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Operating Assets, Liabilities and Contingent Liabilities

(19) Goodwill

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Goodwill
€ million Healthcare Life Science Performance Materials Total
Cost as 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
 
Cost as at January 1, 20181 1,785 10,519 1,278 13,582
Changes in scope of consolidation
Additions
Disposals
Transfers
Classification as held for sale or transfer to a disposal group – 251 – 31 – 282
Currency translation – 1 408 57 464
December 31, 2018 1,534 10,896 1,334 13,764
 
Accumulated amortization and impairment losses, January 1, 2018
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, 2018
 
Net carrying amount as of December 31, 2018 1,534 10,896 1,334 13,764
1
Values effective January 1, 2018, have been adjusted, see Note (49) ‟Effects from new accounting standards and other presentation and measurement changes”. 

Goodwill was incurred mainly in connection with the acquisitions 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, which were partially denominated in U.S. dollars, into the reporting currency.

In the Healthcare business sector, the reclassifications to assets held for sale were attributable to the divestment of the Consumer Health business to The Procter & Gamble Company, United States, and in the Life Science business sector to the divestment of the flow cytometry business Amnis® and Guava® to the Luminex Corporation, United States (see Note (5) ‟Acquisitions and divestments”).

As in 2017, goodwill was not subject to impairment in fiscal 2018.

Significant management judgments and sources of estimation uncertainty – Goodwill

The determination of the recoverable amount is subject to management judgements and estimation uncertainties.

When conducting the impairment tests the following parameters

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Measurement basis Value in use
Impairment test level Healthcare (excluding Consumer Health)
Consumer Health1 (previous year)
Life Science
Performance Materials
Planning basis Most recent financial medium-term planning approved by the Executive Board and used for internal purposes
Detailed planning period 4 years
Key assumptions Net cash flows
Long-term growth rate after the detailed planning period
Discount rate after tax (weighted average cost of capital – WACC)
Determination of the value of the key assumptions Net cash flows
  • Sales growth
    Based on internal planning, taking into consideration internal and external market information and market estimations, i.e. regarding market shares, excluding possible approvals of new compounds from the development pipeline and other expansion investments
  • Profit margins
    Based on past experiences, adjusted for expected changes
Long-term growth rate after the detailed planning period
Based on long-term inflation expectations and expected long-term sector growth
Discount rate after taxes (weighted average cost of capital – WACC)
  • Cost of equity
    Risk-free interest rate: Derived from the returns of long-term government bonds
    Beta factor: Derived from the respective peer group
    Market risk premium: Range as recommended by the Technical Committee for Business Valuation and Commerce of the Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer e.V. – IDW)
  • Cost of debt and capital structure
    Derived from market data and the respective peer group
1
At the date of the impairment test in the previous year, Consumer Health was not classified as a discontinued operation pursuant to IFRS 5.

The long-term growth rates and weighted average costs of capital (WACC) used to conduct the goodwill impairment tests were as follows:

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Goodwill Long-term growth rate Cost of capital after tax Cost of capital before tax
€ million/in% 2018 2017 2018 2017 2018 2017 2018 2017
Healthcare (excluding Consumer Health) 1,534 1,534 0.00% 0.00% 6.4% 6.7% 8.5% 8.9%
Consumer Health1 251 2.00% 6.6% 8.2%
Life Science 10,896 10,519 1.75% 1.75% 7.2% 6.8% 8.8% 8.4%
Performance Materials 1,334 1,278 0.50% 0.50% 5.8% 5.9% 7.4% 7.5%
1
At the date of the impairment test in the previous year, Consumer Health was not classified as a discontinued operation pursuant to IFRS 5.

Net cash flows were discounted using cost of capital after tax. The aforementioned cost of capital before tax was subsequently derived iteratively. All of the aforementioned assumptions are considered a source of estimation uncertainty due to their inherent uncertainty.

In all the impairment tests performed, the recoverable amount was more than 10% higher than the carrying amount of the respective cash-generating unit or group of cash-generating units. Irrespective of this, the planning data used were checked for plausibility against externally available forecasts and the recoverable amounts determined were validated using valuation multiples based on peer group information. In addition, sensitivity analyses of the key assumptions were performed as part of the impairment tests. As a result, no change of a significant assumption deemed possible by management would have resulted in an impairment. The following table presents the amount by which key assumptions would have to change before an impairment would need to be recognized as a result of the impairment tests:

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Decrease in long-term growth rate Increase in cost of capital after tax Decrease in net cash flows
2018 2017 2018 2017 2018 2017
in percentage points in percentage points in %
Healthcare (excluding Consumer Health) > 2 > 2 > 2 > 2 > 5 > 5
Consumer Health1 > 2 > 2 > 5
Life Science 1.2 > 2 0.9 1.8 > 5 > 5
Performance Materials > 2 > 2 > 2 > 2 > 5 > 5
1
At the date of the impairment test in the previous year, Consumer Health was not classified as a discontinued operation pursuant to IFRS 5.

The lower sensitivity of the impairment test for the cash-generating unit Life Science regarding changes in the long-term growth rate and the capital costs declined compared to 2017. This was due to an increase in weighted average costs of capital (WACC) on account of the higher beta factor of individual entities in the peer group. The resulting effects more than offset the increase in net cash flows during the detailed planning period compared to the previous period.

(20) Other intangible assets

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Customer relationships, brands and trademarks Marketing authorizations, patents, licenses, similar rights and other Software and software in development Advance payments Total
€ million Finite useful life Not yet available for use
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 amounts as of December 31, 2017 5,303 2,246 421 348 8,317
Cost at January 1, 2018 7,171 10,685 1,017 705 19,577
Changes in scope of consolidation
Additions 1 14 35 55 1 106
Disposals – 6 – 37 – 111 – 8 – 162
Transfers 57 – 56 4 – 1 4
Classification as held for sale or transfer to a disposal group – 29 – 51 – 7 – 87
Currency translation 265 71 6 342
December 31, 2018 7,402 10,739 885 755 19,780
 
Accumulated amortization and impairment losses, January 1, 2018 – 1,868 – 8,438 – 596 – 357 – 11,260
Changes in scope of consolidation
Amortization – 427 – 747 – 57 – 1,231
Impairment losses – 21 – 19 – 40
Disposals 5 14 7 26
Transfers – 1
Reversals of impairment losses
Classification as held for sale or transfer to a disposal group 24 38 2 65
Currency translation – 61 – 40 – 3 – 104
December 31, 2018 – 2,326 – 9,195 – 596 – 426 – 12,544
 
Net carrying amounts as of December 31, 2018 5,076 1,543 289 329 7,237

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, 2018
Total
Dec. 31, 2017
Customer relationships, brands and trademarks 4,914 162 5,076 5,303
Customer relationships 0.5 – 18.9 4,108 155 4,263 4,422
thereof: acquisition of Sigma-Aldrich Corporation 17.9 – 18.9 3,495 1 3,496 3,693
thereof: acquisition of Millipore Corporation 0.5 – 8.5 569 569 681
Brands and trademarks 4.5 – 8.9 806 7 813 881
thereof: acquisition of Sigma-Aldrich Corporation 8.9 655 655 695
 
Marketing authorizations, patents, licenses, similar rights and other
Finite useful life 561 329 653 1,543 2,246
Marketing authorizations
Rebif® 1.0 369 369 737
Xalkori® 3.0 68 68 93
Saizen® 1.0 31 31 62
Gonal-f® 95
Other marketing authorizations 32 32 49
Patents, licenses and similar rights 0.5 – 14.3 323 643 966 1,156
thereof: acquisition of AZ Electronic Materials S. A. 2.3 – 14.3 616 616 741
Others 61 6 10 77 54
 
Not yet available for use 285 4 289 421

The net carrying amount of capitalized customer relationships, disclosed under customer relationships, brands and trademarks, amounting to € 5,076 million (December 31, 2017: € 5,303 million), 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. These acquisitions account for the majority of marketing authorizations, patents, licenses, similar rights and other with finite useful lives (€ 1,543 million; December 31, 2017: € 2,246 million). The impairment losses on market authorizations, patents, licenses, similar rights and other with finite useful lives in the amount of € 21 million (2017: € 50 million) in 2018 was essentially related to a technology in the Performance Materials business sector. In 2017, an impairment loss was recognized for the co-promotion right Xalkori® in the Healthcare business sector (€ 33 million) and for technologies no longer used in the Performance Materials business sector (€ 17 million). These impairments were recognized in the consolidated income statement in impairment losses on non-financial assets under other operating expenses.

The additions to marketing authorizations, patents, licenses, similar rights and other not yet available for use amounted to € 35 million in fiscal 2018 (2017: € 263 million) and were attributable almost entirely to the Healthcare business sector. The disposals of marketing authorizations, patents, licenses, similar rights and other that were not yet available for use mainly referred to the transfer of rights to develop and commercialize T-cell cancer therapies (CAR-T) (€ 104 million) to the collaboration partner Intrexon Corporation, United States (see Note (6) ‟Collaborations of material significance”).

The additions to software and software in development in the amount of € 55 million (2017: € 110 million) were mainly attributable to new ERP developments.

The impairment losses recognized for software and software in development in the amount of € 19 million (2017: € 0 million) were attributable to software modules not further developed and used in the Life Science business sector. The impairment was recognized in the consolidated income statement in impairment losses on non-financial assets under other operating expenses.

The reclassifications to assets held for sale were made in connection with the divestment of the Consumer Health business and of the flow cytrometry platforms Amnis® and Guava® (see Note (5) ‟Acquisitions and divestments”).

significant management judgments and sources of estimation uncertainty – other intangible assets

In-licensing of intangible assets

The Group is regularly a partner of research and development collaborations with research institutions, biotechnology companies or other contract parties. These collaborations are aimed at developing marketable products. The Group also enters into in-licensing agreements regarding intellectual property of contract partners. Such agreements typically involve making upfront payments and payments for the achievement of certain milestones related to development and commercialization. In this context, the Group has to judge to what extent upfront or milestone payments represent remuneration for services received (research and development costs) or whether such payments result in an in-licensing of an intangible asset that has to be capitalized. This assessment is regularly subject to judgment.

Identification of impairment or reversals of impairment

Discretionary decisions were required in the identification of objective evidence of impairment as well as in the identification of a reversal of impairment of other intangible assets. External and internal information was used to identify indications of impairment and reversals of impairment. For example, the closure of a site or the approval of a competing product in the Healthcare business sector can be an indicator of impairment.

Determination of impairment amount

Substantial assumptions and estimates were required to determine the appropriate level of amortization of other intangible assets. This related in particular to the determination of the underlying remaining useful life, which the Group reviews regularly and adjusts if necessary. The Group considered factors including the typical product life cycles for each asset and publicly available information about the estimated useful lives of similar assets.

If the amortization of intangible assets from customer relationships, brands, trademarks, marketing authorizations, patents, licenses and similar rights and other had been 10% higher, for example due to shortened remaining useful lives, profit before income tax would have been € 117 million lower in fiscal 2018 (2017: € 120 million).

In fiscal 2018, a reduction of the useful life of the intangible asset reported in connection with the drug Rebif® by one year would have lowered profit before income tax by € 369 million (2017: € 184 million). An extension of the useful life by one year would have increased profit before income tax by € 123 million (2017: € 92 million).

(21) 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, 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 amounts as of December 31, 2017 2,042 1,158 291 1,022 4,512
 
Cost at January 1, 20181 3,517 4,136 1,178 1,026 9,857
Changes in the scope of consolidation
Additions 16 41 47 786 890
Disposals – 14 – 64 – 46 – 28 – 152
Transfers 319 237 140 – 696
Classification as held for sale or transfer to a disposal group – 43 – 69 – 20 – 2 – 134
Currency translation 43 31 6 10 90
December 31, 2018 3,837 4,313 1,305 1,096 10,551
 
Accumulated depreciation and impairment losses January 1, 20181 – 1,474 – 2,978 – 887 – 4 – 5,343
Changes in the scope of consolidation
Depreciation – 156 – 246 – 115 – 517
Impairment losses – 12 – 3 – 1 – 2 – 18
Disposals 11 59 42 2 116
Transfers 24 – 24
Reversals of impairment losses
Classification as held for sale or transfer to a disposal group 13 40 13 66
Currency translation – 16 – 23 – 5 – 44
December 31, 2018 – 1,609 – 3,150 – 977 – 4 – 5,740
 
Net carrying amounts as of December 31, 2018 2,228 1,163 328 1,092 4,811
1
Values effective January 1, 2018, have been adjusted, see Note (49) ‟Effects from new accounting standards and other presentation and measurement changes” ‟Effects from new accounting standards and other presentation and measurement changes”.

In fiscal 2018, material additions to construction in progress were attributable to the construction of a pharma packaging center, investments into the administrative buildings at the Darmstadt site as well as the expansion of US and Chinese production capacities in the Life Science business sector. Furthermore, the Group invested in its pharmaceutical production facilities and logistic hub in China. Additional investments were made into our laboratory, production and logistic facilities in China, Italy and Germany.

Reclassifications from construction in progress were mainly attributable to the completion of the expansion of the Group’s global headquarters at the Darmstadt site, and to the completion of the pharma packaging center.

In 2018, impairment losses amounted to € 18 million (2017: € 5 million). These were attributable primarily to assets allocated to the Healthcare business sector, and mainly referred to buildings and production facilities. Reversals of impairment losses were insignificant overall. In 2017 impairment losses for the biopharmaceutical production facility in Corsier-sur-Vevey (Switzerland) were reversed in the amount of € 69 million to depreciated cost. The decision to reverse the impairment loss was due to improved expectations for the capacity utilization of the production facility, particularly owing to the approvals of the immune-oncology medicine Bavencio®, which is to be produced in this facility. An impairment loss of € 165 million was originally recognized for the facility in 2011.

The reclassifications to assets held for sale were made in connection with the divestment of the Consumer Health business (see Note (5) ‟Acquisitions and divestments”).

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

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€ million Dec. 31, 2018 Dec. 31, 2017
Land and buildings 8 5
Other property, plant and equipment 1 1
Net carrying amount of assets classified as finance lease 9 5

significant management judgments and sources of estimation uncertainty – property, plant and equipment

Identification of impairment or reversals of impairment

Discretionary decisions were required in the identification of objective evidence of impairment as well as in the identification of a reversal of impairment of property, plant and equipment. External and internal information was used in this context. For example, the closure of a site can be an indicator of impairment.

Determination of impairment amount

Substantial assumptions and estimates were required to determine the appropriate level of amortization of property, plant and equipment. The underlying remaining useful life of property, plant and equipment was reviewed regularly by the Group and adjusted if necessary. The Group considered factors including the typical product life cycles for each asset and publicly available information about the estimated useful lives of similar assets.

(22) Other assets

Other assets comprised:

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Dec. 31, 2018 Dec. 31, 2017
€ million Current Non-current Total Current Non-current Total
Subsequent measurement at amortized cost
Other receivables 295 17 312 247 29 276
Subsequent measurement at fair value through profit or loss
Derivatives without a hedging relationship (operational) 45 45 46 46
Derivatives with a hedging relationship (operational) 4 1 4 30 15 45
Financial items 299 63 361 277 91 367
 
Receivables from non-income related taxes 318 8 326 239 38 277
Prepaid expenses 117 5 121 99 8 107
Contract assets1 52 1 52
Assets from defined benefit plans 7 7 1 1
Remaining other assets1 94 62 156 115 69 184
Non-financial items 587 76 663 454 114 568
 
Other assets 886 138 1,024 731 205 936
1
Due to the first-time application of IFRS 15 as of January 1, 2018, contract assets included in other assets in 2017 were reported separately as of January 1, 2018; see (49) ‟Effects from new accounting standards and other presentation and measurement changes”.

Other receivables were subsequently measured at amortized cost and mainly contained claims from service agreements in connection with the divested Consumer Health business, which the Group continues to fulfill for the acquiring party. In the previous year, other receivables mainly comprised current receivables from related parties resulting from refund claims to companies from taxes paid for the account of such companies.

Other receivables also comprised license receivables in the amount of € 29 million (December 31, 2017: € 28 million).

For further information on impairment losses and credit risks from financial items associated with other assets, please refer to Note (38) ‟Management of financial risks”. Please refer to Note (49) ‟Effects from new accounting standards and other presentation and measurement changes” for further details on the first-time application effects of IFRS 9 regarding the classification and measurement of financial assets.

The following table provides details on contract assets representing completed performances not yet invoiced:

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Contract assets
€ million Current Non-current Total
January 1, 2018 35 35
Additions 94 1 95
Reclassification to receivables – 78 – 78
Reclassification from non-current to current
Classification as held for sale or transfer to disposal group
Currency effects 1 1
Changes in scope of consolidation/other – 1 – 1
December 31, 2018 52 1 52

(23) Inventories

This item comprises the following items:

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€ million Dec. 31, 2018 Dec. 31, 2017
Raw materials and supplies 510 481
Work in progress 834 795
Finished goods/goods for resale 1,420 1,355
Inventories 2,764 2,632

The increase in inventories in 2018 was due to the overall accelerating business volume in all three business sectors.

Impairments of inventories in 2018 amounted to € 183 million (2017: € 144 million); reversals amounted to € 77 million (2017: € 110 million).

The increase in impairment losses was attributable in particular to the realignment of the Performance Materials business sector. In addition, quality-related write-downs increased in the Healthcare business sector.

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

significant management judgments and sources of estimation uncertainty – inventories

Identification of impairments or reversal of impairments

Discretionary decisions were required in the identification of impairment as well as in the identification of a reversal of impairment of inventories. There were estimation uncertainties with respect to the calculation of the net realizable value. It was determined, in particular, on the basis of information on changes in selling and procurement prices and on the expected cost of completion.

(24) Trade accounts receivable

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€ million Dec. 31, 2018 Dec. 31, 2017
Subsequently measured at amortized cost 2,983 3,290
Subsequently measured at fair value through other comprehensive income 21
Gross trade accounts receivable 3,004 3,290
Allowances on receivables subsequently measured at amortized cost – 73 – 367
Allowances on receivables subsequently measured at fair value through other comprehensive income
Net trade accounts receivable 2,931 2,923

In the period from January 1 to December 31, 2018, trade accounts receivable in Italy with a nominal value of € 28 million (2017: € 25 million) were sold for € 28 million (2017: € 24 million). The sold receivables did not involve any further rights of recovery against the Group.

The following table provides details on the development of trade accounts receivable before loss allowances during the period under review:

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€ million Gross trade accounts receivable
December 31, 2017 3,290
Adjustment on initial application of IFRS 9 – 9
Adjustment on initial application of IFRS 15 – 4
January 1, 2018 3,277
Additions 16,395
thereof: attributable to performance obligations satisfied in prior periods 1
Customer payments/defaults – 16,590
Currency effects 6
Classification as held for sale or transfer to disposal group – 86
Change in scope of consolidation/other 3
December 31, 2018 3,004

For further information on loss allowances as well as credit and market risks affecting trade accounts receivable, please refer to Note (38) ‟Management of financial risks”, section ‟Credit risks”. Please refer to Note (49) ‟Effects from new accounting standards and other presentation and measurement changes” for further details on the first-time application effects of IFRS 9 regarding the classification and measurement of financial assets.

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

Depending on the legal, economic and fiscal circumstances prevailing in each country, different retirement benefit systems are provided for the employees. Generally, these systems are based on the years of service and salaries of the employees. Pension obligations comprise both obligations from current pensions and accrued benefits for pensions payable in the future.

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, 2018 Dec. 31, 2017
Present value of all defined benefit obligations 4,719 4,707
Fair value of the plan assets – 2,391 – 2,452
Funded status 2,328 2,255
Effects of asset ceilings 1 1
Net defined benefit liability recognized in the balance sheet 2,329 2,256
Assets from defined benefit plans 7 1
Provisions for pensions and other post-employment benefits 2,336 2,257

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

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Germany Switzerland United Kingdom Other countries
2018 2017 2018 2017 2018 2017 2018 2017
Discount rate 1.97% 1.90% 1.00% 0.70% 2.95% 2.56% 3.16% 2.99%
Future salary increases 2.51% 2.51% 1.74% 1.80% 2.00% 2.00% 3.21% 3.66%
Future pension increases 1.75% 1.75% 2.94% 3.04% 1.77% 1.94%

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: 24.5 KB EXCEL

Dec 31, 2018
€ million Germany Switzerland United Kingdom Other countries Total
Benefit based on final salary          
Annuity 2,602 1 450 84 3,137
Lump sum 93 93
Installments 1 1
Benefit not based on final salary          
Annuity 563 777 67 1,407
Lump sum 6 33 39
Installments 6 6
Other 10 10
Medical plan 26 26
Present value of defined benefit obligations 3,172 778 456 313 4,719
Fair value of the plan assets 1,137 656 450 148 2,391

The vast majority of defined benefit obligations of German entities 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, comprised a direct commitment that is not based on the final salary. The benefit entitlement resulted from the cumulative total of annually determined pension components that were calculated on the basis of a defined benefit expense and an age-dependent annuity table. Statutory minimum funding obligations did not exist.

Pension obligations in Switzerland comprised old-age, disability and surviving dependent benefits regulated by law. The employer and the employees made contributions to the plans. The Group had to observe the existing statutory minimum funding obligations.

Pension obligations in the United Kingdom 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 comprised old-age, disability and surviving dependent benefits. The employer and the employees made contributions to the plans. The Group had to observe the existing statutory minimum funding obligations.

The following table shows the development of the net defined benefit liability recognized in the balance sheet:

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€ million Present value of the defined benefit obligations Fair value of the plan assets Effects of the asset ceilings Net defined benefit liability
January 1, 2018 – 4,707 2,452 – 1 – 2,256
         
Current service cost – 161 – 161
Interest expense – 85 – 85
Interest income 42 42
Plan administration costs recognized in income – 2 – 2
Past service cost 4 4
Gains (+) or losses (–) on settlement
Currency translation differences recognized in income – 17 14 – 3
Other effects recognized in income 3 3
Items recognized in income – 256 54 – 202
thereof: attributable to the divested Consumer Health business – 7 2 – 5
         
Remeasurements of defined benefit obligations        
Actuarial gains (+)/losses (–)
arising from changes in demographic assumptions
– 40 – 40
Actuarial gains (+)/losses (–)
arising from changes in financial assumptions
139 139
Actuarial gains (+)/losses (–)
arising from experience adjustments
– 18 – 18
Remeasurements of plan assets        
Actuarial gains (+)/losses (–)
arising from experience adjustments
– 115 – 115
Changes in the effects of the asset ceilings        
Actuarial gains (+)/losses (–)
Actuarial gains (+)/losses (–) 81 – 115 – 34
         
Pension payments 124 – 49 75
Employer contributions 48 48
Employee contributions – 14 14
Payment transactions 110 13 123
         
Changes in the scope of consolidation
Reclassification to liabilities directly related to assets held for sale 48 – 5 43
Currency translation differences recognized in equity – 10 5 – 5
Other changes 15 – 13 2
Other 53 – 13 40
         
December 31, 2018 – 4,719 2,391 – 1 – 2,329
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€ million Present value of the defined benefit obligations Fair value of the plan assets Effects of the asset ceilings Net defined benefit liability
January 1, 2017 – 4,698 2,386 – 1 – 2,313
         
Current service cost – 160 – 160
Interest expense – 86 – 86
Interest income 43 43
Plan administration costs recognized in income – 2 – 2
Past service cost – 8 – 8
Gains (+) or losses (–) on settlement
Currency translation differences recognized in income 40 – 33 7
Other effects recognized in income – 3 – 2 – 5
Items recognized in income – 217 6 – 211
thereof: attributable to the divested Consumer Health business – 8 3 – 5
         
Remeasurements of defined benefit obligations        
Actuarial gains (+)/losses (–)
arising from changes in demographic assumptions
5 5
Actuarial gains (+)/losses (–)
arising from changes in financial assumptions
8 8
Actuarial gains (+)/losses (–) arising from experience adjustments 7 7
Remeasurements of plan assets        
Actuarial gains (+)/losses (–) arising from experience adjustments 121 121
Changes in the effects of the asset ceilings        
Actuarial gains (+)/losses (–)
Actuarial gains (+)/losses (–) 20 121 141
         
Pension payments 127 – 51 76
Employer contributions 36 36
Employee contributions – 13 13
Payment transactions 114 – 2 112
         
Changes in the scope of consolidation
Reclassification to liabilities directly related to assets held for sale 20 – 14 6
Currency translation differences recognized in equity 67 – 46 21
Other changes – 13 1 – 12
Other 74 – 59 15
         
December 31, 2017 – 4,707 2,452 – 1 – 2,256

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 in the consolidated income statement.

The actual loss on plan assets amounted to € 73 million in 2018 (2017: return of € 164 million).

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

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€ million 2018 2017
Cumulative actuarial gains (+)/losses (–) recognized in equity, January 1 – 1,668 – 1,820
Currency translation differences 11
Remeasurements of defined benefit obligations
Actuarial gains (+)/losses (–) arising from changes in demographic assumptions – 40 5
Actuarial gains (+)/losses (–) arising from changes in financial assumptions 139 8
Actuarial gains (+)/losses (–) arising from experience adjustments – 18 7
Remeasurements of plan assets
Actuarial gains (+)/losses (–) arising from experience adjustments – 115 121
Effects of the asset ceilings
Actuarial gains (+)/losses (–)
Reclassification within retained earnings 65
Cumulative actuarial gains (+)/losses (–) recognized in equity, December 31 – 1,637 – 1,668

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 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.

Both the benefit obligations as well as the plan assets are subject to fluctuations 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 fluctuations of the net defined benefit liability recognized in the balance sheet, in managing its plan assets, the Group also pays attention to potential fluctuations in liabilities. The portfolio is structured in such a way that, in the ideal case, assets and defined benefit obligations develop in opposite directions when exposed to exogenous factors – in particular interest rate fluctuations – 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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€ million Dec. 31, 2018 Dec. 31, 2017
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 147 147 77 77
Equity instruments 592 592 814 814
Debt instruments 993 993 957 957
Direct investments in real estate 105 105 94 94
Investment funds 458 458 420 1 421
Insurance contracts 77 77 81 81
Other 19 19 8 8
Fair value of the plan assets 2,209 182 2,391 2,276 176 2,452

Employer contributions to plan assets and direct payments to beneficiaries will probably amount to around € 33 million and € 74 million, respectively, in the subsequent year. The weighted duration amounted to 20 years.

significant management judgments and sources of estimation uncertainty – provisions for
pensions and other post-employment benefits

Determination of present value of defined-benefit obligations

The determination of the present value of the obligation from these defined benefit pension plans primarily requires discretionary judgment as regards the selection of methods to determine discount rates as well as estimates of future salary increases and future pension increases. The actuarial assumptions which are used as the basis for the calculation of the defined benefit obligation, e.g. discount rates, salary and pension trends, were determined on a country-by-country basis in line with the economic conditions prevailing in each country; the latest country-specific actuarial mortality table was used in each case. The respective discount rates are generally determined on the basis of the returns on high-quality corporate bonds issued with adequate maturities and currencies. For euro-denominated obligations, bonds with ratings of at least ‟AA” from one of the three rating agencies Standard & Poor’s, Moody’s or Fitch, and a euro swap rate of adequate duration served as the basis for the data.

The following overview shows how the present value of all defined benefit obligations would have been impacted by changes to relevant ctuarial assumptions.

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€ million Dec. 31, 2018 Dec. 31, 2017
Increase (+)/decrease (–) in present value of all defined benefit obligations if
the discount rate is 50 basis points higher – 435 – 438
the discount rate is 50 basis points lower 503 508
the expected rate of future salary increases is 50 basis points higher 151 155
the expected rate of future salary increases is 50 basis points lower – 130 – 133
the expected rate of future pension increases is 50 basis points higher 251 256
the expected rate of future pension increases is 50 basis points lower – 196 – 198

To determine the sensitivities, in principle each of the observed parameters was varied while keeping the measurement assumptions otherwise constant. The amounts for social security vary in line with the salary trend.

(26) Other provisions

Other provisions developed as follows:

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€ million Litigation Restructuring Personnel Environmental protection Acceptance and follow-on obligations Interest and penalties related to income taxes Other Total
January 1, 2018 526 92 254 137 26 43 166 1,245
Additions 65 30 203 9 15 13 176 511
Utilizations – 22 – 22 – 78 – 8 – 3 – 40 – 174
Release – 21 – 9 – 66 – 2 – 7 – 10 – 90 – 206
Interest portion 11 2 2 14
Currency translation – 1 5 2 6
Changes in scope of consolidation/other – 1 – 1 – 2
Classification as held for sale or transfer to a disposal group – 6 – 1 – 4 – 3 – 15
December 31, 2018 551 90 316 137 30 46 211 1,381
thereof: current 182 32 112 26 19 46 184 600
thereof: non-current 370 58 203 111 11 27 780

Litigation

As of December 31, 2018, the provisions for legal disputes amounted to € 551 million (December 31, 2017: € 526 million). The legal matters described below represented the most significant legal risks.

Product-related and patent disputes

Rebif®: The Group is involved in a patent dispute with Biogen Inc., United States, (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 the United States in 2009. 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 by the Group’s actions. In the first instance, a jury recognized the invalidity of the patent. This jury verdict was overturned by a first-instance federal judge in September 2018. For the time being, the patent is thus deemed to be legally valid and to have been infringed. The Group filed a complaint with the CAFC (second instance) against the first-instance ruling in October 2018. In this context, the Group recognized provisions in a three-digit million euro amount. Cash outflow is not expected to occur within the next 12 months.

PS-VA liquid crystals mixtures: In the Performance Materials business sector, the Group is involved in a legal dispute with JNC Corporation, Japan, (JNC). JNC claims that by manufacturing and marketing certain liquid crystals mixtures, the Group has infringed JNC patents. JNC asserts its claims in court in various jurisdictions. In two JNC patent infringement cases, a first-instance and a second-instance decision, respectively, were taken in the Group’s favor, against which JNC has appealed or is highly likely to appeal.

The Group 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 in Korea, a decision in favor of JNC was issued in the second instance. Both the Group and the Korean Patent Office have filed complaints with the Korean High Civil Court.

In this context, the Group recognized provisions in a double-digit million euro amount. Cash outflow within the next 12 months is considered possible at present.

Antitrust and other proceedings

Antitrust review proceedings for the Sigma-Aldrich acquisition: On July 6, 2017, the Group received notice from the European Commission (EU Commission) in connection with the antitrust review proceedings for the acquisition of Sigma-Aldrich, in which the EU Commission informed the Group of its preliminary conclusion that the Group and Sigma-Aldrich allegedly transmitted incorrect and/or misleading information within the scope of the acquisition of Sigma-Aldrich. The EU Commission received registration of the merger on April 21, 2015, and granted clearance on June 15, 2015, subject to the condition that the Group 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 a letter dated July 6, 2017, the Group and Sigma-Aldrich withheld related important information about an innovation project. According to the EU Commission, the innovation project should have been included in the remedies package. At present, an administrative procedure is carried out at the EU Commission which might result in the issuance of a fine. The Group is entitled to legal recourse should a fine be imposed. 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. In this context, the Group recognized provisions in a mid double-digit million euro amount. An outflow of resources is expected in 2019.

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 authorities informed the Group 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. The Group, the then owner of Generics (UK) Ltd., was allegedly involved in the negotiations for the settlement agreement and is therefore liable. The investigations into Generics (UK) Ltd. started in 2011, without this being known to the Group. On February 11, 2016, the CMA imposed a fine in this matter. The Group has taken legal action against this fine. Appropriate accounting measures have been taken. As things stand at present, a decision and outflow of resources are not expected within the next 12 months because the Appeal Tribunal has since submitted the relevant legal questions to the European Court of Justice (CJEU) for a preliminary ruling.

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

significant management judgments and sources of estimation uncertainty – other provisions for legal disputes

The assessment of the recognition obligation and the measurement of provisions for legal disputes was subject to estimation uncertainty to a particular extent. The main factors used to assess the recognition obligation in relation to provisions for legal disputes were

  • the validity of the arguments put forward by the opposing party and
  • the legal situation and current legislation in comparable proceedings in the jurisdiction in question.

The main parameters when determining the amount of provisions were

  • the duration of proceedings in pending litigation,
  • the likelihood of possible outcomes of the proceedings,
  • the license rate to be applied (in patent disputes) and
  • the discount rate to be used.

To assess a recognition obligation in relation to provisions and to quantify pending outflows of resources, the Group drew on the knowledge of the legal department as well as outside counsel. In spite of this, both the assessment of the existence of a present obligation and the estimate of the probability of a future outflow of resources were highly subject to uncertainty.

Restructuring

Restructuring provisions mainly included commitments to employees in connection with restructuring projects and provisions for related onerous contracts.

The additions to restructuring provisions in the amount of € 30 million were mainly attributable to the relocation of shared service functions in Finance from Darmstadt to Wrocław, Poland, and Manila, the Philippines, and to the reorganization of the distribution structure in the Healthcare business sector in Southern Europe. Outflows of resources are expected within the next three years.

The utilization of restructuring provisions in the amount of € 22 million was mainly attributable to the ‟Fit for 2018” transformation and growth program, which was introduced in 2012. The provisions in this context mainly consist of commitments to employees from partial and early retirement arrangements. Further cash outflows within the scope of the ‟Fit for 2018” program are largely expected in 2019.

Besides the aforementioned programs, the restructuring provisions also comprise obligations from the Life Science business sector, which will make relocations and gradually close operations in the course of the years 2019 to 2022 at various German sites.

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 Share Units of Merck KGaA, Darmstadt, Germany, (MSUs) for the individual tranches:

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2016 tranche 2017 tranche 2018 tranche
Performance cycle Jan. 1, 2016 – Dec. 31, 2018 Jan. 1, 2017 – Dec. 31, 2019 Jan. 1, 2018 – Dec. 31, 2020
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) 87.92 95.63 91.73
DAX® value (60-day average of the DAX® prior to the start of the performance cycle) 10,669.76 10,822.06 13,089.39
 
Potential number of MSUs
Potential number offered for the first time in 2016 763,463
Forfeited 24,392
Dec. 31, 2016 739,071
Potential number offered for the first time in 2017 853,624
Forfeited 31,105 24,897
Dec. 31, 2017 707,966 828,727
Potential number offered for the first time in 2018 891,345
Forfeited 47,676 13,988 37,953
Transferred as part of the disposal of Consumer Health 16,336 39,889 23,760
Dec. 31, 2018 643,954 774,850 829,632

The value of the provisions was € 114 million as of December 31, 2018 (December 31, 2017: € 45 million). Net expenses of € 92 million were incurred in fiscal 2018 (2017: net income of € 13 million). The three-year tranche issued in 2015 ended at the end of 2017; an amount of € 23 million was paid out in 2018.

significant management judgments and sources of estimation uncertainty – share-based compensation programs

The measurement of long-term share-based compensation programs implies extensive estimation uncertainty. The two main parameters in the measurement of the long-term share-based compensation programs in the form of cash-settled share-based compensation programs are long-term indicators of company performance and price fluctuations of shares of Merck KGaA, Darmstadt, Germany, in relation to the DAX®.

The amount recognized in the consolidated balance sheet as of December 31, 2018, as non-current provisions, which comprises the 2017 and 2018 tranches from long-term variable compensation programs, amounted to € 54 million (December 31, 2017: 2016 and 2017 tranches € 22 million). The following overview shows the amounts by which the non-current provisions would have been impacted by changes in the DAX® (increase or decrease by 10%, respectively) and the closing price of shares of Merck KGaA, Darmstadt, Germany, as of December 31, 2018 (increase or decrease by 10%, respectively). The amounts stated would have led to a corresponding reduction or increase in profit before income tax.

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Increase (+)/decrease (–) of the provision
€ million Dec. 31, 2018 Dec. 31, 2017
Variation of share price of Merck KGaA, Darmstadt, Germany + 10% 14 15
– 10% – 15 – 2
Variation of DAX® value + 10% – 10
– 10% 8 16

Sensitivities were determined on the basis of the respective parameters in question, with all other measurement assumptions remaining unchanged. The 2016 tranche reported under current provisions will not be subject to any value fluctuations between December 31, 2018, and the payout date and was therefore not included in the sensitivity analysis (December 31, 2017: 2015 tranche).

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, which was recognized in 2017 and paid out in 2018.

Provisions for employee benefits also included obligations for partial retirement programs and other severance payments 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 (25) ‟Provisions for pensions and other post-employment benefits”.

Environmental protection

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

significant management judgments and sources of estimation uncertainty – other provisions for environmental protection

The calculation of the present value of the future settlement amount of provisions for environmental protection required estimates to be made of

  • the future settlement date,
  • the actual severity of the identified contamination,
  • the applicable remediation methods,
  • the associated future costs, and
  • the discount rate.

The measurement was carried out regularly in consultation with independent experts.

Acceptance and follow-on obligations

Provisions for acceptance and follow-on obligations primarily took into account costs stemming from discontinued development projects as well as obligation surpluses from onerous contracts. Utilizations and releases were mainly attributable to development projects discontinued in previous years.

Interest and penalties related to income taxes

Provisions for interest and penalties related to income taxes mainly comprised interest payables associated with or resulting from tax payables. In previous periods, such items were disclosed in income tax liabilities in full.

For further information on these disclosure changes, please refer to Note (49) ‟Effects from new accounting standards and other presentation and measurement changes”.

Miscellaneous other provisions

Miscellaneous other provisions mainly comprised provisions for warranty obligations and for uncertain commitments from contributions, fees and other duties.

(27) Contingent liabilities

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€ million Dec. 31, 2018 Dec. 31, 2017
Contingent liabilities from legal disputes and tax matters 47 66
Other contingent liabilities 1 1

Contingent liabilities from legal disputes included potential obligations, for which the probability of occurrence, or an outflow of resources, did not suffice to recognize a provision as of the balance sheet date. These mainly related to obligations under civil law, labor law and antitrust law. The potential civil law obligations primarily related to potential liabilities to pay damages due to a legal dispute under antitrust law. It was possible that the Group would be subject to claims for compensation for damages asserted by health insurance companies due to excessively high drug prices in case of a valid judgment under antitrust law.

In addition, there were contingent liabilities from 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, the Group has sued MSD in various countries and has been sued by MSD in the United States. An outflow of resources – except costs for legal defense – was not deemed sufficiently probable as of the balance sheet date to justify the recognition of a provision. Since the contingent liability from these legal disputes could not be reliably quantified as of the balance sheet date, this matter was not taken into account in the table presented above.

Contingent liabilities from tax matters included various non-German income and non-income-related tax matters that were mainly attributable to the determination of earnings under tax law, customs regulations and excise tax matters.

significant management judgements and sources of estimation uncertainty – contingent liabilities

Identification and measurement

The identification and measurement of contingent liabilities are largely subject to management judgments and estimation uncertainties. The most important parameters used in the measurement of contingent liabilities are the estimated amounts and probabilities of individual proceeding outcomes that are considered possible.

(28) Other liabilities

Other liabilities comprised the following:

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Dec. 31, 2018 Dec. 31, 2017
€ million Current Non-current Total Current Non-current Total
Other financial liabilities 1,019 13 1,032 1,038 21 1,059
thereof: payroll liabilies 172 172 174 174
thereof: interest accruals 94 94 95 95
Liabilities from derivatives with a hedging relationship (operative) 58 20 78 25 18 43
Financial items 1,077 33 1,110 1,063 39 1,102
 
Accruals for personnel expenses 687 687 665 665
Contract liabilities1 332 4 336
Liabilities from non-income related taxes 171 15 186 144 5 150
Deferred income1 21 21 303 211 514
Other non-financial liabilities 99 99
Non-financial items 1,211 19 1,230 1,112 315 1,427
 
Other liabilities 2,288 52 2,341 2,175 354 2,529
1
Due to the first-time application of IFRS 15 as of January 1, 2018, contract liabilities included in deferred income in 2017 were reported separately as of January 1, 2018; see (49) ‟Effects from new accounting standards and other presentation and measurement changes”.

As of December 31, 2018, other financial liabilities included liabilities to related companies amounting to € 511 million (December 31, 2017: € 584 million). These were profit entitlements of E. Merck KG, Darmstadt, Germany.

The following table provides details on the development of contract liabilities related to payments received before performance completion:

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Contract liabilities
€ million Current Non-current Total
January 1, 2018 311 194 506
Additions 410 2 412
Recognition of income/reversal – 582 – 2 – 583
Cumulative catch-up adjustments to revenue
Reclassification from non-current to current 193 – 193
Classification as held for sale or transfer to a disposal group
Currency translation 2 2
Change in scope of consolidation/other – 2 2
December 31, 2018 332 4 336

Contract liabilities resulted mainly from the collaboration agreement with Pfizer Inc., United States, in immuno-oncology and were released further as planned on a pro-rata basis through profit or loss in other operating income in 2018.

As of January 1, 2018, contract liabilities amounted to € 506 million, of which € 299 million was recognized in fiscal 2018.

(29) Trade accounts payable

Trade accounts payable amounted to € 1,766 million (December 31, 2017: € 2,195 million). This item included accrued amounts of € 622 million (December 31, 2017: € 653 million) from outstanding invoices.

Given the first-time application of IFRS 15 as of January 1, 2018, some items previously recognized in trade accounts payable were reclassified into the consolidated balance sheet, in particular in refund liabilities. This led to a decline in trade accounts payable of € 434 million as of January 1, 2018 (see Note (49) ‟Effects from new accounting standards and other presentation and measurement changes”).

(30) Refund liabilities

The following table shows the development of refund liabilities in the period under review:

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Rebates/bonus payments Rights of return
€ million Total thereof: United States Total thereof: United States Total
January 1, 2018 379 244 52 32 431
Additions 1,273 951 44 23 1,317
Utilizations/reversals – 1,193 – 902 – 43 – 22 – 1,235
Cumulative catch-up adjustments to revenue – 31 – 30 – 3 – 3 – 34
thereof: attributable to performance obligations satisfied in prior periods – 25 – 24 – 3 – 3 – 28
Currency translation 12 12 1 1 13
Classification as held for sale or transfer to disposal group – 16 – 3 – 19
Change in scope of consolidation/other – 1 – 1
December 31, 2018 423 274 49 31 472

Besides regulatory discounts, rebates and bonus payments comprised discounts agreed upon with customers. The most significant portion of these deductions from sales was attributable to the Healthcare business sector and related to government rebate programs in the US.

Please refer to Note (8) ‟Net sales” for further information on judgments and sources of estimation uncertainty.

(31) Net cash flows from investing activities

The payments for investments in intangible assets primarily included payments for the development of ERP systems. In the previous year, this item included payments for a license agreement with Vertex Pharmaceuticals Inc., United States, for the acquisition of research programs in the area of oncology and immuno-oncology.

Net cash outflows from investments in current and non-current financial assets amounting to € 75 million (2017: € 219 million) mainly resulted from the purchase of short-term investments in securities not classified as cash and cash equivalents. In the previous year, this item included payments for the purchase of an equity instrument option.

Cash inflows from the divestment of assets held for sale essentially included the payment received from the divestment of the Consumer Health business, less transferred cash and cash equivalents, in the amount of € 3,052 million. To the extent that income tax payments were already included in the disposal gain, such payments were taken into account in the disclosed amount. In the previous year, the Group received an upfront payment of € 156 million associated with the divestment of the Biosimilars business.