Notes to the Consolidated Balance Sheet
(16) Intangible assets
32.5 KB EXCEL| Customer relationships, marketing authorizations, patents, licenses and similar rights, brands, trademarks and other 1 | Goodwill 1 | Software 1 | Advance payments and software in development | Total 1 | ||
|---|---|---|---|---|---|---|
| € million | Finite useful life | Not yet available for use | ||||
| Cost at January 1, 2015 | 12,325 | 634 | 5,694 | 354 | 37 | 19,044 |
| Changes in scope of consolidation | 5,743 | – | 8,765 | 29 | 68 | 14,605 |
| Additions | 303 | 126 | – | 2 | 43 | 474 |
| Disposals | – 3 | – | – | – 9 | – | – 13 |
| Transfers | 8 | – 2 | – | 37 | – 38 | 5 |
| Classification as held for sale or transfer to a disposal group | – 61 | – | – 22 | – | – | – 83 |
| Currency translation | 141 | – | 54 | 6 | – | 201 |
| December 31, 2015 | 18,455 | 757 | 14,492 | 418 | 111 | 34,232 |
| Accumulated amortization and impairment losses January 1, 2015 | – 6,926 | – 465 | – | – 257 | – | – 7,648 |
| Changes in scope of consolidation | – | – | – | – | – | – |
| Amortization | – 948 | – | – | – 36 | – | – 984 |
| Impairment losses | – 6 | – 109 | – | – | – | – 115 |
| Disposals | 3 | – | – | 9 | – | 12 |
| Transfers | – 4 | – | – | – | – | – 4 |
| Reversals of impairment losses | – | – | – | – | – | – |
| Classification as held for sale or transfer to a disposal group | 38 | – | – | – | – | 38 |
| Currency translation | – 104 | – | – | – 5 | – | – 109 |
| December 31, 2015 | – 7,948 | – 574 | – | – 289 | – | – 8,811 |
| Net carrying amount as of December 31, 2015 | 10,507 | 184 | 14,492 | 129 | 111 | 25,422 |
|
||||||
| Customer relationships, marketing authorizations, patents, licenses and similar rights, brands, trademarks and other 1 | Goodwill 1 | Software 1 | Advance payments and software in development | Total 1 | ||
|---|---|---|---|---|---|---|
| € million | Finite useful life | Not yet available for use | ||||
| Cost at January 1, 2016 | 18,455 | 757 | 14,492 | 418 | 111 | 34,232 |
| Changes in scope of consolidation | 1 | – | 138 | – | – | 140 |
| Additions | 16 | 12 | – | 2 | 106 | 136 |
| Disposals | – 1 | – 2 | – | – 10 | – | – 13 |
| Transfers | – 3 | – | – | 26 | – 19 | 4 |
| Classification as held for sale or transfer to a disposal group | – | – 2 | – 9 | – | – | – 10 |
| Currency translation | 312 | – | 443 | 3 | 2 | 760 |
| December 31, 2016 | 18,780 | 766 | 15,064 | 439 | 200 | 35,248 |
| Accumulated amortization and impairment losses January 1, 2016 | – 7,948 | – 574 | – | – 289 | – | – 8,811 |
| Changes in scope of consolidation | – | – | – | – | – | – |
| Amortization | – 1,218 | – | – | – 59 | – | – 1,277 |
| Impairment losses | – 94 | – 12 | – | – | – 11 | – 118 |
| Disposals | – | 2 | – | 10 | – | 12 |
| Transfers | 3 | – | – | – | – | 3 |
| Reversals of impairment losses | – | – | – | – | – | – |
| Classification as held for sale or transfer to a disposal group | – | – | – | – | – | – |
| Currency translation | – 62 | – | – | – 6 | – 1 | – 69 |
| December 31, 2016 | – 9,318 | – 585 | – | – 344 | – 13 | – 10,259 |
| Net carrying amount as of December 31, 2016 | 9,462 | 181 | 15,064 | 95 | 187 | 24,989 |
|
||||||
The carrying amounts of “Customer relationships, marketing authorizations, patents, licenses and similar rights, brands, trademarks and other” as well as goodwill were attributable to the business sectors as follows:
35.5 KB EXCEL| € million | Remaining useful life in years | Healthcare | Life Science | Performance Materials | Total Dec. 31, 2016 | Total Dec. 31, 2015 1 |
|---|---|---|---|---|---|---|
| Customer relationships, marketing authorizations, patents, licenses and similar rights, brands, trademarks and other | ||||||
| Finite useful life | – | 1,639 | 6,656 | 1,166 | 9,462 | 10,507 |
| Rebif ® | 3.0 | 1,105 | – | – | 1,105 | 1,473 |
| Gonal-f ® | 2.0 | 190 | – | – | 190 | 285 |
| Xalkori ® | 5.0 | 153 | – | – | 153 | 262 |
| Saizen ® | 3.0 | 92 | – | – | 92 | 123 |
| Other marketing authorizations | 3.0 – 5.3 | 68 | – | – | 68 | 86 |
| Technologies | 0.1 – 16.3 | – | 443 | 957 | 1,400 | 1,542 |
| thereof: acquisition of AZ Electronic Materials S.A. | 4.3 – 16.3 | – | – | 918 | 918 | 999 |
| Brands | 0.2 – 10.9 | 5 | 1,087 | 13 | 1,105 | 1,186 |
| thereof: acquisition of Sigma-Aldrich Corporation | 10.9 | – | 862 | 2 | 864 | 921 |
| Customer relationships | 0.2 – 20.9 | 1 | 5,121 | 189 | 5,311 | 5,507 |
| thereof: acquisition of Sigma-Aldrich Corporation | 19.9 – 20.9 | – | 4,236 | 189 | 4,425 | 4,486 |
| thereof: acquisition of Millipore Corporation | 1.5 – 10.5 | – | 859 | – | 859 | 988 |
| Others | 1.2 – 17.5 | 25 | 4 | 8 | 37 | 44 |
| Not yet available for use | – | 181 | – | – | 181 | 184 |
| Goodwill | – | 1,811 | 11,801 | 1,452 | 15,064 | 14,492 |
|
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Customer relationships, marketing authorizations, patents, licenses and similar rights, brands, trademarks and other
The changes in the scope of consolidation in 2015 mainly included the additions to intangible assets resulting from the acquisitions of the Sigma-Aldrich Corporation, USA, and Ormet Circuits, Inc., USA. In 2016, the changes in the scope of consolidation comprised in particular the additions to intangible assets from the acquisition of BioControl Systems, Inc., USA. Detailed presentations of these acquisitions and their respective effects can be found in Note [4] “Acquisitions, assets held for sale and disposal groups”.
The net carrying amount of “Customer relationships, marketing authorizations, patents, licenses and similar rights, brands, trademarks and other” with finite useful lives amounting to € 9,462 million (2015: € 10,507 million) mainly included the identified and capitalized assets from the purchase price allocations for the acquisition of the Sigma-Aldrich Corporation, AZ Electronic Materials S.A., the Millipore Corporation, and Serono SA.
The additions to intangible assets with finite useful lives amounted to € 16 million in 2016 (2015: € 303million), and at € 9 million was largely attributable to the Performance Materials business sector.
In fiscal 2016, impairment losses on intangible assets with indefinite useful lives totaled € 94 million (2015: € 6 million). An impairment loss of the co-commercialization right for Xalkori® amounting to € 71 million was attributable to the Healthcare business sector. The impairment loss was recognized owing to an increasingly intensive competitive environment for ALK inhibitors and the corresponding revision of profit participation assumptions from the co-commercialization right. In addition, in the Performance Materials business sector the SAFC Hitech brand was partly impaired since the decision was made to discontinue the use of this brand as of January 1, 2018. This led to an impairment loss of € 14 million. In the Life Science business sector, impairment losses in the amount of € 9 million were recognized, mainly attributable to a technology that is no longer used. These items were recorded in the consolidated income statement in impairment losses under other operating expenses.
The “Customer relationships, marketing authorizations, patents, licenses and similar rights, brands, trademarks and other” not yet available for use mainly refer to rights that Merck had acquired in connection with active ingredients, products or technologies that were still in development stages. Owing to the uncertainty as to the extent to which these projects will lead to the commercialization of marketable products, the period for which any resulting capitalized asset would generate an economic benefit for the company could not yet be determined. Amortization will only begin once the products receive marketing authorization and is carried out on a straight-line basis over the shorter period of the patent or contract term or the expected useful life.
The impairment losses for “Customer relationships, marketing authorizations, patents, licenses and similar rights, brand names, trademarks and other” not yet available for use amounted to € 12 million (2015: € 109 million) and were related to the Healthcare business sector. These impairment losses were largely attributable to development projects that were no longer pursued. The impairment losses on “Advance payments and software in development” in the amount of € 11 million were due to discontinued software development projects. The impairment was reported in the consolidated income statement in impairment losses under other operating expenses.
In 2016, borrowing costs of € 3 million (2015: € 3 million) directly allocable to qualified assets were capitalized.
In 2016, no intangible assets were pledged as security for liabilities.
Goodwill
Goodwill was incurred mainly in connection with the acquisition of the Sigma-Aldrich Corporation, 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 from the acquisitions of the Sigma-Aldrich Corporation, AZ Electronic Materials S.A. and the Millipore Corporation, part of which is carried in U.S. dollars, into the reporting currency. More information on the acquisition of the Sigma-Aldrich Corporation can be found in Note [4] “Acquisitions, assets held for sale and disposal groups”.
In 2016, goodwill was not impaired. The assumptions used in the goodwill impairment test are presented in Note [6] “Management judgments and sources of estimation uncertainty”.
(17) Property, plant and equipment
36 KB EXCEL| € million | Land, land rights and buildings, including buildings on third-party land 1 | Plant and machinery 1 | Other facilities, operating and office equipment 1 | Construction in progress and advance payments to vendors and contractors | Total 1 | |
|---|---|---|---|---|---|---|
| Cost at January 1, 2015 | 2,635 | 3,410 | 1,018 | 430 | 7,493 | |
| Changes in the scope of consolidation | 510 | 233 | 18 | 80 | 840 | |
| Additions | 6 | 27 | 28 | 502 | 564 | |
| Disposals | – 45 | – 52 | – 54 | – 4 | – 155 | |
| Transfers | 129 | 223 | 69 | – 417 | 4 | |
| Classification as held for sale or transfer to a disposal group | – | – | – | – | – | |
| Currency translation | 48 | 37 | 13 | 1 | 100 | |
| December 31, 2015 | 3,284 | 3,879 | 1,091 | 592 | 8,846 | |
|
Accumulated depreciation and impairment losses
January 1, 2015 |
– 1,187 | – 2,548 | – 767 | – 1 | – 4,503 | |
| Changes in the scope of consolidation | – | – | – | – | – | |
| Depreciation | – 110 | – 197 | – 93 | – | – 399 | |
| Impairment losses | – 8 | – 2 | – 4 | – | – 14 | |
| Disposals | 41 | 50 | 52 | 1 | 143 | |
| Transfers | – 4 | – 5 | 4 | – | – 5 | |
| Reversals of impairment losses | – | 1 | – | – | 1 | |
| Classification as held for sale or transfer to a disposal group | – | – | – | – | – | |
| Currency translation | – 22 | – 30 | – 10 | – | – 62 | |
| December 31, 2015 | – 1,289 | – 2,732 | – 817 | – | – 4,838 | |
| Net carrying amount as of December 31, 2015 | 1,995 | 1,147 | 274 | 592 | 4,008 | |
| Cost at January 1, 2016 | 3,284 | 3,879 | 1,091 | 592 | 8,846 | |
| Changes in the scope of consolidation | – 2 | – 10 | – 7 | – | – 20 | |
| Additions | 17 | 36 | 32 | 669 | 753 | |
| Disposals | – 59 | – 82 | – 68 | – 4 | – 214 | |
| Transfers | 154 | 221 | 78 | – 460 | – 8 | |
| Classification as held for sale or transfer to a disposal group | – 41 | – 2 | – | – | – 42 | |
| Currency translation | 37 | 26 | 11 | 12 | 85 | |
| December 31, 2016 | 3,391 | 4,067 | 1,136 | 807 | 9,401 | |
|
Accumulated depreciation and impairment losses
January 1, 2016 |
– 1,289 | – 2,732 | – 817 | – | – 4,838 | |
| Changes in the scope of consolidation | – | 8 | 5 | – | 13 | |
| Depreciation | – 147 | – 281 | – 100 | – | – 529 | |
| Impairment losses | – 4 | – 1 | – 2 | – 4 | – 11 | |
| Disposals | 47 | 78 | 64 | – | 189 | |
| Transfers | 3 | – 3 | – | – | – | |
| Reversals of impairment losses | 1 | 1 | – | – | 1 | |
| Classification as held for sale or transfer to a disposal group | 41 | 1 | – | – | 41 | |
| Currency translation | – 13 | – 19 | – 7 | – | – 38 | |
| December 31, 2016 | – 1,361 | – 2,950 | – 857 | – 4 | – 5,171 | |
| Net carrying amount as of December 31, 2016 | 2,030 | 1,117 | 279 | 804 | 4,230 | |
|
||||||
Changes in the scope of consolidation in 2015 mainly included the additions to property, plant and equipment from the acquisitions of the Sigma-Aldrich Corporation, USA, and Ormet Circuits, Inc., USA. In fiscal 2016, the changes in the scope of consolidation included the additions to property, plant and equipment from the acquisition of BioControl Systems, Inc., USA, as well as the disposals owing to the divestment of the Pakistani subsidiaries and the deconsolidation of the Venezuelan entities. A detailed presentation of these acquisitions can be found in Note [4] “Acquisitions, assets held for sale and disposal groups”.
Material additions to construction in progress were attributable to the expansion of global headquarters as well as the construction of a new Innovation Center at the Darmstadt site. Further investments at the Darmstadt site were made in a new OLED production plant and a new laboratory building. In addition, investments were made in a new pharmaceutical production plant in Nantong, China, as well as at the production sites in Bari, Italy, and Reinbek, Germany. Furthermore, construction work on a new packaging site in Aubonne, Switzerland, continued and investments were made to expand the production site. Transfers relating to construction in progress mainly included completed subprojects at Group headquarters in Darmstadt as well as investments in the United States, China, France, and Spain.
In 2016, impairment losses amounted to € 11 million (2015: € 14 million). They mainly related to assets attributable to the Life Science business sector. Reversals of impairment losses were immaterial overall.
The total amount of property, plant and equipment used to secure financial liabilities as well as government grants and subsidies was immaterial.
Directly allocable borrowing costs on qualified assets in the amount of € 6 million (2015: € 6 million) were capitalized.
The carrying amounts of assets classified as finance leases were as follows:
29 KB EXCEL| € million | Dec. 31, 2016 | Dec. 31, 2015 |
|---|---|---|
| Land and buildings | 4 | 6 |
| Vehicles | 1 | 1 |
| Other property, plant and equipment | 1 | 1 |
| 6 | 9 |
(18) Financial assets
30.5 KB EXCEL| € million | current | non-current | Dec. 31, 2016 | current | non-current 1 | Dec. 31, 2015 1 |
|---|---|---|---|---|---|---|
| Held-to-maturity investments | – | – | – | 30 | – | 30 |
| Available-for-sale financial assets | 43 | 191 | 233 | 162 | 109 | 271 |
| Loans and receivables | 44 | 10 | 55 | 3 | 17 | 19 |
| Derivative assets (financial transactions) | 59 | 17 | 76 | 33 | 5 | 37 |
| 145 | 218 | 364 | 227 | 130 | 358 | |
|
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Current available-for-sale financial assets included bonds amounting to € 29 million (2015: € 143 million).
Non-current available-for-sale financial assets mainly included investments in companies amounting to € 112 million (2015: € 88 million) and investments in subsidiaries that were not consolidated due to their minor significance in the amount of € 24 million (2015: € 22 million). In addition, entitlements to future milestone payments in connection with the disposal of Kuvan®were recognized for the first time in 2016 (see Note [4] “Acquisitions, assets held for sale and disposal groups”).
In 2016, impairment losses were recognized for investments in companies and other non-current financial assets held for sale in a total amount of € 5 million (2015: € 0 million). Fair value adjustments of € 50 million (2015: € 0 million) were made on available-for-sale non-current financial assets and recognized in equity. On the divestment of a minority interest, € – 31million (2015: € 0 million) of these fair value adjustments previously recognized in equity were reclassified to the consolidated income statement.
The loans and receivables contained in financial assets are neither past due nor impaired.
(19) Other assets
Other assets comprised:
31.5 KB EXCEL| € million | current | non-current | Dec. 31, 2016 | current 1 | non-current | Dec. 31, 2015 1 |
|---|---|---|---|---|---|---|
| Other receivables | 272 | 5 | 277 | 152 | 3 | 155 |
| Derivative assets (operative) | 7 | 5 | 12 | 8 | 6 | 14 |
| Financial items | 279 | 10 | 289 | 160 | 9 | 169 |
| Receivables from non-income related taxes | 205 | 29 | 234 | 176 | 29 | 205 |
| Prepaid expenses | 71 | 12 | 82 | 61 | 20 | 81 |
| Assets from defined benefit plans | – | – | – | 6 | – | 6 |
| Other assets | 120 | 81 | 200 | 97 | 70 | 166 |
| Non-financial items | 395 | 121 | 516 | 341 | 118 | 459 |
| 674 | 131 | 805 | 500 | 128 | 628 | |
|
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Other receivables included current receivables from related parties amounting to € 124 million (2015: € 35 million). This increase resulted from reimbursement claims vis-à-vis shareholders arising from taxes paid on their behalf.
Moreover, other receivables included license receivables amounting to € 38 million (2015: € 12 million).
The carrying amounts of other receivables from third parties were as follows:
30 KB EXCEL| € million | Dec. 31, 2016 | Dec. 31, 2015 |
|---|---|---|
| Neither past due nor impaired | 270 | 153 |
| Past due, but not impaired | ||
| up to 3 months | 3 | 1 |
| up to 6 months | – | 1 |
| up to 12 months | 2 | – |
| up to 24 months | 1 | 1 |
| over 2 years | – | – |
| Impaired | – | – |
| Other receivables | 277 | 155 |
As in the prior year, there were no allowances or reversals of allowances for other receivables.
(20) Inventories
This item comprised:
29.5 KB EXCEL| € million | Dec. 31, 2016 | Dec. 31, 2015 1 | ||||
|---|---|---|---|---|---|---|
| Raw materials and supplies | 501 | 493 | ||||
| Work in progress | 694 | 679 | ||||
| Finished goods / goods for resale | 1,413 | 1,437 | ||||
| Inventories | 2,607 | 2,610 | ||||
|
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Write-downs of inventories in 2016 amounted to € 236 million (2015: € 133 million). The increase resulted primarily from the first full-year consolidation of the Sigma-Aldrich Corporation, USA. In 2016, reversals of inventory write-downs of € 59 million were recorded (2015: € 47 million). As of the balance sheet date, no inventories were pledged as security for liabilities.
(21) Trade accounts receivable
The maturity structure of the carrying amounts of trade accounts receivable was as follows:
30.5 KB EXCEL| € million | Dec. 31, 2016 | Dec. 31, 2015 |
|---|---|---|
| Neither past due nor impaired | 2,458 | 2,321 |
| Past due, but not impaired | ||
| up to 3 months | 232 | 234 |
| up to 6 months | 20 | 14 |
| up to 12 months | 8 | 5 |
| up to 24 months | 3 | 2 |
| over 2 years | 1 | – |
| Impaired | 168 | 162 |
| Trade accounts receivable | 2,889 | 2,738 |
The corresponding allowances developed as follows:
30 KB EXCEL| € million | 2016 | 2015 |
|---|---|---|
| January 1 | – 165 | – 126 |
| Additions | – 52 | – 84 |
| Reversals | 59 | 40 |
| Utilizations | 17 | 9 |
| Change in scope of consolidation | – 302 | – 5 |
| Currency translation and other changes | – 20 | 1 |
| December 31 | – 464 | – 165 |
The changes in the scope of consolidation resulted from the allowances attributable to the divested Venezuelan entities, for which impairment losses in this amount had been recognized.
In the period from January 1 to December 31, 2016, trade accounts receivable in Italy with a nominal value of € 54 million were sold for € 53 million. Previous impairments in this context amounting to € 2 million were reversed and disclosed under other operating income. The sold receivables do not involve any further rights of recovery against Merck.
(22) Tax receivables
Income tax receivables amounted to € 403 million (2015: € 391 million). Tax receivables resulted primarily from tax prepayments that exceeded the actual amount of tax payable for 2016 and prior fiscal years, and from refund claims for prior years.
(23) Cash and cash equivalents
This item comprised:
29 KB EXCEL| € million | Dec. 31, 2016 | Dec. 31, 2015 |
|---|---|---|
| Cash, bank balances and cheques | 662 | 578 |
| Short-term cash investments (up to 3 months) | 277 | 255 |
| Cash and cash equivalents | 939 | 832 |
Changes in cash and cash equivalents as defined by IAS 7 are presented in the consolidated cash flow statement.
Cash and cash equivalents include restricted cash amounting to € 238 million (2015: € 327 million). Restricted cash relates mainly to cash and cash equivalents with subsidiaries which the Group only has restricted access to owing to foreign exchange controls.
The maximum default risk is equivalent to the carrying value of the cash and cash equivalents.
(24) 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 million was divided into 129,242,251 no-par value bearer shares plus one registered share and is disclosed as subscribed capital. 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 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 both E. Merck KG and Merck KGaA determined in accordance with the provisions of the German Commercial Code. These results are adjusted for trade tax and / or corporation tax and create the basis for the allocation of net profit / loss. The rules governing the adjustment of earnings relate partly to legal regulations that were amended in 2015 as a result of the German Accounting Directive Implementation Act. Articles 27 and 30 of the Articles of Association were thus adapted, without any changes to the contents and economic consequences of the principle of the allocation of net profit / loss. The amendments took effect in 2016. For better comparability, the previous year’s presentation has been adapted to the new rules. The reciprocal net profit / loss transfer between E. Merck KG and Merck KGaA as stipulated by the Articles of Association was as follows:
31.5 KB EXCEL| 2016 | 2015 | ||||
|---|---|---|---|---|---|
| € million | E. Merck KG | Merck KGaA | E. Merck KG | Merck KGaA | |
| Result of E. Merck KG | – 6 | – | – 20 | – | |
| Net income of Merck KGaA | – | 556 | – | 494 | |
| Corporation tax | – | 11 | – | 28 | |
| Basis for appropriation of profits | (100%) | – 6 | 567 | – 20 | 522 |
|
Profit transfer to E. Merck KG
Ratio general partner's capital to total capital |
(70.274%) | 398 | – 398 | 367 | – 367 |
|
Profit transfer from E. Merck KG
Ratio of share capital to total capital |
(29.726%) | 2 | – 2 | 6 | – 6 |
| Corporation tax | – | – 11 | – | – 28 | |
| Net income | 394 | 156 | 353 | 121 | |
The result of E. Merck KG on which the appropriation of profits adjusted for trade tax is based amounted to € – 6 million (2015: € – 20 million). This resulted in a profit / loss transfer to Merck KGaA of € – 2 million (2015: € – 6 million). Merck KGaA’s net income adjusted for corporation tax, on which the appropriation of its profit is based, amounted to € 567 million (2015: € 522 million). Merck KGaA transferred a gain in the amount of € 398 million of its profit to E. Merck KG (2015: € 367 million). In addition, an expense from corporation tax charges amounting to € 11 million resulted (2015: expense of € 28 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.
32 KB EXCEL| 2016 | 2015 | |||
|---|---|---|---|---|
| € million | E. Merck KG | Merck KGaA | E. Merck KG | Merck KGaA |
| Net income | 394 | 156 | 353 | 121 |
| Profit carried forward previous year | 37 | 15 | 72 | 30 |
| Withdrawal from revenue reserves | – | – | – | – |
| Transfer to revenue reserves | – | – | – | – |
| Retained earnings Merck KGaA | 171 | 151 | ||
| Withdrawal by E. Merck KG | – 392 | – 388 | ||
| Dividend proposal | – 155 | – 136 | ||
| Profit carried forward | 39 | 16 | 37 | 15 |
For 2015, a dividend of € 1.05 per share was distributed. The dividend proposal for fiscal 2016 will be € 1.20 per share, corresponding to a total dividend payment of € 155 million (2015: € 136 million) to shareholders. The amount withdrawn by E. Merck KG would amount to € 392 million (2015: € 388 million).
Changes in reserves
For 2016 the profit transfer to E. Merck KG including changes in reserves amounted to € 466 million. This consisted of the profit transfer to E. Merck KG (€ – 398 million), the result transfer from E. Merck KG to Merck KGaA (€ – 2 million), the change in profit carried forward of E. Merck KG (€ 2 million) as well as the profit transfer from Merck & Cie to E. Merck KG (€ – 68 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 and is therefore also 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 and profit 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 in the company Merck Ltd., Thailand.
(25) 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.
In order to limit the risks of changing capital market conditions and other developments, for many years now Merck has been offering newly hired employees plans that are not based on final salary.
The value recognized in the consolidated balance sheet for pensions and other post-employment benefits was derived as follows:
31 KB EXCEL| € million | Dec. 31, 2016 | Dec. 31, 2015 |
|---|---|---|
| Present value of all defined benefit obligations | 4,698 | 4,153 |
| Fair value of the plan assets | – 2,386 | – 2,323 |
| Funded status | 2,312 | 1,830 |
| Effects of asset ceilings | 1 | – |
| Net defined benefit liability recognized in the balance sheet | 2,313 | 1,830 |
| Assets from defined benefit plans | – | 6 |
| Provisions for pensions and other post-employment benefits | 2,313 | 1,836 |
The calculation of the defined benefit obligations as well as the relevant plan assets was based on the following actuarial parameters:
31 KB EXCEL| Germany | Switzerland | United Kingdom | Other countries | |||||
|---|---|---|---|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |
| Discount rate | 1.90% | 2.40% | 0.60% | 0.70% | 2.69% | 3.86% | 3.08% | 3.72% |
| Future salary increases | 2.51% | 2.50% | 1.80% | 1.80% | 2.53% | 2.42% | 3.59% | 3.80% |
| Future pension increases | 1.75% | 1.75% | – | – | 3.10% | 3.07% | 1.68% | 1.91% |
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:
31 KB EXCEL| Germany | Other countries | Merck Group | |
|---|---|---|---|
| € million | Dec. 31, 2016 | Dec. 31, 2016 | Dec. 31, 2016 |
| Benefit based on final salary | |||
| Annuity | 2,525 | 633 | 3,158 |
| Lump sum | – | 101 | 101 |
| Installments | 1 | – | 1 |
| Benefit not based on final salary | |||
| Annuity | 457 | 882 | 1,339 |
| Lump sum | – | 47 | 47 |
| Installments | 7 | – | 7 |
| Other | – | 12 | 12 |
| Medical plan | – | 33 | 33 |
| Present value of defined benefit obligations | 2,990 | 1,708 | 4,698 |
The main benefit rules are as follows:
Merck Group companies in Germany accounted for € 2,990 million of the defined benefit obligations (2015: € 2,560 million) as well as for € 1,116 million of the plan assets (2015: € 1,104 million). Of these amounts the vast majority in each case were attributable to plans that encompass 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 that is not based on the final salary. The benefit entitlement results from the cumulative total of annually determined pension components that are calculated on the basis of adefined benefit expense and an age-dependent annuity table. Statutory minimum funding obligations do not exist.
Pension plans in Switzerland accounted for € 808 million of the defined benefit obligations (2015: € 768 million) as well as for € 648 million of the plan assets (2015: € 600 million). The agreed benefits comprise old-age, disability and surviving dependent benefits. The employer and the employees make contributions to the plans. Statutory minimum funding obligations exist.
Pension plans in the United Kingdom accounted for € 549 million of the defined benefit obligations (2015: € 500 million) as well as for € 460 million of the plan assets (2015: € 466 million). These obligations resulted primarily from benefit plans which are based on years of service and final salary and were 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 plans. Statutory minimum funding obligations exist.
In the reporting period, the following items were recognized in income:
29.5 KB EXCEL| € million | 2016 | 2015 |
|---|---|---|
| Current service cost | – 140 | – 134 |
| Past service cost | 18 | – |
| Gains (+) or losses (–) on settlement | 11 | 1 |
| Other effects recognized in income | – 3 | – 6 |
| Interest expense | – 92 | – 83 |
| Interest income | 51 | 45 |
| Total amount recognized as expenses (–) / income (+) | – 155 | – 177 |
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 benefit obligations changed as follows:
32.5 KB EXCEL| € million |
Funded benefit obligations |
Benefit obligations funded by provisions |
2016 |
Funded benefit obligations |
Benefit obligations funded by provisions |
2015 |
|---|---|---|---|---|---|---|
|
Present value of the defined benefit obligations on January 1 |
3,810 | 343 | 4,153 | 3,504 | 309 | 3,813 |
|
Currency translation differences recognized in equity |
– 66 | 2 | – 64 | 39 | – 3 | 36 |
|
Currency translation differences recognized in income |
4 | – | 4 | 38 | – | 38 |
| Current service cost | 124 | 16 | 140 | 119 | 15 | 134 |
| Past service cost | – 18 | – | – 18 | – | – | – |
| Gains (–) or losses (+) on settlement | – 11 | – | – 11 | – 1 | – | – 1 |
| Interest expense | 84 | 8 | 92 | 76 | 7 | 83 |
| Actuarial gains (–) / losses (+) | 457 | 35 | 492 | – 166 | – 23 | – 189 |
| Contributions by plan participants | 10 | – | 10 | 10 | – | 10 |
| Pension payments | – 101 | – 8 | – 109 | – 146 | – 7 | – 153 |
| Changes in the scope of consolidation | – | – 2 | – 2 | 343 | 43 | 386 |
| Other effects recognized in income | – | – | – | – | – | – |
| Other changes | 18 | – 7 | 11 | – 6 | 2 | – 4 |
|
Present value of the defined benefit obligations on December 31 |
4,311 | 387 | 4,698 | 3,810 | 343 | 4,153 |
A sensitivity analysis of the key parameters is given in Note [6] “Management judgments and sources of estimation uncertainty”.
The fair value of the plan assets changed in the reporting period as follows:
30.5 KB EXCEL| € million | 2016 | 2015 |
|---|---|---|
| Fair value of the plan assets on January 1 | 2,323 | 1,994 |
| Currency translation differences recognized in equity | – 62 | 35 |
| Currency translation differences recognized in income | 3 | 34 |
| Interest income from plan assets | 51 | 45 |
| Actuarial gains (+) / losses (–) arising from experience adjustments | 69 | – 29 |
| Employer contributions | 35 | 30 |
| Employee contributions | 10 | 10 |
| Pension payments from plan assets | – 38 | – 85 |
| Changes in the scope of consolidation | – | 293 |
| Plan administration costs paid from the plan assets recognized in income | – 2 | – 2 |
| Other effects recognized in income | – | – |
| Other changes | – 3 | – 2 |
| Fair value of the plan assets on December 31 | 2,386 | 2,323 |
The actual return on plan assets amounted to € 120 million in 2016 (2015: € 16 million).
In 2016, the effects of the asset ceilings in accordance with IAS 19.64 changed as follows:
29.5 KB EXCEL| € million | 2016 | 2015 |
|---|---|---|
| Effects of the asset ceilings on January 1 | – | – |
| Currency translation differences recognized in equity | – | – |
| Interest expense | – | – |
| Actuarial gains (–) / losses (+) arising from changes in the effects of the asset ceilings | 1 | – |
| Effects of the asset ceilings on December 31 | 1 | – |
The development of cumulative actuarial gains (+) and losses (–) was as follows:
31 KB EXCEL| € million | 2016 | 2015 |
|---|---|---|
| Cumulative actuarial gains (+) / losses (–) recognized in equity on January 1 | – 1,420 | – 1,568 |
| Currency translation differences | 21 | – 12 |
| Remeasurements of defined benefit obligations | ||
| Actuarial gains (+) / losses (–) arising from changes in demographic assumptions | 4 | – 38 |
| Actuarial gains (+) / losses (–) arising from changes in financial assumptions | – 484 | 217 |
| Actuarial gains (+) / losses (–) arising from experience adjustments | – 12 | 10 |
| Remeasurements of plan assets | ||
| Actuarial gains (+) / losses (–) arising from experience adjustments | 69 | – 29 |
| Effects of the asset ceilings | ||
| Actuarial gains (+) / losses (–) | – 1 | – |
| Reclassification within retained earnings | 3 | – |
| Cumulative actuarial gains (+) / losses (–) recognized in equity on December 31 | – 1,820 | – 1,420 |
Plan assets for funded defined benefit obligations primarily comprised fixed-income securities, stocks, and investment funds. They did not directly 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, thus creating a natural defense against these factors.
The fair value of the plan assets can be allocated to the following categories:
30.5 KB EXCEL| Dec. 31, 2016 | Dec. 31, 2015 | |||||
|---|---|---|---|---|---|---|
| € 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 | 72 | – | 72 | 27 | – | 27 |
| Equity instruments | 729 | – | 729 | 740 | – | 740 |
| Debt instruments | 968 | – | 968 | 958 | – | 958 |
| Direct investments in real estate | – | 102 | 102 | – | 98 | 98 |
| Investment funds | 379 | – | 379 | 370 | – | 370 |
| Insurance contracts | – | 82 | 82 | – | 79 | 79 |
| Other | 54 | – | 54 | 51 | – | 51 |
| Fair value of the plan assets | 2,202 | 184 | 2,386 | 2,146 | 177 | 2,323 |
Employer contributions to plan assets and direct payments to beneficiaries will probably amount to around € 35 million and € 72 million in 2017. The weighted duration amounted to 21 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 € 54 million (2015: € 47 million). In addition, employer contributions amounting to € 67 million (2015: € 63 million) were transferred to the German statutory pension insurance system and € 42 million (2015: € 35 million) to statutory pension insurance systems abroad.
(26) Other provisions
Other provisions developed as follows:
24 KB EXCEL| € million | Litigation | Restructuring | Personnel | Environmental protection | Acceptance and follow-on obligations | Other | Total |
|---|---|---|---|---|---|---|---|
| January 1, 20161 | 492 | 92 | 339 | 127 | 121 | 221 | 1,392 |
| Additions | 85 | 17 | 151 | 27 | 15 | 54 | 349 |
| Utilizations | – 14 | – 30 | – 101 | – 10 | – 34 | – 61 | – 250 |
| Release | – 23 | – 6 | – 46 | – 5 | – 57 | – 55 | – 193 |
| Interest portion | 9 | – | 1 | 3 | – | – | 13 |
| Currency translation | 2 | – | 5 | 1 | – | 4 | 12 |
| Changes in scope of consolidation / Other | – 67 | – | – 13 | – | – | 3 | – 77 |
| December 31, 2016 | 483 | 73 | 336 | 142 | 45 | 167 | 1,246 |
| thereof: current | 68 | 34 | 104 | 27 | 41 | 138 | 412 |
| thereof: non-current | 415 | 39 | 232 | 115 | 4 | 28 | 834 |
|
|||||||
Litigation
As of December 31, 2016, the provisions for legal disputes amounted to € 483 million (2015: € 492 million). The legal matters described below represent the most significant legal risks.
Product-related and patent disputes
Rebif®: Merck is involved in a patent dispute with Biogen 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 took place in January 2012, leading to a decision in the first quarter of 2016 that accelerated the litigation. A first-instance ruling is now expected for September 2017. In parallel, the parties are involved in court-ordered mediation proceedings that have not yet officially ended but have not led to an agreement to date. Merck has taken appropriate accounting measures. Cash outflow is not expected to occur within the next 12 months.
PS-VA liquid crystals mixtures: In the Performance Materials business sector, Merck is involved in a legal dispute with JNC Corporation, Japan, (JNC). JNC claims that by manufacturing and marketing certain liquid crystals mixtures, Merck has infringed JNC patents. Merck maintains that JNC’s patent infringement assertion is invalid owing to relevant prior art and has filed the corresponding nullity actions, which in two cases were already successful in first-instance proceedings. The competitor has meanwhile filed two patent infringement lawsuits and appeals in the case of the nullity actions. Merck has taken appropriate precautionary accounting measures. It is anticipated that a final decision will be made only within the next two to five years, leading to a potential outflow of resources.
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. These are different legal disputes. An outflow of cash in fiscal 2017 is not expected.
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 this being known to Merck. On February 11, 2016, the CMA imposed a fine in this matter. Merck took legal action against this fine. Merck has taken appropriate accounting measures. A decision and a potential outflow of resources are expected for 2017.
Trademark rights / breach of agreement: Merck is involved in various legal disputes with Merck & Co. of the United States (outside the United States and Canada: Merck Sharp & Dohme (MSD)), among other things due to breach of the co-existence agreement between the two companies and / or trademark / name right infringement regarding the use of the designation “Merck”. In this context, Merck has sued MSD in various countries and has been sued by MSD in the United States. As in 2015, Merck did not consider recourse and a related outflow of resources to be likely as of the balance sheet date (see Note [38] “Contingent liabilities”). Merck has taken appropriate accounting measures for any costs of legal defense. An outflow of resources for the costs of external legal counsel is partially expected in 2017.
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 provisions of € 73 million as of December 31, 2016 (2015: € 92 million) in this context mainly consist of commitments to employees from partial and early retirement arrangements. The payments made in 2016 in the amount of € 30 million are primarily due to severance or early retirement payments to employees. Cash flows owing to provisions for restructuring are for the most part expected within a period until 2019.
Provisions for employee benefits / Share-based payment
Provisions for employee benefits include obligations from long-term variable compensation programs. More information on these compensation programs can be found in Note [65] “Share-based compensation programs”. The following table presents the key parameters as well as the development of the potential number of Merck Share Units (“MSUs”) for the individual tranches:
32.5 KB EXCEL| 2014 tranche | 2015 tranche | 2016 tranche | ||||
|---|---|---|---|---|---|---|
| Performance cycle |
Jan. 1, 2014 – Dec. 31, 2016 |
Jan. 1, 2015 – Dec. 31, 2017 |
Jan. 1, 2016 – Dec. 31, 2018 |
|||
| 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) | 122.841 | 74.53 | 87.92 | |||
|
DAX®value (60-day average of the DAX®prior to the start of the performance cycle) |
9,065.08 | 9,403.99 | 10,669.76 | |||
| Potential number of MSUs | ||||||
| Potential number offered for the first time in 2014 | 355,164 | – | – | |||
| Forfeited | 21,247 | – | – | |||
| MSUs granted to employees of the AZ Electronic Materials Group on May 2, 2014 | 22,865 | – | – | |||
| Status as on Dec. 31, 2014 | 356,782 | – | – | |||
| Potential number offered for the first time in 2015 | – | 609,799 | – | |||
| Forfeited | 23,541 | 21,447 | – | |||
| Further additional granted MSUs | 2,167 | – | – | |||
| Status as on Dec. 31, 2015 | 335,408 | 588,352 | – | |||
| Potential number offered for the first time in 2016 | – | – | 763,463 | |||
| Forfeited | 28,327 | 35,691 | 24,392 | |||
| Status as on Dec. 31, 2016 | 307,081 | 552,661 | 739,071 | |||
|
||||||
The value of the provision was € 133 million as of December 31, 2016 (2015: € 124 million). The net expense for fiscal 2016 was € 76 million (2015: € 64 million). The three-year tranche issued in 2013 ended at the end of 2015 and was paid out in 2016 in the amount of € 68 million.
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 [25] “Provisions for pensions and other post-employment benefits”.
Environmental protection
Provisions for environmental protection, particularly for obligations from soil remediation and groundwater protection, mainly existed in connection with the crop protection business that was discontinued in 1987 in Germany and Latin America.
Acceptance and follow-on obligations
Provisions for acceptance and follow-on obligations primarily took into account costs stemming from discontinued research projects as well as obligation surpluses from onerous contracts. Utilizations and releases were attributable to research projects discontinued in previous years.
Other
Other mainly included provisions for other guarantees, for uncertain commitments from contributions, duties and fees as well as for interest and penalties from tax audits.
(27) Financial liabilities /
Capital management
The composition of financial liabilities as well as a reconciliation to net financial debt are presented in the following table:
52 KB EXCEL|
|
Book value Dec. 31, 2016 € million |
Book value Dec. 31, 2015 € million |
Maturity |
Interest rate % |
Nominal volume million |
Currency |
|---|---|---|---|---|---|---|
| Eurobond 2006 / 2016 | – | 214 | June 2016 | 5.875% | 250 | € |
| Eurobond 2009 / 2016 | – | 60 | Nov. 2016 | 4.000% | 60 | € |
| USD bond 2015 / 2017 | 238 | – | March 2017 | variable1 | 250 | USD |
| Eurobond 2015 / 2017 | 699 | – | Sept. 2017 | variable2 | 700 | € |
| Bonds (current) | 937 | 274 | ||||
| Commercial paper | 918 | 999 | ||||
| Bank loans | 1,128 | 2,137 | ||||
| Liabilities to related parties | 758 | 578 | ||||
| Loans from third parties and other financial liabilities | 20 | 27 | ||||
| Liabilities from derivatives (financial transactions) | 25 | 80 | ||||
| Finance lease liabilities | 1 | 2 | ||||
| Current financial liabilities | 3,788 | 4,097 | ||||
| USD bond 2015 / 2017 | – | 229 | March 2017 | variable1 | 250 | USD |
| Eurobond 2015 / 2017 | – | 699 | Sept. 2017 | variable2 | 700 | € |
| USD bond 2015 / 2018 | 380 | 366 | March 2018 | 1.700% | 400 | USD |
| Eurobond 2015 / 2019 | 798 | 797 | Sept. 2019 | 0.750% | 800 | € |
| Eurobond 2009 / 2019 | 69 | 69 | Dec. 2019 | 4.250% | 70 | € |
| USD bond 2015 / 2020 | 712 | 684 | March 2020 | 2.400% | 750 | USD |
| Eurobond 2010 / 2020 | 1,346 | 1,345 | March 2020 | 4.500% | 1,350 | € |
| USD bond 2015 / 2022 | 947 | 910 | March 2022 | 2.950% | 1,000 | USD |
| Eurobond 2015 / 2022 | 547 | 547 | Sept. 2022 | 1.375% | 550 | € |
| USD bond 2015 / 2025 | 1,508 | 1,448 | March 2025 | 3.250% | 1,600 | USD |
| Hybrid bond 2014 / 2074 | 990 | 988 | Dec. 20743 | 2.625% | 1,000 | € |
| Hybrid bond 2014 / 2074 | 497 | 497 | Dec. 20744 | 3.375% | 500 | € |
| Bonds (non-current) | 7,794 | 8,578 | ||||
| Bank loans | 850 | 869 | ||||
| Liabilities to related parties | – | – | ||||
| Loans from third parties and other financial liabilities | 59 | 63 | ||||
| Liabilities from derivatives (financial transactions) | 103 | 104 | ||||
| Finance lease liabilities | 2 | 3 | ||||
| Non-current financial liabilities | 8,809 | 9,616 | ||||
| Financial liabilities | 12,597 | 13,713 | ||||
| less: | ||||||
| Cash and cash equivalents | 939 | 832 | ||||
| Current financial assets | 145 | 227 | ||||
| Net financial debt | 11,513 | 12,654 | ||||
|
||||||
Merck issued a USD bond with a five-tranche structure in March 2015, and a further eurobond with a three-tranche structure in August 2015. Both issuances were part of the financing of the acquisition of the Sigma-Aldrich Corporation, USA. Merck repaid a eurobond with a volume of € 212 million in June 2016 as well as a further bond with a volume of € 60 million in November 2016.
For the hybrid bond 2014 / 2074 issued by Merck KGaA in two tranches, the rating agencies Standard & Poor’s, Moody’s and Scope 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 financial liabilities in the balance sheet.
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 2.0% (2015: 2.0%).
Information on liabilities to related parties can be found in Note [45] “Related-party disclosures”.
Capital management
The objective of capital management is to secure financial flexibility in order to maintain long-term business operations and to realize strategic options. Maintaining a stable investment grade rating, ensuring liquidity, limiting financial risks as well as optimizing the cost of capital are the objectives of our financial policy and set important framework conditions for capital management. The responsible committees decide on the capital structure of the balance sheet, the appropriation of net retained profit and the dividend level. In this context, net financial debt is one of the leading capital management indicators.
Traditionally, the capital market represents a major source of financing for Merck, for instance via bond issues. In addition, Merck has a € 2 billion multi-currency revolving credit facility, which was renewed in fiscal 2013 (“Syndicated Loan 2013”). The credit line was underwritten by an international group of banks and has a remaining term until March 2020. This credit line had not been utilized as of December 31, 2016. Merck still had access to a commercial paper program to meet short-term capital requirements with a volume of € 2 billion, of which € 919 million had been utilized as of December 31, 2016 (2015: € 1 billion). As of December 31, 2016, there were liabilities of € 3.47 billion (2015: € 3.53 billion) from a Debt Issuance Program most recently renewed in 2015. As of the balance sheet date, € 400 million (2015: € 1,600 million) of a loan agreement for acquisition financing set up with a consortium of banks in 2014 had been used. As of December 31, 2016, further bank lines of € 336 million were available (2015: € 206 million). There are no indications that the availability of credit lines already extended was restricted.
On the balance sheet date, the bank financing commitments vis-à-vis the Merck Group were as follows:
32.5 KB EXCEL| Dec. 31, 2016 | Dec. 31, 2015 | |||||
|---|---|---|---|---|---|---|
|
€ million |
Financing commitments from banks | Utilization | Financing commitments from banks | Utilization | Interest | Maturity of financing commitments |
| Syndicated loan 2013 | 2,000 | – | 2,000 | – | variable | 2020 |
| Loan agreement with banking syndicate for acquisition financing | 400 | 400 | 1,600 | 1,600 | variable | 2018 |
| Bilateral credit agreement with banks | 700 | 700 | 700 | 700 | variable | 2019 |
| Bilateral credit agreement with banks | 400 | 400 | 400 | 400 | variable | 2020 |
| Bilateral credit agreement with banks | 250 | 250 | 250 | 250 | variable | 2022 |
| Various bank credit lines | 336 | 228 | 206 | 56 | variable | < 1 year |
| 4,086 | 1,978 | 5,156 | 3,006 | |||
(28) Other liabilities
This item comprised:
25 KB EXCEL| € million | current | non-current | Dec. 31, 2016 | current | non-current | Dec. 31, 2015 |
|---|---|---|---|---|---|---|
| Other financial liabilities | 922 | 14 | 936 | 890 | 14 | 904 |
| Liabilities from derivatives (operational) | 71 | 34 | 105 | 46 | 14 | 61 |
| Financial items | 993 | 48 | 1,041 | 936 | 29 | 965 |
| Accruals for personnel expenses | 603 | – | 603 | 536 | – | 536 |
| Deferred income | 237 | 386 | 623 | 226 | 576 | 802 |
|
Advance payments received from customers |
12 | – | 12 | 15 | – | 15 |
| Liabilities from non-income related taxes | 103 | 5 | 108 | 105 | 4 | 109 |
| Non-financial items | 955 | 391 | 1,345 | 882 | 580 | 1,462 |
| Other liabilities | 1,947 | 439 | 2,386 | 1,819 | 609 | 2,427 |
As of December 31, 2016, other financial liabilities included liabilities to related companies amounting to € 457 million (2015: € 454 million). These were profit entitlements of E. Merck KG. Moreover, other liabilities included interest accruals of € 98 million (2015: € 97 million) as well as payroll liabilities of € 169 million (2015: € 179 million). The remaining amount of € 212 million (2015: € 174 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 deferred income resulted mainly from the collaboration agreement with Pfizer Inc., USA, in immuno-oncology and was released further as planned on a pro rata basis in 2016.
(29) Trade accounts payable
Trade accounts payable amounted to € 2,048 million (2015: € 1,921 million).
This item also included accrued amounts of € 544 million (2015: € 486 million) for outstanding invoices and € 443 million (2015: € 421 million) in sales deductions.
(30) Tax liabilities
Tax liabilities and provisions for tax liabilities resulted in total income tax liabilities of € 883 million as of December 31, 2016 (2015: € 1,011 million).