Financial Statements/Notes

Explanatory Notes

Accounting policies

Pursuant to Section 315a of the German Commercial Code, the consolidated interim financial statements as of March 31, 2008 have been prepared according to the International Financial Reporting Standards (IFRS) – including IAS 34 – of the International Accounting Standards Board (IASB), London, which are endorsed by the European Union, and the Interpretations of the International Financial Reporting Interpretations Committee (IFRIC), in effect at the closing date.

Reference should be made as appropriate to the notes to the consolidated financial statements for the 2007 fiscal year, particularly with regard to recognition and valuation principles.

Information on earnings per share

The ordinary shares to be issued upon conversion of the mandatory convertible bond are treated as already issued shares. Diluted earnings per share are therefore equal to basic earnings per share.

Calculation of Earnings per Share	1st Quarter 2007	1st Quarter 2008
€ million
Income after taxes	2,810	762
Income attributable to minority interest	1	0
Income attributable to Bayer AG stockholders	2,809	762
Income from discontinued operations	2,154	-

Financing expenses for the mandatory convertible bond, net of tax effects	24	28
Adjusted income from continuing operations after taxes	679	790
Adjusted net income	2,833	790

Shares
Weighted average number of issued ordinary shares	764,341,920	764,341,920
Potential shares to be issued upon conversion of the mandatory convertible bond	59,523,810	59,582,699
Adjusted weighted average total number of issued and potential ordinary shares	823,865,730	823,924,619

Basic earnings per share (€)
from continuing operations	0.82	0.96
from discontinued operations	2.62	-
from continuing and discontinued operations	3.44	0.96

Diluted earnings per share (€)
from continuing operations	0.82	0.96
from discontinued operations	2.62	-
from continuing and discontinued operations	3.44	0.96

Changes in the Bayer Group

Scope of consolidation
As of March 31, 2008, the Bayer Group comprised 321 fully consolidated companies, compared with 326 companies as of December 31, 2007. Three joint ventures were included by proportionate consolidation according to ias 31 (Interests in Joint Ventures). In addition, five associated companies were included in the consolidated financial statements by the equity method according to IAS 28 (Investments in Associates).

Aquisitions
Expenses for acquisitions in the first quarter of 2008 totaled €247 million. Bayer subsidiary Medrad, Inc. has completed its tender offer for the outstanding shares of common stock of Possis Medical, Inc. As of March 31, 2008, Medrad had acquired 91.8 percent of the shares for US$ 309 million (approx. €208 million). As of the expiration of the subsequent offer period on Tuesday, April 1, 2008, a total of approximately 93.0 percent of Possis Medical shares had been validly tendered in the offer. Medrad, through its wholly owned subsidiary Phoenix Acquisition Corp., accepted for purchase all of these validly tendered shares. The merger of Phoenix Acquisition Corp. with and into Possis Medical took place immediately thereafter. In the merger, each outstanding Possis Medical share not tendered and purchased in the offer (other than those as to which holders properly exercised appraisal rights) was automatically canceled and converted pursuant to Minnesota law into the right to receive the same US$ 19.50 per share, net to the seller in cash, without interest thereon and subject to reduction for any applicable withholding taxes, that was paid in the tender offer. As a result of the merger, Possis Medical became a wholly owned subsidiary of Medrad. Following the merger, Possis Medical’s common stock ceased to be traded on the NASDAQ.

Discontinued operations
The diagnostics activities, along with H.C. Starck and Wolff Walsrode, were recognized as discontinued operations in 2007. The information on discontinued operations, which is provided from the standpoint of the Bayer Group, is to be regarded as part of the reporting for the entire Bayer Group by analogy with our segment reporting and is not intended to portray either the discontinued operations or the remaining operations of Bayer as separate entities. This presentation is thus in line with the principles for reporting discontinued operations.

Discontinued Operations	Diagnostics		H.C. Starck		Wolff Walsrode		Total
€ million	1st Quarter 2007	1st Quarter 2008	1st Quarter 2007	1st Quarter 2008	1st Quarter 2007	1st Quarter 2008	1st Quarter 2007	1st Quarter 2008
Sales	0	-	74	-	85	-	159	-
Operating result (EBIT)*	2,778	-	109	-	13	-	2,900	-
Income after taxes	2,044	-	103	-	7	-	2,154	-
Gross cash flow*	(10)	-	14	-	10	-	14	-
Net cash flow*	7	-	26	-	5	-	38	-
Net investing cash flow	3,748	(40)	922	-	(2)	-	4,668	(40)
Net financing cash flow	(3,755)	40	(948)	-	(3)	-	(4,706)	40

* for definition see Bayer Group Key Data

Related parties

Our business partners include companies in which an interest is held, and companies with which members of the Supervisory Board of Bayer AG are associated. Transactions with these companies are carried out on an arm’s-length basis. Business with such companies was not material from the viewpoint of the Bayer Group. The Bayer Group was not a party to any transaction of an unusual nature or structure that was material to it or to companies or persons closely associated with it. Business transactions with companies included in the consolidated financial statements at equity, or at cost less impairment charges, mainly comprised trade in goods and services. The value of these transactions was, however, immaterial from the point of view of the Bayer Group. The same applies to financial receivables and payables vis-à-vis related parties.

Leverkusen, April 22, 2008
Bayer Aktiengesellschaft

Board of Management

Werner Wenning      Klaus Kühn      Dr. Wolfgang Plischke      Dr. Richard Pott