Operating cash flow
Gross cash flow in the second quarter of 2006 increased by 11.2 percent to EUR 964 million (Q2 2005: EUR 867 million) thanks to the strong growth in business. Net cash flow from continuing operations fell by EUR 85 million to EUR 895 million (Q2 2005: EUR 980 million), due especially to lower cash inflows in the CropScience subgroup. The net cash flow includes a EUR 145 million inflow from the newly acquired Schering business. Of this amount, the sale of hedging options related to stock option plans of Schering AG accounted for EUR 121 million.

There will be a corresponding outflow in the third quarter.

Investing cash flow
There was a net cash outflow of EUR 13,836 million for investing activities (Q2 2005: inflow of EUR 247 million). The principal item was EUR 14.1 billion in cash outflows for acquisitions, comprising EUR 15.1 billion in purchase price disbursements for Schering AG through June 30, 2006, less approximately EUR 1 billion in acquired cash.

Capital expenditures for property, plant and equipment (EUR 324 million) and intangible assets (EUR 16 million) rose by EUR 69 million to 340 million (Q2 2005: EUR 271 million). Interest receipts increased as a result of high cash holdings prior to the Schering acquisition. Interest and dividend receipts thus rose from EUR 334 million to EUR 375 million. There was a net cash inflow of EUR 133 million from the sale of marketable securities (Q2 2005: outflow of EUR 94 million).

Financing cash flow
The net cash inflow of EUR 12,320 million from financing activities (Q2 2005: outflow of EUR 1,347 million) mainly comprised net borrowings of EUR 13,473 million in connection with the financing of the Schering acquisition (for details see the table “Financing Measures for the Schering Acquisition”).

Cash outflows for dividend payments amounted to EUR 692 million (Q2 2005: EUR 429 million), while those for interest payments came to EUR 461 million (Q2 2005: EUR 439 million).

Liquid assets and net debt
Including marketable securities and other instruments, the Bayer Group had liquid assets of EUR 2,573 million as of June 30, 2006. Of this amount, EUR 304 million was held in escrow accounts to be used exclusively for payments relating to civil law settlements in antitrust proceedings.

Net debt increased by EUR 14.2 billion in the second quarter of 2006. In connection with the Schering acquisition we spent EUR 15.1 billion, acquiring EUR 1.0 billion in liquid assets and EUR 0.2 billion in financial liabilities from Schering.

The measures adopted to finance the acquisition are shown in the table below. The remainder of the purchase price was paid mainly out of liquidity.

In addition, on July 6, 2006 – after the end of the reporting period – we placed 34 million new shares with German and international institutional investors. Cash inflow from the capital increase amounted to some EUR 1.2 billion. Together with the placing of the EUR 2.3 billion mandatory convertible bond, this successfully completes the equity raising announced in connection with the Schering acquisition. The total EUR 3.5 billion thus raised is significantly below the EUR 4 billion limit originally set.

The net debt should also be viewed in light of the fact that the noncurrent financial liabilities include in their entirety both the 100-year hybrid bond issued in 2005 and the newly issued mandatory convertible bond. In computing debt indicators, rating agencies assign hybrid bonds partly, and mandatory convertible bonds wholly, to stockholders’ equity. These bonds thus support the Group’s rating-specific debt indicators.

In July 2006, Standard & Poor’s altered Bayer AG’s long-term issuer rating from A with stable outlook to BBB+ with positive outlook, citing the debt increase associated with the Schering acquisition. Also in July 2006, Moody’s confirmed the current A3 rating for Bayer AG, changing the outlook from stable to negative.