 1,992 |  
|Divestitures                                   |  |           |       |  
|ChemDesign Corporation (divested in 2001)      |  |           | (56   | )
|Covexx Films (divested in 2001)                |  |           | (42   | )
|Sale of the generics business                  |  |           | (16   | )
|Other                                          |  |           | (8    | )
|                                               |  |           |      
|                                               |  |           | (122  | )
|                                               |  |           |      
|Net effect of portfolio changes                |  |           | 1,870 |  
|                                               |  |           |      





|    |                 
|--- | ----------------
|[2] | Selling expenses

     




|    |                                  
|--- | ---------------------------------
|[3] | Research and development expenses





|    |                       
|--- | ----------------------
|[4] | Other operating income

|                                                                             |  |             |       |  |      |  |       |      |  |  |     | 
|---------------------------------------------------------------------------- |  | ----------- | ----- |  | ---- |  | ----- | ---- |  |  | --- | 
|                                                                             |  | 2002        |       |  | 2003 |  |       | 2004 | 
|                                                                             |  |             |       |  |      |  |       |      | 
|                                                                             |  | ( million) |      
|Sideline operations                                                          |  |             | 56    |  |      |  | 60    |      |  |  | 46  | 
|Gains from sales of property, plant and equipment/ portfolio
    adjustments |  |             | 2,039 |  |      |  | 583   |      |  |  | 147 | 
|Reversals of unutilized provisions                                           |  |             | 154   |  |      |  | 115   |      |  |  | 76  | 
|Write-backs of receivables and other assets                                  |  |             | 23    |  |      |  | 68    |      |  |  | 50  | 
|Recognition of exchange rate hedges                                          |  |             | 36    |  |      |  | 114   |      |  |  | 3   | 
|Other operating income                                                       |  |             | 398   |  |      |  | 218   |      |  |  | 482 | 
|                                                                             |  |             |       |  |      |  |       |      | 
|                                                                             |  |             | 2,706 |  |      |  | 1,158 |      |  |  | 804 | 
|                                                                             |  |             |       |  |      |  |       |      | 



F-28



---



##### Table of Contents



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




|    |                         
|--- | ------------------------
|[5] | Other operating expenses

|                                                   |  |             |        |   |      |  |        |      |  |  |        |  
|-------------------------------------------------- |  | ----------- | ------ | - | ---- |  | ------ | ---- |  |  | ------ | -
|                                                   |  | 2002        |        |   | 2003 |  |        | 2004 | 
|                                                   |  |             |        |   |      |  |        |      | 
|                                                   |  | ( million) |       
|Amortization and write-downs of acquired goodwill  |  |             | (205   | ) |      |  | (366   | )    |  |  | (201   | )
|Write-downs of trade accounts receivable           |  |             | (101   | ) |      |  | (106   | )    |  |  | (103   | )
|Losses from sales of property, plant and equipment |  |             | (42    | ) |      |  | (108   | )    |  |  | (133   | )
|Impairment write-downs, excluding goodwill         |  |             | (284   | ) |      |  | (1,642 | )    |  |  | (48    | )
|Other operating expenses                           |  |             | (1,438 | ) |      |  | (1,284 | )    |  |  | (911   | )
|                                                   |  |             |        |   |      |  |        |      | 
|                                                   |  |             | (2,070 | ) |      |  | (3,506 | )    |  |  | (1,396 | )
|                                                   |  |             |        |   |      |  |        |      | 

  










|    |                         
|--- | ------------------------
|[6] | Discontinuing operations





Amtlicher Markt






F-29



---



##### Table of Contents



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










|                                               |  |             |        |   |                 |  |        |      |  |  |        |   |  |      |      |   |      |  |      |   |  |  |      |  
|---------------------------------------------- |  | ----------- | ------ | - | --------------- |  | ------ | ---- |  |  | ------ | - |  | ---- | ---- | - | ---- |  | ---- | - |  |  | ---- | -
|                                               |  | LANXESS     |        |   | Plasma Business | 
|                                               |  |             |        |   |                 | 
|                                               |  | 2002        |        |   | 2003            |  |        | 2004 |  |  | 2002   |   |  | 2003 |      |   | 2004 | 
|                                               |  |             |        |   |                 |  |        |      |  |  |        |   |  |      |      |   |      | 
|                                               |  | ( million) |       
|Net sales                                      |  |             | 6,241  |   |                 |  | 5,776  |      |  |  | 6,053  |   |  |      | 679  |   |      |  | 613  |   |  |  | 660  |  
|Cost of goods sold                             |  |             | (4,769 | ) |                 |  | (4,703 | )    |  |  | (4,637 | ) |  |      | (653 | ) |      |  | (519 | ) |  |  | (479 | )
|Selling expenses                               |  |             | (989   | ) |                 |  | (881   | )    |  |  | (847   | ) |  |      | (97  | ) |      |  | (86  | ) |  |  | (77  | )
|Research and development expenses              |  |             | (157   | ) |                 |  | (168   | )    |  |  | (126   | ) |  |      | (44  | ) |      |  | (44  | ) |  |  | (47  | )
|General administration expenses                |  |             | (184   | ) |                 |  | (242   | )    |  |  | (264   | ) |  |      |     |   |      |  |     |   |  |  | (21  | )
|Other operating income (expense)  net         |  |             | (270   | ) |                 |  | (1,072 | )    |  |  | (105   | ) |  |      | 2    |   |      |  | (313 | ) |  |  | (92  | )
|Operating result from discontinuing operations |  |             | (128   | ) |                 |  | (1,290 | )    |  |  | 74     |   |  |      | (113 | ) |      |  | (349 | ) |  |  | (56  | )
|Non-operating result                           |  |             | (70    | ) |                 |  | (111   | )    |  |  | (71    | ) |  |      | (13  | ) |      |  |     |   |  |  |     |  
|Income (loss) before income taxes              |  |             | (198   | ) |                 |  | (1,401 | )    |  |  | 3      |   |  |      | (126 | ) |      |  | (349 | ) |  |  | (56  | )
|Income taxes                                   |  |             | 94     |   |                 |  | 409    |      |  |  | 6      |   |  |      |     |   |      |  | 123  |   |  |  |     |  
|                                               |  |             |        |   |                 |  |        |      |  |  |        |   |  |      |      |   |      | 
|Income (loss) after taxes                      |  |             | (104   | ) |                 |  | (992   | )    |  |  | 9      |   |  |      | (126 | ) |      |  | (226 | ) |  |  | (56  | )
|                                               |  |             |        |   |                 |  |        |      |  |  |        |   |  |      |      |   |      | 

|                                               |  |                   |      |   |       |  |   |      |  |  |      |  |  |      |        |   |      |  |        |   |  |  |        |  
|---------------------------------------------- |  | ----------------- | ---- | - | ----- |  | - | ---- |  |  | ---- |  |  | ---- | ------ | - | ---- |  | ------ | - |  |  | ------ | -
|                                               |  | Haarmann & Reimer |      |   | Total | 
|                                               |  |                   |      |   |       | 
|                                               |  | 2002              |      |   | 2003  |  |   | 2004 |  |  | 2002 |  |  | 2003 |        |   | 2004 | 
|                                               |  |                   |      |   |       |  |   |      |  |  |      |  |  |      |        |   |      | 
|                                               |  | ( million)       |     
|Net sales                                      |  |                   | 666  |   |       |  |  |      |  |  |     |  |  |      | 7,586  |   |      |  | 6,389  |   |  |  | 6,713  |  
|Cost of goods sold                             |  |                   | (376 | ) |       |  |  |      |  |  |     |  |  |      | (5,798 | ) |      |  | (5,222 | ) |  |  | (5,116 | )
|Selling expenses                               |  |                   | (147 | ) |       |  |  |      |  |  |     |  |  |      | (1,233 | ) |      |  | (967   | ) |  |  | (924   | )
|Research and development expenses              |  |                   | (45  | ) |       |  |  |      |  |  |     |  |  |      | (246   | ) |      |  | (212   | ) |  |  | (173   | )
|General administration expenses                |  |                   | (27  | ) |       |  |  |      |  |  |     |  |  |      | (211   | ) |      |  | (242   | ) |  |  | (285   | )
|Other operating income (expense)  net         |  |                   | 907  |   |       |  |  |      |  |  |     |  |  |      | 639    |   |      |  | (1,385 | ) |  |  | (197   | )
|Operating result from discontinuing operations |  |                   | 978  |   |       |  |  |      |  |  |     |  |  |      | 737    |   |      |  | (1,639 | ) |  |  | 18     |  
|Non-operating result                           |  |                   | (9   | ) |       |  |  |      |  |  |     |  |  |      | (92    | ) |      |  | (111   | ) |  |  | (71    | )
|Income (loss) before income taxes              |  |                   | 969  |   |       |  |  |      |  |  |     |  |  |      | 645    |   |      |  | (1,750 | ) |  |  | (53    | )
|Income taxes                                   |  |                   | (15  | ) |       |  |  |      |  |  |     |  |  |      | 79     |   |      |  | 532    |   |  |  | 6      |  
|                                               |  |                   |      |   |       |  |   |      |  |  |      |  |  |      |        |   |      | 
|Income (loss) after taxes                      |  |                   | 954  |   |       |  |  |      |  |  |     |  |  |      | 724    |   |      |  | (1,218 | ) |  |  | (47    | )
|                                               |  |                   |      |   |       |  |   |      |  |  |      |  |  |      |        |   |      | 

 


F-30



---



##### Table of Contents



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




|    |                 
|--- | ----------------
|[7] | Operating result

 






|    |                                                           
|--- | ----------------------------------------------------------
|[8] | Expense from investments in affiliated companies 
    net



|                                                                                                    |  |             |     |   |      |  |      |      |  |  |      |  
|--------------------------------------------------------------------------------------------------- |  | ----------- | --- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                                                                                    |  | 2002        |     |   | 2003 |  |      | 2004 | 
|                                                                                                    |  |             |     |   |      |  |      |      | 
|                                                                                                    |  | ( million) |    
|Dividends and similar income                                                                        |  |             | 25  |   |      |  | 5    |      |  |  | 4    |  
|of which
    1 million
    (2003:
    3 million;
    2002:
    23 million)
    from subsidiaries |  |             |     |   |      |  |      |      |  |  |      |  
|Income (expense) from profit and loss transfer agreements                                           |  |             | 1   |   |      |  | 2    |      |  |  | (2   | )
|of which
    0 million
    (2003:
    1 million;
    2002:
    1 million)
    from subsidiaries  |  |             |     |   |      |  |      |      |  |  |      |  
|Equity-method income (expense)                                                                      |  |             | 5   |   |      |  | (165 | )    |  |  | (139 | )
|Gains from the sale of investments in affiliated companies                                          |  |             | 274 |   |      |  | 191  |      |  |  | 11   |  
|Losses from the sale of investments in affiliated companies                                         |  |             |    |   |      |  | (2   | )    |  |  | (4   | )
|Write-downs of investments in affiliated companies                                                  |  |             | (82 | ) |      |  | (124 | )    |  |  | (28  | )
|                                                                                                    |  |             |     |   |      |  |      |      | 
|                                                                                                    |  |             | 223 |   |      |  | (93  | )    |  |  | (158 | )
|                                                                                                    |  |             |     |   |      |  |      |      | 




 




|    |                       
|--- | ----------------------
|[9] | Interest expense  net



|                                                                                                     |  |             |      |   |      |  |      |      |  |  |      |  
|---------------------------------------------------------------------------------------------------- |  | ----------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                                                                                     |  | 2002        |      |   | 2003 |  |      | 2004 | 
|                                                                                                     |  |             |      |   |      |  |      |      | 
|                                                                                                     |  | ( million) |     
|Income from other securities and loans included in investments                                       |  |             | 8    |   |      |  | 17   |      |  |  | 14   |  
|Other interest and similar income                                                                    |  |             | 459  |   |      |  | 513  |      |  |  | 416  |  
| of which
    2 million
    (2003:
    2 million;
    2002:
    2 million)
    from subsidiaries |  |             |      |   |      |  |      |      |  |  |      |  
|Interest and similar expenses                                                                        |  |             | (916 | ) |      |  | (883 | )    |  |  | (705 | )
| of which
    8 million
    (2003:
    5 million;
    2002:
    13 million)
    to subsidiaries  |  |             |      |   |      |  |      |      |  |  |      |  
|                                                                                                     |  |             |      |   |      |  |      |      | 
|                                                                                                     |  |             | (449 | ) |      |  | (353 | )    |  |  | (275 | )
|                                                                                                     |  |             |      |   |      |  |      |      | 

  


F-31



---



##### Table of Contents



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


  




|     |                                   
|---- | ----------------------------------
|[10] | Other non-operating expenses  net



|                                                |  |             |      |   |      |  |      |      |  |  |      |  
|----------------------------------------------- |  | ----------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                                |  | 2002        |      |   | 2003 |  |      | 2004 | 
|                                                |  |             |      |   |      |  |      |      | 
|                                                |  | ( million) |     
|Interest portion of interest-bearing provisions |  |             | (204 | ) |      |  | (365 | )    |  |  | (342 | )
|Net exchange gain (loss)                        |  |             | (5   | ) |      |  | (31  | )    |  |  | (24  | )
|Miscellaneous non-operating expenses            |  |             | (174 | ) |      |  | (69  | )    |  |  | (70  | )
|Miscellaneous non-operating income              |  |             | 47   |   |      |  | 36   |      |  |  | 46   |  
|                                                |  |             |      |   |      |  |      |      | 
|                                                |  |             | (336 | ) |      |  | (429 | )    |  |  | (390 | )
|                                                |  |             |      |   |      |  |      |      | 

 




|     |             
|---- | ------------
|[11] | Income taxes





|                              |  |             |       |   |      |  |        |      |  |  |       |  
|----------------------------- |  | ----------- | ----- | - | ---- |  | ------ | ---- |  |  | ----- | -
|                              |  | 2002        |       |   | 2003 |  |        | 2004 | 
|                              |  |             |       |   |      |  |        |      | 
|                              |  | ( million) |      
|Income before income taxes    |  |             |       |   |      |  |        |      |  |  |       |  
| Germany                     |  |             | 1,392 |   |      |  | (1,298 | )    |  |  | (404  | )
| Other countries             |  |             | (436  | ) |      |  | (696   | )    |  |  | 1,389 |  
|                              |  |             |       |   |      |  |        |      | 
|                              |  |             | 956   |   |      |  | (1,994 | )    |  |  | 985   |  
|                              |  |             |       |   |      |  |        |      | 
|Income taxes paid or accrued  |  |             |       |   |      |  |        |      |  |  |       |  
| Germany                     |  |             | (129  | ) |      |  | (178   | )    |  |  | (113  | )
| Other countries             |  |             | (169  | ) |      |  | (429   | )    |  |  | (416  | )
|                              |  |             |       |   |      |  |        |      | 
|                              |  |             | (298  | ) |      |  | (607   | )    |  |  | (529  | )
|                              |  |             |       |   |      |  |        |      | 
|Deferred taxes                |  |             |       |   |      |  |        |      |  |  |       |  
| from temporary differences  |  |             | 185   |   |      |  | 1,156  |      |  |  | (20   | )
| from tax loss carryforwards |  |             | 220   |   |      |  | 96     |      |  |  | 164   |  
|                              |  |             |       |   |      |  |        |      | 
|                              |  |             | 405   |   |      |  | 1,252  |      |  |  | 144   |  
|                              |  |             |       |   |      |  |        |      | 
|                              |  |             | 107   |   |      |  | 645    |      |  |  | (385  | )
|                              |  |             |       |   |      |  |        |      | 

F-32



---



##### Table of Contents



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


  




|                                               |  |               |        |          |               |  |        |               |          |  |             |   |  |            |        |   |             |  |        |   |  |  |        |  
|---------------------------------------------- |  | ------------- | ------ | -------- | ------------- |  | ------ | ------------- | -------- |  | ----------- | - |  | ---------- | ------ | - | ----------- |  | ------ | - |  |  | ------ | -
|                                               |  | Dec. 31, 2002 |        |          | Dec. 31, 2003 |  |        | Dec. 31, 2004 |         
|                                               |  |               |        |          |               |  |        |               |         
|                                               |  |               |        | Deferred |               |  |        |               | Deferred |  |             |   |  | Deferred   |       
|                                               |  | Deferred      |        |          | Tax           |  |        | Deferred      |          |  | Tax         |   |  | Deferred   |        |   | Tax         | 
|                                               |  | Tax Assets    |        |          | Liabilities   |  |        | Tax Assets    |          |  | Liabilities |   |  | Tax Assets |        |   | Liabilities | 
|                                               |  |               |        |          |               |  |        |               |          |  |             |   |  |            |        |   |             | 
|                                               |  | ( million)   |       
|Intangible assets                              |  |               | 416    |          |               |  | 1,589  |               |          |  | 453         |   |  |            | 1,228  |   |             |  | 171    |   |  |  | 1,034  |  
|Property, plant and equipment                  |  |               | 419    |          |               |  | 1,558  |               |          |  | 602         |   |  |            | 1,426  |   |             |  | 259    |   |  |  | 1,183  |  
|Investments                                    |  |               | 52     |          |               |  | 106    |               |          |  | 56          |   |  |            | 54     |   |             |  | 43     |   |  |  | 68     |  
|Inventories                                    |  |               | 308    |          |               |  | 75     |               |          |  | 348         |   |  |            | 72     |   |             |  | 333    |   |  |  | 85     |  
|Receivables                                    |  |               | 113    |          |               |  | 70     |               |          |  | 120         |   |  |            | 135    |   |             |  | 79     |   |  |  | 224    |  
|Other current assets                           |  |               | 52     |          |               |  | 242    |               |          |  | 11          |   |  |            | 391    |   |             |  | 30     |   |  |  | 401    |  
|Pension provisions                             |  |               | 328    |          |               |  | 225    |               |          |  | 525         |   |  |            | 206    |   |             |  | 301    |   |  |  | 219    |  
|Other provisions                               |  |               | 254    |          |               |  | 66     |               |          |  | 451         |   |  |            | 58     |   |             |  | 784    |   |  |  | 133    |  
|Other liabilities                              |  |               | 55     |          |               |  | 172    |               |          |  | 304         |   |  |            | 33     |   |             |  | 682    |   |  |  | 79     |  
|Tax loss carryforwards                         |  |               | 743    |          |               |  |       |               |          |  | 723         |   |  |            |       |   |             |  | 817    |   |  |  |       |  
|Valuation allowance for tax loss carryforwards |  |               | (123   | )        |               |  |       |               |          |  | (154        | ) |  |            |       |   |             |  | (85    | ) |  |  |       |  
|                                               |  |               |        |          |               |  |        |               |          |  |             |   |  |            |        |   |             | 
|                                               |  |               | 2,617  |          |               |  | 4,103  |               |          |  | 3,439       |   |  |            | 3,603  |   |             |  | 3,414  |   |  |  | 3,426  |  
|of which long-term                             |  |               | 1,439  |          |               |  | 2,954  |               |          |  | 1,996       |   |  |            | 2,608  |   |             |  | 1,092  |   |  |  | 2,114  |  
|Set-off*                                       |  |               | (1,650 | )        |               |  | (1,650 | )             |          |  | (2,141      | ) |  |            | (2,141 | ) |             |  | (2,179 | ) |  |  | (2,179 | )
|                                               |  |               |        |          |               |  |        |               |          |  |             |   |  |            |        |   |             | 
|                                               |  |               | 967    |          |               |  | 2,453  |               |          |  | 1,298       |   |  |            | 1,462  |   |             |  | 1,235  |   |  |  | 1,247  |  
|                                               |  |               |        |          |               |  |        |               |          |  |             |   |  |            |        |   |             | 






|  |                                                                                                                                                                                                                 
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | According to IAS 12 (Income Tax), deferred tax assets and
    deferred tax liabilities should, under certain conditions, be
    offset if they relate to income taxes levied by the same
    taxation authority.

        




|                          |  |             |       |  |          |  |       |          |  |  |       | 
|------------------------- |  | ----------- | ----- |  | -------- |  | ----- | -------- |  |  | ----- | 
|                          |  | Dec. 31,    |       |  | Dec. 31, |  |       | Dec. 31, | 
|                          |  | 2002        |       |  | 2003     |  |       | 2004     | 
|                          |  |             |       |  |          |  |       |          | 
|                          |  | ( million) |      
|One year                  |  |             | 17    |  |          |  | 23    |          |  |  | 6     | 
|Two years                 |  |             | 4     |  |          |  | 7     |          |  |  | 2     | 
|Three years               |  |             | 17    |  |          |  | 41    |          |  |  |      | 
|Four years                |  |             | 17    |  |          |  | 104   |          |  |  |      | 
|Five years and thereafter |  |             | 1,936 |  |          |  | 1,674 |          |  |  | 2,083 | 
|                          |  |             |       |  |          |  |       |          | 
|                          |  |             | 1,991 |  |          |  | 1,849 |          |  |  | 2,091 | 
|                          |  |             |       |  |          |  |       |          | 

     


F-33



---



##### Table of Contents



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


     


  


        




|                                                                               |  |           |      |   |      |  |       |           |  |  |      |   |  |           |       |   |   |  |     |   |  |  |      |  
|------------------------------------------------------------------------------ |  | --------- | ---- | - | ---- |  | ----- | --------- |  |  | ---- | - |  | --------- | ----- | - | - |  | --- | - |  |  | ---- | -
|                                                                               |  | 2002      |      |   | 2003 |  |       | 2004      | 
|                                                                               |  |           |      |   |      |  |       |           | 
|                                                                               |  |  million |      |   | %    |  |       |  million |  |  | %    |   |  |  million |       |   | % | 
|                                                                               |  |           |      |   |      |  |       |           |  |  |      |   |  |           |       |   |   | 
|Theoretical income tax income (expense)                                        |  |           | 358  |   |      |  | 100   |           |  |  | (752 | ) |  |           | 100   |   |   |  | 346 |   |  |  | 100  |  
|Reduction in taxes due to tax-free income                                      |  |           |      |   |      |  |       |           |  |  |      |   |  |           |       |   |   |  |     |   |  |  |      |  
| Relating to the divestiture of Haarmann &
    Reimer                         |  |           | (342 | ) |      |  | (95   | )         |  |  |     |   |  |           |      |   |   |  |    |   |  |  |     |  
| Relating to the divestiture of Baywoge                                       |  |           | (131 | ) |      |  | (37   | )         |  |  |     |   |  |           |      |   |   |  |    |   |  |  |     |  
| Relating to the divestiture of the remaining
    interest in Agfa-Gevaert    |  |           | (104 | ) |      |  | (29   | )         |  |  |     |   |  |           |      |   |   |  |    |   |  |  |     |  
| Relating to the divestiture of Millennium                                    |  |           |     |   |      |  |      |           |  |  | (76  | ) |  |           | 10    |   |   |  |    |   |  |  |     |  
| Other gains of divestitures                                                  |  |           | (27  | ) |      |  | (8    | )         |  |  | (34  | ) |  |           | 5     |   |   |  | (4  | ) |  |  | (1   | )
| Utilization of not capitalized deferred tax assets
    on loss carryforwards |  |           | (9   | ) |      |  | (2    | )         |  |  | (3   | ) |  |           |      |   |   |  | (48 | ) |  |  | (14  | )
| Other                                                                        |  |           | (64  | ) |      |  | (18   | )         |  |  | (66  | ) |  |           | 9     |   |   |  | (66 | ) |  |  | (19  | )
|Increase in taxes due to non-tax-deductible expenses                           |  |           |      |   |      |  |       |           |  |  |      |   |  |           |       |   |   |  |     |   |  |  |      |  
| Write-downs on investments                                                   |  |           | 22   |   |      |  | 6     |           |  |  | 49   |   |  |           | (7    | ) |   |  | 13  |   |  |  | 4    |  
| Amortization of goodwill                                                     |  |           | 68   |   |      |  | 19    |           |  |  | 62   |   |  |           | (8    | ) |   |  | 64  |   |  |  | 18   |  
| Impairment charges                                                           |  |           | 2    |   |      |  | 0     |           |  |  | 124  |   |  |           | (16   | ) |   |  |    |   |  |  |     |  
| Expenses for litigation                                                      |  |           |     |   |      |  |      |           |  |  | 24   |   |  |           | (3    | ) |   |  | 31  |   |  |  | 9    |  
| Other                                                                        |  |           | 103  |   |      |  | 29    |           |  |  | 14   |   |  |           | (2    | ) |   |  | 30  |   |  |  | 9    |  
|Other tax effects                                                              |  |           | 17   |   |      |  | 5     |           |  |  | 13   |   |  |           | (2    | ) |   |  | 19  |   |  |  | 5    |  
|                                                                               |  |           |      |   |      |  |       |           |  |  |      |   |  |           |       |   |   | 
|Actual tax income (expense)                                                    |  |           | (107 | ) |      |  | (30   | )         |  |  | (645 | ) |  |           | 86    |   |   |  | 385 |   |  |  | 111  |  
|                                                                               |  |           |      |   |      |  |       |           |  |  |      |   |  |           |       |   |   | 
|Effective tax rate in %                                                        |  |           |      |   |      |  | (11.2 | )         |  |  |      |   |  |           | (32.3 | ) |   |  |     |   |  |  | 39.1 |  



|     |            
|---- | -----------
|[12] | Other taxes

  


F-34



---



##### Table of Contents



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




|     |                                
|---- | -------------------------------
|[13] | Minority Stockholders interest

     




|     |                   
|---- | ------------------
|[14] | Earnings per share



  






|     |                  
|---- | -----------------
|[15] | Cost of materials

        


  


|                               |  |             |       |  |      |  |       |      |  |  |       | 
|------------------------------ |  | ----------- | ----- |  | ---- |  | ----- | ---- |  |  | ----- | 
|                               |  | 2002        |       |  | 2003 |  |       | 2004 | 
|                               |  |             |       |  |      |  |       |      | 
|                               |  | ( million) |      
|LANXESS                        |  |             | 2,434 |  |      |  | 2,284 |      |  |  | 2,470 | 
|Plasma business                |  |             | 320   |  |      |  | 332   |      |  |  | 381   | 
|Haarmann & Reimer              |  |             | 268   |  |      |  |      |      |  |  |      | 
|                               |  |             |       |  |      |  |       |      | 
|Total discontinuing operations |  |             | 3,022 |  |      |  | 2,616 |      |  |  | 2,851 | 
|                               |  |             |       |  |      |  |       |      | 



|     |                   
|---- | ------------------
|[16] | Personnel expenses

    


        


F-35



---



##### Table of Contents



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




|                               |  |             |       |  |      |  |       |      |  |  |       | 
|------------------------------ |  | ----------- | ----- |  | ---- |  | ----- | ---- |  |  | ----- | 
|                               |  | 2002        |       |  | 2003 |  |       | 2004 | 
|                               |  |             |       |  |      |  |       |      | 
|                               |  | ( million) |      
|LANXESS                        |  |             | 1,403 |  |      |  | 1,260 |      |  |  | 1,124 | 
|Plasma business                |  |             | 111   |  |      |  | 149   |      |  |  | 139   | 
|Haarmann & Reimer              |  |             | 173   |  |      |  |      |      |  |  |      | 
|                               |  |             |       |  |      |  |       |      | 
|Total discontinuing operations |  |             | 1,687 |  |      |  | 1,409 |      |  |  | 1,263 | 
|                               |  |             |       |  |      |  |       |      | 
|of which social expenses       |  |             | [373] |  |      |  | [314] |      |  |  | [270] | 



|     |          
|---- | ---------
|[17] | Employees



|                         |  |      |         |  |      |  |         |      |  |  |         | 
|------------------------ |  | ---- | ------- |  | ---- |  | ------- | ---- |  |  | ------- | 
|                         |  | 2002 |         |  | 2003 |  |         | 2004 | 
|                         |  |      |         |  |      |  |         |      | 
|Marketing                |  |      | 35,985  |  |      |  | 34,765  |      |  |  | 33,828  | 
|Technology               |  |      | 66,051  |  |      |  | 62,850  |      |  |  | 60,178  | 
|Research and development |  |      | 12,521  |  |      |  | 11,602  |      |  |  | 10,444  | 
|Administration           |  |      | 10,035  |  |      |  | 9,063   |      |  |  | 9,375   | 
|                         |  |      |         |  |      |  |         |      | 
|                         |  |      | 124,592 |  |      |  | 118,280 |      |  |  | 113,825 | 
|                         |  |      |         |  |      |  |         |      | 
|of which trainees        |  |      | 2,564   |  |      |  | 2,680   |      |  |  | 2,582   | 
|                         |  |      |         |  |      |  |         |      | 





|                               |  |      |        |  |      |  |        |      |  |  |        | 
|------------------------------ |  | ---- | ------ |  | ---- |  | ------ | ---- |  |  | ------ | 
|                               |  | 2002 |        |  | 2003 |  |        | 2004 | 
|                               |  |      |        |  |      |  |        |      | 
|LANXESS                        |  |      | 21,460 |  |      |  | 20,423 |      |  |  | 20,042 | 
|Plasma business                |  |      | 1,403  |  |      |  | 1,545  |      |  |  | 1,595  | 
|Haarmann & Reimer              |  |      |       |  |      |  |       |      |  |  |       | 
|                               |  |      |        |  |      |  |        |      | 
|Total discontinuing operations |  |      | 22,863 |  |      |  | 21,968 |      |  |  | 21,637 | 
|                               |  |      |        |  |      |  |        |      | 

F-36



---



##### Table of Contents



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




|     |                  
|---- | -----------------
|[18] | 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, 2003                   |               |                  | 7,383 |       |          |  | 2,659 |          |  |  | 60    |   |  |  | 10,102 |      
|Exchange differences                                    |               |                  | (181  | )     |          |  | (67   | )        |  |  |      |   |  |  | (248   | )    
|Changes in scope of consolidation                       |               |                  | 1     |       |          |  | 2     |          |  |  |      |   |  |  | 3      |      
|Acquisitions                                            |               |                  | 140   |       |          |  | 214   |          |  |  |      |   |  |  | 354    |      
|Capital expenditures                                    |               |                  | 56    |       |          |  |      |          |  |  | 35    |   |  |  | 91     |      
|Retirements                                             |               |                  | (48   | )     |          |  | (310  | )        |  |  | (6    | ) |  |  | (364   | )    
|Transfers                                               |               |                  | 68    |       |          |  |      |          |  |  | (48   | ) |  |  | 20     |      
|                                                        |               |                  |       |       |          |  |       |          |  |  |       |  
|Gross carrying amounts, Dec. 31, 2004                   |               |                  | 7,419 |       |          |  | 2,498 |          |  |  | 41    |   |  |  | 9,958  |      
|                                                        |               |                  |       |       |          |  |       |          |  |  |       |  
|Accumulated amortization and write-downs, Dec. 31, 2003 |               |                  | 2,859 |       |          |  | 723   |          |  |  | 6     |   |  |  | 3,588  |      
|Exchange differences                                    |               |                  | (116  | )     |          |  | (16   | )        |  |  |      |   |  |  | (132   | )    
|Changes in scope of consolidation                       |               |                  | 1     |       |          |  |      |          |  |  |      |   |  |  | 1      |      
|Amortization and write-downs in 2004                    |               |                  | 593   |       |          |  | 201   |          |  |  |      |   |  |  | 794    |      
|of which write-downs                                    |               |                  | [8]   |       |          |  | [20]  |          |  |  |      |   |  |  | [28]   |      
|Write-backs                                             |               |                  |      |       |          |  |      |          |  |  |      |   |  |  |       |      
|Retirements                                             |               |                  | (34   | )     |          |  | (287  | )        |  |  |      |   |  |  | (321   | )    
|Transfers                                               |               |                  | 15    |       |          |  |      |          |  |  | (4    | ) |  |  | 11     |      
|                                                        |               |                  |       |       |          |  |       |          |  |  |       |  
|Accumulated amortization and write-downs,               |               |                  |       |       |          |  |       |          |  |  |       |   |  |  |        |      
|                                                        | Dec. 31, 2004 |                  |       | 3,318 |          |  |       | 621      |  |  |       | 2 |  |  |        | 3,941 | 
|                                                        |               |                  |       |       |          |  |       |          |  |  |       |  
|Net carrying amounts, Dec. 31, 2004                     |               |                  | 4,101 |       |          |  | 1,877 |          |  |  | 39    |   |  |  | 6,017  |      
|                                                        |               |                  |       |       |          |  |       |          |  |  |       |  
|Net carrying amounts, Dec. 31, 2003                     |               |                  | 4,524 |       |          |  | 1,936 |          |  |  | 54    |   |  |  | 6,514  |      
|                                                        |               |                  |       |       |          |  |       |          |  |  |       |  



F-37



---



##### Table of Contents



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


[19]     Property, plant and
equipment




|                                                            |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |      |   |  |  |        |  
|----------------------------------------------------------- |  | ----------- | ----- | - | ------------- | ---------- | ------ | --------------- | ------- |  | ----------- | - |  | ----- | ---- | - |  |  | ------ | -
|                                                            |  |             |       |   |               |            |        | Construction in |         |  |            
|                                                            |  |             |       |   |               |            |        | Progress and    |         |  |            
|                                                            |  |             |       |   |               | Furniture, |        |                 | Advance |  |             |  
|                                                            |  | Land        |       |   | Machinery and |            |        | Fixtures        |         |  | Payments to |   |  |      
|                                                            |  | and         |       |   | Technical     |            |        | and other       |         |  | Vendors and |   |  |      
|                                                            |  | Buildings   |       |   | Equipment     |            |        | Equipment       |         |  | Contractors |   |  | Total |     
|                                                            |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|                                                            |  | ( million) |      
|Gross carrying amounts, Dec. 31, 2003                       |  |             | 7,898 |   |               |            | 18,015 |                 |         |  | 2,094       |   |  |       | 885  |   |  |  | 28,892 |  
|Exchange differences                                        |  |             | (165  | ) |               |            | (339   | )               |         |  | (30         | ) |  |       | (25  | ) |  |  | (559   | )
|Changes in scope of consolidation                           |  |             | 7     |   |               |            | 36     |                 |         |  | 27          |   |  |       | (1   | ) |  |  | 69     |  
|Acquisitions                                                |  |             |      |   |               |            | 4      |                 |         |  |            |   |  |       |     |   |  |  | 4      |  
|Capital expenditures                                        |  |             | 113   |   |               |            | 238    |                 |         |  | 110         |   |  |       | 723  |   |  |  | 1,184  |  
|Retirements                                                 |  |             | (129  | ) |               |            | (674   | )               |         |  | (318        | ) |  |       | (23  | ) |  |  | (1,144 | )
|Transfers                                                   |  |             | 274   |   |               |            | 375    |                 |         |  | 198         |   |  |       | (867 | ) |  |  | (20    | )
|                                                            |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|Gross carrying amounts, Dec. 31, 2004                       |  |             | 7,998 |   |               |            | 17,655 |                 |         |  | 2,081       |   |  |       | 692  |   |  |  | 28,426 |  
|                                                            |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|Accumulated depreciation and write-downs, Dec. 31, 2003     |  |             | 4,540 |   |               |            | 12,825 |                 |         |  | 1,570       |   |  |       | 20   |   |  |  | 18,955 |  
|Exchange differences                                        |  |             | (85   | ) |               |            | (227   | )               |         |  | (25         | ) |  |       | (2   | ) |  |  | (339   | )
|Changes in scope of consolidation                           |  |             | 5     |   |               |            | 8      |                 |         |  | 25          |   |  |       | (1   | ) |  |  | 37     |  
|Depreciation and write-downs in 2004                        |  |             | 240   |   |               |            | 961    |                 |         |  | 222         |   |  |       | 47   |   |  |  | 1,470  |  
|of which write-downs                                        |  |             | [16]  |   |               |            | [34]   |                 |         |  | [1]         |   |  |       | [47] |   |  |  | [98]   |  
|Write-backs                                                 |  |             | (1    | ) |               |            | (2     | )               |         |  |            |   |  |       |     |   |  |  | (3     | )
|Retirements                                                 |  |             | (78   | ) |               |            | (530   | )               |         |  | (259        | ) |  |       |     |   |  |  | (867   | )
|Transfers                                                   |  |             | 93    |   |               |            | (110   | )               |         |  | 23          |   |  |       | (17  | ) |  |  | (11    | )
|                                                            |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|Accumulated depreciation and write-downs, Dec. 31,
    2004 |  |             | 4,714 |   |               |            | 12,925 |                 |         |  | 1,556       |   |  |       | 47   |   |  |  | 19,242 |  
|                                                            |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|Net carrying amounts, Dec. 31, 2004                         |  |             | 3,284 |   |               |            | 4,730  |                 |         |  | 525         |   |  |       | 645  |   |  |  | 9,184  |  
|                                                            |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     
|Net carrying amounts, Dec. 31, 2003                         |  |             | 3,358 |   |               |            | 5,190  |                 |         |  | 524         |   |  |       | 865  |   |  |  | 9,937  |  
|                                                            |  |             |       |   |               |            |        |                 |         |  |             |   |  |       |     



   


   


F-38



---



##### Table of Contents



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


     


[20]     Investments




|                                       |  |                |     |   |              |                      |   |            |          |  |           |   |  |            |     |   |            |  |    |       |  |  |       |   |  |  |     |   |  |  |       |  
|-------------------------------------- |  | -------------- | --- | - | ------------ | -------------------- | - | ---------- | -------- |  | --------- | - |  | ---------- | --- | - | ---------- |  | -- | ----- |  |  | ----- | - |  |  | --- | - |  |  | ----- | -
|                                       |  |                |     |   |              | Investments in Other |   |            |          |  |           |   |  |            |    
|                                       |  |                |     |   |              | Affiliated Companies |   |            | Loans to |  |           |   |  |            |     |  
|                                       |  |                |     |   |              |                      |   |            | Other    |  |           |   |  |            |     |  
|                                       |  | Investments in |     |   | Loans to     |                      |   | Associated |          |  | Other     |   |  | Affiliated |     |   | Other      |  |    | Other |  |  |      
|                                       |  | Subsidiaries   |     |   | Subsidiaries |                      |   | Companies  |          |  | Companies |   |  | Companies  |     |   | Securities |  |    | Loans |  |  | Total |  
|                                       |  |                |     |   |              |                      |   |            |          |  |           |   |  |            |     |   |            |  |    |       |  |  |       |  
|                                       |  | ( million)    |     |   |              |                      |  
|Gross carrying amounts, Dec. 31, 2003  |  |                | 108 |   |              |                      |  |            |          |  | 971       |   |  |            | 309 |   |            |  | 7  |       |  |  | 292   |   |  |  | 432 |   |  |  | 2,119 |  
|Exchange differences                   |  |                | (5  | ) |              |                      |  |            |          |  | (21       | ) |  |            | (7  | ) |            |  |   |       |  |  | (8    | ) |  |  | (3  | ) |  |  | (44   | )
|Changes in scope of consolidation      |  |                | (11 | ) |              |                      |  |            |          |  | (6        | ) |  |            |    |   |            |  |   |       |  |  | 32    |   |  |  | (3  | ) |  |  | 12    |  
|Changes in fair value                  |  |                |    |   |              |                      |  |            |          |  |          |   |  |            | 8   |   |            |  |   |       |  |  | 2     |   |  |  |    |   |  |  | 10    |  
|Acquisitions                           |  |                |    |   |              |                      |  |            |          |  |          |   |  |            |    |   |            |  |   |       |  |  |      |   |  |  |    |   |  |  |      |  
|Other additions                        |  |                | 4   |   |              |                      |  |            |          |  | 22        |   |  |            | 9   |   |            |  |   |       |  |  | 247   |   |  |  | 106 |   |  |  | 388   |  
|Retirements                            |  |                | (26 | ) |              |                      |  |            |          |  | (140      | ) |  |            | (74 | ) |            |  | (4 | )     |  |  | (196  | ) |  |  | (54 | ) |  |  | (494  | )
|Transfers                              |  |                |    |   |              |                      |  |            |          |  |          |   |  |            |    |   |            |  |   |       |  |  | (50   | ) |  |  | 50  |   |  |  |      |  
|                                       |  |                |     |   |              |                      |   |            |          |  |           |   |  |            |     |   |            |  |    |       |  |  |       |  
|Gross carrying amounts, Dec. 31, 2004  |  |                | 70  |   |              |                      |  |            |          |  | 826       |   |  |            | 245 |   |            |  | 3  |       |  |  | 319   |   |  |  | 528 |   |  |  | 1,991 |  
|                                       |  |                |     |   |              |                      |   |            |          |  |           |   |  |            |     |   |            |  |    |       |  |  |       |  
|Accumulated write-downs, Dec. 31, 2003 |  |                | 25  |   |              |                      |  |            |          |  | 66        |   |  |            | 157 |   |            |  | 2  |       |  |  | 80    |   |  |  | 8   |   |  |  | 338   |  
|Exchange differences                   |  |                |    |   |              |                      |  |            |          |  | 1         |   |  |            |    |   |            |  |   |       |  |  |      |   |  |  |    |   |  |  | 1     |  
|Changes in scope of consolidation      |  |                | (2  | ) |              |                      |  |            |          |  |          |   |  |            |    |   |            |  |   |       |  |  |      |   |  |  |    |   |  |  | (2    | )
|Write-downs in 2004                    |  |                | 3   |   |              |                      |  |            |          |  | 4         |   |  |            | 31  |   |            |  |   |       |  |  | 9     |   |  |  | 5   |   |  |  | 52    |  
|Write-backs                            |  |                |    |   |              |                      |  |            |          |  |          |   |  |            | (7  | ) |            |  |   |       |  |  | (3    | ) |  |  | (1  | ) |  |  | (11   | )
|Retirements                            |  |                | (14 | ) |              |                      |  |            |          |  | (2        | ) |  |            | (20 | ) |            |  | (1 | )     |  |  | (4    | ) |  |  |    |   |  |  | (41   | )
|Transfers                              |  |                |    |   |              |                      |  |            |          |  |          |   |  |            |    |   |            |  |   |       |  |  |      |   |  |  |    |   |  |  |      |  
|                                       |  |                |     |   |              |                      |   |            |          |  |           |   |  |            |     |   |            |  |    |       |  |  |       |  
|Accumulated write-downs, Dec. 31, 2004 |  |                | 12  |   |              |                      |  |            |          |  | 69        |   |  |            | 161 |   |            |  | 1  |       |  |  | 82    |   |  |  | 12  |   |  |  | 337   |  
|                                       |  |                |     |   |              |                      |   |            |          |  |           |   |  |            |     |   |            |  |    |       |  |  |       |  
|Net carrying amounts, Dec. 31, 2004    |  |                | 58  |   |              |                      |  |            |          |  | 757       |   |  |            | 84  |   |            |  | 2  |       |  |  | 237   |   |  |  | 516 |   |  |  | 1,654 |  
|                                       |  |                |     |   |              |                      |   |            |          |  |           |   |  |            |     |   |            |  |    |       |  |  |       |  
|Net carrying amounts, Dec. 31, 2003    |  |                | 83  |   |              |                      |  |            |          |  | 905       |   |  |            | 152 |   |            |  | 5  |       |  |  | 212   |   |  |  | 424 |   |  |  | 1,781 |  
|                                       |  |                |     |   |              |                      |   |            |          |  |           |   |  |            |     |   |            |  |    |       |  |  |       |  





   


F-39



---



##### Table of Contents



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





[21]     Inventories


   




|                                                               |  |               |       |  |               |  |       | 
|-------------------------------------------------------------- |  | ------------- | ----- |  | ------------- |  | ----- | 
|                                                               |  | Dec. 31, 2003 |       |  | Dec. 31, 2004 | 
|                                                               |  |               |       |  |               | 
|                                                               |  | ( million)   |      
|Raw materials and supplies                                     |  |               | 1,013 |  |               |  | 1,194 | 
|Work in process, finished goods and goods purchased for resale |  |               | 4,865 |  |               |  | 5,014 | 
|Advance payments                                               |  |               | 7     |  |               |  | 7     | 
|                                                               |  |               |       |  |               | 
|                                                               |  |               | 5,885 |  |               |  | 6,215 | 
|                                                               |  |               |       |  |               | 



|                                  |  |               |      |   |               |  |      |  
|--------------------------------- |  | ------------- | ---- | - | ------------- |  | ---- | -
|                                  |  | Dec. 31, 2003 |      |   | Dec. 31, 2004 | 
|                                  |  |               |      |   |               | 
|                                  |  | ( million)   |     
|Balance at beginning of year      |  |               | (457 | ) |               |  | (477 | )
|Additions charged to expense      |  |               | (408 | ) |               |  | (196 | )
|Exchange differences              |  |               | 6    |   |               |  | 11   |  
|Changes in scope of consolidation |  |               | 1    |   |               |  | (1   | )
|Deductions due to utilization     |  |               | 381  |   |               |  | 172  |  
|                                  |  |               |      |   |               | 
|Balance at end of year            |  |               | (477 | ) |               |  | (491 | )
|                                  |  |               |      |   |               | 

[22]     Trade accounts
receivable


 


         




|                                  |  |               |      |   |               |  |      |  
|--------------------------------- |  | ------------- | ---- | - | ------------- |  | ---- | -
|                                  |  | Dec. 31, 2003 |      |   | Dec. 31, 2004 | 
|                                  |  |               |      |   |               | 
|                                  |  | ( million)   |     
|Balance at beginning of year      |  |               | (345 | ) |               |  | (302 | )
|Additions charged to expense      |  |               | (106 | ) |               |  | (103 | )
|Exchange differences              |  |               | 13   |   |               |  | 2    |  
|Changes in scope of consolidation |  |               | 1    |   |               |  | (1   | )
|Deductions due to utilization     |  |               | 135  |   |               |  | 105  |  
|                                  |  |               |      |   |               | 
|Balance at end of year            |  |               | (302 | ) |               |  | (299 | )
|                                  |  |               |      |   |               | 

F-40



---



##### Table of Contents



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


[23]     Other receivables and other
assets


 




|                                                                                             |  |               |       |  |               |  |       | 
|-------------------------------------------------------------------------------------------- |  | ------------- | ----- |  | ------------- |  | ----- | 
|                                                                                             |  | Dec. 31, 2003 |       |  | Dec. 31, 2004 | 
|                                                                                             |  |               |       |  |               | 
|                                                                                             |  | ( million)   |      
|Claims for tax refunds                                                                       |  |               | 697   |  |               |  | 896   | 
|Pension assets in excess of obligations                                                      |  |               | 599   |  |               |  | 653   | 
|Receivables from derivative financial instruments relating to
    commodity future contracts |  |               | 38    |  |               |  | 59    | 
|Receivables from other derivative financial instruments                                      |  |               | 608   |  |               |  | 701   | 
|Interest receivable on loans                                                                 |  |               | 160   |  |               |  | 190   | 
|Short-term loans                                                                             |  |               | 64    |  |               |  | 53    | 
|Short-term loans from clearing                                                               |  |               | 24    |  |               |  | 6     | 
|Lease payments receivable                                                                    |  |               | 67    |  |               |  | 75    | 
|Payroll receivables                                                                          |  |               | 17    |  |               |  | 40    | 
|Other receivables                                                                            |  |               | 1,580 |  |               |  | 1,480 | 
|                                                                                             |  |               |       |  |               | 
|                                                                                             |  |               | 3,854 |  |               |  | 4,153 | 
|                                                                                             |  |               |       |  |               | 



   


   


   


|           |  |             |    |  |          |  |   |            |  |  |    | 
|---------- |  | ----------- | -- |  | -------- |  | - | ---------- |  |  | -- | 
|           |  | Lease       |    |  | Of Which |  |   | Accounts   | 
|           |  | Payments    |    |  | Interest |  |   | Receivable | 
|           |  |             |    |  |          |  |   |            | 
|           |  | ( million) |   
|2005       |  |             | 23 |  |          |  | 2 |            |  |  | 21 | 
|2006       |  |             | 17 |  |          |  | 1 |            |  |  | 16 | 
|2007       |  |             | 13 |  |          |  | 1 |            |  |  | 12 | 
|2008       |  |             | 9  |  |          |  | 1 |            |  |  | 8  | 
|2009       |  |             | 5  |  |          |  | 0 |            |  |  | 5  | 
|After 2009 |  |             | 13 |  |          |  | 0 |            |  |  | 13 | 
|           |  |             |    |  |          |  |   |            | 
|           |  |             | 80 |  |          |  | 5 |            |  |  | 75 | 
|           |  |             |    |  |          |  |   |            | 

F-41



---



##### Table of Contents



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


[24]     Liquid assets


|                                            |  |               |       |  |               |  |       | 
|------------------------------------------- |  | ------------- | ----- |  | ------------- |  | ----- | 
|                                            |  | Dec. 31, 2003 |       |  | Dec. 31, 2004 | 
|                                            |  |               |       |  |               | 
|                                            |  | ( million)   |      
|Marketable securities and other instruments |  |               | 129   |  |               |  | 29    | 
|Cash and cash equivalents                   |  |               | 2,734 |  |               |  | 3,570 | 
|                                            |  |               |       |  |               | 
|                                            |  |               | 2,863 |  |               |  | 3,599 | 
|                                            |  |               |       |  |               | 

   


[25]     Deferred charges


 


[26]     Stockholders
equity





  















F-42



---



##### Table of Contents



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








  


[27]     Minority stockholders
interest




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








defined contribution plans


 


defined benefit
plans i.e., i.e.,  








F-43



---



##### Table of Contents



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




               






| |        
| | -------
| | Germany

|                                        |  |             |      |             |                    |  |      |      |  |  |      |   |  |      |    |  |      |  |     |  |  |  |    | 
|--------------------------------------- |  | ----------- | ---- | ----------- | ------------------ |  | ---- | ---- |  |  | ---- | - |  | ---- | -- |  | ---- |  | --- |  |  |  | -- | 
|                                        |  |             |      | Other Post- |                   
|                                        |  | Pension     |      |             | Employment Benefit | 
|                                        |  | Obligations |      |             | Obligations        | 
|                                        |  |             |      |             |                    | 
|                                        |  | 2002        |      |             | 2003               |  |      | 2004 |  |  | 2002 |   |  | 2003 |    |  | 2004 | 
|                                        |  |             |      |             |                    |  |      |      |  |  |      |   |  |      |    |  |      | 
|                                        |  | ( million) |      |             | ( million)        | 
|Benefit cost                            |  |             |      |             |                    |  |      |      |  |  |      |   |  |      |    |  |      |  |     |  |  |  |    | 
|Service cost                            |  |             | 138  |             |                    |  | 141  |      |  |  | 157  |   |  |      | 57 |  |      |  | 144 |  |  |  | 36 | 
|Flat-rate tax on employer contributions |  |             |     |             |                    |  |     |      |  |  |     |   |  |      |   |  |      |  |    |  |  |  |   | 
|Interest cost                           |  |             | 480  |             |                    |  | 480  |      |  |  | 478  |   |  |      | 7  |  |      |  | 4   |  |  |  | 7  | 
|Expected return on plan assets          |  |             | (333 | )           |                    |  | (284 | )    |  |  | (282 | ) |  |      |   |  |      |  |    |  |  |  |   | 
|Employee contributions                  |  |             |     |             |                    |  |     |      |  |  |     |   |  |      |   |  |      |  |    |  |  |  |   | 
|Past service cost                       |  |             | 10   |             |                    |  | 21   |      |  |  | 20   |   |  |      |   |  |      |  |    |  |  |  |   | 
|Amortization of transition obligation   |  |             |     |             |                    |  |     |      |  |  |     |   |  |      |   |  |      |  |    |  |  |  |   | 
|Amortisation of actuarial amounts       |  |             | 7    |             |                    |  | 53   |      |  |  | 75   |   |  |      |   |  |      |  |    |  |  |  |   | 
|Plan curtailments and settlements       |  |             |     |             |                    |  |     |      |  |  |     |   |  |      |   |  |      |  |    |  |  |  |   | 
|                                        |  |             |      |             |                    |  |      |      |  |  |      |   |  |      |    |  |      | 
|Net periodic benefit cost               |  |             | 302  |             |                    |  | 411  |      |  |  | 448  |   |  |      | 64 |  |      |  | 148 |  |  |  | 43 | 
|                                        |  |             |      |             |                    |  |      |      |  |  |      |   |  |      |    |  |      | 

F-44



---



##### Table of Contents



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




| |                
| | ---------------
| | Other countries

|                                        |  |             |      |             |                    |  |      |      |  |  |      |   |  |      |     |   |      |  |     |   |  |  |      |  
|--------------------------------------- |  | ----------- | ---- | ----------- | ------------------ |  | ---- | ---- |  |  | ---- | - |  | ---- | --- | - | ---- |  | --- | - |  |  | ---- | -
|                                        |  |             |      | Other Post- |                   
|                                        |  | Pension     |      |             | Employment Benefit | 
|                                        |  | Obligations |      |             | Obligations        | 
|                                        |  |             |      |             |                    | 
|                                        |  | 2002        |      |             | 2003               |  |      | 2004 |  |  | 2002 |   |  | 2003 |     |   | 2004 | 
|                                        |  |             |      |             |                    |  |      |      |  |  |      |   |  |      |     |   |      | 
|                                        |  | ( million) |      |             | ( million)        | 
|Benefit cost                            |  |             |      |             |                    |  |      |      |  |  |      |   |  |      |     |   |      |  |     |   |  |  |      |  
|Service cost                            |  |             | 164  |             |                    |  | 194  |      |  |  | 143  |   |  |      | 30  |   |      |  | 29  |   |  |  | 37   |  
|Flat-rate tax on employer contributions |  |             |     |             |                    |  |     |      |  |  |     |   |  |      |    |   |      |  |    |   |  |  |     |  
|Interest cost                           |  |             | 247  |             |                    |  | 255  |      |  |  | 244  |   |  |      | 50  |   |      |  | 53  |   |  |  | 55   |  
|Expected return on plan assets          |  |             | (274 | )           |                    |  | (221 | )    |  |  | (243 | ) |  |      | (26 | ) |      |  | (20 | ) |  |  | (24  | )
|Employee contributions                  |  |             |     |             |                    |  |     |      |  |  |     |   |  |      |    |   |      |  |    |   |  |  |     |  
|Past service cost                       |  |             | 2    |             |                    |  | 11   |      |  |  | 6    |   |  |      |    |   |      |  | (5  | ) |  |  | (144 | )
|Amortization of transition obligation   |  |             |     |             |                    |  |     |      |  |  |     |   |  |      |    |   |      |  |    |   |  |  |     |  
|Amortisation of actuarial amounts       |  |             | 60   |             |                    |  | 38   |      |  |  | 30   |   |  |      | (4  | ) |      |  | 7   |   |  |  | 19   |  
|Plan curtailments and settlements       |  |             | 20   |             |                    |  | 59   |      |  |  | (47  | ) |  |      |    |   |      |  |    |   |  |  | (7   | )
|                                        |  |             |      |             |                    |  |      |      |  |  |      |   |  |      |     |   |      | 
|Net periodic benefit cost               |  |             | 219  |             |                    |  | 336  |      |  |  | 133  |   |  |      | 50  |   |      |  | 64  |   |  |  | (64  | )
|                                        |  |             |      |             |                    |  |      |      |  |  |      |   |  |      |     |   |      | 



| |      
| | -----
| | Total

|                                        |  |             |      |             |                    |  |      |      |  |  |      |   |  |      |     |   |      |  |     |   |  |  |      |  
|--------------------------------------- |  | ----------- | ---- | ----------- | ------------------ |  | ---- | ---- |  |  | ---- | - |  | ---- | --- | - | ---- |  | --- | - |  |  | ---- | -
|                                        |  |             |      | Other Post- |                   
|                                        |  | Pension     |      |             | Employment Benefit | 
|                                        |  | Obligations |      |             | Obligations        | 
|                                        |  |             |      |             |                    | 
|                                        |  | 2002        |      |             | 2003               |  |      | 2004 |  |  | 2002 |   |  | 2003 |     |   | 2004 | 
|                                        |  |             |      |             |                    |  |      |      |  |  |      |   |  |      |     |   |      | 
|                                        |  | ( million) |      |             | ( million)        | 
|Benefit cost                            |  |             |      |             |                    |  |      |      |  |  |      |   |  |      |     |   |      |  |     |   |  |  |      |  
|Service cost                            |  |             | 302  |             |                    |  | 335  |      |  |  | 300  |   |  |      | 87  |   |      |  | 173 |   |  |  | 73   |  
|Flat-rate tax on employer contributions |  |             |     |             |                    |  |     |      |  |  |     |   |  |      |    |   |      |  |    |   |  |  |     |  
|Interest cost                           |  |             | 727  |             |                    |  | 735  |      |  |  | 722  |   |  |      | 57  |   |      |  | 57  |   |  |  | 62   |  
|Expected return on plan assets          |  |             | (607 | )           |                    |  | (505 | )    |  |  | (525 | ) |  |      | (26 | ) |      |  | (20 | ) |  |  | (24  | )
|Employee contributions                  |  |             |     |             |                    |  |     |      |  |  |     |   |  |      |    |   |      |  |    |   |  |  |     |  
|Past service cost                       |  |             | 12   |             |                    |  | 32   |      |  |  | 26   |   |  |      |    |   |      |  | (5  | ) |  |  | (144 | )
|Amortization of transition obligation   |  |             |     |             |                    |  |     |      |  |  |     |   |  |      |    |   |      |  |    |   |  |  |     |  
|Amortisation of actuarial amounts       |  |             | 67   |             |                    |  | 91   |      |  |  | 105  |   |  |      | (4  | ) |      |  | 7   |   |  |  | 19   |  
|Plan curtailments and settlements       |  |             | 20   |             |                    |  | 59   |      |  |  | (47  | ) |  |      |    |   |      |  |    |   |  |  | (7   | )
|                                        |  |             |      |             |                    |  |      |      |  |  |      |   |  |      |     |   |      | 
|Net periodic benefit cost               |  |             | 521  |             |                    |  | 747  |      |  |  | 581  |   |  |      | 114 |   |      |  | 212 |   |  |  | (21  | )
|                                        |  |             |      |             |                    |  |      |      |  |  |      |   |  |      |     |   |      | 







F-45



---



##### Table of Contents



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


 








| |        
| | -------
| | Germany

|                                                          |  |                 |             |  |               |  |             | 
|--------------------------------------------------------- |  | --------------- | ----------- |  | ------------- |  | ----------- | 
|                                                          |  | Parameters Used |            
|                                                          |  |                 |            
|                                                          |  | Dec. 31, 2003   |             |  | Dec. 31, 2004 | 
|                                                          |  |                 |             |  |               | 
|Discount rate                                             |  |                 | 5.50%       |  |               |  | 5.00%       | 
|Projected future remuneration increases                   |  |                 | 2.50%-3.75% |  |               |  | 2.25%-3.50% | 
|Projected future pension increases                        |  |                 | 1.00%-1.50% |  |               |  | 1.00%-1.50% | 
|Projected employee turnover (according to age and gender) |  | Empirical data 
|Expected return on plan assets                            |  |                 | 6.00%       |  |               |  | 5.50%       | 





| |                
| | ---------------
| | Other countries

|                                                          |  |                 |                |  |               |  |             | 
|--------------------------------------------------------- |  | --------------- | -------------- |  | ------------- |  | ----------- | 
|                                                          |  | Parameters Used |               
|                                                          |  |                 |               
|                                                          |  | Dec. 31, 2003   |                |  | Dec. 31, 2004 | 
|                                                          |  |                 |                |  |               | 
|Discount rate                                             |  |                 | 2.00% to 6.25% |  |               |  | 4.50%-6.00% | 
|Projected future remuneration increases                   |  |                 | 2.50% to 5.00% |  |               |  | 2.50%-5.00% | 
|Projected future pension increases                        |  |                 | 2.00% to 3.25% |  |               |  | 2.00%-2.80% | 
|Projected employee turnover (according to age and gender) |  | Empirical data 
|Expected return on plan assets                            |  |                 | 2.00% to 8.25% |  |               |  | 1.50%-8.25% | 

F-46



---



##### Table of Contents



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






| |        
| | -------
| | Germany

|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |   |  |  |      |  
|---------------------------------------------------------------- |  | ------------- | ------ | - | --------------------- |  | ------ | ------------- |  |  | ------------- | - |  |  | ---- | -
|                                                                 |  | Pension       |        |   | Other Post-Employment | 
|                                                                 |  | Obligations   |        |   | Benefit Obligations   | 
|                                                                 |  |               |        |   |                       | 
|                                                                 |  | Dec. 31, 2003 |        |   | Dec. 31, 2004         |  |        | Dec. 31, 2003 |  |  | Dec. 31, 2004 |  
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|                                                                 |  | ( million)   |       
|Defined benefit obligation                                       |  |               |        |   |                       |  |        |               |  |  |               |   |  |  |      |  
|Benefit obligation at start of year                              |  |               | 8,165  |   |                       |  | 8,883  |               |  |  | 143           |   |  |  | 233  |  
|Service cost                                                     |  |               | 141    |   |                       |  | 157    |               |  |  | 144           |   |  |  | 36   |  
|Interest cost                                                    |  |               | 480    |   |                       |  | 478    |               |  |  | 4             |   |  |  | 7    |  
|Employee contributions                                           |  |               | 38     |   |                       |  | 37     |               |  |  |              |   |  |  |     |  
|Plan changes                                                     |  |               |       |   |                       |  | 20     |               |  |  |              |   |  |  |     |  
|Plan settlements                                                 |  |               |       |   |                       |  |       |               |  |  |              |   |  |  |     |  
|Net actuarial (gain) loss                                        |  |               | 469    |   |                       |  | 680    |               |  |  |              |   |  |  |     |  
|Translation differences                                          |  |               |       |   |                       |  |       |               |  |  |              |   |  |  |     |  
|Benefits paid                                                    |  |               | (415   | ) |                       |  | (440   | )             |  |  | (57           | ) |  |  | (53  | )
|Mergers & acquisitions                                           |  |               |       |   |                       |  |       |               |  |  |              |   |  |  |     |  
|Divestitures                                                     |  |               | (16    | ) |                       |  |       |               |  |  | (1            | ) |  |  |     |  
|Plan curtailments                                                |  |               | 21     |   |                       |  |       |               |  |  |              |   |  |  |     |  
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Benefit obligation at year end                                   |  |               | 8,883  |   |                       |  | 9,815  |               |  |  | 233           |   |  |  | 223  |  
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Fair value of plan assets                                        |  |               |        |   |                       |  |        |               |  |  |               |   |  |  |      |  
|Plan assets at start of year                                     |  |               | 4,573  |   |                       |  | 4,806  |               |  |  |              |   |  |  |     |  
|Actual return on plan assets                                     |  |               | 302    |   |                       |  | 250    |               |  |  |              |   |  |  |     |  
|Mergers & acquisitions                                           |  |               |       |   |                       |  |       |               |  |  |              |   |  |  |     |  
|Divestitures                                                     |  |               | (12    | ) |                       |  |       |               |  |  |              |   |  |  |     |  
|Plan settlements                                                 |  |               |       |   |                       |  |       |               |  |  |              |   |  |  |     |  
|Translation differences                                          |  |               |       |   |                       |  |       |               |  |  |              |   |  |  |     |  
|Employer contributions                                           |  |               | 320    |   |                       |  | 335    |               |  |  | 57            |   |  |  | 53   |  
|Employee contributions                                           |  |               | 38     |   |                       |  | 37     |               |  |  |              |   |  |  |     |  
|Benefits paid                                                    |  |               | (415   | ) |                       |  | (440   | )             |  |  | (57           | ) |  |  | (53  | )
|Plan assets at year end                                          |  |               | 4,806  |   |                       |  | 4,988  |               |  |  |              |   |  |  |     |  
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Funded status                                                    |  |               | (4,077 | ) |                       |  | (4,827 | )             |  |  | (233          | ) |  |  | (223 | )
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Unrecognized past service cost                                   |  |               |       |   |                       |  |       |               |  |  |              |   |  |  |     |  
|Unrecognized transition obligation                               |  |               |       |   |                       |  |       |               |  |  |              |   |  |  |     |  
|Unrecognized actuarial (gain) loss                               |  |               | 1,957  |   |                       |  | 2,593  |               |  |  |              |   |  |  |     |  
|Asset limitation due to uncertainty of obtaining future benefits |  |               | (1,186 | ) |                       |  | (1,186 | )             |  |  |              |   |  |  |     |  
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Net recognized liability                                         |  |               | (3,306 | ) |                       |  | (3,420 | )             |  |  | (233          | ) |  |  | (223 | )
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Amounts recognized in the balance sheet                          |  |               |        |   |                       |  |        |               |  |  |               |   |  |  |      |  
|Prepaid benefit assets                                           |  |               | 507    |   |                       |  | 505    |               |  |  |              |   |  |  |     |  
|Provisions for pensions and other post- employment benefits      |  |               | (3,813 | ) |                       |  | (3,925 | )             |  |  | (233          | ) |  |  | (223 | )
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Net recognized liability                                         |  |               | (3,306 | ) |                       |  | (3,420 | )             |  |  | (233          | ) |  |  | (223 | )
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  

F-47



---



##### Table of Contents



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




| |                
| | ---------------
| | Other countries

|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |   |  |  |      |  
|---------------------------------------------------------------- |  | ------------- | ------ | - | --------------------- |  | ------ | ------------- |  |  | ------------- | - |  |  | ---- | -
|                                                                 |  | Pension       |        |   | Other Post-Employment | 
|                                                                 |  | Obligations   |        |   | Benefit Obligations   | 
|                                                                 |  |               |        |   |                       | 
|                                                                 |  | Dec. 31, 2003 |        |   | Dec. 31, 2004         |  |        | Dec. 31, 2003 |  |  | Dec. 31, 2004 |  
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|                                                                 |  | ( million)   |       
|Defined benefit obligation                                       |  |               |        |   |                       |  |        |               |  |  |               |   |  |  |      |  
|Benefit obligation at start of year                              |  |               | 4,249  |   |                       |  | 4,096  |               |  |  | 818           |   |  |  | 980  |  
|Service cost                                                     |  |               | 194    |   |                       |  | 143    |               |  |  | 29            |   |  |  | 37   |  
|Interest cost                                                    |  |               | 255    |   |                       |  | 244    |               |  |  | 53            |   |  |  | 55   |  
|Employee contributions                                           |  |               | 7      |   |                       |  | 6      |               |  |  |              |   |  |  |     |  
|Plan changes                                                     |  |               | 3      |   |                       |  | (1     | )             |  |  | 42            |   |  |  | (205 | )
|Plan settlements                                                 |  |               | (83    | ) |                       |  | (2     | )             |  |  |              |   |  |  |     |  
|Net actuarial (gain) loss                                        |  |               | 247    |   |                       |  | 144    |               |  |  | 240           |   |  |  | 65   |  
|Translation differences                                          |  |               | (531   | ) |                       |  | (205   | )             |  |  | (159          | ) |  |  | (56  | )
|Benefits paid                                                    |  |               | (233   | ) |                       |  | (202   | )             |  |  | (43           | ) |  |  | (48  | )
|Mergers & acquisitions                                           |  |               |       |   |                       |  |       |               |  |  |              |   |  |  |     |  
|Divestitures                                                     |  |               |       |   |                       |  |       |               |  |  |              |   |  |  |     |  
|Plan curtailments                                                |  |               | (12    | ) |                       |  | (55    | )             |  |  |              |   |  |  | (9   | )
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Benefit obligation at year end                                   |  |               | 4,096  |   |                       |  | 4,168  |               |  |  | 980           |   |  |  | 819  |  
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Fair value of plan assets                                        |  |               |        |   |                       |  |        |               |  |  |               |   |  |  |      |  
|Plan assets at start of year                                     |  |               | 2,933  |   |                       |  | 2,939  |               |  |  | 257           |   |  |  | 263  |  
|Actual return on plan assets                                     |  |               | 442    |   |                       |  | 354    |               |  |  | 49            |   |  |  | 35   |  
|Mergers & acquisitions                                           |  |               |       |   |                       |  |       |               |  |  |              |   |  |  |     |  
|Divestitures                                                     |  |               |       |   |                       |  |       |               |  |  |              |   |  |  |     |  
|Plan settlements                                                 |  |               | (74    | ) |                       |  | 1      |               |  |  |              |   |  |  |     |  
|Translation differences                                          |  |               | (381   | ) |                       |  | (153   | )             |  |  | (46           | ) |  |  | (22  | )
|Employer contributions                                           |  |               | 246    |   |                       |  | 206    |               |  |  | 46            |   |  |  | 58   |  
|Employee contributions                                           |  |               | 6      |   |                       |  | 6      |               |  |  |              |   |  |  |     |  
|Benefits paid                                                    |  |               | (233   | ) |                       |  | (202   | )             |  |  | (43           | ) |  |  | (48  | )
|Plan assets at year end                                          |  |               | 2,939  |   |                       |  | 3,151  |               |  |  | 263           |   |  |  | 286  |  
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Funded status                                                    |  |               | (1,157 | ) |                       |  | (1,017 | )             |  |  | (717          | ) |  |  | (533 | )
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Unrecognized past service cost                                   |  |               | 2      |   |                       |  | (3     | )             |  |  | (13           | ) |  |  | (67  | )
|Unrecognized transition obligation                               |  |               |       |   |                       |  |       |               |  |  |              |   |  |  |     |  
|Unrecognized actuarial (gain) loss                               |  |               | 656    |   |                       |  | 623    |               |  |  | 302           |   |  |  | 304  |  
|Asset limitation due to uncertainty of obtaining future benefits |  |               | (7     | ) |                       |  | (10    | )             |  |  |              |   |  |  |     |  
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Net recognized liability                                         |  |               | (506   | ) |                       |  | (407   | )             |  |  | (428          | ) |  |  | (296 | )
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Amounts recognized in the balance sheet Prepaid benefit assets   |  |               | 92     |   |                       |  | 148    |               |  |  |              |   |  |  |     |  
|Provisions for pensions and other post- employment benefits      |  |               | (598   | ) |                       |  | (555   | )             |  |  | (428          | ) |  |  | (296 | )
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Net recognized liability                                         |  |               | (506   | ) |                       |  | (407   | )             |  |  | (428          | ) |  |  | (296 | )
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  

F-48



---



##### Table of Contents



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




| |      
| | -----
| | Total

|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |   |  |  |       |  
|---------------------------------------------------------------- |  | ------------- | ------ | - | --------------------- |  | ------ | ------------- |  |  | ------------- | - |  |  | ----- | -
|                                                                 |  | Pension       |        |   | Other Post-Employment | 
|                                                                 |  | Obligations   |        |   | Benefit Obligations   | 
|                                                                 |  |               |        |   |                       | 
|                                                                 |  | Dec. 31, 2003 |        |   | Dec. 31, 2004         |  |        | Dec. 31, 2003 |  |  | Dec. 31, 2004 |  
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|                                                                 |  | ( million)   |       
|Defined benefit obligation                                       |  |               |        |   |                       |  |        |               |  |  |               |   |  |  |       |  
|Benefit obligation at start of year                              |  |               | 12,414 |   |                       |  | 12,979 |               |  |  | 961           |   |  |  | 1,213 |  
|Service cost                                                     |  |               | 335    |   |                       |  | 300    |               |  |  | 173           |   |  |  | 73    |  
|Interest cost                                                    |  |               | 735    |   |                       |  | 722    |               |  |  | 57            |   |  |  | 62    |  
|Employee contributions                                           |  |               | 45     |   |                       |  | 43     |               |  |  |              |   |  |  |      |  
|Plan changes                                                     |  |               | 3      |   |                       |  | 19     |               |  |  | 42            |   |  |  | (205  | )
|Plan settlements                                                 |  |               | (83    | ) |                       |  | (2     | )             |  |  |              |   |  |  |      |  
|Net actuarial (gain) loss                                        |  |               | 716    |   |                       |  | 824    |               |  |  | 240           |   |  |  | 65    |  
|Translation differences                                          |  |               | (531   | ) |                       |  | (205   | )             |  |  | (159          | ) |  |  | (56   | )
|Benefits paid                                                    |  |               | (648   | ) |                       |  | (642   | )             |  |  | (100          | ) |  |  | (101  | )
|Mergers & acquisitions                                           |  |               |       |   |                       |  |       |               |  |  |              |   |  |  |      |  
|Divestitures                                                     |  |               | (16    | ) |                       |  |       |               |  |  | (1            | ) |  |  |      |  
|Plan curtailments                                                |  |               | 9      |   |                       |  | (55    | )             |  |  |              |   |  |  | (9    | )
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Benefit obligation at year end                                   |  |               | 12,979 |   |                       |  | 13,983 |               |  |  | 1,213         |   |  |  | 1,042 |  
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Fair value of plan assets                                        |  |               |        |   |                       |  |        |               |  |  |               |   |  |  |       |  
|Plan assets at start of year                                     |  |               | 7,506  |   |                       |  | 7,745  |               |  |  | 257           |   |  |  | 263   |  
|Actual return on plan assets                                     |  |               | 744    |   |                       |  | 604    |               |  |  | 49            |   |  |  | 35    |  
|Mergers & acquisitions                                           |  |               |       |   |                       |  |       |               |  |  |              |   |  |  |      |  
|Divestitures                                                     |  |               | (12    | ) |                       |  |       |               |  |  |              |   |  |  |      |  
|Plan settlements                                                 |  |               | (74    | ) |                       |  | 1      |               |  |  |              |   |  |  |      |  
|Translation differences                                          |  |               | (381   | ) |                       |  | (153   | )             |  |  | (46           | ) |  |  | (22   | )
|Employer contributions                                           |  |               | 566    |   |                       |  | 541    |               |  |  | 103           |   |  |  | 111   |  
|Employee contributions                                           |  |               | 44     |   |                       |  | 43     |               |  |  |              |   |  |  |      |  
|Benefits paid                                                    |  |               | (648   | ) |                       |  | (642   | )             |  |  | (100          | ) |  |  | (101  | )
|Plan assets at year end                                          |  |               | 7,745  |   |                       |  | 8,139  |               |  |  | 263           |   |  |  | 286   |  
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Funded status                                                    |  |               | (5,234 | ) |                       |  | (5,844 | )             |  |  | (950          | ) |  |  | (756  | )
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Unrecognized past service cost                                   |  |               | 2      |   |                       |  | (3     | )             |  |  | (13           | ) |  |  | (67   | )
|Unrecognized transition obligation                               |  |               |       |   |                       |  |       |               |  |  |              |   |  |  |      |  
|Unrecognized actuarial (gain) loss                               |  |               | 2,613  |   |                       |  | 3,216  |               |  |  | 302           |   |  |  | 304   |  
|Asset limitation due to uncertainty of obtaining future benefits |  |               | (1,193 | ) |                       |  | (1,196 | )             |  |  |              |   |  |  |      |  
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Net recognized liability                                         |  |               | (3,812 | ) |                       |  | (3,827 | )             |  |  | (661          | ) |  |  | (519  | )
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Amounts recognized in the balance sheet                          |  |               |        |   |                       |  |        |               |  |  |               |   |  |  |       |  
|Prepaid benefit assets                                           |  |               | 599    |   |                       |  | 653    |               |  |  |              |   |  |  |      |  
|Provisions for pensions and other post- employment benefits      |  |               | (4,411 | ) |                       |  | (4,480 | )             |  |  | (661          | ) |  |  | (519  | )
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  
|Net recognized liability                                         |  |               | (3,812 | ) |                       |  | (3,827 | )             |  |  | (661          | ) |  |  | (519  | )
|                                                                 |  |               |        |   |                       |  |        |               |  |  |               |  

F-49



---



##### Table of Contents



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


       


     






|                                                           |  |               |        |   |               |  |        |  
|---------------------------------------------------------- |  | ------------- | ------ | - | ------------- |  | ------ | -
|                                                           |  | Dec. 31, 2003 |        |   | Dec. 31, 2004 | 
|                                                           |  |               |        |   |               | 
|                                                           |  | ( million)   |       
|Provisions for pensions and other post-employment benefits |  |               | (5,072 | ) |               |  | (4,999 | )
|Other assets                                               |  |               | 599    |   |               |  | 653    |  
|                                                           |  |               |        |   |               | 
|Net recognized liability                                   |  |               | (4,473 | ) |               |  | (4,346 | )
|                                                           |  |               |        |   |               | 



|                                  |  |             |       |  
|--------------------------------- |  | ----------- | ----- | -
|                                  |  | ( million) |      
|                                  |  |             |      
|Balance at beginning of year      |  |             | 5,072 |  
|Allocations                       |  |             | 841   |  
|Utilisation                       |  |             | (652  | )
|Currency effects                  |  |             | (23   | )
|Changes in scope of consolidation |  |             |      |  
|Reversal                          |  |             | (239  | )
|                                  |  |             |      
|Balance at end of year            |  |             | 4,999 |  
|                                  |  |             |      

F-50



---



##### Table of Contents



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


[29]     Other provisions




|                                         |  |               |       |          |               |  |       |       |          |  |         |  |  |  |       | 
|---------------------------------------- |  | ------------- | ----- | -------- | ------------- |  | ----- | ----- | -------- |  | ------- |  |  |  | ----- | 
|                                         |  | Dec. 31, 2003 |       |          | Dec. 31, 2004 | 
|                                         |  |               |       |          |               | 
|                                         |  |               |       | Maturing |               |  |       |       | Maturing | 
|                                         |  | Total         |       |          | in 2004       |  |       | Total |          |  | in 2005 | 
|                                         |  |               |       |          |               |  |       |       |          |  |         | 
|                                         |  | ( million)   |      
|Provisions for taxes                     |  |               | 863   |          |               |  | 710   |       |          |  | 1,023   |  |  |  | 666   | 
|Provisions for personnel commitments     |  |               | 1,337 |          |               |  | 645   |       |          |  | 1,514   |  |  |  | 802   | 
|Provisions for environmental remediation |  |               | 200   |          |               |  | 9     |       |          |  | 303     |  |  |  | 55    | 
|Provisions for restructuring             |  |               | 238   |          |               |  | 192   |       |          |  | 168     |  |  |  | 157   | 
|Provisions for trade-related commitments |  |               | 531   |          |               |  | 528   |       |          |  | 659     |  |  |  | 653   | 
|Other provisions                         |  |               | 622   |          |               |  | 364   |       |          |  | 702     |  |  |  | 636   | 
|                                         |  |               |       |          |               |  |       |       |          |  |         | 
|                                         |  |               | 3,791 |          |               |  | 2,448 |       |          |  | 4,369   |  |  |  | 2,969 | 
|                                         |  |               |       |          |               |  |       |       |          |  |         | 



|                                         |  |             |       |            |               |  |   |          |  |  |            |   |  |             |       |  |          |  |        |      |  |  |      |   |  |  |       | 
|---------------------------------------- |  | ----------- | ----- | ---------- | ------------- |  | - | -------- |  |  | ---------- | - |  | ----------- | ----- |  | -------- |  | ------ | ---- |  |  | ---- | - |  |  | ----- | 
|                                         |  |             |       | Changes in |               |  |   |          |  |  |            |   |  |             |      
|                                         |  | Jan. 1,     |       |            | Scope of      |  |   | Currency |  |  |            |   |  |             |       |  | Dec. 31, | 
|                                         |  | 2004        |       |            | Consolidation |  |   | Effects  |  |  | Allocation |   |  | Utilization |       |  | Reversal |  |        | 2004 | 
|                                         |  |             |       |            |               |  |   |          |  |  |            |   |  |             |       |  |          |  |        |      | 
|                                         |  | ( million) |      
|Provisions for taxes                     |  |             | 863   |            |               |  |  |          |  |  | (21        | ) |  |             | 631   |  |          |  | (390   | )    |  |  | (60  | ) |  |  | 1,023 | 
|Provisions for personnel commitments     |  |             | 1,337 |            |               |  |  |          |  |  | (19        | ) |  |             | 913   |  |          |  | (621   | )    |  |  | (96  | ) |  |  | 1,514 | 
|Provisions for environmental remediation |  |             | 200   |            |               |  |  |          |  |  | (7         | ) |  |             | 169   |  |          |  | (26    | )    |  |  | (33  | ) |  |  | 303   | 
|Provisions for restructuring             |  |             | 238   |            |               |  |  |          |  |  | (6         | ) |  |             | 93    |  |          |  | (133   | )    |  |  | (24  | ) |  |  | 168   | 
|Provisions for trade-related commitments |  |             | 531   |            |               |  |  |          |  |  | (19        | ) |  |             | 1,152 |  |          |  | (929   | )    |  |  | (76  | ) |  |  | 659   | 
|Other provisions                         |  |             | 622   |            |               |  | 7 |          |  |  | (10        | ) |  |             | 589   |  |          |  | (404   | )    |  |  | (102 | ) |  |  | 702   | 
|                                         |  |             |       |            |               |  |   |          |  |  |            |   |  |             |       |  |          |  |        |      | 
|                                         |  |             | 3,791 |            |               |  | 7 |          |  |  | (82        | ) |  |             | 3,547 |  |          |  | (2,503 | )    |  |  | (391 | ) |  |  | 4,369 | 
|                                         |  |             |       |            |               |  |   |          |  |  |            |   |  |             |       |  |          |  |        |      | 



| |                           
| | --------------------------
| | Stock compensation program








F-51



---



##### Table of Contents



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








| |                     
| | --------------------
| | Stock Option Program









| |                        
| | -----------------------
| | Stock Incentive Program





| |                                                                      
| | ---------------------------------------------------------------------
| | Incentive payments to employees under the Stock Incentive
    Program

|                  |  |                           |    | 
|----------------- |  | ------------------------- | -- | 
|                  |  | Value of x Shares         |   
|Payment at End of |  | (per 10 Deposited Shares) |   
|                  |  |                           |   
|Second year       |  |                           | 2  | 
|Sixth year        |  |                           | 4  | 
|Tenth year        |  |                           | 4  | 
|                  |  |                           |   
|Total             |  |                           | 10 | 
|                  |  |                           |   

SM


F-52



---



##### Table of Contents



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




| |                            
| | ---------------------------
| | Stock Participation Program









| |                                                                          
| | -------------------------------------------------------------------------
| | Incentive payments to employees under the Stock
    Participation Program

|                  |  |                           |   | 
|----------------- |  | ------------------------- | - | 
|                  |  | Value of x Shares         |  
|Payment at End of |  | (per 10 Deposited Shares) |  
|                  |  |                           |  
|Second year       |  |                           | 1 | 
|Sixth year        |  |                           | 2 | 
|Tenth year        |  |                           | 2 | 
|                  |  |                           |  
|Total             |  |                           | 5 | 
|                  |  |                           |  

 





 


Environmental provisions




F-53



---



##### Table of Contents



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








   






Legal risks




F-54



---



##### Table of Contents



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




Lipobay/ Baycol:






 




PPA:




F-55



---



##### Table of Contents



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









Cipro®


Rubber, polyester polyols, urethane: 










Patent and contractual disputes:


F-56



---



##### Table of Contents



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








Product liability and other litigation:










Restructuring charges


    







F-57



---



##### Table of Contents



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


  











    





   




|                         |  |             |      |   |       |  |     |       |  |  |      |  
|------------------------ |  | ----------- | ---- | - | ----- |  | --- | ----- |  |  | ---- | -
|                         |  | Severance   |      |   | Other |  |     |      
|                         |  | Payments    |      |   | Costs |  |     | Total | 
|                         |  |             |      |   |       |  |     |       | 
|                         |  | ( million) |     
|Balance at Jan. 1, 2003  |  |             | 158  |   |       |  | 72  |       |  |  | 230  |  
|Additions                |  |             | 125  |   |       |  | 64  |       |  |  | 189  |  
|Utilization              |  |             | (124 | ) |       |  | (29 | )     |  |  | (153 | )
|Exchange differences     |  |             | (13  | ) |       |  | (15 | )     |  |  | (28  | )
|Balance at Dec. 31, 2003 |  |             | 146  |   |       |  | 92  |       |  |  | 238  |  
|Additions                |  |             | 75   |   |       |  | 18  |       |  |  | 93   |  
|Utilization              |  |             | (111 | ) |       |  | (46 | )     |  |  | (157 | )
|Exchange differences     |  |             | (3   | ) |       |  | (3  | )     |  |  | (6   | )
|                         |  |             |      |   |       |  |     |       | 
|Balance at Dec. 31, 2004 |  |             | 107  |   |       |  | 61  |       |  |  | 168  |  
|                         |  |             |      |   |       |  |     |       | 



F-58



---



##### Table of Contents



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


[30]     Financial liabilities




|                                                  |  |               |       |          |               |  |       |       |          |  |         |  |  |  |       | 
|------------------------------------------------- |  | ------------- | ----- | -------- | ------------- |  | ----- | ----- | -------- |  | ------- |  |  |  | ----- | 
|                                                  |  | Dec. 31, 2003 |       |          | Dec. 31, 2004 | 
|                                                  |  |               |       |          |               | 
|                                                  |  |               |       | Maturing |               |  |       |       | Maturing | 
|                                                  |  | Total         |       |          | in 2004       |  |       | Total |          |  | in 2005 | 
|                                                  |  |               |       |          |               |  |       |       |          |  |         | 
|                                                  |  | ( million)   |      
|Debentures                                        |  |               | 6,845 |          |               |  | 471   |       |          |  | 6,885   |  |  |  | 376   | 
|Liabilities to banks                              |  |               | 532   |          |               |  | 377   |       |          |  | 537     |  |  |  | 384   | 
|Liabilities under lease agreements                |  |               | 575   |          |               |  | 86    |       |          |  | 462     |  |  |  | 77    | 
|Liabilities from the issuance of promissory notes |  |               | 59    |          |               |  | 59    |       |          |  | 112     |  |  |  | 112   | 
|Commercial paper                                  |  |               | 512   |          |               |  | 512   |       |          |  | 861     |  |  |  | 861   | 
|Liabilities from derivative financial instruments |  |               | 116   |          |               |  | 114   |       |          |  | 68      |  |  |  | 49    | 
|Other financial liabilities                       |  |               | 787   |          |               |  | 429   |       |          |  | 797     |  |  |  | 746   | 
|                                                  |  |               |       |          |               |  |       |       |          |  |         | 
|                                                  |  |               | 9,426 |          |               |  | 2,048 |       |          |  | 9,722   |  |  |  | 2,605 | 
|                                                  |  |               |       |          |               |  |       |       |          |  |         | 



|              |  |             |       | 
|------------- |  | ----------- | ----- | 
|Maturing in   |  | ( million) |      
|              |  |             |      
|2005          |  |             | 2,605 | 
|2006          |  |             | 391   | 
|2007          |  |             | 3,065 | 
|2008          |  |             | 52    | 
|2009          |  |             | 712   | 
|2010 or later |  |             | 2,897 | 
|              |  |             |      
|              |  |             | 9,722 | 
|              |  |             |      

 


 


F-59



---



##### Table of Contents



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




|                          |          |   |        |  |          |   |  |                                                  |  |                   |  |  |               |  |  |  |       | 
|------------------------- | -------- | - | ------ |  | -------- | - |  | ------------------------------------------------ |  | ----------------- |  |  | ------------- |  |  |  | ----- | 
|Effective                 |          |   | Stated |  |          |   |  |                                                  |  |                   |  | 
|Rate                      |          |   | Rate   |  |          |   |  | Volume                                           |  | Dec. 31, 2003     |  |  | Dec. 31, 2004 | 
|                          |          |   |        |  |          |   |  |                                                  |  |                   |  |  |               | 
|                          |          |   |        |  |          |   |  | ( million)                                      | 
|Bayer AG                 
|                          | 5.5150   | % |        |  | 5.3750   | % |  | Eurobonds 2002/2007                              |  | EUR 3,000 million |  |  | 3,039         |  |  |  | 3,018 | 
|                          | 6.1075   | % |        |  | 6.000    | % |  | Eurobonds 2002/2012                              |  | EUR 2,000 million |  |  | 2,097         |  |  |  | 2,129 | 
|                          | 3.5000   | % |        |  | 3.5000   | % |  | Bonds Private Placement 2003/2005                |  | EUR 15 million    |  |  | 15            |  |  |  | 15    | 
|                          | variable |   |        |  | variable |   |  | Bonds Private Placement 2003/2006                |  | EUR 250 million   |  |  | 250           |  |  |  | 250   | 
|                          | 2.4700   | % |        |  | 2.4700   | % |  | Bonds Private Placement 2004/2005                |  | EUR 25 million    |  |  |              |  |  |  | 25    | 
|                          | variable |   |        |  | variable |   |  | Bonds Private Placement 2004/2006                |  | EUR 50 million    |  |  |              |  |  |  | 50    | 
|                          | 3.5020   | % |        |  | 3.4900   | % |  | Bonds Private Placement 2004/2008                |  | EUR 20 million    |  |  |              |  |  |  | 20    | 
|                          | 3.1250   | % |        |  | 3.1250   | % |  | Bonds Private Placement 2003/2004                |  | EUR 25 million    |  |  | 25            |  |  |  |      | 
|                          | 3.1800   | % |        |  | 3.1800   | % |  | Bonds Private Placement 2003/2004                |  | EUR 50 million    |  |  | 50            |  |  |  |      | 
|Bayer Capital Corporation
|                          | variable |   |        |  | variable |   |  | Bonds Private Placement 2002/2005                |  | EUR 65 million    |  |  | 65            |  |  |  | 65    | 
|Bayer Corporation        
|                          | 7.1800   | % |        |  | 7.1250   | % |  | Notes 1995/2015                                  |  | USD 200 million   |  |  | 158           |  |  |  | 145   | 
|                          | 6.6700   | % |        |  | 6.6500   | % |  | Notes 1998/2028                                  |  | USD 350 million   |  |  | 277           |  |  |  | 257   | 
|                          | 6.2100   | % |        |  | 6.2000   | % |  | Bonds 1998/2028                                  |  | USD 250 million   |  |  | 198           |  |  |  | 184   | 
|                          | 4.0430   | % |        |  | 3.7500   | % |  | Bonds Private Placement 2004/2009                |  | EUR 460 million   |  |  |              |  |  |  | 456   | 
|                          | 6.3750   | % |        |  | 6.3750   | % |  | Money Market Puttable Reset Securities 2001/2011 |  | USD 500 million   |  |  | 397           |  |  |  |      | 
|                          | 1.2000   | % |        |  | 3.5000   | % |  | Revenue Bonds 1997/2009                          |  | USD 20.6 million  |  |  | 16            |  |  |  |      | 
|Bayer Ltd., Japan        
|                          | 3.7500   | % |        |  | 3.7500   | % |  | Bonds 2000/2005                                  |  | CHF 400 million   |  |  | 258           |  |  |  | 271   | 
|                          |          |   |        |  |          |   |  |                                                  |  |                   |  |  |               | 
|                          |          |   |        |  |          |   |  |                                                  |  |                   |  |  | 6,845         |  |  |  | 6,885 | 
|                          |          |   |        |  |          |   |  |                                                  |  |                   |  |  |               | 

  


  


F-60



---



##### Table of Contents



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


  


 













     


   


F-61



---



##### Table of Contents



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




|           |  |             |     |  |          |  |     |           |  |  |     | 
|---------- |  | ----------- | --- |  | -------- |  | --- | --------- |  |  | --- | 
|           |  | Lease       |     |  | Of Which |  |     |          
|           |  | Payments    |     |  | Interest |  |     | Liability | 
|           |  |             |     |  |          |  |     |           | 
|           |  | ( million) |    
|2005       |  |             | 100 |  |          |  | 23  |           |  |  | 77  | 
|2006       |  |             | 76  |  |          |  | 19  |           |  |  | 57  | 
|2007       |  |             | 47  |  |          |  | 17  |           |  |  | 30  | 
|2008       |  |             | 34  |  |          |  | 16  |           |  |  | 18  | 
|2009       |  |             | 25  |  |          |  | 10  |           |  |  | 15  | 
|After 2009 |  |             | 320 |  |          |  | 55  |           |  |  | 265 | 
|           |  |             |     |  |          |  |     |           | 
|           |  |             | 602 |  |          |  | 140 |           |  |  | 462 | 
|           |  |             |     |  |          |  |     |           | 




 


[31]     Trade accounts payable


       


[32]     Miscellaneous
liabilities






|                                            |  |               |       |             |               |  |       |       |          |  |         |  |  |  |       | 
|------------------------------------------- |  | ------------- | ----- | ----------- | ------------- |  | ----- | ----- | -------- |  | ------- |  |  |  | ----- | 
|                                            |  | Dec. 31, 2003 |       |             | Dec. 31, 2004 | 
|                                            |  |               |       |             |               | 
|                                            |  |               |       | Maturing in |               |  |       |       | Maturing | 
|                                            |  | Total         |       |             | 2004          |  |       | Total |          |  | in 2005 | 
|                                            |  |               |       |             |               |  |       |       |          |  |         | 
|                                            |  | ( million)   |      
|Tax liabilities                             |  |               | 549   |             |               |  | 549   |       |          |  | 456     |  |  |  | 456   | 
|Accrued interest on liabilities             |  |               | 315   |             |               |  | 315   |       |          |  | 296     |  |  |  | 296   | 
|Payroll liabilities                         |  |               | 337   |             |               |  | 247   |       |          |  | 328     |  |  |  | 253   | 
|Liabilities for social expenses             |  |               | 172   |             |               |  | 166   |       |          |  | 150     |  |  |  | 138   | 
|License liabilities                         |  |               | 47    |             |               |  | 47    |       |          |  | 42      |  |  |  | 42    | 
|Advance payments received                   |  |               | 18    |             |               |  | 18    |       |          |  | 28      |  |  |  | 28    | 
|Liabilities from the acceptance of drafts   |  |               | 21    |             |               |  | 21    |       |          |  | 24      |  |  |  | 24    | 
|Liabilities from commodity future contracts |  |               |      |             |               |  |      |       |          |  | 31      |  |  |  | 7     | 
|Other miscellaneous liabilities             |  |               | 1,000 |             |               |  | 998   |       |          |  | 813     |  |  |  | 794   | 
|                                            |  |               |       |             |               |  |       |       |          |  |         | 
|                                            |  |               | 2,459 |             |               |  | 2,361 |       |          |  | 2,168   |  |  |  | 2,038 | 
|                                            |  |               |       |             |               |  |       |       |          |  |         | 





F-62



---



##### Table of Contents



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




   


[33]     Further information on
liabilities


 


  


 


[34]     Deferred income


   


[35]     Discontinuing operations




|                                         |  |             |        |        |          |  |        |       |  |  |      |   |  |      |      |   |      |  |        |   |  |  |        |  
|---------------------------------------- |  | ----------- | ------ | ------ | -------- |  | ------ | ----- |  |  | ---- | - |  | ---- | ---- | - | ---- |  | ------ | - |  |  | ------ | -
|                                         |  |             |        | Plasma |          |  |       
|                                         |  | LANXESS     |        |        | Business |  |        | Total | 
|                                         |  |             |        |        |          |  |        |       | 
|                                         |  | 2003        |        |        | 2004     |  |        | 2003  |  |  | 2004 |   |  | 2003 |      |   | 2004 | 
|                                         |  |             |        |        |          |  |        |       |  |  |      |   |  |      |      |   |      | 
|                                         |  | ( million) |       
|Noncurrent assets                        |  |             | 1,690  |        |          |  | 1,627  |       |  |  | 3    |   |  |      | 1    |   |      |  | 1,693  |   |  |  | 1,628  |  
|Current assets (excluding liquid assets) |  |             | 2,326  |        |          |  | 2,614  |       |  |  | 616  |   |  |      | 620  |   |      |  | 2,942  |   |  |  | 3,234  |  
|Liquid assets                            |  |             | 13     |        |          |  | 72     |       |  |  |     |   |  |      |     |   |      |  | 13     |   |  |  | 72     |  
|                                         |  |             |        |        |          |  |        |       |  |  |      |   |  |      |      |   |      | 
|Assets                                   |  |             | 4,029  |        |          |  | 4,313  |       |  |  | 619  |   |  |      | 621  |   |      |  | 4,648  |   |  |  | 4,934  |  
|                                         |  |             |        |        |          |  |        |       |  |  |      |   |  |      |      |   |      | 
|Pension provisions                       |  |             | (408   | )      |          |  | (418   | )     |  |  |     |   |  |      |     |   |      |  | (408   | ) |  |  | (418   | )
|Other provisions                         |  |             | (403   | )      |          |  | (479   | )     |  |  | (43  | ) |  |      | (99  | ) |      |  | (446   | ) |  |  | (578   | )
|Financial obligations                    |  |             | (608   | )      |          |  | (570   | )     |  |  |     |   |  |      |     |   |      |  | (608   | ) |  |  | (570   | )
|Remaining liabilities                    |  |             | (682   | )      |          |  | (750   | )     |  |  | (46  | ) |  |      | (35  | ) |      |  | (728   | ) |  |  | (785   | )
|                                         |  |             |        |        |          |  |        |       |  |  |      |   |  |      |      |   |      | 
|Liabilities                              |  |             | (2,101 | )      |          |  | (2,217 | )     |  |  | (89  | ) |  |      | (134 | ) |      |  | (2,190 | ) |  |  | (2,351 | )
|                                         |  |             |        |        |          |  |        |       |  |  |      |   |  |      |      |   |      | 

[36]     Commitments and
contingencies





|                                  |  |             |     |  |          |  |     | 
|--------------------------------- |  | ----------- | --- |  | -------- |  | --- | 
|                                  |  | Dec. 31,    |     |  | Dec. 31, | 
|                                  |  | 2003        |     |  | 2004     | 
|                                  |  |             |     |  |          | 
|                                  |  | ( million) |    
|Issuance and endorsement of bills |  |             | 4   |  |          |  | 8   | 
|Guarantees                        |  |             | 130 |  |          |  | 178 | 
|Other commitments                 |  |             | 207 |  |          |  | 117 | 
|                                  |  |             |     |  |          | 
|                                  |  |             | 341 |  |          |  | 303 | 
|                                  |  |             |     |  |          | 

F-63



---



##### Table of Contents



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




    




 


|              |  |             |     | 
|------------- |  | ----------- | --- | 
|              |  | ( million) |    
|              |  |             |    
|2005          |  |             | 101 | 
|2006          |  |             | 86  | 
|2007          |  |             | 74  | 
|2008          |  |             | 63  | 
|2009          |  |             | 60  | 
|2010 or later |  |             | 97  | 
|              |  |             |    
|              |  |             | 481 | 
|              |  |             |    

 





 


|              |  |           |     | 
|------------- |  | --------- | --- | 
|Maturing in   |  |  million |    
|              |  |           |    
|2005          |  |           | 195 | 
|2006          |  |           | 155 | 
|2007          |  |           | 168 | 
|2008          |  |           | 78  | 
|2009          |  |           | 96  | 
|2010 or later |  |           | 176 | 
|              |  |           |    
|              |  |           | 868 | 
|              |  |           |    

[37]     Related Parties




F-64



---



##### Table of Contents



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




[38]     Financial Instruments




| |                              
| | -----------------------------
| | Primary financial instruments





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






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







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







F-65



---



##### Table of Contents



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




|                                                        |  |               |        |   |               |  |        |  
|------------------------------------------------------- |  | ------------- | ------ | - | ------------- |  | ------ | -
|                                                        |  | Dec. 31, 2003 |        |   | Dec. 31, 2004 | 
|                                                        |  |               |        |   |               | 
|                                                        |  | ( million)   |       
|Primary asset instruments exposed to currency risk      |  |               | 4,899  |   |               |  | 4,409  |  
|Primary asset instruments hedged naturally              |  |               | (348   | ) |               |  | (358   | )
|Primary liability instruments exposed to currency risks |  |               | 983    |   |               |  | 1,792  |  
|Primary liability instruments hedged naturally          |  |               | (348   | ) |               |  | (358   | )
|Amount hedged through derivative financial instruments  |  |               | (5,178 | ) |               |  | (5,471 | )
|                                                        |  |               |        |   |               | 
|Residual unhedged currency exposure                     |  |               | 8      |   |               |  | 14     |  
|                                                        |  |               |        |   |               | 

 








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











F-66



---



##### Table of Contents



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




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





| |            
| | -----------
| | Market risk





|                                                                                      |  |                 |        |  |               |  |        |               |  |  |               |  |  |  |     | 
|------------------------------------------------------------------------------------- |  | --------------- | ------ |  | ------------- |  | ------ | ------------- |  |  | ------------- |  |  |  | --- | 
|                                                                                      |  | Notional Amount |        |  | Fair Value    | 
|                                                                                      |  |                 |        |  |               | 
|                                                                                      |  | Dec. 31, 2003   |        |  | Dec. 31, 2004 |  |        | Dec. 31, 2003 |  |  | Dec. 31, 2004 | 
|                                                                                      |  |                 |        |  |               |  |        |               |  |  |               | 
|                                                                                      |  | ( million)     |       
|Forward foreign exchange contracts                                                    |  |                 | 3,984  |  |               |  | 4,851  |               |  |  | 143           |  |  |  | 94  | 
|Currency options                                                                      |  |                 | 266    |  |               |  | 133    |               |  |  | 11            |  |  |  | 9   | 
|Interest rate hedging contracts (including interest and
    principal currency swaps) |  |                 | 6,331  |  |               |  | 7,204  |               |  |  | 485           |  |  |  | 545 | 
|                                                                                      |  |                 |        |  |               |  |        |               |  |  |               | 
|                                                                                      |  |                 | 10,581 |  |               |  | 12,188 |               |  |  | 639           |  |  |  | 648 | 
|                                                                                      |  |                 |        |  |               |  |        |               |  |  |               | 





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

 




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

 


F-67



---



##### Table of Contents



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




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

     


    




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



|                            |  |                 |     |  |               |  |     |               |  |  |               |  |  |  |    | 
|--------------------------- |  | --------------- | --- |  | ------------- |  | --- | ------------- |  |  | ------------- |  |  |  | -- | 
|                            |  | Notional Amount |     |  | Fair Value    | 
|                            |  |                 |     |  |               | 
|                            |  | Dec. 31, 2003   |     |  | Dec. 31, 2004 |  |     | Dec. 31, 2003 |  |  | Dec. 31, 2004 | 
|                            |  |                 |     |  |               |  |     |               |  |  |               | 
|                            |  | ( million)     |    
|Commodity futures contracts |  |                 | 224 |  |               |  | 817 |               |  |  | 11            |  |  |  | 29 | 
|                            |  |                 |     |  |               |  |     |               |  |  |               | 
|                            |  |                 | 224 |  |               |  | 817 |               |  |  | 11            |  |  |  | 29 | 
|                            |  |                 |     |  |               |  |     |               |  |  |               | 

 


[39]     Net cash provided by (used
in) operating activities


     


   


[40]     Net cash provided by (used
in) investing activities


       


F-68



---



##### Table of Contents



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


   


[41]     Net cash provided by (used
in) financing activities


        


[42]     Discontinuing operations




|                                                    |  |             |      |   |                 |  |      |      |  |  |      |   |  |      |      |   |      |  |     |   |  |  |     |  
|--------------------------------------------------- |  | ----------- | ---- | - | --------------- |  | ---- | ---- |  |  | ---- | - |  | ---- | ---- | - | ---- |  | --- | - |  |  | --- | -
|                                                    |  | LANXESS     |      |   | Plasma Business | 
|                                                    |  |             |      |   |                 | 
|                                                    |  | 2002        |      |   | 2003            |  |      | 2004 |  |  | 2002 |   |  | 2003 |      |   | 2004 | 
|                                                    |  |             |      |   |                 |  |      |      |  |  |      |   |  |      |      |   |      | 
|                                                    |  | ( million) |     
|Net cash provided by (used in) operating activities |  |             | 503  |   |                 |  | 131  |      |  |  | 234  |   |  |      | (129 | ) |      |  | (98 | ) |  |  | (16 | )
|Net cash provided by (used in) investing activities |  |             | (322 | ) |                 |  | (247 | )    |  |  | (253 | ) |  |      | (28  | ) |      |  | (27 | ) |  |  | (30 | )
|Net cash provided by (used in) financing activities |  |             | (181 | ) |                 |  | 116  |      |  |  | 19   |   |  |      | 157  |   |      |  | 125 |   |  |  | 46  |  
|                                                    |  |             |      |   |                 |  |      |      |  |  |      |   |  |      |      |   |      | 
|Change in cash and cash equivalents                 |  |             |     |   |                 |  |     |      |  |  |     |   |  |      |     |   |      |  |    |   |  |  |    |  
|                                                    |  |             |      |   |                 |  |      |      |  |  |      |   |  |      |      |   |      | 

|                                                    |  |                   |       |  |       |  |   |      |  |  |      |  |  |      |       |   |      |  |      |   |  |  |      |  
|--------------------------------------------------- |  | ----------------- | ----- |  | ----- |  | - | ---- |  |  | ---- |  |  | ---- | ----- | - | ---- |  | ---- | - |  |  | ---- | -
|                                                    |  | Haarmann & Reimer |       |  | Total | 
|                                                    |  |                   |       |  |       | 
|                                                    |  | 2002              |       |  | 2003  |  |   | 2004 |  |  | 2002 |  |  | 2003 |       |   | 2004 | 
|                                                    |  |                   |       |  |       |  |   |      |  |  |      |  |  |      |       |   |      | 
|                                                    |  | ( million)       |      
|Net cash provided by (used in) operating activities |  |                   | 87    |  |       |  |  |      |  |  |     |  |  |      | 461   |   |      |  | 33   |   |  |  | 218  |  
|Net cash provided by (used in) investing activities |  |                   | 1,286 |  |       |  |  |      |  |  |     |  |  |      | 936   |   |      |  | (274 | ) |  |  | (283 | )
|Net cash provided by (used in) financing activities |  |                   | 1     |  |       |  |  |      |  |  |     |  |  |      | (23   | ) |      |  | 241  |   |  |  | 65   |  
|                                                    |  |                   |       |  |       |  |   |      |  |  |      |  |  |      |       |   |      | 
|Change in cash and cash equivalents                 |  |                   | 1,374 |  |       |  |  |      |  |  |     |  |  |      | 1,374 |   |      |  |     |   |  |  |     |  
|                                                    |  |                   |       |  |       |  |   |      |  |  |      |  |  |      |       |   |      | 

[43]     Cash and cash
equivalents


     




| |                           
| | --------------------------
| | Notes on segment reporting





F-69



---



##### Table of Contents



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




|                |                                      |            |                                                                                                                                                                                                                                                              
|--------------- | ------------------------------------ | ---------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Subgroup        |                                      | Activities
|                |                                      |           
|HealthCare      |                                      |           
|                | Pharmaceuticals, Biological Products |            | Development and marketing of prescription pharmaceuticals and
    biological products.                                                                                                                                                                       
|                | Consumer Care, Diagnostics           |            | Development and marketing of over-the-counter medications,
    nutritional supplements and 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     |                                      |           
|                | CropScience                          |            | Development and marketing of a comprehensive portfolio of
    fungicides, herbicides, insecticides, seed treatment products,
    non-agricultural applications, plant biotechnology and
    conventional seeds to meet a wide range of regional requirements.
|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.                                                   
|LANXESS         |                                      |           
|                | LANXESS                              |            | Production and marketing of synthetic and tire rubbers,
    polymers, basic and fine chemicals and speciality chemicals,
    including the development of system solutions.                                                                                  











| |   |                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The intersegment and interregional 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 retirement of non-current assets,
    plus/minus changes in pension provisions.
|
| |  | The net cash flow is the cash flow from operating activities as
    defined in IAS 7.                                                                                                                                                     

F-70



---



##### Table of Contents



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




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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. The reconciliation of the balance of equity-method
    income and loss to the income statement line Income
    (expense) from investments in affiliated
    companies  net is apparent from Note [8].                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Capital expenditures, amortization and depreciation relate to
    intangible assets, property, plant and equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Since financial management of Group companies is carried out
    centrally by Bayer AG, financial liabilities are not normally
    allocated directly to the respective segments. Consequently, the
    liabilities shown for the individual segments do not include
    financial liabilities. However, in connection with the spin-off
    of LANXESS, financial liabilities were allocated to LANXESS AG
    and LANXESS GmbH where this was possible and made commercial
    sense. Financial liabilities have therefore been recognized
    directly for the LANXESS segment, which we include in
    discontinuing operations. To reflect the LANXESS
    subgroup  which was split off as of January 28,
    2005  in its entirety as of December 31, 2004,
    the relevant financial and other liabilities have been
    recognized under the LANXESS segment. The prior-year figures
    have been restated accordingly. In the previous year, all
    financial liabilities were reflected in the reconciliation.
|
| |   | We use a similar procedure for segment assets. All assets
    allocated directly to the LANXESS subgroup as part of the
    spin-off are stated separately. The prior-year figures have been
    restated and now also contain amounts recognized in the previous
    year in the former Polyurethanes/Coatings/Fibers,
    Plastics/Rubber or Chemicals segments or in the reconciliation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F-71



---



##### Table of Contents



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


[44]     U.S. GAAP
information




|                                                     |  |       |   |             |      |  |             |      |  |             |        |   |              |      |      |   |  |  |      |  
|---------------------------------------------------- |  | ----- | - | ----------- | ---- |  | ----------- | ---- |  | ----------- | ------ | - | ------------ | ---- | ---- | - |  |  | ---- | -
|                                                     |  | Notes |   |             | 2002 |  |             | 2003 |  |             | 2004   |   |              | 2004 |     
|                                                     |  |       |   |             |      |  |             |      |  |             |        |   |              |      |     
|                                                     |  |       |   | ( million) |      |  | ( million) |      |  | ( million) |        |   | ($ million*) |     
|Net income reported under IFRS                       |  |       |   |             |      |  | 1,060       |      |  |             | (1,361 | ) |              |      | 603  |   |  |  | 816  |  
|Available for sale securities                        |  |       | a |             |      |  | 30          |      |  |             |       |   |              |      | (7   | ) |  |  | (9   | )
|Business combinations                                |  |       | b |             |      |  | 205         |      |  |             | 28     |   |              |      | 192  |   |  |  | 260  |  
|Pensions                                             |  |       | c |             |      |  | (24         | )    |  |             | (23    | ) |              |      |     |   |  |  |     |  
|In-process research and development                  |  |       | d |             |      |  | (133        | )    |  |             | 12     |   |              |      | 38   |   |  |  | 51   |  
|Asset impairment                                     |  |       | e |             |      |  | 205         |      |  |             | (360   | ) |              |      | (7   | ) |  |  | (9   | )
|Early retirement program                             |  |       | f |             |      |  | (4          | )    |  |             | 178    |   |              |      | (58  | ) |  |  | (79  | )
|Pension and OPEB adjustments                         |  |       | g |             |      |  |            |      |  |             |       |   |              |      | (187 | ) |  |  | (253 | )
|Revaluation surplus                                  |  |       | h |             |      |  |            |      |  |             |       |   |              |      |     |   |  |  |     |  
|Other                                                |  |       | i |             |      |  | (29         | )    |  |             | (17    | ) |              |      | (11  | ) |  |  | (14  | )
|Deferred tax effect on U.S. GAAP adjustments         |  |       |   |             |      |  | (33         | )    |  |             | 98     |   |              |      | 90   |   |  |  | 122  |  
|                                                     |  |       |   |             |      |  |             |      |  |             |        |   |              |      |     
|Net income reported under U.S. GAAP                  |  |       |   |             |      |  | 1,277       |      |  |             | (1,445 | ) |              |      | 653  |   |  |  | 885  |  
|                                                     |  |       |   |             |      |  |             |      |  |             |        |   |              |      |     
|Basic and diluted earnings per share under U.S. GAAP |  |       |   |             |      |  | 1.75        |      |  |             | (1.98  | ) |              |      | 0.89 |   |  |  | 1.21 |  
|                                                     |  |       |   |             |      |  |             |      |  |             |        |   |              |      |     

|                                              |  |       |   |              |      |  |             |      |  |              |        |   |  |  |        |  
|--------------------------------------------- |  | ----- | - | ------------ | ---- |  | ----------- | ---- |  | ------------ | ------ | - |  |  | ------ | -
|                                              |  |       |   | December 31, |     
|                                              |  |       |   |              |     
|                                              |  | Notes |   |              | 2003 |  |             | 2004 |  |              | 2004   |  
|                                              |  |       |   |              |      |  |             |      |  |              |        |  
|                                              |  |       |   | ( million)  |      |  | ( million) |      |  | ($ million*) |       
|Stockholders equity reported under IFRS      |  |       |   |              |      |  | 12,213      |      |  |              | 12,268 |   |  |  | 16,608 |  
|Available for sale securities                 |  |       | a |              |      |  |            |      |  |              |       |   |  |  |       |  
|Business combinations                         |  |       | b |              |      |  | 841         |      |  |              | 1,003  |   |  |  | 1,358  |  
|Pensions                                      |  |       | c |              |      |  | 556         |      |  |              | 172    |   |  |  | 233    |  
|In-process research and development           |  |       | d |              |      |  | (131        | )    |  |              | (93    | ) |  |  | (126   | )
|Asset impairment                              |  |       | e |              |      |  | (155        | )    |  |              | (162   | ) |  |  | (219   | )
|Early retirement program                      |  |       | f |              |      |  | 209         |      |  |              | 151    |   |  |  | 204    |  
|Pension and OPEB adjustments                  |  |       | g |              |      |  |            |      |  |              | (172   | ) |  |  | (233   | )
|Revaluation surplus                           |  |       | h |              |      |  |            |      |  |              | (66    | ) |  |  | (89    | )
|Other                                         |  |       | i |              |      |  | 33          |      |  |              | 20     |   |  |  | 27     |  
|Deferred tax effect on U.S. GAAP adjustments  |  |       |   |              |      |  | (239        | )    |  |              | (74    | ) |  |  | (100   | )
|                                              |  |       |   |              |      |  |             |      |  |              |        |  
|Stockholders equity reported under U.S. GAAP |  |       |   |              |      |  | 13,327      |      |  |              | 13,047 |   |  |  | 17,663 |  
|                                              |  |       |   |              |      |  |             |      |  |              |        |  






|  |                                                                                                                                                                                                                                                                                                                                                                                                  
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The 2004 U.S. dollar figures have been translated at an
    exchange rate of
    1.0000 = $1.3538
    which is the noon buying rate of the Federal Reserve Bank of New
    York on December 31, 2004. Such translations should not be
    construed as representations that the euro amounts represent, or
    have been or could be converted into, U.S. dollars at that or
    any other rate.

F-72



---



##### Table of Contents



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


|                                                                                                                                              |  |              |        |   |             |  |        |              |  |  |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------ | - | ----------- |  | ------ | ------------ |  |  | ------ | -
|                                                                                                                                              |  | December 31, |       
|                                                                                                                                              |  |              |       
|                                                                                                                                              |  | 2003         |        |   | 2004        |  |        | 2004         | 
|                                                                                                                                              |  |              |        |   |             |  |        |              | 
|                                                                                                                                              |  | ( million)  |        |   | ( million) |  |        | ($ million*) | 
|Components of stockholders equity in accordance with
    U.S. GAAP:                                                                          |  |              |        |   |             |  |        |              |  |  |        |  
|Capital stock of Bayer AG                                                                                                                     |  |              | 1,870  |   |             |  | 1,870  |              |  |  | 2,531  |  
|Capital reserves of Bayer AG                                                                                                                  |  |              | 2,942  |   |             |  | 2,942  |              |  |  | 3,983  |  
|Retained earnings                                                                                                                             |  |              | 10,682 |   |             |  | 10,972 |              |  |  | 14,853 |  
|Accumulated other comprehensive income:                                                                                                       |  |              |        |   |             |  |        |              |  |  |        |  
| Unrealized market value adjustment on securities
    available for sale (net of taxes of
    7 million,
    2 million
    and $3 million) |  |              | 13     |   |             |  | 25     |              |  |  | 34     |  
| Unrealized market value adjustment on cash flow
    hedges (net of taxes of
    17 million,
    19 million
    and $26 million)           |  |              | (31    | ) |             |  | 17     |              |  |  | 23     |  
| Additional minimum pension liability (net of taxes
    of
    260 million,
    415 million
    and $562 million)                          |  |              | (377   | ) |             |  | (609   | )            |  |  | (824   | )
|Translation differences                                                                                                                       |  |              | (1,772 | ) |             |  | (2,170 | )            |  |  | (2,937 | )
|                                                                                                                                              |  |              |        |   |             |  |        |              | 
|Total                                                                                                                                         |  |              | 13,327 |   |             |  | 13,047 |              |  |  | 17,663 |  
|                                                                                                                                              |  |              |        |   |             |  |        |              | 






|  |                                                                                                                                                                                                                                                                                                                                                                                                  
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The 2004 U.S. dollar figures have been translated at an
    exchange rate of
    1.0000 = $1.3538
    which is the noon buying rate of the Federal Reserve Bank of New
    York on December 31, 2004. Such translations should not be
    construed as representations that the euro amounts represent, or
    have been or could be converted into, U.S. dollars at that or
    any other rate.



|   |                              
|-- | -----------------------------
|a. | Available for sale securities










|   |                      
|-- | ---------------------
|b. | Business combinations



F-73



---



##### Table of Contents



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


    




|   |                   
|-- | ------------------
|c. | Pension provisions








| |                 
| | ----------------
| | Plans in Germany

|                                                   |  |             |        |   |      |  |        |      |  |  |        |  
|-------------------------------------------------- |  | ----------- | ------ | - | ---- |  | ------ | ---- |  |  | ------ | -
|                                                   |  | 2002        |        |   | 2003 |  |        | 2004 | 
|                                                   |  |             |        |   |      |  |        |      | 
|                                                   |  | ( million) |       
|Pension benefits:                                  |  |             |        |   |      |  |        |      |  |  |        |  
|Liability recognized for IFRS                      |  |             | (3,220 | ) |      |  | (3,306 | )    |  |  | (3,420 | )
|Asset limitation under IAS 19                      |  |             | 1,187  |   |      |  | 1,186  |      |  |  | 1,186  |  
|Additional minimum liability under SFAS No. 87     |  |             | (322   | ) |      |  | (442   | )    |  |  | (826   | )
|Difference in unrecognized transition obligation   |  |             | 23     |   |      |  |       |      |  |  |       |  
|                                                   |  |             |        |   |      |  |        |      | 
|Liability recognized for U.S. GAAP                 |  |             | (2,332 | ) |      |  | (2,562 | )    |  |  | (3,060 | )
|                                                   |  |             |        |   |      |  |        |      | 
|Net periodic benefit cost recognized for IFRS      |  |             | 302    |   |      |  | 411    |      |  |  | 448    |  
|Amortization of transition obligation              |  |             | 24     |   |      |  | 23     |      |  |  |       |  
|                                                   |  |             |        |   |      |  |        |      | 
|Net periodic benefit cost recognized for U.S. GAAP |  |             | 326    |   |      |  | 434    |      |  |  | 448    |  
|                                                   |  |             |        |   |      |  |        |      | 

F-74



---



##### Table of Contents



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




| |                         
| | ------------------------
| | Plans in other countries

|                                                   |  |             |      |   |      |  |      |      |  |  |      |  
|-------------------------------------------------- |  | ----------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                                   |  | 2002        |      |   | 2003 |  |      | 2004 | 
|                                                   |  |             |      |   |      |  |      |      | 
|                                                   |  | ( million) |     
|Pension benefits:                                  |  |             |      |   |      |  |      |      |  |  |      |  
|Liability recognized for IFRS                      |  |             | (521 | ) |      |  | (506 | )    |  |  | (407 | )
|Asset limitation under IAS 19                      |  |             |     |   |      |  | 7    |      |  |  | 10   |  
|Additional minimum liability under SFAS No. 87     |  |             | (158 | ) |      |  | (195 | )    |  |  | (198 | )
|Difference in unrecognized transition obligation   |  |             |     |   |      |  |     |      |  |  |     |  
|Difference Pension Curtailment                     |  |             |     |   |      |  |     |      |  |  | (44  | )
|                                                   |  |             |      |   |      |  |      |      | 
|Liability recognized for U.S. GAAP                 |  |             | (679 | ) |      |  | (694 | )    |  |  | (639 | )
|                                                   |  |             |      |   |      |  |      |      | 
|Net periodic benefit cost recognized for IFRS      |  |             | 219  |   |      |  | 336  |      |  |  | 133  |  
|Amortization of transition obligation              |  |             |     |   |      |  |     |      |  |  |     |  
|Difference pension curtailment                     |  |             |     |   |      |  |     |      |  |  | 48   |  
|                                                   |  |             |      |   |      |  |      |      | 
|Net periodic benefit cost recognized for U.S. GAAP |  |             | 219  |   |      |  | 336  |      |  |  | 181  |  
|                                                   |  |             |      |   |      |  |      |      | 



| |      
| | -----
| | Total

|                                                   |  |             |        |   |      |  |        |      |  |  |        |  
|-------------------------------------------------- |  | ----------- | ------ | - | ---- |  | ------ | ---- |  |  | ------ | -
|                                                   |  | 2002        |        |   | 2003 |  |        | 2004 | 
|                                                   |  |             |        |   |      |  |        |      | 
|                                                   |  | ( million) |       
|Pension benefits:                                  |  |             |        |   |      |  |        |      |  |  |        |  
|Liability recognized for IFRS                      |  |             | (3,741 | ) |      |  | (3,812 | )    |  |  | (3,827 | )
|Asset limitation under IAS 19                      |  |             | 1,187  |   |      |  | 1,193  |      |  |  | 1,196  |  
|Additional minimum liability under SFAS No. 87     |  |             | (480   | ) |      |  | (637   | )    |  |  | (1,024 | )
|Difference in unrecognized transition obligation   |  |             | 23     |   |      |  |       |      |  |  |       |  
|Difference pension curtailment                     |  |             |       |   |      |  |       |      |  |  | (44    | )
|                                                   |  |             |        |   |      |  |        |      | 
|Liability recognized for U.S. GAAP                 |  |             | (3,011 | ) |      |  | (3,256 | )    |  |  | (3,699 | )
|                                                   |  |             |        |   |      |  |        |      | 
|Net periodic benefit cost recognized for IFRS      |  |             | 521    |   |      |  | 747    |      |  |  | 581    |  
|Amortization of transition obligation              |  |             | 24     |   |      |  | 23     |      |  |  |       |  
|Difference pension curtailment                     |  |             |       |   |      |  |       |      |  |  | 48     |  
|                                                   |  |             |        |   |      |  |        |      | 
|Net periodic benefit cost recognized for U.S. GAAP |  |             | 545    |   |      |  | 770    |      |  |  | 629    |  
|                                                   |  |             |        |   |      |  |        |      | 





|   |                                    
|-- | -----------------------------------
|d. | In-process research and development






F-75



---



##### Table of Contents



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


  







|   |                  
|-- | -----------------
|e. | Asset impairments






   


    


F-76



---



##### Table of Contents



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




|   |                         
|-- | ------------------------
|f. | Early retirement program

i.e.,




|   |                             
|-- | ----------------------------
|g. | Pension and OPEB adjustments

 


 i.e., i.e., 







|   |                    
|-- | -------------------
|h. | Revaluation surplus



F-77



---



##### Table of Contents



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


   




|   |      
|-- | -----
|i. | 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-78



---



##### Table of Contents



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







 


  






|                                      |  |             |       |   |             |             |      |               |            |  |             |   |  |             |       |   |             |  |        |   |  |  |        |  
|------------------------------------- |  | ----------- | ----- | - | ----------- | ----------- | ---- | ------------- | ---------- |  | ----------- | - |  | ----------- | ----- | - | ----------- |  | ------ | - |  |  | ------ | -
|                                      |  |             |       |   |             | Marketing,  |      |               |            |  |             |   | 
|                                      |  |             |       |   |             | Selling and |      |               | Production |  |             |   |  |            
|                                      |  | Patents     |       |   | Trademarks  |             |      | Access Rights |            |  | Rights      |   |  | Other       |       |   | Total       | 
|                                      |  |             |       |   |             |             |      |               |            |  |             |   |  |             |       |   |             | 
|                                      |  | ( million) |       |   | ( million) |             |      | ( million)   |            |  | ( million) |   |  | ( million) |       |   | ( million) | 
|Gross carrying amounts, Dec. 31, 2004 |  |             | 1,577 |   |             |             | 966  |               |            |  | 575         |   |  |             | 1,936 |   |             |  | 2,340  |   |  |  | 7,394  |  
|Accumulated amortization              |  |             | (550  | ) |             |             | (334 | )             |            |  | (189        | ) |  |             | (513  | ) |             |  | (1,724 | ) |  |  | (3,310 | )
|                                      |  |             |       |   |             |             |      |               |            |  |             |   |  |             |       |   |             | 
|Net book value, Dec. 31, 2004         |  |             | 1,027 |   |             |             | 632  |               |            |  | 386         |   |  |             | 1,423 |   |             |  | 616    |   |  |  | 4,084  |  
|                                      |  |             |       |   |             |             |      |               |            |  |             |   |  |             |       |   |             | 
|Gross carrying amounts, Dec. 31, 2003 |  |             | 1,286 |   |             |             | 889  |               |            |  | 595         |   |  |             | 1,931 |   |             |  | 2,742  |   |  |  | 7,443  |  
|Accumulated amortization              |  |             | (442  | ) |             |             | (297 | )             |            |  | (149        | ) |  |             | (339  | ) |             |  | (1,645 | ) |  |  | (2,872 | )
|                                      |  |             |       |   |             |             |      |               |            |  |             |   |  |             |       |   |             | 
|Net book value, Dec. 31, 2003         |  |             | 844   |   |             |             | 592  |               |            |  | 446         |   |  |             | 1,592 |   |             |  | 1,097  |   |  |  | 4,571  |  
|                                      |  |             |       |   |             |             |      |               |            |  |             |   |  |             |       |   |             | 

       


F-79



---



##### Table of Contents



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




|                                          |  |             |     | 
|----------------------------------------- |  | ----------- | --- | 
|Estimated Aggregated Amortization Expense |  | ( million) |    
|                                          |  |             |    
|2005                                      |  |             | 527 | 
|2006                                      |  |             | 514 | 
|2007                                      |  |             | 449 | 
|2008                                      |  |             | 413 | 
|2009                                      |  |             | 395 | 





|                                  |  |                     |   |          |             |  |      |               |  |  |             |  |  |             |       |   |  |  |     |  
|--------------------------------- |  | ------------------- | - | -------- | ----------- |  | ---- | ------------- |  |  | ----------- |  |  | ----------- | ----- | - |  |  | --- | -
|                                  |  |                     |   | Consumer |             |  |      |               |  |  |            
|                                  |  | Pharmaceuticals,    |   |          | Care,       |  |      |               |  |  |             | 
|                                  |  | Biological Products |   |          | Diagnostics |  |      | Animal Health |  |  | CropScience |  |  | Materials   |      
|                                  |  |                     |   |          |             |  |      |               |  |  |             |  |  |             |      
|                                  |  | ( million)         |   |          | ( million) |  |      | ( million)   |  |  | ( million) |  |  | ( million) |      
|Book value as of
    Jan. 1, 2004 |  |                     | 1 |          |             |  | 620  |               |  |  | 1           |  |  |             | 2,213 |   |  |  | 225 |  
|Goodwill additions                |  |                     | 1 |          |             |  | 113  |               |  |  |            |  |  |             | 99    |   |  |  |    |  
|Goodwill impairment               |  |                     |  |          |             |  |     |               |  |  |            |  |  |             |      |   |  |  | (6  | )
|Other changes*                    |  |                     |  |          |             |  | (245 | )             |  |  |            |  |  |             | (377  | ) |  |  | (10 | )
|Book value as of Dec. 31, 2004    |  |                     | 2 |          |             |  | 488  |               |  |  | 1           |  |  |             | 1,935 |   |  |  | 209 |  

|                               |  |             |     |   |             |        |     |                |  |  |             |  |  |  |       |  
|------------------------------ |  | ----------- | --- | - | ----------- | ------ | --- | -------------- |  |  | ----------- |  |  |  | ----- | -
|                               |  |             |     |   |             | Other/ |     |                | 
|                               |  | Systems     |     |   | LANXESS     |        |     | Reconciliation |  |  | Bayer Group | 
|                               |  |             |     |   |             |        |     |                |  |  |             | 
|                               |  | ( million) |     |   | ( million) |        |     | ( million)    |  |  | ( million) | 
|Book value as of Jan. 1, 2004  |  |             | 107 |   |             |        | 62  |                |  |  |            |  |  |  | 3,229 |  
|Goodwill additions             |  |             | 1   |   |             |        |    |                |  |  |            |  |  |  | 214   |  
|Goodwill impairment            |  |             | (12 | ) |             |        | (31 | )              |  |  |            |  |  |  | (49   | )
|Other changes*                 |  |             | 2   |   |             |        | (1  | )              |  |  |            |  |  |  | (631  | )
|Book value as of Dec. 31, 2004 |  |             | 98  |   |             |        | 30  |                |  |  |            |  |  |  | 2,763 |  

|                                  |  |                     |   |          |             |  |     |               |  |  |             |  |  |             |       |   |  |  |     |  
|--------------------------------- |  | ------------------- | - | -------- | ----------- |  | --- | ------------- |  |  | ----------- |  |  | ----------- | ----- | - |  |  | --- | -
|                                  |  |                     |   | Consumer |             |  |     |               |  |  |            
|                                  |  | Pharmaceuticals,    |   |          | Care,       |  |     |               |  |  |             | 
|                                  |  | Biological Products |   |          | Diagnostics |  |     | Animal Health |  |  | CropScience |  |  | Materials   |      
|                                  |  |                     |   |          |             |  |     |               |  |  |             |  |  |             |      
|                                  |  | ( million)         |   |          | ( million) |  |     | ( million)   |  |  | ( million) |  |  | ( million) |      
|Book value as of
    Jan. 1, 2003 |  |                     | 1 |          |             |  | 663 |               |  |  | 1           |  |  |             | 2,353 |   |  |  | 198 |  
|Goodwill additions                |  |                     |  |          |             |  |    |               |  |  |            |  |  |             | 7     |   |  |  | 45  |  
|Goodwill impairment               |  |                     |  |          |             |  |    |               |  |  |            |  |  |             |      |   |  |  |    |  
|Other changes*                    |  |                     |  |          |             |  | (43 | )             |  |  |            |  |  |             | (147  | ) |  |  | (18 | )
|Book value as of Dec. 31, 2003    |  |                     | 1 |          |             |  | 620 |               |  |  | 1           |  |  |             | 2,213 |   |  |  | 225 |  






|  |                                                               
|- | --------------------------------------------------------------
|* | Other changes include transfers and exchange rate differences.

F-80



---



##### Table of Contents



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


|                               |  |             |     |   |             |        |      |                |  |  |             |  |  |  |       |  
|------------------------------ |  | ----------- | --- | - | ----------- | ------ | ---- | -------------- |  |  | ----------- |  |  |  | ----- | -
|                               |  |             |     |   |             | Other/ |      |                | 
|                               |  | Systems     |     |   | LANXESS     |        |      | Reconciliation |  |  | Bayer Group | 
|                               |  |             |     |   |             |        |      |                |  |  |             | 
|                               |  | ( million) |     |   | ( million) |        |      | ( million)    |  |  | ( million) | 
|Book value as of Jan. 1, 2003  |  |             | 136 |   |             |        | 351  |                |  |  |            |  |  |  | 3,703 |  
|Goodwill additions             |  |             |    |   |             |        |     |                |  |  |            |  |  |  | 52    |  
|Goodwill impairment            |  |             | (12 | ) |             |        | (274 | )              |  |  |            |  |  |  | (286  | )
|Other changes*                 |  |             | (17 | ) |             |        | (15  | )              |  |  |            |  |  |  | (240  | )
|Book value as of Dec. 31, 2003 |  |             | 107 |   |             |        | 62   |                |  |  |            |  |  |  | 3,229 |  






|  |                                                               
|- | --------------------------------------------------------------
|* | Other changes include transfers and exchange rate differences.



| |                        
| | -----------------------
| | Discontinued operations



  




F-81



---



##### Table of Contents



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




        




|                                         |  |             |       |   |             |  |        |             |  |  |             |  |  |  |     | 
|---------------------------------------- |  | ----------- | ----- | - | ----------- |  | ------ | ----------- |  |  | ----------- |  |  |  | --- | 
|                                         |  | 2002        |       |   | 2003        |  |        | 2004        |  |  | 2004        | 
|                                         |  |             |       |   |             |  |        |             |  |  |             | 
|                                         |  | ( million) |       |   | ( million) |  |        | ( million) |  |  | ($ million) | 
|Income/loss from continuing operations   |  |             | (297  | ) |             |  | (1,596 | )           |  |  | 653         |  |  |  | 885 | 
|Discontinued operations  net of tax     |  |             | 1,574 |   |             |  | 151    |             |  |  |            |  |  |  |    | 
|                                         |  |             |       |   |             |  |        |             |  |  |             | 
|Net income/loss reported under U.S. GAAP |  |             | 1,277 |   |             |  | (1,445 | )           |  |  | 653         |  |  |  | 885 | 
|                                         |  |             |       |   |             |  |        |             |  |  |             | 

|                                          |                                     |             |      |       |             |  |       |             |   |  |             |      |  |  |      |      | 
|----------------------------------------- | ----------------------------------- | ----------- | ---- | ----- | ----------- |  | ----- | ----------- | - |  | ----------- | ---- |  |  | ---- | ---- | 
|Earnings per share                        |                                     | 2002        |      |       | 2003        |  |       | 2004        |   |  | 2004        |     
|                                          |                                     |             |      |       |             |  |       |             |   |  |             |     
|                                          |                                     | ( million) |      |       | ( million) |  |       | ( million) |   |  | ($ million) |     
|Basic and diluted:                        |                                     |             |      |       |             |  |       |             |   |  |             |      |  |  |      |     
|                                          | Income from continuing operations   |             |      | (0.41 | )           |  |       | (2.19       | ) |  |             | 0.89 |  |  |      | 1.21 | 
|                                          | Income from discontinued operations |             |      | 2.16  |             |  |       | 0.21        |   |  |             |     |  |  |      |     | 
|                                          |                                     |             |      |       |             |  |       |             |   |  |             |     
|Basic and diluted earnings/loss per share |                                     |             | 1.75 |       |             |  | (1.98 | )           |   |  | 0.89        |      |  |  | 1.21 |     
|                                          |                                     |             |      |       |             |  |       |             |   |  |             |     



| |                           
| | --------------------------
| | Classification differences

  




 


 


 


 


     


F-82



---



##### Table of Contents



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




| |                                 
| | --------------------------------
| | Financial assets and liabilities



|                               |                   |                   |     |            |       |  |            |          |    |                |       |    |    |   |     |     |     | 
|------------------------------ | ----------------- | ----------------- | --- | ---------- | ----- |  | ---------- | -------- | -- | -------------- | ----- | -- | -- | - | --- | --- | --- | 
|                               |                   |                   |     |            |       |  |            | Carrying |   
|                               |                   |                   |     | Gross      |       |  | Gross      |          |    | Value and      |      
|                               |                   |                   |     | Unrealized |       |  | Unrealized |          |    | Estimated Fair |      
|                               |                   | Cost              |     |            | Gains |  |            | Losses   |    |                | Value |   
|                               |                   |                   |     |            |       |  |            |          |    |                |       |   
|                               |                   | ( million)       |    
|As of Dec. 31, 2004            |                   |                   |     |            |       |  |            |          |    |                |       |    |    |   |     |    
|Available for sale securities: |                   |                   |     |            |       |  |            |          |    |                |       |    |    |   |     |    
|                               |                   | Equity securities |     |            | 100   |  |            |          | 27 |                |       |    | (4 | ) |     |     | 123 | 
|                               |                   | Debt securities   |     |            | 18    |  |            |          |   |                |       |    | (1 | ) |     |     | 17  | 
|                               |                   |                   |     |            |       |  |            |          |    |                |       |   
|Total                          |                   |                   | 118 |            |       |  | 27         |          |    |                | (5    | )  |    |   | 140 |    
|                               |                   |                   |     |            |       |  |            |          |    |                |       |   
|As of Dec. 31, 2003            |                   |                   |     |            |       |  |            |          |    |                |       |    |    |   |     |    
|Available for sale securities: |                   |                   |     |            |       |  |            |          |    |                |       |    |    |   |     |    
|                               | Equity securities |                   |     | 104        |       |  |            | 25       |    |                |       | (6 | )  |   |     | 123 |    
|                               | Debt securities   |                   |     | 6          |       |  |            |         |    |                |       |   |    |   |     | 6   |    
|                               |                   |                   |     |            |       |  |            |          |    |                |       |   
|Total                          |                   |                   | 110 |            |       |  | 25         |          |    |                | (6    | )  |    |   | 129 |    
|                               |                   |                   |     |            |       |  |            |          |    |                |       |   

           




|                                 |  |                    |    |  |                  |  |    | 
|-------------------------------- |  | ------------------ | -- |  | ---------------- |  | -- | 
|                                 |  | Available for Sale |    |  | Held to Maturity | 
|                                 |  | Securities         |    |  | Securities       | 
|                                 |  |                    |    |  |                  | 
|                                 |  | ( million)        |    |  | ( million)      | 
|Within one year                  |  |                    | 17 |  |                  |  | 12 | 
|Over one year through five years |  |                    |   |  |                  |  |   | 
|                                 |  |                    |    |  |                  | 
|Total                            |  |                    | 17 |  |                  |  | 12 | 
|                                 |  |                    |    |  |                  | 



| |                        
| | -----------------------
| | Cost method investments

   




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



F-83



---



##### Table of Contents



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






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

interest expense-net interest expense-net. other non-operating expense-net other non-operating
expense-net.    




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

other-operating expense-net,      






| |                                             
| | --------------------------------------------
| | Hedges of net investment in a foreign entity





| |                                     
| | ------------------------------------
| | Non-derivative financial instruments







F-84



---



##### Table of Contents



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




| |                  
| | -----------------
| | Segment reporting





|                    |  |               |     |  |               |  |       |               |  |  |       | 
|------------------- |  | ------------- | --- |  | ------------- |  | ----- | ------------- |  |  | ----- | 
|                    |  | Dec. 31, 2002 |     |  | Dec. 31, 2003 |  |       | Dec. 31, 2004 | 
|                    |  |               |     |  |               |  |       |               | 
|                    |  | ( million)   |     |  | ( million)   |  |       | ( million)   | 
|United States       |  |               | 296 |  |               |  | 787   |               |  |  | 719   | 
|Germany             |  |               | 131 |  |               |  | 195   |               |  |  | 200   | 
|Japan               |  |               | 64  |  |               |  | 98    |               |  |  | 99    | 
|France              |  |               | 264 |  |               |  | 16    |               |  |  | 24    | 
|Others              |  |               | 212 |  |               |  | 202   |               |  |  | 193   | 
|                    |  |               |     |  |               |  |       |               | 
|Deferred tax assets |  |               | 967 |  |               |  | 1,298 |               |  |  | 1,235 | 
|                    |  |               |     |  |               |  |       |               | 



|                  |  |               |        |  |               |  |        |               |  |  |        | 
|----------------- |  | ------------- | ------ |  | ------------- |  | ------ | ------------- |  |  | ------ | 
|                  |  | Dec. 31, 2002 |        |  | Dec. 31, 2003 |  |        | Dec. 31, 2004 | 
|                  |  |               |        |  |               |  |        |               | 
|                  |  | ( million)   |        |  | ( million)   |  |        | ( million)   | 
|Germany           |  |               | 6,548  |  |               |  | 7,312  |               |  |  | 6,765  | 
|United States     |  |               | 7,011  |  |               |  | 4,338  |               |  |  | 3,948  | 
|France            |  |               | 4,309  |  |               |  | 1,502  |               |  |  | 1,356  | 
|Others            |  |               | 3,447  |  |               |  | 3,299  |               |  |  | 3,132  | 
|                  |  |               |        |  |               |  |        |               | 
|Long-lived assets |  |               | 21,315 |  |               |  | 16,451 |               |  |  | 15,201 | 
|                  |  |               |        |  |               |  |        |               | 



| |                     
| | --------------------
| | Comprehensive income



|                                                                                                                                                                   |  |             |        |   |             |  |        |             |  |  |      |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------- | ------ | - | ----------- |  | ------ | ----------- |  |  | ---- | -
|                                                                                                                                                                   |  | 2002        |        |   | 2003        |  |        | 2004        | 
|                                                                                                                                                                   |  |             |        |   |             |  |        |             | 
|                                                                                                                                                                   |  | ( million) |        |   | ( million) |  |        | ( million) | 
|Net income/loss under U.S. GAAP                                                                                                                                    |  |             | 1,277  |   |             |  | (1,445 | )           |  |  | 653  |  
|Other comprehensive income/loss:                                                                                                                                   |  |             |        |   |             |  |        |             |  |  |      |  
|Unrealized market value adjustment on available-for-sale
    securities (net of taxes of
    51 million,
    2 million
    and
    2 million,
    respectively) |  |             | (417   | ) |             |  | 27     |             |  |  | 18   |  
|Unrealized market value adjustment on cash flow hedges (net of
    taxes of
    2 million,
    19 million,
    and
    18 million)                              |  |             | (31    | ) |             |  | (29    | )           |  |  | 46   |  
|Reclassification adjustment:                                                                                                                                       |  |             |        |   |             |  |        |             |  |  |      |  
|Net realized (gains)/losses on sales of securities (net of taxes
    of
    1 million,
    4 million,
    and nil,
    respectively)                            |  |             | (154   | ) |             |  | 1      |             |  |  | (6   | )
|Net realized (gains)/losses on sales of cash flow hedges (net of
    taxes of
    4 million,
    2 million
    and
    1 million,
    respectively)             |  |             | 9      |   |             |  | 3      |             |  |  | 2    |  
|Additional minimum pension liability (net of taxes of
    26 million,
    63 million
    and
    155 million,
    respectively)                                 |  |             | (39    | ) |             |  | (94    | )           |  |  | (232 | )
|Foreign currency translation adjustment                                                                                                                            |  |             | (1,444 | ) |             |  | (1,222 | )           |  |  | (398 | )
|                                                                                                                                                                   |  |             |        |   |             |  |        |             | 
|Comprehensive income/loss under U.S. GAAP                                                                                                                          |  |             | (799   | ) |             |  | (2,759 | )           |  |  | 83   |  
|                                                                                                                                                                   |  |             |        |   |             |  |        |             | 

F-85



---



##### Table of Contents



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




| |                       
| | ----------------------
| | Employee benefit plans



Additional information


  




| |                 
| | ----------------
| | Plans in Germany

|                                                                                              |  |             |       |  |      |  |       | 
|--------------------------------------------------------------------------------------------- |  | ----------- | ----- |  | ---- |  | ----- | 
|                                                                                              |  | Dec. 31,    |      
|                                                                                              |  |             |      
|Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets |  | 2003        |       |  | 2004 | 
|                                                                                              |  |             |       |  |      | 
|                                                                                              |  | ( million) |      
|Projected benefit obligation                                                                  |  |             | 4,492 |  |      |  | 4,939 | 
|Accumulated benefit obligation                                                                |  |             | 4,291 |  |      |  | 4,795 | 
|Fair value of plan assets                                                                     |  |             | 43    |  |      |  | 44    | 



| |                         
| | ------------------------
| | Plans in other countries

|                                                                                              |  |             |       |  |      |  |       | 
|--------------------------------------------------------------------------------------------- |  | ----------- | ----- |  | ---- |  | ----- | 
|                                                                                              |  | Dec. 31,    |      
|                                                                                              |  |             |      
|Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets |  | 2003        |       |  | 2004 | 
|                                                                                              |  |             |       |  |      | 
|                                                                                              |  | ( million) |      
|Projected benefit obligation                                                                  |  |             | 2,745 |  |      |  | 2,895 | 
|Accumulated benefit obligation                                                                |  |             | 2,324 |  |      |  | 2,543 | 
|Fair value of plan assets                                                                     |  |             | 2,022 |  |      |  | 2,208 | 



| |      
| | -----
| | Total

|                                                                                              |  |             |       |  |      |  |       | 
|--------------------------------------------------------------------------------------------- |  | ----------- | ----- |  | ---- |  | ----- | 
|                                                                                              |  | Dec. 31,    |      
|                                                                                              |  |             |      
|Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets |  | 2003        |       |  | 2004 | 
|                                                                                              |  |             |       |  |      | 
|                                                                                              |  | ( million) |      
|Projected benefit obligation                                                                  |  |             | 7,237 |  |      |  | 7,834 | 
|Accumulated benefit obligation                                                                |  |             | 6,615 |  |      |  | 7,338 | 
|Fair value of plan assets                                                                     |  |             | 2,065 |  |      |  | 2,252 | 

F-86



---



##### Table of Contents



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


Assumptions




| |                 
| | ----------------
| | Plans in Germany

|                                             |                                    |             |  |             |                    |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |  |      |  
|-------------------------------------------- | ---------------------------------- | ----------- |  | ----------- | ------------------ |  |  | ---- | - |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                                             |                                    |             |  | Other Post- |                   
|                                             |                                    | Pension     |  |             | Employment Benefit | 
|                                             |                                    | Obligations |  |             | Obligations        | 
|                                             |                                    |             |  |             |                    | 
|Weighted-Average Assumptions Used at Dec. 31 |                                    | 2002        |  |             | 2003               |  |  | 2004 |   |  | 2002 |      |   | 2003 |  |      | 2004 | 
|                                             |                                    |             |  |             |                    |  |  |      |   |  |      |      |   |      |  |      |      | 
|Discount rate                                |                                    |             |  |             |                    |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |  |     
|                                             |  to determine net benefit costs   |             |  | 6.25        | %                  |  |  | 6.00 | % |  |      | 5.50 | % |      |  | 4.00 | %    |  |  | 3.75 | % |  |  | 3.50 | %
|                                             |  to determine benefit obligations |             |  | 6.00        | %                  |  |  | 5.50 | % |  |      | 5.00 | % |      |  | 3.75 | %    |  |  | 3.50 | % |  |  | 3.25 | %
|Rate of compensation increase                |                                    |             |  |             |                    |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |  |     
|                                             |  to determine net benefit costs   |             |  | 3.00        | %                  |  |  | 2.75 | % |  |      | 2.50 | % |      |  | N/A  |      |  |  | N/A  |   |  |  | N/A  |  
|                                             |  to determine benefit obligations |             |  | 2.75        | %                  |  |  | 2.50 | % |  |      | 2.50 | % |      |  | N/A  |      |  |  | N/A  |   |  |  | N/A  |  
|Expected return on plan assets               |                                    |             |  |             |                    |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |  |     
|                                             |  to determine net benefit costs   |             |  | 6.50        | %                  |  |  | 6.25 | % |  |      | 6.00 | % |      |  | N/A  |      |  |  | N/A  |   |  |  | N/A  |  
|                                             |  to determine benefit obligations |             |  | 6.25        | %                  |  |  | 6.00 | % |  |      | 5.50 | % |      |  | N/A  |      |  |  | N/A  |   |  |  | N/A  |  



| |                         
| | ------------------------
| | Plans in other countries

|                                             |                                    |             |  |             |                    |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |  |      |  
|-------------------------------------------- | ---------------------------------- | ----------- |  | ----------- | ------------------ |  |  | ---- | - |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                                             |                                    |             |  | Other Post- |                   
|                                             |                                    | Pension     |  |             | Employment Benefit | 
|                                             |                                    | Obligations |  |             | Obligations        | 
|                                             |                                    |             |  |             |                    | 
|Weighted-Average Assumptions Used at Dec. 31 |                                    | 2002        |  |             | 2003               |  |  | 2004 |   |  | 2002 |      |   | 2003 |  |      | 2004 | 
|                                             |                                    |             |  |             |                    |  |  |      |   |  |      |      |   |      |  |      |      | 
|Discount rate                                |                                    |             |  |             |                    |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |  |     
|                                             |  to determine net benefit costs   |             |  | 6.70        | %                  |  |  | 6.70 | % |  |      | 6.10 | % |      |  | 7.00 | %    |  |  | 6.80 | % |  |  | 6.25 | %
|                                             |  to determine benefit obligations |             |  | 6.70        | %                  |  |  | 6.10 | % |  |      | 5.75 | % |      |  | 6.80 | %    |  |  | 6.25 | % |  |  | 6.00 | %
|Rate of compensation increase                |                                    |             |  |             |                    |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |  |     
|                                             |  to determine net benefit costs   |             |  | 4.50        | %                  |  |  | 4.40 | % |  |      | 4.20 | % |      |  | N/A  |      |  |  | N/A  |   |  |  | N/A  |  
|                                             |  to determine benefit obligations |             |  | 4.40        | %                  |  |  | 4.20 | % |  |      | 4.10 | % |      |  | N/A  |      |  |  | N/A  |   |  |  | N/A  |  
|Expected return on plan assets               |                                    |             |  |             |                    |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |  |     
|                                             |  to determine net benefit costs   |             |  | 8.40        | %                  |  |  | 8.30 | % |  |      | 8.20 | % |      |  | 8.50 | %    |  |  | 7.00 | % |  |  | 8.25 | %
|                                             |  to determine benefit obligations |             |  | 8.30        | %                  |  |  | 8.20 | % |  |      | 7.65 | % |      |  | 7.00 | %    |  |  | 8.25 | % |  |  | 8.25 | %



| |      
| | -----
| | Total

|                                             |                                    |             |  |             |                    |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |  |      |  
|-------------------------------------------- | ---------------------------------- | ----------- |  | ----------- | ------------------ |  |  | ---- | - |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                                             |                                    |             |  | Other Post- |                   
|                                             |                                    | Pension     |  |             | Employment Benefit | 
|                                             |                                    | Obligations |  |             | Obligations        | 
|                                             |                                    |             |  |             |                    | 
|Weighted-Average Assumptions Used at Dec. 31 |                                    | 2002        |  |             | 2003               |  |  | 2004 |   |  | 2002 |      |   | 2003 |  |      | 2004 | 
|                                             |                                    |             |  |             |                    |  |  |      |   |  |      |      |   |      |  |      |      | 
|Discount rate                                |                                    |             |  |             |                    |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |  |     
|                                             |  to determine net benefit costs   |             |  | 6.40        | %                  |  |  | 6.20 | % |  |      | 5.90 | % |      |  | 6.60 | %    |  |  | 6.20 | % |  |  | 5.70 | %
|                                             |  to determine benefit obligations |             |  | 6.20        | %                  |  |  | 5.90 | % |  |      | 5.20 | % |      |  | 6.30 | %    |  |  | 5.70 | % |  |  | 5.40 | %
|Rate of compensation increase                |                                    |             |  |             |                    |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |  |     
|                                             |  to determine net benefit costs   |             |  | 3.50        | %                  |  |  | 3.30 | % |  |      | 3.00 | % |      |  | N/A  |      |  |  | N/A  |   |  |  | N/A  |  
|                                             |  to determine benefit obligations |             |  | 3.30        | %                  |  |  | 3.00 | % |  |      | 2.95 | % |      |  | N/A  |      |  |  | N/A  |   |  |  | N/A  |  
|Expected return on plan assets               |                                    |             |  |             |                    |  |  |      |   |  |      |      |   |      |  |      |      |  |  |      |   |  |  |     
|                                             |  to determine net benefit costs   |             |  | 7.20        | %                  |  |  | 7.00 | % |  |      | 6.80 | % |      |  | 8.50 | %    |  |  | 7.00 | % |  |  | 8.25 | %
|                                             |  to determine benefit obligations |             |  | 7.10        | %                  |  |  | 6.80 | % |  |      | 6.30 | % |      |  | 7.00 | %    |  |  | 8.25 | % |  |  | 8.25 | %

F-87



---



##### Table of Contents



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




|                                                         |  |             |    |  |          |  |     |  
|-------------------------------------------------------- |  | ----------- | -- |  | -------- |  | --- | -
|                                                         |  | 1% Point    |    |  | 1% Point | 
|                                                         |  | Increase    |    |  | Decrease | 
|                                                         |  |             |    |  |          | 
|                                                         |  | ( million) |   
|Effects on total of service and interest cost components |  |             | 7  |  |          |  | (6  | )
|Effect on post retirement benefit obligations            |  |             | 60 |  |          |  | (55 | )

Employers Disclosures about Pensions and Other
Postretirement Benefits, an amendment of FASB Statements
No. 87, 88, and 106, and a revision of FASB Statement
No. 132.




| |            
| | -----------
| | Plan assets







|                                  |  |                     |        |  |      |  |        | 
|--------------------------------- |  | ------------------- | ------ |  | ---- |  | ------ | 
|                                  |  | Pension Plan Assets |       
|                                  |  | at Dec. 31,         |       
|                                  |  |                     |       
|Asset Category                    |  | 2003                |        |  | 2004 | 
|                                  |  |                     |        |  |      | 
|                                  |  | %                   |        |  | %    | 
|Equity securities (directly held) |  |                     | 0.03   |  |      |  | 0.04   | 
|Debt securities                   |  |                     | 32.26  |  |      |  | 52.50  | 
|Special securities funds          |  |                     | 40.32  |  |      |  | 22.38  | 
|Real estate                       |  |                     | 9.04   |  |      |  | 8.16   | 
|Special real estate funds         |  |                     | 4.54   |  |      |  | 4.49   | 
|Other                             |  |                     | 13.81  |  |      |  | 12.43  | 
|                                  |  |                     |        |  |      | 
|Total                             |  |                     | 100.00 |  |      |  | 100.00 | 

F-88



---



##### Table of Contents



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


|                                      |  |                 |       | 
|------------------------------------- |  | --------------- | ----- | 
|                                      |  | Target          |      
|Asset Category                        |  | Allocation 2005 |      
|                                      |  |                 |      
|                                      |  | %               |      
|Equity securities (directly held)     |  |                 |      | 
|Debt securities                       |  |                 | 40-60 | 
|Special securities funds              |  |                 | 10-30 | 
|Real estate/Special real estate funds |  |                 | 10-30 | 
|Other                                 |  |                 | 5-15  | 





|                                  |  |                     |        |  |      |  |        | 
|--------------------------------- |  | ------------------- | ------ |  | ---- |  | ------ | 
|                                  |  | Pension Plan Assets |       
|                                  |  | at Dec. 31,         |       
|                                  |  |                     |       
|Asset Category                    |  | 2003                |        |  | 2004 | 
|                                  |  |                     |        |  |      | 
|                                  |  | %                   |        |  | %    | 
|Equity securities (directly held) |  |                     | 63.12  |  |      |  | 59.51  | 
|Debt securities                   |  |                     | 30.21  |  |      |  | 32.96  | 
|Special securities funds          |  |                     | 0.00   |  |      |  | 0.36   | 
|Real estate                       |  |                     | 0.21   |  |      |  | 0.20   | 
|Special real estate funds         |  |                     | 0.00   |  |      |  | 0.00   | 
|Other                             |  |                     | 6.46   |  |      |  | 6.97   | 
|                                  |  |                     |        |  |      | 
|Total                             |  |                     | 100.00 |  |      |  | 100.00 | 

|                                      |  |                 |        | 
|------------------------------------- |  | --------------- | ------ | 
|                                      |  | Target          |       
|Asset Category                        |  | Allocation 2005 |       
|                                      |  |                 |       
|                                      |  | %               |       
|Equity securities (directly held)     |  |                 | 52.28  | 
|Debt securities                       |  |                 | 38.27  | 
|Special securities funds              |  |                 | 0.00   | 
|Real estate/Special real estate funds |  |                 | 1.16   | 
|Other                                 |  |                 | 8.29   | 
|                                      |  |                 |       
|Total                                 |  |                 | 100.00 | 



|                                  |  |                     |        |  |      |  |        | 
|--------------------------------- |  | ------------------- | ------ |  | ---- |  | ------ | 
|                                  |  | Pension Plan Assets |       
|                                  |  | at Dec. 31,         |       
|                                  |  |                     |       
|Asset Category                    |  | 2003                |        |  | 2004 | 
|                                  |  |                     |        |  |      | 
|                                  |  | %                   |        |  | %    | 
|Equity securities (directly held) |  |                     | 55.80  |  |      |  | 55.20  | 
|Debt securities                   |  |                     | 35.00  |  |      |  | 35.00  | 
|Special securities funds          |  |                     | 0.00   |  |      |  | 0.00   | 
|Real estate                       |  |                     | 0.00   |  |      |  | 0.00   | 
|Special real estate funds         |  |                     | 0.00   |  |      |  | 0.00   | 
|Other                             |  |                     | 9.20   |  |      |  | 9.80   | 
|                                  |  |                     |        |  |      | 
|Total                             |  |                     | 100.00 |  |      |  | 100.00 | 

F-89



---



##### Table of Contents



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


|                                      |  |                 |        | 
|------------------------------------- |  | --------------- | ------ | 
|                                      |  | Target          |       
|Asset Category                        |  | Allocation 2005 |       
|                                      |  |                 |       
|                                      |  | %               |       
|Equity securities (directly held)     |  |                 | 53.00  | 
|Debt securities                       |  |                 | 35.00  | 
|Special securities funds              |  |                 | 0.00   | 
|Real estate/Special real estate funds |  |                 | 0.00   | 
|Other                                 |  |                 | 12.00  | 
|                                      |  |                 |       
|Total                                 |  |                 | 100.00 | 

Cash flows




| |              
| | -------------
| | Contributions

     


     


Estimated future benefit payments plans in Germany




|                |  |             |       |             |                     |  |    | 
|--------------- |  | ----------- | ----- | ----------- | ------------------- |  | -- | 
|                |  |             |       | Other Post- |                    
|                |  | Pension     |       |             | Employment          | 
|Year            |  | Obligations |       |             | Benefit Obligations | 
|                |  |             |       |             |                     | 
|                |  | ( million) |      
|2005            |  |             | 475   |             |                     |  | 12 | 
|2006            |  |             | 493   |             |                     |  | 18 | 
|2007            |  |             | 514   |             |                     |  | 25 | 
|2008            |  |             | 535   |             |                     |  | 37 | 
|2009            |  |             | 558   |             |                     |  | 37 | 
|Years 2010-2014 |  |             | 3,156 |             |                     |  | 35 | 

Estimated future benefit payments plans in other Countries


|                |  |             |       |             |                     |  |     | 
|--------------- |  | ----------- | ----- | ----------- | ------------------- |  | --- | 
|                |  |             |       | Other Post- |                    
|                |  | Pension     |       |             | Employment          | 
|Year            |  | Obligations |       |             | Benefit Obligations | 
|                |  |             |       |             |                     | 
|                |  | ( million) |      
|2005            |  |             | 171   |             |                     |  | 45  | 
|2006            |  |             | 176   |             |                     |  | 48  | 
|2007            |  |             | 184   |             |                     |  | 51  | 
|2008            |  |             | 193   |             |                     |  | 54  | 
|2009            |  |             | 204   |             |                     |  | 57  | 
|Years 2010-2014 |  |             | 1,126 |             |                     |  | 341 | 

F-90



---



##### Table of Contents



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


Additional information for German plans:




 




Additional information for foreign plans:




 






| |                         
| | ------------------------
| | Stock-based compensation





| |                           
| | --------------------------
| | Proportional consolidation





|                          |  |               |     |   |               |  |     |  
|------------------------- |  | ------------- | --- | - | ------------- |  | --- | -
|Balance Sheet Information |  | Dec. 31, 2003 |     |   | Dec. 31, 2004 | 
|                          |  |               |     |   |               | 
|                          |  | ( million)   |    
|Current assets            |  |               | 85  |   |               |  | 20  |  
|Noncurrent assets         |  |               | 135 |   |               |  | 71  |  
|Pension provisions        |  |               | (1  | ) |               |  |    |  
|Other provisions          |  |               | (4  | ) |               |  | (15 | )
|Financial liabilities     |  |               | (45 | ) |               |  | (46 | )
|Remaining liabilities     |  |               | (59 | ) |               |  | (5  | )

F-91



---



##### Table of Contents



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


|                                |  |               |     |  |               |  |    |  
|------------------------------- |  | ------------- | --- |  | ------------- |  | -- | -
|Statement of Income Information |  | Dec. 31, 2003 |     |  | Dec. 31, 2004 | 
|                                |  |               |     |  |               | 
|                                |  | ( million)   |    
|Net sales                       |  |               | 296 |  |               |  | 46 |  
|Operating result                |  |               | 29  |  |               |  | (3 | )
|Net income                      |  |               | 24  |  |               |  | (6 | )

|                                          |  |               |     |   |               |  |    |  
|----------------------------------------- |  | ------------- | --- | - | ------------- |  | -- | -
|Statement of Cash Flow Information        |  | Dec. 31, 2003 |     |   | Dec. 31, 2004 | 
|                                          |  |               |     |   |               | 
|                                          |  | ( million)   |    
|Net cash provided by operating activities |  |               | 38  |   |               |  | 7  |  
|Net cash (used in) investing activities   |  |               | (12 | ) |               |  | 3  |  
|Net Cash (used in) financing activities   |  |               | (11 | ) |               |  | (3 | )



| |               
| | --------------
| | Self-insurance

 


Consolidated financial statements and other financial
information




Legal proceedings






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





| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Patent validity challenges and infringement proceedings;
    patent-related antitrust actions



F-92



---



##### Table of Contents



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










| |                              
| | -----------------------------
| | Ciprofloxacin-related actions

Patent-related actions.  Antitrust actions.


Antitrust actions.


F-93



---



##### Table of Contents



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














| |                             
| | ----------------------------
| | Moxifloxacin-related actions



F-94



---



##### Table of Contents



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




| |                           
| | --------------------------
| | Vardenafil-related actions

Levitra








| |                        
| | -----------------------
| | Aventis Behring actions

Patent Litigation. Kogenate® Kogenate® Helixate®




Contract Litigation. Helixate®




| |                               
| | ------------------------------
| | ADVIA Centaur®-related actions

Patent-related action.


ADVIA
Centaur®




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

HIV/ HCV-related actions.


F-95



---



##### Table of Contents



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








Cerivastatin-related actions. Baycol,


Baycol. Baycol Baycol


F-96



---



##### Table of Contents



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




 






Baycol Baycol


Phenylpropanolamine (PPA) actions.


F-97



---



##### Table of Contents



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











Thimerosal actions.






| |                   
| | ------------------
| | Everest litigation



F-98



---



##### Table of Contents



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




| |                     
| | --------------------
| | Imidacloprid actions

Gaucho






| |                
| | ---------------
| | Fipronil action





| |                          
| | -------------------------
| | Limagrain indemnity claim







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



F-99



---



##### Table of Contents



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












| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Rubber-related actions-Polyester polyols investigation/
    Urethane-related products actions








F-100



---



##### Table of Contents



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


















F-101



---



##### Table of Contents



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




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





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







Effect of new accounting pronouncements




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



F-102



---



##### Table of Contents



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














F-103



---



##### Table of Contents



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












F-104



---



##### Table of Contents



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














|     |                  
|---- | -----------------
|[45] | Subsequent events

Levitra 


F-105



---



##### Table of Contents



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


Aleve Bepanthen Redoxon Rennie Supradyn


     


Amtlicher Markt




| |                  
| | -----------------
| | Legal proceedings



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

HIV/ HCV-related actions.


Cerivastatin-related actions. Baycol, Baycol




Phenylpropanolamine (PPA) actions.




Thimerosal actions.


F-106



---



##### Table of Contents



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




| |                    
| | -------------------
| | BASF fipronil claim





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







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



Total remuneration of the Board of Management and the
Supervisory Board, advances and loans




          


 


F-107



---



##### Table of Contents



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


 


 


   










F-108