[32] 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 EUR 482.0 million. In 2010, additional provisions for litigation were set up and charged to other operating expenses. Provisions for litigation take into account legal risks in connection with our former U.S. generics subsidiary Dey Inc., USA, 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. In this context, claims in a number of states were settled during the reporting period as well as in recent years. Moreover a settlement agreement was reached with the U.S. Department of Justice against payment of EUR 214.5 million. Taking into acount the existing provisions, this settlement payment led to expenses of EUR 67.2 million in 2010. These expenses have been recorded under “Exceptional items”, as was the gain on the divestment of the Generics business. Merck is entitled to claim reimbursement from Mylan to the extent and in the amount that Mylan is able to claim the payment to the U.S. Department of Justice in its tax return. The exact amount cannot be definitively determined at this point in time. As of December 31, 2010 Merck wrote down this reimbursement claim by EUR 52.6 million.

In addition, 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 allegedly 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 development of Rebif® and other products. A Merck subsidiary is discussing settlements of a civil claim by the U.S. 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 EUR 29.8 million (2009: EUR 12.3 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 financial performance indicators “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 achievement is too low, no payments are made.

With respect to provisions for defined-benefit pensions and other post-employment benefits, see Note [33].

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

Other provisions consist additionally of provisions for uncertain commitments in the context of contributions, levies and fees.