Aviva 2005 Annual Report Download - page 109

3 – Subsidiaries continued
The assets and liabilities at the date of acquisition were:
Fair value and
Pension accounting
Revaluation scheme policy
Book value of Intangibles valuation adjustments Fair value
£m £m £m £m £m
Assets
Intangible assets 59 333 – – 392
Tax assets 58 – – (58) –
Other assets 608 – – 38 646
Total assets 725 333 – (20) 1,038
Liabilities
Provisions
Pension deficit (257) – (56) – (313)
Other (8) – – (14) (22)
Tax liabilities – (118) 17 83 (18)
Other liabilities (708) – – (3) (711)
Total liabilities (973) (118) (39) 66 (1,064)
Net assets acquired (248) 215 (39) 46 (26)
Goodwill (including £118 million arising from the creation of the
deferred tax liability on intangibles) 1,139
Intangible assets 392
Total goodwill and intangible assets 1,531
Less: deferred tax liability (118)
Total value of goodwill and intangible assets net of associated tax included on balance sheet 1,413
Separable intangible assets have been identified and valued by an independent third party at £392 million, using estimated post-tax
cash flows and post-tax discount rates. The Group has assessed the useful economic lives of these intangibles, considering relevant factors
such as usage of the asset, typical product life cycles, potential obsolescence, maintenance costs, the stability of the industry, competitive
position, and the period of control over the assets. In the case of the RAC and BSM brands, it has been determined that the existing lives
of the assets, their competitive position in and the stability of their respective markets indicate that the brands have indefinite useful lives,
and thus no amortisation has been charged in the period since acquisition. Of the total £392 million, £260 million has been assessed
as having an indefinite life, with the remaining £132 million, mainly contractual customer relationships, being amortised over nine to
22 years.
A deferred tax liability of £118 million has been provided against these intangible assets, resulting in an increase in residual goodwill by
this amount. Although this liability has been recognised in accordance with IAS 12, and a proportion will be amortised to the income
statement as the related intangible asset is amortised, this liability is only payable if the intangible asset is sold separately and this is not
expected to happen.
The pension scheme valuation adjustment and associated deferred taxation represents the effect of aligning the assumptions of the
RAC plc schemes to those of Aviva. The fair value of the RAC pension deficit at the date of acquisition amounted to £313 million
(£219 million after deferred tax).
The residual goodwill of £1,139 million essentially represents synergies, both in increased revenues and in reduced costs, expected to
arise in RAC plc and our UK general insurance business as a result of the acquisition.
£109 million of integration costs for the restructuring of the combined Norwich Union Insurance and RAC businesses has been included
in the results to 31 December 2005.
(ii) Gresham Insurance Company Limited
On 31 March 2005, the Group acquired 100% of the share capital of Gresham Insurance Company Limited. The cash consideration
including purchase costs was £75 million. The fair value of the net assets acquired, including intangibles of £14 million, was £75 million,
giving rise to no goodwill on acquisition.
(iii) Solus Automotive Limited
On 11 May 2005, the Group acquired 100% of the share capital of Solus Automotive Limited. The cash consideration including purchase
costs was £20 million, including £12 million of cash and £8 million of deferred consideration. The fair value of the net assets acquired was
nil, giving rise to £20 million of goodwill on acquisition.
Financial statements
Aviva plc 2005
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