5 Notes to the Income Statement

5.1 REVENUES

In 2015, revenues consisted of license fees and milestone payments totaling € 85.4 million (2014: € 43.5 million). The Proprietary Development segment contributed revenue of € 59.2 million (2014: € 14.4 million), and the Partnered Discovery segment contributed revenue of € 26.2 million (2013: € 29.1 million).

Of the service fees totaling € 20.8 million (2014: € 20.5 million), € 0.7 million (2014: € 0.6 million) were attributable to the Proprietary Development segment and € 20.1 million (2014: € 19.9 million) to the Partnered Discovery segment.

5.2 OPERATING EXPENSES

5.2.1 RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses consist of the items below.

in 000’ € 2015 2014
Personnel Expenses 25,557 21,048
Consumable Supplies 2,971 2,327
Other Operating Expenses 3,352 2,863
Amortization and Other Costs
of Intangible Assets
7,177 8,050
External Services 34,411 17,549
Depreciation and Other Costs
for Infrastructure
5,188 4,126
Total 78,656 55,963
in million € 2015 2014 2013 2012 2011
R&D Expenses on behalf of Partners 22.1 19.5 17.5 16.0 19.1
Proprietary Development Expenses 54.1 33.6 27.5 18.1 33.9
Technology Development Expenses 2.5 2.9 4.2 3.6 2.9
R&D 78.7 56.0 49.2 37.7 55.9

5.2.2 GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses include the items below.

in 000’ € 2015 2014
Personnel Expenses 10,354 9,612
Consumable Supplies 77 77
Other Operating Expenses 913 835
Amortization of Intangible Assets 109 129
External Services 2,643 2,685
Depreciation and Other Costs
for Infrastructure
976 808
Total 15,072 14,146

5.2.3 PERSONNEL EXPENSES

Personnel expenses include the items below.

in 000’ € 2015 2014
Wages and Salaries 26,559 22,353
Social Security Contributions 4,271 3,689
Stock-based Compensation ­Expense 3,559 3,959
Temporary Staff (External) 610 200
Other 912 459
Total 35,911 30,660

In 2015 and 2014, other personnel expenses consisted mainly of recruitment costs.

The average number of employees in the 2015 financial year was 356 (2014: 315). Of the 365 employees on December 31, 2015 (December 31, 2014: 329), 305 were active in research and development (December 31, 2014: 274) and 60 were engaged in general and administrative functions (December 31, 2014: 55 employees). As of December 31, 2015, there were 132 employees in the Proprietary Development segment and 176 employees in the Partnered Discovery segment; 57 employees were not allocated to any specific segment (December 31, 2014: 105 in the Proprietary Development segment, 169 employees in the Partnered Discovery segment and 55 employees were unallocated). Costs for defined-contribution plans amounted to € 0.5 million in 2015 (2014: € 0.4 million).

5.3 OTHER INCOME AND EXPENSES, FINANCE INCOME AND FINANCE EXPENSES

The line items “other income and expenses” and “finance income and finance expenses” include the following items:

in 000’ € 2015 2014
Gain from Revaluation
of Participations
4,495 0
Grant Income 359 127
Gain on Exchange 306 422
Appreciation of Accounts Receivable Previously Deemed Impaired 0 202
Miscellaneous Income 338 31
Other Income 5,498 782
Loss on Exchange (460) (449)
Impairment of Other Receivables (214) 0
Miscellaneous Expenses (85) (101)
Other Expenses (759) (550)
Gain on Marketable Securities 94 761
Interest Income 1,907 1,004
Gain on Derivatives 1,826 45
Finance Income 3,827 1,810
Interest Expenses (20) (118)
Loss on Derivatives (287) (6)
Bank Fees (34) (63)
Loss on Marketable Securities (95) (33)
Finance Expenses (436) (220)
Total 8,130 1,822

5.4 INCOME TAX EXPENSES/INCOME

MorphoSys AG and its German subsidiary Sloning BioTechnology GmbH are subject to corporate taxes, the solidarity surcharge and trade taxes. The Company’s corporate tax rate of 15.0 %, the solidarity surcharge of 5.5 % and the effective trade tax rate of 10.5 % have all remained unchanged. In the 2016 financial year, the effective trade tax rate will increase to 10.85 %.

The Dutch entities Lanthio Pharma B.V. and LanthioPep B.V. are subject to an income tax rate of 25 % on annual income exceeding € 200,000; annual income below € 200,000 is subject to a tax rate of 20 %. Subject to certain conditions, a tax rate of 5 % may be applicable under what is known as the “Innovation Box”.

Income taxes for the past financial year consist of the items listed below.

in 000’ € 2015 2014
Current Tax Expense (Thereof ­Regarding Prior Years: k€ 3; 2014: 2014: k€ 6) (4,182) (283)
Deferred Tax Income/(Expenses) (1,543) 1,579
Total Income Tax Income/(Expense) (5,725) 1,296
Total Amount of Current Taxes ­Resulting from Entries Directly Recognized in Equity (1) 0
Total Amount of Current Taxes ­Resulting from Entries Directly ­Recognized in Other
Comprehensive Income
38 (15)
Total Amount of Deferred Taxes ­Resulting from Entries Directly ­Recognized in Other ­Comprehensive Income 35 17
Total Amount of Tax-Effects ­Resulting from Entries Directly ­Recognized in Equity or Other ­Comprehensive Income 72 2

The following table reconciles the expected income tax expense with the actual income tax expense as presented in the consolidated financial statements. The combined income tax rate of 26.33 % in the 2015 financial year (2014: 26.33 %) was applied to profit before taxes to calculate the statutory income tax expense. This rate consisted of a corporate income tax of 15.0 %, a solidarity surcharge of 5.5 % on the corporate tax and an average trade tax of 10.5 % applicable to the Group.

in 000’ € 2015 2014
Profit Before Income Taxes 20,626 (4,309)
Expected Tax Rate 26.33 % 26.33 %
Expected Income Tax (5,431) 1,134
Tax Effects Resulting from:
Deferred Tax Asset on Tax Loss Carryforwards 0 629
Stock-based Compensation (221) (424)
Non-Tax-Deductible Items (1,039) (179)
Differences in Profit and Loss ­Neutral Adjustments 1,689 107
Non-Recognition of Deferred Tax Assets on Current Year Tax Losses (684) 0
Tax Rate Differences to
Local Tax Rates
(28) 0
Effect of Tax Rate Changes (4) 0
Prior Year Taxes (3) (6)
Other Effects (4) 35
Actual Income Tax (5,725) 1,296

As of December 31, 2015, deferred tax assets on tax loss carryforwards of € 1.2 million were recognized as a result of the profit expected from Sloning BioTechnology GmbH for financial years 2016 to 2020 (December 31, 2014: € 1.8 million). The tax loss carryforwards may be carried forward indefinitely and in unlimited amounts. Since 2004, German tax law restricts the offsetting of taxable income against existing tax loss carryforwards up to an amount of € 1.0 million plus 60 % of taxable income exceeding € 1.0 million.

As of December 31, 2015, no deferred tax assets on tax loss carryforwards in the amount of € 8.6 million were recognized as a result of losses expected from the Lanthio Group in financial years 2016 to 2020.

As of December 31, 2014, deferred tax assets on tax loss carryforwards of € 1.2 million were recognized as a result of the profits expected from MorphoSys AG for financial years 2015 to 2019. The tax loss carryforwards were fully utilized in 2015.

Deferred tax assets and liabilities are composed as follows.

in 000’s €, as of December 31 Deferred Tax Asset 2015 Deferred Tax Asset 2014 Deferred Tax Liabillty 2015 Deferred Tax ­Liability 2014
Intangible Assets 0 0 8,685 1,829
Receivables and Other Assets 0 0 200 0
Prepaid Expenses and Deferred Charges 0 0 4 7
Short-term Securities Investments 90 54 54 37
Provisions 921 533 0 0
Tax Losses 1,222 3,023 0 0
Total 2,233 3,610 8,943 1,873
Changes in Deferred Taxes in 2015
in 000’s €, as of December 31
Recognized in
Profit and Loss
Income/(Expense)
Recognized in
Other Comprehensive Income
First-time Recognition of Deferred Taxes from Business Combination
Intangible Assets 197 0 (7,053)
Receivables and Other Assets (206) 0 6
Prepaid Expenses and Deferred Charges 3 0 0
Short-term Securities Investments 0 19 0
Provisions 263 0 125
Tax Losses (1,801) 0 0
Total (1,544) 19 (6,922)

As of December 31, 2015, temporary differences existed in connection with investments in subsidiaries (known as outside basis differences) of € 0.3 million for which no deferred tax liabilities were recognized.

5.5 EARNINGS (LOSS)/CONSOLIDATED NET PROFIT PER SHARE

Basic earnings (loss) per share is computed by dividing the 2015 consolidated net profit of € 14,900,768 (2014: consolidated net loss of € 3,012,629) by the weighted average number of ordinary shares outstanding during the respective year (2015: 26,019,855; 2014: 25,903,995).

The table below shows the calculation of the weighted average number of ordinary shares.

2015 2014
Shares Issued on January 1 26,456,834 26,220,882
Effect of Treasury Shares Held (450,890) (339,890)
Effect of Repurchase of
Treasury Stock
(63,054) (88,492)
Effect of Transfer of Treasury Stock to Management Board and Senior Management Group 60,894 0
Effect of Shares Issued in January 975 0
Effect of Shares Issued in February 2,650 0
Effect of Shares Issued in March 1,578 0
Effect of Shares Issued in April 0 58,746
Effect of Shares Issued in May 0 2,198
Effect of Shares Issued in June 3,875 37,063
Effect of Shares Issued in July 3,208 0
Effect of Shares Issued in August 1,021 2,122
Effect of Shares Issued in September 0 4,030
Effect of Shares Issued in October 0 1,781
Effect of Shares Issued in November 629 4,936
Effect of Shares Issued in December 2,135 619
Weighted-average Number of Shares of Common Stock 26,019,855 25,903,995

Diluted earnings (loss) per share is calculated by taking into account the potential increase in the Group’s ordinary shares as the result of granted convertible bonds.

The following table shows the reconciliation of basic earnings per share with diluted earnings per share (in €, except for disclosures per share).

2015 2014
Numerator
Consolidated Net Profit/(Loss) 14,900,768 (3,012,629)
Denominator
Weighted-average Shares
Used for Basic EPS
26,019,855 25,903,995
Dilutive Shares Arising from
Convertible Bonds
224,437 286,319
Total Denominator 26,244,292 26,190,314
Earnings per Share (in €)
Basic 0.57 (0.12)
Diluted 0.57 (0.12)
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