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This excerpt taken from the SYT 20-F filed Mar 1, 2006. Impairment review Goodwill at December 31, 2005 was US$1,090 million of which US$741 million is allocated to Crop Protection and US$349 million to Seeds. Other intangible assets, mainly representing product rights, were US$1,642 million, of which US$1,533 million is allocated to Crop Protection, US$102 million to Seeds, and US$7 million to Plant Science. The recoverable amount for goodwill has been determined based on value in use, calculated using pre-tax discount rates of 8% to 10% (2004: 10%; 2003: 12.2%) and forecast cash flows. Product life cycles in the crop protection industry exceed five years. Five year management F-19 cash flow forecasts have been extrapolated to ten years including a terminal value where appropriate. Zero or declining growth rates have been used for the extrapolated period. Of the Crop Protection goodwill of US$741 million, US$609 million arose on acquisition of Zeneca agrochemicals business, and has been reviewed at the total Crop Protection level, because this is the lowest level at which Syngenta monitors this goodwill for internal management purposes. US$132 million of goodwill which arose on other acquisitions has been reviewed as part of various individual cash generating units. Of the Seeds goodwill, US$317 million arose on the acquisition of Garst and Golden Harvest, and has been reviewed as part of the Seeds NAFTA corn and soy cash generating unit. In the opinion of management, changes to assumptions about future sales performance which are reasonably possible, but not probable, would cause the recoverable amount of one cash generating unit to fall below that unit’s carrying amount by up to US$25 million. Recoverable amount as estimated for that unit as at September 30, 2005 using a 9% discount rate is approximately equal to its carrying amount of US$92 million. The effect of a 1% change in discount rate on the recoverable amount is US$4 million. The cash flow forecasts which support the US$317 million carrying amount of goodwill in the Seeds NAFTA corn and soy business assume that new seed products obtain registration and are successfully introduced to the market. The cash flows included represent Syngenta’s best estimate of the outcome of the product development and introduction. However, as with all investments, there can be no absolute guarantee of success. If there are significant delays in development and launch of new products, that Syngenta was not able to offset by alternative available products, a future impairment test of this goodwill may result in impairment losses being recorded. Because of the number of variables and the potential range of values for those variables, which are inputs for the cash flow forecasts, Syngenta is unable to quantify accurately the amount of any potential future impairment loss which might be recorded. |
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