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Registration No. 333-145055
The information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. |
Per Share | Total | |||||||
Initial price to the public | $ | $ | ||||||
Underwriting discount | $ | $ | ||||||
Proceeds, before expenses, toSchering-Plough | $ | $ |
Banc of America Securities LLC |
Bear, Stearns & Co. Inc. |
Citi |
Morgan Stanley |
BNP PARIBAS |
Credit Suisse |
JPMorgan |
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Period End | Average(1) | High | Low | |||||||||||||
Year: | ||||||||||||||||
2004 | 1.3538 | 1.2478 | 1.3625 | 1.1801 | ||||||||||||
2005 | 1.1842 | 1.2400 | 1.3476 | 1.1667 | ||||||||||||
2006 | 1.3197 | 1.2665 | 1.3327 | 1.1860 | ||||||||||||
2007 (through August 1, 2007) | 1.3682 | 1.3421 | 1.3831 | 1.2904 |
(1) | The average of the noon buying rate for euro on the last day of each full month during the relevant year or period. |
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• | growing the business; | |
• | penetrating new markets; | |
• | expanding the product portfolio forSchering-Plough’s three customer markets — human pharmaceutical, consumer healthcare and animal health; and | |
• | discovering and developing or acquiring new products. |
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Issuer | Schering-Plough Corporation. | |
Securities Offered | 10,000,000 shares of % mandatory convertible preferred stock. | |
Initial Offering Price | $ for each share of 2007 Preferred Stock. | |
Option to Purchase Additional Shares of 2007 Preferred Stock | To the extent the underwriters sell more than 10,000,000 shares of the 2007 Preferred Stock, the underwriters have the option to purchase up to 1,500,000 additional shares of the 2007 Preferred Stock fromSchering-Plough at the initial price to the public, less the underwriting discounts, within 30 days from the date of this prospectus supplement. | |
Dividends | % per year for each share of the 2007 Preferred Stock on the liquidation preference of $250 per share. Dividends will accrue and cumulate from the date of issuance and, to the extent thatSchering-Plough is legally permitted to pay dividends and the board of directors, or an authorized committee of the board of directors, declares a dividend payable,Schering-Plough will pay dividends in cash on each dividend payment date. The expected dividend payable on the first dividend payment date is $ per share, and on each subsequent dividend payment date the dividend is expected to be $ per share. The dividend payable on the mandatory conversion date is expected to be $ . See “Risk Factors—Risks Related to the Offering—New Jersey law may restrictSchering-Plough from paying cash dividends on the 2007 Preferred Stock” and “Description of Mandatory Convertible Preferred Stock—Dividends”. | |
Dividend Payment Dates | February 15, May 15, August 15 and November 15 of each year (or the following business day if such date is not a business day) prior to the mandatory conversion date (as defined below), commencing on November 15, 2007, and on the mandatory conversion date. | |
Redemption | The 2007 Preferred Stock is not redeemable. | |
Mandatory Conversion Date | August 13, 2010, referred to as the “mandatory conversion date”. | |
Mandatory Conversion | On the mandatory conversion date, each share of the 2007 Preferred Stock will automatically convert into common shares, based on the conversion rate as described below. | |
In addition to the number of common shares issuable upon conversion of each share of the 2007 Preferred Stock on the mandatory conversion date, you will receive in cash all accrued, cumulated and unpaid dividends that have not been declared for all dividend periods up to and excluding the mandatory conversion date. You will also receive any declared unpaid dividends on the mandatory conversion date. You will |
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only receive dividends ifSchering-Plough is legally permitted to pay dividends. | ||
Conversion Rate | The conversion rate for each share of the 2007 Preferred Stock will be not more than common shares and not less than common shares, depending on the applicable market value of the common shares, as described below. | |
The “applicable market value” of the common shares is the average of the closing prices per common share on each of the 20 consecutive trading days ending on the third trading day immediately preceding the mandatory conversion date. It will be calculated as described under “Description of Mandatory Convertible Preferred Stock—Mandatory Conversion”. | ||
The conversion rate is subject to certain adjustments, as described under “Description of Mandatory Convertible Preferred Stock—Anti-dilution Adjustments”. | ||
The following table illustrates the conversion rate per share of the 2007 Preferred Stock on the mandatory conversion date, subject to certain anti-dilution adjustments described under “Description of Mandatory Convertible Preferred Stock—Anti-dilution Adjustments”. |
Applicable Market Value | ||
on the Mandatory Conversion Date | Conversion Rate | |
less than or equal to $ | ||
between $ and $ | to | |
equal to or greater than $ |
Optional Conversion | At any time prior to August 13, 2010, you may elect to convert each of your shares of the 2007 Preferred Stock at the minimum conversion rate of common shares for each share of mandatory convertible preferred stock. This conversion rate is subject to certain adjustments as described under “Description of Mandatory Convertible PreferredStock—Anti-dilution Adjustments”. | |
In addition to the number of common shares issuable upon conversion of each share of the 2007 Preferred Stock at the option of the holder on the effective date of any early conversion, referred to as the “early conversion date”, you will receive in cash all accrued, cumulated and unpaid dividends that have not been declared for all prior dividend periods ending on or prior to the dividend payment date immediately preceding the early conversion date. If the early conversion date is prior to the record date for any declared dividend for the dividend period in which you elect to convert early, you will not receive any declared dividends for that dividend period. If the early conversion date is after the record date for any declared dividend, you will receive that dividend on the relevant dividend payment date if you were the holder of record on the record date for that dividend; however, whether or not you were the holder of record on the record date, you |
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must pay to the conversion agent an amount in cash equal to the full dividend payable on the dividend payment date for the then-current dividend period on the shares being converted. You will only receive dividends ifSchering-Plough is legally permitted to pay dividends. | ||
Provisional Conversion atSchering-Plough’s Option | If, at any time prior to August 13, 2010, the closing price per common share exceeds $ (150% of the threshold appreciation price of $ ), subject to anti-dilution adjustments, for at least 20 trading days within a period of 30 consecutive trading days,Schering-Plough may elect to cause the conversion of all, but not less than all, of the 2007 Preferred Stock then outstanding at the minimum conversion rate of common shares for each share of 2007 Preferred Stock, subject to certain adjustments as described under “Description of Mandatory Convertible PreferredStock—Anti-dilution Adjustments”, only if, in addition to issuing you such common shares, at the time of such conversionSchering-Plough is then legally permitted to and does pay you in cash an amount equal to the sum of: | |
(i) all accrued, cumulated and unpaid dividends on your shares of 2007 Preferred Stock that have not been declared for all dividend periods to, but excluding, the conversion date, plus | ||
(ii) if the conversion date is prior to the record date for any declared dividend, all accrued, cumulated and unpaid dividends on your shares of 2007 Preferred Stock that have been declared for all dividend periods to, but excluding, the conversion date, plus | ||
(iii) the present value of all remaining future dividend payments on your shares of the 2007 Preferred Stock through and including August 13, 2010 (excluding (a) any unpaid dividends accrued during the portion of the then-current dividend period through, but excluding, the conversion date, and (b) if the conversion date is after the record date for any declared dividend, any of those dividends for the then-current dividend period), computed using a discount rate equal to the treasury yield. | ||
If the conversion date is after the record date for any declared dividends, you will be paid those unpaid dividends on the relevant dividend payment date, rather than the conversion date, if you were the holder of record on the record date for that dividend. See “Description of Mandatory Convertible Preferred Stock—Provisional Conversion atSchering-Plough’s Option”. | ||
Early Conversion and Dividend Make-Whole Payment Upon Certain Acquisitions | The following provisions will apply if, prior to the earlier of August 13, 2010 andSchering-Plough providing notice of a provisional conversion at its option,Schering-Plough is the |
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subject of any acquisition or a series of related transactions or events pursuant to which: | ||
• 90% or more ofSchering-Plough’s common shares are exchanged for, converted into or constitute solely the right to receive cash, securities or other property; and | ||
• more than 10% of such cash, securities or other property is: | ||
(1) cash; or | ||
(2) securities or other property that is not, or upon issuance will not be, shares of common equity or American depositary receipts in respect of common equity traded on the New York Stock Exchange or quoted on the Nasdaq Global Select Market or Nasdaq Global Market. | ||
These transactions are referred to as “make-whole acquisitions”. | ||
Upon such make-whole acquisition, under certain circumstances,Schering-Plough will: | ||
• permit conversion of the 2007 Preferred Stock, during the period beginning on the effective date of the make-whole acquisition and ending on the date that is 15 days after the effective date, at a specified make-whole conversion rate determined by reference to the price per common share paid in the make-whole acquisition; and | ||
• pay you, upon conversion, in cash an amount equal to the sum of: | ||
(1) all accrued, cumulated and unpaid dividends on your shares of 2007 Preferred Stock that have not been declared for all dividend periods to, but excluding, the conversion date, plus | ||
(2) if the make-whole conversion date is prior to the record date for any declared dividend, all accrued, cumulated and unpaid dividends on your shares of 2007 Preferred Stock that have been declared for all dividend periods to, but excluding, the make-whole conversion date, plus | ||
(3) the present value of all remaining future dividend payments on your shares of 2007 Preferred Stock through and including August 13, 2010 (excluding (a) any unpaid dividends accrued during the portion of the then-current dividend period through, but excluding, the make-whole conversion date, and (b) if the make-whole conversion date is after the record date for any declared dividend, any of those dividends for the then-current dividend period) discounted at a rate equal to %, | ||
in each case, out of legally available assets. |
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If the make-whole conversion date is after the record date for any declared dividends, you will be paid those dividends on the relevant dividend payment date for such declared dividends, rather than the make-whole conversion date, if you were the holder of record on the record date for that dividend. | ||
See “Description of Mandatory Convertible Preferred Stock—Early Conversion and Dividend Make-Whole Payment Upon Certain Acquisitions”. | ||
Reorganization Events (Including Mergers) | The following provisions apply in the event of certain “reorganization events”, which include, subject to certain exceptions: | |
• any consolidation or merger ofSchering-Plough with or into another person; | ||
• any sale, transfer, lease or conveyance to another person of all or substantially all ofSchering-Plough’s property and assets; or | ||
• certain reclassifications of common shares or statutory exchanges of securities ofSchering-Plough. | ||
Each share of the 2007 Preferred Stock outstanding immediately prior to the reorganization events will become convertible on the mandatory conversion date or upon any conversion bySchering-Plough or at the option of the holders of the 2007 Preferred Stock (other than an acquisition described above under “Early Conversion and Dividend Make-Whole Payment Upon Certain Acquisitions”) into the kind of securities, cash and other property receivable in the reorganization event by holders of the common shares. See “Description of Mandatory Convertible Preferred Stock—Reorganization Events”. | ||
Anti-dilution Adjustments | The conversion rate and the number of common shares to be delivered upon conversion may be adjusted in the event of, among other things, increases in cash dividends, stock dividends or distributions in common shares or subdivisions, splits and combinations of the common shares. See “Description of Mandatory Convertible Preferred Stock—Anti-dilution Adjustments”. | |
Liquidation Preference | $250 per share of 2007 Preferred Stock, plus an amount equal to the sum of all accrued, cumulated and unpaid dividends. | |
Voting Rights | Holders of the 2007 Preferred Stock will not be entitled to any voting rights, except as required by New Jersey law and as described under “Description of Mandatory Convertible Preferred Stock—Voting Rights”. | |
Ranking | The 2007 Preferred Stock will rank as to payment of dividends and distributions of assets upon dissolution, liquidation or winding up: | |
• junior to all existing and future debt obligations ofSchering-Plough and its subsidiaries; |
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• junior to any class or series of the capital stock ofSchering-Plough, the terms of which provide that such class or series will rank senior to the 2007 Preferred Stock; | ||
• senior to the common shares and any other class or series of the capital stock ofSchering-Plough, the terms of which provide that such class or series will rank junior to the 2007 Preferred Stock; and | ||
• on a parity with any other class or series ofSchering-Plough’s capital stock, including the 2004 Preferred Stock; | ||
in each case, whether now outstanding or to be issued in the future. | ||
Schering-Plough will not be entitled to issue any class or series of its capital stock, the terms of which provide that such class or series will rank senior to the 2007 Preferred Stock as to payment of dividends or distribution of assets uponSchering-Plough’s dissolution, liquidation or winding up without the approval of the holders of at least two-thirds of the 2007 Preferred Stock and any other preferred shares ranking on a parity with the 2007 Preferred Stock then outstanding, voting together as a single class. | ||
There are currently 28,750,000 preferred shares issued and outstanding, in the form of the 2004 Preferred Stock, which will convert automatically into common shares on September 14, 2007, unless earlier converted. | ||
Listing | Prior to this offering, there has been no public market for the 2007 Preferred Stock. The 2007 Preferred Stock is expected to be listed on the New York Stock Exchange.Schering-Plough’s common shares are listed on the New York Stock Exchange under the symbol “SGP”. | |
Use of Proceeds | Schering-Plough intends to use the net proceeds from the sale of the 2007 Preferred Stock and the concurrent offering of common shares to fund a portion of the purchase price for the planned Organon BioSciences acquisition. If the Organon BioSciences acquisition is not completed,Schering-Plough will use the net proceeds from this offering for general corporate purposes, andSchering-Plough will have broad discretion in allocating the net proceeds from this offering. See “Use of Proceeds”. |
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As of and for the | As of and for the | |||||||||||||||||||
Six Months Ended | Year Ended | |||||||||||||||||||
June 30, | December 31, | |||||||||||||||||||
2007 | 2006 | 2006 | 2005 | 2004 | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(In millions, except per share data) | ||||||||||||||||||||
Operating Results | ||||||||||||||||||||
Net sales | $ | 6,153 | $ | 5,369 | $ | 10,594 | $ | 9,508 | $ | 8,272 | ||||||||||
Equity (income) from cholesterol joint venture | (978 | ) | (666 | ) | (1,459 | ) | (873 | ) | (347 | ) | ||||||||||
Income/(loss) before income taxes(1) | 1,293 | 780 | 1,483 | 497 | (168 | ) | ||||||||||||||
Net income/(loss)(1)(2) | 1,103 | 630 | 1,143 | 269 | (947 | ) | ||||||||||||||
Net income/(loss)available to common shareholders | 1,060 | 587 | 1,057 | 183 | (981 | ) | ||||||||||||||
Diluted earnings/(loss) per common share(1) | 0.70 | 0.40 | 0.71 | 0.12 | (0.67 | ) | ||||||||||||||
Basic earnings/(loss) per common share(1) | 0.71 | 0.40 | 0.71 | 0.12 | (0.67 | ) | ||||||||||||||
Research and development expenses | 1,403 | 1,020 | 2,188 | 1,865 | 1,607 | |||||||||||||||
Depreciation and amortization expenses | 243 | 251 | 568 | 486 | 453 | |||||||||||||||
Financial Position and Cash Flows | ||||||||||||||||||||
Property, net | $ | 4,395 | $ | 4,396 | $ | 4,365 | $ | 4,487 | $ | 4,593 | ||||||||||
Total assets | 17,061 | 15,367 | 16,071 | 15,469 | 15,911 | |||||||||||||||
Long-term debt | 2,414 | 2,413 | 2,414 | 2,399 | 2,392 | |||||||||||||||
Shareholders’ equity | 8,870 | 7,968 | 7,908 | 7,387 | 7,556 | |||||||||||||||
Capital expenditures | 275 | 192 | 458 | 478 | 489 | |||||||||||||||
Other Data | ||||||||||||||||||||
Cash dividends per common share | $ | 0.12 | $ | 0.11 | $ | 0.22 | $ | 0.22 | $ | 0.22 | ||||||||||
Cash dividends paid on common shares | 179 | 162 | 326 | 324 | 324 | |||||||||||||||
Cash dividends paid on preferred shares(3) | 43 | 43 | 86 | 86 | 30 | |||||||||||||||
Average shares outstanding used in calculating diluted earnings/(loss) per common share(4) | 1,579 | 1,487 | 1,491 | 1,484 | 1,472 | |||||||||||||||
Average shares outstanding used in calculating basic earnings/(loss) per common share | 1,491 | 1,480 | 1,482 | 1,476 | 1,472 | |||||||||||||||
Common shares outstanding at period-end | 1,496 | 1,481 | 1,487 | 1,479 | 1,474 |
(1) | Operating results for the years ended 2006, 2005 and 2004 include special charges and manufacturing streamlining costs of $248 million, $294 million and $153 million, respectively. Operating results for the six months ended June 30, 2007 and 2006 include special charges and manufacturing streamlining costs of $12 million and $138 million, respectively. See Note 2 to theSchering-Plough financial statements in the 200610-K incorporated by reference into this prospectus supplement for additional information on these charges that have been incurred in 2006, 2005, and 2004. See also Note 2 to theSchering-Plough financial statements in the second quarter 200710-Q incorporated by reference into this prospectus supplement for additional information on these charges that have been incurred in the six months ended June 30, 2007 and 2006. | |
(2) | In 2004,Schering-Plough recorded the tax impact of the intended repatriation of funds under the American Jobs Creation Act of 2004. | |
(3) | Reflects dividends paid on the 2004 Preferred Stock. | |
(4) | The increase in average diluted shares outstanding for the six months ended June 30, 2007 was due to the 2004 Preferred Stock being dilutive under accounting rules. The 2004 Preferred Stock was not dilutive with respect to prior periods. |
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Six Months | ||||||||||||||||||||||||
Ended | ||||||||||||||||||||||||
June 30, | Year Ended December 31, | |||||||||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | 2002 | |||||||||||||||||||
Ratio of earnings to fixed charges and preferred stock dividends | 7.4 | 5.1 | 1.6 | (0.3 | )* | 0.4 | ** | 33.2 |
* | For the year ended December 31, 2004, earnings were insufficient to cover fixed charges and preferred stock dividends by $322 million. | |
** | For the year ended December 31, 2003, earnings were insufficient to cover fixed charges by $70 million. |
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• | regulatory approvals from the European Commission and the Federal Trade Commission; and | |
• | completion of the consultation processes with the Works Council of Organon BioSciences in the Netherlands. |
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• | There may be limited access to and supply of normal and diseased tissue samples, cell lines, pathogens, bacteria, viral strains and other biological materials. In addition, government regulations in multiple jurisdictions such as the U.S. and European states within the E.U., could result in restricted access to, or transport or use of, such materials. IfSchering-Plough loses access to sufficient sources of such materials, or if tighter restrictions are imposed on the use of such materials,Schering-Plough may not be able to conduct research activities as planned and may incur additional development costs. | |
• | The development, manufacturing and marketing of biologics are subject to regulation by the FDA, the European Medicines Agency and other regulatory bodies. These regulations are often more complex and extensive than the regulations applicable to other pharmaceutical products. For example, in the U.S., a Biologics License Application, including both preclinical and clinical trial data and extensive data regarding the manufacturing procedures, is required for vaccine candidates and FDA approval for the release of each manufactured lot. | |
• | Manufacturing biologics, especially in large quantities, is sometimes complex and may require the use of innovative technologies to handle living micro-organisms. Manufacturing biologics requires facilities specifically designed for and validated for this purpose, and sophisticated quality assurance and quality control procedures are necessary. Slight deviations anywhere in the manufacturing process, including filling, labeling, packaging, storage and shipping and quality control and testing, may result in lot failures, product recalls or spoilage. | |
• | Biologics are frequently costly to manufacture because the ingredients are derived from living animal or plant material, and most biologics cannot be made synthetically. In particular, keeping up with the demand for vaccines may be difficult due to the complexity of producing vaccines. | |
• | The use of biologically derived ingredients can lead to allegations of harm, including infections or allergic reactions, or closure of product facilities due to possible contamination. Any of these events could result in substantial costs. |
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• | findings of ineffectiveness, superior safety or efficacy of competing products, or harmful side effects in clinical or pre-clinical testing; |
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• | failure to receive the necessary regulatory approvals, including delays in the approval of new products and new indications; | |
• | lack of economic feasibility due to manufacturing costs or other factors; and | |
• | preclusion from commercialization by the proprietary rights of others. |
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• | the re-review of products that are already marketed; | |
• | new scientific information and evolution of scientific theories; | |
• | the recall or loss of marketing approval of products that are already marketed; |
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• | uncertainties concerning safety labeling changes; and | |
• | greater scrutiny in advertising and promotion. |
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• | changes in medical reimbursement policies and programs and pricing restrictions in key markets; | |
• | multiple regulatory requirements that could restrictSchering-Plough’s ability to manufacture and sell its products in key markets; | |
• | trade protection measures and import or export licensing requirements; | |
• | diminished protection of intellectual property in some countries; and | |
• | possible nationalization and expropriation. |
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• | quarterly fluctuations inSchering-Plough’s operating and financial results; | |
• | developments related to investigations, proceedings or litigations that involveSchering-Plough; | |
• | changes in financial estimates and recommendations by financial analysts; | |
• | dispositions, acquisitions and financings; | |
• | changes in the ratings ofSchering-Plough’s other securities; | |
• | fluctuations in the stock price and operating results of the competitors; | |
• | regulatory developments; and | |
• | developments related to the pharmaceutical industry. |
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• | to acquire additional marketed products and pipeline projects (through acquisitions of companies or through product licenses which may include royalties, license fees and milestone payments), | |
• | research and development costs, | |
• | the repayment of debt, | |
• | litigation costs, and | |
• | other capital expenses and other operating expenses. |
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Dividends Per | ||||||||||||
High | Low | Common Share | ||||||||||
Year Ended December 31, 2004: | ||||||||||||
First Quarter | $ | 18.97 | $ | 15.96 | $ | .055 | ||||||
Second Quarter | 18.70 | 16.10 | .055 | |||||||||
Third Quarter | 19.98 | 17.55 | .055 | |||||||||
Fourth Quarter | 21.76 | 19.05 | .055 | |||||||||
Year Ended December 31, 2005: | ||||||||||||
First Quarter | $ | 21.41 | $ | 17.68 | $ | .055 | ||||||
Second Quarter | 20.94 | 17.89 | .055 | |||||||||
Third Quarter | 22.45 | 18.48 | .055 | |||||||||
Fourth Quarter | 21.76 | 19.05 | .055 | |||||||||
Year Ended December 31, 2006: | ||||||||||||
First Quarter | $ | 20.93 | $ | 18.00 | $ | .055 | ||||||
Second Quarter | 20.00 | 18.25 | .055 | |||||||||
Third Quarter | 22.09 | 18.60 | .055 | |||||||||
Fourth Quarter | 23.90 | 21.25 | .055 | |||||||||
Year Ended December 31, 2007: | ||||||||||||
First Quarter | $ | 25.51 | $ | 22.75 | $ | .055 | ||||||
Second Quarter | 33.34 | 25.42 | .065 | |||||||||
Third Quarter (through August 1, 2007) | 32.83 | 28.54 |
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• | junior to all existing and future debt obligations ofSchering-Plough and its subsidiaries; | |
• | junior to any class or series of the capital stock ofSchering-Plough, the terms of which provide that such class or series will rank senior to the 2007 Preferred Stock, which are collectively referred to as the “Senior Securities”; | |
• | senior to the common shares and any other class or series of the capital stock ofSchering-Plough, the terms of which provide that such class or series will rank junior to the 2007 Preferred Stock, which are collectively referred to as the “Junior Securities”; and | |
• | on a parity with any other class or series ofSchering-Plough’s capital stock, including the 2004 Preferred Stock, which are collectively referred to as the “Parity Securities”; |
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• | declare or pay any dividend or make any distribution of assets on any Junior Securities, unless it is paid in the form of Junior Securities and cash solely in lieu of fractional shares in connection with the dividend or distribution; | |
• | redeem, purchase or otherwise acquire any Junior Securities or pay or make any monies available for a sinking fund for such Junior Securities, unless it is (A) upon conversion or exchange for other Junior Securities, or (B) the purchase of fractional interests in shares of any Junior Securities pursuant to the conversion or exchange provisions of those Junior Securities; | |
• | declare or pay any dividend or make any distribution of assets on any Parity Securities unless it is on the 2004 Preferred Stock, or it is a dividend or distribution in the form of Parity Securities or Junior Securities and cash solely in lieu of fractional shares of the Parity Securities or Junior Securities; or | |
• | redeem, purchase or otherwise acquire any Parity Securities, except upon conversion into or exchange for other Parity Securities or Junior Securities and cash solely in lieu of fractional shares of the Parity Securities or Junior Securities. However, a redemption, purchase or other acquisition of Parity Securities upon conversion into or exchange for other Parity Securities is only permitted if the following occurs: |
• | the aggregate amount of the liquidation preference of the other Parity Securities does not exceed the aggregate amount of the liquidation preference, plus accrued, cumulated and unpaid dividends, of the Parity Securities that are converted into or exchanged for the other Parity Securities; | |
• | the aggregate number of common shares issuable upon conversion, redemption or exchange of the other Parity Securities does not exceed the aggregate number of common shares issuable upon conversion, redemption or exchange of the Parity Securities that are converted into or exchanged for the other Parity Securities; and | |
• | the other Parity Securities contain terms and conditions that are not materially less favorable, taken as a whole, toSchering-Plough or the holders of the 2007 Preferred Stock than those contained in the Parity Securities that are converted or exchanged for the other Parity Securities. |
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• | if the applicable market value (as defined below) of the common shares is equal to or greater than $ , which is called the “threshold appreciation price”, then the conversion rate will be common shares per share of the 2007 Preferred Stock, which is called the “minimum conversion rate”, which is equal to $ divided by $ (the threshold appreciation price); | |
• | if the applicable market value of the common shares is less than $ (the threshold appreciation price) but greater than $ , which is called the “initial price”, then the conversion rate will be equal to $ divided by the applicable market value of the common shares; or | |
• | if the applicable market value of the common shares is less than or equal to $ (the initial price), then the conversion rate will be common shares per share of the 2007 Preferred Stock, which is called the “maximum conversion rate”, and which is equal to $ divided by $ (the initial price). |
• | greater than the liquidation preference of the 2007 Preferred Stock if the applicable market value is greater than the threshold appreciation price; | |
• | equal to the liquidation preference if the applicable market value is less than or equal to the threshold appreciation price and greater than or equal to the initial price; and | |
• | less than the liquidation preference if the applicable market value is less than the initial price. |
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• | are not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business; and | |
• | have traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the common shares. |
• | Schering-Plough has caused the conversion of the 2007 Preferred Stock prior to the mandatory conversion date in the manner described in “—Provisional Conversion atSchering-Plough’s Option”; or | |
• | your shares of the 2007 Preferred Stock have been converted prior to the mandatory conversion date, in the manner described in “—Conversion at the Option of the Holder” or “—Early Conversion and Dividend Make-Whole Payment Upon Certain Acquisitions”. |
• | complete and manually sign the conversion notice provided by the conversion agent, or a facsimile of the conversion notice, and deliver this irrevocable notice to the conversion agent; | |
• | surrender the shares of 2007 Preferred Stock to the conversion agent; | |
• | if required, furnish appropriate endorsements and transfer documents; | |
• | if required, pay all transfer or similar taxes; and | |
• | if the conversion is being made pursuant to “—Conversion at the Option of the Holder” and the early conversion date is after the record date for any declared dividend, the holder must pay to the conversion agent an amount in cash equal to the full dividend payable on the dividend payment date for the then-current dividend period on the shares being converted. |
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• | 90% or more ofSchering-Plough’s common shares are exchanged for, converted into or constitutes solely the right to receive cash, securities or other property; and | |
• | more than 10% of such cash, securities or other property is: |
• | permitting holders to submit their shares of 2007 Preferred Stock for conversion at any time during the period (the “make-whole acquisition conversion period”) beginning on the effective date of the make-whole acquisition (the “effective date”) and ending on the date that is 15 days after the effective date at the conversion rate (the “make-whole acquisition conversion rate”) specified in the table below; and | |
• | paying converting holders the amount set forth under “—Dividend Make-Whole Payment”. |
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Share Price | ||||||||||||||||||||||||||||||||||||||||||||||||
Effective Date | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
8/ /2007 | ||||||||||||||||||||||||||||||||||||||||||||||||
8/15/2008 | ||||||||||||||||||||||||||||||||||||||||||||||||
8/15/2009 | ||||||||||||||||||||||||||||||||||||||||||||||||
8/13/2010 |
• | if the share price is between two share price amounts on the table or the effective date is between two dates on the table, the make-whole acquisition conversion rate will be determined by straight-line interpolation between the make-whole acquisition conversion rates set forth for the higher and lower share price amounts and the two dates, as applicable, based on a365-day year; | |
• | if the share price is in excess of $ per share (subject to adjustment as described above), then the make-whole acquisition conversion rate will be the minimum conversion rate, subject to adjustment; and |
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• | if the share price is less than $ per share (subject to adjustment as described above), then the make-whole acquisition conversion rate will be the maximum conversion rate, subject to adjustment. |
(i) | all accrued, cumulated and unpaid dividends on your shares of 2007 Preferred Stock that have not been declared for all dividend periods to, but excluding, the make-whole conversion date, plus |
(ii) | if the make-whole conversion date is prior to the record date, all accrued, cumulated and unpaid dividends on your shares of 2007 Preferred Stock that have been declared for all dividend periods to, but excluding, the make-whole conversion date, plus |
(iii) | the present value of all remaining future dividend payments on your shares of 2007 Preferred Stock through and including August 13, 2010 (excluding (a) any unpaid dividends accrued during the portion of the then-current dividend period through, but excluding, the make-whole conversion date, and (b) if the make-whole conversion date is after the record date for any declared dividend, any of those dividends for the then-current dividend period) discounted at a rate equal to %, |
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(a) | any consolidation or merger ofSchering-Plough with or into another person (other than a merger or consolidation in whichSchering-Plough is the continuing corporation and in which the common shares outstanding immediately prior to the merger or consolidation are not exchanged for cash, securities or other property ofSchering-Plough or another person); | |
(b) | any sale, transfer, lease or conveyance to another person of all or substantially all of the property and assets ofSchering-Plough; | |
(c) | any reclassification of the common shares into securities, including securities other than the common shares; or | |
(d) | any statutory exchange of securities ofSchering-Plough with another person (other than in connection with a merger or acquisition) |
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SPo= | the current market price per common share on the date fixed for distribution. | |
FMV= | the fair market value of the portion of the distribution applicable to one common share as determined bySchering-Plough’s board of directors. |
MPo= | the current market price per common share on the fifteenth trading day after the “ex-date” for the distribution. | |
MPs= | the current market price of the shares representing the portion of distribution applicable to one common share on the fifteenth trading day after the “ex-date” for the distribution. |
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SPo= | the current market price per common share on the “ex-date”. | |
DIV= | the amount per common share of the dividend or distribution. |
SPo= | the current market price per common share on the seventh trading day after the expiration of the tender or exchange offer. | |
OSo= | the number of common shares outstanding at the expiration of the tender or exchange offer, including any shares validly tendered and not withdrawn. | |
AC= | the aggregate cash and fair market value of the other consideration payable in the tender or exchange offer, as determined bySchering-Plough’s board of directors. | |
TS= | the number of common shares validly tendered and not withdrawn at the expiration of the tender or exchange offer. |
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FMV= | the fair market value of the aggregate consideration payable to all holders of the common shares based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the expiration of the offer, as determined bySchering-Plough’s board of directors. | |
OS’= | the number of common shares outstanding immediately prior to the expiration of the offer, less all shares validly tendered or exchanged and not withdrawn as of the expiration of the offer, as determined bySchering-Plough’s board of directors. | |
SPo= | the current market price per common share on the seventh trading day after the expiration of the tender or exchange offer. | |
OSo= | the number of common shares outstanding immediately prior to the expiration of the offer, including any tendered or exchanged shares. |
• | the tender offer or exchange offer is for an amount that increases the offeror’s ownership of common shares to more than 30% of the total common shares outstanding; and |
• | the cash and fair market value of any other consideration included in the payment per common share exceeds the current market price per common share on the seventh trading day next succeeding the last date on which tenders or exchanges may be made pursuant to the tender or exchange offer. |
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• | in the case of mandatory conversion, an early conversion at the option ofSchering-Plough or a make-whole acquisition early conversion, the average of the daily closing price per common share for each of the five consecutive trading days preceding the trading day immediately preceding the date of conversion; or | |
• | in the case of each early conversion at the option of a holder, the closing price per common share determined as of the second trading day immediately preceding the effective date of conversion. |
• | the sale, transfer, lease or conveyance of all or substantially all of the property or business; | |
• | the consolidation or merger ofSchering-Plough Corporation with or into any other person; or | |
• | the consolidation or merger of any other person with or intoSchering-Plough Corporation. |
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• | reclassify any ofSchering-Plough’s authorized shares into any shares of any class, or any obligation or security convertible into or evidencing a right to purchase such shares, ranking senior to the 2007 Preferred Stock as to payment of dividends or distribution of assets upon the dissolution, liquidation or winding up; or | |
• | issue, authorize or increase the authorized amount of, or issue or authorize any obligation or security convertible into or evidencing a right to purchase any stock of any class or series ranking senior to the 2007 Preferred Stock as to payment of dividends or distribution of assets uponSchering-Plough’s dissolution, liquidation or winding up, provided thatSchering-Plough may issue, authorize or increase the authorized amount of, or issue or authorize any obligation or security convertible into or evidencing a right to purchase, any shares of capital stock ranking on a parity with or junior to the 2007 Preferred Stock as to payment of dividends or distribution of assets uponSchering-Plough’s dissolution, liquidation or winding up without the vote of the holders of the 2007 Preferred Stock. |
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• | the gain is not effectively connected with a U.S. trade or business of the holder (or, if a tax treaty applies, the gain is not attributable to a U.S. permanent establishment or, in the case of an individual, a fixed base maintained by suchnon-U.S. holder); and | |
• | in the case of a non-resident alien individual, such holder is not present in the United States for 183 or more days in the taxable year of the sale or disposition and certain other conditions are met. |
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Underwriters | Number of Shares | |||
Goldman, Sachs & Co. | ||||
Banc of America Securities LLC | ||||
Bear, Stearns & Co. Inc. | ||||
Citigroup Global Markets Inc. | ||||
Morgan Stanley & Co. Incorporated | ||||
BNP Paribas Securities Corp. | ||||
J.P. Morgan Securities Inc. | ||||
Credit Suisse Securities (USA) LLC | ||||
Daiwa Securities America Inc. | ||||
Santander Investment Securities Inc. | ||||
Utendahl Capital Partners, L.P. | ||||
The Williams Capital Group, L.P. | ||||
Total | 10,000,000 | |||
Paid bySchering-Plough | No Exercise | Full Exercise | ||||||
Per Share | $ | $ | ||||||
Total | $ | $ |
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• | incorporated documents are considered part of this prospectus; | |
• | Schering-Plough can disclose important information to you by referring you to those documents; and | |
• | information thatSchering-Plough files with the SEC will automatically update and supersede this incorporated information. |
• | its2006 10-K filed with the SEC on February 28, 2007; | |
• | its first quarter2007 10-Q filed with the SEC on April 27, 2007; | |
• | its second quarter2007 10-Q filed with the SEC on July 27, 2007; | |
• | its8-K filed with the SEC on January 29, 2007; | |
• | its8-K filed with the SEC on March 16, 2007; | |
• | its8-K filed with the SEC on April 19, 2007; | |
• | its8-K filed with the SEC on June 28, 2007; | |
• | its8-K filed with the SEC on July 11, 2007; | |
• | its8-K filed with the SEC on July 23, 2007; | |
• | the following sections of its Proxy Statement for the 2007 Annual Meeting of Shareholders on Schedule 14A filed with the SEC on April 20, 2007: “Proposal One: Elect Eleven Directors for a One-Year Term”, “Section 16(a) Beneficial Ownership Reporting Compliance”, “Information About the Audit Committee of the Board of Directors and its Practices”, “Committees of the Board of Directors”, “Executive Compensation”, “Director Compensation”, “Stock Ownership”, “Certain Transactions”, “Procedures for Related Party Transactions and Director Independence Assessments”, “Director Independence”, and “Proposal Two: Ratify the Designation of Deloitte & Touche LLP to AuditSchering-Plough’s Books and Accounts for 2007”; and | |
• | the description ofSchering-Plough’s common shares contained in its Registration Statement onForm 8-A filed with the SEC on March 16, 1979, and any amendment or report filed for the purpose of updating such description. |
• | reports filed under Section 13(a) and (c) of the Exchange Act; | |
• | definitive proxy or information statements filed under Section 14 of the Exchange Act in connection with any subsequent stockholders’ meeting; and | |
• | any reports filed under Section 15(d) of the Exchange Act. |
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• | Asenapine, a psychopharmacologic agent for the treatment of patients with schizophrenia and acute mania bipolar disorder; | |
• | Sugammadex, for the reversal of neuromuscular blockade induced during surgical procedures; | |
• | NOMAC/E2, an oral contraceptive product containing nomegestrol acetate, a novel progesterone, and estriadiol, a natural estrogen; | |
• | ORG36286, a long-acting recombinant follicle-stimulating hormone for infertility; and | |
• | Esmirtazapine (ORG50081), for the treatment of insomnia and potentially for hot flashes in menopausal women. |
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• | The planned acquisition bySchering-Plough of Organon BioSciences, referred to as the Organon BioSciences acquisition, for aggregate cash consideration of approximately $14.79 billion (approximately €11.00 billion). |
• | The financing of the Organon BioSciences acquisition with aggregate proceeds of $10.30 billion from the following financing transactions: |
• | Issuance of the 2007 Preferred Stock for net proceeds of $2.44 billion; | |
• | Issuance of common shares for net proceeds of $1.46 billion; and | |
• | Draw down of debt under a committed bridge facility in the amount of $6.40 billion. |
• | The use of existingSchering-Plough cash, cash equivalents and short-term investments of $4.49 billion to fund the purchase price. |
• | The effects of business or product divestitures required to obtain regulatory clearance. Currently such divestitures are not expected to be material in the aggregate. | |
• | The effects of change of control or other contractual provisions. Should the final negotiation of these matters result in a loss of rights under these contracts, profits may be materially and adversely affected. |
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U.S. GAAP Historical | ||||||||||||||||||||
Organon | Pro Forma Adjustments | Pro Forma | ||||||||||||||||||
Schering- | BioSciences | (See Note 3) | Condensed | |||||||||||||||||
Plough | (See Note 2) | Financing | Purchase Accounting | Combined | ||||||||||||||||
Increase/(Decrease) | ||||||||||||||||||||
ASSETS | ||||||||||||||||||||
Cash, cash equivalents and short-term investments | $ | 6,234 | $ | 154 | $ | 10,300 | (a) | $ | (14,792 | )(b) | $ | 1,896 | ||||||||
Accounts receivable, net | 2,119 | 1,058 | — | — | 3,177 | |||||||||||||||
Receivables from related parties, net | — | 509 | — | (509 | )(c) | — | ||||||||||||||
Inventories | 1,723 | 1,180 | — | 745 | (d) | 3,648 | ||||||||||||||
Deferred income taxes | 234 | 34 | — | — | 268 | |||||||||||||||
Prepaid expenses and other current assets | 993 | 35 | — | — | 1,028 | |||||||||||||||
Total current assets | 11,303 | 2,970 | 10,300 | (14,556 | ) | 10,017 | ||||||||||||||
Property, plant and equipment, net | 4,395 | 1,499 | — | 672 | (e) | 6,566 | ||||||||||||||
Goodwill | 210 | 540 | — | 3,633 | (f) | 4,383 | ||||||||||||||
Other intangible assets, net | 265 | 113 | — | 5,337 | (g) | 5,715 | ||||||||||||||
3,000 | (h) | |||||||||||||||||||
(3,000 | )(h) | |||||||||||||||||||
Other assets | 888 | 556 | — | — | 1,444 | |||||||||||||||
Total assets | $ | 17,061 | $ | 5,678 | $ | 10,300 | $ | (4,914 | ) | $ | 28,125 | |||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
Accounts payable | $ | 1,334 | $ | 817 | $ | — | $ | — | $ | 2,151 | ||||||||||
Payables to related parties | — | 1,570 | — | (1,570 | )(c) | — | ||||||||||||||
Short-term borrowings and current portion of long-term debt | 246 | 186 | — | — | 432 | |||||||||||||||
U.S., foreign and state income taxes | 169 | 177 | — | — | 346 | |||||||||||||||
Other accrued liabilities | 2,178 | 51 | — | 500 | (i) | 2,729 | ||||||||||||||
Total current liabilities | 3,927 | 2,801 | — | (1,070 | ) | 5,658 | ||||||||||||||
Long-term debt | 2,414 | 76 | 6,400 | (a) | — | 8,890 | ||||||||||||||
Deferred income taxes | 111 | 76 | — | 1,544 | (j) | 1,731 | ||||||||||||||
Other long-term liabilities | 1,739 | 337 | — | — | 2,076 | |||||||||||||||
Total long-term liabilities | 4,264 | 489 | 6,400 | 1,544 | 12,697 | |||||||||||||||
Mandatory convertible preferred shares | 1,438 | — | 2,500 | (a) | — | 3,938 | ||||||||||||||
Common shares | 1,021 | — | 25 | (a) | — | 1,046 | ||||||||||||||
Paid-in capital | 1,921 | — | 1,375 | (a) | — | 3,296 | ||||||||||||||
Invested equity | 2,388 | (2,388 | )(k) | — | ||||||||||||||||
Retained earnings | 10,723 | — | — | (3,000 | )(h) | 7,723 | ||||||||||||||
Accumulated other comprehensive loss | (773 | ) | — | — | — | (773 | ) | |||||||||||||
Treasury shares | (5,460 | ) | — | — | — | (5,460 | ) | |||||||||||||
Total shareholders’ equity | 8,870 | 2,388 | 3,900 | (5,388 | ) | 9,770 | ||||||||||||||
Total liabilities and shareholders’ equity | $ | 17,061 | $ | 5,678 | $ | 10,300 | $ | (4,914 | ) | $ | 28,125 | |||||||||
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Pro Forma Adjustments | ||||||||||||||||||||
U.S. GAAP Historical | (See Note 3) | Pro Forma | ||||||||||||||||||
Schering | Organon BioSciences | Purchase | Condensed | |||||||||||||||||
Plough | (See Note 2) | Financing | Accounting | Combined | ||||||||||||||||
Increase/(Decrease) | ||||||||||||||||||||
Net sales | $ | 6,153 | $ | 2,468 | $ | — | $ | — | $ | 8,621 | ||||||||||
Cost of sales | 1,913 | 766 | — | 245 | (l) | 2,924 | ||||||||||||||
Selling, general and administrative | 2,572 | 855 | — | — | 3,427 | |||||||||||||||
Research and development | 1,403 | 442 | — | — | 1,845 | |||||||||||||||
Other (income)/expense, net | (62 | ) | 25 | 268 | (m) | — | 231 | |||||||||||||
Special and acquisition related charges | 12 | — | — | — | 12 | |||||||||||||||
Equity income | (978 | ) | (1 | ) | — | — | (979 | ) | ||||||||||||
Income before income taxes | 1,293 | 381 | (268 | ) | (245 | ) | 1,161 | |||||||||||||
Income tax expense/(benefit) | 190 | 74 | (54 | )(n) | — | 210 | ||||||||||||||
Net income | 1,103 | 307 | (214 | ) | (245 | ) | 951 | |||||||||||||
Preferred stock dividends | 43 | — | 75 | (o) | — | 118 | ||||||||||||||
Net income available to common shareholders | $ | 1,060 | $ | 307 | $ | (289 | ) | $ | (245 | ) | $ | 833 | ||||||||
Diluted earnings per common share | $ | 0.70 | $ | 0.53 | (p) | |||||||||||||||
Basic earnings per common share | $ | 0.71 | $ | 0.54 | (p) | |||||||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||
Diluted | 1,579 | 1,564 | ||||||||||||||||||
Basic | 1,491 | 1,541 |
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U.S. GAAP Historical | Pro Forma Adjustments | |||||||||||||||||||
Organon | (See Note 3) | Pro Forma | ||||||||||||||||||
Schering | BioSciences | Purchase | Condensed | |||||||||||||||||
Plough | (See Note 2) | Financing | Accounting | Combined | ||||||||||||||||
Increase/(Decrease) | ||||||||||||||||||||
Net sales | $ | 10,594 | $ | 4,643 | $ | — | $ | — | $ | 15,237 | ||||||||||
Cost of sales | 3,697 | 1,498 | — | 490 | (l) | 5,685 | ||||||||||||||
Selling, general and administrative | 4,718 | 1,694 | — | — | 6,412 | |||||||||||||||
Research and development | 2,188 | 781 | — | — | 2,969 | |||||||||||||||
Other (income)/expense, net | (135 | ) | 23 | 537 | (m) | — | 425 | |||||||||||||
Special and acquisition related charges | 102 | — | — | — | 102 | |||||||||||||||
Equity income | (1,459 | ) | (3 | ) | — | (1,462 | ) | |||||||||||||
Income before income taxes | 1,483 | 650 | (537 | ) | (490 | ) | 1,106 | |||||||||||||
Income tax expense/(benefit) | 362 | 9 | (108 | )(n) | — | 263 | ||||||||||||||
Net income before cumulative effect of a change in accounting principle | 1,121 | 641 | (429 | ) | (490 | ) | 843 | |||||||||||||
Cumulative effect of a change in accounting principle, net of tax | (22 | ) | — | — | — | (22 | ) | |||||||||||||
Net income | 1,143 | 641 | (429 | ) | (490 | ) | 865 | |||||||||||||
Preferred stock dividends | 86 | — | 150 | (o) | — | 236 | ||||||||||||||
Net income available to common shareholders | $ | 1,057 | $ | 641 | $ | (579 | ) | $ | (490 | ) | $ | 629 | ||||||||
Diluted earnings per common share: | ||||||||||||||||||||
Earnings available to common shareholders before cumulative effect of a change in accounting principle | $ | 0.69 | $ | 0.39 | ||||||||||||||||
Cumulative effect of a change in accounting principle | 0.02 | 0.02 | ||||||||||||||||||
Diluted earnings per common share | $ | 0.71 | $ | 0.41 | (p) | |||||||||||||||
Basic earnings per common share: | ||||||||||||||||||||
Earnings available to common shareholders before cumulative effect of a change in accounting principle | $ | 0.69 | $ | 0.39 | ||||||||||||||||
Cumulative effect of a change in accounting principle | 0.02 | 0.02 | ||||||||||||||||||
Basic earnings per common share | $ | 0.71 | $ | 0.41 | (p) | |||||||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||
Diluted | 1,491 | 1,541 | ||||||||||||||||||
Basic | 1,482 | 1,532 |
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1. | DESCRIPTION OF THE PLANNED ORGANON BIOSCIENCES ACQUISITION AND BASIS OF PRESENTATION |
(in millions, except exchange rate) | ||||
Consideration in Euro | € | 11,000 | (1) | |
Exchange rate in U.S. Dollars per 1.00 Euro | $ | 1.35 | ||
Consideration in U.S. Dollars | $ | 14,850 | ||
Transaction costs | 50 | |||
Estimated purchase price including net debt assumed | $ | 14,900 | ||
(1) | Includes €80 million (approximately $108 million using the June 30, 2007 exchange rate of €1.00 = $1.35) of net debt assumed bySchering-Plough. |
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Allocation of | ||||
Purchase Price | ||||
Preliminary Purchase Price | to Net Assets | |||
Allocation as of June 30, 2007 | Acquired | |||
(in millions) | ||||
Identifiable intangible assets | $ | 5,450 | (1) | |
Property, plant and equipment | 2,171 | |||
Inventories | 1,925 | |||
Other non-current assets | 196 | |||
Net working capital, excluding Inventories | 28 | |||
Deferred income tax, net | (1,238 | ) | ||
Acquisition related liabilities | (500 | ) | ||
Other long-term liabilities | (413 | ) | ||
Goodwill | 4,173 | |||
In-process research and development (IPR&D) | 3,000 | (2) | ||
Estimated purchase price to be allocated | $ | 14,792 | ||
Net debt assumed bySchering-Plough | 108 | |||
Estimated purchase price including net debt assumed | $ | 14,900 | ||
(1) | The allocation of the purchase price to intangible assets includes trade names, products and product rights, and other identifiable intangibles, with a composite estimated useful live of approximately 12 years. | |
(2) | The amounts allocated to in-process research and development will be charged to the statement of operations in the period the Organon BioSciences acquisition is consummated. This IPR&D amount is excluded from the unaudited pro forma condensed statements of combined operations as this charge is not expected to have a continuing impact on operations. |
2. | HISTORICAL COMBINED FINANCIAL STATEMENTS OF ORGANON BIOSCIENCES |
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• | U.S. GAAP adjustments applied to the Organon BioSciences IFRS financial statements, including but not limited to, adjustments related to business combinations, pensions and other postretirement benefits, the impairment of goodwill, research and development costs, differing treatment of subsequent events between U.S. GAAP and IFRS, tax on elimination of intercompany profits and deferred income taxes. | |
• | Currency amounts have been translated from Euro to U.S. Dollars (at the rates specified in Note 1 to these unaudited pro forma condensed combined financial statements in accordance with SFAS No. 52 “Foreign Currency Translation.”) |
3. | PRO FORMA ADJUSTMENTS |
— | Draw down of debt under a committed bridge facility in the amount of $6.40 billion. The bridge facility has been classified as long-term debt, reflectingSchering-Plough’s intention to replace the bridge facility with long-term debt of varying maturities. |
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Issuance of | Pro Forma | |||||||||||||||
Schering-Plough | Common | 2004 Preferred | Condensed | |||||||||||||
(all share amounts in millions) | Historical | Shares | Stock | Combined | ||||||||||||
For the year ended December 31, 2006: | ||||||||||||||||
Diluted shares outstanding | 1,491 | 50 | (1) | — | 1,541 | |||||||||||
Basic shares outstanding | 1,482 | 50 | (1) | — | 1,532 | |||||||||||
For the six months ended June 30, 2007: | ||||||||||||||||
Diluted shares outstanding | 1,579 | 50 | (1) | (65 | )(2) | 1,564 | ||||||||||
Basic shares outstanding | 1,491 | 50 | (1) | — | 1,541 |
(1) | 50 million of additional weighted average shares outstanding reflects an assumedSchering-Plough stock price of $30. |
(2) | 65 million common shares obtainable upon conversion of the 2004 Preferred Stock were dilutive toSchering-Plough’s historical earnings per share for the six months ended June 30, 2007, but would not be dilutive to the pro forma condensed combined earnings per share and are therefore excluded from the computation. The 2007 Preferred Stock is assumed to be anti-dilutive to the pro forma condensed combined earnings per share and is therefore excluded from the computation for all periods presented. |
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• | debt securities; | |
• | preferred shares; | |
• | common shares; or | |
• | any combination of these securities. |
2 | ||||
3 | ||||
3 | ||||
5 | ||||
5 | ||||
6 | ||||
6 | ||||
6 | ||||
7 | ||||
10 | ||||
20 | ||||
21 | ||||
21 | ||||
F-1 |
• | debt securities, in one or more series, which may be senior debt securities or subordinated debt securities; | |
• | preferred shares; | |
• | common shares; or | |
• | any combination of these securities. |
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• | incorporated documents are considered part of this prospectus; | |
• | Schering-Plough can disclose important information to you by referring you to those documents; and | |
• | information thatSchering-Plough files with the SEC will automatically update and supersede this incorporated information. |
• | its 200610-K filed with the SEC on February 28, 2007; |
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• | its first quarter 200710-Q filed with the SEC on April 27, 2007; | |
• | its second quarter 200710-Q filed with the SEC on July 27, 2007; | |
• | its8-K filed with the SEC on January 29, 2007; | |
• | its8-K filed with the SEC on March 16, 2007; | |
• | its8-K filed with the SEC on April 19, 2007; | |
• | its8-K filed with the SEC on June 28, 2007; | |
• | its8-K filed with the SEC on July 11, 2007; | |
• | its8-K filed with the SEC on July 23, 2007; | |
• | the following sections of its Proxy Statement for the 2007 Annual Meeting of Shareholders on Schedule 14A filed with the SEC on April 20, 2007: “Proposal One: Elect Eleven Directors for a One-Year Term”, “Section 16(a) Beneficial Ownership Reporting Compliance”, “Information About the Audit Committee of the Board of Directors and its Practices”, “Committees of the Board of Directors”, “Executive Compensation”, “Director Compensation”, “Stock Ownership”, “Certain Transactions”, “Procedures for Related Party Transactions and Director Independence Assessments”, “Director Independence”, and “Proposal Two: Ratify the Designation of Deloitte & Touche LLP to AuditSchering-Plough’s Books and Accounts for 2007”; and | |
• | the description ofSchering-Plough’s common shares contained in its Registration Statement onForm 8-A filed with the SEC on March 16, 1979, and any amendment or report filed for the purpose of updating such description. |
• | reports filed under Section 13(a) and (c) of the Exchange Act; | |
• | definitive proxy or information statements filed under Section 14 of the Exchange Act in connection with any subsequent stockholders’ meeting; and | |
• | any reports filed under Section 15(d) of the Exchange Act. |
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Six Months | ||||||||||||||||||||||
Ended | ||||||||||||||||||||||
June 30, | Year Ended December 31, | |||||||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | 2002 | |||||||||||||||||
Ratio of earnings to fixed charges and preferred stock dividends | 7.4 | 5.1 | 1.6 | (0.3 | )* | 0.4 | ** | 33.2 |
* | For the year ended December 31, 2004, earnings were insufficient to cover fixed charges and preferred stock dividends by $322 million. | |
** | For the year ended December 31, 2003, earnings were insufficient to cover fixed charges by $70 million. |
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• | 1,496,297,204 were issued and outstanding, | |
• | 547,238,751 were issued and held in treasury, | |
• | 80,040,000 were reserved for issuance upon conversion of the 6.00% Mandatory Convertible Preferred Stock issued in 2004, referred to as the 2004 Preferred Stock, and | |
• | 166,632,803 were reserved for issuance under stock incentive plans; and |
• | 28,750,000 were designated as the 2004 Preferred Stock (28,750,000 shares of 2004 Preferred Stock will automatically convert into common shares on September 14, 2007, unless earlier converted, and such preferred shares will become undesignated and available for issuance in the future), | |
• | 12,000,000 were designated as Series A Junior Participating Preferred Stock (which, in connection with the expiration ofSchering-Plough’s shareholder rights plan on July 10, 2007, were redesignated as authorized but unissued preferred shares), and | |
• | 9,250,000 which are undesignated. |
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• | the designation and number of shares of such series; | |
• | the rate and time at which, and the preferences and conditions under which, any dividends will be paid on shares of such series, as well as whether such dividends are cumulative or non-cumulative and participating or non-participating; | |
• | any provisions relating to convertibility or exchangeability of the shares of such series; | |
• | the rights and preferences, if any, of holders of shares of such series uponSchering-Plough’s liquidation, dissolution or winding up of its affairs; | |
• | the voting powers, if any, of the holders of shares of such series; | |
• | any provisions relating to the redemption of the shares of such series; | |
• | whether and upon what terms a sinking fund will be used to purchase or redeem the shares; | |
• | any limitations onSchering-Plough’s ability to pay dividends or make distributions on, or acquire or redeem, other securities while shares of such series are outstanding; | |
• | any conditions or restrictions onSchering-Plough’s ability to issue additional shares of such series or other securities; and | |
• | any other relative powers, preferences and participating, optional or special rights of shares of such series, and the qualifications, limitations or restrictions thereof. |
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• | the title and type of the series; | |
• | the total principal amount; | |
• | the percentage of the principal amount at which the securities will be issued; | |
• | the dates on which the principal of the securities will be payable; | |
• | any payments due if the maturity of the securities is accelerated; |
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• | any interest rates or the method of determining the interest rates; | |
• | the dates from which any interest will accrue or the method of determining those dates; | |
• | the interest payment record and payment dates; | |
• | whether the securities are redeemable atSchering-Plough’s option; | |
• | any sinking fund or other provisions that would obligateSchering-Plough to repurchase or otherwise redeem the securities; | |
• | the option of eitherSchering-Plough or the holder to elect the currency (for example, U.S. dollars, euros, or othernon-U.S. currency, currency unit or composite currency) of payment on the securities; | |
• | the currency of the payment of principal, any premium, and any interest; | |
• | any index or other methodSchering-Plough will use to determine the amount of principal or any premium or interest; | |
• | the form in whichSchering-Plough will issue the securities (for example, registered or bearer book-entry form, or registered or bearer certificated form) and any restrictions related to the form; | |
• | any covenants, defaults, events of default or provisions applicable to the securities; | |
• | any special tax implications, including provisions for original issue discount securities, if offered; | |
• | any provisions for convertibility or exchangeability of the debt securities into or for any other securities; | |
• | any provisions granting special rights to the holders of the securities upon the occurrence of specified events; | |
• | the denominations of the securities; | |
• | whether the securities are subject to subordination and, if so, the subordination terms; and | |
• | any other specific terms of the securities. |
• | Schering-Plough fails to make the principal or any premium payment on any debt security when due; | |
• | Schering-Plough fails to pay interest on any debt security for 45 days after payment was due; | |
• | Schering-Plough fails to make any sinking fund payment when due; | |
• | Schering-Plough fails to perform any other covenant in the indenture and this failure continues for 90 days afterSchering-Plough receives written notice of it from the trustee or the holders of at least 25% in principal amount of outstanding debt securities of that series; or | |
• | Schering-Plough or a court takes certain actions relating to the bankruptcy, insolvency or reorganization of the company. |
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• | Schering-Plough has paid or deposited with the trustee a sum sufficient to pay overdue interest and overdue principal other than the accelerated interest and principal; and | |
• | Schering-Plough has cured or the holders have waived all events of default, other than the non-payment of accelerated principal and interest with respect to debt securities of that series, as provided in the indenture. |
• | a failure to pay the principal of, and premium, if any, or interest on any security; or | |
• | a covenant or provision that cannot be modified or amended without the consent of each holder of outstanding securities of that series. |
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• | Schering-Plough will be discharged from its obligations with respect to the securities of such series; or | |
• | Schering-Plough will no longer be under any obligation to comply with certain restrictive covenants under the indenture, and certain events of default will no longer apply toSchering-Plough. |
• | modification of the maturity date; | |
• | modification of the principal and interest payment terms; | |
• | modification of the currency for payment; | |
• | impairment of the right to sue for the enforcement of payment at the maturity of the debt security; | |
• | modification of any conversion rights; or | |
• | modification reducing the percentage required for modifications or modifying the foregoing requirements or reducing the percentage required to waive certain specified covenants. |
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• | how it handles securities payments and notices; | |
• | whether it imposes fees or charges; | |
• | how it would handle a request for its consent, as a registered holder of the debt securities, if ever required; | |
• | if permitted for a particular series of debt securities, whether and how you can instruct it to send you debt securities registered in your own name so you can be a registered holder of such debt securities; |
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• | how it would exercise rights under the debt securities if there were a default or other event triggering the need for holders to act to protect their interests; and | |
• | if the debt securities are in book-entry form, how the depositary’s rules and procedures will affect these matters. |
• | An investor cannot cause the debt securities to be registered in his or her name, and cannot obtain non-global certificates for his or her interest in the debt securities, except in the special situations described below under “—Special Situations When a Global Security Will Be Terminated”. | |
• | An investor will be an indirect holder and must look to his or her own bank or broker for payments on the debt securities and protection of his or her legal rights relating to the debt securities, as described under “—Holders of Registered Debt Securities” above. | |
• | An investor may not be able to sell his or her interest in the debt securities to some insurance companies and other institutions that are required by law to own their securities in non-book-entry form. | |
• | An investor may not be able to pledge his or her interest in the debt securities in circumstances where certificates representing the debt securities must be delivered to the lender or other beneficiary of the pledge in order for the pledge to be effective. | |
• | The depositary’s policies, which may change from time to time, will govern payments, transfers, exchanges and other matters relating to an investor’s interest in the debt securities. Neither the trustee norSchering-Plough have any responsibility for any aspect of the depositary’s actions or |
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for the depositary’s records of ownership interests in a global security. Additionally, neither the trustee norSchering-Plough supervise the depositary in any way. |
• | DTC requires that those who purchase and sell interests in a global security that is deposited in its book-entry system use immediately available funds. Your broker or bank may also require you to use immediately available funds when purchasing or selling interests in a global security. | |
• | Financial institutions that participate in the depositary’s book-entry system, and through which an investor holds its interest in a global security, may also have their own policies affecting payments, notices and other matters relating to the debt security. There may be more than one financial intermediary in the chain of ownership for an investor.Schering-Plough does not monitor and is not responsible for the actions of any of such intermediaries. |
• | if the depositary notifiesSchering-Plough that it is unwilling, unable or no longer qualified to continue as depositary for that global security, andSchering-Plough does not appoint another institution to act as depositary within 90 days of such notification; or | |
• | ifSchering-Plough notifies the trustee that it wishes to terminate that global security. |
• | only in fully registered certificated form; and | |
• | in the denominations specified in the applicable prospectus supplement. |
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• | through underwriters, dealers or remarketing firms; | |
• | directly to one or more purchasers, including to a limited number of institutional purchasers; | |
• | through agents; or | |
• | through a combination of any of the methods of sale. |
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• | the type of and terms of the securities offered; | |
• | the price of the securities; | |
• | the proceeds toSchering-Plough from the sale of the securities; | |
• | the names of the securities exchanges, if any, on which the securities are listed; | |
• | the name of any underwriters, dealers, remarketing firms or agents and the amount of securities underwritten or purchased by each of them; | |
• | any over-allotment options under which underwriters may purchase additional securities fromSchering-Plough; | |
• | any underwriting discounts, agency fees or other compensation to underwriters or agents; and | |
• | any discounts or concessions which may be allowed or reallowed or paid to dealers. |
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For the Year Ended December 31, | ||||||||||||||||||||||||||
Note | 2006 | 2005 | 2004 | |||||||||||||||||||||||
Revenues | 4,5 | 3,718 | 3,499 | 3,339 | ||||||||||||||||||||||
Cost of sales | (1,159 | ) | (1,122 | ) | (1,112 | ) | ||||||||||||||||||||
Gross profit | 2,559 | 2,377 | 2,227 | |||||||||||||||||||||||
Selling and distribution expenses | (1,137 | ) | (1,055 | ) | (1,060 | ) | ||||||||||||||||||||
Research and development expenses | (612 | ) | (544 | ) | (555 | ) | ||||||||||||||||||||
General and administrative expenses | (244 | ) | (227 | ) | (201 | ) | ||||||||||||||||||||
Other operating income/(expense) | 6 | 17 | 173 | 119 | ||||||||||||||||||||||
(1,976 | ) | (1,653 | ) | (1,697 | ) | |||||||||||||||||||||
Operating income | 583 | 724 | 530 | |||||||||||||||||||||||
Financial expenses | 7 | (45 | ) | (35 | ) | (25 | ) | |||||||||||||||||||
Financial income | 7 | 10 | 6 | 10 | ||||||||||||||||||||||
(35 | ) | (29 | ) | (15 | ) | |||||||||||||||||||||
Operating income less net financing costs | 548 | 695 | 515 | |||||||||||||||||||||||
Share of profit of associates | 14 | 2 | 2 | 1 | ||||||||||||||||||||||
Profit before tax | 550 | 697 | 516 | |||||||||||||||||||||||
Income tax expense | 8 | (157 | ) | (131 | ) | (158 | ) | |||||||||||||||||||
Profit for the period | 393 | 566 | 358 | |||||||||||||||||||||||
Attributable to: | ||||||||||||||||||||||||||
Equity holders of the OBS Group | 393 | 566 | 358 | |||||||||||||||||||||||
Minority interest | — | — | — | |||||||||||||||||||||||
Profit for the period | 393 | 566 | 358 | |||||||||||||||||||||||
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As of December 31, | ||||||||||||||||||||
Note | 2006 | 2005 | ||||||||||||||||||
ASSETS | ||||||||||||||||||||
Property, plant and equipment, net | 10 | 1,097 | 1,121 | |||||||||||||||||
Intangible assets, net | 11 | 145 | 164 | |||||||||||||||||
Financial non-current assets: | 12 | |||||||||||||||||||
— deferred tax assets | 13 | 281 | 367 | |||||||||||||||||
— investments in associates | 14 | 13 | 8 | |||||||||||||||||
— other investments | 12 | 118 | 137 | |||||||||||||||||
412 | 512 | |||||||||||||||||||
Total non-current assets | 1,654 | 1,797 | ||||||||||||||||||
Inventories, net | 15 | 851 | 861 | |||||||||||||||||
Income tax receivable | 16 | 74 | 62 | |||||||||||||||||
Receivables from related parties, net | 3 | 11 | 6 | |||||||||||||||||
Trade and other receivables, net | 17 | 735 | 766 | |||||||||||||||||
Cash and cash equivalents | 18 | 239 | 59 | |||||||||||||||||
Total current assets | 1,910 | 1,754 | ||||||||||||||||||
Total assets | 3,564 | 3,551 | ||||||||||||||||||
Invested Equity | ||||||||||||||||||||
Owners’ net investment (including cumulative translation reserves) | 19 | 2,311 | 2,185 | |||||||||||||||||
Minority interest | — | 1 | ||||||||||||||||||
Total invested equity | 2,311 | 2,186 | ||||||||||||||||||
LIABILITIES | ||||||||||||||||||||
Borrowings | 23 | 45 | 59 | |||||||||||||||||
Deferred income | 22 | — | 7 | |||||||||||||||||
Deferred tax liabilities | 13 | 25 | 36 | |||||||||||||||||
Provisions | 21 | 267 | 325 | |||||||||||||||||
Total non-current liabilities | 337 | 427 | ||||||||||||||||||
Borrowings | 24 | 112 | 124 | |||||||||||||||||
Deferred income | 22 | 10 | 31 | |||||||||||||||||
Income tax payable | 16 | 133 | 194 | |||||||||||||||||
Payables to related parties | 3 | 5 | 7 | |||||||||||||||||
Trade and other payables | 25 | 611 | 553 | |||||||||||||||||
Provisions | 21 | 45 | 29 | |||||||||||||||||
Total current liabilities | 916 | 938 | ||||||||||||||||||
Total liabilities | 1,253 | 1,365 | ||||||||||||||||||
Total invested equity and liabilities | 3,564 | 3,551 | ||||||||||||||||||
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For the Year Ended December 31, | ||||||||||||||||||||||||
2006 | 2005 | 2004 | ||||||||||||||||||||||
Profit for the period | 393 | 566 | 358 | |||||||||||||||||||||
Adjustments to reconcile earnings to cash generated from operating activities: | ||||||||||||||||||||||||
Depreciation and amortization | 181 | 188 | 164 | |||||||||||||||||||||
Impairments | — | 73 | 28 | |||||||||||||||||||||
Gains on divestments | (8 | ) | (23 | ) | (10 | ) | ||||||||||||||||||
Share of profit of associates | (2 | ) | (2 | ) | (1 | ) | ||||||||||||||||||
Changes in deferred taxes (non-cash recognized in income) | 58 | 6 | 74 | |||||||||||||||||||||
Provisions expense (non-cash recognized in income) | 42 | 44 | 131 | |||||||||||||||||||||
Interest expense funded by Akzo Nobel | 38 | 28 | 19 | |||||||||||||||||||||
Corporate overhead costs funded by Akzo Nobel | 30 | 27 | 24 | |||||||||||||||||||||
Insurance expense funded by Akzo Nobel | 28 | 29 | 27 | |||||||||||||||||||||
Share-based payment costs funded by Akzo Nobel | 5 | 3 | 4 | |||||||||||||||||||||
Other | 15 | (29 | ) | (13 | ) | |||||||||||||||||||
Operating cash flow before changes in working capital and provisions | 780 | 910 | 805 | |||||||||||||||||||||
(Increase) in trade and other receivables | (7 | ) | (57 | ) | (110 | ) | ||||||||||||||||||
(Increase)/decrease in inventories | (24 | ) | 79 | 11 | ||||||||||||||||||||
Decrease/(increase) in other non-current assets | 8 | (3 | ) | 6 | ||||||||||||||||||||
Increase/(decrease) in trade and other payables and provisions | 26 | (130 | ) | (141 | ) | |||||||||||||||||||
Increase/(decrease) in income tax payables and receivables, net | 17 | (20 | ) | (12 | ) | |||||||||||||||||||
20 | (131 | ) | (246 | ) | ||||||||||||||||||||
Cash generated from operating activities | 800 | 779 | 559 | |||||||||||||||||||||
Purchase of intangible assets | (8 | ) | (51 | ) | (19 | ) | ||||||||||||||||||
Capital expenditures | (162 | ) | (163 | ) | (157 | ) | ||||||||||||||||||
Proceeds from sale of property, plant and equipment | — | 16 | 9 | |||||||||||||||||||||
Acquisitions | (8 | ) | (8 | ) | — | |||||||||||||||||||
Proceeds from sale of interests | 11 | 23 | 15 | |||||||||||||||||||||
Other | (3 | ) | — | (2 | ) | |||||||||||||||||||
Net cash used in investing activities | (170 | ) | (183 | ) | (154 | ) | ||||||||||||||||||
Dividends paid to Akzo Nobel | — | (410 | ) | (477 | ) | |||||||||||||||||||
Cash transfers (to)/from Akzo Nobel, net | (426 | ) | (179 | ) | 150 | |||||||||||||||||||
Financing with affiliates | — | — | 13 | |||||||||||||||||||||
Bank overdrafts | — | (3 | ) | (8 | ) | |||||||||||||||||||
(Decrease)/increase in borrowings | (20 | ) | 5 | (75 | ) | |||||||||||||||||||
Net cash used in financing activities | (446 | ) | (587 | ) | (397 | ) | ||||||||||||||||||
Net increase in cash and cash equivalents | 184 | 9 | 8 | |||||||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (4 | ) | 3 | (1 | ) | |||||||||||||||||||
Net increase in cash and cash equivalents | 180 | 12 | 7 | |||||||||||||||||||||
Cash and cash equivalents at January 1 | 59 | 47 | 40 | |||||||||||||||||||||
Cash and cash equivalents at December 31 | 239 | 59 | 47 | |||||||||||||||||||||
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Cumulative | ||||||||||||||||
Owners’ Net | Translation | Minority | Total Invested | |||||||||||||
Investment | Reserves | Interest | Equity | |||||||||||||
Balance at January 1, 2004 | 1,591 | 1 | 1,592 | |||||||||||||
Changes in exchange rates in respect of foreign operations | (48 | ) | (48 | ) | ||||||||||||
Net income/(expense) recognized directly in equity | (48 | ) | — | (48 | ) | |||||||||||
Profit for the period | 358 | 358 | ||||||||||||||
Total income/(expenses) | 358 | (48 | ) | — | 310 | |||||||||||
Dividend paid to Akzo Nobel | (477 | ) | (477 | ) | ||||||||||||
Contributions attributed to: | ||||||||||||||||
— Share-based payment costs funded by Akzo Nobel | 4 | 4 | ||||||||||||||
— Interest expense funded by Akzo Nobel | 19 | 19 | ||||||||||||||
— Corporate overhead costs funded by Akzo Nobel | 24 | 24 | ||||||||||||||
— Insurance expense funded by Akzo Nobel | 27 | 27 | ||||||||||||||
— Tax transfers from Akzo Nobel, net | 302 | 302 | ||||||||||||||
— Employee benefits and other non-cash transfers, net | 29 | 29 | ||||||||||||||
— Cash transfers from Akzo Nobel, net | 150 | 150 | ||||||||||||||
Balance at December 31, 2004 | 2,027 | (48 | ) | 1 | 1,980 | |||||||||||
Changes in exchange rates in respect of foreign operations | 94 | 94 | ||||||||||||||
Net income/(expense) recognized directly in equity | — | 94 | — | 94 | ||||||||||||
Profit for the period | 566 | 566 | ||||||||||||||
Total income/(expenses) | 566 | 94 | — | 660 | ||||||||||||
Dividend paid to Akzo Nobel | (410 | ) | (410 | ) | ||||||||||||
Contributions attributed to: | ||||||||||||||||
— Share-based payment costs funded by Akzo Nobel | 3 | 3 | ||||||||||||||
— Interest expense funded by Akzo Nobel | 28 | 28 | ||||||||||||||
— Corporate overhead costs funded by Akzo Nobel | 27 | 27 | ||||||||||||||
— Insurance expense funded by Akzo Nobel | 29 | 29 | ||||||||||||||
— Tax transfers to Akzo Nobel, net | (127 | ) | (127 | ) | ||||||||||||
— Employee benefits and other non-cash transfers, net | 175 | 175 | ||||||||||||||
— Cash transfers to Akzo Nobel, net | (179 | ) | (179 | ) | ||||||||||||
Balance at December 31, 2005 | 2,139 | 46 | 1 | 2,186 | ||||||||||||
Changes in exchange rates in respect of foreign operations | (48 | ) | (48 | ) | ||||||||||||
Net income/(expense) recognized directly in equity | (48 | ) | (48 | ) | ||||||||||||
Profit for the period | 393 | 393 | ||||||||||||||
Total income/(expenses) | 393 | (48 | ) | 345 | ||||||||||||
Change minority interests in subsidiaries | (1 | ) | (1 | ) | ||||||||||||
Contributions attributed to: | ||||||||||||||||
— Share-based payment costs funded by Akzo Nobel | 5 | 5 | ||||||||||||||
— Interest expense funded by Akzo Nobel | 38 | 38 | ||||||||||||||
— Corporate overhead costs funded by Akzo Nobel | 30 | 30 | ||||||||||||||
— Insurance expense funded by Akzo Nobel | 28 | 28 | ||||||||||||||
— Tax transfers to Akzo Nobel, net | 112 | 112 | ||||||||||||||
— Employee benefits and other non-cash transfers, net | (6 | ) | (6 | ) | ||||||||||||
— Cash transfers to Akzo Nobel, net | (426 | ) | (426 | ) | ||||||||||||
Balance at December 31, 2006 | 2,313 | (2 | ) | — | 2,311 | |||||||||||
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Country of | ||||||
Legal Entity | Incorporation | Ownership | ||||
Organon BioSciences N.V. | The Netherlands | 100.00 | % | |||
Organon BioSciences Nederland B.V.(*) | The Netherlands | 100.00 | % | |||
Organon BioSciences International B.V. (**) | The Netherlands | 100.00 | % | |||
Intervet International B.V. | The Netherlands | 100.00 | % | |||
Intervet Inc. | USA | 100.00 | % | |||
Intervet International GmbH | Germany | 100.00 | % | |||
Intervet UK Ltd. | U.K. | 100.00 | % | |||
Laboratorios Intervet S.A. | Spain | 100.00 | % | |||
Hydrochemie GmbH | Germany | 100.00 | % | |||
Intervet Australia Pty Ltd. | Australia | 100.00 | % | |||
Intervet Deutschland GmbH | Germany | 100.00 | % | |||
Intervet Innovation GmbH | Germany | 100.00 | % | |||
Akzo Nobel Ltda (***) | Brazil | 100.00 | % | |||
Intervet Mexico S.A. de CV | Mexico | 100.00 | % | |||
Intervet S.A. | France | 100.00 | % | |||
Intervet Productions S.A. | France | 100.00 | % | |||
Intervet Pharma R&D S.A. | France | 100.00 | % | |||
Intervet (Italia) S.r.l. | Italy | 100.00 | % | |||
Intervet UK Production Ltd. | UK | 100.00 | % | |||
Intervet Holding B.V. | The Netherlands | 100.00 | % | |||
Intervet Nederland B.V. | The Netherlands | 100.00 | % | |||
Intervet KK | Japan | 100.00 | % | |||
Nobilon International B.V. | The Netherlands | 100.00 | % | |||
N.V. Organon | The Netherlands | 100.00 | % | |||
Organon (Ireland) Ltd. (****) | Ireland | 100.00 | % | |||
Organon International Inc. | USA | 100.00 | % | |||
Organon USA Inc. | USA | 100.00 | % | |||
Organon S.A. | France | 100.00 | % | |||
Nippon Organon KK | Japan | 100.00 | % | |||
Organon GmbH | Germany | 100.00 | % | |||
Organon Laboratories Ltd. | UK | 100.00 | % | |||
Organon Española S.A. | Spain | 100.00 | % | |||
Organon Italia S.p.A. | Italy | 100.00 | % | |||
Organon do Brasil Indústria e Comércio Ltda | Brazil | 100.00 | % | |||
Organon Ilaclari A.S. | Turkey | 100.00 | % | |||
Organon Holding B.V. | The Netherlands | 100.00 | % | |||
Organon Nederland B.V. | The Netherlands | 100.00 | % | |||
Organon Canada Ltd. | Canada | 100.00 | % | |||
Multilan AG | Switzerland | 100.00 | % | |||
Diosynth RTP Inc. | USA | 100.00 | % |
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(*) | Formerly Akzo Nobel Pharma B.V. | |
(**) | Formerly Akzo Nobel Pharma International B.V. | |
(***) | Represents the Intervet division of Akzo Nobel Ltda, the combined financial statements only include those assets, liabilities, revenues, expenses and cash flows of this legal entity that pertain directly to healthcare activities. In June 2006 the Intervet division of this legal entity was incorporated in a separate entity (Intervet do Brasil Veterinaria Ltda), which is indirectly 100% owned by OBS N.V. The remaining business of Akzo Nobel Ltda is not related to healthcare activities and is not part of the spin-off healthcare activities. | |
(****) | Including Organon Ireland Swiss Branch. |
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Note 2 — | Significant Accounting Policies |
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Combined Balance Sheets | Combined Statements of Income | |||||||||||||||||||
2006 | 2005 | 2006 | 2005 | 2004 | ||||||||||||||||
USD | 1.317 | 1.186 | 1.256 | 1.245 | 1.243 | |||||||||||||||
GBP | 0.671 | 0.687 | 0.682 | 0.684 | 0.680 | |||||||||||||||
CHF | 1.607 | 1.557 | 1.577 | 1.549 | 1.544 |
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• | the costs of raw materials and supplies, energy, and other materials; | |
• | depreciation and the costs of maintenance of the assets used in production; | |
• | salaries, wages, and social charges for the personnel involved in manufacturing. |
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Note 3 — | Related Parties |
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2006 | 2005 | 2004 | ||||||||||
(EUR 000’s) | ||||||||||||
Salaries and other short-term employee benefits | 5,957 | 4,842 | 3,747 | |||||||||
Pensions | 670 | 642 | 559 | |||||||||
Other emoluments | 1,293 | 845 | 173 | |||||||||
Total | 7,920 | 6,329 | 4,479 | |||||||||
Note 4 — | Segment Information |
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Revenues from | Share of Profit | Depreciation and | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Third Parties | Group Revenues | Operating Income | of Associates | Amortization | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | ||||||||||||||||||||||||||||||||||||||||||||||
Organon | 2,593 | 2,407 | 2,310 | 2,617 | 2,433 | 2,333 | 362 | 482 | 355 | 2 | 2 | 1 | 122 | 134 | 118 | |||||||||||||||||||||||||||||||||||||||||||||
Intervet | 1,125 | 1,092 | 1,029 | 1,125 | 1,092 | 1,029 | 221 | 242 | 175 | — | — | 59 | 54 | 46 | ||||||||||||||||||||||||||||||||||||||||||||||
3,718 | 3,499 | 3,339 | 3,742 | 3,525 | 3,362 | 583 | 724 | 530 | 2 | 2 | 1 | 181 | 188 | 164 | ||||||||||||||||||||||||||||||||||||||||||||||
Inter-segment revenues | (24 | ) | (26 | ) | (23 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
3,718 | 3,499 | 3,339 |
Total | ||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities | Invest- | |||||||||||||||||||||||||||||||||||||||||||||||
Excluding | ments in | Capital | Impairment | |||||||||||||||||||||||||||||||||||||||||||||
Total Assets | Borrowings | Associates | Expenditures | Losses | ||||||||||||||||||||||||||||||||||||||||||||
2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||||||||||||||||||||||||||
Organon | 2,139 | 2,366 | 764 | 839 | 13 | 8 | 107 | 106 | 103 | — | 73 | 28 | ||||||||||||||||||||||||||||||||||||
Intervet | 1,173 | 1,118 | 332 | 343 | — | — | 55 | 57 | 54 | — | — | |||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | 239 | 59 | ||||||||||||||||||||||||||||||||||||||||||||||
Investments in associates | 13 | 8 | ||||||||||||||||||||||||||||||||||||||||||||||
3,564 | 3,551 | 1,096 | 1,182 | 13 | 8 | 162 | 163 | 157 | — | 73 | 28 |
Revenues by Destination | Total Assets | Capital Expenditures | ||||||||||||||||||||||||||||||
2006 | 2005 | 2004 | 2006 | 2005 | 2006 | 2005 | 2004 | |||||||||||||||||||||||||
Europe | 1,885 | 1,843 | 1,821 | 2,332 | 2,351 | 123 | 126 | 131 | ||||||||||||||||||||||||
United States and Canada | 852 | 715 | 674 | 497 | 587 | 23 | 21 | 11 | ||||||||||||||||||||||||
Asia Pacific | 470 | 466 | 432 | 256 | 307 | 5 | 6 | 6 | ||||||||||||||||||||||||
Latin America | 358 | 319 | 277 | 205 | 217 | 10 | 9 | 8 | ||||||||||||||||||||||||
Other regions | 153 | 156 | 135 | 22 | 22 | 1 | 1 | 1 | ||||||||||||||||||||||||
3,718 | 3,499 | 3,339 | 3,312 | 3,484 | 162 | 163 | 157 | |||||||||||||||||||||||||
Cash and cash equivalents | 239 | 59 | ||||||||||||||||||||||||||||||
Investments in associates | 13 | 8 | ||||||||||||||||||||||||||||||
3,564 | 3,551 | |||||||||||||||||||||||||||||||
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Note 5 — | Revenues |
2006 | 2005 | 2004 | ||||||||||
Product sales | 3,522 | 3,348 | 3,200 | |||||||||
Service revenue | 90 | 50 | 37 | |||||||||
Royalty and license income | 106 | 101 | 102 | |||||||||
3,718 | 3,499 | 3,339 | ||||||||||
Note 6 — | Other Operating Income/(expense) |
2006 | 2005 | 2004 | ||||||||||
Results on sale of redundant assets | 2 | 2 | (1 | ) | ||||||||
Currency exchange differences | (4 | ) | — | 9 | ||||||||
Impairment charges | — | (73 | ) | — | ||||||||
Results on divestments | 6 | 21 | 11 | |||||||||
Other income/(expense) | 13 | 223 | 100 | |||||||||
17 | 173 | 119 | ||||||||||
Note 7 — | Financial Expense and Income |
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2006 | 2005 | 2004 | ||||||||||||||||||||||
Financial expenses | ||||||||||||||||||||||||
Interest expenses — related parties | (38 | ) | (28 | ) | (19 | ) | ||||||||||||||||||
Interest expenses — other | (7 | ) | (7 | ) | (6 | ) | ||||||||||||||||||
(45 | ) | (35 | ) | (25 | ) | |||||||||||||||||||
Financial income | ||||||||||||||||||||||||
Interest income — related parties | 7 | 5 | 8 | |||||||||||||||||||||
Interest income — other | 3 | 1 | 2 | |||||||||||||||||||||
10 | 6 | 10 | ||||||||||||||||||||||
(35 | ) | (29 | ) | (15 | ) |
Note 8 — | Taxes |
2006 | 2005 | 2004 | ||||||||||
Tax on operating income less financing costs | (157 | ) | (131 | ) | (158 | ) |
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2006 | 2005 | 2004 | ||||||||||||||||||||||
Current tax: | ||||||||||||||||||||||||
— for the year | (98 | ) | (129 | ) | (81 | ) | ||||||||||||||||||
— adjustments for prior years | (1 | ) | 4 | (3 | ) | |||||||||||||||||||
(99 | ) | (125 | ) | (84 | ) | |||||||||||||||||||
Deferred tax: | ||||||||||||||||||||||||
— origination and reversal of temporary differences | (57 | ) | (5 | ) | (73 | ) | ||||||||||||||||||
— tax losses not recognized | (1 | ) | (1 | ) | (1 | ) | ||||||||||||||||||
(58 | ) | (6 | ) | (74 | ) | |||||||||||||||||||
(157 | ) | (131 | ) | (158 | ) |
2006 | 2005 | 2004 | ||||||||||
Statutory tax rate in The Netherlands | 30 | % | 32 | % | 35 | % | ||||||
Effect of different tax rates in foreign countries | (1 | )% | (15 | )% | (8 | )% | ||||||
Tax-exempt income/non-deductible expenses | — | 2 | % | 1 | % | |||||||
Adjustments for prior years | — | — | 1 | % | ||||||||
Other | — | — | 2 | % | ||||||||
29 | % | 19 | % | 31 | % |
Note 9 — | Salaries, Wages, and Social Charges |
2006 | 2005 | 2004 | ||||||||||
Salaries and wages | 926 | 839 | 818 | |||||||||
Pension and other postretirement costs | 144 | 106 | 118 | |||||||||
Other social charges | 166 | 196 | 172 | |||||||||
1,236 | 1,141 | 1,108 |
Average number of employees | 2006 | 2005 | 2004 | |||||||||
Organon | 14,000 | 14,200 | 14,700 | |||||||||
Intervet | 5,400 | 5,300 | 5,300 | |||||||||
19,400 | 19,500 | 20,000 | ||||||||||
Number of employees at December 31 | 19,200 | 19,400 | 19,390 |
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Note 10 — | Property, Plant and Equipment, net |
Construction in | Assets Not | |||||||||||||||||||||||
Plant | Progress and | Used in the | ||||||||||||||||||||||
Building | Equipment and | Other | Prepayments | Production | ||||||||||||||||||||
Total | and Land | Machinery | Equipment | on Projects | Process | |||||||||||||||||||
Balance at January 1, 2005 | ||||||||||||||||||||||||
Cost of acquisition | 2,371 | 936 | 919 | 201 | 179 | 136 | ||||||||||||||||||
Depreciation/impairment | (1,224 | ) | (354 | ) | (635 | ) | (131 | ) | — | (104 | ) | |||||||||||||
Book value | 1,147 | 582 | 284 | 70 | 179 | 32 | ||||||||||||||||||
Changes in book value | ||||||||||||||||||||||||
Capital expenditures | 236 | 59 | 132 | 44 | — | 1 | ||||||||||||||||||
Transfer between categories | (73 | ) | 7 | (3 | ) | 4 | (82 | ) | 1 | |||||||||||||||
Disposals | (14 | ) | (3 | ) | (3 | ) | (2 | ) | — | (6 | ) | |||||||||||||
Depreciation | (166 | ) | (56 | ) | (81 | ) | (28 | ) | — | (1 | ) | |||||||||||||
Impairment | (53 | ) | (19 | ) | (33 | ) | (1 | ) | — | — | ||||||||||||||
Changes in exchange rates | 44 | 25 | 12 | 3 | 2 | 2 | ||||||||||||||||||
Total changes | (26 | ) | 13 | 24 | 20 | (80 | ) | (3 | ) | |||||||||||||||
Balance at December 31, 2005 | ||||||||||||||||||||||||
Cost of acquisition | 2,484 | 1,028 | 1,019 | 243 | 99 | 95 | ||||||||||||||||||
Depreciation/impairment | (1,363 | ) | (433 | ) | (711 | ) | (153 | ) | — | (66 | ) | |||||||||||||
Book value | 1,121 | 595 | 308 | 90 | 99 | 29 | ||||||||||||||||||
Changes in book value | ||||||||||||||||||||||||
Acquisitions through business combinations | 5 | 2 | 3 | — | — | — | ||||||||||||||||||
Divestures | (2 | ) | (1 | ) | (1 | ) | — | — | — | |||||||||||||||
Capital expenditures | 162 | 49 | 64 | 38 | 1 | 10 | ||||||||||||||||||
Transfer between categories | — | 18 | (15 | ) | 2 | (5 | ) | — | ||||||||||||||||
Disposals | (11 | ) | (2 | ) | (1 | ) | (5 | ) | — | (3 | ) | |||||||||||||
Depreciation | (152 | ) | (49 | ) | (69 | ) | (34 | ) | — | — | ||||||||||||||
Impairment | — | — | — | — | — | — | ||||||||||||||||||
Changes in exchange rates | (26 | ) | (15 | ) | (4 | ) | (3 | ) | (1 | ) | (3 | ) | ||||||||||||
Total changes | (24 | ) | 2 | (23 | ) | (2 | ) | (5 | ) | 4 | ||||||||||||||
Balance at December 31, 2006 | ||||||||||||||||||||||||
Cost of acquisition | 2,502 | 1,094 | 974 | 264 | 94 | 76 | ||||||||||||||||||
Depreciation/impairment | (1,405 | ) | (497 | ) | (689 | ) | (176 | ) | — | (43 | ) | |||||||||||||
Book value | 1,097 | 597 | 285 | 88 | 94 | 33 |
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Licenses, Software, | ||||||||||||
Know-how, and | ||||||||||||
Intellectual | ||||||||||||
Total | Goodwill | Property Rights | ||||||||||
Balance at January 1, 2005 | ||||||||||||
Cost | 251 | 46 | 205 | |||||||||
Amortization/impairment | (106 | ) | (14 | ) | (92 | ) | ||||||
Book value | 145 | 32 | 113 | |||||||||
Changes in book value | ||||||||||||
Acquisitions | 8 | — | 8 | |||||||||
Investments | 51 | — | 51 | |||||||||
Amortization | (22 | ) | — | (22 | ) | |||||||
Impairments | (20 | ) | (15 | ) | (5 | ) | ||||||
Changes in exchange rates | 2 | 2 | — | |||||||||
Total changes | 19 | (13 | ) | 32 | ||||||||
Balance at December 31, 2005 | ||||||||||||
Cost | 290 | 30 | 260 | |||||||||
Amortization/impairment | (126 | ) | (11 | ) | (115 | ) | ||||||
Book value | 164 | 19 | 145 | |||||||||
Changes in book value | ||||||||||||
Acquisitions | 2 | — | 2 | |||||||||
Investments | 8 | — | 8 | |||||||||
Amortization | (29 | ) | — | (29 | ) | |||||||
Impairment | — | — | — | |||||||||
Changes in exchange rates | — | — | — | |||||||||
Total changes | (19 | ) | — | (19 | ) | |||||||
Balance at December 31, 2006 | ||||||||||||
Cost | 299 | 30 | 269 | |||||||||
Amortization/impairment | (154 | ) | (11 | ) | (143 | ) | ||||||
Book value | 145 | 19 | 126 |
2006 | 2005 | 2004 | ||||||||||
Cost of sales | (13 | ) | (9 | ) | (4 | ) | ||||||
Selling and distribution expenses | (4 | ) | (7 | ) | (4 | ) | ||||||
Research and development costs | (11 | ) | (6 | ) | (4 | ) | ||||||
General and administrative expenses | (1 | ) | — | — | ||||||||
Other operating income/(expense) | — | (20 | ) | — | ||||||||
(29 | ) | (42 | ) | (12 | ) |
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Deferred | Investments | |||||||||||||||
Tax | in | Other | ||||||||||||||
Total | Assets | Associates | Investments | |||||||||||||
Balance at January 1, 2005 | 492 | 366 | 3 | 123 | ||||||||||||
Acquisitions/loans granted/investments | 35 | — | 3 | 32 | ||||||||||||
Divestures/repayments | (25 | ) | — | — | (25 | ) | ||||||||||
Amounts recognized as income/(expense) | (11 | ) | (13 | ) | 2 | — | ||||||||||
Fair value adjustments | 1 | — | — | 1 | ||||||||||||
Transfers from Akzo Nobel | 8 | 8 | — | — | ||||||||||||
Changes in exchange rates | 12 | 6 | — | 6 | ||||||||||||
Balance at December 31, 2005 | 512 | 367 | 8 | 137 | ||||||||||||
Acquisitions/loans granted/investments | 6 | — | 3 | 3 | ||||||||||||
Divestures/repayments | (15 | ) | — | — | (15 | ) | ||||||||||
Amounts recognized as income/(expense) | (57 | ) | (55 | ) | 2 | (4 | ) | |||||||||
Fair value adjustments | (1 | ) | — | — | (1 | ) | ||||||||||
Transfers from Akzo Nobel | (10 | ) | (13 | ) | — | 3 | ||||||||||
Changes in exchange rates | (23 | ) | (18 | ) | — | (5 | ) | |||||||||
Balance at December 31, 2006 | 412 | 281 | 13 | 118 |
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2006 | 2005 | 2006 | 2005 | 2006 | 2005 | |||||||||||||||||||
Assets | Assets | Liabilities | Liabilities | Net | Net | |||||||||||||||||||
Intangible assets | 26 | 61 | — | — | 26 | 61 | ||||||||||||||||||
Property, plant and equipment | 40 | 47 | (32 | ) | (35 | ) | 8 | 12 | ||||||||||||||||
Inventories | 120 | 114 | (22 | ) | (28 | ) | 98 | 86 | ||||||||||||||||
Trade and other receivables | 6 | 10 | (2 | ) | (2 | ) | 4 | 8 | ||||||||||||||||
Provisions: | ||||||||||||||||||||||||
— restructuring | 1 | — | — | — | 1 | — | ||||||||||||||||||
— other provisions | 86 | 133 | (1 | ) | (5 | ) | 85 | 128 | ||||||||||||||||
Other items | 21 | 23 | — | (9 | ) | 21 | 14 | |||||||||||||||||
Net operating loss carry-forwards | 13 | 22 | — | — | 13 | 22 | ||||||||||||||||||
Deferred tax assets/liabilities | 313 | 410 | (57 | ) | (79 | ) | 256 | 331 | ||||||||||||||||
Offsetting of tax | (32 | ) | (43 | ) | 32 | 43 | — | — | ||||||||||||||||
Net deferred tax assets/(liabilities) | 281 | 367 | (25 | ) | (36 | ) | 256 | 331 |
Balance | Changes in | Balance | ||||||||||||||||||
January 1, | Exchange | Recognized | December 31, | |||||||||||||||||
2005 | Rates | in Income | Other | 2005 | ||||||||||||||||
Intangible assets | 34 | — | 27 | — | 61 | |||||||||||||||
Property, plant and equipment | (7 | ) | 1 | 18 | — | 12 | ||||||||||||||
Inventories | 105 | — | (19 | ) | — | 86 | ||||||||||||||
Trade and other receivables | 4 | — | 4 | — | 8 | |||||||||||||||
Provisions: | ||||||||||||||||||||
— restructuring | 4 | — | (4 | ) | — | |||||||||||||||
— other provisions | 133 | 1 | (5 | ) | (1 | ) | 128 | |||||||||||||
Other items | 26 | 3 | (15 | ) | — | 14 | ||||||||||||||
Net operating loss carry-forwards | 33 | 1 | (12 | ) | — | 22 | ||||||||||||||
Net deferred tax assets/(liabilities) | 332 | 6 | (6 | ) | (1 | ) | 331 |
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Balance | Changes in | Balance | ||||||||||||||||||
January 1, | Exchange | Recognized | December 31, | |||||||||||||||||
2006 | Rates | in Income | Other | 2006 | ||||||||||||||||
Intangible assets | 61 | (4 | ) | (31 | ) | — | 26 | |||||||||||||
Property, plant and equipment | 12 | (5 | ) | 1 | — | 8 | ||||||||||||||
Inventories | 86 | — | 12 | — | 98 | |||||||||||||||
Trade and other receivables | 8 | — | (4 | ) | — | 4 | ||||||||||||||
Provisions: | ||||||||||||||||||||
— restructuring | — | — | 1 | — | 1 | |||||||||||||||
— other provisions | 128 | (5 | ) | (37 | ) | (1 | ) | 85 | ||||||||||||
Other items | 14 | (1 | ) | 8 | — | 21 | ||||||||||||||
Net operating loss carry-forwards | 22 | (1 | ) | (8 | ) | — | 13 | |||||||||||||
Net deferred tax assets/(liabilities) | 331 | (16 | ) | (58 | ) | (1 | ) | 256 |
2006 | 2005 | |||||||
Deferred tax assets | 281 | 367 | ||||||
Deferred tax liabilities | (25 | ) | (36 | ) | ||||
256 | 331 |
Country of | ||||||
Legal Entity | Incorporation | Ownership | ||||
South Egypt Drug Industries Co. (Sedico) | Egypt | 22 | % | |||
BioConnection B.V. | The Netherlands | 41 | % |
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2006 | 2005 | 2004 | ||||||||||
Net revenues | 51 | 43 | 30 | |||||||||
Income before taxes | 11 | 9 | 3 | |||||||||
Net income | 8 | 7 | 3 | |||||||||
Share of net income recognized in the combined statements of income | 2 | 2 | 1 | |||||||||
Current assets | 47 | 47 | ||||||||||
Non-current assets | 15 | — | ||||||||||
Total assets | 62 | 47 | ||||||||||
Current liabilities | 18 | 6 | ||||||||||
Non-current liabilities | 8 | 13 | ||||||||||
Shareholders’ equity | 36 | 28 | ||||||||||
Total liabilities and equity | 62 | 47 | ||||||||||
Investments in associates included in the combined balance sheets | 13 | 8 |
2006 | 2005 | |||||||
Raw materials and supplies | 191 | 291 | ||||||
Semi-finished goods | 425 | 329 | ||||||
Finished products and goods for resale | 235 | 241 | ||||||
851 | 861 |
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2006 | 2005 | |||||||
Trade receivables | 589 | 611 | ||||||
Prepaid expenses | 33 | 29 | ||||||
Other receivables | 113 | 126 | ||||||
735 | 766 |
2006 | 2005 | |||||||
Short-term investments | 164 | 12 | ||||||
Cash on hand and in banks | 75 | 47 | ||||||
239 | 59 |
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Weighted Average | American | Weighted Average | ||||||||||||||
Common | Exercise Price | Depositary | Exercise Price | |||||||||||||
Outstanding | Shares | in EUR | Shares | in USD | ||||||||||||
Balance at January 1, 2004 | 1,207,600 | 39.80 | 112,090 | 31.27 | ||||||||||||
Options granted | 220,080 | 31.45 | 66,400 | 37.28 | ||||||||||||
Options forfeited | (225,339 | ) | 40.15 | (12,870 | ) | 26.89 | ||||||||||
Balance at December 31, 2004 | 1,202,341 | 38.21 | 165,620 | 34.02 | ||||||||||||
Options granted | 257,523 | 31.98 | — | — | ||||||||||||
Options forfeited | (242,785 | ) | 43.27 | (7,600 | ) | 31.60 | ||||||||||
Balance at December 31, 2005 | 1,217,079 | 35.88 | 158,020 | 34.14 | ||||||||||||
Options granted | 231,270 | 46.46 | — | — | ||||||||||||
Options exercised | (236,640 | ) | 35.31 | (59,880 | ) | 33.17 | ||||||||||
Options forfeited | (112,050 | ) | 44.91 | (9,060 | ) | 37.14 | ||||||||||
Balance at December 31, 2006 | 1,099,659 | 37.31 | 89,080 | 34.49 |
Performance | ||||
Share Plan | ||||
(Executives and Board | ||||
Outstanding | of Management) | |||
Balance at January 1, 2004 | — | |||
Granted | 22,000 | |||
Balance at December 31, 2004 | 22,000 | |||
Granted | 382,202 | |||
Forfeited | (5,963 | ) | ||
Accreted dividend | 15,402 | |||
Balance at December 31, 2005 | 413,641 | |||
Granted | 266,635 | |||
Forfeited | (14,363 | ) | ||
Accreted dividend | 30,989 | |||
Balance at December 31, 2006 | 696,902 |
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Table of Contents
Common Shares, | American Depository | |||||||||||||||
in EUR | Shares, in USD | |||||||||||||||
2006 | 2005 | 2004 | 2004 | |||||||||||||
Fair value at measurement date | 9.97 | 7.45 | 7.94 | 8.48 | ||||||||||||
Share price at measurement date | 46.46 | 31.98 | 31.45 | 37.25 | ||||||||||||
Exercise price | 46.46 | 31.98 | 31.45 | 37.25 | ||||||||||||
Expected share price volatility (%) | 24.8 | 33.4 | 35.2 | 32.7 | ||||||||||||
Expected option life (years) | 5 | 5 | 5 | 5 | ||||||||||||
Expected dividend yield (%) | 2.74 | 4.4 | 4.1 | 4.1 | ||||||||||||
Risk free interest rate (%) | 3.92 | 3.25 | 3.2 | 2.8 |
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Table of Contents
Pensions and | ||||||||||||||||
Other | ||||||||||||||||
Postretirement | Restructuring of | |||||||||||||||
Total | Benefits | Activities | Other | |||||||||||||
Balance at January 1, 2005 | 536 | 417 | 8 | 111 | ||||||||||||
Additions made during the year | 49 | 11 | 7 | 31 | ||||||||||||
Utilization | (261 | ) | (152 | ) | (10 | ) | (99 | ) | ||||||||
Amounts reversed during the year | (5 | ) | — | (1 | ) | (4 | ) | |||||||||
Transfers from Akzo Nobel | 12 | 12 | — | — | ||||||||||||
Unwind of discount | 1 | — | — | 1 | ||||||||||||
Changes in exchange rates | 22 | 16 | 1 | 5 | ||||||||||||
Balance at December 31, 2005 | 354 | 304 | 5 | 45 | ||||||||||||
Additions made during the year | 48 | 13 | 11 | 24 | ||||||||||||
Utilization | (91 | ) | (63 | ) | (9 | ) | (19 | ) | ||||||||
Amounts reversed during the year | (6 | ) | — | (1 | ) | (5 | ) | |||||||||
Transfers from Akzo Nobel | 18 | 18 | — | — | ||||||||||||
Changes in exchange rates | (11 | ) | (9 | ) | — | (2 | ) | |||||||||
Balance at December 31, 2006 | 312 | 263 | 6 | 43 | ||||||||||||
F-38
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F-39
Table of Contents
Pensions | Other Postretirement Benefits | |||||||||||||||
Asset/(liability) | 2006 | 2005 | 2006 | 2005 | ||||||||||||
Defined benefit obligation (DBO) | ||||||||||||||||
Balance at beginning of year | (644 | ) | (1,513 | ) | (87 | ) | (89 | ) | ||||||||
Acquisitions/divestments | — | — | — | — | ||||||||||||
Settlements/curtailments | 13 | 1,086 | 16 | 29 | ||||||||||||
Service costs | (31 | ) | (99 | ) | (5 | ) | (7 | ) | ||||||||
Contribution by employees | (2 | ) | (10 | ) | — | — | ||||||||||
Interest costs | (26 | ) | (61 | ) | (4 | ) | (5 | ) | ||||||||
Other | — | 2 | — | — | ||||||||||||
Plan amendments | — | — | 9 | — | ||||||||||||
Benefits paid | 33 | 46 | 6 | 2 | ||||||||||||
Actuarial gains and losses | 14 | (74 | ) | 10 | (7 | ) | ||||||||||
Changes in exchange rates | 13 | (21 | ) | 7 | (10 | ) | ||||||||||
Balance at end of year | (630 | ) | (644 | ) | (48 | ) | (87 | ) | ||||||||
Plan assets | ||||||||||||||||
Balance at beginning of year | 362 | 1,162 | — | — | ||||||||||||
Acquisitions/divestments | — | — | — | |||||||||||||
Settlements | (1 | ) | (1,059 | ) | — | — | ||||||||||
Contribution by employer | 46 | 123 | 4 | 1 | ||||||||||||
Contribution by employees | 2 | 10 | — | — | ||||||||||||
Benefits paid | (33 | ) | (46 | ) | (6 | ) | — | |||||||||
Actual return on plan assets | 34 | 152 | 2 | (1 | ) | |||||||||||
Other | — | 5 | — | — | ||||||||||||
Changes in exchange rates | (12 | ) | 15 | — | — | |||||||||||
Balance at end of year | 398 | 362 | — | — | ||||||||||||
Funded status | (232 | ) | (282 | ) | (48 | ) | (87 | ) | ||||||||
Unrecognized net loss/(gain) | 32 | 60 | — | 16 | ||||||||||||
Unrecognized prior service costs | — | — | (6 | ) | — | |||||||||||
Medicare receivable | — | — | (9 | ) | (11 | ) | ||||||||||
Net balance provisions | (200 | ) | (222 | ) | (63 | ) | (82 | ) |
2006 | 2005 | |||||||
Wholly or partly funded plans | 553 | 564 | ||||||
Unfunded plans | 77 | 80 | ||||||
630 | 644 |
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Pensions | Other Postretirement Benefits | |||||||||||||||||||||||
Charge/(income) | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | ||||||||||||||||||
Service costs for benefits earned | 31 | 99 | 101 | 5 | 7 | 7 | ||||||||||||||||||
Interest costs on DBO | 26 | 61 | 66 | 4 | 5 | 5 | ||||||||||||||||||
Expected return on plan assets | (23 | ) | (72 | ) | (67 | ) | — | — | — | |||||||||||||||
Amortization of unrecognized losses | 1 | 3 | 3 | (2 | ) | — | — | |||||||||||||||||
Settlements/curtailments | (12 | ) | (59 | ) | — | (17 | ) | (33 | ) | — | ||||||||||||||
23 | 32 | 103 | (10 | ) | (21 | ) | 12 |
Pensions | Other Postretirement Benefits | |||||||||||||||||||||||
Percentage | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | ||||||||||||||||||
Pension benefit obligation December 31 | ||||||||||||||||||||||||
— discount rate | 4.8 | 4.5 | 4.7 | 5.7 | 5.4 | 5.4 | ||||||||||||||||||
— rate of compensation increase | 4.3 | 4.0 | 3.1 | 5.0 | 4.9 | 4.2 | ||||||||||||||||||
Net periodic pension costs | ||||||||||||||||||||||||
— discount rate | 4.5 | 4.7 | 5.3 | 5.4 | 5.4 | 5.9 | ||||||||||||||||||
— rate on compensation increase | 4.0 | 3.0 | 3.1 | 4.9 | 4.2 | 4.1 | ||||||||||||||||||
— expected return on plan assets | 6.5 | 6.7 | 6.7 |
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Actual | ||||||||||||
Target | Allocation at | |||||||||||
Allocation | December 31, | |||||||||||
Percentage | 2007 | 2006 | 2005 | |||||||||
Equity securities | 55-61 | 57 | 61 | |||||||||
Long-term interest earning investments | 32-38 | 32 | 31 | |||||||||
Real estate | 1-4 | 1 | 2 | |||||||||
Other | 0-6 | 10 | 6 | |||||||||
Total | 100 | 100 |
Percentage | 2006 | 2005 | 2004 | |||||||||
Assumed healthcare cost trend rates at December 31: | ||||||||||||
— healthcare cost trend assumed for next year | 11 | 9 | 6 | |||||||||
— rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 5 | 5 | 4 | |||||||||
— year that the rate reached the ultimate trend rate | 2013 | 2009 | 2009 |
1 Percentage | 1 Percentage | |||||||
Point Increase | Point Decrease | |||||||
Effect on total of service and interest cost | — | — | ||||||
Effect on postretirement benefit obligation | 1 | (2 | ) |
Other | ||||||||
Postretirement | ||||||||
Pensions | Benefits | |||||||
2007 | 29 | 3 | ||||||
2008 | 36 | 3 | ||||||
2009 | 32 | 3 | ||||||
2010 | 34 | 3 | ||||||
2011 | 37 | 3 | ||||||
2012-2016 | 174 | 20 |
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2006 | 2005 | |||||||
Non-current deferred income | — | 7 | ||||||
Current deferred income | 10 | 31 | ||||||
10 | 38 |
2006 | 2005 | |||||||
Debt to credit institutions | 6 | 13 | ||||||
Other borrowings | 39 | 46 | ||||||
45 | 59 |
2007-2011 | After 2011 | |||||||
Debt to credit institutions | 1 | 5 | ||||||
Other borrowings | 36 | 3 | ||||||
37 | 8 |
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Minimum Lease | ||||||||||||
Payments | Interest | Principal | ||||||||||
Next year | 6 | 1 | 5 | |||||||||
Between 1 and 5 years | 10 | — | 10 | |||||||||
More than 5 years | — | — | — | |||||||||
16 | 1 | 15 |
2006 | 2005 | |||||||
Debt to credit institutions | 75 | 90 | ||||||
Current portion of borrowings | 37 | 34 | ||||||
112 | 124 |
2006 | 2005 | |||||||
Suppliers | 183 | 178 | ||||||
Prepayments by customers | 11 | 17 | ||||||
Taxes and social security contributions | 51 | 47 | ||||||
Amounts payable to employees | 160 | 137 | ||||||
Bonuses and discounts to customers | 62 | 44 | ||||||
Other accrued expenses | 30 | 30 | ||||||
Fair value derivatives | — | 1 | ||||||
Other liabilities | 114 | 99 | ||||||
Total trade and other payables | 611 | 553 |
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For the Year Ended December 31, | ||||||||
2006 | 2005 | |||||||
IFRS profit for the period attributable to equity holders of OBS Group | 393 | 566 | ||||||
US GAAP adjustments: | ||||||||
(a) Business combinations | 1 | 1 | ||||||
(b) Pensions and other postretirement benefits | (32 | ) | (71 | ) | ||||
(c) Impairment of goodwill | — | 15 | ||||||
(d) Research and development | 5 | (26 | ) | |||||
(e) Subsequent events | 132 | (39 | ) | |||||
(f) Tax on elimination of intercompany profits | 3 | (7 | ) | |||||
(g) Deferred income taxes | 11 | 31 | ||||||
Total US GAAP adjustments | 120 | (96 | ) | |||||
Net income, as reported under US GAAP | 513 | 470 | ||||||
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As of December 31, | ||||||||
2006 | 2005 | |||||||
Invested equity, as reported under IFRS | 2,311 | 2,186 | ||||||
Less: minority interests, as reported under IFRS | — | (1 | ) | |||||
Invested equity excluding minority interests, as reported under IFRS | 2,311 | 2,185 | ||||||
US GAAP adjustments: | ||||||||
(a) Business combinations | 361 | 363 | ||||||
(b) Pensions and other postretirement benefits | 33 | 103 | ||||||
(c) Impairment of goodwill | 15 | 15 | ||||||
(d) Research and development | (27 | ) | (32 | ) | ||||
(e) Subsequent events | (15 | ) | (138 | ) | ||||
(f) Tax on elimination of intercompany profits | (37 | ) | (40 | ) | ||||
(g) Deferred income taxes | 2 | (21 | ) | |||||
Total US GAAP adjustments | 332 | 250 | ||||||
Invested equity, as determined under US GAAP | 2,643 | 2,435 | ||||||
(a) | Business combinations |
For the Year Ended | ||||||||||||||||
December 31, | As of December 31, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
US GAAP adjustments: | ||||||||||||||||
(1) Acquired in-process research and development | 1 | 1 | (5 | ) | (6 | ) | ||||||||||
(2) Application of IFRS 1 | — | — | 366 | 369 | ||||||||||||
Total US GAAP adjustments | 1 | 1 | 361 | 363 | ||||||||||||
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(b) | Pensions and other postretirement benefits |
For the Year Ended | ||||||||||||||||
December 31, | As of December 31, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
US GAAP adjustments: | ||||||||||||||||
(1) Definition of defined contribution plan | (10 | ) | (68 | ) | 94 | 159 | ||||||||||
(2) Additional minimum pension liability | — | — | — | (74 | ) | |||||||||||
(3) Application of IFRS 1 and other differences | (22 | ) | (3 | ) | (61 | ) | 18 | |||||||||
Total US GAAP adjustments | (32 | ) | (71 | ) | 33 | 103 | ||||||||||
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(c) | Impairment of goodwill |
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(d) | Research and development |
(e) | Subsequent events |
For the Year Ended | ||||||||||||||||
December 31, | As of December 31, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
US GAAP adjustments: | ||||||||||||||||
(1) Subsequent events other than taxes | (4 | ) | (7 | ) | 4 | 8 | ||||||||||
(2) Subsequent events — tax-related | 136 | (32 | ) | (19 | ) | (146 | ) | |||||||||
Total US GAAP adjustments | 132 | (39 | ) | (15 | ) | (138 | ) | |||||||||
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(f) | Tax on the elimination of intercompany profits |
(g) | Deferred income taxes |
For the Years Ended | ||||||||||||||||
December 31, | As of December 31, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
US GAAP adjustments: | ||||||||||||||||
(1) Deferred tax on in-process research and development | — | — | 1 | 2 | ||||||||||||
(2) Other deferred income tax impacts | 11 | 31 | 1 | (23 | ) | |||||||||||
Total US GAAP adjustments | 11 | 31 | 2 | (21 | ) | |||||||||||
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(h) | Other presentation differences |
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For the Six Months | ||||||||||||
Ended June 30, | ||||||||||||
Note | 2007 | 2006 | ||||||||||
Revenues | 1,859 | 1,870 | ||||||||||
Cost of sales | (561 | ) | (580 | ) | ||||||||
Gross profit | 1,298 | 1,290 | ||||||||||
Selling and distribution expenses | (557 | ) | (571 | ) | ||||||||
Research and development expenses | (307 | ) | (316 | ) | ||||||||
General and administrative expenses | (114 | ) | (127 | ) | ||||||||
Other operating (expense)/income | 5 | 3 | 7 | |||||||||
Operating income | 323 | 283 | ||||||||||
Financial expense | 6 | (27 | ) | (19 | ) | |||||||
Financial income | 6 | 6 | 1 | |||||||||
(21 | ) | (18 | ) | |||||||||
Operating income less net financing costs | 302 | 265 | ||||||||||
Share of profit of associates | 1 | — | ||||||||||
Profit before tax | 303 | 265 | ||||||||||
Income tax expense | 7 | (80 | ) | (72 | ) | |||||||
Profit for the period | 223 | 193 | ||||||||||
Attributable to: | ||||||||||||
Equity holders of the OBS Group | 223 | 193 | ||||||||||
Minority interest | — | — | ||||||||||
Profit for the period | 223 | 193 | ||||||||||
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As of June 30, | As of December 31, | |||||||||||||||||||
Note | 2007 | 2006 | ||||||||||||||||||
ASSETS | ||||||||||||||||||||
Property, plant and equipment, net | 1,109 | 1,097 | ||||||||||||||||||
Intangible assets, net | 156 | 145 | ||||||||||||||||||
Financial non-current assets: | ||||||||||||||||||||
— deferred tax assets | 7 | 282 | 281 | |||||||||||||||||
— investments in associates | 13 | 13 | ||||||||||||||||||
— other investments | 116 | 118 | ||||||||||||||||||
411 | 412 | |||||||||||||||||||
Total non-current assets | 1,676 | 1,654 | ||||||||||||||||||
Inventories, net | 8 | 874 | 851 | |||||||||||||||||
Income tax receivable | 26 | 74 | ||||||||||||||||||
Receivables from related parties, net | 3 | 377 | 11 | |||||||||||||||||
Trade and other receivables, net | 9 | 784 | 735 | |||||||||||||||||
Cash and cash equivalents | 114 | 239 | ||||||||||||||||||
Total current assets | 2,175 | 1,910 | ||||||||||||||||||
Total assets | 3,851 | 3,564 | ||||||||||||||||||
Invested Equity | ||||||||||||||||||||
Owners’ net investment (including cumulative translation reserves) | 10 | 1,423 | 2,311 | |||||||||||||||||
Minority interest | — | — | ||||||||||||||||||
Total invested equity | 1,423 | 2,311 | ||||||||||||||||||
LIABILITIES | ||||||||||||||||||||
Borrowings | 14 | 56 | 45 | |||||||||||||||||
Deferred tax liabilities | 7 | 26 | 25 | |||||||||||||||||
Provisions | 12 | 280 | 267 | |||||||||||||||||
Total non-current liabilities | 362 | 337 | ||||||||||||||||||
Borrowings | 15 | 138 | 112 | |||||||||||||||||
Deferred income | 13 | — | 10 | |||||||||||||||||
Income tax payable | 131 | 133 | ||||||||||||||||||
Payables to related parties | 3 | 1,163 | 5 | |||||||||||||||||
Trade and other payables | 596 | 611 | ||||||||||||||||||
Provisions | 12 | 38 | 45 | |||||||||||||||||
Total current liabilities | 2,066 | 916 | ||||||||||||||||||
Total liabilities | 2,428 | 1,253 | ||||||||||||||||||
Total invested equity and liabilities | 3,851 | 3,564 | ||||||||||||||||||
interim financial statements.
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For the Six Months Ended June 30, | ||||||||||||||||
2007 | 2006 | |||||||||||||||
Profit for the period | 223 | 193 | ||||||||||||||
Adjustments to reconcile earnings to cash generated from operating activities: | ||||||||||||||||
Depreciation and amortization | 89 | 92 | ||||||||||||||
Gains on divestments | (7 | ) | ||||||||||||||
Share of profits of associates | (1 | ) | — | |||||||||||||
Changes in deferred taxes (non-cash recognized in income) | (2 | ) | (1 | ) | ||||||||||||
Provisions expense (non-cash recognized in income) | 5 | 30 | ||||||||||||||
Interest expense funded by Akzo Nobel | — | 15 | ||||||||||||||
Corporate overhead costs funded by Akzo Nobel | — | 14 | ||||||||||||||
Insurance expense funded by Akzo Nobel | — | 14 | ||||||||||||||
Share-based payment costs funded by Akzo Nobel | 3 | 2 | ||||||||||||||
Other | 2 | 1 | ||||||||||||||
Operating cash flows before changes in working capital and provisions | ||||||||||||||||
(Increase) in trade and other receivables | (32 | ) | (82 | ) | ||||||||||||
(Increase)/decrease in inventories | (20 | ) | (34 | ) | ||||||||||||
(Increase)/decrease in other non-current assets | 2 | 14 | ||||||||||||||
Increase/(decrease) in trade and other payables and provisions | (5 | ) | 15 | |||||||||||||
Increase/(decrease) income tax payable and receivable, net | 77 | 19 | ||||||||||||||
Cash generated from operating activities | 341 | 285 | ||||||||||||||
Purchase of intangible assets | (27 | ) | (4 | ) | ||||||||||||
Purchase of property, plant and equipment | (94 | ) | (62 | ) | ||||||||||||
Proceeds from sale of interests | — | 8 | ||||||||||||||
Investments in associates and repayments of loans by associates | (3 | ) | ||||||||||||||
Net cash used in investing activities | (121 | ) | (61 | ) | ||||||||||||
Dividends paid to Akzo Nobel | ||||||||||||||||
Share premium repayment | (350 | ) | ||||||||||||||
Cash transfers (to)/from Akzo Nobel, net | (24 | ) | (225 | ) | ||||||||||||
Bank overdrafts | (8 | ) | ||||||||||||||
Increase in borrowings | 30 | 2 | ||||||||||||||
Net cash from financing activities | (344 | ) | (231 | ) | ||||||||||||
Net decrease in cash and cash equivalents | (124 | ) | (7 | ) | ||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (1 | ) | (2 | ) | ||||||||||||
Net decrease in cash and cash equivalents | (125 | ) | (9 | ) | ||||||||||||
Cash and cash equivalents at January 1 | 239 | 59 | ||||||||||||||
Cash and cash equivalents at June 30 | 114 | 50 | ||||||||||||||
condensed combined interim financial statements.
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UNAUDITED CONDENSED COMBINED INTERIM STATEMENTS
OF CHANGES IN INVESTED EQUITY
(Amounts in millions of euros)
Cumulative | ||||||||||||||||
Owners’ Net | Translation | Minority | Total Invested | |||||||||||||
Investment | Reserves | Interest | Equity | |||||||||||||
Balance as of January 1, 2006 | 2,139 | 46 | 1 | 2,186 | ||||||||||||
Changes in exchange rates in respect of foreign operations | (26 | ) | (1 | ) | (27 | ) | ||||||||||
Net income/(expense) recognized directly in equity | (26 | ) | (1 | ) | (27 | ) | ||||||||||
Profit for the period | 193 | 193 | ||||||||||||||
Total income/(expenses) | 193 | (26 | ) | (1 | ) | 166 | ||||||||||
Contributions attributed to: | ||||||||||||||||
— Share-based payment costs funded by Akzo Nobel | 2 | 2 | ||||||||||||||
— Interest expense funded by Akzo Nobel | 15 | 15 | ||||||||||||||
— Corporate overhead costs funded by Akzo Nobel | 14 | 14 | ||||||||||||||
— Insurance expense funded by Akzo Nobel | 14 | 14 | ||||||||||||||
— Tax transfers from Akzo Nobel, net | 50 | 50 | ||||||||||||||
— Employee benefits and other non-cash transfers, net | (3 | ) | (3 | ) | ||||||||||||
— Cash transfers to Akzo Nobel, net | (225 | ) | (225 | ) | ||||||||||||
Balance as of June 30, 2006 | 2,199 | 20 | — | 2,219 | ||||||||||||
Balance as of January 1, 2007 | 2,313 | (2 | ) | — | 2,311 | |||||||||||
Changes in exchange rates in respect of foreign operations | (3 | ) | (3 | ) | ||||||||||||
Net income/(expense) recognized directly in equity | (3 | ) | (3 | ) | ||||||||||||
Profit for the period | 223 | 223 | ||||||||||||||
Total income/(expenses) | 223 | (3 | ) | 220 | ||||||||||||
Share premium repayment | (350 | ) | (350 | ) | ||||||||||||
Contributions attributed to: | ||||||||||||||||
— Share-based payment costs funded by Akzo Nobel | 3 | 3 | ||||||||||||||
— Employee benefits and other non-cash transfers, net | (2 | ) | (2 | ) | ||||||||||||
— Cash transfers to Akzo Nobel, net | 1 | 1 | ||||||||||||||
— Non-cash transfers to Akzo Nobel, net | (760 | ) | (760 | ) | ||||||||||||
Balance as of June 30, 2007 | 1,428 | (5 | ) | 1,423 | ||||||||||||
condensed combined interim financial statements.
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Note 1 — | Business and Basis of Presentation |
Country of | ||||||
Legal Entity | Incorporation | Ownership | ||||
Organon BioSciences N.V. | The Netherlands | 100.00 | % | |||
Organon BioSciences Nederland B.V.(*) | The Netherlands | 100.00 | % | |||
Organon BioSciences International B.V. (**) | The Netherlands | 100.00 | % | |||
Intervet International B.V | The Netherlands | 100.00 | % | |||
Intervet Inc. | USA | 100.00 | % | |||
Intervet International GmbH | Germany | 100.00 | % | |||
Intervet UK Ltd | U.K. | 100.00 | % |
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Country of | ||||||
Legal Entity | Incorporation | Ownership | ||||
Laboratories Intervet S.A. | Spain | 100.00 | % | |||
Hydrochemie GmbH | Germany | 100.00 | % | |||
Intervet Australia Pty Ltd | Australia | 100.00 | % | |||
Intervet Deutschland GmbH | Germany | 100.00 | % | |||
Intervet Innovation GmbH | Germany | 100.00 | % | |||
Intervet do Brasil Veterinaria Ltda(***) | Brazil | 100.00 | % | |||
Intervet Mexico S.A. de CV | Mexico | 100.00 | % | |||
Intervet S.A. | France | 100.00 | % | |||
Intervet Productions S.A. | France | 100.00 | % | |||
Intervet Pharma R&D S.A. | France | 100.00 | %. | |||
Intervet (Italia) S.r.l | Italy | 100.00 | % | |||
Intervet UK Production Ltd | UK | 100.00 | % | |||
Intervet Holding B.V | The Netherlands | 100.00 | % | |||
Intervet Nederland B.V | The Netherlands | 100.00 | % | |||
Intervet KK | Japan | 100.00 | % | |||
Nobilon International B.V | The Netherlands | 100.00 | % | |||
N.V. Organon | The Netherlands | 100.00 | % | |||
Organon (Ireland) Ltd. (****) | Ireland | 100.00 | % | |||
Organon International Inc. | USA | 100.00 | % | |||
Organon USA Inc. | USA | 100.00 | % | |||
Organon S.A. | France | 100.00 | % | |||
Nippon Organon KK | Japan | 100.00 | % | |||
Organon GmbH | Germany | 100.00 | % | |||
Organon Laboratories Ltd. | UK | 100.00 | % | |||
Organon Espanola S.A. | Spain | 100.00 | % | |||
Organon Italia S.p.A. | Italy | 100.00 | % | |||
Organon do Brasil Indústria e Comercio Ltda | Brazil | 100.00 | % | |||
Organon Ilaclari A.S | Turkey | 100.00 | % | |||
Organon Holding B.V | The Netherlands | 100.00 | % | |||
Organon Nederland B.V | The Netherlands | 100.00 | % | |||
Organon Canada Ltd. | Canada | 100.00 | % | |||
Multilan AG | Switzerland | 100.00 | % | |||
Diosynth RTP Inc. | USA | 100.00 | % |
(*) | Formerly Akzo Nobel Pharma B.V. | |
(**) | Formerly Akzo Nobel Pharma International B.V. | |
(***) | Represent the Intervet division of Akzo Nobel Ltda, the combined financial statements only include those assets, liabilities, revenues, expenses and cash flows of this legal entity that pertain directly to healthcare activities. In June 2006 the Intervet division of this legal entity was incorporated in a separate entity (Intervet do Brasil Veterinaria Ltda), which is indirectly 100% owned by OBS N.V. The remaining business of Akzo Nobel Ltda is not related to healthcare activities and are not part of the spin-off healthcare activities. | |
(****) | Including Organon Ireland Swiss Branch |
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Note 2 — | Significant Accounting Policies |
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Combined Statements | ||||||||||||||||
Combined | of Income | |||||||||||||||
Balance Sheets | For the Six-Months | |||||||||||||||
June 30, | December 31, | Ended June 30, | ||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
USD | 1.345 | 1.317 | 1.328 | 1.229 | ||||||||||||
GBP | 0.672 | 0.671 | 0.675 | 0.689 | ||||||||||||
CHF | 1.657 | 1.607 | 1.635 | 1.567 |
Note 3 — | Related Parties |
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Note 4 — | Segment Information |
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For the Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
Share of | ||||||||||||||||||||||||||||||||||||||||
Revenues from | Group | Operating | Profit of | Depreciation | ||||||||||||||||||||||||||||||||||||
Third Parties | Revenues | Income | Associates | and Amortization | ||||||||||||||||||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||||||||||||
Organon | 1,253 | 1,308 | 1,267 | 1,321 | 195 | 174 | 1 | — | 59 | 63 | ||||||||||||||||||||||||||||||
Intervet | 606 | 562 | 606 | 562 | 128 | 109 | — | 30 | 29 | |||||||||||||||||||||||||||||||
1,859 | 1,870 | 1,873 | 1,883 | 323 | 283 | 1 | 89 | 92 | ||||||||||||||||||||||||||||||||
Inter-segment revenues | (14 | ) | (13 | ) | ||||||||||||||||||||||||||||||||||||
1,859 | 1,870 |
Note 5 — | Other Operating (Expense) Income |
For the | ||||||||
Six Months | ||||||||
Ended June 30, | ||||||||
2007 | 2006 | |||||||
Results on sale of redundant assets | 1 | — | ||||||
Currency exchange differences | 1 | 1 | ||||||
impairment charges | — | — | ||||||
Legal charges | — | — | ||||||
Results on divestments | — | 6 | ||||||
Other income/(expense) | 1 | — | ||||||
3 | 7 |
Note 6 — | Financial Expense and Income |
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2007 | 2006 | |||||||
For the six months ended June 30, | ||||||||
Financial expenses | ||||||||
Interest expense — related parties | (22 | ) | (15 | ) | ||||
Interest expenses — other | (5 | ) | (4 | ) | ||||
Financial income | ||||||||
Interest income — related parties | 3 | — | ||||||
Interest income — other | 3 | 1 | ||||||
(21 | ) | (18 | ) |
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Note 7 — | Taxes |
2007 | 2006 | |||||||
For the six months ended June 30, | ||||||||
Tax on operating income less financing costs | (80 | ) | (72 | ) | ||||
Tax associates | — | — | ||||||
(80 | ) | (72 | ) |
2007 | 2006 | |||||||||||||||
For the six months ended June 30, | ||||||||||||||||
Current tax: | ||||||||||||||||
— for the six month period | (82 | ) | (71 | ) | ||||||||||||
— adjustments for prior periods | — | (2 | ) | |||||||||||||
(82 | ) | (73 | ) | |||||||||||||
Deferred tax: | ||||||||||||||||
— origination and reversal of temporary differences | 2 | 1 | ||||||||||||||
— tax losses not recognized | — | — | ||||||||||||||
2 | 1 | |||||||||||||||
(80 | ) | (72 | ) | |||||||||||||
2007 | 2006 | |||||||
For the six months ended June 30, | ||||||||
Statutory tax rate in The Netherlands | 26 | % | 30 | % | ||||
Effect of different rates in foreign countries | — | (2 | )% | |||||
Adjustments for prior years | — | (1 | )% | |||||
26 | % | 27 | % |
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Balance | Changes in | Balance | ||||||||||||||||||
December 31, | Exchange | Recognized | June 30, | |||||||||||||||||
2006 | Rates | in Income | Other | 2007 | ||||||||||||||||
Intangible assets | 26 | — | (1 | ) | — | 25 | ||||||||||||||
Property, plant and equipment | 8 | (1 | ) | (2 | ) | — | 5 | |||||||||||||
Inventories | 98 | — | — | — | 98 | |||||||||||||||
Trade and other receivables | 4 | — | — | — | 4 | |||||||||||||||
Provisions: | ||||||||||||||||||||
— restructuring | 1 | — | (1 | ) | — | — | ||||||||||||||
— other provisions | 85 | (1 | ) | 11 | 95 | |||||||||||||||
Other items | 21 | (5 | ) | — | 16 | |||||||||||||||
Net operating loss carry-forwards | 13 | — | — | — | 13 | |||||||||||||||
Net deferred tax asset/liabilities | 256 | (2 | ) | 2 | 256 |
Balance | Changes in | Balance | ||||||||||||||||||
December 31, | Exchange | Recognized | June 30, | |||||||||||||||||
2005 | Rates | in Income | Other | 2006 | ||||||||||||||||
Intangible assets | 61 | (3 | ) | (19 | ) | — | 39 | |||||||||||||
Property, plant and equipment | 12 | (2 | ) | 8 | — | 18 | ||||||||||||||
Inventories | 86 | 20 | 106 | |||||||||||||||||
Trade and other receivables | 8 | 8 | ||||||||||||||||||
Provisions: | ||||||||||||||||||||
— restructuring | — | |||||||||||||||||||
— other provisions | 128 | (2 | ) | (13 | ) | (1 | ) | 112 | ||||||||||||
Other items | 14 | (2 | ) | 14 | — | 26 | ||||||||||||||
Net operating loss carry-forwards | 22 | (1 | ) | (9 | ) | 12 | ||||||||||||||
Net deferred tax asset/liabilities | 331 | (10 | ) | 1 | (1 | ) | 321 |
June 30, | December 31, | |||||||
2007 | 2006 | |||||||
Deferred tax assets | 282 | 281 | ||||||
Deferred tax liabilities | (26 | ) | (25 | ) | ||||
256 | 256 |
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Note 9 — | Trade and Other Receivables, net |
Note 10 — | Invested Equity |
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American | ||||||||
Common | Depository | |||||||
Outstanding | Shares | Shares | ||||||
Balance at December 31, 2005 | 1,217,079 | 158,020 | ||||||
Options granted | 230,645 | — | ||||||
Options exercised | (223,340 | ) | (56,760 | ) | ||||
Options forfeited | (93,632 | ) | (3,640 | ) | ||||
Balance at June 30, 2006 | 1,130,752 | 97,620 | ||||||
Balance at December 31, 2006 | 1,099,659 | 89,080 | ||||||
Options exercised | (446,451 | ) | (64,140 | ) | ||||
Options forfeited | (19,170 | ) | — | |||||
Balance at June 30, 2007 | 634,038 | 24,940 |
Performance | ||||
Share Plan | ||||
(Executives and Board | ||||
Outstanding | of Management) | |||
Balance at June 30, 2006 | 686,553 | |||
Balance at June 30, 2007 | 696,902 |
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2006 | ||||
Fair value at measurement date | 9.86 | |||
Share price at measurement date | 46.46 | |||
Exercise price | 46.46 | |||
Expected share price volatility (%) | 24.8 | |||
Expected option life (years) | 5 | |||
Expected dividend yield (%) | 2.74 | |||
Risk free interest rate (%) | 3.92 |
Note 12 — | Provisions |
2007 | 2006 | |||||||
Pensions and other postretirement benefits | 266 | 263 | ||||||
Restructuring of activities | 4 | 6 | ||||||
Other | 48 | 43 | ||||||
318 | 312 |
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Note 13 — | Deferred Income |
Note 14 — | Borrowings (Non-current) |
June 30, | December 31, | |||||||
2007 | 2006 | |||||||
Debt to credit institutions | 5 | 6 | ||||||
Other borrowings | 51 | 39 | ||||||
56 | 45 |
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Note 15 — | Borrowings (Current) |
June 30, | December, 31, | |||||||
2007 | 2006 | |||||||
Debt to credit institutions | 107 | 75 | ||||||
Current portion of borrowings | 31 | 37 | ||||||
138 | 112 |
Note 16 — | Financial Instruments |
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Note 17 — | Contingent Liabilities and Commitments |
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Note 18 — | Cash Flow Information |
Note 19 — | Accounting Estimates and Judgments |
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Note 20 — | Incorporation and Separation |
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Note 21 — | Application of Generally Accepted Accounting Principles in the United States of America |
For the Six Months Ended June 30, | ||||||||
2007 | 2006 | |||||||
IFRS profit for the period attributable to equity holders of the OBS Group | 223 | 193 | ||||||
US GAAP adjustments: | ||||||||
(a) Business combinations | — | — | ||||||
(b) Pensions and other postretirement benefits | 8 | (4 | ) | |||||
(c) Impairment of goodwill | — | — | ||||||
(d) Research and development | (20 | ) | 3 | |||||
(e) Subsequent events | 14 | 128 | ||||||
(f) Tax on elimination of intercompany profits | 2 | (2 | ) | |||||
(g) Deferred income taxes | 4 | (1 | ) | |||||
Total US GAAP adjustments | 8 | 124 | ||||||
Net income, as reported under US GAAP | 231 | 317 | ||||||
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As of | As of | |||||||
June 30, | December 31, | |||||||
2007 | 2006 | |||||||
Invested equity, as reported under IFRS | 1,423 | 2,311 | ||||||
Less: minority interests, as reported under IFRS | — | — | ||||||
Invested equity excluding minority interests, as reported under IFRS | 1,423 | 2,311 | ||||||
US GAAP adjustments: | ||||||||
(a) Business combinations | 361 | 361 | ||||||
(b) Pensions and other postretirement benefits | 47 | 33 | ||||||
(c) Impairment of goodwill | 15 | 15 | ||||||
(d) Research and development | (48 | ) | (27 | ) | ||||
(e) Subsequent events | — | (15 | ) | |||||
(f) Tax on elimination of intercompany profits | (35 | ) | (37 | ) | ||||
(g) Deferred income taxes | 6 | 2 | ||||||
Total US GAAP adjustments | 346 | 332 | ||||||
Invested equity, as determined under US GAAP | 1,769 | 2,643 | ||||||
(a) | Business combinations |
As of | As of | |||||||||||||||
For the Six Months Ended June 30, | June 30, | December 31, | ||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
US GAAP adjustments: | ||||||||||||||||
(1) Acquired in-process research and development | — | — | (5 | ) | (5 | ) | ||||||||||
(2) Application of IFRS 1 | — | — | 366 | 366 | ||||||||||||
Total US GAAP adjustments | — | — | 361 | 361 | ||||||||||||
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(b) | Pensions and other postretirement benefits |
For the | ||||||||||||||||
Six Months | As of | As of | ||||||||||||||
Ended June 30, | June 30, | December 31, | ||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
US GAAP adjustments: | ||||||||||||||||
(1) Definition of defined contribution plan | 7 | (2 | ) | 104 | 94 | |||||||||||
(2) Application of IFRS 1 and other differences | 1 | (2 | ) | (57 | ) | (61 | ) | |||||||||
Total US GAAP adjustments | 8 | (4 | ) | 47 | 33 | |||||||||||
(1) | Definition of defined contribution plan |
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(2) | Application of IFRS 1 and other difference |
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(c) | Impairment of goodwill |
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(d) | Research and development |
(e) | Subsequent events |
For the | ||||||||||||||||
Six Months | As of | As of | ||||||||||||||
Ended June 30, | June 30, | December 31, | ||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
US GAAP adjustments: | ||||||||||||||||
(1) Subsequent events other than taxes | (4 | ) | — | — | 4 | |||||||||||
(2) Subsequent events — tax-related | 18 | 128 | — | (19 | ) | |||||||||||
Total US GAAP adjustments | 14 | 128 | — | (15 | ) | |||||||||||
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(f) | Tax on the elimination of intercompany profits |
(g) | Deferred income taxes |
For the | ||||||||||||||||
Six Months | As of | As of | ||||||||||||||
Ended June 30, | June 30, | December 31, | ||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
US GAAP adjustments: | ||||||||||||||||
(1) Deferred tax on in-process research and development | — | — | 1 | 1 | ||||||||||||
(2) Other deferred income tax impacts | 4 | (1 | ) | 5 | 1 | |||||||||||
Total US GAAP adjustments | 4 | (1 | ) | 6 | 2 | |||||||||||
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(1) | Deferred income tax on in-process research and development |
(2) | Other deferred income tax impacts |
(h) | Other presentation differences |
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