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

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

*	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.

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

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	•	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.

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	•	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.

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Item 1.	Identity of Directors, Senior Management and Advisors

Item 2.	Offer Statistics and Expected Timetable

Item 3.	Key Information

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	Consolidated Income Statement Data

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

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

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

	Consolidated Balance Sheet Data

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

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

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

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

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

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

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

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

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	Potential liabilities due to cross-contamination

	Cyclicality may reduce our operating margins or cause operating losses

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

	Shortages of our products due to capacity decreases may reduce sales

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

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

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

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	Existing insurance coverage may turn out to be inadequate

	Significant fluctuations in exchange rates affect our financial results

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

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

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	Our transactions relating to LANXESS expose us to continuing liability

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Item 4.	Information on the Company

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

	Status of Development of Selected Compounds in Clinical Trials

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

25

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	Bayer HealthCare posts information on clinical trials on the internet

26

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	Research Collaborations

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

	Product Development Collaborations

	Onyx

	Johnson & Johnson

	Nuvelo

27

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	Regeneron Pharmaceuticals

	Astra Zeneca

	Celera Genomic

	Avid Radiopharmaceuticals

	Genzyme Corporation

	Novartis Pharma

	Sonus Pharmaceuticals

	Titan Pharmaceuticals

28

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	Life Cycle Management

	In-licensing activities

29

---

 

30

---

 

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

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

31

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

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

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

32

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	Major Products

	Analgesics

	Cough/Cold

33

---

 

	Dermatologicals

	Gastrointestinals

	Nutritionals

	Markets and Distribution

34

---

 

	Research and Development

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

	Overview

	Major Products

	Markets and Distribution

35

---

 

	Research and Development

	Overview

	Major Products

	Markets and Distribution

36

---

 

	Research and Development

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

37

---

 

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

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

38

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

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

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

39

---

 

	Insecticides

	Fungicides

	Herbicides

40

---

 

	Seed Treatment

	Research and Development

41

---

 

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

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

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

42

---

 

	Overview

	Major Products

43

---

 

	Markets and Distribution

	Research and Development

	Overview

	Major Products

44

---

 

	Markets and Distribution

	Research and Development

45

---

 

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

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

46

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	Overview

	Major Products

	Polycarbonates (Makrolon®/APEC®)

	Polycarbonate Blends (Bayblend®/Makroblend®)

	Polycarbonate Films

	Polycarbonate Sheets (Fabricated Products)

47

---

 

	Markets and Distribution

	Research and Development

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

48

---

 

	Overview

	Major Products

	Markets and Distribution

	Research and Development

49

---

 

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

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

50

---

 

	Overview

	Major Products

	Markets and Distribution

51

---

 

	Research and Development

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

	Overview

	Major Products

	Resins and Hardeners

	Special raw materials

52

---

 

	Adhesive raw materials

	Markets and Distribution

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

	Research and Development

	Overview

53

---

 

	Major Products

	Markets and Distribution

	Research and Development

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

54

---

 

	Overview

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

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

	•	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.

55

---

 

	Term and Expiration of Patents

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

56

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

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

57

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	Pharmaceutical Products

58

---

 

	Consumer Care Products

	Diabetes Care Products

59

---

 

	Animal Health Products

	Crop Protection Products

60

---

 

	Environmental Science Products

	BioScience Products

61

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	•	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.

62

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63

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

64

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

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

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

66

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

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

67

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Item 5.	Operating and Financial Review and Prospects

68

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69

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

70

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

71

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72

---

 

73

---

 

74

---

 

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

75

---

 

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

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

76

---

 

	Acquisition and divestiture activities

	Effects on net sales from acquisitions and divestitures

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

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

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

77

---

 

	Effect on operating result from Schering AG integration

	Effect on cash flows from Schering AG acquisition

	General Economic Situation

	Raw Materials, Pricing

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

78

---

 

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

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

	Impairment charges and write-downs

79

---

 

	Restructuring charges

	Portfolio changes

	Litigation related and other charges

	Changes in Exchange Rates

80

---

 

	Reporting of Discontinued Operations

	Diagnostics

	H.C. Starck

81

---

 

	Wolff Walsrode

	LANXESS

	Plasma activities

82

---

 

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

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

83

---

 

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

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

84

---

 

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

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

	2006 compared with 2005

	Net Sales

	Gross Profit

	Operating Result

85

---

 

	Non-Operating Result

	Income Before Income Taxes

	Income Taxes

86

---

 

	Income from Discontinued Operations After Taxes

	Net Income

	2005 compared with 2004

	Net Sales

	Gross Profit

	Operating Result

87

---

 

	Non-Operating Result

	Income Before Income Taxes

	Income Taxes

	Income from Discontinued Operations After Taxes

88

---

 

	Net Income

	Pharmaceuticals

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

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

89

---

 

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

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

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

	2006 compared with 2005

90

---

 

91

---

 

	2005 compared with 2004

	Consumer Health

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

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

	2006 compared with 2005

92

---

 

	2005 compared with 2004

93

---

 

	Crop Protection

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

	2006 compared with 2005

	2005 compared with 2004

94

---

 

	Environmental Science, BioScience

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

	2006 compared with 2005

	2005 compared with 2004

95

---

 

	Materials

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

	2006 compared with 2005

	2005 compared with 2004

	Systems

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

96

---

 

	2006 compared with 2005

97

---

 

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

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

	Cash from Operating Activities

98

---

 

	Investing Activities

99

---

 

	Financing Activities

100

---

 

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

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

101

---

 

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

102

---

 

103

---

 

104

---

 

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

105

---

 

	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			19,417				5,009				4,775				4,021				5,612
Capital leases without interest portion			384				69				46				40				229
Operating leases			559				148				194				140				77
Purchase obligations			507				467				40				0				0
Other long-term liabilities (collaboration agreements)			956				168				314				167				307
Other liabilities(a)			3,504				3,055				242				31				176
Total contractual obligations			25,327				8,916				5,611				4,399				6,401

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

	Other Commitments

106

---

 

107

---

 

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

	Accounting standards applied for the first time in 2006

	IFRS

	U.S. GAAP

108

---

 

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

	Newly issued accounting standards

	IFRS

	U.S. GAAP

109

---

 

Item 6.	Directors, Senior Management and Employees

110

---

 

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

(a)	Until April 28, 2006.

(b)	As of March 1, 2006.

111

---

 

	Supervisory Board

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

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

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

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

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

	Supervisory Board Committees

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

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

	Board of Management

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	Remuneration of the Members of the Board of Management

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

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

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

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

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

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

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

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

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	Supervisory Board

118

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	Remuneration of the Members of the Supervisory Board

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

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

	Employee Stock-Based Compensation Programs

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

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

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

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

	Stock-based compensation programs 2000-2004

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Stock Option

Stock Incentive

Stock Participation

program

program

program

Year of issue

2001-2004

2000-2004

2000-2004

Original term in years

5

10

10

Retention period/distribution date in years from issue date

3

2/6/10

2/6/10

Reference price

0

0

0

Performance criteria

Yes

Yes

No

	Stock Option Program (2001-2004)

	Stock Incentive Program (2000-2004)

	Stock Participation Program (2000-2004)

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	Employee Pension Plan

123

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

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

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

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	•	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.

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Item 7.	Major Shareholders and Related Party Transactions

126

---

 

	•	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.

Item 8.	Financial Information

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

127

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	Lipobay/ Baycol litigation

128

---

 

129

---

 

	Phenylpropanolamine (PPA) litigation

	Thimerosal litigation

	Isocyanate litigation

130

---

 

	Antitrust proceedings

	Proceedings involving former rubber-related lines of business

131

---

 

	Proceedings involving polyester polyols, urethanes and urethane chemicals

132

---

 

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

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

133

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	Proceedings involving Ciprofloxacin

134

---

 

	Proceedings involving Premise®

	Average wholesale price manipulation proceedings

	Patent validity challenges and infringement proceedings

	Proceedings involving Moxifloxacin

135

---

 

	Proceedings involving Kogenate®

	Proceeding involving blood glucose monitors

	Versant® Diagnostic Assays related actions

136

---

 

	Proceedings involving syringe injectors and related products

	Proceedings involving oral contraceptives

	Betaseron® supply related actions

137

---

 

	Securities litigation

	Schering AG shareholder litigation

138

---

 

	Asbestos litigation

	Other commercial proceedings

	Lyondell Arbitration

	Proceedings involving Limagrain Genetics Corporation

139

---

 

	Proceedings involving genetically modified rice

	Overtime wage claims

140

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Item 9.	The Listing

141

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

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

(b)

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

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Item 10.	Additional Information

	Registration

	Object and Purposes

	Members of the Board of Management and the Supervisory Board

	Rights, Preferences and Restrictions Attaching to our Shares

	Information Rights

143

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	Dividend Rights and Other Distributions

	Voting Rights

	Liquidation Rights

	Pre-emptive Rights

	Derivative suits

144

---

 

	Stockholders’ Meetings — Convocation and Participation

	Repurchase of Shares

145

---

 

	Anti-takeover Defenses

	Disclosure Requirements

	Relating to LANXESS

146

---

 

	Relating to the Schering AG acquisition

147

---

 

	Taxation of Dividends

148

---

 

	Refund Procedures

149

---

 

	Taxation of Capital Gains

	German Gift and Inheritance Taxes

	German Capital Tax (Vermögensteuer)

	Other German Taxes

150

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	U.S. Information Reporting and Backup Withholding

Item 11.	Quantitative and Qualitative Disclosures about Market Risk

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

151

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	Sensitivity Analysis

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

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

152

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

	Interest Rate Risk

	Derivative financial instruments

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

153

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	Sensitivity Analysis

	Currency Risk

	Transaction Risk

	Translation Risk

154

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	Derivative financial instruments

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

	Sensitivity Analysis

	Credit Risk

155

---

 

	Raw Materials, Commodity and Energy Price Risks

	•	Benzene;
	•	Phenol;
	•	Acetone;
	•	Propylene oxide;
	•	Ethylene;
	•	Toluene;
	•	Electric power; and
	•	Steam.

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

	Derivative financial instruments

156

---

 

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

	Sensitivity Analysis

Item 12.	Description of Securities Other Than Equity Securities

157

---

 

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

158

---

 

Item 16.	[Reserved]

Item 16A.	Audit Committee Financial Expert

Item 16B.	Code of Ethics

Item 16C.	Principal Accountant Fees and Services

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

*		All other fees amounted to less than €500,000 in 2004.

159

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	Audit Committee Pre-Approval Policies

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

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

160

---

 

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

Maximum Number

(or Approximate

Total Number of

Dollar Value) of

Shares Purchased

Shares (or Units)

Total Number

Average Price

as Part of Publicly

that May Yet Be

of Shares

Paid per Share

Announced Plans

Purchased Under the

Period (2006)

Purchased(a)

in Euro(b)

or Programs

Plans or Programs

January

22,773

37.01

[N/A]

[N/A]

February

30,570

34.41

[N/A]

[N/A]

March

35,293

34.27

[N/A]

[N/A]

April

50,496

33.62

[N/A]

[N/A]

May

53,487

36.90

[N/A]

[N/A]

June

136,619

34.48

[N/A]

[N/A]

July

26,989

35.71

[N/A]

[N/A]

August

27,207

38.48

[N/A]

[N/A]

September

38,472

38.52

[N/A]

[N/A]

October

532,391

40.79

[N/A]

[N/A]

November

24,817

40.10

[N/A]

[N/A]

December

23,618

40.59

[N/A]

[N/A]

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

161

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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, incorporated by reference to Exhibit 4.1 to Bayer AG’s Annual Report on Form 20-F for the Year Ended December 31, 2004.
Exhibit 4.2		Master Agreement, dated September 22, 2004, between Bayer AG and LANXESS AG, in English translation, incorporated by reference to Exhibit 4.2 to Bayer AG’s Annual Report on Form 20-F for the Year Ended December 31, 2004.
Exhibit 4.3		€7,000,000,000 Syndicated Facilities Agreement, dated 23 March 2006, by and among Bayer AG; Citigroup Global Markets Limited and Credit Suisse International, as Mandated Lead Arrangers; Citigroup Global Markets Limited and Credit Suisse International, as Bookrunners; and Citibank International plc, as Facility Agent, incorporated by reference to the Schedule TO filed by Bayer AG on April 13, 2006.
Exhibit 8.1		Significant subsidiaries as of the end of the year covered by this report as defined in rule 1-02(w) of Regulation S-X: See Item 4, Information on the Company — Organizational Structure.
Exhibit 12.1		Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 12.2		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 13.1		Certification in accordance with 18 U.S.C. § 1350 as adopted by § 906 of the Sarbanes-Oxley Act of 2002.

162

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Title:	Chairman of the Board of Management

Title:	General Counsel

163

---

 

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

F-1

---

 

F-2

---

 

/s/ ALBRECHT   P. Albrecht Wirtschaftsprüfer (German Public Accountant)		/s/ LINKE   V. Linke Wirtschaftsprüfer (German Public Accountant)

F-3

---

 

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

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

F-4

---

 

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

F-5

---

 

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

F-6

---

 

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

F-7

---

 

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

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

F-8

---

 

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

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

F-9

---

 

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

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

F-10

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F-11

---

 

	Accounting standards applied for the first time in 2006

	Newly issued accounting standards

F-12

---

 

	[4.1]     Scope of consolidation and consolidation methods

F-13

---

 

	[4.2]     Foreign currency translation

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

	[4.3]     Basic recognition and valuation principles

	Net sales and other operating income

F-14

---

 

	Research and development expenses

F-15

---

 

	Goodwill and other intangible assets

	Property, plant and equipment

F-16

---

 

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

	Financial assets

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

F-17

---

 

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

	Inventories

	Taxes

	Provisions

F-18

---

 

	Financial liabilities

F-19

---

 

	Other receivables and liabilities

F-20

---

 

	Intangible assets and property, plant and equipment

F-21

---

 

		2004				2005				2006
		(€ million)
Impairment charges (continuing businesses)			26				77				172
Impairment charges (discontinued operations)			63				—				18
Total impairment charges			89				77				190

F-22

---

 

	Research and development

	Net sales

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

F-23

---

 

	Pensions and other post-employment benefits

F-24

---

 

	Environmental provisions

F-25

---

 

	Litigation provisions

F-26

---

 

	Income taxes

	Acquisition accounting

F-27

---

 

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

F-28

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

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

F-29

---

 

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

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

F-30

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	[7.1]     Scope of consolidation

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

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

F-31

---

 

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

F-32

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

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

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

F-33

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

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

	Acquisition of Schering AG, Berlin, Germany

F-34

---

 

F-35

---

 

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

F-36

---

 

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

	Other acquisitions

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

F-37

---

 

	Acquisitions after the closing date

	Acquisitions in 2005

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

F-38

---

 

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

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

F-39

---

 

		(€ million)
Acquisition costs			276
Ancillary acquisition costs			—
Purchase price			276
Fair value of acquired net assets			259
Goodwill			17

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

F-40

---

 

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

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

F-41

---

 

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

F-42

---

 

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

F-43

---

 

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

F-44

---

 

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

F-45

---

 

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

F-46

---

 

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

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

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

F-47

---

 

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

(1)

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

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

F-48

---

 

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

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

F-49

---

 

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

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

F-50

---

 

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

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

F-51

---

 

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

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

F-52

---

 

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

F-53

---

 

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

F-54

---

 

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

F-55

---

 

															Marketing												Other
															and												Rights and
			Acquired												Distribution				Production				IPR&D				Advance
			Goodwill				Patents				Trademarks				Rights				Rights				Projects				Payments				Total
			(€ million)
Gross carrying amounts, December 31, 2005				2,623				1,705				2,127				880				1,990				—				2,108				11,433
Changes in the scope of consolidation				—				—				—				—				—				—				—				—
Acquisitions				5,804				8,880				1,666				174				—				1,218				179				17,921
Capital Expenditures				—				10				—				139				11				105				78				343
Retirements				(2	)			(12	)			(23	)			(1	)			(3	)			—				(31	)			(72	)
Reclassifications to current assets				(42	)			(397	)			(4	)			(313	)			—				—				(101	)			(857	)
Transfers				—				(6	)			2				3				—				—				(53	)			(54	)
Exchange differences				(156	)			(65	)			(80	)			(64	)			(4	)			(6	)			(141	)			(516	)
Gross carrying amounts, December 31, 2006				8,227				10,115				3,688				818				1,994				1,317				2,039				28,198
Accumulated amortization and write-downs, December 31, 2005				—				735				436				312				667				—				1,595				3,745
Changes in the scope of consolidation				—				—				—				—				—				—				—				—
Retirements				—				(11	)			(20	)			(1	)			(1	)			—				(24	)			(57	)
Reclassifications to current assets				—				(210	)			(2	)			(149	)			—				—				(72	)			(433	)
Amortization and write-downs in 2006				—				533				126				101				164				41				135				1,100
	of which write-downs			—				—				—				20				—				41				4				65
Write-backs				—				—				—				—				—				—				—				—
Transfers				—				—				1				(3	)			—				—				(1	)			(3	)
Exchange differences				—				(26	)			(15	)			(30	)			(2	)			—				(115	)			(188	)
Accumulated amortization and write-downs, December 31, 2006				—				1,021				526				230				828				41				1,518				4,164
Net carrying amounts, December 31, 2006				8,227				9,094				3,162				588				1,166				1,276				521				24,034

F-56

---

 

																		Environmental
						Consumer								Crop				Science,
		Pharmaceuticals				Health				HealthCare				Protection				BioScience				CropScience
		(€ million)
Net carrying amounts, January 1, 2005			2				174				176				1,145				415				1,560
Changes in the scope of consolidation			—				—				—				—				—				—
Acquisitions			—				644				644				5				3				8
Retirements			—				(1	)			(1	)			(30	)			(13	)			(43	)
Amortization and write-downs in 2005			—				—				—				—				—				—
Exchange differences			—				78				78				45				10				55
Net carrying amounts, December 31, 2005			2				895				897				1,165				415				1,580
Changes in the scope of consolidation			—				—				—				—				—				—
Acquisitions			5,772				24				5,796				2				5				7
Retirements			—				—				—				(2	)			—				(2	)
Reclassifications to current assets			—				(11	)			(11	)			—				—				—
Amortization and write-downs in 2006			—				—				—				—				—				—
Exchange differences			(47	)			(45	)			(92	)			(29	)			(31	)			(60	)
Net carrying amounts, December 31, 2006			5,727				863				6,590				1,136				389				1,525

F-57

---

 

		Materials				Systems				MaterialScience				Reconciliation				Bayer Group
		(€ million)
Net carrying amounts, January 1, 2005			118				12				130				—				1,866
Changes in the scope of consolidation			—				—				—				—				—
Acquisitions			—				9				9				—				661
Retirements			—				—				—				—				(44	)
Amortization and write-downs in 2005			—				—				—				—				—
Exchange differences			6				1				7				—				140
Net carrying amounts, December 31, 2005			124				22				146				—				2,623
Changes in the scope of consolidation			—				—				—				—				—
Acquisitions			1				—				1				—				5,804
Retirements			—				—				—				—				(2	)
Reclassifications to current assets			(31	)			—				(31	)			—				(42	)
Amortization and write-downs in 2006			—				—				—				—				—
Exchange differences			(3	)			(1	)			(4	)			—				(156	)
Net carrying amounts, December 31, 2006			91				21				112				—				8,227

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

F-58

---

 

																											Other
															Marketing												Rights
															and												and
			Acquired												Distribution				Production				IPR&D				Advance
			Goodwill				Patents				Trademarks				Rights				Rights				Projects				Payments				Total
			(€ million)
Gross carrying amounts, December 31, 2004				2,470				1,634				1,029				626				1,933				—				1,953				9,645
Changes in the scope of consolidation				—				—				—				—				—				—				—				—
Acquisitions				661				13				1,068				160				74				—				69				2,045
Capital Expenditures				—				12				—				6				—				—				78				96
Retirements				(44	)			(68	)			(7	)			—				(11	)			—				(154	)			(284	)
Transfers				—				41				(4	)			(3	)			(11	)			—				(25	)			(2	)
Elimination of accumulated amortization prior to the application of IFRS 3				(643	)			—				—				—				—				—				—				(643	)
Exchange differences				179				73				41				91				5				—				187				576
Gross carrying amounts, December 31, 2005				2,623				1,705				2,127				880				1,990				—				2,108				11,433
Accumulated amortization and write-downs, December 31, 2004				604				602				331				205				510				—				1,441				3,693
Changes in the scope of consolidation				—				—				—				—				—				—				—				—
Retirements				—				(53	)			(1	)			—				(4	)			—				(129	)			(187	)
Amortization and write-downs in 2005				—				155				92				76				164				—				135				622
	of which write-downs			—				4				1				15				—				—				2				22
Write-backs				—				—				—				—				—				—				—				—
Transfers				—				1				(1	)			—				(5	)			—				4				(1	)
Elimination of accumulated amortization prior to the application of IFRS 3				(643	)			—				—				—				—				—				—				(643	)
Exchange differences				39				30				15				31				2				—				144				261
Accumulated amortization and write-downs, December 31, 2005				—				735				436				312				667				—				1,595				3,745
Net carrying amounts, December 31, 2005				2,623				970				1,691				568				1,323				—				513				7,688

F-59

---

 

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

F-60

---

 

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

F-61

---

 

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

F-62

---

 

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

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

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

F-63

---

 

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

F-64

---

 

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

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

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

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

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

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

F-65

---

 

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

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

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

F-66

---

 

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

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

F-67

---

 

F-68

---

 

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

F-69

---

 

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

F-70

---

 

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

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

F-71

---

 

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

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

F-72

---

 

F-73

---

 

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

F-74

---

 

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

F-75

---

 

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

F-76

---

 

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

F-77

---

 

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

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

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

F-78

---

 

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

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

F-79

---

 

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

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

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

F-80

---

 

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

F-81

---

 

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

F-82

---

 

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

F-83

---

 

[26]	Other provisions

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

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

[26.1]	Stock-based compensation

F-84

---

 

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

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

F-85

---

 

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

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

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

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

F-86

---

 

	Stock-based compensation programs 2000-2004

Stock Option

Stock Incentive

Stock Participation

Program

Program

Program

Year of issue

2000 - 2004

2000 - 2004

2000 - 2004

Original term in years

5

10

10

Retention period/distribution date in years from issue date

3

2/6/10

2/6/10

Reference price

0

0

0

Performance criteria

Yes

Yes

No

	Stock Option Program (2001-2004)

	Stock Incentive Program (2000-2004)

F-87

---

 

	Stock Participation Program (2000-2004)

[26.2]	Environmental protection

[26.3]	Restructuring charges

F-88

---

 

F-89

---

 

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

[27]	Financial liabilities

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

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

F-90

---

 

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

F-91

---

 

F-92

---

 

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

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

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

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

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

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

F-93

---

 

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

F-94

---

 

	Currency risk

	Interest rate risk

	Procurement market risk

	Credit risk

F-95

---

 

[30.2]	Primary financial instruments

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

F-96

---

 

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

F-97

---

 

	Fair value hedges

	Cash flow hedges

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

F-98

---

 

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

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

F-99

---

 

[32]	Legal risks

	Lipobay/Baycol

	Cipro®

F-100

---

 

	Rubber, polyester polyols, urethane

	Proceedings involving product lines of the former Rubber Business Group

	Proceedings involving polyester polyols, urethanes and urethane chemicals

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

F-101

---

 

	Impact of these antitrust proceedings on Bayer

	Proceedings involving genetically modified rice

	Proceedings involving oral contraceptives

	Yasmin®

F-102

---

 

	YAZ®

	Proceedings involving propylene oxide

	Proceedings involving syringe injectors and related products

	Patent and contractual disputes

F-103

---

 

	Product liability and other litigation

	Liability considerations following the LANXESS spin-off

F-104

---

 

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

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

F-105

---

 

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

[36]	Cash and cash equivalents

[37]	Audit fees

		2005				2006
		(€ million)
Financial statements auditing			5				10
Audit-related services and other audit work			3				3
Tax consultancy			—				1
Other services rendered to Bayer AG or subsidiaries			1				1
			9				15

[38]	Related parties

F-106

---

 

		2005				2006
		(€ million)
Income			229				188
Receivables			98				143
Liabilities			(68	)			(127	)

[39]	Total remuneration of the Board of Management and the Supervisory Board and loans

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

*		member of the Board of Management until April 28, 2006
**		member of the Board of Management effective March 1, 2006

F-107

---

 

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

*		member of the Board of Management until April 28, 2006
**		member of the Board of Management effective March 1, 2006

Werner

Klaus

Dr. Udo

Dr. Wolfgang

Dr. Richard

Wenning

Kühn

Oels*

Plischke**

Pott

Total

(In €)

(In €)

(In €)

(In €)

(In €)

(In €)

Fair value of newly granted stock-based compensation as of grant date in 2006

268,113

181,886

40,419

117,597

145,509

753,524

in 2005

253,636

137,652

137,652

—

137,652

666,592

*		member of the Board of Management until April 28, 2006
**		member of the Board of Management effective March 1, 2006

Werner

Klaus

Dr. Udo

Dr. Wolfgang

Dr. Richard

Wenning

Kühn

Oels*

Plischke**

Pott

Total

(In €)

(In €)

(In €)

(In €)

(In €)

(In €)

Current service cost for pension entitlements earned in 2006

398,564

1,615,294

—

1,644,517

233,284

3,927,659

in 2005

311,158

420,046

—

—

186,600

917,804

*		member of the Board of Management until April 28, 2006
**		member of the Board of Management effective March 1, 2006

F-108

---

 

[40]	Subsequent events

F-109

---

 

		Notes				2004				2005				2006				2006
						(€ million)				(€ million)				(€ million)				(U.S. $ million(*))
Income after taxes reported under IFRS							682				1,595				1,695				2,237
Business combinations			a				192				(4	)			79				104
Pensions and other post-employment benefits			b				(325	)			(450	)			(168	)			(222	)
In-process research and development			c				38				8				(1,375	)			(1,815	)
Asset impairment			d				(7	)			23				23				30
Early retirement program			e				(58	)			(20	)			(27	)			(36	)
Revaluation surplus			f				—				4				4				5
Minority interest			g				3				2				(12	)			(16	)
Other			h				(14	)			(12	)			(17	)			(22	)
Deferred tax effect on U.S. GAAP adjustments							142				181				67				88
Income after taxes reported under U.S. GAAP							653				1,327				269				353
Basic and diluted earnings per share under U.S. GAAP							0.89				1.82				0.33				0.43

						December 31,
		Notes				2005				2006				2006
						(€ million)				(€ million)				(U.S. $ million(*))
Stockholders’ equity reported under IFRS							11,157				12,851				16,959
Business combinations			a				1,013				950				1,254
Pensions and other post-employment benefits			b				691				11				15
In-process research and development			c				(87	)			(1,454	)			(1,919	)
Asset impairment			d				(138	)			(114	)			(150	)
Early retirement program			e				101				74				98
Revaluation surplus			f				(62	)			(58	)			(77	)
Minority interest			g				(80	)			(84	)			(111	)
Other			h				19				2				3
Deferred tax effect on U.S. GAAP adjustments							(267	)			3				4
Stockholders’ equity reported under U.S. GAAP							12,347				12,181				16,076

F-110

---

 

			December 31,
			2005				2006				2006
			(€ million)				(€ million)				(U.S. $ million(*))
Components of stockholders’ equity in accordance with
	U.S. GAAP:
Capital stock of Bayer AG				1,870				1,957				2,583
Capital reserves of Bayer AG				2,942				4,028				5,316
Retained earnings				10,224				9,684				12,780
Accumulated other comprehensive income:
— Unrealized market value adjustment on securities available for sale (net of taxes of €(7) million, €(6) million and U.S. $(8) million)				28				23				30
— Unrealized market value adjustment on cash flow hedges (net of taxes of €(6) million, €13 million and U.S. $17 million)				11				(18	)			(24	)
— Recognition of actuarial gains/ losses and prior service cost (net of taxes €1,288 million and U.S. $1,700 million)				—				(1,926	)			(2,542	)
— Additional minimum pension liability (net of taxes of €1,289 million)				(1,920	)			—				—
Translation differences				(808	)			(1,567	)			(2,067	)
Total				12,347				12,181				16,076

(*)		The 2006 U.S. dollar figures have been translated at an exchange rate of €1.0000 = U.S. $1.3197 which is the noon buying rate of the Federal Reserve Bank of New York on December 29, 2006, the last currency trading day in December 2006. Such translations should not be construed as representations that the euro amounts represent, or have been or could be converted into, United States dollars at that or any other rate.

F-111

---

 

	1. Under IFRS, due to the retrospective application of IAS 19 (amended 2004), actuarial gains and losses arising from valuing the assets and liabilities of the Company’s pension and post employment defined benefit plans at fair value are recognized immediately in the statement of recognized income and expense for all periods presented. These actuarial gains and losses are not recognized in the income statement in subsequent periods. Under U.S. GAAP, prior to the adoption of SFAS No. 158 in 2006, these differences were not recognized on the balance sheet or within stockholders’ equity, and were recognized in the income statement only when they exceeded 10 percent of the greater of the projected benefit plan obligation or the market-related value of plan assets. Beginning with the adoption of SFAS No. 158, previously unrecognized actuarial gains and losses are recognized immediately within stockholders’ equity (other comprehensive income). Accordingly, upon the adoption of SFAS No. 158 all existing IFRS to U.S. GAAP differences in equity, except for amounts due to past service costs unrecognized under IFRS, are eliminated. Differences will continue to exist in the recognition of expenses in the income statement as the recognition of actuarial gains and losses was not impacted by the adoption of SFAS No. 158 and actuarial gains and losses continue to be recognized into the income statement in accordance with SFAS No. 87 and SFAS No. 106.
	2. Under SFAS No. 87, prior to the adoption of SFAS No. 158, an additional minimum liability was required to be reported and recognized in certain instances when the accumulated benefit obligation exceeded the fair value of plan assets. If an additional minimum liability was recognized, a contra amount was recognized first as an intangible asset up to the amount of unrecognized prior service costs, with any excess being reported in other comprehensive income. In 2006, 2005 and 2004 the recognition of an additional minimum liability of €2,705 million, €3,265 million and €1,024 million respectively, resulted in the recognition of an intangible asset in the amount of €38 million, €56 million and €nil, respectively. The additional minimum liability and intangible asset recognized in 2006 were eliminated according to the adoption of SFAS No. 158.
	3. In 2004 the Company amended its retiree medical plan. Under IFRS, this plan amendment qualified either as a negative plan amendment for fully vested employees or a plan curtailment for unvested or partially vested employees. Gains resulting from negative plan amendments relating to fully vested employees and plan curtailments are recognized in income when they occur. Under U.S. GAAP, the retiree medical plan amendment is considered a negative plan amendment in accordance with SFAS No. 106 and

F-112

---

 

	the reduction in benefit obligation is first reduced by any existing unrecognized prior service cost resulting from previous plan benefit improvements and then reduced by any remaining transition obligations. The remaining gain is recognized as a prior service cost over the remaining years of service until the benefit becomes vested. The related adjustment recorded in 2004 amounted to €139 million (thereof €11 million related to discontinued operations) and reflects the reversal of prior service costs and curtailments recognized under IFRS within “other operating income” and “income from discontinued operations”, respectively, which are either not permitted to be recorded under U.S. GAAP or are to be recorded on a deferred basis. Further, other changes relating to certain benefit plans in 2004 resulted in a curtailment of these plans under both IFRS and U.S. GAAP. For IFRS purposes, a curtailment gain of €62 million was recognized in “other operating income”. However, for U.S. GAAP purposes, the €62 million gain recognized under IFRS has been reversed, as the entire gain was offset by existing unrecognized actuarial losses. In aggregate, a total of €201 million (thereof €11 million related to discontinued operations) of income recognized under IFRS in “other operating income” in connection with plan amendments in 2004 have been reversed under U.S. GAAP.
	4. In 2005, the Company replaced several defined benefit plans with defined contribution plans. As a result of this change, active employees participating in these plans will cease accruing pension benefits under these plans which results in a curtailment of the plan obligation. In addition, as a result of a reduction in headcount relating to the disposal of the Plasma business, a curtailment of plan obligation occurred. Under IFRS, curtailment gains of €327 million (thereof €45 million related to discontinued operations) were recognized in “other operating income” and “income from discontinued operations”, respectively, as a result of these changes. However, for U.S. GAAP purposes, €308 million (thereof €45 million related to discontinued operations) of the gains recognized under IFRS have been reversed, as the gains were partially offset by existing unrecognized actuarial losses. Furthermore, the Company amended certain benefit plans granting additional benefits for services periods rendered previously. Under IFRS, these prior service costs are recognized over the remaining vesting period or, where benefits are already vested, are to be recognized immediately. Under U.S. GAAP, these prior service costs are to be recognized over the remaining service lives of the active employees. The reversal of prior service costs which are recognized earlier under IFRS, offset with the amortization of negative prior service costs under U.S. GAAP relating to the 2004 amendment of the retiree medical plan, resulted in a reversal of a net gain in the amount of €1 million for U.S. GAAP purposes. Furthermore, as a result of the LANXESS spin-off in January 2005, the Company eliminated an existing U.S. GAAP net equity difference at December 31, 2004 in the amount of €345 million (decrease in net equity) and €104 million (increase in net equity) related to actuarial gains and losses and additional minimum liability, respectively.
	5. In 2006, curtailments of plan obligations occurred from the Company having entered into agreements to divest the Diagnostics Division and the H.C. Starck and Wolff Walsrode businesses as well as from the reduction of headcount relating to certain restructuring measures. Under IFRS, as a result of these events, curtailment gains of €10 million and €37 million were recognized in “other operating income” and “income from discontinued operations”, respectively. However, for U.S. GAAP purposes, €8 million and €37 million of the gains recognized in “other operating income” and “income from discontinued operations”, respectively, were reversed as the gains were either not permitted to be recognized, until the point of time when the divestment of the businesses occurred, or were offset by existing unrecognized actuarial losses. The reversal of prior service costs recognized earlier under IFRS, offset with the amortization of negative prior service costs under U.S. GAAP resulted in a reversal of a net loss in the amount of €1 million in fiscal year 2006.

F-113

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		2005				2006
		(€ million)
Pension and OPEB benefits:
Net liability recognized for IFRS			(7,137	)			(6,505	)
Difference in unrecognized actuarial gains and losses/ asset limitation			4,046				3,299
Difference in unrecognized prior service cost			(146	)			(127	)
Additional minimum liability under SFAS No. 87			(3,265	)			(2,660	)
Net liability recognized for U.S. GAAP before adoption of SFAS No. 158			(6,502	)			(5,993	)
Adoption of SFAS No. 158 — recognition of actuarial gains/ losses			—				(3,292	)
Adoption of SFAS No. 158 — prior service cost			—				131
Adoption of SFAS No. 158 — reversal of additional minimum liability			—				2,660
Net liability recognized for U.S. GAAP after adoption of SFAS No. 158			(6,502	)			(6,494	)

		2004				2005				2006
		(€ million)
Pension and OPEB benefits:
Net periodic benefit cost recognized for IFRS			352				207				454
Difference in recognition of actuarial amounts			112				139				121
Difference in recognition of prior service amounts			128				1				(1	)
Difference in pension curtailment and settlement costs			62				263				8
Net periodic benefit cost recognized for U.S. GAAP			654				610				582

		2004				2005				2006
		(€ million)
Net U.S. GAAP income statement difference on pensions and other post-employment benefit plans			23				47				40

		2005				2006
		(€ million)
Net U.S. GAAP equity difference on pensions and other post-employment benefits before adoption of SFAS No. 158			—				(13	)
Adoption of SFAS No. 158 — recognition of actuarial gains/ losses			—				58
Adoption of SFAS No. 158 — prior service cost			—				—
Adoption of SFAS No. 158 — reversal of additional minimum liability			—				(45	)
Net U.S. GAAP equity difference on pensions and other post-employment benefits after adoption of SFAS No. 158			—				—

		2004				2005				2006
		(€ million)
Total U.S. GAAP income statement difference on pensions and other post-employment benefits			325				450				168

F-114

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		2005				2006
		(€ million)
Total U.S. GAAP equity difference on pensions and other post-employment benefits before adoption of SFAS No. 158			(691	)			(563	)
Adoption of SFAS No. 158 — recognition of actuarial gains/ losses			—				3,350
Adoption of SFAS No. 158 — prior service cost			—				(131	)
Adoption of SFAS No. 158 — reversal of additional minimum liability			—				(2,667	)
Total U.S. GAAP equity difference on pensions and other post-employment benefits after adoption of SFAS No. 158			(691	)			(11	)

F-115

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F-116

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	Goodwill and other intangible assets

	•	The first step is to compare each reporting unit’s fair value with its carrying amount including goodwill. If a reporting unit’s carrying amount exceeds its fair value, this indicates that its goodwill may be impaired and the second step is required.
	•	The second step is to compare the implied fair value of the reporting unit’s goodwill with the carrying amount of its goodwill. The implied fair value is computed by allocating the reporting unit’s fair value to all of its assets and liabilities in a manner that is similar to a purchase price allocation in a business combination in accordance with SFAS No. 141. The remaining unallocated purchase price is the implied fair value of the reporting unit’s goodwill. If the implied fair value of goodwill is less than its carrying value, the difference is recorded as an impairment.

F-117

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		2005				2006
		(€ million)
Goodwill:
Differences in carrying amount of goodwill written-off directly to equity before January 1, 1995			454				407
FAS 142 and IFRS 3 transition differences			507				507
Differences on account of IPR&D included in goodwill under IFRS			(61	)			(53	)
Differences in impairments			(18	)			—
Purchase price and purchase price allocation differences			—				(532	)
Differences in carrying amount of goodwill			882				329
Other intangible assets:
FAS 142 and IFRS 3 transition differences			32				32
IPR&D from acquisitions, expensed under U.S. GAAP			(25	)			(1,400	)
Differences in impairments			—				—
Purchase price and purchase price allocation differences			20				16
Revaluation surplus			(62	)			(58	)
Additional Minimum Liabilities			56				—
Other differences			10				—
Differences in carrying amount of other intangible assets			31				(1,410	)
Total U.S. GAAP increase in intangible assets			913				(1,081	)

F-118

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Bayer Group Pro Forma Totals		(Unaudited)				(Unaudited)
		(€ million)				(€ million)
		2005				2006
Net sales			30,112				31,689
Income after tax			782				1,255
Earnings per share			1.07				1.68

	Discontinued operations

F-119

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		2004				2005				2006				2006
		(€ million)				(€ million)				(€ million)				(U.S.$ million)
Income (loss) after tax from continuing operations			546				1,128				129				168
Discontinued operations — net of tax			107				199				140				185
Income (loss) after tax reported under U.S. GAAP			653				1,327				269				353

		2004				2005				2006				2006
Earnings per Share		(€ million)				(€ million)				(€ million)				(U.S.$ million(*))
Income (loss) after tax reported under U.S. GAAP			653				1,327				269				353
Guaranteed dividend			—				—				(26	)			(34	)
Net income available to common stockholders			653				1,327				243				319
Weighted average number of shares outstanding			730,341,920				730,341,920				746,456,988				746,456,988
Basic earnings per share under U.S. GAAP			0.89				1.82				0.33				0.43
Income (loss) from continuing operations			546				1,128				129				168
Guaranteed dividend			—				—				(26	)			(34	)
Net income available to common shareholders from continuing operations			546				1,128				103				134
Weighted average number of shares outstanding			730,341,920				730,341,920				746,456,988				746,456,988
Basic earnings per share under U.S. GAAP from continuing operations			0.75				1.55				0.14				0.18
Income (loss) from discontinuing operations			107				199				140				185
Weighted average number of shares outstanding			730,341,920				730,341,920				746,456,988				746,456,988
Basic earnings per share under U.S. GAAP from discontinuing operations			0.14				0.27				0.19				0.25

F-120

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	Classification differences

	Comprehensive income

F-121

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		2004				2005				2006
		(€ million)				(€ million)				(€ million)
Net income (loss) under U.S. GAAP			653				1,327				269
Other comprehensive income (loss):
Unrealized market value adjustment on available-for-sale securities (net of taxes of €(2) million, €(6) million and €2 million, respectively)			18				3				(6	)
Unrealized market value adjustment on cash flow hedges (net of taxes of €(18) million, €6 million, and €16 million)			46				(9	)			(43	)
Reclassification adjustment:
Net realized (gains)/losses on sales of securities (net of taxes of €nil, €nil, and €nil, respectively)			(6	)			—				—
Net realized (gains)/losses on sales of cash flow hedges (net of taxes of €(1)million, €nil and €3 million, respectively)			2				3				14
Additional minimum pension liability (net of taxes of €155 million, €916 million and €(217) million, respectively)			(232	)			(1,373	)			325
Foreign currency translation adjustment			(398	)			1,359				(759	)
Comprehensive income (loss) under U.S. GAAP			83				1,310				(200	)

	Employee benefit plans

	Plans in Germany

		December 31,
Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets		2005				2006
		(€ million)
Projected benefit obligation			10,256				9,931
Accumulated benefit obligation			9,919				9,684
Fair value of plan assets			4,599				4,487

F-122

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	Plans in other countries

		December 31,
Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets		2005				2006
		(€ million)
Projected benefit obligation			3,920				1,599
Accumulated benefit obligation			3,722				1,428
Fair value of plan assets			3,198				1,011

	Total

		December 31,
Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets		2005				2006
		(€ million)
Projected benefit obligation			14,176				11,530
Accumulated benefit obligation			13,641				11,112
Fair value of plan assets			7,797				5,498

	Stock-based compensation

	Proportional consolidation

Balance Sheet Information		Dec. 31, 2005				Dec. 31, 2006
		(€ million)
Current assets			15				21
Noncurrent assets			62				56
Pension provisions			—				—
Other provisions			(16	)			(23	)
Financial liabilities			(3	)			(3	)
Remaining liabilities			(14	)			(6	)

F-123

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Statement of Income Information		Dec. 31, 2005				Dec. 31, 2006
		(€ million)
Net sales			48				56
Operating result			4				(7	)
Net income (loss)			3				(5	)

Statement of Cash Flow Information		Dec. 31, 2005				Dec. 31, 2006
		(€ million)
Net cash provided by operating activities			3				2
Net cash provided by (used in) investing activities			(9	)			6
Net cash provided by (used in) financing activities			1				(1	)

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

F-124

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	Product liability proceedings

	Lipobay/ Baycol litigation

F-125

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	HIV/ HCV related actions

F-126

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	Phenylpropanolamine (PPA) litigation

	Thimerosal litigation

	Isocyanate litigation

F-127

---

 

	Hormone Replacement Therapies product litigation

	Antitrust proceedings

	Proceedings involving former rubber-related lines of business

F-128

---

 

	Proceedings involving polyester polyols, urethanes and urethane chemicals

F-129

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

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

F-130

---

 

	Proceedings involving Ciprofloxacin

F-131

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	Proceedings involving Premise®

	Average wholesale price manipulation proceedings

	Patent validity challenges and infringement proceedings

	Proceedings involving Moxifloxacin

F-132

---

 

	Proceedings involving Kogenate®

	Proceeding involving blood glucose monitors

F-133

---

 

	Versant® Diagnostic Assays related actions

	Proceedings involving syringe injectors and related products

	Proceedings involving oral contraceptives

F-134

---

 

	Betaseron® supply related actions

	Securities litigation

	Schering AG shareholder litigation

F-135

---

 

	Asbestos litigation

	Other commercial proceedings

	Lyondell Arbitration

F-136

---

 

	Proceedings involving Limagrain Genetics Corporation

	Proceedings involving genetically modified rice

	Overtime wage claims

F-137

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	Accounting standards applied for the first time in 2006

	U.S. GAAP

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

	Newly issued accounting standards

	U.S. GAAP

F-138

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F-139