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Notes to the Consolidated Balance Sheet

(17) Intangible assets


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Customer relationships, marketing authorizations, patents, licenses and
similar rights, brands,
trademarks and other
Goodwill Software Advance payments and
software in development
Total
€ million Finite
useful life
Indefinite useful life
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
5,398.9 168.7 5,693.9 97.2 36.8 11,395.5
Net carrying amount as of December 31, 2014
Cost at January 1, 2014 12,325.0 633.7 5,693.9 354.0 37.0 19,043.6
Changes in scope of consolidation 5,774.8 8,643.6 36.0 68.0 14,522.4
Additions 302.7 125.8 1.7 43.3 473.5
Disposals – 3.3 – 0.4 – 9.2 – 12.9
Transfers 8.2 – 2.0 36.5 – 37.8 4.9
Classification as held for sale or transfer to a disposal group – 61.4 – 21.6 – 83.0
Currency translation 140.8 0.4 54.2 5.9 0.1 201.4
December 31, 2015 18,486.8 757.5 14,370.1 424.9 110.6 34,149.9
Accumulated amortization and impairment losses
January 1, 2015
– 6,926.1 – 465.0 – 256.8 – 0.2 – 7,648.1
Changes in scope of consolidation
Amortization – 948.2 – 36.0 – 984.2
Impairment losses – 5.9 – 108.5 – 0.4 – 114.8
Disposals 3.3 0.1 8.7 12.1
Transfers – 4.1 0.2 – 3.9
Reversals of impairment losses
Classification as held for sale or transfer to a disposal group 37.5 37.5
Currency translation – 104.2 – 0.5 – 4.8 – 109.5
December 31, 2015 – 7,947.7 – 573.9 – 289.1 – 0.2 – 8,810.9
Net carrying amount as of December 31, 2015 10,539.1 183.6 14,370.1 135.8 110.4 25,339.0
Customer relationships, marketing authorizations, patents, licenses and similar rights, brands, trademarks and other

The changes in the scope of consolidation mainly include additions to intangible assets resulting from the acquisition of the Sigma-Aldrich Corporation, USA. A detailed presentation of this acquisition 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 € 10,539.1 million (2014: € 5,398.9 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 vast majority was attributable to customer relationships. The remaining useful lives of these assets ranged between 0.3 and 23.9 years.

The additions to intangible assets with finite useful lives amounted to € 302.7 million in 2015 (2014: € 62.1 million). The Healthcare business sector accounted for € 295.6 million of this figure. Most of this amount, or € 294.4 million, was attributable to the co-marketing right for the product Xalkori® with Pfizer Inc., USA (see Note [5] “Joint arrangements of material significance”).

The item “Customer relationships, marketing authorizations, patents, licenses and similar rights, brand names, trademarks and other” with indefinite useful lives primarily related to rights that the Group 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 the marketing of 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 2015, additions to intangible assets with indefinite useful lives amounted to € 125.8 million (2014: € 38.6 million) and were almost exclusively attributable to the Healthcare business sector with € 125.4 million. The vast majority was attributable to a capitalized upfront payment of € 103.8 million (US$ 115 million) made to the Intrexon Corporation, USA, in connection with the strategic collaboration and license agreement to develop and commercialize Chimeric Antigen Receptor T-cell (CAR-T) cancer therapies. For the first two targets of interest selected by the Healthcare business sector, Intrexon will receive research funding and is eligible to receive up to US$ 826 million (€ 755.6 million, translated at the closing rate) for development, regulatory and commercial milestones, as well as tiered royalties on product sales.

Intangible assets with definite useful lives amounting to € 23.9 million (historical acquisition and manufacturing costs of € 61.4 million and accumulated amortization of € 37.5 million) as well as allocable goodwill of € 21.6 million were reclassified to “assets held for sale”. Details of this transaction are presented in Note [4] “Acquisitions, assets held for sale and disposal groups”.

In 2015, borrowing costs of € 3.4 million directly allocable to intangible assets were capitalized.

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”.

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:


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€ million
Remaining useful life in years Healthcare Life Science1 Performance Materials1 Total Dec. 31, 2015 Total Dec. 31, 2014
Customer relationships, marketing authorizations, patents, licenses and similar rights, brands, trademarks and other
Finite useful life 2,276.3 6,907.1 1,355.7 10,539.1 5,398.9
Rebif® 4.0 1,472.9 1,472.9 1,841.0
Gonal-f® 3.0 284.9 284.9 379.8
Xalkori® 6.0 261.7 261.7
Saizen® 4.0 122.9 122.9 153.7
Other marketing authorizations 4.0 – 6.3 85.8 85.8 103.7
Technologies 0.3 – 12.0 512.2 1,003.5 1,515.7 1,462.7
Brands 0.5 – 11.9 6.6 1,154.2 31.5 1,192.3 269.7
Customer relationships 0.5 – 23.9 1.9 5,240.7 316.7 5,559.3 1,097.0
Others 2.3 – 18.5 39.6 4.0 43.6 91.3
 
Indefinite useful life 183.2 0.4 183.6 168.7
 
Goodwill 1,822.9 11,130.4 1,416.8 14,370.1 5,693.9
1
Carrying amounts of the intangible assets acquired within the scope of the acquisition of the Sigma-Aldrich Corporation, USA, are preliminary.
Information on impairment tests of intangible assets with indefinite useful lives

In 2015, goodwill was not impaired. The assumptions used in the goodwill impairment test are presented in Note [7] “Management judgments and sources of estimation uncertainty”.

In 2015, impairment losses on intangible assets with indefinite useful lives totaled € 108.5 million (2014: € 84.8 million). Of this amount, an impairment loss of € 84.4 million was attributable to the capitalized upfront and milestone payments for evofosfamide. The reason for this impairment loss was that in the indications locally advanced inoperable or metastatic soft-tissue sarcoma as well as advanced pancreatic cancer, evofosfamide failed to meet the primary endpoints in two corresponding Phase III clinical trials. The Group therefore decided not to pursue evofosfamide further and not to submit it for approval. Moreover, four development projects were discontinued and their carrying amounts of € 22.3 million was recognized in full as an impairment loss.

All of these items were allocated in the consolidated income statement to the Biopharma business and recorded in impairment losses under operating expenses. In 2015, no intangible assets were pledged as security for liabilities.

(18) 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, 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
 
Cost at January 1, 2015 2,635.4 3,409.7 1,017.5 430.5 7,493.1
Changes in the scope of consolidation 517.1 233.7 10.3 80.0 841.1
Additions 5.9 27.5 28.2 502.4 564.0
Disposals – 44.8 – 52.0 – 54.1 – 4.3 – 155.2
Transfers 129.5 223.1 68.7 – 417.4 3.9
Classification as held for sale or transfer to
a disposal group
Currency translation 48.4 37.5 13.4 1.0 100.3
December 31, 2015 3,291.5 3,879.5 1,084.0 592.2 8,847.2
Accumulated depreciation and impairment losses January 1, 2015 – 1,186.8 – 2,548.2 – 766.8 – 0.9 – 4,502.7
Changes in the scope of consolidation
Depreciation – 109.8 – 196.6 – 92.8 – 399.2
Impairment losses – 7.7 – 2.2 – 3.6 – 0.1 – 13.6
Disposals 41.0 49.5 51.9 0.9 143.3
Transfers – 3.5 – 5.0 3.9 – 4.6
Reversals of impairment losses 0.9 0.9
Classification as held for sale or transfer to
a disposal group
Currency translation – 22.2 – 30.0 – 9.9 – 0.1 – 62.2
December 31, 2015 – 1,289.0 – 2,731.6 – 817.3 – 0.2 – 4,838.1
Net carrying amount as of December 31, 2015 2,002.5 1,147.9 266.7 592.0 4,009.1

Changes in the scope of consolidation mainly included the additions to property, plant and equipment from the acquisition of the Sigma-Aldrich Corporation, USA. A detailed presentation of this acquisition can be found in Note [4] “Acquisitions, assets held for sale and disposal groups”.

Material additions to construction in progress are attribut able to the expansion of global headquarters as well as the construction of a new modular Innovation Center and a second energy station 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, started, and investments were made to expand the production site. Transfers relating to construction in progress mainly include completed subprojects at Group headquarters in Darmstadt as well as investments in the United States, Ireland and Switzerland.

In 2015, impairment losses in the amount of € 13.6 million (2014: € 5.7 million) were recognized. These related mainly to assets allocated to the Healthcare business sector as well as central Group functions.

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 € 6.1 million (2014: € 3.2 million) were capitalized.

Property, plant and equipment also included assets that were leased. The total value of capitalized leased assets amounted to € 8.9 million (2014: € 9.4 million) and the corresponding obligations amounted to € 4.8 million (2014: € 6.5 million) (see Note [40] “Other financial obligations”).

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


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€ million Dec. 31, 2015 Dec. 31, 2014
Land and buildings 6.4 6.8
Vehicles 1.2 1.1
Other property, plant and equipment 1.3 1.5
8.9 9.4

(19) Financial assets


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€ million current non-current Dec. 31, 2015 current non-current Dec. 31, 2014
Held to maturity investments 29.8 29.8 21.7 21.7
Available-for-sale financial assets 161.6 110.4 272.0 2,135.0 80.7 2,215.7
Loans and receivables 2.9 16.5 19.4 2.9 13.7 16.6
Derivative assets (financial transactions) 32.7 4.6 37.3 39.8 39.8
Total 227.0 131.5 358.5 2,199.4 94.4 2,293.8

Current financial assets primarily include available-for-sale financial assets amounting to € 161.6 million (2014: €  2,135.0 million). As of December 31, 2015 this item mainly included bonds amounting to € 143.0 million (2014: € 1,178.6 million). There were no investments in commercial paper in 2015 (2014: € 956.4 million).The decrease results from the liquidation of available-for-sale financial assets to make the purchase price payment for the acquisition of the Sigma-Aldrich Corporation, USA (see Note [4] “Acquisitions, assets held for sale and disposal groups”).

The loans and receivables contained in current financial assets are neither past due nor impaired.

Non-current available-for-sale financial assets mainly include unconsolidated investments amounting to € 22.0 million (2014: € 21.5 million) and investments in associates and other companies amounting to € 87.5 million (2014: € 57.9 million). In 2015, no impairment losses were recognized for unconsolidated investments or for other available-for-sale non-current financial assets. The prior year’s impairment losses amounting to € 4.4 million were recorded in the consolidated income statement under other operating expenses.

(20) Other assets

Other assets comprised:


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€ million current non-current Dec. 31, 2015 current non-current Dec. 31, 2014
Other receivables1 152.0 3.1 155.1 163.1 5.4 168.5
Derivative assets (operational) 7.6 6.2 13.8 468.5 2.9 471.4
Financial items 159.6 9.3 168.9 631.6 8.3 639.9
 
Receivables from non-income related taxes 176.3 29.1 205.4 199.8 24.5 224.3
Prepaid expenses 61.1 19.9 81.0 53.8 17.1 70.9
Assets from defined benefit plans 6.3 6.3 1.8 1.8
Other assets 92.9 69.5 162.4 339.3 6.6 345.9
Non-financial items 336.6 118.5 455.1 594.7 48.2 642.9
496.2 127.8 624.0 1,226.3 56.5 1,282.8
1
Previous year’s figures have been adjusted, see “Changes to accounting and measurement principles and disclosure changes”.

Other receivables included current receivables from related parties amounting to € 35.4 million (2014: € 76.5 million) as well as current receivables from affiliates amounting to € 6.3 million (2014: € 0.9 million). Moreover, this includes license receivables amounting to € 11.5 million (2014: € 16.1 million). Interest receivables amounted to € 1.4 million (2014: € 12.5 million). In addition, other prepayments were reported under this item. Owing to the completion of the acquisition of the Sigma-Aldrich Corporation, USA, and the realization of hedging transactions in this connection, derivative assets declined. The increase in other non-current assets is largely the result of the inclusion of Sigma-Aldrich. In 2014, other current assets included the entitlement to the joint marketing right for Xalkori® (crizotinib) with Pfizer Inc., USA, in the amount of € 294.4 million, which was reclassified to intangible assets in 2015.

Other receivables from third parties were as follows:


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€ million Dec. 31, 2015 Dec. 31, 2014
Neither past due nor impaired 152.5 164.6
Past due, but not impaired
up to 3 months 0.7 2.2
up to 6 months 0.7
up to 12 months 0.2
up to 24 months 0.9 0.9
over 2 years 0.1 0.2
Impaired 0.6
Carrying amount1 155.1 168.5
1
Previous year’s figures have been adjusted, see “Changes to accounting and measurement principles and disclosure changes”.

In 2015, no allowances for other receivables from third parties were necessary (2014: € 0.4 million). There were no reversals of allowances in this connection in 2015 or in 2014.

(21) Inventories

This item comprised:


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€ million Dec. 31, 2015 Dec. 31, 2014
Raw materials and supplies 493.3 377.3
Work in progress 679.1 496.6
Finished goods 1,405.9 726.9
Goods for resale 41.5 58.9
2,619.8 1,659.7

Write-downs of inventories in 2015 amounted to € 133.3 million (2014: € 99.5 million). In 2015, reversals of inventory write-downs of € 47.3 million were recorded (2014: € 45.3 million). As of the balance sheet date, no inventories were pledged as security for liabilities. The increase in finished goods is largely due to inventories acquired from the Sigma-Aldrich Corporation, USA, which were recognized at their fair values.

(22) Trade accounts receivable

Trade accounts receivable amounting to € 2,738.3 million (2014: 2,219.5 million) exclusively existed vis-à-vis third parties.

The maturity structure of trade accounts receivable was as follows:


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€ million Dec. 31, 2015 Dec. 31, 2014
Neither past due nor impaired 2,320.6 1,793.4
Past due, but not impaired
up to 3 months 234.1 143.3
up to 6 months 14.2 13.5
up to 12 months 4.7 5.8
up to 24 months 2.0 5.1
over 2 years 0.4 0.5
Impaired 162.3 257.9
Carrying amount1 2,738.3 2,219.5
1
Previous year’s figures have been adjusted, see “Changes to accounting and measurement principles and disclosure changes”.

The corresponding allowances developed as follows:


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€ million 2015 2014
January 1 – 126.2 – 136.8
Additions – 84.1 – 41.5
Reversals 40.2 41.8
Utilizations 8.8 9.7
Currency translation and other changes – 4.2 0.6
December 31 – 165.5 – 126.2

In the period from January 1 to December 31, 2015 trade accounts receivable in Italy with a nominal value of € 130.8 million were sold for € 128.5 million. Previous impairments in this context amounting to € 3.9 million were reversed and disclosed under other operating income. The sold receivables do not involve any further rights of recovery against the Group.

(23) Income tax receivables

Income tax receivables amounted to € 391.0 million (2014: € 297.0 million). The increase largely resulted from higher tax credits in the United States due to the inclusion of dividend income from high-tax countries. In addition, tax receivables above all resulted from tax prepayments that exceeded the actual amount of tax payable for 2015 and prior fiscal years, and from refund claims for prior years.

(24) Cash and cash equivalents

This item comprised:


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€ million Dec. 31, 2015 Dec. 31, 2014
Cash, bank balances and cheques 577.5 546.7
Short-term cash investments (up to 3 months) 254.7 2,331.8
832.2 2,878.5

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 € 326.6 million (2014: € 254.4 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.

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

Share of net profit of E. Merck KG, Darmstadt, Germany

E. Merck KG, Darmstadt, Germany, and Merck KGaA, Darmstadt, Germany, engage in reciprocal net profit transfers. This makes it possible for E. Merck KG, Darmstadt, Germany, the general partner of Merck KGaA, Darmstadt, Germany, and the shareholders to participate in the net profit/loss of Merck KGaA, Darmstadt, Germany, 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, Darmstadt, Germany, 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, Darmstadt, Germany. 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, Darmstadt, Germany, and Merck KGaA, Darmstadt, Germany, as stipulated by the Articles of Association was as follows:


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2015 2014
€ million E. Merck KG, Darmstadt, Germany Merck KGaA, Darmstadt, Germany E. Merck KG, Darmstadt, Germany Merck KGaA, Darmstadt, Germany
Result of E. Merck KG, Darmstadt, Germany – 19.6 – 17.9
Result of ordinary activities of Merck KGaA, Darmstadt, Germany 609.2 651.2
Extraordinary result
Adjustment for trade tax in accordance with Art. 27 (1) Articles of Association of Merck KGaA, Darmstadt, Germany – 3.1
Trade tax in accordance with Art. 30 (1)
Articles of Association of Merck KGaA, Darmstadt, Germany
– 87.2 – 54.2
Basis for appropriation of profits (100%) – 19.6 522.0 – 21.0 597.0
Profit transfer to E. Merck KG, Darmstadt, Germany
Ratio of general partner’s capital to total capital
(70.274%) 366.8 – 366.8 419.5 – 419.5
Profit transfer from E. Merck KG, Darmstadt, Germany
Ratio of share capital to total capital
(29.726%) 5.8 – 5.8 6.3 – 6.3
Trade tax 3.1
Corporation tax – 28.7 – 22.8
Net income 353.0 120.7 407.9 148.4

The result of E. Merck KG, Darmstadt, Germany, on which the appropriation of profits adjusted for trade tax is based amounted to € – 19.6 million (2014: € – 21.0 million). This resulted in a result transfer to Merck KGaA, Darmstadt, Germany, of € – 5.8 million (2014: € – 6.3 million). The result of Merck KGaA, Darmstadt, Germany, from ordinary activities adjusted for trade tax and extraordinary result, on which the appropriation of its profit is based, amounted to € 522.0 million (2014: € 597.0 million). Merck KGaA, Darmstadt, Germany, transferred € 366.8 million of its profit to E. Merck KG, Darmstadt, Germany, (2014: € 419.5 million). In addition, an expense from corporation tax charges amounting to € 28.7 million resulted (2014: expense of € 22.8 million). Corporation tax is only calculated on the income received by shareholders. Its equivalent is the income tax applicable to E. Merck KG, Darmstadt, Germany. However, this must be paid by the partners of E. Merck KG, Darmstadt, Germany, 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, Darmstadt, Germany. If the shareholders resolve to carry forward or to allocate to retained earnings a portion of the net retained profit of Merck KGaA, Darmstadt, Germany, to which they are entitled, then E. Merck KG, Darmstadt, Germany, is obligated to allocate to the profit brought forward / retained earnings of Merck KGaA, Darmstadt, Germany, 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, Darmstadt, Germany, correspond to the ownership ratios of the shareholders on the one hand and E. Merck KG, Darmstadt, Germany, on the other hand. Consequently, for distributions to E. Merck KG, Darmstadt, Germany, only the amount is available that results after netting the profit transfer of Merck KGaA, Darmstadt, Germany, with the amount either allocated or withdrawn by E. Merck KG, Darmstadt, Germany, 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.


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2015 2014
€ million E. Merck KG, Darmstadt, Germany Merck KGaA, Darmstadt, Germany E. Merck KG, Darmstadt, Germany Merck KGaA, Darmstadt, Germany
Net income / loss 353.0 120.7 407.9 148.4
 
Profit carried forward from previous year 71.9 30.4 26.3 11.2
Withdrawal from revenue reserves
Transfer to revenue reserves
Retained earnings Merck KGaA, Darmstadt, Germany 151.1 159.6
 
Withdrawal by E. Merck KG, Darmstadt, Germany – 388.4 – 362.3
Dividend proposal – 135.7 – 129.2
Profit carried forward 36.5 15.4 71.9 30.4

For 2014, a dividend of € 1.00 per share was distributed. The dividend proposal for fiscal 2015 will be € 1.05 per share, corresponding to a total dividend payment of € 135.7 million (2014: € 129.2 million) to shareholders. The amount with drawn by E. Merck KG, Darmstadt, Germany, would amount to € 388.4 million (2014: € 362.3 million).

Changes in reserves

For 2015 the profit transfer to E. Merck KG, Darmstadt, Germany, including changes in reserves amounted to € 461.0 million. This consists of the profit transfer to E. Merck KG, Darmstadt, Germany, (€ – 366.8 million), the result transfer from E. Merck KG, Darmstadt, Germany, to Merck KGaA, Darmstadt, Germany, (€ – 5.8 million), the change in profit carried forward of E. Merck KG, Darmstadt, Germany, (€ – 35.4 million) as well as the profit transfer from Merck & Cie, a subsidiary of E. Merck KG, Darmstadt, Germany (€ – 53.0 million). Merck & Cie, a subsidiary of Merck KGaA, Darmstadt, Germany,is a partnership under Swiss law that is controlled by Merck KGaA, Darmstadt, Germany, but distributes its operating result directly to E. Merck KG, Darmstadt, Germany. 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 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, a subsidiary of Merck KGaA, Darmstadt, Germany, and P.T. Merck Tbk, Indonesia, a subsidiary of Merck KGaA, Darmstadt, Germany, as well as Merck Ltd., Thailand, a subsidiary of Merck KGaA, Darmstadt, Germany, and Merck (Pvt.) Ltd., Pakistan, a subsidiary of Merck KGaA, Darmstadt, Germany.

In 2014, for an interim period, non-controlling interests of € 161.9 million also existed in the course of the acquisition of AZ Electronic Materials S.A., Luxembourg. 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. This amount represents 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.

(26) 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 Group. Generally these systems are based on the years of service and salaries of the employees. Pension obligations of the 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 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 the Group has been offering newly hired employees plans that are largely structured as defined contribution systems.

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


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€ million Dec. 31, 2015 Dec. 31, 2014
Present value of all defined benefit obligations 4,152.7 3,812.7
 
Fair value of the plan assets – 2,322.9 – 1,994.4
Funded status 1,829.8 1,818.3
 
Effects of asset ceilings
Net defined benefit liability recognized in the balance sheet 1,829.8 1,818.3
 
Assets from defined benefit plans 6.3 1.8
Provisions for pensions and other post-employment benefits 1,836.1 1,820.1

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


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Germany Switzerland United Kingdom Other countries
in % 2015 2014 2015 2014 2015 2014 2015 2014
Discount rate 2.40 2.00 0.70 1.00 3.86 3.66 3.72 4.16
Future salary increases 2.50 2.52 1.80 1.96 2.42 2.10 3.80 4.53
Future pension increases 1.75 1.75 3.07 3.06 1.91 1.58
Future cost increases for health care benefits 5.06 5.10

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

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


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Germany Other countries Group
Present value of defined benefit obligations in € million Dec. 31, 2015 Dec. 31, 2015 Dec. 31, 2015
Benefit based on final salary
Annuity 2,346.3 577.1 2,923.4
Lump sum 103.3 103.3
Installments 1.3 1.3
Benefit not based on final salary
Annuity 205.8 834.9 1,040.7
Lump sum 42.1 42.1
Installments 6.8 6.8
Medical plan 35.1 35.1
2,560.2 1,592.5 4,152.7

The main benefit rules are as follows:

Group companies in Germany accounted for € 2,560.2 million of the defined benefit obligations (2014: € 2,692.5 million; due to the acquisition of the Sigma-Aldrich Corporation, USA, the obligations increased by € 21.4 million in 2015) as well as for € 1,103.9 million of the plan assets (2014: € 1,100.4 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 basically 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.

Pension plans in Switzerland accounted for € 767.9 million of the defined benefit obligations (2014: € 439.8 million; due to the acquisition of the Sigma-Aldrich Corporation the obligations increased by € 188.3 million in 2015) as well as for € 599.8 million of the plan assets (2014: € 391.7 million; due to the acquisition of the Sigma-Aldrich Corporation, the plan assets increased by € 146.5 million in 2015). These obligations are largely based on the granting of old-age, disability and surviving dependent benefits, which include the legally required benefits. Both employer and employee contributions are paid into the pension funds. Statutory minimum funding obligations exist.

Pension plans in the United Kingdom accounted for € 500.0 million of the defined benefit obligations (2014: € 390.0 million; due to the acquisition of Sigma-Aldrich, the obligations increased by € 103.9 million in 2015) as well as for € 465.8 million of the plan assets (2014: € 357.5 million; due to the acquisition of Sigma-Aldrich, the plan assets increased by € 93.6 million in 2015). These obligations result 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:


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€ million 2015 2014
Current service cost 134.4 83.5
Past service cost 0.1 – 2.5
Gains (–) or losses (+) on settlement – 1.1 – 4.3
Other effects recognized in income 5.5 1.8
Interest expense 82.8 101.9
Interest income – 44.8 – 67.2
Total amount recognized in income 176.9 113.2

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:


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€ million Funded benefit obligations Benefit obligations funded by provisions 2015 Funded benefit obligations Benefit obligations funded by provisions 2014
Present value of the defined benefit obligations on January 1 3,503.6 309.1 3,812.7 2,533.0 203.8 2,736.8
Currency translation differences
recognized in equity
39.0 – 3.2 35.8 33.7 3.1 36.8
Currency translation differences
recognized in income
37.7 37.7 5.5 5.5
Current service cost 119.0 15.4 134.4 73.0 10.5 83.5
Past service cost 0.2 – 0.1 0.1 – 2.0 – 0.5 – 2.5
Gains (–) or losses (+)
on settlement
– 1.1 – 1.1 – 3.2 – 1.1 – 4.3
Interest expense 75.5 7.3 82.8 92.6 9.0 101.6
Actuarial gains (–) / losses (+) – 166.4 – 22.9 – 189.3 849.2 73.8 923.0
Contributions by plan participants 10.6 10.6 7.2 7.2
Pension payments – 146.4 – 6.5 – 152.9 – 94.0 – 5.9 – 99.9
Changes in the scope
of consolidation
342.5 43.2 385.7 8.3 17.4 25.7
Other effects recognized
in income
0.1 – 0.2 – 0.1 0.1 0.1
Other changes – 4.8 1.1 – 3.7 0.3 – 1.1 – 0.8
Present value of the defined
benefit obligations on December 31
3,809.5 343.2 4,152.7 3,503.6 309.1 3,812.7

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.


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€ million Dec. 31, 2015
Present value of all defined benefit obligations if
the discount rate is 50 basis points higher 3,779.9
the discount rate is 50 basis points lower 4,597.0
the expected rate of future salary increases is 50 basis points higher 4,278.3
the expected rate of future salary increases is 50 basis points lower 4,040.9
the expected rate of future pension increases is 50 basis points higher 4,386.6
the expected rate of future pension increases is 50 basis points lower 3,976.9
the medical cost trend rate is 50 basis points higher 4,154.1
the medical cost trend rate is 50 basis points lower 4,151.5

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


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€ million 2015 2014
Fair value of the plan assets on January 1 1,994.4 1,840.2
Currency translation differences recognized in equity 34.4 28.2
Currency translation differences recognized in income 34.4 5.5
Interest income from plan assets 44.8 67.2
Actuarial gains (+) / losses (–) arising from experience adjustments – 28.8 50.7
Employer contributions 30.0 27.2
Employee contributions 10.6 7.2
Pension payments from plan assets – 84.5 – 32.8
Changes in the scope of consolidation 293.3 3.0
Plan administration costs paid from the plan assets recognized in income – 2.4 – 1.9
Other effects recognized in income 0.1 0.2
Other changes – 3.4 – 0.3
Fair value of the plan assets on December 31 2,322.9 1,994.4

The actual return on plan assets amounted to € 16.0 million in 2015 (2014: € 117.9 million).

In 2015, there were no changes in the effects of the asset ceilings in accordance with IAS 19.64. In the previous year, € 10.8 million was recognized as actuarial gains and € 0.3 million as interest expenses. In both years, there were no effects from the asset ceiling.

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


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€ million 2015 2014
Cumulative actuarial gains (+) / losses (–) recognized in equity on January 1 – 1,568.4 – 694.8
Currency translation differences – 12.5 – 12.1
Remeasurements of defined benefit obligations
Actuarial gains (+) / losses (–) arising from changes in demographic assumptions – 37.8 19.1
Actuarial gains (+) / losses (–) arising from changes in financial assumptions 217.3 – 915.2
Actuarial gains (+) / losses (–) arising from experience adjustments 9.8 – 26.9
Remeasurements of plan assets
Actuarial gains (+) / losses (–) arising from experience adjustments – 28.8 50.7
Effects of the asset ceilings
Actuarial gains (+) / losses (–) 10.8
Reclassification within retained earnings
Cumulative actuarial gains (+) / losses (–) recognized in equity on December 31 – 1,420.4 – 1,568.4

Plan assets for funded defined benefit obligations primarily comprised fixed-income securities, stocks, and investmentfunds. They did not directly include financial instruments issued by 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 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 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:


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Dec. 31, 2015 Dec. 31, 2014
€ 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 27.3 27.3 167.0 167.0
Equity instruments 740.3 740.3 544.9 544.9
Debt instruments 957.5 957.5 662.5 662.5
Direct investments in real estate 98.2 98.2 84.7 84.7
Investment funds 369.9 369.9 371.3 371.3
Insurance contracts 79.2 79.2 74.9 74.9
Other 50.5 50.5 88.2 0.9 89.1
Fair value of the plan assets 2,145.5 177.4 2,322.9 1,833.9 160.5 1,994.4

Employer contributions to plan assets and direct payments to beneficiaries will probably amount to around € 99.2 million in 2016. 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 Group are only obliged to pay the contributions amounted to € 46.8 million (2014: € 38.7 million). In addition, employer contributions amounting to € 62.9 million (2014: € 57.2 million) were transferred to the German statutory pension insurance system and € 34.9 million (2014: € 28.5 million) to statutory pension insurance systems abroad.

(27) Provisions

Provisions developed as follows:


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€ million Litigation Restructuring Personnel Environmental protection Other Total
January 1, 2015 393.1 136.5 266.8 123.7 267.7 1,187.8
Additions 114.7 33.0 180.0 9.9 184.1 521.7
Utilizations – 6.4 – 72.8 – 116.1 – 9.7 – 72.0 – 277.0
Release – 35.3 – 6.6 – 36.2 – 2.0 – 59.2 – 139.3
Interest portion 7.4 1.0 2.5 0.1 11.0
Currency translation – 1.3 1.9 2.7 0.5 2.7 6.5
Changes in scope of
consolidation / Other
18.4 41.0 2.0 18.6 80.0
December 31, 2015 490.6 92.0 339.2 126.9 342.0 1,390.7
thereof current 77.9 37.7 97.0 24.1 298.7 535.4
thereof non-current 412.7 54.3 242.2 102.8 43.3 855.3

Litigation

As of December 31, 2015, the provisions for legal disputes amounted to € 490.6 million (2014: € 393.1 million). The legal matters described below represent the most significant legal risks.

Product-related and patent disputes

Rebif®: The Group 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 the Group and other pharmaceutical companies for infringement of this patent. The Group defended itself against all allegations and brought a countersuit claiming that the patent was invalid and not infringed on by the Group´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. The Group has taken appropriate accounting measures. Cash outflow is not expected to occur within the next twelve months.

In the Performance Materials business sector, the Group is in negotiations with a competitor regarding potential patent infringements. The Group maintains that the competitor’s patent infringement assertion is invalid owing to relevant prior art and has filed the corresponding nullity actions. In the meantime, the competitor has filed two patent infringement law suits. The Group is prepared for this issue and has taken appropriate accounting measures. The Group anticipates 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 the Group 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. The Group has taken appropriate counting measures for these legal disputes. These are different legal disputes, and an outflow of cash in fiscal year 2016 cannot be ruled out.

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 the Group 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, the Group was allegedly involved in the settlement negotiations and is therefore liable. The investigations into Generics (UK) Ltd. started in 2011, without the Group being aware of this. On February 11, 2016, the CMA imposed a fine in this matter. The Group intends to take legal action against this decision. The Group has recognized appropriate provisions in this connection; in 2015, the provision was released in part based on a re-assessment of the risk. A decision and an out flow of resources, if any, is expected for 2016.

Foreign exchange transfer restrictions

In one jurisdiction, the Group 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.

In addition to provisions for the mentioned litigation, provisions existed as of the balance sheet date for various smaller pending legal disputes. An outflow of cash is not expected to occur in fiscal year 2016.

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 Group over the long term. The provisions of € 92.0 million as of December 31, 2015 (2014: € 136.5 million) in this connection mainly consist of commitments to employees from partial and early retirement arrangements. The payments made in 2015 in the amount of € 72.8 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 of up to 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 [66] “Share-based compensation programs”. The following table presents the key parameters as well as the development of the potential number of Share Units of Merck KGaA, Darmstadt, Germany, (“MSUs”) for the individual tranches:


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2013 tranche 2014 tranche 2015 tranche
Performance cycle Jan. 1, 2013 –
Dec. 31, 2015
Jan. 1, 2014 –
Dec. 31, 2016
Jan. 1, 2015 –
Dec. 31, 2017
Term 3 years 3 years 3 years
Reference price of shares of Merck KGaA, Darmstadt, Germany, in € (60-day average share price of Merck KGaA, Darmstadt, Germany, prior to the start of the performance cycle) 100.111 122.841 74.53
DAX® value
(60-day average of the DAX® prior to the start
of the performance cycle)
7,350.64 9,065.08 9,403.99
 
Potential number of MSUs
Potential number offered for the first time in 2013 389,658
Expired 11,938
Status as on Dec. 31, 2013 377,720
Potential number offered for the first time in 2014 355,164
Expired 38,179 21,247
MSUs granted to employees of the
AZ Electronic Materials Group on May 2, 2014
22,865
Status as on Dec. 31, 2014 339,541 356,782
Potential number offered for the first time in 2015 609,799
Expired 20,885 23,541 21,447
Further additional granted MSUs 2,167
Status as on Dec. 31, 2015 318,656 335,408 588,352
1
Price of shares before share split in 2014.

The value of the provision for the vesting period already completed was € 123.9 million as of December 31, 2015 (2014: € 144.8 million). The net expense for fiscal 2015 was € 64.3 million (2014: € 81.3 million). The three-year tranche issued in 2012 ended at the end of 2014 and was paid out in 2015 in the amount of € 85.9 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 [26] “Provisions for pensions and other post-employment benefits”.

Environmental protection

Provisions for environmental protection mainly existed in Germany, Latin America and the United States and were set up particularly for obligations from soil remediation and groundwater protection in connection with the crop protection business that was discontinued in 1987.

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.

Provisions were recognized in 2015 for expected subsequent costs due to the discontinuation of the evofosfamide development program. In addition, provisions were recognized for interest and penalties resulting from tax audits. Releases and utilizations mainly related to provisions recognized in previous years for subsequent costs in relation to discontinued development programs in the Healthcare business sector.

(28) Financial liabilities / Capital management

The composition of financial liabilities as well as a reconciliation to net financial debt are presented in the following table:


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Book value
Dec. 31, 2015
€ million
Book value
Dec. 31, 2014 € million
Maturity Interest rate
%
Nominal volume
million
Currency
  Eurobond 2010 / 2015 1,349.7 March 2015 3.375 1,350.0
Eurobond 2009 / 2015 100.0 Dec. 2015 3.615 100.0
Eurobond 2006 / 2016 214.4 June 2016 5.875 250.0
Eurobond 2009 / 2016 60.0 Nov. 2016 4.000 60.0
Total bonds (current) 274.4 1,449.7
Commercial paper 999.2
Loans to banks 2,136.8 67.4
Liabilities to related parties 577.8 501.4
Loans from third parties and other financial liabilities 26.6 18.6
Liabilities from derivatives (financial transactions) 79.8 36.0
Finance lease liabilities 2.0 2.8
Total current financial liabilities 4,096.6 2,075.9
 
Eurobond 2006 / 2016 218.4 June 2016 5.875 250.0
Eurobond 2009 / 2016 60.0 Nov. 2016 4.000 60.0
U.S. bond 2015 / 2017 228.5 March 2017 variable1 250.0 USD
Eurobond 2015 / 2017 699.0 Sept. 2017 variable2 700.0
U.S. bond 2015 / 2018 365.5 March 2018 1.700 400.0 USD
Eurobond 2009 / 2019 69.3 69.1 Dec. 2019 4.250 70.0
Eurobond 2015 / 2019 797.3 Sept. 2019 0.750 800.0
U.S. bond 2015 / 2020 683.8 March 2020 2.400 750.0 USD
Eurobond 2010 / 2020 1,345.1 1,344.1 March 2020 4.500 1,350.0
U.S. bond 2015 / 2022 909.6 March 2022 2.950 1,000.0 USD
Eurobond 2015 / 2022 546.8 Sept. 2022 1.375 550.0
U.S. bond 2015 / 2025 1,448.4 March 2025 3.250 1,600.0 USD
Hybrid bond 2014 / 2074 987.7 986.2 Dec. 20743 2.625 1,000.0
Hybrid bond 2014 / 2074 496.8 496.7 Dec. 20744 3.375 500.0
Total bonds (non-current) 8,577.8 3,174.5
Loans to banks 869.2 200.0
Liabilities to related parties
Loans from third parties and other financial liabilities 62.6 65.9
Liabilities from derivatives (financial transactions) 103.9 117.0
Finance lease liabilities 2.8 3.7
Total non-current financial liabilities 9,616.3 3,561.1
 
Total financial liabilities 13,712.9 5,637.0
less:
Cash and cash equivalents 832.2 2,878.5
Current financial assets 227.0 2,199.4
Net financial debt 12,653.7 559.1
1
Interest rate: 0.35% spread over 3-month U.S. dollar LIBOR.
2
Interest rate: 0.23% spread over 3-month EURIBOR.
3
Merck KGaA, Darmstadt, Germany, has the right to prematurely repay this tranche of the hybrid bond issued in December 2014 for the first time in June 2021.
4
Merck KGaA, Darmstadt, Germany, has the right to prematurely repay this tranche of the hybrid bond issued in December 2014 for the first time in December 2024.

The Group issued a U.S. bond with a five-tranche structure in March 2015, and a further euro bond with a three-tranche structure in August 2015. Both issuances are part of the financing of the acquisition of the Sigma-Aldrich Corporation,USA. The Group issued a bond with a volume of € 1.35 billion in March 2015, and repaid a further bond with a volume of € 100 million in December 2015. On December 18, 2015, the Group also repaid early a bond acquired within the scope of the acquisition of Sigma-Aldrich with a nominal volume of US$ 300 million.

For the hybrid bond 2014 / 2074 issued by the Group in two tranches, 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 the Group´s credit rating than a classic bond issue. The bond is recognized in full as financial liabilities in the balance sheet. In addition to the issued bonds, to finance the purchase price payment for the acquisition of Sigma-Aldrich, the Group utilized a credit line of € 1.6 billion from a banking syndicate, as well as bilateral credit agreements amounting to € 1.35 billion.

The financial liabilities of the Group are not secured by liens or similar forms of collateral. The loan agreements do not contain any financial covenants. The Group’s average borrowing cost as of the balance sheet date was 2.0% (2014: 3.3%).

Information on liabilities to related parties can be found in Note [46] “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 the Group, for instance via bond issues. In addition, the Group 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, 2015. The Group still had access to a commercial paper program to meet short-term capital requirements with a volume of € 2 billion, of which € 1 billion had been utilized as of December 31,2015 (2014: no utilization). Moreover, the Group utilized an amount of € 3.53 billion (2014: € 2.93 billion) of the debt issuance program with a volume of € 15.0 billion (2014: € 15.0 billion) as of December 31, 2015. As of December 31, 2015, further bank lines of € 206.5 million were available (2014: € 11,544.8 million). In 2014, these credit lines were available especially for the acquisition of Sigma-Aldrich. 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 Group were as follows:


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€ million
Financing
commitments from banks
Utilization as of
Dec. 31, 2015
Interest Maturity of
financing commitments
Syndicated loan 2013 2,000.0 0.0 variable 2020
Loan agreement with banking syndicate for acquisition financing 1,600.0 1,600.0 variable 2018
Bilateral credit agreement with banks 700.0 700.0 variable 2019
Bilateral credit agreement with banks 400.0 400.0 variable 2020
Bilateral credit agreement with banks 250.0 250.0 variable 2022
Various bank credit lines 206.5 56.0 variable < 1 year
5,156.5 3,006.0

(29) Other liabilities

This item comprised:


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€ million current non-current Dec. 31, 2015 current non-current Dec. 31, 2014
Other financial liabilities 889.9 14.4 904.3 692.9 3.2 696.1
Liabilities from derivatives
(operational)
46.4 14.4 60.8 29.0 6.4 35.4
Financial items 936.3 28.8 965.1 721.9 9.6 731.5
Accruals for personnel expenses 535.5 535.5 474.3 474.3
Deferred income 226.1 576.0 802.1 220.9 768.6 989.5
Advance payments received
from customers
15.1 15.1 15.0 15.0
Liabilities from non-income
related taxes
105.5 3.7 109.2 142.5 3.8 146.3
Non-financial items 882.2 579.7 1,461.9 852.7 772.4 1,625.1
1,818.5 608.5 2,427.0 1,574.6 782.0 2,356.6

As of December 31, 2015, other financial liabilities included liabilities to related companies amounting to € 453.6 million (2014: € 425.6 million). These are mainly profit entitlements of E. Merck KG, Darmstadt, Germany. Moreover, this item contained liabilities to investments amounting to € 8.5 million (2014: € 3.1 million), interest accruals of € 97.4 million (2014: € 85.9 million) as well as payroll liabilities of € 179.5 million (2014: € 65.9 million). The remaining amount of € 165.3 million (2014: € 115.6 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 results mainly from the collaboration agreement with Pfizer Inc., USA, in immuno-oncology and was released as planned on a pro rata basis in 2015 (see Note [5] “Joint arrangements of material significance”).

(30) Trade accounts payable

Trade accounts payable consisted of the following:


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€ million Dec. 31, 2015 Dec. 31, 2014
Liabilities to third parties 1,920.9 1,539.3
Liabilities to investments 0.3 0.1
1,921.2 1,539.4

Trade accounts payable included an accrued amount of € 906.4 million (2014: € 831.0 million) for outstanding invoices and sales deductions.

(31) Tax liabilities

Tax liabilities and provisions for tax liabilities resulted in total income tax liabilities of € 1,011.3 million as of December 31, 2015 (2014: € 849.8 million). The increase in tax liabilities was primarily due to the acquisition of the Sigma-Aldrich Corporation, USA, higher income tax expenses in fiscal 2015 (see Note [15] “Income taxes”) as well as provisions for potential tax obligations.