Corporate and Other 

Group administration expenses relate primarily to Merck KGaA and consist of typical holding company functions. These include, for example, the Group 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 Corporate and Other totaled € –116 million in 2011 compared to € –90 million in 2010. In 2011, exceptional items amounted to € –30 million (2010: € –68 million) and mainly include expenses of € 29 million owing to provisions for environmental protection measures. Expenses reported as exceptional items for this segment in 2010 were primarily due to litigation. The financial result was € –286 million compared to € –252 million in 2010. At € –222 million (2010: € –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 result primarily from the purchase price allocations for Serono and Millipore.

Free cash flow amounted to € –913 million in 2011 compared to € –736 million in 2010. In 2011, payments amounting to € 119 million (2010: € 241 million) were made in connection with existing legal risks. Payments to externally finance pension obligations of Merck KGaA (CTA) lowered free cash flow in 2011 by € 302 million. Cash outflows from interest paid less interest received amounted to € 163 million in 2011. This was € 66 million more than in 2010 (€ 97 million). This increase is due to the interest payment date in March 2011 for major bonds issued in 2010 in order to finance the Millipore acquisition. In addition, free cash flow includes Group administration expenses and tax payments. The balance of tax payments and tax refunds increased to € 358 million in 2011 from € 317 million in 2010.

In the reconciliation of free cash flow to underlying free cash flow, cash inflows from the divestment of the Generics business amounting to € 41 million (2010: cash outflows of € 240 million) as well as the payments for the external financing of pension obligations of Merck KGaA (CTA) amounting to € 302 million were eliminated in 2011. Underlying free cash flow of Corporate and Other amounted to € –652 million, which was 31% lower than in 2010.