Notes to the Roche Group Consolidated Financial Statements I Roche Group
`
`Level 3 fair values
`
`Details of the determination of Level 3 fair value measurements are set out below.
`
`Contingent consideration arrangements in millions of CHF
`
`At 1 January
`Arising from business combi nations'
`Utilised for settlements•
`Total unrealised gains and losses included in the income statement
`- Unused amounts reversed
`- Additional amount created
`- Discount unwind included in financing costs
`Total gains and losses included in other comprehensive income
`- Currency translation effects
`At 31 December
`
`2017
`(1,089)
`(1 OJ
`146
`
`366
`(13)
`(14)
`
`23
`(591)
`
`2016
`(1,492)
`-
`69
`
`447
`(39)
`(53)
`
`(2 1)
`(1,089)
`
`During 2017 contingent consideration provisions decreased mainly due to the reversal of some of the provisions and to the payment
`of milestones. There was CHF 353 million of income. net. mainly from the reversal of the remaining provision related to the Seragon
`acquisition and from the partial reversal of provisions mainly related to the Dutalys and Trophos acquisitions. Payments of CHF 146 million
`were made for milestones related to the Genia, CMI. Ariosa. Santaris and other acquisitions.
`
`Contingent consideration arrangements
`
`The Group is party to certain contingent consideration arrangements arising from business combinations. The fair values are determined
`considering the expected payments. discounted to present value using a risk-adjusted average discount rate of 3.1% (2016: 3.2%).
`The expected payments are determined by considering the possible scenarios of forecast sales and other performance criteria, the
`amount to be paid under each scenario, and the probability of each scenario. The significant unobservable inputs are the forecast sales.
`other performance criteria and the risk-adjusted discount rate. The estimated fair value would increase if the forecast sales or other
`performance criteria rates were higher or the risk-adjusted discount rate was lower. At 31 December 2017 the total potential payments
`under contingent consideration arrangements could be up to CHF 1,4 billion (2016: CHF 2.9 billion) as follows:
`
`Potential payments under contingent consideration arrangements In millions of CHF
`
`Acquisition
`Trophos
`Dutalys
`Santaris
`Seragon
`GeneWeave
`Genia
`Ariosa
`CMI
`Others
`At 31 December
`
`Year acquired
`20 15
`2014
`20 14
`20 14
`20 15
`2014
`20 15
`20 13
`-
`
`Operating segment
`Roche Pharmaceuticals
`Roche Pharmaceuticals
`Roche Pharmaceuticals
`Roche Pharmaceuticals
`Diagnostics
`Diagnostics
`Diagnostics
`Diagnostics
`Diagnostics
`
`201 7
`409
`254
`148
`
`-
`
`166
`164
`147
`
`-
`
`135
`1,423
`
`2016
`376
`363
`203
`997
`198
`230
`179
`184
`144
`2,874
`
`Derivative financial Instruments
`
`The Group has entered into various currency swaps for certain non-US dollar debt instruments. Cash collateral agreements were entered
`into with the counterparties to the currency swaps to mitigate counterparty risk. The following table sets out the carrying value of
`derivative financial instruments and the amounts that are subject to master netting agreements.
`
`https://www.roche.com/dam/jcr:b70415c0-954f-4a2a-a0e2-47f94bd280e0/en/fb17e.pdf
`
`Roche Finance Report 2017 I 109
`
`Novartis Exhibit 2276.00111
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`2017
`
`2016
`
`Assets
`2015
`
`2017
`
`2016
`
`Liabilities
`20 15
`
`(71)
`(561)
`-
`
`(7)
`
`--
`
`(639)
`54
`496
`(89)
`
`(2 19)
`(220)
`-
`
`(8)
`
`--
`
`("47)
`72
`289
`(86)
`
`(92)
`(9)
`-
`
`(18)
`
`--
`
`(119)
`70
`14
`(35)
`
`134
`
`--
`
`35
`
`--
`
`169
`(54)
`(42)
`73
`
`92
`-
`-
`
`5
`-
`-
`97
`(70)
`25
`52
`
`162
`-
`-
`
`23
`-
`-
`185
`(72)
`13
`126
`
`Roche Group I Notes to the Roche Group Consolidated Financial Statements
`
`Derivative financial instruments in millions of CHF
`
`Foreign curr ency derivatives
`- Forward exchange contracts
`- Cross-currency swaps
`- Other
`Interest rate derivatives
`- Swaps
`- Other
`Other derivatives
`Carrying value of derivative financial instruments '"· 11
`Derivatives subject to master netting agreements
`Collateral arrangemen ts
`Net amount
`
`Collateral arrangements
`
`On 17 November 2017 the Group completed a tender offer to repurchase EUR 176 million of the 6.5% fixed rate notes due 4 March 2021.
`As a result a hedge was terminated and cash was received by the Group from a counterparty.
`
`Movements in cash collateral other receivable (accrued liabil ity) in millions of CHF
`
`At 1 January
`Net cash delivered by (to) the Group
`Fair value and other
`Currency translation effects
`At 3 1 December
`
`Hedge accounting
`
`2017
`
`302
`(252)
`1
`(12)
`3 9
`
`2016
`454
`(152)
`
`302
`
`At 31 December 201 7 the Group has the following cash flow hedges and fair value hedges which are designated in a qualifying hedge
`relationship,
`
`Cash flow hedges. The Group has entered into cross- currency swaps to hedge foreign exchange and interest rate risk on some
`of the bonds and notes issued by the Group which are denominated in euro. At 31 December 2017 such instruments are recorded
`as a net fair value liability of CHF 9 million (2016: CHF 220 million). There was no ineffective portion.
`
`Chugai has entered into foreign exchange forward contracts to hedge a part of its foreign translation exposure to Swiss franc and US
`dollar. At 3 1 December 2017 such instruments are recorded as fair value assets of CHF 4 million (2016: fair value assets of CHF 45 million).
`There was no ineffective portion,
`
`The expected undiscounted cash flows from qualifying cash flow hedges. including interest payments during the duration of the derivative
`contract and final settlement on maturity. are shown in the table below.
`
`Expected cash flows of qual ifying cash flow hedges in millions or CHF
`
`Cash inflows
`Cash outflows
`Total cash inflow (outflow)
`
`Total
`
`3.005
`(3. 111)
`( 106)
`
`Less than
`l year
`1,488
`( 1,493)
`(5)
`
`2017
`More than
`1 year
`1.517
`(1 ,618)
`(1 01)
`
`Total
`3,509
`(3,899)
`(390)
`
`Less than
`l year
`
`1,568
`(1,576)
`(8)
`
`2016
`More than
`1 year
`1,941
`( 2,323)
`(382)
`
`https:~oPil&~,'na'n«2fll{~j\j\f7041 5c0-954f-4a2a-a0e2-47f94bd280e0/en/fb17e.pdf
`
`Novartis Exhibit 2276.00112
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Notes to the Roche Group Consolidated Financial Statements I Roche Group
`
`The undiscounted cash flows in the table above will affect profit and loss as shown below. These include interest payments during
`the duration of the derivative contract but do not include the final settlement on maturity.
`
`Expected cash flows of qualifying cash flow hedges with impact on profit and loss in millions of CHF
`
`Cash inflows
`Cash outflows
`Total cash inffow (outffow)
`
`Total
`258
`(29 7)
`(39)
`
`Less than
`1 year
`64
`(74)
`(10)
`
`2017
`More than
`1 year
`194
`(223)
`(29)
`
`Total
`419
`(550)
`(131)
`
`Less than
`1 year
`84
`( 111)
`(27)
`
`2016
`More than
`1 year
`335
`(439)
`( 104)
`
`The changes in the hedging reserve within equity are shown in Note 21.
`
`Fair value hedges. The Group has entered into some interest rate swaps to hedge some of its fixed-term debt instruments.
`At 31 December 2017 such instruments are recorded as fair value liabilities of CHF 18 million (2016: CHF 10 million) and fair value assets
`of CHF 5 million (2016: CHF 23 million). During 2017 a loss of CHF 28 million was recorded on these interest rate swaps (2016: loss of
`CHF 17 million). As the fair value hedge had been highly effective since inception. the result of the interest rate swaps was largely offset
`by changes in the fair value of the hedged debt instruments.
`
`Net investment hedges. The Group does not have any net investment hedges.
`
`30. Related parties
`
`Controlling shareholders
`
`The share capital of Roche Holding Ltd, which is the Group's parent company, consists of 160,000,000 bearer shares.
`
`At 31 December 2017 and 2016, based on information supplied to the Group, a shareholder group with pooled voting rights owned
`72,018,000 shares. which represented 45.01% of the issued shares. This group consisted of Ms Vera Michalski-Hoffmann. Ms Maja
`Hoffmann. Mr Andre Hoffmann, Dr Andreas Oeri, Ms Sabine Duschmale-Oeri, Ms Catherine Oeri. Dr Jorg Duschmale, Mr Lukas
`Duschmale and the charitable foundation Wolf. The shareholder pooling agreement has existed since 1948. The figures above do not
`include any shares without pooled voting rights that are held outside this group by individual members of the group. Ms Maja Oeri,
`formerly a member of the pool, now holds 8,091,900 shares representing 5.057% of the voting rights independently of the pool.
`
`Mr Andre Hoffmann and Dr Andreas Oeri are members of the Board of Directors of Roche Holding Ltd. Mr Hoffmann received
`remuneration totalling CHF 439.392 (2016: CHF 439,411) and Dr Oeri received remuneration totalling CHF 360,000 (2016: CHF 360,000).
`
`There were no other transactions between the Group and the individual members of the above shareholder group with the exception of
`Dr Jorg Duschmale who works as a post-doc at Roche.
`
`Subsidiaries and associates
`
`A listing of the Group subsidiaries and associates is included in Note 31. This listing excludes the subsidiaries of Chugai and FMI as well
`as not material companies, notably companies that are inactive. dormant or in liquidation. Transactions between the parent company
`and its subsidiaries and between subsidiaries are eliminated on consolidation. There were no significant transactions between the Group
`and its associates.
`
`https://www.roche.com/dam/jcr:b70415c0-954f-4a2a-a0e2-47f94bd280e0/en/fb17e.pdf
`
`Roche Finance Report 2017 I 111
`
`Novartis Exhibit 2276.00113
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Roche Group I Notes to the Roche Group Consolidated Financial Statements
`
`Key management personnel
`
`Total remuneration of key management personnel was CHF 53 million (2016: CHF 54 million).
`
`Members of the Board of Directors of Roche Holding Ltd receive an annual remuneration and payment for their time and expenses related
`to their membership of Board committees. Dr Franz and members of the Corporate Executive Committee (CEC) of Roche Holding Ltd
`receive remuneration. which consists of an annual salary, bonus and an expense allowance. The Group pays social insurance contributions
`in respect of the above remuneration and pays contributions to pension and other post- employment benefit plans for the Chairman of the
`Board of Directors and members of the CEC. The members of the CEC also participate in certain equity compensation plans as described
`below. The terms. vesting conditions and fair value of these awards are disclosed in Note 26. New members of the CEC are included in
`the table below for the full calendar year in which they joined the CEC. Similarly. members of the CEC retiring part way through the year
`are included for the full calendar year in which they left the CEC.
`
`Remuneration of the members of the Board of Directors and the Corporate Executive Committee in millions of CHF
`
`Salaries. including cash-settled bonus
`Bonus Stock Awards
`Social security costs
`Pensions and other post-employment benefits
`Equity compensation plans
`Board fees
`Other employee benefits
`Total
`
`2017
`24
`6
`2
`4
`12
`4
`l
`53
`
`2016
`25
`6
`2
`4
`12
`4
`
`54
`
`For the purposes of these remuneration disclosures the values for equity compensation plans. including the Bonus Stock Awards.
`are calculated based on the fair value used in Note 26, These represent the cost to the Group of such awards at grant date and reflect,
`amongst other matters. the observed exercise behaviour and exit rate for the whole population that receive the awards and initial
`simulations of any performance conditions.
`
`The detailed disclosures regarding executive remuneration that are required by Swiss law are included in the Remuneration Report
`included in the Annual Report on pages 120 to 146. In those disclosures the values for equity compensation plans. including the Bonus
`Stock Awards. represent the fair value that the employee receives taking into account the preliminary assessment of any completed
`performance conditions. These fair values are shown in the table below. which reconciles those disclosures required by Swiss law to
`the above related party disclosures for key management personnel.
`
`Reconciliation to executive remuneration disclosures required by Swiss l aw in millions or CHF
`
`Total remuneration of the members of the Board of Directors and Corporate Executive Committee
`(IFRS basis - see table above)
`
`Deduct
`- Bonus Stock Awards (IFRS basis)
`- Equity compensation plans (IFRS basis)
`Add back
`- Bonus Stock Awards (Swiss legal basis)
`- Equity compensation plans (Swiss legal basis)
`Total remuneration of the members of the Board of Directors and Corporate Executive
`Committee (Swiss legal basis)
`
`Of which (including social security costs)
`- Board of Directors (page 133 of the Annual Report)
`- Corporate Executive Committee (page 141 of the Annual Report)
`
`2017
`
`53
`
`(6)
`(12)
`
`3
`14
`
`52
`
`10
`42
`
`2016
`
`54
`
`(6)
`(12)
`
`3
`15
`
`54
`
`10
`44
`
`Bonus Stock Awards. The Chairman of the Board of Directors and the Chief Executive Officer will be granted Bonus Stock Awards
`in lieu of their cash-settled bonus for the financial year 2017. These will be issued by the end of April 2018. The number of awards and fair
`value per award will be calculated at the grant date.
`
`https:~oPil&~~a'n«2m{~!llP70415c0-954f-4a2a-aOe2-47f94bd280eO/en/fb17e.pdf
`
`Novartis Exhibit 2276.00114
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Notes to the Roche Group Consolidated Financial Statements I Roche Group
`
`Equity compensation plans. The members of the Corporate Executive Committee received equity compensation as shown in
`the following tables.
`
`Number of r ights, options and awards granted to members of the Corporate Executive Committee
`
`Roche Stock- settled Stock Appreciation Rights
`Roche Restr icted Stock Unit Plan
`Roche Performance Share Plan
`
`Contributions paid for members of the Cor porate Execut ive Committee In millions of CHF
`
`Roche Connect
`
`2017
`248,961
`0
`33,682
`
`2016
`286. 142
`0
`29,865
`
`2017
`0.3
`
`2016
`0.3
`
`Transactions with former members of the Board of Directors and Corporate Executive Committee. Pensions totalling CHF 2 million
`were paid by the Group to former Corporate Executive Committee members (2016: CHF 2 million).
`
`Defined benefit plans
`
`Transactions between the Group and the various defined benefit plans for the employees of the Group are described in Note 25.
`
`31. List of subsidiaries and associates
`
`The following is a listing of the Group subsidiaries and associates. It excludes the subsidiaries of Chugai and FMI as well as not material
`companies, notably companies that are inactive, dormant or in liquidation.
`
`Listed companies
`
`Country
`Switzerland
`
`Japan
`
`United States
`
`United States
`
`Company
`Roche Holding Ltd
`Stock Exchange: SIX Swiss Exchange Zurich
`Valor Share: 1203211
`Valor Genussschein: 120320A
`ISIN Share: CH0012032113
`ISIN Genussschein: CH0012032048
`Market capitalisation: CHF 21 0.426.0 million
`Chugai Pharmaceutical Co •. Ltd.
`Stock Exchange: Tokyo
`Stock Code: TSE:4519
`ISIN: JP35 I 9400000
`Market capitalisation: JPY 3,154,897 million
`Foundation Medicine. Inc.
`Stock Exchange: Nasdaq
`Stock Code: FMI
`ISIN: US3504651007
`Market capitalisation: USO 2,492, 15 million
`Senseonics Holdings, Inc,
`Stock Exchange: New York Stock Exchange (NYSE-MKT)
`Stock Code: SENS
`ISIN: US81727UI 051
`Market capitalisation: USO 363.77 million
`
`City
`Basel
`
`Share capital
`(in millions)
`160.0
`
`CHF
`
`Equity interest
`(in%)
`
`Tokyo
`
`JPY
`
`335.2
`
`61.3
`
`Cambridge
`
`USO
`
`(- )
`
`57.5
`
`Germantown
`
`USO
`
`0,1
`
`20,7
`
`https://www.roche.com/dam/jcr:b70415c0-954f-4a2a-a0e2-47f94bd280e0/en/fb17e.pdf
`
`Roche Finance Report 2017 I 113
`
`Novartis Exhibit 2276.00115
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`https://www.roche com/dam/jcr:b70415c0-954f-4a2a-a0e2-47f94bd280e0/en/fb17e.pdf
`
`Novartis Exhibit 2276.00116
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`https://www.roche.com/dam/jcr:b70415c0-954f-4a2a-a0e2-47f94bd280e0/en/fb17e.pdf
`
`Novartis Exhibit 2276.00117
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`https://www.roche com/dam/jcr:b70415c0-954f-4a2a-a0e2-47f94bd280e0/en/fb17e.pdf
`
`Novartis Exhibit 2276.00118
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`https://www.roche.com/dam/jcr:b70415c0-954f-4a2a-a0e2-47f94bd280e0/en/fb17e.pdf
`
`Novartis Exhibit 2276.00119
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Roche Group I Notes to the Roche Group Consolidated Financial Statements
`
`32. Significant accounting policies
`
`Consolidation policy
`
`Subsidiaries are all companies over which the Group has control. The Group controls an entity when the Group is exposed to, or has
`rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
`Companies acquired during the year are consolidated from the date on which control is transferred to the Group, and subsidiaries to
`be divested are included up to the date on which control passes from the Group. lntercompany balances, transactions and resulting
`unrealised income are eliminated in full. Changes in ownership interests in subsidiaries are accounted for as equity transactions if they
`occur after control has already been obtained and if they do not result in a loss of control. Associates are companies over which the
`Group exercises. or has the power to exercise. significant influ ence. but which it does not control and they are accounted for using the
`equity method.
`
`Segment reporting
`
`For the purpose of segment reporting the Group's Corporate Executive Committee (CEC) is considered to be the Group's Chief Operating
`Decision Maker. The determination of the Group's operating segments is based on the organisation units for which information is reported
`to the CEC on a regular basis. The information provided is used as the basis of the segment revenue and profit disclosures reported in
`Note 2. with the geographic analysis based on the location of customers. Selected segment balance sheet information is also routinely
`provided to the CEC.
`
`Transfer prices between operating segments are set on an arm's length basis. Operating assets and liabilities consist of property, plant
`and equipment, goodwill and intangible assets, trade receivables/payables. inventories and other assets and liabilities, such as provisions,
`which can be reasonably attributed to the reported operating segments. Non- operating assets and liabilities mainly include current
`and deferred income tax balances, post-employment benefit assets/liabilities and financial assets/liabilities such as cash, marketable
`securities. investments and debt.
`
`Foreign currency translation
`
`The Annual Financial Statements are presented in Swiss francs. Most Group companies use their local currency as their functional
`currency. Certain Group companies use other currencies (such as US dollar, Swiss franc or euro) as their functional currency where
`this is the currency of the primary economic environment in which the entity operates. Local transactions in other currencies are initially
`reported using the exchange rate at the date of the transaction. Gains and losses from the settlement of such transactions and gains
`and losses on translation of monetary assets and liabilities denominated in other currencies are included in income, except when they
`are qualifying cash flow hedges or arise on monetary items that, in substance, form part of the Group's net investment in a foreign entity.
`In such cases the gains and losses are deferred into other comprehensive income.
`
`Upon consolidation, assets and liabilities of Group companies using functional currencies other than Swiss francs are translated into Swiss
`francs using year-end rates of exchange. The income statement and statement of cash flows are translated at the average rates of exchange
`for the year. Translation differences due to the changes in exchange rates between the beginning and the end of the year and the difference
`between net income translated at the average and year- end exchange rates are taken directly to other comprehensive income.
`
`Revenues
`
`Sales represent amounts received and receivable for goods supplied to customers after deducting trade discounts, cash discounts and
`volume rebates, and exclude value added taxes and other taxes directly linked to sales. Revenues from the sale of products are recognised
`upon transfer to the customer of significant risks and rewards. Trade discounts, cash discounts and volume rebates are recorded on
`an accrual basis consistent with the recognition of the related sales. Estimates of expected sales returns. chargebacks and other rebates.
`including Medicaid in the US and similar rebates in other countries. are also deducted from sales and recorded as accru ed liabilities
`or provisions or as a deduction from accounts receivable. Such estimates are based on analyses of existing contractual or legislatively
`mandated obligations, historical trends and the Group's experience. If the circumstances are such that the level of sales returns, and
`hence revenues, cannot be reliably measured, then sales are only recognised when the right of return expires, which is generally upon
`prescription of the products to patients. Other revenues are recorded as earned or as the services are performed. Single transactions
`are split into separately identifiable components to reflect the substance of the transaction, where necessary. Conversely, two or more
`transactions may be considered together for revenue recognition purposes, where the commercial effect cannot be understood
`without reference to the series of transactions as a whole.
`
`https:~
`
`oPil&~~a'n«2m{~!1i\;b70415c0-954f-4a2a-a0e2-47f94bd280e0/en/fb17e.pdf
`
`Novartis Exhibit 2276.00120
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`https://www.roche.com/dam/jcr:b70415c0-954f-4a2a-a0e2-47f94bd280e0/en/fb17e.pdf
`
`Novartis Exhibit 2276.00121
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Roche Group I Notes to the Roche Group Consolidated Financial Statements
`
`Pensions and other post-employment benefits
`
`For defined contribution plans the Group contributions are recognised within the operating results when the employee has rendered
`the associated service. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future
`payments is available.
`
`For defined benefit plans the liability recognised in the balance sheet is the present value of the defined benefit obligation less the fair
`value of the plan assets. All changes in the net defined benefit liability are recognised as they occur as follows:
`
`Recognised in the income statement:
`• Current service costs are charged to the appropriate income statement heading within the operating results.
`• Past service costs. including curtailment gains or losses. are recognised immediately in general and administration within the operating
`results.
`• Settlement gains or losses are recognised in general and administration within the operating results.
`• Net interest on the net defined benefit liability is recognised in financing costs.
`
`Recognised in other comprehensive income:
`• Actuarial gains and losses arising from experience adjustments (the difference between previous assumptions and what has actually
`occurred) and changes in actuarial assumptions.
`• The return on plan assets. excluding amounts included in net interest on the net defined benefit liability.
`• Any change in the limit on the recognition of plan assets, excluding amounts included in net interest on the net defined benefit liability.
`
`Net interest on the net defined benefit liability is comprised of interest income on plan assets, interest cost on the defined benefit
`obligation and interest on the effect of the limit on the recognition of pension assets. The net interest is calculated using the same discount
`rate that is used in calculating the defined benefit obligation. applied to the net defined liability at the start of the period, taking account
`of any changes from contribution or benefit payments.
`
`Pension assets and liabilities in different defined benefit plans are not offset unless the Group has a legally enforceable right to use
`the surplus in one plan to settle obligations in the other plan.
`
`Equity compensation plans
`
`The fair value of all equity compensation awards granted to employees is estimated at the grant date and recorded as an expense over
`the vesting period. The expense is charged to the appropriate income statement heading within the operating results. For equity-settled
`plans. an increase in equity is recorded for this expense and any subsequent cash flows from exercises of vested awards are recorded
`as changes in equity.
`
`Property, plant and equipment
`
`Property, plant and equipment are initially recorded at cost of purchase or construction, and include all costs directly attributable to
`bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
`These include items such as costs of site preparation. installation and assembly costs. and professional fees. The net costs of testing
`whether the asset is functioning properly, including validation costs, are also included in the initially record ed cost of construction.
`Interest and other borrowing costs incurred with respect to qualifying assets are capitalised and included in the carrying value of the
`assets. Property, plant and equipment are depreciated on a straight-line basis, except for land, which is not depreciated. The estimated
`useful lives of major classes of depreciable assets are as follows:
`
`Land improvements
`Buildings
`Machinery and equipment
`Diagnostic instruments
`Office equipment
`Motor vehicles
`
`40 years
`10- 50 years
`4-1 5 years
`3- 5 years
`3- 6 years
`5- 8 years
`
`Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate components.
`The estimated useful lives of the assets are regularly reviewed and, if necessary, the future depreciation charges are accelerated. Repairs
`and maintenance costs are expensed as incurred.
`
`https:~oHi\~~lr,~'r,<;lm{giS\ffi'ilo'i:P 70415c0-954f-4a2a-a0e2-4 7f94bd280e0/en/fb 17 e. pdf
`
`Novartis Exhibit 2276.00122
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Notes to the Roche Group Consolidated Financial Statements I Roche Group
`
`Leases
`
`Where the Group Is the lessee, Finance leases exist when substantially all of the risks and rewards of ownership are transferred to the
`Group. Finance leases are capitalised at the start of the lease at fair value. or the present value of the minimum lease payments. if lower.
`The rental obligation, net of finance charges, is reported within debt. Finance lease assets are depreciated over the shorter of the lease
`term and its useful life, The interest element of the lease payment is charged against income over the lease term based on the effective
`interest rate method. Operating leases exist when substantially all of the risks and rewards of ownership are not transferred to the Group.
`Payments made under operating leases are charged against income on a straight-line basis over the period of the lease.
`
`Where the Group is the lessor. Certain assets, mainly Diagnostics instruments, are leased to third parties through both finance and
`operating lease arrangements. Finance lease 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. Operating lease
`assets are reported within property, plant and equipment. lease income from operating leases is recognised over the lease term on
`a straight-line basis.
`
`Business combinations
`
`Business combinations are accounted for using the acquisition method of accounting. At the date of acquisition the Group initially
`recognises the fair value of the identifiable assets acquired. the liabilities assumed and any non- controlling interest in the acquired
`business. The consideration transferred is measured at fair value at the date of acquisition. Where the Group does not acquire 100%
`ownership of the acquired business, non-controlling interests are recorded either at fair value or as the proportion of the fair value
`of the acquired net assets attributable to the non-controlling interest. Directly attributable acquisition-related costs are expensed as
`incurred within general and administration expenses.
`
`Goodwill
`
`Goodwill arises in a business combination and is the excess of the consideration transferred to acquire the business over the underlying
`fair value of the net identified assets acquired. Goodwill is not amortised but is tested for impairment at least annually and upon the
`occurrence of an indication of impairment.
`
`Intangible assets
`
`Purchased patents. licences, trademarks and other intangible assets are initially recorded at cost. Assets that have been acquired
`through a business combination are initially recorded at fair value. Once available for use, intangible assets are amortised on a straight(cid:173)
`line basis over their useful lives. Intangible assets are reviewed for impairment at each reporting date. The estimated useful life is the
`lower of the legal duration and the economic useful life. The estimated useful lives of intangible assets are regularly reviewed. Estimated
`useful lives of major classes of amortisable intangible assets are as follows:
`
`Product intangibles in use
`Marketing intangibles in use
`Technology intangibles in use
`
`up to 20 years
`up to 1 O years
`up to 14 years
`
`Impairment of property, plant and equipment and intangible assets
`
`An impairment assessment is carried out when there is evidence that an asset may be impaired. In addition. intangible assets that
`are not yet available for use are tested for impairment annually. When the recoverable amount of an asset, being the higher of its fair value
`less costs of disposal and its value in use, is less than its carrying value, then the carrying value is reduced to its recoverable amount.
`This reduction is reported in the income statement as an impairment loss. Value in use is calculated using estimated cash flows. generally
`over a five-year period, with extrapolating projections for subsequent years. These are discounted using an appropriate long-term
`interest rate. When an impairment loss arises. the useful life of the asset is reviewed and, if necessary, the future depreciation/
`amortisation charge is accelerated. If the amount of impairment loss subsequently decreases and the decrease can be related objectively
`to an event occurring after the impairment was recognised, then the previously recognised impairment loss is reversed through the
`income statement as an impairment reversal.
`
`https://www.roche.com/dam/jcr:b70415c0-954f-4a2a-a0e2-47f94bd280e0/en/fb17e.pdf
`
`Roche Finance Report 2017 I 121
`
`Novartis Exhibit 2276.00123
`Regeneron v. Novartis, IPR2021-00816
`
`

`

`Roche Group I Notes to the Roche Group Consolidated Financial Statements
`
`Impairment of goodwill
`
`Goodwill is assessed for impairment at each reporting date and is additionally tested annually for impairment. Goodwill is allocated
`to cash- generating units and when the recoverable amount of the cash-generating unit. being the higher of its fair value less costs of
`disposal or its value in use, is less than its carrying value, then the carrying value of the goodwill is reduced to its recoverable amount.
`This reduction is reported in the income statement as an impairment loss. When an acquired business that is included within a cash(cid:173)
`generating unit permanently ceases to operate then it is treated as a disposal of that business. For separately identifiable goodwill that
`was generated on the initial acquisition of that business and where all of the factors that made up that goodwill are entirely unrelated
`to the continuing operations of the cash-generating unit, then the goodwill is deemed to have been disposed of and is fully impaired.
`The impairment testing methodology is further described in Note 8.
`
`Inventories
`
`Inventories are stated at the lower of cost and net realisable value. The cost of finished goods, work in process and intermediates
`includes raw materials. direct labour and other directly attributable costs and overheads based upon the normal capacity of production
`facilities. Cost is determined using the weighted average method. Net realisable value is the estim