ANNUAL REPORT

2010
Contents

The key evenTs of 2010

3 2010 at a glance

AbouT Merck
4 The Merck path
5 becoming a global, publicly listed company
7 Merck today
7 The future

To our shAreholders
8 letter from karl-ludwig kley
12 executive board

MAnAgeMenT reporT 2010

15 overall economic situation
17 financial position and results of operations
30 corporate responsibility
39 Merck in the capital market
47 Merck serono
63 consumer health care
69 Merck Millipore
77 performance Materials
84 corporate and other
86 risk report
95 report on expected developments
106 subsequent events

corporATe governAnce
108 statement on corporate governance
128 report of the supervisory board
131 objectives of the supervisory board with
respect to its composition

consolidATed finAnciAl
sTATeMenTs of The
Merck group for 2010
134 income statement
135 balance sheet
136 segment reporting
138 cash flow statement
139 free cash flow
139 statement of comprehensive income
140 statement of changes in net equity
including non-controlling interest
141 notes

More inforMATion
209 responsibility statement
210 Auditor’s report
212 glossary
217 business development 2001 – 2010
219 financial calendar for 2011
219 service
publication contributors
Contents

merCk At A GlAnCe
key figures for 2010
Pharma- Corporate Change
EUR million ceuticals Chemicals and Other Total in %
Total revenues 6,225.5 3,065.1 – 9,290.6 19.9
Gross margin 5,109.7 1,795.5 – 6,905.2 20.8
Research and development 1,192.0 205.1 – 1,397.1 3.9
Operating result 579.0 624.0 –89.5 1,113.5 71.6
Exceptional items 68.6 –1.0 –68.4 –0.8 –97.3
Earnings before interest and tax (EBIT) 647.6 623.0 –157.9 1,112.7 79.2
EBIT before depreciation and amorti-
zation (EBITDA) 1,603.7 1,007.5 –154.3 2,456.9 51.2
Return on sales in % (ROS:
operating result/total revenues) 9.3 20.4 – 12.0
Free cash flow 1,343.6 –4,129.7 –736.4 –3,522.5 –
Underlying free cash flow 1,353.3 812.2 –495.7 1,669.8 96.1

Total revenues by business sector * operating result by business sector

EUR million EUR million
10,000 1,200

7,500 800

5,000 400

2,500 0

2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
* excluding Corporate and other Pharmaceuticals Chemicals
Pharmaceuticals Chemicals Corporate and Other
The pharmaceutical, chemical and life science businesses
of Merck are organized into four divisions: Merck Serono,
Consumer Health Care, Merck Millipore and Performance
Materials. Merck employs more than 40,000 people and
operates in 67 countries worldwide.
2 Merck Annual Report 2010

the key events of 2010

On the whole, 2010 was an eventful and a very good business year for
Merck. We pursued the Merck Way, which is based on the principles of
“Sustain. Change. Grow.” and were successful in doing so.

OLED technology proves fascinat- A leading life science company – Merck is significantly expanding
ing – also to Angela Merkel, the with the Millipore acquisition, its R&D presence in China – the
Chancellor of the Federal Republic Merck makes a successful strategic market of the future.
of Germany. move.
Company Management Report Corporate governance Consolidated Financial Statements More information 3

2010 At A glAnce

Merck acquired Millipore, a life science company based in the United States. On Febru-
ary 28, Merck announced the EUR 5.1 billion transaction. The legal closing of the transaction
took place on July 14. The new organization, which was merged with parts of the former
Performance & Life Science Chemicals division, started operating under its new brand identity
on January 1, 2011. Merck Executive Board Chairman Karl-Ludwig Kley said, “By combining
Millipore’s bioscience and bioprocess knowledge with our own expertise in serving life science
customers, we will be able to unlock value in our chemicals business.” Analysts also view the
acquisition as a good strategic move.

The confidence of the financial markets was reflected by the successful issue of a euro bond
to finance the Millipore acquisition. The EUR 3.2 billion bond was the largest issue by a German
company in Europe in 2010 and was conducted in multiple tranches in a rather difficult market
environment.

China is a market of the future for Merck. In 2010, Merck strongly expanded its presence
in China. Around 2,000 employees contributed to a sales increase of more than 30%. In Beijing,
we set up an R&D center in order to coordinate clinical trials locally. More than 200 highly
qualified positions will be created.

Merck experienced both highs and lows with the regulatory review of its new multiple sclerosis
treatment cladribine: Approvals in Russia and Australia, resubmission in the United States, a
final negative opinion on the marketing authorization application from the European Medicines
Agency. Regulators in the United States will decide on this drug in the first quarter of 2011.

Merck is a pioneer in LED and OLED development. To strengthen our position, we opened
the new Material Research Center at the Darmstadt site. Merck invested EUR 50 million in the
center. Angela Merkel, Chancellor of the Federal Republic of Germany, attended the inauguration
on September 23. The world’s largest OLED display – with a surface area of nearly nine square
meters – is located in the foyer of the main building.

A future-oriented cooperation agreement with Sanofi-Aventis was announced on Decem-

ber 17. The agreement involves a global research and development collaboration in oncology.
The goal is to research new, experimental combinations of agents that could block specific
signaling pathways in cancer cells. Merck hopes the collaboration will lead to new, targeted
cancer therapies with high therapeutic potential.
4 Merck Annual Report 2010

About Merck

At Merck, the pharmaceutical, chemical and life science businesses are under
one roof. We are convinced that in these sectors, the market will reward
successful research and technological advances with attractive margins.
We focus on specialty businesses. We are not interested in engaging in com-
modity markets or businesses where competition is dictated by price alone.

The Merck path

It all started with a pharmacy in 1668. The Angel Pharmacy, which is still owned by members of
the Merck family, is where Merck originated. Like his contemporaries, the pharmacist Friedrich
Jacob Merck prepared all medicinal substances himself. At that time, the “art of pharmacy” was
still a manual craft.
In 1816 – several generations of pharmacists later – Emanuel Merck took over his father’s
pharmacy and initiated the move from a manual craft to industrial production in 1827. In his
laboratory, he succeeded in extracting pure alkaloids, a class of highly effective plant constituents
whose medicinal effect attracted interest from the scientific community. By 1860, the company
already offered more than 800 organic and inorganic substances for sale, including many still
used in laboratories today.
The roots of the Liquid Crystals business – one of the outstanding Merck success stories – date
back to 1904. For decades, liquid crystals remained a laboratory oddity, and their sale was handled
by the Laboratory business.
Serono, which was acquired by Merck in 2007, also started out by extracting active substances.
In 1906, Cesare Serono founded the “Istituto Farmacologico Serono” in Rome and developed
a new method of extracting lecithin from egg yolk. In 1949, the company successfully isolated
pure gonadotropin from urine. Gonadotropin plays an important role in reproduction. The
production of recombinant gonadotropin transformed Serono into a biotechnology company.
Company Management Report Corporate governance Consolidated Financial Statements More information 5

Becoming a global, publicly listed company

Merck established initial business relationships with European neighbors in the 1820s.
Since 1900, Merck has maintained business relationships on all continents.
In the United States, Georg (later “George”) Merck, a grandson of Emanuel Merck, founded a
trading company called Merck & Co. in 1891. As a result of World War I, Merck in Darmstadt
lost its entire stake in this company under the “Trading with the Enemy Act” of 1917. George
Merck succeeded in reacquiring his interest and became president of the public company Merck
& Co. Today, the two companies are no longer linked. The U.S. company Merck & Co. owns the
exclusive rights to the name within North America while Merck in Darmstadt holds the rights
in the rest of the world. In the United States and Canada, the company operates under the name
EMD, the abbreviation for Emanuel Merck, Darmstadt.
Acquisitions and divestments have always played an important role at Merck. A decisive step
in Merck’s expansion was the acquisition of a 50% interest in the Bracco Group of Italy in
1972. Aside from commercializing contrast agents and its own pharmaceutical specialties,
Bracco served as Merck’s representative in Italy for the entire Merck product range, helping
to significantly boost Merck’s earning power. In 1991, Merck acquired the French company
Société Lyonnaise Industrielle Pharmaceutique (Lipha).
In the mid-1990s, Merck expanded its consumer health care business by acquiring Seven Seas
in the United Kingdom and Monot in France. At the same time, the acquisition of Amerpharm of
the United Kingdom gave Merck a critical mass in the generic drugs business. The takeover of a
large number of laboratory distribution businesses was rounded off with the purchase of VWR
Scientific Products, a U.S. laboratory distributor, in 1999.

Merck is the market leader

for liquid crystals.
By 1983, they were being
used in car dashboards.
6 Merck Annual Report 2010

In order to secure the financing of these acquisitions, Merck went public in 1995. A 26% interest
in Merck KGaA was sold to shareholders. The Merck family held the remaining 74% via the
general partner E. Merck. Following a capital increase in 2007, the ownership ratio shifted to its
current 30–70 ratio.
The first half of the past decade saw a significant number of divestments. In 2000, Merck
divested its interest in Bracco and vitamin chemicals. In 2004, the company exited from the
Laboratory Distribution and Electronic Chemicals businesses. In 2006, Merck was debt-free.
In 2007, Merck embarked on a growth course, acquiring the Swiss biopharmaceutical company
Serono. Involving a purchase price of EUR 10.3 billion, this was by far the largest acquisition
ever made by Merck. As the generics business was sold in the same year for EUR 4.9 billion, the
company lowered its debt to less than EUR 1 billion by year-end. Only three years later, Merck
made its next major acquisition, purchasing Millipore for EUR 5.1 billion. The EUR 3.2 billion
bond issue was the largest euro-bond offering by a German company in 2010. Merck also
decided to divest two non-core businesses in 2010: Théramex, a company specializing in
women’s health, and the Crop BioScience business for improving plant health and crop yields.

Merck is developing targeted cancer

therapies such as the molecule
­cilengitide (in green) shown here
at its molecular target.
Company Management Report Corporate governance Consolidated Financial Statements More information 7

Merck today

Merck is pursuing a business model aimed at creating value for shareholders and owners.
Following the acquisition of Millipore, we have a portfolio with a balanced distribution of risk.
This portfolio is based on core competences in three businesses with synergetic potential:
pharmaceuticals, chemicals and life science.
Merck runs its operating business in four divisions: Merck Serono, Consumer Health Care,
Merck Millipore and Performance Materials.
The Merck Serono division markets prescription medicines. It discovers, develops and manufactures
both chemical and biological molecules. Merck holds strong positions in neurodegenerative
diseases and oncology. In addition, the division markets fertility treatments, a field in which
we are the world market leader, and growth hormones as well as a broad portfolio of classic
products, especially for cardiovascular and metabolic disorders.
The Consumer Health Care division offers over-the-counter products for preventive health care
and the self-treatment of minor ailments.
Merck is the global leader in the liquid crystals market. Besides the display materials business,
the Performance Materials division focuses on lighting materials for energy-saving LEDs (light-
emitting diodes) and OLEDs (organic LEDs). Pigments for the plastics, printing and coatings
industries as well as for cosmetic applications are also an important part of the Performance
Materials portfolio. Moreover, the division is the market leader for pearl luster effect pigments
– a highly specialized niche within the pigment market.
In 2010, Merck acquired the U.S. life science company Millipore. Founded in 1954 by Jack Bush,
the focus at that time was on filtration technology for water treatment and laboratories. This
enabled Millipore to achieve a breakthrough worldwide. Later on, further businesses such as
bioprocessing and bioanalytical services for the pharmaceutical industry were added, trans-
forming Millipore into a leading global life science company.
With the acquisition of Millipore, Merck is now a leading life science company. The Merck Mil-
lipore division offers products for life science research such as assays, biomarkers and target
solutions, as well as bioprocessing, lab water purification and filtration. Additionally, the divi-
sion supplies specialty chemicals mainly to regulated markets, for example the pharmaceutical,
cosmetics and food industries. Analytical and scientific laboratories use our reagents and test
kits. In total, the Merck Millipore portfolio comprises more than 40,000 products and processes.

The future

Merck will continue to focus on specialty products in its pharmaceutical, chemical and life
science businesses while creating synergies. We will also further invest significantly in research
and development while pursuing growth both organically and through acquisitions. We will
adhere to our very solid finance policy.
8 Merck Annual Report 2010

Letter from Karl-Ludwig Kley

“We aspire to be a company

where an enjoyment of work
and innovative strength meet.”
Karl-Ludwig Kley
Company Management Report Corporate governance Consolidated Financial Statements More information 9

During 2010, we made further progress with the transformation of your

company into a leading innovative and high-tech enterprise. As part of this
process, we achieved several important milestones.

We impressively proved Merck’s economic strength following the 2009

crisis year. Our total revenues increased by 20% to EUR 9.3 billion, a
record high. The operating result jumped by 72% to EUR 1.1 billion. At
nearly EUR 1.7 billion, underlying free cash flow significantly exceeded
the billion-euro threshold for the first time. Profit after tax was 70% higher
than in 2009. In view of these figures, we will propose to the Annual General
Meeting on April 8 an increase in the dividend to EUR 1.25 per share.

With the acquisition of Millipore, we have given our business a deci-

sive boost. By combining Merck and Millipore, we have become a leading
global partner to the life science industry. With our portfolio, which ranges
from laboratory chemicals to complete solutions for the production of bio-
pharmaceuticals, we are helping our customers to succeed in research,
development and production. At the same time, we are capturing oppor-
tunities to realize synergies with our own existing businesses and to enter
new fields.

We have also set the course for the future with the recent changes in the
composition of the Executive Board. On January 1, 2011, Stefan Oschmann
succeeded Elmar Schnee, who left the company, as the Board Member
responsible for the Pharmaceuticals business. I would also like to take this
opportunity to thank Elmar Schnee, who decisively shaped the integration
of Merck Serono and contributed greatly to the solid foundations on which
we can further develop the business. Kai Beckmann will be joining the
Executive Board, taking over responsibility for the newly created Executive
Board position for Human Resources on April 1. And on June 1, 2011, Mat-
thias Zachert will succeed Michael Becker as Chief Financial Officer. With
this new team, we are creating the perfect conditions to start a new, success-
ful chapter in the unique history of Merck.

We are in a position to develop the company further from the economically

robust and highly innovative basis of 2010.

Merck Serono, our division for innovative prescription drugs, outper-

formed the average global market growth by posting an 8.3% increase in
sales. Our two largest products, Rebif ® and Erbitux ®, continued to perform
well. Their sales increased by 8.6% to nearly EUR 1,700 million and 18%

Draft/Layout
Inhalt ist in der Abstimmung,
kommt 2011
10 Merck Annual Report 2010

to EUR 820 million, respectively. Core return on sales (ROS) was 22%. Yet

we did not reach all our objectives. The Committee for Medicinal Products
for Human Use (CHMP) of the European Medicines Agency (EMA) issued
a final negative opinion regarding the marketing authorization application
for cladribine tablets as a treatment for relapsing-remitting multiple sclero-
sis. In the United States, we are awaiting the FDA’s decision.

The Consumer Health Care division, which is responsible for our over-
the-counter drugs business, continued its growth course, with the exception
of our newly emerging business in China. The restructuring measures
underway there not only slowed sales growth, but also adversely impacted
profitability.

We began consolidating our life science business, including the acquired

Millipore, into the new Merck Millipore division in July. Despite the on­going
integration work, we achieved a marked increased in sales. Adjusted for the
acquisition, core ROS was 19%.

The Performance Materials division, which comprises our materials busi-

nesses, can look back at a very successful year. With sales increasing by
38%, it was our strongest growth driver. The Liquid Crystals business
exceeded the EUR 1 billion sales threshold for the first time. The division’s
ROS was 42%.

We were also successful on a regional basis. In Asia, our second-largest

region after Europe, we grew by 37%, posting sales of EUR 2.3 billion. In
the United States, sales increased by 32% to EUR 1.4 billion.

We are looking toward the future with optimism. No doubt we expect the
global financial, economic and debt crises to have a further impact. No
doubt key economies are still a long way from recovering their former sta-
bility and dynamism. The financial sector also remains vulnerable. Despite
all the risks, we expect economic developments to be positive in 2011. For
Merck, we expect total revenues to increase by between 13% and 18%.
We aim to increase the operating result by between 35% and 45%.

Above all, however, we want to further develop the company strategically:

Based on our strong position in display materials, we want to expand

into new fields and new technologies. After having successfully devel-
oped IPS, VA and PS-VA technologies that produce faster and sharper LCD
images and consume less power, we are working on successors. At the same
time, we are aiming to establish ourselves as a materials supplier in new
Company Management Report Corporate governance Consolidated Financial Statements More information 11

fields, including innovative lighting materials based on LEDs and OLEDs,

energy storage materials for the automotive sector, and products for the
photovoltaics industry that will be used in the next generation of solar
cells.

With Merck Millipore, we want to position ourselves as the leading

supplier to the life science industry, for instance in the biopharmaceutical
market, which is highly profitable and is currently growing at 12% a year.
Cooperating with customers on research and development programs is
a common feature of processes in modern biotech production where we
transform our expertise in chemicals and pharmaceuticals into innovation.
Once the production process has been approved for a drug, this leads to
benefits for our customers, who seek joint, long-term success with a supplier
they can trust.

At Merck Serono, we are concentrating on specialist therapeutic areas

with high unmet medical needs. Our research activities are focused on three
areas: Oncology, Neurodegenerative Diseases and Rheumatology. In parallel
with the development of specific therapies, it is our aim to develop patient
stratification methods: We want to focus even more closely on how our
drugs act in certain groups of patients and how therapeutic efficacy can be
predicted for individual patients.

We aspire to be a company where an enjoyment of work and innovative

strength meet. Merck stands out because it offers an inspiring and moti-
vating work environment in which all employees have the opportunity to
make extraordinary achievements while developing themselves further.

And this is why our more than 40,000 employees apply themselves ener-
getically to the benefit of customers and the company. We owe you, our
shareholders and customers, our thanks for your support and trust. My
Executive Board colleagues and I will continue to do everything we can to
merit this trust.
12 Merck Annual Report 2010

Executive Board

Karl-Ludwig Kley Michael Becker

Chairman of the Executive Board Chief Financial Officer

born in 1951, lawyer born in 1948, lawyer

Member of the Supervisory Board joined Merck in 1998,

and Board of Partners of Merck Member of the Executive Board
from March 2004 to June 2006, since January 2000
Member of the Executive Board
since joining Merck in September Responsibility for Group-wide
2006 functions:
Accounting and Controlling,
Responsibility for Group-wide Finance; Taxes; Insurance;
functions: Mergers and Acquisitions;
Information Services; Human Investor Relations; Purchasing
Resources (global); Legal and
­Compliance; Patents; Auditing
and Risk Management; Strategic
Planning; Inhouse Consulting;
Corporate Communications;
­Environment, Health and Safety

Stefan Oschmann Bernd Reckmann

Head of the Pharmaceuticals Head of the Chemicals business
business sector sector

born in 1957, veterinarian born in 1955, biochemist

joined Merck in 2011 as a joined Merck in 1986,

Bernd Reckmann
Member of the Executive Board Member of the Executive Board
since January 2007
Responsibility for Group-wide
functions: Responsibility for Group-wide
Pharmaceuticals business sector functions:
Chemicals business sector
Regional responsibilities: Europe;
United States (Pharmaceuticals); Regional responsibilities:
Canada; Latin and Central America; Germany (including HR); Site
Africa; Middle East Management Darmstadt and
Gernsheim; Asia; United States
Until the end of 2010:
Elmar Schnee (Chemicals); Russia, Australia;
New Zealand
Company Management Report Corporate governance Consolidated Financial Statements More information 13

Stefan Oschmann

Michael Becker

Karl-Ludwig Kley
14

MAnAgeMent report
of the Merck group 2010

15 Overall economic situation

17 Financial position and results of operations
30 Corporate responsibility
39 Merck in the capital market
47 Merck Serono
63 Consumer Health Care
69 Merck Millipore
77 Performance Materials
84 Corporate and Other
86 Risk report
95 Report on expected developments
106 Subsequent events
 Company Management Report Corporate governance Consolidated Financial Statements More information 15
Overall economic situation

Overall economic situation

The global economy recovered from the most severe crisis since the Second
World War. In the pharmaceutical sector, emerging countries are gaining
ground. The chemical industry, especially that of Germany, recorded an
exceptionally good year in 2010.

Global economy is regaining momentum – Uncertainty remains

The Organization for Economic Cooperation and Development (OECD) reported that economic
growth of its 34 member states totaled 2.8% in 2010. Gross domestic product (GDP) of the
United States, the world’s largest economy, grew by 2.7%, while gross national product (GDP)
of the eurozone countries increased by 1.7%. Japan can look back at growth of 3.7%. On the
positive side, the OECD noted that company profits, which had grown sharply, were reinvested.
However, the renewed drop in real estate prices in the United States as well as growing tension
in the foreign exchange markets had a noticeably negative impact.
The International Monetary Fund (IMF), which reports on the development of global economic
growth, calculated an increase of 4.8% in 2010. Accordingly, the industrialized countries
recorded a 2.7% increase in GDP. However, industrial output in the industrialized countries
is still notably below the pre-crisis level. By contrast, the emerging and developing countries
achieved a GDP increase of 7.1%. This includes the BRIC countries, namely China (+10.5%),
India (+9.7%), Brazil (+7.5%) and Russia (+4%).
The IMF considers the global growth achieved to be weak because the world economy is still
recovering from the deepest recession since the Second World War. By contrast, thanks to
­government incentives, China achieved a self-sustaining recovery fueled mainly by private
sector demand. However, economists are noting real estate speculation in some parts of China,
which could lead to corrections. According to the IMF, Brazil is leading the recovery in Latin
America, yet its economy is currently showing signs of possibly overheating.
Uncertainties remain despite the The IMF takes a critical view of financial market stability, which had already declined in the
market recovery following the crisis
first half of 2010 and uncertainty is gaining ground. Growing tensions in the international
currency environment as well as the expansive monetary policy of the United States pose risks.
Overall, the economic recovery slowed down as of the third quarter of 2010 according to the
IMF. Private demand as well as the impact of government economic incentives ending were
and still are uncertainties in this context. In 2010, inflation was under 1.5% in the industrialized
countries and 5.75% in the economies of emerging countries.
16 Merck Annual Report 2010

Pharmaceutical markets of the industrialized countries facing stronger headwind

One-third of our global The pharmaceutical market research firm IMS Health reported global pharma sales in 2010
­pharmaceutical sales are
generated in of around USD 840 billion, corresponding to growth of around 4.5%. Sales in the United
the United States States, the world’s largest pharmaceutical market, totaled USD 310 billion. The more mature
markets of the industrialized countries no longer showed particularly strong growth, also as
an outcome of health care reforms, for example in France, Spain and Greece. Markets with
high growth rates include the BRIC countries, namely Brazil, Russia, India and China, as well
as Turkey and Indonesia. In 2010, emerging economics already accounted for 42% of the global
growth of the pharmaceutical markets. According to IMS Health, it is becoming increasingly
difficult to introduce new medicines to the market and to earn the corresponding returns
on investment. IMS Health reports that in several countries, including Spain, Italy and China,
regional or even local authorities are becoming increasingly influential alongside national
authorities. This lengthens the time to market launch, if a product even makes it that far.

Chemical industry registers strong growth

According to the European Chemical Industry Council (Cefic), the European chemical industry
grew by 10% in 2010 compared to 2009, which was a weak year due to the economic crisis.
Germany was the growth engine of the European chemical industry, yet the industry has still
not returned to the pre-crisis level of 2007. Global sales totaled EUR 1,871 billion in 2009. The
27 member states of the European Union were responsible for EUR 449 billion, or just 24%
of the total. Accounting for 25.5% of European sales, Germany holds the leading position
in this region. Globally, Asia is in first place with sales of EUR 834 billion, led by China with
EUR 416 billion. Specialty chemicals, which include products from Merck, account for 26%
of European chemical sales. According to Cefic data, consumer chemicals, which also include
Merck products, account for 14% of European chemical sales. (The figures for 2010 will only be
available after the publication of this report).
Growth weakened toward year-end since economic incentives ended in some countries.
Demand outside of Europe was the main growth driver according to Cefic.
The German Chemical Industry Association (VCI) calculated growth of nearly 18% to EUR 170 billion
for Germany. The approximately 1,600 member companies invested EUR 6.4 billion in plant and
buildings, and spent nearly EUR 9.4 billion on research and development.
The American Chemical Council (ACC) put the volume of the largest market, the United States,
at well over USD 670 billion in 2010. Exports were an important component, generating a trade
surplus of USD 3.7 billion, compared to a deficit of USD 100 million in 2009. According to the
ACC, industrial output in the emerging countries rose by 12% in 2010.
 Company Management Report Corporate governance Consolidated Financial Statements More information 17
Overall economic situation
Financial position and results of operations

Financial position and results of operations

The Group financial statements strongly reflect the acquisition of Millipore,
which is helping us to position Merck as a life science company.

2010 – A successful and eventful business year

The financial and earnings position developed very positively in 2010. Following the acquisition
of Serono of Switzerland within the Pharmaceuticals business sector in 2007, we also made
a major acquisition in the Chemicals business sector by purchasing Millipore Corporation of
the United States in 2010. This acquisition had a very strong impact on the 2010 financial
statements. The revenues and expenses of the Millipore companies have been included in the
income statement since July 2010. Moreover, the expenses from the purchase price allocation
as well as one-time transaction and integration costs have been taken into account.
Organic sales growth of 7.9% Product sales of the Merck Group rose in 2010 by 21% to EUR 8,929 million. Declining by 2%,
for the Merck Group
royalty, license and commission income was slightly lower than in 2009. Total revenues, mean-
ing the sum of product sales as well as royalty, license and commission income, rose by 20%
to EUR 9,291 million. This sharp increase is related to the purchase of Millipore. However, our
business also grew satisfactorily on an organic basis, i.e. adjusted for acquisition and currency
effects, by 7.9%.

Total revenues by business sector

EUR million
10,000

7,500

5,000

2,500

2006* 2007 2008 2009 2010

* including Generics

  Chemicals    Pharmaceuticals

Cost of sales increased by 18%. In the course of the purchase price allocation, the inventories
from the Millipore acquisition were already recognized at fair values based on realizable sales
revenues, and thus stepped up by EUR 86 million. This amount was fully expensed in cost of
sales in the second half of 2010, and had a one-time negative impact on gross margin. Overall,
gross margin rose by 21%. Marketing and selling expenses increased relatively sharply by 20%
since the costs of the Millipore companies were included for six months compared to 2009.
Excluding the acquisition and currency effects, the increase amounted to 7.9%.
Owing to the increasing significance of royalty, license and commission expenses, we disclose
these separately below marketing and selling expenses. The 15% cost increase is sales-dependent
and relates to the positive development of our Merck Serono products Rebif ® and Erbitux ®.
18 Merck Annual Report 2010

Royalty, license and commission income and expenses include the royalty, license and commission
income reported in total revenues as well as the expenses for marketing licenses and to a lesser
extent production licenses. The components are as follows:

Royalty, license and commission income and expenses by division in 2010

Merck Consumer Merck  Performance  Corporate

EUR million Total ­ erono
S Health Care Millipore Materials and Other
Royalty + license expenses −183 −163 − −7 −13 –
Royalty + license income 340 323 2 7 8 –
Total 157 160 2 – −5 –

Commission expenses −297 −293 − −3 −1 −

Commission income 22 22 − − − −
Total −275 −271 − −3 −1 −

Royalty, license and commission income and expenses by division in 2009

Merck Consumer Merck  Performance  Corporate

EUR million Total ­ erono
S Health Care Millipore Materials and Other
Royalty + license expenses –172 –151 –1 −3 −17 −
Royalty + license income 345 328 2 7 8 −
Total 173 177 1 4 −9 −

Commission expenses –257 –253 − −3 −1 −

Commission income 24 23 − 1 – −
Total –233 –230 − −2 −1 −

The marked 12% increase in administration expenses was due mainly to the first-time con-
solidation of the Millipore companies, as well as to currency effects. Excluding acquisition and
currency effects, administration expenses rose by only 1.9%.
Showing a net expense of EUR 390 million, the line item “Other operating income and expenses”
grew slightly (EUR –18 million) compared to the net expense reported in 2009. While the figure
for 2009 included an increase of around EUR 80 million in expenses due to additions to provi-
sions for litigation, the figure for 2010 includes transaction and integration costs for Millipore
totaling EUR 87 million. Transaction costs accounted for around EUR 31 million, which were
no longer capitalized as part of the purchase price due to changes in IFRS accounting rules
but recognized immediately in the income statement. Additionally, higher impairment losses
on intangible assets and property, plant and equipment lowered this item. In total, impairment
losses amount to EUR 66 million. These are largely related to the termination of research
 Company Management Report Corporate governance Consolidated Financial Statements More information 19
Financial position and results of operations

projects and research alliances, but also to altered market conditions, which lead us to expect
lower sales than previously assumed. In 2010, we recorded EUR­ 25 million for exchange rate
gains, whereas in 2009 we recognized exchange rate losses of EUR 7 million. Research and
development costs increased by 3.9% to EUR 1,397 million. Thus, the ratio of R&D expenses
to total revenues was 15% compared to 17% in 2009.

Research and development spending by business sector

EUR million
1,400

1,050

  700

  350

2006* 2007 2008 2009 2010

* including Generics

  Chemicals    Pharmaceuticals

Amortization of intangible assets, which previously related mainly to the Serono purchase price
allocation, now also include amortization of the intangible assets identified within the scope of
the purchase price allocation for Millipore. These are mainly customer relationships and tech­
nologies as well as trademarks and brands, which are amortized over a period of 8 to 17 years.
Consequently, depreciation and amortization rose significantly, totaling EUR 96 million for
the Merck Millipore division. This item also includes expenses for amortization of intangible
assets resulting from the previous Serono purchase price allocation. Due to a reassessment of
the potential future sales for safinamide, we recorded an impairment of EUR 134 million to
a residual value of EUR 63 million. This reassessment was based on the results of a Phase III
study conducted by our development partner Newron. The results led to a reassessment of
the market potential especially with regard to the achievable indications. In addition, the new
valuation covers a delay in the project as well as an increase in R&D costs owing to increased
regulatory requirements.
Group operating result Overall, the operating result of the Merck Group amounted to EUR 1,113 million, corresponding
increases by 72%
to an increase of 72% over 2009.
20 Merck Annual Report 2010

Operating result by business sector

in EUR million
1,200

  800

  400

     0

2006* 2007 2008 2009 2010

* including Generics

  Chemicals    Pharmaceuticals    Corporate and Other

Exceptional items: Gain on the divestment of Théramex as well as litigation costs

Exceptional items include the gain on the sale of Théramex amounting to EUR 69 million.
Further information on this can be found in the Notes under “Scope of consolidation”.
In connection with the legal risk of our former subsidiary Dey Inc., USA, having allegedly
reported false price information, a settlement was reached with the U.S. Department of Justice
in 2010. The resulting expenses of EUR 67 million were recorded under exceptional items.
Although Dey Inc. was transferred to Mylan Inc., USA, within the scope of the divestment of
the Generics business in 2007, Merck remains liable to Mylan for the costs of this litigation.
Additional expenses amounting to EUR 1 million relate to the sale of the Electronic Chemicals
business in 2005 and include a purchase price reimbursement to the buyer for subsequent
taxes. Moreover, this item includes transaction costs of EUR 1 million for the planned sale
of the Crop BioScience business. The transaction, which is subject to antitrust clearance, is
expected to close in 2011.

Profit after tax up 70% Sharp increase in profit after tax

The financial result showed an expense balance of EUR 252 million compared to EUR 134 million
in 2009. The marked increase was due mainly to interest expenses for the financing of the Millipore
acquisition.
Adjusted for exceptional items, the tax rate was 25.3%, compared to 21.6% in 2009. It should
be noted that the capitalization of deferred tax assets on tax loss carryforwards had favorable
one-time effects on the tax rate in 2009. Profit after tax amounted to EUR 642 million, which
is 70% more than in 2009.
 Company Management Report Corporate governance Consolidated Financial Statements More information 21
Financial position and results of operations

Profit before and after tax

EUR million
3,600

2,400

1,200

     0

2006* 2007* 2008 2009 2010

* including Generics

  Profit before tax    Profit after tax

Dividend proposal
Merck raises divdend to EUR 1.25 We will propose to the Annual Meeting on April 8, 2011 a raise in the dividend from EUR 1.00
to EUR 1.25 per share.

Good growth in the Pharmaceuticals business sector

The Pharmaceuticals business sector, comprising the two divisions Merck Serono and Consumer
Health Care, increased total revenues by 7.1% to EUR 6,225 million in 2010. Total revenues in-
creased by 7.6% in the Merck Serono division and by 1.1% in the Consumer Health Care division.

Pharmaceuticals | Total revenues by division

EUR million / % of total revenues

1 Merck Serono 5,754 92% 2

2 Consumer Health Care 472 8%

The Pharmaceuticals business sector increased its operating result as well. This figure rose by
44% to EUR 579 million. This was due exclusively to the development of the Merck Serono division
(+59%). The operating result of the Consumer Health Care division was 71% lower than in
2009 (more information can be found on page 62).
The Pharmaceuticals business sector generated 67% of total revenues and 48% of the operating
result of the Merck Group (excluding Corporate and Other). Return on sales increased from
6.9% to 9.3%.
22 Merck Annual Report 2010

Pharmaceuticals | Operating result by division

EUR million / % of operating result

1 Merck Serono 565 98% 2

2 Consumer Health Care 14 2%

Chemicals business sector posts revenue growth of nearly 60%

The Chemicals business sector, comprising the two divisions Merck Millipore and Performance
Materials, markedly increased total revenues by 58% to EUR 3,065 million. Both divisions
performed very well, with total revenues increasing by 81% for Merck Millipore and by 38%
for Performance Materials. However, for the Merck Millipore division, it should be noted that
the Millipore companies have only been consolidated since July 2010 and were therefore only
included in the financial statements for half a year. Organically, meaning adjusted for acquisition
and currency effects, total revenues of the Chemicals business sector increased by 17%.

Chemicals | Total revenues by division

EUR million / % of total revenues

1 Merck Millipore 1,681 55%

2 Performance Materials 1,384 45%

2 1

Liquid crystals and Pigments The operating result of the Chemicals business sector increased by 92% to EUR 624 million,
post excellent results
despite expenses such as the costs of the Millipore integration (EUR 87 million), the one-time
inventory step-up within the scope of the Millipore purchase price allocation (EUR 86 million)
as well as the amortization of intangible assets (EUR 96 million). Due to the aforementioned
one-time expenses in 2010, the operating result of the Merck Millipore division declined by
59%. The significant rise of 166% in the operating result of the Performance Materials division
was derived from the Liquid Crystals and Pigments business units.
 Company Management Report Corporate governance Consolidated Financial Statements More information 23
Financial position and results of operations

Chemicals | Operating result by division

EUR million / % of operating result

1 Merck Millipore 44 7% 1
2 Performance Materials 580 93%

The Chemicals business sector generated 33% of total revenues and 52% of the operating result of
the Merck Group (excluding Corporate and Other). Return on sales increased from 16.8% to 20.4%.

Growth by quarter

Total revenues by quarter

EUR million 1st quarter 2nd quarter 3rd quarter 4th quarter 2010 2009
Total 2,099 2,208 2,438 2,546 9,291 7,747
Pharmaceuticals 1,514 1,564 1,518 1,628 6,225 5,812
Chemicals 585 644 919 918 3,065 1,935
Corporate and Other – – – − – –

Components of growth in total revenues by quarter

 in % 1st quarter 2nd quarter 3rd quarter 4th quarter 2010 2009
Organic growth 13.2 10.7 3.5 4.5 7.9 2.2
Pharmaceuticals 7.0 6.8 1.6 4.1 4.9 7.0
Chemicals 33.4 22.0 8.7 5.9 16.9 –9.5
Currency effects –0.5 4.7 5.3 4.8 3.7 –0.2
Acquisitions/divestments 0.2 0.2 16.2 16.1 8.4 –
Total 12.9 15.6 25.0 25.5 19.9 2.1

Regions: Europe remains our top sales region

Sales by region showed the following breakdown: Accounting for 42% of sales, Europe remains
our largest sales market, followed by Asia (26%), North America (17%) and Latin America (12%).
Sales growth of 10% in Germany At EUR 3,747 million, sales in Europe increased by 11%. Within Europe, Germany is the top sales
country, followed by France and Italy. Sales in Germany grew by 10% in 2010 to EUR 779 million.
Within the Pharmaceuticals business sector, France is our largest European market, followed by
Germany and Italy. Whereas pharmaceutical sales in Italy increased and stagnated in Germany,
we registered a decline in France.
24 Merck Annual Report 2010

Merck Group | Sales by region

EUR million
10,000

7,500

5,000

2,500

2006* 2007 2008 2009 2010

* including Generics

  Europe    North America    Latin America    Asia, Africa, Australasia

Focus on Asian markets With sales of EUR 2,305 million, Asia is our second largest region and is increasingly gaining
in importance, growing by 37% in 2010. In Asia, Taiwan is the leading country by sales for the
Merck Group. Sales there increased by 75% to EUR 589 million following a weak 2009, mainly
as a result of the Liquid Crystals business. The Chemicals business was responsible for 94% of
sales in Taiwan, with the Liquid Crystals business accounting for the largest share.
Our second-largest market in Asia is Japan, where we posted a 57% increase in sales to
EUR 486 million. The Pharmaceuticals business sector accounts for about 40% and the Chemi-
cals business sector for around 60% of sales. The sales growth rates achieved by Pharmaceu­
ticals and Chemicals varied, amounting to 39% and 71%, respectively.
South Korea is our third-largest Asian market. Sales increased here by 3.9% to EUR 360 million.
The focus is on the Chemicals business, which accounted for 89% of sales.
Our declared growth market of China currently ranks fourth within Asia. We achieved a 26%
increase in sales in this market to EUR 240 million. Sales in China are about evenly divided
between our Pharmaceuticals and Chemicals business sectors. In India, which follows China
in our sales ranking, we achieved sales growth of 38% to EUR 156 million. Pharmaceuticals
accounted for 27% and Chemicals for 73% of sales.
Merck expanded sales in North America to EUR 1,530 million in 2010. This represents growth
of 31%. At EUR 1,403 million (+31%), more than 90% of sales in this region are generated
in the United States. The Pharmaceuticals business sector accounts for around 70% and the
Chemicals business sector for around 30% of sales in the United States. This ratio will continue
to shift in favor of Chemicals owing to the acquisition of Millipore in mid-2010.
In Latin America, Brazil is by far our largest market, followed by Mexico. Brazil is one of our
declared growth markets besides India and China. In 2010, we increased our sales in Brazil by
37% to EUR 359 million. Around 80% of sales there were generated by the Pharmaceuticals
business sector.

Acquisitions: Millipore strengthens the Chemicals business

On July 14, 2010, Merck successfully completed the acquisition of Millipore Corporation,
a leading life science company based in Billerica, Massachusetts, USA. The Millipore companies
 Company Management Report Corporate governance Consolidated Financial Statements More information 25
Financial position and results of operations

were then consolidated in the financial statements of the Merck Group for the first time. The
total volume of the transaction was EUR 5,137 million. This includes payments amounting to
EUR 4,612 million for the outstanding shares as well as existing options from stock option
plans and payments of EUR 525 million to repurchase an outstanding convertible bond that
had been issued by Millipore.
On February 28, 2010, Merck announced its offer to acquire all outstanding Millipore shares
for USD 107 in cash per share of Millipore common stock. The closing followed the approval
of the acquisition by Millipore’s shareholders at a special meeting held on June 3, 2010, and
the satisfaction of other customary conditions, including antitrust clearance in the United
States and Europe. Millipore was delisted from the New York Stock Exchange on July 26, 2010.
Likewise, an application for deregistration from the U.S. Securities and Exchange Commission
(SEC) was filed on July 26, 2010. The deregistration took effect on October 13, 2010.

Millipore influences balance sheet ratios

The total assets of the Merck Group amounted to EUR 22,388 million as of December 31, 2010.
Equity ratio of 46% This corresponds to an increase of EUR 5,675 million or 34% over December 31, 2009. The
most significant impact on the balance sheet structure was the acquisition of Millipore and the
financing thereof. To finance the acquisition, a bond consisting of several tranches with a total
volume of EUR 3.2 billion was issued during 2010. The equity ratio declined from 56.9% at the
beginning of 2010 to 46.3% on December 31, 2010. Apart from profit after tax amounting to
EUR 642 million, positive currency effects from the development of foreign currencies versus
the euro increased equity by around EUR 841 million.
Within the scope of the purchase price allocation for the Millipore acquisition, the acquired
assets, liabilities and contingent liabilities have been recognized at fair values in the balance
sheet. This primarily led to an increase in intangible assets by around EUR 5,264 million. This
includes the goodwill from the transaction amounting to EUR 2,704 million. The fair value
adjustments made within the scope of the purchase price allocation are to be considered as
preliminary, with the exception of the measurement of inventories in the balance sheet as
of the date of first-time consolidation. As a result of the acquisition, net debt increased to
around EUR 4,484 million as of December 31. Primarily owing to the positive development of
cash flow, net debt since the acquisition declined during the second half of 2010. Due to the
higher debt level resulting from the Millipore acquisition, the two rating agencies Standard &
Poor’s and Moody’s adjusted their ratings. Standard & Poor’s issued a rating of BBB+ with a
stable outlook on March 2, 2010 (previously: A-) and Moody’s adjusted its rating on July 16,
2010, from A3 before the acquisition to Baa2 (stable outlook). In 2009, we started covering
the pension provisions of Merck KGaA with financial assets on a long-term basis. This long-
term approach will be expanded continuously. As of December 31, 2010, EUR 217 million was
disclosed separately as a non-current financial asset.
As of December 31, 2010, the Crop BioScience business was disclosed as assets and liabilities
held for sale pursuant to the announcement of the planned sale of this business to Novozymes
A/S, Denmark. The Théramex Group was deconsolidated at the end of December. The agreed
purchase price of around EUR 270 million was recognized as a receivable in 2010.
26 Merck Annual Report 2010

Underlying free cash flow reflects good business performance

The free cash flow of the Merck Group in 2010 was also strongly affected by the acquisition
of ­Millipore. It amounted to EUR –3,522 million compared to EUR 812 million in 2009. By
Underlying free cash flow contrast, adjusted for the effects of acquisitions and divestments, underlying free cash flow
doubles
rose from EUR 852 million in 2009 to EUR 1,670 million, an increase of 96%.
Firstly, this increase is due to the strong improvement in the performance of the Chemicals
business sector compared to 2009. This business sector’s contribution to underlying free cash
flow rose from EUR 432 million in 2009 to EUR 812 million in 2010, a rise equivalent to around
88%. Secondly, the Pharmaceuticals business sector accounted for 48% or EUR 1,353 million
of underlying free cash flow, which was also mainly the result of good business performance.
Underlying free cash flow for Corporate and Other, which also includes interest and tax pay-
ments, amounted to EUR –496 million, which was nearly consistent with 2009.
Cash flow was lowered by payments amounting to EUR 241 million in connection with our former
subsidiary Dey Inc., USA, having allegedly reported false price information. EUR 215 million of
these costs relate to the settlement with the U.S. Department of Justice. Although the company
Dey Inc. was transferred to Mylan Inc., USA, within the scope of the divestment of the Generics
business in 2007, Merck remains liable to Mylan for the costs of this litigation. The overall
effect is reported in the segment Corporate and Other but was eliminated in the calculation of
underlying free cash flow as adjustments for the divestment of the Generics business.

Free cash flow and underlying free cash flow

EUR million
  2,000

   0

– 2,000

–4,000

2006* 2007* 2008 2009 2010

* Including Generics

  Free cash flow    Underlying free cash flow

 Company Management Report Corporate governance Consolidated Financial Statements More information 27
Financial position and results of operations

Capital spending: Decline after years of increases

In 2010, Merck invested a total of EUR 396 million in property, plant and equipment. This was
EUR 71 million or 15% less than in 2009. As in previous years, in 2010 we invested above-
average amounts, for example to expand biopharmaceutical active ingredient production in
Switzerland. As a result, the ratio of capital spending to total revenues was 4.3% in 2010
compared to 6.0% in 2009.
Europe accounts for more than Individual investment projects, each with a value of more than EUR 1 million, accounted for
three-quarters of capital spending
more than two-thirds of capital spending. In regional terms, Europe accounted for around
77% of the total, with the focus on Germany and Switzerland. In Germany, Merck invested
EUR 140 million in both new and expanded production capacities as well as in research and
development facilities in Darmstadt and Gernsheim in particular, our two largest production
sites. In Switzerland, capital spending totaled EUR 109 million, with the majority of this
amount used to expand our biopharmaceutical production facilities.
In North America, we invested EUR 57 million – the majority of which went toward the expan-
sion of pharmaceutical research in the Boston area. Capital spending in Latin America totaled
EUR 13 million. Our subsidiaries in Asia accounted for a total capital spending volume of
EUR 20 million, with the focus on Japan, Taiwan, China, India and South Korea, particularly for
the Chemicals business sector.
Capital spending by the Pharmaceuticals business sector totaled EUR 255 million, with the
Merck Serono division accounting for the majority of this amount. As in previous years, the
main focus of the investments was on the expansion of our biotech production capacities in
Corsier-sur-Vevey, Switzerland, which again in 2010 represented the single largest investment
project of the Merck Group. Around 20% of capital spending in Pharmaceuticals related to
headquarters in Darmstadt, Germany.

Capital spending on property, plant and equipment

EUR million
500

375

250

125

2006 2007 2008 2009 2010

  Chemicals    Pharmaceuticals

Capital spending on property, plant and equipment in the Chemicals business sector amounted
to EUR 139 million, with the Merck Millipore division accounting for EUR 80 million and the
Performance Materials division for EUR 59 million. Performance Materials invested chiefly at
the Darmstadt and Gernsheim sites, our main locations, in order to expand and modernize exist-
ing production facilities, to improve infrastructure and to construct new research buildings.
The focus of capital spending by the new Merck Millipore division was likewise in Darmstadt
and Gernsheim. Around EUR 28 million of the division’s total capital spending was attributable
to the former Millipore companies, which have been consolidated since July 2010.
28 Merck Annual Report 2010

Key financial performance indicators of the Merck Group

Return on sales (ROS or the ratio of operating result to total revenues) and underlying free
cash flow on revenues (FCR) are our two key financial performance indicators. The divisions use
them to steer their business and we also use them for short- and long-term internally agreed
targets. Group ROS increased from 8.4% in 2009 to 12.0% in 2010. This reflects the improve-
ment in the overall business situation, which included a sharp increase in total revenues. FCR
also developed positively in line with the good business development, increasing from 11% in
2009 to 18%. We refer to the average, or the arithmetic mean, of the two indicators ROS and
FCR as the “Merck Business Target” (MBT). It is used for performance-based short- and long-
term compensation systems and amounted to 15% compared to 9.7% in 2009. Both indicators,
ROS and FCR, are presented by division in the Segment Reporting, on page 136. For EBITDA,
as per the definition, depreciation and amortization of non-current assets are added back
to earnings before interest and taxes (EBIT). For Merck, EBITDA is also an important financial
indicator. Since the acquisition of Serono, amortization of intangible assets has been lowering
the operating result. Owing to the Millipore acquisition, these amortization expenses increased
Strong improvement in EBITDA further in 2010. When high impairment losses are also incurred, EBIT or the operating result
alone does not reflect the actual earning power of the business. EBITDA increased by nearly
50% from EUR 1,625 million in 2009 to EUR 2,457 million in 2010.

Value added
Value added is a measure of the economic strength of a company and indicates how the
corporate result is achieved and for what it is used.
Our corporate result, meaning the sum of total revenues, other income and financial income,
amounted to EUR 9,552 million in 2010. After deducting the costs of materials as well as other
purchased services and expenses, gross value added amounted to EUR 5,008 million.
Following the deduction of depreciation and amortization, net value added was EUR 3,750 million.
With a share of 69%, the majority amounting to EUR 2,597 million benefited employees in the
form of personnel expenses. Financial expenses increased over 2009 to EUR 291 million owing
to higher financing costs for the acquisition of Millipore. Taxes on income increased signifi-
cantly to EUR 220 million due to the higher level of profit before tax. At EUR 642 million, profit
after tax considerably exceeded the 2009 figure of EUR 377 million.
Company Management Report Corporate governance Consolidated Financial Statements More information 29
Financial position and results of operations

Net value added statement

EUR million 2010 2009
Total revenues 9,291 7,747
Other income 221 135
Financial income 40 36
Corporate result 9,552 7,918
Cost of materials –1,246 –1,052
Other purchased services/expenses –3,298 –3,075
Gross value added 5,008 3,791
Depreciation and amortization –1,258 –1,004
Net value added 3,750 2,787

Distribution of net value added

EUR million 2010 2009
Personnel expenses 2,597 2,129
Financial expenses 291 171
Taxes on income 220 110
Profit after tax 642 377
Net value added 3,750 2,787

Summary assessment
In 2010, the business performance of Merck was very successful overall. As of the beginning
of 2010, we recorded higher total revenues compared to year-earlier quarters. Primarily the
Chemicals business sector benefited from improved economic conditions. Additionally, the
acquisition of Millipore contributed to the increase in total revenues. The operating result
of the Chemicals business sector increased markedly despite the costs of the integration of
Millipore and the expenses from the purchase price allocation. In the Pharmaceuticals business
sector, the operating result was lowered by one-time expenses from declines in the value of
intangible assets.
The balance sheet ratios and the key financial indicators of Merck in 2010 were influenced
mainly by the acquisition of Millipore. On the assets side of the balance sheet, acquired intan-
gible assets led to an increase of more than EUR 5 billion. This compares mainly with third-
party financing of the Millipore acquisition in addition to deferred taxes resulting from the
purchase price allocation. Thanks to the good development of cash flow, Group net financial
debt has already fallen since the acquisition.
30 Merck Annual Report 2010

Corporate responsibility
We live up to our responsibility for our employees, our products and the
environment. We also live up to our responsibility for society. That is because
not only ownership, but also business success creates responsibility.

Responsibility is one of Firmly establishing and managing responsible behavior throughout the company is one of the
the basic principles of
company management basic principles of company management at Merck. As the top executive body of the company,
the Executive Board examines overarching corporate responsibility issues at least twice a year.
During 2010, these included such issues as greenhouse gas emissions, access to medicines,
supply-chain monitoring, and Merck’s special responsibility as a research-based company. The
latter resulted in, among other things, the adoption of policies on stem cell research and on
the use of nanotechnology. In November 2010, Merck signed the “Code of Responsible Conduct
for Business”, an initiative by German companies aimed at firmly establishing measurable
standards with respect to fair competition, social partnership, merit, and sustainability.
Merck is a member of the FTSE4Good Index, a leading international stock index for socially
responsible investing. Environmental protection as well as adherence to and support of human
rights are examples of the inclusion criteria.
As part of a materiality analysis, we identified and prioritized those sustainability topics of
greatest importance to Merck. The results of the analysis influence the selection of corporate
responsibility (CR) activities and key issues described on the following pages as well as in the
extensive Corporate Responsibility Report, which is published every two years and posted on
our website. The analysis took into account the perspectives of different stakeholder groups,
including for instance employees, business associates, site neighbors, and investors.

EMPLOYEES

As of December 31, 2010, our company had 40,562 employees, which was 7,500 more than in
2009. Merck was represented in 67 countries by 236 companies and had 70 production sites
located in 26 countries.
The change in the number of employees was mainly a result of our acquisition of the life science
company Millipore, which we completed in July 2010. The following countries saw significant
increases in the workforce in connection with this acquisition: In the United States 2,712
employees came from Millipore to Merck, in France 1,323, in Ireland 484, in India 272, in Japan
204, in China 188, in The Netherlands 153, and in Brazil 105.
In Germany, Merck had 10,340 employees, which was 436 more than in 2009. Here, the increase
was attributable to research and development in the Merck Serono division, to chemical
production, to the establishment of a global purchasing organization, and to the addition of
 Company Management Report Corporate governance Consolidated Financial Statements More information 31
Corporate responsibility

Millipore employees in Germany. Merck Serono in China had 1,230 employees, 333 more than
in 2009, as the division opened a new research center there and also expanded its sales and
marketing activities.
A total of 512 young people were enrolled in vocational training programs in 19 different
occupations at the Darmstadt site, the largest of the Merck Group.

Number of employees as of December 31, 2010

1 Europe 21,679 53%

4
2 North America 4,909 12%

3 Latin America 4,546 11%

1
4 Asia, Africa, Australasia 9,428 23% 3

Integration of Millipore employees

The acquisition of Millipore gives Merck the possibility to strengthen its position in the attractive
life science market and at the same time to expand its geographic reach. Therefore, the exper-
tise and skill of the Millipore employees as well as their commitment are key to the success of
this business. Right from the start of the integration process, we made sure when appointing
people to positions that the management teams of the new Merck Millipore division could
optimally draw on the expertise of both companies. Further key features of the integration
­process included regular, open communication, change management activities that take specific
corporate cultures into account, and concepts designed to maintain employee loyalty.

CORE TOPICS OF OUR INTERNATIONAL HUMAN RESOURCES WORK

As an integrated global company, Merck has implemented uniform human resources programs
worldwide. These include, for example, the Performance Management Process and the Global
Attracting and retaining talented Rewards Policy, which aim to develop a performance culture based on the joint strategic direc-
people in the long term
tion of the company and a performance-related, market-oriented compensation structure. The
Talent & Succession Management Process helps us to fill positions with the right people, as
well as attract and retain talented employees. In autumn 2010, we adopted a global employer
branding concept, the motto of which is “Make great things happen.” The aim here is to present
to potential applicants those features that make Merck unique. These include an inspiring and
motivating work environment in which innovations thrive, the possibility to contribute ideas
to benefit customers and the company, and personal development.
32 Merck Annual Report 2010

Performance management
Individual development plans Performance management is of crucial importance for promoting entrepreneurial success
have high priority
and for identifying and developing employee potential. Key features of this process are clear
objectives, differentiated feedback in performance management, transparent performance
assessment, and the preparation of individual development plans. In 2009, Merck started the
stepwise implementation of the globally uniform Performance Management Process, in which
around 7,100 employees are currently participating. Additional employee groups will be phased
into the process, particularly also the employees who have joined Merck from Millipore. A total
of around 21,000 employees are to participate in the Performance Management Process by the
end of 2011.

Global rewards policy

The compensation structure guidelines describe the principles governing how employees are
remunerated depending on their performance and capabilities, and on the situation in the
respective labor market. The Global Rewards Policy applies to all Merck companies worldwide
and ensures a systematic compensation structure.

Career opportunities
Merck wants to offer its talented employees the opportunity to have an interesting career and
to continually develop themselves within the company both personally and professionally. The
Talent & Succession Management Process and the Expert Talent Process are two systematic
programs that Merck uses to identify and specifically promote employees who show potential
for a management position or an expert career path. These programs enable Merck to appoint
the right people to management positions and at the same time to retain talented employees.
In 2010, 76% of promotions to management positions were filled by internal candidates.

Employee engagement survey

Motivated and committed employees are our most valuable asset. Merck wants to offer its
employees adequate scope for them to make their best individual contribution to the success
of the company. In order to create the right conditions for this, Merck regularly conducts a
Group-wide employee survey in which employees are able to express their assessment of Merck
as an employer, their motivation and identification with the company, as well as their needs.
The results are incorporated into measures that we use to continuously improve the framework
conditions. Altogether 84% of employees participated in the most recent survey, which was
conducted at the beginning of 2010 in 28 languages. The overall results show that the majority
of employees identify strongly with Merck and engage themselves for the success of the company.
All 11 categories saw improvements over the previous year’s survey. In seven categories, Merck
outperformed the global high-performing companies benchmark. This comprises a group of
companies across a range of sectors that are considered to be particularly strong performers
due to their excellent financial results as well as high employee engagement scores.
Company Management Report Corporate governance Consolidated Financial Statements More information 33
Corporate responsibility

Further improvement in occupational safety

In terms of accident prevention and occupational safety, we again made significant progress
in lowering the most important indicator, the lost time injury rate (LTIR). This internationally
used key figure describes the number of workday accidents resulting in lost time per one million
working hours. Merck has set itself the goal of reducing the LTIR to 2.5 by 2015. In order to
achieve this, we have introduced, for example, the “Safety Behavior Change” program to enhance
the safety awareness of each individual employee. We are also increasing our training measures
for persons responsible for EHS (Environment, Health, Safety), promoting independent responsi­­
bility of our employees, and supporting a wide variety of local occupational safety programs.
Despite our efforts to prevent accidents, one accident with a fatal outcome occurred in 2010.
A member of the sales force in Colombia died from the injuries she suffered during a car
accident.

Accidents
2006 2007 2008 2009 2010

LTIR (Lost Time Injury Rate) 6.9 4.7 3.9 3.4 3.0
Number of fatalities 0 3 1 0 1
Not portfolio-adjusted; 2010 including Merck Millipore

DIVERSITY IN THE WORKFORCE

As an international company, Merck endeavors to achieve a good balance between different

­cultures and nationalities, between different age groups, and between male and female
employees. Merck is convinced that workforce diversity promotes team performance, contrib­
uting to the company’s entrepreneurial success. We have therefore implemented measures
to sustainably anchor this diversity. Yet we realize that we need to further develop these
measures.

Ratio of men and women

Women currently make up 43% of the workforce. The ratio of female to male employees varies
among individual business areas, functions and regions. In the Pharmaceuticals business
sector, 47% of all employees are female, in Chemicals 33%, and in Group functions 21%. In
North America, 47% of all employees are female, in Europe 46%, in Latin America 43%, and in
Asia 33%. Women make up 55% of the workforce in research and development, which is the
highest percentage, followed by 50% in administration. The lowest percentages of women are
in production (32%) and the infrastructure departments (28%). Merck has set itself the goal
of increasing the percentage of female employees wherever they are underrepresented.
34 Merck Annual Report 2010

Internationality
Merck is a highly 74% of all employees come from countries other than Germany. In 2008, the first year in which
international company
we compiled these figures, this was 70%. The increase is primarily due to business expansion in
the United States, India and China. One of our basic principles is to hire and develop employees
from the respective countries. The company’s decision to locate the divisional headquarters of
Merck Serono in Geneva (Switzerland) and of Merck Millipore in Billerica, Massachusetts (USA)
also contributes to the internationality of the workforce, which we want to further intensify.

Age structure
Demographic change, and the aging of the population, is not equally noticeable in all countries
in which we operate. However, we must adapt to it, particularly in Germany, some other EU
Approaches for coping countries, and the United States. In these countries, the average age of our employees already
with demographic change
exceeds 40 – and we assume that this figure will increase further. In Europe, we are addressing
these demographic challenges in various programs. These include adapting workplaces to the
needs of older employees and establishing a health management program to maintain their
ability to do their job.

Management positions
A balanced diversity among the executive staff enhances career advancement opportunities
for talented employees. However, it also enables the company to leverage a broad base of
experience and allows for more differentiated entrepreneurial decision-making.
The percentage of women in management positions, meaning grade 14 and higher according
to the global grading system introduced at Merck two years ago, is currently 22% calculated
across the entire company (excluding employees who joined Merck as a result of the Millipore
acquisition since the global grading system has not yet been implemented for them). The
percentage is higher at the subsidiaries than at corporate headquarters in Darmstadt; it
is also higher in the Pharmaceuticals business sector than in Chemicals. The ratio of women
in management positions is lower in certain Group functions, such as IT for example. Merck
wants to further increase the percentage of women in management positions. Besides the local
measures that are already in place – such as the cross-company mentoring program and creating
opportunities to help employees reconcile the demands of career and family – we intend to
develop further programs during 2011. We set ourselves a global objective of increasing the
percentage of women in top management positions to 25% to 30% by 2016. This target may
be supplemented by local or unit-specific values. At the same time we have created the function
of Chief Diversity Officer to support implementation.
57% of all management positions are held by persons of non-German nationality – altogether
55 different nationalities are represented in such positions. The internationality of our man-
agement levels reflects the global nature of our business activities.
 Company Management Report Corporate governance Consolidated Financial Statements More information 35
Corporate responsibility

RESPONSIBILITY FOR PRODUCTS and THE ENVIRONMENT

Materiality analysis identifies sustainability topics

By conducting a materiality analysis, we identified sustainability issues that are of importance
to our Chemicals and Pharmaceuticals businesses. In both business sectors, responsibility for
products is at the heart of our corporate responsibility. Group-wide topics include supply-chain
sustainability and the use of nanotechnology. Examples of specific topics in Pharmaceuticals
are transparency in research, bioethics, animal testing, and access to medicines. Apart from
developing safe and effective medicines, our aim is to ensure access to medicines among the
people who need them, for example through a range of initiatives and donation programs in
developing and emerging countries as well as research projects. The most important issues in
Chemicals include product safety, product risk management and resource efficiency.

REACH and GHS: Turning challenges into opportunities

We are committed to ensuring that no risk arises from our products if used properly. When
developing new products, we take the sustainability aspects of their entire life cycle into
account. Extensive documentation of product properties and compliance with all legal require-
ments have high priority for us.
REACH: Understanding require- We made further excellent progress with the stepwise implementation of the EU regulation
ments as opportunities
REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals), which involves
high regulatory challenges. In line with our motto “Turning Challenges into Opportunities”, we
also offer our customers added value through our professional expertise.
Roughly, REACH is divided into three phases: Depending on the amount produced, a substance
must be registered by 2010, 2013, or 2018. Merck registered around 100 substances by the
end of the first deadline on December 1, 2010. Apart from the required substances, we also
registered several with a later deadline.

Requirements efficiently implemented in operating business

Besides meeting legal The Globally Harmonised System of Classification and Labelling of Chemicals (GHS) has led
requirements, Merck takes
on a leading role in to the European CLP regulation (Classification, Labelling and Packaging of Substances and
regulatory issues Mixtures), which we implemented very rapidly. In February 2009, customers received the first
CLP-conform deliveries. In September 2010, we were already in a position to include in the new
Chemicals catalog all CLP information for all substances and numerous mixtures.
In addition to the reclassification and relabeling of chemicals, the EU has also recently re­defined
the format and content of the relevant safety data sheets. In time for the December 1 deadline,
we provided the required new safety data sheets for all substances in the official EU languages.
We thus succeeded in interpreting the new requirements with legal certainty and implementing
them very efficiently in our operating business.
In addition to meeting our legal requirements, we provided extensive information material
(brochures, posters, e-learning courses) on the Web and held seminars to train customers. This
also strengthens Merck’s leading role in regulatory matters, reflecting our customer-centric
perspective and thus also the Merck brand.
36 Merck Annual Report 2010

“Design for Sustainability”

The Merck Millipore division offers an example of sustainable product development with its
“Design for Sustainability” principle. This starts with production and packaging, extends to
helping customers to conserve resources in the daily use of products, such as laboratory
instruments, and includes their disposal or recycling possibilities. Examples are the Mobius ®
filter units and bioreactors for biopharmaceutical production.

Strategic alliance with GIZ in Southeast Asia

For Merck, product responsibility does not end with the sale of the product. The return and
eco-friendly disposal of chemicals and packaging waste is part of our corporate responsibility.
Together with the German Society for International Cooperation (Deutsche Gesellschaft für
internationale Zusammenarbeit – GIZ), Merck is promoting better chemicals management in
Thailand, Indonesia and the Philippines, with the aim of improving eco-awareness and the
handling of chemicals in these countries. This project is based on the Retrologistik ® concept,
which involves the regulated return and safe disposal of packaging waste such as empty chemical
bottles. The alliance with the GIZ started in 2010 and is initially planned for three years.

Nanotechnology: Corporate guidelines

We are addressing not only the opportunities, but also the risks of nanotechnology. We follow
the precautionary principle and take safety issues involving nanomaterials seriously. When
manufacturing and processing products, we strictly observe all statutory regulations and other
applicable standards. These include the guidelines of the German Federal Institute for Occupa-
tional Safety and Health (Bundesanstalt für Arbeitsschutz und Arbeitsmedizin) as well as the
German Chemical Industry Association (Verband der Chemischen Industrie). We expanded our
guidelines on handling nanomaterials, which apply throughout the Group, to include those
aspects of relevance to the Pharmaceuticals business.

ISO 14001: Group certificate confirmed

All Merck products come In 2009, Merck had the environmental management system of all its production sites certified
from certified sites
in accordance with the international ISO 14001 standard. This globally valid group certificate
was confirmed by the annual certification maintenance audit in 2010. Consequently, all products
manufactured by Merck come from certified sites.

Environmental protection spending

Our spending on environmental protection, health and safety totaled EUR 140 million in 2010.
This figure includes depreciation of property, plant and equipment, and operating costs.

Achieving a 20% reduction in greenhouse gas emissions by 2020

Our goal remains to reduce all our greenhouse gas emissions – both direct and indirect – by
20% by 2020, compared to the 2006 levels. Direct emissions are those emissions that a company
itself releases by burning fossil fuels for steam or power generation, or through production
processes. Indirect emissions are those that are generated from purchased energy, such as
electricity, steam or distance heating.
 Company Management Report Corporate governance Consolidated Financial Statements More information 37
Corporate responsibility

Energy
2006 2007 2008 2009 2010

Energy consumption (in GWh) 1489 1492 1480 1352 1474

Purchased energy
Natural gas (in million m³) 77.9 75,8 79.0 72.7 78.2
Light heating oil (in kilotons) 7.8 9.5 8.8 6.7 8.6
Heavy heating oil (in kilotons) 0.7 0.9 0.6 0.2 0.3
Electricity (in GWh) 533 536 513 472 511
Portfolio-adjusted in accordance with the Greenhouse Gas Protocol; 2006–2010 including Merck Millipore

CO2eq emissions (eq=equivalents)

Emissions in kilotons 2006 2007 2008 2009 2010

Direct CO2eq emissions 321 374 307 304 352

Indirect CO2eq emissions 232 237 221 201 222
Total CO2eq emissions 553 611 528 505 574
Portfolio-adjusted in accordance with the Greenhouse Gas Protocol: 2006–2010 including Merck Millipore

New climate protection program

EDISON is the name of a new climate protection program that Merck launched in 2009. It sys-
tematically pools all Merck Group activities worldwide that are aimed at climate protection and
energy efficiency. The objective is to reduce energy consumption, thus cutting costs, conserv-
ing resources and protecting the environment. Here we are focusing on the largest producers
of greenhouse gas emissions: In recent years, 15 sites were responsible for around 80% of the
Merck Group’s total emissions. At Darmstadt and Gernsheim, two of the sites that produce the
most emissions, activities are already in progress. Specially trained experts in energy, building
and air conditioning technology as well as electrical engineering are systematically analyzing
the biggest consumers and recommending specific measures to save energy.
Energy conservation audits Yet this project concerns not only the German sites. Energy consumption and greenhouse
launched globally
gas emissions are being closely examined at our sites around the world. For example, energy
conservation audits were already conducted at the Onahama and Atsugi sites in Japan. At our
site in Norwood, Ohio (USA), entirely new heating boilers and process refrigeration units were
installed. By significantly improving its climate balance, the site is thus capable of contributing
to the Merck Group’s overall climate objectives. The Merck Serono site in Bari, Italy, which is
one of the Merck Group’s 15 largest producers of greenhouse emissions, received certification
in accordance with the energy management standard EN 16001. Bari is the first pharmaceuti-
cal production site in Italy to have received this certification.

Utilizing solar energy

Photovoltaic installations are used to generate energy at multiple locations throughout the
Merck Group. The Merck Millipore division took on a pioneering role with its sites in Billerica
and Bedford, Massachusetts (USA) and Molsheim (France), where solar energy partly covers
energy requirements. Solar energy systems are scheduled to start operating at our Merck
Serono sites near Tel Aviv, Israel and Rome, Italy in 2011.
38 Merck Annual Report 2010

Apart from greenhouse gas emissions, the Merck Group also records other air emissions.
Group-wide emissions of these substances at Merck are relatively low.

Air emissions
Emissions in kilotons 2006 2007 2008 2009 2010

VOC (volatile organic compounds) 1.8 1.9 1.9 0.2 0.2

Nitric oxides 0.3 0.2 0.2 0.1 0.1
Sulfur dioxide 0.07 0.03 0.05 0.03 0.03
Dust 0.02 0.02 0.02 0.02 0.02
Not portfolio-adjusted; 2010 including Merck Millipore

RESPONSIBILITY FOR SOCIETY

Our social commitment is divided into local charitable projects that the Merck subsidiaries
implement independently, and into global projects. The latter include the Merck Praziquantel
Donation Program, the Global Pharma Health Fund (GPHF), and the Merck Philharmonic
Orchestra.

Praziquantel Donation Program: Combating schistosomiasis

In 2007, we entered into a partnership with the World Health Organization (WHO) to combat
the worm disease schistosomiasis in African school children. Merck is donating 200 million
tablets of Cesol ® 600 containing the active ingredient praziquantel over a ten-year period. This
donation will permit the treatment of 27 million children. Schistosomiasis is the most common
tropical disease in Africa after malaria, causing primarily children to suffer. In 2010, 3.8 million
children were treated within the scope of this partnership.

Global Pharma Health Fund: Protection from counterfeit medicines

The Global Pharma Health Fund (GPHF), which is funded by Merck, is combating counterfeit
medicines in developing and emerging countries. According to WHO estimates, up to 30% of
Combating the medicines offered worldwide are either counterfeit or of inferior quality. Many African and
counterfeit medicines
Asian countries are especially affected by this since they lack effective regulatory and enforce-
ment systems for medicines. In order to effectively identify counterfeits and quickly remove
them from circulation, 394 compact mobile laboratories, or GPHF-Minilabs, were in use in more
than 70 countries as of December 31, 2010. They make it possible to rapidly identify pharma-
ceutical active ingredients and to immediately detect inferior or ineffective drugs.

Merck Philharmonic Orchestra: Cultural promotion

The Merck Philharmonic Orchestra is one example of how we promote culture. With around
80 professional musicians and a very diverse concert repertoire, the orchestra is not only an
integral part of the cultural life in the vicinity of our corporate headquarters in Darmstadt; it
also tours internationally. Special events for children and adolescents as well as cooperation
with schools are intended to encourage young people to develop a taste for classical music.
 Company Management Report Corporate governance Consolidated Financial Statements More information 39
Corporate responsibility
Merck in the capital market

Merck in the capital market

The Merck share price showed strong fluctuations. EUR 3.2 billion euro
bond successfully issued.

Stock market recovery continues

The recovery that began in the first half of 2009 in the international stock markets continued
in 2010. This was attributable to several factors, including the further recovery of the global
economy, persistently low interest rates set by the leading international central banks, as well
as expansionist monetary policies, especially in the United States. However, the after-effects
of the global banking crisis that escalated in 2008 had a significant impact on the budgets of
a number of eurozone members. Government bond yield spreads increased sharply, prompting
the European Central Bank to issue an unprecedented level of guarantees. This also had an
impact on the euro, the value of which declined significantly against all international reserve
currencies for a time. By contrast, the market for corporate bonds proved to be much more
stable, benefiting from high demand despite comparatively low coupons.

The performance of Merck shares vs. the DAX ® and Bloomberg Europe Pharmaceuticals Index in 2010
in %

120

100

80

60

Jan. March June Sept. Dec.

  Merck    DAX ®    Bloomberg Europe Pharmaceuticals Index

Development of the key indices

With the DAX ®, Germany’s blue-chip index of the 30 largest German stock corporations by free
float market capitalization and trading volume, climbing to well over 6,000 points, the German
stock market got off to a strong start in 2010. Growing concerns about the credit ratings and
liquidity of a number of EU member states – especially Greece and Ireland – damped market
sentiment several times throughout the year, in some cases severely. However, the intervention
At year-end, the DAX ® was just by European monetary authorities repeatedly proved capable of reassuring market participants.
below 7,000 points
The DAX ® hit an annual low of 5,434 points on February 5, reached its high of 7,078 points on
December 21, and finished the year on December 31 at 6,914 points, a 16% increase for the
full year. The development of the BEUPHRM Index (Bloomberg Europe Pharmaceuticals Index),
which comprises 22 selected European pharmaceutical companies, was quite different. The
40 Merck Annual Report 2010

annual high of 103.44 points was achieved on January 19, while the low for the year of 81.59
points was reached on May 25. This was primarily attributable to the declines in the share
prices of index heavyweights such as AstraZeneca, GlaxoSmithKline, Novartis, and Sanofi-
Aventis, which together account for far more than half of the index’s weighting. By October 15,
the BEUPHRM had nearly recovered from these losses, closing at 100.98 points. However, with
a decline of 3.4% as of year-end (December 31: 97.13 points), it remained well behind the
development of the DAX ®.

Uneven performance of Merck shares

Merck shares could not benefit from the sentiment in the German stock market, which
progressively improved in the course of 2010. During the year, the Merck share price moved
dynamically in a range between EUR 57 and EUR 73. However, compared to the price at the
beginning of the year (EUR 65.21), Merck shares finished the year 8.2% lower, closing at
EUR 59.85. The development of the share price was largely independent of the developments
on the German stock market.
The market reacted with disappointment to the company’s initial outlook for 2010, which was
cautious due to the difficulties encountered in 2009, as well as to the proposal to lower the
dividend from EUR 1.50 to EUR 1.00. As a result of this announcement, which was made on
February 23, with the publication of the annual results, Merck shares dropped by more than
10%, reaching their annual low of EUR 57.62 two days later. With the announcement of the
acquisition of Millipore, the Merck share price rose by 2.9% on March 1. The share price did
Negative CHMP opinion not exceed EUR 67 until the guidance was significantly raised on July 29 with the publication
on cladribine tablets
lowers the share price of the results of the second quarter. A high of EUR 72.28 was achieved on September 10.
Just three days later, the Committee for Medicinal Products for Human Use (CHMP) of the
European Medicines Agency (EMA) surprised physicians and shareholders with its negative
opinion regarding the marketing authorization application for cladribine tablets as a treatment
for multiple sclerosis. As a consequence, Merck shares lost slightly more than 10% of their
value on September 24. The subsequent selling pressure led to a decline in the share price to
EUR 57.75 on November 17. Merck shares recovered slightly as of this date thanks to the news
concerning FDA regulatory review of Egrifta™ (tesamorelin), increasing to EUR 59.85 by year-end.
 Company Management Report Corporate governance Consolidated Financial Statements More information 41
Merck in the capital market

Share data 1
2010 2009
Earnings per share after tax and non-controlling interest in EUR 2.91 1.68
Dividend in EUR 1.25 1.00
Share price high in EUR (Sept. 10, 2010/July 1, 2009) 72.28 74.37
Share price low in EUR (Feb. 25, 2010/March 6, 2009) 57.62 57.24
Year-end share price in EUR  59.85 65.16
Actual number of shares in millions (as of year-end) 64.6 64.6
Theoretical total number  of shares in millions (as of year-end)
2
217.4 217.4
Market capitalization 3 in EUR million (as of year-end) 13,011 14,165
1
 Share-price relevant figures relate to the closing price in Xetra ® trading on the Frankfurt Stock Exchange.
2
 The calculation of the theoretical number of shares in based on the fact that the general partner’s equity capital is not represented
by shares. As the share capital of EUR 168.0 million as of December 31, 2010 was divided into 64.6 million shares, the corresponding
­calculation for the general partner’s capital of EUR 397.2 million resulted in 152.8 million theoretical shares.
3
 Based on the theoretical number of shares on December 31, 2010.

Nearly 600,000 shares traded daily

In 2010, an average of about 574,000 Merck shares were traded daily on the trading platforms
of Deutsche Börse. On February 23, the date on which we published the annual results for 2009
and the outlook for 2010, 4.4 million Merck shares changed hands, making this the record-high
trading day for 2010. Generally, the tradability of shares, expressed as the liquidity or the trad-
ing volume, is an important indicator that influences not only the buying behavior of investors,
but also serves, in addition to the free-float market capitalization, as a key criterion in the
composition of share indices. Based on a free-float market capitalization of EUR 3,868 million,
Merck shares ranked 32nd among the largest German DAX companies at the end of the year.
Based on a trading volume of EUR 9,226 million over the past 12 months, Merck shares took
28th place.

Increasing proportion of investors based in Germany

From the shareholder identification survey conducted in October 2010, we identified around
Increasing popularity among 76% of the bearer shares in free float held by institutional investors. The survey provides
­German investors
information about the regional distribution of the institutional investors as well as the classifi-
cation of the respective institutional investor types. As in the previous years, U.S. institutional
investors hold the largest proportion of Merck shares in free float. However, the proportion of
U.S.-based shareholders declined from 53% in 2009 to 49% in 2010. By contrast, German insti-
tutional investors built up significant stakes and now hold 12% of the share capital as compared
with 9% in 2009. The United States still ranks well ahead of both the United Kingdom, where
13% of our shares are held, and Germany. The distribution of investors by investment strategy
shows a slight increase in the proportion of value- and growth-oriented investors. The propor-
tion of index-oriented investors rose by seven percentage points to 19%.
42 Merck Annual Report 2010

Identified investors by region

in %

1 United States 49% 6

5
2 United Kingdom 13%
4
3 Germany 12%
1
4 Rest of Europe 9% 3
5 France 5%
2
6 Rest of World 8%

Source: Thomson Reuters (Status September 2010)

Identified investors by type

in %

1 Value 36% 5
2 Growth 32% 4
1
3 Index 19%
3
4 GARP (growth at reasonable price) 9%

5 Other 4%
2

Source: Shareholder survey (Status October 2010)

As of December 31, 2010, the following shareholders reported their holdings in Merck shares to
the company in accordance with the German Securities Trading Act:

5% – 10% Barclays PLC, London (United Kingdom)

5% – 10% BlackRock Inc., New York (USA)
5% – 10% Capital Research and Management Company, Los Angeles (USA)
5% – 10% Sun Life Financial Inc., Toronto (Canada)
5% – 10% Templeton Global Advisors Ltd., Nassau (Bahamas)
3% – 5% Capital World Growth and Income Fund, Inc., Los Angeles (USA)
3% – 5% Deutsche Bank, Frankfurt (Germany)
3% – 5% Fidelity International Ltd., Hamilton (Bermuda)
 Company Management Report Corporate governance Consolidated Financial Statements More information 43
Merck in the capital market

Nearly 60% of the share capital represented at the Annual General Meeting
At the Annual General Meeting on April 9 in Frankfurt, 37,624,121 out of 64,621,126 outstanding
shares were represented. This corresponds to 58.22% of the share capital. With the exception
of agenda items 4 and 5, which concerned resolutions on the approval of the actions of the
members of the Executive Board and the Supervisory Board and were each passed with 56%
of the votes, more than 99% of the votes were in favor of the other five agenda items. Further
details can be found on our website at www.merck.de.

Numerous Investor Relations activities

In the course of 2010, the Executive Board and the Investor Relations team took part in
13 investor conferences in Frankfurt, London, Los Angeles, Munich, New York, Paris and San
Francisco. In addition, company representatives visited investors at the key financial centers in
the United States and Europe within the scope of 23 roadshows. International investor groups
visited Darmstadt on three dates and equity sales briefings were held with the sales staffs of
selected banks on three further dates. A large number of face-to-face meetings were held. For
the first time since 2007, we held investor and analyst conferences in London and New York
in September. The Executive Board gave detailed presentations of the business and financial
strategy of Merck.

Analysts’ assessments of Merck

In 2010, 40 banks and equity analysts reported regularly on and assessed Merck shares. As of
Analysts the end of 2010, the fair target price for Merck shares as gauged by the analyst community
positive toward Merck
was EUR 67.44. A total of 16 analysts gave our shares a buy recommendation, 17 a hold
recommendation and six a sell recommendation. Further details can be found on our website
at www.merck.de/investors.

FTSE4Good Index
Sustainability is the entrepreneurial compass that has guided Merck well for centuries. We
understand sustainability as ethical actions taken in line with the economic, ecological and
social interests of all Merck stakeholders, such as our customers, suppliers, employees and
owners. Our efforts in these areas are continually analyzed and assessed by independent
capital market institutes. Since 2008, Merck shares have been in the FTSE4Good Index, which
comprises companies with highly sustainable business practices. Additionally, Merck shares
are included in the DAX ® Global Sarasin Sustainability Germany Index.
44 Merck Annual Report 2010

Capital and shares

As of the balance sheet date, the company’s subscribed capital is divided into 64,621,125 no-
par value bearer shares plus one registered share. The holder of the registered share is E. Merck
Beteiligungen KG. It is entitled and obliged to appoint one-third of the members of the Super-
visory Board representing the limited liability shareholders. If the holder of the registered share
is a general partner, he or she has no such right of appointment. The transfer of the registered
share requires the company’s approval. The approval is granted at the sole discretion of the
personally liable general partner with an equity interest, namely E. Merck KG.
According to the Articles of Association of the company, the general partners not holding an
equity interest who form the Executive Board are appointed by E. Merck KG with the consent
of a simple majority of the other general partners. A person may only be a general partner not
holding an equity interest if he or she is also a general partner of E. Merck KG. In addition, at
the proposal of E. Merck KG and with the approval of all general partners not holding an equity
interest, further persons may be appointed to the Executive Board who are not general partners
not holding an equity interest.
The Articles of Association of the company can be amended by a resolution of the Annual General
Meeting that requires the approval of the general partners. The resolutions of the Annual
General Meeting are, notwithstanding any statutory provisions to the contrary, adopted by
a simple majority of the votes cast. Where the law requires a capital majority in addition to the
voting majority, resolutions are adopted by a simple majority of the share capital represented
in the vote.
The Articles of Association of the company specify the authorized share capital. The Executive
Board is authorized, with the approval of the Supervisory Board and of E. Merck KG, to
increase the share capital on one or several occasions until April 3, 2014 by up to a total of
EUR 56,521,124.19 by issuing new shares against cash or contributions in kind. The company
is not authorized to acquire its own shares.
The company has not entered into any material agreements subject to a change of control
pursuant to a takeover offer nor has it concluded any compensation agreements with the
members of the Executive Board or employees in the event of a takeover offer.
 Company Management Report Corporate governance Consolidated Financial Statements More information 45
Merck in the capital market

Successful bond issue

Due to the acquisition of Millipore, extensive financing measures were taken in 2010. A major
component of the acquisition financing was a bond issue amounting to EUR 3.2 billion. This
was the largest euro-bond transaction by a German company in Europe in 2010.
Merck benefited from attractive conditions as a result of the timing of the issue in March. In
order to reach diverse investor groups and due to the high demand, the bond issue was structured
into three tranches, each with different maturities. As a result, the maturities fit in well with
Merck’s overall bond profile.
The first tranche has an original term of two years. The volume is EUR 500 million and pays a
coupon of 2.125%. The other two tranches each amount to EUR 1,350 million. One of these
Merck – an esteemed tranches runs until March 2015 and pays a coupon of 3.375%. The third tranche has a term of
issuer in the bond market
ten years, paying a coupon of 4.500%.
Since the financing measures for the Millipore acquisition have led to higher debt, the two
rating agencies Standard & Poor’s and Moody’s revised their ratings. While Standard & Poor’s
issued a rating of BBB+ with a stable outlook on March 2, 2010 (previously: A-), Moody’s
adjusted its rating on July 16, 2010 from A3 before the acquisition to Baa2 (stable outlook).
The financing measures have shown that Merck is an esteemed issuer in the capital market.
Going forward, the debt market will continue to represent a major element of our corporate
financing activities.
46

Rebismart ™, our electronic injection

device for the self-administration of
Rebif ®, is easy and convenient to use.
Company Management Report Corporate governance Consolidated Financial Statements More information 47
Merck Serono

Merck Serono

Merck Serono is the largest division of Merck. It markets innovative pre­

scrip­tion drugs of chemical and biotechnological origin. The division offers
its leading brands in around 150 countries. Merck Serono focuses on highly
specialized therapeutic areas such as Neurodegenerative Diseases, Oncology,
Fertility, Endocrinology and Rheumatology.

KEY PRODUCTS BY THERAPEUTIC AREA

– Oncology: Erbitux ® (solid tumors)

– Neurodegenerative Diseases: Rebif ®, Movectro ® (multiple sclerosis)
– Fertility: Gonal-f ®, Pergoveris™, Luveris ®, Ovitrelle ®, Crinone ®, Cetrotide ® (infertility treatment)
– Endocrinology: Saizen ® (growth hormone disorders), Serostim ® (HIV-associated wasting),
Kuvan ® (metabolic disorder hyperphenylalaninemia), Egrifta™ (HIV-associated lipodystrophy)
– CardioMetabolic Care: Concor ® franchise (cardiovascular diseases), Glucophage ® franchise
(type 2 diabetes), Euthyrox ® (thyroid disorders)

KEY DEVELOPMENTS IN 2010

– Sales of Erbitux ® rise by 18% to EUR 820 million, Rebif ® sales increase by 8.6% to

EUR 1,668 million
– Russian and Australian regulatory authorities approve cladribine tablets as the world’s first
oral disease-modifying treatment for multiple sclerosis (brand name: Movectro ®)
– The Committee for Medicinal Products for Human Use of the EMA adopts a final negative
opinion regarding the marketing authorization application for cladribine tablets in January
2011. In the United States, the FDA accepts the application for review; FDA feedback on the
application is expected by the end of February 2011
– The Japanese drug regulatory authorities approve extended usage for Erbitux ® in combination
with chemotherapy for first-line treatment of metastatic colorectal cancer (KRAS wild-type
tumors)
– Following a suspected unexpected serious adverse reaction we temporarily suspended all
studies with the cancer immunotherapy Stimuvax ® in March. Phase III trials resumed in non-
small cell lung cancer in June
– Egrifta™ approved in the United States to reduce excess abdominal fat in HIV patients with
lipodystrophy
48 Merck Annual Report 2010

Strong growth thanks to biotech medicines

Sales by the Merck Serono division grew far more strongly than the fore-
casted average for the pharmaceutical industry. Nearly two-thirds of this
growth is attributable to the biopharmaceuticals Rebif ® and Erbitux ®.

Five top-selling biopharmaceuticals In 2010, the Merck Serono division increased total revenues by 7.6% to EUR 5,754 million. Sales
account for 61% of sales
increased by 8.3%, with positive currency effects accounting for 2.6% of the increase. This
excellent growth, which exceeded the sector average of 4% to 5% estimated by IMS Health,
was once again due to the success of our biopharmaceuticals. We generated EUR 3,288 million
or 61% of our sales with our five top-selling biopharmaceuticals Rebif ®, Erbitux ®, Saizen ®,
Gonal-f ® and Serostim ®. Rebif ®, a treatment for relapsing-remitting multiple sclerosis,
was once again the top-selling product, with sales increasing by 8.6% to EUR 1,668 million.
Erbitux ®, our targeted cancer therapy, posted another double-digit increase in sales, which
rose by 18% to EUR 820 million. In March, Erbitux ® received approval in the key market of
Japan for extended usage in combination with chemotherapy for the first-line treatment of
metastatic colorectal cancer (KRAS wild-type tumors). Cladribine tablets (brand name Movectro ®)
were approved in Russia in July, becoming the world’s first oral disease-modifying treatment
for relapsing-remitting multiple sclerosis. Approval in Australia followed in September. In
November, the U.S. Food and Drug Administration granted approval of Egrifta™ (tesamorelin
for injection) to reduce excess abdominal fat in HIV-infected patients with lipodystrophy.

Our five top-selling drugs by sales in 2010

EUR million / % of divisional sales

1 Rebif ® 1,668 31%

2 Erbitux ® 820 15% 6

1
3 Gonal-f ® 504 9%

4 Concor ® franchise 373 7%

5
5 Glucophage ® franchise 316 6% 2
4
6 Other products 1,727 32% 3

At EUR 344 million, royalty, license and commission income was slightly below the previous
year’s level. In comparison with 2009, the division’s gross margin increased by 6.9% to
EUR­ 4,793 million. Due to strong exchange rate effects and investments in new products and
emerging markets such as China, marketing and selling expenses were 10% higher than in
2009. Research and development costs declined moderately by 1.4% to EUR 1,167 million. In
total, non-recurring expenses were lower than in 2009. The largest single non-recurring item
was the impairment loss for safinamide (see page 19). Overall, the operating result improved by
59% to EUR 565 million. Return on sales (ROS) increased to 9.8% in 2010. Underlying free cash
flow grew by 51% to EUR 1,308 million.
 Company Management Report Corporate governance Consolidated Financial Statements More information 49
Merck Serono

Merck Serono | Key figures

EUR million 2010 2009 ∆ in %
Total revenues 5,754 5,345 7.6
Gross margin 4,793 4,485 6.9
R&D 1,167 1,184 –1.4
Operating result 565 355 59
Exceptional items 69 –40 –
Free cash flow 1,298 864 50
Underlying free cash flow 1,308 867 51
ROS in % 9.8 6.6

Growth driven by Asia, Africa, Australasia

As in the previous year, Europe was the division’s top-selling region in 2010. Around one-half
of the division’s sales were achieved here. European sales increased by 2.9% to EUR 2,632 mil-
lion. Our largest market within Europe was France, where sales totaled EUR 514 million. Sales
there fell by 3.5%, due in part to generic competition faced by our CardioMetabolic Care
business. Sales in Germany, our second-largest European market, stagnated at EUR 497 million
(+0.1%) as a consequence of a restrictive health care policy. In Italy and Spain, sales increased
by 7.1% and 1.8%, respectively, to EUR 308 million and EUR 294 million, putting them nearly
on par with each another. Russia and Turkey were two examples of smaller markets that
posted strong growth of 36% and 16%, respectively. However, sales in Greece declined by 13%
because of the impact of the financial crisis on the health care sector.

Merck Serono | Sales by region

EUR million / % of divisional sales

1 Europe 2,632 49%

4
2 North America 1,035 19%

3 Latin America 809 15% 3

1
4 Asia, Africa, Australasia 932 17%

Double-digit sales growth In North America, sales increased 9.4% to EUR 1,035 million, mainly due to the good perfor-
in Latin America
mance of Rebif ® and positive currency influences. Sales in Latin America increased by 14%
to EUR 809 million. Brazil, our largest market in this region, posted sales growth of 36% to
EUR 286 million. Mexico and Argentina also developed well, increasing sales by 22% and
44%, respectively. However, sales in Venezuela dropped by 54% because of strong currency
effects. With sales increasing by 20% to EUR 932 million, the Asia, Africa, Australasia region
was the division’s geographic growth driver. Our largest market within this region was Japan.
Thanks to the success of Erbitux ®, sales increased there by 39% to EUR 177 million. With
sales of EUR 126 million (+2.4%), China was our second-largest market in the region. We
achieved growth of 18% in India, where sales totaled EUR 66 million. Sales climbed by 52%
to EUR 39 million in South Africa and by 18% to EUR 60 million in Australia.
50 Merck Annual Report 2010

Our activities by therapeutic area

Research Development Marketing
Oncology
Neurodegenerative Diseases
Rheumatology
Fertility
Endocrinology
CardioMetabolic Care and General Medicine

Oncology

Our targeted oncology drug Erbitux ® (cetuximab) is approved in combination with chemo-
therapy for all lines of treatment or as a monotherapy for pretreated patients in epidermal
growth factor receptor (EGFR)-expressing, KRAS wild-type metastatic colorectal cancer (mCRC).
In addition, the monoclonal antibody is a first-line standard for recurrent and/or metastatic
squamous cell carcinoma of the head and neck (SCCHN) in combination with platinum-based
chemotherapy, as well as in combination with radiotherapy for locally advanced head and
neck cancer. Erbitux ® is currently approved for use in colorectal cancer in 86 countries and
in head and neck cancer in 82 countries around the world. We are exploring further indications
in additional studies. Sales of Erbitux ® continued on a growth course in 2010, increasing by
18% to EUR 820 million.

Approvals in Japan, Australia and Switzerland

Erbitux ® in combination with In Japan, Erbitux ® can now be used in combination with chemotherapy in the first-line treat-
chemotherapy available in Japan
for colorectal cancer in all lines of ment of patients with EGFR-expressing, inoperable, advanced or recurrent colorectal cancer
treatment carrying the KRAS wild-type gene. The Japanese Pharmaceutical and Medical Devices Agency
(PMDA) granted approval of this extended usage for Erbitux ® in March 2010 following submission
of data from the Phase III CRYSTAL trial. Consequently, Erbitux ® is now available for use in
combination with chemotherapy for colorectal cancer in all lines of treatment in Japan.
In Australia, the Therapeutic Goods Administration (TGA) approved Erbitux ® in March 2010
as a first-line treatment in combination with chemotherapy for patients with KRAS wild-type
mCRC. In Switzerland, Erbitux ® was also approved in 2010 as a first-line treatment option
for metastatic colorectal cancer patients with KRAS wild-type tumors. Swissmedic, the Swiss
Agency for Therapeutic Products, granted the approval in September 2010.

Erbitux ® is the standard of care in KRAS wild-type metastatic colorectal cancer

Merck is a leader in innovative, personalized cancer therapy. We are focused on research to
identify biomarkers that will help to select the patients who will benefit the most from a specific
drug – as is the case with Erbitux ® and the KRAS wild-type status of tumors in patients with
metastatic colorectal cancer. An international survey conducted in 2010 showed that KRAS
mutation analysis is fast becoming an integral part of the management of mCRC. The survey
revealed in addition that Erbitux ® is now a standard of care for confirmed KRAS wild-type
 Company Management Report Corporate governance Consolidated Financial Statements More information 51
Merck Serono

mCRC. The share of patients in whom the test is performed in order to determine whether they
can benefit from a personalized therapy, such as Erbitux ®, increased from 2.5% in 2008 to
66% in early 2010. The results also show that 73% of physicians in Europe already routinely
tested KRAS status at diagnosis of metastatic colorectal cancer. Data from two surveys,
which were likewise presented in 2010, show that Erbitux ® has become a standard of care in
the treatment of both locally advanced and recurrent and/or metastatic SCCHN. The results
from the survey of 256 specialists in France, Germany, Italy and Spain in the latter indication
showed that an Erbitux ®-based treatment combination was used in almost 60% of cases in the
first-line setting.

Neurodegenerative Diseases

Within the Business Unit Neurodegenerative Diseases, we offer Rebif ® (interferon beta-1a),
one of the leading drugs for the treatment of relapsing-remitting multiple sclerosis (MS).
According to estimates, around 2 million people suffer from MS worldwide. Owing to its proven
efficacy and favorable risk-benefit profile, Rebif ® is a basic treatment for MS and is approved in
more than 90 countries. In 2010, sales of Rebif ® increased by 8.6% to EUR 1,668 million. The
recombinant protein was thus once again our top-selling product and remained the leading
MS treatment outside the United States. With sales growing solidly by 6.2% to EUR 752 million,
Europe was our strongest region for Rebif ®. The largest markets were Germany and Italy,
where we recorded growth rates of 6.0% and 8.5%, respectively. With sales of EUR 751 million,
North America remained our second-largest market for Rebif ®. Sales in this region grew by
11% over 2009. Sales in Latin America increased by 12% to EUR 108 million. In the region Asia,
Africa, Australasia, sales increased by 2.2%.
The serum-free formulation of Rebif ® with improved injection tolerability is now available in
around 40 countries, including all EU member states, Australia, Canada and Switzerland, as well as
a number of countries in Asia, Latin America, Africa, and the Middle East. Discussions with the U.S.
Food and Drug Administration concerning a potential approval continue. Rebidose™ is the latest
addition to our range of user-friendly injection devices for the self-administration of Rebif ®. This
single-use pen, which is prefilled with Rebif ®, was approved in the European Union and Australia.
Launched in 2009 as the first electronic injection device of its kind for MS, Rebismart™ is now
available in more than 20 countries, including Canada and many EU countries.

Movectro ® approved in Russia and Australia as an oral treatment for MS

Movectro ® approved in In July, the Russian regulatory authorities granted marketing approval for cladribine tablets
Russia as the world’s first oral
disease-modifying drug for MS for the treatment of relapsing-remitting multiple sclerosis. This was the world’s first approval
of an oral disease-modifying therapy for multiple sclerosis. The next approval followed in
Australia in September. Cladribine tablets have been available under the trade name Movectro ®
in both countries since the end of 2010. The approvals are supported by the results of the
CLARITY study, which involved 1,326 patients with relapsing-remitting multiple sclerosis. The
study results published in the New England Journal of Medicine showed that short-course
treatment with cladribine tablets significantly reduced relapse rates, the risk of disability
progression, and MRI measures of disease activity at 96 weeks.
52 Merck Annual Report 2010

We have submitted regulatory applications for cladribine tablets covering around 40 countries
worldwide. We resubmitted our regulatory application in the United States in June. The U.S.
agency accepted the application for filing in July and granted a Priority Review designation.
The FDA informed us in November that it had extended its Priority Review period by three
months to February 28, 2011 in order to have more time for a full review of additional
information provided under the application. In September, the Committee for Medicinal
Products for Human Use (CHMP) of the European Medicines Agency (EMA) issued a negative
opinion regarding the marketing authorization application for cladribine tablets. Since we are
convinced of the potential of cladribine tablets as a new therapeutic option for people with
multiple sclerosis, we appealed and requested re-examination of this opinion. In January 2011,
the CHMP adopted a final negative opinion regarding our marketing authorization application.

Fertility

Double-digit increase in sales The Merck Serono division is the global leader with its portfolio of drugs to treat infertility.
in important growth markets
We are the only company that offers physicians and patients recombinant versions of the three
main reproductive hormones that are important for the treatment of infertility. In 2010, sales
by the Business Unit Fertility increased by 6.6% to EUR 657 million. We generated nearly half
of our sales in Europe, which remains our largest market. In 2010, sales in Europe were slightly
higher than in 2009. We recorded double-digit growth in the regions Asia, Africa, Australasia
and Latin America, while sales increased slightly in North America.

Growth of Gonal-f ® continues

Gonal-f ® (follitropin alfa for injection) is a recombinant form of the natural follicle-stimulating
hormone. It is approved in over 100 countries and is the world’s leading female fertility drug.
The injection device Gonal-f ® pen for the self-administration of Gonal-f ® is now available in
more than 90 countries, including the largest EU markets, the United States and Japan. Sales
of Gonal-f ® grew by 3.7% to EUR 504 million, primarily as a result of strong growth of 15%
in Asia, Africa, Australasia. Positive currency effects were responsible for more than half of the
increase in this region. Gonal-f ® was additionally approved in Japan in 2009 for the treatment
of infertile women with irregular or absent ovulation. Consequently, sales increased sharply in
2010. In North America, Gonal-f ® sales remained at the previous year’s level in a declining and
hotly contested market. In Europe, which accounts for nearly half of our Gonal-f ® sales, we
stopped the negative trend of 2009 and maintained sales at the previous year’s level despite
unabated cost containment pressure in the health care sector. In Italy, our largest European
market for this product, sales remained just as stable as in France, our second-largest market.
Spain is the third-largest market in Europe and is dominated by private payers, who continued
to feel the effects of the economic crisis. Consequently, sales of Gonal-f ® declined by 4.3%. By
contrast, Gonal-f ® performed well in the United Kingdom. Sales grew strongly in this market,
mainly on an organic basis, increasing 31% over 2009.
 Company Management Report Corporate governance Consolidated Financial Statements More information 53
Merck Serono

Our recombinant combination treatment Pergoveris™ is used to stimulate follicular development

in infertile women with severe follicle-stimulating hormone and luteinizing hormone deficiency.
It is the first drug to allow the simultaneous administration of the two key hormones for
ovarian stimulation in a single subcutaneous injection. Global sales, which are achieved almost
exclusively in Europe, increased by 8.4% to EUR 32 million, primarily thanks to growth of 50%
in France. Ovidrel ®/Ovitrelle ® is a recombinant version of the natural hormone hCG and is used
to trigger follicle maturation and ovulation. Sales of Ovidrel ®/Ovitrelle ® grew strongly by 21%
to EUR 45 million, thanks to good growth in all regions. Sales of Cetrotide ®, a gonadotropin-
releasing hormone antagonist used to prevent premature ovulation, also rose sharply by 23%
to EUR 38 million.

Grant to promote innovative fertility projects

Merck Serono awards around In June, Merck Serono announced the first recipients of funds from the Grant for Fertility Inno-
EUR 1 million to further
applied research projects vation. We set up this program for innovation in fertility in order to further medical research
in fertility in this field. Around EUR 1 million was awarded to five innovative applied research projects
that aim to help infertile couples improve their chances of conceiving. In the same month, we
presented the results of the largest international study aimed at understanding the decision-
making process of couples trying to conceive. The findings can help clarify disparities in fertility
rates and reveal barriers that may prevent couples with infertility from seeking medical help.
More than 10,000 men and women from 18 countries responded to the survey, which was
developed in collaboration with Cardiff University in Wales (United Kingdom).

Endocrinology

Our electronic autoinjector The specialized therapies and user-friendly injection devices offered by the Business Unit
Easypod™ for the self-
administration of Saizen ® Endocrinology can help improve the lives of patients with endocrine and metabolic disorders.
now also available in China Sales increased by 21% over 2009 to EUR 317 million thanks to strong growth in all regions.
Our top-selling endocrinology product is Saizen ®, a recombinant human growth hormone.
Saizen ® is approved in 79 countries for indications including the treatment of pediatric and
adult growth hormone deficiency, Turner syndrome, growth failure in children associated with
chronic renal failure, as well as to treat children born small for gestational age (SGA). According
to estimates, growth hormone deficiency affects 330,000 children globally and 90,000 adults
in Europe. Sales of Saizen ® increased sharply by 18% to EUR 226 million. Our top-selling
markets were Europe and North America. Latin America as well as Asia, Africa, Australasia
showed strong, double-digit growth, also on an organic basis. The ongoing success of Saizen ®
was favorably impacted by the high acceptance of our electronic injection device Easypod™,
which is now available in around 40 countries, including China, where it was approved in
July. In order to make Saizen ® even more user-friendly, we developed a ready-to-use liquid
formulation that eliminates the need to prepare the powder for injection. Saizen ® solution for
injection was approved in Canada in April. A decentralized procedure was completed in the
European Union in October, allowing national approvals in 18 EU member states in the coming
54 Merck Annual Report 2010

months. To ensure flexibility in meeting the individual needs of patients, the new formulation
is available in cartridges of 6 mg, 12 mg and 20 mg, designed for exclusive use with Easypod™
and our needle-free auto-injector Cool.click™2.
With Kuvan ® (sapropterin) for the treatment of hyperphenylalaninemia in patients with either
phenylketonuria (PKU), a congenital metabolic disorder, or a deficiency of the key coenzyme
tetrahydrobiopterin (BH4), we began offering the first drug for this orphan disease in Europe
in 2009. According to estimates, around 50,000 people are affected in Europe; 20% to 50%
of PKU patients could benefit from treatment with Kuvan ®, which Merck Serono markets in
around 30 countries. In 2010, the product was approved in Switzerland and Croatia as well as
a number of countries outside of Europe, including Australia, China (only for BH4 deficiency),
Israel, Mexico and Venezuela. Global sales rose to EUR 20 million.

Egrifta™ approved in the United States

Egrifta™ is the first FDA-approved Our drug Serostim ® is used in the United States to treat patients suffering from HIV-associated
drug to reduce excess abdominal
fat in HIV-infected patients with wasting, which is estimated to affect up to 8% of HIV-infected individuals. Sales of Serostim ®
lipodystrophy increased by 8.1% to EUR 70 million.
In November, the U.S. Food and Drug Administration (FDA) approved Egrifta™ (tesamorelin
for injection) as the first, and so far only, treatment indicated to reduce excess abdominal fat
in HIV-infected patients with lipodystrophy. Egrifta™ was developed by Theratechnologies, a
Canadian biopharmaceutical company, and will be marketed in the United States exclusively by
our subsidiary EMD Serono.

CardioMetabolic Care and General Medicine

We are expanding our position with The Business Unit CardioMetabolic Care and General Medicine comprises our drugs for treat-
CardioMetabolic Care products in
many key growth markets ing diabetes, cardiovascular diseases and thyroid disorders, as well as other products and
regional specialties. The interrelationships that exist between many chronic cardiovascular and
metabolic diseases are the causes of multiple complex clinical pictures that call for integrated
therapeutic approaches. We are continually working to improve our products, for example by
developing new dosage forms and strengths.
At EUR 1,888 million, sales by this Business Unit grew by 4.4%. We expanded our position in
many dynamic markets. For example, our CardioMetabolic Care products have made us one of
the fastest growing pharmaceutical companies in Latin America and Asia. In Latin America we
rank among the top 15 pharmaceutical companies. However, price reductions in Europe and
generic competition in France, our largest market in terms of sales, had a negative impact.
Overall, the decline in sales of beta-blockers was more than offset by higher sales of diabetes
and thyroid medicines.
 Company Management Report Corporate governance Consolidated Financial Statements More information 55
Merck Serono

Concor ®: Strong performance in growth markets, fierce competition in Europe

Sales of branded Concor ® products containing the active ingredient bisoprolol amounted
to EUR 373 million. This was 5.3% less than in 2009. One reason was generic competition
in France, where sales dropped by 35% to EUR 62 million. Yet in Europe, our largest market
for this product group, bisoprolol remains the leading beta-blocker, used in products such
as Lodoz ® and Concor ® COR.
Sales in Venezuela, our largest market in Latin America, suffered an inflation-induced decline
of 50% to EUR 11 million.
By contrast, Concor ® branded products were successful in growth markets. Sales in Africa,
Asia, Australasia grew 30% to EUR 98 million.

Glucophage ® franchise continues on a growth course

Seven million patients use oral Worldwide, around 285 million people suffer from type 2 diabetes and the number is rising.
metformin products from Merck
Serono to treat their diabetes More than seven million patients worldwide rely on our oral metformin products to treat this
condition. Metformin, which is contained in our product Glucophage ®, remains the drug of
choice for first-line treatment of type 2 diabetes.
The branded products from the Glucophage ® franchise generated sales of EUR 316 million – an
increase of 8.4%. Slight sales declines in Europe were more than offset by double-digit growth
in the markets of Latin America and Asia. In Latin America, Glucophage ® is the leading product
in the diabetes market. With growth of 34%, sales outperformed the market by six percentage
points on a U.S. dollar basis. In addition, product line extensions continued to perform success-
fully. Sales of Glucophage XR ® rose by 21% to EUR 69 million. We had launched a 1000 mg
dosage strength of this product in 2009. With Glucovance ® 1000 mg/5 mg, a combination
of the active ingredients metformin and glibenclamide, we began launching a new dosage
strength in 2010.

Thyroid products show good growth

Merck is the world’s largest supplier of drugs to treat thyroid disorders. Sales of these products
grew by 7.6% to EUR 170 million. Despite generic competition, sales in Europe declined by only
1.3%. By contrast, sales in Latin America increased sharply by 30% and by 3.9% in Asia, Africa,
Australasia. Sales of our key product, the thyroid hormone Euthyrox ®, increased by 7.7% to
EUR 148 million. Approximately 15 million patients in about 90 countries around the world
receive treatment with Euthyrox ®.
Worldwide, more than 300 million people suffer from hypothyroidism yet not even 20%
of them are treated. We want to educate the public and promote optimum treatment of these
­disorders. Therefore, in May we conducted our second major public awareness campaign
together with the International Thyroid Association. Activities took place in 45 countries.

Strong regional performance of other General Medicine products

Due to our good competitive positions in major markets outside Europe, our other General
Medicine products, some of which are only sold in certain regions, generated sales of
EUR 977 million. This was 5.4% more than in 2009.
56 Merck Annual Report 2010

Research and development

At EUR 1,167 million, research and development spending was slightly lower (–1.4%) than in
2009. This decline is due on the one hand to the project delays experienced with Stimuvax ®
and cladribine tablets, and on the other hand to our successful efforts to optimize cost structures
through efficiency enhancement measures. We invested around 20% of the total revenues of
the Merck Serono division in R&D, which puts us at an above-average level within the pharma-
ceutical industry. This is mainly the result of the large number of cost-intensive studies in the
final phase of clinical development. The pipeline currently comprises nine projects in Phase III
clinical trials, seven in Phase II, and six in Phase I.
Our activities are focused on three areas: oncology, where we are seeking new therapeutic
options for colorectal cancer, lung cancer, head and neck cancer, brain tumors, breast cancer
and gastric cancer; neurodegenerative diseases, where we are working on new therapies for
multiple sclerosis, Parkinson’s disease and Alzheimer’s disease; as well as rheumatology, which
includes the autoimmune disease lupus erythematosus and osteoarthritis. We also continue
to conduct research in the field of fertility. As of December 31, 2010, the division had around
3,000 employees working in research and development.
Our most important research centers are Darmstadt, Geneva and Boston. Additionally, we are
expanding the Beijing site in order to cover Asia, to facilitate regional clinical trials, and to
form local alliances. We plan to invest EUR 150 million and create more than 200 qualified
positions here by 2013. The expansion work was completed as planned at the Billerica site,
where we invested USD 65 million.

Networks and partnerships help to address challenges

Generic competition, health care reforms, price pressure, increasing regulatory requirements
placed on safety, and health technology assessments of new drugs are some of the trends that
are posing challenges in the pharmaceutical R&D environment. We want to ensure sustainable
success despite rapidly changing framework conditions. Essential elements of this strategy
include focusing on specialist indications with high unmet medical needs, rigorously implement-
ing treatment options adapted to specific patient groups (patient stratification) in order to
predict the efficacy of therapies in individual patients, and cooperating with partners. We
further expanded our network of alliances in 2010.
In R&D, we continue to build on our expertise in both small molecules and biopharmaceuticals.
We are also investigating potentially new compound classes that could lead to innovative
therapies. For example, we entered into a partnership with the Belgian company Ablynx to
co-discover and co-develop Nanobodies ® for use in the area of rheumatology. Nanobodies ®
are an innovative class of antibody-derived therapeutic proteins that combine the advantages
of conventional antibodies with key properties of small molecule drugs.
Funding of innovative projects in In the field of neurodegenerative diseases, we formed an exclusive partnership with Fast Forward—
multiple sclerosis research
a subsidiary of the American National Multiple Sclerosis Society. In 2010, we gave grants to
four recipients. The funding, which will initially amount to nearly USD 1.5 million, will be used
to advance innovative multiple sclerosis research projects in the United States, New Zealand,
and the United Kingdom. In addition, we entered into a strategic cooperation with the Institute
 Company Management Report Corporate governance Consolidated Financial Statements More information 57
Merck Serono

Status of our innovative compounds

Therapeutic area Compound Indication Status
Oncology Erbitux ® (cetuximab, monoclonal anti- Adjuvant colorectal cancer 2 Phase III
EGFR antibody) 1 Gastric cancer Phase III
Cilengitide (integrin inhibitor) Glioblastoma (brain tumor) Phase III
Stimuvax ®  (cancer immunotherapy)  3
Non-small cell lung cancer (NSCLC) Phase III
Erbitux ® Breast cancer Phase II
Cilengitide Head and neck cancer (SCCHN) Phase II
Non-small cell lung cancer (NSCLC) Phase II
Monoclonal anti-integrin Colorectal cancer Phase II
antibody (DI17E6)
TLR9 immunomodulator (IMO−2055) 4 Head and neck cancer (SCCHN) Phase II
MEK inhibitor (AS703026/ Solid tumors and hematological diseases Phase I
MSC1936369B)
c-Met kinase inhibitors Solid tumors Phase I
(EMD1214063, EMD1204831) 5
Neurodegenerative Serum-free formulation of Rebif ® Relapsing-remitting forms of USA: applica-
Diseases multiple sclerosis (MS) tion submitted
Clinically isolated syndrome (CIS) Phase III
Cladribine tablets Relapsing-remitting forms of MS; Approved/
Russia and Australia: approved, applications
USA: application submitted 6 submitted
Clinically isolated syndrome (CIS) Phase III
Safinamide  7
Early-stage Parkinson’s disease Phase III
Mid- to late-stage Parkinson’s disease Phase III
Immune-tolerizing agent Relapsing-remitting forms of MS Phase I
(ATX-MS-1467) 8
Extended-release formulation of Relapsing-remitting forms of MS Phase I
interferon beta-1a 9
Rheumatology Atacicept (anti-BLyS/anti-APRIL Systemic lupus erythematosus (SLE) Phase III
fusion protein) 10
Fibroblast growth factor 18 10 Cartilage injury Phase II
Osteoarthritis Phase I
Endocrinology Long-acting growth hormone Growth hormone deficiency Phase II
(ARX 201) 11

  Developed in cooperation with ImClone LLC: Erbitux ® is a   Collaboration with M. D. Anderson Cancer Center NSCLC: Non-small cell lung cancer
1  5

trademark of ImClone LLC, a wholly owned  6

CHMP adopted a final negative opinion on the marketing SCCHN: Squamous cell carcinoma of the head and neck
subsidiary of Eli Lilly & Co. authorization application in the EU in January 2011 CIS: Clinically isolated syndrome
2
Sponsored and coordinated by the Fédération Francophone  7
 Collaboration with Newron Pharmaceuticals S.p.A.
de Cancérologie Digestive (FFCD)  8
 Collaboration with Apitope Technology (Bristol) Ltd.
3
 Exclusive worldwide licensing rights acquired from  9
 Collaboration with Flamel Technologies S.A.
Oncothyreon Inc. In-licensed from ZymoGenetics, Inc., a wholly owned sub-
10 
4
 In-licensed from Idera Pharmaceuticals, Inc. sidiary of Bristol-Myers Squibb Company
11
 Collaboration with ­Ambrx, Inc.
58 Merck Annual Report 2010

for Experimental Neurology (INSPE) and the Department of Neurology at the San Raffaele
Scientific Institute in Milan, Italy. The aim of the cooperation is to advance clinical research
projects in the field of neurodegenerative diseases using new models and technologies.
Merck Serono Ventures is the name of our corporate venture capital fund. In 2010, the fund
invested in two highly innovative biotech companies. One of the companies is f-Star from
Vienna, Austria, which is engaged in the discovery and development of modified antibodies.
The most recent investment was made in Auxogyn of San Francisco. This company is develop-
ing a non-invasive tool for early assessment of embryo viability within the scope of in vitro
fertilization procedures.
Additionally, internal cooperation with Merck Millipore is creating new prospects. Potential
synergies exist in areas such as companion diagnostics, systems biology, new biopharmaceutical
drug delivery methods, and in the search for new routes in biopharmaceutical production.

Research and development: Additional potential for Erbitux ®

New data on Erbitux ® for Further analysis of the Phase III CRYSTAL trial once again confirmed the therapeutic value of
first-line treatment of metastatic
colorectal cancer Erbitux ®. New data show that patients with KRAS wild-type metastatic colorectal cancer (mCRC)
who experienced early tumor shrinkage during first-line Erbitux ®-based treatment had an
unprecedented overall median survival of 28.3 months. Further Phase III studies are being
conducted in gastric cancer (EXPAND) and adjuvant colorectal cancer (PETACC-8).
Initial results of the randomized Phase II trial BALI-1 demonstrated the therapeutic potential of
Erbitux ® in breast cancer. Treatment with Erbitux ® in combination with chemotherapy showed
positive results in patients with metastatic triple-negative breast cancer (TNBC). Median pro-
gression-free survival in women treated with Erbitux ® plus chemotherapy more than doubled.
Although tumor response nearly doubled, the primary endpoint of the study, response rate,
was not met. TNBC is aggressive, difficult to treat, and associated with high rates of metastasis
and relapse.

Stimuvax ®: Clinical program resumed, obstacles successfully overcome

In June, Merck resumed the Stimuvax ® (BLP25 liposome vaccine) clinical program in patients
with non-small cell lung cancer (NSCLC), which includes the Phase III studies START and INSPIRE.
The treatment and enrollment of patients has restarted after approval by the local regulatory
authorities and ethics committees. This was made possible by a decision by the U.S. Food and
Drug Administration (FDA) to partially lift the clinical hold and allow the START trial to resume.
The Phase III STRIDE trial in advanced breast cancer was the study that remained on clinical hold
by the FDA. Merck Serono decided to close this study.
 Company Management Report Corporate governance Consolidated Financial Statements More information 59
Merck Serono

The clinical hold was put in place by the FDA in March 2010 following a suspected unexpected
serious adverse reaction. A patient participating in a Phase II exploratory clinical trial with the
cancer immunotherapy in multiple myeloma developed encephalitis. Since 2007, we have been
conducting the START trial to evaluate the efficacy and safety of the treatment with Stimuvax ®
in patients with inoperable stage III non-small cell lung cancer. The decision to initiate this
trial was based on the results of a randomized Phase IIb study, in which Stimuvax ® showed
an increase in overall survival of a subset of patients with locoregional stage IIIb NSCLC from
13.3 months in the control group to 30.6 months in the treatment group. In 2009, we initiated
INSPIRE, a Phase III trial in NSCLC in Asia. Should the Phase III trials be successfully completed,
this cancer immunotherapy could play an important role in the treatment of lung cancer
patients, for whom current therapeutic options are still limited.

Cilengitide trial provides long-term follow-up data in glioblastoma patients

Cilengitide is the first integrin inhibitor in oncology to have entered Phase III clinical develop-
ment. In the CENTRIC trial, we are studying this compound in glioblastoma (GBM), the most
aggressive type of brain tumor. Integrin inhibitors are thought to work by targeting tumor
cells and the vascular network required to nourish the tumor and promote cancer cell growth.
Long-term follow-up data from a randomized Phase II study of two different cilengitide doses
in recurrent glioblastoma were published in 2010. They showed that 37% of patients who
received the higher dose of cilengitide (2000 mg) were still alive after one year. The current
prognosis of patients with recurrent glioblastoma is poor with median overall survival between
four and seven months and one-year survival rates of approximately 20%.

Pipeline: All resources focused on promising projects

Merck Serono remains highly Merck Serono remains committed to its discovery and development work in the therapeutic
committed to research and
development in oncology area of oncology. Our aim is to offer patients with high unmet medical needs additional
therapeutic options in various indications. An important step toward this aim is the worldwide
research and development agreement entered into with Sanofi-Aventis at the end of 2010. This
agreement allows the experimental combination of Merck’s MEK inhibitor with one of two early
compounds of the partner, respectively.
We are currently investigating three compounds in Phase I studies in solid tumors and hema-
tological diseases. In addition, five Phase II studies are underway in breast, head and neck,
non-small cell lung as well as colorectal cancer.
Since our pipeline includes numerous compounds with high therapeutic potential, we remain
committed to moving forward those projects with the greatest promise of sustainable success.
At the same time, we will terminate or divest at an early stage those projects that appear
to be less promising. This enables us to ensure that our resources are deployed to benefit
patients and to manage the risks for our company. In 2010, we terminated the following
four early-stage oncology projects: an aurora-kinase inhibitor and the monoclonal antibody
sonepcizumab in Phase I; the immunocytokine tucotuzomab celmoleukin and the monoclonal
antibody adecatumumab in Phase II.
60 Merck Annual Report 2010

Efficacy of Rebif ® demonstrated in clinically isolated syndrome

Rebif ® significantly delayed Within our Neurodegenerative Diseases therapeutic area, we are conducting research to discover
conversion to clinically definite
MS in patients with CIS new therapeutic options for multiple sclerosis (MS) and Parkinson’s disease – two indications
with high unmet medical needs. In REFLEX, a two-year Phase III study involving more than 500
patients, we investigated whether patients with clinically isolated syndrome (CIS) at risk of
developing MS could benefit from treatment with the serum-free formulation of Rebif ®. Study
participants with this clinical picture have so far experienced a single MS-like episode, such
as optical or sensory disturbances, and have characteristic MRI lesions, putting them at high
risk of developing clinically definite multiple sclerosis. At this early stage, these patients have
not yet been given a clinically definite diagnosis, yet they are at risk of developing MS. The
trial, which was completed in October, met its primary endpoint by demonstrating that Rebif ®
significantly delays conversion to clinically definite MS in these patients. A three-year double-
blind extension of the REFLEX study, called REFLEXION, is currently ongoing in order to provide
long-term follow-up data.

Progress made with the further development of cladribine tablets

With cladribine tablets, the Merck Serono division is developing a drug for the oral, short-course
treatment of relapsing-remitting multiple sclerosis. In 2010, we received regulatory approvals
in Russia and Australia. Our regulatory application received a negative opinion in the European
Union. It is currently under review in the United States (see page 51). The clinical develop-
ment program for cladribine tablets is designed to evaluate the potential therapeutic effects
of cladribine tablets in various stages of the disease. Following the successful completion of
the CLARITY study, a two-year extension with around 800 patients is currently underway to
provide data on the long-term safety and efficacy of cladribine tablets as a monotherapy in
relapsing-remitting MS. The two-year Phase III ORACLE-MS study is investigating cladribine
tablets as a monotherapy in patients with clinically isolated syndrome. In November, we com-
pleted the recruitment of more than 600 study participants. In the Phase II ONWARD study, we
are evaluating the safety and tolerability of adding cladribine tablets to established treatment
with interferon beta.

Long-term study completed with safinamide in late-stage Parkinson’s disease

Safinamide study misses endpoint, Together with our partner Newron, we are developing safinamide as an oral adjunctive therapy
but confirms effect on motor
function and safety profile for patients with various stages of Parkinson’s disease, which affects an estimated three ­million
people in industrialized countries. In 2009, we had successfully completed the first Phase III
clinical trial of safinamide administered as an add-on therapy to levodopa standard treatment
in patients with advanced Parkinson’s disease (Study 016). Motor function and the ability to
perform daily activities improved significantly in patients treated with safinamide compared
to placebo. An 18-month extension study (Study 018) was intended to provide data on the
long-term efficacy and safety of safinamide in this indication. We announced the results of
this long-term study in November 2010. The primary efficacy endpoint measuring dyskinesia
after 24 months of treatment was not met. We therefore reassessed the sales potential of
safinamide and recorded an impairment (see page 19). By contrast, the results of the analysis
of the main secondary endpoint were consistent with the effect on motor function observed in
 Company Management Report Corporate governance Consolidated Financial Statements More information 61
Merck Serono

Study 016. The data from Study 018 also confirm the safety profile of safinamide. With SETTLE,
a further Phase III clinical trial is underway in this indication. In the MOTION study, a Phase III
clinical trial, we are evaluating safinamide as an add-on therapy to a dopamine agonist in early
Parkinson’s disease.

Increasing the success rate after in vitro fertilization

The objective of fertility research and development work at Merck Serono is to help infertile
couples at every stage of the reproductive cycle – from follicular development to early preg-
nancy – to realize their dream of having a child. The innovative drugs and application devices
must offer patients maximum ease of use and increase the probability of a pregnancy. In this
way, we want to further expand our leading position in the treatment of infertility. Our ongoing
research efforts are focused on drugs, technologies and support services that will improve the
success rate of in vitro fertilization (IVF) procedures, and thus ultimately increase the take-
home baby rate.

Focusing on Rheumatology
In the field of autoimmune and inflammatory diseases, we shifted our focus to rheumatological
diseases and consequently renamed this therapeutic area. Our research and development work
is centered on molecules that modulate the key pathogenic mechanisms of these diseases. We
are developing the recombinant protein atacicept for the treatment of systemic lupus erythe-
matosus (SLE), an inflammatory rheumatological disease. This innovative compound blocks the
two immunomodulatory factors APRIL and BLyS. They are important for the survival and the
proliferation of lymphocytes that trigger an abnormal immune reaction against the patient’s
own normal tissues. SLE is a chronic autoimmune disease that mainly affects women and is an
area of great unmet medical need. We are currently conducting a Phase II/III clinical trial with
atacicept in SLE. Lupus nephritis (LN) is a particularly severe form of SLE involving the kidneys.
We are currently adapting the clinical development plan for atacicept in this indication after
having discontinued a Phase II / III study in 2008.
Phase II study of FGF 18 started Thanks to its novel mechanism of action, fibroblast growth factor 18 (FGF 18) could be the first
in a new indication, the treatment
of knee cartilage defects disease-modifying treatment for osteoarthritis and the repair of cartilage damage following
injury. In the laboratory, FGF 18 has been shown to stimulate the regeneration of defective
articular cartilage. FGF 18 may support the healing of degenerative joint disease. We success-
fully completed a Phase I trial of patients with osteoarthritis of the knee joint. A further clinical
trial in osteoarthritis is still in progress. We are investigating the efficacy of FGF 18 in the
treatment of knee cartilage defects in a Phase II trial that we initiated in 2010.

Research and development on growth disorders and metabolic diseases

The aim of our research and development efforts in endocrinology is to offer patients with
growth disorders and metabolic diseases new therapeutic options or improved versions of
established products based on our own development work or cooperation with partners. The
most recent examples include Egrifta™ (tesamorelin for injection) for the reduction of excess
abdominal fat in HIV-infected patients with lipodystrophy, as well as the development of
a liquid formulation of Saizen ® for injection.
62

Sales of the well-established

Nasivin ® range grew by 23%
to EUR 52 million in 2010.
Company Management Report Corporate governance Consolidated Financial Statements More information 63
Consumer Health Care

consuMer heAlth cAre

The Consumer Health Care division offers high-quality over-the-counter

products for preventive health care and self-treatment of minor ailments.
Its product range includes global, scientifically based branded products that
consumers trust. Consumer Health Care is represented in many countries of
Europe, North America, Latin America, Asia and Africa.

key products

– Mobility: Products to strengthen the joints and relieve pain, including the brands Seven Seas ®,
Flexagil ® and Kytta ®
– Everyday health protection: Probiotic multivitamin ranges Bion ® and Multibionta ®; vitamins
and minerals sold under brand names such as Cebion ® and Diabion ®
– Women’s and children’s health: Femibion ® includes products with folic acid and Metafolin ®
for pregnant and nursing women; Kidabion ® (Haliborange ®), a vitamin range for children
– Cough and cold: Cold treatment Nasivin ® (Iliadin ®); flu treatment Sedalmerck ®

key developMents in 2010

– Stable growth, with many countries clearly exceeding market growth

– Strategic brands reinforced: Double-digit growth for Femibion ®, Bion ®, Seven Seas ® and
Nasivin ®
– Femibion ®: a growth driver in Poland, Germany and France
– Bion ® range: strong increases in France, Belgium and Chile
– Nasivin ®: strong sales growth in Poland, Russia, South Africa and India
– Research and development further expanded
– Higher expenses due to restructuring measures in China, impairment losses in Mexico, and
a warehouse fire in the United Kingdom
– Negative currency effects in Venezuela, one of the division’s largest Latin American markets;
positive currency effects in Mexico, the United Kingdom and Indonesia
64 Merck Annual Report 2010

SOLID SALES DEVELOPMENT

The Consumer Health Care Division stabilized its growth course, growing
in line with western Europe, its main market. The global sales of our strategic
brands performed well, posting double-digit growth.

Consumers trust Merck

Focus on four health themes Consumer Health Care specializes in over-the-counter products and focuses on four health
themes: Cough and Cold, Mobility, Everyday Health Protection, and Women’s and Children’s
Health. The main distribution channels for our products are pharmacies, as well as retail chains,
drug stores and mail order in some countries and certain markets. We are building on the
strength of our well-known brands and the long-standing trust consumers place in them with
respect to their quality and efficacy.

Consumer Health Care | Key figures

EUR million 2010 2009 ∆ in %
Total revenues 472 467 1.1
Gross margin 317 319 –0.8
R&D 25 19 28
Operating result 14 48 –71
Exceptional items – – –
Free cash flow 45 49 –7
Underlying free cash flow 45 49 –7
ROS in % 2.9 10.3

Business in focus countries develops well

Above-average market In 2010, total revenues of the Consumer Health Care division rose by 1.1% to EUR 472 million.
growth in many countries
We thus achieved stable growth and grew in line with the market in western Europe, our main
market. We recorded organic growth of 2.6% worldwide and exceeded average market growth
in many countries. The cornerstones of our strategy are strong brands and regional expansion.
With a few exceptions, our focus countries performed well. In one important market, Venezuela,
negative currency effects impacted business. In China, we undertook extensive restructuring
in the third and fourth quarters. We had expanded outside the four major cities of Beijing,
Shanghai, Guangzhou and Shenzen too quickly. As a consequence, we ended up with consider-
able stocks that were not being pulled through to consumers. Having concluded an exclusive
agreement with the Chinese Medical Doctors Association to offer Diabion in major hospitals,
we did not receive the necessary government permission to allow doctors to prescribe the
product. Adjusted for the effects in China, the division posted organic growth of 5.2%.
 Company Management Report Corporate governance Consolidated Financial Statements More information 65
Consumer Health Care

Research and development expanded

The operating result of the Consumer Health Care division declined by 71% to EUR 14 million.
ROS was 2.9% compared with 10.3% in 2009. Underlying free cash flow was EUR 45 million,
which was 7% lower than in 2009. In addition, higher impairment losses in Mexico lowered the
operating result. We also incurred losses due to a fire in a warehouse in the United Kingdom.
At EUR 25 million, research and development spending in the Consumer Health Care division
was 28% higher than in 2009.

Strategic brands post increases

Femibion ® shows strong growth With one exception, the global sales of our five strategic brands developed positively, posting
double-digit increases. The Bion ® range generated global sales of EUR 54 million, an increase
of 11%, of which France contributed the vast majority, or EUR 32 million. Femibion ® grew by
24%, generating sales of EUR 41 million. Its strongest markets are Germany and Poland. France
also recently reported strong increases. Seven Seas ® recorded a slight sales decline of 1.4% in
its core UK market. However, thanks to the positive developments in other countries, sales grew
by a total of 14% to EUR 44 million. Nasivin ® sales grew by 23% to EUR 52 million, driven
primarily by good performance in Poland, Russia, South Africa and India. The Kytta ® brand,
which is primarily marketed in Germany, registered a 21% decline in sales to EUR 15 million.
The development of Kytta in Germany was attributable to overproportionate increases in
advertising spending by our competitors compared to 2009.

Top five brands by sales in 2010

EUR million / % of divisional sales

1 Bion ® 54 11%
1
2 Nasivin ® 52 11%
2
3 Seven Seas ® 44 9%
6 3
4 Femibion ® 41 9%

5 Cebion ® 27 6% 4
5
6 Other products 252 54%

Europe – our number-one region More than two-thirds of sales generated in Europe
By region, our sales breakdown as follows: 71% in Europe, 17% in Latin America and 12% in
Asia, Africa, Australasia. Europe thus remains our largest market with sales of EUR 331 million,
an increase of 3.8% over 2009.

France: our largest market

France remains our top-selling country, posting sales of EUR 101 million, or 1.8% more than
in 2009. The Bion ® range again performed very well, securing its position as the second-leading
brand in the French OTC market and as number one for nutritional supplements. Femibion ®
Maman Active for young mothers was launched in France in 2010.
66 Merck Annual Report 2010

Apaisyl ® range expanded Apaisyl ® is a very well-known brand in France, which focuses on head lice, skin irritations and
mycoses. New products for nail fungus, chapped hands and herpes were added to this product
range. The Médiflor ® range was also expanded to include a product for sore throats.

Consumer Health Care | Sales by region

EUR million / % of total divisional sales

1 Europe 331 71%

4
2 North America 1 0%

3 Latin America 81 17% 3

4 Asia, Africa, Australasia 57 12% 2

1

Femibion ®: the clear market leader in Germany

Germany has replaced the United Kingdom as our second most important market. In 2010, our
German subsidiary Merck Selbstmedikation GmbH marked its 40th anniversary. Sales in Germany
totaled EUR 57 million, representing growth of 1.7%. With a market share of more than 50%,
Femibion ®, which was launched in Germany 15 years ago, is the clear leader in its market
segment, growing by 4.4% in 2010. In the Femibion ® range, we launched Flor Intim, a probiotic
product to protect and foster healthy vaginal flora. Very good sales were generated by Cape
June ®, our brand of diet products distributed directly through the QVC home shopping network.

A difficult environment in the United Kingdom

In the United Kingdom, a difficult market environment caused sales to drop by 0.7% to EUR 54 mil-
lion. Femibion ®, which was launched here in 2009, did not meet expectations. Our Lamberts
Healthcare line showed a positive trend; this brand specializes in the direct sale of nutritional
supplements and focuses heavily on e-commerce.
At EUR 27 million, sales in Belgium remained stable at a high level. Poland showed very positive
growth of 18%, reaching EUR 29 million. Consumer Health Care also saw strong increases in
Russia, Hungary, Austria and Turkey.
 Company Management Report Corporate governance Consolidated Financial Statements More information 67
Consumer Health Care

Currency effects in Latin America

In Latin America, total sales decreased by 9.6% to EUR 81 million. This was attributable to
exchange rate losses in Venezuela, one of our most important markets in Latin America after
Mexico. Although we achieved organic growth of 30%, sales in Venezuela dropped by 52%. In
terms of total sales, the positive sales growth in Mexico (7.1%), Brazil (14%) and Chile (45%),
for example, was unable to completely compensate for Venezuela. However, we achieved 11%
organic growth in the region.
To expand our position in Latin America, we opened a new research and development center in
Brazil. The center serves as an R&D hub for Brazil and neighboring countries. The center’s goal
is to develop regional solutions for the successful strategic brands of Merck Consumer Health
Care. This means that existing products and future developments from the worldwide portfolio
are to be adapted to regional conditions and local regulatory requirements.

Growth in major Asian markets

In Asia, sales declined by 4.8% as a result of the aforementioned development in China. We
achieved growth in all our major Asian markets, for example in Indonesia (42%), our main
market, as well as in India (42%) and Malaysia (22%). In Indonesia, we celebrated the 35th
anniversary of Sangobion ®, our main product in this market. This is a supplement to prevent
iron deficiency and anemia in children and adults. In the Philippines, sales grew by 47%,
primarily driven by the successful launch of Sangobion ® in direct sales.
After continuous growth in previous years, South Africa, by far the most important market in
Africa, once more saw significant increases, rising by 29% to EUR 9.2 million. Our Slow-Mag ®
line of magnesium products is the clear market leader there, holding a 70% market share.
We have expanded this product line to include SlowMag ® Active+, a magnesium supplement
containing vitamins, ginseng, guarana and zinc.

Research and development

R&D spending increases In 2010, we completed the realignment of our research and development organization, which
we had started in 2009. As part of our evidence-based approach to OTC products, we stepped
up our investment in clinical studies for additional indications (as in the case of Kytta ®). This
will enable us to meet increased regulatory requirements and further substantiate our health
claims based on the study results. The regulatory requirements at the EU level are increasing
for dietary and nutritional supplements as well. We are meeting these requirements through
far-reaching trials, such as those for Bion ®, Flexagil ® and Femibion ®.
68

Milli-Q ® and Elix ® laboratory

water purification system:
Ultrapure water for research
laboratories around the world
Company Management Report Corporate governance Consolidated Financial Statements More information 69
Merck Millipore

Merck Millipore

With the completion of the acquisition of Millipore on July 14, 2010 and
the resulting formation of the Merck Millipore division, a world-class
partner to the life science industry was created. The new division combines
the Millipore businesses with the majority of Merck’s Performance & Life
Science Chemicals division. Merck Millipore comprises three business units:
Bioscience sells products used by life science laboratories in academia and
industry; Lab Solutions supplies general lab products and equipment for
applications in both life science and industrial markets; and Process Solutions
markets products used in the production of chemical and biopharmaceutical
drugs. All three business units increased their total revenues in 2010.

KEY PRODUCT GROUPS

– Products for protein research and cell biology, e.g. multiplex immunoassay and ELISA kits,
protein detection products, as well as flow cytometry instruments and kits
– Laboratory chemicals and consumables for research, educational and industrial applications
in organic and inorganic chemistry, chromatography, food and environmental analysis as
well as microscopy and lab water instruments, consumables and services to meet diverse
water purification needs
– Products used in the manufacture of biopharmaceutical drugs and to support clarification,
purification, viral clearance, sterile filtration, process monitoring and process development
through scale-up to full-scale production

KEY DEVELOPMENTS IN 2010

– Acquisition of Millipore closes on July 14, figures consolidated for the first time in the third
quarter, integration almost completed
– Total revenues amount to EUR 1,681 million, return on sales 2.6%
– Strong sales performance driven by growth in the Americas and Asia, strong demand from
global biotech customers, and the positive impact of new product introductions
– Nearly 40% of total revenues generated in Europe, Merck Millipore’s largest market
70 Merck Annual Report 2010

ACCELERATING THE INNOVATION STRATEGY

In 2010, the division continued to accelerate its innovation strategy, launching
several critical new products such as Scepter ™, the world’s first automated
handheld cell counter. With a broad-based portfolio, Merck Millipore
is focusing on the growing demand for integrated and more sophisticated
research tools from the life science industry.

Total revenues of Merck Millipore amounted to EUR 1,681 million in 2010. This corresponds to

growth of 81%. The revenues and expenses of Millipore have been included since July 2010.
Organic growth of the division, meaning excluding acquisitions and currency effects, amounted
to 5.6%.

Merck Millipore | Sales by region

EUR million / % of divisional sales

1 Europe 657 39%

4
2 North America 394 24%
1
3 Latin America 157 9%

4 Asia, Africa, Australasia 465 28%

3

The realignment of the Chemicals Merck Millipore generated nearly 40% of its total revenues in Europe, the division’s largest
business sector as a result of the
acquisition is enabling Merck market. Double-digit growth rates were achieved in the other regions, not least thanks to the
to achieve leading positions in acquisition. The division also recorded organic sales growth, with Asia posting a double-digit
high-margin, fast-growing markets,
e.g. the biotech industry increase.
The operating result of the Merck Millipore division was EUR 44 million, corresponding to a
decline of 58.7% compared to 2009. It should be noted here that the operating result for 2010
was lowered by transaction and integration costs of EUR 87 million. Moreover, cost of sales,
and consequently gross margin, were impacted by one-time expenses of EUR 86 million in con-
nection with the purchase price allocation for the acquired Millipore inventories (more infor-
mation can be found under “Financial position and results of operations”). Additionally, the
division bore the ongoing amortization expense for the acquired intangible assets recognized
within the scope of the purchase price allocation. In total, amortization of intangible assets
was EUR 96 million and related almost exclusively to the second half of 2010.
Company Management Report Corporate governance Consolidated Financial Statements More information 71
Merck Millipore

Merck Millipore | Key figures

EUR million 2010 2009 ∆ in %
Total revenues 1,681 929 81
Gross margin 871 434 101
R&D 78 32 141
Operating result 44 106 –59
Exceptional items – 11 –
Free cash flow –4,672 123 –
Underlying free cash flow 263 128 106
ROS in % 2.6 11.5

The division’s ROS amounted to 2.6% compared to 11.5% in 2009. Underlying free cash flow
was EUR 263 million compared to EUR 128 million in 2009.

Strong position in fast-growing markets

The realignment of the Chemicals business sector as a result of the acquisition is enabling
Merck to achieve leading positions in high-margin, fast-growing markets, e.g. the biotech
industry. The company is now even less exposed to economic cycles. The steady, resilient
revenue stream from the Merck Millipore division balances the Liquid Crystals business within
Performance Materials and the Pharmaceuticals business sector. Merck Millipore is positioned
globally as a strategic supplier driven by innovation, premium brand products, and competitive
differentiation in increasingly competitive sectors.

BIOSCIENCE

For easier and more efficient research

With its products for life science research in the pharmaceutical and biotechnology industries
as well as academia, the Bioscience Business Unit accounts for about 20% of the division’s
total revenues. It is focused on offering solutions that help scientists to conduct life science
research easily, efficiently and economically.
The Bioscience Business Unit provides an increasing number of tools and services to support
researchers seeking to understand complex biological systems as well as to identify and charac-
terize new therapeutic targets.
72 Merck Annual Report 2010

Tools and services from our Bioscience Business Unit help researchers meet increasing demands
as pharmaceutical researchers come under increasing competitive pressure to screen and identify
new drugs with more speed and accuracy.
Therefore, our goal is to create products and services that simplify the work flow for researchers,
offering consolidated and validated solutions. The business unit’s products help to advance life
science research in a wide variety of areas ranging from neuroscience, infectious disease, oncology,
and metabolic disorders to stem cells, cell signaling, nuclear function, and chromatin biology.

Products for protein research and cell biology

Thousands of products developed The Bioscience Business Unit sells thousands of products, primarily into the protein research
for applications in protein research
and cell biology and cell biology markets. These include instruments, consumable devices, reagents and services
to help customers better understand diseases and biological functions. Their work typically
involves conducting experiments on biological samples, such as cells, proteins, and nucleic
acids. Merck Millipore also offers a wide variety of kits that improve research productivity and
efficiency. Kits enhance research productivity by combining in one box all the disposables,
reagents, and protocols needed to reliably and reproducibly conduct a particular experiment.

Measuring the effect of drugs on protein biomarkers

Within the protein research market, we offer multiplex immunoassay and ELISA kits, protein
detection products, and flow cytometry instruments and kits. Researchers use our multiplex
immunoassay kits to understand which proteins may be indicative of a disease state, measure
how a drug affects protein biomarkers, and determine what side effects a drug creates. We are
developing multiplex kits, reagents, and assays for researchers studying immunology, inflam-
mation, and metabolic diseases (e.g. diabetes, obesity, cardiovascular disorders).

An integrated range
The Bioscience Business Unit is increasingly seeking to integrate instrumentation, reagent kits,
validated protocols and technical support. One example of this approach is in flow cytometry,
where we are bringing the advantages to the bench tops of cell biologists.
A major challenge for our customers is to find promising drug candidates faster and then ensure
that they will not generate unwanted or unexpected side effects in clinical trials or when
they are commercially available on the market. To improve the efficiency and economy of this
research, customers outsource research work to the Bioscience Business Unit rather than conduct
Company Management Report Corporate governance Consolidated Financial Statements More information 73
Merck Millipore

the work in-house. We provide services to identify disease targets and better understand how to
improve the efficacy of drugs on targeted patient groups and prevent side effects.
Merck Millipore’s service offering helps customers better understand the safety and efficacy
of biologic drugs and vaccines. With the increasing development of biologics, companies
are leveraging our expertise to help them evaluate the efficacy of these drugs. We offer our
customers a broad range of services to assist with evaluating and advancing these therapeutics
from the drug development pipeline to the market. The offering includes biomarker analytical
services, assay transfer/development, validation and sample analysis, pharmacokinetics, toxico-
kinetics, immunogenicity, biological potency, and vaccine services.

lab solutions

Contributing to excellence in science and analytics

The Lab Solutions Business Unit supplies products for research, analytical and clinical laborato-
ries in a wide variety of industries. Accounting for about 40% of the division’s total revenues, it
is one of the leading suppliers of laboratory chemicals, lab water equipment and consumables.
Merck Millipore has a strong track record of developing packaging concepts and chemical
packaging that protect high-quality solvents prior to use. In addition, the division is the leading
supplier of lab water and water treatment technologies.
For inorganic chemistry, we offer reagents of high purity such as salts, acids, caustics, volumetric
solutions, buffers, reference materials for instrumental analysis and products for inorganic
trace analysis. For organic chemistry, we supply a full range of basic products for synthesis,
including building blocks, reagents and solvents most commonly used in organic synthesis
from laboratory scale to bulk production.
As a supplier of chromatography products, Merck Millipore is also advancing the development
of analytical separation technologies. The product focus is on analytical high-performance
liquid chromatography (HPLC) and innovations to the monolithic Chromolith ® HPLC columns
for ultrafast separations.
74 Merck Annual Report 2010

Stringent requirements in food and environmental analysis

We have tailored our testing products for food, water and waste water analysis, spectropho-
tometry and quality control to growing analytical demand. This includes products such as the
spectrophotometer Spectroquant ® Pharo and the Spectroquant ® Colorimeter Picco Cl2/O3/
ClO2/CyA/pH as well as an extended product line of instant visual test kits such as Mercko-
quant ® test strips.
Visual test kits such as pH indicator strips and papers, Aquamerck ®, Microquant ®, and Aqua­
quant ®, as well as testing instruments such as Reflectoquant ® and Turbiquant ® are also part
of the range. The product range for microscopy is tailored to classical hematology, cytology,
histology, and bacteriology. Laboratory supplies and third-party products round off the offer-
ings to research, quality, analytical, and clinical labs.

Competence in BioMonitoring
BioMonitoring activities are another area of competence within the Lab Solutions Business
Unit. Our products help to detect microbiological contamination and to conduct protein and
cellular analysis targeting customers in the pharmaceutical, biopharmaceutical and food
industries. The business unit also sells membranes, antibodies, and other diagnostic reagents
to diagnostic and medical device manufacturers. Beverage companies also benefit from the use
of BioMonitoring products to identify microbiological contamination from bacteria and yeast.
We are also focused on developing next-generation technologies that are faster and more sen-
sitive and enable drug manufacturers to identify contamination earlier in their processes. These
products are capable of significantly reducing the time-to-result from days or weeks to hours.

Water purification equipment and products for laboratories

As the leading supplier of lab water applications, Merck Millipore also offers lab water instru-
ments, consumables and services to meet diverse water purification needs. These products
remove microorganisms, dissolved gases, particulates, and organic and inorganic compounds
from water. The quality of the water is a critical variable for researchers as it can have a lasting
impact on the scientific results of their research. The demands placed on water quality depend
largely on the complexity of the scientific experiment, with ultrapure water required for complex
experiments.
 Company Management Report Corporate governance Consolidated Financial Statements More information 75
Merck Millipore

Process solutions

Consolidating resources
The Process Solutions Business Unit supplies products used to manufacture biopharmaceutical
drugs. It accounts for about 40% of the division’s total revenues. The business unit enables
pharmaceutical and biotechnology companies to develop and manufacture clinical and com-
mercial drug materials safely and efficiently. By combining the resources of Millipore and
Merck, we can expand our portfolio of integrated bioprocessing technologies and offer an
attractive range of development and regulatory services to biopharmaceutical manufacturers.

Biological safety
Products offered by the Process Solutions Business Unit support clarification, purification, viral
clearance, sterile filtration, process monitoring and process development through scale-up to
full-scale production. The portfolio helps ensure biological safety, for example with products
for sterile and virus filtration as well as hardware and support for downstream processing.
With a comprehensive range of products and services for purification, e.g. ultrafiltration and
chromatography, Merck Millipore helps biopharmaceutical developers and manufacturers to
Products and services support efficiently and effectively purify biologic drugs. Some of the products within this portfolio
developers and manufacturers of
biopharmaceuticals include Pelicon ® for tangential flow filtration, ­Millistak ® Pod and Prostak™ for clarification,
ChromaSorb™, and ProSep ® chromatography media. The purification portfolio is complemented
by Fractogel ® and Eshmuno ® from the Merck chromatography business.

Advanced separation technologies

The business unit’s portfolio The Mobius ® single-use product line provides integrated solutions that bring together Merck
covers the entire pharmaceutical
production value chain Millipore’s advanced separation technologies, differentiated single-use products, applications
expertise, and expert validation support. Mobius ® FlexReady Solutions are optimized, complete
single-use solutions that integrate process-ready hardware systems with Mobius ® Flexware
assemblies.
As it eliminates the time-consuming steps involved in cleaning, autoclaving and assembling,
the Mobius ® CellReady 3L single-use, stirred tank bioreactor considerably reduces the downtime
typical of glass bioreactors. This enables process development engineers to focus more on exper­
imentation and data analysis in order to obtain results faster.

Pharmaceutical excipients
Moreover, the business unit’s portfolio covers the entire pharmaceutical production value chain.
Apart from regulated starting materials and active pharmaceutical ingredients, our pharmaceutical
raw materials, for example from the Parteck ® range, are used as excipients for the production
of solid, semi-solid, and liquid formulations. Cell culture supplements complement the range of
products and services for upstream processing. Merck has combined its range of excipients and
active ingredients for pharmaceutical production processes under the Emprove ® brand.
76

Ultrathin televisions: better

image quality, greater contrast
and less power consumption
thanks to PS-VA technology
Company Management Report Corporate governance Consolidated Financial Statements More information 77
Performance Materials

Performance Materials

Liquid crystals from Merck are used around the world in LCD televisions,
monitors, tablet PCs, notebooks, mobile phones, and digital cameras.
Besides high-tech chemicals and materials for liquid crystal displays,
the Performance Materials division also offers new lighting and display
technologies such as OLEDs as well as innovative effect pigments for the
plastics, printing and coatings industries. Our pigments are also used, for
example, in skin care and color cosmetics. In view of climate change and
high energy prices, we are also active in growth markets in the field of
renewable energy sources. We are working to utilize solar energy more
efficiently and to develop innovative technologies for energy-saving LEDs.

KEY PRODUCTS

– licristal ® – Liquid crystal mixtures for displays

– Iriodin ® – Pearl luster pigments for a wide range of color effects

FURTHER PRODUCT GROUPS

– livilux ® – Materials for OLEDs (organic light-emitting diodes) in displays and for innovative
lighting
– isishape ® – Efficient, eco-friendly materials for structuring solar cells and touch screens
– Innovative effect pigments, such as Xirallic ®, which creates glitter effects, for use in coatings,
packaging and product design, imparting not only decorative but also security-relevant
features, such as brand and anti-counterfeit protection

KEY DEVELOPMENTS IN 2010

– Growing demand for high-tech liquid crystals: total revenues up 38% compared to 2009
– Technology leader in innovative liquid crystal mixtures, for example PS-VA (polymer-stabilized
vertical alignment) technology
– Total revenues of the Pigments business unit rise by 37% compared to the 2009 crisis year
– Production capacity utilization at a high level for both liquid crystals and pigments
– Operating result more than doubled to EUR 580 million from EUR 218 million
– New Material Research Center inaugurated at the Darmstadt site; at EUR 50 million it represents
the largest single R&D investment in the Chemicals business sector to date 
78 Merck Annual Report 2010

Strength Boosted
Merck has combined its materials businesses and activities in the new Perfor­
mance Materials division, which was created after completing the acquisition
of the U.S. life science company Millipore on July 14. The division consists
of the Liquid Crystals, Pigments and Cosmetics business units, as well as
Advanced Technologies, which offers materials for LEDs (light-emitting
diodes) and photovoltaics along with other innovative technologies.

Production capacity utilization was at a high level for both liquid crystals and pigments,
reflecting the recovery from the downturn in 2009. Total revenues of the division rose by 38%
to EUR 1,384 million from EUR 1,006 million in 2009. Positive currency effects of 9.7% and
organic growth of 27% contributed to this increase. The division generated more than 70%
of its total revenues with liquid crystals. At EUR 925 million (2009: EUR 478 million), gross
margin grew faster than expenses. Thus, the division’s operating result more than doubled,
increasing to EUR 580 million from EUR 218 million in 2009. Return on sales (ROS) rose to
41.9% from 21.7% in 2009. Underlying free cash flow amounted to EUR 549 million, compared
to EUR 304 million in 2009.

Performance Materials | Key figures

EUR million 2010 2009 ∆ in %
Total revenues 1,384 1,006 38
Gross margin 925 478 93
R&D 127 109 17
Operating result 580 218 166
Exceptional items –1 1 –
Free cash flow 542 288 88
Underlying free cash flow 549 304 81
ROS in % 41.9 21.7

At EUR 50 million, the new Material In order to defend and expand our leadership position in display materials, among other fields,
Research Center in Darmstadt is the
largest single R&D investment in the we continued to invest in research and development. R&D spending rose to EUR 127 million
Chemicals business sector to date from EUR 109 million in 2009. In September, the new Material Research Center was opened
at the Darmstadt site. At EUR 50 million, this represents the largest single R&D investment in
the Chemicals business sector to date. Covering a surface area of approximately 11,000 square
meters, it houses some areas of liquid crystal research as well as OLED (organic light-emitting
diodes) research, among other activities. Our researchers at the center are also working on
materials for mobile energy storage systems, for example for use in hybrid or electric vehicles.
 Company Management Report Corporate governance Consolidated Financial Statements More information 79
Performance Materials

liquid crystals

Upturn sustained
As a result of the growing demand for high-tech liquid crystals from Merck, total revenues
increased in 2010 to EUR 1,013 million, which is 38% more than in 2009. The quarterly
development of Liquid Crystals also reflects the rapid recovery of the global business for liquid
crystal displays (LCD) after the crisis-related drop in 2009. Quarterly business performance
continued to improve in 2010, with a 50% rise in revenues in the second quarter, reaching a
record level of EUR 284 million. In the first half of 2010 alone, total revenues increased over
the same period in 2009 by 63% to EUR 523 million. The operating result increased fourfold
to EUR 263 million. Although still at a high level, total revenues were slightly lower in the
third and fourth quarters. This was the result of the onset of inventory corrections in the LCD
market, with display manufacturers reducing their production, as well as slightly unfavorable
exchange rates.

Performance Materials | Sales by region

EUR million / % of divisional sales

1 Europe 127 9% 1
2 North America 99 7% 2
3
3 Latin America 33 3%

4 Asia, Africa, Australasia 1,118 81%

New technologies such as LED The market research firm DisplaySearch forecasts annual global shipments of over 268.8 million
backlighting, 3D functionality and
Internet connectivity are setting the liquid crystal (LCD) televisions by 2014. The higher demand for LCD televisions is closely linked
trend in the television market with new technologies such as LED backlighting, 3D functionality, and Internet connectivity.

New display technologies continue to advance

Strong demand for liquid crystals The overall significant increase in total revenues in 2010 and the high capacity utilization
based on PS-VA technology added
crucial impetus to business of our LC production was largely due to the strong demand for liquid crystals based on the
patented PS-VA (polymer-stabilized vertical alignment) technology, with which Merck further
expanded its technology leadership. Besides improved moving picture quality, the technical
advantages of PS-VA are faster switching times, higher contrast and better brightness with
lower energy consumption.
80 Merck Annual Report 2010

PS-VA technology opens up new possibilities for LCD producers to achieve previously unat-
tained screen properties – warmer, more natural colors, spatial depth and livelier movement.
In Taiwan, South Korea and Japan, this technology is already being used in mass production.
The term LED TVs is used to describe LCD televisions in which only the backlight consists of
LEDs (light-emitting diodes), thus improving picture contrast, reducing energy consumption
and producing more lifelike images. Individual areas of the illuminated surface for displaying a
deep black can be separately dimmed or switched off completely, thus enhancing the contrast.
This combines the advantages of LED and LCD. Further significant advantages include the low
energy consumption and slim design of the flat screens.

Liquid crystals for 3D televisions and tablet PCs

In addition, Merck supplies innovative liquid crystal mixtures needed for devices such as 3D
televisions and touch screens used in tablet PCs, which are becoming more and more popular.
The liquid crystal mixtures used for special 3D glasses for watching 3D television contributed
to the positive business performance, as did light-converting isiphor ® phosphors used for LED
backlighting.
In addition, we are working on reactive mesogens, which are polymerizable liquid crystals that
can be used, for example, as material for optical films. They help to enhance the image quality
and improve the power consumption of 2D and 3D screens.

New Liquid Crystals research center in South Korea

With the inauguration of the Advanced Technology Center in Poseung, South Korea, we have
created additional possibilities to research and develop the latest liquid crystal technologies
and have laid the foundations for further innovations. We invested EUR 11 million in this
research center.

OLED technology is progressing rapidly

OLED technology for more energy- Besides liquid crystal technology, our researchers are also working on materials for innovative
efficient light
displays. Here the special focus of development is on OLED materials, which are already being
used in mobile phones and MP3 players. In our efforts to advance OLED technology, we are
increasingly participating in research networks. The development of “new materials for OLEDs
from solutions” (NEMO) is the focus of a project in which Merck is participating as the consor-
tium leader together with partners from industry and science. The aim of this collaboration,
which is funded by the German Federal Ministry of Education and Research, is to develop
innovative, soluble materials for use in large-area OLED components for applications such as
flat screens, electronic traffic signs or lighting systems.
OLEDs are solid-state devices composed of thin films of organic semiconductor molecules that
create light when electrical current is applied. OLED tiles are produced on glass plates or flexible
substrates and can emit white light that is more homogeneous and more energy-efficient than
the light from conventional fluorescent lamps. The main difference to inorganic light-emitting
diodes (LEDs) is their lower current density and laminar light density and the fact that no
crystalline materials are required. They consume little energy and offer sharp images from nearly
every viewing angle. By using ultra-thin luminescent layers, OLED technology makes it possible
 Company Management Report Corporate governance Consolidated Financial Statements More information 81
Performance Materials

to produce unique, large-area, homogeneous lighting surfaces with a total layer thickness of
just a few millimeters.
Compared to the vacuum evaporation process used today, these new materials should signifi-
cantly improve scalability, structurability and coating efficiency in particular. To this end, the
NEMO project partners are focusing on soluble, phosphorescent materials for red, green and
blue applications. In order to develop marketable solutions quickly, different injection, trans-
port and electrode materials as well as adhesives are being researched, evaluated and tested for
their performance in parallel. In addition, as the leading producer of high-performance OLED
materials, Merck is collaborating with Braunschweig Technical University and the U.S.-based
company Applied Materials on a project called “Light InLine” to develop processes to reduce the
production costs of OLED lighting.

Photovoltaics – a key technology

Photovoltaics are one of the key technologies with respect to renewable energy sources. In
this field, the Performance Materials division is focusing on the development of materials and
printing technologies for solar cell production.
With the isishape ® range, we already offer the producers of crystalline solar cells printable
structuring materials that improve solar cell efficiency and enable eco-friendly production
processes.
Flexible solar cells – new approaches Our material platform lisicon ® offers customers organic semiconductors for printed, flexible
in material development
and robust organic photovoltaic (OPV) cells. Developing materials further to increase solar cell
efficiency is the key to reaching mass markets. To this end, Merck is collaborating with other
leading industrial companies on a development project sponsored by the German Federal
Ministry of Research and Education. This project aims to achieve fully printed, flexible solar
cells with a minimum of 10% efficiency by 2012. At our Technical Centre in Chilworth, near
Southampton, United Kingdom, we are focusing intensely on these goals.
In parallel, we are working with leading partners worldwide on new technologies, for example
dye-sensitized solar cells. These imitate nature’s photosynthesis process. The electrolytes in the
dye-sensitized solar cells are increasingly based on the use of ionic liquids, in whose development
and manufacture Merck has a globally leading role. The use of ionic liquids creates the possibil-
ity to produce both rigid and flexible solar cells with high efficiency and stability. This special
feature will enable us to develop many new fields of application in the future.

Scientific alliances
Together with the University of Freiburg, we launched a project in November to develop and
produce new battery materials. The Merck Battery Materials Lab, which is jointly run and
operated with the university, is working to develop fundamentally new conductive salts for
lithium-ion batteries to power hybrid and electric cars.
With such concept labs, Merck has been pursuing a new approach since 2006 aimed at building
strong alliances with external and internal partners and an international research and technology
network. These concept labs are an important element of the Advanced Technologies (AT) unit
of the Performance Materials division. The goal of this unit is to develop innovative products
through to market launch with the use of new promising technologies.
82 Merck Annual Report 2010

The concept labs are located at hot-spots of academic research around the world and focus
internationally on strategic growth areas within the chemical industry. The systematic use of
in-house expertise and the core competencies of Merck create the preconditions for generating
new technologies and innovative products for Merck’s Chemicals business. At the same time,
external knowledge as well as in-licensing, cooperation and promotion possibilities are utilized.
Merck concept labs are located in Darmstadt, Heidelberg, Atsugi (Japan), and Boston (United
States).
Additionally, Merck is cooperating as part of a network of German companies and universities
to develop concepts for the economical mass production of organic electronic circuits, storage
devices and sensors, power generation through organic photovoltaics, as well as energy con-
servation through the use of more economical organic light-emitting diodes. To implement the
project, the pacesetting partners have established a common platform, namely InnovationLab
GmbH based in Heidelberg.

PIGMENTS / COSMETICS

Recovery from the drop in demand

Upswing also due to the marked The Pigments business recovered well from the weak global demand in 2009. Total revenues
increase in demand from the
automotive industry of the Pigments business unit in 2010 amounted to EUR 325 million, which is 37% more than
in the 2009 crisis year. Total revenues were especially high in the third quarter. This upswing
was due to the marked increase in demand in the automotive industry, which returned to, or
even exceeded, pre-crisis levels. With effect pigments for automotive coatings, Merck is an
important supplier to the industry.
Demand for consumer goods revived following a long period of consumer restraint. This favor-
ably impacted the business with pigments for plastics, print products and cosmetic products, as
did the generally positive consumer sentiment. Positive currency effects provided an additional
boost to the business unit.
We also continue to focus our innovation efforts on profitable pigments such as Candurin ®
pigments for coating foods and pharmaceuticals, and on the Pyrisma™ line of products, which
covers a wide color range and offers intense effects.

Full capacity utilization

The generally strong order situation resulted in a return to full production capacity utilization
in March 2010. We shifted some of our standard pigment production from Onahama in Japan
to Gernsheim in Germany so that we could expand capacities for Xyrallic ® pigment production
at the Japanese site. The reason for this is the strong demand for these pigments containing
aluminum oxide flakes – particularly from the automotive industry.
 Company Management Report Corporate governance Consolidated Financial Statements More information 83
Performance Materials

Additionally, in October we laid the cornerstone for the construction of a new plant to produce
Meoxal™ at the Onahama site in Japan. Commercial production of Meoxal™, an effect pigment
based on aluminum flakes coated with metal oxide, is scheduled to start in 2012. The pigment
is distinguished by high color saturation, good hiding power and superior corrosion resistance.
High demand is expected particularly from the automotive and cosmetics industries.
By completing the integration of Suzhou Taizhu Technology Development, the leading supplier
of effect pigments in China, we further expanded our position in the fast-growing Chinese
market. The acquisition in 2009 gave us the possibility to more actively target the mid-range
price segment with an expanded range of products.

New cosmetic applications

Portfolio of functional fillers for In 2010, Merck significantly expanded its portfolio in both cosmetic functional fillers and in
cosmetics significantly expanded
the core pearl luster pigments business. With RonaCare ® Cyclopeptide-5, Merck introduced the
world’s first cyclic peptide for the cosmetics industry. Thanks to its cyclic molecular design, the
active ingredient displays high stability and high selectivity for its biological target site in the
skin. The peptide is capable of reactivating the decelerated repair processes of mature skin and
stimulating its natural regeneration. The appearance of lines and wrinkles is reduced after just
brief use. The skin becomes significantly more supple, elastic and firm.

Scratch-resistant automotive coatings based on nanotechnology

The innovative additive Tivida™ has provided additional impetus. Based on nanotechnology, this
product improves the scratch resistance of automotive coatings. The additive can be perfectly
incorporated into the composition of the binding agent, thus changing its structure. The
nanoparticles make the solvent-based coating system harder and at the same time more elastic
due to the cross-linking of the polymer shell with the binding agent. Tivida™ provides the
desired protection against scratches long after a fresh coating is applied, lasting throughout
the subsequent use of the coated item. Tivida™ AS 1010, the first product in the brand family,
makes it possible to protect high-gloss surfaces, for example the majority of clear coatings
used in the automotive industry, against minor everyday scratches much longer than previ-
ously possible.
For plastics laser marking, Merck offers Micabs ®C 431 and Micabs ®C 411, two new additives
in granulate form. They are free from heavy metals and thus approved for laser marking of
food packaging as well as for toy production.
84 Merck Annual Report 2010

Corporate and Other

The segment Corporate and Other comprises Group administrative costs, the
financial result, taxes as well as certain exceptional items not allocated to
individual divisions.

Segment significantly influenced Group administrative costs relate primarily to Merck KGaA and consist of typical holding
by the Millipore acquisition
company functions. These include, for example, the corporate finance and accounting, tax,
procurement, communications and human resources departments to the extent that their
services cannot be allocated to the divisions. Corporate costs also include expenses for central,
non-allocated IT functions and corporate IT projects in connection with the expansion and
harmonization of IT systems within the Merck Group.
The operating result of the segment Corporate and Other totaled EUR –90 million in 2010
compared to EUR –78 million in 2009. In connection with the legal risk of our former subsidiary
Dey, Inc. having allegedly falsely reported certain price information, we incurred expenses of
EUR 67 million, which were recognized as an exceptional item in the segment Corporate and Other.
Although Dey Inc. was transferred to Mylan Inc., USA, within the scope of the sale of the Generics
business in 2007, Merck remains liable to Mylan for the costs incurring from this legal dispute.
Additional expenses of EUR 1 million relate to the sale of the Electronic Chemicals business
in 2005 and include a purchase price reimbursement to the buyer for subsequent taxes.
This expense is also disclosed as an exceptional item in the segment Corporate and Other.
At EUR –252 million, the financial result for 2010 worsened mainly as a result of higher interest
expenses in connection with the financing of the Millipore acquisition. Interest expenses
increased by EUR 118 million from EUR –134 million in 2009.
At EUR 220 million, tax expenses consist of corporation and trade income taxes for the
companies domiciled in Germany as well as comparable income taxes for companies domiciled
abroad. This item contains not only effective taxes but also deferred taxes, which take into
consideration the difference in the carrying values between the tax accounts of the Group
companies and the consolidated balance sheet. The latter results primarily from purchase price
allocations for Serono and Millipore.
Company Management Report Corporate governance Consolidated Financial Statements More information 85
Corporate and Other

Free cash flow was EUR –736 million in 2010, compared to EUR –511 million in 2009. In 2010,
payments totalling EUR 241 million (2009: EUR 16 million) were made in connection with
existing legal risks stemming from the sale of our former Generics subsidiary Dey Inc., USA.
This includes the payment of EUR 215 million pursuant to the settlement with the U.S. Depart-
ment of Justice. Further payments amounting to EUR 26 million relate to compensation payments
as well as legal advisory fees in connection with this legal risk. Additionally, free cash flow reflects
Group administrative costs as well as interest and tax payments.
Adjusted for the effects of the divestment of the Generics business, underlying free cash flow
of the segment Corporate and Other amounted to EUR –496 million, thus remaining at the
level of 2009.

Corporate and Other | Key figures

EUR million 2010 2009 ∆ in %
Total revenues – – –
Gross margin – – –
R&D – – –
Operating result –90 –78 14
Exceptional items –68 – –
Free cash flow –736 –511 44
Underlying free cash flow –496 –496 –
86 Merck Annual Report 2010

Risk report
Corporate risk management enables us to identify and manage risks. At
present, we are not aware of any risks that could jeopardize the continued
existence of the Merck Group.

Risk and opportunity management

Every business decision is based on weighing the associated risks and opportunities. Merck is
part of a complex, global business world and is therefore exposed to a multitude of external
and internal risks. The aim of our risk management activities is to identify risks early on as well
as to assess, manage, and deal with them. The basis for this is a Group-wide risk management
process, which we use to systematically record the risks of the Merck Group and to present
them in a transparent and comparable manner. Opportunity management in the Merck Group
is conducted in the operating units on the basis of the corporate strategy. In this connection, we
refer to the Report on Expected Developments starting on page 95.
Within the context of the Group-wide risk management process, the division heads, managing
directors of Merck subsidiaries, and the heads of Group functions are specified as employees
with responsibility for risks. Every six months, they report their active risk status and report to
the risk manager their entire risk portfolio using a uniform, Group-wide reporting system. Risks
are assessed based on their potential impact on EBIT and the likelihood of their occurrence.
Furthermore, executives with responsibility for risks report existing and planned measures to
avert risks and to minimize damage. The risk manager reviews the information and uses it to
produce a risk report that reflects the current risk portfolio of the Group and the individual
companies. All major aspects of the risk management process are described in a Group guide-
line. The Executive Board, Supervisory Board and Finance Committee receive the risk report
every six months. Significant changes in the assessment of already known risks as well as new,
significant risks are reported on an ad hoc basis.

Internal control system for the consolidated

accounting process

The objective of the internal control system for accounting is to implement controls that
provide assurance that the financial statements are prepared in compliance with the relevant
accounting laws and standards. It covers measures designed to ensure the complete, correct
and timely transfer and presentation of information that is relevant for the preparation of
the consolidated financial statements and the management report of the Merck Group. The
control system is subject to continuous further development and is an integral component of
the accounting and financial reporting processes in all relevant local units and Merck Group
functions. With respect to the accounting process, the internal control system measures are
intended to minimize the risk of material false statements in the consolidated accounting
process of the Merck Group.
Company Management Report Corporate governance Consolidated Financial Statements More information 87
Risk report

Key tools
The internal control system is geared to ensuring the accuracy of the consolidated accounting
process and the preparation of compliant financial statements.
Group Accounting and Controlling centrally steers the preparation of the consolidated financial
statements of Merck KGaA as the parent company of the Merck Group. This Group function
defines the reporting requirements that the Merck subsidiaries must meet as a minimum
requirement. At the same time, this function steers and monitors the scheduling and process-
related requirements of the consolidated financial statements.
The Group-wide accounting guidelines form the basis for the preparation of the statutory
financial statements of the parent company as well as the subsidiaries in Germany and abroad.
These are available to all employees in the relevant units via the Merck intranet. The intranet
is also used to adapt the guidelines to changes in the financial regulatory environment and
update them in accordance with internal reporting requirements. One of the requirements of
the Group-wide guidelines is to present Group-internal business processes as the basis for
proper settlement of intercompany balances. Additional controls have been implemented in the
consolidation process.
Group Accounting and Controlling also ensures the timely central management of changes to
the equity holding structure and correspondingly adapts the Merck Group’s scope of consolida-
tion. The individual companies have a local internal control system. Where finance processes
are covered via the Shared Service Center, the internal control system of the Shared Service
Center is additionally applied. They ensure that accounting complies with IFRS accounting
standards and with the Merck Group accounting guidelines.
Group Accounting and Controlling provides support to the local contacts throughout the entire
reporting process. In case of important innovations in the reporting process and IT applications,
the function trains employees involved and thus ensures a consistently high quality of reporting.
The reporting process, either via the individual company or the Shared Service Center directly
to Group Financial Reporting, ensures fast reporting cycles. The reported financial figures of
the subsidiaries are validated via a three-step process between the local finance organization,
divisional controlling and Group-wide controlling. Financial figures are checked for their plau-
sibility and content by comparing them with the figures of the previous year and the budget.
The accounting process is designed at all levels to ensure a clearly defined segregation of
duties and assignment of responsibilities to the units involved in the accounting process at all
times within the scope of continuous dual control.
For the assessment of balance sheet items, the Group Accounting and Controlling function
closely cooperates with Merck Group Risk Management in order to correctly reflect potential
balance sheet risks. For special issues, such as the evaluation of intangible assets and pension
obligations, external experts are additionally involved where necessary.
For the Group accounting process, Merck globally uses a standard SAP software tool. Via a
detailed authorization concept to limit user rights on a need-to-have basis, the system contains
both single entity reporting and the consolidated financial statements. The financial data are
transmitted in encrypted form. Routine system backups are performed in order to prevent a
potential loss of data.
The local management of the individual companies is responsible for implementation. The
effectiveness of Merck’s internal control system with regard to accounting and the compliance
of financial reporting is confirmed by the local managing director and the head of finance by
signing the single entity reporting.
88 Merck Annual Report 2010

All of the structures and processes described are subject to constant review by Internal Audit-
ing based on an annual audit plan specified by the Executive Board. The results of these audits
are dealt with regularly in meetings of the Executive Board, the Supervisory Board and the
Finance Committee.
The internal control system at Merck makes it possible to lower the risk of materially false
accounting statements to a minimum. However, no internal control system – regardless of its
design – can prevent a residual risk.

Business-related risks

Merck has integrated its risk management system into the ongoing business planning processes.
Potential negative developments, for example changes in customer demand or new political
framework conditions, are described and evaluated in the risk report. We can, therefore, take
countermeasures in good time if any events lead to deviations from the business plan. Risks in
connection with investment decisions are minimized by the use of detailed guidelines.

Political and regulatory risks

As a global company, Merck faces political and regulatory changes in many countries and
markets. In 2010, increasingly restrictive requirements were imposed in the pharmaceutical
environment in terms of pricing, reimbursement and approval. We assume that further changes
will follow in the future. These can negatively impact the profitability of our products and
jeopardize the success of market launches and new approvals. Close communication with
health and regulatory authorities is a preventive measure to avert risks. Together with monetary
policy changes, the destabilization of political systems and possible erection of trade barriers
can lead to declines in sales in certain countries and regions. Diversification in terms of products,
industries and regions serves to mitigate potential negative effects.

Research and development risks

For Merck, innovation is a major element of the strategies of its Pharmaceuticals and Chemicals
business sectors. Research and development projects can experience delays, expected budgets
can be exceeded or targets remain unmet. Research and development are of special importance
to the Pharmaceuticals business sector. Research and development projects are constantly
monitored by a portfolio management system. In the course of portfolio management, we
regularly evaluate and, if necessary, refocus research areas and all R&D pipeline projects.
Sometimes development projects are discontinued after high levels of investment at a late
phase of clinical development. Decisions – such as those relating to the transition to the next
clinical phase – are taken with a view to minimizing risk. Furthermore, there is a risk that
the regulatory authorities either do not grant approval or delay approval, which can have an
impact on earnings. For instance, our oral multiple sclerosis treatment is currently in the final
stage of the U.S. Food and Drug Administration’s regulatory review process. In September
2010, the European regulatory authorities issued a negative opinion regarding our marketing
Company Management Report Corporate governance Consolidated Financial Statements More information 89
Risk report

authorization application. Merck had appealed this decision. In January 2011, the European
regulatory authorities issued a final negative opinion. Additionally, there is the danger that unde-
sirable side effects of a pharmaceutical product could remain undetected until after approval or
registration, which could result in a restriction of approval or withdrawal from the market.

Product quality and availability risks

Although Merck is exposed to product liability risks, these are minimized by means of quality
controls along the entire value chain. This starts with the qualification of our suppliers.
Comprehensive quality requirements for raw materials, purchased semifinished products and
plants must be mentioned, as well as long-term strategic alliances in the case of supply- and
price-critical precursor products. Overstocking and possible shelf-life risks associated with this
are avoided by means of demand-driven production. This risk cannot be completely excluded
because of production lead times, which are substantial in some cases. Total revenues and the
operating result of the Merck Group depend on a large number of pharmaceutical and chemical
products for various industries. This diversification lowers risk since the markets differ in their
structure and economic cycles. This is also an expression of the Merck strategy to remain an
integrated pharmaceutical and chemical company.

Financial risks

As a company that operates internationally and due to its presence in the capital market, Merck
is exposed to various financial risks. These are primarily liquidity, default, currency and market-
price risks, as well as risks of changing fair values of tangible and intangible assets, and
fluctuations in the valuation of pension obligations.

Liquidity and financial risks

In order to ensure its continued existence, a company must be able to fulfill its commitments
from operating and financial activities at all times. A central Group-wide liquidity management
reduces potential liquidity risks. In addition, we have a EUR 2 billion syndicated multicurrency
credit facility, which expires in 2014. This ensures Merck’s continuing solvency in case there
should be any liquidity bottlenecks in spite of the Group’s positive operating cash flow. As
our loan agreements do not contain any financial covenants, these agreed credit lines can be
accessed even if Merck’s credit rating should deteriorate. In 2009, Merck set up a debt issuance
program that forms the contractual basis for the issue of bonds. In 2010, the volume of this
program was doubled from EUR 5 billion to EUR 10 billion.
90 Merck Annual Report 2010

Default risks
Default risks arise in connection with financial investments, loans and financing commitments
as well as receivables in operating business. As a result of the financial crisis, the default risks
for receivables in the eurozone have increased to some extent. Merck has therefore reviewed all
its positions in the respective countries and taken precautions for default risks to the necessary
extent. Merck minimizes these risks by spreading its financial positions and the associated
active management of its trading partners. Significant financial transactions involving credit
risk are only entered into with banks that have a good credit rating and a minimum rating
of A- from Standard & Poor’s. In addition, Merck’s large banking syndicate – the existing
credit line of EUR 2 billion was syndicated by 17 banks – reduces possible losses in the event
of default. Nevertheless, the default of individual trading partners cannot be fundamentally
excluded, even if they have an excellent credit rating.

Currency and interest rate risks

Due to its international business operations in different currency and interest rate regions,
Merck is inevitably exposed to currency and interest risks. Merck is affected by market price
risks owing to its global group structure and the associated financial transactions, receivables
in operating business, as well as expected future cash flows from sales and costs in foreign
currency. We use derivative financial instruments to minimize currency risks and financing
costs caused by exchange rate or interest rate fluctuations. Financial transactions, receivables
and liabilities recognized in foreign currency are generally hedged. In certain cases, the company
also hedges anticipated sales and future costs for a period of up to three years. More informa-
tion can be found in Notes (40) to (42) of the Consolidated Financial Statements.

Market price and market value risks

The values of individual items in the balance sheet are exposed to the risk of changing market
and business circumstances and thus also to changes in fair values. The need for write-downs
could significantly impact profit and lead to changes in balance sheet ratios. This applies
in particular to the high level of intangible assets including goodwill, which have become
significantly more important to the Merck Group due to the acquisitions of Serono in 2007
and Millipore in 2010. Further details can be found in Note (23) to the Consolidated Financial
Statements.

Risks in connection with pension obligations

Merck has commitments in connection with pension obligations. The present value of these
obligations can be influenced by changes in the relevant valuation parameters, e.g. the interest
rate, salary increase rate or death probabilities. Pension obligations are regularly evaluated
based on external actuarial valuations prepared annually. The majority of these obligations is
covered by the pension provisions disclosed in the balance sheet, while the smaller remainder
is externally funded or covered by long-term monetary investments made for this purpose and
Company Management Report Corporate governance Consolidated Financial Statements More information 91
Risk report

disclosed in the balance sheet. The latter amounted to EUR 217 million in 2010. As far as pension
obligations are covered by plan assets consisting of interest-bearing securities, shares, real estate
and other financial assets, decreasing or negative returns on these assets can adversely impact
the value of the plan assets and thus require further additions to pension provisions. The risk of
market fluctuations in the value of plan assets is reduced by a diversified investment strategy.

Assessments by independent rating agencies

The capital market makes use of the assessments published by rating agencies in order to
assist lenders in evaluating the risks of a financial instrument. Merck is currently rated by the
agencies Standard & Poor’s and Moody’s. In December 2010, Standard & Poor’s gave Merck
a long-term rating of BBB+, with a stable outlook. In December 2010, Moody’s gave Merck a
long-term rating of Baa2, with a stable outlook. Thus, both agencies confirm a stable investment
grade rating for us.

Legal risks

Merck is exposed to litigation risks. These include in particular risks in the areas of product
liability, competition and antitrust law, pharmaceutical law, patent law, tax law and environ-
mental protection. As a research-based company, Merck has a valuable portfolio of industrial
property rights, such as patents and trademarks. These property rights can become the target
of attacks and infringements.
We are engaged in legal proceedings and government investigations, the outcome of which
cannot currently be predicted. We also continue to bear the risks from certain proceedings
against companies of the Generics group that we sold to Mylan in 2007. Thus Merck continues
to be responsible for risks arising from cases concerning drug pricing in the United States.
In addition, the Merck Serono division is involved in a licensing dispute in Israel as well as a
dispute with a former sales partner in Italy. In the United States, our subsidiary EMD Serono is
engaged in settlement negotiations with the U.S. Department of Justice and at the state level.
The settlement negotiations concern a civil claim relating to sales of a product. In Germany,
Merck is involved in antitrust proceedings concerning its exclusive distribution agreement with
the laboratory wholesale distributor VWR International. Owing to a decision by the German
Federal Antitrust Office, Merck is obliged to supply a number of products from its Laboratory
business to other laboratory wholesale distributors in Germany. The company has taken all
possible measures to protect its own legal position.
92 Merck Annual Report 2010

Generally, Merck strives to minimize and manage its legal risks. We have taken the necessary
precautions to identify threats and defend our rights where necessary. Risks arising in connection
with litigation are continually identified, assessed and communicated.
A compliance program applies to our employees worldwide, which enjoins them to comply with
laws and guidelines, and provides them with the relevant training and support. The core of
the program is the Merck Code of Conduct, which defines guidelines for ethical behavior. This
is complemented by a training and testing program, a SpeakUp Line for reporting compliance
violations, as well as a global network of compliance officers.
Insofar as possible and practical, the company limits liability and damage risks through insur-
ance coverage, the type and scope of which is continually adjusted to current requirements.

Human resources risks

Merck’s success is significantly influenced by the competence and dedication of its employees.
Due to intensive competition, it is increasingly difficult to recruit and retain qualified specialists,
particularly in the pharmaceutical sector.
We are meeting this challenge by continuously enhancing our range of international personnel
marketing measures. Merck addresses specialists and executives by means of a Talent & Succession
Management process established throughout the Group. This process helps to identify internal
talent for management positions and facilitates the objective assessment and development of
talent, thus enabling positions to be quickly filled with suitable employees as a result of targeted
selection via an internal talent pool. Vacancies arising over the short term are managed by means
of clearly defined, appropriate deputizing arrangements. Key factors for employee retention
and satisfaction are identified and evaluated by means of regular, corporate-wide employee
surveys. We derive measures from the results of these surveys and monitor their efficacy in
follow-up surveys. A performance management system applicable to the whole Merck Group
was introduced to better measure employee contributions to the company’s success. This is
to facilitate a consistent evaluation of the degree to which personal goals are achieved and
for measuring the degree to which the Merck Values are lived. On this basis, individual HR
development measures are identified and implemented. This ensures the targeted preparation
of employees for new business challenges and their motivation to solve these challenges for
the benefit of the company. The Rewards Policy system complements this process by ensuring
that performance-related payment components are handled consistently throughout the Group.
The Merck Long-Term Incentive Plan offers eligible executives and experts a long-term, profit-
related compensation component. More information can be found in Note (32).
Company Management Report Corporate governance Consolidated Financial Statements More information 93
Risk report

Information technology risks

Merck’s strategic objectives cannot be achieved without IT support. The future focus and global-
ization of Merck will only succeed if consistent standards, systems and processes are in place.
Reacting timely and flexibly to changing market developments, conducting innovative research,
running production reliably, and supplying customers rapidly require reliable, high-performance IT.

Risks resulting from the complexity of internal and external requirements

IT risks with an impact on the business result occur when information is unavailable or errone-
ous, unintentionally disclosed or when the processes to be depicted have been implemented in
IT systems in a way that is too inflexible, too complex or illegal. Security gaps that are recog-
nized too late, or in the worst case not at all, and insufficient emergency planning measures
can quickly become incidents that affect the entire company. IT systems that do not reflect the
expectations of the businesses have the potential to massively hinder the economic develop-
ment of companies. Undesired data protection violations owing to incorrect or absent autho-
rizations create a negative external impression. The increasing dependency on IT as well as the
growing interconnectivity of IT landscapes in international companies make it necessary for
companies to invest heavily in maintenance, in the integration of new applications or even sys-
tems, and in the mapping of new processes. This development, in conjunction with constantly
new national and international legal requirements, makes data processing a time-consuming
and costly activity. As the complexity of the IT landscape increases, so do the potential risks.

Risks resulting from external threats

In addition, the general risk situation means more professional threats can be expected, with
the trend moving away from general viruses and toward targeted industrial espionage and
sabotage.
Significant potential IT risk scenarios for Merck include the failure of the central ERP (Enterprise
Resource Planning) systems, the publication of classified confidential research and business
development data, the manipulation of IT systems in chemical process control, as well as the
revocation of drug registrations due to deficient validation of the relevant IT systems.
The IT infrastructure of Merck has been consolidated to improve service quality while simultane-
ously optimizing costs. Subsequent to the acquisition of Millipore, the Millipore IT systems
were combined with the Merck IT systems within the scope of a controlled integration program.
94 Merck Annual Report 2010

Risk minimization strategy

Merck ensures the necessary availability of business-critical application systems and access
to business-relevant data – even in the event that individual components fail – by means of
redundant structures of technical components, networks and sites, as well as suitable, tested
contingency measures. Security guidelines are in place for the entire Merck Group. They include
appropriate organizational, technical and software-related precautions for access control,
access rights, virus protection and data protection. The adherence to and efficacy of these
measures are continuously monitored and reviewed by Internal Auditing as well as external
auditors. A dedicated IT risk management process ensures that IT risks are evaluated and
appropriate measures taken. Based on the measures taken, we assume that the likelihood of
a serious IT risk occurring is low.

Environmental and safety risks

Merck is a company with global production operations and is exposed to risks of possible
damage to people, goods and its image. We minimize the risks to people and the environment
by means of auditing, advising and training in matters of environmental protection as well as
occupational health and safety. Merck systematically conducts audits both at its own locations
as well as at suppliers and contract manufacturers. We constantly update these preventive
measures and thus ensure the continuity of plant and equipment. By adhering to high technical
standards and our rules of conduct, as well as by implementing all legal requirements in
environmental protection and occupational health and safety, we ensure the preservation of
our goods and our assets.

Management assessment of the overall risk situation

Currently no risks can be identified that could jeopardize the continued existence of the Merck
Group. This is the finding of this risk report, which was prepared in accordance with German
Accounting Standard 5.
Company Management Report Corporate governance Consolidated Financial Statements More information 95
Risk report
Report on expected developments

Report on expected developments

For 2011 and 2012, the Executive Board assumes that the sales and the
operating result of the Merck Group will show growth. Overall, we expect
business developments to be good, however we cannot rule out setbacks
due to economic cycles in individual countries, also as a result of high
national debt levels.

Deviations of actual business developments from previously reported forecasts

The deviations of actual business developments from the guidance given for 2010 are as follows,
broken down by division and for the Group as a whole:
adjusted actual
Forecast values 
Deviations 2010 2010 *
Total revenues growth*
Merck Group 3% – 7% 12%
Merck Serono 2% – 5% 8%
Consumer Health Care 5% – 10% 1%
Liquid Crystals * 5% – 10% 38%
Performance & Life Science Chemicals * 3% – 8% 17%

Operating result growth *

Merck Group 20% – 30% 88%
Merck Serono 30% – 40% 59%
Consumer Health Care –10% – 0% –71%
Liquid Crystals * 15% – 25% 132%
Performance & Life Science Chemicals * 15% – 20% 111%
* The Chemicals divisions have been restated on a comparable basis. Excluding Millipore.

Owing to the acquisition of Millipore, a new segment structure was adopted for the Chemicals
business sector in 2010. Therefore, the 2010 results are compared to the 2010 forecast based
on the former segment structure. The acquired Millipore business was excluded from the actual
values. All 2010 actual values for Liquid Crystals, Performance & Life Science Chemicals and the
Merck Group have therefore been adjusted.
In an improving economic environment, Merck overall exceeded the guidance provided for 2010.
96 Merck Annual Report 2010

In the Annual Report for 2009, we forecasted for 2010 an increase in total Group revenues
ranging between 3% and 7%. Total revenues increased by 12% to EUR 8,650 million. The oper-
ating result rose by 88% to a total of EUR 1,222 million. In our forecast, we predicted growth
of between 20% and 30%.
For the Merck Serono division, we predicted an increase in total revenues of between 2% and
5%. In 2010, Merck Serono actually increased its total revenues by 8% to EUR 5,754 million.
We had expected the operating result to increase by 30% to 40%, but instead it increased
by 59%, rising to EUR 565 million. Better business developments as well as more favorable
exchange rate developments contributed to this growth. On the cost side, we took steps to
manage our marketing and selling as well as our research and development expenses more
efficiently.
Sales of the Consumer Health Care division were expected to rise between 5% and 10%, but
instead only grew by 1% to EUR 472 million. The operating result was forecast to grow
between –10% and 0%. The actual operating result dropped by 71%, leading to EUR 14 million.
The forecast was not achieved due to negative effects of business developments in China and
Mexico as well as from impairments.
Sales in the former Liquid Crystals division were predicted to rise in the range between 5% and
10%, but they actually grew by 38% to EUR 1,013 million. The operating result was forecast
to increase by between 15% and 25%, yet the division significantly exceeded that, rising 132%
to EUR 527 million in 2010. This was due to the fact that business recovered far better than
expected. Furthermore, new technologies, especially PS-VA, and favorable exchange rates also
contributed to this increase.
Sales in the former Performance & Life Science Chemicals division were expected to grow
between 3% and 8%. However, total revenues grew by 17% to EUR 1,411 million. The operating
result increased 111% to EUR 205 million, which significantly exceeded the forecast of 15%
to 20%. In this division, this was attributable likewise to positive business development and
favorable currency effects.

Global economic developments

For 2011, the Organization for Economic Cooperation and Development (OECD) and the Inter-
national Monetary Fund (IMF) assess differently the economic environment in which Merck
operates. Merck orients toward the forecasts made by the OECD.
For the OECD’s 34 member countries, the OECD expects a global increase in gross domestic
product (GDP) of 2.3% in 2011 and 2.8% in 2012. For the United States, the OECD expects GDP
to grow by 2.2% in 2011 and by 3.1% in 2012. It forecasts the GDP of the eurozone to grow
by 1.7% in 2011 and by 2.0% in 2012. For Japan, the forecasts are somewhat lower. GDP is
expected to increase by 1.7% in 2011 and by 1.3% in 2012.
Company Management Report Corporate governance Consolidated Financial Statements More information 97
Report on expected developments

The OECD expects an economic recovery, albeit one which will involve risks. For the near future
and for a sustainable recovery from the crisis, the OECD calls for governments to immediately
concern themselves with consolidating state finances in order to achieve more stability in the
financial markets. Moreover, it is essential to end the different economic stimulus programs
at the right time. The OECD expects that interest rates will not return to a normal level until
the first half of 2012, as it predicts weak growth in the United States and the eurozone. In
addition, the OECD is encouraging a shift in economic policy away from crisis management and
toward crisis prevention.
The growth prospects for emerging countries such as Brazil, China and India are significantly
better. Nevertheless, there is inflationary pressure in both Brazil and China, while India has to
contend with its tax deficit.
The IMF predicts global GDP to increase by 4.4% in 2011, yet warns against excessively low
consumer demand. The IMF forecasts a 2.5% increase in GDP for developed countries in 2011
(including a rise of 3.0% in the United States, 2.2% in Germany and 1.6% in Japan). For emerging
and developing countries, GDP is predicted to increase in 2011 by 6.5%, including a rise of
9.6% in China, 8.4% in India and 4.5% in Russia. According to IMF data, global GDP is predicted
to grow by 4.5% in 2012. The United States is expected to show GDP growth of 2.7% in 2012,
which is slightly lower than in 2011, Germany growth of 2.0%, which is also slightly lower, and
Japan growth of 1.8%, which is slightly higher than in 2011. At 4.4% and 9.5%, respectively,
GDP growth in Russia and China is expected to maintain almost exactly the same level as in
2011. According to the data available, GDP growth of 8.0% is expected for India in 2012, which
would be slightly less than in 2011.
The IMF sees risks for 2011 in the high levels of national debt, the volatility of the financial
markets, the financing of banks and uncompleted reforms of the financial markets, as well as
the weakness of real-estate markets in some countries. These countries additionally suffer from
persistently high unemployment rates owing to slow growth in industrialized countries.
We assume that uncertainties in the overall economic development of certain countries are
also to be expected in the future. Consequently, our forecasts have taken these uncertainties
into account.
98 Merck Annual Report 2010

Forecast for the Merck Group

Our forecasts for Merck take into account the company’s weighing up of risks and opportunities
in accordance with our operational plans and medium-term assumptions. However, possible
acquisitions, divestments and exceptional items are not included. The forecasts assume a
moderate development of energy and raw material prices, as well as increasing personnel costs.
Since we produce specialty chemicals, we are largely independent of oil price developments.
Overall, we expect our businesses to see stable prices or market-oriented price increases. We
only see ourselves exposed to significant price pressure in the Performance Materials division.
We also see continued price pressure in the pharmaceutical sector, especially due to structural
problems of health care systems.
The forecast development for total revenues of the entire Merck Group is presented in the
following table:

Overall overview 2010 – 2011

Total revenues
adjusted actual
values 
EUR million 2010 * Forecast 2011
Merck Serono 5,754 5% – 10%
Consumer Health Care 472 7% – 12%
Merck Millipore* 1,613 51% – 56%
Performance Materials* 1,452 2% – 7%
Merck Group 9,291 13% – 18%
* The Chemicals divisions have been restated on a comparable basis.

As of 2011, the Cosmetics Actives business became part of the Performance Materials division.
By contrast, in 2010 this was still part of the Merck Millipore division. The growth rates forecasted
for these divisions in this report are therefore based on adjusted actual figures for 2010.
Against the background of expected overall economic development and based on total revenues
of EUR 9,291 million in 2010, the Executive Board assumes an increase in total revenues between
13% and 18% in 2011, and further growth for 2012. Furthermore, the Executive Board expects
the Group operating result of EUR 1,113 million in 2010 to increase between 35% and 45%
in 2011 and to increase as well in 2012. Profit after tax, irrespective of potential exceptional
items, will likewise improve during this period.
Company Management Report Corporate governance Consolidated Financial Statements More information 99
Report on expected developments

Our debt has increased as a result of the Millipore acquisition. Merck had an equity ratio of
46.3% and net debt of EUR 4,484 million in 2010, and we expect the equity ratio to increase
slightly at a high level. In the next few years, we plan to reduce debt by around EUR 2 billion.
Based on the very high underlying free cash flow of EUR 1,670 million in 2010, we expect
underlying free cash flow to remain at a high level in 2011 and 2012. Should payments for
litigation be necessary, this would have a negative impact on underlying free cash flow. In the
coming years, capital spending on property, plant and equipment will be lower than in 2010.
Based on research and development spending of EUR 1,397 million in 2010, Merck will reach
the 2010 research spending ratio of around 14% to 15% in 2011 and 2012.
Merck has an extensive risk and opportunity management system, which is described in the
Risk Report (see page 86 et seq). Relative to the forecast period of two years published in the
Report on Expected Developments, we mainly see business-related opportunities and risks.
Owing to Merck’s diversification and broad product portfolio, a very different spectrum of
important opportunities and risks results for each individual division. The relevant explanations
are given for the respective divisions.

Forecast for the pharmaceutical sector in general

The market research institute IMS Health expects global sales of pharmaceuticals to increase in
2011 by between 5% and 7% to USD 880 billion. The United States remains the world’s largest
market and is, according to IMS Health, predicted to grow between 3% and 5% in 2011. In
2011, the Japanese market, the second largest in the world, will not be affected by the obliga-
tory statutory price cuts that take place every two years. For this reason, we predict 5% to 7%
growth in 2011. According to IMS Health, China, now the world’s third largest pharmaceutical
market, will grow between 25% and 27%, reaching a volume of around USD 50 billion. The five
largest EU markets (Germany, France, Italy, Spain, and the United Kingdom) are expected to
grow between 1% and 3%. Countries with emerging pharmaceutical markets, meaning those in
which governments are increasing health spending or in which demand is rising, are predicted
to achieve growth of between 15% and 17% to between USD 170 billion and USD 180 billion.
IMS Health considers the “BRIC countries”, i.e. Brazil, Russia, China, and India, to be among
these 17 countries in total.
IMS Health expects the global pharmaceutical market to grow until 2014 by an annual average
of between 5% and 8% , to between USD 1,130 billion and USD 1,160 billion in total. By 2014, the
five largest markets in the EU are predicted to increase 1% to 4%, (to between USD 170 ­billion
and USD 200 billion). Japan should grown between 2% and 5% (to between USD 100 billion
and USD 130 billion) and the United States between 3% and 6% (to between USD 360 billion
and USD 390 billion). The health care markets of the 17 emerging pharmaceutical markets
are predicted to achieve growth of between 14% and 17% (to between USD 260 billion and
USD 290 billion).
100 Merck Annual Report 2010

Seen by therapeutic area, IMS Health predicts growth of more than 10% by 2014 for products
such as those to fight cancer and multiple sclerosis as well as to treat HIV and diabetes since
many products for these therapeutic areas are expected on the market. For 2011 alone, market
researchers expect launches of five new products with blockbuster potential (meaning products
generating sales of more than USD 1 billion).

Forecast for the Merck Serono division

For the Merck Serono division, the Executive Board is expecting an increase in total revenues
in 2011 ranging between 5% and 10%, relative to EUR 5,754 million in 2010, and predicts
continued growth for 2012. Relative to EUR 565 million in 2010, we want to achieve significant
growth in the operating result in 2011 and a further increase in 2012. The stronger increase as
compared to total revenues can be attributed to a moderate cost increase, especially in marketing
and sales. Furthermore, high write-downs and impairments impacted the operating result in 2010.
As a regularly recurring expense, the result includes write-downs on intangible assets to their
fair value as a result of the acquisition of Serono. Amortization is expected to amount to around
EUR 600 million in both 2011 and 2012.
In the years to come, R&D spending will continue to be at the target level of 20% of total revenues
of the Merck Serono division.
Cancer and multiple sclerosis are very important for Merck, as they are markets in which we offer
patients therapeutic options. According to calculations made by Evaluate Pharma, a pharma-
ceutical service company, cancer therapies will continue to be the therapeutic area with the
highest sales. In the global market for all pharmaceuticals, oncology treatments had a share
of 7.9% in 2009, which is expected to rise to 8.8% by 2016, reaching sales of USD 70 billion.
With sales of USD 10 billion, drugs to treat multiple sclerosis ranked number 14. Here, Evaluate
Pharma forecasts an average annual increase of 3% to USD 12 billion up to 2016.
Biotech drugs accounted for 31% of the 100 best-selling pharmaceuticals in 2009. This share
is expected to increase to 48% by 2016. This figure is of interest to Merck, as biotech drugs
already account for 50% of our pharmaceuticals sold.
We see important opportunities and risks for the Merck Serono division closely linked to the
successful launch of new products:
Consequently, the special focus of Merck Serono will be on the market launch of cladribine
tablets. Cladribine was approved in Russia and Australia in 2010. For Europe, the Committee for
Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) issued
a negative opinion regarding the marketing authorization application in September 2010.
Company Management Report Corporate governance Consolidated Financial Statements More information 101
Report on expected developments

We filed an appeal with the EMA against the decision for another review of the application.
In January 2011, the CHMP confirmed its previous position and adopted a final negative
opinion regarding the marketing authorization application for cladribine tablets. Our forecast
has taken this into account. After resubmitting our application for approval of cladribine
tablets with the U.S. Food and Drug Administration (FDA) in June 2010, the FDA granted the
application Priority Review status. In November 2010, the FDA extended the review period by
three months. A decision is expected at the end of February 2011. We will continue to focus
our efforts on offering an oral, disease-modifying drug to treat relapsing-remitting multiple
sclerosis.
Moreover, the existing business offers growth opportunities, particularly in markets such as
Asia – especially China – Russia and Latin America, as well as in the further development of
existing products (life cycle management), for example with new dosage forms.
Further risks in this division arise from the high levels of national debt in some countries and
the resulting health care cost-containment measures, which can lead to lower sales.

Forecast for the Consumer Health Care division

With total revenues of EUR 472 million in 2010, the Executive Board forecasts an increase
in total revenues in the Consumer Health Care division of between 7% and 12% in 2011 and
a further increase in 2012. Based on an operating result of EUR 14 million in 2010, we want
to achieve significant growth in the operating result in 2011. We expect a further increase in
2012. The expected improvement in the operating result is attributable to higher margins and
to moderate cost increases. Due to the difficult business situation in China and Mexico, the
division’s sales did not meet our expectations for 2010. Besides these two effects, the operating
result was also impacted by a warehouse fire in the United Kingdom as well as impairment
losses.
For 2011, market researchers from the company Nicholas Hall are predicting key markets for OTC
medicines to grow globally by 4.8%. This growth will be contingent on the markets’ continued
recovery and on the upswing that has followed the economic crisis. The experts provide the
following breakdown for individual markets: they predict the strongest growth for Latin America
(8.8%), followed by Asia-Pacific (7.9%). For Europe, they are expecting growth of 3.5%, but only
0.5% for Japan.
102 Merck Annual Report 2010

We see opportunities from a strengthening growth trend, based on the product portfolio
focus on strategic brands. These brands are established in the premium price segment and are
growing above-average relative to the global OTC market. In addition to dynamically growing
markets in Latin America, our regional focus continues to be Europe. The Consumer Health
Care division faces risks from changing health care policy framework conditions, which can
negatively impact the business.

Forecast for the chemical industry in general

Compared to 2010, CEFIC (European Chemical Industry Council) expects a relatively moderate
2.5% increase in European chemical output for 2011. This is due to the prevailing uncertainties
in the market regarding the development of the euro and U.S. monetary policy. The high demand
for chemicals, particularly from the Asian region, is pushing up the prices of basic chemicals,
which, according to CEFIC forecasts, will create a fear of destabilizing price peaks. In addition,
many governments will be forced to adopt cost-cutting measures and to reduce or eliminate
state spending in order to stimulate their economies.
The German Chemical Industry Association (VCI) forecasts that international production output
will grow by 2.5% in 2011, with sales rising 4% to EUR 177.4 billion. This forecast expects 2010
output and capital expenditure to be 0.6% and 4.6% higher, respectively, than the peak levels
of 2007, which was the best-performing year for the German chemical industry to date.

Forecast for the Merck Millipore division

With the acquisition of Millipore, we have created a successful business model for the life science
industry, in which we will occupy a strong market position in the future as well.
For the Merck Millipore division, which generated total revenues of EUR 1,613* million in 2010,
the Executive Board forecasts that total revenues will increase between 51% and 56% in 2011
and will increase again in 2012. Based on an operating result of EUR 48* million in 2010, this
is expected to rise significantly in 2011 and to increase further in 2012.
The significant changes in total revenues and the operating result are also due to the fact that
the newly acquired Millipore business was only consolidated for six months of 2010. Moreover,
it must be noted that the inventories from the acquisition were already recognized at fair value
and thus stepped up by EUR 86 million. This amount was fully expensed in cost of sales in
the second half of 2010, and had a one-time negative impact on gross margin. As a recurring
expense, the result includes the write-downs on intangible assets to their fair values resulting
from the acquisition of Millipore. Amortization is expected to amount to around EUR 200 million
for both 2011 and 2012. In addition, further integration costs are expected for 2011.

* Figure adjusted to reflect the new reporting structure

Company Management Report Corporate governance Consolidated Financial Statements More information 103
Report on expected developments

The new Bioscience Business Unit of Merck Millipore develops products that help scientists
to better understand complex biological systems and to discover and develop new therapies.
The extensive product portfolio of Merck Millipore is well positioned to grow in the dynamic
bioscience market, parts of which will continue to face challenges. For this division we see
risks particularly associated with the consolidation and restructuring of the pharmaceutical
industry, but also with the expiration of patents and the development of new products. The Lab
Solutions Business Unit supplies a broad portfolio of innovative, reliable high-quality products
for general laboratory applications in a wide variety of industries. Growth is achieved by offering
excellent products and direct sales. In addition, opportunities are arising in China, India as well
as North and Latin America, where we want to grow with the market in coming years. For the
new Process Solutions Business Unit, opportunities lie particularly in the strong sales growth
and product portfolio of our customers and of our products for chromatography. The most
significant risks are associated with the cost pressure in the biopharmaceutical industry and
delivery by other suppliers.
Overall, we aim to achieve significant growth in the result in an uncertain market environment
by offering a broad product portfolio, aligning our business globally, leveraging regional strengths
and identifying synergies.

Forecast for the Performance Materials division

In the Performance Materials division, Merck is estimating that the total revenues of EUR 1,452* mil-
lion in 2010 will increase in 2011 by between 2% and 7% and will continue to rise in 2012. The
operating result of EUR 576* million is predicted to remain unchanged in 2011 and to resume
growth in 2012.
This division supplies specialty chemicals and materials for liquid crystal displays and for new
lighting and display technologies such as OLEDs (organic light-emitting diodes), as well as
effect pigments for the plastics, print and coatings industries. Merck pigments are also used
in skincare and in color cosmetics. The division is also active in growth markets in the field of
renewable energy.

* Figure adjusted to reflect the new reporting structure

104 Merck Annual Report 2010

DisplaySearch, a market research company for the display industry, predicts that the liquid
crystal display market will continue to grow. The LCD market is being driven by the heavily
increasing demand for TVs and notebooks in the emerging economies of Asia, as well as by
devices such as tablet computers. According to the opinion of market researchers, the total
surface area of liquid crystal displays should grow 8% per year on average between 2010 and
2017. This includes televisions, monitors and notebooks, among other products. For 2011,
­DisplaySearch is expecting the surface area of liquid crystal panels to increase by 11% rela-
tive to 2010. Flat panel production has so far been concentrated in South Korea and Taiwan,
­followed distantly by Japan. According to Display Search, however, China will have assumed
third place by the end of 2012.
Since producers of automotive coatings are one of our customer sectors, the development of
automotive sales figures is important to us. The U.S. market researchers from CSM Automotive
predict that global automotive sales will grow in 2011 by 11%, rising to 61 million vehicles.
This will put the automotive industry back at the level of 2008, but will still not as high as in
2007, which was a very good year. According to market researchers, the Indian market will
show the strongest growth in 2011, followed by China, Brazil and South Korea. JD Power,
a marketing information firm, is expecting production of 73 million cars in 2011, which would
significantly exceed the 70.4 million vehicles sold in 2007, a record year. However, this growth
is predicted to come only from emerging markets. The market research firm Polk is predicting
a further increase in production, to 78 million cars in 2012.
Euromonitor, a key market research company for the cosmetics industry, predicts growth of
5.2% to USD 369 billion for the personal care and cosmetics sector in 2011 and further growth
of 3.7% in 2012 relative to 2011. Performance Materials is also active in this market.
Additional opportunities for the Liquid Crystals Business Unit lie in the improved business per­
formance of the display markets. For our PS-VA technology, we are expecting very satisfactory
increases as a result of market growth. To maintain our leading technology position in liquid
crystals, we will correspondingly intensify our R&D activities. Programs for increasing production
efficiency will help keep the operating result at a high level. We face particular risks due to price
pressure in the area of LC materials and due to the possible emergence of new competitors on the
market. In view of Merck’s so far dominant position, the emergence of competitors particularly in
PS-VA technology could negatively impact sales and the operating result.
Company Management Report Corporate governance Consolidated Financial Statements More information 105
Report on expected developments

The Pigments and Cosmetics Business Unit has recovered significantly from the crisis year and
will continue to grow in the coming years. The portfolio will continue to shift toward high-
quality products. Opportunities and risks are especially linked with the growth of the automotive
industry. This sector is showing a trend toward high-quality paints, an area in which Merck is
extremely active. Other opportunities could arise from a shift in the automotive industry from
the current trend of white-silver and black hues back to bright colors.

Forecast for the Corporate and Other segment

Corporate and Other comprises the costs for the Merck Group functions. This includes the costs
of Corporate Auditing, of the Legal and Tax departments, of the Annual General Meeting, etc.
Taxes for the Merck Group are also disclosed here as well as the financial result. Based on a figure
of EUR –90 million for 2010, the operating result will remain unchanged in 2011. We forecast
a further rise in costs for 2012.

Dividend development
For 2010, we are proposing to the Annual General Meeting the payment of a dividend of
EUR­ 1.25 per share. Based on our earnings expectations, the family of owners and Merck share-
holders can continue to expect to receive an earnings-oriented dividend.

Summary
For both 2011 and 2012, the Executive Board expects growth in both the total revenues and
operating result of the Merck Group. The higher financial liabilities of the Merck Group, which
resulted from the Millipore acquisition, will steadily decrease over the next several years, also
as a result of our high free cash flow. This will continue to lead to solid balance sheet ratios.
The actual results of the Merck Group and its divisions may deviate substantially from the
expectations of predicted developments. This would be the case if one or other of the uncer-
tainties mentioned were to occur, or if the planning assumptions were to prove inaccurate.
106 Merck Annual Report 2010

Subsequent events
In January 2011, the Committee for Medicinal Products for Human Use (CHMP) of the European
Medicines Agency (EMA) confirmed its previous position and adopted a final negative opinion
regarding our marketing authorization application for cladribine tablets in Europe.

On February 7, 2011, all the conditions for the closing of the divestment of the Crop BioScience
activities were fulfilled. At a selling price of EUR 208 million, the pre-tax gain on the sale is
expected to be around EUR 160 million. As of December 31, 2010, the activities were recorded
in the Group financial statements as assets and liabilities held for sale.
 107

corporAte governAnce

108 Statement on corporate governance

128 Report of the Supervisory Board
131 Objectives of the Supervisory Board with respect to its composition
108 Merck Annual Report 2010

Statement on corporate governance

The Statement on Corporate Governance contains the Statement of Compliance,
relevant information on practices within the company, the compensation
report as well as a description of the procedures of the corporate bodies.

JOINT REPORT OF THE EXECUTIVE BOARD AND THE SUPERVISORY BOARD

ACCORDING TO SECTION 3.10 OF THE GERMAN CORPORATE GOVERNANCE
CODE INCLUDING STATEMENT OF COMPLIANCE

The German Corporate Governance Code is geared exclusively toward the conditions at a German
stock corporation (Aktiengesellschaft). Merck KGaA has resolved to apply the Code correspond-
ingly to a corporation with general partners (Kommanditgesellschaft auf Aktien) to serve the
interests of shareholders. In order to enable shareholders to compare the situation at other
companies more easily, we base corporate governance on the conduct recommendations made
by the Code Commission relating to management and supervision (governance) and forego
having our own, equally permissible, code. With a few exceptions, the recommendations of the
Code, the intent and meaning of which are applied, were complied with in the past and will
continue to be complied with in the future.
For a clearer understanding, the following gives a general explanation of the Kommanditgesell­
schaft auf Aktien (KGaA) company form followed by the specific situation at Merck with additional
references to the General Meeting and shareholder rights.

Corporation with general partners (Kommanditgesellschaft auf Aktien)

“The corporation with general partners is a company which constitutes a separate legal entity,
in which at least one partner has unlimited liability with regard to the creditors of the company
(general partner) and the other shareholders are not personally liable for the obligations of
the company (limited shareholders) (section 278 (1) of the German Stock Corporation Act –
hereinafter referred to as ”AktG”). It is therefore a hybrid of an Aktiengesellschaft (German
stock corporation) and a Kommanditgesellschaft (limited partnership) with a focus on German
stock corporation law. Distinctive differences to the Aktiengesellschaft include the presence of
general partners, who essentially also manage the company’s business activities, the absence
of a management board, and the restriction of rights and obligations of the supervisory board
(see page 125 for a description of the supervisory board procedures). This legal form also
involves special features with regard to the General Meeting. For example, many of the resolu-
tions made require the consent of the general partners (section 285 (2) AktG), including the
adoption of the annual financial statements (section 286 (1) AktG). A large number of the
conduct recommendations contained in the Code, which is geared toward Aktiengesellschaften,
can therefore only be applied to a KGaA as appropriate.
Company Management Report Corporate Governance Consolidated Financial Statements More information 109
Statement on corporate governance

Merck KGaA
The general partner E. Merck KG holds around 70% of the total capital of Merck KGaA (equity
interest); the shareholders hold the remainder, which is divided into shares (share capital).
E. Merck KG is excluded from the management of business activities. The general partners with
no equity interest (Executive Board), on the other hand, manage business activities. Neverthe-
less, due to its substantial capital investment and unlimited personal liability, E. Merck KG has
a strong interest in the businesses of Merck KGaA operating efficiently and in compliance with
procedures, and exercises its influence accordingly. Merck KGaA’s participation in the profit/
loss of E. Merck KG in accordance with Articles 26 et seq. of the Articles of Association further
harmonizes the interests of the shareholders and of E. Merck KG.
E. Merck KG appoints and dismisses the Executive Board. In addition, E. Merck KG has created
bodies – complementing the expertise and activities of the Supervisory Board – to monitor and
advise the Executive Board. This task applies primarily to the Board of Partners of E. Merck KG.
Based on the provisions of the German Stock Corporation Act, the Articles of Association of
Merck KGaA and the rules of procedure of the various committees, Merck KGaA has a set of
rules for the Executive Board and its supervision that meet the requirements of the Code. The
investors, who bear the entrepreneurial risk, are protected as provided for by the Code.

This is illustrated by the following chart:

Total capital Merck KGaA

EUR 565,211,241.95

Share capital Equity interest

EUR 168,014,927.60 EUR 397,196,314.35

General partner
Limited liability shareholders
E. Merck KG (with equity interest)

General Meeting

Board of Partners E. Merck KG; 9 members

Supervisory Board
Personnel Committee, Finance Committee,
16 members (Sections 1, 7 MitbestG *)
R&D Committee

General partner with no equity interest

(with power of management and representation)
= Executive Board Merck KGaA

* German Co-Determination Act

110 Merck Annual Report 2010

The General Meeting of Merck KGaA

The Annual General Meeting takes place within the first eight months of the fiscal year. The
fifteenth General Meeting of Merck KGaA was held in Frankfurt am Main, Germany, on April 9,
2010. With 58.22% of the share capital represented, shareholder participation at the meeting
was stable. At 59% in 2009, the rate was only marginally higher.
In accordance with Article 21 para 3 of the company’s Articles of Association, the annual
financial statements, the management report, the report of the Supervisory Board, and the
proposal on the appropriation of net retained profit must be presented to the General Meeting
and explained during the General Meeting. In particular, the Annual General Meeting passes
resolutions concerning the approval of the annual financial statements, the appropriation
of net retained profit, the approval of the actions of the Executive Board members and the
Supervisory Board members, as well as the choice of the auditor. At the same time, the General
Meeting has the power to pass resolutions concerning changes to the Articles of Association.
With the exception of the measures listed in section 285 (2) sentence 2 AktG, the resolutions of
the General Meeting require the approval of the general partners.
All the documents and information concerning upcoming General Meetings are posted on our
website. Moreover, the General Meeting is webcast live on the Internet from its commence-
ment until the end of the speech by the Chairman of the Executive Board. The introductory
speeches by the Chairman of the Executive Board and the Chairman of the Supervisory Board
are recorded in order to make them available to interested members of the public at any time
after the meeting. In this way, we are satisfying our own high transparency requirements.

Shareholder rights
The shareholders of Merck KGaA exercise their rights at the General Meeting. Each Merck share
grants the holder one vote at the General Meeting.
Shareholders may exercise their voting rights personally, through an authorized representative,
or a proxy appointed by the company. Voting rights are only subject to special restrictions in
accordance with Article 22 para 5 of the company’s Articles of Association. Accordingly, insofar
as general partners hold shares, they cannot exercise the voting rights deriving from their
shares with respect to the election and dismissal of the Supervisory Board, the approval of the
actions of the Executive Board members and the Supervisory Board members, the choice of the
auditor, the appointment of special auditors and the resolution on indemnification claims.
A summary explanation of shareholder rights is available in German on the company’s website.
Company Management Report Corporate governance Consolidated Financial Statements More information 111
Statement on corporate governance

Deviations from the Corporate Governance Code:

1. Until June 30, 2010, for its Executive Board and Supervisory Board members Merck KGaA
maintained a Directors & Officers (“D&O”) liability insurance policy that did not include a
deductible in accordance with section 93 (2) sentence 3 AktG and section 3.8 (2) and (3) of
the German Corporate Governance Code. The company dispensed with a deductible in the
past because D&O insurance policies with the required deductible were not actively offered
by the insurance industry and the individual agreement on a deductible is not offset by a
substantial reduction in the premium.
Effective July 1, 2010, Merck KGaA introduced a deductible in accordance with section 93
(2) sentence 3 AktG and section 3.8 (2) and (3) of the German Corporate Governance Code.
This takes into account the minimum requirements specified by the German Corporate
Governance Code, since a deductible of at least 10% of the loss up to at least one and a half
times the fixed annual compensation of the Executive Board member or Supervisory Board
member has been agreed.
2. Contrary to section 5.4.1 sentence 2, an age limit is not taken into account when proposing
candidates for election to the Supervisory Board. The age of Supervisory Board members is
not a criterion for their qualifications and competence. Moreover, we do not wish to forgo
the many years of experience of Supervisory Board members.

COMPENSATION REPORT

(Section 4.2.5 and 5.4.6 of the German Corporate Governance Code)

The compensation report is part of the audited Notes to the Consolidated Financial Statements.

Compensation of members of the Executive Board of Merck KGaA

Contrary to members of the Board of Management of German stock corporations, the members
of the Executive Board of Merck KGaA are not employed officers of the company. Rather, they
are personally liable general partners of both Merck KGaA and the general partner E. Merck KG,
and in this capacity they receive profit-based compensation from E. Merck KG. Therefore, the
obligation to individually publish the compensation of management board members of publicly
listed German stock corporations does not apply to the Executive Board of Merck KGaA. The
following presentation of individual compensation is therefore being made on a voluntary
basis.
Contrary to publicly listed German stock corporations, at Merck KGaA it is not the Supervisory
Board, but the Board of Partners of E. Merck KG that decides on the amount and composition
of compensation. E. Merck KG has transferred the execution of this right to its Personnel
Committee. Among other things, the Personnel Committee is responsible for the following
decisions: contents of contracts with Executive Board members, granting of loans and advance
salary payments, approval for taking on honorary offices, board positions and other sideline
activities, as well as the division of responsibilities within the Executive Board of Merck KGaA.
The compensation system defined by the Personnel Committee for Executive Board members
takes into account various compensation-relevant aspects, including the responsibility of the
individual Executive Board members, their individual performance, the performance of the
company, as well as the amount of compensation paid to executive board and management
112 Merck Annual Report 2010

board members of comparable companies. The Personnel Committee regularly commissions an

independent compensation consultant to review the appropriateness of compensation.

Features of the compensation system

The compensation paid to the Executive Board members of Merck KGaA comprises fixed com-
ponents, variable compensation and additions to pension provisions. Benefits in kind and other
benefits are additionally granted.

Fixed compensation
Fixed compensation is paid in the form of 12 equivalent monthly installments. The following table
provides an overview of the amount of the fixed compensation paid in 2009 and 2010.

Compensation of the Executive Board members of Merck KGaA

Fixed compensation
EUR thousand 2010 2009
Dr. Karl-Ludwig Kley 1,000 1,000
Dr. Michael Becker 800 800
Dr. Bernd Reckmann 750 750
Elmar Schnee * 900 900
Total 3,450 3,450

* Elmar Schnee received fixed compensation from Merck Serono S.A. in Geneva for his duties as president of the company.

Variable compensation
Variable compensation is based on the three-year rolling average of profit after tax of the
E. Merck Group. Exceptional factors that amount to more than 10% of the Group profit and
for which the Executive Board member is not responsible, are eliminated. The members of the
Executive Board receive an individually fixed per mille rate of the Group profit calculated in
this manner. Additionally, the Personnel Committee can decide on a one-time payment based
on the achievement of qualitative objectives.
Company Management Report Corporate Governance Consolidated Financial Statements More information 113
Statement on corporate governance

The following table provides an overview of the amount of the variable compensation paid in
2009 and 2010:
Variable compensation
EUR thousand 2010 * 2009 **
Dr. Karl-Ludwig Kley 2,144 1,282
Dr. Michael Becker 1,286 769
Dr. Bernd Reckmann 1,072 641
Elmar Schnee 1,715 1,025
Total 6,217 3,717

  * T he variable compensation for 2010 is based on an extrapolation since the consolidated result of the E. Merck
Group was not yet available when this information was prepared.
** T he variable compensation stated for 2009 deviates from the data provided in 2009 since the consolidated result of
the E. Merck Group was not yet available when this information was prepared and was therefore extrapolated.

Total compensation
Consequently, this results in the following total compensation for the Executive Board members
of Merck KGaA:
Fixed compensation Variable compensation Total
EUR thousand 2010 2009 2010 2009 2010 2009
Dr. Karl-Ludwig Kley 1,000 1,000 2,144 1,282 3,144 2,282
Dr. Michael Becker 800 800 1,286 769 2,086 1,569
Dr. Bernd Reckmann 750 750 1,072 641 1,822 1,391
Elmar Schnee 900 900 1,715 1,025 2,615 1,925
Total 3,450 3,450 6,217 3,717 9,667 7,167

Pension provisions
The individual contractual pension obligations grant the members of the Executive Board
entitlement to a lifelong old-age pension or surviving dependents’ pension in the event of
reaching the individual contractually agreed age limit, permanent disability, and death.
The amount of the old-age pension is determined by a percentage share of pensionable com-
pensation defined by the Personnel Committee.
114 Merck Annual Report 2010

The individual values are presented in the following table:

Pensionable compensation
in EUR thousand Percentage entitlement
Dr. Karl-Ludwig Kley 790 70
Dr. Michael Becker 560 75
Dr. Bernd Reckmann 470 54
Elmar Schnee 570 46

The percentage entitlement increases up until retirement annually by 1% up to 65% for Dr. Reckmann and annually by
3% up to 70% for Mr. Schnee.

The following amounts were added to pension provisions in 2010:

Additions to pension provisions Amount of pension
provisions as of 
EUR thousand 2010 2009 Dec. 31, 2010
Dr. Karl-Ludwig Kley 2,162 1,890 6,966
Dr. Michael Becker 1,216 1,218 6,055
Dr. Bernd Reckmann 829 801 3,616
Elmar Schnee 777 802 2,442
Total 4,984 4,711 19,079

The surviving dependents’ pension grants the spouse a lifelong surviving dependents’ pension
amounting to 60% of the pension entitlement, dependent children either a half-orphan’s or an
orphan’s pension maximally until the age of 25.

Benefits in the event of termination of the duties as an Executive Board member

Above and beyond existing pension obligations, no further obligations exist in the event of the
premature termination of the contractual relationships of the Executive Board members.
Company Management Report Corporate Governance Consolidated Financial Statements More information 115
Statement on corporate governance

Miscellaneous
The members of the Executive Board additionally receive certain benefits, mainly contributions
to insurance policies as well as a company car, which they are entitled to use privately. The
members of the Executive Board must declare these benefits in their tax returns. In total, the
value of miscellaneous benefits amounted to EUR 86 thousand in 2010 (2009: EUR 86 thousand).
Of this amount, in 2010 EUR 29 thousand was attributable to Dr. Kley (2009: EUR 29 thousand),
EUR 24 thousand to Dr. Becker (2009: EUR 24 thousand), EUR 26 thousand to Dr. Reckmann
(2009: EUR 26 thousand) and EUR 7 thousand to Mr. Schnee (2009: EUR 7 thousand).
The members of the Executive Board do not receive additional compensation for serving on the
boards of Group companies.
Should members of the Executive Board be held liable for financial losses while executing their
duties, under certain circumstances this liability risk is covered by a D&O insurance policy from
Merck KGaA. The D&O insurance policy has a deductible in accordance with the legal requirements
and the recommendations of the German Corporate Governance Code.

Payments to former Executive Board members and their surviving dependents

Pension payments to former members of the Executive Board or their surviving dependents
amounted to EUR 9,091 thousand in 2010 (2009: EUR 7,764 thousand). Pension provisions
totaling EUR 90,082 thousand exist for pension claims of this group of persons (2009:
EUR 85,545 thousand).

Compensation of the Supervisory Board members of Merck KGaA

The compensation of the Supervisory Board members is defined by Article 20 of the Articles of
Association of Merck KGaA. Apart from reimbursement of their expenses, the members of the
Supervisory Board receive fixed and variable compensation.
The fixed compensation amounts to EUR 7,000 per year. The Chairman receives double this
amount and the Vice Chairman receives one and a half times this amount.
The members of the Supervisory Board also receive EUR 550 for each percent of the dividend
resolved by the General Meeting in excess of 6% of the share capital, with a corresponding
portion for fractions of a percent. The Chairman receives double this amount and the Vice
Chairman receives one and a half times this amount.
Supervisory Board members who have only been in office for part of the fiscal year receive
lower compensation in proportion to their term of office. The company reimburses the value-
added tax levied on the compensation.
116 Merck Annual Report 2010

The individual values are presented in the following table:

Compensation of Supervisory Board members of Merck KGaA

Fixed compensation Variable compensation Total compensation
EUR 2010 2009 2010 2009 2010 2009
Prof. Dr. Dr. h.c. Rolf Krebs  1

(Chairman since July 1, 2009,

previously ordinary member) 14,000 10,500 46,288 26,779 60,288 37,279
Heiner Wilhelm (Vice Chairman) 10,500 10,500 34,716 26,779 45,216 37,279
Crocifissa Attardo
(since Oct. 1, 2009) 7,000 1,750 23,144 4,463 30,144 6,213
Dr. Mechthild Auge
(since March 25, 2009) 7,000 5,408 23,144 13,793 30,144 19,201
Johannes Baillou 4 7,000 7,000 23,144 17,853 30,144 24,853
Frank Binder  4
7,000 7,000 23,144 17,853 30,144 24,853
Dr. Wolfgang Büchele 2
(since July 1, 2009) 7,000 3,500 23,144 8,926 30,144 12,426
Michael Fletterich 7,000 7,000 23,144 17,853 30,144 24,853
Edeltraud Glänzer 7,000 7,000 23,144 17,853 30,144 24,853
Michaela Freifrau von Glenck 5 7,000 7,000 23,144 17,853 30,144 24,853
Frieder Kaufmann 7,000 7,000 23,144 17,853 30,144 24,853
Dr. Hans-Jürgen Leuchs 2
(since July 1, 2009) 7,000 3,500 23,144 8,926 30,144 12,426
Albrecht Merck  3
7,000 7,000 23,144 17,853 30,144 24,853
Dr. Karl-Heinz Scheider
(since March 25, 2009) 7,000 5,408 23,144 13,793 30,144 19,201
Prof. Dr. Theo Siegert  1
7,000 7,000 23,144 17,853 30,144 24,853
Osman Ulusoy 7,000 7,000 23,144 17,853 30,144 24,853
Prof. Dr. Wilhelm Simson 6
(until June 30, 2009, Chairman) 0.0 7,000 0.0 17,853 0.0 24,853
Dr. Daniele Bruns
(until March 24, 2009) 0.0 1,591 0.0 4,060 0.0 5,651
Claudia Flauaus
(until Sept. 30, 2009) 0.0 5,250 0.0 13,389 0.0 18,639
Judith Delp
(until March 24, 2009) 0.0 1,591 0.0 4,060 0.0 5,651
Dr. Arend Oetker 6
(until June 30, 2009) 0.0 3,500 0.0 8,926 0.0 12,426
Total 122,500 122,498 405,020 312,424 527,520 434,922
1
 s members of corporate bodies of E. Merck KG, these Supervisory Board members each received an additional payment of EUR 150,000
A
for performing this function in 2010 (2009: EUR 120,000).
2
As members of corporate bodies of E. Merck KG, these Supervisory Board members each received an additional payment of EUR 140,000
for performing this function in 2010 (2009: EUR 60,000).
3
As members of corporate bodies of E. Merck KG, these Supervisory Board members each received an additional payment of EUR 120,000
for performing this function in 2010 (2009: EUR 120,000 ).
4
As members of corporate bodies of E. Merck KG, these Supervisory Board members each received an additional payment of EUR 120,000
for performing this function in 2010 (2009: EUR 100,000).
5
As members of corporate bodies of E. Merck KG, these Supervisory Board members each received an additional payment of EUR 80,000 for
performing this function in 2010 (2009: EUR 80,000).
6
As members of corporate bodies of E. Merck KG, these Supervisory Board members, who retired from the Supervisory Board in 2009, and
were simultaneously members of bodies of E. Merck KG, each received an additional payment of EUR 60,000 for performing this function
in 2009.
Company Management Report Corporate Governance Consolidated Financial Statements More information 117
Statement on corporate governance

Ownership, purchase or sale of shares in the company by members of the Executive Board
and of the Supervisory Board
(Section 6.6 of the German Corporate Governance Code)
As of December 31, 2010, the members of the Executive Board and of the Supervisory Board
held 21,298 shares. Their total ownership represents less than 1% of the issued shares of Merck
KGaA. In fiscal 2010, Merck KGaA reported the following transactions in accordance with section
15a of the German Securities Trading Act (WpHG):
Financial
Date of the Type and i­nstrument   Total volume 
transaction Name, Function place and ISIN Number Price in EUR in EUR
Feb. 23, Dr. Hans-Jürgen Leuchs Purchase via Bearer shares
2010 Member of the Xetra Merck KGaA
­Supervisory Board DE 0006599905
1,000 60.20 60,200.00
May 7, Dr. Hans-Jürgen Leuchs Sale via Xetra Bearer shares
2010 Member of the Merck KGaA
­Supervisory Board DE 0006599905 500 61.1173 30,558.65
Sept. 27, Dr. Karl-Ludwig Kley Purchase via Bearer shares
2010 Chairman of the Xetra Merck KGaA
­Executive Board DE 0006599905 780 62.52 48,765.60
Sept. 27, Dr. Frank Purchase via Bearer shares
2010 Stangenberg-Haverkamp Xetra Merck KGaA
Vice Chairman of the DE 0006599905
Executive Board and
General Partner of
E. Merck KG 8,000 62.30568 498,445.44
Oct. 5, Dr. Frank Purchase via Bearer shares
2010 Stangenberg-Haverkamp Xetra Merck KGaA
Vice Chairman of the DE 0006599905
Executive Board and
General Partner of
E. Merck KG 2,000 60.8225 121,645.00

All transactions have been published on the company’s website at www.merck.de/investors →

Corporate Governance → Directors’ Dealings
118 Merck Annual Report 2010

INFORMATION ON CORPORATE GOVERNANCE PRACTICES

Reporting
It is Merck KGaA’s objective to provide the latest information to all shareholders, media, financial
analysts and interested members of the public, while creating the greatest possible transparency.
For this reason, Merck uses a wide range of communication platforms to engage in a timely dia-
log with all interested parties about the situation of the company and business changes. Merck’s
principles include providing factually correct, comprehensive and fair information.
Information subject to disclosure requirements, as well as information that is not, can be accessed
worldwide on the Merck KGaA website (www.merck.de), which is the company’s most important
publication platform. Apart from a detailed financial calendar, quarterly and half-year financial
reports covering the past six years are available here in German and English. In addition, in line
with the legal requirements, ad hoc announcements are published on the website. These contain
information on circumstances that could impact the Merck share price.
Regular press conferences, investor meetings on the occasion of investor conferences as well
as roadshows offer another platform for dialog. The company presentations prepared for this
purpose are also available on the Merck KGaA website. In addition, the Investor Relations team
is always available to private and institutional investors who wish to receive further information.
To ensure the greatest possible transparency, all documents concerning the Annual General
Meeting are available on the company website. Additionally, some parts of the Annual General
Meeting are webcast live on the Internet.
In the coming year, we will continue to attach high importance to fulfilling all the relevant
standards as regards reporting to the capital market.

Dealing with insider information

Dealing properly with insider information is very important to us. Our insider committee examines
the existence of insider information, ensures compliance with legal obligations, and prepares
any necessary measures. The members of the insider committee are appointed by the Executive
Board; at least two members work in Corporate Legal & Compliance. The insider committee
meets at regular intervals, yet also meets when circumstances require.
Company Management Report Corporate Governance Consolidated Financial Statements More information 119
Statement on corporate governance

In order to ensure a high level of protection of insider information, in 2011 the Executive Board
will issue an internal insider guideline applicable throughout the Group worldwide. This
guideline will inform employees about their responsibilities under insider trading laws and give
clear instructions for compliant behavior. In addition, the function of the insider committee will
be described in detail. Moreover, our Code of Conduct, which is binding on all employees, also
contains an explicit, detailed reference to the ban on using insider information. Within the scope
of obligatory training courses, all employees are instructed on the subject of insider trading.

Accounting and audits of financial statements

Merck KGaA prepares its consolidated financial statements and Group management report in
accordance with International Financial Reporting Standards (IFRS), as applicable in the EU, as
well as the supplementary rules applicable under section 315a (1) of the German Commercial
Code (HGB) and as stipulated by our Articles of Association.
The Group financial statements and the Group management report are prepared by the Executive
Board and an auditor, taking into account the generally accepted standards for the audit of
financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW).
The Supervisory Board commissioned KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin, to
audit the Group financial statements and the Group management report for 2010. Neither
party identified any conflicts of interest. Moreover, the Supervisory Board agreed with KPMG
AG that the auditor shall inform the Supervisory Board without delay of any grounds for
bias or disqualification occurring during the audit if these cannot be immediately rectified.
Additionally, the auditor shall immediately report to the Supervisory Board any findings and
issues which emerge during the audit that have a direct bearing upon the tasks of the Super-
visory Board. The auditor shall inform the Supervisory Board or note in the audit report if any
circumstances are determined during the audit that would render inaccurate the Statement of
Compliance made by the Executive Board and the Supervisory Board. It has also been agreed
with the auditor that in order to assess whether the Executive Board has fulfilled its obligations
in accordance with section 91 (2) AktG, the audit will also cover the company’s early warning
risk identification system. Moreover, the auditor is required to examine and evaluate the
accounting-relevant internal control system insofar as this is necessary and appropriate for
assessing the accuracy of financial reporting.
120 Merck Annual Report 2010

Values and compliance

In accordance with its Mission Statement, “We at Merck do what we say and then measure
ourselves on this basis,” Merck relies on a common set of values: courage, achievement,
responsibility, respect, integrity and transparency. Based on a corporate culture that places the
fundamental company values at the center of our entrepreneurial actions, the Code of Conduct
helps those involved in the business process to implement the values when dealing with one
another on a daily basis.
Merck has created the Code of Conduct as a set of rules and regulations intended to help
Merck employees to act responsibly and to make the right decisions in their daily work. The
Code of Conduct explains the principles for dealings with business associates, general partners,
colleagues and employees, and in the communities in which we operate. Thus, it supports all
employees in acting ethically – not only in their dealings with one another, but also outside the
company. The Code of Conduct is thus the main set of rules for our compliance program.
Merck has striven throughout the centuries to follow ethical principles and values. All employees
shall be treated fairly and in compliance with local laws and regulations. Merck has defined
the principles for this in a social charter.
To Merck, compliance means observing legal and company-internal regulations and the basic
ethical principles anchored in the company values. With the Code of Conduct and the various
unit-specific compliance rules, the values are integrated into daily work and business practice.
The Code of Conduct is binding on all employees, both at headquarters as well as the subsidiaries
abroad. The Compliance Office monitors observance of the Code of Conduct with support from
corresponding auditing and training programs throughout the Group. All employees are called
upon to report compliance violations to their supervisor, Legal, HR or other relevant departments.
Merck created the position of Group Compliance Officer in 2002. This employee is responsible
for setting up, maintaining and further developing our global compliance program. By taking
appropriate measures, he/she helps to lower the risk of serious legal violations, of for instance
antitrust law and anticorruption rules. The role of the Group Compliance Officer is reflected
in the subsidiaries by the approximately 80 local compliance officers, who ensure that compliance
measures are implemented in the countries. This Group-wide network is used to steer the
global compliance program. Regular regional and global compliance meetings are held to
promote the exchange of information within the network. Newcomer training seminars were
introduced in 2010 for newly appointed compliance officers. These seminars serve to build up
compliance expertise and strengthen teambuilding within the compliance organization.
A high degree of importance is attached to regular compliance seminars, which are conducted
as on-site events, as well as via web-based training courses. By presenting various training
topics on corruption, antitrust and competition law, health care compliance and the Code of
Conduct, they serve to sensitize employees and management to the consequences of compliance
violations and to show ways to avoid them.
Company Management Report Corporate Governance Consolidated Financial Statements More information 121
Statement on corporate governance

By setting up a central speak-up line, employees can report compliance violations by telephone
or via a web-based application in their respective national language. The speak-up line is available
free of charge and around the clock. Mutual communication is also possible anonymously based
on case numbers.
The reports received are individually reviewed. If a compliance violation exists, corresponding
corrective action is taken based on concrete action plans. If necessary, disciplinary measures
are taken. These range from a simple warning up to the dismissal of the employee who violated
a compliance rule.
In cooperation with Internal Auditing, the Compliance Office regularly reviews the implementation
of Group-wide compliance measures at the subsidiaries. The audits regularly focus on the local
compliance structure, the compliance measures taken, as well as the existence of corresponding
compliance guidelines and processes.
The Compliance function reports regularly to the Executive Board, informing it of the status of
compliance activities, compliance risks as well as serious compliance violations. The Executive
Board informs the supervisory bodies at least once a year about the key compliance issues.

Risk and opportunity management

The Executive Board, the Supervisory Board and the Finance Committee are regularly informed
about the risk portfolio of the Group and the individual companies. More detailed information
can be found in the Risk report on page 86 et seq.

Avoidance of conflicts of interest

Within the framework of their work, all Executive Board members and Supervisory Board members
Merck KGaA are exclusively committed to the interests of the company and pursue neither
personal interests nor grant unjustified advantages to third parties.
Before an Executive Board member takes on honorary offices, board positions or other sideline
activities, this must be approved by the Personnel Committee of the Board of Partners of
E. Merck KG.
122 Merck Annual Report 2010

The Chairman of the Executive Board, Dr. Karl-Ludwig Kley, and the Chief Financial Officer,
Dr. Michael Becker, are both members of the Executive Board of E. Merck KG. This does not,
however, lead to conflicts of interest.
In its report to the General Meeting, the Supervisory Board discloses any conflicts of interest
involving its members and how they were dealt with. Consultancy agreements as well other
service and work contracts of a Supervisory Board member with Merck require the approval of
the Supervisory Board. In fiscal 2010, there were neither conflicts of interest nor consultancy
agreements or other service or work contracts with Merck involving Supervisory Board members.

Adherence to labor and social standards

Merck has set itself high social standards in the Merck Social Charter.
At Merck, closed-loop thinking guides the way in which we address environmental concerns
and environmental protection issues. To this end, we integrate precautionary measures into
our planning processes. Our Environment, Health and Safety Policy with its principles and
strategies implements the guidelines formulated by the national and international associations
of the chemical industry in the Responsible Care ® guidelines. The Responsible Care ® Global
Charter developed by the International Council of Chemical Associations (ICCA) in 2006 puts
even more emphasis than before on overall responsibility for products, supply chains and the
community. Merck signed this expanded version of Responsible Care ® for the entire Group in
February 2007.
Many guidelines specify how the sites and employees of the Merck Group are to observe the
principles in their daily work. The Group function Environment, Health, Safety, Security &
Quality steers these global activities and ensures compliance with regulatory requirements,
standards and business needs throughout the entire company. In this way, Group-wide risks
are minimized and continuous improvement is promoted in the areas of Environment, Health,
Safety, Security & Quality. Corporate Responsibility reports are also published at regular
intervals.
Company Management Report Corporate governance Consolidated Financial Statements More information 123
Statement on corporate governance

PROCEDURES OF THE EXECUTIVE BOARD, SUPERVISORY BOARD,

BOARD OF PARTNERS AND ITS COMMITTEES

Members of the Executive Board of Merck KGaA

Notes on memberships of statutory supervisory boards and comparable German and foreign
supervisory bodies
(section 285 sentence 1, No. 10 HGB in conjunction with section 125 (1) sentence 5 AktG)

Memberships of 
(a) other statutory supervisory boards and
Member (b) comparable German and foreign supervisory bodies of corporations
Dr. Karl-Ludwig Kley (a) – Bertelsmann AG, Gütersloh
Darmstadt – BMW AG, Munich (Vice Chairman since May 18, 2010)
Chairman – 1. FC Köln GmbH & Co KGaA, Cologne (Chairman)
Dr. Michael Becker (b) – Bâloise Holding AG, Basel, Switzerland (since April 23, 2010)
Darmstadt
Dr. Bernd Reckmann (b) – Millipore Corp., Billerica, USA (since July 2010)
Seeheim-Jugenheim – Millipore Corp., Cidra, Puerto Rico (since July 2010)
Elmar Schnee (b) Member of the Board of Directors:
Darmstadt – ChemGenex Pharmaceuticals Ltd., Geelong, Australia
– Merck Serono S.A., Coinsins, Switzerland
Dr. Stefan Oschmann no board positions
Munich (as of Jan. 1, 2011)

The general partners with no equity interest (Executive Board) manage the business activities
in accordance with the laws, the Articles of Association and the rules of procedure. They are
appointed by E. Merck KG with the consent of a simple majority of the other general partners.
The members of the Executive Board are jointly responsible for the entire management of the
company. The Executive Board is responsible for preparing the annual financial statements of
Merck KGaA, the quarterly and half-year financial statements, as well as the annual financial
statements of the Merck Group. In addition, the Executive Board ensures that all provisions
of law, official regulations and the company’s internal policies are abided by, and works to
achieve their compliance by all the companies of the Merck Group.
The Executive Board provides the Supervisory Board with regular, up-to-date and comprehensive
reports about all company-relevant issues concerning planning, business developments, the
risk situation and risk management. A Supervisory Board resolution regulates further details on
the information and reporting duties of the Executive Board vis-à-vis the Supervisory Board.
The Executive Board informs the Board of Partners and the Supervisory Board at least quarterly
of the progress of business and the situation of the company. In addition, the Executive Board
informs the stated boards at least annually of the company’s annual plans and strategic
considerations.
The Executive Board passes its resolutions in meetings that are normally held twice a month.
124 Merck Annual Report 2010

Supervisory Board

Memberships of 
(a) other statutory supervisory boards and
(b) comparable German and foreign supervisory bodies of corpora-
Member tions
Prof. Dr. Dr. h. c. Rolf Krebs (a) – Epigenomics AG, Berlin (Chairman)
Mainz, Retired physician, – Ganymed Pharmaceuticals AG, Mainz (Chairman)
Chairman – Merz GmbH & Co. KGaA, Frankfurt
– Senator GmbH & Co KGaA, Frankfurt
– Merz Pharmaceuticals GmbH, Frankfurt
(b) – Board of Partners E. Merck KG, Darmstadt
– Air Liquide S.A., Paris
Heiner Wilhelm no board positions
Reinheim, Chairman of the Works
­Council of the Darmstadt site of Merck
KGaA, Vice Chairman
Crocifissa Attardo no board positions
Full-time member of the Works Council
of the Darmstadt site of Merck KGaA
Dr. Mechthild Auge no board positions
Wehrheim, Project manager for planning
and information western Europe
Johannes Baillou (b) – Board of Partners E. Merck KG, Darmstadt
Vienna, Austria, Entrepreneur (Vice Chairman)
Frank Binder (a) – Landbell AG für Rückhol-Systeme, Mainz (Chairman)
Zurich, Switzerland, Entrepreneur (b) – Board of Partners E. Merck KG, Darmstadt
– Board of Directors BMR-Yachting AG, Zurich (Chairman)
– Board of Directors Athena AG, Zurich
Dr. Wolfgang Büchele (b) – Board of Partners E. Merck KG, Darmstadt
Mannheim, Chief Executive Officer –B orsodChem Zrt, Kazincbarcika, Hungary (Chairman of the Board)
of BorsodChem Zrt, Hungary    – Kemira Oy, Helsinki, Finland
– First Chemical Holding Kft, Budapest, Hungary
Michael Fletterich no board positions
Gernsheim, Chairman of the Works
Council of the Gernsheim site of
­Merck KGaA
Edeltraud Glänzer (a) – B. Braun Melsungen AG, Melsungen
Wiesbaden, Member of the Managing – Solvay Deutschland GmbH, Hannover
Board of Industriegewerkschaft Bergbau, (Vice Chairman)
Chemie, Energie (IG BCE)
Michaela Freifrau von Glenck no board positions
Zurich, Switzerland, Educator
Frieder Kaufmann no board positions
Rossdorf, Full-time member of the Works
Council of the Darmstadt site of Merck KGaA
Dr. Hans-Jürgen Leuchs (a)– Zeton B.V., Enschede, The Netherlands
Cobham, United Kingdom – Zeton International Inc., Burlington ONT, Canada (since
Retired graduate chemist Nov. 3, 2010)
(b) – Board of Partners E. Merck KG, Darmstadt
Albrecht Merck (b) – Board of Partners E. Merck KG, Darmstadt
Schriesheim, Businessman
Dr. Karl-Heinz Scheider no board positions
Gross-Zimmern, Chemist
Company Management Report Corporate governance Consolidated Financial Statements More information 125
Statement on corporate governance

Memberships of 
(a) other statutory supervisory boards and
(b) comparable German and foreign supervisory bodies of corpora-
Member tions
Prof. Dr. Theo Siegert (a) – Deutsche Bank AG, Frankfurt
Düsseldorf, Managing Partner of – ERGO AG, Düsseldorf (until May 12, 2010)
de Haen Carstanjen & Söhne, – E.ON AG, Düsseldorf
Düsseldorf – Henkel AG & Co KGaA, Düsseldorf
(b) – Board of Partners E. Merck KG, Darmstadt
– Board of Directors DKSH Holding Ltd., Zurich, Switzerland
Osman Ulusoy (a) – Evonik Röhm GmbH, Darmstadt (Vice Chairman)
Wiesbaden, Regional Director of
Industriegewerkschaft Bergbau,
Chemie, Energie (IG BCE)

The Supervisory Board performs a monitoring function. It supervises the management of the
company by the Executive Board. In comparison with the supervisory board of a German stock
corporation, the role of the supervisory board of a corporation with general partners (KGaA)
is limited. This is due to the fact that the members of the Executive Board are personally liable
partners and therefore are responsible for the management of the company themselves. In
­particular, the Supervisory Board is not responsible for appointing and dismissing general
partners or for regulating the terms and conditions of their contracts. The authority for this
belongs to E. Merck KG. Nor does the Supervisory Board have the authority to issue rules of
procedure for the Executive Board or a catalog of business transactions requiring approval.
This authority likewise belongs to E. Merck KG (Art. 13 (3) sentence 1 and (4) sentence 1 of the
Articles of Association). However, the fact that the Supervisory Board has no possibilities to
directly influence the Executive Board restricts neither its information rights nor audit duties.
The Supervisory Board must monitor the Executive Board in terms of legality, regularity, useful-
ness and economic efficiency. In particular, the Supervisory Board has the duty to examine the
reports provided at least quarterly by the Executive Board about the progress of business – in
particular sales and the position of the company. In addition, by means of consultation with the
Executive Board, it creates the basis for supervision of the management of the company by the
Supervisory Board according to section 111 (1) of the German Stock Corporation Act (AktG).
The Supervisory Board deals with the quarterly and half-year consolidated financial statements
and examines the annual financial statements of the Merck Group as well as the annual financial
statements of Merck KGaA, taking into account the auditor’s reports. The adoption of the
annual financial statements is not the responsibility of the Supervisory Board, but of the General
Meeting. The Supervisory Board normally meets four times a year. Further meetings may be
convened if demanded by a member of either the Supervisory Board or the Executive Board. As
a rule, resolutions of the Supervisory Board are passed at meetings. At the instruction of the
chairman, in exceptional cases a resolution may be passed by other means, details of which are
given in the rules of procedure.
The members of the Board of Partners of E. Merck KG and of the Supervisory Board may be
convened to a joint meeting if so agreed by the chairmen of the two boards.
The rules of procedure prescribe that the Supervisory Board may form committees as and when
necessary. The Supervisory Board currently has no committees. Because of the limited authority
of the Supervisory Board, it does not appear appropriate to subdivide it further.
126 Merck Annual Report 2010

Board of Partners of E. Merck KG

Some of the responsibilities that lie with the supervisory board of a German stock corporation
are fulfilled at Merck by E. Merck KG. This applies primarily to the Board of Partners of E. Merck
KG. Therefore, the Board of Partners and the composition and procedures of its committees are
described in the following.

The Board of Partners has nine members:

Memberships of 
(a) other statutory supervisory boards and
(b) comparable German and foreign supervisory bodies of
Member corporations
Johannes Baillou (a) – Supervisory Board of Merck KGaA, Darmstadt
Vienna, Austria, Entrepreneur, Vice Chairman
Jon Baumhauer no board positions
Munich, Chairman of the Executive Board
and General Partner of E. Merck KG
Frank Binder (a) – Supervisory Board of Merck KGaA, Darmstadt
Zurich, Switzerland, Entrepreneur – Landbell AG für Rückhol–Systeme, Mainz
(Chairman)
(b) – Board of Directors BMR–Yachting AG, Zurich
(Chairman)
– Board of Directors Athena AG, Zurich
Dr. Wolfgang Büchele (a) – Supervisory Board of Merck KGaA, Darmstadt
Mannheim, Chief Executive Officer of (b) – BorsodChem Zrt, Kazincbarcika, Hungary
BorsodChem Zrt, Hungary (Chairman of the Board)
– Kemira Oy, Helsinki, Finland
– First Chemical Holding Kft, Budapest, Hungary
Prof. Dr. Dr. h. c. Rolf Krebs (a) – Supervisory Board of Merck KGaA, Darmstadt
Mainz, Retired physician – Epigenomics AG, Berlin (Chairman)
– Ganymed Pharmaceuticals AG, Mainz (Chairman)
– Merz GmbH & Co. KGaA, Frankfurt
– Senator GmbH & Co KGaA, Frankfurt
– Merz Pharmaceuticals GmbH, Frankfurt
(b) – Air Liquide S.A., Paris
Dr. Hans-Jürgen Leuchs (a) – Supervisory Board of Merck KGaA, Darmstadt
Cobham, United Kingdom, – Zeton B.V., Enschede, The Netherlands
Retired graduate chemist – Zeton International Inc., Burlington ONT,
Canada (since Nov. 3, 2010)
Albrecht Merck (a) – Supervisory Board of Merck KGaA, Darmstadt
Schriesheim, Businessman
Prof. Dr. Theo Siegert (a) – Supervisory Board of Merck KGaA, Darmstadt
Düsseldorf, Managing Partner of – Deutsche Bank AG, Frankfurt
de Haen Carstanjen & Söhne, Düsseldorf – ERGO AG, Düsseldorf (until May 12, 2010)
– E.ON AG, Düsseldorf
– Henkel AG & Co KGaA, Düsseldorf
(b) – Board of Directors DKSH Holding Ltd., Zurich
Dr. Frank Stangenberg-Haverkamp (a) – Fortas AG, Rösrath (Chairman)
Darmstadt, Vice Chairman of the Executive Board (b) – Travel Asset Group Ltd., Feltham, United Kingdom
and General Partner of E. Merck KG, Chairman (Chairman)
Company Management Report Corporate governance Consolidated Financial Statements More information 127
Statement on corporate governance

The Board of Partners supervises the Executive Board in its management of the company. It
informs itself about the business matters of Merck KGaA, and may inspect and examine the
company’s accounts and other business documents, and the assets for this purpose. The Board
of Partners convenes as and when necessary, however it meets at least four times a year. The
members of the Executive Board of Merck KGaA are invited to all meetings of the Board of
Partners, unless the Board of Partners resolves otherwise in individual cases. The members of
the Board of Partners may convene a joint meeting with the Supervisory Board of Merck KGaA
if so agreed by the chairmen of the two boards.
The Board of Partners may confer the responsibility for individual duties to committees.
Currently the Board of Partners has three committees in place: the Personnel Committee, the
Finance Committee, and the Research and Development Committee.

Personnel Committee
The Personnel Committee has four members: Jon Baumhauer, Prof. Dr. Dr. h.c. Rolf Krebs,
Prof. Dr. Theo Siegert and Dr. Stangenberg-Haverkamp.
The Personnel Committee is convened as and when necessary. Meetings of the Personnel
­Committee are attended by members of the Executive Board of Merck KGaA upon request of
the Committee. They attend only in an advisory capacity.
The Personnel Committee is responsible for, among other things, the following decisions
concerning members and former members of the Executive Board: Contents of employment
contracts and of pension contracts, granting of loans and advance payments, approval for
taking on honorary offices, mandates and other sideline activities, as well as division of
responsibilities within the Executive Board of Merck KGaA. The Personnel Committee passes its
resolutions by a simple majority – in matters concerning the Chairman of the Executive Board
unanimity is required. The Personnel Committee regularly informs the Board of Partners of its
activities.

Finance Committee
The Finance Committee has four members: Johannes Baillou, Dr. Wolfgang Büchele, Prof. Dr. Theo
Siegert and Dr. Frank Stangenberg-Haverkamp.
The Finance Committee holds at least four meetings a year, at least one of which is a joint
meeting with the auditor. Further meetings are convened as and when necessary. Meetings
of the Finance Committee are attended by members of the Executive Board of Merck KGaA
upon request of the Committee. The Chairman of the Executive Board and the Chief Financial
Officer regularly attend these meetings. The members of the Executive Board attend only in an
advisory capacity. The Finance Committee is responsible for, among other things, analyzing and
discussing the annual financial statements and the respective auditor’s report as well as the
quarterly and half-year financial reports. In addition, it is concerned with the financial position,
results of operations and liquidity of Merck as well as accounting issues.
128 Merck Annual Report 2010

Research and Development Committee

The Research and Development Committee has three members: Prof. Dr. Dr. h.c. Rolf Krebs,
Dr. Hans-Jürgen Leuchs and Dr. Stangenberg-Haverkamp.
The Research and Development Committee is convened as and when necessary, but holds at least
four meetings a year. Meetings of the Research and Development Committee are attended
by members of the Executive Board of Merck KGaA upon request of the Committee. These
meetings regularly include the Chairman of the Executive Board as well as the members
of the Executive Board responsible for Pharmaceuticals and Chemicals. The members of the
Executive Board attend only in an advisory capacity. The Research and Development Committee
is responsible, among other things, for analyzing and discussing the research activities of
Pharmaceuticals and Chemicals. The Pharmaceuticals and Chemicals business sectors present
the status of their respective research to the Research and Development Committee in special
meetings. The Committee deals thoroughly with the pharmaceutical research progress report
and with developments of new medicines in Phases II and III of clinical research. The Research
and Development Committee reports to the Board of Partners twice a year on the insights
gained from the meetings held.

Report of the Supervisory Board

The Supervisory Board again properly executed its duties in 2010 in accordance with the law as
well as the company’s Articles of Association and rules of procedure. In particular, the Supervisory
Board monitored the work of the Executive Board diligently and regularly.

Cooperation with the Executive Board

The cooperation with the Executive Board was characterized by intensive, trustworthy exchange.
During fiscal 2010, the Executive Board provided the Supervisory Board with regular written and
verbal reports on the business development of Merck KGaA and the Merck Group. In particular,
the Supervisory Board was informed about the market and sales situation of the company
against the background of the macroeconomic development, the financial position of the company
and its subsidiaries along with their earnings development, as well as corporate planning. Within
the scope of quarterly reporting, the sales and operating results were presented for the Merck
Group as a whole, and broken down by division and region. Aside from the Supervisory Board
meetings, the Chairman of the Supervisory Board also maintained and continues to maintain a
regular exchange of information with the Chairman of the Executive Board.

Key topics of the Supervisory Board meetings

Four Supervisory Board meetings were held in fiscal 2010. In these meetings, the Supervisory
Board discussed the reports of the Executive Board in detail and discussed company developments
and strategic issues together with the Executive Board.
In the meeting held on February 18, 2010, the Supervisory Board dealt mainly with the annual
financial statements and consolidated financial statements for 2009. The Executive Board
reported on business developments in 2009 and the key information contained in the 2009
annual financial statements. In addition, the auditor reported on the examination of the financial
statements. Lastly, the Supervisory Board approved the proposals to be made to the Annual
Company Management Report Corporate governance Consolidated Financial Statements More information 129
Report of the Supervisory Board
Statement on corporate governance

General Meeting and adopted the statement on corporate governance including the Statement
of Compliance with the German Corporate Governance Code in a joint report of the Executive
Board and Supervisory Board.
The meeting held on April 27, 2010 focused on current business developments. In particular,
the effects of economic recovery on the Chemicals business were discussed. Moreover, the
Executive Board informed the Supervisory Board about the current status of the Millipore
transaction.
In its meeting held on July 28, 2010, the Supervisory Board discussed the positive business
development in the first half of 2010 and also dealt intensively with the internal auditing
system and company risk management. For this purpose, the head of Corporate Auditing and
the company risk manager presented their annual report. These reports are a standard part of
the July meeting every year. With regard to risk management, important individual risks were
identified, which were reported in detail to the Supervisory Board. No risks that threaten the
continued existence of the company were identified.
The fourth Supervisory Board meeting in fiscal 2010 was held on October 25, 2010. In this
meeting, the Supervisory Board focused mainly on the report of the Executive Board on business
developments in the third quarter of 2010. In addition, the head of Corporate Legal & Compli-
ance presented the compliance report of 2010 to the Supervisory Board. This report is a standard
part of the October meeting every year. In addition, the Supervisory Board was informed about
current changes to the German Corporate Governance Code and discussed the objectives with
regard to its composition.

Annual financial statements

The annual financial statements of Merck KGaA, the consolidated financial statements of the
Merck Group, and the management reports for Merck KGaA and the Merck Group, including
the accounts, were audited by KPMG AG Wirtschaftsprüfungsgesellschaft. The auditors issued
an unqualified audit opinion on the annual financial statements and management report for
Merck KGaA in accordance with German Auditing Standards. For the consolidated financial
statements prepared in accordance with International Financial Reporting Standards, the
auditors issued the auditor’s report, reproduced in the Annual Report of the Merck Group.
In addition, the auditors audited the calculation of Merck KGaA’s participation in the profits of
E. Merck KG in accordance with Art. 27 (2) of the Articles of Association. The annual financial
statements of Merck KGaA, the consolidated financial statements of the Merck Group, the
management reports for Merck KGaA and the Merck Group, and the proposal by the Executive
Board for the appropriation of the net retained profit were presented and distributed to the
Supervisory Board, together with the auditor’s reports.
In accordance with Art. 14 (2) of the Articles of Association, the Supervisory Board also examined
the annual financial statements of Merck KGaA and the management report for Merck KGaA,
the proposal for the appropriation of the net retained profit and the auditor’s report presented
in accordance with Art. 27 (2) of the Articles of Association. It also examined the consolidated
financial statements of the Merck Group, the management report for the Merck Group, and took
note of the auditor’s report of KPMG AG Wirtschaftsprüfungsgesellschaft.
The discussion of the relevant agenda item at the Supervisory Board’s meeting on February 17,
2011 to approve the financial statements was also attended by the auditors who sign the audit
opinion on the annual financial statements of Merck KGaA and the consolidated financial
130 Merck Annual Report 2010

statements of the Merck Group, and who reported on their audit. The Supervisory Board
took note of and approved the results of the audit. On completion of its examination, the
Supervisory Board raised no objections and thus approves the annual financial statements and
management report for Merck KGaA, the consolidated financial statements of the Merck Group
and the management report for the Merck Group prepared by the Executive Board, as well as
the report presented by the auditors in accordance with Art. 27 (2) of the Articles of Associa-
tion. The Supervisory Board gives its consent to the proposal for the appropriation of the net
retained profit.

Corporate governance and Statement of Compliance

Corporate governance is a topic of high priority for the Supervisory Board. According to its
own estimation, the Supervisory Board consists of a sufficient number of independent members.
There were no conflicts of interest, as defined by the German Corporate Governance Code,
involving Supervisory Board members during 2010. After addressing corporate governance
topics in detail, the Executive Board and Supervisory Board resolved to adopt and issued the
updated Statement of Compliance on February 8, 2011 (Executive Board) and on February 17,
2011 (Supervisory Board) in accordance with section 161 of the German Stock Corporation Act
(Aktiengesetz). The statement is permanently available on the website of Merck KGaA (http://
www.merck.de/en/investors/corporate_governance/reports/corporate_governance_reports.
html). More information about corporate governance at Merck KGaA, including the compensation
of the Executive Board and Supervisory Board, is given in the Statement of Compliance on pages
108 et seq of the Annual Report.

Committees
The Supervisory Board of Merck KGaA currently has no committees on account of the special
features that apply to the Supervisory Board of a corporation with general partners (KGaA)
under German company law and because a corresponding need for this has not emerged to
date. Therefore, no report is given on the work of committees.

Personnel matters
With just a few exceptions, all members of the Supervisory Board attended the four Supervisory
Board meetings held in 2010. Ms. Edeltraud Glänzer, Dr. Karl-Heinz Scheider, Mr. Osman Ulusoy
and Mr. Heiner Wilhelm were absent from the third meeting, and were excused.
There were no personnel decisions or changes in the composition of the Supervisory Board in
2010. In particular, there were no new elections, new appointments to bodies or formations of
new bodies.

Darmstadt, February 17, 2011

The Supervisory Board of Merck KGaA

Prof. Dr. Dr. h.c. Rolf Krebs

Chairman
Company Management Report Corporate governance Consolidated Financial Statements More information 131
Statement on corporate governance
Objectives of the Supervisory Board
with respect to its composition

Objectives of the Supervisory Board with respect

to its composition

Initial situation
According to section 5.4.1 (2) and (3) of the German Corporate Governance Code, the Supervisory
Board shall specify concrete objectives regarding its composition which, while considering
the specifics of the enterprise, take into account the international activities of the enterprise,
potential conflicts of interest, an age limit to be specified for the members of the Supervisory
Board, and diversity.

General notes on the composition of the Supervisory Board

The Supervisory Board of Merck KGaA consists of 16 members, eight of whom represent
the shareholders and a further eight who represent the employees. The eight employee
representative members are elected by employee delegates pursuant to the provisions of
the German Co-determination Act (Mitbestimmungsgesetz – “MitbestG”). These include six
company employees, including a senior executive, as well as two union representatives. The
Supervisory Board has no statutory proposal right with respect to electing the delegates or
employee representatives. Owing to a delegation right of E. Merck Beteiligungen KG, two of the
eight shareholder representatives are specified. The Supervisory Board likewise has no statutory
proposal right with respect to exercising this delegation right. The remaining six shareholder
representatives are elected by the General Meeting. In accordance with section 124 (3) sentence
1 AktG, the Supervisory Board shall propose to the General Meeting Supervisory Board
members for election. These proposals require a majority of the votes of the shareholder repre-
sentative members of the Supervisory Board. The General Meeting is not required to ­follow
the election proposals. The appointment objectives that the Supervisory Board applies as set
forth below therefore do not represent requirements to be met by those eligible to elect or to
delegate members, respectively. Instead, they are intended to express the objectives pursued
by the Supervisory Board in office with regard to its advisory and monitoring functions.

Objectives of the Supervisory Board with respect to its composition

In accordance with section 5.4.1 of the German Corporate Governance Code, the Supervisory
Board specifies the following objectives with respect to its composition:

Expertise
Professional qualifications and personal expertise are the two most important prerequisites
for appointments to seats on the Supervisory Board. When proposing Supervisory Board can-
didates for election or delegation, the Supervisory Board will always give top priority to these
prerequisites, which are essential for fulfilling its legal duties.

Diversity
Overall, the Supervisory Board’s objective is to optimally meet its monitoring and advisory
duties by having a diversity of members. Diversity includes, in particular, internationality as
well as different experience backgrounds and career paths. The proportion of women on the
Supervisory Board is also considered to be an aspect of diversity. When preparing proposals
for election or delegation, due consideration shall be given in individual cases to the extent to
which different, yet complementary professional profiles, career and life experiences as well
as appropriate representation of both genders can benefit the work of the Supervisory Board.
132 Merck Annual Report 2010

Additionally, the Supervisory Board shall support the Executive Board in its efforts to increase
diversity within the company.

Knowledge of the company

The Supervisory Board shall have at least four members with in-depth knowledge and experience
in fields that are important to the company, including at least one expert in pharmaceuticals
and one in chemicals.

Management experience
The Supervisory Board shall have at least three members who have experience in managing or
supervising a medium- or large-sized company.

Family-owned company
The Supervisory Board shall have at least one member who has experience in managing
medium- or large-sized family-owned companies.

Internationality
The Supervisory Board shall have at least three members with business experience in the main
sales markets of Merck KGaA. Currently, the main sales markets of Merck KGaA are Europe, North
and Latin America and Asia-Pacific.

Women on the Supervisory Board

Four women are currently members of the Supervisory Board of Merck KGaA. This corresponds
to 25% of the Supervisory Board. When nominating candidates for election to the Supervisory
Board or making proposals for delegations, the Supervisory Board shall examine whether the
percentage of women can be increased by suitable candidates.

No material conflicts of interest

No one who is likely to have a lasting conflict of interest shall serve as a member of the Super-
visory Board. Therefore, no one shall be proposed for election or delegation to the Supervisory
Board who simultaneously serves on a body of or advises a major competitor of the company, or
owing to another function, e.g. advisor to major contract partners of the company, could poten-
tially become involved in a conflict of interest. Moreover, the Supervisory Board complies with the
requirements of the German Corporate Governance Code with respect to conflicts of interest.

No age limit
An age limit for Supervisory Board members is not specified, since age is not a criterion for
qualifications and expertise. Moreover, we do not wish to forgo the many years of experience
of Supervisory Board members.

The achievement of the aforementioned objectives shall be pursued initially until 2015, taking
into account applicable law within the scope of elections and reelections, delegations as well
as court appointments of replacement members if these become necessary. All Supervisory
Board members will correspondingly influence those eligible to elect or delegate. Taking into
consideration the aforementioned criteria and in accordance with its duties under German
stock corporation law, the Supervisory Board will also propose to the General Meeting the
candidates it believes to be best suited in each case. The Supervisory Board will provide infor-
mation on the status of implementing its objectives every year in the Annual Report.
 133

conSolIdated fInancIal StatementS

of the merck Group for 2010

134 Income Statement of the Merck Group

135 Balance Sheet of the Merck Group
136 Segment Reporting of the Merck Group
138 Cash Flow Statement of the Merck Group
139 Free Cash Flow of the Merck Group
139 Statement of Comprehensive Income of the Merck Group
140 Statement of Changes in Net Equity including
Non-Controlling Interest of the Merck Group

141 Notes
142 Scope of consolidation
147 Accounting policies
156 Notes to the income statement
163 Notes to the balance sheet
183 Notes to the segment reporting
185 Notes to the cash flow statement
187 Other disclosures
201 List of shareholdings
134 Merck Annual Report 2010

Income Statement of the ­­Merck Group

Notes to the
Income Statement:
see page 156 EUR million Note 2010 2009
Sales [1] 8,928.9 7,377.7
Royalty, license and commission income [2] 361.7 369.3
Total revenues 9,290.6 7,747.0

Cost of sales [3] –2,385.4 –2,029.3

Gross margin 6,905.2 5,717.7

Marketing and selling expenses * [4] –2,234.5 –1,859.3

Royalty, license and commission expenses * [5] –477.0 –413.0
Administration expenses [6] –478.2 –424.9
Other operating expenses and income [7] –390.4 –372.7
Research and development [8] –1,397.1 –1,344.6
Amortization of intangible assets [9] –818.6 –657.8
Investment result [10] 4.1 3.5
Operating result 1,113.5 648.9

Exceptional items [11] –0.8 –28.0

Earnings before interest and tax (EBIT) 1,112.7 620.9

Financial result [12] –251.6 –134.5

Profit before tax 861.1 486.4

Income tax [13] –219.6 –109.7

Profit after tax 641.5 376.7

Non-controlling interest [14] –9.4 –10.4

Net profit after non-controlling interest 632.1 366.3

Earnings per share (in EUR)  [15]

basic 2.91 1.68
diluted 2.91 1.68
* The figures for 2009 have been adjusted for the disclosure of royalty, license and commission expenses.
 Company Management Report Corporate governance Consolidated Financial Statements More information 135
Income Statement
Balance Sheet

Bal ance Shee t of the ­­Merck Group

Notes to the
Balance Sheet: Dec. 31, Dec. 31,
see page 163 EUR million Note 2010 2009
Current assets
Cash and cash equivalents [16] 943.7 541.4
Marketable securities and financial assets [17] 55.6 1,503.2
Trade accounts receivable [18] 2,296.3 1,788.7
Inventories [19] 1,673.5 1,367.9
Other current assets [20] 564.7 275.6
Tax receivables [21] 93.7 55.3
Assets held for sale [22] 36.7 –
5,664.2 5,532.1
Non-current assets
Intangible assets [23] 12,484.1 7,598.4
Property, plant and equipment [24] 3,241.5 2,607.6
Investments at equity [25] 5.0 1.6
Non-current financial assets [26] 130.3 118.4
Financial assets covering pensions [27] 216.9 209.6
Other non-current assets [20] 52.9 99.5
Deferred tax assets [13] 593.1 545.4
16,723.8 11,180.5

Total assets 22,388.0 16,712.6

Current liabilities
Current financial liabilities [28] 356.1 705.2
Trade accounts payable [29] 1,200.1 935.7
Other current liabilities [30] 1,054.6 638.2
Tax liabilities [31] 368.4 274.5
Current provisions [32] 374.5 266.4
Liabilities directly related to assets held for sale [22] 5.9 –
3,359.6 2,820.0
Non-current liabilities
Non-current financial liabilities [28] 5,127.4 1,602.1
Other non-current liabilities [30] 42.9 16.9
Non-current provisions [32] 524.2 685.0
Provisions for pensions and other post-employment benefits [33] 1,581.6 1,311.5
Deferred tax liabilities [13] 1,380.5 763.5
8,656.6 4,379.0
Net equity [34]
Equity capital 565.2 565.2
Reserves 8,484.2 8,318.7
Gains/losses recognized immediately in equity 1,280.4 576.2
Equity attributable to shareholders of the parent company 10,329.8 9,460.1
Non-controlling interest 42.0 53.5
10,371.8 9,513.6

Total liabilities and stockholders’ equity 22,388.0 16,712.6

Consolidated Financial
Statements
136 Merck Annual Report 2010

Segment Reporting of the ­­Merck Group

Part of the Notes, for details see page 183

Consumer 
Information by business sector and division Merck Serono Health Care Pharmaceuticals
EUR million 2010 2009 2010 2009 2010 2009
Sales 5,409.0 4,993.8 469.7 464.9 5,878.7 5,458.7
Royalty, license and commission income 344.5 351.1 2.3 2.1 346.8 353.2
Total revenues 5,753.5 5,344.9 472.0 467.0 6,225.5 5,811.9
Gross margin 4,792.8 4,485.5 316.9 319.5 5,109.7 4,805.0
Marketing and selling expenses ** –1,451.4 –1,316.1 –235.9 –211.9 –1,687.3 –1,528.0
Royalty, license and commission expenses ** –456.2 –403.0 –1.2 –1.5 –457.4 –404.5
Administration expenses –269.9 –263.6 –24.7 –24.3 –294.6 –287.9
Other operating expenses and income –169.6 –317.4 –12.1 –9.9 –181.7 –327.3
Research and development –1,167.1 –1,183.6 –24.9 –19.5 –1,192.0 –1,203.1
Operating result 565.1 354.7 13.9 48.3 579.0 403.0
Exceptional items 68.6 –39.8 – – 68.6 –39.8
Earnings before interest and tax (EBIT) 633.7 314.9 13.9 48.3 647.6 363.2
Net operating assets 10,359.7 10,015.9 310.8 336.0 10,670.5 10,351.9
Segment liabilities –1,268.9 –1,078.2 –86.4 –76.9 –1,355.3 –1,155.1
Capital spending on property, plant
and equipment 247.7 317.2 6.9 10.0 254.6 327.2
Investments in intangible assets 85.1 74.8 1.3 1.4 86.4 76.2
Depreciation and amortization –766.5 –749.6 –11.6 –9.5 –778.1 –759.1
Impairment losses –171.0 –99.1 –7.1 – –178.1 –99.1
Net cash flows from operating activities 1,590.1 1,250.7 46.6 58.0 1,636.7 1,308.7
Net cash flows from investing activities –292.0 –386.3 –1.1 –9.1 –293.1 –395.4
Free cash flow 1,298.1 864.4 45.5 48.9 1,343.6 913.3
Underlying free cash flow 1,307.8 866.8 45.5 48.9 1,353.3 915.7
FCR in % 22.7 16.2 9.6 10.5 21.7 15.8
ROS in % 9.8 6.6 2.9 10.3 9.3 6.9
* As a result of the acquisition of Millipore, the Chemicals business sector was reorganized. The figures for 2009 have been adjusted.
** The figures for 2009 have been adjusted for the disclosure of royalty, license and commission expenses.

Information by country and region Germany France Switzerland Rest of Europe

EUR million 2010 2009 2010 2009 2010 2009 2010 2009
Sales by customer location 779.4 708.1 714.2 684.6 111.4 84.9 2,141.8 1,896.1
Sales by company location 1,315.0 1,113.4 810.4 796.1 149.9 167.0 1,819.4 1,601.8
Total revenues 1,333.2 1,137.5 821.6 806.0 364.6 388.8 1,836.3 1,619.1
Intangible assets 184.0 180.0 343.9 217.7 6,701.0 6,648.2 2,452.1 209.8
Property, plant and equipment 1,088.5 1,113.5 140.0 82.4 987.3 815.7 399.5 238.6
Research and development –649.7 –636.4 –49.4 –46.3 –566.4 –553.4 –32.8 –37.1
Number of employees 10,340 9,904 2,916 1,985 2,407 2,275 6,016 4,412
 Company Management Report Corporate governance Consolidated Financial Statements More information 137
Segment Reporting

Merck Millipore * Performance Materials * Chemicals Corporate and Other Group

2010 2009 2010 2009 2010 2009 2010 2009 2010 2009
1,673.5 921.2 1,376.7 997.8 3,050.2 1,919.0 – – 8,928.9 7,377.7
7.2 8.2 7.7 7.9 14.9 16.1 – – 361.7 369.3
1,680.7 929.4 1,384.4 1,005.7 3,065.1 1,935.1 – – 9,290.6 7,747.0
871.0 434.5 924.5 478.2 1,795.5 912.7 – – 6,905.2 5,717.7
–427.7 –231.8 –116.6 –99.2 –544.3 –331.0 –2.9 –0.3 –2,234.5 –1,859.3
–9.9 –5.7 –9.7 –2.8 –19.6 –8.5 – – –477.0 –413.0
–76.4 –43.1 –38.5 –35.8 –114.9 –78.9 –68.7 –58.1 –478.2 –424.9
–140.0 –14.0 –47.5 –8.1 –187.5 –22.1 –21.2 –23.3 –390.4 –372.7
–78.0 –32.5 –127.1 –109.0 –205.1 –141.5 – – –1,397.1 –1,344.6
44.0 106.5 580.0 217.8 624.0 324.3 –89.5 –78.4 1,113.5 648.9
– 10.6 –1.0 1.2 –1.0 11.8 –68.4 – –0.8 –28.0
44.0 117.1 579.0 219.0 623.0 336.1 –157.9 –78.4 1,112.7 620.9
6,486.7 781.2 1,238.6 1,176.2 7,725.3 1,957.4 74.7 37.4 18,470.5 12,346.7
–374.3 –111.5 –153.9 –118.7 –528.2 –230.2 –14.9 –15.7 –1,898.4 –1,401.0

80.3 57.6 59.1 82.1 139.4 139.7 2.2 0.4 396.2 467.3
7.2 4.9 3.6 7.5 10.8 12.4 7.0 8.0 104.2 96.6
–172.7 –46.0 –98.2 –87.6 –270.9 –133.6 –3.2 –1.9 –1,052.2 –894.6
–11.0 –1.4 –16.4 –8.1 –27.4 –9.5 –0.2 –0.8 –205.7 –109.4
252.7 174.7 610.4 392.9 863.1 567.6 –717.2 –505.0 1,782.6 1,371.3
–4,924.6 –52.1 –68.2 –105.0 –4,992.8 –157.1 1,403.5 –1,608.2 –3,882.4 –2,160.7
–4,671.9 122.6 542.2 287.9 –4,129.7 410.5 –736.4 –511.4 –3,522.5 812.4
263.4 127.7 548.8 304.0 812.2 431.7 –495.7 –495.8 1,669.8 851.6
15.7 13.7 39.6 30.2 26.5 22.3 – – 18.0 11.0
2.6 11.5 41.9 21.7 20.4 16.8 – – 12.0 8.4

North America Latin America Asia Africa, Australasia Group

2010 2009 2010 2009 2010 2009 2010 2009 2010 2009
1,529.6 1,171.3 1,080.6 941.8 2,305.5 1,685.6 266.4 205.3 8,928.9 7,377.7
1,512.6 1,146.0 1,054.0 923.2 2,114.9 1,520.8 152.7 109.4 8,928.9 7,377.7
1,514.8 1,147.3 1,055.9 926.7 2,211.5 1,612.2 152.7 109.4 9,290.6 7,747.0
2,537.9 120.2 15.4 13.6 249.2 208.7 0.6 0.2 12,484.1 7,598.4
358.6 116.1 79.7 79.3 181.1 156.2 6.8 5.8 3,241.5 2,607.6
–56.8 –32.9 –7.3 –7.3 –31.4 –28.1 –3.3 –3.1 –1,397.1 –1,344.6
4,909 2,051 4,546 4,272 8,681 7,462 747 701 40,562 33,062
138 Merck Annual Report 2010

Cash Flow Statement of the ­­Merck Group

Notes to the
Cash Flow Statement:
see page 185 EUR million Note 2010 2009
Profit after tax 641.5 376.7
Depreciation/amortization/impairment losses/write-ups 1,257.9 1,003.8
Changes in inventories 38.0 51.7
Changes in trade accounts receivable –187.0 –118.7
Changes in trade accounts payable 117.5 92.7
Changes in provisions –73.6 156.9
Changes in other assets and liabilities 97.8 –179.6
Neutralization of gain/loss on disposals of assets –102.4 –15.8
Other non-cash income and expenses –7.1 3.6
Net cash flows from operating activities [35] 1,782.6 1,371.3

Purchase of intangible assets –104.2 –96.6

Purchase of property, plant and equipment –396.2 –467.3
Acquisitions –4,843.7 –23.5
Investments in financial assets –16.0 –16.5
Disposal of non-current assets 54.8 45.4
Purchase/sale of marketable securities 0.2 –0.4
Changes in financial assets covering pensions –8.6 –201.3
Changes in other financial assets 1,431.3 –1,400.5
Net cash flows from investing activities [36] –3,882.4 –2,160.7

Dividend payments –86.1 –104.8

Profit transfers to E. Merck KG and changes in reserves –261.1 –177.8
Changes in liabilities to E. Merck KG 150.6 –32.6
Bonds issued 3,181.7 976.1
Repayment of bonds –500.0 –
New borrowings of other current and non-current financial liabilities 84.4 7.6
Repayments of other current and non-current financial liabilities –32.0 –31.3
Net cash flows from financing activities [37] 2,537.5 637.2

Changes in cash and cash equivalents 437.7 –152.2

Changes in cash and cash equivalents due to currency translation –34.2 0.9
Cash and cash equivalents as of January 1 541.4 692.7
Cash and cash equivalents as of December 31 944.9 541.4
Less cash and cash equivalents included in assets held for sale –1.2 –
Cash and cash equivalents as of December 31  
(Group balance sheet) [38] 943.7 541.4
 Company Management Report Corporate governance Consolidated Financial Statements More information 139
Cash Flow Statement
Free Cash Flow
Statement of Comprehensive Income

Free Cash Flow of the ­­Merck Group

Part of the Notes, for details see page 185

EUR million Note 2010 2009

Net cash flows from operating activities 1,782.6 1,371.3
Purchase of intangible assets –104.2 –96.6
Purchase of property, plant and equipment –396.2 –467.3
Acquisitions –4,843.7 –23.5
Investments in financial assets –16.0 –16.5
Disposal of non-current assets 54.8 45.4
Purchase/sale of marketable securities 0.2 –0.4
Free cash flow [39] –3,522.5 812.4

Acquisition-related payments 4,941.9 23.5

Payments related to divestments 250.4 15.7
Underlying free cash flow [39] 1,669.8 851.6

Statement of Comprehensive Income

of the ­­Merck Group

EUR million Note 2010 2009

Profit after tax 641.5 376.7
Available-for-sale financial assets [34]
Fair value adjustments –6.5 37.9
Reclassification to income statement –17.1 –2.0
Deferred taxes 1.8 –2.1
Changes recognized in equity –21.8 33.8
Derivative financial instruments [34]
Fair value adjustments –125.3 47.5
Reclassification to income statement 17.2 –64.8
Reclassification to assets –24.4 –
Deferred taxes 23.9 0.7
Changes recognized in equity –108.6 –16.6
Actuarial gains and losses from defined
benefit obligations and similar obligations [33]
Changes in actuarial gains and losses –170.7 –178.1
Deferred taxes 28.5 40.3
Changes recognized in equity –142.2 –137.8
Exchange differences on translating foreign operations [34] 840.5 –20.1
Gains/losses recognized immediately in equity 567.9 –140.7
Comprehensive income 1,209.4 236.0
of which attributable to shareholders of the parent company 1,194.4 230.2
of which attributable to non-controlling interest 15.0 5.8
140 Merck Annual Report 2010

Statement of Changes in Ne t Equit y including

Non-Controlling Interest of the ­­Merck Group
For details see Note [34]

Equity capital Reserves

Capital  Equity at-
General  reserves  Retained  Gains/losses  tributable to Non-
partner’s  Subscribed  (share  earnings/  Actuarial recognized  shareholders con-
equity  capital  premium)  Net retained  gains and immediately  of the parent trolling
EUR million Merck KGaA Merck KGaA Merck KGaA profit losses in equity company interest Equity
Balance as of
January 1, 2009 397.2 168.0 3,813.7 4,642.3 –90.3 574.5 9,505.4 57.6 9,563.0
Profit after tax – – – 366.3 – – 366.3 10.4 376.7
Gains/losses recognized
immediately in equity – – – – –137.8 1.7 –136.1 –4.6 –140.7
Comprehensive income – – – 366.3 –137.8 1.7 230.2 5.8 236.0
Dividend payments – – – –96.9 – – –96.9 –7.9 –104.8
Profit transfers to/from
E. Merck KG including
transfers to reserves – – – –177.8 – – –177.8 – –177.8
Changes in scope of
consolidation/Other – – – –0.2 –0.6 – –0.8 –2.0 –2.8
Balance as of  
December 31, 2009 397.2 168.0 3,813.7 4,733.7 –228.7 576.2 9,460.1 53.5 9,513.6

Balance as of
January 1, 2010 397.2 168.0 3,813.7 4,733.7 –228.7 576.2 9,460.1 53.5 9,513.6
Profit after tax – – – 632.1 – – 632.1 9.4 641.5
Gains/losses recognized
immediately in equity – – – – –141.9 704.2 562.3 5.6 567.9
Comprehensive income – – – 632.1 –141.9 704.2 1,194.4 15.0 1,209.4
Dividend payments – – – –64.6 – – –64.6 –21.5 –86.1
Profit transfers to/from
E. Merck KG including
transfers to reserves – – – –261.1 – – –261.1 – –261.1
Changes in scope of
consolidation/Other – – – 0.8 0.2 – 1.0 –5.0 –4.0
Balance as of  
December 31, 2010 397.2 168.0 3,813.7 5,040.9 –370.4 1,280.4 10,329.8 42.0 10,371.8
 Company Management Report Corporate governance Consolidated Financial Statements More information 141
Statement of Changes in Net Equity
including Non-Controlling Interest
Notes

Notes
Company information The accompanying consolidated financial statements have been prepared with ­­Merck KGaA,
­Darmstadt, which manages the operations of the ­­Merck Group, as parent company. In accordance
with the provisions of the ­German financial reporting disclosure law (Publi­zitäts­ge­setz), consoli-
dated financial statements are also p­ repared for E. Merck KG, the ultimate parent company and
general partner of Merck KGaA with an equity interest of 70.27% as of December 31, 2010. These
include ­Merck KGaA and its subsidiaries. The authoritative German versions of these financial
statements are filed with the electronic German Federal Gazette (elektronischer ­Bundesanzeiger)
and can then be accessed at www.ebundesanzeiger.de.

Reporting principles The consolidated financial statements of the ­Merck Group have been prepared in a­ ccordance with
consistent accounting policies. Pursuant to section 315a of the German Commercial Code (HGB),
the International Financial Reporting Standards (IFRS) in force on the reporting date and adopted
by the European Union as issued by the International Accounting Standards Board (IASB) and the
IFRS Interpretations Committee have been applied.

The following amendments to standards and the following interpretations take effect as of
f­ iscal 2010:
– Amendment to IAS 27 “Consolidated and Separate Financial Statements”
– Amendment to IAS 39 “Financial Instruments: Recognition and Measurement: Eligible Hedged
Items”
– Revised version and subsequent amendment to IFRS 1 “First-time Adoption of International
Financial Reporting Standards”
– Amendment to IFRS 2 “Share-based Payment“
– Revised version of IFRS 3 “Business Combinations “
– “Improvements to International Financial Reporting Standards“ (issued by the IASB in April 2009)
– IFRIC 12 ”Service Concession Arrangements”
– IFRIC 15 “Agreements for the Construction of Real Estate”
– IFRIC 16 “Hedges of a Net Investment in a Foreign Operation”
– IFRIC 17 “Distributions of Non-cash Assets to Owners”
– IFRIC 18 “Transfers of Assets from Customers”

The revised version of IFRS 3 was applied to the first-time consolidation of Millipore.
The major consequence of this was recognizing acquisition-related costs as expenses.
Details on the first-time consolidation of Millipore can be found under “Scope of consolidation”.
The other new rules do not have any material effects on the consolidated financial statements.
142 Merck Annual Report 2010

The following amendments to standards as well as the following interpretation and amendment to
an interpretation will take effect as of fiscal 2011:
– Revised version of IAS 24 “Related Party Disclosures“
– Amendment to IAS 32 “Financial Instruments: Presentation – Classification of Rights Issues”
– Amendment to IFRS 1 “First-time Adoption of International Financial Reporting Standards:
Limited Exemption from Comparative IFRS 7 Disclosures for First-Time Adopters”
– IFRIC 19 “Extinguishing Financial Liabilities with Equity Instruments“
– Amendment to IFRIC 14 “IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction“
We currently do not expect the new rules to have any material effects on the consolidated finan-
cial statements.
In addition, the following standard and amendments to standards were published by the Interna-
tional Accounting Standards Board (IASB), but not yet adopted by the EU:
– IFRS 9 “Financial Instruments”
– Amendment to IAS 12 “Income taxes”
– Amendment to IFRS 1 “First-time Adoption of International Financial Reporting Standards”
– Amendment to IFRS 7 “Financial Instruments: Disclosures“
– “Improvements to International Financial Reporting Standards” (issued by the IASB in May 2010)
The effects that IFRS 9, which is expected to be adopted as of 2013, will have on the consolidated
financial statements are currently being examined. We currently do not expect the other new rules
to have any material effects on the consolidated financial statements.

Scope of consolidation

Including the parent company ­Merck KGaA, Darmstadt, 236 (2009: 176) German and foreign
companies are fully consolidated in the annual financial statements of the Merck Group. Of these
companies, 214 (2009: 154) are located abroad. Due to the first-time consolidation of Millipore,
the number of fully consolidated companies increased by 62. Ten companies were consolidated for
the first time due to their formation or increased importance to the Merck Group, and twelve com-
panies were deconsolidated, four of which were the result of a company merger. Four companies
were liquidated; one company was deconsolidated due to secondary importance. In addition, three
companies were deconsolidated as a result of the Théramex divestment. No companies are cur-
rently consolidated on pro rata basis. With the first-time consolidation of Millipore, a further asso-
ciate has been added. Consequently, two associates are now included using the equity method.
 Company Management Report Corporate governance Consolidated Financial Statements More information 143
Notes

Due to secondary importance 27 (2009: 32) subsidiaries are not consolidated. The impact of these
subsidiaries on sales, profit after tax, assets and equity is less than 1% relative to the entire Merck
Group. The interests in subsidiaries not consolidated due to secondary importance are measured at
cost and presented under non-current financial assets. A list of all the Merck Group’s sharehold-
ings can be found in Note [54].

Acquisition of Millipore On July 14, 2010, Merck successfully completed the acquisition of 100% of the shares in Millipore
Corporation, a leading life science company based in Billerica, Massachusetts, USA. The Millipore
companies were then consolidated for the first time in the financial statements of the Merck Group.
The combination with Millipore makes it possible to cover the entire value chain for pharmaceutical
and biopharmaceutical customers. Offering integrated solutions that extend beyond the existing
Merck Chemicals portfolio will create new growth opportunities for Merck. The total purchase
purchase price amounted to EUR 5,137.1 million and was paid in cash. It consists of the payment of
EUR 4,611.9 million for the outstanding shares as well as existing options from stock option plans
and a payment of EUR 525.2 million to buy back the outstanding convertible bond of the Millipore
Corporation. Acquisition-related costs of EUR 31.2 million were incurred, which were reported
under “Other operating expenses” as project costs. On February 28, 2010 Merck had announced its
intention to acquire Millipore for USD 107 in cash per share of Millipore common stock. The closing
followed the approval of the acquisition by Millipore’s shareholders at a special meeting held on
June 3, 2010 and the satisfaction of other customary conditions, including antitrust clearance in
the United States and Europe. Millipore was delisted from the New York Stock Exchange on July 26,
2010. Likewise, an application for deregistration from the U.S. Securities and Exchange Commission
(SEC) was filed on July 26, 2010. The deregistration took effect on October 13, 2010.
144 Merck Annual Report 2010

Within the scope of the following overview of the purchase price allocation in accordance with
IFRS 3, the acquired assets, liabilities and contingent liabilities have been recognized at fair values
in the balance sheet:

Fair value on the 

EUR million acquisition date
Current assets
Cash and cash equivalents, marketable securities and other financial assets 300.0
Inventories 265.5
Receivables 257.0
Other current assets 13.8
836.3
Non-current assets
Goodwill 2,704.4
Other intangible assets 2,559.5
Property, plant and equipment 474.2
Investments at equity 2.2
Other non-current assets 3.2
Deferred tax assets 96.3
5,839.8
Assets 6,676.1

Current liabilities
Current financial liabilities 574.8
Other current liabilities 341.7
916.5
Non-current liabilities
Non-current financial liabilities 288.4
Provisions for pensions and other post-employment benefits 54.9
Other non-current liabilities 20.3
Deferred tax liabilities 790.2
1,153.8
Liabilities 2,070.3
Net assets acquired 4,605.8
Non-controlling interest 6.1
Net assets acquired/purchase price 4,611.9
Equity-like purchase price components (convertible bond) 525.2
Purchase price including convertible bond 5,137.1

The most significant impact of the purchase price allocation on the balance sheet and the income
statement results from the fair value adjustment of intangible assets and inventories. The adjust-
ments to intangible assets relate mainly to the measurement of the existing customer relationships,
technologies, trademarks and brands as well as ongoing development projects. The amortization of
intangible assets resulting from the acquisition of Millipore is disclosed in the income statement
under “Amortization of intangible assets”. Additionally, fair value adjustments totaling EUR 85.8 mil-
lion were made in respect of Millipore inventories acquired as part of the acquisition. The complete
 Company Management Report Corporate governance Consolidated Financial Statements More information 145
Notes

turnover of these inventories by December 31, 2010 led to additional cost of sales, which compares
with the sales generated by the acquired inventories. As a result, sales of the acquired inventories
did not generate any additional income. The gross amounts of the acquired receivables amounted to
EUR 259.7 million as of the acquisition date. The best possible estimate of the irrecoverable debts was
EUR 2.7 million. The deferred tax liabilities disclosed relate in particular to the step-up of intangible
assets and inventories. The remaining difference between the purchase price, including the convert-
ible bond, of EUR 5,137.1 million and fair values of EUR 2,432.7 million is reported as goodwill. Good-
will attributable to non-controlling interest was not capitalized. Goodwill attributable to the share-
holders of Merck KGaA mainly includes the expertise of the workforce, market share increases, as
well as synergies from combining the two companies, and amounts to EUR 2,704.4 million. Synergies
are primarily expected in the areas of administration, purchasing, production as well as by combining
certain subsidiaries abroad. Goodwill is being allocated equally in U.S. dollars and euros because we
expect that the level of synergies and future positive earning contributions will be roughly equivalent
in these two key currency zones. The fair value adjustments made as part of the purchase price
allocation as of December 31, 2010 are still to be considered as preliminary. Only the measurement
of inventories as of the first-time consolidation has been finalized. Accounting-relevant analyses and
calculations have not yet been completed for all other balance sheet items. Therefore, adjustments to
these items could occur in 2011 as a result of new information.
The impact of the consolidation of Millipore on total revenues as well as the operating result was
EUR 640.4 million and EUR –20.8 million, respectively. The operating result also includes amorti-
zation of intangible assets remeasured within the scope of the purchase price allocation as well
as higher cost of sales due to the step-up of the acquired inventories to fair values. Additionally,
restructuring expenses and integration costs of EUR 87.3 million were incurred in 2010.
Had Millipore been included in the consolidated financial statements of the Merck Group as of
January 1, 2010, for the period from January 1 to December 31, 2010, total revenues and profit after
tax would have amounted to EUR 9,974 million and EUR 682 million, respectively. The calculation
of these figures assumed that the adjustments of the book values as a result of the purchase price
allocation would have been identical. Consequently, amortization of intangible assets is included
for twelve months. The step-up of the acquired inventories to fair values – in accordance with the
assumed inventory turnover period – has been taken into consideration in full. The information on
the hypothetical consolidation of the Millipore Group as of January 1, 2010 in the consolidated
financial statements of the Merck Group is required under IFRS and only intended for comparability
purposes. The comparison does not necessarily present a development that would have resulted
had the Millipore Group actually been consolidated as of January 1, 2010. Nor are these statements
intended to project future events or results.

Further acquisitions At the end of December 2010, Merck acquired 100% of the share capital in Beijing Skywing Technol-
ogy Co., Ltd., Beijing, China. The acquired company, which has been assigned to the Merck Millipore
division, is a leading supplier to the Chinese biopharmaceutical industry. The payment of the purchase
price of EUR 13.6 million will be made in 2011 as contractually agreed. Therefore, a corresponding
liability was recognized in the balance sheet as of December 31, 2010. The company will be consoli-
dated for the first time in 2011.
146 Merck Annual Report 2010

Divestment of Théramex Pursuant to a contract dated October 28, 2010, Merck sold Théramex, a Monaco-based pharmaceuti-
cal company specialized in women’s health and gynecology, to Asaph Farmaceutische Onderneming
B.V., Teva Italia S.r.l. and Teva Pharmaceuticals Ltd. (collectively “Teva”). Teva took over all the activities
of Théramex, including 100% of the shares in two subsidiares, for EUR 269.3 million. The contract
was subject to not only the customary closing conditions, but especially the condition precedent
that antitrust clearance be obtained in the respective countries. Antitrust clearance from the French
authorities was granted on December 20, 2010 as the final condition for the closing. The payment of
the purchase price was made on January 5, 2011 as agreed. Consequently, a corresponding receiv-
able was recognized in the balance sheet as of December 31, 2010. The sale includes the marketing
rights to Théramex products in a number of countries, including Spain and Brazil. Merck Serono
will continue to market Théramex products in certain other countries. Apart from the payment of
the purchase price, Merck is entitled to certain performance-related milestone payments. Merck
generated a gain of EUR 68.6 million from the sale, which was disclosed in the income statement
under exceptional items. The divested business of Théramex contributed around EUR 84 million to
Group sales in 2010.

The divestment of Théramex had the following effect on the consolidated balance sheet:

EUR million 2010
Current assets
Cash and cash equivalents 9.2
Receivables 15.8
Inventories 22.4
Other current assets 2.0
49.4
Non-current assets
Goodwill 159.0
Property, plant and equipment 7.3
Other non-current assets 1.5
167.8
Assets 217.2
Current liabilities
Trade accounts payable 10.6
Other current liabilities 5.7
16.3
Non-current liabilities 8.3
Liabilities 24.6
Net assets 192.6

Selling price / receivable 269.3

Gain before transaction costs 76.7
Transaction costs and other costs 8.1
Gain from divestment 68.6
 Company Management Report Corporate governance Consolidated Financial Statements More information 147
Notes

Accounting policies

With the exception of the presentation changes described below, the accounting policies have
remained unchanged in comparison with 2009. In 2010, Merck started to report royalty, license
and commission expenses separately in the income statement. These expenses were so far
reported under marketing and selling expenses.

Assumptions and estimates The preparation of the consolidated financial statements requires that assumptions and estimates
be made to a certain extent. This affects in particular the amount and the presentation of assets and
liabilities, information on contingent liabilities, as well as reported income and expenses. Corre-
sponding scope for discretion results, for example, when performing impairment tests of intangible
assets and of property, plant and equipment, as well as when recognizing and measuring provi-
sions. In each case, the assumptions and estimates are based on the state of knowledge and data
currently available, however the actual results may deviate from the expected values and lead to
corresponding adjustments of book values for the relevant assets and liabilities. The assumptions
and estimates relevant to the preparation of the consolidated financial statements are reviewed on
an ongoing basis. Changes to estimates are taken into account in the period in which the change
was made as well as in later periods insofar as the change relates to both the reporting period and
later periods. The material assumptions and parameters for the estimates made are presented in
the Notes.

Consolidation ­methods The consolidated financial statements are based on the single-entity financial statements of the con-
solidated companies as of December 31, 2010, which were prepared applying consistent accounting
polices in accordance with IFRS.
Acquisitions are accounted for using the purchase method in ­accordance with IFRS 3. Subsidiaries
consolidated for the first time in the reporting period are measured at the carrying values at the time
of acquisition on the basis of corresponding financial statements. Resulting differences are recog-
nized as assets and ­liabilities to the extent that their fair values differ from the values actually carried
in the financial statements. Any remaining difference is recognized as goodwill within intangible
assets, and is subjected to an impairment test if there are indications of impairment, or at least once
a year.
In cases where a company was not acquired in full, the pro rata carrying value of the non-controlling
interest is recognized.
When additional shares in non-controlling interest are acquired, the difference between the purchase
price and the book value of this interest is recognized immediately in equity.
148 Merck Annual Report 2010

Interests in associates over which Merck has significant influence are – as far as they are material –
included in accordance with IAS 28 using the equity method of accounting.
Intragroup sales, expenses and income, as well as all receivables and payables between the consoli-
dated companies, were eliminated. The effects of intragroup deliveries reported under non-current
assets and inventories were adjusted by eliminating any intragroup profits. In accordance with
IAS 12, deferred taxes are applied to these consolidation measures.

Currency translation The functional currency concept applies to the translation of financial statements of consolidated
companies prepared in foreign currencies. The companies of the ­Merck Group conduct their
operations independently. The functional currency of these companies is generally the respective
local currency. In accordance with IAS 21, assets and liabilities are translated at the closing rate,
and income and expenses are translated at weighted average annual rates to euros, the reporting
currency. Any currency translation differences arising during consolidation of Group companies
are taken directly to equity. If Group companies are deconsolidated, existing currency differences
are reversed and recognized in income.
Business transactions that are conducted in currencies other than the functional currency are
recorded using the current exchange rate on the date of the transaction. Foreign currency monetary
items (cash and cash equivalents, receivables and payables) in the single-entity financial statements
of the consolidated companies prepared in the functional currency are translated at the respective
closing rates. Exchange differences from the translation of monetary items are recognized in the
income statement with the exception of net investments in a foreign operation. Hedged items
are like­wise carried at the closing rate in accordance with IAS 21. The resulting gains or losses are
eliminated in the income statement against offsetting amounts from the fair value measurement
of derivatives. Non-monetary items denominated in foreign currencies are carried at historical
cost.
In 2010, the reporting currency of our subsidiary Merck Serono S.A., Geneva, Switzerland, was
changed from Swiss francs to euros. This move reflects the fact that the transactions of this
subsidiary are now primarily conducted in the new reporting currency.

Currency translation is based on the following key exchange rates:

Average annual rate Closing rate

Dec. 31,  Dec. 31, 

1 EUR = 2010 2009 2010 2009
British pound (GBP) 0.858 0.895 0.861 0.888
Chinese renminbi (CNY) 8.995 9.545 8.818 9.807
Japanese yen (JPY) 116.583 130.329 108.670 133.283
Swiss franc ( CHF) 1.380 1.506 1.253 1.485
Taiwanese dollar (TWD) 41.787 45.926 38.938 45.951
U.S. dollar (USD) 1.329 1.396 1.336 1.436
 Company Management Report Corporate governance Consolidated Financial Statements More information 149
Notes

Recognition of sales Sales are recognized net of related taxes as well as revenue-lowering items. They are deemed
and other revenue realized once the goods have been delivered or the services have been rendered and the material
opportunities and risks of ownership have been transferred to the purchaser. The amount of
revenue can be reliably determined and payment is sufficiently probable. When sales are recog-
nized, estimated amounts are set aside for expected revenue-lowering items, for example rebates,
discounts and returns.
In addition to revenue from the sale of goods, sales also include revenue from services, but the
volume involved is insignificant. Depending on the substance of the relevant agreements, royalty,
license and commission income is recognized either immediately or on an accrued basis if further
contractual obligations exist.
Dividend income is recognized when the shareholders’ right to receive the dividend is established.
This is normally the date of the ­dividend resolution. Interest income is recognized on a time-propor-
tionate basis using the effective rate method.

Research and development The breakdown of research and development costs by division and region is presented under Seg-
ment Reporting. In addition to the costs of research departments and process development, this
item also includes the cost of purchased services and the cost of clinical ­trials. The costs of research
and development are expensed in full in the period in which they are incurred. Development
expenses in the Pharmaceuticals business sector cannot be capitalized since the high level of risk up
to the time that pharmaceutical products are marketed means that the requirements of IAS 38 are
not satisfied in full. Costs incurred after regulatory approval are insignificant. In the same way, the
risks involved until products are marketed means that development expenses in the Chemicals busi-
ness sector cannot be capitalized. In addition to our own research and development, ­Merck is also
a partner in collaborations aimed at developing marketable products. These collaborations typically
involve payments for the achievement of certain milestones.
With respect to this situation, an assessment is required as to whether these upfront or milestone
payments represent compensation for services performed (research and development expense) or
whether the payments represent the acquisition of a right which has to be capitalized. Reimburse-
ments for R & D are offset against research and development costs.

Financial instruments: A financial instrument is any contract that gives rise to both a financial asset of one entity and
Principles a financial liability or equity instrument of another entity. A distinction is made between non-
derivative and derivative financial instruments.
Derivatives can be embedded in other financial instruments or in non-financial instruments.
Under IFRS, an embedded derivative must be separated from the host contract and accounted for
separately at fair value if the economic characteristics of the embedded derivative are not closely
related to the economic characteristics of the host contract. Merck did not have any separable
embedded derivatives during the fiscal year. Issued compound financial instruments with both an
equity and a liability component must be recognized separately depending on their characteristics.
Merck was not a party to hybrid or compound financial instruments during the fiscal year. As a
rule, Merck accounts for regular way purchases or sales of financial instruments at the settlement
date and derivatives at the trade date.
150 Merck Annual Report 2010

Financial assets and financial liabilities are generally measured at fair value on initial recognition,
if necessary including transaction costs. The fair value of a financial instrument is the amount
which would be agreed by two willing, independent parties in an arm’s length transaction for that
financial instrument. If quoted prices in an active market are available, they are used to measure
the financial instrument. In other cases, generally accepted financial techniques using observable
prices on the market or third-party valuations are used.
Financial assets are derecognized in part or in full if the contractual rights to the cash flows from
the financial asset have expired or if control and substantially all the risks and rewards of ownership
of the financial asset have been transferred to a third party. Financial liabilities are derecognized if
the contractual obligations have been discharged, cancelled, or expire.

Financial instruments: Financial assets and liabilities are classified into the following IAS 39 measurement categories and
Categories and classes of IFRS 7 classes.
financial instruments “Financial assets and financial liabilities at fair value through profit or loss” can be both non-deriv-
ative and derivative financial instruments. Financial instruments in this category are subsequently
measured at fair value. Gains and losses on financial instruments in this measurement category
are recognized directly in the income statement. This measurement category includes an option
to designate non-derivative financial instruments as at “fair value through profit or loss” on initial
recognition (fair value option) or as “financial instruments held for trading”. We did not apply the
fair value option during the fiscal year.
Merck only assigns derivatives to the “held for trading” measurement category. Special accounting
rules apply to derivatives that are designated as hedging instruments in a hedging relationship
(hedge accounting).
“Held-to-maturity investments” are non-derivative financial assets with fixed or determinable
payments and fixed maturity that are quoted in an active market. To be able to assign a financial
asset to this measurement category, the entity must have the positive intention and ability to
hold it to maturity.
These investments are subsequently measured at amortized cost. If there is objective evidence that
such an asset is impaired, an impairment loss is recognized in profit or loss. Subsequent reversals
of impairment losses are also recognized in profit or loss up to the amount of the original cost of
the asset. At Merck, this measurement category is used for short-term securities and other current
financial assets, as well as long-term investments.
“Loans and receivables” are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. They are subsequently measured at amortized cost. If there
is objective evidence that such assets are impaired, an impairment loss is recognized in the income
statement. Subsequent reversals of impairment losses are also recognized in the income statement
up to the amount of the original cost of the asset. Long-term non-interest-bearing and low-
interest receivables are measured at their present value. Merck primarily assigns trade receivables,
loans, and miscellaneous other current and non-current receivables to this measurement category.
Merck uses a separate allowance account for impairment losses on trade and other receivables.
 Company Management Report Corporate governance Consolidated Financial Statements More information 151
Notes

“Available-for-sale financial assets” are those non-derivative financial assets that are not assigned
to the measurement categories “financial assets and financial liabilities at fair value through profit
or loss”, “loans and receivables” or “held-to-maturity investments”. Financial assets in this category
are subsequently measured at fair value. Changes in fair value are recognized immediately in equity
and are only transferred to the income statement when the financial asset is derecognized. If there
is objective evidence that such an asset is impaired, an impairment loss is recognized immediately in
the income statement, including any amounts already recognized in equity. Reversals of impairment
losses on previously impaired equity instruments are recognized immediately in equity.
Reversals of impairment losses on previously impaired debt instruments are recognized in profit or
loss up to the amount of the impairment loss. Any amount in excess of this is recognized directly
in equity. At Merck, this measurement category is used in particular for short-term securities and
other current financial assets, as well as long-term financial investments and securities.
Financial assets in this category for which no fair value is available or fair value cannot be reliably
determined are measured at cost less any cumulative impairment losses. Impairment losses on
financial assets carried at cost may not be reversed.
“Other financial liabilities” are non-derivative financial liabilities that are subsequently measured at
amortized cost. Differences between the amount received and the amount to be repaid are amortized
to profit or loss over the maturity of the instrument. Merck primarily assigns financial liabilities, trade
payables, and miscellaneous other non-derivative current and non-current liabilities to this category.
There were no reclassifications between the aforementioned measurement categories during the
fiscal year.
The classes required to be disclosed in accordance with IFRS 7 consist of the measurement categories
set out above. Additionally, cash and cash equivalents with an original maturity of up to 90 days,
finance lease liabilities, and hedging derivatives used in hedge accounting are also classed in accor-
dance with IFRS 7. See Note [42] for a detailed overview.

Financial instruments: Merck uses derivatives solely to hedge recognized assets or liabilities and forecast transactions.
Derivative and hedge Hedge accounting in accordance with IFRS is applied to part of these hedges. A distinction is made
accounting between fair value hedge accounting and cash flow hedge accounting. As a rule, designation of
a hedging relationship requires a hedged item (underlying) and a hedging instrument specifically
assigned to that hedged item. At Merck, all hedges relate to existing or highly probable hedged
items. Merck only uses derivatives as hedging instruments.
152 Merck Annual Report 2010

Changes in the fair value or cash flows of the hedged item and the hedging instrument must be
effective at all times. In both cash flow and fair value hedges, the ineffective portion of the gain or
loss on a hedging instrument is recognized in profit or loss. Merck uses the dollar offset method to
measure hedge effectiveness. There are strict documentation requirements for hedge accounting.
Derivatives that do not or no longer meet the documentation or effectiveness requirements for hedge
accounting, or whose hedged item no longer exists, are reported as “financial assets and liabilities
at fair value through profit or loss.” Changes in fair value are then recognized in profit or loss.
As a rule, the purpose of a fair value hedge is to offset the exposure to changes in the fair value of
recognized hedged items (financial assets or financial liabilities) through offsetting changes in the
fair value of a hedging instrument. Offsetting gains and losses on the hedging instrument resulting
from changes in fair value are recognized in profit or loss, net of deferred taxes. Offsetting gains
and losses on the hedged item that are attributable to the hedged risk are also recognized in profit
or loss, irrespective of the item’s allocation to a measurement category.
At Merck, cash flow hedges are normally a hedge of the exposure to variability in cash flows resulting
from highly probable forecast transactions in foreign currencies. In cash flow hedges, the effective
portion of the gains and losses on the hedging instrument is recognized in equity until the hedged
item occurs. This is also the case if the hedging instrument expires, is sold, or is terminated before the
hedged transaction occurs. The ineffective portion of a cash flow hedge is always recognized in profit
or loss. See Note [40] for a detailed overview.

Other non-financial Other non-financial assets are carried at amortized cost. Impairment losses are recognized for any
assets and liabilities credit risks. Long-term non-interest-bearing and low-interest receivables are carried at their pres-
ent value. Other non-financial liabilities are carried at the amount to be repaid.

Inventories Inventories are carried at cost using the weighted average method. In accordance with IAS 2, in
addition to directly attributable unit costs, manufacturing costs also include overheads attributable
to the production process, including an appropriate share of depreciation charges on production
facilities, which are determined on the basis of ­normal capacity utilization of the production facilities.
Inventories are written down if the net realizable value is lower than the acquisition or manu­
facturing cost carried in the balance sheet.

Intangible assets Acquired intangible assets are recognized at cost and are classified as assets with finite and
indefinite useful lives. Self-developed intangible assets are not capitalized. Intangible assets with
indefinite useful lives acquired in the course of business combinations are recognized at fair value
on the date of acquisition. This includes purchased goodwill and intangible assets used in products
that have not yet reached market maturity. Intangible assets with indefinite useful lives are not
amortized, however they are tested for impairment when a triggering event arises or at least once
a year. Goodwill is tested for impairment either annually or if there are indications of impair-
ment, and is allocated to cash-generating units. A cash-generating unit is normally a division as
presented under Segment Reporting.
Company Management Report Corporate governance Consolidated Financial Statements More information 153
Notes

The carrying amounts of the cash-generating units are compared with their recoverable amounts
and impairment losses are recognized where the recoverable amount is lower than the carrying
amount. The recoverable amount of a cash-­genera­ting unit is determined as the higher of fair value
less costs to sell and value in use estimated using the discounted cash flow method. When measur-
ing goodwill, Merck determines the recoverable amount by discounting expected cash flows and
therefore uses the value in use method. Initially, reference is made to existing forecasts that usually
cover a period of four years. Cash flows for periods in excess of this are included using a long-term
growth rate of 1.0% that is applied uniformly to all cash-generating units, with the exception of
Merck Millipore. Business plans assuming growth rates of 3.8% were used to measure the goodwill
of the Merck Millipore division in order to take the specific business and the imminent growth pros-
pects thereof into account. The expected future cash flows are discounted using a weighted average
cost of capital (WACC) of 8.5% (2009: 7.5%). A 10% reduction in future cash flows was assumed
when calculating sensitivity. We regard greater volatility as unlikely based on our experience. Even if
the actual future cash flows were 10% lower than the expected cash flows, there would be no need
to record impairment losses for goodwill.
Any impairment losses on other intangible assets with indefinite useful lives are calculated in the
same way as for goodwill.
Impairment losses recognized on indefinite-lived intangible assets other than goodwill are reversed
if the original reasons for impairment no longer apply. Intangible assets with a finite useful life are
depreciated using the straight-­line method. The useful lives of acquired patents, licenses and similar
rights, brand names, trademarks and software are between 3 and 15 years. Amortization of intan-
gible assets other than software is reported separately. This item primarily comprises amortization
in connection with the Serono and Millipore purchase price allocations, but also to a certain extent
amortization of other intangible assets. Amortization of software is allocated to the functional
costs in the income statement.
An impairment test is performed if there are indications of impairment. Impairment losses are
determined using the same methodology as for indefinite-lived intangible assets. Impairment losses
recognized on finite-lived intangible assets are reversed if the original reasons for impairment no
longer apply.
154 Merck Annual Report 2010

Property, plant Property, plant and equipment is carried at the cost of acquisi­tion or manufacture less depreciation.
and ­equipment The component approach is applied here in accordance with IAS 16. Sub­sequent acquisition and
manufacturing costs are only capitalized if it is probable that future economic benefits will arise
for the Group and the cost of the asset can be measured reliably. The cost of manufacture of self-
constructed property, plant and equipment is calculated on the basis of the directly attributable unit
costs and an appropriate share of overheads, including depreciation and write-downs. Financing
costs are capitalized if material. In accordance with IAS 20, costs of acquisition or manufacture are
reduced by the amount of government grants in those cases where government grants or subsi-
dies have been paid for the acquisition or manufacture of assets (investment grants). Grants related
to expenses which no longer offset future expenses are recognized in income. Property, plant and
equipment is depreciated by the straight-line method over the useful life of the asset concerned.
Depreciation of property, plant and equipment is based on the following useful lives:

Useful life of property, plant and equipment Useful life

Production buildings maximum of 33 years
Administration buildings maximum of 40 years
Plant and machinery 6 to 20 years
Other facilities 3 to 10 years
Operating and office equipment 3 to 10 years

The useful lives are reviewed regularly and adjusted if necessary. If indications of a decline in value
exist, an impairment test is performed. The determination of the possible need to recognize impair-
ments proceeds in the same way as for intangible assets. If the reasons for an impairment loss no
longer exist, a write-up is recorded.

Investment property Assets of this category are of minor importance to the ­Merck Group and are carried at cost. As of
December 31, 2010, an investment property with a value of EUR 5.5 million (2009: EUR 5.3 million)
was concerned. It was recognized under “Land, land rights and buildings including buildings on
third-party land”.

Leasing Where assets are leased and economic ownership lies with the Group company (finance lease), the
asset is recognized at the present value of the lease payments or the lower fair value in accordance
with IAS 17 and depreciated over its useful life. The corresponding payment obligations from future
lease payments are recorded as liabilities.
 Company Management Report Corporate governance Consolidated Financial Statements More information 155
Notes

Deferred taxes Deferred tax assets and liabilities result from temporary differences of consolidated companies
between the carrying amount of an asset or liability in the balance sheet and its tax base as well
as from consolidation activities, as far as the carrying amount of the asset or liability is recovered
or settled in future periods. In addition, deferred tax assets are recorded in particular for tax loss
carryforwards if and insofar as their utilization is probable in the foreseeable future. In ­accordance
with the liability method, the tax rates enacted and published as of balance sheet date are used.

Provisions Provisions are recognized in the balance sheet if Merck has a present obligation (legal or construc-
tive) as a result of a past event, it is probable that an outflow of resources will be required to settle
the obligation and the amount of the obligation can be measured reliably. The carrying value of
provisions takes into account the amounts required to cover future payment obligations, recogniz-
able risks and uncertain obligations of the Merck Group to third parties. Measurement is based on
the settlement amount with the highest probability or if the probabilities are equivalent, it is based
on the expected value of the settlement amounts. Long-term provisions are discounted and carried
at their present value as of the balance sheet date. To the extent that reimbursement claims exist as
defined in IAS 37, they are recognized separately as an asset if their realization is virtually certain.

Provisions for pensions Provisions for pensions and other post-employment benefits are recorded in the balance sheet
and other post- in accordance with IAS 19. Depending on the legal, economic and fiscal circumstances prevailing
employment benefits in each country, different retirement benefit systems are provided for the employees of the Merck
Group. As a rule, these systems are based on length of service and salary of the employees. Pension
obligations of the Merck Group include both defined benefit and defined contribution plans and
comprise both obligations from current pensions and accrued benefits for pensions payable in the
future. In the Merck Group, defined benefit plans are funded and unfunded. The bulk of obligations
from current pensions and accrued benefits for pensions payable in the future is covered by the
provisions disclosed here. The smaller portion is covered by funded pension obligations. These
provisions also contain other post-employment benefits, such as accrued future health care costs
for pensioners in the United States.
The obligations of our companies under defined benefit plans are measured using the projected
unit credit method. Under the projected unit credit method, dynamic parameters are taken into
account in calculating the expected benefit payments after an insured event occurs; these pay-
ments are spread over the entire period of service of the participating employees. Annual actuarial
opinions are prepared for this purpose. In accordance with the option under IAS 19.93A, actuarial
gains and losses resulting from changes in actuarial assumptions and/or experience adjustments
(the effects of differences between the previous actuarial assumptions and what has actually
occurred) are recognized immediately in equity as soon as they are incurred, taking deferred taxes
into account. Consequently, the balance sheet discloses the full scope of the obligations while
avoiding the fluctuations in expenses that can result especially when the calculation parameters
change. The actuarial gains and losses recorded in the respective reporting period are presented
separately in the Statement of Comprehensive Income.
156 Merck Annual Report 2010

Notes to the income statement

[1] Sales are generated primarily from the sale of goods and to a limited degree include revenues
Sales from services rendered. Merck Group sales totaled EUR 8,928.9 million in 2010, which represents
an increase of 21.0% compared to 2009. Adjusted for the impact of currency and acquisitions,
primarily as a result of the Millipore acquisition, organic growth amounted to 8.5%. Sales are
presented by business sector, division and region in the Segment Reporting.

[2] In 2010, royalty and license income totaled EUR 339.4 million (2009: EUR 344.9 million) and
Royalty, license and mainly included royalty and license income from the products Avonex ® (Biogen Idec), Humira ®
commission income (Abbott), Enbrel ® (Amgen), Puregon ® (Merck & Co.) and vilazodone (Clinical Data), as well as
income from the active pharmaceutical ingredients bisoprolol and metformin.
In 2010, commission income totaled EUR 22.3 million (2009: EUR 24.4 million). This primarily
consisted of cooperation and distribution agreements, such as for Ikorel ® (Sanofi-Aventis),
Euthyrox ® (Bracco) and Allergan products. The breakdown of royalty, license and commission
income by business sector and division is presented in the Segment Reporting.

[3] Cost of sales includes the cost of manufactured products as well as goods purchased for resale.
Cost of sales In accordance with IAS 2, the cost comprises overheads directly attributable to the production
process, including depreciation charges on production facilities, in addition to directly attributable
costs, such as the cost of mate­rials, personnel and energy. We also disclose write-downs of inven-
tories as part of cost of sales. The Millipore inventories from the acquisition were stepped up by
EUR 85.8 million to fair values as of the first-time consolidation. This amount was fully expensed
in cost of sales in the second half of 2010 and had a one-time negative impact on gross margin.

[4] In addition to the cost of sales and marketing departments and of the sales force, marketing and
Marketing and selling expenses include advertising and logistics. The increase comparied to 2009 is due largely
selling expenses to the first-time consolidation of Millipore. The breakdown of marketing and selling expenses by
business sector and division is presented in the Segment Reporting.

[5] In 2010, royalty and license expenses amounted to EUR 179.5 million (2009: EUR 156.2 million)
Royalty, license and and commission expenses totaled EUR 297.5 million (2009: EUR 256.8 million). The breakdown
commission expenses of royalty, license and commission expenses by business sector and division is presented in the
Segment Reporting.

[6] Personnel costs and material expenses of management and administra­tive functions are recorded
Administration expenses under this item unless they have been charged to other cost centers as internal services. The increase
in administration expenses is due among other things to the first-time consolidation of Millipore as
well as currency effects. The breakdown of administration expenses by business sector and division
is presented in the Segment Reporting.
 Company Management Report Corporate governance Consolidated Financial Statements More information 157
Notes

[7] Other operating expenses and income comprise the following:

Other operating
­expenses and income
EUR million 2010 2009
Litigation –89.2 –166.9
Project costs –79.2 –69.3
Impairment losses –65.5 –37.9
Restructuring and integration costs –64.4 –14.5
Bonuses, fees and contributions –52.8 –46.7
Non-income-related taxes –23.7 –19.5
Write-downs of receivables –19.7 –30.8
Special environmental protection costs –10.7 –4.6
Losses on disposals of assets –3.0 –5.5
Exchange rate differences from operating activities – –6.6
Other operating expenses –118.6 –64.7
Total other operating expenses –526.8 –467.0

Gains from disposals of assets 37.6 10.7

Payments for services performed 26.8 17.3
Exchange rate differences from operating activities 24.7 –
Release of write-downs of receivables 10.0 2.9
Write-ups – 0.2
Other operating income 37.3 63.2
Total other operating income 136.4 94.3

Other operating expenses and income –390.4 –372.7

Integration costs for Millipore totaled EUR 87.3 million, of which EUR 33.9 million was recorded
under “Project costs”. This includes acquisition-related costs of EUR 31.2 million. A further
EUR­ 53.4 million was recorded under “Restructuring and integration costs.” This amount includes
impairment losses on property, plant and equipment amounting to EUR 5.7 million. In addition to
the costs in connection with the acquisition of Millipore, project costs relate mainly to the costs
incurred in connection with Group-wide IT projects. These include, for example, projects to har-
monize IT applications and infrastructure throughout the Group. The increase in impairment losses
compared to 2009 is primarily attributable to the termination of research projects and research
collaborations, as well as altered market estimates and the resulting decline in expected sales.
Property, plant and equipment accounted for impairment losses of EUR 18.0 million and intangible
assets for EUR 47.5 million. Other operating expenses include, among other things, expenses
for services performed for third parties as well as costs from ancillary business. Other operating
income includes, among other things, income from ancillary business such as rental and leasing
agreements as well as income from catering services. The breakdown of other operating expenses
and income by business sector and division is presented in the Segment Reporting.
158 Merck Annual Report 2010

[8] Research and development costs rose in 2010 by 3.9% to EUR 1,397.1 million. The increase relates
Research and entirely to the Chemicals divisions, including Merck Millipore. Reimbursements for R & D amounting
­development to EUR 21.9 million (2009: EUR 13.3 million) were offset against research and development costs.
The breakdown of research and development costs by business sector and division is presented in
the Segment Reporting.

[9] Due to the particular significance of the amortization of intangible assets, this item is disclosed
Amortization of separately in the income statement. It primarily comprises amortization and impairment losses in
intangible assets connection with the purchase price allocations resulting from the Serono and Millipore acquisitions.
In 2010, this amount includes EUR 579.4 million for the amortization of intangible assets of Merck
Serono and EUR 95.8 million for the first-time amortization of intangible assets of Merck Millipore.
Additionally, impairment losses of EUR 134.0 million were incurred owing to a reassessment of the
future sales potential of safinamide. The reassessment was based on the results of a Phase III study
conducted by our development partner Newron, which led to a reevaluation of the market potential,
especially with regard to the achievable indications. The decision also takes into account a delay in
the project and an increase in R&D costs due to more stringent regulatory requirements. To a lesser
extent this item also includes amortization of other intangible assets, for example from milestone
payments. Amortization of software is allocated to functional costs instead.

[10]
Investment result
EUR million 2010 2009
Investment result from associates (equity method) 0.9 0.1
Other investment income/expense 3.2 3.4
4.1 3.5

[11] Exceptional items comprise:

Exceptional items
EUR million 2010 2009
Gain from divestment of Théramex 68.6 –
Litigation Dey Inc., USA –67.2 –
Selling price adjustments for the Electronic Chemicals business –1.2 –
Transaction costs divestment of the Crop BioScience business –1.0 –
Exit cost Raptiva ® – –39.7
Divestment of natural substances business in Brazil – 10.6
Release of provisions – 1.1
Exceptional items –0.8 –28.0

The gain on the sale of Théramex amounting to EUR 68.6 million is recorded under this item. More
information on this transaction can be found under “Scope of consolidation”. In connection with
litigation relating to our former subsidiary Dey Inc., USA, having allegedly reported certain price
information falsely, a settlement payment was made to the U.S. Department of Justice in 2010. The
resulting expenses of EUR 67.2 million were recorded as an exceptional item. Although Dey Inc. was
transferred to Mylan, Inc., USA, as part of the sale of the Generics business in 2007, Merck remains
liable to Mylan for the costs of this litigation (see Note [32]).
 Company Management Report Corporate governance Consolidated Financial Statements More information 159
Notes

Transaction costs of EUR 1.0 million already incurred in 2010 in relation to the announced divest-
ment of the Crop BioScience business are likewise included under this item.
In 2010, “Exceptional items” also include expenses of EUR 1.2 million related to the sale of the
Electronic Chemicals business in 2005. This figure includes reimbursements of subsequent taxes to
the buyer.
The breakdown of exceptional items by business sector and division is presented in the Segment
Reporting.

[12] The change in the financial result is mainly attributable to the interest expenses arising in connec-
Financial result tion with the financing of the Millipore acquisition.

EUR million 2010 2009

Interest income and similar income 33.0 33.6
Interest expenses and similar expenses –208.9 –88.7
Interest component from currency hedging transactions –11.8 –3.3
–187.7 –58.4

Interest component of the additions to pension provisions

and other non-current provisions –72.2 –74.4
Exchange rate differences from financing activities 1.1 –3.8
Income from financial interests 7.2 2.1
–251.6 –134.5

[13]
Income tax
EUR million 2010 2009
Current taxes in the period –329.8 –270.8
Current taxes in the period on exceptional items –0.1 6.1
Taxes for previous periods –8.8 –6.3
Deferred taxes in the period 120.5 166.2
Deferred taxes in the period on exceptional items –1.4 –4.9
–219.6 –109.7

Tax ratio 25.5% 22.6%

Tax ratio before exceptional items 25.3% 21.6%

The tax expense consists of corporation and trade income taxes for the companies domiciled in
­Germany as well as comparable income taxes for foreign companies. Changes in tax rates at indi-
vidual companies resulted in total deferred tax expense of EUR –0.1 million (2009: EUR 2.6 million
tax income).
160 Merck Annual Report 2010

The reconciliation between deferred tax assets and liabilities shown in the balance sheet and
deferred taxes in the income statement is presented below:

EUR million 2010 2009

Change in deferred tax assets (balance sheet) 47.7 65.3
Change in deferred tax liabilities (balance sheet) –617.0 132.7
Deferred taxes credited/debited to equity –54.2 –38.9
Changes in scope of consolidation/currency translation/Other changes 742.6 2.2
Deferred taxes (income statement) 119.1 161.3

At EUR 693.9 million, “Changes in scope of consolidation/currency translation/Other changes” are

mainly due to the first-time consolidation of Millipore. The other changes were primarily the result
of fluctuations in the exchange rates of the U.S. dollar and the Swiss franc.

Tax loss carryforwards are structured as follows:

Dec. 31, 2010 Dec. 31, 2009
EUR million Germany Abroad Total Germany Abroad Total
Tax loss carry-
forwards 2.0 194.2 196.2 164.3 121.9 286.2
thereof:
Including de-
ferred tax asset – 125.7 125.7 98.2 32.4 130.6
Deferred tax
asset – 39.2 39.2 14.5 8.3 22.8
thereof:
Excluding de-
ferred tax asset 2.0 68.5 70.5 66.1 89.5 155.6
Theoretical de-
ferred tax asset 0.5 20.5 21.0 10.5 17.1 27.6

The decrease in tax loss carryforwards compared to 2009 was mainly the result of the positive
business development of the relevant Group companies. Deferred tax assets are recognized for
tax loss and interest carryforwards only if realiza­tion of the related tax benefits is probable in the
foreseeable future.
The vast majority of the tax loss carryforwards either has no expiry date or can be carried forward for
up to 20 years. The interest carryforward results from the German earnings stripping rule and has no
expiry date. Deferred tax assets on interest carryforwards from 2009 amounting to EUR 7.5 million
were fully utilized in 2010. In 2010, the income tax expense was reduced by EUR 20.0 million (2009:
EUR 15.6 million) due to the utilization of tax loss carryforwards from prior years for which no
deferred tax asset had been recognized in prior periods.
The tax loss carryforwards accumulated in Germany for corporation tax amounted to EUR 1.5 mil-
lion (2009: EUR 73.8 million) and to EUR 0.5 million (2009: EUR 90.5 million) for trade tax.
The additional theoretically possible deferred tax assets amounted to EUR 21.0 million (2009:
EUR 27.6 million).
Company Management Report Corporate governance Consolidated Financial Statements More information 161
Notes

Deferred tax assets and liabilities correspond to the following balance sheet items:
Dec. 31, 2010 Dec. 31, 2009
EUR million Assets Liabilities Assets Liabilities
Intangible assets 33.7 1,374.3 31.8 704.2
Property, plant and equipment 15.6 88.1 7.3 68.2
Current and non-current financial assets 5.9 19.3 2.6 15.7
Inventories 305.6 3.7 242.0 5.0
Current and non-current receivables/
Other assets 44.6 2.8 22.4 11.9
Provisions for pensions and other post-
employment benefits 129.7 18.1 87.2 11.9
Current and non-current other provisions 169.4 15.2 172.0 9.4
Current and non-current liabilities 27.8 5.8 17.6 6.1
Tax loss carryforwards 39.2 – 22.8 –
Tax refund claims/Other 58.2 89.8 20.0 11.4
Offset deferred tax assets and liabilities –236.6 –236.6 –80.3 –80.3
Total deferred taxes 593.1 1,380.5 545.4 763.5

Deferred tax liabilities of EUR 16.7 million (2009: EUR 11.4 million) were set up for temporary
differences for interests in subsidiaries. These relate to planned dividend payments. Additionally,
a deferred tax claim of EUR 3.0 million was recognized for the announced divestment of Crop
BioScience. No deferred tax liabilities were recognized for other temporary differences since the
reversal of these differences is not foreseeable.
In addition to deferred tax assets on tax loss carryforwards, deferred tax assets of EUR 553.9 mil-
lion (2009: EUR 522.6 million) were recognized for other temporary differences.
The following table presents the tax reconciliation from theoretical tax expense to tax expense
before exceptional items and tax expense according to the income statement. The theoretical tax
expense is determined by applying the statutory tax rate of 30.7% of a corporation headquartered
in Darmstadt.
162 Merck Annual Report 2010

EUR million 2010 2009

Consolidated profit before tax 861.1 486.4
Exceptional items –0.8 –28.0
Consolidated profit before tax and exceptional items 861.9 514.4

Tax rate 30.7% 30.7%

Theoretical tax expense before exceptional items –264.6 –157.9
Tax rate differences 45.7 4.8
Tax effect of companies with a negative contribution to consolidated profit –9.0 –3.5
Tax for other periods –8.8 –6.3
Tax credits 22.9 28.1
Tax effect on tax loss carryforwards 25.8 39.3
Effect of non-deductible expenses/tax-free income/other tax effects –30.1 –15.4
Tax expense before exceptional items –218.1 –110.9

Tax ratio before exceptional items 25.3% 21.6%

Taxes on exceptional items –1.5 1.2

Tax expense according to income statement –219.6 –109.7

Tax ratio according to income statement 25.5% 22.6%

[14] Non-controlling interest in net profit is primarily composed of the minority interests in the listed
Non-controlling interest companies Merck Ltd., India, and PT Merck Tbk., Indonesia, as well as in ­­Merck Ltd., Thailand, Merck
(Pvt.) Ltd., Pakistan, and Allergopharma J. Ganzer KG, Germany.

[15] Basic earnings per share are calculated by dividing the net profit after non-controlling interest by
Earnings per share the weighted average number of theoretical shares outstanding. The use of a theo­retical number
of shares takes into account the fact that the general partner’s capital is not ­represented by shares.
The share capital of EUR 168.0 million is divided into 64,621,126 shares. Accordingly, the general
partner’s capital of EUR 397.2 million is divided into 152,767,813 theoretical shares. Overall, the
total capital thus amounts to EUR 565.2 million or 217,388,939 theoretical shares outstanding.

As of December 31, 2010 there were no potentially dilutive shares.

2010 2009
Net profit after non-controlling interest (EUR million) 632.1 366.3
Weighted average number of theoretical shares outstanding (in millions) 217.4 217.4
Basic earnings per share (EUR)  2.91 1.68
 Company Management Report Corporate governance Consolidated Financial Statements More information 163
Notes

Notes to the balance sheet

[16] This item comprises:

Cash and cash equivalents
Dec. 31, Dec. 31,
EUR million 2010 2009
Cheques, cash and bank balances 233.6 282.9
Short-term cash investments 710.1 258.5
943.7 541.4

Changes in cash and cash equivalents as defined by IAS 7 are presented in the cash flow statement.
This item includes short-term receivables due from related parties and affiliates amounting to
EUR 8.6 million (2009: EUR 4.5 million).
Short-term cash investments mainly comprise fixed-term deposits with banks that have a very good
credit rating. In 2010, the average interest rate on all investments was 1.8%.

[17] This item comprises the following categories:

Marketable securities and
financial assets Dec. 31, Dec. 31,
EUR million 2010 2009
Financial investments held to maturity 22.7 48.4
Available-for-sale financial investments 11.3 262.5
Short-term financial investments/loans to third parties 0.3 1,150.7
Derivative assets (financial transactions) 21.3 41.6
55.6 1,503.2

The significant decline in marketable securities and financial assets is related to the financing of
the Millipore acquisition.
Loans to third parties were neither adjusted (2009: EUR 1.3 million) nor past due. Owing to the
receipt of a payment amounting to EUR 1.1 million in 2010, the adjustment reported in 2009 was
restated by this amount. The balance of EUR 0.2 million was derecognized. Fair value adjustments
of EUR –2.0 million, which were recognized in equity, were made on “available-for-sale financial
investments” (2009: EUR +2.0 million).

[18] This item comprises:

Trade accounts receivable
Dec. 31, Dec. 31,
EUR million 2010 2009
Receivables from affiliates 0.3 0.6
Receivables from associates 0.8 –
Receivables from third parties 2,295.2 1,788.1
2,296.3 1,788.7

The increase in trade accounts receivable resulted in particular from the first-time consolidation of
the Millipore companies.
164 Merck Annual Report 2010

Trade accounts receivable past due are as follows:

Dec. 31, Dec. 31,

EUR million 2010 2009
Neither impaired nor past due 1,659.0 1,314.9
Past due, but not impaired
up to 3 months 265.7 209.1
up to 6 months 107.4 80.4
up to 12 months 96.4 64.2
over 1 year 109.5 56.2
Impaired 58.3 63.9
Book value 2,296.3 1,788.7

The corresponding write-downs developed as follows:

EUR million 2010 2009

January 1 –46 .0 –16.6
Additions (net) –10.8 –27.9
Utilizations 5.2 1.9
Currency translation and other changes –7.3 –3.4
December 31 –58.9 –46.0

With regard to trade accounts receivable that are neither impaired nor delayed, as of the reporting
date there are no indications that the debtors will not meet their payment obligations.

[19] This item comprises:

Inventories
Dec. 31, Dec. 31,
EUR million 2010 2009
Raw materials and production supplies 189.7 174.1
Work in progress, finished goods and goods purchased for resale 1,483.8 1,193.8
Advance payments – –
1,673.5 1,367.9

Write-downs of inventories amounted to EUR 138.7 million­in 2010 (2009: EUR 141.7 million). As of

balance sheet date, the fair value of inventories that were written down amounts to EUR 757.5 million
(2009: EUR 526.3 million). In 2010, inventory write-ups of EUR 27.0 million were recorded. Inven-
tories amounting to EUR 2,385.4 million (2009: EUR 2,029.3 million) w≠ere recognized as an expense
in the reporting period. As of the balance sheet date, no inventories were used to secure liabilities.
 Company Management Report Corporate governance Consolidated Financial Statements More information 165
Notes

[20] Other receivables and other assets include an amount of EUR 269.3 million from the sale of Théramex
Other assets (see “Scope of consolidation – Divestment of Théramex”) and mainly prepayments as well as interest
deferrals. In 2010, a separate line item was introduced for non-income-related taxes (mainly value
added tax). The previous year’s figures have been adjusted.

Other assets comprise the following:

Dec. 31, Dec. 31,

EUR million current non-current 2010 current non-current 2009
Receivables from third parties 385.6 2.1 387.7 76.5 2.1 78.6
Receivables from related parties 17.0 – 17.0 14.9 – 14.9
Receivables from affiliates 2.4 – 2.4 – – –
Other receivables 405.0 2.1 407.1 91.4 2.1 93.5
Receivables from non-income related taxes 72.8 36.0 108.8 83.3 54.5 137.8
Prepaid expenses 48.2 2.7 50.9 48.9 3.7 52.6
Refund claims on plan assets 18.8 – 18.8 15.2 – 15.2
Derivative assets (operational) 2.2 0.4 2.6 29.5 28.6 58.1
Other assets 17.7 11.7 29.4 7.3 10.6 17.9
564.7 52.9 617.6 275.6 99.5 375.1

Other receivables from third parties past due are as follows:

Dec. 31, Dec. 31,

EUR million 2010 2009
Neither impaired nor past due 345.0 68.7
Past due, but not impaired
up to 3 months 8.4 7.8
up to 6 months 4.8 1.3
up to 12 months 0.6 0.2
over 1 year 2.0 0.6
Impaired 26.9 –
Book value 387.7 78.6

A settlement payment was made to the U.S. Department of Justice in 2010 in connection with the
litigation of our former subsidiary Dey, Inc., USA, which we sold to Mylan (see Note [32]). Insofar as
this payment is tax-deductible, Merck is entitled to claim reimbursement from Mylan in the amount
of the tax credit. The exact amount cannot be definitively determined at this point in time. Merck
wrote down this claim by EUR 52.6 million to a residual value of EUR 26.9 million. The expense
resulting from this write-down is recorded under “Exceptional items”. Write-ups of other receivables
from third parties were not necessary in either 2010 or 2009. With regard to other receivables that
are neither impaired nor delayed, as of the reporting date there are no indications that the debtors
will not meet their payment obligations.
166 Merck Annual Report 2010

[21] Tax receivables amounted to EUR 93.7 million (2009: EUR 55.3 million) and resulted from tax pre-
Tax receivables payments that exceed the actual amount of tax pay­able for 2010 and prior fiscal years, and from
refund claims for prior years as well as withholding tax credits.

[22] Merck announced on December 20, 2010 the sale of the Crop BioScience business, which was part
Assets held for sale and of the Performance Materials division, to Novozymes A/S, Denmark. The agreement is subject to cus-
liabilities directly related to tomary regulatory approvals. The transaction is expected to close at the beginning of 2011. The Crop
assets held for sale BioScience business generated sales of around EUR 46 million in 2010. For this item, EUR 36.7 mil-
lion was disclosed in the consolidated balance sheet as of December 31, 2010 as assets held for sale
and EUR 5.9 million as liabilities directly related to assets held for sale.

The following table presents this item in more detail:­­

EUR million Dec. 31, 2010

Current assets
Cash and cash equivalents 1.2
Inventories 4.6
Receivables 10.6
Other current assets 0.6
17.0
Non-current assets
Intangible assets 13.4
Property, plant and equipment 4.4
Other non-current assets 1.9
19.7
Assets held for sale 36.7

Current liabilities
Trade accounts payable 1.0
Other current liabilities 4.7
5.7
Non-current liabilities 0.2

Liabilities directly related to assets held for sale 5.9

 Company Management Report Corporate governance Consolidated Financial Statements More information 167
Notes

[23] Intangible assets

Patents, licenses  
and similar rights, 
brands, trademarks  Advance  
and other Goodwill Software payments Total

Finite useful Indefinite

EUR million life useful life
Acquisition cost January 1, 2009 7,540.6 543.0 1,971.3 177.9 17.2 10,250.0
Currency translation –5.9 –0.8 –0.7 1.5 – –5.9
Changes in scope of consolidation 4.7 – 15.7 – – 20.4
Additions 5.7 31.4 – 30,7 28.8 96.6
Disposals –9.3 –11.9 –3.6 –15.7 –0.3 –40.8
Transfers 62.9 –60.4 – 18.4 –12.8 8.1
December 31, 2009 7,598.7 501.3 1,982.7 212.8 32.9 10,328.4

Accumulated amortization and impairment losses

January 1, 2009 –1,757.8 –129.3 –42.2 –117.3 – –2,046.6
Currency translation –4.5 –0.1 –0.2 –0.3 – –5.1
Changes in scope of consolidation – – – – – –
Amortization and impairment losses –664.4 –21.1 – –30.3 – –715.8
Disposals 7.6 11.6 3.6 14.7 – 37.5
Transfers –0.1 – – 0.1 – –
Write-ups – – – – – –
December 31, 2009 –2,419.2 –138.9 –38.8 –133.1 – –2,730.0

Net carrying amount as of December 31, 2009 5,179.5 362.4 1,943.9 79.7 32.9 7,598.4

Acquisition cost January 1, 2010 7,598.7 501.3 1,982.7 212.8 32.9 10,328.4
Currency translation 704.5 37.0 89.4 14.5 1.7 847.1
Changes in scope of consolidation 2,534.9 9.3 2,545.3 11.3 – 5,100.8
Additions 23.0 20.8 – 17.3 43.1 104.2
Disposals –10.1 –0.5 – –27.2 –0.1 –37.9
Transfers 76.5 –76.3 4.9 48.4 –35.7 17.8
Reclassification to assets held for sale –29.8 – – –0.3 – –30.1
December 31, 2010 10,897.7 491.6 4,622.3 276.8 41.9 16,330.3

Accumulated amortization and impairment losses

January 1, 2010 –2,419.2 –138.9 –38.8 –133.1 – –2,730.0
Currency translation –234.8 –10.3 0.2 –11.2 – –256.1
Changes in scope of consolidation 1.2 – – 2.2 – 3.4
Amortization and impairment losses –701.7 –164.4 – –40.1 – –906.2
Disposals 7.7 – – 26.3 – 34.0
Transfers 0.1 – –3.6 –4.5 – –8.0
Write-ups – – – – – –
Reclassification to assets held for sale 16.4 – – 0.3 – 16.7
December 31, 2010 –3,330.3 –313.6 –42.2 –160.1 – –3,846.2

Net carrying amount as of December 31, 2010 7,567.4 178.0 4,580.1 116.7 41.9 12,484.1
168 Merck Annual Report 2010

The changes in scope of consolidation include additions amounting to EUR 5,263.9 million (2009:

EUR 20.6 million) and disposals of EUR 159.7 million (2009: EUR 0.2 million). The additions relate
almost exclusively to the acquisition of Millipore. Details of this transaction are presented under
“Scope of consolidation – Acquisition of Millipore”. At the time of the acquisition, the goodwill of
Millipore amounted to EUR 2,704.4 million and the fair value of the other intangible assets was
EUR 2,559.5 million. The disposals from the scope of consolidation relate in particular to the divest-
ment of Théramex.
The change in currency translation differences relative to 2009 is due mainly to the translation of
intangible assets reported in U.S. dollars and Swiss francs into euros – the reporting currency of
the Merck Group.
The net carrying amount of “Patents, licenses and similar rights, brands, trademarks and other”
with finite useful lives amounting to EUR 7,567.4 million mainly include the recognized assets
from the Millipore purchase price allocation in 2010 and the Serono purchase price allocation in
2007. The vast majority is attributable to technologies and know-how. The remaining useful lives
of these assets range between 8 and 15.5 years. This item also includes licenses from this acquisi-
tion with remaining useful lives of between 2 and 7 years.
In fiscal 2010, impairment losses on intangible assets with finite useful lives totaled EUR 17.1 mil-
lion. Of this amount, EUR 16.4 million was attributable to the Liquid Crystals business unit. This
impairment was required due to amended market estimates and the related decline in sales expecta-
tions. This is reflected within “Other operating expenses” in the income statement. The changes in
goodwill caused by currency effects resulted almost exclusively from translating the goodwill for
Serono from Swiss francs into euros, the reporting currency of the Merck Group, and from translat-
ing the goodwill for Millipore, half of which is carried in U.S. dollars, into euros.
Since goodwill and intangible assets with indefinite useful lives are not amortized, these are
subjected to an annual impairment test. Here, book values were compared with values in use.
Consequently, impairment losses of EUR 164.4 million result in fiscal 2010. Safinamide is respon-
sible for EUR 134.0 million of this amount. Owing to a reassessment of the sales potential, this
impairment resulted in a residual value of EUR 63.4 million. This is disclosed in the income state-
ment under “Amortization of intangible assets”. The reassessment was based on the results of a
Phase III study conducted by our cooperation partner Newron, which led to a reevaluation of the
market potential, especially as regards potential indications. The decision also takes into account
a delay in the project and an increase in R&D costs due to more stringent requirements set by the
U.S. Food and Drug Administration.
The other impairment losses amounting to EUR 17.2 million relate to write-offs of the capitalized
assets related to the termination of research projects from the Merck Serono division and are
recorded under “Other operating expenses”. Owing to the outlicensing of an active ingredient
attributable to an acquisition, its net present value was remeasured. This led to the need for an
impairment loss of EUR 13.2 million in the Merck Serono division, which was recognized under
“Other operating expenses”.
 Company Management Report Corporate governance Consolidated Financial Statements More information 169
Notes

The book values of “Patents, licenses and similar rights, brands, trademarks and other” as well as
goodwill can be attributed to the divisions as follows:
Remaining Total  Total 
useful life  Consumer  Merck  Performance Dec. 31, Dec. 31,
EUR million in years Merck Serono Health Care Millipore Materials 2010 2009
Patents, licenses and similar rights,
brands, trademarks and other
Finite useful life 5,165.1 20.1 2,367.0 15.2 7,567.4 5,179.5
Rebif ® 11 3,296.5 – – – 3,296.5 3,221.5
Gonal-f ® 8 759.6 – – – 759.6 765.2
Saizen ® 9 276.6 – – – 276.6 275.3
Humira ® 7 257.3 – – – 257.3 267.9
Avonex ® 2.5 120.3 – – – 120.3 152.7
Enbrel ® 2 74.9 – – – 74.9 109.1
Cladribine 10 51.7 – – – 51.7 –
Puregon ® 4 45.8 – – – 45.8 51.3
Technologies 0.5 to 15.5 280.6 3.7 532.0 11.7 828.0 309.2
Brands 4.75 to 13.5 1.0 16.4 316.9 0.3 334.6 20.5
Customer relationships 0.5 to 16.5 0.8 – 1,518.1 3.2 1,522.1 6.8

Indefinite useful life 167.8 – 8.7 1.5 178.0 362.4

Safinamide – 63.4 – – – 63.4 176.8
Cladribine – – – – – – 48.2
Other – 104.4 – 8.7 1.5 114.6 137.4

Goodwill – 1,681.6 164.7 2,714.6 19.2 4,580.1 1,943.9

Intangible assets with an indefinite useful life primarily relate to rights that Merck has acquired
for products or technologies that are still in the research and development stage. Amortization will
only begin once the products start to be marketed.
170 Merck Annual Report 2010

[24] Property, plant and equipment

Land, landrights Construction in
and buildings,  progress and 
including  Other facilities, advance payments
buildings on  Plant and  operating and  to vendors and
EUR million third-party land machinery office equipment contractors Total
Acquisition cost January 1, 2009 1,885.8 2,391.6 774.7 315.7 5,367.8
Currency translation 0.8 3.0 1.5 2.6 7.9
Changes in scope of consolidation 3.5 2.9 2.2 – 8.6
Additions 26.9 48.3 45.2 346.9 467.3
Disposals –60.5 –61.3 –52.3 –5.6 –179.7
Transfers 37.7 71.0 33.6 –150.4 –8.1
December 31, 2009 1,894.2 2,455.5 804.9 509.2 5,663.8

Accumulated depreciation and impairment

losses January 1, 2009 –720.4 –1,644.6 –547.4 –15.3 –2,927.7
Currency translation –1.2 –1.8 –1.3 – –4.3
Changes in scope of consolidation –0.4 –0.6 –0.3 – –1.3
Depreciation and impairment losses –73.7 –145.6 –66.3 – –285.6
Disposals 54.1 57.1 46.5 4.8 162.5
Transfers 0.2 –0.4 0.2 – –
Write-ups 0.1 – 0.1 – 0.2
December 31, 2009 –741.3 –1,735.9 –568.5 –10.5 –3,056.2

Net carrying amount as of  

December 31, 2009 1,152.9 719.6 236.4 498.7 2,607.6

Acquisition cost January 1, 2010 1,894.2 2,455.5 804.9 509.2 5,663.8

Currency translation 129.1 78.1 21.9 41.6 270.7
Changes in scope of consolidation 240.5 109.4 14.6 75.8 440.3
Additions 14.1 33.2 37.8 311.1 396.2
Disposals –12.8 –76.9 –38.8 –2.3 –130.8
Transfers 61.9 70.1 6.6 –155.6 –17.0
Reclassification to assets held for sale –5.1 –5.5 –1.6 –0.9 –13.1
December 31, 2010 2,321.9 2,663.9 845.4 778.9 6,610.1

Accumulated depreciation and impairment

losses January 1, 2010 –741.3 –1,735.9 –568.5 –10.5 –3,056.2
Currency translation –42.9 –64.9 –17.0 – –124.8
Changes in scope of consolidation – 13.9 12.7 – 26.6
Depreciation and impairment losses –97.0 –177.7 –77.0 – –351.7
Disposals 10.5 75.3 35.4 0.4 121.6
Transfers –5.1 –0.3 12.6 – 7.2
Write-ups – – – – –
Reclassification to assets held for sale 3.3 4.1 1.3 – 8.7
December 31, 2010 –872.5 –1,885.5 –600.5 –10.1 –3,368.6

Net carrying amount as of  

December 31, 2010 1,449.4 778.4 244.9 768.8 3,241.5
 Company Management Report Corporate governance Consolidated Financial Statements More information 171
Notes

The changes in scope of consolidation include additions amounting to EUR 474.2 million (2009:

EUR 25.8 million) and disposals amounting to EUR 7.3 million (2009: 18.5 million) that are due to
the acquisition of Millipore and the divestment of Theramex.
Impairment losses totaled EUR 23.7 million in fiscal 2010. These were particularly attributable to
impairment losses on production units in the Merck Millipore, Consumer Health Care and Merck
Serono divisions and are recorded under “Other operating expenses”.
Property, plant and equipment amounting to EUR 8.1 million served as collateral (2009: EUR 8.1 mil-
lion). Total government grants and subsidies during the fiscal year amounted to EUR 11.5 million
(2009: EUR 5.4 million).
Property, plant and equipment also includes assets that are leased. The total value of capitalized
leased assets amounted to EUR 11.6 million (2009: EUR 13.0 million) and the corresponding obli-
gations amounted to EUR 7.1 million (2009: EUR 10.4 million) (see Note [28]).

The book values of capitalized leased assets were as follows:

Dec. 31, Dec. 31,

EUR million 2010 2009
Capitalized leased buildings 9.3 11.7
Capitalized leased vehicles 2.3 1.1
Capitalized leased other property, plant and equipment – 0.2
11.6 13.0

[25]
Investments at equity
EUR million 2010 2009
Book value January 1 1.6 1.3
Additions – –
Share of profit 0.9 0.1
Disposals – –
Currency translation 0.3 0.2
Changes in scope of consolidation 2.2 –
Book value December 31 5.0 1.6

The changes in scope of consolidation reflect the first-time consolidation of Millipore.

172 Merck Annual Report 2010

[26] Non-current financial assets

Investments in Securities
available-for-sale financial  Loans and other
available-for-sale available-for-sale financial  investments  non-current 
EUR million affiliates companies investments held to maturity financial assets Total
Book value January 1, 2009 45.6 25.5 0.9 10.1 15.3 97.4
Currency translation – – –0.1 0.1 –
Changes in scope of
consolidation – –34.3 – – – –34.3
Additions 9.6 35.6 1.1 – 4.3 50.6
Impairment losses –1.9 – –0.7 – –2.6
Disposals – –4.2 –0.2 –10.1 –3.7 –18.2
Fair value adjustments of long-
term investments taken directly
to equity 25.5 – – – – 25.5
Transfers 0.6 –0.6 – – – –
Book value  
December 31, 2009 79.4 22.0 1.0 – 16.0 118.4

Book value January 1, 2010 79.4 22.0 1.0 – 16.0 118.4

Currency translation – – – – 0.2 0.2
Changes in scope of
consolidation – –4,419.8 – – – –4,419.8
Additions 9.2 4,628.0 6.8 22.4 4,666.4
Impairment losses – – – – – –
Disposals –15.2 –201.7 –0.3 – –4.1 –221.3
Fair value adjustments of long-
term investments taken directly
to equity –13.6 – – – – –13.6
Transfers 1.1 –1.1 – – – –
Book value  
December 31, 2010 60.9 27.4 7.5 – 34.5 130.3

As of December 31, 2010, non-current financial assets available-for-sale (investments) with a book
value of EUR 57.2 million (2009: EUR 48.2 million) were carried at cost since fair value could not be
reliably determined.
The changes in the scope of consolidation include additions of EUR 192.8 million (2009: 0.5 million)
and disposals of EUR 4,612.6 million (2009: EUR 34.8 million). Additions to the scope of consolidation
are due almost exclusively to the divestment and deconsolidation of Théramex. The disposals relate in
particular to the acquisition and the first-time consolidation of Millipore. A detailed presentation of
this item can be found under “Scope of consoldiatoin – Acquisition of Mllipore”.
 Company Management Report Corporate governance Consolidated Financial Statements More information 173
Notes

The following amounts arising from non-current financial assets classified as available-for-sale
were recognized in equity as of the balance sheet date:
Available- Available- Total  Available- Available- Total 
for-sale  for-sale  Dec. 31, for-sale  for-sale  Dec. 31,
EUR million interests securities 2010 interests securities 2009
Fair values/
Book values 88.3 7.5 95.8 101.4 1.0 102.4
Amortized
acquisition cost 90.5 7.5 98.0 90.0 1.0 91.0
Unrealized
gains/losses –2.2 – –2.2 11.4 – 11.4

[27]
Financial assets covering Available-for-sale Financial assets
EUR million financial assets held to maturity Total
pension obligations Book value January 1, 2009 – – –
Currency translation – – –
Changes in scope of consolidation – – –
Additions 187.2 61.1 248.3
Impairment losses – – –
Disposals –47.0 – –47.0
Fair value adjustments of longterm investments
taken directly to equity 8.3 – 8.3
Transfers – – –
Book value December 31, 2009 148.5 61.1 209.6

Book value January 1, 2010 148.5 61.1 209.6

Currency translation – – –
Changes in scope of consolidation – – –
Additions 72.1 21.0 93.1
Impairment losses – – –
Disposals –60.2 –17.5 –77.7
Fair value adjustments of longterm investments
taken directly to equity –8.1 – –8.1
Transfers – – –
Book value December 31, 2010 152.3 64.6 216.9

In fiscal 2009, Merck began to cover the pension obligations of Merck KGaA with financial assets
appropriated for this purpose. Covering pension obligations with underlying financial assets is long
term and will be continuously expanded. These assets are actively being managed by an external
service provider within the scope of asset management agreements. Merck is steering the invest-
ments via restrictions with respect to ratings and the choice of investments. Performance and risk
controlling take place on a regular basis and include monthly performance measurements. In addi-
tion, the investment strategy and structure as well as the implementation thereof are reviewed for
conformity with the objectives. The strategic spread of assets is highly cautious, with approximately
75% invested in fixed-income securities. All investments will be denominated exclusively in euros.
174 Merck Annual Report 2010

These financial assets are primarily allocated to the measurement category “Available-for-sale
financial assets”, otherwise to the measurement category “Held-to-maturity investments”. To ensure
reporting transparency, we are disclosing these financial assets separately in the balance sheet.
The following amounts arising from financial assets covering pension obligations classified as
available-for-sale were recognized in equity as of the balance sheet date:

Dec. 31, Dec. 31,

EUR million 2010 2009
Fair values/Book values 152.3 148.5
Amortized acquisition cost 152.1 140.2
Unrealized gains/losses 0.2 8.3

[28] This item comprises:

Financial liabilities
non-  Dec. 31, non-  Dec. 31,
EUR million current current 2010 current current 2009
Bonds 25.3 4,948.3 4,973.6 499.4 1,490.9 1,990.3
Commercial paper 10.0 – 10.0 – – –
Bank loans and overdrafts 85.7 30.0 115.7 57.3 30.1 87.4
Liabilities to related parties 190.3 – 190.3 118.8 – 118.8
Loans from third parties and
other financial liabilities 14.3 63.8 78.1 11.9 71.0 82.9
Liabilities from derivatives
(financial transactions) 28.7 80.0 108.7 16.0 1.5 17.5
Finance lease 1.8 5.3 7.1 1.8 8.6 10.4
356.1 5,127.4 5,483.5 705.2 1,602.1 2,307.3

Bank financing commitments vis-á-vis the Merck Group are as follows:

Utilization * 
Bank credit  as of Dec. 31,
EUR million facilities 2010 Interest Due
Syndicated loan 2007 2,000.0 – variable 2014
Bilateral credit facilities with banks 5.9 5.9 fixed 2012
Bilateral credit facilities with banks 9.1 9.1 fixed 2017
Bilaterial credit facilities with banks 15.0 15.0 fixed 2018
Various bank lines 294.8 85.7 fixed/variable < 1 year
2,324.8 115.7
* Booked disagios are not taken into account in the disclosure
 Company Management Report Corporate governance Consolidated Financial Statements More information 175
Notes

The current and non-current liabilities of the Merck Group to banks were denominated in the fol-
lowing currencies:

Dec. 31, Dec. 31,

in % 2010 2009
Euros 30.0 56.0
U.S. dollars 0.1 5.6
Pounds sterling 0.2 0.4
Swiss francs – –
Yen 0.3 –
Other currencies 69.4 38.0
100.0 100.0

In fiscal 2007, a EUR 2 billion multi-currency term loan and revolving credit facility was agreed.
The loan has a term of seven years and was agreed with an international banking syndicate.
In 2009, Merck set up a debt issuance program that forms the contractual basis for the issue of bonds
with a nominal volume of up to EUR 5 billion. In 2010, this volume was increased to EUR 10 billion.

The following bonds were issued by the Merck Group:

Nominal 
Issuer Nominal value Maturity interest rate Issue price
Merck Financial Services GmbH, Germany EUR 500 million March 2010 – March 2012 2.125 % 99.775
Merck Finanz AG, Luxembourg EUR 500 million December 2005 – December 2012 * 2.2 % 99.716
Merck Financial Services GmbH, Germany EUR 750 million March 2009 – September 2013 4.875 % 99.697
Merck Financial Services GmbH, Germany EUR 1,350 million March 2010 – March 2015 3.375 % 99.769
Merck Financial Services GmbH, Germany EUR 100 million December 2009 – December 2015 ** 3.615 % 100.000
Millipore Corporation, USA EUR 250 million June 2006 – June 2016 5.875 % 99.611
Merck Financial Services GmbH, Germany EUR 60 million November 2009 – November 2016 4.000 % 100.000
Merck Financial Services GmbH, Germany EUR 70 million December 2009 – December 2019 4.250 % 97.788
Merck Financial Services GmbH, Germany EUR 1,350 million March 2010 – March 2020 4.500 % 99.582
* made variable by interest rate swaps based on six-month EURIBOR and fixed in 2010 by interest rate futures based on six-month EURIBOR
** fixed by interest rate swaps

Moreover, the Millipore Corporation, USA, still has convertible bonds with a nominal volume of
USD 27.2 million. The possibility to convert these bonds into shares no longer exists.
The bonds issued by Merck Financial Services GmbH in 2010 serve to finance the acquisition of
Millipore Corporation, USA, and are admitted to trading on the regulated market of the Luxem-
bourg Stock Exchange. In the fourth quarter of 2010, a bond issued by Merck KGaA with a volume
of EUR 500 million matured and was repaid in full.
In order to meet short-term capital requirements, ­Merck KGaA issued a commercial paper program
with a volume of EUR 2 billion, of which a nomimal amount of EUR 10.0 million had been utilized
as of the reporting date.
176 Merck Annual Report 2010

Liabilities from financial leasing represent the discounted amount of future payments arising from
finance leases. This item primarily relates to liabilities from finance leases for ­buildings. Information
on liabilities due to related parties can be found in Note [47].

[29] Trade accounts payable consist of the following:

Trade accounts payable
Dec. 31, Dec. 31,
EUR million 2010 2009
Liabilities due to third parties 1,200.0 935.7
Liabilities due to affiliates 0.1 –
1,200.1 935.7

Trade accounts payable include accrued amounts of EUR 648.1 million (2009: EUR 614.2 million)

for outstanding invoices and accrued reductions in sales revenues.

[30] This item comprises:

Other liabilities
non-  Dec. 31, non-  Dec. 31,
EUR million current current 2010 current current 2009
Liabilities to related parties 260.6 – 260.6 173.8 – 173.8
Liabilities to affiliates 3.2 – 3.2 1.8 – 1.8
Accrued interests 103.5 – 103.5 14.3 – 14.3
Payroll liabilities 65.0 0.6 65.6 50.2 0.6 50.8
Liabilities from profit
distributions 0.7 – 0.7 1.3 – 1.3
Other financial liabilities to
third parties 48.7 4.0 52.7 58.7 1.8 60.5
Sundry other financial
liabilities 481.7 4.6 486.3 300.1 2.4 302.5
Accruals for personnel
expenses 443.0 – 443.0 293.6 – 293.6
Deferred income 29.0 27.2 56.2 14.6 13.1 27.7
Advance payments received
from customers 12.6 – 12.6 5.1 1.4 6.5
Liabilities from derivatives
(operational) 26.8 11.1 37.9 1.4 – 1.4
Liabilities from non-income
related taxes 61.5 – 61.5 23.4 – 23.4
1,054.6 42.9 1,097.5 638.2 16.9 655.1
 Company Management Report Corporate governance Consolidated Financial Statements More information 177
Notes

Liabilities to related parties exist vis-à-vis the general partner E. Merck KG and result from profit
entitlements as of the balance sheet date. Other financial liabilities due to third parties include
liabilities due to insurance companies, contractually agreed payment obligations vis-à-vis other
companies, and EUR 13.6 million for the acquisition of Beijing Skywing Technology Co. Ltd. (see
“Scope of consolidation – Further acquisitions”). In 2010, a separate line was added for non-
income-related taxes (mainly value added tax). The previous year’s figures have been adjusted.

[31] Tax liabilities amounted to EUR 57.5 million (2009: EUR 72.8 million). Tax liabilities total-
Tax liabilities ing EUR 368.4 million (2009: EUR 274.5 million) also include provisions for tax liabilities of
EUR 310.9 million (2009: EUR 201.7 million).

[32] Provisions developed as follows:

Provisions Environ- 
Restruc-  mental 
EUR million turing Litigation Personnel protection Other Total
January 1, 2010 45.8 519.2 140.5 72.1 173.8 951.4
Additions 26.4 85.0 49.6 0.2 53.4 214.6
Utilizations –30.4 –129.3 –33.6 –9.0 –44.7 –247.0
Release –5.2 –8.5 –12.6 0,0 –57.4 –83.7
Exchange differences 0.8 16.0 1.2 0.5 4.2 22.7
Changes in scope of
consolidation/Other 2.7 –0.4 26.6 6.6 5.2 40.7
December 31, 2010 40.1 482.0 171.7 70.4 134.5 898.7
thereof current 26.8 174.5 42.5 7.0 123.7 374.5
thereof non-current 13.3 307.5 129.2 63.4 10.8 524.2

Provisions for restructuring mainly include provisions for severance payments for employees in
connection with restructuring projects, contractually agreed severance obligations and provisions
for onerous contracts. The relevant provisions are recognized when detailed restructur­ing plans
have been prepared and communicated.
As of the balance sheet date, Merck recorded provisions for litigation amounting to EUR 482.0 mil-
lion. In 2010, additional provisions for litigation were set up and charged to other operating expenses.
Provisions for litigation take into account legal risks in connection with our former U.S. generics sub-
sidiary Dey Inc., USA, concerning allegedly false reporting of price informa­tion. Although Dey Inc. was
divested within the scope of the sale of the Generics business to Mylan Inc., PA (USA) in 2007, Merck
continues to be liable for costs incurring from the aforementioned legal disputes since the mentioned
risk was not transferred to Mylan. In this context, claims in a number of states were settled during
the reporting period as well as in recent years. Moreover a settlement agreement was reached with
the U.S. Department of Justice against payment of EUR 214.5 million. Taking into acount the existing
provisions, this settlement payment led to expenses of EUR 67.2 million in 2010. These expenses have
been recorded under “Exceptional items”, as was the gain on the divestment of the Generics business.
Merck is entitled to claim reimbursement from Mylan to the extent and in the amount that Mylan
is able to claim the payment to the U.S. Department of Justice in its tax return. The exact amount
cannot be definitively determined at this point in time. As of December 31, 2010 Merck wrote down
this reimbursement claim by EUR 52.6 million.
178 Merck Annual Report 2010

In addition, provisions exist in connection with a legal dispute with Italfarmaco S.p.A. (Italy) in which
Italfarmaco S.p.a claims damages on account of an allegedly wrongful termination of a license and
supply agreement relating to the product Rebif ® in Italy. As of the balance sheet date, provisions
exist in connection with the legal dispute with the company Israel Bio-Engineering Project Limited
Partnership (IBEP), in which IBEP claims intellectual property rights and license fees in connection
with the funding and development of Rebif ® and other products. A Merck subsidiary is discussing
settlements of a civil claim by the U.S. Department of Justice under the False Claims Act in relation
to sales of Rebif ®. A provision was established for the potential settlement of this litigation.
For various smaller pending legal disputes against companies of the Merck Group, provisions that
are considered appropriate from today’s perspective have been set up.
Provisions for employee benefits include obligations from the Merck Long-Term Incentive Plan (LTIP)
amounting to EUR 29.8 million (2009: EUR 12.3 million). Moreover, this item includes provisions for
obligations for the partial early retirement program, other severance pay and anniversary bonuses.
The LTIP offers eligible executives and employees of the Merck Group a long-term, profit-related
compensation component. The program was resolved upon in 2008. The Executive Board is excluded.
The amount paid depends on the achievement of the two financial performance indicators “Underly-
ing Free Cash Flow on Revenues (FCR)“ and ”Return on Sales (ROS)“ at the end of a three-year period.
The plan has caps on potential future payments in the event of a high level of target achievement.
By contrast, if the level of target achievement is too low, no payments are made.
With respect to provisions for defined-benefit pensions and other post-employment benefits,
see Note [33].
Provisions for environmental protection exist in Germany and the United States.
Other provisions consist additionally of provisions for uncertain commitments in the context of
contributions, levies and fees.

[33] The calculation of obligations as well as the relevant plan assets is based on the ­following actuarial
Provisions for pensions parameters:
and other post-
employment benefits
in % 2010 2009
Discount rate 4.3 5.0
Future salary increases 2.7 2.9
Future pension increases 2.0 2.3
Staff turnover 3.4 2.0
Expected return on plan assets 4.9 4.9
Future increases in health care benefits 5.0 6.5
Company Management Report Corporate governance Consolidated Financial Statements More information 179
Notes

These are average values weighted by the present value of the respective benefit obligation. The
average expected return on plan assets is weighted by the fair value of the respective plan assets.
Plan assets for funded benefit obligations primarily comprise fixed-income securities, stocks and
real estate. They do not include financial instruments issued by ­Merck Group companies or real
estate used by Group companies.

The balance sheet item “Provisions for pensions and other post-employment benefits” can be broken
down as follows:

Dec. 31, Dec. 31,

EUR million 2010 2009
Present value of benefit obligations funded by provisions 1,467.7 1,260.2
Present value of funded benefit obligations 888.1 617.5
Present value of all benefit obligations 2,355.8 1,877.7

Fair value of plan assets of all funds –793.3 –582.6

Funded status 1,562.5 1,295.1

Other changes 0.3 1.2

Net liability recognized in the balance sheet 1,562.8 1,296.3

Refund claims on plan assets 18.8 15.2

Provisions for pensions and other post-employment benefits 1,581.6 1,311.5

In 2010, the following items were recognized in income:

EUR million 2010 2009

Current service cost 69.5 58.1
Past service cost –0.1 –
Interest cost on pension obligations 99.6 93.1
Expected return on plan assets –34.1 –25.6
Other effects 0.1 –10.8
Total amount recognized in income 135.0 114.8

At EUR 1,316.8 million (2009: EUR 1,136.1 million), the pension plans of the Group parent company
Merck KGaA account for the bulk of the present value of pension obligations funded by provisions.
The present value of commitments for future health care expenses of retirees in the United States
is based on an expected future increase in health care costs of 5.0%. If the rate of increase is one
percentage point higher or lower, the measurement of the present value of the commitment would
be either EUR 0.9 million higher or EUR 0.8 million lower. The expenses recognized in 2010 would
have been EUR 0.1 million higher or lower.
180 Merck Annual Report 2010

The actual gain on plan assets amounted to EUR 61.0 million (2009: EUR 63.8 million). Apart from
the interest component stemming from interest expense on the pension obligations and the expected
return on the plan assets, which are disclosed in the financial result, the relevant expense of defined
benefit and defined contribution plans is distributed across the individual functional areas.

During the reporting period the present value of the benefit obligations changed as follows:

benefit benefit
obligations funded ben- obligations funded ben-
funded by efit obliga- funded by efit obliga-
EUR million provisions tions 2010 provisions tions 2009
Present value of all defined obligations
on January 1 1,260.2 617.5 1,877.7 1,051.5 534.4 1,585.9
Currency translation differences 2.8 71.2 74.0 2.6 11.4 14.0
Current service cost 35.4 34.1 69.5 27.3 30.8 58.1
Interest cost on pension obligations 66.3 33.3 99.6 64.6 28.5 93.1
Other effects recognized in income 0.1 0.1 0.2 0.7 –11.5 –10.8
Actuarial gains/losses 160.5 37.2 197.7 172.2 44.2 216.4
Pension payments in the reporting period –56.6 –37.9 –94.5 –57.1 –29.7 –86.8
Transfers/Changes in scope of consolidation/
Other changes –1.0 132.6 131.6 –1.6 9.4 7.8
Present value of all defined obligations  
on December 31 1,467.7 888.1 2,355.8 1,260.2 617.5 1,877.7

The fair value of the plan asset of all funds changed as follows in the reporting period:

EUR million 2010 2009

Fair value of the plan assets on January 1 582.6 462.6
Currency translation differences 68.1 10.4
Expcected return on plan assets 34.1 25.6
Other effects recognized in income 0.1 –
Actuarial losses/gains 26.9 38.2
Employer contributions 36.4 64.1
Employee contributions 12.5 10.8
Pension payments in the reporting period –37.1 –27.8
Transfers/Changes in scope of consolidation/Other changes 69.7 –1.3
Fair value of the plan assets on December 31 793.3 582.6

In 2010, actuarial gains (+) and losses (–) as well as the effects of limiting defined benefit assets in
accordance with IAS 19.58 amounting to EUR –170.7 million (2009: EUR –178.1 million) were taken
to equity, together with other effects totaling EUR –4.8 million (2009: EUR 14.5 million). Moreover,
EUR –0.2 million (2009: EUR –0.5 million) was transferred to retained earnings. As of Decem-
ber 31, 2010, for the aforementioned reasons, a total of EUR –472.9 million (2009: EUR –297.2 mil-
lion) was taken to equity for the benefit obligations presented here.
Company Management Report Corporate governance Consolidated Financial Statements More information 181
Notes

The fair value of the plan assets can be allocated to the individual asset categories as follows.
Weighted average values are used here.

Dec. 31, Dec. 31,

in % 2010 2009
Debt instruments 41.6 43.3
Equity instruments 34.1 34.1
Real estate 14.4 12.0
Other assets 9.9 10.6

On average, the expected rate of return on debt instruments is 3.4%, on equity instruments 7.0%
and on real estate 5.2%. The respective rates of return take into account country-­specific conditions
and are based, among other things, on interest and dividend income expected over the long term as
well increases in the value of the investment portfolio after the deduction of directly allocable taxes
and expenses.

Over the past five years, the funded status, composed of the present value of the defined benefit
obligations and the fair value of the plan assets, has changed as follows:

EUR million as of Dec. 31 2010 2009 2008 2007 2006

Present value of the defined
benefit obligations 2,355.8 1,877.7 1,585.9 1,665.9 1,607.2
Fair value of the plan assets –793.3 –582.6 –462.6 –520.5 –346.2
Funded status 1,562.5 1,295.1 1,123.3 1,145.4 1,261.0

We expect that the direct payments to beneficiaries will amount to around EUR 83 million in 2011
(2010: EUR 72 million).
In 2011, employer contributions to plan assets will ­probably amount to around EUR 41 million
(2010: EUR 24 million).
The cost of ongoing contributions in 2010 for defined contribution plans that are financed exclusively
by external funds and for which the companies of the ­Merck Group are only obliged to pay the
contributions amounted to EUR 16.7 million in 2010 (2009: EUR 8.6 million). In addition, employer
contributions of EUR 49.9 million (2009: EUR 48.3  million) were transferred to the German statu-
tory pension insurance system and EUR 19.6 million (2009: EUR 8.2 million) to statutory pension
insurance systems abroad.
182 Merck Annual Report 2010

[34] A strong equity position is important for Merck to ensure the continued existence of the company.
Net equity Based on our financial strategy, the Executive Board regularly reviews various key figures that
reflect the capitalization of the company. Gearing (ratio of net debt and pension provisions to net
equity) and the equity ratio are important indicators here.
As of the balance sheet date, the number of shares issued totaled 64,621,126. The amount result-
ing from the issue of shares by ­Merck KGaA exceeding the nominal amount is recognized in the
capital reserves. The reserves also contain the retained earnings and the net retained profit of the
consolidated subsidiaries as well as actuarial income and losses.
The disclosure of non-controlling interest is based on the stated equity of the subsidiaries con-
cerned after any adjustment required to ensure compliance with the accounting policies of the
­Merck Group, as well as pro rata consolidation entries.
The net equity attributable to non-controlling interests mainly relates to the minority interests in
­Merck Ltd. India, Merck Ltd., Thailand, Merck S.A. France, and PT ­Merck Tbk, Indonesia.
In addition to the dividend payments to the shareholders of ­Merck KGaA and to minority sharehold-
ers in subsidiaries of the ­Merck Group, the appropriation of profits includes the transfer of profits
from ­Merck & Cie to ­E. ­Merck KG in accord­ance with the company agreements. It also includes the
reciprocal transfer of profits be­tween E. Merck KG and Merck KGaA in accordance with the Articles
of Association, which is as follows:

2010 2009
EUR million E. Merck KG Merck KGaA E. Merck KG Merck KGaA
Result of E. Merck KG 12.3 – –2.9 –
Result of ordinary activities of Merck KGaA – 709.4 – 309.2
Extraordinary result – –21.0 – –
Adjustment for trade income tax in accordance with § 27 (1) Articles of
Associaton of Merck KGaA 0.0 – 4.8 –
Trade income tax in accordance with § 30 (1) Articles of Association of
Merck KGaA – –71.0 – 0.9
Basis for the appropriation of profits (100%) 12.3 617.4 1.9 310.1
Profit transfer to E. Merck KG
Ratio general partner’s capital to total capital (70.274%) 433.9 –433.9 217.9 –217.9
Profit transfer from E. Merck KG
Ratio share capital to total capital (29.726%) –3.7 3.7 –0.6 0.6
Trade tax 0.0 – –4.8 –
Corporate income tax – –16.7 – –0.1
Net income 442.5 170.5 214.4 92.7
Company Management Report Corporate governance Consolidated Financial Statements More information 183
Notes

In ­accordance with the provisions of the Articles of Association, E. Merck KG has a 70.274% interest
in the profit/loss of Merck KGaA while Merck KGaA has an interest of 29.726% in the profit/loss of
E. Merck KG. Merck KGaA’s profit from ordinary activities adjusted for trade income tax and extraor-
dinary result, on which the appropriation of its profit is based, amounts to EUR 617.4 million (2009:
EUR 310.1 million). Merck KGaA transferred EUR 433.9 million of its profit to E. Merck KG (2009:
EUR 217.9 million). The profit/loss of E. Merck KG, on which the appropriation of profit/loss is based,
amounts to EUR 12.3 million (2009: EUR 1.9 million). Consequently, this results in a profit transfer
to Merck KGaA of EUR 3.7 million (2009: EUR 0.6 million).
Moreover, in 2010 EUR 43.0 million (2009: EUR 26.8 million) was transferred by Merck & Cie to
E. Merck KG.
For 2009, a dividend of EUR 1.00 per share was distributed. The dividend proposal for fiscal 2010
will be EUR 1.25 per share, corresponding to a total dividend payment of EUR 80.8 million to
shareholders.

The following table shows the development of transactions taken cumulatively and directly to the
equity of shareholders of the parent company:
Exchange dif-
Available-for- ferences on
sale current and Derivative translating 
non-current  financial  foreign 
EUR million financial assets instruments operations Total
Balance as of January 1, 2009 –15.0 64.1 525.4 574.5
Gains/losses recognized immediately
in equity 33.8 –16.6 –15.5 1.7
Changes in scope of consolidation/Others – – – –
Balance as of December 31, 2009 18.8 47.5 509.9 576.2

Balance as of January 1, 2010 18.8 47.5 509.9 576.2

Gains/losses recognized immediately
in equity –21.8 –108.6 834.6 704.2
Changes in scope of consolidation/Others –0.1 – 0.1 –
Balance as of December 31, 2010 –3.1 –61.1 1,344.6 1,280.4

The increase in the currency translation difference results mainly from the decline in the value of
the euro versus the Swiss franc and the U.S. dollar.

Notes to the segment reporting

The classification of asset and income figures as well as of other key figures by business sector or
by region in accordance with IFRS 8 is presented in “Segment Reporting”. The segments presented
correspond to the internal organizational and reporting structure of the Merck Group. Within the
Merck Serono division, we focus on specialist therapeutic areas and market innovative prescrip-
tion drugs of chemical and biotechnological origin. The Consumer Health Care division comprises
Merck’s business with high-quality over-the-counter products for preventive health care and
self-treatment of minor ailments. These two divisions form the Pharmaceuticals business sector.
184 Merck Annual Report 2010

With the acquisition of Millipore, the Chemicals business sector was reorganized. The new Merck
Millipore division combines the acquired activities with large sections of the former Life Science
Solutions business. The new Performance Materials division comprises the Liquid Crystals and
­Pigments & Cosmetics business units as well as the Advanced Technologies unit with its materials
for LEDs (light-emitting diodes) and photovoltaics as well as other innovative technologies. Accord-
ingly, the Merck Millipore and Performance Materials segments are reported within the Chemicals
business sector in the Segment Reporting as of December 31, 2010. The previous year’s figures have
been adjusted.
The segment Corporate and Other mainly includes the income and expenses that cannot be allo-
cated to the operating segments, e.g. expenses for central administrative functions.
The financial result and taxes on income are also allocated in full to the segment Corporate and
Other. The operating segments are described in detail in the sections about the divisions in the
management report.
Apart from total revenues, the success of a segment is mainly determined by the division’s operat-
ing result as well as free cash flow and the key figures derived from these such as “Underlying
free cash flow on revenues (FCR)“ and “Return on Sales (ROS)”. The accounting standards used to
calculate these performance indicators are the same as those used in external reporting (IFRS).
Transfer prices for intragroup sales are determined on an arm’s-length basis. There were no signifi-
cant intercompany relations between the business segments.
Neither in 2010 nor in 2009 did any single customer account for more than 10% of Group sales.

The following reconciliation applied to operating assets in the Segment Reporting:

Dec. 31, Dec. 31,

EUR million 2010 2009
Assets 22,388.0 16,712.6
Monetary assets (cash and cash equivalents, loans, securities) –1,042.4 –2,119.7
Financial assets covering pensions –216.9 –209.6
Non-operating receivables, tax receivables, deferred taxes and
deferred pension payments –723.1 –635.6
Assets held for sale –36.7 –
Operating assets (gross) 20,368.9 13,747.7
Trade accounts payable –1,200.1 –935.7
Other operating liabilities –698.3 –465.3
Operating assets (net) 18,470.5 12,346.7

The Merck Millipore division accounted for EUR 0.9 million (2009: EUR 0.1 million) and the Corporate
and Other segment for EUR 3.2 million (2009: EUR 3.4  million) of the investment result disclosed in
the income statement.
 Company Management Report Corporate governance Consolidated Financial Statements More information 185
Notes

Notes to the cash flow statement

[35] Tax payments in 2010 totaled EUR 336.1 million (2009: EUR 260.1 million). Tax refunds totaled
Net cash flows from EUR­ 18.7 million (2009: EUR 0.0 million). Interest paid totaled EUR 134.7 million (2009: EUR 76.9 mil-
­operating activities lion) and interest received totaled EUR 38.1 million (2009: EUR 26.6 million).

[36] A total of EUR 4,859.7 million was used for acquisitions and investments in other financial assets
Net cash flows from (2009: EUR 40.0 million). Of this amount, EUR 4,843.7 million (2009: EUR 23.5 million) was used for
­investing activities acquisitions. In­vestments in other financial assets totaled EUR 16.0 million (2009: EUR 16.5 million).
Taking into consideration cash included in the acquisition, the payment of the Millipore purchase
price involved cash outflows of EUR 4,837.1 million. A final payment of EUR 6.6 million was made
for the Suzhou Taizhu China Group, which was acquired in 2009.
Suzhou 
Taizhu  Total 
EUR million Millipore China Group 2010
Purchase price 4,611.9 6.6 4,618.5
Equity-like purchase price components (convertible bond) 525.2 – 525.2
Purchase price including convertible bond 5,137.1 6.6 5,143.7
Cash and cash equivalents acquired –300.0 – –300.0
Acquisitions 4,837.1 6.6 4,843.7

The divestment of Théramex did not result in any cash inflows in 2010 since the purchase price pay-
ment was made in January 2011. Cash outflows within the scope of this divestment amounted to
EUR 9.7 million. These comprised cash and cash equivalents of Théramex totaling EUR 9.2 ­million on
the date of deconsolidation as well as transaction costs of EUR 0.5 million. This is disclosed in the
cash flow statement under “Disposal of non-current assets”. Net cash inflows from changes in other
financial assets amounting to EUR 1,431.3 million were mainly the result of the sale of short-term
securities and financial assets and were used to finance the acquisition of Millipore.

[37] Disclosed dividend payments and transfers of profits in accordance with the Articles of Association
Net cash flows from were broken down as follows in the fiscal year:
­financing activities
EUR million 2010 2009
Dividends to shareholders –64.6 –96.9
Dividends to shareholders of non-controlling interest –21.5 –7.9
Dividend payments –86.1 –104.8
186 Merck Annual Report 2010

EUR million 2010 2009

Profit transfer in accordance with the Articles of Association
from E. Merck KG to Merck KGaA 3.7 0.6
Profit transfer in accordance with the Articles of Association
from Merck KGaA to E. Merck KG –433.9 –217.9
Changes in reserves of Merck KGaA by E. Merck KG 212.1 66.3
Profit transfer from Merck KGaA to E. Merck KG –218.1 –151.0
Profit transfer from Merck & Cie to E. Merck KG –43.0 –26.8
Profit transfer to E. Merck KG –261.1 –177.8

Changes in financial liabilities to E. Merck KG 71.5 20.6

Changes in other liabilities to E. Merck KG 79.1 –53.2
Changes in liabilities to E. Merck KG 150.6 –32.6
Total cash transfers to and from E. Merck KG –110.5 –210.4

Free cash flow after dividend payments and profit transfers totaled EUR –3,869.7 million (2009:
EUR 529.8 million).

[38] The composition of cash and cash equivalents is presented under Notes to the Balance Sheet.
Cash and cash equivalents

[39] Free cash flow and underlying free cash flow are indicators that we use internally to measure the
Free cash flow and underly- contribution of our divisions to liquidity. Free cash flow includes all net cash flows from operating
ing free cash flow activities as well as investing activities performed in connection with operating business. We do not
include in free cash flow pure financial investments and similar monetary deposits of more than
three months, which are also to be reported as net cash flows from investing activities under IFRS.
In the reconciliation of free cash flow to underlying free cash flow, cash flows for both acquisitions
and for divestments are taken into account. The acquisition-related payments of EUR 4,941.9 mil-
lion (2009: EUR 23.5 million) consist of acqusitions amounting to EUR 4,843.7 million (2009:
EUR 23.5 million) as well as other payments amounting to EUR 98.2 million in connection with
the acquisition of Millipore. This concerns acquisition-related costs and social insurance taxes in
connection with the payments for options from the stock option plan. In 2010, we made payments
totaling EUR 240.7 million (2009: EUR 15.7 million) in connection with the existing legal risks that
we continue to be responsible for from the divestment of our former generics subsidiary, Dey Inc., of
the United States. This includes the settlement payment to the U.S. Department of Justice amount-
ing to EUR 214.5 million (see also Note [32]). Furthermore, EUR 9.7 million was recognized from the
divestment of Théramex.
 Company Management Report Corporate governance Consolidated Financial Statements More information 187
Notes

Other disclosures

[40] Merck uses derivative financial instruments exclusively to hedge currency and interest rate posi-
Derivative financial tions, and thereby reduce currency and interest rate risks. Foreign currency risks from recognized
­instruments transactions are largely hedged. Merck currently uses marketable forward exchange contracts,
interest rate futures and interest rate swaps as hedging instruments. Depending on the nature of
the hedging transaction, hedged items are disclosed either in the operating result or, in the case
of financial transactions, in the financial result.
The strategy to hedge interest rate and currency fluctuations arising from future transactions
is set by a Merck Group currency and interest rate committee, which meets on a regular basis.
A review period of up to 36 months normally serves as the basis for entering into currency deriva-
tive contracts. Extensive guidelines regulate the use of derivatives. There is a ban on speculation.
Derivative transactions are subject to continuous risk management procedures. Trading, settlement
and control functions are strictly separated. Derivative financial contracts are only entered into
with banks that have a good credit rating.

The following derivative financial positions were held as of the balance sheet date:
Nominal volume Fair value
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
EUR million 2010 2009 2010 2009
Cash flow hedge 3,713.5 902.0 –102.0 57.6
Interest 100.0 100.0 –1.1 –0.3
Currency 3,613.5 802.0 –100.9 57.9
Fair value hedge 502.5 520.9 15.3 14.5
Interest 500.0 500.0 15.4 14.6
Currency 2.5 20.9 –0.1 –0.1
No hedge accounting 5,298.0 2,161.1 –18.1 8.8
Interest 1,500.0 – –0.6 –
Currency 3,798.0 2,161.1 –17.5 8.8
9,514.0 3,584.0 –104.8 80.9

The nominal volume is the aggregate of all buy and sell amounts relating to derivative contracts.
The fair values result from the valuation of open positions at market prices, ignoring any opposite
movements in the value of the underlyings. They correspond to the income or expenses which
would result if the derivatives contract were closed out as of bthe alance sheet date. Transactions
are recognized at fair value on the basis of quoted prices or current market data provided by a
recognized information service.
188 Merck Annual Report 2010

The maturity structure of the hedging transactions (nominal volume) is as follows as of the bal-
ance sheet date:
Remaining Remaining Remaining Remaining
maturity maturity Total  maturity maturity Total 
less than  more than Dec. 31, less than  more than Dec. 31,
EUR million 1 year 1 year 2010 1 year 1 year 2009
Forward exchange
contracts 4,454.0 2,960.0 7,414.0 2,598.3 385.7 2,984.0
Interest rate swaps 500.0 100.0 600.0 – 600.0 600.0
Interest rate futures 1,500.0 – 1,500.0 – – –
6,454.0 3,060.0 9,514.0 2,598.3 985.7 3,584.0

The forward exchange contracts that are entered into to reduce the exchange rate risk with a
total nominal volume of EUR 7,414.0  million primarily serve to hedge intercompany financing in
foreign currency. These mainly served to hedge fluctuations in the exchange rates of the U.S. dollar
(EUR 4,046.8 million), the Swiss franc (EUR 483.5 million), the Japanese yen (EUR 845.1 million),
the Taiwanese dollar (EUR 533.2 million) and the British pound (EUR 494.7 million).
Forecast transactions are only in a cash flow hedging relationship if the occurrence can be
assumed to be highly probable. The nominal ­volume of hedged future transactions amounted to
EUR 3,713.5 million (2009: EUR 902.0 million) as of the balance sheet date and related mainly to
the hedging of future sales in U.S. dollars, Taiwanese dollars and Japanese yen as well as costs in
Swiss francs. The occurrence of hedged items is expected within the next 36 months. Moreover,
we use forward exchange contracts to hedge financial investments and borrowings in foreign cur-
rency and designate them as cash flow hedges. During the fiscal year, expenses of EUR 125.3 mil-
lion (2009: income totaling EUR 47.5 million) from the fair value measurement of derivatives was
recognized in equity. EUR 17.2 million (2009: EUR 64.8 million) was transferred from equity and
recognized as expense (2009: income).
The interest expense of the euro benchmark bond, which was issued in 2005 with a volume of
EUR 500 million and a coupon of 3.75% was variabilized to the six-month Euribor through interest
rate swaps and is measured as a fair value hedge. The fair value measurement of the bond led to
income of EUR 0.2 million (2009: expense of EUR 15.2 million). This was offset by an expense in the
same amount from the interest rate swap. Net interest payments on the bond and interest rate swaps
were fixed in 2010 by forward exchange contracts based on the 6-month Euribor forward curve.
The interest expense of the private placement of EUR 100 million made in the context of the debt
issuance program in 2009 was fixed by an interest rate swap of 3-month Euribor plus 0.77%, which
was carried in the balance sheet as a cash flow hedge. The fair value measurement of the interest
rate swap led to an expense of EUR 1.1 million (2009: 0.3 million). This amount was recognized in
equity at 100% effectiveness.

[41] Fluctuations in the price of currencies and interest rates can result in significant profit and cash
Management of flow risks for Merck. Therefore, Merck centralizes these risks as far as possible and steers them in a
financial risks forward-looking manner, also by using derivative financial instruments. More information on the
management of financial risks is provided in the Risk Report, which can be found in the Manage-
ment Report.
 Company Management Report Corporate governance Consolidated Financial Statements More information 189
Notes

Foreign currency risks Transaction risks: Owing to its international business focus, Merck is subject to currency risks within
the scope of both ordinary business and financing activities. Different strategies are used to limit
or exclude these risks.
In principle, currency risks from financing activities are eliminated as far as possible through the
use of forward exchange contracts. Currency risks arising from operating business are analyzed
regularly and reduced if necessary through forward exchange contracts or currency options using
hedge accounting.

The following table presents the net currency risk from expected and recognized transactions in 2011
in the key currencies:

EUR million as of Dec. 31, 2010 CHF GBP JPY TWD USD

Foreign exchange risk from balance sheet items –80.9 74.9 206.6 70.4 2,804.9
Foreign exchange risk from contingent business and
anticipated transactions in 2011 –467.9 114.2 291.3 421.5 1,147.1
Transaction-related foreign exchange position –548.8 189.1 497.9 491.9 3,952.0
Position hedged by derivates 130.0 –75.0 –386.5 –346.6 –3,294.2
Open-end foreign exchange risk position –418.8 114.1 111.4 145.3 657.8
Change in foreign exchange position due to
a 10% appreciation of the euro 41.9 –11.4 –11.1 –14.5 –65.8
included in profit/loss –4.9 – 3.5 4.5 8.4
recognized in equity – – 14.5 23.1 40.5

Furthermore, derivatives exist to hedge expected cash flows beyond the year 2011. These would
lead to a change in equity amounting to EUR 20.0 million in Japanese yen. Due to the hedging of
expected cash flows beyond the year 2010, this would have caused in 2009 a change in equity of
EUR 11.5 million in the Japanese yen, EUR 4.1 million in the Taiwanese dollar, and EUR 18.5 million
in U.S. dollars. The following table presents the corresponding net currency risk from expected and
recognized transactions for 2010:

EUR million as of Dec. 31, 2009 CHF GBP JPY TWD USD

Foreign exchange risk from balance sheet items –167.8 154.7 156.9 57.9 –345.9
Foreign exchange risk from contingent business and
anticipated transactions in 2010 –281.3 78.2 158.0 290.1 672.9
Transaction-related foreign exchange position –449.1 232.9 314.9 348.0 327.0
Position hedged by derivatives 176.0 –172.1 –262.4 –136.1 –7.5
Open-end foreign exchange risk position –273.1 60.8 52.5 211.9 319.5
Change in foreign exchange position due to
a 10% appreciation of the euro 27.3 –6.1 –5.2 –21.2 –31.9
included in profit/loss –0.8 –0.3 –0.9 2.4 12.6
recognized in equity – 2.0 11.4 5.4 22.8
190 Merck Annual Report 2010

Translation risks: Many Merck companies are located outside the euro zone. The financial state-
ments of these companies are translated into euros. Exchange differences in the assets of these
companies resulting from currency fluctuations are recognized in equity.

Interest rate risks Interest rate risks relate mainly to financial liabilities of EUR 5,483.5 million (2009: EUR 2,307.3 mil-
lion) and monetary deposits of EUR 1,346.5 million (2009: EUR 2,372.6 million). If necessary, deriva-
tive financial instruments are used to change fixed interest payments into variable interest payments.
The aim is to optimize the interest result and to minimize interest rate risks. Relative to net interest
liabilities on the balance sheet date, a parallel shift in interest rates by +100 basis points would affect
profits by EUR 6.3 million (2009: EUR 10.3 million). This corresponds to an increase in interest income
of EUR 9.1 million (2009: EUR 17.3 million) on financial assets and additional interest expense of
EUR 2.8 million (2009: EUR 7.0 million) on financial liabilities. The resulting change in the market
value of assets recognized at fair value would lower equity by EUR­ 6.8 million (2009: EUR 5.1 million).

Share price risks The share portfolio of publicly listed companies amounting to EUR 60.0 million is generally exposed
to a market value risk. A 10% change in the value of the stock market would impact equity by
EUR 6.0 million. These changes in value are recognized in income at the time of disposal.

Liquidity risks The liquidity risk, meaning the risk that Merck cannot meet its financial obligations, is ­limited by
effective cash management and by establishing the required financial flexibility. Apart from liquid
assets of EUR 999.3 million (2009: EUR 2,044.6 million), Merck has at its disposal a multi-currency
revolving credit line of EUR 2 billion to be used for business purposes with a remaining term of
four years as well as bilateral credit facilities of EUR 324.8 million (2009: EUR 233.1 million). There
are no indications that the availability of credit lines already extended will be restricted.
Moreover, a commercial paper program with a volume of EUR 2 billion exists and a debt issuance
program set up in 2009 with a volume of EUR 10 billion. Liquidity risks are regularly monitored and
reported to the management. Our loan agreements do not contain any financial covenants.
Trade payables amounting to EUR 1,200.1 million (2009: EUR 935.7 million) as well as operating
liabilities from derivatives amounting to EUR 37.9 million (2009: EUR 1.4 million) have a remaining
term of less than one year. Out of other financial liabilities amounting to EUR 486.3 million (2009:
EUR 302.5 million), EUR 481.7 million (2009: EUR 300.1 million) are due within one year.
 Company Management Report Corporate governance Consolidated Financial Statements More information 191
Notes

The following tables present the contractually set payments such as repayments and interest on
financial liabilities and derivative financial instruments with a negative market value:

Cash flows   Cash flows   Cash flows  

2011 2012–2016 2017–2023
EUR million as of   Repay- Repay- Repay-
Dec. 31, 2010 Book value Interest ment Interest ment Interest ment
Debt securities and
commercial paper 4,983.6 190.4 35.3 643.3 3,509.5 213.8 1,419.3
Bank loans and over-
drafts 115.7 1.7 81.2 3.1 29.9 0.1 4.6
Liabilities to related
parties 190.3 – 190.3 – – – –
Loans from third par-
ties and other financial
liabilities 78.1 4.5 11.0 8.0 58.7 – 8.5
Liabilities from
derivatives (financial
transactions) 108.7 – 28.7 – 80.0 – –
Financial leasing
liabilities 7.1 0.1 0.7 0.2 4.1 – 2.3
5,483.5 196.7 347.2 654.6 3,682.2 213.9 1,434.7

Cash flows   Cash flows   Cash flows  

2010 2011–2015 2016–2022
EUR million as of   Repay- Repay- Repay-
Dec. 31, 2009 Book value Interest ment Interest ment Interest ment
Debt securities and
commercial paper 1,990.3 83.6 500.0 170.9 1,350.0 14.1 130.0
Bank loans and
overdrafts 87.4 1.6 63.8 3.5 14.8 0.4 5.2
Liabilities to related
parties 118.8 – 118.8 – – – –
Loans from third
parties and other
financial liabilities 82.9 4.2 11.9 8.4 61.2 0.1 9.7
Liabilities from
derivatives (financial
transactions) 17.5 2.1 16.0 10.6 1.2 – –
Financial leasing
liabilities 10.4 0.7 5.9 0.3 4.5 – –
2,307.3 92.2 716.4 193.7 1,431.7 14.6 144.9

Credit risks Merck is only subject to a very low credit risk, meaning the unexpected loss of payment funds
or income. Financial contracts are only entered into with banks with good ratings and the broad-
based business structure of the Merck Group means that there is no particular concentration of
credit risks. The credit risk with customers is continuously monitored by analyzing the age structure
of trade accounts receivable. The theoretically maximum default risk corresponds to the book values.
192 Merck Annual Report 2010

[42] Other disclosures on financial instruments

The following table presents the reconciliation of the balance sheet items to the classes of financial instruments
in accordance with IFRS 7:
Subsequent measurement according to IAS 39
Book value Carrying 
Dec. 31, value accord-  Non-financial
EUR million 2010 Amortized cost At cost Fair value ing to IAS 17 items
Assets
Cash and cash equivalents 943.7 943.7 – – – –
Marketable securities and financial assets 55.6 23.0 – 32.6 – –
Held for trading (non-derivatives) 0.0 – – 0.0 – –
Non-hedging derivatives 0.0 – – 0.0 – –
Held to maturity 22.7 22.7 – – – –
Loans and receivables 0.3 0.3 – – – –
Available-for-sale 11.3 – – 11.3 – –
Hedging derivatives 21.3 – – 21.3 – –
Trade receivables 2,296.3 2,296.3 – – – –
Loans and receivables 2,296.3 2,296.3 – – – –
Current and non-current other assets 617.6 407.1 – 2.6 – 207.9
Non-hedging derivatives 1.3 – – 1.3 – –
Loans and receivables 407.1 407.1 – – – –
Hedging derivatives 1.3 – – 1.3 – –
Non-financial items 207.9 – – – – 207.9
Non-current financial assets 130.3 16.6 57.2 56.5 – –
Non-hedging derivatives 0.0 – – 0.0 – –
Held to maturity 0.0 0.0 – – – –
Loans and receivables 16.6 16.6 – – – –
Available-for-sale 95.8 – 57.2 38.6 – –
Hedging derivatives 17.9 – – 17.9 – –

Financial assets covering pensions 216.9 64.6 – 152.3 – –

Held to maturity 64.6 64.6 – – – –
Available-for-sale 152.3 – – 152.3 – –

Liabilities
Current and non-current financial liabilities 5,483.5 5,367.7 – 108.7 7.1 –
Non-hedging derivatives 15.8 – – 15.8 – –
Other liabilities 5,367.7 5,367.7 – – – –
Hedging derivatives 92.9 – – 92.9 – –
Finance lease 7.1 – – – 7.1 –
Trade accounts payable 1,200.1 1,200.1 – – – –
Other liabilities 1,200.1 1,200.1 – – – –
Current and non-current other liabilities 1,097.5 486.3 – 37.9 – 573.3
Non-hedging derivatives 3.5 – – 3.5 – –
Other liabilities 486.3 486.3 – – – –
Hedging derivatives 34.4 – – 34.4 – –
Non-financial items 573.3 – – – – 573.3
 Company Management Report Corporate governance Consolidated Financial Statements More information 193
Notes

Subsequent measurement according to IAS 39

Carrying value
Fair value Dec. Book value Dec. according to Non-financial Fair value Dec.
31, 2010 31, 2009 Amortized cost At cost Fair value IAS 17 items 31, 2009

943.7 541.4 541.4 – – – – 541.4

1,503.2 1,199.1 – 304.1 – –
0.0 0.0 – – – – – 0.0
0.0 27.0 – – 27.0 – – 27.0
22.7 48.4 48.4 – – – – 48.4
0.3 1,150.7 1,150.7 – – – – 1,150.7
11.3 262.5 – – 262.5 – – 262.5
21.3 14.6 – – 14.6 – – 14.6
1,788.7 1,788.7 – – – –
2,296.3 1,788.7 1,788.7 – – – – 1,788.7
375.1 93.5 – 58.1 – 223.5
1.3 0.0 – – – – – 0.0
407.1 93.5 93.5 – – – – 93.5
1.3 58.1 – – 58.1 – – 58.1
223.5 – – – – 223.5
118.4 15.9 48.2 54.3 – –
0.0 0.1 – – 0.1 – – 0.1
0.0 0.0 – – – – – 0.0
16.6 15.9 15.9 – – – – 15.9
95.8 102.4 – 48.2 54.2 – – 102.4
17.9 0.0 – – – – – 0.0

209.6 61.1 – 148.5 – –

64.6 61.1 61.1 – – – – 61.1
152.3 148.5 – – 148.5 – – 148.5

2,307.3 2,279.4 – 17.5 10.4 –

15.8 17.2 – – 17.2 – – 17.2
5,532.1 2,279.4 2,279.4 – – – – 2,350.7
92.9 0.3 – – 0.3 – – 0.3
7.1 10.4 – – – 10.4 – 10.4
935.7 935.7 – – – –
1,200.1 935.7 935.7 – – – – 935.7
655.1 302.5 – 1.4 – 351.2 –
3.5 1.1 – – 1.1 – – 1.1
486.3 302.5 302.5 – – – – 302.5
34.4 0.3 – – 0.3 – – 0.3
351.2 – – – – 351.2 –
194 Merck Annual Report 2010

The net result of financial instruments comprises the impact of financial instruments on income.
This includes mainly measurement results from currency translation, the adjustment to fair value,
write-downs and write-ups as well as the recognition of premiums and discounts. Dividends and
interest are not recognized in the net result of financial instruments, except for in the category
“held for trading”. Interest paid and earned is only included in the category “Financial assets and
liabilities at fair value through profit/loss”.

The net result of financial instruments by category are as follows:

Net results
Disposal
Write- Fair value gains/
2010 EUR million Interest downs Write-ups changes losses
Financial instrument of the category
Held for trading – – – 18.3 –
Held to maturity 15.2 –0.2 0.0 – 1.5
Loans and receivables 5.2 –72.4 9.3 – 0.0
Available for sale 10.8 –2.1 0.0 – 0.0
Other liabilities –195.7 – – – –

Net results
Disposal
Write- Fair value gains/
2009 EUR million Interest downs Write-ups changes losses
Financial instrument of the category
Held for trading – – – 18.6 –
Held to maturity 1.1 0.0 0.0 – 0.0
Loans and receivables 30.6 –30.8 2.9 – 0.0
Available for sale 1.9 –2.6 0.0 – 1.3
Other liabilities –92.9 – – – –

In 2010, exchange rate gains of EUR 22.9 million resulting from receivables and payables in oper-
ating business were recognized (2009: losses of EUR –9.7 million). Income totaling EUR 1.8 million
was recorded for hedging transactions in operating business (2009: EUR 3.1 million). Exchange rate
gains of EUR 1.1 million (2009: losses of EUR 3.7 million) were booked for financial receivables/
payables and measures to secure them. A gain of EUR 11.8 million (2009: loss of EUR –3.3 million)
was booked for hedging of financing transactions.
Company Management Report Corporate governance Consolidated Financial Statements More information 195
Notes

The fair value of stocks and bonds used to cover pension obligations and to manage liquidity are
mainly based on the official market prices and market values quoted on the balance sheet date.
The fair value of interest-bearing securities is determined by discounting future cash flows using
market interest rates. Forward exchange contracts are carried at fair value. They are measured
using market mid spot rates and maturity-related interest premiums or discounts in relation to
traded market prices. The fair value of interest rate swaps held for interest rate hedging purposes
is determined with standard market valuation models using interest rate curves available in the
market. Compared with the previous year, there were no changes in the method used to determine
fair value.

The fair values of the financial instruments disclosed in our balance sheet were determined as follows:

EUR million as of Dec. 31, 2010 Assets Liabilities

Prices quoted in an active market 202.2 0.0
thereof available-for-sale 202.2 –
Valuation technique including data from observable markets 41.8 –146.6
thereof available-for-sale 0.0 –
thereof hedging derivatives 40.5 –127.2
thereof non-hedging derivatives 1.3 –19.4
Valuation technique based on assumptions not supported  
by observable market data 0.0 0.0

EUR million as of Dec. 31, 2009 Assets Liabilities

Prices quoted in an active market 213.4 0.0
thereof available-for-sale 213.4 0.0
Valuation technique including data from observable markets 351.7 18.9
thereof available-for-sale 251.8 0.0
thereof hedging derivatives 72.8 0.6
thereof non-hedging derivatives 27.1 18.3
Valuation technique based on assumptions not supported  
by observable market data 0.0 0.0
196 Merck Annual Report 2010

[43]
Contingent liabilities Dec. 31, thereof  Dec. 31, thereof 
EUR million 2010 subsidiaries 2009 subisdiaries
Guarantees 105.0 – 69.0 –
Warranties 0.5 – 1.3 –
Other contingent liabilities 40.7 – 26.2 –

Most of the guarantees issued exist in connection with our pharmaceutical business in Italy, where
­pursuant to tax legislation, guarantees must be given for reimbursements of tax receivables from
the Italian fiscal authorities as well as to secure the supply of products to public hospitals. As of
December 31, 2010, these amounted to EUR 54.0 million (2009: EUR 43.0 million). Other contingent
liabilities include, among other things, ­collateral security given on property, plant and equipment,
for example buildings and potential obligations from legal disputes, for which the probability of an
outflow of resources did not suffice to recognize a provision as of the balance sheet date.

[44] Other financial obligations comprise the following:

Other financial
­obligations Dec. 31, thereof  Dec. 31, thereof 
EUR million 2010 subsidiaries 2009 subsidiaries

Obligations to acquire intangible assets 1,003.6 – 1,207.5 –

Orders for capital expenditure on property,
plant and equipment 179.2 – 211.0 –
Future operating lease payments 208.8 – 133.3 –
Long-term purchase commitments 315.2 – 326.6 –
Other financial obligations 18.2 – 18.6 –
1,725.0 – 1,897.0 –

Obligations to acquire intangible assets exist in particular within the scope of research and devel-
opment collaborations. Here Merck has obligations to make milestone payments when its partner
achieves certain objectives. In the unlikely event that all contract partners achieve all milestones,
Merck would be obligated to pay up to EUR 1,003.6 million (2009: EUR 1,207.5 million) for the
acquisition of intangible assets.
 Company Management Report Corporate governance Consolidated Financial Statements More information 197
Notes

The possible maturities of these obligations are as follows:

potential due potential due
potential due date in 1–5 date over 5
EUR million as of Dec. 31, 2010 date in 1 year years years Total
Obligations to acquire intangible
assets 32.9 219.3 751.4 1,003.6

potential due potential due

potential due date in 1–5 date over 5
EUR million as of Dec. 31, 2009 date in 1 year years years Total
Obligations to acquire intangible
assets 60.4 309.1 838.0 1,207.5

Other financial obligations are carried at nominal value. Liabilities from lease agreements are
composed as follows:
Remaining
Remaining Remaining  maturity
maturity less maturity  more than 
EUR million as of Dec. 31, 2010 than 1 year 1 to 5 years 5 years Total
Present value of future payments from
finance leases 1.8 3.0 2.3 7.1
Interest component of finance leases 0.3 0.3 – 0.6
Future finance lease payments 2.1 3.3 2.3 7.7

Future operating lease payments 50.3 130.3 28.2 208.8

Remaining
Remaining Remaining  maturity
maturity less maturity  more than 
EUR million as of Dec. 31, 2009 than 1 year 1 to 5 years 5 years Total
Present value of future payments from
finance leases 1.8 8.6 – 10.4
Interest component of finance leases 0.1 0.4 – 0.5
Future finance lease payments 1.9 9.0 – 10.9

Future operating lease payments 25.1 70.8 37.4 133.3

Operating lease agreements relate mainly to market-typical leasing arrangements to lease operat-
ing and office equipment.

[45] Personnel expenses comprise the following:

Personnel expenses/­
Headcount
EUR million 2010 2009
Wages and salaries 2,145.5 1,764.1
Compulsory social security contributions and special financial assistance 319.3 266.7
Pension expenses 132.1 98.1
2,596.9 2,128.9

As of December 31, 2010, the Merck Group had 40,562 employees (2009: 33,062).
The average number of employees during the year was 36,347 (2009: 32,850).
198 Merck Annual Report 2010

The breakdown of personnel by function is as follows:

Average number of employees 2010 2009

Production 8,327 6,956
Logistics 1,927 1,773
Marketing and sales 11,541 10,582
Administration 4,378 3,750
Research & Development 4,116 3,627
Infrastructure and Other 6,058 6,162
Total 36,347 32,850

[46] Material costs in 2010 amounted to EUR 1,246 million (2009: EUR 1,052 million), and are reported
Material costs under cost of sales.

[47] The costs of the auditors of the financial statements of the ­Merck Group (KPMG) can be broken
Auditors’ fees down as follows:
2010 2009
thereof KPMG thereof KPMG
AG and re- AG and re-
Cost in EUR million for Merck Group lated parties Merck Group lated parties
Audits of financial statements 8.1 3.4 5.2 2.2
Other audit-related services 0.2 – 0.4 0.3
Tax consultancy services 0.4 0.2 0.3 0.1
Other services 0.6 0.5 1.0 0.9
9.3 4.1 6.9 3.5

The increase in the costs of the auditors is mainly due to the first-time and subsequent audits of
the Millipore companies. Related parties to KPMG Aktiengesellschaft Wirtschaftsprüfungsgesellschaft
are those companies affiliated with KPMG Europe LLP as of December 31, 2010.

[48] The Statement of Compliance in accordance with Section 161 of the German Stock ­Corporation Act
Corporate governance (Aktiengesetz) was published in the corporate governance section of our website www.merck.de/
investors → Corporate Governance in February 2010 and thus made p­ ermanently a­ vailable.

[49] The following companies, which have been consolidated in these financial statements, have opted
Companies opting for for exemption under section 264 (3) of the German Commercial Code (HGB):
exemption under section Chemische Fabrik Lehrte Dr. Andreas Kossel GmbH, Lehrte
 264 (3) HGB Merck Export GmbH, Darmstadt
Merck Selbstmedikation GmbH, Darmstadt
Merck Shared Services Europe GmbH, Darmstadt
Merck Serono GmbH, Darmstadt
 Company Management Report Corporate governance Consolidated Financial Statements More information 199
Notes

[50] Related parties in respect of the ­Merck Group are E. ­Merck KG as well as Emanuel ­Merck Vermö-
Related-party disclosures gens KG and E. ­Merck Beteiligungen KG. In principle, direct or indirect subsidiaries of Merck KGaA,
associates and joint ventures of the ­Merck Group as well as pension funds that are classified as
funded defined benefit plans in accordance with IAS 19 are also related parties within the meaning
of IAS 24. Members of the Executive Board and the Supervisory Board of ­Merck KGaA, the Board of
Management and the Board of Partners of E. M ­ erck KG as well as close members of their families
are also related parties.
As of December 31, 2010, there were liabilities by Merck KGaA, ­Merck Financial Services GmbH and
­Merck & Cie, Altdorf, to ­E. Merck KG in the amount of EUR 450.9 million (2009: EUR 292.6 million).
In addition, ­as of December 31, 2010, Merck KGaA had receivables in the amount of EUR 12.3 mil-
lion (2009: EUR 10.7 million) from ­E. ­Merck KG and from ­E. ­Merck Beteiligungen KG in the amount
of EUR 4.7 million (2009: EUR 4.2 million). The balances result mainly from the profit transfers by
­Merck & Cie to ­E. ­Merck KG, the reciprocal profit transfers between ­Merck KGaA and ­E. ­Merck KG as
well as the extension of loans by E. Merck KG to Merck Financial Services GmbH. These financial
payables of EUR 190.3 million (2009: EUR 118.8 million) are subject to standard market interest rates.
From January to December 2010, ­Merck KGaA and Merck Shared Services Europe GmbH performed
services for ­E. ­Merck KG with a value of EUR 1.1 million (2009: EUR 1.2 million), for E. Merck Beteili-
gungen KG with a value of EUR 0.4 million (2009: EUR 0.4 million), and for Emanuel Merck Vermö-
gens KG with a value of EUR 0.2 million (2009: EUR 0.1 million). During the same period, E. Merck
KG ­performed services for Merck KGaA with a value of EUR 0.5 million (2009: EUR 0.5 million).
Business transactions with major subsidiaries have been eliminated during consolidation and are not
disclosed further in the Notes. Information on pension funds that are classified as funded defined
benefit plans in accordance with IAS 19 can be found under Provisions for pensions and other post-
employment benefits. There were no further material transactions with these pension funds.
From January to December 2010, companies of the ­Merck Group supplied goods with a value of
EUR 1.1 million (2009: EUR 0.3 million) to associates. As of December 31, 2010, companies of the
Merck Group had receivables from associates amounting to EUR 0.8 million (2009: EUR 0.0 million)
There were no further material transactions with associates.
There were no additional material transactions such as, for example, the provision of services or
the extension of loans, between the companies of the Merck Group and members of the Executive
Board and the Supervisory Board of Merck KGaA, the Executive Board and the Board of Partners of
E. Merck KG or members of their immediate families.
200 Merck Annual Report 2010

[51] The compensation of the Executive Board of ­Merck KGaA is largely paid by the general partner,
Executive Board and ­E. ­Merck KG, and recorded as an expense in its income statement. For January to December 2010,
­Supervisory Board fixed salaries of EUR 3.5 million (2009: EUR 3.5 million) and variable compensation of EUR 6.2 million
­compensation (2009: EUR 3.7 million) were recorded for members of the Executive Board of Merck KGaA. Further-
more, additions to pension provisions of ­E. ­Merck KG include current service costs of EUR 2.1 million
(2009: EUR 1.6 million) for members of the Executive Board of Merck KGaA.
Subject to the approval of the Annual General Meeting on the proposed distribution of a dividend
of EUR 1.25 per share, the compensation of the ­Supervisory Board ­amounting to EUR 528 thousand
(2009: EUR 435 thousand) consists of a fixed portion of EUR 123 thousand (2009: EUR 123 thou-
sand) and a variable portion of EUR 405 thousand (2009: EUR 312 thousand).
Further details can be found in the Compensation Report on pages 111 to 117.

[52] The Executive Board of Merck KGaA prepared the consolidated financial statements on Febru-
Information on preparation ary 8, 2011 and approved them for forwarding to the Supervisory Board. The Supervisory Board
and approval has the responsibility to examine the consolidated financial statements and to declare whether it
approves them.

[53] In January 2011, the Committee for Medicinal Products for Human Use (CHMP) of the European
Subsequent events Medicines Agency (EMA) confirmed its previous position and adopted a final negative opinion
regarding our marketing authorization application for cladribine tablets in Europe.

On February 7, 2011, all the conditions for the closing of the divestment of the Crop BioScience
activities were fulfilled. At a selling price of EUR 208 million, the pre-tax gain on the sale is
expected to be around EUR 160 million. As of December 31, 2010, the activities were recorded in
the Group financial statements as assets and liabilities held for sale.
Company Management Report Corporate governance Consolidated Financial Statements More information 201
Notes

[54] List of shareholdings

The following table presents the list of shareholdings of the Merck Group as of December 31, 2010.
thereof
Equity Merck 
interest  KGaA 
Country Company Registered office (%) (%)

I. Fully consolidated companies

Germany
Germany Merck KGaA Darmstadt Parent company
Germany Allergopharma J. Ganzer KG Reinbek 95.00
Germany Cape June Ltd. & Co. KG Frankfurt 100.00
Germany Chemische Fabrik Lehrte Lehrte
Dr. Andreas Kossel GmbH 100.00 100.00
Germany Chemitra GmbH Darmstadt 100.00 100.00
Germany Emedia Export Company mbH Gernsheim 100.00
Germany Litec-LLL GmbH Greifswald 100.00 100.00
Germany Merck Biosciences GmbH Schwalbach/Ts. 100.00
Germany Merck China Chemicals Holding GmbH Darmstadt 100.00
Germany Merck Consumer Health Care Holding GmbH Darmstadt 100.00 100.00
Germany Merck Export GmbH Darmstadt 100.00 100.00
Germany Merck Financial Services GmbH Darmstadt 100.00 100.00
Germany Merck Holding GmbH Gernsheim 100.00 100.00
Germany Merck Internationale Beteiligungen GmbH Darmstadt 100.00
Germany Merck Schuchardt OHG Hohenbrunn 100.00 100.00
Germany Merck Selbstmedikation GmbH Darmstadt 100.00
Germany Merck Serono GmbH Darmstadt 100.00 100.00
Germany Merck Shared Services Europe GmbH Darmstadt 100.00 100.00
Germany Merck Versicherungsvermittlung GmbH Darmstadt 100.00 100.00
Germany Merck Verwaltungsgesellschaft mbH Darmstadt 100.00 100.00
Germany Merck Vierte Allgemeine Gernsheim
Beteiligungsgesellschaft mbH 100.00
Germany Millipore GmbH Schwalbach/Ts. 100.00
Germany Solvent Innovation GmbH Darmstadt 100.00 100.00

Other European countries

Switzerland Allergopharma AG Therwil 100.00
Switzerland Ares Trading SA Aubonne 100.00
Switzerland Horizon North SA Geneva 100.00
Switzerland Horizon South SA Geneva 100.00
Switzerland Merck & Cie Altdorf 98.87 98.87
Switzerland Merck (Schweiz) AG Zug 100.00
Switzerland Merck AG Zug 100.00 20.87
Switzerland Merck Biosciences AG Läufelfingen 100.00
Switzerland Merck Eprova AG in liquidation Schaffhausen 100.00
Switzerland Merck Serono SA Coinsins 100.00
202 Merck Annual Report 2010

thereof
Equity Merck 
interest  KGaA 
Country Company Registered office (%) (%)
Switzerland Millipore AG Zug 100.00
Switzerland SeroMer Holding SA Chéserex 100.00
Switzerland Serono Technologies SA Geneva 100.00
France Delahardt S.A.S. Molsheim 100.00
France Laboratoire Médiflor S.A.S. Lyon 100.00
France Merck Chimie S.A.S. Fontenay s/Bois 100.00
France Merck Médication Familiale S.A.S. Lyon 100.00
France Merck S.A. Lyon 99.76 88.94
France Merck Santé S.A.S. Lyon 100.00
France Merck Serono Biodevelopment S.A.S. Lyon 100.00
France Merck Serono S.A.S. Lyon 100.00
France Millipore S.A.S. Molsheim 100.00
United Kingdom Baird & Tatlock Ltd. Hull 100.00
United Kingdom BioAnaLab Ltd. London 100.00
United Kingdom Bioprocessing Ltd. London 100.00
United Kingdom Bioprocessing Corp. Ltd. London 100.00
United Kingdom British Cod Liver Oils Ltd. Hull 100.00
United Kingdom Celliance Ltd. Edinburgh 100.00
United Kingdom Chemicon Europe Ltd. London 100.00
United Kingdom E. Merck Ltd. Hull 100.00
United Kingdom Hofels Pure Foods Ltd. Hull 100.00
United Kingdom Lamberts Healthcare Ltd. Tunbridge Wells 100.00
United Kingdom Lipha Pharmaceuticals Ltd. Hull 100.00
United Kingdom Marfleet Refining Company Ltd. Hull 100.00
United Kingdom Merck Biosciences Ltd. Nottingham 100.00
United Kingdom Merck Chemicals Ltd. Nottingham 100.00
United Kingdom Merck Consumer Health Care Ltd. Hull 100.00
United Kingdom Merck Cross Border Trustees Ltd. Hull 100.00
United Kingdom Merck Investments Ltd. Hull 100.00
United Kingdom Merck Ltd. Hull 100.00
United Kingdom Merck Pension Trustees Ltd. Hull 100.00
United Kingdom Merck Serono Europe Ltd. London 100.00
United Kingdom Merck Serono Ltd. Feltham 100.00
United Kingdom Merck Services U.K. Ltd. Hull 100.00
United Kingdom Millipore (U.K.) Ltd. London 100.00
United Kingdom Millipore UK Holdings LLP London 100.00
United Kingdom New Era Laboratories Ltd. Hull 100.00
United Kingdom Phillips Yeast Products Ltd. Hull 100.00
United Kingdom Rona Laboratories Ltd. Hull 100.00
United Kingdom Serologicals European Holding Ltd. London 100.00
United Kingdom Serologicals Global Holding Company Ltd. London 100.00
Company Management Report Corporate governance Consolidated Financial Statements More information 203
Notes

thereof
Equity Merck 
interest  KGaA 
Country Company Registered office (%) (%)
United Kingdom Serologicals UK Holding Company Ltd. London 100.00
United Kingdom Serono Contracting Ltd. Hull 100.00
United Kingdom Serono Ltd. Feltham 100.00
United Kingdom Seven Seas Healthcare Ltd. Hull 100.00
United Kingdom Seven Seas Ltd. Hull 100.00
United Kingdom Seven Seas Pension Trustees Ltd. Hull 100.00
United Kingdom Upstate Ion Channel Discovery Group Ltd. London 100.00
United Kingdom Upstate Ltd. London 100.00
Italy Allergopharma S.p.A. Milan 100.00
Italy Baker Italia S.p.A. Rome 100.00
Italy Istituto di Ricerche Biomediche Colleretto
Antoine Marxer RBM S.p.A. Giacosa 100.00
Italy Merck S.p.A. Milan 100.00
Italy Merck Serono S.p.A. Rome 99.74
Italy Millipore S.p.A. Milan 100.00
Spain Merck, S.L. Madrid 100.00
Spain Millipore Iberica S.A. Madrid 100.00
Belgium Merck Consumer Healthcare N.V.-S.A. Overijse 100.00
Belgium Merck N.V.-S.A. Overijse 100.00
Belgium Millipore S.A./N.V. Brussels 100.00
Bulgaria Merck Bulgaria EAD Sofia 100.00
Denmark Millipore A/S Copenhagen 100.00
Denmark Survac ApS Frederiksberg 100.00 100.0
Estonia Merck Serono OÜ Tallin 100.00
Finland Merck OY Espoo 100.00
Finland Millipore OY Espoo 100.00
Greece Merck A.E. Marousi 100.00
Ireland Millipore Cork Carrigtwohill 100.00
Ireland Millipore Dublin International Finance Company Dublin 100.00
Ireland Millipore Ireland Ltd. Carrigtwohill 100.00
Ireland Seven Seas (Ireland) Ltd. Dublin 100.00
Ireland Tullagreen Holdings Ltd. Dublin 100.00
Croatia Merck d.o.o. Zagreb 100.00
Latvia Merck Serono SIA Riga 100.00
Lithuania Merck Serono, UAB Kaunas 100.00
Luxembourg Merck Re S.A. Luxembourg 100.00
Luxembourg Merck-Finanz AG Luxembourg 100.00 100.00
Luxembourg Millilux S.a.r.L. Luxembourg 100.00
Luxembourg Millinvest S.a.r.L. Luxembourg 100.00
Luxembourg Millipart S.a.r.L. Luxembourg 100.00
Luxembourg Millipore International Holdings, S.a.r.L. Luxembourg 100.00
204 Merck Annual Report 2010

thereof
Equity Merck 
interest  KGaA 
Country Company Registered office (%) (%)
Malta Merck Capital Asset Management Ltd. St. Julians 100.00
Malta Merck Capital Holding Ltd. St. Julians 100.00
Malta Merck Capital Ltd. St. Julians 100.00
Netherlands Merck B.V. Schiphol-Rijk 100.00
Netherlands Millipore B.V. Amsterdam
­Zuidoost 100.00
Netherlands Millipore International Holding Company B.V. Amsterdam
­Zuidoost 100.00
Netherlands Millipore Ireland B.V. Amsterdam
­Zuidoost 100.00
Netherlands Serono Tri Holdings B.V. Schiphol-Rijk 100.00
Norway Millipore AS Oslo 100.00
Austria Allergopharma Vertriebsgesellschaft m.b.H. Vienna 100.00
Austria Arcana Life-Science-Produkte GmbH Vienna 100,00
Austria Merck Gesellschaft mbH Vienna 100.00
Austria Merck KGaA & Co. Werk Spittal Spittal 100.00 99.00
Austria Millipore GesmbH Vienna 100.00
Poland Merck Sp.z o.o. Warsaw 100.00
Poland Millipore Sp.z.o.o. Warsaw 100.00
Portugal Merck, S.A. Lisbon 100.00
Romania Merck Romania S.R.L. Bucarest 100.00
Russia Merck LLC Moscow 100.00
Sweden Merck AB Stockholm 100.00
Sweden Merck SeQuant AB Umea 100.00
Sweden Millipore AB Solna 100.00
Serbia Merck d.o.o. Beograd Belgrade 100.00
Slovakia Merck Pharma s.r.o. Bratislava 100.00
Slovakia Merck spol.s.r.o. Bratislava 100.00
Slovenia Merck d.o.o. Ljubljana 100.00
Czech Republic Merck spol.s.r.o. Prague 100.00
Czech Republic Millipore s.r.o. Prague 100.00
Czech Republic Merck Pharma k.s. Prague 100.00 80.00
Turkey Merck Ilac Ecza ve Kimya Ticaret AS Istanbul 100.00
Hungary Merck Kft. Budapest 100.00
Hungary Millipore Kft. Budapest 100.00

North America
United States Celliance Lawrence, Inc. Wilmington 100.00
United States Concord Investments Corp. Rockland 100.00
United States EMD Chemicals Inc. Gibbstown 100.00
United States EMD Crop BioScience Inc. Brookfield 100.00
United States EMD Serono Biotech Center, Inc. Billerica 100.00
United States EMD Serono Holding Inc. Rockland 100.00
Company Management Report Corporate governance Consolidated Financial Statements More information 205
Notes

thereof
Equity Merck 
interest  KGaA 
Country Company Registered office (%) (%)
United States EMD Serono Research Center, Inc. Billerica 100.00
United States EMD Serono Research Institute, Inc. Rockland 100.00
United States EMD Serono, Inc. Rockland 100.00
United States EMD Shared Services America Corp. Quincy 100.00
United States Millipore Asia Ltd. Wilmington 100.00
United States Millipore Corp. Billerica 100.00
United States Millipore Pacific Ltd. Wilmington 100.00
United States Millipore UK Holdings I, LLC Wilmington 100.00
United States Millipore UK Holdings II, LLC Wilmington 100.00
United States Randolph Diagnostics Development, Inc. Rockland 100.00
United States Serono Laboratories Inc. Rockland 100.00
United States Upstate USA, Inc. New York 100.00
Puerto Rico Millipore Corp., Puerto Rico Branch Cidra 100.00
Canada EMD Chemicals Canada Inc. Oakville 100.00
Canada EMD Crop BioScience Canada Inc. Oakville 100.00
Canada EMD Inc. Mississauga 100.00
Canada Millipore (Canada) Ltd. Toronto 100.00
Bermuda Millipore Bioscience Caribe Ltd. Hamilton 100.00
Bermuda Minerva Insurance Co. Ltd. Hamilton 100.00

Latin America
Argentina Merck Crop BioScience Argentina S.A. Buenos Aires 99.95 99.95
Argentina Merck Quimica Argentina S.A.I.C. Buenos Aires 100.00
Brazil Merck S.A. Rio de Janeiro 100.00
Brazil Millipore Industria e Comercio Ltda. Sao Paulo 100.00
Chile Merck S.A. Santiago de Chile 100.00
Ecuador Merck C.A. Quito 100.00
Guatemala Merck, S.A. Guatemala City 100.00
Colombia Merck S.A. Bogota 100.00
Mexico Merck, S.A. de C.V. Mexico City 100.00
Mexico Millipore S.A. de C.V. Mexico City 100.00
Mexico Serono de Mexico S.A. de C.V. Mexico City 100.00
Panama Mesofarma Corporation Panama City 100.00
Peru Merck Peruana S.A. Lima 100.00
Uruguay ARES Trading Uruguay S.A. Montevideo 100.00
Venezuela Merck S.A. Caracas 100.00
Venezuela Representaciones MEPRO S.A. Caracas 100.00

Asia, Africa, Australasia

China Merck Chemicals (Shanghai) Co., Ltd. Shanghai 100.00
China Merck Consumer Health Care Shanghai
Shanghai Trading Co., Ltd. 100.00
China Merck Ltd. Hong Kong 100.00
206 Merck Annual Report 2010

thereof
Equity Merck 
interest  KGaA 
Country Company Registered office (%) (%)
China Merck Pharmaceutical (HK) Ltd. Hong Kong 100.00
China Merck Serono (Beijing) Beijing
Pharmaceutical R&D Co., Ltd. 100.00
China Merck Serono Co., Ltd. Beijing 100.00
China Merck Song-Jiang Ltd. Shanghai 100.00
China Millipore (Shanghai) Trading Co., Ltd. Shanghai 100.00
China Millipore China Ltd. Hong Kong 100.00
China Shanghai Yayang International Co., Ltd. Shanghai 100.00
China Suzhou Taizhu Technology Development Co., Ltd. Taicang 100.00
India Merck Ltd. Mumbai 51.80
India Merck Specialities Pvt. Ltd. Mumbai 100.00
India Millipore India Pvt. Ltd. Bangalore 100.00
Indonesia P.T. Merck Tbk. Jakarta 86.65
Israel Inter-Lab Ltd. Yavne 100.00
Israel InterPharm Industries Ltd. Yavne 100.00
Israel InterPharm Laboratories Ltd. Yavne 100.00
Israel Merck Serono Ltd. Herzlia Pituach 100.00
Japan Merck Ltd. Tokyo 100.00 18.00
Japan Merck Serono Co., Ltd. Tokyo 100.00
Japan Nihon Millipore K.K. Tokyo 100.00
Malaysia Merck Sdn Bhd Petaling Jaya 100.00
Malaysia Millipore Asia Ltd., Malaysia Branch Kuala Lumpur 100.00
Pakistan Merck (Pvt.) Ltd. Karachi 75.00 26.00
Pakistan Merck Pharmaceuticals (Pvt.) Ltd. Karachi 75.00
Pakistan Merck Specialities (Pvt.) Ltd. Karachi 100.00
Philippines Merck Inc. Makati City 100.00
Singapore Merck Pte. Ltd. Singapore 100.00
Singapore Millipore Singapore Pte. Ltd. Singapore 100.00
South Korea Merck Advanced Technologies Ltd. Pyungtaek-shi 100.00
South Korea Merck Ltd. Seoul 100.00
South Korea Millipore Korea Ltd. Seoul 100.00
Taiwan Merck Display Technologies Ltd. Taipei 100.00
Taiwan Merck Ltd. Taipei 100.00
Taiwan Millipore Asia Ltd., Taiwan Branch Taipei 100.00
Thailand Merck Ltd. Bangkok  45.11
United Arab Merck Serono Middle East FZ-LLC Dubai
Emirates 100.00
Vietnam Merck Vietnam Ltd. Ho Chi Minh City 100.00
Egypt Merck Ltd. Cairo 100.00
Mauritius Millipore Mauritius Ltd. Cyber City 100.00
South Africa Merck (Pty) Ltd. Modderfontein 100.00
South Africa Merck Pharmaceutical Manufacturing (Pty) Ltd. Wadeville 100.00
Company Management Report Corporate governance Consolidated Financial Statements More information 207
Notes

thereof
Equity Merck 
interest  KGaA 
Country Company Registered office (%) (%)
Tunisia Merck Promotion SARL Tunis 100.00
Tunisia Merck SARL Tunis 100.00
Australia Chemicon Australia Pty. Ltd. Sydney 100.00
Australia Merck Pty. Ltd. Kilsyth 100.00
Australia Merck Serono Australia Pty. Ltd. Sydney 100.00
Australia Millipore Australia Pty. Ltd. Sydney 100.00
New Zealand Merck Ltd. Manukau City 100.00

II. Associates included at equity

Latin America
Chile Tecnigen S.A. Santiago de Chile 36.00

Asia, Africa, Australasia

South Africa Microsep (Pty) Ltd. Sandton 24.50

III. Companies not consolidated due to secondary importance

Germany
Germany Merck 11. Allgemeine Beteiligungs GmbH Darmstadt 100.00 100.00
Germany Merck Patent GmbH Darmstadt 100.00
Germany Merck Sechste Allgemeine Beteiligungs­ Darmstadt
gesellschaft mbH 100.00
Germany Merck Wohnungs- und Grundstücksver­ Darmstadt
waltungsgesellschaft mbH 100.00 100.00

Other European countries

France Financière du 8ème S.A.S. Lyon 100.00
France Gonnon S.A.S. Lyon 100.00
United Kingdom Biovation Ltd. Aberdeen 100.00
United Kingdom Merck UK Limited Partnership Poole 100.00
United Kingdom Nature´s Best Health Products Ltd. Tunbridge Wells 100.00
Denmark Merck A/S Hellerup 100.00
Ireland Merck Serono (Ireland) Ltd. Dublin 100.00
Netherlands Merck Holding Netherlands B.V. Schiphol-Rijk 100.00
Norway Merck AS Lorenskog 100.00
Austria Eurodrug Chemisch-pharmazeutische Vienna
Produkte GmbH 100.00
Austria Merck Vermögensverwaltungs-GmbH Vienna 100.00
Portugal Laboratorio dos Produtos Sigma S.A. Lisbon 100.00
Portugal Laquifa Laboratorios S.A. Lisbon 100.00
208 Merck Annual Report 2010

thereof
Equity Merck 
interest  KGaA 
Country Company Registered office (%) (%)

Latin America
British Virgin Axebury Ltd. Tortola
Islands 100.00
Dominican Merck Dominicana S.A. Santo Domingo
Republic 100.00
Curacao Applied Research Systems ARS Holding N.V. Curacao 100.00
Curacao CMIP (Curacao) B.V. Curacao 100.00

Asia, Africa, Australasia

China Beijing Skywing Technology Co. Ltd. Beijing 100.00
Indonesia P.T. Merck Specialities Jakarta 100.00
Morocco Merck Maroc S.A.R.L. Casablanca 100.00
South Africa Merck Chemicals (Pty) Ltd. (in liquidation) Modderfontein 100.00
South Africa Serono South Africa Ltd. Johannesburg 100.00
Australia E. Merck Pty. Ltd. Kilsyth 100.00

IV. Associates not included at equity due to secondary importance

Germany
Germany pharma mall Gesellschaft Böhnen
für Electronic Commerce mbH 16.67

Other European countries

Switzerland Vaximm Holding AG Basel 25.00
Italy BioIndustry Park del Canavese S.p.A. Colleretto ­Giacosa 13.30

North America
United States Tioga Pharmaceuticals, Inc. San Diego 17.22 17.22
Company Management Report Corporate governance Consolidated Financial Statements More information 209
Notes Responsibility
Statement

reSponSIBIlIt y Statement
To the best of our knowledge, and in accordance with the applicable reporting principles, the con-
solidated financial statements of the Merck Group give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Group, and the Group management report includes a
fair review of the development and performance of the business and the position of the Group,
together with a description of the principal opportunities and risks associated with the expected
development of the Group.

Darmstadt, February 8, 2011

Karl-Ludwig Kley Michael Becker

Bernd Reckmann Stefan Oschmann

Elmar Schnee
210 Merck Annual Report 2010

Auditor’s Report
“We have audited the consolidated financial statements prepared by Merck Kommanditgesellschaft
auf Aktien, Darmstadt, comprising the balance sheet, income statement, the statement of com-
prehensive income, the cash flow statement, statement of changes in net equity, and the notes
to the consolidated financial statements, together with the group management report for the
business year from January 1 to December 31, 2010. The preparation of the consolidated financial
statements and the group management report in accordance with IFRSs, as adopted by the EU,
and the additional requirements of German commercial law pursuant to section 315a (1) HGB
[Handelsgesetzbuch “German Commercial Code”] and supplementary provisions of the articles of
association are the responsibility of the parent company`s management. Our responsibility is to
express an opinion on the consolidated financial statements and on the group management report
based on our audit.
We conducted our audit of the consolidated financial statements in accordance with § 317 HGB
[Handelsgesetzbuch “German Commercial Code“] and German generally accepted standards for the
audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public
Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that
misstatements materially affecting the presentation of the net assets, financial position and results
of operations in the consolidated financial statements in accordance with the applicable financial
reporting framework and in the group management report are detected with reasonable assurance.
Knowledge of the business activities and the economic and legal environment of the Group and
expectations as to possible misstatements are taken into account in the determination of audit
procedures. The effectiveness of the accounting-related internal control system and the evidence
supporting the disclosures in the consolidated financial statements and the group management
report are examined primarily on a test basis within the framework of the audit. The audit includes
assessing the annual financial statements of those entities included in consolidation, the determi-
nation of entities to be included in consolidation, the accounting and consolidation principles used
and significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements and group management report. We believe that our audit
provides a reasonable basis for our opinion.
Company Management Report Corporate governance Consolidated Financial Statements More information 211
Auditor’s Report

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the consolidated financial statements comply
with IFRSs, as adopted by the EU, the additional requirements of German commercial law pursuant
to section 315a (1) HGB and supplementary provisions of the articles of association and give a true
and fair view of the net assets, financial position and results of operations of the Group in accor-
dance with these requirements. The group management report is consistent with the consolidated
financial statements and as a whole provides a suitable view of the Group’s position and suitably
presents the opportunities and risks of future development.”

Frankfurt/Main, February 9, 2011

KPMG AG
Wirtschaftsprüfungsgesellschaft

Prof. Dr. Nonnenmacher Jenal

Wirtschaftsprüfer Wirtschaftsprüfer
212 Merck Annual Report 2010

Glossary
A

Affiliate A company that, due to its minor significance, is not included in the scope of consolidation.

Associate A company in which another entity holds a significant portion of the voting shares, but does not exert control
over or jointly manage.

Beta-blockers A collective term for similarly acting drugs that act as inverse agonists on the body’s beta receptors and thus
inhibit the effect of stress hormones (notably, norepinephrine and epinephrine). They lower the heart rate and
blood pressure, decrease the strength of heart beat, and reduce the heart’s excitability.

BH4 Abbreviation for tetrahydrobiopterin, a key co-enzyme in amino acid metabolism. BH4 lowers the blood
phenylalanine levels in patients with BH4-responsive phenylketonuria.

Biomarkers The term refers both to substances in the body and cell properties. Biomarkers can help doctors to identify a
patient’s disease. Certain genes tend to play a role in the treatment of cancers, in terms of whether they are
“normal” (wild type) or have undergone transformation (mutant).

Cash flow Equals cash receipts minus cash payments over a given period of time.

CHMP Committee for Medicinal Products for Human Use: a scientific committee of the European Medicines Agency.
It prepares the Agency’s opinions and handles the authorization and risk assessment of medicinal products.

Commercial Paper Program A commercial paper program provides the contractual framework for the issuance of commercial paper,
which is a short-term debt instrument issued by a corporation.

Compliance This term refers to compliance with laws and regulations as well as with voluntary codices that are internal
to the Merck Group. Compliance is an element of diligent corporate governance.

Corporate governance This term covers compliance with laws and regulations; the application of recognized standards and
recommendations; the development of and adherence to internal guidelines; as well as the creation and
implementation of guideline and control structures.

Credit facility The financial scope up to which a bank has agreed to grant a loan to a borrower is referred to as a credit
line or credit facility. A credit line is a revolving credit: the borrower can continuously draw funds and make
payments until the term expires or the credit line is terminated.

DAX ® Deutscher Aktienindex (German stock index): Its value is based on the stock prices of the 30 largest
German companies by trading volume and free float market capitalization.

Debt issuance program A debt issuance program provides the contractual framework for the issuance of bonds. Thanks to the
current terms and conditions, the program allows the company flexibility when issuing bonds.

Dividend yield The ratio of the dividend per share. to the share price.
 Company Management Report Corporate governance Consolidated Financial Statements More Information 213
Glossary

Earnings per share Earnings per share are calculated as specified in IAS 33 by dividing the Group profit by the weighted
average number of shares.

EBIT Earnings before interest and taxes. Equals the operating result plus exceptional items.

EBITDA Earnings before interest, taxes, depreciation and amortization: depreciation and amortization are
added back to EBIT.

EGFR Epidermal Growth Factor Receptor: It is upregulated in various tumor types and/or present in mutated
form, resulting in uncontrolled growth and replication of tumor cells. Novel cancer therapies are aimed
at blocking EGFR’s oncogenic signal and hence stopping tumor growth.

EMA (previously EMEA) European Medicines Agency: an official body of the European Union, headquartered in London. It is
responsible for evaluating and monitoring medicines and plays a key role in the marketing authorization
of medicinal products.

Equity method The basic idea of the equity method is that the investor company reports the income earned on the invest-
ment on its income statement and the reported value is based on the investor’s share of the company assets.

Equity ratio Indicator that shows equity capital in proportion to total capital, serving to evaluate the financial stability and
independence of a company.

Euribor The Euro Interbank Offered Rate (EUR BOR) is the rate at which euro interbank term deposits are offered by
one prime bank to another within the euro zone. Euribor rates are applicable for periods of one week to three
weeks and one month to 12 months.

FCR Underlying free cash flow on revenues: FCR is calculated from the underlying free cash flow as a percentage
of total revenues. This is a key performance indicator for steering the business.

FDA Food and Drug Administration: U.S. government agency responsible for protecting and advancing public
health, especially as concerns food and drugs.

Financial covenants Financial figures stipulated in loan contracts to which the company must adhere during the duration of
the loan.

First, second and First and second line therapies are curative in nature and therefore take precedence. Some patients derive
third line therapy little or no benefit from first and second line treatment. Patients who have not responded to the first two
lines move on to a third line of treatment, which is palliative (i.e. it aims to relieve suffering).

Free cash flow Sum of the net cash flow from operating activities minus investments in intangible assets,
property, plant and equipment, acquisitions as well as investments in other financial assets, plus
proceeds from the disposal of assets and changes in securities.

GDP Gross domestic product – total value of all goods (products and services) intended for final consumption
that are produced within a country’s borders in a given year.

Gearing Ratio of net debt including pension provisions to net equity.

GHS Globally Harmonized System of Classification and Labelling of Chemicals. An international standard system
to classify chemicals, including labels and safety data sheets.

Goodwill Goodwill arises when a company acquires another company and primarily represents the difference between
the fair value of the acquired net assets and the purchase price paid.
214 Merck Annual Report 2010

GPHF Global Pharma Health Fund e.V. is a non-profit initiative created by Merck. The organization’s goal is to
promote health care within the scope of development assistance, especially with respect to the fight against
counterfeit drugs through the use of the GPHF-Minilab ®.

GPHF-Minilab ® With the GPHF-Minilab ®, the GPHF offers a unique mobile compact laboratory that is capable of testing the
quality of drugs very quickly.

Greenhouse Gas Protocol Most widely used accounting and reporting system for greenhouse gas emissions.

Hedging Hedging means protection against or limitation of certain clearly identified risks that might result from
occurrences such as changes in foreign exchange rates or share prices Fair value hedge: This primarily involves
protecting against potential market value fluctuations of those assets and liabilities already recognized in the
balance sheet. Cash flow hedge: The primary purpose of a cash flow hedge is to protect against uncertain cash
flows that especially result from future transactions.

ICCA International Council of Chemical Associations.

IFRS International Financial Reporting Standards (until 2001 known as International Financial Accounting
Standards, IAS) are the standards that publicly traded companies must apply if their headquarters are
domiciled in the European Union.

IMF The International Monetary Fund, with headquarters in Washington, D.C., is a United Nations organization.

Interest rate swaps An interest rate swap is an agreement between two contractual parties to exchange various interest payments.
Thus, a company can transform a variable interest item into a fixed interest item and vice-versa.

KRAS A recently identified biomarker that can show whether a patient with metastatic ­colorectal carcinoma is likely
to respond to EGFR antibody therapy. This is done by testing the status of the KRAS gene in the tumor to see
if it is normal (wild type) or abnormal (mutant). The KRAS acronym stands for Kirsten Rat Sarcoma.

LED A light-emitting diode (LED) is an electronic semiconductor device. When an electric current passes through
it in the flow direction, it emits visible light, infrared radiation (IR diode) or ultraviolet radiation (UV diode).
The wavelength of this depends on the semiconductor material used and the doping level.

Liquid Crystals (LC) These specialty chemicals are used in LC displays (LCD), for example, in flat-panel televisions, notebooks,
mobile telephones, etc.

LTIR Lost time injury rate: indicator for workplace safety. The number of workplace accidents with one or more
days of lost time per million hours worked.

Lupus erythematosus (LE) An autoimmune disease linked to inflammatory rheumatic disease and classified as a collagen disease.
There are two main types: lupus of the skin, and systemic lupus ­erythematosus (SLE). It may affect other
organ systems apart from the skin and joints, e.g. the kidneys in lupus nephritis (LN).

Metafolin ® Biologically active form of folate that occurs naturally in the human body and is utilized better by the body
than folic acid. Folic acid and Metafolin ® are important for cell division and blood formation and therefore
the development and growth of new life.
 Company Management Report Corporate governance Consolidated Financial Statements More Information 215
Glossary

Monoclonal antibodies Highly specialized targeted antibodies synthesized using biotechnological methods. What makes them special
is their ability to activate the body’s natural mechanisms to fight disease. Monoclonal antibodies have mainly
been used for cancer treatment and to suppress adverse immune responses.

MUC1 Also known as PEM (polymorphic epithelial mucin), MUC1 is a glycoprotein group mucin embedded in cell
membranes and occurring in all human organs. The MUC1 mucin is an established tumor marker. In oncology,
this tumor marker is the starting point for several new cancer therapies.

Multi-currency credit facility A contract between a company and a bank (or several banks) under which the bank gives the company the
possibility to access a predefined amount of money at certain conditions. Depending on the agreement,
payment can be made in different currencies.

OECD Organization for Economic Co-operation and Development, with headquarters in Paris, is a forum of
34 countries committed to the principles of democracy and market economy.

OLED Organic light-emitting diodes. New technology for displays and lighting used, for example, in mobile
telephones, MP3 players, and since recently also in televisions and lamps.

Organic growth Organic growth is the part of a company’s growth that is not derived from acquisitions or currency effects.

OTC Over-the-counter drugs is the term used for drugs that are available at stores and pharmacies without a
prescription.

Praziquantel A vermifuge used to fight flatworms, tapeworms and distoma including the ­schistosoma, the pathogen
that causes the tropical disease schistosomiasis.

Progression-free survival In oncology, the amount of time between a patient’s enrollment in a clinical trial and disease progression or
the patient’s death – depending on what occurs first.

Provisions/reserves Provisions are set aside for liabilities whose amount or maturity are uncertain.
Reserves, on the other hand, are part of a company’s equity.

PS-VA Polymer-stabilized vertical alignment: A polymer layer pre-aligns the molecules inside the display in a certain
direction. In the black state, the liquid crystals are not exactly vertical, but slightly tilted: This allows the liquid
crystals to switch more quickly. The light transmittance is significantly higher, thus reducing the backlighting,
one of the most costly components to produce.

Purchase price allocation The purchase price allocation allows a company’s acquisition costs (purchase price) to be assigned to the
tangible and intangible assets and liabilities that were acquired with it.

Randomized study In medical research, randomization refers to the random assignment of subjects to treatment groups.
The goal is to prevent the investigator from influencing the trial and to ensure that known and unknown
influencing factors are distributed evenly across all groups.

Rating Rating is an assessment of a borrower’s ability to pay. Borrowers are classified ­according to a bank’s own
criteria (internal rating) or the criteria of international rating agencies such as Moody’s or Standard & Poor’s
(external rating).

REACH REACH stands for the Registration, Evaluation, Authorization and Restriction of ­Chemicals. This is an EU
regulation that entered into force in mid-2007.

Reactive mesogens Polymerizable liquid crystals that can be used, for example, as material for optical films. They help to enhance
the display image quality.
216 Merck Annual Report 2010

Recurrent/recurring In oncology, recurrent cancer means that the disease returns after it seems to have completely disappeared.
This is often caused by the incomplete removal of the tumor.

Research spending ratio Research spending as a proportion of the total revenues of the company or division.

ROS Return on sales: Ratio of operating result to total revenues. This is a key performance indicator for steering
the business.

Schistosomiasis Schistosomiasis, also known as bilharziosis, is a parasitic disease that is spread in warm lakes and ponds
by snails that serve as intermediate hosts.

Somatotropin A proteohormone occurring as a growth hormone in the human and animal organism. Somatotropin is
essential to the achievement of normal height.

Syndicated loan Also known as a “syndicated bank facility”. This is a loan offered by a group of lenders (called a syndicate).
The lenders, such as banks or institutional investors, form a syndicate.

Tax rate The tax rate indicates the percentage rate by which Group profit before tax and exceptional items is to
be multiplied in order to calculate the theoretical tax expense before exceptional items.

Tax ratio The tax ratio indicates the ratio of total taxes to profit before tax.

Tax ratio before The tax rate before exceptional items indicates the ratio of total taxes (adjusted for the tax effects of
exceptional items exceptional items) to profit before tax (adjusted for exceptional items).

Total revenues Sum of sales as well as royalty, license and commission income. Royalties are earned primarily through
patents held by the Pharmaceuticals business sector.

Underlying free cash flow Free cash flow adjusted for acquisitions and divestments.

VCI Verband der Chemischen Industrie (German Chemical Industry Association) ­represents the economic-political
interests of 1,600 German chemical companies.
Business Development 2001 – 2010
This overview may include historically adjusted values in order to ensure comparability with 2010

EUR million 2001 2002 2003 2004

Total revenues by division 7,721 7,521 7,364 6,017
Pharmaceuticals 3,484 3,265 3,458 3,601
Merck Serono 2,228 1,850 1,546 1,619
Generics 2 936 1,096 1,585 1,625
Consumer Health Care 320 319 327 357
Chemicals 1,729 1,791 1,707 1,696
Merck Millipore – – – –
Performance Materials – – – –
Liquid Crystals 297 383 443 589
Performance & Life Science Chemicals 1,216 1,216 1,083 1,107
Electronic Chemicals 2 216 192 181 –
Laboratory Distribution 2
2,754 2,711 2,427 582
Intragroup sales, Laboratory –246 –246 –228 –62
Corporate and Other – – – 200

Operating result by business sector 877 616 736 776

Pharmaceuticals 581 272 389 391
Chemicals 204 260 316 420
Laboratory Distribution 2 92 84 79 21
Corporate and Other – – –48 –56

Earnings before income and taxes (EBIT) 1,286 559 538 1,044
EBIT before depreciation and amortization (EBITDA) 1,694 985 1,008 1,419
Profit before tax 1,078 412 423 961
Profit after tax 655 215 218 672

Free cash flow 664 441 442 1,889

Capital expenditure on property, plant and equipment 470 377 281 234
Research and development 577 608 605 599

Total assets 8,255 7,511 6,982 5,754

Net equity 2,336 2,054 2,363 2,800
Employees (number as of December 31) 34,294 34,504 34,206 28,877 2

Return on sales in % (ROS: Operating result/total revenues) 11.4 8.2 10.0 12.9

Earnings per share in EUR 3.66 1.18 1.15 3.47

Dividend per share in EUR 0.95 1.00 0.80 0.80
One-time bonus per share in EUR – – – 0.20
1
As a result of the acquisition of millipore, the Chemicals business sector was reorganized. the previous year’s figures have been adjusted.
2
Business was divested.
3
including the divested Generics division (along with the gain on divestment)
 Change vs. 2009
2004 2005 2006 2007 2008 2009 2010 in %
6,017 5,887 6,310 7,081 7,590 7,747 9,291 19.9
3,601 3,905 4,163 4,900 5,456 5,812 6,226 7.1
1,619 1,817 1,938 4,480 5,014 5,345 5,754 7.6
1,625 1,712 1,825 – – – – –
357 376 400 420 442 467 472 1.1
1,696 1,906 2,113 2,152 2,127 1,935 3,065 58.4
– – – – – 929 1 1,681 80.9
– – – – – 1,006 1
1,384 37.7
589 741 895 916 878 – – –
1,107 1,165 1,218 1,236 1,249 – – –
– – – – – – – –
582 – – – – – – –
–62 – – – – – – –
200 76 34 29 7 – – –

776 883 1,105 976 1,131 649 1,113 71.6

391 454 524 417 655 403 579 43.7
420 492 641 631 558 324 624 92.4
21 – – – – – – –
–56 –63 –60 –72 –81 –78 –90 14.1

1,044 956 1,325 200 731 621 1,113 79.2

1,419 1,245 1,628 1,858 1,947 1,625 2,457 51.2
961 893 1,273 –111 575 486 861 77.0
672 673 1,001 3,520 3 379 377 642 70.3

1,889 657 –1,073 –1,473 3 438 812 –3,522 –

234 268 253 283 3 395 467 396 –15.2
599 713 752 1,028 1,234 1,345 1,397 3.9

5,754 7,281 8,102 14,922 15,645 16,713 22,388 34.0

2,800 3,329 3,807 8,688 9,563 9,514 10,372 9.0
28,877 29,133 29,999 30,968 32,800 33,062 40,562 22.7

12.9 15.0 17.5 13.8 14.9 8.4 12.0

3.47 3.40 5.07 16.21 3 1.69 1.68 2.91 73.2

0.80 0.85 0.90 1.20 1.50 1.00 1.25 25.0
0.20 – 0.15 2.00 – – – –
More information inside the cover:
Business development 2001 – 2010

FinAnCiAl CAlenDAr For 2011

Annual press conference: Monday, February 21

Annual general Meeting: Friday, April 8

report on the first quarter: Thursday, April 28

report on the first half: Wednesday, July 27

Autumn press conference and report on the third quarter: Wednesday, October 26

more inFormAtion
The Merck Annual Report for 2010 has been published in German and English as a full-length
and an abridged version. The full report is also available as a navigable online version at
www.merck.de/annualreport2010.
More information about Merck can be found on the Web at www.merck.de and in the following
publications, which you may read or order (in German and English) at www.publications.merck.de:

Responsibility: Corporate Responsibility Report 2009

Merck – Facts & Figures (also available in French and Spanish)

You can order these publications from Corporate Communications, Merck KGaA,
64271 Darmstadt, Germany, or via the following e-mail address: corpcom@merck.de.

publication contributors
published on february 21, 2011 by Merck KGaA
Corporate Communications
Frankfurter Strasse 250, 64293 Darmstadt, Germany
Tel.: +49 (0) 6151–72 0, Fax: +49 (0) 6151–72 5577
E-mail: corpcom@merck.de
Website: www.merck.de
concept, design and typesetting: XEO GmbH, Düsseldorf
photographs: Pages 5, 8, 12, 13 and 76: Catrin Moritz, Essen;
Pages 1, 5, 6, 8, 12, 13, 14, 46, 62, 68 and 76: Reinhard Koslowski, Düsseldorf
W 840 551

printing: Franz Kuthal GmbH & Co. KG, Mainaschaff

350211

paper: FSC-certified LuxoSatin from Papyrus