Financial Statements

Explanatory Notes

Accounting policies

Pursuant to Section 315a of the German Commercial Code, the consolidated interim financial statements as of March 31, 2009 have been prepared in condensed form 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 2008 fiscal year, particularly with regard to the main recognition and valuation principles. Changes in the underlying parameters relate primarily to currency exchange rates and the interest rates used to calculate pension obligations.

The exchange rates for major currencies against the euro varied as follows:

		Closing rate			Average rate
		Dec. 31, 2008	March 31, 2008	March 31, 2009	March 31, 2008	March 31, 2009
ARS	Argentina	4.80	5.00	4.94	4.72	4.62
BRL	Brazil	3.25	2.76	3.10	2.60	3.02
CAD	Canada	1.70	1.62	1.67	1.50	1.62
CHF	Switzerland	1.49	1.57	1.52	1.60	1.50
CNY	China	9.50	11.09	9.09	10.73	8.92
GBP	U.K.	0.95	0.80	0.93	0.76	0.91
JPY	Japan	126.14	157.37	131.17	157.78	122.08
MXN	Mexico	19.23	16.90	18.76	16.19	18.73
USD	United States	1.39	1.58	1.33	1.50	1.30

The most important interest rates applied in the calculation of actuarial gains and losses from pension obligations are given below:

	Dec. 31, 2008	March 31, 2008	March 31, 2009
Germany	6.0	6.1	6.2
U.K.	6.4	6.8	6.7
United States	6.2	7.0	7.3

Segment reporting

The accounting standard IFRS 8 (Operating Segments) was applied for the first time in the first quarter of 2009. In addition, the following changes were implemented compared with the Consolidated Financial Statements for 2008:

The integration of the thermoplastic polyurethanes businesses into the Polyurethanes and the Coatings, Adhesives, Specialties business units completes an important phase in the reorganization of the MaterialScience portfolio. It has led to an adjustment in the segment presentation for that subgroup. The previously separate Materials and Systems segments have been combined to form a single MaterialScience segment in light of their similar long-term economic performance and the comparability of their products, production processes, customer industries, distribution channels and regulatory environment.
We have transferred our dermatology business (Intendis) and the medical equipment business Medrad from the Pharmaceuticals to the Consumer Health segment and restated the prior-year figures accordingly.
Business activities that cannot be allocated to any other segment are reported under “All other segments.” These include primarily the services of Bayer Business Services (BBS), Bayer Technology Services (BTS) and Currenta.
The Bayer holding company and the elimination of intersegment sales are presented in our segment reporting as “Corporate Center and Consolidation.”

The following table contains the reconciliation of the operating result (EBIT) of the operating segments to income before income taxes of the Group.

Segment Result Reconciliation	1st Quarter 2008	1st Quarter 2009
	€ million	€ million
Operating result of reporting segments	1,397	1,021
Operating result of Corporate Center	(54)	(48)
Operating result [EBIT]	1,343	973
Non-operating result	(275)	(334)
Income before income taxes	1,068	639

Changes in the Bayer Group

Scope of consolidation
As of March 31, 2009, the Bayer Group comprised 311 fully or proportionately consolidated companies (December 31, 2008: 316 companies). Four 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).

Acquisitions and divestitures
No acquisitions were made in the first quarter of 2009. The expenses for acquisitions totaling €247 million in the first quarter of 2008 were related primarily to the purchase of Possis Medical, Inc.

On the basis of the agreement signed with Genzyme Corp., United States, on March 31, 2009, the relevant assets in the form of goodwill, other intangible assets and inventories are reflected in the item “Assets held for sale and discontinued operations.” Following licensure by the U.S. Food and Drug Administration, we will also transfer the new Leukine production plant in Seattle, Washington, to Genzyme. Bayer’s production site in Berlin, Germany, will continue to produce Fludara as a contract manufacturer for Genzyme.

Earnings per share from continuing and discontinued operations

	1st Quarter 2008	1st Quarter 2009
	€ million	€ million
Income after taxes	762	424
of which attributable to non-controlling interest	0	(1)
of which attributable to Bayer AG stockholders (net income)	762	425
Income from discontinued operations after taxes	0	0

Financing expenses for the mandatory convertible bond, net of tax effects	28	28
Adjusted net income from continuing operations	790	453
Adjusted net income from continuing and discontinued operations	790	453

Weighted average number of issued ordinary shares	764,341,920	764,343,660
Potential shares to be issued upon conversion of the mandatory convertible bond	59,582,699	60,039,083
Adjusted weighted average total number of issued and potential ordinary shares	823,924,619	824,382,743

Basic earnings per share	€	€
from continuing operations	0.96	0.55
from discontinued operations	0.00	0.00
from continuing and discontinued operations	0.96	0.55

Diluted earnings per share	€	€
from continuing operations	0.96	0.55
from discontinued operations	0.00	0.00
from continuing and discontinued operations	0.96	0.55

The ordinary shares to be issued upon conversion of the mandatory convertible bond, which matures on June 1, 2009, are treated as already issued shares. Diluted earnings per share are therefore equal to basic earnings per share.

Legal risks

Information on the Bayer Group’s legal risks is provided in the Bayer Annual Report 2008. The Bayer Annual Report 2008 can be downloaded free of charge at http://www.bayer.com/. There have been no material changes in the legal risks since then.

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 27, 2009

Bayer Aktiengesellschaft

The Board of Management

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