Bayer AG - Stockholders' Newsletter Third Quarter 2006

Management Report

Changes in Corporate Structure

Since June 23, 2006 we have held a majority of the shares of Schering AG and therefore included Schering in our consolidated financial statements. As of September 30, 2006, our interest in Schering’s voting capital amounted to 96.1 percent. This exceeds the proportion required to effect a squeezeout of the minority stockholders in return for cash compensation pursuant to Sections 327a through 327f of the German Stock Corporation Act.

In the second quarter we concluded an agreement with Siemens AG concerning the sale of the Diagnostics Division. Since the second quarter, the Diagnostics business has been reported as a discontinued operation. The antitrust authorities in Europe and the United States have since approved this transaction.

To ensure comparability between reporting periods, the following table provides a reconciliation of Bayer’s sales and earnings data in the previous corporate structure to those in the new structure.

Bayer Key Data for the Previous and Current Corporate Structures
€ million	Bayer excl. Schering, incl. Diagnostics		Schering		Diagnostics		Continuing Operations incl. Schering, excl. Diagnostics
Third Quarter	2005	2006	2005	2006	2005	2006	2005	2006
Sales	6,531	6,737	0	1,410	354	364	6,177	7,783
EBITDA*	1,370	1,159	0	91	113	80	1,257	1,170
EBITDA before special items	1,164	1,182	0	392	77	69	1,087	1,505
EBITDA margin before special items	17.8%	17.5%	–	27.8%	21.8%	19.0%	17.6%	19.3%
EBIT*	870	730**	0	9	74	80**	796	659
EBIT before special items	691	787**	0	80	38	69**	653	798

First Nine Months	2005	2006	2005	2006	2005	2006	2005	2006
Sales	20,288	21,536	0	1,554	1,039	1,119	19,249	21,971
EBITDA*	3,986	4,045	0	111	246	196	3,740	3,960
EBITDA before special items	4,024	4,245	0	422	210	210	3,814	4,457
EBITDA margin before special items	19.8%	19.7%	–	27.2%	20.2%	18.8%	19.8%	20.3%
EBIT*	2,620	2,731**	0	3	131	120**	2,489	2,614
EBIT before special items	2,685	2,981**	0	84	95	134**	2,590	2,931

* for definition see Bayer Group Key Data
** For a year-on-year comparison of EBIT data, it should be borne in mind that the 2005 figures also reflect €41 million in depreciation and amortization for the Diagnostics Division. According to IFRS, depreciation and amortization must cease from the date on which operations are classified as discontinued.