Merck 2014 Annual Report Download - page 219

214 CONSOLIDATED FINANCIAL STATEMENTS → Notes to the Group accounts
Drug pricing by the divested Generics Group
Paroxetine: In connection with the divested generics business, the
Group is subject to antitrust investigations by the British Com-
petition 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 Euro-
pean competition law. As the owner of Generics (UK) Ltd. at the
time, the company was allegedly involved in the settlement nego-
tiations and is therefore liable. The investigations into Generics
(UK) Ltd. started in 2011, without the Group being aware of this.
It is considered probable that the CMA will impose a fine on the
Group. The Group has recognized appropriate provisions in this
connection.
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 imper-
missibly high foreign exchange transfers. Appropriate accounting
measures have been taken for repayments and fines that are esti-
mated to be probable due to the uncertain
legal situation in the
affected country. The provision recognized in
2013 under other
provisions was reclassified to provisions for litigation.
In addition to provisions for the mentioned litigation, provi-
sions existed as of the balance sheet date for various smaller
pending legal disputes.
Restructuring
Provisions for restructuring mainly include commitments to em-
ployees in connection with restructuring projects and provisions
for onerous contracts. These were recognized once detailed re-
structuring 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 competi-
tiveness and the growth of the Group over the long term. The non-
current provisions of €71.0million (2013: €74.7million) recorded
in this connection mainly consist of commitments to employees
from partial and early retirement arrangements. In addition, current
provisions of €65.5million (2013: €128.1million) reflect future
commitments for severance payments and commitments arising
from site closures. The payments made in 2014 in the amount of
€104.3 million are primarily due to severance payments to em-
ployees. Cash flows owing to provisions for restructuring are for
the most part expected within a period of up to 2019.
Provisions for employee benefits / Share-based payment
Provisions for employee benefits include obligations from long-
term variable compensation programs. Payments from the long-
term variable compensation plan in place until 2011 were made
for the last time in 2014. The long-term variable compensation
plan valid since 2012 is aligned not only with target achievement
based on key performance indicators, but above all with the long-
term performance of the shares of Merck KGaA, Darmstadt, Ger-
many. Certain executives and employees could be eligible to receive
a certain number of virtual shares – Share Units of Merck KGaA,
Darmstadt, Germany, (MSUs) – at the end of a three-year perfor-
mance cycle. The number of MSUs that could be received depends
on the total value defined for the respective person and the aver-
age closing price of the shares of Merck KGaA, Darmstadt,
Germany, in Xetra® trading during the last 60 trading days prior to
January1 of the respective fiscal year (reference price). In order
for members of top management to receive payment, they must
personally own an investment in the company’s shares dependent
on their respective fixed annual compensation. When the three-year
performance cycle ends, the number of MSUs to then be granted
is determined
based on the development of two key performance
indicators
(KPIs). These are on the one hand the performance
of the company’s share price compared to the performance of
the DAX® with a weighting of 70 % and on the other hand the
develop ment of the EBITDA pre margin during the performance
cycle as a proportion of a defined target value with a weighting of
30 %. Depending on the development of the KPIs, at the end of the
respective performance cycle the eligible participants are granted
between 0 % and 150 % of the MSUs they could be eligible to
receive.
Based on the MSUs granted, the eligible participants receive a
cash payment at a specified point in time in the year after the
three-year performance cycle has ended. The value of a granted
MSU, which is relevant for payment, corresponds to the average
closing price of the company shares in Xetra trading during the
last 60 trading days prior to January 1 after the performance
cycle. The payment amount is limited to three times the reference
price.