Summary of the reconciliation of French GAAP with US GAAP accounts

Transcription

1 SUPPLEMENTAL INFORMATION DATED JUNE 25, 2003 TO THE REFERENCE DOCUMENT REGISTRATION NUMBER D , FILED WITH THE COMMISSION DES OPERATIONS DE BOURSE ON APRIL 23, 2003 This text is a free translation from the French language and is supplied for information purposes only. The French version is the governing document. Summary of the reconciliation of French GAAP with US GAAP accounts In connection with its obligations resulting from the listing of its shares under the form of American Depositary Receipts in the United States, Sanofi-Synthélabo filed an annual report ( Form 20-F ) in English with the Securities and Exchange Commission («SEC») on June 23, 2003, which is available on both the company s website at and on the SEC s website at This «Form 20-F» includes, in particular, consolidated financial statements with a table reconciling net income and shareholders equity prepared in accordance with French GAAP to US GAAP. The reconciliation between these French GAAP consolidated financial statements and those that would be presented according to US GAAP, as published in the Form 20-F, is set out below: The effects of the application of US GAAP on net income for each of the years ended 2002, 2001 and 2000 are set out in the table below: Year Ended (in millions of euros) Restated Restated Net income, as reported under French GAAP 1,759 1, US GAAP adjustments : (a) Purchase accounting : Synthélabo Group... (265) (364) (527) Sterling... (46) (52) (51) Other... - (29) (28) (b) Provisions and other liabilities... - (23) (99) (c) Research and development arrangement (d) Derivative financial instruments... 8 (36) 42 (e) Revenue recognition US BMS Alliance (136) (8) (f) Other (14) 29 (g) Deferred income tax effect on above adjustments (h) Deferred income tax on equity investees... (2) (2) - Total US GAAP adjustments (119) (487) (393) Net income, as determined under US GAAP 1,640 1, In 2002 the financial statements of Alliance entities under the operational management of Bristol-Myers Squibb (BMS), in particular the entities that market Plavix and Avapro in the United States, were restated for the years ended 2001 and This restatement is the consequence of the correction of an error in applying US GAAP revenue recognition criteria in recording sales to certain wholesalers (see note (e)). 1

2 The effects of the application of US GAAP on shareholders equity as of 2002, 2001 and 2000 are set out in the table below: (in millions of euros) Shareholders equity, as reported under French GAAP Restated Restated 6,035 5,768 4,304 US GAAP Adjustments : (a) Purchase accounting : Synthélabo Group... 8,465 8,761 9,201 Sterling Other (b) Provisions and other liabilities (c) Research and development arrangement (d) Derivative financial instruments (e) Revenue recognition US BMS Alliance... (35) (160) (21) (f) Other... (758) (490) (205) (g) Deferred income tax effect on above adjustments... (1,264) (1 349) (1,517) (h) Deferred income taxes on equity investees. (18) (16) (46) Total US GAAP adjustments 6,564 6,981 7,837 Shareholders equity, as determined under US GAAP 12,599 12,749 12,141 1 In 2002 the financial statements of Alliance entities under the operational management of Bristol-Myers Squibb (BMS), in particular the entities that market Plavix and Avapro in the United States, were restated for the years ended 2001 and This restatement is the consequence of the correction of an error in applying US GAAP revenue recognition criteria in recording sales to certain wholesalers (see note (e)). The main adjustments were as follows : (a) Purchase accounting: Sanofi-Synthélabo was formed following the merger of the Sanofi Group and the Synthélabo Group in Under French GAAP, the transaction between the Sanofi Group and the Synthélabo Group was accounted for as a merger, effective July 1, 1999, which resulted in the harmonization of accounting policies and the revaluation of assets and liabilities of both the Sanofi Group and the Synthélabo Group to adjust them to their value to the Group. Under US GAAP, the merger is required to be accounted for as a purchase. The Sanofi Group is deemed to be the accounting acquirer with the assets and liabilities of the Synthélabo Group being recorded at their estimated fair values. With effect from January 1, 2002, the goodwill recorded in US GAAP on the merger between Sanofi and Synthélabo is no longer amortized. 2

3 In September 1994, Sanofi acquired the worldwide assets of the human healthcare division of Eastman Kodak ("Sterling"). Under French GAAP, no goodwill or intangibles associated with the acquisition of Sterling are reflected in the Sanofi-Synthélabo consolidated financial statements. Under US GAAP certain intangible assets, including acquired in-process research and development, intellectual property rights and an assembled workforce, were valued and recorded, and were being amortized over their estimated useful lives ranging from 8 to 20 years. Under French GAAP, no goodwill or intangible assets associated with certain other acquisitions made by the Sanofi Group before June 30, 1999 are reflected in the Sanofi- Synthélabo consolidated financial statements. Under US GAAP, certain intangible assets, including assembled workforce, were initially valued and recorded, and were amortized over their estimated useful lives. Effective January 1, 2002, assembled workforces have been reclassified as goodwill and are no longer amortized. Goodwill and intangible assets accounted following business combinations have been subject to impairment tests. These tests, performed as of January 1, 2002 and October 1, 2002, identified no impairment of goodwill. Impairment tests performed on identified intangible assets during the year ended 2002 resulted in the recognition of an impairment loss of 80 million euros. (b) Accounting of provisions and other liabilities: Under US GAAP, loss contingencies may only be accrued if it is considered probable that a liability has been incurred as of the balance sheet date and the amount of loss can be reasonably estimated. In addition, for certain reserves such as restructuring charges, additional criteria must be met in order to allow recognition of contingent losses. Effective January 1, 2002 : under French GAAP, adoption of CRC has led the Group to review all liabilities existing as of January 1, 2002 for compliance with the new rules. There is now no longer any difference between French GAAP and US GAAP as regards the criteria for the recognition of provisions. (c) Research and development arrangement : In 1999, the Company entered into a research and development arrangement under which the Group formed, with a partner, a joint venture for the development of a product for the US market. Under US GAAP, the up-front payment received in 1999 was recognized over the estimated duration of the joint venture and research and development expenses incurred by the partner were accrued pursuant to the purchase commitment. Upon termination of the contract in 2000, the unrecognized portion of the up-front payment received was reversed, the provision was released and the termination-related indemnity was recorded as an expense. 3

4 (d) Derivative financial instruments : Under US GAAP, prior to January 1, 2001, derivative financial instruments were required to be designated to a specific asset or liability or group of similar assets or liabilities in order to be accounted for as a hedge. Derivative financial instruments which did not qualify for hedge accounting under US GAAP were accounted for as trading derivatives and were recorded at fair value with changes in fair value reflected in the statement of income. Effective January 1, 2001, all derivatives, whether designated in a hedging relationship or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative instrument and of the hedged item attributable to the hedged risk are recognized in earnings. (e) Revenue recognition BMS Alliance : Not all US GAAP revenue recognition criteria were met for sales made by alliance entities under the operational management of BMS to certain wholesalers made between 1999 and The related revenues have therefore been restated under US GAAP. Certain revenues were recognized on the date of shipment, whereas under US GAAP they should have been recognized on a consignment basis. In the case of these sales, the risks and rewards of ownership are not treated as having been transferred under US GAAP, in that the wholesalers were holding inventory in excess of the requirements of their normal business cycle. Consequently, the seller had a future commitment to reduce the selling price to cover the costs incurred by the wholesalers in carrying the excess inventories. Revenue recognition on a consignment basis involves accounting for the sale as deferred revenue on shipment, and accounting for the inventory physically held by the wholesaler as consignment inventory priced at cost. The revenue is recognized when the inventory is no longer subject to specific rebate conditions in favor of the wholesaler, or on final sale by the wholesaler at the latest. These restatements relate to entities treated as equity investees in the Group's US GAAP financial statements, and have an impact on these financial statements, primarily on the following three lines: - Revenues from licensing agreements - Other income and expense, income from equity investees and minority interests - Income tax 4

5 (f) Other : The aggregate adjustment included as " Other" in the reconciliations of consolidated net income and shareholders equity as of and for the years ended 2002, 2001 and 2000, consists of: Net Income Shareholders' Equity (in millions of euros) US GAAP adjustments: Stock-based compensation... (8) (8) (5) Revenue recognition (14) Marketable and investment securities.. (1) Pensions and post-retirement benefits.. (11) (11) 19 (137) (38) 64 Treasury shares (9) (5) (623) (462) (300) Total adjustment, before tax 15 (14) 29 (758) (490) (205) Treasury shares Under French GAAP, treasury shares repurchased for purposes of re-allocating them at a later date to employees pursuant to a stock-based compensation plan are recorded, at cost, as an asset in the Group s balance sheet. When the shares are expected to be re-allocated at a value below their recorded cost, a provision is recognized as expense in the statement of income for the difference between cost and expected re-issuance proceeds. Under US GAAP, treasury shares repurchased are recorded, at cost, as a reduction of shareholders equity. As of 2002, the Group held 13,964,580 of its common shares in treasury for the purposes of stock-based compensation plans for a net value of 623 million euros. (g) Deferred income tax effect on above adjustments : This adjustment reflects the tax effects of the adjustments reflected in the reconciliations of shareholders equity and net income. The Group is in a net deferred tax liability position under US GAAP principally due to the deferred tax liabilities recognized related to identified intangible assets recorded under US GAAP in connection with the merger of Sanofi and Synthélabo. The reversal of these deferred tax liabilities will allow the Group to realize the benefit of certain deferred tax assets under US GAAP. Therefore, this adjustment also includes the recognition of certain deferred tax assets under US GAAP. (h) Deferred income taxes on equity investees : Under French GAAP, a deferred tax liability is recorded for a taxable distribution when such distribution is considered probable. Under US GAAP, a deferred tax liability is recorded for the excess of the amount for financial reporting over the tax basis of investments in a 50%-or-less owned entity. Balance sheets and profit and loss statements prepared in accordance with the US GAAP rules, as well as the differences in presentation with detailed explanations on adjustments between French and American accounting principles described above are presented in Form 20-F available on both the company s website at and on the SEC s website at 5

6 Disclosure controls and procedures The «Form 20-F» also includes the following information regarding the appropriateness and effectiveness of controls and procedures set up by management in connection with the preparation of the «Form 20-F»: Within the 90 days prior to the date of this report, we carried out an evaluation under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of Sanofi-Synthélabo s disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon and as of the date of our evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. Declaration of the person responsible for the reference document To the best of my knowledge, the data contained in the present supplemental information to the reference document registration number D , filed with the Commision des opérations de bourse on April 23, 2003, is accurate. The reference document together with the press releases issued by Sanofi-Synthélabo since that date and the present supplemental information include all the information necessary for investors to form a judgement on the net assets, operations, financial position, results and prospects of Sanofi-Synthélabo and do not contain any omission liable to alter the import of the document. Paris, June 25, 2003 Jean-François Dehecq Chairman and Chief Executive Officer of Sanofi-Synthélabo 6

7 Report of the statutory auditors In our capacity as statutory auditors of Sanofi-Synthelabo and in compliance with the COB Regulation n 98-01, we have verified, in accordance with French professional standards, the information in respect of the financial position and historic financial statements included in the revised registration document ( document de référence complété ) (The revised registrationdocument comprises both the registration document filed with the COB on April 23, 2003 under the reference D , on which we have already issued a report, and the accompanying additional information relating to the 2002 registration document). This revised registration document is the responsibility of the Chairman-Chief Executive Officer. Our responsibility is to report on the fairness of the information contained therein with respect to the financial position and financial statements. We conducted our review in accordance with French professional standards. This review consisted in assessing the fairness of the information on the financial position and financial statements and to verify their consistency with the audited accounts. We also reviewed other financial information contained in the revised registration document in order to identify any significant inconsistency with information in respect of the financial position and financial statements and to bring to your attention any obvious misstatements we noted based on our general understanding of the company gained through our audit. As the prospective information has been properly prepared, our review took into account Management's assumptions on which the prospective information is based. We conducted an audit in accordance with French professional standards on the annual and consolidated accounts for the years ended 2002, 2001 and 2000, drawn up by the Board of Directors.We issued an unqualified opinion on the annual and consolidated accounts for the years ended 2001 and 2000.Without qualifying our opinion on the annual and consolidated accounts for the year ended 2002, we draw attention of the change in accounting method resulting from the application of the new CRC rule on liabilities. We have nothing to report with respect to the fairness of the information on the financial position and financial statements contained in the revised registration document ( document de référence complété ). Paris, June 25, 2003 PricewaterhouseCoopers Audit Ernst & Young Audit Jacques Denizeau Jean-Christophe Georghiou Dominique Thouvenin Valérie Quint 7