Annual Report 2014 Annual Report 2014
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Notes to the consolidated balance sheet

(35) Cash and cash equivalents

This item comprised:


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€ million Dec. 31, 2014 Dec. 31, 2013
 
Cash, bank balances and cheques 546.7 332.0
Short-term cash investments (up to 3 months) 2,331.8 648.8
2,878.5 980.8

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Changes in cash and cash equivalents as defined by IAS 7 are presented in the cash flow statement.

The maximum default risk is equivalent to the carrying value of the cash and cash equivalents.

(36) Current financial assets


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€ million Dec. 31, 2014 Dec. 31, 2013
 
Held to maturity investments 21.7 53.4
Available-for-sale financial assets 2,135.0 2,312.1
Loans and receivables 2.9 27.3
Derivative assets (financial transactions) 39.8 17.7
2,199.4 2,410.5

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The development of current financial assets resulted mainly from the decrease in available-for-sale financial assets to € 2,135.0 million (2013: € 2,312.1 million). As of December 31, 2014, this item mainly included bonds amounting to € 1,178.6 million (2013: € 1,251.7 million) as well as commercial paper amounting to € 956.4 million (2013: € 915.7 million).

Moreover, fair value adjustments of € – 2.0 million, which were recognized in equity, were made on available-for-sale financial assets (2013: € 0.6 million). The loans and receivables contained in current financial assets are neither past due nor impaired.

(37) Trade accounts receivable

Trade accounts receivable amounting to € 2,235.6 million (2013: 2,021.4 million) exclusively existed vis-à-vis third parties.

Trade accounts receivable past due were as follows:


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€ million Dec. 31, 2014 Dec. 31, 2013
 
Neither past due nor impaired 1,808.8 1,542.1
Past due, but not impaired
up to 3 months 143.3 127.5
up to 6 months 13.5 6.5
up to 12 months 5.8 2.8
up to 24 months 5.1 3.4
over 2 years 0.5 0.4
Impaired 258.6 338.7
Carrying amount 2,235.6 2,021.4

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The corresponding allowances developed as follows:


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€ million 2014 2013
 
January 1 – 136.8 – 154.8
Additions – 41.5 – 46.5
Reversals 41.8 42.1
Utilizations 9.7 20.1
Currency translation and other changes 0.6 2.3
December 31 – 126.2 – 136.8

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Due to the broad range of products of the Merck Group, trade accounts receivable exist vis-à-vis a large number of customers. This diversification helps to reduce risk with respect to potential defaults on receivables. In addition, established credit management processes that take individual customer risks into account are used to assess the recoverability of receivables. If there are indications that individual trade accounts receivable are partly or fully impaired, corresponding allowances are recognized.

In the period from January 1 to December 31, 2014 trade receivables in Italy with a nominal value of € 104.9 million were sold for € 102.0 million. Previous impairments in this context amounting to € 5.2 million were reversed and disclosed under other operating income. The sold receivables do not involve any further rights of recovery against Merck.

(38) Inventories

This item comprised:


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€ million Dec. 31, 2014 Dec. 31, 2013
 
Raw materials and supplies 377.3 294.9
Work in progress 496.6 523.0
Finished goods 726.9 580.2
Goods for resale 58.9 76.1
1,659.7 1,474.2

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Write-downs of inventories in 2014 amounted to € 99.5 million (2013: € 94.1 million). In 2014, reversals of inventory write-downs of € 45.3 million were recorded (2013: € 24.4 million). As of the balance sheet date, no inventories were pledged as security for liabilities.

(39) Other assets

Other assets comprised:


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€ million current non-current Dec. 31, 2014 current non-current Dec. 31, 2013
 
Other receivables 147.0 5.4 152.4 113.8 1.6 115.4
Derivative assets (operative) 468.5 2.9 471.4 72.7 53.9 126.6
Financial items 615.5 8.3 623.8 186.5 55.5 242.0
 
Receivables from non-income
related taxes
199.8 24.5 224.3 99.0 30.4 129.4
Prepaid expenses 53.8 17.1 70.9 34.9 12.2 47.1
Assets from defined benefit plans 1.8 1.8 3.8 3.8
Other assets 339.3 6.6 345.9 36.5 7.4 43.9
Non-financial items 594.7 48.2 642.9 174.2 50.0 224.2
1,210.2 56.5 1,266.7 360.7 105.5 466.2

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Other receivables included current receivables from related parties amounting to € 76.5 million (2013: € 32.5 million) as well as current receivables from affiliates amounting to € 0.9 million (2013: € 0.6 million). Interest receivables amounted to € 12.5 million (2013: € 30.6 million). In addition, other prepayments were reported under this item. Other assets comprise the entitlement to the joint marketing right for Xalkori® (crizotinib) with Pfizer Inc., USA, in the amount of € 294.4 million (see Note [5]).

Other receivables from third parties past due were as follows:


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€ million Dec. 31, 2014 Dec. 31, 2013
 
Neither past due nor impaired 149.1 109.8
Past due, but not impaired
up to 3 months 2.2 3.3
up to 6 months 0.3
up to 12 months 0.7
up to 24 months 0.9 0.7
over 2 years 0.2 0.2
Impaired 0.4
Carrying amount 152.4 115.4

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In 2014, allowances for other receivables from third parties amounting to € 0.4 million (2013: € 0.6 million) were necessary. There were no reversals of allowances in this connection in 2014 or in 2013.

(40) Tax receivables

Tax receivables amounted to € 297.0 million (2013: € 109.8 million) and resulted from tax prepayments that exceeded the actual amount of tax payable for 2014 and prior fiscal years, and from refund claims for prior years as well as withholding tax credits.

(41) Intangible assets


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Marketing authorizations, patents, licenses and
similar rights, brands, trademarks and other
Goodwill Software Advance payments Total
€ million Finite
useful life
Indefinite
useful life
 
Cost at January 1, 2013 11,070.9 594.1 4,695.7 288.1 35.4 16,684.2
Changes in scope of consolidation
Additions 7.0 64.5 1.8 36.3 109.6
Disposals – 13.5 – 1.5 – 30.1 – 11.2 – 0.1 – 56.4
Transfers 1.0 – 0.8 36.3 – 29.2 7.3
Classification as held for sale or transfer to a disposal group – 46.6 – 16.5 – 63.1
Currency translation – 86.1 – 0.3 – 65.9 – 10.7 – 0.1 – 163.1
December 31, 2013 10,932.7 656.0 4,583.2 304.3 42.3 16,518.5
 
Accumulated amortization and impairment losses January 1, 2013 – 5,113.1 – 437.5 – 189.1 – 5,739.7
Changes in scope of consolidation
Amortization – 813.5 – 42.5 – 856.0
Impairment losses – 155.5 – 1.3 – 17.3 – 4.3 – 178.4
Disposals 13.4 1.5 17.3 11.2 43.4
Transfers 4.2 – 4.1 – 1.7 – 1.6
Reversals of impairment losses
Classification as held for sale or transfer to a disposal group 41.0 41.0
Currency translation 30.9 0.3 8.8 40.0
December 31, 2013 – 5,992.6 – 441.1 – 217.6 – 6,651.3
 
Net carrying amount as of December 31, 2013 4,940.1 214.9 4,583.2 86.7 42.3 9,867.2
 
Cost at January 1, 2014 10,932.7 656.0 4,583.2 304.3 42.3 16,518.5
Changes in scope of consolidation 1,049.5 818.4 1.6 1,869.5
Additions 62.1 38.6 2.2 40.4 143.3
Disposals – 4.8 – 61.5 – 11.9 – 0.2 – 78.4
Transfers 0.2 47.0 – 45.5 1.7
Classification as held for sale or transfer to a disposal group
Currency translation 285.3 0.6 292.3 10.8 589.0
December 31, 2014 12,325.0 633.7 5,693.9 354.0 37.0 19,043.6
 
Accumulated amortization and impairment losses January 1, 2014 – 5,992.6 – 441.1 – 217.6 – 6,651.3
Changes in scope of consolidation
Amortization – 841.6 – 35.6 – 877.2
Impairment losses – 84.8 – 5.1 – 0.2 – 90.1
Disposals 4.7 61.5 10.1 76.3
Transfers
Reversals of impairment losses
Classification as held for sale or transfer to a disposal group
Currency translation – 96.6 – 0.6 – 8.6 – 105.8
December 31, 2014 – 6,926.1 – 465.0 – 256.8 – 0.2 – 7,648.1
 
Net carrying amount as of December 31, 2014 5,398.9 168.7 5,693.9 97.2 36.8 11,395.5

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Marketing authorizations, patents, licenses and similar rights, brands, trademarks and other

The changes in the scope of consolidation comprise additions to intangible assets resulting from the acquisition of AZ Electronic Materials S.A., Luxembourg. A detailed presentation of this acquisition can be found in Note [4].

The net carrying amount of “Marketing authorizations, patents, licenses and similar rights, brands, trademarks and other” with finite useful lives amounting to € 5,398.9 million (2013: € 4,940.1 million) mainly included the identified and capitalized assets from the purchase price allocations for the acquisition of AZ Electronic Materials S.A., the Millipore Corporation and Serono SA. The vast majority was attributable to marketing authorizations of active pharmaceutical ingredients and technologies. The remaining useful lives of these assets ranged between 0.5 and 19.3 years.

The additions to intangible assets with finite useful lives amounted to € 62.1 million in 2014 (2013: € 7.0 million). The Merck Serono division accounted for € 59.0 million of this figure. Most of this amount was attributable to the license agreement with Auxogyn regarding the Eeva test, to a cooperation agreement with Sutro Biopharma, USA, to develop antibody active ingredient conjugates in oncology, and to marketing rights for Glucophage® and Euthyrox® in Russia, for Rovatitan® in Korea and for Cetrotide® in Japan.

The item “Marketing authorizations, patents, licenses and similar rights, brand names, trademarks and other” with indefinite useful lives primarily related to rights that Merck had acquired for active ingredients, products or technologies that were still in the research and development stage. Owing to the uncertainty as to the extent to which these projects will ultimately lead to marketable products, the period for which the resulting capitalized assets would generate an economic benefit for the company could not yet be determined. Amortization will only begin once the products receive marketing approval and is carried out on a straight-line basis over the shorter period of the patent or contract term or the expected useful life.

In 2014, additions to intangible assets with indefinite useful lives amounted to € 38.6 million (2013: € 64.5 million) and were exclusively attributable to the Merck Serono division. The amounts related to further milestone payments to Symphogen A/S, Denmark, for the acquisition of a license to an oncological compound. Additionally, Merck entered into two new licensing agreements with Mersana Therapeutics Inc., USA, and Sutro Biopharma, USA, in oncology.

Goodwill

Goodwill was incurred mainly in connection with the acquisition of AZ Electronic Materials S.A., the Millipore Corporation and Serono SA. The changes in goodwill caused by foreign exchange rates resulted almost exclusively from translating the goodwill of AZ Electronic Materials S.A. and the Millipore Corporation, part of which is carried in U.S. dollars, into the reporting currency.

In connection with the sale of the Discovery and Development Solutions business field of the Merck Millipore division to Eurofins Scientific S.A., Luxembourg, in 2013 goodwill allocated to the business field in the amount of € 16.5 million was reclassified to “assets held for sale” and disposed of after the closing in the first quarter of 2014.

The carrying amounts of “Marketing authorizations, patents, licenses and similar rights, brands, trademarks and other” as well as goodwill were attributable to the divisions as follows:


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€ million Remaining useful life in years Merck Serono Consumer Health Performance Materials Merck Millipore Total
Dec. 31, 2014
Total
Dec. 31, 2013
 
Marketing authorizations, patents, licenses and similar rights, brands, trademarks and other
Finite useful life 2,565.4 9.9 1,071.1 1,752.5 5,398.9 4,940.1
Rebif ® 5.0 1,841.0 1,841.0 2,209.0
Gonal-f ® 4.0 379.8 379.8 474.7
Saizen ® 5.0 153.7 153.7 184.4
Humira ® 19.1
Puregon® 11.5
Technologies 0.5 – 18.3 152.8 0.1 1,054.3 408.4 1,615.6 619.4
Brands 0.5 – 9.5 8.8 12.0 248.9 269.7 255.5
Customer relationships 0.5 – 12.5 0.6 1.0 0.2 1,095.2 1,097.0 1,166.5
Other 3.0 – 19.3 37.5 4.6 42.1
 
Indefinite useful life 166.8 1.9 168.7 214.9
 
Goodwill 1,601.5 243.1 938.2 2,911.1 5,693.9 4,583.2

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Information on impairment tests of intangible assets with indefinite useful lives

Since goodwill and other intangible assets with indefinite useful lives are not amortized, these are subjected to an impairment test if there are indications of impairment, or at least once a year.

In 2014, goodwill was not impaired. The assumptions used in the goodwill impairment test are presented in Note [7].

For intangible assets with indefinite useful lives there was an impairment loss in 2014 in the amount of € 84.8 million (2013: € 1.3 million). An impairment of € 37.5 million related to the asset from the licensing agreement with Symphogen A/S, Denmark. The discontinuation of the Phase III development program for tecemotide, an investigational antigen-specific cancer immunotherapy, led to an impairment loss of the relevant intangible asset amounting to € 18.5 million.

A further amount of € 14.0 million was due to the discontinuation of the development activities for ceralifimod (ONO-4641) for the treatment of multiple sclerosis. All items were disclosed in the income statement of Serono as impairment losses under other operating expenses.

In fiscal 2014, software impairments of € 5.1 million (2013: € 4.3 million) were recognized in the income statement under other operating expenses.

In 2014, no intangible assets were pledged as security for liabilities.

(42) Property, plant and equipment


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€ million Land, land rights and buildings, including buildings on third-party land Plant and machinery Other facilities, operating and office equipment Construction in progress and advance payments to vendors and contractors Total
 
Cost at January 1, 2013 2,651.5 3,044.4 906.7 429.1 7,031.7
Changes in the scope of consolidation
Additions 8.0 15.1 25.0 360.4 408.5
Disposals – 376.2 – 63.5 – 46.6 – 10.3 – 496.6
Transfers 186.9 253.0 63.0 – 512.1 – 9.2
Classification as held for sale or transfer to a disposal group – 0.8 – 4.4 – 2.7 – 7.9
Currency translation – 56.9 – 43.8 – 20.4 – 3.6 – 124.7
December 31, 2013 2,412.5 3,200.8 925.0 263.5 6,801.8
 
Accumulated depreciation and impairment losses January 1, 2013 – 1,051.6 – 2,164.6 – 685.1 – 176.8 – 4,078.1
Changes in the scope of consolidation
Depreciation – 108.9 – 187.8 – 85.2 – 381.9
Impairment losses – 29.5 – 11.0 – 0.8 – 0.4 – 41.7
Disposals 148.6 62.1 44.7 9.7 265.1
Transfers – 54.2 – 108.4 – 0.4 166.6 3.6
Reversals of impairment losses 4.7 0.4 5.1
Classification as held for sale or transfer to a disposal group 0.4 1.8 1.9 4.1
Currency translation 20.7 33.0 15.5 69.2
December 31, 2013 – 1,069.8 – 2,374.5 – 709.4 – 0.9 – 4,154.6
 
Net carrying amount as of December 31, 2013 1,342.7 826.3 215.6 262.6 2,647.2
 
Cost at January 1, 2014 2,412.5 3,200.8 925.0 263.5 6,801.8
Changes in the scope of consolidation 89.8 58.9 33.5 3.6 185.8
Additions 20.5 23.9 30.9 410.9 486.2
Disposals – 14.3 – 49.2 – 46.8 – 2.9 – 113.2
Transfers 69.6 132.9 58.4 – 253.2 7.7
Classification as held for sale or transfer to a disposal group
Currency translation 57.3 42.4 16.5 8.6 124.8
December 31, 2014 2,635.4 3,409.7 1,017.5 430.5 7,493.1
 
Accumulated depreciation and impairment losses January 1, 2014 – 1,069.8 – 2,374.5 – 709.4 – 0.9 – 4,154.6
Changes in the scope of consolidation
Depreciation – 104.3 – 189.8 – 90.4 – 384.5
Impairment losses – 0.4 – 4.7 – 0.6 – 5.7
Disposals 10.7 46.1 44.9 0.1 101.8
Transfers – 4.1 – 0.1 0.1 – 4.1
Reversals of impairment losses 0.1 0.4 0.2 0.7
Classification as held for sale or transfer to a disposal group
Currency translation – 19.0 – 25.6 – 11.6 – 0.1 – 56.3
December 31, 2014 – 1,186.8 – 2,548.2 – 766.8 – 0.9 – 4,502.7
 
Net carrying amount as of December 31, 2014 1,448.6 861.5 250.7 429.6 2,990.4

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Changes in the scope of consolidation included the additions to property, plant and equipment from the acquisition of AZ Electronic Materials S.A., Luxembourg. A detailed presentation of the AZ acquisition can be found in Note [4].

Material additions to construction in progress are attributable to the expansion of global headquarters and the construction of two new energy stations at the Darmstadt site. Transfers relating to construction in progress mainly include a new liquid crystal mixing plant in Shanghai, China, which was completed and commissioned in the first quarter of 2014.

In fiscal 2014, impairment losses in the amount of € 5.7 million (2013: € 41.7 million) were recognized, of which a major part related to the Performance Materials division.

The total amount of property, plant and equipment used to secure financial liabilities was immaterial. Total government grants and subsidies in connection with investments in property, plant and equipment during the fiscal year amounted to €3.7 million (2013: €2.9 million).

Directly allocable borrowing costs on qualified assets in the amount of € 3.2 million (2013: € 0.4 million) were capitalized.

Property, plant and equipment also included assets that were leased. The total value of capitalized leased assets amounted to € 9.4 million (2013: € 9.3 million) and the corresponding obligations amounted to € 6.5 million (2013: € 7.7 million), (see Note [60]).

The carrying amounts of assets classified as finance leases were as follows:


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€ million Dec. 31, 2014 Dec. 31, 2013
 
Land and buildings 6.8 7.1
Vehicles 1.1 1.4
Other property, plant and equipment 1.5 0.8
9.4 9.3

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(43) Non-current financial assets


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€ million Dec. 31, 2014 Dec. 31, 2013
 
Investments 21.5 19.2
Investments in associates and other companies 57.9 34.3
Securities – Available-for-sale financial assets 1.3 3.8
Assets from derivatives (financial transactions) 4.7
Loans and other non-current financial assets 13.7 15.8
94.4 77.8

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Unconsolidated investments and the investments in associates and other companies were classified as “available-for-sale”. Thereof investments with a carrying amount of € 66.9 million (2013: € 52.3 million) were subsequently measured at cost since their market value could not be determined. The increase in investments in associates and other companies resulted mainly from the investment in InfraServ GmbH & Co. Wiesbaden KG, amounting to € 10.8 million, which were acquired in the course of the acquisition of AZ Electronic Materials S.A.

In 2014, impairment losses were recognized for unconsolidated investments and for other available-for-sale non-current financial assets in a total amount of € 4.4 million (2013: € 5.5 million). These were recorded in the income statement under other operating expenses.

Moreover, fair value adjustments of € 0.6 million (2013: € 1.2 million) were made on available-for-sale non-current financial assets and recognized in equity.

(44) Financial liabilities


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€ million
December 31, 2014
< 1 year 1 – 5 years > 5 years Total
 
Loans and commercial paper 1,449.7 347.5 2,827.0 4,624.2
Liabilities to banks 67.4 200.0 267.4
Liabilities to related parties 501.4 501.4
Loans from third parties and other financial liabilities 18.6 61.6 4.3 84.5
Liabilities from derivatives (financial transactions) 36.0 19.9 97.1 153.0
Finance lease liabilities 2.8 3.7 6.5
2,075.9 632.7 2,928.4 5,637.0

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€ million
December 31, 2013
< 1 year 1 – 5 years > 5 years Total
 
Loans and commercial paper 1,730.6 1,412.1 3,142.7
Liabilities to banks 42.2 42.2
Liabilities to related parties 361.9 361.9
Loans from third parties and other financial liabilities 24.0 56.0 4.0 84.0
Liabilities from derivatives (financial transactions) 10.0 14.1 35.3 59.4
Finance lease liabilities 2.3 5.0 0.4 7.7
440.4 1,805.7 1,451.8 3,697.9

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The liabilities of the Merck Group to banks were denominated in the following currencies:


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in % Dec. 31, 2014 Dec. 31, 2013
 
Euro 88.1 14.4
Turkish lira 4.5 6.9
Chinese renminbi 3.9 20.5
Argentine peso 2.4 39.2
Other currencies 1.1 19.0
100.0 100.0

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On the balance sheet date, the bank financing commitments vis-à-vis the Merck Group were as follows:


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€ million Financing commitments
from banks
Utilization as of
December 31, 2014
Interest Maturity
 
Syndicated loan 2013 2,000.0 0.0 variable 2019
Bilateral credit agreement with banks 3.2 3.2 fixed / variable 2015
Bilateral credit agreement with banks 200.0 200.0 variable 2019
Various bank credit lines 11,544.8 64.2 fixed / variable > 2 years
13,748.0 267.4

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Merck has a € 2 billion multi-currency revolving credit facility, which was renewed in fiscal 2014 (“Syndicated Loan 2013”). The credit line was underwritten by an international group of banks and has a remaining term until March 2019, with an extension option of one year that Merck can exercise at its own discretion. This credit line had not been utilized as of the reporting date.

On September 22, 2014 Merck arranged credit lines amounting to US$ 15.6 billion with a banking consortium to secure the expected purchase price payment for the planned acquisition of the Sigma-Aldrich Corporation, USA (Sigma-Aldrich). As of the balance sheet date, the nominal volume of these credit lines was US$ 13.1 billion since a portion of the original nominal amount had already been replaced by other financial resources. A significant portion of the credit line is to be replaced by other capital market instruments by the time the acquisition closes. As of December 31, 2014, the described credit lines for financing the planned acquisition represent the vast majority of the existing bank lines amounting to € 11,544.8 million (2013: €  245.0 million).

Furthermore, Merck KGaA had access to a commercial paper program with a volume of € 2 billion to meet short-term capital requirements, which had not been utilized as of the reporting date.

In October 2014, Merck renewed its debt issuance program with a volume of € 15 billion. The debt issuance program forms a flexible contractual basis for issuing bonds.

In December 2014, Merck issued a subordinate hybrid bond with a two-tranche structure. This issuance is part of the financing of the proposed acquisition of Sigma-Aldrich. Both tranches have a maturity of 60 years. The first tranche with a nominal volume of € 1.0 billion pays a coupon of 2.625 % and contains an early bond redemption option for Merck after 6.5 years. The second tranche, with a nominal volume of € 500 million and carrying coupon of 3.375 %, includes an early redemption right for Merck after ten years. The two rating agencies Standard & Poor’s and Moody’s have given equity credit treatment to half of the issuance, thus making the issuance more favorable to Merck’s credit rating than a classic bond issue. The bond is recognized in full as a financial liability in the balance sheet.

The following bonds issued by the Merck Group are currently outstanding:


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Issuer Nominal value Maturity Nominal
interest rate
Issue price
 
Merck Financial Services GmbH, Germany € 1,350 million March 2010 – March 2015 3.375 % 99.769
Merck Financial Services GmbH, Germany € 100 million December 2009 – December 2015 3.615 %1 100.000
EMD Millipore Corporation, USA € 250 million June 2006 – June 2016 5.875 % 99.611
Merck Financial Services GmbH, Germany € 60 million November 2009 – November 2016 4.000 % 100.000
Merck Financial Services GmbH, Germany € 70 million December 2009 – December 2019 4.250 % 97.788
Merck Financial Services GmbH, Germany € 1,350 million March 2010 – March 2020 4.500 % 99.582
Merck KGaA, Germany € 1,000 million December 2014 – December 20742 2.625 %2 99.274
Merck KGaA, Germany € 500 million December 2014 – December 20743 3.375 %3 100.000
1
Fixed by interest rate swaps.
2
Merck has the right to prematurely repay this tranche of the hybrid bond issued in December 2014 for the first time in June 2021. The nominal interest rate is fixed until that date.
3
Merck has the right to prematurely repay this tranche of the hybrid bond issued in December 2014 for the first time in December 2024. The nominal interest rate is fixed until that date.

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The financial liabilities of the Merck Group are not secured by liens or similar forms of collateral. The loan agreements do not contain any financial covenants. The Merck Group’s average borrowing cost as of the balance sheet date was 3.3 % (2013: 3.9 %).

Finance lease liabilities represented the present value of future payments arising from finance leases. This item primarily related to liabilities from finance leases for land and buildings.

Information on liabilities to related parties can be found in Note [66].

(45) Trade accounts payable

Trade accounts payable consisted of the following:


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€ million Dec. 31, 2014 Dec. 31, 2013
 
Liabilities to third parties 1,539.3 1,363.9
Liabilities to investments 0.1 0.2
1,539.4 1,364.1

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Trade accounts payable included accrued amounts of € 831.0 million (2013: € 778.0 million) for outstanding invoices and reductions in sales revenues.

(46) Other liabilities

This item comprised:


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€ million current non-current Dec. 31, 2014 current non-current Dec. 31, 2013
 
Other financial liabilities 692.9 3.2 696.1 578.9 2.2 581.1
Liabilities from derivatives (operational) 29.0 6.4 35.4 1.5 0.6 2.1
Financial items 721.9 9.6 731.5 580.4 2.8 583.2
Accruals for personnel expenses 474.3 474.3 439.9 439.9
Deferred income 220.9 768.6 989.5 31.6 2.3 33.9
Advance payments received from customers 15.0 15.0 16.0 16.0
Liabilities from non-income
related taxes
142.5 3.8 146.3 66.6 0.5 67.1
Non-financial items 852.7 772.4 1,625.1 554.1 2.8 556.9
1,574.6 782.0 2,356.6 1,134.5 5.6 1,140.1

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As of December 31, 2014, other financial liabilities included liabilities to related companies amounting to € 425.6 million (2013: € 373.1 million). These are mainly profit entitlements of E. Merck KG. Moreover, this item contained liabilities to investments amounting to € 3.1 million (2013: € 1.6 million), interest accruals of € 85.9 million (2013: € 83.3 million) as well as payroll liabilities of € 65.9 million (2013: € 63.6 million). The remaining amount of € 115.6 million (2013: € 59.5 million) recorded under other financial liabilities included among other things liabilities to insurers as well as contractually agreed payment obligations vis-à-vis other companies.

The increase in deferred income results from the collaboration agreement with Pfizer Inc., USA (see Note [5]).

(47) Tax liabilities

Tax liabilities and provisions for tax liabilities resulted in total income tax liabilities of € 849.8 million as of December 31, 2014 (2013: € 465.1 million). The increase in tax liabilities is primarily due to higher income tax expenses in fiscal 2014 (see Note [32]) as well as provisions for potential tax obligations.

(48) Provisions

Provisions developed as follows:


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€ million Litigation Restructuring Personnel Environmental
protection
Other Total
 
January 1, 2014 772.3 202.8 201.6 111.2 217.9 1,505.8
Additions 125.1 44.1 130.8 9.9 167.3 477.2
Utilizations – 332.3 – 104.2 – 58.2 – 12.1 – 36.4 – 543.2
Release – 260.3 – 8.3 – 24.4 – 3.4 – 25.1 – 321.5
Interest portion 5.0 1.5 17.3 23.8
Currency translation 22.5 2.1 14.2 0.8 4.5 44.1
Changes in scope of consolidation / Other 60.8 1.3 – 60.5 1.6
December 31, 2014 393.1 136.5 266.8 123.7 267.7 1,187.8
thereof current 140.5 65.5 120.0 11.3 224.4 561.7
thereof non-current 252.6 71.0 146.8 112.4 43.3 626.1

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Litigation

As of December 31, 2014, the provisions for legal disputes amounted to € 393.1 million (2013: € 772.3 million). Many of the legal disputes and official proceedings currently pending relate to the Merck Serono division. The legal matters described below represent the most significant legal risks.

Product-related and patent disputes

The litigation risk with Israel Bio-Engineering Project Limited Partnership (IBEP) was eliminated as of the end of 2014. IBEP asserted claims for property rights and the payment of license fees for the past and the future. These legal disputes were connected to the financing of medical research projects in the early 1980s. Merck had taken appropriate accounting measures for these legal disputes in the past. As of year-end, Merck achieved a written settlement with IBEP according to which the legal disputes were settled in exchange for a sum of money. The provision recognized in previous years was partly used and the remainder was released.

Rebif®: Merck is involved in a patent dispute with Biogen Idec Inc., USA, (Biogen) in the United States. Biogen claims that the sale of Rebif® in the United States infringes on a Biogen patent. The disputed patent was granted to Biogen in 2009 in the United States. Subsequently, Biogen sued Merck and other pharmaceutical companies for infringement of this patent. Merck defended itself against all allegations and brought a countersuit claiming that the patent was invalid and not infringed on by Merck’s actions. A Markman hearing was held in January 2012; a decision has not yet been announced. The parties are currently engaged in court-ordered mediation proceedings that have not yet officially ended. It is currently not clear when a first-instance decision will be made. Merck has taken appropriate accounting measures.

In the Performance Materials division, Merck is in negotiations with a competitor regarding potential patent infringements. Merck maintains that the competitor’s patent infringement assertion is invalid owing to relevant prior art. The competitor has threatened to file patent infringement lawsuits. Merck has taken appropriate accounting measures for this issue.

Antitrust proceedings

Raptiva®: In December 2011, the Brazilian federal state of São Paulo sued Merck for damages because of alleged collusion between various pharmaceutical companies and an association of patients suffering from psoriasis and vitiligo. The collusion is alleged to have aimed at an increase in the sales of the involved companies’ drugs to the detriment of patients and state coffers. Moreover, in connection with the product Raptiva®, patients have filed suit to receive compensatory damages. Merck has taken appropriate accounting measures for these legal disputes in the financial statements.

Drug pricing by the divested Generics Group

Paroxetine: In connection with the divested generics business, the Group is subject to antitrust investigations by the British Competition and Market Authority (“CMA”) in the United Kingdom. In March 2013, the CMA informed Merck of the assumption that a settlement agreement entered into in 2002 between Generics (UK) Ltd. and several GlaxoSmithKline companies in connection with the antidepressant drug paroxetine violates British and European competition law. As the owner of Generics (UK) Ltd. at the time, Merck was allegedly involved in the settlement negotiations and is therefore liable. The investigations into Generics (UK) Ltd. started in 2011, without Merck being aware of this. It is considered probable that the CMA will impose a fine on Merck. Merck has recognized appropriate provisions in this connection.

Foreign exchange transfer restrictions

In one jurisdiction, Merck and other companies are subject to a government investigation regarding compliance with foreign exchange transfer restrictions. In this connection, the responsible authorities are investigating whether import prices led to impermissibly high foreign exchange transfers. Appropriate accounting measures have been taken for repayments and fines that are estimated to be probable due to the uncertain legal situation in the affected country. The provision recognized in 2013 under other provisions was reclassified to provisions for litigation.

In addition to provisions for the mentioned litigation, provisions existed as of the balance sheet date for various smaller pending legal disputes.

Restructuring

Provisions for restructuring mainly include commitments to employees in connection with restructuring projects and provisions for onerous contracts. These were recognized once detailed restructuring plans had been prepared and communicated.

In 2012, the “Fit for 2018” transformation and growth program was established. The aim of this program is to secure the competitiveness and the growth of the Merck Group over the long term. The non-current provisions of € 71.0 million (2013: € 74.7 million) recorded in this connection mainly consist of commitments to employees from partial and early retirement arrangements. In addition, current provisions of € 65.5 million (2013: € 128.1 million) reflect future commitments for severance payments and commitments arising from site closures. The payments made in 2014 in the amount of € 104.3 million are primarily due to severance payments to employees. Cash flows owing to provisions for restructuring are for the most part expected within a period of up to 2019.

Provisions for employee benefits/Share-based payment

Provisions for employee benefits include obligations from long-term variable compensation programs. Payments from the long-term variable compensation plan in place until 2011 were made for the last time in 2014. The long-term variable compensation plan valid since 2012 is aligned not only with target achievement based on key performance indicators, but above all with the long-term performance of Merck shares. Certain executives and employees could be eligible to receive a certain number of virtual shares – Merck Share Units (MSUs) – at the end of a three-year performance cycle. The number of MSUs that could be received depends on the total value defined for the respective person and the average closing price of Merck shares in Xetra® trading during the last 60 trading days prior to January 1 of the respective fiscal year (reference price). In order for members of top management to receive payment, they must personally own an investment in Merck shares dependent on their respective fixed annual compensation. When the three-year performance cycle ends, the number of MSUs to then be granted is determined based on the development of two key performance indicators (KPIs). These are on the one hand the performance of the Merck share price compared to the performance of the DAX® with a weighting of 70 % and on the other hand the development of the EBITDA pre margin during the performance cycle as a proportion of a defined target value with a weighting of 30 %. Depending on the development of the KPIs, at the end of the respective performance cycle the eligible participants are granted between 0 % and 150 % of the MSUs they could be eligible to receive.

Based on the MSUs granted, the eligible participants receive a cash payment at a specified point in time in the year after the three-year performance cycle has ended. The value of a granted MSU, which is relevant for payment, corresponds to the average closing price of Merck shares in Xetra trading during the last 60 trading days prior to January 1 after the performance cycle. The payment amount is limited to three times the reference price.


Show table
2012 tranche 2013 tranche 2014 tranche
 
Performance cycle Jan. 1, 2012 to Dec. 31, 2014 Jan. 1, 2013 to Dec. 31, 2015 Jan. 1, 2014 to Dec. 31, 2016
Term 3 years 3 years 3 years
Reference price of Merck shares in €
(60-day average Merck share price prior to the start of the performance cycle)
69.57 100.11 122.84
DAX® value
(60-day average of the DAX® prior to the start of the performance cycle)
5,883.35 7,350.64 9,065.08
 
Potential number of MSUs
Potential number offered for the first time in 2012 538,235
Expired 30,685
Status on Dec. 31, 2012 507,550
Potential number offered for the first time in 2013 389,658
Expired 28,101 11,938
Status on Dec. 31, 2013 479,449 377,720
Potential number offered for the first time in 2014 355,164
Expired 42,215 38,179 21,247
MSUs granted to employees of the
AZ Electronic Materials Group on May 2, 2014
22,865
Status on Dec. 31, 2014 437,234 339,541 356,782

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The fair value of the obligations is recalculated on each balance sheet date using a Monte Carlo simulation based on the previously described KPIs. The expected volatilities are based on the implicit volatility of Merck shares and the DAX® in accordance with the remaining term of the LTIP tranche. The dividend payments incorporated into the valuation model orient towards medium-term dividend expectations. The value of the provision for the vesting period already completed was € 144.8 million as of December 31, 2014 (2013: € 63.5 million). The net expense for fiscal 2014 was € 81.3 million (2013: € 45.7 million).

The Executive Board members have their own Long-Term Incentive Plan, the conditions of which largely correspond to the Long-Term Incentive Plan described here. A description of the plan for the Executive Board can be found in the compensation report, which is part of the Statement on Corporate Governance.

Provisions for employee benefits also include obligations for the partial retirement program and other severance pay that were not set up in connection with the “Fit for 2018” transformation and growth program as well as obligations in connection with long-term working hour accounts and anniversary bonuses.

With respect to provisions for defined-benefit pensions and other post-employment benefits, see Note [49].

Environmental protection

Provisions for environmental protection mainly existed in Germany and the United States and were set up particularly for obligations from soil remediation and groundwater protection in connection with the discontinued crop protection business.

Other provisions

Other provisions mainly include provisions for purchase commitments, subsequent contract costs stemming from discontinued research projects, other guarantees, and provisions for uncertain commitments from contributions, duties and fees.

In 2014, the clinical development program for tecemotide, an investigational antigen-specific cancer immunotherapy for the treatment of non-small cell lung cancer, and the development of plovamer acetate, an active ingredient for the treatment of multiple sclerosis, terminated. In addition, the license rights to the active ingredient ceraliflimod were returned to Ono Pharmaceutical Co., Ltd., Japan, since the compound does not meet the criteria for further investment. Furthermore, Merck Serono decided to return the rights to the compound Sym004 to Symphogen A/S Denmark.

Provisions for subsequent costs that are likely to be incurred for the aforementioned and other discontinued research projects were recognized during the reporting period.

(49) Provisions for pensions and other post-employment benefits

Depending on the legal, economic and fiscal circumstances prevailing in each country, different retirement benefit systems are provided for the employees of the Merck Group. Generally these systems are based on the years of service and salaries 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. Provisions also contain other post-employment benefits, such as accrued future health care costs for retirees in the United States.

In order to limit the risks of changing capital market conditions and demographic developments, for many years now Merck has been offering only defined contribution plans to newly hired employees.

The value recognized in the balance sheet for pensions and other post-employment benefits was derived as follows:


Show table
€ million Dec. 31, 2014 Dec. 31, 2013
 
Present value of all defined benefit obligations 3,812.7 2,736.8
 
Fair value of the plan assets – 1,994.4 – 1,840.2
Funded status 1,818.3 896.6
 
Effects of asset ceilings 10.5
Net defined benefit liability recognized in the balance sheet 1,818.3 907.1
 
Assets from defined benefit plans 1.8 3.8
Provisions for pensions and other post-employment benefits 1,820.1 910.9

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The calculation of the defined benefit obligations as well as the relevant plan assets was based on the following actuarial parameters:


Show table
Germany Switzerland United Kingdom Other countries
in % 2014 2013 2014 2013 2014 2013 2014 2013
 
Discount rate 2.00 3.75 1.00 2.30 3.66 4.57 4.16 4.76
Future salary increases 2.52 2.51 1.96 1.73 2.10 3.89 4.53 4.03
Future pension increases 1.75 1.75 0.01 3.06 3.38 1.58 2.34
Future cost increases for health care benefits 5.10 5.10

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These are average values weighted by the present value of the respective benefit obligation.

The defined benefit obligations of the Merck Group were based on the following types of benefits provided by the respective plan:


Show table
Germany Other countries Merck Group
Present value of defined benefit obligations in € million Dec. 31, 2014 Dec. 31, 2014 Dec. 31, 2014
 
Benefit based on final salary
Annuity 2,542.3 462.5 3,004.8
Lump sum 98.0 98.0
Installments 1.2 1.2
Benefit not based on final salary
Annuity 141.9 506.9 648.8
Lump sum 7.1 40.1 47.2
Medical plan 12.7 12.7
2,692.5 1,120.2 3,812.7

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The main benefit rules are as follows:

Merck KGaA and AB Allgemeine Pensions GmbH & Co. KG accounted for € 2,434.0 million (2013: € 1,670.6 million) of the defined benefit obligations and € 1,098.1 million (2013: € 1,052.6 million) of the plan assets. The benefits comprise old-age, disability and surviving dependent pensions. On the one hand, these obligations are based on benefit rules comprising benefit commitments dependent upon years of service and final salary from which newly hired employees have been excluded. On the other hand, the benefit rules applicable to employees newly hired since January 1, 2005 comprise a direct commitment in the form of a defined contribution pension plan. The benefit entitlement results from the cumulative total of annually determined pension components that are calculated on the basis of a defined benefit expense and an age-dependent annuity table. Statutory minimum funding obligations do not exist.

The Merck Serono pension fund in Switzerland accounted for € 402.6 million (2013: € 314.8 million) of the defined benefit obligations and € 363.5 million (2013: € 324.9 million) of the plan assets. Of this amount, € 10.5 million could not be recognized in 2013 due to effects of the asset ceiling according to IAS 19.64. These obligations are based on the granting of old-age, disability and surviving dependents benefits, which include the legally required benefits. Both employer and employee contributions are paid into the pension fund. Statutory minimum funding obligations exist.

The Merck Pension Scheme in the United Kingdom accounted for € 376.5 million (2013: € 320.1 million) of the defined benefit obligations and € 343.6 million (2013: € 293.1 million) of the plan assets. These obligations result from a benefit plan which is based on years of service and final salary and was closed to newly hired employees in 2006. The agreed benefits comprise old-age, disability and surviving dependent benefits. The employer and the employees make contributions to the plan. Statutory minimum funding obligations also exist in the United Kingdom.

In the reporting period, the following items were recognized in income:


Show table
€ million 2014 2013
     
Current service cost 83.5 82.7
Past service cost – 2.5 2.6
Gains (-) or losses (+) on settlement – 4.3 – 2.8
Other effects recognized in income 1.8 1.0
Interest expense 101.9 92.9
Interest income – 67.2 – 52.1
Total amount recognized in income 113.2 124.3

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With the exception of the net balance of interest expense on the defined benefit obligations and interest income from the plan assets, which is recorded under the financial result, the relevant expenses for defined benefit and defined contribution pension systems are allocated to the individual functional areas.

During the reporting period, the present value of the defined pension obligations changed as follows:


Show table
€ million Funded benefit
obligations
Benefit
obligations
funded
by provisions
2014 Funded benefit obligations Benefit
obligations
funded
by provisions
2013
             
Present value of the defined benefit obligations on January 1 2,533.0 203.8 2,736.8 2,615.7 214.4 2,830.1
Currency translation differences 39.2 3.1 42.3 – 27.2 – 3.5 – 30.7
Current service cost 73.0 10.5 83.5 72.5 10.2 82.7
Past service cost – 2.0 – 0.5 – 2.5 2.6 2.6
Gains (-) or losses (+) on settlement – 3.2 – 1.1 – 4.3 – 2.2 – 0.6 – 2.8
Interest expense 92.6 9.0 101.6 85.4 7.5 92.9
Actuarial gains (-) / losses (+) 849.2 73.8 923.0 – 49.5 – 10.8 – 60.3
Contributions by plan participants 7.2 7.2 7.0 7.0
Pension payments – 94.0 – 5.9 – 99.9 – 178.5 – 7.3 – 185.8
Changes in the scope of consolidation 8.3 17.4 25.7
Other effects recognized in income 0.1 0.1 – 0.3 – 0.5 – 0.8
Other changes 0.3 – 1.1 – 0.8 7.5 – 5.6 1.9
Fair value of the plan assets on December 31 3,503.6 309.1 3,812.7 2,533.0 203.8 2,736.8

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The following overview shows how the present value of all defined benefit obligations would have been influenced by changes to definitive actuarial assumptions. To determine the sensitivities, in principle each of the observed parameters was varied while keeping the measurement assumptions otherwise constant. Insofar as its development of social security is comparable to salary trends, the amounts for social security vary together with the salary trend.


Show table
€ million Dec. 31, 2014
   
Present value of all defined benefit obligations if
the discount rate is 50 basis points higher 3,463.7
the discount rate is 50 basis points lower 4,218.1
the expected rate of future salary increases is 50 basis points higher 3,947.7
the expected rate of future salary increases is 50 basis points lower 3,690.7
the expected rate of future pension increases is 50 basis points higher 4,028.0
the expected rate of future pension increases is 50 basis points lower 3,633.7
the medical cost trend rate is 50 basis points higher 3,813.7
the medical cost trend rate is 50 basis points lower 3,811.8

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The fair value of the plan assets changed in the reporting period as follows:


Show table
€ million 2014 2013
     
Fair value of the plan assets on January 1 1,840.2 1,633.6
Currency translation differences 33.7 – 22.1
Interest income from plan assets 67.2 52.1
Actuarial gains (+) / losses (–) arising from experience adjustments 50.7 49.0
Funding CTA Merck KGaA 200.0
Employer contributions 27.2 39.9
Employee contributions 7.2 7.0
Pension payments from plan assets – 32.8 – 119.1
Changes in the scope of consolidation 3.0
Plan administration costs paid from the plan assets recognized in income – 1.9 – 1.7
Other effects recognized in income 0.2 – 0.1
Other changes – 0.3 1.6
Fair value of the plan assets on December 31 1,994.4 1,840.2

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The actual return on plan assets amounted to € 117.9 million in 2014 (2013: income of € 101.1 million). Changes in the effects of the asset ceilings in accordance with IAS 19.64 were recognized in the amount of € 10.8 million as actuarial gains (2013: € 10.5 million in actuarial losses) and € 0.3 million as interest expenses (2013: € 0.0 million). The effects of the asset ceilings as of the balance sheet date amounted to € 0.0 million (2013: € 10.5 million).

The development of cumulative actuarial gains (+) and losses (-) was as follows:


Show table
€ million 2014 2013
     
Cumulative actuarial gains (+) / losses (-) recognized in equity on January 1 – 694.8 – 795.6
Currency translation differences – 12.1 2.0
Remeasurements of defined benefit obligations    
Actuarial gains (+) / losses (-) arising from changes in demographic assumptions 19.1 – 1.1
Actuarial gains (+) / losses (-) arising from changes in financial assumptions – 915.2 88.6
Actuarial gains (+) / losses (-) arising from experience adjustments – 26.9 – 27.2
Remeasurements of plan assets    
Actuarial gains (+) / losses (-) arising from experience adjustments 50.7 49.0
Effects of the asset ceilings    
Actuarial gains (+) / losses (-) 10.8 – 10.5
Reclassification within retained earnings
Cumulative actuarial gains (+) / losses (-) recognized in equity on December 31 – 1,568.4 – 694.8

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Plan assets for funded defined benefit obligations primarily comprised fixed-income securities, stocks, and investment funds. They did not include financial instruments issued by Merck Group companies or real estate used by Group companies.

The plan assets serve exclusively to meet the defined benefit obligations. Covering the benefit obligations with financial assets represents a means of providing for future cash outflows, which occur in some countries (e.g. Switzerland and the United Kingdom) on the basis of legal requirements and in other countries (e.g. Germany) on a voluntary basis.

The ratio of the fair value of the plan assets to the present value of the defined benefit obligations is referred to as the degree of pension plan funding. If the benefit obligations exceed the plan assets, this represents underfunding of the pension fund.

It should be noted, however, that both the benefit obligations as well as the plan assets fluctuate over time. This could lead to an increase in underfunding. Depending on the statutory regulations, it could become necessary in some countries for the Merck Group to reduce underfunding through additions of liquid assets. The reasons for such fluctuations could include changes in market interest rates and thus the discount rate as well as adjustments to other actuarial assumptions (e.g. life expectancy, inflation rates).

In order to minimize such fluctuations, in managing its plan assets, the Merck Group also pays attention to potential fluctuations in liabilities. In the ideal case, assets and liabilities develop in opposite directions when exposed to exogenous factors, creating a natural defense against these factors. In order to achieve this effect, the corresponding use of financial instruments is considered in respect of individual pension plans.

The fair value of the plan assets can be allocated to the following categories:


Show table
  Dec. 31, 2014 Dec. 31, 2013
€ million Quoted market price in an active market No quoted market price in an active market Total Quoted market price in an active market No quoted market price in an active market Total
             
Cash and cash equivalents 167.0 167.0 522.8 0.1 522.9
Equity instruments 544.9 544.9 433.8 0.9 434.7
Debt instruments 662.5 662.5 589.2 0.5 589.7
Direct investments in real estate 84.7 84.7 79.1 79.1
Investment funds 371.3 371.3 136.7 136.7
Insurance contracts 74.9 74.9 71.4 71.4
Other 88.2 0.9 89.1 5.7 5.7
Fair value of the plan assets 1,833.9 160.5 1,994.4 1,688.2 152.0 1,840.2

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Employer contributions to plan assets and direct payments to beneficiaries will probably amount to around € 93.3 million in 2015. The weighted duration amounted to 20 years.

The cost of ongoing contributions 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 € 38.7 million (2013: € 19.3 million). In addition, employer contributions amounting to € 57.2 million (2013: € 55.5 million) were transferred to the German statutory pension insurance system and € 28.5 million (2013: € 29.7 million) to statutory pension insurance systems abroad.

(50) Equity

Equity capital

The total capital of the company consists of the share capital composed of shares and the equity interest held by the general partner E. Merck KG. As of the balance sheet date, the company’s share capital amounting to € 168.0 million was divided into 129,242,251 no par value bearer shares plus one registered share and is disclosed as subscribed capital. The number of shares doubled compared to the previous year, after the Annual General Meeting of Merck KGaA resolved a 1:2 stock split, which was implemented as of June 30, 2014.

The amount resulting from the issue of shares by Merck KGaA exceeding the nominal amount was recognized in the capital reserves. The equity interest held by the general partner amounted to € 397.2 million.

E. Merck KG’s share of net profit

E. Merck KG and Merck KGaA engage in reciprocal net profit transfers. This makes it possible for E. Merck KG, the general partner of Merck KGaA, and the shareholders to participate in the net profit/loss of Merck KGaA in accordance with the ratio of the general partner’s equity interest and the share capital (70.274 % or 29.726 % of the total capital).

The allocation of net profit/loss is based on the net income of E. Merck KG determined in accordance with the provisions of the German Commercial Code as well as the income/loss from ordinary activities and the extraordinary result of Merck KGaA. These results are adjusted for trade tax and create the basis for the allocation of net profit/loss.

The reciprocal net profit/loss transfer between E. Merck KG and Merck KGaA as stipulated by the Articles of Association was as follows:


Show table
    Dec. 31, 2014 Dec. 31, 2013
€ million   E. Merck KG Merck KGaA E. Merck KG Merck KGaA
           
Result of E. Merck KG   –17.9 – 9.2
Result of ordinary activities of Merck KGaA   651.2 534.9
Extraordinary result  
Adjustment for trade tax in accordance with Art. 27 (1) Articles of Association of Merck KGaA   –3.1
Trade tax in accordance with Art. 30 (1) Articles of Association of Merck KGaA   – 54.2 – 34.6
Basis for appropriation of profits (100 %) –21.0 597.0 – 9.2 500.3
Profit transfer to E. Merck KG
Ratio of general partner’s capital to total capital
(70.274 %) 419.5 – 419.5 351.6 – 351.6
Profit transfer from E. Merck KG
Ratio of share capital to total capital
(29.726 %) 6.3 – 6.3 2.7 – 2.7
Trade tax   3.1
Corporation tax   – 22.8 – 12.0
Net income   407.9 148.4 345.1 134.0

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The result of E. Merck KG on which the appropriation of profits adjusted for trade tax is based amounted to € – 21.0 million (2013: € –9.2 million). This led to a result transfer to Merck KGaA of € – 6.3 million (2013: € –2.7 million). Merck KGaA’s result from ordinary activities adjusted for trade tax and extraordinary result, on which the appropriation of its profit is based, amounted to € 597.0 million (2013: € 500.3 million). Merck KGaA transferred € 419.5 million of its profit to E. Merck KG (2013: € 351.6 million). In addition, an expense from corporation tax charges amounting to € 22.8 million resulted (2013: expense of € 12.0 million). Corporation tax is only calculated on the income received by shareholders. Its equivalent is the income tax applicable to E. Merck KG. However, this must be paid by the partners of E. Merck KG directly and is not disclosed in the annual financial statements.

Appropriation of profits

The profit distribution to be resolved upon by shareholders also defines the amount of that portion of net profit/loss freely available to E. Merck KG. If the shareholders resolve to carry forward or to allocate to retained earnings a portion of Merck KGaA’s net retained profit to which they are entitled, then E. Merck KG is obligated to allocate to the profit brought forward/retained earnings of Merck KGaA a comparable sum determined in accordance with the ratio of share capital to general partner’s capital. This ensures that the retained earnings and the profit carried forward of Merck KGaA correspond to the ownership ratios of the shareholders on the one hand and E. Merck KG on the other hand. Consequently, for distributions to E. Merck KG, only the amount is available that results after netting the profit transfer of Merck KGaA with the amount either allocated or withdrawn by E. Merck KG from retained earnings/profit carried forward. This amount corresponds to the amount that is paid as a dividend to the shareholders, and reflects their pro rata shareholding in the company.


Show table
  2014 2013
€ million E. Merck KG Merck KGaA E. Merck KG Merck KGaA
         
Net income 407.9 148.4 345.1 134.0
         
Profit carried forward fromprevious year 26.3 11.2
Withdrawal from revenue reserves
Transfer to revenue reserves
Retained earnings Merck KGaA   159.6   134.0
         
Withdrawal by E. Merck KG – 362.3   – 318.8  
Dividend proposal   –129.2   – 122.8
Profit carried forward 71.9 30.4 26.3 11.2

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For 2013, a dividend of € 1.90 per share was distributed. The dividend proposal for fiscal 2014 will be € 1.00 per share, taking into account the doubling of the number of shares since June 2014. The proposed payment to shareholders amounts to € 129.2 million (2013: € 122.8 million). The amount withdrawn by E. Merck KG would amount to € 362.3 million (2013: € 318.8 million).

Changes in reserves

For 2014 the profit transfer to E. Merck KG including changes in reserves amounted to € 435.0 million. This consists of the profit transfer to E. Merck KG (€ – 419.5 million), the result transfer from E. Merck KG to Merck KGaA (€ – 6.3 million), the change in the profit carried forward of E. Merck KG (€ 45.6 million) as well as the profit transfer from Merck & Cie to E. Merck KG (€ – 54.8 million). Merck & Cie is a partnership under Swiss law that is controlled by Merck KGaA, but distributes its operating result directly to E. Merck KG. This distribution is a payment to shareholders, which is why it is likewise presented under changes in equity.

Non-controlling interests

The disclosure of non-controlling interests was based on the stated equity of the subsidiaries concerned 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 related to the minority interests in the publicly traded companies Merck Ltd., India, and P.T. Merck Tbk, Indonesia, as well as Merck Ltd. Thailand, and Merck (Pvt.) Ltd., Pakistan.

For an interim period, non-controlling interests of € 161.9 million existed in the course of the acquisition of AZ Electronic Materials S.A. The acquisition of these interests after May 2, 2014 was recognized in equity as a transaction without a change of control. This lowered retained earnings by € 189.4 million, corresponding to the difference between the purchase price of € 351.3 million paid for the remaining shares and the disposal of non-controlling interests in the amount of € 161.9 million.

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