Notes to the Consolidated Balance Sheet

(16) Goodwill

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Goodwill1
€ million Healthcare Life Science Performance Materials Total
Cost at January 1, 2016 1,823 11,272 1,397 14,492
Changes in scope of consolidation – 3 92 89
Additions
Disposals
Transfers
Classification as held for sale or transfer to a disposal group – 9 – 9
Currency translation 387 55 443
December 31, 2016 1,811 11,752 1,452 15,015
 
Accumulated amortization and impairment losses, January 1, 2016
Changes in scope of consolidation
Impairment losses
Disposals
Transfers
Reversals of impairment losses
Classification as held for sale or transfer to a disposal group
Currency translation
December 31, 2016
 
Net carrying amount as of December 31, 2016 1,811 11,752 1,452 15,015
 
Cost at January 1, 2017 1,811 11,752 1,452 15,015
Changes in scope of consolidation 17 17
Additions
Disposals
Transfers
Classification as held for sale or transfer to a disposal group – 25 – 25
Currency translation – 1 – 1,250 – 174 – 1,425
December 31, 2017 1,785 10,519 1,278 13,582
 
Accumulated amortization and impairment losses, January 1, 2017
Changes in scope of consolidation
Impairment losses
Disposals
Transfers
Reversals of impairment losses
Classification as held for sale or transfer to a disposal group
Currency translation
December 31, 2017
 
Net carrying amount as of December 31, 2017 1,785 10,519 1,278 13,582
1
Previous year’s figures have been adjusted, see Note (4) ‟Acquisitions and divestments”.

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. Further information about changes in the scope of consolidation due to the acquisition of BioControl Systems, Inc. can be found in Note (4) ‟Acquisitions and divestments.”

The reclassification to assets held for sale referred to the disposal of the Biosimilars business activities (see Note (4) ‟Acquisitions and divestments”).

As in the prior year, goodwill was not subject to impairment in fiscal 2017. The assumptions used for the goodwill impairment tests are presented in Note (6) ‟Management judgments and sources of estimation uncertainty.”

(17) Other intangible assets

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Customer relationships, brands and trademarks Marketing authorizations, patents, licenses, similar rights and other1 Software and software in development2 Advance payments2 Total1
€ million Finite useful life Not yet available for use
Cost at January 1, 2016 7,743 10,712 757 529 19,741
Changes in scope of consolidation 35 21 56
Additions 16 12 107 136
Disposals – 1 – 2 – 10 – 13
Transfers – 3 7 4
Classification as held for sale or transfer to a disposal group – 2 – 2
Currency translation 236 76 5 317
December 31, 2016 8,011 10,824 766 639 20,239
 
Accumulated amortization and impairment losses, January 1, 2016 – 1,052 – 6,896 – 574 – 289 – 8,811
Changes in scope of consolidation
Amortization – 464 – 754 – 59 – 1,277
Impairment losses – 17 – 77 – 12 – 12 – 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 – 30 – 32 – 6 – 69
December 31, 2016 – 1,560 – 7,759 – 585 – 356 – 10,259
 
Net carrying amount as of December 31, 2016 6,451 3,065 181 283 9,980
Cost at January 1, 2017 8,011 10,824 766 639 20,239
Changes in scope of consolidation – 1 21 20
Additions 24 263 110 1 398
Disposals – 1 – 5 – 27 – 32
Transfers – 2 6 – 8 8 – 2 4
Classification as held for sale or transfer to a disposal group 2 2
Currency translation – 838 – 190 – 1 – 25 – 1,053
December 31, 2017 7,171 10,685 1,017 705 19,577
 
Accumulated amortization and impairment losses, January 1, 2017 – 1,560 – 7,759 – 585 – 356 10,259
Changes in scope of consolidation
Amortization – 451 – 751 – 41 – 1,243
Impairment losses – 50 – 17 – 67
Disposals 1 5 27 33
Transfers 2 – 2 1
Reversals of impairment losses 17 17
Classification as held for sale or transfer to a disposal group
Currency translation 142 100 1 15 258
December 31, 2017 – 1,868 – 8,438 – 596 – 357 11,260
 
Net carrying amount as of December 31, 2017 5,303 2,246 421 348 8,317
1
Previous year’s figures have been adjusted, see Note (4) ‟Acquisitions and divestments”.
2
As of 2017, software in development and software are shown in one category; previous year’s figures have been adjusted.

The carrying amounts of customer relationships, brands and trademarks as well as marketing authorizations, patents, licenses, similar rights and other were attributable to the business sectors as follows:

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€ million Remaining useful life in years Healthcare Life Science Performance Materials Total Dec. 31, 2017 Total Dec. 31, 20161
Customer relationships, brands and trademarks 3 5,135 165 5,303 6,451
Customer relationships 0.5 – 19.9 4,265 157 4,422 5,342
thereof: acquisition of Sigma-Aldrich Corporation 18.9 – 19.9 3,536 157 3,693 4,425
thereof: acquisition of Millipore Corporation 0.5 – 9.5 681 681 859
Brands and trademarks 1.0 – 9.9 3 870 8 881 1,109
thereof: acquisition of Sigma-Aldrich Corporation 9.9 695 695 864
 
Marketing authorizations, patents, licenses, similar rights and other
Finite useful life 1,074 390 780 2,246 3,065
Rebif® 2.0 737 737 1,105
Gonal-f® 1.0 95 95 190
Xalkori® 4.0 93 93 153
Saizen® 2.0 62 62 92
Other marketing authorizations 49 49 68
Technologies 0.1 – 15.3 384 771 1,156 1,420
thereof: acquisition of AZ Electronic Materials S.A. 3.3 – 15.3 741 741 918
Others 38 6 9 54 37
 
Not yet available for use 421 421 181
1
Previous year’s figures have been adjusted, see Note (4) ‟Acquisitions and divestments”.

The changes in the scope of consolidation in 2016 mainly included the additions to intangible assets resulting from the acquisition of BioControl Systems, Inc., USA. In fiscal 2017, the changes in the scope of consolidation largely include additions to intangible assets from the acquisition of Natrix Separations, Inc., Canada, and Grzybowski Scientific Inventions Ltd., USA, as well as the changes from the initial consolidation of Merck Window Technologies B.V., Netherlands. The acquisitions are detailed in Note (4) ‟Acquisitions and divestments”.

The net carrying amount of marketing authorizations, patents, licenses, similar rights and other with finite useful lives amounting to € 2,246 million (December 31, 2016: € 3,065 million1) mainly included the identified and capitalized intangible assets in connection with the acquisition of the Sigma-Aldrich Corporation, AZ Electronic Materials S.A., the Millipore Corporation, and Serono SA. The capitalized customer relationships under customer relationships, brands and trademarks are mainly attributable to these acquisitions (December 31, 2017: € 5,303 million; December 31, 2016: € 6,451 million1).

The additions to intangible assets with finite useful lives amounted to € 24 million in 2017 (2016: € 16 million), and were largely attributable to the Healthcare (€ 10 million) and Life Science (€ 9 million) business sectors.

In fiscal 2017, impairment losses on marketing authorizations, patents, licenses, similar rights and other with finite useful lives totaled € 50 million (2016: € 77 million), of which € 33 million related to the Healthcare business sector. They referred to the co-promotion right for Xalkori® and were attributable to the revised profit forecasts. In addition, technologies no longer used led to an impairment loss of € 17 million in the Performance Materials business sector. These items were recorded in the consolidated income statement in impairment losses under other operating expenses.

Reversals of impairment losses on intangible assets with finite useful lives in the amount of € 17 million (2016: € 0 million) were recognized in fiscal 2017 in the Healthcare business sector. The reversal up to amortized cost was attributable to the marketing authorization of the multiple sclerosis drug Mavenclad®. The item was reported in the consolidated income statement under other operating income as reversals of impairment losses from non-current assets.
The additions to marketing authorizations, patents, licenses, similar rights and other not yet available for use amounted to € 263 million in fiscal 2017 (2016: € 12 million) and were attributable almost entirely to the Healthcare business sector. Above all, the additions resulted from a license agreement with Vertex Pharmaceuticals Inc., USA, which comprised the purchase of two clinical as well as further novel pre-clinical research programs in the areas of oncology and immuno-oncology.

The impairment losses for marketing authorizations, patents, licenses, similar rights and other not yet available for use amounted to € 17 million (2016: € 12 million) and were related to the Healthcare business sector. Of that amount, € 13 million were attributable to the partial impairment of a compound in connection with the license agreement concluded with Vertex Pharmaceuticals Inc., USA. The impairment was reported in the consolidated income statement in impairment losses under other operating expenses.

The additions to software and software in development in the amount of € 110 million (2016: € 107 million) were mainly attributable to new ERP developments in the Life Science (€ 45 million) and Healthcare (€ 42 million) business sectors.

The reclassification to assets held for sale were made in connection with the disposal of the Biosimilars businesses (see Note (4) ‟Acquisitions and divestments”).

In 2017, borrowing costs of € 7 million (2016: € 3 million) directly allocable to qualified assets were capitalized.

(18) Property, plant and equipment

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€ million Land, land rights and buildings, including buildings on third-party land1 Plant and machinery1 Other facilities, operating and office equipment Construction in progress and advance payments to vendors and contractors Total1
Cost at January 1, 2016 3,284 3,879 1,091 592 8,846
Changes in the scope of consolidation – 2 – 9 – 7 – 18
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 4,068 1,136 807 9,402
 
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 – 2,949 – 858 – 4 – 5,171
 
Net carrying amount as of December 31, 2016 2,030 1,119 279 804 4,231
 
Cost at January 1, 2017 3,391 4,068 1,136 807 9,402
Changes in the scope of consolidation 49 2 – 24 28
Additions 30 54 35 818 936
Disposals – 50 – 142 – 34 – 16 – 241
Transfers 184 258 96 – 543 – 5
Classification as held for sale or transfer to a disposal group 41 – 2 39
Currency translation – 131 – 103 – 33 – 40 – 306
December 31, 2017 3,514 4,136 1,176 1,026 9,852
 
Accumulated depreciation and impairment losses
January 1, 2017
– 1,361 – 2,949 – 858 – 4 – 5,171
Changes in the scope of consolidation – 31 2 21 – 9
Depreciation – 147 – 266 – 103 – 516
Impairment losses – 2 – 2 – 5
Disposals 39 138 32 209
Transfers
Reversals of impairment losses 35 35 69
Classification as held for sale or transfer to a disposal group – 41 1 – 40
Currency translation 37 63 21 122
December 31, 2017 – 1,472 – 2,978 – 886 – 4 – 5,340
 
Net carrying amount as of December 31, 2017 2,042 1,158 291 1,022 4,512
1
Previous year’s figures have been adjusted, see Note (4) ‟Acquisitions and divestments”.

Changes in the scope of consolidation in 2016 mainly 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 and divestments”. In fiscal 2017, the changes in the scope of consolidation in particular comprise additions to property, plant and equipment from the first-time consolidation of Merck Wohnungs- und Grundstücksverwaltungsgesellschaft mbH and Merck Window Technologies B.V., the Netherlands.

Material additions to construction in progress were attributable to the expansion of global headquarters, the construction of an Innovation Center and a new laboratory building at the Darmstadt site as well as the construction of a new Life Science facility in the United States. In addition, investments were made in production sites in China, Italy, the United States and Germany. Transfers relating to construction in progress mainly included completed subprojects within the context of the construction works at Group headquarters in Darmstadt as well as investments in the United States, France, China, and Switzerland.

In 2017, impairment losses amounted to € 5 million (2016: € 11 million). They mainly related to assets attributable to the Life Science business sector. Reversals of impairment losses were immaterial overall. The reversals of impairment losses in fiscal 2017 in the amount of € 69 million (2016: € 1 million) were fully attributable to the Healthcare business sector and the write-up of the biopharmaceutical production plant in Corsier-sur-Vevey, Switzerland. As a result of improved expectations regarding capacity utilization of the production plant, mainly due to the authorizations of the immuno-oncology product Bavencio®, which is to be produced in this plant, a write-up to the amortized remaining carrying amount was recognized. The plant was impaired in fiscal 2011 by € 165 million.

The reclassification to assets held for sale were made in connection with the disposal of the Biosimilars businesses (see Note (4) ‟Acquisitions and divestments”).

Directly allocable borrowing costs on qualified assets in the amount of € 5 million (2016: € 6 million) were capitalized.

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

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€ million Dec. 31, 2017 Dec. 31, 2016
Land and buildings 5 4
Vehicles 1
Other property, plant and equipment 1 1
Net carrying amount of assets classified as finance lease 5 6

(19) Financial assets

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€ million current non-current Dec. 31, 2017 current non-current Dec. 31, 2016
Available-for-sale financial assets 35 420 454 43 191 233
Loans and receivables 47 12 59 44 10 55
Derivative assets (financial transactions) 9 13 22 59 17 76
Financial assets 90 444 535 145 218 364

Current available-for-sale financial assets included bonds amounting to € 26 million (December 31, 2016: € 29 million).

Non-current available-for-sale financial assets mainly included entitlements related to contingent consideration amounting to € 266 million (December 31, 2016: € 38 million) in connection with the divestment of the Biosimilars business (see Note (4) ‟Acquisitions and divestments”) and Kuvan®. In addition, the item included investments in companies amounting to € 121 million (December 31, 2016: € 112 million) and investments in subsidiaries that were not consolidated due to their minor significance in the amount of € 1 million (December 31, 2016: € 24 million).

Impairment losses were recognized for investments in companies and other non-current financial assets held for sale in a total amount of € 14 million (2016: € 5 million). Positive and negative fair value adjustments recognized in equity offset each other in 2017 (2016: € 50 million). The prior-year amount included fair value adjustments previously recognized in equity in the amount of € 31 million that were reclassified to the consolidated income statement upon the disposal of a minority shareholding.

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

(20) Other assets

Other assets comprised:

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€ million current non-current Dec. 31, 2017 current1 non-current Dec. 31, 20161
Other receivables 247 29 276 272 5 277
Derivative assets (operative) 30 62 92 7 5 12
Financial items 277 91 367 279 10 289
 
Receivables from non-income related taxes 239 38 277 205 29 234
Prepaid expenses 99 8 107 71 12 82
Assets from defined benefit plans 1 1
Remaining other assets 115 69 184 118 81 199
Non-financial items 454 114 568 394 121 515
Other assets 731 205 936 672 131 804
1
Previous year’s figures have been adjusted, see Note (4) ‟Acquisitions and divestments”.

Other receivables included current receivables from related parties amounting to € 141 million (December 31, 2016: € 124 million). They resulted from refund claims to companies from taxes paid for the account of such companies.

Other receivables also comprised license receivables in the amount of € 28 million (December 31, 2016: € 38 million).

The changes in non-current assets from derivatives (operative) (€ 62 million; December 31, 2016: € 5 million) were mainly attributable to the purchase of an option on equity instruments.

The carrying amounts of other receivables from third parties were as follows:

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€ million Dec. 31, 2017 Dec. 31, 2016
Neither past due nor impaired 258 270
Past due, but not impaired
up to 3 months 4 3
up to 6 months 7
up to 12 months 1 2
up to 24 months 6 1
over 2 years
Impaired
Other receivables 276 277

In 2017, a reversal of an impairment loss for other receivables was recognized in the amount of € 20 million (2016: € 0 million). The reversal was made in connection with contractual refund claims from the sale of the Generics business in 2007.

As in the prior year, there were no new allowances for other receivables in 2017.

(21) Inventories

This item comprised:

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€ million Dec. 31, 2017 Dec. 31, 20161
Raw materials and supplies 481 501
Work in progress 795 694
Finished goods/goods for resale 1,355 1,415
Inventories 2,632 2,609
1
Previous year’s figures have been adjusted, see Note (4) ‟Acquisitions and divestments”.

Write-downs of inventories in 2017 amounted to € 154 million (2016: € 236 million); reversals amounted to € 110 million (2016: € 59 million).

The lower write-downs and the higher reversal of write-downs recorded in prior periods in relation to inventories were mainly due to process optimization measures in the supply chains of the Life Science business sector due to the further advanced Sigma-Aldrich integration and the related improved availability and usability of finished goods and goods for resale.

As of the balance sheet date, no inventories were pledged as security for liabilities.

(22) Trade accounts receivable

The maturity structure of the carrying amounts of trade accounts receivable was as follows:

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€ million Dec. 31, 2017 Dec. 31, 2016
Neither past due nor impaired 2,391 2,458
Past due, but not impaired
up to 3 months 392 232
up to 6 months 50 20
up to 12 months 32 8
up to 24 months 7 3
over 2 years 1 1
Impaired 51 168
Trade accounts receivable 2,923 2,889

The corresponding allowances developed as follows:

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€ million 2017 2016
January 1 – 464 – 165
Additions – 39 – 52
Reversals/Utilizations 99 76
Change in scope of consolidation – 302
Currency translation and other changes 37 – 20
December 31 – 367 – 464

In fiscal 2017, previously recognized allowances were reversed as a result of the improved solvency of customers, particularly in the Middle East. The increase in allowances from changes in the scope of consolidation in 2016 resulted from the receivables attributable to the deconsolidated Venezuelan entities, for which impairment losses in the full amount had been recognized.

In the period from January 1 to December 31, 2017, trade accounts receivable in Italy with a nominal value of € 25 million were sold for € 24 million. Previous impairments in this context amounting to € 1 million were reversed and disclosed under other operating income. The sold receivables do not involve any further rights of recovery against Merck.

(23) Tax receivables

Income tax receivables amounted to € 490 million (December 31, 2016: € 403 million). Tax receivables resulted primarily from tax prepayments that exceeded the actual amount of tax payable for 2017 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, 2017 Dec. 31, 2016
Cash, bank balances and cheques 481 662
Short-term cash investments (up to 3 months) 108 277
Cash and cash equivalents 589 939

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

Cash and cash equivalents included restricted cash amounting to € 250 million (December 31, 2016: € 238 million). This relates mainly to cash and cash equivalents with subsidiaries which the Group only had 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. 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. Each share therefore corresponds to € 1.30 of the share 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. As in the prior year, the share capital did not change in fiscal 2017.

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 adjustment for corporation tax is made to compensate for the difference in the tax treatment between the general partner and the limited liability shareholders. Corporation tax is only calculated on the income received by the limited liability shareholders. Its equivalent is the income tax applicable to the partners of E. Merck KG which has to be paid by them directly. The adjustment thus ensures that the share in net profit corresponds to the respective interests held by the two shareholder groups. The reciprocal net profit/loss transfer between E. Merck KG and Merck KGaA as stipulated by the Articles of Association was as follows:

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2017 2016
€ million   E. Merck KG Merck KGaA E. Merck KG Merck KGaA
Result of E. Merck KG – 16 – 6
Net income of Merck KGaA 723 556
Corporation tax 56 11
Basis for appropriation of profits (100%) – 16 780 – 6 567
Profit transfer to E. Merck KG
Ratio general partner’s capital to total capital
(70.274%) 548 – 548 398 – 398
Profit transfer from E. Merck KG
Ratio of share capital to total capital
(29.726%) 5 – 5 2 – 2
Corporation tax – 56 – 11
Net income 537 171 394 156

The result of E. Merck KG on which the appropriation of profits adjusted for trade tax is based amounted to € –16 million (2016: € –6 million). This resulted in a profit/loss transfer to Merck KGaA of € –5 million (2016: € –2 million). Merck KGaA’s net income adjusted for corporation tax, on which the appropriation of its profit is based, amounted to € 780 million (2016: € 567 million). Merck KGaA transferred a gain in the amount of € 548 million of its profit to E. Merck KG (2016: € 398 million). In addition, an expense from corporation tax charges amounting to € 56 million resulted (2016: expense of € 11 million).

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.

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2017 2016
€ million E. Merck KG Merck KGaA E. Merck KG Merck KGaA
Net income 537 171 394 156
 
Profit carried forward previous year 39 16 37 15
Withdrawal from revenue reserves
Transfer to revenue reserves
Retained earnings Merck KGaA 187   171
 
Withdrawal by E. Merck KG – 515 – 392 -
Dividend proposal - – 162   – 155
Profit carried forward 60 25 39 16

For 2016, a dividend of € 1.20 per share was distributed. The dividend proposal for fiscal 2017 will be € 1.25 per share, corresponding to a total dividend payment of € 162 million (2016: € 155 million) to shareholders. The amount withdrawn by E. Merck KG would amount to € 515 million (2016: € 392 million). The withdrawal, which is high as compared to the proposed payout to the limited liability shareholders, is due to the relatively strong increase in corporation tax in the year under review.

Appropriation of profits and changes in reserves

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2017 2016
€ million Merck & Cie Merck KGaA Total Merck & Cie Merck KGaA Total
Profit transfer to E. Merck KG – 63 – 548 – 611 – 68 – 398 – 466
Profit transfer from E. Merck KG   – 5 – 5   – 2 – 2
Changes in reserves - 22 22   2 2
Profit transfer to E. Merck KG including changes in reserves – 63 – 531 – 593 – 68 – 398 – 466
Result of E. Merck KG before reciprocal profit transfer adjusted for trade tax - – 16 -   – 6  
Profit transfer to E. Merck KG /
withdrawal by E. Merck KG
– 63 – 515 - – 68 – 392  

Based on the assumed appropriation of profits, the profit transfer to E. Merck KG for 2017, including changes in reserves, amounted to € –593 million. This consisted of the profit transfer to E. Merck KG (€ –548 million), the result transfer from E. Merck KG to Merck KGaA (€ –5 million), the change in profit carried forward of E. Merck KG (€ 22 million) as well as the profit transfer from Merck & Cie to E. Merck KG (€ –63 million). 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.

The proposed withdrawal of E. Merck KG in the amount of € 515 million (2016: € 392 million) results from the total amount of the profit transfer to E. Merck KG, including changes in reserves, and the result of E. Merck KG before reciprocal profit transfer.

Non-controlling interests

The calculation 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.

Other changes in equity

On the occasion of the 350th anniversary of the company in 2018, a promise of a one-time grant in the form of Merck shares in the amount of € 350 per person was made to Merck employees in Germany. The Merck shares required to issue such awarded shares in 2018 will be purchased by third parties on the market on behalf of Merck and subsequently transferred to the entitled employees. Accordingly, it is not intended to issue new shares. In fiscal 2017, in accordance with IFRS 2, the award led to personnel expenses of € 1 million as well as to a corresponding increase in retained earnings in equity which was recorded in the item ‟Other”.

(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. Generally, these systems are based on the years of service and salaries of the employees. Pension obligations include both defined benefit and defined contribution plans and comprise both obligations from current pensions and accrued benefits for pensions payable in the future. 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 newly hired employees have been offered 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:

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€ million Dec. 31, 2017 Dec. 31, 2016
Present value of all defined benefit obligations 4,707 4,698
 
Fair value of the plan assets – 2,452 – 2,386
Funded status 2,255 2,312
 
Effects of asset ceilings 1 1
Net defined benefit liability recognized in the balance sheet 2,256 2,313
 
Assets from defined benefit plans 1
Provisions for pensions and other post-employment benefits 2,257 2,313

The calculation of the defined benefit obligations was based on the following actuarial parameters:

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Germany Switzerland United Kingdom Other countries
2017 2016 2017 2016 2017 2016 2017 2016
Discount rate 1.90% 1.90% 0.70% 0.60% 2.56% 2.69% 2.99% 3.08%
Future salary increases 2.51% 2.51% 1.80% 1.80% 2.00% 2.53% 3.66% 3.59%
Future pension increases 1.75% 1.75% 3.04% 3.10% 1.94% 1.68%

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

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

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Germany Switzerland United Kingdom Other countries Total
€ million Dec. 31, 2017 Dec. 31, 2017 Dec. 31, 2017 Dec. 31, 2017 Dec. 31, 2017
Benefit based on final salary
Annuity 2,710 1 497 92 3,300
Lump sum 105 105
Installments 2 2
Benefit not based on final salary
Annuity 378 760 73 1,211
Lump sum _ 7 37 44
Installments 7 7
Other 9 9
Medical plan 29 29
Present value of defined benefit obligations 3,097 761 504 345 4,707

The main benefit rules are as follows:

Companies in Germany accounted for € 3,097 million of the defined benefit obligations (December 31, 2016: € 2,990 million) as well as for € 1,178 million of the plan assets (December 31, 2016: € 1,116 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 were 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 a defined benefit expense and an age-dependent annuity table. Statutory minimum funding obligations do not exist.

Pension plans in Switzerland accounted for € 761 million of the defined benefit obligations (December 31, 2016: € 808 million) as well as for € 648 million of the plan assets (December 31, 2016: € 648 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 € 504 million of the defined benefit obligations (December 31, 2016: € 549 million) as well as for € 469 million of the plan assets (December 31, 2016: € 460 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:

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€ million 2017 2016
Current service cost – 160 – 140
Past service cost – 8 18
Gains (+) or losses (–) on settlement 11
Other effects recognized in income – 3
Interest expense – 86 – 92
Interest income 43 51
Total amount recognized as expenses (–)/income (+) – 211 – 155

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 expenses for defined benefit pension systems were 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 2017 Funded benefit obligations Benefit obligations funded by provisions 2016
Present value of the defined benefit obligations on January 1 4,311 387 4,698 3,810 343 4,153
Currency translation differences recognized in equity – 61 – 6 – 67 – 66 2 – 64
Currency translation differences recognized in income – 40 – 40 4 4
Current service cost 140 20 160 124 16 140
Past service cost 7 1 8 – 18 – 18
Gains (–) or losses (+) on settlement – 11 – 11
Interest expense 78 8 86 84 8 92
Actuarial gains (–)/losses (+) – 19 – 1 – 20 457 35 492
Contributions by plan participants 13 13 10 10
Pension payments – 112 – 15 – 127 – 101 – 8 – 109
Changes in the scope of consolidation – 2 – 2
Other effects recognized in income 3 3
Reclassification to liabilities directly related to assets held for sale – 20 – 20
Other changes 6 7 13 18 – 7 11
Present value of the defined benefit
obligations on December 31
4,306 401 4,707 4,311 387 4,698

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:

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€ million 2017 2016
Fair value of the plan assets on January 1 2,386 2,323
Currency translation differences recognized in equity – 46 – 62
Currency translation differences recognized in income – 33 3
Interest income from plan assets 43 51
Actuarial gains (+)/losses (–) arising from experience adjustments 121 69
Employer contributions 36 35
Employee contributions 13 10
Pension payments from plan assets – 51 – 38
Changes in the scope of consolidation
Plan administration costs paid from the plan assets recognized in income – 2 – 2
Other effects recognized in income – 2
Reclassification to liabilities directly related to assets held for sale – 14
Other changes 1 – 3
Fair value of the plan assets on December 31 2,452 2,386

The actual return on plan assets amounted to € 164 million in 2017 (2016: € 120 million).

In 2017, the effects of the asset ceilings in accordance with IAS 19.64 changed as follows:

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€ million 2017 2016
Effects of the asset ceilings on January 1 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 1

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

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€ million 2017 2016
Cumulative actuarial gains (+)/losses (–) recognized in equity on January 1 – 1,820 – 1,420
Currency translation differences 11 21
Remeasurements of defined benefit obligations
Actuarial gains (+)/losses (–) arising from changes in demographic assumptions 5 4
Actuarial gains (+)/losses (–) arising from changes in financial assumptions 8 – 484
Actuarial gains (+)/losses (–) arising from experience adjustments 7 – 12
Remeasurements of plan assets
Actuarial gains (+)/losses (–) arising from experience adjustments 121 69
Effects of the asset ceilings
Actuarial gains (+)/losses (–) – 1
Reclassification within retained earnings 3
Cumulative actuarial gains (+)/losses (–) recognized in equity on December 31 – 1,668 – 1,820

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 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, Merck 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:

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Dec. 31, 2017 Dec. 31, 2016
€ 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 77 77 72 72
Equity instruments 814 814 729 729
Debt instruments 957 957 968 968
Direct investments in real estate 94 94 102 102
Investment funds 420 1 421 379 379
Insurance contracts 81 81 82 82
Other 8 8 54 54
Fair value of the plan assets 2,276 176 2,452 2,202 184 2,386

Employer contributions to plan assets and direct payments to beneficiaries will probably amount to around € 32 million and € 75 million in 2018. 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 € 86 million (2016: € 54 million); this amount was distributed to the individual functions. In addition, employer contributions amounting to € 76 million (2016: € 67 million) were transferred to the German statutory pension insurance system and € 46 million (2016: € 42 million) to statutory pension insurance systems abroad.

(27) Other provisions

Other provisions developed as follows:

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€ million Litigation Restructuring Personnel Environmental protection Acceptance and follow-on obligations Other Total
January 1, 2017 483 73 336 142 45 167 1,246
Additions 92 53 128 31 9 79 392
Utilizations – 15 – 27 – 115 – 11 – 7 – 38 – 214
Release – 42 – 5 – 69 – 23 – 20 – 33 – 193
Interest portion 10 1 – 1 9
Currency translation – 2 – 1 – 17 – 1 – 2 – 9 – 31
Changes in scope of consolidation/Other – 10 1 – 8
December 31, 2017 526 92 254 137 26 166 1,202
thereof: current 104 26 87 27 26 145 414
thereof: non-current 421 66 168 111 22 788

Litigation

As of December 31, 2017, the provisions for legal disputes amounted to € 526 million (December 31, 2016: € 483 million). The legal matters described below represented 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. A first-instance ruling is now expected for 2018. Court-ordered mediation proceedings did not lead to an agreement. 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 three cases were already successful in first-instance proceedings. JNC has filed complaints in each case. In a correction trial, a decision in favor of JNC was issued in the second instance. Both Merck and the Korean Patent Office have filed complaints with the Korean Supreme Court. In parallel, JNC filed two patent infringement suits. In 2017, a first-instance decision was issued in favor of Merck, which JNC then appealed. Merck has taken appropriate accounting measures. Based on current judgment, an outflow of resources is not likely to occur within the next 12 months.

Antitrust and other proceedings

Antitrust review proceedings for the Sigma-Aldrich acquisition: On July 6, 2017, Merck received notice from the European Commission (EU Commission), in which the EU Commission informed Merck of its preliminary conclusion that Merck and Sigma-Aldrich allegedly transmitted incorrect and/or misleading information within the scope of the acquisition of Sigma-Aldrich. The EU Commission had received registration of the merger on April 21, 2015 and granted clearance on June 15, 2015 subject to the condition that Merck and Sigma-Aldrich divest parts of the European solvents and inorganic chemicals businesses of Sigma-Aldrich in order to resolve antitrust concerns.

According to the preliminary viewpoint of the EU Commission communicated in the letter dated July 6, 2017, Merck and Sigma-Aldrich withheld in this connection important information about an innovation project allegedly relevant for certain laboratory chemicals of significance to the analysis by the EU Commission. According to the EU Commission, the innovation project should have been included in the remedies package. A meeting of the cooperation procedure between the EU Commission and Merck took place on February 5, 2018 (see Note (50) ‟Subsequent events”). The ongoing investigations are limited to the examination of violations of EU merger control procedures and do not affect the validity of the EU Commission’s decision to approve the merger. Based on the estimations by the Executive Board, a provision was set up. An outflow of resources is expected in 2018.

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 resources is not expected to occur within the next 12 months.

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 subsidiaries of GlaxoSmithKline plc., United Kingdom, 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. According to current estimation, a decision and outflow of resources are considered likely in 2018.

Trademark rights/breach of agreement: Merck is involved in various legal disputes with Merck & Co., Inc. of the United States (outside the United States and Canada: Merck Sharp & Dohme Corp. (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 2016, Merck did not consider recourse and a related outflow of resources to be likely as of the balance sheet date (see Note (40) ‟Contingent liabilities”). Merck has taken appropriate accounting measures solely for any costs of legal defense. An outflow of resources solely for the costs of external legal counsel is expected for 2018.

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

Restructuring

Provisions for restructuring mainly included 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.

The addition to restructuring provisions in the amount of € 53 million was mainly attributable to the following measures. The Life Science business sector will make relocations and gradually close operations in the course of the years 2019 to 2022 at various German sites. In addition, shared service functions in Finance have been relocated from Darmstadt to Wrocław, Poland, and Manila, the Philippines. Outflows of resources are expected within the next three years.

The utilization of restructuring provisions in the amount of € 27 million was mainly attributable to the ‟Fit for 2018” transformation and growth program, which was introduced in 2012. The aim of this program was to secure the competitiveness and the growth of the Merck Group over the long term. The provisions in this context mainly consist of commitments to employees from partial and early retirement arrangements. Further payment outflows within the scope of this program are largely expected up 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 (69) ‟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:

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2015 tranche 2016 tranche 2017 tranche
Performance cycle Jan. 1, 2015 –
Dec. 31, 2017
Jan. 1, 2016 –
Dec. 31, 2018
Jan. 1, 2017 –
Dec. 31, 2019
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)
74.53 87.92 95.63
DAX® value (60-day average of the DAX® prior
to the start of the performance cycle)
9,403.99 10,669.76 10,822.06
 
Potential number of MSUs
Potential number offered for the first time in 2015 609,799
Forfeited 21,447
Status as on Dec. 31, 2015 588,352
Potential number offered for the first time in 2016 763,463
Forfeited 35,691 24,392
Status as on Dec. 31, 2016 552,661 739,071
Potential number offered for the first time in 2017 853,624
Forfeited 17,227 31,105 24,897
Status as on Dec. 31, 2017 535,434 707,966 828,727

The value of the provisions was € 45 million as of December 31, 2017 (December 31, 2016: € 133 million). In fiscal 2017, net income of € 13 million resulted (2016: net expense of € 76 million). The three-year tranche issued in 2014 ended at the end of 2016 and was paid out in 2017 in the amount of € 75 million.

Provisions for employee benefits included an amount of € 51 million for the promise of a one-time bonus for employees on the occasion of the company’s 350th anniversary in 2018.

Provisions for employee benefits also included obligations for the partial retirement program and other severance pay that were not set up in connection with restructuring programs as well as obligations in connection with long-term working hour accounts and anniversary bonuses.

With respect to provisions for pensions and other post-employment benefits, see Note (26) ‟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 mainly 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.

(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, 2017 € million Book value Dec. 31, 2016 € million Maturity Interestrate % Nominal volume million Currency
USD bond 2015/2017 238 March 2017 variable1 250 USD
Eurobond 2015/2017 699 Sept. 2017 variable2 700
USD bond 2015/2018 335 March 2018 1.700% 400 USD
Bonds (current) 335 937
Commercial paper 838 918
Bank loans 803 1,128
Liabilities to related parties 767 758
Loans from third parties and other financial liabilities 19 20
Liabilities from derivatives (financial transactions) 27 25
Finance lease liabilities 1 1
Current financial liabilities 2,790 3,788
 
USD bond 2015/2018 380 March 2018 1.700% 400 USD
Eurobond 2015/2019 799 798 Sept. 2019 0.750% 800
Eurobond 2009/2019 70 69 Dec. 2019 4.250% 70
USD bond 2015/2020 626 712 March 2020 2.400% 750 USD
Eurobond 2010/2020 1,347 1,346 March 2020 4.500% 1,350
USD bond 2015/2022 833 947 March 2022 2.950% 1,000 USD
Eurobond 2015/2022 548 547 Sept. 2022 1.375% 550
USD bond 2015/2025 1,328 1,508 March 2025 3.250% 1,600 USD
Hybrid bond 2014/2074 992 990 Dec. 20743 2.625% 1,000
Hybrid bond 2014/2074 497 497 Dec. 20744 3.375% 500
Bonds (non-current) 7,040 7,794
Bank loans 850 850
Liabilities to related parties
Loans from third parties and other financial liabilities 54 59
Liabilities from derivatives (financial transactions) 86 103
Finance lease liabilities 2 2
Non-current financial liabilities 8,033 8,809
 
Financial liabilities 10,823 12,597
less:
Cash and cash equivalents 589 939
Current financial assets 90 145
Net financial debt5 10,144 11,513
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 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 has the right to prematurely repay this tranche of the hybrid bond issued in December 2014 for the first time in December 2024.
5
Not defined by International Financial Reporting Standards (IFRS).

Merck repaid a USD bond with a volume of € 232 million in March 2017 and a eurobond with a volume of € 700 million in September 2017.

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 were 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 2.2% (December 31, 2016: 2.0%).

Information on liabilities to related parties can be found in Note (47) ‟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. As of December 31, 2017, there were liabilities of € 2.77 billion (December 31, 2016: € 3.47 billion) from a Debt Issuance Program most recently renewed in 2015. In addition, Merck had access to a commercial paper program to meet short-term capital requirements with a volume of € 2 billion, of which € 838 million had been utilized as of December 31, 2017 (December 31, 2016: € 919 million).

Loan agreements represent a further source of financing for Merck. On the balance sheet date, the bank financing commitments vis-à-vis the Merck Group were as follows:

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Dec. 31, 2017 Dec. 31, 2016
€ 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 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 581 303 336 228 variable < 1 year
3,931 1,653 4,086 1,978

There are no indications that the availability of credit lines already extended was restricted.

(29) Other liabilities

Other liabilities comprise the following:

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€ million current non-current Dec. 31, 2017 current1 non-current Dec. 31, 20161
Other financial liabilities 1,038 21 1,059 925 14 939
Liabilities from derivatives (operational) 25 18 43 71 34 105
Financial items 1,063 39 1,102 996 48 1,044
 
Accruals for personnel expenses 665 665 603 603
Deferred income 278 211 489 237 386 623
Advance payments received from customers 25 25 12 12
Liabilities from non-income related taxes 144 5 150 103 5 108
Other non-financial items 99 99
Non-financial items 1,112 315 1,427 955 391 1,345
Other liabilities 2,175 354 2,529 1,950 439 2,389
1
Previous year’s figures have been adjusted, see Note (4) ‟Acquisitions and divestments”.

As of December 31, 2017, other financial liabilities included liabilities to related companies amounting to € 584 million (December 31, 2016: € 457 million). These were profit entitlements of E. Merck KG.

Moreover, other financial liabilities included interest accruals of € 95 million (December 31, 2016: € 98 million) as well as payroll liabilities of € 174 million (December 31, 2016: € 169 million). The remaining amount of € 206 million (December 31, 2016: € 215 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. 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.

Non-financial items include non-current obligations in the amount of € 99 million (December 31, 2016: € 0 million) resulting from the new legislation as regards the taxation of profit from foreign subsidiaries in the context of the U.S. tax reform. This resulted in additional taxation of past profits of foreign subsidiaries of U.S. parent companies. Merck will pay this tax payment in eight annual installments. The non-current tax liability was recorded at nominal amount and not discounted. The current portion of the obligation in the amount of € 9 million was offset against existing income tax receivables. Further information on the impact of the U.S. tax reform can be found in Note (14) ‟Income taxes”.

(30) Trade accounts payable

Trade accounts payable amounted to € 2,195 million (December 31, 2016: € 2,048 million).

This item also included accrued amounts of € 653 million (December 31, 2016: € 544 million) for outstanding invoices and € 435 million (December 31, 2016: € 443 million) in sales deductions.

(31) Tax liabilities

Tax liabilities and provisions for tax liabilities resulted in total income tax liabilities of € 1,059 million as of December 31, 2017 (2016: € 883 million).