Preliminary remarks

The accompanying consolidated financial statements have been prepared with Merck KGaA – which manages the operations of the Merck Group – as parent company. In accordance with the provisions of the German financial reporting disclosure law (Publizitätsgesetz), consolidated financial statements are also prepared for E. Merck OHG, the general partner of Merck KGaA with an equity interest of 70.3% as of December 31, 2007. 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 be accessed at www.unternehmensregister.de.

Application of International Financial Reporting Standards (IFRS)

The consolidated financial statements of the Merck Group – with Merck KGaA as parent company – have been prepared in accordance with consistent accounting policies. Pursuant to Section 315a HGB (German Commcercial Code), 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 International Financial Reporting Interpretations Committee (IFRIC) have been applied.

The following standards and amendments to standards were effective for the first time in fiscal 2007: Amendment to IAS 1 “Presentation of Financial Statements: Capital Disclosures” and IFRS 7 “Financial Instruments: Disclosures”.

The following interpretations were also effective for the first time: IFRIC 7 “Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies”, IFRIC 8 “Scope of IFRS 2”, IFRIC 9 “Reassessment of Embedded Derivatives” and IFRIC 10 “Interim Financial Reporting and Impairment”.

Neither the new nor the amended rules had any material effects on the consolidated financial statements of the Merck Group. IFRS 7 “Financial Instruments: Disclosures” and the Amendment to IAS 1 “Presentation of Financial Statements: Capital Disclosures” are reflected in additional disclosures in the notes.

The following interpretation takes effect as of fiscal 2008: IFRIC 11 “IFRS 2: Group and Treasury Share Transactions”. We do not expect the new rule to have an impact on the consolidated financial statements.

The following interpretation will take effect as of fiscal 2009: IFRS 8 “Operating Segments”. We expect that adjustments to the disclosures in the Notes will be necessary.

In addition, the following amendments to standards were published by the International Accounting Standards Board (IASB) and the following interpretations published by the International Financial Reporting Interpretations Committee (IFRIC), but not yet adopted by the EU: Amendment to IAS 1 “Presentation of Financial Statements: A Revised Presentation”, Amendment to IAS 23 “Borrowing Costs”, IFRIC 12 “Service Concession Arrangements”, IFRIC 13 “Customer Loyalty Programmes” and IFRIC 14 “IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction“. We do not expect the new standards to have any material effects on the consolidated financial statements. As of fiscal 2009, the Amendment to IAS 23 is likely to result in increased capitalization of borrowing costs related to the acquisition, construction and production of a qualifying asset compared with current treatment. This is because the option to expense borrowing costs attributable to the acquisition, construction or production of such an asset as incurred will no longer exist.

Companies consolidated

Including the parent company Merck KGaA, Darmstadt, 192 companies are fully consolidated in the annual financial statements of the Merck Group. One associate is included using the equity method. 37 investments are not consolidated due to secondary importance and a further 29 investments are not consolidated due to the absence of control and are presented under non-current financial assets. In fiscal 2007, 64 companies were included in the consolidated financial statements for the first time, primarily as a result of the acquisition of Serono, and 48 companies were deconsolidated, mainly as a result of the disposal of Generics.