Corporate and Other Audited

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

Group administrative costs relate primarily to Merck KGaA and consist of typical holding 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.

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. Department 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.