Bayer AG - Stockholders' Newsletter Third Quarter 2006

Key Data

Bayer Group Key Data

	3rd Quarter 2005	3rd Quarter 2006	Change	First Nine Months 2005	First Nine Months 2006	Change	Full Year 2005
€ million

Net sales	6,177	7,783	+26.0%	19,249	21,971	+14.1%	25,950

Change in sales
Volume	+1%	+6%		+1%	+5%		0%
Price	+7%	0%		+9%	0%		+8%
Currency	+2%	-2%		0%	+1%		+1%
Portfolio	+10%	+22%		+9%	+8%		+9%

EBITDA¹	1,257	1,170	-6.9%	3,740	3,960	+5.9%	4,315
Special items	170	(335)		(74)	(497)		(472)
EBITDA before special items	1,087	1,505	+38.5%	3,814	4,457	+16.9%	4,787

EBITDA margin before special items	17.6%	19.3%		19.8%	20.3%		18.4%

EBIT²	796	659	-17.2%	2,489	2,614	+5.0%	2,633
Special items	143	(139)		(101)	(317)		(525)
EBITDA before special items	653	798	+22.2%	2,590	2,931	+13.2%	3,158

EBITDA margin before special items	10.6%	10.3%		13.5%	13.3%		12.2%

Non-operating result	(182)	(272)	-49.5%	(442)	(719)	-62.7%	(615)

Net income	493	320	-35.1%	1,551	1,372	-11.5%	1,597
Earnings per share (€)³	0.68	0.42		2.12	1.82		2.19
Core earnings per share (€)⁴	0.64	0.79		2.46	2.56		2.93

Gross cash flow⁵	863	1,170	+35.6%	2,790	3,260	+16.8%	3,262

Net cash flow⁶	1,374	1,521	+10.7%	2,083	2,480	+19.1%	3,278

Capital expenditures (total)	346	325	-6.1%	798	1,084	+35.8%	1,389

Research and development expenses	418	678	+62.2%	1,264	1,549	+22.5%	1,766

Depreciation and amortization	461	511	+10.8%	1,251	1,346	+7.6%	1,682

Number of employees at end of period⁷	–	–		87,100	110,800	+27.2%	87,100
Personnel expenses	1,251	1,883	+50.5%	4,155	4,984	+20.0%	5,576

2005 figures restated

EBITDA = EBIT plus amortization of intangible assets and depreciation of property, plant and equipment. EBITDA, EBITDA before special items and EBITDA margin are not defined in the International Financial Reporting Standards and should therefore be regarded only as supplementary information. The company considers underlying EBITDA to be a more suitable indicator of operating performance since it is not affected by depreciation, amortization, write-downs/write-backs or special items. The company also believes that this indicator gives readers a clearer picture of the results of operations and ensures greater comparability of data over time. The underlying EBITDA margin is calculated by dividing underlying EBITDA by sales.

EBIT as shown in the income statement

Earnings per share as defined in IAS 33 = net income divided by the average number of shares. For details see Notes to the Interim Report.

To calculate core earnings per share from continuing operations we eliminate from net income as per the income statement the amortization of intangible assets, asset write-downs (including any impairment losses), special items in EBITDA and extraordinary factors affecting income from investments in affiliated companies (such as divestment gains or write-downs), including the related tax effects. We also deduct income from discontinued operations. Core earnings per share is not defined in the International Financial Reporting Standards and should therefore be regarded only as supplementary information. The company believes that this indicator gives readers a clearer picture of the results of operations and ensures greater comparability of data over time. For details see Bayer Stock

Gross cash flow = EBIT plus depreciation, amortization and write-downs, minus write-backs, minus income taxes, minus gains/plus losses on retirements of noncurrent assets, plus/minus changes in pension provisions. The latter item includes the elimination of non-cash components of the operating result. It also contains benefit payments during the period. Non-cash charges resulting from the remeasurement of Schering inventories are added back. For details see Liquidity and Capital Resources.

Net cash flow = cash flow from operating activities according to IAS 7

Number of employees in full-time equivalents