[29] Provisions Audited

Provisions developed as follows:

Provisions for restructuring mainly include provisions for severance payments for employees in connection with restructuring projects, contractually agreed severance obligations and provisions for onerous contracts. The relevant provisions are recognized when detailed restructuring plans have been prepared and communicated.

As of the balance sheet date Merck recorded provisions for litigation amounting to € 519.2 million. In 2009, additional provisions for litigation were set up and charged to other operating expenses. Provisions consider litigation risks in connection with our former U.S. generics subsidiary Dey Inc. concerning allegedly false reporting of price information. Although Dey Inc. was divested within the scope of the sale of the Generics business to Mylan Inc., PA (USA) in 2007, Merck continues to be liable for costs incurring from the aforementioned legal disputes since the mentioned risk was not transferred to Mylan. Provisions exist in connection with a legal dispute with Italfarmaco S.p.A. (Italy) in which Italfarmaco S.p.a claims damages on account of an alleged wrongful termination of a license and supply agreement relating to the product Rebif® in Italy. As of the balance sheet date, provisions exist in connection with the legal dispute with the company Israel Bio-Engineering Project Limited Partnership (IBEP), in which IBEP claims intellectual property rights and license fees in connection with the funding and developing Rebif® and other products. A Merck subsidiary is discussing a settlement of a civil claim by the United States Department of Justice under the False Claims Act in relation to sales of Rebif®. A provision was established for the potential settlement of this litigation.

For various smaller pending legal disputes against companies of the Merck Group, provisions that are considered appropriate from today’s perspective have been set up.

Provisions for employee benefits include obligations from the Merck Long-Term Incentive Plan (LTIP) amounting to € 12.3 million (2008: € 5.9 million). Moreover, this item includes provisions for obligations for the partial early retirement program, other severance pay and anniversary bonuses. The LTIP offers eligible executives and employees of the Merck Group a long-term, profit-related compensation component. The program was resolved upon in 2008. The Executive Board is excluded. The amount paid depends on the achievement of the two ratios “Underlying Free Cash Flow on Revenues (FCR)“ and ”Return on Sales (ROS)“ at the end of a three-year period. The plan has caps on potential future payments in the event of a high level of target achievement. By contrast, if the level of target of achievement is too low, no payments are made. With respect to provisions for defined-benefit pensions and other post-employment benefits, please see Note [30].

Provisions for environmental protection exist in Germany and the United States.

As of December 31, 2009, other provisions included provisions of € 64.5 million for currency risks from transactions in Venezuela. These were added in the course of the year. Other provisions consist additionally of provisions for uncertain commitments in the context of contributions, levies and fees.