Roche Group I Notes to the Roche Group Consolidated Financial Statements
`
`The Group's effective tax rate can be reconciled to the Group's average expected tax rate as follows:
`
`Reconciliation of the Group's effective tax rate
`
`Average expected tax rate
`
`Tax effect of
`- Non-taxable income/non-deductible expenses
`- Equity compensation plans
`- Research and development tax credits and manufacturing deductions
`- US state tax impacts
`- Tax on unremitted earnings
`- Utilisation of previously unrecognised tax losses
`- Deferred tax on intra-group transfers
`- Transitional effect of changes in US tax rates
`- Prior year and other differences
`Group's effective ta.x rate
`
`2017
`21,5%
`
`+4,8%
`+0.2%
`- 2.9%
`+0.5%
`+1.7%
`-
`-
`+0.9%
`+ 1,2%
`27.9%
`
`20 16
`
`24.7%
`
`+1 .3%
`+0.8%
`- 2.6%
`+0.7%
`+1 .7%
`-0.3%
`- 2.3%
`
`+1 . 2%
`25.2%
`
`The income tax benefit recorded in respect of equity compensation plans, which varies according to the price of the underlying equity,
`was CHF 87 million (2016: CHF 3 million). Had the income tax benefits been recorded solely on the basis of the IFRS 2 expense multiplied
`by the applicable tax rate, then a benefit of approximately CHF 118 million (2016: CHF 111 million) would have been recorded.
`
`Tax effects of other comprehensive income in millions of CHF
`
`Remeasurements of defined benefit plans
`Available-for-sale investments
`Cash flow hedges
`Currency translation of foreign operations
`Other comprehensive Income
`
`Income tax assets (liabilities) in millions of CHF
`
`Current income taxes
`- Assets
`- Liabilities
`Net current income tax assets (liabilities)
`
`Deferred taxes
`- Assets
`- Liabilities
`Net deferred tax assets (liabilities)
`
`Pre-tax
`amount
`732
`(37)
`(31)
`362
`1,026
`
`2017
`After-tax
`amount
`404
`(22)
`(11)
`362
`733
`
`Tax
`(328)
`15
`20
`-
`(293)
`
`Pre-tax
`amount
`192
`13
`81
`496
`782
`
`20 16
`After-tax
`amount
`174
`20
`55
`496
`745
`
`Tax
`(18)
`7
`(26)
`-
`(37)
`
`2017
`
`2016
`
`20 15
`
`348
`(3,408)
`(3,060)
`
`3,576
`(495)
`3,081
`
`335
`(2,713)
`(2,378)
`
`2,826
`(838)
`1,988
`
`239
`(2,781)
`(2,542)
`
`2,564
`(545)
`2,019
`
`Current income tax liabilities include accruals for uncertain tax positions.
`
`https:~c~~<i:bI~n'e~WtSmi~S:b70415c0-954f-4a2a-a0e2-47f94bd280e0/en/fb17e.pdf
`
`Novartis Exhibit 2276.0056
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Notes to the Roche Group Consolidated Financial Statements I Roche Group
`
`2016
`(2,542)
`3,738
`-
`(3,576)
`69
`(67)
`(2,378)
`
`Total
`
`2,019
`302
`(37)
`
`(322)
`26
`1,988
`
`1,988
`(28)
`1.423
`(293)
`
`(128)
`11 9
`3,081
`
`Current income taxes: movements in recognised net assets (liabilit ies) in millions of CHF
`
`Net current income tax asset (liability) at 1 January
`Income taxes paid
`Business combinations
`(Charged) credited to the income statement
`(Charged) credited to equity from equity compensation plans and other transactions with shareholders
`Currency translation effects and other movements
`Net current income tax asset (liability) at 31 December
`
`2017
`(2,378)
`3,909
`-
`(4,846)
`152
`103
`(3,080)
`
`Deferred taxes: movements in recognised net assets (l iabilities) in millions of CHF
`
`Property,
`plant and
`equipment
`
`Intangible
`assets
`
`Defined
`benefit
`plans
`
`Other
`temporary
`differences
`
`1,622
`(50)
`(18)
`
`-
`16
`1,570
`
`1,570
`-
`(98)
`(328)
`
`-
`37
`1,181
`
`4,682
`(531)
`(19)
`
`(322)
`11 8
`3,928
`
`3,928
`
`(489)
`35
`
`( 128)
`(43)
`3,303
`
`(754)
`(88)
`
`(3,531)
`971
`
`- -
`
`- -
`
`(20)
`(862)
`
`(88)
`(2,648)
`
`(2,648)
`(28)
`1,812
`
`- -
`
`119
`(745)
`
`(862)
`
`-
`
`198
`
`- - 6
`
`
`(658)
`
`Year ended 3 1 December 2016
`At 1 January 2016
`(Charged) credited to the income statement
`(Charged) credited to other comprehensive income 21
`(Charged) credited to equity from equity compensation plans
`and other transactions with shareholders
`Currency translation effects and other movements
`At 31 December 2016
`
`Year e nded 31 December 2017
`At 1 January 2017
`Business combinations $
`(Charged) credited to the income statement
`(Charged) credited to other comprehensive income 21
`(Charged) credited to equity from equity compensation plans and
`other transactions with shareholders
`Currency translation effects and other movements
`At 31 December 2017
`
`The deferred tax net assets for other temporary differences mainly relate to accrued and other liabilities, provisions and unrealised profit
`in inventory.
`
`Deferred tax assets are recognised for tax losses carried forward only to the extent that realisation of the related tax benefit is probable.
`The Group has unrecognised tax losses. including valuation allowances, as follows:
`
`Unrecognised tax losses: expiry
`
`Within one year
`Between one and five years
`More than five years
`Total unrecognised tax losses
`
`Amount
`(CHF m)
`-
`2,358
`9,103
`11,461
`
`20 17
`Applicable
`tax rate
`-
`12%
`5%
`
`~
`
`Amount
`(CHF m)
`186
`2,095
`8,021
`10,302
`
`2016
`Applicable
`tax rate
`12%
`12%
`4%
`6%
`
`The 'More than five years' category includes losses that cannot be used for US state income tax purposes in those states which only
`permit tax reporting on a separate entity basis.
`
`Deferred tax liabilities have not been established for the withholding tax and other taxes that would be payable on the remittance
`of earnings of foreign subsidiaries, where such amounts are currently regarded as permanently reinvested for the purpose of these
`financial statements. The total unremitted earnings of the Group. regarded as permanently reinvested for the purpose of these financial
`statements, were CHF 29.1 billion at 31 December 2017 (2016: CHF 29.9 billion).
`
`https://www.roche.com/dam/jcr:b70415c0-954f-4a2a-a0e2-47f94bd280e0/en/fb17e.pdf
`
`Roche Finance Report 20 17 I 55
`
`Novartis Exhibit 2276.0057
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Roche Group I Notes to the Roche Group Consolidated Financial Statements
`
`5. Business combinations
`
`Acquisitions - 2017
`
`mySugr GmbH. On 29 June 2017 the Group acquired a 100% controlling interest in mySugr GmbH ('mySugr'), a private company based
`in Vienna, Austria. mySugr has developed one of the leading mobile diabetes platforms in the market and will become part of the Group's
`new digital health services in diabetes care. The acquisition of mySugr expands the Group's leading position in the area of diabetes
`management. mySugr is reported in the Diagnostics operating segment as part of the Diabetes Care business, The total cash
`consideration was EUR 64 million.
`
`Viewics, Inc. On 27 November 2017 the Group acquired a 100% controlling interest in Viewics, Inc. ('Viewics'), a US privately owned
`company based in San Jose, California. Viewics is a software company focused on a laboratory business analytics solution. The acquisition
`of Viewics expands the Group's leading position in the integrated core lab with business analytics capabilities, enabling laboratories to
`make faster data-driven informed decisions on their operations and processes. Viewics is reported in the Diagnostics operating segment.
`The total consideration was USO 8 1 million, of which USO 62 million was paid in cash, USO 9 million was deferred consideration which
`will be paid over the period from the date of control to 2021 and USO 1 o million arose from a contingent consideration arrangement.
`The contingent payments are based on the achievement of performance-related milestones and the range of undiscounted outcomes
`is between zero and USO 10 million.
`
`The identifiable assets acquired and liabilities assumed are set out in the table below. The amounts for mySugr and Viewics are
`provisional based on preliminary information and valuations of the assets and liabilities and subject to adjustment during 20 18.
`
`Acquisitions - 2017: net assets acquired In millions of CHF
`
`mySugr
`
`Viewics
`
`Total
`
`Intangible assets
`- Product intangibles: in use
`- Product intangibles: not available for use
`- Marketing intangibles: in use
`Cash and cash equivalents
`Deferred tax liabilities
`Other net assets (liabilities)
`Net identifiable assets
`Fair value of previously held interest
`Goodwill
`Total consideration
`
`Cash
`Deferred consideration••
`Contingen t consideration"
`Total consideration
`
`20
`-
`29
`1
`(12)
`(2)
`38
`( 11)
`45
`70
`
`70
`
`-
`-
`
`70
`
`40
`-
`-
`
`4
`(16)
`1
`29
`(8)
`59
`80
`
`62
`8
`10
`80
`
`60
`-
`29
`5
`(28)
`(1)
`85
`( 19)
`104
`150
`
`132
`8
`10
`150
`
`The fair value of the product intangible asset for mySugr is determined using a replacement cost method. The fair value of the other
`intangible assets is determined using an excess earning method that is based on management forecasts and observable market data
`for discount rates, tax rates and foreign exchange rates. The present value is calculated using a risk-adjusted discount rate of 13.0%
`for mySugr and 9.5% for Viewics. The valuations were performed by independent valuers.
`
`The Viewics accounts receivable is comprised of gross contractual amounts due of CHF 2 million which were all expected to be
`collectable at the date of the acquisition.
`
`Goodwill represents a control premium, the acquired work force and the synergies that can be expected from integrating the acquired
`companies into the Group's existing business. None of the goodwill is expected to be deductible for income tax purposes.
`
`https:~c~~W.Ean'e~WtSmi~s: b 70415c0-954f-4a2a-a0e2-4 7f94bd280e0/en/fb 17 e. pdf
`
`Novartis Exhibit 2276.0058
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Notes to the Roche Group Consolidated Financial Statements I Roche Group
`
`The Group recognised a financial gain of CHF 7 million and CHF 2 million respectively for fair valuing the 12% interest in mySugr and
`the 10% interest in Viewics held by the Group prior to the transaction. This gain is included in other financial income (expense) for 20 17.
`
`Directly attributable transaction costs of CHF 2 million were reported in the Diagnostics operating segment within general and
`administration expenses.
`
`The impact of the mySugr and Viewics acquisitions on the 2017 results for the Diagnostics Division and the Group were not material.
`
`Future acquisitions
`
`lgnyta, Inc. On 22 December 2017 the Group announced that it had entered into a merger agreement with lgnyta, Inc. ('lgnyta') to fully
`acquire lgnyta at a price of USO 27.00 per share in an all-cash transaction. This corresponds to a total transaction value of USD 1.7 billion
`on a fully diluted basis. lgnyta is a publicly owned US company based in San Diego, California, and is listed on Nasdaq under the stock
`code 'RXDX'. The closing of the transaction is expected to take place in the first half of 2018 and will be subject to a majority of lgnyta's
`outstanding shares being tendered to the Group, to the expiration or termination of the waiting period under the Hart-Scott-Rodino
`Antitrust Improvements Act of 1976 and other customary conditions. Upon closing, lgnyta will be reported in the Pharmaceuticals Division.
`
`Acquisitions - 2016
`
`The Group did not complete any business combinations in 20 16.
`
`Cash flows from business combinations
`
`Acquisitions: net cash outfl ow in millions of CHF
`
`Cash consideration paid
`Deferred consideration paid
`Contingent consideration paid "
`Cash in acquired company
`Transaction costs
`Total net cash outflow
`
`Pharmaceuticals
`
`(5)
`
`(5)
`
`Diagnostics
`(132)
`(5)
`(14 1)
`5
`(2)
`(275)
`
`201 7
`Total
`( 132)
`(5)
`( 146)
`5
`(2)
`(280)
`
`Pharmaceuticals
`
`-
`-
`-
`-
`-
`
`-
`
`Diagnostics
`
`(5)
`(69)
`
`20 16
`Total
`
`(5)
`(69)
`
`(74)
`
`(74)
`
`https://www.roche.com/dam/jcr:b7041 5c0-954f-4a2a-a0e2-47f94bd280e0/en/fb17e.pdf
`
`Roche Finance Report 2017 I 57
`
`Novartis Exhibit 2276.0059
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Roche Group I Notes to the Roche Group Consolidated Financial Statements
`
`6. Global restructuring plans
`
`During 2017 the Group initiated various resourcing flexibility plans in its Pharmaceuticals Division to address various future challenges
`including biosimilar competition. The areas of the plans include biologics manufacturing. commercial operations and product development/
`strategy. The Group also continued with the implementation of several major global restructuring plans initiated in prior years, notably
`the strategic realignment of the Pharmaceuticals Division's manufacturing network, and programmes to address long-term strategy in
`the Diagnostics Division.
`
`Gl obal restructuring pl ans: costs incurred in millions of CHF
`
`Oiagnosticsl>
`
`Site consolidationz>
`
`Other plans•>
`
`Total
`
`Year ended 31 December 2017
`Global restructuring costs
`- Employee-related costs
`- Site closure costs
`- Divestment of products and businesses
`- Other reorganisation expenses
`Total global restructuring costs
`
`Additional costs
`-
`Impairment of goodwill
`-
`Impairment of intangible assets
`- Legal and environmental cases
`
`Total costs
`
`Year ended 3 1 December 2016
`Global restructuring costs
`- Employee- related costs
`- Site closure costs
`- Other reorganisation expenses
`Total global restructuring costs
`
`Additional costs
`-
`Impairment of goodwill
`-
`Impairment of intangible assets
`- Legal and environmental cases
`
`Total costs
`
`152
`48
`-
`92
`292
`
`-
`-
`-
`
`292
`
`90
`33
`189
`312
`
`-
`-
`-
`
`312
`
`13
`245
`166
`160
`584
`
`-
`-
`46
`
`630
`
`86
`367
`271
`724
`
`-
`-
`24
`
`748
`
`258
`2
`-
`72
`332
`
`-
`-
`-
`
`423
`295
`166
`324
`1,208
`
`-
`-
`46
`
`332
`
`1,254
`
`127
`3
`67
`197
`
`-
`-
`-
`
`303
`403
`527
`1,233
`
`-
`-
`24
`
`197
`
`1,257
`
`Includes sttategy plans in the Diagnostics Division and the Diabetes Care 'Autonomy and Speed' plan.
`1)
`2) Includes the Pharmaceuticals Division's strategic realignment of its manufacturing network and resourcing flexibility in biologics manufacturing network.
`3) Includes plans for resourcing flexibility in the Pharmaceuticals Division's commercial operations and global product development/strategy organisations and the Pharmaceuticals
`Division's research and development strategic realignment and outsourcing of IT and other functions.
`
`Diagnostics Division
`
`In 2017 strategy plans in the Diagnostics Division that were launched in 2016 incurred costs of CHF 212 million mainly for employee(cid:173)
`related costs (2016: CHF 106 million related to site closures and employees). Spending on other smaller plans within the division was
`CHF 80 million (2016: CHF 206 million) and included costs related to the 'Autonomy and Speed' initiative in Diabetes Care and certain
`IT projects.
`
`https:~c~~~Ean'e~WtSmi~s: b 70415c0-954f-4a2a-a0e2-4 7f94bd280e0/en/fb 17 e. pdf
`
`Novartis Exhibit 2276.0060
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Notes to the Roche Group Consolidated Financial Statements I Roche Group
`
`Site consolidation
`
`On 12 November 2015 the Pharmaceuticals Division announced a strategic realignment of its manufacturing network including exiting
`from the manufacturing sites at Clarecastle, Ireland; Leganes, Spain; Segrate, Italy; and Florence. US. Costs from this plan in 2017 were
`CHF 480 million (2016: CHF 733 million). of which CHF 185 million were non-cash impairments and accelerated depreciation of property.
`plant and equipment (2016: CHF 337 million). Some employee-related provisions were reversed as the most likely scenario for the Segrate
`site was changed from closure to divestment. The divestment of the Florence, Segrate and Leganes sites have been completed in 2017
`and result in total costs of CHF 201 million. This includes CHF 100 million of accumulated currency translation losses on consolidation
`that were transferred to the income statement (see Note 22), The expected costs of the environmental remediation at the Clarecastle
`site were reassessed and resulted in an increase in provisions for environmental remediation (see Note 19). Other plans include the
`resourcing flexibility in biologics manufacturing network which resulted in headcount reductions in the US and also at the Kaiseraugst
`site in Switzerland and the exit from the small molecules manufacturing site at Toluca, Mexico.
`
`The divestment of the Nutley site in the US was completed in the second half of 2016 and resulted in an increase in provisions for
`environmental remediation.
`
`Other global restruc turing plans
`
`In 2017 total costs were CHF 332 million. with the major item being CHF 247 million for resourcing flexibility in the Pharmaceuticals
`Division, including global field force reductions. notably in the US and Europe. The remaining CHF 85 million includes plans for
`the outsourcing of IT and other functions to shared service centres and external providers.
`
`In 2016 total costs were CHF 197 million, with the major items being CHF 74 million from the Pharmaceuticals Division research and
`development strategic realignment and CHF 90 million in informatics mainly for the outsourcing of IT functions to shared service centres
`and external providers. The remaining minor plans totalled CHF 33 million.
`
`Global restructuring pl ans: summary of costs incurred inmillionsofCHF
`
`Employee-related costs
`- Termination costs
`- Defined benefit plans
`- Other employee-related costs
`Total employee- related costs
`
`Site closure costs
`Impairment of property, plant and equipment
`-
`- Accelerated depreciation of property. plant an d equipment
`-
`(Gains) losses on disposal of property, plant and equipment
`- Other site closure costs
`Total s ite closure costs
`
`Divestment of products and businesses
`-
`(Gains) losses on divestment of subsidiaries 22
`- Other (gains) losses on divestment of products and businesses
`Total costs on divestment of produc ts and businesses
`
`Other reorganisation expenses
`Total glo bal restructuring costs
`
`Additional costs
`-
`Impairment of goodwill
`-
`Impairment of intangible assets
`- Legal and environmental cases
`
`Total costs
`
`2017
`
`378
`(7)
`52
`423
`
`192
`48
`-
`55
`295
`
`126
`40
`166
`
`324
`1,208
`
`-
`-
`46
`
`2016
`
`23 1
`11
`61
`303
`
`258
`128
`(54)
`71
`403
`
`-
`-
`
`-
`
`527
`1,233
`
`-
`-
`24
`
`1,254
`
`1,257
`
`https://www.roche.com/dam/jcr:b70415c0-954f-4a2a-a0e2-47f94bd280e0/en/fb17e.pdf
`
`Roche Finance Report 2017 I 59
`
`Novartis Exhibit 2276.0061
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Roche Group I Notes to the Roche Group Consolidated Financial Statements
`
`Global restructuring pl ans: cl assification of costs in millions of CHF
`
`Dther
`costs
`
`174
`75
`
`233
`91
`
`21
`66
`
`291
`24
`39
`1,01 4
`
`719
`-
`256
`39
`1,01 4
`
`20 17
`
`Total
`
`377
`107
`
`234
`92
`
`21
`66
`
`291
`27
`39
`1,254
`
`923
`-
`292
`39
`1,254
`
`Depreciation.
`amortisation
`and impairment
`
`35 1
`27
`
`2
`
`-
`
`2
`3
`
`1
`-
`-
`
`386
`
`356
`-
`30
`-
`386
`
`Other
`costs
`
`386
`73
`
`24
`102
`
`88
`40
`
`81
`66
`11
`871
`
`579
`-
`28 1
`11
`871
`
`20 16
`
`Total
`
`737
`100
`
`26
`102
`
`90
`43
`
`82
`66
`11
`1,257
`
`935
`-
`3 11
`11
`1,2 57
`
`Depreciation,
`amortisation
`and impairment
`
`203
`32
`
`1
`1
`
`-- -3
`
`
`
`-
`
`240
`
`204
`-
`36
`-
`240
`
`Cost of sales
`- Pharmaceuticals
`- Diagnostics
`Marketing and distribution
`- Pharmaceuticals
`- Diagnostics
`Research and development
`- Pharmaceuticals
`- Diagnostics
`General and administration
`- Pharmaceuticals
`- Diagnostics
`- Corporate
`Total
`
`Total by operating segment
`- Roche Pharmaceuticals
`- Chugai
`- Diagnostics
`- Corporate
`Total
`
`https: •c~~W.Ean'e~WtS~b~S: b 7041 5c0-954f-4a2a-a0e2-4 7f94bd280e0/en/fb 17 e. pdf
`
`Novartis Exhibit 2276.0062
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Notes to the Roche Group Consolidated Financial Statements I Roche Group
`
`7. Property, plant and equipment
`
`Property, pl ant and equipment: movements in carrying val ue of assets in millions of CHF
`
`Buildings
`and land
`improvements
`
`Land
`
`Machinery
`and equipment
`
`Construction
`in progress
`
`14,064
`(5,877)
`8,187
`
`8,187
`-
`242
`(4 1)
`740
`(593)
`( 107)
`( 1)
`133
`8,560
`
`14,772
`(6,2 12)
`8,560
`
`8,560
`-
`272
`(26)
`-
`1,322
`(645)
`(46)
`-
`(28)
`9,409
`
`18,300
`( 11 ,806)
`6,494
`
`6.494
`-
`1,103
`(70)
`900
`(1,565)
`(1 65)
`(1 O)
`90
`&,n1
`
`19,723
`( 12,946)
`&,n1
`
`6,77 7
`-
`, . 135
`(73)
`-
`975
`( 1,551)
`( 178)
`(57)
`65
`7,093
`
`15,602
`(6. 193)
`9,409
`
`19,982
`( 12,889)
`7,093
`
`933
`
`-
`
`933
`
`933
`-
`22
`( 8)
`8
`-
`(3)
`-
`26
`978
`
`981
`(3)
`978
`
`978
`-
`-
`
`(3)
`(3)
`24
`
`-
`(1)
`-
`( 15)
`980
`
`980
`
`-
`
`980
`
`At 1 January 2016
`Cost
`Accumulated depreciation and impairment
`Net book value
`
`Year ended 31 December 2016
`At 1 January 2016
`Business combinations
`A ddit ions
`Disposals
`Transfers
`Depreciation charge
`Impairment charge
`Other
`Currency translation effects
`At 31 December 2016
`
`Cost
`Accumulated depreciation and impairment
`Net book value
`
`Year ended 31 December 2017
`At 1 January 2017
`Business combinations
`A dditions
`Disposals
`Divestment of subsidiaries 22
`Transfers
`Depreciation charge
`Impairment charge
`Other
`Currency translation effects
`At 3 1 Decembe r 2017
`
`Cost
`Accumulated depreciation and impairment
`Net book value
`
`Classification of impairment of property, pl ant and equipment in millions of CHF
`
`Cost of sales
`Marketing and distribution
`Research and development
`General and administration
`Total impairment charge
`
`Total
`
`36, 194
`(17,721)
`18,473
`
`2,897
`(38)
`2,859
`
`2,859
`
`18.473
`
`2,423
`(1)
`(1,648)
`
`( 16)
`(2)
`27
`3,642
`
`3,671
`(29)
`3,642
`
`3,790
`(120)
`
`(2,1 58)
`(291)
`(13)
`276
`19,957
`
`39, 147
`(19,1 90)
`19,957
`
`3,642
`
`19,957
`
`2,070
`(4)
`
`(2,32 1)
`
`(8)
`
`51
`3,430
`
`3,445
`( 15)
`3,430
`
`2017
`(2 1 O)
`( 1)
`( 1)
`(21)
`(233)
`
`3.477
`(106)
`(3)
`
`(2. 196)
`(233)
`(57)
`73
`20,912
`
`40,009
`(19,097)
`20,912
`
`2016
`(280)
`-
`(11)
`-
`
`(291)
`
`Impairment charges for property. plant and equipment were mainly related to global restructuring plans (see Note 6).
`
`In 2017 no reimbursements were received from insurance companies in respect of impairments to property, plant and equipment
`(2016: none). In 2017 no borrowing costs were capitalised as property, plant and equipment (2016: none).
`
`https://www.roche.com/dam/jcr:b7041 5c0-954f-4a2a-a0e2-47f94bd280e0/en/fb17e.pdf
`
`Roche Finance Report 20 17 I 6 1
`
`Novartis Exhibit 2276.0063
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Roche Group I Notes to the Roche Group Consolidated Financial Statements
`
`Divestment of Nutley site In 2016
`
`On 29 September 2016, the Group completed the divestment of the Nutley site. The total net consideration received in cash was
`CHF 96 million.
`
`Genentech property purchase option exercise in 2015
`
`In 2004 Genentech entered into a Master Lease Agreement ('MLA') with Slough SSF LLC ('Slough'), which was subsequently acquired
`by Health Care Properties. for the lease of property adjacent to Genentech's South San Francisco site, which was to be developed by
`Slough. The development included a total of eight buildings and construction was completed during 2008, at which time Genentech fully
`occupied the property. The property lease was until 2020 with extension options to 2030. On 1 November 2015 Genentech exercised
`a purchase option contained in the MLA to acquire the eight buildings and land. At 31 December 2015 the Group recorded an addition
`to 'land' and 'buildings and land improvements· and corresponding liabilities for the cash outflows in 2016 and 2018. The Group also
`reclassified the finance lease accounting balances that previously applied to these buildings. In November 2016 the first closing payment
`of USO 31 1 million was made. The final closing payment of USO 269 million is due in July 2018 and is recorded as a current liability
`(see Note 18).
`
`leasing arrangements where the Group is the lessee
`
`Finance leases. At 31 December 2017 the capitalised cost of property, plant and equipment under finance leases was CHF 11 million
`(2016: CHF 18 million) and the net book value of these assets was CHF 5 million (2016: CHF 8 million). The carrying value of the leasing
`obligation was CHF 5 million (2016: CHF 5 million). which is reported as part of Debt (see Note 20).
`
`Finance leases: future minimum l ease payments under non- cancellabl e l eases in millions of CHF
`
`With in one year
`Between one and five years
`More than five years
`Total
`Future finance charges
`Total future minimum lease payments (undlscounted)
`
`Future minimum lease
`payments
`2016
`
`20 17
`
`Present value of minimum lease
`payments
`20 16
`
`201 7
`
`1
`4
`
`-
`5
`-
`5
`
`1
`4
`-
`5
`-
`5
`
`1
`4
`
`-
`5
`-
`5
`
`1
`4
`
`-
`5
`-
`5
`
`Operating l eases. Group companies are party to a number of operating leases, mainly for property rentals and motor vehicles.
`The arrangements do not impose any significant restrictions on the Group. Total operating lease rental expense was CHF 461 million
`(2016: CHF 458 million).
`
`Operating leases: futu re minimum lease payments under non-cancellable leases in millions of CHF
`
`Within one year
`Between one and five years
`More than five years
`Total minimum payments
`
`2017
`
`366
`752
`228
`1,346
`
`20 16
`3 11
`664
`188
`1,163
`
`leasing arrangements where the Group is the lessor
`
`Finance leases. Certain assets, mainly Diagnostics instruments, are leased to third parties through finance lease arrangements. Such
`assets are reported as receivables at an amount equal to the net investment in the lease. Lease income from finance leases is recognised
`over the term of the lease based on the effective interest rate method.
`
`https:-c~~W.Ean'e~WtS~b~S: b 70415c0-954f-4a2a-a0e2-4 7f94bd280e0/en/fb 17 e. pdf
`
`Novartis Exhibit 2276.0064
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Notes to the Roche Group Consolidated Financial Statements I Roche Group
`
`Finance leases: future minimum lease receipts under non-cancellable leases in millionsofCHF
`
`Within one year
`Between one and five years
`More than five years
`Total
`Unearned finance income
`Unguaranteed residual value
`Net Investment In lease
`
`Gross investment in lease
`2017
`20 16
`39
`92
`4
`135
`(1 2)
`n/a
`123
`
`40
`93
`5
`138
`( 12)
`n/a
`126
`
`Present value of minimum
`lease receipts
`2016
`34
`85
`3
`122
`n/a
`
`2017
`36
`84
`5
`125
`n/a
`
`126
`
`123
`
`The accumulated allowance for uncollectible minimum lease payments was CHF 1 million (2016: CHF 1 million).
`
`Operating leases. Certain assets, mainly Diagnostics instruments, are leased to third parties through operating lease arrangements.
`Such assets are reported within property, plant and equipment. Lease income from operating leases is recognised over the lease term
`on a straight-line basis.
`
`At 3 1 December 2017 machinery and equipment with an original cost of CHF 4.B billion (2016: CHF 4,4 billion) and a net book value of
`CHF 1.7 billion (2016: CHF 1.5 billion) was being leased to third parties.
`
`Operating leases: future minimum lease receipts under non- cancellable leases in millions of CHF
`
`Within one year
`Between one and five years
`More than five years
`Total minimum receipts
`
`Capltal commitments
`
`2017
`57
`94
`3
`154
`
`2016
`64
`86
`4
`154
`
`The Group has non-cancellable capital commitments for the purchase or construction of property, plant and equipment totalling
`CHF 1.2 billion (20 16: CHF 1.4 billion).
`
`https://www.roche.com/dam/jcr:b7041 5c0-954f-4a2a-a0e2-47f94bd280e0/en/fb17e.pdf
`
`Roche Finance Report 2017 I 63
`
`Novartis Exhibit 2276.0065
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Roche Group I Notes to the Roche Group Consolidated Financial Statements
`
`8. Goodwill
`
`Goodwill: movements in carrying value of assets in millions of CHF
`
`At 1 January
`Cost
`Accumulated impairment
`Net book value
`
`Year ended 31 December
`At 1 January
`Business combinations•
`Impairment charge
`Currency translation effects
`At 31 December
`
`Cost
`Accumulated impairment
`Net book value
`
`Allocated to the following cash-generating units
`Roche Pharmaceuticals
`Foundation Medicine
`Chugai
`Total Pharmace uticals Division
`
`Diabetes Care
`Centralised and Point of Care Solutions
`Molecular Diagnostics
`Tissue Diagnostics
`Sequencing
`Divisional goodwill
`Total Diagnostics Division
`
`Impairment charge - 2017
`
`2017
`
`20 16
`
`12,655
`( 1,373)
`11,282
`
`11.282
`104
`( 1,058)
`(251)
`10,077
`
`12.461
`(2,384)
`10,077
`
`4,677
`97
`96
`4,870
`
`880
`1,730
`379
`-
`-
`
`2,218
`5,207
`
`12,342
`( 1,260)
`11,082
`
`11,082
`
`(95)
`295
`11,282
`
`12.655
`( 1,373)
`11,282
`
`5,241
`10 1
`97
`5,439
`
`827
`1.785
`396
`
`700
`2. 135
`5,843
`
`During 2017 impairment charges totalling CHF 1,058 million which related to:
`• A charge of CHF 674 million in the Diagnostics Division for the full write-off of the sequencing business goodwill. The factors leading
`to this impairment were: (i) a decrease in forecasted cash flows relative to the previous year's long-term forecast due to changed
`assumptions around market penetration. pricing and reimbursement; and (ii) a revised time to market of the single molecule sequencing
`technology. In addition impairment charges of CHF 120 million were recorded for sequencing business product intangibles in use
`acquired as part of the Ariosa acquisition (see Note 9),
`• A charge of CHF 384 million in the Pharmaceuticals Division for the full write-off of the goodwill relating to the Seragon acquisition due
`to the decision to stop development of the back-up compound acquired.
`
`Impairment charge - 2016
`
`During 2016, a goodwill impairment charge of CHF 95 million was recorded in the Pharmaceuticals Division for the full write-off of
`goodwill from the Anadys Pharmaceuticals. Inc. acquisition in 2011 which is deemed to have been disposed of.
`
`https:-c~~<i:bian'e~WtSmi~s:b70415c0-954f-4a2a-a0e2-47f94bd280e0/en/fb17e.pdf
`
`Novartis Exhibit 2276.0066
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Notes to the Roche Group Consolidated Financial Statements I Roche Group
`
`Impairment testing
`
`Pharmaceutical • Division, The division's operating segments are the cash- generating units used for the testing of goodwill. Part of
`the goodwill arising from the Foundation Medicine acquisition is recorded and monitored at a Roche Pharmaceuticals level as it relates
`to the strategic development of Roche Pharmaceuticals. Therefore the cash-generating unit for this strategic goodwill is Roche
`Pharmaceuticals. The recoverable amount used in the impairment testing is the higher of value in use and fair value less costs of disposal.
`For Chugai and Foundation Medicine the fair value less costs of disposal is determined with reference to the publicly quoted share
`prices of Chugai and Foundation Medicine shares.
`
`Diagnostics Division. The division's business areas are the cash-generating units used for the testing of goodwill. The goodwill arising
`from the Corange/Boehringer Mannheim acquisition and part of the goodwill from the Ventana acquisition is recorded and monitored
`at a divisional level as it relates to the strategic development of the whole division and cannot be meaningfully allocated to the division's
`business areas. Therefore the cash- generating unit for this goodwill is the entire division. The goodwill arising from the Viewics
`acquisition is monitored at the divisional level. The recoverable amount used in the impairment testing is based on value in use.
`
`Value in use. This is calculated using a discounted expected cash flow approach, with a post-tax discount rate applied to the projected
`risk-adjusted post-tax cash flows and terminal value. The discount rate is the Group's weighted average cost of capital as the cash(cid:173)
`generating units have integrated operations across large parts of the Group. It is derived from a capital asset pricing model using data
`from capital markets. including government twenty-year bonds. For assessing value in use. the cash flow projections are based on the
`most recent long-term forecasts approved by management. The long-term forecasts include management's latest estimates on sales
`volume and pricing, as well as production and other operating costs and assume no significant changes in the organisation. Other key
`assumptions used in the calculations are the period of cash flow projections included in the long-term forecasts. the terminal value
`growth rate and the discount rate.
`
`Key assumptions used in value in use calculations
`
`Pharmaceu ticals Division
`- Roche Pharmaceuticals
`Diagnostics Division
`- Sequencing
`- Other Diagnostics businesses
`
`Period of
`cash now
`projections
`
`Terminal
`value Discount ra1e
`(aft er tax)
`growth rate
`
`Period of
`cash flow
`projections
`
`Terminal
`value Discount rate
`growth rate
`(after tax)
`
`2017
`
`2016
`
`5 years
`
`10 years
`5 years
`
`n/a
`
`1.5%
`1.5%
`
`6.8%
`
`6.8%
`6.8%
`
`5 years
`
`nla
`
`1 o years
`5 years
`
`1.5%
`
`1.5%
`
`6.5%
`
`6.5%
`6.5%
`
`For cash- generating units with a terminal value growth, the respective rate does not exceed the long-term projected growth rate for
`the relevant market. The ten years period of cash flow projections reflects the long-term nature of the development of the sequencing
`business.
`
`Sensitiv