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Disclaimer Publication of
Merck KGaA, Darmstadt, Germany. In the United States and Canada the
subsidiaries of Merck KGaA, Darmstadt, Germany operate under the
umbrella brand EMD.

Table of contents

  • Page 1
    Disclaimer Publication of Merck KGaA, Darmstadt, Germany. In the United States and Canada the subsidiaries of Merck KGaA, Darmstadt, Germany operate under the umbrella brand EMD.

  • Page 2
    Annual Report 2008 Staying the course

  • Page 3
    ..., total revenues of the Merck Group increased by 7.1% to â,¬ 7,558 million in 2008. On a currency-adjusted basis, we achieved growth of 11%. The operating result rose by 16% to â,¬ 1,131 million. Return on sales (ROS) improved to 15.0%. Profit after tax from continuing operations increased from...

  • Page 4
    ...us a successful supplier in key markets, in particular the food, optics, plastics, coatings, printing, cosmetics and pharmaceutical industries. Products and services from Merck are used throughout the entire process chain, from analysis, research and development, through to production. Our portfolio...

  • Page 5
    ...4.8 - -38 Total revenues by business sector* â,¬ million Operating result by business sector* â,¬ million 8,000 1,600 6,000 4,000 2,000 2004 2005 2006 2007 2008 1,200 800 400 2004 2005 2006 2007 2008 Laboratory Distribution Chemicals Pharmaceuticals *excluding Corporate and Other *excluding...

  • Page 6
    ..., between Pharmaceuticals and Chemicals. Our pioneering spirit in research and our experience enable us to develop products that improve quality of life. Our ability to succeed on course has a great deal to do with the corporate culture for which Merck stands. We are convinced that our values pave...

  • Page 7
    ...Economic development of Merck Financial position and results of operations Responsibility Merck shares Pharmaceuticals business sector 32 Merck Serono 46 Consumer Health Care 50 Chemicals business sector 52 Liquid Crystals 56 Performance & Life Science Chemicals 60 Corporate and Other 61 Risk report...

  • Page 8
    ... 70 Consolidated Financial Statements of the Merck Group 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 84 Accounting policies...

  • Page 9
    4 | Merck Annual Report 2008 Dr. Karl-Ludwig Kley Chairman of the Executive Board of Merck KGaA

  • Page 10
    ...for Merck. dend of â,¬ 1.50 per share to the Annual General Meeting. Total revenues increased by 7.1% to â,¬ 7.6 billion. We plan to propose a divi- Although nearly all our divisions were impacted by negative currency effects, total revenues by 11% to â,¬ 5.4 billion. The Chemicals business sector...

  • Page 11
    ... Annual Report 2008 As a supplier to the display industry, we are the global market and technology leader in liquid crystals used in mobile phones, navigation devices, laptops and flat-screen televisions. In addition, we also operate in mature market segments with very stable laboratory chemicals...

  • Page 12
    ...market position. To this end, we will invest further in regional - External growth through alliances and acquisitions is also part of our strategy. Even in difficult times, our values help us to do the right thing. Especially now, our two core values of courage and achievement have special meaning...

  • Page 13
    8 | Merck Annual Report 2008 Executive Board of Merck KGaA Dr. Bernd Reckmann Head of the Chemicals business sector Born in 1955 Biochemist joined Merck in 1986, Member of the Executive Board since January 2007 Responsibility for Group-wide functions: Chemicals business sector; Site Management ...

  • Page 14
    ... Group-wide functions: Human Resources (global); Legal, Patents, Trademarks; Auditing, Risk Management; Strategic Planning; Inhouse Consulting; Corporate Communications; Environment, Health and Safety; Information Services Dr. Michael Becker Chief Financial Officer Born in 1948 Lawyer joined Merck...

  • Page 15
    10 | Merck Annual Report 2008 Management Report of the Merck Group

  • Page 16
    ... Merck Financial position and results of operations Responsibility Merck shares Pharmaceuticals business sector 32 Merck Serono 46 Consumer Health Care Chemicals business sector 52 Liquid Crystals 56 Performance & Life Science Chemicals Corporate and Other Risk report Report on expected developments...

  • Page 17
    ..., and thus lower product volumes. While the United States saw a 2.0% increase in GNP in 2007, this number decreased to 1.4% in 2008. In the euro zone, GNP grew by 2.6% in 2007 and, according to the IMF and Eurostat, by 1.2% in 2008. Major European economies such as Germany, France, Italy and Spain...

  • Page 18
    MANAGEMENT REPORT OF THE MERCK GROUP 12 Overall economic situation 14 Economic development of Merck 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on ...

  • Page 19
    ... from the Chemicals business sector would remain stable. Since we supply our specialty chemicals to some extent to sectors that are sensitive to economic cycles, we sustained a decline of 12%. Comparison of target and actual values Growth of total revenues Pharmaceuticals Growth of operating result...

  • Page 20
    ... 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on expected developments 64 Subsequent events 15 Financial position and results of operations Return on sales of the Merck Group rises to 15.0% Total revenues of the Merck Group rose by 7.1% to â,¬ 7,558 million in 2008...

  • Page 21
    ... is reported as part of the Merck Serono division since 2008. Operating result by business sector* â,¬ million Operating result by business sector* â,¬ million 1,600 1,200 800 Laboratory Distribution Chemicals Pharmaceuticals 558 46% 655 54% 400 2004 2005 2006 2007 2008 *excluding Corporate...

  • Page 22
    ... 14 Economic development of Merck 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on expected developments 64 Subsequent events 17 Total revenues by...

  • Page 23
    ..., Group sales increased by 4.9% to â,¬ 1,015 million in 2008, with the United States accounting for â,¬ 912 million of the total. Negative currency effects also played a strong role here, resulting in a growth rate in the United States of only 5.6%. In Brazil, our largest market in Latin America...

  • Page 24
    MANAGEMENT REPORT OF THE MERCK GROUP 12 Overall economic situation 14 Economic development of Merck 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on ...

  • Page 25
    ... on a long-term average, a total dividend equivalent to 30 - 40% of the Group profit after tax. We plan to propose to the Annual General Meeting of Merck KGaA on April 3, 2009 a dividend of â,¬ 1.50 per share. Free cash flow affected by higher business volume In addition to return on sales (ROS), we...

  • Page 26
    ... 14 Economic development of Merck 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on expected developments 64 Subsequent events 21 our balance sheet. In...

  • Page 27
    ...a company and indicates how the corporate result is achieved and for what it is used. Research & development â,¬ million Capital spending on property, plant and equipment â,¬ million 1,600 400 1,200 800 Laboratory Distribution Chemicals Pharmaceuticals 300 200 100 2004 2005 2006 2007 2008 2004...

  • Page 28
    ... 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on expected developments 64 Subsequent events 23 The corporate result, i.e. the sum of total revenues...

  • Page 29
    ..., we combined the Merck and Serono companies and eliminated positions. This related above all to the United Kingdom, where the headcount declined by 140. In Spain, we sold biManán®, a local brand of diet products, and also closed one research site. The number of employees declined by 83. In...

  • Page 30
    MANAGEMENT REPORT OF THE MERCK GROUP 12 Overall economic situation 14 Economic development of Merck 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on ...

  • Page 31
    ... shares benefited in the second quarter from expectations of positive study results for Erbitux® in the treatment of lung cancer. Merck presented the data at the beginning of June 2008 in Chicago at ASCO, the world's most important oncology congress. We received marketing approval for the early use...

  • Page 32
    ...15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on expected developments 64 Subsequent events 27 The performance of Merck shares vs. the DAX®/Bloomberg...

  • Page 33
    ...made it more transparent. We webcasted the Annual General Meeting for the first time in 2008, thereby reaching a broader target group. A more international shareholder structure The shareholder identification survey conducted in August 2008 identified over 54 million shares and thus more than 80% of...

  • Page 34
    ... 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on expected developments 64 Subsequent events 29 As of December 31, 2008, the following shareholders...

  • Page 35
    30 | Merck Annual Report 2008 Pharmaceuticals business sector

  • Page 36
    ...15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on expected developments 64 Subsequent events 31 Treating and curing Merck improves quality of life with...

  • Page 37
    32 | Merck Annual Report 2008 Merck Serono Merck Serono is the largest division of Merck. It focuses on specialist therapeutic areas and markets innovative prescription drugs of chemical and biotechnological origin, including monoclonal antibodies and other therapeutic proteins, in more than 150 ...

  • Page 38
    ... 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on expected developments 64 Subsequent events 33 Achieving growth with new therapeutic options In 2008...

  • Page 39
    ... the termination of a program to sell receivables in Italy (details can be found on page 99). Therapeutic areas Research Development Marketing Oncology Neurodegenerative Diseases Autoimmune and Inflammatory Diseases Fertility Endocrinology CardioMetabolic Care and other products Oncology Erbitux...

  • Page 40
    ... of Merck 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on expected developments 64 Subsequent events 35 diagnostic procedure. Accordingly, the number...

  • Page 41
    ... October 2008, Merck Serono has been notified of a reported side effect, namely a limited number of confirmed cases of progressive multifocal leukoencephalopathy (PML), a usually fatal viral infection of the central nervous system. The Merck Serono division and the regulatory agencies are reviewing...

  • Page 42
    MANAGEMENT REPORT OF THE MERCK GROUP 12 Overall economic situation 14 Economic development of Merck 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on ...

  • Page 43
    ... conditions. In order to offer physicians and patients effective therapeutic approaches, the Merck Serono division has combined its portfolio of drugs to treat patients with these diseases in its CardioMetabolic Care therapeutic area. Sales by the CardioMetabolic Care therapeutic area increased by...

  • Page 44
    MANAGEMENT REPORT OF THE MERCK GROUP 12 Overall economic situation 14 Economic development of Merck 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on ...

  • Page 45
    40 | Merck Annual Report 2008 . We plan to strengthen our biotech R&D activities in the U.S. Overall, around 2,300 employees are engaged in the discovery and development of new drugs - mainly in Darmstadt, Geneva and Boston. They are working in highly specialized fields at the interface of ...

  • Page 46
    ...of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on expected developments 64 Subsequent events 41 Status of our innovative compounds (Status: December 31, 2008) Therapeutic area Oncology...

  • Page 47
    42 | Merck Annual Report 2008 Personalized medicine: A genetic test identifies patients who will respond best to treatment. New therapeutic options for cancer treatment with Erbitux® The results of numerous studies involving the monoclonal antibody Erbitux® (cetuximab) impressively demonstrate ...

  • Page 48
    ... 14 Economic development of Merck 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on expected developments 64 Subsequent events 43 Merck Serono is...

  • Page 49
    ... were extended by 1.3 hours. In a Phase III study called MOTION, we are evaluating safinamide as an add-on therapy to dopamine agonist in early-stage disease. Long-acting fertility hormone under development Our research and development work in the therapeutic area of Fertility is aimed at helping...

  • Page 50
    ... 14 Economic development of Merck 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on expected developments 64 Subsequent events 45 New studies in...

  • Page 51
    ... revenues clearly exceeds market growth - Acquisition of the Belgian company Bio-Fyt - Divestment of the biManán® brand of diet products in Spain - Strategic brands further strengthened - Successful advertising campaign for Kytta® ointment with strong growth in Germany - Expansion of business...

  • Page 52
    ...shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on expected developments 64 Subsequent events 47 Growth with brands that consumers trust Focusing on four health themes Our Consumer Health Care division is a specialized supplier...

  • Page 53
    ...Report 2008 France is the largest market for our Consumer Health Care division. Good performance in France Europe remained our most important market. Sales totaled â,¬ 306 million. We performed well in the most important core markets, in many cases counteracting weak market developments. In France...

  • Page 54
    MANAGEMENT REPORT OF THE MERCK GROUP 12 Overall economic situation 14 Economic development of Merck 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on ...

  • Page 55
    50 | Merck Annual Report 2008 Chemicals business sector

  • Page 56
    MANAGEMENT REPORT OF THE MERCK GROUP 12 Overall economic situation 14 Economic development of Merck 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on ...

  • Page 57
    ... addition to the core business with materials for displays, in view of climate change and high energy prices we are also active in growth markets. These include the use of solar energy and the development of innovative light sources for energy-saving LEDs. Key product - licristal® - Liquid crystals...

  • Page 58
    ... of Merck 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on expected developments 64 Subsequent events 53 Leading position maintained Total revenues of...

  • Page 59
    ...-emitting diode (OLED) research. We are expanding our site in South Korea in order to strengthen our research and development and further intensify our cooperation with customers. Merck is an important development partner to the global display industry. LC core business: Merck is technology leader...

  • Page 60
    ... 14 Economic development of Merck 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on expected developments 64 Subsequent events 55 OLED materials Aside...

  • Page 61
    ... Report 2008 Performance & Life Science Chemicals Specialty chemicals from Merck are important components of the process chain from drug development to industrial production. They ensure reliable analysis in research and dependable production processes. Expertise in chemistry and customer-centric...

  • Page 62
    ... Economic development of Merck 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on expected developments 64 Subsequent events 57 Efficient structures in...

  • Page 63
    ... Annual Report 2008 Laboratory Business www.merck-chemicals.com/ food-analytics Growth in Asia and Latin America In 2008, total revenues of Laboratory Business decreased slightly by 1.6%. On a currencyadjusted basis, total revenues increased by 2.5%. We are represented by our own local companies...

  • Page 64
    MANAGEMENT REPORT OF THE MERCK GROUP 12 Overall economic situation 14 Economic development of Merck 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on ...

  • Page 65
    ... â,¬ -406 million in 2007, mainly owing to high tax payments. Corporate and Other | Key figures â,¬ million 2008 2007 ∆ in % Total revenues Gross margin R&D Operating result Exceptional items Free cash flow (FCF) FCF before acquisitions and disposals 6.6 -2.7 0 -81 - -578 -470 29 2.5 0 -72 -32...

  • Page 66
    ... the Group by means of binding guidelines. Within the scope of a standardized risk process, the current risk situation is reported to the Executive Board in six-month intervals or, in special cases, on an ad-hoc basis. The risk management system and compliance with the corresponding guidelines are...

  • Page 67
    62 | Merck Annual Report 2008 The special risks of pharmaceutical development are constantly monitored by a portfolio and project management system introduced in the Merck Group. In the course of portfolio management, research areas and all R&D pipeline projects are regularly evaluated and, if ...

  • Page 68
    ... of Merck 15 Financial position and results of operations 24 Responsibility 26 Merck shares 30 Pharmaceuticals business sector 50 Chemicals business sector 60 Corporate and Other 61 Risk report 64 Report on expected developments 64 Subsequent events 63 Assessment by independent rating agencies The...

  • Page 69
    ...Business-critical application systems and access to business-relevant data are set up in such a way that, even in the event of individual failures, they are continually available thanks to redundant technical components, networks and sites. Security guidelines are in place for the entire Merck Group...

  • Page 70
    ... the Code, the intent and meaning of which are applied, are complied with. To improve understanding, the following gives a general explanation of the company form Kommanditgesellschaft auf Aktien (KGaA) followed by the specific situation at Merck. Partnership limited by shares (Kommanditgesellschaft...

  • Page 71
    ... German Corporate Governance Code: 1. In accordance with 2.3.2, the company shall send notification of the convening of the General Meeting together with the convention documents to all domestic and foreign financial services providers, shareholders and shareholders' associations by electronic means...

  • Page 72
    ... of the issued shares of Merck KGaA. Information on reportable transactions by members of the Executive Board and the Supervisory Board during fiscal 2008 pursuant to Section 15a of the German Securities Trading Act can be found on the Merck Web site at www.merck.de/investors -> Corporate governance...

  • Page 73
    ... the integration of Serono S.A. No permanent Supervisory Board committees have been set up. 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...

  • Page 74
    ... BOARD 69 The Annual General Meeting elected the following shareholder representatives to the Supervisory Board: Johannes Baillou, Frank Binder, Prof. Dr. Rolf Krebs, Dr. Arend Oetker, Prof. Dr. Theo Siegert and Prof. Dr. Wilhelm Simson. The holder of the registered share appointed Michaela...

  • Page 75
    70 | Merck Annual Report 2008 Consolidated Financial Statements of the Merck Group

  • Page 76
    ... 78 Income Statement Balance Sheet Segment Reporting Cash Flow Statement Free Cash Flow Statement of Recognized Income and Expense Statement of Changes in Net Equity including Minority Interest 79 Notes 84 Accounting policies 90 Notes to the income statement 98 Notes to the balance sheet 123 Notes...

  • Page 77
    72 | Merck Annual Report 2008 Income Statement Notes to the Income Statement: see page 90 â,¬ million Sales Note [1] [2] 7,201.6 7,558.0 356.4 2008 6,775.1 7,057.1 2007 Royalty income Total revenues Cost of sales 282.0 Gross margin Marketing and selling expenses Administration expenses ...

  • Page 78
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 73 Balance Sheet â,¬ ...

  • Page 79
    ... Merck Serono 2008 2007 Notes to the Segment Reporting: see page 123 Consumer Health Care 2008 2007 Performance & Life Science Chemicals 2008 2007 Pharmaceuticals 2008 2007 Liquid Crystals 2008 2007 Sales Royalty income Total revenues Selling. general and administration Research and development...

  • Page 80
    ... FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 75 Chemicals 2008 2007 Corporate...

  • Page 81
    ...in securities Changes in other financial assets Net cash flows from investing activities thereof: Discontinued Operations Dividend payments Capital increase including amounts due to stock option plans Profit transfers to E. Merck KG and changes in reserves Changes in liabilities to E. Merck KG Bonds...

  • Page 82
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 77 Free Cash Flow â,¬ ...

  • Page 83
    ...due to the exercise of stock options Capital increase Other changes in equity Changes in companies consolidated/Other Balance as of December 31, 2007 Balance as of January 1, 2008 Profit after tax Dividend payments Profit transfers to/from E. Merck KG including transfers to reserves Capital increase...

  • Page 84
    ....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 Commercial Code), the...

  • Page 85
    ... Merck KGaA, Darmstadt, 178 companies are fully consolidated in the annual financial statements of the Merck Group. One associate is included using the equity method. Due to secondary importance 40 investments are not consolidated and are presented under non-current financial assets. In fiscal 2008...

  • Page 86
    ... the acquisition of a 100% interest in Solvent Innovation GmbH of Cologne, Germany, for a purchase price of â,¬ 2.0 million. The company, which was consolidated for the first time as of January 1, 2008, is strengthening the research activities of our Performance & Life Science Chemicals division...

  • Page 87
    82 | Merck Annual Report 2008 Overall, the changes in the companies consolidated due to acquisitions had the following effects on the consolidated balance sheet: Disposals/ Deconsolidations Fair value Disposal at book value â,¬ million Preacquisition book value Acquisitions Adjustment Goodwill ...

  • Page 88
    ... up until the closing date under profit/loss from discontinued operations. Within the scope of the agreement, Mylan Inc. was granted an option to purchase the Generics business remaining with the Merck Group after the transfer. This option was already ref lected in the purchase price. The remaining...

  • Page 89
    .... 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 annual and interim financial statements. Resulting...

  • Page 90
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 85 Business transactions ...

  • Page 91
    ..., patents, brand names, trademarks and software are between 3 and 15 years. Amortization of intangible assets - except for software - are disclosed separately before the operating result. This item primarily comprises amortization in connection with the allocation of the Serono purchase price, but...

  • Page 92
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 87 Assets with indefinite...

  • Page 93
    ... consolidation measures. 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 applicable or enacted as of balance sheet date are used...

  • Page 94
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 89 Provisions In ...

  • Page 95
    90 | Merck Annual Report 2008 Notes to the income statement [1] Sales Merck Group sales totaled â,¬ 7,201.6 million in 2008. This corresponds to an increase of 6.3% over the previous year. Adjusted for the impact of currency and acquisitions, organic growth amounted to 10.7%. Sales are presented by...

  • Page 96
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 91 Other operating income...

  • Page 97
    ... business disposals amounting to â,¬ -45.9 million within the Performance & Life Science Chemicals division and concern sites in the United States and Brazil. In addition, in the Merck Serono division we recognized expenses of â,¬ 25.6 million in connection with the restructuring of the sales force...

  • Page 98
    ... STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 93 [11] Financial result â,¬ million 2008...

  • Page 99
    ...: â,¬ million 2008 2007 Change in deferred tax assets (balance sheet) Change in deferred tax liabilities (balance sheet) Deferred taxes credited/debited to equity Changes in companies consolidated First-time consolidation of the Serono companies Changes in companies consolidated/ Deconsolidation...

  • Page 100
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 95 The vast majority of ...

  • Page 101
    ... | Merck Annual Report 2008 The following table presents a tax reconciliation of the theoretical tax rate to consolidated profit. The theoretical tax rate is determined by applying the statutory tax rates of the German and foreign companies in proportion to their contribution to consolidated profit...

  • Page 102
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 97 [15] Earnings per ...

  • Page 103
    98 | Merck Annual Report 2008 Notes to the balance sheet [16] Cash and cash equivalents This item comprises: Dec. 31, 2008 Dec. 31, 2007 â,¬ million Cheques, cash and bank balances Short-term cash investments 329.1 692.7 363.6 292.6 426.6 134.0 Changes in cash and cash equivalents as defined ...

  • Page 104
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 99 [18] Trade accounts ...

  • Page 105
    ...used to secure liabilities. There were no significant contracts to be accounted for in accordance with IAS 11 (Construction Contracts) as of the balance sheet date. [20] Other assets This item comprises: Other current assets Dec. 31, 2008 Dec. 31, 2007 â,¬ million Other receivables from associates...

  • Page 106
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 101 Other receivables and...

  • Page 107
    ... well as brands, trademarks/Other â,¬ million Finite useful life Indefinite useful life Advance payments Goodwill Software Total Acquisition cost January 1, 2007 Currency translation Changes in companies consolidated Additions Disposals Transfers Reclassification to assets held for sale December...

  • Page 108
    ... translation of intangible assets reported in Swiss francs in connection with the Serono purchase price allocation into euros - the Group currency. The stated effects resulting from changes in the companies consolidated relate to the additions mentioned under "Acquisitions". The net carrying amount...

  • Page 109
    ... from Swiss francs into euros - the reporting currency of the Group. This translation effect outweighed the impairment losses. The increase in goodwill attributable to the Consumer Health Care and Performance & Life Science Chemicals division is due to the first-time consolidation of Bio-Fyt Pharma...

  • Page 110
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 105 [24] Property, plant ...

  • Page 111
    106 | Merck Annual Report 2008 Impairment losses totaled â,¬ 6.6 million in fiscal 2008. Of this amount, â,¬ 6.0 million relates to expenses in connection with closures and disposal measures within the Performance & Life Science Chemicals division and the relevant sites in the United States and ...

  • Page 112
    ... MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 107 [25] Non-current financial assets and equity method financial...

  • Page 113
    ...current financial assets available for sale (investments) were carried at cost with a book value of â,¬ 17.0 million since a market price could not be determined. The development of the value of minority investments is often dependent on developments on the stock exchanges, which is why the value of...

  • Page 114
    ...companies of the Merck Group by region Employees Germany/Europe Merck KGaA, Darmstadt, Germany Ares Trading SA, Aubonne, Switzerland Laboratoires Serono SA, Coinsins, Switzerland Merck Serono S.p.A., Rome, Italy Merck Lipha Santé S.A.S., Lyon, France Merck Santé S.A.S., Lyon, France Merck Pharma...

  • Page 115
    ... granted to the Merck Group are as follows: Utilization * Bank credit as of facilities Dec. 31, 2008 â,¬ million Interest Due Syndicated loan 2007 Bilateral credit facilities with banks Bilateral credit facilities with banks Various bank lines * Booked disagios are not taken into account in the...

  • Page 116
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 111 In fiscal 2007, a â,¬...

  • Page 117
    ... | Merck Annual Report 2008 [27] Trade accounts payable Trade accounts payable consist of the following: Dec. 31, 2008 Dec. 31, 2007 â,¬ million Liabilities due to associates Liabilities due to other affiliates Liabilities due to third parties - 0.9 843.7 842.8 - 0.3 646.9 646.6 Trade accounts...

  • Page 118
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 113 Other non-current ...

  • Page 119
    ... false reporting of price information amounted to â,¬ 92.2 million on the balance sheet date. Although the company was divested within the scope of the sale of the Generics business to Mylan Inc., PA (USA), Merck continues to be liable for costs incurring from the aforementioned legal disputes since...

  • Page 120
    ... FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 115 As of the balance sheet date...

  • Page 121
    ... 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, 2008 Dec. 31, 2007 â,¬ million Present...

  • Page 122
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 117 The present value of ...

  • Page 123
    ... 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. The development...

  • Page 124
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 119 Over the past five ...

  • Page 125
    120 | Merck Annual Report 2008 [32] Net equity A strong equity position is important for Merck to ensure the continued existence of the company. Based on our financial strategy, the Executive Board regularly reviews various key figures that reflect the capitalization of the company. Gearing (ratio ...

  • Page 126
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 121 In addition to the ...

  • Page 127
    ... exercise price was the mean value of Merck's shares in the Frankfurt XETRA trading system, commencing 30 days before the date of issue of the stock rights. In addition, the rights are subject to a lockup period that begins two calendar weeks before the date of publication of the Q1 and Q3 reports...

  • Page 128
    ... are managed as a single territory in the Merck Group's internal reporting. The reconciliation of operating assets included in Segment Reporting is as follows: Dec. 31, 2008 Dec. 31, 2007 â,¬ million Assets Monetary assets (cash and equivalents, loans, securities) Non-operating receivables, tax...

  • Page 129
    ... GmbH Bio-Fyt Pharma N.V. â,¬ million SeQuant AB PT Merck Tbk Purchase price Cash and cash equivalents acquired Net cash outflows 6.9 6.9 - 5.6 -1.0 4.6 10.2 10.2 - 32.6 -2.4 30.2 There were no cash inflows from disposals of Group companies in 2008. The decline in other financial assets is...

  • Page 130
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 125 [35] Net cash flows ...

  • Page 131
    ...The following derivative financial positions were held as of the balance sheet date: Nominal volume â,¬ million Fair value Dec. 31, 2008 Dec. 31, 2007 Dec. 31, 2008 Dec. 31, 2007 Cash flow hedge Fair value hedge Without hedge accounting Interest rate swaps Total forward exchange contracts 936.9 53...

  • Page 132
    ...FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 127 Gains and losses on the fair value...

  • Page 133
    ...| Merck Annual Report 2008 The interest expense of the euro benchmark bond, which was issued in 2005 with a volume of â,¬ 500.0 million and a coupon of 3.75% was fixed to the six-month Euribor rate through interest rate swaps and is measured as a fair value hedge. [39] Management of financial risks...

  • Page 134
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 129 Liquidity risks The ...

  • Page 135
    ... values of financial instruments by category are as follows: Balance sheet measurement according to IAS 39 Book value Dec. 31, 2008 Amortized cost Acquisition cost Fair value recognized in equity Fair value included in profit/loss â,¬ million Assets Cash and cash equivalents Trade receivables...

  • Page 136
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 131 Balance sheet ...

  • Page 137
    132 | Merck Annual Report 2008 The net results of financial instruments by category are as follows: Interest 2008 in â,¬ million Subsequent measurement Write-downs Write-up Disposal gains/losses Loans and receivables Assets of the category Held to maturity Available for sale Held for trading ...

  • Page 138
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 133 Most of the ...

  • Page 139
    ... the acquisition of Serono. [46] Corporate governance The Statement of Compliance in accordance with Section 161 of the German Stock Corporation Act (Aktiengesetz) was published in the Corporate governance section of our Web site (www.merck.de/investors -> Corporate governance) in February 2008 and...

  • Page 140
    CONSOLIDATED FINANCIAL STATEMENTS OF THE MERCK GROUP 72 Income Statement 73 Balance Sheet 74 Segment Reporting 76 Cash Flow Statement 77 Free Cash Flow 77 Statement of Recognized Income and Expense 78 Statement of Changes in Net Equity including Minority Interest 79 Notes 135 [47] Companies opting...

  • Page 141
    ... rolling average of profit after tax of the E. Merck Group. Furthermore, additions to pension provisions of E. Merck KG include current service costs of â,¬ 2.0 million (2007: â,¬ 2.0 million) for members of the Executive Board of Merck KGaA. Subject to the approval of the Annual General Meeting on...

  • Page 142
    ..., the consolidated 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...

  • Page 143
    ...comprising the balance sheet, the income statement, statement of recognized income and expense, the cash flow statement and the notes to the consolidated financial statements together with the group management report, for the Merck Group for the business year from January 1 to December 31, 2008. The...

  • Page 144
    ... of operations of the Group in accordance 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. Mannheim...

  • Page 145
    ... make payments until the term expires or the credit line is terminated. DAX® Abbreviation for Deutscher Aktienindex (German Stock Index). Its value is based on the stock prices of the 30 largest German companies by market capitalization. EBIT Earnings before interest and taxes. Equals the operating...

  • Page 146
    ...the Global Pharma Health Fund e.V. (GPHF) offers a unique mobile compact laboratory that is capable of testing the quality of drugs. Greenhouse Gas Protocol The most widely used accounting and reporting system for greenhouse gas emissions. ICCA International Council of Chemical Associations. IMF The...

  • Page 147
    ...| Merck Annual Report 2008 Investment ratio Investments as a proportion of total revenues. Irinotecan An antineoplastic (chemotherapy) drug used to treat cancer. ISO 14001 This international environmental management standard specifies globally recognized requirements for an environmental management...

  • Page 148
    ...Restriction of Chemicals. This is an EU regulation that entered into force in mid 2007. Research ratio Research spending as a proportion of the total revenues of the company or division. Return on sales (ROS) Ratio of operating result to total revenues. Schistosomiasis Schistosomiasis, also known as...

  • Page 149
    ... Responsibility for Employees, the Environment and the Community Merck - Facts & Figures A Strong Site 2007 Report (also available in French and Spanish) A Global Player Rooted in Darmstadt You can order these publications from Corporate Communications, Merck KGaA, 64271 Darmstadt, Germany, or via...

  • Page 150
    More information inside the cover: Business Development 1999 - 2008 Published on February 18, 2009 by Merck KGaA, Corporate Communications, Frankfurter Strasse 250, 64293 Darmstadt, Germany Fax: +49 (0) 6151-72 5577, e-mail: [email protected], Web site: www.merck.de Concept, design, and typesetting:...

  • Page 151
    ...In order to harmonize accounting practices, as of 2006 the way in which certain customer rebates in the Pharmaceuticals business sector are reported has been changed. Following its acquisition, the Swiss biopharmaceutical company Serono was integrated with the Ethicals division into Merck Serono in...

  • Page 152
    ... 1,245 893 673 657 268 713 7,281 3,329 29,133 15.3 3.40 0.85 - 2005 4,460 2,314 1,914 - 400 - 2,112 895 1,217 - - - 34 1,824 ...655 558 - -81 0 731 1,947 575 379 438 395 1,234 15,645 9,563 32,800 15.0 1.69 1.50 - 2008 Change vs. 2007 in % 7.1 11 12 - 5.2 - -1.3 -4.2 0.9 - - - -77 - 16 57 -12 - 14...

  • Page 153
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