SNY » Topics » 2-a Goodwill

This excerpt taken from the SNY 20-F filed Apr 3, 2007.

2-a Goodwill

 

Finalization of preliminary purchase price allocation

 

Under U.S. GAAP and IFRS, the period that is allowed for finalizing the identification and measurement of the fair value of the assets acquired and the liabilities assumed in a business combination ends when the acquiring entity is no longer waiting for information that it has arranged to obtain and that is known to be available or obtainable. That allocation period should usually not exceed one year from the consummation of a business combination. Accordingly, the measurement and recognition of certain items that were recorded on a provisional basis at December 31, 2004 were subsequently adjusted to take into account the new information obtained in 2005 about facts and circumstances that existed as of the acquisition date and that, if known, would have affected the measurement or recognition of the amounts as of that date. Under U.S. GAAP, the December 31, 2004 financial statements were not modified to reflect these adjustments. Under IFRS, the December 31, 2004 financial statements were modified to reflect the effect of these adjustments from the date of acquisition, as disclosed in Note D.1.2.

 

Differences affecting the determination of goodwill between IFRS and U.S. GAAP at the end of the purchase price allocation period were as follows:

 

(€ million)

      

Goodwill as determined under IFRS

   29,490  
      

Measurement date for securities issued

   (1,226 )

Deferred tax liability on acquired in-process R&D capitalized under IFRS

   (1,862 )

Other

   (71 )
      

Goodwill as determined under U.S. GAAP

   26,331  
      

 

Measurement date of securities issued

 

Under IFRS, the determination of the purchase price is obtained by multiplying the number of shares issued by the sanofi-aventis stock price at the various closing dates which were equal to:

 

   

€55.55 on August 12, 2004 in respect of the Aventis ordinary shares purchased in the initial offering period ended July 30, 2004;

 

   

€57.30 in respect of the Aventis ordinary shares purchased in the subsequent offering period ended September 6, 2004; and

 

   

€58.80 in respect of the Aventis ordinary shares exchanged at the merger which was effected on December 23, 2004.

 

Under U.S. GAAP, this same element is obtained by multiplying the number of shares issued by the average sanofi-aventis stock price for the period beginning two days before and ending two days after April 25, 2004 (the measurement date under U.S. GAAP), the date when the revised terms of the transaction were agreed to and

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Year ended December 31, 2006

 

announced, in accordance with EITF 99-12, “Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Combination”, resulting in an amount of €53.81 per share.

 

Deferred tax liability on acquired in-process research and development

 

Under IFRS the acquired in-process research and development identified in the business combination was recognized in the balance sheet as an intangible asset together with the related deferred tax liability whereas, under U.S. GAAP, it was expensed at the date of acquisition on a gross basis in accordance with EITF 96-7 “Accounting for Deferred Taxes on In-Process Research and Development activities acquired in a Business Combination”. The corresponding deferred tax liability recorded under IFRS is offset against goodwill resulting in an increase of goodwill under IFRS.

 

Although this difference does not affect consolidated shareholders’ equity at inception, a reclassification adjustment is necessary under U.S. GAAP to reduce goodwill by the amount of the deferred tax liability recorded under IFRS in relation to acquired in-process research and development and to reduce deferred tax liabilities by a corresponding amount (€1,862 million). The impact on income tax expense of this difference when the acquired in-process R&D is amortized or impaired for IFRS purposes is reversed under U.S. GAAP and such reversal is reflected in the caption “Income taxes” (Note 2-c).

 

This excerpt taken from the SNY 20-F filed Mar 31, 2006.

2-a Goodwill

 

Differences affecting the determination of goodwill between IFRS and U.S. GAAP are as follows:

 

(in millions of euros)


      

Goodwill as determined under IFRS (final)

   29,490  
    

Measurement date for securities issued

   (1,226 )

Deferred tax liability on acquired in-process R&D capitalized under IFRS

   (1,862 )

Other

   (71 )
    

Goodwill as determined under U.S. GAAP (final)

   26,331  
    

 

Measurement date of securities issued

 

Under IFRS, the determination of the purchase price is obtained by multiplying the number of shares issued by the sanofi-aventis stock price at the various closing dates which were equal to:

 

    €55.55 on August 12, 2004 in respect of the Aventis ordinary shares purchased in the initial offering period ended July 30, 2004;

 

    €57.30 in respect of the Aventis ordinary shares purchased in the subsequent offering period ended September 6, 2004; and

 

    €58.80 in respect of the Aventis ordinary shares exchanged at the merger which was effected on December 23, 2004.

 

Under U.S. GAAP, this same element is obtained by multiplying the number of shares issued by the average sanofi-aventis stock price for the period beginning two days before and ending two days after April 25, 2004 (the

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Year ended December 31, 2005

 

measurement date under U.S. GAAP), the date when the revised terms of the transaction were agreed to and announced, in accordance with EITF 99-12, “Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Combination”, resulting in an amount of €53.81 per share.

 

Deferred tax liability on acquired in-process research and development

 

Under IFRS the acquired in-process research and development identified in the business combination has been recognized in the balance sheet as an intangible asset together with the related deferred tax liability whereas, under U.S. GAAP, it was expensed at the date of acquisition on a gross basis in accordance with EITF 96-7 “Accounting for Deferred Taxes on In-Process Research and Development activities acquired in a Business Combination”. The corresponding deferred tax liability recorded under IFRS is offset against goodwill resulting in an increase of goodwill under IFRS.

 

Although this difference does not affect consolidated shareholders’ equity at inception, a reclassification adjustment is necessary under U.S. GAAP to reduce goodwill by the amount of the deferred tax liability recorded under IFRS in relation to acquired in-process research and development and to reduce deferred tax liabilities by a corresponding amount (€1,862 million). The impact on income tax expense of this difference when the acquired IPR&D is amortized for IFRS purposes is reversed under U.S. GAAP and such reversal is reflected in the caption “Income taxes” (note 2c).

 

Finalization of preliminary purchase price allocation

 

Under U.S. GAAP and IFRS, the period that is allowed for finalizing the identification and measurement of the fair value of the assets acquired and the liabilities assumed in a business combination ends when the acquiring entity is no longer waiting for information that it has arranged to obtain and that is known to be available or obtainable. That allocation period should usually not exceed one year from the consummation of a business combination. Accordingly, the measurement and recognition of certain items that were recorded on a provisional basis at December 31, 2004 have been subsequently adjusted to take into account the new information obtained in 2005 about facts and circumstances that existed as of the acquisition date and that, if known, would have affected the measurement or recognition of the amounts as of that date. Under U.S. GAAP, the prior period financial statements are not modified to reflect these adjustments. Under IFRS, the prior period financial statements are modified to reflect the effect of these adjustments from the date of acquisition, as disclosed in note D.1.1.

 

This excerpt taken from the SNY 20-F filed Apr 11, 2005.

3.11.2. Goodwill

 

As a result of the purchase accounting method, the difference between the cost of an acquisition and the Group’s interest in the fair value of the identifiable assets acquired and liabilities assumed is recognized as goodwill at the date of the business combination. Goodwill on the acquisition of a subsidiary is specifically identified in intangible assets whereas goodwill on acquisition of associates is recorded within Investments in associates.

 

Goodwill is carried at cost less any accumulated impairment.

 

The increase in goodwill on Aventis under IFRS is mainly explained by the following:

 

    a deferred tax liability on in-process research and development was taken into account when calculating the goodwill under IFRS, unlike under French GAAP, under which deferred tax is excluded;

 

    under IFRS, the fair value of stock option plans granted by Aventis and vested as of August 20, 2004 is treated as part of the cost of the business combination, which is not the case under French GAAP.

 

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